UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form10-Q

~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)~~

~~OF THE SECURITIES EXCHANGE ACT OF 1934~~


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

For the quarterly period ended ~~September~~June 30, ~~2017~~

2020


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

Commission

File Number

Exact name of registrant as specified in its charter and

principal office address and telephone number

State of

Incorporation

I.R.S.

Employer Identification No.

001-37976

Southwest Gas Holdings, Inc.

~~California~~

Delaware

81-3881866

5241 Spring Mountain Road

Post Office Box 98510

Las Vegas,

Nevada

89193-8510

(702)

876-7237

1-7850

Southwest Gas Corporation

California

88-0085720

5241 Spring Mountain Road

Post Office Box 98510

Las Vegas,

Nevada

89193-8510

(702)

876-7237

Securities registered pursuant to Section 12(b) of the Act:

~~Post Office Box 98510~~

~~Las Vegas, Nevada 89193-8510~~

Title of each class

Trading Symbol

Name of each exchange on which registered

Southwest Gas Holdings, Inc. Common Stock, $1 Par Value

~~(702) 876-7237~~

~~1-7850~~

~~Southwest Gas Corporation~~

~~California~~

~~88-0085720~~

~~5241 Spring Mountain Road~~

SWX

~~Post Office Box 98510~~

~~Las Vegas, Nevada 89193-8510~~

~~(702) 876-7237~~

New York Stock Exchange

Indicate by check mark whether each ~~registrant~~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~~each registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether each 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 RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that ~~the~~each registrant was required to submit ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”~~“non-accelerated~~ “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule12b-2 of the Exchange Act.

Southwest Gas Holdings, Inc.:

Large accelerated filer

☒

Accelerated filer

☐

~~Large accelerated~~Non-accelerated filer

☒

☐

~~Accelerated filer~~

Smaller reporting company

☐

~~Non-accelerated filer~~

☐

~~Smaller reporting company~~

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Southwest Gas Corporation:

Large accelerated filer

☐

Accelerated filer

☐

~~Large accelerated~~Non-accelerated filer

☐

☒

~~Accelerated filer~~

Smaller reporting company

☐

~~Non-accelerated filer~~

☒

~~Smaller reporting company~~

☐

Emerging growth company

☐

��

Indicate by check mark whether each registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes ☐ No ☒

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

Southwest Gas Holdings, Inc. Common Stock, $1 Par Value, ~~47,731,840~~55,914,516 shares as of ~~October 27, 2017.~~

July 31, 2020.

All of the outstanding shares of common stock ($1 par value) of Southwest Gas Corporation were held by Southwest Gas Holdings, Inc. as of ~~January 1, 2017.~~

July 31, 2020.

SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OF FORM10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

FILING FORMAT

This quarterly report onForm 10-Q is a combined report being filed by two separate registrants: Southwest Gas Holdings, Inc. and Southwest Gas Corporation. Except where the content clearly indicates otherwise, any reference in the report to “we,” “us” or “our” is to the holding company or the consolidated entity of Southwest Gas Holdings, Inc. and all of its subsidiaries, including Southwest Gas Corporation, which is a distinct registrant that is a wholly owned subsidiary of Southwest Gas Holdings, Inc. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes representations only as to itself and makes no other representation whatsoever as to any other company.

Part I—Financial information in this Quarterly Report on Form10-Q includes separate financial statements (i.e., balance sheets, statements of income, statements of comprehensive income, statements of cash flows, and statements of ~~cash flows)~~equity) for Southwest Gas Holdings, Inc. and Southwest Gas Corporation, in that order. The Notes to the Condensed Consolidated Financial Statements are presented on a combined basis for both entities. All Items other than Part I – Item 1 are combined for the reporting companies.


			2


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars, except par value)

(Unaudited)

   SEPTEMBER 30,
2017 DECEMBER 31,
2016
ASSETS

Utility plant:

Gas plant
   $ 6,440,547 $ 6,193,564
Less: accumulated depreciation
   (2,218,796 ) (2,172,966 )
Acquisition adjustments, net
   81 196
Construction work in progress
   164,030 111,177


Net utility plant
   4,385,862 4,131,971


Other property and investments
   369,303 342,343


Current assets:

Cash and cash equivalents
   59,152 28,066
Accounts receivable, net of allowances
   301,792 285,145
Accrued utility revenue
   34,100 76,200
Income taxes receivable, net
   5,462 4,455
Deferred purchased gas costs
   6,230 2,608
Prepaids and other current assets
   132,182 136,833


Total current assets
   538,918 533,307


Noncurrent assets:

Goodwill
   147,865 139,983
Deferred income taxes
   1,467 1,288
Deferred charges and other assets
   411,655 432,234


Total noncurrent assets
   560,987 573,505


Total assets
   $ 5,855,070 $ 5,581,126


CAPITALIZATION AND LIABILITIES

Capitalization:

Common stock, $1 par (authorized—60,000,000 shares; issued and outstanding—47,731,840 and 47,482,068 shares)
   $ 49,362 $ 49,112
Additionalpaid-in capital
   924,213 903,123
Accumulated other comprehensive income (loss), net
   (42,818 ) (48,008 )
Retained earnings
   784,934 759,263


Total Southwest Gas Holdings, Inc. equity
   1,715,691 1,663,490
Noncontrolling interest
   (2,295 ) (2,217 )


Total equity
   1,713,396 1,661,273
Redeemable noncontrolling interest
   —   22,590
Long-term debt, less current maturities
   1,731,981 1,549,983


Total capitalization
   3,445,377 3,233,846


Current liabilities:

Current maturities of long-term debt
   28,453 50,101
Short-term debt
   110,500 —
Accounts payable
   159,382 184,669
Customer deposits
   70,162 72,296
Income taxes payable
   1,543 1,909
Accrued general taxes
   48,998 42,921
Accrued interest
   24,543 17,939
Deferred purchased gas costs
   14,971 90,476
Other current liabilities
   197,854 168,064


Total current liabilities
   656,406 628,375


Deferred income taxes and other credits:

Deferred income taxes and investment tax credits
   894,011 840,653
Accumulated removal costs
   312,000 308,000
Other deferred credits and other long-term liabilities
   547,276 570,252


Total deferred income taxes and other credits
   1,753,287 1,718,905


Total capitalization and liabilities
   $ 5,855,070 $ 5,581,126


	June 30, 2020		December 31, 2019
ASSETS
Utility plant:
Gas plant	$	8,086,597	$	7,813,221
Less: accumulated depreciation	(2,367,836)		(2,313,050)
Construction work in progress	217,616		185,026
Net utility plant	5,936,377		5,685,197
Other property and investments	809,111		784,173
Current assets:
Cash and cash equivalents	199,591		49,539
Accounts receivable, net of allowances	480,077		474,097
Accrued utility revenue	35,800		79,100
Income taxes receivable, net	4,077		31,751
Deferred purchased gas costs	—		44,412
Prepaid and other current assets	147,655		180,957
Total current assets	867,200		859,856
Noncurrent assets:
Goodwill	337,978		343,023
Deferred income taxes	632		856
Deferred charges and other assets	474,737		496,943
Total noncurrent assets	813,347		840,822
Total assets	$	8,426,035	$	8,170,048
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 55,909,903 and 55,007,433 shares)	$	57,540	$	56,637
Additional paid-in capital	1,523,630		1,466,937
Accumulated other comprehensive loss, net	(55,617)		(56,732)
Retained earnings	1,085,742		1,039,072
Total equity	2,611,295		2,505,914
Redeemable noncontrolling interest	86,921		84,542
Long-term debt, less current maturities	2,639,317		2,300,482
Total capitalization	5,337,533		4,890,938
Current liabilities:
Current maturities of long-term debt	171,668		163,512
Short-term debt	58,000		211,000
Accounts payable	189,373		238,921
Customer deposits	69,898		69,165
Income taxes payable, net	—		2,069
Accrued general taxes	48,220		48,160
Accrued interest	21,525		21,329
Deferred purchased gas costs	69,938		60,755
Other current liabilities	289,395		264,950
Total current liabilities	918,017		1,079,861
Deferred income taxes and other credits:
Deferred income taxes and investment tax credits, net	631,388		599,840
Accumulated removal costs	401,000		395,000
Other deferred credits and other long-term liabilities	1,138,097		1,204,409
Total deferred income taxes and other credits	2,170,485		2,199,249
Total capitalization and liabilities	$	8,426,035	$	8,170,048

The accompanying notes are an integral part of these statements.


			3


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)

   THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
   SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
   2017 2016 2017 2016 2017 2016
Operating revenues:

Gas operating revenues
   $ 213,059 $ 200,179 $ 935,823 $ 980,927 $ 1,276,308 $ 1,376,388
Construction revenues
   380,094 339,790 872,536 838,038 1,173,576 1,127,982


Total operating revenues
   593,153 539,969 1,808,359 1,818,965 2,449,884 2,504,370


Operating expenses:

Net cost of gas sold
   45,539 39,056 261,839 324,072 334,888 460,836
Operations and maintenance
   102,278 102,438 314,488 301,979 414,233 400,222
Depreciation and amortization
   58,529 69,845 189,089 217,764 260,457 286,977
Taxes other than income taxes
   14,046 12,480 43,325 39,480 56,221 51,810
Construction expenses
   342,629 300,611 806,586 757,919 1,073,090 1,009,188


Total operating expenses
   563,021 524,430 1,615,327 1,641,214 2,138,889 2,209,033


Operating income
   30,132 15,539 193,032 177,751 310,995 295,337


Other income and (expenses):

Net interest deductions
   (19,494 ) (18,158 ) (56,863 ) (54,100 ) (76,423 ) (71,884 )
Other income (deductions)
   2,876 2,565 8,788 6,756 11,501 10,861


Total other income and (expenses)
   (16,618 ) (15,593 ) (48,075 ) (47,344 ) (64,922 ) (61,023 )


Income (loss) before income taxes
   13,514 (54 ) 144,957 130,407 246,073 234,314
Income tax expense (benefit)
   3,094 (2,961 ) 47,411 43,046 82,833 80,255


Net income
   10,420 2,907 97,546 87,361 163,240 154,059
Net income attributable to noncontrolling interests
   216 435 170 500 684 1,079


Net income attributable to Southwest Gas Holdings, Inc.
   $ 10,204 $ 2,472 $ 97,376 $ 86,861 $ 162,556 $ 152,980


Basic earnings per share
   $ 0.21 $ 0.05 $ 2.05 $ 1.83 $ 3.42 $ 3.22


Diluted earnings per share
   $ 0.21 $ 0.05 $ 2.03 $ 1.82 $ 3.39 $ 3.20


Dividends declared per share
   $ 0.495 $ 0.450 $ 1.485 $ 1.350 $ 1.935 $ 1.755


Average number of common shares outstanding
   47,628 47,481 47,577 47,464 47,553 47,442
Average shares outstanding (assuming dilution)
   47,986 47,830 47,912 47,802 47,896 47,787


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Operating revenues:
Gas operating revenues	$	262,434	$	258,711	$	765,261	$	779,388	$	1,354,812	$	1,367,124
Utility infrastructure services revenues	494,813		454,300		828,306		767,162		1,812,122		1,634,226
Total operating revenues	757,247		713,011		1,593,567		1,546,550		3,166,934		3,001,350
Operating expenses:
Net cost of gas sold	67,473		65,182		228,294		257,786		355,672		407,976
Operations and maintenance	99,419		105,293		203,200		211,538		415,812		410,145
Depreciation and amortization	77,217		70,342		164,870		147,881		320,226		273,308
Taxes other than income taxes	15,342		15,126		31,720		31,332		62,716		61,307
Utility infrastructure services expenses	430,224		402,199		749,538		702,664		1,620,101		1,478,730
Total operating expenses	689,675		658,142		1,377,622		1,351,201		2,774,527		2,631,466
Operating income	67,572		54,869		215,945		195,349		392,407		369,884
Other income and (expenses):
Net interest deductions	(26,450)		(26,831)		(54,830)		(53,228)		(110,828)		(103,616)
Other income (deductions)	7,925		1,146		(12,845)		7,985		(10,745)		(2,401)
Total other income and (expenses)	(18,525)		(25,685)		(67,675)		(45,243)		(121,573)		(106,017)
Income before income taxes	49,047		29,184		148,270		150,106		270,834		263,867
Income tax expense	9,166		6,352		35,384		31,890		59,517		63,844
Net income	39,881		22,832		112,886		118,216		211,317		200,023
Net income attributable to noncontrolling interests	1,916		776		2,379		1,351		3,739		1,523
Net income attributable to Southwest Gas Holdings, Inc.	$	37,965	$	22,056	$	110,507	$	116,865	$	207,578	$	198,500
Earnings per share:
Basic	$	0.68	$	0.41	$	2.00	$	2.18	$	3.77	$	3.82
Diluted	$	0.68	$	0.41	$	1.99	$	2.18	$	3.76	$	3.82
Weighted average shares:
Basic	55,462		53,935		55,386		53,654		55,105		51,914
Diluted	55,532		54,003		55,448		53,716		55,171		51,977

The accompanying notes are an integral part of these statements.


			4


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)

   THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
   SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
   2017 2016 2017 2016 2017 2016
Net income
   $ 10,420 $ 2,907 $ 97,546 $ 87,361 $ 163,240 $ 154,059


Other comprehensive income (loss), net of tax

Defined benefit pension plans:

Net actuarial gain (loss)
   —   —   —   —   (14,118 ) (18,922 )
Amortization of prior service cost
   207 207 621 621 828 828
Amortization of net actuarial loss
   3,944 4,196 11,832 12,586 16,027 17,915
Regulatory adjustment
   (3,555 ) (3,796 ) (10,667 ) (11,388 ) (2,741 ) (404 )


Net defined benefit pension plans
   596 607 1,786 1,819 (4 ) (583 )


Forward-starting interest rate swaps:

Amounts reclassified into net income
   518 518 1,554 1,556 2,073 �� 2,073


Net forward-starting interest rate swaps
   518 518 1,554 1,556 2,073 2,073


Foreign currency translation adjustments
   1,012 (238 ) 1,861 614 1,408 233


Total other comprehensive income, net of tax
   2,126 887 5,201 3,989 3,477 1,723


Comprehensive income
   12,546 3,794 102,747 91,350 166,717 155,782
Comprehensive income attributable to noncontrolling interests
   198 427 181 521 679 1,089


Comprehensive income attributable to Southwest Gas Holdings, Inc.
   $ 12,348 $ 3,367 $ 102,566 $ 90,829 $ 166,038 $ 154,693


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Net income	$	39,881	$	22,832	$	112,886	$	118,216	$	211,317	$	200,023
Other comprehensive income (loss), net of tax
Defined benefit pension plans:
Net actuarial loss	—		—		—		—		(54,026)		(15,524)
Amortization of prior service cost	220		242		440		483		923		990
Amortization of net actuarial loss	7,187		4,441		14,375		8,883		23,258		21,658
Prior service cost	—		—		—		—		(1,426)		—
Regulatory adjustment	(6,380)		(4,064)		(12,760)		(8,128)		23,445		(2,895)
Net defined benefit pension plans	1,027		619		2,055		1,238		(7,826)		4,229
Forward-starting interest rate swaps (“FSIRS”):
Amounts reclassified into net income	635		636		1,271		1,271		2,541		2,541
Net forward-starting interest rate swaps	635		636		1,271		1,271		2,541		2,541
Foreign currency translation adjustments	1,794		787		(2,211)		1,578		(1,751)		169
Total other comprehensive income (loss), net of tax	3,456		2,042		1,115		4,087		(7,036)		6,939
Comprehensive income	43,337		24,874		114,001		122,303		204,281		206,962
Comprehensive income attributable to noncontrolling interests	1,916		776		2,379		1,351		3,739		1,523
Comprehensive income attributable to Southwest Gas Holdings, Inc.	$	41,421	$	24,098	$	111,622	$	120,952	$	200,542	$	205,439

The accompanying notes are an integral part of these statements.


			5


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)

   NINE MONTHS ENDED TWELVE MONTHS ENDED
   SEPTEMBER 30 SEPTEMBER 30
   2017 2016 2017 2016
CASH FLOW FROM OPERATING ACTIVITIES:

Net income
   $ 97,546 $ 87,361 $ 163,240 $ 154,059
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   189,089 217,764 260,457 286,977
Deferred income taxes
   49,409 43,702 74,439 86,526
Changes in current assets and liabilities:

Accounts receivable, net of allowances
   (15,330 ) 28,531 (13,765 ) (17,889 )
Accrued utility revenue
   42,100 41,700 (1,100 ) (800 )
Deferred purchased gas costs
   (79,127 ) 81,389 (114,658 ) 79,460
Accounts payable
   (26,771 ) (24,942 ) 19,866 10,445
Accrued taxes
   4,689 (7,055 ) 38,084 (11,033 )
Other current assets and liabilities
   43,044 12,022 3,590 22,034
Gains on sale
   (1,452 ) (4,117 ) (4,483 ) (4,200 )
Changes in undistributed stock compensation
   9,199 4,347 10,308 5,142
AFUDC
   (2,077 ) (1,893 ) (2,473 ) (2,890 )
Changes in other assets and deferred charges
   (14,470 ) 3,926 (1,436 ) 4,183
Changes in other liabilities and deferred credits
   3,395 (4,813 ) (10,239 ) 702


Net cash provided by operating activities
   299,244 477,922 421,830 612,716


CASH FLOW FROM INVESTING ACTIVITIES:

Construction expenditures and property additions
   (449,998 ) (404,388 ) (575,141 ) (555,819 )
Acquisition of businesses, net of cash acquired
   —   (17,000 ) —   (17,000 )
Changes in customer advances
   (1,951 ) 5,445 504 9,445
Miscellaneous inflows
   9,160 7,965 14,234 4,726


Net cash used in investing activities
   (442,789 ) (407,978 ) (560,403 ) (558,648 )


CASH FLOW FROM FINANCING ACTIVITIES:

Issuance of common stock, net
   11,563 530 11,505 507
Dividends paid
   (68,503 ) (61,950 ) (89,870 ) (81,138 )
Centuri distribution to redeemable noncontrolling interest
   (204 ) (99 ) (544 ) (198 )
Issuance of long-term debt, net
   104,308 408,946 119,308 420,946
Retirement of long-term debt
   (100,240 ) (196,351 ) (159,162 ) (240,999 )
Change in credit facility and commercial paper
   145,000 (150,000 ) 150,000 (97,000 )
Change in short-term debt
   110,500 (18,000 ) 110,500 —
Principal payments on capital lease obligations
   (796 ) (1,125 ) (1,025 ) (1,449 )
Redemption of Centuri shares from noncontrolling parties
   (23,000 ) —   (23,000 ) —
Withholding remittance—share-based compensation
   (3,176 ) (2,119 ) (3,176 ) (2,164 )
Other
   (1,104 ) (605 ) (2,068 ) (60 )


Net cash provided by (used in) financing activities
   174,348 (20,773 ) 112,468 (1,555 )


Effects of currency translation on cash and cash equivalents
   283 (14 ) 103 (318 )


Change in cash and cash equivalents
   31,086 49,157 (26,002 ) 52,195
Cash and cash equivalents at beginning of period
   28,066 35,997 85,154 32,959


Cash and cash equivalents at end of period
   $ 59,152 $ 85,154 $ 59,152 $ 85,154


Supplemental information:

Interest paid, net of amounts capitalized
   $ 45,771 $ 47,134 $ 66,077 $ 68,445
Income taxes paid (received)
   3,687 6,530 (21,875 ) 9,899


	Six Months Ended June 30,						Twelve Months Ended June 30,
	2020		2019		2020		2019
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	112,886	$	118,216	$	211,317	$	200,023
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	164,870		147,881		320,226		273,308
Deferred income taxes	31,121		31,831		53,452		49,554
Changes in current assets and liabilities:
Accounts receivable, net of allowances	(9,746)		(2,612)		(61,379)		(5,770)
Accrued utility revenue	43,300		42,300		(900)		(700)
Deferred purchased gas costs	53,595		(43,341)		38,445		5,128
Accounts payable	(47,198)		(48,155)		(908)		8,088
Accrued taxes	9,019		(2,272)		16,534		3,123
Other current assets and liabilities	78,538		54,988		97,687		17,721
Gains on sale of equipment	(309)		(831)		(4,951)		(2,284)
Changes in undistributed stock compensation	4,332		4,702		6,526		7,513
Equity AFUDC	(2,181)		(1,967)		(4,375)		(5,008)
Changes in deferred charges and other assets	(8,268)		(15,870)		(13,449)		(16,486)
Changes in other liabilities and deferred credits	(54,819)		(6,454)		(61,129)		26,040
Net cash provided by operating activities	375,140		278,416		597,096		560,250
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions	(423,435)		(471,578)		(890,005)		(898,481)
Acquisition of businesses, net of cash acquired	(250)		(19,533)		(28,355)		(266,697)
Changes in customer advances	4,098		9,483		13,616		14,788
Other	5,045		1,159		19,039		2,936
Net cash used in investing activities	(414,542)		(480,469)		(885,705)		(1,147,454)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net	55,498		102,743		110,701		388,006
Dividends paid	(61,445)		(56,738)		(120,834)		(107,993)

Issuance of long-term debt, net	620,303		421,594		730,305		531,368
Retirement of long-term debt	(117,536)		(53,604)		(277,721)		(190,586)
Change in credit facility and commercial paper	(150,000)		(104,000)		(46,000)		(2,000)
Change in short-term debt	(153,000)		(152,000)		58,000		(22,500)
Principal payments on finance lease obligations	(102)		(107)		(207)		(439)
Withholding remittance - share-based compensation	(2,736)		(1,856)		(2,738)		(2,112)
Other	(1,358)		(966)		(1,668)		(2,812)
Net cash provided by financing activities	189,624		155,066		449,838		590,932
Effects of currency translation on cash and cash equivalents	(170)		72		(84)		(12)
Change in cash and cash equivalents	150,052		(46,915)		161,145		3,716
Cash and cash equivalents at beginning of period	49,539		85,361		38,446		34,730
Cash and cash equivalents at end of period	$	199,591	$	38,446	$	199,591	$	38,446
SUPPLEMENTAL INFORMATION:
Interest paid, net of amounts capitalized	$	51,430	$	49,996	$	103,692	$	96,476
Income taxes paid (received), net	$	(19,410)	$	1,832	$	(18,490)	$	(13,454)

The accompanying notes are an integral part of these statements.


			6


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS ~~CORPORATION~~HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~BALANCE SHEETS~~

STATEMENTS OF EQUITY

(~~Thousands of dollars)~~

In thousands, except per share amounts)

(Unaudited)

   SEPTEMBER 30, DECEMBER 31,
   2017 2016
ASSETS

Utility plant:

Gas plant
   $ 6,440,547 $ 6,193,564
Less: accumulated depreciation
   (2,218,796 ) (2,172,966 )
Acquisition adjustments, net
   81 196
Construction work in progress
   164,030 111,177


Net utility plant
   4,385,862 4,131,971


Other property and investments
   115,841 108,569


Current assets:

Cash and cash equivalents
   46,467 19,024
Accounts receivable, net of allowances
   68,028 111,845
Accrued utility revenue
   34,100 76,200
Income taxes receivable, net
   6,440 4,455
Deferred purchased gas costs
   6,230 2,608
Prepaids and other current assets
   118,587 126,363


Total current assets
   279,852 340,495


Noncurrent assets:

Goodwill
   10,095 10,095
Deferred charges and other assets
   393,942 410,625
Discontinued operations—construction services—assets
   —   579,371


Total noncurrent assets
   404,037 1,000,091


Total assets
   $ 5,185,592 $ 5,581,126


CAPITALIZATION AND LIABILITIES
Capitalization:

Common stock
   $ 49,112 $ 49,112
Additionalpaid-in capital
   917,581 897,346
Accumulated other comprehensive income (loss), net
   (42,299 ) (45,639 )
Retained earnings
   606,007 767,061


Total Southwest Gas Corporation equity
   1,530,401 1,667,880
Discontinued operations—construction servicesnon-owner equity
   —   15,983
Long-term debt, less current maturities
   1,520,790 1,375,080


Total capitalization
   3,051,191 3,058,943


Current liabilities:

Current maturities of long-term debt
   —   25,000
Short-term debt
   83,000 —
Accounts payable
   92,257 138,229
Customer deposits
   70,162 72,296
Accrued general taxes
   48,998 42,921
Accrued interest
   24,406 17,395
Deferred purchased gas costs
   14,971 90,476
Payable to parent
   2,560 —
Other current liabilities
   109,705 95,999


Total current liabilities
   446,059 482,316


Deferred income taxes and other credits:

Deferred income taxes and investment tax credits, net
   853,682 806,109
Accumulated removal costs
   312,000 308,000
Other deferred credits and other long-term liabilities
   522,660 545,143
Discontinued operations—construction services—liabilities
   —   380,615


Total deferred income taxes and other credits
   1,688,342 2,039,867


Total capitalization and liabilities
   $ 5,185,592 $ 5,581,126


			Three Months Ended June 30,											Six Months Ended June 30,
			2020			2019				2020				2019
Common stock shares
	Beginning balances			55,126				53,391				55,007				53,026
		Common stock issuances	784			930				903				1,295
	Ending balances			55,910				54,321				55,910				54,321
Common stock amount
	Beginning balances			$	56,756			$	55,021			$	56,637			$	54,656
		Common stock issuances	784			930				903				1,295
	Ending balances			57,540				55,951				57,540				55,951
Additional paid-in capital
	Beginning balances			1,470,411				1,332,793				1,466,937				1,305,769
		Common stock issuances	53,219			77,582				56,693				104,606
		Change in ownership of noncontrolling interest	—			(452)				—				(452)
	Ending balances			1,523,630				1,409,923				1,523,630				1,409,923
Accumulated other comprehensive loss
	Beginning balances			(59,073)				(50,623)				(56,732)				(52,668)
		Foreign currency exchange translation adjustment	1,794			787				(2,211)				1,578
		Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax	1,027			619				2,055				1,238
		FSIRS amounts reclassified to net income, net of tax	635			636				1,271				1,271

	Ending balances			(55,617)				(48,581)				(55,617)				(48,581)
Retained earnings
	Beginning balances			1,079,801				1,009,809				1,039,072				944,285
		Net income	37,965			22,056				110,507				116,865
		Dividends declared	(32,024)			(29,795)				(63,837)				(59,080)

	Ending balances			1,085,742				1,002,070				1,085,742				1,002,070
Total Southwest Gas Holdings, Inc. equity ending balances						2,611,295				2,419,363				2,611,295				2,419,363
Noncontrolling interest
	Beginning balances			—				(452)				—				(452)

		Change in ownership of noncontrolling interest	—			452				—				452
	Ending balances			—				—				—				—
Total equity ending balances						$	2,611,295			$	2,419,363			$	2,611,295			$	2,419,363
Dividends declared per common share						$	0.57			$	0.545			$	1.14			$	1.09

The accompanying notes are an integral part of these statements.


			7


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED ~~STATEMENTS OF INCOME~~

BALANCE SHEETS

(~~In thousands)~~

Thousands of dollars)

(Unaudited)

   THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
   SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
   2017 2016 2017 2016 2017 2016
Continuing operations:

Gas operating revenues
   $ 213,059 $ 200,179 $ 935,823 $ 980,927 $ 1,276,308 $ 1,376,388


Operating expenses:

Net cost of gas sold
   45,539 39,056 261,839 324,072 334,888 460,836
Operations and maintenance
   102,215 102,438 313,395 301,979 413,140 400,222
Depreciation and amortization
   46,194 56,436 153,643 174,413 212,693 228,609
Taxes other than income taxes
   14,046 12,480 43,325 39,480 56,221 51,810


Total operating expenses
   207,994 210,410 772,202 839,944 1,016,942 1,141,477


Operating income (loss)
   5,065 (10,231 ) 163,621 140,983 259,366 234,911


Other income and (expenses):

Net interest deductions
   (17,421 ) (16,364 ) (51,622 ) (49,155 ) (69,464 ) (65,146 )
Other income (deductions)
   3,081 2,521 8,744 6,712 10,308 9,615


Total other income and (expenses)
   (14,340 ) (13,843 ) (42,878 ) (42,443 ) (59,156 ) (55,531 )


Income (loss) from continuing operations before income taxes
   (9,275 ) (24,074 ) 120,743 98,540 200,210 179,380
Income tax expense (benefit)
   (5,251 ) (11,669 ) 38,307 31,004 65,887 59,544


Income (loss) from continuing operations
   (4,024 ) (12,405 ) 82,436 67,536 134,323 119,836


Discontinued operations—construction services:

Income before income taxes
   —   24,020 —   31,867 21,649 54,934
Income tax expense
   —   8,708 —   12,042 7,842 20,711


Income
   —   15,312 —   19,825 13,807 34,223
Noncontrolling interests
   —   435 —   500 514 1,079


Income—discontinued operations
   —   14,877 —   19,325 13,293 33,144


Net income (loss)
   $ (4,024 ) $ 2,472 $ 82,436 $ 86,861 $ 147,616 $ 152,980


	June 30, 2020		December 31, 2019
ASSETS
Utility plant:
Gas plant	$	8,086,597	$	7,813,221
Less: accumulated depreciation	(2,367,836)		(2,313,050)
Construction work in progress	217,616		185,026
Net utility plant	5,936,377		5,685,197
Other property and investments	130,634		133,787
Current assets:
Cash and cash equivalents	190,784		40,489
Accounts receivable, net of allowance	93,746		150,793
Accrued utility revenue	35,800		79,100
Income taxes receivable, net	—		25,901
Deferred purchased gas costs	—		44,412
Prepaid and other current assets	123,829		165,639
Total current assets	444,159		506,334
Noncurrent assets:
Goodwill	10,095		10,095
Deferred charges and other assets	454,478		463,333
Total noncurrent assets	464,573		473,428
Total assets	$	6,975,743	$	6,798,746
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock	$	49,112	$	49,112
Additional paid-in capital	1,329,843		1,229,083
Accumulated other comprehensive loss, net	(51,825)		(55,151)
Retained earnings	824,847		782,108
Total equity	2,151,977		2,005,152
Long-term debt, less current maturities	2,287,418		1,991,333
Total capitalization	4,439,395		3,996,485
Current liabilities:
Current maturities of long-term debt	125,000		125,000
Short-term debt	—		194,000
Accounts payable	91,482		149,368
Customer deposits	69,898		69,165
Income taxes payable	8,538		—
Accrued general taxes	48,220		48,160
Accrued interest	21,470		21,256
Deferred purchased gas costs	69,938		60,755
Payable to parent	309		844
Other current liabilities	139,324		126,573
Total current liabilities	574,179		795,121
Deferred income taxes and other credits:
Deferred income taxes and investment tax credits, net	558,285		539,050
Accumulated removal costs	401,000		395,000
Other deferred credits and other long-term liabilities	1,002,884		1,073,090
Total deferred income taxes and other credits	1,962,169		2,007,140
Total capitalization and liabilities	$	6,975,743	$	6,798,746

The accompanying notes are an integral part of these statements.


			8


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE~~ INCOME

(~~In thousands)~~

Thousands of dollars)

(Unaudited)

   THREE MONTHS ENDED NINE MONTHS ENDED TWELVE MONTHS ENDED
   SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
   2017 2016 2017 2016 2017 2016
Continuing operations:

Net income (loss) from continuing operations
   $ (4,024 ) $ (12,405 ) $ 82,436 $ 67,536 $ 134,323 $ 119,836


Other comprehensive income (loss), net of tax

Defined benefit pension plans:

Net actuarial gain (loss)
   —   —   —   —   (14,118 ) (18,922 )
Amortization of prior service cost
   207 207 621 621 828 828
Amortization of net actuarial loss
   3,944 4,196 11,832 12,586 16,027 17,915
Regulatory adjustment
   (3,555 ) (3,796 ) (10,667 ) (11,388 ) (2,741 ) (404 )


Net defined benefit pension plans
   596 607 1,786 1,819 (4 ) (583 )


Forward-starting interest rate swaps:

Amounts reclassified into net income
   518 518 1,554 1,556 2,073 2,073


Net forward-starting interest rate swaps
   518 518 1,554 1,556 2,073 2,073


Total other comprehensive income, net of tax from continuing operations
   1,114 1,125 3,340 3,375 2,069 1,490


Comprehensive income (loss) from continuing operations
   (2,910 ) (11,280 ) 85,776 70,911 136,392 121,326


Discontinued operations—construction services:

Net income
   —   14,877 —   19,325 13,293 33,144
Foreign currency translation adjustments
   —   (238 ) —   614 (453 ) 233


Comprehensive income
   —   14,639 —   19,939 12,840 33,377
Comprehensive income (loss) attributable to noncontrolling interests
   —   (8 ) —   21 (16 ) 10


Comprehensive income attributable to discontinued operations—construction services
   —   14,647 —   19,918 12,856 33,367


Comprehensive income (loss)
   $ (2,910 ) $ 3,367 $ 85,776 $ 90,829 $ 149,248 $ 154,693


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Gas operating revenues	$	262,434	$	258,711	$	765,261	$	779,388	$	1,354,812	$	1,367,124
Operating expenses:
Net cost of gas sold	67,473		65,182		228,294		257,786		355,672		407,976
Operations and maintenance	99,320		104,991		202,408		210,533		414,049		407,948
Depreciation and amortization	53,198		49,343		117,923		106,955		226,588		201,146
Taxes other than income taxes	15,342		15,126		31,720		31,332		62,716		61,307
Total operating expenses	235,333		234,642		580,345		606,606		1,059,025		1,078,377
Operating income	27,101		24,069		184,916		172,782		295,787		288,747
Other income and (expenses):
Net interest deductions	(23,991)		(23,345)		(49,049)		(46,444)		(97,631)		(88,780)
Other income (deductions)	7,838		1,592		(12,698)		7,538		(10,719)		(3,005)
Total other income and (expenses)	(16,153)		(21,753)		(61,747)		(38,906)		(108,350)		(91,785)
Income before income taxes	10,948		2,316		123,169		133,876		187,437		196,962
Income tax expense (benefit)	(994)		(1,053)		27,628		27,118		35,483		44,333
Net income	$	11,942	$	3,369	$	95,541	$	106,758	$	151,954	$	152,629

The accompanying notes are an integral part of these statements.


			9


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)

   NINE MONTHS ENDED TWELVE MONTHS ENDED
   SEPTEMBER 30 SEPTEMBER 30
   2017 2016 2017 2016
CASH FLOW FROM OPERATING ACTIVITIES:

Net Income
   $ 82,436 $ 87,361 $ 148,130 $ 154,059
Income (loss) from discontinued operations
   —   19,825 13,807 34,223


Income from continuing operations
   82,436 67,536 134,323 119,836
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   153,643 174,413 212,693 228,609
Deferred income taxes
   44,621 39,953 72,627 76,837
Changes in current assets and liabilities:

Accounts receivable, net of allowances
   43,818 91,680 (7,131 ) 8,543
Accrued utility revenue
   42,100 41,700 (1,100 ) (800 )
Deferred purchased gas costs
   (79,127 ) 81,389 (114,658 ) 79,460
Accounts payable
   (45,972 ) (47,060 ) 17,271 1,467
Accrued taxes
   4,092 (5,660 ) 29,143 4,567
Other current assets and liabilities
   32,453 (819 ) (224 ) 9,135
Changes in undistributed stock compensation
   7,999 4,347 9,108 5,142
AFUDC
   (2,077 ) (1,893 ) (2,473 ) (2,890 )
Changes in other assets and deferred charges
   (14,861 ) 3,664 (1,914 ) 3,834
Changes in other liabilities and deferred credits
   2,883 (4,813 ) (10,751 ) 702


Net cash provided by operating activities
   272,008 444,437 336,914 534,442


CASH FLOW FROM INVESTING ACTIVITIES:

Construction expenditures and property additions
   (395,463 ) (337,921 ) (514,661 ) (485,665 )
Changes in customer advances
   (1,951 ) 5,445 504 9,445
Miscellaneous inflows
   2,407 2,464 2,925 3,506
Dividends received
   —   2,801 9,660 5,602


Net cash used in investing activities
   (395,007 ) (327,211 ) (501,572 ) (467,112 )


CASH FLOW FROM FINANCING ACTIVITIES:

Issuance of common stock, net
   —   530 (58 ) 507
Contributions from parent
   11,659 —   11,659 —
Dividends paid
   (60,497 ) (61,950 ) (81,864 ) (81,138 )
Issuance of long-term debt, net
   —   296,469 —   296,469
Retirement of long-term debt
   (25,000 ) (124,855 ) (25,000 ) (124,855 )
Change in credit facility and commercial paper
   145,000 (150,000 ) 150,000 (97,000 )
Change in short-term debt
   83,000 (18,000 ) 83,000 —
Withholding remittance—share-based compensation
   (3,176 ) (2,119 ) (3,176 ) (2,164 )
Other
   (544 ) (605 ) (1,508 ) (9 )


Net cash provided by (used in) financing activities
   150,442 (60,530 ) 133,053 (8,190 )


Net cash provided by discontinued operating activities
   —   33,485 57,680 78,274
Net cash used in discontinued investing activities
   —   (80,767 ) (11,049 ) (91,536 )
Net cash provided by (used in) discontinued financing activities
   —   39,757 (44,491 ) 6,635
Effects of currency translation on cash and cash equivalents
   —   (14 ) (180 ) (318 )


Change in cash and cash equivalents
   27,443 49,157 (29,645 ) 52,195
Change in cash and cash equivalents of discontinued operations included in discontinued operations construction services assets
   —   7,539 (1,960 ) 6,945


Change in cash and cash equivalents of continuing operations
   27,443 56,696 (31,605 ) 59,140
Cash and cash equivalents at beginning of period
   19,024 21,376 78,072 18,932


Cash and cash equivalents at end of period
   $ 46,467 $ 78,072 $ 46,467 $ 78,072


Supplemental information:

Interest paid, net of amounts capitalized
   $ 40,751 $ 42,804 $ 59,448 $ 63,031


Income taxes paid (received)
   $ 4 $ (3,055 ) $ (27,952 ) $ (16,600 )


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
	2020		2019		2020		2019		2020		2019
Net income	$	11,942	$	3,369	$	95,541	$	106,758	$	151,954	$	152,629
Other comprehensive income (loss), net of tax
Defined benefit pension plans:
Net actuarial loss	—		—		—		—		(54,026)		(15,524)
Amortization of prior service cost	220		242		440		483		923		990
Prior service cost	—		—		—		—		(1,426)		—
Amortization of net actuarial loss	7,187		4,441		14,375		8,883		23,258		21,658
Regulatory adjustment	(6,380)		(4,064)		(12,760)		(8,128)		23,445		(2,895)
Net defined benefit pension plans	1,027		619		2,055		1,238		(7,826)		4,229
Forward-starting interest rate swaps (“FSIRS”):
Amounts reclassified into net income	635		636		1,271		1,271		2,541		2,541
Net forward-starting interest rate swaps	635		636		1,271		1,271		2,541		2,541
Total other comprehensive income (loss), net of tax	1,662		1,255		3,326		2,509		(5,285)		6,770
Comprehensive income	$	13,604	$	4,624	$	98,867	$	109,267	$	146,669	$	159,399

The accompanying notes are an integral part of these statements.


			10


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)


	Six Months Ended June 30,						Twelve Months Ended June 30,
	2020		2019		2020		2019
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	95,541	$	106,758	$	151,954	$	152,629
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	117,923		106,955		226,588		201,146
Deferred income taxes	18,186		28,183		23,684		43,811
Changes in current assets and liabilities:
Accounts receivable, net of allowance	57,047		46,626		(316)		(9,787)
Accrued utility revenue	43,300		42,300		(900)		(700)
Deferred purchased gas costs	53,595		(43,341)		38,445		5,128
Accounts payable	(53,712)		(74,787)		(6,398)		716
Accrued taxes	17,746		(52)		26,693		(6,008)
Other current assets and liabilities	71,512		74,589		86,094		7,511
Changes in undistributed stock compensation	3,494		3,760		4,880		5,895
Equity AFUDC	(2,181)		(1,967)		(4,375)		(5,008)
Changes in deferred charges and other assets	(13,689)		(20,336)		(25,120)		(21,895)
Changes in other liabilities and deferred credits	(55,173)		(6,836)		(61,698)		25,356
Net cash provided by operating activities	353,589		261,852		459,531		398,794
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions	(354,501)		(365,251)		(767,998)		(762,121)
Changes in customer advances	4,098		9,483		13,616		14,788
Other	100		(49)		54		(813)

Net cash used in investing activities	(350,303)		(355,817)		(754,328)		(748,146)
CASH FLOW FROM FINANCING ACTIVITIES:

Contributions from parent	99,500		102,092		157,344		159,045
Dividends paid	(51,100)		(46,300)		(100,700)		(90,300)
Issuance of long-term debt, net	446,508		297,222		446,508		297,222

Change in credit facility and commercial paper	(150,000)		(104,000)		(46,000)		(2,000)
Change in short-term debt	(194,000)		(152,000)		—		—
Withholding remittance - share-based compensation	(2,736)		(1,856)		(2,738)		(2,111)
Other	(1,163)		(712)		(1,276)		(961)
Net cash provided by financing activities	147,009		94,446		453,138		360,895

Change in cash and cash equivalents	150,295		481		158,341		11,543
Cash and cash equivalents at beginning of period	40,489		31,962		32,443		20,900
Cash and cash equivalents at end of period	$	190,784	$	32,443	$	190,784	$	32,443
SUPPLEMENTAL INFORMATION:
Interest paid, net of amounts capitalized	$	46,576	$	42,853	$	92,381	$	83,206
Income taxes paid (received), net	$	(22,962)	$	(22)	$	(22,262)	$	(16,764)

The accompanying notes are an integral part of these statements.


			11


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(Unaudited)


			Three Months Ended June 30,											Six Months Ended June 30,
			2020			2019				2020				2019
Common stock shares
	Beginning and ending balances			47,482				47,482				47,482				47,482
Common stock amount
	Beginning and ending balances			$	49,112			$	49,112			$	49,112			$	49,112
Additional paid-in capital
	Beginning balances			1,279,208				1,089,002				1,229,083				1,065,242
		Share-based compensation	1,135			1,297				1,260				2,215
		Contributions from Southwest Gas Holdings, Inc.	49,500			79,250				99,500				102,092
	Ending balances			1,329,843				1,169,549				1,329,843				1,169,549
Accumulated other comprehensive loss
	Beginning balances			(53,487)				(47,795)				(55,151)				(49,049)
		Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax	1,027			619				2,055				1,238
		FSIRS amounts reclassified to net income, net of tax	635			636				1,271				1,271

	Ending balances			(51,825)				(46,540)				(51,825)				(46,540)
Retained earnings
	Beginning balances			839,443				797,584				782,108				717,155
		Net income	11,942			3,369				95,541				106,758
		Share-based compensation	(138)			(152)				(502)				(312)
		Dividends declared to Southwest Gas Holdings, Inc.	(26,400)			(24,700)				(52,300)				(47,500)
	Ending balances			824,847				776,101				824,847				776,101
Total Southwest Gas Corporation equity ending balances						$	2,151,977			$	1,948,222			$	2,151,977			$	1,948,222

The accompanying notes are an integral part of these statements.


			12


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Note 1 – ~~Nature~~Background, Organization, and Summary of ~~Operations and Basis of Presentation~~

Significant Accounting Policies

Nature of Operations. Southwest Gas Holdings, Inc. is a holding company, owning all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas operations” segment) and ~~prior to August 2017, 96.6%~~all of the shares of common stock of Centuri Construction Group, Inc. During August 2017, Southwest Gas Holdings, Inc. acquired the remaining 3.4% equity interest in Centuri Construction Group, Inc. that was held by the previous owners (and was previously reflected as a redeemable noncontrolling interest). Refer to ~~Note 9 – Construction Services Redeemable Noncontrolling Interestfor additional information.~~

In January 2017, a previously contemplated and approved reorganization under a holding company structure was made effective. The reorganization was designed to provide further separation between regulated and unregulated businesses, and to provide additional financing flexibility. Coincident with the effective date of the reorganization, existing shareholders of Southwest Gas Corporation became shareholders of Southwest Gas Holdings, Inc., on a~~one-for-one~~ ~~basis, with the same number of shares and same ownership percentage as they held immediately prior to the reorganization. At the same time, Southwest Gas Corporation and Centuri Construction~~ Group, Inc. (“~~Centuri”~~Centuri,” or the ~~“construction~~“utility infrastructure services” segment) ~~each became subsidiaries of the publicly traded holding company; whereas, historically, Centuri had been a direct subsidiary of~~ .

Southwest ~~Gas Corporation.~~

~~Southwest Gas Corporation (“Southwest” or the “natural gas operations segment”)~~ is engaged in the business of purchasing, distributing, and transporting natural gas for customers in portions of Arizona, Nevada, and California. 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 purchases and the timing of related recoveries can materially impact liquidity. Results for the natural gas operations segment are higher during winter periods due to the seasonality incorporated in its regulatory rate structures.

Centuri is a comprehensive ~~construction~~utility infrastructure services enterprise dedicated to ~~meeting the growing demands~~delivering a diverse array of solutions to North ~~American utilities, energy~~America’s gas and ~~industrial markets.~~electric providers. Centuri derives revenue primarily from installation, replacement, repair, and maintenance of energy distribution ~~systems, and developing industrial construction solutions.~~systems. Centuri operations are generally conducted under the business names of NPL Construction Co. (“NPL”), NPL Canada Ltd. (“NPL Canada”~~, formerly Link-Line Contractors Ltd.~~), ~~W.S. Nicholls Construction,~~New England Utility Constructors, Inc. (“~~W.S. Nicholls”~~Neuco”), and ~~Brigadier Pipelines Inc.~~Linetec Services, LLC (“~~Brigadier”~~Linetec”). ~~Typically, Centuri revenues~~Utility infrastructure services activity is seasonal in most of Centuri’s operating areas. Peak periods are ~~lowest during the first quarter of the year due to unfavorable winter weather conditions. Operating revenues typically improve as more favorable weather conditions occur during~~ the summer and fall ~~months.~~

months in colder climate areas, such as the northeastern and midwestern United States (“U.S.”) and in Canada. In warmer climate areas, such as the southwestern and southeastern U.S., utility infrastructure services activity continues year round.

Basis of Presentation. The condensed consolidated financial statements ~~for~~of Southwest Gas Holdings, Inc. and subsidiaries (the “Company”) and Southwest included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end condensed balance sheet data was derived from audited financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~United States~~U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. As indicated above, in connection with the holding company reorganization, Centuri ceased to be a subsidiary of Southwest and became a subsidiary of Southwest Gas Holdings, Inc. To give effect to this change, the separate condensed consolidated financial statements related to Southwest Gas Corporation, which are included in this~~Form 10-Q,~~ depict Centuri-related amounts for periods prior to January 1, 2017 as discontinued operations. Because the transfer of Centuri from Southwest Gas Corporation to Southwest Gas Holdings, Inc. was effectuated as an equity transaction and not a sale, assets and liabilities subject to the discontinued operations presentation have been reflected as noncurrent on the Southwest Gas Corporation Condensed Consolidated Balance Sheet. Those assets and liabilities are detailed in~~Note~~ ~~10 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas Corporation~~~~,and include both current andnon-current~~ ~~amounts.~~

No substantive change has occurred with regard to the Company’s business segments on the whole, or in the primary businesses comprising those segments as a result of the foregoing organizational changes. Centuri operations continue to be part of continuing operations and included in the consolidated financial statements of Southwest Gas Holdings, Inc.

whole.

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 revenues and expenses during the reporting period.


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

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 ~~statement~~depiction of results for the interim periods, have been made. ~~It is suggested that these~~Globally, the novel Coronavirus (“COVID-19”) pandemic has created volatility, uncertainty, and economic disruption. Utility operations have been deemed “essential services” and utility infrastructure services have, to a large extent, been similarly characterized by government officials. Management has considered the impact of the pandemic and adjusted certain estimates, where relevant, used in the preparation of the condensed consolidated financial statements.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the ~~2016~~2019 Annual Report to ~~Shareholders,~~Stockholders, which is incorporated by reference into the ~~2016~~2019 Form 10-K.

~~Prepaids~~

Fair Value Measurements. Certain assets and ~~other current assets.~~ ~~Prepaids and other current assets includes gas pipe materials and operating supplies of $36 million~~liabilities are reported at ~~September 30, 2017 and $30 million at December 31, 2016 (carried at weighted average cost) and $24 million at September 30, 2017 and $953,000 at December 31, 2016 related~~fair value, which is defined as the price that would be received to ~~a regulatory~~sell an asset ~~associated with the Arizona decoupling mechanism (an alternative revenue program).~~

~~Other current liabilities~~~~. Other current liabilities of Southwest Gas Corporation include $21 million of dividends declared but not yet~~or paid to ~~Southwest Gas Holdings, Inc.~~transfer a liability in an orderly transaction between market participants at ~~September 30, 2017.~~

~~Cash~~the measurement date.

U.S. GAAP states that a fair value measurement should be based on the assumptions that market participants would use in pricing the asset or liability and ~~Cash Equivalents.~~ ~~For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and financial instruments with~~establishes a ~~purchase-date maturity of three months or less. In general, cash and cash equivalents fall within Level 1 (quoted prices for identical financial instruments) of the three-level~~ fair value hierarchy that ranks the inputs used to measure fair value by their reliability. ~~However, cash~~The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and ~~cash equivalents at September 30, 2017~~the lowest priority to fair values derived from unobservable inputs (Level 3 measurements). Financial assets and ~~December 31, 2016 also includes money market fund investments~~liabilities are categorized in their entirety based on the lowest level of ~~approximately $19.8 million and $5.3 million, respectively, which fall within Level 2 (significant other observable inputs)~~input that is significant to the fair value measurement. The three levels of the fair value hierarchy ~~due~~are as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that a company has the ability to access at the measurement date.

Level 2 – inputs other than quoted prices included within Level 1 that are observable for similar assets or liabilities, either directly or indirectly.

Level 3 – unobservable inputs for the asset or liability. Unobservable inputs are used to measure fair value to the ~~asset valuation methods used by money~~extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market ~~funds.~~

~~Significantnon-cash~~ investing and financing activities included the following: Upon contract expiration, customer advances of approximately $1.9 million and $3.6 million, during the first nine months of 2017 and 2016, respectively, were applied as contributions toward utility construction activity ~~and representnon-cash~~ ~~investing activity.~~

~~Adoption of Accounting Standards Update (“ASU”) No.~~ ~~2016-09.~~ ~~As of January 1, 2017, the Company adopted Financial Accounting Standards Board (“FASB”) ASUNo. 2016-09~~ “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The adoption of this update is considered a change in accounting principle. Among other things, the update clarifies that all cash payments made to taxing authorities on the employees’ behalf for withheld shares should be presented as financing activities on the statement of cash flows. This change is required to be presented in the cash flow statement retrospectively. A new category, Withholding remittance – share-based compensation has been added to the Cash Flow from Financing Activities section of the Condensed Consolidated Statements of Cash Flows for both Southwest Gas Holdings, Inc. and Southwest Gas Corporation. The withheld taxes were included in the Other current assets and liabilities line item of the Condensed Consolidated Statements of Cash Flows in previous periods. Therefore, upon adoption, amounts presented as cash inflows from Other current assets and liabilities under the Cash Flow from Operating Activities section of the Southwest Gas Holdings, Inc. Condensed Consolidated Statements of Cash Flows were revised from $9.9 million to $12 million for the ~~nine months ended September 30, 2016 and inflows in~~asset or liability at the same category for the twelve months ended September 30, 2016 were revised from $19.9 million to $22 million. In addition, while standalone financial statements were not previously presented for natural gas operations, for reasons related to the holding company reorganization discussed above, they are now presented. Therefore, upon adoption of this standard, the Cash Flow from Operating Activities section of the Southwest Gas Corporation Condensed Consolidated Statements of Cash Flows reflects a reclassification of cash outflows from Other current assets and liabilities from $2.9 million to $819,000 for the nine months ended September 30, 2016 and cash inflows in the same category were revised from $7 million to $9.1 million for the twelve months ended September 30, 2016.

Under the new guidance, the Company can withhold any amount between the minimum and maximum individual statutory tax rates and still treat the entire award as equity. The Company intends to administer withholding such that awards under stock compensation programs will continue to be treated as equity awards.

~~In addition to the above, the update requires all incometax-related~~ cash flows resulting from share-based payments (unrelated to employee withholding) be reported as operating activities on the statement of cash flows, a change from the previous requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities. The Company chose to apply this presentation requirement of the update prospectively as permitted. Therefore, prior periods were not impacted in implementing this provision of the update.

measurement date.


			13


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

~~Amendments related to~~

The Company primarily used quoted market prices and other observable market pricing information in valuing cash and cash equivalents, derivatives, long-term debt outstanding, and assets of the ~~timing of when excess tax benefits are recognized, minimum statutory withholding requirements, forfeitures,~~qualified pension plan and ~~intrinsic value are~~postretirement benefit plans required to be applied using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted. The Company had no previously unrecognized tax benefits as a result of these changes; therefore, no cumulative effect adjustment to the Company’s opening retained earnings was required.

~~Goodwill.~~ ~~Goodwill is assessed as of October each year for impairment (required annually by U.S. GAAP),~~ recorded and/or otherwise, if circumstances indicate impairment to the carrying value of goodwill may have occurred. In consideration of the holding company reorganization, management of the Company considered its reporting units and segments and determined that historic judgments regarding its segments and reporting units continue to apply, and that no change was necessary with regard to the leveldisclosed at ~~which goodwill is assessed for impairment. No impairment was deemed to have occurred in the first nine months of 2017.~~

(In thousands of dollars)    Natural Gas
Operations    Construction
Services    Consolidated
December 31, 2016
   $ 10,095    $ 129,888    $ 139,983
Foreign currency translation adjustment
   —      7,882    7,882






September 30, 2017
   $ 10,095    $ 137,770    $ 147,865

~~Intercompany Transactions~~~~. Centuri recognizes revenues generated from contracts with Southwest (see~~~~Note 3—~~~~Segment Information~~~~). Centuri’s accounts receivable for these services are presented in the table below (thousands of dollars):~~

   September 30, 2017    December 31, 2016
Centuri accounts receivable for services provided to Southwest
   $ 11,486    $ 10,585

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.

fair value.

Other Property and Investments.Other property and investments on the ~~Southwest Gas Holdings, Inc.~~ Condensed Consolidated Balance Sheets ~~includes (thousands of dollars):~~

   September 30, 2017    December 31, 2016
Centuri property and equipment
   $ 493,599    $ 451,114
Centuri accumulated provision for depreciation and amortization
   (251,831 )    (228,374 )
Net cash surrender value of COLI policies
   114,052    106,744
Other property
   13,483    12,859




Total
   $ 369,303    $ 342,343


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

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

   Three Months Ended Nine Months Ended Twelve Months Ended
   September 30 September 30 September 30
   2017 2016 2017 2016 2017 2016
Southwest Gas Corporation—natural gas operations segment:

Change in COLI policies
   $ 2,100 $ 2,300 $ 6,800 $ 5,400 $ 8,800 $ 7,500
Interest income
   670 522 1,848 1,279 2,417 1,664
Equity AFUDC
   968 611 2,077 1,893 2,473 2,890
Miscellaneous income and (expense)
   (657 ) (912 ) (1,981 ) (1,860 ) (3,382 ) (2,439 )


Southwest Gas Corporation—total other income (deductions)
   3,081 2,521 8,744 6,712 10,308 9,615


Construction services segment:

Interest income
   1 —   2 1 2 414
Foreign transaction gain (loss)
   (442 ) (3 ) (640 ) (22 ) (640 ) 28
Miscellaneous income and (expense)
   231 47 676 65 1,825 804


Centuri—total other income (deductions)
   (210 ) 44 38 44 1,187 1,246


Corporate and administrative
   5 —   6 —   6 —


Consolidated Southwest Gas Holdings, Inc.—total other income (deductions)
   $ 2,876 $ 2,565 $ 8,788 $ 6,756 $ 11,501 $ 10,861

includes:


(Thousands of dollars)	June 30, 2020		December 31, 2019
Southwest Gas Corporation:
Net cash surrender value of COLI policies	$	128,659	$	132,072
Other property	1,975		1,715
Total Southwest Gas Corporation	130,634		133,787
Centuri property, equipment, and intangibles	1,041,528		983,905
Centuri accumulated provision for depreciation and amortization	(384,108)		(352,333)
Other property	21,057		18,814
Total Southwest Gas Holdings, Inc.	$	809,111	$	784,173

Included in the table above isare the ~~change in~~net cash surrender values of company-owned life insurance (“COLI”) ~~policies (including net death benefits recognized).~~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. Balances reflect impacts of equity and fixed-income securities underlying the cash surrender values at each reporting date; however, ultimately, only the insurance proceeds are ever actually received, due to management’s intent to hold the policies to maturity.

Cash and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents include cash on hand and financial instruments with original maturities of three months or less. Such investments are carried at cost, which approximates market value. Cash and cash equivalents of Southwest and the Company include money market fund investments totaling approximately $40,000 for both entities at June 30, 2020, and $23.5 million and $26.7 million, for each, respectively, at December 31, 2019, which fall within Level 2 of the fair value hierarchy, due to the asset valuation methods used by money market funds.

Typical non-cash investing activities for Southwest include customer advances applied as contributions toward utility construction activity, capital expenditures that were not paid as of period-end reporting dates but rather included in accounts payable, and right-of use assets obtained in exchange for lease liabilities, which are non-cash investing and financing activities. Amounts related to such activities were immaterial for the periods presented herein.

Intercompany Transactions. Centuri recognizes revenues generated from contracts with Southwest (see Note 7 – Segment Information). The accounts receivable balance, revenues, and associated profits are included in the condensed consolidated financial statements of the Company and Southwest and were not eliminated during consolidation in accordance with accounting treatment for rate-regulated entities.

Accounts Receivable, net of allowances. Business activity with respect to natural gas utility operations is conducted with customers located within the 3-state region of Arizona, Nevada, and California. Southwest’s Accounts receivable are short-term in nature with no billing due dates customarily extending beyond one month, with customers’ credit worthiness assessed upon account creation by evaluation of other utility service and related payment history. Although Southwest seeks to minimize its credit risk related to utility operations by requiring security deposits from new customers, imposing late fees, and actively pursuing collection on overdue accounts, some accounts are ultimately not collected. Customer accounts are subject to collection procedures that vary by jurisdiction (late fee assessment, noticing requirements for disconnection of service, and procedures for actual disconnection and/or reestablishment of service). After disconnection of service, accounts are customarily written off approximately two months after inactivation. Dependent upon the jurisdiction, reestablishment of service requires both payment of previously unpaid balances and additional deposit requirements. Provisions for uncollectible accounts are recorded monthly based on experience, consideration of current and expected future conditions, customer and rate composition, and write-off processes. They are included in the ratemaking process as a cost of service. The Nevada jurisdictions have a regulatory mechanism associated with the gas cost-related portion of uncollectible accounts. Such amounts are deferred and collected through a surcharge in the ratemaking process. Due to the continued COVID-19 pandemic, and as utility service is an essential service to the residents in the states in which Southwest operates, in March 2020, Southwest implemented a temporary moratorium on disconnection of natural gas service for non-payment and also ceased charging late fees until further notice. While the moratorium continues to be in place, Southwest is actively working with customers experiencing financial hardship by means of flexible payment options. Management continues to monitor expected credit losses in light of the evolving financial impact of COVID-19. The allowance as of June 30, 2020 reflects the expected impact of COVID-19 on balances as of


			14


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

that date, including consideration of customers’ ability to pay currently and once the moratorium is lifted. The allowance was not materially adjusted as a result of the pandemic.

Utility infrastructure services contracts receivable are recorded at face amounts less an allowance for doubtful accounts. Centuri’s customers are generally investment-grade gas and electric utility companies for which Centuri has historically recognized an insignificant amount of write-offs. Centuri’s trade accounts receivable balances carry standard payment terms of up to 60 days. Centuri maintains an allowance that is an estimate based on historical collection experience, current and forward-looking estimated economic and market conditions, and a review of the current status of each customer's trade accounts receivable balance. Account balances are monitored at least monthly, and are charged off against the allowance when management determines it is probable the balance will not be recovered. Centuri has not been significantly impacted, nor does it anticipate it will experience significant difficulty in collecting amounts due, as a result of the current environment surrounding COVID-19 given the nature of its customers.

Activity between periods in the allowance for uncollectibles and the balances as of the periods presented within the Company’s and Southwest’s financial statements were not material to the condensed consolidated financial statements.

Income Taxes. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted. The CARES Act provides a number of tax provisions and stimulus measures, including changes to prior and future limitations on interest deductions, the ability to accelerate refund of Alternative Minimum Tax credits, elective deferment of payment related to the employer portion of Social Security taxes, and the creation of certain refundable employee retention credits, among other things. Management does not anticipate the impacts related to the CARES Act to have a material effect on the Company’s or Southwest’s results of operations, financial position, or liquidity.

Prepaid and other current assets. Prepaid and other current assets includes gas pipe materials and operating supplies of $57 million at both June 30, 2020 and December 31, 2019 (carried at weighted average cost), in addition to $33 million at December 31, 2019 related to a regulatory asset associated with the Arizona decoupling mechanism (an alternative revenue program), with no corresponding asset balance at June 30, 2020.

Goodwill. Goodwill is assessed as of October 1st each year for impairment, or more frequently, if circumstances indicate an impairment to the carrying value of goodwill may have occurred. Management of the Company and Southwest considered its reporting units and segments and determined that its segments and reporting units remain consistent between periods presented below, and that no change was necessary with regard to the level at which goodwill is assessed for impairment. Since December 31, 2019, management also qualitatively assessed whether events during the first six months of 2020 may have resulted in conditions whereby the carrying value of goodwill was higher than its fair value, which if the case, could be an indication of a permanent impairment. Through this assessment, no such condition was believed to have existed and therefore, 0 impairment was deemed to have occurred.


(Thousands of dollars)	Natural Gas Operations		Utility Infrastructure Services		Total Company
December 31, 2019	$	10,095	$	332,928	$	343,023
Foreign currency translation adjustment	—		(5,045)		(5,045)
June 30, 2020	$	10,095	$	327,883	$	337,978

Other Current Liabilities. Management recognizes in its balance sheets various liabilities that are expected to be settled through future cash payment within the next twelve months, including amounts payable under regulatory mechanisms, customary accrued expenses for employee compensation and benefits, declared but unpaid dividends, and miscellaneous other accrued liabilities. Other current liabilities for Southwest includes $26.4 million and $25.2 million of dividends declared by Southwest Gas Corporation, but not yet paid to Southwest Gas Holdings, Inc. as of June 30, 2020 and December 31, 2019, respectively.


			15


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Other Income (Deductions). The following table provides the composition of significant items included in Other income (deductions) in the Condensed Consolidated Statements of Income:


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
(Thousands of dollars)	2020		2019		2020		2019		2020		2019
Southwest Gas Corporation - natural gas operations segment:
Change in COLI policies	$	12,000	$	3,400	$	(3,500)	$	11,000	$	2,900	$	6,500
Interest income	414		1,822		1,802		3,419		4,739		6,644
Equity AFUDC	1,120		1,007		2,181		1,967		4,375		5,008
Other components of net periodic benefit cost	(5,006)		(3,765)		(10,011)		(7,530)		(17,540)		(18,060)
Miscellaneous income and (expense)	(690)		(872)		(3,170)		(1,318)		(5,193)		(3,097)
Southwest Gas Corporation - total other income (deductions)	7,838		1,592		(12,698)		7,538		(10,719)		(3,005)
Utility infrastructure services segment:
Interest income	—		—		—		—		—		86
Foreign transaction gain (loss)	(6)		21		(16)		552		(22)		(19)
Miscellaneous income and (expense)	93		(498)		(139)		(154)		(65)		462
Centuri - total other income (deductions)	87		(477)		(155)		398		(87)		529
Corporate and administrative	—		31		8		49		61		75
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions)	$	7,925	$	1,146	$	(12,845)	$	7,985	$	(10,745)	$	(2,401)

Included in the table above is the change in cash surrender values of COLI policies (including net death benefits recognized). Current tax regulations provide fortax-free treatment of life insurance (death benefit) proceeds. Therefore, changes in the cash surrender values of COLI policies, as they progress towards the ultimate death benefits, are also recorded without tax consequences.

~~Recently Issued Accounting Standards Updates.~~ Refer to Other Property and Investments above and also to Note 2 – Components of Net Periodic Benefit Cost.

Derivatives. In ~~May 2014,~~managing its natural gas supply portfolios, Southwest has historically entered into fixed- and variable-price contracts, which qualify as derivatives. Additionally, Southwest has utilized 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 ~~FASB issued~~future at a fixed price, qualify for the ~~update “Revenue~~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 ~~Contracts with Customers (Topic 606).”~~fair value reporting. The ~~update replaces much~~variable-price contracts qualify as derivative instruments; however, because the contract prices are the prevailing prices at the future transaction dates, the contracts have no determinable fair value. The Swap contract prices are determined at the beginning of each month to reflect that month’s published first of month index price and are recorded at fair value (Level 2). Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.

Management does not currently anticipate entering into new Swaps in the near term; the longest maturity date of the ~~current guidance regarding revenue recognition including most industry-specific guidance. In accordance~~Swaps as of June 30, 2020 is October 2020.

Master netting arrangements exist with each counterparty that provide for the ~~update, an entity will be required~~net settlement of all contracts through a single payment. Management has elected to ~~identify~~reflect the ~~contract with~~net amounts in its balance sheets, which were immaterial at June 30, 2020.

Previously, Southwest entered into forward-starting interest rate swaps (“FSIRS”), the customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation. In addition to the new revenue recognition requirements, entities will be required to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Entities may choose between two retrospective transition methods when applying the update. In July 2015, the FASB approved a~~one-year~~ deferral of the effective date (annual periods beginning after December 15, 2017). In March, April, May, and December of 2016, the FASB issued updates to Topic 606 related to “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, “Identifying Performance Obligations and Licensing,” “Narrow-Scope Improvements and Practical Expedients”, and certain “Technical Corrections and Improvements.” The amendments in the first two updates, respectively, provide guidance when another party, along with the entity, is involved in providing a good or service to a customer, and provide clarification with regard to identifying performance obligations and of the licensing implementation guidance in Topic 606. The third update includes improvements to the guidance on collectibility, noncash consideration, and completed contracts at transition. In addition, a practical expedient is providedsettled positions for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The fourth update affects narrow aspects of the guidance as issued to date. Management plans to adopt all of these updates at the required adoption date, which ~~is for interim and annual reporting periods commencing January 2018.~~

Deliberations have been ongoing by the utility industry, notably in connection with efforts to produce an accounting guide intended to be developed by the American Institute of Certified Public Accountants (“AICPA”). In association with this undertaking, the AICPA formed a number of industry task forces, including a Power & Utilities (“P&U”) Task Force, on which Company personnel actively participate via formal membership. Industry representatives and organizations, the largest auditing firms, the AICPA’s Revenue Recognition Working Group and its Financial Reporting Executive Committee have undertaken,are immaterial and continue to ~~undertake, consideration~~be amortized from Accumulated other comprehensive income (loss) into interest expense.

Redeemable Noncontrolling Interest. In connection with the acquisition of ~~several items relevant~~Linetec in November 2018, the previous owner retained a 20% equity interest in Linetec, the reduction of which is subject to certain rights based on the ~~utility industry. Where applicable~~passage of time or ~~necessary,~~upon the ~~FASB’s Transition Resource Group (“TRG”) has also participated. Through the P&U Task Force undertakings, general determinations were made that contributions received in aid~~occurrence of construction (“CIAC”) efforts related to the industry’s pipe distribution and transmission systems are reimbursements of expenditures rather than revenue (consistent with current accounting practices). Furthermore, regarding the “collectibility” criterion in the update that must be met for revenue recognition, general determinations have been made that contracts for utility service (including service to lower income or lower credit quality customers)

certain triggering events.


~~SOUTHWEST GAS HOLDINGS, INC.~~		16	~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~	~~September 30, 2017~~

represent genuine and valid contracts for which revenue is able to be recognized when service is rendered (consistent with current accounting practices). These determinations by the P&U industry are based on the various measures the industry takes to help ensure collectibility (e.g., proof of creditworthiness, customer deposits, late fee assessment, disconnection, service~~re-establishment~~ fees, collection processes, etc.), in addition to the regulatory mechanisms established under rate regulation to mitigate the impacts of individual customer nonpayment. Southwest has also actively worked with its peers in the rate-regulated natural gas industry and with the public accounting profession to finalize the accounting treatment for several other issues not separately addressed by the P&U Task Force.

With regard to the construction services segment, the principles of the new revenue recognition guidance are very similar to existing guidance for construction contractors. Similar to the P&U Task Force noted above, the AICPA formed the Engineering and Construction Contractors Task Force to assist the construction industry with implementing the new guidance. The accounting guide the AICPA intends to release is expected to provide implementation guidance related to several issues including 1) combining contracts and separating performance obligations; 2) estimating change orders, incentives, penalties, liquidated damages and other variable consideration items and 3) acceptable measures of progress when recognizing revenue over time.

Management of both segments of the Company has substantially completed assessments of sources of revenue and the effects that adoption of the new guidance will have on the Company’s (and Southwest’s in the case of utility operations) financial position, results of operations, and cash flows. Based on assessments completed to date, management believes that such impacts will not be material overall. Presentation and disclosure requirements of the new guidance will have the most impact on the Company’s financial statements and note disclosures. The Company is currently planning to adopt the new guidance in 2018 under the modified retrospective transition method, as permissible.

~~In January 2016, the FASB issued the update “Financial Instruments – Overall (Subtopic825-10):~~ Recognition and Measurement of Financial Assets and Financial Liabilities” in order to improve the recognition and measurement of financial instruments. The update makes targeted improvements to existing U.S. GAAP by: 1) requiring equity investments to be measured at fair value with changes in fair value recognized in net income; 2) requiring the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 3) requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; 4) eliminating the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; and 5) requiring a reporting entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in instrument-specific credit risk when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. All entities can early adopt the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. Management believes this update will not have a material impact on its consolidated financial statements and disclosures.

In February 2016, the FASB issued the update “Leases (Topic 842).” Under the update, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

~~A lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and~~

A~~right-of-use~~ ~~asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.~~

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Though companies have historically been required to make disclosures regarding leases and of associated contractual obligations, leases (with terms longer than a year) will no longer exist~~off-balance~~ sheet. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Significant changes in the value of the redeemable noncontrolling interest, above a ~~full retrospective transition approach. Early application is permitted. Management currently plans to adopt the update~~floor established at the ~~required adoption~~acquisition date, ~~which~~are recognized as they occur, and the carrying value is ~~for interim~~adjusted as necessary at each reporting date. The fair value is estimated using a market approach that utilizes certain financial metrics from guideline public companies of similar industry and ~~annual reporting periods commencing January 1, 2019. Existing leases have been historically documented~~operating characteristics. However, the carrying value was greater than the fair value as of June 30, 2020, and no previous upward redemption value adjustments were made following the acquisition date. SEC guidance indicates that a redemption value adjustment would not be made under ~~traditional leasing arrangements~~these circumstances. The following depicts the change to the balance of the redeemable noncontrolling interest:


(Thousands of dollars):	Redeemable Noncontrolling Interest
Balance, December 31, 2019	$	84,542
Net income attributable to redeemable noncontrolling interest	2,379
Balance, June 30, 2020	$	86,921

Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by ~~both segments. Management is~~dividing net income attributable to Southwest Gas Holdings, Inc. by the weighted-average number of shares during those periods. Diluted EPS includes additional weighted-average common stock equivalents (performance shares and restricted stock units). Unless otherwise noted, the term “Earnings Per Share” refers to Basic EPS. A reconciliation of the denominator used in the ~~process of evaluating other types of arrangements that have the potential to meet the definition of a lease under the new standard,~~Basic and Diluted EPS calculations is ~~also~~shown in the ~~process~~following table:


	Three Months Ended June 30,			Six Months Ended June 30,			Twelve Months Ended June 30,
(In thousands)	2020	2019	2020	2019	2020	2019
Average basic shares	55,462	53,935	55,386	53,654	55,105	51,914
Effect of dilutive securities:
Management Incentive Plan shares	—	11	—	11	6	18
Restricted stock units (1)	70	57	62	51	60	45
Average diluted shares	55,532	54,003	55,448	53,716	55,171	51,977

(1) The number of ~~selecting software to efficiently implement~~securities granted included 63,000 and 49,000 performance shares during the ~~standard for its natural gas operations segment. The FASB recently issued proposed guidance~~three months ending June 30, 2020 and 2019, 57,000 and 45,000 performance shares during the six months ending June 30, 2020 and 2019, and 51,000 and 36,000 performance shares during the twelve months ending June 30, 2020 and 2019, respectively, the total of which was derived by assuming that target performance will ~~allow~~be achieved during the election of a practical expedient to not apply the new standard to existing easement contracts that were not previously assessed as leases under historic guidance. However, the Company would still be required to evaluate any new easements entered into after the effective date of the standard to determine if the arrangements should be accounted for as leases. Management is currently evaluating the new and proposed guidancerelevant performance period.

Recent Accounting Standards Updates.

Accounting pronouncements adopted in light of its customary leasing arrangements (and other arrangements in association with the new guidance) to determine the effect the new standard will have on its financial position, results of operations, cash flows, and business processes.

2020:

In June 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~the~~ASU 2016-13 update “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The update ~~amends guidance on reporting~~requires the measurement of all expected credit losses for financial assets held at ~~amortized cost basis~~the reporting date based on historical experience, current conditions, and ~~available for sale debt securities. For assets held at amortized cost basis,~~reasonable and supportable forecasts. The Company and Southwest adopted the update ~~eliminates~~in the ~~“probable” threshold for initial recognition~~first quarter of ~~credit losses in current U.S. GAAP~~2020, and ~~instead, requires an entity~~concluded the impact was not material to ~~reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from~~ the amortized cost basis of the financial asset to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current U.S. GAAP, however the update will require that credit losses be presented as an allowance rather than as a write-down. This update affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The update affects loans, debt securities, trade receivables, net investments in leases,~~off-balance~~ sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may adopt the amendments in this update earlier as of fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is evaluating what impact, if any, this update might have on itscondensed consolidated financial statements ~~and disclosures.~~

In August 2016, the FASB issued the update “Classification of Certain Cash Receipts and Cash Payments.” This update addresses the following specific cash flow issues: debt prepayment or debt extinguishment costs; settlement of~~zero-coupon~~ ~~debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate~~ of the ~~borrowing; contingent consideration payments made after a business combination; proceeds from the settlement~~Company or Southwest. See Accounts receivable, net of insurance claims; proceeds from the settlement of corporate-owned life insurance (“COLI”) policies; distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows, including identification of the predominant nature in cases where cash receipts and payments have aspects of more than one class of cash flows. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Management believes this update will not have a material impact on its consolidated cash flow statements and disclosures.

In October 2016, the FASB issued the update “Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory.” This update eliminates the current U.S. GAAP exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the~~pre-tax~~ effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted; however, the guidance can only be adopted in the first interim period of a fiscal year. No such election to adopt early was made by management. The modified retrospective approach will be required for transition to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. Management believes this update will not have a material impact on its consolidated financial statements and disclosures.

allowances above.

In January 2017, the FASB issued ~~the update~~ASU 2017-04 “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ~~The~~Under the update, ~~eliminates Step 2 from~~an entity will apply a one-step quantitative test as opposed to a two-step test as previously required, and record the amount of goodwill impairment ~~test. The annual, or interim, goodwill impairment test is performed by comparing~~as the ~~fair value~~excess of a reporting ~~unit with its carrying amount. An impairment charge should be recognized for the amount by which the~~unit's carrying amount ~~exceeds the reporting unit’s~~


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

over its fair ~~value; however, the loss recognized should~~value, not to exceed the total amount of goodwill allocated to ~~that~~the reporting unit. ~~In addition, income tax effects from~~The new guidance does not amend the optional qualitative assessment. The Company and Southwest adopted the update in the first quarter of 2020 and will apply the update prospectively in any~~tax-deductible~~ ~~goodwill on the carrying amount of the reporting unit should be considered when measuring the~~ future goodwill impairment ~~loss, if applicable.~~tests.

In August 2018, the FASB issued ASU 2018-15 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update ~~also eliminates~~generally aligns the requirements for ~~any reporting unit~~capitalizing implementation costs incurred in a hosting arrangement (that is a service contract) with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, with the exception that such costs are to be included in the same line item in the balance sheet that a ~~zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2~~prepayment of the ~~goodwill impairment test. An~~fees associated with the arrangement would be presented. Once capitalized, the update requires the entity ~~still has~~to expense the ~~option~~amount capitalized over the term of the hosting arrangement, including reasonably certain renewal periods. The Company and


			17


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Southwest adopted the update in the first quarter of 2020 using the prospective transition method. The Company and Southwest have no material implementation costs related to ~~perform~~cloud computing arrangements.

Recently issued accounting pronouncements that will be effective after 2020:

In December 2019, the ~~qualitative assessment~~FASB issued ASU 2019-12 “Income Taxes (Topic 740): Simplifying the Accounting for ~~a reporting unit~~Income Taxes.” The update simplifies the accounting for income taxes by removing certain exceptions to ~~determine if~~ the ~~quantitative impairment test is necessary. The amendments should be applied on a prospective basis.~~general principles, as well as improving consistent application in Topic 740 by clarifying and amending existing guidance. The update is effective for fiscal ~~and interim periods~~years beginning after December 15, ~~2019.~~2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for ~~interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Management has determined that this update would have had no impact on the consolidated~~periods for which financial statements ~~for the periods presented if it had been effective during those periods.~~

In March 2017, the FASB issued the update “Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.” The update applies to all employers that offer employee benefits under defined benefit pension plans, other postretirement benefit plans, or other types of benefits accounted for under Topic 715, Compensation – Retirement Benefits. The update requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, and be appropriately described. The update also allows only the service cost component (and not the other components of periodic benefit costs) to be eligible for capitalization when applicable, making no exception for specialized industries, including~~rate-regulated~~ ~~industries.~~

Southwest is a rate-regulated utility offering pension and postretirement benefits to retired employees. It is anticipated that Southwest would continue to request recovery of the total costs of defined benefit plans in rate applications filed with its various regulatory bodies. Rate-regulated entities providing utility and transmission services have ~~historically capitalized a portion of periodic benefit costs (includingnon-service~~ cost components) in utility infrastructure (for instance, when productive labor is also charged to capital work orders). The portion capitalized has historically been a component of depreciation and related rate development through efforts of companies and their regulatory commissions. The Federal Energy Regulatory Commission (“FERC”) regulates interstate transmission pipelines and also establishes, via its Uniform System of Accounts, accounting practices of rate-regulated entities. Accounting guidelines by the FERC are typically also upheld by state commissions. Historically, those guidelines have been generally consistent with guidance in U.S. GAAP (including U.S. GAAP for rate-regulated entities). While formal guidance has not yet been ~~published by the FERC, it~~made available for issuance. Management is ~~currently believed that the FERC will permit an election to either continue to capitalizenon-service~~ benefit costs for regulatory reporting purposes or to cease capitalizing such costs and implement the Topic 715 update capitalization provisions “as is,” for regulatory purposes. Assuming the FERC formalizes the above elections, Southwest currently anticipates adopting the provisions of Topic 715 for both SEC reporting and regulatory purposes. Industry deliberations continue and management will be evaluating the ~~various~~ impacts this update ~~will~~might have on ~~its~~the Company’s and Southwest’s consolidated financial statements and disclosures. It

In March 2020, the FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update provides optional guidance for a limited time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting. The update applies only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made or entered into after December 31, 2022. Management is ~~estimated that approximately $3 million~~evaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures. See also LIBOR discussion in~~non-service~~ ~~costs were capitalized as a component of gas plant during 2016. Totalnon-service~~ ~~costs were approximately $20 million in 2016.~~

Note 5 – Debt.


			18


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

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.

~~Net~~

The service cost component of net periodic benefit costs included in the table below ~~are components~~is a component of an overhead loading process associated with the cost of labor. The overhead process ultimately results in allocation of that portion of overall net periodic benefit costs to the same accounts to which productive labor is charged. As a result, ~~net periodic benefit~~service costs become components of various accounts, primarily operations and maintenance expense, net utility plant, and deferred charges and other assets for both the Company and Southwest.

   Qualified Retirement Plan
   Period Ended September 30,
   Three Months Nine Months Twelve Months
   2017 2016 2017 2016 2017 2016
(Thousands of dollars)

Service cost
   $ 5,848 $ 5,708 $ 17,544 $ 17,125 $ 23,252 $ 23,406
Interest cost
   11,520 11,507 34,561 34,520 46,068 45,577
Expected return on plan assets
   (13,799 ) (14,140 ) (41,397 ) (42,419 ) (55,536 ) (56,871 )
Amortization of net actuarial loss
   6,001 6,317 18,003 18,950 24,319 27,136


Net periodic benefit cost
   $ 9,570 $ 9,392 $ 28,711 $ 28,176 $ 38,103 $ 39,248


   SERP
   Period Ended September 30,
   Three Months Nine Months Twelve Months
   2017 2016 2017 2016 2017 2016
(Thousands of dollars)

Service cost
   $ 77 $ 83 $ 232 $ 248 $ 315 $ 328
Interest cost
   471 464 1,413 1,394 1,878 1,818
Amortization of net actuarial loss
   361 346 1,081 1,038 1,426 1,361


Net periodic benefit cost
   $ 909 $ 893 $ 2,726 $ 2,680 $ 3,619 $ 3,507


   PBOP
   Period Ended September 30,
   Three Months Nine Months Twelve Months
   2017 2016 2017 2016 2017 2016
(Thousands of dollars)

Service cost
   $ 367 $ 375 $ 1,101 $ 1,124 $ 1,476 $ 1,534
Interest cost
   808 795 2,424 2,386 3,218 3,136
Expected return on plan assets
   (839 ) (787 ) (2,518 ) (2,362 ) (3,305 ) (3,228 )
Amortization of prior service costs
   333 333 1,001 1,001 1,335 1,335
Amortization of net actuarial loss
   —   104 —   312 105 398


Net periodic benefit cost
   $ 669 $ 820 $ 2,008 $ 2,461 $ 2,829 $ 3,175


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

~~Note 3 – Segment Information~~

The ~~Company has two reportable segments: natural gas operations and construction services. Southwest has a single reportable segment that is referred to herein as the natural gas operations segment~~other components of ~~the Company. In order to reconcile to~~ net periodic benefit cost are reflected in Other income ~~as disclosed in~~(deductions) on the Condensed Consolidated Statements of Income an Other column is included associated with impacts related to corporate and administrative activities related to Southwest Gas Holdings, Inc. The following tables present revenues from external customers, intersegment revenues, and segment net income for the two reportable segments (thousands of ~~dollars):~~

   Natural Gas
Operations    Construction
Services    Other    Total
Three months ended September 30, 2017

Revenues from external customers
   $ 213,059    $ 351,850    $ —      $ 564,909
Intersegment revenues
   —      28,244    —      28,244








Total
   $ 213,059    $ 380,094    $ —      $ 593,153








Segment net income (loss)
   $ (4,024 )    $ 14,335    $ (107 )    $ 10,204








Three months ended September 30, 2016

Revenues from external customers
   $ 200,179    $ 312,531    $ —      $ 512,710
Intersegment revenues
   —      27,259    —      27,259








Total
   $ 200,179    $ 339,790    $ —      $ 539,969








Segment net income (loss)
   $ (12,405 )    $ 14,877    $ —      $ 2,472








   Natural Gas
Operations    Construction
Services    Other    Total
Nine months ended September 30, 2017

Revenues from external customers
   $ 935,823    $ 800,073    $ —      $ 1,735,896
Intersegment revenues
   —      72,463    —      72,463








Total
   $ 935,823    $ 872,536    $ —      $ 1,808,359








Segment net income (loss)
   $ 82,436    $ 15,717    $ (777 )    $ 97,376








Nine months ended September 30, 2016

Revenues from external customers
   $ 980,927    $ 762,835    $ —      $ 1,743,762
Intersegment revenues
   —      75,203    —      75,203








Total
   $ 980,927    $ 838,038    $ —      $ 1,818,965








Segment net income
   $ 67,536    $ 19,325    $ —      $ 86,861








   Natural Gas
Operations    Construction
Services    Other    Total
Twelve months ended September 30, 2017

Revenues from external customers
   $ 1,276,308    $ 1,078,195    $ —      $ 2,354,503
Intersegment revenues
   —      95,381    —      95,381








Total
   $ 1,276,308    $ 1,173,576    $ —      $ 2,449,884








Segment net income (loss)
   $ 134,323    $ 29,010    $ (777 )    $ 162,556








Twelve months ended September 30, 2016

Revenues from external customers
   $ 1,376,388    $ 1,022,416    $ —      $ 2,398,804
Intersegment revenues
   —      105,566    —      105,566








Total
   $ 1,376,388    $ 1,127,982    $ —      $ 2,504,370








Segment net income
   $ 119,836    $ 33,144    $ —      $ 152,980

~~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. Additionally, Southwest utilizesfixed-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.

each entity.


	Qualified Retirement Plan
	June 30,
	Three Months						Six Months						Twelve Months
	2020		2019		2020		2019		2020		2019
(Thousands of dollars)
Service cost	$	8,575	$	6,466	$	17,149	$	12,932	$	30,081	$	27,209
Interest cost	11,389		12,251		22,777		24,503		47,280		46,590
Expected return on plan assets	(16,324)		(15,061)		(32,648)		(30,122)		(62,770)		(59,500)
Amortization of net actuarial loss	9,006		5,589		18,013		11,178		29,191		27,236
Net periodic benefit cost	$	12,646	$	9,245	$	25,291	$	18,491	$	43,782	$	41,535

	SERP
	June 30,
	Three Months						Six Months						Twelve Months
	2020		2019		2020		2019		2020		2019
(Thousands of dollars)
Service cost	$	97	$	67	$	195	$	133	$	328	$	256
Interest cost	402		440		803		880		1,683		1,709
Amortization of net actuarial loss	451		255		902		510		1,412		1,261
Net periodic benefit cost	$	950	$	762	$	1,900	$	1,523	$	3,423	$	3,226

	PBOP
	June 30,
	Three Months						Six Months						Twelve Months
	2020		2019		2020		2019		2020		2019
(Thousands of dollars)
Service cost	$	395	$	319	$	791	$	638	$	1,429	$	1,374
Interest cost	645		762		1,290		1,524		2,812		2,898
Expected return on plan assets	(852)		(789)		(1,704)		(1,578)		(3,282)		(3,436)
Amortization of prior service costs	289		318		578		635		1,214		1,302

Net periodic benefit cost	$	477	$	610	$	955	$	1,219	$	2,173	$	2,138


			19


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Note 3 – Revenue

The ~~variable-price contracts have no significant market value. The Swaps are recorded at fair value.~~

~~The fixed-price contracts and Swaps are utilized~~following information about the Company’s revenues is presented by segment. Southwest ~~under its volatility mitigation programs to effectively fix~~encompasses the ~~price on a portion (up to 25% in the Arizona and California jurisdictions) of its~~ natural gas ~~supply portfolios. The maturities of~~operations segment and Centuri encompasses the Swaps highly correlate to forecasted purchases of natural gas, during time frames ranging from October 2017 through March 2019. Under such contracts, Southwest pays the counterparty 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 basedutility infrastructure services segment.

Natural Gas Operations Segment:

Gas operating revenues on ~~the notional amounts under the contracts, which are detailed in the table below (thousands of dekatherms):~~

   September 30, 2017    December 31, 2016
Contract notional amounts
   10,936    10,543

~~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 Swaps (derivatives) for the three-, nine-, and twelve-month periods ended September 30, 2017 and 2016 and their location in~~ the Condensed Consolidated Statements of Income ~~for both the Company and Southwest:~~

~~Gains (losses) recognized in income for derivatives not designated as hedging instruments:~~

~~(Thousands~~ of ~~dollars)~~

      Three Months Ended Nine Months Ended Twelve Months Ended
   Location of Gain or (Loss)    September 30 September 30 September 30
Instrument

Recognized in Income on Derivative
   2017 2016 2017 2016 2017 2016
Swaps
   Net cost of gas sold    $ (546 ) $ (2,072 ) $ (6,851 ) $ 2,253 $ (4,098 ) $ (656 )
Swaps
   Net cost of gas sold    546 * 2,072 * 6,851 * (2,253 )* 4,098 * 656 *


Total
      $ —   $ —   $ —   $ —   $ —   $ —

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

No gains (losses) were recognized in net income or other comprehensive income during the periods presented for derivatives designated as cash flow hedging instruments. Previously, Southwest entered into two forward-starting interest rate swaps (“FSIRS”), both of which were designated cash flow hedges, to partially hedge the risk of interest rate variability during the period leading up to the planned issuance of debt. The first FSIRS terminated in December 2010. The second FSIRS terminated in March 2012. Losses on both FSIRS are being amortized over~~ten-year~~ ~~periods from Accumulated other comprehensive income (loss) into interest expense.~~

~~The following table sets forth the fair values of the Swaps and their location in the Condensed Consolidated Balance Sheets for~~ both the Company and Southwest ~~(thousands~~include revenue from contracts with customers, which is shown below, disaggregated by customer type, and various categories of ~~dollars):~~

~~Fair values~~revenue:

Three Months Ended
June 30, Six Months Ended
June 30, Twelve Months Ended June 30,
(Thousands of dollars) 2020 2019 2020 2019 2020 2019
Residential $ 181,298 $ 164,873 $ 559,853 $ 582,101 $ 950,540 $ 958,008
Small commercial 41,455 50,184 123,918 139,794 233,241 251,281
Large commercial 9,979 11,123 22,646 25,085 46,496 49,703
Industrial/other 6,499 5,413 13,201 11,891 23,384 23,379
Transportation 19,835 21,815 44,241 46,717 89,904 88,934
Revenue from contracts with customers 259,066 253,408 763,859 805,588 1,343,565 1,371,305
Alternative revenue program revenues (deferrals) 4,111 3,392 346 (31,153) 6,387 (22,776)
Other revenues (1) (743) 1,911 1,056 4,953 4,860 18,595
Total Gas operating revenues $ 262,434 $ 258,711 $ 765,261 $ 779,388 $ 1,354,812 $ 1,367,124

(1) Amounts include late fees and other miscellaneous revenues, and may also include the impact of ~~derivatives not designated~~certain regulatory mechanisms, such as ~~hedging instruments:~~

September 30, 2017
Instrument

Balance Sheet Location
   Asset
Derivatives    Liability
Derivatives    Net
Total
Swaps
   Prepaids and other current assets    $ 56    $ (22 )    $ 34
Swaps
   Other current liabilities    27    (1,899 )    (1,872 )
Swaps
   Other deferred credits    1    (768 )    (767 )






Total
      $ 84    $ (2,689 )    $ (2,605 )






December 31, 2016
Instrument

Balance Sheet Location
   Asset
Derivatives    Liability
Derivatives    Net
Total
Swaps
   Deferred charges and other assets    $ 899    $ (54 )    $ 845
Swaps
   Prepaids and other current assets    3,551    (19 )    3,532






Total
      $ 4,450    $ (73 )    $ 4,377

cost-of-service components in current customer rates that are expected to be returned to customers in future periods.

Utility Infrastructure Services Segment:

The following tables display Centuri’s revenue, reflected as Utility infrastructure services revenues on the Condensed Consolidated Statements of Income of the Company, representing revenue from contracts with customers disaggregated by service and contract types:


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
(Thousands of dollars)	2020		2019		2020		2019		2020		2019
Service Types:
Gas infrastructure services	$	330,157	$	323,817	$	547,866	$	521,709	$	1,265,131	$	1,205,197
Electric power infrastructure services	95,286		61,366		167,606		113,667		301,656		136,900
Other	69,370		69,117		112,834		131,786		245,335		292,129
Total Utility infrastructure services revenues	$	494,813	$	454,300	$	828,306	$	767,162	$	1,812,122	$	1,634,226


	Three Months Ended June 30,						Six Months Ended June 30,						Twelve Months Ended June 30,
(Thousands of dollars)	2020		2019		2020		2019		2020		2019
Contract Types:
Master services agreement	$	375,502	$	375,860	$	639,047	$	611,515	$	1,410,909	$	1,229,388
Bid contract	119,311		78,440		189,259		155,647		401,213		404,838
Total Utility infrastructure services revenues	$	494,813	$	454,300	$	828,306	$	767,162	$	1,812,122	$	1,634,226

Unit price contracts	$	365,253	$	355,487	$	608,389	$	591,172	$	1,397,473	$	1,323,034
Fixed price contracts	36,011		4,426		63,556		42,965		133,515		107,697
Time and materials contracts	93,549		94,387		156,361		133,025		281,134		203,495
Total Utility infrastructure services revenues	$	494,813	$	454,300	$	828,306	$	767,162	$	1,812,122	$	1,634,226


~~SOUTHWEST GAS HOLDINGS, INC.~~		20	~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~	~~September 30, 2017~~

The estimated fair values of the natural gas derivatives were determined using future natural gas index prices (as more fully described below). Master netting arrangements exist with each counterparty that provide for the net settlement (in the settlement month) of all contracts through a single payment. As applicable, management has elected to reflect the net amounts in its balance sheets. There was no outstanding collateral associated with the Swaps during either period shown in the above table.

Pursuant to regulatory deferral accounting treatment for rate-regulated entities, unrealized gains and losses in fair value of the Swaps are recorded as a regulatory asset and/or liability. When the Swaps mature, any prior positions held are reversed and the settled position is recorded as an increase or decrease of purchased gas under the related purchased gas adjustment (“PGA”) mechanism in determining its deferred PGA balances. Neither changes in fair value, nor settled amounts, of Swaps have a direct effect on earnings or other comprehensive income.

~~The following table shows the amounts Southwest paid to and received from counterparties for settlements of matured Swaps.~~

   Three Months Ended    Nine Months Ended    Twelve Months Ended
(Thousands of dollars)    September 30, 2017    September 30, 2017    September 30, 2017
Paid to counterparties
   $ 143    $ 1,555    $ 2,655






Received from counterparties
   $ —      $ 1,685    $ 2,060

The following table details the regulatory assets/(liabilities) offsetting the derivatives at fair value in the Condensed Consolidated Balance Sheets for both the Company and Southwest (thousands of dollars).

September 30, 2017
Instrument

Balance Sheet Location
   Net Total
Swaps    Other current liabilities    $ (34 )
Swaps    Prepaids and other current assets    1,872
Swaps    Deferred charges and other assets    767
December 31, 2016
Instrument

Balance Sheet Location
   Net Total
Swaps    Other deferred credits    $ (845 )
Swaps    Other current liabilities    (3,532 )

~~Fair Value Measurements.~~ The estimated fair values of Southwest’s Swaps were determined at September 30, 2017 and December 31, 2016 using New York Mercantile Exchange (“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 (inputs, other than quoted prices, for similar assets or liabilities) 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 measurement.

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 financial assets and liabilities that were accounted for at fair value by both the Company and Southwest:


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

~~Level 2—Significant other observable inputs~~

(Thousands of dollars)    September 30, 2017    December 31, 2016
Assets at fair value:

Prepaids and other current assets—Swaps
   $ 34    $ 3,532
Deferred charges and other assets—Swaps
   —      845
Liabilities at fair value:

Other current liabilities—Swaps
   (1,872 )    —
Other deferred credits—Swaps
   (767 )    —




Net Assets (Liabilities)
   $ (2,605 )    $ 4,377

~~No financial~~

The following table provides information about contracts receivable and revenue earned on contracts in progress in excess of billings (contract asset), which are both included within Accounts receivable, net of allowances, as well as amounts billed in excess of revenue earned on contracts (contract liability), which are included in Other current liabilities as of June 30, 2020 and December 31, 2019 on the Company’s Condensed Consolidated Balance Sheets:


(Thousands of dollars)	June 30, 2020		December 31, 2019
Contracts receivable, net	$	240,917	$	223,904
Revenue earned on contracts in progress in excess of billings	145,414		99,399
Amounts billed in excess of revenue earned on contracts	6,633		4,525

The revenue earned on contracts in progress in excess of billings (contract asset) primarily relates to Centuri’s rights to consideration for work completed but not billed and/or approved for billing at the reporting date. These contract assets are transferred to contracts receivable when the rights become unconditional. The amounts billed in excess of revenue earned (contract liability) primarily relate to the advance consideration received from customers for which work has not yet been completed. The change in this contract liability balance from December 31, 2019 to June 30, 2020 is due to revenue recognized of $4.5 million that was included in this item as of January 1, 2020, after which time it became earned and the balance was reduced, and to increases due to cash received, net of revenue recognized during the period related to contracts that commenced during the period.

For contracts that have an original duration of one year or ~~liabilities associated with~~less, Centuri uses the ~~Swaps, which were accounted for at fair~~practical expedient applicable to such contracts and does not consider/compute an interest component based on the time value ~~fell within Level 1 (quoted prices in active markets for identical financial assets) or Level 3 (significant unobservable inputs)~~of money. Further, because of the ~~fair value hierarchy.~~

~~With regard~~short duration of these contracts, Centuri has not disclosed the transaction price for the remaining performance obligations as of the end of each reporting period or when the Company expects to recognize the revenue.

As of June 30, 2020, Centuri had 26 contracts with an original duration of more than one year. The aggregate amount of the transaction price allocated to the ~~fair values~~unsatisfied performance obligations of ~~assets associated with pension and postretirement benefit plans, asset values were last updated as required~~these contracts as of ~~December 2016. Refer~~June 30, 2020 was $60.1 million. Centuri expects to recognize the remaining performance obligations over approximately the next two years; however, the timing of that recognition is largely within the control of the customer, including when the necessary equipment and materials required to complete the work are provided by the customer.

Utility infrastructure services contracts receivable consists of the following:


(Thousands of dollars)	June 30, 2020		December 31, 2019
Billed on completed contracts and contracts in progress	$	235,971	$	216,268
Other receivables	5,389		8,456
Contracts receivable, gross	241,360		224,724
Allowance for doubtful accounts	(443)		(820)
Contracts receivable, net	$	240,917	$	223,904


			21


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Note ~~10 – Pension and Other Post Retirement Benefits in the 2016 Annual Report to Shareholders on Form10-K.~~

~~Note 5~~4 – Common Stock

~~In January 2017,~~

Only shares of the ~~holding company reorganization was made effective and each outstanding share of Southwest Gas Corporation~~Company’s common stock ~~was converted into a share of common stock in Southwest Gas Holdings, Inc.,~~are publicly traded on a~~one-for-one~~ ~~basis. The~~the New York Stock Exchange, under the ticker symbol ~~of the~~“SWX.” Share-based compensation related to Southwest and Centuri is based on stock ~~“SWX,” remained unchanged, and Southwest Gas Corporation became a wholly owned subsidiary~~awards to be issued in shares of Southwest Gas Holdings, Inc.

On ~~March 29, 2017,~~May 8, 2019, the Company filed with the ~~Securities Exchange Commission (“SEC”)~~SEC an automatic shelf registration statement on FormS-3 (FileNo. ~~333-217018)~~333-231297), which became effective upon filing, for the offer and sale of up to ~~$150~~$300 million of common stock from time to time inat-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated ~~March 29, 2017,~~May 8, 2019, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). ~~During~~The following table provides the ~~three months~~activity under the Equity Shelf Program for the three-month and ~~nine months ending September~~life-to-date periods ended June 30, 2017, the Company sold, through the continuous equity offering program with BNY Mellon Capital Markets, LLC as agent, an aggregate of 147,077 shares of the Company’s common stock in the open market at a weighted average price of $80.07 per share, resulting in proceeds to the Company of $11,659,104, net of $117,769 in agent commissions. 2020:


	Three Months Ended		Life-To-Date Ended
	June 30, 2020
Gross proceeds	$	49,999,986	$	174,337,234
Less: agent commissions	(499,999)		(1,743,372)
Net proceeds	$	49,499,987	$	172,593,862
Number of shares sold	720,212		2,199,157
Weighted average price per share	$	69.42	$	79.27

As of ~~September~~June 30, ~~2017,~~2020, the Company had up to ~~$138,223,127~~$125,662,766 of common stock available for sale under the program. Net proceeds from the sale of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension, or improvement of pipeline systems and facilities located in and around the communities served by Southwest. ~~Commensurate with these intentions, proceeds during the 3~~^rd ~~quarter of 2017 were contributed to, and reflected in the records of, Southwest (as a capital contribution from the parent holding company).~~

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company issued approximately ~~103,000~~96,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan.

Additionally, during the six months ended June 30, 2020, the Company issued 86,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $6 million.


			22


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Note 65 – Debt

Long-Term Debt

~~Carrying amounts~~

Long-term debt is recognized in the Company’s and Southwest’s Condensed Consolidated Balance Sheets generally at the carrying value of ~~long-term debt~~the obligations outstanding. However, details surrounding the fair value and ~~related estimated~~individual carrying values of instruments are discussed below or provided in the table that follows.

The fair values as of ~~September 30, 2017 and December 31, 2016 are disclosed in the following table.~~ Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values. The fair values ~~as they are repaid quickly (in~~of the ~~case of~~revolving credit facility ~~borrowings)~~ and ~~have interest rates that reset frequently. These~~IDRBs are categorized as Level 1 based on the FASB’s fair value hierarchy, due to Southwest’s ability to access similar debt arrangements at measurement dates with comparable terms, including variable/market rates. Additionally, the borrowings by Southwest under its revolving credit facility are generally repaid quickly and the IDRBs have interest rates that reset frequently.

The fair values of Southwest’s debentures (which include senior ~~notes,~~ and ~~fixed-rate IDRBs~~medium-term notes) were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

pricing data, such as broker quotes and yields for similar securities adjusted for observable differences. Significant inputs used in the valuation generally include benchmark yield curves, credit ratings, and issuer spreads. The external credit rating, coupon rate, and maturity of each security are considered in the valuation, as applicable. The fair values of debentures ~~and fixed-rate IDRBs~~ are categorized as Level ~~2 (observable market inputs based on market prices of similar securities).~~ 2.

The Centuri secured revolving credit and term loan facility and ~~Centuri~~Centuri’s other debt obligations (not actively traded) are categorized as Level ~~3, based on significant unobservable inputs to their fair values.~~3. Because Centuri’s debt is not publicly traded, fair values for ~~the~~its secured revolving credit and term loan facility and other debt obligations were based on a conventional discounted cash flow methodology ~~and utilized~~utilizing current market pricing yield curves, across Centuri’s debt maturity spectrum, of other industrial bonds with an assumed credit rating comparable to the Company’s.

   September 30, 2017    December 31, 2016
   Carrying    Market    Carrying    Market
   Amount    Value    Amount    Value
(Thousands of dollars)

Southwest Gas Corporation:

Debentures:

Notes, 4.45%, due 2020
   $ 125,000    $ 130,325    $ 125,000    $ 129,703
Notes, 6.1%, due 2041
   125,000    154,434    125,000    149,734
Notes, 3.875%, due 2022
   250,000    258,943    250,000    254,900
Notes, 4.875%, due 2043
   250,000    275,168    250,000    266,793
Notes, 3.8%, due 2046
   300,000    292,578    300,000    283,029
8% Series, due 2026
   75,000    97,218    75,000    94,691
Medium-term notes, 7.59% series, due 2017
   —      —      25,000    25,040
Medium-term notes, 7.78% series, due 2022
   25,000    29,174    25,000    29,290
Medium-term notes, 7.92% series, due 2027
   25,000    31,964    25,000    31,905
Medium-term notes, 6.76% series, due 2027
   7,500    8,920    7,500    8,769
Unamortized discount and debt issuance costs
   (9,498 )       (9,931 )





   1,173,002       1,197,569





Revolving credit facility and commercial paper
   150,000    150,000    5,000    5,000





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
Unamortized discount and debt issuance costs
   (2,212 )       (2,489 )





   197,788       197,511





Less: current maturities
   —         (25,000 )





Long-term debt, less current maturities - Southwest Gas Corporation
   $ 1,520,790       $ 1,375,080





Centuri:

Centuri term loan facility
   $ 107,250    107,403    $ 106,700    106,819
Unamortized debt issuance costs
   (383 )       (516 )





   106,867       106,184
Centuri secured revolving credit facility
   81,250    81,402    41,185    41,292
Centuri other debt obligations
   51,527    51,978    52,635    52,840
Less: current maturities
   (28,453 )       (25,101 )





Long-term debt, less current maturities - Centuri
   $ 211,191       $ 174,903





Consolidated Southwest Gas Holdings, Inc.:

Southwest Gas Corporation long-term debt
   $ 1,520,790       $ 1,400,080
Centuri long-term debt
   239,644       200,004
Less: current maturities
   (28,453 )       (50,101 )





Long-term debt, less current maturities - Southwest Gas Holdings, Inc.
   $ 1,731,981       $ 1,549,983


			23


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

~~In March 2017,~~


	June 30, 2020						December 31, 2019
	Carrying Amount		Market Value		Carrying Amount		Market Value
(Thousands of dollars)
Southwest Gas Corporation:
Debentures:
Notes, 4.45%, due 2020	$	125,000	$	125,591	$	125,000	$	126,673
Notes, 6.1%, due 2041	125,000		170,349		125,000		162,666
Notes, 3.875%, due 2022	250,000		261,013		250,000		258,550
Notes, 4.875%, due 2043	250,000		311,565		250,000		291,928
Notes, 3.8%, due 2046	300,000		328,707		300,000		308,307
Notes, 3.7%, due 2028	300,000		336,504		300,000		320,685
Notes, 4.15%, due 2049	300,000		325,410		300,000		330,138
Notes, 2.2%, due 2030	450,000		462,708		—		—
8% Series, due 2026	75,000		99,588		75,000		96,905
Medium-term notes, 7.78% series, due 2022	25,000		27,224		25,000		27,500
Medium-term notes, 7.92% series, due 2027	25,000		33,720		25,000		32,543
Medium-term notes, 6.76% series, due 2027	7,500		9,549		7,500		9,156
Unamortized discount and debt issuance costs	(18,488)				(14,450)
	2,214,012				1,768,050
Revolving credit facility and commercial paper	—		—		150,000		150,000
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
Unamortized discount and debt issuance costs	(1,594)				(1,717)
	198,406				198,283
Less: current maturities	(125,000)				(125,000)
Long-term debt, less current maturities - Southwest Gas Corporation	$	2,287,418			$	1,991,333
Centuri:
Centuri term loan facility	$	230,991	$	235,906	$	244,812	$	252,182
Unamortized debt issuance costs	(960)				(1,101)
	230,031				243,711
Centuri secured revolving credit facility	66,645		66,672		60,021		60,057
Centuri other debt obligations	101,891		104,500		43,929		44,787
Less: current maturities	(46,668)				(38,512)
Long-term debt, less current maturities - Centuri	$	351,899			$	309,149
Consolidated Southwest Gas Holdings, Inc.:
Southwest Gas Corporation long-term debt	$	2,412,418			$	2,116,333
Centuri long-term debt	398,567				347,661
Less: current maturities	(171,668)				(163,512)
Long-term debt, less current maturities - Southwest Gas Holdings, Inc.	$	2,639,317			$	2,300,482

Southwest ~~amended its~~has a $400 million credit facility, increasing the borrowing capacity from $300 million to $400 million. Also, the facility was previously scheduled to expire in March 2021 and was extended to March 2022. Southwest continues to designatefor which it has designated $150 million of associated capacity ~~related to the facility~~ as long-term debt and ~~with the total capacity now available, has designated~~ the remaining $250 million, for working capital purposes. Interest rates for the credit facility are calculated at either the ~~London Interbank Offered Rate (“LIBOR”)~~LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on ~~the~~ Southwest’s senior unsecured debt rating. At ~~September~~June 30, ~~2017,~~2020, the applicable margin is 1% for loans bearing interest with reference to LIBOR and


			24


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

0% for loans bearing interest with reference to the alternative base rate. At ~~September~~June 30, ~~2017, $150 million was~~2020, there were 0 outstanding amounts on the long-term portion ~~and $83 million was outstanding on~~of the ~~short-term portion of this~~facility.

On April 10, 2020, Southwest amended its credit facility ~~(See~~~~Note 7 – Short-Term Debt~~).

At September 30, 2017, Centuri has a $300 million secured revolving credit and term loan facility that is scheduled to expire in October 2019. This facility includes a revolving credit facility and a term loan facility. The term loan facility portion had an initial limit of approximately $150 million, which was reached in 2014 and had $107 million outstanding (after repayments) at September 30, 2017. The $300 million revolving credit and term loan facility is secured by substantially all of Centuri’s assets except those explicitly excludedagreement; total borrowing capacity under the ~~terms of~~amended agreement remains $400 million. The amended agreement extended the maturity date from March 2022 to April 2025. Under the amended agreement, ~~(including owned real estate and certain certificated vehicles). Centuri assets securing~~ the ~~facility at September 30, 2017 totaled $526 million. At September 30, 2017, $189 million in borrowings were outstanding under the Centuri facility.~~

~~Note 7 – Short-Term Debt~~

In March 2017, Southwest Gas Holdings, Inc. entered into a credit facility with a borrowing capacity of $100 million that expires in March 2022. The Company intends to utilize this facility for short-term financing needs. Interest rates for this facility are calculated at either the LIBOR or the “alternate base rate,” plus in each case an applicable margin ~~that is determined based on the Company’s senior unsecured debt rating. The applicable margin ranges~~will range from ~~0.75%~~0.750% to ~~1.50%~~1.500% for loans bearing interest with reference to LIBOR and from 0%0.000% to ~~0.5%~~0.500% for loans bearing interest with reference to ~~the alternative~~an alternate base rate. ~~The Company~~Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest may further amend the credit facility with a replacement rate as set forth in the amended agreement. Southwest is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. ~~At September 30, 2017, $27.5 million was outstanding under this facility.~~

~~As discussed~~The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in~~Note 6 – Long-Term Debt~~, the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.

Southwest has a ~~$400~~$50 million commercial paper program. Issuances under the commercial paper program are supported by Southwest’s revolving credit facility and, therefore, do not represent additional borrowing capacity under the credit facility. Borrowings under the commercial paper program are designated as long-term debt. Interest rates for the program are calculated at the then current commercial paper rate. At June 30, 2020, 0 borrowings were outstanding under the commercial paper program.

In June 2020, Southwest issued $450 million aggregate principal amount of 2.20% Senior Notes at a discount of 0.126%. The notes will mature in June 2030. A portion of the net proceeds was used to reduce borrowings under Southwest’s credit facility. Additionally, Southwest intends to use a portion of the net proceeds from the issuance of the 2.20% Senior Notes to redeem the 4.45% $125 million Notes due in December 2020. On July 31, 2020, Southwest provided notice to the holders of the 4.45% Notes of Southwest’s intention to redeem the notes in full on September 1, 2020 at a redemption price of 100% plus accrued and unpaid interest.

Centuri has a $590 million senior secured revolving credit and term loan facility, scheduled to expire in November 2023. The capacity of the line of credit portion of the facility is $325 million; related amounts borrowed and repaid are available to be re-borrowed. The term loan portion of the facility has a limit of approximately $265 million. The $590 million facility is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri’s assets securing the facility at June 30, 2020 totaled $1.3 billion. At June 30, 2020, $298 million in borrowings were outstanding under Centuri’s combined secured revolving credit and term loan facility. Centuri also received proceeds of $70 million in equipment loans in 2020, which were used for repayment of outstanding borrowings on the line of credit.

Short-Term Debt

Southwest Gas Holdings, Inc. has a $100 million credit facility that is ~~scheduled~~primarily used for short-term financing needs. There was $58 million outstanding under this credit facility as of June 30, 2020.

On April 10, 2020, Southwest Gas Holdings, Inc. amended its existing credit facility, extending the maturity date to ~~expire~~April 2025. The revolving borrowing capacity under the amended agreement remains at $100 million. Interest rates for the amended facility are calculated at either LIBOR or an “alternate base rate,” plus in ~~March 2022,~~each case an applicable margin that is determined based on Southwest Gas Holdings, Inc.’s senior unsecured long-term debt rating. The applicable margin under the amended agreement ranges from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and from 0.000% to 0.500% for loans bearing interest with reference to the alternate base rate. Upon the occurrence of ~~which~~certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest Gas Holdings, Inc. may amend the credit facility agreement with a replacement rate, as set forth in the amended agreement. Southwest Gas Holdings, Inc. is also required to pay a commitment fee on the unfunded portion of the commitments based on its senior unsecured long-term debt rating. The commitment fee ranges from 0.075% to 0.200% per annum. The amended agreement contains certain representations and warranties and affirmative and negative covenants similar to those contained in the previous agreement. In addition, the amended agreement contains a financial covenant requiring Southwest Gas Holdings, Inc. to maintain a ratio of funded debt to total capitalization not to exceed 0.70 to 1.00 as of the end of any quarter of any fiscal year.

As discussed previously, under Southwest’s $400 million credit facility, $250 million has been designated by management for working capital purposes. Southwest had ~~$83 million in~~0 short-term borrowings outstanding at ~~September~~June 30, ~~2017~~2020 under this facility.


			25


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

LIBOR

It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of June 30, 2020, $58 million and $188 million, respectively, for the holding company and Centuri, was outstanding under credit facilities whereby interest was with reference to LIBOR and for which maturity dates extend beyond 2021; no such borrowings were outstanding for Southwest. As of June 30, 2020, these LIBOR-based borrowings approximately 9% of total debt (including current maturities) for the Company overall. Southwest and Southwest Gas Holdings, Inc., in accordance with the April 2020 amendments to their respective facilities, may make further amendments with replacement rates if LIBOR is discontinued. However, replacement rates are not currently determinable. In order to mitigate the impact of a discontinuance on the Company’s and Southwest’s financial condition and results of operations, management will continue to monitor developments and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate debt. At this time the Company and Southwest can provide no assurances as to the impact a LIBOR discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predictable or less attractive than LIBOR.


			26


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Note 86 – ~~Equity,~~ Other Comprehensive Income and Accumulated Other Comprehensive Income

The table below provides details of activity in equity and the redeemable noncontrolling interest for Southwest Gas Holdings, Inc. on a consolidated basis during the nine months ended September 30, 2017.

Southwest Gas Holdings, Inc. Equity
Accumulated Redeemable
Additional Other Non- Noncontrolling
Common Stock Paid-in Comprehensive Retained controlling Interest
(In thousands, except per share amounts)
Shares Amount Capital Income (Loss) Earnings Interest Total (Temporary
Equity)
DECEMBER 31, 2016
47,482 $ 49,112 $ 903,123 $ (48,008 ) $ 759,263 $ (2,217 ) $ 1,661,273 $ 22,590
Common stock issuances
250 250 21,090 21,340
Net income (loss)
97,376 (78 ) 97,298 248
Redemption value adjustments
(355 ) (355 ) 355
Foreign currency exchange translation adj.
1,850 1,850 11
Redemption of Centuri shares from noncontrolling parties
(23,000 )
Other comprehensive income (loss):

Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax
1,786 1,786
Amounts reclassified to net income, net of tax (FSIRS)
1,554 1,554
Centuri dividend to redeemable noncontrolling interest
(204 )
Dividends declared

Common: $1.485 per share
(71,350 ) (71,350 )

SEPTEMBER 30, 2017
47,732 $ 49,362 $ 924,213 $ (42,818 ) $ 784,934 $ (2,295 ) $ 1,713,396 $ —

The table below provides details of activity in equity for Southwest Gas Corporation during the nine months ended September 30, 2017. Effective in January 2017, Southwest became a subsidiary of Southwest Gas Holdings, Inc., and only equity shares of the latter are publicly traded, under the ticker symbol “SWX.”

   Southwest Gas Corporation Equity
            Accumulated
         Additional    Other
   Common Stock    Paid-in    Comprehensive Retained
(In thousands, except per share amounts)
   Shares    Amount    Capital    Income (Loss) Earnings Total
DECEMBER 31, 2016
   47,482    $ 49,112    $ 897,346    $ (45,639 ) $ 767,061 $ 1,667,880
Net income
            82,436 82,436
Other comprehensive income (loss):

Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax
            1,786 1,786
Amounts reclassified to net income, net of tax (FSIRS)
            1,554 1,554
Distribution to Southwest Gas Holdings, Inc. investment in discontinued operations
            (182,773 ) (182,773 )
Stock-based compensation (a)
         8,576    (587 ) 7,989
Dividends declared to Southwest Gas Holdings, Inc.
            (60,130 ) (60,130 )
Contributions from Southwest Gas Holdings, Inc.
         11,659    11,659








SEPTEMBER 30, 2017
   47,482    $ 49,112    $ 917,581    $ (42,299 ) $ 606,007 $ 1,530,401

~~(a)~~

Stock-based compensation is based on stock awards of Southwest Gas Corporation to be issued in shares of Southwest Gas Holdings, Inc. The table above gives effect to the holding company reorganization whereby Southwest and Centuri became subsidiaries of the Company. The historic investment in Centuri was distributed to the parent holding company. This presentation is only applicable to Southwest and not to the Company overall, as Centuri continues to be included in


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

the continuing operations of the Company. Also in connection with the holding company creation, compensation plans of Southwest include programs that will be settled with equity shares issued by Southwest Gas Holdings, Inc. Management has determined that when no consideration is directly exchanged for these programs between Southwest and the Company, the accounting impact at Southwest for these programs is reflected both as compensation expense and as an equity contribution (of the parent) in Southwest.

The following information ~~provides insight into amounts impacting~~presents the Company’s Other ~~Comprehensive Income (Loss)~~comprehensive income (loss), both before and ~~after tax~~after-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated ~~Other Comprehensive Income~~other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and the ~~associated column in the equity table above, as well as the Redeemable Noncontrolling Interest. See~~ ~~Note 4 – Derivatives and Fair Value Measurements~~ ~~for additional information on the FSIRS.~~

Condensed Consolidated Statements of Equity.

Related Tax Effects Allocated to Each Component of Other Comprehensive Income (Loss)

~~(Thousands of dollars)~~

   Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
   Before- Tax Net-of- Before- Tax Net-of-
   Tax (Expense) Tax Tax (Expense) Tax
   Amount or Benefit (1) Amount Amount or Benefit (1) Amount
Defined benefit pension plans:

Amortization of prior service cost
   $ 333 $ (126 ) $ 207 $ 333 $ (126 ) $ 207
Amortization of net actuarial (gain)/loss
   6,362 (2,418 ) 3,944 6,767 (2,571 ) 4,196
Regulatory adjustment
   (5,734 ) 2,179 (3,555 ) (6,122 ) 2,326 (3,796 )


Pension plans other comprehensive income (loss)
   961 (365 ) 596 978 (371 ) 607
FSIRS (designated hedging activities):

Amounts reclassifed into net income
   835 (317 ) 518 835 (317 ) 518


FSIRS other comprehensive income
   835 (317 ) 518 835 (317 ) 518


Total other comprehensive income (loss) - Southwest Gas Corporation
   1,796 (682 ) 1,114 1,813 (688 ) 1,125


Foreign currency translation adjustments:

Translation adjustments
   1,012 —   1,012 (238 ) —   (238 )


Foreign currency other comprehensive income (loss)
   1,012 —   1,012 (238 ) —   (238 )


Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.
   $ 2,808 $ (682 ) $ 2,126 $ 1,575 $ (688 ) $ 887


   Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017
   Before- Tax Net-of- Before- Tax Net-of-
   Tax (Expense) Tax Tax (Expense) Tax
   Amount or Benefit (1) Amount Amount or Benefit (1) Amount
Defined benefit pension plans:

Amortization of prior service cost
   $ 1,001 $ (380 ) $ 621 $ 1,001 $ (380 ) $ 621
Amortization of net actuarial (gain)/loss
   19,084 (7,252 ) 11,832 20,300 (7,714 ) 12,586
Regulatory adjustment
   (17,204 ) 6,537 (10,667 ) (18,368 ) 6,980 (11,388 )


Pension plans other comprehensive income (loss)
   2,881 (1,095 ) 1,786 2,933 (1,114 ) 1,819
FSIRS (designated hedging activities):

Amounts reclassifed into net income
   2,507 (953 ) 1,554 2,508 (952 ) 1,556


FSIRS other comprehensive income
   2,507 (953 ) 1,554 2,508 (952 ) 1,556


Total other comprehensive income (loss)—Southwest Gas Corporation
   5,388 (2,048 ) 3,340 5,441 (2,066 ) 3,375


Foreign currency translation adjustments:

Translation adjustments
   1,861 —   1,861 614 —   614


Foreign currency other comprehensive income (loss)
   1,861 —   1,861 614 —   614


Total other comprehensive income (loss)
   $ 7,249 $ (2,048 ) $ 5,201 $ 6,055 $ (2,066 ) $ 3,989


	Three Months Ended June 30, 2020										Three Months Ended June 30, 2019
(Thousands of dollars)	Before- Tax Amount		Tax (Expense) or Benefit (1)		Net-of- Tax Amount		Before- Tax Amount		Tax (Expense) or Benefit (1)		Net-of- Tax Amount
Defined benefit pension plans:
Amortization of prior service cost	$	289	$	(69)	$	220	$	318	$	(76)	$	242
Amortization of net actuarial (gain)/loss	9,457		(2,270)		7,187		5,844		(1,403)		4,441
Regulatory adjustment	(8,395)		2,015		(6,380)		(5,348)		1,284		(4,064)
Pension plans other comprehensive income (loss)	1,351		(324)		1,027		814		(195)		619
FSIRS (designated hedging activities):
Amounts reclassified into net income	836		(201)		635		836		(200)		636
FSIRS other comprehensive income (loss)	836		(201)		635		836		(200)		636
Total other comprehensive income (loss) - Southwest Gas Corporation	2,187		(525)		1,662		1,650		(395)		1,255
Foreign currency translation adjustments:
Translation adjustments	1,794		—		1,794		787		—		787
Foreign currency other comprehensive income (loss)	1,794		—		1,794		787		—		787
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.	$	3,981	$	(525)	$	3,456	$	2,437	$	(395)	$	2,042

	Six Months Ended June 30, 2020										Six Months Ended June 30, 2019
	Before- Tax Amount		Tax (Expense) or Benefit (1)		Net-of- Tax Amount		Before- Tax Amount		Tax (Expense) or Benefit (1)		Net-of- Tax Amount
Defined benefit pension plans:
Amortization of prior service cost	$	578	$	(138)	$	440	$	635	$	(152)	$	483
Amortization of net actuarial (gain)/loss	18,915		(4,540)		14,375		11,688		(2,805)		8,883
Regulatory adjustment	(16,790)		4,030		(12,760)		(10,695)		2,567		(8,128)
Pension plans other comprehensive income (loss)	2,703		(648)		2,055		1,628		(390)		1,238
FSIRS (designated hedging activities):
Amounts reclassified into net income	1,673		(402)		1,271		1,672		(401)		1,271
FSIRS other comprehensive income (loss)	1,673		(402)		1,271		1,672		(401)		1,271
Total other comprehensive income (loss) - Southwest Gas Corporation	4,376		(1,050)		3,326		3,300		(791)		2,509
Foreign currency translation adjustments:
Translation adjustments	(2,211)		—		(2,211)		1,578		—		1,578
Foreign currency other comprehensive income (loss)	(2,211)		—		(2,211)		1,578		—		1,578
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.	$	2,165	$	(1,050)	$	1,115	$	4,878	$	(791)	$	4,087


			27


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

   Twelve Months Ended
September 30, 2017 Twelve Months Ended
September 30, 2016
   Before- Tax Net-of- Before- Tax Net-of-
   Tax (Expense) Tax Tax (Expense) Tax
   Amount or Benefit (1) Amount Amount or Benefit (1) Amount
Defined benefit pension plans:

Net actuarial gain/(loss)
   $ (22,770 ) $ 8,652 $ (14,118 ) $ (30,519 ) $ 11,597 $ (18,922 )
Amortization of prior service cost
   1,335 (507 ) 828 1,335 (507 ) 828
Amortization of net actuarial (gain)/loss
   25,850 (9,823 ) 16,027 28,895 (10,980 ) 17,915
Regulatory adjustment
   (4,420 ) 1,679 (2,741 ) (653 ) 249 (404 )


Pension plans other comprehensive income (loss)
   (5 ) 1 (4 ) (942 ) 359 (583 )
FSIRS (designated hedging activities):

Amounts reclassifed into net income
   3,344 (1,271 ) 2,073 3,344 (1,271 ) 2,073


FSIRS other comprehensive income (loss)
   3,344 (1,271 ) 2,073 3,344 (1,271 ) 2,073


Total other comprehensive income (loss)—Southwest Gas Corporation
   3,339 (1,270 ) 2,069 2,402 (912 ) 1,490


Foreign currency translation adjustments:

Translation adjustments
   1,408 —   1,408 233 —   233


Foreign currency other comprehensive income (loss)
   1,408 —   1,408 233 —   233


Total other comprehensive income (loss)—Southwest Gas Holdings, Inc.
   $ 4,747 $ (1,270 ) $ 3,477 $ 2,635 $ (912 ) $ 1,723

~~(1)~~

Tax amounts are calculated using a 38% rate. The Company has elected to indefinitely reinvest the earnings of Centuri’s Canadian subsidiaries in Canada, thus preventing deferred taxes on such earnings. As a result of this assertion, the Company is not recognizing any tax effect or presenting a tax expense or benefit for the currency translation adjustment amount reported in Other Comprehensive Income, as repatriation of earnings is not anticipated.


	Twelve Months Ended June 30, 2020										Twelve Months Ended June 30, 2019
(Thousands of dollars)	Before- Tax Amount		Tax (Expense) or Benefit (1)		Net-of- Tax Amount		Before- Tax Amount		Tax (Expense) or Benefit (1)		Net-of- Tax Amount
Defined benefit pension plans:
Net actuarial gain/(loss)	$	(71,087)	$	17,061	$	(54,026)	$	(20,426)	$	4,902	$	(15,524)
Amortization of prior service cost	1,214		(291)		923		1,302		(312)		990
Amortization of net actuarial (gain)/loss	30,603		(7,345)		23,258		28,497		(6,839)		21,658
Prior service cost	(1,878)		452		(1,426)		—		—		—
Regulatory adjustment	30,849		(7,404)		23,445		(3,809)		914		(2,895)
Pension plans other comprehensive income (loss)	(10,299)		2,473		(7,826)		5,564		(1,335)		4,229
FSIRS (designated hedging activities):
Amounts reclassified into net income	3,345		(804)		2,541		3,344		(803)		2,541
FSIRS other comprehensive income (loss)	3,345		(804)		2,541		3,344		(803)		2,541
Total other comprehensive income (loss) - Southwest Gas Corporation	(6,954)		1,669		(5,285)		8,908		(2,138)		6,770
Foreign currency translation adjustments:
Translation adjustments	(1,751)		—		(1,751)		169		—		169
Foreign currency other comprehensive income (loss)	(1,751)		—		(1,751)		169		—		169
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.	$	(8,705)	$	1,669	$	(7,036)	$	9,077	$	(2,138)	$	6,939

(1)Tax amounts are calculated using a 24% rate. The Company has elected to indefinitely reinvest the earnings of Centuri’s Canadian subsidiaries in Canada, thus precluding deferred taxes on such earnings. As a result of this assertion, and no repatriation of earnings anticipated, the Company is not recognizing a tax effect or presenting a tax expense or benefit for currency translation adjustments reported in Other comprehensive income (loss).

Approximately ~~$2.1~~$2 million of realized losses (net of tax) related to ~~the FSIRS, reported~~Southwest’s forward-starting interest rate swaps (“FSIRS”), included in ~~Accumulated other comprehensive income (“AOCI”)~~AOCI at ~~September~~June 30, ~~2017,~~2020, will be reclassified into interest expense within the next 12 months as the related interest payments on long-term debt occur.

The following table represents a rollforward of AOCI, presented on the Company’s Condensed Consolidated Balance ~~Sheets:~~

~~AOCI—Rollforward~~

~~(Thousands~~Sheets and its Condensed Consolidated Statements of ~~dollars)~~

   Defined Benefit Plans FSIRS Foreign Currency Items
   Before-Tax Tax
(Expense)
Benefit (4) After-Tax Before-Tax Tax
(Expense)
Benefit (4) After-Tax Before-Tax Tax
(Expense)
Benefit    After-Tax AOCI
Beginning Balance AOCI December 31, 2016
   $ (57,613 ) $ 21,893 $ (35,720 ) $ (15,999 ) $ 6,080 $ (9,919 ) $ (2,369 ) $ —      $ (2,369 ) $ (48,008 )




Translation adjustments
   —   —   —   —   —   —   1,861 —      1,861 1,861




Other comprehensive income before reclassifications
   —   —   —   —   —   —   1,861 —      1,861 1,861
FSIRS amounts reclassified from AOCI (1)
   —   —   —   2,507 (953 ) 1,554 —   —      —   1,554
Amortization of prior service cost (2)
   1,001 (380 ) 621 —   —   —�� —   —      —   621
Amortization of net actuarial loss (2)
   19,084 (7,252 ) 11,832 —   —   —   —   —      —   11,832
Regulatory adjustment (3)
   (17,204 ) 6,537 (10,667 ) —   —   —   —   —      —   (10,667 )




Net current period other comprehensive income (loss)
   2,881 (1,095 ) 1,786 2,507 (953 ) 1,554 1,861 —      1,861 5,201
Less: Translation adjustment attributable to redeemable noncontrolling interest
   —   —   —   —   —   —   11 —      11 11




Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc.
   2,881 (1,095 ) 1,786 2,507 (953 ) 1,554 1,850 —      1,850 5,190




Ending Balance AOCI September 30, 2017
   $ (54,732 ) $ 20,798 $ (33,934 ) $ (13,492 ) $ 5,127 $ (8,365 ) $ (519 ) $ —      $ (519 ) $ (42,818 )

Equity:


	Defined Benefit Plans										FSIRS										Foreign Currency Items
(Thousands of dollars)	Before-Tax		Tax (Expense) Benefit (4)		After-Tax		Before-Tax		Tax (Expense) Benefit (4)		After-Tax		Before-Tax		Tax (Expense) Benefit		After-Tax		AOCI
Beginning Balance AOCI December 31, 2019	$	(66,601)	$	15,985	$	(50,616)	$	(5,966)	$	1,431	$	(4,535)	$	(1,581)	$	—	$	(1,581)	$	(56,732)
Translation adjustments	—		—		—		—		—		—		(2,211)		—		(2,211)		(2,211)
Other comprehensive income (loss) before reclassifications	—		—		—		—		—		—		(2,211)		—		(2,211)		(2,211)
FSIRS amounts reclassified from AOCI (1)	—		—		—		1,673		(402)		1,271		—		—		—		1,271
Amortization of prior service cost (2)	578		(138)		440		—		—		—		—		—		—		440
Amortization of net actuarial loss (2)	18,915		(4,540)		14,375		—		—		—		—		—		—		14,375
Regulatory adjustment (3)	(16,790)		4,030		(12,760)		—		—		—		—		—		—		(12,760)
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc.	2,703		(648)		2,055		1,673		(402)		1,271		(2,211)		—		(2,211)		1,115
Ending Balance AOCI June 30, 2020	$	(63,898)	$	15,337	$	(48,561)	$	(4,293)	$	1,029	$	(3,264)	$	(3,792)	$	—	$	(3,792)	$	(55,617)

(1)The FSIRS reclassification amounts are included in Net interest deductions on the Company’s Condensed Consolidated Statements of Income.

(2)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for additional details).

(3)The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in Deferred charges and other assets on the Company’s Condensed Consolidated Balance Sheets).

(4)Tax amounts are calculated using a 24% rate.

~~(1)~~

~~The FSIRS reclassification amounts are included in the Net interest deductions line item on the Company’s Condensed Consolidated Statements of Income.~~

~~(2)~~

~~These AOCI components are included in the computation of net periodic benefit cost (see~~~~Note 2 – Components of Net Periodic Benefit Cost~~~~for additional details).~~

~~(3)~~

The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in the Deferred charges and other assets line item on the Company’s Condensed Consolidated Balance Sheets).

~~(4)~~

~~Tax amounts are calculated using a 38% rate.~~


			28


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets:

~~AOCI—Rollforward~~

~~(Thousands~~


	Defined Benefit Plans										FSIRS
(Thousands of dollars)	Before-Tax		Tax (Expense) Benefit (8)		After-Tax		Before-Tax		Tax (Expense) Benefit (8)		After-Tax		AOCI
Beginning Balance AOCI December 31, 2019	$	(66,601)	$	15,985	$	(50,616)	$	(5,966)	$	1,431	$	(4,535)	$	(55,151)
FSIRS amounts reclassified from AOCI (5)	—		—		—		1,673		(402)		1,271		1,271
Amortization of prior service cost (6)	578		(138)		440		—		—		—		440
Amortization of net actuarial loss (6)	18,915		(4,540)		14,375		—		—		—		14,375
Regulatory adjustment (7)	(16,790)		4,030		(12,760)		—		—		—		(12,760)
Net current period other comprehensive income attributable to Southwest Gas Corporation	2,703		(648)		2,055		1,673		(402)		1,271		3,326
Ending Balance AOCI June 30, 2020	$	(63,898)	$	15,337	$	(48,561)	$	(4,293)	$	1,029	$	(3,264)	$	(51,825)

(5) The FSIRS reclassification amounts are included in Net interest deductions on Southwest’s Condensed Consolidated Statements of ~~dollars)~~

   Defined Benefit Plans FSIRS
   Before-Tax Tax
(Expense)
Benefit (8) After-Tax Before-Tax Tax
(Expense)
Benefit (8) After-Tax AOCI
Beginning Balance AOCI December 31, 2016
   $ (57,613 ) $ 21,893 $ (35,720 ) $ (15,999 ) $ 6,080 $ (9,919 ) $ (45,639 )


FSIRS amounts reclassified from AOCI (5)
   —   —   —   2,507 (953 ) 1,554 1,554
Amortization of prior service cost (6)
   1,001 (380 ) 621 —   —   —   621
Amortization of net actuarial loss (6)
   19,084 (7,252 ) 11,832 —   —   —   11,832
Regulatory adjustment (7)
   (17,204 ) 6,537 (10,667 ) —   —   —   (10,667 )


Net current period other comprehensive income (loss) attributable to Southwest Gas Corporation
   2,881 (1,095 ) 1,786 2,507 (953 ) 1,554 3,340


Ending Balance AOCI September 30, 2017
   $ (54,732 ) $ 20,798 $ (33,934 ) $ (13,492 ) $ 5,127 $ (8,365 ) $ (42,299 )

~~(5)~~

~~The FSIRS reclassification amounts are included in the Net interest deductions line item on Southwest’s Condensed Consolidated Statements of Income.~~

~~(6)~~

~~These AOCI components are included in the computation of net periodic benefit cost (see~~~~Note 2 – Components of Net Periodic Benefit Cost~~~~for additional details).~~

~~(7)~~

The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in the Deferred charges and other assets line item on Southwest’s Condensed Consolidated Balance Sheets).

~~(8)~~

~~Tax amounts are calculated using a 38% rate.~~

Income.

(6)These AOCI components are included in the computation of net periodic benefit cost (see Note 2 – Components of Net Periodic Benefit Cost for additional details).

(7)The regulatory adjustment represents the portion of the activity above that is expected to be recovered through rates in the future (the related regulatory asset is included in Deferred charges and other assets on Southwest’s Condensed Consolidated Balance Sheets).

(8)Tax amounts are calculated using a 24% rate.

The following table represents amounts (before income tax impacts) included in AOCI (in the tables above), that have not yet been recognized in net periodic benefit cost:

~~Amounts Recognized in AOCI (Before Tax)~~

~~(Thousands of dollars)~~

   September 30, 2017    December 31, 2016
Net actuarial (loss) gain
   $ (411,889 )    $ (430,973 )
Prior service cost
   (4,702 )    (5,703 )
Less: amount recognized in regulatory assets
   361,859    379,063




Recognized in AOCI
   $ (54,732 )    $ (57,613 )

~~Note 9 – Construction Services Redeemable Noncontrolling Interest~~

In conjunction with the acquisition of the Canadian construction businesses in October 2014, the previous owners of the acquired companies retained a 3.4% equity interest in Centuri, which, subject to an eligibility timeline, would have been redeemable at the election of the noncontrolling parties (in its entirety) beginning in July 2022. In August 2017, in advance of when otherwise eligible, the parties agreed to a current redemption. Southwest Gas Holdings, Inc. paid $23 million to the previous owners, thereby acquiring the remaining 3.4% equity interest in Centuri in accordance with an early redemption agreement. Accordingly, Centuri is now a wholly owned subsidiary of the Company.


(Thousands of dollars)	June 30, 2020		December 31, 2019
Net actuarial (loss) gain	$	(464,159)	$	(483,074)
Prior service cost	(3,063)		(3,641)
Less: amount recognized in regulatory assets	403,324		420,114��
Recognized in AOCI	$	(63,898)	$	(66,601)


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

~~The following depicts changes to the balance of the redeemable noncontrolling interest between the indicated periods.~~

   Redeemable
Noncontrolling
Interest
(Thousands of dollars):
Balance, December 31, 2016
   $ 22,590
Net income attributable to redeemable noncontrolling interest
   248
Foreign currency exchange translation adjustment
   11
Centuri dividend to redeemable noncontrolling interest
   (204 )
Adjustment to redemption value
   355
Redemption of Centuri shares from noncontrolling parties
   (23,000 )


Balance, September 30, 2017
   $ —

~~Note 10 – Reorganization Impacts – Discontinued Operations Solely Related to Southwest Gas Corporation~~

No substantive change has occurred with regard to the Company’s business segments on the whole, or in the primary businesses comprising those segments (Centuri operations continue to be part of continuing operations of the controlled group of companies), and financial information related to Centuri continues to be included in condensed consolidated financial statements of Southwest Gas Holdings, Inc.

However, as part of the holding company reorganization effective January 2017, Centuri is no longer a subsidiary of Southwest; whereas historically, Centuri had been a direct subsidiary of Southwest. To give effect to this change, the condensed consolidated financial statements related to Southwest Gas Corporation, which are separately included in this~~Form 10-Q,~~ ~~depict Centuri-related amounts as discontinued operations for periods prior to January 2017.~~

Due to the discontinued operations accounting reflection, the following disclosures provide additional information regarding the assets, liabilities, equity, revenues, and expenses of Centuri which are shown as discontinued operations on the condensed consolidated financial statements of Southwest Gas Corporation for periods prior to the beginning of 2017.

The following table presents the major categories of assets and liabilities within the amounts reported as discontinued operations – construction services in the Condensed Consolidated Balance Sheet of Southwest Gas Corporation:


~~(Thousands of dollars)~~			29			~~December 31, 2016~~


~~Assets:~~
~~Other property and investments~~ SOUTHWEST GAS HOLDINGS, INC.		$	~~233,774~~	Form 10-Q
~~Cash and cash equivalents~~ SOUTHWEST GAS CORPORATION			~~9,042~~	June 30, 2020
~~Accounts receivable, net of allowances~~	~~173,300~~
~~Prepaids and other current assets~~	~~10,470~~
~~Goodwill~~	~~129,888~~
~~Other noncurrent assets~~	~~22,897~~

Note 7 – Segment Information

Centuri accounts for the services provided to Southwest at contractual prices at contract inception. Accounts receivable for these services, which are not eliminated during consolidation, are presented in the table below:


(Thousands of dollars)	June 30, 2020		December 31, 2019
Centuri accounts receivable for services provided to Southwest	$	17,364	$	15,235

The Company has 2 reportable segments: natural gas operations and utility infrastructure services. Southwest has a single reportable segment that is referred to herein as the natural gas operations segment of the Company. In order to reconcile to net income as disclosed in the Condensed Consolidated Statements of Income, an Other column is included associated with impacts of corporate and administrative activities related to Southwest Gas Holdings, Inc. The financial information pertaining to the natural gas operations and utility infrastructure services segments is as follows:


(Thousands of dollars)	Natural Gas Operations		Utility Infrastructure Services		Other		Total
Three Months Ended June 30, 2020
Revenues from external customers	$	262,434	$	457,890	$	—	$	720,324
Intersegment revenues	—		36,923		—		36,923
Total	$	262,434	$	494,813	$	—	$	757,247
Segment net income (loss)	$	11,942	$	26,267	$	(244)	$	37,965

Three Months Ended June 30, 2019
Revenues from external customers	$	258,711	$	405,218	$	—	$	663,929
Intersegment revenues	—		49,082		—		49,082
Total	$	258,711	$	454,300	$	—	$	713,011
Segment net income (loss)	$	3,369	$	18,918	$	(231)	$	22,056

(Thousands of dollars)	Natural Gas Operations		Utility Infrastructure Services		Other		Total
Six Months Ended June 30, 2020
Revenues from external customers	$	765,261	$	758,181	$	—	$	1,523,442
Intersegment revenues	—		70,125		—		70,125
Total	$	765,261	$	828,306	$	—	$	1,593,567
Segment net income (loss)	$	95,541	$	16,063	$	(1,097)	$	110,507

Six Months Ended June 30, 2019
Revenues from external customers	$	779,388	$	679,407	$	—	$	1,458,795
Intersegment revenues	—		87,755		—		87,755
Total	$	779,388	$	767,162	$	—	$	1,546,550
Segment net income (loss)	$	106,758	$	10,887	$	(780)	$	116,865


~~Discontinued operations - construction services - assets~~	$	~~579,371~~

~~Liabilities:~~
~~Current maturities of long-term debt~~		30	$	~~25,101~~
~~Accounts payable~~		~~46,440~~
~~Other current liabilities~~		~~74,518~~
~~Long-term debt, less current maturities~~		~~174,903~~
~~Deferred income taxes and other deferred credits~~		~~59,653~~


~~Discontinued operations—construction services—liabilities~~	$	~~380,615~~


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

~~The following table presents the components of the Discontinued operations – construction servicesnon-owner~~ ~~equity amount shown in the Southwest Gas Corporation Condensed Consolidated Balance Sheet:~~

(Thousands of dollars)    December 31, 2016
Construction services equity
   $ (4,390 )
Construction services noncontrolling interest
   (2,217 )
Construction services redeemable noncontrolling interest
   22,590


Discontinued operations - construction servicesnon-owner equity
   $ 15,983

The following table presents the major income statement components of discontinued operations – construction services reported in the Condensed Consolidated Income Statements of Southwest Gas Corporation:

~~Results of Construction Services~~

   Three    Nine    Twelve    Twelve
   Months Ended    Months Ended    Months Ended    Months Ended
(Thousands of dollars)    September 30, 2016    September 30, 2016    September 30, 2017    September 30, 2016
Construction revenues
   $ 339,790    $ 838,038    $ 301,040    $ 1,127,982
Operating expenses:

Construction expenses
   300,611    757,919    266,504    1,009,188
Depreciation and amortization
   13,409    43,351    12,318    58,368








Operating income
   25,770    36,768    22,218    60,426
Other income (deductions)
   44    44    1,149    1,246
Net interest deductions
   1,794    4,945    1,718    6,738








Income before income taxes
   24,020    31,867    21,649    54,934
Income tax expense
   8,708    12,042    7,842    20,711








Net income
   15,312    19,825    13,807    34,223
Net income attributable to noncontrolling interests
   435    500    514    1,079








Discontinued operations - construction services - net income
   $ 14,877    $ 19,325    $ 13,293    $ 33,144


(Thousands of dollars)	Natural Gas Operations		Utility Infrastructure Services		Other		Total
Twelve Months Ended June 30, 2020
Revenues from external customers	$	1,354,812	$	1,671,026	$	—	$	3,025,838
Intersegment revenues	—		141,096		—		141,096
Total	$	1,354,812	$	1,812,122	$	—	$	3,166,934
Segment net income (loss)	$	151,954	$	57,581	$	(1,957)	$	207,578

Twelve Months Ended June 30, 2019
Revenues from external customers	$	1,367,124	$	1,470,787	$	—	$	2,837,911
Intersegment revenues	—		163,439		—		163,439
Total	$	1,367,124	$	1,634,226	$	—	$	3,001,350
Segment net income (loss)	$	152,629	$	47,629	$	(1,758)	$	198,500


			31


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

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

Southwest Gas Holdings, Inc. is a holding company that owns all of the shares of common stock of Southwest Gas Corporation (“Southwest” or the “natural gas operations” segment) and ~~prior to August 2017, 96.6%~~all of the shares of common stock of Centuri ~~Construction~~ Group, Inc. (“~~Centuri”~~Centuri,” or the ~~“construction~~“utility infrastructure services” segment). During August 2017, Southwest Gas Holdings, Inc. acquired the remaining 3.4% equity interest in Centuri that was held by the previous owners (and reflected as a redeemable noncontrolling interest). Therefore, Centuri is now a wholly owned subsidiary of Southwest Gas Holdings, Inc. Also, as part of the holding company reorganization effective January 2017, Centuri and Southwest are now subsidiaries of Southwest Gas Holdings, Inc.; whereas historically, Centuri had been a direct subsidiary of Southwest. Southwest Gas Holdings, Inc. and its subsidiaries ~~(the “Company”) have two business segments (natural gas operations and construction services), which~~ are ~~discussed below.~~

collectively referred to as the “Company.”

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

As of ~~September~~June 30, ~~2017 (on a seasonally adjusted basis),~~2020, Southwest had ~~1,999,000~~2,102,000 residential, commercial, industrial, and other natural gas customers, of which ~~1,065,000~~1,121,000 customers were located in Arizona, ~~741,000~~781,000 in Nevada, and ~~193,000~~200,000 in California. Over the past twelve months, first time meter sets were approximately 36,000, compared to 33,000 for the twelve months ending June 2019. The remaining increase in active customer accounts compared to the June 30, 2019 total of 2,061,000 was primarily due to a management-initiated moratorium on disconnections as a result of the COVID-19 pandemic. As utility service is an essential service to the residents in the states in which Southwest operates, it implemented the temporary moratorium in March 2020 and also ceased charging late fees until further notice. We can provide no assurances as to when the moratorium will be lifted. Residential and small commercial customers represented over 99% of ~~the~~the total customer base. During the twelve months ended ~~September~~June 30, ~~2017, 54%~~2020, 53% of operating margin (gas operating revenues less the net cost of gas sold) was earned in Arizona, ~~35%~~36% in Nevada, and 11% in California. During this same period, Southwest earned 85% of its operating margin ~~(gas operating revenues less the net cost of gas sold)~~ from residential and small commercial ~~customers,~~customers, 3% from other sales customers, and 12% ~~from~~from transportation customers. ~~These~~While these general patterns are expected to remain materially consistent for the foreseeable ~~future.~~

future, the global COVID-19 pandemic, as discussed further below, could impact these statistics and associated patterns in the short term.

Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating margin is a financial measure defined by management as gas operating revenues less the net cost of gas sold. However, operating margin is not specifically defined in accounting principles generally accepted in the United States (“U.S. GAAP”). Thus operating margin is considered anon-GAAP measure. Management uses this financial measure because natural gas operating revenues include the net cost of gas sold, which is a tracked cost that is passed through to customers without markup under purchased gas adjustment (“PGA”) mechanisms. Fluctuations in the net cost of gas sold impact revenues on adollar-for-dollar basis, but do not impact operating margin or operating income. Therefore, management believes operating margin provides investors and other interested parties with useful and relevant information to analyze Southwest’s financial performance in a rate-regulated environment. The principal factors affecting changes in operating margin are general rate relief (including impacts of infrastructure trackers) and customer growth.

Commission decisions on the amount and timing of such relief may impact our earnings, such as with the current Arizona general rate case, whereby hearings were deferred amidst the current pandemic, and both a decision and new rate establishment are expected to occur later than originally expected. Refer to the Summary Operating Results table for a reconciliation of revenues to operating margin, and refer to Rates and Regulatory Proceedings in this Management’s Discussion and Analysis.

The demand for natural gas is seasonal, with greater demand in the colder winter months and decreased demand in the warmer summer months. All of Southwest’s service territories have decoupled rate structures (alternative revenue programs), which are designed to eliminate the direct link between volumetric sales and revenue, thereby mitigating the impacts of unusual weather variability and conservation on operating margin, allowing Southwest to pursue energy efficiency initiatives.

~~Construction~~Canada.


			32


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Utility infrastructure services activity ~~is cyclical and~~ can be ~~significantly~~ impacted by changes in ~~weather, general and local economic conditions (including the housing market), interest rates, employment levels, job growth, pipe~~infrastructure replacement programs of utilities, weather, and local and federal regulation (including tax rates and incentives). During the past few years, utilities


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

have implemented or modified ~~pipeline~~system integrity management programs to enhance safety pursuant to federal and state mandates. These programs ~~coupled with recent bonus depreciation tax deduction incentives,~~ have resulted in a significant increase following those mandates in multi-year ~~pipeline~~utility system replacement projects throughout the U.S. Generally, Centuri revenues are lowest during the first quarter of the year due to less favorable winter weather conditions. Revenues typically improve as more favorable weather conditions occur during the summer and fall months. ~~This is expected in both the U.S. and Canadian markets.~~ In certain circumstances, such as with large bid contracts (especially those of a longer duration), or unit-price contracts with revenue caps, results may be impacted by differences between costs incurred and those anticipated when the work was originally bid. Work awarded, or failing to be awarded, by individual large customers can significantly impact operating results.

COVID-19 Pandemic

In March 2020, the World Health Organization categorized the novel coronavirus (“COVID-19”) as a pandemic, and President Donald Trump declared the COVID-19 outbreak a national emergency. The outbreak resulted in government officials implementing stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” orders, travel restrictions, business curtailments, school closures, and other measures. Certain jurisdictions have begun re-opening only to return to further restrictions in the face of new COVID-19 cases. In addition, governments and central banks in several parts of the world enacted fiscal and monetary stimulus measures to mitigate financial impacts of COVID-19 on individuals and businesses.

Our utility operations are considered an essential service and Southwest continues to provide services to meet the demand of its customers, even while many other types of businesses were or are closed. Consistent with federal and state guidelines, Southwest has continued to operate across its territories. Similarly, the majority of Centuri’s largest clients issued essential service letters to Centuri businesses in keeping with the federal definition of “essential” set out by the Department of Homeland Security. This allowed Centuri to similarly continue nearly all operations from the outset of the pandemic in the U.S., and demand has not significantly diminished. The ability to work may be impacted by individuals contracting or being exposed to COVID-19, governmental requirements to postpone certain non-essential services, or by management imposed restrictions for safety precautions; to date, these factors have not had a significant impact on the Company’s ability to maintain operations. The Company has instructed employees at many offices (including corporate headquarters) to work from home on a temporary basis and implemented travel restrictions. Both segments implemented business continuity plans, including the deployment of technology to conduct administrative and critical functions remotely, where possible, and employees and management teams have been in place to communicate and respond to changes quickly and effectively. To date, there has not been a significant disruption in the Company’s supply chains, transportation network, or ability to serve customers.

As an essential service provider, Southwest implemented several important measures with regard to its customers. As noted above, it initiated a temporary moratorium on natural gas disconnections for non-payment; it is working with customers who are experiencing financial hardship through flexible payment arrangements; and it also ceased charging late fees until further notice. Management does not expect a material increase to the allowance for uncollectibles from such measures as during warmer months, such as the summer season, monthly utility bills for natural gas are substantially reduced. Should the pandemic continue into the winter season, the potential impact could be more significant. See Accounts receivable, net of allowances in Note 1 – Background, Organization, and Summary of Significant Accounting Policies. In the utility infrastructure services segment, a limited number of Centuri customers delayed some projects primarily in response to local governmental restrictions. Project delays, whether due to governmental restrictions or reassessments of timing by Centuri’s customers, resulted in temporary reductions of workforce crews. Some crew reductions are ongoing in specific areas and the associated revenue impacts have not been significant. Management is monitoring the dynamic nature of these circumstances, the full future impacts of which are not currently known, including the impact from business curtailments, weak market conditions, or governmental restrictions, including any restrictions which could limit the fulfillment by Centuri of its contractual obligations.

The Company has incurred additional expenses in connection with its response to these conditions, including costs of disinfecting work locations and equipment, costs related to enabling employees to support customers while working remotely, and impacts from the moratorium on customer disconnection and late fee assessment. These additional costs were not material to the Company’s fiscal 2020 results to date, and certain of Southwest’s regulatory commissions have implemented measures to mitigate impacts of these conditions on Southwest. See Rates and Regulatory Proceedings below for additional detail.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted, as discussed in Note 1 – Background, Organization, and Summary of Significant Accounting Policies. The CARES Act to date has not, and management anticipates that it will not, have a material effect on the Company’s or Southwest’s results of operations, financial position, or liquidity. In Canada, Centuri received $3.4 million of wage subsidies from the Canadian government as part of a COVID-19 relief program. Management does not expect these subsidies, if any, to be significant in future periods.


			33


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

The extent to which COVID-19 may adversely impact the Company’s business depends on future developments, including the timing of, or continued deferment by government officials related to, the resumption of commerce across the service territories of all our businesses, the magnitude of further spread of the virus in advance of and following such resumption, impacts of these conditions on our customers, the state of the North American economy following that resumption, and possibly other unmitigated effects related to the virus. Management does not currently expect the impact of these conditions to be material to the Company’s liquidity and financial position; however, the current level of uncertainty over the economic and operational impacts of COVID-19 means the related financial impact cannot be fully estimated at this time, and management cannot predict whether future periods will be impacted differently than the impacts reflected in the six months ended June 30, 2020. In anticipation of a redeployment of employees to their normal work locations, management has created a multi-phase reintegration plan to safeguard the well-being of our teams, including hygiene, sanitization, and social distancing practices, as well as the use of personal protective equipment for employees and visitors. Management will continue to monitor developments affecting the Company’s employees, customers, and operations, and take additional steps to address the COVID-19 pandemic and its impacts, as necessary. Events and changes in circumstances arising after June 30, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods.

This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and the notes thereto, as well as MD&A, included in the ~~2016~~2019 Annual Report to Shareholders, which is incorporated by reference into the ~~2016~~2019 Form10-K.


			34


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Executive Summary

The items discussed in this Executive Summary are intended to provide an overview of the results of the Company’s and Southwest’s operations. As needed, certain items are covered in greater detail in later sections of ~~management’s discussion and analysis.~~MD&A. As reflected in the table below, the natural gas operations segment accounted for an average of ~~81%~~75% oftwelve-month-to-date consolidated net income over the past two years. As such, ~~management’s discussion and analysis~~MD&A 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 results for a full year.

Summary Operating Results

   Period Ended September 30,
   Three Months Nine Months    Twelve Months
   2017 2016 2017 2016    2017 2016
   (In thousands, except per share amounts)
Contribution to net income

Natural gas operations
   $ (4,024 ) $ (12,405 ) $ 82,436 $ 67,536    $ 134,323 $ 119,836
Construction services
   14,335 14,877 15,717 19,325    29,010 33,144
Corporate and administrative
   (107 ) —   (777 ) —      (777 ) —




Net income
   $ 10,204 $ 2,472 $ 97,376 $ 86,861    $ 162,556 $ 152,980




Average number of common shares outstanding
   47,628 47,481 47,577 47,464    47,553 47,442




Basic earnings per share

Consolidated
   $ 0.21 $ 0.05 $ 2.05 $ 1.83    $ 3.42 $ 3.22




Natural Gas Operations

Gas operating revenues
   $ 213,059 $ 200,179 $ 935,823 $ 980,927    $ 1,276,308 $ 1,376,388
Net cost of gas sold
   45,539 39,056 261,839 324,072    334,888 460,836




Operating margin
   $ 167,520 $ 161,123 $ 673,984 $ 656,855    $ 941,420 $ 915,552


	Period Ended June 30,
	Three Months						Six Months						Twelve Months
(In thousands, except per share amounts)	2020		2019		2020		2019		2020		2019
Contribution to net income
Natural gas operations	$	11,942	$	3,369	$	95,541	$	106,758	$	151,954	$	152,629
Utility infrastructure services	26,267		18,918		16,063		10,887		57,581		47,629
Corporate and administrative	(244)		(231)		(1,097)		(780)		(1,957)		(1,758)
Net income	$	37,965	$	22,056	$	110,507	$	116,865	$	207,578	$	198,500

Weighted average common shares	55,462		53,935		55,386		53,654		55,105		51,914
Basic earnings per share
Consolidated	$	0.68	$	0.41	$	2.00	$	2.18	$	3.77	$	3.82
Natural Gas Operations
Reconciliation of Revenue to Operating Margin (Non-GAAP measure)
Gas operating revenues	$	262,434	$	258,711	$	765,261	$	779,388	$	1,354,812	$	1,367,124
Less: Net cost of gas sold	67,473		65,182		228,294		257,786		355,672		407,976
Operating margin	$	194,961	$	193,529	$	536,967	$	521,602	$	999,140	$	959,148

2nd Quarter 2020 Overview

Natural gas operations highlights include the following:

•36,000 first-time meters sets (1.7% growth rate) occurred over the past 12 months

•Operations and maintenance expense decreased $5.7 million

•Company-Owned Life Insurance (“COLI”) income increased $8.6 million between quarters

•Issued $450 million in 2.2% 10-year Notes (a record low fixed rate for Southwest)

Utility infrastructure services highlights include the following:

•Record second quarter net income of $26.3 million

•Utility infrastructure services revenues increased $41 million, or 8.9%

•Utility infrastructure services expenses increased $28 million, or 7.0%

•Equipment purchases during the past 12 months resulted in a $3 million increase in depreciation


~~SOUTHWEST GAS HOLDINGS, INC.~~		35	~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~	~~September 30, 2017~~

~~3rd Quarter 2017 Overview~~

~~Natural gas operations highlights:~~

~~Benefits of Arizona rate case reflected in quarterly operating results~~

~~32,000 net new customers in last 12 months (1.6% growth rate)~~

~~Depreciation and amortization expense declined $10 million compared to the prior-year quarter~~

~~Operating income increased $15.3 million compared to the prior-year quarter~~

~~Targeting $27 million of vintage steel pipe replacement in Arizona during 2017~~

~~Achieved 2 million natural gas utility customers in early November 2017~~

~~Construction services highlights:~~

~~Revenues increased $40.3 million compared to the prior-year quarter~~

~~Construction expenses increased $42 million compared to the prior-year quarter~~

~~Depreciation and amortization expense declined $1.1 million compared to the prior-year quarter~~

~~The Company acquired the residual 3.4% interest in Centuri in August 2017~~

~~Southwest Gas Holdings highlights:~~

~~Amended and restated bylaws to eliminate cumulative voting and enact majority voting~~


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Results of Natural Gas Operations

   Three Months Ended
September 30,
   2017    2016
   (Thousands of dollars)
Gas operating revenues
   $ 213,059    $ 200,179
Net cost of gas sold
   45,539    39,056




Operating margin
   167,520    161,123
Operations and maintenance expense
   102,215    102,438
Depreciation and amortization
   46,194    56,436
Taxes other than income taxes
   14,046    12,480




Operating income (loss)
   5,065    (10,231 )
Other income (deductions)
   3,081    2,521
Net interest deductions
   17,421    16,364




Income (loss) before income taxes
   (9,275 )    (24,074 )
Income tax expense (benefit)
   (5,251 )    (11,669 )




Contribution to consolidated net income (loss)
   $ (4,024 )    $ (12,405 )

Quarterly Analysis


	Three Months Ended June 30,
(Thousands of dollars)	2020		2019
Gas operating revenues	$	262,434	$	258,711
Net cost of gas sold	67,473		65,182
Operating margin	194,961		193,529
Operations and maintenance expense	99,320		104,991
Depreciation and amortization	53,198		49,343
Taxes other than income taxes	15,342		15,126
Operating income	27,101		24,069
Other income (deductions)	7,838		1,592
Net interest deductions	23,991		23,345
Income before income taxes	10,948		2,316
Income tax benefit	(994)		(1,053)
Contribution to consolidated net income	$	11,942	$	3,369

Contribution from natural gas operations to consolidated net income increased $8.6 million between the second quarters of 2020 and 2019. The increase was primarily due to an increase in Other income, customer growth, and lower Operations and maintenance expense, offset by an increase in Depreciation and amortization.

Operating margin increased $6$1.4 million. Customer growth provided approximately $2.5 million ~~between quarters. Rate relief in Arizona (effective April 2017) and California provided $4 million in operating~~of incremental margin ~~(see~~~~Rates and Regulatory Proceedings~~~~). Approximately $2 million in increased operating margin was attributable to customer growth, as 32,000 net new customers were added~~from 36,000 first-time meter sets during the last twelve months.

Rate relief contributed approximately $400,000 in incremental operating margin. Offsetting the increase were other items, including the impact of the temporary moratorium on late fees and lower connection/re-connection charges during the COVID-19 pandemic.

Operations and maintenance expense ~~was relatively flat between quarters. Decreases in employee-related benefit costs more than offset increases in other general costs.~~

~~Depreciation and amortization expense~~ decreased ~~$10~~$5.7 million between quarters primarily due to ~~reduced depreciation rates~~the impacts of COVID-19 on training and travel costs and reductions in ~~Arizona, a result~~other service and maintenance costs. Overall, the variance between 2019 and 2020 is expected to narrow in the second half of ~~the recent Arizona general rate case decision. Partially offsetting the decline was~~2020.

Depreciation and amortization expense increased ~~depreciation associated with a $317~~$3.9 million, or 5%8%, between quarters, primarily due to a $684 million, or 9%, increase in average gas plant in service ~~for the current quarter as~~ compared to the corresponding quarter a year ~~ago.~~ago, offset by a decrease in regulatory account amortization. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled ~~and accelerated~~ pipe replacement activities, and new infrastructure.

~~Taxes other than~~

Other income ~~taxes increased $1.6~~improved $6.2 million between quarters primarily due to higher property taxes associated with net plant additions and increased property taxes in Arizona, including the impact of a property tax tracking mechanism enacted as part of the recently settled Arizona general rate case.

~~Other income increased $560,000 between quarters primarily due to~~ an increase in the equity portion of the allowance for funds used during construction (“AFUDC”) associated with higher construction expenditures. The equity portion of AFUDC represents the cost of equity funds used to finance utility construction. The equity AFUDC improvement was partially offset by a decline between quarters in income from company-owned life insurance (“COLI”) policies. The current quarter reflects ~~$2.1~~a $12 million ~~of income associated with~~increase in COLI policy cash surrender ~~value increases,~~values, while the prior-year quarter ~~reflected $2.3~~reflected a $3.4 million increase in COLI policy cash surrender values. These values are significantly impacted by fluctuations in the values of ~~COLI-related income. COLI amounts in each quarter were greater than expected.~~

~~Net interest deductions increased $1.1 million between quarters, primarily due to the September 2016 issuance of $300 million of senior notes, partially offset by reductions~~equity securities associated with the ~~redemption of debt ($24.9 million of 4.75% IDRBs~~cash surrender values, and values in ~~September 2016)~~both periods were impacted directionally consistent with the broader securities markets. Offsetting these impacts were higher non-service-related costs associated with employee pension and other postretirement benefits and lower interest ~~expense associated with PGA balances as compared to the prior-year quarter.~~

income on regulatory account balances.


			36


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Results of Natural Gas Operations

~~Nine-Month~~

Six-Months Analysis

   Nine Months Ended September 30,
   2017    2016
   (Thousands of dollars)
Gas operating revenues
   $ 935,823    $ 980,927
Net cost of gas sold
   261,839    324,072




Operating margin
   673,984    656,855
Operations and maintenance expense
   313,395    301,979
Depreciation and amortization
   153,643    174,413
Taxes other than income taxes
   43,325    39,480




Operating income
   163,621    140,983
Other income (deductions)
   8,744    6,712
Net interest deductions
   51,622    49,155




Income before income taxes
   120,743    98,540
Income tax expense
   38,307    31,004




Contribution to consolidated net income
   $ 82,436    $ 67,536

~~The contribution~~


	Six Months Ended June 30,
(Thousands of dollars)	2020		2019
Gas operating revenues	$	765,261	$	779,388
Net cost of gas sold	228,294		257,786
Operating margin	536,967		521,602
Operations and maintenance expense	202,408		210,533
Depreciation and amortization	117,923		106,955
Taxes other than income taxes	31,720		31,332
Operating income	184,916		172,782
Other income (deductions)	(12,698)		7,538
Net interest deductions	49,049		46,444
Income before income taxes	123,169		133,876
Income tax expense	27,628		27,118
Contribution to consolidated net income	$	95,541	$	106,758

Contribution from natural gas operations to consolidated net income ~~from natural gas operations increased $14.9~~decreased $11.2 million between the first ~~nine~~six months of ~~2017~~2020 and ~~2016.~~2019. The ~~improvement~~decline was primarily due to ~~higher operating margin~~a decrease in Other income and ~~lower depreciation expense,~~increases in Depreciation and amortization, partially offset by an increase in ~~operations~~Operating margin and lower Operations and maintenance ~~expenses.~~

expense.

Operating margin increased ~~$17~~ $15 million ~~between the comparative nine-month periods.~~, including $8 million attributable to customer growth. Rate relief, primarily in ~~the Arizona and~~ California, ~~jurisdictions provided $10~~contributed an additional $1 million in operating margin. The prior-year period included an approximate $5 million reduction in margin ~~(see~~~~Rates and Regulatory Proceedings~~).resulting from a one-time adjustment by the Arizona Corporation Commission to reflect the impacts of U.S. tax reform on the Arizona decoupling mechanism. The remaining ~~$7 million~~ increase ~~was attributable~~primarily resulted from the net recovery of regulatory program balances (collectively, having an offsetting impact in amortization expense), in addition to ~~customer growth.~~

margin from customers outside the decoupling mechanisms, offset by lower late fees and connect/re-connect charges during the current moratorium noted previously.

Operations and maintenance expense ~~increased $11.4~~decreased $8.1 million, or 4%, between ~~periods~~periods. Reductions in training and travel costs due ~~primarily~~ to ~~higher general cost increases. Approximately $5 million~~the COVID-19 environment, as well as lower legal claims-related costs, and decreases in other service and maintenance costs contributed to the decline between periods. Overall, the variance between 2019 and 2020 is expected to narrow in the second half of ~~the incremental costs recognized were associated with the amount and timing of employee incentive plan grants (including accelerated recognition for retirement eligible employees).~~

2020.

Depreciation and amortization expense ~~decreased $20.8~~increased $11 million, or 10%, between periods primarily due to ~~reduced depreciation rates in Arizona,~~ a result of the recent Arizona general rate case decision. The depreciation decrease also included a decline of approximately $3.7 million in amortization related to the recovery of regulatory assets. Partially offsetting these declines was depreciation associated with a $325$684 million, or 5%9%, increase in average gas plant in service ~~for the current period as compared to the prior period.~~between periods. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled ~~and accelerated~~ pipe replacement activities, and new infrastructure.

~~Taxes~~ Regulatory account surcharges, as noted above, also resulted in increases in amortization expense in the current period.

Other income decreased $20.2 million overall between periods. The current period reflects a $3.5 million declinein COLI policy cash surrender values, while the prior-year period reflected $11 million of COLI-related income. The non-service cost components of employee pension and other ~~than income taxes~~postretirement benefits costs were $2.5 million higher between periods. Additionally, lower interest on regulatory balances contributed to the decrease between periods.

Net interest deductions increased ~~$3.8~~$2.6 million between periods, primarily due to higher ~~property taxes~~interest associated with ~~net plant additions and increased property taxes in Arizona, including~~ the ~~impact of the Arizona property tax tracking mechanism.~~

~~Other income, which principally includes returns on COLI policies andnon-utility~~ expenses, increased $2 million between periods. The current period reflects $6.8 million of income associated with COLI policy cash surrender value increases, while the prior-year period reflected $5.4 million of COLI-related income. COLI amounts in each period were greater than expected.

~~Net interest deductions increased $2.5 million between periods, primarily due to the September 2016~~ issuance of $300 million of ~~senior notes, partially offset by reductions associated with~~Senior Notes in May 2019 and higher debt ~~redemptions ($100 million of 4.85% IDRBs~~balances outstanding in ~~July 2016 and $24.9 million of 4.75% IDRBs in September 2016) and lower interest expense associated with PGA balances as compared to~~ the ~~prior-year~~current period.


			37


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Results of Natural Gas Operations

Twelve-Month Analysis

   Twelve Months Ended September 30,
   2017    2016
   (Thousands of dollars)
Gas operating revenues
   $ 1,276,308    $ 1,376,388
Net cost of gas sold
   334,888    460,836




Operating margin
   941,420    915,552
Operations and maintenance expense
   413,140    400,222
Depreciation and amortization
   212,693    228,609
Taxes other than income taxes
   56,221    51,810




Operating income
   259,366    234,911
Other income (deductions)
   10,308    9,615
Net interest deductions
   69,464    65,146




Income before income taxes
   200,210    179,380
Income tax expense
   65,887    59,544




Contribution to consolidated net income
   $ 134,323    $ 119,836


	Twelve Months Ended June 30,
(Thousands of dollars)	2020		2019
Gas operating revenues	$	1,354,812	$	1,367,124
Net cost of gas sold	355,672		407,976
Operating margin	999,140		959,148
Operations and maintenance expense	414,049		407,948
Depreciation and amortization	226,588		201,146
Taxes other than income taxes	62,716		61,307
Operating income	295,787		288,747
Other income (deductions)	(10,719)		(3,005)
Net interest deductions	97,631		88,780
Income before income taxes	187,437		196,962
Income tax expense	35,483		44,333
Contribution to consolidated net income	$	151,954	$	152,629

Contribution to consolidated net income from natural gas operations ~~increased by $14.5 million~~decreased $700,000 between the twelve-month periods ~~of 2017~~ended June 2020 and ~~2016.~~2019. The ~~improvement~~decline was primarily due to higher ~~operating margin~~Depreciation and amortization expense, Net interest deductions, and lower ~~depreciation expense,~~Other income, partially offset by an increase in ~~operations and maintenance expenses and interest expense.~~

operating margin.

Operating margin increased ~~$26~~$40 million between ~~periods including a combined $13 million of rate relief in the Arizona and California jurisdictions, as well as Paiute Pipeline Company.~~periods. Customer growth provided $9$13 million, and combined rate relief, primarily in Nevada and California, provided $7 million of incremental operating margin. The prior-year period included an approximate $5 million reduction in margin ~~while operating margin associated with~~resulting from a one-time adjustment to reflect the impacts of U.S. tax reform on the Arizona decoupling mechanism. The remaining net increase resulted from recoveries of regulatory assets (approximately $10 million, offset in amortization expense below), infrastructure replacement mechanisms, and customers outside the decoupling ~~mechanisms, and other miscellaneous revenues improved $4 million.~~

mechanisms.

Operations and maintenance expense increased ~~$12.9~~$6.1 million (or 1%) between periods primarily due to incremental expenditures for pipeline damage prevention programs and higher legal claim-related costs, partially offset by lower training and travel costs due to the current COVID-19 environment.

Depreciation and amortization expense increased $25.4 million, or 3%13%, between periods primarily due to general cost increases, partially offset by lower pension expense. Approximately $5.6 million of the incremental costs recognized were associated with the amount and timing of employee incentive plan grants (including accelerated recognition for retirement-eligible employees). Pipeline integrity management and damage prevention programs collectively increased $500,000.

~~Depreciation and amortization expense decreased $15.9 million between periods primarily due to reduced depreciation rates in Arizona,~~ a ~~result of the recent Arizona general rate case decision. Partially offsetting the decline was depreciation associated with a $335~~$651 million, or 6%9%, increase in average gas plant in service ~~for~~since the ~~current~~corresponding period ~~as compared to~~in the prior ~~period. The increase in gas plant was attributable~~year. Amortization related to ~~pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.~~

~~Taxes other than income taxes~~regulatory account recoveries increased ~~$4.4~~approximately $10 million between periods primarily due to higher property taxes associated primarily with net plant additions and increased property taxes in Arizona, including the impact of a property tax regulatory tracking mechanism resulting from the recent Arizona general rate case.

periods.

Other income ~~increased $693,000~~decreased $7.7 million between the twelve-month periods of ~~2017~~2020 and ~~2016.~~2019 primarily due to a decline in COLI policy values. The current period reflects ~~an $8.8~~a $2.9 million increase in COLI policy cash surrender values, while the ~~prior-year~~prior year period reflected ~~$7.5~~a $6.5 million ~~of combined COLI-related income~~increase. Lower interest on regulatory account balances and ~~recognized death benefits. COLI~~lower amounts ~~in each period were greater than expected.~~

associated with the allowance for equity funds applied to projects during construction also impacted the variance between periods.

Net interest deductions increased ~~$4.3~~$8.9 million between periods primarily due to interest associated with the ~~September 2016~~ issuance of $300 million of ~~senior notes.~~ Senior Notes in May 2019.

The ~~increase was partially offset by reductions associated with the redemption~~reduction in income taxes between periods reflects lower earnings, as well as lower state income taxes (due to apportionment changes) and an additional $1.2 million in amortization of ~~debt ($100 million of 4.85% IDRBs in July 2016 and $24.9 million of 4.75% IDRBs in September 2016) and lower interest expense associated with PGA balances as compared to the prior-year period.~~

excess accumulated deferred income taxes following U.S. tax reform, which reduces tax expense.


			38


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Results of ~~Construction~~Utility Infrastructure Services

Quarterly Analysis

   Three Months Ended
September 30,
   2017    2016
   (Thousands of dollars)
Construction revenues
   $ 380,094    $ 339,790
Operating expenses:

Construction expenses
   342,629    300,611
Depreciation and amortization
   12,335    13,409




Operating income
   25,130    25,770
Other income (deductions)
   (210 )    44
Net interest deductions
   1,962    1,794




Income before income taxes
   22,958    24,020
Income tax expense
   8,407    8,708




Net income
   14,551    15,312
Net income attributable to noncontrolling interests
   216    435




Contribution to consolidated net income attributable to Centuri
   $ 14,335    $ 14,877

~~Contribution to consolidated net income from construction~~


	Three Months Ended June 30,
(Thousands of dollars)	2020		2019
Utility infrastructure services revenues	$	494,813	$	454,300
Operating expenses:
Utility infrastructure services expenses	430,224		402,199
Depreciation and amortization	24,019		20,999
Operating income	40,570		31,102
Other income (deductions)	86		(477)
Net interest deductions	2,239		3,457
Income before income taxes	38,417		27,168
Income tax expense	10,234		7,474
Net income	28,183		19,694
Net income attributable to noncontrolling interest	1,916		776
Contribution to consolidated net income attributable to Centuri	$	26,267	$	18,918

Utility infrastructure services revenues increased $40.5 million in the ~~current~~second quarter ~~decreased by $542,000~~of 2020 when compared to the prior-year ~~quarter. The decrease is primarily~~quarter, due to a higher ~~construction~~volume of electric infrastructure and pipe replacement work under blanket and bid contracts. Included in this improvement were revenues of $7.3 million in the second quarter of 2020 from storm-related electric services work that did not occur during the same quarter in the prior year. Centuri achieved the overall increase in revenues despite a temporary shut-down for certain crews in response to local government requirements to postpone non-essential business services and precautions to ensure employee safety during the COVID-19 outbreak.

Utility infrastructure services expenses increased $28 million in the second quarter of 2020 when compared to the prior-year quarter, due primarily to costs ~~relative~~ to ~~increased revenues, resulting from apre-tax~~ ~~loss on a project described below,~~complete additional electric infrastructure and pipe replacement work, partially offset by ~~a decline in depreciation~~increased productivity and ~~amortization.~~

~~Revenues increased $40.3 million, or 12%, between quarters primarily~~efficiencies on electrical infrastructure projects and lower fuel and overtime costs. Additionally, Centuri’s mix of work was favorably impacted by certain restrictions on service-line related work due to COVID-19, which allowed for an increase in ~~pipe~~main line replacement work, and resulted in greater production efficiency and reduced travel time. Centuri also benefited from $3.4 million in wage subsidies from the Canadian government amidst the COVID-19 environment. These funds were recorded as a reduction in wage-related expenses, included within this line item. Offsetting some of these improvements were certain increased costs and workforce inefficiencies associated with ~~existing customers. A significant portion~~the continued impact of the ~~increase relates to bid jobs that are expected to be substantially complete by year end.~~

Construction expenses increased $42 million, or 14%, between quarters due to additional pipe replacement work. Results were negatively impacted by higher construction costs for a water pipe replacement project, for which Centuri has requested increased cost recovery. No additional work orders will be accepted on the project pending resolution of Centuri’s request. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $25,000 and $1.4 million for the third quarters of 2017 and 2016, respectively.

COVID-19 pandemic.

Depreciation and amortization ~~decreased $1.1~~expense increased $3 million between quarters ~~primarily due~~attributable to ~~a $2 million reduction associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months, partially offset by an increase in depreciation for~~ additional equipment purchased to support the growing volume of work being ~~performed.~~

performed, primarily at Linetec.

Net interest deductions decreased $1.2 million between periods due primarily to lower rates associated with outstanding borrowings under the $590 million secured revolving credit and term loan facility.


			39


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Results of ~~Construction~~Utility Infrastructure Services

~~Nine-Month~~

Six-Month Analysis

   Nine Months Ended
September 30,
   2017    2016
   (Thousands of dollars)
Construction revenues
   $ 872,536    $ 838,038
Operating expenses:

Construction expenses
   806,586    757,919
Depreciation and amortization
   35,446    43,351




Operating income
   30,504    36,768
Other income (deductions)
   38    44
Net interest deductions
   5,095    4,945




Income before income taxes
   25,447    31,867
Income tax expense
   9,560    12,042




Net income
   15,887    19,825
Net income attributable to noncontrolling interests
   170    500




Contribution to consolidated net income attributable to Centuri
   $ 15,717    $ 19,325

~~Contribution to consolidated net income from construction~~


	Six Months Ended June 30,
(Thousands of dollars)	2020		2019
Utility infrastructure services revenues	$	828,306	$	767,162
Operating expenses:
Utility infrastructure services expenses	749,538		702,664
Depreciation and amortization	46,947		40,926
Operating income	31,821		23,572
Other income (deductions)	(156)		398
Net interest deductions	5,138		6,726
Income before income taxes	26,527		17,244
Income tax expense	8,085		5,006
Net income	18,442		12,238
Net income attributable to noncontrolling interest	2,379		1,351
Contribution to consolidated net income attributable to Centuri	$	16,063	$	10,887

Utility infrastructure services ~~for~~revenues increased $61.1 million during the first ~~nine~~six months of ~~2017 declined by $3.6 million~~2020 when compared to the ~~prior-year period. The decrease is primarily~~same period in the prior year due to a higher ~~construction costs relative~~volume of electric infrastructure and pipe replacement work under blanket and bid contracts. Electric infrastructure work composed $53.9 million of that increase, including the storm-related work noted earlier. The improvement was achieved despite a temporary shut-down for certain crews in response to ~~increased revenues, partially offset by a decline in depreciation~~local government requirements to postpone non-essential business services and ~~amortization.~~

~~Revenues increased $34.5 million, or 4%, in~~precautions to ensure employee safety during the COVID-19 outbreak. Results during the first ~~nine~~six months of ~~2017~~2019 reflected incremental profit from customer requested strike support that did not recur in 2020.

Utility infrastructure services expenses increased $46.9 million during the first six months of 2020 when compared to the ~~prior-year~~same period in the prior year, due primarily ~~due~~ to increased costs to complete additional electric infrastructure and pipe replacement ~~work. Partially offsetting increases in revenues was a temporary~~ work, ~~stoppage~~partially offset by ~~a significant customer that began in~~ the ~~first quarter of 2017~~increased productivity and ~~continued through part of~~efficiencies on electrical infrastructure projects and lower fuel and overtime costs noted for the second quarter of ~~2017 resulting in a $26.3 million reduction in revenues, compared to~~2020. Additionally, the ~~prior-year period, and a $3.7 millionpre-tax~~ ~~loss in the current nine-month period. The temporary~~improved mix of work stoppage was initiated due to state-mandated requalification of employees of all contractors working within the jurisdictional boundary of one state. Operations resumed gradually following the requalification of Centuri’s employees during the second quarter ~~of 2017. Additionally, inclement weather in several operating areas negatively impacted revenues~~for main line replacements provided cost efficiencies. Offsetting these favorable impacts were certain increased costs and ~~reduced productivity in~~workforce inefficiencies associated with the ~~first quarter of 2017.~~

Construction expenses increased $48.7 million, or 6%, between periods. The increase in construction expenses is disproportionate to revenues noted above due in part to logistics surrounding the timing and lengthcontinued impact of the temporary work stoppage with the significant customer and to higher labor costs incurred to complete work during inclement weather conditions in the first quarter. In addition, results were negatively impacted by higher construction and~~start-up~~ costs related to the water pipe replacement project, for which Centuri is pursuing cost recovery. Gains on sale of equipment (reflected as an offset to construction expenses) were approximately $1.5 million and $4.1 million for the first nine months of 2017 and 2016, respectively.

COVID-19 pandemic.

Depreciation and amortization ~~decreased $7.9~~expense increased $6 million between periods ~~primarily due~~attributable to an $8.2 million reduction in depreciation associated with the extension of the estimated useful lives of certain depreciable equipment during the past 12 months, partially offset by an increase in depreciation for additional equipment purchased to support the growing volume of work being ~~performed.~~

performed, primarily at Linetec.

Net interest deductions were lower during 2020 due to lower rates associated with outstanding borrowings under the $590 million secured revolving credit and term loan facility.


			40


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Results of ~~Construction~~Utility Infrastructure Services

Twelve-Month Analysis

   Twelve Months Ended
September 30,
   2017    2016
   (Thousands of dollars)
Construction revenues
   $ 1,173,576    $ 1,127,982
Operating expenses:

Construction expenses
   1,073,090    1,009,188
Depreciation and amortization
   47,764    58,368




Operating income
   52,722    60,426
Other income (deductions)
   1,187    1,246
Net interest deductions
   6,813    6,738




Income before income taxes
   47,096    54,934
Income tax expense
   17,402    20,711




Net income
   29,694    34,223
Net income attributable to noncontrolling interests
   684    1,079




Contribution to consolidated net income attributable to Centuri
   $ 29,010    $ 33,144

~~Contribution to consolidated net income from construction~~


	Twelve Months Ended June 30,
(Thousands of dollars)	2020		2019
Utility infrastructure services revenues	$	1,812,122	$	1,634,226
Operating expenses:
Utility infrastructure services expenses	1,620,101		1,478,730
Depreciation and amortization	93,638		72,162
Operating income	98,383		83,334
Other income (deductions)	(88)		529
Net interest deductions	12,498		14,412
Income before income taxes	85,797		69,451
Income tax expense	24,477		20,299
Net income	61,320		49,152
Net income attributable to noncontrolling interest	3,739		1,523
Contribution to consolidated net income attributable to Centuri	$	57,581	$	47,629

Utility infrastructure services ~~for the twelve-month period ended September 30, 2017 decreased $4.1~~revenues increased $177.9 million ~~compared to the same period of 2016. The decrease is primarily due to higher construction costs relative to increased revenues, resulting inpre-tax~~ ~~losses on certain projects, partially offset by a decline in depreciation and amortization.~~

~~Revenues increased $45.6 million, or 4%,~~overall in the current twelve-month period compared to the ~~same~~corresponding period of ~~2016~~2019, primarily due to incremental revenues from Linetec (acquired in November 2018) of $165.5 million, as well as continued growth with existing customers under master service and bid agreements. Partially offsetting these increases were decreased revenues from certain non-routine or non-recurring projects, including customer-requested support in 2018 and early 2019 during strike-related and emergency response situations, in addition to a multi-year water pipe replacement project that expired in July 2019 and was not renewed. The prior-year period also included the settlement of an earlier contract dispute related to that project ($9 million). Implementation of new professional engineering stamp requirements for operating locations within certain eastern states in the U.S. resulted in lower revenues during the current period as Centuri worked with customers to adopt the new requirements.

Utility infrastructure services expenses increased $141.4 million between periods, primarily due to incremental expenses related to Linetec of $137.7 million, along with additional electric infrastructure and pipe replacement work for existing natural gas distribution customers. During the past several years, Centuri has focused its efforts on obtaining replacement work under both blanket contracts and incremental bid projects. For both twelve-month periods ended September 30, 2017 and 2016, revenues from replacement work provided over 60% of total revenues.

Construction expenses increased $63.9 million, or 6%, between periods, due to additional pipe replacement work, higher labor costs experienced due to changes in the mix of work with existing customers, and higher labor-related operating expenses to support growth. Included in total Utility infrastructure services expenses were general and administrative costs, which increased growth in operations. The logistics surrounding the timing and length of a temporary work stoppage with a significant customer during the first six months of 2017 and higher labor costs incurred to complete work during inclement weather conditions$2 million in the ~~first quarter~~twelve-month period ended June 2020 when compared to the corresponding period ended June 2019. Offsetting impacts include deal costs from the acquisition of ~~2017 resulted in costs disproportionate to revenues. Results were negatively impacted by higherstart-up~~ and construction costs for a water pipe replacement project, for which Centuri has requested increased cost recovery. No additional work orders will be accepted on the project pending resolution of Centuri’s request. GainsLinetec during 2018 ($6.9 million). Net gains on sale of equipment (reflected as an offset to ~~construction~~Utility infrastructure services expenses) were ~~$4.5~~$4.9 million and ~~$4.2~~$2.3 million for the twelve-month periods ~~ended September 30, 2017~~of 2020 and ~~2016,~~2019, respectively.

Depreciation and amortization ~~decreased $10.6~~expense increased $21.5 million between the current and prior-year ~~periods~~period. The increase was primarily ~~due~~attributable to ~~an $11.1~~the incremental assets related to the acquisition of Linetec, providing $15.5 million ~~reduction associated with the extension~~ of the ~~estimated useful lives of certain depreciable equipment over the last twelve months, partially offset by an~~ increase in ~~depreciation for~~this category. Depreciation on additional property and equipment purchased to support the growing volume of work being ~~performed.~~

performed composes the remainder of the increase.

Net interest deductions decreased $1.9 million between periods due primarily to lower rates associated with outstanding borrowings under the $590 million secured revolving credit and term loan facility.


			41


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

Rates and Regulatory Proceedings

Southwest is subject to the regulation of the Arizona Corporation Commission (the “ACC”), the Public Utilities Commission of Nevada (the “PUCN”), the California Public Utilities Commission (the “CPUC”), and the Federal Energy Regulatory Commission (the “FERC”).

General Rate Relief and Rate Design

Rates charged to customers vary according to customer class and rate jurisdiction and are set by the individual state and federal regulatory commissions that govern Southwest’s service territories. Southwest makes periodic filings for rate adjustments as the cost of providing service (including the cost of natural gas purchased) changes, and as additional investments in new or replacement pipeline and related facilities are made. Rates are intended to provide for recovery of all commission-approved costs and a reasonable return on investment. The mix of fixed and variable components in rates assigned to various customer classes (rate design) can significantly impact the operating margin actually realized by Southwest. Management has worked with its regulatory commissions in designing rate structures that strive to provide affordable and reliable service to its customers while mitigating volatility in prices to customers and stabilizing returns to investors. Such rate structures were in place in all of Southwest’s operating areas during all periods for which results of natural gas operations are disclosed above.

Arizona Jurisdiction

Arizona General Rate Case. On May 1, 2019, Southwest filed a general rate case application requesting to increase revenue by approximately $57 million to update the cost of service to reflect recent U.S. tax reform changes, including the return of excess deferred income taxes to customers, and to reflect capital investments of approximately $670 million, including certain post-test year additions, including the southern Arizona LNG facility discussed below. The application also includes a proposed 10.3% return on equity (“ROE”) relative to a capital structure of 51.1% equity. At the time of the filing, the Company estimated the return of approximately $20.6 million of excess accumulated deferred income taxes. Following the original filing, in October 2019, Southwest filed an amendment to its application, updating for $5.7 million in actual amortization of accumulated excess deferred income taxes known after the Company’s 2018 federal income tax return was filed in 2019. It was at such point that the actual amount could be computed based on the prescribed methodology for determining the amount that could be returned to customers. The difference of $14.9 million would result in an increase in revenue and income tax expense, thereby having no impact on earnings overall. In association with the amendment, Southwest also included additional post-test year plant in the amount of $124.5 million associated with its COYL and VSP programs, discussed further below. The amendment overall increased the deficiency by $36 million, to $93 million. Through the discovery and testimony exchanges, Southwest updated certain aspects of its cost of service, including a revised proposed ROE of 10.15%, resulting in an updated proposed increase of $90.6 million. The request overall includes the retention of a fully decoupled rate design, other previously approved regulatory mechanisms, and a new infrastructure tracking mechanism for specific plastic pipe. It also includes a proposal for a renewable natural gas program that authorizes Southwest to purchase renewable natural gas for its customers and to recover the cost as part of its purchased gas adjustment mechanism. A hearing in this matter was previously scheduled for April 2020; however, due to the COVID-19 pandemic, the hearing was conducted during June and July. Prior to the start of the hearing, Southwest entered into a stipulation with the parties to the case on a number of issues. As part of the stipulation, the parties agreed to continue the COYL program; to establish a Tax Expense Adjustor Mechanism to track annual changes in the amortization of excess accumulated deferred income taxes (“EADIT”) as well as any future changes in the federal tax rate; to incorporate various tariff proposals; and to include a resolution for a 10-year amortization period for EADIT associated with deemed “unprotected” plant. EADIT associated with “protected” plant relates to timing differences from using accelerated depreciation for tax purposes and another method for book purposes and “unprotected” amounts relate to all other timing differences. Legal briefs will continue through mid-September, with a Commission decision expected during the fourth quarter.

Delivery Charge Adjustment. The annual Delivery Charge Adjustment (“DCA”) is filed each April, which along with other reporting requirements, contemplates a rate to recover the over- or under-collected margin tracker amounts based on the balance at the end of the preceding calendar year. The DCA rate adjustment request filed in April 2018 reflected the December 31, 2017 balance, but was later updated to include the balance at December 31, 2018. After a one-time modification to reflect benefits attributable to the impact of U.S. tax reform on the balance then existing, the ACC approved an annualized recovery of $69 million, with the associated rate effective in May 2019. In the process to address the 2019 activity, in April 2020, Southwest filed a request to adjust the existing rate to consider the 14-month period of January 1, 2019 through February 29, 2020, proposing a rate of $0.00655 per therm based on an ending balance of approximately $3.5 million. Although Commission Staff concurred with Southwest’s proposed rate, the ACC ultimately elected to reduce the rate to zero in an effort to provide some measure of customer relief in light of current issues related to the COVID-19 pandemic, and at the time of both the April filing and the ACC decision, the balance was a liability (in an over-recovered status). Any over-or under-collection will be addressed in Southwest’s next annual filing.


			42


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

Tax Reform. In February 2018, the ACC directed all Arizona utilities to address tax savings from the enactment of U.S. tax reform beginning January 1, 2018, through one of various means. In April 2018, Southwest filed an application with the ~~Arizona Corporation Commission (“ACC”)~~ACC, requesting approval for a tax refund process or, in ~~May 2016 requesting an increase in authorized annual operating revenues of approximately $32 million, or 4.2%,~~the alternative, the authority to file a general rate case to reflect ~~existing~~the impacts of tax reform. Ultimately, Southwest was instructed to refund customers $20 million annually, as compared to rate levels of expense and requested returns, in addition to reflecting capital investments made by Southwest since June 2010. The application requested an overall rate of return of 7.82% on an original cost rate base of $1.336 billion, a 10.25% return on common equity, and a capital structure utilizing 52% common equity. The filing included a depreciation study that supported a proposal to reduce currently effective depreciation expense by approximately $42 million, which was consideredestablished in the ~~overall requested amount. This expense reduction coupled~~previously concluded general rate case, until cost-of-service rates are updated in association with the requested revenue increase, resulted in a net annual operating income increase request of $74 million. A settlement was reached among several parties in December 2016 and a formal draft settlement was filed in January 2017. Hearings were held in February 2017, and the ACC approved the settlement agreement in April 2017.pending general rate case. The ~~settlement provides for an overall operating revenue increase of $16 million and the capital structure and cost of capital as proposed by Southwest, with the exception~~current method to return this amount (in advance of the ~~return on common equity, which was set at 9.50%. Depreciation expense~~conclusion of the current general rate proceeding) is through a per-therm surcredit. Southwest has been tracking monthly differences between amounts expected to be ~~reduced by $44.7~~returned and amounts actually returned to customers during 2018 and 2019, and continuing in 2020, which has resulted in an asset balance of $1.6 million ~~for a combined net annual operating income increase~~as of $60.7 million. Other key elements of the settlement include approval of the continuation and expansion of the current Customer-Owned Yard Line (“COYL”) program (adding the ability to seek out COYLs through a targeted approach and mobilization of work crews for replacement), implementation of a vintage steel pipe replacement program, and a continuation of the current decoupled rate design, excluding a winter-period adjustment to rates, making the mechanism fundamentally similar to that which exists in Nevada. The settlement also included a property tax tracking mechanism to defer changes in property tax expense for recovery or return in the next general rate case. New rates were effective April 2017. The settlement also includes a three-year rate case moratorium prohibiting a new application to adjust base rates from being filed prior to May 2019.

~~LNG (“~~June 30, 2020.

Liquefied Natural ~~Gas”~~Gas (“LNG”) Facility. In January 2014, Southwest filed an application with the ACC seeking preapproval to construct, operate, and maintain a 233,000 dekatherm LNG facility in southern Arizona. This facility is intended to enhance service reliability and flexibility inrelated to natural gas deliveries in the southern Arizona area by providing a local storage option, to be operated by Southwest, and connected directly to its distribution system. ~~In December 2014,~~ Southwest ~~received an order from the ACC grantingpre-approval~~ ~~of Southwest’s application to construct the LNG facility~~was ultimately granted approval for construction and ~~the~~ deferral of costs upnot to ~~$50~~exceed $80 million. ~~Following~~Construction began during the ~~December 2014 preapproval, Southwest purchased the site for~~third quarter of 2017 and the facility and completed detailed engineering design specifications for the purpose of soliciting bids for the engineering, procurement and construction (“EPC”) of the facility. Southwest solicited requests for proposals for the EPC phase of the project, andwas placed in ~~October 2016 made a filing with the ACC to modify the previously issued Order to update thepre-approved~~ ~~costs to reflect anot-to-exceed~~ ~~amount of $80 million, which was approved by the ACC~~service in December ~~2016. Through September 2017,~~2019. Southwest ~~has~~ incurred approximately ~~$21.7~~$75.3 million in capital expenditures toward the project (including land acquisition costs)~~. Construction commenced during~~, which are considered as part of Southwest’s pending rate case. In addition to tracking the ~~third quarter of 2017 and is expected~~revenue requirement associated with the capital investment in a regulatory asset, operating expenses associated with the plant are also authorized to be ~~completed by~~included in a regulatory asset, which is also being addressed as part of the ~~end of 2019.~~

~~COYL~~pending general rate case.

Customer-Owned Yard Line (“COYL”) Program. Southwest received approval, in connection with ~~an earlier~~its 2010 Arizona general rate case, to implement a program to conduct leak surveys, and if leaks were present, to replace and relocate service lines and meters for Arizona customers whose meters were set off from the customer’s home, ~~which is not~~representing a ~~traditional~~non-traditional configuration. ~~Customers with this configuration were previously responsible for~~“Phase II” of the ~~cost~~COYL program included the replacement of ~~maintaining these lines and were subject to the immediate cessation of natural gas service iflow-pressure~~ ~~leaks occurred. Effective June 2013, the ACC authorized a surcharge to recover the costs of depreciation andpre-tax~~ ~~return on the costs incurred to replace and relocate service lines and meters.~~non-leaking COYLs. The surcharge is ~~revised annually~~designed to collect the annual revenue requirement as the program progresses. In ~~2014, Southwest received approval to add a “Phase II” component to~~ the ~~COYL program to include the replacement ofnon-leaking~~ ~~COYLs. In the most recent annual COYL~~ filing made in February ~~2017,~~2019, Southwest requested to ~~establish an annual~~increase its surcharge to ~~collect $1.8~~recover a revenue requirement of $6.7 million (an increase of $3.2 million) related to the revenue requirement associated with ~~$12.1~~$26.6 million in capital projects completed ~~under both Phase I~~in 2018. The ACC ultimately issued an Order in October 2019 authorizing Southwest to retain the existing annual surcharge of $3.5 million and ~~Phase II during 2016. In June 2017,~~indicating it would review the program as part of the pending general rate case. As discussed above, the parties to the pending rate case stipulated to continue the COYL program. Southwest also proposed to have the ACC ~~issued~~review an estimated $21.1 million of 2019 COYL capital projects, and if authorized, to also render a decision ~~approving~~regarding cost recovery as part of the ~~surcharge application. All capital work completed~~pending rate case. As part of their filed testimony in ~~earlier years was incorporated~~the current case, the ACC Staff and the consumer advocate recommended recovery of this plant as part of Southwest’s filed post-test year plant adjustment, with inclusion of related amounts in ~~Southwest’s Arizona rate~~ base ~~in connection with~~rates, and also support the ~~recently completed general rate case proceeding, as discussed above.~~


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

continuation of the COYL program.

Vintage Steel Pipe ~~Program~~.(“VSP”) Program. Southwest received approval, in connection with its ~~most recent~~2016 Arizona general rate case, to implement a ~~vintage steel pipe (“VSP”)~~VSP replacement program. Southwest currently has ~~approximately 6,000 miles~~a substantial amount ofpre-1970s vintage steel pipe in Arizona. As part of the program, Southwest proposed to start replacing the pipe on an accelerated basis and to recover the costs through an annual surcharge ~~filing that will be made in February of each year. The~~filing. A surcharge isrelated thereto has been customarily designed to be revised annually as the program ~~progresses.~~progresses to collect the annual revenue requirement associated with the related capital expenditures. In the most recent VSP filing, in February 2019, Southwest requested to increase its surcharge revenue by $9.5 million (to $11.9 million) related to 2018 expenditures. Southwest replaced approximately $100 million of VSP in connection with 2018 VSP capital projects. The ACC issued an Order in October 2019 authorizing Southwest to retain the current annual surcharge of $2.4 million and indicated it would review the program as part of the pending rate general case. Southwest also proposed to have the ACC review an estimated $103.4 million of 2019 VSP capital projects, and if authorized, to also render a decision regarding cost recovery as part of the pending rate case. As part of their filed testimony in the current case, the ACC Staff and the consumer advocate recommended recovery of this plant as part of Southwest’s filed post-test year plan adjustment, with inclusion of related amounts in base rates. The continuation of the VSP is pending a decision in the current general rate proceeding.

Customer Data Modernization Initiative. Southwest has embarked on an initiative to replace its customer service system and gas transaction systems, each of which is utilized to support all Southwest service territories. Combined, these undertakings are referred to as the Customer Data Modernization Initiative (the “CDMI”). In March 2019, Southwest filed an application with the ACC seeking an accounting order which, if approved, would authorize Southwest to track and defer all costs associated with the CDMI to mitigate adverse financial implications associated with this multi-year initiative. The total cost for the CDMI is estimated at $174 million, approximately $96 million of which would be allocable to the Arizona rate jurisdiction. The initiative is currently expected to be completed in the first half of 2021. A ~~Plan~~hearing in this matter was held in June 2020. Legal briefs will continue through mid-September, with a Commission decision expected in the fourth quarter.


			43


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

California Jurisdiction

California General Rate Case. Southwest’s existing rates became effective June 2014, and included a Post-Test Year (“PTY”) Ratemaking Mechanism, which allowed for attrition increases of ~~Administration (“POA”)~~2.75% annually for 2015 through 2018, after which time new rates from a subsequent rate case cycle would have been expected to be in effect. In December 2016, Southwest filed to modify the earlier (2014) general rate case decision to extend the rate case cycle by two years, and received CPUC approval in June 2017, including extension of the annual 2.75% PTY attrition adjustments for 2019 and 2020.

On August 30, 2019, Southwest filed the previously deferred general rate case, based on a test year of 2021, seeking authority to increase rates in its California rate jurisdictions. The proposed combined revenue increase of $12.8 million was net of a $10.9 million revenue reduction associated with changes from U.S. tax reform, which included the amortization of $9.8 million (approximately $2 million annually over five years) associated with the difference in authorized income tax expense and actual incurred income tax expense for years 2019 and 2020, which when returned will impact cash flows but would not be expected to have an impact on earnings overall. Southwest has been tracking those amounts, as directed, and reserving them for return to customers. The overall revenue request also included $1.6 million of excess accumulated deferred income taxes proposed to be returned to customers each year until the amount is reset as part of a future rate case. Southwest’s proposal included an ROE of 10.5%, relative to a 53% equity ratio; continuation of annual post-test year margin adjustments of 2.75%; implementation of various safety-related programs, including a targeted pipe replacement program and a meter protection program (with a combination of measures, such as snow sheds, excess flow valves, upgraded meter set piping and upgraded Encoder Receiver Transmitter protocol); as well as an expansion of the COYL replacement program. Ahead of hearings scheduled to begin in late June, Southwest reached an agreement in principle with the Public Advocate’s Office for settlement of the pending general rate case.

The agreement in principle includes a $6.4 million total combined revenue increase with a 10% ROE, relative to a 52% equity ratio. Approximately $4 million of the original proposed increase of $12.8 million is associated with a North Lake Tahoe project that will not be completed by the beginning of 2021; consequently, the parties agreed to remove it from the base rate increase and instead Southwest will recover the cost of the project through a surcharge as described below. The agreement also maintains Southwest’s existing 2.75% annual attrition adjustments, the continuation of the pension balancing account, and approves the proposed increase in the residential basic service charge from the existing $5.00 to $5.75 per month. The parties also agreed to a cumulative total of $119 million over the five-year rate cycle to implement the proposed risk-informed decision making proposals, which consist of a COYL replacement, meter protection and pipe replacement programs. Southwest is also authorized to implement a surcharge annually to recover the cost of these programs. The agreement in principle was filed in ~~March of 2017~~early August 2020, and ~~was~~if approved, new rates would be expected to become effective in conjunction with the general rate case, outlined the VSP program requirements and established the timeline for future project plans and surcharge requests. Southwest is currently targeting the replacement of nearly 40 miles of VSP during 2017 totaling approximately $27 million and replacement projects during 2018 of approximately $100 million.

~~California Jurisdiction~~

January 2021.

Attrition Filing. In November ~~2016,~~2019, Southwest made its latest annual ~~post-test year (“PTY”)~~PTY attrition filing, ~~with the California Public Utilities Commission (“CPUC”),~~ requesting annual revenue increases of ~~$2.1~~$2.06 million in southern California, ~~$513,000~~$556,000 in northern California, and ~~$256,000~~$278,000 for South Lake Tahoe. This filing was approved in December ~~2016~~2019 and rates were made effective in January ~~2017.~~2020. At the same time, rates were updated to recover the regulatory asset associated with the revenue decoupling mechanism, or margin tracker.

Greenhouse Gas (“GHG”) Compliance. California Assembly Bill Number 32 and the regulations promulgated by the California Air Resources Board, require Southwest, as a covered entity, to comply with all applicable requirements associated with California GHG emissions reporting and the California Cap and Trade Program. The CPUC issued a decision in March 2018 adopting an allocation methodology to distribute the net revenues or costs for years 2015-2017 beginning in the second quarter of 2018. Southwest began amortizing its then existing net cost balance over a 12-month period with recovery rates effective July 2018 for all applicable rate schedules. In addition, for years 2019-2020, the decision adopted an allocation methodology to distribute the revenue proceeds through a California Climate Credit to active residential customers in April of each year, following initial required credits in October 2018. Amounts distributed in April 2019 and 2020 were comparable. GHG compliance costs recovered through rates (including transportation customer rates) have no impact on earnings.

Renewable Natural Gas. In February 2019, Southwest filed an application that, among other provisions, seeks to formally allow the inclusion of renewable natural gas (or biomethane) as a potential component of Southwest’s gas supply portfolio through the Biomethane Gas Program (“BGP”). This proposal is designed to further the goals of the California Global Warming Solutions Act of 2006, the California Low Carbon Fuel Standard, Senate Bills 1383 and 1440, as well as current or future legislative or regulatory efforts to reduce greenhouse gas emissions. Implementation of the BGP addresses cost recovery as part of Southwest’s existing Gas Cost Incentive Mechanism related to the purchase or sale of biomethane. The CPUC issued a final decision approving the proposal in March 2020.

Customer Data Modernization Initiative. On April 26, 2019, Southwest filed an application with the CPUC seeking authority to establish a two-way, interest bearing balancing account to record costs associated with the CDMI to mitigate adverse financial implications associated with this multi-year project. Approximately $19 million of the estimated $174 million cost for the


			44

SOUTHWEST GAS HOLDINGS, INC. Form 10-Q
SOUTHWEST GAS CORPORATION June 30, 2020

CDMI would be allocable to the California rate jurisdiction. Southwest filed a separate request to establish a memorandum account while the CPUC considered its application request to establish a two-way balancing account. Effective October 2019, the CPUC granted Southwest’s memorandum account request, which would allow Southwest to track costs, including operations and maintenance costs and capital-related costs, such as depreciation, taxes, and return associated with California’s portion of the CDMI. The balance tracked in the memorandum account would be transferred to the two-way balancing account, if approved. In January 2020, Southwest and the Public Advocates Office reached a settlement agreement to adopt Southwest’s Application for Authority to Implement the CDMI. The CPUC issued a final decision approving the settlement agreement as filed in July 2020.
Emergency Relief Program Related to COVID-19. On March 25, 2020, Southwest filed an Advice Letter to establish a memorandum account to track costs related to customer protections under Emergency Relief regulations implemented in 2019 in the event of a state or federal declared emergency or disaster. The CPUC passed an emergency resolution on April 16, 2020 authorizing and directing utilities to implement customer protections and to establish memorandum accounts to track the financial impacts of complying with the resolution. On May 1, 2020, Southwest filed an Advice Letter to establish a COVID-19 Pandemic Protections Memorandum Account (“CPPMA”) to record all incremental costs and lost revenues incurred by Southwest associated with its implementation of the COVID-19 customer protections as outlined in the CPUC resolution. The customer protections were retroactively applied to March 4, 2020, the date Governor Gavin Newsom declared a state of emergency related to COVID-19. The CPPMA is effective March 4, 2020 through April 16, 2021. These customer protections focus on flexible payment plan options, additional protections for income-qualified customers, as well as the suspension of disconnections for non-payment and the waiver of deposit and late fee requirements. Tracked amounts will be considered by the CPUC for future recovery.
Nevada Jurisdiction

Nevada General Rate ~~Case~~~~. In December 2016,~~Case. Southwest filed ~~to modify the most recent~~a general rate case ~~decision~~application with the PUCN on February 28, 2020, which requested a statewide overall general rate increase of approximately $38.3 million. The request seeks an ROE of 10% relative to ~~extend the current rate case cycle by two years, including extension~~a proposed capital structure of 50% equity and continuation of the ~~annual PTY attrition adjustments~~General Revenues Adjustment (“GRA”) mechanism (full revenue decoupling). The request also proposes the recovery of previously excluded costs attributable to several software applications. On June 26, 2020, Southwest submitted its certification filing to update certain balances through May 31, 2020, ~~from 2018. That latest~~which increased its overall proposed rate increase to $38.5 million. Commission Staff and the Bureau of Consumer Protection filed testimony on July 24, 2020, recommending an overall increase of approximately $21.6 million and approximately $20 million, respectively. A substantial portion of the difference between Southwest’s request and the proposals of these parties relates to differences in the recommended ROE. No party contested the recovery of the remaining balances of the previously excluded software applications or the continuation of the GRA. Included in the Commission’s Staff recommended increase is approximately $585,000 related to incremental operation and maintenance expenses related to Southwest’s CDMI (discussed below), providing an opportunity for recovery of these costs following the denial of Southwest’s request for deferred accounting treatment in 2019. A hearing in this matter is scheduled for August 2020.

In December 2018, the PUCN issued a rate case decision ~~would have required Southwest to file its next~~in the previous general rate case application, ~~by September 2017. Expedited consideration was requested~~which authorized a ROE of 9.25% relative to the Company’s proposed capital structure of 49.66% equity applicable to both southern and northern Nevada and provided for an overall revenue increase of $9.5 million in ~~June 2017, the CPUC approved the~~southern Nevada and a revenue decrease in northern Nevada of $2 million. Rates from this proceeding originally became effective in January 2019.

As part of that proceeding, management filed a request ~~thereby extending the~~for reconsideration of several rate case ~~filing deadline.~~issues during the same month of effective rates, and the PUCN Staff also filed for reconsideration, related to technical clarifications on the calculation of the intended results of the decision. The PUCN issued a decision regarding both petitions in February 2019 that modified certain parts of the original order, but granted no further rate relief. The modified final decision resulted in a revenue increase of $9.2 million in southern Nevada and a revenue decrease in northern Nevada of $2.1 million. The decision included a reduction in depreciation expense of $800,000 and an increase in operating income of $7.9 million. The modified rates became effective in March 2019. Management decided to seek judicial review of the PUCN’s rate order, which was considered in January 2020. The District Court Judge deferred to the PUCN’s original findings. In March 2020, Southwest ~~believes this extension is in the public interest as it provides rate stability to customers for two additional years consistent~~filed an appeal with the ~~current reasonable rates approved~~Nevada Supreme Court, the resolution of which will likely take 12-24 months. Southwest expects consideration of the appeal to occur concurrently with the proceedings of the 2020 general rate case, a decision which is currently pending.

General Revenues Adjustment. The continuation of the GRA was affirmed as part of the ~~last~~December 2018 rate case decision and is again being requested as part of Southwest’s pending general rate case ~~and~~application filed in February 2020. In June 2019, Southwest made its 2019 Annual Rate Adjustment (“ARA”) filing in which it requested to update the GRA to reflect the current ~~revenue requirement~~balances in both southern and ~~rate~~northern Nevada. This filing provided for a decrease of ~~return are not~~approximately $8 million for an over-collected balance in ~~need~~southern Nevada and an increase of ~~adjustment (with the continuation of the currently~~approximately $2 million in northern Nevada. The proposed changes were approved, ~~2.75% PTY attrition adjustment for the two additional years).~~

~~Nevada Jurisdiction~~

~~General Revenues Adjustment.~~In June 2016, Southwest requested authorization from the Public Utilities Commission of Nevada (“PUCN”) to adjust rates associated with its revenue decoupling mechanism (General Revenues Adjustment, or “GRA”). The filing was approved in December 2016, with rates effective January 2017. The rate adjustment is expected to refund approximately $16.7 million during 2017. In June 2017, Southwest filed to adjust the GRA surcharge effective January 2018, which was approved by the PUCN during the third quarter of 2017. This will result in a decrease in collections from customers of $15.4 million, based on the over-recovered balance in the account at the end of April 2017.2020. While there is no impact to net income overall from ~~this rate adjustment,~~adjustments to recovery


			45


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

rates associated with the related regulatory balances, operating cash flows ~~will be reduced as the regulatory liability balance is refunded.~~

are impacted by such changes. In May 2020, Southwest made its 2020 ARA filing, which proposes annualized margin decreases of $5.3 million in southern Nevada and an increase of $1.6 million in northern Nevada.

Infrastructure Replacement ~~Mechanisms.~~Mechanism.In ~~January~~ 2014, the PUCN approved final rules for athe Gas Infrastructure Replacement (“GIR”) mechanism ~~to defer~~which defers and ~~recover~~recovers certain costs associated with accelerated replacement of qualifying infrastructure that ~~does~~would not otherwise currently provide incremental revenues. Associated with ~~such~~the replacement of various types of pipe infrastructure under the mechanism (Early Vintage Plastic Pipe, COYL, and VSP), the related regulations provide Southwest with the opportunity to file a GIR “Advance Application” annually, generally in May, to seek preapproval of qualifying replacement projects.

Furthermore, a GIR Rate Application is generally filed each ~~year, Southwest files a Gas Infrastructure Replacement (“GIR”) Advance Application requesting authority to replace qualifying infrastructure and files separately as part of an annual GIR filing~~October to reset the GIR recovery surcharge rate related to previously approved and completed ~~projects. For~~ projects, ~~approved in 2015 and completed in 2016, the annualized revenue was approximately $4.5 million. In September 2016,~~with new rates typically becoming effective each January. On October 1, 2019, Southwest filed a Rate Application to ~~adjust~~reset the ~~GIR~~recovery surcharge to ~~recover the annual revenue requirement for amounts previously deferred.~~include cumulative deferrals through August 31, 2019. This ~~filing was approved in December 2016 and new rates~~surcharge rate became effective January 2017. In June 2016, Southwest filed an Advance Application for projects expected to be completed during 2017, proposing approximately $60 million of accelerated pipe replacement to include early vintage plastic, early vintage steel,February 1, 2020 and a COYL program. The COYL program, while not large in magnitude, represents the first of its kind in Nevada, modeled after the program in place for several years in Southwest’s Arizona jurisdiction. The PUCN issued an Order on the Advance Application in October 2016, approving approximately $57.3 million of replacement work with an annualized revenue requirement estimated at approximately $5.3 million. With regard to the proposed COYL program, approval was granted for the northern Nevada rate jurisdiction, but consideration for the southern Nevada rate jurisdiction was deferred until 2020, at which time certain early vintage plastic pipe programs are expected to be completed. In September 2017, Southwest filed to adjust the GIR surcharge to recover the annual revenue requirement for amounts previously deferred. For projects approved in 2016 and completed by July of 2017


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

~~, the deferred annualized revenue requirement is approximately $8.7 million. This filing~~ is expected to ~~be approved~~result in ~~December 2017 with rates becoming effective January 2018.~~

~~In May 2017, Southwest filed~~ a ~~GIR Advance Application with the PUCN for projects totaling~~reduction in annual revenue of approximately ~~$66~~$5.3 million that are expected to be completed during 2018. Similar to previous years, the proposed projects consist of early vintage plastic and early vintage steel pipe, as well as the continuation of the previously approved COYL program in northern Nevada. Southwest entered into a settlement agreement with the intervening parties and filed a proposed stipulation requesting the Commission approve the settlement agreement. The settlement agreement proposed that the request be approved as filed and that Southwest be authorized to start replacing COYLs in southern Nevada and no incremental revenue in certain situations, and to recover costs through the GIR mechanism. The PUCN issued an Order on the GIR Advance Application in September 2017, approving approximately $65.7 million of replacement work (with an annualized revenue requirement estimated at approximately $6 million) and the COYL provisions in southern Nevada.

Subsequent to three GIR rate applications, the GIR regulations require Southwest to either file a general rate case or a request for waiver before it can file another GIR advance application. The October 2016 approved rate application was the third such filing by Southwest subject to these regulations, necessitating a request for waiver to permit Southwest to proceed with the GIR program without filing a general rate case in 2017. This waiver was approved by the PUCN in January 2017; however, in order to continue the GIR program in 2018 (for projects recommended for completion under the program after 2018), a general rate case will need to be filed before June 2018.

northern Nevada

Conservation and Energy Efficiency (“CEE”). The PUCN allows deferral (and later recovery) of approved conservation and energy efficiency costs, recovery rates for which are adjusted in association with ARA filings. In June ~~2015,~~2019, Southwest requested recovery of energy efficiency and conservation development and implementation costs, including promotions and incentives for various programs, as originally approved for deferral by the PUCN effective November 2009. While recovery of initial program costs was approved as part of the most recent general rate case, amounts incurred subsequent to May 2012 (the certification period) continued to be deferred. Approved rates for the~~post-May~~ ~~2012 costs deferred (including previously expected program expenditures for 2016) became effective January 2016 and resulted in~~made its 2019 ARA filing, which proposed annualized margin increases of $2$3.2 million and $880,000 in southern and northern Nevada, respectively. However, Southwest entered into a stipulation and ~~$8.5~~agreement to modify these amounts to $6.2 million and $1.1 million in southern ~~Nevada. Then, as part~~and northern Nevada, respectively, which reflected the recovery of a related but separate program balance to be rolled into customer rates with the same effective date. The modification was approved, and rates became effective January 2020. In May 2020, Southwest made its 2020 ARA filing ~~approved in December 2016, Southwest modified rates, effective January 2017, expected to result in~~which proposes annualized margin decreases of ~~$1.4 million in~~$313,000 and $55,000 for southern and northern Nevada, and $1.3 million in southern Nevada to return over-collected balances. There is, however, no anticipated impact to net income overall from these decreases as amortization expense will also be reduced.

respectively.

Expansion and Economic Development Legislation.In ~~February 2015,~~January 2016, final regulations were approved by the PUCN associated with legislation (“SB 151”) ~~was~~previously introduced and signed into law in ~~Nevada directing the PUCN to adopt regulations authorizing~~Nevada. The legislation authorized natural gas utilities to expand their infrastructure ~~consistent with a program of economic development. This includes providing gas~~to provide service to unserved and underserved areas in Nevada, as well as attracting and retaining utility customers and accommodating the expansion of existing business customers. SB 151 was signed into law in May 2015. The draft regulations were reviewed by the Legislative Council Bureau and final regulations were approved by the PUCN in January 2016.

Nevada.

In November 2017, Southwest filed for preapproval of a project to extend service to ~~include the service territory of~~ Mesquite, Nevada, in accordance with the SB 151 regulations. ~~This~~Ultimately, the PUCN issued an order approving Southwest’s proposal to expand natural gas infrastructure and service to Mesquite. The order approved a capital investment of approximately $28 million and the construction of approximately 37 miles of distribution pipeline (including the approach main). The annual revenue requirement associated with the project is $2.8 million. A volumetric rate was implemented October 1, 2019 to recover the cost and is applicable to all southern Nevada customers (including new customers in Mesquite). In May 2020, Southwest made its 2020 ARA filing, which proposes an annualized margin increase of $185,000, which reflects the cumulative deferred revenue requirement associated with the Mesquite facilities that have been placed in service through April 30, 2020. Following preliminary design, in February 2019, Southwest began serving certain customers with an approved virtual pipeline network, providing temporary natural gas supply using portions of the approved distribution system and compressed natural gas. It is estimated that construction of the remaining approved distribution system to bring the permanent supply to Mesquite will be placed in service in the first quarter of 2021.

In June 2019, Southwest filed for preapproval to construct the infrastructure necessary to expand natural gas service to Spring Creek, Nevada, and to implement a cost recovery methodology to timely recover the associated revenue requirement consistent with the SB 151 regulations. Expansion to the Spring Creek area near Elko, Nevada consists of a high-pressure approach main and associated regulator stations, an interior backbone, and the extension of ~~existing facilities~~the distribution system from the interior backbone system. The total capital investment is estimated to ~~Mesquite at an~~be $61.9 million. A stipulation in this matter was reached with the parties and approved by the PUCN in December 2019, which largely accepted Southwest’s proposal with modifications reflected in the rate recovery allocations split amongst northern Nevada, Elko, and Spring Creek expansion customers. Initial ground-breaking is expected in the summer of 2020.

Customer Data Modernization Initiative. In March 2019, Southwest filed a request seeking authority to establish a regulatory asset to defer the revenue requirement related to the CDMI to mitigate the financial attrition associated with this multi-year project. Approximately $59 million of the estimated $174 million cost of ~~approximately $30 million. The cost is proposed~~the CDMI would be allocable to ~~be recovered through a volumetric surcharge on all southern~~the Nevada ~~customers.~~rate jurisdictions. A ~~second phase is then proposed to convert existing homes to natural gas service, which will be charged as a separate surcharge to Mesquite customers only. A decision~~hearing on this ~~proposal~~matter was held in August 2019 and the PUCN issued its decision in September 2019, denying Southwest’s request for regulatory asset treatment, finding that a general rate case is ~~expected within~~ the ~~required210-day~~ ~~time period for filings of this type.~~

~~Federal Energy Regulatory Commission (“FERC”) Jurisdiction~~

~~2018 Expansion.~~most appropriate venue to address such costs. In response to ~~growing demand~~the PUCN’s decision, Southwest filed a Petition for Reconsideration in October 2019, which was denied. Southwest proposed to establish a level of expense of approximately $1.2 million in rates as part of its pending general rate case


			46


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

filing. The project is expected to be moved to production in 2021. As described above, Southwest has a proposal to provide an opportunity to recover these costs as part of its pending rate case.

Regulatory Asset Related to COVID-19. The PUCN issued an order directing utilities within the ~~Carson City and South Lake Tahoe areas~~state to establish regulatory asset accounts to track the financial impacts associated with maintaining service for customers affected by COVID-19, including those whose service would have been otherwise terminated/disconnected, effective March 12, 2020, the date Governor Steve Sisolak declared a state of ~~northern California and northern Nevada,~~emergency related to COVID-19. These costs will be considered by the PUCN for future recovery.

FERC Jurisdiction

General Rate Case. Paiute Pipeline Company (“Paiute”) ~~evaluated shipper interest~~, a wholly owned subsidiary of Southwest, filed a general rate case with the FERC in ~~acquiring additional~~May 2019. The filing fulfilled an obligation from the settlement agreement reached in the 2014 Paiute general rate case. In January 2020, Paiute reached an agreement in principle with the FERC Staff and intervenors to settle its general rate case. In addition to continuing the term-differentiated rate structures with its shippers, the agreement requires Paiute’s three largest transportation ~~capacity~~customers and ~~executed precedent~~all of its storage customers to extend their service agreements ~~for incremental transportation capacity with Southwest during~~to have primary terms of at least five years. The settlement will result in a revenue reduction of approximately $700,000 and is based on a 9.90% pre-tax rate of return. Also, as part of this agreement, Paiute agreed not to file a rate case prior to January 1, 2022, but no later than May 31, 2025.

In January 2020, Paiute requested, and was granted, the ~~third quarter of 2016. In October 2016,~~authority to place the settlement rates into effect on an interim basis effective February 2020. On March 30, 2020, Paiute ~~initiated apre-filing~~ ~~review process~~filed the proposed settlement agreement with the FERC for ~~an expansion project, which was approved during~~review and approval. On July 6, 2020, the ~~same month. In July 2017,~~FERC issued a certificate application was filed, which included an applicant environmental assessment. The project is anticipated to consist of 8.5 miles of additional transmission pipeline infrastructure at an approximate cost of $18 million.letter order approving the settlement. If no party requests rehearing within 30 days, the ~~process progresses as planned, a decision should be received by April 2018 and the additional facilities could be in place by the end of 2018.~~


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

order will become final on August 5, 2020.

PGA Filings

The rate schedules in all of Southwest’s service territories contain provisions that permit ~~adjustments~~adjustment 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- or under-collections. ~~At September~~As of June 30, ~~2017, under-collections in Arizona and Northern Nevada resulted in an asset of approximately $6.2 million and~~2020, over-collections in ~~Southern Nevada and California~~each of Southwest’s service territories resulted in a liability of ~~$15~~$69.9 million on the Company’s and Southwest’s condensed consolidated balance sheets. Gas cost rates paid to suppliers have been higher than amounts recovered from customers during the first nine months of 2017, resulting in fluctuations since December 31, 2016. Tariff rates have been adjusted in all jurisdictions during this period. Condensed Consolidated Balance Sheets.

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 consolidated income statement components. These include Gas operating revenues, Net cost of gas sold, Net interest deductions, and Other income (deductions).

The following table presents Southwest’s outstanding PGA balances receivable/(payable) ~~(thousands of dollars)~~:

   September 30, 2017    December 31, 2016    September 30, 2016
Arizona
   $ 1,324    $ (20,349 )    $ (34,425 )
Northern Nevada
   4,906    (3,339 )    (10,326 )
Southern Nevada
   (13,711 )    (66,788 )    (77,402 )
California
   (1,260 )    2,608    (1,246 )






   $ (8,741 )    $ (87,868 )    $ (123,399 )


(Thousands of dollars)	June 30, 2020		December 31, 2019		June 30, 2019
Arizona	$	(18,598)	$	(59,259)	$	(87,692)
Northern Nevada	(13,648)		11,894		9,967
Southern Nevada	(32,867)		32,518		48,273
California	(4,825)		(1,496)		(2,041)
	$	(69,938)	$	(16,343)	$	(31,493)

Capital Resources and Liquidity

~~Cash~~

Historically, cash on hand and cash flows from operations ~~in the past twelve months~~ have ~~generally~~ provided ~~the majority~~a substantial portion of cash used in investing activities (primarily for construction expenditures and property additions). In recent years, ~~certain~~the Company has accelerated pipe replacement ~~has been accelerated to take advantage of bonus depreciation tax incentives and~~activities to fortify system integrity and reliability, notably in association with ~~new~~ gas infrastructure replacement programs as discussed ~~above. During this same time, benefits were derived~~previously. This accelerated activity has necessitated the issuance of both debt and equity securities to supplement cash flows from ~~debt refinancing and strategic debt redemptions.~~operations. The ~~Company’s capitalization strategy is~~Company endeavors to maintain an appropriate balance of equity and debt to maintain ~~strong~~ investment-grade credit ratings, which should minimize interest costs.

Cash Flows

Southwest Gas Holdings, Inc.:

Operating Cash Flows.Cash flows provided by consolidated operating activities ~~decreased $179~~increased $97 million in the first ~~nine~~six months of ~~2017~~2020 as compared to the same period of ~~2016.~~2019. The ~~decline~~improvement in cash flows primarily resulted from collections of amounts under purchased gas adjustment mechanisms (compared to amounts refunded in the prior year), an increase in


			47


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

collections ($39 million) related to the Arizona decoupling mechanism balance between six-month periods, as well as increases from other working capital components. These impacts were partially offset by a $50 million supplemental contribution for pension funding made in January 2020 (included in Changes in other liabilities and deferred credits in the Condensed Consolidated Statements of Cash Flows of both the Company and Southwest). Customarily, differences between amounts Southwest pays to gas suppliers and amount included in customer rates to recover the cost of purchased gas under the purchased gas cost mechanisms has provided significant variability in operating cash flows ~~was primarily attributable to the change in deferred purchased gas costs noted above. Refer to~~~~Results of Natural Gas Operations~~ ~~and~~~~Rates and Regulatory Proceedings~~.

between periods.

Investing Cash Flows.Cash used in consolidated investing ~~activities increased $35~~activities decreased $66 million in the first ~~nine~~six months of ~~2017~~2020 as compared to the same period of ~~2016.~~2019. The change was primarily due to ~~increased construction~~a decrease in capital expenditures in both reportable segments in the ~~natural gas operations segment, including scheduled and accelerated replacement activity. The prior~~first six months of 2020. Additionally, the prior-year period included ~~an outflow~~$19.5 million for the remittance of ~~$17 million to facilitate a construction services~~purchase consideration previously held back in association with the 2018 Linetec acquisition.

Financing Cash Flows.Net cash provided by consolidated financing activities increased ~~$195~~$35 million in the first ~~nine~~six months of ~~2017~~2020 as compared to the same period of 2016. The increase was primarily due to activity under the credit facility and commercial paper program (an increase in borrowings in the current-year nine-month period and the repayment of borrowings in the prior-year nine-month period). The prior period included proceeds in utility operations from the issuance of $300 million in senior notes. The Company also issued approximately $12 million during 2017 in stock under its Equity Shelf Program. See also~~Note 5 – Common Stock, and the discussion below. The first nine months of 2017 includes the August 2017 $23 million purchase of the previous owners’ interest in Centuri. See also~~~~Note 9 – Construction Services Redeemable Noncontrolling Interest~~ ~~for additional information.~~


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

Dividends paid increased in the first nine months of 2017 as compared to the same period of 2016 as a result of an increase in the quarterly dividend rate and an increase in the number of shares outstanding.

~~The Company issued approximately 103,000 additional shares of common stock collectively through the Restricted Stock/Unit Plan and the Management Incentive Plan.~~

~~Southwest Gas Corporation:~~

~~Operating Cash Flows.~~Cash flows provided by operating activities decreased $172 million in the first nine months of 2017 as compared to the same period of 2016. The decline in operating cash flows was primarily attributable to the change in deferred purchased gas costs as discussed above. Refer to~~Results of Natural Gas Operations~~ ~~and~~~~Rates and Regulatory Proceedings~~.

~~Investing Cash Flows.~~~~Cash used in investing activities increased $68 million in the first nine months of 2017 as compared to the same period of 2016.~~2019. The change was primarily due to ~~additional construction expenditures, as indicated above.~~

~~Financing Cash Flows.~~~~Net cash provided~~net proceeds of $447 million (after discount and fees) from the issuance of $450 million Senior Notes in June 2020 by ~~financing activities increased $211 million~~Southwest, in which the funds were partially used to reduce the amounts then outstanding under its credit facility ($309 million); and in the ~~first nine months~~prior year, Southwest used a portion of ~~2017 as compared~~the net proceeds from the $300 million Senior Notes issued in May 2019 to ~~the same period of 2016. The increase was primarily due to activity~~reduce amounts then outstanding under ~~the~~its credit facility and commercial paper ~~program (an increase~~program. Additionally, there was a decrease ($48 million) in ~~borrowings~~issuances of common stock under the Company’s Equity Shelf Program in the ~~current-year nine-month period and the repayment~~first half of ~~borrowings~~2020 compared to issuances under programs in the prior-year ~~nine-month period)~~period. See Note 4 – Common Stock and Note 5 – Debt. ~~The prior period included proceeds from~~Other outflows include the ~~issuance~~combined impacts of ~~$300~~repayment and borrowings by Centuri under its secured credit and revolving credit facility, offset by $70 million in ~~senior notes as discussed above. The current period included capital contributions from Southwest Gas Holdings, Inc.~~

equipment loan proceeds.

During the six months ended June 30, 2020, the Company issued 86,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, raising approximately $6 million, similar to amounts raised in the prior year period.

The capital requirements and resources of the Company generally are ~~determined~~determined independently for the natural gas operations and ~~construction~~utility infrastructure services segments. Each business activity is generally responsible for securing its own external debt financing sources.

However, the holding company may raise funds through stock issuance or other external financing sources. See Note 4 – Common Stock.

Southwest Gas Corporation:

Operating Cash Flows. Cash flows provided by operating activities increased $92 million in the first six months of 2020 as compared to the same period of 2019. The improvement in operating cash flows was attributable to collections of deferred purchased gas costs and recoveries related to the Arizona decoupling mechanism noted above, as well as other working capital components overall, partially offset by the supplemental contribution for pension funding described earlier.

Investing Cash Flows. Cash used in investing activities decreased $6 million in the first six months of 2020 as compared to the same period of 2019. The change was primarily due to a decrease in capital expenditures in 2020 offset by a decrease in utility customer advances toward capital projects.

Financing Cash Flows. Net cash provided by financing activities increased $53 million in the first six months of 2020 as compared to the same period of 2019. The increase was primarily due to the issuance of $450 million Senior Notes in the current period, net of amounts used to reduce the amounts outstanding under Southwest’s credit facility, compared to the prior year $300 million Senior Notes issuance and related credit facility and commercial paper program repayments. See Note 5 – Debt. The combined impact of dividends and contributions to/from the parent holding company resulted in a reduction in financing cash flows.

Gas Segment Construction Expenditures and Financing

During the twelve-month period ended ~~September~~June 30, ~~2017,~~2020, construction expenditures for the natural gas operations segment were ~~$515~~$768 million. The majority of these expenditures represented costs associated with scheduled and accelerated replacement of existing transmission, distribution, and general plant. Cash flows from operating activities of Southwest were ~~$337~~$460 million during this time, and provided approximately ~~57%~~53% of construction expenditures and dividend requirements.

~~Southwest~~

Management estimates natural gas segment construction expenditures during the three-year period ending December 31, ~~2019~~2022 will be ~~between $1.6 billion and $1.8~~approximately $2.1 billion. Of this amount, approximately ~~$570~~$700 million is ~~expected~~scheduled to be incurred in ~~2017.~~2020. Southwest plans to continue ~~as appropriate,~~ to request regulatory support as necessary and appropriate to accelerate projects that improve system flexibility and reliability (including replacement of early vintage plastic and steel pipe). This includes the recent approval to complete accelerated replacement projects in Nevada of $57.3 million and $65.7 million in 2017 and 2018, respectively. It also incorporates programs included in the recently approved Arizona general rate case settlement (the continuation of the COYL program and implementation of a vintage steel pipe replacement program).reliability. Southwest may expand existing, or initiate new, programs. ~~If efforts continue to be successful, significant~~Significant replacement activities are currently expected to continue well beyond the next few years. See alsoRates and Regulatory Proceedings for discussion of Nevada infrastructure, Arizona COYL and ~~an LNG facility.~~VSP programs, and Spring Creek in Nevada. During the three-year period, cash flows from operating activities of Southwest are expected to provide approximately ~~60% to 70%~~50% of the funding for gas operations total


			48


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

construction expenditures and dividend requirements. Any additional cash requirements are expected to be provided by existing credit facilities, equity contributions from the Company, and/or other external financing sources. The timing, types, and amounts of any additional external financings will be dependent on a number of factors, including the cost of gas purchases, conditions in the capital markets, timing and amounts of rate relief, timing differences between U.S. federal taxes embedded in customer rates and amounts implemented under tax reform, as well as growth levels in Southwest’s service areas and earnings. External financings could include the issuance of debt securities, bank and other short-term borrowings, and other forms of financing.

As noted earlier, in June 2020, Southwest issued $450 million aggregate principal amount of 2.20% Senior Notes at a discount of 0.126%. The notes will mature in June 2030. A portion of the net proceeds was used to reduce borrowings under Southwest’s credit facility. Additionally, Southwest intends to use a portion of the net proceeds from the issuance to redeem the 4.45% Notes. On July 31, 2020, holders of the 4.45% Notes due in December 2020 were notified of Southwest’s intention to redeem the notes in full on September 1, 2020 at a redemption price of 100% plus accrued and unpaid interest.

In ~~March 2017,~~May 2019, the Company filed with the ~~Securities Exchange Commission (“SEC”)~~SEC an automatic shelf registration statement for the offer and sale of up to ~~$150~~$300 million of common stock from time to time inat-the-market offerings under the prospectus included therein ~~and~~ in accordance with the Sales Agency Agreement, dated ~~March 29, 2017,~~May 8, 2019, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). ~~Sales~~The Company issued $50 million under this multi-year program during the second quarter of 2020; approximately $126 million is available under the ~~shares will~~


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

~~continue to be made at market prices prevailing at the time~~program as of ~~sale.~~June 30, 2020. Net proceeds from the ~~sale~~sales of shares of common stock under the Equity Shelf Program are intended for general corporate purposes, including the acquisition of property for the construction, completion, extension or improvement of pipeline systems and facilities located in and around the communities ~~Southwest serves.~~

served by Southwest.

During the ~~nine~~twelve months ended ~~September~~June 30, ~~2017, 147,077 shares~~2020, 1,325,796 shares were issued inat-the-market offerings at an average price of ~~$80.07 per~~$74.93 per share with gross proceeds of ~~$11.8~~$99.3 million, ~~agent~~agent commissions of ~~$118,000,~~$993,000, and net proceeds of ~~$11.7 million. See~~~~Note 5 – Common Stock~~ ~~for more information.~~

$98.3 million under the Company’s Equity Shelf Program.

Bonus Depreciation

In ~~December 2015,~~2017, with the ~~Protecting Americans from Tax Hikes Act~~enactment of ~~2015 (“PATH Act”) was enacted extending~~U.S. tax reform, the ~~50%~~ bonus depreciation ~~tax~~ deduction percentage changed from 50% to 100% for ~~qualified property acquired or constructed~~“qualified property” placed in service after September 27, 2017 and ~~placedin-service~~ ~~during 2015 (and additional years as noted below) as well as other tax deductions, credits, and incentives.~~before 2023. The bonus depreciation tax deduction ~~will be phased~~phases out ~~over five years. The PATH Act provides~~starting in 2023, by 20% for a 50% bonus depreciation tax deduction in 2015 through 2017, 40% in 2018, 30% in 2019, and no deduction after 2019. Based on forecasted qualifying construction expenditures, Southwest estimates the bonus depreciation provisioneach of the ~~PATH Act~~five following years. Qualified property excludes most public utility property. The Company estimates bonus depreciation will defer the payment of ~~approximately $29~~approximately $10 million of ~~federal~~federal income taxes for ~~2017, resulting in a minimal amount~~2020, none of ~~federal income tax being paid.~~

which relates to utility operations.

Dividend Policy

Dividends are payable on the Company’s common stock at the discretion of the Board of Directors ~~(“Board”~~(the “Board”). In setting the dividend rate, the Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share and considers, among other factors, current and expected future earnings levels, our ongoing capital expenditure plans and expected external funding needs, ~~our payout ratio, and~~in addition to our ability to maintain strong credit ratings and liquidity. The Company has paid dividends on its common stock since 1956 and has increased that dividend each year since ~~2007.~~2007. In February ~~2017,~~2020, the Board elected to increase the quarterly dividend from ~~$0.45~~$0.545 to ~~$0.495~~$0.570 per share, representing a ~~10%~~4.6% increase, effective with the June ~~2017~~2020 payment. ~~The Board currently targets a payout ratio of 55% to 65% of consolidated earnings per share.~~

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, the ability to access and obtain capital from external sources, interest rates, changes in income tax laws, pension funding requirements, inflation, and the level of earnings. Natural gas prices and related gas cost recovery rates, as well as plant investment, have historically had the most significant impact on liquidity.

The Company remains focused on the safety and well-being of our employees and on the service to our customers. The Company continues to review and assess the ongoing impacts of the COVID-19 pandemic, including those on our customers, suppliers, and business. As of June 30, 2020, the Company’s Cash and cash equivalents were $200 million (which is intended to redeem Southwest’s $125 million 4.45% Notes on September 1, 2020), and the Company had access to $679 million of borrowing capacity under the Company’s various credit facilities, which management believes will help manage the impacts of the COVID-19 pandemic on its business and address related liquidity needs if they should arise.


			49


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

On an interim basis, Southwest 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 ~~September~~June 30, ~~2017,~~2020, the combined balance in the PGA accounts totaled an over-collection of ~~$8.7~~$70 million. SeePGA Filingsfor more information.

~~In March 2017,~~

Southwest Gas Holdings, Inc. ~~entered into~~has a credit facility with a borrowing capacity of $100 ~~million that expires in March 2022.~~million; on April 10, 2020, the existing credit facility was amended to extend the maturity date to April 10, 2025, while maintaining the borrowing capacity at $100 million. The Company intends to utilize this facility for short-term financing needs. At ~~September~~June 30, ~~2017, $27.5~~2020, $58 million was outstanding onunder this facility.

~~In March 2017,~~

Southwest ~~Gas Corporation amended its~~has a credit facility, ~~increasing the~~with a borrowing capacity ~~from $300 million~~of $400 million; on April 10, 2020, Southwest amended the credit facility agreement which extended the maturity date to April 10, 2025. The revolving borrowing capacity under the amended credit facility agreement remains at $400 million ~~and extended the term of the facility from March 2021 to March 2022.~~following that amendment. Southwest ~~continues to designate~~designated $150 million of the facility for long-term borrowing needs and the remaining $250 million for working capital purposes. The maximum amount outstanding on the long-term portion of the credit facility (including a commercial paper program, as noted below) during the first ~~nine~~six months of ~~2017~~2020 was $150 million. ~~At September~~As of June 30, ~~2017, $150 million~~2020, no amount was outstanding under the long-term portion of the facility. Additionally, the maximum amount outstanding on the ~~long-term and $83 million~~short-term portion of the credit facility during the first six months of 2020 was $161 million. As of June 30, 2020, no amount was outstanding on the short-term portion of this credit facility. The credit facility can be used as necessary to meet liquidity requirements, including temporarily financing under-collected PGA balances, if any, or meeting the refund needs of over-collected balances. ~~This credit facility~~It has been


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

adequate for Southwest’s working capital needs outside of funds raised through operations and other types of external financing.

As indicated, any additional cash requirements would include the existing credit facility, equity contributions from the Company, and/or other external financing sources.

Southwest has a $50 million commercial paper program. Any issuance under the commercial paper program is supported by Southwest’s current revolving credit facility and, therefore, does not represent additional borrowing capacity. Any borrowing under the commercial paper program during 2020 will be designated as long-term debt. Interest rates for the commercial paper program are calculated at the current commercial paper rate during the borrowing term. At ~~September~~June 30, ~~2017,~~2020, there were no borrowings ~~were~~ outstanding under this program.

Centuri has a ~~$300 million~~senior secured revolving credit and term loan facility ~~that~~with borrowing capacity of $590 million (refer to Note 5 – Debt). The line of credit portion of the facility is scheduled to expire in October 2019. The term loan facility portion had an initial limit of approximately $150 million, which was reached in 2014 and; $107 million was outstanding (after repayments) at September 30, 2017. The secured revolving credit facility portion also has a limit of $150$325 million; amounts borrowed and repaid under ~~this portion of~~ the revolving credit facility are available to bere-borrowed. The term loan facility portion has a limit of approximately $265 million. The $590 million credit and term loan facility expires in November 30, 2023. It is secured by substantially all of Centuri’s assets except those explicitly excluded under the terms of the agreement (including owned real estate and certain certificated vehicles). Centuri assets securing the facility at June 30, 2020 totaled $1.3 billion. The maximum amount outstanding on the ~~credit~~ facility during the first ~~nine~~six months of ~~2017~~2020 was ~~$104 million. At September 30, 2017, $81.3~~$312 million, of which $235 million was outstanding on the ~~secured~~term portion. As of June 30, 2020, $77 million was outstanding on the revolving credit facility and $231 million was outstanding on the term loan portion of the facility. Also at ~~September~~June 30, ~~2017,~~2020, there was approximately ~~$52~~$237 million, net of letters of credit, available under the line of credit.

~~The following table sets forth~~

On April 10, 2020, the ~~ratios of earnings to fixed charges~~holding company and Southwest amended their respective credit facility agreements (see above). Interest rates for the ~~Company. Due~~amended credit facilities are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin that is determined based on each entities’ respective senior unsecured long-term debt rating. Upon the occurrence of certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, each entity may amend their respective credit facility with a replacement rate as set forth in the amended credit facility agreement. It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of June 30, 2020, $58 million borrowings were outstanding for the holding company under its credit facility (see Note 5 – Debt), and $188 million of Centuri’s indebtedness under its facility have interest rates with reference to LIBOR and maturity dates that extend beyond 2021. Southwest had no borrowings outstanding under its amended credit facility as of June 30, 2020. The above amounts that were outstanding for the holding company and for Centuri reflect approximately 9% of total debt (including current maturities) for the Company overall. In order to mitigate the impact of the discontinuation on the Company’s financial condition and results of operations, management will continue to monitor developments with respect to alternative rates and work with lenders to determine the appropriate alternative reference rate for variable rate indebtedness. However, at this time the Company and Southwest can provide no assurances as to the ~~seasonal nature~~impact a LIBOR discontinuation will have on their financial condition or results of ~~the Company’s business, these ratios are computed on a twelve-month basis:~~

   For the Twelve Months Ended
   September 30,
2017    December 31,
2016
Ratio of earnings to fixed charges
   3.50    3.46

~~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 (that approximates the interest component of such expense), and net amortized debt costs.~~

operations. Any alternative rate may be less predictable or less attractive than LIBOR.


			50


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

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, intentions, projections, strategies, future events or performance, negotiations, and underlying assumptions. The words “may,” “if,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “continue,” “forecast,” “intend,” “endeavor,” “promote,” “seek,” and similar words and expressions are generally used and intended to identify forward-looking statements. For example, statements regarding operating margin patterns, customer growth, the composition of our customer base, price volatility, seasonal patterns, payment of debt, ~~interest savings,~~ the Company’s COLI strategy, replacement market and new construction market, impacts from the novel Coronavirus (COVID-19), including on our employees, customers, supply chain, transportation network, our financial position, revenue, earnings, cash flows, debt covenants, operations, regulatory recovery, work deployment or resumption and related uncertainties stemming from this pandemic, expected impacts of valuation adjustments associated with the redeemable noncontrolling interest in Linetec, the impacts of U.S. tax reform including disposition in regulatory proceedings and bonus depreciation tax deductions, ~~amount~~the impact of recent PHMSA rulemaking, the amounts and timing for completion of estimated future construction expenditures, ~~including the LNG facility in southern Arizona, the cost of the 2018 Paiute expansion project in northern Nevada and northern California,~~plans to pursue infrastructure programs or programs under SB151 legislation, forecasted operating cash flows and results of operations, net earnings impacts from gas infrastructure replacement surcharges, funding sources of cash requirements, amounts generally expected to be reflected in ~~2017~~2020 or future period revenues from regulatory rate proceedings including amounts ~~resulting~~requested or preliminarily settled from the ~~settled Arizona~~recently filed and ongoing general rate cases, the outcome of judicial review of the previous Nevada rate case, rates and surcharges, PGA, and other rate adjustments, sufficiency of working capital and current credit facilities, bank lending practices, the Company’s views regarding its liquidity position, ability to raise funds and receive external financing capacity and the intent and ability to issue ~~common~~various financing instruments and stock under the Equity Shelf Program or otherwise, future dividend increases and the Board’s current target dividend payout ratio, pension and ~~post-retirement~~postretirement benefits, certain ~~benefits~~impacts of tax acts, the effect of any rate changes or regulatory proceedings, contract or construction change order negotiations, impacts of accounting standard updates, infrastructure replacement mechanisms and ~~the~~ COYL ~~program,~~programs, statements regarding future gas prices, gas purchase contracts and derivative financial instruments, recoverability of regulatory assets, the impact of certain legal proceedings, and the timing and results of future rate hearings, including the ongoing general rate cases and the final resolution for recovery of the CDMI in all jurisdictions, and statements regarding approvals are forward-looking


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

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, customer growth rates, conditions in the housing market, the impacts of COVID-19 including that which may result from a sustained restriction on commerce by government officials or otherwise, including impacts on employment in our territories, the health impacts to our customers and employees due to the persistence of the virus, the ability to collect on customer accounts due to the current or an extended moratorium on late fees or service disconnection, the ability to obtain regulatory recovery of all costs and financial impacts resulting from this pandemic, the ability of infrastructure services business to resume work with all customers and the impact of a delay or termination of work as a result thereof, the impacts of future restrictions placed on our business by government regulation or otherwise (such as self-imposed restrictions for the safety of employees and customers), including related to personal distancing, investment in personal protective equipment and other protocols, the impact of a resurgence of the virus following the resumption of commerce in our territories, and decisions of Centuri customers as to whether to pursue capital projects due to economic impacts resulting from the pandemic or otherwise, the ability to recover costs through the PGA mechanisms or other regulatory assets, the effects of regulation/deregulation, governmental or regulatory policy regarding natural gas or alternative energy, the regulatory support for ongoing infrastructure programs, the timing and amount of rate relief, the timing and methods determined by regulators to refund amounts to customers resulting from U.S. tax reform, changes in rate design, variability in volume of gas or transportation service sold to customers, changes in gas procurement practices, changes in capital requirements and funding, the impact of conditions in the capital markets on financing costs, the impact of variable rate indebtedness associated with a discontinuance of LIBOR including in relation to amounts of indebtedness then outstanding, changes in construction expenditures and financing, changes in operations and maintenance expenses, effects of pension expense forecasts, accounting changes and regulatory treatment related thereto, currently unresolved and future liability claims, changes in pipeline capacity for the transportation of gas and related costs, results of Centuri bid work, the impact of weather on Centuri’s operations, future acquisition-related costs, impacts of changes in value of the redeemable noncontrolling interest if at other than fair value, Centuri ~~construction~~utility infrastructure expenses, differences between actual and originally expected outcomes of Centuri bid or other fixed-price construction agreements, outcomes from contract and change order negotiations, ~~and~~ ability to successfully procure new work, impacts from work awarded or failing to be awarded from significant customers, the mix of work awarded, the amount of work awarded to Centuri following the lifting of work stoppages or reduction, the ~~recent work stoppage,~~result of


			51


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						June 30, 2020

productivity inefficiencies from regulatory requirements or otherwise, delays in commissioning individual projects, acquisitions, and management’s plans related thereto, competition, our ability to raise capital in external financings, our ability to continue to remain within the ratios and other limits subject to our debt covenants, and ongoing evaluations in regard to goodwill and other intangible assets. In addition, the Company can provide no assurance that its discussions regarding certain trends relating to its financing and operating expenses will continue or cease to continue in future periods. For additional information on the risks associated with the Company’s business, seeItem 1A. Risk Factors andItem 7A. Quantitative and Qualitative Disclosures About Market Risk in the Annual Report onForm 10-K for the year ended December 31, ~~2016.~~

2019, and Item 1A. Risk Factors, as updated in association with the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

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~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SeeItem 7A. Quantitative and Qualitative Disclosures about Market Risk in the ~~2016~~2019 Annual Report on Form10-K filed with the SEC. No material changes have occurred related to the disclosures about market risk.

~~ITEM 4.~~

~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Management of Southwest Gas Holdings, Inc. and Southwest Gas Corporation has established disclosure controls and procedures (as defined in Rules13a-15(e) and15d-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 their respective 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 management of each company, including each respective 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 ~~September~~June 30, ~~2017,~~2020, management of Southwest Gas Holdings, Inc., including the Chief Executive Officer and Chief Financial Officer, ~~believe~~believes the Company’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.


~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2017~~

There have been no changes in the Company’s internal ~~controls~~control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) during the ~~third~~second quarter of ~~2017~~2020 that have materially affected, or are likely to materially affect, the Company’s internal ~~controls~~control over financial reporting.

Based on the most recent evaluation, as of ~~September~~June 30, ~~2017,~~2020, management of Southwest Gas Corporation, including the Chief Executive Officer and Chief Financial Officer, ~~believe~~believes Southwest’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.

There have been no changes in Southwest’s internal ~~controls~~control over financial reporting (as defined in Rules13a-15(f) and15d-15(f) of the Exchange Act) during the ~~third~~second quarter of ~~2017~~2020 that have materially affected, or are likely to materially affect Southwest’s internal ~~controls~~control over financial reporting.

PART ~~II—~~II - OTHER INFORMATION

~~ITEM 1.~~

~~LEGAL PROCEEDINGS~~

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. MINE SAFETY DISCLOSURES Not applicable.

ITEM 5. OTHER INFORMATION None.

~~ITEMS 1A through 3.~~ ~~None.~~
			52

~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~~~Not applicable.~~
SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		June 30, 2020

~~ITEM 5.~~

~~OTHER INFORMATION~~~~None.~~

~~ITEM 6.~~

~~EXHIBITS~~

ITEM 6. EXHIBITS

The following documents are filed, or furnished, as applicable, as part of this report onForm 10-Q:


Exhibit ~~3(i)~~4.01			-		— Indenture, dated June 4, 2020, by and between Southwest Gas Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee. Incorporated herein by reference to Exhibit 4.1 to Form 8-K dated June 1, 2020. File No. 001-07850.

Exhibit 4.02			-		~~Amendment~~First Supplemental Indenture, dated June 4, 2020, by and between Southwest Gas Corporation and The Bank of New York Mellon Trust Company, N.A., as Trustee. Incorporated herein by reference to ~~Articles~~Exhibit 4.2 to Form 8-K dated June 1, 2020. File No. 001-07850.

Exhibit 4.03			-		Form of ~~Incorporation of~~ 2.200% Senior Note due 2030. Incorporated herein by reference to Exhibit 4.3 to Form 8-K dated June 1, 2020. File No. 001-07850.

Exhibit 10.01			-		Southwest Gas Holdings, Inc. $100 million Credit Facility. Incorporated herein by reference to Exhibit 10.1 to Form 8-K dated April 10, 2020. File No. 001-37976 .

Exhibit ~~3(ii)~~10.02			-		—		~~Amended and Restated Bylaws of~~ Southwest Gas ~~Holdings, Inc.~~Corporation $400 million Credit Facility. Incorporated herein by reference to Exhibit 10.2 to Form 8-K dated April 10, 2020. File No. 001-07850 .
Exhibit 10.01*					—		~~Centuri 2017 Short-Term Incentive Plan.~~
~~Exhibit 12.01~~				—	~~Computation of Ratios of Earnings to Fixed Charges – Southwest Gas Holdings, Inc.~~
Exhibit 31.01	-			—		Section 302 Certifications–Southwest Gas Holdings, Inc.

Exhibit 31.02			-		—		Section 302 Certifications–Southwest Gas ~~Corporation.~~Corporation

Exhibit 32.01			-		—		Section 906 Certifications–Southwest Gas Holdings, Inc.

Exhibit 32.02			-		—		Section 906 Certifications–Southwest Gas ~~Corporation.~~Corporation
~~Exhibit 101.INS~~		—		~~XBRL Instance Document~~
~~Exhibit 101SCH~~		—		~~XBRL Schema Document~~
~~Exhibit 101.CAL~~		—		~~XBRL Calculation Linkbase Document~~
~~Exhibit 101.DEF~~		—		~~XBRL Definition Linkbase Document~~
~~Exhibit 101.LAB~~		—		~~XBRL Label Linkbase Document~~
~~Exhibit101.PRE~~		—		~~XBRL Presentation Linkbase Document~~

*	~~Management Incentive Plan~~


Exhibit 101.INS	-	XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

Exhibit 101SCH	-	XBRL Schema Document

Exhibit 101.CAL	-	XBRL Calculation Linkbase Document

Exhibit 101.DEF	-	XBRL Definition Linkbase Document

Exhibit 101.LAB	-	XBRL Label Linkbase Document

Exhibit 101.PRE	-	XBRL Presentation Linkbase Document

Exhibit 104	-	Cover Page Interactive Data File (embedded within the Inline XBRL document).


			53


SOUTHWEST GAS HOLDINGS, INC.						Form 10-Q
SOUTHWEST GAS CORPORATION						~~September~~June 30, ~~2017~~2020

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 Holdings, Inc.
(Registrant)

Date: ~~November 7, 2017~~

August 6, 2020



/s/ ~~GREGORY J. PETERSON~~ LORI L. COLVIN
~~Gregory J. Peterson~~Lori L. Colvin
Vice President/Controller and Chief Accounting Officer

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: August 6, 2020

~~Date: November 7, 2017~~

/s/ LORI L. COLVIN
~~/s/ GREGORY J. PETERSON~~ Lori L. Colvin
~~Gregory J. Peterson~~
Vice President/Controller and Chief Accounting Officer


			54


	SEPTEMBER 30, 2017			DECEMBER 31, 2016
ASSETS
Utility plant:
Gas plant	$	6,440,547		$	6,193,564
Less: accumulated depreciation		(2,218,796	)		(2,172,966	)
Acquisition adjustments, net		81			196
Construction work in progress		164,030			111,177

Net utility plant		4,385,862			4,131,971

Other property and investments		369,303			342,343

Current assets:
Cash and cash equivalents		59,152			28,066
Accounts receivable, net of allowances		301,792			285,145
Accrued utility revenue		34,100			76,200
Income taxes receivable, net		5,462			4,455
Deferred purchased gas costs		6,230			2,608
Prepaids and other current assets		132,182			136,833

Total current assets		538,918			533,307

Noncurrent assets:
Goodwill		147,865			139,983
Deferred income taxes		1,467			1,288
Deferred charges and other assets		411,655			432,234

Total noncurrent assets		560,987			573,505

Total assets	$	5,855,070		$	5,581,126

CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $1 par (authorized—60,000,000 shares; issued and outstanding—47,731,840 and 47,482,068 shares)	$	49,362		$	49,112
Additionalpaid-in capital		924,213			903,123
Accumulated other comprehensive income (loss), net		(42,818	)		(48,008	)
Retained earnings		784,934			759,263

Total Southwest Gas Holdings, Inc. equity		1,715,691			1,663,490
Noncontrolling interest		(2,295	)		(2,217	)

Total equity		1,713,396			1,661,273
Redeemable noncontrolling interest		—			22,590
Long-term debt, less current maturities		1,731,981			1,549,983

Total capitalization		3,445,377			3,233,846

Current liabilities:
Current maturities of long-term debt		28,453			50,101
Short-term debt		110,500			—
Accounts payable		159,382			184,669
Customer deposits		70,162			72,296
Income taxes payable		1,543			1,909
Accrued general taxes		48,998			42,921
Accrued interest		24,543			17,939
Deferred purchased gas costs		14,971			90,476
Other current liabilities		197,854			168,064

Total current liabilities		656,406			628,375

Deferred income taxes and other credits:
Deferred income taxes and investment tax credits		894,011			840,653
Accumulated removal costs		312,000			308,000
Other deferred credits and other long-term liabilities		547,276			570,252

Total deferred income taxes and other credits		1,753,287			1,718,905


Total capitalization and liabilities	$	5,855,070		$	5,581,126


	THREE MONTHS ENDED						NINE MONTHS ENDED						TWELVE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,						SEPTEMBER 30,
	2017			2016			2017			2016			2017			2016
Operating revenues:
Gas operating revenues	$	213,059		$	200,179		$	935,823		$	980,927		$	1,276,308		$	1,376,388
Construction revenues		380,094			339,790			872,536			838,038			1,173,576			1,127,982

Total operating revenues		593,153			539,969			1,808,359			1,818,965			2,449,884			2,504,370

Operating expenses:
Net cost of gas sold		45,539			39,056			261,839			324,072			334,888			460,836
Operations and maintenance		102,278			102,438			314,488			301,979			414,233			400,222
Depreciation and amortization		58,529			69,845			189,089			217,764			260,457			286,977
Taxes other than income taxes		14,046			12,480			43,325			39,480			56,221			51,810
Construction expenses		342,629			300,611			806,586			757,919			1,073,090			1,009,188

Total operating expenses		563,021			524,430			1,615,327			1,641,214			2,138,889			2,209,033

Operating income		30,132			15,539			193,032			177,751			310,995			295,337

Other income and (expenses):
Net interest deductions		(19,494	)		(18,158	)		(56,863	)		(54,100	)		(76,423	)		(71,884	)
Other income (deductions)		2,876			2,565			8,788			6,756			11,501			10,861

Total other income and (expenses)		(16,618	)		(15,593	)		(48,075	)		(47,344	)		(64,922	)		(61,023	)

Income (loss) before income taxes		13,514			(54	)		144,957			130,407			246,073			234,314
Income tax expense (benefit)		3,094			(2,961	)		47,411			43,046			82,833			80,255

Net income		10,420			2,907			97,546			87,361			163,240			154,059
Net income attributable to noncontrolling interests		216			435			170			500			684			1,079

Net income attributable to Southwest Gas Holdings, Inc.	$	10,204		$	2,472		$	97,376		$	86,861		$	162,556		$	152,980

Basic earnings per share	$	0.21		$	0.05		$	2.05		$	1.83		$	3.42		$	3.22

Diluted earnings per share	$	0.21		$	0.05		$	2.03		$	1.82		$	3.39		$	3.20

Dividends declared per share	$	0.495		$	0.450		$	1.485		$	1.350		$	1.935		$	1.755

Average number of common shares outstanding		47,628			47,481			47,577			47,464			47,553			47,442
Average shares outstanding (assuming dilution)		47,986			47,830			47,912			47,802			47,896			47,787


	NINE MONTHS ENDED						TWELVE MONTHS ENDED
	SEPTEMBER 30						SEPTEMBER 30
	2017			2016			2017			2016
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	97,546		$	87,361		$	163,240		$	154,059
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		189,089			217,764			260,457			286,977
Deferred income taxes		49,409			43,702			74,439			86,526
Changes in current assets and liabilities:
Accounts receivable, net of allowances		(15,330	)		28,531			(13,765	)		(17,889	)
Accrued utility revenue		42,100			41,700			(1,100	)		(800	)
Deferred purchased gas costs		(79,127	)		81,389			(114,658	)		79,460
Accounts payable		(26,771	)		(24,942	)		19,866			10,445
Accrued taxes		4,689			(7,055	)		38,084			(11,033	)
Other current assets and liabilities		43,044			12,022			3,590			22,034
Gains on sale		(1,452	)		(4,117	)		(4,483	)		(4,200	)
Changes in undistributed stock compensation		9,199			4,347			10,308			5,142
AFUDC		(2,077	)		(1,893	)		(2,473	)		(2,890	)
Changes in other assets and deferred charges		(14,470	)		3,926			(1,436	)		4,183
Changes in other liabilities and deferred credits		3,395			(4,813	)		(10,239	)		702

Net cash provided by operating activities		299,244			477,922			421,830			612,716

CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions		(449,998	)		(404,388	)		(575,141	)		(555,819	)
Acquisition of businesses, net of cash acquired		—			(17,000	)		—			(17,000	)
Changes in customer advances		(1,951	)		5,445			504			9,445
Miscellaneous inflows		9,160			7,965			14,234			4,726

Net cash used in investing activities		(442,789	)		(407,978	)		(560,403	)		(558,648	)

CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net		11,563			530			11,505			507
Dividends paid		(68,503	)		(61,950	)		(89,870	)		(81,138	)
Centuri distribution to redeemable noncontrolling interest		(204	)		(99	)		(544	)		(198	)
Issuance of long-term debt, net		104,308			408,946			119,308			420,946
Retirement of long-term debt		(100,240	)		(196,351	)		(159,162	)		(240,999	)
Change in credit facility and commercial paper		145,000			(150,000	)		150,000			(97,000	)
Change in short-term debt		110,500			(18,000	)		110,500			—
Principal payments on capital lease obligations		(796	)		(1,125	)		(1,025	)		(1,449	)
Redemption of Centuri shares from noncontrolling parties		(23,000	)		—			(23,000	)		—
Withholding remittance—share-based compensation		(3,176	)		(2,119	)		(3,176	)		(2,164	)
Other		(1,104	)		(605	)		(2,068	)		(60	)

Net cash provided by (used in) financing activities		174,348			(20,773	)		112,468			(1,555	)

Effects of currency translation on cash and cash equivalents		283			(14	)		103			(318	)

Change in cash and cash equivalents		31,086			49,157			(26,002	)		52,195
Cash and cash equivalents at beginning of period		28,066			35,997			85,154			32,959

Cash and cash equivalents at end of period	$	59,152		$	85,154		$	59,152		$	85,154

Supplemental information:
Interest paid, net of amounts capitalized	$	45,771		$	47,134		$	66,077		$	68,445
Income taxes paid (received)		3,687			6,530			(21,875	)		9,899


	SEPTEMBER 30,			DECEMBER 31,
	2017			2016
ASSETS
Utility plant:
Gas plant	$	6,440,547		$	6,193,564
Less: accumulated depreciation		(2,218,796	)		(2,172,966	)
Acquisition adjustments, net		81			196
Construction work in progress		164,030			111,177

Net utility plant		4,385,862			4,131,971

Other property and investments		115,841			108,569

Current assets:
Cash and cash equivalents		46,467			19,024
Accounts receivable, net of allowances		68,028			111,845
Accrued utility revenue		34,100			76,200
Income taxes receivable, net		6,440			4,455
Deferred purchased gas costs		6,230			2,608
Prepaids and other current assets		118,587			126,363

Total current assets		279,852			340,495

Noncurrent assets:
Goodwill		10,095			10,095
Deferred charges and other assets		393,942			410,625
Discontinued operations—construction services—assets		—			579,371

Total noncurrent assets		404,037			1,000,091

Total assets	$	5,185,592		$	5,581,126

CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock	$	49,112		$	49,112
Additionalpaid-in capital		917,581			897,346
Accumulated other comprehensive income (loss), net		(42,299	)		(45,639	)
Retained earnings		606,007			767,061

Total Southwest Gas Corporation equity		1,530,401			1,667,880
Discontinued operations—construction servicesnon-owner equity		—			15,983
Long-term debt, less current maturities		1,520,790			1,375,080

Total capitalization		3,051,191			3,058,943

Current liabilities:
Current maturities of long-term debt		—			25,000
Short-term debt		83,000			—
Accounts payable		92,257			138,229
Customer deposits		70,162			72,296
Accrued general taxes		48,998			42,921
Accrued interest		24,406			17,395
Deferred purchased gas costs		14,971			90,476
Payable to parent		2,560			—
Other current liabilities		109,705			95,999

Total current liabilities		446,059			482,316

Deferred income taxes and other credits:
Deferred income taxes and investment tax credits, net		853,682			806,109
Accumulated removal costs		312,000			308,000
Other deferred credits and other long-term liabilities		522,660			545,143
Discontinued operations—construction services—liabilities		—			380,615

Total deferred income taxes and other credits		1,688,342			2,039,867

Total capitalization and liabilities	$	5,185,592		$	5,581,126


(In thousands of dollars)	Natural Gas Operations		Construction Services		Consolidated
December 31, 2016	$	10,095	$	129,888	$	139,983
Foreign currency translation adjustment		—		7,882		7,882

September 30, 2017	$	10,095	$	137,770	$	147,865


	September 30, 2017			December 31, 2016
Centuri property and equipment	$	493,599		$	451,114
Centuri accumulated provision for depreciation and amortization		(251,831	)		(228,374	)
Net cash surrender value of COLI policies		114,052			106,744
Other property		13,483			12,859

Total	$	369,303		$	342,343


	Qualified Retirement Plan
	Period Ended September 30,
	Three Months						Nine Months						Twelve Months
	2017			2016			2017			2016			2017			2016
(Thousands of dollars)
Service cost	$	5,848		$	5,708		$	17,544		$	17,125		$	23,252		$	23,406
Interest cost		11,520			11,507			34,561			34,520			46,068			45,577
Expected return on plan assets		(13,799	)		(14,140	)		(41,397	)		(42,419	)		(55,536	)		(56,871	)
Amortization of net actuarial loss		6,001			6,317			18,003			18,950			24,319			27,136

Net periodic benefit cost	$	9,570		$	9,392		$	28,711		$	28,176		$	38,103		$	39,248


	SERP
	Period Ended September 30,
	Three Months						Nine Months						Twelve Months
	2017			2016			2017			2016			2017			2016
(Thousands of dollars)
Service cost	$	77		$	83		$	232		$	248		$	315		$	328
Interest cost		471			464			1,413			1,394			1,878			1,818
Amortization of net actuarial loss		361			346			1,081			1,038			1,426			1,361

Net periodic benefit cost	$	909		$	893		$	2,726		$	2,680		$	3,619		$	3,507


	PBOP
	Period Ended September 30,
	Three Months						Nine Months						Twelve Months
	2017			2016			2017			2016			2017			2016
(Thousands of dollars)
Service cost	$	367		$	375		$	1,101		$	1,124		$	1,476		$	1,534
Interest cost		808			795			2,424			2,386			3,218			3,136
Expected return on plan assets		(839	)		(787	)		(2,518	)		(2,362	)		(3,305	)		(3,228	)
Amortization of prior service costs		333			333			1,001			1,001			1,335			1,335
Amortization of net actuarial loss		—			104			—			312			105			398

Net periodic benefit cost	$	669		$	820		$	2,008		$	2,461		$	2,829		$	3,175


	September 30, 2017		December 31, 2016
Contract notional amounts		10,936		10,543


September 30, 2017 Instrument	Balance Sheet Location	Asset Derivatives		Liability Derivatives			Net Total
Swaps	Prepaids and other current assets	$	56	$	(22	)	$	34
Swaps	Other current liabilities		27		(1,899	)		(1,872	)
Swaps	Other deferred credits		1		(768	)		(767	)

Total		$	84	$	(2,689	)	$	(2,605	)


December 31, 2016 Instrument	Balance Sheet Location	Asset Derivatives		Liability Derivatives			Net Total
Swaps	Deferred charges and other assets	$	899	$	(54	)	$	845
Swaps	Prepaids and other current assets		3,551		(19	)		3,532

Total		$	4,450	$	(73	)	$	4,377


September 30, 2017 Instrument	Balance Sheet Location	Net Total
Swaps	Other current liabilities	$	(34	)
Swaps	Prepaids and other current assets		1,872
Swaps	Deferred charges and other assets		767

December 31, 2016 Instrument	Balance Sheet Location	Net Total
Swaps	Other deferred credits	$	(845	)
Swaps	Other current liabilities		(3,532	)


	September 30, 2017					December 31, 2016
	Carrying			Market		Carrying			Market
	Amount			Value		Amount			Value
(Thousands of dollars)
Southwest Gas Corporation:
Debentures:
Notes, 4.45%, due 2020	$	125,000		$	130,325	$	125,000		$	129,703
Notes, 6.1%, due 2041		125,000			154,434		125,000			149,734
Notes, 3.875%, due 2022		250,000			258,943		250,000			254,900
Notes, 4.875%, due 2043		250,000			275,168		250,000			266,793
Notes, 3.8%, due 2046		300,000			292,578		300,000			283,029
8% Series, due 2026		75,000			97,218		75,000			94,691
Medium-term notes, 7.59% series, due 2017		—			—		25,000			25,040
Medium-term notes, 7.78% series, due 2022		25,000			29,174		25,000			29,290
Medium-term notes, 7.92% series, due 2027		25,000			31,964		25,000			31,905
Medium-term notes, 6.76% series, due 2027		7,500			8,920		7,500			8,769
Unamortized discount and debt issuance costs		(9,498	)				(9,931	)

		1,173,002					1,197,569

Revolving credit facility and commercial paper		150,000			150,000		5,000			5,000

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
Unamortized discount and debt issuance costs		(2,212	)				(2,489	)

		197,788					197,511

Less: current maturities		—					(25,000	)

Long-term debt, less current maturities - Southwest Gas Corporation	$	1,520,790				$	1,375,080

Centuri:
Centuri term loan facility	$	107,250			107,403	$	106,700			106,819
Unamortized debt issuance costs		(383	)				(516	)

		106,867					106,184
Centuri secured revolving credit facility		81,250			81,402		41,185			41,292
Centuri other debt obligations		51,527			51,978		52,635			52,840
Less: current maturities		(28,453	)				(25,101	)

Long-term debt, less current maturities - Centuri	$	211,191				$	174,903

Consolidated Southwest Gas Holdings, Inc.:
Southwest Gas Corporation long-term debt	$	1,520,790				$	1,400,080
Centuri long-term debt		239,644					200,004
Less: current maturities		(28,453	)				(50,101	)

Long-term debt, less current maturities - Southwest Gas Holdings, Inc.	$	1,731,981				$	1,549,983


	Southwest Gas Holdings, Inc. Equity
							Accumulated												Redeemable
					Additional		Other						Non-						Noncontrolling
	Common Stock				Paid-in		Comprehensive			Retained			controlling						Interest
(In thousands, except per share amounts)	Shares		Amount		Capital		Income (Loss)			Earnings			Interest			Total			(Temporary Equity)
DECEMBER 31, 2016		47,482	$	49,112	$	903,123	$	(48,008	)	$	759,263		$	(2,217	)	$	1,661,273		$	22,590
Common stock issuances		250		250		21,090											21,340
Net income (loss)											97,376			(78	)		97,298			248
Redemption value adjustments											(355	)					(355	)		355
Foreign currency exchange translation adj.								1,850									1,850			11
Redemption of Centuri shares from noncontrolling parties																				(23,000	)
Other comprehensive income (loss):
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax								1,786									1,786
Amounts reclassified to net income, net of tax (FSIRS)								1,554									1,554
Centuri dividend to redeemable noncontrolling interest																				(204	)
Dividends declared
Common: $1.485 per share											(71,350	)					(71,350	)

SEPTEMBER 30, 2017		47,732	$	49,362	$	924,213	$	(42,818	)	$	784,934		$	(2,295	)	$	1,713,396		$	—


	Southwest Gas Corporation Equity
							Accumulated
					Additional		Other
	Common Stock				Paid-in		Comprehensive			Retained
(In thousands, except per share amounts)	Shares		Amount		Capital		Income (Loss)			Earnings			Total
DECEMBER 31, 2016		47,482	$	49,112	$	897,346	$	(45,639	)	$	767,061		$	1,667,880
Net income											82,436			82,436
Other comprehensive income (loss):
Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax								1,786						1,786
Amounts reclassified to net income, net of tax (FSIRS)								1,554						1,554
Distribution to Southwest Gas Holdings, Inc. investment in discontinued operations											(182,773	)		(182,773	)
Stock-based compensation (a)						8,576					(587	)		7,989
Dividends declared to Southwest Gas Holdings, Inc.											(60,130	)		(60,130	)
Contributions from Southwest Gas Holdings, Inc.						11,659								11,659

SEPTEMBER 30, 2017		47,482	$	49,112	$	917,581	$	(42,299	)	$	606,007		$	1,530,401


	Three Months Ended September 30, 2017									Three Months Ended September 30, 2016
	Before-			Tax			Net-of-			Before-			Tax			Net-of-
	Tax			(Expense)			Tax			Tax			(Expense)			Tax
	Amount			or Benefit (1)			Amount			Amount			or Benefit (1)			Amount
Defined benefit pension plans:
Amortization of prior service cost	$	333		$	(126	)	$	207		$	333		$	(126	)	$	207
Amortization of net actuarial (gain)/loss		6,362			(2,418	)		3,944			6,767			(2,571	)		4,196
Regulatory adjustment		(5,734	)		2,179			(3,555	)		(6,122	)		2,326			(3,796	)

Pension plans other comprehensive income (loss)		961			(365	)		596			978			(371	)		607
FSIRS (designated hedging activities):
Amounts reclassifed into net income		835			(317	)		518			835			(317	)		518

FSIRS other comprehensive income		835			(317	)		518			835			(317	)		518

Total other comprehensive income (loss) - Southwest Gas Corporation		1,796			(682	)		1,114			1,813			(688	)		1,125

Foreign currency translation adjustments:
Translation adjustments		1,012			—			1,012			(238	)		—			(238	)

Foreign currency other comprehensive income (loss)		1,012			—			1,012			(238	)		—			(238	)

Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.	$	2,808		$	(682	)	$	2,126		$	1,575		$	(688	)	$	887


	Nine Months Ended September 30, 2017									Nine Months Ended September 30, 2017
	Before-			Tax			Net-of-			Before-			Tax			Net-of-
	Tax			(Expense)			Tax			Tax			(Expense)			Tax
	Amount			or Benefit (1)			Amount			Amount			or Benefit (1)			Amount
Defined benefit pension plans:
Amortization of prior service cost	$	1,001		$	(380	)	$	621		$	1,001		$	(380	)	$	621
Amortization of net actuarial (gain)/loss		19,084			(7,252	)		11,832			20,300			(7,714	)		12,586
Regulatory adjustment		(17,204	)		6,537			(10,667	)		(18,368	)		6,980			(11,388	)

Pension plans other comprehensive income (loss)		2,881			(1,095	)		1,786			2,933			(1,114	)		1,819
FSIRS (designated hedging activities):
Amounts reclassifed into net income		2,507			(953	)		1,554			2,508			(952	)		1,556

FSIRS other comprehensive income		2,507			(953	)		1,554			2,508			(952	)		1,556

Total other comprehensive income (loss)—Southwest Gas Corporation		5,388			(2,048	)		3,340			5,441			(2,066	)		3,375

Foreign currency translation adjustments:
Translation adjustments		1,861			—			1,861			614			—			614

Foreign currency other comprehensive income (loss)		1,861			—			1,861			614			—			614

Total other comprehensive income (loss)	$	7,249		$	(2,048	)	$	5,201		$	6,055		$	(2,066	)	$	3,989


	Defined Benefit Plans									FSIRS
	Before-Tax			Tax (Expense) Benefit (8)			After-Tax			Before-Tax			Tax (Expense) Benefit (8)			After-Tax			AOCI
Beginning Balance AOCI December 31, 2016	$	(57,613	)	$	21,893		$	(35,720	)	$	(15,999	)	$	6,080		$	(9,919	)	$	(45,639	)

FSIRS amounts reclassified from AOCI (5)		—			—			—			2,507			(953	)		1,554			1,554
Amortization of prior service cost (6)		1,001			(380	)		621			—			—			—			621
Amortization of net actuarial loss (6)		19,084			(7,252	)		11,832			—			—			—			11,832
Regulatory adjustment (7)		(17,204	)		6,537			(10,667	)		—			—			—			(10,667	)

Net current period other comprehensive income (loss) attributable to Southwest Gas Corporation		2,881			(1,095	)		1,786			2,507			(953	)		1,554			3,340

Ending Balance AOCI September 30, 2017	$	(54,732	)	$	20,798		$	(33,934	)	$	(13,492	)	$	5,127		$	(8,365	)	$	(42,299	)


	Redeemable Noncontrolling Interest
(Thousands of dollars):
Balance, December 31, 2016	$	22,590
Net income attributable to redeemable noncontrolling interest		248
Foreign currency exchange translation adjustment		11
Centuri dividend to redeemable noncontrolling interest		(204	)
Adjustment to redemption value		355
Redemption of Centuri shares from noncontrolling parties		(23,000	)

Balance, September 30, 2017	$	—


(Thousands of dollars)	December 31, 2016
Construction services equity	$	(4,390	)
Construction services noncontrolling interest		(2,217	)
Construction services redeemable noncontrolling interest		22,590

Discontinued operations - construction servicesnon-owner equity	$	15,983


	Three		Nine		Twelve		Twelve
	Months Ended		Months Ended		Months Ended		Months Ended
(Thousands of dollars)	September 30, 2016		September 30, 2016		September 30, 2017		September 30, 2016
Construction revenues	$	339,790	$	838,038	$	301,040	$	1,127,982
Operating expenses:
Construction expenses		300,611		757,919		266,504		1,009,188
Depreciation and amortization		13,409		43,351		12,318		58,368

Operating income		25,770		36,768		22,218		60,426
Other income (deductions)		44		44		1,149		1,246
Net interest deductions		1,794		4,945		1,718		6,738

Income before income taxes		24,020		31,867		21,649		54,934
Income tax expense		8,708		12,042		7,842		20,711

Net income		15,312		19,825		13,807		34,223
Net income attributable to noncontrolling interests		435		500		514		1,079

Discontinued operations - construction services - net income	$	14,877	$	19,325	$	13,293	$	33,144


	Three Months Ended September 30,
	2017			2016
	(Thousands of dollars)
Gas operating revenues	$	213,059		$	200,179
Net cost of gas sold		45,539			39,056

Operating margin		167,520			161,123
Operations and maintenance expense		102,215			102,438
Depreciation and amortization		46,194			56,436
Taxes other than income taxes		14,046			12,480

Operating income (loss)		5,065			(10,231	)
Other income (deductions)		3,081			2,521
Net interest deductions		17,421			16,364

Income (loss) before income taxes		(9,275	)		(24,074	)
Income tax expense (benefit)		(5,251	)		(11,669	)

Contribution to consolidated net income (loss)	$	(4,024	)	$	(12,405	)


	Nine Months Ended September 30,
	2017		2016
	(Thousands of dollars)
Gas operating revenues	$	935,823	$	980,927
Net cost of gas sold		261,839		324,072

Operating margin		673,984		656,855
Operations and maintenance expense		313,395		301,979
Depreciation and amortization		153,643		174,413
Taxes other than income taxes		43,325		39,480

Operating income		163,621		140,983
Other income (deductions)		8,744		6,712
Net interest deductions		51,622		49,155

Income before income taxes		120,743		98,540
Income tax expense		38,307		31,004

Contribution to consolidated net income	$	82,436	$	67,536


	Twelve Months Ended September 30,
	2017		2016
	(Thousands of dollars)
Gas operating revenues	$	1,276,308	$	1,376,388
Net cost of gas sold		334,888		460,836

Operating margin		941,420		915,552
Operations and maintenance expense		413,140		400,222
Depreciation and amortization		212,693		228,609
Taxes other than income taxes		56,221		51,810

Operating income		259,366		234,911
Other income (deductions)		10,308		9,615
Net interest deductions		69,464		65,146

Income before income taxes		200,210		179,380
Income tax expense		65,887		59,544

Contribution to consolidated net income	$	134,323	$	119,836


	Nine Months Ended September 30,
	2017		2016
	(Thousands of dollars)
Construction revenues	$	872,536	$	838,038
Operating expenses:
Construction expenses		806,586		757,919
Depreciation and amortization		35,446		43,351

Operating income		30,504		36,768
Other income (deductions)		38		44
Net interest deductions		5,095		4,945

Income before income taxes		25,447		31,867
Income tax expense		9,560		12,042

Net income		15,887		19,825
Net income attributable to noncontrolling interests		170		500

Contribution to consolidated net income attributable to Centuri	$	15,717	$	19,325


	Twelve Months Ended September 30,
	2017		2016
	(Thousands of dollars)
Construction revenues	$	1,173,576	$	1,127,982
Operating expenses:
Construction expenses		1,073,090		1,009,188
Depreciation and amortization		47,764		58,368

Operating income		52,722		60,426
Other income (deductions)		1,187		1,246
Net interest deductions		6,813		6,738

Income before income taxes		47,096		54,934
Income tax expense		17,402		20,711

Net income		29,694		34,223
Net income attributable to noncontrolling interests		684		1,079

Contribution to consolidated net income attributable to Centuri	$	29,010	$	33,144


	For the Twelve Months Ended
	September 30, 2017		December 31, 2016
Ratio of earnings to fixed charges		3.50		3.46