UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q



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

For the quarterly period ended ~~September 30, 2019~~March 31, 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.			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:
Title of each class	Trading Symbol	Name of each exchange on which registered
Southwest Gas Holdings, Inc. Common Stock, $1 Par Value	SWX	New York Stock Exchange

Indicate by check mark whether each 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 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that each registrant was required to submit such files). Yes ☒ No ☐

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

Southwest Gas Holdings, Inc.:



Large accelerated filer	☒	Accelerated filer	☐

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	☐

Non-accelerated filer	☒	Smaller reporting company	☐

Emerging growth company	☐

Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-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, ~~54,626,240~~55,129,976 shares as of ~~October 31, 2019.~~April 30, 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 ~~October 31, 2019.~~April 30, 2020.

SOUTHWEST GAS CORPORATION MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H)(1)(a) and (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH THE REDUCED DISCLOSURE FORMAT AS PERMITTED BY GENERAL INSTRUCTION H(2).



	1



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

FILING FORMAT

This quarterly report on Form 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 Form 10-Q includes separate financial statements (i.e., balance sheets, statements of income, statements of comprehensive income, statements of cash flows, and statements of 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 30, 2019~~March 31, 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, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Utility plant:
Gas plant	$	7,550,855		$	7,134,239		$	7,949,283		$	7,813,221
Less: accumulated depreciation	(2,303,864		)	(2,234,029		)	(2,341,561		)	(2,313,050		)
Construction work in progress	288,573			193,028			202,935			185,026
Net utility plant	5,535,564			5,093,238			5,810,657			5,685,197
Other property and investments	768,685			623,551			785,522			784,173
Current assets:
Cash and cash equivalents	28,480			85,361			60,965			49,539
Accounts receivable, net of allowances	434,153			413,926			423,013			474,097
Accrued utility revenue	35,800			77,200			48,100			79,100
Income taxes receivable	26,611			14,653
Income taxes receivable, net							7,503			31,751
Deferred purchased gas costs	49,804			4,928			—			44,412
Prepaid and other current assets	190,554			243,701			133,338			180,957
Total current assets	765,402			839,769			672,919			859,856
Noncurrent assets:
Goodwill	339,948			359,045			333,943			343,023
Deferred income taxes	896			1,264			765			856
Deferred charges and other assets	429,716			440,862			489,419			496,943
Total noncurrent assets	770,560			801,171			824,127			840,822
Total assets	$	7,840,211		$	7,357,729		$	8,093,225		$	8,170,048
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 54,624,090 and 53,026,848 shares)	$	56,254		$	54,656
Common stock, $1 par (authorized - 120,000,000 shares; issued and outstanding - 55,126,386 and 55,007,433 shares)							$	56,756		$	56,637
Additional paid-in capital	1,437,733			1,305,769			1,470,411			1,466,937
Accumulated other comprehensive income (loss), net	(47,775		)	(52,668		)
Accumulated other comprehensive loss, net							(59,073		)	(56,732		)
Retained earnings	977,498			944,285			1,079,801			1,039,072
Total Southwest Gas Holdings, Inc. equity	2,423,710			2,252,042
Noncontrolling interest	—			(452		)
Total equity	2,423,710			2,251,590			2,547,895			2,505,914
Redeemable noncontrolling interest	84,354			81,831			85,005			84,542
Long-term debt, less current maturities	2,462,116			2,107,258			2,310,084			2,300,482
Total capitalization	4,970,180			4,440,679			4,942,984			4,890,938
Current liabilities:
Current maturities of long-term debt	38,165			33,060			169,574			163,512
Short-term debt	30,000			152,000			157,000			211,000
Accounts payable	188,896			248,993			182,182			238,921
Customer deposits	68,897			67,940			69,938			69,165
Income taxes payable	1,319			1,083
Income taxes payable, net							—			2,069
Accrued general taxes	52,361			43,560			73,105			48,160
Accrued interest	34,745			21,369			34,755			21,329
Deferred purchased gas costs	88,030			79,762			26,498			60,755
Other current liabilities	279,931			290,878			266,763			264,950
Total current liabilities	782,344			938,645			979,815			1,079,861
Deferred income taxes and other credits:
Deferred income taxes and investment tax credits	577,928			529,201
Deferred income taxes and investment tax credits, net							624,888			599,840
Accumulated removal costs	392,000			383,000			399,000			395,000
Other deferred credits and other long-term liabilities	1,117,759			1,066,204			1,146,538			1,204,409
Total deferred income taxes and other credits	2,087,687			1,978,405			2,170,426			2,199,249
Total capitalization and liabilities	$	7,840,211		$	7,357,729		$	8,093,225		$	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 30, 2019~~March 31, 2020

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,						Three Months Ended March 31,						Twelve Months Ended March 31,
	2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
Operating revenues:
Gas operating revenues	$	209,980		$	217,523		$	989,368		$	987,515		$	1,359,581		$	1,354,000		$	502,827		$	520,677		$	1,351,089		$	1,384,092
Utility infrastructure services revenues	515,250			450,623			1,282,412			1,105,844			1,698,853			1,479,792			333,493			312,862			1,771,609			1,575,130
Total operating revenues	725,230			668,146			2,271,780			2,093,359			3,058,434			2,833,792			836,320			833,539			3,122,698			2,959,222
Operating expenses:
Net cost of gas sold	35,068			49,903			292,854			319,101			393,141			412,307			160,821			192,604			353,381			426,260
Operations and maintenance	109,652			105,508			321,190			313,294			414,289			406,137			103,781			106,245			421,686			410,287
Depreciation and amortization	75,370			62,156			223,251			185,941			286,522			247,803			87,653			77,539			313,351			264,273
Taxes other than income taxes	15,308			15,036			46,640			44,959			61,579			59,580			16,378			16,206			62,500			60,847
Utility infrastructure services expenses	451,574			395,862			1,154,238			1,007,485			1,534,442			1,349,862			319,314			300,465			1,592,076			1,429,202
Total operating expenses	686,972			628,465			2,038,173			1,870,780			2,689,973			2,475,689			687,947			693,059			2,742,994			2,590,869
Operating income	38,258			39,681			233,607			222,579			368,461			358,103			148,373			140,480			379,704			368,353
Other income and (expenses):
Net interest deductions	(27,434		)	(24,548		)	(80,662		)	(70,831		)	(106,502		)	(92,032		)	(28,380		)	(26,397		)	(111,209		)	(100,437		)
Other income (deductions)	(1,158		)	889			6,827			(6,151		)	(4,448		)	(6,401		)	(20,770		)	6,839			(17,524		)	(6,253		)
Total other income and (expenses)	(28,592		)	(23,659		)	(73,835		)	(76,982		)	(110,950		)	(98,433		)	(49,150		)	(19,558		)	(128,733		)	(106,690		)
Income before income taxes	9,666			16,022			159,772			145,597			257,511			259,670			99,223			120,922			250,971			261,663
Income tax expense	3,141			3,691			35,031			33,421			63,294			51,098			26,218			25,538			56,703			62,921
Net income	6,525			12,331			124,741			112,176			194,217			208,572			73,005			95,384			194,268			198,742
Net income (loss) attributable to noncontrolling interests	1,172			—			2,523			(797		)	2,695			(866		)
Net income attributable to noncontrolling interests																			463			575			2,599			747
Net income attributable to Southwest Gas Holdings, Inc.	$	5,353		$	12,331		$	122,218		$	112,973		$	191,522		$	209,438		$	72,542		$	94,809		$	191,669		$	197,995
Basic earnings per share	$	0.10		$	0.25		$	2.26		$	2.31		$	3.60		$	4.30
Diluted earnings per share	$	0.10		$	0.25		$	2.26		$	2.31		$	3.59		$	4.29
Average number of common shares	54,670			49,493			53,996			48,916			53,219			48,728
Average shares (assuming dilution)	54,748			49,553			54,063			48,968			53,287			48,781
Earnings per share:
Basic																			$	1.31		$	1.78		$	3.50		$	3.91
Diluted																			$	1.31		$	1.77		$	3.50		$	3.91
Weighted average shares:
Basic																			55,310			53,369			54,726			50,640
Diluted																			55,363			53,424			54,792			50,701

The accompanying notes are an integral part of these statements.



	4



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,						Three Months Ended March 31,						Twelve Months Ended March 31,
	2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
Net income	$	6,525		$	12,331		$	124,741		$	112,176		$	194,217		$	208,572		$	73,005		$	95,384		$	194,268		$	198,742
Other comprehensive income (loss), net of tax
Defined benefit pension plans:
Net actuarial gain (loss)	—			—			—			—			(15,524		)	(32,701		)
Net actuarial loss																			—			—			(54,026		)	(15,524		)
Amortization of prior service cost	241			254			724			762			977			969			220			241			945			1,002
Amortization of net actuarial loss	4,442			6,387			13,325			19,161			19,713			23,105			7,188			4,441			20,513			23,603
Prior service cost																			—			—			(1,426		)	—
Regulatory adjustment	(4,065		)	(5,746		)	(12,193		)	(17,236		)	(1,214		)	6,021			(6,380		)	(4,063		)	25,760			(4,574		)
Net defined benefit pension plans	618			895			1,856			2,687			3,952			(2,606		)	1,028			619			(8,234		)	4,507
Forward-starting interest rate swaps (“FSIRS”):
Amounts reclassified into net income	635			636			1,906			1,907			2,540			2,426			636			635			2,542			2,541
Net forward-starting interest rate swaps	635			636			1,906			1,907			2,540			2,426			636			635			2,542			2,541
Foreign currency translation adjustments	(447		)	599			1,131			(1,002		)	(877		)	(1,092		)	(4,005		)	791			(2,758		)	(1,308		)
Total other comprehensive income (loss), net of tax	806			2,130			4,893			3,592			5,615			(1,272		)	(2,341		)	2,045			(8,450		)	5,740
Comprehensive income	7,331			14,461			129,634			115,768			199,832			207,300			70,664			97,429			185,818			204,482
Comprehensive income (loss) attributable to noncontrolling interests	1,172			—			2,523			(797		)	2,695			(866		)
Comprehensive income attributable to noncontrolling interests																			463			575			2,599			747
Comprehensive income attributable to Southwest Gas Holdings, Inc.	$	6,159		$	14,461		$	127,111		$	116,565		$	197,137		$	208,166		$	70,201		$	96,854		$	183,219		$	203,735

The accompanying notes are an integral part of these statements.



	5



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)


	Nine Months Ended September 30,						Twelve Months Ended September 30,						Three Months Ended March 31,						Twelve Months Ended March 31,
	2019			2018			2019			2018			2020			2019			2020			2019
CASH FLOW FROM OPERATING ACTIVITIES:
Net income	$	124,741		$	112,176		$	194,217		$	208,572		$	73,005		$	95,384		$	194,268		$	198,742
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	223,251			185,941			286,522			247,803			87,653			77,539			313,351			264,273
Deferred income taxes	46,099			36,210			60,930			50,190			25,309			24,923			54,548			52,736
Changes in current assets and liabilities:
Accounts receivable, net of allowances	(19,615		)	(1,659		)	(33,818		)	(27,276		)	45,837			(15,562		)	7,154			(40,282		)
Accrued utility revenue	41,400			43,600			(1,200		)	(500		)	31,000			30,200			(1,100		)	300
Deferred purchased gas costs	(36,608		)	100,763			(54,797		)	84,282			10,155			(67,863		)	19,527			25,339
Accounts payable	(46,079		)	(48,618		)	14,317			(1,886		)	(60,723		)	(12,643		)	(49,945		)	47,632
Accrued taxes	(2,841		)	(9,840		)	(4,956		)	(12,417		)	30,377			25,400			10,220			(5,331		)
Other current assets and liabilities	74,048			1,245			18,730			(50,002		)	76,453			47,848			102,742			(5,582		)
Gains on sale	(3,157		)	(997		)	(3,863		)	(3,741		)
Gains on sale of equipment													(28		)	(233		)	(5,268		)	(1,706		)
Changes in undistributed stock compensation	6,067			4,686			7,492			6,375			2,816			3,188			6,524			7,438
Equity AFUDC	(3,179		)	(1,034		)	(5,772		)	(1,253		)	(1,061		)	(960		)	(4,262		)	(4,358		)
Changes in other assets and deferred charges	(15,855		)	(10,497		)	(11,096		)	(18,296		)
Changes in deferred charges and other assets													6,495			(16,328		)	1,772			(20,221		)
Changes in other liabilities and deferred credits	(9,786		)	(4,583		)	33,243			(3,747		)	(55,722		)	(2,782		)	(65,704		)	17,420
Net cash provided by operating activities	378,486			407,393			499,949			478,104			271,566			188,111			583,827			536,400
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions	(719,386		)	(560,165		)	(925,135		)	(733,816		)	(210,655		)	(210,662		)	(938,141		)	(822,034		)
Acquisition of businesses, net of cash acquired	(19,533		)	(4,209		)	(266,697		)	(98,413		)	—			—			(47,638		)	(247,164		)
Changes in customer advances	15,049			11,051			17,461			13,325			5,434			3,078			21,357			13,503
Miscellaneous inflows	12,862			3,827			13,376			11,312
Other													4,430			262			19,321			3,200
Net cash used in investing activities	(711,008		)	(549,496		)	(1,160,995		)	(807,592		)	(200,791		)	(207,322		)	(945,101		)	(1,052,495		)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock, net	129,341			92,234			391,509			121,826			3,148			25,879			135,215			369,061
Dividends paid	(86,345		)	(74,535		)	(112,050		)	(98,162		)	(30,006		)	(27,602		)	(118,531		)	(104,003		)
Issuance of long-term debt, net	482,614			480,993			566,793			783,748			99,978			29,666			601,908			259,456
Retirement of long-term debt	(127,175		)	(143,757		)	(221,176		)	(382,486		)	(75,168		)	(31,160		)	(257,797		)	(247,816		)
Change in credit facility and commercial paper													—			—			—			111,000
Change in short-term debt	(122,000		)	(183,000		)	(1,500		)	(79,000		)	(54,000		)	36,000			(31,000		)	165,500
Principal payments on finance lease obligations	(161		)	(422		)	(387		)	(606		)	(51		)	(70		)	(193		)	(553		)
Withholding remittance - share-based compensation	(1,858		)	(2,880		)	(2,088		)	(2,880		)	(2,736		)	(1,838		)	(2,756		)	(2,096		)
Other	1,167			(1,121		)	(456		)	(3,091		)	(199		)	(53		)	(1,422		)	(2,460		)
Net cash provided by financing activities	275,583			167,512			620,645			339,349
Net cash provided by (used in) financing activities													(59,034		)	30,822			325,424			548,089
Effects of currency translation on cash and cash equivalents	58			139			(289		)	157			(315		)	65			(222		)	(72		)
Change in cash and cash equivalents	(56,881		)	25,548			(40,690		)	10,018			11,426			11,676			(36,072		)	31,922
Cash and cash equivalents at beginning of period	85,361			43,622			69,170			59,152			49,539			85,361			97,037			65,115
Cash and cash equivalents at end of period	$	28,480		$	69,170		$	28,480		$	69,170		$	60,965		$	97,037		$	60,965		$	97,037
Supplemental information:
SUPPLEMENTAL INFORMATION:
Interest paid, net of amounts capitalized	$	62,165		$	49,568		$	99,159		$	75,740		$	13,073		$	15,850		$	99,481		$	89,118
Income taxes paid (received)	$	371		$	18,261		$	(16,669	)	$	20,247
Income taxes paid (received), net													$	(20,064	)	$	454		$	(17,766	)	$	(2,743	)

The accompanying notes are an integral part of these statements.



	6



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

SOUTHWEST GAS HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except per share amounts)

(Unaudited)


			Three Months Ended September 30,						Nine Months Ended September 30,								Three Months Ended March 31,
			2019			2018			2019			2018					2020			2019
Common stock shares	Common stock shares														Common stock shares
	Beginning balances		54,321			49,126			53,026			48,090			Beginning balances		55,007			53,026
		Common stock issuances	303			297			1,598			1,333				Common stock issuances	119			365
	Ending balances		54,624			49,423			54,624			49,423			Ending balances		55,126			53,391
Common stock amount	Common stock amount														Common stock amount
	Beginning balances		$	55,951		$	50,756		$	54,656		$	49,720		Beginning balances		$	56,637		$	54,656
		Common stock issuances	303			297			1,598			1,333				Common stock issuances	119			365
	Ending balances		56,254			51,053			56,254			51,053			Ending balances		56,756			55,021
Additional paid-in capital	Additional paid-in capital														Additional paid-in capital
	Beginning balances		1,409,923			1,021,508			1,305,769			955,332			Beginning balances		1,466,937			1,305,769
		Common stock issuances	27,810			24,332			132,416			93,218				Common stock issuances	3,474			27,024
		Change in ownership of noncontrolling interest	—			—			(452		)	(2,710		)	Ending balances		1,470,411			1,332,793
	Ending balances		1,437,733			1,045,840			1,437,733			1,045,840
Accumulated other comprehensive income (loss)
	Beginning balances		(48,581		)	(55,520		)	(52,668		)	(47,682		)
Accumulated other comprehensive loss															Accumulated other comprehensive loss
		Foreign currency exchange translation adjustment	(447		)	599			1,131			(1,002		)	Beginning balances		(56,732		)	(52,668		)
		Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax	618			895			1,856			2,687				Foreign currency exchange translation adjustment	(4,005		)	791
		FSIRS amounts reclassified to net income, net of tax	635			636			1,906			1,907				Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax	1,028			619
		Reclassification of excess deferred taxes	—			—			—			(9,300		)		FSIRS amounts reclassified to net income, net of tax	636			635
	Ending balances		(47,775		)	(53,390		)	(47,775		)	(53,390		)	Ending balances		(59,073		)	(50,623		)
Retained earnings	Retained earnings														Retained earnings
	Beginning balances		1,002,070			916,275			944,285			857,398			Beginning balances		1,039,072			944,285
		Net income	5,353			12,331			122,218			112,973				Net income	72,542			94,809
		Dividends declared	(29,925		)	(25,876		)	(89,005		)	(76,941		)		Dividends declared	(31,813		)	(29,285		)
		Reclassification of excess deferred taxes	—			—			—			9,300			Ending balances		1,079,801			1,009,809
	Ending balances		977,498			902,730			977,498			902,730
Total Southwest Gas Holdings, Inc. equity ending balances	Total Southwest Gas Holdings, Inc. equity ending balances		2,423,710			1,946,233			2,423,710			1,946,233			Total Southwest Gas Holdings, Inc. equity ending balances		2,547,895			2,347,000
Noncontrolling interest	Noncontrolling interest														Noncontrolling interest
	Beginning balances		—			(452		)	(452		)	(2,365		)	Beginning balances		—			(452		)
		Net income (loss)	—			—			—			(797		)	Ending balances		—			(452		)
		Change in ownership of noncontrolling interest	—			—			452			2,710
	Ending balances		—			(452		)	—			(452		)
Total equity ending balances	Total equity ending balances		$	2,423,710		$	1,945,781		$	2,423,710		$	1,945,781		Total equity ending balances		$	2,547,895		$	2,346,548
Dividends declared per common share	Dividends declared per common share		$	0.545		$	0.52		$	1.635		$	1.56		Dividends declared per common share		$	0.570		$	0.545

The accompanying notes are an integral part of these statements.



	7



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Thousands of dollars)

(Unaudited)


	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
ASSETS
Utility plant:
Gas plant	$	7,550,855		$	7,134,239		$	7,949,283		$	7,813,221
Less: accumulated depreciation	(2,303,864		)	(2,234,029		)	(2,341,561		)	(2,313,050		)
Construction work in progress	288,573			193,028			202,935			185,026
Net utility plant	5,535,564			5,093,238			5,810,657			5,685,197
Other property and investments	127,774			116,146			118,547			133,787
Current assets:
Cash and cash equivalents	16,811			31,962			56,524			40,489
Accounts receivable, net of allowances	73,530			140,057
Accounts receivable, net of allowance							148,817			150,793
Accrued utility revenue	35,800			77,200			48,100			79,100
Income taxes receivable	26,663			13,444
Income taxes receivable, net							—			25,901
Deferred purchased gas costs	49,804			4,928			—			44,412
Prepaid and other current assets	171,402			229,562			119,264			165,639
Total current assets	374,010			497,153			372,705			506,334
Noncurrent assets:
Goodwill	10,095			10,095			10,095			10,095
Deferred charges and other assets	410,512			424,952			456,684			463,333
Total noncurrent assets	420,607			435,047			466,779			473,428
Total assets	$	6,457,955		$	6,141,584		$	6,768,688		$	6,798,746
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock	$	49,112		$	49,112		$	49,112		$	49,112
Additional paid-in capital	1,194,745			1,065,242			1,279,208			1,229,083
Accumulated other comprehensive income (loss), net	(45,287		)	(49,049		)
Accumulated other comprehensive loss, net							(53,487		)	(55,151		)
Retained earnings	731,036			717,155			839,443			782,108
Total equity	1,929,606			1,782,460			2,114,276			2,005,152
Long-term debt, less current maturities	2,115,870			1,818,669			1,991,624			1,991,333
Total capitalization	4,045,476			3,601,129			4,105,900			3,996,485
Current liabilities:
Current maturities of long-term debt							125,000			125,000
Short-term debt	30,000			152,000			97,000			194,000
Accounts payable	94,130			184,982			108,569			149,368
Customer deposits	68,897			67,940			69,938			69,165
Income taxes payable							19,241			—
Accrued general taxes	52,361			43,560			73,105			48,160
Accrued interest	34,623			20,243			34,714			21,256
Deferred purchased gas costs	88,030			79,762			26,498			60,755
Payable to parent	270			472			174			844
Other current liabilities	114,893			94,136			147,950			126,573
Total current liabilities	483,204			643,095			702,189			795,121
Deferred income taxes and other credits:
Deferred income taxes and investment tax credits, net	527,544			490,458			547,281			539,050
Accumulated removal costs	392,000			383,000			399,000			395,000
Other deferred credits and other long-term liabilities	1,009,731			1,023,902			1,014,318			1,073,090
Total deferred income taxes and other credits	1,929,275			1,897,360			1,960,599			2,007,140
Total capitalization and liabilities	$	6,457,955		$	6,141,584		$	6,768,688		$	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 30, 2019~~March 31, 2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Thousands of dollars)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,						Three Months Ended March 31,						Twelve Months Ended March 31,
	2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
Gas operating revenues	$	209,980		$	217,523		$	989,368		$	987,515		$	1,359,581		$	1,354,000		$	502,827		$	520,677		$	1,351,089		$	1,384,092
Operating expenses:
Net cost of gas sold	35,068			49,903			292,854			319,101			393,141			412,307			160,821			192,604			353,381			426,260
Operations and maintenance	109,039			104,657			319,572			312,055			412,330			404,549			103,088			105,542			419,720			408,165
Depreciation and amortization	52,372			47,924			159,327			145,549			205,594			193,828			64,725			57,612			222,733			199,467
Taxes other than income taxes	15,308			15,036			46,640			44,959			61,579			59,580			16,378			16,206			62,500			60,847
Total operating expenses	211,787			217,520			818,393			821,664			1,072,644			1,070,264			345,012			371,964			1,058,334			1,094,739
Operating income (loss)	(1,807		)	3			170,975			165,851			286,937			283,736
Operating income																			157,815			148,713			292,755			289,353
Other income and (expenses):
Net interest deductions	(23,619		)	(20,399		)	(70,063		)	(59,803		)	(92,000		)	(77,914		)	(25,058		)	(23,099		)	(96,985		)	(85,584		)
Other income (deductions)	(1,353		)	836			6,185			(5,861		)	(5,194		)	(6,425		)	(20,536		)	5,946			(16,965		)	(6,691		)
Total other income and (expenses)	(24,972		)	(19,563		)	(63,878		)	(65,664		)	(97,194		)	(84,339		)	(45,594		)	(17,153		)	(113,950		)	(92,275		)
Income (loss) before income taxes	(26,779		)	(19,560		)	107,097			100,187			189,743			199,397
Income tax expense (benefit)	(6,767		)	(5,890		)	20,351			20,886			43,456			45,714
Net income (loss)	$	(20,012	)	$	(13,670	)	$	86,746		$	79,301		$	146,287		$	153,683
Income before income taxes																			112,221			131,560			178,805			197,078
Income tax expense																			28,622			28,171			35,424			45,196
Net income																			$	83,599		$	103,389		$	143,381		$	151,882

The accompanying notes are an integral part of these statements.



	9



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Thousands of dollars)

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Twelve Months Ended September 30,						Three Months Ended March 31,						Twelve Months Ended March 31,
	2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
Net income (loss)	$	(20,012	)	$	(13,670	)	$	86,746		$	79,301		$	146,287		$	153,683
Net income																			$	83,599		$	103,389		$	143,381		$	151,882
Other comprehensive income (loss), net of tax
Defined benefit pension plans:
Net actuarial gain (loss)	—			—			—			—			(15,524		)	(32,701		)
Net actuarial loss																			—			—			(54,026		)	(15,524		)
Amortization of prior service cost	241			254			724			762			977			969			220			241			945			1,002
Prior service cost																			—			—			(1,426		)	—
Amortization of net actuarial loss	4,442			6,387			13,325			19,161			19,713			23,105			7,188			4,441			20,513			23,603
Regulatory adjustment	(4,065		)	(5,746		)	(12,193		)	(17,236		)	(1,214		)	6,021			(6,380		)	(4,063		)	25,760			(4,574		)
Net defined benefit pension plans	618			895			1,856			2,687			3,952			(2,606		)	1,028			619			(8,234		)	4,507
Forward-starting interest rate swaps (“FSIRS”):
Amounts reclassified into net income	635			636			1,906			1,907			2,540			2,426			636			635			2,542			2,541
Net forward-starting interest rate swaps	635			636			1,906			1,907			2,540			2,426			636			635			2,542			2,541
Total other comprehensive income (loss), net of tax	1,253			1,531			3,762			4,594			6,492			(180		)	1,664			1,254			(5,692		)	7,048
Comprehensive income (loss)	$	(18,759	)	$	(12,139	)	$	90,508		$	83,895		$	152,779		$	153,503
Comprehensive income																			$	85,263		$	104,643		$	137,689		$	158,930

The accompanying notes are an integral part of these statements.



	10



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of dollars)

(Unaudited)


	Nine Months Ended September 30,						Twelve Months Ended September 30,						Three Months Ended March 31,						Twelve Months Ended March 31,
	2019			2018			2019			2018			2020			2019			2020			2019
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income	$	86,746		$	79,301		$	146,287		$	153,683
Net income													$	83,599		$	103,389		$	143,381		$	151,882
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	159,327			145,549			205,594			193,828			64,725			57,612			222,733			199,467
Deferred income taxes	35,899			33,239			45,659			55,787			7,707			26,270			15,118			50,593
Changes in current assets and liabilities:
Accounts receivable, net of allowances	66,527			49,654			(3,436		)	(2,066		)
Accounts receivable, net of allowance													1,975			(30,414		)	21,652			(22,522		)
Accrued utility revenue	41,400			43,600			(1,200		)	(500		)	31,000			30,200			(1,100		)	300
Deferred purchased gas costs	(36,608		)	100,763			(54,797		)	84,282			10,155			(67,863		)	19,527			25,339
Accounts payable	(77,311		)	(53,217		)	(686		)	(2,700		)	(41,899		)	(39,574		)	(29,798		)	18,398
Accrued taxes	(4,419		)	(16,026		)	(7,125		)	(9,735		)	53,335			28,704			33,526			(17,504		)
Other current assets and liabilities	87,869			(35,154		)	31,579			(81,333		)	99,257			81,625			106,803			(12,982		)
Changes in undistributed stock compensation	4,710			4,269			5,796			5,558			2,496			2,597			5,045			5,834
Equity AFUDC	(3,179		)	(1,034		)	(5,772		)	(1,253		)	(1,061		)	(960		)	(4,262		)	(4,358		)
Changes in other assets and deferred charges	(21,098		)	(11,025		)	(17,122		)	(19,082		)
Changes in deferred charges and other assets													3,658			(18,238		)	(9,871		)	(23,289		)
Changes in other liabilities and deferred credits	(10,357		)	7,550			19,762			8,208			(55,910		)	(2,977		)	(66,294		)	16,805
Net cash provided by operating activities	329,506			347,469			364,539			384,677			259,037			170,371			456,460			387,963
CASH FLOW FROM INVESTING ACTIVITIES:
Construction expenditures and property additions	(587,405		)	(486,037		)	(784,237		)	(651,022		)	(173,353		)	(163,636		)	(788,465		)	(714,762		)
Changes in customer advances	15,049			11,051			17,461			13,325			5,433			3,078			21,356			13,503
Miscellaneous inflows (outflows)	(51		)	1,316			(1,353		)	1,650
Other													(31		)	(78		)	(48		)	(357		)
Net cash used in investing activities	(572,407		)	(473,670		)	(768,129		)	(636,047		)	(167,951		)	(160,636		)	(767,157		)	(701,616		)
CASH FLOW FROM FINANCING ACTIVITIES:
Contributions from parent	126,186			90,644			149,091			120,344			50,000			22,842			187,094			136,391
Dividends paid	(71,000		)	(65,000		)	(93,000		)	(86,000		)	(25,200		)	(23,500		)	(97,600		)	(89,500		)
Issuance of long-term debt, net	297,222			297,495			297,222			297,495			—			—			297,222			—
Change in credit facility and commercial paper													—			—			—			111,000
Change in short-term debt	(122,000		)	(182,000		)	21,000			(74,000		)	(97,000		)	36,000			(91,000		)	188,000
Withholding remittance - share-based compensation	(1,857		)	(2,880		)	(2,087		)	(2,880		)	(2,736		)	(1,838		)	(2,756		)	(2,096		)
Other	(801		)	(939		)	(890		)	(991		)	(115		)	(53		)	(887		)	(783		)
Net cash provided by financing activities	227,750			137,320			371,336			253,968
Net cash provided by (used in) financing activities													(75,051		)	33,451			292,073			343,012

Change in cash and cash equivalents	(15,151		)	11,119			(32,254		)	2,598			16,035			43,186			(18,624		)	29,359
Cash and cash equivalents at beginning of period	31,962			37,946			49,065			46,467			40,489			31,962			75,148			45,789
Cash and cash equivalents at end of period	$	16,811		$	49,065		$	16,811		$	49,065		$	56,524		$	75,148		$	56,524		$	75,148
Supplemental information:
SUPPLEMENTAL INFORMATION:
Interest paid, net of amounts capitalized	$	51,720		$	42,986		$	82,539		$	67,025		$	10,204		$	11,585		$	87,277		$	75,094
Income taxes paid (received)	$	(22	)	$	11,286		$	(17,164	)	$	3,428
Income taxes paid (received), net													$	(22,962	)	$	(22	)	$	700		$	(5,878	)

The accompanying notes are an integral part of these statements.



	11



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

SOUTHWEST GAS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(In thousands)

(Unaudited)


			Three Months Ended September 30,						Nine Months Ended September 30,								Three Months Ended March 31,
			2019			2018			2019			2018					2020			2019
Common stock shares	Common stock shares														Common stock shares
	Beginning and ending balances		47,482			47,482			47,482			47,482			Beginning and ending balances		47,482			47,482
Common stock amount	Common stock amount														Common stock amount
	Beginning and ending balances		$	49,112		$	49,112		$	49,112		$	49,112		Beginning and ending balances		$	49,112		$	49,112
Additional paid-in capital	Additional paid-in capital														Additional paid-in capital
	Beginning balances		1,169,549			1,006,065			1,065,242			948,767			Beginning balances		1,229,083			1,065,242
		Share-based compensation	1,102			1,197			3,317			1,899				Share-based compensation	125			918
		Contributions from Southwest Gas Holdings, Inc.	24,094			34,048			126,186			90,644				Contributions from Southwest Gas Holdings, Inc.	50,000			22,842
	Ending balances		1,194,745			1,041,310			1,194,745			1,041,310			Ending balances		1,279,208			1,089,002
Accumulated other comprehensive income (loss)
	Beginning balances		(46,540		)	(53,310		)	(49,049		)	(47,073		)
Accumulated other comprehensive loss															Accumulated other comprehensive loss
		Net actuarial gain (loss) arising during period, less amortization of unamortized benefit plan cost, net of tax	618			895			1,856			2,687			Beginning balances		(55,151		)	(49,049		)
		FSIRS amounts reclassified to net income, net of tax	635			636			1,906			1,907				Net actuarial gain arising during period, less amortization of unamortized benefit plan cost, net of tax	1,028			619
		Reclassification of excess deferred taxes	—			—			—			(9,300		)		FSIRS amounts reclassified to net income, net of tax	636			635
	Ending balances		(45,287		)	(51,779		)	(45,287		)	(51,779		)	Ending balances		(53,487		)	(47,795		)
Retained earnings	Retained earnings														Retained earnings
	Beginning balances		776,101			717,126			717,155			659,193			Beginning balances		782,108			717,155
		Net income (loss)	(20,012		)	(13,670		)	86,746			79,301				Net income	83,599			103,389
		Share-based compensation	(153		)	(172		)	(465		)	(510		)		Share-based compensation	(364		)	(160		)
		Dividends declared to Southwest Gas Holdings, Inc.	(24,900		)	(22,000		)	(72,400		)	(66,000		)		Dividends declared to Southwest Gas Holdings, Inc.	(25,900		)	(22,800		)
		Reclassification of excess deferred taxes	—			—			—			9,300			Ending balances		839,443			797,584
	Ending balances		731,036			681,284			731,036			681,284
Total Southwest Gas Corporation equity ending balances	Total Southwest Gas Corporation equity ending balances		$	1,929,606		$	1,719,927		$	1,929,606		$	1,719,927		Total Southwest Gas Corporation equity ending balances		$	2,114,276		$	1,887,903

The accompanying notes are an integral part of these statements.



	12



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

Note 1 – Background, Organization, and Summary of 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 all of the shares of common stock of Centuri Group, Inc. (“Centuri,” or the “utility infrastructure services” segment). At the annual meeting of shareholders of Southwest Gas Holdings, Inc., held on May 2, 2019, shareholders voted to approve changing the state of incorporation for Southwest Gas Holdings, Inc. from California to Delaware. The reincorporation became effective September 20, 2019.

Southwest 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 utility infrastructure services enterprise dedicated to delivering a diverse array of solutions to North America’s gas and electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions. Centuri operations are generally conducted under the business names of NPL Construction Co. (“NPL”), NPL Canada Ltd. (“NPL Canada”), New England Utility Constructors, Inc. (“Neuco”), and Linetec Services, LLC (“Linetec”). Utility infrastructure services activity is seasonal in most of Centuri’s operating areas. Peak periods are the summer and fall 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. In November 2017, Centuri acquired Neuco, thereby expanding its core services in the northeast region of the U.S. Additionally, in November 2018, Centuri expanded its operations in the southeast region of the U.S. through the acquisition of an 80% interest in Linetec. See ~~Note 12 – Business Acquisitions~~ ~~for more information.~~

Basis of Presentation. The condensed consolidated financial statements 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 U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations. 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 acquisitions of Neuco and Linetec.~~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. 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 depiction of results for the interim periods, have been made. 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.

It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the ~~2018~~2019 Annual Report to ~~Shareholders,~~Stockholders, which is incorporated by reference into the ~~2018~~2019 Form 10-K.

Fair Value Measurements. Certain assets and liabilities are reported at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at 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 establishes a fair value hierarchy that ranks the inputs used to measure fair value by their reliability. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to fair values derived from unobservable inputs (Level 3 measurements). Financial assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy 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 extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.



	13



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

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 qualified pension plan and postretirement benefit plans required to be recorded and/or disclosed at fair value.

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


	September 30, 2019			December 31, 2018
(Thousands of dollars)							March 31, 2020			December 31, 2019
Southwest Gas Corporation:
Net cash surrender value of COLI policies	$	126,142		$	114,405		$	116,615		$	132,072
Other property	1,632			1,741			1,932			1,715
Total Southwest Gas Corporation	127,774			116,146			118,547			133,787
Centuri property, equipment, and intangibles	968,013			792,191			1,009,351			983,905
Centuri accumulated depreciation/amortization	(345,113		)	(298,939		)
Centuri accumulated provision for depreciation and amortization							(363,074		)	(352,333		)
Other property	18,011			14,153			20,698			18,814
Total Southwest Gas Holdings, Inc.	$	768,685		$	623,551		$	785,522		$	784,173

Included in the table above are the net cash surrender values of company-owned life insurance (“COLI”) policies. These life insurance policies on members of management and other key employees are used by Southwest to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. 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 for Southwest and the Company also include money market fund investments totaling approximately ~~$1.5~~$40,000 and $49,000, respectively, at March 31, 2020, and $23.5 million and ~~$10.2 million, respectively, at September 30, 2019, and $18 million and $59.9~~$26.7 million, respectively, at December 31, ~~2018,~~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, ~~and~~ capital expenditures that were not paid as of ~~quarter~~period end ~~that are~~reporting dates but rather included in accounts ~~payable. Amounts related to such activities were immaterial for the periods presented herein. Non-cash investing activities for the twelve months ended~~ ~~September 30, 2019~~ included $26.2 million of purchase consideration related to the Linetec acquisition by Centuri, in the form of liabilities incurred that remained unpaid as of September 30, 2019; such amounts are included in Other current liabilities on the Condensed Consolidated Balance Sheets of the Company. Also, see ~~Recent Accounting Standards Updates~~ payable, and ~~Note 4 – Leases~~ ~~for information related to right-of-use~~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 107 – Segment Information). ~~Centuri’s accounts receivable for these services are presented in the table below (thousands of dollars):~~

September 30, 2019 December 31, 2018
Centuri accounts receivable for services provided to Southwest $ 16,757
$ 18,830

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.

~~Income Taxes.~~Accounts Receivable, net of allowances. ~~In 2017,~~On January 2, 2020, the ~~Tax Cuts~~Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Update (“ASU”) 2016-13 “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments,” which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss, or CECL, methodology. The Company adopted ASU 2016-13 using the modified retrospective method, and ~~Jobs Act (the “TCJA”) was enacted. The TCJA had significant impacts on~~therefore, results for reporting periods beginning prior to January 1, 2020 are presented under previously accepted U.S. GAAP. See Recent Accounting Standards Updates below.

Business activity with respect to natural gas utility operations is conducted with customers located within the ~~taxation~~3-state region of ~~business entities, including specific provisions~~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 payments history. Although Southwest seeks to minimize its credit risk related to ~~regulated public utilities. The more significant changes~~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 ~~impacted~~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 ~~Company~~jurisdiction, reestablishment of service requires both payment of previously unpaid balances and ~~Southwest include the reduction~~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 ~~corporate federal income tax rate from 35% to 21%, and limiting the utilization~~ratemaking process as a cost of ~~net operating losses (“NOLs”) to 80% of taxable income, with the ability to indefinitely carryforward unutilized NOLs to reduce future taxable income.~~

~~Prepaid and Other Current Assets.~~ Prepaid and other current assets includes gas pipe materials and operating supplies of $59 million at September 30, 2019 and $56 million at December 31, 2018 (carried at weighted average cost), in addition to $47 million at September 30, 2019 and $74 million at December 31, 2018 related toservice. The Nevada jurisdictions have a regulatory ~~asset~~mechanism associated with the ~~Arizona decoupling mechanism (an alternative revenue program).~~gas cost-related portion of uncollectible accounts. Such amounts are deferred and collected through a surcharge in the ratemaking process. Due to the



	14



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

COVID-19 pandemic, and as utility service is an essential service to the residents in the states in which Southwest operates, Southwest implemented a temporary moratorium on disconnection of natural gas service for non-payment and it also ceased charging late fees until further notice. Southwest is also actively working with customers experiencing financial hardship by means of flexible payment options. Management is monitoring expected credit losses in light of the evolving financial impact of COVID-19, and has adjusted the allowance for uncollectibles as of March 31, 2020 as a result of the anticipated impact on Southwest’s customers’ ability to pay amounts due both currently and when the moratorium is lifted. The adjustment was not material to the financial statements overall, and entering the summer season, during which time monthly billing amounts are substantially reduced, management does not expect a material increase to the allowance for uncollectibles.

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 COVID-19 given the nature of its customers.

Activity in the allowance for uncollectibles and the balances as of the periods presented within the Company’s and Southwest’s financial statements are 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, if any, 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 $53 million at March 31, 2020 and $57 million at 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 March 31, 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. ~~NaN~~Since December 31, 2019, management also qualitatively assessed whether events during the 1st quarter 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 in the first ~~nine~~three months of ~~2019.~~2020.



(Thousands of dollars)	Natural Gas Operations		Utility Infrastructure Services			Total Company
December 31, 2019	$	10,095	$	332,928		$	343,023
Foreign currency translation adjustment	—		(9,080		)	(9,080		)
March 31, 2020	$	10,095	$	323,848		$	333,943

(Thousands of dollars)
Natural Gas
Operations

Utility Infrastructure
Services
Total Company
December 31, 2018 $ 10,095
$ 348,950
$ 359,045
Measurement-period adjustments - Linetec acquisition (a) —
(22,179 ) (22,179 )
Foreign currency translation adjustment —
3,082
3,082
September 30, 2019 $ 10,095
$ 329,853
$ 339,948

~~(a) See~~ ~~Note 12 – Business Acquisitions~~ ~~for details regarding Linetec measurement-period adjustments.~~

Other Current Liabilities. Management recognizes in its balance sheets various liabilities that are expected to be settled through future cash payment with 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 include ~~$24.9~~$25.9 million and ~~$23.5~~$25.2 million of dividends declared by Southwest Gas Corporation, but not yet paid to Southwest Gas Holdings, Inc. ~~at September 30, 2019~~as of March 31, 2020 and December 31, ~~2018,~~2019, respectively. In addition, the balances in both periods include amounts payable under regulatory mechanisms in the next twelve months and miscellaneous other accrued liabilities. Amounts included in the Condensed Consolidated Balance Sheets of Southwest Gas Holdings, Inc. for both periods reflect unremitted consideration then outstanding associated with the business acquisition of Linetec.



	15



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 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 (thousands of dollars):~~Income:


	Three Months Ended						Nine Months Ended						Twelve Months Ended						Three Months ended March 31,						Twelve Months Ended March 31,
	September 30,						September 30,						September 30,
	2019			2018			2019			2018			2019			2018
(Thousands of dollars)																			2020			2019			2020			2019
Southwest Gas Corporation - natural gas operations segment:
Change in COLI policies	$	200		$	4,700		$	11,200		$	6,000		$	2,000		$	9,500		$	(15,500	)	$	7,600		$	(5,700	)	$	5,100
Interest income	1,521			1,506			4,940			4,301			6,659			5,237			1,388			1,597			6,147			6,199
Equity AFUDC	1,212			448			3,179			1,034			5,772			1,253			1,061			960			4,262			4,358
Other components of net periodic benefit cost	(3,765		)	(5,265		)	(11,295		)	(15,794		)	(16,560		)	(20,650		)	(5,005		)	(3,765		)	(16,299		)	(19,560		)
Miscellaneous income and (expense)	(521		)	(553		)	(1,839		)	(1,402		)	(3,065		)	(1,765		)	(2,480		)	(446		)	(5,375		)	(2,788		)
Southwest Gas Corporation - total other income (deductions)	(1,353		)	836			6,185			(5,861		)	(5,194		)	(6,425		)	(20,536		)	5,946			(16,965		)	(6,691		)
Utility infrastructure services segment:
Interest income	—			4			—			6			82			7			—			—			—			87
Foreign transaction gain (loss)	(6		)	(91		)	546			258			66			144			(10		)	531			5			162
Miscellaneous income and (expense)	177			125			23			(595		)	514			(175		)	(232		)	344			(656		)	125
Centuri - total other income (deductions)	171			38			569			(331		)	662			(24		)	(242		)	875			(651		)	374
Corporate and administrative	24			15			73			41			84			48			8			18			92			64
Consolidated Southwest Gas Holdings, Inc. - total other income (deductions)	$	(1,158	)	$	889		$	6,827		$	(6,151	)	$	(4,448	)	$	(6,401	)	$	(20,770	)	$	6,839		$	(17,524	)	$	(6,253	)

Included in the table above is the change in cash surrender values of COLI policies (including net death benefits recognized). Current tax regulations provide for tax-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. Refer to Other Property and Investments above and also to Note 2 – Components of Net Periodic Benefit Cost.

Derivatives. In 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 future at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting. The variable-price contracts 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 Swaps as of March 31, 2020 is October 2020.

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 purchase gas adjustment (“PGA”) mechanism in determining the deferred PGA balances. Neither changes in fair value nor settled amounts of Swaps have a direct effect on earnings or other comprehensive income, since following settlement, amounts are reflected in Net cost of gas sold at the same time they are included in Gas operating revenues through updates to the PGA component of rates.

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, which were immaterial at March 31, 2020. There was no outstanding collateral associated with the Swaps during any period reflected on the Condensed Consolidated Balance Sheets.

Previously, Southwest entered into forward-starting interest rate swaps (“FSIRS”), the settled positions for which are immaterial and continue to be amortized from Accumulated other comprehensive income (loss) into interest expense.

Redeemable Noncontrolling Interest. In connection with the acquisition of 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 passage of time or upon the occurrence of certain triggering events.



	1516



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

a market approach that utilizes certain financial metrics from guideline public companies of similar industry and operating characteristics. However, the carrying value was greater than the fair value as of March 31, 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 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	463
Balance, March 31, 2020	$	85,005

Earnings Per Share. Basic earnings per share (“EPS”) in each period of this report were calculated by 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 Basic and Diluted EPS calculations is shown in the following table:



	Three Months Ended March 31,		Twelve Months Ended March 31,
(In thousands)	2020	2019	2020	2019
Average basic shares	55,310	53,369	54,726	50,640
Effect of dilutive securities:
Management Incentive Plan shares	—	11	9	22
Restricted stock units (1)	53	44	57	39
Average diluted shares	55,363	53,424	54,792	50,701

(1) The number of securities granted included 50,000 and 40,000 performance shares during the three months ending March 31, 2020 and 2019 and 48,000 and 29,000 performance shares during the twelve months ending March 31, 2020 and 2019, respectively, the total of which was derived by assuming that target performance will be achieved during the relevant performance period.

Recent Accounting Standards Updates.

Accounting pronouncements adopted in ~~2019:~~2020:

In February 2016, the Financial Accounting Standards Board (“FASB”) issued the update “Leases (Topic 842).” Under the update, lessees were required to recognize a lease liability for the obligation to make lease payments, measured on a discounted basis; and a right-of-use asset for the right to use, or control the use of, a specified asset for the lease term. The Company and Southwest adopted Topic 842 in the first quarter of 2019 through an optional transition method, which was elected, permitting the application of the provisions of the standard at the adoption date, rather than to earlier comparative periods. As a result, the Company and Southwest have not recast prior periods to reflect the adoption of this standard. See ~~Note 4 – Leases~~.

~~Accounting pronouncements that will be effective after 2019:~~

In June 2016, the FASB issued ~~Accounting Standards Update (“ASU”)~~ASU 2016-13 update “Financial ~~Instruments —~~ Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The update requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The ~~inputs currently used~~Company and Southwest adopted the update in the first quarter of 2020, and concluded the impact was not material to ~~estimate credit losses will still be used; however, they may be adapted to reflect~~ the full amount of expected losses. 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 the Company’s and Southwest’scondensed consolidated financial statements ~~and disclosures.~~of the Company or Southwest. See Accounts receivable, net of allowances above.

In January 2017, the FASB issued ASU 2017-04 ~~“Intangibles –~~ “Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” Under the update, an entity will apply a one-step quantitative test as opposed to a two-step test as currently required, and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment. The ~~amount~~Company and Southwest adopted the update in the first quarter of 2020 and will apply the update prospectively in any future goodwill impairment calculated under the update could vary from the calculation under existing guidance, largely due to the consideration to be given to unrecognized differences between the fair value and carrying values of the other assets and liabilities in the reporting unit under the new guidance. The amendments should be applied on a prospective basis. The update is effective for fiscal and interim periods beginning after December 15, 2019. Early adoption has been permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Management is evaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures.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 generally aligns the requirements for 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.~~software, with the exception that such costs are to be included in the same line item in the balance sheet that a prepayment of the fees associated with the arrangement would be presented. Once capitalized, the update requires the entity to expense the amount capitalized over the term of the hosting arrangement, including reasonably certain renewal periods. The Company and Southwest adopted the update isin the first quarter of 2020 using the prospective transition method. There were no material implementation costs related to cloud computing arrangements for the Company and Southwest in the first quarter of 2020.



	17



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

Recently issued accounting pronouncements that will be effective ~~for fiscal years beginning~~ after December 15, 2019, including interim periods within those fiscal years. Early adoption of the amendments in this update is permitted for interim and related annual fiscal periods after December 15, 2018. Management is evaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures.2020:

In August 2018, the FASB issued ASU 2018-14 “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans.” This update removes disclosures that are no longer considered cost-beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. The update applies to all employers that sponsor defined benefit pension or other postretirement plans. The update is effective for fiscal years ending after December 15, 2020. Upon adoption, the Company and Southwest will modify their disclosures to conform to the requirements of the update.

In ~~August 2018,~~December 2019, the FASB issued ASU ~~2018-13 “Fair Value Measurement: Disclosure Framework—Changes to~~2019-12 “Income Taxes (Topic 740): Simplifying the ~~Disclosure Requirements~~Accounting for ~~Fair Value Measurement.~~Income Taxes.” The update ~~modifies~~simplifies the ~~disclosure requirements on fair value measurements~~accounting for income taxes by removing certain exceptions to the general principles, as well as improving consistent application in Topic ~~820.~~740 by clarifying and amending existing guidance. The update is effective for fiscal years beginning after December 15, 2021, and interim periods within ~~those~~ fiscal years beginning after December 15, ~~2019. Upon~~2022. Early adoption is permitted for periods for which financial statements have not yet been made available for issuance. Management is evaluating the ~~Company~~impacts this update might have on the Company’s and ~~Southwest will modify their disclosures to conform to~~Southwest’s consolidated financial statements and disclosures.

In March 2020, the ~~requirements~~FASB issued ASU 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The update ~~as applicable.~~

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 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 evaluating the impacts this update might have on the Company’s and Southwest’s consolidated financial statements and disclosures. See also LIBOR discussion in Note 5 – Debt.



	1618



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 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.

The service cost component of net periodic benefit costs included in the table below are components 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, 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. The other components of net periodic benefit cost are reflected in Other income (deductions) on the Condensed Consolidated Statements of Income of each entity.


	Qualified Retirement Plan																		Qualified Retirement Plan
	Period Ended September 30,																		March 31,
	Three Months						Nine Months						Twelve Months						Three Months						Twelve Months
	2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
(Thousands of dollars)
Service cost	$	6,466		$	7,139		$	19,398		$	21,417		$	26,536		$	27,265		$	8,574		$	6,466		$	27,972		$	27,882
Interest cost	12,252			11,043			36,755			33,130			47,799			44,652			11,388			12,252			48,142			45,383
Expected return on plan assets	(15,061		)	(14,689		)	(45,183		)	(44,066		)	(59,872		)	(57,865		)	(16,324		)	(15,061		)	(61,507		)	(59,127		)
Amortization of net actuarial loss	5,589			8,029			16,767			24,086			24,796			30,087			9,007			5,589			25,774			29,675
Net periodic benefit cost	$	9,246		$	11,522		$	27,737		$	34,567		$	39,259		$	44,139		$	12,645		$	9,246		$	40,381		$	43,813

	SERP																		SERP
	Period Ended September 30,																		March 31,
	Three Months						Nine Months						Twelve Months						Three Months						Twelve Months
	2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
(Thousands of dollars)
Service cost	$	66		$	61		$	199		$	183		$	261		$	260		$	98		$	66		$	298		$	250
Interest cost	440			415			1,320			1,244			1,734			1,714			401			440			1,721			1,683
Amortization of net actuarial loss	255			375			765			1,126			1,141			1,486			451			255			1,216			1,382
Net periodic benefit cost	$	761		$	851		$	2,284		$	2,553		$	3,136		$	3,460		$	950		$	761		$	3,235		$	3,315

	PBOP																		PBOP
	Period Ended September 30,																		March 31,
	Three Months						Nine Months						Twelve Months						Three Months						Twelve Months
	2019			2018			2019			2018			2019			2018			2020			2019			2020			2019
(Thousands of dollars)
Service cost	$	319		$	368		$	957		$	1,105		$	1,325		$	1,472		$	396		$	319		$	1,353		$	1,424
Interest cost	761			687			2,285			2,061			2,972			2,869			645			762			2,929			2,823
Expected return on plan assets	(789		)	(929		)	(2,367		)	(2,789		)	(3,296		)	(3,629		)	(852		)	(789		)	(3,219		)	(3,577		)
Amortization of prior service costs	318			334			953			1,002			1,286			1,336			289			317			1,243			1,318
Net periodic benefit cost	$	609		$	460		$	1,828		$	1,379		$	2,287		$	2,048		$	478		$	609		$	2,306		$	1,988



	1719



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

Note 3 – Revenue

The following information about the Company’s revenues is presented by segment. Southwest encompasses ~~1 segment –~~the natural gas ~~operations.~~operations segment and Centuri encompasses the utility infrastructure services segment.

Natural Gas Operations Segment:

Gas operating revenues on the Condensed Consolidated Statements of Income of both the Company and Southwest include revenue from contracts with customers, which is shown below, disaggregated by customer type, and various categories of revenue:

Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
(Thousands of dollars) 2019 2018 2019 2018 2019 2018
Residential $ 124,169
$ 120,249
$ 706,270
$ 631,562
$ 961,928
$ 864,128
Small commercial 39,725
40,020
179,519
183,616
250,986
253,330
Large commercial 10,945
11,360
36,030
39,934
49,288
54,462
Industrial/other 3,837
5,390
15,728
17,391
21,826
23,899
Transportation 21,580
19,818
68,297
64,591
90,696
88,115
Revenue from contracts with customers 200,256
196,837
1,005,844
937,094
1,374,724
1,283,934
Alternative revenue program revenues (deferrals) 7,957
9,094
(23,196 ) 46,696
(23,913 ) 67,017
Other revenues (a) 1,767
11,592
6,720
3,725
8,770
3,049
Total Gas operating revenues $ 209,980
$ 217,523
$ 989,368
$ 987,515
$ 1,359,581
$ 1,354,000

(a) Comprised of various other revenue impacts, including $(0.8) million during the three months, and $(3.7) million for the nine and twelve months ending September 30, 2019, respectively; and, $(1) million during the three months, and $(13.5) million in both the nine and twelve months ending September 30, 2018 related to tax reform savings reserves/adjustments.



	Three Months Ended March 31,						Twelve Months Ended March 31,
(Thousands of dollars)	2020			2019			2020		2019
Residential	$	378,555		$	417,228		$	934,115	$	959,837
Small commercial	82,463			89,610			241,970		256,750
Large commercial	12,667			13,962			47,640		51,714
Industrial/other	6,702			6,478			22,298		23,457
Transportation	24,406			24,902			91,884		87,838
Revenue from contracts with customers	504,793			552,180			1,337,907		1,379,596
Alternative revenue program revenues (deferrals)	(3,765		)	(34,545		)	5,668		(15,775		)
Other revenues	1,799			3,042			7,514		20,271
Total Gas operating revenues	$	502,827		$	520,677		$	1,351,089	$	1,384,092

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 March 31,				Twelve Months Ended March 31,
(Thousands of dollars)	Three Months Ended				Nine Months Ended				Twelve Months Ended				2020		2019		2020		2019
	September 30,				September 30,				September 30,
	2019		2018		2019		2018		2019		2018
Service Types:
Gas infrastructure services	$	364,241	$	355,721	$	885,950	$	849,615	$	1,160,017	$	1,145,629	$	217,709	$	197,893	$	1,258,790	$	1,128,048
Electric power infrastructure services	70,610		4,666		184,277		14,062		202,844		19,304		72,320		52,301		267,736		79,528
Other	80,399		90,236		212,185		242,167		335,992		314,859		43,464		62,668		245,083		367,554
Total Utility infrastructure services revenues	$	515,250	$	450,623	$	1,282,412	$	1,105,844	$	1,698,853	$	1,479,792	$	333,493	$	312,862	$	1,771,609	$	1,575,130


													Three Months Ended March 31,				Twelve Months Ended March 31,
(Thousands of dollars)	Three Months Ended				Nine Months Ended				Twelve Months Ended				2020		2019		2020		2019
	September 30,				September 30,				September 30,
	2019		2018		2019		2018		2019		2018
Contract Types:
Master services agreement	$	410,283	$	348,274	$	1,021,798	$	832,813	$	1,291,397	$	1,101,216	$	263,545	$	235,655	$	1,411,267	$	1,143,603
Bid contract	104,967		102,349		260,614		273,031		407,456		378,576		69,948		77,207		360,342		431,527
Total Utility infrastructure services revenues	$	515,250	$	450,623	$	1,282,412	$	1,105,844	$	1,698,853	$	1,479,792	$	333,493	$	312,862	$	1,771,609	$	1,575,130

Unit price contracts	$	415,404	$	368,918	$	1,006,577	$	948,593	$	1,316,404	$	1,286,059	$	243,136	$	235,686	$	1,387,706	$	1,296,783
Fixed price contracts	37,539		45,461		80,503		44,911		152,890		31,487		27,545		38,538		101,931		130,295
Time and materials contracts	62,307		36,244		195,332		112,340		229,559		162,246		62,812		38,638		281,972		148,052
Total Utility infrastructure services revenues	$	515,250	$	450,623	$	1,282,412	$	1,105,844	$	1,698,853	$	1,479,792	$	333,493	$	312,862	$	1,771,609	$	1,575,130



	1820



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

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 ~~September 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 on the Company’s Condensed Consolidated Balance Sheets:


(Thousands of dollars)	September 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
Contracts receivable, net	$	238,678	$	186,249	$	174,228	$	223,904
Revenue earned on contracts in progress in excess of billings	121,854		87,520		99,967		99,399
Amounts billed in excess of revenue earned on contracts	6,136		4,211		4,716		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 ~~relates~~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, ~~2018~~2019 to ~~September 30, 2019~~March 31, 2020 is due to revenue recognized of ~~$4.2~~$4.5 million that was included in this item as of January 1, ~~2019,~~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 less, Centuri uses the practical expedient applicable to such contracts and does not consider/compute an interest component based on the time value of money. Further, because of the 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 ~~September 30, 2019,~~March 31, 2020, Centuri ~~has 53~~had 23 contracts with an original duration of more than one year. The aggregate amount of the transaction price allocated to the unsatisfied performance obligations of these contracts as of ~~September 30, 2019~~March 31, 2020 was ~~$103.3~~$68.2 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)	September 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
Billed on completed contracts and contracts in progress	$	238,117		$	184,100		$	169,023		$	216,268
Other receivables	1,156			2,588			5,644			8,456
Contracts receivable, gross	239,273			186,688			174,667			224,724
Allowance for doubtful accounts	(595		)	(439		)	(439		)	(820		)
Contracts receivable, net	$	238,678		$	186,249		$	174,228		$	223,904



	1921



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~

~~Note 4 – Leases~~

The Company and Southwest adopted FASB Topic 842 as of January 1, 2019. In association with the adoption, the Company recorded adjustments to its Condensed Consolidated Balance Sheet to record right-of-use (“ROU”) assets and lease liabilities of $58.4 million and $60.8 million, respectively. Included in those amounts, Southwest recorded $1.9 million related to both its ROU assets and lease liabilities. Neither the Company nor Southwest experienced a material impact to the Condensed Consolidated Statements of Income from the adoption and no cumulative-effect adjustment to the opening balance of retained earnings was recognized. Management elected to adopt the standard under the optional transition method (refer to ~~Recent Accounting Standards Updates~~ in ~~Note 1 – Background, Organization, and Summary of Significant Accounting Policies), and elected the following Topic 842 practical expedients and accounting policy elections:~~

To use the “package”, which is a set of three practical expedients that must be elected as a package and applied consistently to all of Southwest’s and Centuri’s leases. These include: not reassessing whether any expired or existing contracts are or contain leases; not reassessing the lease classification for expired or existing leases (that is, existing operating and capital leases in accordance with current lease guidance will in each case be classified as operating and finance leases, respectively, under the updated guidance); and not reassessing initial direct costs for any existing leases.

To utilize the practical expedient to exclude all easements in place prior to January 1, 2019 from treatment under Topic 842. However, Southwest will evaluate new easements entered into after the effective date of the standard to determine if the arrangements should be accounted for as leases.

~~To make an accounting policy election by asset class to include both the lease and non-lease components (as defined in the guidance) as a single component.~~

~~To make an accounting policy election to not apply Topic 842 to short-term leases, as permitted.~~

~~To not elect to use hindsight in determining the lease term and in assessing impairment of ROU assets.~~

~~To utilize a portfolio approach to effectively account for the operating lease ROU assets and liabilities with regard to certain equipment leases at Centuri.~~

Southwest and Centuri determine if an arrangement is a lease at inception. ROU assets represent the right to use an underlying asset for the lease term; lease liabilities represent obligations to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of Southwest’s and Centuri’s leases do not provide an implicit interest rate, an incremental borrowing rate based on information available at commencement is used in determining the present value of lease payments; an implicit rate, if readily determinable, is used. Lease terms utilized in the computations may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

Southwest’s leases are comprised primarily of operating leases of buildings, land, and equipment. Southwest has no finance leases and no significant short-term leases. Southwest’s leases have a remaining term of 1 to 10 years, some of which include options to extend the lease up to 3 years. Southwest is currently not a lessor in any significant lease arrangements. Southwest’s ROU assets are included in Gas plant, and its lease liabilities are included in, depending upon maturity, Other current liabilities or Other deferred credits and other long-term liabilities on the Company’s and Southwest’s Condensed Consolidated Balance Sheets as of September 30, 2019.

Centuri has operating and finance leases for corporate and field offices, construction equipment, and transportation vehicles. Centuri is currently not a lessor in any significant lease arrangements. Centuri’s leases have remaining lease terms of up to 19 years. Some of these include options to extend the leases, generally for optional terms of up to 5 years, and some include options to terminate the leases within 1 year. Centuri’s equipment leases may include variable payment terms in addition to the fixed lease payments if machinery is used in excess of the standard work periods. These variable payments are not probable of occurring under the current operating environment and have not been included in consideration of lease payments. Short-term leases of Centuri are not accounted for under the provisions of Topic 842, as permitted. Due to the seasonality of Centuri’s business, expense for short-term leases will fluctuate throughout the year with higher expense incurred during the warmer months. As of September 30, 2019 Centuri executed lease agreements that had not yet commenced. These lease agreements primarily relate to real estate leases that have terms ranging from December 2019 through August 2032. Total future lease payments over the lease terms are approximately $13.2 million. Centuri’s ROU assets are included in Other property and investments, and its lease liabilities for operating and finance leases are included, depending upon maturity, in Other current liabilities or Other deferred credits and other long-term liabilities on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2019.



	20



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

~~The components of lease expense were as follows:~~

(Thousands of dollars) Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
Southwest:
Operating lease cost $ 350
$ 1,165

Centuri:
Operating lease cost $ 3,026
$ 9,069

Finance lease cost:
Amortization of ROU assets $ 34
$ 103
Interest on lease liabilities 10
24
Total finance lease cost 44
127
Short-term lease cost 5,017
10,949
Total lease cost $ 8,437
$ 21,310

~~Supplemental cash flow information related to leases for the nine months ended September 30, 2019 is as follows:~~

(Thousands of dollars) Southwest Centuri Consolidated Total
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 976
$ 8,104
$ 9,080
Operating cash flows from finance leases —
24
24
Financing cash flows from finance leases —
161
161

ROU assets obtained in exchange for lease obligations:
Operating leases $ 1,143
$ 21,653
$ 22,796
Finance leases —
386
386



	21



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

~~Supplemental information related to leases, including location in the Condensed Consolidated Balance Sheets, is as follows:~~

(Thousands of dollars) September 30, 2019
Southwest:
Operating leases:
Net Utility Plant $ 2,008

Other current liabilities $ 826
Other deferred credits and other long-term liabilities 1,209
Total operating lease liabilities $ 2,035

Weighted average remaining lease term (in years) 3.77
Weighted average discount rate 3.35 %

Centuri:
Operating leases:
Other property and investments $ 71,377

Other current liabilities 8,183
Other deferred credits and other long-term liabilities 65,791
Total operating lease liabilities $ 73,974

Finance leases:
Other property and investments $ 788

Other current liabilities 256
Other deferred credits and other long-term liabilities 400
Total finance lease liabilities $ 656

Weighted average remaining lease term (in years)
Operating leases 9.43
Finance leases 1.79

Weighted average discount rate
Operating leases 4.08 %
Finance leases 5.95 %



	22



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

~~The following are schedules of maturities of lease liabilities as of September 30, 2019:~~

(Thousands of dollars) Operating leases
Southwest:
2020 $ 946
2021 548
2022 244
2023 79
2024 79
Thereafter 267
Total lease payments 2,163
Less imputed interest 128
Total $ 2,035

(Thousands of dollars) Operating leases Finance leases
Centuri:
2020 $ 11,336
$ 289
2021 10,416
174
2022 9,675
165
2023 8,192
95
2024 6,973
3
Thereafter 45,564
—
Total lease payments 92,156
726
Less imputed interest 18,182
70
Total $ 73,974
$ 656

~~As the Company and Southwest adopted Topic 842 using the optional transition method referred to in~~ ~~Note 1 – Background, Organization, and Summary of Significant Accounting Policies, the recent annual disclosure of rental and lease payments as of December 31, 2018 in accordance with Topic 840 is presented in the table below (thousands of dollars):~~

2018 2017
Southwest Gas Corporation $ 4,556
$ 4,926
Centuri 59,491
62,310
Consolidated rental payments/lease expense $ 64,047
$ 67,236

~~The following is a schedule of future minimum lease payments for operating leases (with initial or remaining terms in excess of one year) as of December 31, 2018 (thousands of dollars):~~

Southwest Centuri Consolidated Total
2019 $ 898
$ 10,053
$ 10,951
2020 363
7,656
8,019
2021 299
5,760
6,059
2022 163
5,163
5,326
2023 79
3,681
3,760
Thereafter 177
10,511
10,688
Total minimum lease payments $ 1,979
$ 42,824
$ 44,803

~~As of December 31, 2018 Centuri leased certain construction equipment under capital leases arrangements which were not significant.~~



	23



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~March 31, 2020

Note ~~5 – Derivatives~~

In 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 future at a fixed price, qualify for the normal purchases and normal sales exception that is allowed for contracts that are probable of delivery in the normal course of business, and are exempt from fair value reporting. The variable-price contracts 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. Southwest does not utilize derivative financial instruments for speculative purposes, nor does it have trading operations.

Southwest historically utilized fixed-price contracts and Swaps under its volatility mitigation programs to effectively fix the price on a portion of its natural gas supply portfolios. The maturities of the outstanding Swaps highly correlate to forecasted purchases of natural gas, with the longest maturity date of the Swaps being October 2020. Management does not currently anticipate entering into new Swaps in the near term. Regarding existing Swap arrangements, 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 paid or received. The differential is calculated based on the notional amounts under the contracts, which are detailed in the table below (thousands of dekatherms):

September 30, 2019 December 31, 2018
Contract notional amounts 16,071
13,387

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

(Thousands of dollars) Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019 Twelve Months Ended September 30, 2019
Paid to counterparties $ 2,191
$ 8,338
$ 10,322
Received from counterparties $ 10
$ 1,057
$ 1,657



	24



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

The estimated fair value of Southwest’s Swaps were determined at September 30, 2019 and December 31, 2018 using futures settlement prices for the delivery of natural gas at Henry Hub adjusted by the price of future settlement bases, which reflect the difference between the price of natural gas at a given delivery basin and the Henry Hub pricing points. These Level 2 inputs are observable in the marketplace throughout the full term of the Swaps and have been credit-risk adjusted with no significant impact to the overall fair value measurement. The following table sets forth the fair value of the Swaps and their location in the Condensed Consolidated Balance Sheets for both the Company and Southwest (thousands of dollars). It also sets forth the location of regulatory assets or liabilities offsetting, dollar-for-dollar, the fair value of the Swaps (pursuant to Southwest’s rate-regulation):

~~Fair values of derivatives not designated as hedging instruments:~~

September 30, 2019
Swap Position
Instrument Balance Sheet Location Asset Derivatives Liability Derivatives Net Total Offsetting Balance Sheet Location (Regulatory Asset/(Liability))
Swaps Deferred charges and other assets $ 48
$ (27 ) $ 21
Other deferred credits
Swaps Other current liabilities 103
(9,837 ) (9,734 ) Prepaid and other current assets
Swaps Other deferred credits —
(335 ) (335 ) Deferred charges and other assets
Total $ 151
$ (10,199 ) $ (10,048 )

December 31, 2018
Swap Position
Instrument Balance Sheet Location Asset Derivatives Liability Derivatives Net Total Offsetting Balance Sheet Location (Regulatory Asset/(Liability))
Swaps Prepaid and other current assets $ 243
$ (99 ) $ 144
Other current liabilities
Swaps Other current liabilities 1,595
(3,347 ) (1,752 ) Prepaid and other current assets
Swaps Other deferred credits 141
(251 ) (110 ) Deferred charges and other assets
Total $ 1,979
$ (3,697 ) $ (1,718 )

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 0 outstanding collateral associated with the Swaps during either period shown in the above table.

~~Note 6~~4 – Common Stock

Only shares of the Company’s common stock are publicly traded on the New York Stock Exchange, under the ticker symbol “SWX.” Share-based compensation related to Southwest and Centuri is based on stock awards to be issued in shares of Southwest Gas Holdings, Inc.

On May 8, 2019, the Company filed with the SEC an automatic shelf registration statement on Form S-3 (File No. 333-231297), which became effective upon filing, for the offer and sale of up to $300 million of common stock from time to time in at-the-market offerings under the prospectus included therein and in accordance with the Sales Agency Agreement, dated May 8, 2019, between the Company and BNY Mellon Capital Markets, LLC (the “Equity Shelf Program”). The Company sold no shares under the Equity Shelf Program during the three months ended March 31, 2020. The following table provides the activity under the Equity Shelf Program for the ~~quarter and~~ life-to-date period ended ~~September 30, 2019:~~March 31, 2020:

Three Months Ended Life-To-Date Ended
September 30,
�� 2019 2019
Gross proceeds $ 24,337,600
$ 99,337,371
Less: agent commissions (243,375 ) (993,373 )
Net proceeds $ 24,094,225
$ 98,343,998

Number of shares sold 273,594
1,146,955
Weighted average price per share $ 88.96
$ 86.61



	25



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~



	Life-To-Date Ended
	March 31, 2020
Gross proceeds	$	124,337,247
Less: agent commissions	(1,243,372		)
Net proceeds	$	123,093,875
Number of shares sold	1,478,945
Weighted average price per share	$	84.07

As of ~~September 30, 2019,~~March 31, 2020, the Company had up to ~~$200,662,629~~$175,662,753 of common stock available for sale under the program. Net proceeds from the ~~sales~~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. ~~Net proceeds during the nine months ended September 30, 2019 were contributed to, and reflected in the records of, Southwest (as a capital contribution from Southwest Gas Holdings, Inc.).~~

During the ~~quarter~~three months ended March 31, 2019, the Company sold approximately 278,000 shares of common stock under a previously effective equity shelf program. Those issuances reflected the remaining shares available under that previous program.

~~During the nine months ended September 30, 2019,~~2020, the Company issued approximately ~~76,000~~72,000 shares of common stock through the Restricted Stock/Unit Plan and Management Incentive Plan.

~~Also~~Additionally, during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the Company issued ~~96,000~~47,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, ~~(“DRSPP”),~~ raising approximately ~~$8.1~~$3.1 million.

~~On September 20, 2019, coincident with the reincorporation into Delaware, the Company increased the number of authorized shares of common stock available for issuance from 60,000,000 to 120,000,000.~~

Note 75 – ~~Long-Term~~ Debt

Long-Term Debt

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

Southwest’s revolving credit facility (including commercial paper) and the variable-rate Industrial Development Revenue Bonds (“IDRBs”) approximate their carrying values. The fair values of the revolving credit facility and 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 isare generally repaid quickly and the IDRBs have interest rates that reset frequently.

The fair values of Southwest’s debentures (which include senior and medium-term notes) were determined utilizing a market-based valuation approach, where fair values are determined based on evaluated 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 are categorized as Level 2.

The Centuri secured revolving credit and term loan facility and Centuri’s other debt obligations (not actively traded) are categorized as Level 3. Because Centuri’s debt is not publicly traded, fair values for ~~the~~its secured revolving credit and term loan facility and ~~its~~ other debt obligations were based on a conventional discounted cash flow methodology ~~and~~ 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.



	2622



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020


	September 30, 2019					December 31, 2018					March 31, 2020					December 31, 2019
	Carrying Amount			Market Value		Carrying Amount			Market Value		Carrying Amount			Market Value		Carrying Amount			Market Value
(Thousands of dollars)
Southwest Gas Corporation:
Debentures:
Notes, 4.45%, due 2020	$	125,000		$	126,763	$	125,000		$	126,213	$	125,000		$	125,975	$	125,000		$	126,673
Notes, 6.1%, due 2041	125,000			167,619		125,000			150,728		125,000			178,950		125,000			162,666
Notes, 3.875%, due 2022	250,000			257,930		250,000			254,195		250,000			252,688		250,000			258,550
Notes, 4.875%, due 2043	250,000			303,955		250,000			268,985		250,000			290,645		250,000			291,928
Notes, 3.8%, due 2046	300,000			316,383		300,000			267,030		300,000			278,106		300,000			308,307
Notes, 3.7%, due 2028	300,000			323,034		300,000			298,926		300,000			311,565		300,000			320,685
Notes, 4.15%, due 2049	300,000			334,680		—			—		300,000			297,987		300,000			330,138
8% Series, due 2026	75,000			97,769		75,000			93,827		75,000			96,435		75,000			96,905
Medium-term notes, 7.78% series, due 2022	25,000			27,655		25,000			27,497		25,000			27,293		25,000			27,500
Medium-term notes, 7.92% series, due 2027	25,000			32,250		25,000			30,016		25,000			32,621		25,000			32,543
Medium-term notes, 6.76% series, due 2027	7,500			9,218		7,500			8,651		7,500			9,185		7,500			9,156
Unamortized discount and debt issuance costs	(14,852		)			(11,807		)			(14,220		)			(14,450		)
	1,767,648					1,470,693					1,768,280					1,768,050
Revolving credit facility and commercial paper	150,000			150,000		150,000			150,000		150,000			150,000		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		50,000			50,000		50,000			50,000
2003 Series A, due 2038	50,000			50,000		50,000			50,000		50,000			50,000		50,000			50,000
2008 Series A, due 2038	50,000			50,000		50,000			50,000		50,000			50,000		50,000			50,000
2009 Series A, due 2039	50,000			50,000		50,000			50,000		50,000			50,000		50,000			50,000
Unamortized discount and debt issuance costs	(1,778		)			(2,024		)			(1,656		)			(1,717		)
	198,222					197,976					198,344					198,283
Less: current maturities	—					—					(125,000		)			(125,000		)
Long-term debt, less current maturities - Southwest Gas Corporation	$	2,115,870				$	1,818,669				$	1,991,624				$	1,991,333
Centuri:
Centuri term loan facility	$	248,043		$	257,475	$	255,959		$	260,135	$	232,642		$	228,304	$	244,812		$	252,182
Unamortized debt issuance costs	(1,171		)			(1,414		)			(1,031		)			(1,101		)
	246,872					254,545					231,611					243,711
Centuri secured revolving credit facility	89,140			89,175		—			—		42,666			42,658		60,021			60,057
Centuri other debt obligations	48,399			49,393		67,104			67,053		88,757			87,758		43,929			44,787
Less: current maturities	(38,165		)			(33,060		)			(44,574		)			(38,512		)
Long-term debt, less current maturities - Centuri	$	346,246				$	288,589				$	318,460				$	309,149
Consolidated Southwest Gas Holdings, Inc.:
Southwest Gas Corporation long-term debt	$	2,115,870				$	1,818,669				$	2,116,624				$	2,116,333
Centuri long-term debt	384,411					321,649					363,034					347,661
Less: current maturities	(38,165		)			(33,060		)			(169,574		)			(163,512		)
Long-term debt, less current maturities - Southwest Gas Holdings, Inc.	$	2,462,116				$	2,107,258				$	2,310,084				$	2,300,482



	27



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

Southwest has a $400 million credit facility, ~~that is scheduled to expire in March 2022. Southwest designates~~for which it has designated $150 million of associated capacity ~~related to the facility~~ as long-term debt and ~~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”) or an “alternate base rate,” plus in each case an applicable margin that is determined based on Southwest’s senior unsecured debt rating. At ~~September 30, 2019,~~March 31, 2020, the applicable margin is 1% for loans bearing interest with reference to LIBOR and 0% for loans bearing interest with reference to the alternative base rate. At ~~September 30, 2019,~~March 31, 2020, the full $150 million was outstanding on the long-term portion ~~(including $50 million~~of the facility.



	23



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

On April 10, 2020, Southwest amended its credit facility agreement; total borrowing capacity under the ~~commercial paper program, discussed below)~~amended agreement remains $400 million. The amended agreement extends the maturity date from March 2022 to April 2025. Interest rates for the facility are calculated at either LIBOR or an “alternate base rate,” plus in each case an applicable margin determined based on Southwest’s senior unsecured long-term debt rating. The applicable margin ranges from 0.750% to 1.500% for loans bearing interest with reference to LIBOR and ~~$30 million~~from 0.000% to 0.500% for loans bearing interest with reference to an alternate base rate. Upon the occurrence of ~~borrowings were outstanding~~certain events providing for a transition away from LIBOR, or if LIBOR is no longer a widely recognized benchmark rate, Southwest may 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 ~~short-term~~unfunded portion of ~~this credit facility (see~~ ~~Note 8 – Short-Term Debt~~).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 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 $50 million commercial paper program. ~~Any issuance~~Issuances under the commercial paper program isare supported by Southwest’s ~~current~~ revolving credit facility and, therefore, ~~does~~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 ~~September 30, 2019, as noted above, $50 million of~~March 31, 2020, 0 borrowings were outstanding under the commercial paper program.

~~In May 2019, Southwest issued $300~~Centuri has a $590 million in 4.15% Senior Notes at a discount of 0.051%. The notes will mature in June 2049. The net proceeds were used to repay a portion of amounts then outstanding under its credit facility and commercial paper program.

~~In November 2018, Centuri, in association with the acquisition of Linetec, amended and restated its~~ senior secured revolving credit and term loan facility, ~~increasing the capacity from $450 million to $590 million; the amended facility is~~ scheduled to expire in November 2023. ~~This facility includes a revolving credit facility and a term loan facility.~~ The capacity of the line of credit portion of the facility is $325 million; amounts borrowed and repaid ~~under the revolving line of credit facility~~ are available to be re-borrowed. The term loan portion of the facility ~~portion~~ has a limit of approximately $265 million. The $590 million ~~revolving credit and term loan~~ 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 ~~September 30, 2019~~March 31, 2020 totaled ~~$1.3~~$1.2 billion. At ~~September 30, 2019, $337~~March 31, 2020, $275 million in borrowings were outstanding under the Centuri’s combined secured revolving credit and term loan facility. Centuri also received proceeds of $50 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 primarily used for short-term financing needs. There was $60 million outstanding under this credit facility as of March 31, 2020.

On April 10, 2020, Southwest Gas Holdings, Inc. amended its existing credit facility, extending the maturity date to 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 each case an applicable margin that is determined based on Southwest Gas Holdings, Inc.’s senior unsecured long-term debt rating. The applicable margin 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 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 $97 million of short-term borrowings outstanding at March 31, 2020 under this facility.

LIBOR

It is currently anticipated that LIBOR may be discontinued as a benchmark or reference rate after 2021. As of ~~September 30, 2019, 0 borrowings were outstanding~~March 31, 2020, $60 million, $247 million, and $177 million, respectively, for the holding company, Southwest, and Centuri was outstanding under ~~its~~their credit ~~facility (see~~ ~~Note 8 – Short-Term Debt), and therefore, there~~facilities whereby interest was no related indebtedness with reference to LIBOR. However, $130 million of Southwest’s outstanding borrowings under its credit facility (other than from its commercial paper program) and $218 million of Centuri’s outstanding borrowings under its credit facility have interest rates with reference to LIBOR and for which maturity dates ~~that~~ extend beyond 2021. ~~Southwest’s outstanding LIBOR referenced debt of $130 million is~~These amounts reflect approximately 6%11% of Southwest’s total debt, and ~~Southwest’s and Centuri’s combined outstanding LIBOR referenced debt of $348 million is approximately 14%~~18% of total debt (including current maturities) for the Company overall. Southwest and Southwest Gas Holdings, Inc. (see above) in amending their respective facilities in April 2020 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 ~~the discontinuation~~a discontinuance on the Company’s and Southwest’s financial condition and results of operations, ~~Southwest and Centuri~~management will continue to monitor developments ~~with respect to alternative rates~~ and work with lenders to determine the appropriate replacement/alternative reference rate for variable rate ~~indebtedness.~~

~~Note 8 – Short-Term Debt~~

debt. At this time the Company and Southwest ~~Gas Holdings, Inc. has~~can provide no assurances as to the impact a ~~$100 million credit facility that is scheduled to expire in March 2022. There were 0 borrowings outstanding under this credit facility at September 30, 2019.~~

~~As discussed in~~ ~~Note 7 – Long-Term Debt,~~ Southwest has a $400 million credit facility that is scheduled to expire in March 2022, of which $250 million has been designated by management for working capital purposes. Southwest had $30 million of short-term borrowings outstanding at September 30, 2019 under this facility.LIBOR



	2824



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

discontinuance will have on their financial condition or results of operations. Any alternative rate may be less predicable or less attractive than LIBOR.

Note 96 – Other Comprehensive Income and Accumulated Other Comprehensive Income

The following information provides insight into amounts impacting the Company’s Other comprehensive income (loss), both before and after-tax impacts, within the Condensed Consolidated Statements of Comprehensive Income, which also impact Accumulated other comprehensive income (“AOCI”) in the Condensed Consolidated Balance Sheets and the Condensed Consolidated Statements of Equity. ~~See~~ ~~Note 5 – Derivatives~~ ~~for additional information on the FSIRS.~~

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

~~(Thousands of dollars)~~



	Three Months Ended March 31, 2020									Three Months Ended March 31, 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		$	317		$	(76	)	$	241
Amortization of net actuarial (gain)/loss	9,458			(2,270		)	7,188			5,844			(1,403		)	4,441
Regulatory adjustment	(8,395		)	2,015			(6,380		)	(5,347		)	1,284			(4,063		)
Pension plans other comprehensive income (loss)	1,352			(324		)	1,028			814			(195		)	619
FSIRS (designated hedging activities):
Amounts reclassified into net income	837			(201		)	636			836			(201		)	635
FSIRS other comprehensive income (loss)	837			(201		)	636			836			(201		)	635
Total other comprehensive income (loss) - Southwest Gas Corporation	2,189			(525		)	1,664			1,650			(396		)	1,254
Foreign currency translation adjustments:
Translation adjustments	(4,005		)	—			(4,005		)	791			—			791
Foreign currency other comprehensive income (loss)	(4,005		)	—			(4,005		)	791			—			791
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.	$	(1,816	)	$	(525	)	$	(2,341	)	$	2,441		$	(396	)	$	2,045


	Three Months Ended September 30, 2019									Three Months Ended September 30, 2018									Twelve Months Ended March 31, 2020									Twelve Months Ended March 31, 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
(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	$	318		$	(77	)	$	241		$	334		$	(80	)	$	254		1,243			(298		)	945			1,318			(316		)	1,002
Amortization of net actuarial (gain)/loss	5,844			(1,402		)	4,442			8,404			(2,017		)	6,387			26,990			(6,477		)	20,513			31,057			(7,454		)	23,603
Prior service cost																			(1,878		)	452			(1,426		)	—			—			—
Regulatory adjustment	(5,348		)	1,283			(4,065		)	(7,560		)	1,814			(5,746		)	33,896			(8,136		)	25,760			(6,020		)	1,446			(4,574		)
Pension plans other comprehensive income	814			(196		)	618			1,178			(283		)	895
Pension plans other comprehensive income (loss)																			(10,836		)	2,602			(8,234		)	5,929			(1,422		)	4,507
FSIRS (designated hedging activities):
Amounts reclassified into net income	836			(201		)	635			836			(200		)	636			3,345			(803		)	2,542			3,344			(803		)	2,541
FSIRS other comprehensive income	836			(201		)	635			836			(200		)	636
Total other comprehensive income - Southwest Gas Corporation	1,650			(397		)	1,253			2,014			(483		)	1,531
FSIRS other comprehensive income (loss)																			3,345			(803		)	2,542			3,344			(803		)	2,541
Total other comprehensive income (loss) - Southwest Gas Corporation																			(7,491		)	1,799			(5,692		)	9,273			(2,225		)	7,048
Foreign currency translation adjustments:
Translation adjustments	(447		)	—			(447		)	599			—			599			(2,758		)	—			(2,758		)	(1,308		)	—			(1,308		)
Foreign currency other comprehensive income (loss)	(447		)	—			(447		)	599			—			599			(2,758		)	—			(2,758		)	(1,308		)	—			(1,308		)
Total other comprehensive income - Southwest Gas Holdings, Inc.	$	1,203		$	(397	)	$	806		$	2,613		$	(483	)	$	2,130

	Nine Months Ended September 30, 2019									Nine Months Ended September 30, 2018
	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	$	953		$	(229	)	$	724		$	1,002		$	(240	)	$	762
Amortization of net actuarial (gain)/loss	17,532			(4,207		)	13,325			25,212			(6,051		)	19,161
Regulatory adjustment	(16,043		)	3,850			(12,193		)	(22,679		)	5,443			(17,236		)
Pension plans other comprehensive income	2,442			(586		)	1,856			3,535			(848		)	2,687
FSIRS (designated hedging activities):
Amounts reclassified into net income	2,508			(602		)	1,906			2,509			(602		)	1,907
FSIRS other comprehensive income	2,508			(602		)	1,906			2,509			(602		)	1,907
Total other comprehensive income - Southwest Gas Corporation	4,950			(1,188		)	3,762			6,044			(1,450		)	4,594
Foreign currency translation adjustments:
Translation adjustments	1,131			—			1,131			(1,002		)	—			(1,002		)
Foreign currency other comprehensive income (loss)	1,131			—			1,131			(1,002		)	—			(1,002		)
Total other comprehensive income - Southwest Gas Holdings, Inc.	$	6,081		$	(1,188	)	$	4,893		$	5,042		$	(1,450	)	$	3,592

Total other comprehensive income (loss) - Southwest Gas Holdings, Inc.																			$	(10,249	)	$	1,799		$	(8,450	)	$	7,965		$	(2,225	)	$	5,740

(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 $2.2 million of realized losses (net of tax) related to Southwest’s forward-starting interest rate swaps (“FSIRS”), included in AOCI at March 31, 2020, will be reclassified into interest expense within the next 12 months as the related interest payments on long-term debt occur.



	2925



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

Twelve Months Ended September 30, 2019 Twelve Months Ended September 30, 2018

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) $ (20,426 ) $ 4,902
$ (15,524 ) $ (43,027 ) $ 10,326
$ (32,701 )
Amortization of prior service cost 1,286
(309 ) 977
1,336
(367 ) 969
Amortization of net actuarial (gain)/loss 25,937
(6,224 ) 19,713
31,573
(8,468 ) 23,105
Regulatory adjustment (1,597 ) 383
(1,214 ) 6,865
(844 ) 6,021
Pension plans other comprehensive income (loss) 5,200
(1,248 ) 3,952
(3,253 ) 647
(2,606 )
FSIRS (designated hedging activities):
Amounts reclassified into net income 3,344
(804 ) 2,540
3,346
(920 ) 2,426
FSIRS other comprehensive income 3,344
(804 ) 2,540
3,346
(920 ) 2,426
Total other comprehensive income (loss) - Southwest Gas Corporation 8,544
(2,052 ) 6,492
93
(273 ) (180 )
Foreign currency translation adjustments:
Translation adjustments (877 ) —
(877 ) (1,092 ) —
(1,092 )
Foreign currency other comprehensive income (loss) (877 ) —
(877 ) (1,092 ) —
(1,092 )
Total other comprehensive income (loss) - Southwest Gas Holdings, Inc. $ 7,667
$ (2,052 ) $ 5,615
$ (999 ) $ (273 ) $ (1,272 )

~~(1)~~

Tax amounts are calculated using a 24% rate following the December 22, 2017 enactment date of U.S. tax reform. For periods prior to the enactment date (and included in specific line items of the tables for the twelve months ended September 30, 2018), tax amounts were calculated using a 38% rate. The tax effect of before-tax amounts remaining in the balance of Accumulated other comprehensive income (loss) as of September 30, 2019 is computed using a 24% tax rate overall. With regard to foreign currency translation adjustments, 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, 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 $2.5 million of realized losses (net of tax) related to the FSIRS, reported in Accumulated other comprehensive income (loss) at September 30, 2019, 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 ~~(thousands~~and its Condensed Consolidated Statements of ~~dollars):~~Equity:


	Defined Benefit Plans									FSIRS									Foreign Currency Items											Defined Benefit Plans									FSIRS									Foreign Currency Items
	Before-Tax			Tax (Expense) Benefit (4,5)			After-Tax (5)			Before-Tax			Tax (Expense) Benefit (4,5)			After-Tax (5)			Before-Tax			Tax (Expense) Benefit		After-Tax			AOCI
Beginning Balance AOCI December 31, 2018	$	(55,227	)	$	13,254		$	(41,973	)	$	(9,310	)	$	2,234		$	(7,076	)	$	(3,619	)	$	—	$	(3,619	)	$	(52,668	)
(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	—			—			—			—			—			—			1,131			—		1,131			1,131			—			—			—			—			—			—			(4,005		)	—		(4,005		)	(4,005		)
Other comprehensive income (loss) before reclassifications	—			—			—			—			—			—			1,131			—		1,131			1,131			—			—			—			—			—			—			(4,005		)	—		(4,005		)	(4,005		)
FSIRS amounts reclassified from AOCI (1)	—			—			—			2,508			(602		)	1,906						—		—			1,906			—			—			—			837			(201		)	636			—			—		—			636
Amortization of prior service cost (2)	953			(229		)	724			—			—			—			—			—		—			724			289			(69		)	220			—			—			—			—			—		—			220
Amortization of net actuarial loss (2)	17,532			(4,207		)	13,325			—			—			—			—			—		—			13,325			9,458			(2,270		)	7,188			—			—			—			—			—		—			7,188
Regulatory adjustment (3)	(16,043		)	3,850			(12,193		)	—			—			—			—			—		—			(12,193		)	(8,395		)	2,015			(6,380		)	—			—			—			—			—		—			(6,380		)
Net current period other comprehensive income (loss) attributable to Southwest Gas Holdings, Inc.	2,442			(586		)	1,856			2,508			(602		)	1,906			1,131			—		1,131			4,893			1,352			(324		)	1,028			837			(201		)	636			(4,005		)	—		(4,005		)	(2,341		)
Ending Balance AOCI September 30, 2019	$	(52,785	)	$	12,668		$	(40,117	)	$	(6,802	)	$	1,632		$	(5,170	)	$	(2,488	)	$	—	$	(2,488	)	$	(47,775	)
Ending Balance AOCI March 31, 2020																														$	(65,249	)	$	15,661		$	(49,588	)	$	(5,129	)	$	1,230		$	(3,899	)	$	(5,586	)	$	—	$	(5,586	)	$	(59,073	)


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

~~(2)~~

(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.

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



	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)	—			—			—			837			(201		)	636			636
Amortization of prior service cost (6)	289			(69		)	220			—			—			—			220
Amortization of net actuarial loss (6)	9,458			(2,270		)	7,188			—			—			—			7,188
Regulatory adjustment (7)	(8,395		)	2,015			(6,380		)	—			—			—			(6,380		)
Net current period other comprehensive income attributable to Southwest Gas Corporation	1,352			(324		)	1,028			837			(201		)	636			1,664
Ending Balance AOCI March 31, 2020	$	(65,249	)	$	15,661		$	(49,588	)	$	(5,129	)	$	1,230		$	(3,899	)	$	(53,487	)

(5) The FSIRS reclassification amounts are included in Net interest deductions 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 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:



(Thousands of dollars)	March 31, 2020			December 31, 2019
Net actuarial (loss) gain	$	(473,616	)	$	(483,074	)
Prior service cost	(3,352		)	(3,641		)
Less: amount recognized in regulatory assets	411,719			420,114
Recognized in AOCI	$	(65,249	)	$	(66,601	)


~~(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).



	3026



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020


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


~~(5)~~	The beginning balances depict amounts attributable to the individual components of AOCI (Defined Benefit Plans and FSIRS) following the adoption of ASU No. 2018-02, with no impact to the total balance of AOCI resulting from the depiction.

~~The following table represents a rollforward of AOCI, presented on Southwest’s Condensed Consolidated Balance Sheets (thousands of dollars):~~

Defined Benefit Plans FSIRS
Before-Tax
Tax
(Expense)
Benefit (9,10)
After-Tax (10) Before-Tax
Tax
(Expense)
Benefit (9,10)
After-Tax (10) AOCI
Beginning Balance AOCI December 31, 2018 $ (55,227 ) $ 13,254
$ (41,973 ) $ (9,310 ) $ 2,234
$ (7,076 ) $ (49,049 )
FSIRS amounts reclassified from AOCI (6) —
—
—
2,508
(602 ) 1,906
1,906
Amortization of prior service cost (7) 953
(229 ) 724
—
—
—
724
Amortization of net actuarial loss (7) 17,532
(4,207 ) 13,325
—
—
—
13,325
Regulatory adjustment (8) (16,043 ) 3,850
(12,193 ) —
—
—
(12,193 )
Net current period other comprehensive income attributable to Southwest Gas Corporation 2,442
(586 ) 1,856
2,508
(602 ) 1,906
3,762
Ending Balance AOCI September 30, 2019 $ (52,785 ) $ 12,668
$ (40,117 ) $ (6,802 ) $ 1,632
$ (5,170 ) $ (45,287 )


~~(6)~~	~~The FSIRS reclassification amounts are included in Net interest deductions on Southwest’s Condensed Consolidated Statements of Income.~~


~~(7)~~	~~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).~~


~~(8)~~	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).


~~(9)~~	~~Tax amounts are calculated using a 24% rate.~~


~~(10)~~	The beginning balances depict amounts attributable to the individual components of AOCI (Defined Benefit Plans and FSIRS) following the adoption of ASU No. 2018-02, with no impact to the total balance of AOCI resulting from the depiction.

~~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 (thousands of dollars):~~

September 30, 2019 December 31, 2018
Net actuarial (loss) gain $ (417,832 ) $ (435,364 )
Prior service cost (2,080 ) (3,033 )
Less: amount recognized in regulatory assets 367,127
383,170
Recognized in AOCI $ (52,785 ) $ (55,227 )



	31



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

Note 107 – 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)	March 31, 2020		December 31, 2019
Centuri accounts receivable for services provided to Southwest	$	16,263	$	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 ~~following tables present revenues from external customers, intersegment revenues,~~financial information pertaining to the natural gas operations and ~~segment net income for the 2 reportable~~utility infrastructure services segments ~~(thousands of dollars):~~is as follows:


	Natural Gas Operations			Utility Infrastructure Services		Other			Total
Three Months Ended September 30, 2019
(Thousands of dollars)											Natural Gas Operations		Utility Infrastructure Services			Other			Total
Three Months Ended March 31, 2020
Revenues from external customers	$	209,980		$	480,896	$	—		$	690,876	$	502,827	$	300,291		$	—		$	803,118
Intersegment revenues	—			34,354		—			34,354		—		33,202			—			33,202
Total	$	209,980		$	515,250	$	—		$	725,230	$	502,827	$	333,493		$	—		$	836,320
Segment net income (loss)	$	(20,012	)	$	25,838	$	(473	)	$	5,353	$	83,599	$	(10,204	)	$	(853	)	$	72,542

Three Months Ended September 30, 2018
Three Months Ended March 31, 2019
Revenues from external customers	$	217,523		$	414,175	$	—		$	631,698	$	520,677	$	274,189		$	—		$	794,866
Intersegment revenues	—			36,448		—			36,448		—		38,673			—			38,673
Total	$	217,523		$	450,623	$	—		$	668,146	$	520,677	$	312,862		$	—		$	833,539
Segment net income (loss)	$	(13,670	)	$	26,798	$	(797	)	$	12,331	$	103,389	$	(8,031	)	$	(549	)	$	94,809

	Natural Gas Operations			Utility Infrastructure Services		Other			Total
Nine Months Ended September 30, 2019
Revenues from external customers	$	989,368		$	1,160,303	$	—		$	2,149,671
Intersegment revenues	—			122,109		—			122,109
Total	$	989,368		$	1,282,412	$	—		$	2,271,780
Segment net income (loss)	$	86,746		$	36,725	$	(1,253	)	$	122,218

Nine Months Ended September 30, 2018
Revenues from external customers	$	987,515		$	1,009,166	$	—		$	1,996,681
Intersegment revenues	—			96,678		—			96,678
Total	$	987,515		$	1,105,844	$	—		$	2,093,359
Segment net income (loss)	$	79,301		$	35,034	$	(1,362	)	$	112,973

	Natural Gas Operations			Utility Infrastructure Services		Other			Total
Twelve Months Ended September 30, 2019
Revenues from external customers	$	1,359,581		$	1,537,508	$	—		$	2,897,089
Intersegment revenues	—			161,345		—			161,345
Total	$	1,359,581		$	1,698,853	$	—		$	3,058,434
Segment net income (loss)	$	146,287		$	46,668	$	(1,433	)	$	191,522

Twelve Months Ended September 30, 2018
Revenues from external customers	$	1,354,000		$	1,358,418	$	—		$	2,712,418
Intersegment revenues	—			121,374		—			121,374
Total	$	1,354,000		$	1,479,792	$	—		$	2,833,792
Segment net income (loss)	$	153,683		$	57,677	$	(1,922	)	$	209,438



(Thousands of dollars)	Natural Gas Operations		Utility Infrastructure Services		Other			Total
Twelve Months Ended March 31, 2020
Revenues from external customers	$	1,351,089	$	1,618,354	$	—		$	2,969,443
Intersegment revenues	—		153,255		—			153,255
Total	$	1,351,089	$	1,771,609	$	—		$	3,122,698
Segment net income (loss)	$	143,381	$	50,231	$	(1,943	)	$	191,669

Twelve Months Ended March 31, 2019
Revenues from external customers	$	1,384,092	$	1,427,701	$	—		$	2,811,793
Intersegment revenues	—		147,429		—			147,429
Total	$	1,384,092	$	1,575,130	$	—		$	2,959,222
Segment net income (loss)	$	151,882	$	47,947	$	(1,834	)	$	197,995



	3227



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

~~Note 11 – Redeemable Noncontrolling Interest~~

In connection with the acquisition of 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 passage of time or upon the occurrence of certain triggering events. Effective January 2022, the Company has the right, but not the obligation, to purchase at fair value (subject to a floor) a portion of the interest held by the noncontrolling party, and in incremental amounts each year thereafter. The shares subject to the election accumulate (if earlier elections are not made) such that 100% of the interest retained by the noncontrolling party is subject to the election beginning in 2024. If the Company does not exercise its rights at each or any of the specified intervals, the noncontrolling party has the ability, but not the obligation, to exit their investment retained by requiring the Company to purchase a similar portion of their interest up to the maximum cumulative amounts specified at each interval discussed above. The Company has determined that this noncontrolling interest is a redeemable noncontrolling interest and, in accordance with SEC guidance, is classified as mezzanine equity (temporary equity) in the Company’s Condensed Consolidated Balance Sheets.

Significant changes in the value of the redeemable noncontrolling interest, above a floor established at the acquisition date, are recognized as they occur, and the carrying value is 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 operating characteristics. However, the carrying value of the redeemable noncontrolling interest was greater than its fair value as of September 30, 2019, 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 these circumstances. The following depicts the change to the balance of the redeemable noncontrolling interest:

(Thousands of dollars): Redeemable Noncontrolling Interest
Balance, December 31, 2018 $ 81,831
Net income attributable to redeemable noncontrolling interest 2,523
Balance, September 30, 2019 $ 84,354

~~Note 12 – Business Acquisitions~~

In November 2018, the Company, through its subsidiaries, led principally by Centuri, completed the acquisition of an 80% interest in a privately held infrastructure services business, Linetec, with the remaining 20% retained by the seller. See the Company’s 2018 Form 10-K for additional information about this acquisition.

Assets acquired and liabilities assumed in the transaction were recorded, generally, at their estimated acquisition date fair values. During the measurement period, which may be up to one year from the acquisition date, the Company may continue to record adjustments to the fair value of tangible and intangible assets acquired and liabilities assumed. The Company continues to collect information and reevaluates these estimates and assumptions quarterly. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments may be recognized in the Company’s Consolidated Statement of Income.

The Company’s allocation of the purchase price was based on an evaluation of the appropriate fair values and represented management’s best estimate based on available data (including market data, data regarding customers of the acquired business, terms of acquisition-related agreements, analysis of historical and projected results, and other types of data). The analysis included consideration of types of intangibles that were acquired, including customer relationships, trade names, and customer contracts. Certain payments were estimated as of the acquisition date and are adjusted when paid or as estimates change based on available data; the final purchase accounting has not yet been completed. Further adjustments may occur, including potential changes to final purchase consideration payments held back, such as the remaining amounts associated with unbilled customer accounts receivable balances recorded at their estimated realizable values as of the acquisition date. Subsequent to the acquisition date and through September 30, 2019, Centuri recorded a net reduction to the overall purchase price of $25.2 million related to the combined effects of a mutual tax election under Internal Revenue Code Section 338(h)(10), working capital adjustments, amounts associated with certain unbilled customer receivable balances, and other refinements to the valuation, which impacted the remaining unremitted consideration. Approximately $19.5 million of previously unremitted consideration was paid during the nine months ending September 30, 2019. As of that date, remaining unpaid consideration was $26.2 million.



	33



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

~~The preliminary estimated fair values of assets acquired and liabilities assumed as of November 30, 2018, are as follows (millions of dollars):~~

Acquisition Date Measurement Period Adjustments Revised Acquisition Date
Cash and cash equivalents $ 3.9
$ —
$ 3.9
Accounts receivable 32.8
(0.5 ) 32.3
Revenue earned on contracts in progress in excess of billings 21.6
(0.2 ) 21.4
Prepaid expenses and other current assets 1.1
0.1
1.2
Property and equipment 89.4
(0.8 ) 88.6
Intangible assets 89.3
—
89.3
Goodwill 188.5
(22.2 ) 166.3
Total assets acquired 426.6
(23.6 ) 403.0

Accounts payable 8.0
—
8.0
Accrued liabilities 6.9
1.6
8.5
Deferred compensation and related accrued taxes 3.4
—
3.4
Redeemable noncontrolling interest 81.7
—
81.7
Total liabilities assumed and noncontrolling interest 100.0
1.6
101.6
Net assets acquired $ 326.6
$ (25.2 ) $ 301.4

The Company incurred and expensed acquisition costs of $6.9 million which are included in Utility infrastructure services expenses on the Company’s Consolidated Statement of Income for the year ended December 31, 2018. NaN acquisition-related costs were incurred during the three and nine months ended September 30, 2019, and no significant impacts to earnings resulted from the measurement-period adjustments reflected above.

The preliminary allocation of the purchase price of Linetec was accounted for in accordance with applicable accounting guidance. Goodwill consists of the value associated with the assembled workforce, consolidation of operations, and the estimated economic value attributable to future opportunities related to the transaction. As the business of Linetec was deemed an asset purchase for tax purposes, the tax-basis goodwill is expected to be deductible for tax purposes. During 2019, values at the acquisition date were adjusted, as reflected in the table above, on the Company’s Condensed Consolidated Balance Sheets.

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 all of the shares of common stock of Centuri Group, Inc. (“Centuri,” or the “utility infrastructure services” segment). Southwest Gas Holdings, Inc. and its subsidiaries are collectively referred to as the “Company.” At the annual meeting of shareholders of Southwest Gas Holdings, Inc., held on May 2, 2019, shareholders voted to approve changing the state of incorporation of Southwest Gas Holdings, Inc. from California to Delaware. The reincorporation was effective as of September 20, 2019.

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 30, 2019,~~March 31, 2020, Southwest had ~~2,066,000~~2,091,000 residential, commercial, industrial, and other natural gas customers, of which ~~1,101,000~~1,115,000 customers were located in Arizona, ~~768,000~~777,000 in Nevada, and ~~197,000~~199,000 in California. Residential and small commercial customers represented over 99% of the total customer base. During the twelve months ended ~~September 30, 2019,~~March 31, 2020, 53% of operating margin (gas operating revenues less the net cost of gas sold) was earned in Arizona, 36% in Nevada, and 11% in California. During this same period, Southwest earned ~~84%~~85% of its operating margin from residential and small commercial customers, 3% from other



	34



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

sales customers, and ~~13%~~12% 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 below, could impact these 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 a non-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 a dollar-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, for which hearings have been deferred amidst the current pandemic environment, discussed below. Refer to the Summary Operating Results table for a reconciliation of revenues to operating ~~margin.~~margin, and refer to Arizona Jurisdiction under 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.

Centuri is a comprehensive utility infrastructure services enterprise dedicated to delivering a diverse array of solutions to North America’s gas and electric providers. Centuri derives revenue from installation, replacement, repair, and maintenance of energy distribution systems, and developing industrial construction solutions. Centuri operates in 5054 primary locations across 40 states and provinces in the United States (“U.S.”) and Canada. In November 2017, Centuri expanded its operations in the northeast region of the U.S. through the acquisition of New England Utility Constructors, Inc. (“Neuco”), and again in November 2018, in the southeast region of the U.S. through the acquisition of an 80% interest in Linetec Services, LLC (“Linetec”). Both companies were privately owned utility infrastructure services businesses prior to their acquisition. Centuri operates in the U.S. primarily as NPL, Neuco, and Linetec, and in Canada primarily as NPL Canada.

Utility infrastructure services activity can be impacted by changes in infrastructure replacement programs of utilities, weather, and local and federal regulation (including tax rates and incentives). During the past few years, utilities have implemented or modified system integrity management programs to enhance safety pursuant to federal and state mandates. These programs have resulted in a significant increase in multi-year 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. 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.



	28



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

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 has resulted in government officials implementing increasingly 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. In addition, governments and central banks in several parts of the world have 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. Consistent with federal and state guidelines, Southwest continues to operate across its territories. Similarly, the majority of Centuri’s largest clients have issued essential service letters to Centuri companies in keeping with the federal definition of “essential” set out by the Department of Homeland Security. This has allowed Centuri to continue nearly all operations, and demand has not significantly diminished. While the ability of employees to work has been and may continue to be impacted by individuals contracting or being exposed to COVID-19, it has 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 have implemented business continuity plans, including the deployment of technology to conduct administrative and critical functions remotely, where possible, and employees and management teams are 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. 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. 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 have 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, have resulted in temporary reductions of workforce crews. Some crew reductions are ongoing and the associated revenue impacts are expected to be more pronounced in the second quarter of 2020. Management is monitoring the dynamic nature of these circumstances, the full 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 first quarter fiscal 2020 results, and certain of Southwest’s regulatory commissions have implemented measures to mitigate impacts of these conditions on Southwest, and we are in discussion with others to explore options for relief. 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 of this Quarterly Report on Form 10-Q. Management does not anticipate the impacts, if any, related to the CARES Act to have a material effect on the Company’s or Southwest’s results of operations, financial position, or liquidity.

The extent to which COVID-19 may adversely impact the Company’s business depends on future developments, which are highly uncertain and unpredictable, 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 possible other unmitigated effects related to the virus. While management does not currently expect the impact of these conditions to be material to its liquidity and financial position, 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. In anticipation of a redeployment of employees to their normal work locations, management has created a multi-phase reintegration plan to safeguard the wellbeing of our teams, including hygiene, sanitization, and social distancing practices, as well as the use of personal protective equipment for employees and visitors. Events and changes in circumstances arising after March 31, 2020, including those resulting from the impacts of COVID-19, will be reflected in management’s estimates for future periods. For further discussion of this matter, refer to “Item 1A. Risk Factors” in Part II of this report.

This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with the unaudited 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 2018 Annual Report to Shareholders, which is incorporated by reference into the 2018 Form 10-K.~~



	3529



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

10-Q and the audited financial statements and the notes thereto, as well as MD&A, included in the 2019 Annual Report to Shareholders, which is incorporated by reference into the 2019 Form 10-K.

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 MD&A. As reflected in the table below, the natural gas operations segment accounted for an average of ~~75%~~76% of twelve-month-to-date consolidated net income over the past two years. As such, 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,																		Period Ended March 31,
	Three Months						Nine Months						Twelve Months						Three Months						Twelve Months
	2019			2018			2019			2018			2019			2018
	(In thousands, except per share amounts)
(In thousands, except per share amounts)																			2020			2019			2020			2019
Contribution to net income
Natural gas operations	$	(20,012	)	$	(13,670	)	$	86,746		$	79,301		$	146,287		$	153,683		$	83,599		$	103,389		$	143,381		$	151,882
Utility infrastructure services	25,838			26,798			36,725			35,034			46,668			57,677			(10,204		)	(8,031		)	50,231			47,947
Corporate and administrative	(473		)	(797		)	(1,253		)	(1,362		)	(1,433		)	(1,922		)	(853		)	(549		)	(1,943		)	(1,834		)
Net income	$	5,353		$	12,331		$	122,218		$	112,973		$	191,522		$	209,438		$	72,542		$	94,809		$	191,669		$	197,995

Average number of common shares	54,670			49,493			53,996			48,916			53,219			48,728
Weighted average common shares																			55,310			53,369			54,726			50,640
Basic earnings per share
Consolidated	$	0.10		$	0.25		$	2.26		$	2.31		$	3.60		$	4.30		$	1.31		$	1.78		$	3.50		$	3.91
Natural Gas Operations
Reconciliation of Revenue to Operating Margin (Non-GAAP measure)
Gas operating revenues	$	209,980		$	217,523		$	989,368		$	987,515		$	1,359,581		$	1,354,000		$	502,827		$	520,677		$	1,351,089		$	1,384,092
Less: Net cost of gas sold	35,068			49,903			292,854			319,101			393,141			412,307			160,821			192,604			353,381			426,260
Operating margin	$	174,912		$	167,620		$	696,514		$	668,414		$	966,440		$	941,693		$	342,006		$	328,073		$	997,708		$	957,832

~~3rd~~1st Quarter ~~2019~~2020 Overview

Natural gas operations ~~highlights:~~highlights include the following:

~~34,000~~33,000 net new customers ~~(1.7%~~(1.6% growth rate) during the last 12 months


•	Operating margin increased $14 million

Company-Owned Life Insurance (“COLI”) income decreased $23 million between quarters

Filed ~~California~~general rate case ~~(requesting a revenue increase of $12.8 million)~~

~~In October, S&P upgraded Southwest’s issuer debt rating from BBB+ (with a negative outlook) to A- (outlook unchanged)~~in Nevada

Utility infrastructure services ~~highlights:~~highlights include the following:


•	Utility infrastructure services revenues increased $21 million, or 6.6%


•	Utility infrastructure services expenses increased $19 million, or 6.3%

~~Utility infrastructure services revenues increased $65~~Equipment purchases during the past 12 months resulted in a $3 million ~~($70.3 million from Linetec)~~

~~Utility infrastructure services expenses increased $56 million ($55.8 million from Linetec)~~increase in depreciation

~~Southwest Gas Holdings highlights:~~

~~Completed reincorporation from California into Delaware~~

~~Increased the number of authorized shares of common stock available for issuance from 60,000,000 to 120,000,000~~



	3630



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

Results of Natural Gas Operations

Quarterly Analysis


	Three Months Ended						Three Months Ended March 31,
	September 30,
	2019			2018
	(Thousands of dollars)
(Thousands of dollars)							2020			2019
Gas operating revenues	$	209,980		$	217,523		$	502,827		$	520,677
Net cost of gas sold	35,068			49,903			160,821			192,604
Operating margin	174,912			167,620			342,006			328,073
Operations and maintenance expense	109,039			104,657			103,088			105,542
Depreciation and amortization	52,372			47,924			64,725			57,612
Taxes other than income taxes	15,308			15,036			16,378			16,206
Operating income (loss)	(1,807		)	3
Operating income							157,815			148,713
Other income (deductions)	(1,353		)	836			(20,536		)	5,946
Net interest deductions	23,619			20,399			25,058			23,099
Loss before income taxes	(26,779		)	(19,560		)
Income tax benefit	(6,767		)	(5,890		)
Contribution to consolidated net income (loss)	$	(20,012	)	$	(13,670	)
Income before income taxes							112,221			131,560
Income tax expense							28,622			28,171
Contribution to consolidated net income							$	83,599		$	103,389

Contribution from natural gas operations to consolidated net income decreased ~~$6.3~~$19.8 million between the ~~third~~first quarters of ~~2019~~2020 and ~~2018.~~2019. The decline was primarily due to decreases in Other income and increases in ~~Operations and maintenance expense,~~ Depreciation and amortization and Net interest deductions, ~~as well as reductions in Other income,~~ partially offset by an increase in rate relief and customer ~~growth.~~growth and lower Operations and maintenance expense.

Operating margin increased $7$14 million. Approximately $2$5 million of incremental margin was attributable to customer growth, as ~~34,000~~33,000 net new customers were added during the last twelve months. Rate relief, primarily in California, ~~and Nevada,~~ contributed $2$1 million in incremental operating margin in the current ~~period. Miscellaneous service revenue and revenue outside~~quarter. The prior-year quarter included an approximate $5 million reduction in margin resulting from a one-time adjustment by the Arizona Corporation Commission (the “ACC”) to reflect the impacts of U.S. tax reform on the Arizona decoupling ~~mechanisms also increased between periods. Regulatory surcharge recoveries for California cap and trade and public purpose programs and Nevada infrastructure replacement programs~~mechanism. The remaining increase primarily resulted from the net recovery of regulatory program balances (collectively, having an offsetting impact in amortization expense), ~~compose~~in addition to margin from customers outside the ~~residual increase.~~decoupling mechanisms and other miscellaneous revenues.

Operations and maintenance expense ~~increased $4.4~~decreased $2.5 million ~~or 4%,~~ between quarters. ~~Higher general cost increases~~Lower pipeline integrity management costs and legal ~~costs of $2.5 million~~claims experience contributed to the ~~increase~~decline between periods.

Depreciation and amortization expense increased ~~$4.4~~$7.1 million, or 9%12%, between quarters, primarily due to a ~~$602~~$684 million, or 9%10%, increase in average gas plant in service compared to the corresponding quarter a year ago, and to an increase in regulatory account amortization, as discussed above. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure.

Other income decreased ~~$2.2~~$26.5 million between quarters primarily due to a decline in income from company-owned life insurance (“COLI”) policies. The current quarter reflects a ~~$200,000 increase~~$15.5 million decline in COLI policy cash surrender values, while the prior-year quarter reflected ~~$4.7~~a $7.6 million ~~of COLI-related income. Partially offsetting these impacts~~increase in COLI policy cash surrender values. These values are significantly impacted by fluctuations in equity securities associated with the cash surrender values, and values in both periods were impacted directionally consistent with the broader securities markets. Additionally, the non-service-related components of employee pension and other postretirement benefit costs ~~which decreased $1.5~~were $1.2 million higher between quarters.

Net interest deductions increased ~~$3.2~~$2 million in the ~~third~~first quarter of ~~2019,~~2020, as compared to the prior-year quarter, primarily due to the issuance of $300 million of Senior Notes in May 2019.



	3731



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~

~~Results of Natural Gas Operations~~

~~Nine-Month Analysis~~

Nine Months Ended
September 30,
2019 2018
(Thousands of dollars)
Gas operating revenues $ 989,368
$ 987,515
Net cost of gas sold 292,854
319,101
Operating margin 696,514
668,414
Operations and maintenance expense 319,572
312,055
Depreciation and amortization 159,327
145,549
Taxes other than income taxes 46,640
44,959
Operating income 170,975
165,851
Other income (deductions) 6,185
(5,861 )
Net interest deductions 70,063
59,803
Income before income taxes 107,097
100,187
Income tax expense 20,351
20,886
Contribution to consolidated net income $ 86,746
$ 79,301

Contribution from natural gas operations to consolidated net income increased $7.4 million between the first nine months of 2019 and 2018. The increase was primarily due to rate relief, customer growth, and higher Other income, partially offset by increases in Operations and maintenance expense, Depreciation and amortization, and Net interest deductions.

Operating margin increased $28 million, including an $8 million increase attributable to customer growth. Rate relief, primarily in California and Nevada, contributed an additional $8 million in operating margin. Regulatory surcharge recoveries, including for those programs in California and Nevada noted earlier, were $5.5 million higher overall in the current period, after giving effect for climate credits returned to California customers from the cap and trade program. Other changes in operating margin included miscellaneous revenues and margin from customers outside the decoupling mechanisms and reductions for the regulatory impacts of U.S. tax reform in the current period.

Operations and maintenance expense increased $7.5 million, or 2%, between periods. Higher pipeline integrity management and damage prevention programs, as well as other general cost increases, contributed to the increase. Lower service-related pension and other postretirement benefit costs mitigated the increases from the other items.

Depreciation and amortization expense increased $13.8 million, or 9%, between periods primarily due to a $568 million, or 8%, increase in average gas plant in service for the period as compared to the corresponding period a year ago. The increase in gas plant was attributable to pipeline capacity reinforcement work, franchise requirements, scheduled and accelerated pipe replacement activities, and new infrastructure. Regulatory account surcharges, as noted above, also resulted in increases in amortization expense in the current period.

Other income (deductions) improved $12 million overall between periods. The current period included income from COLI policy cash surrender value changes and net death benefits of $11.2 million, while the prior-year period reflected $6 million of COLI-related income. The non-service cost components of employee pension and other postretirement benefit costs were $4.5 million lower between periods. Additionally, an improvement in income of $2.1 million resulted from an increase in the equity component of the allowance for funds used during construction (“AFUDC”), due to both a higher rate and level of capital expenditures in the current period.

Net interest deductions increased $10.3 million between periods, primarily due to the issuance of $300 million of Senior Notes in March 2018 and $300 million in May 2019, in addition to higher interest rates and borrowings outstanding under the revolving credit and term-loan facility throughout much of the current period.



	38



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~March 31, 2020

Results of Natural Gas Operations

Twelve-Month Analysis


	Twelve Months Ended						Twelve Months Ended March 31,
	September 30,
	2019			2018
	(Thousands of dollars)
(Thousands of dollars)							2020			2019
Gas operating revenues	$	1,359,581		$	1,354,000		$	1,351,089		$	1,384,092
Net cost of gas sold	393,141			412,307			353,381			426,260
Operating margin	966,440			941,693			997,708			957,832
Operations and maintenance expense	412,330			404,549			419,720			408,165
Depreciation and amortization	205,594			193,828			222,733			199,467
Taxes other than income taxes	61,579			59,580			62,500			60,847
Operating income	286,937			283,736			292,755			289,353
Other income (deductions)	(5,194		)	(6,425		)	(16,965		)	(6,691		)
Net interest deductions	92,000			77,914			96,985			85,584
Income before income taxes	189,743			199,397			178,805			197,078
Income tax expense	43,456			45,714			35,424			45,196
Contribution to consolidated net income	$	146,287		$	153,683		$	143,381		$	151,882

Contribution to consolidated net income from natural gas operations decreased by ~~$7.4~~$8.5 million between the twelve-month periods ended ~~September 2019~~March 2020 and ~~September 2018.~~2019. The ~~decrease~~decline was primarily due to higher Operations and maintenance expense, Depreciation and amortization expense, and Net interest deductions, and lower Other income, partially offset by ~~increases~~an increase in operating margin and ~~Other income.~~lower Income tax expense.

Operating margin increased ~~$25~~$40 million between periods. Customer growth provided ~~$11~~$12 million, and combined rate relief, primarily in Nevada and California, provided $9 million of incremental operating margin. The prior-year period included an approximate $5 million reduction in margin resulting from the one-time adjustment by the ACC to reflect the impacts of U.S. tax reform on the Arizona decoupling mechanism. The remaining net increase resulted from recoveries of regulatory assets ~~net of the return of California climate credits from the cap and trade program,~~(see corresponding $9.2 million increase in amortization below), infrastructure replacement mechanisms, customers outside the decoupling mechanisms, and other miscellaneous ~~revenues, net of the regulatory impacts of U.S. tax reform.~~revenues.

Operations and maintenance expense increased ~~$7.8~~$11.6 million, or 2%3%, between periods primarily due to ~~higher~~ general ~~costs and~~cost increases, expenditures for pipeline damage prevention programs, ~~offset by a reduction in~~and higher legal claims experience. Incremental information technology costs also contributed to the ~~service-related component of pension and other postretirement benefit costs.~~increase.

Depreciation and amortization expense increased ~~$11.8~~$23.3 million, or 6%12%, between periods primarily due to a ~~$550~~$625 million, or 8%9%, increase in average gas plant in service for the current period as compared to the prior period. ~~The expense increase reflects an offsetting reduction in~~Amortization related to regulatory ~~amortization~~account recoveries increased $9.2 million between ~~periods, including the impacts of climate credits returned to California customers under the cap and trade program.~~periods.

Taxes other than income taxes increased $2$1.7 million, or 3%, between periods primarily due to higher property ~~taxes associated with net plant additions,~~balances (and rates, in the case of California and Nevada) and higher Nevada ~~commerce taxes, and California franchise taxes.~~Commerce Tax.

Other income ~~(deductions) improved $1.2~~decreased $10.3 million between the twelve-month periods ~~ended September~~of 2020 and 2019 ~~and September 2018. Equity AFUDC contributed $4.5 million as~~primarily due to a ~~result of increased construction expenditures and higher underlying rates. Additionally, the non-service components of employee pension and other postretirement benefits costs improved~~decline in ~~the~~COLI policy values. The current period ~~by $4 million. Offsetting these increases was~~reflects a $5.7 million decline ~~of $7.5 million between periods due to the combined effects of changes~~ in COLI policy cash surrender values, ~~of COLI policies and net death benefits.~~while the prior year period reflected a $5.1 million increase.

Net interest deductions increased ~~$14.1~~$11.4 million between periods primarily due to higher interest associated with the issuance of $300 million of Senior Notes in ~~March 2018~~May 2019.

The reduction in income taxes between periods was partially due to lower state income taxes (due to apportionment changes) and ~~$300~~$2.6 million in ~~May 2019, higher interest rates and average outstanding balances under Southwest’s credit facility, and carrying costs on PGA balances in the current period.~~amortization of excess deferred income taxes following U.S. tax reform.



	3932



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

Results of Utility Infrastructure Services

Quarterly Analysis

Three Months Ended
September 30,
2019 2018
(Thousands of dollars)
Utility infrastructure services revenues $ 515,250
$ 450,623
Operating expenses:

Utility infrastructure services expenses 451,574
395,862
Depreciation and amortization 22,998
14,232
Operating income 40,678
40,529
Other income (deductions) 171
38
Net interest deductions 3,788
3,945
Income before income taxes 37,061
36,622
Income tax expense 10,051
9,824
Net income 27,010
26,798
Net income attributable to noncontrolling interest 1,172
—
Contribution to consolidated net income attributable to Centuri $ 25,838
$ 26,798

In November 2018, Centuri acquired Linetec. The table above, therefore, includes results for Linetec in the 2019 period only, including $70.3 million of revenue and approximately $3.7 million of net income attributable to Linetec during the three months ended September 30, 2019.



	Three Months Ended March 31,
(Thousands of dollars)	2020			2019
Utility infrastructure services revenues	$	333,493		$	312,862
Operating expenses:
Utility infrastructure services expenses	319,314			300,465
Depreciation and amortization	22,928			19,927
Operating loss	(8,749		)	(7,530		)
Other income (deductions)	(242		)	875
Net interest deductions	2,899			3,269
Loss before income taxes	(11,890		)	(9,924		)
Income tax benefit	(2,149		)	(2,468		)
Net loss	(9,741		)	(7,456		)
Net income attributable to noncontrolling interest	463			575
Contribution to consolidated net income (loss) attributable to Centuri	$	(10,204	)	$	(8,031	)

Utility infrastructure services revenues increased ~~$64.6~~$20.6 million in the ~~third~~first quarter of ~~2019~~2020 when compared to the prior-year quarter, ~~primarily~~ due to ~~the incremental revenues contributed by Linetec. These increases were offset by the July 2019 expiration~~a higher volume of ~~a multi-year water~~electric infrastructure and pipe replacement ~~project which was not renewed. The prior-year quarter also included revenue from~~work under blanket and bid contracts. Centuri achieved this increase in revenues despite a shut-down of certain ~~non-routine customer-requested support~~crews in response to local government requirements to postpone some business services and precautions to ensure employee safety during ~~a strike-related event.~~the COVID-19 outbreak.

Utility infrastructure services expenses increased ~~$55.7~~$18.8 million in the ~~third~~first quarter of ~~2019~~2020 when compared to the prior-year quarter, due primarily to ~~$55.8 million of Linetec expenses. Implementation~~costs to complete additional electric infrastructure and pipe replacement work. Expenses were also affected by increased costs and workforce inefficiencies associated with the implementation of new ~~regulatory requirements for operating locations within certain eastern states~~safety standards in response to the ~~U.S. resulted in lower revenues and productivity inefficiencies totaling an estimated $4 million~~COVID-19 pandemic. Results during the ~~current~~first quarter ~~as Centuri works with customers to adopt the new requirements. Efforts to complete an industrial construction project~~of 2019 reflect incremental profit from customer requested strike support that did not recur in ~~Canada resulted~~2020. Included in ~~additional~~total Utility infrastructure services expenses were general and administrative costs, ~~of approximately $2~~which increased $1.6 million ~~during the current quarter as a result of delays~~ in commissioning the project. Additionally, changes in the mix of work requested in 2019 by certain customers under unit-priced multi-year master services contracts resulted in higher labor and equipment costs2020 compared to 2019, associated primarily with growth of the ~~work anticipated.~~business.

Depreciation and amortization expense increased ~~$8.8~~$3 million between quarters. Approximately $7.5 million of the increase was attributable to the Linetec acquisition, including amortization of finite-lived intangible assets ($1.2 million) and depreciation of property and equipment ($6.3 million) during the third quarter of 2019. The remaining increase wasquarters attributable to additional equipment purchased to support the growing volume of work being ~~performed.~~performed, primarily at Linetec. Depreciation expense was higher, relative to the revenues recorded, during the first quarter of 2020 compared to the prior-year quarter as a result of some equipment being idle while certain crews were shut-down during the COVID-19 outbreak.

Other income (deductions) decreased $1.1 million in the first quarter of 2020 when compared to the prior-year quarter, due to a realized gain on foreign exchange recognized in 2019 and lower equity earnings from W.S. Nicholls Western, an equity method investee.



	4033



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

Results of Utility Infrastructure Services

~~Nine-Month~~Twelve-Month Analysis

Nine Months Ended
September 30,
2019 2018
(Thousands of dollars)
Utility infrastructure services revenues $ 1,282,412
$ 1,105,844
Operating expenses:
Utility infrastructure services expenses 1,154,238
1,007,485
Depreciation and amortization 63,924
40,392
Operating income 64,250
57,967
Other income (deductions) 569
(331 )
Net interest deductions 10,514
10,448
Income before income taxes 54,305
47,188
Income tax expense 15,057
12,951
Net income 39,248
34,237
Net income (loss) attributable to noncontrolling interest 2,523
(797 )
Contribution to consolidated net income attributable to Centuri $ 36,725
$ 35,034

As noted earlier, in November 2018, Centuri acquired Linetec. The table above, therefore, includes results for Linetec in the 2019 period only, including $174.6 million of revenue and approximately $8.5 million of net income attributable to Linetec during the first nine months of 2019.



	Twelve Months Ended March 31,
(Thousands of dollars)	2020			2019
Utility infrastructure services revenues	$	1,771,609		$	1,575,130
Operating expenses:
Utility infrastructure services expenses	1,592,076			1,429,202
Depreciation and amortization	90,618			64,806
Operating income	88,915			81,122
Other income (deductions)	(651		)	374
Net interest deductions	13,716			14,263
Income before income taxes	74,548			67,233
Income tax expense	21,718			18,539
Net income	52,830			48,694
Net income attributable to noncontrolling interest	2,599			747
Contribution to consolidated net income attributable to Centuri	$	50,231		$	47,947

Utility infrastructure services revenues increased ~~$176.6~~$196.5 million ~~during~~overall in the ~~first nine months of 2019 when~~current twelve-month period compared to the ~~same~~corresponding period ~~in the prior year,~~of 2019, primarily due to ~~the~~ incremental revenues ~~contributed by Linetec. These~~from Linetec (acquired in November 2018) of $192.2 million as well as continued growth with existing customers under master service and bid agreements. Partially offsetting these increases were ~~offset by the July~~decreased revenues from certain non-routine projects, including customer-requested support in 2018 and early 2019 ~~expiration of~~during strike-related and emergency response situations, in addition to a multi-year water pipe replacement project ~~which~~that expired in July 2019 and was not renewed. ~~During the first nine months of 2018, Centuri recorded revenue of $9 million on a negotiated settlement of an outstanding dispute under this contract.~~ The prior-year period also included ~~revenue from~~the settlement of an earlier contract dispute related to that project ($9 million). Implementation of new regulatory requirements for operating locations within certain ~~non-routine customer-requested support~~eastern states in the U.S. resulted in lower revenues during ~~a strike-related event.~~the current period as Centuri worked with customers to adopt the new requirements.

Utility infrastructure services expenses increased ~~$146.8~~$162.9 million ~~during the first nine months~~between periods, primarily due to incremental expenses related to Linetec of ~~2019 when compared~~$157.6 million along with additional electric infrastructure and pipe replacement work and higher labor-related operating expenses to ~~the same period~~support growth in ~~the prior year, due primarily to $139.7 million of Linetec expenses.~~operations. Additionally, ~~inclement weather conditions impacted costs, as well as the mix of work requested in 2019 by certain customers under unit-priced multi-year master services contracts, as previously discussed. Efforts~~efforts to complete an industrial construction project in Canada resulted in additional ~~costs~~losses of approximately $4 million during the current ~~period.~~twelve-month period as a result of delays in commissioning the project. Included in total Utility infrastructure services expenses were general and administrative costs, which decreased $4.4 million in the twelve-month period ended March 2020 when compared to the corresponding period ended March 2019, due primarily to the impact of deal costs from the acquisition of Linetec during 2018 ($6.9 million). The 2020 period included higher operating costs overall, associated with the growth of the business. Net gains on sale of equipment (reflected as an offset to Utility infrastructure services expenses) were ~~$3.2~~$5.3 million and $1$1.7 million for the ~~nine-month~~twelve-month periods of ~~2019~~2020 and ~~2018,~~2019, respectively.

Depreciation and amortization expense increased ~~$23.5~~$25.8 million between ~~periods. Approximately $19.3 million of~~ the current and prior-year period. The increase ~~is due~~was primarily attributable to the incremental costs related to Linetec ~~acquisition, including amortization~~ of ~~finite-lived intangible assets ($3 million) and~~$17.7 million as well as depreciation ofon additional property and ~~equipment ($16 million) in the current period. The remaining increase in depreciation was attributable to additional~~ equipment purchased to support the growing volume of work being performed.

Net interest deductions decreased $547,000 between periods due primarily to lower rates associated with outstanding borrowings under the $590 million secured revolving credit and term loan facility.



	4134



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~

~~Results of Utility Infrastructure Services~~

~~Twelve-Month Analysis~~

Twelve Months Ended
September 30,
2019 2018
(Thousands of dollars)
Utility infrastructure services revenues $ 1,698,853
$ 1,479,792
Operating expenses:

Utility infrastructure services expenses 1,534,442
1,349,862
Depreciation and amortization 80,928
53,975
Operating income 83,483
75,955
Other income (deductions) 662
(24 )
Net interest deductions 14,256
13,339
Income before income taxes 69,889
62,592
Income tax expense 20,526
5,781
Net income 49,363
56,811
Net income (loss) attributable to noncontrolling interest 2,695
(866 )
Contribution to consolidated net income attributable to Centuri $ 46,668
$ 57,677

Results for Linetec have been included in the table above during the period following the November 2018 acquisition date, including $188.7 million of revenue and approximately $9.2 million of net income reflected in the twelve-month period ended September 2019.

Utility infrastructure services revenues increased $219.1 million overall in the twelve-month period ended September 2019 compared to the twelve-month period ended September 2018, primarily due to incremental revenue noted above for Linetec. The remaining revenue increase is due to a higher volume of pipe replacement work under new and existing blanket and bid contracts, primarily in the central U.S., and certain non-routine projects (including customer-requested support during strike-related and emergency response situations). Revenue for the twelve-month period in 2018 included a $9 million negotiated settlement of an outstanding contract dispute from 2017 associated with a water pipe replacement project.

Utility infrastructure services expenses increased $184.6 million between periods, primarily due to related expenses for Linetec of $149.8 million and additional labor and equipment costs incurred to complete work during inclement weather conditions in the current period. The industrial construction project in Canada also resulted in additional costs during the current period. The mix of work requested to be completed in the current period, as discussed earlier, also contributed to the increase in costs overall. Included in total Utility infrastructure services expenses are general and administrative costs, which increased $12.3 million in the current period, including $6.9 million of deal costs from the acquisition of Linetec. Net gains on sale of equipment (reflected as an offset to Utility infrastructure services expenses) were $3.9 million and $3.7 million for the twelve-month periods of 2019 and 2018, respectively.

Depreciation and amortization expense increased $27 million between the current and prior-year periods. Approximately $22 million of this increase was attributable to Linetec amortization of finite-lived asset amortization ($4.1 million) and property and equipment depreciation ($17.8 million). The remaining increase in depreciation was attributable to additional equipment purchased to support the growing volume of work being performed.

Net interest deductions increased $917,000 between periods due primarily to interest expense associated with incremental borrowings, and amortization of debt issue costs, related to the $590 million secured revolving credit and term loan facility (largely resulting from the Linetec acquisition). Lower rates on variable-rate debt mitigated the increases.

Income tax expense during the twelve-month period ended September 30, 2018 was favorably impacted by approximately $12 million of one-time tax benefits related to the remeasurement of Centuri’s deferred tax liabilities when U.S. tax reform was enacted in December 2017.



	42



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~March 31, 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 ~~cash flows of~~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 the volatility in prices to ~~them~~customers and ~~that endeavor to stabilize~~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, which include 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 deferred income taxes. ~~Since then,~~Following the ~~Company finalized~~original filing, in October 2019, Southwest filed an amendment to its application, updating for $5.7 million in actual amortization of excess deferred income taxes known after the Company’s 2018 federal income tax return was filed in 2019, at which ~~allowed it to calculate~~point, the actual ~~amortization~~ amount ~~of $5.7 million~~could be computed based on the prescribed methodology for ~~calculating~~computing the ~~excess~~ amount tothat could be returned to customers. The difference ~~in estimated deferred taxes~~ of ~~$20.6 million and the actual amortization of $5.7~~$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 ~~earnings. The revenue~~$93 million. Through the exchange of discovery and following the exchange of testimony, Southwest updated certain aspects of its cost of service, including a revised proposed ROE of 10.15%, to reflect an updated proposed increase ~~included a proposed 10.3% return on equity relative to a capital structure~~ of ~~51.1% equity. The request~~$90.6 million. It also includes the retention of a fully decoupled rate design, other previously approved regulatory mechanisms, and a new infrastructure tracking mechanism for specific plastic pipe. The request 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~~PGA mechanism. In October, Southwest filed a supplement to its post-test year plant request to include an additional $124.5 million of investments associated with its COYL and VSP programs. If approved, this could result in additional margin of approximately $17 million. A hearing in this matter iswas previously scheduled for ~~February 2020.~~April 2020; however, due to the current status of the COVID-19 pandemic, the hearing will be reset at a later date.

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 ~~that was~~rate adjustment request filed in April 2018 reflected the December 31, 2017 balance, ~~of approximately $40 million. Following a brief administrative delay, Southwest~~but was later updated ~~its request~~ to ~~instead~~ include the balance at December 31, ~~2018 of $73 million. The ACC approved a surcharge to recover approximately $69 million, the difference of which relates to~~2018; after a one-time modification to reflect benefits attributable to the impact of ~~recent landmark~~ U.S. tax reform on the ~~decoupled~~ balance then existing, at the ~~enactment date~~ACC approved an annualized recovery of ~~such reform. The updated~~$69 million, with the associated rate ~~became~~ 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.

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 ACC, requesting approval for a tax refund process or, in the alternative, the authority to file a general rate case to reflect the impacts of tax reform. Ultimately, Southwest was instructed to refund customers a one-time credit to reflect the tax savings from January through July 2018, effective with Southwest’s August 2018 billing cycles. In addition, effective August 2018, per-therm surcredits were established and are effective until new cost-of-service rates are implemented following the conclusion of the general rate case, which was filed in May 2019. These undertakings are expected to refund $20 million annually, as compared to rate levels established in the previously concluded general rate case, ~~effective April 2017. Through September 2019,~~until cost-of-service rates are updated in association with the pending general rate case. The current method to return this amount (in advance of the conclusion of the current general rate proceeding) is through a per-therm surcredit. Southwest has ~~reflected relevant proportional amounts associated with the annualized $20 million as a reduction in revenue and is~~been tracking monthly differences between amounts expected to be returned and amounts actually returned to customers during 2018 and 2019, and continuing in 2020, which has resulted in an asset balance of ~~approximately $287,000~~$1.5 million as of ~~September 30, 2019. See related discussion above with regard to the DCA.~~March 31, 2020.

Liquefied Natural 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 related 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. A modified ACC order in December 2016, following land purchase and bid solicitation for the engineering, procurement, and construction of the facility, granted approval for construction



	4335



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

operated by Southwest and connected directly to its distribution system. Southwest was ultimately granted approval for construction and deferral of costs not to exceed $80 million. Construction began during the third quarter of 2017 and the ~~structures were completed~~facility was placed in ~~the third quarter of~~service in December 2019. ~~Testing of the facility is in progress and is expected to be completed during the winter of 2019/2020. Through September 2019,~~ Southwest ~~has~~ incurred approximately ~~$72~~$75.3 million in capital expenditures toward the project (including land acquisition costs)., which will be considered as part of Southwest’s pending rate case. In addition to tracking the revenue requirement associated with the capital investment in a regulatory asset, operating expenses associated with the plant are also authorized to be included in a regulatory asset, to be addressed as part of the pending general rate case.

~~COYL~~Customer-Owned Yard Line (“COYL”) Program. Southwest received approval, in connection with 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, representing a non-traditional configuration. “Phase II” of the COYL program included the replacement of non-leaking COYLs. The surcharge is designed to ~~be revised annually~~collect the annual revenue requirement as the program progresses. In the ~~annual~~ filing made in February 2019, Southwest requested to increase its surcharge to recover a revenue ~~by $3.2 million (to~~requirement of $6.7 million ~~overall)~~(an increase of $3.2 million) related to the revenue requirement associated with $26.6 million in capital projects completed ~~under both phases during~~in 2018. The ~~Staff issued a report and recommendation to the~~ ACC that the current COYL program surcharge revenue be suspended, and that the program be reviewed in conjunction with Southwest’s pending general rate case, resolution of which is expected in the second quarter of 2020. The ACCultimately issued an Order in October 2019 authorizing Southwest to retain the existing annual surcharge ~~revenue~~ of $3.5 million and toindicating it would review the program as part of the pending ~~rate case. ACC review of the $26.6 million of capital investment from 2018, including potential cost recovery, will now occur as part of the pending~~ general rate case. ~~With~~Neither the ~~supplemental filing discussed earlier,~~ACC Staff nor the consumer advocate oppose the continuation of the COYL program. Southwest ~~is proposing~~also proposed to have the ACC review ~~the~~an estimated $21.1 million of 2019 COYL capital projects, ~~scheduled~~and if authorized, to ~~be completed in 2019, including any~~also render a decision regarding ~~potential~~ cost recovery as part of the pending rate ~~case as well.~~case.

Vintage Steel Pipe (“VSP”) Program. Southwest received approval, in connection with its 2016 Arizona general rate case, to implement a VSP replacement program. Southwest currently has ~~approximately 6,000 miles~~a substantial amount of pre-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 is made in February of each year. The~~filing. A surcharge isrelated thereto has been customarily designed to be revised annually as the program ~~progresses. Southwest replaced approximately 119 miles of vintage steel pipe during 2018 totaling approximately $100 million.~~progresses to collect the annual revenue requirement associated with the related capital expenditures. In the most recent VSP filing, in February 2019, ~~VSP filing,~~ Southwest requested to increase its surcharge revenue by $9.5 million (to $11.9 million) related to 2018 ~~expenditures. The Staff issued a report and recommendation to the ACC that the current~~expenditures; Southwest replaced approximately $100 million of VSP ~~program surcharge revenue be suspended and that the program be reviewed~~ in ~~conjunction~~connection with ~~Southwest’s pending general rate case, resolution of which is expected in the second quarter of 2020.~~2018 VSP capital projects. The ACC issued an Order in October 2019 authorizing Southwest to retain the current annual surcharge ~~revenue~~ of $2.4 million and toindicated it would review the program as part of the pending rate general case. ACC review of the $100 million of capital investment from 2018, including consideration of potential cost recovery, will now occur as part of the pending general rate case. With the supplemental filing discussed earlier, Southwest ~~is proposing~~also proposed to have the ACC review ~~the~~an estimated $103.4 million of 2019 VSP capital projects, ~~scheduled~~and if authorized, to ~~be completed in 2019, including potential~~also render a decision regarding cost recovery as part of the pending rate case.

Customer Data Modernization Initiative. Southwest ~~is embarking~~has embarked on an initiative to replace its customer service system and its gas transaction system, 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 hearing in this matter iswas previously scheduled for April 2020; however, due to the current status of the COVID-19 pandemic, a hearing in ~~the first quarter of 2020.~~this matter will be reset at a later date.

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 2.75% annually for 2015 through 2018, after which 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 California 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 is net of a $10.9 million revenue reduction associated with changes from ~~recent~~ U.S. tax reform, which includes 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 (as discussed below), which when returned will impact cash flows but is not expected to have an impact on earnings overall. The overall revenue request also includes $1.6 million of excess accumulated deferred income taxes that are proposed to be returned to customers each year until the amount is reset as part of a future rate case. Southwest’s proposal includes a return on common equity of 10.5%, relative to a 53% equity ratio; continuation of the 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 ~~including~~(which includes 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. The case will be processed throughout 2020, including scheduled hearings in June, with rates requested to be effective January 2021.



	4436



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

upgraded Encoder Receiver Transmitter (“ERT”) protocol; as well as an expansion of the COYL replacement program. The case will be processed throughout 2020, with rates requested to be effective January 2021.

Tax Reform. In its 2017 decision approving Southwest’s request to extend the filing date of its next general rate case, the CPUC also directed Southwest to track income tax ~~expenses~~expense resulting from mandatory or elective changes in tax law, procedure, or ~~policy as a result of the extension.~~policy. The purpose is to identify differences between Southwest’s authorized income tax ~~expenses~~expense and its actual incurred income tax ~~expenses.~~expense, the result of which would be reviewed in Southwest’s now currently applicable general rate case application. Through the ~~third~~first quarter of ~~2019,~~2020, Southwest reflected ~~$3.7~~$6.7 million as a reserve for amounts attributable to the impact of U.S. tax reform on the ratemaking revenue ~~requirement.~~requirement, and expects to reserve an additional approximate $3 million during the remainder of 2020.

Attrition Filing. In November ~~2018,~~2019, Southwest made its latest annual PTY attrition filing, requesting annual revenue increases of $2$2.06 million in southern California, ~~$542,000~~$556,000 in northern California, and ~~$271,000~~$278,000 for South Lake Tahoe. This filing was approved in December ~~2018~~2019 and rates were made effective in January ~~2019.~~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. C~~alifornia~~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 ~~directed the adoption of~~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. GHG compliance costs recovered through rates (including transportation customer rates) have no impact on ~~earnings overall.~~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 the end of 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 total cost for the CDMI would be allocable to the California rate jurisdiction. Southwest filed a separate request to establish a memorandum account while the CPUC considers its application request to establish a two-way balancing account. Effective October 2019, the CPUC granted Southwest’s memorandum account request, which will 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 CMDI. The balance tracked in the memorandum account will be ~~recorded in a~~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 ~~original application is approved. Resolution of~~Application for Authority to Implement the ~~application request~~CDMI. The proposed decision approving the settlement agreement is expected in the ~~fourth~~second quarter 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 the implementation of ~~2019.~~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 April 16, 2020 authorizing and directing utilities to implement customer protections and to establish memorandum accounts to track the financial impacts associated with 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. These costs will be considered by the CPUC for future recovery.

Nevada Jurisdiction

Nevada General Rate Case. Southwest filed ~~its most recent~~a general rate case application with the PUCN ~~in May 2018 and updated the request following the certification period ending in July 2018.~~on February 28, 2020. The filing ~~requested~~requests a statewide overall ~~revenue~~general rate increase of approximately ~~$29.7~~$38.3 million. The request seeks an ROE of 10% relative to a proposed capital structure of 50% equity and continuation of the General Revenues Adjustment (“GRA”) mechanism (full revenue decoupling). The request also proposes the recovery of previously excluded costs attributable to several software applications. A hearing in this matter is scheduled for August 2020.

~~The~~



	37



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

In December 2018, the PUCN issued a rate case decision in ~~December 2018,~~the previous general rate case application, which authorized ~~a return on equity (“ROE”)~~an 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 southern Nevada and a revenue decrease in northern Nevada of $2 million. ~~New rates associated with the PUCN’s decision~~Rates from this proceeding originally became effective in January 2019.

~~The rate relief was lower than the amounts requested due to several factors, including the 9.25% granted return on equity, as opposed to a requested 10.3%, and the exclusion from rates at this time~~As part of ~~costs attributable to several software applications, albeit allowing the Company to request recovery in its next general rate case filing. In response to the PUCN’s decision,~~that proceeding, management filed a ~~Petition~~request for ~~Reconsideration (the “Petition”)~~reconsideration of several rate case issues ~~in January 2019.~~during the same month of effective rates. The PUCN Staff also filed a Petition for Reconsideration requesting several technical clarifications on the rate case decision with respect to how to calculate the intended results of the decision. The PUCN, in turn, 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 overall, resulted in a net increase in revenues of $7.1 million and an increase in operating income of $7.9 million. The ~~resulting~~ modified rates became effective 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 filed an appeal with the Nevada Supreme Court, the resolution of which ~~is expected by~~will likely take 12-24 months. Southwest expects consideration of the ~~end~~appeal to occur concurrently with the proceedings of ~~2019.~~the 2020 general rate case that was filed in February 2020.

General Revenues Adjustment. As part of the Annual Rate Adjustment (“ARA”) filing in 2018, the PUCN authorized rate adjustments associated with the General Revenues Adjustment (“GRA”), to recover $5.6 million from customers during 2019. The continuation of the GRA was affirmed as part of the December 2018 rate case ~~decision. While there~~decision and is ~~no impact to net income overall from this~~again being requested as part of Southwest’s pending general rate ~~adjustment, operating cash flows will increase as the associated regulatory asset balance is recovered.~~case application filed in February 2020. In



	45



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

June 2019, Southwest made its 2019 ~~ARA~~Annual Rate Adjustment (“ARA”) filing in which it requested to update the GRA to reflect the current ~~over-collected~~ balances in both southern and northern Nevada. ~~The proposal would provide~~This most recent filing provided for a decrease ~~in cash flows~~ of approximately $8 million for an over-collected balance in southern Nevada and an increase of approximately $2 million in northern ~~Nevada, but have~~Nevada. The proposed changes were approved, with rates effective January 2020. While there is no impact to net income overall from adjustments to recovery rates associated with the related regulatory balances, operating ~~margin or earnings overall. Proposed changes related to the 2019 ARA will be considered~~cash flows are impacted by ~~the PUCN during the fourth quarter 2019, with rates expected to be effective January 2020.~~such changes.

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

Furthermore, a “Rate Application,” generally in October. In June 2018, Southwest filed its Advance Application requesting authorization to replace qualifying infrastructure with projects totaling $228 million to be completed over a three-year period (2019-2021), with a total annualized revenue requirement (following the three-year replacement period) of approximately $21.7 million. Historically, Southwest has requested approval of projects on an annual basis; however, it requested to move to a multi-year approval process for projects to improve operational flexibility and enhance coordination with contractors and governmental agencies. The PUCN issued a decision limiting its approval to the 2019 projects, resulting in an approval of $34.3 million for projects to be completed in 2019 (EVPP $9.3 million, COYL $1.3 million, and VSP $23.7 million).

~~The~~GIR Rate Application is generally filed each October to reset the GIR recovery surcharge rate related to previously approved and completed projects, with new rates typically becoming effective each January. During the third quarter of 2018, management proposed to adjust the GIR surcharge rate as part of the rate case in lieu of filing a separate application, which was approved and implemented in January 2019. It is expected to result in incremental annual margin of approximately $6 million. On October 1, 2019, Southwest filed a Rate Application to reset the recovery surcharge to include cumulative deferrals through August 31, 2019. This surcharge rate became effective February 1, 2020 and is expected to ~~become effective January 2020 and~~ result in a reduction in annual ~~margin~~revenue of approximately ~~$7.6~~$5.3 million in southern Nevada and ~~$35,000~~no incremental revenue in northern ~~Nevada.~~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 ~~the annual rate adjustment filing. As part of the 2018~~association with ARA filing, Southwest requested and received modified rates, effective January 2019, which are expected to result in annualized margin decreases of $4.1 million in southern Nevada and $58,000 in northern Nevada. There is, however, no anticipated impact to net income overall from these changes as amortization expense is reduced by approximately the same amounts.filings. In June 2019, Southwest made its 2019 ARA filing, which ~~proposes~~proposed annualized margin increases of $3.2 million and $880,000 in southern and northern Nevada, respectively. However, Southwest ~~recently~~ entered into a stipulation and agreement to modify these amounts to $6.2 million and $1.1 million in southern and northern Nevada, respectively, which ~~reflect~~reflected the recovery of a related but separate program balance to be rolled into customer rates with the same effective date. ~~These changes, if~~The modification was approved, ~~would have no impact on earnings overall, as described above. Proposed changes related to the 2019 ARA will be considered by the PUCN during the fourth quarter 2019, with~~and rates ~~expected to be~~became effective in January 2020.

Expansion and Economic Development Legislation. In January 2016, final regulations were approved by the PUCN associated with legislation (“SB 151”) previously introduced and signed into law in Nevada. The legislation authorized natural gas utilities to expand their infrastructure to provide service to unserved and underserved areas in Nevada.

In November 2017, Southwest filed for preapproval of a project to extend service to Mesquite, Nevada, in accordance with the SB 151 regulations. Ultimately, the PUCN issued an order approving Southwest’s proposal to expand natural gas infrastructure to ~~Mesquite, including~~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~~A volumetric rate was implemented October 1, 2019, to recover the cost and is ~~expected~~applicable to ~~be recovered through volumetric rates from~~ all southern Nevada customers (including new customers in Mesquite). The annual revenue requirement associated with the project is ~~approximately~~ $2.8 million. ~~Southwest conducted~~Following preliminary design, ~~work and~~Southwest began serving certain customers with an approved virtual pipeline network in February 2019, ~~which provides~~providing temporary natural gas supply using portions of the approved distribution system and compressed natural ~~gas tanks.~~gas. It is estimated that permitting and construction of the approach main to bring the permanent supply to Mesquite and construction of the remaining approved distribution system ~~could take approximately two years to complete.~~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. Proposed expansion to the Spring Creek area near Elko, Nevada, consists of an approach main, two regulator stations, and interior backbone plus the extension of the distribution system from the interior backbone system. This area has a population of approximately 16,500, with approximately 20% of the existing 5,000 potential customers expressing interest in taking natural gas service, if available. The total capital investment is estimated to be $61.9 million. Resolution of this request is expected in the first quarter of 2020.



	4638



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

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 the distribution system from the interior backbone system. The total capital investment is estimated to 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. Of the total estimated cost of the CDMI, approximately $59 million would be allocable to the Nevada rate jurisdictions. A hearing on this matter was held in August 2019 and the PUCN issued its decision in September 2019, denying the ~~Company’s~~Southwest’s request for regulatory asset treatment, finding that a general rate case is the most appropriate venue to address such costs. In response to 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 filing. The project is expected to be moved to production in 2021.

Regulatory Asset Related to COVID-19. The PUCN issued an order directing utilities within the state to establish regulatory asset accounts to track the financial impacts associated with maintaining service for ~~which~~customersaffected 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 emergency related to COVID-19. These costs will be considered by the PUCN ~~has 40 days to issue a decision; otherwise, the petition is deemed denied.~~for future recovery.

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

General Rate Case. Paiute Pipeline Company (“Paiute”), a wholly owned subsidiary of Southwest, filed a general rate case ~~application~~ with the FERC onin May ~~31, 2019 to update~~2019. The filing fulfilled an obligation from the ~~cost of service to reflect recent U.S. tax reform changes, capital investments and other changes~~settlement agreement reached in ~~its cost of service since its last~~the 2014 Paiute general rate case. The ~~request includes~~application requested an increase in ~~revenue~~operating revenues of approximately $7 million, ~~including~~and included the continuation of term-differentiated rates.

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 rate structures with its shippers, the settlement, which was filed in March 2020, would result in a revenue reduction of approximately $700,000. The agreement-in-principle 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 authority to place the settlement rates into effect on an interim basis effective February 2020. These rates will remain in effect, subject to final FERC approval. Should the proceeding not be resolved by the agreement in principle, or if the settlement proceeds as a contested settlement, Paiute is authorized to receive the difference between the interim settlement rates and the separately filed motion rates from affected customers, retroactive to February 2020. On March 30, 2020, Paiute filed a proposed 14.84% return on equity relative to a hypothetical capital structure of 56% equity. Paiute is also proposing to continue its current rate structure for its customer categories. Paiute requested rates associatedsettlement agreement with this filing to be made effective on July 1, 2019; however, the rate increase request was suspended until December 2019. It is not uncommon for suspension/delay to occur related to requests for increases, in order to permit the FERC ~~time to~~for review ~~the proposed changes. Rate decreases associated with the Elko Incremental Facilities Charge; 2010 Expansion Incremental Facilities Surcharge;~~ and ~~the 2015 Elko Area Expansion Incremental Facilities Surcharge were placed into effect July 1, 2019. Hearings have been scheduled for June 2020, with a final decision~~approval, which is expected ~~before the end of 2020.~~later this year.

PGA Filings

The rate schedules in all of Southwest’s service territories contain provisions that permit 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 30, 2019, under-collections in northern and southern Nevada resulted in an asset~~As of ~~$49.8 million and~~March 31, 2020, over-collections in ~~Arizona and California~~each of Southwest’s service territories resulted in a liability of ~~$88.0~~$26.5 million on the Company’s and Southwest’s Condensed Consolidated Balance Sheets. The balance in Arizona ~~reflects the majority (portion associated~~includes approximately $1.2 million related to excess amounts returned to Arizona customers that originated with ~~interstate transmission into Arizona) of~~ a ~~$49 million~~ refund received by Southwest during the third quarter of 2018 ~~by Southwest~~ from a rate case settlement associated with El Paso Natural Gas, L.L.C. (“~~EPNG”~~El Paso”)~~, as part of a rate case settlement.~~. Effective ~~May 2019,~~April 2020, the ~~ACC approved~~special per-therm PGA credit associated with the return of the ~~EPNG rate case settlement dollars as a special per-therm PGA credit, which resulted in $12.6 million in credits~~El Paso refund to Southwest’s Arizona customers ~~since its establishment and is expected to be in place for approximately twelve months.~~was terminated.

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).



	39



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

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


	September 30, 2019			December 31, 2018			September 30, 2018
(Thousands of dollars)										March 31, 2020			December 31, 2019			March 31, 2019
Arizona	$	(84,438	)	$	(72,878	)	$	(70,863	)	$	(17,538	)	$	(59,259	)	$	(72,213	)
Northern Nevada	11,909			4,928			(1,287		)	(3,154		)	11,894			12,962
Southern Nevada	37,895			(5,951		)	(16,125		)	(2,585		)	32,518			51,221
California	(3,592		)	(933		)	(4,748		)	(3,221		)	(1,496		)	1,059
	$	(38,226	)	$	(74,834	)	$	(93,023	)	$	(26,498	)	$	(16,343	)	$	(6,971	)

Capital Resources and Liquidity

Historically, cash on hand and cash flows from operations have provided a substantial portion of cash used in investing activities (primarily for construction expenditures and property additions). In recent years, the Company has accelerated pipe replacement activities to fortify system integrity and reliability, notably in association with gas infrastructure replacement programs as discussed previously. This accelerated activity has necessitated the issuance of both debt and equity securities to supplement cash flows from operations. The Company endeavors to maintain an appropriate balance of equity and debt to maintain strong investment-grade credit ratings, which should minimize interest costs.



	47



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

Cash Flows

Southwest Gas Holdings, Inc.:

Operating Cash Flows. Cash flows provided by consolidated operating activities ~~decreased $29~~increased $83 million in the first ~~nine~~three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019. The ~~decline~~improvement in cash flows primarily resulted from ~~a reduction/return~~collections of amounts under purchased gas adjustment mechanisms, ~~offset by increases in net income,~~collection of the remaining half ($35 million) of the Arizona decoupling mechanism balance that was outstanding as of the end of 2018, as well as benefits from depreciation and impacts of other working capital components ~~overall (including regulatory balances, such~~overall. These impacts were offset by a decrease in net income and a $50 million supplemental contribution for pension funding made in January 2020 (reflected as a Changes in other liabilities and deferred credits in the ~~Arizona DCA, that are recovered or returned over twelve months or less)~~Condensed Consolidated Statements of Cash Flows of both the Company and Southwest).

Investing Cash Flows. Cash used in consolidated investing activities ~~increased $162~~decreased $7 million in the first ~~nine~~three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019. The change was primarily due to ~~increased construction expenditures~~an increase in utility customer advances and proceeds from sales of equipment at the natural gas operations segment, including scheduled and accelerated replacement activity, as well as the remittance of a portion of purchase consideration previously held back in association with the acquisition of Linetec (see ~~Note 12 – Business Acquisitions~~).utility infrastructure services segment.

Financing Cash Flows. Net cash ~~provided by~~used in consolidated financing activities increased ~~$108~~$90 million in the first ~~nine~~three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019. The ~~increase~~change was primarily due to payments related to the ~~issuance~~portion of the credit facility utilized for working capital purposes at Southwest ($133 million) offset by higher borrowings at Southwest Gas Holdings, Inc. ($43 million) and a decrease of issuances of common stock under ~~both an earlier equity registration and a recent~~the Company’s Equity Shelf Program, ~~initiated~~as there were none during the first three months of 2020 as compared to $23 million during the first quarter of 2019. Additionally, Centuri received a net $26 million in ~~May 2019,~~additional proceeds between a $50 million equipment loan in ~~addition~~2020 and a net paydown of credit facility and long-term debt borrowings as compared to ~~higher payments~~the same period in the prior year by Southwest of short-term balances under its revolving credit facility. Additionally, retirements of long-term debt arrangements were higher in the prior period; whereas, dividends were higher in the current period due to both an increase in the dividend rate and the number of shares outstanding in the current period.year. See Note 64 – Common Stock and Note 75 – ~~Long-Term~~ Debt.

~~The~~During the three months ended March 31, 2020, the Company ~~received approximately $121 million in stock proceeds during the first nine months of 2019 under its Equity Shelf programs and~~ issued ~~approximately 96,000~~47,000 shares of common stock through the Dividend Reinvestment and Stock Purchase Plan, ~~(“DRSPP”), from which it raised~~raising approximately ~~$8.1~~$3.1 million.

The capital requirements and resources of the Company generally are determined independently for the natural gas operations and 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 in support of each business segment, as discussed in Note 64 – Common Stock.

Southwest Gas Corporation:

Operating Cash Flows. Cash flows provided by operating activities ~~decreased $18~~increased $89 million in the first ~~nine~~three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019. The ~~decline~~improvement in operating cash flows was attributable to impacts related to deferred purchased gas costs and recoveries related to the Arizona decoupling mechanism noted above, as well as other working capital components overall, and benefits from depreciation, offset by ~~an increase~~a decrease in net income ~~benefits from depreciation,~~ and the ~~impacts of working capital components overall.~~supplemental contribution for pension funding in 2020.

Investing Cash Flows. Cash used in investing activities increased ~~$99~~$7 million in the first ~~nine~~three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019. The change was primarily due to additional ~~construction~~capital expenditures ~~as indicated above.~~in 2020.



	40



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

Financing Cash Flows. Net cash ~~provided by~~used in financing activities increased ~~$90~~$109 million in the first ~~nine~~three months of ~~2019~~2020 as compared to the same period of ~~2018.~~2019. The increase was primarily due to payments in the current period related to the portion of Southwest’s revolving credit facility designated for working capital purposes, offset by an increase in capital contributions from Southwest Gas Holdings, Inc. compared to the prior period, and higher payments in the prior year related to short-term balances under Southwest’s revolving credit facility. As indicated above, Southwest utilized funds from the $300 million of Senior Notes issued in May 2019 to reduce amounts then outstanding under its revolving credit facility and commercial paper program. Dividends to the parent holding company were greater in the current period.

Gas Segment Construction Expenditures and Financing

During the twelve-month period ended ~~September 30, 2019,~~March 31, 2020, construction expenditures for the natural gas operations segment were ~~$784~~$788 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 ~~$365~~$456 million during this time, and provided approximately ~~42%~~52% of construction expenditures and dividend requirements.

Management estimates natural gas segment construction expenditures during the three-year period ending December 31, ~~2021~~2022 will be approximately $2.1 billion. Of this amount, approximately ~~$730~~$650 million to $700 million is scheduled to be incurred in ~~2019.~~2020. Southwest plans to continue 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). Southwest may expand existing, or initiate new, programs. Significant replacement activities are currently expected to continue well beyond the next few years. See also Rates and Regulatory Proceedings for discussion of Nevada infrastructure, Arizona COYL and VSP programs, ~~the Arizona LNG facility,~~ and Spring Creek in Nevada. During the three-year period, cash flows from operating activities of Southwest are expected to provide approximately ~~45% to~~ 50% of the funding for gas operations total construction expenditures and dividend requirements.



	48



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

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.

In May 2019, Southwest issued $300 million in 4.15% Senior Notes at a discount of 0.051%. The notes will mature in June 2049. A portion of the proceeds were used to repay amounts then outstanding under Southwest’s credit facility and commercial paper program.

In May 2019, the Company filed with the SEC an automatic shelf registration statement for the offer and sale of up to $300 million of common stock from time to time in at-the-market offerings under the prospectus included therein in accordance with the Sales Agency Agreement, dated May 8, 2019, between the Company and BNY Mellon Capital Markets, LLC (the Equity Shelf ~~Program discussed above)~~Program). The Company issued ~~$99.3 million~~no stock under this multi-year program during the ~~second and third quarters~~first quarter of ~~2019.~~2020; approximately $176 million is available under the program as of March 31, 2020. Net proceeds from the 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 served by Southwest.

In March 2018, Southwest issued $300 million in 3.7% Senior Notes at a discount of 0.185%. The notes will mature in April 2028. The proceeds were used to repay amounts then outstanding under the revolving portion of its credit facility and under the commercial paper program.

In March 2017, the Company filed an earlier automatic shelf registration statement with the SEC for the offer and sale of up to $150 million of common stock from time to time in at-the-market offerings under the related prospectus and sales agency agreement. The Company issued the full capacity of this equity program, concluding during the quarter ended March 31, 2019.

During the twelve months ended ~~September 30, 2019, 1,424,784~~March 31, 2020, 1,478,945 shares were issued in at-the-market offerings at an average price of ~~$85.92~~$84.07 per share with gross proceeds of ~~$122.4~~$124.3 million, agent commissions of $1.2 million, and net proceeds of ~~$121.2~~$123.1 million under the Company’s equity shelf ~~programs~~program noted above. ~~See~~ ~~Note 6 – Common Stock~~ ~~for more information.~~

Bonus Depreciation

In 2017, with the enactment of U.S. tax reform, the bonus depreciation deduction percentage changed from 50% to 100% for “qualified property” placed in service after September 27, 2017 and before 2023. The bonus depreciation tax deduction phases out starting in 2023, by 20% for each of the five following years. Qualified property excludes most public utility property. The Company estimates bonus depreciation will defer the payment of approximately ~~$30~~$10 million ~~($4 million~~of federal income taxes for 2020, none of which relates to utility ~~operations) of federal income taxes for 2019.~~operations.

Dividend Policy

Dividends are payable on the Company’s common stock at the discretion of the Board of Directors (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, 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. In February ~~2019,~~2020, the Board elected to increase the quarterly dividend from ~~$0.52~~$0.545 to ~~$0.545~~$0.570 per share, representing a ~~4.8%~~4.6% increase, effective with the June ~~2019~~2020 payment.

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



	41



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

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 of our customers. The Company will continuously review and assess the ongoing impacts of the COVID-19 pandemic, including those on our customers, suppliers, and business. As of March 31, 2020, the Company’s Cash and cash equivalents were $61 million, and the Company had access to $454 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.

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 30, 2019,~~March 31, 2020, the combined balance in the PGA accounts totaled an over-collection of ~~$38~~$26 million. See PGA Filings for more information.



	49



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

Southwest Gas Holdings, Inc. 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 30, 2019, no borrowings were~~March 31, 2020, $60 million was outstanding under this facility.

Southwest has a credit facility, with a borrowing capacity of $400 ~~million,~~million; on April 10, 2020, Southwest amended the credit facility agreement which ~~expires in March 2022.~~extended the maturity date to April 10, 2025. The revolving borrowing capacity under the amended credit facility agreement remains at $400 million. Southwest ~~designates~~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~~three months of ~~2019~~2020 was $150 ~~million. As of September 30, 2019, $150~~ million, the same amount which was outstanding ~~under~~as of March 31, 2020. Additionally, the ~~long-term portion of the facility. The~~ maximum amount outstanding on the short-term portion of the credit facility during the first ~~nine~~three months of ~~2019~~2020 was ~~$216~~$194 million. As of ~~September 30, 2019, $30~~March 31, 2020, $97 million of borrowings were 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. It has been 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 ~~2019~~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 30, 2019,~~March 31, 2020, there ~~was $50 million~~were no borrowings outstanding under this program.

Centuri has a senior secured revolving credit and term loan facility with borrowing capacity of $590 million (refer to Note 75 – ~~Long-Term~~ Debt). The line of credit portion of the facility is $325 million; amounts borrowed and repaid under the revolving credit facility are available to be re-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 ~~September 30, 2019~~March 31, 2020 totaled ~~$1.3~~$1.2 billion. The maximum amount outstanding on the ~~revolving credit~~ facility during the first ~~nine~~three months of ~~2019~~2020 was ~~$99 million.~~$286 million; of which $242 million was outstanding on the term portion. As of ~~September 30, 2019, $89~~March 31, 2020, $43 million was outstanding on the revolving credit facility. As of ~~September 30, 2019,~~March 31, 2020, there was ~~$248~~$233 million outstanding on the term loan portion of the facility. Also at ~~September 30, 2019,~~March 31, 2020, there was approximately ~~$215~~$261 million, net of letters of credit, available under the line of credit.

On April 10, 2020, the holding company and Southwest amended their respective credit facility agreements, see above. Interest rates for the 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 ~~September 30, 2019, no~~March 31, 2020, $60 million borrowings were outstanding for the holding company under its credit facility (see Note 85 – ~~Short-Term~~ Debt), ~~and therefore, there was no related indebtedness with reference to LIBOR. However,~~ all of Southwest’s outstanding borrowings of ~~$130~~$247 million under its credit facility (other than from its commercial paper program), and ~~$218~~$177 million of Centuri’s indebtedness under its facility have interest rates with reference to LIBOR and maturity dates that extend beyond 2021. The outstanding amounts reflect approximately 6%11% of Southwest’s total debt and ~~14%~~18% of total debt (including current maturities) for



	42



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

the Company overall. In order to mitigate the impact of the discontinuation on the Company’s financial condition and results of operations, Southwest and Centuri 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 impact a LIBOR discontinuation will have on their financial condition or results of operations. Any alternative rate may be less predictable or less attractive than LIBOR.



	5043



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 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, 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 the U.S. tax reform including disposition in regulatory proceedings and bonus depreciation tax deductions, the impact of recent PHMSA rulemaking, the amounts and timing for completion of estimated future construction expenditures, ~~including the LNG facility in southern Arizona,~~ 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 ~~2019~~2020 or future period revenues from regulatory rate proceedings including amounts requested from the recently filed ~~Arizona~~and ongoing general rate ~~case, the approved recovery of the Arizona DCA balance,~~cases, the outcome of judicial review of the recently concluded 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 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 postretirement benefits, certain 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 COYL 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 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, 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 form 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 including related to personnel 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, 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, ~~Centuri’s projections about the acquired business’ earnings (including accretion within the first twelve months) and~~ future acquisition-related costs, impacts of changes in value of the redeemable noncontrolling interest if at other than fair value, resolution of events subject to cash consideration held back associated with representations, warranties, and other estimates including working capital adjustments related to the Linetec acquisition and impacts from final purchase accounting related thereto, Centuri 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, 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 result of 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



	44



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

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, see Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosures About Market Risk in the Annual Report on Form 10‑K for the year ended December 31, ~~2018.~~2019, and



	51



~~SOUTHWEST GAS HOLDINGS, INC.~~		~~Form 10-Q~~
~~SOUTHWEST GAS CORPORATION~~		~~September 30, 2019~~

Item 1A. Risk Factors, as updated in association with this Quarterly Report on Form 10‑Q.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7A. Quantitative and Qualitative Disclosures about Market Risk in the ~~2018~~2019 Annual Report on Form 10-K filed with the SEC. No material changes have occurred related to the disclosures about market risk.

ITEM 4. CONTROLS AND PROCEDURES

Management of Southwest Gas Holdings, Inc. and Southwest Gas Corporation has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to provide reasonable assurance that information required to be disclosed in 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 30, 2019~~March 31, 2020, management of Southwest Gas Holdings, Inc., including the Chief Executive Officer and Chief Financial Officer, believes the Company’s disclosure controls and procedures are effective at attaining the level of reasonable assurance noted above.

There have been no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the ~~third~~first quarter of ~~2019~~2020 that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

Based on the most recent evaluation, as of ~~September 30, 2019,~~March 31, 2020, management of Southwest Gas Corporation, including the Chief Executive Officer and Chief Financial Officer, 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 control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the ~~third~~first quarter of ~~2019~~2020 that have materially affected, or are likely to materially affect Southwest’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

~~ITEMS 1A through 3.~~ITEM 1A. Part I, Item IA, “Risk Factors” of our most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on March 2, 2020, sets forth information relating to important risks and uncertainties that could materially adversely affect our business, financial condition and operating results and, accordingly, you should review and consider such risk factors in making any investment decision with respect to our securities. The following risk factor is being provided to supplement and update the risk factors set forth in Part I, Item IA, “Risk Factors” of our most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2019.



	45



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		March 31, 2020

Risk Factor that applies to Southwest Gas Holdings, Inc., Natural Gas Operations, and Utility Infrastructure Services

The Ongoing COVID-19 Pandemic and Measures Intended to Prevent its Spread Could Have a Material Adverse Effect on our Business, Results of Operations, Cash Flows and Financial Condition.

Since being first reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19. The pandemic has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control its spread, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders. Substantially all of our properties are located in areas that are or have been subject to shelter-in-place orders and restrictions on the types of businesses that may continue to operate.

Although our utility operations and, to a large extent, our utility infrastructure services segment have been deemed “essential services,” our business may be materially and adversely impacted by the COVID-19 pandemic and measures to prevent its spread in a number of ways. The COVID-19 pandemic has resulted in significant unemployment, which may impact our customers’ ability to timely pay their bills. We have implemented 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. As a result, we have continued providing services even in scenarios where payment is not guaranteed. Although we may be able to seek recovery of some losses through the regulatory process, we can provide no assurances that we will be able to recover such losses in full or at all. In addition, our supply chain related to necessary equipment and materials may be significantly disrupted if the current crisis continues for an extended period of time.

Furthermore, the COVID-19 pandemic has delayed certain construction projects in our utility infrastructure services segment. We can provide no assurances as to whether future delays will occur or as to the impact of such delays. In addition, there may be disruptions in the amount or timing of work awarded to our utility infrastructure services business. Our ability to perform work for which we are contracted could also be impacted by the pandemic if our workforce experiences significant infection. Any of the foregoing could have an adverse impact on our results of operations and financial condition.

The uncertainties have resulted in significant volatility in securities markets. If these disruptions were to continue, they may prevent us from accessing the equity or debt capital markets on attractive terms or at all for a period of time, which would have an adverse effect on our liquidity position.

The extent of the COVID-19 pandemic’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic and the duration of government measures to mitigate the pandemic, all of which are uncertain and difficult to predict. Due to the speed with which the situation is developing, we are not able at this time to estimate the effect of these factors on our business, but the adverse impact on our business, results of operations, financial condition and cash flows could be material.

ITEMS 2 through 3

None.

ITEM 4. MINE SAFETY DISCLOSURES Not applicable.

ITEM 5. OTHER INFORMATION None.



	5246



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 2020

ITEM 6. EXHIBITS

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



Exhibit ~~2.01~~10.01	-	~~Agreement and Plan of Merger entered into on September 20, 2019 by Southwest Gas Holdings,~~Amendment to the Centuri Group, Inc.~~, a California corporation and Southwest Gas Holdings, Inc., a Delaware corporation. Incorporated herein by reference to Exhibit 2.1 to Form 8-K12B dated September 20, 2019, File No. 001-37976.~~

~~Exhibit 3.01~~	-	~~Certificate of Incorporation of Southwest Gas Holdings, Inc., a Delaware corporation. Incorporated herein by reference to Exhibit 3.1 to Form 8-K12B dated September 20, 2019, File No. 001-37976.~~

~~Exhibit 3.02~~	-	~~Bylaws of Southwest Gas Holdings, Inc., a Delaware corporation. Incorporated herein by reference to Exhibit 3.2 to Form 8-K12B dated September 20, 2019, File No. 001-37976.~~

~~Exhibit 4.01~~	-	~~Form of Southwest Gas Holdings, Inc. Common Stock Certificate. Incorporated herein by reference to Exhibit 4.1 to Form 8-K12B dated September 20, 2019, File No. 001-37976.~~ Executive Deferred Compensation Plan.

Exhibit 31.01	-	Section 302 Certifications–Southwest Gas Holdings, Inc.

Exhibit 31.02	-	Section 302 Certifications–Southwest Gas Corporation

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

Exhibit 32.02	-	Section 906 Certifications–Southwest Gas Corporation

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).



	5347



SOUTHWEST GAS HOLDINGS, INC.		Form 10-Q
SOUTHWEST GAS CORPORATION		~~September 30, 2019~~March 31, 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 6, 2019~~May 7, 2020

/s/ LORI L. COLVIN

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: ~~November 6, 2019~~May 7, 2020

/s/ LORI L. COLVIN

Lori L. Colvin

Vice President/Controller and Chief Accounting Officer



	5448



(Thousands of dollars)	Southwest		Centuri		Consolidated Total
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	976	$	8,104	$	9,080
Operating cash flows from finance leases	—		24		24
Financing cash flows from finance leases	—		161		161

ROU assets obtained in exchange for lease obligations:
Operating leases	$	1,143	$	21,653	$	22,796
Finance leases	—		386		386



(Thousands of dollars)	September 30, 2019
Southwest:
Operating leases:
Net Utility Plant	$	2,008

Other current liabilities	$	826
Other deferred credits and other long-term liabilities	1,209
Total operating lease liabilities	$	2,035

Weighted average remaining lease term (in years)	3.77
Weighted average discount rate	3.35		%

Centuri:
Operating leases:
Other property and investments	$	71,377

Other current liabilities	8,183
Other deferred credits and other long-term liabilities	65,791
Total operating lease liabilities	$	73,974

Finance leases:
Other property and investments	$	788

Other current liabilities	256
Other deferred credits and other long-term liabilities	400
Total finance lease liabilities	$	656

Weighted average remaining lease term (in years)
Operating leases	9.43
Finance leases	1.79

Weighted average discount rate
Operating leases	4.08		%
Finance leases	5.95		%



	2018		2017
Southwest Gas Corporation	$	4,556	$	4,926
Centuri	59,491		62,310
Consolidated rental payments/lease expense	$	64,047	$	67,236



	September 30, 2019	December 31, 2018
Contract notional amounts	16,071	13,387



September 30, 2019
Swap Position
Instrument	Balance Sheet Location	Asset Derivatives		Liability Derivatives			Net Total			Offsetting Balance Sheet Location (Regulatory Asset/(Liability))
Swaps	Deferred charges and other assets	$	48	$	(27	)	$	21		Other deferred credits
Swaps	Other current liabilities	103		(9,837		)	(9,734		)	Prepaid and other current assets
Swaps	Other deferred credits	—		(335		)	(335		)	Deferred charges and other assets
Total		$	151	$	(10,199	)	$	(10,048	)

December 31, 2018
Swap Position
Instrument	Balance Sheet Location	Asset Derivatives		Liability Derivatives			Net Total			Offsetting Balance Sheet Location (Regulatory Asset/(Liability))
Swaps	Prepaid and other current assets	$	243	$	(99	)	$	144		Other current liabilities
Swaps	Other current liabilities	1,595		(3,347		)	(1,752		)	Prepaid and other current assets
Swaps	Other deferred credits	141		(251		)	(110		)	Deferred charges and other assets
Total		$	1,979	$	(3,697	)	$	(1,718	)



(Thousands of dollars):	Redeemable Noncontrolling Interest
Balance, December 31, 2018	$	81,831
Net income attributable to redeemable noncontrolling interest	2,523
Balance, September 30, 2019	$	84,354



	Acquisition Date		Measurement Period Adjustments			Revised Acquisition Date
Cash and cash equivalents	$	3.9	$	—		$	3.9
Accounts receivable	32.8		(0.5		)	32.3
Revenue earned on contracts in progress in excess of billings	21.6		(0.2		)	21.4
Prepaid expenses and other current assets	1.1		0.1			1.2
Property and equipment	89.4		(0.8		)	88.6
Intangible assets	89.3		—			89.3
Goodwill	188.5		(22.2		)	166.3
Total assets acquired	426.6		(23.6		)	403.0

Accounts payable	8.0		—			8.0
Accrued liabilities	6.9		1.6			8.5
Deferred compensation and related accrued taxes	3.4		—			3.4
Redeemable noncontrolling interest	81.7		—			81.7
Total liabilities assumed and noncontrolling interest	100.0		1.6			101.6
Net assets acquired	$	326.6	$	(25.2	)	$	301.4