Good day ladies and gentleman and welcome to the 2007 Southwest Gas Earning conference call. My name is Lisa and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to the host for today’s call, Mr. Ken Kenny, Vice President and Treasurer, please proceed sir.

Thank you Lisa, welcome to Southwest Gas Corporation’s 2007 Earnings conference call. As Lisa said my name is Ken Kenny and I’m the Vice President, Treasurer. Our conference call is being broadcast live over the internet for those of you who would like to access the webcast, please visit our website at www.swgas.com and click on the conference call link. Today we have Mr. Jeffrey W. Shaw, Southwest Chief Executive Officer, Mr. John P. Hester, Sr. Vice President, Regulatory Affairs and Energy Resources, and other member of senior management to provide a brief overview of 2007 earnings and an outlook for 2008. Our general practice is not to provide earnings projections. Therefore no attempt will be made to project earnings for 2008. Rather the company will address those factors that may impact this coming year’s earnings. Further our lawyers have asked me to remind you that some of the information that will be discussed contains forward looking statements. These statements are based management’s assumptions which may or may not come true and you should refer to the language in press release and also our SEC filings for a description of the factors that may cause actual results to differ from our forward looking statements. All forward looking statements are made as of today and we assume no obligation to update any such statements. With that said I would like to turn the time over to Jeff to review 2007, Jeff.

Thank you Ken, and welcome all who have joined us today for this call. I’d like to provide a review of 2007 focusing on the natural gas utilities segment and also making a few comments on the construction services segment and then I would like to address growth and what the impacts of that are on us. I’m going to invite John Hester who heads our regulatory area to discuss great cases that we have on file and then I’ll come back to discuss and outlook and conclude. First with respect to the natural gas utility segment, we are first on a consolidated basis we posted we believe very strong earnings at $1.97 per share in 2007, second only to the $2.07 posted in 2006. Our operating margin increased by $35 million in 2007, $18 million of which was related to rate relief and $14 million of which was related to customer growth. The difference in weather between years gave us a positive $3 million in operating margin, $12 million or $0.18 per share was the negative impact of warmer than normal weather in 2007 as compared to $15 million negative impact in 2006. We have rate cases on file in both Arizona and California to address any deficiencies that we have experienced or are experiencing and also to address rate design improvements in Arizona and I will again have John Hester go into that in some detail in a few minutes. Our operation and maintenance expense grew by only 3.2% in 2007, our objective is to be inside the rate of inflation plus growth, and we met that objective and surpassed. Nearly 2/3 of our operations and maintenance expenses are labor related, therefore we are focused on productivity. In the last five years, the number of full time employees…

Thank you Jeff, the first major filing that we wanted to run an overview on today is the Arizona rate case filing, Arizona we filed rate case application on August 31st of 2007 and in that application we requested a revenue increase of $52.2 million. The reasons for the revenue increase need is due to first of all increases in operating costs, secondly increased cost of capital to fund infrastructure investments and third provide an opportunity to true up our billing determinates to reflect changes in customer usage levels as well as weather. The application request an overall rate of return of 9.45%, that overall rate of return incorporates a capital structure that includes a 45% common equity component and 11.25% return on that common equity component. The rate of return is applicable to the rate base of approximately $1.1 million. In addition to the need for increased revenues to recover our costs, we’re also looking to make some improvements to our residential rate design so that it continues to encourage energy efficiency while helping the company recover its costs and shielding customers from changes in using that are related to weather. The residential rate time proposal that we have made includes four components. First of all we are looking to increase the basic service charge by $3.10, that would move the basic service charge from its current level of $9.70 to a proposed level of $12.80. We’re also looking to make some changes to the volume metric rates. Currently we have a volume metric rate design which includes margin bolt blocks of a two block rate structure. Under the proposal that we have before the Arizona commission we would look to recover all that margin in the first block as well as a portion of gas costs and then…

Thank you John, as an outlook, looking forward, from a capital expenditure standpoint, we expect over the next three years, capital expenditures to be at approximately $850 million. About $302 million are expected in 2008. Capital expenditures will not necessarily directly correlate to customer growth and that $302 million number is before any advances or contributions are collected from builder for the growth that we do experience. We have a significant commitment to operating a safe and reliable system. We have franchise requirements and code and regulatory work that must be completed annually as well as other general plant expenditures that we need to make. So we’re, those are the cap ex that we expect on a going forward basis. And we will again continue to collect contribution advance and refundable advances from builders on a going forward basis. We don’t see much in the way of maturities in long term debt over the next three years, about $25 million and we do not expect to refinance that. Cash flows over the next three years, we expect on average to fund approximately 80% of our long term capital needs through internally generated cash. Of approximately $70-$80 million is expected to be raised over that time period through various common stock programs. And if any remaining cash flow requirements are expected to be provided by existing credit facilities and/or other external financing sources. As I talk about our strategies, we do not expect the core strategies to change. Number one, we will continue to work closely with regulator to improve our returns and stability of our earnings and cash flows. I think that’s evidenced by the fact that we have rate cases on file in both Arizona and California and recall that our last Arizona rate decision was in early 2006,…

Thanks Jeff, so at this point, Lisa if you could now please explain the process for question and answers we’ll move forward.

Thank you. Ladies and gentlemen if you wish to ask a question, press star followed by a one on your touch tone telephone. If a question has been answered or you wish to withdraw your question, please press star followed by a two. All questions must be submitted at this time in order to be registered. Question to be taken that were to receive please press star one to begin please. Our first question comes from Travis Miller from Morningstar, please proceed. Travis Miller – Morningstar: Hi, Jeff question for you, on the meter inventory that you mentioned earlier that a number of about 29,700. What kind of success rate have you guys had in the past in converting those to new customers? Is there a percentage success rate and then what kind of time lag time does it typically take to convert those.

Well, let me explain it this way, hopefully it will help. Normally our new net customers in a year is very close to our first time meter sets. What we’ve experienced and we’re kind of in new territory. We have some vacant homes as a result of foreclosures. And with the growing services area like we have we expect over time and I can’t predict with certainty how long that time period is going to be, but we expect over time that those homes will be absorbed in the market. Right now, new home construction in both Phoenix and Las Vegas is at a much slower pace than we saw let’s say in the 2004, 5 and 6 time periods, much slower. Housing prices have declined significantly in our markets as well. We are starting to see auctions for some of these homes and it’s going to take some time for them to be absorbed. But the good news with respect to that number of homes that are sitting vacant right now which probably let our service territories somewhere between 20-30,000, I’ll pick 25,000 as the midpoint. We have already made the capital investment in those homes, so it’s going to be pure margin with no cost associated with those when we absorb them so it’s just a time, it’s a period of time we have to get through with is unusual, something we haven’t necessarily experienced before that being said, in 2007, we still had a, I believe a very strong performance, and so we’ll continue to, again to focus on our strategies to get us through 2008. There are a lot of opinions as to when that may turn around probably not in 2008 but one cannot fully tell until you start to see what happens in the market. Travis Miller – Morningstar: Okay. And those are booked to the inventory account?

No, well. Travis Miller – Morningstar: Or cap ex?

Yeah, they’re, it’s basically in plant. It’s in rate base. All of those customers. Travis Miller – Morningstar: Great. Thank you.

You bet.

And our next question comes from Faisel Khan from Citi, please proceed. Faisel Kahn – Citi: Good afternoon.

How are you? Faisel Kahn – Citi: Alright, what would you say the margin that would be related to those 20,000 to 30,000 customers or house that haven’t been set yet or have been set?

You know let me give George Biehl our Chief Financial officer an opportunity to respond to that, I know we’ve looked at that.

Faisel, I think I’m going to give you sort of a longer winded answer that maybe you, that what you want. What, as Jeff said when we look at it we think that it’s a timing difference we don’t know the timing. When you talk about margin, it’s, some of that is seasonal, in other words the sooner that, if they come on during the heating season for example, we’re going to get more margin sooner. I think the average margin system wide per customer, I think if you compute if from the financials is what 253,000 a year. So I think was you have to, [it multi variate]. What you have to sort of forecast and what we’ve grappling with internally is that going to grow worse, in other words we’re looking more foreclosures because remember in our service territory, if a home in unoccupied, and there’s a number of them that are, here and in Arizona, they probably just shut off the gas, they probably keep the electricity on because of climatic conditions. When they turn them back on, or when they sell the house, say via auction or otherwise, then for us it’s just a matter of turning that customer back on. But there’s some seasonality there. I think the key thing to be repetitive of what Jeff said is how quick the turnaround is, in other words how soon do we really sort of flush through this unprecedented high number of for sale homes here and primarily in central Arizona, the other service territories to a much lesser degree. Faisel Kahn – Citi: What about I mean the current deposits you reported at the end of the year for ’07, is that related to the 20,000 or 20-25,000 houses that have not been connected yet, the meters are set?

You’re talking about the advances? Faisel Kahn – Citi: The advances, right. Because the advances you refund once the customer goes live, right?

Typically yes. Faisel Kahn – Citi: So I’m saying is the current advances you’re holding related to that inventory of.

Generally no. in other those homes have already, the problem is we can, to understand your, to fully understand I think your question now. Once that home closes for example, then it’s no longer the builders home and there’s no advance basically, that may be an over simplification but not much. Faisel Kahn – Citi: So the advances that you guys are holding are for homes that have not been sold yet.

Correct. Faisel Kahn – Citi: Great, I understand. Now in January and February did you see any, were there any net additions to those deposits because of new construction?

You know we’re looking along another, I don’t think significant. No, I would think too I would deposit that as the slow down up kick continues, we’ll probably hold on to those deposits longer than we would have in a more vibrant market. Faisel Kahn – Citi: Okay, fair enough.

Which is our philosophy of taking them in the first place of course. Faisel Kahn – Citi: Of course, it makes sense.

Michael, this is Jeff, we are seeing growth continually. It’s just you’re not seeing a phase of a development build out at the pace that we saw in the past three years let’s say so they’re building slower a few houses at a time, they’re pre-sold, they have contracts and that’s what we’re seeing and so we’re not seeing advances build at the level that we have in the past. Faisel Kahn – Citi: Okay, I understand. And then on the Arizona rate case the $50.2 million, I think the filing, you said it was about $20 million is related to the increase in capital in respect over the last few years and in terms of the rest. How much is broken down between return on equity and a larger equity component?

John would you like to.

The amount of the $50 that’s attributable to the higher equity component and the higher return on equity is also approximately $20 million. Faisel Kahn – Citi: Is it fair to say that the higher equity component is about half of that amount?

I’d have to check. Faisel Kahn – Citi: Okay.

I would have to look at the filing. I’m not sure if we broke that out in the application part of it. Faisel Kahn – Citi: And you said at the hearings the public hearings are set for June?

That’s correct. Faisel Kahn – Citi: And the effective rates for this is essentially going into effect at the end of October or beginning of October.

Our application requested that the rates become effective October 1st, the actual implementation of the rates is going to be a function of the schedule that the commissioner adheres to in processing the filing so we would like to see the rate effective October 1st but we’ll have to see how the procedural schedule plays out. Faisel Kahn – Citi: Now is there, are you guys also looking at a potential settlement or how would that work, you have to approach [Ruco] first of have you guys already had discussion?

No we have not done anything in that regard, no. Faisel Kahn – Citi: So you expect to fully litigate this case basically all the way to the end?

We don’t know at this point we don’t have any information other than the default application that we’ve made and the procedural schedule that’s been established. Faisel Kahn – Citi: Okay.

Our last rate case went through the fully litigated process. Faisel Kahn – Citi: Okay and then the omnibus kind of state legislation you were talking about decoupling, you said that is was approved by the senate and wasn’t enacted into law yet or was it signed by the governor?

Yes it was signed by the Governor in July of 2007. Faisel Kahn – Citi: Okay. So effectively the commission has to look at decoupling as a potential rate mechanism.

Right the commission is now charged with implementing the direction of the legislature. Faisel Kahn – Citi: Alright. And last question. On, in terms of the in the past the ACC has talked about how the utilities in Arizona don’t own any storage capability, have you looking into that at all in terms of what kind of opportunities you might have to own storage or if it makes sense for the gas utility to own storage in the state?

Yes, we’re in somewhat fairly regular discussions with anyone who is considering developing a project. It certainly something, as indicated that the commission is interesting and we’re interested in and to the extent that a project becomes available that fits well with our portfolio it’s certainly something we’d like to explore further. Faisel Kahn – Citi: Okay, thanks for the time.

Our next question come from Brooke Mullin from JP Morgan, please proceed.

Thank you. Can you give us a sense of some of on the construction services side if we look at 2007, just on a sort of a broad percentage, how much of their business is in the utility maintenance replacement work versus you know adding new customer growth work?

That’s fluctuates but there is a significant component, I’m going to have to guess right now Brooke but I probably put at better than half is probably the more routine maintenance and the type work code related work and so forth. They’re in about 18 markets throughout the country so it’s not located in one particular place, and when you go to some of the markets, there’s very little growth. And therefore it’s the, their work is more concentrated in maintenance, pipe replacement infrastructure related type work.

For purposes the only thing that I would say, I’m not even sure internally that NPL breaks it down that way, and the reason it’s picking up on what Jeff just said they look at each of their 20 or so 15 or so operation areas and then they look at individual customers and some of those contracts or many of those contracts I would view are sort of blended. In other words they do both types of work depending on a lot of factors within that geographic area.

How much of their business is now comprised of, is from the gas utility.

Last year, it was 21% of revenues the trend actually has been less because they’ve developed some new areas. They’re still doing significant work for us but on a percentage basis it’s below 20 year in and year out it’s been in the high 20%.

Okay and this lastly, could you give us a rate base in the California cases?

Sure, for Southern California, the rate base is approximately $165 million and for Northern California, it’s approximately $55 million.

Great, thank you.

Once again to ask a question, please star one to begin please. Press star one please. At this time there are no further questions this concludes the presentation you may now disconnect, have a great day, thank you.