Good day ladies and gentleman and welcome to the second quarter 2009 Southwest Gas earning conference call. (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.

Welcome to Southwest Gas 2009 mid-year conference call. My name is Ken Kenny and I am the Vice President and Treasurer. Our conference call is being broadcast live over the internet. For those of you who would like to access the web cast, please visit the website at www.swgas.com and click on the Conference Call link. Today we have Mr. Jeffrey W. Shaw, Southwest Chief Executive Officer; Mr. George C. Biehl, Executive Vice President and Chief Financial Officer and Corporate Secretary; Mr. John P. Hester, Senior Vice President, Regulatory Affairs and Energy Resources; and other members of senior management to provide an overview and update of the company’s operations for the 12 months ended June 30, 2009. Our general practice is not to provide earnings projections. Therefore no attempt will be made to project earnings for 2009. Rather the company will address those factors that may impact earnings in the company’s coming months. 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.

Thank you Ken, and thank you all for joining our call today. There’s no doubt we are feeling the effects of the current recession and we’ll discuss some of those effects during the call. We will not dwell on the detailed numbers that are already included in the filed documents. Hopefully you’ve had a chance to look at our Form 10-Q. We remain focused on our core strategies so we choose today to focus on the drivers of our performance. Our core strategy is basically, number one, is to work with our regulatory bodies to improve the level and stability of revenues and cash flows. This is our most important focus. We have also have as part of our core strategies to pursue sensible cost controls to aggressively manage growth and yes granted growth is down for us at the present time, that has been a focus of ours. And also to attract and retain a well trained and an efficient workforce. Those last three that I mentioned really all support our first and foremost strategy to work with the regulatory bodies. Any time we can do what we can to improve our operating efficiency and control those costs it strengthens our case as we file for rate adjustments. So given the importance of this first core strategy, we’ve invited John Hester our Senior Vice President of Regulatory Affairs and Energy Resources, to provide discussion on our regulatory activities by state. I’ll turn the time over to John to proceed.

Thanks Jeff, the company has been involved in a variety rate and regulatory proceedings over the past year, I’d like to start with a brief recap on a couple of proceedings that have already concluded. The first one probably the most important one that’s concluded in the past year certainly is the Arizona rate case. The company filed a general rate case application with the ACC back in August of 2007. The Commission reached a decision in December this past year, rates were effective December, 2008. That decision provided for incremental revenue to the company of $33.5 million and also provided an overall rate of return of 8.86%. That includes a 10% return on equity which is applicable to a 43.44% equity component on the capital structure. So far this year Southwest has recognized $50 million of incremental margin in the first half of 2009. One of the components of the rate case application that we included was a request to move to a decoupled rate design. That request was not approved by the Commission but more recently the Commission has convened a series of workshops in a generic proceeding to evaluate rate and regulatory incentives and to establish energy efficiency standards for both electric and gas utilities. Interested parties including Southwest submitted proposed regulations to the ACC in that proceeding on June 3, 2009. Throughout the workshops revenue decoupling and performance incentives have been a topic of much discussion and those concepts have been incorporated in a number of the draft regulations that the various parties have submitted. At the current time the ACC staff is reviewing the submittals of the parties and is tasked with coming up with a draft regulation of their own. We anticipate that this draft regulation will be circulated to the parties in the…

Thank you John, I’d like to next turn to liquidity for the company, we have a $300 million credit facility that expires in May of 2012. We have designated $150 million of this facility as a long-term portion and the remaining for working capital purposes. As of the end of June of this year we had $91 million outstanding under the long-term portion and none was outstanding under the short-term portion. Management believes that the company does have a solid liquidity position and we have not experienced any difficulty in obtaining any necessary financing. The company’s next significant debt maturity is in 2011 in the amount of $200 million. In December of last year the company purchase $75 million of Clark County Nevada IDRBs through a tender offer resulting in a net deferred gain of approximately $14 million after expenses. I’d like to talk a little bit about our capital expenditures, for the 12 months ended June of this year, capital expenditures were $258 million. More than half of that was new business related. That compares to $291 million for 2008. So we have seen our CapEx come down. That should be no surprise given the slowdown in the [growth]. Our cash flows from operating activities during that same 12 month period were $301 million and which provided sufficient funding for our construction expenditures and our dividend requirements. This puts us in a fairly solid position from a cash flow standpoint. Our capital structure between the years June 30, 2008 to June 30, 2009 improved 45% equity to 47% equity during those time periods. So all of our financial metrics relative to our financial position improving led S&P in April of this year to upgrade the company from a BBB minus to a BBB flat with a stable [inaudible] outlook.…

Thanks Jeff, I want to address several things, in constructing our comments today one of our management team members came up with the term that I like, which are topical items and by that I mean I want to discuss a couple of items that don’t necessarily pertain just to us but we get a lot of questions and discussions with our various constituencies both on the equity and the credit side and other users of our financial statements. So the three items that I’m going to address briefly are bad debt expense, pension expense, we have as many of you are aware a defined benefit plan and then company owned life insurance which I’m going to call COLI from here forward. So let me start out by just offering a couple of comments relative to our experience with bad debt expense. Bad debt expense for the 12 months ended June 30, 2009 was approximately $6.4 million compared to $8.5 million for the prior 12 month period. And that represents about 0.39% of our total revenues for the current 12 month period compared to about 0.46% of revenues for the prior period. We attribute the current period bad debt expense amount really a reduction in this case, is the result primarily of smaller customer bills and lower gas costs when compared to the previous period. That’s certainly one if not the primary driver. But to sum up we, the company has not experienced significant increases in bad debt expense despite the current economic conditions. I can tell you as an aside a lot of our customer service people are working a lot with our customers who are feeling the recession. And finally I think we believe that the bad debt expense will remain fairly flat or constant, comparable is probably…

I just have a few concluding remarks, firstly with respect to our pipeline construction subsidiary which I will refer to as NPL, for the 12 months ended June 30, 2009 net income was $7.5 million versus $9.1 million for the same period in 2008. a decrease of $1.6 million. This reduction basically relates to the slowdown in growth, work related to the new construction. And if you look historically at NPL they have expanded to meet the demand for growth and contracted accordingly as growth has subsided, but their balance of work is generally between the new construction and also the maintenance of systems. And we believe that utilities will continue to have a means to maintain their systems so that portion of the business will continue to be there. I would think looking forward the trends that we’re seeing are reflective of the performance of NPL. Next and finally with respect to the dividend, I think its important that we address that. In February, earlier this year the Board of Directors increased the quarterly dividend from $0.22.5 to $0.23.75 per share effective with the June, 2009 payment. The Board will each year review dividend policy almost continuously considering the adequacy and sustainability of earnings and cash flows, the strength of the company’s capital structure, the sustainability of that dividend through all business cycles and whether the dividend is within a normal payout range for the industry. So once again I expect the Board to review that. Certainly the intention is to try to address dividend policy but we will again review all of these factors as Board to determining what actions may be taken with respect to the dividend. And finally we believe the strategies are very basic, the ones that I outlined at the beginning. We believe they’re working. We’re seeing some progress. Clearly the recession is a challenge for us but we remain optimistic with the progress we’re making and we are certainly appreciative of the cooperative nature of the interactions we’ve had with our regulatory bodies. So with that I will now turn the time over to Ken to pursue any questions you may have.

That concludes our prepared presentation. We will now take your questions.

(Operator Instructions) Your first question comes from the line of Barry Klein - Citi

Just wondering on the volumes, how did they come in this quarter versus last year by customer type, residential, industrial, so forth.

I think if you look at page, generally speaking we’re seeing that we have several different factors that are affecting the margin right now. First of all you have a contraction in margin related to under using customers I guess I’ll call them for lack of a better term. Those would be where the average usage has declined for a variety of reasons. You may have homes that are active but no body is in them, an investor has purchased them, you’re getting a basic service charge but you’re not seeing any usage per say for water, heating or other uses. So we have that type and in the documents on page 15 in the 10-Q we talk about for the quarter and the six months ended that the estimated impact of these non weather related volumetric declines was a reduction in operating margin of $2 million for the second quarter and $8 million for the six months ended. We expect to see a similar trend to the end of the year. If you take a look at our customer count it is net of inactive meters and we have inactive meters, an excess number of inactive meters today that has built over the last little while but seems to have been holding relatively steady. That’s probably about 50,000 excess inactive customers. So at the time that this starts to turn around and we see some progress towards those customers hooking up, we should start to see customer numbers that would exceed first time meter sets. With no investment you’ll see customer numbers come back. Its just a question of when is the timing of that turnaround. We’re watching for that. I don’t necessarily today I don’t think anyone in this room has an answer nor do I see anybody in our communities that can give us a firm answer as to when that might turn. So hopefully that addresses your question.

And with regard to the decoupling study in Arizona, you got all the company’s work separately and submit their, everything, I guess their proposals separately or are you trying to get together with the other utilities and submit something as sort of a unified front.

Each of the entities submitted their own draft regulations. There were a lot of common discussions however, some of the workshops were fairly informal, electrics and gas companies have a little bit different perspective on their preferred type of decoupling. But I think that a lot of the spirit of what went on and certainly what was incorporated into our regulation was some flexibility to allow companies to submit mechanisms that work best for them.

And was your impression that when the Commission met and decided on something that it would sort of, they’d take it on a utility by utility basis or do you feel that they’re going to take a compilation of all the different ideas and try to set up one best practice that should apply to all the utilities.

First of all the Commission hasn’t met and decided anything in that exercise just yet but I think once they do I suspect the answer is going to be the latter, that they will come up with a regulation, it may have an electric part and a gas part within the same regulation. But again hopefully that regulation has the flexibility that allows companies to submit the type of decouple rate design that works best for them.

Your next question comes from the line of Unspecified Analyst – UBS Unspecified Analyst – UBS: Just a couple of quick questions, I was wondering if you can sort of talk about the construction segment for a second and kind of guide us to where you think a normalized run rate on an operating basis would be. Obviously I’m not asking for timing because we don’t know but kind of where you think it would settle out, 11, 12, at some point where you think you return back to a more normalized level.

That’s a good question, I guess the best way to handle that is to go look back over the last five to seven years. I think that the run up in housing starts that occurred in the 2004, 2005, 2006 and started to slow down in 2007, it probably got to an unusually high number in that timeframe. I think if you look to those prior years and you look to where we’ve come, you’re starting to see a trend that is probably more normalized. I would argue that maybe housing is a little light right now over what it might be once it returns to some level. But I would also argue that the 2004, 2005, 2006 timeframe, that ramp up was probably unusually high to look at on an ongoing basis. So I’m giving you a general answer to your question but I believe that’s probably the best way to analyze it. Unspecified Analyst – UBS: I was also wondering if you can sort of give us an update on the local economy with respect to both Phoenix and Las Vegas. Is employment starting to pick up at all, are there glimmers of hope, I hate to use the word green shoot but kind of if you can give us some color on where you think the economy is moving in both of those markets.

I’ll give you my perspective and most of it is what I read, and so its in the media print and otherwise. Generally speaking what we have seen is the purchase of existing homes has actually ticked up in recent months. The only question is are investors buying those with the expectation that someone will come and rent the homes or otherwise. We have not seen anything dramatic in the numbers, historically thus far that suggest we’ve had that catalyst that’s going to bring people in to see the turnaround in customer numbers. So we’re waiting for that. I guess I would characterize it as we’re sort of in a wait and see mode. We’re not seeing things getting tremendously worse, we’re not seeing things get tremendously better at this point. We’re sort of in a holding pattern and watching like everyone else is to see what that catalyst might be. Unspecified Analyst – UBS: And I was wondering if I could just return to something that Barry asked you, you sort of highlighted conservation as kind of an issue but is it really conservation or is it really just the scenario that the investors own a house, they pay the basic service charge, and there’s just no volumes basically.

Its probably a combination of both because I think with our economic circumstances that we’re in I think people have to some degree tightened up as well. Honestly I don’t know that there’s any way to really put a precise number on that. We’ve analyzed it, we’ve looked at, we stratified usage an so forth but at the end of the day we don’t have any firm conclusions that give us any real guidance on that. Other than to state that we look at the whole thing, we know that there are homes that are owned that they still have service turned on but we’re not seeing a lot of usage and we also know that there probably are people that are just tightening, just turning the thermostat up, not having it, whatever they’re doing, not cooking as much, not barbequing as much, I just think in this environment whatever it is, they’re doing whatever they can to save money. So its, your guess is as good as ours in some ways with respect to customer behavior other than to look at the numbers at the end of the day and that’s why we’ve disclosed that $8 million for the six months ended and the $2 million for the quarter just to give the investor the opportunity to see what the impacts have been to margin in our estimation. Unspecified Analyst – UBS: Just with respect to CapEx, obviously a lot of homes that need to be hooked up and so forth, there’s still a pretty much robust number that you through 2011, I understand that some of it is replacement of old pipe, I was wondering if you can break it down into what component is growth, what component is kind of replacement of existing infrastructure and how old the existing infrastructure is that you’re attempting to replace.

Historically we have run 60%/40% growth to what I would call code regulatory ongoing pipe replacement on an ongoing system upgrade and the things that you need to do so I would say that’s been the historical trend. Its maybe moving a little more towards 50/50 but we have an ongoing amount of CapEx that we’re going to need to spend if we’re going to keep our system reliable and safe no matter what, whether there’s heavy growth or not. And we believe that its prudent to continue to make those capital investments to make sure that we keep up with that ongoing pipe replacement needs. Unspecified Analyst – UBS: If you can just sort of address how old certain parts of the system are because I know you’ve had a lot of growth over the past 15 years, so I would assume a lot of it would be new.

We have obviously had a lot of new customer growth in then last 10 to 15 years, we also have legacy systems, the Tucson gas properties were purchased back in the last 70’s. The Phoenix properties were purchased in the mid 80’s and there have been other minor acquisitions up north. There are needs throughout the service area. We do routine leak survey work. We do significant analytics to determine where the pipe, how the various types of pipe are performing and we based on those analytics for safety reasons we will definitely go and look at any pipe that we need to and generally that pipe is very, is old, its 40, 50 years old and we replace it. And its necessary. We also have code and regulatory requirements. We have distribution integrity management laws that we have to contend with that require us to make certain capital outlays that we really don’t have a choice whether we do them or not. We have transmission integrity management pipeline laws that we have to contend with. We don’t really have a choice as to whether to make those capital investments or not. So all of these safety requirements that are imposed upon us by the federal government also add to this non revenue producing growth related capital expenditure its in the other category, and its something we have to stay ahead of.

Your next question comes from the line of John Hanson – Unspecified Company John Hanson – Unspecified Company: You mentioned on the meter set customer issue at the beginning about that it would take multiple years to work that off, is that the same 50,000 inactive ones that you were talking about.

The answer is yes. Multiple years, your guess frankly is as good as mine until we see the catalyst to change that but it’s a fairly large number and the market would have to come back in a very robust way in order to absorb that many in a very quick timeframe so that’s why we made the disclosure the way we did. We think it will take some time. John Hanson – Unspecified Company: Back on the pipeline construction business do you have any backlog kind of levels that you have now versus you had in the past or anything like that to kind of talk about.

Generally speaking there hasn’t been a great backlog for NPL even during robust time periods. The nature of the work is such that you don’t really have that. Its, when you’re doing housing developments you’re in there. They hire more crews, they expand and contract those crews to meet the growth needs. You take a look at the replacement work that various utilities need to do, maintenance work and so on throughout the country. Its pretty predictable and there really isn’t what I would call a backlog. Its more relationship driven and I think that’s the focus of NPL is to continue to have those strong relationships so that they are the contractor of choice in terms of quality and price and that’s been their strategy and its been very successful. John Hanson – Unspecified Company: You mentioned crews, has there been a cut back in the number of employees or the size, I remember in the past you’ve sold equipment at different times and all those kinds of—

The answer is yes, in fact there’s been a fairly dramatic drop off in the number of crews that are working. Their employee count is way down over what its been and they’re very effective at staying ahead of that and contracting and expanding the business with the work that’s out there. So absolutely. John Hanson – Unspecified Company: Nevada rate case, when are we expecting a final order on rates on that.

The final decision, the hearings are presently scheduled for September. The Commission should render a decision in October and we should have new rates effective November 1, prior to the heating season.

There are no additional questions at this time; I would like to turn it back over to management for any additional or closing comments.

On behalf of management of Southwest Gas, thank you for joining us today for our mid year update. We appreciate everyone listening in and have a good day.