Southwest Gas Corporation and its subsidiaries (the "Company") consist of two business segments: natural gas operations ("Southwest" or the "natural gas operations" segment) and construction services.

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

As of September 30, 2008, Southwest had 1,819,000 residential, commercial, industrial, and other natural gas customers, of which 984,000 customers were located in Arizona, 657,000 in Nevada, and 178,000 in California. Residential and commercial customers represented over 99 percent of the total customer base. During the twelve months ended September 30, 2008, 55 percent of operating margin was earned in Arizona, 35 percent in Nevada, and 10 percent in California. During this same period, Southwest earned 86 percent of operating margin from residential and small commercial customers, 5 percent from other sales customers, and 9 percent from transportation customers. These general patterns are expected to continue.

Southwest recognizes operating revenues from the distribution and transportation of natural gas (and related services) to customers. Operating margin is the measure of gas operating revenues less the net cost of gas sold. Management uses operating margin as a main benchmark in comparing operating results from period to period. The three principal factors affecting operating margin are general rate relief, weather, and customer growth. Of these three, weather is the primary reason for volatility in margin. Variances in temperatures from normal levels, especially in Arizona where rates remain leveraged, have a significant impact on the margin and associated net income of the Company.

Northern Pipeline Construction Co. ("NPL" or the "construction services" segment), a wholly owned subsidiary, is a full-service underground piping contractor that provides utility companies with trenching and installation, replacement, and maintenance services for energy distribution systems. NPL currently operates in 20 major markets nationwide. Construction activity is cyclical and can be significantly impacted by changes in general and local economic conditions, including the housing market, interest rates, employment levels, job growth, the equipment resale market, and local and federal tax rates. Generally, revenues and profits are lowest during the first quarter of the year due to less favorable winter weather conditions. Operating results typically improve as more favorable weather conditions occur during the summer and fall months.

This Management's Discussion and Analysis ("MD&A") of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and the notes thereto, as well as the MD&A, included in the 2007 Annual Report to Shareholders, which is incorporated by reference into the 2007 Form 10-K, and the first and second quarter 2008 reports on Form 10-Q.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2008

Executive Summary

The items discussed in this Executive Summary are intended to provide an overview of the results of the Company's operations. As needed, certain items are covered in greater detail in later sections of management's discussion and analysis. As reflected in the table below, the natural gas operations segment accounted for an average of 88 percent of twelve-month-to-date consolidated net income over the past two years. As such, management's discussion and analysis is primarily focused on that segment. Natural gas sales are seasonal, peaking during the winter months; therefore, results of operations for interim periods are not necessarily indicative of the results for a full year.

Summary Operating
Results
                                                  Period Ended September 30,
                             Three Months                 Nine Months                Twelve Months
                          2008          2007          2008          2007          2008          2007
                                           (In thousands, except per share amounts)

Contribution to net
income (loss)
Natural gas
operations              $ (19,678 )   $ (12,863 )   $  24,748     $  32,910     $  64,332     $  76,077
Construction services       2,992         3,545         4,993         7,199         8,546        10,739
Net income (loss)       $ (16,686 )   $  (9,318 )   $  29,741     $  40,109     $  72,878     $  86,816

Average number of
common
  shares outstanding       43,581        42,448        43,307        42,219        43,150        42,060

Basic earnings (loss)
per share
Consolidated            $   (0.38 )   $   (0.22 )   $    0.69     $    0.95     $    1.69     $    2.06


Natural Gas
Operations
Operating margin        $ 134,420     $ 132,923     $ 523,444     $ 511,543     $ 740,473     $ 730,445

The gas segment recorded a loss of $19.7 million during the third quarter of 2008 compared to a $12.9 million loss in the same period of 2007. Other income decreased and operating expenses increased between the two periods. Other income (principally interest income, long-term investment returns, and non-utility expenses) declined primarily as a result of negative returns on long-term investments (company-owned life insurance) in the current quarter versus positive returns in the prior-year quarter. NPL's decline resulted primarily from less profitable work due to the general slow down in the housing industry and increased costs for fuel, fuel-related products, and subcontractors.

3rd Quarter 2008 Overview

Consolidated results for the third quarter of 2008 decreased compared to the third quarter of 2007, due to declines in both the gas and construction services segments. Basic loss per share was $0.38 in the third quarter of 2008 compared to a per share loss of $0.22 in the same period of 2007.

Gas operations highlights include the following:
· Operating margin increased $1.5 million, or 1 percent, from the prior period as customer growth levels continue to moderate

· Net financing costs decreased $1.5 million between periods

· Other income declined $5 million between periods primarily due to negative returns on long-term investments (COLI)

· Southwest's project to expand its use of electronic meter reading technology is substantially complete

· Uncontested settlement reached in California rate cases (pending California Public Utilities Commission ("CPUC") approval)

· Southwest's liquidity position remains strong

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2008

Moderating Customer Growth. During the twelve months ended September 30, 2008, Southwest completed 39,000 first-time meter sets. These meter sets led to 19,000 additional active meters during the same time frame (11,000 in Arizona, 7,000 in Nevada, and 1,000 in California). The difference between first-time meter sets and incremental active meters indicates a significant inventory of unoccupied homes. The risks/costs of having non-performing assets associated with new homes are mitigated by Southwest's practice of taking construction advances from builders on most new construction. These advances are not returned until new homes are occupied. Once housing supply and demand come back into balance, Southwest expects to experience a correction in which customer additions exceed first-time meter sets. Although management cannot predict the timing of the turn around, it is likely to occur over an extended (multi-year) time horizon.

Company-Owned Life Insurance ("COLI"). Southwest has life insurance policies on members of management and other key employees to indemnify itself against the loss of talent, expertise, and knowledge, as well as to provide indirect funding for certain nonqualified benefit plans. The COLI policies have a combined net death benefit value of approximately $138 million at September 30, 2008. The net cash surrender value of these policies (which is the cash amount the Company would receive if it voluntarily terminated the policies) is approximately $52 million at September 30, 2008 and is included in the caption "Other property and investments" on the balance sheet. In the three, nine, and twelve months ended September 30, 2008, the Company recognized declines in the cash surrender values of the COLI policies, as compared to the same periods of 2007, of $4.1 million, $8.5 million, and $10.8 million, respectively, which was reflected in Other income (deductions). Current tax regulations provide for tax-free treatment of life insurance (death benefit) proceeds. Therefore, the changes in the cash surrender value components of COLI policies as they progress towards the ultimate death benefits are also recorded without tax consequences. Currently, the Company intends to hold the COLI policies for their duration and purchase additional policies as necessary.

Meter Reading Project. In 2006, Southwest initiated a project to expand its use of electronic meter reading technology. The efficiencies to be gained from this project more than offset the investment in infrastructure. This technology eliminates the need to gain physical access to meters in order to obtain monthly meter readings, thereby reducing the time associated with each meter read while improving their accuracy. At September 30, 2008, the electronic meter reading project was substantially complete as over 99 percent of Southwest customers' meters were being read electronically.

Liquidity. Southwest has a $300 million credit facility maturing in May 2012, $150 million of which supports ongoing working capital needs. The facility is composed of eight major banking institutions. Historically, usage of the facility has been low and concentrated in the first half of the winter heating period when gas purchases require temporary financing. In addition, Southwest has no significant debt maturities prior to February 2011.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2008





Results of Natural Gas Operations

Quarterly Analysis
                                                         Three Months Ended
                                                            September 30,
                                                         2008            2007
                                                       (Thousands of dollars)
Gas operating revenues                               $    268,450      $ 274,748
Net cost of gas sold                                      134,030        141,825
Operating margin                                          134,420        132,923
Operations and maintenance expense                         87,489         83,222
Depreciation and amortization                              41,623         39,774
Taxes other than income taxes                               8,103          7,848
Operating income (loss)                                    (2,795 )        2,079
Other income (expense)                                     (4,548 )          478
Net interest deductions                                    20,521         22,003
Net interest deductions on subordinated debentures          1,933          1,932
Income (loss) before income taxes                         (29,797 )      (21,378 )
Income tax expense (benefit)                              (10,119 )       (8,515 )
Contribution to consolidated net income (loss)       $    (19,678 )    $ (12,863 )

Natural gas operations recorded a loss of $19.7 million in the third quarter of 2008 compared to a loss of $12.9 million in the same period of 2007. Other income declined and operating expenses increased between the periods, partially offset by a modest increase in operating margin and lower net financing costs.

Operating margin increased $1.5 million, or one percent, in the third quarter of 2008 compared to the third quarter of 2007. Customer growth contributed $1 million toward the operating margin increase as the Company added 19,000 customers during the last twelve months, an increase of one percent. Rate changes accounted for the remainder of the increase.

Operations and maintenance expense increased $4.3 million, or five percent, primarily due to general cost increases.

Depreciation expense increased $1.8 million, or five percent, as a result of construction activities. Average gas plant in service for the current period increased $238 million, or six percent, compared to the corresponding period a year ago. The increase reflects ongoing capital expenditures for the upgrade of existing operating facilities and the expansion of the system to accommodate customer growth.

Other income (expense), which principally includes interest income, long-term investment returns, and non-utility expenses, decreased $5 million between periods. This was primarily due to negative returns on long-term investments (COLI) in the current quarter ($3.7 million) compared to positive returns in the prior year's quarter ($355,000).

Net financing costs decreased $1.5 million between periods primarily due to a reduction in outstanding debt.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2008






Nine-Month Analysis
                                                          Nine Months Ended
                                                            September 30,
                                                        2008            2007
                                                       (Thousands of dollars)
Gas operating revenues                               $ 1,362,753     $ 1,345,996
Net cost of gas sold                                     839,309         834,453
Operating margin                                         523,444         511,543
Operations and maintenance expense                       256,298         250,847
Depreciation and amortization                            123,565         117,380
Taxes other than income taxes                             27,913          28,253
Operating income                                         115,668         115,063
Other income (expense)                                    (6,710 )         5,502
Net interest deductions                                   62,811          64,466
Net interest deductions on subordinated debentures         5,797           5,795
Income before income taxes                                40,350          50,304
Income tax expense                                        15,602          17,394
Contribution to consolidated net income              $    24,748     $    32,910

Contribution from natural gas operations decreased $8.2 million during the nine-month period of 2008 compared to the same period a year ago. The decrease in contribution was primarily caused by a decline in other income, which offset a slight improvement in operating income and lower financing costs.

Operating margin increased approximately $12 million, or two percent, during the nine-month period of 2008 compared to the same period in 2007. New customers contributed an incremental $5 million in operating margin during the current period. Rate relief in California resulted in a net $2 million increase in operating margin. Differences in heating demand primarily caused by weather variations between periods resulted in a $5 million margin increase as the current period experienced somewhat cooler temperatures while the prior period was slightly warmer-than-normal.

Operations and maintenance expense increased $5.5 million, or two percent, principally due to the impact of general cost increases. Labor efficiencies, primarily from the conversion to electronic meter reading, mitigated the increase in operations and maintenance expense.

Depreciation expense increased $6.2 million, or five percent, as a result of construction activities. Average gas plant in service increased $247 million, or six percent, as compared to the same period of 2007. The increase reflects ongoing capital expenditures for the upgrade of existing operating facilities and the expansion of the system to accommodate customer growth.

Other income (expense), which principally includes interest income, long-term investment returns, and non-utility expenses, declined $12.2 million during the nine-month period of 2008 compared to the same period in 2007. This was primarily due to negative returns on long-term investments (COLI) in the current period ($6.3 million) compared to positive returns in the prior year's period ($2.2 million) and a $1.8 million reduction in interest income primarily due to the full recovery of previously deferred purchased gas cost receivables.

Net financing costs decreased $1.7 million between periods primarily due to a reduction in outstanding debt.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2008






Twelve-Month Analysis
                                                         Twelve Months Ended
                                                            September 30,
                                                        2008            2007
                                                       (Thousands of dollars)
Gas operating revenues                               $ 1,831,523     $ 1,838,039
Net cost of gas sold                                   1,091,050       1,107,594
Operating margin                                         740,473         730,445
Operations and maintenance expense                       336,659         336,934
Depreciation and amortization                            163,275         155,022
Taxes other than income taxes                             37,213          37,495
Operating income                                         203,326         200,994
Other income (expense)                                    (7,362 )         8,984
Net interest deductions                                   84,781          86,018
Net interest deductions on subordinated debentures         7,729           7,726
Income before income taxes                               103,454         116,234
Income tax expense                                        39,122          40,157
Contribution to consolidated net income              $    64,332     $    76,077

Contribution to consolidated net income from natural gas operations decreased $11.7 million in the current twelve-month period compared to the same period a year ago. The decline in contribution was primarily caused by lower other income.

Operating margin increased $10 million, or one percent, between periods. Customer growth contributed $8 million while rate changes accounted for $2 million of the increase. Warmer-than-normal temperatures were experienced during both twelve-month periods (each with estimated negative impacts to operating margin of approximately $7 million), resulting in no incremental impact between the periods.

Operations and maintenance expense was essentially unchanged between periods. Labor efficiencies, primarily from the conversion to electronic meter reading, mitigated general cost increases.

Depreciation expense increased $8.3 million, or five percent, as a result of additional plant in service. Average gas plant in service for the current twelve-month period increased $257 million, or seven percent, compared to the corresponding period a year ago. This was attributable to the upgrade of existing operating facilities and the expansion of the system to accommodate customer growth.

Other income decreased $16.3 million between periods. This was primarily due to negative returns on long-term investments (COLI) in the current twelve-month period ($7.3 million) compared to positive returns in the prior year's twelve-month period ($3.5 million) and lower interest income ($2.4 million) primarily due to the full recovery of previously deferred purchased gas cost receivables.

Net financing costs decreased $1.2 million between periods primarily due to lower average debt outstanding.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2008

Results of Construction Services

Contribution to consolidated net income for the three, nine, and twelve months ended September 30, 2008 decreased $553,000, $2.2 million, and $2.2 million, respectively, compared to the corresponding periods in 2007. Quarterly results declined primarily due to lower profit margins on new construction work in the majority of NPL's operating areas and increased costs for fuel, fuel-related products and services, and subcontractors. While revenues increased as a result of several large replacement projects, operating results decreased in the nine-month period of 2008 as compared to the same period in 2007 primarily due to lower profit margins on new construction work, unfavorable weather conditions in the first quarter of 2008, increased costs for fuel and fuel-related products and services, and a reduction in the volume of work with existing customers. The decrease in the current twelve-month period when compared to the same period in the prior year was due primarily to unfavorable weather conditions during the first quarter of 2008 and a reduction in the volume of new construction work resulting from the general slow down in the new housing market. Increased costs for fuel and fuel-related products and services also contributed to the decrease.

Rates and Regulatory Proceedings

Arizona General Rate Case. Southwest filed a general rate application with the Arizona Corporation Commission ("ACC") in the third quarter of 2007 requesting an increase in authorized operating revenues of $50.2 million. The request is due to increases in Southwest's operating costs (including inflationary increases to labor and benefits), investments in infrastructure, and increased costs of capital. Southwest is requesting a return on rate base of 9.45 percent and a return on equity of 11.25 percent.

In addition, declining average residential usage has hindered Southwest's ability to earn the returns previously authorized by the ACC. A rate structure that would encourage energy efficiency and also shield Southwest and its customers from weather-related volatility has also been proposed. Included in the new rate design proposal are a revenue decoupling mechanism that would separate the recovery of fixed costs from volumetric usage and a weather normalization mechanism that would protect customers from higher bills in extreme cold weather and protect Southwest from cost under-recoveries in unseasonably warm weather. Southwest requested an increase of $3.10 in the monthly residential basic service charge.

In April 2008, the two primary intervening parties in the case, the ACC Staff and the Residential Utility Consumer Office, filed testimony in the case. Both parties have separately advocated revenue increases which approximate 60 percent of the filed for amount, primarily through increases in basic service charges, although their positions on a number of matters differ. In addition, neither party supports all of Southwest's proposed rate design changes or the revenue decoupling/weather normalization mechanisms, both of which Southwest deems important components of its rate filing if greater margin stability (for both Southwest and its customers) is to be achieved. Hearings concluded in June 2008, with a decision expected in the fourth quarter of 2008. Management cannot predict the amount or timing of rate relief ultimately granted, or whether the ACC will adopt any of the new rate design proposals. The last general rate increase received in Arizona was effective in March 2006.

California Attrition Filing. In October 2007, Southwest made its 2008 annual attrition filing with the CPUC requesting a $2 million increase in operating margin. The increase in customer rates was approved and became effective January 2008.

California General Rate Cases. Southwest filed general rate applications with the CPUC in December 2007 requesting an increase in authorized operating revenues of $9.1 million in its southern California, northern California, and South Lake Tahoe rate jurisdictions with a proposed effective date of January 2009. The request was made due to increases in Southwest's operating costs, investments in infrastructure, and the increased costs of capital. As part of the filing, Southwest also requested that the authorized levels of margin revert to being recognized on a seasonally adjusted basis rather than in equal monthly amounts throughout the year to better reflect the seasonal nature of Southwest's revenue stream. In addition to the margin balancing mechanism that has been in place since the last general rate case, this filing proposed a Post Test Year ("PTY") ratemaking mechanism for the period 2010 through 2013. The PTY mechanism was designed to recognize the effects of inflation and certain capital expenditures between general rate cases.

SOUTHWEST GAS CORPORATION Form 10-Q
September 30, 2008

In October 2008, after resolving all issues in the proceeding with intervening parties, Southwest filed an uncontested settlement with the CPUC. If approved by the CPUC, the Company will realize an increase in operating margin of $2.8 million for 2009, with an additional $9.7 million in PTY increases for the period 2010 through 2013. In addition, lower approved depreciation rates will result in depreciation expense reductions of approximately $3 million in 2009 as compared to current depreciation levels. Under the settlement, the return on common equity would be 10.5 percent. Southwest expects a final decision during the fourth quarter of 2008, with new rates effective January 2009.

PGA Filings

All of Southwest's state regulatory commissions have regulations that permit Southwest to track and recover its actual costs of purchased gas. Deferred energy provisions and purchased gas adjustment clauses are collectively referred to as "PGA" clauses. Timing differences between changes in PGA rates and the recovery/payment of PGA balances result in over- and under-collections. At September 30, 2008, over-collections in Arizona, Nevada, and California resulted in a liability of $33.7 million on the Company's balance sheet. In May 2008, a temporary surcharge that had been in place in Arizona since February 2006 to help accelerate the recovery of an under-collected balance was removed. PGA filings are subject to audit by state regulatory commissions. PGA rate changes impact cash flows but have no direct impact on profit margin.

As of September 30, 2008, December 31, 2007, and September 30, 2007, Southwest had the following outstanding PGA balances receivable/(payable) (millions of dollars):

                  September 30, 2008       December 31, 2007      September 30, 2007
Arizona           $              (6.9 )   $              33.9     $              31.2
. . .