In the face of continued, albeit moderating, growth in its principal service areas of Nevada and Arizona, Las Vegas, NV-based Southwest Gas Corp. gained a revised positive outlook and a triple-B (BBB-) credit rating Wednesday from Standard & Poor's Ratings Services (S&P). S&P cited a stronger cash flow and declining overall debt.

"Southwest Gas has made significant progress toward reducing its historically high debt leverage and will likely make further progress as a result of strong internal cash flows, minimal debt financing and regular equity infusions," according to S&P analyst Leo Carrillo.

Last month, Southwest reported earnings for last year that nearly doubled -- $83.9 million, or $2.07/share, compared with $43.8 million, or $1.15/share in 2005. CEO Jeffrey Shaw called 2006 "a very encouraging year" that showed solid improvements, but he thinks more progress can, and will, be needed.

"The operating results show that our principal strategies are working; however, there is still improvement to be made," Shaw said at the time of the earnings announcement. "We hope to continue to work with regulators to improve the level and stability of earnings and cash flows going forward."

Rate treatment will be critical, according to S&P's Carrillo, who said this will be an important consideration in establishing future credit ratings. Rates will be even more critical if growth begins to slow in Nevada, as many observers, including Southwest Gas officials, think will happen.

Gas storage has become more of an issue, too, particularly in Arizona where the utility has none. In response to analysts' questions at its year-end earnings conference call last month, Southwest officials said in Arizona storage is a "continuing issue for us and all other entities to take a good hard look at in the region. It is something that we are exploring."

Southwest's Bill Moody, vice president of resources, said there was one active project being pursued in the storage area by El Paso Natural Gas, but it has an anticipated completion of 2011. Other salt dome projects in the Texas Basin could be completed in 2009 depending on what upcoming open seasons bring, Moody said.

Southwest Gas is the largest gas distributor for both Nevada and Arizona, and it serves some remote but growing areas in the eastern high desert and mountain areas of California. At the end of 2006, the utility had about $1.4 billion in debt outstanding.

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