In reporting a rebound in profits quarter-over-quarter after a loss in last year’s second quarter, Southwest Gas Corp. CEO Jeffrey Shaw said there are some faint signs in Nevada and Arizona that the worst of the recession has now passed.

Shaw cautioned not to expect “dramatic changes” where his gas-only distribution utility operates, but he thinks the “erosion” has stopped. He made these observations during a conference call with analysts earlier in August, reporting second quarter profits of $4.1 million, or 9 cents/share, compared with a loss of $933,000, or a negative 2 cents/share, for the same period last year.

The inactive meter count among residential customers has dropped to between 44,000 and 50,000 residences, said Shaw, noting in the past the number has been larger. “Thus, this is an indication that we probably found the bottom. We’re not seeing a dramatic increase, but it is a good sign that net additions [in new meters] and inactive meters are about equal. We’re not seeing further erosion.

“Now we wait for the economy to turn around and hopefully see improvements.”

Shaw said Southwest Gas experienced a rapid increase in the number of Nevada and Arizona customers being lost due to foreclosures continuing to climb through 2009, but since then the rate of foreclosures has gone down. New meter sets (customers) and meter closures have been about equal so far this year, he said.

Unemployment is still “really difficult” in the utility service areas that cover most of Nevada and Arizona and a thin slice of sparsely populated high desert and mountain territory in the eastern side of California. Nevada, Arizona and California unemployment percentages dropped slightly for the 12 months ended June 30 this year, Shaw said.

“It is nothing to get excited about, but at least we are seeing a positive uptick,” he said. “We don’t expect any dramatic turnarounds in the near term, though. We still have to work through some excess capacity in all of our jurisdictions.” The large number of vacant homes due to foreclosures is a real problem for utility operations.

“We anticipate that the turnaround in the inactive meters is likely to occur over several years, lagging the national recovery,” Shaw said. “We in the Southwest have an extreme [amount of excess] capacity and that is why it is going to take a little longer to work through that.”

He said for all of 2011 Southwest expects some growth in new customers, but in the very low range of less than 1% growth.

Generally in all three states where it operates Southwest can be cautiously encouraged by the fact that the economies seem to be on what Shaw called “an upward trajectory.” But he said realistically any real turnaround “is going to take some time.”

“The type of growth we experienced [particularly in Nevada] four or five years ago [6% annually] I don’t think we can return to, at least not in the rest of my career. That was probably a very unrealistic growth rate fed by credit that people should not have had. But I would like to see us get back to something like a 3% annual growth rate. That would be ideal.”

Shaw indicated that the governors in both Nevada and Arizona are working “to diversify” their respective state economies, but that cannot be done overnight. “I think the national economy is going to have an impact, too, so we have to keep an eye on that. I don’t see anything that suggests a further erosion, so I think we have hit bottom at least.”

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