Page 31 - SWGas Annual Report 2015

reduction of current-period earnings. Refer to Note 4 – Regulatory Assets and Liabilities for a list of regulatory assets
and liabilities.

Accrued Utility Revenues
Revenues related to the sale and/or delivery of natural gas are generally recorded when natural gas is delivered to
customers. However, the determination of natural gas sales to individual customers is based on the reading of their
meters, which is performed on a systematic basis throughout the month. At the end of each month, margin
associated with natural gas service that has been provided but not yet billed is accrued. This accrued utility
revenue is estimated each month based primarily on applicable rates, number of customers, rate structure,
analyses reflecting significant historical trends, seasonality, and experience. The interplay of these assumptions can
impact the variability of the accrued utility revenue estimates. All Company rate jurisdictions have decoupled rate
structures, limiting variability due to extreme weather conditions.

Accounting for Income Taxes
We are subject to income taxes in the United States and Canada. The income tax calculations of the Company
require estimates due to known future tax rate changes, book to tax differences, and uncertainty with respect to
regulatory treatment of certain property items. The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Regulatory tax assets and liabilities are recorded to the extent the
Company believes they will be recoverable from or refunded to customers in future rates. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The Company regularly assesses financial
statement tax provisions to identify any change in the regulatory treatment or tax-related estimates, assumptions,
or enacted tax rates that could have a material impact on cash flows, the financial position, and/or results of
operations of the Company.

Accounting for Pensions and Other Postretirement Benefits
Southwest has a noncontributory qualified retirement plan with defined benefits covering substantially all
employees. In addition, Southwest has a separate unfunded supplemental retirement plan which is limited to
officers. The Company’s pension obligations and costs for these plans are affected by the amount and timing of
cash contributions to the plans, the return on plan assets, discount rates, and by employee demographics,
including age, compensation, and length of service. Changes made to the provisions of the plans may also impact
current and future pension costs. Actuarial formulas are used in the determination of pension obligations and costs
and are affected by actual plan experience and assumptions about future experience. Key actuarial assumptions
include the expected return on plan assets, the discount rate used in determining the projected benefit obligation
and pension costs, and the assumed rate of increase in employee compensation. Relatively small changes in these
assumptions (particularly the discount rate) may significantly affect pension obligations and costs for these plans.
For example, a change of 0.25% in the discount rate assumption would change the pension plan projected benefit
obligation by approximately $39.5 million and future pension expense by $4 million. A change of 0.25% in the
employee compensation assumption would change the pension obligation by approximately $7.5 million and
expense by $1.6 million. A 0.25% change in the expected asset return assumption would change pension expense
by approximately $2 million (but has no impact on the pension obligation).

Southwest Gas Corporation