Page 45 - SWGas Annual Report 2015

$14.7 million. The estimated maximum exposure to loss represents the maximum loss that would be absorbed by
Centuri in the event that all of the assets of Western are deemed worthless. Centuri recorded earnings of $310,000
from this investment in 2015 which is included in Other Income (deductions) in the Consolidated Statements of
Income.

Centuri, through its subsidiaries, also has a 25% interest in CCI-TBN Toronto, Inc. and a 50% interest in Matheson-
Nicholls Joint Venture. Any future changes to the values of these entities will be recorded by Centuri using the
equity method.

Net Utility Plant. Net utility plant includes gas plant at original cost, less the accumulated provision for
depreciation and amortization, plus the unamortized balance of acquisition adjustments. Original cost includes
contracted services, material, payroll and related costs such as taxes and benefits, general and administrative
expenses, and an allowance for funds used during construction, less contributions in aid of construction.

Other Property and Investments. Other property and investments includes (millions of dollars): 2015 2014

Centuri property, equipment, and intangibles $ 423 $ 405
Centuri accumulated provision for depreciation and amortization (221) (187)
Net cash surrender value of COLI policies 99 99
Other property 13 10

Total $ 314 $ 327

Deferred Purchased Gas Costs. The various regulatory commissions have established procedures to enable
Southwest to adjust its billing rates for changes in the cost of natural gas purchased. The difference between the
current cost of gas purchased and the cost of gas recovered in billed rates is deferred. Generally, these deferred
amounts are recovered or refunded within one year.

Prepaids and other current assets. Prepaids and other current assets includes gas pipe materials and operating
supplies of $24 million in 2015 and $23 million in 2014 (carried at weighted average cost), and also includes natural
gas stored underground and liquefied natural gas, in addition to prepaid assets.

Income Taxes. 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. 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
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the
enactment date. For regulatory and financial reporting purposes, investment tax credits (“ITC”) related to gas utility
operations are deferred and amortized over the life of related fixed assets. As of December 31, 2015, the Company
sustained losses in its foreign jurisdiction and therefore has no undistributed foreign earnings. However, the
Company intends to permanently reinvest any future foreign earnings in Canada.

Cash and Cash Equivalents. For purposes of reporting consolidated cash flows, cash and cash equivalents
include cash on hand and financial instruments with a purchase-date maturity of three months or less. In general,

Southwest Gas Corporation