Page 77 - SWGas Annual Report 2015

Pursuant to regulatory deferral accounting treatment for rate-regulated entities, Southwest records the unrealized
gains and losses in fair value of the Swaps as a regulatory asset and/or liability. When the Swaps mature,
Southwest reverses any prior positions held and records the settled position as an increase or decrease of
purchased gas under the related purchased gas adjustment (“PGA”) mechanism in determining its deferred PGA
balances. Neither changes in fair value, nor settled amounts, of Swaps have a direct effect on earnings or other
comprehensive income.

The following table shows the amounts Southwest paid to and received from counterparties for settlements of
matured Swaps.

Year ended Year ended Year ended

December 31, December 31, December 31,

2015 2014 2013

(Thousands of dollars)

Paid to counterparties $7,537 $ 829 $3,148
Received from counterparties $— $4,713 $ 915

The following table details the regulatory assets/(liabilities) offsetting the derivatives at fair value in the
Consolidated Balance Sheets (thousands of dollars).

December 31, 2015 Balance Sheet Location Net Total
Instrument
Prepaids and other current assets $4,267
Swaps Deferred charges and other assets 1,219
Swaps

December 31, 2014 Balance Sheet Location Net Total
Instrument
Prepaids and other current assets $5,062
Swaps
Swaps Deferred charges and other assets 363

Fair Value Measurements. The estimated fair values of Southwest’s Swaps were determined at December 31,
2015 and 2014 using New York Mercantile Exchange (“NYMEX”) futures settlement prices for delivery of natural gas
at Henry Hub adjusted by the price of NYMEX ClearPort basis Swaps, which reflect the difference between the
price of natural gas at a given delivery basin and the Henry Hub pricing points. These Level 2 inputs (inputs, other
than quoted prices, for similar assets or liabilities) are observable in the marketplace throughout the full term of the
Swaps, but have been credit-risk adjusted with no significant impact to the overall fair value measurement.

Southwest Gas Corporation