O R D E R

IT IS ORDERED that:

1. Southwest Gas Corporation (Southwest) shall file, within 10 days of the effective date of this decision, revised tariff schedules for gas rates as set forth in Appendices D and E of this order. The revised tariff schedules shall reflect a four-year phase-in of the additional revenue requirement adopted in this order for Northern California. The phase-in of the additional revenue requirement shall be according to the following schedule: 80% in 2003; 10% in 2004; 5% in 2005, and 5% in 2006. In addition, Southwest is authorized to amortize the current balance in the Revenue Recovery Shortfall Memorandum Account (RRSMA) in rates for 2004.

2. Southwest's revised tariff schedules shall become effective thirty days after the effective date of this decision, and shall comply with General Order 96-A.

3. Southwest shall close the RRSMA effective with the date of this order.

4. Southwest is authorized to establish a revenue balancing account to track the differences between actual sales and sales adopted in this order. The revenue balancing account shall become effective no earlier than 30 days after the effective date of this order.

5. Southwest may continue to include pipeline demand charges, fixed storage charges and core margin revenue in the Core Fixed Cost Adjustment Mechanism.

6. Southwest is directed to develop discrete rate components for its interstate pipeline demand charges in its next General Rate Case (GRC).

7. Southwest is authorized to implement the public purpose program surcharge adjustments contemplated in D.03-03-007, shown on Appendix E.

8. In its next GRC, Southwest shall provide the Commission with an independent audit administered under the trustees of the Post Retirement Benefits Other than Pensions (PBOPs) trust account that clearly explains, when and how Southwest will use its PBOPs trust account to fund retiree's PBOPs expenses.

9. In its next GRC, Southwest must justify the reasonableness of the $30 million in software projects currently included in Construction Work in Progress balances before any of these amounts may be included in plant-in-service for rate recovery.

10. Southwest shall file with the Commission (the Director of Energy Division) annual reports addressing Southwest's pipeline replacement program beginning November 1, 2004, with subsequent reports on November 1, 2005, and November 1, 2006. The reports shall be in the same form as those filed by Pacific Gas and Electric Company, and included as Exhibit 103 in this proceeding.

11. Southwest is authorized to file advice letters and supporting workpapers requesting attrition year adjustments to rates for 2004, 2005, and 2006. The attrition year adjustments shall be calculated consistent with the Office of Ratepayer Advocates modified attrition year proposal, and may include an index adjustment based on a seven-year constant dollar historical average of non-pipeline replacement-related capital expenditures. Southwest is authorized to include revenue requirements for attrition in addition to revenue requirements that are phased-in during the four-year phase-in period.

12. Southwest is authorized to include the revenue requirements for its Truckee Operational Center in its Northern California attrition request beginning 2004. The revenue requirement for the Truckee Operations Center shall include supporting workpapers.

13. Application 02-02-012 is closed.

This order is effective today.

Dated _____________________, at San Francisco, California.

APPENDIX A

Appendix A
Adopted System Allocable Administrative and General Expenses (2001$) (1)
Acct 920
			2000 Recorded		Escalated by 0.6%
		Labor	23,866,381		24,009,579
		Labor Loading	9,674,344		11,066,015
		M&E	(1,898,377)		(1,898,377)
		Total	31,642,348		33,177,217
			Acct 921
		Labor	0
		Labor Loading	0
		M&E	6,359,153
			Acct 922
		Labor	0
		Labor Loading	0
		M&E	(5,851,383)
			Acct 923
		Labor	0
		Labor Loading	0
		M&E	4,874,919
			Acct 924
		Labor	0
		Labor Loading	0
		M&E	158,790
			Acct 925 (2)
		Labor	0
		Labor Loading	0
		M&E	1,995,258
			Acct 926 (3)
		Labor	0
		Labor Loading	0
		M&E	(112,861)
			Acct 930.1
		Labor	64,983
		Labor Loading	29,950
		M&E	10,038
		Total	104,970
			Acct 930.2
		Labor	0
		Labor Loading	0
		M&E	2,185,959
			Acct 931 (esc.)
		Labor	0
		Labor Loading	0
		M&E	2,674,962
			Acct 931 (fixed)
		Labor	0
		Labor Loading	0
		M&E	2,104,032
			Acct 935
		Labor	198,774
		Labor Loading	91615
		M&E	1,009,043
		Total	1,299,432
Notes: (1) The numbers are from 08-26-2002 correction of ORA's calculations for A&G Workpapers forwarded to SWG.
(2) The calculations made by ORA are modified to remove only 50% of the insurance premiums.
(3) ORA's Report on the Results of Operations for the Southern and Northern California Divisions of SWG GRC Volume I page 6-3.

Southwest Gas Corporation Southern California Adopted Operating Expenses (2001$)
Other Gas Supply Expense
	Labor	57,165
	Labor Loading	26,347
	M&E	6,514
	Total	90,026
Distribution (1)
		1999	2000	2001	3-Yr Average
	Labor	4,392,645	4,294,025	4,368,238
	Labor Loading	2,015,940	1,955,690	2,014,486
	Materials and Expenses	2,469,894	2,973,242	2,923,708
Rents	Labor	0	0	0
	Labor Loading	0	0	0
	Materials and Expenses	274,415	298,339	179,264
Distribution Excluding Rents	Labor	4,392,645	4,294,025	4,368,238	4,351,636
	Labor Loading	2,015,940	1,955,690	2,014,486
	Materials and Expenses	2,195,479	2,674,903	2,744,444	2,538,275
Distribution Including Rents	Labor				4,351,636
	Labor Loading				2,005,669
	Materials and Expenses				2,717,539
Total Distribution					9,074,844
Customer Accounts (2)
	Account Number	1999	2000	2001	3-yr avg	(d)*#customers		w/labor loading		Total
		(a)	(b)	(c)	(d)	(e)
Supervision	901
Labor		306,187	338,874	342,161
Labor Loading		140,894	154,197	157,414
Materials & Expenses		28,570	39,473	78,974
Normalization factor for labor		1.063	1.028	1
Normalization factor for materials		1.036	1.00	1
# Customers		100,963	103,467	104,573
Labor(2001$)		325,462	348,362	342,161
Material (2001$)		29,598	39,473	78,974
$/customer (Labor)		3.22	3.37	3.27	3.29	362,057	528,930		581,421
$/customer(material)		0.29	0.38	0.76	0.48	52,491
Meter Reading Expense	902
Labor		459,544	480,153	517,306
Labor Loading		211,662	218,782	238,471
Materials & Expenses		92,470	71,391	86,561
Normalization factor for labor		1.063	1.028	1
Normalization factor for materials		1.036	1.00	1
# Customers		100,963	103,467	104,573
Labor(2001$)		488,473	493,597	517,306
Material (2001$)		95,799	71,391	86,561
$/customer (Labor)		4.84	4.77	4.95	4.85	534,344	780,623		871,174
$/customer(material)		0.95	0.69	0.83	0.82	90,550
Customer Records & Collections Expense	903
Labor		1,474,725	1,523,058	1,611,626
Labor Loading		675,881	694,786	746,736
Materials & Expenses		1,015,819	1,134,690	1,261,072
Normalization factor for labor		1.063	1.028	1
Normalization factor for materials		1.036	1.00	1
# Customers		100,963	103,467	104,573
Labor(2001$)		1,567,561	1,565,703	1,611,626
Material (2001$)		1,052,389	1,134,690	1,261,072
$/customer (Labor)		15.53	15.13	15.41	15.36	1,691,260	2,470,761		3,698,713
$/customer(material)		10.42	10.97	12.06	11.15	1,227,951
Postage increase									30,670
Total									3,729,383
Uncollectibles	904
Net Operating Revenue		39,376,901
Revenues from Special Contracts		456,975
Uncollectibles Rate		0.1925%
Total		74,921
Misc. Customer Accts. Expense	905
labor		53,703	53,106	64,493
Labor Loading		24,740	23,986	29,739
Materials & Expenses		38,014	35,664	34,204
Normalization factor for labor		1.063	1.028	1
Normalization factor for materials		1.036	1	1
# Customers		100,963	103,467	104,573
Labor(2001$)		57,083	54,593	64,493
Material (2001$)		39,382	35,664	34,204
$/customer (Labor)		0.57	0.53	0.62	0.57	62,766	91,695		130,676
$/customer(material)		0.39	0.34	0.33	0.35	38,981
CS&I
	Labor		6,007
	Labor Loading		2768.63
	Materials & Expenses		-1,055
	Total		7,721
A&G (Direct)
	Account no.
	923		17,448
	925		130,578
	928		27,467
	926		8,457
	930		113,016
	935		223,113
Notes:
(1) Recorded distribution expenses, including rents, are from ORA's Report on the Results of Operations for the Southern and Northern California Divisions of SWG GRC (Volume I, Table 9-2, page 9-9).
(2) The recorded expenses for 1999 and 2000 are from SWG's Results of Operation Volume II-A Chapter 12 Sheet 3 of 3. The recorded expenses for the year 2001 are from ORA's Report on the Results of Operation Volume I Chapter 10. The number of 2003 customers is forecasted as 110,132 by SWG.

Southwest Gas Corporation Northern California Adopted Operating Expenses (2001$)
Other Gas Supply Expense
	Labor	10,244
	Labor Loading	4,721
	M&E	1,173
	Total	16,138
Distribution
Distribution Excluding Rents
	Labor	606,427
	Labor Loading	279,502
	M&E	562,918
	Total	1,448,847
Rents
	Labor	0
	Labor Loading	0
	M&E	229,507
	Total	229,507
Customer Accounts (Direct)
	Labor	261,860
	Labor Loading	120,691
	M&E	208,453
	Total	591,004
CS&I
	Labor	10,809
	Labor Loading	4981.87
	M&E	25,644
	Total	41,435
A&G (Direct)
	923	76,275
	925	22,304
	926	0
	928	5,264
	930	19,747
	935	19,154

(END OF APPENDIX A)

(END OF APPENDIX B)

(END OF APPENDIX C)(END OF APPENDIX D)

APPENDIX E

SOUTHWEST GAS CORPORATION SOUTHERN CALIFORNIA SUMMARY OF THE OVERALL RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2003
								Test Year (at proposed rates)
	Line
No.			Description			2003				Deficiency					No.
					(a)					(c)			(d)		(e)
1				Operating Revenue									$	82,660,122	$	3,407,757	$	86,067,879			1
2					Gas Cost							43,283,221		(284,553)		42,998,668		2
3				Operating Margin							$		39,376,901	$	3,692,310	$	43,069,211		3
														39,376,901		3,692,310		43,069,211
				Operating Expenses
4					Other Gas Supply					$	90,026		$		$	90,026		4
5									Distribution					9,074,844				9,074,844			5
6					Customer Accounts								5,395,410		7,107		5,402,517		6
7					Customer Service & Information								7,721				7,721		7
8					Sales								0				0		8
					Administrative and General
9									Southern California Division					1,042,913				1,042,913			9
10									System Allocable					3,995,989				3,995,989			10
					Depreciation and Amortization
11						Southern California Division							9,147,923				9,147,923		11
12									System Allocable					1,410,792				1,410,792			12
13					Taxes Other Than Income						1,021,776			49,024		1,070,800		13
					Escalation
14									Labor					696,362				696,362			14
15									Other					109,746				109,746			15
					Income Taxes
16						State							237,471		321,438		558,909		16
17									Federal					787,354		1,160,159		1,947,513			17
18					Total Operating Expenses					$	33,018,326		$	1,537,729	$	34,556,055		18
19				Net Operating Income					$	6,358,575	$		2,154,581	$	8,513,156		19
20					IDRB Adjustor Net of Tax								968,175				968,175		20
21				Net Operating Income with IDRB Adjustor							$		7,326,750	$	2,154,581		9,481,331		21
				Rate Base
					Gas Plant in Service
22										Southern California Division				$	194,853,550	$	0	$	194,853,550
23									System Allocable					10,602,386		0		10,602,386			23
24					Total Gross Plant					$	205,455,936		$	0	$	205,455,936		24
					Accumulated Provision for
					Depreciation and Amortization
25									Southern California Division				$	89,174,896	$	0	$	89,174,896			25
26									System Allocable					6,234,108		0		6,234,108			26
					Total Accumulated Provision for
27					Depreciation and Amortization					$	95,409,004		$	0	$	95,409,004		27
28					Net Plant in Service						$		110,046,932	$	0	$	110,046,932		28
					Other Rate Base Items
29						Working Capital (add)					$		3,459,746	$	0	$	3,459,746		29
30									Customer Advances (deduct)					653,826		0		653,826			30
31						Deferred Taxes (deduct)							9,457,747		0		9,457,747		31
32					Total Other Rate Base Items					$	(6,651,827)		$	0	$	(6,651,827)		32
33				Total Rate Base						$	103,395,106		$	0	$	103,395,106		33
34				Rate of Return									7.09%				9.17%		34

(END OF APPENDIX E)

CERTIFICATE OF SERVICE

I certify that I have by electronic mail, mailed to the parties of which an electronic mail address has been provided; this day served a true copy of the original attached Alternate Proposed Decision of Commissioner Loretta Lynch on the Proposed Decision of ALJ Bruce DeBerry on all parties of record for proceeding A.02-02-012 or their attorneys of record.

Dated January 16, 2004, at San Francisco, California.

/s/ EVELYN P. GONZALES

Evelyn P. Gonzales

NOTICE

Parties should notify the Process Office, Public Utilities Commission, 505 Van Ness Avenue, Room 2000, San Francisco, CA 94102, of any change of address to insure that they continue to receive documents. You must indicate the proceeding number on the service list on which your name appears.

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

The Commission's policy is to schedule hearings (meetings, workshops, etc.) in locations that are accessible to people with disabilities. To verify that a particular location is accessible, call: Calendar Clerk (415) 703-1203.

If specialized accommodations for the disabled are needed, e.g., sign language interpreters, those making the arrangements must call the Public Advisor at (415) 703-2074, TTY 1-866-836-7825 or (415) 703-5282 at least three working days in advance of the event.