September 8, 2005 Arizona Gas Cost Update

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Gas Acquisition Policy #Acquire best cost portfolio considering $Price $Reliability $Flexibility $Protection from short-term market volatility R

Gas Purchase Method #Purchase 50 percent of our average annual needs in advance at fixed-price #Purchase 6 to 18 months in advance #Go to market every 4 to 6 weeks #2003 began a 2-year forward purchase #The remainder floats with the market index #Daily purchases to meet economic dispatch $Index vs. daily spot R

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APSP Price Comparison Winter 05/06 APSP % of Normal Demand $ % 05/06 Strip (approximately) /07 APSP % of Average Demand % 06/07 Strip (approximately) 9.00 R

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Outreach Educational Efforts and Program Results R

Outreach and Educational Efforts  Consumer Outreach  Energy Services  Energy and Bill Assistance  Education R

Consumer Outreach   Target $ $Residents and businesses throughout Arizona and other Southwest service territories   Message $ $The wise and safe use of natural gas $ $Energy efficiency $ $Available energy and bill assistance programs   Communication Methods $ $Utility bill messages and inserts $ $Brochures and specialty items $ $New releases $ $Community events $ $ R

Bill Inserts R

News to Use R

Web Site R

Energy Services  Designed $Answer questions about natural gas $Energy savings $Brochures and educational materials $Appliance referrals $Se habla Espanol  Call toll-free: R

Low-Income Ratepayer Assistance Program (LIRA)   Customers with an income level at or below 150 percent of the Federal Poverty Income Guidelines   Provides a 20 percent discount on the first 150 therms used each month from November through April   LIRA is a self-certification program   LIRA customers need to re-certify every two years   Quarterly Bill Inserts/Application   Online Application R

LIRA Participation R

Low-Income Energy Conservation (LIEC)  Designed $Assist income-qualified customers with homes in need of weatherization measures $Cost-effectively conserve energy and water $Improve the health, and safety of participating households $Inform customers of LIRA R

Low-Income Energy Conservation (LIEC) - continued  Partnerships $Southwest contracts with nine Community Action Agencies through the Arizona Department of Commerce – Energy Office $Leverage with other utilities and funding sources including in the statewide Weatherization Assistance Program (WAP) R

Weatherization Participation R

Additional Southwest Gas Assistance  Equal Payment Plan $ $Evenly distributes annual natural gas costs into equal monthly payments $ $Eliminates seasonal fluctuations in customer bills $ $Spreads significant increases/decreases in natural gas costs over 12 months in a subsequent year  Energy Share $ $Fuel fund administered by the Salvation Army $ $Approximately $130,000 collected annually  Partner with Local Agencies $ $Donate natural gas appliances $ $Annual roundtable meeting with Community Agencies R

ReferralsReferrals  Refer $Customers with unexpected financial difficulties such as the loss of a job or medical emergencies with agencies who provide direct assistance with energy costs or repairs  Example of Funding Sources $Low Income Home Energy Assistance Program (LIHEAP) $Utility Repair, Replacement and Deposit Program (URRD) R

Energy Education  Educate children (K-12) on energy efficiency and safety $Partner with U.S. Department of Energy, National Energy Foundation and School Districts  Realtor ® education class $Approved by the Arizona Department of Real Estate for continuing education credits R