SCANA Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.21.13 | About: SCANA Corporation (SCG)

SCANA (NYSE:SCG)

Q4 2012 Earnings Call

February 21, 2013 10:00 am ET

Executives

Byron W. Hinson - Director of Investor Relations

Kevin B. Marsh - Chairman, Chief Executive Officer, President, Chief Operating Officer, President of Sce&G and Chairman of Executive Committee

Jimmy E. Addison - Chief Financial Officer and Executive Vice President

Stephen A. Byrne - Executive Vice President, President of South Carolina Electric & Gas Company Generation and Chief Operating Officer of South Carolina Electric & Gas Company (Sce&G)

Analysts

Adam Muro - Goldman Sachs Group Inc., Research Division

Travis Miller - Morningstar Inc., Research Division

Andrew Levi

Andrew M. Weisel - Macquarie Research

John Alli

Operator

Good morning, ladies and gentlemen. Thank you for standing by. I will be your conference facilitator today. At this time, I would like to welcome everyone to the SCANA Corporation conference call. [Operator Instructions] As a reminder, this conference call is being recorded on Thursday, February 21, 2013. Anyone who does not consent to the taping may drop off the line.

At this time, I would like to turn the call over to Byron Hinson, Director of Financial Planning and Investor Relations.

Byron W. Hinson

Thank you, and welcome to our earnings conference call, including those who are joining us on the webcast. As you know, earlier today we announced financial results for the fourth quarter and full year of 2012. Joining us on the call today are Kevin Marsh, Chairman and CEO of SCANA; Jimmy Addison, SCANA's Chief Financial Officer; and Steve Byrne, Chief Operating Officer of SCE&G.

During the call, Kevin will make opening comments and Jimmy will provide an overview of our financial results, economic development in our service territory, regulatory activity and earnings guidance for 2013. Additionally, Steve will provide an update on our new nuclear project. After those comments, we will respond to your questions. The slides and the earnings release referred to in this call are available at SCANA.com.

Before I turn the call over to Kevin, I would like to remind you that certain statements that may be made during today's call are considered forward-looking statements and are subject to a number of risks and uncertainties as shown on Slide 2. The company does not recognize an obligation to update any forward-looking statements. Additionally, we may disclose certain non-GAAP measures during this presentation, and the required Reg G information can be found on the Investor Relations section of our website.

I'll now turn the call over to Kevin.

Kevin B. Marsh

Thanks, Byron, and I'll begin on Slide 3. SCANA had a very good year in 2012, both financially and operationally, and Jimmy and Steve will speak to those accomplishments in just a few minutes. Like most businesses, we had plenty of opportunities and challenges during the year to keep our team busy. Early in the year, we developed and then executed a multifaceted strategy to overcome the challenges of the extremely mild weather that impacted our natural gas marketing business in Georgia. Additionally, the new nuclear team received our combined operating license from the Nuclear Regulatory Commission and made substantive progress on the construction of the 2 new plants.

Last year, we completed a comprehensive analysis of each business unit through our robust, strategic planning process that allows our management team to focus on significant issues and to execute. One example of a positive outcome of the strategic planning process is our decision to consolidate the leadership of all our regulated natural gas operations under one leader. Rusty Harris, who previously served as President of PSNC Energy in North Carolina, is now leading this combined group as President of SCANA's natural gas operations. You may remember Rusty from our Analyst Day presentations last year.

As a company, our strong financial and operational results are reflected in our total return to shareholders, which outperformed the majority of our peers in 2012. Yesterday, we announced an increase in our annual dividend rate, further contributing to shareholder return.

Several years ago, I was on the earnings call when we announced we were lowering our growth rate. We monitored the economic impact of the recession over the last 24 months, and we're more confident in the economic environment today than we were in 2011. Unemployment in our service area has improved by nearly 200 basis points, and customer growth also continues to improve. As a result, today I am pleased to tell you that we are increasing our growth rate. As Jimmy will discuss shortly, we are raising the upper band of our long-term growth rate from 5% to 6%. Our new growth target will therefore be 3% to 6% over a 3- to 5-year period, reflecting our more optimistic view while acknowledging some volatility in margin growth. We are now focused on executing our 2013 plan to achieve this goal.

Jimmy and Steve will now lead you through a discussion of our 2012 results and areas of focus for 2013. Obviously, one of our primary areas of focus will continue to be our new nuclear project. We are entering a period of peak construction spending, and focusing on successful execution will continue to be paramount. I'm confident we have a qualified team in place that will be able to bring this project to completion. Another area of focus for the next few years will be managing our base electric business, with a goal of no request for base rate increases until peak nuclear construction is behind us.

I'll now turn the call over to Jimmy, who will discuss our 2012 results.

Jimmy E. Addison

Thanks, Kevin, and thank you all for joining us today. I'll begin our earnings discussion on Slide 4. Basic earnings in the fourth quarter of 2012 were $0.79 per share compared to $0.76 per share in the same quarter of 2011. Higher electric and gas margins, as well as proceeds from the sale of communications towers, partially offset by increases in operating and maintenance expenses, depreciation and dilution. The increase in operating and maintenance expense was primarily due to higher incentive compensation and generation expenses. As I've mentioned previously, incentive compensation levels were abnormally low in 2011 due to stock performance and the fact that we did not meet our internal earnings target for the year. In 2012, we outperformed most of our peer group and exceeded our internal earnings target, resulting in the accrual of additional at-risk incentive comp.

Generation-related expenses were somewhat higher due largely to changes in the O&M and fuel allocation mix at our biomass facility. We also had termination fees related to the change in the third-party administrator for our health plan in the fourth quarter of 2012. As you can see on Slide 5, for the full year, our GAAP basic earnings were $3.20 per share. There are several factors which should be considered as you review our 2012 earnings and look forward to 2013.

First, I would like to review the weather impact. 2012 marked the warmest year on record in the U.S. We experienced $0.11 per share of abnormal weather in 2012 comprised of $0.10 in Georgia in the first and fourth quarters, as well as $0.01 in the first quarter at SCE&G. As Kevin said, we recognized early on that weather in Georgia was going to be a challenge, but we remained committed to meeting our earnings target. It took several actions, including the sales of several well-subscribed telecommunications towers, as we do in the normal course of business from time to time. These sales of those towers contributed a gain of approximately $0.04 per share. We also reduced our forecasted spending, which contributed an additional $0.05 to the bottom line. The year-over-year increase in O&M is due to factors we discussed earlier: incentive comp, generation expenses and termination fees associated with health care. As a result of these actions and stronger-than-expected margin growth, we were able to more than offset the impact of weather.

Now on Slide 6, I'd like to briefly review results for our principal lines of business. South Carolina Electric & Gas Company's full year 2012 earnings were up $0.23 compared to 2011, driven largely by base rate increases under the Base Load Review Act and the Gas Rate Stabilization Act, along with customer growth. These increases were partially offset by increases in operation and maintenance expenses, interest and depreciation expenses, and share dilution. For the fourth quarter, SCE&G's earnings were $0.04 higher than the same period last year, reflecting the aforementioned margin increases. PSNC Energy's earnings for 2012 were $0.38 per share compared to $0.37 per share in 2011. Increased margins from customer growth were somewhat offset by higher operating and maintenance expenses, and depreciation. Fourth quarter 2012 earnings were flat over the same period in 2011. SCANA Energy reported lower earnings for the year and quarter primarily driven by the abnormally mild weather as I discussed earlier. SCANA's Corporate and other businesses for 2012 reported a gain of $0.05 per share compared to a loss of $0.01 per share in 2011. The increase is largely due to the sale of telecommunications towers as mentioned previously.

Next, I would like to touch on sales growth as shown on Slide 7. Weather-normalized sales volumes have shown promise, particularly in the latter half of 2012. For the year ended December 31, 2012, total weather-normalized electric sales to residential and commercial customers were up approximately 2.4% and 1.7%, respectively. Industrial sales were down approximately 1.7%, primarily due to reduced production at one of our largest customers as a result of a fire, as we discussed in prior quarters. This customer was brought back online on October. Were this customer's operations consistent with 2011, we estimate industrial sales would have increased approximately 1.4%, while total weather-normalized retail sales would have increased approximately 2%. Of the total retail sales growth, approximately 2/3 was from increased usage, while 1/3 was attributable to new customers.

On Slide 8, you will find information about economic trends in our service territories. We continue to be encouraged by the level of economic development activity with approximately $1.6 billion announced investment in our Carolina territories this year.

Census data also shows a positive trend in domestic population migration for our service territories. Of the 4 census graphic -- geographic regions, the South region saw significantly greater domestic population migration growth. In fact, more than 10x the growth of any other region. South Carolina, North Carolina and Georgia are all among the top 10 states in population growth, signifying that more people are relocating to the Southeast and more importantly, into our service territories, which leads to customer growth. Over the last year, customer growth has trended higher in our electric business, as well as in our regulated gas businesses in South and in North Carolina. As of December 2012, those rates were 0.9% for electric, 1.8% for SCE&G gas, and 2% for PSNC. SCE&G gas had its best growth rate since 2007 and PSNC had 2 linked quarters of 2% customer growth.

Please turn to Slide 9, which sets forth our regulated rate base and returns. The bar graph on the left presents the components of our regulated rate base of over $7.6 billion. As you can see from the items denoted in the 2 shades of blue, approximately 85% of this rate base is composed of SCE&G electric. Our regulated gas businesses in the Carolinas continue to perform well. Public Service of North Carolina continues to earn a strong return due to customer growth in its territory and stable margins under the customer utilization tracker mechanism. The return on the regulated gas business in South Carolina reflects the November rate increase of $7.5 million under the Rate Stabilization Act. We also continued to see the expected returns on the new nuclear project under the BLRA.

As we've mentioned previously, a strategic goal for 2013 and beyond will be to manage our base retail electric business to prevent the need for base rate increases during the peak nuclear construction years of 2013 through 2015. Control of O&M and non-new nuclear CapEx, while monitoring and responding to margin fluctuations, will be essential to achieving this goal. As you're all aware, in late December, the PSC issued an order approving an overall increase in retail electric revenues of approximately $97 million with an allowed ROE of 10.25%. We anticipate this rate increase will have a net income impact of approximately $26 million in 2013. These new rates were effective on January 1, 2013.

We will file our quarterly surveillance report for SCE&G electric with the Commission in mid-March. We estimate the regulatory retail electric ROE for the 12 months ended December 2012 is approximately 10%. We continue to fine-tune our strategy with a goal of managing this business so that we earn a reasonable return while not requesting a base rate increase during this period of peak nuclear construction. The bottom of the slide includes a timeline depicting our regulatory filing schedule for 2013 outside of the new nuclear project. These planned activities are standard annual filings. As you can see in the timeline, we have completed our annual demand side management filing and we'll be submitting our integrated resource plan shortly.

Slide 10 presents our CapEx forecast. This forecast reflects new nuclear spending as reported in our latest BLRA quarterly report filed on February 13 and reflects our new CapEx budget for 2013 through 2015. On the bottom of the slide, you can see our anticipated incremental nuclear CWIP as of June 30. This represents the incremental CWIP from July 1 through June 30 for each period on which the BLRA increase is calculated. Our projected nuclear spend has not changed substantially since the last public version of this slide. The projection for capital spending at our North Carolina LDC and in our gas transmission business has increased to accommodate growth in both of these subsidiaries. Spending at SCE&G has remained largely consistent with the previous CapEx schedule we presented, with increases in our generation, transmission and distribution categories being partially offset with decreases in other categories.

Please turn to Slide 11 to review our financing plan. As a result of a shift in our nuclear spending, as shown in the Q3 and Q4 BLRA filings, coupled with the extension of bonus depreciation into 2013, we have pushed approximately $275 million of additional equity from 2013 to 2014. We are committed to drawing the remaining funds from our equity forward contract during the first quarter of this year, resulting in the issuance of approximately 6.6 million shares. We expect this equity from the forward, in addition to the $100 million from the employee stock and other DRIP plans to meet our needs for 2013, further minimizing dilution. The blue box denotes our estimate of the additional equity needed to complete nuclear construction. Of course, the amounts and timing could change due to a change in inflation, bonus depreciation, the construction schedule or other factors.

I would also like to touch briefly on our pension plan. I'm pleased to report that our pension plan remains adequately funded. We have not had to make a cash contribution to the plan since 1997, and do not anticipate any such contributions until after 2014. In addition, we are now largely insulated from the earnings impact of changes in pension costs as a result of the implementation of a pension cost recovery rider as part of our latest electric rate case.

Slide 12 presents our 2013 earnings guidance and related assumptions. As Kevin mentioned earlier, we have increased the upper band of our long-term target growth rate from 5% to 6%. Therefore, our new target will be 3% to 6% over a 3- to 5-year period, based on 2012 GAAP basic earnings per share of $3.20. This increase represents our projected earnings momentum driven by our BLRA filings, our stated goal to manage retail electric returns and our view of the economy, balanced with our assumption of the impacts of the phase-in of the CFL lightbulbs and other efficiency standards.

Our 2013 guidance is $3.25 to $3.45 per share, and our internal target is $3.35. Typically, we expect to earn approximately 30% of this amount in each of the first and third quarters, approximately 25% in the fourth quarter, and the remainder in the second. In computing this guidance range, we have included the impact of base rate increases from our new nuclear filings under the BLRA, the 2012 gas RSA filing and the retail electric base rate increase that took effect on January 1. This guidance also assumes drawing the funds under our equity forward contracts in the first quarter of 2013, and incorporates the CapEx and financing plans we presented earlier.

Additionally, while we anticipate the number of customers will continue to increase, our assumption of customer average use of electricity is lower next year considering the aforementioned energy efficiency impacts. We anticipate overall retail sales growth for 2013 to be slightly less than 0.5%. We forecast customer growth to be in a similar range to 2012.

We expect operating and maintenance expenses to be approximately 2.5% higher in 2013, excluding bad debt expense and specific O&M expense increases associated with the recent rate case, since those have already been considered in the anticipated $26 million net income impact we previously provided. If you were to include rate case and bad debt expenses, O&M would grow at approximately double the 2.5% rate. The largest driver of rate case expenses is the recognition of pension expense in 2013. While this increase will be offset with additional revenue via a rider, it will cost the O&M line item to increase on the face of the financials. In regards to non-rate case O&M, approximately 1/3 of the expected increase is due to deferred items from 2012.

Some of the other items driving the increase include amortization of program costs from our demand side management program, which are offset with increased electric margin and increased reliability related costs. We also expect continued growth in the CapEx related cost of property taxes, depreciation and interest. Also, our effective tax rate for 2012 was approximately 30% and we estimate the rate for 2013 will be approximately 32%. Our lower effective tax rate for the last couple of years has reflected the amortization of previously deferred state investment tax credits, and that amortization ran its course during 2012. The higher effective rate was considered in our most recent electric rate case. In addition, we've seen a fundamental shift in the Georgia market. The business has really matured during the last decade, resulting in thinner margins and enhanced competition for customers. As a result, we estimate earnings in Georgia will be slightly lower prospectively, and in the range of approximately $0.18 to $0.20 per share.

Keeping in mind our internal target of $3.35, let's discuss the potential upsides and downsides to our 2013 earnings range. There are several factors that could cause us to trend towards the lower end of our guidance. We continue to see fluctuations in average use. While we were pleased with usage in 2012, we believe that there's uncertainty around average use. And as a result, we have forecasted average use to be slightly lower in 2013. Average use could come in even lower than forecast due to higher CFL bulb adoption rates. Customer growth continues to be a bright spot in our service territory. We are currently forecasting an increase similar to 2012. However, there is the possibility that customer growth comes in lower than expected. And as you are all aware, many American households have seen a reduction in take-home pay in 2013 due to the recent expiration of the payroll tax holiday. Lower discretionary income could impact customer spending. In addition, gasoline prices are already increasing, which could further impact discretionary spending, particularly in our service territories, where customers typically drive personal vehicles to and from work. Additionally, if nuclear spending were to slow down or shift to later years, it would negatively impact our earnings potential for 2013.

In contrast, there are several factors that could push it toward the upper end of our guidance. If average use were to increase at 2012 levels or better or if customer growth accelerates beyond 2012 levels, we could have potential upside. Hopefully, this will provide you with a line of sight into our view of 2013 as you update your own models. And finally, I want to mention our upcoming Analyst Day event to be held in New York on June 5. Please mark your calendars and plan to attend.

I'll now turn the call over to Steve to provide an update on our nuclear project.

Stephen A. Byrne

Thanks, Jimmy. I'd now like to direct your attention to Slide 13. Construction continues to progress at our nuclear site in Jenkinsville, South Carolina. The project maintains an excellent safety record and has seen good coordination between the various contractor companies on-site. The schedule continues to support commercial operation dates in 2017 for Unit 2 and 2018 for Unit 3.

On the top left of the slide, you can see a picture of the switchyard. Switchyard was substantially completed during the fourth quarter of 2012 and was energized for testing this year. At top right, you will see a picture of Cooling Tower 2 Alpha. Progress on all 4 of the low-profile forced draft cooling towers continues to progress as anticipated. On the bottom left, you'll see the Unit 2 Turbine Building. Turbine Building basemat for Unit 2 is substantially complete and we are starting vertical construction. At bottom right, you'll see a picture of the Unit 3 Nuclear Island, rock cleaning and form work have been completed and leveling concrete has been poured. The lower and upper mud mats, along with the waterproof membrane will be installed in the coming months.

Slide 14 is a picture of the Unit 2 Nuclear Island. As you may have noticed, in January, we filed a License Amendment Request or LAR and a Preliminary Amendment Request or PAR, with the Nuclear Regulatory Commission to reflect changes in the license design as it relates to reinforcing bar in the Nuclear Island basemat. The proposed changes reflect a modification to the American Concrete Institute code section referenced in the design from Section 349 to Section 318. The use of this code section requires relatively minor changes to the rebar and to the thickness of the concrete in the areas below the elevator pits and the sump.

In January, we received a No Objection letter from the NRC staff on the path laid out in the PAR. At that point, we began work on the reinforcing bar reconfiguration, allowing us to prepare for the nuclear concrete pour upon receipt of the LAR. We're optimistic that we will receive the LAR in the first quarter. We don’t expect this issue to impact the commercial operation dates for the 2 units.

As you may have noticed in our most recent BLRA filing, we have filed 7 LARs to date and anticipate that there will be more throughout the course of the project. I wanted to bring to your attention that these filings are relatively routine and are a normal part of the nuclear licensing process. Not only are they filed for new nuclear construction, but they are routine in all nuclear facilities, including our V.C. Summer Unit #1. These filings were made periodically throughout the construction of our new nuclear build.

Overall, the fabrication of equipment off-site is proceeding on a schedule that supports the commercial operation date of the units. The components of the condenser for Unit 2 have arrived on-site and are being assembled. Manufacturing and testing of the reactor vessel for Unit 2, as seen on Slide 15, is nearing completion and shipment is planned for the second quarter of 2013. Steam generators for Unit 2 are also scheduled to be delivered in 2013. However, the schedule for fabrication of the sub-modules from a Shaw Modular Solutions facility in Lake Charles, Louisiana, remains a focus area for the project. Senior management from SCE&G, Shaw and Westinghouse continue to actively provide oversight, and we continue to see improvement in the fabrication and delivery process related to the sub-modules.

Progress at the Sanmen plant in China, which is building the AP1000 design, is going well, as you can see on Slide 16. In January, they successfully set the containment vessel top head, which you can still see attached to the large blue crane. All major equipment has been installed and the welding of the main cooling piping is in process. We congratulate them on their achievements and look forward to accomplishing the same milestones.

Slide 17 gives you a visual representation of the sections of the containment vessel. You can see that the top head, which Sanmen just set -- the containment vessel is approximately 215 feet tall, 130 feet in diameter and weighs about 7 million pounds. The containment vessel is assembled in 5 main sections: the bottom head, 3 ring sections and the top head. Each section is assembled and welded from individual steel plates that are shipped to the site from sub-vendors, where they have been rolled, formed, cut and beveled.

On Slide 18, you can see the progress that has been made on the fabrication of the containment vessel for Unit 2. The on-site fabrication by Chicago Bridge & Iron is steadily progressing. They have worked on the rings that attach the completed bottom head and which will form the vertical walls of the containment vessel containers.

On Slide 19, we review our new nuclear Base Load Review Act filings and related rate increases. In September of last year, the Public Service Commission of South Carolina approved a rate increase of $52 million. These new rates were effective for bills rendered on and after October 30. We continue to be pleased that the mechanism is working as designed. Our BLRA filings for 2013 are shown at the bottom of the slide. As you can see, our next quarterly status report will be filed in May, and we will make our annual request for revised rates under the BLRA in May as well.

Information on Slide 20 reflects the expected rate increases for our nuclear project through 2015. As you can see, the amount for 2013 is lower than the number previously provided in May of last year, due largely to the shift of CapEx as discussed in our third quarter 2012 BLRA report and the escalation associated with that shift. The amounts for 2014 and 2015 are largely unchanged. We will adjust these numbers in May when we make our request for revised rates, but we wanted to give you a sense of our current expectations.

That concludes our prepared remarks. We will now be glad to respond to any questions you might have.

Question-and-Answer Session

Operator

[Operator Instructions] The first question will come from Adam Muro of Goldman Sachs.

Adam Muro - Goldman Sachs Group Inc., Research Division

Adam Muro here, subbing in for Michael and Neil. Just curious, the Vogtle plant under construction by Georgia Power recently faced a challenge of the railcar used to get the reactor vessel from the port to the plant site was not big enough, creating some logistical issues. I mean, just curious on whether this impacts your construction project. If so, how, and what can be done to remedy this?

Stephen A. Byrne

This is Steve. The railcar that was used to transport the reactor vessel from the Port of Savannah to the Vogtle site, I didn't understand that it was undersized but the load did shift in transit not far out of the Port of Savannah. The vendor, in this case it's Westinghouse, along with the railcar vendor, are redesigning that car. We don’t anticipate that it's going to have any impact on our delivery schedule. We don't need our reactor vessel on the site until sometime next year.

Operator

Our next question will come from Travis Miller of Morningstar.

Travis Miller - Morningstar Inc., Research Division

I was wondering if you could just discuss your dividend policy and ability to increase the dividend in line with your targeted earnings growth rate, particularly given the amount of capital expenditure you have coming up?

Jimmy E. Addison

Sure. Well our policy is 55% to 60% payout ratio. And we got a little ahead of that, not due to dividend growth, but due to a pullback in earnings at the beginning of the recession a few years ago. And we presented a plan to our board about 3 years ago. They took the third step in that plan yesterday, which we published. And that is to continue to grow dividends, but grow them at a lesser rate than the earnings growth so that we get back inside the top end of that payout ratio. So we're very close to it now, I think based on our proposed guidance for '13, we're just slightly over 60%. So we would expect to be able to continue to grow it until we're completely inside of that range at a slightly lower rate than earnings growth, and then we would expect the dividend growth to be fairly consistent with earnings growth.

Travis Miller - Morningstar Inc., Research Division

Great. If you could provide a little color on the expected difference between the retail sales guidance of roughly 0.5% compared to 2% for 2012 if you include the customer outage. Is that all just due to higher efficiency rates?

Jimmy E. Addison

It principally is. And we've expected our actual number of customers added, new customers added to the system would be very similar in 2013 to 2012, that's our planning assumption. At least we based it off of what we had experienced through Q3. When we put our plan together, of course, Q4 accelerated just slightly above that from 0.6% to 0.9%. So most of the kind of dampening of it is our expectation of these efficiency standards. And there's kind of no question that this is coming with these CFL bulbs principally. The question -- the very difficult part for all of us is exactly when does it work through and how much of it comes through. So we've assumed it comes in over 3 to 4 years, and becomes completely saturated. But frankly, we don't know what kind of inventories are out there in folks' homes of incandescent bulbs that they can use over time. So that's the biggest factor.

Operator

The next question will be from Andy Levi of Avon Capital.

Andrew Levi

I'm sorry if you've talked about this in your formal comments, I've just been hopping around calls here. But what was -- what prompted you to take the high end of your growth rate up to 6%, which we were happy to see?

Kevin B. Marsh

Yes, Andy, this is Kevin. We've had these discussions on the calls, I think ever since we lowered the rate, as to when we might be able to move it back up. We talked last year and we watched carefully as we tried to figure out exactly what was going on in the economy. We saw glimpses of movement both in the customer usage, as well as the growth rate. We hadn't seen anything that we felt like was more of a trend until we got towards the end of the year. Based on our analysis, I guess we would say we see a light at the end of the tunnel now rather than a flicker, and we felt confident raising that top end combined with the growth we expect to see from the Base Load Review Act increases. But we still a left a 3% on the bottom end just in case the economy does take a turn on us or we see more of an impact from the CFLs that Jimmy talked about earlier. But I think just all in all, it's a little firmer confidence from our feeling of what the opportunities are and the growth we see in the population in South Carolina, as well as just a more continuous stream of average usage going up rather than being up 1 month and down the next month. We see that a little more consistent.

Andrew Levi

And I think you probably mentioned this, too, and I probably missed it. So you moved the equity out a year, which you had scheduled to do for '13. Was that a function of bonus depreciation or what was the reason for that?

Jimmy E. Addison

Yes. Andy, it's really a function of several things. But one, I would say the inflation on the overall project continues to be less than we had expected. Project to date now, it's about $600 million less total projected escalation or inflation on the project than we had planned at the outset when it was approved. Hence, the overall projected cost is now down from $6.3 billion to about $5.7 billion. And if -- you know our strategy is 50-50 debt and equity financing, so half of that comes from equity, so that's kind of a permanent dampering on the need for equity. And then bonus depreciation certainly contributed some to that, as well as some of the just -- better results on customer growth and customer usage. The retained earnings as a part of that helps offset it, too. [indiscernible] Sorry, to finish up, we will take down the equity forward here next month before the end of the first quarter, and that's $200 million from the deal we did back in 2010 and that keeps us in good shape.

Andrew Levi

And what was the benefit -- what's going to be the benefit of bonus depreciation in '13?

Jimmy E. Addison

I think we estimate it to be maybe $80 million or something in that ballpark.

Andrew Levi

Okay. So basically, you're below budget and on schedule on the nukes, pretty good.

Andrew Levi

That's right.

Operator

The next question will be from Andrew Weisel of Macquarie Capital.

Andrew M. Weisel - Macquarie Research

Most of my questions have been asked and answered. I guess, just the one last one I'll add is, the 3% to 6% using $3.20 as a base, that's 3% to 6% is basic earnings per share growth?

Jimmy E. Addison

That's right.

Andrew M. Weisel - Macquarie Research

So what might that look like on a diluted basis, as these issuances come out and as the share count changes over time?

Jimmy E. Addison

Well, the dilutive effect, at least prospectively, will be eliminated once we take this forward down next month. So that dilution calculation will require to use that treasury method just like you would you be for options or something of that nature. But it's not like an option in executive comp where it's not the company's option as to when it happens, it's the individual's option. This is always -- we were the driver of it. I've been a little frustrated with the dilutive calculation related to the forward because it's such as theoretical animal, but I really haven't computed it going forward. There'll be some tail period until it works out of the historical calculations, but it will not be applicable prospectively.

Andrew M. Weisel - Macquarie Research

Sure, that makes perfect sense. And similarly, the 2013 guidance, again, that's basic but dilutive probably won't look too different, is that a fair assumption?

Jimmy E. Addison

Yes. I think that's a fair assumption.

Operator

[Operator Instructions] And we have a question from John Alli at Decade Capital.

John Alli

I apologize, but I was hopping on just as you guys were starting the commentary around the dividend growth. I was wondering if you might just be able to recap that quickly?

Jimmy E. Addison

Sure. Well, our policy is 55% to 60% payout, so we've been a little over our policy statement the last few years just due to the pullback in earnings around the recession. So the strategy that we've recommended and our board's endorsed over the last 3 years has been to grow dividends at the smaller rate than earnings growth to get back within that cap. So we're almost back there now. Growth rate on the dividend was about 2.5% this year, higher than the last couple of years, but still smaller than the earnings growth rate of about 6%. So we're about back where we need to be. And once we're completely inside that cap, we would expect to grow dividends fairly consistently with earnings. Now there may be some years when earnings are a little lumpy with rate increases and things like that, and we intend to take a longer-term view on dividends to kind of flatten some of that out.

John Alli

Great. Any color on the timing of the '14 equity?

Jimmy E. Addison

No, not at this point. I mean, we'll continue to monitor the project construction. We'll continue to monitor what Congress might do. I mean, hey, they could come up with some more bonus depreciation or something like that, so I really don't have anything specific at this point. And we need to watch what inflation does as well because if it continues to come down, that could haircut some of the total amount and the timing of when this is needed.

Operator

And ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Kevin Marsh for his closing comments.

Kevin B. Marsh

Thank you. Let me summarize by saying we are pleased with the results for 2012. The abnormal weather during the year presented some challenges for us, but I was pleased with the management team as they rose to meet that challenge and their efforts resulted in a strong finish for the year. Our nuclear construction continues to progress, as Steve discussed, and although we have some challenges, we continue to focus on bringing the 2 new plants online during 2017 and 2018, respectively.

Thanks for joining us today and for your continuing interest in SCANA. Have a great day.

Operator

Thank you. Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect.

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