Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Call End:

SCANA Corporation (NYSE:SCG)

Q4 2009 Earnings Call

February 11, 2010 2:00 pm ET

Executives

Betty Best - Director of Financial Planning and Investor Relations

Jimmy Addison - Senior Vice President and Chief Financial Officer

Kevin B. Marsh - President and Chief Operating Officer, SCE&G

Stephen A. Byrne - Senior Vice President Nuclear Operations

Analysts

Michel Lapides - Goldman Sachs

Shin Fakuta (ph) - Catecrop (ph)

Paul Patterson - Glenrock Associates

Dan Jenkins - State of Wisconsin Investments

Tim Winter - Gabelli & Company

Gavin Pam – Macquarie

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. My name is Beth and I’ll be your conference facilitator today. At this time I would like to welcome everyone to the SCANA Corporation conference call. Everyone’s lines have been placed on mute. After the speakers’ remarks there will be a question and answer period. (Operator’s instructions). As a reminder, this conference call is being recorded on Thursday, February 11, 2010. Anyone who does not consent to the taping may drop off the line at this time. I would now like to turn the call over to Betty Best, Director of Financial Planning and Investor Relations.

Betty Best

Thanks, Beth. I’d like to welcome everyone to our earnings conference calls, including those who are joining us on the webcast. For those of you following along on the web, there are accompanying slides we will refer to throughout the call today. You can manually advance the slides or just print a hardcopy and follow along to each speakers voice prompt.

Earlier today we announced financial results for the fourth quarter and full year 2009. In just a minute, Jimmy Addison, Senior Vice President and Chief Financial Officer and Kevin Marsh, President of SCE&G will review those results, give us dates on certain operational issues as well as our new nuclear program and respond to questions.

Earnings press release and slide presentation that we will refer to in this conference call are available on our website at scana.com. Beginning on Slide 2, I would like to remind everyone that certain statements that may be made during today’s call, which are not statements as historical fact, are considered forward looking statement and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those indicated by such forward looking statements. Along those risks and uncertainties are those discussed in the company’s SEC filings. The company does not recognize an obligation to update any forward looking statements.

I will now turn the call over to Jimmy.

Jimmy Addison

Thanks, Betty and good afternoon. I would also like to welcome each of you to our call. Continuing on to Slide 3, we reported 2009 full year earnings of $2.85 per share compared to $2.95 per share in 2008. Earnings in the fourth quarter of 2009 was $0.62 per share, down from $0.73 per share in the same quarter of 2008. Our results were within our 2009 earnings guidance of $2.80-$2.95 per share, which had been narrowed from $2.65-$2.95 on our third quarter call.

This quarterly and year over year decline in earnings was attributable to several factors as outlined on Slide 4. First in our regulated electric operations, margins were down $0.09 per share for the year, and down $0.05 for the quarter. That decrease was driven by continued weakened economy resulting in lower weather, normalized usage for our residential, commercial and industrial electric customers.

This lower usage which collectively had an estimated earnings impact of $0.20 per share for the year offset the $0.03 per share favorable impact of customer growth, $0.05 per share impact from the BLRA increase and $0.10 per share from favorable weather. Additionally, we realized an $0.08 decline in off system sales and transmission revenue largely due to the economy.

The reduction in electric margins of $0.05 for the quarter looks disproportionate in relation to the $0.09 for the entire year. But considering the $0.10 benefit of weather all incurred in the first three quarters, it’s more comparable.

We see the economic impact in Q4 is fairly consistent with the earlier trend. We saw significant decline in our earnings at SCANA Energy for our retail natural gas marketing business in Georgia. For 2009 we reported earnings of $24 million or $0.20 per share compared to $33 million or $0.28 per share in 2008. Consistent with the earlier quarters of 2009, this decline is largely a result of the shift in market places. More customers opted for fixed rate pricing plans to lock in lower natural gas prices.

This shift more than offset the positive gas margin impact from our North and South Carolina regulator businesses that were driven primarily by increased revenues and lower bad debt expenses.

We continued our strong trend of cost control in Q4 and accumulated $0.18 per share in savings over 2008 and recognized $0.11 benefit from a state tax issue as reported in the third quarter. However, this was not enough to offset the challenge of the economy and dilution.

While both the fourth quarter and all of 2009 had been very challenging, we remained focused on our commitment to operational safety and reliability providing high quality customer service and delivering competitive returns to our shareholders in spite of a very weak economy.

Slide 5 presents earnings per share by company. For SCE&G 2009 earnings were down $0.05 per share due primarily to reduced electric margins from lower customer usage and dilution which more than offset lower O&M, the impact of the BLI increases and favorable weather.

PSNC showed solid earnings for the fourth quarter and full year 2009 due primarily to continued customer growth, lower O&M and the November 2008 general rate increase.

PGTC had another solid year with earnings of $0.08 per share. We expect this business to generate similar earnings in 2010. We’ve already discussed SCANA Energy’s $0.08 decline in earnings driven by customer switching to fixed rate plans. For 2010 we expect this business to earn approximately $0.20-$0.22 per share, assuming normal weather.

And finally, earnings at the other entities were essentially flat year over year.

Please turn to Slide 6 and I’ll take a minute to discuss the effectiveness of our expense control measures for 2009. These efforts included holding non-labor O&M spending for 2009 to amounts below 2008 actual levels and reducing our number of outside contractors substantially to lower labor related costs.

Additionally, 2009 saw a year of no salary increases for all exempt employees including management and very limited hiring. As I stated earlier, these measures resulted in a year over year decrease of $0.18 per share compared to 2008.

Given the ongoing economic uncertainty, we’re targeting 2010 O&M expenses at the same overall run rate we saw in 2009. There are a limited number of exceptions but we should be able to sustain the majority of the savings realized in 2009. As we begin to see economic recovery, we will increase the necessary spending to support the increased growth. As always, we will continue to do what is required to run our business as safely and reliably while providing exceptional service.

Speaking of customers, as you can see on Slide 7, we continue to show positive growth in our regulatory and electric and gas service territories. On the electric side, we added approximately 5,000 customers. We added over 8,000 natural gas customers over the same period in our regulated businesses. As we have said before, we expect this growth to return to more normal levels as we see signs of improvement in the economy.

Slide 8 presents our preliminary three year Cap Ex forecast. I stress, this is preliminary as we are constantly evaluating additional reductions based upon the economy. Consistent with our quarterly BLRA filings, spending on our nuclear project is on track and is forecasted to remain relatively steady through 2011, with a substantial increase occurring in the 2012 time frame.

On Slide 9, you see a summary of our near term financing plans. On a consolidated basis, we issue approximately $480 million of new debt in 2009, including $150 million of junior subordinated notes that we used to call our then outstanding preferred stock. We also raised approximately $186 million in equity through our 401K and dividend reinvestment plans in 2009. And through a (inaudible) offering concurrent with being added to the (inaudible) 500 at the beginning of the year.

As you can see for 2010 through ’12 we are forecasting approximately $245 million in equity each year including that raised the existing plans. This is an estimate for planning purposes and will be refined based upon actual cash needs and market conditions among other factors.

Regarding our dividend announcement earlier today, I’m pleased to report that our board of directors raised the indicated annual dividend rate to $1.90 per share, a 1.1% increase from the previous rate of $1.88. The dividend is payable April 1 to share holders of record at the close of business on March 10, 2010. Our board remains confident about the company’s long term future despite the challenging economy and it important to relay that message to all of SCANA’s shareholders with this increase.

On Slide 10 you see our 1020 earnings guidance and assumptions necessary to achieve these results. As we look forward to 2010 our focus continues to be very cautious and conservative in both operations and finance while maintaining our standards for customer service reliability and safety.

In preparing our guidance for 2010 we considered the operating results of 2009, projected production of our largest industrial customers and known changes in property taxes, governmental fees and other major expense categories. We are issuing preliminarily guidance for 2010 of $2.85-$3.05 per share. This guidance assumes normal weather and our electric and natural gas service areas and effective tax rate of approximately 31%.

We have also assumed reasonable regulatory relief from our pending electric rate proceeding which Kevin will be discussing further. Of course, we will continue to monitor the economy and other developments as we move through the year gaining additional clarity on drivers, like customer growth, usage, market conditions, etcetera.

I’d now like to turn the call over to Kevin for our regulatory and operational update for SCE&G.

Kevin B. Marsh

Thanks, Jimmy and good afternoon. I’ll begin with a few operational highlights on Slide 11. Our current performance at VC Summer Unit 1 continues to demonstrate why we chose nuclear power as our next increment of base low generation. Our most recent operating cycle, which ended due to a schedule refueling outage in October was the most successful in VC Summer’s history. We set a continuous run record of 475 days, which means the plant was operating non stop 24 hours a day, seven days a week providing reliable emissions free power for well over a year.

During this cycle we also surpassed 5.5 million continuous safe work hours demonstrating our commitment to safety.

SCE&G Fossil Generation Fleet also continued to operate at a high level during 2009. Our fourth outage rate was 1.42% which is our best performance in the past five years. We were very pleased to once again have two plants listed on Electric Light and Power’s top 20 plants in the nation based on their heat rates. Which is a measure of how efficiently a generated uses heat energy. Our McMeekin plant was ranked fourth and the Cope plant was ranked 12th.

Finally we set a new winter peak of 4, 718 megawatts on January 11 of this year. We are pleased we were able to serve this way with our existing generation fleet and did not need to purchase any power to meet this peak demand.

Our very important environmental scrubber projects at Wateree and Williams stations are in their final stages. We anticipate placing the Williams scrubber in service this month with the Wateree scrubber to be placed in service later this year.

As a result, SO2 emissions at these two plants will be reduced by more than 95% and mercury emissions will be reduced by 60%-90%.

Now turning to Slide 12, you see a summary of our most recent regulatory proceedings and their outcome at the top of the slide. And the regulatory schedule for 2010 at the bottom of the page. On the first two lines, please note the consistency of our BLRA approvals related to our new nuclear construction as this process is working as designed.

Slide 13 details our most recent electric filing. On January 15, we file an application with the public service commission of South Carolina requesting a 9.52% increase in retail electric base raise. The requested increase, based on a 9.03% overall return on rate base and an 11.6% return on time and equity we’ll produce an $198 million, and additional annual revenues based on an adjusted test year into September 30, 2009.

This requested rate increase is driven primarily by the need to recover the cost of mandatory and environmental upgrades at the company’s generating plant, including cost for the scrubbers at our Wateree and Williams plant. It also includes the remaining unrecovered capital cost for the Lake Murray backup dam. Expenditures for maintaining reliability of the electric transmission and distribution systems and other operating expense.

A public hearing on SCE&G’s application is scheduled to begin May 24. As with all regulatory proceedings, we anticipate working with interveners in an effort to reach a reasonable settlement. Recognizing the financial challenges increased will represent for many of our customers in this economy, we’ve asked the commission to phase in this inquiry in three stages over 18 months. If approved, the first stage will generate approximately $66 million in annual revenues and will be effective on July 15, 2010. Stage two would generate $64 million and be effective on January 1, 2011. And stage three would be approximately $68 million in annual revenues, effective on July 1, 2011.

Turning now to our new nuclear project update, beginning on Slide 14, I am pleased to report our pre construction work on VC Summer units 2 and 3 is proceeding in full compliance with the schedule approved by the commission.

We’ve made tremendous progress in our (inaudible) activities during 2009, including receiving a comprehensive free construction prudence review under the base low review act and approval for the siding of the two new plants.

In addition, the commission recently approved an updated construction and capital call schedule for the construction of these units. The updated construction schedule is site specific for our particular project and will replace the generic AP1000 Westinghouse construction. Milestone schedule included in the initial 2008 base load review filings.

It does not change the previously approved cost of $4.53 billion in 2007 dollars but rather better matches the cost to the years in which they are expected to be incurred.

Detailed quarterly status reports on our nuclear project which includes supporting data from the informational Slide 14 is available on SCANA’s website under investor relations. Once there, click on the nuclear financial information link.

We will be filing a new report with the commission on February 16, next Tuesday. And I encourage you to review these filings each quarter.

With regards to our combined operating license, or COL, application with the nuclear regulatory commission, discussions between Westinghouse and the NRC on the AP1000 design certification document revision 17, or DCD-17, (inaudible) issues are still ongoing.

Westinghouse remains confident that they can (inaudible) the NRC concerns on this issue. There will be a conforming DCD-18 submitted by Westinghouse this year which incorporates all of those spots to NRC questions and updates. We still expect to receive our COL in late 2011 or early 2012 depending on the NRC review of DCD-18. But we do not believe this will impact our first unit commercial operation date in 2016.

I’d like to give you a brief update on our department of energy loan guarantee application. Today, SCE&G has filed both parts one and two of the application for a loan guarantee. We are still awaiting a term sheet before determining our participation in this program. Recent announcements by the DOE indicating their desire to speed up their process as well as comments by the administration regarding expansions of the program are encouraging. As we have said all along, we are confident in our ability to finance this project without loan guarantee and we’ll only participate if it’s beneficial for our customers and shareholders.

That concludes our prepared remarks. And we’ll now be glad to respond to any questions you might have. Thank you.

Question and Answer Session

Operator

(Operator’s instructions) We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Michel Lapides from Goldman Sachs.

Michel Lapides - Goldman Sachs

Couple of questions on rate relief and some – I’m really looking at Slide 12 here. The $22.5 million granted and effective November 9th for the BLRA, how much of that got realized in fourth quarter ’09 versus will show up in the first 10-11 months of 2010?

Jimmy Addison

Michael, I don’t have that broken down, I’m sorry. But it’s definitely cyclical with the winter months there. It’s not 2012, in other words. But I just don’t have the breakout, sorry.

Michel Lapides - Goldman Sachs

Okay. But the bulk of that is going to be the nuclear rate relief that you will have until the next one is implemented the following November?

Jimmy Addison

That’s exactly right. And so you’ll have the other 10 months of it will occur in 2010 and then another one will be filed this coming May that will be effective in November of 2010.

Michel Lapides - Goldman Sachs

Okay. On the gas side of SCE&G, when would you file – I know you just got the $13 million increase in November ’09 of which you’ll probably get the bulk of that in the fourth quarter ’09 and first quarter ’10 just due to the winter months. But when would you likely file for rate relief again? And is that forward looking or historical looking?

Jimmy Addison

Michael, it is historical looking and it is measured as of the end of the heating season, at March 31st each year. And the dates will be consistent with the ones for ’09. So we’ll file it in June and it will be effective in November. Similarly we’ll file the BLRA there in May and it’ll be effective in November.

Michel Lapides - Goldman Sachs

Okay. And last item, and one of the guys on our team, Zack, will probably kill me if I didn’t ask this. But the reactor shield design review underway at the NRC, is there any update you can give about where that stands, what the next key steps to monitor are and what risks are still remaining or outstanding for companies like yours that are looking to build an AP1000?

Kevin B. Marsh

There has been a lot of activity relating to the shield. (Inaudible) specifically focused on the interaction between the commission and Westinghouse. They had asked them to do testing which they’re in the process of doing. That is close to being completed. They’ve got another round of tests after which they will be filing all those results with the commission for a final review (inaudible) testing for approval. We except that’ll take place in the next 45-60 days. I can tell you we have had extensive discussions with Westinghouse on the shield building design. And they are confident and positive that design will approved by the NRC. It’s just resulting in the final tests need to be done. The tests that they have done to date, they have all been satisfactorily approved with additional safety margins. And they’re working very closely within to get those tests completed and all the information filed as quickly as possible. But the key to us is that they are very confident the design will be approved. At which time we can proceed with the application schedule.

Michel Lapides - Goldman Sachs

Actually one final one. You’re keeping (inaudible) flat. But your labor contracts probably what your (inaudible) employees probably have their normal up percent a year inflator. Where are you getting the rest of the costs cut make up for that?

Jimmy Addison

Well, as I said there may be some minor increases over ’09. But we’re really trying to that level. They are minor increases in labor, like 1.5%. So it’s not a substantial increase. Yeah. And that’s just union and hourly employees. No except employees or management are involved in that. So it’s not a significant number, as far as overall.

Kevin B. Marsh

In terms of the other cost cuts, I mean, that’s an aggressive program we’ve had underway since the fall of 2008 in closing out matters to find items that we could eliminate that reduce from the budget. So even when you’ve got someone that leaves the company, there’s a hard examination done as to whether that position needs to be refilled at the time or it can be held for a period of time so you’ve got significant savings in labor even though you’ve got some increases are coming to play. But generally those increases are across the board in every department of the company.

I know Jimmy just completed an analysis. And he showed the board earlier today it shows that virtually every group in the organization has found a way to reduce costs during this tight period.

Michel Lapides - Goldman Sachs

Okay. Thanks guys, much appreciated.

Operator

Your next question will come from the line of Shin Fakuta from Catecrop (ph).

Shin Fakuta - Catecrop

Jimmy, I believe if I heard you correctly you said you’re assuming a (inaudible) tax rate in your guidance for 2010, is that correct?

Jimmy Addison

Yes.

Shin Fakuta - Catecrop

What is the driver behind that? It just seems a little low versus your historical levels.

Jimmy Addison

Yeah. Principally (inaudible) non taxable portions of AFUDC. And some other states investment tax credits that we’re flowing through.

Shin Fakuta - Catecrop

(Inaudible) benefits that we saw in the third quarter, we have a little more flow through in 2010 as well?

Jimmy Addison

Well, that is really a catch up for several years. And what we’re feeling through perspectively on an annual basis is applying that same type credit for new investment and passing it through on an annual basis. So that’s a big driver.

Shin Fakuta - Catecrop

Got it. Okay. And how should we look at the tax rate going forward then in 2011 beyond, if you can comment on that?

Jimmy Addison

Well, I really don’t have any thing as far as guidance beyond that period. But at this point what we see, I think that’s a safe number for the future.

Shin Fakuta - Catecrop

Okay. Great. Thanks so much.

Operator

The next question will come from Paul Patterson from Glenrock Associates.

Paul Patterson - Glenrock Associates

Good afternoon guys. But what I was wondering was, you mentioned that we should take a look at the filing that’s going to be happening on the 16th?

Kevin B. Marsh

Yes.

Paul Patterson - Glenrock Associates

Is there anything in particular that we should be expecting there? I mean, do you think there’s going to be – should we think that there might significant change in that?

Jimmy Addison

We didn’t point that out because there’s going to be any earth shatter news in there. It’s just that that contains all the information that we shared about the project. As we said earlier we’re trying to be as transparent as we can in exactly where we stand quarter to quarter. And that has just a lot of narrative in terms of what’s taken place at the project. It’ll tell you where we stand on all of the milestones that we report to on the commission and any other matters that we think are significant to be before the commission. So really that was just to point out that that’ll be a fresh report, it’ll include all the updates. I don’t think there’ll be any change in the industry this time, (inaudible) haven’t had new ones come out. That was done in the last report. But it’ll have the latest information based on everything we got going on related to that project.

Kevin B. Marsh

And Paul, it will incorporate the site specifics schedule for the milestones. Where as before we were using the milestones for the generic schedule. And the commission approved the new site specific schedule. So you’ll see how we compare versus all of those milestones.

Paul Patterson - Glenrock Associates

Okay. Great. Really appreciate it.

Operator

(Operator’s instructions) Your next question will come from the line of Dan Jenkins from State of Wisconsin Investment Board.

Dan Jenkins - State of Wisconsin Investments

First I just had clarification on your Slide 4 when you talked about the electric margin. You broke it down, you said that the lower demand was a negative $0.20. But I didn’t get the other components. I was wondering if you could repeat those.

Jimmy Addison

The lower demand was a negative $0.20. We had about $0.03 favorable from customer growth. The subsequent slide that showed additional customers. And we had about $0.05 per share from the base load review act inquires. That was effective in November of each year. And then $0.10 per share, year over year for favorable weather. 2008 was very mild, 2009 was nearly normal. In fact, we would say about $0.03 per share above normal, but $0.10 year over year.

Dan Jenkins - State of Wisconsin Investments

Okay. And on the demand, you mentioned a little bit that your not expecting a large increase. I think you said going into 2010. I was wondering if you could give us a little more color on the industrial side about your (inaudible) kind of, as the quarter progressed and going into 2010 and then what you expect there?

Jimmy Addison

Yeah, Dan, what we’ve assumed and what we’ve seen, first of all, historically is really just moving sideways. We’ve not seen substantial increase or reduction over the last couple quarters. What we’re assuming going forward is the same thing in this earnings guidance. Now, outside of that, there are several announcements that have been made around the area for some pending industrial development. I think I mentioned last quarter Boeing had just announced that they’re going to make one of their assembly lines here for the 787 Dreamliner in our service territory. And they expect the first plane to come off the line in the middle of ’11. So construction is well underway there now.

There are several things that are much smaller than that that are being discussed. But we just haven’t it in the hard results yet. And so we have not assumed that in our guidance.

Dan Jenkins - State of Wisconsin Investments

Okay. On your last picture you earnings release where you showed the quarterly volumes. I was curious if there’s about 18% increase in industrial natural gas (inaudible) and 21% increase in the transportation volume, what was driving that in quarter, do you think?

Jimmy Addison

Change in natural gas prices compared to a year ago. Substantially lower prices, may get more competitive against other fuels and therefore usage was up. In the industrial sector and those that buy their own gas and just pay a sub to transport it the same driver.

Dan Jenkins - State of Wisconsin Investments

What kind of uses were those then, chemical plants or –

Jimmy Addison

I don’t remember if it was concentrated it any segments. But chemicals is our largest individual sectors. Although none of our sectors are really dominant against the others. So we’ve got a pretty good mix across the territory. But I would assume chemicals are in there. But it’s those that have alternative capabilities and they can move between different fuels.

Dan Jenkins - State of Wisconsin Investments

On Slide 8 where you talk about the Cap Ex, what was the final 2009 Cap Ex expenditures?

Jimmy Addison

Dan, I do not have that number in front of me. But I believe we were under our original – the forecast that we had in (inaudible). I think were in the ballpark of $50 million under our originally forecasted amount.

Dan Jenkins - State of Wisconsin Investments

Okay.

Jimmy Addison

Again, just responding to the economy.

Dan Jenkins - State of Wisconsin Investments

And do you have what your 2009 cash flow from operations, what that number was?

Jimmy Addison

I do not have that to date. That’s still in progress. We’ll probably (inaudible) in a couple of weeks and we’ll have it there.

Dan Jenkins - State of Wisconsin Investments

Okay. That’s all I had. Thank you.

Operator

(Operator’s instruction) Your next question will come from the line of Tim Winter from Gabelli & Company.

Tim Winter - Gabelli & Company

Good afternoon, guys. I had a couple of questions about the regulatory procedures upcoming. First thought, do you have the earned ROE for South Carolina Electric and Gas for the 12 month period?

Kevin B. Marsh

I think I do have that. Just a second, Tim. I know it’s going to be a quarter lag. We don’t have it completed for year end. But for the electric company it was down around 7% once you consider the per forma adjustments and everything we included for filing in the rate proceeding.

Tim Winter - Gabelli & Company

Okay. And then have you had any unusual reaction in the filing of this case? From interveners or friends of the earth or anybody on the general rate case and how it’s structured?

Kevin B. Marsh

Well, we’re start by giving the size of the case. If you recall the past two or three cases we have filed have probably been in that 3%-7% range, if my memory serves me right. And the 9.5% is a larger number than we typically file for it in our regular rate cases. The fact that it’s been driven by the mandatory expenditures on the environment abatement program allowed more people to understand that, certainly it’s a tough time to be filing a rate case in South Carolina but the employment in challenges in our state and others have. So certainly initially when we filed the case there was a lot of push back, a lot of people trying to understand what was driving it. We have had a lot of information go out meeting with all the folks that are helping us deliver the messages to what’s driving it. And if you look at that case and you look at the impact, it’s coming from the government mandate on the environmental equipment. The remaining expended (inaudible). And I think it’s about $17 million increase in property taxes that makes up almost 2/3 of the case as filed. So certainly that’s driving the larger numbers.

The O&M we filed in this case was less than what we filed in our last case. Based on our cost control efforts. And that’s certainly something we extend to emphasize in the hearing. Because that’s a big message for us. I think shows the effort our team has put forward to hold that cost. We’ve had some additional maintenance that we’re going to have to spend on our power plants because they’re older plants to keep them reliable. And about $7 million in additional tree trimming. All of which goes to help reliabilities. So when you add up the government mandates, the system reliability and what we’re spending on customer growth and we had already spent on customer growth before the system, slowed down due to the economy, and that makes up almost 90% of the request. So our goal was to then communicate that information, have people understand what’s driving it. The fact that we waited a year to file this case, and they going to ask us last year several time when were we going to file to try to recover the dollar for scrubbers. And we postponed it last year. And even in this filing this year, simply pushed it out 18 months I think shows we’re doing everything we can to minimize the impact. But the reality is we’ve got dollars invested, over $700 million of these expenditures that we simple got to recovery and find the easiest way to make that happen.

Tim Winter - Gabelli & Company

Okay. Thank you.

Operator

Your next question will come from the line of Gavin Pam from Macquarie.

Gavin Pam – Macquarie

Just a question on the decline at Georgia. I understand that more customers are opting for fixed rate plans. But is the decrease in income related to, I guess, the cost of natural gas, the lower margins? I guess I would have through that you would hedge those fixed rate customers to lock in your margins. So could you give us a bit more color on whether we should expect earnings improvement beyond 2010? Thanks.

Kevin B. Marsh

Yeah. Let me start with your last comment here first. We really feel like it’s a, kind of, $0.20-$0.22 a share business for the foreseeable future. So we think that – and I think this year was $0.21. We see it right in that range prospectively. We’re $0.20 this year. So we really don’t see a lot of volatility in it going forward. We think the markets made the move. But it’s really not driven so much by the pricing of natural gas. It’s drive more by just the competitiveness of the market that has gotten the margins down to the level that they are on the variable side.

Now on the fixed side you’re exactly right. We do hedge those completely. So each month when we offer a fixed rate program, for example, in this month of February for all of those that opt for a 12 month fixed rate plan, we will aggregate those customers and put a financial hedge behind it. So that our risk is eliminated and we know what those margins are during the term of the contract. So it’s not that we didn’t hedge it. It’s not that we’re loosing it because of volatility and the price of gas. It’s the fundamental shift that the market itself as a whole is offering lower net margins on fixed contracts than there are on variable contracts. And we’re simply a part of that market.

So hopefully that kind of helps explain your question.

Gavin Pam – Macquarie

Okay. It does. Thank you.

Operator

Your net question will come from the line of Chris Ellinghaus of Wellington Shield.

Chris Ellinghaus Wellington Shield

Hey, guys. How are you? A couple of clarifications, or if you can add any details to this in the fourth quarter weather didn't seem to be particularly poor for you, but can you add any color to where the declines, particularly in residential and commercial came on the electric side?

Kevin B. Marsh

Yeah, Chris. You're right. Weather was normal statistically and comparable to 2008 so both year's fourth quarters were "normal." Really the declines in consumption were fairly consistent with the first three quarters, it's just quarters one through three in 2009 we had normal weather or slightly above normal where we did not in 2008 so that weather masked some of the residential and commercial consumption decline in the first three quarters, but we really did not see it different in the fourth quarter than we did in the first three.

Chris Ellinghaus Wellington Shield

You're not seeing any positive trend at all in customer usages as the economy "gets better?"

Kevin B. Marsh

We've not seen it yet. We're hopeful. As I said, we hear a pending industrial development, but we've not seen it yet. And we really think it's all driven by the industrial sector as more jobs are created and more industrial expansions occur they'll create jobs that create more confidence, and frankly income, with the residential and commercial.

Chris Ellinghaus Wellington Shield

Okay. And that just leads me to my next question is can you give us a little color on the Boeing plant and when you're expecting them to ramp, not necessarily for the first plant, but when are they going to start production, and what kind of benefits you are expecting there?

Kevin B. Marsh

Yeah. Last thing I saw was middle of 2011 for the production to really get going and I don't think the impact for us is substantial on our margins, but it is least not directly. But the jobs that it will create, the thousands of jobs, back to the earlier discussion we had and the income and the households will help a substantial amount.

Chris Ellinghaus Wellington Shield

Right. You're expecting a decent amount of household formation out of the Boeing plant?

Kevin B. Marsh

Well, formation o r further saturation of existing houses.

Chris Ellinghaus Wellington Shield

All right, thanks a lot.

Operator

Your next question is a follow from the line of Michel Lapides with Goldman Sachs.

Michel Lapides - Goldman Sachs

Hi, guys. When I look at your CapEx schedule on nuclear, as well as your equity financing needs over the next couple of years, and think about the fact that you don't get the rate increases until November, a little surprised that you've maintained kind of when you look out to 2012, an equity issuance level that looks pretty similar to 2010-2011 given how big of a step up in nuclear CapEx you will occur in 2012. And it's not expensive regulatory lag, but given the fact there is a tiny bit of lag measured in months, not years of regulatory lag, just curious about what you're trying to keep the corporate holding company balance sheet level and whether you're planning on issuing debt at the hold co and down streaming that as equity into SCE&G?

Jimmy Addison

Yeah, Michael. We do not plan to issue anything at the hold co to downstream to SCE&G so I'll start there. And really if you look back at the three year period you'll see that there's no debt to be issued in this plan for 2010. Last time we spoke I think we were still talking about maybe $150-$200 million of debt to be done in 2010 and we've got that off the table now. With the CapEx reductions we don't need that so adding this equity in, in 2010 that we will downstream to the utility, will help strengthen the balance sheet and so you really see a disproportionate investment in equity there compared to that 50-50 strategy. And if you consider that over three year period, maybe we're getting a little head start on that, as well as if you consider that the internally generated funds through the BLRA and the existing business will help contribute towards it. That's how we're really building that. So it is difficult to just take it and look at it in just one year and expect to see 50-50. We really look at it over the long term.

Michel Lapides - Goldman Sachs

Okay. Thank you, guys.

Operator

Your next question will come from the line of Reza Hatefi of Decade Capital.

Chris Bassett - Decade Capital

Hello. It's actually Chris Bassett. Just was wondering what's happening to depreciation at SCE&G year over year. I know there's a lot of moving parts there with this coverage coming on line, and then some of the requests in the rebate case?

Jimmy Addison

Yeah, Chris. First of all, as part of the filing of this rate case we've updated our depreciation study which we do periodically about every five years, and actually, our depreciation rates are going down a small amount. So we're encouraged by that and basically that's because the actual lies as the engineer reviewed it are longer on many of the assets than we had earlier estimated. So we're bringing that benefit in through the rate filing and I think that number is in the $10-$15 million per year on average. In addition to that I think I might just turn it over to Kevin in a minute for kind of his strategy for how he's looking to manage CapEx during the economy here.

Kevin B. Marsh

Yeah. We've paid a lot of attention to what the rate impacts will be going forward and just looking at your base regulatory model. If you're going to earn a return on your rate base then theoretically you can increase that rate base by the amount of your annual depreciation with new capital expenditures and not have to adjust rates for that. So we've taken that and gone back and taken a hard look at our capital budget and tried to make some adjustments to that as we go through 2010. Our annual run rate on depreciation expense now is between, I think it's $260-$270 million and that number won't change because that property has already been put into service and that depreciation will continue so it's a matter of how well can we control those capital expenditures in terms of how much we will add to that number on annual basis, but that fits right into our strategy of trying to manage the capital especially as we're in this tough economic period and do the best we can to hold that down.

Jimmy Addison

And Chris, of course the number Kevin was giving you is at SCE&G and in addition there's about 50 million in aggregate and the other company's annual.

Chris Bassett - Decade Capital

Sure. So still, would it be fair to assume G&A is flat year over year at SCE&G as a result of the new depreciation rates?

Jimmy Addison

Well, you'll see additional depreciation related to the scrubbers and all the capital would be considered in this rate case. All of that has gone into service at the end of 2009 early 2010 you'll see new depreciation for that and I don't have that exact number. Once we get the 10-K filed we can probably break that down and give you a little more detail on it.

Chris Bassett - Decade Capital

Okay. And then finally, can you quantity the benefit? And I understand it will be ongoing from the tax credit that you're going to be using going forward at SC&G

Jimmy Addison

Chris, I don't have the number here in front of me, but my recollection is that the state investment tax credit, I believe, is limited to $5 million per year for that particular credit and there's a couple of other smaller credits too, but I'm fairly confident that's the limit per year, and of course you can carry forward if you max over that which is what drove the entire spring court case that we were awarded here last quarter.

Chris Bassett - Decade Capital

Okay great, thank you very much.

Operator

(Operator's Instructions) Your next question is a followup from the line of Dan Jenkins from State of Wisconsin Investments.

Dan Jenkins - State of Wisconsin Investments

Hi. I had a followup related to the financing plan. I know you mentioned that you don't really have any debt financing plans for 2010, but your balance sheet showed you have $335 million of short-term borrowing at the end of the year. I guess is it your strategy to continue to use that short-term borrowing and not turn that out?

Jimmy Addison

Yeah. Well, part of it is, is working capital will help offset some of that as we work through the heating season and come out of the winter months so that's driving some of it as paying for the commodity in advance, namely natural gas, as we move through this heating season.

The other thing, Dan, is that if you'll notice on that charge on Page 9, there is $100 million there that's noticed at PS&C. We actually arranged that financing last year and it has a delayed draw feature so we will draw that down and that is long-term termed out money so we will have that completed here probably in the first quarter and we'll essentially convert that from short term to long term so I think you will see that come down.

Dan Jenkins - State of Wisconsin Investments

Okay. And then you mentioned on that page that you're looking to renew the credit facilities in 2010 and given the size of the nuclear CapEx program do you anticipate that being the same size or will you need to upsize that credit facility and then what's the timing? Is that like second half of 2010?

Jimmy Addison

It is the second half of 2010. We would like to have it in place by the end of the year, but are not anxious to move into it much faster than that because there's certainly going to be additional cost associated with that facility, even undrawn costs that are not there today. So we would like to have it in place at least a year before the expiration date, but we'd like to get it in the latter part of the year.

As to the size, we're really undertaking that now. We're actively involved in evaluating that both internally and with our supporting banks and we just haven't come to a decision on that yet. There may well be reallocations within that facility because it's really broken into four different components for the different subsidiaries, and while we've termed out some of PS&Cs, we could end up at a level, but move more of it to SCE&G to support the nuclear construction.

Dan Jenkins - State of Wisconsin Investments

Okay, thank you.

Operator

There are no further questions in the queue. I would now like to turn our call back over to Mr. Jimmy Addison for closing comments.

Jimmy Addison

Well, thanks. In closing, I would just say that 2009 was a very challenging year for us in many respects and while we continue to manage through this difficult time and work towards our 2010 and long-term goals, we're confident that as we come out of this economy as it recovers that we're strategically positioned within our sector to emerge as a leader and bring value to the shareholders.

We appreciate your time today and welcome your followup questions to our investor relations group. Thank you.

Operator

Thank you for your participation in today's conference. You may now disconnect. Have a wonderful day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: SCANA Q4 2009 Earnings Call Transcript
This Transcript
All Transcripts