Executives
Byron Hinson – Director, Financial Planning & IR
Jimmy Addison – SVP and CFO
Kevin Marsh – President and COO of SCE&G
Analysts
Ashar Khan – Visium [ph]
Paul Patterson – Glenrock Associates
Chris Ellinghaus – Wellington Shields
Dan Jenkins – State of Wisconsin Board
Jonathan Reeder – Wells Fargo
David Paz – BofA/Merrill Lynch
SCANA Corporation (SCG) Q2 2010 Earnings Call Transcript July 29, 2010 2:00 PM ET
Operator
Good afternoon, ladies and gentlemen, thank you for standing by. My name is Ann and I will be your conference facilitator for today. At this time, I would like to welcome everyone to the SCANA Corporation conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions)
As a reminder, this conference call is being recorded on Thursday, July 29, 2010. Anyone who does not consent the taping may drop off the line at this time.
I would now like to turn the call over to Byron Hinson, Director of Financial Planning and Investor Relations.
Byron Hinson
Thanks, Ann; 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 second quarter of 2010. In a moment, Jimmy Addison, SCANA's Chief Financial Officer and Kevin Marsh, President of SCE&G will review those results and respond to questions. The earnings press release that we will refer to in this call is available at SCANA.com.
As a reminder, certain statements that may be made during today's call, which are not statements of historical fact, are considered forward-looking statements and are subject to a number of risks and uncertainties that could show and reflect to and as 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, Byron; and good afternoon. I would also like to welcome each of few to our call. Let us start on slide three, which reflects SCANA's second quarter earnings of $0.43 per share compared to $0.45 per share in 2009. This $0.02 decline was due primarily to the impact of higher property factors, interest, slightly higher O&M expenses, and sheer dilution, which more than offset improved electric margins driven by favorable weather, customer growth, and electric base rate increases under the Base Load Review Act.
Additionally, second quarter earnings were negatively impacted $0.03 from income taxes due to a change in income tax accounting for capital maintenance. The change in accounting affects certain types of costs previously accreted as property additions and deducted through depreciation, which will instead be treated as current expenses for income tax purposes. This change is expected to eliminate taxable income on our 2009 income tax returns, and as a result, is expected to provide approximately $100 million of cash benefit, primarily to be realized over the next year, as our 2010 estimated income tax payments are reduced. The only downside is that the elimination of taxable income will result in the loss of an unrelated deduction, hence the $0.03 one-time charge in Q2. This improved cash flow from the deferral of taxes will be used to mitigate external capital requirements. Initially, it may allow us to defer the planned takedowns under our equity-forward transaction to help minimize dilution, but ultimately, we expect to further strengthen the balance sheet by reducing planned debt issuances.
Earnings for the first six months of 2010 were $1.45 per share compared to $1.39 per share in 2009. This $0.06 per share year-to-date increase in earnings is due to improved first-quarter earnings in our non-regulated retail and natural gas marketing business in Georgia, and customer growth in our regulated businesses, which resulted in improved electric and natural gas margins, more than offsetting higher O&M and interest expenses, property and income taxes, and dilution.
Although quarterly earnings were down slightly compared to last year, they would have been up if not for the elective change in taxes and we are pleased to see continued signs of economic recovery in our service territory. As shown on slide four, kilowatt hour sales of electricity to our retail customers in the second quarter of 2010 were up 7.3% compared to the same quarter in 2009, with all classes showing nice increases, while industrials rose an impressive 14.8%. Overall, total kilowatt hour sales of electricity, which includes sales to other utilities, were up 5.3%. Of course, weather contributed to the residential and commercial increase, with core growth and the industrial improvement providing the balance.
On slide five, consolidated therm sales were down 1.1%, driven by lower residential, commercial, and sales for resale. We may recall, we had a cold April last year, which resulted in higher volumes compared to this year's very warm second quarter. This weather-driven decline more than offset strong industrial sales, which are up 3.9% compared to last year. We are very encouraged by these quarterly and year-to-date sales results, and are cautiously optimistic the recovery will continue.
Please turn to slide six to review our financing plan. In May, we completed a significant financial goal with the successful execution of our $300 million equity-forward offering. This forward offering is unique for several reasons, including that we were able to parse the offering on May 11 at 93% of our 52-week high, just five days after the infamous flash crash, where we saw some of the highest volatility in the financial markets this year. Completing this particular financing structure allows us the flexibility to efficiently match our equity needs, with the timing of required capital for our nuclear projects, and to reduce financing risk, while minimizing share dilution, and raising the equity necessary to maintain our targeted capitalization ratios. Under the terms of this offering, we drew nearly $60 million in equity in the second quarter. Initial plans are to draw an additional $90 million in late 2010 and the balance of $150 million in 2011. The exact dates of the additional draws are subject to our actual operating results and additional sources of cash, both of which appear more favorable than a few months ago, given the economy, and the tax change I discussed earlier.
As shown on slide six, this financing effectively eliminates our need for any additional equity offerings, beyond amounts generated through the 401(k) and dividend reinvestment plan until 2012.
Now, on slide seven, I would like to review second quarter results for our principal lines of business. As a reminder, the large majority of our operations are regulated. These regulated utility businesses collectively represent approximately 95% of our total assets and annual earnings.
South Carolina Electric and Gas Company, our largest subsidiary, reported earnings of $0.50 per share compared to $0.49 per share in the same quarter last year. The $0.01 increase is attributable primarily to customer growth resulting in improved electric and natural gas margins, and to regulatory outcomes in our 2009 Base Load Review Act (BLRA) and Natural Gas Rate Stabilization Act or RSA filings, which more than offset higher O&M and interest expenses and dilution. At June 30, SCE&G was serving approximately 660,000 electric customers and approximately 310,000 natural gas customers, up 0.9% and 1.1% respectively from the same time last year.
PSNC energy, our retail natural gas distribution company in North Carolina, reported a seasonal loss of $1 million or $0.01 per share in the second quarter of 2010, compared to breakeven results in the second quarter of 2009. This decline was due primarily to slightly higher O&M expenses and dilution, which more than offset customer growth. At June 30, PSNC Energy was serving approximately 468,000 natural gas customers, an increase of 1.5% over the last 12 months.
SCANA Energy, our retail natural gas marketing business in Georgia, reported a seasonal loss of $6 million or $0.05 per share in the second quarter of 2010, compared to a loss of $3 million or $0.03 per share in the same quarter last year. This decline is primarily attributable to the lower margins arising from the warmer weather in 2010. At June 30, SCANA energy was serving approximately 450,000 customers, maintaining its position as the state's second-largest natural gas marketer. Last week, the Georgia PSC voted unanimously to extend the current two-year term for SCANA Energy's regulated division, Georgia's regulated natural gas provider, by one year to expire on August 31, 2012. The terms and conditions of the program remain the same. SCANA's corporate and other businesses reported a loss in the second quarter of 2010 of $2 million or $0.01 per share comparable to the same quarter last year.
To summarize, on slide eight, based on strong year-to-date earnings, improvement in the economy, and our expectations for the remainder of the year, along with the successful execution of our equity-forward sale and the resolution of our retail electric rate case, we are raising the floor of our 2010 earnings guidance by $0.05 to $2.90 to $3.05 per share.
There are several recent state regulatory filings I would like Kevin Marsh, President of SCE&G to brief you on. I will now turn the call over to Kevin.
Kevin Marsh
Thanks, Jimmy. Getting on slide nine, I am pleased to report that our new nuclear project remains on schedule and on budget. On May 17, we filed our quarterly status report with the PSC and the ORS as required under our base load review order associated with our new nuclear activities. This report provides a detailed update of our capital costs incurred, and updated milestones of our new nuclear project and is available on our website. The updated gross construction cost through March 31, 2010, including escalation and AFPDC are $631 million below the PSC-approved amount. This reduction is due largely to favorable changes and projected escalation rates, which have been impacted by the recession.
Also related to the new nuclear project, on June 21, 2010, the NRC issued a schedule letter to the listing house indicating that the design certification documentation review would conclude at the end of fiscal year 2011, which is September 2011. Based on this NRC commitment, we see no change to what we have previously communicated relative to obtaining our COL at the end of 2011 or early 2012.
Continuing on slide 10 with line three, on May 28, we submitted our annual VLRA revised rate adjustment filings with the PSC for the annual recovery of financing costs related to CWIP. The requested overall ratings rate adjustment of 2.7% or $54.6 million annually was based on incremental CWIP incurred after June 2009 filings, and the updated capital structure. This $54.6 million request included actual CapEx till March 31, 2010, and projected capital expenditures through June 30. Due primarily to timings, we now know that our actual second quarter CapEx was slightly lower than originally forecasted in the revised rate filings and the updated amount of the expected increase in annual electric revenue is approximately $47 million. Keep in mind the ROE is set at 11% and new rates under this filing will go into effect at the end of October of this year, after our review by the Office of Regulatory Staff and approval by the PSC. Additionally, since our new equity transaction was completed in May, we were able to incorporate the initial proceeds of approximately $60 million into the cash structure that will be used to set the revised rates and as a result, mitigate the EPS dilution associated with the new shares outstanding.
On June 15, SCE&G submitted its quarterly filings with the PSC if required under the Rate Stabilization Act for its gas distribution business. In that filing, the company reported that its return on common equity for the 12-month period ended March 31, 2010 was 12.92%, compared to an allowed return of 10.25%. This was largely due to the significant CapEx reductions and the O&M cost control measures. Since the actual equity was more than 50 points above our allowed return of 10.25%, SCE&G requested a 2.24% or $10 million decrease in its retail natural gas base rate in order to restore the return on equity to the 10.25% authorized level. This request would reduce the average residential customer's bill by about $100 a year if approved. Following a required audit of the company's filing by the ORS, the PSC will review both the companies' request and the ORS audit report and issue its order on our request in October. The rate adjustment will be affected with the first billing cycle in November.
Turning now to our 2010 retail electric rate base on slide 11, on June 30, the PSC voted to approve the stipulations presented by the parties in the case, resulting in an overall increase in annual retail electric revenues of approximately $101 million or 4.88% for South Carolina Electric and Gas Company. The PSC granted the company a 10.7% allowed return on equity, and approved the use of a weather normalization adjustment or WNA on a 12-month trial basis beginning in August. This WNA adjustment bases billing to residential and commercial customers on a 15 year historical weather average, and will help reduce the impact that is normally caused by cold weather on customer's electric boots. Revised rates were effective on July 16, 2010; and from a customer perspective, an increase of $101 million will be mitigated by two decrement writers.
The first decrement relates to a one-time $25 million weather-related credit, given to SCE&G's residential and small general service customers. This decrement will remain in place for approximately one year or until the $25 million is exhausted.
The second decrement relates to economic impact zone state tax credits, or EIZ credits, of approximately $48 million that will be credited to customers over approximately two years. Although both of these decrements put downward pressure on custom bills, the company has already collected these amounts in cash and deferred them as credits on its balance sheet. Over the next two years, while customer's bills reduced through writers approved by the PSC, these deferred credits will be amortized into earnings in the same amount and over the same period that the writers impact customers' bills.
As a result, the company's revenues will reflect the full increase approved by the PSC effective July 16, 2010, and earnings will not be negatively affected. Due to the recognition of these and other credits, as well as considering the tax method change Jimmy discussed, we expect SCANA's effective tax rate for 2010 to be approximately 29%. A copy of the final rate order can be found on the PSC's website.
That concludes our prepared remarks, and Jimmy and I will now be glad to respond to any questions that you might have. Thank you.
Question-and-Answer Session
Operator
(Operator instructions) And our first question comes from the line of Ashar Khan with Visium [ph]. Please proceed.
Ashar Khan – Visium
Good afternoon.
Jimmy Addison
Good afternoon.
Ashar Khan – Visium
Could you just mention to us where do you see the loan guarantee stuff, I guess Constellation came out yesterday, and they said theirs was the only file being approved by the credit review and they were the furthest ahead. Could you just talk about where you stand, and any chances you see that amount is going to be increased and whether SCANA is going to be able to dip into the full?
Kevin Marsh
Yes, this is Kevin. We continue to watch and see what happens with the loan guarantees. We have been through part of the due diligence process with DOE and that will be scheduled to pick up again later this year. The amount of the loan guarantees, as you know, there was an initial $18.5 billion of it was out there, and the DOE has been trying to side hat, wants to advocate that, Southern has gotten the first approval and we are anxious to see the terms and conditions that they have, because I think the overall terms and conditions, you know, would impact our interest in the loans. We have said from day one that it wasn't something that we had to have, but if we felt like it was advantageous for our customers and for the project, we would certainly want to understand more about those before we committed ourselves for the 30-year term of those loans, if they are available. So we will continue evaluating that process, we look forward to hearing more from the DOE and the federal government about what those terms and conditions will look like, if we try to conclude that evaluation, and make that just as soon as we can, which I would certainly expect we would do that before the end of the year, based on what we know today.
Again, I would reiterate, as we have said from day one, it has not been necessary, in our opinion, to have the loan guarantees, while they would allow you to finance, in my understanding, up to 80% of your project with the federal loans, we have always said we would do our project 50/50 debt and equity, and that is what we have been doing based on the financing schedule that Jimmy has discussed with you. So we will wait to learn as much as we can before we make the final commitment.
Ashar Khan – Visium
But Kevin, aren't the terms, I guess Southern has already completed its negotiation, right, a month ago? Aren't the terms known to you guys as to whether you want to avail them or not? I mean, Southern completed their negotiations, if I am right, five weeks back or something like that?
Kevin Marsh
They have indicated that they have negotiated an agreement with DOE, but nobody has been forthcoming with the complete listing of terms and conditions. So, no, unfortunately, we have not seen that.
Ashar Khan – Visium
Okay. And then the second question, the tax thing, is that a permanent or is that just for this year, can you just go over it?
Jimmy Addison
Sure. No, it is a permanent change and the real benefit of this magnitude is due to a one-time catch-up. So what happens is, we expect to generate approximately $100 million from the historical catch-up of this change in method, and it will apply prospectively, but the impact prospectively will be very small, so you really only notice this one-time change, but we would expect it will be in place permanently. So it is kind of a one-time permanent benefit.
Ashar Khan – Visium
So next year, your tax rate goes back up? Is that correct?
Jimmy Addison
Yes. Well, both taxes will not change. So it is just a switch between current and deferred for financial statement purposes.
Ashar Khan – Visium
How should we model the next year's taxes? Should we look at it on a 29% or is the tax rate –
Jimmy Addison
Probably slightly higher, yes, 31%, something like that.
Ashar Khan – Visium
Okay. And then, can I just ask you, what kind of ROEs should we expect with the rate order now, you know, complete and all that, what kind of ROEs would you expect to be able to earn from this order?
Jimmy Addison
Right. Well, of course, we are allowed 11% on the nuclear CWIP, but I presume you are talking about the rest of the electric business.
Ashar Khan – Visium
That is correct.
Jimmy Addison
Okay. So what we are looking for hopefully is continued growth in the economy to help supplement any expense growth. We have, I think, done a fantastic job of controlling costs and controlling CapEx during this period, slowing it to or below the growth and the customers, but now, as we see customer growth come back, we are certainly going to have to restore some of that, but we really expect, and let me just say this internally, our target is to be right asset return. We are going to work very hard to be at that return. Kevin has charged his team as well as the supporting groups to support that organization to really manage towards that, work hard in our planning process to let put a plan together to deliver something very close to that allowed return prospect. And Kevin, do you want to add anything?
Kevin Marsh
Yes. And I think Jimmy has made a very accurate point. A lot of this is dependent on where the growth comes in the next three to four years. If we see, the growth return to the 2.5% level that we have enjoyed prior to the recession, that will give us a lot of flexibility and what level of capital we can employ and what our expense levels can be. But with that being said, we have been very, very diligent in looking at those costs and engage literally every operation in any organization help us maintain that. You know, in the order, we have agreed not to come back in for a base rate electric increase over a two-year period, and we will work hard to ensure that that doesn’t happen, and I believe we have got a very good chance of owning right at the returns, they also allows us to earn.
Ashar Khan – Visium
Okay, and if I could just end up, Jimmy; in this year's forecast, what is the return expectations in this year's forecast?
Jimmy Addison
The return on equity?
Ashar Khan – Visium
Yes, for 2010?
Jimmy Addison
You mean an overall blended number or –?
Ashar Khan – Visium
No. Just for the – if you just take, you know, what the rate case, rate base and everything, for that portion of the business, what is the return expected?
Jimmy Addison
Well, I think it is similar to what Kevin just said. I mean, I think our goal is to be very near those allowed returns.
Ashar Khan – Visium
So you expect to be there this year on a –
Jimmy Addison
I do, of course. We will be using a historical test here at the end of September of 2009, but we have got additional customers that were not on the system at that point, and industrial growth is coming back. So we have got some positives as well. And additionally, we have got the benefit of the less volatility because of the weather normalization going forward, so we have taken some of that risk off the table.
Ashar Khan – Visium
Okay. Thank you so much.
Jimmy Addison
You are welcome.
Operator
And our next question comes from the line of Paul Patterson with Glenrock Associates. Please proceed.
Paul Patterson – Glenrock Associates
Good afternoon.
Jimmy Addison
Hello, Paul.
Paul Patterson – Glenrock Associates
I wanted to ask you about the – when you said two years, you are out for two years. Could you just give us an idea as to starting at what time frame is the two year climb across the regulatory base rate refund?
Jimmy Addison
That two-year clock would've started the day we filed this case, the latest case, which I believe is January 15, 2010. So we couldn't have filed another case on to roughly January of 2012. You have the same six-month review process, but that is when it is filed, so it could be either two years from the date we filed it or two days from the Commission's order. So they were right about the same time from the time slots perspective. And that is, if you go back and look at our schedule, Paul, you have followed us for a long time, you know, we have nearly not been in for every, two or three years. So that is something we feel confident we will be able to do.
Paul Patterson – Glenrock Associates
Okay. I was going to follow-up with a question. You did mention that you guys had kept costs somewhat under control because of the economy, but that you were hoping the economy could – as customer growth increases that that will help you guys out. Should we think of there as being substantial economic risk if we have the slow recovery or not a very double dip kind of scenario?
Jimmy Addison
No, Paul, I think as I have discussed in past quarters, I mean, the things that we have throttled back on cost-wise have been areas where we felt we had, if you will, a variable match to the lack of growth or up lack of strong growth, we continue to have growth even in the toughest quarters, a year ago or so. So, we really feel like we have got the ability to increase those costs back at the rate that the economy comes back. For example, Kevin has got roughly 300 less contractors on his system today than he did two years ago. If the economy doesn't come back to what it was two years ago immediately, and certainly it is not back to that point yet, then he just doesn't add that level of resources back. And those are not insignificant, 300 headcount.
Paul Patterson – Glenrock Associates
Sure, absolutely. Could you also give us just a generalized sort of EPS weather impact as roughly speaking that you guys have seen for the first six months?
Jimmy Addison
The first six months, well, generally, from a financial standpoint, it is what is there in the second quarter, because for the first quarter, you remember we basically reserved the weather and gave that back as part of this weather reserve, this $25 million that we are spreading over the next year. But for the first six months, I think it is roughly in the $0.06 to $0.08 above normal.
Paul Patterson – Glenrock Associates
Okay, great. And then just with wholesale sales, they decreased. Is that basically because of more retail growth or could you give us a little flavor on them?
Jimmy Addison
The wholesale decrease was due solely to the, primarily, to the expiration of a contract with a small municipality that expired last year, late in the second half of last year. We are no longer serving that municipality; I think that was the City of Greenwood. So that is all that relates to.
Paul Patterson – Glenrock Associates
Okay, great. Thanks a lot.
Jimmy Addison
Yes, thank you.
Operator
And our next question comes from the line of Chris Ellinghaus with Wellington Shields. Please proceed.
Chris Ellinghaus – Wellington Shields
Hey, everybody, how are you?
Jimmy Addison
Good, Chris.
Chris Ellinghaus – Wellington Shields
Jimmy, can I go back to the weather question again and the impact and I am sort of trying to (inaudible) here. When you say $0.68, are you including SCANA Energy in that number?
Jimmy Addison
No, I was talking about electric.
Chris Ellinghaus – Wellington Shields
Okay, just electric?
Jimmy Addison
And that was versus, you know, versus normal weather.
Chris Ellinghaus – Wellington Shields
Okay. And you are excluding from that the first quarter deferrals?
Jimmy Addison
Yes.
Chris Ellinghaus – Wellington Shields
Okay. So, can I infer that most of that is the second quarter, then?
Jimmy Addison
Yes.
Chris Ellinghaus – Wellington Shields
Okay. Kevin, can you just go back to the terms of the RSA filing again?
Kevin Marsh
Yes, on the gas side, we update that once a year, and we have been authorized to earn 10.25%, and if we earn less than that, more than 50 points less than that, we can file for an increase; if it is more than 50 basis points above, then we actually go and ask for a decrease. So where we found ourselves this time was about 12.9% compared to the 10.25%, so we made that filing. We requested they lower our rates about 2.24%, which would be a $10 million decrease in the base rates for natural gas.
Chris Ellinghaus – Wellington Shields
Okay, great. Can you also, Jimmy, characterize SCANA Energy's weather in Atlanta versus normal?
Jimmy Addison
For Q2?
Chris Ellinghaus – Wellington Shields
Yes.
Jimmy Addison
Yes. It was – versus normal, I would say, I don't have a normal comparison at my fingertips, Chris, but I would say it was probably slightly milder than normal, and the last year's second quarter was colder than normal, so it was going in opposite directions. But you know, just a guesstimate, I would say, maybe a penny or two compared to normal in Q2.
Chris Ellinghaus – Wellington Shields
Okay, great. And lastly, could you give us any kind of color or update on what is going on with Boeing?
Jimmy Addison
With Boeing?
Kevin Marsh
There is just a tremendous amount of activity in the state for Boeing, not just in North Charleston, where they have put their plant that they have been, as you would expect, a lot of other ancillary facilities starting to pop up in that area, as well as some in the upstate, they are going to be serving that facility. I think we talked about that last time. The group is going to provide all of the internal upholstery-type components and the fittings for the inside the aircraft, so they are going to be here. A Board meeting earlier this week, we talked about the relative impact to the State of South Carolina. It talked about upwards of, you know, $9000 in jobs created, cost of state by the time this thing is fully implemented, you know direct, you know a little over 5700 directly associated with them; you know indirectly, about 1800 and then about 2200 in just induced jobs as a result of them coming to the state. So, you know, we believe this is a similar BMW-type impact that you saw on the upstate, you know, 10 to 15 years ago and just a great thing for the system. They will come online, stock production mid next year and have everything online I believe in 2012.
Jimmy Addison
I can tell you, I personally, I flew out of the Charleston airport where they are locating adjacent to last month, and there is tremendous activity going on there.
Chris Ellinghaus – Wellington Shields
Okay, have you got any metrics or any kind of color that you can provide as to what it is going to mean to you?
Kevin Marsh
We are working with them specifically on their contract, which we are not completed with yet. This is not a huge user and it is all in just in terms of the amount of electricity that you use in the plant, compared to something like a steel electric arc foundry for melting down steel. So the plant itself will not be huge, but we think the combination of people that move into the area, the ancillary businesses, what will really have the biggest impact, but we have not made an absolute projection we are comfortable to be releasing at this point.
Chris Ellinghaus – Wellington Shields
Okay, great. Thanks a lot. Appreciate it.
Jimmy Addison
You are welcome.
Operator
(Operator instructions) And our next question comes from the line of Dan Jenkins with the State of Wisconsin Board. Please proceed.
Dan Jenkins – State of Wisconsin Board
Good afternoon. I wondering if you could give a little more color on the pickup in industrial sales that you are seeing in terms of like sectors and maybe totally certain users and what other.
Jimmy Addison
Yes, Dan, it has rarely been a cost to Board, that was one of the first questions I asked myself and dug into our data and it is really across all classes, chemicals, steel, home construction with the rebound in home sales in the first half of the year. So there is really growth across all the sectors, paper and associated products, rubber, plastics, et cetera. So there is no one category which is a good sign. It is really diversified.
Dan Jenkins – State of Wisconsin Board
Okay. How about in the commercial, it seems to be kind of lagging in the areas as you are seeing some business close down there or what is kind of going on in that sector?
Jimmy Addison
Well, commercial is net up as is residential, just not to the level that industrial is, and I think it is, I don't think the commercial in the south is that different than commercial in some other areas, I mean they were certainly during the building boom of 2006 and 2007. The commercial got a little in front of itself. So, I mean, yes, there is still some unoccupied new commercial facilities around, but we were not selling to them before either, so it is not like we have lost load to them. But there are some vacancies, but there is nothing real demonstrator that that stands out to me. Kevin, any –
Kevin Marsh
Yes, I mean, I think that commercial sector was really hit hard in 2008 and 2009 just because of their size and the types of businesses that they are. They don't have to stay in power as the large industrial customers. So while the industrials can pick up fairly quickly when the economy turns around, it is a matter of ramping up their business, where I think on the commercial side, people wait to decide if they want to get back in the business, and start those organizations back up. So it has typically been a little bit of a lagger behind some of the others, and I think you will see that the rest of the year.
Jimmy Addison
And on the industrial side, I mean, year to date, we are up about 10.8% at the end of first quarter, our industrials in the electric side were up 6.9%, I recollect. So, you know, in the second quarter itself, they were up almost 15%. So I am not suggesting as I told the Board this morning if you can graph that linearly into the future from 7% to 15% to 20% plus, but it is the right direction.
Dan Jenkins – State of Wisconsin Board
Okay. And then lastly, I just wanted to pick up on where you add on the CapEx for this year.
Jimmy Addison
Yes, we are, at this point through the year, we are slightly behind our CapEx forecast for the year, and some of that is related clearly to our new nuclear project and we forecast in each year some contingency, and we have been very fortunate that we have had to use an extremely small amount of that contingency to date, so that is one of the significant reasons we are behind, if any, on CapEx.
Kevin Marsh
Yes, we just had an all hands meeting a couple of weeks ago, with all of our leadership team at SCE&G, and we talked a lot about what it is going to take in the next two or three years to manage our rates and balance out with the level of growth we have which is what Jimmy referred to earlier, and we made it very clear with some straightforward diagrams that our rates are driven simply by our customer growth, capital spending, and then our overall expense levels. And to the extent that we keep those three balanced will be just fun. If we find areas where expenses creep up, we have either got to manage it on the customer growth side or on the capital spending side. So securely, the ones we have the most control over are capital spending and expenditures.
But our team clearly has its arms around what we are trying to wrestle and I am confident we can improve our ability to manage that as we go forward. I think we told you last time and I know we have talked at a couple of presentations, Jimmy and I have been asked to do this is trying to make sure we look at what we are depreciating on an annual basis from the capital side, and mathematically, if you can manage your capital growth to that level, you are certainly off to a good start and that is not the end of it, but we understand the metrics, our team is understanding the metrics, and last year, has given them a real chance to see how this process works, having been into the regulatory environment and while we were going through this recession, really brought it to light, and we are going to try to keep working on that model very hard and that is the challenge we got in front of us, to balance all those components and try to achieve what the commission wants us to do, with the investors want us to do, and what we feel like the right thing to do to operate the business (inaudible).
Dan Jenkins – State of Wisconsin Board
Okay, thank you.
Jimmy Addison
You are welcome.
Operator
Your next question comes from the line of Jonathan Reeder with Wells Fargo. Please proceed.
Jonathan Reeder – Wells Fargo
Good afternoon, gentlemen. Two quick housekeeping questions, hopefully. Do you have the weather-adjusted sales numbers for residential and commercial?
Jimmy Addison
I do not have residential and commercial as far as TWH, not weather-adjusted.
Jonathan Reeder – Wells Fargo
I mean, is it safe to say, you know, that they are still, you know, positive, you know –
Jimmy Addison
You mean, net of weather, Jonathan?
Jonathan Reeder – Wells Fargo
Yes, net of weather.
Jimmy Addison
Yes, I do have it on an EPS perspective. We estimate that net of weather, that the customer consumption generated about $0.01 per share in the quarter compared to the same quarter last year. So same customers, net of weather, we estimate they used $1 million or so more than they did a year ago.
Jonathan Reeder – Wells Fargo
Okay, and then, later on top of that, the customer growth, and then the weather?
Jimmy Addison
Exactly. So we have got the weather, the consumption coming back, the customer growth, and then the BLRA increase from last November, those are the four components driving electric margin.
Jonathan Reeder – Wells Fargo
Okay and what was the customer growth, what was the EPS impact that you guys estimate?
Jimmy Addison
$0.01 to $0.02.
Jonathan Reeder – Wells Fargo
Okay and then I kind of missed a little bit in the beginning regarding that tax item, you said there was kind of a catch up component to it in addition to the ongoing and I heard $0.03, was that the catch-up component?
Jimmy Addison
Yes, it is kind of the indirect impact of the catch-up. The catch-up is the $100 million of cash that is the benefit from the tax change, but the cost effectively zeros out our taxable income, we lose an unrelated tax deduction for one year, and that unrelated tax deduction cost us about $0.03 per share this quarter.
Jonathan Reeder – Wells Fargo
Okay.
Jimmy Addison
So because we do not have any taxable income to apply the deduction to, so that is why we have got to take that charge this quarter, but it is a $0.03 charge to gain a $100 million in cash, and then you can do some pretty math around the ongoing benefit of kind of a permanent $100 million in cash if you just presume it all came out of debt, net of 6% embedded rate that is $6 million a year we are going to save long term in debt cost continually.
Jonathan Reeder – Wells Fargo
Okay and then is there any like ongoing EPS impact or is it just the cash benefit then going forward?
Jimmy Addison
It is very moderate. It would be lost in the rounding [ph]. There is a small incremental benefit going forward but it is not even worth modeling.
Jonathan Reeder – Wells Fargo
Okay.
Jimmy Addison
But we will certainly account for it; but not worth trying to model prospectively.
Jonathan Reeder – Wells Fargo
All right. I appreciate that. Thank you, guys.
Jimmy Addison
Sure.
Operator
Our next question comes from the line of Chris Ellinghaus with Wellington Shields. Please proceed.
Chris Ellinghaus – Wellington Shields
Okay. Just going back to the tax true-up in the quarter, have you got a dollar number for that?
Jimmy Addison
That is $0.03 a share, so it is roughly $2 million a share, $6 million or so.
Chris Ellinghaus – Wellington Shields
Okay.
Jimmy Addison
Again, that is the wealth of the unrelated deduction because we have no taxable income.
Chris Ellinghaus – Wellington Shields
Right.
Jimmy Addison
We will know more later in the year, Chris, about the actual cash benefit, and we will certainly keep you updated at our third quarter and year-end call. The $100 million is just an estimate at this point.
Chris Ellinghaus – Wellington Shields
Okay and as far as thinking about the third and fourth quarters, obviously I am assuming that that tax benefit that you are going to forego is something that you were taking last year?
Jimmy Addison
The benefit is in the cash. First of all, the $0.03 charge is a non-cash charge because we are going to zero out income taxes over the next few estimated payment periods, but we will actually get the cash benefit in over the next nine to twelve months.
Chris Ellinghaus – Wellington Shields
I was just thinking about you saying that it is an unrelated tax deduction that you will not be able to take because of the new election. So is that something that you were collecting last year? So, is that something that will have any kind of negative drag in the third, fourth quarter for something that you are no longer taking a deduction on?
Jimmy Addison
We have taken the estimated impact for the full year in Q2.
Chris Ellinghaus – Wellington Shields
Okay. And Kevin, you were talking about the updated BLRA coming in so much below the prior approval, is that having any impact on intervener consternation over the escalator at all?
Kevin Marsh
Not that I am aware of. We have the pending case at the South Carolina Supreme Court where one of the parties to the case energy users had appealed the provision about the contingency dollars, and the ability to calculate escalation on top of that. That is the opinion at the Supreme Court, but we have not heard a lot from the interveners since they went back and got our revised schedule. Last year, we have just been working to plan to provide the information to the commissioners, and we are pleased that we are well on schedule and on budget at this point.
Jimmy Addison
Chris, let me just add, there really is no intervention in the BLRA process as far as these annual filings. I mean, we filed the request, the ORS audits it turns in their report, which they will do tomorrow on July 30, and then the Commission reviews it and grants the increase effective at the end of October. So the difference here occurred because we have to file the report in early May, and when we filed it, we had to estimate our CWRP [ph] at the end of June. Now, as we got to the end of June, we had not spent as much as we expected, which is purely just due to timing of some components and parts of the project. So it is nothing that is off-schedule or anything like that.
Chris Ellinghaus – Wellington Shields
No, I was just kind of curious whether the folks that are concerned about the escalator were somewhat impressed by your revised numbers.
Jimmy Addison
You mean the $600 million?
Chris Ellinghaus – Wellington Shields
Yes.
Jimmy Addison
They are about the only people to talk much about the escalation, wanted to talk about it when it had initially increased $600 million.
Chris Ellinghaus – Wellington Shields
Exactly.
Jimmy Addison
And so now that it is coming down, there is an eerie silence.
Chris Ellinghaus – Wellington Shields
Yes, I was kind of curious whether that was the case.
Jimmy Addison
No, I missed your point. I thought you were talking about the $7 million difference this year. I am sorry.
Chris Ellinghaus – Wellington Shields
No it really cuts both ways, sometimes it goes against you and sometimes it goes for you, and I have not heard a thing about their thoughts subsequent to the filing.
Jimmy Addison
No, I have not either and as I testified in the hearing room when we initially approved this, I mean, inflation is going to be what inflation is, this is nothing but a projection of what inflation might be and that is going to change each time they produce the index.
Kevin Marsh
And I think it is important to understand that even when we were in that position where we have predicted the escalation will be more than what we originally presented to the Commission. That is not a violation of the order.
Chris Ellinghaus – Wellington Shields
Right.
Kevin Marsh
The order just recognizes and approves the mechanism. So whether it is up or down based on what we forecast, as long as you are following the mechanism in your base cost and what you estimated correctly, there is no issue with the commission.
Jimmy Addison
I agree with your point. I mean, frankly, it is a lot like the RSA Kevin described. Usually in larger economic growth times, there is a small increase each year while the mechanism cuts both ways. This year there was a decrease because we really controlled cost and growth slowed so there is a small decrease.
Kevin Marsh
But nobody is called to complain.
Chris Ellinghaus – Wellington Shields
Yes, exactly. Thanks for the color.
Jimmy Addison
Yes, you bet.
Operator
And our next question comes from the line of David Paz [ph] with BofA Merrill Lynch.
David Paz – BofA/Merrill Lynch
Good afternoon.
Jimmy Addison
Hello.
David Paz – BofA/Merrill Lynch
Most of my questions have been answered but I just have one on the $1.1 billion credit facility, you believe it expires at the end of next year, any update on the renewal?
Jimmy Addison
Yes, we are working on that now, and I expect we will have that wrapped up later this year. I am very confident we will. Our intention is to get it renewed before the end of this calendar year, sooner rather than later, but we are actively working on it, and our intentions are likely to increase the size of it somewhat.
David Paz – BofA/Merrill Lynch
Great, thank you.
Jimmy Addison
You are welcome.
Operator
Ladies and gentlemen, we have no further questions. This concludes today’s question-and-answer session. I would now like to turn the call back to Mr. Jimmy Addison for closing remarks.
Jimmy Addison
Thank you. Let me just say that in summary, I think we have had a very good quarter and a solid first half of the year. We are pleased that the electric rate proceeding is behind us, our financing for 2010 is essentially complete, and our capital structure will be further improved by the cash benefit of this tax change we discussed. We continued to see core growth and we are cautiously optimistic about the economic indicators in our territories.
We thank you very much for your interest in SCANA. Hope you have a great day.
Operator
Ladies and gentlemen, we thank you for your participation in today’s conference. This concludes the presentation, and you may now disconnect. Have a good day.
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