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SCANA Corporation (NYSE:SCG)

Q4 2010 Earnings Call

February 11, 2011 2:00 PM

Executives

Byron Hinson – Director, Financial Planning and IR

Jimmy Addison – SVP and CFO

Kevin Marsh - Chairman, President, CEO and President, SCE&G

Stephen Byrne – EVP, Generation and COO, SCE&G

Analysts

Dan Jenkins – State of Wisconsin Investment

Steven Fleishman – Bank of America

Christopher Ellinghaus – Wellington Shields

Jonathan Reeder – Wells Fargo

Jim von Riesemann – UBS

Michael Lapides – Goldman Sachs

Erica Piserchia – Wunderlich

Reza Hitucki – Decade Capital

Paul Patterson – Glenrock Associates LLC

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. My name is Kaylan (ph), and I will be your conference facilitator 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 speaker’s remarks there will be a question and answer period. (Operator Instructions). As a reminder this conference call is being recorded on Friday, February 11, 2011. Anyone who does not consent to the statements may drop off their lines.

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

Byron Hinson

Thank you. I’d like to welcome everyone to our earnings conference call including those of you who are joining us on the web cast. As you know, earlier today we announced financial results for the fourth quarter and full year of 2010. Joining us on the call today to discuss those results are Jimmy Addison, SCANA’s Chief Financial Officer, and Kevin Marsh, President and Chief Operating Officer of SCE&G. They will review those results and then respond to your questions.

The slides and the earnings release that we’ll refer to in this call are available at scana.com.

Before I turn the call over to Jimmy I would like to remind you that certain statements that may be made during today’s call, which are not statements of which are not statements of historical fact, are considered forward-looking statements and are subject to a number of risks and uncertainties which are shown on slide two and discussed in the company’s SEC filings. The company does not recognize an obligation to update any forward-looking statements.

I’ll now turn the call over to Jimmy.

Jimmy Addison

Thanks, Byron, and good afternoon. I’d also like to welcome each of you to our call. Let’s start on slide three, which reflects SCANA’s 2010 full year basic earnings per share of $2.99 compared to $2.85 per share in 2009. Basic earnings in the fourth quarter of 2010 were $0.74 per share compared to $0.62 per share in the same quarter of 2009. Our results were within our 2010 guidance of $2.90 to $3.05 per share which had been narrowed during our second quarter call.

The quarterly and year-over-year increases in earnings were attributable to several factors as outlined on slide four. Primarily the increases in earnings was driven by improved margins from base rate increases which offset higher operations and maintenance expense, higher depreciation expense, and share dilution. Some of the increase in O&M expense was the result of the regulatory order from our base rate care. For example, major maintenance expense on our power plants increased $4.6 million in 2010 because we were allowed to increase our major maintenance accrual beginning in the third quarter. In 2011 we will have a full year of this higher expense level which equates to approximately $10 million.

Of course these expenses were considered in the rate application and order and therefore our company buy like amount of revenue. As you may recall in the third quarter of 2010 we implemented the electric weather normalization mechanism beginning with August bills. This mechanism applies to residential and commercial electric customers. As a result the effects of as a result the effects of abnormal weather are mitigated in our third and fourth quarter results for 2010.

Now on slide five, I’d like to review results for our principal lines of business. South Carolina Electric & Gas Company’s fourth quarter and full year 2010 earnings denoted in blue were up $0.13 compared to 2009. Improved margins from base rate increase is under the Base Load Review Act and the retail electric rate case offset higher operating and maintenance expense and higher depreciation expense. At December 31, 2010, SCE&G was serving approximately 661,000 electric customers and approximately 314,000 natural gas customers, up 0.9% and 1.3% respectively over 2009.

PSNC Energy’s earnings for 2010 in red were $0.36 per share compared to $0.38 per share in 2009. Higher interest expense offset increases in industrial usage and customer growth of 1.9% over the previous year. We are likely to term out $100 million of debt at a fixed rate in 2010 whereas this debt had previously been financed at very low credit facility rates. Fourth quarter 2010 earnings were flat over the same period in 2009.

SCANA Energy in green reported higher earnings for the full year 2010 and level earnings for the fourth quarter of 2010 compared to 2009. The $0.04 per share increase in annual earnings is attributable to increased throughput due to colder than normal weather and customer growth of approximately 2% over 2009.

SCANA’s corporate and other businesses reported a 2010 loss for the year and the quarter of $0.03 and $0.02 respectively compared to a loss of $0.02 and $0.01 for 2009. This increase is due to higher interest cost at the holding company in 2010.

Costs at the holding company in 2010.

Next I would like to discuss our financing plan. On slide six, you see a summary of our actual financings for 2010 and our preliminary financing plan for the years 2011 through ‘13. As you may recall in the second quarter we discussed the change in income tax accounting for capital maintenance, which resulted in certain maintenance costs to be included as current expense for income tax purposes.

Additionally we elected to use bonus depreciation in 2010 which allowed 50% of qualifying assets to be expensed for tax purposes. Combined these tax strategies generated approximately $175 million in cash eliminating our taxable income on our 2009 return and substantially reducing our 2010 estimated payments.

While, we yet to receive final guidance on additional bonus depreciation from the IRS, we expect these strategies to provide additional cash flow of approximately $50 million in 2011. This improved cash flow will continue to be used to mitigate external capital requirements.

In May 2010, we completed a $300 million equity transaction with $240 million in the forward structure because of improved cash flow provided through these tax strategies we did not draw from the equity forward in 2010 and don’t anticipate making any draws until late 2011.

You have also noticed a reduction in the amount of the new debt; we plan to issue in 2012 from our earlier forecast of $600 million down to current forecast of $450 million. While our financing plans are subject to our actual operating results and additional sources of cash, ultimately our intentions are that these tax strategies will allow us the flexibility to match our financings with the timing of capital requirements for our nuclear project and to reduce financing risk while minimizing real share dilution. Our pension plan is well funded, so we don’t anticipate using any of the cash for contributions as some of our peers are doing

Similar to our peers we have elected to use bonus depreciation; we will experience a reduction in rate base due to the netting of deferred taxes. While the effect of this decrease in rate base does not currently impact our rates it is incorporated in to our quarterly monitoring reports filed with the Public Service Commission. However much of our rate base growth is in new nuclear and will not be impacted under the bonus depreciation rules as the property is not yet in service.

Slide 7 and 8 show our electric and gas sales statistics. Kilowatt hour sales of electricity to our retail customers in the fourth quarter of 2010 were up 8.3% over the prior year. Overall total kilowatt hour sales of electricity, which includes sales to other utilities were up 9.5%.

Consolidated therm sales were up 6% over the fourth quarter of 2009 driven by higher residential and commercial usage. The weather was the primary driver of residential and commercial kilowatt hour sales. Of course our WNA and cut mechanisms normalized margin and not kilowatt hour of therm sales. Industrials, which are only minimally impacted by weather, continue to show a strong recovery compared to 2009.

As you can see on Slide 9 we continue to attract new business and see expansion of existing businesses. In December of 2010 Amazon announced plans to invest $100 million to build a distribution center in Lexington County near our corporate campus. This distribution center will have over 1200 permit employees and an estimated 2500 on a seasonal basis. In January of 2011 AQT Solar announced plans to locate a manufacturing in Richland County. This 300 million

This $300 million investment will begin production in 2012 and is estimated to create a total of 1000 jobs about 2014. Additionally the South Carolina Ports Authority recently announced that the Port of Charleston saw an increase in year-over-year container cargo volume of almost 17% during the prior year.

These recent announcements will result in the creation of more than 7100 new jobs and encouraging signs of a longer term economic recovery in our service territories. In addition, we recently reached an agreement on the wholesale contract with the Orangeburg Department of Public Utilities. Under the new $700 million contract SCE&G will continue to supply electricity to Orangeburg through at least December 2022. Orangeburg has long been a customer of SCE&G and we’re pleased that we were able to reach an agreement for the continuation of this relationship.

Another data point the U.S. census population growth is presented on slide 10. The average population growth for the U.S. was approximately 9.7% over the last decade. The three states in our service territory Carolina’s and Georgia all showed growth rates significantly higher than the national average ranging from 15% to 18%. We are pleased to see this type of population growth in our service territory and anticipate customer growth will return to more normal levels as the economy improves.

Slide 11 presents our preliminary three-year CapEx forecast. The estimates for 2011 and ‘12 are slightly less than the forecast we presented a year ago. As we have reported consistently in our BLRA filings, our new nuclear spending steps up in 2012 and ‘13 and accounts for more than half of our total capital spending in those years. In January of this year

January of this year we entered into an agreement with Westinghous from nuclear fuel assemblies which will supply the need of Units 1, 2 and 3 at V.C. Summer through 2033. We have incorporated this recently signed agreement into this forecast. Earlier today we announced that our Board of Directors raised the indicated annual dividend rate to $1.94 per share, a 2.1% increase.

The new rate is payable April 1, 2011 to shareholders of record at the close of business on March 10. Despite a challenging economic environment in 2010 SCANA achieved its earnings target and completed another successful year. Results of 2010 and confidence in the long-term growth of our company led the board to decide that a dividend increase was appropriate.

Slide 12 presents our 2011 earnings guidance and related assumptions. While we are pleased with 2010 results we continue to increase the effects of the recession, a sluggish housing market and elevated unemployment. Our 2010 weather normalized EPS base of $2.92 takes into account $0.07 per share benefit from weather.

Our 2011 preliminary guidance is $2.95 to $3.10 per share and our internal target is $3.02 or approximately the middle of the range. This guidance assumes known industrial expansion and continued customer growth at recent levels.

Additionally we have included the impact of base rate increases from our new nuclear filings and the effects of the additional cash flow from our tax strategies. As it relates to expenses operation and maintenance expense is expected to remain relatively flat with modest growth and property taxes and other major expense categories and effective tax rate of approximately 30%.

While we are beginning to see signs of longer term economic recovery in our service territories. We remain conservative in our estimates and cautiously optimistic about our longer term sustained recovery. While our compound average growth rate over the last six years has been 4.4%, given the challenging economic environment and relatively high unemployment, we are tempering our average annual earnings growth to between 3% and 5% for the next three to five years. We feel this is more appropriate given the challenges of the current economy, as we continue to emphasize a long term sustainable plan.

In summary, our guidance is higher than the prior year. The trajectory is positive. We continue to experience customer growth and are optimistic about our long term business plan. And I’ll now turn the call over to Kevin Marsh, President and Chief Operating Officer of SCANA and President of SCE&G.

Kevin Marsh

Thanks Jimmy. Before I get started on our regulatory and construction update, I want to discuss the recently announced changes in our management team. As many of you know, on January 7, Bill Timmerman announced his plans to retire as Chairman and Chief Executive Officer of SCANA effective November 30. Upon Bill’s retirement, the Board has elected me to succeed him as Chairman and CEO. I’m certainly honored and look forward to the opportunities that will come with my new responsibilities.

During this transition period, I will continue in my capacity as President of SCE&G and assume the role of President and Chief Operating Officer of SCANA. Additionally, Steve Byrne, our Executive Vice President of Generation and Transmission was appointed Chief Operating Officer of SCE&G and Keller Kissam was promoted to Senior Vice President of Retail Operations for SCE&G.

I have been fortunate to have worked closely with Bill for nearly 30 years and we both expect this to be a smooth transition as we continue with this period of nuclear construction. Bill has been Chairman and CEO of SCANA for almost 15 years and I value his counsel. I am pleased that after his retirement he will be serving as a consultant and available for discussion and input. We have a strong succession planning program with many experienced leaders in our company that will enable us to make this transition as seamless as possible.

Let me turn now to our new nuclear project activities. On slide 13, I am very pleased to report that our new nuclear project remains on schedule and on budget. On November 15th we filed our quarterly status report with the PSC and the Office of Regulatory Staff of the third quarter of 2010 as required under our Base Load Review order. This report provides a detailed update of capital cost incurred and updated milestones for our new nuclear project and is available on our website. Additionally, we intend to file our quarterly status report for the fourth quarter of 2010 this coming Monday February 14th.

In addition, on November 15th we also filed a petition with the PSC seeking approval to update the capital cost schedule for the construction of the company’s new nuclear units as seen on slide 14. This filing is necessary due to the decision by the South Carolina Supreme Court last year which found that contingency cost could not be included in forecast approved for Base Load Review Act purposes until the cost could be identified and itemized to specific cost categories.

This filing identified and itemized certain capital costs of approximately 174 million that will be incurred during the construction of the new nuclear units. The 174 million is highlighted on chart 14 on line one of the last column and it represents the proposed increase and projected capital cost requested in our filing with the PSC. These are not additional costs nor is this a request to raise customer rates. We are simply specifying how we intend to use some of the dollars that were originally included in the contingency fund and our initial BLRA filing now that we have more clarity of the construction.

Hearing on this proceeding is currently scheduled for the spring. At receiving a commission order in the approved capital cost already incurred would be added those included in our last rate filing under the BLRA to determine the requested rate adjustment for 2011.

Regarding the status of the CR will the Nuclear Rate Reporting Commission’s likes and proceedings for the units are also progressing toward a successful conclusion. One focus of this licensing review has been the new and stronger design from the reactor shield building. In late 2010 the NRC staff completed its technical review of the current design for the shield building as well as other design changes proposed by Westinghouse and issued a favorable comprehensive safety evaluation report for the units.

The advisory committee on Reactor Safeguards an independent panel that advises NRC also reviewed and approved AP1000 design and related changes and has determined that the core design is fully adequate to protect public health and safety.

In addition all intervenous challenges to SCE&G’s COL application have been denied by both the Atomic Safety Licensing Board and the NRC. We believe the current NRC schedule continues to support the issuance of the combined operating license in late 2011 or early 2012.

On slide 15, you’ll see a schedule of our historical regulatory filings and rate increases to-date under the Base Load Review Act. We are pleased that the mechanism continues to work as designed, this slide also shows our regulatory schedule for 2011 with new nuclear related filings

With nuclear related filings appearing in the left column and our other routine filings on the right. That concludes our prepared remarks. We’ll now be glad or respond to any questions you might have.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Dan Jenkins (inaudible) of State of Wisconsin Investment. You may proceed.

Dan Jenkins – State of Wisconsin Investment

Hi good afternoon.

Jimmy Addison

Good afternoon.

Dan Jenkins – State of Wisconsin Investment

I was curious on page 11 of the presentation saw your CapEx projection and I was just curious what the actual 2010 CapEx ended up being?

Jimmy Addison

Yeah It’s very similar to what we’ve disclosed in the 10-K I don’t have that in front of me Dan but I think on the – across the board we were slightly under our projected CapEx for 2010.

Dan Jenkins – State of Wisconsin Investment

Okay. And then I was curious on the electric margin and gas margin for the year of $0.60 and $0.15. So you would be able to break that out between volume changes and rate changes what I meant by that?

Jimmy Addison

I do. Well we’ll start back with the electric margins. The majority of that is going to be from rate changes because you’ll recall that we’ve the weather normalization. So, the first quarter we set up an accrual to refund the earnings above normal weather due to volume and then we had the hearing with the Commission and the new order was in effect from July 15th forward so that we have the weather normalization mechanism in place so effectively all but the second quarter was weather normalized. So, really what you have is the majority of the variance is due to rate changes both due to the base rate increase as well as the Base Load Review Act increases related to nuclear. So that only leads to the second quarter that was not weather normalized and we estimate for the year for SCE&G there was about $0.06 per share of above normal earnings from weather due to that second quarter.

Dan Jenkins – State of Wisconsin Investment

Okay. How about for the gas?

Jimmy Addison

Well, for both of our gas businesses and the Carolina’s the regulated LDCs, we have two different mechanisms that effectively weather normalize, we have a straight weather normalization mechanism in South Carolina and in North Carolina we have a utilization tracker that considers weather along with any other change that causes the change in volume. So, it’s neutralized there as well.

The only other place we had effective weather would be in our Georgia business and we estimate that on the overall basis for the year to be about a penny per share favorable weather, so in total we had about $0.07 per share favorable weather; the $2.99 GAAP earnings less the $0.07 of weather would leave you on a weather normalized basis, $2.92.

Dan Jenkins – State of Wisconsin Investment

Okay. And then on the nuclear project, I know that Southern mentioned that they had gotten an approval for the DOE financing. What’s the status of that period for your plan?

Kevin Marsh

This is Kevin good to see you Dan. We’ve always taken a position that we didn’t need the loan guarantees that they made sense for the customer and shareholders we would certainly want to pursue those. We have been down and pay off for several years now with DOE trying to complete that process. We are kind of on hold at this point waiting to get some more definitive terms and conditions from them before we make a determination as whether or not we need to go forward. We’ve had some indications that they may be able to share that with us here in the near future which point we will complete that evaluation and decide that it make sense for us to continue. But we have not changes our position in terms of not the same we had to have those we won’t move forward with the project with over that.

Dan Jenkins – State of Wisconsin Investment

Okay, thank you. That’s all I have.

Operator

Your next question comes from the line of Steve Fleishman of Bank of America, Merrill Lynch. You may proceed.

Steven Fleishman – Bank of America

Hi, good afternoon.

Jimmy Addison

Hello Steve.

Steven Fleishman – Bank of America

Within your 2011 guidance can you give us a sense rough range what kind of earned ROE that would be at SCE&G?

Jimmy Addison

Yes, Steve the latest public information we filed on SCE&G which would be as of September 30. We are right at 10%, 9.98 I think the exact filing. And we’ve really don’t see that changing a lot is best we see it over the over 2011. And we are still very tied on cost control. We’ve got some customer growth almost 1% year-over-year at the end of 2010. So that helps to offset a minimal amount of expense increase, but we really don’t see anything moving down a great deal. We don’t have a lot of CapEx going on in the base utility outside of the new nuclear. So it’s fairly close to

So it’s fairly close to offsetting the depreciation. So we…

Steven Fleishman – Bank of America

Okay.

Jimmy Addison

We feel pretty comfortable tracking near to where it is now.

Steven Fleishman – Bank of America

Okay, so about 10% or 9%?

Jimmy Addison

Yeah.

Steven Fleishman – Bank of America

High 9s, okay.

Unidentified Company Representative

Yeah.

Steven Fleishman – Bank of America

I guess conceptually it looks like for the most part of your CapEx is not that much different than your financing plan is not that much different than previously…

Jimmy Addison

That’s true – that’s true with CapEx, I’d just say on the financing, the debt is lower I mentioned in my comments, I believe 150 lower in ‘12.

Steven Fleishman – Bank of America

Right.

Jimmy Addison

And that’s just the effect of the benefit of the tax cash.

Steven Fleishman – Bank of America

Okay. And your overall – and so I guess my question is more to degree you’ve kind of lowered your longer term growth rate, does that effectively mean you are not going to be earning your allowed returns as much as you thought because of the rate base and like you’re still about the same that would be the only way to make the math work?

Jimmy Addison

We’re pretty confident in earning those returns in that ballpark we just discussed.

Steven Fleishman – Bank of America

Okay. Had your previously thought you’d be able to earn higher allowed returns, is that the differential?

Jimmy Addison

Well it’s just a matter of the growth that comes off of the – coming from the economy. I mean what we’re experiencing now in our industry certainly in the Southeast and is it a plus to SCE&G and SCANA. We just don’t have that historical growth in margins from new customers that we have had in the past. So we’re just not as confident about that for the long-term. But, we’re not talking about – we’re talking about 3% to 5% versus 4% to 6%. We are not talking about a huge change in it. Our philosophy is to make sure we commit to you what we’re confident we can deliver.

Kevin Marsh

Steve, this is Kevin I know you have followed this for a long time, if I could to get you think back before we announced the construction of the new nuclear units, we went through a

Nuclear units, we went through a couple of years there where we had a very little CapEx outside of just normal growth of the system. That normal growth was coming at close to 2.5% or 3% range. And even at that level we were able to do all of our financing without having to do much of the new external financing realm and we’re able to bring that growth to the bottom line because you had new assets going in and the customer revenue was earning a return on those new assets. With the lower growth rates, until we returned to those levels, we still earn our return on the investment we’ve got. That won’t change. You won’t see the growth in that base investment like you did in the past when it was 2.5% and 3% which is where the new nuclear is having such an impact.

Steven Fleishman – Bank of America

Got you, okay. So, basically in the end lower growth means, there is kind of a lower long term CapEx because you are not hooking, spending that kind of hookup, hookup CapEx in rate base that would be, would have been part of your long term growth.

Jimmy Addison

Right, in SCE&G where we’ve enjoyed between 1.5% to 3% at different times. That’s running around 1% now which means we cut back on the investment required to deliver that 1% growth. When that ramps back up, you will see the investment to deliver that service go back up and we believe that will put us back up in that 4 to 6 range. But, we’re just trying to think, honestly if you take where the economy is, where it is right now, we believe it’s 3 to 5.

Steven Fleishman – Bank of America

Great, thank you.

Jimmy Addison

Yep.

Operator

Your next question comes from the line of Chris Ellinghaus of Wellington Shields. You may proceed.

Christopher Ellinghaus – Wellington Shields

Hey, everybody. How are you?

Jimmy Addison

Good.

Christopher Ellinghaus – Wellington Shields

Jimmy, are you, just a follow-up on Steve’s question, are you guys, since it’s a three to five year growth rate, are you being conservative on what you think the economy is going to do for you over the next five years?

Jimmy Addison

Chris, I hope that’s the case. But, only the future will really answer that, I guess. We’re really setting that off and we just had this discussion with

We just had this discussion with our Board but we’re really setting that off what we are experiencing now and what we can see in the headlight? If the economy does pick up more than we think than we were overjoyed to come back and raise that in the future. But I would tell you that majority of the earnings growth over that three to five period is driven off the increased investment into new nuclear.

Christopher Ellinghaus – Wellington Shields

Right.

Jimmy Addison

And I’m confident based on what we today that we can deliver what we are telling you today if we did not have that growth going on it will basically be moving sideways.

Christopher Ellinghaus – Wellington Shields

Okay can we presume that you are basically using a 1% floor forecast.

Jimmy Addison

A little yard 1% I think it’s sort of 1.5% to 1.8% believe is our long-term load growth forecast.

Christopher Ellinghaus – Wellington Shields

And it could get higher than 1% in North Carolina it’s about 1.9?

Jimmy Addison

You’re talking about electrical load right.

Christopher Ellinghaus – Wellington Shields

Yeah.

Unidentified Company Representative

I’m sorry.

Jimmy Addison

Right at 1% we expect to see that grow up long-term little bit higher than that.

Christopher Ellinghaus – Wellington Shields

Okay. Guys I was a little surprised that your conservative outlook given sort of some of the kinds that have developing including the Boeing and Amazon and the solar plant and whatnot? Would you have been even pessimistic the gift you hadn’t had the success.

Kevin Marsh

Well possibly, we really try to just analyze the data and see what the data tells us. I mean, we are trying to be quantitative about it and not just subjective about it. So no question the industrials are looking good. This is the fourth quarter in a new that they have been up about 10% over the prior year’s quarter so that’s good news. And eventually that has to translate into better residential sales, better commercial sales et cetera as it translates into jobs but the jobs story is good. It’s going to take 12, 24 months to play out on those major announcements and we just want to see it in hand before we’re making commitments for three to five years out.

Another thing that’s going on I suspect around the country, I knew in the Southeast is that the new customer just being added today is typically the smaller residents, a more energy conserving residents home that were built in the past. So, 6,000 customers we added today this past year is – uses a little less energy than did 6,000 customers from a couple of years ago.

Christopher Ellinghaus – Wellington Shields

Okay. Did you say when Amazon’s facilities due to be up in running?

Kevin Marsh

I think it is about a year.

Christopher Ellinghaus – Wellington Shields

Okay. And if you got any update on Boeing?

Kevin Marsh

No. Things continue to go well. They’re obviously the same things you do in the press about I believe they are predicting third or fourth quarter this year for the first delivery of the 787, but things look good. We had another announcement of support organization for Boeing moving into Charleston, so that’s good too. But it is moving fast.

Jimmy Addison

It’s an impressive facility that’d be able to put seven planes inside. I wish we could charge them by the square foot rather than kilowatt hour. It’s a great operation and they’re right on track with coming on line later in 2011.

Christopher Ellinghaus – Wellington Shields

All right. Thanks so much.

Jimmy Addison

Sure.

Operator

Your next question comes from the line of Jonathan Reeder of Wells Fargo. You may proceed.

Jonathan Reeder – Wells Fargo

Good afternoon gentlemen. If I heard correctly then the electric load growth assumption post 2011 is kind of one kind of up to 1.8%, does that raise any questions about your need for the 55% position in summer?

Jimmy Addison

No, it doesn’t. When we presented the plan to the Commission that had the nuclear plant approved, we had a lot of flexibility on that plan in

in that plant and that if we didn’t see the long-term return of growth at the 2% level that we had the option of closing some of our older coal fired plants, now we’ve certainly made any commitments do that based on the model we’ve got today we plan on having those available as necessary, but if we don’t see a return I think our likely scenario is we would evaluate the long-term needs of those plants and certainly run the low cost nuclear once it was included in rate base because that field would still compete very favorably with the coal and we have flexibility in that plant if we decided to do that it would only improve the performance of our reduction in the carbon footprint and emission, so we’ve got that flexibility and it does not change on the 55%.

Jonathan Reeder – Wells Fargo

Okay so the plant has got the 55 and then I guess evaluate where the load kind of stands once the units come online whether or not you accelerate some coal retirement?

Kevin Marsh

Well it accelerated or just evaluate not using it is as much. We can – also have very low invested cost and then the coals are planned to be 60 years old by the time the nuclear comes online, so they will be able to run, but they’ll just be at a low invested cost and it won’t require us to run those unless they are necessary.

Jonathan Reeder – Wells Fargo

Okay and then obviously there is been a lot of articles out there on Santee Cooper and their potential to lower their interest, if they would do that is it conceivable that they could or there would be a potential gain on their share of the project and if so would that gain flow back to the project itself or just Santee Cooper?

Kevin Marsh

Well I can’t speak to Santee Cooper and how they might be attempting to sell if they are going to sell any of that that operation they’ve got for their portion of the assets that would be their 45% ownership, any negotiations they might make is up to them and we’re watching to see what they make in terms of

We’re watching to see what they make in terms of a final decision. They’ve indicated to us that they are exploring their long term pilot plan and they continue to evaluate that. But as of today, they are still like 45% partner, paying for their share of the assets as we move forward.

Jonathan Reeder – Wells Fargo

Right. So, if they decide to sell down a portion of theirs, is there would be any sort of gain, equity gain on that portion, your understanding is it would be retained by Santee Cooper and will flow to the project itself.

Kevin Marsh

I don’t think we could address that completely until we knew exactly what their plan would be as part of their arrangement with SCANA.

Jonathan Reeder – Wells Fargo

Okay. And then just lastly if you could, Kevin, update us on, I guess, kind of your M&A thoughts, what’s going on with your neighbors, and a lot of the impetus behind it being to help the funding of the large capital project. Has this changed again attitude at all towards M&A?

Kevin Marsh

No, it doesn’t. We have been very clear in the past that our plan as we have laid it out, has not changed. It’s about building these new nuclear plants and the bringing the asset base we need for the state of South California to make sure we’ve got clean energy for the state over the long term. M&A is not something we need to succeed and we’re working our plan. It does not change our status or our strategic objectives at all.

Jimmy Addison

Jonathan on the financing side, I understand the theoretical case, but from a practical standpoint, we did a bond deal a couple of weeks ago, $250 million fairly small in our industry. Eight times oversubscribed within an hour and did the deal at 95 basis points over 30-year treasury, tighter than many of the larger peers have done recently. So, that’s largely driven by the market at the time etcetera, but it’s just not been an issue for us.

Jonathan Reeder – Wells Fargo

Okay, I appreciate the comments today.

Jimmy Addison

Sure.

Kevin Marsh

Thanks.

Operator

Your next question comes from the line of Jim von Riesemann of UBS. You may proceed.

Jim von Riesemann – UBS

Hi Jimmy, Hi Kevin.

Jimmy Addison

Hi.

Kevin Marsh

Hi.

Jim von Riesemann – UBS

Couple of questions one is the first one is on the dividend I believe it’s the April analyst meeting you were talking about a 55% to 60% payout ratio and if I take your midpoint of your corporate target and put you well in excess of that a) can you talk about the dividend policy you don’t have a separate question on Santee?

Kevin Marsh

Yeah Jim we are comfortable with the dividend payout policy our board is comfortable with that. We talked about that this morning the main reason we’re slightly above that stated policy right now is nothing but the recession. And we’ve got a plan to be back within that policy at some point in time, timeframes can be driven by the recovery.

Jim von Riesemann – UBS

Do you think you guys are going to have a static dividend going forward until you get until you see the earnings growth?

Kevin Marsh

The economy would have to that have to have a downturn from here for that to change for that to be our plan. We plan on having increases, but that’s going to largely driven by what happens in the economy. But we’ve really contemplates a plan with our board this morning that considers dividend increases over the next several years it gets us back into that plan. So we plan to keep increasing and the economy would have to really go south for that to change.

Jim von Riesemann – UBS

Okay. And moving to Santee Cooper a second I know there is a bridge agreement between South Carolina Electric & Gas and then can you just give us some of the terms and conditions with that agreement and how that actually works they’re right at first refusal from you what options to Santee Cooper actually have what options do you have and what sort of timeline are they end when they have to actually make a final decision go no go?

Kevin Marsh

Yeah we have not disclosed any of the terms and conditions in that agreement. When we entered this project I was anticipated that we would be long-term partners and certainly we took what we thought was appropriate actions to protect are currently over the long term, but as I said earlier they are at this point they’re still a 45% owner. They do have the right to go out and seek to reduce that ownership and they’ve talked about different ways. They’re looking possibly to do that publicly, but we’ve not discussed any of the detailed terms of that agreement.

Jim von Riesemann – UBS

Okay. And then I guess the very last question is on your forward sale agreement, I noticed in your financing plan you have a little bit less equity in 2011 that I might have expected even just some in 2012, but yet your earnings growth rate is coming down. What’s the timing on bringing in some of that equity?

Kevin Marsh

Well, we got the forward that runs out through close to the end of the first quarter of ‘12, so we’ll take it down before that point. Whether we take it all down near the end of ‘11 or some of it could serve into ‘12 will just depend on cash flows that what happens with operations during the year etcetera.

Jim von Riesemann – UBS

Okay. I appreciate your help. Thank you.

Kevin Marsh

Sure.

Operator

Your next question comes from the line of Michael Lapides of Goldman Sachs. You may proceed.

Michael Lapides – Goldman Sachs

Hey guys. I have a favor to ask, can you bridge us – I’m just trying to make sure I understand all of the incremental outside of load growth related, all of the incremental revenue increases that you were left to get in 2011 meaning I know the rate increase occurred in – part of it occurred in 2010 I’m trying to figure out how much is left for 2011, you got the BLRA implemented the 47 million in November of ‘10, so I’m just trying to think about how much is left for 2011 kind of those type of items and if there are any offsets in ‘11?

Kevin Marsh

Yeah, Michael I’ll be glad to walk you through the constructs of that. I don’t have the exact dollars associated with each of those as they work into ‘11. But you’re right, the base rate increase for SCE&G Electric was effective July the 15th, so we had about 5.5 months of that in 2010 and 2012, we’ll have a full 12-month

2012, we’ll have a full 12 months. The BLRA was effective the 1st of November the – when that was implemented in 2010, so we’ll have 12 months versus two, similarly we’ll expect the BLRA increase November of 11, so we’ll have two step months of that increase. And you can forecast that if you were legacy is on our public information on our website. The only other one I’m aware of is SCE&G gas. We had a rate stabilization act. We had a rate decrease under that effective November 1 and we issued that in our prior release.

Michael Lapides – Goldman Sachs

Okay. And we have that – recall how the big of a number how much year ago of a number was the gas one?

Jimmy Addison

$10 million.

Michael Lapides – Goldman Sachs

Okay.

Jimmy Addison

Already in places.

Michael Lapides – Goldman Sachs

And it went into effect November 2010?

Jimmy Addison

That’s right.

Michael Lapides – Goldman Sachs

Okay, thank you guys.

Jimmy Addison

Yeah, sure.

Operator

Your next question comes from the line of Erica Piserchia of Wunderlich. You may proceed.

Erica Piserchia – Wunderlich

Hi, it’s Erica Piserchia. Thanks for taking my question. Just tell me to be to get more – but I just wanted to clarify on Steve and Chris’s questions, so it sounds like excluding the growth from new nuclear, you’re expecting earnings growth, you are 3% to 5% earnings growth target, excluding that new nuclear growth basically I think EPS would be flat modestly down from the base business and then…

Jimmy Addison

It will be – it will be slightly incremental.

Erica Piserchia – Wunderlich

Okay slightly incremental. I mean that ‘11 outlook has no industrial growth currently built in?

Jimmy Addison

It has industrial growth for the announcements that have been made, for example those that we highlighted 41 of the slide. We work with each of our industrial, large industrials the top 50 or so and have a detailed plan from our the customer reps that call on them for any economic enhancements they might make, things of that nature, so anything that we know of has been forecasted in

Erica Piserchia – Wunderlich

Okay. And then on that slide ‘11 in the CapEx forecast for the new nuclear just looking at those numbers relative to last BLRA filings. So are these new nuclear CapEx forecast numbers coming out of that filing you make on Monday?

Jimmy Addison

Yes they will be consistent. These are from the filing we’ll be making on Monday. The main change you can see their down some the main changes we initially had built this forecast with the contingency that was allowed by the regulators.

Erica Piserchia – Wunderlich

Okay.

Jimmy Addison

With pro forma that contingency in on a pro rata basis over the entire construction cycle. We’ve gone back and pulled that contingency out now and have placed the dollars in, in the specific years for the filing of the $174 million that we made before the commission they will be hearing in a couple of months so that’s the main reason its brought it down some in the early years.

Erica Piserchia – Wunderlich

Thank you, that was exactly my question. And the final question I was noticing that the NRC safety and environmental reports kind of got pushed back a couple of months is there anything to read into that as far as timing on the COL or is that just more of an administrative scheduling issue?

Jimmy Addison

Well the current schedules for the five (inaudible) they issued by the end of June of this year that was an indication that we – they have told us they are on schedule. We have just completed yesterday our full committed review in front of the advisor committee on reactor safeguards and that went without issues and we anticipate their issue.

I mean they are lead to the NRC very soon stating that they think that design is adequate to protect the public health and safety of the environment and those that will be served. So we believe we are on schedule I mean it may move around several weeks but I have not seen a change in the date on their schedule of June 30th for the final safety of evaluation report. The filing normal impact statement is on track for April so you got sometime between that April date and even the June Date for them to stay on track.

Erica Piserchia – Wunderlich

Okay all right thank you very much.

Jimmy Addison

You’re welcome.

Operator

Your next question comes from the line of Reza Hitucki of Decade Capital. You may proceed.

Reza Hitucki – Decade Capital

Thank you, thank you very much. Tell us what your year end 2010 total rate base is for the utilities?

Jimmy Addison

Yeah, for SCE&G Electric it’s well I’m going to give you September 30 numbers.

Reza Hitucki – Decade Capital

Okay.

Jimmy Addison

Because we haven’t filed the surveillance reports yet for year end, so for 4.750 million for SCE&G Electric, 440 for SCE&G Gas, 680 for PSNC Gas, and about 160 for CGT.

Reza Hitucki – Decade Capital

And do these numbers include the quit balances you have or no?

Jimmy Addison

They do include them for all of the gas businesses, for the electric business I don’t believe it’s included in that because of its separate out of the BLRA.

Reza Hitucki – Decade Capital

Okay. So the new case is not included in the 4.75 billion?

Jimmy Addison

I think that’s correct. Byrne is that correct?

Stephen Byrne

Yes that’s correct.

Reza Hitucki – Decade Capital

And can you remind us how much CapEx you spend thus far on the new projects?

Jimmy Addison

It’s about 1.4 billion for the total project, about yeah about 1.4 for the total project, our portion of that’s about 760 million.

Reza Hitucki – Decade Capital

Okay that’s been spent thus far?

Stephen Byrne

That’s right.

Reza Hitucki – Decade Capital

And I just wanted to follow-up on an earlier question I guess you kind of said that CAGR has been lower and so forth mainly because of the economy, and unemployment and so forth, I just wanted to – I guess to add – if you could shed a little more color on that because I guess like the previous question stated the CapEx plan is roughly the same, see, so you would at least from a top line rate base perspective earnings power would have been consistent with your forecast. So, I guess, rate base is roughly the same. I’m not, I’m kind of confused on why the earnings trajectory went down.

Jimmy Addison

Here is the core of the challenge with the economy. It’s not the, part of it is the lack of growth that we’ve had in the past. It’s about half of what it’s been in the past. Although it’s better than many of the country, it’s slightly under 1%.

The challenge that our industry is facing and we certainly are is that the average customer is using slightly less electricity in that same unit home that’s been there than they were three years ago. That is the core challenge that’s putting pressure on it. We’ve responded to that by really ratcheting back our cost and doing everything we can to control cost while providing reliable service, meeting customer service expectations of running a safe system. So, that’s the challenge in the short run.

Unidentified Company Representative

I also believe, if you look at the capital expenditure numbers, we started ramping that capital down at the end of 2008. So, if you look at 2009, 2010 they were at lower levels. So they would be fairly consistent with what you see in ‘11. We were probably an early mover and putting those dollars back because we saw the growth slowing down. So, I would expect it to be consistent from a capital level for the past two years.

Reza Hitucki – Decade Capital

Okay, so because you kind of dialed it back down the last couple of years that including those couple of years, it’s dialed back CapEx at least to I guess an overall trajectory that’s been lower to 3% to 5%.

Jimmy Addison

Right, and, you’re really, we’ve got, we have, we’re actually down the last couple of years. The only exception to that has been the expansion for the scrubbers in that electric case that drove last year. So, you really had to pull those out of there and look at the non-environmental part of the CapEx over the last few years. Ironically, back to one of the very first questions we got here earlier this afternoon, we’re really – we’re probably closer to earning our allowed returns than we ever had been historically at least in the last decade because the growth has slowed, and usually when you got robust growth you’re chasing that with new distribution system on the electric side and gas side with expansion of power plants etcetera and you’re constantly falling behind because of using historical test years. With the CapEx slowing, with us really controlling cost well, we’re closer to earning those allowed returns than we’ve likely been in 10 plus years.

Reza Hitucki – Decade Capital

And I guess lastly in looking at your CapEx slide, it looks like you’re spending a little over 1 billion or like a 1.2 billion on average over the next three years ‘11, ‘12, and ‘13, so that almost equates to like roughly 10% plus rate based growth, but – so you would think the earnings CAGR would be commensurate with that but I guess what’s offsetting is the equity issuances and the drip is that sort of kind of what’s going on?

Jimmy Addison

Yes, I agree with you – your analysis. The only thing I would add maybe as an enhancement is you really need to look at it in two parts. Take the new nuclear; take that part and consider it part of the Base Load Review Act; it’s got a separate return of 11% very mechanical how that works and very clean and crisp. The remaining rate base for kind of the normal part of the business of course you’re offsetting against depreciation of your existing rate base prior to this addition. And so that kind of the net is the only rate base addition you’re adding.

Reza Hitucki – Decade Capital

Okay. Thank you very much.

Jimmy Addison

Sure. Thank you.

Operator

(Operator Instructions). Your next question comes from the line of Paul Patterson. You may proceed.

Paul PattersonGlenrock Associates LLC

Good morning and good afternoon. How you doing?

Jimmy Addison

Good.

Kevin Marsh

Hi, Paul

Paul PattersonGlenrock Associates LLC

Congratulations Kevin.

Kevin Marsh

Thank you.

Paul PattersonGlenrock Associates LLC

Just sort of and I don’t want to be a dead horse here, but just in terms of this change in the economic outlook and I guess usage as well. What sort of a, what I guess over the last quarter or so has sort of the crystalizing event here that sort of cumulated in this sort of lower growth outlook?

Kevin Marsh

Paul I don’t know if there is any one thing, but I can tell you one objective matter is that I mentioned earlier we now have weather normalization in our electric business and I don’t think many of any of our peers have that. It is a very difficult task to without weather normalization to go through and analysis earnings each quarter and determine how much of its driven from weather and how much of it’s from growth. It’s difficult, its part science and part arts. We’ve got a process in place now that clearly does that and we change the bill based on the weather.

So it’s become more clear to us since we’ve implemented that the last two quarters exactly what’s going on with non-weather usage. I’ve said earlier the majority of our growth over this forecasted period based on the economy we see today is driven by the new nuclear. I know our growth rates for some of the best in the region or the country with 0.9% on the electric side 1.2% on the gas side in South Carolina 1.9% in North Carolina. If someone doesn’t have this type of investment and mechanism in place I’m not sure they’ve see completely through their data you had to understand it, but I think we do.

Paul PattersonGlenrock Associates LLC

Okay, that’s helpful. The GDP expectation that you guys have I mean I guess because part of this is slower economic growth as I understand tell me if I’m wrong plus this conservation were at least lower usage that’s going on. Just what is it that you guys have sort of in those numbers in terms of what’s your – when we were talking about this 3% to 5% now?

Jimmy Addison

Paul I think it’s around 3%, I don’t have that data in front of me. We discussed that with the Board this morning, but I think it’s yeah about 3.2%.

Paul PattersonGlenrock Associates LLC

3.2%.

Jimmy Addison

Yes.

Paul PattersonGlenrock Associates LLC

And I guess what I am sort of – what we are sort of thinking here is may be is this – if it ends up being a little lower, let’s say 2.5% how should we think about that be potentially impacting the – in other words could we see another revision based on this – how should we think about the potentials, the economic growth changing the outlook?

Kevin Marsh

Yeah. I understand your question. I think that’s very unlikely. I feel like we’ve got a real good handle out of what’s going on here, if we were anything at this point I would say we were probably a little conservative on it, but I really – I don’t see that happening, I mean if growth were to slow even more than it is today, first of all its picked up last couple of quarters, so the trajectory is headed the right way. But if it were to slow more we would ramp – cut back on more capital.

Paul PattersonGlenrock Associates LLC

Okay, okay.

Kevin Marsh

Adjust our operations accordingly.

Paul PattersonGlenrock Associates LLC

Okay that’s good to hear. And then just finally just in terms of when we are seeing this lower growth I mean this lower usage, you mentioned smaller homes I think, but other than that is there anything else that your intelligence is showing up here as being a factor of appliances or just conservation in general, elasticity, I am just trying to get some substances to what might be eating else that comes down?

Jimmy Addison

No I think it’s generally elasticity; of course we’ve got the Kevin you may – can help me, but the new light bulb standards in 2012 is…

Kevin Marsh

You’ve got new light bulb standards coming in, you continue to see I think a higher penetration rate or more efficient air conditioning units, which is a big part of the load here, but I think what we saw when the economy turned

what we saw when the economy turned in South Carolina was very much indicative of customers saying they wanted to cutback and that’s what makes us so hard and terminable when do they feel comfortable that they can turn those air conditioners back up during the summer time. Trust me, when it’s 100 degrees, I think the customers are running the air conditioners. And so in short it appears when they feel like they can possibly do without any targets to handle on and for the challenges we have right now is we haven’t had a long enough periods to see a sustained pattern.

We dove into the same pretty quickly in 2009 and it’s been very difficult to determine when will we come back out and we see positive signs, but as I’ve talked about it with Jimmy we want to be very sure that we’re on the way back up and we’re not going to have a relapse before we make a commitment. It was going to change our guidance. And I thank speaking with Jimmy. We’ve been pretty conservative in looking at this forecast to make sure we’re telling you we’re confident we can deliver. We just don’t want to say 4% to 6% and then leave in a 3% to 5% range and have the feel like we’re not being straight with you.

Paul PattersonGlenrock Associates LLC

Okay. I really appreciate the clarity. Thanks a lot guys.

Jimmy Addison

You’re welcome.

Operator

This concludes the question and answer section of the call. I would now like to turn the presentation back over to Mr. Jimmy Addison for closing remarks.

Jimmy Addison

Well, thank you and thank all of you for being with us on the call today. I know we had a little more depth too than we normally do. I appreciate all your patience and questions as we work through this information. I think we had a very successful 2010 relative to the economy we’re operating in and we continue to feel very optimistic about our team, our new nuclear project and our ability to prosper along with the underlying growth of our territories.

Appreciate you joining us today and I hope you have a great weekend.

Operator

Ladies and gentlemen thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a great day.

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