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SCANA Corporation (NYSE:SCG)

Q3 2011 Earnings Conference Call

October 26, 2011 13:30 ET

Executives

Byron Hinson – Director, Financial Planning and Investor Relations

Kevin Marsh – President and Chief Executive Officer

Steve Byrne – Chief Operating Officer

Jimmy Addison – Chief Financial Officer

Analysts

Paul Patterson – Glenrock Associates

Steve Sanders – Stephens Inc.

Andrew Levi – Caris

Travis Miller – Morningstar

Erica Piserchia – Wunderlich Securities

Jonathan Reader – Wells Fargo Securities

Jim von Riesemann – UBS

Chris Ellinghaus – Williams Capital

Michael Lapides – Goldman Sachs

Dan Jenkins – Wisconsin Investment Board

Ashar Khan – Visium

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. My name is (Rocco) 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 speakers’ remarks, there will be a question-and-answer period. (Operator Instructions) As a reminder, this conference call is being recorded on Wednesday, October 26, 2011. Anyone who does not consent to the taping may drop off from the line.

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

Byron Hinson – Director, Financial Planning and Investor Relations

Thank you and I’d like to welcome everyone 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 third quarter of 2011.

Joining us on the call today are Kevin Marsh, President of SCANA; Steve Byrne, Chief Operating Officer of SCE&G; and Jimmy Addison, SCANA’s Chief Financial Officer. 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 Kevin, I would like to remind you that certain statements that may be made during today’s call which are not statements of historical facts are considered forward-looking statements and are subject to a number of risk and uncertainties which are shown on slide two and discussed in the company’s SEC filings. The company does not recognize obligation to update any forward looking statements.

Finally as noted on slide two, we may disclose certain non-GAAP measures during this presentation and the required Regulation G information can be found on Investor Relations website.

I’ll now turn the call over to Kevin.

Kevin Marsh – President and Chief Executive Officer

Thanks Byron, and thank you all for joining us today. During today’s call, we will provide an update on our nuclear project and our recent hearing before the NRC. We will also discuss our results for the third quarter and our financial guidance for the balance of 2011 and for 2012. As you all know, Bill Timmerman announced his retirement earlier this year. He will be retiring at the end of November and I will be moving into my new role as CEO.

Bill and I have worked together for many years. He has and will continue to be a valuable resource for me personally and for the company. I am pleased to report that our transition is progressing as planned and I look forward to my new responsibilities. We continue to see significant industrial announcements in our service territory.

On slide three, we have provided an update of economic expansion announcements. This period was very impressive including a large expansion at the Bridgestone tire facility in Aiken County and a new continental tire operation in Sumter County. In total, announcement since July 1st suggest a creation of over 3000 new jobs with an investment of approximately $1.9 billion. This brings our year-to-date planned industrial investments to over $2.5 billion with more than 5,500 job additions.

In addition to industrial growth, we also continue to see customer growth in our residential and commercial categories. These are promising signs of economic recovery and we are excited to be positioned to provide clean, safe, reliable energy for the citizens and industries in South Carolina in the future.

Please turn to slide four. We’ve set forth our regulated returns and related filings. The chart at the top of the slide shows allowed returns at our three largest regulated subsidiaries as of June 30, 2011, the date of our most recent filing. The third quarter earned returned filings for our Electric and Gas businesses will be made in mid-December.

Our electric business earned 8.6%. The decrease from the previous filing was due primarily to the elimination of the second quarter of 2010, which was positively impacted by weather. You might recall beginning in the third quarter of 2010 we implemented a weather normalization mechanism, so our returns at the Electric business are no longer impacted by weather. This figure does not include any new nuclear CWFE or associated rate increases, as those allowances were handled separately under the Base Load Review Act.

As of June 30, 2011, our gas business at SCE&G was earning approximately 7.72%. This does not incorporate the recent 8.5 million rate increase, will effective in November of this year under the Rate Stabilization Act. This increase will restore the return to approximately 10.25%. And overall earned returns in the Gas business fall 50 basis points above or below our allowed return of 10.25%, we adjust rates through our annual Rate Stabilization filing.

Our North Carolina gas business continues to perform well, and is earnings its allowed return principally due to the growth in the business and cost control. As you can see form timeline at the bottom of this slide, we have completed all of our – one of our plan regulatory filings for the year.

On slide five, we review our new nuclear Base Load Review Act filings and related rate increases. As we mentioned in our second quarter call, we filed our annual request for revised rates under the Base Load Review Act in May. In response to that request, in September, the Public Service Commission of South Carolina approved an increase of $52.8 million or approximately 2.4% to the retail electric rates of SCE&G. The new rates will be effective for bills rendered on or after October 30 of this year.

Our BLRA filings for 2011 are shown at the bottom of the slide. As you can see, on August 15th we filed our quarterly status report on our new nuclear project with a commission and office of regulatory staff for the second quarter of 2011. This report provides a detailed update of capital cost incurred and updated milestones for our new nuclear project, and is available on our website. We intend to file our quarterly status report for the third quarter of 2011 on November 14th. I am pleased to report that our project for the two new units continues to be on budget and on schedule for completion in 2016 and 2019, respectively.

Finally, SCE&G and Santee recently executed the permanent construction and operating agreements, which will govern and construction and operation of the new nuclear facilities. Under these agreements, SCE&G will have a primary responsibility for oversight of the construction of the units and will be responsible for the operation of the units as they come on line.

I’ll now turn the call over to Stephen Byrne to discuss some other aspects of our nuclear project and environmental matters.

Steve Byrne – Chief Operating Officer

Thanks, Kevin. I would now like to direct your attention to slide number six. The Nuclear Regulatory Commission’s licensing proceedings continued to progress towards a successful conclusion. Please focus on the blue section of the chart.

On October 13, we completed the uncontested mandatory hearing before the Nuclear Regulatory Commission. SCE&G believes it presented evidence that all requirements have been met to allow the NRC to issue the combined construction and operating license for V.C. Summer Units 2 and 3. We anticipate a decision from the NRC regarding our COL in the coming months.

Now if I can get you to focus on the green section of the chart related to the approval of the 81000 certified design, you see it as in the rule making process. The NRC has indicated that the full commission intends to act on the final certification by year end. This timeline continues to align with our expectation that we’ll receive our COL in late 2011 or early 2012.

As Kevin mentioned, construction of the units is progressing on schedule and continues to support the units coming online in 2016 and 2019. As we have previously discussed earlier this year we asked Shaw and Westinghouse to perform a COL delay impact study. You might recall that this study related to various cost and timing alternatives arising from the anticipated COL issuance of mid 2011 timeframe when we signed the EPC contract in 2008 to the current timeframe of late 2011 early 2012. This study is not in any way an indication that we are expecting additional delays in receipt of the COL.

This study provides for three scenarios. The first scenario compresses the construction schedule for Unit 2, the first new unit, to retain the original commercial operation date set forth in the EPC contract. The second scenario pushes out the commercial operation date for Unit 2 by six months. The third scenario considers delaying the commercial operation date of Unit 2 and accelerating the date for Unit 3 in order to take advantages of economies and efficiencies in the construction schedule. By narrowing the gap between the units, it may be possible to create construction efficiencies by avoiding the demobilization and remobilization of crews as we progress from one unit to the next. SCE&G has been negotiations with the Shaw Westinghouse consortium to determine the preferred scenario. We do not anticipate a decision on the COL Delay study until later this year.

Finally, I would like to briefly touch on the impact of environmental regulations on our coal fleet. Please turn to slide number seven. We continue to evaluate the impact of alignment of regulations, particularly the Cross-State Air Pollution Rule. The rule requires states in the Eastern U.S. to reduce power plant emissions specifically sulfur dioxide and nitrogen oxide. At this time we still believe the most effective control technologies for reducing sulfur dioxide and nitrogen oxide emissions are the combination of scrubbers and selective catalytic reduction or SCRs.

As you can see in the top of this chart on the slide 69% of our coal capacity already has scrubber and SCR technology. These units account for approximately 80% of our dispatched coal generation as these are our larger, more efficient plants. The charts at the bottom of the slide demonstrate our current and anticipated generation mix after the two new nuclear plants at V.C. Summer come online.

Our coal fleet composes slightly over 50% of our current generation mix. We anticipate that percentage to drop to 24% as we will rely less heavily on coal in the future. In anticipation of more regulation we will continue to pursue additional strategies and evaluate emissions reduction technologies to ensure that we are in compliance with all environmental regulations.

I will now turn the call over to Jimmy Addison.

Jimmy Addison – Chief Financial Officer

Thanks, Steve, and good afternoon. Let’s start on slide eight which reflects 2011 third quarter basic earnings per share of $0.81 compared to $0.80 in 2010. The increase in earnings was primarily attributable to improved margins from electric base rate increases which were partially offset by interest expense and share dilution.

On slide nine for the nine months ended September 30, 2011, basic earnings per share were $2.25 per share unchanged from the same period in 2010. Increases in electric margin from base rate increases and lower operation and maintenance expenses were partially offset by the gas rate decrease under the rate stabilization act that was effective in November 2010, higher interest expenses, property taxes, depreciation and share dilution. Based upon our results to date and our expectation for the balance of the year, we are reaffirming our 2011 earnings guidance of $2.95 to $3.10 per share with our internal target of $3.02 per share.

Now on slide 10, I’d like to review results by principle lines of business. SCE&G third quarter 2011 earnings denoted in blue were $0.05 per share higher than 2010. Improved electric margins from base rate increases under the base load review act were partially offset by increases in depreciation, interest, and dilution. At September 30, 2011 SCE&G was serving approximately 665,000 electric customers and approximately 313,000 natural gas customers, up 0.8% and 1.3% respectively over the same date in 2010. The PSNC energy in red reported the seasonal loss of $0.03 per share in the current quarter compared to $0.04 per share in the prior year. Increased margin from customer growth of approximately 1.7% was slightly offset by depreciation and property taxes.

SCANA Energy in green reported a seasonal loss of $0.03 per share during the quarter compared to a loss of $0.02 in the prior year. The $0.01 change is driven by lower margins which were partially offset by lower operating expenses. SCANA Energy was serving approximately 450,000 customers as of September 30. SCANA Energy along with three other marketers entered the bid process to service the regulated provider for the state for the upcoming term of September 2012 through August 2014. The commission is scheduled to make a selection in February 2012. SCANA Energy has served as a regulator provider since 2002. SCANA’s corporate and other businesses reported a loss of $0.05 per share compared to a loss of $0.01 per share during the third quarter of 2010. The results for 2011 reflect higher income taxes at the holding company during the quarter due to levelizing the effective tax rate as required by accounting standards.

Slides 11 and 12 show our electric and gas sales statistics. These numbers have not been weather normalized. Recall that our WNA and CUT mechanisms normalize margin but obviously not unit sales. Retail sales of electricity are down 1.5% for the quarter due to lower residential and commercial sales primarily as a result of milder weather this year, partially offset by higher industrial sales. Retail sales of natural gas showed a decrease of 1.8% for the quarter. While the residential and commercial categories showed improvement, industrial gas usage declined slightly when compared to the third quarter of 2010 due to lower sales for power generation in the current quarter, again driven by milder weather.

Now I would like to discuss our 2012 earnings guidance and related assumptions as shown on slide 13. Our 2012 preliminary guidance is $3.05 to $3.25 per share and our internal target is $3.17. This guidance assumes known industrial expansion and continued customer growth at recent levels. While we anticipate the number of customers will increase our assumption of usage per customer is slightly lower reflecting continued energy efficiency and the economy in general.

As it relates to expenses, operations and maintenance expense is expected to remain relatively flat with modest growth related to CapEx expansion in property taxes, depreciation, interest expense and dilution. We project an effective tax rate of approximately 30% for 2011 and 2012. Additionally, we have included the impact of base rate increases from our new nuclear filings and the RSA and the effects of additional cash flow from our tax strategies.

These tax strategies will enable us to delay drawing down the remainder of the equity forward until the fourth quarter of 2012 and postpone a supplemental equity offering until 2013, thus minimizing the effects of dilution in next year, as I’ll discuss in more detail when I cover our financing plan shortly.

As Steve mentioned earlier, we are still making a decision on the COL delay study. Our guidance is necessarily broader than normal to accommodate the range of potential outcomes he discussed. Once the decision on the study is finalized we will update you and provide information about how the decision impacts our guidance range, capital forecast, and financing plan.

While we continue to see some signs of a longer term economic recovery, the signals are mixed. As a result, we remain conservative in our estimates and cautiously optimistic about our longer terms sustain recovery. We reaffirm our long-term outlook to deliver 3% to 5% earnings growth over the next three to five years based on the 2010 weather-normalized base of 292.

Slide 14 presents our preliminary CapEx forecast. The estimates for 2012 and ‘13 are slightly less than the forecast represented a year ago. As you can see from the slide, our new nuclear spending accounts for more than half of our total capital spending over the next three years.

Now please turn to slide 15. This slide represents our estimated financing plan through 2014. We anticipate completing two debt refinancings in 2012 and ‘13. Our only planned issuances of new debt will be at SCE&G to support our new nuclear construction. Regarding equity, we intend to continue to issue shares through our 401(k) and DRIP programs, yielding approximately $100 million per year.

As mentioned in previous calls, we have adapted two tax strategies which have provided additional cash flow. These are bonus deprecation and the election to deduct repairs expense as opposed to capitalizing those costs. Because of the cash benefits we have seen from these strategies we planned to extend the May 2010 equity forward and postpone drawing the remaining funds and to the fourth quarter of 2012. We are working with the forward counterparties on the extension and expect to have it completed shortly.

Our previous financing plan included an additional equity offering of $150 million in 2012, while our updated plans postpone this issuance until 2013. As a result, our 2012 plan is lower than previously announced while our 2013 plan has increased. We continued to evaluate our financing plan and develop strategies which align our debt and equity issuances with our cash needs for construction. This isn’t a change in our overall strategy of financing the project 50/50 with debt and equity, but rather simply an adjustment in the execution to match previously unexpected cash flows. We’re very pleased with the flexibility the forward structure has offered us during this period.

In summary, we are pleased with our quarterly results and confident in our guidance for both 2011 and 2012.

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

Question-and-Answer Session

Operator

(Operator Instructions) And our first question will come from Paul Patterson of Glenrock Associates. Please go ahead.

Paul Patterson – Glenrock Associates

Hi, how are you doing?

Kevin Marsh

Good, Paul.

Paul Patterson – Glenrock Associates

Thanks for the presentation, as always very thorough. But just want to – I know you guys had the weather normalization clause but could you give us a flavor for what the weather-normalized growth has been, absent industrial?

Kevin Marsh

Sure, Paul. The short of it is it’s been inconsistent much like the national and the local economy. But in short to your question there, for the quarter our residential weather-normalized growth is actually up slightly more than 1% and industrial is up similar amount, about 1.25%. The commercial is lagged behind, still slightly below last year’s. And I think initially we’ve talked in the past couple of calls about industrial leading the recovery, we are certainly seeing that with the discussion that Kevin took you through a few minutes ago, now it appears that some of this - at least in the short term has translated into residential consumption, but we’ve yet to see it in commercial.

Paul Patterson – Glenrock Associates

Okay. And then could you just also just review about with respect to what’s your expectations are again going forward for retail sales growth?

Kevin Marsh

Yeah, we’re – we expect growth of – as far as number of customers, new customers of something slightly less than 1% in the electric business and in the gas businesses ranging from a similar amount in South Carolina to about 1.75% in North Carolina and that’s just numbers of customers. As far as usage, in North Carolina of course we have a cut mechanism that takes care of any change in usage related to efficiency et cetera and in the electric business we’re assuming a slightly lower customer usage just driven off of efficiency, the CFL laws et cetera as it relate to 2012.

Paul Patterson – Glenrock Associates

Okay. So you if you see any change I guess – I guess it doesn’t seem – you guys are still pretty much holding to what your economic impact on retail sales is going to be going forward. There really hasn’t been a change from what we’ve seen from I don’t know there has been some sort of discussion, the slowdown perhaps happening in the economy going forward that perhaps I don’t know – in the last quarter or so people have been sort of projecting more but you are not necessarily feeling that at that point – at this point, is that right?

Kevin Marsh

Well, I think it’s fair to say that we’ve been more conservative about the forward expectations. There is a little bright spot in this quarter as far as non weather related usage at the residential area and certainly continue to see growth in industrial, just not ready to call that a trend yet.

Paul Patterson – Glenrock Associates

Okay. Okay, great. Thanks a lot for the update.

Kevin Marsh

Sure.

Operator

And our next question will come from Steve Sanders of Stephens Inc. Please go ahead.

Steve Sanders – Stephens Inc.

Hey good afternoon, guys. Thanks for taking the questions. First, I think Steve you outlined kind of three options on related to the COL impact study. Can you just talk a little bit more about kind of the gating factors or the decision drivers of the three options, is it primarily financing, is it personnel, is it supply chain, just maybe give us a little bit more color on those things?

Steve Byrne

Yeah, sure. First of all, the supply chain really has not entered into the any of the gating factors. We anticipate that irregardless of the decision we make we’re not going to take the pressure of the supply chain. So our expectation is that all of the components that are being manufactured will continue on their current manufacturing schedule and we’ve got plenty of room onsite to store large components should they come in. So that’s really not a consideration.

So, really for us the considerations are the schedule and the cost implications of that schedule and then probably secondarily then is our desire to try to keep the trained workforce onsite actively engaged as long as we can and that’s why in the third scenario that we are looking at which is really a compression of the schedules. We will allow the first new unit to be deferred for six months, but we’ll bring the second new unit up earlier and that way we should avoid some of the demobilization/remobilization. So we’ll keep that workforce more actively engaged and so the discussions we are having with the consortium now are how we value that versus how they value that and that’s with the negotiations.

Steve Sanders – Stephens Inc.

Okay, okay, thanks. That’s pretty helpful. And then on the EPA slide I just wanted to clarify so the 80% of your coal generation that currently has the scrubbers or SCRs, is that in compliance? In other words the finalization of this rule change anything over the next year or two in terms of your spending on the existing coal fleet?

Steve Byrne

We don’t see the changing anything on the existing coal fleet relative to capital expenditures based on the rule. Now the rule is also implemented in 2012 but I think it yet remains to be seen whether we’ll see full compliance request in 2012 or whether that would be deferred, so they may delay the enforcement of the rule for some period of time which is not unusual from the EPA. But in the short term we don’t see any impacts to our fleet, and we believe that the scrubber and SCR technologies along with the back houses and/or electrostatic precipitators we have installed in those bigger units should put us in compliance for those units.

Steve Sanders – Stephens Inc.

Okay, thank you very much.

Operator

And our next question will come from Andrew Levi of Caris. Please go ahead.

Andrew Levi – Caris

Hi, good afternoon. Back on the COL study can you give us some type of idea, I mean, obviously we’re not sure obviously what it’s going to come out with and what road you’re going to go down but as we look at 12 or 13 or 14, and we’re looking at significant changes in expenses or cost or I mean ultimately in the BLRA and how that will play out as far as rate increases and things like that and can you give us some type of idea what we should be kind of looking at and whether it should be a concern of ours or whether it’s just more cosmetic in the changes that you will be making?

Kevin Marsh

Let me start off and then let Steven jump in if he’d like. From our perspective, first of all for 2012 we’ve been, as I said, a little broader in our guidance range than we normally would. Our intention would be, as these decisions are completed, to tighten that range hopefully in our year end call in February when we know the results of this. We feel like that range contemplates the variety of outcomes. In my opinion, this really has to do with recalibrating the full scale starting point once we give full notice to proceed to the vendor and not necessarily the whole process from here on out. There will be some ripples, I think throughout the following years, but it really has to do with how much does it impact 2012, and of course our fiscal year is different than our BLRA typical filing years. We typically make that filing in May or June. Steve, anything you’d like to add?

Steve Byrne

I don’t anticipate any significant changes in the near term but as we get out into those outer years of 13 or 14, what it may do is impact whether it’s 2.5% or 2.7% increase in one year versus the next year. I don’t think there’s going to be a big overall change in where we end up but in inter year there could be some movement of those rate increases under the Base Load Review Act. While also our Base Load Review Act is predicated on milestones and we have a number of milestones that we report on quarterly in the quarterly update that we turn into our Public Service Commission. And currently we don’t anticipate any changes to those milestones based on the negotiations going into on the COL delay study.

Andrew Levi – Caris

Okay, that’s great. ‘13 and ’14, I understand, just back to 2012, what type of, there’s no better way to put it, line items, I mean where in the income statement or the CapEx or cash flow where would – kind of get and speak – where we would see some changes…

Jimmy Addison

Yeah.

Andrew Levi – Caris

How significant would they be? I mean, I understand you have a $0.20 range in your revised guidance. But a little bit of help there?

Jimmy Addison

Well, there are several moving parts if there were a change in the construction cost in 2012 it would certainly impact the amount of CapEx and therefore the amount that needs to be financed and so therefore it could impact interest expense or dilution from equity issuances. And also if there were less or more than we have currently in the CapEx plan it would potentially impact AFUDC or capitalized interest cost, or carrying cost, intra-BLRA increases and then ultimately the cash impact would in the amount that it would decrease or increase the projected BLRA filing that would be effective in November of 2012. So those are the four so moving parts related to that. We really – I understand you want a boundary but all we can – we can’t really respond to that because we haven’t quantified these different options that Steve outlined for you. We are waiting on the consortium to get to back to us on that, but we feel like at the outside those are all contemplated within this range.

Andrew Levi – Caris

And the consortium is going to get back to you when?

Kevin Marsh

We expect to have that study completed and the discussions by the end of the year.

Andrew Levi – Caris

But you want to talk to us about it until your first quarter call is that basically how is it going to play out?

Kevin Marsh

That would be the plan at this point. Once we get that contemplated and also during that time we certainly hope we get a better feel for where we are on the COL and once we have all those pieces of the puzzle, we’ll be prepared in February to give you a complete update on the timing if it involves any significant changes.

Andrew Levi – Caris

Great. And just on the low end can you give us kind of any idea of what you are thinking there relative to this process?

Kevin Marsh

I’m not sure I understand your question, I mean…?

Andrew Levi – Caris

I mean the low end of your guidance, I mean what assumptions have you made that incorporate this process?

Kevin Marsh

While on the low end of the guidance we’ve obviously around the base business, we’ve been more pessimistic about the economy et cetera and in addition to that we’ve assumed that we spent X dollars less in the construction related to the nuclear plant, but I really can’t get into defining a specific number in there for you because we don’t have the solutions defined by the consortium.

Andrew Levi – Caris

Okay, I tried. Thanks guys. Appreciate it.

Operator

And our next question will come from Travis Miller of Morningstar. Please go ahead.

Travis Miller – Morningstar

Hi, good afternoon. Looking back at slide three with those new customers, what kind of additional volume would those new customers represent? And looking also at that 1.25% increase, how much of that was from those new customers?

Kevin Marsh

We typically don’t disclose the amount of usage from those customers. They see it as fairly confidential and competitive but in aggregate all that’s been considered in our guidance and as Jimmy said we think that’s a great foundation for the opportunity to see the continued increase in residential and hopefully commercial down the line, but we have not provided any specific output or usage expectations for those facilities.

Travis Miller – Morningstar

If I backed out some of the new stuff from that one in the quarter, is it fair to say that core or legacy industrial demand was roughly flat or is that being too aggressive contribution from these new customers?

Jimmy Addison

No. Realize these are announcements that Kevin has covered, so these aren’t in operation yet. These are just third quarter economic development announcements. What you see in the 1.25% growth in industrial is our legacy, operating industrial accounts.

Travis Miller – Morningstar

Okay, great. And then one other unrelated question, the 800 megawatts of the uncontrolled coal that you still have, how much of that is at risk of closing based on Casper and the proposed air toxic rule that we’ve seen?

Kevin Marsh

When we see the final impact of those rules and understand some of the rules that we’re dealing with the one you mentioned, plus others, are not completely identified or quantified yet. Their implementation date isn’t certain. But, sufficed to say that we think that the EPA rules and regulations that are coming out will have an adverse impact on coal plant, and in our latest Integrated Resource Plan that we file with the Commission, we did contemplate some coal plan retirements. Now, we didn’t specify which plant, but we do have some retirement specified.

Travis Miller – Morningstar

Okay. Did you have a megawatt capacity on that?

Kevin Marsh

We did for the number of megawatts in it and don’t have the – my fingertips, so I’d be guessing, but its a few hundred megawatts.

Travis Miller – Morningstar

Okay. I’ll go back and check that. Thanks a lot.

Operator

And our next question will come from Erica Piserchia of Wunderlich Securities. Please go ahead.

Erica Piserchia – Wunderlich Securities

Hi, just a quick follow-up question. I know Andy exhausted a lot of the questions on the coal guidance, but just can you give us – because it seems to me like the biggest maybe sensitively factor there is study which is still out there, and I know you talked about that the usage, do you have any kind of like sensitivity on an earnings per share basis to 10 basis point change in customer usage in the base business? Is that way to think about that?

Jimmy Addison

Well, you’re talking me on the coal business not to do with nuclear. On the electric side of the business, if usage varied 0.5%, it would make roughly $0.03 per share of change in the earnings per share.

Erica Piserchia – Wunderlich Securities

Okay, thanks. And then what allowed return or is your – your current allowed return embedded in that guidance range somewhere?

Jimmy Addison

No, the allowed returns are back on the slide four, which is 10.7 for the electric business at SCE&G and 10.25 for SCE&G gas, and 10.6 at PSNC in North Carolina. The gas piece, as I discussed, we have made a filing for an increase under our Rate Stabilization Act and we believe one that’s effective later this year, that that will push us back towards 10.25 on the gas business. We remain below the 10.7% on the electric side. I will tell you that we have not contemplated any potential increase in electric rates end of 2012 guidance, so there is nothing added in there for potential increase in revenues. We are watching the economic conditions to see what the recovery does and we’ll certainly pay attention to that and – works that in more detail in 2012. We did have a moratorium that we received from the commission on our last increase last year, and that would keep us from increasing rates until July 2012. But if you back and look at what we’ve done in history, it’s been about two to three years between regular core increases depending on what the economy is doing.

Erica Piserchia – Wunderlich Securities

Okay. Kevin, you touched on my third question, which was any updated thoughts on rate cares? So – and then I guess just one last thing on the NRC’s process and – been trying to kind to follow the DCD, what’s your understanding of the time frame or the rough timeframe that the NRC is expecting in terms of ruling on the DCD?

Kevin Marsh

I think that the – if we talk about the Westinghouse AP 1000 DCD in Revision 19, the last revision, the proposed rule went to the Commission I think it was last week, so that’s the staff has basically finished their work and have sent it up to the Commissioner themselves. According to their internal guidelines, they’ve got four weeks to confirm the rule, so we anticipate that could be within the next couple of weeks.

Erica Piserchia – Wunderlich Securities

Okay, thank you.

Operator

And our next question will come from Jonathan Reader of Wells Fargo Securities. Please go ahead.

Jonathan Reader – Wells Fargo Securities

Good afternoon. Couple of questions I guess that haven’t been asked yet. One is just kind of a clarification, so if you get the COL in the timeframe you are expecting around year end, you are still going to implement one of those three options under the study?

Kevin Marsh

It would be our anticipation that we wrap up the negotiations with the consortium on the options by year’s end and if we get the COL by year’s end to position ourselves to start the nuclear construction right away.

Jonathan Reader – Wells Fargo Securities

But would you have to implement one of those three options if you get the COL by year end still?

Kevin Marsh

We would have to implement one of three options but the early part of – of all three options is the same.

Jonathan Reader – Wells Fargo Securities

Okay.

Kevin Marsh

Once we start with basement for the first big secure concrete for mud mat, vapor barrier, (reblockage) that’s all the same for any of the options.

Jonathan Reader – Wells Fargo Securities

Okay. And then Kevin can you quantify what the EPS contribution is from the polar obligation in Georgia, does that really pull anything to the bottom line?

Jimmy Addison

Jonathan, this is Jimmy. Let me respond to that. There is an impact to the bottom line. And I hope you appreciate this, but this is in a bid process now and for competitive reasons I don’t want to disclose that to all of our competitive bidders with any information in that bid process that they don’t already have. Let me just say to you that we’ve – that’s also contemplated in this guidance range and it’s not material.

Jonathan Reader – Wells Fargo Securities

Okay. And then a last question, I think Jimmy you said that 2012 you’re not assuming any industrial growth. Is that accurate?

Jimmy Addison

Well, we’re assuming industrial growth based on what’s announced to-date. So everything that Kevin covered with you earlier on the slide based on their planned implementations of these facilities and their planned usage, we have built that into our plan. But we have not assumed yet unannounced industrial expansion that we – that may be in the pipeline.

Jonathan Reader – Wells Fargo Securities

Okay, makes sense. Thanks.

Jimmy Addison

Yep.

Operator

And our next question will come from Jim von Riesemann of UBS. Please go ahead.

Jim von Riesemann – UBS

Good afternoon.

Kevin Marsh

Hey, Jim.

Jimmy Addison

Hello.

Jim von Riesemann – UBS

How are you guys doing?

Kevin Marsh

Great.

Jimmy Addison

Great.

Jim von Riesemann – UBS

I am a little tired because this is fourth call. So I’m going to beat a dead horse to death if you guys don’t mind. So it looks to me 2011 is probably going to come in above your internal target number barring anything else, right? So you have that. What takes this down to the low end of the 2012 range exactly to get to 305, so you would have like earnings decline? I’m just missing that?

Kevin Marsh

Yeah, it really would come back primarily to this discussion around the different options and again…

Jim von Riesemann – UBS

Okay.

Kevin Marsh

We’ve given ourselves a little liberty there because we can’t define it completely.

Jim von Riesemann – UBS

Yeah, okay. So that’s why your internal target for ‘12 is above the midpoint you’ve given yourselves such a low end just in case?

Kevin Marsh

Just in case.

Jim von Riesemann – UBS

Got it. That was easy enough. The COL is issued at the end of the year. Let’s just assume that’s done, everything has signed, sealed and delivered. What’s keeping you and Steve and everybody up in night now because you’ve got from where we get the thing license to like – now we got to sell the bigger construction project on our hands?

Kevin Marsh

Well, getting ready for the construction keeps me and my folks up in my…

Jim von Riesemann – UBS

Right.

Kevin Marsh

We got a lot of work to do preparation wise. Beyond that, I think the outcomes from Fukushima…

Jim von Riesemann – UBS

Yeah.

Kevin Marsh

Now the 81,000 units were really designed to handle the kind of station blackout that they had over the Fukushima. So, that’s one reason, I think why the NRC in their internal review they put out about 90 days afterwards said that they would support their continued licensing of two designs and the 81,000 as one as of those designs. So we’re hardened by that. I do think that the 81,000 design will handle Fukushima type of issues. But that being said, it could be we get. Some impact from a Fukushima-related issue, I don’t think that that will delay licensing and all, and again, I think the plan is a solid plan. So whatever they come up, well, that would be applicable to the entire fleet in the United States would also be applicable to our new units.

Jim von Riesemann – UBS

I think if you guys once you get that fuel oil we don’t like to come down and have another meeting on side of – if you guys don’t mind that I’m just throwing that out there. The last thing is; the Wall Street Journal has been running a lot of stories about South Carolina and labor laws and everything else. Can you just touch a little bit on that what that might mean for industrial growth and industrial production down there? I think it centers around Boeing?

Kevin Marsh

Well, I certainly think people are coming to South Carolina for a reason. We got a very positive industrial climate. We have labor supplies and traditionally South Carolina was right to work state. I think we’re less than 5% unionized in the state.

Jim von Riesemann – UBS

Right.

Kevin Marsh

And these are people looking at us. Certainly the issue that’s gotten a lot of attention is the Boeing situation where they’ve got their plant contemplated, not just contemplated, but up and running and they got plants moving through the facility at this point, and I believe the first plants do out of there early next year. So, there are big issues there. I certainly can’t give the little aspect of their case. But generally, the complaints are centered around whether or not they unduly penalize the unions in Washington by expanding the plant down here. But it’s my understanding that the union workforce was not reduced in Washington.

I think it was slightly increased and this was addition to their facilities, not just a movement of the existing line from there – from operations out there. So, there’ll be a lot of debate about that. I am sure it’ll go through the legal process. But the reality is we got a plant down here. There has been a tremendous impact of a state. Thousands of people have found employment. I think there’ll other companies that come in around to support their operations. And personally I think it’d be difficult to try to shut it down and send all those people home, which I believe is what – I believe more to have happened. But I won’t – somehow as well take place, but that’s really the challenge at hand and what we have got as a plant it is working well and employing a lot of people in a state that’s go ahead to have them and others are coming to join them.

Jim von Riesemann – UBS

Okay. Kevin, that was really helpful because some of these articles are a little – they’ve got their own agenda. The last question is quite simple. You’ve gotten actual ROE at SCE& of 8.6, your allowed is 10.7. If you get – if you close that 200 basis point GAAP, what does that do to the earnings power of the company?

Kevin Marsh

Well, certainly it would boost us, but not change the guidance for next year because we’ve not contemplated anything that might impact next year. We’ve got the moratorium as I said earlier this takes us through July 2012. Any filing that we might make would not be effective until six months after we made that request to the commission. But certainly it will be an upside. What we are watching carefully is seeing what happens with the economy. If we can sustain some of the growth we are certainly interested in average customer usage that number is amassed around as we talk about in several meetings this year. All those are of interest to us and we’ll watch that as we try to make a decision as to whether or not we make a decision to file a case.

Jim von Riesemann – UBS

Okay. Well, is it out of the realm of reasonable miss that you could be close to earning your allowed ROE in say 2013?

Kevin Marsh

I think that would contemplate what the economy does and if we have a filing on top of that, certainly if we return to the growth levels we saw in previous years it would move us in a good piece towards that direction.

Jim von Riesemann – UBS

Got it. Okay, just wanted to make sure. Thanks.

Kevin Marsh

Thanks.

Operator

And our next question will come from David (indiscernible) of Bank of America. Please go ahead.

Unidentified Analyst

Good afternoon.

Kevin Marsh

Hello, David.

Unidentified Analyst

Just I had a couple of questions on 2012, but before that just simply a question, why did you give next year’s guidance today rather than on your Q4 call as you did last year?

Kevin Marsh

Well interesting question, that’s typically been our process and our style as to give that at the end of the third quarter is just with since the recession we’ve not felt like we had our hands around it because it’s been inconsistent. We’ve not felt like we had our hands around the range well enough to do it. So we wanted most information possible. We are getting to the point now where we feel like we got more reliability around our projections, we’ve got more insight into them because of the electric weather normalization adjustment and we’re not trying to separate the art from the science as far as what is real customer growth and consumption looking like and we’re just more confident.

Unidentified Analyst

Okay, great. Specifically on 2012, what’s the amount of the cash tax savings that you expect? Can you break that out by D&A – it’s only D&A impact or any other items?

Kevin Marsh

It’s about $200 million in total but that really spanned a two to three year period, I believe the benefit in 2012 was something less than $100 million, maybe be less than $75 million but it really is kind of a cumulative impact of that benefit over, over several years. In fact, if you look at our – look at our financial statements you will see that we’ve really – we’re starting to turn that now, we are starting to pay current income taxes, so most of that benefit is behind us but there is a small amount next year.

Unidentified Analyst

And majority of that was at the electric segment, is that fair to say?

Kevin Marsh

Yes, absolutely.

Unidentified Analyst

Okay, so based on that, how much rate base growth you see at the electric segment E&G excluding of course the nuclear project, off of your, let’s just take your year in 2010 rate base I think of $4.8 billion. What would you envision the rate base growth in the next – through 2014?

Kevin Marsh

Yeah. David, I don’t have an objective number in front of me on that. Obviously, the nuclear is going to overshadow it that clip. But I will tell you that generally the way we pull back on CapEx to equalize the economy that it has been fairly close, maybe outpacing depreciation and amortization, maybe $100 million or so but I don’t’ have a specific number in front of me.

Unidentified Analyst

Okay, great. Thank you so much.

Kevin Marsh

Sure.

Operator

And our next question will come from Chris Ellinghaus of Williams Capital. Please go ahead.

Chris Ellinghaus – Williams Capital

Hi guys.

Kevin Marsh

Hello.

Chris Ellinghaus – Williams Capital

Just a – just a follow up on the industrial question, can you give us a little flavor for what’s going on with volume?

Kevin Marsh

I mean in terms of their operations there, they’re up and running. They are taking energy from us. They are building planes and we are excited. We are just about ready to complete the solar panel installation or the solar laminate we put on top of their 10 acre roof which is going to produce about 2.6 megawatts of energy. But there are in full operation and are working to keep it at that direction, I don’t think they plan on letting up.

Chris Ellinghaus – Williams Capital

Did they suffer any material delays due to the politics locally?

Kevin Marsh

Not that I’m aware of. In my conversations with the billing officials they have told us consistently that they have been overwhelmed by the support they’ve had in the state from all the other industry connections as well as all the regulatory and legislative support they needed has been very strong.

Chris Ellinghaus – Williams Capital

Okay. And related to the potential for a rate case, does your guidance or I guess not in the guidance but is your internal plan assuming that you’ll file once the moratorium is complete?

Kevin Marsh

We have not made that decision. I’ve just said earlier that we don’t have anything in the 2012 guidance. We’ll wait and see what happens between now and the first half of next year to make a decision, but whether or not we need to file or anticipate the need for rate relief.

Chris Ellinghaus – Williams Capital

Okay. One more thing Jimmy, can you give us any flavor for what D&A looks like for next year?

Jimmy Addison

Yeah, I really don’t have that in front of me, I apologize. But its – I would say just based on what we are putting into CapEx etcetera that it would be fairly consistent with 2011.

Chris Ellinghaus – Williams Capital

Okay great. Thanks so much.

Jimmy Addison

Sure.

Operator

And our next question will come from Michael Lapides of Goldman Sachs. Please go ahead.

Michael Lapides – Goldman Sachs

Hey guys, congrats on a good quarter. One question, first of all, what are you expecting out of earnings outside of SCANA Energy and SCE&G and PSNC in your 2012 guidance, meaning holding company costs as well as the small gas transmission business?

Kevin Marsh

Consistent with 2011.

Michael Lapides – Goldman Sachs

Got it, okay. Second, do you anticipate issuing any further – you’ve got a maturity at the holding company level in February. You just going to refi that at the hold co., you’re going to replace that at the operating company, how should we just thinking about kind of the puts and takes on the cap structure at the holding company level?

Kevin Marsh

Again consistent. There is a slide back there, slide 15, we are just going to simply refi that right where it is today.

Michael Lapides – Goldman Sachs

Got it. Last question, we talked about this a while ago, when not long after Fukushima the contractors, meaning Westinghouse and Shaw filed a force majeure, I think related to Summer, just curious if there is an update on that, where that stands, how that process plays out from here as well?

Kevin Marsh

Yeah. They did that as – I would say a routine course of business whenever they have something that goes on anywhere around the world that could impact their deliveries units, they give us one of those type letters. Many of which they end up with sending. The supply chain in Japan, there were really two vendors in Japan that could have been affected one was IHI which is a large manufacturer that’s supplying plate steel for us, and the other one was Toshiba and Toshiba is delivering the turbine condenser, really quite a large number of units. Toshiba largely have not started their work yet, IHI had actually delivered us plate steel in December.

We got word from both of the vendors that our components that were on site were undamaged. For example, we had some plate steel onsite at IHI, but they were prepping to send us for the ring segment of the containment vessel. That was undamaged and that their facilities were largely undamaged. They did have some minor things that they had to correct. Their bigger issue was with the rolling blackouts, most of the vendors were in the Tokyo area. They have learned to deal with rolling blackouts now and they are in full production as we understand it, and we anticipate no delays from the earthquake impacts in Japan.

Michael Lapides – Goldman Sachs

Meaning that they are on-time and on schedule for the containment vessel and – what is it I think the turbine generator?

Kevin Marsh

Yeah, turbine generator auxiliary is condenser – yeah, they are schedule for all that.

Michael Lapides – Goldman Sachs

Got it. Okay. Thanks guys. Much appreciated.

Kevin Marsh

You’re welcome.

Operator

And our next question will come from Dan Jenkins of Wisconsin Investment Board. Please go ahead.

Dan Jenkins – Wisconsin Investment Board

Hi, good afternoon.

Kevin Marsh

Hi, Dan.

Dan Jenkins – Wisconsin Investment Board

Just kind of on the same topic on the nuclear plant construction, and particularly when we look at your slide, I think 14, where you have the CapEx, the new nuclear CapEx laid out, would the 2012 CapEx be impacted much by these various pass that you’re exploring now – or – I know what – you made one comment that a lot of the work would be the same at the beginning, but I was just curious how variable that 2012 CapEx that you might be depending on that?

Kevin Marsh

Yeah. And again, it’s unqualified since our negotiations and discussions with the consortium. We’re not yet complete. There probably would be an impact on CapEx through, I don’t think this is significant impact. Because, as I pointed out earlier, the first let’s say six to eight months of work in the excavation that we’re now allowed to do, once we receive the COL would be the same under any of the scenarios. There may be some more work done outside of the excavation under the first scenario where we try to keep the commercial operation take the same. But we will have a significant amount of work going on really irregardless of which of those scenarios we chose.

For example, we are going to be assembling modules from subcomponents that come in to decide in a very large building. That work will continue, that’s probably almost years worth of work on the two largest modules. We will continue to assemble the lower bowl assembly for the containment vessel and then the rings once we get the plate steel in for the rings, that work it really will continue irregardless as to which of the options we chose. And then we got some other things to decide that we’re trying to complete water intake, water outfall, cooling tower work that work will all continue and we’re trying to build a water treatment facility that eventually will supply our existing and the two new units and that work will continue. So we got a significant amount of work to do in 2012 really irregardless of the scenario we pick.

Dan Jenkins – Wisconsin Investment Board

Okay. And then just for ‘12, ‘13, ‘14 since that’s kind of what you laid out, if there are any changes to that, new nuclear CapEx based on the plants would pretty much be an equal change to the financing related to that on slide 15? Is that the way to think about that or is it?

Kevin Marsh

Yeah, in theory, now there might be some practical implications to that I mean if we were to increase $130 million do we necessarily increase the debt and the equity $15 million each, I mean within some parameters, I absolutely agree with your comment, it’s just there is some practical implications to that too.

Dan Jenkins – Wisconsin Investment Board

Right.

Kevin Marsh

In other words we might just use our short-term financing methods as we intend to bridge some of the peaks and valleys and do more economic financing at the debt and equity level.

Dan Jenkins – Wisconsin Investment Board

Okay, thanks. And kind of the last area I wanted to get into a little bit was in the industrial sales, first of all just that the gas industrial was down whereas electrical industrial was up, is there something going on like between customer classes that would explain that or is this just…

Kevin Marsh

Interesting question, Dan. That’s really that’s what I asked myself a few days ago the staff and the answer to that is it doesn’t have to do with our core retail gas industrial customers. That has to do with our gas sales through our marketing company principally to other electric generators, not on our system and the weather this third quarter was milder although still above normal, milder than the extremely hot summer in the third quarter of 2010 and so they were running their gas generation less. And so we sold less industrial gas to those – to those folks for electric generation purpose, but it doesn’t relate to our direct serve industrial customers of our system.

Dan Jenkins – Wisconsin Investment Board

Okay. And then the last question in that area is have you seen any change in industrial demand and as the quarter progressed then into October given the market volatility and kind of the consumer confidence has come down have you seen any pull back on industrial demand in your service area over the period?

Kevin Marsh

Well, I can’t comment really on October, I don’t have anything or any details on that with me. But I can tell you through September the real bright spot in this to me as I analyzed it was that we’ve seen increases in all of our larger categories in order of significance to us at least in aggregate chemicals, paper, steel and rubber, all four of those have increased as well as obviously aerospace now with Boeing’s ramping up full speed. So it’s not any one general area, it has really been a good portfolio.

Dan Jenkins – Wisconsin Investment Board

Okay, thank you.

Kevin Marsh

Yeah, one another thing I might add is that there was a comment here in the local press this week – after the last week after the most recent announcement of Continental Tire over in Sumter that followed on the heels of the Bridgestone that Kevin mentioned earlier and of course we got a lot of Michelin manufacturing facilities already in the territory and the projection is that once all these plans come online that South Carolina will produce more rubber products than does Akron in Ohio, the previous rubber capital of the country.

Dan Jenkins – Wisconsin Investment Board

Okay thanks.

Kevin Marsh

Sure.

Operator

And our next question will come from Ashar Khan of Visium. Please go ahead.

Ashar Khan – Visium

Hi Jimmy. Sorry, entered late on the call. I just wanted to go over, if I’m right, Jimmy on the slides that you presented in the conference in the summer you had talked about additional equity of about $115 million in ’12. Is that out of the boat now or where does that stand, can I ask?

Jimmy Addison

Yeah we did cover that earlier but would be glad to refresh that if you can look on slide 15 of the slides for today. If you don’t have those now, you can access them later. We do not expect to have to issue that follow-on equity offering in 2012 driven by the cash generated from our tax strategies, both….

Ashar Khan – Visium

Okay.

Jimmy Addison

Deprecation and the change in our expensing of repairs for tax purposes.

Ashar Khan – Visium

Okay, I apologize. So, does that mean that’s gone out of the system totally, right. That is the way we should look at it, right? It’s not like deferred to 13 or later on right, so it’s like total gone out of the system and a boost for earnings, is that correct?

Jimmy Addison

It’s a boost for earnings in the short term because there is no dilution. But if you find that slide 15, you’ll see where it really does, most of it comes back in ‘13 and the balance comes back in ‘14, so it’s a shift of the timing.

Ashar Khan – Visium

It’s a shift of the timing? So, okay. Okay, I apologize. So, you’re still expecting the 150 additional to be done in ‘13 and ‘14 rather than in ‘12?

Jimmy Addison

That’s right.

Ashar Khan – Visium

Okay, okay. Okay, thank you very much.

Jimmy Addison

You’re welcome.

Operator

And finally, we have a follow-up question from Andrew Levi of Caris. Please go ahead.

Andrew Levi – Caris

I’m off that. Thank you.

Operator

Thank you. I am showing no further questions in the queue. I would like to end the question-and-answer session and turn the conference back over to Mr. Jimmy Addison for closing comments.

Jimmy Addison – Chief Financial Officer

Well, thank you. And to summarize, we’re very pleased with our third quarter results. Despite the challenging economy, we continue to demonstrate growth in our earnings and in our customer base. Our service territory continues to exhibit significant industrial expansion and our nuclear project continues to move forward on schedule and budget. I want to close today by recognizing the visionary leadership Bill has offered both our company and me personally over his career. Bill has made us all better, significantly better, and for that, as a member of the management team and as a shareholder, I’m very grateful. We’re excited about our future, but also thankful and proud of our past. Thanks, Bill, and thank you all for joining us today and for your interest in SCANA.

Operator

And that will conclude today’s conference. Thank you for joining us. You may disconnect your lines.

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