SCANA Corporation (SCG) Q1 2016 Results - Earnings Call Transcript

| About: SCANA Corporation (SCG)

SCANA Corporation (NYSE:SCG)

Q1 2016 Earnings Conference Call

April 28, 2016, 03:00 PM ET

Executives

Susan Wright - Investor Relations

Jimmy Addison - SCANA’s Chief Financial Officer

Steve Byrne - Chief Operating Officer of SCE&G

Analysts

Jim von Riesemann - Mizuho Securities USA

Michael Weinstein - UBS

Stephen Byrd - Morgan Stanley

Feliks Kerman - Visium Asset Management

Travis Miller - Morningstar

Dan Jenkins - State of Wisconsin Investment Board

Paul Patterson - Glenrock Associates

Andrew Levi - Avon Capital

David Paz - Wolfe Research

Andrew Weisel - Macquarie Capital Securities

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. I will be your conference facilitator for today. At this time, I would like to welcome everyone to the SCANA Corporation Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period [Operator Instructions] As a reminder, this conference call is being recorded on Thursday, April 28, 2016. Anyone who does not consent to the taping may drop off the line.

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

Susan Wright

Thank you, and welcome to our analyst call. As you know, earlier today, we announced financial results for the first quarter of 2016. Joining us on the call today are Jimmy Addison, SCANA’s Chief Financial Officer and Steve Byrne, Chief Operating Officer of SCE&G. During the call, Jimmy will provide an overview of our financial results and Steve will provide an update of our new nuclear project. After our comments, we will respond to your questions. The slides and the earnings release referenced to in this call are available at scana.com.

Additionally, we post information related to our new nuclear project and other investor information directly to our Web site at scana.com. On SCANA’s homepage, there is a yellow box containing links to the new nuclear development and other Investor Information sections of the Web site. It is possible that some of the information that we will be posting from time-to-time may be deemed material information that has not otherwise become public. You can sign-up for e-mail alerts under the Investors section of scana.com to notify you when there is a new posting in the nuclear development and/or other Investor Information sections of the Web site.

Finally, 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 are considered forward-looking statements and are subject to a number of risks and uncertainties as shown on Slide 2. The Company does not recognize an obligation to update any forward-looking statements. Additionally, we may disclose certain non-GAAP measures during this presentation and the required Reg G information can be found in the Investor Relations section of our Web site under Webcasts & Presentations. I’ll now turn the call over to Jimmy.

Jimmy Addison

Thanks, Susan, and thank you all for joining us today. I'll begin our earnings discussion on Slide 3. GAAP earnings in the first quarter of 2016 were $23 per share compared to $2.80 per share in the same quarter of 2015. Excluding the net of tax gain on the sales of CGT and SCI positive earning drives us from electric margin, margin primarily due to base load review accurate increase and customer growth as well as the positive impact of the depreciation study will more than offset by the negative impact of weather on both electric margins as well as on gas margins in our Georgia business.

Gas margins were also banned due to CGT operating for a month during the first quarter of 2015 before it was sold. Additionally, expected increases in O&M expenses in CapEx related items including interest in property taxes had a negative impact on earnings. The bottom of the slide you will note that abnormal weather decreased electric margins by $0.05 per share in the first quarter of 2016 and increase to electric margins by $0.05 per share in the first quarter of 2015, resulting in a $0.10 per share in a negative swing.

Slide 4 shows earnings on a GAAP-Adjusted Weather Normalized basis earnings in the first quarter of 2016 were $28 per share compared to the $34 per share in the same quarter of 2015. As a reminder GAAP-Adjusted Weather Normalized EPS excludes the impact of abnormal weather on electric margins and the native tax gains on the sales of CGT and SCI for the first quarter of 2015. Abnormal weather on gas margins is not adjusted in this measure as gas margins weather normalized for the north and south Carolina gas business and the direct impact of abnormal weather on Georgia business is generally in significant on an annual basis.

Now on Slide 5, I would like to briefly review results for our principal lines of business. On a GAAP basis South Carolina Electric & Gas Company first quarter 2016 earnings were down $0.08 per share compared to the same period in 2015. The decrease in earnings is due to lower electric margins principally is a result of abnormal weather in both periods, as well as higher O&M expenses and hard expenses related to our capital program included interest expense and property taxes.

These decreases more than offset increases from the continued recovery of financing cost under the BLRA, customer growth in both the electric and gas business and the application of the previously mentioned new depreciation rates. PSNC Energy reported earnings of $0.25 per share in the first quarter of 2016 compared to $0.24 per share in the same quarter of the prior year, primarily due to higher margins from customer growth.

SCANA Energy, which includes SCANA energy marketing and SCANA energy in Georgia set a decrease in first quarter earnings in $0.06 per share primarily due to lower through put attributable to abnormal weather during the first quarter of 2016 as compared to 2016 and higher transportation cost.

On a GAAP basis, SCANA's corporate and other businesses reported relatively flat earnings in the first quarter of 2016 compared to $44 per share in the comparative quarter of the prior year. Excluding the net of tax gains on the sales of CGT and SCI of $41 per share, GAAP Adjusted Weather Normalized EPS was down $0.03 due primarily to foregone earnings contributed by CGT and SCI prior to the closing of the sales in the first quarter of 2015.

I would now like to touch on economic trends in our service territory on Slide 6. The Carolinas continue to be seen as a favorable business environment, and we're pleased by the continuous growth in our service territories as evidence and milestone to invest approximately 380 million with the expectation of creating approximately 1300 jobs.

At the bottom of the slide, you can see the national unemployment rate, along with the rates for the three states where SCANA has a presence, and the SCE&G electric territory. South Carolina's unemployment rate is now at 5.7%, and the rate in SCE&G's electric territory is estimated at 5%. Our particular interest and testing to our stage strong economic growth almost 80,000 for 3.7% more South Carolina’s are working today than a year ago.

Slide 7 presents costumer growth in electric statistics. On the top half of the slide is the customer growth rate for each of our regulated business. SCE&G is electric business add a customers at a year-over-year rate of 1.5%. Our regulated gas businesses in North and South Carolina added customers at a rate of 2.5% and 2.7%, respectively. We continue to see very strong customer growth in our businesses and in the region. The bottom table outlines our actual and weather-normalized kilowatt hour sales for the 12-months ended December 31, 2016. Overall, weather-normalized total retail sales are up 1.3% on a 12-month ended basis.

Now please turn to Slide 8, which recaps our regulator rate base and returns. The pie chart on the left presents the components of our regulated rate base of approximately $9.5 billion. As denoted in the two shades of blue, approximately 86% of this rate base is related to the electric business. In the block on the right, you will see SCE&G's base electric business, in which we are allowed a 10.25% return on equity.

The earned return for the 12-months ended December 31, 2016 in the base electric business is approximately 9.75%, meeting our stated goal of earning a return of 9% or higher to prevent the need for non-BLRA-related base rate increases during the peak nuclear construction years. We continue to be pleased with the execution of our strategy. As a reminder, we're allowed a return on equity of 10.25% in our LDCs in South and North Carolina and if they earned ROV of the gas business for the twelve months ending March 31 falls outside the range of 50 basis points above or below the allowed ROE, then we will file to adjust rates under the Rate Stabilization Act in June. As of December 31, 2015 the 12 month earned return for SCE&G gas was 0.65%.

Year-over-year we have recently filed an application with the North Carolina Utilities Commission requesting an annual revenue increase of $41.6 million at PSNC Energy in response to the normal attrition in the earned return in that business. This rate increase as a results of PSNC’s need to recover cost to operate and expand its pipeline system and to include pipeline in integrity management rider. This rider would allow PSNC to track and receive ongoing recovery of capital expenses related to its distribution and transmission pipeline integrity management programs.

Slide 9 presents our CapEx forecast. This forecast reflects the Company's current estimate of New Nuclear spending through 2018, and is consistent with last quarter's call and the February quarterly BLRA report, which also reflects the amended EPC agreement that was announced in October 2015. At the bottom of the slide, we recap the estimated New Nuclear CWIP from July 1 through June 30, to correspond to the periods on which the BLRA rate increases are historically calculated.

Slide 10 presents the transition payments information and an expected timeframe for our filing with the Public Service Commission of South Carolina. Once these events are complete, we will update the CapEx schedule and the corresponding financing plan.

Now please turn to Slide 11 to review our estimated financing plan through 2018. As a reminder, we have switched to open market purchases instead of issuing new shares to fulfill our 401(k) and DRIP plans, at least until we have fully utilized the net cash proceeds from the sales of CGT and SCI. We do not anticipate the need for further equity issuances until 2017. The election of the fixed price option would likely change planned equity issuances after 2016. It is unlikely these issuances will occur in the exact amounts or timing as presented, as they are subject to changes in our funding needs for planned project expenses. We continued to adjust the financing to match the related project CapEx on a 50/50 debt and the equity basis.

On Slide 12, we are reaffirming our 2016 GAAP Adjusted Weather Normalized earnings guidance is $3.90 per share to $4.10 per share, with an internal target of $4 per share. Our long-term GAAP Adjusted Weather Normalized average annual growth guidance target remains unchanged as we plan to deliver 4% to 6% earnings growth over three to five years using a base of 2015 GAAP Adjusted Weather Normalized EPS of $3.73.

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

Steve Byrne

Thanks Jimmy. I would like to begin by addressing the status of the settlement with the Consortium and PSC approved process. Slide 13 presents the settlement agreement outline that we have previously shown, Westinghouse closed on the transaction to acquire Stone & Webster from CB&I at the end of December, and Fluor began work as a subcontracted construction manager for the New Nuclear construction-site on January 4. The craft employees transaction to Fluor on April 4.

On slide 13 presents cost as of the settlement date and our next quarterly BLRA update filing to be filed in the next couple of weeks, we plan to update the project cost for estimated change orders primarily related to items listed in Exhibit C of the settlement agreement. As in their recall Exhibit C described items net results and net settlement.

On slide 14, several of those items for which we now have estimated the cost. Also listed of the estimated change orders associate with escalating the software and documentation necessarily to complete the project and new change orders initiated since the settlement that are owner a directed. Additional sales tax which has been excluded from the fixed price option is also listed.

Slide15 presents the relative schedules of both filing of update attrition and the annual request for revised rates. We continue our analysis of the fixed price option and we will consider any input receive from Fluor. As a reminder, we have until November 1 of this year to unilaterally elect the fixed price option.

Regardless of which scenario we choose, once a decision has been made, we will file a petition with the Public Service Commission to amend the capital cost and schedule for the project. We continue to expect to reach a conclusion on the matter sometime during the second quarter and expect to have a minor delay of a few weeks in filing our annual request for revised rates under the BLRA in order to coordinate the petition with the revised rates application.

Moving on to some of the activities at the New Nuclear construction-site, Fluor’s integration into the project as Westinghouse's subcontracted construction manager continues to progress with the placement of managers in key positions of the construction areas and a series of the sessions for the taking place to streamline processes and improved performance.

Slide 16 present an aerial photo of the site from September of 2015. This photo gives you the view of the layout of the site and labeled both Units 2 & 3, as well as many other areas of the construction site.

Slide 17, presents a schematic view of the five large structural modules that are located inside the containment vessel. This expanded view gives you a better feel for how CA01 through CA05 fit spatially inside the containment vessel. As you will recall we have now placed CA01, CA04 and CA05 for Unit-2 and CA04 for Unit-3.

Slide 18 shows an aerial view of the Unit-2 containment. Looking down into the containment vessel you see the first ring section with openings of penetrations sitting on top of the lower bowl. As previously mentioned, CA01, CA04, and CA05 have been placed and conditioning in the picture.

Slide 19 shows a picture of the Unit-2 CA02 module. CA02 is a wall section that forms part of the unit containment refueling water storage tank. As mentioned in previous quarters CA02 is now structurally complete and awaiting installation.

Slide 20 shows a picture of the Unit-2 CA03, which is the west wall of the unit containment refueling water storage tank. Fabrication continues as all 17 of CA03 sub-modules are on-site and standing on the summary platform.

Slide 21 shows a picture of the first portion of the Unit-3 module CA20 which was placed during March. This module consist of four sub-assemblies and the decision was made to expedite placement of sub-assemblies three and four as they are allowed for to work to move forward that is required in order to begin shield building erection which is the next critical path item.

As you can see on slide 22, fabrication continues on sub-assemblies one and two inside of the module assembly building or MAB. All 72 require sub-modules are on-site, these remaining sub-assemblies will placed once they get completed. As a reminder CA20 has an auxiliary building module that which is located outside and adjacent to the containment vessel.

Slide 23, shows a picture of the Unit-3 containment vessel Ring-1 placement and one is placed on top of the containment vessel lower bowl on April 13.

Slide 24 shows a picture of the Unit-3 module CA05 which module comprises one of the major wall sections within the containment vessel. Fabrication of the Unit-3 CA05 has been completed and has been stretched outside of the MAB.

Slide 25 shows a picture of the beginnings of the Unit-3 module CA01. Module CA01 houses the steam generators and the pressurizer and forms a refueling canal inside the containment vessel. Currently, we have 24 of the 47 sub-modules on-site, seven of those sub-modules are upright and being welded together in the MAB.

Now we will turn the slide number 26, I want to briefly mention that last week in public service commission of South Carolina approved SC&Gs request to release its electric rated to reflect lower fuel cost. Heading at balance and diversified few mix contributes to lower fuel cost that we passed on to our customers. It is anticipated that this decrease should more than offset and in increase to residential customers from the BLRA for the year.

Finally please now turn the slide number 27, discuss some of the SC&Gs solar initiatives. Under South Carolina Law or Act 236 we are allow to recover certain cost associated with our efforts to implement the renewable energy incentive programs. We officially rolled out our DEO program and all this of 2015 with goal of adding approximately 84 megawatts of our new module generating facilities to our system by the end of 2020. We anticipate minimum a half way to our 2020 goal by the end of 2016.

That concludes our prepared remarks and I’ll be glad to respond any questions you might have.

Question-and-Answer Session

Operator

Thank you [Operator Instructions] The first question is from Jim von Riesemann at Mizuho Securities.

Jim von Riesemann

Hi, Jimmy. Hello? Jimmy? Jimmy? Hello.

Jimmy Addison

Hi is that better?

Jim von Riesemann

That's a lot better. I can hear everybody now. Let me just ask the elephant in the question room. There's been a lot of these conflicting signals in the marketplace about Toshiba and investors are obviously expressing some concern here. So with that being said, how does the fluidity of their situation affect your calculus with potentially accepting the fixed price option?

Jimmy Addison

Well we are certainly monitoring situation to the extent that we can get public information about it. I think the things that are important for our consideration are unlike the previous contract where we had certain calendar based payments in the newer range we are only paying for work completed. So we should be in a good a total of cash flow situation comparative to the work completed and not the behind or ahead on the cash payment at any point in time from here though with the completion.

So it’s really progress payments are in line with the work they just completed. We also very focused on next six months, we have six more months where we have to make that decision and while we likely follow before them, we don’t have make the technical election with Toshiba until that point. So we plan monitor the situation off-course they have taken some actions already on disclosing some of the noncore assets. They said that this business is core to them and they have back end up the decisions I made at this point so, it’s obviously done in a general we’re going to continue to monitor it over the next several months.

Jim von Riesemann

It's safe to say that you're not worried, though, is that what I'm hearing you saying?

Jimmy Addison

I mean no, it’s certainly something we are monitoring it, we’re paying attention to it, - but it’s I wouldn’t say it’s a worry no?

Jim von Riesemann

Okay. And did I hear Steve correctly, so you're going to delay the BLRA filing maybe until mid-June and at that time you'll give us either a strong signal, or you will have decided which option you're going to choose, is that correct?

Steve Byrne

Yes John we think we’ve made our decision as we said before in the second quarter, we anticipate the filling for both in the second quarter, we just want to make sure that we a line one filling with the other, there is slightly different time frames, the update petition has by lower six-months before decision has to be lender by the public service commission, the annul be our right filing is a five-month time frame so we don’t want, we would like not to be aligned with each other.

Jim von Riesemann

I get it. Okay. And then finally, on the equity question, how should we think about incremental equity, is that really one half the difference between, say, the amended EPC price and the fixed price option if you go that way?

Jimmy Addison

You know our strategy hasn’t changed and that’s correct we expect the finance roughly half and half with debt and equity between the two. What we don’t know at this point is when we’ll need it if we go that direction, it’s got a way to sort out the progress payment schedule.

Jim von Riesemann

Got it. Thank you.

Operator

Our next question is from Michael Weinstein of UBS.

Michael Weinstein

Hi guys.

Jimmy Addison

Good afternoon.

Michael Weinstein

Hi. With trailing 12-months weather adjusted retail kilowatt hour sales at about 1.3% now, for the last six-months, can you just remind us again, what is the guidance for 2016, and at what point would you consider increasing it because of this?

Jimmy Addison

Well the guidance as it relates to sales growth. So, our overall plan was for slightly negative like just slightly below flat for the year compared to 2015 on a weather normal basis. So we’re not at the points, we’re too concerned about that yet as far as its impact on EPS, we had a very mild first quarter obviously $00.10 in the electric business quarter-over-quarter so we’re not at any position here to consider revising that at this point.

Michael Weinstein

And when you guys report or when you guys guide to $3.90 to $4.10, that's weather normalized guidance for the entire year, not just from this point forward, right?

Jimmy Addison

That’s right.

Michael Weinstein

Okay. So you intend to report whether you've achieved that guidance weather normalized at the end of the year, despite mild weather.

Jimmy Addison

That’s correct and the reason we’re not making change at this point is we are only three-months into the year, so we've got substantially amount in front of us now, you know if we get three quarters through the year and we are in that situation and it might be a different discussion.

Michael Weinstein

Got you. And one last question. On slide 14, the additional costs since the settlement agreement. So this would be in addition to the $288 million additional cost, right? This would be $56 million above that, and $66 million above the fixed price option incremental, right?

Jimmy Addison

Yes Mike that essentially correct from we signed our deal with Westinghouse in October, we had attached an Exhibit we call Exhibit C that had some things that we’re working on that would be hadn’t yet resolved and we’re not resolved with this agreement so a bulk of what we see here is IMs that we've now resolved from that agreement or that Exhibit.

Michael Weinstein

And I know there's been some confusion out there over the performance bond that you have with Westinghouse. I'll just give you an opportunity now to explain it to everybody in case you still are getting phone calls on it.

Jimmy Addison

Yes I don’t know we've had much of an enquiry about the thing, but we’ve got the provisions out there basically to protect us on a in the short-terms it’s relates to working capital. If they were to the default and had not paid a sub or something like that and we had to pick that work up through someone else, pay the sub that kind of thing, the formula is to help in the transition just based on quarterly projected payment for the year.

Michael Weinstein

Right. So it's basically a bond that's intended to finance a transition, more or less.

Jimmy Addison

That’s right.

Michael Weinstein

In case you need it. Okay. Thank you.

Operator

Our next question is from Steven Byrd, Morgan Stanley.

Stephen Byrd

Hi good afternoon.

Jimmy Addison

Good afternoon Steven.

Stephen Byrd

Just wanted to check in with you all on the status of the Sandman project in China, just your latest thinking in terms of how that's progressing.

Jimmy Addison

Steven we think that that’s progressing fairly according to their latest finance plans, we anticipate that they are getting close to doing the cool hydro so there we have to - cooling pumps have been installed which was the last thing that they are waiting for Sandman at Unit-1. Their plan calls for them to load fuel yet this year so sometime probably in the lat - early fourth quarter and then testing from that point is really up to the utility. So it’s less in Westinghouse hands than it is the utility’s hands, but certainly sometime we think early next year I’m not sure of going commercially is the appropriate term from China, but that will be on grade making power.

Stephen Byrd

Great. That's all I had. Thank you, very much.

Operator

The next question is from Feliks Kerman at Visium Asset Management.

Feliks Kerman

Hi, guys. Most of my questions have been asked. But if the you guys can talk a little bit about the pipeline integrity program you guys have asked for, what is the size, the scope? How long do you expect that program to last for?

Jimmy Addison

Yes so it's in our capital that we disclosed there for the three-years, there is a good bit of integrity management related in that entire CapEx period over the next three-years and I suspect it could be some beyond that too, but roughly about 50% of that CapEx is related to integrity management in 2016 from 2018. Some of that would be picked up with the midyear CWIP in the rate base so we will get half of the year when we actually have the discussions with North Carolina Commission staff in the middle of year. So we will basically have the remaining half of 2016 and 2017 and 2018. But roughly half of it relates to integrity management.

Feliks Kerman

Okay. That's all I had. Thank you.

Jimmy Addison

You are welcome.

Operator

The next question is from Travis Miller at Morningstar.

Travis Miller

Hi, thank you. You answered most of my clarifying questions on the nuclear stuff, BLRA, et cetera. Wondering on the gas side, obviously, you had really strong customer growth, was wondering what that was doing to gas usage and also then the next step to gas margins at those businesses.

Jimmy Addison

Yes well Travis, two LDCs at - they really get handle through mechanisms in different ways, so in North Carolina there is the decoupler that handles unit change in consumption and weather et cetera. And then it doesn’t have a rate base for just what we have rate case that we filed there now. In South Carolina we have the rate stabilization Act which is basically a streamlined rate review that happens after every heating season at the end of March and if there is more than 50 basis points variance and its adjusted in November. So it's really a consider through both of those mechanism even though they differ a little in their process.

Travis Miller

Okay. And then that customer growth, we see that kind of 2.5% type rate, does that mean substantial investment opportunity, either distribution or other value chain parts, over the next couple of years in addition to what you've already planned?

Jimmy Addison

Yes well I would say - not I wouldn’t say a lot more than what we've planned, so what we've got in the plan now contemplates it. so in North Carolina and South Carolina they are differ somewhat. In South Carolina we own very little of the transmission system of course we used to own more of it through a different subsidiary, but we sold that a year ago. There is still some transmission in the South Carolina Electricity & Gas, gas system, but it's not a tremendous amount.

But it’s certainly distribution growth there in the South Carolina system, but that’s not a significant amount above and beyond the depreciation that applies to that business each year. In North Carolina it’s a different story, but also significant transmission enhancements that are going on, actually bids that go into those projects a couple of weeks ago and it’s a significant pipeline investment that’s going on, and its going extremely well, the majority of its own existing right away in West and North Carolina.

Travis Miller

Okay and that could be the distribution investment options.

Jimmy Addison

Yes I mean the majority of this is related to growth in the territory, the areas we serve are going very well. A lot transmission enhancement in the next couple of years will be up in research triangle area too in additional to West or North Carolina, because a lot of the industrials are really going for example research universities all are going to complete gas supply as appose to other fuels. So I don’t know there is tremendous new frontier kind of distribution opportunities, but I think there is a lot of industrials are really pushing it. Gas fired or electric generation too.

Travis Miller

Okay, great. Thanks a lot.

Jimmy Addison

Sure.

Operator

Our next question is from Dan Jenkins, State of Wisconsin Investment Board.

Dan Jenkins

Good afternoon.

Jimmy Addison

Hi Dan.

Dan Jenkins

I was wondering if you could give a little color on the, you had the $0.04 year-over-year for O&M, and I was wondering, what's driving that? Is that timing, or is that something that's going to continue on a comparison basis going forward?

Jimmy Addison

No it's fairly consistent with our internal budget it is a little more lumpy there in the first quarter, we don’t expect to benefit that significant throughout years. The most significant thing is we've made compensation adjustments in the middle of the first quarter, so you have got some of that coming through and also the incentive base compensation the part is driven by - that’s driven of share price has obviously been more than we had expected and I guess that a high class problem to have with the stock performing pretty well especially in superior group over the last quarter.

Dan Jenkins

Okay. And then, I think you mentioned on the nuclear, that the current critical path item is the shield building, and I know that you note in your report that you filed in February, that was mentioned there as well. I was just wondering if you could update us on the status of that in terms of the components that are being fabricated and so forth?

Jimmy Addison

Yes Dan the shield building is going probably better we had anticipated, our concern for the shield building really came from the contractor, their concerns at the time that was try to bridge an iron, now Fluor has taken over, but we still retained the CB&I services crew it that is doing that welding. So even though CB&I Power existed the consortium the CB&I services folks who are doing the curtailment vessel welding and the shield building welding stay and they are doing tremendous job.

There is about 16 courses of this steel that goes up to form a shield building, usually a course at a time welded together then fill course with concrete. So we've got to three those courses that have been placed welded and filled with concrete, the fourth course has been placed, it’s being welded did, we anticipate filling that with concrete sometimes in the next couple of weeks.

The deliveries are coming in from an entity called Newport News Industrial, NNI in Virginia. And those folks are working very hard to meet out schedule and we’re looking at diversifying that supply chain a little but perhaps moving some of those modules to another vendor to free up a little bit of space at NNI. So over, I would say the shield building is going a little better than we expected.

Dan Jenkins

How many of those components are you still waiting on with the shield building?

Jimmy Addison

I wound say it is for the first Unit-2 we've probably get two-third of the shield building panels that we need and for the trailing unit, Unit-3 we probably only have about a third of them and so we are still waiting on about two-thirds.

Dan Jenkins

Okay and then on Unit-3 what’s the current critical path item for that unit?

Jimmy Addison

It runs through the shield building as well Dan. So it’s still shield building, either you know we’re talking about it, it runs through shield building.

Dan Jenkins

Okay. Okay that’s all I had. Thank you.

Jimmy Addison

Thank you.

Operator

The next question is from Paul Patterson, Glenrock Associates

Paul Patterson

Good afternoon.

Steve Byrne

Hello Paul.

Paul Patterson

How are you doing?

Steve Byrne

Great. How about it.

Paul Patterson

I'm managing, I guess. Just wanted to ask you about the fixed price option, and if you were to select that, what the impact is in terms of does it change the way the payments would go? Could you just elaborate a little bit more on that?

Steve Byrne

Paul from payment prospective Jimmy lead to early, we’re changing the way that we make the payments here to Fluor, we've had payments based on either hitting milestone or what we call progress payments. Progress payments is a bit of miss number really what we try to actual progress so we changed that and when we go forward, you’re negotiating a milestones payment schedule so the construction milestone payment schedule which will have us paying only for milestones achieved.

Paul Patterson

Okay. I guess what I'm wondering is in terms of the, you guys have not decided on whether or not you're going to go for the fixed price option, is that correct?

Steve Byrne

That’s correct

Paul Patterson

If you were to go for it, does that change the payments, or does that change the schedule in payments, do you pay anything up front, or is it pretty much the same way? Would you be paying over the same time frame pretty much the same amount with this milestone? That's it.

Steve Byrne

Yes so for what we done as we get an estimate for what is the non-fix price option if we select the fix price option there is an added cost that comes with taking that risk away if you will and so I’ll do as well just take that additional cost it will be stretched out over the entire project, so it’s if they want that should be front loaded or just picking the milestones which indicate we’re progress will attach payments to those milestones and when the over it has six milestone will make payments even but the additional cross just gets spread out over the remainder of the project.

Paul Patterson

Okay, that’s it from me. Thanks so much.

Operator

Next question is from Andy Levi at Avon Capital.

Andrew Levi

I guess I'm just going to go back to Toshiba. I want to get something clarified. Because if you were to choose the fixed cost option, which seems to be the right way to go, and obviously, you got rid of CBI, so that was a very good thing that you guys did and have Fluor in there. But given Toshiba's continued financial issues and concern about the Company's, or our concerns and I guess sell-side analysts concerns about the long-term viability of the Company, can you tell us what type of protections you have in place to protect SCANA and the summer project from Toshiba's potential insolvency relative to the fixed cost contract and their ability to execute on that? And then can you get more into also the surety bond that you have, the amount that you have and how that would work if you had to call on that. Because we saw with Portland General having to call on their surety bond with Abengoa, it just wasn't that simple. Thank you.

Steve Byrne

Okay Andy its Steve. Let me start now I’ll let Jimmy to finish maybe a little bit on the surety bond, but surety bond [indiscernible] earlier was there really to create kind of a soft landing. So it would pay vendors that were in process and allow us to in a systematic logical fashion one project down to the point where Toshiba or Westinghouse could exit. Now we’re presuming some kind of insolvency or bankruptcy you would also have to presume that Westinghouse doesn’t survive that.

And so as a with that provision and as you are aware there can be various kinds of bankruptcy and it’s doesn’t necessary mean that the contractor stops working. So we’re working hard to make sure that we’re not in advance of payments and then we have information that includes source codes, software and proprietary design information that’s being escrowed and the bankruptcy or insolvency would be one of the triggers that gives me that information and then we would look to finish plan on our own.

We could do that one of the couple of ways, we could either act as our own general contractor, which will be more comfortable now than when we originally signed up for the projects since we've made some of the progress and we understand that this construction progress. And we would go out and get a subcontracted construction under, presumably Fluor since they are already on site, already familiar with means and method and know the project or we could EPC it again.

So we could give it to an EPC contractors, certainly Fluor would in a good position, they are an EPC contractor. So we could give it to them. So the important part to me is that I have the information that I need to be able to finish the plant on my own and that's the whole reason why we're escrowing.

Andrew Levi

But I guess the issue that I see, though, is that, I guess the thing that was a big positive was this fixed cost contract, right, because it kind of eliminates certain downside above the $500 million escalation in the cost of the contract. And so, if that contract is with an entity that is not a good counterparty, that fixed cost contract is not really worth a lot I guess. That's what I'm really getting at is, not as much the ability to finish the plant or the construction aspect of it, but the ability to control the cost if, in a negative case, Toshiba doesn't have the money to pay above the $500 million escalation that you're willing to pay in a fixed cost option.

Steve Byrne

As I said earlier Andy what we have on our side though is some time to watch out the progress and to see how that going. We've got another six-months before we get to make this call. They have said publically that this business is one of three key areas of focus for them and they are shedding the other businesses. They brought $6.5 billion well as soon as the sales close here shortly. Everything they have said they are going to do it appears they have done at this point in a very efficient manner. So we've got several more months to watch this and monitor the situation.

Andrew Levi

I just get concerned because I see the stock trading a little over $1. Just on the surety bond, could you just go over that and the amount of that and how that would work and who would be paying you?

Steve Byrne

Yes, so it’s actually it can be either an surety bond or in letters of credit, we've allowed them to provide that through letters of credit and we are comfortable with the counter parties there and it is an annual calculation based upon the estimated quarterly payments in the next year. So we've made that calculation for 2016, we've elected it and those letters of credit are in place now.

Andrew Levi

And who's the letter of credit with? Is it funded the letter of credit? How does that work?

Steve Byrne

It’s a letter of credit in case they default on any of the provisions.

Andrew Levi

That's for $100 million, is that for $100 million?

Steve Byrne

It’s that a maximum of $100 million based upon the projected cash flows of the year that’s applicable and so it will change each year.

Andrew Levi

And then as far as on the creditor side, because Southern also has a fixed cost contract according to them, I mean, who would get paid first? I guess we don't know, that right? Because Southern would have the same issue.

Steve Byrne

No, no, no its I mean - well this is…

Andrew Levi

I don't mean on the surety bond. I'm talking about as far as the ability for Toshiba to perform on a fixed cost contract.

Steve Byrne

I can’t answer that.

Andrew Levi

Alright. Okay. Thank you, very much.

Operator

Next question is from Claire Tse at Wolfe Research.

David Paz

Hi, actually it's David Paz. Just a quick question on your long-term growth rate. What earned ROEs are you assuming both at the SCE&G business and the PSNC business.

Steve Byrne

Yes so at SCE&G, David, we're consistent on the base business at above 9%, is our strategy to stay out of any base rate increases outside of the BLRA and the BLRA of course is at 10.5%, and PSNC we've got a current allowed 10.6%.

David Paz

Okay. So even in the PSNC case, we should think about, even though rate base growing faster than in the past, you still anticipate somewhere in that mid 10 earned ROEs through the period of your long-term growth rate?

Jimmy Addison

Well that’s for 10.6 in the case, we will have to wait and see how that situation comes out either through negotiations or through hearing with the Commission, but we'll he know that in another - within six-months.

David Paz

Okay. And then also, with respect to your growth rate, what sales growth are you assuming through that period? On the electric side.

Jimmy Addison

It's above 1.2%.

David Paz

1.2%. Okay. That's a CAGR?

Jimmy Addison

Yes.

David Paz

Okay. Great. Thank you.

Operator

Next question comes from Andrew Weisel at Macquarie Group.

Andrew Weisel

Thank you. Just want to clarify timing of this nuclear fixed option, if you do exercise it or not. It seems to me like there are a couple different steps here, I just want to understand when we can expect each and what order. So you're going to make a decision. You're going to file with regulators. You're going to tell us about it. And you're going to officially exercise the option with the contractors. Is that the right order? And what might the time line of those four pieces look like?

Steve Byrne

Andrew, what we say is, we are going to make that decision sometime in the second quarter, then we will file between the filing and the public service commission rendering an opinion is six-months, and intervening six-months we will file testimony. There will be testimony filed from any interveners, and then we will have a hearing, which will be a public hearing. We have until November 1, to let Westinghouse whether we have opted for that fixed price option. And we can do that basically any time from now until November 1.

Jimmy Addison

And I would just add, we are going to let you know exactly concurringly what the time we file.

Andrew Weisel

Okay. So, the filing could come very shortly after you make your decision, and that process can be underway by the time you officially exercise the option with Westinghouse?

Jimmy Addison

Yes, I would think that it would be well underway, before we officially exercise the option with Westinghouse, because the option with Westinghouse is subject regulatory approval.

Andrew Weisel

Right. Good point. And then, in terms of updating the CapEx and financing costs, would that update come only in the next quarterly earnings call, or potentially when you announce to us that you've made a decision and are filing with regulators one way or the other?

Jimmy Addison

Yes, so there is two different moving parts there, one is which option do we go with just amend the contract or to go with the fixed option. The second moving part to that is getting the revised payment schedule worked out between us and the contractor. So those two don't necessarily happen at the same time, so it may be that we are in a position and make the filing and notify you of which option we have chosen but haven’t yet completely agreed on the payment schedule. So we can't completely update the CapEx schedule until we get both of those done.

Andrew Weisel

What's the latest time that you would get the updated finance, or payment schedule, rather?

Jimmy Addison

I don’t know a firm answer on that because it could be that we have to use this option as the - I don’t know this, but it could be we have to use its resolution board to resolve any differences we have there. So that could add some time on the end of it, but I would hope all of that – Steve is it reasonable to say we hope to get all of that done this year?

Steve Byrne

Yes, absolutely.

Jimmy Addison

Yes.

Andrew Weisel

Alright great, looking forward to your decision. Thank you.

Jimmy Addison

Thank you.

Operator

Our next question is from Feliks Kerman at Visium Asset Management

Feliks Kerman

Hi, just to clarify on that last question, because the petition process takes six months for approval, is it fair to say that the associated increased equity needs would come more like a 2017 item at the end of the petition, or more of an upfront related issuance? Any color on the timing?

Jimmy Addison

We don’t know anything of this point, this is we need any equity until 2017 at the earliest. Recall we sold these two subsidiaries last year, realized about $425 million plus of cash after tax from that. So in the short-term, we've used that to defray some debt, but we have got plenty of that to sustain us through the 2015.

Feliks Kerman

And that's even if you choose the fixed-price option?

Jimmy Addison

Excuse me 2016. Again, I don’t know what the revised payments schedule is going to be so we just don’t have that at this point. So we would have to have that but nothing we know at this point says we've got anything additional related to that. As Steve said earlier, we are planning on paying the - if we elected the fixed price we would pay that ratably over the remaining life remaining life of the construction, it's not a lump payment.

Feliks Kerman

Okay. Thank you, guys.

Operator

And this concludes our question-and-answer session. I would like to turn the conference back over to Jimmy Addison for any closing remarks.

Jimmy Addison

Well thank you and we will look forward to finalizing this decision on the fixed-price option and the subsequent petition to be filed with the PSC. We continue to focus on our new nuclear construction and on operating all of our businesses in a safe and reliable manner. And we thank you for joining us today and for your interest in SCANA. Have a good day.

Operator

This conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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