SCANA's Management Discusses Q1 2012 Results - Earnings Call Transcript

May. 3.12 | About: SCANA Corporation (SCG)

SCANA Corporation (NYSE:SCG)

Q1 2012 Earnings Conference Call

May 3, 2012 14:00 ET

Executives

Byron Hinson – Director, Financial Planning and Investor Relations

Jimmy Addison – Chief Financial Officer

Steve Byrne – Chief Operating Officer, SCE&G

Analysts

Travis Miller – Morningstar

Jim von Riesemann – UBS

Jay Dobson – Wunderlich Securities

David Paltz – Bank of America/Merrill Lynch

Chris Godby – Stephens

Paul Patterson – Glenrock Associates

Michael Lapides – Goldman Sachs

Andy Levi – Avon Capital

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. My name is (Amily) 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 Thursday, May 3, 2012. Anyone who does not consent to this taping may drop off the line at this time.

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

Byron Hinson – Director, Financial Planning and Investor Relations

Thank you. 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 first quarter of 2012.

Joining us on the call today are Jimmy Addison, SCANA's Chief Financial Officer; and Steve Byrne, Chief Operating Officer of SCE&G. The slides and the earnings release that we'll refer to in this call are available at scana.com.

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

Finally, as noted on slide two, we will disclose certain non-GAAP measures during this presentation and the required Reg G information can be found in the slides used in conjunction with this call.

I'll now turn the call over to Jimmy.

Jimmy Addison – Chief Financial Officer

Thanks, Byron and thank you all for joining us today. During today's call, I will discuss our financial results and economic activity for the first quarter and provide an update on our outlook for the remainder of the year. Additionally, Steve will provide an update on our nuclear project after which we will respond to your questions.

As shown on slide three, basic earnings per share were $0.93 for the first quarter of 2012 versus $1 in 2011. Increases in electric margin from rate increases under the Base Load Review Act were more than offset by lower gas margins in Georgia due to significantly milder weather, higher operating and maintenance expenses and the costs of our capital program, interest expense, depreciation, and share dilution.

According to the National Oceanic and Atmospheric Administration, this winter was one of the warmest in over 100 years. Our gas margins in Georgia were impacted by $0.06 due to milder than normal weather and an additional $0.02 compared to the colder than normal quarter in 2011 for $0.08 total. Additionally, although the electric WNA mechanism largely mitigates the impact of weather on electric margins, certain weather-sensitive load is not subject to the mechanism, churches and schools as an examples. So, there can be some earnings impact during extreme weather periods such as this quarter. As a result, SCE&G's electric margin was negatively impacted by $0.01 of abnormal weather this quarter. As an aside, it would have been down $0.14 without the WNA mechanism.

Now, on slide four, I would like to review results for our principal lines of business. South Carolina Electric & Gas Company's 2012 first quarter earnings per share denoted in blue were flat compared to the first quarter of 2011. Electric margin was $0.07 higher due to increases under the Base Load Review Act, net of the $0.01 weather decline. This increase in margin was offset by higher operating and maintenance expenses, interest expense and depreciation, as well as share dilution. Total weather-normalized electric sales to residential and commercial customers were relatively flat over the first quarter.

Industrial sales were down approximately 2% due to reduced production at one of our largest customers as a result of a fire. We understand this customer's production will likely be limited for the majority of the year. PSNC Energy's earnings for the first quarter of 2012 shown in red were $0.24 per share compared to $0.25 per share in 2011. Increases in customer growth were slightly more than offset by higher operating and maintenance expenses and share dilution.

SCANA Energy in green reported lower earnings for the first quarter of 2012 due to the aforementioned milder weather. In the first quarter of 2011, weather increased SCANA Energy's margins by $0.02. However, the extremely mild weather in the first quarter of 2012 resulted in an $0.08 swing in margins.

Next, I would like to touch on economic trends in our service area as shown on slide five. We continue to see business growth and expansion. In the first quarter, companies announced plans to invest $124 million with expectations of creating over 200 jobs in our South Carolina territory. Our gas businesses in North Carolina also saw a promising quarter of economic announcements with companies projecting investment of $194 million and over 2,900 jobs. These announcements covered a variety of industries such as plastics, metals, and food and beverage. As I have mentioned previously, 2011 was an excellent year in terms of economic announcements and we are pleased that this trend appears to be continuing. Another measure – container volume at the Port of Charleston also continues to improve.

Volume during March of this year was the highest since October 2008. First quarter of 2012 volume was 7% higher than the first quarter of 2011. We continue to be encouraged by the trend in unemployment rates particularly in the areas we serve as all three states along with the national rate decreased in December – since December. Our service territory in South Carolina is heavily concentrated in the Charleston and Columbia metro area where the average rate has fallen to 7.3%, 90 basis points below the national average.

This recent industrial expansion has obviously translated into jobs. The chart in the bottom left of the slide shows customer growth at our major subsidiaries. We continue to experience customer growth in all of our regulated businesses while our Georgia market saw slight decrease in customer count over the prior year likely due to the mild weather. We are pleased that all of our regulated businesses continue to yield organic growth.

Please turn to slide six which set forth our regulated rate base, returns, and South Carolina regulatory calendar. The data on the slide represents information as of December 31, 2011, the date of our most recent regulatory filings. As you can see in the pie chart on the left side, our regulated rate base of $7.1 billion is composed largely of SCE&G Electric with closed to $6 billion in total electric investment denoted in blue. The chart to the right shows our actual and allowed regulatory returns for the period.

Our earned return at the electric business continues to lag behind our lab return despite our cost containment efforts, although, it improved slightly over the last two quarters. Many of you have asked about the potential base rate electric filing to address this deficit. While we have not made any final decisions we are considering filing a Notice of Intent later this month to initiated the regulatory process timeline. We are requiring to file the notice at least 30 days prior to the filing of a case.

Again the decision around the timing and amount of this filing is not yet named. Our regulated gas businesses in North and South Carolina continue to earn steady returns as you can see from the chart. Of course, the South Carolina gas business will adjust under the RSA mechanism if it falls more than 50 basis points below the allowed return. The bottom of the slide includes the two timelines depicting our regulatory filing schedule for 2012, which we shared with you previously.

Since our last earnings call, we've completed our electric fuel cost preview and we expect to file our integrated resource plan at the end of May. Later this month, we will file the quarterly status report and annual revised rates request related to the new nuclear project. In addition to these regular BLRA filings, we will be withdrawing our petition to update costs and schedules dated February 29. Simultaneously, we will be filing a new petition updating costs and schedules we previously filed as well as updating the filing for the impact of the issuance of our sea well and to incorporate the $138 million resulting from our preliminary agreement with Shaw and Westinghouse, which Steve will discuss in a few minutes. This will align all of our known nuclear costs in one petition. All of these nuclear filings will be made available on the Investor Relations section of our website.

Slide seven presents our CapEx forecast. This forecast reflects new nuclear spending as reported in our latest BLRA filing in February, which included amounts as of the fourth quarter of 2011 along with the additional cost we disclosed in February. This slide does not include the additional amounts related to our negotiations with Shaw and Westinghouse, which Steve will discuss in more detail. It also does not include any revisions to the schedule from the shifts and timing of the planned dates the plants will come online. The consortium is updating the forecast now and we expect to present the updated data in our BLRA filing later this month and in our Analyst Day on June 5.

Please turn to slide eight, this slide presents our estimated financing plan through 2014 and has not changed since our last earnings call. We continue to anticipate an additional debt issuance later in the year and expect to draw the remaining funds from our equity forward in fourth quarter of 2012.

Please turn to slide nine, we are reaffirming our earnings guidance of $3.05 to $3.25 per share. Our long-term outlook is unchanged as we plan to deliver 3% to 5% earnings growth over the three to five-year period based on the 2010 weather normalized base of $2.92 per share. We have adjusted our expectation of earnings from our Georgia business to consider the impact of weather during this quarter. Additionally, we've considered with our guidance the impact of base rate increases from our new nuclear filings under the BLRA and gas RSA adjustment. Our effective tax rate for 2011 was just over 30% and we estimate the rate for 2012, will be approximately 31%.

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

Steve Byrne – Chief Operating Officer

Thanks, Jimmy. I'd now like to direct your attention to slide 10. We are pleased as Nuclear Regulatory Commission has issued the combined construction and operating licenses for our two new nuclear units bringing the licensing proceedings at the NRC to conclusion. We have given the consortium of full notice to proceed and are moving forward with nuclear safety-related construction.

As you can see on slide 11, we have been making significant progress at the site even prior to the issuance of our COL and this picture is from February of 2012. Switchyard shown at the bottom of the slide continues toward completion and is scheduled to be energized in the first half of 2013. Foundations for the cooling towers are progressing as planned, welding of the containment vessel lower bowl continues, the Unit 2 excavation sites for both the nuclear island and the turbine island are ready for concrete to be poured. In the center of the picture, you can see the heavy lift derrick. This derrick has a 560 foot long boom and rotates 360 degrees on rails.

It will be used to lift assembled modules and other heavy components and place them in the excavation sites of both units. Since this photo was taken and after the receipt of our COL, we have begun pouring concrete in the excavation for Unit 2. Over the next few months, we will complete placing leveling concrete, install the waterproof membrane, pour the mud map and lift and set the nuclear island rebar cage.

Rebar cage was made in several sections with lifting process installed to allow fabrication before the COL issuance. After that, we will pour the nuclear island base map, which will be approximately six-feet thick. At this point, we'll be ready to set module CR10 on the base map. CR10 is a steel frame support used to hold the lower though above the base map until the foundation concrete is completed.

Once that concrete is complete, we will set the lower containment bowl. Please turn now to slide 12. As we announced at the end of March, we have signed a preliminary agreement with Shaw and Westinghouse related to challenged cost for the construction of our new nuclear units. As you might recall, these costs related to four items. The first was on unanticipated raw conditions.

During the excavation for Unit 2 an unanticipated crevice was discovered. This will be filled in with additional concrete. The second challenged cost related to a delay in receipt of the COL. When we signed our EPC contracts in 2008, it was anticipated that the COL would be issued by the NRC in July of 2011. Due primarily to delays in approval of Rev 19 to the certified design and became evident that the COL would not be issued until early 2012.

In anticipation of this, we asked Shaw and Westinghouse to perform a COL delay impact study, which provided various cost and timing alternatives arising from this delay in issuance of the COL. After reviewing the results of their study, we opted to delay the commercial operation date of Unit 2 to 2017 and accelerate the date for Unit 3 to 2018 in order to take advantage of economies and efficiencies in the construction schedule and thereby mitigate some of the cost of the initial COL delay.

Originally, the commercial operation dates were scheduled for 2016 and 2019. The other two channels cost related to design modifications, to the shield building and structural modules. On our last earnings call, we communicated that we believe the upper bound of SCE&Gs portion of the cost would be approximately $188 million valued in 2007 dollars. After negotiations, we agreed to an amount of $138 million.

As Jimmy mentioned previously, these amounts will be reflected in the cost schedules presented in our upcoming filing with the South Carolina Public Service Commission and discuss in detail at our Analyst Day in early June. We will also continue to provide updates on the progress of construction at the site to our quarterly mining reports with the commission.

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

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) And our first question will come from Travis Miller of Morningstar. Please go ahead.

Travis Miller – Morningstar

Thanks. Good morning. Good afternoon rather. Can you give us a sense for some of the key issues you’ll be addressing in the IRP when you file later this month? Obviously, the nuclear plant will have a key impact, but anything else, gas prices, power prices, stuff like that impact your plans?

Jimmy Addison

The IRP is intended to outline where we think the system is going and growing and what our plants will do to help meet that need. It also will forecast the demand side management impacts on load. So, there will not be a significant discussion about the price of natural gas. Rather, what you’ll see is charge a lot when nuclear plants come on. It will also discuss some level of plant retirement, as it has done for the last couple of IRPs.

Travis Miller – Morningstar

Has anything changed materially since your last one that was suggest needing either new generation or needing more retirements, leading to more retirements?

Jimmy Addison

Well, First off the IRP has not been published yet. I think (indiscernible) scheduled date to publish at the end of this month, so I don’t want to get out in front of the IRP with any changes.

Travis Miller – Morningstar

Sure, okay. Thanks a lot.

Operator

Our next question comes from Jim von Riesemann of UBS. Please go ahead.

Jim von Riesemann – UBS

Yeah.

Jimmy Addison

Yes, good morning Jim. Jim go ahead.

Jim von Riesemann – UBS

Are you there? Hello, hello.

Jimmy Addison

Jim, we can hear you, can you hear us?

Jim von Riesemann – UBS

I can hear you. You can’t hear?

Jimmy Addison

You’re cutting in and out.

Jim von Riesemann – UBS

Okay. The question really is on just a modeling question, if you don’t mind. Can you just talk about your trailing 12-month like I am coming up at 292 and what some of the drivers are to get it to your 317 internal number for the year?

Steve Byrne

I have not looked Jim at the trailing 12 months through Q1 but as far as the 317 we issued that the original range backup I think at the third quarter call back in October and then as we’re refined our plan for this year we reaffirmed that, and are reaffirming it today in spite of the $0.06 of weather versus normal that we lost in Q1 in Georgia. I think our keys to achieving that are to continue our aggressive cost control that we’ve had in place now for several years. We see the possibility of a small rate stabilization increase this fall, that’s not final yet, but that looks like there is some possibility of that, that would impact SCE&G gas business.

You might remember our original assumptions we didn’t have anything in the plan for that. It looks like we may be able to likely differ the first mortgage bond financing that we have - we had scheduled for in the middle or so, the second quarter. We may be able to push that out a few more months just because of the original delay from the NRC. We also had planned to do the original issuance that we did in January, a little earlier in the month, that occurred later in the month. And also the rates on those various financings that we had in our plan are higher than we realized in January and higher than we project now on the one later this year. So, those are some of the keys to how we think will make up what we realized there as a loss in the first quarter in the weather margins.

Jim von Riesemann – UBS

Okay. Switching to Georgia retail for just a second, can you just talk about some of the experiences you are seeing with your customers there, I don't know how much of its weather, how much of it has to be the change in the gas prices etcetera and what the outlook is there?

Steve Byrne

Well, we really don't see the outlook change from what we got it earlier. We really think it's a $0.22, $0.24 kind of business…

Jim von Riesemann – UBS

Okay.

Steve Byrne

On an annual basis, on a weather normal basis. Of course, we had the most unusual weather here that we have had in probably in over 100 years this past quarter. So, we don't see a lot of difference there. Now, for the market as a whole and for our business, more customers are on the fixed rate plans as opposed to the variable plans and those just have smaller margins with them.

Jim von Riesemann – UBS

Then I guess the last question is just a real more holistic question, but with respect to the news build at summer now, now that you have the COL and you can actually really turn pour concrete and turn the spades etcetera, what's keeping you up at night there?

Steve Byrne

Let's keeping us up at night. Things at the site actually are going fairly well. Obviously, it impacts the construction are going to be things like weather. We have had good weather so far. So, as long as we get good weather we will keep moving. We have had good interactions with the Nuclear Regulatory Commission so far. Getting a license was a big deal for us. But as I think you found out in the southern disclosures in their last call, there are some issues that are going to come up that are regulatory in nature from now to the end of this project and working our way through those is going to be very important to us.

So far, I am pleased to say that the Nuclear Regulatory Commission is living up to its obligations and so we need to do the same thing. You have seen an issue with reinforcing bar or rebar that's going in the – for the base map at Southern's. Obviously, we would be coming under that same issue. We are just a little behind them. So, we have perhaps a little bit more time to get to resolution than they did, so it's a little more urgent for them, but those kinds of things are going to come up a lot of more normal course of business things. This is a new license process. So, when you got things in the certified design that perhaps don't make a 100% sense to implement in the field we got to be able to work our way through those.

Jim von Riesemann – UBS

Right. So, I guess my takeaway is that it sounds like it still remains just a big old construction project. I don't think you say anything negatively about supply chain or anything, so it's just status quo otherwise?

Steve Byrne

Yeah, so far we have been very pleased with the supply chain and we obviously had some concerns with the – little over a year ago with the earthquake and tsunami in Japan that some of our materials and components are coming from Japan, but those deliveries have been coming. So, we haven't experienced any supply chain issues from Japan fortunately.

Jim von Riesemann – UBS

Okay, great. Thanks for the questions or the answers please.

Steve Byrne

Sure.

Operator

Our next question comes from Jay Dobson of Wunderlich Securities. Please go ahead.

Jay Dobson – Wunderlich Securities

Hi, good afternoon. Jimmy, I was hoping you could talk a little bit about O&M, it was up in the quarter yet you talked a little bit about your cost control plans for the balance of the year and maybe talk a little bit about what happened in the first quarter and then how we are going to think about that going through the balance of this year?

Jimmy Addison

Sure. Well, we still remain firmly committed to managing the O&M for the year to a level that's similar to 2011, some of the timing of expenses they have to occur when the operations obviously drive them. In Q1 of this year, couple of examples like you've asked for, we had a combustion inspection at one of our combined cycle gas units that was not in the comparable quarter from the year before, so that occurred in Q1. We are running those plants a great deal now. So, you've got to do the inspections. That's not something that occurs each quarter. So, that's more cyclical, if you will.

We have moved – changing gears on you moved into healthcare plans, high deductible plans. We have encouraged employees to consider those. Last year, 2011 was the first year. We had about 20% of the employees to adopt the plan last year voluntarily, I was one of those. This year, about 50% have adopted it. As part of that transition, we, the corporation puts seed money into their HSA accounts to help encourage them to move to this to carry the cash flow in the early part of the plan. So, we obviously funded all of the seed money upfront.

Later, as we move through the year, we think we will see that level out. So, healthcare was up about $0.01 per share. And then, you may remember last year, I commented that due to two items, one, us lowering our long-term earnings guidance to 3% to 5%, and two, Fukushima, our stock took quite a hit in the early part of the year. And as a result, we were substantially below several of our equity based incentive comp plans. So, the stock has performance much better this year, so there's about a $0.01 due to that. So, some of those things are kind of our timing type matters that we don't expect are really linear throughout the year. We are comfortable with saying we're going to manage hard to get towards a flat O&M year-over-year.

Jay Dobson – Wunderlich Securities

That's great. Thanks for the clarity. And then similarly on residential usage, I know it's hard to view through the weather normalization mechanism, but just sort of highlight what the trends you're seeing there, and if we are seeing any pinch of a reprisal in some growth there?

Jimmy Addison

Well, you are exactly right when you say it's hard to view. My short answer to it is it's just shop and I've commented on that last year that we've seen a couple of good quarters but that doesn't trend make this year in the first quarter commercial was up close to 3%. It looks like early announce looks like residential was down close to 3%, but that's just one quarter and it just doesn't make a lot of sense to try to analyze it on a long-term basis.

Year-over-year 2011 compared to '10 it was up slightly over 1% for residential. So, we still see good industrial growth on the system. We see good unemployment numbers coming down fairly significantly with our electric territory falling well below the national unemployment rate, almost one full percent. So, we think the long-term trend is good, but trying to look at these usage rates on a quarterly basis is pretty difficult, draw any conclusions.

Jay Dobson – Wunderlich Securities

Got you. So you're still remaining somewhat conservative there from a sales forecasting perspective and I'm talking specifically on the residential class?

Jimmy Addison

We are.

Jay Dobson – Wunderlich Securities

Okay, great. And then lastly, Steve I was open you could talk a little more about the base mat rebar issue that’s other is identified and just sort of what your understanding of it is and then to a fairly granular degree, if you don't mind and then how it would impact you, they seemed unwilling to be talk about whether it was a warranty or actually an issue with the installation versus the plan, and I'm trying to understand how it impacts you all?

Stephen Byrne

Okay. It's not an installation issue within, with no problem with the installation. The issue came out with the design certification document identified specifications for how the rebar cage would be constructed. During our constructability reviews the constructor said this is going to be difficult and went back to the designer and said could we do it a different way. The designer looked at and said yes those drawings were amended and went to the field. So, within the field was constructed in accordance with the drawings. However, the drawings were not as the original design certification drawing was.

And you have options with changing some of the designs, but it's what the DCD would call a Tier 1 or Tier 2 star kind of a detail. You need to get pre-approval to make those kinds of changes and the position of the vendor was, this was a Tier 2 issue, which means that they could have made those changes, the position of the regulators was now to Tier 2 star issues, so you need to get pre-approval, and that's where the rub comes in. That slight differences between the Vogel project and our project, that Vogel got a limited work authorization, so they actually are ahead of us on the work in the excavation.

So, they were at the point where they had poured all their preliminary concrete, if you will, down concrete to leveling that, the mud mat, vapor barrier, and they were installing the rebar cage. In our situation, we are just starting on that dental concrete in the Unit 2 excavation and we're moving on to the leveling concrete, and we're building the rebar cage outside of the excavation in order to say some time. And then, we've our intention was to lift the rebar cage with the big derrick, so we've installed lifting lugs in ours. So, we're doing it outside, they were doing it inside the excavation. So, we don't actually need that rebar cage until we're finished with all of that preliminary concrete work, which is going to be a couple of months yet. So we’ve got some time to deal with the issue.

Jay Dobson – Wunderlich Securities

Got you. But just to be specific, is designing or building the rebar cage outside of the pit allow you to build it in line with the specs in the DCD or is it still going to have to be changed and then the dispute will be again whether its Tier 1, Tier 2?

Jimmy Addison

The resolution to the issue, let me be clear, ours was built the same way that Southern was going about their construction. So, the resolution to the issue yet has to be determined. We think we will determine which path going forward will be – we should decide that in the next week or so but is there going to make a change, we are more unlikely going to make the change the difference is they are making it inside the excavation while we are doing it outside the excavation but we got some options we are weighing the options and fortunately we are not at the point yet where we need that rebar cage.

Jay Dobson – Wunderlich Securities

So, you wouldn't be happy to be behind them, but you are. Thank you very much.

Operator

Our next question comes from David Paltz of Bank of America/Merrill Lynch. Please go ahead.

David Paltz – Bank of America/Merrill Lynch

Good afternoon guys.

Unidentified Company Speaker

Good afternoon David.

David Paltz – Bank of America/Merrill Lynch

Just switching to guidance your 2012 guidance how much of that comes from earnings from your new nuclear investments?

Jimmy Addison

How much of the 317 our internal target?

David Paltz – Bank of America/Merrill Lynch

Yeah.

Jimmy Addison

Yeah, I don’t know that I’ve got that – David, as we really got it – I mean, I don’t know if you are asking incrementally for this year because really you’ve got full increases now that have occurred over the last four years that are built into that. This year, of course, we’ve got the full year of the increase under the BLRA that was implemented last November and then we would have another two months of the increase that would go in this November.

David Paltz – Bank of America/Merrill Lynch

Alright. But then maybe the AFUDC earnings that you get on the investments?

Jimmy Addison

Yeah I just got – I mean I got your question. I just don’t have an answer for that. Sorry.

David Paltz – Bank of America/Merrill Lynch

Fair enough. Then, just if we look at your long-term growth rate of 3% to 5%, what earned returns on equity are you assuming on your base electric business, excluding the new nuclear?

Jimmy Addison

Well, we don’t…

David Paltz – Bank of America/Merrill Lynch

I mean range will be fine.

Jimmy Addison

Yeah, we build you might imagine, we build the model differently than you do. We build it kind of bottom up. I think many of you guys understandably start from the top and look at our earned return and back into that way. We build it a different way. But I would say, to answer your question, within historical test year, when we implement the rates in the base electric business now this is not new nuclear, that’s as you understand a different mechanism. But on the base electric business, once you implemented, you’re probably going to be 50 basis points behind the allowed return. And then now, you see from the slide in the presentation here, we’re a couple of hundred, a little less than a couple of hundred basis points under that allowed return. So, you’re generally starting off a little lower than that allowed return, 50 basis points or so, and I think that some of the consideration that the commission allows in setting the ROEs is they understand with this historical test year. And with the six month, seven month with the notice period minimum process, I mean there is going to be some attrition, if you will.

David Paltz – Bank of America/Merrill Lynch

Alright, okay.

Jimmy Addison

So, we don’t really start on in that way and say, what’s the estimated allowed return. We look at the plant rate base CapEx, etcetera, and build it from bottom-up.

David Paltz – Bank of America/Merrill Lynch

Got it. But effectively, based on the regulatory structure there, you have about 50 basis points of under-earnings on a structural basis?

Jimmy Addison

If you’re looking at the actual allowed, that’s right. Now, the wildcard in all that is, any change in the economy and growth. Now that assumes a static economy - economy of course, when it slowed down, it contributed to accelerating that and presumably when it speeds up again it will mitigate that.

David Paltz – Bank of America/Merrill Lynch

Right. In your sales graph I believe you said in past calls as long-term sales graph is 1%?

Jimmy Addison

Right.

David Paltz – Bank of America/Merrill Lynch

And then just last question on the challenged costs I know you guys are going to update that. But just for our purposes should we think of those costs being allocated to near-term CapEx or would it be allocated uniformly across the project timeline?

Jimmy Addison

We would allocate them in general across the timeline. Now, some of those costs since are disputed and may have been spent maybe buyer towards the front-end of the project. But in general, we're looking to spread them over the project.

David Paltz – Bank of America/Merrill Lynch

Great, thank you so much.

Jimmy Addison

Sure.

Operator

Our next question comes from Chris Godby of Stephens. Please go ahead.

Chris Godby – Stephens

Yeah, good day everyone. Given the light results in the first quarter and maintained guidance, how should we think about revenue and earnings distribution over the remainder of the year – for the coming quarters?

Jimmy Addison

Yeah. So, I think we discussed this on our third quarter call that may have been at the beginning of the year and I know you're kind of new to the count. But generally our earnings are distributed about 30% in Q1 and Q4 and about 15% in Q2, 25% in Q3. So, that's kind of generally how they fall out.

Chris Godby – Stephens

Sure, sure we understand that. But kind of thinking about with the first quarter being a little bit light do you anticipate kind of change in that distribution or are you unable to kind of comment on that?

Jimmy Addison

No, I don't anticipate changing it. That was an abnormal weather in the first quarter. So, I would say, as I've said our internal target was 317, take this – we can take these same percentages and apply to that and get fairly close to our internal plan.

Chris Godby – Stephens

Okay, okay, that's great. Thank you very much.

Jimmy Addison

Right, I mean the abnormal weathers behind us. We don't presume that's going to happen each quarter from here on.

Chris Godby – Stephens

Sure, okay. Thank you.

Jimmy Addison

Sure.

Operator

Our next question comes from (indiscernible). Please go ahead.

Unidentified Analyst

My question has been answered. Thank you.

Jimmy Addison

Sure.

Operator

Our next question comes from Paul Patterson with Glenrock Associates. Please go ahead.

Paul Patterson – Glenrock Associates

Good morning and good afternoon, excuse me.

Jimmy Addison

Sure.

Paul Patterson – Glenrock Associates

Just, sorry, if I missed this, I'm not really clear. What was the weather normalized growth that you guys are estimating for the quarter?

Jimmy Addison

Weather normalized growth, Paul, could you?

Paul Patterson – Glenrock Associates

Sales growth. Electric sales, what would they have been without this incredibly abnormal weather that you guys had?

Jimmy Addison

Okay. Actual margins, as I said earlier, commercial margins were up, just for the quarter. Commercial part margins are preliminary announces as they were up about 3%. Residential was down about 3%, compared over the first quarter of 2011. But that's one quarter. These margins have been very choppy in the last, well frankly, over the last couple of years as we try to come out of this recession, so I would just caution against…

Paul Patterson – Glenrock Associates

Why was commercial up 3%?

Jimmy Addison

I don't have the specifics as to why. What I can tell you is the last few quarters, industrials have been growing substantially over the year before period and the unemployment rates have been coming down. And as we said in the past, industrials typically lead and that translates into jobs, which helps on the residential front and then the last to come out of it are commercial. Now, whether that's what we're seeing this first quarter or not, I don't know. This is the first quarter we've seen commercial grow year-over-year. So, I wouldn't draw any conclusions over one quarter.

Paul Patterson – Glenrock Associates

Okay, fine. And then the credits that you mentioned, what was that? Again I'm sorry, that was some sort of rock issue, what was there?

Jimmy Addison

Our side is a hard rock side, but it was covered with clay and prior to getting into the construction to map where the rock is we did a series of core bores. And in the Unit 2 excavation, there was one area between two core bores where it was not linear actually it performed a valley or crevice. And so, as a part of that, we have to fill right in with concrete. It was quite a bit of concrete and probably you're going to take a month or so to fill it in. So that was one of the cost that consortium want to try to recover.

Paul Patterson – Glenrock Associates

Okay. And then just finally, Santee Cooper selling looks like it's attempting to sell some of its ownership and there have been – are there any concerns that you guys have with respect to the potential new partners you might have, credit issues or anything like that that we should be thinking about or I mean does everything look okay over there?

Jimmy Addison

Now, the parties that Santee Cooper has announced Letters of Intent with so far all appeared to be credit worthy companies. So, we don't have any concern with those.

Paul Patterson – Glenrock Associates

Okay, great. Thanks a lot.

Jimmy Addison

Thank you.

Operator

The next question comes from Michael Lapides of Goldman Sachs. Please go ahead.

Michael Lapides – Goldman Sachs

Just trying to think through a handful of modeling things, first of all, Jimmy, you mentioned there could be potential for an RSA increase at the back end of the year. That would go into effect, when November any kind of thought or guideline on how big or how small the number that could be?

Jimmy Addison

Michael, it would go into effect in November, of course, measured for the 12 months ended March 31st. We obviously just closed those books, we've not made the regulatory adjustments and all that are required as part of that filing. The audit hasn't taken place. But I would say, you have last year kind of as a benchmark. I don't think it would be any larger than last year, but that's just kind of speculation at this point.

Michael Lapides – Goldman Sachs

If you filed a case, I remember one of your prior cases, I think you filed it mid-year, would that imply implementation, Jim, on 2013?

Jimmy Addison

Now, you're switching to electric?

Michael Lapides – Goldman Sachs

Yes, sorry, yeah.

Jimmy Addison

Yeah, right. It's six months by law in South Carolina, so minimum 30 day notice period. Then the filing can be made any time after that 30 days, and then from the time of the filing, six months in total rates.

Michael Lapides – Goldman Sachs

Okay. And then can you – the RSA that went into effect this last year and the BLRA that went into effect in November, how much of that have you benefited from so far? I'm just trying to think through the rest to this year, how much of that revenue increased for both of those items as left to take.

Jimmy Addison

Yeah, on the RSA, I'll tell you, it's implemented in November, as we discussed earlier, and about – for a November implementation about 15% of that increment falls in those tail two months of that calendar year. So, the inverse 85% falls in the next year. The BLRA, frankly I've never analyzed it like that. The gas is driven off. The cyclical nature of the gas business, I don't know if could use the same numbers two months out of 12, probably more pro-rata on the BLRA side, but I really haven't analyzed it like that.

Michael Lapides – Goldman Sachs

Okay. So, safe to assume that the bulk of the RSA, because the bulk of your gas demand is obviously fourth quarter, first quarter driven, has already been taken and there's probably only a limited amount left, but the BLRA is kind of more even or steady ready across the quarters?

Jimmy Addison

Right.

Michael Lapides – Goldman Sachs

Okay. Last thing, I'm little confused about one thing. When I look at the debt at the holding company, it implies like $50 million or $55 million a year of holding company interest and if I spread that across the quarters that's like $0.06 or $0.07 drag per quarter if I were to issue that as a standalone and use your tax rate. You are reporting $0.05 this quarter and positive earnings that would imply its instant swing and I'm just curious what the biggest contributors to that are, meaning if interest is a drag of $0.05 or $0.06, $0.06 or $0.07 what's offsetting that more than $0.10?

Jimmy Addison

Well, that as you know probably that aggregates not just the holding company, but that aggregates the other miscellaneous subsidiaries we held to sale as well like the interstate pipeline business, the communications business etcetera, so all of those are messed in there together.

Michael Lapides – Goldman Sachs

Okay. Have you all ever talk about how much of a contributor you think any of those are likely to be and where they are – was this quarter abnormal or normal was those?

Jimmy Addison

No, I wouldn't say it's really abnormal I mean with the low of natural gas. You are getting everybody that can use natural gas from an industrial standpoint they are trying to do it. If they are not already doing it, they are trying to see what they can do to modify their systems to allow them to do it. So anyone that can take gas industrially is so there is some certainly driven by $2 or so of gas but not a huge amount.

Michael Lapides – Goldman Sachs

Okay. And then last on O&M because O&M was up year-over-year in the quarter. I want to make sure I'm understanding, you're basically saying that for some portion whether it starts in second quarter or whether it's very back-end loaded you'll actually see O&M down year-over-year to help offset the first quarter delta?

Jimmy Addison

That's our plan.

Michael Lapides – Goldman Sachs

Got it. Okay. Thank you, guys. Much appreciated.

Jimmy Addison

You're welcome.

Operator

(Operator Instructions) And our next question comes from Andy Levi of Avon Capital. Please go ahead.

Andy Levi – Avon Capital

Hi. Good morning.

Jimmy Addison

Hello, Andy.

Andy Levi – Avon Capital

Just to understand, the earlier question on the BLRA. So you're saying that expectation is to file for about the same amount that you filed for last year?

Jimmy Addison

No, I was talking about RSA then Andy on the gas business. So on BLRA we had forecasted there in our public docs about I think to slightly over a 3% increase. We're slightly down in the part of the BLRA period that runs through first quarter this year just because of the NRC delay in issuing the license. So, we're 10% or 15% down in this BLRA cycle on our CapEx. We expected to be a little less than that. Our goal is to refresh all of that and file it later this month and go through a full discussion with you at our Analyst Day in about a month.

Andy Levi – Avon Capital

Okay. I had misheard. I apologize. And then again on this rate case that you'll be filing, I guess we have rates go into effect beginning of next year. Is that kind of how it added?

Jimmy Addison

The only thing I want to comment on today, really only decisions we've made is to file the notice of intent. We don’t – we’ve not made any final decisions on when we would actually make a filing and on any amounts et cetera, because we're just wrapping up the quarter and preparing this information. But we want to go ahead and file that letter of intent and that just starts the process.

Andy Levi – Avon Capital

So, that will be filed within the next four weeks you said?

Jimmy Addison

Later this month, yes.

Andy Levi – Avon Capital

Later, this month. And then generally, the 30 days after that you file your increase or there is no set kind of timeframe on that?

Jimmy Addison

Minimum 30 days after.

Andy Levi – Avon Capital

Minimum 30 days .And then generally, once you do file your case at the six month process, is that correct?

Jimmy Addison

That's by law, the six months. So, the 30 days minimum notice and then it's in our option as to when we make the filing afterwards, but once we make the filing is six months until rates are implementing.

Andy Levi – Avon Capital

Okay. And again you are not willing to talk about this amount or ballpark or anything like that?

Jimmy Addison

Growth not that, not willing. I just don't have the information yet. So, if timing were different we would rather be talking about all of that at the same time, it is just that we are here on the call today and we felt we should give everyone a heads up because we are getting a lot of questions about it.

Andy Levi – Avon Capital

Possibly by your Analyst Meeting in New York is that time when we will probably get the details?

Jimmy Addison

I don't know that yet, we are likely to kind of make – we are going to make the notice filing by then I don't know that we will have the details on the filing at that point, it maybe the second quarter call.

Operator

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

Jimmy Addison – Chief Financial Officer

Well, thank you all for being with us today to summarize. 2012 has already been an exciting time for our company. We are very pleased to have our combined construction and operating licenses in hand for our new nuclear units and are pleased with our progress we are making on those projects. While the mild weather impacted our results for the quarter in the Georgia market our core fundamentals remain unchanged, and we are continuing to offer a business strategy focused on providing a reliable power to our customers and long-term growth for shareholders and I encourage you all to sign up to attend our Analyst Day on June 5 in New York, if you haven't already. Thank you again for joining us today.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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

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

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