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Executives

Betty Best - IR

Jimmy Addison - Sr. VP and CFO

Stephen A. Byrne - Sr. VP - Generation, Nuclear and Fossil Hydro-SCE&G

Analysts

Michael Lapides - Goldman Sachs

Jonathan Arnold - Merrill Lynch

Steve Fleishman - Catapult Partners

Paul Patterson - Glen Rock Associates

Ashar Khan - SAC Capital

Travis Miller - Morningstar

SCANA Corp. (SCG) Q4 FY07 Earnings Call February 15, 2008 10:00 AM ET

Operator

Good morning ladies and gentlemen. Thank you for standing by. My name is Maria and I'll 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 is being recorded on Friday, February 15, 2008. Anyone who does not consent to the taping may drop off the line at this time.

I would now like to turn the call over to Betty Best, Director of Financial Planning and Investor Relations.

Betty Best - Investor Relations

Thank you Maria and good morning. I would like to welcome everyone to our earnings conference call, including those who are joining us on the webcast. Earlier today, we announced financial results for the fourth quarter and full year, 2007. In just a minute, Jimmy Addison, Senior Vice President and Chief Financial Officer will review those results and respond to questions. The earnings press release that we will refer to in this conference call is available on our website at scana.com.

I would like to remind everyone that certain statements that may be made during today's call, which are not statements of historical fact, are considered forward-looking statements and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those indicated by such forward-looking statements, including the risks and uncertainties discussed in the company's SEC filings. The company does not recognize an obligation to update any forward-looking statements.

I will now turn the call over to Jimmy.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Thanks, Betty, and good morning. I would also like to welcome each of you to our call. Earlier today, SCANA reported 2007 GAAP earnings of $2.74 per share, compared to $2.68 per share in 2006.

GAAP adjusted net earnings from operations in 2007 were also $2.74 per share, compared to $2.59 per share in 2006. The 2007 GAAP adjusted earnings per share represent a 5.8% increase, compared to 2006 and we're in line with our guidance. A reconciliation of reported earnings to GAAP adjusted net earnings from operations, as well as earnings' variance explanations for the quarter and full year periods are included in our press release.

$0.15 per share improvement in GAAP adjusted net earnings per share from operations, was due primarily to higher margins on sales of electricity and natural gas in 2007 and to charges in 2006 related to the FERC settlement. These positive factors more than offset higher operation and maintenance expenses, depreciation and property taxes, and the lower synthetic few royalties related to the company's former subsidiary, Primesouth. The higher electric margin was attributable to increased kilowatt hour sales of electricity, driven by solid customer growth of 2.6%. The increase in consolidated natural gas margin was primarily due to customer growth of approximately 2% and rate increases at SCE&G and PSNC. As a reminder, we recorded charges in 2006 totaling $0.08 per share, $0.02 in the third quarter and $0.06 in the fourth, related to a settlement agreement with FERC.

Reported earnings in fourth quarter of 2007 were $0.75 per share, up from $0.57 per share in the same quarter of 2006. The $0.18 per share increase in our earnings was due in part to higher margins on sales of electricity driven by customer growth and increased wholesale sales.

In addition, earnings were higher compared to 2006 due to the sale of a bankruptcy claim related to a long-term pipeline capacity contract at Carolina Gas Transmission, and the 2006 fourth quarter charge related to the FERC settlement. These factors more than offset high depreciation property taxes and lower syn-fuel royalties in the fourth quarter of 2007.

Contrary to recent media reports, SCE&G has not suspended plans to submit a joint application with Santee Cooper to the Nuclear Regulatory Commission later this year for a combined construction and operating license. While we originally had plan to submit an application to the NRC by the end of 2007, we must continue to give due consideration to the rising estimated costs associated with nuclear plant construction, before moving forward with the supported decision.

Our decision to delay submittal of our COL application should not impact the overall construction schedule if we go forward. We would still expect to bring the plant on line in the 2016 timeframe. This intentional delay in the application timing has allowed our nuclear team and the vendors to focus on furthering the negotiations on engineering, procure and construct contract. It is also allowing us the opportunity to revise our application based on feedback from the first few COL application submittals.

I would now like to review our new three-year capital expenditure and cash flow projections, which are provided along with our earnings press release on the Investor Relations section of our website. SCANA's budget for capital expenditures totals approximately $3 billion for the period 2008 through 2010. Approximately 85% of that total or about $2.6 billion is for South Carolina Electric and Gas company's operations. Approximately $246 million is for PSNC Energy, principally for enhancements to and expansion of its natural gas system in North Carolina to meet projected demand growth. The balance of $202 million is spread across our other businesses.

Looking at SCE&G's capital costs for the forecast period, $402 million is being projected to meet environmental requirements, including the installation of scrubbers at Wateree and Williams plants and notch reduction equipment in our coal plant. Another $857 million of capital was allocated to the new generating capacity, including $98 million for natural gas for our peaking capacity in 2011 and approximately $759 million, which represents SCE&G's share of a proposed new nuclear plant which if approved should begin construction in 2010.

The balance of SCE&G's three-year capital budget of about $1.3 billion is directed primarily toward normal expenditures that will be required to meet the core-system growth we expect to see in the company's electric and natural gas delivery and support systems over the next three years. While SCANA's current CapEx forecast for the three-year period represents an increase of approximately $800 million from the prior forecast, a vast majority of this new investment is allocated to our proposed new nuclear generation, which will be included in additions to our rate base and subject to timely recovery under the Base Load Review Act.

This strategy of growth through investment continues to be one of the key drivers of long-term earnings growth for the company, coupled with and reflective of the underlying core customer growth in our service territories. As mentioned earlier, the major unresolved component of this CapEx forecast is whether we build nuclear generation and at what cost. While we have included in the estimate of CapEx, we are still negotiating to ensure that our nuclear option will be economically viable. What we have included is our projection of free construction costs and some long lead time purchases. Once this issue is resolved, we will update you on the impact to our forecast.

And now I would like to update you on our regulatory matters. In 2008, PSNC plans to file an application with the North Carolina Utilities Commission for a base rate increase and to obtain approval of our customer utilization tracker for the company's residential and commercial rate schedules. Legislation enacted last year by the North Carolina General Assembly authorized the Commission to adopt this type of tracking mechanism in a general rate case proceeding.

PSNC's test year for this case will be the 2007 calendar year. If approved, this utilization tracker will provide the company margin protection against declining average use per customer, should that trend continue. It would also retain weather protection for both the customers and the company, as the average consumption factor is based upon normal weather.

In June of 2007, SCE&G filed an application with the South Carolina Public Service Commission requesting a 6.75% increase in retail electric base rates. That proposed increase was based on 11.75% return on common equity and would have produced approximately $118 million in additional annual revenues.

In December, SCE&G received approval from the Commission for an overall increase in retail electric revenues of approximately $77 million or 4.4%. The company was allowed an 11% ROE. The increase... requested increased was presented to the Commission in October, as part of a settlement agreement reached among SCE&G, the South Carolina Office & Regulatory Staff and all other parties of record. The new rates were effective January 1, 2008.

Since under our current law, the synthetic fuel tax credit program expired at the end of 2007. This is likely the last time, I will provide you with an update on our SCE&G's synthetic fuel tax credits. As you know, these credits have been implied to offset accelerated depreciation related to Lake Murray backup dam.

Based on our analysis of actual and projected oil prices at the end of 2007, we have increased our estimated phase down of synthetic fuel tax credits for 2007 to approximately 67%. This is an increase from our third quarter phase down and is a reflection of the record high oil prices we saw during the year, particularly in the fourth quarter.

Based on this phase down, we have recorded approximately $8 million in accelerated depreciation this year, leaving about $68 million of unrecovered investment. We will continue to accrue a carrying charge on this unrecovered balance, as authorized by the Commission and we will ultimately propose an alternative for the recovery of this investment, probably as part of the general rate proceeding.

And now, I would like to update our earnings guidance for 2008. Consistent with our earlier statements, we currently expect that earnings per share in 2008 will be in the range of $2.90 to $3.05 per share. This guidance assumes normal weather in our electric and natural gas service areas and among other things, the full year impact of the electric rate increase, continued core growth in all our regulated jurisdictions, and effective tax rate of approximately 35%, reflecting the expiration of syn-fuel credits.

Looking out over next the three to five years, we continue to target a long-term earnings growth rate of 4% to 6% annually. We obviously expect 2008 to yield earnings growth at the top and/or even slightly above this range. It's important to remember that this is an average annual earnings growth target, which means that in some years earnings may come in above the range, and in some year below. Our management team has always taken a long-term perspective on earnings growth. So our strategic planning process is focused on generating annual earnings growth that on average, will fall within our targeted range.

Key earnings drivers for our company over the next five years will be additions to rate base in our regulated businesses, driven primarily by capital expenditures for environmental facilities and new generating capacity, and system expansion. Other factors that will impact our future earnings growth include a supportive regulatory environment, maintaining historical levels of customer growth in each of our businesses and maintaining appropriate control over the growth and operation and maintenance expenses.

In closing, 2007 was a successful year for our company in many respects. From an operational perspective, we continued to experience consistent customer growth in our electric and natural gas utility businesses. Our generating plants performed safely, reliably and efficiently, especially during a time of record electricity demand by customers during the late summer.

In our natural gas operations, SCANA Energy maintained its position as the second largest marketer in Georgia, and was selected once again by the Georgia Public Service Commission to serve another two-year term as the State's regulated provider.

In our regulatory arena, we continued to receive reasonable and timely support in each of our utility jurisdictions. In South Carolina, we worked very hard with the Office of Regulatory Staff and other interveners to reach settlement agreements in several cases pending before the State Public Service Commission, including the increases in electric base rates. We also saw important legislation passed in South Carolina, with the Base Load Review Act, which allows for annual revised rate adjustments for CWIP associated with the nuclear construction.

We created additional value for our shareholders by growing GAAP adjusted EPS by nearly 6% and increasing the cash dividend on our common stock by 4.5%. Continuing a pattern that has seen us raise the dividend rate by an average over 6% annually for the past five years. That concludes my prepared remarks. And, I'll now be glad to respond to any questions you may have.

Question And Answer

Operator

[Operator Instructions]. Your first question comes from the line of Micheal Lapides with Goldman Sachs. Please proceed.

Michael Lapides - Goldman Sachs

Hey Jimmy, congratulations on a good quarter and a great year for the company. Want to just touch on rate case timing. I want to make sure I got everything down that you mentioned in the call. So, SCE&G had its case in 07 that goes into effect in '08. When do you think you would file the next case for SCE&G. That's kind of the first question. Then on PSNC; your filling in 08, does that case go into effect by first quarter 2009?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Sure. Michael, thanks for your compliments there. On SCE&G's electric case, it goes into effect January 1 of this year. We've typically been on a two to three-year cycle and I don't see any real need for that to change as far as base rates here. So, I would expect something to fall within that range of two to three years. Obviously that's all needs to be considered within the context of what we do with new generation and how that coordinates with the Base Load Review Act fillings and we will try to coordinate those that make sense for our customers, for the commission, for shareholders et cetera. So, we will try to consider that in addition to it.

At SCE&G gas, you didn't specifically ask for hourly based SCE&G. Recall, we have the Right Stabilization Act that essentially takes a snapshot each year after the winter heating season at the end of March, and takes a new snapshot of your rate base comparison to your earnings during the year and makes any necessary adjustments to bring us back to our allowed ROE of 10.25, if we are outside that range from more than 50 basis points. And with the growth we have here in the South, we are typically seeing that each year since the procedure was in enacted a few years ago.

There is a smaller increase from that each year that's effective November 1 in the beginning of the heating season. Finally, at PSNC, we would expect to file the case about the end of the first quarter here this year and in accordance with the statute, we would have it effective before the begin of the heating season this fall in November 1.

Michael Lapides - Goldman Sachs

Got it. Okay. Thank you Jimmy, much appreciate it.

Jimmy Addison - Senior Vice President and Chief Financial Officer

You are welcome.

Operator

Your next comes from the line of Jonathan Arnold with Merrill Lynch. Please proceed.

Jonathan Arnold - Merrill Lynch

Good morning.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Good morning.

Jonathan Arnold - Merrill Lynch

Quick question on your CapEx disclosures and any initial thoughts on what the recent court ruling on mercury and the EPA rule, could mean as it relates to how you plan to address the coal plants?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Well, as you can tell from our CapEx forecast, we have got what we think we need to have in place now to meet all existing legislation. We are not planning to build any new coal generation. So, our leaning is certainly towards nuclear. We have got a very enthusiastic state year, probably one of the strongest in the country if not the strongest, supporting nuclear. So, that's where our intentions are. We make it economically viable, but we are not aware of any direct impact on our company from the recent discussions.

Jonathan Arnold - Merrill Lynch

So, your disclosures that you could meet the requirements with your existing plants, you still hold even if there is no cap in trade, I guess that's why, on mercury, specifically?

Jimmy Addison - Senior Vice President and Chief Financial Officer

I'll tell you, what I have got Steve Byrne with me who heads our generation unit. Let me let Steve respond to your question.

Stephen A. Byrne - Senior Vice President - Generation, Nuclear and Fossil Hydro-SCE&G

I think the simplest way to answer question is that until we know what the rules are and what the regulations are, we are not going to know whether or not we can meet those rules or regulations. The rules that were proposed under the Mercury Rule in 2005, we felt pretty confident that we would able to easily meet those with the existing scrubbers that we are going to place on some of our largest coal units. That being basically struck, we don't know where we are going with it. So, we will figure out what additional components we might need to add to some of our clients, whom we find on what those rules are.

Jonathan Arnold - Merrill Lynch

Thank you.

Operator

Your next question comes from the line of Steve Fleischman with Catapult. Please proceed.

Steve Fleishman - Catapult Partners

Yes, hi. Couple of questions. First, what was the size of the bankruptcy claim gained in the fourth quarter? Was that about $0.04 because it's typically what you have -- typically on $0.02 in the gas transmission?

Jimmy Addison - Senior Vice President and Chief Financial Officer

That's right Steve, it's about $0.04 to $0.045 and that was two components. It was an interest component for the... since the time of the claim and it was also a couple of years of amortization and what we have done is we have taken that claim and are going to amortize it over the original life of the contract. So, we picked up I'll say two to three years work through the end of 2007 and the balance of that flow through prospectively.

Steve Fleishman - Catapult Partners

Okay.

Jimmy Addison - Senior Vice President and Chief Financial Officer

And amortization which will be slightly above $0.01 a share for the next 12 plus years. So, of course we got all the cash upfront.

Steve Fleishman - Catapult Partners

Okay. Did that mean you... just to clarify, do you have $0.01 benefit for year going forward?

Jimmy Addison - Senior Vice President and Chief Financial Officer

That's right.

Steve Fleishman - Catapult Partners

Okay, got you. And then, secondly any better sense of timing now on when we'll know on the nuclear filing?

Jimmy Addison - Senior Vice President and Chief Financial Officer

You know that's a difficult question to answer, because it's like building a house when you think you're not 90% complete. But you don't really know until you are finished. It's a serious cooperative negotiations process. My best answer for you today Steve is, I would certainly hope it would be by midyear. And I am hopeful that will be even before that. But we are only one side of that discussion. And so, I really can't be sure about that.

Steve Fleishman - Catapult Partners

Okay. And then finally on PSNC. What did that entity earn on equity in 2007?

Jimmy Addison - Senior Vice President and Chief Financial Officer

I believe it was around 8.5%. Just a minute, I've got it here Steve. Yes, it was about 8.8%

Steve Fleishman - Catapult Partners

Okay. Thank you.

Jimmy Addison - Senior Vice President and Chief Financial Officer

You're welcome.

Operator

Your next question comes from the line of Paul Patterson of Glen Rock Associates. Please proceed.

Paul Patterson - Glen Rock Associates

Hi. How are you doing?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Good Paul. Hope you are.

Paul Patterson - Glen Rock Associates

All right. I wanted to just follow-up on the PSNC. What was the equity level that you guys have in it right now?

Jimmy Addison - Senior Vice President and Chief Financial Officer

I don't have that with me Paul, but it would generally be in the... around the 50% range. But I don't know the precise number.

Paul Patterson - Glen Rock Associates

Okay. And then on the nuclear side, what are we looking at in terms of... could you give us a little bit more flavor as to how much the cost have risen?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Well, it depends on when you start from. They have... from our initial theoretical discussions, they've probably doubled. But that was really early in the process, before there was the lot of substance to it at all. And I guess what's really important is how do they compare today versus alternatives. And that's what's critical. The comparison against coal is obviously not just a financial comparison; it's an environmental comparison of public relations et cetera comparison. But we tend to model it most frequently against a combined cycle gas plant. And that's what's most critical to us is how does it compare today.

Paul Patterson - Glen Rock Associates

Okay. But could you give us sort of a flavor as to price per KW that we are now looking at?

Jimmy Addison - Senior Vice President and Chief Financial Officer

No, really in the spirit of the negotiations and that kind of protection of that Paul, I prefer to keep that to ourselves, until we can come out with the full plan for you.

Paul Patterson - Glen Rock Associates

Okay. But... then in terms of the CapEx projections that you got for 2008 through 2010, what kind of number are we... what was... what is that based on I guess, in terms of you said most of that's associated with the new nuke. What is the amount of the cost associated with that, that's embedded in that, I guess?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Well, qualitatively I'll tell you that a lot of it has to do obviously with the licensing, with construction, planning, engineering and designing. And then the initial parts of commitments for long lead-time equipments, if we were to sign a contract, site development work, and staffing, training things of that nature. But I really prefer not to get into any specific estimates of dollar per KW, that kind of thing at this point till we can bring back a package to you.

Paul Patterson - Glen Rock Associates

Okay, fair enough. But it's safe to assume that this CapEx number through 2010 has little to do with the actual cost of the actual plant. It's more to do with the preparation of the plant is that?

Jimmy Addison - Senior Vice President and Chief Financial Officer

I would not say that Paul. If you look especially in the third year out. If you look on that schedule we have posted on the web there, in 2010 you see a significant uptick from the $120 million to $180 million range to two prior years up to $450 million. So we are starting this see some commitments there for long lead-time materials especially.

Paul Patterson - Glen Rock Associates

Okay. Okay, I appreciate it. Thanks a lot guys.

Jimmy Addison - Senior Vice President and Chief Financial Officer

I wish, I could give you more on that and hopefully, we will be able to in the near future.

Paul Patterson - Glen Rock Associates

Excellent. Thanks.

Jimmy Addison - Senior Vice President and Chief Financial Officer

You're welcome.

Operator

Your next question comes from line of Raymond Neuwalt [ph] with Goldman Sachs. Please proceed.

Unidentified Analyst

Hey, good morning guys.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Good morning.

Unidentified Analyst

Couple of questions on, given that you have a you've got to fairly sizeable CapEx budget, as well as looking at your short-term debt balance and that's pretty high rate now. And that should be attributed partly to working capital for gas. But can you go through a little bit your financing plans, your covered shortfall of your future CapEx budgets? And how does hybrid and equity plays into any debt financing?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Sure, glad to. First of all, the short-term was up pretty good at year end, but within the first couple of weeks of January we did $250 million first mortgage bond deal at SCE&G to pull that short-term down substantially. We also have plans this year to do a medium term note deal at SCANA to basically refinance a couple of maturities that are out there. We got maturities that are in excess of $200 million. We'll likely round it up to about $250 million. That's essentially a re-fi deal there.

And then, for the balance of the year our current plans are to do financings at... additional financings at SCE&G and at South Carolina Generating Company, mainly to finance the ongoing construction costs of the scrubbers, we've disclosed earlier and have been in our CapEx program.

As to hybrids, we don't have any current plans for hybrids, but we will certainly keep our options open as we look at the development of the CapEx program down the road. And to really talk about equity, we've got to have more certainty to this whole nuclear issue. We've got to have that plan come together to determine if we need equity and if so, at what time.

You can see that the Nuclear CapEx forecast is not substantial this year, the $121 million creeps on up to 180 next year. But the big hump is at in 2010. So when we come back to you with our full plan on nuclear, we expect to really be able to make some sense of the financing plan at that point beyond what I've told you earlier, which is fairly firm related to SCANA and the pollution control facilities at the SCE&G and GENCO plants.

Unidentified Analyst

All right, okay. And what's the timing of that nuclear plant? Again, I am sorry.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Well, my estimate is we'd like to be do by middle of the year, hopefully even before then. But it's a very involved negotiations process and we only control one side of that. So we'll be back to you hopefully in that timeframe.

Unidentified Analyst

Right, thank you very much.

Jimmy Addison - Senior Vice President and Chief Financial Officer

You're welcome.

Operator

[Operator Instructions]. Your next question comes from the line of Ashar Khan with SAC Capital. Please proceed.

Ashar Khan - SAC Capital

Hi, Jimmy. One thing you mentioned is that at some point the nuclear might not become economically viable. Could you a little bit elaborate on that comment, what is it that that will make it economically unviable? At what level?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Well, there are at least two moving parts to that. And as I said earlier, our most frequent comparison in our models is compared to a combined cycled gas plant. So that's what we would model most often. But if both sides of that are moving at any one point in time based on your assumptions. What are your assumptions for carbon tax potential in the future? What are your assumptions for the cost of gas? Those kind of things make the... make the competition challenging. So it's really a moving target compared to your other alternatives.

Ashar Khan - SAC Capital

So, what do you think a combined cycle costs you right now? Can I ask you? In your models.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Roughly a $1000 of KW.

Ashar Khan - SAC Capital

So, of course nuclear is going to be more than that. So where does it become economically unviable, four times, five times or at what level?

Jimmy Addison - Senior Vice President and Chief Financial Officer

I wish it were as simple as isolating it to the capital cost. But its not. You've got to try to assume what the cost of gases operate combined cycle plant. You've got to make some assumption around the carbon tax. You've got a lot of moving parts to that. So, it's not as simple as saying it's a 3X or 4X or 5X. And then of course you got to compare the lower cost of potential for nuclear fuel in the future. So, it's a very complex-modeling process.

Ashar Khan - SAC Capital

Okay. So, can we say right now that, as you sit right now it is economically viable depending upon the final results that you'll get in the next three or four months. Is that the way you are progressing?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Well we hope it is. I would say that the delay over the last few months has been over that very delicate balance.

Ashar Khan - SAC Capital

Okay, okay. And then, if I can just end up going from 07 to 08, I guess should we take like this gain which Steve mentioned as being a one-time of at least 3% because you said $0.01 of it is repeating... going to be repeating for the next 12 years. So, like $0.03, $0.035 of it is I guess not repeating. Is that the way to look at it?

Jimmy Addison - Senior Vice President and Chief Financial Officer

That's right.

Ashar Khan - SAC Capital

Okay. And then going from 07 to 08 to achieve the guidance. Is all the... majority of the earnings growth coming out the electric company, driven by the rate case? Is that where all the growth is?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Substantial amount is in the electric company. Of course, we had a down year in Georgia due to volumes, with a mild winter at the beginning of '07, a mild winter at the end '07. So everything else being equal in that market. And it's a dynamic market, but everything else being equal we would expect some growth over actual results in Georgia as well.

Ashar Khan - SAC Capital

Georgia as well.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Yes.

Ashar Khan - SAC Capital

And the gas company you said earns of course in SCANA. But PSNC, the impact of the rate case should be minimal right, because you said it's going to start in November right?

Jimmy Addison - Senior Vice President and Chief Financial Officer

That's right. For 2008 it should be minimal. Although November, December are a couple of the stronger months. But we would expect no more than a penny or two impact '08.

Ashar Khan - SAC Capital

Okay. I appreciate it.

Jimmy Addison - Senior Vice President and Chief Financial Officer

You're welcome.

Operator

Your next question comes from the line of Travis Miller from Morningstar. Please proceed.

Travis Miller - Morningstar

Hi, good morning.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Good morning.

Travis Miller - Morningstar

Actually Paul started to ask my questions on nuclear, but I'll follow-up real quick with an additional one. Can you give us a good idea of where you are seeing the biggest cost increase in the nuclear construction, seeing in materials, in components and labor, the biggest coming from?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Let me let Steve respond to that.

Stephen A. Byrne - Senior Vice President - Generation, Nuclear and Fossil Hydro-SCE&G

Good morning. The biggest increases that we are seeing would impact any form of new generation of that we would look to cite. They are basically commodity driven. Things like concrete, steel, copper; we are seeing significant increases in last few years and on the price of those. Those would impact any form of generation.

But we are also seeing some increase in the labor market and what our vendors are anticipating are the potential for attracting labor to these projects and what do we take to keep that labor on the project.

Travis Miller - Morningstar

Okay, so in your forecast through 2010, are those costs that you are forecasting, are those the ones that are volatile at all. It sounds like some of the costs that you are saying are most volatile are the ones in maybe 2011, 2012.

Stephen A. Byrne - Senior Vice President - Generation, Nuclear and Fossil Hydro-SCE&G

That's correct. The ones that we are forecasting for the next couple of years, really are fairly well nailed down. We just need to... if you want to get a plant cited out in the online in 2016ish timeframe you really need to order a long lead materials now. So, a lot of the costs that we have got for those long lead materials and are placing orders for the long lead materials. So, you get your place in line with the forgers.

Travis Miller - Morningstar

Okay, what are some of those long lead materials?

Stephen A. Byrne - Senior Vice President - Generation, Nuclear and Fossil Hydro-SCE&G

Things like reactor vessels, steam generators.

Travis Miller - Morningstar

Okay. Great, thanks a lot.

Jimmy Addison - Senior Vice President and Chief Financial Officer

You are welcome.

Operator

[Operator Instructions].Your next question is a follow-up from the line of Michael Lapides with Goldman Sachs. Please proceed.

Michael Lapides - Goldman Sachs

Hey guys, just thinking about the electric side at SCE&G. Even though you've got the rate increase, it appears that in 08 you will have slightly higher O&M costs. You will have higher financing costs as you fund your CapEx program. Are you concerned about your ability to actually earn your allowed levels of returns and how much is AFUDC as a component of the total expected earnings out of SCE&G in 2008?

Jimmy Addison - Senior Vice President and Chief Financial Officer

Okay, Michael. Well, first of all AFUDC in 2007 was about $20 million. If you'd include in that definition, the carrying cost that we earn on the un-recovered balance in the dam. I don't have the number for 2008 in front of me, but I believe it is up in the upper 20s. So, there is some growth in that as well. When you are fortunate enough to be in the territories like we are in the... with our regulated business in Carolina, where we continue to see great growth of 2% up to 3.5% to 4% in the different territories, it is very difficult to ever hit your allowed ROEs, because as soon as you put them into effect with the historical test here, that we have in all of our jurisdictions, with attrition you are already putting new steel in the ground or above the ground in wires et cetera and you are rarely going to hit those allowed returns

The key to our business is to maintain the strong growth in our territories, including the economic development and to get timely, reasonable recovery from the regulators. And that's what we have been able to demonstrate, we think over the last several years. So, you might be right at it, but the only time you are really going to exceed it is if you have something abnormal in weather.

Michael Lapides - Goldman Sachs

Got it. Thank you guys.

Jimmy Addison - Senior Vice President and Chief Financial Officer

You are welcome.

Operator

At this time, there are no further questions in queue. I will now turn the call over Mr. Jimmy Addison for final remarks.

Jimmy Addison - Senior Vice President and Chief Financial Officer

Well, thank you. I want to thank everyone for your interest today and that we have a lot going on, there is a lot we hope to update you on soon with generation. In summary, we think we had a good 2007 coming off at disappointing 2006 and are poised for a very growth in 2008. We look forward to your continued interest. Thanks.

Operator

Thank you for your participation in today's conference, ladies and gentlemen. All parties may now disconnect. Enjoy your day.

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Source: SCANA Corp. Q4 2007 Earnings Call Transcript
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