Executives
Bryan D. Hatchell - IR Manager
Jimmy Addison - Sr. VP and CFO
Stephen A. Byrne - Sr. VP Generation, Nuclear and Fossil Hydro South Carolina Electric & Gas Company
Analysts
Michael Lapides - Goldman Sachs
SCANA Corporation (SCG) Q2 FY08 Earnings Call August 1, 2008 10:00 AM ET
Operator
Good morning, ladies and gentlemen, thank you, for standing by. My name is Cindy and I will be you conference facilitator today. At this time I would like to welcome every one to SCANA Corporation Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remark there will be a question-and-answer period. [Operator Instructions]. As a reminder this conference call is being recorded on Friday, August 1, 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 SCANA's Investor Relation Manager, Bryan Hatchell. Please proceed.
Bryan D. Hatchell - Investor Relations Manager
Good morning, I'd like to welcome everyone to our earnings conference call including those of you who are joining us one the webcast. Earlier today we announced financial results for the second quarter of 2008 and in just a minute Jimmy Addison, our Senior Vice President and Chief Financial Officer will review those results and respond to your questions. The earnings press release that we will refer to in this conference call is available on our website at scana.com. I'd like to also remind everyone that certain statements that maybe 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 fillings. 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 Bryan, and good morning to all. I would also like to welcome each of you to our call.
Earlier today we've reported second quarter earnings of $0.48 per share up from $0.47 in the second quarter of 2007. We saw positive earnings impact in the quarter from continued electric and natural gas customer growth and from the 4.4% retail electric rate increase that was effective in January, which more than offset higher operating and maintenance expenses, higher property taxes due to increased capital expenditures, additional net interest expense related to new long-term debt and the pricing settlement at SCANA Energy, Georgia. I'll talk more about this settlement in a few minutes.
For the first six months of 2008 we reported earnings of $1.42 per share compared, to $1.20 per share for the same period in 2007. This year-to-date $0.22 per share increases earning and earnings is driven primarily by strong customer growth in both Carolinas, the impact of the retail electric rate increase in South Carolina, favorable results in industrial and wholesale categories, and improved earnings in our retail natural gas marketing business in Georgia.
Table summarizing earnings variances and sales metrics for the quarter and year-to-date are provided in the earnings press release.
Now I'd like to review second quarter results for our major subsidiaries; South Carolina Electric & Gas Company reported earnings of $0.52 per share for the second quarter, up from $0.46 per share in the same quarter last year. That increase was due primarily to electric and natural gas customer growth and the retail electric rate increase which was effective January 1st. We would expect to see a similar and favorable impact from these two factors continuing through the end of 2008.
Operationally I'm pleased to report the V.C. Summer Nuclear Station returned to service on June 16th following a scheduled refueling and maintenance outage. The outage was completed on budget and there were no material problems or safety issues identified. At June 30th rate base for SCE&G was approximately $4.4 billion and for SCE&G gas was approximately $396 million, those were at the end of the first quarter as that's the latest data we have. Also in June SCE&G submitted it's quarterly filing to the Public Service Commission of South Carolina as required under the Natural Gas Rate Stabilization Act. In that filing the company reported that it's return on common equity for the 12 month period ended March 31, 2008 was 8.87% compared, to an allowed return of 10.25%.
Since the actual return on equity was more than 50 basis points below the allowed return and as provided by the act SCE&G requested a 0.87% increase in its rates in order to return the company's regulatory ROE on a pro forma basis to the 10.25% authorized level. This request would produce an estimated $4.7 million annually. Following a required audit of the company's filing by the Office of Regulatory Staff, the PSC will review both the company's request and the ORS audit report and issue its order in October. The rate adjustment would be effective for the first billing cycle in November.
PSNC Energy, our retail natural gas distribution company in North Carolina reported a seasonal loss of $1 million or $0.01 per share in the second quarter of 2008 unchanged from the same quarter of last year. Rate base for PSNC at March 31st was approximately $702 million. This business continues to run smoothly and we would expect similar earnings results in the remainder of 2008 to those we saw in the second half of last year.
As most of you are aware on March 31st PSNC Energy filed an application with the North Carolina Utilities Commission requesting an increase in the company's retail natural gas base rates of approximately $20 million or 2.99%. One new element in this application is PSNC's request to implement a customer usage tracker also called a CUT, which is a rate decoupling mechanism that breaks the link between revenues and the amount of natural gas sold. If approved the CUT would apply to residential and commercial customers and would allow the company to periodically adjust its base rates as customer consumption changes. The process is proceeding on schedule and hearings on the company's request are expected to be held within the next several weeks. If approved the request of rates would go into effect in November of this year.
Carolina Gas Transmission, our interstate natural gas transmission subsidiaries reported earnings of $0.02 per share unchanged from the same quarter of last year. Rate base at March 31st was approximately $163 million. Given the volatility we've seen in natural gas prices we are pleased with earning stability we've seen at SCE&G [ph] through the implementation of it's transportation only business model. We expect to see it's earnings remaining very consistent going forward and we forecast $0.07 per share in earnings for our full 2008.
SCANA Energy, our retailer natural gas marketing business in Georgia recorded a loss of $1 million or $0.01 per share in the second quarter of 2008 compared, to the earnings of $1 million or $0.01 per share in the same quarter last year. The $0.02 decline was primarily driven by June settlement that was reached between SCANA Energy and the Georgia Public Service Commission related to an issue raised in early 2008 about our variable pricing plans.
Under the terms of the agreement applicable SCANA Energy customers are eligible for billing credits of up to $25 for any inconvenience that multiple pricing options may have caused. The total amount of credits will be kept at $1.25 million despite the negative impact of the pricing settlement and related costs we are still ahead of 2007 year-to-date, for the full year 2008 we expect SCANA Energy to earn between $0.03 to $0.05 more than it did last year or $0.27 to $0.29 per share. This of course is based on normal weather for the remainder of the year.
SCANA's corporate and other businesses which include SCANA Communications, Service Care, SCANA Energy Marketing and the holding company reported a combined loss of $0.04 per share in the second quarter of 2008 compared, to a loss of $0.01 per share in the same quarter last year. The decline was driven primarily by higher net interest expense due to the issuance of long-term debt in early 2008.
We are pleased to note that we have completed several significant financings in the first half of 2008. We successfully executed sales of SCANA medium term notes and in the electric business SCE&G first mortgage bonds, and GENCO private placement notes. In aggregate these financings were used to reduce our short-term indebtedness and for general corporate purposes.
Additionally, we anticipate approximately $400 million in financings in the second half of the year, primarily related to pollution control facilities we are installing on two fossil plants and for our new nuclear investment. In these dynamic financial times we are focused on maintaining significant short-term liquidity and in fact have set an internal target of not exceeding 50% of the liquidity available throughout $1.1 billion credit facility. When we approach these levels we finance a portion of our variable short-term indebtedness into fixed long-term debt. As we've said before one of our most important financial goals during the upcoming construction process is to maintain SCANA's investment grade credit ratings. Accordingly, we will be focused on various credit metrics including a debt to total capital ratio range of 54% to 57%. To help us maintain this targeted cap structure effective July 1st of this year shares of the company's common stock purchased on behalf of participants and our investor plus plan and our 41K plan are being acquired directly from the company rather than on the open market. This will provide an estimated $45 million of additional equity during 2008 and about twice that amount annually for 2009 and forward.
We anticipate keeping this strategy in place for the foreseeable future due to the anticipated construction. The minimally dilutive effect of these shares has been considered in both our 2008 earnings guidance and long-term earnings targets. Looking ahead for the remainder of 2008 we are reaffirming our previous earnings guidance of $2.90 to $3.05 per share, as we're pleased with our year-to-date results and are slightly ahead of our internal plan. This estimate assumes normal weather in our service areas for the remainder of the year and excludes any potential or impact from changes in accounting principles and gains or losses from certain investing activities, litigation and sales of assets. Other factors that may impact future earnings are discussed in our SEC filings.
Finally just a brief update on the state regulatory status of our new nuclear initiative. In May, SCE&G filed a combined application for a certificate of environmental compatibility, public convenience and necessity and for a Base Load Review Order with the South Carolina, Public Service Commission and the South Carolina Office of Regulatory Staff. The application was filed under provisions of the Base Load Review Act or BLRA, a state law enacted in 2007 to add structure and consistency to the process.
Hearings in this case are scheduled to begin in the week of October 27th and by law an order must be issued by February of 2009. For those of you who are interested in SCANA's new nuclear strategy, a complete electronic copy of our BLRA filing as well as a detailed presentation are available on our website under our Investor Relations section. I strongly encourage you to listen to this webcast as this component is core to our strategy, as always we will update you on the status of this application as the process continues.
In summary, we've had a good quarter. Core growth in our territories is consistently strong and we look forward to the successful outcome of the gas rate case in North Carolina and the both the Base Load Review application and the gas rate filing in South Carolina. Are focused on our nuclear efforts; our team is equally focused on continuing to execute the fundamentals of our core businesses.
That concludes our prepared remarks and I will now respond to any questions you might have.
Question And Answer
Operator
[Operator Instructions]. Your first question will come from the line of Steve Priceman [ph] of Catapult. Please proceed.
Unidentified Analyst
Yes, hi, gentlemen how are you?
Jimmy Addison - Senior Vice President and Chief Financial Officer
Great.
Unidentified Analyst
You mentioned I think you said you're maintaining your guidance but you're kind of ahead of your internal plan?
Jimmy Addison - Senior Vice President and Chief Financial Officer
Right.
Unidentified Analyst
Are you basically just watching the weather and such and just seeing, what if any concerns do you have in second half of the year, because it does look like you're potentially at the top end or beating this range.
Jimmy Addison - Senior Vice President and Chief Financial Officer
Yes, Steve, obliviously the weather is a huge factor particularly the third quarter our electric business and the fourth quarter in our gas business. So it's way too early to consider changing the guidance, we're solidly in our range at this point, if we had normal weather for the balance of the year we would project to be in the range. But we are slightly ahead of our plan at this point.
Unidentified Analyst
Okay, could you just give us a sense of how the economy in your service area is doing?
Jimmy Addison - Senior Vice President and Chief Financial Officer
Yes, Steve we seem to be doing based on the governmental information that I released here locally in the State of South Carolina and the States of North Carolina, Georgia we seem to be doing somewhat better than the national averages. For example, foreclosures here in South Carolina, our main territory are much lower in the housing market than is the national average. We continue to see good customer growth on the system, you see in our supplemental metrics there were up 2.1% over this point last year.
Not a lot of growth over the last three months in our electric business, but very consistent with last year's second quarter. There is not a tremendous amount of growth that typically happens in that period. The industrials and commercials are still holding up well up over 1% each, year-to-date and electric consumption with fairly comparable weather between the two years. So things seem to be going better here than the national results.
Unidentified Analyst
Okay.
Jimmy Addison - Senior Vice President and Chief Financial Officer
One other bit of information, I was looking at our top industrial customers that we forecast consumption individually buy [ph] and about two-thirds of our top 20 or so customers have used more energy this year on a KW basis not just a pricing basis because we had an increase but more energy is issued than they did last year and take note there is a positive sign in this table [ph].
Unidentified Analyst
Yes, one other question just in the quarter I know you had a scheduled summer you clear outage?
Jimmy Addison - Senior Vice President and Chief Financial Officer
Yes.
Unidentified Analyst
Any sense on how much that effect the quarter you do on cost around lost wholesale sales?
Jimmy Addison - Senior Vice President and Chief Financial Officer
Yes, we are not on cost, we actually came in under our budget on cost and you're probably familiar but our process I am sure it's similar to most others in the industry. As we accrue that cost over the preceding 18 months when we are selling the energy out of the plant when it's running. So all of that cost is accrued rightably during the period that the plant is running.
If you look at our statistics on the last page there you'll see our wholesale sales are down about 19% over the second quarter of '07 and that's pretty typical when we got the summer plant down for an outage whether it's in the spring or the fall dependent upon what rotation it's in. So that would be the main contributor in... I don't have an estimate of those dollars but it might be a penny of shares something like that estimate.
Unidentified Analyst
Okay, great, thank you.
Jimmy Addison - Senior Vice President and Chief Financial Officer
You're welcome. Thank you.
Operator
Your next question will be from the line of Michael Lapides of Goldman Sachs. Please proceed.
Michael Lapides - Goldman Sachs
Hi, congrats on a good quarter. Can I question that the AP1000 just real quickly I understand and just really looking for some clarity here. I understand that it was one of the ones pre-certified but that then they had to file meaning they being in Westinghouse had to file an amendment to it and now the NRC is going through the amendment. What is that they are being forced to file an amendment due to the pre-certification status of the AP1000?
Jimmy Addison - Senior Vice President and Chief Financial Officer
What was the last part of your question Mike?
Michael Lapides - Goldman Sachs
What does the fact that they had to file an amendment to the original application for pre-certification? What does that do to the pre-certification status of the AP1000?
Jimmy Addison - Senior Vice President and Chief Financial Officer
Yes, Michael frankly I am not the expert on that. But my response would be that it is the only design as I'm aware that was pre-certified. So I believe we'll still be in good state in relation to the other alternatives that were out there, other than Westinghouse. So I would think we're still in good shape there. We expect to stay on target, everything we have heard from the NRCs we should expect to be on target for that approval about three years from now.
Michael Lapides - Goldman Sachs
Okay, so the pre certification status for the AP1000 hasn't changed even though in the last four or five months they've had to file meaning Westinghouse has had the filing amendments to the original application?
Jimmy Addison - Senior Vice President and Chief Financial Officer
Yes, I'd tell you what Michael, Steve Byrne, our in-charge [ph] of that business you met before us. Steve just walked in and I might get you to repeat that question for Steve I will try to pair for it. Steve you can give us some additional background. Steve they were asking, Michael was asking about the amendments that had to filed to the AP1000 and whether or not they might have any impact on the pre-certification and the timing.
Stephen A. Byrne - Senior Vice President Generation, Nuclear and Fossil Hydro South Carolina Electric & Gas Company
Yes, the certification process goes in kind of tears [ph] and the certification of the AP1000, which is still the only certified design really is it a relatively high level. So they would say that we have a valve that valve will isolate in 10 seconds. When they go and do the more detailed design they find that it maybe difficult to procure valve they will close in 10 seconds, but they can readily get one that closes in 11. And 11 doesn't change anything in the accident analysis, so they change the designs the 11 seconds.
So those are the kind of things that will go into a revision to a design certification. Though the NRC is currently reviewing the design certification DCD-16 from Westinghouse. And this may not be the last DCD change or rental rev that goes in. But this is a process of the commission and Westinghouse requested to. Now will have an impact on our schedule, we don't believe that it will.
Michael Lapides - Goldman Sachs
Okay, thank you guys.
Jimmy Addison - Senior Vice President and Chief Financial Officer
All right. Thanks, Michael.
Operator
[Operator Instructions]. And I currently show no more questions at this time. I'll turn the call over to Jimmy Addison for closing remarks.
Jimmy Addison - Senior Vice President and Chief Financial Officer
Well we appreciate all of your interest today. We're very pleased with we are year-to-date in both in our earnings and operations of our fundamental businesses and we're excited of where we are in our new nuclear process, we will definitely stay in touch with you both during and at the end of the next quarter. Thank you.
Operator
Thank you for your participation in today's conference. This does conclude our presentation. And you may now disconnect. Have a wonderful day.
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!