SCANA Corporation (
Q3 2010 Earnings Call
October 27, 2010, 2:00 p.m. ET
Byron Hinson – Director, Financial Planning & IR
Jimmy Addison – SVP and CFO
Kevin Marsh – President and COO of SCE&G
Michael Lapides – Goldman Sachs
Mark Declasit [ph] – FBR Capital Markets
Jim Van Riceman – UBS
Chris Ellinghaus – Wellington Shields
Jairo Chung – Oppenheimer & Co.
Good afternoon, Ladies and Gentlemen. Thank you for standing by. My name is Towanda, and I will be your conference facilitator today.
At this time, I would like to welcome everyone to the SCANA Corporation Conference Call. (Operator instructions)
Previous Statements by SCG
» SCANA Corporation Q2 2010 Earnings Call Transcript
» SCANA Corp. Q1 2010 Earnings Call Transcript
» SCANA Q4 2009 Earnings Call Transcript
» SCANA Corporation Q3 2009 Earnings Call Transcript
As a reminder, this conference call is being recorded on Wednesday, October 27, 2010. Anyone who does not consent the taping may drop off the line at this time.
I would now like to turn the call over to Byron Hinson, Director of Financial Planning and Investor Relations. Please proceed.
Thanks, Towanda, and welcome to our Earnings Conference Call, including those who are joining us on the webcast.
As you know, earlier today we announced financial results for the third quarter of 2010 and in a minute, Jimmy Addison, SCANA's Chief Financial Officer and Kevin Marsh, President of SCE&G will review those results and respond to your questions. Slides and the earnings release that we’ll refer to in these calls are available at SCANA.com.
As a reminder, 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, which are shown on Slide 2 and 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.
Thanks Byron, and good afternoon. I’d also like to welcome each of you to our call. Let’s start on Slide 3, which reflects SCANA’s third quarter basic earnings per share of $0.80 compared to $0.84 per share in 2009. The decline in third quarter earnings was due primarily to the resolution of a State income tax issue which contributed $0.11 per share in 2009.
Other major variants for the third quarter were improved electric margins resulting from electric base rate increases under the Base Load Review Act, and the Retail Electric Rate Case, which more than offset higher net interest expense, higher property taxes, slightly higher O&M expenses, and share dilution.
With regard to the state income tax issue, SCANA recognized the benefit of a favorable decision from the South Carolina Supreme Court, in the third quarter of 2009. This decision related to state investment tax credits earned during construction of our co plant in 1996. Prior to this Supreme Court decision, and pursuant to the relevant accounting literature concerning income tax uncertainties, the value of the contestant credit had not been reflected in our income statement.
The multi-year catch-up resulted in $0.11 per share impact in the third quarter of 2009.
Additionally, in the third quarter of 2010, we implemented the Electric Weather Normalization mechanism beginning with bills rendering in August. The mechanism applies to residential and commercial customers and resulted in a residential credit of $24 million or $0.12 per share and a commercial credit of $4 million or $0.02 per share during the quarter. As a result of the W&A mechanisms at SCE&G, both electric and gas, and the PSNC Customer Utilization Tracker, our prospective regulated earnings which comprise over 90% of our total, are more predictable for our shareholders and the effects of abnormal weather on customers’ bills are mitigated.
Let me briefly comment on the presentation of basic and diluted earnings per share as mentioned in Note 2. As you’re aware, in May we entered an equity-forward to provide for the balance of our equity needs for 2010 and 2011 to support our construction program.
Basic earnings per share reflect the shares we have actually issued during the year. In contrast, diluted earnings per share include the effect of a calculated number of a potential, or incremental shares that would have been outstanding if we had issued the shares under the forward contracts.
That small incremental number or additional share and the denominator results in diluted EPS being marginally lower than basic EPS. In this quarter, the difference amounted to $0.01 per share. If our stock price stays above contract forward price, we expect similar small amounts of potential dilution over the next few quarters.
Basic earnings for the first nine months of 2010 were 225 per share compared to 223 in 2009, which again, included $0.11 per share related to the state income tax issue. The year-to-date increase in earnings was driven primarily by improved electric and gas margins due to regulatory outcomes and customer growth.
I’ll comment more on customer growth later, but it’s important to note that each of our four major retail businesses continue to add customers compared to last year. These margins improvements were offset by higher interest expense, higher property taxes, slightly higher O&M expenses, and share dilution.
We’re pleased to see continued signs of economic recovery in our service territory. As shown on Slide 4, kilowatt hour sales of electricity to our retail customers in the third quarter were up 8.4% compared to the same quarter in 2009. The residential class showed an increase of 10.8%, while industrial and commercial classes followed with increases of 8.4 and 5.9% respectfully.