SCANA Corporation (SCG)

Q2 2010 Earnings Call Transcript

July 29, 2010 2:00 pm ET


Byron Hinson – Director, Financial Planning & IR

Jimmy Addison – SVP and CFO

Kevin Marsh – President and COO of SCE&G


Ashar Khan – Visium [ph]

Paul Patterson – Glenrock Associates

Chris Ellinghaus – Wellington Shields

Dan Jenkins – State of Wisconsin Board

Jonathan Reeder – Wells Fargo

David Paz – BofA/Merrill Lynch



Good afternoon, ladies and gentlemen, thank you for standing by. My name is Ann and I will be your conference facilitator for today. At this time, I would like to welcome everyone to the SCANA Corporation conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions)

As a reminder, this conference call is being recorded on Thursday, July 29, 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.

Byron Hinson

Thanks, Ann; 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 second quarter of 2010. In a moment, Jimmy Addison, SCANA's Chief Financial Officer and Kevin Marsh, President of SCE&G will review those results and respond to questions. The earnings press release that we will refer to in this call is available at

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 that could show and reflect to and as 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

Thanks, Byron; and good afternoon. I would also like to welcome each of few to our call. Let us start on slide three, which reflects SCANA's second quarter earnings of $0.43 per share compared to $0.45 per share in 2009. This $0.02 decline was due primarily to the impact of higher property factors, interest, slightly higher O&M expenses, and sheer dilution, which more than offset improved electric margins driven by favorable weather, customer growth, and electric base rate increases under the Base Load Review Act.

Additionally, second quarter earnings were negatively impacted $0.03 from income taxes due to a change in income tax accounting for capital maintenance. The change in accounting affects certain types of costs previously accreted as property additions and deducted through depreciation, which will instead be treated as current expenses for income tax purposes. This change is expected to eliminate taxable income on our 2009 income tax returns, and as a result, is expected to provide approximately $100 million of cash benefit, primarily to be realized over the next year, as our 2010 estimated income tax payments are reduced. The only downside is that the elimination of taxable income will result in the loss of an unrelated deduction, hence the $0.03 one-time charge in Q2. This improved cash flow from the deferral of taxes will be used to mitigate external capital requirements. Initially, it may allow us to defer the planned takedowns under our equity-forward transaction to help minimize dilution, but ultimately, we expect to further strengthen the balance sheet by reducing planned debt issuances.

Earnings for the first six months of 2010 were $1.45 per share compared to $1.39 per share in 2009. This $0.06 per share year-to-date increase in earnings is due to improved first-quarter earnings in our non-regulated retail and natural gas marketing business in Georgia, and customer growth in our regulated businesses, which resulted in improved electric and natural gas margins, more than offsetting higher O&M and interest expenses, property and income taxes, and dilution.

Although quarterly earnings were down slightly compared to last year, they would have been up if not for the elective change in taxes and we are pleased to see continued signs of economic recovery in our service territory. As shown on slide four, kilowatt hour sales of electricity to our retail customers in the second quarter of 2010 were up 7.3% compared to the same quarter in 2009, with all classes showing nice increases, while industrials rose an impressive 14.8%. Overall, total kilowatt hour sales of electricity, which includes sales to other utilities, were up 5.3%. Of course, weather contributed to the residential and commercial increase, with core growth and the industrial improvement providing the balance.

On slide five, consolidated therm sales were down 1.1%, driven by lower residential, commercial, and sales for resale. We may recall, we had a cold April last year, which resulted in higher volumes compared to this year's very warm second quarter. This weather-driven decline more than offset strong industrial sales, which are up 3.9% compared to last year. We are very encouraged by these quarterly and year-to-date sales results, and are cautiously optimistic the recovery will continue.

Please turn to slide six to review our financing plan. In May, we completed a significant financial goal with the successful execution of our $300 million equity-forward offering. This forward offering is unique for several reasons, including that we were able to parse the offering on May 11 at 93% of our 52-week high, just five days after the infamous flash crash, where we saw some of the highest volatility in the financial markets this year. Completing this particular financing structure allows us the flexibility to efficiently match our equity needs, with the timing of required capital for our nuclear projects, and to reduce financing risk, while minimizing share dilution, and raising the equity necessary to maintain our targeted capitalization ratios. Under the terms of this offering, we drew nearly $60 million in equity in the second quarter. Initial plans are to draw an additional $90 million in late 2010 and the balance of $150 million in 2011. The exact dates of the additional draws are subject to our actual operating results and additional sources of cash, both of which appear more favorable than a few months ago, given the economy, and the tax change I discussed earlier.

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