SCEG OATT Formula Transmission Rate Filing.pdf - SCANA ...

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Exhibit No. SCE-3(A)
Research Update: SCANA Corp. Downgraded To 'BBB+' From 'A-' On Planned Nuclear Plants Construction
mechanisms and adequate allowed returns; attractive markets with above-average
customer growth; some operating diversity with a presence in two states; and a
favorable operating record for its electricity generation facilities. SCANA's
regulated operations account for about 90% of consolidated cash flows.
SCANA's consolidated financial risk profile is aggressive. For 2008,
adjusted funds from operations were $714.3 million and adjusted total debt was
$5.16 billion. Credit metrics have weakened from prior years' levels, in large
part due to a significant increase in debt to fund capital spending which
totaled $914 million in 2008. Adjusted funds from operations (FFO) interest
coverage was 3.4x, adjusted FFO to total debt was 13.8% and adjusted total
debt to total capital was 62.5%. The expected capital spending program is
significant with about $1.2 billion annually in 2009 and 2010 and $1.4 billion
in 20'11, a material portion of which will be for the proposed nuclear plants.
The large capital spending program contributes to the aggressive financial
risk profile and necessitates not only a balanced funding approach but,
importantly, timely rate relief for both the nuclear construction to collect a
cash return on construction work in process, but also through base rate relief
to address the ongoing capital spending needs of the remaining company. Absent
such relief, the financial profile can weaken further, placing additional
downward pressure on ratings, even after accounting for the company's plan to
fund a portion of these capital expenditures with equity issuances.
Liquidity
SCANA's liquidity is adequate to meet capital sp~nding and other needs.
SCANA's liquidity consists of $1.1 billion in revolving credit facilities
(SCANA: $200 million, SCE&G: $650 million; and PSNC: $250 million) that expire
in 2011 and which had $564 million still undrawn. Liquidity also benefits from
$272 million of cash on hand as of Dec. 31, 2008. Debt maturities are
manageable and somewhat mitigate refinancing risk at least over the
intermediate tem, with $144 million in 2009, $25 million in 2010, about $546
million in 2011/ $275 million in 2012, and $167 million in 2013.
Outlook
The stable outlook on SCANA incorporates expectations that the proposed
nuclear construction proceeds on schedule and on budget within the
SCPSC-approved scheduling and budget mechanism. In addition, the stable
outlook incorporates expectations that the financial risk profile will remain
aggressive with adjusted FFO to interest coverage of no less than 3.Sx,
adjusted FFO to total debt of 14% to 15%, and adjusted total debt to total
capital that will begin to moderate from the end of 2008 levels of 62.5% as a
result of retained earnings and proposed equity issuances to support the
construction program. Ratings could be lowered if credit metrics underperform
expectations principally as a result of waning regulatory support resulting in
delays for the recovery of unanticipated capital expenditures for the nuclear
construction or schedule delays that are deemed imprudent with associated
costs not recovered. Therefore, FFO to interest coverage of less than 3.0x,
FFO to total debt of lower than 14%~15% and debt leverage that increases above
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