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

20091231-0037 FERC PDF (Unofficia1) 12/29/2009
Direct Testimony of Jimmy Addison
Docket ERIO- -000
Page lOofl9
Exhibit No. SeE-I
3(B)) and Fitch's (Exhibit SCE-3(C)) downgrades. Exhibit SCE-4 is a complete list of
2 SCE&G's and SCANA's credit ratings as of July, 2009. See also Exhibit SCE-5 for
3 copies ofSCE&G's most recent ratings reports by S&P (Exhibit SCE-5(A)), Moody's
4 (Exhibit SCE-5(B)) and Fitch (Exhibit SCE-5(C)).
5 Q. WHAT CONSIDERATIONS GO INTO ASSIGNING A CREDIT RATING?
6 A. The primary drivers of credit ratings are business risk and financial risk. Business risk
7 addresses the potential sources of variability in a utility's cash flow from its operating
8 conditions as a result of various business factors such as cost structure, economic strength
9 and diversity of service territory, competitive position, quality and depth of management
10 team, risk management practices, supply mix and regulatory cost recovery mechanisms.
11 The higher the business risk, the more robust the financial metrics and the lower the
12 financial risk must be to achieve the same bond rating.
13 v. SCE&G'S BUSINESS RISK
14 Q. DOES SCE&G FACE SPECIFIC BUSINESS RISKS AFFECTING ITS CREDIT
15 RATINGS?
16 A. SCE&G's construction projects planned for completion over the next decade create
17 substantial business risks that place great pressure on SCE&G's cost of capital. By far
18 the most significant construction projects are SCE&G's two proposed nuclear units.
19 SCE&G plans to construct, in partnership with South Carolina Public Service Authority,
20 two nuclear reactors totaling 2,234 MW, of which SCE&G will own 55%. In February
21 2009 the SCPSC approved SCE&G's combined application pursuant to South Carolina's