10-K - SCANA Corporation

Table of Contents
In the case of regulated natural gas operations, costs prudently incurred for purchased gas and pipeline capacity may be
recovered through retail customers’ bills. However, increases in gas costs affect total retail prices and therefore the competitive
position of gas relative to electricity and other forms of energy. Gas cost increases also may result in lower usage by customers unable
to switch to alternate fuels. Increases in fuel costs may also result in higher prices for and thus lower usage of electricity by customers.
Certain construction-related commodities, such as copper and aluminum used in our transmission and distribution lines and
in our electrical equipment, and steel, concrete and rare earth elements, have experienced significant price fluctuations due to changes
in worldwide demand. To operate our air emissions control equipment, we use significant quantities of ammonia, limestone and lime.
With EPA-mandated industry-wide compliance requirements for air emissions controls, demand for these reagents, combined with the
demand for low sulfur coal, may result in higher costs for coal and reagents used for compliance purposes.
The costs of large capital projects, such as the Company’s and Consolidated SCE&G’s construction for environmental compliance
and its construction of the New Units and associated transmission, are significant and are subject to a number of risks and
uncertainties that may adversely affect the cost, timing and completion of the projects.
The Company’s and Consolidated SCE&G’s businesses are capital intensive and require significant investments in energy
generation and in other internal infrastructure projects, including projects for environmental compliance. For example, SCE&G and
Santee Cooper have agreed to jointly own, design, construct and operate the New Units, which will be two 1,117-megawatt nuclear
units at SCE&G’s Summer Station, in pursuit of which they have committed and are continuing to commit significant resources
towards project development, permitting, site preparation and long lead-time procurement. Substantial additional resources will be
required for the construction and operation of the New Units upon receipt of requisite approvals. In addition, planning and
construction of significant new transmission resources are necessary to support the New Units and are under way as an integral part of
the project. Achieving the intended benefits of any large construction project is subject to many uncertainties. For instance, the ability
to stay within established budgets and timeframes may be affected by many variables, such as the regulatory and legal processes
associated with securing permits and licenses within projected timeframes, the availability of labor and materials at estimated costs,
the availability and cost of financing, and weather. There also may be contractor or supplier performance issues or adverse changes in
their creditworthiness, and unforeseen difficulties meeting critical regulatory requirements. There may be unforeseen engineering
problems or unanticipated changes in project design or scope. Our ability to complete construction projects (including new baseload
generation) as well as our ability to maintain current operations at reasonable cost could be affected by the availability of key
components or commodities, increases in the price of or the unavailability of labor, commodities or other materials, increases in lead
times for components, new or enhanced environmental requirements, supply chain failures (whether resulting from the foregoing or
other factors), and disruptions in the transportation of components, commodities and fuels. Furthermore, joint venture projects, such as
the current construction of the New Units, are subject to the risk that one or more of the joint venture partners becomes either unable
or unwilling to continue to fund project financial commitments, new partners cannot be secured at equivalent financial terms, or
changes in the joint venture make-up will increase project costs and/or delay the completion. To the extent that delays occur, costs
become unrecoverable, or we otherwise become unable effectively to manage our capital projects our results of operations, cash flows
and financial condition may be adversely affected.
The use of derivative instruments could result in financial losses and liquidity constraints. The Company and Consolidated
SCE&G do not fully hedge against financial market risks or price changes in commodities. This could result in increased costs,
thereby resulting in lower margins and adversely affecting results of operations, cash flows and financial condition.
The Company and Consolidated SCE&G use derivative instruments, including futures, forwards, options and swaps, to
manage our commodity and financial market risks. We could recognize financial losses on these contracts as a result of volatility in
the market values of the underlying commodities and interest rate contracts or if a counterparty fails to perform under a contract.
The Company strives to manage commodity price exposure by establishing risk limits and entering into contracts to offset
some of our positions (i.e., to hedge our exposure to demand, market effects of weather and other changes in commodity prices). We
do not hedge the entire exposure of our operations from commodity price volatility. To the extent we do not hedge against commodity
price volatility or our hedges are not effective, results of operations, cash flows and financial condition may be diminished.
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