10-K - SCANA Corporation

Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
SCE&G is a regulated public utility engaged in the generation, transmission, distribution and sale of electricity and in the
purchase and sale, primarily at retail, and transportation of natural gas. SCE&G’s business is subject to seasonal fluctuations.
Generally, sales of electricity are higher during the summer and winter months because of air-conditioning and heating requirements,
and sales of natural gas are greater in the winter months due to heating requirements. SCE&G’s electric service territory extends into
24 counties covering nearly 17,000 square miles in the central, southern and southwestern portions of South Carolina. The service area
for natural gas encompasses all or part of 35 counties in South Carolina and covers approximately 22,600 square miles.
Key Earnings Drivers and Outlook
During 2011, economic growth showed modest signs of improvement in the southeast. Significant industrial announcements
in SCE&G’s service territory were made during the year. In addition, SCE&G’s residential and commercial customer growth rates
were positive, though customer usage by existing customers continued to decline. At December 31, 2011, a preliminary estimate of
seasonally adjusted unemployment for South Carolina was 9.5%. Though improved from the 10.9% unemployment rate at
December 31, 2010, unemployment remains high and continues to slow the pace of economic recovery in South Carolina.
Over the next five years, key earnings drivers for SCE&G will be additions to utility rate base, consisting primarily of capital
expenditures for new generating capacity, environmental facilities and system expansion. Other factors that will impact future
earnings growth include the regulatory environment, customer growth and usage and the level of growth of operation and maintenance
expenses and taxes.
Electric Operations
The electric operations segment is comprised of the electric operations of SCE&G, GENCO and Fuel Company, and is
primarily engaged in the generation, transmission, distribution and sale of electricity in South Carolina. At December 31, 2011
SCE&G provided electricity to approximately 664,000 customers in an area covering nearly 17,000 square miles. GENCO owns a
coal-fired generating station and sells electricity solely to SCE&G. Fuel Company acquires, owns and provides financing for
SCE&G’s nuclear fuel, certain fossil fuels and emission allowances.
Operating results for electric operations are primarily driven by customer demand for electricity, rates allowed to be charged
to customers and the ability to control growth in costs. Embedded in the rates charged to customers is an allowed regulatory return on
equity. SCE&G’s allowed return on equity is 10.7% for non-BLRA expenditures, and 11.0% for BLRA-related expenditures. Demand
for electricity is primarily affected by weather, customer growth and the economy. SCE&G is able to recover the cost of fuel used in
electric generation through retail customers’ bills, but increases in fuel costs affect electric prices and, therefore, the competitive
position of electricity against other energy sources.
New Nuclear Construction
SCE&G and Santee Cooper are parties to construction and operating agreements in which they agreed to be joint owners, and
share operating costs and generation output, of two 1,117-MW nuclear generation units to be constructed at the site of Summer
Station, with SCE&G responsible for 55 percent of the cost and receiving 55 percent of the output, and Santee Cooper responsible for
and receiving the remaining 45 percent. Under these agreements, SCE&G will have the primary responsibility for oversight of the
construction of the New Units and will be responsible for the operation of the New Units as they come online.
SCE&G, on behalf of itself and as agent for Santee Cooper, has entered into the EPC Contract with the Consortium for the
design and construction of the New Units. SCE&G’s share of the estimated cash outlays (future value, excluding AFC) totals
approximately $6 billion for plant costs and related transmission infrastructure costs, which costs are projected based on historical
one-year and five-year escalation rates as required by the SCPSC. The successful completion of the New Units would result in a
substantial increase in SCE&G’s utility plant in service. Financing and managing the construction of these plants, together with
continuing environmental construction projects, represents a significant challenge to SCE&G.
91