Scana Corp (SCG) Earnings Report: Q3 2015 Conference Call ... · Scana Corp (SCG) Earnings Report:...

CompanyName:SCANACorpCompanyTicker:SCGSector:Utilit iesIndustry:Utilit ies

EventDescription:Q32015EarningsCallMarketCapasofEventDate:8.11BPriceasofEventDate:57.28

©2014TheStreet,Inc.Al l R ightsReserved Page1of25

ScanaCorp(SCG)EarningsReport:Q32015ConferenceCallTranscriptThefollowingScanaCorpconferencecalltookplaceonOctober29,2015,03:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

SusanWright;SCANACorporation;DirectorFinancialPlanning&IRJimmyAddison;SCANACorporation;CFOSteveByrne;SCANACorporation;COOofSCE&GKevinMarsh;SCANACorporation;CEO

OtherPart icipants

AndrewWeisel;MacquarieCapitalSecurities;AnalystJulienDumoulin-Smith;UBS;AnalystJimvonRiesemann;MizuhoSecuritiesUSA;AnalystTravisMiller;Morningstar;AnalystPaulPatterson;GlenrockAssociates;AnalystFelixCarmen;VisiumAssetManagement;AnalystMichaelLapides;GoldmanSachs;AnalystDanJenkins;StateofWisconsinInvestmentBoard;AnalystMitchellMoss;LordAbbett;AnalystDavidFishman;GoldmanSachs;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,IwouldliketowelcomeeveryonetotheSCANACorporationconferencecall.

(OperatorInstructions)

Asareminder,thisconferencecallisbeingrecordedonThursday,October,.Anyonewhodoesnotconsenttothetapingmaydropofftheline.

Atthistime,IwouldliketoturnthecallovertoSusanWright,DirectorofFinancialPlanningandInvestorRelations.Pleasegoahead,ma'am.

SusanWright (DirectorFinancialPlanning&IR):

Thankyou.Welcometoouranalystscall.Asyouknow,earliertodayweannouncedfinancialresultsforthethirdquarterofandearlierintheweekwereleasedanupdateonoursettlementwithaconsortiumregardingdisputesonournewnuclearproject.

JoiningusonthecalltodayareJimmyAddison,SCANA'sChiefFinancialOfficer;SteveByrne,ChiefOperatingOfficerofSCE&G;andKevinMarsh,ourCEO.Duringthecall,Jimmywillprovideanoverviewofourfinancialresults,Stevewillprovideanupdateofournewnuclearproject,andKevinwillcoverthekeypointsofoursettlement.Afterourcomments,wewillrespondtoyourquestions.TheslidesandtheearningsreleasereferencedtointhiscallareavailableatSCANA.com.




Additionally,wepostinformationrelatedtoournewnuclearprojectandotherinvestorinformationdirectlytoourwebsiteatSCANA.com.OnSCANA'shomepagethereisayellowboxcontaininglinkstothenucleardevelopmentandotherinvestorinformationsectionsofthewebsite.Itispossiblethatsomeoftheinformationthatwewillbepostingfromtimetotimemaybedeemedmaterialinformationthathasotherwisebecomepublic.Youcansignupfore-mailalertsundertheinvestorsectionofSCANA.comtonotifyyouwhenthereisanewpostinginthenucleardevelopmentand/orotherinvestorinformationsectionsofthewebsite.

Finally,beforeIturnthecallovertoJimmy,Iwouldliketoremindyouthatcertainstatementsthatmaybemadeduringtoday'scallareconsideredforward-lookingstatementsandaresubjecttoanumberofrisksanduncertaintiesasshownonslide.TheCompanydoesnotrecognizeanobligationtoupdateanyforward-lookingstatements.Additionally,wemaydisclosecertainnon-GAAPmeasuresduringthispresentation,andtherequiredRegGinformationcanbefoundintheinvestorsectionofourwebsiteunderwebcastsandpresentations.I'llnowturnthecallovertoJimmy.

JimmyAddison (CFO):

Thanks,Susan,thankyouallforjoiningustoday.I'llbeginourcallbythankingthoseofyouwhoreachedouttousduringthehistoricrainfallandfloodingthathitSouthCarolinaearlierthismonth.Itwasandcontinuestobeatryingtimeforastateandweappreciateyourthoughtsandprayersasthingscontinuetoprogress.Whileoursystemwasrestoredveryquickly,thepropertydamageofthecitizensofSouthCarolinawilltakealongtimetorestoreand,tragically,severalliveswerelostandfamiliesalteredforever.

Nowonslide,we'llbeginourearningsdiscussion.GAAPearningsinthethirdquarterofwere$.forsharecomparedto$.pershareinthesamequarter.Theimprovedresultsinthethirdquarteraremainlyattributabletohigherelectricmarginsdueprimarilytoservethe,aBaseLoadReviewActrateincrease,andcustomergrowth,aswellaslowerdepreciationexpenseasIwilldiscussshortly.Thesewerepartiallyoffsetbylowergasmargins,primarilyduetolostgasmarginsof$.pershareresultingfromthesaleofCGT,anincreaseinO&Mexpense,andexpectedincreasesinCapEx-relateditems,includinginterestandsharedilution.Notethatabnormalweathercontributed$.pershareand$.pershareofadditionalelectricmargininthethirdquartersofandrespectively.

SCE&Gperiodicallyconductsdepreciationstudiesrelatedtoelectricplanttobetterdeterminetheproperannualdepreciationaccrualrates.Anewdepreciationstudyperformedearlierthisyearresultedintheadoptionofdepreciationrateswhichproducedanannualdecreasetodepreciationexpenseofapproximately$million.ThePSCauthorizedSCE&GtoimplementthenewdepreciationrateseffectiveJanuary,,andattheCompany'srequest,theretroactive$.millioncreditfromtheapplicationofthenewratesfromJanuarythroughJuneofthisyearhasbeenusedtooffsetaportionofthedeferredfuelbalancerelatedtoitsretailelectricoperations.Forthethirdquarterof,andallsubsequentperiods,theincrementalreductiontodepreciationexpensewillflowthroughincome.Pleaseturntoslide.

Earnings-per-sharefortheninemonthsendedSeptember,,were$.versus$.in.TheimprovedresultsaremainlyattributabletothenetoftaxgainsonthesalesofCGTandSCI,higherelectricmarginsdueprimarilytoaBaseLoadReviewActrateincreaseandcustomergrowth,aswellaslowerdepreciationexpenseasdescribedearlier.Thesewerepartiallyoffsetbylowerelectricmarginsduetoweatherfromthefirstquarter,lowergasmarginsprimarilyduetolostgasmarginsof$.pershareresultingfromthesaleofCGT,anincreaseinO&Mexpense,andexpectedincreasesinCapEx-relateditemsincludinginterest,propertytaxes,andsharedilution.Althoughelectricmarginsreflectedanegative$.pershareduetoweatheryear-over-year,abnormalweatherincreasedelectricmarginsby$.pershareyear-to-datecomparedto$.persharein.




SlideshowsearningsonaGAAPadjusted,weather-normalizedbasis.Earningsinthethirdquarterofwere$.persharecomparedto$.pershareinthesamequarterof.Year-to-dateSeptember,earningswere$.pershareincomparedto$.pershareintheprioryear.Asareminder,GAAPadjustedweather-normalizedEPSexcludestheimpactofabnormalweatheronelectricmarginsandthenetoftaxgainsonthesaleofCGTandSCIfromthefirstquarterof.Baseduponourresultstodateandourexpectationsforthebalanceoftheyear,wearereaffirmingourGAAPadjustedweather-normalizedearningsguidanceof$.to$.pershare.

Nowonslide,I'dliketobrieflyreviewresultsforourprincipallinesofbusiness.OnaGAAPbasis,SouthCarolinaElectric&GasCompany'sthirdquarterearningswereup$.comparedtothesameperiodof.Increasesinearningsweredueprimarilytoweather,thecontinuedrecoveryoffinancingcoststhroughtheBLRAandcustomergrowth.Theapplicationofthepreviouslymentionednewdepreciationratesalsopositivelycontributedtoearningsforthequarter.TheseitemswereoffsetbyincreasesinO&Mexpensesandexpensesrelatedtoourcapitalprogram,includinginterestexpenseandshare[dilutions].

Year-to-dateearningswerehigherby$.,dueprimarilytothesamedriversasthequarterwiththeexceptionofweather.PSNCEnergyreportedaseasonallossof$.pershareinthethirdquarterofcomparedtoalossof$.pershareinthesamequarteroftheprioryear,primarilyduetoincreasedO&M,depreciation,andpropertytaxes,partiallyoffsetbycustomergrowth.Year-to-dateearningsare$.persharecomparedto$.pershareintheprioryear.

SCANAenergy,ourretailnaturalgasmarketingbusinessinGeorgia,showedadecreaseinthird-quarterearningsof$.pershareinoverthesamequarteroflastyear,primarilyduetoincreasedO&M.Forthenine-monthperiodendedSeptember,earningswereup$.pershare.

OnaGAAPbasis,SCANA'scorporateandotherbusinessesreportedalossof$.pershareinthethirdquarterof,consistentwiththeprioryear.LowerinterestexpenseattheHoldingCompanyandincreasedmarginsinourmarketingbusinesswereprimarilyoffsetbyforegoneearnings,contributionsfromthesubsidiariesthatweresoldduringthefirstquarterofthisyear.Forthenine-monthperiod,thesebusinessesreportedearningspershareof$.incomparedto$.in.ExcludingthenetoftaxgainsonthesalesofCGTandSCIof$.pershare,GAAPadjustedweather-normalizedEPSwasdown$.fromtheprioryear,againduetoforgoneearningsfromthesaleofthebusinessesearlierthisyear.

Iwouldnowliketotouchoneconomictrendsinourserviceterritoryonslide.Sofarin,companieshaveannouncedplanstoinvestover$billionwiththeexpectationofcreatingoverjobsinourCarolinasterritories.We'reexcitedbythecontinuousgrowthinourserviceterritoriesastheCarolinascontinuetobeseenasafavorablebusinessenvironment.Atthebottomoftheslide,youcanseethenationalunemploymentratealongwiththeratesforthethreestateswhereSCANAhasapresence,andthenSCE&Gelectricterritory.SouthCarolina'sunemploymentrateisnowat.%andtherateinSCE&G'selectricterritoryisestimatedat.%.Ofparticularinterest,andattestingtoourstatestrongeconomicgrowth,approximately,moreSouthCaroliniansareworkingtodaythanayearago.

Slidepresentscustomergrowthandelectricsalesstatistics.Onthetophalfoftheslideisthecustomergrowthrateforeachofourregulatedbusinesses.SCE&G'selectricbusinessaddedcustomersatayear-over-yearrateof.%.OurregulatedgasbusinessesinNorthandSouthCarolinaaddedcustomersatanacceleratedrateof.%and.%respectively.Wecontinuetoseeverystrongcustomergrowthinourbusinessesandintheregion.

Thebottomtableoutlinesouractualandweather-normalizedkilowatthoursalesforthemonthsendedSeptember,.Overall,weather-normalizedtotalretailsaleswereup.%ona-monthendedbasis.Wecontinuetobeencouragedbythestrongindustrialexpansionthathasinturnledtostrongsalesgrowthnotonlyintheindustrialsector,butalsointheresidentialandcommercialmarkets.Now,pleaseturnto




slide,whichrecapsaregulatoryratebaseandreturns.

Thepiechartontheleftpresentthecomponentsofourregulatedratebaseofapproximately$.billion.Asdenotedinthetwoshadesofblue,approximately%ofthisratebasisisrelatedtotheelectricbusiness.Intheblockontheright,youwillseeSCE&G'sbaseelectricbusinessinwhichwe'realloweda.%returnonequity.TheearnedreturnforthemonthsendedSeptemberinthebaseelectricbusinessisapproximately.%,meetingourstatedgoalofearningareturnof%orhighertopreventtheneedfornon-BLRArelatedbaserateincreasesduringthepeaknuclearconstructionyears.Wecontinuetobepleasedwiththeexecutionofourstrategy.OurregulatedgasbusinessesintheCarolinascontinuetoperformwell.We'reallowedareturnonequityof.%and.%inSouthandNorthCarolina,respectively.

Slide%presentsourCapExforecast.ThisforecasthasbeenupdatedtoreflectourmostcurrentCapExprojectionsforand,andisnowinclusiveofourestimates.ThisforecastalsoreflectstheCompany'scurrentestimateofnewnuclearspendingthrough,includinganestimateoftheimpactofthesettlementwithaconsortium,whichKevinwilladdresslater.Atthebottomoftheslidewerecaptheestimatednewnuclear[equip]fromJulythroughJunetocorrespondtotheperiodsonwhichtheBLRArateincreasesarehistoricallycalculated.

Now,pleaseturntoslidetoreviewourupdatedestimatedfinancingplanthrough.Asareminder,onMayofthisyearSCE&Gissued$millionof-yearbondsat.%.AlsoinJanuary,weissuedapproximately$millioninequitythroughour(k)anddrillplansbeforeturningofftheplanstonewshares.Byacquiringsharesontheopenmarkettosatisfytheneedsoftheseplans,wecanfurtherutilizethecashproceedsfromthesalesofCGTandSCI.Wedonotanticipatetheneedforfurtherequityissuancesuntilandwillturnbackonthe(k)anddrillplanstosatisfythoseneeds.

Onthedebtside,andbaseduponcashflowsandplannedconstructionpaymentstodate,wehavedeferred$millionofQplanneddebtissuancesandacceleratedsomeissuancesfromtheoutyearstobetteralignwiththeirexpectedfundingneeds.ThisplanalsoanticipatesdebttobeissuedatPSNCtofunditsanticipatedCapExspending.Whiletheseareourbestestimatesofincrementaldebtandequityissuances,itisunlikelymusicianswilloccurisexactlyaspresentedastheyaresubjecttochangesinourbodyneedsforplannedprojectexpensesandwecontinuetoadjustthefinancingtomatchtherelatedCapExona/debtandequitybasis.

Now,I'dliketodiscussourearningsguidanceandrelatedassumptionsasshownonslide.OurGAAPadjusted,weather-normalizedpreliminaryearningsguidanceis$.pershareto$.pershareandourinternaltargetis$pershare.Duetothecyclicalnatureofourbusiness,weexpecttoearnapproximately%ofthisamountinthefirstquarter,approximately%ineachofthethirdandfourthquarters,andtheremaining%inthesecondquarter.Incomputingthisguidancerange,wehaveincludedtheimpactofabaserateincreasefromournewnuclearfilingundertheBLRA,theaccretiveimpactofthesalesofCGTandSCI,andourviewoftheeconomy.ThisguidancealsoincorporatestheCapExandfinancingplanswepresentedearlier.

Weforecastelectriccustomergrowthtobeatapproximately.%,offsettingourassumptionthatcustomeraverageuseofelectricitywillbeslightlylowerin.Weanticipateoverallweather-normalizedretailelectricsalesgrowthfortodeclinebyapproximately.%.Weexpectoperatingandmaintenanceexpensestobeapproximately%higherinthanwhereweprojecttofinishfortheendof.WealsoexpectcontinuedgrowthintheCapEx-relatedcostofpropertytaxes,depreciation,andinterest.

Fortheremainderof,exclusiveofthetaxesonthegainsonthesalesofthesubsidiariesandlookingoutinto,weprojectaneffectivetaxrateofapproximately%.Wecontinuetobecautiouslyoptimisticaboutourlong-termviewandarereaffirmingGAAPadjusted,weather-normalizedaverageannualgrowthguidanceasweplantodeliver%to%earningsgrowthoverthethreetofiveyearsusingabaseof's




GAAPadjustedweather-normalizedEPSof$.pershare.Hopefully,thiswillprovideyouwithsomeclarityofourviewofasyouupdateyourmodels.I'llnowturnthecallovertoStevetoprovideanupdateonournuclearproject.

SteveByrne (COOofSCE&G):

Thanks,Jimmy.IwouldliketobeginbyaddressingtheimpactthattherecentrainfallandfloodinginSouthCarolinahadonthenewnuclearconstructionproject.Asyouprobablyhavealreadyseenonourwebsite,weestimatethatthisweathereventresultedinalossofaboutfourdaysofworkeffort.Iwantedtoclarifythattheconstructionschedulehasacontingencyforweatherdelaysandotherevents,sothisdayshouldnotimpacttheplannedin-servicedatesforthenewunits.Wehavehadverylittleweatherimpacttodate,whichiswhythiseventshouldnothaveanimpactontheproject.Pleaseturntoslide.

IwouldnowliketoaddressthePublicServiceCommissionofSouthCarolina'sunanimousapprovalofthepetitionthatSCE&GfiledinMarchofthisyear,seekingapprovaltoupdatetheconstructionmilestonescheduleaswellasthecapitalcostscheduleforthetwonewnuclearunits.Theapprovalofthepetition,alongwiththesettlementagreemententeredintowiththeSouthCarolinaofficeofregulatorystaffandtheSouthCarolinaEnergyUsersCommittee,adjustedthecommissionapprovedsubstantialcompletiondatestoJuneofforunitandJuneofforunit.Thisagreementalsoallowedfortheinclusionofincrementalcapitalcoststhattotaled$millionandrevisedtheallowedreturnonequityto.%from%forcalculatingperspectiverevisedratesundertheBLRAonorafterJanuary,.

Movingontosomeoftheactivitiesatthenewnuclearconstructionsite.SlidepresentsanaerialphotoofthesitefromJune.ThisphotogivesyouaviewofthelayoutofthesiteandIhavelabeledbothunitsandaswellasmanyoftheareasthatmakeupwhatwecalltheconstructiontabletop.Onslideyoucanseeapictureoftheunitnuclearisland.InthispictureyoucanseemoduleCAontheleftsideoftheslidealongwiththecontainmentvesselfirstringwhichhasbeenplacedonandweldedtothelowerbowl.IfyoulookthroughthepersonnelandequipmenthatchopeningsinthecontainmentvesselringyoucanseesuperstructuremoduleCAwhichis,asyourecall,wasplacedbackinJuly.Wecontinuetomakeprogresswiththefabricationandcomplacentofcontainmentvesselstructuremodules.

Slidepresentsaschematicviewofthefive,largestructuremoduleslocatedinsidethecontainmentvessel.ThisexplodedviewofCAthroughgivesyouabetterfeelforhowtheyfitspatiallyinsidesaidcontainmentvessel.Asyoumayknow,wehavenowplacedCA,CA,andCAforunit.

SlideshowsapictureofCAwhichwillbethenextstructuralmoduleplacedintheUnityoucontainmentvessel.ModuleCAisawallsectionthatformspartofthein-containmentforfuelingwaterstoragetank.Asyouseehere,allfivesubmoduleshavebeenassembledandCAisnowstructurallycompleteandhasbeenmovedoutsideofthemoduleassemblybuilding,orMAB.Thismodulescheduledtoreplacesometimeduringthefirsthalfof.

SlideshowsapictureofCA,whichisthewestwallofthein-containmentrefuelingwaterstoragetank.FourofCA'ssubmodulesareonsiteandthreehavebeenfabricatedintheMAB.

Slideshowsapictureoftheunitnuclearisland.ModuleCAplacedinsideofthecontainmentvessellowerbowlbackinJuneandtheauxiliarybuildingwalls,asyoucansee,continuetotakeform.

SlideshowsanaerialviewofthelowprofileforcoolingtowersfromJune.Threeofthefourcookingtowersarenowstructurallycompletewiththefourth,Bravoshownonthisslide--sorry,shownonslide,beingabout%complete.Pleasenowturntoslide.

Hereyoucanseetheplacementoftheconcretefoundationfortheunitturbobuildingfirstbay.The-footthickbasemattookhourstopourandconsistedofcubicyardsofconcrete.Thisfirstbayisthetransition




fromthe[ox]buildingtotheturbinebuilding.

Slideshowsthecompletedunittransformerbays.Thesetransformerbaysareconstructedwithreinforcingbarandconcreteandserveasafirewallpartiallyenclosingthetransformers.TheseninetransformerbaysforunitwerecompletedduringAugust.

Componentscontinuetoarriveonsite.OnslideyoucanseesomepicturesoftheunitpressurizerarrivinginthePortofCharleston.Itwasthentransferredviarailcartothesite.Pressurizedwillbe(inaudible)insidethecontainmentvesselandwillbeusedtocontrolthepressureandthereactantcoolantsystem.

Pleasenowturntoslide.Aswementionedduringoursecond-quartercallwefiledourannualrequestforrevisedratesundertheBLRAinMay.Inresponsetothatrequest,inSeptemberthePSCimprovedanincreaseof$.million.ThenewratesareeffectiveforbillsrenderedonorafterOctober.OurBLRAfilingsforareshownatthebottomoftheslide,andasyoucanseeinAugustwefiledourquarterlystatusreportonournewnuclearprojectwiththecommissionandtheofficeofregulatorystaffforthesecondquarterof.WeintendtofileaquarterlystatusreportforthethirdquarterinNovember.I'llnowtothecallovertoKevin.

KevinMarsh (CEO):

Thanks,Steve.I'mgladtobewithyoutodaytoprovidesomedetailsinconnectionwithouramendmenttotheEPCagreementforthenewAPunitsattheV.C.Summersiteweannouncedearlierthisweek.Anumberofthekeypointsaresummarizedonslide.

Asyouknow,theseplantswerebeingconstructedunderanEPCagreementwithaconsortiumofWestinghouseandChicagoBridgeandIronSubsidiaries,StoneandWebster.WestinghousehasannouncedthatittendstoacquireStoneandWebsterfromCB&I.Followingthatacquisition,StoneandWebsterwillcontinuetobepartytotheEPCagreementbutasasubsidiaryofWestinghouseinsteadofCB&I.TheamendmenttotheEPCagreementallowsCB&Itoexititsguaranteedobligationtotheproject.ObligationsundertheEPCagreementarejointandseveralobligationsofWestinghouseandStoneandWebsterandtheOctoberamendmentprovidesforToshibaCorporation,theparentcompanyofWestinghouse,toreaffirmit'saguaranteeoftheWestinghousepaymentobligation.

InexchangeforthereleaseoftheCB&Iguarantee,theamendmentoftheEPCcontract,andanoptiontofixprojectcosts,SCE&G,SanteeCooper,andWestinghousehaveagreedtoafullresolutionandsettlementofsubstantiallyallknownclaimsanddisputesoutstandingundertheEPCagreement.Underthisamendment,SCE&GhasagreedtopayWestinghouseincrementalcapitalcostsofcostofapproximately$millionoverthe$.billionapprovedinthePublicServiceCommission'srecentordernumber-.This,alongwithestimatedescalationandAFUDC,wouldbringthetotalgrossconstructioncostoftheprojecttoapproximately$.billion.TheamendmentalsorevisestheguaranteedsubstantialcompletiondatesofunitsandtoAugust,andrespectively.

SCE&Gshareofliquidateddamageswouldincreasefrom$millionto$million.Thenewliquidateddamagesaretiedtothenewguaranteedsubstantialcompletiondatesandtheeligibilityoftheunitstoearnfederalproductiontaxcredits.Westinghousealsohastheopportunitytoearn,fromSCE&G,completionbonusesofapproximately$millionor$.millionforeachunit,dependingonthetimingoftheplantsbeenplacedandtheservice.Inaddition,thisamendmentprovidesSCE&GforitselfanditsagentforSanteeCooper,anexclusiveandirrevocableoptionuntilNovember,,tofurtheramendtheEPCagreementtofixthetotalamountremainingtobepaidfortheentirescopeofworkontheprojectafterJune,,atapproximately$.billion,whichisSCE&G's%portionof$.billion.ThisfixedpriceoptionresultinSCE&GpayingWestinghouseincrementalprojectcostsofapproximately$millionoverthepreviousescalatedamountapprovedbythePSCof$.billion.Combinedwithestimated




escalationandAFUDC,thiswouldbringthetotalgrossconstructioncostoftheprojecttoapproximately$.billion.

Ifthefixedpriceoptionisexercised,SCE&G'sshareofthedelayrelatedliquidateddamagesamountspreviouslyreferredtowouldthenbecappedatapproximately$millionor$millionperunit.ThecompletionbonustobepaidbySCE&Gwiththisoptionisapproximately$millionor$.millionforeachunit,dependingonthetimingoftheplantsbeingplacedinservice.Ourteamworkedveryhardtoincludetheunilateralfixedpriceoptionintothissettlement.Wewillbeevaluatingthepotentialbenefitsofthisoptionoverthenextseveralmonths.Ifelected,thisoptionwouldfixallcoststoWestinghouseatanapproximate%increaseoverthecurrentPSCapprovedbudget.We,alongwithourpartner,SanteeCooper,believethisoptionhassignificantvalue.

Onceourevaluationofthisoptioniscomplete,wewilldiscusswiththeSouthCarolinaofficeofregulatorystaff,ourconclusionregardingourdecisionwhethertoexercisetheoptionandmakeafilingwiththePublicServiceCommissionofSouthCarolina.Animportantpartoftheamendmentisthedevelopmentofanew,revisedconstructionpaymentmilestoneschedule.Overthenextfivemonths,oruntilthenewpaymentscheduleisagreedupon,SCE&Gwillmakemonthlypaymentsofapproximately$millionpermonth,ofwhichourshareis$million.Thereafter,paymentswillbemadetoWestinghousebasedonconstructionmilestonesachieved.

Afterthismilestonescheduleisagreedupon,andifthefixedpriceoptionisselectedandapproved,ourCapExscheduleJimmyreviewedonslide,willbeupdatedandourfinancingschedulewillbeconformedaswell.TheamendmentalsomodifiestheEPCagreementtoexplicitlydefinewhatconstitutesachangeinlawtoreducethelikelihoodofcertaincommercialdisputes.Adisputeresolutionboardwillbeestablishedforresolutionofdisputesastherequirementorabilitytobringsuitbeforesubstantialcompletionoftheprojecthasbeeneliminated.

Finally,I'mexcitedtohaveFluorCorporationinvolvedintheproject.FluorwasestablishedinSouthCarolinaandhasadeepnuclearpedigreewiththisnucleardivisionbeingheadquarteredinGreenville,SouthCarolina.We'vehadalongrelationshipwithFluorandbelievetheyhaveanexcellentrecordofdeliveringoncommitments.Thatconcludesourpreparedremarksandwewillnowbegladtorespondtoanyquestionsyoumighthave.

QUESTIONS&ANSWERS

Operator :

Wewillnowbeginaquestionandanswersession.

(OperatorInstructions)

AndrewWeiselofMacquarieCapital.

AndrewWeisel(Analyst-MacquarieCapitalSecurities):

Hi,goodafternoon,guys.

KevinMarsh (CEO):

Hey,Andrew.


Firstquestionisanoptiontoswitchfixedcostfortheconstruction.Whatwouldbesomeofthereasonsnottodoit?Youmentionedalotofthebenefits.Whatmightbesomereasonswhyyouwouldn'texercise




itandwhendoyouthinkyoumightmakethatdecision?

JimmyAddison (CFO):

Well,we'llmakethedecisionofthenexttomonths.Wehavemonthstomakethefinaldecision.WewanttotakesometimetoletFluorgetacclimatedtotheproject,havethemlookattheprojectschedule,thetimetableassociatedwiththecompletiondatesandgettheiropinioncombinedwithourevaluationofhowtheyintendtoapproachthecompletionoftheprojectsowecanevaluatetheoptionwe'reandaretoday,whichistocompletetheprojectwiththetargetpricingalongwithfixedandfirm.

Thebulkoftheprojectlefttobedoneisinthetargetcategory,whichmeanswepaythecostofthattheyincur.Thatisimportanttousbecausewewanttogettheirfeedbackontheachievementofthemilestonesandwhatriskswethinkwemayhavethere.Wethinkwe'vestrengthenedourriskpositiontherebecausewe'veincreasedtheLD'sontheprojectsignificantly.Ithinkitissixtimesifwegoundertheexistingoptiontoday.Oncewegetachancetofullyevaluatetheschedule,thenewcompletiondatesalongwiththeiroversightandourcompletetheevaluation,Ithinkwe'llbeinabetterpositiontomakethatdecision.

Wecertainlythinkthatfixedpriceoptionisveryappealing.Weworkedhardtonegotiatethatoptionintooursettlementbecauseitdoesgivesusadditionalprotectionsforrisingcost.Certainlyinterestratesandprojectedescalationratesbetweennowandthetimewemakethatdecisionwillhaveanimpactonwhichwaywemightgo.Wejustneedsomemoretimetoevaluatethatmorefully.


Okay,butitsoundslikeyou'releaningtowardtakingthatoptionorisittoosoon?

JimmyAddison (CFO):

No,Iwouldn'tmakethatdecisiontoday.Istillthinkit'sveryappealing.Itcertainlygivesusabackstopifweweretobecomfortablewithexistingoption,butIdon'twanttoleavetheimpressionthatwe'vemadethatdecisiontodaybecausewewantthattimetoevaluatewheretheprojectisgoing,towhatwethinkinterestratesmightdointhefuture,whatimpacttheycanhaveonescalationandjusttheoveralltimeschedule.


Gotit.Okay.Nextquestionismyunderstandingsofaryourpaymentschedulehasn'treallybeenbasedonthecompletionofmilestones,soyou'llneedtohaveatrue-upofwhathasbeenpaidsofar.Areyouexpectingtobeaheadorbehind?Inotherwords,areyouexpectingtogetsomecashbackfromcostoverrunstoday?

JimmyAddison (CFO):

We'recertainlynotaheadontheschedulebecausethatwasoneofthethingsthatdrove--thatwasbehindmanyofthe(inaudible)ontheprojectthatweresolvedwiththisamendment.Intheoriginalagreement,thereweretwotypesofpaymentstobemade.Someofthosewerebasedontime,justpassingthetimetableontheschedule,andothersbasedonactualworkdone.Thatgottobefairlycontentiousbecausewefeltlikeinsomecircumstanceswewerebeingbilledforworkthatwasnotbeingcompletedconsistentwiththeschedulewehadagreedtointheoriginalcontract.Whatthisamendmentdoesisitresolvesthosedifferences,soeverythingthathasbeenpaidtodateIthinkI'mconfidentinsayingthatwasforworkthat'sactuallybeenperformedontheproject.We'recertainlynotaheadofschedule.




Sowhatwe'lldoiswe'regoingtoworkwithWestinghouseandFluorverycarefullytocomeupwithanewconstructionpaymentmilestoneschedule.Itwilltakeaboutfivemonthstodothat,we'veestimated,soduringthattimeon%basiswe'llbepaying$millionandthenattheendofsixmonthsthatwillbetruedupsowewon'tbeaheadorbehindatthatpoint,andthenfromthatpointononceweagreetotheschedule,paymentswillbemadeasmilestonesareachieved.Andthatwillbeverysimplyifthework'sdonethey'llbepaid.Iftheworkisnotdoneinaccordancewiththeschedule,regardlessofhowmuchtimehaspassed,therewillnotbeapaymentrequiredfromus.


Andthat$millionis%basis,soour%sharewillbe$million.

JimmyAddison (CFO):

That'sright.Thanks,Steve.


Okayandallofthatisembeddedinthefinancingslideyoushowed?

JimmyAddison (CFO):

Itis,Andrew.SowhatwedidinupdatingthatscheduleissimplytooktheformulathatKevinandStevejustalludedtoandrecastthefirstsevenmonthsaccordingtothatbasisandthenextfivemonthsofwejustusedanestimateofwhatwehadthereexisting.Sowehaveatleastimproveditorwhatweknowforthosefirstfivetosevenmonths.We'rejustgoingtoneedtorefresheverythingoncewegettothatpointwherewe'rereadytotakethisbeforethecommissionandwewillrefreshourCapExandfinancingscheduleatthatpoint.


Okay,great.Lastly,isitsafetoassumethatthefinancingplan,equityinparticular,assumesnobonusdepreciation?Whatwouldthatlooklikeifyoudohaveanextension?

JimmyAddison (CFO):

Bonusdepreciationisintheballparkof$millionayear.That'sthevalueofittousandyouareright,itdoesnotassumethat.


Great,thankyouverymuch.

JimmyAddison (CFO):

Thanks,Andrew.

Operator :

JulienDumoulin-SmithofUBS.

JulienDumoulin-Smith (Analyst-UBS):

Goodafternoon.

JimmyAddison (CFO):




Goodafternoon.


So,withthedepreciationbenefitsinearningsnowhelpingyou,Isupposeyoutellme,drivetowardsclosetoyourauthorizedROE,howareyouthinkingaboutyourearningsgrowthratehere?Obviouslyit'sbetterthanthe%to%.Justthinkingmore[mathematically]here.

JimmyAddison (CFO):

Firstofall,wedohavehistoricallydoneandaformalcommitmentwiththecommissiontorefreshourdepreciationrateseveryfiveyearsorso.Andthat'ssimpleenoughtodoandgetintotherateprocesswhenyouhaveaninflation-relateddrivenratecaseeverytwo,three,fouryears.SincewehavethestrategyofstayingoutofanybaserateincreasesotherthantheBLRA,weweregettingonoutsideofthattimeframe,sowerefreshedit,wenttothecommission,askedthemtoapproveit,theydidandwehaveimplementedthatnowforandforward.So,itiskindofaone-timeresetifyouwill.

Ultimately,itwillallbekindofputbackintothewholerateprocessatsomepointdowntheroadaftertheBLRAisoverandthenewunitsareinplace.Inthemeantimeyoucouldsaywemightbeontheupperedgeorslightlyoutsidethebandintheveryshortrun,butthatguidanceisathree-tofive-yearintermediatebandandnotjustaone-yearband.Idon'tknowthatthatreallyputsusoutsideofthatthree-tofive-yearbandbecauseweresetthateveryyear.


Butjusttoclarifyrealquickly,intermsofearningyourROEnextyear,there'snoreasonwhythisstepupthatyou'reseeingwiththedepreciationstudythat'sarealsustainablebenefitaccruingtoyouguys?

JimmyAddison (CFO):

Itis.


Untilthenextratecasepresumably,asyousaid?

JimmyAddison (CFO):

That'srightandeverythinggetsresetthen,butwe'recomfortablewithourstrategyofearninginthat%to.%rangeonthebaseelectricbusinessforthenextthreeyearsbasedonwhatweknowtoday,obviously.


Gotit.

JimmyAddison (CFO):

Basedonwhatweknowtoday,obviously.


Right.Andthenletmecutbacktothesalesgrowthexpectation.DidIhearyourightinsayingaslightdeclinenextyearinthebaselineforecastfortheguidance?Andcanyouexpandonwhythatmightbegiventheyear-to-dateexperience?




JimmyAddison (CFO):

Yes,becausetheyear-to-dateexperienceisinconsistentwiththelasttwoyears.Ifwewereconfidentthatweweregoingtogetgrowthyear-over-yearfromtowewouldhavemoreupside.Honestly,IhopeweexperiencethatbecausethatisagreatsignaloftheeconomyinSouthCarolinaifthatisthecase.Butatthispointourbestmodelingsaysthatforthefirsttimeitwillbealmostawashbetweentheincrementalmarginfromnewcustomersoffsetbytheslightmargindeclinefromallcustomersduetoenergyefficiency,etcetera.Honestly,that'sagoodsignforusbecauseasourwholeindustryhasdealtwiththelastseveralyears,thecustomergrowthhasbeenoverwhelmedbytheefficiencyandthedeclineinaverageuse.We'regladwe'rebacktobeabletoprojectthebreakevenandIhopewehavethechallengethatyoualludedtobecausethat'sgoodnewsfortheeconomy.


Right.Andthereisnospecificcustomerclassherethatyou'rehighlightingthatwoulddrivethat,right?

JimmyAddison (CFO):

No,butthepredominanceofitisintheresidentialcommercialclasses.


Right.Absolutely.Alright.Great.Thankyou.Congratsagain.

Operator :

JimvonRiesermannofMizuhoSecurities.

JimvonRiesemann (Analyst-MizuhoSecuritiesUSA):

Hey,guys.Congratulationsonthesettlement.

JimmyAddison (CFO):

Thankyou,Jim.


Ijustwantedtofollow-uponsomeofJulien'squestions.Howmuchisthedepreciationeffectsupposedimpactfourthquarterearnings?

JimmyAddison (CFO):

Jim,it'sabouta$.perquarterrunrate,so$.ayear.


Okay.Andthen--soIguessafollowupquestiontothatisyourtrailingis,what,$[]to$[]andyourinternalmidpointbeforewas$[]onaweather-normalizedbasis.Doyouexpecttohitthatnumber?

JimmyAddison (CFO):

Doexpecttohitwhichnumber?


The$[]number,yourinternaltargetnumber?




JimmyAddison (CFO):

Wedo.


Okay.Secondly,switchingovertothesettlement,arethebonuspaymentsincludedinthecapitalcostsorarethoseincremental?

JimmyAddison (CFO):

Theywouldbeincremental,Jim.Theyarenotincludedinthebasecostwedisclosedintheamendment.


Arethoseshareholderbornorcustomerborn?

JimmyAddison (CFO):

Thathasnotbeendetermined.We'llbebeforethecommissionandhaveachancetoexplainbothoftheseoptionsandthenwhichonewechoosetogowith.Sincewedon'tknowexactlywhetherornotthosewillbepaidoutatorwhatamountstheymightbepaidoutinforoneorbothunitsbecauseitisdoneonaperunitbasis,wecan'texactlydetermineifit'sgoingtobepaid.Wewouldliketohavetheseprojectscompletedontimeandhavethataniceproblemtohave.Wewilladdressthatwiththecommission.Iamlikelytobeaskedbythecommissionhowweperceivethatandmyrecommendationwouldbewewaituntiltheendoftheprojecttoseewhatfinalcostscomein.Thatisourmostlikelyrecommendationtothecommissionsincewecan'tdetermineexactlywhatthatwouldbetoday.Thatmightbeinfluencedbywhichoptionwetake,too.


Haveyouguyschattedwithratingagenciesyet?

KevinMarsh (CEO):

Yes.


Whatwastheresponse?

KevinMarsh (CEO):

Well,theyhavenotpublishedanythingyet.Iexpecttheywillinthenearterm,butjusttocharacterizetheoildiscussionsIthinkitwasgenerallyneutraltopositivewitheachofagencies.


Okay.Andthenlastlycouldyoujusttalkabouthowtherisksgetrebukedfromunderthesettlement?Imeanobviouslyyouabsolvedsomeofyourownriskthatyoubore,buthowmuch--whatsortofriskwouldyousaythatyoustillretainandtheriskthattheconstructionconsortiumretains?

JimmyAddison (CFO):

Well,Iwouldsayourriskprofileundereitheroptionissignificantlyenhanced.Undertheexistingoptionwe'veresolvedalloftheseoutstandingissueseliminatestheriskofpotentiallitigationonthoseissues




andtherisksjustinherentgoingthroughthatprocessovertime.Ithinkthefactthatwesignificantlyraisedtheliquidateddamagesgivesusalotmoreprotection.Undertheexistingcontractualarrangement,ourliquidateddamagesaresixtimeswhattheywereintheoriginalcontract.Westillbeartheriskofpotentialincreasedescalationandjustincreasedinterestexpenseduringthattimeonthetargeteddollarsandthemajorityofdollarstobespentbetweennowandthecompletionoftheprojectareinthattargetbucket.ButIthinkwhenyouaddallofthosetogether,ourriskprofileiscertainlyreducedfromwhereitwasbeforewesignedtheamendment.

Onthefixedpriceoptionthatwehaveinfrontofus,IthinkthatreallyenhancesourriskprofilebecauseweshiftthatescalationriskbacktoWestinghouseandnotonlyriskbutthechangesinlaworchangeordersthatmightbeassociatedwiththeproject.We'vestillgotincentivespayableundereitheroptionthatwouldencouragethemtocompletetheunitsometime.Anythingthathelpsthathappeninaccordancewiththescheduleandtheguaranteedcompletiondateswouldlowerourriskprofile.


Jim,thisisSteve.Iwouldgiveoneamplificationtothat.UndereitherscenarioIthinkwe'veenhancedourriskprofilebecausewherewegetintocommercialdisputeswiththeconsortiumtoday,theylargelyrevolvearoundthedefinitionofachangeinlaw,andtheywouldusethetermregulatory-drivenchange,andthelanguagearoundchangeswe'veworkedonandincorporatedintothisagreementsignificantlyrestrictswhatwouldbeallowedasaregulatory-drivenchange,sowecertainlyimproveditfromthatperspective.Wealsohaveacontract,EPCcontract,rememberthatwassignedinabout,early,andthatwasbasedonthattimeoncurrentrevisionofthedesigncertificationdocument,orDCD,whichwasrev.Wearelicensedtorev.Sotheysubmittedacoupleofrevisionsbetweensigningitandthefinalapproval.Sothathascausedussomecommercialissuesintheinterim.WeresolvedthatdisagreementbyupdatingthecontractDCDrevwhichiswhatwearelicensedto.

KevinMarsh (CEO):

And,Jim,justsoweallgettopitchinonthisone.Oneotherfromafinancialperspective.Undertheoldagreementanytimewedisputedaninvoicewepaid%ofit,asyouareaware.Underthenewarrangement,ifwedisputeitwedon'tpayanythingandwegetafairlyrapidresolutionfromaresolutionboard.So,wethinkthatisamuchbettersituation,too,togetallthepartiestothetableandofcoursethereisonelesspartytogettothetablethantherewasinthepast.


Soletmeasklikeaworstcasebasis-typequestion.HasFluorandWestinghouselookedatthequalityworkthathasbeendonebyCB&I?

JimmyAddison (CFO):

Yes,IthinkthatFluorhasnothadanopportunitytolookatthequality.Fluorwillnottakeoveruntilthedealiseffective.Thereisaperiodoftimeorregulatoryapprovalsofthedeal,standardstuff,perhapscomplicatedslightlybythefactthatToshibaisaforeignentity,sothereareregulatoryapprovalsthatneedtotakeplace.Thatiswhywethinkthatwillbeabouta-daywindowandthatiswhenFluorwillhavetheirfirstopportunitytoassessthingslikequality.ButWestinghousehashadanopportunitytoassessqualityashaveourfolks,andsowedon'tjustrelyonthequalityfromthevendor,inthiscaseCB&I.Wehaveourownqualitygroup,ourownqualityinspectors,andwesendourfolksnotjustofthesitebutwewillsendthemtofacilitiesthataremanufacturingcomponents,whetheritbeCB&Iorsomebodyelse,andwesendthemwhetheritisdomesticallyorinternationally,ourQAQCinspectorshavealotofstampsontheirpassports.WewillbeabletoassureFluorofthequalityoftheconstructionsofar.





Soyou'rehappywiththequality,sothere'sgoingtobenoahhamomentiswhatyouaresaying?

JimmyAddison (CFO):

Wedon'tanticipateanyahhamoments.

KevinMarsh (CEO):

Thankyou,Jim.

Operator :

TravisMillerofMorningstar.

T ravisMiller (Analyst-Morningstar):

Thankyou,thatafternoon.Iwaswonderingonthisregulatorystuffintermsofasettlement,howmuchwereregulatorsinvolvedinthis?Eitheratthefederallevel,nuclearlevel,thestatelevel,wasanybodyinvolvedandwhatdoesthatmakeupintermsofregulatoryinvolvement?

JimmyAddison (CFO):

Theywerenotdirectlyinvolvedinthenegotiations.Certainlywebriefedtheofficeofregulatorystaffbeforewemadeafinalannouncementofthesettlementagreement.Itwasourcommitmenttothecommissionwhenwewereintherethisyeartalkingaboutthecontractchangesandgettingtheapprovalsatthetimefortheexistingcontractthatwewouldcomebacktothemandletthemknowofanychangesinthestatusoftheproject.Weexpecttobebeforethecommissionhereinthenearfutureandtheex-partecommunicationwhichisthequickestwayforustogetinfrontofthemandeducatethemonmoreofthedetailsofthecontractualamendmentsinvolvedandhowtheoptionswouldworkfortheCompanygoingforward.Andofcourseoncewemakeafinaldecisionwe'dbeobligatedtogobackandmakethatfilingtoadjustthetimetablesandtheguaranteed--excuseme,andthecostassociatedwithit.


Okay.Youansweredmostofmysecondquestionthereintermsoftheregulatoryprocessthere.Isthereachancethatregulatorscoulddenyasettlement,sayitisnotincustomer'sinterest?

JimmyAddison (CFO):

Certainlytheyhavegotthatoption.Everytimewegoin,ourcommissionhasbeenverysupportiveofwhatwe'vedoneonthisprojectinthepast.TheyviewitascriticalnotjusttoprovideenergytocustomersofSouthCarolinabutasakeycomponentofourresponsetotheDcleanpowerplants,soitisnotjustusbutalsoforourpartner,SanteeCooper.Sowefeellikewe'rewithintheguidelinesofthechallengesputbeforeustotrytocompletetheproject.Dependingonwhichoptionweelect,wewillgobackandpresentourcasetothecommissionastowhywedecidedtocontinuedownthesamepathorwhywebelieveitisthebestinteresttoelectthefixedoption.Theygenerallylistentoourtestimonyandevaluatedthatandmadeafairdecision.Icertainlycan'tguaranteethatbutIfeellikewewoulddoagoodjobexplainingourpositiontothecommissioninawaythattheycouldmakeaveryfairevaluationofourelection.





Okay.Andwhatkindoftimelinewouldthatbeon?

JimmyAddison (CFO):

Whenwemakethedecision,oncewemakethefilingtheyhavesixmonthstorenderadecision.Soifweweretomakeadecision,forexample,toelectthefixedpriceoptioninearlyJunenextyear,theywouldhavetomakethatdecisionbyearlyDecember.Soit'sasix-monthwindowfromstarttofinish.


Gotit.Thankssomuch.Iappreciateit.

JimmyAddison (CFO):

Yes,sir.

Operator :

PaulPattersonofGlenrockAssociates.

PaulPatterson (Analyst-GlenrockAssociates):

Goodafternoon.

KevinMarsh (CEO):

Hey,Paul.


Doesthefixedpriceoptionscoverallmaterialsandlabororjustsomeofthem?

JimmyAddison (CFO):

ItcoversallremainingworktobedoneunderthecontractfromnoworactuallyfromJuneuntilcompletion.


Soitcoverseverything?

JimmyAddison (CFO):

Yes.


Okay.Andthenisthereanychangeinyourfinancingexpectationsoranythingasaresultofifyoudidmovetothefixedprice?

JimmyAddison (CFO):

Paul,letmegobackandaddonethingtomypreviousanswer.Itdoescoverconstructioncosts.Westillhavetransmissionworktobedone,butthatisincludedinthetotalexpectedprojectcostsweprovided,sothosenumbersareallincludedintherebecausethetransmissionisoutsideoftheEPCcontractaswellasowner'scost.





Ontoyournextquestionaboutfinancing.Nochangeinourphilosophyof/debtandequity.WejustneedtogetthroughtheprocessofreassessingFluor,makingouroptionchoice,goingtothecommissionandgettingthatapprovalhopefully,andthenrecastingthepaymentsaccordinglyandconformourfinancingscheduletothat.


Okay.Andthenthere'ssomefabricationdiscussionofmovingthefabricationfromFloridatootherplaces.Isthataffectedbytheamendedagreement?


Paul,thisisSteve.ThediscussionaboutthefacilityinFloridathatwasfabricatingsomeofthesubmodules,thatwasgoingtobethecasewhetherwestayedundertheexistingcontractorgoundereitherthetwooptionsthatwe'reproposing.Sothere'safacilityinFloridaandtheyaremovingthatworkfromthatfacilityinFloridabacktotheLakeCharlesfacilityforthetrailingunit,andfortheleadingunitwe'reactuallytakingthosecomponentstooursiteandwe'refinishingthesubmodulefabricationtherebeforewefathomintothelargermodules.


Whyisthat?Whyisitbeingmoved?Whatwasthereasonforthechange?


Ithinkitistwothings.One,thatfacilityhadsomeissuesbetweenthemselvesandCB&Iand,secondly,theyhadalotofworktodo,thingswerebackingup.Theydidhavesomequalityissueswhiletheycameuptospeedandwejustthinkwecandoitmoreexpeditiouslyatoursite.


Okay,great.Thankssomuch.

KevinMarsh (CEO):

Thanks,Paul.

Operator :

FelixCarmenofVisiumAssetManagement.

FelixCarmen (Analyst-VisiumAssetManagement):

Hi.Goodafternoon.Congratulationsonthequarter.Sorryifthiswasalreadyasked.Ijustwantedtoclarify.Inourguidancenumber,whatareweassumingforthebaseelectricbusiness?

JimmyAddison (CFO):

Wehaven'tbeenexplicitaboutanROE,buttodaywe'reatabout.%andwe'recomfortablewe'llbeinthatbandof%to.%forthenextthreeyearsbasedonourassumptionstodate.


Soisitokaytoassumethatthenexttimewefollowratecasetherewouldbeafterthethree-yearcycle?

JimmyAddison (CFO):




Weclearlysetourstrategytonotfileabaserateincreasewhilewe'redoingthesenuclearpeakconstructionyearsso,yes,thatisasafeassumption.


Okay,thankyou.

JimmyAddison (CFO):

Share.

Operator :

MichaelLapidesofGoldmanSachs.

MichaelLapides (Analyst-GoldmanSachs):

Hey,guys.CongratsonthearrangementwithWestinghouse,Toshibaetcetera.Itsoundslikeagreatdealandlookforwardtochattingwithyouaboutinmoredetail.Acoupleofminorquestions.Firstofall,canyougiveusanupdateonhownuclearCapExisprogressing?Inoticedthetabledidnothavenumbersonitandjustwantedtoseerelativetoyourlastdisclosurewhetherthere'sbeenanychangetobeexpectedspendthisyearontheproject?

JimmyAddison (CFO):

Yes,Michael,wearealittlebehind.OurexpectedspendthereI'dsayinthe$millionorsorange.Idon'tknowalotofthatwillbemadeupbetweenobviouslywithonlyacouplemonthsleftinthetransitiongoingonnow,butthat'skindofwherewearethroughtheyear,yeartodate.


Gotit.Okay.Soweshouldbringdownournumberalittlebitandjustassumethatisembeddedineitherthe-timelineorinthelastyearorsooftheproject?

JimmyAddison (CFO):

Youcaninyourassumptions.Iwouldtellyouthatfromourbasisitisinourguidancebothforand.


Gotit,okay.RealquickontheDNAstudyandtheimpact,IwanttomakesureI'mcapturingtheEPSimpactofthiscorrectly.So,nextyearwhatistheincrementalEPSimpactinthatyou'renotgoingtorecognizein?

JimmyAddison (CFO):

About$.willimpactandanincremental$.inforanaggregate$.andthatwillbetherunrateforforward.


Gotit.IwanttomakesureItiethatbackbecauseintheslidedeckitmentions$.inthisquarterinthirdquarter.Isthatjust--it'snotthefull$.becauseoftheratecreditthatwasdoneorthereductionthatwasdoneonthedeferredfuelbalance?

JimmyAddison (CFO):

That'sexactlyright.Wedidrecordthreequarters'worthinintothirdquarterbecauseitappliedbackto




January,butthefirsttwoquarterswenttooffsetthefuelsoyouonlygotnetincomeimpactofonequarterinthroughtheQrecording.


Gotit.Lastthing.InlookingattheCapExscheduletheutilityCapExinNorthCarolinaatthegasutilitythere,itseemslikeit'sagoodbithigherwhenwegetouttoand.Canyoutalkaboutthat,talkaboutthetimingandplansforpotentialratecasefilingsandhowyouwouldorarethereothermechanismsthatcangiveyougreatreliefafterspendingandsignificantcapitallevelthere?

JimmyAddison (CFO):

Obviouslythelowpriceofnaturalgasisdrivenalotofopportunityforindustryforelectricgenerationfromgasplants,etcetera,andthathascertainlybeenthecaseinNorthCarolina.Wehavehadalotofopportunitiesthathavepoppedup.Wehaveexecutedsomecontractsinthelastquarterortwothathavedriventhisneedtoenhanceourexistingplanstogrowthetransmissionsystem,sothat'swhatreallydrivingthesenumbers.Clearlyitisstartingtodrivedowntheearnedreturnandsoitwilldrivetheneedforarateproceedingitsometimeinthefuture.We'venotmadeanyfinaldecisionsonthat,butIexpectwewillhavesomeannouncementaroundthatin.


Gotit.Somaybeacaseinimplementedinoracaseinimplementedin,kindofsomewhereinthattimehorizon?

JimmyAddison (CFO):

Again,haven'tmadeanyfinaldecisionsbuttodayIwouldsayit'smorelikelyyourfirstscenariothanthesecond.


Gotit.Okay.Thanks,guys.Muchappreciated.

JimmyAddison (CFO):

Sure.

Operator :

DanJenkinsofStateofWisconsinInvestmentBoard.

DanJenkins (Analyst-StateofWisconsinInvestmentBoard):

Hi,goodafternoon.

KevinMarsh (CEO):

Hi,Dan.


JustfollowingonMichael'squestionsthereontheCapExchanges.Iwaslookingattheprior(inaudible-audiolow)itlookslikewasupbyabout$million--no,about$millionandisupbyabout$millionversuswhatyouhadinlastquarter'sslides.Wasthatduetotheadditionaldelaysoristhatduetoworknotgettingdoneinthat'spushedintoorhowshouldIthinkaboutthat?




JimmyAddison (CFO):

Dan,areyoutalkingaboutthetotalCapExbecausethenumbersIhavearethatweareupabout$millionforanddownabout$millionforoverall?


I'mlookingatthebottomofthetotalestimatedcapitalexpendituresatthebottom.

JimmyAddison (CFO):

Weareonlyattoabout--sorry,yougoahead.


SotheslideI'mlookingatlastquarterversusestimatedat[]andforhad[]?

JimmyAddison (CFO):

ThatisnotwhatIhaveinfrontofme.Wewillhavetoclearthatup.


ThisiswhatI--Ijustpulleditupfromthewebsite.

JimmyAddison (CFO):

Letmegiveyoualittlecoloronwhatwehavechanged.So,we'vemadethebestestimatewecanonthenuclear,asIdescribedearlierforbasedupontherevisedagreement.TheotherthingwehavedoneistherearereductionsintheSCE&GbaseelectricbusinessjustbaseduponourcommitmenttoscrubtheCapExforthatbusinessandtrytoavoidanybaseelectricrateincreases.TheothersignificantchangeisaddingtheCapExtotheNorthCarolinagassystem,PSNCEnergy,andsowehadabout$millioninand$millioninfromPSNC.Sothosearethethreelargechanges.For,$milliondowninelectric,[]upatPSNC,and[]upinnuclear.


Okay.ThenIhadaquestiononslideonthecustomersalesandcustomergrowth.

JimmyAddison (CFO):

Yes.


Againlookingatlastquarter's(inaudible-audiotoolow),Irealizetheseare--I'mlookingatthetableatthebottomforkilowatthours.Irealizethisismonthsendingnumbers,buttherearebigchangesandtheweathernormalizedsotheresidentialwentfrombasicallynegativebasispointstopositiveandcommercialfrompositivetopositive,andthenconverselyindustrialwentfrom.%downto.%,soareyouseeingthatkindofbigchangesfromquartertoquarterorwhat?Canyougiveusmorecoloronwhat'sgoingoninthebandfromthevariouscustomersegments?

JimmyAddison (CFO):

WeareseeingthatkindofchangefromquartertwoquarterandIwouldtellyouthatitprobablyhasmoretodowiththeslidebeforethatontheeconomythananythingelseinouropinion.Letmegiveyoualittle




moredepthonthat.SoasIsaidinmyearlierpreparedcomments,thereare,moreSouthCaroliniansworkingtodaythantherewereayearago.Theunemploymentratehasdroppedfrom.%to.%,butthatonlytellspartofthestory.Theworkforcehasexpanded%.So,iftheworkforcewerethesameleveltodaythatitwereayearago,theunemploymentratewouldbelessthan%inSouthCarolina.

Sotheindustrialrecruitmentinthestatehasbeenarealhomerun.Ourgovernorhasmadethatcentraltoherplatformandshehasbeenextremelysuccessful,andwe'veseenitintheRNCmarketsasaresultofthat.Now,contrastthattoNorthCarolinawheretheworkforcehasexpanded.%contrastedtoGeorgiawhereit'sactuallyslightlydown,almostbreakeven,year-over-year.SouthCarolinaisreallygrowing.


Iguesskindoftheconcernthoughisthebigslowdownintheindustrialsectorandwhatthatmightmeangoingforward.Doyoumaybehaveanycolorastowhythatdroppedsomuch?

JimmyAddison (CFO):

Idon't.Idon'thaveanyspecificlargeclosingsoranythinglikethatthathasdrivenit,thatI'maware.I'mnottooconcernedaboutthemintheshortrun.Iknowthepipelineofprojectsthatwe'retalkingaboutthatcouldbecomingaroundthecorner.Ijustmetthisweekwithourheadofindustrialareaabouttwonewpotentiallargeprojectsinthearea,soIreallydon'thaveanyspecificconcernthere.Ithinksomeofthosemayberelatedtoreal-timepricingcustomersthatchosetocomeoffthesystemduringtheheatofthesummerratherthanpaysomeofthepricestheymighthavehadtopay.


Okay.Andthenmylastsetofquestionsisrelatedtothenuclearconstructionscheduleandkindofthecriticalpathitems.ItsoundslikemaybeforunititistheCA?Isthatcorrect?

KevinMarsh (CEO):

Sayagain,Dan?


Thecriticalpathitemsbothforunitand,soisthenextoneforunitthatCAthatyousaidisgoingtobeplacedinfirsthalfoforistheresomethingelsebeforethat?

KevinMarsh (CEO):

ThenextoneofthestructuralmodulestobeplacedwillbeCAyoumentioned.Thecriticalpathrightnowontheunitreallyisstillrunningthroughtheshieldbuildingandwedidplacethefirstrowofthoseshieldbuildingpanelslastquarterandweanticipatedoingsomemoreofthoseinthenearfuture,butthecriticalpathfortheunits,reallybothunits,stillrunsthroughtheshieldbuilding.Receivetheshieldbuildingpanels,fituptheshieldbuildingpanels,andthenpouringtheconcreteinthepanelsoncetheyareinplaceandwelded.


Whatabout--soforunitisprettymuchthesameasunitoristheregiventhatthereisayeardifferenceinthekindof--?

KevinMarsh (CEO):

Dan,it'sbasicallythesamestoryforunit.





Okay.Thankyouthat'sallIhave.

KevinMarsh (CEO):

Thanks,Dan.

Operator :

MitchellMossofLordAbbett.

MitchellMoss (Analyst-LordAbbett):

Justwantedtogetacoupleclarificationsonthenuclearcosts?Lookingattheslidethatshowsthedifferentoptions,sorryjust(inaudible--audiotoolow).

JimmyAddison (CFO):

Ithinkthatisslide.


Slide,yes.OftheupdatedamountscomparingtheoldordertobeamendedEPC,istherearoughbreakdownhowmuchofthatisrelatedtothetwomonths'delayandthesubstantialcompletedatesversusincreaseinconstructioncostsorotherstuff?

JimmyAddison (CFO):

Thebiggestpartofthatwouldbeabout$millionamonthandowner'scosts,soapproximately$millionofthatwouldberelatedtothatcategory.


Okay.AndthenifIthinkabouttheaddedcostofgoingfromtheamendedEPCtothefixedpriceoptionitlookslikeit'saround$millionIguessofadditionalprojectcost.IfIdothemathfrompriorpresentation,toCapExisprojectedtobearound$billion.SoshouldIthinkthatthatincremental$millioneffectivelywouldfixtheto?Ifyou'renotgoingtomakeyourdecisionnecessarilyuntillate,theneffectivelyyou'rereallyjustfixingthetoCapEx?

KevinMarsh (CEO):

Well,Mitchell,wearefixingifweelectedthefixedpriceoptionbutitdoesn'ttrackwecorrelatetoanykindofspecificburnrate.Remember,therealdifferenceasyoulookthereatabout$milliondifferenceyoupointout,thatreallyistheriskthatthecontractorwillpriceintofixittous.Sowhatyou'redoingispayingariskpremiumandthey'rehavingtomakeassumptionsaroundthingslikeinflation,whattheescalationratesaregoingtobe.Sothatreallywasanegotiatednumber,butitreallyisreflectiveoftheriskthatnowthecontractorwillhavetotakeoff.

JimmyAddison (CFO):

Mitchell,reflectiveofallpaymentsmadeafterJuneofyear.Ifweelectafixedpriceoption,anythingwepaysinceJuneupuntilthetimeweelectthatoptionwegetcreditforit%.





Mitchell,theCapExscheduleonpage,wemadeourbestestimateofhowthisamendmentwillaffectthecashflowintheshort-termbutasKevinsaidinhispreparedcomments,oncethismilestonepaymentscheduleisdeveloped,we'regoingtohavetocomefromtheCapExschedulethematterwhichoptionwegowithtomatchthat.SothosenumberswillchangeI'msure,Ijustdon'tknowexactlyhowatthispoint.


Sorry,theywillchangebasedonwhat?


ThemilestonepaymentschedulethatKevincoveredearlier,developthismilestonepaymentscheduleisgoingtobetiedtospecificmilestonesbeingaccomplishedandthenwe'llperformourCapExandfinancingscheduletothat,dependinguponwhichoptionweelect.


Okay,butoncethefixedpriceoptionisselectedthatmilestonepaymentschedulewon'tmattersomuch?

JimmyAddison (CFO):

Themilestonescheduleisreallycriticalbecausewhatwe'regoingtodohereforthenextfourorfivemonthsisdevelopaschedulesothere'sclarityastowhatneedstobecompletedforapaymenttobemadetoWestinghouse.Andsooncethatscheduleiscompleted,there'llbedollarsassignedtothatifwecontinueundertheexistingcontract,andthentherewillbedollarsassignedtothatifweweregoingunderthefixedpricecontract.Sotheschedulewillremaininplaceundereitheroption,butthepaymentsthatgoalongwithitwillbebasedonwhetherwetakethefixedpriceoptionorcontinueundertheoptionwe'reworkingundertoday.


Sotocontractthat,we'renotgoingtomakeanypaymentsinthefutureafterthispaymentscheduleisagreedtobaseduponthecalendar.They'regoingtobebaseduponactualresults.


Okay,okay.Thankyouverymuch.

Operator :

(Operator

JulienDumoulin-SmithofUBS.


Heythereagain.Sorrytofollowuphere.Ijustwantedtoreachbackonthefixedpriceoptionandjustkindofunderstandwherethepotentialliabilitiesstilllieonyoursideifthereisindeedaprotractedschedulehere?Couldyouperhapsgiveusasensealittlebitmore--IknowyoucovereditalittlebitwithPaul,buttotheextentyouhaveatimelineshift,whereareyouresponsible,whatspecificcostsareyouresponsibleforinthefixedpriceoptionthatyou'velaidoutifyouchoosetogothatway?

JimmyAddison (CFO):

Okay.Thetotalfixedpriceoptionwouldbe$.billionaswe'velaidoutonslide,thethirdorfourthlinedown.Thatwouldbethetotalexpecttoprojectcost.Ofthat,thecapitalcostportionortheconstruction




contractEPCcontractwouldbe$.billion.Sotheadditionalamountwouldbeescalationtodateontheexistingworkthat'sbeendoneandthensomeadditionaldollars,theadditional$millionassociatedwiththeschedulemovingouttwomonthsforownerscosts,butthebulkofthatisfixedinthefixedpricecontractandthatwouldbebasedonthatguaranteedsubstantialcompletiondates.SounitAugustandunitAugustandtheliquidateddamagesarekeyedoffeachofthosedatesforspecificunits.


Gotit.Couldyougiveusasenseofhowmuchyouwouldbeexposedtoandbywhatvariablesifyouweretohave,forinstance,theshiftoffofthatAugustanddate?Justtokindofgiveusasenseofthemagnitudethere?Iappreciatethatalotofitwouldbepresumablyfixedbut--.


Julien,thisisSteve.TheonlythingthatwouldbefixedwouldbethethingswewouldberesponsibleforoutsideoftheEPCcontract,sothatwouldbeourowner'scostandthenthetransmission,butwecanfinishthetransmissioneveniftheplantsarenotfinished.So,reallyitcomesdowntojustowner'scost.


Canyoureminduswhatthatispermonth?


Yes,we'relookingatourburnrateonowner'scostsomewhereintherangeof$millionamonth.


Gotit,excellent.Well,thankyouagain.

JimmyAddison (CFO):

Yes,Sir.

Operator :

JimvonRiesemannofMizuhoSecurities.


I'mgoingtogobacktodepreciationasecondifyouguysdon'tmind.SowhatweretheassetsthatwerechangedinthedepreciationlinestogetsuchabignumberonanEPSbasis?I'msorryI'veforgottenthat.


Idon'tknowthatyou'veforgottenit,Idon'tthinkit'sbeenpublishedanywhere,butwerefreshedourentirecomprehensivedepreciationstudyacrossthewholeelectricsystem,soincludestheT&Dandthegenerationsystem.


CanyoubucketwhichmighthavebeengenerationversusT&D?I'mtryingtothinkofwhatyourbiggenerationassetsarebecauseonealreadyhasalong,usefullife,right?


We'redowntoaboutfivesignificantgeneratingplantsoutsideofnewnuclear.AndsoIreallycan'tgive




youthebucketsheretoday,Jim.YoucanprobablygotothePSEwebsiteandgetmoredetailsonitpubliclythere.


Okay.


Bigpicture,Jim.Itistryingtomatchuptherealexpectedlivestothedepreciationscheduleandforexampleatournuclearfacilitieswewouldanticipatethatasopposedtojusta-yearlifeextensionthatwewillbepursuingasecondlifeextension,sothatwouldtakethatplantouttoyearstotal.Andthenwe'reusingactualhistoryonsomeoftheplantswebeenoperatingandwe'reextendingthedepreciationscalesoutonthoseplantstoagainmatchupwithwhatwereallythinkistheusefullife.


Okay,thatiswhatIwasafter.Thanks,Steve.

Operator :

DavidFishmanofGoldmanSachs.

DavidFishman (Analyst-GoldmanSachs):

Hey,guys.Thanksfortakingmycall.Ijusthaveaquickfollow-uponwhatMichaelaskedabout.Iwasjustwondering,doesPSNChavehistoricalorforwardtestyears?


Historical.

DavidFishman (Analyst-GoldmanSachs):

Historical.Alright.Great.Thankyou.Congratsagain.

Operator :

FelixCarmenofVisiumAssetManagement.


Justaquickfollow-up.Whenwecomedowntothepointofmakingadecisionbetweenthefixedoptionandthecurrent,woulditmakesensetogetcommissionapprovalpriortochoosingthefixedoptionorhowshouldwethinkaboutthat?

JimmyAddison (CFO):

Thewaytheprocesswouldworkiswehaveanobligationtogobacktothecommissionifthere'sachangeintheprice,thecapitalcostschedulethatthey'vealreadyapproved,soeitheroptionwouldrequireustogobacktothe(inaudible)atsomepoint,soweneedtomakeanelectionofwhichoptionwebelieveissuperiorsowecangobacktothecommissionandaskforapprovalofthatoption.Itwouldn'tbelikelythatwewouldgobacktothecommissionandsaytelluswhichoneyoulikeandwe'llhavedownthatroad.They'lllookforustomakeaspecificrecommendationtothem.





Andwhencanweexpectthattohappen?

JimmyAddison (CFO):

Wehavemonthsfromtheeffectivedatetomakethatoptionso--excuseme,itrunsthroughNovember,.That'sthespecificdateinthecontract.


Okay,thankyou.

Operator :

Ladiesandgentlementhatwillconcludeouranswersession.IwouldliketohandtheconferencebackovertoJimmyAddisonforhisclosingremarks.

JimmyAddison (CFO):

Well,thankyouverymuchandcertainlysofarthisyearhasbeenveryeventful.We'reverypleasedwithourprogresswiththeresolutiontothenegotiationsandwithourfinancialresultsforthefirstthreequarters.Wecontinuetofocusonthenewnuclearconstructionandoperatingallofourbusinessinasafeandreliablemanner,andwethankyouallforjoiningustodayandforyourinterestinSCANA.Haveagoodday.

Operator :

Andtheconferencehasnowconcluded.

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