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SCE&G seeks rate increase
By Molly Parker
Staff Writer
South Carolina Electric & Gas Co. is seeking its third rate increase in just four years, saying the state’s rapidly growing population has forced the company to invest millions in new infrastructure to serve business and residential customers.
The Public Service Commission of South Carolina is scheduled to hear the rate case on Oct. 31 in Columbia to determine whether the 6.75% increase SCE&G seeks is a fair request. The company estimates the increase will translate into an additional $118 million annually.
The money would be used to make up for the $300 million SCE&G said it has been forced to spend during the past three years to build transmission and distribution facilities throughout the region.
But it also means businesses and customers will have to reach a little deeper into their pockets, a potential knock on a state hoping to grow its economic base.
“You always have concerns it could affect economic development, to have (rate) increases,” said Dukes Scott, executive director of the state Office of Regulatory Staff, formed three years ago to weigh all interests and make recommendations in rate cases. “That’s why it’s such a balancing process.”
Scott”s office is currently facilitating discussions between the utility and the organizations that have filed objections with the Public Service Commission, which acts as the judge in rate hearings, he said.
“Certainly there could be a reduction from what they requested,” Scott said. “That’s a possibility. I’m not saying there will be, but that’s a possibility.”
Ensuring the utility is financially healthy is also important for the state, he said. SCE&G, the largest subsidiary of SCANA Corp., serves about 630,000 customers in 26 counties in the central, southern and southwestern regions of the state.
Earlier this month, Standard & Poor’s downgraded SCANA Corp.’s financial outlook from “stable” to “negative,” citing its “weaker financial profile characterized by high debt leverage” and a “higher-than-expected capital spending program to address environmental compliance, new generation and customer growth needs.”
In its first-quarter filing for 2007, SCANA Corp., which services South Carolina, North Carolina and Georgia, noted that it spent an additional $9.3 million because of higher expenses for electric generation, transmission and distribution. It also reported spending an additional $3.4 million on increased incentive compensation for employees and other benefit costs.
Still, the company’s financial report was positive for the first half of the year.
SCANA Corp. did report a small loss in consolidated earnings for the second quarter of the year compared to the first six months of 2006 at $55 million, or 47 cents a share, compared to $58 million, or 50 cents a share. Part of the previous year’s boom, however, was a $5 million windfall triggered by a lawsuit settlement.
Excluding that, earnings were up and exceeded Wall Street’s expectations. The gain was credited to “improved electric and natural gas sales margins, which offset higher expenses and lower off-system sales of electricity,” a company statement read.
The last time SCE&G increased its electric rates was in January 2005 when they rose by an average of 4.51%. Two years earlier, SCE&G had increased rates 5.05%. Both times the company requested more than it was ultimately granted by the Public Service Commission.
In the 2002 rate request, SCE&G asked for double-digit increases, as high as 14% for small-business users.
The company’s top executives were rewarded generously in 2005, two years after the previous rate increase went into effect and the last year for which executive salaries are available.
SCANA CEO William Timmerman earned $2.4 million in 2005 in salary, bonuses and other compensation, compared to $1.7 million in 2003, according to U.S. Securities and Exchange Commission records. Including stock gains, he received about $3.9 million in compensation, ranking him 279th among top-earning executives in Forbes’ 2005 annual report.
Scott Elliott, attorney for the S.C. Energy Users Committee, which represents manufacturers and large industrial users in rate cases, said his clients understand that SCE&G needs to make a fair profit. But they also are concerned about their own bottom lines and the economic vitality of the state.
“We need competitive rates for the manufacturers in this state to retain jobs and promote job growth,” Elliott said, noting many in his membership would end up paying thousands more a year if the rate request is approved.
“My membership understands SCE&G is a private, for-profit cooperation that is entitled to earn a fair return on its investment. We have no dispute of that. We have in this proceeding disputed the company’s idea of what a fair return ought to be.”
If approved, the increase will take effect on Jan. 1.
While the average rate increase SCE&G seeks is 6.75%, residential and business customers would pay varying increases. The rate increase breaks down in the following ways:
• 7.49% for residential customers
• 5.83% for small commercial customers
• 6.87% for medium commercial customers
• 5.96% for large commercial/industrial users
Part of the reason for the latest requested increase, SCE&G said, is the rising cost of materials used in building infrastructure. The company said it has seen a 30% to 45% increase in the costs of underground and overhead transformers and pole hardware. Wire and cable prices spiked about 170% during the past several years.
“In short, our rates are going up because the cost of serving our customers safely and reliably has gone up,” SCE&G President Kevin Marsh said in a statement.
As a regulated public utility, SCE&G must have all rate increases approved by the Public Service Commission, which is charged with regulating what is essentially a monopoly.
Frank Knapp, president of the S.C. Small Business Chamber of Commerce, said he just wants to ensure that his members are treated fairly in the proceeding.
His organization has an interest in maintaining a healthy utility industry to serve the state’s economic base, but SCANA has a healthy profit margin, he said.
“We think it is a little high,” he said of the current rate request.
The Kroger Co. also is one of several companies set to appear before the commission when the hearing begins at the end of the month. In its letter to the commission, the company states that numerous grocery stores located throughout the state purchase millions of kilowatt hours in electricity from SCE&G and argue that the increase could “substantially impact” the stores’ bottom lines.
The Department of the Navy and Wal-Mart Stores East have also filed to appear before the commission.
A residential customer using 1,000 kilowatt hours of electricity will pay about $7.62 more a month, the company estimates. While that is not a huge increase, Richard Johnson, who is planning to retire in South Carolina, wrote the commission that it will only make matters worse. SCE&G’s rates are almost double what he’s paying now in Kingsport, Tenn.
“Having the highest electric rates in the nation will not help South Carolina’s economy, nor will it encourage people like us to retire to such a high cost-of- living area,” Johnson wrote.
Not everyone is objecting, though.
Commercial Metals Company America, based in Cayce, also filed to testify at the hearing, but recently withdrew its request.
“We don’t want to pay more money for electricity than anybody else, but we thought it was justified, and there was no point in testifying,” said Avery Hilton, the company’s executive vice president of mills.
Molly Parker is a reporter at the Business Journal. E-mail her directly at mparker@setcommedia.
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