RATE AND OTHER REGULATORY MATTERS

9 Months Ended

Sep. 30, 2016

Public Utilities Disclosure [Text Block]

RATE AND OTHER REGULATORY MATTERS

Rate Matters

Electric - Cost of Fuel

By order dated July 15, 2015, the SCPSC approved a settlement agreement among SCE&G, ORS and certain other parties concerning SCE&G's petition for approval to participate in a DER program and to recover DER program costs as a separate component of SCE&G's overall fuel factor. Under this order, SCE&G will, among other things, implement programs to encourage the development of renewable energy facilities with a total nameplate capacity of at least approximately 84.5 MW by the end of 2020, of which half is to be customer-scale solar capacity and half is to be utility-scale solar capacity.

By order dated April 29, 2016, the SCPSC approved a settlement agreement among SCE&G, ORS and certain other parties to decrease the total fuel cost component of retail electric rates. SCE&G reduced the total fuel cost component of retail electric rates to reflect lower projected fuel costs and to eliminate over-collected balances of approximately $61 million for base fuel and environmental costs over a 12-month period beginning with the first billing cycle of May 2016. SCE&G also began to recover projected DER program costs of approximately $6.9 million beginning with the first billing cycle of May 2016.

Electric - Base Rates

Pursuant to an SCPSC order, SCE&G removes from rate base certain deferred income tax assets arising from capital expenditures related to the New Units and accrues carrying costs on those amounts during periods in which they are not included in rate base. Such carrying costs are determined at SCE&G’s weighted average long-term debt borrowing rate and are recorded as a regulatory asset and other income. Carrying costs during the three and nine months ended September 30, 2016 totaled $3.5 million and $10.0 million, respectively. During the three and nine months ended September 30, 2015, carrying costs totaled $2.4 million and $6.5 million, respectively. SCE&G anticipates that when the New Units are placed in service and accelerated tax depreciation is recognized on them, these deferred income tax assets will decline. When these deferred income tax assets are fully offset by related deferred income tax liabilities, the carrying cost accruals will cease, and the regulatory asset will begin to be amortized.

By order dated April 29, 2016, the SCPSC approved SCE&G’s request to increase its pension costs rider. Under the terms of the order, SCE&G may request an annual adjustment to the pension rider. The increased pension rider is designed to allow SCE&G to recover projected pension costs, including under-collections, over a 12-month period, beginning with the first billing cycle in May 2016.

In April 2016, ORS filed a report arising from its review of SCE&G’s annual DSM Programs rate rider filing. ORS concluded the updated DSM Programs rider proposal was developed in accordance with terms and conditions approved by the SCPSC in prior orders and recommended that SCE&G's request be approved. By Order dated April 29, 2016, the SCPSC accepted ORS's recommendations and approved SCE&G's request to recover $37.6 million of costs and net lost revenues along with a shared savings incentive associated with the DSM Programs.

Electric - BLRA

On May 26, 2016, SCE&G petitioned the SCPSC seeking approval to update the capital cost schedule and construction milestone schedule for the New Units consistent with the October 2015 Amendment. Within this petition, SCE&G also informed the SCPSC that it had notified WEC of its intent to elect the fixed price option, subject to concurrence by Santee Cooper and approval by the SCPSC. The petition reflects an increase in total project costs of approximately $852 million over the cost approved by the SCPSC in September 2015, of which approximately $505 million is directly attributable to the fixed price option. On July 1, 2016, SCE&G reduced the total project cost amount set forth in its petition to $846 million. SCE&G's estimated gross construction cost for the project is now estimated to be approximately $7.7 billion, including owner’s costs, transmission, escalation and AFC. SCE&G executed the fixed price option on July 1, 2016, for itself and on behalf of Santee Cooper, subject to SCPSC approval.

On September 1, 2016, SCE&G, ORS and certain other parties entered into a settlement agreement related to SCE&G’s May 26, 2016 petition to update construction and capital cost schedules, including SCE&G’s election of the fixed price option included in the October 2015 Amendment. Under the terms of the settlement agreement, the settling parties agree to support SCPSC approval of the updated construction schedule, which indicates substantial completion dates of August 2019 and August 2020 for the New Units, and SCE&G’s election of the fixed price option. In addition, the settling parties agree to the inclusion of an additional $831 million in the capital cost schedule and to revise the allowed ROE for the New Units from 10.50% to 10.25%. The revised ROE will be applied prospectively for the purpose of calculating revised rates sought by SCE&G under the BLRA on and after January 1, 2017, until such time as the New Units are completed. Also, pursuant to the settlement agreement, SCE&G agreed not to file any future requests to amend its capital cost schedule prior to January 28, 2019. For those capital costs which were included in the total project amount set forth in SCE&G’s petition but not included in the capital cost schedule as agreed upon by the settling parties, SCE&G may seek to include those costs in its calculation of revised rates after January 2019. The settlement agreement is subject to SCPSC approval. A public hearing on this matter was held in October 2016, and the SCPSC is expected to issue its order in November 2016. See also Note 9.

On October 19, 2016, the SCPSC approved an increase of approximately $64.4 million, or 2.7%, in SCE&G's retail electric rates under provisions of the BLRA. The rate increase is effective for the first billing cycle on or after November 27, 2016.

Gas - SCE&G

By order dated October 13, 2016, the SCPSC approved SCE&G's quarterly monitoring report for the 12-month period ended March 31, 2016, and an approximately $4.1 million, or 1.2%, overall increase to its natural gas rates under the terms of the RSA. The rate adjustment will be effective for the first billing cycle in November 2016.

SCE&G's natural gas tariffs include a PGA that provides for the recovery of actual gas costs incurred, including transportation costs. SCE&G's gas rates are calculated using a methodology which may adjust the cost of gas monthly based on a 12-month rolling average, and its gas purchasing policies and practices are reviewed annually by the SCPSC. SCE&G's annual PGA hearing for the 12-month period ending July 31, 2016, was held on November 3, 2016, and the SCPSC's decision is pending.

Gas - PSNC Energy

On October 28, 2016, the NCUC granted PSNC Energy a net annual increase of approximately $19.1 million, or 4.39%, in rates and charges to customers, and set PSNC Energy's authorized ROE at 9.7%. The rate increase is largely associated with recovering costs related to expanding and operating PSNC Energy's pipeline system. In addition, PSNC Energy was authorized to implement a tracker that provides for biannual rate adjustments in order to recover the revenue requirement associated with integrity management plant investment and associated costs incurred by PSNC Energy resulting from prevailing federal standards for pipeline integrity and safety that are not otherwise included in current base rates. The new rates are effective for services rendered on or after November 1, 2016.

Regulatory Assets and Regulatory Liabilities

Rate-regulated utilities recognize in their financial statements certain revenues and expenses in different periods than do other enterprises. As a result, the Company and Consolidated SCE&G have recorded regulatory assets and regulatory liabilities which are summarized in the following tables. Other than unrecovered plant, substantially all regulatory assets are either explicitly excluded from rate base or are effectively excluded from rate base due to their being offset by related liabilities.



	The Company				Consolidated SCE&G
Millions of dollars	September 30, 2016		December 31, 2015		September 30, 2016		December 31, 2015
Regulatory Assets:
Accumulated deferred income taxes	$	301	$	298	$	294	$	291
Environmental remediation costs	33		42		26		35
AROs and related funding	402		405		380		384
Deferred employee benefit plan costs	311		325		282		295
Deferred losses on interest rate derivatives	791		535		791		535
Unrecovered plant	119		127		119		127
DSM Programs	58		61		58		61
Deferred costs related to uncertain tax position	14		—		14		—
Other	173		144		150		129
Total Regulatory Assets	$	2,202	$	1,937	$	2,114	$	1,857



Regulatory Liabilities:
Asset removal costs	$	756	$	732	$	533	$	519
Deferred gains on interest rate derivatives	80		96		80		96
Other	28		27		17		20
Total Regulatory Liabilities	$	864	$	855	$	630	$	635

Accumulated deferred income tax liabilities that arise from utility operations that have not been included in customer rates are recorded as a regulatory asset. A substantial portion of these regulatory assets relate to depreciation and are expected to be recovered over the remaining lives of the related property which may range up to approximately 85 years. Similarly, accumulated deferred income tax assets arising from deferred investment tax credits are recorded as a regulatory liability.

Environmental remediation costs represent costs associated with the assessment and clean-up of sites currently or formerly owned by the Company or Consolidated SCE&G, and are expected to be recovered over periods of up to approximately 18 years.

AROs and related funding represents the regulatory asset associated with the legal obligation to decommission and dismantle Summer Station and conditional AROs related to generation, transmission and distribution properties, including gas pipelines. These regulatory assets are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 110 years.

Employee benefit plan costs of the regulated utilities have historically been recovered as they have been recorded under GAAP. Deferred employee benefit plan costs represent amounts of pension and other postretirement benefit costs which were accrued as liabilities and treated as regulatory assets pursuant to FERC guidance, and costs deferred pursuant to specific SCPSC regulatory orders. In 2013 SCE&G began recovering through utility rates approximately $63 million of deferred pension costs for electric operations over approximately 30 years and approximately $14 million of deferred pension costs for gas operations over approximately 14 years. The remainder of the deferred benefit costs are expected to be recovered through utility rates, primarily over average service periods of participating employees, or up to approximately 12 years.

Deferred losses or gains on interest rate derivatives represent (i) the effective portions of changes in fair value and payments made or received upon settlement of certain interest rate derivatives designated as cash flow hedges and (ii) the changes in fair value and payments made or received upon settlement of certain other interest rate derivatives not so designated. The amounts recorded with respect to (i) are expected to be amortized to interest expense over the lives of the underlying debt through 2043. The amounts recorded with respect to (ii) are expected to be similarly amortized to interest expense through 2065 except when, in the case of deferred gains, such amounts are applied otherwise at the direction of the SCPSC.

Unrecovered plant represents the carrying value of coal-fired generating units, including related materials and supplies inventory, retired from service prior to being fully depreciated. Pursuant to SCPSC approval, SCE&G will amortize these amounts through cost of service rates over the units' previous estimated remaining useful lives through approximately 2025. Unamortized amounts are included in rate base and are earning a current return.

DSM Programs represent SCE&G's deferred costs associated with such programs, and such deferred costs are currently being recovered over approximately five years through an approved rate rider.

Deferred costs related to uncertain tax position primarily represent the estimated amounts of domestic production activities deductions foregone as a result of the Company’s deduction of certain research and experimentation expenditures for income tax purposes, net of related tax credits, as well as accrued interest expense and other costs arising from this unrecognized tax benefit. SCE&G's current customer rates reflect the availability of domestic production activities deductions. These net deferred costs are expected to be recovered through utility rates following ultimate resolution of the claims. See also Note 5.

Various other regulatory assets are expected to be recovered in rates over periods of up to approximately 30 years.

Asset removal costs represent estimated net collections through depreciation rates of amounts to be incurred for the removal of assets in the future.

The SCPSC, the NCUC or the FERC has reviewed and approved through specific orders most of the items shown as regulatory assets. Other regulatory assets include, but are not limited to, certain costs which have not been specifically approved for recovery by the SCPSC, the NCUC or by the FERC. In recording such costs as regulatory assets, management believes the costs will be allowable under existing rate-making concepts that are embodied in rate orders. The costs are currently not being recovered, but are expected to be recovered through rates in future periods. In the future, as a result of deregulation or other changes in the regulatory environment or changes in accounting requirements, the Company or Consolidated SCE&G could be required to write off its regulatory assets and liabilities. Such an event could have a material effect on the Company's and Consolidated SCE&G's financial statements in the period the write-off would be recorded.

SCEG

Rate Matters [Line Items]