RATE AND OTHER REGULATORY MATTERS

6 Months Ended

Jun. 30, 2017

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 SCE&G's participation in a DER program and to recover related 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 27, 2017, the SCPSC approved a settlement agreement among SCE&G, ORS and SCEUC, to increase the total fuel cost component of retail electric rates. SCE&G agreed to set its base fuel component to produce a projected under recovery of $61.0 million over a 12-month period beginning with the first billing cycle of May 2017. SCE&G also agreed to recover, over a 12-month period beginning with the first billing cycle of May 2017, projected DER program costs of approximately $16.5 million. Additionally, deferral of carrying cost will be allowed for base fuel component under-collected balances as they occur.

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 six months ended June 30, 2017 totaled $4.3 million and $8.6 million. During the three and six months ended June 30, 2016, carrying costs totaled $3.5 million and $6.6 million. 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. See also Note 9.

By order dated March 1, 2017, the SCPSC approved SCE&G’s request to decrease its pension costs rider. The change in the pension rider will decrease annual revenue by approximately $11.9 million. The pension rider is designed to allow SCE&G to recover projected pension costs, net of the previously over-collected balance, over a 12-month period, beginning with the first billing cycle in May 2017.

In January 2017, SCE&G requested in its annual DSM Programs filing to recover $37.0 million of costs and net lost revenues associated with DSM programs, along with an incentive to invest in such programs. On April 27, 2017, the SCPSC approved SCE&G's request effective beginning with the first billing cycle in May 2017.

On June 22, 2017, the Friends of the Earth and the Sierra Club filed a complaint against SCE&G with the SCPSC, requesting that the SCPSC initiate a formal proceeding to direct SCE&G to immediately cease and desist from expending any further capital costs related to the construction of the New Units; to determine the prudence of acts and omissions by SCE&G in connection with the construction of the New Units; to review and determine the prudence of abandonment of the New Units and of the available least cost efficiency and renewable energy alternatives; and to remedy, abate and make due reparations for the rates charged to ratepayers related to the construction of the New Units. SCE&G’s answer to the complaint was filed with the SCPSC on July 19, 2017. A hearing in this matter has been scheduled for October 2, 2017.

Electric - BLRA

SCE&G filed the August 1, 2017 Petition with the SCPSC seeking recovery of costs expended on the construction of the New Units, including certain costs incurred subsequent to SCE&G's last revised rates update, other costs under the abandonment provisions of the BLRA, and affirmation of SCE&G's decision to abandon construction of the New Units, among other things. See additional discussion at Note 9.

Gas - SCE&G

On June 15, 2017, SCE&G filed with the SCPSC its quarterly monitoring report for the 12-month period ended March 31, 2017 and proposed an approximately $9.0 million, or 2.34%, overall increase to its natural gas rates under the terms of the RSA. The ORS is expected to issue an audit report by September 1, 2017, and the SCPSC is expected to issue its order by October 15, 2017. If approved, the rate adjustment will be effective for the first billing cycle in November 2017.

Gas - PSNC Energy

PSNC Energy was authorized to implement a tracker that provides for biannual rate adjustments to recover the revenue requirement associated with integrity management plant investment and associated costs incurred from prevailing federal standards for pipeline integrity and safety that are not otherwise included in current base rates. On February 15, 2017, PSNC Energy filed its first biannual application for an adjustment to its rates under the Integrity Management Tracker, requesting recovery of an annual revenue requirement of $1.9 million. The NCUC approved this request and the revised rates became effective for service rendered on and after March 1, 2017.

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	June 30, 2017		December 31, 2016		June 30, 2017		December 31, 2016
Regulatory Assets:
Accumulated deferred income taxes	$	321	$	316	$	313	$	307
AROs and related funding	423		425		400		403
Deferred employee benefit plan costs	331		342		299		309
Deferred losses on interest rate derivatives	630		620		630		620
Unrecovered plant	111		117		111		117
DSM Programs	59		59		59		59
Carrying costs on deferred tax assets related to nuclear construction	41		32		41		32
Pipeline integrity management costs	42		33		7		6
Environmental remediation costs	31		32		25		26
Deferred storm damage costs	20		20		20		20
Deferred costs related to uncertain tax position	23		15		23		15
Other	140		119		140		116
Total Regulatory Assets	$	2,172	$	2,130	$	2,068	$	2,030



Regulatory Liabilities:
Asset removal costs	$	761	$	755	$	533	$	529
Deferred gains on interest rate derivatives	138		151		138		151
Other	23		24		16		15
Total Regulatory Liabilities	$	922	$	930	$	687	$	695

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.

AROs and related funding represents the regulatory asset associated with the legal obligation to decommission and dismantle Unit 1 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 11 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 is amortizing 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.

Carrying costs on deferred tax assets related to nuclear construction are calculated on accumulated deferred income tax assets associated with the New Units which are not part of electric rate base using the weighted average long-term debt cost of capital. These carrying costs will be amortized over ten years beginning when these deferred tax assets are fully offset by related deferred tax liabilities. See also Note 9.

Pipeline integrity management costs represent costs incurred to comply with regulatory requirements related to natural gas pipelines. PSNC Energy will recover costs totaling $20.3 million over a five-year period beginning November 2016, and remaining costs of $16.0 million have been deferred pending future approval of rate recovery. SCE&G amortizes $1.9 million of such costs annually.

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

Deferred storm damage costs represent costs incurred in excess of amounts previously collected through SCE&G’s SCPSC-approved storm damage reserve, and for which SCE&G expects to receive future recovery through customer rates.

Deferred costs related to uncertain tax position primarily represent the estimated amounts of domestic production activities deductions foregone as a result of the 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 uncertain tax position. 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 through rates over varying periods through 2047.

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 all or a portion of 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]