INCOME TAXES - SCEG

12 Months Ended

Dec. 31, 2011

INCOME TAXES

5.INCOME TAXES

Total income tax expense attributable to income for 2011, 2010 and 2009 is as follows:

Millions of dollars	2011			2010			2009
Current taxes:
Federal	$	52		$	(47	)	$	63
State	10			1			(6		)
Total current taxes	62			(46		)	57
Deferred taxes, net:
Federal	122			223			94
State	12			13			8
Total deferred taxes	134			236			102
Investment tax credits:
Deferred-state	—			—			20
Amortization of amounts deferred-state	(25		)	(28		)	(9		)
Amortization of amounts deferred-federal	(3		)	(3		)	(3		)
Total investment tax credits	(28		)	(31		)	8
Total income tax expense	$	168		$	159		$	167

The difference between actual income tax expense and the amount calculated from the application of the statutory 35% federal income tax rate to pre-tax income is reconciled as follows:

Millions of dollars	2011			2010			2009
Income	$	387		$	376		$	348
Income tax expense	168			159			167
Preferred stock dividends	—			—			9
Total pre-tax income	$	555		$	535		$	524
Income taxes on above at statutory federal income tax rate	$	194		$	187		$	183
Increases (decreases) attributed to:
State income taxes (less federal income tax effect)	15			9			14
Amortization of state investment tax credits (less federal income tax effect)	(16		)	(18		)	(6		)
Allowance for equity funds used during construction	(5		)	(8		)	(10		)
Deductible dividends—Stock Purchase Savings Plan	(9		)	(9		)	(8		)
Amortization of federal investment tax credits	(3		)	(3		)	(3		)
Domestic production activities deduction	(6		)	—			(4		)
Other differences, net	(2		)	1			1
Total income tax expense	$	168		$	159		$	167

The tax effects of significant temporary differences comprising the Company’s net deferred tax liability of $1.5 billion at December 31, 2011 and $1.4 billion at December 31, 2010 are as follows:

Millions of dollars	2011		2010
Deferred tax assets:
Nondeductible reserves	$	99	$	103
Nuclear decommissioning	47		45
Financial instruments	50		22
Unamortized investment tax credits	29		41
Deferred compensation	23		25
Unbilled revenue	19		19
Monetization of bankruptcy claim	13		14
Other	15		11
Total deferred tax assets	$	295	$	280
Deferred tax liabilities:
Property, plant and equipment	$	1,561	$	1,418
Pension plan income	1		23
Deferred employee benefit plan costs	128		106
Deferred fuel costs	47		42
Other	65		61
Total deferred tax liabilities	1,802		1,650
Net deferred tax liability	$	1,507	$	1,370

The Company files a consolidated federal income tax return, and the Company and its subsidiaries file various applicable state and local income tax returns. The IRS has completed examinations of the Company’s federal returns through 2004, and the Company’s federal returns through 2007 are closed for additional assessment. With few exceptions, the Company is no longer subject to state and local income tax examinations by tax authorities for years before 2008.

In the first quarter of 2010, in connection with a fuel cost recovery settlement (see Note 2), SCE&G accelerated the recognition of certain previously deferred state income tax credits. In the second quarter of 2010, the Company revised (reduced) its estimate of the benefit to be realized from the domestic production activities deduction as a result of a change in method of accounting for certain repairs for tax purposes. In the third quarter of 2010, in connection with the adoption of new retail electric base rates, and pursuant to an SCPSC order, SCE&G accelerated the recognition of additional previously deferred state income tax credits (see Note 2) and also adopted the flow through method of accounting for current and future state tax credits.

Changes to Unrecognized Tax Benefits

Millions of dollars	2011			2010
Unrecognized tax benefits, January 1	$	36		—
Gross increases—tax positions in prior period	5			—
Gross decreases—tax positions in prior period	(8		)	—
Gross increases—current period tax positions	5			$	36
Settlements	—			—
Lapse of statute of limitations	—			—
Unrecognized tax benefits, December 31	$	38		$	36

In connection with the change in method of accounting for certain repair costs for tax purposes referred to above, the Company identified approximately $38 million of unrecognized tax benefit. Because this method change is primarily a temporary difference, this additional benefit, if recognized, would not have a significant effect on the effective tax rate. By December 31, 2012, it is reasonably possible that this unrecognized tax benefit could increase by as much as $12 million or decrease by as much as $38 million. The events that could cause these changes are direct settlements with taxing authorities, legal or administrative guidance by relevant taxing authorities, or the lapse of an applicable statute of limitation.

The Company recognizes interest accrued related to unrecognized tax benefits within interest expense and recognizes tax penalties within other expenses. The Company has not accrued any significant amount of interest expense related to unrecognized tax benefits or tax penalties in 2010 or 2009.  The Company has accrued $2 million of interest expense related to unrecognized tax benefits in 2011.

SOUTH CAROLINA ELECTRIC AND GAS COMPANY

INCOME TAXES

5.INCOME TAXES

Total income tax expense attributable to income for 2011, 2010 and 2009 is as follows:

Millions of dollars	2011			2010			2009
Current taxes:
Federal	$	52		$	(56	)	$	60
State	12			(5		)	(9		)
Total current taxes	64			(61		)	51
Deferred taxes, net:
Federal	98			207			75
State	6			15			6
Total deferred taxes	104			222			81
Investment tax credits:
Deferred-state	—			—			20
Amortization of amounts deferred—state	(25		)	(28		)	(9		)
Amortization of amounts deferred—federal	(3		)	(3		)	(3		)
Total investment tax credits	(28		)	(31		)	8
Total income tax expense	$	140		$	130		$	140

The difference between actual income tax expense and the amount calculated from the application of the statutory 35% federal income tax rate to pre-tax income is reconciled as follows:

Millions of dollars	2011			2010			2009
Net income	$	306		$	290		$	281
Income tax expense	140			130			140
Noncontrolling interest	10			14			7
Total pre-tax income	$	456		$	434		$	428
Income taxes on above at statutory federal income tax rate	$	159		$	152		$	150
Increases (decreases) attributed to:
Allowance for equity funds used during construction	(5		)	(8		)	(10		)
State income taxes (less federal income tax effect)	12			6			11
State investment tax credits (less federal income tax effect)	(16		)	(18		)	(6		)
Amortization of federal investment tax credits	(3		)	(3		)	(3		)
Domestic production activities deduction	(6		)	—			(4		)
Other differences, net	(1		)	1			2
Total income tax expense	$	140		$	130		$	140

The tax effects of significant temporary differences comprising Consolidated SCE&G’s net deferred tax liability of $1.4 billion at December 31, 2011 and $1.2 billion at December 31, 2010 are as follows:

Millions of dollars	2011		2010
Deferred tax assets:
Nondeductible reserves	$	82	$	85
Nuclear decommissioning	47		45
Unamortized investment tax credits	29		40
Deferred compensation	7		8
Unbilled revenue	19		19
Other	12		5
Total deferred tax assets	196		202
Deferred tax liabilities:
Property, plant and equipment	1,324		1,205
Pension plan income	28		45
Deferred employee benefit plan costs	110		91
Deferred fuel costs	48		42
Other	49		44
Total deferred tax liabilities	1,559		1,427
Net deferred tax liability	$	1,363	$	1,225

Consolidated SCE&G is included in the consolidated federal income tax return of SCANA and files various applicable state and local income tax returns. The IRS has completed examinations of SCANA’s federal returns through 2004, and SCANA’s federal returns through 2007 are closed for additional assessment. With few exceptions, Consolidated SCE&G is no longer subject to state and local income tax examinations by tax authorities for years before 2008.

In the first quarter of 2010, in connection with a fuel cost recovery settlement (see Note 2), SCE&G accelerated the recognition of certain previously deferred state income tax credits. In the second quarter of 2010, SCE&G revised (reduced) its estimate of the benefit to be realized from the domestic production activities deduction as a result of a change in method of accounting for certain repairs for tax purposes. In the third quarter of 2010, in connection with the adoption of new retail electric base rates, and pursuant to an SCPSC order, SCE&G accelerated the recognition of additional previously deferred state income tax credits (see Note 2) and also adopted the flow through method of accounting for current and future state tax credits.

Changes to Unrecognized Tax Benefits

Millions of dollars	2011			2010
Unrecognized tax benefits, January 1	$	36		—
Gross increases-tax positions in prior period	5			—
Gross decreases-tax positions in prior period	(8		)	—
Gross increases-current period tax positions	5			$	36
Settlements	—			—
Lapse of statute of limitations	—			—
Unrecognized tax benefits, December 31	$	38		$	36

In connection with the change in method of accounting for certain repair costs for tax purposes referred to above, Consolidated SCE&G identified approximately $38 million of unrecognized tax benefit. Because this method change is primarily a temporary difference, this additional benefit, if recognized, would not have a significant effect on the effective tax rate. By December 31, 2012, it is reasonably possible that this unrecognized tax benefit could increase by as much as $12 million or decrease by as much as $38 million. The events that could cause these changes are direct settlements with taxing authorities, legal or administrative guidance by relevant taxing authorities, or the lapse of an applicable statute of limitation.

Consolidated SCE&G recognizes interest accrued related to unrecognized tax benefits within interest expense and recognizes tax penalties within other expenses. Consolidated SCE&G has not accrued any significant amount of interest expense related to unrecognized tax benefits or tax penalties in 2010 or 2009.  Consolidated SCE&G has accrued $2 million of interest expense related to unrecognized tax benefits in 2011.