SCANA requests rate increase
By John Temple Ligon
Temple@TheColumbiaStar.com

S.C. regulators at the Public Service Commission expect SCANA to ask for a 4% electrical base rate increase this spring, but the new rates won't kick in until late 2007 or early 2008. That's because SCANA's accounting for 2006 won't be available to the regulators until April, and then the SCANA numbers have to be audited.

There's plenty of local press about SCANA's expenses to include environmental upgrades and their associated costs. SCANA and the regulators agreed on a certain targeted return on common equity for the year, which was 10.7% for electric power, and if the return comes in less than 10.7%, SCANA can raise its rates, as in the 4% increase request.

Had the return met its target, the rates would stay the same. Had the return on common equity exceeded expectations, something above 10.7%, the electricity rates might stay the same for the year or even get a reduction to offset the unexpected higher return.

The targeted return on common equity for SCANA's natural gas operations is 10.25%, but that can swing by 50 basis points either way without a threat to the rates. If the return on common equity for natural gas rises to 10.75%, that's OK, as is a drop to 9.75%. Both are tolerable and within the 50 basis points range, and neither would trigger a change in rates.

In other words, by law, SCANA cannot lose money, ever, but neither can SCANA be allowed to make an unexpected high return for its shareholders at the expense of the retail rate payers who have no choice where to buy electricity or natural gas. The arrangement holds high the value of SCANA stock, so SCANA can borrow operating money at low interest rates and pass the savings to the rate payer, the customer.

All this may go out the window sooner than South Carolinians think. Retail deregulation was allowed to be determined by the states in the 1992 Energy Policy Act, but examples of premature deregulation in California and Texas failed to attract other states to take a shot at it and run the risk of their own Enron debacle, including brownouts and incumbents voted out.

In Europe, however, the current wave in the electric power business is consolidation. The Germans and their Eon power company announced intentions a year ago to buy Spain's Endesa for more than $70 billion, and this week the deal appears to be closing. The Spanish in another power company, Ibernola, moved on Scottish Power last fall for an announced price of $23 billion.

In Pittsburgh, the Australian investment bank Macquarie moved to buy out the local utility, Duquesne Light Holdings, a power company about SCANA's size. Macquarie paid off all the shareholders at a premium and took the company private.

And it could happen here, too, either an outright buyout or a merger by a much larger concern, such as Duke, SCANA's neighbor. What's important now, though, is SCANA's rate request gets approved,because the 4% rate hike is good for a spike in profits and an eventual increase in the sales price of the whole thing, making any SCANA shareholder better off.