10-K 1 yearendform10-k.htm YEAR END FORM 10-K yearendform10-k.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the Fiscal Year Ended December 31, 2007
 
OR
 
 o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the Transition Period from   to
SCANA Logo
 
Commission
File Number
Registrant, State of Incorporation,
Address and Telephone Number
I.R.S. Employer
Identification No.
 
1-8809
 
 
SCANA Corporation 
(a South Carolina corporation)
1426 Main Street, Columbia, South Carolina 29201
(803) 217-9000
 
 
57-0784499
1-3375
 
South Carolina Electric & Gas Company
(a South Carolina corporation)
1426 Main Street, Columbia, South Carolina 29201
(803) 217-9000 
57-0248695
 
Securities registered pursuant to Section 12(b) of the Act:
 
Each of the following classes or series of securities is registered on The New York Stock Exchange.
 
Title of each class
Registrant
Common Stock, without par value
SCANA Corporation
5% Cumulative Preferred Stock par value $50 per share
South Carolina Electric & Gas Company
 
Securities registered pursuant to Section 12(g) of the Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
SCANA Corporation x South Carolina Electric & Gas Company x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
SCANA Corporation o South Carolina Electric & Gas Company o
 
Indicate by check mark whether the registrants: (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x No o
 



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 
SCANA Corporation o South Carolina Electric & Gas Company x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).  
 
SCANA Corporation
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
 
 
South Carolina Electric & Gas Company
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
 
Smaller reporting company o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
SCANA Corporation Yes o No x South Carolina Electric & Gas Company Yes o No x
 
The aggregate market value of voting stock held by non-affiliates of SCANA Corporation was $4.5 billion at June 29, 2007 based on the closing price of $38.29 per share. South Carolina Electric & Gas Company is a wholly owned subsidiary of SCANA Corporation and has no voting stock other than its common stock. A description of registrants' common stock follows:
 
 
Registrant
 
Description of Common Stock
Shares Outstanding
at February 20, 2008
SCANA Corporation
Without Par Value
116,664,933
South Carolina Electric & Gas Company
$4.50 Par Value
     40,296,147(a)
 
(a) Held beneficially and of record by SCANA Corporation.
 
Documents incorporated by reference: Specified sections of SCANA Corporation's 2007 Proxy Statement, in connection with its 2008 Annual Meeting of Shareholders, are incorporated by reference in Part III hereof.
 
This combined Form 10-K is separately filed by SCANA Corporation and South Carolina Electric & Gas Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other company.
 
 
                                     
 


 
 
 
   
Page
 
4
PART I
 
 
Item 1.
5
Item 1A. 
14
Unresolved Staff Comments
17
Properties
18
Legal Proceedings
20
Submission of Matters to a Vote of Security Holders
21
Executive Officers of SCANA Corporation
22
 
PART II
 
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
23
Selected Financial and Other Statistical Data
25
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 8.
Financial Statements and Supplementary Data
 
 
26
 
79
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
119
Controls and Procedures - SCANA Corporation
119
Controls and Procedures - South Carolina Electric & Gas Company
121
Other Information
121
 
PART III
 
Directors and Executive Officers of the Registrant
122
Executive Compensation
125
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
154
Certain Relationships and Related Transactions
155
Principal Accountant Fees and Services
155
 
PART IV
 
Exhibits and Financial Statement Schedules
157
 
 
159
 
 
161
 
 


 
The following abbreviations used in the text have the meanings set forth below unless the context requires otherwise:
 
TERM 
MEANING 
AFC
Allowance for Funds Used During Construction
CAA
Clean Air Act, as amended
CGTC
Carolina Gas Transmission Corporation
DHEC
South Carolina Department of Health and Environmental Control
DOE
United States Department of Energy
DOJ
United States Department of Justice
Dominion
Dominion Transmission, Inc.
DT
Dekatherm (one million BTUs)
Energy Marketing
The divisions of SEMI, excluding SCANA Energy
EPA
United States Environmental Protection Agency
FERC
United States Federal Energy Regulatory Commission
Fuel Company
South Carolina Fuel Company, Inc.
GENCO
South Carolina Generating Company, Inc.
GPSC
Georgia Public Service Commission
KW or KWh
Kilowatt or Kilowatt-hour
LLC
Limited Liability Company
LNG
Liquefied Natural Gas
MCF or MMCF
Thousand Cubic Feet or Million Cubic Feet
MGP
Manufactured Gas Plant
MMBTU
Million British Thermal Units
MW or MWh
Megawatt or Megawatt-hour
NCUC
North Carolina Utilities Commission
NMST
Negotiated Market Sales Tariff
NRC
United States Nuclear Regulatory Commission
NSR
New Source Review
NYMEX
New York Mercantile Exchange
PRP
Potentially Responsible Party
PSNC Energy
Public Service Company of North Carolina, Incorporated
Santee Cooper
South Carolina Public Service Authority
SCANA
SCANA Corporation, the parent company
SCANA Energy
A division of SEMI which markets natural gas in Georgia
SCE&G
South Carolina Electric & Gas Company
SCG Pipeline
SCG Pipeline, Inc.
SCI
SCANA Communications, Inc.
SCPC
South Carolina Pipeline Corporation
SCPSC
The Public Service Commission of South Carolina
SEC
United States Securities and Exchange Commission
SEMI
SCANA Energy Marketing, Inc.
SFAS
Statement of Financial Accounting Standards
Southern Natural
Southern Natural Gas Company
Summer Station
V. C. Summer Nuclear Station
Transco
Transcontinental Gas Pipeline Corporation
Williams Station
A.M. Williams Generating Station, owned by GENCO
WNA
Weather Normalization Adjustment
 
 


PART I
 
ITEM 1.  BUSINESS
 
 
SCANA Corporation (SCANA), a holding company, owns the following direct, wholly-owned subsidiaries.
 
South Carolina Electric & Gas Company (SCE&G) generates, transports and sells electricity to retail and wholesale customers and purchases, sells and transports natural gas to retail customers.
 
South Carolina Generating Company, Inc. (GENCO) owns Williams Station and sells electricity solely to SCE&G.
 
South Carolina Fuel Company, Inc. (Fuel Company) acquires, owns and provides financing for SCE&G's nuclear fuel, fossil fuel and emission allowances.
 
Public Service Company of North Carolina, Incorporated (PSNC Energy) purchases, sells and transports natural gas to retail customers.
 
Carolina Gas Transmission Corporation (CGTC) transports natural gas in South Carolina and southeastern Georgia.
 
SCANA Communications, Inc. (SCI) provides fiber optic communications, ethernet services and data center facilities and builds, manages and leases communications towers in South Carolina, North Carolina and Georgia.
 
SCANA Energy Marketing, Inc. (SEMI) markets natural gas, primarily in the Southeast, and provides energy-related risk management services. Through its SCANA Energy division, SEMI markets natural gas in Georgia's retail natural gas market.
 
ServiceCare, Inc. provides service contracts on home appliances and heating and air conditioning units.
 
SCANA Services, Inc. provides administrative, management and other services to SCANA’s subsidiaries and business units.
 
SCANA is incorporated in South Carolina as is each of its direct, wholly-owned subsidiaries. In addition to the subsidiaries above, SCANA owns three other energy-related companies that are insignificant and one additional company that is in liquidation.
 


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
Statements included in this Annual Report on Form 10-K which are not statements of historical fact are intended to be, and are hereby identified as, "forward-looking statements" for purposes of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include, but are not limited to, statements concerning key earnings drivers, customer growth, environmental regulations and expenditures, leverage ratio, projections for pension fund contributions, financing activities, access to sources of capital, impacts of the adoption of new accounting rules, estimated construction and other expenditures and factors affecting the availability of synthetic fuel tax credits. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” or “continue” or the negative of these terms or other similar terminology. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following:
 
(1)         the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment;
 
(2)         regulatory actions, particularly changes in rate regulation and environmental regulations;
 
(3)         current and future litigation;
 
(4)         changes in the economy, especially in areas served by subsidiaries of SCANA;
 
(5)         the impact of competition from other energy suppliers, including competition from alternate fuels
      in industrial interruptible markets;
 
(6)         growth opportunities for SCANA's regulated and diversified subsidiaries;
 
(7)         the results of financing efforts;
 
(8)         changes in SCANA’s or its subsidiaries’ accounting rules and accounting policies;
 
(9)         the effects of weather, including drought, especially in areas where the generation
             and transmission facilities of SCANA and its subsidiaries are located and in areas served by SCANA's
      subsidiaries;
 
(10)       payment by counterparties as and when due;
 
(11)       the results of efforts to license, site and construct facilities for baseload generation;
 
(12)       the availability of fuels such as coal, natural gas and enriched uranium used to produce electricity; the
      availability of purchased power and natural gas for distribution; the level and volatility of future
     market prices for such fuels and purchased power; and the ability to recover the costs for such fuels
     and purchased power;
 
(13)      performance of SCANA's pension plan assets;
 
(14)      inflation;
 
(15)     compliance with regulations; and
 
(16)     the other risks and uncertainties described from time to time in the periodic reports filed by SCANA
    or its subsidiaries with the United States Securities and Exchange Commission (SEC), including those
    risks described in Item 1A, Risk Factors.
 
SCANA and SCE&G disclaim any obligation to update any forward-looking statements.
 
ORGANIZATION
 
SCANA is a South Carolina corporation created in 1984 as a holding company. SCANA holds, directly or indirectly, all of the capital stock of each of its subsidiaries except for the preferred stock of SCE&G. SCANA and its subsidiaries had full-time, permanent employees as of February 20, 2008 and 2007 of 5,703 and 5,683, respectively. SCE&G is an operating public utility incorporated in 1924 as a South Carolina corporation. SCE&G had full-time, permanent employees as of February 20, 2008 and 2007 of 3,011 and 2,908, respectively.
 
INVESTOR INFORMATION
 
SCANA's and SCE&G's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with or furnished to the SEC are available free of charge through SCANA's internet website at www.scana.com as soon as reasonably practicable after these reports are filed or furnished. Information on SCANA's website is not part of this or any other report filed with or furnished to the SEC.
 
SEGMENTS OF BUSINESS
 
SCANA does not directly own or operate any significant physical properties. SCANA, through its subsidiaries, is engaged in the functionally distinct operations described below. SCANA also has an investment in one limited liability company (LLC) which owns and operates a cogeneration facility in Charleston, South Carolina.
 
For information with respect to major segments of business, see Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and the consolidated financial statements for SCANA and SCE&G (Note 11). All such information is incorporated herein by reference.
 
Regulated Utilities
 
SCE&G generates, transports and sells electricity to 639,300 customers and purchases, sells and transports natural gas to 302,500 customers (each as of December 31, 2007). SCE&G's business experiences seasonal fluctuations, with generally higher sales of electricity during the summer and winter months because of air conditioning and heating requirements, and generally higher sales of natural gas during the winter months due to heating requirements. SCE&G's electric service territory extends into 24 counties covering nearly 16,000 square miles in the central, southern and southwestern portions of South Carolina. The service area for natural gas encompasses all or part of 35 counties in South Carolina and covers more than 23,000 square miles. More than 3.0 million persons live in the counties where SCE&G conducts its business. Resale customers include municipalities, electric cooperatives, other investor-owned utilities, registered marketers and federal and state electric agencies. Predominant industries served by SCE&G include rubber and plastic, chemicals, health services, paper, retail, metal fabrication, stone, clay and glass, engineering and management services and textile manufacturing.
 
GENCO owns Williams Station and sells electricity solely to SCE&G.
 
Fuel Company acquires, owns and provides financing for SCE&G's nuclear fuel, fossil fuel and emission allowances.
 
PSNC Energy purchases, sells and transports natural gas to 457,200 residential, commercial and industrial customers (as of December 31, 2007). PSNC Energy serves 28 franchised counties covering 12,000 square miles in North Carolina. The industrial customers of PSNC Energy include manufacturers or processors of ceramics and clay products, glass, automotive products, pharmaceuticals, plastics, metals and a variety of food and tobacco products.
 
CGTC operates as an open access, transportation-only interstate pipeline company regulated by the Federal Energy Regulatory Commission (FERC). CGTC operates in southeastern Georgia and in South Carolina and has interconnections with Southern Natural Gas Company (Southern Natural) at Port Wentworth, Georgia and with Southern LNG, Inc. at Elba Island, near Savannah, Georgia. CGTC also has interconnections with Southern Natural in Aiken County, South Carolina, and with Transcontinental Gas Pipeline Corporation (Transco) in Cherokee and Spartanburg counties, South Carolina. CGTC’s customers include SCE&G (which uses natural gas for electricity generation and for gas distribution to retail customers), SEMI (which markets natural gas to industrial and sale for resale customers, primarily in the Southeast), other natural gas utilities, municipalities and county gas authorities, and industrial customers primarily engaged in the manufacturing or processing of ceramics, paper, metal, food and textiles.
 

Nonregulated Businesses
 
SEMI markets natural gas primarily in the southeast and provides energy-related risk management services. SCANA Energy, a division of SEMI, markets natural gas to over 475,000 customers (as of December 31, 2007) in Georgia's natural gas market.  The Georgia Public Service Commission (GPSC) has again selected SCANA Energy to serve as the state’s regulated provider until August 31, 2009.  Included in the above customer count, SCANA Energy serves over 95,000 customers (as of December 31, 2007) under this regulated provider contract, which includes low-income and high credit risk customers. SCANA Energy's total customer base represents over a 30% share of the approximately 1.5 million customers in Georgia's deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in the state.
 
SCI owns and operates a 500-mile fiber optic telecommunications network and ethernet network and data center facilities in South Carolina. Through a joint venture, SCI has an interest in an additional 1,742 miles of fiber in South Carolina, North Carolina and Georgia. SCI also provides tower site construction, management and rental services in South Carolina and North Carolina.
 
The preceding Corporate Structure section describes other businesses owned by SCANA.
 
COMPETITION
 
For a discussion of the impact of competition, see the Overview section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 
CAPITAL REQUIREMENTS
 
SCANA’s regulated subsidiaries, including SCE&G, require cash to fund operations, construction programs and dividend payments to SCANA. To replace existing plant investment and to expand to meet future demand for electricity and gas, SCANA’s regulated subsidiaries must attract the necessary financial capital on reasonable terms. Regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and these subsidiaries continue their construction programs, rate increases will be sought. The future financial position and results of operations of the regulated subsidiaries will be affected by their ability to obtain adequate and timely rate and other regulatory relief, when requested.
 
For a discussion of various rate matters and their impact on capital requirements, see the Regulatory Matters section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and Note 2 to the consolidated financial statements for SCANA and SCE&G.
 
During the three-year period 2008-2010, SCANA and SCE&G expect to meet capital requirements through internally generated funds, issuance of equity and short-term and long-term borrowings. SCANA and SCE&G expect that they have or can obtain adequate sources of financing to meet their projected cash requirements for the next 12 months and for the foreseeable future.
 
For a discussion of cash requirements for construction and nuclear fuel expenditures, see the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 
CAPITAL PROJECTS
 
For a discussion of contractual cash obligations, financing limits, financing transactions and other related information, see the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 
SCANA's ratios of earnings to fixed charges were 3.03, 2.94, 2.19, 2.65 and 2.82 for the years ended December 31, 2007, 2006, 2005, 2004 and 2003, respectively.  SCE&G’s ratios of earnings to fixed charges were 3.40, 3.32, 2.26, 3.40 and 3.25 for the same periods.  SCE&G’s ratios of earnings to combined fixed charges and preference dividends were 3.17, 3.08, 2.10, 3.15 and 3.01 for the same periods.  SCANA’s and SCE&G’s ratios for 2005 were negatively impacted by the large amounts of accelerated depreciation discussed at Results of Operations - Income Taxes - Recognition of Synthetic Fuel Tax Credits in their respective Management’s Discussion and Analysis of Financial Condition and Results of Operations sections, and because the calculation necessarily excludes the related and fully offsetting tax benefits recorded in that year.
 

ELECTRIC OPERATIONS
 
Electric Sales
 
SCE&G's sales of electricity by customer classification as a percent of electric revenues for 2007 were unchanged from 2006 and were as follows:
 
Customer Classification
     
Residential
   
41
%
Commercial
   
31
%
Industrial
   
17
%
Sales for resale
   
7
%
Other
   
2
%
Total Territorial
   
98
%
Negotiated Market Sales Tariff (NMST)
   
2
%
Total
   
100
%
 
Sales for resale include sales to seven municipalities. Sales under the NMST during 2007 include sales to 20 investor-owned utilities or registered marketers, four electric cooperatives and four federal/state electric agencies. During 2006 sales under the NMST included sales to 25 investor-owned utilities or registered marketers, three electric cooperatives, and three federal/state electric agencies.
 
During 2007 SCE&G recorded a net increase of 15,900 electric customers (growth rate of 2.6%), increasing its total electric customers to 639,300 at year end. During 2007, a new all-time peak demand of 4,926 megawatts (MW) was set on August 10, 2007.
 
For the three-year period 2008-2010, SCE&G projects total territorial kilowatt hour (KWh) sales of electricity to decrease 0.4% annually (assuming normal weather), total electric customer base to increase 2.4% annually and territorial peak load (summer, in MW) to decrease 0.1% annually.  The projected decrease in KWh sales and territorial peak load result from the scheduled expiration of certain sales for resale contracts.  While SCE&G's goal is to maintain a reserve margin of between 12% and 18%, weather and other factors affect territorial peak load and can cause actual generating capacity on any given day to fall significantly below the reserve margin goal.
 
Electric Interconnections
 
SCE&G purchases all of the electric generation of GENCO's Williams Station under a Unit Power Sales Agreement which has been approved by FERC. Williams Station has a net generating capacity (summer rating) of 615 MW.
 
SCE&G's transmission system forms part of an interconnected grid extending over a large part of the southern and eastern portions of the nation. SCE&G, Dominion Virginia Power, Duke Power Carolinas, Progress Energy Carolinas, APGI (Yadkin Division) and the South Carolina Public Service Authority (Santee Cooper) are members of the Virginia-Carolinas Reliability Group, one of several geographic divisions within the Southeastern Electric Reliability Council (SERC). SERC is a regional entity of the North American Electric Reliability Corporation (NERC) responsible for promoting, coordinating and ensuring the reliability and adequacy of the bulk power supply systems in the geographic area served by the member systems. SCE&G also interconnects with Georgia Power Company, Oglethorpe Power Corporation and the Southeastern Power Administration's Clarks Hill Project. For a discussion of the impact certain legislative and regulatory initiatives may have on SCE&G's transmission system, see Electric Operations within the Overview section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 


 
Fuel Costs and Fuel Supply
 
The average cost of various fuels and the weighted average cost of all fuels (including oil) for the years 2005-2007 follow:
 
   
Cost of Fuel Used
 
   
2005
   
2006
   
2007
 
Per million British thermal units (MMBTU):
                 
Nuclear
  $ .46     $ .43     $ .43  
Coal
    2.38       2.54       2.53  
Gas
    10.50       8.18       8.28  
All Fuels (weighted average)
    2.53       2.57       2.66  
Per Ton:
                       
Coal
  $ 59.07     $ 63.13     $ 62.98  
Per thousand cubic feet (MCF):
                       
Gas
  $ 10.91     $ 8.57     $ 8.67  
 
The sources and percentages of total megawatt hour (MWh) generation by each category of fuel for the years 2005-2007 and the estimates for the years 2008-2010 follow:
 
   
% of Total MWh Generated
 
   
Actual
 
Estimated
 
   
2005
 
2006
 
2007
 
2008
 
2009
 
2010
 
Coal
   
68
%
67
%
63
%
64
%
65
%
65
%
Nuclear
   
19
%
19
%
21
%
19
%
19
%
21
%
Hydro
   
5
%
4
%
4
%
5
%
5
%
5
%
Natural Gas & Oil
   
8
%
10
%
12
%
12
%
11
%
9
%
 Total
   
100
%
100
%
100
%
100
%
100
%
100
%
 
Six of the fossil fuel-fired plants use coal. Unit trains and in some cases trucks and barges deliver coal to these plants. On December 31, 2007 SCE&G had approximately a 71-day supply of coal in inventory.
 
Coal is obtained through long-term supply contracts and spot market purchases. Long-term contracts exist with six suppliers located in eastern Kentucky, Tennessee and West Virginia. These contracts provide for approximately 4.1 million tons annually, which is 65% of total expected coal purchases for 2008. Sulfur restrictions on the contract coal range from 1.0% to 1.5%. These contracts expire at various times through 2010. Spot market purchases are expected to continue when needed or when prices are favorable.
 
SCANA and SCE&G believe that SCE&G's operations comply with all existing regulations relating to the discharge of sulfur dioxide and nitrogen oxides. See additional discussion at Environmental Matters in Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 
SCE&G has adequate supplies of uranium or enriched uranium product under contract to manufacture nuclear fuel for the V. C. Summer Nuclear Station (Summer Station) through 2009. The following table summarizes contract commitments for the stages of nuclear fuel assemblies:
 
Commitment 
Contractor
Remaining Regions(a)
Expiration Date
Uranium
United States Enrichment Corporation
20-21
2009
Enrichment
United States Enrichment Corporation
20-24
2014
Fabrication
Westinghouse Electric Corporation
20-22
2011
 
(a) A region represents approximately one-third to one-half of the nuclear core in the reactor at any one time. Region 19 was
loaded in 2006.
 
SCE&G can store spent nuclear fuel on-site until at least 2018 and expects to expand its storage capacity to accommodate the spent fuel output for the life of Summer Station through dry cask storage or other technology as it becomes available. In addition, Summer Station has sufficient on-site storage capacity to permit storage of the entire reactor core in the event that complete unloading should become desirable or necessary. For information about the contract with the United States Department of Energy (DOE) regarding disposal of spent fuel, see Hazardous and Solid Wastes within the Environmental Matters section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 


 
GAS OPERATIONS
 
Gas Sales-Regulated
 
Sales of natural gas by customer classification as a percent of total regulated gas revenues sold or transported for 2006 and 2007 were as follows:
 
   
SCANA
 
SCE&G
 
Customer Classification
 
2006
 
2007
 
2006
 
2007
 
Residential
   
42.6
%
 
51.1
%
 
38.4
%
 
40.5
%
Commercial
   
25.6
%
 
29.6
%
 
30.2
%
 
30.4
%
Industrial
   
27.6
%
 
16.1
%
 
30.7
%
 
28.4
%
Sales for Resale
   
0.9
%
 
-
   
-
   
-
 
Transportation Gas
   
3.3
%
 
3.2
%
 
0.7
%
 
0.7
%
Total
   
100
%
 
100
%
 
100
%
 
100
%
 
For the three-year period 2008-2010, SCANA projects total consolidated sales of regulated natural gas in dekatherms (DT) to increase 1.7% annually (assuming normal weather). Annual projected increases over such period in DT sales include residential of 2.6%, commercial of 1.5% and industrial 1.1%.
 
SCANA's total consolidated regulated natural gas customer base is projected to increase 3.3% annually. During 2007 SCANA recorded a net increase of 21,000 regulated gas customers (growth rate of 2.8%), increasing its regulated gas customers to 759,000.  Of this increase, SCE&G recorded a net increase of 5,300 gas customers (growth rate of 1.8%), increasing its total gas customers to 302,500 (as of December 31, 2007).
 
Demand for gas changes primarily due to the effect of weather and the price relationship between gas and alternate fuels.
 
Gas Cost, Supply and Curtailment Plans
 
South Carolina
 
SCE&G purchases natural gas under contracts with producers and marketers in both the spot and long-term markets. The gas is brought to South Carolina through transportation agreements with Southern Natural (expiring in 2010), Transco (expiring in 2008 and 2017) and CGTC (expiring 2009). The daily volume of gas that SCE&G is entitled to transport under these contracts on a firm basis is 161,143 DT from Southern Natural, 64,652 DT from Transco and 296,629 DT from CGTC. Natural gas volumes may be brought to SCE&G's system as capacity is available for interruptible transportation. In addition, SCE&G, under contract with SEMI, is entitled to receive a daily contract demand of 120,000 DTs for use in either electric generation or for resale to SCE&G’s customers.
 
The daily volume of gas that SEMI is entitled to transport under its service agreement with CGTC (expiring in 2023) on a firm basis is 198,083 DT.
 
SCE&G purchased natural gas at an average cost of $9.69 per MCF during 2007 and $9.82 per MCF during 2006.
 
SCE&G was allocated 5,406 MMCF of natural gas storage space on Southern Natural and Transco. Approximately 4,224 MMCF of gas were in storage on December 31, 2007. To meet the requirements of its high priority natural gas customers during periods of maximum demand, SCE&G supplements its supplies of natural gas with two LNG liquefaction and storage facilities. The LNG plants are capable of storing the liquefied equivalent of 1,880 MMCF of natural gas. Approximately 1,758 MMCF (liquefied equivalent) of gas were in storage at December 31, 2007.
 
North Carolina
 
PSNC Energy purchases natural gas under contracts with producers and marketers on a short-term basis at current price indices and on a long-term basis for reliability assurance at index prices plus a reservation charge. Transco and Dominion Transmission, Inc. (Dominion) deliver the gas to North Carolina through transportation agreements with expiration dates ranging through 2016. On a peak day, PSNC Energy may transport daily volumes of gas under these contracts on a firm basis of 259,894 DT from Transco and 7,331 DT from Dominion.
 
PSNC Energy purchased natural gas at an average cost of $8.55 per DT during 2007 compared to $9.47 per DT during 2006.
 


To meet the requirements of its high priority natural gas customers during periods of maximum demand, PSNC Energy supplements its supplies of natural gas with underground natural gas storage services and LNG peaking services. Underground natural gas storage service agreements with Dominion, Columbia Gas Transmission, Transco and Spectra Energy provide for storage capacity of approximately 12,800 MMCF. Approximately 11,000 MMCF of gas were in storage at December 31, 2007. In addition, PSNC Energy's own LNG facility can store the liquefied equivalent of 1,000 MMCF of natural gas with regasification capability of approximately 100 MMCF per day. Approximately 800 MMCF (liquefied equivalent) of gas were in storage at December 31, 2007. LNG storage service agreements with Transco, Cove Point LNG and Pine Needle LNG provide for 1,300 MMCF (liquefied equivalent) of storage space. Approximately 1,100 MMCF (liquefied equivalent) were in storage at December 31, 2007.
 
SCANA and SCE&G believe that supplies under long-term contracts and supplies available for spot market purchase are adequate to meet existing customer demands and to accommodate growth.
 
Gas Marketing-Nonregulated
 
SEMI markets natural gas and provides energy-related risk management services primarily in the Southeast. In addition, SCANA Energy, a division of SEMI, markets natural gas to over 475,000 customers (as of December 31, 2007) in Georgia's natural gas market. SCANA Energy's total customer base represents over a 30% share of the approximately 1.5 million customers in Georgia's deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in the state.
 
Risk Management
 
SCANA and SCE&G have established policies and procedures and risk limits to control the level of market, credit, liquidity and operational and administrative risks assumed by them. The Board of Directors of each company has delegated to a Risk Management Committee the authority to set risk limits, establish policies and procedures for risk management and measurement, and to oversee and review the risk management process and infrastructure. The Risk Management Committee, which is comprised of certain officers, including a Risk Management Officer and senior officers, apprises the Board of Directors of each company with regard to the management of risk and brings to the Board's attention any areas of concern. Written policies define the physical and financial transactions that are approved, as well as the authorization requirements and limits for transactions.
 
REGULATION
 
SCANA, together with its subsidiaries, is subject to the jurisdiction of the SEC and FERC as to the issuance of certain securities, acquisitions and other matters. State public service commissions or FERC regulate certain subsidiaries of SCANA as to the following matters.
 
SCE&G is subject to the jurisdiction of the SCPSC as to retail electric and gas rates, service, accounting, issuance of securities (other than short-term borrowings) and other matters. SCE&G is subject to the jurisdiction of FERC as to issuance of short-term borrowings and other matters.
 
GENCO is subject to the jurisdiction of the SCPSC as to issuance of securities (other than short-term borrowings) and is subject to the jurisdiction of FERC as to issuance of short-term borrowings, accounting and other matters.
 
PSNC Energy is subject to the jurisdiction of the North Carolina Utilities Commission (NCUC) as to gas rates, service, issuance of securities (other than notes with a maturity of two years or less or renewals of notes with a maturity of six years or less), accounting and other matters.
 
CGTC is subject to the jurisdiction of FERC as to transportation rates, service, accounting and other matters.
 
SCANA Energy is regulated by the GPSC through its certification as a natural gas marketer in Georgia and specifically is subject to the jurisdiction of the GPSC as to retail prices for customers served under the regulated provider contract.
 
SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by FERC and DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting. See the Regulatory Matters section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 
SCE&G and GENCO have obtained FERC authority to issue short-term indebtedness (pursuant to Section 204 of the Federal Power Act). SCE&G may issue up to $700 million of unsecured promissory notes or commercial paper with maturity dates of one year or less, and GENCO may issue up to $100 million of such short-term indebtedness. FERC’s approval expires February 6, 2010.
 


SCE&G holds licenses under the Federal Power Act for each of its hydroelectric projects. The licenses expire as follows:
 
Project 
License Expiration
Project
License Expiration
Saluda (Lake Murray)
2010
Stevens Creek
2025
Fairfield Pumped Storage
2020
Neal Shoals
2036
Parr Shoals
2020
   
 
SCE&G expects to apply to FERC for relicensing of the Saluda project in 2008.
 
At the termination of a license under the Federal Power Act, FERC may extend or issue a new license to the previous licensee, FERC may issue a license to another applicant or the federal government may take over the related project. If the federal government takes over a project or if FERC issues a license to another applicant, the federal government or the new licensee, as the case may be, must pay the previous licensee an amount equal to its net investment in the project, not to exceed fair value, plus severance damages.
 
For a discussion of legislative and regulatory initiatives being implemented that will affect SCE&G's transmission system, see Electric Operations within the Overview section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
 
SCE&G is subject to regulation by the United States Nuclear Regulatory Commission (NRC) with respect to the ownership, operation and decommissioning of Summer Station. The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considerations and environmental impact. In addition, the Federal Emergency Management Agency reviews, in conjunction with the NRC, certain aspects of emergency planning relating to the operation of nuclear plants.
 
RATE MATTERS
 
For a discussion of the impact of various rate matters, see the Regulatory Matters section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G, and Note 2 to the consolidated financial statements for SCANA and SCE&G.
 
SCE&G's and PSNC Energy's gas rate schedules for their residential and small commercial and small industrial customers include a weather normalization adjustment (WNA). SCE&G's and PSNC Energy's WNA were approved by the SCPSC and NCUC, respectively, and are in effect for bills rendered during the period November 1 through April 30 of each year. In each case the WNA increases tariff rates if weather is warmer than normal and decreases rates if weather is colder than normal. The WNA does not change the seasonality of gas revenues, but reduces fluctuations in revenues and earnings caused by abnormal weather.
 
Fuel Cost Recovery Procedures
 
The SCPSC’s fuel cost recovery procedure determines the fuel component in SCE&G's retail electric base rates annually based on projected fuel costs for the ensuing 12-month period, adjusted for any overcollection or undercollection from the preceding 12-month period. SCE&G may request a formal proceeding at any time should circumstances dictate such a review.  As part of the annual review of fuel costs, the SCPSC approved SCE&G’s request to increase the cost of fuel component from 2.516 cents per KWh to 2.630 cents per KWh effective the first billing cycle in May 2007. 
 
SCE&G's gas rate schedules and contracts include mechanisms that allow it to recover from its customers changes in the actual cost of gas. SCE&G's firm gas rates allow for the recovery of the cost of gas, based on projections, as established by the SCPSC. SCE&G adjusts its cost of gas on a monthly basis based on a twelve-month rolling average.
 
In May 2007, the law was changed to revise the statutory definition of fuel costs to include certain variable environmental costs such as ammonia, lime, limestone and catalysts consumed in reducing or treating emissions.  The revised definition also includes the cost of emission allowances used for sulfur dioxide, nitrogen oxide, and mercury and particulates.
 
In addition to WNA, PSNC Energy’s Rider D rate mechanism serves to reduce fluctuations in PSNC Energy’s earnings. The Rider D mechanism allows PSNC Energy to recover, in any manner authorized by the NCUC, losses on negotiated gas and transportation sales. The Rider D rate mechanism also allows PSNC Energy to recover from customers all prudently incurred gas costs and certain uncollectible expenses related to gas cost.
 
PSNC Energy's rates are established using a benchmark cost of gas approved by the NCUC, which may be modified periodically to reflect changes in the market price of natural gas. PSNC Energy revises its tariffs with the NCUC as necessary to track these changes and accounts for any over- or under-collections of the delivered cost of gas in its deferred accounts for subsequent rate consideration. The NCUC reviews PSNC Energy's gas purchasing practices annually.
 
ENVIRONMENTAL MATTERS
 
Federal and state authorities have imposed environmental regulations and standards relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. Developments in these areas may require that equipment and facilities be modified, supplemented or replaced. The ultimate effect of these regulations and standards upon existing and proposed operations cannot be predicted. For a more complete discussion of how these regulations and standards impact SCANA and SCE&G, see the Environmental Matters section of Management's Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and the consolidated financial statements for SCANA and SCE&G (Note 10B).
 
OTHER MATTERS
 
For a discussion of SCE&G's insurance coverage for Summer Station, see Note 10A to the consolidated financial statements for SCANA and SCE&G.
 
ITEM 1A.  RISK FACTORS
 
The risk factors that follow relate in each case to SCANA Corporation and its subsidiaries (the Company), and where indicated the risk factors also relate to South Carolina Electric & Gas Company and its consolidated affiliates (SCE&G).
 
Commodity price changes, delays and other factors may affect the operating cost, capital expenditures and competitive positions of the Company's and SCE&G's energy businesses, thereby adversely impacting results of operations, cash flows and financial condition.

Our energy businesses are sensitive to changes in coal, gas, oil and other commodity prices and availability. Any changes could affect the prices these businesses charge, their operating costs and the competitive position of their products and services. SCE&G is able to recover the cost of fuel used in electric generation through retail customers' bills, but increases in fuel costs affect electric prices and, therefore, the competitive position of electricity against other energy sources. In the case of regulated natural gas operations, costs for purchased gas and pipeline capacity are recovered through retail customers' bills, but increases in gas costs affect total retail prices and, therefore, the competitive position of gas relative to electricity and other forms of energy. Increases in gas costs may also result in lower usage by customers unable to switch to alternate fuels.

Additionally, the Company and SCE&G anticipate significant capital expenditures for environmental compliance and baseload generation in order to meet future usage demands.  The cost of additional baseload generation may be affected by the choice of technology or fuel related to such generation, each of which may be driven by environmental and other non-economic factors.  The completion of these projects within established budgets and timeframes is contingent upon many variables including the obtaining of permits and licenses in a timely manner and our timely securing of labor and materials at estimated costs.  Recently, certain construction commodities such as steel and concrete have experienced significant price increases due to worldwide demand.  Also, to operate our air pollution control equipment, we use significant quantities of ammonia and lime.  With mandated compliance deadlines for air pollution controls, demand for these reagents may increase and result in higher purchase costs.  Also, higher worldwide demand for copper, which we use in our transmission and distribution lines, has led to significant price increases.  Our ability to maintain our operations or to complete construction projects and new baseload generation (whether based on nuclear or another form of generation) at reasonable cost, if at all, could be adversely affected by increases in worldwide demand for key parts or commodities, increases in the price of or the unavailability of labor, commodities or other materials, increases in lead times for components, increased environmental pressures, a failure in the supply chain (whether resulting from the foregoing or other factors) or delays in licensing, siting, design, financing or construction.  To the extent that delays occur or cost overages are not recoverable, our results of operations, cash flows and financial condition may be diminished.
 
The Company and SCE&G do not fully hedge against price changes in commodities. This could result in increased costs, thereby resulting in lower margins and adversely affecting results of operations, cash flows and financial condition.
 
The Company and SCE&G attempt to manage commodity price exposure by establishing risk limits and entering into contracts to offset some of our positions (i.e., to hedge our exposure to demand, market effects of weather and other changes in commodity prices). We do not hedge the entire exposure of our operations from commodity price volatility. To the extent we do not hedge against commodity price volatility or our hedges are not effective, results of operations, cash flows and financial condition may be diminished.
 
Changing and complex laws and regulations to which the Company and SCE&G are subject could adversely affect revenues or increase costs or curtail activities, thereby adversely impacting results of operations, cash flows and financial condition.
 
The Company and SCE&G must comply with extensive federal, state and local laws and regulations. Such regulation widely affects the operation of our business. The effects encompass, among many other aspects of our business, the licensing and siting of facilities, safety, reliability of our transmission system, physical and cyber security of key assets, information privacy, the issuance of securities, financial reporting, interaction among affiliates, and the payment of dividends. Changes to these regulations are ongoing, and we cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on the Company’s or SCE&G’s business.
 
The Company and SCE&G are subject to extensive rate regulation which could adversely affect operations. In particular, SCE&G's electric operations in South Carolina and the Company's gas distribution operations in South Carolina (comprised of SCE&G) and North Carolina are regulated by state utilities commissions. The Company’s interstate gas pipeline is subject to federal oversight.  Our gas marketing operations in Georgia are also subject to state regulatory oversight. There can be no assurance that Georgia’s gas delivery regulatory framework will remain unchanged as dynamic market conditions evolve. Although we believe we have constructive relationships with our regulators, our ability to obtain rate increases that will allow us to maintain reasonable rates of return is dependent upon regulatory discretion, and there can be no assurance that we will be able to implement rate increases when sought.
 
The Company and SCE&G are subject to extensive federal, state and local environmental laws and regulations including air emissions (such as reducing nitrogen oxide, sulfur dioxide and mercury emissions, or potential future control of greenhouse gas emissions).  Compliance with these laws and regulations requires us to commit significant capital toward environmental monitoring, installation of pollution control equipment, emission fees and permits at our facilities. These expenditures have been significant in the past and are expected to increase in the future. Changes in compliance requirements or a more burdensome interpretation by governmental authorities of existing requirements may impose additional costs on us or require us to curtail some of our activities. Costs of compliance with environmental regulations could harm our industry, our business and our results of operations and financial position, especially if emission or discharge limits are reduced, more extensive permitting requirements are imposed or additional regulatory requirements are imposed.
 
The Company and SCE&G are vulnerable to interest rate increases which would increase our borrowing costs, and may not have access to capital at favorable rates, if at all, both of which may adversely affect results of operations, cash flows and financial condition.
 
Changes in interest rates can affect the cost of borrowing on variable rate debt outstanding, on refinancing of debt maturities and on incremental borrowing to fund new investments. The Company's and SCE&G’s business plans reflect the expectation that we will have access to the capital markets on satisfactory terms to fund commitments. Moreover, the ability to maintain short-term liquidity by utilizing commercial paper programs is dependent upon maintaining investment grade debt ratings. The liquidity of the Company and SCE&G would be adversely affected by unfavorable changes in the commercial paper market or if bank credit facilities became unavailable at acceptable rates.
 
SCANA may not be able to maintain its leverage ratio at a level considered appropriate by debt rating agencies. This could result in downgrades of SCANA's debt ratings, thereby increasing its borrowing costs and adversely affecting its results of operations, cash flows and financial condition.
 
SCANA's leverage ratio of debt to capital increased significantly following its acquisition in 2000 of PSNC Energy, and was approximately 55% at December 31, 2007. SCANA has publicly announced its desire to maintain this leverage ratio at 54% to 55%, but SCANA's ability to do so depends on a number of factors. If SCANA is not able to maintain its leverage ratio, SCANA's debt ratings may be affected, it may be required to pay higher interest rates on its long- and short-term indebtedness, and its access to the capital markets may be limited.
 
A downgrade in the credit rating of SCANA or any of SCANA’s subsidiaries, including SCE&G, could negatively affect their ability to access capital and to operate their businesses, thereby adversely affecting results of operations, cash flows and financial condition.
 
Standard & Poor's Ratings Services (S&P), Moody's Investors Service (Moody's) and Fitch Ratings (Fitch) rate SCANA's long-term senior unsecured debt at BBB+, Baa1 and A-, respectively.  S&P, Moody's and Fitch rate SCE&G's long-term senior secured debt at A-, A2 and A+, respectively.  S&P, Moody’s and Fitch rate PSNC Energy's long-term senior unsecured debt at A-, A3 and A, respectively.  Moody’s and Fitch carry a stable outlook on each of their ratings.  S&P carries a negative outlook on each of its ratings.  If S&P, Moody's or Fitch were to downgrade any of these long-term ratings, particularly to below investment grade, borrowing costs would increase, which would diminish financial results, and the potential pool of investors and funding sources could decrease. S&P, Moody's and Fitch rate the short-term debt of SCE&G and PSNC Energy at A-2, P-2 and F-1, respectively. If these short-term ratings were to decline, it could significantly limit access to the commercial paper market and other sources of liquidity.
 
Operating results may be adversely affected by abnormal weather.
 
The Company and SCE&G have historically sold less power, delivered less gas and received lower prices for natural gas in deregulated markets, and consequently earned less income, when weather conditions have been milder than normal. Mild weather in the future could diminish the revenues and results of operations and harm the financial condition of the Company and SCE&G. In addition, severe weather can be destructive, causing outages and property damage, adversely affecting operating expenses and revenues.
 


Potential competitive changes may adversely affect our gas and electricity businesses due to the loss of customers, reductions in revenues, or write-down of stranded assets.
 
The utility industry has been undergoing dramatic structural change for several years, resulting in increasing competitive pressures on electric and natural gas utility companies. Competition in wholesale power sales has been introduced on a national level. Some states have also mandated or encouraged competition at the retail level. Increased competition may create greater risks to the stability of utility earnings generally and may in the future reduce earnings from retail electric and natural gas sales. In a deregulated environment, formerly regulated utility companies that are not responsive to a competitive energy marketplace may suffer erosion in market share, revenues and profits as competitors gain access to their customers. In addition, SCANA's and SCE&G's generation assets would be exposed to considerable financial risk in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, a write-down in the value of the related assets would be required.
 
The Company and SCE&G are subject to risks associated with changes in business climate which could increase and adversely affect revenues, results of operations, cash flows and financial condition and could limit access to capital.
 
Sales and sales growth is dependent upon the economic climate in the service territories of the Company and SCE&G, which may be affected by regional, national or even international economic factors. Some economic sectors important to our customer base may be particularly affected. Adverse events, economic or otherwise, may also affect the operations of key customers.  Such events may result in the failure of customers to make timely payments to us. The success of local and state governments in attracting new industry to our service territories is important to our sales and growth in sales.
 
Factors that generally could affect our ability to access capital include economic conditions and our capital structure. Much of our business is capital intensive, and achievement of our long-term growth targets is dependent, at least in part, upon our ability to access capital at rates and on terms we determine to be attractive. If our ability to access capital becomes significantly constrained, our interest costs will likely increase and our financial condition and future results of operations could be significantly harmed.
 
Problems with operations could cause us to curtail or limit our ability to serve customers or cause us to incur substantial costs, thereby adversely impacting revenues, results of operations, cash flows and financial condition.
 
Critical processes or systems in the Company’s or SCE&G’s operations could become impaired or fail from a variety of causes, such as equipment breakdown, transmission line failure, information systems failure or security breach, the effects of drought (including reduced water levels) on the operation of emission control or other generation equipment, and the effects of a pandemic or terrorist attack on our workforce or on the ability of vendors and suppliers to maintain services key to our operations.  
 
In particular, as the operator of power generation facilities, SCE&G could incur problems such as the breakdown or failure of power generation or emission control equipment, transmission lines, other equipment or processes which would result in performance below assumed levels of output or efficiency. In addition, any such breakdown or failure may result in SCE&G purchasing replacement power at market rates, if such replacement power is available at all. If replacement power is not available, such problems could result in interruptions of service (blackout or brownout conditions) in all or part of SCE&G’s territory or elsewhere in the region. These purchases are subject to state regulatory prudency reviews for recovery through rates.
 
Covenants in certain financial instruments may limit SCANA's ability to pay dividends, thereby adversely impacting the valuation of our common stock and our access to capital.
 
Our assets consist primarily of investments in subsidiaries. Dividends on our common stock depend on the earnings, financial condition and capital requirements of our subsidiaries, principally SCE&G, PSNC Energy and SEMI. Our ability to pay dividends on our common stock may also be limited by existing or future covenants limiting the right of our subsidiaries to pay dividends on their common stock. Any significant reduction in our payment of dividends in the future may result in a decline in the value of our common stock. Such a decline in value could limit our ability to raise debt and equity capital.
 
A significant portion of SCE&G's generating capacity is derived from nuclear power, the use of which exposes us to regulatory, environmental and business risks. These risks could increase our costs or otherwise constrain our business, thereby adversely impacting our results of operations, cash flows and financial condition.
 
The V.C. Summer nuclear plant, operated by SCE&G, provided approximately 5.7 million MWh, or 21% of our generation capacity, in 2007.  As such, SCE&G is subject to various risks of nuclear generation, which include the following:
 
The potential harmful effects on the environment and human health resulting from a release of radioactive materials in connection with the operation of nuclear facilities and the storage, handling and disposal of radioactive materials;
 


Limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with our nuclear operations or those of others in the United States;
 
Uncertainties with respect to procurement of enriched uranium fuel;
 
Uncertainties with respect to contingencies if insurance coverage is inadequate; and
 
Uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their operating lives.
 
The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Revised safety requirements promulgated by the NRC could necessitate capital expenditures at nuclear plants such as ours. In addition, although we have no reason to anticipate a serious nuclear incident, if a major incident should occur at a domestic nuclear facility, it could harm our results of operations, cash flows and financial condition. A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit. Finally, in today's environment, there is a heightened risk of terrorist attack on the nation's nuclear facilities, which has resulted in increased security costs at our nuclear plant.
 
Failure to retain and attract key personnel could adversely affect the Company’s and SCE&G’s operations and financial performance.
 
Implementation of our strategic plan and growth strategy requires that we attract, retain and develop executive officers and other professional and technical employees with the skills and experience necessary to successfully manage our operations and grow our business. Competition for these employees is high, and in some cases we must compete for these employees on a regional or national basis. We may be unable to attract and retain these personnel. Further, the Company’s or SCE&G’s ability to construct or maintain generation or other assets requires the availability of suitable skilled contractor personnel. We may be unable to obtain appropriate contractor personnel at the times and places needed.
 
The Company and SCE&G are subject to the risk that strategic decisions made by us either do not result in a return of or on invested capital or might negatively impact our competitive position, which can adversely impact our results of operations, cash flows, financial position, and access to capital.
 
From time to time, the Company and SCE&G make strategic decisions that may impact our direction with regard to business opportunities, the services and technologies offered to customers or that are used to serve customers, and the generating plant and other infrastructure that form the basis of much of our business. These strategic decisions may not result in a return of or on our invested capital, and the effects of these strategic decisions may have long-term implications that are not likely to be known to us in the short-term. Changing political climates and public attitudes may adversely affect the ongoing acceptability of strategic decisions that have been made, to the detriment of the Company or SCE&G.  Over time, these strategic decisions or changing attitudes toward such decisions, which could be adverse to the Company’s or SCE&G’s interests, may have a negative effect on our results of operations, cash flows and financial position, as well as limit our ability to access capital.
 
The Company and SCE&G are subject to the reputational risks that may result from a failure of their adherence to high standards of compliance with laws and regulations, ethical conduct, operational effectiveness, and safety of employees, customers and the public.  These risks could adversely affect the valuation of our common stock and the Company’s and SCE&G’s access to capital.
 
The Company and SCE&G are committed to comply with all laws and regulations, to focus on the safety of employees, customers and the public and to maintain the privacy of information related to our customers and employees.  The Company and SCE&G also are committed to operational excellence and, through their Code of Conduct and Ethics, to maintain high standards of ethical conduct in their business operations.  A failure to meet these commitments may subject the Company and SCE&G, not only to litigation, but also to reputational risk that could adversely affect the valuation of SCANA’s stock, adversely affect the Company’s and SCE&G’s access to capital, and result in further regulatory oversight.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None 
 



 
ITEM 2. PROPERTIES
 
SCANA owns no significant property other than the capital stock of each of its subsidiaries. It holds, directly or indirectly, all of the capital stock of each of its subsidiaries except for the preferred stock of SCE&G. SCANA also has an investment in one LLC which operates a cogeneration facility in Charleston, South Carolina.
 
SCE&G's bond indenture, securing the First Mortgage Bonds issued thereunder, constitutes a direct mortgage lien on substantially all of its electric utility property. GENCO's Williams Station is also subject to a first mortgage lien which secures certain outstanding debt of GENCO.
 
For a brief description of the properties of SCANA's other subsidiaries, which are not significant as defined in Rule 1-02 of Regulation S-X, see Item 1, BUSINESS-SEGMENTS OF BUSINESS-Nonregulated Businesses.
 
The following map indicates significant electric generation and natural gas transmission properties, which are further described below. Natural gas distribution properties in South Carolina and North Carolina, though not depicted on the map, are also described below.
 
 
 
 
 



ELECTRIC PROPERTIES
 
SCE&G owns each of the electric generating facilities listed below unless otherwise noted.
 
 
 
Facility 
 
Present
Fuel Capability
 
 
Location
 
Year
In-Service
Net Generating
Capacity
(Summer Rating) (MW)
Steam Turbines:
       
Summer(1)
Nuclear
Parr, SC
1984
644
McMeekin
Coal/Gas
Irmo, SC
1958
250
Canadys
Coal/Gas
Canadys, SC
1962
405
Wateree
Coal
Eastover, SC
1970
700
Williams(2)
Coal
Goose Creek, SC
1973
615
Cope
Coal
Cope, SC
1996
420
Cogen South(3)
 
Charleston, SC
1999
  90
         
Combined Cycle:
       
Urquhart(4)
Coal/Gas/Oil
Beech Island, SC
1953/2002
562
Jasper
Gas/Oil
Hardeeville, SC
2004
852
         
Hydro(5):
       
Saluda
 
Irmo, SC
1930
206
Fairfield Pumped Storage
 
Parr, SC
1978
576
 
(1)         Represents SCE&G's two-thirds portion of the Summer Station (one-third owned by Santee Cooper).
 
(2)         The coal-fired steam unit at Williams Station is owned by GENCO.
 
(3)         SCE&G receives shaft horse power from Cogen South, LLC to operate SCE&G's generator. Cogen South, LLC is
             owned 50% by SCANA and 50% by MeadWestvaco.
 
(4)         Two combined-cycle turbines burn natural gas or fuel oil to produce 318 MW of electric generation and use exhaust
             heat to power two 75 MW turbines at the Urquhart Generating Station. Unit 3 is a coal-fired steam unit.
 
(5)         SCE&G also owns three other hydro units in South Carolina that were placed in service in 1905 and 1914 and have
             an aggregate net generating capacity of 18 MW.
 
SCE&G owns nine combustion turbine peaking units fueled by gas and/or oil located at various sites in SCE&G's service territory. These turbines were placed in service at various times from 1961 to 1999 and have aggregate net generating capacity of 354 MW.
 
SCE&G owns 442 substations having an aggregate transformer capacity of 27.6 million KVA (kilovolt-ampere). The transmission system consists of 3,239 miles of lines, and the distribution system consists of 18,010 pole miles of overhead lines and 6,035 trench miles of underground lines.
 
NATURAL GAS DISTRIBUTION AND TRANSMISSION PROPERTIES
 
SCE&G’s natural gas system consists of 15,406 miles of distribution mains and related service facilities.  SCE&G also owns two LNG plants, one located near Charleston, South Carolina and the other in Salley, South Carolina. The Charleston facility can liquefy up to 6 MMCF per day and store the liquefied equivalent of 980 MMCF of natural gas. The Salley facility can store the liquefied equivalent of 900 MMCF of natural gas and has no liquefying capabilities.  The LNG facilities have the capacity to regasify approximately 60 MMCF at Charleston and 90 MMCF at Salley.
 
CGTC’s natural gas system consists of 1,473 miles of transmission pipeline of up to 24 inches in diameter, which connect its transportation customers’ distribution systems with the transmission systems of Southern Natural and Transco and can supply gas from Port Wentworth and Elba Island, Georgia.
 


PSNC Energy’s natural gas system consists of 923 miles of transmission pipeline of up to 24 inches in diameter that connect its distribution systems with Transco. PSNC Energy's distribution system consists of 9,285 miles of distribution mains and related service facilities. PSNC Energy owns one LNG plant with storage capacity of 1,000 MMCF and the capacity to regasify approximately 100 MMCF per day. PSNC Energy also owns, through a wholly owned subsidiary, 33.21% of Cardinal Pipeline Company, LLC, which owns a 105-mile transmission pipeline in North Carolina. In addition, PSNC Energy owns, through a wholly owned subsidiary, 17% of Pine Needle LNG Company, LLC. Pine Needle owns and operates a liquefaction, storage and regasification facility in North Carolina.
 
ITEM 3. LEGAL PROCEEDINGS
 
Certain material legal proceedings and environmental and regulatory matters and uncertainties, some of which remain outstanding at December 31, 2007, are described below. These issues affect SCANA and, to the extent indicated, also affect SCE&G.
 
Environmental Matters
 
SCE&G has been named, along with 53 others, by the United States Environmental Protection Agency (EPA) as a potentially responsible party (PRP) at the Alternate Energy Resources, Inc. (AER) Superfund site located in Augusta, Georgia.  The EPA placed the site on the National Priorities List on April 19, 2006. AER conducted hazardous waste storage and treatment operations from 1975 to 2000, when the site was abandoned.  While operational, AER processed fuels from waste oils, treated industrial coolants and oil/water emulsions, recycled solvents and blended hazardous waste fuels.  During that time, SCE&G occasionally used AER for the processing of waste solvents, oily rags and oily wastewater.  The EPA and the State of Georgia have documented that a release or releases have occurred at the site leading to contamination of groundwater, surface water and soils.  The EPA and the State of Georgia have conducted a preliminary assessment and site inspection. The site has not been remediated nor has a clean-up cost been estimated.  Although a basis for the allocation of clean-up costs among the PRPs is unclear, SCE&G does not believe that its involvement at this site would result in an allocation of costs that would have a material adverse impact on its results of operations, cash flows or financial condition. Any cost allocated to SCE&G arising from the remediation of this site, net of insurance recoveries,  is expected to be recoverable through rates.
 
SCE&G has been named, along with 29 others, by the EPA as a PRP at the Carolina Transformer Superfund site located in Fayetteville, North Carolina.  The Carolina Transformer Company (CTC) conducted an electrical transformer rebuilding and repair operation at the site from 1959 to 1986.  During that time, SCE&G occasionally used CTC for the repair of existing transformers, purchase of new transformers and sale of used transformers.  In 1984, the EPA initiated a cleanup of PCB-contaminated soil and groundwater at the site.  The EPA reports that it has spent $36 million to date.  In 2008, SCE&G, along with other parties, reached a settlement with the EPA and the U.S. Department of Justice on this matter.  The settlement, which is subject to court approval, would result in an allocation of cost to SCE&G that is not material, and such cost is expected to be recoverable through rates.
 
SCE&G is responsible for four decommissioned manufactured gas plant (MGP) sites in South Carolina which contain residues of by-product chemicals.  These sites are in various stages of investigation, remediation and monitoring under work plans approved by the South Carolina Department of Health and Environmental Control (DHEC).  SCE&G anticipates that major remediation activities at these sites will continue until 2012 and will cost an additional $11.9 million.  In addition, the National Park Service of the Department of the Interior made an initial demand to SCE&G for payment of $9.1 million for certain costs and damages relating to the MGP site in Charleston, South Carolina. SCE&G expects to recover any cost arising from the remediation of these four sites through rates.  At December 31, 2007, deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $16.7 million.
 
PSNC Energy is responsible for environmental clean-up at five sites in North Carolina on which MGP residuals are present or suspected. PSNC Energy's remediation costs for these sites will depend on a number of factors, such as actual site conditions, third-party claims and recoveries from other PRPs. PSNC Energy has recorded a liability and associated regulatory asset of approximately $4.6 million, which reflects its estimated remaining liability at December 31, 2007.  PSNC Energy expects to recover any costs, net of insurance recoveries, allocable to PSNC Energy arising from the remediation of these sites through rates.


Litigation
 
    On February 26, 2008, a purported class action lawsuit styled as David K. Weiskircher and J. Steven Parker, on behalf of themselves and all others similarly situated v. SCANA Energy Marketing, Inc. was filed in U.S. District Court for the Northern District of Georgia.  The plaintiffs allege, among other things, that SCANA Energy charged certain of its customers a price for natural gas and customer service charges that exceeded SCANA Energy’s published price effective at the beginning of their monthly billing cycles, and that such action violated the Natural Gas Competition and Deregulation Act.  The plaintiffs do not assert a specific dollar amount for the claims, but do demand actual damages, punitive damages, treble damages pursuant to the Georgia Fair Business Practices Act, as well as interest, attorneys' fees and costs.  SCANA Energy has not been served with this lawsuit and has not yet had the opportunity to evaluate it.

b
In May 2004, SCANA and SCE&G were served with a purported class action lawsuit styled as Douglas E. Gressette, individually and on behalf of other persons similarly situated v. South Carolina Electric & Gas Company and SCANA Corporation. The case was filed in South Carolina's Circuit Court of Common Pleas for the Ninth Judicial Circuit. The plaintiff alleges that SCANA and SCE&G made improper use of certain easements and rights-of-way by allowing fiber optic communication lines and/or wireless communication equipment to transmit communications other than SCANA’s and SCE&G’s electricity-related internal communications. The plaintiff asserted causes of action for unjust enrichment, trespass, injunction and declaratory judgment. The plaintiff did not assert a specific dollar amount for the claims. SCANA and SCE&G believe their actions are consistent with governing law and the applicable documents granting easements and rights-of-way. The Circuit Court granted SCANA’s and SCE&G’s motion to dismiss and issued an order dismissing the case in June 2005. The plaintiff appealed to the South Carolina Supreme Court. The Supreme Court overruled the Circuit Court in October 2006 and returned the case to the Circuit Court for further consideration. In June 2007, the Circuit Court issued a ruling that limits the plaintiff’s purported class to owners of easements situated in Charleston County, South Carolina.  The plaintiff appealed this ruling to the South Carolina Court of Appeals and the Court of Appeals has dismissed the appeal, determining that the Circuit Court ruling is not immediately appealable.  Plaintiff’s motion for class certification was recently heard and correspondence from the Circuit Court indicates the judge’s intention to certify the class.  There has been no formal order and the class remains limited to easements in Charleston County.  SCANA and SCE&G will continue to mount a vigorous defense and believe that the resolution of these claims will not have a material adverse impact on their results of operations, cash flows or financial condition.
 
A complaint was filed in October 2003 against SCE&G by the State of South Carolina alleging that SCE&G violated the Unfair Trade Practices Act by charging municipal franchise fees to some customers residing outside a municipality's limits. The complaint sought restitution to all affected customers and penalties of up to $5,000 for each separate violation. The claim against SCE&G was settled by an agreement between the parties, and the settlement was approved in 2004 by South Carolina’s Circuit Court of Common Pleas for the Fifth Judicial Circuit.  In addition, SCE&G filed a petition with the SCPSC in October 2003 pursuant to S. C. Code Ann. R.103-836. The petition requests that the SCPSC exercise its jurisdiction to investigate the operation of the municipal franchise fee collection requirements applicable to SCE&G's electric and gas service, to approve SCE&G's efforts to correct any past franchise fee billing errors, to adopt improvements in the system which will reduce such errors in the future, and to adopt any regulation that the SCPSC deems just and proper to regulate the franchise fee collection process. A hearing on this petition has not been scheduled. SCANA and SCE&G believe that the resolution of these matters will not have a material adverse impact on their results of operations, cash flows or financial condition.
 
SCANA and SCE&G are also engaged in various other claims and litigation incidental to their business operations which management anticipates will be resolved without a material adverse impact on their respective results of operations, cash flows or financial condition.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     Not Applicable.





 
The executive officers are elected at the annual meeting of the Board of Directors, held immediately after the annual meeting of shareholders, and hold office until the next such annual meeting, unless (1) a resignation is submitted, (2) the Board of Directors shall otherwise determine or (3) as provided in the By-laws of SCANA. Positions held are for SCANA and all subsidiaries unless otherwise indicated.
 
Name 
Age
Positions Held During Past Five Years
Dates
       
William B. Timmerman
61
Chairman of the Board, President and Chief Executive Officer
 
*-present
Jimmy E. Addison
47
Senior Vice President and Chief Financial Officer
Vice President-Finance
 
2006-present
*-2006
Joseph C. Bouknight
55
Senior Vice President-Human Resources
Vice President Human Resources-Dan River, Inc.-Danville, VA
 
2004-present
*-2004
George J. Bullwinkel
59
President and Chief Operating Officer-SEMI
President and Chief Operating Officer-SCI and ServiceCare
President and Chief Operating Officer-SCPC and SCG Pipeline
 
2004-present
*-present
*-2004
Sarena D. Burch
50
Senior Vice President-Fuel Procurement and Asset Management-SCE&G and PSNC Energy
Senior Vice President-Fuel Procurement and Asset Management-SCPC
 
 
2003-present
*-2006
 
Stephen A. Byrne
48
Senior Vice President-Generation, Nuclear and Fossil Hydro-SCE&G
Senior Vice President-Nuclear Operations
 
2004-present
*-2004
Paul V. Fant
54
President and Chief Operating Officer-CGTC (formerly SCPC and
SCG Pipeline)
Senior Vice President Transmission Services – SCE&G
Executive Vice President-SCPC and SCG Pipeline
 
2004-present
 
2004-2007
*-2004
Kevin B. Marsh
52
President and Chief Operating Officer - SCE&G
Senior Vice President and Chief Financial Officer
 
2006-present
*-2006
 
Charles B. McFadden
63
Senior Vice President-Governmental Affairs and Economic Development-
SCANA Services
 
*-present
 
Francis P. Mood, Jr.
70
Senior Vice President, General Counsel and Assistant Secretary
Attorney, Haynsworth Sinkler Boyd, P.A.-Columbia, SC
2005-present
*-2005
 
* Indicates position held at least since March 1, 2003.
 
 


PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
                  AND ISSUER PURCHASES OF EQUITY SECURITIES
 
COMMON STOCK INFORMATION
 
SCANA Corporation:
Price Range (New York Stock Exchange Composite Listing):
 
 
2007
 
2006
 
4th Qtr.
3rd Qtr.
2nd Qtr.
1st Qtr.
 
4th Qtr.
3rd Qtr.
2nd Qtr.
1st Qtr.
                   
High
$43.73
$39.75
$45.49
$43.51
 
$42.43
$41.65
$40.41
$41.42
 
Low
$38.69
$32.93
$37.91
$39.92
 
$39.55
$38.35
$36.92
$39.02
 
 
SCANA common stock trades on The New York Stock Exchange, using the ticker symbol SCG. Newspaper stock listings use the name SCANA. At February 20, 2008 there were 116,664,933 shares of SCANA Common Stock outstanding which were held by 32,995 stockholders of record. For a summary of equity securities issuable under SCANA's compensation plans at December 31, 2007, see Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
SCANA declared quarterly dividends on its common stock of $.44 per share in 2007 and $.42 per share in 2006. On February 14, 2008, SCANA increased the quarterly cash dividend rate on SCANA common stock to $.46 per share, an increase of 4.5%. The new dividend is payable April 1, 2008 to stockholders of record on March 10, 2008. For a discussion of provisions that could limit the payment of cash dividends, see Item 7. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS under Liquidity and Capital Resources – Financing Limits and Related Matters and Note 6 to the consolidated financial statements for SCANA.
 
The following table provides information about purchases by or on behalf of SCANA or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended (Exchange Act)) of shares or other units of any class of SCANA’s equity securities that are registered pursuant to Section 12 of the Exchange Act:
 
Issuer Purchases of Equity Securities
     
(c)
(d)
     
Total number of
Maximum number
 
(a)
 
shares (or units)
(or approximate dollar
 
Total number of
(b)
purchased as part of
value) of shares (or units_
 
shares (or units)
Average price paid
publicly announced
that may yet be purchased
Period
purchased
per share (or unit)
plans or programs
under the plan or program
October 1-31
317,389
39.00
317,389
 
November 1-30
  80,594
41.23
  80,594
 
December 1-31
  91,215
43.14
  91,215
 
Total
489,198
 
489,198
*
 
*On May 16, 2006 SCANA announced a program to convert from original issue to open market purchase of SCANA common stock for all applicable compensation and dividend reinvestment plans.  This program has no stated maximum number of  shares that may be purchased and no stated expiration date.
 
SCE&G: All of SCE&G's common stock is owned by SCANA and is not traded. During 2007 and 2006 SCE&G paid $131.9 million and $151.5 million, respectively, in cash dividends to SCANA. For a discussion of provisions that could limit the payment of cash dividends, see Item 7. MANAGEMENTS’ DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS under Liquidity and Capital Resources – Financing Limits and Related Matters and Note 6 to the consolidated financial statements for SCE&G.
 


SECURITIES RATINGS (As of February 20, 2008)
 
 
SCANA
 
SCE&G
   
Rating
Agency
Senior
Unsecured
 
Senior
Secured
Senior
Unsecured
Preferred
Stock
Commercial
Paper
 
 
Outlook
Moody's
Baa1
 
A2
A3
Baa2
P-2
 
Stable
Standard & Poor’s (S&P)
BBB+
 
A-
BBB+
BBB
A-2
 
Negative
Fitch
A-
 
A+
A
A-
F-1
 
Stable
 
For additional information regarding these securities, see Notes 4, 5 and 7 to the consolidated financial statements for SCANA and SCE&G.
 
Securities ratings used by Moody's, S&P and Fitch are as follows:
 
Long-term (investment grade)
Short-term
Moody's (1)
S&P (2)
Fitch (2)
Moody's
S&P
Fitch
Aaa
AAA
AAA
Prime-1 (P-1)
A-1
F-1
Aa
AA
AA
Prime-2 (P-2)
A-2
F-2
A
A
A
Prime-3 (P-3)
A-3
F-3
Baa
BBB
BBB
Not Prime
B
B
       
C
C
       
D
D
 
(1) Additional Modifiers: 1, 2, 3 (Aa to Baa)   (2) Additional Modifiers: +, - (AA to BBB)
 
A security rating should be evaluated independently of other ratings and is not a recommendation to buy, sell or hold securities. The assigning rating organization may revise or withdraw its security ratings at any time.
 


ITEM 6. SELECTED FINANCIAL AND OTHER STATISTICAL DATA
 
   
SCANA
 
SCE&G
   
As of or for the Year Ended December 31, 
 
2007
 
2006
2005
2004
2003
 
2007
 
2006
 
2005
 
2004
 
2003
 
   
(Millions of dollars, except statistics and per share amounts)
   
Statement of Income Data
                                         
Operating Revenues
 
$
4,621
 
$
4,563
 
$
4,777
 
$
3,885
 
$
3,416
 
$
2,481
 
$
2,391
 
$
2,421
 
$
2,089
 
$
1,832
 
Operating Income
   
633
   
603
   
436
   
596
   
551
   
498
   
468
   
312
   
475
   
440
 
Other Income (Expense)
   
(160
)
 
(164
)
 
(162
)
 
(219
)
 
(138
 
(117
)
 
(121
)
 
(121
)
 
(111
)
 
(101
)
Income Before Cumulative Effect
of Accounting Change
   
320
   
304
   
320
   
257
   
282
   
245
   
230
   
258
   
232
   
220
 
Net Income (1)
 
$
320
 
$
310
 
$
320
 
$
257
 
$
282
 
$
245
 
$
234
 
$
258
 
$
232
 
$
220
 
Common Stock Data
                                                             
Weighted Average Number of Common Shares
                                                             
Outstanding (Millions)
   
116.7
   
115.8
   
113.8
   
111.6
   
110.8
   
n/a
   
n/a
   
n/a
   
n/a
   
n/a
 
Basic and Diluted Earnings Per Share (1)
 
$
2.74
 
$
2.68
 
$
2.81
 
$
2.30
 
$
2.54
   
n/a
   
n/a
   
n/a
   
n/a
   
n/a
 
Dividends Declared Per Share of Common Stock
 
$
1.76
 
$
1.68
 
$
1.56
 
$
1.46
 
$
1.38
   
n/a
   
n/a
   
n/a
   
n/a
   
n/a
 
Balance Sheet Data
                                                             
Utility Plant, Net
 
$
7,538
 
$
7,007
 
$
6,734
 
$
6,762
 
$
6,417
 
$
6,202
 
$
5,748
 
$
5,580
 
$
5,621
 
$
5,293
 
Total Assets
   
10,165
   
9,817
   
9,519
   
9,006
   
8,458
   
7,977
   
7,626
   
7,366
   
6,985
   
6,628
 
Capitalization:
                                                             
  Common equity
 
$
2,960
 
$
2,846
 
$
2,677
 
$
2,451
 
$
2,306
 
$
2,622
 
$
2,457
 
$
2,362
 
$
2,164
 
$
2,043
 
  Preferred Stock (Not subject to    
    purchase or sinking funds)
   
106
   
106
   
106
   
106
   
106
   
106
   
106
   
106
   
106
   
106
 
  Preferred Stock, net (Subject to  
    purchase or sinking funds)
   
7
   
8
   
8
   
9
   
9
   
7
   
8
   
8
   
9
   
9
 
  Long-term Debt, net
   
2,879
   
3,067
   
2,948
   
3,186
   
3,225
   
2,003
   
2,008
   
1,856
   
1,981
   
2,010
 
Total Capitalization
 
$
5,952
 
$
6,027
 
$
5,739
 
$
5,752
 
$
5,646
 
$
4,738
 
$
4,579
 
$
4,332
 
$
4,260
 
$
4,168
 
Other Statistics
                                                             
Electric:
                                                             
  Customers (Year-End)
   
639,258
   
623,402
   
609,971
   
591,435
   
577,014
   
639,312
   
623,453
   
610,025
   
591,497
   
577,068
 
  Total sales (Million KWh)
   
24,885
   
24,519
   
25,305
   
25,027
   
22,512
   
24,888
   
24,538
   
25,323
   
25,046
   
22,527
 
  Generating capability-Net MW
    (Year-End)
   
5,749
   
5,749
   
5,808
   
5,817
   
4,880
   
5,749
   
5,749
   
5,808
   
5,817
   
4,880
 
  Territorial peak demand-Net MW
   
4,926
   
4,820
   
4,820
   
4,574
   
4,474
   
4,926
   
4,820
   
4,820
   
4,574
   
4,474
 
Regulated Gas:
                                                             
  Customers (Year-End)
   
759,336
   
738,317
   
716,794
   
693,172
   
672,849
   
302,469
   
297,165
   
291,607
   
284,355
   
278,463
 
  Sales, excluding transportation
    (Thousand Therms) (2)
   
823,976
   
997,173
   
1,106,526
   
1,124,555
   
1,205,730
   
407,204
   
403,489
   
410,700
   
399,601
   
399,392
 
Retail Gas Marketing:
                                                             
  Retail customers (Year-End)
   
484,565
   
482,822
   
479,382
   
472,468
   
415,573
   
n/a
   
n/a
   
n/a
   
n/a
   
n/a
 
  Firm customer deliveries
    (Thousand Therms)
   
340,743
   
335,896
   
379,913
   
379,712
   
356,256
   
n/a
   
n/a
   
n/a
   
n/a
   
n/a
 
  Nonregulated interruptible customer
  deliveries (Thousand Therms)
   
1,548,878
   
     1,239,926 
   
1,010,066
   
917,875
   
735,902
   
n/a
   
n/a
   
n/a
   
n/a
   
n/a
 
 
(1) Reflects the 2006 adoption of Statement of Financial Accounting Standards (SFAS) 123(R), recorded as the
      cumulative effect of an accounting change of $6 million for SCANA and $4 million for SCE&G.
 
(2) Reflects the change in business model of CGTC from an intrastate supplier of natural gas to a transportation-only,
      interstate pipeline company in November 2006.


 
 
 
 
 
 
 
   
Page
     
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
   
27
   
30
   
37
   
40
   
43
   
44
   
46
     
Quantitative and Qualitative Disclosures About Market Risk
47
     
Financial Statements and Supplementary Data
49
   
Report of Independent Registered Public Accounting Firm
49
   
Consolidated Balance Sheets
50
   
52
   
Consolidated Statements of Cash Flows
53
   
Consolidated Statements of Changes in Common Equity and Comprehensive Income
54
   
Notes to Consolidated Financial Statements
55
     
 
 
 
 
 


 
 
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
 
SCANA, through its wholly-owned regulated subsidiaries, is primarily engaged in the generation, transmission, distribution and sale of electricity in parts of South Carolina and the purchase, transmission and sale of natural gas in portions of North Carolina and South Carolina. Through a wholly owned nonregulated subsidiary, SCANA markets natural gas to retail customers in Georgia and to wholesale customers primarily in the southeast. Other wholly owned nonregulated subsidiaries provide fiber optic and other telecommunications services and provide service contracts to homeowners on certain home appliances and heating and air conditioning units. Additionally, a service company subsidiary of SCANA provides administrative, management and other services to the other subsidiaries.
 
The following map indicates areas where the Company’s significant business segments conducted their activities, as further described in this overview section.
 
 
 




The following percentages reflect revenues and net income earned by the Company’s regulated and nonregulated businesses and the percentage of total assets held by them.
 
% of Revenues (a)
 
2007
 
2006
 
2005
 
Regulated
   
66
%
 
69
%
 
69
%
Nonregulated
   
34
%
 
31
%
 
31
%
                     
 % of Net Income (b)
                   
Regulated
   
92
%
 
89
%
 
92
%
Nonregulated
   
8
%
 
11
%
 
8
%
                     
 % of Assets
                   
Regulated
   
92
%
 
93
%
 
94
%
Nonregulated
   
8
%
 
7
%
 
6
%
 
(a)  In 2007, revenues reflects the change in business model in the Gas Transmission segment.  See Results of Operations for more information.
 
 (b) In 2006, net income for non-regulated businesses included a reduction of an accrual related to certain litigation associated with the Company’s prior sale of its propane assets upon the settlement of that litigation. See Results of Operations for more information.
 
Key earnings drivers for the Company over the next five years will be additions to rate base at South Carolina Electric & Gas Company (SCE&G), Carolina Gas Transmission Corporation (CGTC) and Public Service Company of North Carolina, Incorporated (PSNC Energy), consisting primarily of capital expenditures for environmental facilities, new generating capacity and system expansion. Other factors that will impact future earnings growth include the regulatory environment, customer growth in each of the regulated utility businesses, consistent earnings in the natural gas marketing business in Georgia and controlling the growth of operation and maintenance expenses.
 
Electric Operations
 
The electric operations segment is comprised of the electric operations of SCE&G, South Carolina Generating Company, Inc. (GENCO) and South Carolina Fuel Company, Inc. (Fuel Company), and is primarily engaged in the generation, transmission, distribution and sale of electricity in South Carolina. At December 31, 2007 SCE&G provided electricity to 639,300 customers in an area covering nearly 16,000 square miles. GENCO owns a coal-fired generation station and sells electricity solely to SCE&G. Fuel Company acquires, owns and provides financing for SCE&G’s nuclear fuel, fossil fuel and emission allowance requirements.
 
Operating results for electric operations are primarily driven by customer demand for electricity, the ability to control costs and rates allowed to be charged to customers. Embedded in the rates charged to customers is an allowed regulatory return on equity. SCE&G’s allowed return on equity may not exceed 11.0%, with rates set at 10.7%. Demand for electricity is primarily affected by weather, customer growth and the economy.  SCE&G is able to recover the cost of fuel used in electric generation through retail customers' bills, but increases in fuel costs affect electric prices and, therefore, the competitive position of electricity against other energy sources.
 
Legislative and regulatory initiatives, including the Energy Policy Act of 2005 (the “Energy Policy Act”) also could significantly impact the results of operations and cash flows for the electric operations segment. The Energy Policy Act became law in August 2005, and it provided, among other things, for the establishment of an electric reliability organization (ERO) to propose and enforce mandatory reliability standards for transmission systems and for procedures governing enforcement actions by the ERO and Federal Energy Regulatory Commission (FERC). 
 
Consistent with reliability provisions of the Energy Policy Act, on July 20, 2006, FERC issued a final rule certifying the North American Electric Reliability Council (NERC) as the ERO.  On March 16, 2007, FERC issued a final rule establishing mandatory, enforceable reliability standards for the nation’s bulk power system. In the final rule, FERC approved 83 of the 107 mandatory reliability standards submitted by the NERC and compliance with these standards became mandatory on June 18, 2007. FERC has subsequently approved 8 critical infrastructure protection standards which are mandatory and enforceable.  The Company cannot predict when or if FERC will advance other regulatory initiatives related to the national energy market or what conditions such initiatives would impose on utilities.
 
New legislation may also impose stringent requirements on power plants to reduce emissions of sulfur dioxide, nitrogen oxides and mercury. It is also possible that new initiatives will be introduced to reduce carbon dioxide and other greenhouse gas emissions. The Company cannot predict whether such legislation will be enacted, and if it is, the conditions it would impose on utilities.
 
Gas Distribution
 
The gas distribution segment is comprised of the local distribution operations of SCE&G and PSNC Energy, and is primarily engaged in the purchase, transmission and sale of natural gas to retail customers in portions of North Carolina and South Carolina. At December 31, 2007 this segment provided natural gas to 759,700 customers in areas covering 35,000 square miles.
 
Operating results for gas distribution are primarily influenced by customer demand for natural gas, the ability to control costs and allowed rates to be charged to customers. Embedded in the rates charged to customers is an allowed regulatory return on equity.
 
Demand for natural gas is primarily affected by weather, customer growth, the economy and, for commercial and industrial customers, the availability and price of alternate fuels. Natural gas competes with electricity, propane and heating oil to serve the heating and, to a lesser extent, other household energy needs of residential and small commercial customers. This competition is generally based on price and convenience. Large commercial and industrial customers often have the ability to switch from natural gas to an alternate fuel, such as propane or fuel oil. Natural gas competes with these alternate fuels based on price. As a result, any significant disparity between supply and demand, either of natural gas or of alternate fuels, and due either to production or delivery disruptions or other factors, will affect price and impact the Company’s ability to retain large commercial and industrial customers. Significant supply disruptions occurred in September and October 2005 as a result of hurricane activity in the Gulf of Mexico, resulting in the curtailment during the period of most large commercial and industrial customers with interruptible supply agreements. While supply disruptions were not experienced in 2007 or 2006, the price of natural gas remains volatile and has resulted in short-term competitive pressure. The long-term impact of volatile gas prices and gas supply has not been determined.
 
Gas Transmission
 
CGTC operates an open access, transportation-only interstate pipeline company regulated by FERC. CGTC’s operating results are primarily influenced by customer demand for natural gas, the ability to control costs and allowed rates to be charged to customers. Demand for CGTC’s services is closely linked to demand for natural gas and is affected by the price of alternate fuels and customer growth. CGTC provides transportation services to SCE&G for its gas distribution customers and for certain electric generation needs and to SCANA Energy Marketing, Inc. (SEMI) for natural gas marketing. CGTC also provides transportation services to other natural gas utilities, municipalities and county gas authorities and to industrial customers.
 
Effective November 1, 2006 SCG Pipeline merged into South Carolina Pipeline Corporation (SCPC) and the merged company changed its name to Carolina Gas Transmission Corporation.  Prior to the merger, the gas transmission segment was comprised solely of SCPC, which owned and operated an intrastate pipeline engaged in the purchase, transmission and sale of natural gas on a wholesale basis to distribution companies (including SCE&G) and industrial customers throughout most of South Carolina. SCPC’s operating results were primarily influenced by customer demand for natural gas, the ability to control costs and allowed rates to be charged to customers.
 
Retail Gas Marketing
 
SCANA Energy, a division of SEMI, comprises the retail gas marketing segment. This segment markets natural gas to over 475,000 customers (as of December 31, 2007) throughout Georgia. SCANA Energy’s total customer base represents over a 30% share of the approximately 1.5 million customers in Georgia’s deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in the state. SCANA Energy’s competitors include affiliates of other large energy companies with experience in Georgia’s energy market as well as several electric membership cooperatives. SCANA Energy’s ability to maintain its market share depends on the prices it charges customers relative to the prices charged by its competitors, its ability to continue to provide high levels of customer service and other factors.
 
As Georgia’s regulated provider, SCANA Energy serves low-income customers and customers unable to obtain or maintain natural gas service from other marketers at rates approved by the Georgia Public Service Commission (GPSC), and it receives funding from the Universal Service Fund for some of the bad debt associated with the low-income group. SCANA Energy’s service as Georgia’s regulated provider of natural gas ends August 31, 2009. SCANA Energy files financial and other information periodically with the GPSC, and such information is available at www.psc.state.ga.us. At December 31, 2007, SCANA Energy’s regulated division served over 95,000 customers.


 
SCANA Energy and SCANA’s other natural gas distribution and marketing segments maintain gas inventory and also utilize forward contracts and financial instruments, including commodity swaps and futures contracts, to manage their exposure to fluctuating commodity natural gas prices. See Note 9 to the consolidated financial statements. As a part of this risk management process, at any given time, a portion of SCANA’s projected natural gas needs has been purchased or otherwise placed under contract. Since SCANA Energy operates in a competitive market, it may be unable to sustain its current levels of customers and/or pricing, thereby reducing expected margins and profitability. Further, there can be no assurance that Georgia’s gas delivery regulatory framework will remain unchanged as dynamic market conditions evolve.
 
In February 2008 the consumer affairs staff (the staff) of the GPSC alleged to the GPSC that SCANA Energy and the state's largest natural gas marketer (the marketers) had overcharged certain of their respective customers.  The staff alleges that the marketers failed to inform customers with more expensive rate plans that a lower rate plan was available, charged customers in excess of the published price, and failed to give proper notice of a change in methodology for computing variable rates.  SCANA Energy believes it complied with all applicable rules and regulations, that none of its customers were treated unfairly, and that all requests it received from customers to be switched to a lower rate plan were honored. SCANA Energy has responded that these types of pricing plans exist in many deregulated markets, such as telecommunications, and are a natural development in a competitive environment. The GPSC has indicated that it may launch a formal investigation into the matter, and is expected to rule on the matter on March 4, 2008.  Separately, without admitting fault, the other marketer has offered to settle the matter before the GPSC by agreeing to improve communications and to pay $1 million to the Low Income Home Energy Assistance Program.  SCANA Energy is currently in discussions with the GPSC to settle the matter.  While the Company cannot determine the final outcome, it believes that a resolution of this matter will not have a material adverse impact on its results of operations, cash flows or financial condition.
 
On February 26, 2008, a purported class action was filed in U.S. District Court for the Northern District of Georgia, styled Weiskircher, et al. v. SCANA Energy Marketing, Inc., containing similar allegations to those alleged by the staff and seeking damages on behalf of a class of Georgia customers.  SCANA Energy has not been served with this lawsuit and has not yet had the opportunity to evaluate it.
 
Energy Marketing
 
The divisions of SEMI, excluding SCANA Energy (Energy Marketing), comprise the energy marketing segment. This segment markets natural gas primarily in the southeast and provides energy-related risk management services to customers.
 
The operating results for energy marketing are primarily influenced by customer demand for natural gas and the ability to control costs. Demand for natural gas is primarily affected by the price of alternate fuels and customer growth. In addition, certain pipeline capacity available for Energy Marketing to serve industrial and other customers is tied to the market share held by SCANA Energy in the retail market.
 
 
The Company’s reported earnings are prepared in accordance with GAAP. Management believes that, in addition to reported earnings under GAAP, the Company’s GAAP-adjusted net earnings from operations provides a meaningful representation of its fundamental earnings power and can aid in performance period-over-period financial analysis and comparison with peer group data. In management’s opinion, GAAP-adjusted net earnings from operations is a useful indicator of the financial results of the Company’s primary businesses. This measure is also a basis for management’s provision of earnings guidance and growth projections, and it is used by management in making resource allocation and other budgetary and operational decisions. This non-GAAP performance measure is not intended to replace the GAAP measure of net earnings, but is offered as a supplement to it. A reconciliation of reported (GAAP) earnings per share to GAAP-adjusted net earnings from operations per share is provided in the table below:
 
   
2007
 
2006
 
2005
 
Reported (GAAP) earnings per share
 
$
2.74
 
$
2.68
 
$
2.81
 
Deduct:
                   
Cumulative effect of accounting change, net of tax
   
-
   
(.05
)
 
-
 
Reduction in charge related to propane litigation
   
-
   
(.04
)
 
-
 
Gains from sales of telecommunications investments
   
-
   
-
   
(.03
)
GAAP-adjusted net earnings from operations per share
 
$
2.74
 
$
2.59
 
$
2.78
 
Cash dividends declared (per share)
 
$
1.76
 
$
1.68
 
$
1.56
 
 
Discussion of above adjustments:
 
The cumulative effect of an accounting change resulted from the Company’s adoption of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)). The reduction in charge related to propane litigation resulted from litigation arising from the prior sale of the Company’s propane business being settled for an amount that was less than had been accrued previously.  This reduction appears in the income statement as a reduction to other expenses. Realized gains in 2005 were recognized on sales of telecommunications investments.
 
Management believes that these adjustments are appropriate in determining the non-GAAP financial performance measure. Management utilizes such measure in exercising budgetary control, managing business operations and determining eligibility for certain incentive compensation payments. The non-GAAP measure, GAAP-adjusted net earnings per share from operations, provides a consistent basis upon which to measure performance by excluding the cumulative effect on per share earnings of the accounting change resulting from the Company’s adoption of SFAS 123(R), the effect on per share earnings of transactions involving the Company’s telecommunications investments and of litigation related to the sale of a prior business.
 
Pension Income
 
Pension income was recorded on the Company’s financial statements as follows:
 
Millions of dollars
 
2007
 
2006
 
2005
 
Income Statement Impact:
                   
Reduction in employee benefit costs
 
$
2.5
 
$
0.7
 
$
4.3
 
Other income
   
13.7
   
12.3
   
11.9
 
Balance Sheet Impact:
                   
Reduction in capital expenditures
   
0.8
   
0.3
   
1.3
 
Component of amount due to Summer Station co-owner
   
0.4
   
0.2
   
0.6
 
Total Pension Income
 
$
17.4
 
$
13.5
 
$
18.1
 
 
For the last several years, the market value of the Company’s retirement plan (pension) assets has exceeded the total actuarial present value of accumulated plan benefits. Among the reasons income in 2007 was higher than income in 2006 was favorable asset investment experience. Among the reasons 2006’s income was lower than 2005’s was a reduction of the assumed rate of return on plan assets from 9.25% to 9%.  See also the discussion of pension accounting in Critical Accounting Policies and Estimates.
 
Allowance for Funds Used During Construction (AFC)
 
AFC is a utility accounting practice whereby a portion of the cost of both equity and borrowed funds used to finance construction (which is shown on the balance sheet as construction work in progress) is capitalized. The Company includes an equity portion of AFC in nonoperating income and a debt portion of AFC in interest charges (credits) as noncash items, both of which have the effect of increasing reported net income. AFC represented approximately 3.3% of income before income taxes in 2007, 2.0% in 2006 and 1.4% in 2005.
 
Electric Operations
 
Electric Operations is comprised of the electric operations of SCE&G, GENCO and Fuel Company. Electric operations sales margins (including transactions with affiliates) were as follows:
 
Millions of dollars
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Operating revenues
 
$
1,954.1
   
4.1
%
$
1,877.6
   
(1.6
)%
$
1,908.3
 
Less: Fuel used in generation
   
662.3
   
7.7
%
 
615.1
   
(0.5
)%
 
618.3
 
          Purchased power
   
32.7
   
18.9
%
 
27.5
   
(26.1
)%
 
37.2
 
Margin
 
$
1,259.1
   
2.0
%
$
1,235.0
   
(1.4
)%
$
1,252.8
 
 
2007 vs 2006
Margin increased by $27.3 million due to customer growth and usage and due to other electric revenue of $5.2 million.  These increases were offset by lower off-system sales of $10.2 million.
 
2006 vs 2005
Margin decreased by $20.8 million due to unfavorable weather, by $16.0 million due to decreased off-system sales and by $6.5 million due to lower industrial sales. These decreases were offset by residential and commercial customer growth of $26.5 million. Purchased power cost decreased due to lower volumes.
 


Megawatt hour (MWh) sales volumes related to the electric margin above by class were as follows:
 
Classification (in thousands)
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Residential
   
7,814
   
2.8
%
 
7,598
   
(0.5
)%
 
7,634
 
Commercial
   
7,469
   
3.0
%
 
7,249
   
1.9
%
 
7,117
 
Industrial
   
6,267
   
1.4
%
 
6,183
   
(6.0
)%
 
6,581
 
Sales for resale (excluding interchange)
   
2,100
   
1.2
%
 
2,076
   
(5.5
)%
 
2,197
 
Other
   
563
   
6.8
%
 
527
   
0.8
%
 
523
 
Total territorial
   
24,213
   
2.5
%
 
23,633
   
(1.7
)%
 
24,052
 
Negotiated Market Sales Tariff (NMST)
   
672
   
(24.2
)%
 
886
   
(29.3
)%
 
1,253
 
    Total
   
24,885
   
1.5
%
 
24,519
   
(3.1
)%
 
25,305
 
 
2007 vs 2006
Territorial sales volumes increased by 343 MWh primarily due to residential and commercial customer growth and by 83 MWh due to higher industrial sales volumes.
 
2006 vs 2005
Territorial sales volumes decreased by 307 MWh due to lower industrial sales volumes and by 406 MWh due to unfavorable weather. These decreases were partially offset by an increase of 408 MWh due to residential and commercial customer growth.
 
Gas Distribution
 
Gas Distribution is comprised of the local distribution operations of SCE&G and PSNC Energy. Gas distribution sales margins (including transactions with affiliates) were as follows:
 
Millions of dollars
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Operating revenues
 
$
1,096.4
   
1.7
%
$
1,078.0
   
(7.8
)%
$
1,168.6
 
Less: Gas purchased for resale
   
764.6
   
(2.9
)%
 
787.1
   
(12.0
)%
 
894.6
 
    Margin
 
$
331.8
   
14.1
%
$
290.9
   
6.2
%
$
274.0
 
 
2007 vs 2006
Margin increased by $13.6 million due to an SCPSC-approved increase in retail gas base rates at SCE&G which became effective with the first billing cycle of November 2006, by $1.0 million due to an SCPSC-approved increase in retail gas base rates which became effective with the first billing cycle of November 2007, and by $6.1 million due to other customer growth at SCE&G.  The NCUC - approved rate increase at PSNC Energy, for services rendered on or after November 1, 2006, increased margin by $14.3 million.  The increase in margin at PSNC Energy also reflects customer growth in 2007 and significant conservation in 2006 due to high natural gas prices.
 
2006 vs 2005
Margin increased by $17.5 million due to increased retail gas base rates which became effective with the first billing cycle in November 2005 and by $4.0 million due to an SCPSC-approved increase in retail gas base rates effective with the first billing cycle in November 2006. These increases were offset by $4.0 million due to lower firm margin resulting from customer conservation at SCE&G. The NCUC-approved rate increase at PSNC Energy, for services rendered on or after November 1, 2006, increased margin by $2.4 million, but was offset primarily by customer conservation.
 
Dekatherm (DT) sales volumes by class, including transportation gas, were as follows:
 
Classification (in thousands)
 
2007
 
% Change
 
2006
 
% Change
   
2005
 
Residential
   
34,544
   
5.1
%
 
32,879
   
(13.2
)%
 
37,860
 
Commercial
   
26,573
   
3.3
%
 
25,718
   
(7.3
)%
 
27,750
 
Industrial
   
21,281
   
0.3
%
 
21,209
   
1.8
%
 
20,833
 
Transportation gas
   
31,154
   
3.3
%
 
30,147
   
8.8
%
 
27,698
 
    Total
   
113,552
   
3.3
%
 
109,953
   
(3.7
)%
 
114,141
 
 
2007 vs 2006
Residential, commercial and transportation gas sales volumes increased primarily due to customer growth.
 
2006 vs 2005
Residential and commercial sales volumes decreased primarily due to milder weather and conservation. Transportation sales volumes increased primarily due to interruptible customers using gas instead of alternate fuels.
 
Gas Transmission
 
Gas Transmission is comprised of the operations of CGTC and, for periods prior to the November 2006 merger and name change, SCPC and SCG Pipeline for all periods presented. Gas transmission sales margins (including transactions with affiliates) were as follows:
 
Millions of dollars
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Transportation revenue
 
$
49.1
   
85.3
%
$
26.5
   
40.2
%
$
18.9
 
Other operating revenues
   
-
   
*
   
475.0
   
(26.5
)%
 
646.3
 
Less: Gas purchased for resale
   
-
   
*
   
439.2
   
(27.3
)%
 
604.2
 
    Margin
 
$
49.1
   
(21.2
)%
$
62.3
   
2.1
%
$
61.0
 
*Change not meaningful due to change to a transportation only business model.
 
2007 vs 2006
Transportation revenue increased as a result of the change to an open access, transportation-only interstate pipeline company effective November 1, 2006.  As a result of this change, CGTC no longer earns commodity gas revenues nor does it incur gas costs.
 
2006 vs 2005
Margin increased by $6.2 million due to increased transportation capacity charges (as a result of the merger discussed previously in the Overview section) and by $1.4 million due to higher interruptible transportation revenues, offset by $1.8 million due to decreased firm sales capacity charges and by $4.5 million due to lower industrial margins.
 
DT sales volumes by class, including transportation, were as follows:
 
Classification (in thousands)
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Commercial
   
-
   
*
   
23
   
(57.4
)%
 
54
 
Industrial
   
-
   
*
   
18,875
   
(17.0
)%
 
22,748
 
Transportation
   
108,626
   
88.8
%
 
57,546
   
27.7
%
 
45,055
 
Sales for resale
   
-
   
*
   
33,327
   
(23.8
)%
 
43,763
 
    Total
   
108,626
   
(1.0
)%
 
109,771
   
(1.7
)%
 
111,620
 
*Change not meaningful due to change in business model.
 
2007 vs 2006
Transportation volumes increased as a result of the change to an open access, transportation-only interstate pipeline company effective November 1, 2006.
 
2006 vs 2005
Prior to the merger on November 1, 2006, industrial volumes decreased primarily due to higher commodity gas prices relative to alternate fuels. Subsequent to the merger, CGTC operates as a transportation-only interstate pipeline company.
 
Retail Gas Marketing
 
Retail Gas Marketing is comprised of SCANA Energy which operates in Georgia’s natural gas market. Retail Gas Marketing revenues and net income were as follows:
 
Millions of dollars
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Operating revenues
 
$
584.2
   
(3.9
)%
$
608.1
   
(8.4
)%
$
664.0
 
Net income
   
27.5
   
(8.6
)%
 
30.1
   
24.9
%
 
24.1
 
 
2007 vs 2006
Operating revenues decreased primarily due to lower average retail prices.  Net income decreased primarily due to higher expenses, including bad debt expense.
 
2006 vs 2005
Operating revenues decreased primarily due to milder weather and customer conservation, resulting in lower customer usage, which was partially offset by higher average retail prices arising from higher commodity gas costs. Net income increased primarily due to decreased bad debt of $9.0 million and lower operating and customer service expenses of $6.2 million, partially offset by a margin decrease of $9.1 million, net of taxes.
 
Delivered volumes totaled 34.1 million DT in 2007, 33.6 million DT in 2006 and 37.9 million DT in 2005.
 
Energy Marketing
 
Energy Marketing is comprised of the Company’s nonregulated marketing operations, excluding SCANA Energy. Energy Marketing operating revenues and net income (loss) were as follows:
 
Millions of dollars
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Operating revenues
 
$
1,167.7
   
23.1
%
$
948.7
   
0.3
%
$
945.5
 
Net income (loss)
   
2.8
   
*
   
(0.4
)
 
(33.3
)%
 
(0.6
)
*Greater than 100%.
 
2007 vs 2006
Operating revenues increased primarily due to customer growth, some of which results from sales to customers formerly reported in the Gas Transmission segment now being reported in Energy Marketing.   Net income increased due to higher margin on sales of $3.8 million, offset by higher operating expenses of $1.0 million.
 
2006 vs 2005
Operating revenues increased due primarily to higher sales volume. Net loss decreased due to lower operating expenses of $1.0 million, offset by lower margin on sales of $0.9 million.
 
Delivered volumes totaled 154.9 million DT in 2007, 123.9 million DT in 2006 and 101.0 million DT in 2005.  Delivered volumes increased in 2007 compared to 2006 primarily as a result of customer growth, including sales to customers formerly reported in the Gas Transmission segment. Delivered volumes increased in 2006 compared to 2005 primarily as a result of increased service to electric generation facilities and municipalities in Georgia and South Carolina. 
 
Other Operating Expenses
 
Other operating expenses arising from the operating segments previously discussed were as follows:
 
Millions of dollars
 
2007
 
% Change
 
2006
 
% Change
 
2005
 
Other operation and maintenance
 
$
648.2
   
4.7
%
$