-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bg236TtLeX5Wdcih0Yc/TJ3XMUNotpx/pQTeILhLQ7xuTiFArTcV+yMK3Q5LT7Vm KlHMKTqsQbTE5cL4MPDDsQ== 0000091882-96-000004.txt : 19961113 0000091882-96-000004.hdr.sgml : 19961113 ACCESSION NUMBER: 0000091882-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH CAROLINA ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000091882 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570248695 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03375 FILM NUMBER: 96658256 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8037483000 MAIL ADDRESS: STREET 1: MAIL CODE 051 CITY: COLUMBIA STATE: SC ZIP: 29218 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-3375 South Carolina Electric & Gas Company (Exact name of registrant as specified in its charter) South Carolina 57-0248695 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1426 Main Street, Columbia, South Carolina 29201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (803) 748-3000 Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes . No . APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of September 30, 1996, there were issued and outstanding 40,296,147 shares of the registrant's common stock, $4.50 par value, all of which were held, beneficially and of record, by SCANA Corporation. SOUTH CAROLINA ELECTRIC & GAS COMPANY INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995........................................ 3 Consolidated Statements of Income and Retained Earnings for the Periods Ended September 30, 1996 and 1995............ 5 Consolidated Statements of Cash Flows for the Periods Ended September 30, 1996 and 1995............................ 6 Notes to Consolidated Financial Statements..................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................... 16 Item 6. Exhibits and Reports on Form 8-K.......................... 16 Signatures............................................................ 17 Exhibit Index......................................................... 18 2 PART I FINANCIAL INFORMATION SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS As of September 30, 1996 and December 31, 1995 (Unaudited) September 30, December 31, 1996 1995 (Thousands of Dollars) ASSETS Utility Plant: Electric............................................. $3,752,872 $3,277,530 Gas.................................................. 323,024 320,847 Transit.............................................. 4,106 3,768 Common............................................... 88,160 91,616 Total.............................................. 4,168,162 3,693,761 Less accumulated depreciation and amortization....... 1,318,319 1,196,279 Total.............................................. 2,849,843 2,497,482 Construction work in progress........................ 271,608 613,683 Nuclear fuel, net of accumulated amortization........ 38,573 46,492 Utility Plant, Net............................... 3,160,024 3,157,657 Nonutility Property and Investments, net of accumulated depreciation............................. 11,668 11,542 Investments............................................ 61 61 Total Other Property & Investments............... 11,729 11,603 Current Assets: Cash and temporary cash investments.................. 18,548 6,798 Receivables - customer and other..................... 170,362 154,816 Receivables - affiliated companies................... 633 7,132 Inventories (at average cost): Fuel............................................... 21,553 35,812 Materials and supplies............................. 46,419 43,583 Prepayments.......................................... 10,370 10,158 Accumulated deferred income taxes.................... 19,420 19,420 Total Current Assets............................. 287,305 277,719 Deferred Debits: Emission allowances.................................. 30,428 28,514 Unamortized debt expense............................. 10,799 11,445 Unamortized deferred return on plant investment...... 3,184 6,369 Nuclear plant decommissioning fund................... 40,663 36,070 Other................................................ 322,681 273,056 Total Deferred Debits............................ 407,755 355,454 Total................................. $3,866,813 $3,802,433 See notes to consolidated financial statements. 3 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS As of September 30, 1996 and December 31, 1995 (Unaudited) September 30, December 31, 1996 1995 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Stockholders' Investment: Common Equity: Common stock ($4.50 par value)...................... $ 181,333 $ 181,333 Premium on common stock and other paid-in capital... 805,646 772,894 Capital stock expense (debit)....................... (5,347) (5,391) Retained earnings................................... 418,349 366,236 Total Common Equity............................... 1,399,981 1,315,072 Preferred Stock (not subject to purchase or sinking funds).............................................. 26,027 26,027 Total Stockholders' Investment.................... 1,426,008 1,341,099 Preferred Stock, net (subject to purchase or sinking funds)........................................ 43,354 46,243 Long-term debt, net..................................... 1,274,619 1,279,379 Total Capitalization............................ 2,743,981 2,666,721 Current Liabilities: Short-term borrowings................................. 64,000 80,500 Current portion of long-term debt..................... 36,363 36,033 Current portion of preferred stock.................... 2,453 2,439 Accounts payable...................................... 44,750 71,731 Accounts payable - affiliated companies............... 18,170 26,212 Customer deposits..................................... 13,727 12,518 Taxes accrued......................................... 89,682 64,008 Interest accrued...................................... 24,380 21,626 Dividends declared.................................... 35,605 33,126 Other................................................. 7,603 5,953 Total Current Liabilities....................... 336,733 354,146 Deferred Credits: Accumulated deferred income taxes..................... 498,925 488,310 Accumulated deferred investment tax credits........... 75,884 78,316 Accumulated reserve for nuclear plant decommissioning. 40,663 36,070 Other................................................. 170,627 178,870 Total Deferred Credits.......................... 786,099 781,566 Total ................................. $3,866,813 $3,802,433 See notes to consolidated financial statements. 4 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Periods Ended September 30, 1996 and 1995 (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (Thousands of Dollars) OPERATING REVENUES: Electric.............................. $329,078 $307,665 $ 860,677 $777,311 Gas................................... 34,575 31,376 166,002 143,586 Transit............................... 917 896 2,720 2,939 Total Operating Revenues......... 364,570 339,937 1,029,399 923,836 OPERATING EXPENSES: Fuel used in electric generation...... 53,138 54,321 147,252 129,590 Purchased power (including affiliated purchases)............... 29,410 25,357 80,941 79,884 Gas purchased from affiliate for resale.......................... 25,090 22,132 107,884 86,686 Other operation....................... 56,334 51,916 162,148 157,525 Maintenance........................... 16,053 13,410 47,408 41,914 Depreciation and amortization......... 33,950 28,108 100,483 83,482 Income taxes.......................... 39,738 38,709 92,196 81,317 Other taxes........................... 20,622 18,961 62,218 56,073 Total Operating Expenses......... 274,335 252,914 800,530 716,471 OPERATING INCOME........................ 90,235 87,023 228,869 207,365 OTHER INCOME: Allowance for equity funds used during construction................. 1,091 2,631 3,282 7,407 Other income (loss), net of income taxes........................ (409) (579) 179 (530) Total Other Income............... 682 2,052 3,461 6,877 INCOME BEFORE INTEREST CHARGES.......... 90,917 89,075 232,330 214,242 INTEREST CHARGES (CREDITS): Interest expense...................... 26,171 27,485 79,351 81,775 Allowance for borrowed funds used during construction............ (1,376) (3,450) (4,424) (8,693) Total Interest Charges, net...... 24,795 24,035 74,927 73,082 NET INCOME.............................. 66,122 65,040 157,403 141,160 Preferred Stock Cash Dividends (at stated rates)..................... (1,351) (1,416) (4,090) (4,280) Earnings Available for Common Stock..... 64,771 63,624 153,313 136,880 Retained Earnings at Beginning of Period............................. 387,778 339,094 366,236 324,101 Common Stock Cash Dividends Declared.............................. (34,200) (31,400) (101,200) (89,663) Retained Earnings at End of Period...... $418,349 $371,318 $ 418,349 $371,318 See notes to consolidated financial statements. 5 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended September 30, 1996 and 1995 (Unaudited) Nine Months Ended September 30, 1996 1995 (Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................... $157,403 $141,160 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization...................... 100,572 83,589 Amortization of nuclear fuel....................... 13,282 5,264 Deferred income taxes, net......................... 10,040 (3,774) Deferred investment tax credits, net............... (2,432) (2,422) Nuclear refueling accrual.......................... (2,723) 5,218 Allowance for funds used during construction....... (7,706) (16,100) Unamortized loss on reacquired debt................ 570 (3,645) Over (under) collections, fuel adjustment clause... (2,025) 20,750 Early retirements.................................. (4,766) (21,291) Emission allowances, net of AFC.................... (1,885) (7,593) Changes in certain current assets and liabilities: (Increase) decrease in receivables............... (9,047) (9,145) (Increase) decrease in inventories............... 11,423 4,422 Increase (decrease) in accounts payable.......... (35,023) (44,451) Increase (decrease) in taxes accrued............. 25,674 31,790 Increase (decrease) in interest accrued.......... 2,754 3,608 Other, net......................................... 2,545 (10,772) Net Cash Provided From Operating Activities............ 258,656 176,608 CASH FLOWS FROM INVESTING ACTIVITIES: Utility property additions and construction expenditures, net of AFC........................... (128,386) (173,685) Nonutility property and investments.................. (137) (52) Net Cash Used For Investing Activities................. (128,523) (173,737) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds: Equity contributions from parent................... 32,796 133,240 First Mortgage Bonds............................... - 99,583 Issuance on bank note.............................. - 1,019 Other long-term debt............................... - - Repayments: First and Refunding Mortgage Bonds................. (22,000) (48,779) Note payable to affiliated companies............... - (19,409) Repayment of bank loans............................ (1,886) - Other long-term debt............................... (1,382) (11,971) Preferred stock.................................... (2,876) (2,846) Dividend payments: Common stock....................................... (98,700) (85,263) Preferred stock.................................... (4,111) (4,336) Short-term borrowings, net........................... (16,500) (13,300) Fuel and emission allowance financings, net.......... (3,724) 27,923 Net Cash Provided From (Used For) Financing Activities. (118,383) 75,861 NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS........................... 11,750 78,732 CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1....... 6,798 346 CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30.... $ 18,548 $ 79,078 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for - Interest (includes capitalized interest of $4,424 and $8,693)...... $ 74,535 $ 23,500 - Income taxes......................... 50,576 2,392 NONCASH FINANCING ACTIVITIES: City of Charleston Franchise Fee..................... 25,000 - See notes to consolidated financial statements.
6 SOUTH CAROLINA ELECTRIC & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. These are interim financial statements and, because of temperature variations between seasons of the year, the amounts reported in the Consolidated Statements of Income are not necessarily indicative of amounts expected for the year. In the opinion of management, the information furnished herein reflects all adjustments, all of a normal recurring nature, which are necessary for a fair statement of the results for the interim periods reported. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Principles of Consolidation The Company, a public utility, is a South Carolina corporation organized in 1924 and a wholly owned subsidiary of SCANA Corporation (SCANA), a South Carolina holding company. The accompanying Consolidated Financial Statements include the accounts of the Company and South Carolina Fuel Company, Inc. (Fuel Company), an affiliate. Intercompany balances and transactions between the Company and Fuel Company have been eliminated in consolidation. The Company has entered into agreements with certain affiliates to purchase gas for resale to its distribution customers and to purchase electric energy. The Company purchases all of its natural gas requirements from South Carolina Pipeline Corporation. The Company purchases all of the electric generation of Williams Station, which is owned by South Carolina Generating Company, Inc., under a unit power sales agreement. Such unit power purchases are included in "Purchased power." B. Basis of Accounting The Company prepares its financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulations." The accounting standard allows cost-based rate-regulated utilities, such as the Company, to recognize in their financial statements revenues and expenses in different time periods than do enterprises that are not rate- regulated. As a result, the Company has recorded, as of September 30, 1996, approximately $236 million and $54 million of regulatory assets and liabilities, respectively, including amounts recorded for accumulated deferred income tax assets and liabilities of approximately $82 million and $50 million, respectively. The electric regulatory assets of approximately $123 million (excluding accumulated deferred income tax assets) are being recovered through rates and, as discussed in Note 2, the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $67 million of these assets. In the future, as a result of deregulation or other changes in the regulatory environment, the Company may no longer meet the criteria for continued application of SFAS 71 and would be required to write off its regulatory assets and liabilities. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. C. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1996 presentation. 7 2. RATE MATTERS: With respect to rate matters at September 30, 1996, reference is made to Note 2 of Notes to Consolidated Financial Statements in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. On July 10, 1995 the Company filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting the Company an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase is being implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of the Company's electric regulatory assets (excluding accumulated deferred income tax assets) and the transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. The Company's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction, which constitutes approximately 5% of the Company's electric revenues. 3. RETAINED EARNINGS: The Restated Articles of Incorporation of the Company and the Indenture underlying certain of its bond issues contain provisions that may limit the payment of cash dividends on common stock. In addition, with respect to hydroelectric projects, the Federal Power Act may require the appropriation of a portion of the earnings therefrom. At September 30, 1996 approximately $15.5 million of retained earnings were restricted as to payment of cash dividends on common stock. 4. COMMITMENTS AND CONTINGENCIES: With respect to commitments at September 30, 1996, reference is made to Note 10 of Notes to Consolidated Financial Statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. No significant changes have occurred with respect to those matters as reported therein, except with regard to the Calhoun Park area site discussed in Note 4B below. Contingencies at September 30, 1996 are as follows: A. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with the Company's public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $8.9 billion. Each reactor licensee is currently liable for up to $79.3 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. The Company's maximum assessment, based on its two-thirds ownership of Summer Station, would be approximately $52.9 million per incident, but not more than $6.7 million per year. 8 The Company currently maintains policies (for itself and on behalf of the PSA) with American Nuclear Insurers (ANI) and Nuclear Electric Insurance Limited (NEIL) providing combined property and decontamination insurance coverage of $1.9 billion for any losses at Summer Station. The Company pays annual premiums and, in addition, could be assessed a retroactive premium assessment not to exceed 7 1/2 times its annual premium in the event of property damage loss to any nuclear generating facility covered under the NEIL program. Based on the current annual premium, this retroactive premium assessment would not exceed $8.7 million. To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that the Company's rates would not recover the cost of any purchased replacement power, the Company will retain the risk of loss as a self-insurer. The Company has no reason to anticipate a serious nuclear incident at Summer Station. If such an incident were to occur, it could have a material adverse impact on the Company's financial position and results of operations. B. Environmental The Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the cost, if any, to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts are deferred (approximately $16 million) and are being amortized and recovered through rates over a ten-year period for electric operations and an eight-year period for gas operations. The deferral includes the costs estimated to be associated with the matters discussed below. The Company owns four decommissioned manufactured gas plant sites which contain residues of by- product chemicals. The Company maintains an active review of the sites to monitor the nature and extent of the residual contamination. In September 1992 the Environmental Protection Agency (EPA) notified the Company, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park area site in Charleston, South Carolina. This site originally encompassed approximately 18 acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of the Company's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The potentially responsible parties (PRP) have agreed with the EPA to participate in an innovative approach to site investigation and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre-cleanup site investigation process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993 and a draft Remedial Investigation report was submitted to the EPA in February 1995. The Company is currently resolving the comments of the EPA and other regulatory agencies related to the draft. 9 In addition contamination may have migrated to the City's aquarium site from the manufactured gas plant. In October 1996 the City of Charleston and the Company settled all environmental claims the City may have had against the Company involving the Calhoun Park area for a payment of $26 million over four years by the Company to the City. The Company expects to recover the amount of the settlement through rates in the same manner as other amounts accrued for site assessments and cleanup as discussed above. The Company is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. The Company does not expect the settlement to have a material impact on the Company's financial position or results of operations. 10 SOUTH CAROLINA ELECTRIC & GAS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Competition The electric utility industry has begun a major transition that could lead to expanded market competition and less regulatory protection. Future deregulation of electric wholesale and retail markets will create opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. The pace of deregulation, the future market price of electricity, and the regulatory actions which may be taken by the PSC and the Federal Energy Regulatory Commission (FERC) in response to the changing environment cannot be predicted. However, recent FERC actions will likely accelerate competition among electric utilities by providing for wholesale transmission access. In April 1996 the FERC issued Order 888, which addresses open access to transmission lines and stranded cost recovery. Order 888 requires utilities under FERC jurisdiction that own, control or operate transmission lines to file nondiscriminatory open access tariffs that offer to others the same transmission service they provide themselves. The FERC has also permitted utilities to seek recovery of wholesale stranded costs from departing customers by direct assignment. Approximately 5% of the Company's electric revenues is under FERC jurisdiction. The Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company operates Strategic Business Units. Maintaining a competitive cost structure is of paramount importance in the Company's strategic plan. The Company has undertaken a variety of initiatives, including reductions in operation and maintenance costs and in staffing levels. In January 1996 the PSC approved (as discussed under "Liquidity and Capital Resources") the accelerated recovery of the Company's electric regulatory assets and the shift of depreciation reserves from transmission and distribution assets to nuclear production assets. The shift of depreciation reserves was not approved by the FERC. In May 1996 the FERC approved the Company's application establishing open access transmission tariffs and requesting authorization to sell bulk power to wholesale customers at market-based rates. The Company believes that these actions as well as numerous others that have been and will be taken demonstrate its ability and commitment to succeed in the new operating environment to come. Regulated public utilities are allowed to record as assets some costs that would be expensed by other enterprises. If deregulation or other changes in the regulatory environment occur, the Company may no longer be eligible to apply this accounting treatment and may be required to eliminate such regulatory assets from its balance sheet. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. The Company reported approximately $236 million and $54 million of regulatory assets and liabilities, respectively, including amounts recorded for accumulated deferred income tax assets and liabilities of approximately $82 million and $50 million, respectively, on its balance sheet at September 30, 1996. 11 Material Changes in Capital Resources and Liquidity From December 31, 1995 to September 30, 1996 Liquidity and Capital Resources The cash requirements of the Company arise primarily from its operational needs and construction program. The ability of the Company to replace existing plant investment, as well as to expand to meet future demands for electricity and gas, will depend upon its ability to attract the necessary financial capital on reasonable terms. The Company recovers 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 the Company expands its construction program, it is necessary to seek increases in rates. As a result, the Company's financial position and results of operations are affected by its ability to obtain adequate and timely rate relief and in the future will be dependent on the Company's ability to compete in a deregulated environment (see "Competition"). On July 10, 1995 the Company filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting the Company an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase is being implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of the Company's electric regulatory assets (excluding accumulated deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. The Company's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction. The following table summarizes how the Company generated funds for its utility property additions and construction expenditures during the nine months ended September 30, 1996 and 1995: Nine Months Ended September 30, 1996 1995 (Thousands of Dollars) Net cash provided from operating activities $258,656 $176,608 Net cash provided from (used for) financing activities (118,383) 75,861 Cash and temporary cash investments available at the beginning of the period 6,798 346 Net cash available for utility property additions and construction expenditures $147,071 $252,815 Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $128,386 $173,685 12 On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with the Company. In consideration for the electric franchise agreement, the City will receive from the Company $25 million paid over seven years and the Company will donate to the City the existing transit assets in Charleston. In settlement of environmental claims the City may have had against the Company involving the Calhoun Park area, where the Company and its predecessor companies operated a manufactured gas plant until the 1960's, the Company will pay the City $26 million over a four-year period. As part of the environmental settlement, the Company has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The Company will invest up to $500,000 annually for 30 years in the City to defray the cost of underground wiring or other nonstandard service projects within scenic or historic districts of the City, which amounts will be matched by city funds. The City has agreed to limit such projects to those which can be paid for from a combined pool of funds created by the Company's and the City's contributions. It is anticipated that the Company's payments for underground wiring/nonstandard service will be treated as investments in the electric distribution rate base by the Company's regulators. SCANA and Westvaco Corporation have formed a limited liability company, Cogen South LLC, to build and operate a $170 million cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, S. C. The facility will provide industrial process steam for the Westvaco paper mill and shaft horsepower to enable the Company to generate up to 99 megawatts of electricity. Construction financing is being provided to Cogen South LLC by banks. In addition to the cogeneration partnership, Westvaco has entered into a 20-year contract with the Company for all its electricity requirements at the Company's standard industrial rate. Construction of the plant began August 26, 1996, and it is expected to be operational in the fall of 1998. The Company anticipates that the remainder of its 1996 cash requirements will be met through internally generated funds, additional equity contributions from SCANA and the incurrence of additional short-term and long-term indebtedness. The timing and amount of such financings will depend upon market conditions and other factors. The ratio of earnings to fixed charges for the twelve months ended September 30, 1996 was 3.74. The Company expects that it has or can obtain adequate sources of financing to meet its cash requirements for the next twelve months and for the foreseeable future. 13 SOUTH CAROLINA ELECTRIC & GAS COMPANY Results of Operations For the Three and Nine Months ended September 30, 1996 As Compared to the Corresponding Periods in 1995 Earnings and Dividends Net income for the three and nine months ended September 30, 1996 increased approximately $1.1 million and $16.2 million, respectively, when compared to the corresponding periods in 1995. Increases in the electric sales margins more than offset increases in operating costs. Allowance for funds used during construction (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. Both the equity and the debt portions of AFC are noncash items of nonoperating income which have the effect of increasing reported net income. AFC represented approximately 3% and 7% of income before income taxes for the nine months ended September 30, 1996 and 1995, respectively. On February 20, 1996 the Company's Board of Directors authorized the payment of a dividend on common stock of approximately $32.8 million for the quarter ended March 31, 1996. The dividend was paid on April 1, 1996 to SCANA Corporation. On April 25, 1996 the Company's Board of Directors authorized the payment of a dividend on common stock of $34.2 million for the quarter ended June 30, 1996. The dividend was paid on July 1, 1996 to SCANA Corporation. On August 21, 1996 the Company's Board of Directors authorized the payment of a dividend on common stock of $34.2 million for the quarter ended September 30, 1996. The dividend was paid on October 1, 1996 to SCANA Corporation. On October 22, 1996 the Company's Board of Directors authorized the payment of a dividend on common stock of $34.6 million for the quarter ended December 31, 1996. The dividend is payable on January 1, 1997 to SCANA Corporation. Sales Margins The changes in the electric sales margins for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995, were as follows: Three Months Nine Months Change % Change Change % Change (Millions) (Millions) Electric operating revenues $21.4 7.0 $83.4 10.7 Less: Fuel used in electric generation (1.2) (2.2) 17.7 13.6 Purchased power 4.1 16.0 1.1 1.3 Margin $18.5 8.1 $64.6 11.4 The electric sales margins increased for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995 as a result of the rate increase received by the Company in January 1996, and economic growth factors. 14 The changes in the gas sales margins for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995, were as follows: Three Months Nine Months Change % Change Change % Change (Millions) (Millions) Gas operating revenues $3.2 10.2 $22.4 15.6 Less: Gas purchased for resale 3.0 13.4 21.2 24.5 Margin $0.2 2.6 $ 1.2 2.1 The gas sales margins increased slightly for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995 primarily as a result of increased firm sales. Other Operating Expenses Changes in other operating expenses, including taxes, for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995 are presented in the following table: Three Months Nine Months Change % Change Change % Change (Millions) (Millions) Other operation and maintenance $ 7.1 10.8 $10.1 5.1 Depreciation and amortization 5.8 20.8 17.0 20.4 Income taxes 1.0 2.7 10.9 13.4 Other taxes 1.7 8.7 6.1 11.0 Total $15.6 10.3 $44.1 10.5 Other operation and maintenance expenses for the three and nine months ended September 30, 1996 increased from 1995 levels primarily as a result of higher production costs attributable to the Cope Plant which was brought on line in January 1996. Increases in depreciation and amortization expenses for the three and nine months comparisons reflect the addition of the Cope Plant and other additions to plant in service. The increases in income tax expense for the two periods correspond to the increases in operating income. The increases in other taxes reflect higher property taxes resulting from property additions and higher millages and assessments. Interest Charges Interest expense, excluding the debt component of AFC, for the three and nine months ended September 30, 1996 decreased $1.3 million and $2.4 million, respectively, when compared to the corresponding periods in 1995 primarily as a result of reductions in outstanding debt. 15 SOUTH CAROLINA ELECTRIC & GAS COMPANY Part II OTHER INFORMATION Item 1. Legal Proceedings For information regarding legal proceedings see Note 2 "Rate Matters" and Note 4 "Commitments and Contingencies" of Notes to Consolidated Financial Statements. Items 2, 3, 4 and 5 are not applicable. Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibits filed with this Quarterly Report on Form 10-Q are listed in the following Exhibit Index. Certain of such exhibits which have heretofore been filed with the Securities and Exchange Commission and which are designated by reference to their exhibit numbers in prior filings are hereby incorporated herein by reference and made a part hereof. B. Reports on Form 8-K None 16 SOUTH CAROLINA ELECTRIC & GAS COMPANY SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTH CAROLINA ELECTRIC & GAS COMPANY (Registrant) November 12, 1996 By: s/Jimmy E. Addison Jimmy E. Addison Vice President and Controller (Principal Accounting Officer) 17 SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially EXHIBIT INDEX Numbered Number Pages 2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession Not Applicable 3. Articles of Incorporation and By-Laws A. Restated Articles of Incorporation of the Company as adopted on December 15, 1993 (Exhibit 3-A to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3375)...................... # B. Articles of Amendment, dated June 7, 1994, filed June 9, 1994 (Exhibit 3-B to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3375) C. Articles of Amendment, dated November 9, 1994 (Exhibit 3-C to Form 10-K for the year ended December 31, 1994, File No. 1-3375)........................ # D. Articles of Amendment, dated December 9, 1994 (Exhibit 3-D to Form 10-K for the year ended December 31, 1994, File No. 1-3375)........................ # E. Articles of Correction, dated January 17, 1995 (Exhibit 3-E to Form 10-K for the year ended December 31, 1994, File No. 1-3375)........................ # F. Articles of Amendment, dated January 13, 1995 (Exhibit 3-F to Form 10-K for the year ended December 31, 1994, File No. 1-3375)........................ # G. Articles of Amendment, dated March 31, 1995 (Exhibit 3-G to Form 10-Q for the quarter ended March 31, 1995, File No. 1-3375)..................... # H. Articles of Correction - Amendment to Statement filed March 31, 1995, dated December 13, 1995 (Exhibit 3-H to Form 10-K for the year ended December 31, 1995, File No. 1-3375)........................ # I. Articles of Amendment dated December 13, 1995 (Exhibit 3-I to Form 10-K for the year ended December 31, 1995, File No. 1-3375)........................ # J. Copy of By-Laws of the Company as revised and amended on June 18, 1996 (Exhibit 3-J to Form 10-Q for the quarter ended March 31, 1996).................. # 4. Instruments Defining the Rights of Security Holders, Including Indentures A. Indenture dated as of January 1, 1945, from the South Carolina Power Company (the "Power Company") to Central Hanover Bank and Trust Company, as Trustee, as supplemented by three Supplemental Indentures dated respectively as of May 1, 1946, May 1, 1947 and July 1, 1949 (Exhibit 2-B to Registration No. 2-26459).................................. # B. Fourth Supplemental Indenture dated as of April 1, 1950, to Indenture referred to in Exhibit 4A, pursuant to which the Company assumed said Indenture (Exhibit 2-C to Registration No. 2-26459)........ # C. Fifth through Fifty-second Supplemental Indentures to Indenture referred to in Exhibit 4A dated as of the dates indicated below and filed as exhibits to the Registration Statements and 1934 Act reports whose file numbers are set forth below................................................ # December 1, 1950 Exhibit 2-D to Registration No. 2-26459 July 1, 1951 Exhibit 2-E to Registration No. 2-26459 June 1, 1953 Exhibit 2-F to Registration No. 2-26459 # Incorporated herein by reference as indicated. 18 SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially EXHIBIT INDEX Numbered Number Pages 4. (Continued) June 1, 1955 Exhibit 2-G to Registration No. 2-26459 November 1, 1957 Exhibit 2-H to Registration No. 2-26459 September 1, 1958 Exhibit 2-I to Registration No. 2-26459 September 1, 1960 Exhibit 2-J to Registration No. 2-26459 June 1, 1961 Exhibit 2-K to Registration No. 2-26459 December 1, 1965 Exhibit 2-L to Registration No. 2-26459 June 1, 1966 Exhibit 2-M to Registration No. 2-26459 June 1, 1967 Exhibit 2-N to Registration No. 2-29693 September 1, 1968 Exhibit 4-O to Registration No. 2-31569 June 1, 1969 Exhibit 4-C to Registration No. 33-38580 December 1, 1969 Exhibit 4-Q to Registration No. 2-35388 June 1, 1970 Exhibit 4-R to Registration No. 2-37363 March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324 January 1, 1972 Exhibit 4-C to Registration No. 33-38580 July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291 May 1, 1975 Exhibit 4-C to Registration No. 33-38580 July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908 February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304 December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936 March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662 May 1, 1977 Exhibit 4-C to Registration No. 33-38580 February 1, 1978 Exhibit 4-C to Registration No. 33-38580 June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653 April 1, 1979 Exhibit 4-C to Registration No. 33-38580 June 1, 1979 Exhibit 4-C to Registration No. 33-38580 April 1, 1980 Exhibit 4-C to Registration No. 33-38580 June 1, 1980 Exhibit 4-C to Registration No. 33-38580 December 1, 1980 Exhibit 4-C to Registration No. 33-38580 April 1, 1981 Exhibit 4-D to Registration No. 33-49421 June 1, 1981 Exhibit 4-D to Registration No. 2-73321 March 1, 1982 Exhibit 4-D to Registration No. 33-49421 April 15, 1982 Exhibit 4-D to Registration No. 33-49421 May 1, 1982 Exhibit 4-D to Registration No. 33-49421 December 1, 1984 Exhibit 4-D to Registration No. 33-49421 December 1, 1985 Exhibit 4-D to Registration No. 33-49421 June 1, 1986 Exhibit 4-D to Registration No. 33-49421 February 1, 1987 Exhibit 4-D to Registration No. 33-49421 September 1, 1987 Exhibit 4-D to Registration No. 33-49421 January 1, 1989 Exhibit 4-D to Registration No. 33-49421 January 1, 1991 Exhibit 4-D to Registration No. 33-49421 February 1, 1991 Exhibit 4-D to Registration No. 33-49421 July 15, 1991 Exhibit 4-D to Registration No. 33-49421 August 15, 1991 Exhibit 4-D to Registration No. 33-49421 April 1, 1993 Exhibit 4-E to Registration No. 33-49421 July 1, 1993 Exhibit 4-D to Registration No. 33-57955 D. Indenture dated as of April 1, 1993 from South Carolina Electric & Gas Company to NationsBank of Georgia, National Association (Filed as Exhibit 4-F to Registration Statement No. 33-49421)...................................... # E. First Supplemental Indenture to Indenture referred to in Exhibit 4-D dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421).......... # F. Second Supplemental Indenture to Indenture referred to in Exhibit 4-D dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955).......... # 10. Material Contracts Not Applicable 11. Statement Re Computation of Per Share Earnings Not Applicable # Incorporated herein by reference as indicated. 19 SOUTH CAROLINA ELECTRIC & GAS COMPANY Exhibit Index (Continued) Number 15. Letter Re Unaudited Interim Financial Information Not Applicable 18. Letter Re Change in Accounting Principles Not Applicable 19. Report Furnished to Security Holders Not Applicable 22. Published Report Regarding Matters Submitted to Vote of Security Holders Not Applicable 23. Consents of Experts and Counsel Not Applicable 24. Power of Attorney Not Applicable 27. Financial Data Schedule (Filed herewith) 99. Additional Exhibits Not Applicable 20 EX-27 2
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1996 SEP-30-1996 PER-BOOK 3,160,024 11,729 287,305 407,755 0 3,866,813 181,333 800,299 418,349 1,399,981 43,354 26,027 1,274,619 64,000 0 0 36,363 2,453 0 0 1,020,016 3,866,813 364,570 39,738 234,597 274,335 90,235 682 90,917 24,795 66,122 (1,351) 64,771 34,200 0 258,656 0 0
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