-----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, R2mQfpGlL3VehnW03Xutac9/kR/F+/TBwlXD7zoMnilLVjE0/BEGwNyTj78KjeA4 g0xqzrFjqVLA13NsPxz0IA== /in/edgar/work/20000811/0000091882-00-000007/0000091882-00-000007.txt : 20000921 0000091882-00-000007.hdr.sgml : 20000921 ACCESSION NUMBER: 0000091882-00-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH CAROLINA ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000091882 STANDARD INDUSTRIAL CLASSIFICATION: [4931 ] IRS NUMBER: 570248695 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03375 FILM NUMBER: 693208 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032179000 MAIL ADDRESS: STREET 1: 1426 MAIN ST CITY: COLUMBIA STATE: SC ZIP: 29201 10-Q 1 0001.txt FORM 10-Q =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended June 30, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-8809 SCANA Corporation 57-0784499 (A South Carolina Corporation) 1426 Main Street Columbia, South Carolina 29201 (803) 217-9000 1-3375 South Carolina Electric & Gas Company 57-0248695 (A South Carolina Corporation) 1426 Main Street Columbia, South Carolina 29201 (803) 217-9000 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 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the last practicable date. Description of Shares Outstanding Registrant Common Stock at July 31 , 2000 SCANA Corporation Without Par Value 104,729,131 South Carolina Electric Par Value $4.50 Per Share 40,296,1471 & Gas Company 1Held beneficially and of record by SCANA Corporation. This combined Form 10-Q is separately filed by SCANA Corporation and South Carolina Electric & Gas Company. Information contained herein relating to SCANA Corporation or any of its direct or indirect subsidiaries, other than South Carolina Electric & Gas Company and its consolidated operations, is provided solely by SCANA Corporation and shall be deemed not included in the Form 10-Q of South Carolina Electric & Gas Company. ================================================================================ INDEX Page PART 1. FINANCIAL INFORMATION SCANA Corporation Financial Section........................................ 3 Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 .................................................. 4 Consolidated Statements of Income and Retained Earnings for the Periods Ended June 30, 2000 and 1999.................................... 6 Consolidated Statements of Cash Flows for the Periods Ended June 30, 2000 and 1999.................................................. 7 Notes to Consolidated Financial Statements................................ 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................15 Item 3. Quantitative and Qualitative Disclosures About Market Risk.........23 South Carolina Electric & Gas Company Financial Section.....................25 Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 ....26 Consolidated Statements of Income and Retained Earnings for the Periods Ended June 30, 2000 and 1999.....................................28 Consolidated Statements of Cash Flows for the Periods Ended June 30, 2000 and 1999........................................................ 29 Notes to Consolidated Financial Statements.................................30 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................34 Item 3. Quantitative and Qualitative Disclosures About Market Risk.........38 PART II. OTHER INFORMATION Item 1. Legal Proceedings..................................................39 Item 4. Submission of Matters to a Vote of Security Holders................39 Item 6. Exhibits and Reports on Form 8-K...................................40 Signatures..................................................................41 Exhibit Index...............................................................43 SCANA CORPORATION FINANCIAL SECTION PART I. FINANCIAL INFORMATION Item 1. Financial Statements SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of June 30, 2000 and December 31, 1999 (Unaudited) - ------------------------------------------------------------------------------------------ June 30, December 31, 2000 1999 - ------------------------------------------------------------------------------------------ Assets (Millions of Dollars) Utility Plant: Electric $4,650 $4,633 Gas 1,394 632 Other 183 191 - ----------------------------------------------------------------------------------------- Total 6,227 5,456 Less accumulated depreciation and amortization 2,148 1,829 - ----------------------------------------------------------------------------------------- Total 4,079 3,627 Construction work in progress 244 159 Nuclear fuel, net of accumulated amortization 57 43 Acquisition adjustment, net of accumulated amortization 482 22 - ----------------------------------------------------------------------------------------- Utility Plant, Net 4,862 3,851 - ----------------------------------------------------------------------------------------- Nonutility Property, net of accumulated depreciation 62 61 Investments 814 938 - ----------------------------------------------------------------------------------------- Nonutility Property and Investments, net of accumulated depreciation 876 999 - ----------------------------------------------------------------------------------------- Current Assets: Cash and temporary cash investments 75 116 Receivables (including unbilled revenues) 407 320 Inventories (at average cost): Fuel 96 82 Materials and supplies 54 51 Prepayments 27 18 Deferred income taxes 17 16 - ----------------------------------------------------------------------------------------- Total Current Assets 676 603 - ----------------------------------------------------------------------------------------- Deferred Debits: Emission allowances 28 31 Environmental 31 24 Nuclear plant decommissioning fund 68 64 Pension asset, net 172 144 Other regulatory assets 169 175 Other 129 120 - ----------------------------------------------------------------------------------------- Total Deferred Debits 597 558 - ----------------------------------------------------------------------------------------- Total $7,011 $6,011 =========================================================================================
SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of June 30, 2000 and December 31, 1999 (Unaudited) - ------------------------------------------------------------------------------ ----------------- June 30, December 31, 2000 1999 - ------------------------------------------------------------------------------ ----------------- Capitalization and Liabilities (Millions of Dollars) Stockholders' Investment: Common Equity $2,059 $2,099 Preferred stock (not subject to purchase or sinking funds) 106 106 - ------------------------------------------------------------------------------------------- Total Stockholders' Investment 2,165 2,205 Preferred Stock, net (subject to purchase or sinking funds) 11 11 SCE&G-Obligated Mandatorily Redeemable Preferred Securities of SCE&G's Subsidiary Trust, SCE&G Trust I, holding solely $50 million principal amount of the 7.55% Junior Subordinated Debentures of SCE&G, due 2027 50 50 Long-Term Debt, net 2,562 1,563 - ------------------------------------------------------------------------------------------- Total Capitalization 4,788 3,829 - ------------------------------------------------------------------------------------------- Current Liabilities: Short-term borrowings 313 266 Current portion of long-term debt 209 303 Accounts payable 220 189 Customer deposits 19 16 Taxes accrued 50 86 Interest accrued 41 29 Dividends declared 32 31 Other 20 13 - ------------------------------------------------------------------------------------------- Total Current Liabilities 904 933 - ------------------------------------------------------------------------------------------- Deferred Credits: Deferred income taxes 837 805 Deferred investment tax credits 117 116 Postretirement benefits 110 98 Reserve for nuclear plant decommissioning 68 64 Regulatory liabilities 73 64 Other 114 102 - ------------------------------------------------------------------------------------------- Total Deferred Credits 1,319 1,249 - ------------------------------------------------------------------------------------------- Total $7,011 $6,011 =========================================================================================== See Notes to Consolidated Financial Statements.
SCANA CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Periods Ended June 30, 2000 and 1999 (Unaudited) ---------------------------------------------------------------------------------- --------------------------- Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 -------------------------------------------------------------------- ------------- ------------- ------------- Millions of Dollars, Except Per Share Amounts) Operating Revenues: Electric $ 320 $ 293 $ 614 $ 559 Gas - Regulated 164 82 476 212 Gas - Nonregulated 178 60 394 209 -------------------------------------------------------------------- -------------- ------------ ------------- Total Operating Revenues 662 435 1,484 980 -------------------------------------------------------------------- -------------- ------------ ------------- Operating Expenses: Fuel used in electric generation 72 72 143 133 Purchased power 11 11 17 14 Gas purchased for resale 278 117 657 346 Other operation and maintenance 120 98 229 194 Depreciation and amortization 53 42 108 84 Other taxes 29 26 58 52 -------------------------------------------------------------------- -------------- ------------ ------------- Total Operating Expenses 563 366 1,212 823 -------------------------------------------------------------------- -------------- ------------ ------------- Operating Income 99 69 272 157 -------------------------------------------------------------------- -------------- ------------ ------------- Other Income, including allowance for equity funds used during construction 8 7 18 16 -------------------------------------------------------------------- -------------- ------------ ------------- Income Before Interest Charges, Income Taxes and Preferred Stock 107 76 290 173 Dividends -------------------------------------------------------------------- -------------- ------------ ------------- Interest Charges (Credits): Interest expense on long-term debt 51 32 95 63 Other interest expense, including allowance for borrowed funds used during construction 4 3 14 6 -------------------------------------------------------------------- -------------- ------------ ------------- Total Interest Charges, Net 55 35 109 69 -------------------------------------------------------------------- -------------- ------------ ------------- Income Before Income Taxes and Preferred Stock Dividends 52 41 181 104 Income Taxes 21 14 72 37 -------------------------------------------------------------------- -------------- ------------ ------------- Income Before Preferred Dividend Requirements on Mandatorily Redeemable Preferred Securities 31 27 109 67 Preferred Dividend Requirement of SCE&G - Obligated Mandatorily Redeemable Preferred Securities 1 1 2 2 ----------------------------------------------------------------------------- -------------- ------------ ------------- Income Before Preferred Stock Cash Dividends of Subsidiary 30 26 107 65 Preferred Stock Cash Dividends of Subsidiary (At Stated Rates) 2 4 4 2 ----------------------------------------------------------------------------- -------------- ------------ ------------- Income Before Cumulative Effect of Accounting Change 28 24 103 61 Cumulative Effect of Accounting Change, net of taxes (Note 2) - 29 - - ----------------------------------------------------------------------------- -------------- ------------ ------------- Net Income 28 24 132 61 Retained Earnings at Beginning of Period 794 675 720 678 Common Stock Cash Dividends Declared (40) (60) (80) (30) ============================================================================= ============== ============ ============= Retained Earnings at End of Period $ 792 $ 659 $ 792 $ 659 ============================================================================= ============== ============ ============= Weighted Average Number of Common Shares Outstanding (Millions) 104.7 103.6 104.4 103.6 Earnings Per Weighted Average Share of Common Stock (Basic and Diluted) Before Cumulative Effect of Accounting Change $ $ .23 $ .99 $ .59 .27 Cumulative Effect of Accounting Change (Note 2) - - - .28 Earnings Per Weighted Average Share of Common Stock (Basic and $ $ .23 $ 1.27 $ Diluted) .27 .59 Cash Dividends Declared Per Share of Common Stock $.2875 $.3850 $.5750 $.7700 ============================================================================= ============== ============ ============= See Notes to Consolidated Financial Statements.
SCANA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended June 30, 2000 and 1999 (Unaudited) - ------------------------------------------------------------------------------------------------ Six Months Ended June 30, 2000 1999 - --------------------------------------------------------------------------------- ------------- (Millions of Dollars) Cash Flows From Operating Activities: Net income $132 $61 Adjustments to reconcile net income to net cash provided from operating activities, net of effect of subsidiary acquisition: Cumulative effect of accounting change (29) - Depreciation and amortization 120 88 Amortization of nuclear fuel 10 8 Deferred income taxes, net 16 20 Pension asset (28) (13) Other regulatory assets (5) 32 Regulatory liabilities 9 4 Post-retirement benefits 8 6 Allowance for funds used during construction (3) (5) Over (under) collections, fuel adjustment clauses 11 - Changes in certain current assets and liabilities: (Increase) decrease in receivables 11 36 (Increase) decrease in inventories 20 - Increase (decrease) in accounts payable (19) (75) Increase (decrease) in taxes accrued (41) (30) Other, net 6 (66) - ---------------------------------------------------------------------------------- ------------- Net Cash Provided From Operating Activities 218 66 - ---------------------------------------------------------------------------------- ------------- Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (132) (118) Increase in other property and investments (24) (38) Purchase of subsidiary, net of cash acquired (690) - Sale of subsidiary assets 1 12 - ---------------------------------------------------------------------------------- ------------- Net Cash Used For Investing Activities (845) (144) - ---------------------------------------------------------------------------------- ------------- Cash Flows From Financing Activities: Proceeds: Issuance of First Mortgage Bonds 148 99 Issuance of notes and loans 699 150 Repayments: First Mortgage Bonds (100) - Other long-term debt (2) (3) Dividend payments: Common stock (64) (80) Preferred stock of subsidiary (4) (4) Short-term borrowings, net (91) (90) Fuel and emission allowance financings, net - 14 - ---------------------------------------------------------------------------------- ------------- Net Cash Provided From Financing Activities 586 86 - ---------------------------------------------------------------------------------- ------------- Net Increase (Decrease) In Cash And Temporary Cash Investments (41) 8 Cash And Temporary Cash Investments At January 1 116 62 - ---------------------------------------------------------------------------------- ------------- Cash And Temporary Cash Investments At June 30 $ 75 $70 ================================================================================== ============= Supplemental Cash Flow Information: Cash paid for - Interest (net of capitalized interest of $2 for 2000 and 1999) $95 $67 - Income taxes 76 13 Noncash investing activities - - Unrealized gain/(loss) on securities available for sale, net of taxes 111 80 In conjunction with the acquisition of Public Service Company of North Carolina, Inc., liabilities were assumed as follows: Fair value of assets acquired $ 1,171 Cash paid for capital stock (212) Stock issued for consideration (475) -------- Liabilities assumed $ 484 ======== See Notes to Consolidated Financial Statements.
SCANA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in SCANA Corporation's (the Company) Annual Report on Form 10-K for the year ended December 31, 1999. These are interim financial statements, and due to the seasonality of the Company's business, 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 except as described in Notes 2, 3 and 4, which are necessary for a fair statement of the results for the interim periods reported. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of Statement of Financial Accounting Standards No. 71 (SFAS 71). The accounting standard requires cost-based rate-regulated utilities 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 June 30, 2000, approximately $201 million and $73 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $131 million and $48 million, respectively. The electric and gas regulatory assets (excluding deferred income tax assets) of approximately $25 million and $44 million, respectively, are being recovered through rates, and the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $3 million of the electric regulatory 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 could 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 that a write-off would be required, but it is not expected that cash flows or financial position would be materially affected. B. Other Comprehensive Income Other comprehensive income includes net income and all other changes in equity except those resulting from investments by and distributions to stockholders. Other comprehensive income/(loss) of the Company totaled $(10) million and $21 million for the three and six months ended June 30, 2000, respectively, and $86 million and $141 million for the same periods in 1999. For each period, other comprehensive income included net income and unrealized gains/(losses) on securities available for sale. Accumulated other comprehensive income of the Company totaled $357 million and $166 million at June 30, 2000 and 1999, respectively. C. Recently Issued Accounting Bulletin In December 1999 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." In June 2000 the SEC amended the Bulletin to delay the implementation date until no later than the fourth quarter of fiscal years beginning after December 15, 1999. The Bulletin, which will be implemented by the Company by the fourth quarter of 2000, provides the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues. The Company does not expect the adoption of this Bulletin to have a material impact on the Company's results of operations, cash flows or financial position. D. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 2000 presentation. 2. Cumulative Effect of Accounting Change Effective January 1, 2000 the Company changed its method of accounting for operating revenues from cycle billing to full accrual. The cumulative effect of this change was $29 million, net of tax. Accruing unbilled revenues more closely matches revenues and expenses. Unbilled revenues represent the estimated amount customers will be charged for service received, but that has not yet been billed, as of the end of the accounting period. Previously these revenues were recognized as operating revenues as customers were billed. If this method had been applied retroactively, net income would have been $29 million ($0.28 per share) and $83 million ($0.80 per share) for the three and six months ended June 30, 1999, respectively, compared to $24 million ($0.23 per share) and $61 million ($0.59 per share), respectively, as previously reported. 3. ACQUISITION On February 10, 2000 the Company completed its acquisition of Public Service Company of North Carolina, Inc. (PSNC) in a business combination accounted for as a purchase. PSNC became a wholly owned subsidiary of the Company. PSNC is a public utility engaged primarily in transporting, distributing and selling natural gas to approximately 351,000 residential, commercial and industrial customers in 31 counties in North Carolina. Pursuant to the Agreement and Plan of Merger, PSNC shareholders were paid approximately $212 million in cash and 17,413,013 shares of SCANA common stock. The results of operations of PSNC are included in the accompanying financial statements as of January 1, 2000, the effective date of acquisition . The total cost of the acquisition was approximately $700 million, which exceeded the fair value of the net assets by approximately $467 million. The excess is being amortized over 35 years on a straight line basis. Operating revenues and net income previously reported by the separate companies and the combined amounts presented in the accompanying Consolidated Statements of Income, including the cumulative effect of accounting change (See Note 2), are as follows: ------------------------------------------------------------------------------------------ For the Six Months Ended June 30, 1999 (Millions of Dollars, Except Per Share Amounts) SCANA PSNC Adjustments1 Combined ------------------------------------------------------------------------------------------- Operating revenues $980 $188 $ - $1,168 Income before cumulative effect 61 24 (22) 63 Cumulative effect of accounting change 22 - - 22 Net income 83 24 (22) 85 Earnings per share 0.80 1.15 - 0.81 =========================================================================================== 1 Adjustments include interest charges (net of income tax effect) on additional debt issued in conjunction with the acquisition and amortization of the acquisition adjustment.
4. RATE MATTERS On December 30, 1999 PSNC filed an application with the North Carolina Utilities Commission (NCUC) to extend natural gas service to Madison, Jackson and Swain Counties. Pursuant to state statutes, the NCUC required PSNC to forfeit its exclusive franchises to serve six counties in western North Carolina effective January 31, 2000 because these counties were not receiving any natural gas service. Madison, Jackson and Swain Counties were included in the forfeiture order. On June 29, 2000 the NCUC approved PSNC's requests for reinstatement of its exclusive franchises for Madison, Jackson and Swain Counties and disbursement of up to $28.4 million from PSNC's expansion fund for this project. PSNC estimates that the cost of this project will be approximately $31.4 million. On December 7, 1999 the NCUC issued an order approving the acquisition of PSNC by the Company. As specified in the NCUC order, PSNC will reduce its rates by approximately $2 million ($1 million in August 2000 and another $1 million in August 2001) and has agreed to a five-year moratorium on general rate cases. General rate relief can be obtained during this period to recover costs associated with materially adverse governmental actions and force majeure events. On December 30, 1999 the Carolina Utility Customers Association, Inc. (CUCA) filed an appeal of this order with the North Carolina Court of Appeals. On June 15, 2000 CUCA filed a motion to withdraw its appeal. On September 14, 1999 the PSC approved an accelerated capital recovery plan for South Carolina Electric & Gas Company's (SCE&G) Cope Generating Station. The plan was implemented beginning January 1, 2000 for a three-year period. The PSC approved an accelerated capital recovery methodology wherein SCE&G will increase depreciation of its Cope Generating Station in excess of amounts that would be recorded based upon currently approved depreciation rates. The amount of the accelerated depreciation will be determined by SCE&G based on the level of revenues and operating expenses, not to exceed $36 million annually without the approval of the PSC. Any unused portion of the $36 million in any given year could be carried forward for possible use in the subsequent year. The accelerated capital recovery plan will be accomplished through existing customer rates. On October 30, 1998 the NCUC issued an order in PSNC's general rate case filed in April 1998. The order, effective November 1, 1998, granted PSNC additional revenue of $12.4 million and allowed a 9.82 percent overall rate of return on PSNC's net utility investment. It also approved the continuation of the Weather Normalization Adjustment and Rider D Mechanisms and full margin transportation rates. PSNC's Rider D rate mechanism authorizes the recovery of all prudently incurred gas costs from customers on a monthly basis. Any difference in amounts paid and collected for these costs is deferred for subsequent refund to or collection from customers. On February 4, 2000, in response to an appeal by CUCA, the Supreme Court of North Carolina affirmed the NCUC order. On November 6, 1997 the NCUC issued an order permitting PSNC, on a trial basis, to establish its commodity cost of gas for large commercial and industrial customers on the basis of market prices for natural gas. This procedure allows PSNC to manage its deferred gas costs better by ensuring that the amount paid for natural gas to serve these customers approximates the amount collected from them. PSNC's request for permanent approval of this mechanism was approved by the NCUC in an order issued April 6, 2000. In September 1992 the PSC issued an order granting SCE&G a $.25 increase in transit fares from $.50 to $.75 in Columbia, South Carolina; however, the PSC also required $.40 fares for low income customers and denied SCE&G's request to reduce the number of routes and frequency of service. The new rates were placed into effect in October 1992. SCE&G appealed the PSC's order to the Circuit Court, which in May 1995 ordered the case back to the PSC for reconsideration of several issues including the low income rider program, routing changes, and the $.75 fare. The Supreme Court declined to review an appeal of the Circuit Court decision and dismissed the case. The PSC and other intervenors filed another Petition for Reconsideration, which the Supreme Court denied. The PSC and other intervenors filed another appeal to the Circuit Court which the Circuit Court denied in an order dated May 9, 1996. In this order, the Circuit Court upheld its previous orders and remanded them to the PSC. During August 1996 the PSC heard oral arguments on the orders on remand from the Circuit Court. On September 30, 1996 the PSC issued an order affirming its previous orders and denied SCE&G's request for reconsideration. SCE&G has appealed these two PSC orders to the Circuit Court where they are awaiting action. 5. RETAINED EARNINGS: The Restated Articles of Incorporation of the Company do not limit the dividends that may be payable on its common stock. However, the Restated Articles of Incorporation of SCE&G and the Indenture underlying its First and Refunding Mortgage Bonds contain provisions that, under certain circumstances, could limit the payment of cash dividends on its common stock. In addition, with respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At June 30, 2000, approximately $31 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G's common stock. 6. INVESTMENTS IN EQUITY SECURITIES: At June 30, 2000, SCANA Communications Holdings, Inc. (SCH), a wholly owned, indirect subsidiary of SCANA, held the following investments in ITC Holding Company, Inc. (ITC) and its affiliates: o Powertel, Inc. (Powertel) is a publicly traded company that owns and operates personal communications services (PCS) systems in several major Southeastern markets. SCH owns approximately 4.9 million common shares of Powertel at a cost of approximately $75.3 million. Powertel common stock closed at $70.9375 per share on June 30, 2000, resulting in a pre-tax unrealized holding gain of $273.5 million (a decline of $144.3 million from December 31, 1999). Accumulated other comprehensive income includes the after-tax amount of all unrealized holding gains and losses on common shares. In addition, SCH owns the following series of non-voting convertible preferred shares, at the approximate cost noted: 100,000 shares series B ($75.1 million); 50,000 shares series D ($22.5 million); and 50,000 shares 6.5 percent series E ($75.0 million). Dividends on preferred series E shares are paid in common shares of Powertel. Preferred series B shares are convertible in March 2002 at a conversion price of $16.50 per common share or approximately 4.5 million common shares. Preferred series D shares are convertible in March 2002 at a conversion price of $12.75 per common share or approximately 1.7 million common shares. Preferred series E shares are convertible in June 2003 at a conversion price of $22.01 per common share or approximately 3.4 million common shares. The market value of the convertible preferred shares of Powertel is not readily determinable. However, as converted, the market value of the underlying common shares for the preferred shares was approximately $689.3 million at June 30, 2000, resulting in an unrecorded pre-tax holding gain of $516.7 million (a decline of $286.0 million from December 31, 1999). o ITC^DeltaCom, Inc. (ITCD) is a fiber optic telecommunications provider. SCH owns approximately 5.1 million common shares of ITCD at a cost of approximately $43.0 million. ITCD common stock closed at $22.3125 per share on June 30, 2000, resulting in a pre-tax unrealized holding gain of $71.1 million (a decline of $27.2 million from December 31, 1999). Accumulated other comprehensive income includes the after-tax amount of all unrealized holding gains and losses on common shares. In addition, SCH owns 1,480,771 shares of series A preferred stock of ITCD at a cost of approximately $11.2 million. Series A preferred shares are convertible in March 2002 into 2,961,542 shares of ITCD common stock. The market value of series A preferred stock of ITCD is not readily determinable. However, as converted, the market value of the underlying common stock for the series A preferred stock was approximately $66.1 million at June 30, 2000, resulting in an unrecorded pre-tax holding gain of $54.9 million (a decline of $15.7 million from December 31, 1999). o Knology Inc. (Knology), previously Knology Holdings, Inc., is a broad-band service provider of cable television, telephone and internet services. SCH owns 71,050 units of Knology. Each unit consists of one 11.875% Senior Discount Note due 2007 and one warrant entitling the holder to purchase .003734 shares of preferred stock of Knology. The cost of this investment was approximately $40 million. Prior to February 24, 2000, SCH owned 451,800 shares of series A preferred stock of Knology at a cost of approximately $1.1 million. On February 24, 2000 Knology Holdings, Inc. was spun off from ITC and was renamed Knology, Inc. As a result of this spin off, SCH received approximately 6.8 million shares of Knology series A preferred stock. The market value of these investments is not readily determinable. o ITC has an ownership interest in several Southeastern communications companies. SCH owns approximately 3.1 million common shares, 645,153 series A convertible preferred shares, and 133,664 series B convertible preferred shares of ITC. These investments cost approximately $5.8 million, $7.2 million, and $4.0 million, respectively. Preferred series A shares are convertible in March 2002 at a conversion price of $2.73 per common share or approximately 3.2 million common shares. Preferred series B shares are convertible in March 2002 at a conversion price of $8.86 per common share or approximately 0.7 million common shares. The market values of these investments are not readily determinable. 7. CONTINGENCIES: With respect to commitments at June 30, 2000, 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, 1999. Contingencies at June 30, 2000 are as follows: A. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $9.5 billion. Each reactor licensee is currently liable for up to $88.1 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. SCE&G's maximum assessment, based on its two-thirds ownership of V. C. Summer Nuclear Station (Summer Station), would be approximately $58.7 million per incident, but not more than $6.7 million per year. SCE&G currently maintains policies (for itself and on behalf of the South Carolina Public Service Authority) with Nuclear Electric Insurance Limited (NEIL). These policies covering the nuclear facility for property damage, excess property damage and outage costs permit assessments under certain conditions to cover insurer's losses. Based on the current annual premium, SCE&G's portion of the retrospective premium assessment would not exceed $8.1 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 SCE&G's rates would not recover the cost of any purchased replacement power, SCE&G will retain the risk of loss as a self-insurer. SCE&G 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 results of operations, cash flows and financial position. B. Environmental SCE&G 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 expenditures, if any, deemed necessary to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from the original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations. Such amounts are deferred and amortized with recovery provided through rates. SCE&G has also recovered portions of its environmental liabilities through settlements with various insurance carriers. SCE&G has recovered all amounts previously deferred for its electric operations. SCE&G expects to recover all deferred amounts related to its gas operations by December 2005. Deferred amounts, net of amounts recovered through rates and insurance settlements, totaled $20.2 million at June 30, 2000. The deferral includes the estimated costs associated with the following matters. o In September 1992 the Environmental Protection Agency (EPA) notified SCE&G, 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 encompasses approximately 30 acres and includes properties which were locations for industrial operations, including a wood preserving (creosote) plant, one of SCE&G's decommissioned manufactured gas plants (MGP), properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priorities List, but may be added in the future. The Potentially Responsible Parties (PRPs) 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 the EPA approved a Remedial Investigation Report in February 1997 and a Feasibility Study Report in June 1998. In July 1998 the EPA approved SCE&G's Removal Action Work Plan for soil excavation. SCE&G completed Phase One of the Removal Action in 1998 at a cost of approximately $1.5 million. Phase Two, which cost approximately $3.5 million, included excavation and installation of several permanent barriers to mitigate coal tar seepage. On September 30, 1998 a Record of Decision was issued which sets forth the EPA's view of the extent of each PRP's responsibility for site contamination and the level to which the site must be remediated. SCE&G estimates that the Record of Decision will result in costs of approximately $13.3 million, of which approximately $4 million remains. On January 13, 1999 the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action directing SCE&G to design and carry out a plan of remediation for the Calhoun Park site. The Order is temporarily stayed pending further negotiations between SCE&G and the EPA. However, SCE&G submitted a Comprehensive Remedial Design Work Plan (RDWP) on December 17, 1999 and proceeded with implementation pending agency approval. The RDWP was approved by the EPA in July 2000, and its implementation continues. In October 1996 the City of Charleston and SCE&G settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by SCE&G to the City. SCE&G is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup. As part of the environmental settlement, SCE&G constructed an 1,100 space parking garage on the Calhoun Park site (construction was completed in April 2000) and transferred 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 still being finalized, but is not to exceed $16.9 million, the maximum expected project cost. o SCE&G owns three other decommissioned MGP sites which contain residues of by-product chemicals. For the site located in Sumter, South Carolina, effective September 15, 1998, SCE&G entered into a Remedial Action Plan Contract with the South Carolina Department of Health and Environmental Control (DHEC) pursuant to which it agreed to undertake a full site investigation and remediation under the oversight of DHEC. Site investigation and characterization are proceeding according to schedule. Upon selection and successful implementation of a site remedy, DHEC will give SCE&G a Certificate of Completion and a covenant not to sue. SCE&G is continuing to investigate the other two sites, and is monitoring the nature and extent of residual contamination. In addition, PSNC owns, or has owned, all or portions of seven sites in North Carolina on which MGPs were formerly operated. Intrusive investigation (including drilling, sampling and analysis) has begun at only one site and the remaining sites have been evaluated using historical records and observations of current site conditions. These evaluations have revealed that MGP residuals are present or suspected at several of the sites. The North Carolina Department of Environment and Natural Resources has recommended that no further action be taken with respect to one site. In March and April 1994, an environmental consulting firm retained by PSNC estimated that the aggregate cost of investigating and monitoring the extent of environmental degradation and of implementing remedial procedures with respect to the remaining sites may range from $3.7 million to $50.1 million over a 30-year period. Subsequently, an environmental due diligence review of PSNC conducted in February 1999 estimated that the cost to remediate the sites would range between $11.3 million and $21.9 million. During the second quarter of 2000, the review was finalized and the estimated liability was recorded. PSNC is unable to determine the rate at which costs may be incurred over this time period. The estimated cost range has not been discounted to present value. The range includes the cost of investigating and monitoring the sites at the low end of the range and investigating, monitoring and extensively remediating the sites at the high end of the range. PSNC's associated actual costs for these sites will depend on a number of factors, such as actual site conditions, third-party claims and recoveries from other PRPs. An order of the NCUC dated May 11, 1993 authorized deferral accounting for all costs associated with the investigation and remediation of MGP sites. As of June 30, 2000, PSNC has recorded a liability and associated regulatory asset of $10.2 million, which reflects the minimum amount of the range net of shared cost recovery from other PRPs.. The NCUC concluded that it is proper and in the public interest to allow recovery of prudently incurred clean-up costs from current customers as reasonable operating expenses even though the MGP sites are not used and useful in providing gas service to current customers. However, the NCUC will not allow recovery of carrying costs on deferred amounts. Amounts incurred to date are not material. Management intends to request recovery of additional MGP clean-up costs not recovered from other PRPs in future rate case filings, and believes that all costs deemed by the NCUC to be prudently incurred will be recoverable in gas rates. 8. SEGMENT OF BUSINESS INFORMATION: The Company's reportable segments are listed in the following table. The Company uses operating income to measure profitability for its Electric Operations and Gas Distribution segments. Therefore, net income is not allocated to these segments. The Company uses net income to measure profitability for its Energy Marketing segment, which includes the Company's unregulated gas sales in Georgia. Affiliate revenue is derived from transactions between reportable segments as well as transactions between separate legal entities that are combined into the same reportable segment. Assets for the period ended June 30, 1999 did not change significantly.
Disclosure of Reportable Segments (Millions of Dollars) - -------------------------------- ------------- ------------- -------------------------------------------- Three months ended Electric Gas Gas Energy All Adjustments/ Consolidated June 30, 2000 Operations Distribution Transmission Marketing Other Eliminations Total - -------------------------------- ----------- --------- ----------- ------- ------------ --------- External Revenue $ 320 $ 106 $ 58 $178 - - $ 662 Intersegment Revenue 139 1 39 - - $(179) - Operating Income (Loss) 102 (5) 8 n/a - (6) 99 Net Income n/a n/a 4 (3) $ (13) 40 28 Segment Assets 4,820 1,518 246 157 1,089 (819) 7,011 - ------------------------------------------------------- ----------- --------- ------------ ----------- - ------------------------------- ------------- ------------- --------------------------------------------- Three months ended Electric Gas Gas Energy All Adjustments/ Consolidated June 30, 1999 Operations Distribution Transmission Marketing Other Eliminations Total - ------------------------------- ------------------------ ----------- ------- ------------ ------------ External Revenue $293 $44 $38 $60 - - $ 435 Intersegment Revenue 79 1 29 - - $(109) - Operating Income (Loss) 84 (1) 4 n/a - (18) 69 Net Income n/a n/a 2 (11) $ (3) 36 24 Segment Assets 4,404 390 224 68 938 (546) 5,478 - ---------------------------------- --------- ---------- ----------- --------- ------------ ------------ - ------------------------------- ------------- ------------- ----------- ------- ------------ ---------- Six months ended Electric Gas Gas Energy All Adjustments/ Consolidated June 30, 2000 Operations Distribution Transmission Marketing Other Eliminations1 Total - -------------------------------------------------- ----------- --------- ------------ ------------- External Revenue $614 $361 $115 $394 - - $1,484 Intersegment Revenue 216 1 101 2 - $(320) - Operating Income 193 54 16 n/a - 9 272 Net Income n/a n/a 8 6 $ (25) 143 132 Segment Assets 4,820 1,518 246 157 1,089 (819) 7,011 - --------------------------------------------------- ----------- --------- ------------ ------------- - ------------------------------- ------------- ------------- ----------- ------- ------------ ---------- Six months ended Electric Gas Gas Energy All Adjustments/ Consolidated June 30, 1999 Operations Distribution Transmission Marketing Other Eliminations Total - --------------------------- --------- -------- ----------- --------- ------------ ------------- External Revenue $559 $130 $82 $209 - - $ 980 Intersegment Revenue 148 1 10 n/a - (40) 157 Net Income n/a n/a 5 (25) $ (2) 83 61 Segment Assets 4,404 390 224 68 938 (546) 5,478 - ----------------------------------------------------- ----------- --------- ------------ ------------- 1 Includes cumulative effect of accounting change
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SCANA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in SCANA Corporation's (the Company) Annual Report on Form 10-K for the year ended December 31, 1999. Statements included in this discussion and analysis (or elsewhere in this quarterly report) which are not statements of historical fact are intended to be, and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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) that the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment, (2) changes in the utility regulatory environment, (3) changes in the economy in areas served by SCANA's subsidiaries, (4) the impact of competition from other energy suppliers, (5) the management of the Company's operations, (6) variations in prices of natural gas and fuels used for electric generation, (7) growth opportunities for the Company's regulated and non-regulated subsidiaries, (8) the results of financing efforts, (9) changes in the Company's accounting policies, (10) weather conditions in areas served by the Company's subsidiaries , (11) performance of the telecommunications companies in which the Company has made significant investments, (12) inflation, (13) exposure to environmental issues and liabilities, (14) changes in environmental regulations and (15) the other risks and uncertainties described from time to time in the Company's periodic reports filed with the Securities and Exchange Commission. The Company disclaims any obligation to update any forward-looking statements. MATERIAL CHANGES IN CAPITAL RESOURCES AND LIQUIDITY SINCE DECEMBER 31, 1999 North Carolina Gas Market On February 10, 2000 the Company completed its acquisition of Public Service Company of North Carolina, Inc. (PSNC) in a transaction valued at approximately $900 million, including the assumption of debt. The transaction is being accounted for as a purchase. PSNC is operated as a wholly owned subsidiary of the Company. As a result of the transaction, the Company became a registered public utility holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Georgia Retail Gas Market Energy Marketing's Georgia retail gas operations maintained a base of customers ranging from approximately 431,000 at January 1, 2000 to approximately 426,000 at June 30, 2000. This compares to the corresponding period in 1999 when the customer base grew from approximately 78,000 at January 1 to approximately 287,000 at June 30. In addition, Georgia retail gas operations reported net income of approximately $6.6 million for the six months ended June 30, 2000, compared to a net loss of approximately $22.7 million for the corresponding period in 1999. This increase resulted from lowering costs and improving efficiency by transitioning from start-up to ongoing operations and from an improved margin on natural gas sales. Due to the seasonality of the retail gas business in Georgia, management anticipates incurring losses through much of the remainder of the year 2000, and breaking even for the year. Regional Transmission Organization On February 9, 2000 the Federal Energy Regulatory Commission (FERC) issued FERC Order 2000. The Order requires utilities which operate electric transmission systems to submit plans by October 16, 2000 for the possible formation of a regional transmission organization (RTO). On July 18, 2000 the Company and two other southeastern electric utilities (the three utilities) announced plans to create GridSouth, LLC. When formed, GridSouth will function as an independent regional transmission company. Initially, the three utilities will continue to own their respective transmission networks, while GridSouth will provide planning and operational oversight of the electric transmission grid. The three utilities plan to file a plan with FERC later this year regarding formation of GridSouth. LIQUIDITY AND CAPITAL RESOURCES On July 18, 2000 the South Carolina Public Service Commission (PSC) approved a 16.8 percent increase in natural gas prices charged by SCE&G. The increase became effective on August 1, 2000. On July 5, 2000 the PSC approved SCE&G's request to implement lower depreciation rates for its gas operations. The new rates were effective retroactively to January 1, 2000 and will result in a reduction in annual depreciation expense of approximately $2.9 million. On September 14, 1999 the PSC approved an accelerated capital recovery plan for SCE&G's Cope Generating Station. The plan was implemented January 1, 2000 for a three-year period. The PSC approved an accelerated capital recovery methodology wherein SCE&G will increase depreciation of its Cope Generating Station in excess of amounts that would be recorded based upon currently approved depreciation rates. The amount of the accelerated depreciation will be determined by SCE&G based on the level of revenues and operating expenses, not to exceed $36 million annually without the approval of the PSC. Any unused portion of the $36 million in any given year could be carried forward for possible use in the succeeding year. The accelerated capital recovery plan will be accomplished through existing customer rates. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with SCE&G. In consideration for the electric franchise agreement, SCE&G is paying the City $25 million over seven years (1996 through 2002) and has donated to the City the existing transit assets in Charleston. The $25 million is included in electric plant-in-service. In settlement of environmental claims the City may have had against SCE&G involving the Calhoun Park area, where SCE&G and its predecessor companies operated a manufactured gas plant until the 1960's, SCE&G paid the City $26 million over a four-year period (1996 through 1999). As part of the environmental settlement, SCE&G constructed an 1,100 space parking garage on the Calhoun Park site (construction was completed in April 2000) and transferred 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 still being finalized, but is not to exceed $16.9 million, the maximum expected project cost. The following table summarizes how the Company generated funds for property additions and construction expenditures during the six months ended June 30, 2000 and 1999: - -------------------------------------------------------------------------------- Six Months Ended June 30, (Millions of Dollars) 2000 1999 - ------------------------------------------------------------- ------------------ Net cash provided from operating activities $218 $ 66 Net cash provided from financing activities 586 86 Cash provided from sale of subsidiary assets 1 12 Cash and temporary cash investments available at the beginning of the period 116 62 ============================================================= ================== Net cash available for property additions and construction $921 $226 expenditures ============================================================= ================== Funds used for purchase of subsidiary 690 - Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $132 $ 118 ============================================================= ================== Funds used for nonutility property additions $ 24 $ 38 ============================================================= ================== On December 1, 1999 SCANA signed a credit agreement with banks for a maximum of $300 million for a three-year term loan, all of which was drawn on February 10, 2000 to consummate SCANA's acquisition of PSNC. On February 8, 2000 SCANA issued $400 million of two-year floating rate notes maturing February 8, 2002. The interest rate on the notes is reset quarterly based on a three-month LIBOR plus 50 basis points. The proceeds from these privately sold notes were used to consummate SCANA's acquisition of PSNC. On June 14, 2000 SCE&G issued $150 million of First Mortgage Bonds having an annual interest rate of 7.50 percent and maturing on June 15, 2005. The proceeds from the sale of these bonds were used to pay the maturity of SCE&G's $100 million First Mortgage Bonds due June 15, 2000, to reduce short-term debt and for general corporate purposes. On July 13, 2000 the Company issued $300 million two-year floating rate notes maturing on July 15, 2002. The interest rate is reset quarterly based on a three-month LIBOR plus 65 basis points. Proceeds from the debt were used to repay medium-term notes totaling $170 million, to reduce short-term debt and for general corporate purposes. In July 2000 PSNC established a $125 million short-term commercial paper program to replace the lines of credit it had with various banks. On July 31, 2000 PSNC issued $119.5 million under its commercial paper program. The proceeds from the issue were used to repay short-term bank loans. Pursuant to rules of the Securities and Exchange Commission, as a result of PSNC's acquisition by SCANA, PSNC's registration statement (as amended on June 7, 1999) covering up to an aggregate of $150 million of senior unsecured debt securities is no longer effective. The Company anticipates that the remainder of its 2000 cash requirements will be met through internally generated funds and the incurrence of additional short-term and long-term debt. The Company anticipates incurring short-term and long-term debt to refinance long-term debt obligations. The timing and amount of such financings will depend upon market conditions and other factors. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the next 12 months and for the foreseeable future. The ratio of earnings to fixed charges for the 12 months ended June 30, 2000 was 3.22. Environmental Matters In July 2000 the Environmental Protection Agency (EPA) sent the Company a request seeking information on the Company's repair and maintenance of its coal-fired plants since 1978. This is part of the EPA's New Source Review (NSR) enforcement initiative, in which the EPA claims that utilities and others have committed widespread violations of the Clean Air Act permitting requirements for the past quarter century. In November 1999 the EPA filed suit against seven utilities and issued an administrative order to Tennessee Valley Authority alleging numerous NSR permitting violations. The EPA's allegations run counter to previous EPA guidance regarding the applicability of the NSR permitting requirements. The Company, along with several other utilities, has routinely undertaken the type of repair, replacement and maintenance projects that the EPA now claims are illegal. A suit has not been instituted against the Company, and while it is too early to predict any potential EPA action, the Company believes that all of its electric generation units are properly permitted and have been properly maintained. Because this matter is in its most preliminary stage with respect to the Company, management cannot estimate the effects of these matters on future consolidated results of operations or financial position. In October 1998, the EPA issued a final ruling on regional ozone control that requires revised State Implementation Plans (SIPs) for 22 eastern states and the District of Columbia. This EPA ruling was challenged in court by various states, industry and other interests, including the state of South Carolina. In March 2000, the court upheld most aspects of the EPA's rule. Petitioners asked the court to rehear the case and overturn the March decision, but in June the court declined to rehear the case and lifted its earlier stay of the states' obligation to revise their SIPs. Industry and State petitioners have not decided at this time what additional review they may seek. The EPA has undertaken other ozone-related actions having virtually identical goals to its October 1998 action. These actions have likewise been challenged in court by the same or similar parties. The final resolution of the October 1998 action is expected to resolve these other ozone-related actions as well. The South Carolina Department of Health and Environmental Control (DHEC) is considering methods by which to reduce utility emissions of nitrogen oxide. The date for a final state rulemaking is uncertain, but will be likely in 2001. SCE&G will undertake additional nitrogen oxide control projects during 2000 and 2001, at a cost of approximately $100 million as an interim step to address possible contributions to ozone formation in South Carolina. Depending on the resolution of these matters, costs to SCE&G may reach $190 million to meet the full requirements of the 1998 Ozone ruling expenditures for these projects will be capitalized, and are expected to be completed by 2003. Investments in Equity Securities At June 30, 2000, SCANA Communications Holdings, Inc. (SCH), a wholly owned, indirect subsidiary of SCANA, held the following investments in ITC Holding Company, Inc. (ITC) and its affiliates: o Powertel, Inc. (Powertel) is a publicly traded company that owns and operates personal communications services (PCS) systems in several major Southeastern markets. SCH owns approximately 4.9 million common shares of Powertel at a cost of approximately $75.3 million. Powertel common stock closed at $70.9375 per share on June 30, 2000, resulting in a pre-tax unrealized holding gain of $273.5 million (a decline of $144.3 million from December 31, 1999). Accumulated other comprehensive income includes the after-tax amount of all unrealized holding gains and losses on common shares. In addition, SCH owns the following series of non-voting convertible preferred shares, at the approximate cost noted: 100,000 shares series B ($75.1 million); 50,000 shares series D ($22.5 million); and 50,000 shares 6.5 percent series E ($75.0 million). Dividends on preferred series E shares are paid in common shares of Powertel. Preferred series B shares are convertible in March 2002 at a conversion price of $16.50 per common share or approximately 4.5 million common shares. Preferred series D shares are convertible in March 2002 at a conversion price of $12.75 per common share or approximately 1.7 million common shares. Preferred series E shares are convertible in June 2003 at a conversion price of $22.01 per common share or approximately 3.4 million common shares. The market value of the convertible preferred shares of Powertel is not readily determinable. However, as converted, the market value of the underlying common shares for the preferred shares was approximately $689.3 million at June 30, 2000, resulting in an unrecorded pre-tax holding gain of $516.7 million (a decline of $286.0 million from December 31, 1999). o ITC^DeltaCom, Inc. (ITCD) is a fiber optic telecommunications provider. SCH owns approximately 5.1 million common shares of ITCD at a cost of approximately $43.0 million. ITCD common stock closed at $22.3125 per share on June 30, 2000, resulting in a pre-tax unrealized holding gain of $71.1 million (a decline of $27.2 million from December 31, 1999). Accumulated other comprehensive income includes the after-tax amount of all unrealized holding gains and losses on common shares. In addition, SCH owns 1,480,771 shares of series A preferred stock of ITCD at a cost of approximately $11.2 million. Series A preferred shares are convertible in March 2002 into 2,961,542 shares of ITCD common stock. The market value of series A preferred stock of ITCD is not readily determinable. However, as converted, the market value of the underlying common stock for the series A preferred stock was approximately $66.1million at June 30, 2000, resulting in an unrecorded pre-tax holding gain of $54.9 million (a decline of $15.7 million from December 31, 1999). o Knology Inc. (Knology), previously Knology Holdings, Inc., is a broad-band service provider of cable television, telephone and internet services. SCH owns 71,050 units of Knology. Each unit consists of one 11.875% Senior Discount Note due 2007 and one warrant entitling the holder to purchase .003734 shares of preferred stock of Knology. The cost of this investment was approximately $40 million. Prior to February 24, 2000, SCH owned 451,800 shares of series A preferred stock of Knology at a cost of approximately $1.1 million. On February 24, 2000 Knology Holdings, Inc. was spun off from ITC and was renamed Knology, Inc. As a result of this spin off, SCH received 6.8 million shares of Knology series A preferred stock. The market value of these investments is not readily determinable. o ITC has an ownership interest in several Southeastern communications companies. SCH owns approximately 3.1 million common shares, 645,153 series A convertible preferred shares, and 133,664 series B convertible preferred shares of ITC. These investments cost approximately $5.8 million, $7.2 million, and $4.0 million, respectively. Preferred series A shares are convertible in March 2002 at a conversion price of $2.73 per common share or approximately 3.2 million common shares. Preferred series B shares are convertible in March 2002 at a conversion price of $8.86 per common share or approximately 0.7 million common shares. The market values of these investments are not readily determinable. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THE CORRESPONDING PERIODS IN 1999 Earnings and Dividends Earnings per share of common stock for the three and six months ended June 30, 2000 and 1999 were as follows: - -------------------------------------------------------------------------------- Three Months Ended Six Months Ended 2000 1999 2000 1999 - -------------------------------------------------------------------------------- Earnings derived from: Operations $.27 $.23 $ .99 $.59 Change in accounting - - .28 - ================================================================================ Earnings per weighted average share $.27 $.23 $1.27 $.59 ================================================================================ Earnings from operations for the three and six months ended June 30, 2000 increased overall due to improved results from the Company's entry into the Georgia retail gas market (improved $.08 and $.28, respectively) and its acquisition of PSNC (decreased $.05 and increased $.20, respectively). Results for these periods are further explained below. Earnings from operations for the three months ended June 30, 2000 increased $.04. This was primarily attributable to improved electric and gas margins ($.16 and $.23, respectively). These increases were partially offset by increased operations and maintenance expense ($.13), interest expense ($.12), depreciation expense ($.06) property taxes ($.02 ) and other ($.02). Earnings from operations for the six months ended June 30, 2000 increased $.40. This was primarily attributable to improved electric and gas margins ($.25 and $.81, respectively). These increases were partially offset by increased operations and maintenance expenses ($.21), interest expense ($.24), depreciation expense ($.14), property taxes ($.03) and other ($.04). Earnings from a change in accounting resulted from the recording of unbilled revenues by SCANA's retail utility subsidiaries (See Note 2 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). 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 1% and 5% of income before income taxes for the six months ended June 30, 2000 and 1999, respectively. The Company's Board of Directors declared the following quarterly dividends on common stock: - -------------------- -------------- ------------------ ------------------ Declaration Dividend Record Payment Date Per Share Date Date - -------------------- -------------- ------------------ ------------------ February 22, 2000 $.2875 March 10, 2000 April 1, 2000 April 27, 2000 $.2875 June 9, 2000 July 1, 2000 - -------------------- -------------- ------------------ ------------------ Electric Operations Changes in the electric operations sales margins (including transactions with affiliates and excluding unbilled revenue) for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, were as follows: - ------------------------------ --------------------------------------- ---------------------------- Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - ------------------------------ -------- ----------------------- -------- -------- ----------------- Electric operating revenue $319.8 $292.8 $27.0 9.2% $614.1 $559.0 $55.1 9.9% Less: Fuel used in generation 72.7 72.3 0.4 0.6% 142.8 133.4 9.4 7.0% Purchased power 10.7 10.6 0.1 0.9% 17.4 14.3 3.1 21.7% - ------------------------------ -------- --------------- -------- -------- ------- Margin $236.4 $209.9 $26.5 12.6% $453.9 $411.3 $42.6 10.4% - ------------------------------ ======== ===============-------- ======== ======== ===============
Electric operations sales margins increased for the three and s months ended June 30, 2000, when compared to the corresponding periods in 1999, primarily as a result of more favorable weather and customer growth. Gas Distribution Changes in the gas distribution sales margins (including transactions with affiliates and excluding unbilled revenue) for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, were as follows: - --------------------------------- ------------------------- ------------------------------------- Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - --------------------------------- ---------------- ------------- -------- ------------------------- Gas distribution operating revenue $106.3 $44.3 $62.0 * $361.9 $130.4 $231.5 * Less: Gas purchased for resale 66.2 29.0 37.2 * 218.9 78.1 140.8 * --------------------------------- ---------------- -------- -------- ------------------- Margin $ 40.1 $15.3 $24.8 * $143.0 $ 52.3 $ 90.7 * - --------------------------------- ================ =========----- ======== =================== ===== * Greater than 100%
Gas distribution sales margins for the three and six months ended June 30, 2000 increased from 1999 levels primarily as a result of the acquisition of PSNC (which contributed $28.2 million and $91.7 million to the change, respectively). The resulting decreases were primarily due to cooler weather in the second quarter, which was partially offset by customer growth. Gas Transmission Changes in the gas transmission sales margins (including transactions with affiliates) for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, were as follows: - -------------------------------- ---------------------------------------- ------------------------------------------ Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - -------------------------------- ---------------- ------------------------- -------------------------- Gas transmission operating Revenue $98.7 $67.6 $31.1 46.0% $215.7 $160.6 $55.1 34.3% Less: Gas purchased for resale 84.5 56.9 27.6 48.5% 186.6 137.4 49.2 35.8% - ------------------------------- ---------------- --------- ------------------- ------- Margin $14.2 $10.7 $ 3.5 32.7% $ 29.1 $ 23.2 $ 5.9 25.4% - -------------------------------- ================ ========--------========= ================== =======
Gas transmission sales margins for the three and six months ended June 30, 2000 increased from 1999 levels primarily as a result of improved industrial margins due to an improved competitive position relative to alternate fuels. Energy Marketing Changes in the energy marketing sales margins for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, were as follows: - ------------------------------- ------------------------------------- ------------------------------------------ Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - ------------------------------- ---------------- ------------- ---------- -------- ------------------ Gas and electric sales revenue $177.9 $60.0 $117.9 * $394.0 $209.5 $184.5 88.1% Less: Gas and electricity purchased for resale 168.2 60.9 107.3 * 354.1 208.7 145.4 69.7% - ------------------------------- ---------------- --------- ---------- -------- -------- Margin $ 9.7 $(0.9) $ 10.6 * $ 39.9 $ 0.8 $ 39.1 * - ------------------------------- ================= =========----========== ======== ======== ========= *Greater than 100%
Energy marketing sales margins for the three and six months ended June 30, 2000 increased primarily as a result of improved margins in the Georgia retail natural gas market. See LIQUIDITY AND CAPITAL RESOURCES. Other Operating Expenses Changes in other operating expenses for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, were as follows: - -------------------------------- -------------------------------------- ---------------------------------------- Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - -------------------------------- -------- ------------------------- ---------- ---------- ------------------ Other operation and maintenance $119.6 $ 97.7 $21.9 22.4% $228.6 $193.8 $34.8 18.0% Depreciation and amortization 52.8 42.1 10.7 25.4% 107.6 84.0 23.6 28.1% Other taxes 28.9 25.3 3.6 14.2% 58.2 52.4 5.8 11.1% - -------------------------------- -------- ----------------- ---------- ---------- -------- Total $201.3 $165.1 $36.2 21.9% $394.4 $330.2 $64.2 19.4% - - - -------------------------------- ======== ================= ------- ========== ========== ======== =========
Other operating expenses for the three and six months ended June 30, 2000 increased from 1999 levels primarily as a result of the acquisition of PSNC. This acquisition accounted for the following increases: Other operation and maintenance ($18.5 million and $35.0 million), Depreciation and amortization ($10.4 million and $20.9 million), and Other taxes ($1.7 million and $3.3 million). Apart from the PSNC acquisition, changes in other operating expenses for the three months ended June 30, 2000 compared to the corresponding period for 1999 were as follows: Other operation and maintenance expenses increased $3.4 million. This increase was primarily attributable to increased operating and maintenance costs for electric generation and distribution facilities ($5.4 million), and was partially offset by decreased operating expenses at Energy Marketing ($1.8 million). Depreciation and amortization expenses increased $0.3 million due to normal property additions, which was partially offset by a reduction in SCE&G's gas depreciation rates (See LIQUIDITY AND CAPITAL RESOURCES). Other taxes increased $1.9 million due to increased property taxes. Apart from the PSNC acquisition, changes in other operating expenses for the six months ended June 30, 2000 compared to the corresponding period for 1999 were as follows: Other operation and maintenance expense decreased $0.2 million. This decrease results from decreased operating expenses at Energy Marketing ($10.3 million), increased operating and maintenance cost for electric generation and distribution facilities ($10.6 million), and other. Depreciation and amortization expenses increased $2.7 million due to normal property additions, which was partially offset by a reduction in SCE&G's gas depreciation rates retroactive to January 1, 2000 (See LIQUIDITY AND CAPITAL RESOURCES). Other taxes increased $2.5 million due to increased property taxes. Interest Expense Interest expense, excluding the debt component of AFC, for the three and six months ended June 30, 2000 increased approximately $19.5 million and $39.3 million, respectively, when compared to the corresponding periods in 1999. Approximately $4.6 million and $9.7 million was attributable to PSNC debt assumed by the Company during the acquisition. The remaining increase was primarily due to the issuance of debt in the first quarter of 2000 to complete the acquisition of PSNC. Income Taxes Income taxes for the three and six months ended June 30, 2000 increased approximately $6.5 million and $34.8 million, respectively, when compared to the corresponding periods in 1999. These increases are primarily due to the changes in operating income. Item 3. Quantitative and Qualitative Disclosures About Market Risk All financial instruments held by the Company described below are held for purposes other than trading. Interest rate risk - The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. June 30, 2000 Expected Maturity Date -------- ------- -------------------------------- ---------- ---------------------- (Dollars in Millions) There- Fair Liabilities 2000 2001 2002 2003 2004 after Total Value -------- ------- ---------- ---------- ---------- ---------- ---------- ----------- Long-Term Debt: Fixed Rate ($) 34.2 38.0 36.9 296.8 186.3 1,426.1 2,018.3 1,730.7 Average Fixed Interest Rate (%) 7.15 7.31 7.22 6.38 7.58 7.37 7.23 Variable Rate ($) 150.0 - 550.0 150.0 - - 850.0 850.0 Average Variable Interest Rate (%) 6.56 - 7.12 7.02 - - 7.00 June 30, 1999 Expected Maturity Date --------- ------- -------------------------------- ---------- ---------------------- (Dollars in Millions) There- Fair Liabilities 1999 2000 2001 2002 2003 after Total Value --------- ------- ---------- ---------- ---------- ---------- ---------- ----------- Long-Term Debt: Fixed Rate ($) 87.9 363.5 27.5 27.5 284.4 1,265.8 2,056.6 1,969.2 Average Fixed Interest Rate (%) 6.93 5.77 6.86 6.86 6.29 7.35 7.00
While a decrease in interest rates would increase the fair value of debt, it is unlikely that events which would result in a realized loss will occur. In addition, the Company has invested in a telecommunications company approximately $40 million for 11.875% senior discount notes due 2007. The fair value of these notes approximates their carrying value. An increase in market interest rates would result in a decrease in fair value of these notes and a corresponding adjustment, net of tax, to other comprehensive income. Commodity price risk - The table below provides information about the Company's financial instruments that are sensitive to changes in natural gas prices. Weighted average settlement/strike prices are per 10,000 mmbtu. As of June 30, 2000 Expected Maturity in 2000 Expected Maturity in 2001 Weighted Avg Contract Fair Weighted Avg Contract Fair Settlement Price Amount Value Settlement Price Amount Value - --------------------------------------------- ----------- ----------- ------------------ ----------- ------------ Natural Gas Derivatives: (Millions of Dollars) (Millions of Dollars) Future Contracts: Long $4.481 $25.6 $26.8 $4.141 $1.8 $2.3 Short $4.536 $ 2.2 $ 3.7 - - - SET Futures Contracts (1): Long - - - - - - Short $4.476 $ 0 .4 $ 0 .6 - - - - --------------------------------------------- ----------- ----------- ------------------ ----------- ------------ Natural Gas Derivatives: Weighted Avg Strike Price Contract Amount - ---------------------------------------- -------------------------------------- -------------------------------------- (Millions of Dollars) Options: Purchased call (long) $2.577 $4.4 Sold call (short) $2.593 $3.4 - ---------------------------------------- -------------------------------------- -------------------------------------- As of June 30, 1999 Expected Maturity in 1999 Expected Maturity in 2000 Weighted Avg Contract Fair Weighted Avg Contract Fair Settlement Price Amount Value Settlement Price Amount Value - ------------------------------ ------------------ ----------- ----------- ------------------ ----------- ------------ Natural Gas Derivatives: (Millions of Dollars) (Millions of Dollars) Future Contracts: Long $2.529 $21.2 $25.1 $2.693 $11.2 $12.7 Short $2.523 $ 9.0 $ 9.4 $2.726 $ 2.5 $ 2.5 SET Futures Contracts (1): None - ------------------------------ ------------------ ----------- ----------- ------------------ ----------- ------------
(1) SCANA Energy Trading, LLC (SET) is a 70% owned subsidiary of SCANA Energy Marketing, Inc. Amounts shown are at 100%. Equity price risk - Investments in telecommunications companies' marketable equity securities are carried at their market value of $723.4 million. A ten percent decline in market value would result in a $72.3 million reduction in fair value and a corresponding adjustment, net of tax effect, to the related equity account for unrealized gains/losses, a component of other comprehensive income. SOUTH CAROLINA ELECTRIC & GAS COMPANY FINANCIAL SECTION
Item 1. Financial Statements SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS As of June 30, 2000 and December 31, 1999 (Unaudited) - ----------------------------------------------------------------------------------------------------------- June 30, December 31, 2000 1999 - ------------------------------------------------------------------------------------ ----------------------- Assets (Millions of Dollars) Utility Plant: Electric $4,357 $4,337 Gas 393 392 Other 182 191 - ------------------------------------------------------------------------------------ ----------------------- Total 4,932 4,920 Less accumulated depreciation and amortization 1,669 1,611 - ------------------------------------------------------------------------------------ ----------------------- Total 3,263 3,309 Construction work in progress 212 149 Nuclear fuel, net of accumulated amortization 57 43 - ------------------------------------------------------------------------------------ ----------------------- Utility Plant, Net 3,532 3,501 - ------------------------------------------------------------------------------------ ----------------------- Nonutility Property and Investments, net of accumulated depreciation 23 19 - ----------------------------------------------------------------------------------- ----------------------- Current Assets: Cash and temporary cash investments 43 78 Receivables (including unbilled revenues) 235 195 Inventories (at average cost): Fuel 27 30 Materials and supplies 45 48 Prepayments 16 8 Deferred income taxes 16 16 - ----------------------------------------------------------------------------------- ----------------------- Total Current Assets 382 375 - ----------------------------------------------------------------------------------- ----------------------- Deferred Debits: Emission allowances 28 31 Environmental 21 24 Nuclear plant decommissioning fund 68 64 Pension asset, net 163 144 Other regulatory assets 151 164 Other 88 82 - ----------------------------------------------------------------------------------- ----------------------- Total Deferred Debits 519 509 - ----------------------------------------------------------------------------------- ----------------------- Total $4,456 $4,404 =================================================================================== =======================
SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS As of June 30, 2000 and December 31, 1999 (Unaudited) - --------------------------------------------------------------------------------------- -------------------- ------------------- June 30, December 31, 2000 1999 - --------------------------------------------------------------------------------------- -------------------- ------------------- Capitalization and Liabilities (Millions of Dollars) Stockholders' Investment: Common equity $1,611 $1,558 Preferred stock (not subject to purchase or sinking funds) 106 106 - --------------------------------------------------------------------------------------- -------------------- ------------------- Total Stockholders' Investment 1,717 1,664 Preferred Stock, net (subject to purchase or sinking funds) 11 11 SCE&G-Obligated Mandatorily Redeemable Preferred Securities of SCE&G's Subsidiary Trust, SCE&G Trust I, holding solely $50 million principal amount of the 7.55% Junior Subordinated Debentures of SCE&G, due 2027 50 50 Long-Term Debt, net 1,269 1,121 - --------------------------------------------------------------------------------------- -------------------- ------------------- Total Capitalization 3,047 2,846 - --------------------------------------------------------------------------------------- -------------------- ------------------- Current Liabilities: Short-term borrowings 136 213 Current portion of long-term debt 28 128 Accounts payable 75 78 Accounts payable - affiliated companies 26 33 Customer deposits 16 17 Taxes accrued 69 60 Interest accrued 22 22 Dividends declared 35 28 Other 10 10 - --------------------------------------------------------------------------------------- -------------------- ------------------- Total Current Liabilities 417 589 - --------------------------------------------------------------------------------------- -------------------- ------------------- Deferred Credits: Deferred income taxes 574 560 Deferred investment tax credits 106 108 Reserve for nuclear plant decommissioning 68 64 Postretirement benefits 102 98 Regulatory liabilities 68 59 Other 74 80 - --------------------------------------------------------------------------------------- -------------------- ------------------- Total Deferred Credits 992 969 - --------------------------------------------------------------------------------------- -------------------- ------------------- Total $4,456 $4,404 ======================================================================================= ==================== =================== See Notes to Consolidated Financial Statements.
SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Periods Ended June 30, 2000 and 1999 (Unaudited) - -------------------------------------------------------------------- ------------------------ --------------------------- Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- (Millions of Dollars, Except Per Share Amounts) Operating Revenues: Electric $320 $293 $614 $559 Gas 51 45 151 130 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Total Operating Revenues 371 338 765 689 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Operating Expenses: Fuel used in electric generation 55 55 112 99 Purchased power (including affiliated purchases) 37 37 67 66 Gas purchased from affiliate for resale 39 29 100 78 Other operation and maintenance 81 76 154 143 Depreciation and amortization 39 38 79 76 Other taxes 24 23 50 47 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Total Operating Expenses 275 258 562 509 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Operating Income 96 80 203 180 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Other Income, including allowance for equity funds used during construction 2 3 8 5 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Income Before Interest Charges, Income Taxes and Preferred Stock Dividends 98 83 211 185 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Interest Charges (Credits): Interest expense on long-term debt 25 24 49 47 Other interest expense, including allowance for borrowed funds used during construction 1 1 3 3 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Total Interest Charges, Net 26 25 52 50 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Income Before Income Taxes and Preferred Stock Dividends 72 58 159 135 Income Taxes 27 20 58 48 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Income Before Preferred Dividend Requirements on Mandatorily Redeemable Preferred Securities 45 38 101 87 Preferred Dividend Requirement of SCE&G - Obligated Mandatorily Redeemable Preferred Securities 1 1 2 2 - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Income Before Cumulative Effect of Accounting Change 44 37 99 85 Cumulative Effect of Accounting Change, net of taxes (Note 2) - - 22 - - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Net Income 44 37 121 85 Preferred Stock Cash Dividends (At stated rates) (2) (2) (4) (4) - -------------------------------------------------------------------- ---------- ------------- ------------- ------------- Earnings Available for Common Stock 42 35 117 81 Retained Earnings at Beginning of Period 593 501 550 491 Common Stock Cash Dividends Declared (32) (36) (64) (72) ==================================================================== ========== ============= ============= ============= Retained Earnings at End of Period $603 $500 $603 $500 ==================================================================== ========== ============= ============= ============= See Notes to Consolidated Financial Statements.
SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended June 30, 2000 and 1999 (Unaudited) - ------------------------------------------------------------------------------- Six Months Ended June 30, 2000 1999 - -------------------------------------------------------------------------------- (Millions of Dollars) Cash Flows From Operating Activities: Net income $121 $ 85 Adjustments to reconcile net income to net cash provided from operating activities: Cumulative effect of accounting change (22) - Depreciation and amortization 80 77 Amortization of nuclear fuel 10 7 Deferred income taxes, net 14 15 Pension asset (19) (13) Post retirement benefits 4 6 Other regulatory assets 11 10 Other regulatory liabilities 9 4 Allowance for funds used during construction (3) (4) Over (under) collections, fuel adjustment clauses 11 - Changes in certain current assets and liabilities: (Increase) decrease in receivables (18) 13 (Increase) decrease in inventories 6 - Increase (decrease) in accounts payable (10) (33) Increase (decrease) in taxes accrued 9 (17) Other, net (29) (51) - -------------------------------------------------------------------------------- Net Cash Provided From Operating Activities 174 99 - -------------------------------------------------------------------------------- Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (113) (116) Other property and investments (4) - - ------------------------------------------------------------------------------- Net Cash Used For Investing Activities (117) (116) - ------------------------------------------------------------------------------- Cash Flows From Financing Activities: Proceeds: Issuance of First Mortgage Bonds 148 99 Repayments: First Mortgage Bonds (100) - Other long-term debt (2) (3) Dividend payments: Common stock (57) (72) Preferred stock (4) (4) Short-term borrowings, net (77) (30) Fuel and emission allowance financings, net - 15 - ------------------------------------------------------------------------------- Net Cash Provided From (Used For) Financing Activities (92) 5 - ------------------------------------------------------------------------------- Net Decrease In Cash And Temporary Cash Investments (35) (12) Cash And Temporary Cash Investments At January 1 78 36 ================================================================================ Cash And Temporary Cash Investments At June 30 $ 43 $ 24 ================================================================================ Supplemental Cash Flow Information: Cash paid for - Interest (net of capitalized interest of $2 for 2000 and 1999) $ 50 $ 48 - Income taxes 17 18 See Notes to Consolidated Financial Statements. SOUTH CAROLINA ELECTRIC & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2000 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in South Carolina Electric & Gas Company's (the Company) Annual Report on Form 10-K for the year ended December 31, 1999. These are interim financial statements, and due to the seasonality of the Company's business, 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 except as described in Notes 2 and 3, which are necessary for a fair statement of the results for the interim periods reported. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of Statement of Financial Accounting Standards No. 71 (SFAS 71). The accounting standard requires cost-based rate-regulated utilities 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 June 30, 2000, approximately $173 million and $68 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $121 million and $43 million, respectively. The electric and gas regulatory assets (excluding deferred income tax assets) of approximately $25 million and $26 million, respectively, are being recovered through rates, and the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $3 million of the electric regulatory 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 could 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 that a write-off would be required, but it is not expected that cash flows or financial position would be materially affected. B. Recently Issued Accounting Bulletin The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The Bulletin, which will be implemented by the Company by the fourth quarter of 2000, provides the SEC's staff views in applying generally accepted accounting principles to selected revenue recognition issues. The Company does not expect the adoption of this Bulletin to have a material impact on the Company's results of operations, cash flows or financial position. C. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 2000 presentation. 2. Cumulative Effect of Accounting Change Effective January 1, 2000 the Company changed its method of accounting for operating revenues from cycle billing to full accrual. The cumulative effect of this change was $22 million, net of tax. Accruing unbilled revenues more closely matches revenues and expenses. Unbilled revenues represent the estimated amount customers will be charged for service received, but that has not yet been billed, as of the end of the accounting period. Previously these revenues were recognized as operating revenues as customers were billed. If this method had been applied retroactively, net income would have been $42 million and $107 million for the three and six months ended June 30, 1999, respectively, compared to $37 million and $85 million as previously reported. 3. RATE MATTERS On September 14, 1999 the PSC approved an accelerated capital recovery plan for the Company's Cope Generating Station. The plan was implemented beginning January 1, 2000 for a three-year period. The PSC approved an accelerated capital recovery methodology wherein the Company will increase depreciation of its Cope Generating Station in excess of amounts that would be recorded based upon currently approved depreciation rates. The amount of the accelerated depreciation will be determined by the Company based on the level of revenues and operating expenses, not to exceed $36 million annually without the approval of the PSC. Any unused portion of the $36 million in any given year could be carried forward for possible use in the subsequent year. The accelerated capital recovery plan will be accomplished through existing customer rates. In September 1992 the PSC issued an order granting the Company a $.25 increase in transit fares from $.50 to $.75 in Columbia, South Carolina; however, the PSC also required $.40 fares for low income customers and denied the Company's request to reduce the number of routes and frequency of service. The new rates were placed into effect in October 1992. The Company appealed the PSC's order to the Circuit Court, which in May 1995 ordered the case back to the PSC for reconsideration of several issues including the low income rider program, routing changes, and the $.75 fare. The Supreme Court declined to review an appeal of the Circuit Court decision and dismissed the case. The PSC and other intervenors filed another Petition for Reconsideration, which the Supreme Court denied. The PSC and other intervenors filed another appeal to the Circuit Court which the Circuit Court denied in an order dated May 9, 1996. In this order, the Circuit Court upheld its previous orders and remanded them to the PSC. During August 1996 the PSC heard oral arguments on the orders on remand from the Circuit Court. On September 30, 1996 the PSC issued an order affirming its previous orders and denied the Company's request for reconsideration. The Company has appealed these two PSC orders to the Circuit Court where they are awaiting action. 4. RETAINED EARNINGS The Restated Articles of Incorporation of the Company and the Indenture underlying its First and Refunding Mortgage Bonds contain provisions that, under certain circumstances, could limit the payment of cash dividends on its common stock. In addition, with respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At June 30, 2000, approximately $31 million of retained earnings were restricted by this requirement as to payment of cash dividends on common stock. 5. CONTINGENCIES With respect to commitments at June 30, 2000, 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, 1999. Contingencies at June 30, 2000 are as follows: A. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $9.5 billion. Each reactor licensee is currently liable for up to $88.1 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 the V. C. Summer Nuclear Station (Summer Station), would be approximately $58.7 million per incident, but not more than $6.7 million per year. The Company currently maintains policies (for itself and on behalf of the South Carolina Public Service Authority) with Nuclear Electric Insurance Limited (NEIL). These policies covering the nuclear facility for property damage, excess property damage and outage costs permit assessment under certain conditions to cover insurer's losses. Based on the current annual premium, the Company's portion of the retrospective premium assessment would not exceed $8.1 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 results of operations, cash flows and financial position. 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 expenditures, if any, deemed necessary to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from the original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations. Such amounts are deferred and amortized with recovery provided through rates. The Company has also recovered portions of its environmental liabilities through settlements with various insurance carriers. The Company has recovered all amounts previously deferred for its electric operations. The Company expects to recover all deferred amounts related to its gas operations by December 2005. Deferred amounts, net of amounts recovered through rates and insurance settlements, totaled $20.2 million at June 30, 2000. The deferral includes the estimated costs associated with the following matters. o 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 encompasses approximately 30 acres and includes properties which were locations for industrial operations, including a wood preserving (creosote) plant, one of the Company's decommissioned manufactured gas plants (MGP), properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priorities List, but may be added in the future. The Potentially Responsible Parties (PRPs) 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 the EPA approved a Remedial Investigation Report in February 1997 and a Feasibility Study Report in June 1998. In July 1998 the EPA approved the Company's Removal Action Work Plan for soil excavation. The Company completed Phase One of the Removal Action in 1998 at a cost of approximately $1.5 million. Phase Two, which cost approximately $3.5 million, included excavation and installation of several permanent barriers to mitigate coal tar seepage. On September 30, 1998 a Record of Decision was issued which sets forth the EPA's view of the extent of each PRP's responsibility for site contamination and the level to which the site must be remediated. The Company estimates that the Record of Decision will result in costs of approximately $13.3 million, of which approximately $4 million remains. On January 13, 1999 the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action directing the Company to design and carry out a plan of remediation for the Calhoun Park site. The Order is temporarily stayed pending further negotiations between the Company and the EPA. However, the Company submitted a Comprehensive Remedial Design Work Plan (RDWP) on December 17, 1999 and proceeded with implementation pending agency approval. The RDWP was approved by the EPA in July 2000, and its implementation continues. 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 (1996-1999) by the Company to the City. The Company is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup. As part of the environmental settlement, the Company constructed an 1,100 space parking garage on the Calhoun Park site (construction was completed in April 2000) and transferred 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 still being finalized but is not to exceed $16.9 million, the maximum expected project cost. o The Company owns three other decommissioned MGP sites which contain residues of by-product chemicals. For the site located in Sumter, South Carolina, effective September 15, 1998, the Company entered into a Remedial Action Plan Contract with the South Carolina Department of Health and Environmental Control (DHEC) pursuant to which it agreed to undertake a full site investigation and remediation under the oversight of DHEC. Site investigation and characterization are proceeding according to schedule. Upon selection and successful implementation of a site remedy, DHEC will give the Company a Certificate of Completion and a covenant not to sue. The Company is continuing to investigate the other two sites, and is monitoring the nature and extent of residual contamination. 6. SEGMENT OF BUSINESS INFORMATION The Company's reportable segments are listed in the following table. The Company uses operating income to measure profitability for its Electric Operations and Gas Distribution segments. Therefore, net income is not allocated to these segments. Affiliate revenue is derived from transactions between reportable segments as well as transactions between separate legal entities that are combined into the same reportable segment. Assets for the period did not change significantly. Disclosure of Reportable Segments (Millions of Dollars) - --------------------------------- ---------------------------------------------- Three months ended Electric Gas All Adjustments/ Consolidated June 30, 2000 Operations Distribution Other Eliminations Total - --------------------------------- ---------------------------------------------- External Revenue $320 $51 - - $371 Intersegment Revenue 51 - - $(51) - Operating Income (Loss) 99 (2) - (1) 96 - ---------------------------- ---------- ------------ ------ -------------- ----- - --------------------------------- ---------------------------------------------- Three months ended Electric Gas All Adjustments/ Consolidated June 30, 1999 Operations Distribution Other Eliminations Total - --------------------------------- ---------------------------------------------- External Revenue $293 $45 - - $338 Intersegment Revenue 52 - - $(52) - Operating Income (Loss) 82 (1) - (1) 80 - --------------------------------- ---------------------------------------------- - ------------------------------- ------------ ----------------------------------- Six months ended Electric Gas All Adjustments/ Consolidated June 30, 2000 Operations Distribution Other Eliminations Total - ------------------------------- ------------ ----------------------------------- External Revenue $614 $151 - - $765 Intersegment Revenue 106 - - $(106) - Operating Income 185 21 - (3) 203 - ------------------------------------------- ----------------------------------- - --------------------------------- ---------------------------------------------- Six months ended Electric Gas All Adjustments/ Consolidated June 30, 1999 Operations Distribution Other Eliminations Total - --------------------------------- ---------------------------------------------- External Revenue $559 $130 - - 689 Intersegment Revenue 96 - - $ (96) - Operating Income 161 20 - (1) 180 - --------------------------------- ---------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SOUTH CAROLINA ELECTRIC & GAS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in South Carolina Electric & Gas Company's (SCE&G) Annual Report on Form 10-K for the year ended December 31, 1999. Statements included in this discussion and analysis (or elsewhere in this quarterly report) which are not statements of historical fact are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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) that the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment, (2) changes in the utility regulatory environment, (3) changes in the economy in SCE&G's service territory, (4) the impact of competition from other energy suppliers, (5) the management of SCE&G's operations, (6) variations in prices of natural gas and fuels used for electric generation, (7) growth opportunities, (8) the results of financing efforts, (9) changes in SCE&G's accounting policies, (10) weather conditions in areas served by SCE&G, (11) inflation, (12) exposure to environmental issues and liabilities, (13) changes in environmental regulations and (14) the other risks and uncertainties described from time to time in SCE&G's periodic reports filed with the Securities and Exchange Commission. SCE&G disclaims any obligation to update any forward-looking statements. MATERIAL CHANGES IN CAPITAL RESOURCES AND LIQUIDITY SINCE DECEMBER 31, 1999 LIQUIDITY AND CAPITAL RESOURCES On July 18, 2000 the South Carolina Public Service Commission (PSC) approved a 16.8 percent increase in natural gas prices charged by SCE&G. The increase became effective on August 1, 2000. On July 5, 2000 the PSC approved SCE&G's request to implement lower depreciation rates for its gas operations. The new rates were effective retroactively to January 1, 2000 and will result in a reduction in annual depreciation expense of approximately $2.9 million. On September 14, 1999 the PSC approved an accelerated capital recovery plan for SCE&G's Cope Generating Station. The plan will be implemented beginning January 1, 2000 for a three-year period. The PSC approved an accelerated capital recovery methodology wherein SCE&G will increase depreciation of its Cope Generating Station in excess of amounts that would be recorded based upon currently approved depreciation rates. The amount of the accelerated depreciation will be determined by SCE&G based on the level of revenues and operating expenses, not to exceed $36 million annually without the approval of the PSC. Any unused portion of the $36 million in any given year could be carried forward for possible use in the succeeding year. The accelerated capital recovery plan will be accomplished through existing customer rates. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with SCE&G. In consideration for the electric franchise agreement, SCE&G is paying the City $25 million over seven years (1996 through 2002) and has donated to the City the existing transit assets in Charleston. The $25 million is included in electric plant-in-service. In settlement of environmental claims the City may have had against SCE&G involving the Calhoun Park area, where SCE&G and its predecessor companies operated a manufactured gas plant until the 1960's, SCE&G paid the City $26 million over a four-year period (1996 through 1999). As part of the environmental settlement, SCE&G constructed an 1,100 space parking garage on the Calhoun Park site (construction was completed in April 2000) and transferred 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 still being finalized, but is not to exceed $16.9 million, the maximum expected project cost. The following table summarizes how SCE&G generated funds for its utility property additions and construction expenditures during the six months ended June 30, 2000 and 1999: - -------------------------------------------------------------------------------- Six Months Ended June 30, 2000 1999 - ------------------------------------------------------------------ ------------ (Millions of Dollars) Net cash provided from operating activities $174 $ 99 Net cash provided from (used for) financing activities (92) 5 Cash and temporary cash investments available at the beginning of the period 78 36 - -------------------------------------------------------------------------- Net cash available for utility property additions and construction expenditures $160 $140 - -------------------------------------------------------------------------- Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $113 $116 - -------------------------------------------------------------------------- Funds used for nonutility property additions and investments $ 4 $ - ========================================================================== On June 14, 2000 SCE&G issued $150 million of First Mortgage Bonds having an annual interest rate of 7.50 percent and maturing on June 15, 2005. The proceeds from the sale of these bonds were used to pay the maturity of SCE&G's $100 million First Mortgage Bonds due June 15, 2000, to reduce short-term debt and for general corporate purposes. SCE&G anticipates that the remainder of its 2000 cash requirements will be met through internally generated funds and the incurrence of additional short-term and long-term debt. The timing and amount of such financings will depend upon market conditions and other factors. SCE&G expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the next twelve months and for the foreseeable future. The ratio of earnings to fixed charges for the twelve months ended June 30, 2000 was 4.22. Regional Transmission Organization On February 9, 2000 the Federal Energy Regulatory Commission (FERC) issued FERC Order 2000. The Order requires utilities which operate electric transmission systems to submit plans by October 16, 2000 for the possible formation of a regional transmission organization (RTO). On July 18, 2000 SCE&G and two other southeastern electric utilities (the three utilities) announced plans to create GridSouth, LLC. When formed, GridSouth will function as an independent regional transmission company. Initially, the three utilities will continue to own their respective transmission networks, while GridSouth will provide planning and operational oversight of the electric transmission grid. The three utilities plan to file a plan with FERC later this year regarding formation of GridSouth. Environmental Matters In July 2000 the Environmental Protection Agency (EPA) sent the Company a request seeking information on SCE&G's repair and maintenance of its coal-fired plants since 1978. This is part of the EPA's New Source Review (NSR) enforcement initiative, in which the EPA claims that utilities and others have committed widespread violations of the Clean Air Act permitting requirements for the past quarter century. In November 1999 the EPA filed suit against seven utilities and issued an administrative order to Tennessee Valley Authority alleging numerous NSR permitting violations. The EPA's allegations run counter to previous EPA guidance regarding the applicability of the NSR permitting requirements. SCE&G, along with several other utilities, has routinely undertaken the type of repair, replacement and maintenance projects that the EPA now claims are illegal. A suit has not been instituted against SCE&G, and while it is too early to predict any potential EPA action, SCE&G believes that all of its electric generation units are properly permitted and have been properly maintained. Because this matter is in its most preliminary stage with respect to SCE&G, management cannot estimate the effects of these matters on future consolidated results of operations or financial position. In October 1998, the EPA issued a final ruling on regional ozone control that requires revised State Implementation Plans (SIPs) for 22 eastern states and the District of Columbia. This EPA ruling was challenged in court by various states, industry and other interests, including the state of South Carolina. In March 2000, the court upheld most aspects of the EPA's rule. Petitioners asked the court to rehear the case and overturn the March decision, but in June the court declined to rehear the case and lifted its earlier stay of the states' obligation to revise their SIPs. Industry and State petitioners have not decided at this time what additional review they may seek. The EPA has undertaken other ozone-related actions having virtually identical goals to its October 1998 action. These actions have likewise been challenged in court by the same or similar parties. The final resolution of the October 1998 action is expected to resolve these other ozone-related actions as well. The South Carolina Department of Health and Environmental Control (DHEC) is considering methods by which to reduce utility emissions of nitrogen oxide. The date for a final state rulemaking is uncertain, but will be likely in 2001. SCE&G will undertake additional nitrogen oxide control projects during 2000 and 2001, at a cost of approximately $100 million as an interim step to address possible contributions to ozone formation in South Carolina. Depending on the resolution of these matters, costs to SCE&G may reach $190 million to meet the full requirements of the 1998 Ozone ruling expenditures for these projects will be capitalized, and are expected to be completed by 2003. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THE CORRESPONDING PERIODS IN 1999 Earnings and Dividends Net income for the three and six months ended June 30, 2000 and 1999 were as follows: Three Months Ended Six Months Ended (Millions of Dollars) 2000 1999 Change 2000 1999 Change - -------------------------------------------------------------------------------- Net income derived from: Operations $44.3 $36.5 $7.8 $ 98.5 $84.3 $14.2 Change in accounting - - - 22.3 - 22.3 - -------------------------------------------------------------------------------- Total net $44.3 $36.5 $7.8 $120.8 $84.3 $36.5 income ================================================================ ========== ==== Net income from operations increased $7.8 million and $14.2 million for the three and six months ended June 30, 2000, respectively, when compared to the corresponding periods in 1999. This was primarily attributable to improved electric margins ($15.8 million and $25.3 million), and was partially offset by increased income taxes ($6.2 million and $10.8 million) and other operating expenses. Earnings from a change in accounting resulted from recording of unbilled revenue (See Note 2 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS). 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 2% of income before income taxes for the three and six months ended June 30, 2000 and 1999. SCE&G's Board of Directors authorized payment of dividends on common stock held by SCANA, as follows: - ------------------- ----------------- ------------------- ---------------------- Declaration Dividend Quarter Payment Date Amount Ended Date - ------------------- ----------------- ------------------- ---------------------- February 17, 2000 $32.0 million March 31, 2000 April 1, 2000 April 27, 2000 $32.0 million June 30, 2000 July 1, 2000 - ------------------- ----------------- ------------------- ---------------------- Electric Operations Changes in the electric operations sales margins (including transactions with affiliates and excluding unbilled revenue) for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, were as follows: - ----------------------------------------------------------------------- --------------------------- Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - --------------------------------------------------------------------------------------------------- Electric operating revenue $319.8 $292.9 $26.9 9.2% $614.1 $559.1 $55.0 9.8% Less: Fuel used in generation 55.2 54.4 0.8 1.5% 112.2 99.0 13.2 13.3% Purchased power 37.6 37.1 0.5 1.3% 66.6 65.8 0.8 1.2% - ------------------------------------------------------- -------------------------- Margin $227.0 $201.4 $25.6 12.7% $435.3 $394.3 $41.0 10.4% - -------------------------------========================--------===================================
Electric operations sales margins increased for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, primarily as a result of more favorable weather and customer growth. Gas Distribution Changes in the gas distribution sales margins (excluding unbilled revenue) for the three and six months ended June 30, 2000, when compared to the corresponding periods in 1999, were as follows: - ---------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - ----------------------------------------------------------- -------- -------- ---------------- Gas operating revenue $51.0 $44.6 $ 6.4 14.3% $151.5 $130.4 $21.1 16.2% Less: Gas purchased for resale 38.6 29.3 9.3 31.7% 100.3 78.1 22.2 28.4% - ------------------------------------------------------- -------- ---------------- Margin $12.4 $15.3 $(2.9) (19.0%) $ 51.2 $ 52.3 $(1.1) (2.1%) - -------------------------------========================------- ======== =======================
Gas distribution sales margins for the three and six months ended June 30, 2000 decreased from the corresponding periods in 1999 primarily as a result of cooler weather in the second quarter, which was partially offset by customer growth. Other Operating Expenses Changes in other operating expenses for the three and six months ended June 30, 2000 when compared to the corresponding periods in 1999, were as follows: - --------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended (Dollars in Millions) 2000 1999 Change 2000 1999 Change - ------------------------------------------ ---------------------- ----------- --------- ----------- Other operation and maintenance $ 80.8 $ 75.4 $5.4 7.2% $154.2 $143.6 $10.6 7.4% Depreciation and amortization 38.9 0.6 1.6% 79.2 76.4 2.8 3.7% 38.3 Other taxes 24.4 1.6 7.0% 49.6 47.4 2.2 4.6% 22.8 - ------------------------------------------ --------------- ----------- --------- ------ Total $144.1 $136.5 $7.6 5.6% $283.0 $267.4 $15.6 5.8% - ---------------------------------========= ===============------- ======= ========= ================
Other operation and maintenance expenses for the three and six months ended June 30, 2000 increased from 1999 levels primarily as a result of increased operating and maintenance costs for electric generation and distribution facilities. The increase in depreciation and amortization expenses resulted from normal property additions, and is partially offset by a reduction in gas depreciation rates retroactive to January 1, 2000 (See LIQUIDITY AND CAPITAL RESOURCES). Income Taxes Income taxes for the three and six months ended June 30, 2000 increased approximately $6.2 million and $10.8 million, respectively, when compared to the corresponding periods in 1999. These increases are primarily due to the changes in operating income. Item 3. Quantitative and Qualitative Disclosures About Market Risk All financial instruments held by SCE&G described below are held for purposes other than trading. Interest rate risk - The table below provides information about SCE&G's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.
June 30, 2000 Expected Maturity Date ----------------- ------------------------ ---------------- (Dollars in Millions) There- Fair Liabilities 2000 2001 2002 2003 2004 after Total Value -------------------------------------------------- ---------- Long-Term Debt: Fixed Rate ($) 2.5 27.5 27.6 129.5 123.9 1,083.0 1,394.0 1,282.7 Average Interest Rate (%) 6.53 6.73 6.73 6.37 7.52 7.55 7.40 June 30, 1999 Expected Maturity Date ------- ------------------------------- ------------------------ (Dollars in Millions) There- Fair Liabilities 1999 2000 2001 2002 2003 after Total Value ------- ------------------------------------------------------- Long-Term Debt: Fixed Rate ($) 10.5 195.1 22.6 22.6 124.5 1,043.4 1,418.7 1,456.4 Average Interest Rate (%) 6.17 5.90 6.72 6.72 7.56 7.55 7.29
While a decrease in interest rates would increase the fair value of debt, it is unlikely that events which would result in a realized loss will occur. PART II. OTHER INFORMATION Item 1. Legal Proceedings SCANA Corporation: For information regarding legal proceedings see Note 2 "Rate Matters," appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and Note 7 "Contingencies" of Notes to Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. South Carolina Electric & Gas Company: For information regarding legal proceedings see Note 2 "Rate Matters, " appearing in South Carolina Electric & Gas Company's Annual Report on Form 10-K for the year ended December 31, 1999, and Note 5 "Contingencies" of Notes to Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. Item 4. Submission of Matters to a Vote of Security-Holders (not applicable for South Carolina Electric & Gas Company) The Annual Meeting of Shareholders of SCANA Common Stock (No Par Value) was held on April 27, 2000. The following matters were voted upon at the meeting. 1, 2 and 3. To elect eight (8) directors for the terms specified in the Proxy Statement. Number of Shares Total Number of Shares Voting to Shares Nominee Voting For Withhold Authority Voted James A. Bennett 89,976,081 1,617,421 91,593,502 William C. Burkhardt 89,986,860 1,606,642 91,593,502 Lynne M. Miller 90,003,639 1,589,863 91,593,502 Maceo K. Sloan 90,000,473 1,593,029 91,593,502 William B. Timmerman 86,983,138 4,610,364 91,593,502 John L. Skolds 89,438,507 2,154,995 91,593,502 G. Smedes York 89,519,483 2,074,019 91,593,502 Charles E. Zeigler, Jr. 89,362,363 2,231,139 91,593,502 4. To approve the SCANA Long-Term Equity Compensation Plan. Number of Shares For 70,895,654 Against 18,961,433 Abstain 1,736,415 Total 91,593,502 Percent of FOR votes of those shares actually voting for this proposal: 77.40% 5. To approve the appointment of Deloitte & Touche LLP as independent accountants for the Company. Number of Shares For 90,257,260 Against 886,378 Abstain 449,864 Total 91,593,502 Percent of FOR votes of those shares actually voting for this proposal: 98.54% Item 6. Exhibits and Reports on Form 8-K SCANA Corporation and South Carolina Electric & Gas Company: 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 during the second quarter 2000 were as follows: None SCANA CORPORATION 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. SCANA CORPORATION (Registrant) August 11, 2000 By: s/M. R. Cannon M.R. Cannon Controller (Principal accounting officer) 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) August 11, 2000 By: s/Mark R. Cannon Mark R. Cannon Controller (Principal accounting officer) EXHIBIT INDEX Applicable to Exhibit Form 10-Q of No. SCANA SCE&G Description 2.01 X X Agreement and Plan of Merger, dated as of February 16, 1999 as amended and restated as of May 10, 1999, by and among Public Service Company of North Carolina, Incorporated, SCANA Corporation , New Sub I, Inc. and New Sub II, Inc. (Filed as Exhibit 2.1 to Registration Statement No. 333-78227) 3.01 X Restated Articles of Incorporation of SCANA as adopted on April 26, 1989 (Filed as Exhibit 3-A to Registration Statement No. 33-49145) 3.02 X Restated Articles of Incorporation of SCE&G, as adopted on December 15, 1993 (Filed as Exhibit 3.01 to Registration Statement No. 333-86387) 3.03 X Articles of Amendment of SCANA, dated April 27, 1995 (Filed as Exhibit 4-B to Registration Statement No. 33-62421) 3.04 X Articles of Amendment of SCE&G, dated June 7, 1994 filed June 9, 1994 (Filed as Exhibit 3.02 to Registration Statement No. 333-86387) 3.05 X Articles of Amendment of SCE&G, dated November 9, 1994 (Filed as Exhibit 3.03 to Registration Statement No. 333-86387) 3.06 X Articles of Amendment of SCE&G, dated December 9, 1994 (Filed as Exhibit 3.04 to Registration Statement No.333-86387) 3.07 X Articles of Correction of SCE&G, dated January 17, 1995 (Filed as Exhibit 3.05 to Registration Statement No.333-86387) 3.08 X Articles of Amendment of SCE&G, dated January 13, 1995 and filed January 17, 1995 (Filed as Exhibit 3.06 to Registration Statement No. 333-86387) 3.09 X Articles of Amendment of SCE&G, dated March 30, 1995 (Filed as Exhibit 3.07 to Registration Statement No. 333-86387) 3.10 X Articles of Correction of SCE&G - Amendment to Statement filed March 31, 1995, dated December 13, 1995 (Filed as Exhibit 3.08 to Registration Statement No. 333-86387) 3.11 X Articles of Amendment of SCE&G, dated December 13, 1995 (Filed as Exhibit 3.09 to Registration Statement No.333-86387) 3.12 X Articles of Amendment of SCE&G, dated February 18, 1997 (Filed as Exhibit 3-L to Registration Statement No. 333-24919) 3.13 X Articles of Amendment of SCE&G, dated February 21, 1997 (Filed as Exhibit 3.11 to Registration Statement No. 333-86387) 3.14 X Articles of Amendment of SCE&G, dated April 22, 1997 (Filed as Exhibit 3.12 to Registration Statement No. 333-86387) Applicable to Exhibit Form 10-Q of No. SCANA SCE&G Description 3.15 X Articles of Amendment of SCE&G, dated April 9, 1998 (Filed as Exhibit 3.13 to Registration Statement No. 333-86387) 3.16 X Articles of Amendment of SCE&G, dated May 19, 1999 (Filed as Exhibit 3.16 to Form 10-K for the year ended December 31, 1999) 3.17 X Articles of Amendment of SCE&G, dated August 13, 1999 (Filed as Exhibit 3.17 to Form 10-K for the year ended December 31, 1999) 3.18 X Articles of Amendment of SCE&G, dated March 1, 2000 (Filed as Exhibit 3.18 to Form 10-K for the year ended December 31, 1999) 3.19 X By-Laws of SCANA as revised and amended on February 22, 2000 (Filed as Exhibit 3.19 to Form 10-K for the year ended December 31, 1999) 3.20 X By-Laws of SCE&G as amended and adopted on February 22, 2000 (Filed as Exhibit 3.20 to Form 10-K for the year ended December 31, 1999) 4.01 X Articles of Exchange of South Carolina Electric and Gas Company and SCANA Corporation (Filed as Exhibit 4-A to Post-Effective Amendment No. 1 to Registration Statement No. 2-90438) 4.02 X Indenture dated as of November 1, 1989 between SCANA Corporation and The Bank of New York, as Trustee (Filed as Exhibit 4-A to Registration Statement No. 33-32107) 4.03 X X Indenture dated as of January 1, 1945, between the South Carolina Power Company and Central Hanover Bank and Trust, as Trustee, as supplemented by Supplemental Indentures dated respectively as of May 1, 1946, May 1, 1947 and July 1, 1949 (Filed as Exhibit 2-B to Registration Statement No. 2-26459) 4.04 X X Fourth Supplemental Indenture dated as of April 1, 1950, to Indenture referred to in Exhibit 4.03, pursuant to which SCE&G assumed said Indenture Filed as Exhibit 2-C to Registration Statement No. 2-26459) 4.05 X X Fifth through Fifty-third Supplemental Indenture referred to in Exhibit 4.03 dated as of the dates indicated below and filed as exhibits to the Registration Statements whose filenumbers 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 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 Exhibit No. December 1, 1969 Exhibit 4-O 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 2-B 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 2-A-3 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 May 1, 1999 Exhibit 4.04 to Registration No. 333-86387 4.06 X X 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) 4.07 X X First Supplemental Indenture to Indenture referred to in Exhibit 4.07 dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No.33-49421) 4.08 X X Second Supplemental Indenture to Indenture referred to in Exhibit 4.07 dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955) Applicable to Exhibit Form 10-Q of No. SCANA SCE&G Description 4.09 X X Trust Agreement for SCE&G Trust I (Filed as Exhibit 4-G to SCE&G Form 10-K for the year ended December 31, 1997) 4.10 X X Certificate of Trust for SCE&G Trust I (Filed as Exhibit 4-H to SCE&G Form 10-K for the year ended December 31, 1997) 4.11 X X Junior Subordinated Indenture for SCE&G Trust I (Filed as Exhibit 4-I to SCE&G Form 10-K for the year ended December 31, 1997) 4.12 X X Guarantee Agreement for SCE&G Trust I (Filed as Exhibit 4-J to SCE&G Form 10-K for the year ended December 31, 1997) 4.13 X X Amended and Restated Trust Agreement for SCE&G Trust I (Filed as Exhibit 4-K to SCE&G Form 10-K for the year ended December 31, 1997) 10.01 X SCANA Voluntary Deferral Plan as amended through October 21, 1997 (Filed as Exhibit 10.01(a) to Registration Statement No. 333-86803) 10.02 X X Supplemental Executive Retirement Plan (Filed as Exhibit 10.01(b) to Registration Statement No. 333-86803) 10.03 X SCANA Supplementary Voluntary Deferral Plan as amended and restated through October 21, 1997 (Filed as Exhibit 10-B to SCANA Form 10-K for the year ended December 31, 1997) 10.04 X SCANA Key Executive Severance Benefits Plan as amended and restated effective as of October 21, 1997 (Filed as Exhibit 10.01(c) to Registration Statement No. 333-86803) 10.05 X SCANA Supplementary Key Executive Severance Benefits Plan as amended and restated effective October 21, 1997 (Filed as Exhibit 10.01(d) to Registration Statement No. 333-86803) 10.06 X SCANA Performance Share Plan as amended and restated effective January 1, 1998 (Filed as Exhibit 10.01(e) to Registration Statement No. 333-86803) 10.07 X SCANA Key Employee Retention Plan as amended and restated effective as of October 21, 1997 (Filed as Exhibit 10-E to SCANA Form 10-K for the year ended December 31, 1997) 10.08 X Description of SCANA Whole Life Option (Filed as Exhibit 10-F to SCANA Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 10.09 X Description of SCANA Corporation Annual Incentive Plan (Filed as Exhibit 10-G to SCANA Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 10.10 X Service Agreement between SCE&G and SCANA Servcies, Inc., effective April 1, 2000 (Filed herewith on page 49) 27.01 X Financial Data Schedule (Filed herewith) 27.02 X Financial Data Schedule (Filed herewith) EX-10 2 0002.txt SERVICE AGREEMENT Exhibit 10.10 Service Agreement This Service Agreement (this "Agreement") is entered into as of the 1st day of April, 2000, by and between South Carolina Electric & Gas Company, a South Carolina corporation (the "Company") and SCANA Services, Inc., a South Carolina corporation ("SCANA Services"). WHEREAS, SCANA Services is a direct or indirect wholly owned subsidiary of SCANA Corporation; WHEREAS, SCANA Services has been formed for the purpose of providing administrative, management and other services to subsidiaries of SCANA Corporation; and WHEREAS, the Company believes that it is in the interest of the Company to provide for an arrangement whereby the Company may, from time to time and at the option of the Company, agree to purchase such administrative, management and other services from SCANA Services; NOW, THEREFORE, in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: I. SERVICES. SCANA Services supplies, or will supply, certain administrative, management or other services to Company similar to those supplied to other subsidiaries of SCANA Corporation. Such services are and will be provided to the Company only at the request of the Company. Exhibit I hereto lists and describes all of the services that are available from SCANA Services. II. PERSONNEL. SCANA Services provides and will provide such services by utilizing the services of their executives, accountants, financial advisers, technical advisers, attorneys and other persons with the necessary qualifications. If necessary, SCANA Services, after consultation with the Company, may also arrange for the services of nonaffiliated experts, consultants and attorneys in connection with the performance of any of the services supplied under this Agreement. III. COMPENSATION AND ALLOCATION. As and to the extent required by law, SCANA Services provides and will provide such services at cost. Exhibit I hereof contains rules for determining and allocating such costs. IV. TERMINATION AND MODIFICATION. The Company may terminate this Agreement by providing 60 days written notice of such termination to SCANA Services. SCANA Services may terminate this Agreement by providing 60 days written notice of such termination to the Company. V. SERVICE REQUESTS. The Company and SCANA Services will prepare a Service Request on or before April 1 of each year listing services to be provided to the Company by SCANA Services and any special arrangements related to the provision of such services for the coming year, based on services provided during the past year. The Company and SCANA Services may supplement the Service Request during the year to reflect any additional or special services that the Company wishes to obtain from SCANA Services, and the arrangements relating thereto. VI. BILLING AND PAYMENT. Unless otherwise set forth in a Service Request, payment for services provided by SCANA Services shall be by making remittance of the amount billed or by making appropriate accounting entries on the books of the Company and SCANA Services. Billing will be made on a monthly basis, with the bill to be rendered by the 25th of the month, and remittance or accounting entries completed within 30 days of billing. VII. NOTICE. Where written notice is required by this Agreement, all notices, consents, certificates, or other communications hereunder shall be in writing and shall be deemed given when mailed by United States registered or certified mail, postage prepaid, return receipt requested, addressed as follows: 1. To the Company: H. Thomas Arthur General Counsel SCANA Corporation 1426 Main Street Columbia, SC 29201 2. To SCANA Services: H. Thomas Arthur General Counsel SCANA Corporation 1426 Main Street Columbia, SC 29201 VIII. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of South Carolina, without regard to their conflict of laws provisions. IX. MODIFICATION. No amendment, change or modification of this Agreement shall be valid, unless made in writing and signed by all parties hereto. X. ENTIRE AGREEMENT. This Agreement, together with its exhibits, constitutes the entire understanding and agreement of the parties with respect to its subject matter, and effective upon the execution of this Agreement by the respective parties hereof and thereto, any and all prior agreements, understandings or representations with respect to this subject matter are hereby terminated and canceled in their entirety and are of no further force or effect. XI. WAIVER. No waiver by any party hereto of a breach of any provision of this Agreement shall constitute a waiver of any preceding or succeeding breach of the same or any other provision hereof. XII. ASSIGNMENT. This Agreement shall inure to the benefit and shall be binding upon the parties and their respective successors and assigns. No assignment of this Agreement or any party's rights, interests or obligations hereunder may be made without the other party's consent, which shall not be unreasonably withheld, delayed or conditioned. XIII. SEVERABILITY. If any provision or provisions of this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of this 9th day of May 2000. SCANA SERVICES, INC. By: s/Kevin B. Marsh Name: Kevin B. Marsh Title: Senior Vice President and Chief Financial Officer SOUTH CAROLINA ELECTRIC & GAS COMPANY By: s/H. Thomas Arthur Name: H. Thomas Arthur Title: Senior Vice President and General Counsel EXHIBIT I Description of Services, Cost Accumulation, Assignment and Allocation Methodologies for SCANA Services, Inc. This document sets forth the methodologies used to accumulate the costs of services performed by SCANA Services, Inc. ("SCANA Services") and to assign or allocate such costs to other subsidiaries and business units within SCANA Corporation ("Client Entities"). Cost of Services Performed SCANA Services maintains an accounting system that enables costs to be identified by Cost Center, Account Number or Project, Activity, Resource, and Event ("Account Codes"). The primary inputs to the accounting system are time records of hours worked by SCANA Services employees, accounts payable transactions and journal entries. Charges for labor are made at the employees' effective hourly rate, including the cost of pensions, other employee benefits and payroll taxes. To the extent practicable, costs of services are directly assigned to the applicable Account Codes. The full cost of providing services also includes certain indirect costs, e.g., departmental overheads, administrative and general costs, and taxes. Indirect costs are associated with the services performed in proportion to the directly assigned costs of the services or other relevant cost allocators. Cost Assignment and Allocation SCANA Services costs will be directly assigned, distributed or allocated to Client Entities in the manner prescribed below. 1. Costs accumulated in Account Codes for services specifically performed for a single Client Entity will be directly assigned or charged to such Client Entity. 2. Costs accumulated in Account Codes for services specifically performed for two or more Client Entities will be distributed among and charged to such Client Entities using methods determined on a case-by-case basis consistent with the nature of the work performed and based on one of the allocation methods described below. 3. Costs accumulated in Account Codes for services of a general nature which are applicable to all Client Entities or to a class or classes of Client Entities will be allocated among and charged to such Client Entities by application of one or more of the allocation methods described below. Allocation Methods The following methods will be applied, as indicated in the Description of Services section that follows, to allocate costs for services of a general nature. 1. Information Systems Chargeback Rates - Rates for services, including but not limited to Software, Consulting, Mainframe, Midtier and Network Connectivity Services, are based on the costs of labor, materials and Information Services overheads related to the provision of each service. Such rates are applied based on the specific equipment employed and the measured usage of services by Client Entities. These rates will be determined annually based on actual experience and may be adjusted for any known and reasonably quantifiable events, or at such time as may be required due to significant changes. 2. Margin Revenue Ratio - "Margin" is equal to the excess of sales revenues over the applicable cost of sales, i.e., cost of fuel for generation and gas for resale. The numerator is equal to margin revenues for a specific Client Entity and the denominator is equal to the combined margin revenues of all the applicable Client Entities. This ratio will be evaluated annually based on actual results of operations for the previous calendar year and may be adjusted for any known and reasonably quantifiable events, or at such time, based on results of operations for a subsequent twelve-month period, as may be required due to significant changes. 3. Number of Customers Ratio - A ratio based on the number of retail electric and/or gas customers. This ratio will be determined annually based on the actual number of customers at the end of the previous calendar year and may be adjusted for any known and reasonably quantifiable events, or at such time as may be required due to significant changes. 4. Number of Employees Ratio - A ratio based on the number of employees benefitting from the performance of a service. This ratio will be determined annually based on actual counts of applicable employees at the end of the previous calendar year and may be adjusted for any known and reasonably quantifiable events, or at such time as may be required due to significant changes. 5. Three-Factor Formula - This formula will be determined annually based on the average of gross property (original cost of plant in service, excluding depreciation), payroll charges (salaries and wages, including overtime, shift premium and holiday pay, but not including pension, benefit and company-paid payroll taxes) and gross revenues during the previous calendar year and may be adjusted for any known and reasonably quantifiable events, or at such time as may be required due to significant changes. 6. Telecommunications Chargeback Rates - Rates for use of telecommunications services other than those encompassed by Information Systems Chargeback Rates are based on the costs of labor, materials, outside services and Telecommunications overheads. Such rates are applied based on the specific equipment employment and the measured usage of services by Client Entities. These rates will be determined annually based on actual experience and may be adjusted for any known and reasonably quantifiable events, or at such time as may be required due to significant changes. 7. Gas Sales Ratio - A ratio based on the actual number of dekatherms of natural gas sold by the applicable gas distribution or marketing operations. This ratio will be determined annually based on actual results of operations for the previous calendar year and may be adjusted for any known and reasonably quantifiable events, or at such time, based on results of operations for a subsequent twelve-month period, as may be required due to significant changes. Description of Services A description of each of the services performed by SCANA Services, which may be modified from time to time, is presented below. As discussed above, where identifiable, costs will be directly assigned or distributed to Client Entities. For costs accumulated in Account Codes which are for services of a general nature that cannot be directly assigned or distributed, the method or methods of allocation are also set forth. Substitution or changes may be made in the methods of allocation hereinafter specified, as may be appropriate, and will be provided to state regulatory agencies and to each affected Client Entity. 1. Information Systems Services - Provides electronic data processing services. Costs of a general nature are allocated using the Information Systems Chargeback Rates. 2. Customer Services - Provides billing, mailing, remittance processing, call center and customer communication services for electric and gas customers. Costs of a general nature are allocated using the Margin Revenue Ratio. 3. Marketing and Sales - Establishing strategies, provides oversight for marketing, sales and branding of utility and related services and conducts marketing and sales programs. Costs of a general nature are allocated using the Number of Customers Ratio. 4. Employee Services - Includes Human Resources which establishes and administers policies and oversees compliance with regulations in the areas of employment, compensation and benefits, processes payroll and administers corporate training. Also includes employee communications, facilities management and mail services. Costs of a general nature are allocated using the Number of Employees Ratio. 5. Corporate Compliance - Oversees compliance with all laws, regulations and policies applicable to all of SCANA Corporation's businesses and directs compliance training. Costs of general nature are allocated using the Number of Employees Ratio. 6. Purchasing - Provides procurement services. Costs of a general nature are allocated using the Three-Factor Formula. 7. Financial Services - Provides treasury, accounting, tax, financial planning, rate and auditing services services. Costs of a general nature are allocated using the Three-Factor Formula. 8. Risk Management - Provides insurance, claims, security, environmental and safety services. Costs of a general nature are allocated using the Three-Factor Formula. 9. Public Affairs - Maintains relationships with government policy makers, conducts lobbying activities and provides community relations functions. Costs of a general nature are allocated using the Three-Factor Formula. 10. Legal Services - Provides various legal services and general legal oversight; handles claims. Costs of a general nature are allocated using the Three-Factor Formula. 11. Investor Relations - Maintains relationships with the financial community and provides shareholder services. Costs of a general nature are allocated using the Three-Factor Formula. 12. Telecommunications - Provides telecommunications services, primarily the use of telephone equipment. Costs are allocated using the Telecommunications Chargeback Rates. 13. Gas Supply and Capacity Management - Provides gas supply and capacity management services. Costs of a general nature are allocated using the Gas Sales Ratio. 14. Strategic Planning - Develops corporate strategies and business plans. Costs of a general nature are allocated using the Three-Factor Formula. 15. Executive - Provides executive and general administrative services. Costs of a general nature are allocated using the Three-Factor Formula. EXHIBIT II FORM OF INITIAL SERVICE REQUEST The undersigned requests all of the services listed in Exhibit I from SCANA Services Company. The services requested hereunder shall commence on April 1, 2000 and be provided through March 31, 2001. SOUTH CAROLINA ELECTRIC & GAS COMPANY By: s/H. Thomas Arthur Name: H. Thomas Arthur Title: Senior Vice President and General Counsel EX-27 3 0003.txt SCANA FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-31-1999 JUN-30-2000 PER-BOOK 4,862 876 676 597 0 7,011 1,051 216 792 2,059 61 106 2,562 313 0 0 209 1 0 0 1,700 7,011 1,484 72 1,212 1,284 200 18 218 109 138 6 132 60 0 218 1.27 1.27
EX-27 4 0004.txt FDS --
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2000 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-1999 JUN-30-2000 PER-BOOK 3,532 23 382 519 0 4,456 181 827 603 1,611 61 106 1,269 136 0 0 28 1 0 0 1,244 4,456 765 56 562 621 144 8 152 52 123 6 117 64 0 174 0 0
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