-----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, KN6gz0bikzQm0ettjsQ6VqZ+LWaGiUXC56XOx5zxNvPlgniB0i6y0cx1FPGsV7AJ SlARJF3l56/EvzmqIDGqfA== 0000754737-02-000018.txt : 20020515 0000754737-02-000018.hdr.sgml : 20020515 20020515125324 ACCESSION NUMBER: 0000754737-02-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANA CORP CENTRAL INDEX KEY: 0000754737 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570784499 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08809 FILM NUMBER: 02650003 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: MAIL CODE - 051 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032179000 MAIL ADDRESS: STREET 1: 1426 MAIN STREET STREET 2: MAIL CODE - 051 CITY: COLUMBIA STATE: SC ZIP: 29218 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUBLIC SERVICE CO OF NORTH CAROLINA INC CENTRAL INDEX KEY: 0000081025 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 562128483 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11429 FILM NUMBER: 02650004 BUSINESS ADDRESS: STREET 1: 1426 MAIN STREET CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032179188 MAIL ADDRESS: STREET 1: 1426 MAIN STREET CITY: COLUMBIA STATE: SC ZIP: 29201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH CAROLINA ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000091882 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570248695 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03375 FILM NUMBER: 02650005 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 tenq02.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 quarterly period ended March 31, 2002 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 1-11429 Public Service Company of North Carolina, Incorporated 56-2128483 (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 April 30, 2002 - ---------- ------------ ------------------- SCANA Corporation Without Par Value 104,730,709 South Carolina Electric & Gas Company Par Value $4.50 Per Share 40,296,147(a) Public Service Company of North Carolina, Incorporated Without Par Value 1,000(a) (a)Held beneficially and of record by SCANA Corporation. This combined Form 10-Q is separately filed by SCANA Corporation, South Carolina Electric & Gas Company and Public Service Company of North Carolina, Incorporated. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies. Public Service Company of North Carolina, Incorporated meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and therefore is filing this form with the reduced disclosure format allowed under General Instruction H(2). INDEX Page PART I. FINANCIAL INFORMATION SCANA Corporation Financial Section......................................... 3 Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 ........................................... 4 Condensed Consolidated Statements of Operations for the Periods Ended March 31, 2002 and 2001........................... 6 Condensed Consolidated Statements of Cash Flows for the Periods Ended March 31, 2002 and 2001.......................... 7 Condensed Consolidated Statements of Comprehensive Income......................................................... 8 Notes to Condensed Consolidated Financial Statements.............. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 18 Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 24 South Carolina Electric & Gas Company Financial Section.................... 26 Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 ............................................ 27 Condensed Consolidated Statements of Income for the Periods Ended March 31, 2002 and 2001.................................... 29 Condensed Consolidated Statements of Cash Flows for the Periods Ended March 31, 2002 and 2001............................ 30 Notes to Condensed Consolidated Financial Statements............... 31 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 36 Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 40 Public Service Company of North Carolina, Incorporated Financial Section.... 41 Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001 .......................................... 42 Condensed Consolidated Statements of Income for the Periods Ended March 31, 2002 and 2001........................... 43 Condensed Consolidated Statements of Cash Flows for the Periods Ended March 31, 2002 and 2001....................... 44 Notes to Condensed Consolidated Financial Statements............... 45 Item 2. Management's Narrative Analysis of Results of Operations........... 48 PART II. OTHER INFORMATION Item 1. Legal Proceedings.................................................. 50 Item 6. Exhibits and Reports on Form 8-K................................... 50 Signatures.................................................................. 51 Exhibit Index............................................................... 54 SCANA CORPORATION FINANCIAL SECTION PART I. FINANCIAL INFORMATION Item 1. Financial Statements SCANA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - ------------------------------------------------------------------------------- March 31, December 31, Millions of dollars 2002 2001 - ------------------------------------------------------------------------------- Assets Utility Plant: Electric $4,875 $4,855 Gas 1,540 1,536 Other 194 187 - ------------------------------------------------------------------------------- Total 6,609 6,578 Less accumulated depreciation and amortization 2,409 2,364 - ------------------------------------------------------------------------------- Total 4,200 4,214 Construction work in progress 620 544 Nuclear fuel, net of accumulated amortization 51 45 Acquisition adjustments, net of accumulated amortization 460 460 - ------------------------------------------------------------------------------- Utility Plant, Net 5,331 5,263 - ------------------------------------------------------------------------------- Nonutility Property, Net of Accumulated Depreciation 92 93 Investments 192 191 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Nonutility Property and Investments, Net 284 284 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Current Assets: Cash and temporary investments 656 212 Receivables (net of allowance for uncollectible accounts of $40 in 2002 and $37 in 2001) 413 424 Inventories (at average cost): Fuel 125 164 Materials and supplies 60 59 Emission allowances 14 13 Prepayments 21 21 Investments 274 664 - ------------------------------------------------------------------------------- Total Current Assets 1,563 1,557 - ------------------------------------------------------------------------------- Deferred Debits: Environmental 32 34 Nuclear plant decommissioning fund 81 79 Pension asset, net 246 239 Other regulatory assets 202 210 Other 150 156 - ------------------------------------------------------------------------------- Total Deferred Debits 711 718 - ------------------------------------------------------------------------------- Total $7,889 $7,822 =============================================================================== SCANA CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - ---------------------------------------------------------------- --------------- March 31, December 31, Millions of dollars 2002 2001 - ---------------------------------------------------------------- --------------- Capitalization and Liabilities Stockholders' Investment: Common equity $2,205 $2,194 Preferred stock (Not subject to purchase or sinking funds) 106 106 - ---------------------------------------------------------------- --------------- Total Stockholders' Investment 2,311 2,300 Preferred Stock, net (Subject to purchase or sinking funds) 10 10 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 2,980 2,646 - ---------------------------------------------------------------- --------------- Total Capitalization 5,351 5,006 - ---------------------------------------------------------------- --------------- Current Liabilities: Short-term borrowings 98 165 Current portion of long-term debt 599 739 Accounts payable 231 275 Customer deposits 41 41 Taxes accrued 90 82 Interest accrued 58 45 Dividends declared 36 34 Deferred income taxes, net 57 154 Other 23 26 - ---------------------------------------------------------------- --------------- Total Current Liabilities 1,233 1,561 - ---------------------------------------------------------------- --------------- Deferred Credits: Deferred income taxes, net 755 720 Deferred investment tax credits 117 118 Reserve for nuclear plant decommissioning 81 79 Postretirement benefits 124 122 Other regulatory liabilities 106 100 Other 122 116 - ---------------------------------------------------------------- --------------- Total Deferred Credits 1,305 1,255 - ---------------------------------------------------------------- --------------- Total $7,889 $7,822 ================================================================ =============== See Notes to Condensed Consolidated Financial Statements. SCANA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - ------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars, except per share amounts 2002 2001 - -------------------------------------------------------------------------------- Operating Revenues: Electric $302 $340 Gas - regulated 296 467 Gas - nonregulated 224 511 - -------------------------------------------------------------------------------- Total Operating Revenues 822 1,318 - -------------------------------------------------------------------------------- Operating Expenses: Fuel used in electric generation 74 67 Purchased power 5 48 Gas purchased for resale 378 816 Other operation and maintenance 127 128 Depreciation and amortization 54 56 Other taxes 31 30 - -------------------------------------------------------------------------------- Total Operating Expenses 669 1,145 - -------------------------------------------------------------------------------- Operating Income 153 173 - -------------------------------------------------------------------------------- Other Income (Loss): Other income, including allowance for equity funds used during construction 19 13 Gain on sale of investments and assets 15 9 Impairment of investments (244) - - -------------------------------------------------------------------------------- Total Other Income (Loss) (210) 22 - -------------------------------------------------------------------------------- Income (Loss) Before Interest Charges, Income Taxes and Preferred Stock Dividends (57) 195 Interest Charges, Net of Allowance for Borrowed Funds Used During Construction 51 62 Preferred Dividend Requirement of SCE&G - Obligated Mandatorily Redeemable Preferred Securities 1 1 - ------------------------------------------------------------------- ------------ Income (Loss) Before Income Taxes and Preferred Stock Dividends (109) 132 Income Tax Expense (Benefit) (39) 51 - ---------------------------------------------------------------------- -------- Income (Loss) Before Preferred Stock Dividends (70) 81 Cash Dividends on Preferred Stock of Subsidiary (At stated rates) 2 2 - ---------------------------------------------------------------------- --------- Net Income (Loss) $(72) $79 ====================================================================== ========= ====================================================================== ========= Basic and Diluted Earnings (Loss) Per Share $(.68) $.75 Weighted Average Shares Outstanding (millions) 104.7 104.7 See Notes to Condensed Consolidated Financial Statements. SCANA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - -------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income (loss) $(72) $79 Adjustments to reconcile net income (loss) to net cash provided from operating activities: Depreciation and amortization 55 58 Amortization of nuclear fuel 5 1 Gain on sale of investments and assets (15) (9) Hedging activities 29 (7) Impairment on investments 244 - Allowance for funds used during construction (10) (4) Over (under) collection, fuel adjustment clauses 4 - Changes in certain assets and liabilities: (Increase) decrease in receivables 14 66 (Increase) decrease in inventories 37 (4) (Increase) decrease in prepayments - (15) (Increase) decrease in pension asset (7) (10) (Increase) decrease in other regulatory assets 1 1 Increase (decrease) in deferred income taxes, net (125) 44 Increase (decrease) in regulatory liabilities 10 (1) Increase (decrease) in postretirement benefits 2 2 Increase (decrease) in accounts payable (37) (112) Increase (decrease) in taxes accrued 8 (45) Other, net 39 (30) - -------------------------------------------------------------------------------- Net Cash Provided From Operating Activities 182 14 - -------------------------------------------------------------------------------- Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (117) (78) Proceeds from sale of investments and assets 313 24 Increase in nonutility property (2) (12) Investments in affiliates (16) (26) - ---------------------------------------------------------------------- --------- - ---------------------------------------------------------------------- --------- Net Cash Provided From (Used For) Investing Activities 178 (92) - ---------------------------------------------------------------------- --------- Cash Flows From Financing Activities: Proceeds: Issuance of First Mortgage Bonds 295 149 Issuance of notes and loans 397 350 Repayments: First and Refunding Mortgage Bonds (104) - First Mortgage Bonds - (4) Notes and loans (402) (1) Dividends and distributions: Common stock (32) (29) Preferred stock (3) (3) Short-term borrowings, net (67) (254) - ---------------------------------------------------------------------- --------- Net Cash Provided From Financing Activities 84 208 - ---------------------------------------------------------------------- --------- Net Increase In Cash and Temporary Investments 444 130 Cash and Temporary Investments, January 1 212 159 - ---------------------------------------------------------------------- --------- Cash and Temporary Investments, March 31 $656 $289 ===================================================================== ========= Supplemental Cash Flow Information: Cash paid for - Interest (net of capitalized interest of $3 for 2002 and $2 for $38 $44 2001) - Income taxes 7 3 Noncash Investing and Financing Activities: Unrealized gain on securities available for sale, net of tax 98 148 See Notes to Condensed Consolidated Financial Statements. SCANA CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - ------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars 2002 2001 - ----------------------------------------------------------------- ------------- Net Income (Loss) $(72) $79 Other Comprehensive Income, net of tax: Unrealized gains on securities available for sale 93 148 Unrealized gains (losses) on hedging activities 24 (19) Cumulative effect of change in accounting for hedging activities - 23 - ----------------------------------------------------------------- ------------- Total Comprehensive Income (1) $45 $231 ============================================================================= (1) Accumulated other comprehensive income (loss) of the Company totaled $4 million and $(113) million as of March 31, 2002 and December 31, 2001, respectively. See Notes to Condensed Consolidated Financial Statements. SCANA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2002 (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, 2001. These are interim financial statements, and due to the seasonality of the Company's business, the amounts reported in the Condensed 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 Note 2, 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 (SFAS) 71. This 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 March 31, 2002 approximately $234 million and $106 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets, and liabilities of approximately $142 million and $84 million, respectively. The electric and gas regulatory assets of approximately $44 million and $48 million, respectively (excluding deferred income tax assets), are recoverable through rates. The Public Service Commission of South Carolina (SCPSC) and the North Carolina Utilities Commission (NCUC) have reviewed and approved most of the items shown as regulatory assets through specific orders. Other items represent costs which are not yet approved for recovery by the SCPSC or the NCUC, but are the subject of current or future filings. In recording these costs as regulatory assets, management believes the costs will be allowable under existing rate-making concepts that are embodied in current rate orders received by the Company. However, ultimate recovery is subject to SCPSC or NCUC approval. 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 the write-off would be recorded, but it is not expected that cash flows or financial position would be materially affected. B. New Accounting Standards The Company adopted SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. SFAS 141 requires all future acquisitions to be accounted for utilizing the purchase method. SCANA considers the amounts categorized by the Federal Energy Regulatory Commission (FERC) as "acquisition adjustments" to be goodwill as defined in SFAS 142 and ceased amortization of such amounts upon the adoption of SFAS 142. In 2001, the amount of such amortization expense recorded was $14 million. This amortization related to acquisition adjustments of approximately $466 million carried on the books of Public Service Company of North Carolina, Incorporated (PSNC) and approximately $40 million carried on the books of South Carolina Pipeline Corporation (SCPC). The Company has no other intangible assets subject to amortization as provided in SFAS 142. As required by the provisions of SFAS 142, the Company is performing initial valuation analyses to determine whether these carrying amounts are impaired, and if so, the amount of any write-down which might be recorded as the cumulative effect of the change in accounting principle. As allowed by the Statement, the Company will have completed the initial stage of the analyses by June 30, 2002. If any write-downs are indicated by the analyses, they will be quantified and recorded by the end of 2002. Because the Company is in the early stages of these analyses, the effect, if any, of the adoption of the impairment provisions of the Statement is not known; however, if write-downs are considered necessary, they could be material to the Company's results of operations for 2002. SFAS 143, "Accounting for Asset Retirement Obligations," provides guidance for recording and disclosing a liability related to the future obligation to retire an asset (such as a nuclear plant). The Company will adopt SFAS 143 effective January 1, 2003. The impact SFAS 143 may have on the Company's results of operations, cash flows or financial position has not been determined but could be material. The provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," were effective January 1, 2002. This Statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. There was no impact on the Company's financial statements from the initial adoption of SFAS 144. C. Stock Option Plan The Company sponsors the SCANA Corporation Long-Term Equity Compensation Plan (the Plan), under which certain employees and non-employee directors may receive nonqualified stock options and other forms of equity compensation. The Company accounts for this equity-based compensation under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations. In addition, the Company has adopted the disclosure provisions of SFAS 123, "Accounting for Stock-Based Compensation." D. Earnings (Loss) Per Share Earnings (loss) per share amounts have been computed in accordance with SFAS 128, "Earnings Per Share." Under SFAS 128, basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share are computed as net income (loss) divided by the weighted average number of shares of common stock outstanding during the period after giving effect to securities considered to be dilutive potential common stock. The Company uses the treasury stock method in determining total dilutive potential common stock. E. Reclassifications Certain amounts from prior periods have been reclassified to conform with the presentation adopted for 2002. 2. RATE AND OTHER REGULATORY MATTERS South Carolina Electric & Gas Company Electric On April 30, 2002 the SCPSC approved SCE&G's request to increase the fuel component of rates charged to electric customers from 1.579 cents per kilowatt-hour to 1.722 cents per kilowatt-hour. The increase reflects higher fuel costs projected for the period May 2002 through April 2003. The increase also provides recovery for under-collected actual fuel costs through April 2002, including short-term purchased power costs necessitated by outages at two of SCE&G's base load generating plants in winter 2000-2001. The new rates were effective as of the first billing cycle in May 2002. On September 14, 1999 the SCPSC approved an accelerated capital recovery plan for SCE&G's Cope Generating Station. The plan was implemented beginning January 1, 2000 for a three-year period. The SCPSC approved an accelerated capital recovery methodology wherein SCE&G may 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 SCPSC. Any unused portion of the $36 million in any given year may be carried forward for possible use in the following year. As of March 31, 2002 no accelerated depreciation has been recorded. The accelerated capital recovery plan will be accomplished through existing customer rates. Gas SCE&G's rates are established using a cost of gas component approved by the SCPSC which may be modified periodically to reflect changes in the price of natural gas purchased by SCE&G. SCE&G's cost of gas component in effect during the period January 1, 2001 through March 31, 2002 was as follows: Rate Per Therm Effective Date $.993 January-February 2001 $.793 March-October 2001 $.596 November 2001-March 2002 In 1994 the SCPSC issued an order approving SCE&G's request to recover, through a billing surcharge to its gas customers, the costs of environmental cleanup at the sites of former manufactured gas plants (MGPs). The billing surcharge is subject to annual review and provides for the recovery of substantially all actual and projected site assessment and cleanup costs and environmental claims settlements for SCE&G's gas operations that had previously been deferred. In October 2001, as a result of the annual review, the SCPSC approved SCE&G's request to increase the billing surcharge from 1.1 cents per therm to 3.0 cents per therm, which is intended to provide for the recovery of the balance remaining at March 31, 2002 ($21.5 million) prior to the end of the year 2005. Public Service Company of North Carolina, Incorporated PSNC's rates are established using a benchmark cost of gas approved by the NCUC, which may be modified periodically to reflect changes in the market price of natural gas and changes in the rates charged by PSNC's pipeline transporters. PSNC may file revised tariffs with the NCUC coincident with these changes or it may track the changes in its deferred accounts for subsequent rate consideration. The NCUC reviews PSNC's gas purchasing practices annually. PSNC's benchmark cost of gas in effect during the period January 1, 2001 through March 31, 2002 was as follows: Rate Per Therm Effective Date $.690 January 2001 $.750 February-March 2001 $.650 April-August 2001 $.500 September-October 2001 $.350 November-December 2001 $.300 January 2002 $.215 February-March 2002 A state expansion fund, established by the North Carolina General Assembly in 1991 and funded by refunds from PSNC's interstate pipeline transporters, provides financing for expansion into areas that otherwise would not be economically feasible to serve. On December 30, 1999 PSNC filed an application with the NCUC to extend natural gas service to Madison, Jackson and Swain Counties, North Carolina. On June 29, 2000 the NCUC approved PSNC's requests for 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. The Madison County portion of the project was completed at a cost of approximately $5.8 million, and customers began receiving service in July 2001. On December 7, 1999 the NCUC issued an order approving SCANA's acquisition of PSNC. As specified in the NCUC order, PSNC reduced its rates by approximately $1 million in each of August 2000 and August 2001, and agreed to a moratorium on general rate cases until August 2005. General rate relief can be obtained during this period to recover costs associated with materially adverse governmental actions and force majeure events. 3. LONG-TERM DEBT On January 31, 2002 SCANA issued $250 million of medium-term notes maturing February 1, 2012 and bearing a fixed interest rate of 6.25 percent. Also on January 31, 2002 SCANA issued $150 million of two-year floating rate notes maturing on February 1, 2004. The interest rate on the floating rate notes is reset quarterly based on three-month LIBOR plus 62.5 basis points. Proceeds from these issuances were used to refinance $400 million of two-year floating rate notes that matured on February 8, 2002, which had been issued to finance SCANA's acquisition of PSNC. On January 31, 2002 SCE&G issued $300 million of first mortgage bonds having an annual interest rate of 6.625 percent and maturing February 1, 2032. The proceeds from the sale of these bonds were used to reduce short-term debt primarily incurred as a result of SCE&G's construction program and to redeem on March 11, 2002 its First and Refunding Mortgage Bonds, 8 7/8 percent Series due August 15, 2021. 4. RETAINED EARNINGS The Company's Restated Articles of Incorporation 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 March 31, 2002 approximately $38 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G's common stock. 5. FINANCIAL INSTRUMENTS Investments SCANA and certain of its subsidiaries hold investments in marketable securities, some of which are subject to SFAS 115 mark-to-market accounting and some of which are considered cost basis investments for which determination of fair value historically has been considered impracticable. Equity holdings subject to SFAS 115 are categorized as "available for sale" and are carried at quoted market, with any unrealized gains and losses credited or charged to other comprehensive income within common equity on the Company's balance sheet. Debt securities are categorized as "held to maturity" and are carried at amortized cost. When indicated, and in accordance with its stated accounting policy, SCANA performs periodic assessments of whether any decline in the value of these securities to amounts below SCANA's cost basis is other than temporary. When other than temporary declines occur, write-downs are recorded through operations, and new (lower) cost bases are established. At March 31, 2002 SCANA and SCANA Communications Holdings, Inc. (SCH), a wholly owned, indirect subsidiary of SCANA, held marketable equity and debt securities in the following companies in the amounts noted in the table below.
Unrealized Investee Securities (a) Basis Market (b) Gain (Loss) Held By (c) - ----------------------------------------------------------------------------------------------- -------------- --------------- (Millions of dollars) DTAG SCH 18.3 million ordinary shares $258.0 (e) $274.3 $16.3 ITC SCH 3.1 million common stock 5.8 (d) n/a SCH 645,153 series A convertible preferred stock 7.2 (d) n/a SCH 133,664 series B convertible preferred stock 4.0 (d) n/a ITC^DeltaCom SCH 5.1 million common stock 4.4 1.6 (2.8) SCH 1.5 million series A convertible preferred stock 2.6 0.9 (1.7) SCANA 5,215 series B-1 preferred stock convertible into 914,902 shares of common stock 0.8 0.3 (0.5) SCANA 6,839 series B-2 preferred stock convertible into 2,671,485 shares of common stock 2.3 0.8 (1.5) SCANA Warrants to purchase approximately 1.0 million shares of common stock 0.8 0.3 (0.5) Knology SCH 7.2 million series A preferred stock, convertible into 7.5 5.0 (d) n/a million shares of common stock SCH Warrants to purchase 159,000 shares of series A convertible preferred stock, convertible into 164,900 shares of common (d) n/a stock SCH 8.3 million series C preferred stock, convertible into 8.3 25.0 (d) n/a million shares of common stock Knology Broadband SCH $102,571,000 face amount, 11.875% Senior Discount notes due 79.1 (d) n/a 2007
(a) Convertible preferred stock is convertible into common stock at any time. (b) As converted, based on market value of underlying common stock, where applicable. (c) Amounts are included in accumulated other comprehensive income (loss), net of taxes. (d) Market value not readily determinable. (e) Reflects write-down for "other than temporary" impairment as discussed below. Deutsche Telekom AG (DTAG) is an international telecommunications carrier. On March 1, 2002 the Company determined that the decline in value of its investment in DTAG to below its cost basis of $20.30 per share was other than temporary, and recorded an impairment loss of approximately $160 million (after tax). In March 2002 SCH sold 21 million ordinary shares of DTAG at a weighted average price of $14.82 per share through a series of market transactions. The sales resulted in net after tax proceeds of approximately $250 million. ITC Holding Company (ITC) holds ownership interests in several Southeastern communications companies. ITC^DeltaCom, Inc. (ITCD) is a regional provider of telecommunications services and an affiliate of ITC. Knology, Inc. (Knology) is a broadband service provider of cable television, telephone and internet services. Knology is an affiliate of ITC. Knology Broadband, Inc. (Knology Broadband) is a wholly-owned subsidiary of Knology and an affiliate of ITC. Derivatives Effective January 1, 2001 the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS 133 requires the Company to recognize all derivative instruments as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. SFAS 133 further provides that changes in the fair value of derivative instruments are either recognized in earnings or reported as a component of other comprehensive income, depending upon the intended use of the derivative and the resulting designation. The fair value of the derivative instruments is determined by reference to quoted market prices of listed contracts, published quotations or quotations from independent parties. Risk limits are established to control the level of market, credit, liquidity and operational and administrative risks assumed by the Company. The Company's Board of Directors has delegated the authority for setting market risk limits to a Risk Management Committee. The Risk Management Committee provides assurance to the Board of Directors with regard to compliance with risk management policies and brings to the Board's attention any areas of concern. Written policies define the physical and financial transactions that are approved, as well as the authorization requirements and limits for those transactions that are allowed. Commodities The Company uses derivative instruments to hedge anticipated future purchases of natural gas, which create market risks of different types. Instruments designated as cash flow hedges are used to hedge risks associated with fixed price obligations in a volatile price market and risks associated with price differentials at different delivery locations. The basic types of financial instruments utilized are exchange-traded instruments, such as New York Mercantile Exchange futures contracts or options and over-the-counter instruments such as swaps, which are typically offered by energy and financial institutions. As a result of adopting SFAS 133, the Company recorded a credit of approximately $23.0 million, net of tax, as the effect of a change in accounting principle (transition adjustment) to other comprehensive income on January 1, 2001. This amount represents the reclassification of unrealized gains that were deferred and reported as liabilities at December 31, 2000. Substantially all of this amount was reclassified into earnings in 2001 as a component of gas cost. The Company recognized losses of approximately $(19.0) million, net of tax and gains of $4.9 million, net of tax as a result of qualifying cash flow hedges whose hedged transactions occurred during the three months ended March 31, 2002 and 2001, respectively. These gains and losses were recorded in cost of gas. Losses due to hedge ineffectiveness were insignificant. The Company estimates that substantially all of the March 31, 2002 balance of $(2) million, net of tax, will be reclassified from accumulated other comprehensive income to earnings in 2002 as an increase in gas cost if market prices remain stable. As of March 31, 2002 substantially all of the Company's cash flow hedges settle by their terms before the end of 2003. Certain derivatives that SCPC utilizes to hedge its gas purchasing activities are recoverable through its fuel adjustment clauses. Accordingly, the offset to the change in fair value of these derivatives is recorded as a regulatory asset or liability. The Company also utilizes certain derivative instruments that do not qualify as hedges. The change in fair value of these derivatives is recorded in net income and was insignificant in the periods presented. Interest Rates In May 2001 the Company entered into an interest rate swap agreement to pay variable rate and receive fixed rate interest payments on a notional amount of $300 million. This swap was designated as a fair value hedge of the $300 million medium-term notes also issued in May. The swap agreement was terminated and replaced with another swap agreement to pay variable rate and receive fixed rate interest payments, also designated as a fair value hedge, in August 2001. At March 31, 2002 the estimated fair value of this swap was $1.2 million. In August 2001 the Company received $6.5 million to terminate the original swap. The $6.5 million basis adjustment of the related debt is being amortized as a reduction to interest expense over the ten-year term of the $300 million medium-term notes. On December 19, 2001 PSNC entered into two interest rate swap agreements to pay variable rate and receive fixed rate interest payments on a combined notional amount of $44.9 million. These swaps were designated as fair value hedges of PSNC's $12.9 million, 10 percent senior debenture due 2004 and $32.0 million, 8.75 percent senior debenture due 2012. At March 31, 2002 the fair value of these swaps was not significant. The fair value of these interest rate swaps is reflected within other deferred debits on the balance sheet. The corresponding hedged fair value change of the debt is also recorded on the balance sheet. The receipts or payments related to the interest rate swaps are credited or charged to interest expense as incurred. 6. COMMITMENTS AND CONTINGENCIES Reference is made to Note 13 of Notes to Consolidated Financial Statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Commitments and contingencies at March 31, 2002 include the following: A. Lake Murray Dam Reinforcement On October 15, 1999 the FERC notified SCE&G of its agreement with SCE&G's plan to reinforce Lake Murray Dam in order to maintain the lake in case of an extreme earthquake. Construction for the project and related activities, which began in the third quarter of 2001 is expected to cost approximately $250 million and be completed in 2005. Any costs incurred by SCE&G are expected to be recoverable through electric rates. B. 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 Santee Cooper with Nuclear Electric Insurance Limited. The 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 $15.5 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 would have a material adverse impact on the Company's results of operations, cash flows and financial position. C. Environmental The Company maintains an environmental assessment program to identify and evaluate current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the amount of 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. South Carolina Electric & Gas Company In September 1992 the Environmental Protection Agency (EPA) notified SCE&G, among others, of its 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 various industrial operations, including one of SCE&G's decommissioned MGPs. Field work at the site began in November 1993 and has required the submission of several investigative reports and the implementation of several work plans. In September 2000, SCE&G was notified by the South Carolina Department of Health and Environmental Control (DHEC) that benzene contamination was detected in the intermediate aquifer on surrounding properties of the Calhoun Park area site. The EPA required that SCE&G conduct a focused Remedial Investigation/Feasibility Study on the intermediate aquifer, which was completed in June 2001. The EPA expects to issue a Record of Decision dealing with the intermediate aquifer and sediments in June 2002. SCE&G anticipates that major remediation activities will be completed in 2003, with certain monitoring activities continuing until 2007. As of March 31, 2002, SCE&G has spent approximately $17.0 million to remediate the Calhoun Park area site. Total remediation costs are estimated to be $21.9 million. SCE&G owns three other decommissioned MGP sites in South Carolina which contain residues of by-product chemicals. Two of these sites are currently being remediated under work plans approved by DHEC. SCE&G is continuing to investigate the remaining site and is monitoring the nature and extent of residual contamination. SCE&G anticipates that major remediation activities for these three sites will be completed between 2003-2005. SCE&G has spent approximately $2.0 million related to these sites and expects to incur an additional $6.0 million. Public Service Company of North Carolina, Incorporated 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 two sites 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. PSNC estimates that the cost to remediate the sites would range between $11.3 million and $21.9 million. The estimated cost range has not been discounted to present value. 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. At March 31, 2002 PSNC has recorded a liability and associated regulatory asset of $9.0 million, which reflects the minimum amount of the range, net of shared cost recovery expected from other PRPs and expenditures for work completed. Amounts incurred to date are approximately $1.2 million. Management believes that all MGP cleanup costs incurred will be recoverable through gas rates. 7. 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 regulated operations. Therefore, net income is not allocated to the Electric Operations, Gas Distribution and Gas Transmission segments. The Company uses net income to measure profitability for its Retail Gas Marketing and Energy Marketing 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. Accumulated depreciation is not assignable to Electric Operations and Gas Distribution segments. Disclosure of Reportable Segments (Millions of dollars)
- ---------------------------------------------------------------------------------------------- Three Months Ended External Intersegment Operating Net Segment March 31, 2002 Revenue Revenue Income (Loss) Income (Loss) Assets - ---------------------------------------------------------------------------------------------- Electric Operations $302 $149 $87 n/a $5,124 Gas Distribution 240 1 54 n/a 1,639 Gas Transmission 56 73 (8) n/a 293 Retail Gas Marketing 185 - n/a $14 100 Energy Marketing 39 - n/a (1) 73 Telecommunications Investments - - - (150) 470 All Other - 1 21 15 606 Adjustments/Eliminations - (224) (1) 50 (416) - ---------------------------------------------------------------------------------------------- Consolidated Total $822 - $153 $(72) $7,889 ============================================================================================== - --------------------------------------------------------------------------------------------- Three Months Ended External Intersegment Operating Net Segment March 31, 2001 Revenue Revenue Income (Loss) Income (Loss) Assets - --------------------------------------------------------------------------------------------- Electric Operations $340 $74 $94 n/a $5,002 Gas Distribution 385 - 60 n/a 1,654 Gas Transmission 82 119 - n/a 292 Retail Gas Marketing 263 - n/a $9 160 Energy Marketing 248 - n/a 3 138 Telecommunications Investments - - - (2) 629 All Other 18 5 21 26 283 Adjustments/Eliminations (18) (198) (2) 43 (357) - -------------------------------------------------------------------------------------------- Consolidated Total $1,318 - $173 $79 $7,801 ================================== =========== ============ ============ ========== ========
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, 2001. Statements included in this discussion and analysis (or elsewhere in this annual 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 and nonutility regulatory environment, (3) changes in the economy, especially in areas served by the Company's subsidiaries, (4) the impact of competition from other energy suppliers, (5) growth opportunities for the Company's regulated and diversified subsidiaries, (6) the results of financing efforts, (7) changes in the Company's accounting policies, (8) weather conditions, especially in areas served by the Company's subsidiaries, (9) performance of and marketability of the Company's investments in telecommunications companies, (10) inflation, (11) changes in environmental regulations, (12) volatility in commodity natural gas markets and (13) the other risks and uncertainties described from time to time in the Company's periodic reports filed with the SEC. The Company disclaims any obligation to update any forward-looking statements. COMPETITION Electric Operations In South Carolina electric restructuring efforts remain stalled, and consideration of electric restructuring legislation is unlikely in 2002. Further, while several companies have announced their intent to site merchant generating plants in the Company's service territory, economic events, environmental concerns and other factors have slowed those efforts. At the Federal level, energy legislation has passed both houses of Congress in 2002, though significant differences exist between the House and Senate versions. Among other things, this legislation would require that one percent of the electric energy sold by retail electric suppliers be generated from renewable energy resources beginning 2005. This requirement would gradually escalate to ten percent in 2019. Substantial penalties would be levied from failure to comply. Electric cooperatives and municipal utilities would be exempt from these requirements. The Company is not able to predict whether this or similar legislation or regulatory actions will be enacted and, if they are, the impact they will have on the Company. Gas Transmission SCG Pipeline, Inc. (SCG), when operational, will provide interstate transportation services for natural gas to markets in southeastern Georgia and South Carolina. SCG will transport natural gas from interconnections with Southern Natural at Port Wentworth, Georgia, and from an import terminal owned by Southern LNG at Elba Island, near Savannah, Georgia. The endpoint of SCG's line will be at the site of SCE&G's proposed natural gas-fired generating station in Jasper County, South Carolina. In December 2001 SCG filed an application with FERC for a Certificate of Public Convenience and Necessity to acquire and build a pipeline from Elba Island, Georgia to Jasper County, South Carolina. The project has an anticipated in-service date of November 2003. Retail Gas Marketing In April 2002 Georgia's Governor signed into law the Natural Gas Consumer's Relief Act of 2002 (the Act). The Act attempts to resolve many of the issues surrounding Georgia's deregulated natural gas market with the following significant provisions: o creates a regulated provider through a bidding process to serve low-income and high credit risk customers, o allows Georgia's 42 non-profit Electric Membership Corporations to set up natural gas affiliates that may seek certification as marketers of natural gas, o establishes new service quality standards and addresses assignment of interstate assets, and o gives the Georgia Public Service Commission (GPSC) the authority to temporarily regulate rates if more than 90% of customers in a specific area of the state are served by three or fewer marketers. The GPSC is responsible to implement and monitor most of the Act's provisions. While SCANA Energy believes the Act represents a balanced approach in addressing deregulation issues for consumers and marketers, the impact the Act will have on SCANA Energy and Georgia's natural gas market cannot be predicted until more details of GPSC's implementation become known. SCANA Energy and SCANA's other natural gas distribution, transmission and marketing segments maintain gas inventory and also utilize forward contracts and financial instruments, including futures contracts, to manage their exposure to fluctuating commodity natural gas prices. (See Note 5 of Notes to Condensed Consolidated Financial Statements.) As a part of this risk management process, a portion of SCANA's projected natural gas needs has been purchased or otherwise placed under contract. This factor and others (e.g., the level of bad debts experienced) are, in the aggregate, used to establish retail pricing levels at SCANA Energy. As a result of the regulatory actions discussed above and other downward pricing pressures inherent in the competitive market, SCANA Energy may be unable to sustain its current levels of customers and/or pricing, thereby reducing expected margins and profitability. LIQUIDITY AND CAPITAL RESOURCES The Company anticipates that its contractual cash obligations will be met through internally generated funds and the incurrence of additional short-term and long-term indebtedness. Sales of additional equity securities may also occur. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the foreseeable future. The Company's ratio of earnings to fixed charges for the 12 months ended March 31, 2002 was 3.47. The following table summarizes how the Company generated and used funds for property additions and construction expenditures during the three months ended March 31, 2002 and 2001: - -------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------------------- Net cash provided from operating activities $182 $14 Net cash provided from financing activities 84 208 Cash provided from sale of investments and assets 313 24 Cash and temporary investments available at the beginning of the period 212 159 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Net cash available for property additions and construction expenditures $791 $405 ================================================================================ Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $117 $78 Funds used for nonutility property additions $2 $12 ================================================================================ On January 31, 2002 SCANA issued $250 million of medium-term notes maturing February 1, 2012 and bearing a fixed interest rate of 6.25 percent. Also on January 31, 2002 SCANA issued $150 million of two-year floating rate notes maturing on February 1, 2004. The interest rate on the floating rate notes is reset quarterly based on three-month LIBOR plus 62.5 basis points. Proceeds from these issuances were used to refinance $400 million of two-year floating rate notes that matured on February 8, 2002, which had been issued to finance SCANA's acquisition of PSNC. On January 31, 2002 SCE&G issued $300 million of first mortgage bonds having an annual interest rate of 6.625 percent and maturing February 1, 2032. The proceeds from the sale of these bonds were used to reduce short-term debt primarily incurred as a result of SCE&G's construction program and to redeem on March 11, 2002 its First and Refunding Mortgage Bonds, 8 7/8 percent Series due August 15, 2021. SCE&G is constructing a $256 million gas turbine generator project in Aiken County, South Carolina. Two combined-cycle turbines will burn natural gas to produce 300 megawatts of new electric generation and use exhaust heat to replace coal-fired steam that powers two existing 75 megawatt turbines at the Urquhart Generating Station. The turbine project is scheduled to be completed by June 2002. In October 1999 FERC notified SCE&G of its agreement with SCE&G's plan to reinforce Lake Murray Dam in order to maintain the lake in case of an extreme earthquake. Construction for the project and related activities, which began in the third quarter of 2001, is expected to cost approximately $250 million and be completed in 2005. Any costs incurred by SCE&G are expected to be recoverable through electric rates. In May 2002 SCE&G began construction of an 875 megawatt generation facility in Jasper County, South Carolina, to supply electricity to its South Carolina customers. The facility will include three natural gas combustion-turbine generators and one steam-turbine generator. The $450 million facility is expected to begin commercial operation in the summer of 2004 and will be supplied with natural gas by SCG Pipeline, Inc. In connection with the facility, SCE&G has signed a 250 megawatt electric supply contract with North Carolina Electric Membership Corporation for a term of at least nine years beginning January 1, 2004. Environmental Matters For information on environmental matters see Note 6C of Notes to Condensed Consolidated Financial Statements. Other Matters Radio Service Network In April 2002 SCI sold its 800 Mhz radio service network within South Carolina to Motorola, Inc. for an after tax gain of approximately $9 million. Telecommunications Investments For information on telecommunications investments, see Note 5, "Financial Instruments," of Notes to Condensed Consolidated Financial Statements. Transit SCE&G and the City of Columbia (City) have entered into an agreement whereby a regional transit authority will take over operation of SCE&G's transit system effective August 31, 2002. As part of the agreement, SCE&G will pay the City $32 million over seven years in exchange for a 30-year electric and gas franchise, will convey transit- related property and equipment to the City and will convey the historic Columbia Canal and Hydroelectric Plant to the City. The transaction is subject to various approvals by Federal and state regulatory agencies. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AS COMPARED TO THE CORRESPONDING PERIOD IN 2001 Earnings (Loss) and Dividends Earnings (loss) per share of common stock for the three months ended March 31, 2002 and 2001 were as follows: - ------------------------------------------------------------------------------- Three Months Ended 2002 2001 - ----------------------------------------------------------------- ------------- Earnings (loss) derived from: Operations $.74 $.71 Non-recurring items: Realized gain from stock investment .10 - Sale of subsidiary assets - .04 Investment impairment (1.52) - ------------- - ----------------------------------------------------------------- ------------- Earnings (loss) per weighted average share $(.68) $.75 ================================================================= ============= Earnings per share from operations for the three months ended March 31, 2002 increased $.03 as compared to 2001. The Company experienced a decrease in interest expense of $.06, an increase in its allowance for funds used during construction (AFC) of $.04, improvements in the operating results of its appliance protection and plant management businesses of $.02, decreases in operation and maintenance expense of $.01 and depreciation expense of $.01 and other operational improvements of $.02. These improvements were partially offset by a decline in gas margin of $.12 and in electric margin of $.01. For the last several years, the market value of the Company's retirement plan assets has exceeded the total actuarial present value of accumulated plan benefits. Pension income for the three months ended March 31, 2002 was $6.6 million, compared to $9.6 million for the corresponding period in 2001. As a result of pension income, employee benefit expenses were reduced approximately $3.6 million for the three months ended March 31, 2002, compared to $5.2 million for the corresponding period in 2001. In addition, other income increased $2.0 million for the three months ended March 31, 2002, compared to $3.0 million for the corresponding period in 2001. The Company recognized a non-recurring gain of $.10 per share in connection with the sale of Deutsche Telekom AG (DTAG) ordinary shares in March 2002. In March 2002 the Company also recorded an impairment write-down of $1.52 per share related to the other than temporary decline in market value of the Company's investment in DTAG (see Note 5 of Notes to Condensed Consolidated Financial Statements). The Company recognized a gain of $.04 per share in connection with the sale of the assets of SCANA Security in March 2001. 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 nine percent and approximately three percent of income (loss) before taxes for the three months ended March 31, 2002 and 2001, respectively. The increase in AFC for the three months ended March 31, 2002, compared to the corresponding period in 2001, is primarily the result of increased construction expenditures related to the Urquhart gas turbine generator project and the Lake Murray Dam project (see discussion at LIQUIDITY AND CAPITAL RESOURCES). The Company's Board of Directors declared the following quarterly dividends on common stock during 2002: - -------------------- --------------------- ------------------- ----------------- Declaration Date Dividend Per Share Record Date Payment Date - -------------------- ----------------------------------------------------------- - -------------------- February 21, 2002 $.325 March 8, 2002 April 1, 2002 - -------------------- May 2, 2002 $.325 June 10, 2002 July 1, 2002 - -------------------- -------------------- --------------------- ---------------- Electric Operations Electric Operations is comprised of the electric portion of SCE&G, South Carolina Generating Company (GENCO) and South Carolina Fuel Company (Fuel Company). Changes in the electric operations sales margins for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: ------------------------------------------------------------------------------- Three Months Ended Millions of dollars 2002 2001 Change ------------------------------------------------------------------------------- Electric operating revenue $302.6 $340.2 $(37.6) (11.1)% Less: Fuel used in generation 74.3 67.3 7.0 10.4% Purchased power 5.0 48.5 (43.5) (89.7)% ---------------------------------------------------------------- Margin $223.3 $224.4 $(1.1) (0.5)% =============================================================================== Changes in electric operations sales margins for the three months ended March 31, 2002 reflect milder weather, which was partially offset by customer growth. Higher purchased power costs during 2001 related primarily to plant outages for maintenance and repairs. Gas Distribution Gas Distribution is comprised of the local distribution operations of SCE&G and PSNC. Changes in the gas distribution sales margins, including transactions with affiliates, for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: - --------------------------------------- ---------------------------------------- Three Months Ended Millions of dollars 2002 2001 Change - --------------------------------------------- ---------- ----------------------- Gas distribution operating revenue $241.0 $385.5 $(144.5) (37.5)% Less: Gas purchased for resale 140.1 $279.5 (139.4) (49.9)% - --------------------------------------------- ---------- ----------- Margin $100.9 $106.0 $(5.1) (4.8)% ============================================= ========== ======================= Changes in gas distribution sales margin for the three months ended March 31, 2002 reflect milder weather and weak economic conditions. Revenues and purchases were impacted by extremely high commodity natural gas prices in early 2001. Gas Transmission Gas Transmission is comprised of the operations of South Carolina Pipeline Corporation. Changes in the gas transmission sales margins, including transactions with affiliates, for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: - --------------------------------------- ------- ------------ ------------ ----- Three Months Ended Millions of dollars 2002 2001 Change - ------------------------------------------- ----------- ----------------------- Gas transmission operating revenue $128.1 $201.3 $(73.2) (36.4)% Less: Gas purchased for resale 128.5 192.1 (63.6) (33.1)% - ------------------------------------------- ----------- ----------- Margin $(0.4) $9.2 $(9.6) * =========================================== =========== ======================= *Greater than 100% Gas transmission sales margins for the three months ended March 31, 2002 decreased primarily as a result of reduced industrial margins due to the unfavorable competitive position of natural gas relative to alternate fuels. Revenues and purchases were impacted by extremely high commodity natural gas prices in early 2001. Retail Gas Marketing Retail Gas Marketing is comprised of SCANA Energy, a division of SCANA Energy Marketing, Inc., which operates in Georgia's deregulated natural gas market. Retail gas marketing revenues and net income for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: - ---------------------------------- ----------- --------- --------- ----------- Three Months Ended Millions of dollars 2002 2001 Change - ---------------------------------- ---------- ---------- --------------------- Operating revenues $185.0 $263.0 $(78.0) (29.7)% Net income (loss) 13.9 9.3 4.6 49.5% ================================== ========== =========== ========= ========== Operating revenues for the three months ended March 31, 2002 decreased primarily as a result of the decline in commodity natural gas prices from the record levels experienced in 2001. Net income for the three months improved primarily due to lower bad debt expense and other operating expenses. Energy Marketing Energy Marketing is comprised of the Company's non-regulated marketing operations, excluding SCANA Energy. Changes in energy marketing operating revenues, including transactions with affiliates, and net income (loss) for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: - --------------------------------- ------------ --------- --------- ------------- Three Months Ended Millions of dollars 2002 2001 Change - --------------------------------- ----------- ----------- ---------------------- Operating revenues $39.0 $247.7 $(208.7) (84.3)% Net income (loss) (1.1) 3.5 (4.6) * ================================= =========== =========== ============ ========= *Greater than 100% Operating revenues for the three months ended March 31, 2002 decreased primarily as a result of the decline in commodity natural gas prices from the record levels experienced in 2001and due to less favorable weather than in early 2001. Net income (loss) for the three months ended March 31, 2002 decreased primarily as a result of the winding down of operations for SCANA Energy Trading, LLC during the first quarter of 2002 and the closing of the Midwest office. Other Operating Expenses Changes in other operating expenses for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: - --------------------------------------- --------- ---------- --------- -------- Three Months Ended Millions of dollars 2002 2001 Change - --------------------------------------- ---------- --------- ------------------ Other operation and maintenance $126.4 $128.3 $(1.9) (1.5)% Depreciation and amortization 53.8 55.6 (1.8) (3.2)% Other taxes 31.2 29.9 1.3 4.3% - --------------------------------------- --------- ---------- --------- Total $211.4 $213.8 $(2.4) (1.1)% ======================================= ========= ========== ========= ========= Other operation and maintenance expense for the three months decreased primarily as a result of lower bad debt expense and other costs. Depreciation and amortization for the three months decreased due to implementation of SFAS 142 and the resulting reduction in amortization expense related to goodwill (see Note 1B of Notes to Condensed Consolidated Financial Statements), which was partially offset by increases for normal property additions. Other taxes increased due to increased property taxes. Other Income Other income for the three months ended March 31, 2002 decreased when compared to the corresponding period in 2001, primarily due to the investment impairment recorded in March 2002 in connection with the Company's investment in DTAG, which was partially offset by the non-recurring gain recognized in March 2002 in connection with the Company's sale of stock of DTAG, and the March 2001 gain on the sale of the assets of SCANA Security (see Note 5 of Notes to Condensed Consolidated Financial Statements). Interest Expense Interest expense for the three months ended March 31, 2002 decreased when compared to the corresponding period in 2001 primarily due to declining variable interest rates, which was partially offset by increased debt. Income Taxes Income taxes for the three months ended March 31, 2002 decreased approximately $91.0 million when compared to the corresponding period in 2001. This change is primarily due to a reduction of deferred income taxes in connection with the non-recurring investment impairment recorded in March 2002 arising from the Company's investment in DTAG (see Note 5 of Notes to Condensed Consolidated Financial Statements). Item 3. Quantitative and Qualitative Disclosures About Market Risk All financial instruments held by the Company described below are held for purposes other than trading. Interest rate risk - The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations the table presents principal cash flows and related weighted average interest rates by expected maturity dates.
As of March 31, 2002 Expected Maturity Date - -------------------- ---------------------- Millions of dollars There- Fair Liabilities 2002 2003 2004 2005 2006 after Total Value - ---------------------------------------- --------- ---------- ---------- ---------- ---------- ------------ --------- - ---------------------------------------- --------- ---------- ---------- ---------- ---------- ------------ --------- Long-Term Debt: Fixed Rate ($) 36.5 298.6 187.1 182.0 162.8 2,174.6 3,041.6 3,027.4 Average Fixed Interest Rate 7.24 6.38 7.58 7.43 8.63 6.79 6.94 Variable Rate ($) 300.0 202.0 150.0 - - 652.0 648.7 - Average Variable Interest Rate 2.48 2.90 2.50 - - 2.61 - Interest Rate Swap: Pay Variable/Receive Fixed ($) - - 12.9 - - 332.0 344.9 0.9 Average Pay Interest Rate - - - - 2.60 2.79 7.83 Average Receive Interest Rate - - 10.00 - - 6.21 6.35
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 investments in the 11.875 percent senior discount notes (due 2007) of a telecommunications company, the cost basis of which is approximately $79.1 million . As these notes are not publicly traded, determination of their fair value is not practicable. Commodity price risk - The table below provides information about the Company's financial instruments that are sensitive to changes in natural gas prices. Weighted average settlement prices are per 10,000 mmbtu. As of March 31, 2002 Millions of dollars, except settlement price and strike price Natural Gas Derivatives: Expected Maturity in 2002 Expected Maturity in 2003 - ------------------------- ------------------------------------------------------ Settlement Contract Fair Settlement Contract Fair Price (a) Amount Value Price (a) Amount Value Futures Contracts: Long($) 3.47 71.5 72.7 3.89 23.9 29.5 Short($) 3.33 0.9 0.7 - - - Strike Contract Strike Contract Price Amount Price Amount (a) (a) Options: Purchased put (long)($) $3.47 $31.9 - - Sold put (short)($) $3.55 $50.1 $2.30 $4.1 - ------------------------- --------------------------------------- -------------- (a) Weighted average See Note 5 of Notes to Condensed Consolidated Financial Statements for additional information. The Company uses derivative instruments to hedge forward purchases and sales of natural gas, which create market risks of different types. Instruments designated as cash flow hedges are used to hedge risks associated with fixed price obligations in a volatile market and risks associated with price differentials at different delivery locations. The basic types of financial instruments utilized are exchange-traded instruments, such as NYMEX futures contracts or options and over-the-counter instruments such as swaps, which are typically offered by energy and financial institutions. Risk limits are established to control the level of market, credit, liquidity and operational and administrative risks assumed by the Company. The Company's Board of Directors has delegated the authority for setting market risk limits to a Risk Management Committee. The Risk Management Committee provides assurance to the Board of Directors with regard to compliance with risk management policies and brings to the Board's attention any areas of concern. Written policies define the physical and financial transactions that are approved, as well as the authorization requirements and limits for transactions that are allowed. The NYMEX futures information above includes those financial positions of both Energy Marketing and SCPC. The ultimate effects of the hedging activities of SCPC are passed through to its customers through SCPC's fuel adjustment clauses. Equity price risk - Investments in telecommunications companies' equity securities are carried at their market value or, if market value is not readily determinable, at their cost. The Company's investments in such securities totaled $325.4 million at March 31, 2002. A temporary decline in value of ten percent would result in a $32.5 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. An other than temporary decline in value of ten percent would result in a $32.5 million reduction in fair value and a corresponding adjustment to net income, net of tax effect. SOUTH CAROLINA ELECTRIC & GAS COMPANY FINANCIAL SECTION PART I. FINANCIAL INFORMATION Item 1. Financial Statements SOUTH CAROLINA ELECTRIC & GAS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - -------------------------------------------------------------------------------- March 31, December 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------------------- Assets Utility Plant: Electric $4,582 $4,563 Gas 428 425 Other 194 188 - -------------------------------------------------------------------------------- Total 5,204 5,176 Less accumulated depreciation and amortization 1,875 1,841 - -------------------------------------------------------------------------------- Total 3,329 3,335 Construction work in progress 578 511 Nuclear fuel, net of accumulated amortization 51 45 - -------------------------------------------------------------------------------- Utility Plant, Net 3,958 3,891 - -------------------------------------------------------------------------------- Nonutility Property and Investments, Net 24 24 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Current Assets: Cash and temporary investments 81 78 Receivables 222 212 Receivables - affiliated companies 1 4 Inventories (at average cost): Fuel 44 39 Materials and supplies 50 48 Emission allowances 14 13 Prepayments 11 6 - -------------------------------------------------------------------------------- Total Current Assets 423 400 - -------------------------------------------------------------------------------- Deferred Debits: Environmental 21 24 Nuclear plant decommissioning fund 81 79 Pension asset, net 246 239 Due from affiliates - postretirement benefits 15 15 Other regulatory assets 185 193 Other 106 97 - -------------------------------------------------------------------------------- Total Deferred Debits 654 647 - -------------------------------------------------------------------------------- Total $5,059 $4,962 ================================================================================ SOUTH CAROLINA ELECTRIC & GAS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - -------------------------------------------------------------------------------- March 31, December 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------------------- Capitalization and Liabilities Stockholders' Investment: Common equity $1,766 $1,750 Preferred stock (Not subject to purchase or sinking funds) 106 106 - -------------------------------------------------------------------------------- Total Stockholders' Investment 1,872 1,856 Preferred Stock, net (Subject to purchase or sinking funds) 10 10 Company-Obligated Mandatorily Redeemable Preferred Securities of the Company'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 1,609 1,412 - -------------------------------------------------------------------------------- Total Capitalization 3,541 3,328 - -------------------------------------------------------------------------------- Current Liabilities: Short-term borrowings 98 165 Current portion of long-term debt 26 28 Accounts payable 99 99 Accounts payable - affiliated companies 58 78 Customer deposits 20 19 Taxes accrued 20 80 Interest accrued 32 27 Dividends declared 36 42 Deferred income taxes, net 11 12 Other 6 8 - -------------------------------------------------------------------------------- Total Current Liabilities 406 558 - -------------------------------------------------------------------------------- Deferred Credits: Deferred income taxes, net 623 599 Deferred investment tax credits 108 109 Reserve for nuclear plant decommissioning 81 79 Due to affiliates - pension asset 16 16 Postretirement benefits 124 122 Regulatory liabilities 90 81 Other 70 70 - -------------------------------------------------------------------------------- Total Deferred Credits 1,112 1,076 - -------------------------------------------------------------------------------- Total $5,059 $4,962 ================================================================================ See Notes to Condensed Consolidated Financial Statements. SOUTH CAROLINA ELECTRIC & GAS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - ------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars 2002 2001 - ------------------------------------------------------------------------------- Operating Revenues: Electric $304 $342 Gas 107 157 - ------------------------------------------------------------------------------- Total Operating Revenues 411 499 - ------------------------------------------------------------------------------- Operating Expenses: Fuel used in electric generation 55 50 Purchased power (including affiliated purchases) 33 75 Gas purchased for resale 73 119 Other operation and maintenance 83 79 Depreciation and amortization 42 40 Other taxes 26 26 - ------------------------------------------------------------------------------- Total Operating Expenses 312 389 - ------------------------------------------------------------------------------- Operating Income 99 110 Other Income, Including Allowance for Equity Funds Used During Construction 9 5 - ------------------------------------------------------------------------------- Income Before Interest Charges, Income Taxes and Preferred Stock Dividends 108 115 Interest Charges, Net of Allowance for Borrowed Funds Used During Construction 28 28 Preferred Dividend Requirement of the Company - Obligated Mandatorily Redeemable Preferred Securities 1 1 - ------------------------------------------------------------------------------- Income Before Income Taxes and Preferred Stock Dividends 79 86 Income Taxes 27 32 - ------------------------------------------------------------------------------- Net Income 52 54 Preferred Stock Cash Dividends Declared (At stated rates) 2 2 - ------------------------------------------------------------------------------- Earnings Available for Common Stockholder $50 $52 =============================================================================== See Notes to Condensed Consolidated Financial Statements. 30 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - -------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $52 $54 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 40 41 Amortization of nuclear fuel 5 1 Allowance for funds used during construction (10) (4) Over (under) collections, fuel adjustment clauses 7 (13) Changes in certain assets and liabilities: (Increase) decrease in receivables (7) 42 (Increase) decrease in inventories (8) (9) (Increase) decrease pension asset (7) (10) (Increase) decrease other regulatory assets 1 - Increase (decrease) deferred income taxes, net 23 25 Increase (decrease) other regulatory liabilities 10 5 Increase (decrease) postretirement benefits 2 2 Increase (decrease) in accounts payable (20) (46) Increase (decrease) in taxes accrued (60) (51) Other, net (2) (2) - -------------------------------------------------------------------------------- Net Cash Provided From Operating Activities 26 35 - -------------------------------------------------------------------------------- Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (103) (64) Proceeds from sale of assets 1 - Investments (1) - - ------------------------------------------------------------------------ ------- Net Cash Used For Investing Activities (103) (64) - ------------------------------------------------------------------------ ------- Cash Flows From Financing Activities: Proceeds: Issuance of First Mortgage Bonds 295 149 Repayments: First and Refunding Mortgage Bonds (104) - Other long-term debt (1) (1) Dividends and distributions: Common stock (40) (42) Preferred stock (3) (3) Short-term borrowings, net (67) (95) - ------------------------------------------------------------------------ ------- Net Cash Provided From Financing Activities 80 8 - ------------------------------------------------------------------------ ------- Net Increase (Decrease) In Cash and Temporary Investments 3 (21) Cash and Temporary Investments, January 1 78 60 - ------------------------------------------------------------------------ ------- Cash and Temporary Investments, March 31 $81 $39 ======================================================================== ======= Supplemental Cash Flow Information: Cash paid for - Interest (net of capitalized interest of $4 for 2002 and $2 for 2001) $54 $19 - Income taxes $3 2 See Notes to Condensed Consolidated Financial Statements. SOUTH CAROLINA ELECTRIC & GAS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2002 (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, 2001. These are interim financial statements, and due to the seasonality of the Company's business, the amounts reported in the Condensed 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 Note 2, 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 (SFAS) 71. This 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 March 31, 2002 approximately $206 million and $90 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets, and liabilities of approximately $125 million and $79 million, respectively. The electric and gas regulatory assets of approximately $44 million and $37 million, respectively, (excluding deferred income tax assets) are recoverable through rates. The Public Service Commission of South Carolina (SCPSC) has reviewed and approved most of the items shown as regulatory assets through specific orders. Other items represent costs which are not yet approved for recovery by the SCPSC, but are the subject of current or future filings. In recording these costs as regulatory assets, management believes the costs will be allowable under existing rate-making concepts that are embodied in current rate orders received by the Company. However, ultimate recovery is subject to SCPSC approval. 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 the write-off would be recorded, but it is not expected that cash flows or financial position would be materially affected. B. New Accounting Standards SFAS 143, "Accounting for Asset Retirement Obligations," provides guidance for recording and disclosing a liability related to the future obligation to retire an asset (such as a nuclear plant). The Company will adopt SFAS 143 effective January 1, 2003. The impact SFAS 143 may have on the Company's results of operations, cash flows or financial position has not been determined but could be material. The provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" were effective January 1, 2002. This Statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. There was no impact on the Company's financial statements from the initial adoption of SFAS 144. C. Reclassifications Certain amounts from prior periods have been reclassified to conform with the presentation adopted for 2002. 2. RATE AND OTHER REGULATORY MATTERS Electric On April 30, 2002 the SCPSC approved the Company's request to increase the fuel component of rates charged to electric customers from 1.579 cents per kilowatt-hour to 1.722 cents per kilowatt-hour. The increase reflects higher fuel costs projected for the period May 2002 through April 2003. The increase also provides recovery for under-collected actual fuel costs through April 2002, including short-term purchased power costs necessitated by outages at two of the Company's base load generating plants in winter 2000-2001. The new rates were effective as of the first billing cycle in May 20012 On September 14, 1999 the SCPSC 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 SCPSC approved an accelerated capital recovery methodology wherein the Company may 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 SCPSC. Any unused portion of the $36 million in any given year may be carried forward for possible use in the following year. As of March 31, 2002 no accelerated depreciation has been recorded. The accelerated capital recovery plan will be accomplished through existing customer rates. Gas The Company's rates are established using a cost of gas component approved by the SCPSC which may be modified periodically to reflect changes in the price of natural gas purchased by the Company. The Company's cost of gas component in effect during the period January 1, 2001through March 31, 2002 was as follows: Rate Per Therm Effective Date $.993 January-February 2001 $.793 March-October 2001 $.596 November 2001-March 2002 In 1994 the SCPSC issued an order approving the Company's request to recover, through a billing surcharge to its gas customers, the costs of environmental cleanup at the sites of former manufactured gas plants (MGPs). The billing surcharge is subject to annual review and provides for the recovery of substantially all actual and projected site assessment and cleanup costs and environmental claims settlements for the Company's gas operations that had previously been deferred. In October 2001, as a result of the annual review, the SCPSC approved the Company's request to increase the billing surcharge from 1.1cents per therm to 3.0 cents per therm, which is intended to provide for the recovery of the balance remaining at March 31, 2002 ($21.5 million) prior to the end of the year 2005. 3. LONG-TERM DEBT On January 31, 2002 the Company issued $300 million of first mortgage bonds having an annual interest rate of 6.625 percent and maturing February 1, 2032. The proceeds from the sale of these bonds were used to reduce short-term debt primarily incurred as a result of the Company's construction program and to redeem on March 11, 2002 its First and Refunding Mortgage Bonds, 8 7/8 percent Series due August 15, 2021. 4. RETAINED EARNINGS The Company's Restated Articles of Incorporation 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 March 31, 2002 approximately $38 million of retained earnings were restricted by this requirement as to payment of cash dividends on common stock. 5. COMMITMENTS AND CONTINGENCIES Reference is made to Note 12 of Notes to Consolidated Financial Statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2001. Commitments and Contingencies at March 31, 2002 include the following: A. Lake Murray Dam Reinforcement On October 15, 1999 the Federal Energy Regulatory Commission (FERC) notified the Company of its agreement with the Company's plan to reinforce Lake Murray Dam in order to maintain the lake in case of an extreme earthquake. Construction for the project and related activities, which began in the third quarter of 2001, is expected to cost approximately $250 million and be completed in 2005. Any costs incurred by the Company are expected to be recoverable through electric rates. B. 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 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 Santee Cooper) with Nuclear Electric Insurance Limited. The 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, the Company's portion of the retrospective premium assessment would not exceed $15.5 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 would have a material adverse impact on the Company's results of operations, cash flows and financial position. C. Environmental The Company maintains an environmental assessment program to identify and evaluate current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the amount of 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. Deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $25.9 million at March 31, 2002. The deferral includes the estimated costs associated with the following matters. In September 1992 the Environmental Protection Agency (EPA) notified the Company, among others, of its 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 various industrial operations, including one of the Company's decommissioned MGPs. Field work at the site began in November 1993 and has required the submission of several investigative reports and the implementation of several work plans. In September 2000, the Company was notified by the South Carolina Department of Health and Environmental Control (DHEC) that benzene contamination was detected in the intermediate aquifer on surrounding properties of the Calhoun Park area site. The EPA required that the Company conduct a focused Remedial Investigation/Feasibility Study on the intermediate aquifer, which was completed in June 2001. The EPA expects to issue a Record of Decision dealing with the intermediate aquifer and sediments in June 2002. The Company anticipates that major remediation activities will be completed in 2003, with certain monitoring activities continuing until 2007. As of March 31, 2002, the Company has spent approximately $170 million to remediate the Calhoun Park area site. Total remediation costs are estimated to be $21.9 million. The Company owns three other decommissioned MGP sites in South Carolina which contain residues of by-product chemicals. Two of these sites are currently being remediated under work plans approved by DHEC. The Company is continuing to investigate the remaining site and is monitoring the nature and extent of residual contamination. The Company anticipates that major remediation activities for these three sites will be completed between 2003-2005. The Company has spent approximately $2.0 million related to these sites and expects to incur an additional $6.0 million. 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 reportable 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. Accumulated depreciation is not assignable to the Company's segments. The Electric Operations segment is comprised of the electric portion of the Company and Fuel Company and is primarily engaged in the generation, transmission, and distribution of electricity. The Company's electric service territory extends into 24 counties covering more than 15,000 square miles in the central, southern, and southwestern portions of South Carolina. Sales of electricity to industrial, commercial, and residential customers are regulated by the SCPSC and by FERC. Fuel Company acquires, owns, and provides financing for the fuel and emission allowances required for the operation of the Company's generation facilities. The Gas Distribution segment, comprised of the local distribution operations of the Company, is engaged in the purchase and sale, primarily at retail, of natural gas. The Company's operations extend to 33 counties in South Carolina covering approximately 22,000 square miles. The Company's reportable segments share a similar regulatory environment and, in some cases, overlapping service areas. However, Electric Operations' product differs from Gas Distribution's, as does the generation process and method of distribution. Disclosure of Reportable Segments (Millions of Dollars) - -------------------------------- ------------ ---------------------------------- Three months ended Electric Gas All Adjustments/ Consolidated March 31, 2002 Operations Distribution Other Eliminations Total - -------------------------------- ------------ ---------------------------------- External Revenue $304 $107 - - $411 Intersegment Revenue 52 - - $(52) - Operating Income (Loss) 84 16 - (1) 99 Segment Assets 5,124 431 $4 (500) 5,059 - ------------------------------------------ ------------ ------------------------ Three months ended Electric Gas All Adjustments/ Consolidated March 31, 2001 Operations Distribution Other Eliminations Total - --------------------------------- ------------ --------------------------------- External Revenue $342 $157 - - $499 Intersegment Revenue 47 - - $(47) - Operating Income (Loss) 89 22 - (1) 110 Segment Assets 4,707 419 5 (441) 4,690 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, 2001. Statements included in this discussion and analysis (or elsewhere in this annual 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, especially in SCE&G's service territory, (4) the impact of competition from other energy suppliers, (5) growth opportunities, (6) the results of financing efforts, (7) changes in SCE&G's accounting policies, (8) weather conditions, especially in areas served by SCE&G, (9) inflation, (10) changes in environmental regulations and (11) the other risks and uncertainties described from time to time in SCE&G's periodic reports filed with the SEC. SCE&G disclaims any obligation to update any forward-looking statements. COMPETITION Electric Operations In South Carolina electric restructuring efforts remain stalled, and consideration of electric restructuring legislation is unlikely in 2002. Further, while several companies have announced their intent to site merchant generating plants in SCE&G's service territory, economic events, environmental concerns and other factors have slowed those efforts. At the Federal level, energy legislation has passed both houses of Congress in 2002, though significant differences exist between the House and Senate versions. Among other things, this legislation would require that one percent of the electric energy sold by retail electric suppliers be generated from renewable energy resources beginning in 2005. This requirement would gradually escalate to ten percent in 2019. Substantial penalties would be levied for failure to comply. Electric cooperatives and municipal utilities would be exempt from these requirements. SCE&G is not able to predict whether this or similar legislation or regulatory action will be enacted and, if they are, the impact they will have on SCE&G. LIQUIDITY AND CAPITAL RESOURCES SCE&G's cash requirements arise primarily from its operational needs, funding its construction program and payment of dividends to SCANA. The ability of SCE&G to replace existing plant investment, as well as to expand to meet future demand for electricity and gas, will depend upon its ability to attract the necessary financial capital on reasonable terms. SCE&G recovers the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and SCE&G continues its ongoing construction program, SCE&G expects to seek increases in rates. SCE&G's future financial position and results of operations will be affected by its ability to obtain adequate and timely rate and other regulatory relief, if requested. The following table summarizes how SCE&G generated and used funds for property additions and construction expenditures during the three months ended March 31, 2002 and 2001: - -------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------- ----------- Net cash provided from operating activities $26 $35 Net cash provided from for financing activities 80 8 Cash and temporary cash investments available at the beginning of the period 78 60 - -------------------------------------------------------------------- ----------- Net cash available for utility property additions and construction expenditures $184 $103 ==================================================================== =========== Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $103 $64 ==================================================================== =========== SCE&G anticipates that the remainder of its 2002 cash requirements will be met through internally generated funds and the incurrence of additional short-term and long-term indebtedness. SCE&G 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. SCE&G's ratio of earnings to fixed charges for the 12 months ended March 31, 2002 was 3.69. On January 31, 2002 SCE&G issued $300 million of first mortgage bonds having an annual interest rate of 6.625 percent and maturing February 1, 2032. The proceeds from the sale of these bonds were used to reduce short-term debt primarily incurred as a result of SCE&G's construction program and to redeem on March 11, 2002 its First and Refunding Mortgage Bonds, 8 7/8 percent Series due August 15, 2021. SCE&G is constructing a $256 million gas turbine generator project in Aiken County, South Carolina. Two combined-cycle turbines will burn natural gas to produce 300 megawatts of new electric generation and use exhaust heat to replace coal-fired steam that powers two existing 75 megawatt turbines at the Urquhart Generating Station. The turbine project is scheduled to be completed by June 2002. In October 1999 FERC notified SCE&G of its agreement with SCE&G's plan to reinforce Lake Murray Dam in order to maintain the lake in case of an extreme earthquake. Construction for the project and related activities, which began in the third quarter of 2001, is expected to cost approximately $250 million and be completed in 2005. Any costs incurred by SCE&G are expected to be recoverable through electric rates. In May 2002 SCE&G began construction of an 875 megawatt generation facility in Jasper County, South Carolina, to supply electricity to its South Carolina customers. The facility will include three natural gas combustion-turbine generators and one steam-turbine generator. The $450 million facility is expected to begin commercial operation in the summer of 2004 and will be supplied with natural gas by SCG Pipeline, Inc., an affiliate. In connection with the facility, SCE&G has signed a 250 megawatt electric supply contract with North Carolina Electric Membership Corporation for a term of at least nine years beginning January 1, 2004. Environmental Matters For information on environmental matters see Note 5C of Notes To Condensed Consolidated Financial Statements. Transit SCE&G and the City of Columbia (City) have entered into an agreement whereby a regional transit authority will take over operation of SCE&G's transit system effective August 31, 2002. As part of the agreement, SCE&G will pay the City $32 million over seven years in exchange for a 30-year electric and gas franchise, will convey transit- related property and equipment to the City and will convey the historic Columbia Canal and Hydroelectric Plant to the City. The transaction is subject to various approvals by Federal and State regulatory agencies. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AS COMPARED TO THE CORRESPONDING PERIOD IN 2001 Earnings and Dividends Net income components for the three months ended March 31, 2002 and 2001 were as follows: ----------------------------------------------------------------------------- Three Months Ended Millions of dollars 2002 2001 Change ----------------------------------------------------------- ---------------- Net income derived from operations $52.0 $53.5 $(1.5) (2.8)% ----------------------------------------------------------- ------- --------- Net income from operations for the three months ended March 31, 2002 decreased primarily due to milder weather, an increase in other operation and maintenance expense and a weak economy, which were partially offset by customer growth. For the last several years, the market value of the Company's retirement plan assets has exceeded the total actuarial present value of accumulated plan benefits. Pension income for the three months ended March 31, 2002 was $6.4 million, compared to $9.2 million for the corresponding period in 2001. As a result of pension income, employee benefit expenses were reduced approximately $3.4 million for the three months ended March 31, 2002. For the corresponding period in 2001, employee benefit expenses were reduced approximately $4.8 million. Additionally, other income increased $2.0 million for the three months ended March 31, 2002. For the corresponding period in 2001, other income increased $3.0 million. 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 eleven percent and four percent of income before income taxes for the three months ended March 31, 2002 and 2001, respectively. The increase in AFC for the three months ended March 31, 2002 compared to the corresponding period in 2001, is primarily the result of increased construction expenditures related to the gas turbine generator project and the Lake Murray Dam project (see discussion at LIQUIDITY AND CAPITAL RESOURCES). SCE&G's Board of Directors declared the following quarterly dividends on common stock held by SCANA, during 2002: - --------------------- ------------------- ---------------------- --------------- Declaration Date Dividend Amount Quarter Ended Payment Date - --------------------- ------------------- ---------------------- --------------- - --------------------- February 21, 2002 $34.0 million March 31, 2002 April 1, 2002 - --------------------- May 2, 2002 $38.0 million June 30, 2002 July 1, 2002 - --------------------- ------------------- ---------------------- --------------- Electric Operations Electric Operations is comprised of the electric portion of SCE&G and South Carolina Fuel Company. Changes in the electric operations sales margins for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: - ---------------------------------------------------------------------------- Three Months Ended Millions of dollars 2002 2001 Change - -------------------------------------- ------------ ------------------------ Electric operating revenue $304.3 $341.5 $(37.2) (10.9)% Less: Fuel used in generation 55.4 50.0 10.8% 5.4 Purchased power 32.9 74.6 (41.7) (55.9)% - ------------------------------- ----------- -------- ----------- Margin $216.0 $216.9 $(0.9) (0.4)% ======================================= =========== =========== ============ Changes in electric operations sales margins for the three months ended March 31, 2002 reflect milder weather, which was partially offset by customer growth. Higher purchased power costs during 2001 related primarily to plant outages for repairs and maintenance. Operating revenue decreased due to the effects of milder weather. Gas Distribution Gas Distribution is comprised of the local distribution operations of SCE&G. Changes in the gas distribution sales margins for the three months ended March 31, 2002, when compared to the corresponding period in 2001, were as follows: - ---------------------------------------------------------------------------- Three Months Ended Millions of dollars 2002 2001 Change - -------------------------------------------- --------- --------------------- Gas operating revenue $107.1 $157.1 $(50.0) (31.8)% Less: Gas purchased for resale 72.7 118.9 (46.2) (38.9)% - ---------------------------------- ---------- ---------- --------- Margin $34.4 $38.2 $(3.8) (9.9)% ============================================ ========= ========== ========== Gas distribution sales margins for the three months ended March 31, 2002 reflect milder weather and a weak economy. Revenues and purchases for the three months ended March 31, 2002 were impacted by extremely high commodity natural gas prices in early 2001. The increased cost of gas was passed on to customers as discussed in Note 2 in Notes To Condensed Consolidated Financial Statements. Other Operating Expenses Changes in other operating expenses for the three months ended March 31, 2002 when compared to the corresponding period in 2001, were as follows: - ------------------------------------------------------------------------------- Three Months Ended Millions of dollars 2002 2001 Change - ------------------------------------------- ----------- ----------------------- Other operation and maintenance $82.8 $78.9 $3.9 4.9% Depreciation and amortization 41.5 40.5 1.0 2.5% Other taxes 26.5 25.6 0.9 3.5% - ------------------------------------ ----------- ------- ----------- Total $150.8 $145.0 $5.8 4.0% =========================================== =========== =========== =========== Other operating expenses for the three months ended March 31, 2002 increased primarily as a result of higher property insurance costs and reduced pension income in 2002. The increase in depreciation and amortization expenses for the three months ended March 31, 2002 resulted primarily from normal property additions. Other taxes increased primarily as a result of increased property taxes. Other Income Other income for the three months ended March 31, 2002 increased when compared to the corresponding period in 2001, primarily as a result of the increase in the equity component of AFC (see AFC discussion at Earnings and Dividends). Income Taxes Income taxes for the three months ended March 31, 2002 decreased when compared to the corresponding period in 2001, primarily as a result of the change in operating income. Item 3. Quantitative and Qualitative Disclosures About Market Risk All financial instruments held by SCE&G and described below are held for purposes other than trading. Interest rate risk - The table below provides information about SCE&G's financial instruments that are sensitive to changes in interest rates. For debt obligations the table presents principal cash flows and related weighted average interest rates by expected maturity dates. As of March 31, 2002 Millions of dollars Expected Maturity Date There- Fair Liabilities 2002 2003 2004 2005 2006 after Total Value - -------------------------------------- ----------------------------------------- - -------------------------------------- ----------------------------------------- Long-Term Debt: Fixed Rate ($) 26.1 129.7 123.9 173.9 154.6 1,147.8 1,756.0 1,717.7 Average Interest Rate 6.74 6.37 7.52 7.40 8.66 6.91 7.12 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. PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED FINANCIAL SECTION PART I. FINANCIAL INFORMATION Item 1. Financial Statements. -------------------- PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - -------------------------------------------------------------------------------- March 31, December 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------------------- Assets Gas Utility Plant 863 $855 Less accumulated depreciation 296 288 Acquisition adjustment, net of accumulated amortization 439 439 - -------------------------------------------------------------------------------- Gas Utility Plant, Net 1,006 1,006 - -------------------------------------------------------------------------------- Nonutility Property and Investments, Net 29 29 - -------------------------------------------------------------------------------- Current Assets: Cash and temporary investments 55 18 Restricted cash and temporary investments 2 2 Receivables (net of allowance for uncollectible accounts of $2 for 2002 and $1 for 2001) 55 70 Receivables - affiliated companies 10 12 Inventories (at average cost): Stored gas 27 47 Materials and supplies 8 8 - -------------------------------------------------------------------------------- Total Current Assets 157 157 - -------------------------------------------------------------------------------- Deferred Charges and Other Assets: Due from affiliate-pension asset 11 11 Regulatory assets 11 11 Other 9 7 - -------------------------------------------------------------------------------- Total Deferred Charges and Other Assets 31 29 - -------------------------------------------------------------------------------- Total $1,223 $1,221 ================================================================================ ================================================================================ Capitalization and Liabilities Capitalization: Common equity $731 $715 Long-term debt, net 290 290 - -------------------------------------------------------------------------------- Total Capitalization 1,021 1,005 - -------------------------------------------------------------------------------- Current Liabilities: Current portion of long-term debt 4 4 Accounts payable 20 41 Accounts payable -affiliated companies 7 10 Taxes accrued 14 5 Customer prepayments and deposits 15 17 Dividends declared and interest accrued 9 6 Other 3 3 - -------------------------------------------------------------------------------- Total Current Liabilities 72 86 - -------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Deferred income taxes, net 86 86 Deferred investment tax credits 2 2 Due to affiliate-postretirement benefits 12 11 Regulatory liabilities 11 14 Other 19 17 - -------------------------------------------------------------------------------- Total Deferred Credits and Other Liabilities 130 130 - -------------------------------------------------------------------------------- Total $1,223 $1,221 ================================================================================ See Notes to Condensed Consolidated Financial Statements. PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ------------------------------------------------------------------ Three Months Ended March 31, Millions of dollars 2002 2001 -------------------------------------------------- --------------- Operating Revenues $134 $228 Cost of Gas 67 160 -------------------------------------------------- --------------- Gross Margin 67 68 -------------------------------------------------- --------------- Operating Expenses: Operation and maintenance 18 17 Depreciation and amortization 9 10 Other taxes 2 2 -------------------------------------------------- --------------- Total Operating Expenses 29 29 -------------------------------------------------- --------------- Operating Income 38 39 Other Income, net 2 1 Interest Charges 6 5 -------------------------------------------------- --------------- Income Before Income Taxes 34 35 Income Taxes 13 15 -------------------------------------------------- --------------- Net Income $21 $20 ================================================== =============== See Notes to Condensed Consolidated Financial Statements. PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - -------------------------------------------------------------------------------- Three Months Ended March 31, Millions of dollars 2002 2001 - -------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $21 $20 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 10 12 Excess distributions (undistributed earnings) of investee - (1) Over (under) collection, fuel adjustment clause (3) 13 Changes in certain assets and liabilities: (Increase) decrease in receivables, net 16 12 (Increase) decrease in inventories 20 10 (Increase) decrease in regulatory assets - (75) Increase (decrease) in accounts payable and advances (24) (5) Increase (decrease) in deferred income taxes, net - 1 Increase (decrease) in accrued taxes 9 18 Other, net (3) 2 - -------------------------------------------------------------------------------- Net Cash Provided From Operating Activities 46 7 - -------------------------------------------------------------------------------- Cash Flows From Investing Activities: Construction expenditures (9) (11) Investments - 5 Nonutility and other - 2 - -------------------------------------------------------------------------------- Net Cash Used For Investing Activities (9) (4) - -------------------------------------------------------------------------------- Cash Flows From Financing Activities: Issuance of medium-term notes - 149 Repayment of short-term borrowings, net - (125) Cash dividends - (4) - -------------------------------------------------------------------------------- Net Cash Provided From Financing Activities - 20 - -------------------------------------------------------------------------------- Net Increase In Cash and Temporary Investments 37 23 Cash and Temporary Investments, January 1 18 8 - -------------------------------------------------------------------------------- Cash and Temporary Investments, March 31 $55 $31 ================================================================================ Supplemental Cash Flow Information: Cash paid for - Interest (net of capitalized interest of $0.2 for 2002 and $0.3 for 2001) $6 $2 - Income taxes 4 - See Notes to Condensed Consolidated Financial Statements. 47 PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2002 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in Public Service Company of North Carolina, Incorporated's (the Company) Annual Report on Form 10-K for the year ended December 31, 2001. These are interim financial statements, and due to the seasonality of the Company's business, the amounts reported in the Condensed 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 Note 2 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 (SFAS) 71. This 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 March 31, 2002 approximately $11 million and $11 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax liabilities of approximately $0.4 million. The North Carolina Utilities Commission (NCUC) has reviewed and approved most of the items shown as regulatory assets through specific orders. Other items represent costs which are not yet approved for recovery by the NCUC, but are the subject of current or future filings. In recording these costs as regulatory assets, management believes the costs will be allowable under existing rate-making concepts that are embodied in current rate orders received by the Company. 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 the write-off would be recorded, but it is not expected that cash flows or financial position would be materially affected. B. New Accounting Standards The Company adopted SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. SFAS 141 requires all future acquisitions to be accounted for utilizing the purchase method. The Company considers the amounts categorized by the Federal Energy Regulatory Commission (FERC) as "acquisition adjustments" to be goodwill as defined in SFAS 142 and ceased amortization of such amounts upon the adoption of SFAS 142. For the year ended December 31, 2001, the amount of such amortization expense recorded was $13 million. The Company has no other intangible assets subject to amortization as provided in SFAS 142. As required by the provisions of SFAS 142, the Company is performing an initial valuation analysis to determine whether this carrying amount is impaired and, if so, the amount of any write-down which might be recorded as the cumulative effect of the change in accounting principle. As allowed by the Statement, the Company will have completed the initial stage of the analysis by June 30, 2002. If a write-down is indicated by the analysis, it will be quantified and recorded by the end of 2002. Because the Company is in the early stages of the analysis, the effect, if any, of the adoption of the impairment provisions of the Statement is not known; however, if a write-down is considered necessary, it could be material to the Company's results of operations for 2002. SFAS 143, "Accounting for Asset Retirement Obligations," provides guidance for recording and disclosing a liability related to the future obligation to retire an asset. The Company will adopt SFAS 143 effective January 1, 2003. The impact SFAS 143 may have on the Company's results of operations, cash flows or financial position has not been determined but could be material. The provisions of SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," were effective January 1, 2002. This Statement requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. There was no impact on the Company's financial statements for the initial adoption of SFAS 144. C. Reclassifications Certain amounts from prior periods have been reclassified to conform with the presentation adopted for 2002. 2. RATE AND OTHER REGULATORY MATTERS The Company's rates are established using a benchmark cost of gas approved by the NCUC, which may be modified periodically to reflect changes in the market price of natural gas and changes in the rates charged by the Company's pipeline transporters. The Company may file revised tariffs with the NCUC coincident with these changes or it may track the changes in its deferred accounts for subsequent rate consideration. The NCUC reviews the Company's gas purchasing practices annually. The Company's benchmark cost of gas in effect during the period January 1, 2001 through March 31, 2002 was as follows: Rate Per Therm Effective Date $.690 January 2001 $.750 February-March 2001 $.650 April-August 2001 $.500 September-October 2001 $.350 November-December 2001 $.300 January 2002 $.215 February-March 2002 A state expansion fund, established by the North Carolina General Assembly in 1991 and funded by refunds from the Company's interstate pipeline transporters, provides financing for expansion into areas that otherwise would not be economically feasible to serve. On December 30, 1999 the Company filed an application with the NCUC to extend natural gas service to Madison, Jackson and Swain Counties, North Carolina. On June 29, 2000 the NCUC approved the Company's requests for disbursement of up to $28.4 million from the Company's expansion fund for this project. The Company estimates that the cost of this project will be approximately $31.4 million. The Madison County portion of the project was completed at a cost of approximately $5.8 million and customers began receiving service in July 2001. On December 7, 1999 the NCUC issued an order approving SCANA's acquisition of the Company. As specified in the NCUC order, the Company reduced its rates by approximately $1 million in each of August 2000 and August 2001, and agreed to a moratorium on general rate cases until August 2005. General rate relief can be obtained during this period to recover costs associated with materially adverse governmental actions and force majeure events. 3. FINANCIAL INSTRUMENTS Effective January 1, 2001 the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS 133 requires the Company to recognize all derivative instruments as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. SFAS 133 further provides that changes in fair value of derivative instruments are either recognized in earnings or reported as other comprehensive income, depending upon the intended use of the derivative and the resulting designation. The impact on the Company of adopting SFAS 133 was not material. In December 2001 the Company entered into two interest rate swap agreements to pay variable rates and receive fixed rate interest payments on a combined notional amount of $44.9 million. These swaps were designated as fair value hedges of the Company's $12.9 million, 10% senior debenture due 2004 and $32.0 million, 8.75% senior debenture due 2012. At March 31, 2002 the fair value of these swaps was not significant. The fair value of these interest rate swaps is reflected within other deferred debits on the balance sheet. The corresponding hedged fair value change of the debt is also recorded on the balance sheet. The receipts or payments related to the interest rate swaps are credited or charged to interest expense as incurred. 4. COMMITMENTS AND CONTINGENCIES The Company owns, or has owned, all or portions of seven sites in North Carolina on which manufactured gas plants (MGPs) were formerly operated. Intrusive investigation (including drilling, sampling and analysis) has begun at two sites, 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 Company estimates that the cost to remediate the sites would range between $11.3 million and $21.9 million. The estimated cost range has not been discounted to present value. The Company'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 potentially responsible parties (PRPs). At March 31, 2002 the Company has recorded a liability and associated regulatory asset of $9.0 million, which reflects the minimum amount of the range, net of shared cost recovery expected from other PRPs and expenditures for work completed. Amounts incurred to date are approximately $1.2 million. Management believes that all costs incurred will be recoverable through gas rates. 5. SEGMENT OF BUSINESS INFORMATION Gas Distribution is the Company's only reportable segment. Gas Distribution uses operating income to measure profitability. Intersegment revenues between Gas Distribution and nonreportable segments were not significant. Disclosure of Reportable Segments (Millions of Dollars) ---------------------------------------------------------------------------- Three months ended Gas All Adjustments/ Consolidated March 31, 2002 Distribution Other Eliminations Total ---------------------------------------------------------------------------- External Revenue $134 - - $134 Operating Income 38 n/a - 38 Segment Assets 1,202 $29 $(8) 1,223 ---------------------------------------------------------------------------- Three months ended Gas All Adjustments/ Consolidated March 31, 2001 Distribution Other Eliminations Total ---------------------------------------------------------------------------- External Revenue $228 - - $228 Operating Income 39 n/a - 39 Segment Assets 1,232 $29 $(25) 1,236 58 Item 2. Management's Narrative Analysis of Results of Operations. --------------------------------------------------------- PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS The following discussion should be read in conjunction with Management's Narrative Analysis of Results of Operations appearing in Public Service Company of North Carolina, Incorporated's (PSNC) Annual Report on Form 10-K for the year ended December 31, 2001. Statements included in this narrative analysis (or elsewhere in this annual 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, especially in PSNC's service territory, (4) the impact of competition from other energy suppliers, (5) growth opportunities, (6) the results of financing efforts, (7) changes in PSNC's accounting policies, (8) weather conditions, especially in areas served by PSNC, (9) inflation, (10) changes in environmental regulations, and (11) the other risks and uncertainties described from time to time in PSNC's periodic reports filed with the SEC. PSNC disclaims any obligation to update any forward-looking statements. Net Income and Dividends Net income for the three months ended March 31, 2002 and 2001 was as follows: Millions of dollars 2002 2001 - ----------------------------------------------------------------------------- Net income derived from continuing operations $20.8 $20.3 ============================================================================= The increase in net income from continuing operations reflects the elimination of the amortization of the acquisition adjustment in the amount of $3.3 million (see Note 1B of Notes to Condensed Consolidated Financial Statements). The increase was partially offset by reduced margin, higher operating expenses, and increased interest expense. The nature of PSNC's business is seasonal. The quarters ending March 31 and December 31 are generally PSNC's most profitable quarters due to increased demand for natural gas related to higher space heating requirements. PSNC's Board of Directors authorized payment of dividends on common stock held by SCANA as follows: Declaration Date Dividend Amount Quarter Ended Payment Date - ---------------- --------------- ------------- ------------ February 21, 2002 $5.0 million March 31, 2002 April 1, 2002 May 2, 2002 $4.0 million June 30, 2002 July 1, 2002 Gas Distribution Gas distribution sales margins for 2002 and 2001 were as follows: Millions of dollars 2002 2001 Change % Change ----------------------------------------------------------------------------- Operating revenues $133.9 $228.4 $(94.5) (41.4)% Less: Cost of gas 67.4 160.6 (58.0)% (93.2) --------------------------------------------------------- Gross margin $ 66.5 $ 67.8 $ (1.9)% (1.3) ============================================================================= Gas distribution sales margin for the quarter ended March 31, 2002 decreased primarily as a result of lower natural gas usage and the effects of a $1 million reduction in rates in August 2001 related to the acquisition of PSNC by SCANA. The decrease in sales margin was partially offset by customer growth. Operation and Maintenance Expenses The $1.3 million increase in operation and maintenance expenses from 2001 is primarily due to higher labor costs. Depreciation Expense Depreciation expense decreased due to the elimination of the amortization of the acquisition adjustment in the amount of $3.3 million (see Note 1B of Notes to Condensed Consolidated Financial Statements). The decrease is partially offset by additions to plant. Interest Expense Interest expense increased $0.5 million over 2001 as a result of increased borrowings. PSNC issued $150 million of medium-term notes on February 16, 2001. The proceeds from these borrowings were used to reduce short-term debt. Capital Expansion Program and Liquidity Matters PSNC's capital expansion program includes the construction of lines, systems and facilities and the purchase of related equipment. PSNC's 2002 construction budget is approximately $41 million, compared to actual construction expenditures for 2001 of $75.3 million. PSNC's ratio of earnings to fixed charges for the 12 months ended March 31, 2002 was 2.3. In late 2001 PSNC entered into two interest rate swap agreements to pay variable rates and receive fixed rates on a combined notional amount of $44.9 million. (See Note 3 of Notes to Condensed Consolidated Financial Statements.) PART II. OTHER INFORMATION Item 1. Legal Proceedings SCANA Corporation: For information regarding legal proceedings see Notes 4 and 13 of Notes To Consolidated Financial Statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and Note 2 and Note 6 of Notes To Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. South Carolina Electric & Gas Company: For information regarding legal proceedings see Notes 3 and 12, of Notes To Consolidated Financial Statements appearing in South Carolina Electric & Gas Company's Annual Report on Form 10-K for the year ended December 31, 2001, and Note 2 and Note 5 " of Notes To Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. Public Service Company of North Carolina, Incorporated: For information regarding legal proceedings see Notes 5 and 11 of Notes To Consolidated Financial Statements appearing in Public Service Company of North Carolina, Incorporated's Annual Report on Form 10-K for the year ended December 31, 2001, and Note 2 and Note 4 of Notes To Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. Item 2, 3, 4 and 5 are not applicable. Item 6. Exhibits and Reports on Form 8-K A. Exhibits SCANA Corporation, South Carolina Electric & Gas Company and Public Service Company of North Carolina, Incorporated: 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 first quarter 2002 were as follows: SCANA Corporation: Date of Report: January 23, 2002 Item reported: Item 7 South Carolina Electric & Gas Company: None Public Service Company of North Carolina, Incorporated: 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) May 15, 2002 By: s/James E. Swan, IV ------------------------------ James E. Swan, IV 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) May 15, 2002 By: s/James E. Swan, IV ------------------------------------ James E. Swan, IV Controller (Principal accounting officer) PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED 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. PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED (Registrant) May 15, 2002 By: s/James E. Swan, IV ------------------------------------ James E. Swan, IV Controller (Principal accounting officer) EXHIBIT INDEX Exhibit Applicable to Form 10-Q of No. SCANA SCE&G PSNC 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 on Form S-4) 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 Articles of Amendment of SCANA, dated April 27, 1995 (Filed as Exhibit 4-B to Registration Statement No. 33-62421) 3.03 X Restated Articles of Incorporation of SCE&G, as adopted on May 3, 2001 (Filed as Exhibit 3.01 to Registration Statement No. 333-65460) 3.04 X Articles of Amendment of SCE&G dated May 22, 2001 (Filed as Exhibit 3.02 to Registration Statement No. 333-65460) 3.05 X Articles of Correction of SCE&G dated June 1, 2001 (Filed as Exhibit 3.03 to Registration Statement No. 333-65460) 3.06 X Articles of Amendment of SCE&G dated June 14, 2001 (Filed as Exhibit 3.04 to Registration Statement No. 333-65460) 3.07 X Articles of Amendment of SCE&G dated August 30, 2001 (Filed as Exhibit 3.07 to Form 10-Q for the quarter ended September 30, 2001) 3.08 X Articles of Incorporation of PSNC (formerly New Sub II, Inc.) dated February 12, 1999 (Filed as Exhibit 3.01 to Registration Statement No. 333-45206) 3.09 X Articles of Amendment of PSNC (formerly New Sub II, Inc.) as adopted on February 10, 2001 (Filed as Exhibit 3.02 to Registration Statement No. 333-45206) 3.10 X Articles of Correction of PSNC dated February 11, 2001 (Filed as Exhibit 3.03 to Registration Statement No. 333-45206) 3.11 X Articles of Amendment of SCE&G dated March 13, 2002 (Filed as Exhibit 3.11 to Form 10-K for the year ended December 31, 2001) 3.12 X Articles of Amendment of SCE&G dated May 9, 2002 (Filed herewith) 3.13 X By-Laws of SCANA as revised and amended on December 13, 2001 (Filed as Exhibit 3.01 to Registration Statement No. 333-68266) 3.14 X By-Laws of SCE&G as amended and adopted on February 22, 2001 (Filed as Exhibit 3.05 to Registration Statement No. 333-65460) 3.15 X By-Laws of PSNC (formerly New Sub II, Inc.) as revised and amended on February 22, 2001 (Filed as Exhibit 3.01 to Registration Statement No. 333-68516) EXHIBIT INDEX Exhibit Applicable to Form 10-Q of No. SCANA SCE&G PSNC Description 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 Company, as Trustee, as supplemented by three 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 Indentures to Indenture referred to in Exhibit 4.03 dated as of the dates indicated below and filed as exhibits to the Registration Statements whose file numbers are set forth below - ------ December 1, 1950 Exhibit 2-D to Registration No. 2-26459 July 1, 1951 Exhibit 2-E to Registration No. 2-26459 June 1, 1953 Exhibit 2-F to Registration No. 2-26459 June 1, 1955 Exhibit 2-G to Registration No. 2-26459 November 1, 1957 Exhibit 2-H to Registration No. 2-26459 September 1, 1958 Exhibit 2-I to Registration No. 2-26459 September 1, 1960 Exhibit 2-J to Registration No. 2-26459 June 1, 1961 Exhibit 2-K to Registration No. 2-26459 December 1, 1965 Exhibit 2-L to Registration No. 2-26459 June 1, 1966 Exhibit 2-M to Registration No. 2-26459 June 1, 1967 Exhibit 2-N to Registration No. 2-29693 September 1, 1968 Exhibit 4-O to Registration No. 2-31569 June 1, 1969 Exhibit 4-C to Registration No. 33-38580 December 1, 1969 Exhibit 4-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 - ------ EXHIBIT INDEX Exhibit Applicable to Form 10-Q of No. SCANA SCE&G PSNC Description 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 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 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 NatisBank 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 4.06 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 4.06 dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955) - ------------ 4.09 X X Trust Agreement for SCE&G Trust I (Filed as Exhibit 4.03 to Registration Statement No. 333-49960) - ------------ 4.10 X X Certificate of Trust of SCE&G Trust I (Filed as Exhibit 4.04 to Registration Statement No. 333-49960) - ------------ 4.11 X X Junior Subordinated Indenture for SCE&G Trust I (Filed as Exhibit 4.05 to Registration Statement No. 333-49960) - ------------ 4.12 X X Guarantee Agreement for SCE&G Trust I (Filed as Exhibit 4.06 to Registration Statement No. 333-49960) - ------------ 4.13 X X Amended and Restated Trust Agreement for SCE&G Trust I (Filed as Exhibit 4.07 to Registration Statement No. 333-49960) - ------------ 4.14 X X Indenture dated as of January 1, 1996 between PSNC and First Union National Bank of North Carolina, as Trustee (Filed as Exhibit 4.08 to Registration Statement No. 333-45206) - ------------ 4.15 X X First Supplemental Indenture dated as of January 1, 1996, between PSNC and First Union National Bank of North Carolina, as Trustee (Filed as Exhibit 4.09 to Registration Statement No. 333-45206) - ------------ 4.16 X X Second Supplemental Indenture dated as of December 15, 1996 between PSNC and First Union National Bank of North Carolina, as Trustee (Filed as Exhibit 4.10 to Registration Statement No. 333-45206) - ------------ EXHIBIT INDEX Exhibit Applicable to Form 10-Q of No. SCANA SCE&G PSNC Description 4.17 X X Third Supplemental Indenture dated as of February 10, 2001 between PSNC and First Union National Bank of North Carolina, as Trustee (Filed as Exhibit 4.11 to Registration Statement No. 333-45206) 4.18 X X Fourth Supplemental Indenture dated as of February 12, 2001 between PSNC and First Union National Bank of North Carolina, as Trustee (Filed as Exhibit 4.05 to Registration Statement No. 333-68516) - -------- 4.19 X PSNC $150 million medium-term note issued February 16, 2001 (Filed as Exhibit 4.06 to Registration Statement No. 333-68516) - -------- 10.01 X SCANA Executive Deferred Compensation Plan as amended July 1, 2001 (Filed as Exhibit 10.01 to Form 10-Q for the quarter ended September 30, 2001) - -------- 10.02 X SCANA Supplemental Executive Retirement Plan as amended July 1, 2001 (Filed as Exhibit 10.02 to Form 10-Q for the quarter ended September 30, 2001) - -------- 10.03 X SCANA Key Executive Severance Benefits Plan as amended July 1, 2001 (Filed as Exhibit 10.03 to Form 10-Q for the quarter ended September 30, 2001) - -------- 10.03a X SCANA Supplementary Key Executive Severance Benefits Plan as amended July 1, 2001 (Filed as Exhibit 10.03a to Form 10-Q for the quarter ended September 30, 2001) - -------- 10.04 X SCANA Performance Share Plan as amended and restated effective January 1, 1998 (Filed as Exhibit 10 (e) to Registration Statement No. 333-86803) - -------- 10.05 X SCANA Long-Term Equity Compensation Plan dated January 2001 filed as Exhibit 4.04 to Registration Statement No. 333-37398) - -------- 10.06 X Description of SCANA Whole Life Option (Filed as Exhibit 10-F to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 10.07 X Description of SCANA Corporation Executive Annual Incentive Plan (Filed as Exhibit 10-G to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 10.08 X SCANA Corporation Director Compensation and Deferral Plan effective January 1, 2001 (Filed as Exhibit 10.05 to Registration Statement No. 333-49960) EXHIBIT INDEX Exhibit Applicable to Form 10-Q of No. SCANA SCE&G PSNC Description 10.09 X Operating Agreement of Pine Needle LNG Company, LLC dated August 8, 1995 (Filed as Exhibit 10.01 to Registration Statement No. 333-45206) 10.10 X Amendment to Operating Agreement of Pine Needle LNG Company, LLC dated October 1, 1995 (Filed as Exhibit 10.02 to Registration Statement No. 333-45206) 10.11 X Amended Operating Agreement of Cardinal Extension Company, LLC dated December 19, 1996 (Filed as Exhibit 10.03 to Registration Statement No. 333-45206) 10.12 X Amended Construction, Operation and Maintenance Agreement by and between Cardinal Operating Company and Cardinal Extension Company, LLC dated December 19, 1996 (Filed as Exhibit 10.04 to Registration Statement No. 333-45206) 10.13 X Form of Severance Agreement between PSNC and its Executive Officers (Filed as Exhibit 10.05 to Registration Statement No. 333-45206) 10.14 X Service Agreement between PSNC and SCANA Services, Inc., effective April 1, 2001 (Filed as Exhibit 10.06 to Registration Statement No. 333-45206) 10.15 X Service Agreement between SCE&G and SCANA Services, Inc., effective April 1, 2001 (Filed as Exhibit 10.15 to Form 10-Q for the quarter ended September 30, 2001) EX-3 3 aoa0502.txt ARTICLES OF AMENDMENT STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is SOUTH CAROLINA ELECTRIC & GAS COMPANY. 2. On , the corporation adopted the following Amendment(s) of its Articles of Incorporation: NOT APPLICABLE 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (a) The number of redeemable shares of the corporation reacquired by redemption or purchase is 3,400 itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 4.60% Series B 3,400 (b) The aggregate number of issued shares of the corporation after giving effect to such cancellation is 41,625,929, itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 " " " " 4.60% 0 " " " " 4.50% 8,397 " " " " 4.60% (Series A) 14,052 " " " " 5.125% 66,000 " " " " 4.60% (Series B) 51,000 " " " " 6% 65,124 " " " " 9.40% 0 " " " ($100 par value) 8.12% 0 " " " " 7.70% 0 " " " " 8.40% 0 " " " ($50 par value) 8.72% 0 " " " ($100 par value) 6.52% 1,000,000 Common Stock ($4.50 par value) ------ 40,296,147 ---------- 41,625,929 (c) The amount of the stated capital of the corporation after giving effect to such cancellation is $297,821,761.50. Page 2 (d) The number of shares which the corporation has authority to issue after giving effect to such cancellation is 56,419,782, itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 " " " " 4.60% 0 " " " " 4.50% 8,397 " " " " 4.60% (Series A) 14,052 " " " " 5.125% 66,000 " " " " 4.60% (Series B) 51,000 " " " " 6% 65,124 " " " " 9.40% 0 " " " ($100 par value) 8.12% 0 " " " " 7.70% 0 " " " " 8.40% 0 " " " ($50 par value) 8.72% 0 " " " ($100 par value) 6.52% 1,000,000 Serial Preferred Stock ($50 par value) (1 vote) ---- 640,000 Serial Preferred Stock ($100 par value) (1 vote) ---- 1,750,000 Serial Preferred Stock ($25 par value) (1/4 vote) ---- 2,000,000 Serial Preferred Stock ($50 par value) (1/2 vote) ---- 700,000 Common Stock ($4.50 par value) ---- 50,000,000 ---------- 56,419,782 -- 4. (a) |__| Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was: Number of Number of Number of Votes Number of Undisputed Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the meeting For Against ----- ------------- ---------------- ---------------- ----------------------- (b) |XX| The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Sections 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code, as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of the acceptance for filing by the Secretary of State (See Section 33-1-230(b)): SOUTH CAROLINA ELECTRIC & GAS COMPANY Date: May 9, 2002 By: s/Lynn M. Williams ------------------------------------- Secretary -----END PRIVACY-ENHANCED MESSAGE-----