10-K 1 a12312017-10k.htm 10-K Document
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
    
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2017
scanalogoa42.jpg
Commission
File Number
Registrant, State of Incorporation,
Address and Telephone Number
I.R.S. Employer
Identification No.
1-8809
1-3375
SCANA Corporation (a South Carolina corporation)
South Carolina Electric & Gas Company (a South Carolina corporation)
100 SCANA Parkway, Cayce, South Carolina 29033
(803) 217-9000
57-0784499
57-0248695
Securities registered pursuant to Section 12(b) of the Act: SCANA Corporation: Common stock, without par value, registered on The New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
South Carolina Electric & Gas Company: Series A Nonvoting Preferred Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
SCANA Corporation x         South Carolina Electric & Gas Company x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
SCANA Corporation o         South Carolina Electric & Gas Company o

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.         SCANA Corporation Yes x No o     South Carolina Electric & Gas Company Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).         SCANA Corporation Yes x No o     South Carolina Electric & Gas Company Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
         SCANA Corporation x         South Carolina Electric & Gas Company x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
SCANA Corporation
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
South Carolina Electric & Gas Company
Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. SCANA Corporation o South Carolina Electric & Gas Company   o 

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
SCANA Corporation Yes o No x     South Carolina Electric & Gas Company Yes o No x
     
The aggregate market value of voting stock held by non-affiliates of SCANA Corporation was $9.5 billion at June 30, 2017, the last business day of the registrant's most recently completed second fiscal quarter, based on the closing price of $67.01 per share. South Carolina Electric & Gas Company is a wholly‑owned subsidiary of SCANA Corporation and has no voting stock other than its common stock, all of which is held beneficially and of record by SCANA Corporation. A description of registrants’ common stock follows:
Registrant
 
Description of
Common Stock
 
Shares Outstanding
at February 20, 2018
SCANA Corporation
 
Without Par Value
 
142,638,371
South Carolina Electric & Gas Company
 
Without Par Value
 
40,296,147

Documents incorporated by reference: Information required by Items 10-13 of Part III of this Form 10-K will be incorporated by reference to SCANA Corporation's definitive proxy statement with respect to its 2018 Annual Meeting of Shareholders, if such definitive proxy statement is filed with the Securities and Exchange Commission on or before April 30, 2018. Due to the pending merger with Dominion Energy, Inc., we may not be required to file a definitive proxy statement with regard to such meeting or may file it after April 30, 2018, in which case we will file an amendment to this Form 10-K on or before April 30, 2018 to include the information that would otherwise be incorporated by reference.

This combined Form 10-K is separately filed by SCANA Corporation and South Carolina Electric & Gas Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. South Carolina Electric & Gas Company makes no representation as to information relating to SCANA Corporation or its subsidiaries (other than South Carolina Electric & Gas Company and its consolidated affiliates).
South Carolina Electric & Gas Company meets the conditions set forth in General Instruction I(1) (a) and (b) of Form 10-K and therefore is filing this Form with the reduced disclosure format allowed under General Instruction I(2).



 
 
Page
Cautionary Statement Regarding Forward-Looking Information
Definitions
 
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
 
SCANA Corporation and Subsidiaries
 
 
Report of Independent Registered Public Accounting Firm
 
 
 
Consolidated Balance Sheets
 
 
 
Consolidated Statements of Operations
 
 
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
Consolidated Statements of Cash Flows
 
 
 
Consolidated Statements of Changes in Common Equity
 
 
South Carolina Electric & Gas Company and Affiliates
 
 
Report of Independent Registered Public Accounting Firm
 
 
 
Consolidated Balance Sheets
 
 
 
Consolidated Statements of Comprehensive Income (Loss)
 
 
 
Consolidated Statements of Cash Flows
 
 
 
Consolidated Statements of Changes in Common Equity
 
 
Notes to Consolidated Financial Statements
 
 
 
 
Item 9.
Item 9A.
Item 9B.
Other Information
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Item 15.
 
 
Signatures


2


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
 
Statements included in this Annual Report on Form 10-K which are not statements of historical fact are intended to be, and are hereby identified as, “forward-looking statements” for purposes of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements include, but are not limited to, statements concerning the proposed merger with Dominion Energy, recovery of Nuclear Project abandonment costs, key earnings drivers, customer growth, environmental regulations and expenditures, leverage ratio, projections for pension fund contributions, financing activities, access to sources of capital, impacts of the adoption of new accounting rules and estimated capital and other expenditures.  In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “forecasts,” “plans,” “targets,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” or “continue” or the negative of these terms or other similar terminology.  Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements due to the information being of a preliminary nature and subject to further and/or continuing review and adjustment. Other important factors that could cause such material differences include, but are not limited to, the following:
  
(1) the occurrence of any event, change or other circumstances that could give rise to the failure by SCANA and its subsidiaries (the Company) to consummate the proposed merger with Dominion Energy; (2) the ability of the Company to recover through rates the costs expended on Unit 2 and Unit 3, and a reasonable return on those costs, under the abandonment provisions of the BLRA or through other means; (3) uncertainties relating to the bankruptcy filing by WEC and WECTEC; (4) further changes in tax laws and realization of tax benefits and credits, and the ability or inability to realize credits and deductions, particularly in light of the abandonment of Unit 2 and Unit 3; (5) legislative and regulatory actions, particularly changes related to electric and gas services, rate regulation, regulations governing electric grid reliability and pipeline integrity, environmental regulations including any imposition of fees or taxes on carbon emitting generating facilities, the BLRA, and any actions affecting the abandonment of Unit 2 and Unit 3; (6) current and future litigation, including particularly litigation or government investigations or actions involving or arising from the construction or abandonment of Unit 2 and Unit 3 or arising from the proposed merger with Dominion Energy; (7) the results of short- and long-term financing efforts, including prospects for obtaining access to capital markets and other sources of liquidity, and the effect of rating agency actions on the Company’s cost of and access to capital and sources of liquidity; (8) the ability of suppliers, both domestic and international, to timely provide the labor, secure processes, components, parts, tools, equipment and other supplies needed which may be highly specialized or in short supply, at agreed upon quality and prices, for our construction program, operations and maintenance; (9) the results of efforts to ensure the physical and cyber security of key assets and processes; (10) changes in the economy, especially in areas served by subsidiaries of SCANA; (11) the impact of competition from other energy suppliers, including competition from alternate fuels in industrial markets; (12) the impact of conservation and demand side management efforts and/or technological advances on customer usage; (13) the loss of electricity sales to distributed generation, such as solar photovoltaic systems or energy storage systems; (14) growth opportunities for SCANA’s regulated and other subsidiaries; (15) the effects of weather, especially in areas where the generation and transmission facilities of SCANA and its subsidiaries are located and in areas served by SCANA’s subsidiaries; (16) changes in SCANA’s or its subsidiaries’ accounting rules and accounting policies; (17) payment and performance by counterparties and customers as contracted and when due; (18) the results of efforts to license, site, construct and finance facilities, and to receive related rate recovery, for generation and transmission; (19) the results of efforts to operate the Company's electric and gas systems and assets in accordance with acceptable performance standards, including the impact of additional distributed generation; (20) the availability of fuels such as coal, natural gas and enriched uranium used to produce electricity; the availability of purchased power and natural gas for distribution; the level and volatility of future market prices for such fuels and purchased power; and the ability to recover the costs for such fuels and purchased power; (21) the availability of skilled, licensed and experienced human resources to properly manage, operate, and grow the Company’s businesses, particularly in light of uncertainties with respect to legislative and regulatory actions surrounding recovery of Nuclear Project costs and the announced potential merger; (22) labor disputes; (23) performance of SCANA’s pension plan assets and the effect(s) of associated discount rates; (24) inflation or deflation; (25) changes in interest rates; (26) compliance with regulations; (27) natural disasters, man-made mishaps and acts of terrorism that directly affect our operations or the regulations governing them; and (28) the other risks and uncertainties described from time to time in the reports filed by SCANA or SCE&G with the SEC.

SCANA and SCE&G disclaim any obligation to update any forward-looking statements.

3


DEFINITIONS
Abbreviations used in this Form 10-K have the meanings set forth below unless the context requires otherwise:
TERM
 
MEANING
AFC
 
Allowance for Funds Used During Construction
ANI
 
American Nuclear Insurers
AOCI
 
Accumulated Other Comprehensive Income (Loss)
ARO
 
Asset Retirement Obligation
ARP
 
Alternative Revenue Program
BACT
 
Best Available Control Technology
Bankruptcy Court
 
U.S. Bankruptcy Court for the Southern District of New York
BLRA
 
Base Load Review Act
CAA
 
Clean Air Act, as amended
CAIR
 
Clean Air Interstate Rule
CCR
 
Coal Combustion Residuals
CEO
 
Chief Executive Officer
CERCLA
 
Comprehensive Environmental Response, Compensation and Liability Act
CFO
 
Chief Financial Officer
CFTC
 
Commodity Futures Trading Commission
CGT
 
Carolina Gas Transmission Corporation
CIAC
 
Contributions In Aid of Construction
Citibank
 
Citibank, N.A.
CO2
 
Carbon Dioxide
Company
 
SCANA, together with its consolidated subsidiaries
Consolidated SCE&G
 
SCE&G and its consolidated affiliates
Consortium
 
A consortium consisting of WEC and WECTEC
Court of Appeals
 
United States Court of Appeals for the District of Columbia
CSAPR
 
Cross-State Air Pollution Rule
CUT
 
Customer Usage Tracker (decoupling mechanism)
CWA
 
Clean Water Act
DECG
 
Dominion Energy Carolina Gas Transmission LLC
DER
 
Distributed Energy Resource
DHEC
 
South Carolina Department of Health and Environmental Control
District Court
 
United States District Court for the District of South Carolina
Dodd-Frank
 
Dodd-Frank Wall Street Reform and Consumer Protection Act
DOE
 
United States Department of Energy
DOJ
 
United States Department of Justice
Dominion Energy
 
Dominion Energy, Inc.
DOR
 
South Carolina Department of Revenue
DOT
 
United States Department of Transportation
DSM Programs
 
Electric Demand Side Management Programs
ELG Rule
 
Federal effluent limitation guidelines for steam electric generating units
EMANI
 
European Mutual Association for Nuclear Insurance
EPA
 
United States Environmental Protection Agency
EPC Contract
 
Engineering, Procurement and Construction Agreement dated May 23, 2008, as amended by the October 2015 Amendment
Exchange Act
 
Securities Exchange Act of 1934, as amended
FASB
 
Financial Accounting Standards Board
FERC
 
United States Federal Energy Regulatory Commission
FILOT
 
Fee in Lieu of Taxes
Fluor
 
Fluor Corporation
Fuel Company
 
South Carolina Fuel Company, Inc.
GAAP
 
Accounting principles generally accepted in the United States of America
GENCO
 
South Carolina Generating Company, Inc.
GHG
 
Greenhouse Gas
GPSC
 
Georgia Public Service Commission
GWh
 
Gigawatt hour
Interim Assessment Agreement
 
Interim Assessment Agreement dated March 28, 2017, as amended, among SCE&G, Santee Cooper, WEC and WECTEC
IRC
 
Internal Revenue Code of 1986, as amended
IRS
 
Internal Revenue Service
Joint Petition
 
Joint application and petition of SCE&G and Dominion Energy for review and approval of a proposed business combination as set forth in the Merger Agreement and for a prudency determination regarding the abandonment of the Nuclear Project and associated merger benefits and cost recovery plans, filed with the SCPSC on January 12, 2018
kWh
 
Kilowatt-hour
Level 1
 
A fair value measurement using unadjusted quoted prices in active markets for identical assets or liabilities
Level 2
 
A fair value measurement using observable inputs other than those for Level 1, including quoted prices for similar (not identical) assets or liabilities or inputs that are derived from observable market data by correlation or other means
Level 3
 
A fair value measurement using unobservable inputs, including situations where there is little, if any, market activity for the asset or liability
LNG
 
Liquefied Natural Gas
LOC
 
Lines of Credit
LTECP
 
SCANA Long-Term Equity Compensation Plan
MATS
 
Mercury and Air Toxics Standards
MCF
 
Thousand Cubic Feet
MGP
 
Manufactured Gas Plant
Merger Agreement
 
Agreement and Plan of Merger, dated as of January 2, 2018, by and among Dominion Energy, Sedona Corp. (a wholly-owned subsidiary of Dominion Energy) and SCANA
MMBTU
 
Million British Thermal Units
MW or MWh
 
Megawatt or Megawatt-hour
NASDAQ
 
The NASDAQ Stock Market, Inc.
NAV
 
Net Asset Value
NCUC
 
North Carolina Utilities Commission
NEIL
 
Nuclear Electric Insurance Limited
NERC
 
North American Electric Reliability Corporation
NOL
 
Net Operating Loss
NOX
 
Nitrogen Oxide
NPDES
 
National Pollutant Discharge Elimination System
NRC
 
United States Nuclear Regulatory Commission
NSPS
 
New Source Performance Standards
Nuclear Project
 
Project to construct Unit 2 and Unit 3 under the EPC Contract
Nuclear Waste Act
 
Nuclear Waste Policy Act of 1982
NYMEX
 
New York Mercantile Exchange
NYSE
 
The New York Stock Exchange
OCI
 
Other Comprehensive Income
October 2015 Amendment
 
Amendment, dated October 27, 2015, to the EPC Contract
ORS
 
South Carolina Office of Regulatory Staff
PGA
 
Purchased Gas Adjustment
PHMSA
 
United States Pipeline Hazardous Materials Safety Administration
Price-Anderson
 
Price-Anderson Indemnification Act
PSNC Energy
 
Public Service Company of North Carolina, Incorporated
Registrants
 
SCANA and SCE&G
Request
 
Request for Rate Relief filed by the ORS on September 26, 2017, as amended October 17, 2017
ROE
 
Return on Equity
RSA
 
Natural Gas Rate Stabilization Act
RTO/ISO
 
Regional Transmission Organization/Independent System Operator
Santee Cooper
 
South Carolina Public Service Authority
SCANA
 
SCANA Corporation, the parent company
SCANA Energy
 
SCANA Energy Marketing, Inc.
SCANA Services
 
SCANA Services, Inc.
SCE&G
 
South Carolina Electric & Gas Company
SCEUC
 
South Carolina Energy Users Committee
SCI
 
SCANA Communications, Inc.
SCPSC
 
Public Service Commission of South Carolina
SEC
 
United States Securities and Exchange Commission
SERC
 
SERC Reliability Corporation
SIP
 
State Implementation Plan
SLED
 
South Carolina Law Enforcement Division
SO2
 
Sulfur Dioxide
Southern Natural
 
Southern Natural Gas Company
Spirit Communications
 
SCTG, LLC and its wholly-owned subsidiary SCTG Communications, Inc.
Summer Station
 
V.C. Summer Nuclear Station
Supreme Court
 
United States Supreme Court
Tax Act
 
An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (previously known as The Tax Cuts and Jobs Act) enacted on December 22, 2017

Toshiba
 
Toshiba Corporation, parent company of WEC
Toshiba Settlement
 
Settlement Agreement dated as of July 27, 2017, by and among Toshiba, SCE&G and Santee Cooper
Transco
 
Transcontinental Gas Pipeline Corporation
TSR
 
Total Shareholder Return
Unit 1
 
Nuclear Unit 1 at Summer Station
Unit 2
 
Nuclear Unit 2 at Summer Station (abandoned prior to construction completion)
Unit 3
 
Nuclear Unit 3 at Summer Station (abandoned prior to construction completion)
VACAR
 
Virginia-Carolinas Reliability Group
VIE
 
Variable Interest Entity
WEC
 
Westinghouse Electric Company LLC
WECTEC
 
WECTEC Global Project Services, Inc. (formerly known as Stone & Webster, Inc.), a wholly-owned subsidiary of WEC
Williams Station
 
A.M. Williams Generating Station, owned by GENCO
WNA
 
Weather Normalization Adjustment


4


PART I
 
ITEM 1. BUSINESS
INVESTOR INFORMATION
SCANA’s and SCE&G’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with or furnished to the SEC are available free of charge through SCANA’s internet website at www.scana.com (which is not intended as an active hyperlink; the information on SCANA’s website is not a part of this report or any other report or document that SCANA or SCE&G files with or furnishes to the SEC) as soon as reasonably practicable after these reports are filed or furnished.

SCANA and SCE&G post information from time to time regarding developments relating to SCE&G’s Nuclear Project and other matters of interest to investors on SCANA’s website. On SCANA’s homepage, there is a yellow box containing links to the Nuclear and Other Investor Information sections of the website. The Nuclear section contains a yellow box with a link to project news and updates. The Other Investor Information section of the website contains a link to recent investor-related information that cannot be found at other areas of the website. Some of the information that will be posted from time to time, including the quarterly reports that SCE&G submits to the SCPSC and the ORS in connection with the Nuclear Project, may be deemed to be material information that has not otherwise become public. Investors, media and other interested persons are encouraged to review this information and can sign up, under the Investor Relations Section of the website, for an email alert when there is a new posting in the Nuclear and Other Investor Information yellow box.

CORPORATE STRUCTURE AND SEGMENTS OF BUSINESS
SCANA is a South Carolina corporation created in 1984 as a holding company. SCANA and its subsidiaries had full-time, permanent employees as of February 20, 2018 and 2017 of 5,228 and 5,910, respectively. SCANA does not directly own or operate any significant physical properties, but it holds directly all of the capital stock of its subsidiaries, including the subsidiaries described below.

On January 2, 2018, SCANA entered into the Merger Agreement whereby it would become a wholly-owned subsidiary of Dominion Energy. The merger is subject to a variety of closing conditions including the receipt of approvals from several regulators and from SCANA's shareholders. Refer to Exhibit 2.01 in the Exhibit Index for information on where a copy of the Merger Agreement may be obtained. See also Note 10 to the consolidated financial statements for more discussion.

Regulated Utilities
 
SCE&G is engaged in the generation, transmission, distribution and sale of electricity to approximately 719,000 customers and the purchase, sale and transportation of natural gas to approximately 368,000 customers (each as of December 31, 2017). SCE&G’s business experiences seasonal fluctuations, with generally higher sales of electricity during the summer and winter months because of air conditioning and heating requirements, and generally higher sales of natural gas during the winter months due to heating requirements. SCE&G’s electric service territory extends into 24 counties covering nearly 16,000 square miles in the central, southern and southwestern portions of South Carolina. The service area for natural gas encompasses all or part of 35 counties in South Carolina and covers approximately 23,000 square miles. More than 3.4 million persons live in the counties where SCE&G conducts its business. Resale customers include municipalities, electric cooperatives, other investor-owned utilities, registered marketers and federal and state electric agencies. Predominant industries served by SCE&G include chemicals, educational services, paper products, food products, lumber and wood products, health services, textile manufacturing, rubber and miscellaneous plastic products, automotive and tire and fabricated metal products.
 
GENCO owns Williams Station and sells electricity, pursuant to a FERC-approved tariff, solely to SCE&G under the terms of a unit power sales agreement and related operating agreement. Fuel Company acquires, owns and provides financing for SCE&G's nuclear fuel, certain fossil fuels and emission allowances.

PSNC Energy purchases, sells and transports natural gas to approximately 563,000 residential, commercial and industrial customers (as of December 31, 2017). PSNC Energy serves 28 franchised counties covering approximately 12,000 square miles in North Carolina. The predominant industries served by PSNC Energy include educational services, food and beverage products, health services, automotive, chemicals, motorsports, non-woven textiles and electrical generation and construction.
 

5


Nonregulated Businesses
 
SCANA Energy markets natural gas in the southeast and provides energy-related services. A division of SCANA Energy sells natural gas to approximately 425,000 customers (as of December 31, 2017) in Georgia’s deregulated natural gas market.
 
SCANA Services provides shared administrative and management services to SCANA's other subsidiaries.

For information with respect to major segments of business, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 12 of the consolidated financial statements. All such information is incorporated herein by reference.

ELECTRIC OPERATIONS
 
Electric Sales
 
SCE&G’s sales of electricity by customer classification as percentages of electric revenues were as follows:
 
 
Sales
Customer Classification
 
2017
 
2016
Residential
 
45
%
 
46
%
Commercial
 
33
%
 
33
%
Industrial
 
18
%
 
17
%
Sales for resale
 
2
%
 
2
%
Other
 
2
%
 
2
%
Total
 
100
%
 
100
%
 
Sales for resale include sales to three municipalities in 2017 and 2016. Other includes short-term system sales which during 2017 included sales to two investor-owned utilities or registered marketers. Short-term system sales during 2016 included sales to four investor-owned utilities or registered marketers.
 
During 2017 SCE&G experienced a net increase of approximately 10,000 electric customers (growth rate of 1.4%), increasing its total electric customers to approximately 719,000 at year end.
 
The following projections assume normal weather where applicable.  For the period 2017 to 2018, SCE&G projects a retail kWh sales increase of approximately 0.4% and customer growth of 1.5%. For the period 2018-2020, SCE&G projects total territorial kWh sales of electricity to increase 0.3% annually, total retail sales to decrease 0.2% annually, total electric customer base to increase 1.5% annually and territorial peak load (summer, in MW) to increase 1.0% annually. SCE&G’s goal is to maintain a planning reserve margin of between 14% and 20%; however, weather and other factors affect territorial peak load and can cause actual generating capacity on any given day to fall below the reserve margin goal.

Electric Interconnections
 
SCE&G purchases all of the electric generation of GENCO’s Williams Station under a unit power sales agreement which has been approved by FERC. Williams Station has a net generating capacity (summer rating) of 605 MW.
 
SCE&G’s transmission system extends over a large part of the central, southern and southwestern portions of South Carolina. The system interconnects with Duke Energy Carolinas, LLC, Duke Energy Progress, LLC, Santee Cooper, Georgia Power Company and the Southeastern Power Administration’s Clarks Hill (Thurmond) Project. SCE&G is a member of VACAR, one of several geographic divisions within the SERC. SERC is one of eight regional entities with delegated authority from NERC for the purpose of proposing and enforcing reliability standards approved by FERC. The regional entities and all members of NERC work to safeguard the reliability of the bulk power systems throughout North America.
 

6


Fuel Costs and Fuel Supply
 
The average cost of various fuels and the weighted average cost of all fuels (including oil) were as follows:
 
Cost of Fuel Used
 
2017
 
2016
 
2015
Per MMBTU:
 

 
 

 
 

Nuclear
$
0.95

 
$
0.98

 
$
0.95

Coal
3.31

 
3.41

 
3.81

Natural Gas
3.52

 
3.02

 
3.26

All Fuels (weighted average)
2.63

 
2.41

 
3.01

Per Ton: Coal
82.45

 
84.62

 
95.69

Per MCF: Gas
3.57

 
3.11

 
3.35


The sources and percentages of total MWh by each category of fuel for the preceding three years and estimates for the next three years follow:
 
% of Total MWh Generated
 
Actual
 
Estimated
 
2015
2016
2017
 
2018
2019
2020
Coal
39
%
37
%
39
%
 
38
%
29
%
30
%
Nuclear
20
%
25
%
20
%
 
20
%
23
%
20
%
Hydro
3
%
3
%
2
%
 
3
%
3
%
3
%
Natural Gas & Oil
36
%
33
%
37
%
 
35
%
42
%
41
%
Biomass/Solar
2
%
2
%
2
%
 
4
%
3
%
6
%
Total
100
%
100
%
100
%
 
100
%
100
%
100
%

For a listing of the Company's generating facilities, see the Electric Properties section within Item 2. Properties.

In 2017, coal was primarily obtained through long-term contracts with suppliers located in eastern Kentucky, Tennessee, Virginia, and West Virginia. These contracts provide for approximately 2.1 million tons annually. Sulfur restrictions on the contract coal range from 1.0% to 1.6%. These contracts expire at various times through 2019. Spot market purchases may occur when needed or when prices are believed to be favorable. The Company relies on unit trains and, in some cases, trucks for coal deliveries.
 
SCANA and SCE&G believe that electric operations comply with all applicable regulations relating to the discharge of SO2 and NOX. See additional discussion at Environmental Matters in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

SCE&G, for itself and as agent for Santee Cooper, and WEC are parties to a fuel alliance agreement and contracts for fuel fabrication and related services. Under these contracts, SCE&G supplies enriched products to WEC and WEC supplies nuclear fuel assemblies for Unit 1. WEC is SCE&G’s exclusive provider of such fuel assemblies on a cost-plus basis. The fuel assemblies to be delivered under the contracts are expected to supply the nuclear fuel requirements of Unit 1 through 2033.

In addition, SCE&G has contracts covering its nuclear fuel needs for uranium, conversion services and enrichment services. These contracts have varying expiration dates through 2024. SCE&G believes that it will be able to renew contracts as they expire or enter into similar contractual arrangements with other suppliers of nuclear fuel materials and services and that sufficient capacity for nuclear fuel supplies and processing exists to allow for normal operations of its nuclear generating unit.
 
SCE&G stores spent nuclear fuel in its on-site spent-fuel pool, and has constructed a dry cask storage facility to accommodate the spent fuel output for the life of Unit 1. In addition, Unit 1 has sufficient on-site capacity to permit storage of the entire reactor core in the event that complete unloading should become desirable or necessary. For information about the contract with the DOE regarding disposal of spent fuel, see the Environmental section of Note 10 to the consolidated financial statements.


7


SCE&G also uses long-term power purchase agreements to ensure that adequate power supply resources are in place to meet load obligations and reserve requirements. As of January 1, 2018, SCE&G had such agreements in place for 325 MW of capacity (expiring at various times through 2020). In addition, SCE&G had the ability to purchase an additional 204 MW of capacity under these agreements. On December 20, 2017, SCE&G entered into an agreement to purchase the Columbia Energy Center, which is the existing 540 MW combined cycle gas generating station to which these capacity contracts relate. Upon the closing of such purchase, these contracts will be moot, and all output of that station will be available for SCE&G's load obligations and reserve requirements. Also, as of December 31, 2017, SCE&G is taking delivery of utility scale solar generated power pursuant to 17 executed power purchase agreements totaling 218 MW-alternating current.
GAS OPERATIONS
 
Gas Sales-Regulated
 
Regulated sales of natural gas by customer classification as a percent of total regulated gas revenues sold or transported were as follows: 
 
 
SCANA
 
SCE&G
Customer Classification
 
2017
 
2016
 
2017
 
2016
Residential
 
57.1
%
 
57.9
%
 
47.0
%
 
48.3
%
Commercial
 
26.5
%
 
26.4
%
 
27.8
%
 
28.6
%
Industrial
 
11.4
%
 
10.4
%
 
21.6
%
 
19.5
%
Transportation Gas
 
5.0
%
 
5.3
%
 
3.6
%
 
3.6
%
Total
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
For the period 2018-2020, SCANA projects total consolidated sales of regulated natural gas in MMBTUs to increase 31.7% annually (excluding transportation and assuming normal weather). Annual projected increases over such period in MMBTU sales include residential of 2.5%, commercial of 0.9%, and industrial of 84.8%. Projections of total and industrial sales include amounts for new gas-fired electric generating plants that will be served by PSNC Energy.

For the period 2018-2020, SCE&G projects total consolidated sales of regulated natural gas in MMBTUs to increase 2.2% annually (excluding transportation and assuming normal weather). Annual projected increases over such period in MMBTU sales include residential of 2.4%, commercial of 1.0% and industrial of 2.9%.

For the period 2018-2020, each of SCANA’s and SCE&G’s total regulated natural gas customer base is projected to increase 2.6% annually. During 2017, SCANA recorded a net increase of approximately 24,000 regulated gas customers (growth rate of 2.6%), increasing the number of its regulated gas customers to approximately 931,000. Of this increase, SCE&G recorded a net increase of approximately 10,000 gas customers (growth rate of 2.9%), increasing the number of its total gas customers to approximately 368,000 (as of December 31, 2017).
 
Demand for gas changes primarily due to weather and the price relationship between gas and alternate fuels.

Gas Cost and Supply
 
 SCE&G purchases natural gas under contracts with producers and marketers on both a short-term and long-term basis at market based prices. The gas is delivered to South Carolina through firm transportation agreements with Southern Natural (expiring in 2019), Transco (expiring at various times through 2084) and DECG (expiring at various times through 2036). The maximum daily volume of gas that SCE&G is entitled to transport under these contracts is 212,194 MMBTU from Southern Natural, 110,458 MMBTU from Transco and 456,427 MMBTU from DECG. Additional natural gas volumes may be delivered to SCE&G’s system as capacity is available through interruptible transportation.
 
The daily volume of gas that SCANA Energy is entitled to transport under its service agreements (expiring at various times through 2023) on a firm basis is 761,860 MMBTU. Additional natural gas volumes may be delivered as capacity is available through interruptible transportation.
 
SCE&G purchased natural gas, including fixed transportation, at an average cost of $3.96 per MMBTU during 2017 and $3.46 per MMBTU during 2016.
 

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To meet the requirements of its high priority natural gas customers during periods of maximum demand, SCE&G has 5,502,600 MMBTU of natural gas storage capacity on the systems of Southern Natural and Transco. Approximately 3,433,200 MMBTU of gas were in storage on December 31, 2017. SCE&G supplements its supplies of natural gas with two LNG storage facilities, one of which has liquefaction capability. Approximately 1,624,300 MMBTU (liquefied equivalent) of gas were in storage on December 31, 2017. For a discussion of SCE&G's natural gas storage capacity, see Item 2. Properties.
 
PSNC Energy purchases natural gas under contracts with producers and marketers on a short-term basis at market based prices and on a long-term basis for reliability assurance at first of the month index prices plus a reservation charge in certain cases. Transco transports natural gas to North Carolina through transportation agreements with varying expiration dates through 2031. On a peak day, PSNC Energy is capable of receiving daily transportation volumes of natural gas under these contracts, utilizing firm contracts of 710,062 MMBTU from Transco.
 
PSNC Energy purchased natural gas, including fixed transportation, at an average cost of $4.39 per MMBTU during 2017 compared to $3.73 per MMBTU during 2016.
 
To meet the requirements of its high priority natural gas customers during periods of maximum demand, PSNC Energy supplements its supplies of natural gas with underground natural gas storage services and LNG peaking services. Underground natural gas storage service agreements with Dominion Energy Transmission, Inc., Columbia Gas Transmission, Transco and Enbridge Inc. provide for storage capacity of approximately 13,000,000 MMBTU. Approximately 9,000,000 MMBTU of gas were in storage under these agreements at December 31, 2017. PSNC Energy also maintains LNG storage service agreements with Transco, Cove Point LNG and Pine Needle LNG which provides 1,300,000 MMBTU (liquefied equivalent) of storage space. Approximately 1,200,000 MMBTU (liquefied equivalent) were in storage under these agreements at December 31, 2017. Approximately 800,000 MMBTU (liquefied equivalent) of gas were in storage at PSNC Energy's LNG storage facility at December 31, 2017. For a discussion of PSNC Energy's LNG storage capacity, see Item 2. Properties.
 
SCANA and SCE&G believe that supplies under long-term contracts and supplies available for spot market purchase are adequate to meet existing customer demands and to accommodate growth.
 
Gas Marketing-Nonregulated
 
SCANA Energy markets natural gas and provides energy-related services in the Southeast. In addition, a division of SCANA Energy markets natural gas to greater than 425,000 customers (as of December 31, 2017) in Georgia’s natural gas market. Georgia’s natural gas market includes approximately 1.6 million customers.

Risk Management
 
For a discussion of risk management policies and procedures, see Note 6 to the consolidated financial statements.
 
REGULATION
 
Regulatory jurisdictions to which SCANA and its subsidiaries are subject are described in the Regulatory Matters section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
 
SCE&G has obtained FERC authority to issue short-term indebtedness and to assume liabilities as a guarantor (pursuant to Section 204 of the Federal Power Act). SCE&G may issue unsecured promissory notes, commercial paper and direct loans in amounts not to exceed $1.6 billion outstanding with maturity dates of one year or less, and may enter into guaranty agreements in favor of lenders, bankers, and dealers in commercial paper in amounts not to exceed $600 million. GENCO has obtained FERC authority to issue short-term indebtedness not to exceed $200 million outstanding with maturity dates of one year or less. The authority described herein will expire in October 2018. Were adverse developments to occur with respect to uncertainties highlighted elsewhere, the ability of SCE&G or GENCO to secure renewal of this short-term borrowing authority may be adversely impacted.
 
SCE&G holds licenses under the Federal Power Act for each of its hydroelectric projects. The licenses expire as follows:

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Project
 
License
Expiration
Saluda (Lake Murray)
 
*
Fairfield Pumped Storage/Parr Shoals
 
2020
Stevens Creek
 
2025
Neal Shoals
 
2036
 
* SCE&G operates the Saluda hydroelectric project under an annual license while its long-term re-licensing application is being reviewed by FERC.
    
At the termination of a license under the Federal Power Act, FERC may extend or issue a new license to the previous licensee, may issue a license to another applicant, or the federal government may take over the related project. If the federal government takes over a project or if FERC issues a license to another applicant, the federal government or the new licensee, as the case may be, must pay the previous licensee an amount equal to its net investment in the project, not to exceed fair value, plus severance damages.
 
RATE MATTERS
 
For a discussion of the impact of various rate matters, see the Regulatory Matters section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Note 2 to the consolidated financial statements.

Fuel Cost Recovery Procedures
 
The SCPSC’s fuel cost recovery procedure determines the fuel component in SCE&G’s retail electric base rates annually based on projected fuel costs for the ensuing 12-month period, adjusted for any over-collection or under-collection from the preceding 12-month period. The statutory definition of fuel costs includes certain variable environmental costs, such as ammonia, lime, limestone and catalysts consumed in reducing or treating emissions, and the cost of emission allowances used for SO2, NOX, mercury and particulates. In addition, the statutory definition of fuel cost allows electric utilities to recover avoided costs under the Public Utility Regulatory Policy Act of 1978, as well as costs incurred as a result of offering DER and net metering programs to its customers. SCE&G may request a formal proceeding concerning its fuel costs at any time.
 
Purchased gas cost recovery procedures related to the Company's natural gas operations along with related rate proceedings by the SCPSC and NCUC are described in Note 2 to the consolidated financial statements.
   
ENVIRONMENTAL MATTERS
 
Federal and state authorities have imposed environmental regulations and standards relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. Developments in these areas may require that equipment and facilities be modified, supplemented or replaced. The ultimate effect of any new or pending regulations or standards upon existing operations cannot be predicted. For a discussion of how these regulations and standards may impact SCANA and SCE&G (including capital expenditures necessitated thereby), see the Environmental Matters section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the consolidated financial statements.
 
OTHER MATTERS
 
Insurance coverage for Unit 1 is described in Note 10 to the consolidated financial statements.

 For a discussion of the impact of competition, see the Overview section of Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For a discussion of cash requirements for construction and nuclear fuel expenditures, contractual cash obligations, financing limits, financing transactions and other related information, see the Liquidity and Capital Resources section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.


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ITEM 1A. RISK FACTORS
 
The risk factors that follow relate in each case to the Company, and where indicated the risk factors also relate to Consolidated SCE&G.

The completion of the merger is subject to the receipt of consents, approvals and/or findings from governmental entities, which may impose conditions that could have an adverse effect on Dominion Energy or SCANA or could cause either Dominion Energy or SCANA to terminate the merger. The completion of the merger is also subject to there having not been certain substantive changes in certain South Carolina laws that have or would reasonably be expected to have an adverse effect on SCANA or its subsidiaries or changes in law that impose any condition that would reasonably be expected to result in specified changes to the Joint Petition. Additionally, any such changes in certain South Carolina law could affect the considerations which were relied upon by SCANA and/or Dominion Energy prior to the signing of the Merger Agreement.

Dominion Energy and SCANA are not required to complete the merger until after the requisite authorizations, approvals, consents and/or permits are received from the FERC, NRC, SCPSC, NCUC and GPSC. Any of the relevant governmental entities may oppose the merger, fail to approve the merger, fail to make required findings in favor of the merger, or impose certain requirements or obligations as conditions for their consent, approval or findings or in connection with their review. Regulatory approvals of the merger or findings with respect to the merger may not be obtained on a timely basis or at all, and such approvals or findings may include conditions that could have an adverse effect on the Company or Consolidated SCE&G, and/or result in the termination of the merger. The terms of any conditions imposed in order to obtain the requisite regulatory approvals or findings may not be known by the date of the special meeting of SCANA shareholders to vote on the merger proposal. No assurance can be given that the necessary approvals or findings will be obtained or that any required conditions will not have an adverse effect on Dominion Energy following the merger. If SCANA shareholders vote in favor of the merger proposal at the special meeting, Dominion Energy or SCANA may make decisions after the special meeting to waive a condition or approve certain actions required to obtain regulatory approvals or findings without seeking further approval of the SCANA shareholders.

Subject to the terms and conditions set forth in the Merger Agreement, the Merger Agreement requires Dominion Energy to accept conditions from regulators that could adversely impact Dominion Energy after the merger without either of Dominion Energy or SCANA having the right to refuse to close the merger on the basis of those regulatory conditions, except that Dominion Energy is generally not required, and SCANA is generally not permitted without Dominion Energy’s prior approval, to take any action or accept any condition that results in a burdensome condition.

In addition, the Merger Agreement provides that Dominion Energy (but not SCANA) will have the right to refuse to complete the merger if, since the date of the Merger Agreement, any governmental entity shall have enacted any order, or there shall have been any change in law (including the BLRA and the other laws governing South Carolina public utilities), which imposes any material change to the terms, conditions or undertakings set forth in the Joint Petition, or any significant changes to the economic value of the Joint Petition, in each case as determined by Dominion Energy in good faith.

The Merger Agreement further provides that Dominion Energy (but not SCANA) will have the right to refuse to complete the merger if there shall have occurred any substantive change in the BLRA or other laws governing South Carolina public utilities which has or would reasonably be expected to have an adverse effect on SCANA or any of its subsidiaries. There is currently pending before the South Carolina Senate a bill that would make substantive changes to the BLRA. This bill (H.4375) has passed the South Carolina House of Representatives. If this bill becomes law, Dominion Energy would not be obligated to complete the merger if it is determined that the bill has or would reasonably be expected to have an adverse effect on SCANA or any of its subsidiaries.

Certain lawsuits and regulatory actions have been filed against SCANA and SCE&G in connection with the abandonment of the Nuclear Project. If the relief requested in these matters (including a request for declaratory judgment that the BLRA is unconstitutional) is granted, Dominion Energy might not be obligated to complete the merger.

No assurance can be given that these risks will not materialize and either adversely impact Dominion Energy after the completion of the merger or, if such conditions rise to the thresholds discussed above, some of which, as described above, are in the subjective determination of Dominion Energy acting in good faith, or if the required authorizations, approvals, consents and/or permits are not obtained or received, result in the termination of the merger and adversely impact the results of operations, cash flows and financial conditions of the Company and Consolidated SCE&G.


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Failure to complete the merger could negatively impact the stock price and the future business and financial results of SCANA.

If the merger is not completed, the ongoing business of the Company and Consolidated SCE&G may be adversely affected and the Company and Consolidated SCE&G could be subject to several risks, including the following:

the price of SCANA common stock may decline to the extent that the current market price reflects an expectation by the market that the merger will be completed;
obligations to pay certain costs relating to the merger, such as legal, accounting, financial advisory, filing, printing and mailing fees;  
the disruption of the Company’s and Consolidated SCE&G’s ongoing business or inconsistencies in its services, standards, controls, procedures and policies due to management’s focus on the merger, any of which could adversely affect the ability of the Company and Consolidated SCE&G to maintain relationships with customers, regulators, vendors and employees, or could otherwise adversely affect the business and financial results of the Company or Consolidated SCE&G, without realizing any of the benefits of having the merger completed;
the potential negative impact on the Company and Consolidated SCE&G ultimately resolving the rate and regulatory issues, including pending investigations and legal challenges, relating to the abandonment of the Nuclear Project in a manner satisfactory to SCANA on account of SCANA working with Dominion Energy to pursue the resolution of these issues as contemplated by the Merger Agreement rather than pursuing its regulatory and legal options for resolving these issues independently of considerations and obligations related to the merger; and
the loss of other opportunities that could be beneficial to the Company and Consolidated SCE&G that could have been pursued during the pendency of the merger, without realizing any of the benefits of having the merger completed.

In addition to the above risks, SCANA may be required, under certain circumstances, to pay to Dominion Energy a termination fee of $240 million.

If the merger is not completed, no assurance can be given that these risks will not materialize and will not materially affect SCANA's business, financial results and stock price.

The Merger Agreement contains provisions that limit SCANA’s ability to pursue alternatives to the merger, which could discourage a potential competing acquirer of SCANA or could result in any competing proposal being at a lower price than it might otherwise be.

The Merger Agreement contains provisions that, subject to certain exceptions, restrict SCANA’s ability to initiate, solicit, knowingly encourage, facilitate or discuss competing third-party proposals to acquire all or a significant part of SCANA, or provide information to a third party that could reasonably be expected to lead to such a proposal. In addition, Dominion Energy generally has an opportunity to offer to modify the terms of the merger in response to any superior acquisition proposal that may be made before the SCANA board of directors is permitted to withdraw or qualify its recommendation. In some circumstances on termination of the Merger Agreement, SCANA may be required to pay to Dominion Energy a termination fee of $240 million.

These provisions, which the SCANA board regards as customary for transactions of this type, could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of SCANA from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the merger consideration, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable by SCANA in certain circumstances.

The pendency of the merger could adversely affect the business and operations of SCANA.

In connection with the pending merger, some current or prospective customers or vendors of SCANA’s utilities may delay or defer decisions regarding their existing or proposed relationships with those utilities, which could negatively impact the operation, revenues, earnings, cash flows and expenses of the Company and Consolidated SCE&G, regardless of whether the merger is completed. Similarly, current and prospective employees of SCANA and its utilities may experience uncertainty about their future roles following the merger, which may adversely affect the ability of SCANA and its utilities to attract and retain key personnel during the pendency of the merger. In addition, due to operating covenants in the Merger Agreement, during the pendency of the merger, SCANA and its utilities may be unable to pursue strategic transactions, undertake

12


significant capital projects, undertake certain significant financing or other specified transactions or pursue actions that are not in the ordinary course of business, even if such actions would prove beneficial.

Following the merger, Dominion Energy may be unable to successfully integrate the Company’s and Consolidated SCE&G’s businesses.

Dominion Energy and SCANA currently operate as independent public companies. After the merger, Dominion Energy will be required to devote significant management attention and resources to integrating the Company’s and Consolidated SCE&G’s business. Potential difficulties Dominion Energy may encounter in the integration process include the following:

the complexities associated with integrating SCANA and its utility businesses, while at the same time continuing to provide consistent, high quality services;
the complexities of integrating a company with different core services, markets and customers;
the inability to attract and retain key employees;
potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the merger;
difficulties in managing political and regulatory conditions related to SCANA’s utility business after the merger;
the cost recovery plan includes a moratorium on filing requests for adjustments in SCANA’s base electric rates until 2021 if the merger is approved by the SCPSC, which would limit Dominion Energy’s ability to recover increases in non-fuel related costs of electric operations for SCE&G’s customers; and
performance shortfalls as a result of the diversion of Dominion Energy management’s attention caused by completing the merger and integrating SCANA’s utility businesses.

For these reasons, you should be aware that it is possible that the integration process following the merger could result in the distraction of Dominion Energy’s management, the disruption of Dominion Energy’s ongoing business or inconsistencies in its services, standards, controls, procedures and policies, any of which could adversely affect the ability of Dominion Energy to maintain or establish relationships with current and prospective customers, vendors and employees or could otherwise adversely affect the business and financial results of Dominion Energy.

Dominion Energy, the Company and Consolidated SCE&G may be adversely affected by negative publicity related to the merger and in connection with other related matters, including the abandonment of the Nuclear Project.

From time to time, political and public sentiment in connection with the merger and in connection with other matters, including the abandonment of the Nuclear Project, may result in a significant amount of adverse press coverage and other adverse public statements affecting Dominion Energy and the Company and Consolidated SCE&G. Adverse press coverage and other adverse statements, whether or not driven by political or public sentiment, may also result in investigations by regulators, legislators and law enforcement officials or in legal claims. Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceedings, as well as responding to and addressing adverse press coverage and other adverse public statements, can divert the time and effort of senior management from the management of Dominion Energy’s, the Company’s and Consolidated SCE&G’s respective businesses.

Addressing any adverse publicity, governmental scrutiny or enforcement or other legal proceedings is time consuming and expensive and, regardless of the factual basis for the assertions being made, can have a negative impact on the reputation of Dominion Energy, the Company and Consolidated SCE&G, on the morale and performance of their employees and on their relationships with their respective regulators, customers and commercial counterparties. It may also have a negative impact on their ability to take timely advantage of various business and market opportunities. The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have an adverse effect on Dominion Energy’s, the Company’s and Consolidated SCE&G’s respective business, financial condition, results of operations and prospects.

Pending litigation against SCANA and Dominion Energy could result in an injunction preventing the completion of the merger or may adversely affect the combined company’s business, financial condition or results of operations following the merger.

Following the announcement of the merger, three lawsuits were filed asserting claims relating to the merger. First, an existing derivative lawsuit was amended to assert direct claims of a putative class of SCANA shareholders in the Court of Common Pleas of the County of Richland, South Carolina against the members of the SCANA board of directors, Dominion Energy and Sedona Corp., alleging breaches of various fiduciary duties by the members of the SCANA board of directors in connection with the merger and alleging that Dominion Energy and Sedona Corp. aided and abetted such alleged breaches.

13


Second, two putative class actions on behalf of SCANA shareholders have been filed in the Court of Common Pleas of the Counties of Lexington and Richland, South Carolina, respectively, against SCANA, the members of the SCANA board of directors, Dominion Energy and Sedona Corp., alleging breaches of various fiduciary duties by the members of the SCANA board of directors in connection with the merger and alleging that SCANA, Dominion Energy and Sedona Corp. aided and abetted such alleged breaches. Among other remedies, the plaintiffs in each case seek to enjoin the merger and rescind the Merger Agreement. In addition, the second and third lawsuits seek in the alternative, should the merger be completed, an award of unspecified monetary damages.

While the defendants believe that dismissal is warranted, the outcome of any such litigation is inherently uncertain. The defense or settlement of any lawsuit or claim that remains unresolved at the time the merger closes may adversely affect the combined company’s business, financial condition or results of operation.

There is uncertainty as to whether the Company and Consolidated SCE&G will be able to recover costs expended for the Nuclear Project, and a reasonable return on those costs, under the abandonment provisions of the BLRA or through other means. As of December 31, 2017, the Company and Consolidated SCE&G have recognized a significant estimated impairment loss with respect to such investment and related costs. In the event the Company and Consolidated SCE&G were to determine that all or an additional portion of their remaining unrecovered Nuclear Project costs are to be disallowed and that significant additional impairment losses must be recognized, further material adverse impacts on their results of operations, cash flows and financial condition would occur.

During the term of the Interim Assessment Agreement, SCE&G and Santee Cooper evaluated the various elements of the Nuclear Project, including forecasted costs and completion dates, while construction continued, and SCE&G and Santee Cooper continued to make payments for such work. Based on this evaluation, and in light of Santee Cooper's decision to suspend construction, on July 31, 2017, the Company determined to stop construction of Unit 2 and Unit 3 and to pursue recovery of costs incurred in connection with such construction under the abandonment provisions of the BLRA or through other means. On July 31, 2017, SCE&G gave WEC a five-day notice of termination of the Interim Assessment Agreement, and notified WEC of its determination to stop construction of Unit 2 and Unit 3.

On August 1, 2017, SCE&G senior management provided an allowable ex parte briefing to the SCPSC regarding the Nuclear Project and this decision, and SCE&G also filed a petition with the SCPSC which included its plan of abandonment and certain proposed actions which would mitigate related customer rate increases, including a proposal to return to customers the net value of the proceeds received by SCE&G under or arising from the Toshiba Settlement.

The BLRA provides that, in the event of abandonment prior to plant completion, costs incurred, including AFC, and a return on those costs may be recoverable through rates, if the SCPSC determines that the decision to abandon the Nuclear Project was prudent. Through its August 1, 2017 petition, SCE&G had sought recovery of such costs expended on the construction of the project, including certain costs incurred subsequent to SCE&G's last revised rates update, and a reasonable return on those costs, and certain other costs under the abandonment provisions of the BLRA. Subsequently, SCE&G’s management met with various stakeholders and members of the South Carolina General Assembly, including legislative leaders, to discuss the abandonment of the Nuclear Project and to hear their concerns. In response to those concerns, and to allow for adequate time for governmental officials to conduct their reviews, SCE&G voluntarily withdrew its August 1, 2017 petition from the SCPSC on August 15, 2017.

In August 2017, special committees of the South Carolina General Assembly, both in the House of Representatives and in the Senate, began conducting public hearings regarding the decision to abandon the Nuclear Project. Members of SCE&G's senior management, along with representatives from Santee Cooper, the ORS and other interested parties, testified before these committees. Several legislative proposals adverse to the Company and Consolidated SCE&G resulted from the work of these committees and are being considered by the General Assembly in 2018. In January 2018, these committees reconvened for the purpose of considering the effects of the proposed merger. On January 31, 2018, the House of Representatives passed a bill (H. 4375) that would create an experimental rate which would effectively suspend collections from rates previously approved by the SCPSC under the BLRA. This experimental rate would remain in effect during the pendency of administrative proceedings currently before the SCPSC or any appeal therefrom. In addition, the South Carolina Senate passed a joint resolution (S. 954) which, if enacted, would prohibit the SCPSC from holding a hearing on the merits for a docket in which requests were made pursuant to the BLRA (other than an administrative or procedural hearing prior to such hearing on the merits), and would prohibit any final determination on any such requests, before November 1, 2018, and would require the SCPSC to issue a final order for such docket no later than December 21, 2018. Any bill must be approved by both legislative chambers and be signed by, or allowed to become law without the signature of, the Governor before it would be enacted. Neither the Company nor Consolidated SCE&G can predict if or when either of these bills could become law, the

14


precise impact of any change in the law, or what additional actions, if any, may be proposed or taken, including other legislative actions related to the BLRA.

In September 2017, the Company was served with a subpoena issued by the United States Attorney’s Office for the District of South Carolina seeking documents relating to the Nuclear Project. The subpoena requires the Company to produce a broad range of documents related to the project. Also in September 2017, the state's Office of Attorney General, the Speaker of the House of Representatives, and the Chair and Vice-Chair of the South Carolina House Utility Ratepayer Protection Committee requested that SLED conduct a criminal investigation into the handling of the Nuclear Project by SCANA and SCE&G. In October 2017, the staff of the SEC's Division of Enforcement also issued a subpoena for documents related to an investigation they are conducting related to the Nuclear Project. The Company and Consolidated SCE&G intend to fully cooperate with these investigations. No assurance can be given as to the timing or outcome of these matters.

On September 26, 2017, the South Carolina Office of Attorney General issued an opinion stating, among other things, that "as applied, portions of the BLRA are constitutionally suspect," including the abandonment provisions. Also on September 26, 2017, the ORS filed the Request with the SCPSC asking for an order directing SCE&G to immediately suspend all revised rates collections from customers which were previously approved by the SCPSC pursuant to the authority of the BLRA. In the Request, the ORS relied upon the opinion from the Office of Attorney General to assert that it is not just and reasonable or in the public interest to allow SCE&G to continue collecting revised rates. Further, the ORS noted the existence of an allegation that SCE&G failed to disclose information to the ORS that should have been disclosed and that would have appeared to provide a basis for challenging prior requests, and asserted that SCE&G should not be allowed to continue to benefit from nondisclosure. The ORS also asked for an order that, if the BLRA is found to be unconstitutional or the General Assembly amends or revokes the BLRA, then SCE&G should make credits to future bills or refunds to customers for prior revised rates collections. SCE&G estimates that revised rates collections currently total approximately $445 million annually, and the amounts accumulated as of December 31, 2017 total approximately $1.9 billion.

On September 27, 2017, the scheduled payments under the Toshiba Settlement, exclusive of the payment due in October 2017, were purchased by Citibank for a one-time upfront payment of $1.847 billion (approximately $1.016 billion for SCE&G's 55% share), including amounts related to certain liens that SCE&G was contesting but for which SCE&G may ultimately have been liable. The initial payment was then received from Toshiba on October 2, 2017, as scheduled, in the amount of $150 million ($82.5 million for SCE&G's 55% share). A regulatory liability has been recorded on the consolidated balance sheets to reflect the amount related to the Toshiba Settlement that will be utilized to benefit SCE&G's customers in a manner to be determined by the SCPSC. While this determination is pending, SCE&G has utilized portions of the proceeds to repay maturing commercial paper balances, which short-term borrowings had been incurred primarily for the construction of Unit 2 and Unit 3 prior to the decision to stop their construction. On October 17, 2017, the ORS filed a motion with the SCPSC to amend its earlier Request, in which the ORS asked the SCPSC to consider the most prudent manner by which SCE&G will enable its customers to realize the value of the monetized Toshiba Settlement payments and other payments made by Toshiba towards satisfaction of its obligations to SCE&G. It is possible that the outcome of regulatory or legal proceedings could result in requiring SCE&G's share of these proceeds to be placed in escrow pending their final disposition, or could require these proceeds to be refunded to customers in the near-term or otherwise make these funds unavailable to SCE&G. If any of these circumstances were to arise, it is anticipated that SCE&G would reissue commercial paper or draw on its credit facilities to fund such requirement. However, such sources may not be available. Any such requirement would significantly harm the Company's and Consolidated SCE&G's results of operations, cash flows and financial condition. In addition, the purchase agreement with Citibank provides that SCE&G and Santee Cooper (each according to its pro rata share) would indemnify Citibank for its losses arising from misrepresentations or covenant defaults under the purchase agreement.

On September 28, 2017, SCE&G filed a Motion to Dismiss the Request and a Request for Briefing Schedule and Hearing on Motion to Dismiss. On September 28, 2017, the SCPSC deferred action on the Request and ordered a hearing officer to establish a briefing schedule and hearing date on SCE&G's motion. Parties who filed to intervene in the matter or who filed a letter in support of the request by the ORS include the Governor, the state's Office of Attorney General and Speaker of the House of Representatives, the Electric Cooperatives of South Carolina, the SCEUC, certain large industrial customers, and several environmental groups. After conducting a hearing to consider SCE&G's motion, the SCPSC denied the motion on December 20, 2017 and ordered that a hearing be scheduled to consider the Request. The hearing has not yet been scheduled. SCE&G intends to continue vigorously contesting the Request, but cannot give any assurance as to the timing or outcome of this matter. Any adverse action by the SCPSC, such as that sought by the ORS in the Request, could have a material adverse impact on the Company's and Consolidated SCE&G's results of operations, cash flows and financial condition.

In the third quarter of 2017, SCE&G recorded a pre-tax impairment loss of $210 million related to unrecovered nuclear project costs. In the fourth quarter of 2017, SCE&G recorded an additional pre-tax impairment loss of $908 million related to such unrecovered costs and other related costs. See Note 10 to the consolidated financial statements. These

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impairment losses have had the effect of increasing the Company's and Consolidated SCE&G's debt to total capitalization. If the SCPSC were to rule in favor of the ORS in response to the Request that SCE&G suspend collections from customers of amounts previously authorized under the BLRA, or were other actions of the SCPSC or others taken in order to significantly restrict SCE&G’s access to revenues or impose additional adverse refund obligations on SCE&G, the Company’s and Consolidated SCE&G's assessments regarding the recoverability of all or a portion of the remaining balance of unrecovered Nuclear Project costs would be adversely impacted. Also, the recognition of significant additional impairment losses with respect to unrecovered Nuclear Project costs could further increase the Company’s and Consolidated SCE&G’s debt to total capitalization to a level which may limit their ability to borrow under their commercial paper programs or under their credit facilities and also could constitute a default under these credit facilities. Borrowing costs for long-term debt issuances and access to capital markets could also be negatively impacted.

The ability of SCE&G to recover its costs related to the construction and subsequent abandonment of the Nuclear Project, and a reasonable return on them, through rates will be subject to review and approval by the SCPSC. An application under the abandonment provisions of the BLRA, and the regulatory process contemplated thereby, have never been pursued or legally challenged. As a result, and in light of the contentious nature of the ongoing reviews by and related activities of the South Carolina House Utility Ratepayer Protection Committee, the South Carolina Senate's V.C. Summer Nuclear Project Review Committee and others, and given pending legislation, it is uncertain whether SCE&G will be able to successfully recover the costs of the abandoned units, and a reasonable return on them. Under the BLRA, the SCPSC must consider and rule on a petition within six months. Even so, and although expedited action has been requested by SCE&G, it is unclear when the SCPSC will consider the Joint Petition. In any case, anticipated appeals of any ruling by the SCPSC could be protracted. Further, should the regulatory construct in South Carolina change in such a manner that recovery is sought through other legal proceedings or through regulatory proceedings outside the provisions of the BLRA, such as in a general rate case, other uncertainties may arise, such as those highlighted with respect to the Merger Agreement.

Further downgrades in the credit ratings of SCANA or any of SCANA’s subsidiaries, including SCE&G, could negatively affect our ability to access capital and to operate our businesses, thereby adversely affecting results of operations, cash flows and financial condition.

Various rating agencies currently rate SCE&G’s senior secured debt and the senior unsecured debt of PSNC Energy as investment grade. One rating agency currently rates SCANA’s senior unsecured debt as investment grade, and two rating agencies rate SCANA's senior unsecured debt as below investment grade. In addition, rating agencies maintain ratings on the short-term debt of SCANA, SCE&G, Fuel Company (which ratings are based upon the guarantee of SCE&G) and PSNC Energy. Rating agencies consider qualitative and quantitative factors when assessing SCANA and its rated operating companies’ credit ratings, including regulatory environment, capital structure and the ability to meet liquidity requirements.

In the first quarter of 2017, the rating agencies placed SCANA and SCE&G’s credit ratings on negative outlook or watch status due to adverse developments relating to the WEC bankruptcy. In the third quarter of 2017, two agencies lowered their ratings for SCANA and its rated subsidiaries, citing a decline in the regulatory environment as a principal reason for the downgrades, and both agencies maintained their negative outlook or watch status. On January 3, 2018, after SCANA announced a proposed merger with Dominion Energy, each of the three agencies affirmed or reported no change to their respective credit ratings, and one agency revised its rating outlook for SCANA and its rated operating companies from negative to evolving. However, on January 31, 2018, the South Carolina House of Representatives overwhelmingly approved a bill (H. 4375) that, if enacted, would temporarily repeal rates SCE&G collects under the BLRA. As a result, on February 5, 2018, one agency downgraded its ratings for SCANA and SCE&G, and attributed the downgrade to the action taken by the House of Representatives and the politically charged environment that is expected to weigh heavily on any decisions by the SCPSC related to SCE&G's electric rates. All of the ratings for SCANA, SCE&G and PSNC Energy are either under review for possible downgrade or have a negative or evolving outlook.

Any actions taken by or anticipated to be taken by regulators or legislators that are viewed as adverse, including a change to the BLRA or a requirement that SCE&G make credits to future bills or refunds to customers above such amounts as are included in the Merger Agreement or any requirement that SCE&G make such credits or refunds in the absence of the merger being consummated, or deterioration of our rated companies’ commonly monitored financial credit metrics and additional adverse developments with respect to the Nuclear Project, could further negatively affect their debt ratings. If these rating agencies were to further lower any of these ratings, borrowing costs on new issuances of long-term debt and commercial paper would increase, which could adversely impact financial results or limit or eliminate refinancing opportunities, and the potential pool of investors and funding sources could decrease. Any further lowering of these ratings could also trigger higher interest costs as well as more stringent collateral requirements on interest rate and commodity hedges and under gas supply agreements and a reduction in the availability of suppliers.


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The Company and Consolidated SCE&G are defendants in numerous legal proceedings and the subject of ongoing governmental investigations, examinations and other inquiries stemming from the decision to abandon the Nuclear Project. The outcome of each of these matters is uncertain, and any resolution adverse to the Company and Consolidated SCE&G could adversely affect results of operations, cash flows and financial condition.
 
Following the Company’s decision to abandon construction of Unit 2 and Unit 3, putative derivative and class action lawsuits seeking have been filed in multiple state circuit courts and federal district court on behalf of customers, shareholders and SCANA (in the case of the derivative shareholder actions), against SCANA, SCE&G, or both, and in certain cases some of their officers and/or directors. The plaintiffs allege various causes of action, including but not limited to waste, breach of fiduciary duty, negligence, unfair trade practices, unjust enrichment, conspiracy, fraud, constructive fraud, misrepresentation and negligent misrepresentation, promissory estoppel, constructive trust, and money had and received, among other causes of action. Plaintiffs generally seek compensatory, consequential and statutory treble damages and such further relief as the court deems just and proper. In addition, certain plaintiffs seek a declaration that SCE&G may not charge its customers to reimburse itself for past and continuing costs of the Nuclear Project. Certain plaintiffs also seek to freeze or appoint a receiver for certain of SCE&G’s assets, namely all money SCE&G has received under the Toshiba payment guaranty and related settlement agreement for the Nuclear Project.

In addition, purported class action lawsuits have been filed on behalf of investors in federal court against SCANA and certain of its current and former executive officers and directors. The plaintiffs allege, among other things, that defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and two suits allege violations of the Racketeer Influenced and Corrupt Organizations Act. In one suit, the plaintiff alleges that director defendants violated Section 14(a) of the Exchange Act and SEC Rule 14a-9 by allowing or causing misleading proxy statements to be issued. The plaintiffs in each of these suits seek compensatory and consequential damages and such further relief as the court deems proper.

A complaint has been filed by Fairfield County against SCE&G making allegations of breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, and unfair trade practices related to SCE&G’s termination of the FILOT agreement. Plaintiff seeks injunctive relief to prevent SCE&G from terminating the FILOT agreement; actual and consequential damages; treble damages; punitive damages; and attorneys’ fees.

The Company has also been served with subpoenas issued by the United States Attorney’s Office for the District of South Carolina and the staff of the SEC's Division of Enforcement seeking documents relating to the Nuclear Project. In addition, the state's Office of Attorney General, the Speaker of the House of Representatives, and the Chair and Vice-Chair of the South Carolina House Utility Ratepayer Protection Committee have requested that SLED conduct a criminal investigation into the handling of the Nuclear Project by SCANA and SCE&G. The Company and Consolidated SCE&G intend to fully cooperate with any such investigations. Also in connection with the abandonment of the Nuclear Project, various state or local governmental authorities have challenged or may attempt to challenge, reverse or revoke one or more previously-approved tax or economic development incentives, benefits or exemptions, including use tax exemptions, and are attempting to apply such action retroactively.

The Company and Consolidated SCE&G cannot predict the outcome of these matters or other claims, allegations or assessments which may arise, and it is possible that adverse outcomes from some of these matters would not be covered by insurance. A resolution adverse to the Company and Consolidated SCE&G could adversely affect results of operations, cash flows and financial condition.

The Company and Consolidated SCE&G are engaged in activities for which they have claimed, and expect to claim in the future, research and experimentation tax deductions and credits and tax abandonment losses, all of which are the subject of uncertainty and which may be considered controversial by the taxing authorities.  The outcome of those uncertainties could adversely impact cash flows, results of operations and financial condition.

The Company and Consolidated SCE&G have claimed significant research and experimentation tax deductions and credits related to the design and construction activities of Unit 2 and Unit 3. A significant portion of these claims followed the issuance of final IRS regulations in 2014 regarding such treatment with respect to expenditures related to the design and construction of pilot models. (See also Note 5 to the consolidated financial statements.) The Company and Consolidated SCE&G also expect to claim a significant tax deduction related to the decision to stop construction and to abandon the Nuclear Project in 2017.

These tax claims primarily involve the timing of recognition of tax deductions rather than permanent tax attributes, and their permanent attributes (net), as well as most of the interest accruals required to be recorded with respect to them, had been deferred within regulatory assets. As such, until December 31, 2017 when it was determined to treat these deferrals as

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impaired (see Note 10 to the consolidated financial statements), these claims had not had, and were not expected to have in the future, significant direct effects on the Company’s and Consolidated SCE&G’s results of operations.  Nonetheless, the claims have contributed significantly to the Company’s and Consolidated SCE&G’s cash flows by providing a significant source of capital and lessening the level of debt and equity financing that the Company and Consolidated SCE&G have needed to raise in the financial markets. 

The claims made to date are under examination and are considered controversial by the IRS. Tax deductions which are expected to be claimed in connection with the determination to abandon the construction of Unit 2 and Unit 3 may also be considered controversial; therefore, it is also expected that the IRS will examine future tax returns. To the extent that any of these claims are not sustained as ordinary losses on examination or through any subsequent appeal, the Company and Consolidated SCE&G will be required to repay any cash received for tax benefit claims which are ultimately disallowed, along with interest on those amounts. Such amounts could be significant and could adversely affect the Company's and Consolidated SCE&G's liquidity, cash flows, results of operations and financial condition. In certain circumstances, which management considers to be remote, penalties for underpayment of income taxes could also be assessed. Additionally, in such circumstances, the Company and Consolidated SCE&G may need to access the capital markets to fund those tax and interest payments, which could in turn adversely impact their ability to access capital markets for other purposes.

The Company and Consolidated SCE&G are subject to numerous environmental laws and regulations that require significant capital expenditures, can increase our costs of operations and may impact our business plans or expose us to environmental liabilities.

The Company and Consolidated SCE&G are subject to extensive federal, state and local environmental laws and regulations, including those relating to water quality and air emissions (such as reducing NOX, SO2, mercury and particulate matter). Some form of regulation is expected at the federal and state levels to impose regulatory requirements specifically directed at reducing GHG emissions from fossil fuel-fired electric generating units. On August 3, 2015, the EPA issued a revised standard for new power plants by re-proposing NSPS under the CAA for emissions of CO2 from newly constructed fossil fuel-fired units. No new coal-fired plants could be constructed without partial carbon capture and sequestration capabilities. The Company and Consolidated SCE&G are monitoring the final rule, but do not plan to construct new coal-fired units in the foreseeable future. In addition, on August 3, 2015, the EPA issued its final rule on emission guidelines for states to follow in developing plans to address GHG emissions from existing units. On October 10, 2017, the Administrator of the EPA signed a notice proposing to repeal the rule on the grounds that it exceeds the EPA's statutory authority. The EPA is further considering the scope of any potential replacement rule and plans to formally solicit information on systems of emission reduction that are in accord with the EPA's interpretation of its statutory authority. However, a number of bills have been introduced in Congress that seek to require GHG emissions reductions from fossil fuel-fired electric generation facilities, natural gas facilities and other sectors of the economy, although none has yet been enacted. In April 2012, the EPA issued the finalized MATS for power plants that requires reduced emissions from new and existing coal and oil-fired electric utility steam generating facilities. The EPA's rule for cooling water intake structures to meet the best technology available became effective in October 2014, and the EPA also issued a final rule in December 2014 regarding the handling of coal ash and other combustion by-products produced by power plant operations. Furthermore, the EPA finalized new standards under the CWA governing effluent limitation guidelines for electric generating units in September 2015. The rule setting forth these new standards has been stayed administratively, and the EPA has begun a new rulemaking process that could take until 2020 before revisions to the effluent limitation guidelines for electric generating units is complete.

Compliance with these environmental laws and regulations requires us to commit significant resources toward environmental monitoring, installation of pollution control equipment, emissions fees and permitting at our facilities. These expenditures have been significant in the past and are expected to continue or even increase in the future. Changes in compliance requirements, additional regulations and related costs, or more restrictive interpretations by governmental authorities of existing requirements may impose additional costs on us (such as more stringent clean-up of contaminated sites or reduced emission allowances) or require us to incur additional expenditures or curtail some of our cost savings activities (such as the recycling of fly ash and other coal combustion products for beneficial use). Compliance with any GHG emission reduction requirements, including any mandated renewable portfolio standards, also may impose significant costs on us, and the resulting price increases to our customers may lower customer consumption. Such costs of compliance with environmental regulations could negatively impact our businesses and our results of operations and financial position, especially if emissions or discharge limits are reduced or more onerous permitting requirements or additional regulatory requirements are imposed. Additionally, there can be no assurance that a federal tax or fee for carbon emitting generating facilities will not be imposed.

Renewable and/or alternative electric generation portfolio standards may be enacted at the federal or state level. Such renewable energy may not be readily available in our service territories and could be costly to build, finance, acquire, integrate, and/or operate. Resulting increases in the price of electricity to recover the cost of these types of generation, and the costs of

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their integration to the electric system, could result in lower usage of electricity by our customers. In addition, DER generation at customers’ facilities could result in the loss of sales to those customers. Compliance with potential future portfolio standards could significantly impact our capital expenditures and our results of operations and financial condition. Utility scale solar development companies are currently working in South Carolina to develop projects in SCE&G's service territory. The integration of those resources at high penetration levels may be challenging.

The compliance costs of these environmental laws and regulations are important considerations in the Company's and Consolidated SCE&G's strategic planning and, as a result, significantly affect the decisions to construct, operate, and retire facilities, including generating facilities. In turn, they affect the costs and rates of the Company and Consolidated SCE&G. In effecting compliance with MATS, SCE&G has retired three of its oldest and smallest coal-fired units and converted three others such that they are gas-fired.

Commodity price changes, delays in delivery of commodities, commodity availability and other factors may affect the operating cost, capital expenditures and competitive positions of the Company’s and Consolidated SCE&G’s energy businesses, thereby adversely impacting results of operations, cash flows and financial condition.

Our energy businesses are sensitive to changes in coal, natural gas, uranium and other commodity prices (as well as their transportation costs), availability and deliverability. Any such changes could affect the prices these businesses charge, their operating costs, and the competitive position of their products and services. In addition, the abandonment of the Nuclear Project may heighten the Company's and Consolidated SCE&G's future exposure to volatility in prices of non-nuclear commodities such as natural gas. Consolidated SCE&G is permitted to recover the prudently incurred cost of purchased power and fuel (including transportation) used in electric generation through retail customers’ bills, but purchased power and fuel cost increases affect electric prices and therefore the competitive position of electricity against other energy sources. In addition, when natural gas prices are low enough relative to coal to result in the dispatch of gas-fired electric generation ahead of coal-fired electric generation, higher inventories of coal, with related increased carrying costs, may result. This may adversely affect our results of operations, cash flows and financial condition.

In the case of regulated natural gas operations, costs prudently incurred for purchased gas and pipeline capacity may be recovered through retail customers’ bills. However, in both our regulated and deregulated natural gas markets, increases in gas costs affect total retail prices and therefore the competitive position of gas relative to electricity and other forms of energy. Accordingly, customers able to do so may switch to alternate forms of energy and reduce their usage of gas from the Company and Consolidated SCE&G. Customers on a volumetric rate structure unable to switch to alternate fuels or suppliers may reduce their usage of gas from the Company and Consolidated SCE&G. A regulatory mechanism applies to residential and commercial customers at PSNC Energy to mitigate the earnings impact of an increase or decrease in gas usage.

Certain construction-related commodities, such as copper and aluminum used in our transmission and distribution lines and in our electrical equipment, and steel, concrete and rare earth elements, have experienced significant price fluctuations due to changes in worldwide demand. To operate our air emissions control equipment, we use significant quantities of ammonia, limestone and lime. With EPA-mandated industry-wide compliance requirements for air emissions controls, increased demand for these reagents, combined with the increased demand for low sulfur coal, may result in higher costs for coal and reagents used for compliance purposes.

Changing and complex laws and regulations to which the Company and Consolidated SCE&G are subject could adversely affect revenues, increase costs, or curtail activities, thereby adversely impacting results of operations, cash flows and financial condition.

The Company and Consolidated SCE&G operate under the regulatory authority of the United States government and its various regulatory agencies, including the FERC, NRC, SEC, IRS, EPA, the Department of Homeland Security, CFTC and PHMSA. In addition, the Company and Consolidated SCE&G are subject to regulation by the state governments of South Carolina, North Carolina and Georgia via regulatory agencies, state environmental agencies, and state employment commissions. Accordingly, the Company and Consolidated SCE&G must comply with extensive federal, state and local laws and regulations. Such governmental oversight and regulation broadly and materially affect the operation of our businesses. In addition to many other aspects of our businesses, these requirements impact the services mandated or offered to our customers, and the licensing, siting, construction and operation of facilities. They affect our management of safety, the reliability of our electric and natural gas systems, the physical and cyber security of key assets, customer conservation through DSM Programs, information security, the issuance of securities and borrowing of money, financial reporting, interactions among affiliates, the pricing of utility services, the payment of dividends and employment programs and practices. Changes to governmental regulations are continual and potentially costly to effect compliance. Non-compliance with these requirements by third parties, such as our contractors, vendors and agents, may subject the Company and Consolidated SCE&G to operational risks and to

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liability. We cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on the Company’s or Consolidated SCE&G’s businesses. Non-compliance with these laws and regulations could result in fines, litigation, loss of licenses or permits, mandated capital expenditures and other adverse business outcomes, as well as reputational damage, which could adversely affect the cash flows, results of operations, and financial condition of the Company and Consolidated SCE&G.

Furthermore, changes in or uncertainty in monetary, fiscal, tax, economic, trade, or regulatory policies of the Federal government may adversely affect the debt and equity markets and the economic climate for the nation, region or particular industries, such as ours or those of our customers. The Company and Consolidated SCE&G also could be adversely impacted by changes in tax policy, or taxes related to the usage of certain fuel types in our businesses or our ownership and/or operation of certain types of generating facilities. Future, unknown regulation of hydraulic fracturing activities also could impact the operations and finances of the Company and Consolidated SCE&G.

The Company and Consolidated SCE&G are subject to extensive rate regulation which could adversely affect operations. Large capital projects (including the abandonment of Unit 2 and Unit 3 as previously described), results of DSM Programs, results of DER programs, and/or increases in operating costs may lead to requests for regulatory relief and any related administrative or legislative action, decision, regulation or law affecting rates, such as rate increases, which may be denied, in whole or part, by rate regulators. Rate increases may also result in reductions in customer usage of electricity or gas, legislative action and lawsuits. Additionally, in 2017, several legislative proposals were introduced that are being or are expected to be considered by the South Carolina General Assembly in 2018. In the event certain provisions of these legislative proposals were to become law as proposed, such provisions could adversely impact SCE&G’s rate recovery with respect to the Nuclear Project. Furthermore, there can be no assurance that other legislation which might modify or repeal the BLRA in a manner which would adversely impact SCE&G’s rate recovery, including its reasonable return on costs, with respect to its abandonment of Unit 2 and Unit 3 will not be proposed and passed. Any such action could also result in a failure to consummate the merger.

SCE&G’s electric operations in South Carolina and the Company’s gas distribution operations in South Carolina and North Carolina are regulated by state utilities commissions. In addition, the ability of SCE&G to recover the cost of the Nuclear Project, including abandonment costs, and a reasonable return on those costs, is subject to rate regulation by the SCPSC. Consolidated SCE&G’s generating facilities are subject to extensive regulation and oversight from the NRC and SCPSC. SCE&G's electric transmission system is subject to extensive regulations and oversight from the SCPSC, NERC and FERC. Implementing and maintaining compliance with the NERC's mandatory reliability standards, enforced by FERC, for bulk electric systems could result in higher operating costs and capital expenditures. Non-compliance with these standards could subject SCE&G to substantial monetary penalties. Our gas marketing operations in Georgia are subject to state regulatory oversight and, for a portion of its operations, to rate regulation. There can be no assurance that Georgia’s gas delivery regulatory framework will remain unchanged as market conditions evolve.

Furthermore, Dodd-Frank affects the use and reporting of derivative instruments. The regulations under this legislation provide for substantial additional regulation of over-the-counter and security-based derivative instruments, among other things, and require numerous rule-makings by the CFTC and the SEC to implement, many of which are still pending final action by those federal agencies. The Company and Consolidated SCE&G have determined that they meet the end-user exception to mandatory clearing of swaps under Dodd-Frank. In addition, the Company and Consolidated SCE&G have taken steps to ensure that they are not the party required to report these transactions in real-time (the "reporting party") by transacting solely with swap dealers and major swap participants, when possible, as well as entering into reporting party agreements with counterparties who also are not swap dealers or major swap participants, which establishes that those counterparties are obligated to report the transactions in accordance with applicable Dodd-Frank regulations. While these actions minimize the reporting obligations of the Company, they do not eliminate required recordkeeping for any Dodd-Frank regulated transactions. Despite qualifying for the end-user exception to mandatory clearing and ensuring that neither the Company nor Consolidated SCE&G is the reporting party to a transaction required to be reported in real-time, we cannot predict when the final regulations will be issued or what requirements they will impose.

Our ability to charge customer rates that will allow us to maintain reasonable rates of return is dependent upon regulatory determinations, and there can be no assurance that we will be able to implement rate adjustments when sought.

The Company and Consolidated SCE&G are subject to the reputational risks that may result from a failure to adhere to high standards related to compliance with laws and regulations, ethical conduct, operational effectiveness, customer service and the safety of employees, customers and the public. These risks could adversely affect the valuation of our common stock and the Company’s and Consolidated SCE&G’s access to capital.


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The Company and Consolidated SCE&G are committed to comply with all laws and regulations, to assure reliability of provided services, to focus on the safety of employees, customers and the public, to ensure environmental compliance, to maintain the physical and cyber security of their operations and assets, to maintain the privacy of information related to our customers and employees, and to maintain effective communications with the public and key stakeholder groups, particularly during emergencies and times of crisis. Traditional news media and social media can very rapidly convey information, whether factual or not, to large numbers of people, including customers, investors, regulators, legislators and other stakeholders, and the failure to effectively manage timely, accurate communication through these channels could adversely impact our reputation. The Company and Consolidated SCE&G also are committed to operational excellence, to quality customer service, and, through our Code of Conduct and Ethics, to maintain high standards of ethical conduct in our business operations. A failure to meet these commitments, or a perceived failure to meet these commitments, may subject the Company and Consolidated SCE&G not only to fraud, regulatory action, litigation or financial loss, but also to reputational risk that could adversely affect the valuation of SCANA’s stock, adversely affect the Company’s and Consolidated SCE&G’s access to capital, and result in further regulatory oversight. Insurance may not be available or adequate to respond to these events.

A failure of the Company and Consolidated SCE&G to maintain the physical and cyber security of its operations may result in the failure of operations, damage to equipment, or loss of information, and could result in a significant adverse impact to the Company's and Consolidated SCE&G's financial condition, results of operations and cash flows.

The Company and Consolidated SCE&G depend on maintaining the physical and cyber security of their operations and assets.  As much of our business is part of the nation's critical infrastructure, the loss or impairment of the assets associated with that portion of our businesses could have serious adverse impacts on the customers and communities that we serve.  Virtually all of the Company's and Consolidated SCE&G's operations are dependent in some manner upon our cyber systems, which encompass electric and gas operations, nuclear and fossil fuel generating plants, human resource and customer systems and databases, information system networks, and systems containing confidential corporate information. Cyber systems, such as those of the Company and Consolidated SCE&G, are often targets of malicious cyber attacks. A successful physical or cyber attack could lead to outages, failure of operations of all or portions of our businesses, damage to key components and equipment, and exposure of confidential customer, vendor, shareholder, employee, or corporate information. The Company and Consolidated SCE&G may not be readily able to recover from such events. In addition, the failure to secure our operations from such physical and cyber events may cause us reputational damage. Litigation, penalties and claims from a number of parties, including customers, regulators and shareholders, may ensue. Insurance may not be adequate to mitigate the adverse impacts of these events. As a result, the Company's and Consolidated SCE&G's financial condition, results of operations, and cash flows may be adversely affected.

The Company and Consolidated SCE&G are vulnerable to interest rate increases, which would increase our borrowing costs, and we may not have access to capital at favorable rates, if at all. Additionally, potential disruptions in the capital and credit markets may further adversely affect the availability and cost of short-term funds for liquidity requirements and our ability to meet long-term commitments; each could in turn adversely affect our results of operations, cash flows and financial condition.

The Company and Consolidated SCE&G rely on the capital markets, particularly for publicly offered debt and equity, as well as the banking and commercial paper markets, to meet our financial commitments and short-term liquidity needs if internal funds are not available from operations. Changes in interest rates affect the cost of borrowing. The Company’s and Consolidated SCE&G’s business plans, which include significant investments in energy generation and other internal infrastructure projects, reflect the expectation that we will have access to the capital markets on satisfactory terms to fund commitments. Moreover, the ability to maintain short-term liquidity by utilizing commercial paper programs is dependent upon maintaining satisfactory short-term debt ratings and the existence of a market for our commercial paper generally.

The Company’s and Consolidated SCE&G’s ability to draw on our respective bank revolving credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments and on our ability to timely renew such facilities. Those banks may not be able to meet their funding commitments to the Company or Consolidated SCE&G if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time. Longer-term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access to liquidity needed for our businesses. Any disruption could require the Company and Consolidated SCE&G to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures or other discretionary uses of cash. Disruptions in capital and credit markets also could result in higher interest rates on debt securities, limited or no access to the commercial paper market, increased costs associated with commercial paper borrowing or limitations on the

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maturities of commercial paper that can be sold (if at all), increased costs under bank credit facilities and reduced availability thereof, and increased costs for certain variable interest rate debt securities of the Company and Consolidated SCE&G.

Disruptions in the capital markets and their actual or perceived effects on particular businesses and the greater economy also adversely affect the value of the investments held within SCANA’s pension trust. A significant long-term decline in the value of these investments may require us to make or increase contributions to the trust to meet future funding requirements. In addition, a significant decline in the market value of the investments may adversely impact the Company’s and Consolidated SCE&G’s results of operations, cash flows and financial condition, including its shareholders’ equity.

Operating results may be adversely affected by natural disasters, man-made mishaps and abnormal weather.

The Company has delivered less gas and, in deregulated markets, received lower prices for natural gas when weather conditions have been milder than normal, and as a consequence earned less income from those operations. Mild weather in the future could adversely impact the revenues and results of operations and harm the financial condition of the Company and Consolidated SCE&G. Hot or cold weather could result in higher bills for customers and result in higher write-offs of receivables and in a greater number of disconnections for non-payment. In addition, for the Company and Consolidated SCE&G, severe weather can be destructive, causing outages and property damage, adversely affecting operating expenses and revenues.

Natural disasters (such as hurricanes or other significant weather events, electromagnetic events, the 2011 earthquake and tsunami in Japan or fires) or man-made mishaps (such as natural gas transmission pipeline failure, electric utility companies' ash pond failures, and cyber-security failures experienced by many businesses) could have direct significant impacts on the Company and Consolidated SCE&G and on our key contractors and suppliers or could impact us through changes to federal, state or local policies, laws and regulations, and have a significant impact on our financial condition, operating expenses, and cash flows.

The costs of large capital projects, such as the Company’s and Consolidated SCE&G’s construction and environmental compliance, are significant, and these projects are subject to a number of risks and uncertainties that may adversely affect the cost, timing and completion of these projects.

The Company’s and Consolidated SCE&G’s businesses are capital intensive and require significant investments in electric generation and in other internal infrastructure projects, including projects for environmental compliance. Achieving the intended benefits of any large construction project is subject to many uncertainties. For instance, the ability to adhere to established budgets and construction schedules may be affected by many variables, such as the regulatory, legal, training and construction processes associated with securing approvals, permits and licenses and necessary amendments to them within projected timeframes, the availability of labor and materials at estimated costs, the availability and cost of financing, and weather. There also may be contractor or supplier performance issues or adverse changes in their creditworthiness and/or financial stability, unforeseen difficulties meeting critical regulatory requirements, contract disputes and litigation, and changes in key contractors or subcontractors. There may be unforeseen engineering problems or unanticipated changes in project design or scope. Our ability to complete construction projects as well as our ability to maintain current operations at reasonable cost could be affected by the availability of key components or commodities, increases in the price of or the unavailability of labor, commodities or other materials, increases in lead times for components, adverse changes in applicable laws and regulations, new or enhanced environmental or regulatory requirements, supply chain failures (whether resulting from the foregoing or other factors), and disruptions in the transportation of components, commodities and fuels. To the extent that, in connection with the construction of a project, delays occur, costs become unrecoverable, or we otherwise become unable to effectively manage and complete the project, our results of operations, cash flows and financial condition, as well as our qualifications for applicable governmental programs, benefits and tax credits may be adversely affected.

A significant portion of Consolidated SCE&G’s generating capacity is derived from nuclear power, the use of which exposes us to regulatory, environmental and business risks. These risks could increase our costs or otherwise constrain our business, thereby adversely impacting our results of operations, cash flows and financial condition.

SCE&G jointly owns and is the operator of Unit 1. Various risks of nuclear generation to which SCE&G is subject include the following:

The potential harmful effects on the environment and human health resulting from a release of radioactive materials in connection with the operation of nuclear facilities and the storage, handling and disposal of radioactive materials; 

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Limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with our nuclear operations or those of others in the United States;
The possibility that new laws and regulations could be enacted that could adversely affect the liability structure that currently exists in the United States;
Uncertainties with respect to procurement of nuclear fuel and suppliers thereof, fabrication of nuclear fuel and related vendors, and the storage of spent nuclear fuel;
Uncertainties with respect to contingencies if insurance coverage is inadequate;
Uncertainties with respect to possible future increased regulation of nuclear facilities and nuclear generation, and related costs thereof; and
Uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their operating lives.

The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Revised safety requirements promulgated by the NRC could necessitate capital expenditures at nuclear plants such as ours. In today’s environment, there is a heightened risk of terrorist attack on the nation’s nuclear facilities, which has resulted in increased security costs at our nuclear plant. Although we have no reason to anticipate a serious nuclear incident, a major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit, resulting in costly changes to units in operation and adversely impacting our results of operations, cash flows and financial condition. Furthermore, a major incident at a domestic nuclear facility could result in retrospective premium assessments under our nuclear insurance coverages.

Potential competitive changes may adversely affect our gas and electricity businesses due to the loss of customers, reductions in revenues, or write-down of stranded assets.

The utility industry has been undergoing structural change for a number of years, resulting in increasing competitive pressures on electric and natural gas utility companies. Competition in wholesale power sales via an RTO/ISO is in effect across much of the country, but the Southeastern utilities have retained the traditional bundled, vertically integrated structure. Should an RTO/ISO-market be implemented in the Southeast, potential risks emerge from reliance on volatile wholesale market prices as well as increased costs associated with new transmission and distribution infrastructure.

Some states have also mandated or encouraged unbundled retail competition. Should this occur in South Carolina or North Carolina, increased competition may create greater risks to the stability of utility earnings generally and may in the future reduce earnings from retail electric and natural gas sales. In a deregulated environment, formerly regulated utility companies that are not responsive to a competitive energy marketplace may suffer erosion in market share, revenues and profits as competitors gain access to their customers. In addition, the Company’s and Consolidated SCE&G’s generation assets would be exposed to considerable financial risk in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, a write-down in the value of the related assets could be required.

The Company and Consolidated SCE&G are subject to the risk of loss of sales due to the growth of distributed generation especially in the form of renewable power such as solar photovoltaic systems, which systems have undergone a rapid decline in their costs. As a result of federal and state subsidies, potential regulations allowing third-party retail sales, and advances in distributed generation technology, the growth of such distributed generation could be significant in the future. Such growth will lessen Company and Consolidated SCE&G sales and will slow growth, potentially causing higher rates to customers.

The Company and Consolidated SCE&G are subject to risks associated with changes in business and economic climate which could adversely affect revenues, results of operations, cash flows and financial condition and could limit access to capital.

Sales, sales growth and customer usage patterns are dependent upon the economic climate in the service territories of the Company and Consolidated SCE&G, which may be affected by regional, national or even international economic factors. Adverse events, economic or otherwise, may also affect the operations of suppliers and key customers. Such events may result in the loss of suppliers or customers, in higher costs charged by suppliers, in changes to customer usage patterns and in the failure of customers to make timely payments to us. With respect to the Company, such events also could adversely impact the results of operations through the recording of a goodwill or other asset impairment. Also, in connection with the pending merger, some customers or vendors of the Company and Consolidated SCE&G may delay or defer decisions, which could

23


negatively impact the revenues, earnings, cash flows and expenses of the Company and Consolidated SCE&G regardless of whether the merger is completed. The success of local and state governments in attracting new industry to our service territories is important to our sales and growth in sales, as are stable levels of taxation (including property, income or other taxes) which may be affected by local, state, or federal budget deficits, adverse economic climates generally, legislative actions (including tax reform), or regulatory actions. Industrial and commercial customer growth also potentially is affected by the availability of "clean" energy options in our service territory. Budget cutbacks also adversely affect funding levels of federal and state support agencies and non-profit organizations that assist low income customers with bill payments.

In addition, conservation and demand side management efforts and/or technological advances may cause or enable customers to significantly reduce their usage of the Company’s and SCE&G’s products and adversely affect sales, sales growth, and customer usage patterns. For instance, improvements in energy storage technology, if realized, could have dramatic impacts on the viability of and growth in distributed generation.

Factors that generally could affect our ability to access capital include economic conditions and our capital structure. Much of our business is capital intensive, and achievement of our capital plan and long-term growth targets is dependent, at least in part, upon our ability to access capital at rates and on terms that are attractive. If our ability to access capital becomes significantly constrained, our interest costs will likely increase and our financial condition and future results of operations could be adversely impacted.

Problems with operations could cause us to curtail or limit our ability to serve customers or cause us to incur substantial costs, thereby adversely impacting revenues, results of operations, cash flows and financial condition.

Critical processes or systems in the Company’s or Consolidated SCE&G’s operations could become impaired or fail from a variety of causes, such as equipment breakdown, transmission equipment failure, information systems failure or security breach, operator error, natural disasters, and the effects of a pandemic, terrorist attack or cyber attack on our workforce or facilities or on vendors and suppliers necessary to maintain services key to our operations.

In particular, as the operator of power generation facilities, many of which entered service prior to 1985 and may be difficult to maintain, Consolidated SCE&G could incur problems, such as the breakdown or failure of power generation or emission control equipment, transmission equipment, or other equipment or processes which would result in performance below assumed levels of output or efficiency. The integration of a significant amount of distributed generation into our systems may entail additional cycling of our coal-fired generation facilities and may thereby increase the number of unplanned outages at those facilities. In addition, any such breakdown or failure may result in Consolidated SCE&G purchasing emission allowances or replacement power at market rates, if such allowances and replacement power are available at all. These purchases are subject to state regulatory prudency reviews for recovery through rates. If replacement power is not available, such problems could result in interruptions of service (blackout or brownout conditions) in all or part of SCE&G’s territory or elsewhere in the region. Similarly, a natural gas line failure of the Company or Consolidated SCE&G could affect the safety of the public, destroy property, and interrupt our ability to serve customers.

Events such as these could entail substantial repair costs, litigation, fines and penalties, and damage to reputation, each of which could have an adverse effect on the Company’s and Consolidated SCE&G's revenues, results of operations, cash flows, and financial condition. Insurance may not be available or adequate to mitigate the adverse impacts of these events.

SCANA’s ability to pay dividends and to make payments on SCANA’s debt securities may be limited by covenants in certain financial instruments and by the financial results and condition of its subsidiaries, thereby adversely impacting the valuation of our common stock and our access to capital.

We are a holding company that conducts substantially all of our operations through our subsidiaries. Our assets consist primarily of investments in subsidiaries. Therefore, our ability to meet our obligations for payment of interest and principal on outstanding debt and to pay dividends to shareholders and corporate expenses depends on the earnings, cash flows, financial condition and capital requirements of our subsidiaries, and the ability of our subsidiaries, principally Consolidated SCE&G, PSNC Energy and SCANA Energy, to pay dividends or to repay funds to us. Our ability to pay dividends on our common stock may also be limited by existing or future covenants limiting the right of our subsidiaries to pay dividends on their common stock. Further, SCANA has agreed to obtain the consent of Dominion Energy, which consent cannot be unreasonably withheld, prior to making dividend payments to shareholders greater than $0.6125 per share for any quarter while the Merger Agreement is pending. Any significant reduction in our payment of dividends in the future may result in a decline in the value of our common stock. Such a decline in value could limit our ability to raise debt and equity capital.


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The use of derivative instruments could result in financial losses and liquidity constraints. The Company and Consolidated SCE&G do not fully hedge against financial market risks or price changes in commodities. This could result in increased costs, thereby resulting in lower margins and adversely affecting results of operations, cash flows and financial condition.

The Company and Consolidated SCE&G use derivative instruments, including futures, forwards, options and swaps, to manage our financial market risks. The Company also uses such derivative instruments to manage certain commodity (i.e., natural gas) market risk. We could be required to provide cash collateral or recognize financial losses on these contracts as a result of volatility in the market values of the underlying commodities and financial contracts or if a counterparty fails to perform under a contract. We could also be required to provide additional cash collateral if credit rating agency downgrades of our debt trigger more stringent requirements.

The Company strives to manage commodity price exposure by establishing risk limits and utilizing various financial instruments (exchange traded and over-the-counter instruments) to hedge physical obligations and reduce price volatility. We do not hedge the entire exposure of our operations from commodity price volatility. To the extent we do not hedge against commodity price volatility or our hedges are not effective, results of operations, cash flows and financial condition may be adversely impacted.

Failure to retain and attract key personnel could adversely affect the Company’s and Consolidated SCE&G’s operations and financial performance, particularly in light of uncertainties related to and resulting from abandonment of the Nuclear Project and the pending merger.

A significant portion of our workforce will be eligible for retirement during the next few years. Uncertainties related to regulatory, legislative and legal proceedings, as well as the proposed merger, also weigh significantly on the employment considerations made by current and prospective employees. We must attract, retain and develop executive officers and other professional, technical and craft employees with the skills and experience necessary to successfully manage, operate and grow our businesses. Competition for these employees is high, and in some cases we must compete for these employees on a regional or national basis. We may be unable to attract and retain these personnel. Further, the Company’s or Consolidated SCE&G’s ability to construct or maintain generation or other assets requires the availability of suitable skilled contractor personnel. We may be unable to obtain appropriate contractor personnel at the times and places needed. Labor disputes with employees or contractors covered by collective bargaining agreements also could adversely affect implementation of our strategic plan and our operational and financial performance. Furthermore, increased medical benefit costs of employees and retirees could adversely affect the results of operations of the Company and Consolidated SCE&G. Medical costs in this country have risen significantly over the past number of years and are expected to continue to increase at unpredictable rates. Such increases, unless satisfactorily managed by the Company and Consolidated SCE&G, could adversely affect results of operations.

The Company and Consolidated SCE&G are subject to the risk that strategic decisions made by us either do not result in a return of or on invested capital or might negatively impact our competitive position, which can adversely impact our results of operations, cash flows, financial condition, and access to capital.

From time to time, the Company and Consolidated SCE&G make strategic decisions that may impact our direction with regard to business opportunities, the services and technologies offered to customers or that are used to serve customers, and the generating plants and other infrastructure that form the basis of much of our business. These strategic decisions may not result in a return of or on our invested capital, and the effects of these strategic decisions may have long-term implications that are not likely to be known to us in the short-term. Changing political climates and public attitudes, including customers' concerns regarding rate increases, such as the current environment relating to proposed recovery of costs, and a reasonable return on those costs, under the abandonment provisions of the BLRA or through other means, may adversely affect the ongoing acceptability of strategic decisions that have been made (and, in some cases, previously supported by legislation or approved by regulators), to the detriment of the Company or Consolidated SCE&G (e.g., revision or repeal of the BLRA). In addition, operating covenants in the Merger Agreement require the consent of Dominion Energy prior to SCANA taking certain actions, which consent cannot be unreasonably withheld, during the pendency of the merger. As a result, the Company and Consolidated SCE&G may be unable to pursue strategic transactions, undertake significant capital projects, undertake certain significant financing or other specified transactions or pursue actions that are not in the ordinary course of business even if such actions would prove beneficial. Further, the Company's and Consolidated SCE&G's management may be focused on completion of the merger, which could lead to the disruption of ongoing business or inconsistencies in service, standards, controls, procedures and policies, any of which could adversely affect the ability of the Company and Consolidated SCE&G to maintain relationships with customers, regulators, vendors and employees, or could otherwise adversely affect their business and financial results, without realizing any of the benefits of having the merger completed. Over time, these strategic decisions or changing attitudes toward such decisions, which could be adverse to the Company’s or Consolidated SCE&G’s interests,

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may have a negative effect on our results of operations, cash flows and financial condition, as well as limit our ability to access capital.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
Not Applicable

ITEM 2. PROPERTIES
 
SCANA owns no significant property other than the capital stock of each of its subsidiaries. It holds directly all of the capital stock of each of its subsidiaries.
SCE&G's bond indenture, which secures its First Mortgage Bonds, constitutes a direct mortgage lien on substantially all of its electric utility property. GENCO's Williams Station is also subject to a first mortgage lien which secures certain outstanding debt of GENCO.
Electric Properties

The following table shows the electric generating facilities and their net generating capacity as of December 31, 2017.
 
 
Net Generating Capacity
 
In-Service
Summer
 
Date
(MW)
Coal-Fired Steam:
 
 
  Wateree - Eastover, SC
1970
684

  Williams - Goose Creek, SC
1973
605

  Cope - Cope, SC
1996
415

  Kapstone - Charleston, SC
1999
85

 
 
 
Gas-Fired Steam:
 
 
  McMeekin - Irmo, SC
1958
250

  Urquhart Unit 3 - Beech Island, SC
1953
95

 
 
 
Nuclear:
 
 
  Summer Station Unit 1 - Parr, SC (reflects SCE&G's 66.7% ownership share)
1984
647

 
 
 
Internal Combustion Turbines:
 
 
  Jasper Combined Cycle - Jasper, SC
2004
852

  Urquhart Combined Cycle - Beech Island, SC
2002
458

  Peaking units - various locations in SC
1968-2010
348

 
 
 
Hydro:
 
 
  Fairfield Pumped Storage - Parr, SC
1978
576

  Saluda - Irmo, SC
1930
200

  Other - various locations in or bordering SC
1905-1914
18


SCE&G owns 436 substations having an aggregate transformer capacity of 32.1 million Kilovolt ampere. The transmission system consists of 3,469 miles of lines, and the distribution system consists of 18,559 pole miles of overhead lines and 7,622 trench miles of underground lines.
 
Natural Gas Distribution and Transmission Properties
 
SCE&G's natural gas system includes 447 miles of transmission pipeline of up to 20 inches in diameter that connect its distribution system with Southern Natural, Transco and DECG. SCE&G’s distribution system consists of 17,671 miles of distribution mains and related service facilities. SCE&G also owns two LNG plants, one located near Charleston, South Carolina, and the other in Salley, South Carolina. The Charleston facility can liquefy up to 6,180 MMBTU per day and store the liquefied equivalent of 1,009,400 MMBTU of natural gas. The Salley facility can store the liquefied equivalent of 927,000 MMBTU of natural gas and has no liquefying capabilities. The LNG facilities have the capacity to regasify approximately 61,800 MMBTU per day at Charleston and 92,700 MMBTU per day at Salley.
 
PSNC Energy’s natural gas system consists of 607 miles of transmission pipeline of up to 24 inches in diameter that connect its distribution systems with Transco. PSNC Energy’s distribution system consists of 22,141 miles of distribution mains and related service facilities. PSNC Energy owns one LNG plant with storage capacity of 1,000,000 MMBTU, the capacity to liquefy up to 4,000 MMBTU per day and the capacity to regasify approximately 100,000 MMBTU per day.

ITEM 3.  LEGAL PROCEEDINGS
 
SCANA and SCE&G:

The following describes certain legal proceedings through December 31, 2017. The Company and Consolidated SCE&G intend to vigorously contest the lawsuits which have been filed against them. For developments related to these or other proceedings subsequent to December 31, 2017, see Note 2 and Note 10 to the consolidated financial statements. No reference to, or disclosure of, any proceeding, item or matter described below shall be construed as an admission or indication that such proceeding, item or matter is material or that such proceeding, items or matter is required to be referred to or disclosed in this Form 10-K.

Ratepayer Class Actions

On August 11, 2017, a purported class action was filed against SCE&G by plaintiff LeBrian Cleckley (the “Cleckley Lawsuit”), on behalf of himself and all others similarly situated, in the State Court of Common Pleas in Richland County, South Carolina (the “Richland County Court”). The plaintiff alleges, among other things, that SCE&G was negligent and unjustly enriched and breached alleged fiduciary and contractual duties by failing to properly manage the Nuclear project. The plaintiff seeks to recover, on behalf of the purported class, unspecified damages and attorneys’ fees, specific performance of the alleged implied contract to construct the now abandoned project, and any other relief the court deems proper. At December 31, 2017, SCE&G’s amended motion to dismiss was scheduled to be heard on January 8, 2018. Also at December 31, 2017, the following additional motions were pending: SCE&G’s Motion for Protective Order, filed October 2, 2017; Plaintiff’s Motion to Compel Discovery, filed October 20, 2017; and Plaintiff’s Motion to Appoint a Receiver, filed November 1, 2017. By order dated October 31, 2017, the South Carolina Supreme Court consolidated all pending state court ratepayer class actions and assigned the consolidated cases to a single Circuit Court judge.
On August 14, 2017, a purported class action was filed against SCE&G by plaintiff Richard Lightsey (the "Lightsey Lawsuit"), on behalf of himself and all others similarly situated, in the State Court of Common Pleas in Hampton County (the "Hampton County Court"). The plaintiff makes substantially similar allegations as those alleged in the Cleckley Lawsuit and, in addition, alleges that SCE&G committed unfair trade practices and violated state anti-trust laws. The plaintiff seeks a declaratory judgment that SCE&G may not charge its customers for any past or continuing costs of the Nuclear Project. The plaintiff also seeks compensatory, punitive and statutory treble damages, attorneys’ fees, and any other relief the court deems proper. On August 25, 2017, SCE&G filed a motion to transfer venue to Lexington County, South Carolina. At December 31, 2017, the following motions were pending: Plaintiff’s Motion for Class Certification, filed August 23, 2017; SCE&G’s Motion to Dismiss, etc., filed September 14, 2017; SCE&G’s Motion for Protective Order, filed September 26, 2017; Plaintiff’s Motion to Compel, filed October 12, 2017; and SCE&G’s Motion to Dismiss, etc., Second Amended Complaint, filed October 24, 2017.

On August 28, 2017, a purported class action was filed against SCANA and SCE&G by plaintiff Edwinda Goodman, on behalf of herself and all others similarly situated, in the State Court of Common Pleas in Fairfield County (the “Fairfield County Court”). The plaintiff makes substantially similar allegations as those alleged in the Cleckley Lawsuit and, in addition, alleges that SCE&G committed fraud and misrepresentation in failing to properly manage the Nuclear Project. The plaintiff seeks to have the defendants’ assets frozen and all monies recovered from Toshiba and other sources be placed in a constructive trust for the benefit of ratepayers. The plaintiff also seeks compensatory, punitive and treble damages, attorneys’ fees, and any other relief the court deems proper. At December 31, 2017, the following motions were pending: SCE&G’s Motion to Dismiss and Strike, filed October 2, 2017; SCE&G’s Motion for Protective Order, filed October 2, 2017; and Plaintiff’s Motion to Appoint Receiver and Expedite Hearing, served November 2, 2017.


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On September 7, 2017, a purported class action was filed against Santee Cooper, SCE&G, Palmetto Electric Cooperative, Inc. and Central Electric Power Cooperative, Inc. by plaintiff Jessica Cook, on behalf of herself and all others similarly situated, in the Hampton County Court. The plaintiff makes substantially similar allegations as the Cleckley Lawsuit and the Lightsey Lawsuit. The plaintiff seeks a declaratory judgment that defendants may not charge the purported class for reimbursement for past or future costs of the Nuclear Project, as well as other compensatory and statutory treble damages, attorneys’ fees, and any other relief the court deems proper. At December 31, 2017, the following motions were pending: SCE&G’s Motion to Dismiss and to Strike, filed October 11, 2017; SCE&G’s Motion for Protective Order, filed October 11, 2017; Santee Cooper’s Motion to Dismiss Third Amended Complaint, filed October 24, 2017; Plaintiff’s Motion for Default Judgment against Central Electric Power Cooperative, filed November 1, 2017; and Central Electric Power Cooperative, Inc.’s Motion to Dismiss Third Amended Complaint, filed November 16, 2017.

Also on September 7, 2017, a purported class action was filed against Santee Cooper and SCANA by plaintiffs Hope Brown and Thomas Lott, on behalf of themselves and all others similarly situated, in the Richland County Court. The plaintiffs allege, among other things, that SCE&G conspired with Santee Cooper to unlawfully deprive plaintiffs of their property rights guaranteed under the United States and South Carolina Constitutions and were unjustly enriched by the Nuclear Project. The plaintiffs seek disgorgement of all monies spent by defendants on the project, as well as other compensatory and punitive damages, attorneys’ fees, and any other relief the court deems proper. Plaintiffs’ counsel voluntarily dismissed this action without prejudice on November 12, 2017.

On September 25, 2017, a purported class action was filed against SCANA by plaintiff Christine Delmater, on behalf of herself and all others similarly situated, in the District Court. The plaintiff alleges, among other things, that SCE&G violated provisions of the Racketeer Influenced and Corrupt Organizations Act 18 U.S.C. §1961, was negligent, breached alleged contractual duties, and was unjustly enriched by failing to properly manage the Nuclear Project. The plaintiff seeks compensatory and consequential damages, and any other relief the court deems proper. Plaintiff filed its Second Amended Complaint on November 7, 2017, and filed a Motion for Injunctive Relief on November 8, 2017. Following extensions, responsive pleadings to the Second Amended Complaint and the Motion for Injunctive Relief were filed December 21, 2017.

On October 9, 2017, plaintiffs Chris Kolbe and Ruth Ann Keffer filed an amended complaint in a purported class action, on behalf of themselves and all others similarly situated, against Santee Cooper and certain of its directors and officers, in the Berkeley County Court of Common Pleas, naming SCE&G and SCANA as additional defendants. The plaintiffs allege, among other things, that SCE&G and SCANA were grossly negligent, reckless, breached contracts, were unjustly enriched, and violated principles of equity in connection with their management of the Nuclear Project. The plaintiffs seek compensatory damages and attorneys’ fees, and a declaratory judgment as to Santee Cooper’s rates. SCANA and SCE&G filed a Motion to Dismiss and to Strike on November 17, 2017.

Shareholder Derivative and 10b-5 Class Actions

On September 26, 2017, a purported shareholder derivative action was filed against defendants Kevin Marsh, Gregory Aliff, James Bennett, John Cecil, Sharon Decker, Maybank Hagood, Lynne Miller, James Roquemore, Maceo Sloan, Alfredo Trujillo, Jimmy Addison, Stephen Byrne, and nominal defendant SCANA by plaintiff John Crangle, purportedly on behalf of SCANA, in the Richland County Court (the "Crangle Lawsuit"). The plaintiff alleges, among other things, that the defendants breached their fiduciary duties to shareholders by their gross mismanagement of the Nuclear Project, and that the defendants Marsh, Addison, and Byrne were unjustly enriched by bonuses they were paid in connection with the project. The plaintiff seeks compensatory and consequential damages, attorneys’ fees, and any other relief the court deems proper. Defendants filed motions to dismiss the complaint in December 2017.

On September 27, 2017, a purported class action was filed against SCANA, Kevin B. Marsh, Jimmy E. Addison, and Stephen A. Byrne by plaintiff Robert L. Norman, on behalf of himself and all others similarly situated, in the District Court. The plaintiff alleges, among other things, that the defendants violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and that the individual named defendants are liable under §20(a) of the Exchange Act. The plaintiff seeks compensatory and consequential damages, attorneys’ fees, and any other relief the court deems proper.

On October 5, 2017, a purported class action was filed against SCANA, Kevin B. Marsh, and Jimmy E. Addison by plaintiff Kenneth Evans on behalf of himself and all others similarly situated in the District Court. The plaintiff alleges, among other things, that the defendants violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and that the individual named defendants violated §20(a) of the Exchange Act. The plaintiff seeks compensatory and consequential damages, attorneys’ fees, and any other relief the court deems proper.


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On October 30, 2017, a purported shareholder derivative action was filed against Kevin Marsh, Gregory Aliff, James Bennett, John Cecil, Sharon Decker, Maybank Hagood, Lynn Miller, James Roquemore, Maceo Sloan, Aldredo Trujillo, Jimmy Addison, Stephen Byrne, and SCANA by plaintiff R. Wayne Todd, purportedly on behalf of SCANA in Richland County Court (the “Todd Lawsuit”). The plaintiff makes substantially similar allegations as those alleged in the Crangle Lawsuit, and alleges that the defendants Marsh, Addison, and Byrne were unjustly enriched by bonuses they were paid in connection with the Nuclear Project. The plaintiff seeks compensatory and consequential damages, punitive damages, attorneys’ fees, and any other relief the court deems proper. Defendants filed motions to dismiss the complaint in December 2017.

On November 10, 2017, a purported class action was filed against SCANA, Kevin Marsh, Jimmy Addison, and Steve Byrne by plaintiff Marsha Fox on behalf of herself and all others similarly situated in the District Court. The plaintiff alleges, among other things, that the defendants violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and that the individual named defendants violated §20(a) of the Exchange Act. The plaintiff seeks compensatory and consequential damages, attorneys’ fees, and any other relief the court deems proper.

On November 17, 2017, a purported class action was filed against SCANA, Kevin B. Marsh, Jimmy E. Addison, and Steve B. Byrne by plaintiff West Palm Beach Firefighters’ Pension Fund on behalf of itself and all others similarly situated in the District Court. The plaintiff alleges, among other things, that the defendants violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and that the individual named defendants violated §20(a) of the Exchange Act. The plaintiff seeks compensatory and consequential damages, attorneys’ fees, and any other relief the court deems proper.

On November 21, 2017, a purported shareholder derivative action was filed against Kevin Marsh, Gregory Aliff, James Bennett, John Cecil, Sharon Decker, Maybank Hagood, Lynn Miller, James Roquemore, Maceo Sloan, Aldredo Trujillo, Jimmy Addison, Stephen Byrne, and SCANA by plaintiff Colleen Witmer, purportedly on behalf of SCANA in the District Court. The plaintiff alleges, among other things, that the defendants violated their fiduciary duties to shareholders by disseminating false and misleading information about the Nuclear Project, failing to maintain proper internal controls, failing to properly oversee and manage the company, and that the individual defendants were unjustly enriched in their compensation. The plaintiff seeks compensatory and consequential damages, disgorgement of compensation, punitive damages, attorneys’ fees, and any other relief the court deems proper.

On November 22, 2017, a purported shareholder derivative action was filed against Kevin Marsh, Gregory Aliff, James Bennett, John Cecil, Sharon Decker, Maybank Hagood, Lynn Miller, James Roquemore, Maceo Sloan, Aldredo Trujillo, and SCANA by plaintiff Richard Wickstrom, purportedly on behalf of SCANA in the District Court. The plaintiff alleges, among other things, that the defendants violated their fiduciary duties to shareholders by affirmatively making and allowing material misstatements to be made to shareholders regarding the Nuclear Project. The plaintiff seeks compensatory and consequential damages, disgorgement of Marsh’s compensation, attorneys’ fees, and any other relief the court deems proper.

On December 5, 2017, a purported shareholder derivative action was filed against Kevin B. Marsh, Stephen A. Byrne, Jimmy Addison, Gregory E. Aliff, James A. Bennett, John F.A.V. Cecil, Sharon A. Decker, D. Maybank Hagood, Lynne M. Miller, James W. Roquemore, Maceo K. Sloan, Aldredo Trujillo, James M. Micali, Harold C. Stowe, and nominal defendant SCANA by plaintiff City of Hollywood Employees Retirement Fund in the District Court. The plaintiff alleges, among other things, that the defendants violated their fiduciary duties to shareholders by their gross mismanagement of the Nuclear Project, committed corporate waste, were unjustly enriched, and that the director defendants violated Section 14(a) of the Exchange Act and SEC Rule 14a-9 by allowing or causing misleading proxy statements to be issued in 2016 and 2017. Plaintiff seeks equitable and injunctive relief related to corporate governance functions, as well as compensatory and consequential damages, disgorgement of compensation, attorneys’ fees, and any other relief the court deems proper.

On December 13, 2017, a purported shareholder derivative action was filed against Kevin Marsh, Jimmy Addison, Stephen Byrne, Maybank Hagood, Lynne Miller, James Bennett, Maceo Sloan, Sharon Decker, James Roquemore, Alfredo Trujillo, John F.A.V. Cecil, Gregory Aliff, James Micali, Harold Stowe, and nominal defendant SCANA by plaintiff Firemen's Retirement System of St. Louis, purportedly on behalf of SCANA, in the Richland County Court. The plaintiff makes substantially similar allegations as those alleged in the Crangle and Todd Lawsuits. The plaintiff seeks compensatory and consequential damages, injunctive relief, restitution, attorneys’ fees, and any other relief the court deems proper.

Contractor Lien Litigation

On April 27, 2017, SCE&G filed a declaratory judgment lawsuit in the Fairfield County Court against Structural Preservation Systems, Inc., a subcontractor to WECTEC and several dozen other companies that were WECTEC subcontractors, or who otherwise provided such labor and materials for other companies for the use and benefit of WECTEC (collectively, the “WECTEC Subcontractors”), who claimed that WECTEC had not paid them for work on the Nuclear Project.

28



The lawsuit was filed for the purpose of asserting SCE&G’s common defenses to such claims by the WECTEC Subcontractors that WECTEC owed them payment for labor or materials they supplied on the project. Since that time, more than 40 individual cases have been filed by WECTEC Subcontractors against SCE&G and Santee Cooper asserting statutory and common law claims against both entities for alleged non-payment by WECTEC. On September 29, 2017, SCE&G obtained a court order consolidating all current and future lawsuits among SCE&G, Santee Cooper, and the WECTEC Subcontractors arising out of allegations of non-payment of the WECTEC Subcontractors by WEC. SCE&G also obtained a court order that designated all such lawsuits as complex and assigning them to one judge. Finally, SCE&G obtained a third court order that stayed any party's otherwise required response to any lawsuit, claim, cross-claim, counterclaim, or third party claim in these lawsuits until the parties could work on case management issues and present a plan for case management to the judge assigned the cases. The lawsuits are in the pleadings stage. The WECTEC Subcontractors have made claims including but not limited to foreclosure of mechanics liens, common law theories including but not limited to negligence and breach of contract, equitable theories including the imposition of a constructive trust on the Toshiba settlement proceeds, damages, and injunctive relief.

FILOT Litigation

On November 29, 2017, Fairfield County filed a Complaint and a Motion for Temporary Injunction against SCE&G making allegations of breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, breach of the implied duty of good faith and fair dealing, and unfair trade practices related to SCE&G’s termination of the FILOT agreement. Plaintiff sought a temporary and permanent injunction to prevent SCE&G from terminating the FILOT; actual and consequential damages; treble damages; punitive damages; and attorneys’ fees. Plaintiff sought a hearing within ten days on their motion for temporary injunction. The Court heard arguments on December 15, 2017 on the motion for temporary injunction, and asked the parties to submit supplemental briefing and proposed orders by December 20, 2017. Plaintiff voluntarily withdrew the Motion for Temporary Injunction on December 20, 2017. The Court set a hearing for February 8, 2018 on SCE&G’s Motion to Transfer Venue.

Regulatory Proceedings and Investigations

On June 22, 2017, the Friends of the Earth and the Sierra Club filed a complaint against SCE&G with the SCPSC, requesting that the SCPSC initiate a formal proceeding to direct SCE&G to immediately cease and desist from expending any further capital costs related to the construction of Unit 2 and Unit 3; to determine the prudence of acts and omissions by SCE&G in connection with the construction of Unit 2 and Unit 3; to review and determine the prudence of abandonment of the Nuclear Project and of the available least cost efficiency and renewable energy alternatives; and to remedy, abate and make due reparations for the rates charged to ratepayers related to the construction of Unit 2 and Unit 3. SCE&G filed its answer to the complaint on July 19, 2017. SCE&G has filed a motion to dismiss the plaintiff's complaint, which motion was argued at a hearing held on December 13, 2017. On December 20, 2017, the SCPSC, among other things, denied SCE&G's motion to dismiss and ordered that the matter be consolidated with proceedings related to the Request, described below.

On September 26, 2017, the ORS filed the Request with the SCPSC asking for an order directing SCE&G to immediately suspend all revised rates collections from customers which were previously approved by the SCPSC pursuant to the authority of the BLRA. In the Request, the ORS relied upon an opinion of the South Carolina Office of Attorney General issued on the same date, to assert that it is not just and reasonable or in the public interest to allow SCE&G to continue collecting revised rates. Further, the ORS noted the existence of an allegation that SCE&G failed to disclose information to the ORS that should have been disclosed and that would have appeared to provide a basis for challenging prior requests, and asserted that SCE&G should not be allowed to continue to benefit from nondisclosure. The ORS also asked for an order that, if the BLRA is found to be unconstitutional or the South Carolina General Assembly amends or revokes the BLRA, then SCE&G should make credits to future bills or refunds to customers for prior revised rates collections.

On September 28, 2017, SCE&G filed a Motion to Dismiss the Request and a Request for Briefing Schedule and Hearing on Motion to Dismiss. On September 28, 2017, the SCPSC deferred action on the Request and ordered a hearing officer to establish a briefing schedule and hearing date on SCE&G's motion. On October 17, 2017, the ORS filed with the SCPSC a motion to amend its request, in which the ORS asked the SCPSC to consider the most prudent manner by which SCE&G will enable its customers to realize the value of the monetized Toshiba Settlement payments and other payments made by Toshiba towards satisfaction of its obligations to SCE&G. A hearing on the parties' motions was held on December 12, 2017, and included the state's Office of Attorney General and Speaker of the House of Representatives, the Electric Cooperatives of South Carolina, a large industrial customer, and several environmental groups. In addition, on November 20, 2017, the ORS filed a letter with the SCPSC providing ORS's preliminary list for stabilization and protection of the site containing Unit 2 and Unit 3 and suggesting that the SCPSC have SCE&G respond to ORS's November 20, 2017 letter and "explain why there is no violation of S.C. Code Ann. § 58-27-1300." The SCPSC granted ORS's request, and SCE&G filed its response with the SCPSC on December 27, 2017.

29




By order dated December 20, 2017, the SCPSC denied SCE&G’s Motion to Dismiss the Request and ordered that a hearing be set on the Request. In addition, the SCPSC ordered ORS to perform a thorough inspection and audit, within 30 days, to determine the reasonableness of SCE&G’s retail electric rates and to determine the reasonableness of SCE&G’s statements regarding the potential effect that the removal of approximately $445 million in annual revenues, as requested by the ORS, could have on SCE&G. The SCPSC also granted ORS’s motion to amend the Request and consider the monetization of the Toshiba payout along with any other related factors that may be appropriate in determining a fair and reasonable rate. Lastly, the order consolidated the Friends of the Earth and Sierra Club petition with the Request.

The Company has also been served with subpoenas issued by the United States Attorney’s Office for the District of South Carolina and the staff of the SEC's Division of Enforcement seeking documents relating to the Nuclear Project. In addition, the state's Office of Attorney General, the Speaker of the House of Representatives, and the Chair and Vice-Chair of the South Carolina House Utility Ratepayer Protection Committee have requested that SLED conduct a criminal investigation into the handling of the Nuclear Project by SCANA and SCE&G. The Company and Consolidated SCE&G intend to fully cooperate with any such investigations.

On November 30, 2017, the SCPSC served upon SCE&G a document styled as “South Carolinians Against Monetary Abuse (SCAMA) and Leslie Minerd v. South Carolina Electric & Gas Company” requesting that SCE&G include a line item on customers’ monthly bill identifying the charges incurred as a result of the BLRA. On December 29, 2017, SCE&G filed its Answer and Motion to Dismiss and requested that the testimony deadlines and hearing date be held in abeyance pending a determination on SCE&G’s Motion to Dismiss.

Bankruptcy Court Litigation

On March 29, 2017, WEC and WECTEC and certain of their affiliates filed petitions for protection under Chapter 11 of the U.S. Bankruptcy Code with the Bankruptcy Court. On September 1, 2017, SCE&G, for itself and as agent for Santee Cooper, filed with the Bankruptcy Court Proofs of Claim for unliquidated damages against each of WEC and WECTEC. The Proofs of Claim are based upon the anticipatory repudiation and material breach by the Consortium of the EPC Contract, and assert against WEC any and all claims that are based thereon or that may be related thereto. On September 27, 2017, SCE&G sold substantially all of its interest in the Toshiba Settlement and assigned all of its claims under the WEC bankruptcy process to Citibank. SCE&G has agreed to use commercially reasonable efforts to cooperate with Citibank and provide reasonable support necessary for its enforcement of those claims. Notwithstanding the sale of the claims, SCE&G and Santee Cooper remain responsible for any claims that may be made by WEC and WECTEC against them relating to the EPC Contract.

Employment Class Action

On August 8, 2017, a purported class action was filed against SCANA, SCE&G, and its co-defendants Fluor and Fluor Enterprises, Inc., by plaintiffs Harry Pennington III and Timothy Lorenz, on behalf of themselves and all others similarly situated, in the District Court. The plaintiffs allege, among other things, that the defendants violated the Worker Adjustment and Retraining Notification Act (“WARN Act”) in connection with the decision to stop construction on the Nuclear Project. The plaintiffs allege that the defendants failed to provide adequate advance written notice of their terminations of employment.

ITEM 4.  MINE SAFETY DISCLOSURES
 
Not Applicable


30


EXECUTIVE OFFICERS OF SCANA CORPORATION

Executive officers are elected at the annual meeting of the Board of Directors, held immediately after the annual meeting of shareholders, and hold office until the next such annual meeting, unless (1) a resignation is submitted, (2) the Board of Directors shall otherwise determine or (3) as provided in the By-laws of SCANA. Positions held are for SCANA and all wholly-owned subsidiaries unless otherwise indicated.
Name 
Age
Positions Held During Past Five Years
Dates
Jimmy E. Addison
57
Chief Executive Officer and President-SCANA
President and Chief Operating Officer-SCANA Energy
Executive Vice President-SCANA and Chief Financial Officer
2018-present
2014-2018 *-2017
Jeffrey B. Archie
60
Senior Vice President and Chief Nuclear Officer-SCE&G
Senior Vice President-SCANA
*-present
*-present
Sarena D. Burch
60
Senior Vice President-Risk Management and Corporate Compliance Senior Vice President-Fuel Procurement and Asset Management-SCANA, SCE&G and PSNC Energy
2016-present

*-2015
Iris N. Griffin
41
Senior Vice President, Chief Financial Officer and Treasurer
Vice President - Finance and Treasurer
Associate Treasurer
Director - Audit Services, Privacy and Corporate Compliance Officer
Manager - Investor Relations
2018-present
2016-2017
2015-2016
2013-2015
*-2013
D. Russell Harris
53
President-Gas Operations-SCE&G
President and Chief Operating Officer-PSNC Energy
President and Chief Operating Officer-SCANA Energy
Senior Vice President-SCANA
2013-present
*-present
2018-present 2013-present
Kenneth R. Jackson
61
Senior Vice President-Economic Development, Governmental and Regulatory Affairs
Vice President-Rates and Regulatory Services
2014-present
*-2014
W. Keller Kissam
51
President-Generation, Transmission and Distribution and Chief Operating Officer-SCE&G
President-Retail Operations-SCE&G
Senior Vice President-SCANA
2018-present
*-2017
*-present
Randal M. Senn
61
Senior Vice President-Administration-SCANA
Vice President and Chief Information Officer
Chief Information Officer
2016-present
2016
*-2016
Jim Odell Stuckey
49
Senior Vice President, General Counsel and Assistant Secretary
Director - Legal Department and Deputy General Counsel
Director - Legal Department and Associate General Counsel
2017-present 2014-2017 *-2014

*Indicates positions held at least since February 23, 2013.


31


PART II
ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
 
SCANA:
 
Price Range (NYSE Composite Listing): 
 
2017
 
2016
 
4th Qtr.
 
3rd Qtr.
 
2nd Qtr.
 
1st Qtr.
 
4th Qtr.
 
3rd Qtr.
 
2nd Qtr.
 
1st Qtr.
High
$
50.22

 
$
68.35

 
$
71.28

 
$
72.75

 
$
74.94

 
$
76.41

 
$
75.67

 
$
70.35

Low
$
37.10

 
$
48.32

 
$
63.90

 
$
63.63

 
$
67.31

 
$
69.04

 
$
66.02

 
$
59.46

 
SCANA common stock trades on the NYSE using the ticker symbol SCG. At February 20, 2018 there were approximately 143 million shares of SCANA common stock outstanding which were held by approximately 23,100 shareholders of record. See Item 12 for a summary of equity securities issuable under SCANA’s compensation plans at December 31, 2017.
 
SCANA declared quarterly dividends on its common stock of $0.6125 per share in 2017 and $0.575 per share in 2016. On February 22, 2018, SCANA declared a quarterly cash dividend on SCANA common stock of $0.6125 per share, which quarterly dividend is payable April 1, 2018 to shareholders of record on March 12, 2018. For a discussion of provisions that could limit the payment of cash dividends, see Financing Limits and Related Matters in the Liquidity and Capital Resources section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 3 to the consolidated financial statements.
 
The following table provides information about purchases by or on behalf of SCANA or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended (Exchange Act)) of shares or other units of any class of SCANA's equity securities that are registered pursuant to Section 12 of the Exchange Act:
Issuer Purchases of Equity Securities
 
 
(a)
 
(b)
 
(c)
 
(d)
Period
 
Total number of shares (or units) purchased
 
Average price paid
per share (or unit)
 
Total number of shares (or units) purchased as
part of publicly announced
plans or programs
 
Maximum number (or approximate dollar value) of shares (or units) that may yet be
purchased under the
plans or programs
October 1-31, 2017
 
7,964

 
$
49.01

 
7,964

 
 
November 1-30, 2017
 

 

 

 
 
December 1-31, 2017
 

 

 

 
 
Total
 
7,964

 
 
 
7,964

 
*

*The above table represents shares acquired for non-employee directors under the Director Compensation and Deferral Plan. On December 16, 2014, SCANA announced a program to convert from original issue to open market purchase of SCANA common stock for all applicable compensation and dividend reinvestment plans. This program took effect in the first quarter of 2015 and has no stated maximum number of shares that may be purchased and no stated expiration date.

SCE&G:
 
All of SCE&G’s common stock is owned by SCANA, and no established public trading market exists for SCE&G common stock. During 2017 and 2016, SCE&G declared quarterly dividends on its common stock in the following amounts:
 
Declaration Date
 
Amount
 
Declaration Date
 
Amount
February 16, 2017
 
$
76.9
 million
 
February 18, 2016
 
$
72.2
 million
April 27, 2017
 
78.1
 million
 
April 28, 2016
 
73.3
 million
August 3, 2017
 
78.5
 million
 
July 28, 2016
 
74.0
 million
October 26, 2017
 
80.6
 million
 
October 27, 2016
 
77.5
 million
 

32



On February 22, 2018, SCE&G declared a quarterly dividend on its common stock of $71.9 million.
 
For a discussion of provisions that could limit the payment of cash dividends, see Financing Limits and Related Matters in the Liquidity and Capital Resources section of Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 3 to the consolidated financial statements.


ITEM 6.  SELECTED FINANCIAL DATA
As of or for the Year Ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
(Millions of dollars, except statistics and per share amounts)
SCANA:
 
 
 
 
 
 
 
 

 
 

Statement of Operations Data
 
 
 
 
 
 
 
 

 
 

Operating Revenues
 
$
4,407

 
$
4,227

 
$
4,380

 
$
4,951

 
$
4,495

Operating Income
 
$
87

 
$
1,153

 
$
1,308

 
$
1,007

 
$
910

Net Income (Loss)
 
$
(119
)
 
$
595

 
$
746

 
$
538

 
$
471

Common Stock Data
 
 
 
 
 
 
 
 
 
 
Weighted Avg Common Shares Outstanding (Millions)
 
142.6

 
142.6

 
142.6

 
142.6

 
138.4

Basic Earnings (Loss) Per Share
 
$
(0.83
)
 
$
4.16

 
$
5.22

 
$
3.79

 
$
3.40

Diluted Earnings (Loss) Per Share
 
$
(0.83
)
 
$
4.16

 
$
5.22

 
$
3.79

 
$
3.39

Dividends Declared Per Share of Common Stock
 
$
2.45

 
$
2.30

 
$
2.18

 
$
2.10

 
$
2.03

Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
Utility Plant, Net
 
$
10,648

 
$
14,324

 
$
13,145

 
$
12,232

 
$
11,643

Total Assets
 
$
18,739

 
$
18,707

 
$
17,146

 
$
16,818

 
$
15,127

Total Equity
 
$
5,255

 
$
5,725

 
$
5,443

 
$
4,987

 
$
4,664

Short-term and Long-term Debt
 
$
6,983

 
$
7,431

 
$
6,529

 
$
6,581

 
$
5,788

Other Statistics
 
 
 
 
 
 
 
 
 
 
Electric:
 
 
 
 
 
 
 
 
 
 
Customers (Year-End)
 
718,822

 
709,418

 
698,372

 
687,800

 
678,273

Total sales (Million kWh)
 
22,866

 
23,458

 
23,102

 
23,319

 
22,313

Generating capability-Net MW (Year-End)
 
5,233

 
5,233

 
5,234

 
5,237

 
5,237

Territorial peak demand-Net MW
 
4,701

 
4,807

 
4,970

 
4,853

 
4,574

Regulated Gas:
 
 
 
 
 
 
 
 
 
 
Customers, excluding transportation (Year-End)
 
930,790

 
906,883

 
881,295

 
859,186

 
837,232

Sales, excluding transportation (Thousand Therms)
 
857,886

 
890,113

 
875,218

 
973,907

 
921,533

Transportation customers (Year-End)
 
616

 
632

 
627

 
656

 
667

Transportation volumes (Thousand Therms)
 
700,254

 
674,999

 
791,402

 
1,786,897

 
1,729,399


The comparability of Selected Financial Data is affected by the following:

In 2017, as a result of the decision to stop construction on Unit 2 and Unit 3, approximately $4.7 billion (prior to an estimated impairment loss) was reclassified from construction work in progress within Utility Plant, Net into regulatory assets. In addition, a pre-tax impairment loss of $1.1 billion was recorded. See Note 10 to the consolidated financial statements. Finally, deferred income tax assets and liabilities were remeasured in connection with the enactment of the Tax Act, resulting in an increase in Net Loss of approximately $30 million.

In 2015, a regulated gas operating subsidiary and a non-operating subsidiary were sold, resulting in pre-tax gains totaling approximately $342 million. See Note 1 to the consolidated financial statements.




33



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Pursuant to General Instruction I of Form 10-K, SCE&G is permitted to omit certain information related to itself and its consolidated affiliates called for by Item 7 of Form 10-K, and instead provide a management’s narrative explanation of its consolidated results of operation and other information described therein. Such information is presented hereunder specifically for Consolidated SCE&G, but may be presented alongside information presented for the Company generally. Consolidated SCE&G makes no representation as to information relating solely to SCANA Corporation and its subsidiaries (other than Consolidated SCE&G).

OVERVIEW
 
SCANA, through its wholly-owned regulated subsidiaries, is primarily engaged in the generation, transmission, distribution and sale of electricity in South Carolina and in the purchase, transmission and sale of natural gas in North Carolina and South Carolina. Through a wholly-owned nonregulated subsidiary, SCANA markets natural gas to retail customers in Georgia and to wholesale customers in the southeast. A service company subsidiary of SCANA provides primarily administrative and management services to SCANA and its subsidiaries.

Key Earnings Drivers and Outlook
 
The outcome of contentious regulatory, legislative and court proceedings stemming from the Company's July 31, 2017 decision to stop construction of Unit 2 and Unit 3 and to seek recovery of its investment in the abandoned Nuclear Project will significantly affect the Company's future earnings. These proceedings could result in the SCPSC ordering SCE&G to cease collecting BLRA-related rates and to immediately refund such amounts previously collected. Such an outcome would likely result in degraded credit ratings with a corresponding higher cost of capital, if such capital were available at all. In 2017, the Company's principal subsidiary, SCE&G, recorded an aggregate pre-tax impairment loss of $1.118 billion related to the abandoned Nuclear Project. These matters are discussed further in Electric Operations below, in Liquidity and Capital Resources herein and in Note 10 to the consolidated financial statements.

On January 2, 2018, SCANA entered into the Merger Agreement with Dominion Energy. Under the terms of that agreement, Dominion Energy would provide the financial support for SCE&G to make a $1.3 billion up-front, one time rate credit to SCE&G's electric customers to be paid within 90 days of the closing of the merger, a $575 million refund along with the benefits of the Tax Act resulting in at least a 5% reduction to SCE&G electric service customers' bills over an eight-year period, and the exclusion from rate recovery of approximately $1.7 billion of costs related to the Nuclear Project. These terms, together with other terms and commitments in the Merger Agreement and the Joint Petition, could resolve many of the outstanding issues related to the Nuclear Project. The Company targets the closing of the merger by the end of 2018. Significant hurdles must be overcome before closing may occur, however, including the receipt of the requisite authorizations, approvals, consents and/or permits from various federal and state regulatory entities and the approval of two-thirds of the shares represented by SCANA's shareholders. Regulatory approvals of the merger may not be obtained on a timely basis or at all, and such approvals may include conditions that could have an adverse effect on the Company and Consolidated SCE&G or result in the abandonment of the merger. No assurance can be provided that the necessary approvals will be obtained or that any required conditions will not have an adverse effect on Consolidated SCE&G following the merger. See additional discussion in Item 1A. Risk Factors and in Note 2 and Note 10 to the consolidated financial statements.

Electric Operations
 
SCE&G's electric operations primarily generate electricity and provide for its transmission, distribution and sale to approximately 719,000 customers (as of December 31, 2017) in portions of South Carolina in an area covering nearly 17,000 square miles. GENCO owns a coal-fired generating station and sells electricity solely to SCE&G. Fuel Company acquires, owns, provides financing for and sells at cost to SCE&G nuclear fuel, certain fossil fuels and emission and other environmental allowances.
 
Operating results are primarily driven by customer demand for electricity, rates allowed to be charged to customers and the ability to control costs. Demand for electricity is primarily affected by weather, customer growth and the economy.  SCE&G is able to recover the cost of fuel used in electric generation through retail customers’ bills, but increases in fuel costs affect electricity prices and, therefore, the competitive position of electricity compared to other energy sources.


34


Embedded in the rates charged to customers is an allowed regulatory ROE. SCE&G’s allowed ROE in 2017 was 10.25% for non-BLRA rate base. For BLRA-related rate base existing prior to 2016, SCE&G's ROE was 11.0%, and for such rate base arising in 2016, the ROE was 10.5%. As described in Note 2 to the consolidated financial statements, the SCPSC revised SCE&G's ROE for Nuclear Project costs to 10.25%, which was to be applied prospectively for the purpose of calculating revised rates sought by SCE&G under the BLRA on and after January 1, 2017. No revised rates filing was pursued in 2017. Uncertainties that are expected to adversely impact ROE on BLRA-related rate base are discussed in Abandoned Nuclear Project herein and in Note 10 to the consolidated financial statements.

In 2017, the enactment of federal environmental laws and regulations related to the generation of electricity slowed significantly; however, public sentiment surrounding air quality and water quality remains strong and is expected to continue. Over several years, SCE&G has incurred significant costs and made substantial investments to comply with federal environmental initiatives, including the retirement of certain coal-fired plants and the conversion of others to burn natural gas. In addition, SCE&G has added the renewable energy from several new solar generating facilities at locations throughout its electric service territory. In addition, SCE&G and GENCO have installed pollution control equipment at their remaining coal-fired plants, which have resulted in reduced air emissions. The status of significant environmental laws and regulations and certain initiatives undertaken to ensure compliance with them are described in Environmental Matters herein and in Note 10 to the consolidated financial statements.

Abandoned Nuclear Project

Significant events leading up to the Company's decision to abandon the Nuclear Project include the following:

On July 1, 2016, SCE&G, on behalf of itself and as agent for Santee Cooper, elected the fixed price option as provided for in the October 2015 Amendment to the EPC Contract, subject to SCPSC approval. The fixed price option was designed to shift the risk of significant cost overruns from SCE&G and Santee Cooper by fixing the total amount to be paid to the Consortium for its entire scope of work on the project, with limited exceptions.

On November 9, 2016, the SCPSC approved SCE&G's election of the fixed price option.

On March 29, 2017, WEC and WECTEC filed petitions for protection under Chapter 11 of the U.S. Bankruptcy Code, citing a liquidity crisis arising from project contract losses attributable to the Nuclear Project and similar units being built for an unaffiliated company as a material factor that caused them to seek protection under the bankruptcy laws. As part of their filing, WEC and WECTEC publicly announced their inability to complete Unit 2 and Unit 3 under the fixed price terms of the EPC Contract.

In connection with the bankruptcy filing, SCE&G, Santee Cooper, WEC and WECTEC entered into an Interim Assessment Agreement under which engineering and construction continued on the project and under which SCE&G and Santee Cooper were provided the right to discuss project status with Fluor and other subcontractors and vendors and to obtain from them relevant project information and documents that had been previously contractually unavailable in order for SCE&G and Santee Cooper to perform comprehensive analyses regarding whether or how to proceed with the project.

On July 31, 2017, based on the results of its analysis and in light of Santee Cooper's decision to suspend construction on the units, the Company determined to stop the construction of Unit 2 and Unit 3 and to pursue recovery of costs incurred in connection with their construction under the abandonment provisions of the BLRA or through other regulatory means.

The Company's decision to stop construction of Unit 2 and Unit 3 and to pursue recovery of costs incurred in connection with their construction have been the subject of contentious proceedings before the SCPSC and special committees of the South Carolina legislature. The Governor has likewise asserted, among other things, that the BLRA should be replaced and any further collection of money from customers for the Nuclear Project should be prevented. The SCPSC is actively considering a request that could result in the suspension of rates currently being collected by SCE&G under the BLRA (approximately $445 million annually, which includes collections related to transmission assets expected to be placed into service), that could require the return of such amounts previously collected (approximately $1.9 billion as of December 31, 2017), and that will affect when and in what manner proceeds arising from the Toshiba guaranty (approximately $1.1 billion) will be used for the benefit of SCE&G customers.


35


Proposals to Resolve Outstanding Issues

On November 16, 2017, SCE&G announced for public consideration a proposal to resolve outstanding issues relating to the Nuclear Project. Under the proposal, SCE&G electric customers were to receive a 3.5% electric rate reduction, the addition of an existing 540-MW natural gas fired power plant by SCE&G with the acquisition cost borne by SCANA shareholders, and the addition of approximately 100-MW of large scale solar energy by SCE&G. The proposal also provided for the recovery of the nuclear construction costs (net of the proceeds of the Toshiba Settlement not utilized for liquidation of project liens) over 50 years. While SCE&G’s proposal was not formally submitted for regulatory approval, discussions with key stakeholders over the ensuing weeks indicated that SCE&G's proposal would not be sufficient to resolve the outstanding issues.

On January 2, 2018, SCANA entered into the Merger Agreement with Dominion Energy, and on January 12, 2018, SCE&G and Dominion Energy filed the Joint Petition requesting SCPSC approval of the merger or a finding that either the merger is in the public interest or that there is an absence of harm arising from the merger. In the Joint Petition, among other things, the parties commit to providing an up-front, one time rate credit to SCE&G's electric customers totaling approximately $1.3 billion within 90 days of the merger's closing, at least a 5% reduction in customer bills, shortening the amortization period for recovery of costs related to the Nuclear Project to 20 years, forgoing recovery of approximately $1.7 billion in costs related to the Nuclear Project, and the addition of an existing 540-MW natural gas fired power plant by SCE&G with no initial investment borne by customers. The petition also puts forth other less-favored alternatives for rate recovery in the event the joint proposal were not to be accepted by the SCPSC and the merger were not to be consummated.

The outcome of these matters is uncertain, and any resolution adverse to the Company and Consolidated SCE&G could adversely affect results of operations, cash flows and financial condition. These matters and others are further discussed in Liquidity and Capital Resources and in Note 2 and Note 10 to the consolidated financial statements.

Gas Distribution
 
The local distribution operations of SCE&G and PSNC Energy purchase, transport and sell natural gas to approximately 931,000 retail customers (as of December 31, 2017) in portions of South Carolina and North Carolina in areas covering approximately 35,000 square miles. Operating results for gas distribution are primarily influenced by customer demand for natural gas, rates allowed to be charged to customers and the ability to control costs. Embedded in the rates charged to customers is an allowed regulatory ROE for SCE&G of 10.25% and for PSNC Energy of 9.7%.
 
Demand for natural gas is primarily affected by weather, customer growth, the economy and the availability and price of alternate fuels. Natural gas competes with electricity, propane and heating oil to serve the heating and, to a lesser extent, other household energy needs of residential and small commercial customers. This competition is generally based on price and convenience. Large commercial and industrial customers often have the ability to switch from natural gas to an alternate fuel, such as propane or fuel oil. Natural gas competes with these alternate fuels based on price. As a result, any significant disparity between supply and demand, either of natural gas or of alternate fuels, and due either to production or delivery disruptions or other factors, will affect price and will impact the Company’s ability to retain large commercial and industrial customers.

The production of shale gas in the United States continues to keep prices for this commodity at historic lows, and such prices are expected to continue at generally low levels for several years. The supply of natural gas from the Marcellus shale basin has prompted Dominion Energy and other companies unaffiliated with SCANA to propose construction of an approximately 600-mile pipeline that would bring natural gas from West Virginia to Virginia and North Carolina. This pipeline is expected to be completed in late 2019 and, if successful, it may drive economic development along its path, including areas within PSNC Energy's service territory, and may serve to assist in keeping natural gas competitively priced in the region.

Gas Marketing
 
SCANA Energy markets natural gas in the southeast and provides energy-related services to customers, including retail customers in Georgia. Operating results for energy marketing are influenced by customer demand for natural gas and the ability to control costs. The price of alternate fuels and customer growth significantly affect demand for natural gas. In addition, the availability of certain pipeline capacity to serve industrial and other customers is dependent upon the market share held by SCANA Energy in the Georgia retail market. SCANA Energy sells natural gas to over 425,000 customers (as of December 31, 2017) throughout Georgia. This market is mature, resulting in low margins and significant competition from affiliates of large energy companies and electric membership cooperatives, among others. SCANA Energy’s ability to maintain its market share primarily depends on the prices it charges customers relative to the prices charged by its competitors and its ability to provide

36


high levels of customer service. In addition, SCANA Energy's operating results are sensitive to the impacts of weather on customer demand.


RESULTS OF OPERATIONS

Earnings (Loss) and dividends were as follows:
 
2017
 
2016
 
2015
The Company
 
 
 
 
 
Earnings (loss) per share
$
(0.83
)
 
$
4.16

 
$
5.22

Cash dividends declared per share
$
2.45

 
$
2.30

 
$
2.18

 
 
 
 
 
 
Consolidated SCE&G
 
 
 
 
 
Net income (loss) (millions of dollars)
$
(171.9
)
 
$
525.8

 
$
479.5


On February 22, 2018, SCANA declared a quarterly cash dividend on its common stock of $0.6125 per share.

2017 vs 2016
The Company's earnings (loss) per share and Consolidated SCE&G's net income (loss) primarily reflects an operating loss from Electric Operations, which includes an impairment loss associated with the abandonment of the Nuclear Project, partially offset by improved operating income from Gas Distribution. In addition, the Company's earnings (loss) per share reflects a loss resulting from enactment of the Tax Act. These and other results are discussed below.

2016 vs 2015
The Company's earnings per share and Consolidated SCE&G's net income reflects higher operating income from Electric Operations and Gas Distribution. The Company's earnings per share also reflects higher net income from Gas Marketing. These and other results are discussed below.

Matters Impacting Future Results

The Company's decision on July 31, 2017 to stop construction of Unit 2 and Unit 3 and to pursue recovery of the cost of the abandoned Nuclear Project has had and could continue to have significant impacts on the Company's and Consolidated SCE&G's future earnings, cash flows and financial position, including those related to the ultimate recovery of regulatory assets and the sustainability of tax positions. The Company continues to believe the decision to abandon the Nuclear Project was prudent and that costs incurred with respect to the project were prudent, have contested specific challenges to this decision, and believe that the issues related to the recovery of the cost of the abandoned Nuclear Project and related to the rates currently being collected under the BLRA for financing costs should be resolved in future proceedings before the SCPSC. However, based on various events following the abandonment, there is significant uncertainty as to SCE&G's ultimate ability to fully recover its costs of Unit 2 and Unit 3 and a return on them from its customers. These events include the contentious nature of ongoing reviews by legislative committees and others, legislative proposals being considered by the General Assembly and promoted by the Governor, and the Request being considered by the SCPSC that could result in the suspension of rates currently being collected under the BLRA, as well as the return of such amounts previously collected.

The Company and Consolidated SCE&G have determined that a disallowance of recovery of part of the cost of the abandoned plant is both probable and reasonably estimable under applicable accounting guidance, and have recorded a pre-tax impairment loss with respect to disallowance of unrecovered nuclear project costs and other related deferred costs totaling approximately $1.118 billion. This amount includes $210 million recorded in the third quarter of 2017 and the remaining $908 million recorded in the fourth quarter of 2017. For additional discussion, see Impairment Considerations in Critical Accounting Policies and Estimates and Note 10 to the consolidated financial statements.

It is reasonably possible that further changes in these estimates will occur in the near term and could be material; however, all such changes cannot be reasonably estimated. The above impairment loss reflects impacts similar to those that would have resulted had the proposed solution announced November 16, 2017 been implemented. If the merger benefits and cost recovery plan outlined in the Joint Petition is implemented (upon closing of the merger as contemplated in the Merger Agreement), an additional impairment loss and other charges totaling as much as approximately $1.7 billion would be expected to be recorded. If instead the Joint Petition is not approved and the Request by the ORS is approved, if the BLRA is found to be unconstitutional or the General Assembly amends or revokes the BLRA, the Company and Consolidated SCE&G may be

37


required to record an additional impairment loss and other charges totaling as much as approximately $4.8 billion. This additional impairment loss would result from the write-off of the remaining unrecovered Nuclear Project costs of $3.976 billion recorded within regulatory assets and the refund of revised rates collections under the BLRA described above of approximately $1.9 billion, net of approximately $1.062 billion, which amount represents the monetization of guaranty settlement of $1.095 billion recorded within regulatory liabilities less amounts that may be required to settle contractor liens. The Company and Consolidated SCE&G do not currently anticipate that any of the $1.9 billion in revenue previously collected will be subject to refund; however, no assurance can be given as to the outcome of this matter.

                In December 2017, the Tax Act was enacted, resulting in the remeasurement of all federal deferred income tax assets and liabilities to reflect a 21% federal statutory corporate tax rate. Due to the regulated nature of the Company’s and Consolidated SCE&G’s operations, the effect of this remeasurement is primarily reflected in excess deferred income tax balances within regulatory liabilities. As described in Note 2 to the consolidated financial statements, SCE&G and PSNC Energy have responded to orders from state regulators seeking information on the effects the Tax Act would have on their respective operations. The Company and Consolidated SCE&G cannot determine the amount or timing of any refunds to customers that may result. Going forward, the Company and Consolidated SCE&G expect that the lower tax expense resulting from the reduced federal statutory tax rate will result in similar reductions to amounts collected from customers through electric and gas rates, and no significant impact on financial results are expected. See also Note 5 to the consolidated financial statements for additional discussion related to deferred tax assets and deferred tax liabilities.

These matters impacting future results are further discussed under Impact of Abandonment of Nuclear Project within LIQUIDITY AND CAPITAL RESOURCES, in Note 2 and Note 10 to the consolidated financial statements and in Part I, Item 1A. Risk Factors.

Electric Operations
 
Electric Operations for the Company and for Consolidated SCE&G is comprised of the electric operations of SCE&G, GENCO and Fuel Company. Electric Operations operating income (including transactions with affiliates) was as follows: 
 
 
The Company
 
Consolidated SCE&G
Millions of dollars
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Operating revenues
 
$
2,664.4

 
$
2,619.4

 
$
2,557.1

 
$
2,664.4

 
$
2,619.4

 
$
2,557.1

Fuel used in electric generation
 
593.6

 
576.1

 
660.6

 
593.6

 
576.1

 
660.6

Purchased power
 
80.1

 
63.7

 
52.1

 
80.1

 
63.7

 
52.1

Other operation and maintenance
 
519.0

 
526.1

 
497.1

 
533.4

 
540.2

 
509.6

Impairment loss
 
1,118.1

 

 

 
1,118.1

 

 

Depreciation and amortization
 
294.7

 
286.5

 
277.3

 
282.8

 
274.9

 
266.9

Other taxes
 
220.3

 
210.4

 
194.5

 
217.8

 
207.9

 
192.4

Operating Income (Loss)
 
$
(161.4
)
 
$
956.6

 
$
875.5

 
$
(161.4
)
 
$
956.6

 
$
875.5


Electric operations can be significantly impacted by the effects of weather. SCE&G estimates the effects on its electric business of actual temperatures in its service territory as compared to historical averages to develop an estimate of electric revenue and fuel costs attributable to the effects of abnormal weather. Results in 2017 reflect milder than normal weather in the first and fourth quarters and warmer than normal weather in the second and third quarters. Results in 2016 reflect significantly warmer than normal weather in the second and third quarters and milder than normal weather in the first and fourth quarters. Results in 2015 reflect colder than normal weather in the first quarter, warmer than normal weather in the second and third quarters and milder than normal weather in the fourth quarter.

2017 vs 2016
Ÿ
Operating revenue increased due to revised rates increases under the BLRA of $57.6 million, residential and commercial growth of $29.4 million, industrial growth and higher usage of $5.5 million, increased revenue recognized under the DER program of $7.3 million and higher fuel cost recovery of $48.1 million. These revenue increases were partially offset by the effects of milder weather of $77.7 million, lower residential and commercial average use of $18.9 million and lower collections under the rate rider for pension costs of $4.0 million. The lower pension rider collections had no impact on net income as they were fully offset by the recognition, within other operation and maintenance expenses, of lower pension costs.

Ÿ
Fuel used in electric generation and purchased power expenses increased due to higher fuel prices of $48.1 million, amortization of DER program costs of $3.9 million and increased sales volumes associated with residential     and

38


commercial customer growth of $5.8 million. These increases were partially offset due to lower sales volumes associated with the effects of milder weather of $15.9 million, lower residential and commercial average use of $4.1 million, lower industrial usage of $1.6 million and lower fuel handling expenses of $2.4 million.

Ÿ
Other operation and maintenance expenses decreased due to lower labor costs of $24.0 million, primarily due to lower incentive compensation costs and lower pension costs associated with the lower pension rider collections, partially offset by nuclear abandonment-related severance costs of $12.3 million. This decrease was offset by higher non-labor electric generation costs of $2.2 million and due to wind down and other costs associated with the abandonment of the Nuclear Project of $10.9 million.

Ÿ
Impairment loss represents the estimate of the probable disallowance of recovery associated with the abandonment of the Unit 2 and Unit 3 of $670 million, a write down to estimated fair value of the carrying value of nuclear fuel acquired for use in Unit 2 and Unit 3 of $87 million and an aggregate amount of $361 million to write off costs which had been previously deferred primarily within regulatory assets in connection with the Nuclear Project.

Ÿ
Depreciation and amortization increased primarily due to net plant additions.

Ÿ
Other taxes increased primarily due to higher property taxes associated with net plant additions.

2016 vs 2015
Ÿ Operating revenue increased due to revised rates increases under the BLRA of $60.7 million, residential and commercial growth of $29.0 million, industrial growth and higher usage of $9.7 million, increased revenue recognized under the DER program of $5.8 million, the effects of weather of $28.2 million and higher collections under the rate rider for pension costs of $13.5 million. The higher pension rider collections had no impact on net income as they were fully offset by the recognition, within other operation and maintenance expenses, of higher pension costs. Revenue also increased due to downward adjustments in 2015, pursuant to orders from the SCPSC, to apply $14.5 million as an offset to fuel cost recovery upon the adoption of new (lower) electric depreciation rates and by $5.2 million related to DSM Programs. These adjustments had no effect on net income in 2015 as they were fully offset by the recognition of $14.5 million of lower depreciation expense and by the recognition, within other income, of $5.2 million of gains realized upon the settlement of certain interest rate contracts. These revenue increases were partially offset by lower fuel cost recovery of $84.1 million and lower residential and commercial average use of $19.5 million.

Ÿ
Fuel used in electric generation and purchased power expenses decreased due to lower fuel prices of $84.1 million, lower sales volumes associated with residential and commercial average use of $4.2 million and lower fuel handling expenses of $2.3 million. These decreases were partially offset due higher to amortization of DER program costs of $4.6 million, higher industrial usage of $1.9 million, increased sales volumes associated with residential and commercial customer growth of $6.4 million and higher sales volumes associated with the effects of weather of $4.9 million.

Ÿ
Other operation and maintenance expenses increased due to higher labor costs of $25.4 million, primarily due to increased pension costs associated with the higher pension rider collections and higher incentive compensation costs. Other operation and maintenance expenses also increased due to higher amortization of DSM program costs of $2.0 million.

Ÿ
Depreciation and amortization increased primarily due to net plant additions.

Ÿ
Other taxes increased primarily due to higher property taxes associated with net plant additions.
    

39


Sales volumes (in GWh) related to the electric operations above, by class, were as follows: 
Classification
 
2017
 
2016
 
2015
Residential
 
7,782

 
8,140

 
7,978

Commercial
 
7,372

 
7,506

 
7,386

Industrial
 
6,212

 
6,265

 
6,201

Other
 
584

 
600

 
595

Total retail sales
 
21,950

 
22,511

 
22,160

Wholesale
 
916

 
947

 
942

Total Sales
 
22,866

 
23,458

 
23,102


2017 vs 2016
Retail and wholesale sales volumes decreased primarily due to the effects of weather, partially offset by increases associated with customer growth.
    
2016 vs 2015
Retail sales volumes increased primarily due to the effects of weather and customer growth.

Gas Distribution
 
Gas Distribution is comprised of the local distribution operations of SCE&G, and for the Company, also includes PSNC Energy. Gas Distribution operating income (including transactions with affiliates) was as follows: 
 
 
The Company
 
Consolidated SCE&G
Millions of dollars
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Operating revenues
 
$
876.0

 
$
789.8

 
$
811.7

 
$
405.8

 
$
366.8

 
$
372.7

Gas purchased for resale
 
393.0

 
345.9

 
383.7

 
205.9

 
182.9

 
192.5

Other operation and maintenance
 
168.9

 
172.7

 
161.4

 
70.6

 
73.6

 
69.8

Depreciation and amortization
 
84.9

 
82.0

 
77.5

 
29.0

 
27.3

 
26.8

Other taxes
 
42.5

 
41.5

 
37.5

 
28.5

 
26.8

 
24.9

Operating Income
 
$
186.7

 
$
147.7

 
$
151.6

 
$
71.8

 
$
56.2

 
$
58.7


The effect of abnormal weather conditions on gas distribution margin is mitigated by the WNA at SCE&G and the CUT at PSNC Energy as further described in Revenue Recognition in Note 1 of the consolidated financial statements. The WNA and CUT do not affect sales volumes.

2017 vs 2016
Ÿ
Operating revenue increased at SCE&G primarily due to increased base rates under the RSA of $6.7 million, customer growth of $11.7 million and higher gas cost recovery of $14.9 million. These increases were partially offset by lower average use of $1.6 million. In addition to these factors, operating revenue increased at the Company due to PSNC Energy's higher gas cost collections of $28.9 million, a rate increase of $14.9 million, customer growth of $8.1 million and higher CUT of $17.2 million. These increases at PSNC Energy were partially offset by milder weather and declining consumption of $18.8 million.

Ÿ
Gas purchased for resale at SCE&G increased due to higher gas prices of $15.7 million and increased sales volumes associated with firm customer growth of $7.1 million. In addition to these factors, gas purchased for resale at the Company increased primarily due to PSNC Energy's higher gas costs of $28.9 million and customer growth of $2.2 million that were partially offset by milder weather and declining consumption of $7.3 million.

Ÿ
Other operation and maintenance expenses decreased primarily due to lower labor costs of $4.9 million at SCE&G and $10.9 million at PSNC Energy, due primarily to lower incentive compensation costs. These decreases were partially offset by higher non-labor costs of $1.7 million at SCE&G and $8.6 million at PSNC Energy.

Ÿ
Depreciation and amortization increased primarily due to net plant additions.

Ÿ
Other taxes increased primarily due to higher property taxes associated with net plant additions.


40


2016 vs 2015
Ÿ
Operating revenue decreased at SCE&G primarily due to lower gas cost recovery of $17.6 million and lower firm average use of $6.1 million. These decreases were partially offset by increased base rates under the RSA of $2.6 million and firm customer growth of $13.1 million. In addition to these factors, operating revenue decreased at the Company due to PSNC Energy's lower gas cost collections of $45.4 million. These decreases at PSNC Energy were partially offset by a rate increase of $6.5 million, increased customer growth of $10.3 million and higher CUT of $13.8 million.
 
Ÿ
Gas purchased for resale at SCE&G decreased due to lower gas prices of $17.6 million. These decreases at SCE&G were partially offset by increased sales volumes associated with firm customer growth of $6.5 million. In addition to these factors, gas purchased for resale at the Company decreased due to PSNC Energy's decreased gas cost of $45.4 million and an excess state deferred income tax refund of $1.9 million. This decrease at PSNC Energy was partially offset by customer growth of $3.8 million, as well as higher CUT of $15.5 million.

Ÿ
Other operation and maintenance expenses increased due to higher labor costs of $2.1 million at SCE&G and $6.7 million at the Company, due primarily to higher incentive compensation costs.

Ÿ
Depreciation and amortization increased due to net plant additions, partially offset by the implementation of SCPSC-approved revised (lower) depreciation rates at SCE&G of $1.1 million.

Ÿ
Other taxes increased primarily due to net plant additions.    

Sales volumes (in MMBTU) related to gas distribution by class, including transportation, were as follows: 
 
 
The Company
 
Consolidated SCE&G
Classification (in thousands)
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Residential
 
37,251

 
40,142

 
39,090

 
11,285

 
12,420

 
12,086

Commercial
 
28,429

 
29,078

 
28,064

 
12,565

 
12,879

 
12,580

Industrial
 
20,108

 
19,364

 
20,101

 
18,091

 
17,228

 
17,901

Transportation gas
 
51,587

 
49,769

 
49,297

 
6,229

 
5,250

 
4,781

Total
 
137,375

 
138,353

 
136,552

 
48,170

 
47,777

 
47,348


2017 vs 2016
Residential and commercial sales volumes decreased due to the effects of weather and lower average use. These decreases were partially offset by customer growth. Industrial sales volumes at SCE&G increased due to fewer curtailments and customer growth. Transportation volumes at SCE&G increased primarily due to firm customers transporting rather than purchasing system supply. Transportation volumes at PSNC Energy increased primarily due to firm service expansion partly offset by a decline in natural gas fired electric generation transportation and milder weather.

2016 vs 2015
Residential and commercial firm sales volumes increased primarily due to customer growth. Commercial and industrial interruptible volumes decreased, and firm volumes increased, due to customers switching from interruptible to firm service at SCE&G. Industrial volumes decreased and transportation volumes increased due to customers switching to transportation only service.
 
Gas Marketing
 
Gas Marketing is comprised of the Company’s nonregulated marketing operation, SCANA Energy, which operates in the southeast and includes Georgia’s retail natural gas market. Gas Marketing operating revenues and net income were as follows: 
Millions of dollars
 
2017
 
2016
 
2015
Operating revenues
 
$
1,001.4

 
$
936.7

 
$
1,146.7

Net Income
 
26.9

 
29.8

 
27.6



41


2017 vs 2016
Operating revenues increased primarily due to higher natural gas prices. Net income decreased primarily due to the impact of the remeasurement of deferred income taxes upon enactment of the Tax Act.

2016 vs 2015
Operating revenues decreased due to the lower market price of natural gas and lower industrial sales volume. Net income increased primarily due to a weather-related increase in demand.

Other Operating Expenses
 
Other operating expenses were as follows:
 
 
The Company
 
Consolidated SCE&G
Millions of dollars
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Other operation and maintenance
 
$
736.7

 
$
755.6

 
$
715.3

 
$
604.0

 
$
613.8

 
$
579.4

Impairment loss
 
1,118.1

 

 

 
1,118.1

 

 

Depreciation and amortization
 
381.6

 
370.9

 
357.5

 
311.8

 
302.2

 
293.7

Other taxes
 
264.2

 
253.9

 
234.2

 
246.4

 
234.7

 
217.3


Changes in other operating expenses are largely attributable to the electric operations and gas distribution segments and are addressed in their respective discussions of operating income (loss). In addition, overall increases in other operating expenses in 2016 were partially offset by the Company's sale of CGT in early 2015, which resulted in decreases in other operation and maintenance expenses of $2.2 million, depreciation and amortization of $0.7 million and other taxes of $0.5 million.

Net Periodic Pension Benefit Cost

     Other operation and maintenance expense includes net periodic pension benefit cost, which was recorded on the income statements and balance sheets as follows:
 
 
The Company
 
Consolidated SCE&G
Millions of dollars
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Income Statement Impact:
 
 
 
 
 
 
 
 
 
 
 
 
Employee benefit costs
 
$
15.3

 
$
19.2

 
$
5.3

 
$
12.3

 
$
16.4

 
$
2.8

Other expense
 
0.5

 
0.9

 
1.1

 
0.3

 
0.2

 
0.2

Balance Sheet Impact:
 
 
 
 
 
 
 
 
 
 
 
 
Increase in capital expenditures
 
5.2

 
5.3

 
3.9

 
4.7

 
4.7

 
3.4

Component of amount receivable from Summer Station co-owner
 
2.1

 
2.1

 
1.5

 
2.1

 
2.1

 
1.5

Increase (decrease) in regulatory assets
 
(0.8
)
 
(4.6
)
 
6.2

 
(0.8
)
 
(4.6
)
 
6.2

Net periodic benefit cost
 
$
22.3

 
$
22.9

 
$
18.0

 
$
18.6

 
$
18.8

 
$
14.1


Pursuant to regulatory orders, SCE&G recovers current pension expense through a rate rider (for retail electric operations) and through cost of service rates (for gas operations), and amortizes pension costs previously deferred in regulatory assets as further described in Note 2 and Note 8 to the consolidated financial statements. Amounts amortized were $2.0 million for retail electric operations and $1.0 million for gas operations for each period presented. Pursuant to regulatory orders, PSNC Energy recovers current pension expense through cost of service rates.

Other Income (Expense), net
 
Other income (expense), net includes the results of certain incidental non-utility activities of regulated subsidiaries, the activities of certain non-regulated subsidiaries, governance activities of the parent company and AFC. AFC is a utility accounting practice whereby a portion of the cost of both equity and borrowed funds used to finance construction (which is shown on the balance sheet as construction work in progress) is capitalized. An equity portion of AFC is included in nonoperating income and a debt portion of AFC is included in interest charges (credits), both of which have the effect of increasing reported net income. Components of other income (expense), net were as follows: 

42


 
 
The Company
 
Consolidated SCE&G
Millions of dollars
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Other income
 
$
78.4

 
$
64.4

 
$
74.5

 
$
44.9

 
$
29.3

 
$
31.1

Other expense
 
(46.2
)
 
(38.5
)
 
(60.1
)
 
(24.9
)
 
(24.1
)
 
(31.1
)
Gain on sale of SCI, net of transaction costs
 

 

 
106.6

 

 

 

AFC - equity funds
 
23.2

 
29.4

 
27.0

 
14.8

 
26.1

 
24.8


2017 vs 2016
Other income at the Company and Consolidated SCE&G increased by $10.9 million due to the accrual of carrying costs on unrecovered nuclear project costs and by $6.3 million due to SCPSC-approved carrying cost accrual on certain deferred items. Other expenses at the Company increased primarily due to higher legal costs at the parent company. AFC decreased due to the abandonment of the Nuclear Project and a lower AFC rate as a result of removing Nuclear Project related capital costs from the average construction work in progress balance used to determine the annual AFC rate following the abandonment decision.

2016 vs 2015
Other income at the Company and Consolidated SCE&G decreased by $3.5 million due to lower gains on the sale of land and due to the recognition in 2015 of $5.2 million of gains realized upon the settlement of certain interest rate contracts previously recorded as regulatory liabilities pursuant to SCPSC orders previously discussed. Such gain recognition was fully offset by downward adjustments to electric operating revenues and had no effect on net income (see electric margin discussion). At the Company, other income also decreased by $3.9 million and other expenses decreased by $2.3 million due to the sale of SCI, and other income and other expenses decreased by $10.5 million for billings to DECG for transition services provided at cost pursuant to the terms of the sale of CGT. Other expenses at the Company and Consolidated SCE&G decreased by $5.2 million due to lower contribution expenses. In 2015, the Company's other income included the gain on the sale of SCI (see Dispositions in Note 1 to the consolidated financial statements). AFC increased due to construction activity.
    
Interest Expense
 
Components of interest expense, net of the debt component of AFC, were as follows:
 
 
The Company
 
Consolidated SCE&G
Millions of dollars
 
2017
 
2016
 
2015
 
2017
 
2016
 
2015
Interest on long-term debt, net
 
$
346.7

 
$
330.3

 
$
311.3

 
$
266.1

 
$
253.8

 
$
236.0

Other interest expense
 
16.7

 
12.0

 
6.5

 
21.5

 
16.2

 
12.1

Total
 
$
363.4

 
$
342.3

 
$
317.8

 
$
287.6

 
$
270.0

 
$
248.1


Interest expense increased in each year primarily due to increased borrowings, and in 2017 due to lower AFC on borrowed funds.

Income Taxes
    
At the Company, the income tax benefit for 2017 was primarily due to the impairment loss. Additionally, the impact of remeasuring deferred taxes upon enactment of the Tax Act increased deferred tax expense and resulted in additional net loss of approximately $30 million. Exclusive of these items, income tax expense increased from 2016 to 2017 primarily due to higher income before taxes. Income tax expense decreased from 2015 to 2016 primarily due to lower income before taxes. In 2015 income tax expense and income before taxes were affected by the sales of CGT and SCI. At Consolidated SCE&G, income tax expense decreased from 2016 to 2017 primarily due to impacts related to the impairment loss. Without these impacts, income tax expense increased from 2016 to 2017 primarily due to higher income before taxes. Income tax expense increased from 2015 to 2016 primarily due to higher income before taxes. 

LIQUIDITY AND CAPITAL RESOURCES
 
Liquidity Considerations

              The Company and Consolidated SCE&G have experienced significant adverse events leading up to their decision to stop construction of Unit 2 and Unit 3, as well as significant adverse events since that decision was made. These events include the bankruptcy filing of the Consortium, the anticipated rejection by the Consortium of the EPC Contract with its fixed-price

43


provisions, and the ongoing contentious proceedings before regulatory and legislative bodies, among others things described in Note 10. In addition, downgrades by credit ratings agencies have occurred since the beginning of 2017, including recent rating actions.  The Company and Consolidated SCE&G have significant obligations that must be paid within the next 12 months, including long-term debt maturities and capital lease payments of $727 million for the Company (including $723 million for Consolidated SCE&G), short-term borrowings of $350 million for the Company (including $252 million for Consolidated SCE&G), interest payments of approximately $335 million for the Company (including $259 million for Consolidated SCE&G), and future minimum payments for operating leases of $34 million for the Company (including $26 million for Consolidated SCE&G).  Working capital requirements, such as those for fuel supply and similar obligations, also arise due to the lag between when such amounts are paid and when related collection of such costs through customer rates occurs.

              Management believes as of the date of issuance of these financial statements that it has access to available sources of cash to pay obligations when due over the next 12 months. These sources include committed lines of credit that expire in December 2018 totaling $200 million for the Company, all of which pertains to Consolidated SCE&G, and committed long-term lines of credit that expire in December 2020 totaling $1.8 billion for the Company (including $1.2 billion for Consolidated SCE&G). In addition, as of the date of issuance of these financial statements, SCE&G continues to collect in customer rates amounts previously approved under the BLRA, as well as amounts provided for in other orders related to non-BLRA electric and gas rates. However, as further described below, SCANA's credit rating has fallen below investment grade, which has constricted its ability and that of Consolidated SCE&G to issue commercial paper.

As described in Note 10, on January 31, 2018, the South Carolina House of Representatives passed a bill (H.4375) that would create an experimental rate which would effectively suspend collections from rates previously approved by the SCPSC under the BLRA. This experimental rate would remain in effect during the pendency of administrative proceedings currently before the SCPSC or any appeal therefrom. In addition, the South Carolina Senate passed a joint resolution (S. 954) which, if enacted, would prohibit the SCPSC from holding a hearing on the merits for a docket in which requests were made pursuant to the BLRA (other than an administrative or procedural hearing prior to such hearing on the merits), and would prohibit any final determination on any such requests, before November 1, 2018, and would require the SCPSC to issue a final order for such docket no later than December 21, 2018. Any bill must be approved by both legislative chambers and be signed by, or allowed to become law without the signature of, the Governor before it would be enacted. Such regulatory, legislative or judicial proceedings outside of the Company’s and Consolidated SCE&G’s control may result in the temporary or permanent suspension of the approximately $445 million annually of rates being collected currently under the BLRA, the return of such amounts previously collected of $1.9 billion, or the requirement that SCE&G's share of payments received from the Toshiba Settlement ($1.095 billion) be placed in escrow or be refunded to customers. Neither the Company nor Consolidated SCE&G can predict if or when either of these bills could become law or what additional actions, if any, may be proposed or taken, including other legislative actions related to the BLRA.

Were the SCPSC to grant the relief sought by ORS in the Request or grant similar relief resulting from legislative action, and as further discussed in Note 10 in the consolidated financial statements, an additional impairment loss or other charges totaling as much as approximately $4.8 billion may be required. Such an impairment loss or other charges would further stress the Company’s and Consolidated SCE&G’s equity to total capitalization ratio and may result in the Company’s and Consolidated SCE&G’s ratio of equity to total capitalization falling below minimum levels prescribed in the Company’s credit agreements. In such an event, the Company’s and Consolidated SCE&G’s ability to borrow under their commercial paper programs and credit facilities and their ability to pay future dividends would likely be limited or may trigger events of default under such agreements.

Known and knowable conditions and events when considered in the aggregate as of the date of issuance of these financial statements do not suggest it is probable that the Company and Consolidated SCE&G will not be able to meet obligations as they come due over the next 12 months. However, possible future actions related to rates or refunds could have a material adverse effect on the Company’s and Consolidated SCE&G’s financial condition, liquidity, results of operations and cash flows such that management’s conclusion with respect to its ability to pay obligations when due could change.

Impact of Abandonment of Nuclear Project

Toshiba provided a parental guaranty for WEC’s payment obligations under the EPC Contract. Following the bankruptcy of WEC, the Toshiba Settlement was executed under which Toshiba was to make periodic settlement payments in the total amount of approximately $2.2 billion ($1.2 billion for SCE&G's 55% share), including certain amounts with respect to contractor liens. In 2017, the first payment under the Toshiba Settlement was received and the remaining amounts due were monetized, resulting in total cash inflows of approximately $2 billion (approximately $1.1 billion for SCE&G's 55% share), including amounts related to the contractor liens. See also Note 10 to the consolidated financial statements. Portions of these

44


proceeds have been utilized to repay maturing commercial paper balances. Such short-term borrowings had been incurred primarily for the construction of Unit 2 and Unit 3 prior to the decision to stop their construction.

Regulatory proceedings being considered by the SCPSC include the Request filed by the ORS which, if granted, would require SCE&G to (1) immediately suspend all revised rates collections from customers which were previously approved by the SCPSC pursuant to the authority of the BLRA, and (2) make credits to future bills or refunds to customers for prior revised rates collections in the event that the BLRA is found to be unconstitutional or the South Carolina General Assembly amends or revokes it. SCE&G estimates that revised rates collections, including collections related to transmission assets expected to be placed into service, currently total approximately $445 million annually, and such amounts accumulated as of December 31, 2017 total approximately $1.9 billion.

In an amendment to the Request, the ORS has asked the SCPSC to consider the most prudent manner by which SCE&G will enable its customers to realize the value of the monetized Toshiba Settlement payments and other payments made by Toshiba towards satisfaction of its obligations to SCE&G. Parties who filed to intervene in these proceedings or who filed a letter in support of the Request, as amended, include the Governor, the state's Office of Attorney General and Speaker of the House of Representatives, the Electric Cooperatives of South Carolina, the SCEUC, certain large industrial customers, and several environmental groups. On December 20, 2017, the SCPSC denied SCE&G's motion to dismiss the Request and requested that the ORS carry out an inspection, audit and examination of SCE&G's revenue requirements to assist the SCPSC in determining whether SCE&G's present schedule of rates is fair and reasonable and also ordered that a hearing be scheduled to consider the Request. The hearing has not yet been scheduled. See Note 2 for additional developments. SCE&G intends to continue vigorously contesting the Request, but cannot give any assurance as to the timing or outcome of this matter. Any adverse action by the SCPSC, such as that sought by the ORS in the Request, could have a material adverse impact on the Company's and Consolidated SCE&G's results of operations, cash flows and financial condition.

Should the SCPSC or a court direct that proceeds arising from the Toshiba Settlement be refunded to customers in the near-term, or direct that such funds be escrowed or otherwise made unavailable to SCE&G, it is anticipated that SCE&G would reissue commercial paper, draw on its credit facilities or issue long-term debt to fund such requirement if such sources are available. However, were the SCPSC to rule in favor of the ORS in response to the Request that SCE&G suspend collections from customers of amounts previously authorized under the BLRA, or were other actions of the SCPSC or others taken in order to significantly restrict SCE&G’s access to revenues or impose additional adverse refund obligations on SCE&G, the Company’s and Consolidated SCE&G's assessments regarding the recoverability of all or a portion of the remaining balance of unrecovered nuclear project costs (see Note 2 to the consolidated financial statements) would be adversely impacted and additional impairment losses would likely be recorded. Further, the recognition of significant additional impairment losses with respect to unrecovered Nuclear Project costs could increase the Company’s and Consolidated SCE&G’s debt to total capitalization to a level which may limit their ability to borrow under their commercial paper programs or under their credit facilities and also could constitute a default under these credit facilities. Borrowing costs for long-term debt issuances and access to capital markets could also be negatively impacted.

For additional background on the Nuclear Project and further details on the matters described above, see Note 10 to the consolidated financial statements under Abandoned Nuclear Project - Toshiba Settlement and Subsequent Monetization
and Determination to Stop Construction and Related Regulatory, Political and Legal Developments.

In the first quarter of 2017, credit ratings agencies placed SCANA and SCE&G’s credit ratings on negative outlook or watch status due to adverse developments relating to the WEC Bankruptcy. In the third quarter of 2017, two agencies lowered their ratings for SCANA and its rated subsidiaries, citing a decline in the regulatory environment as a principal reason for the downgrades, and both agencies maintained their negative outlook or watch status. On January 3, 2018, after SCANA announced a proposed merger with Dominion Energy, each of the three agencies affirmed or reported no change to their respective credit ratings, and one agency revised its rating outlook for SCANA and its rated operating companies from negative to evolving. However, on January 31, 2018, the South Carolina House of Representatives overwhelmingly approved a bill (H.4375) that, if enacted, would temporarily repeal rates SCE&G collects under the BLRA. As a result, on February 5, 2018, one agency downgraded its ratings for SCANA and SCE&G, and attributed the downgrade to the action taken by the House of Representatives and the politically charged environment that is expected to weigh heavily on any decisions by the SCPSC related to SCE&G's electric rates. With this recent downgrade, the issuer ratings and the senior unsecured debt ratings for SCANA are considered below investment grade by two credit agencies; the issuer ratings for SCE&G are considered to be at the threshold for investment grade by two credit agencies while its senior secured debt ratings remain above investment grade; and the issuer ratings for PSNC Energy are considered to be at the threshold for investment grade by one credit agency while its senior secured debt ratings remain above investment grade. All of the ratings for SCANA, SCE&G and PSNC Energy are either under review for possible downgrade or have a negative or evolving outlook.


45


Any actions taken by or anticipated to be taken by regulators or legislators that are viewed as adverse, including a change to the BLRA or a requirement that SCE&G make credits to future bills or refunds to customers above such amounts as are included in the Merger Agreement or any requirement that SCE&G make such credits or refunds in the absence of the merger being consummated, or deterioration of the rated companies’ commonly monitored financial credit metrics or any additional adverse developments with respect to the Nuclear Project, could further negatively affect their debt ratings. If these rating agencies were to further lower any of these ratings, borrowing costs on new issuances of long-term debt and commercial paper would increase, which could adversely impact financial results or limit or eliminate refinancing opportunities, and the potential pool of investors and funding sources could decrease. In addition, further ratings downgrades may result in lower collateral thresholds being applied to the Company's and Consolidated SCE&G's commodity derivatives, or the removal of such thresholds altogether. This action would have the effect of requiring the Company to post additional collateral for commodity derivative instruments with unfavorable fair values. Ratings downgrades have also resulted in prepayments and demands from vendors for letters of credit, cash deposits, or other forms of credit support under certain gas supply and other agreements, and further ratings downgrades could result in requirements for additional deposits or the provision of additional credit support in order to conduct business under these agreements. See further discussion under the heading Credit Risk Considerations in Note 6 to the consolidated financial statements.

Significant Tax Deductions and Credits
 
The Company and Consolidated SCE&G have claimed significant research and experimentation tax deductions and credits related to the design and construction activities of Unit 2 and Unit 3. A significant portion of these claims followed the issuance of final IRS regulations in 2014 regarding such treatment with respect to expenditures related to the design and construction of pilot models.  (See also Note 5 to the consolidated financial statements.) The Company and Consolidated SCE&G also expect to claim a significant tax deduction related to the decision to stop construction and to abandon the Nuclear Project in 2017.

These tax claims primarily involve the timing of recognition of tax deductions rather than permanent tax attributes, and their permanent attributes (net), as well as most of the interest accruals required to be recorded with respect to them, had been deferred within regulatory assets. As such, until December 31, 2017 when it was determined to treat these deferrals as impaired (see Note 10 to the consolidated financial statements), these claims had not had, and were not expected to have in the future, significant direct effects on the Company’s and Consolidated SCE&G’s results of operations.  Nonetheless, the claims have contributed significantly to the Company’s and Consolidated SCE&G’s cash flows by providing a significant source of capital and lessening the level of debt and equity financing that the Company and Consolidated SCE&G have needed to raise in the financial markets. 

The claims made to date are under examination, and are considered controversial, by the IRS. Tax deductions which are expected to be claimed in connection with the determination to abandon the construction of Unit 2 and Unit 3 may also be considered controversial; therefore, it is also expected that the IRS will examine future tax returns.  To the extent that any of these claims are not sustained as ordinary losses on examination or through any subsequent appeal, the Company and Consolidated SCE&G will be required to repay any cash received for tax benefit claims which are ultimately disallowed, along with interest on those amounts. Such amounts could be significant and could adversely affect the Company's and Consolidated SCE&G's liquidity, cash flows, results of operations and financial condition. In certain circumstances, which management considers to be remote, penalties for underpayment of income taxes could also be assessed. Additionally, in such circumstances, the Company and Consolidated SCE&G may need to access the capital markets to fund those tax and interest payments, which could in turn adversely impact their ability to access financial markets for other purposes.

Other Liquidity Requirements and Restrictions

The terms of the Merger Agreement place limits on the Company and its subsidiaries as to certain investing and financing transactions. While the Merger Agreement permits the Company and its subsidiaries to refinance and issue certain long-term debt, make capital expenditures at certain levels, consummate certain planned investments, and make regular quarterly dividend payments to its shareholders at certain levels, transactions above these levels would require consent from Dominion Energy, which consent cannot be unreasonably withheld. Permitted transactions include, but are not limited to, the planned refinancing of $710 million of long-term debt maturing in 2018 at Consolidated SCE&G and the planned new issuance of $100 million of long-term debt at PSNC Energy, the purchase of an existing 540-MW gas fired power plant, and the payment by SCANA of regular quarterly dividends to its shareholders subject to certain limits. See Capital Expenditures herein for additional restrictions. In addition, SCANA’s Supplementary Key Executive Severance Benefits Plan provides certain payments to qualified senior executive officers in connection with a change in control. In January 2018, approximately $110.7 million was placed irrevocably in a rabbi trust to fund payments pursuant to this and certain other deferred compensation, incentive and

46


retirement plans, which might arise in connection with a change in control and/or a termination of employment or service if and when such payments become due.

The Company expects to meet contractual cash obligations in 2018 through internally generated funds and additional short- and long-term borrowings. Subject to the outcome of the regulatory, legislative and legal proceedings discussed above, the Company expects that, barring a future impairment of the capital markets or its access to such markets, it has or can obtain adequate sources of financing to meet its projected cash requirements for the foreseeable future, including the cash requirements for refinancing maturing long-term debt. As noted above, adverse developments in regulatory, legislative or legal proceedings could alter these conclusions.

The terms of the Merger Agreement limit the dividends that SCANA can pay on its shares of common stock to an amount not greater than $0.6125 per share for any quarter. In order to preserve liquidity, the Company may revise its dividend policy to reduce or eliminate dividend payments. Such a decision could result in a significant decrease in the price of SCANA's common stock and an increase in the cost of raising equity capital.
 
Cash requirements for SCANA’s regulated subsidiaries arise primarily from their operational needs, funding their construction programs and payment of dividends to SCANA. The ability of the regulated subsidiaries to replace existing plant investment, to expand to meet future demand for electricity and gas and to install equipment necessary to comply with environmental regulations, will depend on their ability to attract the necessary financial capital on reasonable terms. Regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and these subsidiaries continue their ongoing construction programs, rate increases will be sought. The future financial position and results of operations of regulated subsidiaries will be affected by their ability to obtain adequate and timely rate and other regulatory relief.
 
Rating agencies consider qualitative and quantitative factors when assessing SCANA and its rated operating companies’ credit ratings, including the legislative and regulatory environment, capital structure and the ability to meet liquidity requirements. As previously noted, adverse developments with respect to recovery of Nuclear Project costs have negatively affected the Company’s and Consolidated SCE&G's debt ratings. Further adverse developments, changes in the legislative and regulatory environment or deterioration of SCANA's or its rated operating companies' commonly monitored financial credit metrics could cause the Company and Consolidated SCE&G to pay higher interest rates on its long- and short-term indebtedness, could limit the Company's and Consolidated SCE&G's access to capital markets and liquidity, and could trigger more stringent collateral requirements on interest rate and commodity hedges and under gas supply agreements and other contracts.
    
Cash provided from operating activities in 2016 and 2017 reflect significant tax benefits (reductions in income tax payments) arising from the deductions previously described under Significant Tax Deductions and Credits. The Company's decision in 2017 to stop construction of Unit 2 and Unit 3 and to abandon the Nuclear Project is expected to result in a significant tax deduction and an associated NOL for tax purposes. The Company expects to obtain a refund of taxes paid in certain prior years as a result of the carryback of the NOL, and expects to benefit from the carryforward of the NOL in future years. These cash flows are expected to supplant portions of financing which would otherwise be obtained in the capital markets.

Enactment of the Tax Act resulted in the remeasurement of deferred income tax assets and liabilities and the recognition as regulatory liabilities of certain excess deferred income taxes (see Note 2 and Note 5 to the consolidated financial statements). These regulatory liabilities will be amortized to the benefit of customers in accordance with the normalization provisions of the IRC and Code of Federal Regulations, which will serve to mitigate significant negative cash impact. Similarly, since the majority of the Company’s and Consolidated SCE&G's businesses are rate regulated, lower income taxes payable in future years due to the Tax Act should ultimately result in lower collections from customers in rates.

Capital Expenditures
 
Cash outlays for property additions and construction expenditures, including nuclear fuel, were $1.2 billion in 2017. Estimates of capital expenditures for construction and nuclear fuel for the next three years, which are subject to continuing review and adjustment, are as follows:

47


Estimated Capital Expenditures
Millions of dollars
 
2018
 
2019
SCE&G
 
 

 
 

Generation
 
$
124

 
$
145

Transmission & Distribution
 
229

 
203

Other
 
12

 
23

Gas
 
98

 
105

Common
 
3

 
11

Total SCE&G
 
466

 
487

PSNC Energy
 
288

 
275

Other
 
37

 
24

Total Normal
 
791

 
786

Nuclear Fuel - SCE&G
 
54

 
51

Total Estimated Capital Expenditures
 
$
845

 
$
837


Under the terms of the Merger Agreement, the Company may increase the amounts of the above estimated capital expenditures in 2018 and 2019 by not more than 10% without obtaining the consent of Dominion Energy.

Contractual cash obligations as of December 31, 2017 are summarized as follows:
Contractual Cash Obligations
 
Payments due by periods
Millions of dollars
 
Total
 
Less than
1 year
 
1 - 3 years
 
4 - 5 years
 
More than
5 years
Long- and short-term debt, including interest
 
$
13,352

 
$
1,406

 
$
1,721

 
$
768

 
$
9,457

Capital leases
 
28

 
5

 
14

 
3

 
6

Operating leases
 
112

 
34

 
42

 
9

 
27

Purchase obligations
 
3,159

 
2,345

 
812

 
2

 

Other commercial commitments
 
2,929

 
1,057

 
846

 
258

 
768

Total
 
$
19,580

 
$
4,847

 
$
3,435

 
$
1,040

 
$
10,258

 
As of December 31, 2017, the SCPSC has taken no final action with regard to the Request by the ORS or in connection with the effect of the Tax Act on customer rates, including any action with respect to excess deferred income taxes. Therefore, no amounts have been included in the table above for these matters. See Note 2 to the consolidated financial statements.

Purchase obligations include customary purchase orders under which the Company has the option to utilize certain vendors without the obligation to do so. The Company may terminate such arrangements without penalty. Purchase obligations also includes amounts related to the EPC Contract, which the Company anticipates that WEC and WECTEC will reject. The Company does not expect that such amounts will be expended. See Note 10 to the consolidated financial statements.

Other commercial commitments includes estimated obligations under forward contracts for natural gas purchases. Such forward contracts include customary “make-whole” or default provisions, but are not considered to be “take-or-pay” contracts. Certain of these contracts relate to regulated businesses; therefore, the effects of such contracts on fuel costs are reflected in electric or gas rates.  Other commercial commitments also includes a “take-and-pay” contract for natural gas which expires in 2019 and estimated obligations for coal and nuclear fuel purchases. The Company has included certain amounts related to nuclear fuel commitments based on its interpretation of its obligations under existing contract terms that are currently disputed by the supplier.

Unrecognized tax benefits of approximately $19 million have been excluded from the table above due to uncertainty as to the timing of any future payments. In addition, the table excludes amounts that may be required to be paid to federal or state taxing authorities related to tax deductions and credits on tax returns for which examinations have not been completed or closed. For additional information, see Note 5 to the consolidated financial statements.

In addition to the contractual cash obligations above, the Company sponsors a noncontributory defined benefit pension plan and an unfunded health care and life insurance benefit plan for retirees. The pension plan is adequately funded under current regulations, and no significant contributions are anticipated for the foreseeable future. Cash payments under the

48


postretirement health care and life insurance benefit plan were $12.5 million in 2017, and such annual payments are expected to be the same or increase to as much as $16.5 million in the future.
 
The Company is party to certain NYMEX natural gas futures contracts for which any unfavorable market movements are funded in cash. These derivatives are accounted for as cash fl