10-K 1 a12-1042_310k.htm 10-K

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-K

 

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year Ended December 31, 2011

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                      to

 

GRAPHIC

 

Commission
File Number

 

Registrant, State of Incorporation,
Address and Telephone Number

 

I.R.S. Employer
Identification No.

1-8809

 

SCANA Corporation
(a South Carolina corporation)
100 SCANA Parkway, Cayce, South Carolina 29033
(803) 217-9000

 

57-0784499

1-3375

 

South Carolina Electric & Gas Company
(a South Carolina corporation)
100 SCANA Parkway, Cayce, South Carolina 29033
(803) 217-9000

 

57-0248695

 

Securities registered pursuant to Section 12(b) of the Act:

 

Each of the following classes or series of securities is registered on The New York Stock Exchange.

 

Title of each class

 

Registrant

Common Stock, without par value

 

SCANA Corporation

2009 Series A 7.70% Enhanced Junior Subordinated Notes

 

SCANA Corporation

 

Securities registered pursuant to Section 12(g) of the Act:

 

Title of each class

 

Registrant

Series A Nonvoting Preferred Shares

 

South Carolina Electric & Gas Company

 

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 o South Carolina Electric & Gas Company x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).

 

SCANA Corporation

 

Large accelerated filer x
Smaller reporting company
o

 

Accelerated filer o

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

South Carolina Electric & Gas Company

 

Large accelerated filer o
Smaller reporting company
o

 

Accelerated filer o

 

Non-accelerated filer x
(Do not check if a smaller reporting company)

 

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 $5.0 billion at June 30, 2011 based on the closing price of $39.37 per share. South Carolina Electric & Gas Company is a wholly-owned subsidiary of SCANA Corporation and has no voting stock other than its common stock. A description of registrants’ common stock follows:

 

Registrant

 

Description of
Common Stock

 

Shares Outstanding
at February 20, 2012

 

SCANA Corporation

 

Without Par Value

 

130,295,890

 

South Carolina Electric & Gas Company

 

Without Par Value

 

40,296,147

(a)

 


(a)           Held beneficially and of record by SCANA Corporation.

 

Documents incorporated by reference: Specified sections of SCANA Corporation’s Proxy Statement, in connection with its 2012 Annual Meeting of Shareholders, are incorporated by reference in Part III hereof.

 

This combined Form 10-K is separately filed by SCANA Corporation and South Carolina Electric & Gas Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other company.

 

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).

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Page

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

3

 

 

DEFINITIONS

4

 

 

PART I

 

Item 1.

Business

6

Item 1A.

Risk Factors

15

Item 1B.

Unresolved Staff Comments

21

Item 2.

Properties

22

Item 3.

Legal Proceedings

24

Item 4.

Mine Safety Disclosures

25

Executive Officers of SCANA Corporation

26

 

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

27

Item 6.

Selected Financial Data

28

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

 

Item 8.

Financial Statements and Supplementary Data

 

 

SCANA Corporation

29

 

South Carolina Electric & Gas Company

90

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

141

Item 9A.

Controls and Procedures

141

Item 9B.

Other Information

143

 

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

144

Item 11.

Executive Compensation

144

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

144

Item 13.

Certain Relationships and Related Transactions, and Director Independence

144

Item 14.

Principal Accounting Fees and Services

145

 

 

PART IV

 

Item 15.

Exhibits, Financial Statement Schedules

146

 

 

SIGNATURES

148

 

 

Exhibit Index

150

 

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Table of Contents

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

 

Statements included in this Annual Report on Form 10-K which are not statements of historical fact are intended to be, and are hereby identified as, “forward-looking statements” for purposes of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Forward-looking statements include, but are not limited to, statements concerning key earnings drivers, customer growth, environmental regulations and expenditures, leverage ratio, projections for pension fund contributions, financing activities, access to sources of capital, impacts of the adoption of new accounting rules and estimated construction and other expenditures.  In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expects,” “forecasts,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” or “continue” or the negative of these terms or other similar terminology.  Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements.  Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following:

 

(1)

 

the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment;

 

 

 

(2)

 

regulatory actions, particularly changes in rate regulation, regulations governing electric grid reliability, environmental regulations, and actions affecting the construction of new nuclear units;

 

 

 

(3)

 

current and future litigation;

 

 

 

(4)

 

changes in the economy, especially in areas served by subsidiaries of SCANA;

 

 

 

(5)

 

the impact of competition from other energy suppliers, including competition from alternate fuels in industrial markets;

 

 

 

(6)

 

growth opportunities for SCANA’s regulated and diversified subsidiaries;

 

 

 

(7)

 

the results of short- and long-term financing efforts, including prospects for obtaining access to capital markets and other sources of liquidity;

 

 

 

(8)

 

changes in SCANA’s or its subsidiaries’ accounting rules and accounting policies;

 

 

 

(9)

 

the effects of weather, including drought, especially in areas where the generation and transmission facilities of SCANA and its subsidiaries (the Company) are located and in areas served by SCANA’s subsidiaries;

 

 

 

(10)

 

payment and performance by counterparties and customers as contracted and when due;

 

 

 

(11)

 

the results of efforts to license, site, construct and finance facilities for electric generation and transmission;

 

 

 

(12)

 

maintaining creditworthy joint owners for SCE&G’s new nuclear generation project;

 

 

 

(13)

 

the ability of suppliers, both domestic and international, to timely provide the labor, components, parts, tools, equipment and other supplies needed, at agreed upon prices, for our construction program, operations and maintenance;

 

 

 

(14)

 

the results of efforts to ensure the physical and cyber security of key assets and processes;

 

 

 

(15)

 

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;

 

 

 

(16)

 

the availability of skilled and experienced human resources to properly manage, operate, and grow the Company’s businesses;

 

 

 

(17)

 

labor disputes;

 

 

 

(18)

 

performance of SCANA’s pension plan assets;

 

 

 

(19)

 

changes in taxes;

 

 

 

(20)

 

inflation or deflation;

 

 

 

(21)

 

compliance with regulations;

 

 

 

(22)

 

natural disasters and man-made mishaps that directly affect our operations or the regulations governing them; and

 

 

 

(23)

 

the other risks and uncertainties described from time to time in the periodic reports filed by SCANA or SCE&G with the SEC.

 

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

 

3



Table of Contents

 

DEFINITIONS

 

Abbreviations used in this Form 10-K have the meanings set forth below unless the context requires otherwise:

 

TERM

 

MEANING

AER

 

Alternate Energy Resources, Inc.

AFC

 

Allowance for Funds Used During Construction

ANI

 

American Nuclear Insurers

ARO

 

Asset Retirement Obligation

BACT

 

Best Available Control Technology

BLRA

 

Base Load Review Act

CAA

 

Clean Air Act, as amended

CAIR

 

Clean Air Interstate Rule

CAMR

 

Clean Air Mercury Rule

CCR

 

Coal Combustion Residuals

CEO

 

Chief Executive Officer

CFO

 

Chief Financial Officer

CERCLA

 

Comprehensive Environmental Response, Compensation and Liability Act

CGT

 

Carolina Gas Transmission Corporation

COL

 

Combined Construction and Operating License

Company

 

SCANA, together with its consolidated subsidiaries

Consolidated SCE&G

 

SCE&G and its consolidated affiliates

Consortium

 

A consortium consisting of Westinghouse and Stone and Webster, Inc., a subsidiary of The Shaw Group, Inc.

CSAPR

 

Cross-State Air Pollution Rule

CUT

 

Customer Usage Tracker

CWA

 

Clean Water Act

DHEC

 

South Carolina Department of Health and Environmental Control

Dodd-Frank

 

Dodd-Frank Wall Street Reform and Consumer Protection Act

DOE

 

United States Department of Energy

DOJ

 

United States Department of Justice

Dominion

 

Dominion Transmission, Inc.

DOT

 

United States Department of Transportation

DSM Programs

 

Demand Side Management Programs

DT

 

Dekatherm (one million BTUs)

Duke

 

Duke Energy Carolinas

EIZ Credits

 

South Carolina Capital Investment Tax Credits (formerly known as Economic Impact Zone Income Tax Credits)

Energy Marketing

 

The divisions of SEMI, excluding SCANA Energy

EPA

 

United States Environmental Protection Agency

EPC Contract

 

Engineering, Procurement and Construction Agreement dated May 23, 2008

eWNA

 

Pilot Electric WNA

FERC

 

United States Federal Energy Regulatory Commission

FEIS

 

Final Environmental Impact Statement

FSER

 

Final Safety Evaluation Report

Fuel Company

 

South Carolina Fuel Company, Inc.

GENCO

 

South Carolina Generating Company, Inc.

GHG

 

Greenhouse Gas

GPSC

 

Georgia Public Service Commission

GWh

 

Gigawatt hour

IRS

 

Internal Revenue Service

KVA

 

Kilovolt ampere

kW or kWh

 

Kilowatt or Kilowatt-hour

LLC

 

Limited Liability Company

LNG

 

Liquefied Natural Gas

LOC

 

Lines of Credit

MACT

 

Maximum Achievable Control Technology

MATS

 

Mercury and Air Toxics Standards

MCF or MMCF

 

Thousand Cubic Feet or Million Cubic Feet

 

4



Table of Contents

 

TERM

 

MEANING

MGP

 

Manufactured Gas Plant

MMBTU

 

Million British Thermal Units

MW or MWh

 

Megawatt or Megawatt-hour

NASDAQ

 

The NASDAQ Stock Market, Inc.

NEIL

 

Nuclear Electric Insurance Limited

NERC

 

North American Electric Reliability Corporation

New Units

 

Nuclear Units 2 and 3 to be constructed at Summer Station

NCUC

 

North Carolina Utilities Commission

NMST

 

Negotiated Market Sales Tariff

NRC

 

United States Nuclear Regulatory Commission

NSR

 

New Source Review

Nuclear Waste Act

 

Nuclear Waste Policy Act of 1982

NYMEX

 

New York Mercantile Exchange

NYSE

 

The New York Stock Exchange

OCI

 

Other Comprehensive Income

ORS

 

South Carolina Office of Regulatory Staff

PGA

 

Purchased Gas Adjustment

Pipeline Safety Act

 

The Pipeline Safety Improvement Act of 2002

PHMSA

 

Pipeline Hazardous Materials Safety Administration

Plan

 

SCANA Long-Term Equity Compensation Plan

Price-Anderson

 

Price-Anderson Indemnification Act

PRP

 

Potentially Responsible Party

PSNC Energy

 

Public Service Company of North Carolina, Incorporated

RCC

 

Replacement Capital Covenant

RCRA

 

Resource Conservation and Recovery Act

RES

 

Renewable Energy Standard

RSA

 

Natural Gas Rate Stabilization Act

Santee Cooper

 

South Carolina Public Service Authority

SCANA

 

SCANA Corporation, the parent company

SCANA Energy

 

A division of SEMI which markets natural gas in Georgia

SCE&G

 

South Carolina Electric & Gas Company

SCEUC

 

South Carolina Energy Users Committee

SCI

 

SCANA Communications, Inc.

SCPSC

 

Public Service Commission of South Carolina

SCR

 

Selective Catalytic Reactor

SEC

 

United States Securities and Exchange Commission

SERC

 

SERC Reliability Corporation

SEMI

 

SCANA Energy Marketing, Inc.

Southern Natural

 

Southern Natural Gas Company

Summer Station

 

V. C. Summer Nuclear Station

Transco

 

Transcontinental Gas Pipeline Corporation

TSR

 

Total Shareholder Return

USACE

 

United States Army Corps of Engineers

VACAR

 

Virginia-Carolinas Reliability Group

VIE

 

Variable Interest Entity

Westinghouse

 

Westinghouse Electric Company LLC

Williams Station

 

A.M. Williams Generating Station, owned by GENCO

WNA

 

Weather Normalization Adjustment

 

5



Table of Contents

 

PART I

 

ITEM 1.  BUSINESS

 

CORPORATE STRUCTURE

 

SCANA, a holding company, owns the following direct, wholly-owned subsidiaries:

 

SCE&G is engaged in the generation, transmission, distribution and sale of electricity to retail and wholesale customers and the purchase, sale and transportation of natural gas to retail customers.

 

GENCO owns Williams Station and sells electricity solely to SCE&G.

 

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 retail customers.

 

CGT transports natural gas in South Carolina and southeastern Georgia.

 

SCI provides fiber optic communications, ethernet services and data center facilities and builds, manages and leases communications towers in South Carolina, North Carolina and Georgia.

 

SEMI markets natural gas, primarily in the Southeast, and provides energy- related risk management services. SCANA Energy, a division of SEMI, markets natural gas in Georgia’s retail market.

 

ServiceCare, Inc. provides service contracts on home appliances and heating and air conditioning units.

 

SCANA Services, Inc. provides administrative, management and other services to SCANA’s subsidiaries and business units.

 

SCANA is incorporated in South Carolina, as is each of its direct, wholly- owned subsidiaries. In addition to the subsidiaries above, SCANA owns two other energy-related companies that are insignificant.

 

ORGANIZATION

 

SCANA is a South Carolina corporation created in 1984 as a holding company. SCANA holds, directly or indirectly, all of the capital stock of each of its subsidiaries. SCANA and its subsidiaries had full-time, permanent employees as of February 20, 2012 and 2011 of 5,889 and 5,877, respectively. SCE&G is an operating public utility incorporated in 1924 as a South Carolina corporation. SCE&G had full-time, permanent employees as of February 20, 2012 and 2011 of 3,202 and 3,173, respectively.

 

INVESTOR INFORMATION

 

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

 

SEGMENTS OF BUSINESS

 

For information with respect to major segments of business, see Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and the consolidated financial statements for SCANA and SCE&G (Note 12). All such information is incorporated herein by reference.

 

SCANA does not directly own or operate any significant physical properties. SCANA, through its subsidiaries, is engaged in the functionally distinct operations described below.

 

6



Table of Contents

 

Regulated Utilities

 

SCE&G is engaged in the generation, transmission, distribution and sale of electricity to approximately 664,000 customers and the purchase, sale and transportation of natural gas to approximately 317,000 customers (each as of December 31, 2011). 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 17,000 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 22,600 square miles. More than 3.2 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 and fabricated metal products.

 

GENCO owns Williams Station and sells electricity solely to SCE&G.

 

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 487,000 residential, commercial and industrial customers (as of December 31, 2011). PSNC Energy serves 28 franchised counties covering 12,000 square miles in North Carolina. The predominant industries served by PSNC Energy include educational services, food products, health services, chemicals, non-woven textiles and construction-related materials.

 

CGT operates as an open access, transportation-only interstate pipeline company regulated by FERC. CGT operates in southeastern Georgia and in South Carolina and has interconnections with Southern Natural at Port Wentworth, Georgia and with Southern LNG, Inc. at Elba Island, near Savannah, Georgia. CGT also has interconnections with Southern Natural in Aiken County, South Carolina, and with Transco in Cherokee and Spartanburg counties, South Carolina. CGT’s customers include SCE&G (which uses natural gas for electricity generation and for gas distribution to retail customers), SEMI (which markets natural gas to industrial and sale for resale customers, primarily in the Southeast), municipalities, county gas authorities, federal and state agencies, marketers, power generators and industrial customers primarily engaged in the manufacturing or processing of ceramics, paper, metal, and textiles.

 

Nonregulated Businesses

 

SEMI markets natural gas primarily in the southeast and provides energy- related risk management services. SCANA Energy, a division of SEMI, sells natural gas to approximately 455,000 customers (as of December 31, 2011, and includes approximately 80,000 customers in its regulated division) in Georgia’s natural gas market. SCANA Energy’s contract to serve as Georgia’s regulated provider of natural gas has been renewed by the GPSC through August 31, 2014.  SCANA Energy’s total customer base represents an approximately 30% share of the approximately 1.5 million customers in Georgia’s deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in Georgia.

 

SCI owns and operates a 500-mile fiber optic telecommunications network and ethernet network and data center facilities in South Carolina. Through a joint venture, SCI has an interest in an additional 2,280 miles of fiber in South Carolina, North Carolina and Georgia. SCI also provides tower site construction, management and rental services in South Carolina and North Carolina.

 

The preceding Corporate Structure section describes other businesses owned by SCANA.

 

COMPETITION

 

For a discussion of the impact of competition, see the Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.

 

7



Table of Contents

 

CAPITAL REQUIREMENTS

 

SCANA’s regulated subsidiaries, including SCE&G, require cash to fund operations, construction programs and dividend payments to SCANA. SCANA’s nonregulated subsidiaries require cash to fund operations and dividend payments to SCANA. To replace existing plant investment and to expand to meet future demand for electricity and gas, SCANA’s regulated subsidiaries must attract the necessary financial capital on reasonable terms. Regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and these subsidiaries continue their construction programs, rate increases will be sought. The future financial position and results of operations of the regulated subsidiaries will be affected by their ability to obtain adequate and timely rate and other regulatory relief, when requested.

 

For a discussion of various rate matters and their impact on capital requirements, see the Regulatory Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and Note 2 to the consolidated financial statements for SCANA and SCE&G.

 

During the period 2012-2014, SCANA and SCE&G expect to meet capital requirements through internally generated funds, issuance of equity and short-term and long-term borrowings. SCANA and SCE&G expect that they have or can obtain adequate sources of financing to meet their projected cash requirements for the next 12 months and for the foreseeable future.

 

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

 

SCANA’s ratios of earnings to fixed charges were 2.87, 2.92, 2.84, 3.04 and 3.03 for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, respectively. SCE&G’s ratios of earnings to fixed charges were 3.13, 3.18, 3.25, 3.51 and 3.40 for the same periods.

 

ELECTRIC OPERATIONS

 

Electric Sales

 

SCE&G’s sales of electricity and margins earned from the sale of electricity by customer classification as percentages of electric revenues for 2010 and 2011 were as follows:

 

 

 

Sales

 

Margins

 

Customer Classification

 

2010

 

2011

 

2010

 

2011

 

Residential

 

43

%

43

%

48

%

48

%

Commercial

 

32

%

32

%

33

%

33

%

Industrial

 

17

%

17

%

13

%

13

%

Sales for resale

 

6

%

6

%

4

%

4

%

Other

 

2

%

2

%

2

%

2

%

Total Territorial

 

100

%

100

%

100

%

100

%

NMST

 

%

%

%

%

Total

 

100

%

100

%

100

%

100

%

 

Sales for resale include sales to three municipalities and two electric cooperatives. Sales under NMST during 2011 include sales to seven investor-owned utilities or registered marketers and three federal/state electric agencies. During 2010 sales under the NMST included sales to nine investor-owned utilities or registered marketers, two electric cooperatives and two federal/state electric agencies.

 

During 2011 SCE&G recorded a net increase of approximately 3,600 electric customers (growth rate of 0.5%), increasing its total electric customers to approximately 664,000 at year end.

 

For the period 2012-2014, SCE&G projects total territorial KWh sales of electricity to increase 0.7% annually (assuming normal weather), total electric customer base to increase 1.6% annually and territorial peak load (summer, in MW) to increase 1.0% annually. While SCE&G’s goal is to maintain a reserve margin of between 12% and 18%, weather and other factors affect territorial peak load and can cause actual generating capacity on any given day to fall below the reserve margin goal.

 

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Table of Contents

 

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, which extends over a large part of the central, southern and southwestern portions of South Carolina, interconnects with Duke Energy Carolinas, Progress Energy Carolinas, Santee Cooper, Georgia Power Company, Oglethorpe Power Corporation and the Southeastern Power Administration’s Clarks Hill (Thurmond) Project. SCE&G, Duke Energy Carolinas, Progress Energy Carolinas, Santee Cooper, Dominion Virginia Power and ALCOA Power Generating, Inc. (Yadkin Division), are members 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.  SERC is divided geographically into five diverse sub-regions that are identified as Central, Delta, Gateway, Southeastern and VACAR. The regional entities and all members of NERC work to safeguard the reliability of the bulk power systems throughout North America. For a discussion of the impact certain legislative and regulatory initiatives may have on SCE&G’s transmission system, see Electric Operations within the Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.

 

Fuel Costs and Fuel Supply

 

The average cost of various fuels and the weighted average cost of all fuels (including oil) for the years 2009-2011 follow:

 

 

 

Cost of Fuel Used

 

 

 

2009

 

2010

 

2011

 

Per MMBTU:

 

 

 

 

 

 

 

Nuclear

 

$

.48

 

$

.72

 

$

.88

 

Coal

 

4.36

 

4.49

 

4.47

 

Natural Gas

 

4.61

 

5.48

 

4.86

 

All Fuels (weighted average)

 

3.61

 

3.80

 

3.80

 

Per Ton: Coal

 

108.39

 

110.63

 

109.91

 

Per thousand cubic feet (MCF): Gas

 

4.81

 

5.64

 

5.01

 

 

The sources and percentages of total MWh generation by each category of fuel for the years 2009-2011 and the estimates for the years 2012-2014 follow:

 

 

 

% of Total MWh Generated

 

 

 

Actual

 

Estimated

 

 

 

2009

 

2010

 

2011

 

2012

 

2013

 

2014

 

Coal

 

51

%

52

%

50

%

46

%

44

%

46

%

Nuclear

 

18

%

21

%

19

%

20

%

22

%

20

%

Hydro

 

4

%

4

%

3

%

4

%

4

%

4

%

Natural Gas & Oil

 

27

%

23

%

28

%

29

%

29

%

29

%

Biomass

 

 

 

 

1

%

1

%

1

%

Total

 

100

%

100

%

100

%

100

%

100

%

100

%

 

Six of the seven fossil fuel-fired plants use coal. Unit trains and, in some cases, trucks and barges deliver coal to these plants.

 

Coal is obtained through long-term supply contracts and spot market purchases. Long-term contracts exist with suppliers located in eastern Kentucky, Tennessee and West Virginia. These contracts provide for approximately 3.5 million tons annually, which is substantially all expected coal purchases for 2012. Sulfur restrictions on the contract coal range from 1% to 2%. These contracts expire at various times through 2014. Spot market purchases are expected to continue when needed or when prices are believed to be favorable.

 

SCANA and SCE&G believe that SCE&G’s operations comply with all applicable regulations relating to the discharge of sulfur dioxide and nitrogen oxide. See additional discussion at Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.

 

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On January 27, 2011, SCE&G, for itself and as agent for Santee Cooper, and Westinghouse entered into a fuel alliance agreement and contracts for fuel fabrication and related services. Under these contracts, Westinghouse will supply enriched nuclear fuel assemblies for Summer Station Unit 1 and the New Units. Westinghouse will be 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 Summer Station Unit 1 and the New Units through 2033. SCE&G is dependent upon Westinghouse for providing fuel assemblies for the new AP1000 passive reactors in the New Units in the current and anticipated future absence of other commercially viable sources. Westinghouse currently provides maintenance and engineering support to Summer Station Unit 1 under a services alliance arrangement, and SCE&G has also contracted for Westinghouse to provide similar support services to the New Units upon their completion and commencement of commercial operation.

 

In addition to the above-described contracts for fuel fabrication and related services, SCE&G has contracts covering its nuclear fuel needs for uranium, conversion services and enrichment services. These contracts have varying expiration dates in the next 11 years. 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 preclude the impairment of normal operations of its nuclear generating units.

 

SCE&G can store spent nuclear fuel on-site until at least 2017 and expects to expand its storage capacity to accommodate the spent fuel output for the life of Summer Station Unit 1 through dry cask storage or other technology as it becomes available. In addition, Summer Station Unit 1 has sufficient on-site storage capacity to permit storage of the entire reactor core in the event that complete unloading should become desirable or necessary. For information about the contract with the DOE regarding disposal of spent fuel, see Hazardous and Solid Wastes within the Environmental Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.

 

GAS OPERATIONS

 

Gas Sales-Regulated

 

Regulated sales of natural gas by customer classification as a percent of total regulated gas revenues sold or transported for 2010 and 2011 were as follows:

 

 

 

SCANA

 

SCE&G

 

Customer Classification

 

2010

 

2011

 

2010

 

2011

 

Residential

 

56.1

%

54.5

%

45.7

%

43.4

%

Commercial

 

27.2

%

27.2

%

28.8

%

28.6

%

Industrial

 

11.6

%

12.5

%

22.0

%

23.9

%

Transportation Gas

 

5.1

%

5.8

%

3.5

%

4.1

%

Total

 

100.0

%

100.0

%

100.0

%

100.0

%

 

For the three-year period 2012-2014, SCANA projects total consolidated sales of regulated natural gas in DTs to increase 0.9% annually (assuming normal weather). Annual projected increases over such period in DT sales include residential of 1.2%, commercial of 0.9% and industrial of 0.8%.

 

For the three-year period 2012-2014, SCE&G projects total consolidated sales of regulated natural gas in DTs to increase 0.4% annually (assuming normal weather). Annual projected increases over such period in DT sales include residential of 0.4%, commercial of 0.3% and industrial of 1.1%.

 

For the three-year period 2012-2014, SCANA’s and SCE&G’s total consolidated regulated natural gas customer base is projected to increase annually 1.5% and 1.2%, respectively.  During 2011 SCANA recorded a net increase of approximately 8,800 regulated gas customers (growth rate of 1.1%), increasing its regulated gas customers to approximately 804,000.  Of this increase, SCE&G recorded a net increase of approximately 3,300 gas customers (growth rate of 1.1%), increasing its total gas customers to approximately 317,000 (as of December 31, 2011).

 

Demand for gas changes primarily due to the effect of weather and the price relationship between gas and alternate fuels.

 

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Gas Cost, Supply and Curtailment Plans

 

South Carolina

 

SCE&G purchases natural gas under contracts with producers and marketers in both the spot and long-term markets. The gas is delivered to South Carolina through firm transportation agreements with Southern Natural (expiring in 2013), Transco (expiring in 2013 and 2017) and CGT (expiring in 2012, 2023 and 2026). The maximum daily volume of gas that SCE&G is entitled to transport under these contracts is 161,144 DT from Southern Natural, 64,652 DT from Transco and 424,429 DT from CGT. 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 SEMI is entitled to transport under its service agreement with CGT (expiring in 2023) on a firm basis is 78,083 DT.

 

SCE&G purchased natural gas at an average cost of $5.88 per MCF during 2011 and $6.38 per MCF during 2010.

 

SCE&G was allocated 5,437 MMCF of natural gas storage capacity on Southern Natural and Transco. Approximately 4,213 MMCF of gas were in storage on December 31, 2011. To meet the requirements of its high priority natural gas customers during periods of maximum demand, SCE&G supplements its supplies of natural gas with two LNG liquefaction and storage facilities. The LNG plants are capable of storing the liquefied equivalent of 1,880 MMCF of natural gas. Approximately 1,759 MMCF (liquefied equivalent) of gas were in storage on December 31, 2011.

 

North Carolina

 

PSNC Energy purchases natural gas under contracts with producers and marketers on a short-term basis at current prices and on a long-term basis for reliability assurance at index prices plus a reservation charge. Transco and Dominion deliver the gas to North Carolina through transportation agreements with expiration dates ranging through 2016. On a peak day, PSNC Energy may transport daily volumes of gas under these contracts on a firm basis of 281,110 DT from Transco and 7,331 DT from Dominion.

 

PSNC Energy purchased natural gas at an average cost of $5.54 per DT during 2011 compared to $5.95 per DT during 2010.

 

To meet the requirements of its high priority natural gas customers during periods of maximum demand, PSNC Energy supplements its supplies of natural gas with underground natural gas storage services and LNG peaking services. Underground natural gas storage service agreements with Dominion, Columbia Gas Transmission, Transco and Spectra Energy provide for storage capacity of approximately 13,000 MMCF. Approximately 12,000 MMCF of gas were in storage under these agreements at December 31, 2011.  In addition, PSNC Energy’s LNG facility can store the liquefied equivalent of 1,000 MMCF of natural gas with regasification capability of approximately 100 MMCF per day.  Approximately 800 MMCF (liquefied equivalent) of gas were in storage at December 31, 2011.  LNG storage service agreements with Transco, Cove Point LNG and Pine Needle LNG provide for 1,300 MMCF (liquefied equivalent) of storage space. Approximately 1,200 MMCF (liquefied equivalent) were in storage under these agreements at December 31, 2011.

 

SCANA and SCE&G believe that supplies under long-term contracts and supplies available for spot market purchase are adequate to meet existing customer demands and to accommodate growth.

 

Gas Marketing-Nonregulated

 

SEMI markets natural gas and provides energy-related risk management services primarily in the Southeast. In addition, SCANA Energy, a division of SEMI, markets natural gas to approximately 455,000 customers (as of December 31, 2011) in Georgia’s natural gas market. SCANA Energy’s total customer base represents an approximate 30% share of the approximately 1.5 million customers in Georgia’s deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in the state.

 

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Risk Management

 

SCANA and SCE&G have established policies and procedures and risk limits to control the level of market, credit, liquidity and operational and administrative risks assumed by them. SCANA’s Board of Directors has delegated to a Risk Management Committee the authority to set risk limits, establish policies and procedures for risk management and measurement, and to oversee and review the risk management process and infrastructure for SCANA and each of its subsidiaries. The Risk Management Committee, which is comprised of certain officers, including a Risk Management Officer and several senior officers, apprises the Board of Directors with regard to the management of risk and brings to the Board’s attention any areas of concern. Written policies define the physical and financial transactions that are approved, as well as the authorization requirements and limits for transactions.

 

REGULATION

 

SCANA is subject to the jurisdiction of the SEC as to the issuance of certain securities and other matters and is subject to the jurisdiction of the FERC as to certain acquisitions and other matters.

 

SCE&G is subject to the jurisdiction of the SEC as to the issuance of certain securities and other matters; the SCPSC as to retail electric and gas rates, service, accounting, issuance of securities (other than short-term borrowings) and other matters; and FERC as to issuance of short-term borrowings, certain acquisitions and other matters.

 

GENCO is subject to the jurisdiction of the SCPSC as to issuance of securities (other than short-term borrowings) and is subject to the jurisdiction of FERC as to issuance of short-term borrowings, accounting, certain acquisitions and other matters.

 

PSNC Energy is subject to the jurisdiction of the NCUC as to gas rates, service, issuance of securities (other than notes with a maturity of two years or less or renewals of notes with a maturity of six years or less), accounting and other matters.

 

CGT is subject to the jurisdiction of FERC as to transportation rates, service, accounting and other matters.

 

SCANA Energy is regulated by the GPSC through its certification as a natural gas marketer in Georgia and specifically is subject to the jurisdiction of the GPSC as to retail prices for customers served under the regulated provider contract.

 

SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by FERC and DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting. See the Regulatory Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.

 

SCE&G and GENCO have obtained FERC authority to issue short-term indebtedness (pursuant to Section 204 of the Federal Power Act). SCE&G may issue up to $1.2 billion of unsecured promissory notes or commercial paper with maturity dates of one year or less, and GENCO may issue up to $150 million of such short-term indebtedness. The authority to make such issuances will expire in October 2012.

 

The RSA allows natural gas distribution companies to request annual adjustments to rates to reflect changes in revenues and expenses and changes in investment. Such annual adjustments are subject to certain qualifying criteria and review by the SCPSC.SCE&G is presently operating the Saluda project under an annual license (scheduled to expire in August) while its long-term re-licensing application is being reviewed by FERC.

 

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SCE&G holds licenses under the Federal Power Act for each of its hydroelectric projects. The licenses expire as follows:

 

Project

 

License
Expiration

Saluda (Lake Murray)

 

2012

Fairfield Pumped Storage/Parr Shoals

 

2020

Stevens Creek

 

2025

Neal Shoals

 

2036

 

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.

 

For a discussion of legislative and regulatory initiatives being implemented that will affect SCE&G’s transmission system, see Electric Operations within the Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.

 

SCE&G is subject to regulation by the NRC with respect to the ownership, construction, operation and decommissioning of its currently operating and planned nuclear generating facilities. The NRC’s jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considerations and environmental impact. In addition, the Federal Emergency Management Agency reviews, in conjunction with the NRC, certain aspects of emergency planning relating to the operation of nuclear plants.

 

RATE MATTERS

 

For a discussion of the impact of various rate matters, see the Regulatory Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G, and Note 2 to the consolidated financial statements for SCANA and SCE&G.

 

SCE&G’s gas rate schedules for its residential, small commercial and small industrial customers include a WNA approved by the SCPSC, which is in effect for bills rendered for billing cycles in November through April. The WNA increases tariff rates if weather is warmer than normal and decreases rates if weather is colder than normal. The WNA does not change the seasonality of gas revenues, but reduces fluctuations in revenues and earnings caused by abnormal weather.

 

SCE&G’s retail electric rates include certain costs associated with the Company’s DSM Programs as authorized by the SCPSC. More specifically, these costs include the costs and lost net margin revenue associated with DSM Programs, along with an incentive for investing in such programs. In August 2010, SCE&G implemented an eWNA on a one-year pilot basis for its electric customers and it will continue on a pilot basis unless modified or terminated by the SCPSC.

 

PSNC Energy is authorized by the NCUC to utilize a CUT which allows PSNC Energy to adjust its base rates semi-annually for residential and commercial customers based on average per customer consumption whether impacted by weather or other factors.

 

Under the BLRA, SCE&G is allowed to file revised rates with the SCPSC each year to incorporate the financing cost of any incremental construction work in progress incurred for new nuclear generation. Requested rate adjustments are based on SCE&G’s updated cost of debt and capital structure and on an allowed return on common equity of 11%. In September 2011, the SCPSC approved an increase of $52.8 million or 2.4% under the BLRA for the annual revised rates adjustment filing. The new retail electric rates were effective for bills rendered on and after October 30, 2011.

 

In February 2009, the SCPSC approved SCE&G’s combined application pursuant to the BLRA seeking a certificate of environmental compatibility and public convenience and necessity and for a base load review order relating to the proposed construction and operation by SCE&G and Santee Cooper of the New Units at Summer Station. Under the BLRA, the SCPSC conducted a full pre-construction prudency review of the proposed units and the engineering, procurement, and construction contract under which they are being built. The SCPSC prudency finding is binding on all future related rate proceedings so long as the construction proceeds in accordance with schedules, estimates and projections, as approved by the SCPSC.

 

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Table of Contents

 

In May 2009, two intervenors filed separate appeals of the SCPSC order with the South Carolina Supreme Court. With regard to the first appeal, which challenged the SCPSC’s prudency finding, the South Carolina Supreme Court issued an opinion on April 26, 2010, affirming the decision of the SCPSC. As for the second appeal, the South Carolina Supreme Court reversed the SCPSC’s decision to allow SCE&G to include a pre-approved cost contingency fund and associated inflation (contingency reserve) as part of its anticipated capital costs allowed under the BLRA. SCE&G’s share of the project, as originally approved by the SCPSC, was $4.5 billion in 2007 dollars. Approximately $438 million represented contingency costs associated with the project. Without the pre-approved contingency reserve, SCE&G must seek SCPSC approval for the recovery of any additional capital costs. The Court’s ruling, however, did not affect the project schedule or disturb the SCPSC’s issuance of a certificate of environmental compatibility and public convenience and necessity, which is required to construct the New Units. On November 15, 2010, SCE&G filed a petition with the SCPSC seeking an order approving an updated capital cost schedule that reflected the removal of the contingency reserve and incorporated then identifiable capital costs of $173.9 million (in 2007 dollars), and by order dated May 16, 2011, the SCPSC approved the updated capital costs schedule as outlined in the petition.

 

On February 29, 2012, SCE&G filed a petition with the SCPSC seeking an order approving a further updated capital cost and construction schedule that incorporates additional identifiable capital costs of approximately $6 million (SCE&G’s portion in 2007 dollars) related to new federal healthcare laws, information security measures and certain minor design modifications. That petition also includes increased capital costs of approximately $12 million (SCE&G’s portion in 2007 dollars) related to transmission infrastructure. Finally, that petition includes amounts of approximately $137 million (SCE&G’s portion in 2007 dollars) related to additional labor for the oversight of the New Units during construction and for preparing to operate the New Units, facilities and information technology systems required to support the New Units and their personnel. Future petitions would be filed for any costs arising from the resolution of the commercial claims discussed in the OTHER MATTERS — Nuclear Generation section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 1 of the consolidated financial statements (e.g., those related to COL delays, design modifications of the shield building and certain pre-fabricated modules for the New Units and unanticipated rock conditions at the site).

 

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. The definition also includes the cost of emission allowances used for sulfur dioxide, nitrogen oxide, mercury and particulates. SCE&G may request a formal proceeding concerning its fuel costs at any time should circumstances dictate such a review.

 

SCE&G’s retail electric rates are established in part using a cost of fuel component approved by the SCPSC which may be adjusted periodically to reflect changes in the price of fuel purchased by SCE&G. In February 2011, SCE&G requested authorization to increase the cost of fuel component of its retail electric rates to be effective with the first billing cycle of May 2011. On March 17, 2011, SCE&G, ORS and SCEUC entered into a settlement agreement in which SCE&G agreed to recover its actual base fuel under-collected balance as of April 30, 2011 over a two-year period commencing with the first billing cycle of May 2011. The settlement agreement also provided that SCE&G would be allowed to charge and accrue carrying costs monthly on the deferred balance. By order dated April 26, 2011, the SCPSC approved the settlement agreement. The next annual hearing to review base rates for fuel costs is scheduled for March 22, 2012.

 

SCE&G’s natural gas tariffs include a PGA clause that provides for the recovery of actual gas costs incurred, including costs related to hedging natural gas purchasing activities. SCE&G’s gas rates are calculated using a methodology which may adjust the cost of gas monthly based on a 12-month rolling average. The annual PGA hearing to review SCE&G’s gas purchasing policies and procedures was conducted in November 2011 before the SCPSC. The SCPSC issued an order in January 2012 finding that SCE&G’s gas purchasing policies and practices during the review period of August 1, 2010 through July 31, 2011, were reasonable and prudent and authorized the suspension of SCE&G’s natural gas hedging program.

 

PSNC Energy is subject to a Rider D rate mechanism which allows it to recover from customers all prudently incurred gas costs and certain uncollectible expenses related to gas cost. The Rider D rate mechanism also allows it to recover, in any manner authorized by the NCUC, losses on negotiated gas and transportation sales.

 

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Table of Contents

 

PSNC Energy’s rates are established using a benchmark cost of gas approved by the NCUC, which may be adjusted periodically to reflect changes in the market price of natural gas. PSNC Energy revises its tariffs with the NCUC as necessary to track these changes and accounts for any over- or under-collections of the delivered cost of gas in its deferred accounts for subsequent rate consideration. The NCUC reviews PSNC Energy’s gas purchasing practices annually. In addition, PSNC Energy utilizes a CUT which allows it to adjust its base rates semi-annually for residential and commercial customers based on average per customer consumption.

 

In January 2012, the NCUC approved a five cent per therm decrease in the cost of gas component of PSNC Energy’s rates. The rate adjustment was effective with the first billing cycle in February 2012.

 

In December 2011, in connection with PSNC Energy’s 2011 Annual Prudence Review, the NCUC determined that PSNC Energy’s gas costs, including all hedging transactions, were reasonable and prudently incurred during the 12 months ended March 31, 2011. On February 2, 2012, the Public Staff of the NCUC filed a motion requesting that the NCUC reconsider and modify its order by reassigning certain charges (totaling approximately $0.4 million) from the cost of gas. PSNC Energy cannot predict the outcome of this matter, but the Company does not believe it will have a material effect on the Company’s results of operations, cash flows, or financial condition.

 

In October 2011, the NCUC approved a five cent per therm decrease in the cost of gas component of PSNC Energy’s rates. The rate adjustment was effective with the first billing cycle in November 2011.

 

In October 2010, the NCUC approved a 12.5 cent per therm decrease in the cost of gas component of PSNC Energy’s rates. The rate adjustment was effective with the first billing cycle in November 2010. In February 2010, the NCUC approved a ten cent per therm increase in the cost of gas component of PSNC Energy’s rates. The rate adjustment was effective with the first billing cycle in March 2010.

 

ENVIRONMENTAL MATTERS

 

Federal and state authorities have imposed environmental regulations and standards relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. Developments in these areas may require that equipment and facilities be modified, supplemented or replaced. The ultimate effect of these regulations and standards upon existing and proposed operations cannot be predicted. For a more complete discussion of how these regulations and standards impact SCANA and SCE&G, see the Environmental Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and Note 10 to the consolidated financial statements for SCANA and SCE&G.

 

OTHER MATTERS

 

For a discussion of SCE&G’s insurance coverage for Summer Station Unit 1and the New Units, see Note 10 to the consolidated financial statements for SCANA and SCE&G.

 

ITEM 1A. RISK FACTORS

 

The risk factors that follow relate in each case to SCANA and its subsidiaries, and where indicated the risk factors also relate to SCE&G and its consolidated affiliates.

 

Commodity price changes, delays 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, oil and other commodity prices (as well as their transportation costs) and availability. Any such changes could affect the prices these businesses charge, their operating costs and the competitive position of their products and services. Consolidated SCE&G is permitted to recover the prudently incurred cost of fuel (including transportation) used in electric generation through retail customers’ bills, but 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 require 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 position.

 

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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, increases in gas costs affect total retail prices and therefore the competitive position of gas relative to electricity and other forms of energy. Gas cost increases also may result in lower usage by customers unable to switch to alternate fuels. Increases in fuel costs may also result in higher prices for and thus lower usage of electricity by customers.

 

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, demand for these reagents, combined with the demand for low sulfur coal, may result in higher costs for coal and reagents used for compliance purposes.

 

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

 

The Company’s and Consolidated SCE&G’s businesses are capital intensive and require significant investments in energy generation and in other internal infrastructure projects, including projects for environmental compliance. For example, SCE&G and Santee Cooper have agreed to jointly own, design, construct and operate the New Units, which will be two 1,117-megawatt nuclear units at SCE&G’s Summer Station, in pursuit of which they have committed and are continuing to commit significant resources towards project development, permitting, site preparation and long lead-time procurement. Substantial additional resources will be required for the construction and operation of the New Units upon receipt of requisite approvals. In addition, planning and construction of significant new transmission resources are necessary to support the New Units and are under way as an integral part of the project. Achieving the intended benefits of any large construction project is subject to many uncertainties. For instance, the ability to stay within established budgets and timeframes may be affected by many variables, such as the regulatory and legal processes associated with securing permits and licenses 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 unforeseen difficulties meeting critical regulatory requirements. There may be unforeseen engineering problems or unanticipated changes in project design or scope. Our ability to complete construction projects (including new baseload generation) 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, new or enhanced environmental requirements, supply chain failures (whether resulting from the foregoing or other factors), and disruptions in the transportation of components, commodities and fuels. Furthermore, joint venture projects, such as the current construction of the New Units, are subject to the risk that one or more of the joint venture partners becomes either unable or unwilling to continue to fund project financial commitments, new partners cannot be secured at equivalent financial terms, or changes in the joint venture make-up will increase project costs and/or delay the completion. To the extent that delays occur, costs become unrecoverable, or we otherwise become unable effectively to manage our capital projects our results of operations, cash flows and financial condition may be adversely affected.

 

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 commodity and financial market risks. We could recognize financial losses on these contracts as a result of volatility in the market values of the underlying commodities and interest rate contracts or if a counterparty fails to perform under a contract.

 

The Company strives to manage commodity price exposure by establishing risk limits and entering into contracts to offset some of our positions (i.e., to hedge our exposure to demand, market effects of weather and other changes in commodity prices). We do not hedge the entire exposure of our operations from commodity price volatility. To the extent we do not hedge against commodity price volatility or our hedges are not effective, results of operations, cash flows and financial condition may be diminished.

 

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Furthermore, recent federal legislation (Dodd-Frank) affects the use and reporting of derivative instruments. The regulations under this new legislation are still being finalized and their impact on the use of derivative instruments by the Company and Consolidated SCE&G cannot be determined at this time.

 

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 and PHMSA. In addition, the Company and Consolidated SCE&G are subject to regulation by agencies of the state governments of South Carolina, North Carolina and Georgia, including regulatory agencies, state environmental commissions, 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 business. In addition to many other aspects of our business, these requirements impact the licensing, siting, construction and operation of facilities. They affect our management of safety, the reliability of our transmission system, the physical and cyber security of key assets, customer conservation through demand-side management programs, information security, the issuance of securities and borrowing of money, financial reporting, interaction among affiliates, the payment of dividends and employment programs and practices. Changes to governmental regulations are continual, and we cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on the Company’s or Consolidated SCE&G’s businesses.

 

The Company and Consolidated SCE&G are subject to extensive rate regulation which could adversely affect operations. In particular, SCE&G’s electric operations in South Carolina and the Company’s gas distribution operations in South Carolina and North Carolina are regulated by state utilities commissions. The Company’s interstate gas pipeline, SCE&G’s electric transmission system and Consolidated SCE&G’s generating facilities are subject to extensive regulation and oversight from the FERC, NRC and SCPSC. 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. Although we believe that we have constructive relationships with the regulators, our ability to obtain rate treatment 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 numerous environmental laws and regulations that require significant capital expenditures, can increase our costs of operations and which 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 nitrogen oxide, sulfur dioxide, mercury and particulate matter). Some form of regulation may be forthcoming at the federal, and possibly state, levels to impose regulatory requirements specifically directed at reducing GHG emissions from fossil fuel-fired electric generating units. 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 have yet been enacted. On February 16, 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 has proposed requirements for cooling water intake structures to meet BACT, andthe EPA presently is drafting a final rule regarding the handling of coal ash and other combustion by-products produced by power plant operations. Furthermore, the EPA has announced that it expects to overhaul the Clean Water Act rules governing effluent limitation standards for coal-fired power plants.

 

Compliance with these environmental laws and regulations requires us to commit significant capital 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 or more restrictive interpretations by governmental authorities of existing requirements may impose additional costs on us (such as the clean-up of MGP sites or additional emission allowances) or require us to incur additional capital 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 industry, our business 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.

 

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Renewable and/or alternative electric generation portfolio standards may be enacted at the federal or state level. Some states already have them, though currently South Carolina does not. Such standards could direct us to build or otherwise acquire generating capacity derived from renewable/alternative energy sources (generally, renewable energy such as biomass, solar, wind and tidal, and excluding fossil fuels, nuclear or hydro facilities). Such renewable/alternative energy may not be readily available in our service territories, if at all, and could be extremely costly to build, acquire, and operate. Resulting increases in the price of electricity to recover the cost of these types of generation, if approved by regulatory commissions, could result in lower usage of electricity by our customers. Although we cannot predict whether such standards will be adopted at the federal level or in South Carolina or their specifics if adopted, compliance with such potential portfolio standards could significantly impact our industry, our capital expenditures, and our results of operations and financial position.

 

The Company and Consolidated SCE&G are vulnerable to interest rate increases which would increase our borrowing costs, and may not have access to capital at favorable rates, if at all. 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 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 business. 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 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 its 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 position, including its shareholders’ equity.

 

A downgrade in the credit rating 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 rate SCANA’s long-term senior unsecured debt, SCE&G’s long-term senior secured debt and the long-term senior unsecured debt of PSNC Energy as investment grade. In addition, ratings 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. If these rating agencies were to lower the outlook or downgrade any of these ratings, particularly to below investment grade, borrowing cost on new issuances would increase, which would diminish financial results, and the potential pool of investors and funding sources could decrease.

 

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One rating agency, by action taken in 2011, downgraded both the short-term and senior unsecured long-term debt of SCANA. These downgrades have increased SCANA’s short-term borrowing rate and decreased the average maturity of its short-term debt, and may have the effect of increasing SCANA’s long-term borrowing rate. Although access to the short-term market has not been adversely impacted, this could change under different market conditions.

 

SCANA’s leverage ratio of long- and short-term debt to capital was approximately 58% at December 31, 2011. SCANA has publicly announced its desire to maintain its leverage ratio at levels between 54% and 57%, but SCANA’s ability to achieve and maintain those levels depends on a number of factors. In the future, if SCANA is not able to achieve and maintain its leverage ratio within the desired range, the Company’s debt ratings may be affected, it may be required to pay higher interest rates on its long- and short-term indebtedness, and its access to the capital markets may be limited.

 

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

 

The Company has delivered less gas and received lower prices for natural gas in deregulated markets, and consequently earned less income when weather conditions have been milder than normal. During 2010, the SCPSC approved SCE&G’s implementation of an eWNA on a pilot basis. Mild weather in the future could diminish the revenues and results of operations and harm the financial condition of the Company and SCE&G if the eWNA is not extended on a permanent basis. 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 the 2011 earthquake and tsunami in Japan) or man-made mishaps (such as the San Bruno, California natural gas transmission pipeline failure or the Kingston, Tennessee coal ash pond failure) could have direct significant impacts on the Company and Consolidated SCE&G and on our key contractors and suppliers or could indirectly impact us through changes to federal, state or local policies, laws and regulations, and have a significant impact on our financial position, operating expenses, and cash flows.

 

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 has been introduced on a national level. Some states have also mandated or encouraged competition at the retail level. Increased competition may create greater risks to the stability of utility earnings generally and may in the future reduce earnings from retail electric and natural gas sales. In a deregulated environment, formerly regulated utility companies that are not responsive to a competitive energy marketplace may suffer erosion in market share, revenues and profits as competitors gain access to their customers. In addition, 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 would be required.

 

The Company and 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 SCE&G, which may be affected by regional, national or even international economic factors. Some economic sectors important to our customer base may be particularly affected. Adverse events, economic or otherwise, may also affect the operations of key customers. Such events may result in the loss of customers, changes in customer usage patterns and in the failure of customers to make timely payments to us. The success of local and state governments in attracting new industry to our service territories is important to our sales and growth in sales, 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 or legislative or regulatory actions. 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 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.

 

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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 we determine to be attractive. If our ability to access capital becomes significantly constrained, our interest costs will likely increase and our financial condition and future results of operations could be significantly harmed.

 

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

 

Critical processes or systems in the Company’s or Consolidated SCE&G’s operations could become impaired or fail from a variety of causes, such as equipment breakdown, transmission line failure, information systems failure or security breach, the effects of drought (including reduced water levels) on the operation of emission control or other generation equipment, and the effects of a pandemic or terrorist attack on our workforce or facilities or on the ability of vendors and suppliers 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 lines, other equipment or processes which would result in performance below assumed levels of output or efficiency. In addition, any such breakdown or failure may result in Consolidated SCE&G purchasing emission allowances or replacement power at market rates, if such allowances and replacement power are available at all. If replacement power is not available, such problems could result in interruptions of service (blackout or brownout conditions) in all or part of SCE&G’s territory or elsewhere in the region. These purchases are subject to state regulatory prudency reviews for recovery through rates. Similarly, a gas transmission or distribution 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 revenues, results of operations, and financial condition.

 

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 SEMI to pay dividends or to advance or 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. Any significant reduction in our payment of dividends in the future may result in a decline in the value of our common stock. Such a decline in value could limit our ability to raise debt and equity capital.

 

A significant portion of 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. These risks will increase as the New Units are developed.

 

In 2011, Summer Station Unit 1, operated by SCE&G, provided approximately 5 million MWh, or 19% of our generation capacity. If the New Units are completed, our generating capacity and the percentage of total generating capacity represented by nuclear sources is expected to increase. Hence, SCE&G is subject to various risks of nuclear generation, which include the following:

 

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

 

·                  Limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with our nuclear operations or those of others in the United States;

 

·                  Uncertainties with respect to procurement of nuclear fuel and the storage of spent nuclear fuel;

 

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·                  Uncertainties with respect to contingencies if insurance coverage is inadequate; and

 

·                  Uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their operating lives.

 

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

 

Failure to retain and attract key personnel could adversely affect the Company’s and Consolidated SCE&G’s operations and financial performance.

 

Implementation of our strategic plan and growth strategy requires that we attract, retain and develop executive officers and other professional, technical and craft employees with the skills and experience necessary to successfully manage, operate and grow our business. Competition for these employees is high, and in some cases we must compete for these employees on a regional or national basis. We may be unable to attract and retain these personnel. Further, the Company’s or 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.

 

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 position, 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 plant and other infrastructure that form the basis of much of our business. These strategic decisions may not result in a return of or on our invested capital, and the effects of these strategic decisions may have long-term implications that are not likely to be known to us in the short-term. Changing political climates and public attitudes may adversely affect the ongoing acceptability of strategic decisions that have been made (and, in some cases, previously approved by regulators), to the detriment of the Company or Consolidated SCE&G. 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, may have a negative effect on our results of operations, cash flows and financial position, as well as limit our ability to access capital.

 

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

 

The Company and Consolidated SCE&G are committed to comply with all laws and regulations, to focus on the safety of employees, customers and the public, 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. The Company and Consolidated SCE&G also are committed to operational excellence 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 may subject the Company and Consolidated SCE&G not only to fraud, litigation and 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.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not Applicable

 

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ITEM 2. PROPERTIES

 

SCANA owns no significant property other than the capital stock of each of its subsidiaries. It holds, directly or indirectly, all of the capital stock of each of its subsidiaries.

 

SCE&G’s bond indenture, securing the First Mortgage Bonds issued thereunder, constitutes a direct mortgage lien on substantially all of its electric utility property. GENCO’s Williams Station is also subject to a first mortgage lien which secures certain outstanding debt of GENCO.

 

For a brief description of the properties of SCANA’s other subsidiaries, which are not significant as defined in Rule 1-02 of Regulation S-X, see Item 1. BUSINESS—SEGMENTS OF BUSINESS—Nonregulated Businesses.

 

The following map indicates significant electric generation properties, which are further described below. Natural gas transmission and distribution properties, though not depicted on the map, are also described below.

 

GRAPHIC

 

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ELECTRIC PROPERTIES

 

SCE&G owns each of the electric generating facilities listed below unless otherwise noted.

 

Facility

 

Present
Fuel Capability

 

Location

 

Year
In-Service

 

Net Generating
Capacity
(Summer Rating) (MW)

Steam Turbines:

 

 

 

 

 

 

 

 

Summer(1)

 

Nuclear

 

Jenkinsville, SC

 

1984

 

644

McMeekin

 

Coal/Gas

 

Irmo, SC

 

1958

 

250

Canadys

 

Coal/Gas

 

Canadys, SC

 

1962

 

385

Wateree

 

Coal

 

Eastover, SC

 

1970

 

684

Williams(2)

 

Coal

 

Goose Creek, SC

 

1973

 

605

Cope

 

Coal

 

Cope, SC

 

1996

 

415

Kapstone(3)

 

Biomass/Coal

 

Charleston, SC

 

1999

 

85

Combined Cycle:

 

 

 

 

 

 

 

 

Urquhart(4)

 

Coal/Gas/Oil

 

Beech Island, SC

 

1953/2002

 

553

Jasper

 

Gas/Oil

 

Hardeeville, SC

 

2004

 

869

Hydro(5):

 

 

 

 

 

 

 

 

Saluda

 

 

 

Irmo, SC

 

1930

 

200

Fairfield Pumped Storage

 

 

 

Jenkinsville, SC

 

1978

 

576

 


(1)                                  Represents SCE&G’s two-thirds portion of Summer Station Unit 1 (one-third owned by Santee Cooper).

 

(2)                                  The coal-fired steam unit at Williams Station is owned by GENCO.

 

(3)                                  SCE&G receives shaft horsepower from Kapstone Charleston Kraft, LLC, a biomass/coal cogeneration facility, to operate SCE&G’s generator.

 

(4)                                  Two combined-cycle turbines burn natural gas or fuel oil to produce 330 MW of electric generation and use exhaust heat to power two 64 MW turbines at the Urquhart Generating Station. Unit 3 is a 95 MW coal-fired steam unit.

 

(5)                                  SCE&G also owns three other hydro units in South Carolina that were placed in service in 1905 and 1914 and have an aggregate net generating capacity of 21 MW.

 

SCE&G owns 16 combustion turbine peaking units fueled by gas and/or oil located at various sites in SCE&G’s service territory. These turbines were placed in service at various times from 1961 to 2010 and have aggregate net generating capacity of 355 MW.

 

SCE&G owns 441 substations having an aggregate transformer capacity of 30 million KVA. The transmission system consists of 18,295 miles of lines, and the distribution system consists of 6,763 pole miles of overhead lines and trench miles of underground lines.

 

NATURAL GAS DISTRIBUTION AND TRANSMISSION PROPERTIES

 

SCE&G’s natural gas system consists of 16,549 miles of distribution mains and related service facilities. SCE&G also owns two LNG plants, one located near Charleston, South Carolina, and the other in Salley, South Carolina. The Charleston facility can liquefy up to 6 MMCF per day and store the liquefied equivalent of 980 MMCF of natural gas. The Salley facility can store the liquefied equivalent of 900 MMCF of natural gas and has no liquefying capabilities. The LNG facilities have the capacity to regasify approximately 60 MMCF per day at Charleston and 90 MMCF per day at Salley.

 

CGT’s natural gas system consists of 1,469 miles of transmission pipeline of up to 24 inches in diameter. CGT’s system transports gas to its customers from the transmission systems of Southern Natural and Transco and from Port Wentworth and Elba Island, Georgia.

 

PSNC Energy’s natural gas system consists of 606 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 10,201 miles of distribution mains and related service facilities. PSNC Energy owns one LNG plant with storage capacity of 1,000 MMCF and the capacity to regasify approximately 100 MMCF per day. PSNC Energy also owns, through a wholly-owned subsidiary, 33.21% of Cardinal Pipeline Company, LLC, which owns a 105-mile transmission pipeline in North Carolina. In addition,

 

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PSNC Energy owns, through a wholly-owned subsidiary, 17% of Pine Needle LNG Company, LLC. Pine Needle owns and operates a liquefaction, storage and regasification facility in North Carolina.

 

ITEM 3.  LEGAL PROCEEDINGS

 

Certain material legal proceedings and environmental and regulatory matters and uncertainties, some of which remain outstanding at December 31, 2011, are described below. These issues affect the Company and, to the extent indicated, also affect Consolidated SCE&G.

 

In December 2009, the EPA issued a final finding that atmospheric concentrations of GHG endanger public health and welfare within the meaning of Section 202(a) of the CAA. The rule, which became effective in January 2010, enables the EPA to regulate GHG emissions under the CAA. The EPA has committed to issue new rules regulating such emissions in 2012. The Company expects that any costs incurred to comply with GHG emission requirements will be recoverable through rates.

 

In 2005, the EPA issued the CAIR, which required the District of Columbia and 28 states, including South Carolina, to reduce nitrogen oxide and sulfur dioxide emissions in order to attain mandated state levels.  CAIR set emission limits to be met in two phases beginning in 2009 and 2015, respectively, for nitrogen oxide and beginning in 2010 and 2015, respectively, for sulfur dioxide.  SCE&G and GENCO determined that additional air quality controls would be needed to meet the CAIR requirements.  On July 6, 2011 the EPA issued the CSAPR.  This rule replaced CAIR and the Clean Air Transport Rule proposed in July 2010 and is aimed at addressing power plant emissions that may contribute to air pollution in other states.  CSAPR requires states in the eastern United States to reduce power plant emissions, specifically sulfur dioxide and nitrogen oxide.  On December 30, 2011, the United States Court of Appeals for the District of Columbia issued an order staying CSAPR and reinstating CAIR pending resolution of an appeal of CSAPR. Air quality control installations that SCE&G and GENCO have already completed should assist the Company in complying with the CSAPR and the reinstated CAIR.  The Company will continue to pursue strategies to comply with all applicable environmental regulations.  Any costs incurred to comply with this rule or other rules issued by the EPA in the future are expected to be recoverable through rates.

 

In June 2010, the EPA issued a final rule for a one-hour ambient air quality standard for sulfur dioxide. This new standard may require some of SCE&G’s smaller coal-fired units to reduce their sulfur dioxide emissions to a level to be determined by EPA and/or DHEC. The costs incurred to comply with this new standard are expected to be recovered through rates.

 

In 2005, the EPA issued the CAMR which established a mercury emissions cap and trade program for coal-fired power plants. Numerous parties challenged the rule and, on February 8, 2008, the United States Circuit Court for the District of Columbia vacated the rule for electric utility steam generating units. In March 2011, the EPA proposed new standards for mercury and other specified air pollutants.  The rule, which becomes effective on April 16, 2012, provides up to four years for facilities to meet the standards.  The rule is currently being evaluated by the Company. Any costs incurred to comply with this rule or other rules issued by the EPA in the future are expected to be recoverable through rates.

 

SCE&G has been named, along with 53 others, by the EPA as a PRP at the AER Superfund site located in Augusta, Georgia. The PRPs funded a Remedial Investigation and Risk Assessment which was completed and approved by the EPA and funded a Feasibility Study that was completed in 2010. A clean-up cost has been estimated and the PRPs have agreed to an allocation of those costs based primarily on volume and type of material each PRP sent to the site. SCE&G’s allocation did not have a material impact on its results of operations, cash flows or financial condition.

 

SCE&G is responsible for four decommissioned MGP sites in South Carolina which contain residues of by-product chemicals. These sites are in various stages of investigation, remediation and monitoring under work plans approved by DHEC. SCE&G anticipates that major remediation activities at these sites will continue until 2014 and will cost an additional $8.3 million.  SCE&G expects to recover any cost arising from the remediation of MGP sites through rates.

 

PSNC Energy is responsible for environmental clean-up at five sites in North Carolina on which MGP residuals are present or suspected. PSNC Energy’s actual remediation costs for these sites will depend on a number of factors, such as actual site conditions, third-party claims and recoveries from other PRPs. PSNC Energy has recorded a liability and associated regulatory asset of approximately $3.1 million, the estimated remaining liability at December 31, 2011. PSNC Energy expects to recover through rates any cost, net of insurance recovery, allocable to PSNC Energy arising from the remediation of these sites.

 

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Litigation

 

In May 2004, a purported class action lawsuit currently styled as Douglas E. Gressette and Mark Rudd, individually and on behalf of other persons similarly situated v. South Carolina Electric & Gas Company and SCANA Communications, Inc. was filed in South Carolina’s Circuit Court of Common Pleas for the Ninth Judicial Circuit. The plaintiffs alleged that SCE&G made improper use of certain electric transmission easements and rights-of-way by allowing fiber optic communication lines and/or wireless communication equipment to transmit communications other than SCE&G’s electricity-related internal communications and asserted causes of action for unjust enrichment, trespass, injunction and declaratory judgment.  While SCE&G and SCI believe their actions were consistent with governing law and the applicable documents granting easements and rights-of-way, this case, with Circuit Court approval in August 2010, has been settled as to all easements and rights of ways currently containing fiber optic communications lines in South Carolina.  This settlement did not have a material impact on the Company’s results of operations, cash flows or financial condition.

 

SCANA and SCE&G are also engaged in various other claims and litigation incidental to their business operations which management anticipates will be resolved without a material impact on their respective results of operations, cash flows or financial condition.

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not Applicable

 

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EXECUTIVE OFFICERS OF SCANA CORPORATION

 

The executive officers are elected at the annual meeting of the Board of Directors, held immediately after the annual meeting of shareholders, and hold office until the next such annual meeting, unless (1) a resignation is submitted, (2) the Board of Directors shall otherwise determine or (3) as provided in the By-laws of SCANA. Positions held are for SCANA and all subsidiaries unless otherwise indicated.

 

Name

 

Age

 

Positions Held During Past Five Years

 

Dates

Kevin B. Marsh

 

56

 

Chairman of the Board, Chief Executive Officer and Director

President and Chief Operating Officer -SCANA

President and Chief Operating Officer-SCE&G

 

2011-present

2011-present

*-2011

 

 

 

 

 

 

 

Jimmy E. Addison

 

51

 

Executive Vice President

Chief Financial Officer

Senior Vice President

 

2012-present

*-present

*-2012

 

 

 

 

 

 

 

Jeffrey B. Archie

 

54

 

Senior Vice President

Senior Vice President and Chief Nuclear Officer-SCE&G

Vice President of Nuclear Plant Operations-SCE&G

 

2010-present

2009-present

*-2009

 

 

 

 

 

 

 

George J. Bullwinkel

 

63

 

President and Chief Operating Officer-SEMI, SCI and ServiceCare

 

*-present

 

 

 

 

 

 

 

Sarena D. Burch

 

54

 

Senior Vice President-Fuel Procurement and Asset Management- SCE&G and PSNC Energy

 

 

*-present

 

 

 

 

 

 

 

Stephen A. Byrne

 

52

 

President of Generation and Chief Operating Officer-SCE&G

Executive Vice President-SCANA

Executive Vice President-Generation and Transmission-SCE&G

Executive Vice President-Generation, Nuclear and Fossil Hydro-SCE&G

 

2011-present

2009-present

2011

2009-2011

 

 

 

 

Senior Vice President-Generation, Nuclear and Fossil Hydro-SCE&G

 

*-2009

 

 

 

 

 

 

 

Paul V. Fant

 

58

 

President and Chief Operating Officer-CGT

Senior Vice President-SCANA

Senior Vice President-Transmission Services-SCE&G

 

*-present

2008-present

*-2007

 

 

 

 

 

 

 

W. Keller Kissam

 

45

 

President of Retail Operations-SCE&G

Senior Vice President-SCANA

Senior Vice President-Retail Electric-SCE&G

Vice President-Electric Operations-SCE&G

 

2011-present

2011-present

2011

*-2011

 

 

 

 

 

 

 

Ronald T. Lindsay

 

61

 

Senior Vice President, General Counsel and Assistant Secretary

Executive Vice President, General Counsel and Secretary of Bowater
Incorporated, Greenville, South Carolina

 

2009-present

 

*-2008

 

 

 

 

 

 

 

Charles B. McFadden

 

67

 

Senior Vice President-Governmental Affairs and Economic
Development-SCANA Services

 

 

*-present

 

 

 

 

 

 

 

Martin K. Phalen

 

57

 

Senior Vice President-Administration-SCANA

Vice President-Gas Operations-SCE&G

 

2012-present

*-2012

 


*  Indicates position held at least since March 1, 2007.

 

26



Table of Contents

 

PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

 

COMMON STOCK INFORMATION

 

SCANA Corporation:

 

Price Range (New York Stock Exchange Composite Listing):

 

 

 

2011

 

2010

 

 

 

4th Qtr.

 

3rd Qtr.

 

2nd Qtr.

 

1st Qtr.

 

4th Qtr.

 

3rd Qtr.

 

2nd Qtr.

 

1st Qtr.

 

High

 

$

45.48

 

$

41.58

 

$

42.20

 

$

42.83

 

$

41.97

 

$

40.82

 

$

39.99

 

$

38.17

 

Low

 

$

38.49

 

$

34.64

 

$

38.16

 

$

37.86

 

$

40.03

 

$

35.23

 

$

34.73

 

$

34.23

 

 

SCANA common stock trades on The New York Stock Exchange, using the ticker symbol SCG. Newspaper stock listings use the name SCANA.  At February 20, 2012 there were 130,295,890 shares of SCANA common stock outstanding which were held by approximately 29,134 shareholders of record. For a summary of equity securities issuable under SCANA’s compensation plans at December 31, 2011, see Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

SCANA declared quarterly dividends on its common stock of $.485 per share in 2011 and $.475 per share in 2010. On February 15, 2012, SCANA increased the quarterly cash dividend rate on SCANA common stock to $.495 per share, an increase of 2.1%. The new dividend is payable April 1, 2012 to shareholders of record on March 9, 2012.  For a discussion of provisions that could limit the payment of cash dividends, see Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS under Liquidity and Capital Resources-Financing Limits and Related Matters and Note 3 to the consolidated financial statements for SCANA.

 

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 2011 and 2010, SCE&G declared quarterly dividends on its common stock in the following amounts:

 

Declaration Date

 

Amount

 

Declaration Date

 

Amount

 

February 11, 2010

 

$

45.0 million

 

February 11, 2011

 

$

49.0 million

 

May 6, 2010

 

46.0 million

 

April 21, 2011

 

47.5 million

 

July 29, 2010

 

49.0 million

 

August 11, 2011

 

49.0 million

 

October 27, 2010

 

52.4 million

 

October 26, 2011

 

38.0 million

 

 

On February 15, 2012, SCE&G declared dividends on its common stock of $51.6 million.

 

For a discussion of provisions that could limit the payment of cash dividends, see Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS under Liquidity and Capital Resources-Financing Limits and Related Matters and Note 3 to the consolidated financial statements for SCE&G.

 

27



Table of Contents

 

ITEM 6.  SELECTED FINANCIAL DATA

 

As of or for the Year Ended December 31,

 

2011

 

2010

 

2009

 

2008

 

2007

 

 

 

(Millions of dollars, except statistics and per share amounts)

 

SCANA:

 

 

 

 

 

 

 

 

 

 

 

Statement of Income Data

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

 

$

4,409

 

$

4,601

 

$

4,237

 

$

5,319

 

$

4,621

 

Operating Income

 

$

813

 

$

768

 

$

699

 

$

710

 

$

633

 

Other Expense

 

$

(258

)

$

(233

)

$

(175

)

$

(176

)

$

(153

)

Preferred Stock Dividends

 

$

 

$

 

$

(9

)

$

(7

)

$

(7

)

Income Available to Common Shareholders

 

$

387

 

$

376

 

$

348

 

$

346

 

$

320

 

Common Stock Data

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Common Shares Outstanding (Millions)

 

128.8

 

125.7

 

122.1

 

117.0

 

116.7

 

Basic Earnings Per Share

 

$

3.01

 

$

2.99

 

$

2.85

 

$

2.95

 

$

2.74

 

Diluted Earnings Per Share

 

$

2.97

 

$

2.98

 

$

2.85

 

$

2.95

 

$

2.74

 

Dividends Declared Per Share of Common Stock

 

$

1.94

 

$

1.90

 

$

1.88

 

$

1.84

 

$

1.76

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

Utility Plant, Net

 

$

10,047

 

$

9,662

 

$

9,009

 

$

8,305

 

$

7,538

 

Total Assets

 

$

13,534

 

$

12,968

 

$

12,094

 

$

11,502

 

$

10,165

 

Total Equity

 

$

3,889

 

$

3,702

 

$

3,408

 

$

3,045

 

$

2,960

 

Short-term and Long-term Debt

 

$

5,306

 

$

4,909

 

$

4,846

 

$

4,698

 

$

3,852

 

Other Statistics

 

 

 

 

 

 

 

 

 

 

 

Electric:

 

 

 

 

 

 

 

 

 

 

 

Customers (Year-End)

 

664,196

 

660,580

 

654,766

 

649,571

 

639,258

 

Total sales (Million KWh)

 

24,188

 

24,884

 

23,104

 

24,284

 

24,885

 

Generating capability-Net MW (Year-End)

 

5,642

 

5,645

 

5,611

 

5,695

 

5,749

 

Territorial peak demand-Net MW

 

4,885

 

4,735

 

4,557

 

4,789

 

4,926

 

Regulated Gas:

 

 

 

 

 

 

 

 

 

 

 

Customers, excluding transportation (Year-End)

 

803,644

 

794,841

 

782,192

 

774,502

 

759,336

 

Sales, excluding transportation (Thousand Therms)

 

812,416

 

931,879

 

832,931

 

848,568

 

823,976

 

Transportation customers (Year-End)

 

492

 

491

 

482

 

474

 

446

 

Transportation volumes (Thousand Therms)

 

1,585,202

 

1,546,234

 

1,388,096

 

1,366,675

 

1,369,684

 

Retail Gas Marketing:

 

 

 

 

 

 

 

 

 

 

 

Retail customers (Year-End)

 

455,258

 

464,123

 

455,198

 

459,250

 

484,565

 

Firm customer deliveries (Thousand Therms)

 

341,554

 

402,583

 

347,324

 

356,288

 

340,743

 

Nonregulated interruptible customer deliveries (Thousand Therms)

 

1,845,327

 

1,728,161

 

1,628,942

 

1,526,933

 

1,548,878

 

SCE&G:

 

 

 

 

 

 

 

 

 

 

 

Statement of Income Data

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

 

$

2,819

 

$

2,815

 

$

2,569

 

$

2,816

 

$

2,481

 

Operating Income

 

$

654

 

$

604

 

$

547

 

$

559

 

$

498

 

Other Expense

 

$

(198

)

$

(170

)

$

(119

)

$

(122

)

$

(117

)

Preferred Stock Dividends

 

$

 

$

 

$

(9

)

$

(7

)

$

(7

)

Earnings Available to Common Shareholders

 

$

306

 

$

290

 

$

272

 

$

273

 

$

245

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

Utility Plant, Net

 

$

8,588

 

$

8,198

 

$

7,595

 

$

6,905

 

$

6,202

 

Total Assets

 

$

11,037

 

$

10,574

 

$

9,813

 

$

9,052

 

$

7,977

 

Total Equity

 

$

3,773

 

$

3,541

 

$

3,259

 

$

2,799

 

$

2,711

 

Short-term and Long-term Debt

 

$

3,753

 

$

3,440

 

$

3,430

 

$

3,320

 

$

2,593

 

Other Statistics

 

 

 

 

 

 

 

 

 

 

 

Electric:

 

 

 

 

 

 

 

 

 

 

 

Customers (Year-End)

 

664,273

 

660,642

 

654,830

 

649,636

 

639,312

 

Total sales (Million KWh)

 

24,200

 

24,887

 

23,107

 

24,287

 

24,888

 

Generating capability-Net MW (Year-End)

 

5,642

 

5,645

 

5,611

 

5,695

 

5,749

 

Territorial peak demand-Net MW

 

4,885

 

4,735

 

4,557

 

4,789

 

4,926

 

Regulated Gas:

 

 

 

 

 

 

 

 

 

 

 

Customers, excluding transportation (Year-End)

 

316,683

 

313,346

 

309,687

 

307,074

 

302,469

 

Sales, excluding transportation (Thousand Therms)

 

407,073

 

447,057

 

399,752

 

416,075

 

407,204

 

Transportation customers (Year-End)

 

155

 

148

 

130

 

120

 

115

 

Transportation volumes (Thousand Therms)

 

192,492

 

190,931

 

217,750

 

64,034

 

27,113

 

 

28



Table of Contents

 

SCANA CORPORATION

 

 

 

Page

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

Overview

30

 

Results of Operations

33

 

Liquidity and Capital Resources

38

 

Environmental Matters

42

 

Regulatory Matters

45

 

Critical Accounting Policies and Estimates

46

 

Other Matters

48

 

 

 

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

51

 

 

 

Item 8.

Financial Statements and Supplementary Data

53

 

Report of Independent Registered Public Accounting Firm

53

 

Consolidated Balance Sheets

54

 

Consolidated Statements of Income

56

 

Consolidated Statements of Cash Flows

57

 

Consolidated Statements of Changes in Common Equity and Comprehensive Income

58

 

Notes to Consolidated Financial Statements

59

 

29



Table of Contents

 

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

 

OVERVIEW

 

SCANA, through its wholly-owned regulated subsidiaries, is primarily engaged in the generation, transmission, distribution and sale of electricity in parts of South Carolina and in the purchase, transmission and sale of natural gas in portions of North Carolina and South Carolina. Through a wholly-owned nonregulated subsidiary, SCANA markets natural gas to retail customers in Georgia and to wholesale customers primarily in the southeast. Other wholly- owned nonregulated subsidiaries provide fiber optic and other telecommunications services and provide service contracts to homeowners on certain home appliances and heating and air conditioning units. A service company subsidiary of SCANA provides administrative, management and other services to SCANA and its subsidiaries.

 

The following map indicates areas where the Company’s significant business segments conduct their activities, as further described in this overview section.

 

GRAPHIC

 

The following percentages reflect revenues and income available to common shareholders earned by the Company’s regulated and nonregulated businesses and the percentage of total assets held by them.

 

 

 

2011

 

2010

 

2009

 

 

 

 

 

 

 

 

 

% of Revenues

 

 

 

 

 

 

 

Regulated

 

74

%

73

%

73

%

Nonregulated

 

26

%

27

%

27

%

 

 

 

 

 

 

 

 

% of Income Available to Common Shareholders

 

 

 

 

 

 

 

Regulated

 

97

%

96

%

96

%

Nonregulated

 

3

%

4

%

4

%

 

 

 

 

 

 

 

 

% of Assets

 

 

 

 

 

 

 

Regulated

 

94

%

95

%

94

%

Nonregulated

 

6

%

5

%

6

%

 

30



Table of Contents

 

Key Earnings Drivers and Outlook

 

During 2011, economic growth showed modest signs of improvement in the southeast. Significant industrial announcements were made in the Company’s South Carolina service territory during the year.  In addition, residential and commercial customer growth rates in the Company’s regulated businesses were positive, though customer usage by existing customers continued to decline.  Unemployment rates for the states in which the Company primarily provides service also showed some improvement, though unemployment remains high and continues to slow the pace of economic recovery in the Southeast.

 

Unemployment (seasonally adjusted)

 

United States

 

Georgia

 

North Carolina

 

South Carolina

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011 (preliminary)

 

8.5

%

9.7

%

9.9

%

9.5

%

December 31, 2010

 

9.4

%

10.4

%

9.8

%

10.9

%

 

Over the next five years, key earnings drivers for the Company will be additions to rate base at its regulated subsidiaries, consisting primarily of capital expenditures for new generating capacity, environmental facilities and system expansion. Other factors that will impact future earnings growth include the regulatory environment, customer growth and usage in each of the regulated utility businesses, earnings in the natural gas marketing business in Georgia and the level of growth of operation and maintenance expenses and taxes.

 

Electric Operations

 

The electric operations segment is comprised of the electric operations of SCE&G, GENCO and Fuel Company, and is primarily engaged in the generation, transmission, distribution and sale of electricity in South Carolina. At December 31, 2011, SCE&G provided electricity to approximately 664,000 customers 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 and provides financing for SCE&G’s nuclear fuel, certain fossil fuels and emission allowances.

 

Operating results for electric operations are primarily driven by customer demand for electricity, rates allowed to be charged to customers and the ability to control growth in costs. Embedded in the rates charged to customers is an allowed regulatory return on equity. SCE&G’s allowed return on equity is 10.7% for non-BLRA expenditures, and 11.0% for BLRA-related expenditures. Demand for electricity is primarily affected by weather, customer growth and the economy.  SCE&G is able to recover the cost of fuel used in electric generation through retail customers’ bills, but increases in fuel costs affect electric prices and, therefore, the competitive position of electricity against other energy sources.

 

New Nuclear Construction

 

SCE&G and Santee Cooper are parties to construction and operating agreements in which they agreed to be joint owners, and share operating costs and generation output, of two 1,117-MW nuclear generation units to be constructed at the site of Summer Station, with SCE&G responsible for 55 percent of the cost and receiving 55 percent of the output, and Santee Cooper responsible for and receiving the remaining 45 percent.  Under these agreements, SCE&G will have the primary responsibility for oversight of the construction of the New Units and will be responsible for the operation of the New Units as they come online.

 

SCE&G, on behalf of itself and as agent for Santee Cooper, has entered into the EPC Contract with the Consortium for the design and construction of the New Units.  SCE&G’s share of the estimated cash outlays (future value, excluding AFC) totals approximately $6 billion for plant costs and related transmission infrastructure costs, which costs are projected based on historical one-year and five-year escalation rates as required by the SCPSC. The successful completion of the New Units would result in a substantial increase in the Company’s utility plant in service.  Financing and managing the construction of these plants, together with continuing environmental construction projects, represents a significant challenge to the Company.

 

As previously reported, SCE&G has been advised by Santee Cooper that it is reviewing certain aspects of its capital improvement program and long-term power supply plan, including the level of its participation in the New Units.  Santee Cooper has entered into a letter of intent with Duke that may result in Duke acquiring a portion of Santee Cooper’s ownership interest in the New Units.

 

The Consortium has recently performed an impact study, at SCE&G’s request, related to various cost and timing alternatives arising from the delay in the issuance date of the COL from mid-2011, which was the date assumed when the EPC Contract was signed in 2008, to the early-2012 issuance date currently anticipated by SCE&G.  SCE&G has recently

 

31



Table of Contents

 

informed the Consortium that it intends to pursue the alternative that would delay the substantial completion date of the first New Unit and accelerate the substantial completion date for the second New Unit and has also begun discussions concerning the update of cash flow forecasts and construction schedules on that basis.

 

In December 2011, the NRC granted final design certification to Westinghouse for the AP1000 nuclear reactor, which is the reactor to be used for the New Units.  This certification is a necessary step before the NRC can issue a COL for the New Units.  In October 2011, the NRC conducted a mandatory hearing regarding the issuance of a COL for the New Units.  This hearing followed the August 2011 completion of the FSER, in which the NRC staff concluded there were no safety aspects that would preclude issuing the COL, and the April 2011 completion of the FEIS, in which the NRC and the USACE concluded there were no environmental impacts that would preclude issuing the COL.

 

See additional discussion at OTHER MATTERS - Nuclear Generation.

 

Environmental

 

Significant federal legislative initiatives related to energy were unsuccessful in 2011, and the Company expects such legislative initiatives will be hampered through 2012, due to each chamber of Congress being controlled by different political parties. The EPA, however, did issue new rules in 2011 related to air quality, including CSAPR and MATS, which require reductions in

power plant emissions of sulfur dioxide, nitrogen oxide and mercury, among other substances.  Though implementation of CSAPR was stayed by the United States Court of Appeals for the District of Columbia pending judicial review, the Company cannot predict the outcome that judicial review will have on the rule’s implementation. In 2012, additional significant regulatory initiatives by the EPA and other federal agencies will likely proceed. These initiatives may require the Company to build or otherwise acquire generating capacity from energy sources that exclude fossil fuels, nuclear or hydro facilities (for example, under an RES). It is also possible that new initiatives will be introduced to reduce carbon dioxide and other greenhouse gas emissions. The Company cannot predict whether such initiatives will be enacted, and if they are, the conditions they would impose on utilities.

 

The EPA has stated its intention to propose, in late 2012, new federal regulations affecting the management and disposal of CCR, such as ash.  Such regulations could result in the treatment of some CCRs as hazardous waste and could impose significant costs to utilities, such as SCE&G and GENCO.  The EPA is also expected to issue regulations during 2012 for cooling water intake structures to meet BACT at existing power generating stations.  While the Company cannot predict how extensive the regulations will be, the Company believes that any additional costs imposed by such regulations would be recoverable through rates.

 

Gas Distribution

 

The gas distribution segment, comprised of the local distribution operations of SCE&G and PSNC Energy, is primarily engaged in the purchase, transportation and sale of natural gas to retail customers in portions of North Carolina and South Carolina. At December 31, 2011 this segment provided natural gas to approximately 804,000 customers in areas covering 34,600 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 growth in costs. Embedded in the rates charged to customers is an allowed regulatory return on equity.

 

Demand for natural gas is primarily affected by weather, customer growth, the economy and, for commercial and industrial customers, the availability and price of alternate fuels. Natural gas competes with electricity, propane and heating oil to serve the heating and, to a lesser extent, other household energy needs of residential and small commercial customers. This competition is generally based on price and convenience. Large commercial and industrial customers often have the ability to switch from natural gas to an alternate fuel, such as propane or fuel oil. Natural gas competes with these alternate fuels based on price. As a result, any significant disparity between supply and demand, either of natural gas or of alternate fuels, and due either to production or delivery disruptions or other factors, will affect price and impact the Company’s ability to retain large commercial and industrial customers. One effect of the sluggish economy has been an overall decrease in demand for natural gas which, coupled with discoveries of shale gas in the United States, resulted in significantly lower prices for this commodity in 2010 and 2011.  Low natural gas commodity prices are expected to continue in 2012 and beyond.

 

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Table of Contents

 

Retail Gas Marketing

 

SCANA Energy, a division of SEMI, comprises the retail gas marketing segment. This segment markets natural gas to approximately 455,000 customers throughout Georgia (as of December 31, 2011, and includes approximately 80,000 customers in its regulated division described below). SCANA Energy’s total customer base represents an approximate 30% share of the customers in Georgia’s deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in the state. SCANA Energy’s competitors include an affiliate of a large energy company with experience in Georgia’s energy market, as well as several electric membership cooperatives. SCANA Energy’s ability to maintain its market share depends on the prices it charges customers relative to the prices charged by its competitors, its ability to continue to provide high levels of customer service and other factors.

 

As Georgia’s regulated provider, SCANA Energy provides service to low-income customers and customers unable to obtain or maintain natural gas service from other marketers at rates approved by the GPSC.  SCANA Energy receives funding from the Universal Service Fund to offset some of the bad debt associated with the low-income group. SCANA Energy’s contract to serve as Georgia’s regulated provider of natural gas has been renewed by the GPSC through August 31, 2014.  SCANA Energy files financial and other information periodically with the GPSC, and such information is available at www.psc.state.ga.us (which is not intended as an active hyperlink; the information on the GPSC website is not part of this or any other report filed with the SEC).

 

SCANA Energy and SCANA’s other natural gas distribution and marketing segments maintain gas inventory and also utilize forward contracts and other financial instruments, including commodity swaps and futures contracts, to manage their exposure to fluctuating commodity natural gas prices. See Note 6 to the consolidated financial statements. As a part of this risk management process, at any given time, a portion of SCANA’s projected natural gas needs has been purchased or otherwise placed under contract. Since SCANA Energy operates in a competitive market, it may be unable to sustain its current levels of customers and/or pricing, thereby reducing expected margins and profitability. Further, there can be no assurance that Georgia’s gas delivery regulatory framework will remain unchanged as dynamic market conditions evolve.

 

Energy Marketing

 

The divisions of SEMI excluding SCANA Energy comprise the energy marketing segment. This segment markets natural gas primarily in the southeast and provides energy-related risk management services to customers.

 

The operating results for energy marketing are primarily influenced by customer demand for natural gas and the ability to control growth of costs. Demand for natural gas is primarily affected by the price of alternate fuels and customer growth. In addition, certain pipeline capacity available for Energy Marketing to serve industrial and other customers is dependent upon the market share held by SCANA Energy in the retail market.

 

RESULTS OF OPERATIONS

 

 

 

2011

 

2010

 

2009

 

Basic earnings per share

 

$

3.01

 

$

2.99

 

$

2.85

 

Diluted earnings per share

 

$

2.97

 

$

2.98

 

$

2.85

 

Cash dividends declared (per share)

 

$

1.94

 

$

1.90

 

$

1.88

 

 

·

2011 vs 2010

 

Basic earnings per share increased in 2011 due to higher electric margin of $.42 and lower operating expenses of $.06. These increases were partially offset by lower gas margin of $.13, higher depreciation expense of $.06, higher property taxes of $.06, dilution from additional shares outstanding of $.07 and higher interest expense of $.14.

 

 

 

 

·

2010 vs 2009

 

Basic earnings per share increased in 2010 due to higher electric margin (excluding the effect of the $17.4 million adjustment described at “Electric Operations”) of $.60 and higher gas margin of $.15. These increases were partially offset by dilution from additional shares outstanding of $.09, higher operating expense of $.32, higher interest expense of $.09, net of preferred stock dividends, and $.11 due to the tax benefit and related interest income arising from the resolution of an income tax uncertainty in favor of the Company in 2009. In late 2009 SCE&G redeemed for cash all outstanding shares of its cumulative preferred stock.

 

Diluted Earnings Per Share

 

In May 2010, SCANA entered into equity forward contracts for approximately 6.6 million common shares. During periods when the average market price of SCANA’s common stock is above the per share adjusted forward sales price, the

 

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Company computes diluted earnings per share giving effect to this dilutive potential common stock utilizing the treasury stock method.

 

Pension Cost

 

Pension cost was recorded on the Company’s income statements and balance sheets as follows:

 

Millions of dollars

 

2011

 

2010

 

2009

 

Income Statement Impact:

 

 

 

 

 

 

 

Increase in employee benefit costs

 

$

2.6

 

$

1.1

 

 

Other expense (income)

 

0.5

 

(3.9

)

$

(3.7

)

Balance Sheet Impact:

 

 

 

 

 

 

 

Increase in capital expenditures

 

3.9

 

6.0

 

9.8

 

Component of amount receivable from Summer Station co-owner

 

1.2

 

1.7

 

2.7

 

Increase in regulatory asset

 

9.1

 

18.6

 

31.2

 

Total Pension Cost

 

$

17.3

 

$

23.5

 

$

40.0

 

 

Prior to July 15, 2010, the SCPSC allowed SCE&G to defer as a regulatory asset the amount of pension cost exceeding amounts included in rates for its retail electric and gas distribution regulated operations.  In connection with the SCPSC’s July 2010 electric rate order and November 2010 natural gas RSA order, SCE&G began deferring, as a regulatory asset, all pension cost related to retail electric and gas operations that otherwise would have been charged to expense. These costs will be deferred until such time as future rate recovery is provided for by the SCPSC.

 

No contribution to the pension trust was necessary, nor did limitations on benefit payments apply, in or for any period reported.

 

AFC

 

AFC is a utility accounting practice whereby a portion of the cost of both equity and borrowed funds used to finance construction (which is shown on the balance sheet as construction work in progress) is capitalized. The Company includes an equity portion of AFC in nonoperating income and a debt portion of AFC in interest charges (credits) as noncash items, both of which have the effect of increasing reported net income. AFC represented approximately 3.9% of income before income taxes in 2011, 5.6% in 2010 and 9.8% in 2009.

 

Electric Operations

 

Electric Operations is comprised of the electric operations of SCE&G, GENCO and Fuel Company. Electric operations sales margin (including transactions with affiliates) was as follows:

 

Millions of dollars

 

2011

 

Change

 

2010

 

Change

 

2009

 

Operating revenues

 

$

2,432.2

 

2.5

%

$

2,373.9

 

10.5

%

$

2,148.9

 

Less: Fuel used in generation

 

922.5

 

(2.6

)%

946.7

 

15.1

%

822.3

 

Purchased power

 

19.2

 

12.9

%

17.0

 

1.2

%

16.8

 

Margin

 

$

1,490.5

 

5.7

%

$

1,410.2

 

7.7

%

$

1,309.8

 

 

·

 

2011 vs 2010

 

Margin increased by $49.0 million due to an increase in retail electric base rates approved by the SCPSC under the BLRA and by $34.5 million due to an SCPSC-approved increase in retail electric base rates in July 2010. Also, margin in the first quarter of 2010 was adjusted downward by $17.4 million pursuant to an SCPSC regulatory order in connection with SCE&G’s annual fuel cost proceeding. These increases were partially offset by $12 million due to the effects of weather in 2010 before the implementation of the SCPSC-approved eWNA and by lower customer usage of $8.7 million.

 

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Table of Contents

 

·

 

2010 vs 2009

 

Margin increased by $37.0 million due to higher SCPSC-approved retail electric base rates in July 2010 and by $30.7 million due to an increase in base rates approved by the SCPSC under the BLRA. In addition, margin increased by $54.2 million (net of eWNA after its implementation) due to weather, by $5.8 million due to higher transmission revenue and off-system sales and by $13.6 million due to the adoption of SCPSC-approved lower electric depreciation rates in 2009, the effect of which was offset by a reduction in the recovery of fuel costs (electric revenue). During the first quarter of 2010, the Company deferred $25 million of incremental revenue as a result of the abnormally cold weather in SCE&G’s service territory (see Note 2 to the consolidated financial statements). Also, margin in the first quarter of 2010 was adjusted downward by $17.4 million pursuant to an SCPSC regulatory order issued in connection with SCE&G’s annual fuel cost proceeding. (See also discussion at “Income Taxes”.) Finally, pursuant to the SCPSC-approved retail electric base rate order in 2010, SCE&G adopted an eWNA thereby mitigating the effects of abnormal weather on its margins.

 

Sales volumes (in GWh) related to the electric margin above, by class, were as follows:

 

Classification

 

2011

 

Change

 

2010

 

Change

 

2009

 

Residential

 

8,232

 

(6.4

)%

8,791

 

11.4

%

7,893

 

Commercial

 

7,397

 

(3.7

)%

7,684

 

4.5

%

7,350

 

Industrial

 

5,938

 

1.3

%

5,863

 

10.1

%

5,324

 

Other

 

572

 

(1.5

)%

581

 

3.4

%

562

 

Total retail sales

 

22,139

 

(3.4

)%

22,919

 

8.5

%

21,129

 

Wholesale

 

2,049

 

4.3

%

1,965

 

(0.5

)%

1,975

 

Total Sales

 

24,188

 

(2.8

)%

24,884

 

7.7

%

23,104

 

 

·

2011 vs 2010

 

Total retail sales volumes decreased by 775 GWh due to weather.

 

 

 

 

·

2010 vs 2009

 

Total retail sales volumes increased by 1,209 GWh due to weather and by 539 GWh due to higher industrial sales volumes.

 

Gas Distribution

 

Gas Distribution is comprised of the local distribution operations of SCE&G and PSNC Energy. Gas Distribution sales margin (including transactions with affiliates) was as follows:

 

Millions of dollars

 

2011

 

Change

 

2010

 

Change

 

2009

 

Operating revenues

 

$

840.4

 

(14.2

)%

$

979.4

 

3.3

%

$

948.4

 

Less: Gas purchased for resale

 

466.3

 

(22.5

)%

601.7

 

2.8

%

585.1

 

Margin

 

$

374.1

 

(1.0

)%

$

377.7

 

4.0

%

$

363.3

 

 

·

 

2011 vs 2010

 

Margin at SCE&G decreased by $8.2 million due to the SCPSC-approved decrease in retail gas base rates which became effective with the first billing cycle of November 2010. This decrease was partially offset by an increase of $1.8 million due to the SCPSC-approved increase in retail gas base rates which became effective with the first billing cycle of November 2011. Margin at PSNC Energy increased $2.9 million due to residential and commercial customer growth.

 

 

 

 

 

·

 

2010 vs 2009

 

Margin at SCE&G increased by $9.2 million due to the SCPSC-approved increase in retail gas base rates which became effective with the first billing cycle of November 2009 and $3.3 million due to increased customer usage. These increases were partially offset by a decrease of $2.2 million due to an SCPSC-approved decrease in retail gas base rates which became effective with the first billing cycle of November 2010. Margin at PSNC Energy increased by $4.0 million primarily due to residential customer growth and improved industrial usage.

 

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Table of Contents

 

Sales volumes (in DT) by class, including transportation gas, were as follows:

 

Classification (in thousands)

 

2011

 

Change

 

2010

 

Change

 

2009

 

Residential

 

36,568

 

(19.2

)%

45,251

 

16.0

%

38,995

 

Commercial

 

25,772

 

(11.0

)%

28,972

 

6.4

%

27,220

 

Industrial

 

18,782

 

(0.4

)%

18,860

 

12.3

%

16,798

 

Transportation gas

 

34,152

 

3.2

%

33,089

 

7.3

%

30,845

 

Total

 

115,274

 

(8.6

)%

126,172

 

10.8

%

113,858

 

 

·

 

2011 vs 2010

 

Residential, commercial and industrial sales volume decreased primarily due to milder weather. Transportation sales volume increased primarily as a result of improved economic conditions and the competitive price of gas versus alternate fuel sources.

 

 

 

 

 

·

 

2010 vs 2009

 

Residential sales volume increased primarily due to customer growth and weather. Commercial and industrial sales volume increased primarily as a result of improved economic conditions.

 

Retail Gas Marketing

 

Retail Gas Marketing is comprised of SCANA Energy which operates in Georgia’s natural gas market. Retail Gas Marketing revenues and income available to common shareholders were as follows:

 

Millions of dollars

 

2011

 

Change

 

2010

 

Change

 

2009

 

Operating revenues

 

$

478.8

 

(13.4

)%

$

552.9

 

6.0

%

$

521.7

 

Income available to common shareholders

 

$

24.2

 

(20.7

)%

$

30.5

 

27.1

%

$

24.0

 

 

·

 

2011 vs 2010

 

Operating revenues decreased as a result of milder weather and lower consumption. Income available to common shareholders decreased due to lower margins, partially offset by lower bad debt and operating expenses.

 

 

 

 

 

·

 

2010 vs 2009

 

Operating revenues increased as a result of colder than normal weather and higher consumption. Income available to common shareholders increased due to higher margins, partially offset by higher bad debt and operating expenses.

 

Energy Marketing

 

Energy Marketing is comprised of the Company’s nonregulated marketing operations, excluding SCANA Energy. Energy Marketing operating revenues and income available to common shareholders were as follows:

 

Millions of dollars

 

2011

 

Change

 

2010

 

Change

 

2009

 

Operating revenues

 

$

844.9

 

(3.3

)%

$

874.1

 

12.5

%

$

776.9

 

Income available to common shareholders

 

$

4.4

 

12.8

%

$

3.9

 

14.7

%

$

3.4

 

 

·

 

2011 vs 2010

 

Operating revenues decreased due to lower market prices. Income available to common shareholders increased due to lower operating expenses, including bad debt.

 

 

 

 

 

·

 

2010 vs 2009

 

Operating revenues increased due to higher sales volume. Income available to common shareholders increased due to lower operating expenses, partially offset by higher bad debt expense.

 

Other Operating Expenses

 

Other operating expenses were as follows:

 

Millions of dollars

 

2011

 

Change

 

2010

 

Change

 

2009

 

Other operation and maintenance

 

$

657.9

 

(1.8

)%

$

669.9

 

4.7

%

$

639.7

 

Depreciation and amortization

 

346.3

 

3.3

%

335.1

 

6.0

%

316.0

 

Other taxes

 

200.8

 

5.5

%

190.4

 

7.6

%

176.9

 

 

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Table of Contents

 

·

2011 vs 2010

 

Other operation and maintenance expenses decreased by $7.8 million due to lower customer service expenses, including bad debt expense, and by $4.1 million due to lower incentive compensation and other benefits. These decreases were partially offset by $0.8 million due to higher generation, transmission and distribution expenses. Depreciation and amortization expense increased primarily due to net property additions. Other taxes increased primarily due to higher property taxes.

 

 

 

 

·

2010 vs 2009

 

Other operation and maintenance expenses increased by $17.7 million due to higher generation, transmission and distribution expenses, by $10.9 million due to higher incentive compensation and other benefits and by $6.1 million due to higher customer service expenses and general expenses, including bad debt expense. Depreciation and amortization expense increased primarily due to net property additions. Other taxes increased primarily due to higher property taxes.

 

Other Income (Expense)

 

Other income (expense) includes the results of certain incidental (non-utility) activities and the activities of certain non-regulated subsidiaries. Components of other income (expense) were as follows:

 

Millions of dollars

 

2011

 

Change

 

2010

 

Change

 

2009

 

Other income

 

$

52.2

 

(0.9

)%

$

52.7

 

(21.0

)%

$

66.7

 

Other expense

 

(40.0

)

1.3

%

(39.5

)

7.0

%

(36.9

)

Total

 

$

12.2

 

(7.6

)%

$

13.2

 

(55.7

)%

$

29.8

 

 

·

2011 vs 2010

 

Changes in other income (expense) were not significant.

 

 

 

 

·

2010 vs 2009

 

Total other income (expense) decreased $13.4 million due to decreased interest income. In September 2009, as a result of a favorable decision by the South Carolina Supreme Court, SCE&G was refunded previously contested EIZ Credits of $15.3 million and an additional $14.3 million of interest income. SCE&G recorded a multi-year catch-up adjustment in the third quarter of 2009 of approximately $6.3 million ($4.0 million after federal tax effect) as a reduction in income taxes. The interest income of $14.3 million ($8.8 million after tax effect) was recorded in the third quarter of 2009 within other income.

 

Interest Expense

 

Components of interest expense, net of the debt component of AFC, were as follows:

 

Millions of dollars

 

2011

 

Change

 

2010

 

Change

 

2009

 

Interest on long-term debt, net

 

$

276.6

 

5.9

%

$

261.1

 

14.3

%

$

228.5

 

Other interest expense

 

7.7

 

71.1

%

4.5

 

(10.0

)%

5.0

 

Total

 

$

284.3

 

7.0

%

$

265.6

 

13.7

%

$

233.5

 

 

Interest on long-term debt increased in each year primarily due to increased long-term borrowings over the prior year. Other interest expense increased in 2011, and decreased in 2010, primarily due to corresponding changes in principal balances outstanding on short-term debt over the respective prior year.

 

Income Taxes

 

Income tax expense (and the effective tax rate) increased in 2011 over 2010 primarily due to the accelerated amortization of deferred EIZ Credits to offset undercollected fuel costs in 2010 pursuant to an SCPSC order and an increase in operating income.  Income tax expense (and the effective tax rate) decreased in 2010 over 2009 primarily due to the above-mentioned accelerated amortization of EIZ Credits to offset undercollected fuel costs and the accelerated amortization of EIZ Credits in connection with the July 2010 retail electric rate order. (See Note 5 to the consolidated financial statements for reconciling differences between income tax expense and statutory tax expense.)

 

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Table of Contents

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company anticipates that its contractual cash obligations will be met through internally generated funds, the incurrence of additional short- and long-term indebtedness and sales of equity securities. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the foreseeable future. The Company’s ratio of earnings to fixed charges for the year ended December 31, 2011 was 2.87.

 

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 the regulated subsidiaries will be affected by their ability to obtain adequate and timely rate and other regulatory relief.

 

The Company also obtains equity from SCANA’s stock plans. Shares of SCANA common stock are acquired on behalf of participants in SCANA’s Investor Plus Plan and Stock Purchase-Savings Plan through the original issuance of shares, rather than being purchased on the open market. This provided approximately $97 million of additional equity during 2011 and is expected to provide approximately $102 million of additional capital in 2012. Due primarily to new nuclear construction plans, the Company anticipates keeping this strategy in place for the foreseeable future.  The Company also expects to issue common stock in 2012 under forward contracts executed in 2010 (and extended by amendment in October 2011).

 

SCANA’s leverage ratio of long- and short-term debt to capital was approximately 58% at December 31, 2011. SCANA has publicly announced its desire to maintain its leverage ratio at levels between 54% and 57%, but SCANA’s ability to achieve and maintain those levels depends on a number of factors. In the future, if SCANA is not able to achieve and maintain its leverage ratio within the desired range, the Company’s debt ratings may be affected, it may be required to pay higher interest rates on its long- and short-term indebtedness, and its access to the capital markets may be limited.

 

Capital Expenditures

 

Cash outlays for property additions and construction expenditures, including nuclear fuel, net of AFC, were $884 million in 2011 and are estimated to be $1.4 billion in 2012.

 

The Company’s current estimates of its capital expenditures for construction and nuclear fuel for 2012-2014, which are subject to continuing review and adjustment, are as follows:

 

Estimated Capital Expenditures

 

Millions of dollars

 

2012

 

2013

 

2014

 

SCE&G - Normal

 

 

 

 

 

 

 

Generation

 

$

143

 

$

96

 

$

79

 

Transmission & Distribution

 

197

 

217

 

190

 

Other

 

26

 

14

 

21

 

Gas

 

49

 

51

 

57

 

Common

 

14

 

18

 

13

 

Total SCE&G - Normal

 

429

 

396

 

360

 

PSNC Energy

 

57

 

65

 

70

 

Other

 

54

 

41

 

32

 

Total Normal

 

540

 

502