beginning in January 2005, the application of current and anticipated net synthetic fuel tax credits to offset the cost of constructing

the back-up dam at Lake Murray. Similar settlements have been negotiated with several other intervenorsUnder the accounting methodology approved by the SCPSC, current and future construction costs related to the Lake Murray Dam project are recorded in a special dam remediation account outside of rate base, and depreciation will be recognized against the balance in this rate case. Hearingsaccount on this request concluded November 5, 2004, and a rate order is expected by year end. If approved, rates under such an order would go into effect January 1, 2005.accelerated basis, subject to the availability of the synthetic fuel tax credits.

        There can be no assurance thatIn the January 2005 order the SCPSC will approve the settlement and stipulation agreement(s), in whole or in part. Further, there can be no assurance as to the levelalso approved recovery over a five-year period of increase, if any, in retail electric rates arising from these proceedings. Testimony presented in these proceedings covered a rangeSCE&G's approximately $14 million of potential revenue adjustments, from an increase of $81.2 million, as filed by SCE&G, to a reduction of approximately $9 million supported by the Consumer Advocatecosts incurred in the hearing.

        In addition, atformation of the November 2004 hearing the SCPSC will consider whether to allow SCE&G to recoverGridSouth Regional Transmission Organization and recovery through base rates over three years of approximately $25.6 million of purchased power costs. These costs that were originallypreviously deferred. As a part of its order, the SCPSC extended through 2010 its approval of the accelerated capital recovery plan for SCE&G's Cope Generating Station. Under the plan, in the event that SCE&G would otherwise earn in excess of its maximum allowed return on common equity, SCE&G may increase depreciation of its Cope Generating Station in excess of amounts that would be recorded based upon currently approved depreciation rates, not to exceed $36 million annually, without additional approval of the SCPSC. Any unused portion of the $36 million in any given year may be carried forward for recovery throughpossible use in the following year.

        In January 2003 the SCPSC granted SCE&G a composite increase in retail electric rates of approximately 5.8% designed to produce additional annual revenues of approximately $70.7 million based on a test year calculation. The SCPSC authorized a return on common equity of 12.45%. The rates and authorized return were effective for service rendered on and after February 1, 2003 until January 2005.

        SCE&G's rates are established using a cost of fuel clausecomponent approved by the SCPSC which may be modified periodically to reflect changes in a May 2002 order. The Consumer Advocatethe price of South Carolina (Consumer Advocate) appealed tofuel purchased by SCE&G. SCE&G's cost of fuel component in effect during the South Carolina Circuit Court (Circuit Court) the portionperiod January 1, 2004 through March 31, 2005 was as follows:

        On April 6, 2005 as part of the SCPSC's order related to the recoveryannual review of these purchased power costs. The Circuit Court ruled that the fuel clause only provided for the recovery of the fuel costs, included in purchased power and not the total cost of the power purchased. The Circuit Court remanded the case to the SCPSC for final disposition. In February 2004 the General Assembly of South Carolina clarified the definition of the fuel clause to include the total cost of power purchased. In April 2004 the SCPSC approved a stipulation agreement between the Consumer Advocate and SCE&G whereby SCE&G would be allowed to defer for recovery in a future rate proceeding the purchased power costs not allowed to be recovered through the fuel clause. SCE&G is seeking recovery of such costs in the current proceedings.

        In April 2004 the SCPSC approved SCE&G's request to increase the cost of fuel component of rates charged to electric customers from 1.678 cents$.01764 per KWh to 1.821 cents$.02256 per KWh. The increase reflects higher fuel costs projected for the period May 2004 through April 2005. The increase also provides continued recovery for under-collected actual fuel costs through February 2004. The new rates wereKWh effective as of the first billing cycle in May 2004.2005.

Gas

        SCE&G's rates are established using a cost of gas component approved by the SCPSC which may be modified periodically to reflect changes in the price of natural gas purchased by SCE&G.

SCE&G's cost of gas component in effect during the period January 1, 20032004 through September 30, 2004March 31, 2005 was as follows:

        On October 27, 2004, as part of the annual review of gas costs, the SCPSC approved SCE&G's request to increase the cost of gas component from $.877 per therm to $.904 per therm effective with the first billing cycle in November 2004.

        The SCPSC allows SCE&G to recover through a billing surcharge to its commercial and residential gas customers the costs of environmental cleanup at the sites of former MGPs. The billing surcharge is subject to annual review and provides for the recovery of substantially all actual and projected site assessment and cleanup costs and environmental claims settlements for SCE&G's gas operations that had previously been recorded in deferred debits. In October 2003, as a result of the annual review, the SCPSC approved SCE&G's request to reduce theThe billing surcharge from 3.0 cents per therm tois 0.8 cents per therm, which is intended to provide for the recovery, prior to the end of the year 2009, of substantially all of the balance remaining at September 30, 2004March 31, 2005 of $9.3$9.5 million.

        On April 26, 2005, SCE&G filed an application with the SCPSC requesting a 7.09 percent increase in retail natural gas base rates, or approximately $28 million based on an adjusted test year ended December 31, 2004. A hearing on this request is expected to be held and an order is expected to be issued in the fall of 2005. If approved, the new rates would go into effect in November 2005.

Public Service Company of North Carolina, Incorporated (PSNC Energy)

        PSNC Energy's rates are established using a benchmark cost of gas approved by the NCUC, which may be modified periodically to reflect changes in the market price of natural gas. 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.

        PSNC Energy's benchmark cost of gas in effect during the period January 1, 20032004 through September 30, 2004March 31, 2005 was as follows:

        On October 1, 2004 the NCUC approved PSNC Energy's request to increase the benchmark cost of gas from $.600 per therm to $.675 per therm for service rendered on and after October 1, 2004.

        On September 30, 2004, in connection with PSNC Energy's 2004 Annual Prudence Review, the NCUC determined that PSNC Energy's gas costs, including all hedging transactions, were reasonable and prudently incurred during the 12-month review period ended March 31, 2004.

        For service rendered on and after March 1, 2004,January 21, 2005 the NCUC authorized PSNC Energy to implement decrements in its sales and transportationdefer for subsequent rate schedulesconsideration certain expenses incurred to reflect a decreasecomply with the U. S. Department of approximately $5.7 million in PSNC Energy's annual fixed gas costs as well as the current over-recoveryTransportation's Pipeline Integrity Management requirements. This accounting treatment was effective November 1, 2004. As of approximately $16.5 million.

        A state expansion fund, established by the North Carolina General Assembly and funded by refunds from PSNC Energy's interstate pipeline transporters, provides financing for expansion into areas that otherwise wouldMarch 31, 2005 such deferrals were not be economically feasible to serve. In June 2000 the NCUC approved PSNC Energy's requests for disbursement of up to $28.4 million from PSNC Energy's expansion fund to extend natural gas service to Madison, Jackson and Swain Counties in western North Carolina. The final phase of this project was completed and placed in service in April 2004 at a total cost of approximately $30.2 million.significant.

        In December 1999 the NCUC issued an order approving the Company'sSCANA's acquisition of PSNC Energy. As specified in the order, PSNC Energy agreed to a moratorium on general rate increases until after August 2005. General rate relief can be obtained during this period to recover costs associated with material adverse governmental actions and force majeure events.

3. DEBT AND CREDIT FACILITIES

        In February 2004 South Carolina Generating Company, Inc. (GENCO)March 2005 SCANA issued $100 million ofin senior secured promissoryunsecured floating rate medium-term notes maturing Februaryin March 2008. The interest rate on the floating rate notes is reset quarterly based on three-month LIBOR plus 15 basis points. The proceeds from the sale, together with available cash, were used for the redemption on April 1, 2024 and bearing a fixed2005 of $200 million of floating rate medium-term notes due to mature in November 2006.

        In March 2005 SCE&G issued $100 million first mortgage bonds having an annual interest rate of 5.49%. Proceeds5.25% and maturing March 1, 2035. The proceeds from this issuancethe sale of these bonds were used to support GENCO's construction program and to repay intercompany advances borrowed for that purpose.

        In May 2004 SCE&G borrowed $23.6 million under an agreement with the South Carolina Transportation Infrastructure Bank (the Bank) and the South Carolina Department of Transportation (SCDOT) that allows SCE&G to borrow funds from the Bank to construct a roadbed for SCDOT in connection with the Lake Murray Dam remediation project. The loan agreement provides for interest-free borrowings for costs incurred not to exceed $59 million with such borrowings being repaid over ten years from the initial borrowing. At September 30, 2004 SCE&G had $22.1 million

outstanding under the agreement. On October 22, 2004 SCE&G borrowed an additional $11.8 million under the agreement.

        In June 2004 the Company entered into new five-year revolving committed credit facilities totaling $650 million. These new revolving credit facilities replaced $600 million of existing committed credit facilities. SCANA, SCE&G (including South Carolina Fuel Company, Inc.) and PSNC Energy had available the following revolving credit facilities which were unused at September 30, 2004:

⁽¹⁾

Includes $113 million that either SCANA or SCE&G may use.

        On July 15, 2004 SCE&G retired at maturity $100 millionredemption on April 1, 2005 of first mortgage bonds. These bonds, were bearing interest at 7.70%.

        On October 19, 2004 SCANA retired at maturity $50 million of medium-term notes. These notes were bearing interest at 7.44%.7.625% Series due April 1, 2025.

4. RETAINED EARNINGS

        SCANA Corporation'sThe Company's Restated Articles of Incorporation do not limit the dividends that may be paid on its common stock. However, the Restated Articles of Incorporation of SCE&G contain provisions that, under certain circumstances, which the Company considers to be remote, could limit the payment of cash dividends on its common stock. In addition, with respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At September 30, 2004March 31, 2005 approximately $47$49 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G's common stock.

5. FINANCIAL INSTRUMENTS

Investments

        Certain of SCANA Corporation's subsidiaries hold investments in marketable securities, some of which are subject to SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities," mark-to-market accounting and some of which are considered cost basis investments for which determination of fair value historically has been considered impracticable. Equity holdings subject to SFAS 115 are categorized as "available for sale" and are carried at quoted market prices, with any unrealized gains and losses credited or charged to other comprehensive income (loss) within common equity on the Company's balance sheet. Debt securities and preferred stock with significant debt characteristics are categorized as "held to maturity" and are carried at amortized cost. When indicated, and in accordance with its stated accounting policy, the Company performs periodic assessments of whether any decline in the value of these securities to amounts below the Company's cost basis is other than temporary. Among the factors considered in these assessments is whether an investment's decline in value to below cost basis has continued for greater than six to nine months. When other than temporary declines occur, write-downs are recorded through operations, and new (lower) cost bases are established. The Company also holds investments in several partnerships and joint ventures, some of which are accounted for using the equity method.

        At September 30, 2004 SCANA Communications Holdings, Inc. (SCH), a wholly owned, indirect subsidiary of the Company, held investments in the following equity and debt securities.

        Magnolia Holding Company, LLC (Magnolia Holding), holds ownership interests in several Southeastern communications companies.

        ITC^DeltaCom, Inc. (ITC^DeltaCom) is a regional provider of telecommunications services. The common shares of ITC^DeltaCom owned by SCH had a market value of $2.5 million, and the warrants owned had a market value of $0.8 million as of September 30, 2004. The ITC^DeltaCom preferred shares owned by SCH are classified as held to maturity due to their debt features, and their market value is not readily determinable.

        Knology, Inc. (Knology) is a fully integrated provider of video, voice, data and advanced communication services to residential and business customers in the southeastern United States. In September 2004, and in accordance with the accounting policy described earlier, SCH recorded impairment losses associated with its Knology common stock investment totaling $15.0 million, net of taxes. The common shares of Knology (voting and non-voting) owned by SCH had a market value of $19.7 million as of September 30, 2004.

Derivatives

        The Company follows the guidance required by FAS 133 "Accounting"Accounting for Derivative Instruments and Hedging Activities,"as amended, in accounting for derivatives, including those arising from cash flow hedges related to natural gas. The Company also utilizes swap agreements to manage interest rate risk. These transactions are more fully described in Note 9 to the consolidated financial statements in SCANA's Annual Report on Form 10-K for the Company's 2003 Form 10-K.year ended December 31, 2004.

        The Company recognized gains (losses) of approximately $0.3$(3) million and $3.3$2 million, net of tax, as a result of qualifying cash flow hedges whose hedged transactions occurred during the three and nine months ended September 30, 2004. The Company recognized gains (losses) of approximately $(0.4) millionMarch 31, 2005 and $5.4 million, net of tax, as a result of qualifying cash flow hedges whose hedged transactions occurred during the three and nine months ended September 30, 2003.2004, respectively. These amounts were recorded in cost of gas. The Company estimates that most of the September 30, 2004March 31, 2005 unrealized gain balance of $5.6$4 million, net of tax, will be reclassified from accumulated other comprehensive income (loss) to earnings in 2004 and 2005 as a decrease to gas cost if market prices remain at current

levels. As of September 30, 2004,March 31, 2005, all of the Company's cash flow hedges will settle by their terms before the end of 2006.

        Option premiums and gains resulting from qualifying fair value hedges during the three and nine months ended September 30, 2004 and 2003 were insignificant and were recorded in cost of gas. As of September 30, 2004 all of the Company's fair value hedges will settle by February 2005.

At September 30, 2004March 31, 2005 the estimated fair value of the Company's swaps totaled $6.7$2.2 million (gain) related to combined notional amounts of $329.9$275.6 million.

6. COMMITMENTS AND CONTINGENCIES

        Reference is made to Note 10 to the consolidated financial statements appearing in the Company'sSCANA's Annual Report on Form 10-K for the year ended December 31, 2003.2004. Commitments and contingencies at September 30, 2004March 31, 2005 include the following:

A.

Lake Murray Dam Reinforcement

        In 2001 SCE&G began construction to reinforce its Lake Murray Dam in order to comply with new federal safety standards mandated by the United States Federal Energy Regulatory Commission (FERC). Construction for the project and related activities is expected to cost approximately $275 million (excluding allowance for funds used during construction (AFC)) and be completed in the second quarter of 2005. Costs incurred through September 30, 2004March 31, 2005 totaled approximately $223$251 million.

B.

Nuclear Insurance

        The Price-Anderson Indemnification Act currently(the Act) deals with public liability for a nuclear incident. Though the Act expired in 2003, existing licensees, such as the Company, are "grandfathered" under the Act until such time as it is renewed. The Act establishes the liability limit for third-partythird party claims associated with any nuclear incident at $10.8$10.5 billion. Each reactor licensee is currently liable for up to $100.6 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. SCE&G's maximum assessment, based on its two-thirds ownership of Summer Station, would be approximately $67.1 million per incident, but not more than $6.7 million per year.

        Congress failed to renew the Price-Anderson Indemnification Act when it expired in 2003. The delayed renewal has no impact on the Company due to the "grandfathered" status of existing licensees that are covered under the expired Act until such time as it is renewed.

SCE&G currently maintains policies (for itself and on behalf of the South Carolina Public Service Authority)Authority, the one-third owner of Summer Station) with Nuclear Electric Insurance Limited. The policies, covering the nuclear facility for property damage, excess property damage and outage costs, permit retrospective assessments under certain conditions to cover insurer's losses. Based on the current annual premium, SCE&G's portion of the retrospective premium assessment would not exceed $15.8 million.

        To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that SCE&G's rates would not recover the cost of any purchased replacement power, SCE&G will

retain the risk of loss as a self-insurer. SCE&G has no reason to anticipate a serious nuclear incident at Summer Station. However, if such an incident were to occur, it would have a material adverse impact on the Company's results of operations, cash flows and financial position.

C.

Environmental

        The Company maintains an environmental assessment program to identify and evaluate current and former sites that could require environmental cleanup. As site assessments are initiated, estimates

are made of the amount of expenditures, if any, deemed necessary to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from the original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate solely to regulated operations.

South Carolina Electric & Gas Company

        At SCE&G, site assessment and cleanup costs are deferred and are being recovered through rates (see Note 2). Deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $9.3$9.5 million at September 30, 2004.March 31, 2005. The deferral includes the estimated costs associated with the following matters.

        SCE&G owns a decommissioned MGP site in the Calhoun Park area of Charleston, South Carolina. The site is currently being remediated for contamination. SCE&G anticipates that the remaining remediation activities will be completed by the end of 2004,2005, with certain monitoring and retreatment activities continuing until 2007.2010. As of September 30, 2004,March 31, 2005, SCE&G had spent approximately $20.2$20.7 million to remediate the Calhoun Park site and expects to spend an additional $1.6$1.1 million. In addition, the National Park Service of the Department of the Interior made an initial demand for payment of approximately $9 million to SCE&G for certain costs and damages relating to this site. Any costs arising from these matters are expected to be recoverable through rates under South Carolina regulatory process.

        SCE&G owns three other decommissioned MGP sites in South Carolina which contain residues of by-product chemicals. TwoOne of thesethe sites are currently beinghas been remediated under work plans approvedand will undergo routine monitoring until released by the South Carolina Department of Health and Environmental Control (DHEC). SCE&G is continuing to investigate the remaining site and is monitoring the nature and extent of residual contamination.The other sites are currently being investigated under work plans approved by DHEC. SCE&G anticipates that major remediation activities for the three sites will be completed before 2006.in 2010. As of September 30, 2004,March 31, 2005, SCE&G had spent approximately $3.3$4.1 million related to these three sites, and expects to spend an additional $4.7$3.9 million.

Public Service Company of North Carolina, Incorporated

        PSNC Energy is responsible for environmental cleanup 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 potentially responsible parties. PSNC Energy has recorded a liability and associated regulatory asset of approximately $6.6$6.4 million, which reflects the estimated remaining liability at September 30, 2004.March 31, 2005. Amounts incurred and deferred to date, net of insurance settlements, that are not currently being recovered through gas rates are approximately $1.2$1.5 million. Management believes that all MGP cleanup costs incurred will be recoverable through gas rates.

D.

Claims and Litigation

        In 1999 an unsuccessful bidder for the purchase of certain propane gas assets of the Company filed suit against SCANA in Circuit Court, seeking unspecified damages. The suit allegesalleged the existence of a contract for the sale of assets to the plaintiff and various causes of action associated with that contract. On October 20, 2004, testimony from all parties was concluded in Circuit Court and the case was sent to the jury. On October 21, 2004, the jury issued itsan adverse verdict on this matter against the CompanySCANA for four causes

of action for damages totaling $48 million. Post-verdict motions are scheduledwere heard in November 2004 and January 2005. In April 2005, post-trial motions were decided by the Court, and the plaintiff has been ordered to be heardelect a single remedy from the weekmultiple jury awards.

        Upon receiving the jury verdict prior to reporting results for the third quarter of November 15, 2004. It is2004, it was the Company's interpretation that the damages awarded with respect to certain causes of action are overlapping.were overlapping and that the plaintiff would be required to elect a single remedy. Therefore, it iswas the Company's belief that a reasonably possible estimate of the total damages based on the amounts awarded by the jury willwould be in the range of $18—$18-$36 million. As such, in accordance with generally accepted accounting principles, in the third quarter of 2004 SCANA accrued a liability of $18 million pre-tax, which was its reasonable estimate of the minimum liability that was probable if the final judgment were to be consistent with the jury verdict.

        In light of the recent election order which is consistent with the interpretation above, the Company believes its accrued liability is still reasonable. However, the Company believescontinues to believe that the verdict was inconsistent with the facts presented and applicable law and intends to appeal any adverse judgment ultimately entered by the Circuit Court. Based

        The Company is also defending another claim for $2.7 million for reimbursement of legal fees and expenses under an indemnification and hold harmless agreement in the contract of sale. A bench trial on the current status of this matter, and in accordance with generally accepted accounting principles,indemnification was held on January 14, 2005. A ruling has not yet been received, but is expected during the Company recorded a pre-tax charge to earnings in the thirdsecond quarter of 2004 of

$18 million, $11 million after-tax, or 10 cents per share, which is the Company's reasonable estimate of the loss that is probable if the final judgment is consistent with the jury verdict. The charge and associated liability are reported in Other Income (Expense) and Current Liabilities-Other in the financial statements.2005.

        On August 21, 2003, SCE&G was served as a co-defendant in a purported class action lawsuit styled as Collins v. Duke Energy Corporation, Progress Energy Services Company, and SCE&G in South Carolina's Circuit Court of Common Pleas for the Fifth Judicial Circuit. The plaintiffs are seeking damages for the alleged improper use of electric transmission and distribution easements but have not asserted a dollar amount for their claims. Specifically, the plaintiffs contend that the licensing of attachments on electric utility poles, towers and other facilities to non-utility third parties or telecommunication companies for other than the electric utilities' internal use along the electric transmission and distribution line rights-of-way constitutes a trespass. The Company is confident of the propriety of SCE&G's actions and intends to mount a vigorous defense. The Company further believes that the resolution of these claims will not have a material adverse impact on its results of operations, cash flows or financial condition.

        On May 17, 2004, the Company was served with a purported class action lawsuit styled as Douglas E. Gressette, individually and on behalf of other persons similarly situated v. South Carolina Electric & Gas Company and SCANA Corporation. The case was filed in South Carolina's Circuit Court of Common Pleas for the Ninth Judicial Circuit. The plaintiff alleges the Company made improper use of certain easements and rights-of-way by allowing fiber optic communication lines and/or wireless communication apparatusesequipment to transmit communications other than the Company's electricity-related internal communications. The plaintiff asserts causes of action for unjust enrichment, trespass, injunction and declaratory judgment. The plaintiff did not assert a specific dollar amount for the claims. The Company believes its actions are consistent with governing law and the applicable documents granting easements and rights-of-way. The Company intends to mount a vigorous defense and believes that the resolution of these claims will not have a material adverse impact on its results of operations, cash flows or financial condition.

        A complaint was filed on October 22, 2003 against SCE&G by the State of South Carolina alleging that SCE&G violated the Unfair Trade Practices Act by charging municipal franchise fees to some customers residing outside a municipality's limits. The complaint alleged that SCE&G failed to obey, observe or comply with the lawful order of the SCPSC by charging franchise fees to those not residing within a municipality. The complaint sought restitution to all affected customers and penalties up to $5,000 for each separate violation. The State of South Carolina v. SCE&G has been settled by an

agreement between the parties, and the settlement has been approved by the court. The allegations contained in the complaint were also the subject of a similar lawsuit that was filed and served on SCE&G but has now been dismissed. The allegations are also the subject of a purported class action lawsuit filed on or aboutin December 12, 2003, against Duke Energy Corporation, Progress Energy Services Company and SCE&G (styled as Edwards v. SCE&G). Duke Energy and Progress Energy have, but that case has been voluntarily dismissed fromby the Edwards lawsuit. The Company believes that the resolution of these actions will not have a material adverse impact on its results of operations, cash flows or financial condition.Plaintiff. In addition, SCE&G filed a petition with the SCPSC on October 23, 2003 pursuant to S. C. Code Ann. R.103-836. The petition requests that the SCPSC exercise its jurisdiction to investigate the operation of the municipal franchise fee collection requirements applicable to SCE&G's electric and gas service, to approve SCE&G's efforts to correct any past franchise fee billing errors, to adopt improvements in the system which will reduce such errors in the future, and to adopt any regulation that the SCPSC deems just and proper to regulate the franchise fee collection process.

        In addition to other environmental costs being recovered through billing surcharges, as of September 30, 2004, SCE&G is party to certain claims for costs and damages arising from The Company believes that the prior operation of a manufactured gas plant in the Calhoun Park area of Charleston, South Carolina, for

which claims the National Park Service of the Department of the Interior has demanded payment of approximately $9 million. Any cost arising from the ultimate settlementresolution of these matters is also expected to be recoverable through rates under South Carolina regulatory processes.will not have a material adverse impact on its results of operations, cash flows or financial condition.

        The Company is also engaged in various other claims and litigation incidental to its business operations which management anticipates will be resolved without material loss to the Company.

7.

SEGMENT OF BUSINESS INFORMATION

        The Company's reportable segments are listed in the following table. The Company uses operating income to measure profitability for its regulated operations. Therefore, net income is not allocated to the Electric Operations, Gas Distribution and Gas Transmission segments. The Company uses net income to measure profitability for its Retail Gas Marketing and Energy Marketing segments. Gas Distribution is comprised of the local distribution operations of SCE&G and PSNC Energy which meet SFAS 131 criteria for aggregation. All Other includes equity method investments and other nonreportable segments.

Disclosure of Reportable Segments
(Millions of dollars)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

SCANA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in SCANA Corporation's (SCANA, and together with its consolidated subsidiaries, the Company) Annual Report on Form 10-K for the year ended December 31, 2003.2004.

        Statements included in this discussion and analysis (or elsewhere in this quarterly report) which are not statements of historical fact are intended to be, and are hereby identified as, "forward-looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following: (1) that the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment, (2) regulatory actions or changes in the utility and nonutility regulatory environment, (3) current and future litigation, (4) changes in the economy, especially in areas served by the Company's subsidiaries of SCANA, (5) the impact of competition from other energy suppliers, including competition from alternate fuels in industrial interruptible markets, (6) growth opportunities for the Company'sSCANA's regulated and diversified subsidiaries, (7) the results of financing efforts, (8) changes in the Company's accounting policies, (9) weather conditions, especially in areas served by the Company'sSCANA's subsidiaries, (10) performance of and marketability of the Company's investments in telecommunications companies, (11) performance of the Company'sSCANA's pension plan assets, (12)(11) inflation, (13)(12) changes in environmental regulations, (14)(13) volatility in commodity natural gas markets and (15)(14) the other risks and uncertainties described from time to time in the Company'sSCANA's periodic reports filed with the United States Securities and Exchange Commission. The CompanySCANA disclaims any obligation to update any forward-looking statements.

Electric Operations

        InOn April 200421, 2005, the joint U.S.-Canada Power System Outage Task Force issued its "Final Report onU. S. House of Representatives passed the August 14, 2003 Blackout in the United States and Canada: Causes and Recommendations" (Blackout Report)Energy Policy Act of 2005 (Energy Policy Act). The Blackout Report contains 46 recommendations that, if implemented, the Task Force believes would improve reliability of North America's interconnected bulk power system (the grid). Full implementationSome key provisions of the Blackout Report's recommendationsEnergy Policy Act that might impact the Company include the establishment of an electric reliability organization to enforce reliability standards for transmission systems, the restriction of standard market design (SMD) rulemaking by the Federal Energy Regulatory Commission (FERC) until 2006 and the provision for continued reservation of electric transmission capacity needed to serve native load customers. The Energy Policy Act also would require a numberrepeal the Public Utility Holding Company Act of actions1935, and would provide for greater regulatory oversight by legislative, regulatoryother federal and industry participants. However,state authorities. The U. S. Senate is expected to begin debate on separate energy legislation in May 2005. Differences between such legislation, if passed, and the Blackout Report asserts as its single most important recommendation that the U.S. Congress should enact the reliability provisions contained in certain legislative measures (the Energy Bill), different versions of which passedPolicy Act would have to be reconciled, approved by both the House and Senate, in 2003 but have stalled in conference committee. Various provisions ofand signed by the Energy Bill related to electric reliability are being resubmitted as separate legislation (reliability legislation). It is anticipated that any reliability legislation, if passed, would make reliability standards mandatory and enforceable with penalties for non-compliance and would strengthen the role of the U.S. Federal Energy Regulatory Commission (FERC), enabling it to enact regulatory initiatives that could change, perhaps significantly, the country's existing regulatory framework governing transmission, open access and energy markets and would attempt, in large measure, to standardize the national energy market and attempt to disaggregate the remaining vertically integrated utilities.

        In addition, the North American Electric Reliability Council (NERC) is expected to continue its initiatives to develop, establish and enforce additional standards for the grid. To that end, NERC is working closely with FERC to implement stronger reliability standards among NERC's voluntary membership. South Carolina Electric & Gas Company (SCE&G), along with other NERC members, is also working closely with NERC in these efforts. Such initiatives could be significantly influenced by any reliability legislation enacted by Congress.President before becoming law. The Company cannot predict whether Congressthe Energy Policy Act or similar legislation ultimately will enact reliabilitybe enacted, and if it is, the conditions the final legislation would impose on utilities.

Gas Distribution

        On April 26, 2005, SCE&G filed an application with the Public Service Commission of South Carolina (SCPSC) requesting a 7.09 percent increase in retail natural gas base rates, or the extentapproximately $28 million based on an adjusted test year ended December 31, 2004. A hearing on this request is

expected to which the other recommendations containedbe held and an order is expected to be issued in the Blackout Report will be implemented. Any actionfall of 2005. If approved, the new rates would go into effect in November 2005.

        In February 2005, the Natural Gas Stabilization Act of 2005 (Stabilization Act) became law in South Carolina. The Stabilization Act 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 Congress or initiatives by FERC and NERC could significantly impact SCE&G's access to or cost of power for its native load customers and SCE&G's marketing of power outside its service territory.the SCPSC.

Gas Transmission

        In June 2004 the Company announced plans2005, an application to merge its two natural gas pipelineSCANA subsidiaries, into one company. Under the plan, South Carolina Pipeline Corporation (SCPC), the Company's intrastate pipeline company, would merge withand SCG Pipeline, Inc., the Company's interstate pipeline. The merged companies would operate as a single interstate pipeline company under FERC jurisdiction and would provide transportation services. If approved by FERC, the merger is expected to be completedfiled with FERC. The merger, which is subject to FERC approval, is expected to be complete in 2005.2005 or 2006.

Retail Gas Marketing

        In March 2004 SCANA Energy acquired approximately 47,000 retail natural gas customers formerly served by another gas marketer in Georgia. With this transaction, SCANA Energy's total customer base represents about a 30 percent share of the 1.5 million customers in Georgia's natural gas market. SCANA Energy remains the second largest natural gas marketer in the state.

        In March 2004 SCANA Energy's term for serving low-income and high credit risk customers was extended by the Georgia Public Service Commission (GPSC) for an additional year (through August 31, 2005).

        In November 2003 the GPSC filed a petition with FERC seeking a declaratory order on the assignment of interstate capacity. That petition addressed the question of whether FERC would preempt the GPSC if a plan proposed by SCANA Energy for the assignment of Atlanta Gas Light Company's interstate capacity assets to certificated natural gas marketers was adopted by the GPSC. On April 15, 2004 FERC ruled that it continues to maintain jurisdiction and would preempt the GPSC in any plan dealing with interstate capacity assets. SCANA Energy filed a motion for reconsideration with FERC, which motion is still pending. SCANA Energy has operated successfully under the current interstate capacity plan and does not expect that FERC's ruling will have any negative impact on operations.

RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004MARCH 31, 2005
AS COMPARED TO THE CORRESPONDING PERIODSPERIOD IN 20032004

        The following discussion of the results of operations of the Company includes a non-GAAP measure, GAAP-adjusted net earnings per share from operations, which excludes from net income the effects of sales of, and impairment charges related to, certain investments and the effects of a charge related to pending litigation. Management believes GAAP-adjusted net earnings per share from operations provides a meaningful representation of the Company's fundamental earnings power and can aid in analysis of period-over-period financial performance.

Earnings Per Share

        Earnings per share of common stock for the periods ended September 30, 2004 and 2003 were as follows:

Third Quarter 2004 vs 2003

        GAAP-adjusted net earningsEarnings per share from operations decreased primarily due to increased depreciation and amortization expense of $.05, a reduction in AFC$.07 (net of $.02, higher property taxes of $.01, andincome tax benefits applied based on the January 2005 SCPSC order described below), increased operationoperations and maintenance expenses of $.04$.02, increased interest expense of $.02 and otherthe effects of $.03. This isdilution of $.02, was partially offset by favorable electric margins of $.12.

        GAAP earnings per share for the third quarter includes a loss of $.13 per share as a result of an impairment charge recorded on the Knology investment$.05 and a loss of $.10 resulting from a charge related to pending litigation (see Other Matters). GAAP earnings per share for 2003 includes a gain of $.02 per share in connection with the sale of ITC Holding shares and the receipt of an investment in a newly formed entity (Magnolia Holding).

Year to Date 2004 vs 2003

        GAAP-adjusted net earnings per share from operations increased primarily due to improved electric margins of $.46 and favorable results from nonregulated subsidiaries of $.10. These factors were partially offset by higher operation and maintenance expenses of $.07, higher property taxes of $.04, higher depreciation and amortization expense of $.09, increased labor and benefits of $.03 and lower gas margins of $.03.

        GAAP earnings per share year to date September 2004 includes a loss of $.13 per share as a result of an impairment charge recorded$.06. Accelerated depreciation on the Knology investmentLake Murray back-up dam and recognition of synthetic fuel tax credits and other items had no effect on net income, as discussed below.

Recognition of Synthetic Fuel Tax Credits

        SCE&G holds equity-method investments in two partnerships involved in converting coal to synthetic fuel, the use of which fuel qualifies for federal income tax credits. These synthetic fuel production facilities were placed in operation in 2000 and 2001. Under an accounting plan approved by the SCPSC in June 2000, the synthetic fuel tax credits generated by the partnerships and passed through to SCE&G, net of partnership losses and other expenses, were to be deferred until the SCPSC approved their application to offset capital costs of projects required to comply with legislative or regulatory actions.

        In a lossJanuary 2005 order, the SCPSC approved SCE&G's request to apply these synthetic fuel tax credits to offset the construction costs of $.10 resulting from a charge related to pending litigation (see Other Matters). GAAP earnings per share year to date September 2003 includes a gain of $.35 per sharethe Lake Murray Dam project beginning in connection withJanuary 2005. Under the sale of ITC Holding sharesaccounting methodology approved by the SCPSC, current and the receipt of an investment interest in a newly formed entity (Magnolia Holding) in May 2003. In the second quarter of 2003 the Company also recorded an impairment charge of $.04 per sharefuture construction costs related to the Knology investment.project are recorded in utility plant in service in a special dam remediation account outside of rate base, and depreciation will be recognized against the balance in this account on an accelerated basis, subject to the availability of the synthetic fuel tax credits.

        The level of depreciation expense and related tax benefit recognized in the income statement will be equal to the available synthetic fuel tax credits, less partnership losses and other expenses, net of taxes. As a result, the balance of unrecovered costs in the dam remediation account will decline as accelerated depreciation is recorded. Although these entries collectively have no impact on consolidated net income, they can have a significant impact on individual line items within the income statement.

The accelerated depreciation, synthetic fuel tax credits, partnership losses and the income tax benefit arising from such losses recognized by SCE&G during the first quarter of 2005 are as follows: