SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3375
South Carolina Electric & Gas Company
(Exact name of registrant as specified in its charter)
South Carolina 57-0248695
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1426 Main Street, Columbia, South Carolina 29201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 748-3000
Former name, former address and former fiscal year, if changed since last
report.
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.
Yes X . No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes . No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of June 30, 1996, there were issued and outstanding 40,296,147
shares of the registrant's common stock $4.50 par value, all of which
were held, beneficially and of record, by SCANA Corporation.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995........................................ 3
Consolidated Statements of Income and Retained Earnings
for the Periods Ended June 30, 1996 and 1995................. 5
Consolidated Statements of Cash Flows for the Periods
Ended June 30, 1996 and 1995................................. 6
Notes to Consolidated Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................... 16
Signatures............................................................ 17
Exhibit Index......................................................... 18
2
PART I
FINANCIAL INFORMATION
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of June 30, 1996 and December 31, 1995
(Unaudited)
June 30, December 31,
1996 1995
(Thousands of Dollars)
ASSETS
Utility Plant:
Electric............................................. $3,712,410 $3,277,530
Gas.................................................. 322,066 320,847
Transit.............................................. 3,824 3,768
Common............................................... 88,060 91,616
Total.............................................. 4,126,360 3,693,761
Less accumulated depreciation and amortization....... 1,290,552 1,196,279
Total.............................................. 2,835,808 2,497,482
Construction work in progress........................ 250,334 613,683
Nuclear fuel, net of accumulated amortization........ 43,342 46,492
Utility Plant, Net............................... 3,129,484 3,157,657
Nonutility Property and Investments, net of
accumulated depreciation............................. 11,699 11,603
Current Assets:
Cash and temporary cash investments.................. - 6,798
Receivables - customer and other..................... 165,985 154,816
Receivables - affiliated companies................... 669 7,132
Inventories (at average cost):
Fuel............................................... 23,797 35,812
Materials and supplies............................. 47,647 43,583
Prepayments.......................................... 20,020 10,158
Accumulated deferred income taxes.................... 19,420 19,420
Total Current Assets............................. 277,538 277,719
Deferred Debits:
Emission allowances.................................. 30,400 28,514
Unamortized debt expense............................. 10,992 11,445
Unamortized deferred return on plant investment...... 4,246 6,369
Nuclear plant decommissioning fund................... 39,132 36,070
Other................................................ 319,407 273,056
Total Deferred Debits............................ 404,177 355,454
Total................................. $3,822,898 $3,802,433
See notes to consolidated financial statements.
3
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of June 30, 1996 and December 31, 1995
(Unaudited)
June 30, December 31,
1996 1995
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Stockholders' Investment:
Common Equity:
Common stock ($4.50 par value)...................... $ 181,333 $ 181,333
Premium on common stock and other paid-in capital... 789,831 772,894
Capital stock expense (debit)....................... (5,361) (5,391)
Retained earnings................................... 387,778 366,236
Total Common Equity............................... 1,353,581 1,315,072
Preferred Stock (not subject to purchase or sinking
funds).............................................. 26,027 26,027
Total Stockholders' Investment.................... 1,379,608 1,341,099
Preferred Stock, net (subject to purchase or
sinking funds)........................................ 44,260 46,243
Long-term debt, net..................................... 1,298,497 1,279,379
Total Capitalization............................ 2,722,365 2,666,721
Current Liabilities:
Short-term borrowings................................. 100,000 80,500
Current portion of long-term debt..................... 33,244 36,033
Current portion of preferred stock.................... 2,435 2,439
Accounts payable...................................... 50,513 71,731
Accounts payable - affiliated companies............... 15,374 26,212
Customer deposits..................................... 13,143 12,518
Taxes accrued......................................... 42,896 64,008
Interest accrued...................................... 21,291 21,626
Dividends declared.................................... 35,618 33,126
Other................................................. 12,242 12,507
Total Current Liabilities....................... 326,756 360,700
Deferred Credits:
Accumulated deferred income taxes..................... 501,008 488,310
Accumulated deferred investment tax credits........... 76,695 78,316
Accumulated reserve for nuclear plant decommissioning. 39,132 36,070
Other................................................. 156,942 172,316
Total Deferred Credits.......................... 773,777 775,012
Total ................................. $3,822,898 $3,802,433
See notes to consolidated financial statements.
4
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Periods Ended June 30, 1996 and 1995
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
(Thousands of Dollars)
OPERATING REVENUES:
Electric.............................. $269,417 $239,037 $531,600 $469,646
Gas................................... 40,256 35,086 131,426 112,210
Transit............................... 893 1,016 1,803 2,043
Total Operating Revenues......... 310,566 275,139 664,829 583,899
OPERATING EXPENSES:
Fuel used in electric generation...... 52,438 39,174 94,114 75,268
Purchased power (including
affiliated purchases)............... 26,825 30,046 51,532 54,527
Gas purchased from affiliate
for resale.......................... 26,832 22,270 82,793 64,554
Other operation....................... 53,611 53,364 105,814 105,609
Maintenance........................... 17,109 14,652 31,355 28,504
Depreciation and amortization......... 33,866 27,665 66,533 55,374
Income taxes.......................... 19,995 16,733 52,458 42,608
Other taxes........................... 20,736 18,082 41,597 37,112
Total Operating Expenses......... 251,412 221,986 526,196 463,556
OPERATING INCOME........................ 59,154 53,153 138,633 120,343
OTHER INCOME:
Allowance for equity funds used
during construction................. 938 2,370 2,191 4,776
Other income (loss), net of
income taxes........................ 313 186 589 49
Total Other Income............... 1,251 2,556 2,780 4,825
INCOME BEFORE INTEREST CHARGES.......... 60,405 55,709 141,413 125,168
INTEREST CHARGES (CREDITS):
Interest expense...................... 26,446 27,461 53,180 54,290
Allowance for borrowed funds
used during construction............ (1,238) (2,622) (3,048) (5,242)
Total Interest Charges, net...... 25,208 24,839 50,132 49,048
NET INCOME.............................. 35,197 30,870 91,281 76,120
Preferred Stock Cash Dividends
(at stated rates)..................... (1,368) (1,430) (2,739) (2,864)
Earnings Available for Common Stock..... 33,829 29,440 88,542 73,256
Retained Earnings at Beginning
of Period............................. 388,150 339,353 366,236 324,101
Common Stock Cash Dividends
Declared.............................. (34,201) (29,699) (67,000) (58,263)
Retained Earnings at End of Period...... $387,778 $339,094 $387,778 $339,094
See notes to consolidated financial statements.
5
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended June 30, 1996 and 1995
(Unaudited)
Six Months Ended
June 30,
1996 1995
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 91,281 $ 76,120
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization...................... 66,593 55,445
Amortization of nuclear fuel....................... 7,933 9,488
Deferred income taxes, net......................... 12,378 1,255
Deferred investment tax credits, net............... (1,621) (1,614)
Net regulatory asset arising from adoption
of SFAS No. 109.................................. (77) (1,244)
Nuclear refueling accrual.......................... (2,697) 3,479
Allowance for funds used during construction....... (5,239) (10,018)
Unamortized loss on reacquired debt................ 246 (3,966)
Over (under) collections, fuel adjustment clause... 1,436 24,693
Early retirements.................................. (5,920) (16,684)
Emission allowances, net of AFC.................... (1,885) (2,645)
Changes in certain current assets and liabilities:
(Increase) decrease in receivables................ (4,706) 7,352
(Increase) decrease in inventories................ 7,951 (1,317)
Increase (decrease) in accounts payable........... (32,056) (34,189)
Increase (decrease) in taxes accrued.............. (21,112) (23,021)
Increase (decrease) in interest accrued........... (335) 41
Other, net......................................... (14,694) (16,978)
Net Cash Provided From Operating Activities............ 97,476 66,197
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility property additions and construction
expenditures, net of AFC........................... (88,136) (136,423)
Nonutility property and investments.................. (78) (36)
Net Cash Used For Investing Activities................. (88,214) (136,459)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds:
Equity contributions from parent................... 16,967 29,311
First Mortgage Bonds............................... - 100,000
Other long-term debt............................... 30,672 43,053
Repayments:
First and Refunding Mortgage Bonds................. (22,000) (48,779)
Note payable to affiliated companies............... - (19,409)
Repayment of bank loans............................ (1,886) -
Other long-term debt............................... - (386)
Preferred stock.................................... (1,987) (2,094)
Dividend payments:
Common stock....................................... (64,500) (55,563)
Preferred stock.................................... (2,747) (2,906)
Short-term borrowings, net........................... 19,500 -
Fuel and emission allowance financings, net.......... 9,921 26,689
Net Cash Provided From (Used For) Financing Activities. (16,060) 69,916
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS........................... (6,798) (346)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1....... 6,798 346
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30......... $ - $ -
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for - Interest (includes capitalized
interest of $3,048 and $5,242)...... $ 52,367 $ 53,501
- Income taxes......................... 38,804 45,027
See notes to consolidated financial statements.
6
SOUTH CAROLINA ELECTRIC & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
The following notes should be read in conjunction with the
Notes to Consolidated Financial Statements appearing in the
Company's Annual Report on Form 10-K for the year ended December
31, 1995. These are interim financial statements and, because of
temperature variations between seasons of the year, the amounts
reported in the Consolidated Statements of Income are not
necessarily indicative of amounts expected for the year. In the
opinion of management, the information furnished herein reflects
all adjustments, all of a normal recurring nature, which are
necessary for a fair statement of the results for the interim
periods reported.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Principles of Consolidation
The Company, a public utility, is a South Carolina corporation
organized in 1924 and a wholly owned subsidiary of SCANA
Corporation (SCANA), a South Carolina holding company. The
accompanying Consolidated Financial Statements include the
accounts of the Company and South Carolina Fuel Company, Inc.
(Fuel Company), an affiliate. Intercompany balances and
transactions between the Company and Fuel Company have been
eliminated in consolidation.
The Company has entered into agreements with certain affiliates
to purchase gas for resale to its distribution customers and to
purchase electric energy. The Company purchases all of its
natural gas requirements from South Carolina Pipeline
Corporation. The Company purchases all of the electric
generation of Williams Station, which is owned by South
Carolina Generating Company, Inc., under a unit power sales
agreement. Such unit power purchases are included in
"Purchased power."
B. Basis of Accounting
The Company prepares its financial statements in accordance
with the provisions of Statement of Financial Accounting
Standards No. 71 (SFAS 71), "Accounting for the Effects of
Certain Types of Regulations." The accounting standard allows
cost-based rate-regulated utilities, such as the Company, to
recognize in their financial statements revenues and expenses
in different time periods than do enterprises that are not
rate-regulated. As a result, the Company has recorded, as of
June 30, 1996, approximately $236 million and $51 million of
regulatory assets and liabilities, respectively, including
amounts recorded for accumulated deferred income tax assets and
liabilities of approximately $83 million and $50 million,
respectively. The electric regulatory assets of approximately
$130 million (excluding accumulated deferred income tax assets)
are being recovered through rates and, as discussed in Note 2,
the Public Service Commission of South Carolina (PSC) has
approved accelerated recovery of approximately $71 million of
these assets. In the future, as a result of deregulation or
other changes in the regulatory environment, the Company may no
longer meet the criteria for continued application of SFAS 71
and would be required to write off its regulatory assets and
liabilities. Such an event could have a material adverse
effect on the Company's results of operation in the period the
write-off is recorded.
C. Reclassifications
Certain amounts from prior periods have been reclassified to
conform with the 1996 presentation.
7
2. RATE MATTERS:
With respect to rate matters at June 30, 1996, reference is
made to Note 2 of Notes to Consolidated Financial Statements
in the Company's Annual Report on Form 10-K for the year
ended December 31, 1995. On July 10, 1995 the Company filed an
application with the PSC for an increase in retail electric
rates. On January 9, 1996 the PSC issued an order granting the
Company an increase of 7.34% which will produce additional
revenues of approximately $67.5 million annually. The increase
is being implemented in two phases. The first phase, an
increase in revenues of approximately $59.5 million annually
based on a test year, or 6.47%, commenced on January 15, 1996.
The second phase will be implemented in January 1997 and will
produce additional revenues of approximately $8.0 million
annually, or .87% more than current rates. The PSC authorized
a return on common equity of 12.0%. The PSC also approved
establishment of a Storm Damage Reserve Account capped at $50
million and collected through rates over a ten-year period.
Additionally, the PSC approved accelerated recovery of a
significant portion of the Company's electric regulatory assets
(excluding accumulated deferred income tax assets) and the
transition obligation for postretirement benefits other than
pensions, changing the amortization periods to allow recovery
by the end of the year 2000. The Company's request to shift
approximately $257 million of depreciation reserves from
transmission and distribution assets to nuclear production
assets was also approved.
3. RETAINED EARNINGS:
The Restated Articles of Incorporation of the Company and the
Indenture underlying certain of its bond issues contain
provisions that may limit the payment of cash dividends on
common stock. In addition, with respect to hydroelectric
projects, the Federal Power Act may require the appropriation
of a portion of the earnings therefrom. At June 30, 1996
approximately $15.1 million of retained earnings were
restricted as to payment of cash dividends on common stock.
4. COMMITMENTS AND CONTINGENCIES:
With respect to commitments at June 30, 1996, reference is made
to Note 10 of Notes to Consolidated Financial Statements
appearing in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. No significant changes have
occurred with respect to those matters as reported therein,
except with regard to the Calhoun Park area site discussed in
Note 4B below.
Contingencies at June 30, 1996 are as follows:
A. Nuclear Insurance
The Price-Anderson Indemnification Act, which deals with the
Company's public liability for a nuclear incident, currently
establishes the liability limit for third-party claims
associated with any nuclear incident at $8.9 billion. Each
reactor licensee is currently liable for up to $79.3 million
per reactor owned for each nuclear incident occurring at any
reactor in the United States, provided that not more than $10
million of the liability per reactor would be assessed per
year. The Company's maximum assessment, based on its two-
thirds ownership of Summer Station, would be approximately
$52.9 million per incident, but not more than $6.7 million per
year.
8
The Company currently maintains policies (for itself and on
behalf of the PSA) with American Nuclear Insurers (ANI) and
Nuclear Electric Insurance Limited (NEIL) providing combined
property and decontamination insurance coverage of $1.9 billion
for any losses at Summer Station. The Company pays annual
premiums and, in addition, could be assessed a retroactive
premium assessment not to exceed 7 1/2 times its annual premium
in the event of property damage loss to any nuclear generating
facility covered under the NEIL program. Based on the
current annual premium, this retroactive premium assessment
would not exceed $8.7 million.
To the extent that insurable claims for property damage,
decontamination, repair and replacement and other costs and
expenses arising from a nuclear incident at Summer Station
exceed the policy limits of insurance, or to the extent such
insurance becomes unavailable in the future, and to the extent
that the Company's rates would not recover the cost of any
purchased replacement power, the Company will retain the risk
of loss as a self-insurer. The Company has no reason to
anticipate a serious nuclear incident at Summer Station. If
such an incident were to occur, it could have a material
adverse impact on the Company's financial position and results
of operations.
B. Environmental
The Company has an environmental assessment program to identify
and assess current and former operations sites that could
require environmental cleanup. As site assessments are
initiated, estimates are made of the cost, if any, to
investigate and clean up each site. These estimates are
refined as additional information becomes available; therefore,
actual expenditures could differ significantly from original
estimates. Amounts estimated and accrued to date for site
assessments and cleanup relate primarily to regulated
operations; such amounts are deferred (approximately $16
million) and are being amortized and recovered through rates
over a ten-year period for electric operations and an eight-
year period for gas operations. The deferral includes the
costs estimated to be associated with the matters discussed in
the following paragraphs.
The Company owns four decommissioned manufactured gas plant
sites which contain residues of by-product chemicals. The
Company maintains an active review of the sites to monitor the
nature and extent of the residual contamination.
In September 1992 the Environmental Protection Agency (EPA)
notified the Company, the City of Charleston and the Charleston
Housing Authority of their potential liability for the
investigation and cleanup of the Calhoun Park area site in
Charleston, South Carolina. This site originally encompassed
approximately 18 acres and included properties which were the
locations for industrial operations, including a wood
preserving (creosote) plant and one of the Company's
decommissioned manufactured gas plants. The original scope of
this investigation has been expanded to approximately 30 acres,
including adjacent properties owned by the National Park
Service and the City of Charleston, and private properties.
The site has not been placed on the National Priority List, but
may be added before cleanup is initiated. The potentially
responsible parties (PRP) have agreed with the EPA to
participate in an innovative approach to site investigation and
cleanup called "Superfund Accelerated Cleanup Model," allowing
the pre-cleanup site investigation process to be compressed
significantly. The PRPs have negotiated an administrative
order by consent for the conduct of a Remedial
Investigation/Feasibility Study and a corresponding Scope of
Work. Field work began in November 1993 and a draft Remedial
Investigation report was submitted to the EPA in February 1995.
The Company is currently resolving the comments of the EPA and
other regulatory agencies related to the draft.
9
The Company is also working with the City of Charleston to
investigate possible contamination which may have migrated to
the City's aquarium site from the manufactured gas plant. In
1994 the City of Charleston notified the Company that it
considers the Company to be responsible for a projected $43.5
million increase in costs of the aquarium project attributable
to delays resulting from contamination of the Calhoun Park area
site. In May 1996 the City of Charleston and the Company
agreed to settle all environmental claims the City may have
against the Company involving the Calhoun Park area for a
payment of $26 million over four years by the Company to the
City. The settlement was executed by the City of Charleston
and the Company on August 7, 1996 along with a 30-year electric
franchise agreement. The amount of the settlement will be
recovered through rates in the same manner as other amounts
accrued for site assessments and cleanup as discussed above.
The Company does not expect the settlement to have a material
impact on the Company's financial position or results of
operations.
10
SOUTH CAROLINA ELECTRIC & GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Competition
The electric utility industry has begun a major transition
that could lead to expanded market competition and less regulatory
protection. Future deregulation of electric wholesale and retail
markets will create opportunities to compete for new and existing
customers and markets. As a result, profit margins and asset
values of some utilities could be adversely affected. The pace of
deregulation, the future market price of electricity, and the
regulatory actions which may be taken by the PSC and the Federal
Energy Regulatory Commission (FERC) in response to the changing
environment cannot be predicted. However, recent FERC actions will
likely accelerate competition among electric utilities by providing
for wholesale transmission access. In April 1996 the FERC issued
Order 888, which addresses open access to transmission lines and
stranded cost recovery. Order 888 requires utilities under FERC
jurisdiction that own, control or operate transmission lines to
file nondiscriminatory open access tariffs that offer to others the
same transmission service they provide themselves. The FERC has also
permitted utilities to seek recovery of wholesale stranded costs from
departing customers by direct assignment. Approximately 5%
of the Company's electric revenues is under FERC jurisdiction.
The Company is aggressively pursuing actions to position
itself strategically for the transformed environment. To enhance
its flexibility and responsiveness to change, the Company operates
Strategic Business Units. Maintaining a competitive cost structure
is of paramount importance in the utility's strategic plan. The
Company has undertaken a variety of initiatives, including
reductions in operation and maintenance costs and in staffing
levels. In January 1996 the PSC approved (as discussed under
"Liquidity and Capital Resources") the accelerated recovery of the
Company's electric regulatory assets and the shift of depreciation
reserves from transmission and distribution assets to nuclear
production assets. In May, 1996 the FERC approved the Company's
application establishing open access transmission tariffs and
requesting authorization to sell bulk power to wholesale customers
at market-based rates. The Company believes that these actions as
well as numerous others that have been and will be taken
demonstrate its ability and commitment to succeed in the new
operating environment to come.
Regulated public utilities are allowed to record as assets
some costs that would be expensed by other enterprises. If
deregulation or other changes in the regulatory environment occur,
the Company may no longer be eligible to apply this accounting
treatment and may be required to eliminate such regulatory assets
from its balance sheet. Such an event could have a material
adverse effect on the Company's results of operations in the period
the write-off is recorded. The Company reported approximately $236
million and $51 million of regulatory assets and liabilities,
respectively, including amounts recorded for accumulated deferred
income tax assets and liabilities of approximately $83 million and
$50 million, respectively, on its balance sheet at June 30, 1996.
11
Material Changes in Capital Resources and Liquidity
From December 31, 1995 to June 30, 1996
Liquidity and Capital Resources
The cash requirements of the Company arise primarily from its
operational needs and construction program. The ability of the
Company to replace existing plant investment, as well as to expand
to meet future demands for electricity and gas, will depend upon
its ability to attract the necessary financial capital on
reasonable terms. The Company recovers the costs of providing
services through rates charged to customers. Rates for regulated
services are generally based on historical costs. As customer
growth and inflation occur and the Company expands its construction
program it is necessary to seek increases in rates. As a result,
the Company's financial position and results of operations are
affected by its ability to obtain adequate and timely rate relief
and in the future will be dependent on the Company's ability to
compete in a deregulated environment (see "Competition").
On July 10, 1995 the Company filed an application with the
PSC for an increase in retail electric rates. On January 9, 1996
the PSC issued an order granting the Company an increase of 7.34%
which will produce additional revenues of approximately $67.5
million annually. The increase is being implemented in two phases.
The first phase, an increase in revenues of approximately $59.5
million annually based on a test year, or 6.47%, commenced on
January 15, 1996. The second phase will be implemented in January
1997 and will produce additional revenues of approximately $8.0
million annually, or .87% more than current rates. The PSC
authorized a return on common equity of 12.0%. The PSC also
approved establishment of a Storm Damage Reserve Account capped at
$50 million and collected through rates over a ten-year period.
Additionally, the PSC approved accelerated recovery of a
significant portion of the Company's electric regulatory assets
(excluding accumulated deferred income tax assets) and the
remaining transition obligation for postretirement benefits other
than pensions, changing the amortization periods to allow recovery
by the end of the year 2000. The Company's request to shift
approximately $257 million of depreciation reserves from
transmission and distribution assets to nuclear production assets
was also approved.
The following table summarizes how the Company generated funds
for its utility property additions and construction expenditures
during the six months ended June 30, 1996 and 1995:
Six Months Ended
June 30,
1996 1995
(Thousands of Dollars)
Net cash provided from operating activities $ 97,476 $ 66,197
Net cash provided from (used for)
financing activities (16,060) 69,916
Cash and temporary cash investments available
at the beginning of the period 6,798 346
Net cash available for utility property
additions and construction expenditures $ 88,214 $136,459
Funds used for utility property additions
and construction expenditures, net of
noncash allowance for funds used during
construction $ 88,136 $136,423
12
On August 7, 1996 the City of Charleston executed 30-year
electric and gas franchise agreements with the Company. In
consideration for the electric franchise agreement, the City will
receive from the Company $25 million paid over seven years and
the Company will donate to the City the existing transit assets
in Charleston. The City has also agreed to settle environmental
claims it may have against the Company involving the Calhoun Park
area, where the Company and its predecessor companies operated a
manufactured gas plant until the 1960's. The Company will pay
the City $26 million over a four-year period to settle all
claims. As part of the environmental settlement, the Company has
agreed to construct an 1100 space parking garage on the Calhoun
Park site and to transfer the facility to the City in exchange
for a 20-year municipal bond backed by revenues from the parking
garage and a mortgage on the parking garage. The total amount of
the bond is not to exceed $16.9 million, the maximum expected
project cost. The Company will contribute up to $500,000 per
year to the City to defray the cost of underground wiring or
other nonstandard service projects within scenic or historic
districts of the City which amounts will be matched by the city
funds. The City has agreed to limit such projects to those which
can be paid for out of a combined pool of funds created by the
Company's and the City's contributions. It is anticipated that
the Company's payments for underground wiring/nonstandard service
will be treated as investments in the electric distribution rate
base by the Company's regulators.
SCANA and Westvaco Corporation have formed a limited
liability company, Cogen South LLC, which will build and operate
a $170 million cogeneration facility at Westvaco's Kraft Division
Paper Mill in North Charleston, S. C. The facility will provide
industrial process steam for the Westvaco paper mill and shaft
horsepower to enable the Company to generate up to 99 megawatts
of electricity. Construction financing is being provided to
Cogen South LLC by banks. In addition to the cogeneration
partnership, Westvaco has entered into a 20-year contract with
the Company for all its electricity requirements at the Company's
standard industrial rate. Construction of the plant is scheduled
to begin in August 1996 and the plant is expected to be
operational in the fall of 1998.
The Company anticipates that the remainder of its 1996 cash
requirements will be met through internally generated funds,
additional equity contributions from SCANA and the incurrence of
additional short-term and long-term indebtedness. The timing and
amount of such financings will depend upon market conditions and
other factors.
The ratio of earnings to fixed charges for the twelve months
ended June 30, 1996 was 3.68.
The Company expects that it has or can obtain adequate
sources of financing to meet its cash requirements for the next
twelve months and for the foreseeable future.
13
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Results of Operations
For the Three and Six months ended June 30, 1996
As Compared to the Corresponding Periods in 1995
Earnings and Dividends
Net income for the three and six months ended June 30,
1996 increased approximately $4.4 million and $15.3 million,
respectively, when compared to the corresponding periods in 1995.
Increases in the electric margin more than offset increases in
operating costs.
Allowance for funds used during construction (AFC) is a
utility accounting practice whereby a portion of the cost of both
equity and borrowed funds used to finance construction (which is
shown on the balance sheet as construction work in progress) is
capitalized. Both the equity and the debt portions of AFC are
noncash items of nonoperating income which have the effect of
increasing reported net income. AFC represented approximately 4%
and 8% of income before income taxes for the six months ended June
30, 1996 and 1995, respectively.
On February 20, 1996 the Company's Board of Directors
authorized the payment of a dividend on common stock of
approximately $32.8 million for the quarter ended March 31, 1996.
The dividend was paid on April 1, 1996 to SCANA Corporation.
On April 25, 1996 the Company's Board of Directors authorized
the payment of a dividend on common stock of $34.2 million for the
quarter ended June 30, 1996. The dividend was paid on July 1, 1996
to SCANA Corporation.
Sales Margins
The changes in the electric sales margins for the three and
six months ended June 30, 1996, when compared to the corresponding
periods in 1995, were as follows:
Three Months Six Months
Change % Change Change % Change
(Millions) (Millions)
Electric operating revenues $30.4 12.7 $62.0 13.2
Less: Fuel used in electric
generation 13.3 33.9 18.9 25.0
Purchased power (3.2) (10.7) (3.0) (5.5)
Margin $20.3 12.0 $46.1 13.6
The electric sales margins increased for the three and six
months ended June 30, 1996, when compared to the corresponding
periods in 1995 as a result of the combined impact of weather, the
rate increase received by the Company in January 1996, and economic
growth factors.
14
The changes in the gas sales margins for the three and six
months ended June 30, 1996, when compared to the corresponding
periods in 1995, were as follows:
Three Months Six Months
Change % Change Change % Change
(Millions) (Millions)
Gas operating revenues $ 5.2 14.7 $19.2 17.1
Less: Gas purchased for resale 4.6 20.5 18.2 28.3
Margin $ 0.6 4.8 $ 1.0 2.1
The gas sales margins increased slightly for the three and six
months ended June 30, 1996, when compared to the corresponding
periods in 1995 primarily as a result of increased firm sales.
Other Operating Expenses
Changes in other operating expenses, including taxes, for the
three and six months ended June 30, 1996, when compared to the
corresponding periods in 1995 are presented in the following table:
Three Months Six Months
Change % Change Change % Change
(Millions) (Millions)
Other operation and maintenance $ 2.7 4.0 $ 3.1 2.3
Depreciation and amortization 6.2 22.4 11.2 20.2
Income taxes 3.3 19.5 9.8 23.1
Other taxes 2.6 14.7 4.5 12.1
Total $14.8 11.4 $28.6 10.6
Other operation and maintenance expenses for the three and six
months ended June 30, 1996 increased from 1995 levels primarily as
a result of higher production costs attributable to the Cope Plant
which was brought on line in January 1996. Increases in
depreciation and amortization expenses for the three and six
months' comparisons reflect the addition of the Cope Plant and
other additions to plant in service. The increases in income tax
expense for the two periods correspond to the increases in
operating income. The increases in other taxes reflect higher
property taxes resulting from property additions and higher
millages and assessments.
Interest Charges
Interest expense, excluding the debt component of AFC, for the
three and six months ended June 30, 1996 decreased by approximately
$1.0 million, when compared to the corresponding periods in 1995
primary as a result of reductions in outstanding debt.
15
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings see Note 2 "Rate
Matters" and Note 4 "Commitments and Contingencies" of Notes
to Consolidated Financial Statements.
Items 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibits filed with this Quarterly Report on Form 10-Q
are listed in the following Exhibit Index. Certain of
such exhibits which have heretofore been filed with the
Securities and Exchange Commission and which are
designated by reference to their exhibit numbers in
prior filings are hereby incorporated herein by
reference and made a part hereof.
B. Reports on Form 8-K
None
16
SOUTH CAROLINA ELECTRIC & GAS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
(Registrant)
August 13, 1996 By: s/Jimmy E. Addison
Jimmy E. Addison
Vice President and Controller
(Principal Accounting Officer)
17
SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially
EXHIBIT INDEX Numbered
Number Pages
2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
Not Applicable
3. Articles of Incorporation and By-Laws
A. Restated Articles of Incorporation of the
Company as adopted on December 15, 1993
(Exhibit 3-A to Form 10-Q for the quarter
ended June 30, 1994, File No. 1-3375)...................... #
B. Articles of Amendment, dated June 7, 1994,
filed June 9, 1994 (Exhibit 3-B to Form 10-Q
for the quarter ended June 30, 1994, File
No. 1-3375)
C. Articles of Amendment, dated November 9, 1994
(Exhibit 3-C to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
D. Articles of Amendment, dated December 9, 1994
(Exhibit 3-D to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
E. Articles of Correction, dated January 17, 1995
(Exhibit 3-E to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
F. Articles of Amendment, dated January 13, 1995
(Exhibit 3-F to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
G. Articles of Amendment, dated March 31, 1995
(Exhibit 3-G to Form 10-Q for the quarter
ended March 31, 1995, File No. 1-3375)..................... #
H. Articles of Correction - Amendment to Statement
filed March 31, 1995, dated December 13, 1995
(Exhibit 3-H to Form 10-K for the year ended
December 31, 1995, File No. 1-3375)........................ #
I. Articles of Amendment dated December 13, 1995
(Exhibit 3-I to Form 10-K for the year ended
December 31, 1995, File No. 1-3375)........................ #
J. Copy of By-Laws of the Company as revised and
amended on June 18, 1996 (Filed herewith).................. 21
4. Instruments Defining the Rights of Security
Holders, Including Indentures
A. Indenture dated as of January 1, 1945, from the
South Carolina Power Company (the "Power Company")
to Central Hanover Bank and Trust Company, as
Trustee, as supplemented by three Supplemental
Indentures dated respectively as of May 1, 1946,
May 1, 1947 and July 1, 1949 (Exhibit 2-B to
Registration No. 2-26459).................................. #
B. Fourth Supplemental Indenture dated as of April 1,
1950, to Indenture referred to in Exhibit 4A,
pursuant to which the Company assumed said
Indenture (Exhibit 2-C to Registration No. 2-26459)........ #
C. Fifth through Fifty-second Supplemental Indentures
to Indenture referred to in Exhibit 4A dated as
of the dates indicated below and filed as
exhibits to the Registration Statements and
1934 Act reports whose file numbers are set
forth below................................................ #
December 1, 1950 Exhibit 2-D to Registration No. 2-26459
July 1, 1951 Exhibit 2-E to Registration No. 2-26459
June 1, 1953 Exhibit 2-F to Registration No. 2-26459
# Incorporated herein by reference as indicated.
18
SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially
EXHIBIT INDEX Numbered
Number Pages
4. (Continued)
June 1, 1955 Exhibit 2-G to Registration No. 2-26459
November 1, 1957 Exhibit 2-H to Registration No. 2-26459
September 1, 1958 Exhibit 2-I to Registration No. 2-26459
September 1, 1960 Exhibit 2-J to Registration No. 2-26459
June 1, 1961 Exhibit 2-K to Registration No. 2-26459
December 1, 1965 Exhibit 2-L to Registration No. 2-26459
June 1, 1966 Exhibit 2-M to Registration No. 2-26459
June 1, 1967 Exhibit 2-N to Registration No. 2-29693
September 1, 1968 Exhibit 4-O to Registration No. 2-31569
June 1, 1969 Exhibit 4-C to Registration No. 33-38580
December 1, 1969 Exhibit 4-Q to Registration No. 2-35388
June 1, 1970 Exhibit 4-R to Registration No. 2-37363
March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324
January 1, 1972 Exhibit 4-C to Registration No. 33-38580
July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291
May 1, 1975 Exhibit 4-C to Registration No. 33-38580
July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908
February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304
December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936
March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662
May 1, 1977 Exhibit 4-C to Registration No. 33-38580
February 1, 1978 Exhibit 4-C to Registration No. 33-38580
June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653
April 1, 1979 Exhibit 4-C to Registration No. 33-38580
June 1, 1979 Exhibit 4-C to Registration No. 33-38580
April 1, 1980 Exhibit 4-C to Registration No. 33-38580
June 1, 1980 Exhibit 4-C to Registration No. 33-38580
December 1, 1980 Exhibit 4-C to Registration No. 33-38580
April 1, 1981 Exhibit 4-D to Registration No. 33-49421
June 1, 1981 Exhibit 4-D to Registration No. 2-73321
March 1, 1982 Exhibit 4-D to Registration No. 33-49421
April 15, 1982 Exhibit 4-D to Registration No. 33-49421
May 1, 1982 Exhibit 4-D to Registration No. 33-49421
December 1, 1984 Exhibit 4-D to Registration No. 33-49421
December 1, 1985 Exhibit 4-D to Registration No. 33-49421
June 1, 1986 Exhibit 4-D to Registration No. 33-49421
February 1, 1987 Exhibit 4-D to Registration No. 33-49421
September 1, 1987 Exhibit 4-D to Registration No. 33-49421
January 1, 1989 Exhibit 4-D to Registration No. 33-49421
January 1, 1991 Exhibit 4-D to Registration No. 33-49421
February 1, 1991 Exhibit 4-D to Registration No. 33-49421
July 15, 1991 Exhibit 4-D to Registration No. 33-49421
August 15, 1991 Exhibit 4-D to Registration No. 33-49421
April 1, 1993 Exhibit 4-E to Registration No. 33-49421
July 1, 1993 Exhibit 4-D to Registration No. 33-57955
D. Indenture dated as of April 1, 1993 from South Carolina
Electric & Gas Company to NationsBank of Georgia, National
Association (Filed as Exhibit 4-F to Registration
Statement No. 33-49421)...................................... #
E. First Supplemental Indenture to Indenture referred to
in 4-D dated as of June 1, 1993 (Filed as Exhibit 4-G
to Registration Statement No. 33-49421)...................... #
F. Second Supplemental Indenture to Indenture referred to
in 4-D dated as of June 15, 1993 (Filed as Exhibit 4-G
to Registration Statement No. 33-57955) ..................... #
10. Material Contracts
Not Applicable
11. Statement Re Computation of Per Share Earnings
Not Applicable
# Incorporated herein by reference as indicated.
19
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Exhibit Index (Continued)
Number
15. Letter Re Unaudited Interim Financial Information
Not Applicable
18. Letter Re Change in Accounting Principles
Not Applicable
19. Report Furnished to Security Holders
Not Applicable
22. Published Report Regarding Matters Submitted to
Vote of Security Holders
Not Applicable
23. Consents of Experts and Counsel
Not Applicable
24. Power of Attorney
Not Applicable
27. Financial Data Schedule (Filed herewith)
99. Additional Exhibits
Not Applicable
20