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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-8809 SCANA Corporation 57-0784499
(A South Carolina Corporation)
1426 Main Street
Columbia, South Carolina 29201
(803) 217-9000
1-3375 South Carolina Electric & Gas Company 57-0248695
(A South Carolina Corporation)
1426 Main Street
Columbia, South Carolina 29201
(803) 217-9000
Indicate by check mark whether the registrants: (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
Description of Shares Outstanding
Registrant Common Stock at July 31 ,
2000
SCANA Corporation Without Par Value 104,729,131
South Carolina Electric Par Value $4.50 Per Share 40,296,1471
& Gas Company
1Held beneficially and of record by SCANA Corporation.
This combined Form 10-Q is separately filed by SCANA Corporation and
South Carolina Electric & Gas Company. Information contained herein relating to
SCANA Corporation or any of its direct or indirect subsidiaries, other than
South Carolina Electric & Gas Company and its consolidated operations, is
provided solely by SCANA Corporation and shall be deemed not included in the
Form 10-Q of South Carolina Electric & Gas Company.
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INDEX
Page
PART 1. FINANCIAL INFORMATION
SCANA Corporation Financial Section........................................ 3
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999 .................................................. 4
Consolidated Statements of Income and Retained Earnings for the
Periods Ended June 30, 2000 and 1999.................................... 6
Consolidated Statements of Cash Flows for the Periods Ended
June 30, 2000 and 1999.................................................. 7
Notes to Consolidated Financial Statements................................ 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........23
South Carolina Electric & Gas Company Financial Section.....................25
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999 ....26
Consolidated Statements of Income and Retained Earnings for the
Periods Ended June 30, 2000 and 1999.....................................28
Consolidated Statements of Cash Flows for the Periods Ended June 30,
2000 and 1999........................................................ 29
Notes to Consolidated Financial Statements.................................30
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.........................................34
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........38
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................39
Item 4. Submission of Matters to a Vote of Security Holders................39
Item 6. Exhibits and Reports on Form 8-K...................................40
Signatures..................................................................41
Exhibit Index...............................................................43
SCANA CORPORATION
FINANCIAL SECTION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SCANA CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and December 31, 1999
(Unaudited)
- ------------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
- ------------------------------------------------------------------------------------------
Assets (Millions of Dollars)
Utility Plant:
Electric $4,650 $4,633
Gas 1,394 632
Other 183 191
- -----------------------------------------------------------------------------------------
Total 6,227 5,456
Less accumulated depreciation and amortization 2,148 1,829
- -----------------------------------------------------------------------------------------
Total 4,079 3,627
Construction work in progress 244 159
Nuclear fuel, net of accumulated amortization 57 43
Acquisition adjustment, net of accumulated amortization 482 22
- -----------------------------------------------------------------------------------------
Utility Plant, Net 4,862 3,851
- -----------------------------------------------------------------------------------------
Nonutility Property, net of accumulated depreciation 62 61
Investments 814 938
- -----------------------------------------------------------------------------------------
Nonutility Property and Investments, net of accumulated
depreciation 876 999
- -----------------------------------------------------------------------------------------
Current Assets:
Cash and temporary cash investments 75 116
Receivables (including unbilled revenues) 407 320
Inventories (at average cost):
Fuel 96 82
Materials and supplies 54 51
Prepayments 27 18
Deferred income taxes 17 16
- -----------------------------------------------------------------------------------------
Total Current Assets 676 603
- -----------------------------------------------------------------------------------------
Deferred Debits:
Emission allowances 28 31
Environmental 31 24
Nuclear plant decommissioning fund 68 64
Pension asset, net 172 144
Other regulatory assets 169 175
Other 129 120
- -----------------------------------------------------------------------------------------
Total Deferred Debits 597 558
- -----------------------------------------------------------------------------------------
Total $7,011 $6,011
=========================================================================================
SCANA CORPORATION
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and December 31, 1999
(Unaudited)
- ------------------------------------------------------------------------------ -----------------
June 30, December 31,
2000 1999
- ------------------------------------------------------------------------------ -----------------
Capitalization and Liabilities (Millions of Dollars)
Stockholders' Investment:
Common Equity $2,059 $2,099
Preferred stock (not subject to purchase or sinking funds) 106 106
- -------------------------------------------------------------------------------------------
Total Stockholders' Investment 2,165 2,205
Preferred Stock, net (subject to purchase or sinking funds) 11 11
SCE&G-Obligated Mandatorily Redeemable Preferred
Securities of SCE&G's Subsidiary Trust, SCE&G Trust
I, holding solely $50 million principal amount
of the 7.55%
Junior Subordinated Debentures of SCE&G, due 2027 50 50
Long-Term Debt, net 2,562 1,563
- -------------------------------------------------------------------------------------------
Total Capitalization 4,788 3,829
- -------------------------------------------------------------------------------------------
Current Liabilities:
Short-term borrowings 313 266
Current portion of long-term debt 209 303
Accounts payable 220 189
Customer deposits 19 16
Taxes accrued 50 86
Interest accrued 41 29
Dividends declared 32 31
Other 20 13
- -------------------------------------------------------------------------------------------
Total Current Liabilities 904 933
- -------------------------------------------------------------------------------------------
Deferred Credits:
Deferred income taxes 837 805
Deferred investment tax credits 117 116
Postretirement benefits 110 98
Reserve for nuclear plant decommissioning 68 64
Regulatory liabilities 73 64
Other 114 102
- -------------------------------------------------------------------------------------------
Total Deferred Credits 1,319 1,249
- -------------------------------------------------------------------------------------------
Total $7,011 $6,011
===========================================================================================
See Notes to Consolidated Financial Statements.
SCANA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Periods Ended June 30, 2000 and 1999
(Unaudited)
---------------------------------------------------------------------------------- ---------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------------------------------------------------------------------- ------------- ------------- -------------
Millions of Dollars, Except Per Share Amounts)
Operating Revenues:
Electric $ 320 $ 293 $ 614 $ 559
Gas - Regulated 164 82 476 212
Gas - Nonregulated 178 60 394 209
-------------------------------------------------------------------- -------------- ------------ -------------
Total Operating Revenues 662 435 1,484 980
-------------------------------------------------------------------- -------------- ------------ -------------
Operating Expenses:
Fuel used in electric generation 72 72 143 133
Purchased power 11 11 17 14
Gas purchased for resale 278 117 657 346
Other operation and maintenance 120 98 229 194
Depreciation and amortization 53 42 108 84
Other taxes 29 26 58 52
-------------------------------------------------------------------- -------------- ------------ -------------
Total Operating Expenses 563 366 1,212 823
-------------------------------------------------------------------- -------------- ------------ -------------
Operating Income 99 69 272 157
-------------------------------------------------------------------- -------------- ------------ -------------
Other Income, including allowance for equity funds
used during construction 8 7 18 16
-------------------------------------------------------------------- -------------- ------------ -------------
Income Before Interest Charges, Income Taxes
and Preferred Stock 107 76 290 173
Dividends
-------------------------------------------------------------------- -------------- ------------ -------------
Interest Charges (Credits):
Interest expense on long-term debt 51 32 95 63
Other interest expense, including allowance
for borrowed funds used during construction 4 3 14 6
-------------------------------------------------------------------- -------------- ------------ -------------
Total Interest Charges, Net 55 35 109 69
-------------------------------------------------------------------- -------------- ------------ -------------
Income Before Income Taxes and Preferred Stock Dividends 52 41 181 104
Income Taxes 21 14 72 37
-------------------------------------------------------------------- -------------- ------------ -------------
Income Before Preferred Dividend Requirements
on Mandatorily Redeemable Preferred Securities 31 27 109 67
Preferred Dividend Requirement of SCE&G -
Obligated Mandatorily Redeemable Preferred Securities 1 1 2 2
----------------------------------------------------------------------------- -------------- ------------ -------------
Income Before Preferred Stock Cash Dividends of Subsidiary 30 26 107 65
Preferred Stock Cash Dividends of Subsidiary (At Stated Rates) 2 4 4 2
----------------------------------------------------------------------------- -------------- ------------ -------------
Income Before Cumulative Effect of Accounting Change 28 24 103 61
Cumulative Effect of Accounting Change, net of taxes (Note 2) - 29 -
-
----------------------------------------------------------------------------- -------------- ------------ -------------
Net Income 28 24 132 61
Retained Earnings at Beginning of Period 794 675 720 678
Common Stock Cash Dividends Declared (40) (60) (80)
(30)
============================================================================= ============== ============ =============
Retained Earnings at End of Period $ 792 $ 659 $ 792 $ 659
============================================================================= ============== ============ =============
Weighted Average Number of Common Shares Outstanding (Millions) 104.7 103.6 104.4 103.6
Earnings Per Weighted Average Share of Common Stock (Basic and
Diluted) Before Cumulative Effect of Accounting Change $ $ .23 $ .99 $ .59
.27
Cumulative Effect of Accounting Change (Note 2) - -
- .28
Earnings Per Weighted Average Share of Common Stock (Basic and $ $ .23 $ 1.27 $
Diluted) .27 .59
Cash Dividends Declared Per Share of Common Stock $.2875 $.3850 $.5750 $.7700
============================================================================= ============== ============ =============
See Notes to Consolidated Financial Statements.
SCANA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended June 30, 2000 and 1999
(Unaudited)
- ------------------------------------------------------------------------------------------------
Six Months Ended
June 30,
2000 1999
- --------------------------------------------------------------------------------- -------------
(Millions of Dollars)
Cash Flows From Operating Activities:
Net income $132 $61
Adjustments to reconcile net income to net cash
provided from operating activities, net of effect
of subsidiary acquisition:
Cumulative effect of accounting change (29) -
Depreciation and amortization 120 88
Amortization of nuclear fuel 10 8
Deferred income taxes, net 16 20
Pension asset (28) (13)
Other regulatory assets (5) 32
Regulatory liabilities 9 4
Post-retirement benefits 8 6
Allowance for funds used during construction (3) (5)
Over (under) collections, fuel adjustment clauses 11 -
Changes in certain current assets and liabilities:
(Increase) decrease in receivables 11 36
(Increase) decrease in inventories 20 -
Increase (decrease) in accounts payable (19) (75)
Increase (decrease) in taxes accrued (41) (30)
Other, net 6 (66)
- ---------------------------------------------------------------------------------- -------------
Net Cash Provided From Operating Activities 218 66
- ---------------------------------------------------------------------------------- -------------
Cash Flows From Investing Activities:
Utility property additions and construction
expenditures, net of AFC (132) (118)
Increase in other property and investments (24) (38)
Purchase of subsidiary, net of cash acquired (690) -
Sale of subsidiary assets 1 12
- ---------------------------------------------------------------------------------- -------------
Net Cash Used For Investing Activities (845) (144)
- ---------------------------------------------------------------------------------- -------------
Cash Flows From Financing Activities:
Proceeds:
Issuance of First Mortgage Bonds 148 99
Issuance of notes and loans 699 150
Repayments:
First Mortgage Bonds (100) -
Other long-term debt (2) (3)
Dividend payments:
Common stock (64) (80)
Preferred stock of subsidiary (4) (4)
Short-term borrowings, net (91) (90)
Fuel and emission allowance financings, net - 14
- ---------------------------------------------------------------------------------- -------------
Net Cash Provided From Financing Activities 586 86
- ---------------------------------------------------------------------------------- -------------
Net Increase (Decrease) In Cash And Temporary Cash Investments (41) 8
Cash And Temporary Cash Investments At January 1 116 62
- ---------------------------------------------------------------------------------- -------------
Cash And Temporary Cash Investments At June 30 $ 75 $70
================================================================================== =============
Supplemental Cash Flow Information:
Cash paid for - Interest (net of capitalized interest
of $2 for 2000 and 1999) $95 $67
- Income taxes 76 13
Noncash investing activities
- - Unrealized gain/(loss) on securities available for sale, net of taxes 111 80
In conjunction with the acquisition of Public Service Company of North
Carolina, Inc., liabilities were assumed as follows:
Fair value of assets acquired $ 1,171
Cash paid for capital stock (212)
Stock issued for consideration (475)
--------
Liabilities assumed $ 484
========
See Notes to Consolidated Financial Statements.
SCANA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
The following notes should be read in conjunction with the Notes to
Consolidated Financial Statements appearing in SCANA Corporation's (the Company)
Annual Report on Form 10-K for the year ended December 31, 1999. These are
interim financial statements, and due to the seasonality of the Company's
business, 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 except as described in Notes 2, 3 and 4, which are
necessary for a fair statement of the results for the interim periods reported.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Basis of Accounting
The Company accounts for its regulated utility operations, assets and
liabilities in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 (SFAS 71). The accounting standard requires
cost-based rate-regulated utilities to recognize in their financial
statements revenues and expenses in different time periods than do
enterprises that are not rate-regulated. As a result, the Company has
recorded, as of June 30, 2000, approximately $201 million and $73
million of regulatory assets and liabilities, respectively, including
amounts recorded for deferred income tax assets and liabilities of
approximately $131 million and $48 million, respectively. The electric
and gas regulatory assets (excluding deferred income tax assets) of
approximately $25 million and $44 million, respectively, are being
recovered through rates, and the Public Service Commission of South
Carolina (PSC) has approved accelerated recovery of approximately $3
million of the electric regulatory 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
could be required to write off its regulatory assets and liabilities.
Such an event could have a material adverse effect on the Company's
results of operations in the period that a write-off would be required,
but it is not expected that cash flows or financial position would be
materially affected.
B. Other Comprehensive Income
Other comprehensive income includes net income and all other changes in
equity except those resulting from investments by and distributions to
stockholders. Other comprehensive income/(loss) of the Company totaled
$(10) million and $21 million for the three and six months ended June
30, 2000, respectively, and $86 million and $141 million for the same
periods in 1999. For each period, other comprehensive income included
net income and unrealized gains/(losses) on securities available for
sale. Accumulated other comprehensive income of the Company totaled $357
million and $166 million at June 30, 2000 and 1999, respectively.
C. Recently Issued Accounting Bulletin
In December 1999 the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements." In June 2000 the SEC amended the Bulletin to
delay the implementation date until no later than the fourth quarter
of fiscal years beginning after December 15, 1999. The Bulletin, which
will be implemented by the Company by the fourth quarter of 2000,
provides the SEC staff's views in applying generally accepted
accounting principles to selected revenue recognition issues. The
Company does not expect the adoption of this Bulletin to have a
material impact on the Company's results of operations, cash flows or
financial position.
D. Reclassifications
Certain amounts from prior periods have been reclassified to conform
with the 2000 presentation.
2. Cumulative Effect of Accounting Change
Effective January 1, 2000 the Company changed its method of accounting
for operating revenues from cycle billing to full accrual. The
cumulative effect of this change was $29 million, net of tax. Accruing
unbilled revenues more closely matches revenues and expenses. Unbilled
revenues represent the estimated amount customers will be charged for
service received, but that has not yet been billed, as of the end of the
accounting period. Previously these revenues were recognized as
operating revenues as customers were billed.
If this method had been applied retroactively, net income would have
been $29 million ($0.28 per share) and $83 million ($0.80 per share) for
the three and six months ended June 30, 1999, respectively, compared to
$24 million ($0.23 per share) and $61 million ($0.59 per share),
respectively, as previously reported.
3. ACQUISITION
On February 10, 2000 the Company completed its acquisition of Public
Service Company of North Carolina, Inc. (PSNC) in a business combination
accounted for as a purchase. PSNC became a wholly owned subsidiary of
the Company. PSNC is a public utility engaged primarily in transporting,
distributing and selling natural gas to approximately 351,000
residential, commercial and industrial customers in 31 counties in North
Carolina. Pursuant to the Agreement and Plan of Merger, PSNC
shareholders were paid approximately $212 million in cash and 17,413,013
shares of SCANA common stock. The results of operations of PSNC are
included in the accompanying financial statements as of January 1, 2000,
the effective date of acquisition . The total cost of the acquisition
was approximately $700 million, which exceeded the fair value of the net
assets by approximately $467 million. The excess is being amortized over
35 years on a straight line basis.
Operating revenues and net income previously reported by the separate
companies and the combined amounts presented in the accompanying
Consolidated Statements of Income, including the cumulative effect of
accounting change (See Note 2), are as follows:
------------------------------------------------------------------------------------------
For the Six Months Ended
June 30, 1999
(Millions of Dollars, Except Per Share Amounts) SCANA PSNC Adjustments1 Combined
-------------------------------------------------------------------------------------------
Operating revenues $980 $188 $ - $1,168
Income before cumulative effect 61 24 (22) 63
Cumulative effect of accounting change 22 - - 22
Net income 83 24 (22) 85
Earnings per share 0.80 1.15 - 0.81
===========================================================================================
1 Adjustments include interest charges (net of income tax effect) on
additional debt issued in conjunction with the
acquisition and amortization of the acquisition adjustment.
4. RATE MATTERS
On December 30, 1999 PSNC filed an application with the North Carolina
Utilities Commission (NCUC) to extend natural gas service to Madison,
Jackson and Swain Counties. Pursuant to state statutes, the NCUC
required PSNC to forfeit its exclusive franchises to serve six counties
in western North Carolina effective January 31, 2000 because these
counties were not receiving any natural gas service. Madison, Jackson
and Swain Counties were included in the forfeiture order. On June 29,
2000 the NCUC approved PSNC's requests for reinstatement of its
exclusive franchises for Madison, Jackson and Swain Counties and
disbursement of up to $28.4 million from PSNC's expansion fund for this
project. PSNC estimates that the cost of this project will be
approximately $31.4 million.
On December 7, 1999 the NCUC issued an order approving the acquisition
of PSNC by the Company. As specified in the NCUC order, PSNC will reduce
its rates by approximately $2 million ($1 million in August 2000 and
another $1 million in August 2001) and has agreed to a five-year
moratorium on general rate cases. General rate relief can be obtained
during this period to recover costs associated with materially adverse
governmental actions and force majeure events. On December 30, 1999 the
Carolina Utility Customers Association, Inc. (CUCA) filed an appeal of
this order with the North Carolina Court of Appeals. On June 15, 2000
CUCA filed a motion to withdraw its appeal. On September 14, 1999 the
PSC approved an accelerated capital recovery plan for South Carolina
Electric & Gas Company's (SCE&G) Cope Generating Station. The plan was
implemented beginning January 1, 2000 for a three-year period. The PSC
approved an accelerated capital recovery methodology wherein SCE&G will
increase depreciation of its Cope Generating Station in excess of
amounts that would be recorded based upon currently approved
depreciation rates. The amount of the accelerated depreciation will be
determined by SCE&G based on the level of revenues and operating
expenses, not to exceed $36 million annually without the approval of the
PSC. Any unused portion of the $36 million in any given year could be
carried forward for possible use in the subsequent year. The accelerated
capital recovery plan will be accomplished through existing customer
rates.
On October 30, 1998 the NCUC issued an order in PSNC's general rate
case filed in April 1998. The order, effective November 1, 1998, granted
PSNC additional revenue of $12.4 million and allowed a 9.82 percent
overall rate of return on PSNC's net utility investment. It also
approved the continuation of the Weather Normalization Adjustment and
Rider D Mechanisms and full margin transportation rates. PSNC's Rider D
rate mechanism authorizes the recovery of all prudently incurred gas
costs from customers on a monthly basis. Any difference in amounts paid
and collected for these costs is deferred for subsequent refund to or
collection from customers. On February 4, 2000, in response to an appeal
by CUCA, the Supreme Court of North Carolina affirmed the NCUC order.
On November 6, 1997 the NCUC issued an order permitting PSNC, on a
trial basis, to establish its commodity cost of gas for large commercial
and industrial customers on the basis of market prices for natural gas.
This procedure allows PSNC to manage its deferred gas costs better by
ensuring that the amount paid for natural gas to serve these customers
approximates the amount collected from them. PSNC's request for
permanent approval of this mechanism was approved by the NCUC in an
order issued April 6, 2000.
In September 1992 the PSC issued an order granting SCE&G a $.25 increase
in transit fares from $.50 to $.75 in Columbia, South Carolina; however,
the PSC also required $.40 fares for low income customers and denied
SCE&G's request to reduce the number of routes and frequency of service.
The new rates were placed into effect in October 1992. SCE&G appealed
the PSC's order to the Circuit Court, which in May 1995 ordered the case
back to the PSC for reconsideration of several issues including the low
income rider program, routing changes, and the $.75 fare. The Supreme
Court declined to review an appeal of the Circuit Court decision and
dismissed the case. The PSC and other intervenors filed another Petition
for Reconsideration, which the Supreme Court denied. The PSC and other
intervenors filed another appeal to the Circuit Court which the Circuit
Court denied in an order dated May 9, 1996. In this order, the Circuit
Court upheld its previous orders and remanded them to the PSC. During
August 1996 the PSC heard oral arguments on the orders on remand from
the Circuit Court. On September 30, 1996 the PSC issued an order
affirming its previous orders and denied SCE&G's request for
reconsideration. SCE&G has appealed these two PSC orders to the Circuit
Court where they are awaiting action.
5. RETAINED EARNINGS:
The Restated Articles of Incorporation of the Company do not limit the
dividends that may be payable on its common stock. However, the Restated
Articles of Incorporation of SCE&G and the Indenture underlying its
First and Refunding Mortgage Bonds contain provisions that, under
certain circumstances, could limit the payment of cash dividends on its
common stock.
In addition, with respect to hydroelectric projects, the Federal Power
Act requires the appropriation of a portion of certain earnings
therefrom. At June 30, 2000, approximately $31 million of retained
earnings were restricted by this requirement as to payment of cash
dividends on SCE&G's common stock.
6. INVESTMENTS IN EQUITY SECURITIES:
At June 30, 2000, SCANA Communications Holdings, Inc. (SCH), a wholly
owned, indirect subsidiary of SCANA, held the following investments in
ITC Holding Company, Inc. (ITC) and its affiliates:
o Powertel, Inc. (Powertel) is a publicly traded company that
owns and operates personal communications services (PCS) systems in
several major Southeastern markets. SCH owns approximately 4.9 million
common shares of Powertel at a cost of approximately $75.3 million.
Powertel common stock closed at $70.9375 per share on June 30, 2000,
resulting in a pre-tax unrealized holding gain of $273.5 million (a
decline of $144.3 million from December 31, 1999). Accumulated other
comprehensive income includes the after-tax amount of all unrealized
holding gains and losses on common shares. In addition, SCH owns the
following series of non-voting convertible preferred shares, at the
approximate cost noted: 100,000 shares series B ($75.1 million);
50,000 shares series D ($22.5 million); and 50,000 shares 6.5 percent
series E ($75.0 million). Dividends on preferred series E shares are
paid in common shares of Powertel. Preferred series B shares are
convertible in March 2002 at a conversion price of $16.50 per common
share or approximately 4.5 million common shares. Preferred series D
shares are convertible in March 2002 at a conversion price of $12.75
per common share or approximately 1.7 million common shares. Preferred
series E shares are convertible in June 2003 at a conversion price of
$22.01 per common share or approximately 3.4 million common shares.
The market value of the convertible preferred shares of Powertel is
not readily determinable. However, as converted, the market value of
the underlying common shares for the preferred shares was
approximately $689.3 million at June 30, 2000, resulting in an
unrecorded pre-tax holding gain of $516.7 million (a decline of $286.0
million from December 31, 1999).
o ITC^DeltaCom, Inc. (ITCD) is a fiber optic telecommunications
provider. SCH owns approximately 5.1 million common shares of ITCD at
a cost of approximately $43.0 million. ITCD common stock closed at
$22.3125 per share on June 30, 2000, resulting in a pre-tax unrealized
holding gain of $71.1 million (a decline of $27.2 million from
December 31, 1999). Accumulated other comprehensive income includes
the after-tax amount of all unrealized holding gains and losses on
common shares. In addition, SCH owns 1,480,771 shares of series A
preferred stock of ITCD at a cost of approximately $11.2 million.
Series A preferred shares are convertible in March 2002 into 2,961,542
shares of ITCD common stock. The market value of series A preferred
stock of ITCD is not readily determinable. However, as converted, the
market value of the underlying common stock for the series A preferred
stock was approximately $66.1 million at June 30, 2000, resulting in
an unrecorded pre-tax holding gain of $54.9 million (a decline of
$15.7 million from December 31, 1999).
o Knology Inc. (Knology), previously Knology Holdings, Inc., is a
broad-band service provider of cable television, telephone and
internet services. SCH owns 71,050 units of Knology. Each unit
consists of one 11.875% Senior Discount Note due 2007 and one warrant
entitling the holder to purchase .003734 shares of preferred stock of
Knology. The cost of this investment was approximately $40 million.
Prior to February 24, 2000, SCH owned 451,800 shares of series A
preferred stock of Knology at a cost of approximately $1.1 million. On
February 24, 2000 Knology Holdings, Inc. was spun off from ITC and was
renamed Knology, Inc. As a result of this spin off, SCH received
approximately 6.8 million shares of Knology series A preferred stock.
The market value of these investments is not readily determinable.
o ITC has an ownership interest in several Southeastern
communications companies. SCH owns approximately 3.1 million common
shares, 645,153 series A convertible preferred shares, and 133,664
series B convertible preferred shares of ITC. These investments cost
approximately $5.8 million, $7.2 million, and $4.0 million,
respectively. Preferred series A shares are convertible in March 2002
at a conversion price of $2.73 per common share or approximately 3.2
million common shares. Preferred series B shares are convertible in
March 2002 at a conversion price of $8.86 per common share or
approximately 0.7 million common shares. The market values of these
investments are not readily determinable.
7. CONTINGENCIES:
With respect to commitments at June 30, 2000, 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,
1999. Contingencies at June 30, 2000 are as follows:
A. Nuclear Insurance
The Price-Anderson Indemnification Act, which deals with public
liability for a nuclear incident, currently establishes the liability
limit for third-party claims associated with any nuclear incident at
$9.5 billion. Each reactor licensee is currently liable for up to $88.1
million per reactor owned for each nuclear incident occurring at any
reactor in the United States, provided that not more than $10 million of
the liability per reactor would be assessed per year. SCE&G's maximum
assessment, based on its two-thirds ownership of V. C. Summer Nuclear
Station (Summer Station), would be approximately $58.7 million per
incident, but not more than $6.7 million per year.
SCE&G currently maintains policies (for itself and on behalf of the
South Carolina Public Service Authority) with Nuclear Electric Insurance
Limited (NEIL). These policies covering the nuclear facility for
property damage, excess property damage and outage costs permit
assessments under certain conditions to cover insurer's losses. Based on
the current annual premium, SCE&G's portion of the retrospective premium
assessment would not exceed $8.1 million.
To the extent that insurable claims for property damage,
decontamination, repair and replacement and other costs and expenses
arising from a nuclear incident at Summer Station exceed the policy
limits of insurance, or to the extent such insurance becomes unavailable
in the future, and to the extent that SCE&G's rates would not recover
the cost of any purchased replacement power, SCE&G will retain the risk
of loss as a self-insurer. SCE&G has no reason to anticipate a serious
nuclear incident at Summer Station. If such an incident were to occur,
it could have a material adverse impact on the Company's results of
operations, cash flows and financial position.
B. Environmental
SCE&G 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
expenditures, if any, deemed necessary to investigate and clean up each
site. These estimates are refined as additional information becomes
available; therefore, actual expenditures could differ significantly
from the original estimates. Amounts estimated and accrued to date for
site assessments and cleanup relate primarily to regulated operations.
Such amounts are deferred and amortized with recovery provided through
rates. SCE&G has also recovered portions of its environmental
liabilities through settlements with various insurance carriers. SCE&G
has recovered all amounts previously deferred for its electric
operations. SCE&G expects to recover all deferred amounts related to its
gas operations by December 2005. Deferred amounts, net of amounts
recovered through rates and insurance settlements, totaled $20.2 million
at June 30, 2000. The deferral includes the estimated costs associated
with the following matters.
o In September 1992 the Environmental Protection Agency (EPA)
notified SCE&G, 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 encompasses approximately 30 acres and includes properties
which were locations for industrial operations, including a wood
preserving (creosote) plant, one of SCE&G's decommissioned
manufactured gas plants (MGP), properties owned by the National Park
Service and the City of Charleston, and private properties. The site
has not been placed on the National Priorities List, but may be added
in the future. The Potentially Responsible Parties (PRPs) 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 the EPA approved a Remedial
Investigation Report in February 1997 and a Feasibility Study Report
in June 1998. In July 1998 the EPA approved SCE&G's Removal Action
Work Plan for soil excavation. SCE&G completed Phase One of the
Removal Action in 1998 at a cost of approximately $1.5 million. Phase
Two, which cost approximately $3.5 million, included excavation and
installation of several permanent barriers to mitigate coal tar
seepage. On September 30, 1998 a Record of Decision was issued which
sets forth the EPA's view of the extent of each PRP's responsibility
for site contamination and the level to which the site must be
remediated. SCE&G estimates that the Record of Decision will result in
costs of approximately $13.3 million, of which approximately $4
million remains. On January 13, 1999 the EPA issued a Unilateral
Administrative Order for Remedial Design and Remedial Action directing
SCE&G to design and carry out a plan of remediation for the Calhoun
Park site. The Order is temporarily stayed pending further
negotiations between SCE&G and the EPA. However, SCE&G submitted a
Comprehensive Remedial Design Work Plan (RDWP) on December 17, 1999
and proceeded with implementation pending agency approval. The RDWP
was approved by the EPA in July 2000, and its implementation
continues.
In October 1996 the City of Charleston and SCE&G settled all
environmental claims the City may have had against SCE&G involving the
Calhoun Park area for a payment of $26 million over four years
(1996-1999) by SCE&G to the City. SCE&G is recovering the amount of
the settlement, which does not encompass site assessment and cleanup
costs, through rates in the same manner as other amounts accrued for
site assessments and cleanup. As part of the environmental settlement,
SCE&G constructed an 1,100 space parking garage on the Calhoun Park
site (construction was completed in April 2000) and transferred 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 still being finalized, but is
not to exceed $16.9 million, the maximum expected project cost.
o SCE&G owns three other decommissioned MGP sites which contain
residues of by-product chemicals. For the site located in Sumter,
South Carolina, effective September 15, 1998, SCE&G entered into a
Remedial Action Plan Contract with the South Carolina Department of
Health and Environmental Control (DHEC) pursuant to which it agreed to
undertake a full site investigation and remediation under the
oversight of DHEC. Site investigation and characterization are
proceeding according to schedule. Upon selection and successful
implementation of a site remedy, DHEC will give SCE&G a Certificate of
Completion and a covenant not to sue. SCE&G is continuing to
investigate the other two sites, and is monitoring the nature and
extent of residual contamination.
In addition, PSNC owns, or has owned, all or portions of seven sites in
North Carolina on which MGPs were formerly operated. Intrusive
investigation (including drilling, sampling and analysis) has begun at
only one site and the remaining sites have been evaluated using
historical records and observations of current site conditions. These
evaluations have revealed that MGP residuals are present or suspected at
several of the sites. The North Carolina Department of Environment and
Natural Resources has recommended that no further action be taken with
respect to one site. In March and April 1994, an environmental consulting
firm retained by PSNC estimated that the aggregate cost of investigating
and monitoring the extent of environmental degradation and of
implementing remedial procedures with respect to the remaining sites may
range from $3.7 million to $50.1 million over a 30-year period.
Subsequently, an environmental due diligence review of PSNC conducted in
February 1999 estimated that the cost to remediate the sites would range
between $11.3 million and $21.9 million. During the second quarter of
2000, the review was finalized and the estimated liability was recorded.
PSNC is unable to determine the rate at which costs may be incurred over
this time period. The estimated cost range has not been discounted to
present value. The range includes the cost of investigating and
monitoring the sites at the low end of the range and investigating,
monitoring and extensively remediating the sites at the high end of the
range. PSNC's associated actual costs for these sites will depend on a
number of factors, such as actual site conditions, third-party claims and
recoveries from other PRPs. An order of the NCUC dated May 11, 1993
authorized deferral accounting for all costs associated with the
investigation and remediation of MGP sites. As of June 30, 2000, PSNC has
recorded a liability and associated regulatory asset of $10.2 million,
which reflects the minimum amount of the range net of shared cost
recovery from other PRPs..
The NCUC concluded that it is proper and in the public interest to allow
recovery of prudently incurred clean-up costs from current customers as
reasonable operating expenses even though the MGP sites are not used and
useful in providing gas service to current customers. However, the NCUC
will not allow recovery of carrying costs on deferred amounts. Amounts
incurred to date are not material. Management intends to request recovery
of additional MGP clean-up costs not recovered from other PRPs in future
rate case filings, and believes that all costs deemed by the NCUC to be
prudently incurred will be recoverable in gas rates.
8. 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 Electric Operations and
Gas Distribution segments. Therefore, net income is not allocated to these
segments. The Company uses net income to measure profitability for its Energy
Marketing segment, which includes the Company's unregulated gas sales in
Georgia. Affiliate revenue is derived from transactions between reportable
segments as well as transactions between separate legal entities that are
combined into the same reportable segment.
Assets for the period ended June 30, 1999 did not change significantly.
Disclosure of Reportable Segments
(Millions of Dollars)
- -------------------------------- ------------- ------------- --------------------------------------------
Three months ended Electric Gas Gas Energy All Adjustments/ Consolidated
June 30, 2000 Operations Distribution Transmission Marketing Other Eliminations Total
- -------------------------------- ----------- --------- ----------- ------- ------------ ---------
External Revenue $ 320 $ 106 $ 58 $178 - - $ 662
Intersegment Revenue 139 1 39 - - $(179) -
Operating Income (Loss) 102 (5) 8 n/a - (6) 99
Net Income n/a n/a 4 (3) $ (13) 40 28
Segment Assets 4,820 1,518 246 157 1,089 (819) 7,011
- ------------------------------------------------------- ----------- --------- ------------ -----------
- ------------------------------- ------------- ------------- ---------------------------------------------
Three months ended Electric Gas Gas Energy All Adjustments/ Consolidated
June 30, 1999 Operations Distribution Transmission Marketing Other Eliminations Total
- ------------------------------- ------------------------ ----------- ------- ------------ ------------
External Revenue $293 $44 $38 $60 - - $ 435
Intersegment Revenue 79 1 29 - - $(109) -
Operating Income (Loss) 84 (1) 4 n/a - (18) 69
Net Income n/a n/a 2 (11) $ (3) 36 24
Segment Assets 4,404 390 224 68 938 (546) 5,478
- ---------------------------------- --------- ---------- ----------- --------- ------------ ------------
- ------------------------------- ------------- ------------- ----------- ------- ------------ ----------
Six months ended Electric Gas Gas Energy All Adjustments/ Consolidated
June 30, 2000 Operations Distribution Transmission Marketing Other Eliminations1 Total
- -------------------------------------------------- ----------- --------- ------------ -------------
External Revenue $614 $361 $115 $394 - - $1,484
Intersegment Revenue 216 1 101 2 - $(320) -
Operating Income 193 54 16 n/a - 9 272
Net Income n/a n/a 8 6 $ (25) 143 132
Segment Assets 4,820 1,518 246 157 1,089 (819) 7,011
- --------------------------------------------------- ----------- --------- ------------ -------------
- ------------------------------- ------------- ------------- ----------- ------- ------------ ----------
Six months ended Electric Gas Gas Energy All Adjustments/ Consolidated
June 30, 1999 Operations Distribution Transmission Marketing Other Eliminations Total
- --------------------------- --------- -------- ----------- --------- ------------ -------------
External Revenue $559 $130 $82 $209 - - $ 980
Intersegment Revenue 148 1 10 n/a - (40) 157
Net Income n/a n/a 5 (25) $ (2) 83 61
Segment Assets 4,404 390 224 68 938 (546) 5,478
- ----------------------------------------------------- ----------- --------- ------------ -------------
1 Includes cumulative effect of accounting change
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SCANA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in SCANA Corporation's (the Company) Annual Report on Form 10-K for
the year ended December 31, 1999.
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) changes in the utility regulatory
environment, (3) changes in the economy in areas served by SCANA's subsidiaries,
(4) the impact of competition from other energy suppliers, (5) the management of
the Company's operations, (6) variations in prices of natural gas and fuels used
for electric generation, (7) growth opportunities for the Company's regulated
and non-regulated subsidiaries, (8) the results of financing efforts, (9)
changes in the Company's accounting policies, (10) weather conditions in areas
served by the Company's subsidiaries , (11) performance of the
telecommunications companies in which the Company has made significant
investments, (12) inflation, (13) exposure to environmental issues and
liabilities, (14) changes in environmental regulations and (15) the other risks
and uncertainties described from time to time in the Company's periodic reports
filed with the Securities and Exchange Commission. The Company disclaims any
obligation to update any forward-looking statements.
MATERIAL CHANGES IN CAPITAL RESOURCES AND LIQUIDITY
SINCE DECEMBER 31, 1999
North Carolina Gas Market
On February 10, 2000 the Company completed its acquisition of Public
Service Company of North Carolina, Inc. (PSNC) in a transaction valued at
approximately $900 million, including the assumption of debt. The transaction is
being accounted for as a purchase. PSNC is operated as a wholly owned subsidiary
of the Company. As a result of the transaction, the Company became a registered
public utility holding company under the Public Utility Holding Company Act of
1935 (PUHCA).
Georgia Retail Gas Market
Energy Marketing's Georgia retail gas operations maintained a base of
customers ranging from approximately 431,000 at January 1, 2000 to approximately
426,000 at June 30, 2000. This compares to the corresponding period in 1999 when
the customer base grew from approximately 78,000 at January 1 to approximately
287,000 at June 30. In addition, Georgia retail gas operations reported net
income of approximately $6.6 million for the six months ended June 30, 2000,
compared to a net loss of approximately $22.7 million for the corresponding
period in 1999. This increase resulted from lowering costs and improving
efficiency by transitioning from start-up to ongoing operations and from an
improved margin on natural gas sales. Due to the seasonality of the retail gas
business in Georgia, management anticipates incurring losses through much of the
remainder of the year 2000, and breaking even for the year.
Regional Transmission Organization
On February 9, 2000 the Federal Energy Regulatory Commission (FERC)
issued FERC Order 2000. The Order requires utilities which operate electric
transmission systems to submit plans by October 16, 2000 for the possible
formation of a regional transmission organization (RTO). On July 18, 2000 the
Company and two other southeastern electric utilities (the three utilities)
announced plans to create GridSouth, LLC. When formed, GridSouth will function
as an independent regional transmission company. Initially, the three utilities
will continue to own their respective transmission networks, while GridSouth
will provide planning and operational oversight of the electric transmission
grid. The three utilities plan to file a plan with FERC later this year
regarding formation of GridSouth.
LIQUIDITY AND CAPITAL RESOURCES
On July 18, 2000 the South Carolina Public Service Commission (PSC)
approved a 16.8 percent increase in natural gas prices charged by SCE&G. The
increase became effective on August 1, 2000.
On July 5, 2000 the PSC approved SCE&G's request to implement lower
depreciation rates for its gas operations. The new rates were effective
retroactively to January 1, 2000 and will result in a reduction in annual
depreciation expense of approximately $2.9 million.
On September 14, 1999 the PSC approved an accelerated capital recovery
plan for SCE&G's Cope Generating Station. The plan was implemented January 1,
2000 for a three-year period. The PSC approved an accelerated capital recovery
methodology wherein SCE&G will increase depreciation of its Cope Generating
Station in excess of amounts that would be recorded based upon currently
approved depreciation rates. The amount of the accelerated depreciation will be
determined by SCE&G based on the level of revenues and operating expenses, not
to exceed $36 million annually without the approval of the PSC. Any unused
portion of the $36 million in any given year could be carried forward for
possible use in the succeeding year. The accelerated capital recovery plan will
be accomplished through existing customer rates.
On August 7, 1996 the City of Charleston executed 30-year electric and
gas franchise agreements with SCE&G. In consideration for the electric franchise
agreement, SCE&G is paying the City $25 million over seven years (1996 through
2002) and has donated to the City the existing transit assets in Charleston. The
$25 million is included in electric plant-in-service. In settlement of
environmental claims the City may have had against SCE&G involving the Calhoun
Park area, where SCE&G and its predecessor companies operated a manufactured gas
plant until the 1960's, SCE&G paid the City $26 million over a four-year period
(1996 through 1999). As part of the environmental settlement, SCE&G constructed
an 1,100 space parking garage on the Calhoun Park site (construction was
completed in April 2000) and transferred 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 still being
finalized, but is not to exceed $16.9 million, the maximum expected project
cost.
The following table summarizes how the Company generated funds for
property additions and construction expenditures during the six months ended
June 30, 2000 and 1999:
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
(Millions of Dollars) 2000 1999
- ------------------------------------------------------------- ------------------
Net cash provided from operating activities $218 $ 66
Net cash provided from financing activities 586 86
Cash provided from sale of subsidiary assets 1 12
Cash and temporary cash investments available
at the beginning of the period 116 62
============================================================= ==================
Net cash available for property additions
and construction $921 $226
expenditures
============================================================= ==================
Funds used for purchase of subsidiary 690 -
Funds used for utility property additions
and construction expenditures,
net of noncash allowance for funds
used during construction $132 $ 118
============================================================= ==================
Funds used for nonutility property additions $ 24 $ 38
============================================================= ==================
On December 1, 1999 SCANA signed a credit agreement with banks for a
maximum of $300 million for a three-year term loan, all of which was drawn on
February 10, 2000 to consummate SCANA's acquisition of PSNC.
On February 8, 2000 SCANA issued $400 million of two-year floating rate
notes maturing February 8, 2002. The interest rate on the notes is reset
quarterly based on a three-month LIBOR plus 50 basis points. The proceeds from
these privately sold notes were used to consummate SCANA's acquisition of PSNC.
On June 14, 2000 SCE&G issued $150 million of First Mortgage Bonds having
an annual interest rate of 7.50 percent and maturing on June 15, 2005. The
proceeds from the sale of these bonds were used to pay the maturity of SCE&G's
$100 million First Mortgage Bonds due June 15, 2000, to reduce short-term debt
and for general corporate purposes.
On July 13, 2000 the Company issued $300 million two-year floating rate
notes maturing on July 15, 2002. The interest rate is reset quarterly based on a
three-month LIBOR plus 65 basis points. Proceeds from the debt were used to
repay medium-term notes totaling $170 million, to reduce short-term debt and for
general corporate purposes.
In July 2000 PSNC established a $125 million short-term commercial paper
program to replace the lines of credit it had with various banks. On July 31,
2000 PSNC issued $119.5 million under its commercial paper program.
The proceeds from the issue were used to repay short-term bank loans.
Pursuant to rules of the Securities and Exchange Commission, as a result
of PSNC's acquisition by SCANA, PSNC's registration statement (as amended on
June 7, 1999) covering up to an aggregate of $150 million of senior unsecured
debt securities is no longer effective.
The Company anticipates that the remainder of its 2000 cash requirements
will be met through internally generated funds and the incurrence of additional
short-term and long-term debt. The Company anticipates incurring short-term and
long-term debt to refinance long-term debt obligations. The timing and amount of
such financings will depend upon market conditions and other factors. The
Company expects that it has or can obtain adequate sources of financing to meet
its projected cash requirements for the next 12 months and for the foreseeable
future. The ratio of earnings to fixed charges for the 12 months ended June 30,
2000 was 3.22.
Environmental Matters
In July 2000 the Environmental Protection Agency (EPA) sent the Company a
request seeking information on the Company's repair and maintenance of its
coal-fired plants since 1978. This is part of the EPA's New Source Review (NSR)
enforcement initiative, in which the EPA claims that utilities and others have
committed widespread violations of the Clean Air Act permitting requirements for
the past quarter century. In November 1999 the EPA filed suit against seven
utilities and issued an administrative order to Tennessee Valley Authority
alleging numerous NSR permitting violations. The EPA's allegations run counter
to previous EPA guidance regarding the applicability of the NSR permitting
requirements. The Company, along with several other utilities, has routinely
undertaken the type of repair, replacement and maintenance projects that the EPA
now claims are illegal. A suit has not been instituted against the Company, and
while it is too early to predict any potential EPA action, the Company believes
that all of its electric generation units are properly permitted and have been
properly maintained. Because this matter is in its most preliminary stage with
respect to the Company, management cannot estimate the effects of these matters
on future consolidated results of operations or financial position.
In October 1998, the EPA issued a final ruling on regional ozone
control that requires revised State Implementation Plans (SIPs) for 22 eastern
states and the District of Columbia. This EPA ruling was challenged in court by
various states, industry and other interests, including the state of South
Carolina. In March 2000, the court upheld most aspects of the EPA's rule.
Petitioners asked the court to rehear the case and overturn the March decision,
but in June the court declined to rehear the case and lifted its earlier stay of
the states' obligation to revise their SIPs. Industry and State petitioners have
not decided at this time what additional review they may seek.
The EPA has undertaken other ozone-related actions having virtually
identical goals to its October 1998 action. These actions have likewise been
challenged in court by the same or similar parties. The final resolution of the
October 1998 action is expected to resolve these other ozone-related actions as
well. The South Carolina Department of Health and Environmental Control (DHEC)
is considering methods by which to reduce utility emissions of nitrogen oxide.
The date for a final state rulemaking is uncertain, but will be likely in 2001.
SCE&G will undertake additional nitrogen oxide control projects during 2000 and
2001, at a cost of approximately $100 million as an interim step to address
possible contributions to ozone formation in South Carolina. Depending on the
resolution of these matters, costs to SCE&G may reach $190 million to meet the
full requirements of the 1998 Ozone ruling expenditures for these projects will
be capitalized, and are expected to be completed by 2003.
Investments in Equity Securities
At June 30, 2000, SCANA Communications Holdings, Inc. (SCH), a wholly
owned, indirect subsidiary of SCANA, held the following investments in ITC
Holding Company, Inc. (ITC) and its affiliates:
o Powertel, Inc. (Powertel) is a publicly traded company that owns and
operates personal communications services (PCS) systems in several
major Southeastern markets. SCH owns approximately 4.9 million common
shares of Powertel at a cost of approximately $75.3 million. Powertel
common stock closed at $70.9375 per share on June 30, 2000, resulting
in a pre-tax unrealized holding gain of $273.5 million (a decline of
$144.3 million from December 31, 1999). Accumulated other
comprehensive income includes the after-tax amount of all unrealized
holding gains and losses on common shares. In addition, SCH owns the
following series of non-voting convertible preferred shares, at the
approximate cost noted: 100,000 shares series B ($75.1 million);
50,000 shares series D ($22.5 million); and 50,000 shares 6.5 percent
series E ($75.0 million). Dividends on preferred series E shares are
paid in common shares of Powertel. Preferred series B shares are
convertible in March 2002 at a conversion price of $16.50 per common
share or approximately 4.5 million common shares. Preferred series D
shares are convertible in March 2002 at a conversion price of $12.75
per common share or approximately 1.7 million common shares. Preferred
series E shares are convertible in June 2003 at a conversion price of
$22.01 per common share or approximately 3.4 million common shares.
The market value of the convertible preferred shares of Powertel is
not readily determinable. However, as converted, the market value of
the underlying common shares for the preferred shares was
approximately $689.3 million at June 30, 2000, resulting in an
unrecorded pre-tax holding gain of $516.7 million (a decline of $286.0
million from December 31, 1999).
o ITC^DeltaCom, Inc. (ITCD) is a fiber optic telecommunications
provider. SCH owns approximately 5.1 million common shares of ITCD at
a cost of approximately $43.0 million. ITCD common stock closed at
$22.3125 per share on June 30, 2000, resulting in a pre-tax unrealized
holding gain of $71.1 million (a decline of $27.2 million from
December 31, 1999). Accumulated other comprehensive income includes
the after-tax amount of all unrealized holding gains and losses on
common shares. In addition, SCH owns 1,480,771 shares of series A
preferred stock of ITCD at a cost of approximately $11.2 million.
Series A preferred shares are convertible in March 2002 into 2,961,542
shares of ITCD common stock. The market value of series A preferred
stock of ITCD is not readily determinable. However, as converted, the
market value of the underlying common stock for the series A preferred
stock was approximately $66.1million at June 30, 2000, resulting in an
unrecorded pre-tax holding gain of $54.9 million (a decline of $15.7
million from December 31, 1999).
o Knology Inc. (Knology), previously Knology Holdings, Inc., is a
broad-band service provider of cable television, telephone and
internet services. SCH owns 71,050 units of Knology. Each unit
consists of one 11.875% Senior Discount Note due 2007 and one warrant
entitling the holder to purchase .003734 shares of preferred stock of
Knology. The cost of this investment was approximately $40 million.
Prior to February 24, 2000, SCH owned 451,800 shares of series A
preferred stock of Knology at a cost of approximately $1.1 million. On
February 24, 2000 Knology Holdings, Inc. was spun off from ITC and was
renamed Knology, Inc. As a result of this spin off, SCH received 6.8
million shares of Knology series A preferred stock. The market value
of these investments is not readily determinable.
o ITC has an ownership interest in several Southeastern communications
companies. SCH owns approximately 3.1 million common shares, 645,153
series A convertible preferred shares, and 133,664 series B
convertible preferred shares of ITC. These investments cost
approximately $5.8 million, $7.2 million, and $4.0 million,
respectively. Preferred series A shares are convertible in March 2002
at a conversion price of $2.73 per common share or approximately 3.2
million common shares. Preferred series B shares are convertible in
March 2002 at a conversion price of $8.86 per common share or
approximately 0.7 million common shares. The market values of these
investments are not readily determinable.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
AS COMPARED TO THE CORRESPONDING PERIODS IN 1999
Earnings and Dividends
Earnings per share of common stock for the three and six months ended
June 30, 2000 and 1999 were as follows:
- --------------------------------------------------------------------------------
Three Months Ended Six Months Ended
2000 1999 2000 1999
- --------------------------------------------------------------------------------
Earnings derived from:
Operations $.27 $.23 $ .99 $.59
Change in accounting - - .28 -
================================================================================
Earnings per weighted average share $.27 $.23 $1.27 $.59
================================================================================
Earnings from operations for the three and six months ended June 30,
2000 increased overall due to improved results from the Company's entry into the
Georgia retail gas market (improved $.08 and $.28, respectively) and its
acquisition of PSNC (decreased $.05 and increased $.20, respectively). Results
for these periods are further explained below.
Earnings from operations for the three months ended June 30, 2000
increased $.04. This was primarily attributable to improved electric and gas
margins ($.16 and $.23, respectively). These increases were partially offset by
increased operations and maintenance expense ($.13), interest expense ($.12),
depreciation expense ($.06) property taxes ($.02 ) and other ($.02).
Earnings from operations for the six months ended June 30, 2000
increased $.40. This was primarily attributable to improved electric and gas
margins ($.25 and $.81, respectively). These increases were partially offset by
increased operations and maintenance expenses ($.21), interest expense ($.24),
depreciation expense ($.14), property taxes ($.03) and other ($.04).
Earnings from a change in accounting resulted from the recording of
unbilled revenues by SCANA's retail utility subsidiaries (See Note 2 of NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS).
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 1% and 5% of
income before income taxes for the six months ended June 30, 2000 and 1999,
respectively.
The Company's Board of Directors declared the following quarterly
dividends on common stock:
- -------------------- -------------- ------------------ ------------------
Declaration Dividend Record Payment
Date Per Share Date Date
- -------------------- -------------- ------------------ ------------------
February 22, 2000 $.2875 March 10, 2000 April 1, 2000
April 27, 2000 $.2875 June 9, 2000 July 1, 2000
- -------------------- -------------- ------------------ ------------------
Electric Operations
Changes in the electric operations sales margins (including transactions
with affiliates and excluding unbilled revenue) for the three and six months
ended June 30, 2000, when compared to the corresponding periods in 1999, were as
follows:
- ------------------------------ --------------------------------------- ----------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- ------------------------------ -------- ----------------------- -------- -------- -----------------
Electric operating revenue $319.8 $292.8 $27.0 9.2% $614.1 $559.0 $55.1 9.9%
Less: Fuel used in generation 72.7 72.3 0.4 0.6% 142.8 133.4 9.4 7.0%
Purchased power 10.7 10.6 0.1 0.9% 17.4 14.3 3.1 21.7%
- ------------------------------ -------- --------------- -------- -------- -------
Margin $236.4 $209.9 $26.5 12.6% $453.9 $411.3 $42.6 10.4%
- ------------------------------ ======== ===============-------- ======== ======== ===============
Electric operations sales margins increased for the three and s months
ended June 30, 2000, when compared to the corresponding periods in 1999,
primarily as a result of more favorable weather and customer growth.
Gas Distribution
Changes in the gas distribution sales margins (including transactions
with affiliates and excluding unbilled revenue) for the three and six months
ended June 30, 2000, when compared to the corresponding periods in 1999, were as
follows:
- --------------------------------- ------------------------- -------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- --------------------------------- ---------------- ------------- -------- -------------------------
Gas distribution operating
revenue $106.3 $44.3 $62.0 * $361.9 $130.4 $231.5 *
Less: Gas purchased for resale 66.2 29.0 37.2 * 218.9 78.1 140.8 *
--------------------------------- ---------------- -------- -------- -------------------
Margin $ 40.1 $15.3 $24.8 * $143.0 $ 52.3 $ 90.7 *
- --------------------------------- ================ =========----- ======== =================== =====
* Greater than 100%
Gas distribution sales margins for the three and six months ended June
30, 2000 increased from 1999 levels primarily as a result of the acquisition of
PSNC (which contributed $28.2 million and $91.7 million to the change,
respectively). The resulting decreases were primarily due to cooler weather in
the second quarter, which was partially offset by customer growth.
Gas Transmission
Changes in the gas transmission sales margins (including transactions
with affiliates) for the three and six months ended June 30, 2000, when compared
to the corresponding periods in 1999, were as follows:
- -------------------------------- ---------------------------------------- ------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- -------------------------------- ---------------- ------------------------- --------------------------
Gas transmission operating
Revenue $98.7 $67.6 $31.1 46.0% $215.7 $160.6 $55.1 34.3%
Less: Gas purchased for resale 84.5 56.9 27.6 48.5% 186.6 137.4 49.2 35.8%
- ------------------------------- ---------------- --------- ------------------- -------
Margin $14.2 $10.7 $ 3.5 32.7% $ 29.1 $ 23.2 $ 5.9 25.4%
- -------------------------------- ================ ========--------========= ================== =======
Gas transmission sales margins for the three and six months ended June
30, 2000 increased from 1999 levels primarily as a result of improved industrial
margins due to an improved competitive position relative to alternate fuels.
Energy Marketing
Changes in the energy marketing sales margins for the three and six
months ended June 30, 2000, when compared to the corresponding periods in 1999,
were as follows:
- ------------------------------- ------------------------------------- ------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- ------------------------------- ---------------- ------------- ---------- -------- ------------------
Gas and electric sales revenue $177.9 $60.0 $117.9 * $394.0 $209.5 $184.5 88.1%
Less: Gas and electricity
purchased for resale 168.2 60.9 107.3 * 354.1 208.7 145.4 69.7%
- ------------------------------- ---------------- --------- ---------- -------- --------
Margin $ 9.7 $(0.9) $ 10.6 * $ 39.9 $ 0.8 $ 39.1 *
- ------------------------------- ================= =========----========== ======== ======== =========
*Greater than 100%
Energy marketing sales margins for the three and six months ended June
30, 2000 increased primarily as a result of improved margins in the Georgia
retail natural gas market. See LIQUIDITY AND CAPITAL RESOURCES.
Other Operating Expenses
Changes in other operating expenses for the three and six months ended
June 30, 2000, when compared to the corresponding periods in 1999, were as
follows:
- -------------------------------- -------------------------------------- ----------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- -------------------------------- -------- ------------------------- ---------- ---------- ------------------
Other operation and maintenance $119.6 $ 97.7 $21.9 22.4% $228.6 $193.8 $34.8 18.0%
Depreciation and amortization 52.8 42.1 10.7 25.4% 107.6 84.0 23.6 28.1%
Other taxes 28.9 25.3 3.6 14.2% 58.2 52.4 5.8 11.1%
- -------------------------------- -------- ----------------- ---------- ---------- --------
Total $201.3 $165.1 $36.2 21.9% $394.4 $330.2 $64.2 19.4%
- -
- -------------------------------- ======== ================= ------- ========== ========== ======== =========
Other operating expenses for the three and six months ended June 30,
2000 increased from 1999 levels primarily as a result of the acquisition of
PSNC. This acquisition accounted for the following increases: Other operation
and maintenance ($18.5 million and $35.0 million), Depreciation and amortization
($10.4 million and $20.9 million), and Other taxes ($1.7 million and $3.3
million).
Apart from the PSNC acquisition, changes in other operating expenses for
the three months ended June 30, 2000 compared to the corresponding period for
1999 were as follows: Other operation and maintenance expenses increased $3.4
million. This increase was primarily attributable to increased operating and
maintenance costs for electric generation and distribution facilities ($5.4
million), and was partially offset by decreased operating expenses at Energy
Marketing ($1.8 million). Depreciation and amortization expenses increased $0.3
million due to normal property additions, which was partially offset by a
reduction in SCE&G's gas depreciation rates (See LIQUIDITY AND CAPITAL
RESOURCES). Other taxes increased $1.9 million due to increased property taxes.
Apart from the PSNC acquisition, changes in other operating expenses for
the six months ended June 30, 2000 compared to the corresponding period for 1999
were as follows: Other operation and maintenance expense decreased $0.2 million.
This decrease results from decreased operating expenses at Energy Marketing
($10.3 million), increased operating and maintenance cost for electric
generation and distribution facilities ($10.6 million), and other. Depreciation
and amortization expenses increased $2.7 million due to normal property
additions, which was partially offset by a reduction in SCE&G's gas depreciation
rates retroactive to January 1, 2000 (See LIQUIDITY AND CAPITAL RESOURCES).
Other taxes increased $2.5 million due to increased property taxes.
Interest Expense
Interest expense, excluding the debt component of AFC, for the three and
six months ended June 30, 2000 increased approximately $19.5 million and $39.3
million, respectively, when compared to the corresponding periods in 1999.
Approximately $4.6 million and $9.7 million was attributable to PSNC debt
assumed by the Company during the acquisition. The remaining increase was
primarily due to the issuance of debt in the first quarter of 2000 to complete
the acquisition of PSNC.
Income Taxes
Income taxes for the three and six months ended June 30, 2000 increased
approximately $6.5 million and $34.8 million, respectively, when compared to the
corresponding periods in 1999. These increases are primarily due to the changes
in operating income.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
All financial instruments held by the Company described below are held for
purposes other than trading.
Interest rate risk - The table below provides information about the
Company's financial instruments that are sensitive to changes in interest rates.
For debt obligations, the table presents principal cash flows and related
weighted average interest rates by expected maturity dates.
June 30, 2000
Expected Maturity Date
-------- ------- -------------------------------- ---------- ----------------------
(Dollars in Millions)
There- Fair
Liabilities 2000 2001 2002 2003 2004 after Total Value
-------- ------- ---------- ---------- ---------- ---------- ---------- -----------
Long-Term Debt:
Fixed Rate ($) 34.2 38.0 36.9 296.8 186.3 1,426.1 2,018.3 1,730.7
Average Fixed Interest Rate (%) 7.15 7.31 7.22 6.38 7.58 7.37 7.23
Variable Rate ($) 150.0 - 550.0 150.0 - - 850.0 850.0
Average Variable Interest Rate (%) 6.56 - 7.12 7.02 - - 7.00
June 30, 1999
Expected Maturity Date
--------- ------- -------------------------------- ---------- ----------------------
(Dollars in Millions)
There- Fair
Liabilities 1999 2000 2001 2002 2003 after Total Value
--------- ------- ---------- ---------- ---------- ---------- ---------- -----------
Long-Term Debt:
Fixed Rate ($) 87.9 363.5 27.5 27.5 284.4 1,265.8 2,056.6 1,969.2
Average Fixed Interest Rate (%) 6.93 5.77 6.86 6.86 6.29 7.35 7.00
While a decrease in interest rates would increase the fair value of debt,
it is unlikely that events which would result in a realized loss will occur.
In addition, the Company has invested in a telecommunications company
approximately $40 million for 11.875% senior discount notes due 2007. The fair
value of these notes approximates their carrying value. An increase in market
interest rates would result in a decrease in fair value of these notes and a
corresponding adjustment, net of tax, to other comprehensive income.
Commodity price risk - The table below provides information about the
Company's financial instruments that are sensitive to changes in natural gas
prices. Weighted average settlement/strike prices are per 10,000 mmbtu.
As of June 30, 2000 Expected Maturity in 2000 Expected
Maturity in 2001
Weighted Avg Contract Fair Weighted Avg Contract Fair
Settlement Price Amount Value Settlement Price Amount Value
- --------------------------------------------- ----------- ----------- ------------------ ----------- ------------
Natural Gas Derivatives: (Millions of Dollars) (Millions of Dollars)
Future Contracts:
Long $4.481 $25.6 $26.8 $4.141 $1.8 $2.3
Short $4.536 $ 2.2 $ 3.7 - - -
SET Futures Contracts (1):
Long - - - - - -
Short $4.476 $ 0 .4 $ 0 .6 - - -
- --------------------------------------------- ----------- ----------- ------------------ ----------- ------------
Natural Gas Derivatives: Weighted Avg Strike Price Contract Amount
- ---------------------------------------- -------------------------------------- --------------------------------------
(Millions of Dollars)
Options:
Purchased call (long) $2.577 $4.4
Sold call (short) $2.593 $3.4
- ---------------------------------------- -------------------------------------- --------------------------------------
As of June 30, 1999 Expected Maturity in 1999 Expected Maturity
in 2000
Weighted Avg Contract Fair Weighted Avg Contract Fair
Settlement Price Amount Value Settlement Price Amount Value
- ------------------------------ ------------------ ----------- ----------- ------------------ ----------- ------------
Natural Gas Derivatives: (Millions of Dollars) (Millions of Dollars)
Future Contracts:
Long $2.529 $21.2 $25.1 $2.693 $11.2 $12.7
Short $2.523 $ 9.0 $ 9.4 $2.726 $ 2.5 $ 2.5
SET Futures Contracts (1):
None
- ------------------------------ ------------------ ----------- ----------- ------------------ ----------- ------------
(1) SCANA Energy Trading, LLC (SET) is a 70% owned subsidiary of SCANA Energy
Marketing, Inc. Amounts shown are at 100%.
Equity price risk - Investments in telecommunications companies' marketable
equity securities are carried at their market value of $723.4 million. A ten
percent decline in market value would result in a $72.3 million reduction in
fair value and a corresponding adjustment, net of tax effect, to the related
equity account for unrealized gains/losses, a component of other comprehensive
income.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
FINANCIAL SECTION
Item 1. Financial Statements
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and December 31, 1999
(Unaudited)
- -----------------------------------------------------------------------------------------------------------
June 30, December 31,
2000 1999
- ------------------------------------------------------------------------------------ -----------------------
Assets (Millions of Dollars)
Utility Plant:
Electric $4,357 $4,337
Gas 393 392
Other 182 191
- ------------------------------------------------------------------------------------ -----------------------
Total 4,932 4,920
Less accumulated depreciation and amortization 1,669 1,611
- ------------------------------------------------------------------------------------ -----------------------
Total 3,263 3,309
Construction work in progress 212 149
Nuclear fuel, net of accumulated amortization 57 43
- ------------------------------------------------------------------------------------ -----------------------
Utility Plant, Net 3,532 3,501
- ------------------------------------------------------------------------------------ -----------------------
Nonutility Property and Investments, net of accumulated
depreciation 23 19
- ----------------------------------------------------------------------------------- -----------------------
Current Assets:
Cash and temporary cash investments 43 78
Receivables (including unbilled revenues) 235 195
Inventories (at average cost):
Fuel 27 30
Materials and supplies 45 48
Prepayments 16 8
Deferred income taxes 16 16
- ----------------------------------------------------------------------------------- -----------------------
Total Current Assets 382 375
- ----------------------------------------------------------------------------------- -----------------------
Deferred Debits:
Emission allowances 28 31
Environmental 21 24
Nuclear plant decommissioning fund 68 64
Pension asset, net 163 144
Other regulatory assets 151 164
Other 88 82
- ----------------------------------------------------------------------------------- -----------------------
Total Deferred Debits 519 509
- ----------------------------------------------------------------------------------- -----------------------
Total $4,456 $4,404
=================================================================================== =======================
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of June 30, 2000 and December 31, 1999
(Unaudited)
- --------------------------------------------------------------------------------------- -------------------- -------------------
June 30, December 31,
2000 1999
- --------------------------------------------------------------------------------------- -------------------- -------------------
Capitalization and Liabilities (Millions of Dollars)
Stockholders' Investment:
Common equity $1,611 $1,558
Preferred stock (not subject to purchase or sinking funds) 106 106
- --------------------------------------------------------------------------------------- -------------------- -------------------
Total Stockholders' Investment 1,717 1,664
Preferred Stock, net (subject to purchase or sinking funds) 11 11
SCE&G-Obligated Mandatorily Redeemable Preferred Securities of SCE&G's
Subsidiary Trust, SCE&G Trust I, holding solely $50 million principal amount
of the 7.55%
Junior Subordinated Debentures of SCE&G, due 2027 50 50
Long-Term Debt, net 1,269 1,121
- --------------------------------------------------------------------------------------- -------------------- -------------------
Total Capitalization 3,047 2,846
- --------------------------------------------------------------------------------------- -------------------- -------------------
Current Liabilities:
Short-term borrowings 136 213
Current portion of long-term debt 28 128
Accounts payable 75 78
Accounts payable - affiliated companies 26 33
Customer deposits 16 17
Taxes accrued 69 60
Interest accrued 22 22
Dividends declared 35 28
Other 10 10
- --------------------------------------------------------------------------------------- -------------------- -------------------
Total Current Liabilities 417 589
- --------------------------------------------------------------------------------------- -------------------- -------------------
Deferred Credits:
Deferred income taxes 574 560
Deferred investment tax credits 106 108
Reserve for nuclear plant decommissioning 68 64
Postretirement benefits 102 98
Regulatory liabilities 68 59
Other 74 80
- --------------------------------------------------------------------------------------- -------------------- -------------------
Total Deferred Credits 992 969
- --------------------------------------------------------------------------------------- -------------------- -------------------
Total $4,456 $4,404
======================================================================================= ==================== ===================
See Notes to Consolidated Financial Statements.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Periods Ended June 30, 2000 and 1999
(Unaudited)
- -------------------------------------------------------------------- ------------------------ ---------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
(Millions of Dollars, Except Per Share Amounts)
Operating Revenues:
Electric $320 $293 $614 $559
Gas 51 45 151 130
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Total Operating Revenues 371 338 765 689
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Operating Expenses:
Fuel used in electric generation 55 55 112 99
Purchased power (including affiliated purchases) 37 37 67 66
Gas purchased from affiliate for resale 39 29 100 78
Other operation and maintenance 81 76 154 143
Depreciation and amortization 39 38 79 76
Other taxes 24 23 50 47
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Total Operating Expenses 275 258 562 509
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Operating Income 96 80 203 180
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Other Income, including allowance for equity funds
used during construction 2 3 8 5
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Income Before Interest Charges, Income Taxes
and Preferred Stock Dividends 98 83 211 185
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Interest Charges (Credits):
Interest expense on long-term debt 25 24 49 47
Other interest expense, including allowance for borrowed
funds used during construction 1 1 3 3
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Total Interest Charges, Net 26 25 52 50
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Income Before Income Taxes and Preferred Stock Dividends 72 58 159 135
Income Taxes 27 20 58 48
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Income Before Preferred Dividend Requirements
on Mandatorily Redeemable Preferred Securities 45 38 101 87
Preferred Dividend Requirement of SCE&G - Obligated
Mandatorily Redeemable Preferred Securities 1 1 2 2
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Income Before Cumulative Effect of Accounting Change 44 37 99 85
Cumulative Effect of Accounting Change, net of taxes (Note 2) - - 22 -
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Net Income 44 37 121 85
Preferred Stock Cash Dividends (At stated rates) (2) (2) (4) (4)
- -------------------------------------------------------------------- ---------- ------------- ------------- -------------
Earnings Available for Common Stock 42 35 117 81
Retained Earnings at Beginning of Period 593 501 550 491
Common Stock Cash Dividends Declared (32) (36) (64) (72)
==================================================================== ========== ============= ============= =============
Retained Earnings at End of Period $603 $500 $603 $500
==================================================================== ========== ============= ============= =============
See Notes to Consolidated Financial Statements.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended June 30, 2000 and 1999
(Unaudited)
- -------------------------------------------------------------------------------
Six Months Ended
June 30,
2000 1999
- --------------------------------------------------------------------------------
(Millions of Dollars)
Cash Flows From Operating Activities:
Net income $121 $ 85
Adjustments to reconcile net income to net
cash provided from operating activities:
Cumulative effect of accounting change (22) -
Depreciation and amortization 80 77
Amortization of nuclear fuel 10 7
Deferred income taxes, net 14 15
Pension asset (19) (13)
Post retirement benefits 4 6
Other regulatory assets 11 10
Other regulatory liabilities 9 4
Allowance for funds used during construction (3) (4)
Over (under) collections, fuel adjustment clauses 11 -
Changes in certain current assets and liabilities:
(Increase) decrease in receivables (18) 13
(Increase) decrease in inventories 6 -
Increase (decrease) in accounts payable (10) (33)
Increase (decrease) in taxes accrued 9 (17)
Other, net (29) (51)
- --------------------------------------------------------------------------------
Net Cash Provided From Operating Activities 174 99
- --------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Utility property additions and construction
expenditures, net of AFC (113) (116)
Other property and investments (4) -
- -------------------------------------------------------------------------------
Net Cash Used For Investing Activities (117) (116)
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds:
Issuance of First Mortgage Bonds 148 99
Repayments:
First Mortgage Bonds (100) -
Other long-term debt (2) (3)
Dividend payments:
Common stock (57) (72)
Preferred stock (4) (4)
Short-term borrowings, net (77) (30)
Fuel and emission allowance financings, net - 15
- -------------------------------------------------------------------------------
Net Cash Provided From (Used For) Financing Activities (92) 5
- -------------------------------------------------------------------------------
Net Decrease In Cash And Temporary Cash Investments (35) (12)
Cash And Temporary Cash Investments At January 1 78 36
================================================================================
Cash And Temporary Cash Investments At June 30 $ 43 $ 24
================================================================================
Supplemental Cash Flow Information:
Cash paid for - Interest (net of capitalized interest
of $2 for 2000 and 1999) $ 50 $ 48
- Income taxes 17 18
See Notes to Consolidated Financial Statements.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Unaudited)
The following notes should be read in conjunction with the Notes to
Consolidated Financial Statements appearing in South Carolina Electric & Gas
Company's (the Company) Annual Report on Form 10-K for the year ended December
31, 1999. These are interim financial statements, and due to the seasonality of
the Company's business, 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 except as described in Notes 2 and
3, which are necessary for a fair statement of the results for the interim
periods reported.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Basis of Accounting
The Company accounts for its regulated utility operations, assets and
liabilities in accordance with the provisions of Statement of Financial
Accounting Standards No. 71 (SFAS 71). The accounting standard requires
cost-based rate-regulated utilities to recognize in their financial
statements revenues and expenses in different time periods than do
enterprises that are not rate-regulated. As a result, the Company has
recorded, as of June 30, 2000, approximately $173 million and $68 million
of regulatory assets and liabilities, respectively, including amounts
recorded for deferred income tax assets and liabilities of approximately
$121 million and $43 million, respectively. The electric and gas
regulatory assets (excluding deferred income tax assets) of approximately
$25 million and $26 million, respectively, are being recovered through
rates, and the Public Service Commission of South Carolina (PSC) has
approved accelerated recovery of approximately $3 million of the electric
regulatory 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 could be required to
write off its regulatory assets and liabilities. Such an event could have
a material adverse effect on the Company's results of operations in the
period that a write-off would be required, but it is not expected that
cash flows or financial position would be materially affected.
B. Recently Issued Accounting Bulletin
The Securities and Exchange Commission (SEC) issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements." The
Bulletin, which will be implemented by the Company by the fourth quarter
of 2000, provides the SEC's staff views in applying generally accepted
accounting principles to selected revenue recognition issues. The Company
does not expect the adoption of this Bulletin to have a material impact
on the Company's results of operations, cash flows or financial position.
C. Reclassifications
Certain amounts from prior periods have been reclassified to conform with
the 2000 presentation.
2. Cumulative Effect of Accounting Change
Effective January 1, 2000 the Company changed its method of accounting
for operating revenues from cycle billing to full accrual. The
cumulative effect of this change was $22 million, net of tax. Accruing
unbilled revenues more closely matches revenues and expenses. Unbilled
revenues represent the estimated amount customers will be charged for
service received, but that has not yet been billed, as of the end of the
accounting period. Previously these revenues were recognized as
operating revenues as customers were billed.
If this method had been applied retroactively, net income would have
been $42 million and $107 million for the three and six months ended
June 30, 1999, respectively, compared to $37 million and $85 million as
previously reported.
3. RATE MATTERS
On September 14, 1999 the PSC approved an accelerated capital recovery
plan for the Company's Cope Generating Station. The plan was implemented
beginning January 1, 2000 for a three-year period. The PSC approved an
accelerated capital recovery methodology wherein the Company will
increase depreciation of its Cope Generating Station in excess of
amounts that would be recorded based upon currently approved
depreciation rates. The amount of the accelerated depreciation will be
determined by the Company based on the level of revenues and operating
expenses, not to exceed $36 million annually without the approval of the
PSC. Any unused portion of the $36 million in any given year could be
carried forward for possible use in the subsequent year. The accelerated
capital recovery plan will be accomplished through existing customer
rates.
In September 1992 the PSC issued an order granting the Company a $.25
increase in transit fares from $.50 to $.75 in Columbia, South Carolina;
however, the PSC also required $.40 fares for low income customers and
denied the Company's request to reduce the number of routes and
frequency of service. The new rates were placed into effect in October
1992. The Company appealed the PSC's order to the Circuit Court, which
in May 1995 ordered the case back to the PSC for reconsideration of
several issues including the low income rider program, routing changes,
and the $.75 fare. The Supreme Court declined to review an appeal of the
Circuit Court decision and dismissed the case. The PSC and other
intervenors filed another Petition for Reconsideration, which the
Supreme Court denied. The PSC and other intervenors filed another appeal
to the Circuit Court which the Circuit Court denied in an order dated
May 9, 1996. In this order, the Circuit Court upheld its previous orders
and remanded them to the PSC. During August 1996 the PSC heard oral
arguments on the orders on remand from the Circuit Court. On September
30, 1996 the PSC issued an order affirming its previous orders and
denied the Company's request for reconsideration. The Company has
appealed these two PSC orders to the Circuit Court where they are
awaiting action.
4. RETAINED EARNINGS
The Restated Articles of Incorporation of the Company and the Indenture
underlying its First and Refunding Mortgage Bonds contain provisions
that, under certain circumstances, could limit the payment of cash
dividends on its common stock.
In addition, with respect to hydroelectric projects, the Federal Power
Act requires the appropriation of a portion of certain earnings
therefrom. At June 30, 2000, approximately $31 million of retained
earnings were restricted by this requirement as to payment of cash
dividends on common stock.
5. CONTINGENCIES
With respect to commitments at June 30, 2000, 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,
1999.
Contingencies at June 30, 2000 are as follows:
A. Nuclear Insurance
The Price-Anderson Indemnification Act, which deals with public liability
for a nuclear incident, currently establishes the liability limit for
third-party claims associated with any nuclear incident at $9.5 billion.
Each reactor licensee is currently liable for up to $88.1 million per
reactor owned for each nuclear incident occurring at any reactor in the
United States, provided that not more than $10 million of the liability
per reactor would be assessed per year. The Company's maximum assessment,
based on its two-thirds ownership of the V. C. Summer Nuclear Station
(Summer Station), would be approximately $58.7 million per incident, but
not more than $6.7 million per year.
The Company currently maintains policies (for itself and on behalf of
the South Carolina Public Service Authority) with Nuclear Electric
Insurance Limited (NEIL). These policies covering the nuclear facility
for property damage, excess property damage and outage costs permit
assessment under certain conditions to cover insurer's losses. Based on
the current annual premium, the Company's portion of the retrospective
premium assessment would not exceed $8.1 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 results of operations, cash flows and financial position.
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 expenditures, if any, deemed necessary to investigate and
clean up each site. These estimates are refined as additional
information becomes available; therefore, actual expenditures could
differ significantly from the original estimates. Amounts estimated and
accrued to date for site assessments and cleanup relate primarily to
regulated operations. Such amounts are deferred and amortized with
recovery provided through rates. The Company has also recovered portions
of its environmental liabilities through settlements with various
insurance carriers. The Company has recovered all amounts previously
deferred for its electric operations. The Company expects to recover all
deferred amounts related to its gas operations by December 2005.
Deferred amounts, net of amounts recovered through rates and insurance
settlements, totaled $20.2 million at June 30, 2000. The deferral
includes the estimated costs associated with the following matters.
o 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 encompasses approximately 30 acres and includes properties
which were locations for industrial operations, including a wood
preserving (creosote) plant, one of the Company's decommissioned
manufactured gas plants (MGP), properties owned by the National Park
Service and the City of Charleston, and private properties. The site
has not been placed on the National Priorities List, but may be added
in the future. The Potentially Responsible Parties (PRPs) 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 the EPA approved a Remedial
Investigation Report in February 1997 and a Feasibility Study Report
in June 1998. In July 1998 the EPA approved the Company's Removal
Action Work Plan for soil excavation. The Company completed Phase One
of the Removal Action in 1998 at a cost of approximately $1.5 million.
Phase Two, which cost approximately $3.5 million, included excavation
and installation of several permanent barriers to mitigate coal tar
seepage. On September 30, 1998 a Record of Decision was issued which
sets forth the EPA's view of the extent of each PRP's responsibility
for site contamination and the level to which the site must be
remediated. The Company estimates that the Record of Decision will
result in costs of approximately $13.3 million, of which approximately
$4 million remains. On January 13, 1999 the EPA issued a Unilateral
Administrative Order for Remedial Design and Remedial Action directing
the Company to design and carry out a plan of remediation for the
Calhoun Park site. The Order is temporarily stayed pending further
negotiations between the Company and the EPA. However, the Company
submitted a Comprehensive Remedial Design Work Plan (RDWP) on December
17, 1999 and proceeded with implementation pending agency approval.
The RDWP was approved by the EPA in July 2000, and its implementation
continues.
In October 1996 the City of Charleston and the Company settled
all environmental claims the City may have had against the Company
involving the Calhoun Park area for a payment of $26 million over four
years (1996-1999) by the Company to the City. The Company is
recovering the amount of the settlement, which does not encompass site
assessment and cleanup costs, through rates in the same manner as
other amounts accrued for site assessments and cleanup. As part of the
environmental settlement, the Company constructed an 1,100 space
parking garage on the Calhoun Park site (construction was completed in
April 2000) and transferred 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
still being finalized but is not to exceed $16.9 million, the maximum
expected project cost.
o The Company owns three other decommissioned MGP sites which contain
residues of by-product chemicals. For the site located in Sumter,
South Carolina, effective September 15, 1998, the Company entered into
a Remedial Action Plan Contract with the South Carolina Department of
Health and Environmental Control (DHEC) pursuant to which it agreed to
undertake a full site investigation and remediation under the
oversight of DHEC. Site investigation and characterization are
proceeding according to schedule. Upon selection and successful
implementation of a site remedy, DHEC will give the Company a
Certificate of Completion and a covenant not to sue. The Company is
continuing to investigate the other two sites, and is monitoring the
nature and extent of residual contamination.
6. SEGMENT OF BUSINESS INFORMATION
The Company's reportable segments are listed in the following table. The Company
uses operating income to measure profitability for its Electric Operations and
Gas Distribution segments. Therefore, net income is not allocated to these
segments. Affiliate revenue is derived from transactions between reportable
segments as well as transactions between separate legal entities that are
combined into the same reportable segment. Assets for the period did not change
significantly.
Disclosure of Reportable Segments
(Millions of Dollars)
- --------------------------------- ----------------------------------------------
Three months ended Electric Gas All Adjustments/ Consolidated
June 30, 2000 Operations Distribution Other Eliminations Total
- --------------------------------- ----------------------------------------------
External Revenue $320 $51 - - $371
Intersegment Revenue 51 - - $(51) -
Operating Income (Loss) 99 (2) - (1) 96
- ---------------------------- ---------- ------------ ------ -------------- -----
- --------------------------------- ----------------------------------------------
Three months ended Electric Gas All Adjustments/ Consolidated
June 30, 1999 Operations Distribution Other Eliminations Total
- --------------------------------- ----------------------------------------------
External Revenue $293 $45 - - $338
Intersegment Revenue 52 - - $(52) -
Operating Income (Loss) 82 (1) - (1) 80
- --------------------------------- ----------------------------------------------
- ------------------------------- ------------ -----------------------------------
Six months ended Electric Gas All Adjustments/ Consolidated
June 30, 2000 Operations Distribution Other Eliminations Total
- ------------------------------- ------------ -----------------------------------
External Revenue $614 $151 - - $765
Intersegment Revenue 106 - - $(106) -
Operating Income 185 21 - (3) 203
- ------------------------------------------- -----------------------------------
- --------------------------------- ----------------------------------------------
Six months ended Electric Gas All Adjustments/ Consolidated
June 30, 1999 Operations Distribution Other Eliminations Total
- --------------------------------- ----------------------------------------------
External Revenue $559 $130 - - 689
Intersegment Revenue 96 - - $ (96) -
Operating Income 161 20 - (1) 180
- --------------------------------- ----------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SOUTH CAROLINA ELECTRIC & GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in South Carolina Electric & Gas Company's (SCE&G) Annual Report on
Form 10-K for the year ended December 31, 1999.
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) changes in the utility regulatory
environment, (3) changes in the economy in SCE&G's service territory, (4) the
impact of competition from other energy suppliers, (5) the management of SCE&G's
operations, (6) variations in prices of natural gas and fuels used for electric
generation, (7) growth opportunities, (8) the results of financing efforts, (9)
changes in SCE&G's accounting policies, (10) weather conditions in areas served
by SCE&G, (11) inflation, (12) exposure to environmental issues and liabilities,
(13) changes in environmental regulations and (14) the other risks and
uncertainties described from time to time in SCE&G's periodic reports filed with
the Securities and Exchange Commission. SCE&G disclaims any obligation to update
any forward-looking statements.
MATERIAL CHANGES IN CAPITAL RESOURCES AND LIQUIDITY
SINCE DECEMBER 31, 1999
LIQUIDITY AND CAPITAL RESOURCES
On July 18, 2000 the South Carolina Public Service Commission (PSC)
approved a 16.8 percent increase in natural gas prices charged by SCE&G. The
increase became effective on August 1, 2000.
On July 5, 2000 the PSC approved SCE&G's request to implement lower
depreciation rates for its gas operations. The new rates were effective
retroactively to January 1, 2000 and will result in a reduction in annual
depreciation expense of approximately $2.9 million.
On September 14, 1999 the PSC approved an accelerated capital recovery
plan for SCE&G's Cope Generating Station. The plan will be implemented beginning
January 1, 2000 for a three-year period. The PSC approved an accelerated capital
recovery methodology wherein SCE&G will increase depreciation of its Cope
Generating Station in excess of amounts that would be recorded based upon
currently approved depreciation rates. The amount of the accelerated
depreciation will be determined by SCE&G based on the level of revenues and
operating expenses, not to exceed $36 million annually without the approval of
the PSC. Any unused portion of the $36 million in any given year could be
carried forward for possible use in the succeeding year. The accelerated capital
recovery plan will be accomplished through existing customer rates.
On August 7, 1996 the City of Charleston executed 30-year electric and
gas franchise agreements with SCE&G. In consideration for the electric franchise
agreement, SCE&G is paying the City $25 million over seven years (1996 through
2002) and has donated to the City the existing transit assets in Charleston. The
$25 million is included in electric plant-in-service. In settlement of
environmental claims the City may have had against SCE&G involving the Calhoun
Park area, where SCE&G and its predecessor companies operated a manufactured gas
plant until the 1960's, SCE&G paid the City $26 million over a four-year period
(1996 through 1999). As part of the environmental settlement, SCE&G constructed
an 1,100 space parking garage on the Calhoun Park site (construction was
completed in April 2000) and transferred 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 still being
finalized, but is not to exceed $16.9 million, the maximum expected project
cost.
The following table summarizes how SCE&G generated funds for its utility
property additions and construction expenditures during the six months ended
June 30, 2000 and 1999:
- --------------------------------------------------------------------------------
Six Months Ended
June 30,
2000 1999
- ------------------------------------------------------------------ ------------
(Millions of Dollars)
Net cash provided from operating activities $174 $ 99
Net cash provided from (used for)
financing activities (92) 5
Cash and temporary cash investments
available at the beginning of the period 78 36
- --------------------------------------------------------------------------
Net cash available for utility property
additions and construction expenditures $160 $140
- --------------------------------------------------------------------------
Funds used for utility property additions and
construction expenditures, net of
noncash allowance for funds used during construction $113 $116
- --------------------------------------------------------------------------
Funds used for nonutility property additions
and investments $ 4 $ -
==========================================================================
On June 14, 2000 SCE&G issued $150 million of First Mortgage Bonds having
an annual interest rate of 7.50 percent and maturing on June 15, 2005. The
proceeds from the sale of these bonds were used to pay the maturity of SCE&G's
$100 million First Mortgage Bonds due June 15, 2000, to reduce short-term debt
and for general corporate purposes.
SCE&G anticipates that the remainder of its 2000 cash requirements will
be met through internally generated funds and the incurrence of additional
short-term and long-term debt. The timing and amount of such financings will
depend upon market conditions and other factors. SCE&G expects that it has or
can obtain adequate sources of financing to meet its projected cash requirements
for the next twelve months and for the foreseeable future. The ratio of earnings
to fixed charges for the twelve months ended June 30, 2000 was 4.22.
Regional Transmission Organization
On February 9, 2000 the Federal Energy Regulatory Commission (FERC)
issued FERC Order 2000. The Order requires utilities which operate electric
transmission systems to submit plans by October 16, 2000 for the possible
formation of a regional transmission organization (RTO). On July 18, 2000 SCE&G
and two other southeastern electric utilities (the three utilities) announced
plans to create GridSouth, LLC. When formed, GridSouth will function as an
independent regional transmission company. Initially, the three utilities will
continue to own their respective transmission networks, while GridSouth will
provide planning and operational oversight of the electric transmission grid.
The three utilities plan to file a plan with FERC later this year regarding
formation of GridSouth.
Environmental Matters
In July 2000 the Environmental Protection Agency (EPA) sent the Company a
request seeking information on SCE&G's repair and maintenance of its coal-fired
plants since 1978. This is part of the EPA's New Source Review (NSR) enforcement
initiative, in which the EPA claims that utilities and others have committed
widespread violations of the Clean Air Act permitting requirements for the past
quarter century. In November 1999 the EPA filed suit against seven utilities and
issued an administrative order to Tennessee Valley Authority alleging numerous
NSR permitting violations. The EPA's allegations run counter to previous EPA
guidance regarding the applicability of the NSR permitting requirements. SCE&G,
along with several other utilities, has routinely undertaken the type of repair,
replacement and maintenance projects that the EPA now claims are illegal. A suit
has not been instituted against SCE&G, and while it is too early to predict any
potential EPA action, SCE&G believes that all of its electric generation units
are properly permitted and have been properly maintained. Because this matter is
in its most preliminary stage with respect to SCE&G, management cannot estimate
the effects of these matters on future consolidated results of operations or
financial position.
In October 1998, the EPA issued a final ruling on regional ozone
control that requires revised State Implementation Plans (SIPs) for 22 eastern
states and the District of Columbia. This EPA ruling was challenged in court by
various states, industry and other interests, including the state of South
Carolina. In March 2000, the court upheld most aspects of the EPA's rule.
Petitioners asked the court to rehear the case and overturn the March decision,
but in June the court declined to rehear the case and lifted its earlier stay of
the states' obligation to revise their SIPs. Industry and State petitioners have
not decided at this time what additional review they may seek.
The EPA has undertaken other ozone-related actions having virtually
identical goals to its October 1998 action. These actions have likewise been
challenged in court by the same or similar parties. The final resolution of the
October 1998 action is expected to resolve these other ozone-related actions as
well. The South Carolina Department of Health and Environmental Control (DHEC)
is considering methods by which to reduce utility emissions of nitrogen oxide.
The date for a final state rulemaking is uncertain, but will be likely in 2001.
SCE&G will undertake additional nitrogen oxide control projects during 2000 and
2001, at a cost of approximately $100 million as an interim step to address
possible contributions to ozone formation in South Carolina. Depending on the
resolution of these matters, costs to SCE&G may reach $190 million to meet the
full requirements of the 1998 Ozone ruling expenditures for these projects will
be capitalized, and are expected to be completed by 2003.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000
AS COMPARED TO THE CORRESPONDING PERIODS IN 1999
Earnings and Dividends
Net income for the three and six months ended June 30, 2000 and 1999
were as follows:
Three Months Ended Six Months Ended
(Millions of Dollars) 2000 1999 Change 2000 1999 Change
- --------------------------------------------------------------------------------
Net income derived from:
Operations $44.3 $36.5 $7.8 $ 98.5 $84.3 $14.2
Change in accounting - - - 22.3 - 22.3
- --------------------------------------------------------------------------------
Total net $44.3 $36.5 $7.8 $120.8 $84.3 $36.5
income
================================================================ ========== ====
Net income from operations increased $7.8 million and $14.2 million for
the three and six months ended June 30, 2000, respectively, when compared to the
corresponding periods in 1999. This was primarily attributable to improved
electric margins ($15.8 million and $25.3 million), and was partially offset by
increased income taxes ($6.2 million and $10.8 million) and other operating
expenses.
Earnings from a change in accounting resulted from recording of
unbilled revenue (See Note 2 of NOTES TO CONSOLIDATED FINANCIAL STATEMENTS).
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 2% of income
before income taxes for the three and six months ended June 30, 2000 and 1999.
SCE&G's Board of Directors authorized payment of dividends on common
stock held by SCANA, as follows:
- ------------------- ----------------- ------------------- ----------------------
Declaration Dividend Quarter Payment
Date Amount Ended Date
- ------------------- ----------------- ------------------- ----------------------
February 17, 2000 $32.0 million March 31, 2000 April 1, 2000
April 27, 2000 $32.0 million June 30, 2000 July 1, 2000
- ------------------- ----------------- ------------------- ----------------------
Electric Operations
Changes in the electric operations sales margins (including
transactions with affiliates and excluding unbilled revenue) for the three and
six months ended June 30, 2000, when compared to the corresponding periods in
1999, were as follows:
- ----------------------------------------------------------------------- ---------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- ---------------------------------------------------------------------------------------------------
Electric operating revenue $319.8 $292.9 $26.9 9.2% $614.1 $559.1 $55.0 9.8%
Less: Fuel used in generation 55.2 54.4 0.8 1.5% 112.2 99.0 13.2 13.3%
Purchased power 37.6 37.1 0.5 1.3% 66.6 65.8 0.8 1.2%
- ------------------------------------------------------- --------------------------
Margin $227.0 $201.4 $25.6 12.7% $435.3 $394.3 $41.0 10.4%
- -------------------------------========================--------===================================
Electric operations sales margins increased for the three and six
months ended June 30, 2000, when compared to the corresponding periods in 1999,
primarily as a result of more favorable weather and customer growth.
Gas Distribution
Changes in the gas distribution sales margins (excluding unbilled
revenue) for the three and six months ended June 30, 2000, when compared to the
corresponding periods in 1999, were as follows:
- ----------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- ----------------------------------------------------------- -------- -------- ----------------
Gas operating revenue $51.0 $44.6 $ 6.4 14.3% $151.5 $130.4 $21.1 16.2%
Less: Gas purchased for resale 38.6 29.3 9.3 31.7% 100.3 78.1 22.2 28.4%
- ------------------------------------------------------- -------- ----------------
Margin $12.4 $15.3 $(2.9) (19.0%) $ 51.2 $ 52.3 $(1.1) (2.1%)
- -------------------------------========================------- ======== =======================
Gas distribution sales margins for the three and six months ended June 30,
2000 decreased from the corresponding periods in 1999 primarily as a result of
cooler weather in the second quarter, which was partially offset by customer
growth.
Other Operating Expenses
Changes in other operating expenses for the three and six months ended June
30, 2000 when compared to the corresponding periods in 1999, were as follows:
- ---------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
(Dollars in Millions) 2000 1999 Change 2000 1999 Change
- ------------------------------------------ ---------------------- ----------- --------- -----------
Other operation and maintenance $ 80.8 $ 75.4 $5.4 7.2% $154.2 $143.6 $10.6 7.4%
Depreciation and amortization 38.9 0.6 1.6% 79.2 76.4 2.8 3.7% 38.3
Other taxes 24.4 1.6 7.0% 49.6 47.4 2.2 4.6% 22.8
- ------------------------------------------ --------------- ----------- --------- ------
Total $144.1 $136.5 $7.6 5.6% $283.0 $267.4 $15.6 5.8%
- ---------------------------------========= ===============------- ======= ========= ================
Other operation and maintenance expenses for the three and six months ended
June 30, 2000 increased from 1999 levels primarily as a result of increased
operating and maintenance costs for electric generation and distribution
facilities. The increase in depreciation and amortization expenses resulted from
normal property additions, and is partially offset by a reduction in gas
depreciation rates retroactive to January 1, 2000 (See LIQUIDITY AND CAPITAL
RESOURCES).
Income Taxes
Income taxes for the three and six months ended June 30, 2000 increased
approximately $6.2 million and $10.8 million, respectively, when compared to the
corresponding periods in 1999. These increases are primarily due to the changes
in operating income.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
All financial instruments held by SCE&G described below are held for
purposes other than trading.
Interest rate risk - The table below provides information about SCE&G's
financial instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates.
June 30, 2000
Expected Maturity Date
----------------- ------------------------ ----------------
(Dollars in Millions)
There- Fair
Liabilities 2000 2001 2002 2003 2004 after Total Value
-------------------------------------------------- ----------
Long-Term Debt:
Fixed Rate ($) 2.5 27.5 27.6 129.5 123.9 1,083.0 1,394.0 1,282.7
Average Interest Rate (%) 6.53 6.73 6.73 6.37 7.52 7.55 7.40
June 30, 1999
Expected Maturity Date
------- ------------------------------- ------------------------
(Dollars in Millions)
There- Fair
Liabilities 1999 2000 2001 2002 2003 after Total Value
------- -------------------------------------------------------
Long-Term Debt:
Fixed Rate ($) 10.5 195.1 22.6 22.6 124.5 1,043.4 1,418.7 1,456.4
Average Interest Rate (%) 6.17 5.90 6.72 6.72 7.56 7.55 7.29
While a decrease in interest rates would increase the fair value of debt,
it is unlikely that events which would result in a realized loss will occur.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
SCANA Corporation:
For information regarding legal proceedings see Note 2 "Rate Matters,"
appearing in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999, and Note 7 "Contingencies" of Notes to
Consolidated Financial Statements appearing in this Quarterly Report on
Form 10-Q.
South Carolina Electric & Gas Company:
For information regarding legal proceedings see Note 2 "Rate Matters, "
appearing in South Carolina Electric & Gas Company's Annual Report on
Form 10-K for the year ended December 31, 1999, and Note 5
"Contingencies" of Notes to Consolidated Financial Statements appearing
in this Quarterly Report on Form 10-Q.
Item 4. Submission of Matters to a Vote of Security-Holders (not applicable
for South Carolina Electric & Gas Company)
The Annual Meeting of Shareholders of SCANA Common Stock (No Par Value)
was held on April 27, 2000. The following matters were voted upon at
the meeting.
1, 2 and 3. To elect eight (8) directors for the terms specified in
the Proxy Statement.
Number of Shares Total
Number of Shares Voting to Shares
Nominee Voting For Withhold Authority Voted
James A. Bennett 89,976,081 1,617,421 91,593,502
William C. Burkhardt 89,986,860 1,606,642 91,593,502
Lynne M. Miller 90,003,639 1,589,863 91,593,502
Maceo K. Sloan 90,000,473 1,593,029 91,593,502
William B. Timmerman 86,983,138 4,610,364 91,593,502
John L. Skolds 89,438,507 2,154,995 91,593,502
G. Smedes York 89,519,483 2,074,019 91,593,502
Charles E. Zeigler, Jr. 89,362,363 2,231,139 91,593,502
4. To approve the SCANA Long-Term Equity Compensation Plan.
Number
of Shares
For 70,895,654
Against 18,961,433
Abstain 1,736,415
Total 91,593,502
Percent of FOR votes of those shares actually voting for this proposal: 77.40%
5. To approve the appointment of Deloitte & Touche LLP as independent
accountants for the Company.
Number
of Shares
For 90,257,260
Against 886,378
Abstain 449,864
Total 91,593,502
Percent of FOR votes of those shares actually voting for this proposal: 98.54%
Item 6. Exhibits and Reports on Form 8-K
SCANA Corporation and South Carolina Electric & Gas Company:
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 during the second quarter 2000 were as follows:
None
SCANA CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCANA CORPORATION
(Registrant)
August 11, 2000 By: s/M. R. Cannon
M.R. Cannon
Controller
(Principal accounting officer)
SOUTH CAROLINA ELECTRIC & GAS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
(Registrant)
August 11, 2000 By: s/Mark R. Cannon
Mark R. Cannon
Controller
(Principal accounting officer)
EXHIBIT INDEX
Applicable to
Exhibit Form 10-Q of
No. SCANA SCE&G Description
2.01 X X Agreement and Plan of Merger, dated as of February 16, 1999
as amended and restated as of May 10, 1999, by and among
Public Service Company of North Carolina, Incorporated, SCANA
Corporation , New Sub I, Inc. and New Sub II, Inc. (Filed as
Exhibit 2.1 to Registration Statement No. 333-78227)
3.01 X Restated Articles of Incorporation of SCANA as adopted on
April 26, 1989 (Filed as Exhibit 3-A to Registration
Statement No. 33-49145)
3.02 X Restated Articles of Incorporation of SCE&G, as adopted on
December 15, 1993 (Filed as Exhibit 3.01 to Registration
Statement No. 333-86387)
3.03 X Articles of Amendment of SCANA, dated April 27, 1995 (Filed
as Exhibit 4-B to Registration Statement No. 33-62421)
3.04 X Articles of Amendment of SCE&G, dated June 7, 1994 filed
June 9, 1994 (Filed as Exhibit 3.02 to Registration
Statement No. 333-86387)
3.05 X Articles of Amendment of SCE&G, dated November 9, 1994 (Filed
as Exhibit 3.03 to Registration Statement No. 333-86387)
3.06 X Articles of Amendment of SCE&G, dated December 9, 1994
(Filed as Exhibit 3.04 to Registration Statement No.333-86387)
3.07 X Articles of Correction of SCE&G, dated January 17, 1995
(Filed as Exhibit 3.05 to Registration Statement No.333-86387)
3.08 X Articles of Amendment of SCE&G, dated January 13, 1995 and
filed January 17, 1995 (Filed as Exhibit 3.06 to Registration
Statement No. 333-86387)
3.09 X Articles of Amendment of SCE&G, dated March 30, 1995 (Filed
as Exhibit 3.07 to Registration Statement No. 333-86387)
3.10 X Articles of Correction of SCE&G - Amendment to Statement
filed March 31, 1995, dated December 13, 1995 (Filed as
Exhibit 3.08 to Registration Statement No. 333-86387)
3.11 X Articles of Amendment of SCE&G, dated December 13, 1995
(Filed as Exhibit 3.09 to Registration Statement No.333-86387)
3.12 X Articles of Amendment of SCE&G, dated February 18, 1997
(Filed as Exhibit 3-L to Registration Statement No. 333-24919)
3.13 X Articles of Amendment of SCE&G, dated February 21, 1997
(Filed as Exhibit 3.11 to Registration Statement No.
333-86387)
3.14 X Articles of Amendment of SCE&G, dated April 22, 1997 (Filed
as Exhibit 3.12 to Registration Statement No. 333-86387)
Applicable to
Exhibit Form 10-Q of
No. SCANA SCE&G Description
3.15 X Articles of Amendment of SCE&G, dated April 9, 1998 (Filed
as Exhibit 3.13 to Registration Statement No. 333-86387)
3.16 X Articles of Amendment of SCE&G, dated May 19, 1999 (Filed
as Exhibit 3.16 to Form 10-K for the year ended December
31, 1999)
3.17 X Articles of Amendment of SCE&G, dated August 13, 1999
(Filed as Exhibit 3.17 to Form 10-K for the year ended
December 31, 1999)
3.18 X Articles of Amendment of SCE&G, dated March 1, 2000 (Filed
as Exhibit 3.18 to Form 10-K for the year ended December
31, 1999)
3.19 X By-Laws of SCANA as revised and amended on February 22,
2000 (Filed as Exhibit 3.19 to Form 10-K for the year
ended December 31, 1999)
3.20 X By-Laws of SCE&G as amended and adopted on February 22,
2000 (Filed as Exhibit 3.20 to Form 10-K for the year
ended December 31, 1999)
4.01 X Articles of Exchange of South Carolina Electric and
Gas Company and SCANA Corporation (Filed as Exhibit
4-A to Post-Effective Amendment No. 1 to
Registration Statement No. 2-90438)
4.02 X Indenture dated as of November 1, 1989 between SCANA
Corporation and The Bank of New York, as Trustee
(Filed as Exhibit 4-A to Registration Statement No.
33-32107)
4.03 X X Indenture dated as of January 1, 1945, between the
South Carolina Power Company and Central
Hanover Bank and Trust, as Trustee, as supplemented
by Supplemental Indentures dated respectively as of
May 1, 1946, May 1, 1947 and July 1, 1949 (Filed as
Exhibit 2-B to Registration Statement No. 2-26459)
4.04 X X Fourth Supplemental Indenture dated as of April 1,
1950, to Indenture referred to in Exhibit 4.03,
pursuant to which SCE&G assumed said Indenture
Filed as Exhibit 2-C to Registration Statement No.
2-26459)
4.05 X X Fifth through Fifty-third Supplemental Indenture
referred to in Exhibit 4.03 dated as of the
dates indicated below and filed as exhibits to the
Registration Statements whose filenumbers are set
forth below:
December 1, 1950 Exhibit 2-D to Registration No. 2-26459
July 1, 1951 Exhibit 2-E to Registration No. 2-26459
June 1, 1953 Exhibit 2-F to Registration No. 2-26459
June 1, 1955 Exhibit 2-G to Registration No. 2-26459
November 1, 1957 Exhibit 2-H to Registration No. 2-26459
September 1, 1958 Exhibit 2-I to Registration No. 2-26459
September 1, 1960 Exhibit 2-J to Registration No. 2-26459
June 1, 1961 Exhibit 2-K to Registration No. 2-26459
December 1, 1965 Exhibit 2-L to Registration No. 2-26459
June 1, 1966 Exhibit 2-M to Registration No. 2-26459
June 1, 1967 Exhibit 2-N to Registration No. 2-29693
September 1, 1968 Exhibit 4-O to Registration No. 2-31569
June 1, 1969 Exhibit 4-C to Registration No. 33-38580
Exhibit
No.
December 1, 1969 Exhibit 4-O to Registration No. 2-35388
June 1, 1970 Exhibit 4-R to Registration No. 2-37363
March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324
January 1, 1972 Exhibit 2-B to Registration No. 33-38580
July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291
May 1, 1975 Exhibit 4-C to Registration No. 33-38580
July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908
February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304
December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936
March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662
May 1, 1977 Exhibit 4-C to Registration No. 33-38580
February 1, 1978 Exhibit 4-C to Registration No. 33-38580
June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653
April 1, 1979 Exhibit 4-C to Registration No. 33-38580
June 1, 1979 Exhibit 2-A-3 to Registration No. 33-38580
April 1, 1980 Exhibit 4-C to Registration No. 33-38580
June 1, 1980 Exhibit 4-C to Registration No. 33-38580
December 1, 1980 Exhibit 4-C to Registration No. 33-38580
April 1, 1981 Exhibit 4-D to Registration No. 33-49421
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
May 1, 1999 Exhibit 4.04 to Registration No. 333-86387
4.06 X X Indenture dated as of April 1, 1993 from South
Carolina Electric & Gas Company to NationsBank of
Georgia, National Association (Filed as Exhibit 4-F
to Registration Statement No. 33-49421)
4.07 X X First Supplemental Indenture to Indenture referred
to in Exhibit 4.07 dated as of June 1, 1993 (Filed
as Exhibit 4-G to Registration Statement No.33-49421)
4.08 X X Second Supplemental Indenture to Indenture referred
to in Exhibit 4.07 dated as of June 15, 1993
(Filed as Exhibit 4-G to Registration Statement No.
33-57955)
Applicable to
Exhibit Form 10-Q of
No. SCANA SCE&G Description
4.09 X X Trust Agreement for SCE&G Trust I (Filed as
Exhibit 4-G to SCE&G Form 10-K for the year
ended December 31, 1997)
4.10 X X Certificate of Trust for SCE&G Trust I (Filed
as Exhibit 4-H to SCE&G Form 10-K for the
year ended December 31, 1997)
4.11 X X Junior Subordinated Indenture for SCE&G Trust
I (Filed as Exhibit 4-I to SCE&G Form 10-K
for the year ended December 31, 1997)
4.12 X X Guarantee Agreement for SCE&G Trust I (Filed as
Exhibit 4-J to SCE&G Form 10-K for the
year ended December 31, 1997)
4.13 X X Amended and Restated Trust Agreement for SCE&G
Trust I (Filed as Exhibit 4-K to SCE&G
Form 10-K for the year ended December 31, 1997)
10.01 X SCANA Voluntary Deferral Plan as amended
through October 21, 1997 (Filed as Exhibit
10.01(a) to Registration Statement No. 333-86803)
10.02 X X Supplemental Executive Retirement Plan (Filed
as Exhibit 10.01(b) to Registration
Statement No. 333-86803)
10.03 X SCANA Supplementary Voluntary Deferral Plan as
amended and restated through October 21,
1997 (Filed as Exhibit 10-B to SCANA Form 10-K
for the year ended December 31, 1997)
10.04 X SCANA Key Executive Severance Benefits Plan as
amended and restated effective as of
October 21, 1997 (Filed as Exhibit 10.01(c) to
Registration Statement No. 333-86803)
10.05 X SCANA Supplementary Key Executive Severance
Benefits Plan as amended and restated effective
October 21, 1997 (Filed as Exhibit 10.01(d) to
Registration Statement No.
333-86803)
10.06 X SCANA Performance Share Plan as amended and
restated effective January 1, 1998 (Filed as
Exhibit 10.01(e) to Registration Statement No.
333-86803)
10.07 X SCANA Key Employee Retention Plan as amended
and restated effective as of October 21, 1997
(Filed as Exhibit 10-E to SCANA Form 10-K for
the year ended December 31, 1997)
10.08 X Description of SCANA Whole Life Option (Filed
as Exhibit 10-F to SCANA Form 10-K for the
year ended December 31, 1991, under cover of
Form SE, File No. 1-8809)
10.09 X Description of SCANA Corporation Annual
Incentive Plan (Filed as Exhibit 10-G to SCANA
Form 10-K for the year ended December 31, 1991,
under cover of Form SE, File No. 1-8809)
10.10 X Service Agreement between SCE&G and SCANA
Servcies, Inc., effective April 1, 2000 (Filed
herewith on page 49)
27.01 X Financial Data Schedule (Filed herewith)
27.02 X Financial Data Schedule (Filed herewith)