SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8809
SCANA Corporation
(Exact name of registrant as specified in its charter)
South Carolina 57-0784499
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1426 Main Street, Columbia, South Carolina 29201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 748-3000
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes . No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
105,559,482 Common Shares, without par value, as of September 30, 1996
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SCANA CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995.................................... 3
Consolidated Statements of Income and Retained Earnings
for the Periods Ended September 30, 1996 and 1995........ 5
Consolidated Statements of Cash Flows for the Periods
Ended September 30, 1996 and 1995........................ 6
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 15
Item 6. Exhibits and Reports on Form 8-K......................... 15
Signatures........................................................ 16
Exhibit Index..................................................... 17
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<TABLE>
PART I
FINANCIAL INFORMATION
SCANA CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 1996 and December 31, 1995
(Unaudited)
<S> <C> <C> <C>
September 30, December 31,
1996 1995
(Thousands of Dollars)
ASSETS
Utility Plant:
Electric................................................... $4,018,316 $3,539,068
Gas........................................................ 495,959 484,752
Transit.................................................... 4,106 3,768
Common..................................................... 88,160 91,616
Total.................................................... 4,606,541 4,119,204
Less accumulated depreciation and amortization............. 1,502,187 1,367,541
Total.................................................... 3,104,354 2,751,663
Construction work in progress.............................. 322,529 644,661
Nuclear fuel, net of accumulated amortization.............. 38,573 46,492
Acquisition adjustment-gas, net of accumulated
amortization............................................. 25,425 26,172
Utility Plant, Net.................................... 3,490,881 3,468,988
Nonutility Property and Investments, net of accumulated
depreciation and depletion................................. 337,674 314,207
Current Assets:
Cash and temporary cash investments........................ 32,396 16,082
Receivables................................................ 234,272 211,173
Inventories (at average cost):
Fuel..................................................... 46,472 61,499
Materials and supplies................................... 50,414 47,674
Prepayments................................................ 13,622 15,870
Accumulated deferred income taxes.......................... 19,799 20,186
Total Current Assets.................................. 396,975 372,484
Deferred Debits:
Emission allowances........................................ 30,428 28,514
Unamortized debt expense................................... 12,547 13,432
Unamortized deferred return on plant investment............ 3,184 6,369
Nuclear plant decommissioning fund......................... 40,663 36,070
Other...................................................... 334,631 294,362
Total Deferred Debits................................. 421,453 378,747
Total....................................... $4,646,983 $4,534,426
See notes to consolidated financial statements.
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SCANA CORPORATION
CONSOLIDATED BALANCE SHEETS
As of September 30, 1996 and December 31, 1995
(Unaudited)
<S> <C> <S> <C> <C> <C>
September 30, December 31,
1996 1995
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Stockholders' Investment:
Common Equity:
Common stock (without par value)......................... $1,108,918 $1,056,689
Retained earnings........................................ 559,362 497,991
Total Common Equity..................................... 1,668,280 1,554,680
Preferred Stock of Subsidiary (not subject to purchase
or sinking funds)........................................ 26,027 26,027
Total Stockholders' Investment.......................... 1,694,307 1,580,707
Preferred Stock of Subsidiary, net (subject to purchase
or sinking funds).......................................... 43,354 46,243
Long-term debt, net.......................................... 1,522,895 1,588,879
Total Capitalization.................................. 3,260,556 3,215,829
Current Liabilities:
Short-term borrowings...................................... 103,522 112,524
Current portion of long-term debt.......................... 101,329 40,983
Current portion of preferred stock......................... 2,453 2,439
Accounts payable........................................... 116,374 138,778
Customer deposits.......................................... 14,825 13,643
Taxes accrued.............................................. 89,732 66,914
Interest accrued........................................... 31,015 25,884
Dividends declared......................................... 40,552 39,056
Other...................................................... 9,577 8,071
Total Current Liabilities............................. 509,379 448,292
Deferred Credits:
Accumulated deferred income taxes.......................... 557,501 542,022
Accumulated deferred investment tax credits................ 84,986 87,719
Accumulated reserve for nuclear plant decommissioning...... 40,663 36,070
Other...................................................... 193,898 204,494
Total Deferred Credits................................ 877,048 870,305
Total....................................... $4,646,983 $4,534,426
See notes to consolidated financial statements.
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SCANA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Periods Ended September 30, 1996 and 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(Thousands of Dollars, Except Per Share Amounts)
OPERATING REVENUES:
Electric............................... $329,038 $307,620 $ 860,565 $ 777,198
Gas.................................... 72,329 64,960 284,347 249,235
Transit................................ 917 896 2,720 2,939
Total Operating Revenues........... 402,284 373,476 1,147,632 1,029,372
OPERATING EXPENSES:
Fuel used in electric generation....... 70,584 67,120 194,714 173,244
Purchased power........................ 3,381 4,869 9,137 12,207
Gas purchased for resale............... 50,504 40,679 191,090 151,042
Other operation........................ 60,594 56,063 174,507 169,792
Maintenance............................ 16,979 14,451 50,241 44,987
Depreciation and amortization.......... 37,054 31,185 109,901 92,704
Income taxes........................... 42,585 42,561 99,615 91,163
Other taxes............................ 22,877 21,110 68,868 62,737
Total Operating Expenses........... 304,558 278,038 898,073 797,876
OPERATING INCOME......................... 97,726 95,438 249,559 231,496
OTHER INCOME:
Allowance for equity funds used
during construction.................. 1,965 2,735 5,272 7,659
Other income, net of income taxes...... 2,133 1,671 18,428 (7,859)
Total Other Income................. 4,098 4,406 23,700 (200)
INCOME BEFORE INTEREST CHARGES AND
PREFERRED STOCK DIVIDENDS.............. 101,824 99,844 273,259 231,296
INTEREST CHARGES (CREDITS):
Interest expense....................... 32,085 33,979 97,036 101,150
Allowance for borrowed funds used
during construction.................. (1,575) (3,580) (4,944) (9,014)
Total Interest Charges, Net........ 30,510 30,399 92,092 92,136
INCOME BEFORE PREFERRED STOCK CASH
DIVIDENDS OF SUBSIDIARY................ 71,314 69,445 181,167 139,160
PREFERRED STOCK CASH DIVIDENDS OF
SUBSIDIARY (At stated rates)........... (1,351) (1,416) (4,090) (4,280)
NET INCOME............................... 69,963 68,029 177,077 134,880
RETAINED EARNINGS AT BEGINNING OF PERIOD. 528,192 469,247 497,991 472,371
COMMON STOCK CASH DIVIDENDS DECLARED..... (38,793) (35,440) (115,706) (105,415)
RETAINED EARNINGS AT END OF PERIOD....... $559,362 $501,836 $ 559,362 $ 501,836
NET INCOME............................... $ 69,963 $ 68,029 $ 177,077 $ 134,880
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (THOUSANDS)
(Note 1C)............................ 105,447 98,562 104,812 97,544
EARNINGS PER WEIGHTED AVERAGE SHARE
OF COMMON STOCK........................ $ .66 $ .69 $ 1.69 $ 1.38
CASH DIVIDENDS DECLARED PER SHARE OF
COMMON STOCK.......................... $ .3675 $ .360 $ 1.1025 $ 1.080
See notes to consolidated financial statements.
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SCANA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended September 30, 1996 and 1995
(Unaudited)
<S> <C> <C> <C>
Nine Months Ended
September 30,
1996 1995
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 177,077 $ 134,880
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation, depletion and amortization............ 135,875 154,376
Amortization of nuclear fuel........................ 13,282 5,264
Deferred income taxes, net.......................... 8,647 (10,461)
Deferred investment tax credits, net................ (2,733) (2,723)
Dividends declared on preferred stock of subsidiary. 4,090 4,280
Equity in (earnings) losses of investees............ (2,721) (349)
Nuclear refueling accrual........................... (2,723) 5,218
Allowance for funds used during construction........ (10,216) (16,673)
Unamortized loss on reacquired debt................. (107) (3,636)
Over (under) collections, fuel adjustment clauses... (2,025) 20,750
Early retirements................................... (4,766) (21,291)
Emission allowances, net of AFC..................... (1,885) (7,593)
Changes in certain current assets and liabilities:
(Increase) decrease in receivables................. (23,099) (9,724)
(Increase) decrease in inventories................. 12,287 3,241
(Increase) decrease in prepayments................. 2,248 4,209
Increase (decrease) in accounts payable............ (22,404) (47,598)
Increase (decrease) in taxes accrued............... 22,818 31,710
Increase (decrease) in interest accrued ........... 5,131 8,618
Other, net.......................................... 27,628 17,537
Net Cash Provided From Operating Activities............. 336,404 270,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility property additions and construction
expenditures, net of AFC............................ (151,428) (182,373)
Sale of interests in oil and gas properties........... 42,554 -
Increase in other property and investments............ (104,041) (67,532)
Net Cash Used For Investing Activities.................. (212,915) (249,905)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds:
Issuance of First Mortgage Bonds.................... - 99,583
Issuance of notes and loans......................... 60,000 28,170
Issuance of other long-term debt.................... - 61,019
Issuance of common stock............................ 53,231 155,498
Repayments:
First and Refunding Mortgage Bonds.................. (22,000) (48,779)
Redemption of notes................................. (63,158) (63,917)
Other long-term debt................................ (1,318) (11,300)
Preferred stock..................................... (2,876) (2,846)
Dividend payments:
Common stock........................................ (114,217) (103,858)
Preferred stock of subsidiary....................... (4,111) (4,336)
Short-term borrowings, net............................ (9,002) (37,937)
Fuel and emission allowance financings, net........... (3,724) (247)
Net Cash Provided From (Used For) Financing Activities.. (107,175) 71,050
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS............................ 16,314 91,180
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1........ 16,082 12,938
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30..... $ 32,396 $ 104,118
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for - Interest (includes capitalized
interest of $4,944 and $9,014)....... $ 89,596 $ 90,893
- Income taxes.......................... 65,313 49,411
NONCASH FINANCING ACTIVITIES:
City of Charleston Franchise Fee...................... 25,000 -
See notes to consolidated financial statements.
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SCANA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
The following notes should be read in conjunction with the Notes to
Consolidated Financial Statements appearing in SCANA Corporation's Annual Report
on Form 10-K for the year ended December 31, 1995. These are interim financial
statements and, because of temperature variations between seasons of the year,
the amounts reported in the Consolidated Statements of Income are not
necessarily indicative of amounts expected for the year. In the opinion of
management, the information furnished herein reflects all adjustments, all of
a normal recurring nature, which are necessary for a fair statement of the
results for the interim periods reported.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Principles of Consolidation
The accounts of SCANA Corporation and its wholly owned subsidiaries
(Company) are consolidated in the accompanying Consolidated Financial
Statements. Certain investments are reported using the equity method of
accounting. Significant intercompany balances and transactions have been
eliminated in consolidation in compliance with Statement of Financial
Accounting Standards No. 71 "Accounting for the Effects of Certain Types of
Regulation" which provides that profits on intercompany sales to regulated
affiliates are not eliminated if the sales price is reasonable and the
future recovery of the sales price through the rate making process is
probable.
B. Basis of Accounting
The Company prepares its financial statements in accordance with the
provisions of Statement of Financial Accounting Standards No. 71 (SFAS 71),
"Accounting for the Effects of Certain Types of Regulation." The
accounting standard allows cost-based rate-regulated utilities, such as the
Company, to recognize in their financial statements revenues and expenses
in different time periods than do enterprises that are not rate-regulated.
As a result, the Company has recorded, as of September 30, 1996,
approximately $239 million and $63 million of regulatory assets and
liabilities, respectively, including amounts recorded for accumulated
deferred income tax assets and liabilities of approximately $86 million and
$59 million, respectively. The electric regulatory assets of approximately
$123 million (excluding accumulated deferred income tax assets) are being
recovered through rates and, as discussed in Note 2, the Public Service
Commission of South Carolina (PSC) has approved accelerated recovery of
approximately $67 million of these assets. In the future, as a result of
deregulation or other changes in the regulatory environment, the Company
may no longer meet the criteria for continued application of SFAS 71 and
would be required to write off its regulatory assets and liabilities. Such
an event could have a material adverse effect on the Company's results of
operations in the period the write-off is recorded.
C. Stock Split
On April 27, 1995, the Company's Board of Directors approved a two-for-one
split of the Company's Common Stock effective at the close of business May
11, 1995. The weighted average number of common shares outstanding,
earnings per weighted average share of common stock and cash dividends
declared per share of common stock have been restated to reflect the stock
split for the prior period reported.
D. Reclassifications
Certain amounts from prior periods have been reclassified to conform with
the 1996 presentation.
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2.RATE MATTERS:
With respect to rate matters at September 30, 1996, reference is made to
Note 2 of Notes to Consolidated Financial Statements in The Company's
Annual Report on Form 10-K for the year ended December 31, 1995. On July
10, 1995 SCE&G filed an application with the PSC for an increase in retail
electric rates. On January 9, 1996 the PSC issued an order granting SCE&G
an increase of 7.34% which will produce additional revenues of
approximately $67.5 million annually. The increase is being implemented in
two phases. The first phase, an increase in revenues of approximately
$59.5 million annually based on a test year, or 6.47%, commenced on January
15, 1996. The second phase will be implemented in January 1997 and will
produce additional revenues of approximately $8.0 million annually, or .87%
more than current rates. The PSC authorized a return on common equity of
12.0%. The PSC also approved establishment of a Storm Damage Reserve
Account capped at $50 million and collected through rates over a ten-year
period. Additionally, the PSC approved accelerated recovery of a
significant portion of SCE&G's electric regulatory assets (excluding
accumulated deferred income tax assets) and the transition obligation for
postretirement benefits other than pensions, changing the amortization
periods to allow recovery by the end of the year 2000. SCE&G's request to
shift approximately $257 million of depreciation reserves from transmission
and distribution assets to nuclear production assets was also approved.
The PSC's ruling does not apply to wholesale electric revenues under the
FERC's jurisdiction, which constitutes approximately 5% of the Company's
electric revenues.
3. 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 certain of
its bond issues contain provisions that may limit the payment of cash
dividends on common stock. In addition, with respect to hydroelectric
projects, the Federal Power Act may require the appropriation of a portion
of the earnings therefrom. At September 30, 1996 approximately $15.5
million of SCE&G's retained earnings were restricted as to payment of cash
dividends on common stock.
4. COMMITMENTS AND CONTINGENCIES:
With respect to commitments at September 30, 1996, reference is made to
Note 10 of Notes to Consolidated Financial Statements appearing in The
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
No significant changes have occurred with respect to those matters as
reported therein, except with regard to the Calhoun Park area site
discussed in Note 4B below.
Contingencies at September 30, 1996 are as follows:
A. Nuclear Insurance
The Price-Anderson Indemnification Act, which deals with the Company's
public liability for a nuclear incident, currently establishes the
liability limit for third-party claims associated with any nuclear incident
at $8.9 billion. Each reactor licensee is currently liable for up to $79.3
million per reactor owned for each nuclear incident occurring at any
reactor in the United States, provided that not more than $10 million of
the liability per reactor would be assessed per year. SCE&G's maximum
assessment, based on its two-thirds ownership of Summer Station, would
be approximately $52.9 million per incident but not more than $6.7 million
per year.
SCE&G currently maintains policies (for itself and on behalf of the PSA)
with American Nuclear Insurers (ANI) and Nuclear Electric Insurance Limited
(NEIL) providing combined property and decontamination insurance coverage
of $1.9 billion for any losses at Summer Station. SCE&G pays annual
premiums and, in addition, could be assessed a retroactive premium
assessment not to exceed 7 1/2 times its annual premium in the event of
property damage loss to any nuclear generating facility covered under the
NEIL program. Based on the current annual premium, this retroactive
premium assessment would not exceed $8.7 million.
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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 financial position and results of operations.
B. Environmental
The Company has an environmental assessment program to identify and assess
current and former operations sites that could require environmental cleanup.
As site assessments are initiated, estimates are made of the cost, if any,
to investigate and clean up each site. These estimates are refined as
additional information becomes available; therefore, actual expenditures
could differ significantly from original estimates. Amounts estimated and
accrued to date for site assessments and cleanup relate primarily to
regulated operations; such amounts are deferred (approximately $16 million)
and are being amortized and recovered through rates over a ten-year
period for electric operations and an eight-year period for gas
operations. The deferral includes the costs estimated to be associated
with the matters discussed below.
SCE&G, the Company's principal subsidiary, owns four decommissioned
manufactured gas plant sites which contain residues of by-product
chemicals. SCE&G maintains an active review of the sites to monitor
the nature and extent of the residual contamination.
In September 1992 the Environmental Protection Agency (EPA) notified 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 originally
encompassed approximately 18 acres and included properties which were the
locations for industrial operations, including a wood preserving (creosote)
plant and one of SCE&G's decommissioned manufactured gas plants. The
original scope of this investigation has been expanded to approximately 30
acres, including adjacent properties owned by the National Park
Service and the City of Charleston, and private properties. The site
has not been placed on the National Priority List, but may be added before
cleanup is initiated. The potentially responsible parties (PRP) have agreed
with the EPA to participate in an innovative approach to site investigation
and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre-
cleanup site investigation process to be compressed significantly. The PRPs
have negotiated an administrative order by consent for the conduct of a
Remedial Investigation/Feasibility Study and a corresponding Scope of Work.
Field work began in November 1993 and a draft Remedial Investigation report
was submitted to the EPA in February 1995. SCE&G is currently resolving
the comments of the EPA and other regulatory agencies related to the draft.
In addition, contamination may have migrated to the City's aquarium site from
the manufactured gas plant. 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 by SCE&G to the City. SCE&G expects to recover the amount of the
settlement through rates in the same manner as other amounts accrued for
site assessments and cleanup as discussed above. SCE&G is pursuing
recovery of environmental liabilities from appropriate pollution insurance
carriers. The Company does not expect the settlement to have a material
impact on the Company's financial position or results of operations.
C. SCANA Communications, Inc. Guarantee
A percentage of the projected annual revenues for the years 1996-2003 of
certain fiber optic routes of a joint venture between SCANA Communications,
Inc. (SCI), formerly MPX Systems, Inc., and a subsidiary of ITC
Holding Company, Inc., a Georgia-based telecommunications holding company,
has been guaranteed by SCI. The amount of such guarantee over the
remaining portion of the eight-year period, net of $22.2 million for
revenue contracts obtained by the joint venture, is approximately $19.9
million.
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SCANA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Competition
The electric utility industry has begun a major transition that could lead
to expanded market competition and less regulatory protection. Future
deregulation of electric wholesale and retail markets will create opportunities
to compete for new and existing customers and markets. As a result, profit
margins and asset values of some utilities could be adversely affected. The
paceof deregulation, the future market price of electricity, and the regulatory
actions which may be taken by the PSC and the Federal Energy Regulatory
Commission (FERC) in response to the changing environment cannot be predicted.
However, recent FERC actions will likely accelerate competition among electric
utilities by providing for wholesale transmission access. In April, 1996 the
FERC issued Order 888, which addresses open access to transmission lines and
stranded cost recovery. Order 888 requires utilities under FERC jurisdiction
that own, control or operate transmission lines to file nondiscriminatory open
access tariffs that offer to others the same transmission service they provide
themselves. The FERC has also permitted utilities to seek recovery of wholesale
stranded costs from departing customers by direct assignment. Approximately 5%
of the Company's electric revenues is under FERC jurisdiction.
The Company is aggressively pursuing actions to position itself
strategically for the transformed environment. To enhance its flexibility and
responsiveness to change, the Company's electric and gas utility, SCE&G,
operates Strategic Business Units. Maintaining a competitive cost structure
is of paramount importance in the utility's strategic plan. SCE&G has
undertaken a variety of initiatives, including reductions in operation and
maintenance costs and in staffing levels. In January 1996 the PSC approved
(as discussed under "Liquidity and Capital Resources") the accelerated recovery
of SCE&G's electric regulatory assets and the shift of depreciation reserves
from transmission and distribution assets to nuclear production assets. The
shift of depreciation reserves was not approved by the FERC. In May 1996 the
FERC approved SCE&G's application establishing open access transmission tariffs
and requesting authorization to sell bulk power to wholesale customers at
market-based rates. The FERC also approved SCANA Energy Marketing's (SEM)
application to become a power marketer. That designation will allow SEM, a
subsidiary of the Company and a natural gas marketer, to buy and sell large
blocks of electric capacity in wholesale markets. The Company believes that
these actions as well as numerous others that have been and will be taken
demonstrate its ability and commitment to succeed in the new operating
environment to come.
Regulated public utilities are allowed to record as assets some costs that
would be expensed by other enterprises. If deregulation or other changes in the
regulatory environment occur, the Company may no longer be eligible to apply
this accounting treatment and may be required to eliminate such regulatory
assets from its balance sheet. Such an event could have a material adverse
effect on the Company's results of operations in the period the write-off is
recorded. The Company reported approximately $239 million and $63 million of
regulatory assets and liabilities, respectively, including amounts recorded for
accumulated deferred income tax assets and liabilities of approximately $86
million and $59 million, respectively, on its balance sheet at September 30,
1996.
Material Changes in Capital Resources and Liquidity
From December 31, 1995 to September 30, 1996
Liquidity and Capital Resources
The cash requirements of the Company arise primarily from SCE&G's
operational needs, the Company's construction program and the need to fund the
activities or investments of the Company's nonregulated subsidiaries. The
ability of the Company's regulated subsidiaries to replace existing plant
investment, as well as to expand to meet future demands for electricity and gas,
will depend upon their ability to attract the necessary financial capital on
reasonable terms. The Company's regulated subsidiaries recover the costs of
providing services through rates charged to customers. Rates for regulated
services are generally based on historical costs. As customer growth and
inflation occur and the regulated subsidiaries expand their construction
programs, it is necessary to seek increases in rates. As a result, the
Company's financial position and results of operations are affected by the
regulated subsidiaries' ability to obtain adequate and timely rate relief
and in the future will be dependent on the Company's ability to compete in a
deregulated environment (see "Competition").
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On July 10, 1995 SCE&G filed an application with the PSC for an
increase in retail electric rates. On January 9, 1996 the PSC issued an order
granting SCE&G an increase of 7.34% which will produce additional revenues of
approximately $67.5 million annually. The increase is being implemented in two
phases. The first phase, an increase in revenues of approximately $59.5 million
annually based on a test year, or 6.47%, commenced on January 15, 1996. The
second phase will be implemented in January 1997 and will produce additional
revenues of approximately $8.0 million annually, or .87% more than current
rates. The PSC authorized a return on common equity of 12.0%. The PSC also
approved establishment of a Storm Damage Reserve Account capped at $50
million and collected through rates over a ten-year period. Additionally,
the PSC approved accelerated recovery of a significant portion of SCE&G's
electric regulatory assets (excluding accumulated deferred income tax assets)
and the remaining transition obligation for postretirement benefits other than
pensions, changing the amortization periods to allow recovery by the end of the
year 2000. SCE&G's request to shift approximately $257 million of depreciation
reserves from transmission and distribution assets to nuclear production assets
was also approved. The PSC's ruling does not apply to wholesale electric
revenues under the FERC's jurisdiction.
The following table summarizes how the Company generated funds for its
property acquisitions and utility property additions and construction
expenditures during the nine months ended September 30, 1996 and 1995:
Nine months Ended
September 30, 1996
1996 1995
(Thousands of Dollars)
Net cash provided from operating activities $336,404 $270,035
Net cash provided from (used for)
financing activities (107,175) 71,050
Cash provided from sale of oil and
gas properties 42,554 -
Cash and temporary cash investments available
at the beginning of the period 16,082 12,938
Net cash available for property acquisitions
and utility property additions and
construction expenditures $287,865 $354,023
Funds used for utility property additions
and construction expenditures, net of
noncash allowance for funds used during
construction $151,428 $182,373
Funds used for nonutility property
additions $ 23,042 $ 67,532
On January 13, 1995 the Company closed a $60 million unsecured bank loan
due January 12, 1996, and used the proceeds to pay off loans in a like total
amount. In January 1996 the Company refinanced the loan with unsecured bank
loans totaling $60 million due January 10, 1997 at initial interest rates
between 5.684% and 5.730%, subject to reset quarterly at LIBOR plus a spread of
nine to fifteen basis points.
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, the City will receive from SCE&G $25 million paid over seven years
and SCE&G will donate to the City the existing transit assets in Charleston. 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 will pay the City $26 million
over a four-year period. As part of the environmental settlement, SCE&G has
agreed to construct an 1,100 space parking garage on the Calhoun Park site
and to transfer the facility to the City in exchange for a 20-year municipal
bond backed by revenues from the parking garage and a mortgage on the parking
garage. The total amount of the bond is not to exceed $16.9 million, the
maximum expected project cost. SCE&G will invest up to $500,000 annually for
30 years in the City to defray the cost of underground wiring or other
nonstandard service projects within scenic or historic districts of the City,
which amounts will be matched by city funds. The City has agreed to limit such
projects to those which can be paid for from a combined pool of funds created
by SCE&G's and the City's contributions. It is anticipated that SCE&G's
payments for underground wiring/nonstandard service will be treated as
investments in the electric distribution rate base by SCE&G's regulators.
11
<PAGE>
The Company and Westvaco Corporation have formed a limited liability
company, Cogen South LLC, to build and operate a $170 million cogeneration
facility at Westvaco's Kraft Division Paper Mill in North Charleston, S. C.
SCANA & Westvaco each own 50% interest in the joint venture. The facility will
provide industrial process steam for the Westvaco paper mill and shaft
horsepower to enable SCE&G to generate up to 99 megawatts of electricity.
Construction financing is being provided to Cogen South LLC by banks. A $15
million capital contribution to the partnership by each partner is expected
prior to operation of the facility. In addition to the cogeneration
partnership, Westvaco has entered into a 20-year contract with SCE&G for all
its electricity requirements at SCE&G's standard industrial rate.
Construction of the plant began August 26, 1996 and it is expected to be
operational in the fall of 1998.
SCANA Communications, Inc. (SCI), a wholly owned subsidiary of SCANA,
through a joint venture with a subsidiary of ITC Holding Company, Inc., a
Georgia-based telecommunications holding company, has constructed a fiber optic
network through Texas, Louisiana, Mississippi, Alabama and Georgia. The
network, which cost approximately $70 million, consists of more than 900 miles
of fiber optic lines. SCI holds an approximate 17% interest in the common stock
of InterCel, Inc. (InterCel), a publicly traded telecommunications company
providing services in Georgia, Alabama, Florida, Tennessee, Mississippi and
Maine. On June 28, 1996 InterCel purchased the PCS license for the Atlanta MTA
from GTE Mobilnet Incorporated. InterCel financed the purchase principally
through a private placement of convertible preferred stock. SCI purchased $75
million of a series of InterCel non-voting preferred stock that is convertible
to InterCel common stock after four years.
SCANA Petroleum Resources, Inc. (SPR) and Fina Oil and Chemical Company
(Fina) are parties to a joint exploration and development agreement providing
for the exclusive oil and gas development rights on approximately 183,000 acres
of onshore lands owned by Fina in Terrebonne and LaFourche Parishes in southern
Louisiana. SPR and Fina are continuing an extensive 3-D seismic acquisition
program on the property. Fina is the operator of the multi-million dollar
seismic program, which is financed and owned on a 50-50 basis between the
companies. SPR's participation in the seismic and drilling activity is financed
largely with internal cash flows from the existing SPR operations. Drilling
activities began in September 1996.
On April 22, 1996, SPR closed a $46.7 million sale of substantially all of
its oil and gas properties in the state of Oklahoma to ONEOK Resources Company,
a subsidiary of ONEOK, Inc. Under the full cost method of accounting, the sale
resulted in an adjustment of the Company's oil and gas reserves and associated
costs and did not result in any gain or loss. There was no material affect on
SPR's cost per barrel equivalent of reserves. Following the sale, over 95
percent of its remaining reserves are located on properties in East Texas,
Louisiana, Mississippi and other onshore and offshore Gulf Coast areas. SPR 's
long-term operating strategy will be focused on these areas.
The Company's forward contracts have the effect of stabilizing the price
that the Company receives on approximately sixty percent of its forecasted
natural gas production for the remainder of 1996 and 1997. Contracts related to
the period 1998-2001 have been lifted. The remaining contracts are at an
average price of $1.82 per dekatherm. The Company remains exposed to price
risk for any production that is not subject to such forward contracts.
The Company anticipates that the remainder of its 1996 cash requirements
will be met through internally generated funds, the sales of additional equity
securities and medium-term notes and the incurrence of additional short-term and
long-term indebtedness. The timing and amount of such financing will depend
upon market conditions and other factors.
The ratio of earnings to fixed charges for the twelve months ended
September 30, 1996 was 3.58.
The Company expects that it has or can obtain adequate sources of financing
to meet its cash requirements for the next twelve months and for the foreseeable
future.
12
<PAGE>
SCANA CORPORATION
Results of Operations
For the Three and Nine Months ended September 30, 1996
As Compared to the Corresponding Periods in 1995
Earnings and Dividends
Net income for the three and nine months ended September 30, 1996
increased approximately $1.9 million and $42.2 million, respectively, when
compared to the corresponding periods in 1995. The primary factors accounting
for the improved earnings performance were higher electric sales margins at
SCE&G and improved earnings at SPR which more than offset increases in operating
expenses. SPR's net income for the three and nine months ended September 30,
1996 increased by approximately $1.4 million and $28.8 million, respectively,
when compared to the corresponding periods in 1995. A non-recurring after-tax
gain of $5.7 million reported by SCI as a result of the business combination of
Powertel PCS Partners and Intercel, Inc. in February 1996 is included in
reported net income for the nine months ended September 30, 1996.
Allowance for funds used during construction (AFC) is a utility accounting
practice whereby a portion of the cost of both equity and borrowed funds used to
finance construction (which is shown on the balance sheet as construction work
in progress) is capitalized. Both the equity and the debt portions of AFC are
noncash items of nonoperating income which have the effect of increasing
reported net income. AFC represented approximately 4% and 8% of income before
income taxes for the nine months ended September 30, 1996 and 1995,
respectively.
On February 20, 1996 the Company's Board of Directors declared a
quarterly dividend on common stock of 36 3/4 cents per share, for the quarter
ended March 31, 1996. The dividend was paid on April 1, 1996 to common
stockholders of record on March 8, 1996.
On April 25, 1996 the Company's Board of Directors declared a quarterly
dividend on common stock of 36 3/4 cents per share for the quarter ended June
30, 1996. The dividend was paid on July 1, 1996 to common stockholders of
record on June 10, 1996.
On August 21, 1996 the Company's Board of Directors declared a quarterly
dividend on common stock of 36 3/4 cents per share for the quarter ended
September 30, 1996. The dividend was paid on October 1, 1996 to common
stockholders of record on September 10, 1996.
On October 22, 1996 the Company's Board of Directors declared a quarterly
dividend on common stock of 36 3/4 cents per share for the quarter ended
December 31, 1996. The dividend is payable on January 1, 1997 to common
stockholders of record on December 10, 1996.
Sales Margins
The changes in the electric sales margins for the three and nine months
ended September 30, 1996, when compared to the corresponding periods in 1995,
were as follows:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Electric operating revenues $21.4 7.0 $83.4 10.7
Less: Fuel used in electric
generation 3.5 5.2 21.5 12.4
Purchased power (1.5) (30.6) (3.1) (25.1)
Margin $19.4 8.3 $65.0 11.0
The electric sales margins increased for the three and nine months ended
September 30, 1996, when compared to the corresponding periods in 1995 as a
result of the rate increase received by SCE&G in January 1996 and
economic growth factors.
13
<PAGE>
The changes in the gas sales margins for the three and nine months ended
September 30, 1996, when compared to the corresponding periods in 1995, were
as follows:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Gas operating revenues $ 7.4 11.3 $35.1 14.1
Less: Gas purchased for resale 9.8 24.2 40.0 26.5
Margin $(2.4) (10.1) $(4.9) (5.0)
The decreases in the gas sales margins are primarily a result of higher gas
costs and curtailments imposed on interruptible industrial customers as a result
of abnormally cold weather in the first quarter of 1996. Also, lower gas prices
in 1995 allowed the Company to compete more successfully with alternate fuel
suppliers in industrial markets.
Other Operating Expenses
Changes in other operating expenses, including taxes, for the three and
nine months ended September 30, 1996, when compared to the corresponding periods
in 1995 are presented in the following table:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Other operation and maintenance $ 7.0 10.0 $10.0 4.6
Depreciation and amortization 5.9 18.8 17.2 18.6
Income taxes - - 8.4 9.3
Other taxes 1.8 8.4 6.1 9.8
Total $14.7 8.9 $41.7 9.0
Other operation and maintenance expenses for the three and nine months
ended September 30, 1996 increased from 1995 levels primarily as a result of
higher production costs attributable to the Cope Plant which was brought on
line in January 1996. Increases in depreciation and amortization expenses for
the three and nine months comparisons reflect the addition of the Cope Plant and
other additions to plant in service. The increase in income tax expense for
the nine months corresponds to the increase in operating income. The increases
in other taxes reflect higher property taxes resulting from property additions
and higher millages and assessments.
Other Income
Other income, net of income taxes, for the three and nine months ended
September 30, 1996 increased $0.5 million and $26.3 million, respectively, when
compared to the corresponding periods of 1995. The increase for the nine months
is due primarily to the improved earnings performance of SPR attributable to a
noncash reserve adjustment recorded in the second quarter of 1995 and to higher
gas prices and lower production costs. The gain reported by SCI, discussed
under "Earnings and Dividends", is included in other income reported for the
nine months ended September 30, 1996.
Interest Charges
Interest expense, excluding the debt component of AFC, for the three and nine
months ended September 30, 1996 decreased $1.9 million and $4.1 million,
respectively, when compared to the corresponding periods in 1995 primarily as a
result of reductions in outstanding debt.
14
<PAGE>
SCANA CORPORATION
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings see Note 2 "Rate Matters"
and Note 4 "Commitments and Contingencies" of Notes to Consolidated
Financial Statements.
Items 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibits filed with this Quarterly Report on Form 10-Q are listed in
the following Exhibit Index. Certain of such exhibits which have
heretofore been filed with the Securities and Exchange Commission and
which are designated by reference to their exhibit numbers in prior
filings are hereby incorporated herein by reference and made a part
hereof.
B. Reports on Form 8-K
None
15
<PAGE>
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)
November 12, 1996 By: s/K. B. Marsh
K. B. Marsh, Vice President - Finance,
Chief Financial Officer and Controller
16
<PAGE>
SCANA CORPORATION
EXHIBIT INDEX Sequentially
Numbered
Pages
Number
2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
Not Applicable
3. Articles of Incorporation and By-Laws
A. Restated Articles of Incorporation of SCANA
Corporation as adopted on April 26, 1989
(Exhibit 3-A to Registration Statement
No. 33-49145)........................................... #
B. Articles of Amendment dated April 27, 1995
(Exhibit 4-B to Registration Statement No.
33-62421)............................................... #
C. Copy of By-Laws of SCANA Corporation as revised
and amended on June 18, 1996 (Filed as Exhibit
3-C in Form 10-Q for the quarter ended March 31, 1996)... #
4. Instruments Defining the Rights of Security Holders,
Including Indentures
A. Articles of Exchange of South Carolina
Electric & Gas Company and SCANA Corporation
(Exhibit 4-A to Post-Effective Amendment No. 1
to Registration Statement No. 2-90438).................. #
B. Indenture dated as of November 1, 1989 to
The Bank of New York, Trustee (Exhibit 4-A
to Registration No. 33-32107)........................... #
C. Indenture dated as of January 1, 1945, from
the South Carolina Power Company (the "Power
Company") to Central Hanover Bank and Trust
Company, as Trustee, as supplemented by three
Supplemental Indentures dated respectively as
of May 1, 1946, May 1, 1947 and July 1, 1949
(Exhibit 2-B to Registration No. 2-26459)............... #
D. Fourth Supplemental Indenture dated as of
April 1, 1950, to Indenture referred to in
Exhibit 4C, pursuant to which the Company
assumed said Indenture (Exhibit 2-C to
Registration No. 2-26459)............................... #
E. Fifth through Fifty-second Supplemental
Indentures referred to in Exhibit 4C dated
as of the dates indicated below and filed
as exhibits to the Registration Statements
and 1934 Act reports whose file numbers are
set forth below......................................... #
# Incorporated herein by reference as indicated.
17
<PAGE>
SCANA CORPORATION
EXHIBIT INDEX
Number
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
December 1, 1969 Exhibit 4-Q to Registration No. 2-35388
June 1, 1970 Exhibit 4-R to Registration No. 2-37363
March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324
January 1, 1972 Exhibit 4-C to Registration No. 33-38580
July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291
May 1, 1975 Exhibit 4-C to Registration No. 33-38580
July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908
February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304
December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936
March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662
May 1, 1977 Exhibit 4-C to Registration No. 33-38580
February 1, 1978 Exhibit 4-C to Registration No. 33-38580
June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653
April 1, 1979 Exhibit 4-C to Registration No. 33-38580
June 1, 1979 Exhibit 4-C to Registration No. 33-38580
April 1, 1980 Exhibit 4-C to Registration No. 33-38580
June 1, 1980 Exhibit 4-C to Registration No. 33-38580
December 1, 1980 Exhibit 4-C to Registration No. 33-38580
April 1, 1981 Exhibit 4-D to Registration No. 33-49421
June 1, 1981 Exhibit 4-D to Registration No. 2-73321
March 1, 1982 Exhibit 4-D to Registration No. 33-49421
April 15, 1982 Exhibit 4-D to Registration No. 33-49421
May 1, 1982 Exhibit 4-D to Registration No. 33-49421
December 1, 1984 Exhibit 4-D to Registration No. 33-49421
December 1, 1985 Exhibit 4-D to Registration No. 33-49421
June 1, 1986 Exhibit 4-D to Registration No. 33-49421
February 1, 1987 Exhibit 4-D to Registration No. 33-49421
September 1, 1987 Exhibit 4-D to Registration No. 33-49421
January 1, 1989 Exhibit 4-D to Registration No. 33-49421
January 1, 1991 Exhibit 4-D to Registration No. 33-49421
February 1, 1991 Exhibit 4-D to Registration No. 33-49421
July 15, 1991 Exhibit 4-D to Registration No. 33-49421
# Incorporated herein by reference as indicated.
18
<PAGE>
SCANA CORPORATION
EXHIBIT INDEX
Sequentially
Numbered
Pages
Number
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
F. 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)........................................... #
G. First Supplemental Indenture to Indenture
referred to in Exhibit 4-F dated as of June 1, 1993
(Filed as Exhibit 4-G to Registration Statement
No. 33-49421)........................................... #
H. Second Supplemental Indenture to Indenture
referred to in Exhibit 4-F dated as of June 15, 1993
(Filed as Exhibit 4-G to Registration Statement
No. 33-57955)........................................... #
10. Material Contracts
Not Applicable
11. Statement Re Computation of Per Share Earnings
Not Applicable
15. Letter Re Unaudited Interim Financial Information
Not Applicable
18. Letter Re Change in Accounting Principles
Not Applicable
19. Report Furnished to Security Holders
Not Applicable
22. Published Report Regarding Matters Submitted to
Vote of Security Holders
Not Applicable
23. Consents of Experts and Counsel
Not Applicable
24. Power of Attorney
Not Applicable
27. Financial Data Schedule (Filed herewith)
99. Additional Exhibits
Not Applicable
19
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
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<OTHER-PROPERTY-AND-INVEST> 337,674
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