As filed with the Securities and Exchange Commission on
July 30, 1999
File No. 70-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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APPLICATION-DECLARATION
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
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SCANA CORPORATION PUBLIC SERVICE COMPANY OF
SOUTH CAROLINA ELECTRIC AND NORTH CAROLINA,
GAS COMPANY INCORPORATED
SOUTH CAROLINA GENERATING SONAT PUBLIC SERVICE
COMPANY, INC. COMPANY LLC
SOUTH CAROLINA FUEL CLEAN ENERGY ENTERPRISES
COMPANY, INC. CARDINAL PIPELINE COMPANY, LLC
SOUTH CAROLINA PIPELINE PINE NEEDLE LNG COMPANY, LLC
CORPORATION PSNC BLUE RIDGE CORPORATION
SCANA ENERGY MARKETING INC. PSNC CARDINAL PIPELINE COMPANY
SCANA PROPANE GAS, INC. PSNC PRODUCTION CORPORATION
SCANA PROPANE STORAGE, INC. 400 Cox Road
SCANA COMMUNICATIONS, INC. Gastonia, North Carolina 28054
SERVICECARE INC.
PRIMESOUTH, INC.
SCANA RESOURCES, INC.
SCANA DEVELOPMENT
CORPORATION
SCANA PETROLEUM
RESOURCES, INC.
SCANA SERVICE COMPANY/1/
1426 Main Street
Columbia, South Carolina 29201
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/1/ To be formed prior to Merger.
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(Name of companies filing this statement
and addresses of principal executive offices)
SCANA Corporation/2/
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(Name of top registered holding company)
Kevin B. Marsh
H. Thomas Arthur
SCANA Corporation
1426 Main Street
Columbia, South Carolina 29201
Telephone: (803) 748-3000
Facsimile: (803) 748-3336
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(Names and addresses of agents for service)
The Commission is also requested to send copies
of any communication in connection with this matter to:
William S. Lamb
Sheri E. Bloomberg
Markian M.W. Melnyk
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 W. 55th Street
New York, New York 10019
Telephone: (212) 424-8000
Facsimile: (212) 424-8500
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/2/ To be registered upon approval by the Commission.
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Item 1. DESCRIPTION OF THE PROPOSED TRANSACTION
A. Introduction and General Request
1. General
SCANA Corporation, a South Carolina Corporation ("SCANA"), has previously
filed an Application/Declaration on Form U-1 (File No. 70-9521) with the
Securities and Exchange Commission (the "Commission") under the Section 9(a)(2)
and Section 10 under Section (3)(a)(1) pursuant to Rule 2 of the Public Utility
Holding Company Act of 1935, as amended (the "Act"), seeking approvals relating
to the proposed acquisition by SCANA of Public Service Company of North
Carolina, Incorporated, a North Carolina Corporation ("PSNC") pursuant to which
PSNC will become a wholly owned subsidiary of SCANA (the "Merger"), and for
other related transactions. SCANA will register as a holding company under the
Act upon the consummation of the proposed acquisition contemplated in the Merger
U-1. Each of the entities that will be directly or indirectly owned subsidiaries
of SCANA upon consummation of the acquisition described in the Merger U-1 is
referred to herein individually as a "Subsidiary" and collectively as
"Subsidiaries". For purposes of sections E.3., "Non-Utility Subsidiaries",
E.4.a., "Guarantees", and E.5., "Changes in Capital Stock of Wholly Owned
Subsidiaries," the terms "Subsidiary" and "Subsidiaries" shall also include
other direct or indirect subsidiaries that SCANA may form after the Merger with
the approval of the Commission, pursuant to the Rule 58 exemption or pursuant to
Section 34 of the Act. SCANA and the Subsidiaries are sometimes hereinafter
collectively referred to as the "SCANA System" or as the "Applicants". For
purposes of section E.4.b., "Money Pool", the term "Subsidiary" or
"Subsidiaries" shall only include the companies specifically named on the cover
and on the signature page of this Application/Declaration. The Commission is
asked to reserve jurisdiction over the participation in
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the relevant money pool of future companies formed by SCANA until a specific
post-effective amendment is filed, naming the subsidiary to be added as a
participant in the relevant money pool.
2. General Request
This Application/Declaration seeks authorization and approval of the
Commission with respect to the ongoing financing activities, the provision of
intrasystem services, and other matters pertaining to, SCANA and PSNC and their
subsidiaries after giving effect to the Merger and registration of SCANA as a
holding company. Specifically, this Application/Declaration seeks the following
authorizations and approvals of the Commission:
(a) In order to ensure that the SCANA System is able to meet its capital
requirements immediately following registration and plan its future financing,
SCANA and its Subsidiaries hereby request authorization for financing
transactions for the period beginning with the effective date of an order issued
pursuant to this filing and continuing for a period of five (5) years from the
date of such order (the "Authorization Period").
(b) SCANA also hereby requests that the Commission approve the designation
of SCANA Service Company ("SCANA Service") as a subsidiary service company in
accordance with the provisions of Rule 88 of the Act and the Service Agreement
as a basis for SCANA Service to comply with Section 13 of the Act and the
Commission's rules thereunder.
(c) SCANA also requests that the Commission approve the issuance of 13.6
million shares of common stock under dividend reinvestment and stock-based
management incentive and employee benefit plans pursuant to Sections 6(a) and 7
of the Act, all as more specifically described below.
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(d) SCANA also requests authorization and approval of the Commission under
other sections of the Act and applicable rules and regulations of the Commission
promulgated thereunder with respect to the related matters described in this
Application/Declaration.
B. Description of the Parties to the Transaction
Following the consummation of the Merger, SCANA will have three operating
public utility company subsidiaries (the "Utility Subsidiaries"): South Carolina
Electric & Gas Company ("SCE&G"), a public utility company engaged (i) in the
generation, transmission, distribution and sale of electricity and (ii) in the
purchase and sale of natural gas in South Carolina, having electric service
extending into 24 counties and natural gas operations encompassing all or part
of 31 counties in South Carolina; South Carolina Generating Company, Inc.
("GENCO"), which owns and operates the Williams Station generating facility in
Goose Creek, South Carolina, selling electricity solely to SCE&G; and PSNC, a
public utility company franchised to serve a 31-county area in North Carolina,
transporting, distributing and selling natural gas to approximately 340,000
residential, commercial and industrial customers in 95 cities in North Carolina.
A list of SCANA's other Subsidiaries is set forth on the cover of this filing
and in the Merger U-1 and the exhibits thereto. All of SCANA's direct and
indirect Subsidiaries, other than the Utility Subsidiaries, are herein called
the "Non-Utility Subsidiaries".
Prior to the consummation of the Merger, SCANA Service will be incorporated
in the State of South Carolina to serve as the service company for the SCANA
system. SCANA Service will provide SCANA, PSNC and the other companies of the
SCANA system with a variety of administrative, management, environmental and
support services, either directly or through agreements with associate or
non-associate companies, as needed.
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SCANA Service will enter into a service agreement with the most, if not
all, Subsidiaries in the SCANA system. (A copy of the form of the service
agreement as well as an appendix entitled "Service Company Policy and
Procedures" will be filed as Exhibits C-1 and C-2, respectively).
The authorized capital stock of SCANA Service will consist of up to 1000
shares of common stock, $.01 par value per share. Upon consummation of the
Merger, all issued and outstanding shares of SCANA Service common stock will be
held by SCANA.
C. Overview of the Financing Request
The Applicants hereby request authorization to engage in the financing
transactions set forth herein during the Authorization Period. The approval by
the Commission of this Application/Declaration will give the Applicants
flexibility that will allow them to respond quickly and efficiently to their
financing needs and to changes in market conditions allowing them to efficiently
and effectively carry on competitive business activities designed to provide
benefits to customers and shareholders. Approval of this Application/Declaration
is consistent with existing Commission precedent, both for newly registered
holding company systems (See e.g., Ameren Corporation, Holding Co. Act. Release
No. 26809 (Dec. 30, 1997), Conectiv, Inc., Holding Co. Act. Release No. 26833
(Feb. 26, 1998); New Century Energies, Inc., Holding Co. Act Release No. 26750
(Aug. 1, 1997)) and holding company systems that have been registered for a
longer period of time (See e.g., The Columbia Gas System, Inc., Holding Co. Act
Release No. 26634 (Dec. 23, 1996); Gulf States Utilities Company, Holding Co.
Act Release No. 26451 (Jan. 16, 1996)).
The financing authorizations requested herein relate to (i) external
issuances by SCANA of common stock, long-term debt, short-term debt, and other
securities for cash and (b)
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the entering into by SCANA of transactions to manage interest rate risk
("hedging transactions"); (ii) issuances of debt securities (including
commercial paper) and the entering into of hedging transactions by the Utility
Subsidiaries to the extent not exempt pursuant to Rule 52; (iii) issuances by
Non-Utility Subsidiaries of debt securities which are not exempt pursuant to
Rule 52; (iv) the establishment of a utility money pool (the "Utility Money
Pool") and a non-utility money pool (the "Non-Utility Money Pool") and the
issuance of intrasystem guarantees by SCANA and the Non-Utility Subsidiaries on
behalf of the Subsidiaries; (v) the ability of wholly owned Subsidiaries to
alter their capital stock in order to engage in financing transactions with
their parent company and to engage in a reverse stock split to reduce franchise
taxes, subject, in the case of Utility Subsidiaries, to the approval of a state
utility commission in a state where the utility is incorporated and doing
business; (vi) the ability of PSNC and its Subsidiaries to pay dividends out of
capital or unearned surplus; and (vii) the formation of financing entities and
the issuance by such entities of securities otherwise authorized to be issued
and sold pursuant to this Application/Declaration or pursuant to applicable
exemptions under the Act, including intrasystem guarantees of such securities
and the retention of existing financing entities.
D. Parameters for Financing Authorization
Authorization is requested herein to engage in certain financing
transactions during the Authorization Period for which the specific terms and
conditions are not at this time known, and which may not be covered by Rule 52,
without further prior approval by the Commission. The following general terms
will be applicable where appropriate to the financing transactions requested to
be authorized hereby:
1. Effective Cost of Money on Borrowings. The effective cost of money on
long-term debt borrowings occurring pursuant to the authorizations granted under
this
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Application/Declaration will not exceed 300 basis points over the comparable
term U.S. Treasury securities and the effective cost of money on short-term debt
borrowings pursuant to authorizations granted under this Application/Declaration
will not exceed 300 basis points over the comparable term London Interbank
Offered Rate ("LIBOR").
2. Maturity of Debt. The maturity of indebtedness will not exceed 50 years.
3. Issuance Expenses. The underwriting fees, commissions or other similar
remuneration paid in connection with the non-competitive issue, sale or
distribution of a security pursuant to this Application/Declaration will not
exceed 5% of the principal or total amount of the security being issued.
4. Use of Proceeds. The proceeds from the sale of securities in external
financing transactions will be used for general and corporate purposes including
(i) the financing, in part, of the capital expenditures of the SCANA system,
(ii) the financing of working capital requirements of the SCANA system, (iii)
the acquisition, retirement or redemption pursuant to Rule 42 of securities
previously issued by SCANA or its Subsidiaries without the need for prior
Commission approval, and (iv) other lawful purposes, including direct or
indirect investment in companies authorized under the Merger U-1 and in Rule 58
companies and ETCs. The Applicants represent that no such financing proceeds
will be used to acquire a new subsidiary unless such financing is consummated in
accordance with an order of the Commission or an available exemption under the
Act.
SCANA represents that, at all times during the Authorization Period, its
common equity (as reflected in its most recent 10-K or 10-Q filed with the
Commission pursuant to the 1934 Act) will be at least 30% of its consolidated
capitalization as adjusted to reflect subsequent events that affect
capitalization.
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E. Description of Specific Types of Financing
1. SCANA External Financing
SCANA requests authorization to obtain funds externally through sales of
common stock, long-term debt and short-term debt securities. With respect to
common stock, SCANA also requests authority to issue common stock to third
parties in consideration for the acquisition by SCANA or a Non-Utility
Subsidiary of equity or debt securities of a company being acquired pursuant to
Rule 58, Section 34 of the Act or pursuant to an order issued in connection with
the Merger U-1. In addition, SCANA seeks the flexibility to enter into certain
hedging transactions to manage rate risk.
(a) Common Stock
The aggregate amount of financing obtained by SCANA during the
Authorization Period from issuance and sale of common stock, no par value, when
combined with issuances of long-term debt, as described in this section, shall
not exceed $1.435 billion for the uses set forth above.
i. General
Subject to the foregoing, SCANA may issue and sell common stock or, if
pursuant to employee benefit plans, issue options exercisable for common stock
and common stock upon the exercise of options. SCANA may also buy back shares of
such stock or such options during the Authorization Period in accordance with
Rule 42.
Common stock financings may be issued and sold pursuant to underwriting
agreements of a type generally standard in the industry. Public distributions
may be pursuant to private negotiation with underwriters, dealers or agents as
discussed below or effected through competitive bidding among underwriters. In
addition, sales may be made through private
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placements or other non-public offerings to one or more persons. All such common
stock sales will be at rates or prices and under conditions negotiated or based
upon, or otherwise determined by, competitive capital markets.
SCANA may sell common stock covered by this
Application/Declaration in any one of the following ways: (i) through
underwriters or dealers; (ii) through agents; (iii) directly to a limited number
of purchasers or a single purchaser; or (iv) directly to employees (or to trusts
established for their benefit) and other shareholders through its employee
benefit plans or dividend reinvestment plan. If underwriters are used in the
sale of the securities, such securities will be acquired by the underwriters for
their own account and may be resold from time to time in one or more
transactions, including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. The securities may be
offered to the public either through underwriting syndicates (which may be
represented by a managing underwriter or underwriters designated by SCANA) or
directly by one or more underwriters acting alone. The securities may be sold
directly by SCANA or through agents designated by SCANA from time to time. If
dealers are utilized in the sale of any of the securities, SCANA will sell such
securities to the dealers as principals. Any dealer may then resell such
securities to the public at varying prices to be determined by such dealer at
the time of resale. If common stock is being sold in an underwritten offering,
SCANA may grant the underwriters thereof a "green shoe" option permitting the
purchase from SCANA at the same price additional shares then being offered
solely for the purpose of covering over-allotments.
ii. Acquisitions
Under the terms of the Merger U-1, Rule 58 and Section 34 of the Act, SCANA
is authorized to acquire securities of companies engaged in energy-related
consumer services,
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"energy-related businesses" as described in Rule 58 and ETCs. Historically,
similar acquisitions have occasionally involved the exchange of parent company
stock for securities of the company being acquired in order to provide the
seller with certain tax advantages. These transactions are individually
negotiated. The SCANA common stock to be exchanged may be purchased on the open
market pursuant to Rule 42, treasury shares or may be original issue. Original
issue stock may be registered under the Securities Act of 1933, as amended (the
"1933 Act"), but at present it is expected that the common stock would not be
registered and the common stock acquired by the third parties would be subject
to resale restrictions pursuant to Rule 144 under the 1933 Act. Such
transactions would not occur while a public offering is being made.
The ability to offer stock as consideration makes a transaction more
economical for SCANA as well as the seller of the business. Therefore, SCANA
requests authorization to issue common stock in consideration for an acquisition
by SCANA or a Non-Utility Subsidiary of securities of a business, the
acquisition of which is exempt under Rule 58 or Section 34 of the Act, or which
has been authorized in the Merger U-1. The SCANA common stock would be valued at
market value based upon the closing price on the day before closing of the sale
or based upon average high and low prices for a period prior to the closing of
the sale as negotiated by the parties. From the perspective of the Commission,
the use of stock as consideration valued at market value is no different than a
sale of common stock on the open market and use of the proceeds to acquire
securities, the acquisition of which is otherwise authorized.
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(b) Long-Term Debt
SCANA requests Commission authorization during the Authorization Period to
issue long-term debt securities in an amount, when combined with issuances
common stock (other than for benefit plans or dividend reinvestment plans) under
this Application/Declaration, not to exceed $1.435 billion. This amount includes
financing for the cash portion of the Merger consideration of approximately $700
million. Such long-term debt securities would be comprised of medium term notes
under an indenture (the "SCANA Indenture"). Any long-term debt security would
have such designation, aggregate principal amount, maturity, interest rate(s) or
methods of determining the same, terms of payment of interest, redemption
provisions, sinking fund terms and other terms and conditions as SCANA may
determine at the time of issuance. The request for authorization for SCANA to
issue long-term debt securities is consistent with authorization that the
Commission has granted to other combination gas and electric holding companies.
See, Cinergy Corp., Holding Co. Act Release No. 26909 (Aug. 21, 1998)
(authorizing the issuance of up to $400 million of unsecured debt securities);
Conectiv, Inc., Holding Co. Act Release No. 26921 (Sept. 28, 1998) (authorizing
issuance of up to $250 million of debentures).
(i) Terms of SCANA Indenture
The SCANA Indenture permits the issuance of a wide variety of unsecured
debt securities in one or more series. Securities issuable can include (which
may be issued with original issue discount), securities as to which payments of
interest or principal are based on a formula or index, and securities on which
payment of interest or principal are dominated in a foreign currency or
currencies. The terms of a specific issue of securities including any applicable
negative covenants, are set under the SCANA Indenture by a supplemental
indenture.
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The SCANA Indenture contains numerous variable terms, such as the principal
amount, interest rate, redemption terms, denominations, events of default, etc.,
which may be included or excluded in the supplemental indenture authorizing a
particular series of securities. In theory, any combination of the variable
terms could be included in a single series of securities which, under current
practice, would be called "notes", "debentures" or "medium-term notes". SCANA
Indenture also permits any series of securities to be issued either in
certificated form or in "global" form (i.e., transferable only by book-entry on
the records of a securities depository such as The Depository Trust Company).
The SCANA Indenture contains no negative covenants or restrictions. Any
covenants or restrictions negotiated at the time of issuance will be included in
a supplemental indenture establishing a particular security. The SCANA Indenture
contains the following event of default provisions: (i) defaults in payment of
the SCANA Indenture securities; (ii) failures to comply with agreements; and
(iii) certain events of insolvency with respect to SCANA subject, as applicable,
to customary grace periods.
The SCANA Indenture has been qualified under the Trust Indenture Act of
1939, as amended. As of June 30, 1999, the following medium-term notes were
issued and outstanding under the SCANA Indenture:
Amount Interest Rate Maturity Date
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$ 20.0 million 6.15% 7/3/2000
$ 20.0 million 6.51% 7/1/2003
$ 60.0 million 6.05% 1/13/2003
$ 75.0 million 6.25% 7/8/2003
$ 115.0 million 5.81% 10/23/2008
$ 30.0 million 6.60% 10/8/1999
$ 25.0 million 6.90% 2/15/2007
$ 150.0 million 5.5175% 7/14/2000
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A copy of any new supplemental indenture under the SCANA Indenture executed
pursuant to this Authorization will be filed under cover of the next quarterly
report under Rule 24
(ii) Terms of Borrowings from Banks and Other Financial
Institutions.
Borrowings from the banks and other financial institutions will be
unsecured debt and will rank pari passu with debt securities issued under the
SCANA Indenture and the short-term credit facilities (as described below).
Specific terms of any borrowings will be determined by SCANA at the time of
issuance and will comply in all regards to the parameters on financing
authorization set forth above. A copy of any additional note or agreement
executed pursuant to this authorization will be filed under cover of the next
quarterly report under Rule 24.
(c) Short-Term Debt
To refund pre-Merger short-term debt, to provide for the reissuance of
pre-Merger letters of credit and to provide financing for general corporate
purposes, working capital requirements and Subsidiary capital expenditures until
long-term financing can be obtained, SCANA requests authorization to have
outstanding at any one time during the Authorization Period, up to $950 million
of short-term debt, including approximately $500 million of Merger financing
(most of which SCANA intends to refinance as long-term debt within 1 year of
effectiveness of the Merger), consisting of bank borrowings, commercial paper or
bid notes (all as described below).
SCANA currently has the following short-term debt facilities in place,
which will remain in place following the Merger: (1) SCANA maintains uncommitted
bank lines of credit in the current amount of $128 million (these uncommitted
lines have no expiration date); (2) SCANA also maintains committed lines of bank
credit for $100 million (evenly divided between Wachovia Bank and Bank of
America) which expire on June 29, 2000; (3) SCANA
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maintains committed lines of credit with banks in the amount of $2.3 million;
and (4) SCANA expects to obtain a $50 million letter of credit in connection
with its guarantee of SCE&G's decommissioning costs (disclosed in Item 4.a
below). These amounts are included within the overall authorization amount
requested above.
(d) Other Securities
In addition to the specific securities for which authorization is sought
herein, SCANA may also find it necessary or desirable to minimize financing
costs or to obtain new capital under then-existing market conditions to issue
and sell other types of securities from time to time during the Authorization
Period. The issuance of any such securities would be subject to the aggregate
$1.435 billion limit on equity and long-term debt or the aggregate $950 million
limit on short-term debt and to the parameters on financing authorization set
forth above. SCANA requests that the Commission reserve jurisdiction over the
issuance of additional types of securities. SCANA also will undertake to file a
post-effective amendment in this proceeding which will describe the general
terms of each such security and the amount to be issued and to request a
supplemental order of the Commission authorizing the issuance thereof by SCANA.
(e) Interest Rate Risk Management Devices
SCANA requests authority to enter into, perform, purchase and sell
financial instruments intended to manage the volatility of interest rates,
including but not limited to interest rate swaps, caps, floors, collars and
forward agreements or any other similar agreements. SCANA would employ interest
rates swaps as a means of prudently managing the risk associated with any of its
outstanding debt issued pursuant to this authorization an applicable exemption
by, in effect, synthetically (i) converting variable rate debt to fixed rate
debt, (ii) converting fixed rate debt to variable rate, (iii) limiting the
impact of changes in interests rates resulting from variable
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rate debt and (iv) providing an option to enter into interest rate swap exceed
that of the underlying debt instrument and related interest rate exposure. Thus,
SCANA will not engage in "leveraged" or "speculative" transactions. The
underlying interest rate indices of such interest rate swaps will closely
correspond to the underlying interest rate indices of SCANA's debt to which such
interest rate swap relates. SCANA will only enter into interest rate swap
agreements with counterparties whose senior debt ratings, as published by
Standard & Poor's Corporation, are greater than or equal to "BBB+", or an
equivalent rating from Moody's Investor Service, Inc., Fitch Investor Service or
Duff & Phelps.
2. Utility Subsidiary Financing
As indicated on Exhibit I-1 hereto, the Utility Subsidiaries have financing
arrangements in place. These arrangements will remain in place following the
Merger and are described in more detail in Exhibit I-1 hereto.
Rule 52 provides an exemption from the prior authorization requirements of
the Act for most of the issuances and sales of securities by the Utility
Subsidiaries because they must be approved by the relevant state public utility
commission, which, depending on the particular subsidiary involved, may mean
either the South Carolina Public Service Commission (the "SCPSC") or the North
Carolina Utilities Commission (the "NCUC"). However, certain external financings
by the Utility Subsidiaries for which authorization is requested herein may be
outside the Rule 52 exemption. The authority herein sought excludes financings
exempt under Rule 52. Financings obtained under this authorization will be used
for general corporate purposes and working capital requirements, including
contributions to the Utility Money Pool.
(a) Short-Term Debt
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Authority is requested for SCE&G to issue commercial paper and establish
credit lines in the aggregate amount of $300 million to be outstanding at any
one time during the Authorization Period. Authority is requested for PSNC to
issue commercial paper and establish credit lines in the aggregate amount of
$125 million to be outstanding at any one time during the Authorization Period.
The above-named Utility Subsidiaries request authority to sell commercial
paper, from time to time, in established domestic commercial paper markets in a
manner similar to SCANA as discussed above. Such Utility Subsidiaries may
further maintain back up lines of credit in an aggregate amount not to exceed
the amount of authorized commercial paper.
Credit lines may be set up for use by the Utility Subsidiaries for general
corporate purposes in addition to credit lines to support commercial paper as
described in subsection (a) above. These Utility Subsidiaries would borrow and
repay under such lines of credit, from time to time, as it was deemed
appropriate or necessary. Subject to the limitations described herein, each such
Utility Subsidiary may engage in other types of short term financings as it may
deem appropriate in light of its needs and market conditions at the time of
issuance.
(b) Interest Rate Swaps
The Utility Subsidiaries request authority to enter into, perform, purchase
and sell financial instruments intended to manage the volatility of interest
rates, including but not limited to interest rate swaps, caps, floors, collars
and forward agreements or any other similar agreements to the extent the same
are not exempt under Rule 52. Each Utility Subsidiary may employ interest rate
swaps as a means of managing risk associated with any of its outstanding debt
issued pursuant to this authorization or an applicable exemption. The Utility
Subsidiaries
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request authority to make and continue use of financial hedging instruments in
connection with Utility operations. The Utility Subsidiaries will not engage in
speculative transactions.
To the extent not exempt under Rule 52, the Utility Subsidiaries also
request authority to enter into interest rate risk management transactions or
the same type and under the same conditions are requested above by SCANA.
3. Non-Utility Subsidiary Financings
As noted on Exhibit I-2 hereto, certain Non-Utility Subsidiaries have
financing arrangements in place. These arrangements are expected to remain in
place following consummation of the Mergers. Certain guarantees in favor of a
direct or indirect Non-Utility Subsidiary issued by another Subsidiary may be
replaced by SCANA guarantees as described below. In addition, the Merger U-1
contemplates, and the order permitting the Merger U-1 to become effective will
authorize, the formation or retention of other Non-Utility Subsidiaries named
herein which do not currently have outstanding debt. It is expected that future
financing by all such Non-Utility Subsidiaries will be made pursuant to the
terms of Rule 52.
The Non-Utility Subsidiaries are engaged in and expect to continue to be
active in the development and expansion of their existing energy-related or
otherwise functionally-related, non-utility business. They will be competing
with large, well-capitalized companies in different sectors of the energy and
other industries. In order to quickly and effectively invest in such competitive
arenas, it will be necessary for the Non-Utility Subsidiaries to have the
ability to engage in financing transactions which are commonly accepted for such
types of investments. The majority of such financings will be exempt from prior
Commission authorization pursuant to Rule 52(b). The Non-Utility Subsidiaries
may, however, engage in types of security financing with non-affiliates that are
not exempt from prior Commission approval. The Non-Utility
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Subsidiaries therefore request that the Commission reserve jurisdiction over the
issuance of such additional types of securities and the amounts thereof and
undertake to cause a post-effective amendment to be filed in this proceeding
which will request a supplemental order of the Commission authorizing the
issuance thereof by the subject Non-Utility Subsidiary
4. Guarantees and Intra-System Money Pool
(a) Guarantees
SCANA requests authorization to enter into guarantees, obtain letters of
credit enter into expense agreements or otherwise provide credit support with
respect to the obligations of its Subsidiaries as may be appropriate to enable
such Subsidiaries to carry on in the ordinary course of their respective
businesses, in an aggregate principal amount not to exceed $305 million
outstanding at any one time, except to the extent the same are exempt pursuant
to Rule 45. Included in this amount are guarantees and other credit support
mechanisms of both SCANA's Subsidiaries, as well as those of PSNC which were
previously issued in favor of its subsidiaries which will be assumed by SCANA
upon consummation of the Merger.
The existing intra-system guarantees and support provided by SCANA, which
are expected to remain in place following the Merger, are as follows: (1) SCANA
guarantees the obligations of its marketing subsidiary (SCANA Energy) to Atlanta
Gas Light Company (estimated amount $40 million); (2) SCANA guarantees Genco's
$52.6 million 7.78% Senior Secured Notes due December 31, 2011 and Genco's
$35.85 million 6.5% Pollution Control Facilities Revenue Bonds; (3) SCANA
provides a $5 million letter of credit to Primesouth to support Primesouth's
ability to bid on contracts; and (4) it is expected that SCANA will obtain a
letter of credit prior to December 31, 1999 in the approximate amount of $50
million to satisfy Nuclear Regulatory Commission requirements on cash available
to fund SCE&G's decommission-
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ing costs. SCANA will guarantee $50 million of SCE&G's decommissioning costs and
support such guarantee through the letter of credit. These amounts are included
within the overall authorization amount requested above.
SCANA requests that this guarantee authority include the ability to
guarantee debt. The debt guaranteed will comply with the parameters for
financing set forth above.
(b) Authorization and Operation of the Money Pools
SCANA and the Utility Subsidiaries hereby request authorization to
establish the Utility Money Pool and the Utility Subsidiaries, to the extent not
exempted by Rule 52, also request authorization to make unsecured short-term
borrowings from the Utility Money Pool and to contribute surplus funds to the
Utility Money Pool and to lend and extend credit to (and acquire promissory
notes from) one another through the Utility Money Pool. The remaining
Subsidiaries, all of which are Non-Utility Subsidiaries may participate in the
Non-Utility Money Pool. The Non-Utility Money Pool activities of all of the
Non-Utility Subsidiaries are exempt from the prior approval requirements of the
Act under Rule 52. SCANA is requesting authorization to contribute surplus funds
and to lend and extend credit to (a) the Utility Subsidiaries through the
Utility Money Pool and (b) the Non-Utility Subsidiaries through the Non-Utility
Money Pool.
The Applicants believe that the cost of the proposed borrowings through the
two Money Pools will generally be more favorable to the borrowing participants
than the comparable cost of external short-term borrowings, and the yield to the
participants contributing available funds to the two Money Pools will generally
be higher than the typical yield on short-term investments.
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i. Utility-Money Pool
Under the proposed terms of the Utility Money Pool, short-term funds would
be available from the following sources for short-term loans to the Utility
Subsidiaries from time to time: (1) surplus funds in the treasuries of Utility
Money Pool participants other than SCANA, (2) surplus funds in the treasury of
SCANA, and (3) proceeds from bank borrowings by Utility Money Pool participants
or the sale of commercial paper by SCANA or the Utility Subsidiaries for loan to
the Utility Money Pool ("External Funds"). Funds would be made available from
such sources in such order as SCANA Service, as administrator of the Utility
Money Pool, may determine would result in a lower cost of borrowing, consistent
with the individual borrowing needs and financial standing of the companies
providing funds to the pool. The determination of whether a Utility Money Pool
participant at any time has surplus funds to lend to the Utility Money Pool or
shall lend funds to the Utility Money Pool would be made by such participant's
chief financial officer or treasurer, or by a designee thereof, on the basis of
cash flow projections and other relevant factors, in such participant's sole
discretion. See Exhibit J-1 for a copy of the Form of Utility Money Pool
Agreement.
As discussed in more detail below, a separate Non-Utility Money Pool will
be established by SCANA with certain other Non-Utility Subsidiary companies of
SCANA./3/ Funds made available by SCANA for loans through the money pools will
be made available first for loans through the Utility Money Pool and thereafter
for loans through the Non-Utility Money Pool.
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/3/ Such other subsidiaries consist of each of the Non-Utility Subsidiaries and
SCANA Service.
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Utility Money Pool participants that borrow would borrow pro rata from each
company that lends, in the proportion that the total amount loaned by each such
lending company bears to the total amount then loaned through the Utility Money
Pool. On any day when more than one fund source (e.g., surplus treasury funds of
SCANA and other Utility Money Pool participants ("Internal Funds") and External
Funds), with different rates of interest, is used to fund loans through the
Utility Money Pool, each borrower would borrow pro rata from each such fund
source in the Utility Money Pool in the same proportion that the amount of funds
provided by that fund source bears to the total amount of short-term funds
available to the Utility Money Pool.
Borrowings from the Utility Money Pool would require authorization by the
borrower's chief financial officer or treasurer, or by a designee thereof. No
party would be required to effect a borrowing through the Utility Money Pool if
it is determined that it could (and had authority to) effect a borrowing at
lower cost directly from banks or through the sale of its own commercial paper.
No loans through the Utility Money Pool would be made to, and no borrowings
through the Utility Money Pool would be made by, SCANA.
The cost of compensating balances, if any, and fees paid to banks to
maintain credit lines and accounts by Utility Money Pool participants lending
External Funds to the Utility Money Pool would initially be paid by the
participant maintaining such line. A portion of such costs -- or all of such
costs in the event a Utility Money Pool participant establishes a line of credit
solely for purposes of lending any External Funds obtained thereby into the
Utility Money Pool -- would be retroactively allocated every month to the
companies borrowing such External Funds through the Utility Money Pool in
proportion to their respective daily outstanding borrowings of such External
Funds.
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If only Internal Funds make up the funds available in the Utility Money
Pool, the interest rate applicable and payable to or by subsidiaries for all
loans of such Internal Funds will be the rates for high-grade unsecured 30-day
commercial paper sold through dealers by major corporations as quoted in The
Wall Street Journal.
If only External Funds comprise the funds available in the Utility Money
Pool, the interest rate applicable to loans of such External Funds would be
equal to the lending company's cost for such External Funds (or, if more than
one Utility Money Pool participant had made available External Funds on such
day, the applicable interest rate would be a composite rate equal to the
weighted average of the cost incurred by the respective Utility Money Pool
participants for such External Funds).
In cases where both Internal Funds and External Funds are concurrently
borrowed through the Utility Money Pool, the rate applicable to all loans
comprised of such "blended" funds would be a composite rate equal to the
weighted average of (a) the cost of all Internal Funds contributed by Utility
Money Pool participants (as determined pursuant to the second preceding
paragraph above) and (b) the cost of all such External Funds (as determined
pursuant to the immediately preceding paragraph above). In circumstances where
Internal Funds and External Funds are available for loans through the Utility
Money Pool, loans may be made exclusively from Internal Funds or External Funds,
rather than from a "blend" of such funds, to the extent it is expected that such
loans would result in a lower cost of borrowings.
Funds not required by the Utility Money Pool to make loans (with the
exception of funds required to satisfy the Utility Money Pool's liquidity
requirements) would ordinarily be invested in one or more short-term
investments, including: (i) interest-bearing accounts with banks; (ii)
obligations issued or guaranteed by the U.S. government and/or its agencies and
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instrumentalities, including obligations under repurchase agreements; (iii)
obligations issued or guaranteed by any state or political subdivision thereof,
provided that such obligations are rated not less than "A" by a nationally
recognized rating agency; (iv) commercial paper rated not less than "A-1" or
"P-1" or their equivalent by a nationally recognized rating agency; (v) money
market funds; (vi) bank certificates of deposit, (vii) Eurodollar funds; and
(viii) such other investments as are permitted by Section 9(c) of the Act and
Rule 40 thereunder.
The interest income and investment income earned on loans and investments
of surplus funds would be allocated among the participants in the Utility Money
Pool in accordance with the proportion each participant's contribution of funds
bears to the total amount of funds in the Utility Money Pool and the cost of
funds provided to the Utility Money Pool by such participant.
Each Applicant receiving a loan through the Utility Money Pool would be
required to repay the principal amount of such loan, together with all interest
accrued thereon, on demand and in any event not later than one year after the
date of such loan. All loans made through the Utility Money Pool could be
prepaid by the borrower without premium or penalty.
ii. Non-Utility Money Pool
The Non-Utility Money Pool will be operated on the same terms and
conditions as the Utility Money Pool, except that SCANA funds made available to
the Money Pools will be made available to the Utility Money Pool first and
thereafter to the Non-Utility Money Pool. See Exhibit J-2 for a copy of the form
of Non-Utility Money Pool Agreement. All contributions to, and borrowings from,
the Non-Utility Money Pool are exempt pursuant to the terms of Rule 52 under the
Act, except contributions and extensions of credit by SCANA, authorization for
which is hereby requested.
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iii. Other Contributions to Money Pool
SCANA and the Utility Subsidiaries may contribute funds from the issuance
of short term debt as authorized above to the Utility Money Pool. SCANA may
contribute funds from the issuance of short term debt to the Non-Utility Money
Pool and the Non-Utility Subsidiaries may contribute funds from the issuance of
short term debt to the Non-Utility Money Pool.
iv. Operation of the Money Pools and Administrative Matters
Operation of the Utility and Non-Utility Money Pools, including record
keeping and coordination of loans, will be handled by SCANA Service under the
authority of the appropriate officers of the participating companies. SCANA
Service will administer the Utility and Non-Utility Money Pools on an "at cost"
basis and will maintain separate records for each money pool. Surplus funds of
the Utility Money Pool and the Non-Utility Money Pool may be combined in common
short-term investments, but separate records of such funds shall be maintained
by SCANA Service as administrator of the pools, and interest thereon shall be
separately allocated, on a daily basis, to each money pool in accordance with
the proportion that the amount of each money pool's surplus funds bears to the
total amount of surplus funds available for investment from both money pools.
v. Use of Proceeds
Proceeds of any short term borrowings by the Applicants may be used by each
such Applicant (i) for the interim financing of its construction and capital
expenditure programs; (ii) for its working capital needs; (iii) for the
repayment, redemption or refinancing of its debt and preferred stock; (iv) to
meet unexpected contingencies, payment and timing differences, and cash
requirements; and (v) to otherwise finance its own business and for other lawful
general corporate
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purposes. SCE&G may borrow up to $30 million at any one time outstanding from
the Utility Money Pool, PSNC may borrow up to $15 million at any one time
outstanding, and GENCO may borrow up to $25 million at any one time outstanding.
The use of proceeds from the financings would be limited to use in the
operations of the respective businesses in which such Subsidiaries are already
authorized to engage. The authorization sought herein is substantially the same
as that given to New Century Energies, Inc., Holding Co. Release No. 26750 (Aug.
1, 1997) and Conectiv, Holding Co. Release No. 26833 (Feb. 26, 1998).
5. Changes in Capital Stock of Wholly Owned Subsidiaries
The portion of an individual Subsidiary's aggregate financing to be
effected through the sale of stock to SCANA or other immediate parent company
during the Authorization Period pursuant to Rule 52 and/or pursuant to an order
issued pursuant to this file cannot be ascertained at this time. It may happen
that the proposed sale of capital securities may in some cases exceed the then
authorized capital stock of such Subsidiary. In addition, the Subsidiary may
choose to use capital stock with no par value. Also, a wholly-owned Subsidiary
may wish to engage in a reverse stock split to reduce franchise taxes. As needed
to accommodate such proposed transactions and to provide for future issues,
request is made for authority to change the terms of any such wholly owned
Subsidiary's authorized capital stock capitalization by an amount deemed
appropriate by SCANA or other intermediate parent company in the instant case. A
Subsidiary would be able to change the par value, or change between par value
and no-par stock, without additional Commission approval. Any such action by a
Utility Subsidiary would be subject to and would only be taken upon the receipt
of any necessary approvals by the state commission in the state or states where
the utility Subsidiary is incorporated and doing business.
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See Conectiv, Inc., Holding Co. Act Release No. 26833 (Feb. 26, 1998), New
Century Energies, Inc., Holding Co. Act Release No. 26750 (Aug. 1, 1997).
6. Payment of Dividends out of Capital or Unearned Surplus by PSNC
As a result of the application of the purchase method of accounting to the
Merger, the current retained earnings of PSNC will be recharacterized as
additional paid-in-capital. In addition, the Merger will give rise to a
substantial level of goodwill, the difference between the aggregate fair values
of all identifiable tangible and intangible (non-goodwill) assets on the one
hand, and the total consideration to be paid for PSNC and the fair value of the
liabilities assumed, on the other. In accordance with the Commission's Staff
Accounting Bulletin No. 54, Topic 5J ("Staff Accounting Bulletin"), the goodwill
will be "pushed down" to PSNC and reflected as additional paid-in-capital in
their financial statements. The effect of these accounting practices would be to
leave PSNC with no retained earnings, the traditional source of dividend
payment, but, nevertheless, strong balance sheets showing significant equity
levels. The Applicants request authorization to pay dividends out of the
additional paid-in-capital account up to the amount of PSNC's aggregate retained
earnings just prior to the Merger and out of earnings before the amortization of
the goodwill thereafter.
In purchase accounting, the total value of the acquisition, which must be
assigned to PSNC's assets, is the total consideration to be paid for PSNC, plus
the fair value of all liabilities assumed in the acquisition. Generally,
goodwill is the residual balance of the total value remaining after fair values
have been assigned to all of PSNC's identifiable assets (both tangible and
non-goodwill intangible assets). Accordingly, the excess of the purchase
consideration over the fair market value of the acquired assets of PSNC will be
assigned to goodwill for generally accepted accounting purposes.
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As indicated in the Staff Accounting Bulletin, registrants that have
substantially all (generally defined as in excess of 95%) of their common stock
acquired by a third party, in a business combination accounted for under the
purchase method, should reflect the push-down of goodwill in the registrant's
post-acquisition financial statements. For any post-acquisition reporting of the
consolidated PSNC financial statements, push down accounting will be reflected
in those statements and the full amount of goodwill associated with the PSNC
acquisition will be reflected.
The application of "push down" accounting represents a change in the manner
of accounting. For FERC and state commission reporting purposes, goodwill will
be recorded in PSNC's books. The original historical basis of PSNC's books will
not be disturbed.
As a result of the push down of the goodwill, the common equity balances of
PSNC and PSNC's subsidiaries are effectively reset as if they were new
companies, because a new basis of accounting has been pushed down to the
entities. Accordingly, retained earnings are eliminated. Immediately following
this accounting treatment, the only components with a recorded value would be:
o Common stock - which would continue to reflect the par value of the
common stock issued.
o Additional paid in capital - which would reflect a value consistent
with total common shareholders equity minus the par value recorded in
the common stock line.
In other words, the resulting common shareholders' equity will equal the total
consideration paid for the entity.
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Based on 1998 financial information, the application of these accounting
principles to the Merger will result in following adjustments to PSNC's books:
$'000 1998 PSNC 1 PSNC 2 Restated
- ----- ---- ------ ------ --------
Common shares 20,378 (20,378) --- ---
Paid in capital 134,742 (134,742) 694,947 694,947
Retained earnings 68,654 --- (68,654) ---
Treasury stock --- 155,120 (155,120) ---
Accumulated comprehensive --- --- --- ---
income, net
Total equity 223,774 --- 471,173 694,947
PSNC 1 -- capital accounts are restated as Paid in Capital.
PSNC 2 -- goodwill is added to Paid in Capital.
The push down of the goodwill also has an impact on the net income of PSNC.
Since the goodwill will be amortized over 35 years, PSNC's net income will be
reduced by the amount of the amortization. For example, net income of $24.8
million in 1998 would be reduced by a goodwill amortization of $13.5 million.
The resulting net income after amortization would be $11.3 million.
Section 12 of the 1935 Act, and Rule 46 thereunder, generally prohibit the
payment of dividends out of "capital or unearned surplus" except pursuant to an
order of the Commission. The legislative history explains that this provision
was intended to "prevent the milking of operating companies in the interest of
the controlling holding company groups." S. Rep. No. 621, 74th Cong., 1st Sess.
34 (1935)./4/ In determining whether to permit a registered holding company to
pay dividends out of capital surplus, the Commission considers various factors,
including: (i) the asset value of the company in relation to its capitalization,
(ii) the company's prior earnings, (iii) the company's current earnings in
relation to the proposed
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/4/ Compare Section 305(a) of the Federal Power Act.
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dividend, and (iv) the company's projected cash position after payment of a
dividend. See Eastern Utilities Associates, Holding Co. Act Release No. 25330
(June 13, 1991), and cases cited therein. Further, the payment of the dividend
must be "appropriate in the public interest." Id., citing Commonwealth &
Southern Corporation, 13 S.E.C. 489, 492 (1943).
The Applicants request authority for PSNC to pay dividends out of
additional paid-in-capital up to the amount of PSNC's consolidated retained
earnings prior to the Merger and out of earnings before the amortization of
goodwill thereafter. In no case would dividends be paid if the equity of PSNC as
a percentage of total capital was below 30% on a consolidated basis. This
restriction is intended to protect both investors and consumers.
In support of their request, Applicants assert that each of the standards
of Section 12(c) of the 1935 Act enunciated in the EUA case are satisfied:
(i) After the Merger, and giving effect to the push down of goodwill,
PSNC's equity as a percentage of total capitalization will be 61.6%,
substantially in excess of the traditional levels of equity
capitalization that the Commission has authorized for other registered
holding company systems. The Applicants' commitment to maintain the
capitalization of PSNC at or above 30% equity on a consolidated basis
should result in a capital structure consistent with industry norms.
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(ii) PSNC has a favorable history of prior earnings and it has a long
record of consistent dividend payments./5/
(iii) Applicants anticipate that PSNC's cash flow after the Merger will not
differ significantly from its pre-Merger cash flow and that earnings
before the amortization of goodwill ("Gross Earnings"), therefore,
should remain stable post- Merger. The Applicants believe that
dividends paid out of future earnings will continue to reflect a
dividend payout ratio of between 65% and 75% of Gross Earnings, based
on a rolling 5-year average.
(iv) The projected cash position of PSNC after the Merger will be adequate
to meet the obligations of each company. As of June 30, 1999, PSNC had
cash balances of $3.1 million on a consolidated basis. The
amortization of goodwill is a non-cash expense that will not affect
the cash flow of PSNC. PSNC is forecast to have sufficient cash to pay
dividends in the amounts contemplated.
(v) The proposed dividend payments are in the public interest. PSNC is in
sound financial condition as indicated by its credit ratings. Indeed,
PSNC's senior unsecured debentures were rated A2 by Moody's Investor
Services prior to
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/5/ In recent years, PSNC's net income and dividends have been:
Year Net Income ($ millions) Dividends Paid ($ millions)
---- ----------------------- ---------------------------
1994 20.0 14.3
1995 21.4 14.2
1996 23.9 16.2
1997 26.3 17.3
1998 24.8 18.6
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announcement of the Merger and, following announcement, were put under
review for possible upgrade. The positive implications for PSNC are a
result of its association with SCANA, including the higher-rated
SCE&G. The expectations of continued strong credit ratings by PSNC
should allow it to continue to access the capital markets to finance
its operations and growth.
In addition, the dividend payments are consistent with investor interests
because they allow the capital structure of PSNC to be adjusted to more
appropriate levels of debt and equity. Lastly, a prohibition on dividend
payments out of additional paid-in-capital would impair the ability of SCANA to
service the acquisition debt incurred in connection with the Merger.
7. Financing Entities
Authority is sought for the Subsidiaries to organize new corporations,
trusts, partnerships or other entities created for the purpose of facilitating
financings through their issuance to third parties of income preferred
securities or other securities authorized hereby or issued pursuant to an
applicable exemption./6/ Request is also made for these financing entities to
issue such securities to third parties in the event such issuances are not
exempt pursuant to Rule 52. Additionally, request is made for authorization with
respect to (i) the issuance of debentures or other evidences of indebtedness by
any of the Subsidiaries to a financing entity in return for the proceeds of the
financing, (ii) the acquisition by any of the Subsidiaries of voting interests
or equity securities issued by the financing entity to establish any such
Subsidiary's ownership of the financing entity (the equity portion of the entity
generally being created through a capital contribution or the purchase of equity
securities, ranging from 1 to 3 percent of the capitalization
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/6/ SCE&G has an existing subsidiary trust that has issued $50 million in trust
securities to the public and holds $50 million principal amount of
debentures of SCE&G. Authorization is requested to retain this financing
arrangement.
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of the financing entity) and (iii) the guarantee by the Applicants of such
financing entity's obligations in connection therewith. Each of the Subsidiaries
also request authorization to enter into expense agreements with its respective
financing entity, pursuant to which it would agree to pay all expenses of such
entity. Any amounts issued by such financing entities to third parties pursuant
to this authorization will be included in the overall external financing
limitation authorized herein for the immediate parent of such financing entity.
However, the underlying intra-system mirror debt and parent guarantee shall not
be so included. The authorization sought herein with respect to financing
entities is substantially the same as that given to New Century Energies, Inc.,
Holding Co. Release No. 26750 (Aug. 1, 1997) and Conectiv, Holding Co.
Release No. 26833 (Feb. 26, 1998).
F. Intrasystem Provision of Services
1. Service Company
In order to ensure adequate oversight and realize economies of scale,
certain administrative and service functions for the SCANA System will be
consolidated and provided through SCANA Service. As a general rule, the
individual system companies will maintain capacity with respect to those
services that can benefit from individualized application at the company level,
with SCANA Service offering system-wide coordination and strategy services,
oversight services and other services where economies can be captured by
centralization of services. In particular, it is anticipated that the following
services will be offered by SCANA Service to system companies:
a. Corporate Compliance. The compliance group oversees compliance with all
laws, regulations and policies applicable to all of SCANA's businesses and
directs compliance training.
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b. Internal Auditing. This service involves reviewing internal controls,
and compliance therewith and preparing reports regarding both compliance and how
to improve methods of internal control.
c. Strategic Planning. This group will advise and assist system companies
with the preparation of strategic business plans for system companies, including
budgets, economic forecasts and planning for special projects.
d. Government Affairs and Economic Development. The government affairs
group will monitor and participate in developments on the federal and state
government level that affect system companies. The economic development group in
particular will be active in local government programs, including those designed
to encourage economic growth within system companies' service territory.
e. Gas Supply/Capacity Management (Regulated Subsidiaries). Through SCANA
Service, the Utility Subsidiaries will be able to coordinate the management of
their gas supply and capacity in order to ensure the most efficient use and
capture economies of scale as a larger purchaser in the market, although
individual Utility Subsidiaries may remain as the contract party under a supply
agreement. The non-regulated marketing subsidiaries such as SCANA Energy
Marketing will not use SCANA Service for gas supply and capacity management, but
will instead maintain a separate gas supply group.
f. Environmental. SCANA Service will offer environmental reporting,
monitoring and compliance services to system companies.
g. Legal Services Bureau. SCANA Service will offer advice and assistance
with respect to legal and regulatory issues and compliance and other matter
under Federal and State law. In addition, the claims group will process small
tort claims for system companies.
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h. Marketing/Sales/Branding. SCANA Service will offer to assist system
companies develop marketing strategies to promote their products and their brand
names. Individual system companies may maintain independent marketing personnel
to handle the day-to-day detail with respect to their marketing campaigns.
i. Financial Services. The services offered include corporate tax,
treasury services, insurance and risk management services, corporate accounting
and reporting, hedging policy and oversight, financial planning and rates (for
regulated Subsidiaries and other Subsidiaries that interact with regulators or
regulated companies). Again, it is expected that the individual companies will
maintain their own corporate and accounting group with the SCANA Service
providing advice and assistance on accounting matters, including the development
of accounting practices, procedures and controls, the preparation and analysis
of financial reports and the filing of financial reports with regulatory bodies,
on a system-wide basis.
j. Information System Services. SCANA Service will offer to provide the
system with organization and resources for the operation of centralized
information services, including the operation of centralized data processing
facilities and the management of a telecommunications network. These services
include the mainframe service bureau, which will operate and maintain the
centralized mainframe for the system; the DMIS (distributed management
information system) service bureau which supports the system's internal
accounting and work management software; the PC service bureau and
telecommunications. While the system's mainframe will be transferred to SCANA
Service, the individual software applications developed at the utilities will
remain property of the utility, and, as discussed in more detail below, will be
licensed for use by other system companies and supported by SCANA Service
personnel.
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k. Executive Staff. The members of SCANA's executive staff will work
through SCANA Service to assist system companies in the formulation and
execution of general plans and policies, including operations, issuances of
securities, appointment of executive personnel, budgets and financing plans,
expansion of services, acquisitions and dispositions of property, public
relationships and other related matters.
l. Corporate Services. SCANA Service will offer system companies corporate
services that can most efficiently be provided or coordinated on a system wide
basis, including shareholders services, security, mail services, corporate
secretary functions, communications, public affairs, purchasing and customer
services, remittance processing, billing, facilities management for the offices
owned by system companies and aviation services for efficient transportation of
company personnel. In this capacity, SCANA Service will offer customer call
center operations services to system companies. Individual system companies may
maintain separate public relations operations with SCANA Service providing them
overall strategic advise and coordination assistance.
m. Human Resources. SCANA Service will offer to assist system companies in
developing employee relations policies and programs and to provide personnel
training in a coordinated manner across the SCANA system. Each individual system
company may maintain a human resources group to handle the individualized
application of the policies and programs. SCE&G intends to transfer ownership in
the employee service center located in Georgetown, South Carolina to SCANA
Service to further its human resources function.
In accordance with the Services Agreement, services provided by SCANA
Service will be directly assigned if possible or allocated as necessary by
activity, project, program, work order or other appropriate basis. To accomplish
this, employees of SCANA Service will record
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transactions utilizing the DMIS data capture and accounting system currently in
place at SCANA. Costs of SCANA Service will be accumulated in accounts and
directly assigned if possible or allocated as necessary to the appropriate
system company in accordance with the guidelines set forth in the Services
Agreement (Exhibit C-1). It is anticipated that SCANA Service will be staffed
primarily by transferring personnel from the current employee rosters of SCANA,
SCE&G and PSNC. SCANA Service's accounting and cost allocation methods and
procedures are structured so as to comply with the Commission's standards for
service companies in registered holding company systems. SCANA Service's billing
system will use the "Uniform System of Accounts for Mutual Service Companies"
established by the Commission for holding-company systems, as may be adjusted to
use the FERC uniform system of accounts. Exhibit C-2 discusses the system and
procedures that will be used to implement the Service Agreement.
As compensation for services, the Services Agreement will provide for the
client companies to "pay to SCANA Service the cost of such services, computed in
accordance with the applicable rules and regulations (including, but not limited
to Rules 90 and 91) under the Act and appropriate accounting standards." Where
more than one company is involved in or has received benefits from a service
performed, the Services Agreement will provide that client companies will pay
their fairly allocated pro rata share in accordance with the methods set out in
a schedule to the Services Agreement. Thus, charges for all services provided by
SCANA Service to affiliated utility companies nonutility companies will be on an
"at cost" basis as determined under Rules 90 and 91 of the Act.
No change in the organization of SCANA Service, the type and character of
the companies to be serviced, the methods of allocating cost to associate
companies, or in the scope or character of the services to be rendered subject
to Section 13 of the Act, or any rule, regulation
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or order thereunder, shall be made unless and until SCANA Service shall first
have given the commission written notice of the proposed change not less than 60
days prior to the proposed effectiveness of any such change. If, upon the
receipt of any such notice, the Commission shall notify SCANA Service within the
60-say period that a question exists as to whether the proposed change is
consistent with the provisions of Section 13 of the Act, or of any rule,
regulation or order thereunder, then the proposed change shall not become
effective unless and until SCANA Service shall have filed with the Commission an
appropriate declaration regarding such proposed change and the Commission shall
have permitted such declaration to become effective.
SCANA will structure the Services Agreement so as to comply with Section 14
of the Act and the Commission's rules and regulations thereunder.
Rule 88 (b) provides that "(a) finding by the commission that a subsidiary
company of a registered holding company ...is so organized and conducted, or to
be so conducted, as to meet the requirements of Section 13(b) of the Act with
respect to reasonable assurance of efficient and economical performance of
services or construction or sale of goods for the benefit of associate
companies, at cost fairly and equitably allocated among them (or as permitted by
(Rule 90), will be made only pursuant to a declaration filed with the Commission
on Form U-13- 1, as specified in the instructions for that form, by such company
or the persons proposing to organize it. "Notwithstanding the foregoing
language, the Commission has on at least two recent occasions made findings
under Section 13(b) based on information set forth in an application on Form
U-1, without requiring the formal filing on a Form U-13-1. See Unitil Corp., 51
SEC Docket 562 (Apr. 24, 1992); CINergy Corp., 57 SEC Docket 2353 (Oct. 21,
1994). In this Application, Ameren has submitted substantially the same
application information as would have been submitted in a Form U-13-1.
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Accordingly, it is submitted that it is appropriate to find that SCANA
Service will be so organized and shall be so conducted as to meet the
requirements of Section 13(b), and that the filing of a Form U-13-1 is
unnecessary, or, alternatively, that this Application should be deemed to
constitute a filing on Form U-13-1 for purposes of Rule 88.
2. Other Services
SCE&G, PSNC and other associate companies of SCANA request authorization
to, from time to time, enter into leases of office or other space with other
associate companies. Any such lease will comply with the requirements of Rules
87, 90 and 91. See Central Power & Light Company, Holding Co. Act Release No.
26408 (Nov. 13, 1995).
SCE&G, Genco and PSNC may also provide to one another services incidental
to their utility businesses such as maintenance and emergency repairs and the
services of personnel with specialized expertise. These services will be
provided at cost in accordance with the standards of the Act and Rules 87, 90
and 91 thereunder.
As indicated above, because the Utility Subsidiaries will retain ownership
of software they have developed or involve some form of license agreement with
third parties, other system companies will enter into license agreements to use
this software. These license agreements will be structured in accordance with
the requirements of Rule 87, 90 and 91.
In addition, it is expected that SCE&G will transfer title to the system
mainframe computer and the employee training center in Georgetown, South
Carolina to SCANA Service to facilitate the provision of efficient coordinated
services.
Finally, SCANA Fuel Company, Inc. ("SCANA Fuel") acquires, owns and
provides financing to SCE&G's nuclear fuel, fossil fuel and sulfur dioxide
emission allowance requirements. SCANA Fuel enters into contracts with SCE&G to
provide these fuel-related
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services to SCE&G. These services are provided "at cost" as determined under
Rules 90 and 91 of the Act.
G. Direct Stock Purchase and Dividend Reinvestment Plan, Incentive
Compensation Plans and other Employee Benefit Plans
SCANA proposes, from time to time during a period of five years from the
date of an Order issued by the Commission, to issue and/or acquire in open
market transactions or by some other method which complies with applicable law
and Commission interpretations then in effect up to 13.6 million shares of SCANA
common stock under SCANA's direct stock purchase and dividend reinvestment plan,
certain incentive compensation plans and certain other employee benefit plans
described below.
1. Direct Investment and Dividend Reinvestment Plan
SCANA maintains a dividend reinvestment plan with a direct stock purchase
feature called SCANA Investor Plus Plan (the "SCANA Investor Plus"). SCANA
Investor Plus will remain in effect following consummation of the Merger. Upon
consummation of the Merger, PSNC will terminate its dividend reinvestment plan
and participants in the PSNC plan will be eligible to become participants in
SCANA Investor Plus.
Set forth below is a description of the principal terms of SCANA Investor
Plus:
The SCANA Investor Plus Plan offers shareholders the opportunity to buy,
hold and sell shares of SCANA Corporation common stock. Any United States
resident may purchase shares through this Plan. Residents of some states will
receive SCANA's information from a registered broker-dealer. The minimum initial
investment is $250 for the purchase of shares by a person who is not currently a
SCANA or SCE&G shareholder. Additional cash payments may be sent to SCANA. Our
minimum payment amount is $25 and the maximum payment is $100,000 in a calendar
year. On February 1, 1997, SCANA began purchasing shares for this plan on the
open
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market. The current commission charge for purchasing shares is $.06 per share.
The Plan purchases shares twice a month - usually on the 1st and 15th. All cash
must be received at least two business days prior to a purchase date. Cash
received and reinvested dividends are sent to the Plan's custodian (currently
Merrill Lynch) on the purchase date. Plan shares are sold through the custodian
weekly at a current commission charge of $.18 per share. A statement is sent
each time there is activity in a shareholder's account.
The SCANA Investor Plus Plan currently acquires shares in the open market.
All cash received for this Plan is used to buy shares for Plan participants.
The total number of shares issued from this plan in 1998 was 720,154.
A full statement of the current provisions of SCANA Investor Plus is
included in SCANA's Registration Statement on Form S-3 (Exhibit E-1 hereto).
2. Employee Stock-Based Plans
(a) SCANA currently maintains the following employee stock-based plans:
SCANA Stock Purchase Savings Plan, SCANA Non-Employee Directors Plan and the
SCANA Performance Share Plan (the "SCANA Plans"). PSNC currently maintains
several employee stock-based plans including the 1997 Nonqualified Stock Option
Plan and Employee Stock Purchase Plan (collectively, the "PSNC Plans"). The
SCANA Plans will remain in effect following consummation of the Merger. At the
election of SCANA, one of the following things will happen with respect to the
PSNC Plans immediately following consummation of the Merger:
o SCANA and PSNC will take such action as may be necessary so that the
PSNC Plans will provide for the issuance only of SCANA common stock
and, with respect to outstanding options and/or awards, provide that
the holder thereof shall be entitled to a number of shares of SCANA
common
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stock, equal to the number such holder would have received if such
option or award has been exercised prior to consummation of the
Merger, with appropriate adjustments to the exercise price; and
o PSNC shall use its best efforts to take all actions necessary and
appropriate to provide that each outstanding option to purchase shares
of PSNC Common Stock or other similar interest (collectively, the
"PSNC Options") granted under any of the PSNC Plans, whether or not
then exercisable or vested, shall be cancelled and, in exchange
therefor, each holder of such PSNC Option shall receive an amount in
cash in respect thereof as set forth in the Merger Agreement.
Set forth below is a summary of certain features of each of the SCANA
Plans, which summary is qualified by reference to such plan (Exhibits E-2, E-3
and E-4 hereto):
(b) SCANA Stock Savings Plan. Employees 18 years of age or more may
participate in this plan and save up to 15% of their base salary on a pre-tax
(401(K)) or after-tax basis. Employee investment choices currently include SCANA
common stock or money market funds. Employees are fully vested in the amounts
they contribute to the plan. SCANA will match up to 6% of the employee's
contribution, with the SCANA contribution being shares of SCANA common stock.
The SCANA contribution may not be withdrawn for two years following the year of
contribution if the employee has less than five years of service with SCANA.
Employees can make contribution rate changes once every 120 days and can change
from pre-tax to after-tax (and vice versa) annually.
(c) SCANA Non-Employee Directors Plan. The purpose of this plan is to
promote the achievement of long-term objectives of SCANA by linking the personal
interest of
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eligible directors, non-employee individuals who are members of SCANA's Board of
Directors, to those of SCANA's shareholders and to attract and retain eligible
directors of outstanding competence by mandating that each quarter 41% of the
retainer fees of each participant be paid in SCANA common stock. This plan is a
compensation plan pertaining only to said 41%of each participant's retainer fee
and is not a pension or welfare benefit plan and is not a deferred compensation
plan. SCANA common stock is purchased for this plan on the first day of each
quarter as the quarterly retainer fees are paid. Shares are currently purchased
through open market transactions. The total number of shares issued from this
plan in 1998 was 2,940. The average number of shares issued annually in 1997 and
1998 was 2,784.
(d) SCANA Performance Share Plan. SCANA's Performance Share Plan pays
bonuses to executives based on SCANA's Total Shareholder Return ("TSR") relative
to a group of peer companies over a three-year period. The peer group includes
84 electric and gas utilities, none of which have annual revenues of less than
$100 million.
TSR is stock price increase over the three-year period plus cash dividends
paid during the period, divided by stock price as of the beginning of the
period. Comparing SCANA's TSR to the TSR of a large group of other utilities
reflects SCANA's recognition that investors could have invested their funds in
other utility companies and measures how well SCANA did when compared to others
operating in similar interest, tax, economic and regulatory environments.
Executives selected to participate in the Performance Share Plan are
assigned target awards at the beginning of each three-year period based
primarily on salary level, level of responsibilities and competitive practices.
Awards under this plan represent a significant portion of executives' "at-risk"
compensation. To provide additional incentive for executives, and to
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ensure that executives are only rewarded when shareholders gain, actual payouts
may exceed the median of the market only when performance is above the 50th
percentile of the peer group. For lesser performance, awards will be at or below
the market median.
Payouts occur when SCANA's TSR is in the top two-thirds of the peer group
and vary based on SCANA's ranking against the peer group. Executives earn
threshold payouts of 0.4 times target at the 33rd percentile of three-year
performance. Target payouts will be made at the 50th percentile of three-year
performance. Maximum payouts will be made at 1.5 times target when SCANA's TSR
is at or above the 75th percentile of the peer group. No payouts will be earned
if performance is at less than the 33rd percentile. Awards may be paid in stock
or cash or a combination of stock and cash.
The total number of shares issued from the plan in 1998 was 20,021. The
average number of shares issued annually in 1997 and 1998 was 26,285.
H. Tax Allocation Agreement
The Applicants ask the Commission to approve an agreement for the
allocation of consolidated tax among SCANA and the Subsidiaries (the "Tax
Allocation Agreement"). Approval is necessary because the Tax Allocation
Agreement provides for the retention by SCANA of certain payments for tax losses
that it has incurred, rather than the allocation of such losses to Subsidiaries
without payment as would otherwise be required by Rule 45(c)(5). Exhibit K-1 is
a copy of the proposed Tax Allocation Agreement.
Provisions in a tax allocation agreement between a registered holding
company and its subsidiaries must comply with Section 12 of the Act and Rule 45
thereunder. Rule 45(a) of the Act generally prohibits any registered holding
company or subsidiary company from, directly or indirectly, lending or in any
manner extending its credit to or indemnifying, or making any
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donation or capital contribution to, any company in the same holding company
system, except pursuant to a Commission order. Rule 45(c) provides that no
approval is required for a tax allocation agreement between eligible associate
companies in registered holding company system, that "provides for allocation
among such associate companies of the liabilities and benefits arising from such
consolidated tax return for each tax year in a manner not inconsistent with" the
conditions of the rule. Of interest here, Rule 45(c)(5) provides that:
The agreement may, instead of excluding members as provided in paragraph
(c)(4), include all members of the group in the tax allocation, recognizing
negative corporate taxable income or a negative corporate tax, according to
the allocation method chosen. An agreement under this paragraph shall
provide that those associate companies with a positive allocation will pay
the amount allocated and those subsidiary companies with a negative
allocation will receive current payment of their corporate tax credits. The
agreement shall provide a method for apportioning such payments, and for
carrying over uncompensated benefits, if the consolidated loss is too large
to be used in full. Such method may assign priorities to specified kinds of
benefits. (Emphasis added.)
Under the rule, only "subsidiary companies," as opposed to "associate companies"
(which includes the holding company in a holding company system), are entitled
to be paid for corporate tax credits. However, if a tax allocation agreement
does not fully comply with the provisions of Rule 45(c), it may nonetheless be
approved by the Commission under Section 12(b) and Rule 45(a).
In connection with the 1981 amendments to Rule 45, the Commission explained
that the distinction between associate companies, on the one hand, and
subsidiary companies, on the other, represented a policy decision to preclude
the holding company from sharing in
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consolidated return savings. The Commission noted that exploitation of utility
companies by holding companies through the misallocation of consolidated tax
return benefits was among the abuses examined in the investigations underlying
the enactment of the 1935 Act. Holding Co. Act Release No. 21968 (March 25,
1981), citing Sen. Doc. 92, Part 72A, 70th Congress, 1st Sess. at 477-482. It
must be noted, however, that the result in Rule 45(c)(5) is not dictated by the
statute and, as the Commission has recognized, there is discretion on the part
of the agency to approve tax allocation agreements that do not, by their terms,
comply with Rule 45(c) -- so long as the policies and provisions of the Act are
otherwise satisfied. In this matter, where the holding company is seeking only
to receive payment for tax losses that have been generated by it, the proposed
arrangement will not give rise to the types of problems (e.g., upstream loans)
that the Act was intended to address. Compare Section 12(a) of the Act.
As a result of the Merger, SCANA will be creating tax credits that are
non-recourse to the Subsidiaries. As a result, SCANA should retain the benefits
of those tax credits. Accordingly, the Applicants request that the Commission
approve the Tax Allocation Agreement.
I. Filing of Certificates of Notification
It is proposed that, with respect to SCANA, the reporting systems of the
Securities Exchange Act of 1934, as amended (the "1934 Act") and the 1933 Act be
integrated with the reporting system under the Act. This would eliminate
duplication of filings with the Commission that cover essentially the same
subject matters, resulting in a reduction of expense for both the Commission and
SCANA. To effect such integration, the portion of the 1933 Act and 1934 Act
reports containing or reflecting disclosures of transactions occurring pursuant
to the authorization granted in this proceeding would be incorporated by
reference into this proceeding through Rule 24 certificates of notification. The
certificates would also contain all other information
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required by Rule 24, including the certification that each transaction being
reported on had been carried out in accordance with the terms and conditions of
and for the purposes represented in this Application/Declaration. Such
certificates of notification would be filed within 60 days after the end of the
last calendar quarter, in which transactions occur.
The Rule 24 certificates will contain the following information:
a. If sales of common stock or debt by SCANA are reported, the purchase
price per share and the market price per share at the date of the
agreement of sale;
b. The total number of shares of SCANA common stock issued or issuable
pursuant to options granted during the quarter under employee benefit
plans an dividend reinvestment plan including any employee benefit
plans or dividend reinvestment plans hereinafter adopted;
c. If SCANA common stock has been transferred to a seller of securities
of a company being acquired, the number of shares so issued, the value
per share and whether the shares are restricted in the hands of the
acquiror;
d. If a guarantee is issued during the quarter, the name of the
guarantor, the name of the beneficiary of the guarantee and the
amount, terms and purpose of the guarantee;
e. The amount and terms of any short-term debt issued by any Utility
Subsidiary during the quarter;
f. The amount and terms of any financings consummated by any Utility
Subsidiary that are not exempt under Rule 52;
g. The amount and terms of any financings consummated by any Non-Utility
Subsidiary during the quarter that are not exempt under Rule 52;
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h. A list of U-6B-2 forms filed with the Commission during the quarter,
including the name of the filing entity and the date of filing;
i. Consolidated balance sheets as of the end of the quarter and separate
balance sheets as of the end of the quarter for each company,
including SCANA, that has engaged in jurisdictional financing
transactions during the quarter; and
j. Future registration statements filed under the 1933 Act with respect
to securities that are subject of the Application/Declaration will be
filed or incorporated by reference as exhibits to the next certificate
filed pursuant to Rule 24.
J. Statement Pursuant to Rule 54
Rule 54 promulgated under the Act states that in determining whether to
approve the issue or sale of a security by a registered holding company for
purposes other than the acquisition of an exempt wholesale generator ("EWG") or
foreign utility company ("FUCO"), or other transactions by such registered
holding company or its subsidiaries other than with respect to EWGs or FUCOs,
the Commission shall not consider the effect of the capitalization or earnings
of any subsidiary which is an EWG or FUCO upon the registered holding company
system if Rules 53(a), (b) and (c) are satisfied. SCANA does not, and after the
Merger will not, retain any EWGs or FUCOs. Therefore, Rules 53(a), (b) and (c)
are satisfied.
Item 2. Fees, Commissions and Expenses
Estimated Legal Fees and Expenses $ *
Estimated Miscellaneous Expenses *
-------
Total $ *
* To be filed by amendment
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Item 3. Applicable Statutory Provisions
Sections 6(a), 7, 9(a), 10, 12 and 13 of the Act and Rules 42, 43, 45, 52,
54 and 88 are considered applicable to the proposed transactions.
To the extent that the proposed transactions are considered by the
Commission to required authorization, exemption or approval under any section of
the Act or the rules and regulations other than those set forth above, request
for such authorization, exemption or approval is hereby made.
Item 4. Regulatory Approvals
The SCPSC has jurisdiction over issuances of securities by SCE&G and GENCO,
other than securities payable within one year of the date of issuance or the
renewal of short-term obligations for a two-year or shorter period. The NCUC has
jurisdiction over issuances of securities by PSNC, other than the issuance of
notes with a maturity of two years or less or renewals thereof for a six-year or
shorter period.
Except as stated above, no state or federal regulatory agency other than
the Commission under the Act has jurisdiction over the proposed transactions.
Item 5. Procedure
The Applicants hereby request that there be no hearing on this
Application/Declaration and that the Commission issue its order as soon as
practicable after the filing hereof. The Commission is respectfully requested to
issue and publish the requisite notice under Rule 23 with respect to the filing
of this Application/Declaration not later than August 13, 1999, such notice to
specify a date not later than September 7, 1999, by which comments may be
entered and a date not later than the date of the Commission's order for the
Merger U-1, as the
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date on which an order of the Commission granting and permitting the
Application/Declaration to become effective may be entered by the Commission.
The Applicants hereby (i) waive a recommended decision by a hearing
officer, (ii) waive a recommended decision by any other responsible officer or
the Commission, (iii) consent that the Division of Investment Management may
assist in the preparation of the Commission's decision and (iv) waive a 30-day
waiting period between the issuance of the Commission's order and the date on
which it is to become effective.
Item 6. Exhibits and Financial Statements
Exhibits
--------
A-1 Restated Articles of Incorporation of SCANA as adopted on April 26,
1989 (Filed with the Commission as Exhibit 3-A to Registration
Statement No. 33-49145 and incorporated by reference herein).
A-2 Articles of Amendment of SCANA, dated April 27, 1995 (Filed with the
Commission as Exhibit 4-B to Registration Statement No. 33-62421 and
incorporated by reference herein).
A-3 By-Laws of SCANA as revised and amended on December 17, 1997 (Filed
with the Commission as Exhibit 3-C to Form 10-K for the year ended
December 31, 1997 and incorporated by reference herein).
B-1 Amended and Restated Agreement and Plan of Merger, dated as of
February 16, 1999 and amended and restated as of May 10, 1999, by and
among PSNC, SCANA, New Sub I, Inc. and New Sub II, Inc. (Filed with
the Commission as Exhibit 10 to Form 8-K filed on May 14, 1999 and
incorporated by reference herein).
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C-1 Form of Service Agreement between SCANA Service and each Subsidiary.
C-2 Service Company Policy and Procedures (To be filed by amendment).
D-1 SCANA Indenture (Filed with the Commission as Exhibit 4A to SCANA's
Registration Statement No. 33-32107 and incorporated by reference
herein).
E-1 SCANA Investor Plus Plan (Filed with the Commission by Registration
Statement No. 333-18149 and incorporated by reference herein).
E-2 SCANA Stock Purchase Savings Plan (Filed with the Commission as
Exhibit 4.3 to SCANA's Registration Statement No. 333-44885 and
incorporated by reference herein).
E-3 SCANA Non-Employee Directors Plan (Filed with the Commission as
Exhibit 4.3 to SCANA's Registration Statement No. 333-18973 and
incorporated by reference herein).
E-4 SCANA Performance Share Plan (Filed with the Commission as Exhibit 10D
to Form 10-K for the year ended December 31, 1992 and incorporated by
reference herein).
F-1 Opinion of counsel (To be filed by amendment).
G-1 Annual Report of SCANA on Form 10-K for the year ended December 31,
1998 (Filed with the Commission on March 18, 1999 and amended on April
27, 1999 and incorporated by reference herein).
G-2 Quarterly Report of SCANA on Form 10-Q for the period ended March 31,
1999 (Filed with the Commission on May 17, 1999 and incorporated by
reference herein).
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G-3 Annual Report of PSNC on Form 10-K for the fiscal year ended December
31, 1998 (Filed with the Commission on September 30, 1999 and
incorporated by reference herein).
G-4 Quarterly Report of PSNC Form 10-Q for the period ended March 31, 1999
(Filed with the Commission on May 14, 1999 and incorporated by
reference herein).
H-1 Proposed Form of Notice.
I-1 Description of Existing Financing Arrangements and Orders - Utility
Subsidiaries.
I-2 Description of Existing Financing Arrangements - Non-Utility
Subsidiaries.
J-1 Form of Utility Money Pool Agreement (To be filed by amendment).
J-2 Form of Non-Utility Money Pool Agreement (To be filed by amendment).
K-1 Form of Tax Allocation Agreement.
Financial Statements
FS-1 SCANA Unaudited Pro Forma Condensed Consolidated Balance Sheet.
FS-2 SCANA Unaudited Pro Forma Condensed Consolidated Statement of Income
and Cash Flow
FS-3 Notes to SCANA Unaudited Pro Forma Condensed Consolidated Financial
Statements
FS-4 SCANA Consolidated Balance Sheet as of March 31, 1999 (included in
Exhibit G-2).
FS-5 SCANA Consolidated Statement of Income as of March 31, 1998 (included
in Exhibit G-2).
FS-6 PSNC Consolidated Balance Sheet as of March 31, 1999 (included in
Exhibit G-4).
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FS-7 PSNC Consolidated Statement of Income as of March 31, 1999 (included
in Exhibit G-4).
Item 7. Information as to Environmental Effects
The proposed transaction involves neither a "major federal action" nor
"significantly affects the quality of the human environment" as those terms are
used in Section 102(2)(C) of the National Environmental Policy Act, 42 U.S.C.
Sec. 4321 et seq. No federal agency is preparing an environmental impact
statement with respect to this matter.
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SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicants have duly caused this Application/Declaration Inc. to be
signed on behalf by the undersigned thereunto duly authorized.
Date: July 30, 1999 SCANA CORPORATION
/s/ H. Thomas Arthur
----------------------------
Name: H. Thomas Arthur
Title: Senior Vice-President
and General Counsel
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Form of Service Agreement
This Service Agreement (this "Agreement") is entered into as of the ____
day of __________, 1999, by and between [insert name of subsidiary], a
__________ corporation (the "Company") and SCANA Service Company, a South
Carolina corporation ("SCANA Service").
WHEREAS, SCANA Service is a direct or indirect wholly owned subsidiary of
SCANA Corporation;
WHEREAS, SCANA Service has been formed for the purpose of providing
administrative, management and other services to subsidiaries of SCANA
Corporation; and
WHEREAS, the Company believes that it is in the interest of the Company to
provide for an arrangement whereby the Company may, from time to time and at the
option of the Company, agree to purchase such administrative, management and
other services from SCANA Service;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, hereby
agree as follows:
I. SERVICES. SCANA Service supplies, or will supply, certain
administrative, management or other services to Company similar to those
supplied to other subsidiaries of SCANA Corporation. Such services are and will
be provided to the Company only at the request of the Company. Exhibit I hereto
lists and describes all of the services that are available from SCANA Service.
II. PERSONNEL. SCANA Service provides and will provide such services by
utilizing the services of their executives, accountants, financial advisers,
technical advisers, attorneys and other persons with the necessary
qualifications.
If necessary, SCANA Service, after consultation with the Company, may also
arrange for the services of nonaffiliated experts, consultants and attorneys in
connection with the performance of any of the services supplied under this
Agreement.
III. COMPENSATION AND ALLOCATION. As and to the extent required by law,
SCANA Service provides and will provide such services at cost. Exhibit I hereof
contains rules for determining and allocating such costs.
IV. TERMINATION AND MODIFICATION. The Company may terminate this Agreement
as to by providing 60 days written notice of such termination to SCANA Service.
SCANA Service may terminate this Agreement by providing written notice of such
termination to the Company.
This Agreement is subject to termination or modification at any time to the
extent its performance may conflict with the provisions of the Public Utility
Holding Company Act of 1935, as amended, or with any rule, regulation or order
of the Securities and Exchange Commission adopted before or after the making of
this Agreement. This Agreement shall be subject to the
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approval of any state commission or other state regulatory body whose approval
is, by the laws of said state, a legal prerequisite to the execution and
delivery or the performance of this Agreement.
V. ANNUAL SERVICE REQUESTS. SCANA Service will send an Annual Service
Request to the Company each year on or before _____________ of each year listing
services proposed for the coming year based on services provided during the past
year.
VI. NOTICE. Where written notice is required by this Agreement, all
notices, consents, certificates, or other communications hereunder shall be in
writing and shall be deemed given when mailed by United States registered or
certified mail, postage prepaid, return receipt requested, addressed as follows:
(a) To the Company:
--------------------
--------------------
--------------------
--------------------
(b) To SCANA Service:
--------------------
--------------------
--------------------
--------------------
VII. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of South Carolina, without regard to their
conflict of laws provisions.
VIII. MODIFICATION. No amendment, change or modification of this Agreement
shall be valid, unless made in writing and signed by all parties hereto.
IX. ENTIRE AGREEMENT. This Agreement, together with its exhibits,
constitutes the entire understanding and agreement of the parties with respect
to its subject matter, and effective upon the execution of this Agreement by the
respective parties hereof and thereto, any and all prior agreements,
understandings or representations with respect to this subject matter are hereby
terminated and canceled in their entirety and are of no further force or effect.
X. WAIVER. No waiver by any party hereto of a breach of any provision of
this Agreement shall constitute a waiver of any preceding or succeeding breach
of the same or any other provision hereof.
XI. ASSIGNMENT. This Agreement shall inure to the benefit and shall be
binding upon the parties and their respective successors and assigns. No
assignment of this Agreement or any party's
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rights, interests or obligations hereunder may be made without the other party's
consent, which shall not be unreasonably withheld, delayed or conditioned.
XII. SEVERABILITY. If any provision or provisions of this Agreement shall
be held by a court of competent jurisdiction to be invalid, illegal, or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall in no way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of this ________ day of ________, 1999.
SCANA SERVICE COMPANY
By: _____________________________
Name:
Title:
[Subsidiary]
By: _____________________________
Name:
Title:
The undersigned requests all of the services listed in Exhibit I from SCANA
Service, except for _______________________________________. Services will begin
_____________.
[Subsidiary]
By: _____________________________
Name:
Title:
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EXHIBIT I
Description of Services, Cost Accumulation, Assignment and
Allocation Methodologies for
SCANA Service Company
This document sets forth the methodologies used to accumulate the costs of
services performed by SCANA Service Company ("SCANA Service") and to assign or
allocate such costs to other subsidiaries and business units within SCANA
Corporation ("Client Entities").
Cost of Services Performed
SCANA Service maintains an accounting system that enables costs to be
identified by Cost Center, Account Number or Project, Activity, Resource, and
Event ("Account Codes"). The primary inputs to the accounting system are time
records of hours worked by SCANA Service employees, accounts payable
transactions and journal entries. Charges for labor are made at the employees'
effective hourly rate, including the cost of pensions, other employee benefits
and payroll taxes. To the extent practicable, costs of services are directly
assigned to the applicable Account Codes. The full cost of providing services
also includes certain indirect costs, e.g., departmental overheads,
administrative and general costs, and taxes. Indirect costs are associated with
the services performed in proportion to the directly assigned costs of the
services or other relevant cost allocators.
Cost Assignment and Allocation
SCANA Service costs will be directly assigned, distributed or allocated to
Client Entities in the manner prescribed below.
13. Costs accumulated in Account Codes for services specifically
performed for a single Client Entity will be directly assigned or charged
to such Client Entity.
14. Costs accumulated in Account Codes for services specifically
performed for two or more Client Entities will be distributed among and
charged to such Client Entities using methods determined on a case-by-case
basis consistent with the nature of the work performed.
15. Costs accumulated in Account Codes for services of a general
nature which are applicable to all Client Entities or to a class or classes
of Client Entities will be allocated among and charged to such Client
Entities by application of one or more of the allocation methods described
below.
<PAGE>
Page 2
Allocation Methods
The following methods will be applied, as indicated in the Description of
Services section that follows, to allocate costs for services of a general
nature.
1. Net Revenue Ratio - A ratio based on the excess of sales revenue
over the applicable cost of sales, e.g., cost of fuel for generation, gas
for resale or the direct costs of non-utility goods sold. This ratio will
be determined annually based on actual results of operations for the
previous calendar year and may be adjusted for any known and reasonably
quantifiable events, or at such time, based on results of operations for a
subsequent twelve-month period, as may be required due to significant
changes.
2. Number of Customers Ratio - A ratio based on the number of retail
electric and/or gas customers. This ratio will be determined annually based
on the actual number of customers at the end of the previous calendar year
and may be adjusted for any known and reasonably quantifiable events, or at
such time as may be required due to significant changes.
3. Number of Employees Ratio - A ratio based on the number of
employees benefiting from the performance of a service. This ratio will be
determined annually based on actual counts of applicable employees at the
end of the previous calendar year and may be adjusted for any known and
reasonably quantifiable events, or at such time as may be required due to
significant changes.
4. Capital Expenditures Ratio - A ratio based on capital expenditures,
including capitalized financing costs. This ratio will be determined
annually based on actual capital expenditures during the previous calendar
year and may be adjusted for any known and reasonably quantifiable events,
or at such time, based on capital expenditures for a subsequent
twelve-month period, as may be required due to significant changes.
5. Information Systems Chargeback Rates - Rates for services,
including but not limited to Software, Consulting, Mainframe, Midtier and
Network Connectivity Services, are based on the costs of labor, materials
and Information Services overheads related to the provision of each
service. Such rates are applied based on the specific equipment employed
and the measured usage of services by Client Entities. These rates will be
determined annually based on actual experience and may be adjusted for any
known and reasonably quantifiable events, or at such time as may be
required due to significant changes.
Description of Services
A description of each of the services performed by SCANA Service, which may
be modified from time to time, is presented below. As discussed above, where
identifiable, costs will be directly assigned or distributed to Client Entities.
For costs accumulated in Account Codes which are for services of a general
nature that cannot be directly assigned or distributed, the
<PAGE>
Page 3
method or methods of allocation are also set forth. Substitution or changes may
be made in the methods of allocation hereinafter specified, as may be
appropriate, and will be provided to state regulatory agencies and to each
affected Client Entity.
1. Information Systems Services - Provides telecommunications and
electronic data processing services. Costs of a general nature are
allocated using the Information Systems Chargeback Rates.
2. Human Resources - Establishes and administers policies and oversees
compliance with regulations in the areas of employment, compensation and
benefits; processes payroll; administers corporate training. Costs of a
general nature are allocated using the Number of Employees Ratio.
3. Financial Services - Provides accounting, tax, treasury, investor
relations, hedging activities, insurance, risk management, financial
planning and rate services. Costs of a general nature are allocated using
an average of the Net Revenue and Capital Expenditures Ratios.
4. Legal Services - Provides various legal services and general legal
oversight; handles claims. Costs of a general nature are allocated using an
average of the Net Revenue, Number of Employees, and Capital Expenditures
Ratios.
5. Corporate Services - Provides corporate secretarial, shareholder
administration, security, public relations, corporate communication,
purchasing, mail, remittance processing, billing, facilities management and
aviation services. Costs of a general nature are allocated using the Net
Revenue, Number of Customers, Number of Employees and Capital Expenditures
Ratios, as applicable, and averages thereof.
6. Marketing - Establishes strategies and provides oversight for
marketing, sales and branding of utility and related services. Costs of a
general nature are allocated using the Number of Customers Ratio.
7. Corporate Compliance - Oversees compliance with all laws,
regulations and policies applicable to all of SCANA Corporation's
businesses; directs compliance training. Costs of general nature are
allocated using the Number of Employees Ratio.
8. Internal Auditing - Reviews internal controls and compliance
therewith. Costs of a general nature are allocated using an average of the
Net Revenue and Capital Expenditures Ratios.
9. Strategic Planning - Develops corporate strategies and business
plans. Costs of a general nature are allocated using an average of the Net
Revenue and Capital Expenditures Ratios.
<PAGE>
Page 4
10. Governmental Affairs and Economic Development - Maintains
relationships with government policy makers, conducts lobbying activities
and engages in activities to promote economic growth in areas served by
Client Entities. Costs of a general nature are allocated using the Number
of Customers Ratio.
11. Gas Supply and Capacity Management - Provides gas supply and
capacity management services for regulated Client Entities. Costs of a
general nature are allocated using the Net Revenue Ratio.
12. Environmental Services - Monitors environmental regulations and
recommends strategies for complying therewith. Costs of a general nature
are allocated using an average of the Net Revenue and Capital Expenditures
Ratio.
13. Executive - Provides executive and general administrative
services. Costs of general nature are allocated in proportion to the
distribution of all other SCANA Service costs.
SECURITIES AND EXCHANGE COMMISSION
(Release No. 35- )
Filing under the Public Utility Holding Company Act of 1935
________, 1999
SCANA Corporation (70-___)
SCANA Corporation ("SCANA"), South Carolina Electric and Gas Company
("SCE&G"), South Carolina Generating Company, Inc. ("GENCO"), South Carolina
Fuel Company, Inc., South Carolina Pipeline Corporation, SCANA Energy Marketing
Inc., SCANA Propane Gas, Inc., SCANA Propane Storage, Inc., SCANA
Communications, Inc., Servicecare Inc., Primesouth, Inc., SCANA Resources
Development Corporation, SCANA Petroleum Resources, Inc. and SCANA Service
Company ("SCANA Service"), all located at 1426 Main Street, Columbia, South
Carolina 29201, not currently subject to the Public Utility Holding Company Act
of 1935 (the "Act"); Public Service Company of North Carolina, Incorporated
("PSNC"), Sonat Public Service Company LLC, Clean Energy Enterprises, Cardinal
Pipeline Company, LLC, Pine Needle LNG Company, LLC, PSNC Blue Ridge
Corporation, PSNC Cardinal Pipeline Company and PSNC Production Corporation, all
located at 400 Cox Road, Gastonia, North Carolina 28054, not currently subject
to the Act (collectively, the "Applicants"), have filed an
application-declaration with the Securities and Exchange Commission (the
"Commission") under sections 6(a), 7, 9(a), 10, 12, and 13 under the Act and
rules 42, 43, 45, 52, 54 and 88 under the Act.
SCANA has previously filed an application-declaration with the Commission
under sections 5, 8, 9(a)(2), 10 and 11 of the Act seeking approvals relating to
the proposed acquisition by SCANA of PSNC (the "Merger"), and for all other
related transactions. A notice of the Merger U-1 was issued on June 16, 1999
(HCAR No. 70-9521). Each of the entities that will be directly and indirectly
owned subsidiaries of SCANA upon consummation of the transactions described in
the Merger U-1 is referred to individually as "Subsidiary" and collectively as
"Subsidiaries".1
Applicants propose to enter numerous into numerous types of financing
transactions to meet SCANA's capital requirements immediately following the
Merger and to plan future
- --------
1 Applicants state that for purposes of sections in the application-declaration
related to non-utility financing, guarantees, changes in capital stock or
wholly-owned subsidiaries, and dividends out of capital or unearned surplus by
PSNC, the terms "Subsidiary" and "Subsidiaries" shall also include other direct
or indirect subsidiaries that SCANA may form after the Merger with either the
approval of the Commission, under the Rule 58 exemption or under Section 34 of
the Act. Thus, future Rule 58 and exempt telecommunications companies ("ETCs")
are included in the term "Subsidiaries" for purposes of these sections.
Applicants also state that for purposes of sections in the Form U-1 related
to the Money Pool, the terms "Subsidiary" and "Subsidiaries" will only include
those companies specifically named on the cover and signature pages of the
application-declaration. Applicants further request the Commission to reserve
jurisdiction over the participation in the SCANA System Money Pool of future
companies formed by SCANA.
1
<PAGE>
financing. Applicants request authorization to engage in the financing
transactions for a five year period commencing the date of any order issued
hereunder ("Authorization Period") described below.
Financings by each Applicant will be subject to the following limitations:
(i) the effective cost of money on long-term debt securities will not exceed 300
basis points over comparable term U.S. Treasury securities and the effective
cost of money on short-term securities will not exceed 300 basis point over the
comparable term London Interbank Offered Rate; (ii) maturity of indebtedness
will not exceed 50 years; (iii) the underwriting fees, commissions, or similar
remuneration paid in connection with the issue, sale or distribution of a
security will not exceed 5% of the principal amount of the financing; and (iv)
SCANA represents that at all times during the Authorization Period, its common
equity will be at least 30% of its consolidated capitalization.
The proceeds from the sale of securities in external financing transactions
will be used for general corporate purposes including: (i) the financing, in
part, of the capital expenditures of the SCANA system; (ii) the financing of
working capital requirements of the SCANA system; (iii) the acquisition,
retirement or redemption of existing securities; and (iv) direct or indirect
investment in companies authorized under the Merger U-1 and in Rule 58 companies
and ETCs.
1. SCANA External Financing
a. Common Stock SCANA requests authorization to issue common stock, no par
value (subject to adjustment to reflect any stock split), up to an aggregate
amount of $13.6 million shares including, from time to time, issuances under its
benefit and dividend reinvestment plans. SCANA also proposes to issue options
exercisable for common stock upon the exercise of those options.
b. Long-term Debt SCANA requests authorization to issue long-term debt
securities in an amount, when combined with the issuances of common stock (other
than for benefit or dividend reinvestment plans) not to exceed $1.435 billion.
The long-term debt securities would consist of medium term notes issued under an
indenture ("SCANA Indenture").2 Specific terms of any borrowings will be
determined by SCANA at the time of issuance and will comply with the parameters
of financing authorization stated earlier.
c. Short-term Debt SCANA requests authorization to have outstanding at any
one time, up to $950 million of short-term debt, consisting of bank borrowings,
commercial paper or bid notes. The short-term debt will be used to refund
pre-Merger short-term debt, to provide for the reissuance of pre-Merger letters
of credit and to provide financing for general corporate purposes, working
capital requirements and Subsidiary capital expenditures until long-term
financing can be obtained.
- --------
2 The SCANA Indenture will contain will contain numerous variable terms, such as
aggregate principal amount, maturity, interest rate(s) or methods of determining
the same, terms of payment of interest, redemption provisions, sinking fund
terms and other terms and conditions as SCANA may determine at the time of
issuance.
2
<PAGE>
d. Hedging Transactions SCANA requests authorization to enter into,
perform, purchase and sell financial instruments intended to manage the
volatility of interest rates, including but not limited to interest rate swaps,
caps, floors, collars and forward agreements or any other similar agreements.
SCANA would employ interest rates swaps as a means of prudently managing the
risk associated with any of its outstanding debt issued under this authorization
by (i) converting variable rate debt to fixed rate debt, (ii) converting fixed
rate debt to variable rate, (iii) limiting the impact of changes in interests
rates resulting from variable rate debt and (iv) providing an option to enter
into interest rate swap transaction in future period for planned issuances of
debt securities.
2. Utility Subsidiary Financing
Applicants request authorization for the Utility Subsidiaries3 to issue up
to $300 million short-term debt consisting of commercial paper, unsecured bank
loans and borrowings under the SCANA system money pool. These issuances of
securities will comply with the parameters for financing described above. Any
short-term borrowings by the Utility Subsidiaries, when combined with short-term
borrowings by SCANA, will not exceed $1.2 billion at any time during the
Authorization Period. In addition, the Applicants request authorization for the
Utility Subsidiaries to enter into hedging transactions of the same type and
under the same conditions as those identified above for SCANA.
3. Non-Utility Subsidiary Financing
Applicants believe that, in almost all cases, borrowings by the Non-Utility
Subsidiaries will be exempt from prior Commission authorization under Rule
52(b). However, the Non-Utility Subsidiaries request that the Commission reserve
jurisdiction over the issuance of any other securities to non-associates where
the exemption under Rule 52(b) would not apply. The Non- Utility Subsidiaries
state they will file a post-effective amendment in this proceeding which will
describe the general terms and amounts of each security and request a
supplemental order authorizing the issuance of that security.
4. Other Securities
The Applicants request authorization to issue other types of securities
within the parameters of this application-declaration during the Authorization
Period. The Applicants request that the Commission reserve jurisdiction over the
issuance of additional types of securities.
5. Guarantees
SCANA requests authorization to enter into guarantees, obtain letters of
credit enter into expense agreements or otherwise provide credit support with
respect to the obligations of its
- --------
3 Applicants state that for purposes of certain sections in the Form U-1 related
to Utility Subsidiary Financing and the Money Pool, the term "Utility
Subsidiaries" will only include SCE&G, GENCO, and PSNC. All of SCANA's direct
and indirect Subsidiaries, other than Utility Subsidiaries, are called
"Non-Utility Subsidiaries".
3
<PAGE>
Subsidiaries as may be appropriate to enable such Subsidiaries to carry on in
the ordinary course of their respective businesses, in an aggregate principal
amount not to exceed $305 million. Applicants state that the debt guaranteed
will comply with the parameters for financing.
6. SCANA System Money Pool
SCANA and the Utility Subsidiaries hereby request authorization to
establish the Utility Money Pool and the Utility Subsidiaries, to the extent not
exempted by Rule 52, also request authorization to make unsecured short-term
borrowings from the Utility Money Pool and to contribute surplus funds to the
Utility Money Pool and to lend and extend credit to (and acquire promissory
notes from) one another through the Utility Money Pool. SCE&G requests
authorization to borrow up to $30 million at any one time from the Utility Money
Pool. PSNC requests authorization to borrow up to $15 million at any one time
from the Utility Money Pool. GENCO requests authorization to borrow up to $25
million at any one time outstanding The remaining Subsidiaries, all of which are
Non-Utility Subsidiaries may participate in the Non-Utility Money Pool. The
Non-Utility Money Pool activities of all of the Non-Utility Subsidiaries are
exempt from the prior approval requirements of the Act under Rule 52. SCANA is
requesting authorization to contribute surplus funds and to lend and extend
credit to (a) the Utility Subsidiaries through the Utility Money Pool and (b)
the Non-Utility Subsidiaries through the Non-Utility Money Pool.
SCANA Service will administer the Utility and Non-Utility Money Pools on an
"at cost" basis and will maintain separate records for each money pool. Surplus
funds of the Utility Money Pool and the Non-Utility Money Pool may be combined
in common short-term investments, but separate records of such funds shall be
maintained by SCANA Service as administrator of the pools, and interest thereon
shall be separately allocated, on a daily basis, to each money pool in
accordance with the proportion that the amount of each money pool's surplus
funds bears to the total amount of surplus funds available for investment from
both money pools.
7. Changes in Capital Stock of Wholly Owned Subsidiaries
Applicants request authority to change the terms of any wholly-owned
Subsidiary's authorized capital stock capitalization by an amount deemed
appropriate by SCANA or other immediate parent company. A Subsidiary would be
able to change the par value, or change between par and no-par stock, without
additional Commission approval. Any action by a Utility Subsidiary would be
subject to and would only be taken upon receipt of necessary approvals by the
state commission in the state or states where the Utility Subsidiary is
incorporated and doing business.
8. Payment of Dividends out of Capital or Unearned Surplus by PSNC
The Applicants request authorization to pay dividends out of the additional
paid-in-capital account up to the amount of PSNC's aggregate retained earnings
just prior to the Merger and out of earnings before the amortization of the
goodwill thereafter.
4
<PAGE>
9. Financing Entities
The Subsidiaries seek authorization to organize new corporations, trusts,
partnerships or other entities created for the purpose of facilitating
financings. These entities will issue such securities to third parties in the
event such issuances are not exempt pursuant to Rule 52. In addition, authority
is requested for (i) the issuance of debentures or other evidences of
indebtedness by any of the Subsidiaries to a financing entity in return for the
proceeds of the financing, (ii) the acquisition by any of the Subsidiaries of
voting interests or equity securities issued by the financing entity to
establish any such Subsidiary's ownership of the financing entity (the equity
portion of the entity generally being created through a capital contribution or
the purchase of equity securities, ranging from 1 to 3 percent of the
capitalization of the financing entity) and (iii) the guarantee by the
Applicants of such financing entity's obligations.
Each of the Subsidiaries also request authorization to enter into expense
agreements with its respective financing entity, pursuant to which it would
agree to pay all expenses of such entity. Any amounts issued by such financing
entities to third parties pursuant to this authorization will be included in the
overall external financing limitation authorized herein for the immediate parent
of such financing entity. However, the underlying intra-system mirror debt and
parent guarantee shall not be so included.
10. SCANA Service
SCANA also requests authorizations with respect to the activities of SCANA
Service, which will be incorporated in South Carolina to serve as the service
company for the SCANA system after the Merger. SCANA Service will provide
companies in the SCANA system with a variety of administrative, management, and
support services. It is anticipated that SCANA Service will be staffed by a
transfer of personnel from SCANA, SCE&G and PSNC. SCANA Service's accounting and
cost allocation methods and procedures will comply with the Commission's
standards for service companies in registered holding-company systems, and that
SCANA Service's billing system will use the Commission's "Uniform System of
Accounts for Mutual Service Companies and Subsidiary Service Companies." Except
as permitted by the Act or the Commission, all services provided by SCANA
Service to affiliated companies will be on an "at cost" basis as determined by
Rules 90 and 91 of the Act.
In order to ensure adequate oversight and realize economies of scale,
certain administrative and service functions for the SCANA System will be
consolidated and provided through SCANA Service. As a general rule, the
individual system companies will maintain capacity with respect to those
services that can benefit from individualized application at the company level,
with SCANA Service offering system-wide coordination and strategy services,
oversight services and other services where economies can be captured by
centralization of services.
11. Tax Allocation Agreement
The Applicants ask the Commission to approve an agreement for the
allocation of consolidated tax among SCANA and the Subsidiaries (the "Tax
Allocation Agreement").
5
<PAGE>
Approval is necessary because the Tax Allocation Agreement provides for the
retention by SCANA of certain payments for tax losses that it has incurred,
rather than the allocation of such losses to Subsidiaries without payment as
would otherwise be required by Rule 45(c)(5). As a result of the Merger, SCANA
will be creating tax credits that are non-recourse to the Subsidiaries. As a
result, SCANA should retain the benefits of those tax credits. Accordingly, the
Applicants request that the Commission approve the Tax Allocation Agreement.
For the Commission, by the Division of Investment Management, pursuant to
delegated authority.
6
EXHIBIT I - 1
Utility Subsidiaries Financing Arrangements
1. South Carolina Electric & Gas Company ("SCE&G"):
(i) Commercial Paper facilities
o $250 million of commercial paper program, backed by revolving
credit facilities with various banks in the amount of $225
million (of which $175 million are 364-day credit agreements
expiring in June, 2000 and $75 million are 3-year credit
agreements expiring in June, 2002) and committed bank lines in
the amount of $25 million with various banks expiring at various
dates between 4/30/2000 and 7/31/2000.
o SCE&G guarantees the obligations of South Carolina Fuel Company's
$125 million commercial paper/revolving credit facilities
program.
(ii) First and Refunding Mortgage Bonds
Amount Interest Rate Maturity Date
------ ------------- -------------
$130.771 million 9% 7/15/2006
$113.450 million 8 7/8% 8/15/2021
(iii) First Mortgage Bonds
Amount Interest Rate Maturity Date
------ ------------- -------------
$100.0 million 7 5/8% 6/1/2023
$100.0 million 6% 6/15/2000
$150.0 million 7 1/8% 6/15/2013
$150.0 million 7 1/2% 6/15/2023
$100.0 million 6 1/4% 12/15/2003
$100.0 million 7.7% 7/15/2004
$100.0 million 7 5/8% 4/1/2025
$100.0 million 6 1/8% 3/1/2009
(iv) Pollution Control Facilities Revenues Bonds
Amount Interest Rate Maturity Date
------ ------------- -------------
$30.0 million 5.7 % 11/1/2024
$6.025 million 5.95% 8/1/2003
$63.12 million 6.5% 9/1/2014
$4.365 million 6.6% 9/1/2014
I - 2- 1
<PAGE>
(v) Other
o $35 million in uncommitted bank lines of credit.
o Department of Energy D&D Fund Obligations of $3,619,573 due 2007.
$386,990 due each twelve months.
o Charleston Franchise Agreement--Transfer Agreement: $12.5
million, due 8/1/2002; approximately $3.571 due annually.
o Charleston Franchise Agreement--Environmental Agreement: $5.5
million, due 10/1/99.
o CE&G guarantees the obligations of the $50 million of Preferred
Securities of SCE&G Trust I, a wholly-owned subsidiary of SCE&G.
2. South Carolina Generating Company, Inc. ("GENCO"):
o Pollution Control Facilities Revenue Bonds: $35.85 million at
6.5%, due 10/1/2014.
o Senior Secured Note: $52.6 million at 7.78%, due 12/31/2011; $3.7
million due annually.
3. Public Service Company of North Carolina, Incorporated ("PSNC"):
(i) Senior Debentures
Amount Interest Rate Maturity Date
------ ------------- -------------
$6.25 million 10% 10/1/2003
$25.8 million 10% 12/1/2004
$32.0 million 8.75% 6/30/2012
$50.0 million 6.99% 1/15/2026
$50.0 million 7.45% 12/15/2026
(ii) Committed Lines of Credit
o $55 million with various banks, expiring 12/31/2000.
(iii) Uncommitted Lines of Credit
o $70 million with various banks.
I - 2- 2
EXHIBIT I - 2
Non-Utility Subsidiaries Financing Arrangements
1. South Carolina Pipeline Corporation:
o Committed Lines of Credit: $1 million expiring.
o Uncommitted Lines of Credit: $23 million with various banks.
o Equitable Note for $11.25 million at 6.72% maturing 9/30/2013;
$750,000 due annually.
o American United Note for $7.5 million at 6.72% maturing
9/30/2013; $500,000 due annually.
2. SCANA Energy Marketing:
o $6 million uncommitted line of credit with a bank.
3. South Carolina Fuel Company:
o $125 million commercial paper program, supported by revolving
credit facilities with various banks in the same amount and
expiring on 12/19/2000. It is guaranteed by SCE&G.
4. SCANA Resources:
o 8.75% Note for $86,000 due 10/2/2003; $17,000 due annually.
I - 2 - 1
FORM OF INCOME TAX ALLOCATION AGREEMENT
THIS AGREEMENT, made as of the 1st day of October, 1999, by and
between SCANA Corporation ("SCANA") and each of its wholly owned
subsidiaries, namely SCANA Services Corporation, South Carolina Electric &
Gas Company, South Carolina Pipeline Corporation, South Carolina Fuel
Company, Inc., S.C. Generating Company, Inc., SCANA Communications, Inc.,
Primesouth, Inc., SCANA Development Corporation, SCANA Energy Marketing,
Inc., SCANA Petroleum Resources, Inc., SCANA Propane Gas, Inc., SCANA
Propane Storage, Inc., and ServiceCare, Inc., and SCANA Propane Supply,
Inc. and USA Cylinder Exchange, Inc., each wholly owned subsidiaries of
SCANA Propane Gas, Inc., and Palmark, Inc., a wholly owned subsidiary of
Primesouth, Inc., and SPR Gas Services, Inc., a wholly owned subsidiary of
SCANA Petroleum Resources, Inc., (all of the forementioned corporations
hereinafter referred to individually as the "Company" and collectively
referred to as the "Companies"), each Company being a South Carolina
corporation, is effective for the Consolidated Tax reflected on the
Consolidated Tax Return for calendar year end 1999 and subsequent years.
In the event that the merger between SCANA and Public Service Company
of North Carolina, Inc. ("PSNC") is approved by all required governmental
authorities -- which is fully anticipated, the shareholders of both SCANA
and PSNC having on July 1st, 1999 approved of said merger -- PSNC will
become a wholly owned subsidiary of SCANA and will likewise participate in
this Agreement beginning with the first calendar year end Consolidate Tax
Return for which it is able. Subject to this condition precedent, PSNC,
which although presently a North Carolina corporation will at the
conclusion of the merger be incorporated instead in South Carolina, is also
a signatory to this Agreement. PSNC shall also be referred to as "Company"
in accordance with the preceding paragraph.
WITNESSETH:
WHEREAS, the Companies file a consolidated federal income tax return
and the consolidated federal income tax liability has been allocated among
the Companies included in the consolidated return in accordance with the
provisions of subparagraph (a)(1) of Section 1552 of the Internal Revenue
Code of 1986 and other applicable requirements of Rule 45(c) under the
Public Utility Holding Company Act of 1935.
WHEREAS, Rule 45(c) sets forth the method by which Companies filing a
consolidated federal income tax return (hereinafter referred to as the
"consolidated tax return") may use to allocate the consolidated federal
income tax liability among the members of the group; however, in order to
utilize such method, a written agreement must be executed by the Company
setting forth the allocation method for each taxable year.
<PAGE>
WHEREAS, the Companies desire to allocate their federal income tax
liability in accordance with the following procedures;
NOW THEREFORE, the Companies do agree as follows:
ARTICLE I
Definitions
1.1 "Consolidated Tax" is the aggregate tax liability for a tax year, being the
tax shown on the consolidated return and any adjustments thereto thereafter
determined. The consolidated tax will be the refund if the consolidated
return shows a negative tax.
1.2 "Corporate Tax Credit" is a negative separate return tax of a Company for a
tax year, equal to the amount by which the consolidated tax is reduced by
including a net corporate taxable loss or other net tax benefit of such
Company in the consolidated tax return.
1.3 "Corporate Taxable Income" is the income or loss of a Company for a tax
year, computed as though such Company had filed a separate return on the
same basis as used in the consolidated return, except that dividend income
from the Companies shall be disregarded, and other intercompany
transactions eliminated in the consolidated return shall be given
appropriate effect. It shall further be adjusted to allow for applicable
rights accrued to a Company for the recognition of negative corporate
taxable income consistent with the provisions of Article II herein, but
carryovers and carrybacks shall not be taken into account as loss Companies
are to receive current payment of their Corporate Tax Credits. If a Company
is a member of the registered system's consolidated tax group for only part
of a tax year, that period will be deemed to be its tax year for all
purposes for that year under this Agreement.
1.4 "Separate Return Tax" is the tax on the Corporate Taxable Income of a
Company computed as though such Company was not a member of a consolidated
group.
ARTICLE II
Tax Allocation Procedures
2.1 The Consolidated Tax shall be apportioned among the Companies in proportion
to the Corporate Taxable Income of each member of the affiliated group.
Each Company which incurs a tax loss for the year shall be included in the
allocation of Consolidated Tax and shall receive a Corporate Tax Credit,
the amount of which shall be currently paid to the Company by SCANA
increased by
<PAGE>
any amounts previously assessed by SCANA and remitted by the Company to
SCANA for estimated tax payment purposes attributable to the subject
taxable year. Companies with a positive allocation of the Consolidated Tax
shall currently pay the amount so allocated, decreased by any amounts
previously assessed by SCANA and remitted by the Company to SCANA for
estimated tax payment purposes attributable to the subject taxable year.
2.2 SCANA shall pay to the Internal Revenue Service the group's Consolidated
Tax liability from the net of the receipts and payments.
2.3 No Company shall be allocated any income tax greater than the Separate
Return Tax of such Company
2.4 To the extent that the Consolidated and Corporate Taxable Incomes include
material items taxed at rates other than the statutory rate (such as
capital gains and preference items), the portion of the Consolidated Tax
attributable to these items shall be apportioned directly to the members of
the group giving rise to such items.
2.5 Should the Companies generate a net consolidated tax loss for a tax year
that is too large to be used in full for that year, with result that there
are uncompensated Corporate Tax Credit benefits for that year, the
carryover of uncompensated benefits related to the carryforward of tax
losses applied to reduce Consolidated Taxable Income in future tax years
shall be apportioned in accordance with the respective Companies'
contributions to such loss. The tax benefits of any resultant carryback
shall be allocated proportionally to the Companies that generated corporate
tax losses in the year the consolidated net operating tax loss was
generated. Any related loss of credits, including investment tax credit
reversals, shall be allocated to the member Company that utilized the
credits in the prior year in the same proportion that the credit lost is to
the total credit utilized in the prior year. Investment tax credit
reversals allocated to a member Company will be added to that Company's
available corporate investment tax credit for future allocations. A prior
year consolidated net operating tax loss carryforward applied to reduce
current year Consolidated Taxable Income shall be allocated proportionally
to member Companies that generated a corporate tax loss in the year the
consolidated net operating loss was generated.
2.6 Adjustments to or revisions of the Consolidated Tax as a result of
subsequent events such as amended returns, revenue agents' reports,
litigation or negotiated settlements shall be allocated in accordance with
the principles established in this Agreement.
<PAGE>
ARTICLE III
Amendment
This Agreement is subject to revision as a result of changes in income
tax law and changes in relevant facts and circumstances.
IN WITNESS WHEREOF, this Agreement has been executed by an officer of
each company as of the day and year first above written by the Companies.
ATTEST: SCANA Corporation
- -------------------------- ----------------------------
L. M. Williams, Secretary W. B. Timmerman
President and C.E.O
ATTEST: SCANA Services Corporation
- -------------------------- ----------------------------
L. M. Williams, Secretary W. B. Timmerman, President
ATTEST: South Carolina Electric & Gas Company
- -------------------------- ----------------------------
L. M. Williams, Secretary John L. Skolds, President
ATTEST: South Carolina Pipeline Corporation
- -------------------------- ----------------------------
L. M. Williams, Secretary Asbury H. Gibbes, President
ATTEST: South Carolina Fuel Company, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary John L. Skolds, President
ATTEST: South Carolina Generating Company, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary John L. Skolds, President
ATTEST: SCANA Communications, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary George J. Bullwinkel, Jr., President
ATTEST: Primesouth, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary John L. Skolds, President
ATTEST: SCANA Development Corporation
- -------------------------- ----------------------------
L. M. Williams, Secretary Asbury H. Gibbes, President
ATTEST: SCANA Energy Marketing, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary Asbury H. Gibbes, President
ATTEST: SCANA Petroleum Resources, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary Asbury H. Gibbes, President
<PAGE>
ATTEST: SCANA Propane Gas, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary James M. Clark, President
<PAGE>
ATTEST: SCANA Propane Storage, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary James M. Clark, President
ATTEST: ServiceCare, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary Ann M. Milligan, President
ATTEST: SCANA Propane Supply, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary James M. Clark, Jr., President
ATTEST: USA Cylinder Exchange, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary James M. Clark, Jr., President
ATTEST: Palmark, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary John L. Skolds, President
ATTEST: SPR Gas Services, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary Asbury H. Gibbes, President
ATTEST: Public Service Company of North Carolina, Inc.
- -------------------------- ----------------------------
L. M. Williams, Secretary C. E. Zeigler, Jr., President
<TABLE>
<CAPTION>
SCANA CONSOLIDATED
PROFORMA BALANCE SHEET
AS OF DECEMBER 31, 1998
(unaudited)
(Dollars in millions, except per share amounts)
Merger Additional
Pro Forma Merger Financings Pro Forma
SCANA PSNC Adjustments Pro Forma Adjustments as further adjusted
-------- ------- ----------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
- ------
Utility Plant, Net $3,787 $523 $495 $4,805 $4,805
-------- ------- -------- ------- ------- -----------
Nonutility Property and Investments
(net of accumulated depreciation) 493 7 (2) 500 500
-------- ------- -------- ------- ------- -----------
Current Assets:
Cash and temporary cash investments 62 18 695 (3)
(348)(5)
(352)(4)
(23)(5) 52 530 (14)
150 (16) 732
Other current assets 439 99 538 538
-------- ------- -------- ------- ------- -----------
Total Current Assets 501 117 (28) 590 680 1,270
Deferred Debits 500 9 (2) 5 (3) 514 514
-------- ------- -------- ------- ------- -----------
Total $5,281 $656 $472 $6,409 $680 $7,089
======== ======= ======== ======= ======= ===========
Capitalization and Liabilities
Stockholders' Investment:
Common stock, shares issued and
outstanding; $1,068 $155 $348 (5)
(352)(4)
(155)(5) $1,064 $1,064
Retained Earnings 678 69 (69)(5) 678 678
Preferred Stock (Not subject to
sinking fund requirements) 106 106 106
-------- ------- -------- ------- ------- -----------
Total Stockholders' Investment 1,852 224 (228) 1,848 1,848
-------- ------- -------- ------- ------- -----------
Preferred Stock (Subject to
sinking fund requirements) 11 11 11
SCE&G - Obligated Manditorily 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 50
Long-Term Debt, net 1,623 165 700 (3) 2,488
530 (12) 3,018
-------- ------- -------- ------- ------- -----------
1,623 165 700 2,488 530 3,018
Total Capitalization 3,536 389 472 4,397 530 4,927
-------- ------- -------- ------- ------- -----------
Current Liabilities 694 169 863
150 (14) 1,013
-------- ------- -------- ------- ------- -----------
694 169 863 150 1,013
-------- ------- -------- ------- ------- -----------
Deferred Credits 1,051 98 1,149 1,149
-------- ------- -------- ------- ------- -----------
Total $5,281 $656 $472 $6,409 $680 $7,089
======== ======= ======== ======= ======= ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCANA CORPORATION
PRO FORMA CONDENSED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1998
(unaudited)
(Dollars in millions, except per share amounts)
Merger Additional
Pro Forma Merger Financing Pro Forma
SCANA PSNC Adjustments Pro Forma Pro Forma as further adjusted
-------- ------- ----------- --------- ----------- -------------------
Increase Increase
(Decrease) (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues............................. $ 1,632 $ 300 $ - $ 1,932 $ $ 1,932
-------- ------- ---------- --------- ----------- ----------
Operating Expenses:
Operating Expenses........................... 1,006 225 1,231 1,231
Depreciation and amortization................ 145 26 14 (7) 185 185
Income taxes................................. 136 13 (18)(8) 131 (14)(11) 113
(4)(16)
-------- ------- ---------- --------- ----------- ----------
Total Operating Expenses 1,287 264 (4) 1,547 (18) 1,529
Operating Income............................... 345 36 4 385 18 403
Other Income................................... 13 3 0 16 16
-------- ------- ---------- --------- ----------- ----------
Income Before Interest Charges
and Preferred Stock Dividends................ 358 39 4 401 18 419
Interest Charges, Net.......................... 123 18 46 (6) 187 37 (10) 235
11 (15)
-------- ------- ---------- --------- ----------- ----------
Income Before Preferred Dividend
Requirements on Mandatorily
Redeemable Preferred Securities.............. 235 21 (42) 214 (30) 184
Preferred Dividend Requirement
of SCE&G - Obligated Mandatorily
Redeemable Preferred Securities.............. 4 0 0 4 4
-------- ------- ---------- --------- ----------- ----------
Income Before Preferred Stock Cash
Dividends of Subsidiary...................... 231 21 (42) 210 (30) 180
Preferred Stock Cash Dividends of
Subsidiary (At Stated Rates)................. 8 0 0 8 8
Net Income..................................... $ 223 $ 21 $ (42) $ 202 $ (30) $ 172
======== ======= ========== ========= =========== ==========
Weighted Average Common Shares
Outstanding (millions)....................... 105.3 20.2 105.5 (9) 105.5
Basic Earnings Per Share....................... $ 2.12 $ 1.06 $ 1.91 $ 1.63
Diluted Common Shares Outstanding
(millions)................................... 105.3 20.3 105.5 105.5
Diluted Earnings Per Share..................... $ 2.12 $ 1.05 $ 1.91 $ 1.63
Dividends Per Share............................ $ 1.54 $ 0.95 $ 1.54 $ 1.54
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCANA CORPORATION
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31, 1998
(unaudited)
(Dollars in millions, except per share amounts)
Merger Additional
Pro Forma Merger Financing Pro Forma
SCANA PSNC Adjustments Pro Forma Pro Forma as further adjusted
-------- ------- ----------- --------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net Income 223 21 (46)(6) 202 (37)(10) 172
18 (8) 14 (11)
(14)(7)
(11)(15)
4 (16)
Adjustments to reconcile net income to net cash
provided from operating activities
Depreciation, depletion and amortization 152 29 14 (7) 195 195
Amortization of nuclear fuel 20 20 20
Deferred income taxes, net 15 7 22 22
Pension asset (33) (33) (33)
Post retirement benefits 26 26 26
AFUC (16) (16) (16)
Change in certain current assets and liabilities: 0 0
(Increase) decrease in receivables (28) 9 (19) (19)
(Increase) decrease in inventories (16) (4) (20) (20)
Increase (decrease) in accounts payable 88 (14) 74 74
Increase (decrease) in taxes accrued 13 13 13
Other, net 23 19 (5)(3) 65 95
46 (6) 37 (10)
(18)(8) (14)(11)
11 (15)
(4)(16)
-------- ------- --------- -----------
Net Cash Provided from Operating Activities 467 67 529 529
-------- ------- --------- -----------
Cash Flows from Investing Activities
Utility property additions and Construction
expenditures (281) (63) (344) (344)
(Increase) decrease in nonutility property 0 0
and investments: 0 0
Nonutility property (22) 1 (21) (21)
Investments (106) (23)(5) (129) (129)
-------- ------- --------- -----------
Net Cash Used for Investing Activities (409) (62) (494) (494)
-------- ------- --------- -----------
Cash Flows from Financing Activities
Proceeds:
Issuance of long term debt 249 700 (3) 949 530 (12) 1,479
Issuance of common stock 9 9 9
Repayments: 0 0
Notes and loans (96) (96) (96)
Mortgage bonds (50) (9) (59) (59)
Common stock (110) (352)(4) (810) (810)
(348)(5)
Preferred stock (1) (1) (1)
Short term borrowings, net 136 25 161 150 (14) 311
Dividend payments: 0 0
Common stock (163) (19) (182) (182)
Preferred stock (7) (7) (7)
Fuel financings, net (14) (14) (14)
-------- ------- --------- -----------
Net Cash Used for Financing Activities (58) 6 (50) 630
-------- ------- --------- -----------
Net Increase in cash and temporary cash
investments 2 11 (28) (15) 680 665
Cash and temporary investments, January 1 60 7 67 67
-------- ------- --------- -----------
Cash and temporary investments, December 31 62 18 (28) 52 680 732
======== ======= ========= ===========
Supplemental Cash Flow Information:
Cash paid for - Interest 127 18
- Income taxes 114 11
</TABLE>
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
1. The adjustments assumed no change in accounting policies for SCANA or PSNC
and no intercompany eliminations because transactions between the companies
are not material.
2. In order to conform PSNC's financial statements with SCANA's financial
statement presentation, $7 million was reclassed from Deferred Debits-Other
to Nonutility Property and Investments, net.
3. Reflects the incurrence of $700 million (assuming an underwriting discount
of $5 million) of long-term debt, the proceeds of which are to be applied
to pay the SCANA Cash Consideration and the PSNC Cash Consideration.
4. Pursuant to the merger agreement, this adjustment reflects the SCANA Cash
Consideration paid to SCANA shareholders who will elect to receive cash
instead of common stock. The adjustment assumes that the cash pool of $700
million available for payment is reduced by the amount of the cash paid to
PSNC shareholders assumed in adjustment (5) below. The amount of adjustment
assumes a total payment of $352 million at a cash price of $30 per share.
5. Pursuant to the merger agreement, cash consideration will be paid to the
PSNC shareholders who elect to receive cash instead of common stock. The
amount of the cash consideration assumes that elections for cash are made
at a maximum amount of the cash available for PSNC shareholders at a total
payment of $348 million at a cash price of $33 per share.
This adjustment reflects the SCANA and PSNC Cash and Stock Consideration as
described in the merger agreement. The adjustment recognizes the conversion
of the remaining shares of SCANA common stock and PSNC common stock net of
the shares which were converted to cash. The adjustment is based on the
number of shares outstanding as of December 31, 1998 and assumes PSNC total
shares outstanding (after the exercise of options) of 21,059,000. The
conversion represents the exchange of each share of PSNC common stock into
1.23 shares of SCANA common stock. The total shares exchanged and stock
consideration is based on the following (share amounts in millions):
As of December 31, 1998
--------------------------------
PSNC SCANA Pro Forma
----- ----- ---------
Shares Outstanding End of Period 21.0 103.6
Shares Redeemed for Cash (10.5) (11.7)
----- -----
Remaining Shares to be Exchanged 10.5 91.9
PSNC Exchange Ratio 1.23 1.0
----- -----
Stock Consideration 12.9 91.9 104.8
----- ----- ---------
This adjustment also reflects the recognition of an acquisition adjustment
equal to the excess of the purchase price over the net book value of assets
and liabilities of PSNC acquired. The adjustment assumes total purchase
consideration equal to cash of $348 million and 12.9 million shares of
SCANA common stock. The calculation of the acquisition adjustment for the
balance sheet presented is based on the following (amounts in millions,
except PSNC Exchange Ratio and the Estimated Price per Share):
December 31, 1998
-----------------
Cash Consideration $ 348
Common Stock Consideration:
PSNC Stock Converted 10.50
PSNC Exchange Ratio 1.23
--------
New Shares Issued 12.95
Estimated Price per Share $ 26.81
--------
Total Stock Consideration $ 348
Estimated Acquisition Costs 23
Total Cost $ 719
Less Net Book Value of PSNC 224
--------
Total Acquisition Adjustment $ 495
--------
6. Reflects the recognition of interest expense related to the incurrence of
debt ($700 million) at an assumed annual rate of 6.50%.
7. To record amortization expense for the acquisition adjustment of $495
million assuming a 35-year amortization period.
8. To record the effect on income taxes of the additional interest expense,
using the effective statutory rate of 38.25%.
9. Calculation of Weighted Average Shares Outstanding (in millions, except
PSNC Exchange Ratio and Redemption Price per Share):
As of December 31, 1998
--------------------------------
PSNC SCANA Pro Forma
------ ----- ---------
Weighted Average Shares Outstanding 20.2 105.3
Shares Redeemed for Cash (*) (10.5) (11.7)
------ -----
Net Shares 9.7 93.6
PSNC Exchange Ratio X 1.23 X 1.0
------ ------
SCANA Weighted Average Shares Outstanding 11.9 93.6 105.5
------ ------ ---------
(*) Shares redeemed based on the following calculation (see notes 4
and 5):
Allocated Cash for Redemption $ 348 $ 352
Redemption Price per Share 33 30
------ ---------
Shares Redeemed 10.5 11.7
------ ---------
10. Recognition of additional interest expense on $530 million at an annual
interest rate of 7%. (all in millions)
1,435 Total Long Term Debt
(700) Merger Adjustment debt @ 6%
(205) Refinancings
-----
530 Additional Debt @7%
11. Income Tax effect on additional interest expense($37.1 million), using rate
of 38.25%.
12. Reflects the incurrence of $530 million financing for existing business
operations, new business operations, start-up costs, investments, etc.
13. Reflects the 70% dividend payout of PSNC to SCANA
14. $150 million of expected non-merger use of short-term credit lines.
15. Recognition of additional interest expense on $150 million at an annual
interest rate of 7%.
16. Income Tax effect on additional interest expense ($10.5 million), using
rate of 38.25%.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 4,805
<OTHER-PROPERTY-AND-INVEST> 500
<TOTAL-CURRENT-ASSETS> 1,270
<TOTAL-DEFERRED-CHARGES> 514
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 7,089
<COMMON> 1,030
<CAPITAL-SURPLUS-PAID-IN> (9)
<RETAINED-EARNINGS> 678
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,742
61
106
<LONG-TERM-DEBT-NET> 3,018
<SHORT-TERM-NOTES> 340
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 116
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,706
<TOT-CAPITALIZATION-AND-LIAB> 7,089
<GROSS-OPERATING-REVENUE> 1,932
<INCOME-TAX-EXPENSE> 113
<OTHER-OPERATING-EXPENSES> 1,416
<TOTAL-OPERATING-EXPENSES> 1,529
<OPERATING-INCOME-LOSS> 403
<OTHER-INCOME-NET> 16
<INCOME-BEFORE-INTEREST-EXPEN> 419
<TOTAL-INTEREST-EXPENSE> 235
<NET-INCOME> 180
8
<EARNINGS-AVAILABLE-FOR-COMM> 172
<COMMON-STOCK-DIVIDENDS> 162
<TOTAL-INTEREST-ON-BONDS> 92
<CASH-FLOW-OPERATIONS> 529
<EPS-BASIC> 1.63
<EPS-DILUTED> 1.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,787
<OTHER-PROPERTY-AND-INVEST> 493
<TOTAL-CURRENT-ASSETS> 501
<TOTAL-DEFERRED-CHARGES> 500
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 5,281
<COMMON> 1,051
<CAPITAL-SURPLUS-PAID-IN> (9)
<RETAINED-EARNINGS> 678
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,746
61
106
<LONG-TERM-DEBT-NET> 1,623
<SHORT-TERM-NOTES> 195
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 107
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,443
<TOT-CAPITALIZATION-AND-LIAB> 5,281
<GROSS-OPERATING-REVENUE> 1,632
<INCOME-TAX-EXPENSE> 136
<OTHER-OPERATING-EXPENSES> 1,151
<TOTAL-OPERATING-EXPENSES> 1,287
<OPERATING-INCOME-LOSS> 345
<OTHER-INCOME-NET> 13
<INCOME-BEFORE-INTEREST-EXPEN> 358
<TOTAL-INTEREST-EXPENSE> 123
<NET-INCOME> 231
8
<EARNINGS-AVAILABLE-FOR-COMM> 223
<COMMON-STOCK-DIVIDENDS> 162
<TOTAL-INTEREST-ON-BONDS> 88
<CASH-FLOW-OPERATIONS> 467
<EPS-BASIC> 2.12
<EPS-DILUTED> 2.12
</TABLE>
