As filed with the Securities and Exchange Commission on
February 14, 2000
File No. 70-9533
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 TO
APPLICATION-DECLARATION
ON FORM U-1
UNDER
THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935
SCANA CORPORATION
SOUTH CAROLINA ELECTRIC AND
GAS COMPANY
SOUTH CAROLINA GENERATING
COMPANY, INC.
SOUTH CAROLINA FUEL
COMPANY, INC.
SOUTH CAROLINA PIPELINE
CORPORATION
SCANA ENERGY MARKETING INC.
SCANA ENERGY TRADING, LLC
SCANA PROPANE GAS, INC.
SCANA PROPANE STORAGE, INC.
SCANA COMMUNICATIONS, INC.
SERVICECARE INC.
PRIMESOUTH, INC.
PALMARK, INC.
PALMETTO LIME, LLC
SCANA RESOURCES, INC.
SCANA DEVELOPMENT
CORPORATION
SCANA PETROLEUM
RESOURCES, INC.
SCANA SERVICE COMPANY
1426 Main Street
Columbia, South Carolina 29201
PUBLIC SERVICE COMPANY OF
NORTH CAROLINA,
INCORPORATED
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
PSNC PRODUCTION CORPORATION
400 Cox Road
Gastonia, North Carolina 28054
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(Name of companies filing this statement
and addresses of principal executive offices)
SCANA Corporation
(Name of top registered holding company)
Kevin B. Marsh
H. Thomas Arthur
SCANA Corporation
1426 Main Street
Columbia, South Carolina 29201
Telephone: (803) 217-9000
Facsimile: (803) 217-9336
(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
<PAGE>
The Applicants hereby amend and restate their application as
follows:
Item 1. DESCRIPTION OF THE PROPOSED TRANSACTION
A. Introduction and General Request
1. General
SCANA Corporation, a South Carolina Corporation ("SCANA"), filed an
Application/Declaration on Form U-1 (File No. 70-9521) (the "Merger U-1") with
the Securities and Exchange Commission (the "Commission") under 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 include only the companies specifically named on the cover
and on the signature page of this
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Application/Declaration. SCANA Propane Gas, Inc. and SCANA Propane Storage,
Inc. are included in this Application/Declaration solely with respect to section
H, "Tax Allocation Agreement". The Commission is asked to reserve jurisdiction
over the participation in 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 the authorization and approval of the
Commission with respect to the ongoing financing activities, the provision of
intra-system 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 three (3) 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 (as defined below) as a subsidiary service company in
accordance with the provisions of Rule 88 of the Act and the Services Agreement
(as defined below) 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 10.0
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 the Commission approve the aggregate financing
request in the amount of $2.385 billion, representing financing authorizations
relating to equity securities and debt as more fully described in this
Application/Declaration.
(e) SCANA also requests the 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 intrasystem guarantees, the
formation and operation of a Utility Money Pool and a Non-Utility Money Pool and
the payment of dividends out of capital or unearned surplus by PSNC described in
this Application/Declaration.
(f) SCANA also requests that the Commission approve an exemption from Rule
45 with respect to SCANA's agreement for the allocation of consolidated tax
among SCANA and the Subsidiaries (the "Tax Allocation Agreement"). SCANA
requests that the Commission reserve jurisdiction over the implementation of the
Tax Allocation Agreement until such time as the matter can be more fully
considered by the Commission.
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
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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".
SCANA Service Company, a subsidiary service company incorporated in the
State of South Carolina ("SCANA Service"), will enter into a services agreement
(the "Services Agreement") with each of the Subsidiaries in the SCANA system. (A
copy of the form of the Services Agreement as well as an appendix entitled
"Service Company Policy and Procedures" are filed as Exhibits C-1 and C-2,
respectively.) 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.
The authorized capital stock of SCANA Service consists of 1,000 shares of
common stock, no par value per share, issued to SCANA for $1,000. Upon
consummation of the Merger, all issued and outstanding shares of SCANA Service
common stock will remain 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 the
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
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existing Commission precedent, both for newly registered holding company systems
(see e.g., New Century Energies, Inc., Holding Co. Act Release No. 26750 (Aug.
1, 1997); Ameren Corporation, Holding Co. Act Release No. 26809 (Dec. 30, 1997);
Conectiv, Inc., Holding Co. Act Release No. 26833 (Feb. 26, 1998); and Dominion
Resources, Inc., Holding Co. Act Release No. 27112 (Dec. 15, 1999)) 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) (a) external
issuances by SCANA of common stock, long-term debt, short-term debt, and other
securities for cash and (b) 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 intra-system 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, if required, 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
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to this Application/Declaration or pursuant to applicable exemptions under the
Act, including intra-system 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 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 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
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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) as well as that of SCE&G and PSNC will be
at least 30% of their respective consolidated capitalizations (common equity,
preferred stock and debt (long and short-term)).
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 (other
than for employee benefit plans or stock purchase and dividend reinvestment
plans), when combined with issuances of long- term debt, as described in this
section, shall not exceed $1.935 billion for the uses set forth in Section D
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 effected 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 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),
shareholders and others through its employee benefit plans or stock purchase and
dividend reinvestment plans. 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
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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 of 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, "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, 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. SCANA does not
intend to engage in any such transaction where original issue stock is not
registered while a public offering is being made, other than a public offering
pursuant to a compensation, dividend or stock purchase plan, a public offering
of debt or a public offering in connection with a similar acquisition of an
"energy-related business" as described in Rule 58 and ETCs.
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The ability to offer stock as consideration may make a transaction more
economical for SCANA as well as for the seller of the business. 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.
(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 of
common stock (other than for benefit plans or stock purchase and dividend
reinvestment plans) under this Application/Declaration, not to exceed $1.935
billion. This amount includes financing for the cash portion of the Merger
consideration of approximately $700 million.2/ Such long-term debt securities
would be comprised of medium-term notes under an indenture (the "SCANA
Indenture") or institutional debt. 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
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2 As noted in the Merger U-1, SCANA has entered into a Credit Facility for
$300 million of merger financing and intends to finance the remaining $400
million through the issuance of 2- year notes in a 144A offering under the
Securities Act of 1933.
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as SCANA may determine at the time of issuance. Moreover, SCANA will not issue
any new long-term debt unless its outstanding long-term debt is rated
"investment grade" by at least one nationally recognized statistical rating
organization. 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); and Dominion Resources, Inc., Holding Co. Act Release
No. 27112 (Dec. 15, 1999) (authorizing the issuance of debt securities by the
registered holding company, including the refinancing of $4.5 billion of
acquisition indebtedness).
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 (which may be issued
with original issue discount) can include 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 denominated 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 (i) a
supplemental indenture or (ii) an officer's certificate and company order, as
applicable.
The SCANA Indenture permits variable terms, such as the principal amount,
interest rate, redemption terms, denominations, events of default, etc., to be
included or excluded in or made applicable to a particular series of securities.
These terms will be set forth either in (i) a supplemental indenture or (ii) an
officer's certificate and company order, as applicable. In theory, any
combination of the variable terms could be included in a single series of
securities
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which, under current practice, would be called "notes", "debentures" or
"medium-term notes". The 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).
Other than certain provisions relating to restrictions on liens, the SCANA
Indenture contains no negative covenants or restrictions. Any additional
covenants or restrictions negotiated at the time of issuance will be included in
either (i) a supplemental indenture or (ii) an officer's certificate and company
order, as applicable, establishing a particular security. The SCANA Indenture
contains the following event of default provisions: (i) defaults in payment of
the SCANA Indenture securities; (ii) defaults under covenants under the SCANA
Indenture, (iii) failures to comply with instruments governing other
indebtedness and certain other agreements; and (iv) 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 December 31, 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
$ 25.0 million 6.90% 2/15/2007
$ 150.0 million 5.5175% 7/14/2000
$ 50.0 million 7.44% 10/19/2004
A copy of any new supplemental indenture under the SCANA Indenture or an
officer's certificate and company order executed and delivered pursuant to this
Authorization will
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be filed under cover of the first quarterly report under Rule 24 filed after
such execution and delivery.
ii. Terms of Borrowings from Banks and Other Financial Institutions.
Borrowings from the banks and other financial institutions will be
unsecured 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 with the parameters on financing authorization set
forth in Section D above. A copy of any additional note or agreement executed
and delivered pursuant to this Authorization will be filed under cover of the
first quarterly report under Rule 24 filed after such execution and delivery.
(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 $450 million
of short-term debt consisting of institutional borrowings, commercial paper or
bid notes (all as described below) and short-term debt issued under the SCANA
Indenture.
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, N.A. and Bank of
America, N.A.) which expire on June 29, 2000;
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(3) SCANA maintains committed lines of credit with other banks in the amount of
$2.3 million; and (4) as noted in the table in Section E.1(b)(i), SCANA has $150
million outstanding of medium-term notes issued with a one-year term and due
July 14, 2000. If requested by the Nuclear Regulatory Commission (the "NRC"),
SCANA will also obtain a letter of credit in an amount up to $50 million 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.
SCANA may also sell commercial paper, from time to time, in established
domestic or European commercial paper markets. Such commercial paper would be
sold to dealers at the discount rate or the coupon rate per annum prevailing at
the date of issuance for commercial paper of comparable quality and maturities
sold to commercial paper dealers generally. It is expected that the dealers
acquiring commercial paper from SCANA will reoffer such paper at a discount to
corporate, institutional and, with respect to European commercial paper,
individual investors. Institutional investors are expected to include commercial
banks, insurance companies, pension funds, investment trusts, foundations,
colleges and universities and finance companies.
(d) Total Financing Sought
The aggregate amount of equity and debt financing to be obtained by SCANA
during the Authorization Period shall be $2.385 billion.
(e) 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
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to time during the Authorization Period. The issuance of any such securities
would be subject to the aggregate $2.6 billion limit on equity and debt
discussed in Section E.1(d), and to the parameters on financing authorization
set forth in Section D 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.
(f) 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
rate swaps as a means of prudently managing the risk associated with any of its
outstanding debt issued pursuant to this authorization or an applicable
exemption by, in effect, synthetically (i) converting variable rate debt to
fixed rate debt, (ii) converting fixed rate debt to variable rate debt, (iii)
limiting the impact of changes in interest rates resulting from variable rate
debt and (iv) providing an option to enter into interest rate swap transactions
in future periods for planned issuances of debt securities. In no case will the
notional principal amount of any 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, A
Division of The McGraw-Hill Companies, are
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greater than or equal to "BBB+", or an equivalent rating from Moody's Investors
Service, Inc., Fitch IBCA, Inc. or Duff & Phelps Credit Rating Co.
SCANA and its Subsidiaries will comply with SFAS 80 ("Accounting for
Futures Contracts"), SFAS 133 ("Accounting for Derivatives Instruments and
Hedging Activities") when it is implemented or such other standards relating to
accounting for derivative transactions as are adopted and implemented by the
Financial Accounting Standards Board ("FASB"). In addition, these financial
instruments will qualify for hedge accounting treatment under FASB rules.
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
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
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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 this subsection. The Utility Subsidiaries will borrow and repay
under such lines of credit, from time to time, as it is 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 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.
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To the extent not exempt under Rule 52, the Utility Subsidiaries also
request authority to enter into interest rate risk management transactions of
the same type and under the same conditions as are requested above by SCANA.
SCANA and its Subsidiaries will comply with SFAS 80 ("Accounting for
Futures Contracts"), SFAS 133 ("Accounting for Derivatives Instruments and
Hedging Activities"), when it is implemented or such other standards relating to
accounting for derivative transactions as are adopted and implemented by the
FASB. In addition, these financial instruments will qualify for hedge accounting
treatment under FASB rules.
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 businesses. They will be competing
with large, well-capitalized companies in different sectors of the energy
industry 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.
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The majority of such financings will be exempt from prior Commission
authorization pursuant to Rule 52(b). The Non-Utility Subsidiaries, however, may
engage, from time to time, in types of security financing with non-affiliates
that are not exempt from prior Commission approval. The Non-Utility
Subsidiaries, therefore, (i) request that the Commission reserve jurisdiction
over the issuance of such additional types of securities and the amounts thereof
and (ii) will 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, Intra-system Advances and Intra-System Money Pool
(a) Guarantee and Intra-system Advances
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 or
necessary 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 (not taking into account obligations exempt
pursuant to Rule 45). Included in this amount are guarantees and other credit
support mechanisms by SCANA in favor of its Subsidiaries which were previously
issued.
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 and (3) SCANA
provides a $5 million letter of credit to Primesouth to
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support Primesouth's ability to bid on contracts. If requested by the NRC, SCANA
will obtain a letter of credit in an amount up to $50 million to satisfy the NRC
requirements on cash available to fund SCE&G's decommissioning costs. SCANA will
guarantee up to $50 million of SCE&G's decommissioning costs and support such
guarantee through any such letter of credit. These amounts are included within
the overall authorization amount requested above. SCANA also has outstanding
advances in favor of certain of its Subsidiaries in an amount of approximately
$600 million which are expected to remain in place following the Merger. Such
outstanding advances by SCANA to its Subsidiaries are open advances with no
maturities and are callable by SCANA at any time.
SCANA requests that this guarantee authority include the ability to
guarantee debt. The debt guaranteed will comply with the parameters for
financing authorization set forth in Section D 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. In addition to the Utility Subsidiaries, SCANA requests that
South Carolina Fuel Company, Inc. ("South Carolina Fuel") be allowed to
participate in the Utility Money Pool as a result of its financing relationship
with SCE&G. Thus, for purposes of this Section E.4(b) only, the term Utility
Subsidiaries shall include South Carolina Fuel. In addition, SCANA and the
remaining Subsidiaries, all of which are Non-Utility Subsidiaries, hereby
request authorization to establish the Non-Utility Money Pool.
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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.
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
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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 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.
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.
- --------
3 Such other subsidiaries consist of each of the Non-Utility
Subsidiaries including SCANA Service.
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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.
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
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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
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 may be prepaid
by the borrower without premium or penalty.
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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. No loans through the Non-Utility Money
Pool would be made to, and no borrowings through the Non-Utility Money Pool
would be made by, SCANA. South Carolina Fuel will not participate in the
Non-Utility Money Pool as it is participating in the 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.
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
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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 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. Borrowings by South Carolina Fuel under the Utility Money Pool are
exempt pursuant to Rule 52 under the Act. 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. Act Release No. 26750 (Aug. 1, 1997) and
Conectiv, Holding Co. Act 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 (i.e., common
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stock or preferred stock) 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 wholly-owned Subsidiary's authorized
capital stock capitalization by an amount deemed appropriate by SCANA or other
intermediate parent company. This request for authorization is limited to
SCANA's wholly-owned Subsidiaries and will not affect the aggregate limits or
other conditions contained herein. 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. See New Century Energies, Inc., Holding Co. Act Release No.
26750 (Aug. 1, 1997); Conectiv, Inc., Holding Co. Act Release No. 26833 (Feb.
26, 1998); Dominion Resources, Inc., Holding Co. Act Release No. 27112 (Dec. 15,
1999). Each of SCE&G and PSNC will maintain, during the Authorization Period,
30% common equity in its capitalization.
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
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("Staff Accounting Bulletin"), the goodwill will be "pushed down" to PSNC and
reflected as additional paid-in-capital in its 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, a strong balance
sheet showing a significant equity level. 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 immediately 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.
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.
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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 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.
Based on 1998 financial information, the application of these
accounting principles to the Merger will result in following adjustments to
PSNC's books:
<TABLE>
<CAPTION>
$'000 1998 Adjustments1 Adjustments2 Restated
<S> <C> <C> <C> <C>
Common Stock 20,378 --- --- 20,378
Paid-in-capital 134,742 68,654 471,173 674,569
Retained earnings 68,654 (68,654) --- ---
Accumulated --- --- --- ---
comprehensive
income, net
Total equity 223,774 --- 471,173 694,947
- ---------------------- ------------------ -------------------- --------------------- ---------------------
</TABLE>
Adjustments 1 -- Capital accounts are restated as Paid-in-Capital.
Adjustments 2 -- Goodwill is added to Paid-in-Capital.
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The push down of the net assets at fair market value also has an impact on
the net income of PSNC. The net assets include an acquisition adjustment that
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. FASB has issued an exposure draft
which proposes a reduction in the amortization period for transactions effected
after the adoption of the standard. SCANA will comply with all of the provisions
of any such standard that is ultimately adopted.
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 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) ("EUA"), 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
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4 Compare Section 305(a) of the Federal Power Act.
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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 common equity as a percentage of total capitalization will be
61.6%, substantially in excess of the traditional levels of common
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% common equity on a
consolidated basis should result in a capital structure consistent
with industry norms.
(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 September 30, 1999,
PSNC had cash balances of $7.2 million on a consolidated basis. The
amortization of goodwill is a non-cash expense that will not affect
the cash flow of PSNC. PSNC is forecast to have sufficient cash to pay
dividends in the amounts contemplated.
(v) The proposed dividend payments are in the public interest. PSNC is in
sound financial condition as indicated by its credit ratings. Indeed,
PSNC's senior unsecured debentures were rated A2 by Moody's Investors
Service, Inc. prior to announcement of the Merger and, following
announcement, were put under review for possible upgrade. The positive
implications for PSNC are a result of its association with SCANA,
including the higher-rated SCE&G. The expectations of continued strong
credit ratings by PSNC should allow it to continue to access the
capital markets to finance its operations and growth. In addition, the
dividend payments are consistent with investor interests because they
allow the capital structure of PSNC to be adjusted to more appropriate
levels of debt and equity. Lastly, a prohibition on dividend payments
out of additional paid-in-capital would impair the ability of SCANA to
service the acquisition debt incurred in connection with the Merger.
7. Financing Entities
Authority is sought for the Subsidiaries to organize new corporations,
trusts, partnerships or other entities created for the purpose of facilitating
financings through their
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5 In recent years, PSNC's net income and dividends have been:
Year Net Income ($ 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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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 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 requests
authorization to enter into an expense agreement 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. Act Release No. 26750 (Aug. 1,
1997); Conectiv, Holding Co. Act Release No. 26833 (Feb. 26, 1998) and
Dominion Resources, Inc., Holding Co. Act Release No. 27112 (Dec. 15,
1999).
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6 SCE&G has an existing subsidiary trust that has issued $50 million in
trust preferred 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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F. Intra-system 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./7 As a general rule, the
individual system companies will maintain 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.
b. Internal Auditing.
This service involves conducting periodic audits of administration and
accounting processes. The audits will include examinations of service
agreements, accounting systems, source documents, allocation methods and
billings to determine if services are authorized and properly accounted for.
c. Strategic Planning.
This group will advise and assist system companies with the preparation of
strategic business plans and corporate strategies.
d. Public Affairs.
- --------
7 As discussed with the Staff, SCANA may continue to provide services to
system companies through March 31, 2000 at cost. SCE&G will continue as common
paymaster for the payroll system through December 31, 2000 to eliminate problems
of over-withholding FICA.
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The public affairs group will maintain relationships with government policy
makers, conduct lobbying activities and provide community relations functions.
e. Gas Supply and 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. Legal Services.
SCANA Service will provide various legal services and general legal
oversight, as well as handle claims.
g. Marketing and Sales.
SCANA Service will offer to assist system companies in developing 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.
h. Financial Services.
The services offered will include corporate tax, treasury 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). The individual companies may
maintain their own corporate and accounting group with SCANA Service providing
advice and assistance on accounting matters, including the development of
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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.
i. Information System Services.
SCANA Service will offer to provide the system with electronic data
processing services.
j. Executive.
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.
k. Investor Relations.
SCANA Service will maintain relationships with the financial community,
provide shareholders' services, and perform corporate secretarial functions for
the benefit of system companies.
l. Customer Services.
SCANA Service will provide billing, mailing, remittance processing, call
center and customer communication services for electric and gas customers.
m. Purchasing.
SCANA Service will provide procurement services.
n. Risk Management.
SCANA Service will provide insurance, claims, security, environmental and
safety services.
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o. Telecommunications.
SCANA Service will provide telecommunications services, the majority of
which will be telephone equipment.
p. Employee Services.
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. SCANA Service will also provide employee communications,
mail services, facilities management for the offices owned by the system
companies and aviation services for efficient transportation of company
personnel. 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 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
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"
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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 Services Agreement. SCANA shall
submit an amended service company policy and procedures manual to the Commission
on or before July 31, 2000 in order to reflect changes in the policy and
procedures of SCANA Service.
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, non-utility companies and the
holding company 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 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
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SCANA Service within the 60-day 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 13
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
is 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, SCANA has submitted substantially the same
application information as would have been submitted in a Form U-13-1.
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
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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
enter, from time to time, 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. Except as otherwise provided
below, these incidental services will be occasional in nature. 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 that 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 Rules 87, 90 and 91. In addition, SCE&G will continue
to provide billing system services to ServiceCare, Inc. and SCE&G and SCANA
Communications, Inc. will cooperate on matters relating to ground leases and
repair operations. Each of these services will be provided at cost as determined
under Rule 90 and 91 of the Act.
In addition, it is expected that SCE&G will transfer title to the system
mainframe computer, certain related peripheral hardware and equipment and the
employee training center in
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Georgetown, South Carolina to SCANA Service to facilitate the provision of
efficient coordinated services.
In addition, Primesouth, Inc. maintains a contract with SCE&G whereby
Primesouth, Inc. operates a power plant facility on behalf of SCE&G. The
contract is priced "at cost" as determined under Rules 90 and 91 of the Act.
Finally, South Carolina Fuel acquires, owns and provides financing to
SCE&G's nuclear fuel, fossil fuel and sulfur dioxide emission allowance
requirements. South Carolina Fuel enters into contracts with SCE&G to provide
these fuel-related 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 three 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 10.0 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 the SCANA Investor Plus Plan ("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:
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SCANA Investor Plus 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. SCANA's
minimum cash investment amount is $25 and the maximum is $100,000 in a calendar
year. 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.
Since February 1, 1997, SCANA Investor Plus has acquired 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 under 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 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
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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 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; or
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 each 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 a money market fund. 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
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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
interests of 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 has annual revenues of less than
$100 million.
TSR is the 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
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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 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 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
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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 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 a
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.)
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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 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.
SCANA requests that the Commission reserve jurisdiction over the
implementation of the Tax Allocation Agreement until such time as the matter can
be more fully considered by the
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Commission. Until such time, the applicants have attached a copy of an interim
Tax Allocation Agreement among SCANA and the Subsidiaries as Exhibit K-2 which
shall govern the parties after the effective time of the Merger until such
approval of 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 authorizations 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 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 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 and dividend reinvestment plans including any employee benefit
plans or dividend reinvestment plans hereafter adopted;
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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. 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;
h. 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
i. 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
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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 $ 35,000
Estimated Miscellaneous Expenses 5,000
---------------
Total $ 40,000
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.
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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. On August 31, 1999, the Commission issued
and published the requisite notice under Rule 23 with respect to this
Application/Declaration; such notice specifying September 27, 1999 as the date
by which comments may be entered and the date on which an order of the
Commission granting and permitting the Application/Declaration to become
effective may be entered by the Commission. On September 24, 1999, an
intervention was filed with the Commission by Paul S. Davis; however, this
intervention was withdrawn by Mr. Davis on December 15, 1999.
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).
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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).
C-1 Form of Services Agreement between SCANA Service and each Subsidiary.
C-2 Service Company Policy and Procedures.
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. 333-86803 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. 333-87281 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).
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E-4 SCANA Performance Share Plan (Filed with the Commission as Exhibit
10.01(e) to Registration Statement No. 33-49333 and incorporated by
reference herein).
F-1 Opinion of counsel (Previously filed).
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).
G-3 Quarterly Report of SCANA on Form 10-Q for the period ended June 30,
1999 (Filed with the Commission on August 13, 1999 and incorporated by
reference herein).
G-4 Quarterly Report of SCANA on Form 10-Q for the period ended September
30, 1999 (Filed with the Commission on November 15, 1999 and
incorporated by reference herein).
G-5 Annual Report of PSNC on Form 10-K for the fiscal year ended September
30, 1999 (Filed with the Commission on December 23, 1999 and
incorporated by reference herein).
G-6 Withdrawn.
G-7 Withdrawn.
G-8 Withdrawn.
H-1 Proposed Form of Notice (Previously filed).
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I-1 Description of Existing Financing Arrangements and Orders - Utility
Subsidiaries (Previously filed).
I-2 Description of Existing Financing Arrangements - Non-Utility
Subsidiaries (Previously filed).
J-1 Form of Utility Money Pool Agreement.
J-2 Form of Non-Utility Money Pool Agreement.
J-3 Form of Utility Money Pool Promissory Note (Previously filed).
J-4 Form of Non-Utility Money Pool Promissory Note (Previously filed).
K-1 Form of Tax Allocation Agreement (Previously Filed).
K-2 Interim Tax Allocation Agreement.
L-1 Withdrawn.
Financial Statements
FS-1 SCANA Unaudited Pro Forma Condensed Consolidated Balance Sheet
(Previously filed).
FS-2 SCANA Unaudited Pro Forma Condensed Consolidated Statement of Income
and Cash Flow (Previously filed).
FS-3 Notes to SCANA Unaudited Pro Forma Condensed Consolidated Financial
Statements (Previously filed).
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, 1999 (included
in Exhibit G-2).
FS-6 SCANA Consolidated Balance Sheet as of June 30, 1999 (included in
Exhibit G-3).
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<PAGE>
FS-7 SCANA Consolidated Statement of Income as of June 30, 1999 (included
in Exhibit G-3).
FS-8 SCANA Consolidated Balance Sheet as of September 30, 1999 (included in
Exhibit G-4).
FS-9 SCANA Consolidated Statement of Income as of September 30, 1999
(included in Exhibit G-4).
FS-10PSNC Consolidated Balance Sheet as of September 30, 1999 (included in
Exhibit G-5).
FS-11PSNC Consolidated Statement of Income as of September 30, 1999
(included in Exhibit G-6).
FS-12 Withdrawn.
FS-13 Withdrawn.
FS-14 Withdrawn.
FS-15 Withdrawn.
-53-
<PAGE>
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.
-54-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Public Utility Holding Company Act of
1935, the Applicants have duly caused this Pre-effective Amendment No. 2 to the
Application/ Declaration to be signed on their behalf by the undersigned
thereunto duly authorized.
Date: February 14, 2000 SCANA CORPORATION
/s/ H. Thomas Arthur
Name: H. Thomas Arthur
Title: Senior Vice-President
and General Counsel
-55-
EXHIBIT C-1
Form of Service Agreement
This Service Agreement (this "Agreement") is entered into as of the ____
day of __________, 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.
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IV. [TO BE INCLUDED IN CONTRACT WITH PSNC ONLY] NORTH CAROLINA
PROVISIONS.
(A) PSNC hereby agrees that:
(1) it will not incur a charge hereunder except in accordance with North
Carolina law and the rules, regulations and orders of the North Carolina
Utilities Commission (the "NCUC") promulgated thereunder;
(2) it will not seek to reflect in rates any cost incurred hereunder to the
extent disallowed by the NCUC; and
(3) it will not incur a charge hereunder except for charges determined in
accordance with Rules 90 and 91 of the Act.
(B) PSNC and SCANA Service acknowledge that as a result of the agreements
contained in Sections IV(A)(1) and (A)(3), PSNC will not accept services from
SCANA Service if the cost to be charged for such service, as calculated pursuant
to Rules 90 and 91 of the Act, differs from the amount of charges PSNC is
permitted to incur under North Carolina law and the rules, regulations and
orders of the NCUC promulgated thereunder.
V. TERMINATION AND MODIFICATION. The Company may terminate this Agreement
by providing 60 days written notice of such termination to SCANA Service. SCANA
Service may terminate this Agreement by providing 60 days 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 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 [For contract with PSNC only: and any subsequent modifications
thereof].
VI. SERVICE REQUESTS. The Company and SCANA Service will prepare a Service
Request on or before _____________ of each year listing services to be provided
to the Company by SCANA Service and any special arrangements related to the
provision of such services for the coming year, based on services provided
during the past year. The Company and SCANA Service may supplement the Service
Request during the year to reflect any additional or special services that the
Company wishes to obtain from SCANA Service, and the arrangements relating
thereto.
VII. BILLING AND PAYMENT. Unless otherwise set forth in a Service Request,
payment for services provided by SCANA Service shall be by making remittance of
the amount billed or by making appropriate accounting entries on the books of
the Company and SCANA Service. Billing will be made on a monthly basis, with the
bill to be rendered by the 25th of the month, and remittance or accounting
entries completed within 30 days of billing.
2
<PAGE>
VIII. 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:
1. To the Company:
====================
====================
2. To SCANA Service:
====================
====================
IX. 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.
X. MODIFICATION. No amendment, change or modification of this Agreement
shall be valid, unless made in writing and signed by all parties hereto.
XI. 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.
XII. 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.
XIII. 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 rights, interests or obligations
hereunder may be made without the other party's consent, which shall not be
unreasonably withheld, delayed or conditioned.
XIV. 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.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of this ________ day of _________.
SCANA SERVICE COMPANY
By: _____________________________
Name:
Title:
[Subsidiary]
By:
Name:
Title:
4
<PAGE>
Page 1
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.
1. Costs accumulated in Account Codes for services specifically
performed for a single Client Entity will be directly assigned or charged
to such Client Entity.
2. 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 and based on one of
the allocation methods described below.
3. 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. 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.
2. Margin Revenue Ratio - "Margin" is equal to the excess of sales
revenues over the applicable cost of sales, i.e., cost of fuel for
generation and gas for resale. The numerator is equal to margin revenues
for a specific Client Entity and the denominator is equal to the combined
margin revenues of all the applicable Client Entities. This ratio will be
evaluated 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.
3. 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.
4. Number of Employees Ratio - A ratio based on the number of
employees benefitting 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.
5. Three-Factor Formula - This formula will be determined annually
based on the average of gross property (original cost of plant in service,
excluding depreciation), payroll charges (salaries and wages, including
overtime, shift premium and holiday pay, but not including pension, benefit
and company-paid payroll taxes) and gross revenues during 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.
6. Telecommunications Chargeback Rates - Rates for use of
telecommunications services other than those encompassed by Information
Systems Chargeback Rates are based on the costs of labor, materials,
outside services and Telecommunications overheads. Such rates are applied
based on the specific equipment employment and the measured usage of
services by Client
<PAGE>
Page 3
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.
7. Gas Sales Ratio - A ratio based on the actual number of dekatherms
of natural gas sold by the applicable gas distribution or marketing
operations. 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.
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 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 electronic data processing
services. Costs of a general nature are allocated using the Information
Systems Chargeback Rates.
2. Customer Services - Provides billing, mailing, remittance
processing, call center and customer communication services for electric
and gas customers. Costs of a general nature are allocated using the Margin
Revenue Ratio.
3. Marketing and Sales - Establishing strategies, provides oversight
for marketing, sales and branding of utility and related services and
conducts marketing and sales programs. Costs of a general nature are
allocated using the Number of Customers Ratio.
4. Employee Services - Includes Human Resources which establishes and
administers policies and oversees compliance with regulations in the areas
of employment, compensation and benefits, processes payroll and administers
corporate training. Also includes employee communications, facilities
management and mail services. Costs of a general nature are allocated using
the Number of Employees Ratio.
5. Corporate Compliance - Oversees compliance with all laws,
regulations and policies applicable to all of SCANA Corporation's
businesses and directs compliance training. Costs of general nature are
allocated using the Number of Employees Ratio.
<PAGE>
Page 4
6. Purchasing - Provides procurement services. Costs of a general
nature are allocated using the Three-Factor Formula.
7. Financial Services - Provides treasury, accounting, tax, financial
planning, rate and auditing services services. Costs of a general nature
are allocated using the Three-Factor Formula.
8. Risk Management - Provides insurance, claims, security,
environmental and safety services. Costs of a general nature are allocated
using the Three-Factor Formula.
9. Public Affairs - Maintains relationships with government policy
makers, conducts lobbying activities and provides community relations
functions. Costs of a general nature are allocated using the Three-Factor
Formula.
10. Legal Services - Provides various legal services and general legal
oversight; handles claims. Costs of a general nature are allocated using
the Three-Factor Formula.
11. Investor Relations - Maintains relationships with the financial
community and provides shareholder services. Costs of a general nature are
allocated using the Three-Factor Formula.
12. Telecommunications - Provides telecommunications services,
primarily the use of telephone equipment. Costs are allocated using the
Telecommunications Chargeback Rates.
13. Gas Supply and Capacity Management - Provides gas supply and
capacity management services. Costs of a general nature are allocated using
the Gas Sales Ratio.
14. Strategic Planning - Develops corporate strategies and business
plans. Costs of a general nature are allocated using the Three-Factor
Formula.
15. Executive - Provides executive and general administrative
services. Costs of a general nature are allocated using the Three-Factor
Formula.
<PAGE>
Page 1
EXHIBIT II
FORM OF INITIAL SERVICE REQUEST
The undersigned requests all of the services listed in Exhibit I from SCANA
Service Company, except for _______________________________________. The
services requested hereunder shall commence on _____________ and be provided
through ________________.
[Subsidiary]
By: ______________________________
Name:
Title:
EXHIBIT C-2
SCANA Service Company
Policies and Procedures
SCANA Service Company ("SCANA Service") will provide administrative,
management and other services to the subsidiaries and business units within
SCANA Corporation ("Client Entities") in accordance with the terms of Service
Agreements. SCANA Service will provide the necessary accounting and procedural
infrastructure to support the administration of the Service Agreements in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") as promulgated in the Public Utility Holding Company Act of
1935 (the "1935 Act").
Service Requests and Agreements
SCANA Service and each Client Entity will enter into a Service Agreement
that will set forth, in general terms, the services to be performed by each
organization in SCANA Service directly for or on behalf of each Client Entity.
Pursuant to the Service Agreement, SCANA Service and each Client Entity will
prepare Service Request forms designed to provide guidance as to the service
expectations of the parties thereto. The Service Request forms will be reviewed
annually, or more often if necessary. The Service Agreements will be approved by
authorized representatives of SCANA Service and the management of each Client
Entity.
Service Requests will typically contain the following information:
1.Type and Scope of Services
2.Any Cost Parameters
3.Payment Terms
4.Applicable Contingencies
Accounting System
SCANA Service will maintain an accounting system that provides the ability
to assign costs to the category of service to which they relate. The system also
enables the costs of services to be charged directly to the Client Entity for
which they were performed or, when appropriate, accumulated in such a manner
that they can be distributed or allocated to two or more Client Entities using
an approved methodology. The system will also generate all necessary Client
Entity billing information.
The system is based on the use of codes to assign charges to the applicable
Cost Center, Account Number or Project, Activity, Resource, and Event ("Account
Codes"). The Account Numbers conform to the System of Accounts for Mutual
Service Companies
1
<PAGE>
prescribed by the 1935 Act, as modified to include additional account numbers
from the Federal Energy Regulatory Commission's Uniform System of Accounts to
provide for the accumulation of costs of certain utility operating activities.
The Account Codes facilitate the tracking of the cost of each service by its
component costs, such as labor, materials and outside services, and provide the
ability to break the costs of services down by amounts directly charged to
specific Client Entities and amounts allocated.
Labor and labor-related costs will likely be the most significant costs
that the SCANA Service incurs. Accordingly, SCANA Service will maintain a
time-entry subsystem that enables SCANA Service employees to accurately assign
hours worked to the appropriate Account Codes. All SCANA Service employees will
prepare standard timesheets or similar records that indicate the purpose of each
hour worked. The employee's supervisor will approve timesheets. Information from
the timesheets will be entered into the time-entry subsystem no later than the
last pay period to which it relates. Charges for labor will be made at each
employee's effective hourly rate and will include the cost of pensions, other
employee benefits and payroll taxes.
An initial training session for employees will occur in the beginning of
March and will be conducted by accounting professionals to ensure understanding
of the new coding procedures. All employees (both from SCANA Service and Client
Entities) who code time and expenses will be included in this training. Ongoing
support and follow-up will be provided through the same accounting professionals
conducting the initial training. Moreover, additional training will be provided
during the May time frame to ensure understanding of coding impact upon the
system's financial statements as well as to provide instruction regarding the
proper analysis of charges.
All other accounting subsystems, including accounts payable processing,
will be designed to support the use of the necessary Account Codes. In all
cases, the SCANA Service will retain the applicable underlying source documents
that indicate the nature and purpose of the costs incurred.
To the extent practicable, SCANA Service employees will assign costs
directly to the Account Codes associated with the services rendered. However,
the full cost of providing services also includes certain indirect costs, e.g.,
departmental overheads, administrative and general costs, and taxes, which
cannot be associated with specific services. Indirect costs will be associated
with the services performed in proportion to the directly assigned costs of the
services or other relevant cost allocators.
SCANA Service costs will be directly charged, distributed or allocated to
Client Entities in the manner prescribed below.
1. Costs accumulated in Account Codes for services specifically performed
for a single Client Entity will be directly charged to such Client
Entity.
2
<PAGE>
2. Costs accumulated in Account Codes for services specifically performed
for two or more Client Entities will be distributed to such Client
Entities using methods determined on a case-by-case basis consistent
with the nature of the work performed and based on one of the approved
allocation methods.
3. 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 to such Client Entities by
application of one or more approved allocation methods.
Billing
Monthly, SCANA Service will prepare and submit a bill to each Client Entity
for services rendered. At a minimum, the bill will itemize the cost of each
service charged to the Client Entity. The bill will be rendered by the 25th of
the following month with payment due 30 days thereafter.
The management of each Client Entity is responsible for reviewing the bill
from SCANA Service to determine the accuracy and appropriateness of the charges.
The accounting system contains the detailed transactions supporting the
services billed. Using the system, SCANA Service will assist the Client
Entities, as necessary, with the review and validation of charges. Any
adjustments required will be made in the subsequent month. SCANA Service will
put in place processes and applicable systems designed to provide information to
Client Entities regarding services provided and related costs. The information
should enable the Client Entities to determine if they have been billed
consistent with the terms of the Service Agreements.
Accounting Department Responsibilities
The SCANA Service Accounting Department will be responsible for
administering, monitoring and maintaining the processes by which SCANA Service
costs are accumulated and billed to client entities. In connection with this
responsibility, the Accounting Department will:
1. Coordinate the preparation of Service Requests
2. Control the establishment and use of SCANA Service Account Codes
3. Review and evaluate the reasonableness of monthly bills to each Client
Entity
4. Assist Client Entities with the review and validation of charges
The Accounting Department will update all allocations used by the SCANA
Service annually, or more often as conditions warrant, and maintain all
documentation supporting the calculations. The Accounting Department will ensure
the allocation methods are appropriate for the type of cost incurred, have been
approved by the SEC and are consistent with applicable orders of state utility
commissions.
3
<PAGE>
Dispute Resolution
In the event disputes arise between the SCANA Service and the Client Entity
over amounts billed, the Accounting Department and representatives of the Client
Entity will attempt to resolve the issues. If necessary, the Chief Financial
Officer will mediate. Unresolved disputes will be referred to Senior Management
for final disposition.
Internal Review
The Audit Services Department will conduct periodic audits of the SCANA
Service administration and accounting processes. The audits will include
examinations of Service Agreements, accounting systems, source documents,
allocation methods and billings to determine if services are authorized and
properly accounted for. In addition, Service Request and Agreement policies,
operating procedures and controls will be evaluated annually.
Evaluation and Measurement
In order to encourage the efficient and cost competitive provision of
services, SCANA Service will establish appropriate benchmarking measures and a
customer review process. The customer review process will allow for input from
the Client Entities as to the volume and value of the products and services
provided by SCANA Service. This review will be part of the annual budget
development process and the completion of the Service Requests and Agreements.
4
EXHIBIT J-1
FORM OF
UTILITY MONEY POOL AGREEMENT
This Utility Money Pool Agreement (the "Agreement"), dated as of ______,
2000, is made and entered into by and among SCANA Corporation ("SCANA"), a South
Carolina corporation and a registered holding company under the Public Utility
Holding Company Act of 1935, as amended (the "Act"), SCANA Service Company
("SCANA Service"), a South Carolina corporation and a non-utility subsidiary of
SCANA (in its role as administrator of the money pool and as a participant in
the money pool), and each of the utility subsidiaries whose name appears on the
signature pages hereof (each a "Party" and collectively, the "Parties").
WITNESSETH:
WHEREAS, the Parties desire to establish a Money Pool (the "Utility Money
Pool") to coordinate and provide for certain of their short-term cash and
working capital requirements; and
WHEREAS, the utility subsidiaries that will participate in the Utility
Money Pool (each a "Subsidiary" and collectively, the "Subsidiaries") will from
time to time have need to borrow funds on a short-term basis, and certain of the
Parties will from time to time have funds available to loan on a short-term
basis;
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants and provisions contained herein, the Parties hereto agree as follows:
ARTICLE I
CONTRIBUTIONS AND BORROWINGS
Section 1.01 Contributions to Utility Money Pool.
Each Party will determine each day, on the basis of cash flow
projections and other relevant factors, in such Party's sole discretion, the
amount of funds it has available for contribution to the Utility Money Pool, and
will contribute such funds to the Utility Money Pool. The determination of
whether a Party at any time has surplus funds to lend to the Utility Money Pool
or shall lend funds to the Utility Money Pool will be made by such Party's chief
financial officer or treasurer, or by a designee thereof, on the basis of cash
flow projections and other relevant factors, in such Party's sole discretion.
Each Party may withdraw any of its funds at any time upon notice to SCANA
Service as administrative agent of the Utility Money Pool.
-1-
<PAGE>
Section 1.02 Rights to Borrow.
Subject to the provisions of Section 1.04(c) of this Agreement, short-term
borrowing needs of the Parties, with the exception of SCANA, will be met by
funds in the Utility Money Pool to the extent such funds are available. Each
Party (other than SCANA) shall have the right to make short-term borrowings from
the Utility Money Pool from time to time, subject to the availability of funds
and the limitations and conditions set forth herein and in the applicable orders
of the Securities and Exchange Commission ("SEC"). Each Party (other than SCANA)
may request loans from the Utility Money Pool from time to time during the
period from the date hereof until this Agreement is terminated by written
agreement of the Parties; provided, however, that the aggregate amount of all
loans requested by any Party hereunder shall not exceed the applicable borrowing
limits set forth in applicable orders of the SEC and other regulatory
authorities, resolutions of such Party's Board of Directors, such Party's
governing corporate documents, and agreements binding upon such Party. No loans
through the Utility Money Pool will be made to, and no borrowings through the
Utility Money Pool will be made by, SCANA.
Section 1.03 Source of Funds.
(a) Funds will be available through the Utility Money Pool from the
following sources for use by the Parties from time to time: (1) surplus funds in
the treasuries of Parties other than SCANA, (2) surplus funds in the treasury of
SCANA, and (3) proceeds from bank borrowings by Parties and the sale of
commercial paper by SCANA and each other Party ("External Funds"), in each case
to the extent permitted by applicable laws and regulatory orders. Funds will be
made available from such sources in such other order as SCANA Service, as
administrator of the Utility Money Pool, may determine will result in a lower
cost of borrowing to companies borrowing from the Utility Money Pool, consistent
with the individual borrowing needs and financial standing of the Parties
providing funds to the Utility Money Pool.
(b) Borrowing Parties will borrow pro rata from each lending Party in the
proportion that the total amount loaned by such lending Party 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 borrowing
Party will borrow pro rata from each fund source 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.
Section 1.04 Authorization.
(a) Each loan shall be authorized by the lending Party's chief financial
officer or treasurer, or by a designee thereof.
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<PAGE>
(b) SCANA Service, as administrator of the Utility Money Pool, will provide
each Party with periodic activity and cash accounting reports that include,
among other things, reports of cash activity, the daily balance of loans
outstanding and the calculation of interest charged.
(c) All borrowings from the Utility Money Pool shall be authorized by the
borrowing Party's chief financial officer or treasurer, or by a designee
thereof. No Party shall be required to effect a borrowing through the Utility
Money Pool if such Party determines that it can (and is authorized to) effect
such borrowing at lower cost directly from banks or through the sale of its own
commercial paper.
Section 1.05 Interest.
The daily outstanding balance of all loans to any Subsidiary shall accrue
interest as follows:
(a) If only Internal Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily balances shall be the rates for high-grade unsecured 30-day commercial
paper of major corporations sold through dealers as quoted in The Wall Street
Journal (the "Average Composite").
(b) If only External Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily outstanding balance shall be the lender's cost for such External Funds or,
if more than one Party had made available External Funds at any time during the
month, the applicable interest rate shall be a composite rate, equal to the
weighted average of the costs incurred by the respective Parties for such
External Funds.
(c) In cases where the daily outstanding balances of all loans outstanding
at any time during the month include both Internal Funds and External Funds, the
interest rate applicable to the daily outstanding balances for the month shall
be equal to the weighted average of the (i) cost of all Internal Funds
contributed by Parties, as determined pursuant to Section 1.05(a) of this
Agreement, and (ii) the cost of all such External Funds, as determined pursuant
to Section 1.05(b) of this Agreement.
(d) The interest rate applicable to Loans made by a Subsidiary to the
Utility Money Pool under Section 1.01 of this Agreement shall be the Average
Composite as determined pursuant to Section 1.05(a) of this Agreement.
Section 1.06 Certain Costs.
The cost of compensating balances and fees paid to banks to maintain credit
lines by Parties lending External Funds to the Utility Money Pool shall
initially be paid by the Party maintaining such line. A portion of such costs
shall be retroactively allocated every
-3-
<PAGE>
month to the Subsidiaries borrowing such External Funds through the Utility
Money Pool in proportion to their respective daily outstanding borrowings of
such External Funds.
Section 1.07 Repayment.
Each Subsidiary receiving a loan from the Utility Money Pool hereunder
shall repay the principal amount of such loan, together with all interest
accrued thereon, on demand and in any event within 365 days of the date on which
such loan was made. All loans made through the Utility Money Pool may be prepaid
by the borrower without premium or penalty.
Section 1.08 Form of Loans to Subsidiaries.
Loans to the Subsidiaries from the Utility Money Pool shall be made as
open-account advances, pursuant to the terms of this agreement. A separate
promissory note will not be required for each individual transaction. Instead, a
promissory note evidencing the terms of the transactions shall be signed by the
Parties to the transaction. Any such note shall: (a) be in substantially the
form filed as Exhibit J-3 to the Form U-1 Application-Declaration in File No.
70-9533 of the Commission; (b) be dated as of the date of the initial borrowing;
(c) mature on demand or on a date agreed by the Parties to the transaction, but
in any event not later than one year after the date of the applicable borrowing;
and (d) be repayable in whole at any time or in part from time to time, without
premium or penalty.
ARTICLE II
OPERATION OF UTILITY MONEY POOL
Section 2.01 Operation.
Operation of the Utility Money Pool, including record keeping and
coordination of loans, will be handled by SCANA Service under the authority of
the appropriate officers of the Parties. SCANA Service shall be responsible for
the determination of all applicable interest rates and charges to be applied to
advances outstanding at any time hereunder, shall maintain records of all
advances, interest charges and accruals and interest and principal payments for
purposes hereof, and shall prepare periodic reports thereof for the Parties.
SCANA Service will administer the Utility Money Pool on an "at cost" basis.
Separate records shall be kept by SCANA Service for the Utility Money Pool
established by this Agreement and any other money pool administered by SCANA
Service.
Section 2.02 Investment of Surplus Funds in the Utility Money Pool.
Funds not required for the Utility Money Pool loans (with the exception of
funds required to satisfy the Utility Money Pool's liquidity requirements) will
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 instrumentalities, including
obligations under repurchase agreements; (iii) obligations issued or guaranteed
by any state or political subdivision thereof, provided that such obligations
are
-4-
<PAGE>
rated not less than A by a nationally recognized rating agency; (iv) commercial
paper rated not less than A-1 by S&P or P-1 by Moody's, 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.
Section 2.03 Allocation of Interest Income and Investment Earnings.
The interest income and other investment income earned by the Utility Money
Pool on loans and investment of surplus funds will be allocated among the
Parties in accordance with the proportion each Party's contribution of funds in
the Utility Money Pool bears to the total amount of funds in the Utility Money
Pool and the cost of any External Funds provided to the Utility Money Pool by
such Party. Interest and other investment earnings will be computed on a daily
basis and settled once per month.
Section 2.04 Event of Default.
If any Subsidiary shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against any Party seeking to adjudicate it bankrupt or
insolvent, then SCANA Service, on behalf of the Utility Money Pool, may, by
notice to the Subsidiary, terminate the Utility Money Pool's commitment to the
Subsidiary and/or declare the principal amount then outstanding of, and the
accrued interest on, the loans and all other amounts payable to the Utility
Money Pool by the Subsidiary hereunder to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by each Subsidiary.
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments.
Any such amendment to this Agreement shall be adopted except in a writing
executed by Parties and subject to all applicable approvals by the SEC and the
applicable state utility regulatory commission.
Section 3.02 Legal Responsibility.
Nothing herein contained shall render any Party liable for the obligations
of any other Party hereunder and the rights, obligations and liabilities of the
Parties are several in accordance with their respective obligations, and not
joint.
-5-
<PAGE>
Section 3.03 Rules for Implementation.
The Parties may develop a set of guidelines for implementing the provisions
of this Agreement, provided that the guidelines are consistent with all of the
provisions of this Agreement.
Section 3.04 Governing Law.
This Agreement shall be governed by and construed in accordance with, the
laws of the State of South Carolina.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each Party hereto as of the date first above
written.
SCANA CORPORATION
By:-----------------------------------
Name:
Title:
SCANA SERVICE COMPANY
By:-----------------------------------
Name:
Title:
SOUTH CAROLINA ELECTRIC AND GAS COMPANY
By:-----------------------------------
Name:
Title:
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<PAGE>
SOUTH CAROLINA GENERATING COMPANY, INC.
By:-----------------------------------
Name:
Title:
SOUTH CAROLINA FUEL COMPANY, INC.
By:-----------------------------------
Name:
Title:
PUBLIC SERVICE COMPANY OF NORTH CAROLINA
By:-----------------------------------
Name:
Title:
Date: _________, 2000
-7-
EXHIBIT J-2
FORM OF
NON-UTILITY MONEY POOL AGREEMENT
This Non-Utility Money Pool Agreement (the "Agreement"), dated as of
___________, 2000, is made and entered into by and among SCANA Corporation
("SCANA"), a South Carolina corporation and a registered holding company under
the Public Utility Holding Company Act of 1935, as amended (the "Act"), SCANA
Service Company ("SCANA Service") (solely in the role as administrator of the
money pool), a subsidiary service company of SCANA, and each of the non-utility
subsidiaries of SCANA whose name appears on the signature pages hereof (each a
"Party" and collectively, the "Parties").
WITNESSETH:
WHEREAS, the Parties desire to establish a Money Pool (the "Non-Utility
Money Pool") to coordinate and provide for certain of their short-term cash and
working capital requirements; and
WHEREAS, the non-utility subsidiaries that will participate in the
Non-Utility Money Pool (each a "Subsidiary" and collectively, the
"Subsidiaries") will from time to time have need to borrow funds on a short-term
basis, and certain of the Parties will from time to time have funds available to
loan on a short-term basis;
NOW, THEREFORE, in consideration of the premises and the mutual agreements,
covenants and provisions contained herein, the Parties hereto agree as follows:
ARTICLE I
CONTRIBUTIONS AND BORROWINGS
Section 1.01 Contributions to Non-Utility Money Pool.
Each Party will determine each day, on the basis of cash flow projections
and other relevant factors, in such Party's sole discretion, the amount of funds
it has available for contribution to the Non-Utility Money Pool, and will
contribute such funds to the Non-Utility Money Pool. The determination of
whether a Party at any time has surplus funds to lend to the Non-Utility Money
Pool or shall lend funds to the Non-Utility Money Pool will be made by an
appropriate officer of such Party, or by a designee thereof, on the basis of
cash flow projections and other relevant factors, in such Party's sole
discretion. Each Party may withdraw any of its funds at any time upon notice to
SCANA Service as administrative agent of the Non-Utility Money Pool.
-1-
<PAGE>
Section 1.02 Rights to Borrow.
Subject to the provisions of Section 1.04(c) of this Agreement, all
short-term borrowing needs of the Parties, with the exception of SCANA, will be
met by funds in the Non-Utility Money Pool to the extent such funds are
available. Each Party (other than SCANA) shall have the right to make short-term
borrowings from the Non-Utility Money Pool from time to time, subject to the
availability of funds and the limitations and conditions set forth herein and in
the applicable orders of the Securities and Exchange Commission. Each Party
(other than SCANA) may request loans from the Non-Utility Money Pool from time
to time during the period from the date hereof until this Agreement is
terminated by written agreement of the Parties; provided, however, that the
aggregate amount of all loans requested by any Party hereunder shall not exceed
the applicable borrowing limits set forth in applicable orders of the Securities
and Exchange Commission and other regulatory authorities, resolutions of such
Party's Board of Directors or similar governing body, such Party's governing
corporate documents, and agreements binding upon such Party. No loans through
the Non- Utility Money Pool will be made to, and no borrowings through the
Non-Utility Money Pool will be made by, SCANA.
Section 1.03 Source of Funds.
(a) Funds will be available through the Non-Utility Money Pool from the
following sources for use by the Parties from time to time: (i) surplus funds in
the treasuries of Parties other than SCANA, (ii) surplus funds in the treasury
of SCANA, and (iii) proceeds from bank borrowings by Parties and the sale by
SCANA of commercial paper ("External Sources"). Funds will be made available
from such sources in such order as SCANA Service, as administrator of the
Non-Utility Money Pool, may determine will result in a lower cost of borrowing
to companies borrowing from the Non-Utility Money Pool, consistent with the
individual borrowing needs and financial standing of the Parties providing funds
to the Non- Utility Money Pool.
(b) Borrowing Parties will borrow pro rata from each lending Party in the
proportion that the total amount loaned by such lending Party bears to the total
amount then loaned through the Non-Utility Money Pool. On any day when more than
one fund source (e.g., surplus treasury funds of SCANA and other Non-Utility
Money Pool participants ("Internal Sources") and funds from External Sources),
with different rates of interest, is used to fund loans through the Non-Utility
Money Pool, each borrowing Party will borrow pro rata from each such fund source
in the Non-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 Non-Utility Money Pool.
Section 1.04 Authorization.
(a) Each loan shall be authorized by the lending Party's chief financial
officer or treasurer, or by a designee thereof.
-2-
<PAGE>
(b) SCANA Service, as administrator of the Non-Utility Money Pool, will
provide each Party with periodic activity and cash accounting reports that
include, among other things, reports of cash activity, the daily balance of
loans outstanding and the calculation of interest charged.
(c) All borrowings from the Non-Utility Money Pool shall be authorized by
the borrowing Party's chief financial officer or treasurer, or by a designee
thereof. No Party shall be required to effect a borrowing-through the
Non-Utility Money Pool if such Party determines that it can (and is authorized
to) effect such borrowing at lower cost directly from banks or through the sale
of its own commercial paper.
Section 1.05 Interest.
The daily outstanding balance of all loans to any Subsidiary shall accrue
interest as follows:
(a) If only Internal Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily balances shall be the rates for high-grade unsecured 30-day commercial
paper of major corporations sold through dealers as quoted in The Wall Street
Journal (the "Average Composite").
(b) If only External Funds comprise the daily outstanding balance of all
loans outstanding during a calendar month, the interest rate applicable to such
daily outstanding balances shall be the lender's cost for such External Funds
or, if more than one Party had made available External Funds at any time during
the month, the applicable interest rate shall be a composite rate, equal to the
weighted average of the costs incurred by the respective Parties for such
External Funds.
(c) In cases where the daily outstanding balances of all loans outstanding
at any time during the month include both Internal Funds and External Funds, the
interest rate applicable to the daily outstanding balances for the month shall
be equal to the weighted average of (i) the cost of all Internal Funds
contributed by Parties, as determined pursuant to Section 1.05(a) of this
Agreement, and (ii) the cost of all such External Funds, as determined pursuant
to Section 1.05(b) of this Agreement.
(d) The interest rate applicable to Loans made by a Subsidiary to the
Non-Utility Money Pool under Section 1.01 of this Agreement shall be the Average
Composite as determined pursuant to Section 1.05(a) of this Agreement.
Section 1.06 Certain Costs.
The cost of compensating balances and fees paid to banks to maintain credit
lines by Parties lending External Funds to the Non-Utility Money Pool shall
initially be paid by the Party maintaining such line. A portion of such costs
shall be retroactively allocated every month to the Subsidiaries borrowing such
External Funds through the Non-Utility
-3-
<PAGE>
Money Pool in proportion to their respective daily outstanding borrowings of
such External Funds.
Section 1.07 Repayment.
Each Subsidiary receiving a loan from the Non-Utility Money Pool hereunder
shall repay the principal amount of such loan, together with all interest
accrued thereon, on demand and in any event within 365 days of the date on which
such loan was made. All loans made through the Non-Utility Money Pool may be
prepaid by the borrower without premium or penalty.
Section 1.08 Form of Loans to Subsidiaries.
Loans to the Subsidiaries from the Non-Utility Money Pool shall be made as
open-account advances, pursuant to the terms of this Agreement. A separate
promissory note will not be required for each individual transaction. Instead, a
promissory grid note evidencing the terms of the transactions shall be signed by
the Parties to the transaction. Any such note shall: (a) be in substantially the
form filed as Exhibit J-4 to the Form U-1 Application-Declaration in File No.
70-9533 of the Commission; (b) be dated as of the date of the initial borrowing;
(c) mature on demand or on a date agreed by the Parties to the transaction, but
in any event not later than one year after the date of the applicable borrowing;
and (d) be repayable in whole at any time or in part from time to time, without
premium or penalty.
ARTICLE II
OPERATION OF NON-UTILITY MONEY POOL
Section 2.01 Operation.
Operation of the Non-Utility Money Pool, including record keeping and
coordination of loans, will be handled by SCANA Service under the authority of
the appropriate officers of the Parties. SCANA Service shall be responsible for
the determination of all applicable interest rates and charges to be applied to
advances outstanding at any time hereunder, shall maintain records of all
advances, interest charges and accruals and interest and principal payments for
purposes hereof, and shall prepare periodic reports thereof for the Parties.
SCANA Service will administer the Non-Utility Money Pool on either an "at cost"
basis or, in its sole discretion, on a different basis. Separate records shall
be kept by SCANA Service for the Non-Utility Money Pool established by this
Agreement and any other money pool administered by SCANA Service.
Section 2.02 Investment of Surplus Funds in the Non-Utility Money Pool.
Funds not required for the Non-Utility Money Pool loans (with the exception
of funds required to satisfy the Non-Utility Money Pool's liquidity
requirements) will ordinarily be invested in one or more short-term investments,
including (i) interest-bearing accounts with
-4-
<PAGE>
banks; (ii) obligations issued or guaranteed by the U.S. government and/or its
agencies and 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 by S&P or P-1 by Moody's, 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.
Section 2.03 Allocation of Investment Earnings.
The interest income and other investment income earned by the Non-Utility
Money Pool on loans and on investment of surplus funds will be allocated among
the Parties in accordance with the proportion each Party's contribution of funds
in the Non-Utility Money Pool bears to the total amount of funds in the
Non-Utility Money Pool and the cost of any External Sources provided to the
Non-Utility Money Pool by such Party. Interest and other investment earnings
will be computed on a daily basis and settled once per month.
Section 2.04 Event of Default.
If any Subsidiary shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors, or any proceeding
shall be instituted by or against any Party seeking to adjudicate it bankrupt or
insolvent, then SCANA Service, on behalf of the Non-Utility Money Pool, may, by
notice to the Subsidiary, terminate the Non-Utility Money Pool's commitment to
the Subsidiary and/or declare the principal amount then outstanding of, and the
accrued interest on, the loans and all other amounts payable to the Non-Utility
Money Pool by the Subsidiary hereunder to be forthwith due and payable,
whereupon such amounts shall be immediately due and payable without presentment,
demand, protest or other formalities of any kind, all of which are hereby
expressly waived by each Subsidiary.
ARTICLE III
MISCELLANEOUS
Section 3.01 Amendments.
No amendment to this Agreement shall be adopted except in a writing
executed by a duly authorized officer of each Party.
Section 3.02 Legal Responsibility.
Nothing herein contained shall render any Party liable for the obligations
of any other Party hereunder and the rights, obligations and liabilities of the
Parties are several in accordance with their respective obligations, and not
joint.
-5-
<PAGE>
Section 3.03 Rules for Implementation.
The Parties may develop a set of guidelines for implementing the provisions
of this Agreement, provided that the guidelines are consistent with all of the
provisions of this Agreement.
Section 3.04 Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of South Carolina.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officer of each Party hereto as of the date first above
written.
SCANA CORPORATION
By:-----------------------------------
Name:
Title:
SCANA SERVICE COMPANY
By:-----------------------------------
Name:
Title:
SOUTH CAROLINA PIPELINE CORPORATION
By:-----------------------------------
Name:
Title:
-6-
<PAGE>
SCANA ENERGY MARKETING INC.
By:-----------------------------------
Name:
Title:
SCANA COMMUNICATIONS, INC.
By:-----------------------------------
Name:
Title:
SERVICECARE INC.
By:-----------------------------------
Name:
Title:
PRIMESOUTH, INC.
By:-----------------------------------
Name:
Title:
SCANA RESOURCES, INC.
By:-----------------------------------
Name:
Title:
SCANA DEVELOPMENT CORPORATION
By:-----------------------------------
Name:
Title:
-7-
<PAGE>
SCANA PETROLEUM RESOURCES, INC.
By:-----------------------------------
Name:
Title:
SCANA ENERGY TRADING, LLC
By:-----------------------------------
Name:
Title:
PALMARK, INC.
By:-----------------------------------
Name:
Title:
PALMETTO LIME, LLC
By:-----------------------------------
Name:
Title:
SONAT PUBLIC SERVICE COMPANY LLC
By:-----------------------------------
Name:
Title:
CLEAN ENERGY ENTERPRISES
By:-----------------------------------
Name:
Title:
-8-
<PAGE>
CARDINAL PIPELINE COMPANY, LLC
By:-----------------------------------
Name:
Title:
PINE NEEDLE LNG COMPANY, LLC
By:-----------------------------------
Name:
Title:
PSNC BLUE RIDGE CORPORATION
By:-----------------------------------
Name:
Title:
PSNC CARDINAL PIPELINE COMPANY
By:-----------------------------------
Name:
Title:
PSNC PRODUCTION CORPORATION
By:-----------------------------------
Name:
Title:
Date: _________, 2000
-9-
EXHIBIT K-2
INTERIM INCOME TAX ALLOCATION AGREEMENT
THIS AGREEMENT, made as of the 31st day of December, 1999, by and between
SCANA Corporation ("SCANA") and each of its wholly owned subsidiaries, namely
SCANA Service Company, South Carolina Electric & Gas Company, South Carolina
Pipeline Corporation, South Carolina Fuel Company, Inc., S.C. Generating
Company, Inc., SCANA Communications, Inc. and its wholly owned subsidiary SCANA
Communications Holdings, Inc. (Holdings being a Delaware corporation),
Primesouth, Inc. and its wholly owned subsidiary Palmark, Inc., SCANA
Development Corporation, SCANA Energy Marketing, Inc., SCANA Petroleum
Resources, Inc. and its wholly owned subsidiary SPR Gas Services, Inc., SCANA
Propane Gas, Inc. and its wholly owned subsidiaries USA Cylinder Exchange, Inc.
and SCANA Propane Supply, Inc., SCANA Propane Storage, Inc., ServiceCare, Inc.,
and SCANA Resources, Inc. and its wholly owned subsidiary Company 19A (formerly
Instel, 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, except SCANA Communications
Holdings, Inc. as above indicated, 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.
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 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.
Special Rule Regarding SCANA: In making the tax allocations provided for in
this Agreement, notwithstanding any of the foregoing, no corporate tax benefits
shall be allocated to SCANA. Although the separate corporate taxable income or
taxable loss of SCANA and any tax credits attributable to SCANA will be included
in the consolidated return, only the tax savings attributable to such items
shall be allocated to the other Companies as if SCANA was not a member of the
Companies in the consolidated return group. In making this allocation, the tax
savings of SCANA shall be allocated only to the other member Companies in the
consolidated return group having taxable income. SCANA will remit, from its
separate resources, funds for the payment of tax liabilities owed by SCANA. 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.
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.
<PAGE>
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 Service Company
- -------------------------- ------------------------------
L. M. Williams, Secretary W.B. Timmerman, C.E.O and C.O.O.
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: SCANA Communications Holdings, Inc.
- -------------------------- -------------------------------
L. M. Williams, Secretary Kevin B. Marsh, C.F.O.
ATTEST: Primesouth, Inc.
- -------------------------- -------------------------------
L. M. Williams, Secretary John L. Skolds, President
ATTEST: Palmark, 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.
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L. M. Williams, Secretary Asbury H. Gibbes, President
<PAGE>
ATTEST: SCANA Petroleum Resources, Inc.
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L. M. Williams, Secretary Asbury H. Gibbes, President
ATTEST: SPR Gas Services, Inc.
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L. M. Williams, Secretary Asbury H. Gibbes, President
ATTEST: SCANA Propane Gas, Inc.
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L. M. Williams, Secretary Kevin B. Marsh, C.F.O.
ATTEST: USA Cylinder Exchange, Inc.
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L. M. Williams, Secretary Kevin B. Marsh, C.F.O.
ATTEST: SCANA Propane Supply, Inc.
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L. M. Williams, Secretary Kevin B. Marsh, C.F.O.
ATTEST: SCANA Propane Storage, Inc.
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L. M. Williams, Secretary Kevin B. Marsh, C.F.O.
<PAGE>
ATTEST: Service Care, Inc.
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L. M. Williams, Secretary Ann M. Milligan, President
ATTEST: SCANA Resources, Inc.
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L. M. Williams, Secretary Kevin B. Marsh, C.F.O.
ATTEST: Company 19A
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L. M. Williams, Secretary Kevin B. Marsh, C.F.O.
ATTEST: Public Service Company of North Carolina,
Inc.
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L. M. Williams, Secretary C. E. Zeigler, Jr., President
