SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-3375
South Carolina Electric & Gas Company
(Exact name of registrant as specified in its charter)
South Carolina 57-0248695
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1426 Main Street, Columbia, South Carolina 29201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (803) 748-3000
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes . No .
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of September 30, 1996, there were issued and outstanding 40,296,147
shares of the registrant's common stock, $4.50 par value, all of which were
held, beneficially and of record, by SCANA Corporation.
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SOUTH CAROLINA ELECTRIC & GAS COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995........................................ 3
Consolidated Statements of Income and Retained Earnings
for the Periods Ended September 30, 1996 and 1995............ 5
Consolidated Statements of Cash Flows for the Periods
Ended September 30, 1996 and 1995............................ 6
Notes to Consolidated Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 16
Item 6. Exhibits and Reports on Form 8-K.......................... 16
Signatures............................................................ 17
Exhibit Index......................................................... 18
2
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PART I
FINANCIAL INFORMATION
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of September 30, 1996 and December 31, 1995
(Unaudited)
<S> <C> <C> <C>
September 30, December 31,
1996 1995
(Thousands of Dollars)
ASSETS
Utility Plant:
Electric............................................. $3,752,872 $3,277,530
Gas.................................................. 323,024 320,847
Transit.............................................. 4,106 3,768
Common............................................... 88,160 91,616
Total.............................................. 4,168,162 3,693,761
Less accumulated depreciation and amortization....... 1,318,319 1,196,279
Total.............................................. 2,849,843 2,497,482
Construction work in progress........................ 271,608 613,683
Nuclear fuel, net of accumulated amortization........ 38,573 46,492
Utility Plant, Net............................... 3,160,024 3,157,657
Nonutility Property and Investments, net of
accumulated depreciation............................. 11,668 11,542
Investments............................................ 61 61
Total Other Property & Investments............... 11,729 11,603
Current Assets:
Cash and temporary cash investments.................. 18,548 6,798
Receivables - customer and other..................... 170,362 154,816
Receivables - affiliated companies................... 633 7,132
Inventories (at average cost):
Fuel............................................... 21,553 35,812
Materials and supplies............................. 46,419 43,583
Prepayments.......................................... 10,370 10,158
Accumulated deferred income taxes.................... 19,420 19,420
Total Current Assets............................. 287,305 277,719
Deferred Debits:
Emission allowances.................................. 30,428 28,514
Unamortized debt expense............................. 10,799 11,445
Unamortized deferred return on plant investment...... 3,184 6,369
Nuclear plant decommissioning fund................... 40,663 36,070
Other................................................ 322,681 273,056
Total Deferred Debits............................ 407,755 355,454
Total................................. $3,866,813 $3,802,433
See notes to consolidated financial statements.
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SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of September 30, 1996 and December 31, 1995
(Unaudited)
<S> <C> <S> <C> <C> <C>
September 30, December 31,
1996 1995
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
Stockholders' Investment:
Common Equity:
Common stock ($4.50 par value)...................... $ 181,333 $ 181,333
Premium on common stock and other paid-in capital... 805,646 772,894
Capital stock expense (debit)....................... (5,347) (5,391)
Retained earnings................................... 418,349 366,236
Total Common Equity............................... 1,399,981 1,315,072
Preferred Stock (not subject to purchase or sinking
funds).............................................. 26,027 26,027
Total Stockholders' Investment.................... 1,426,008 1,341,099
Preferred Stock, net (subject to purchase or
sinking funds)........................................ 43,354 46,243
Long-term debt, net..................................... 1,274,619 1,279,379
Total Capitalization............................ 2,743,981 2,666,721
Current Liabilities:
Short-term borrowings................................. 64,000 80,500
Current portion of long-term debt..................... 36,363 36,033
Current portion of preferred stock.................... 2,453 2,439
Accounts payable...................................... 44,750 71,731
Accounts payable - affiliated companies............... 18,170 26,212
Customer deposits..................................... 13,727 12,518
Taxes accrued......................................... 89,682 64,008
Interest accrued...................................... 24,380 21,626
Dividends declared.................................... 35,605 33,126
Other................................................. 7,603 5,953
Total Current Liabilities....................... 336,733 354,146
Deferred Credits:
Accumulated deferred income taxes..................... 498,925 488,310
Accumulated deferred investment tax credits........... 75,884 78,316
Accumulated reserve for nuclear plant decommissioning. 40,663 36,070
Other................................................. 170,627 178,870
Total Deferred Credits.......................... 786,099 781,566
Total ................................. $3,866,813 $3,802,433
See notes to consolidated financial statements.
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SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Periods Ended September 30, 1996 and 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
(Thousands of Dollars)
OPERATING REVENUES:
Electric.............................. $329,078 $307,665 $ 860,677 $777,311
Gas................................... 34,575 31,376 166,002 143,586
Transit............................... 917 896 2,720 2,939
Total Operating Revenues......... 364,570 339,937 1,029,399 923,836
OPERATING EXPENSES:
Fuel used in electric generation...... 53,138 54,321 147,252 129,590
Purchased power (including
affiliated purchases)............... 29,410 25,357 80,941 79,884
Gas purchased from affiliate
for resale.......................... 25,090 22,132 107,884 86,686
Other operation....................... 56,334 51,916 162,148 157,525
Maintenance........................... 16,053 13,410 47,408 41,914
Depreciation and amortization......... 33,950 28,108 100,483 83,482
Income taxes.......................... 39,738 38,709 92,196 81,317
Other taxes........................... 20,622 18,961 62,218 56,073
Total Operating Expenses......... 274,335 252,914 800,530 716,471
OPERATING INCOME........................ 90,235 87,023 228,869 207,365
OTHER INCOME:
Allowance for equity funds used
during construction................. 1,091 2,631 3,282 7,407
Other income (loss), net of
income taxes........................ (409) (579) 179 (530)
Total Other Income............... 682 2,052 3,461 6,877
INCOME BEFORE INTEREST CHARGES.......... 90,917 89,075 232,330 214,242
INTEREST CHARGES (CREDITS):
Interest expense...................... 26,171 27,485 79,351 81,775
Allowance for borrowed funds
used during construction............ (1,376) (3,450) (4,424) (8,693)
Total Interest Charges, net...... 24,795 24,035 74,927 73,082
NET INCOME.............................. 66,122 65,040 157,403 141,160
Preferred Stock Cash Dividends
(at stated rates)..................... (1,351) (1,416) (4,090) (4,280)
Earnings Available for Common Stock..... 64,771 63,624 153,313 136,880
Retained Earnings at Beginning
of Period............................. 387,778 339,094 366,236 324,101
Common Stock Cash Dividends
Declared.............................. (34,200) (31,400) (101,200) (89,663)
Retained Earnings at End of Period...... $418,349 $371,318 $ 418,349 $371,318
See notes to consolidated financial statements.
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SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended September 30, 1996 and 1995
(Unaudited)
<S> <C> <C> <C>
Nine Months Ended
September 30,
1996 1995
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $157,403 $141,160
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization...................... 100,572 83,589
Amortization of nuclear fuel....................... 13,282 5,264
Deferred income taxes, net......................... 10,040 (3,774)
Deferred investment tax credits, net............... (2,432) (2,422)
Nuclear refueling accrual.......................... (2,723) 5,218
Allowance for funds used during construction....... (7,706) (16,100)
Unamortized loss on reacquired debt................ 570 (3,645)
Over (under) collections, fuel adjustment clause... (2,025) 20,750
Early retirements.................................. (4,766) (21,291)
Emission allowances, net of AFC.................... (1,885) (7,593)
Changes in certain current assets and liabilities:
(Increase) decrease in receivables............... (9,047) (9,145)
(Increase) decrease in inventories............... 11,423 4,422
Increase (decrease) in accounts payable.......... (35,023) (44,451)
Increase (decrease) in taxes accrued............. 25,674 31,790
Increase (decrease) in interest accrued.......... 2,754 3,608
Other, net......................................... 2,545 (10,772)
Net Cash Provided From Operating Activities............ 258,656 176,608
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility property additions and construction
expenditures, net of AFC........................... (128,386) (173,685)
Nonutility property and investments.................. (137) (52)
Net Cash Used For Investing Activities................. (128,523) (173,737)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds:
Equity contributions from parent................... 32,796 133,240
First Mortgage Bonds............................... - 99,583
Issuance on bank note.............................. - 1,019
Other long-term debt............................... - -
Repayments:
First and Refunding Mortgage Bonds................. (22,000) (48,779)
Note payable to affiliated companies............... - (19,409)
Repayment of bank loans............................ (1,886) -
Other long-term debt............................... (1,382) (11,971)
Preferred stock.................................... (2,876) (2,846)
Dividend payments:
Common stock....................................... (98,700) (85,263)
Preferred stock.................................... (4,111) (4,336)
Short-term borrowings, net........................... (16,500) (13,300)
Fuel and emission allowance financings, net.......... (3,724) 27,923
Net Cash Provided From (Used For) Financing Activities. (118,383) 75,861
NET INCREASE (DECREASE) IN CASH AND
TEMPORARY CASH INVESTMENTS........................... 11,750 78,732
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1....... 6,798 346
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30.... $ 18,548 $ 79,078
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for - Interest (includes capitalized
interest of $4,424 and $8,693)...... $ 74,535 $ 23,500
- Income taxes......................... 50,576 2,392
NONCASH FINANCING ACTIVITIES:
City of Charleston Franchise Fee..................... 25,000 -
See notes to consolidated financial statements.
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SOUTH CAROLINA ELECTRIC & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(Unaudited)
The following notes should be read in conjunction with the Notes to
Consolidated Financial Statements appearing in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995. These are interim financial
statements and, because of temperature variations between seasons of the year,
the amounts reported in the Consolidated Statements of Income are not
necessarily indicative of amounts expected for the year. In the opinion of
management, the information furnished herein reflects all adjustments, all of
a normal recurring nature, which are necessary for a fair statement of the
results for the interim periods reported.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Principles of Consolidation
The Company, a public utility, is a South Carolina corporation organized
in 1924 and a wholly owned subsidiary of SCANA Corporation (SCANA), a
South Carolina holding company. The accompanying Consolidated Financial
Statements include the accounts of the Company and South Carolina Fuel
Company, Inc. (Fuel Company), an affiliate. Intercompany balances and
transactions between the Company and Fuel Company have been eliminated in
consolidation.
The Company has entered into agreements with certain affiliates to
purchase gas for resale to its distribution customers and to purchase
electric energy. The Company purchases all of its natural gas
requirements from South Carolina Pipeline Corporation. The Company
purchases all of the electric generation of Williams Station, which is
owned by South Carolina Generating Company, Inc., under a unit power
sales agreement. Such unit power purchases are included in "Purchased
power."
B. Basis of Accounting
The Company prepares its financial statements in accordance with the
provisions of Statement of Financial Accounting Standards No. 71 (SFAS
71), "Accounting for the Effects of Certain Types of Regulations." The
accounting standard allows cost-based rate-regulated utilities, such as
the Company, to recognize in their financial statements revenues and
expenses in different time periods than do enterprises that are not rate-
regulated. As a result, the Company has recorded, as of
September 30, 1996, approximately $236 million and $54 million of
regulatory assets and liabilities, respectively, including amounts
recorded for accumulated deferred income tax assets and liabilities of
approximately $82 million and $50 million, respectively. The electric
regulatory assets of approximately $123 million (excluding accumulated
deferred income tax assets) are being recovered through rates and, as
discussed in Note 2, the Public Service Commission of South Carolina
(PSC) has approved accelerated recovery of approximately $67 million of
these assets. In the future, as a result of deregulation or other
changes in the regulatory environment, the Company may no longer meet the
criteria for continued application of SFAS 71 and would be required to
write off its regulatory assets and liabilities. Such an event could
have a material adverse effect on the Company's results of operations in
the period the write-off is recorded.
C. Reclassifications
Certain amounts from prior periods have been reclassified to conform with
the 1996 presentation.
7
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2. RATE MATTERS:
With respect to rate matters at September 30, 1996, reference is made to
Note 2 of Notes to Consolidated Financial Statements in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995. On July
10, 1995 the Company filed an application with the PSC for an increase in
retail electric rates. On January 9, 1996 the PSC issued an order
granting the Company an increase of 7.34% which will produce additional
revenues of approximately $67.5 million annually. The increase is being
implemented in two phases. The first phase, an increase in revenues of
approximately $59.5 million annually based on a test year, or 6.47%,
commenced on January 15, 1996. The second phase will be implemented in
January 1997 and will produce additional revenues of approximately $8.0
million annually, or .87% more than current rates. The PSC authorized a
return on common equity of 12.0%. The PSC also approved establishment of
a Storm Damage Reserve Account capped at $50 million and collected
through rates over a ten-year period. Additionally, the PSC approved
accelerated recovery of a significant portion of the Company's electric
regulatory assets (excluding accumulated deferred income tax assets) and
the transition obligation for postretirement benefits other than
pensions, changing the amortization periods to allow recovery by the end
of the year 2000. The Company's request to shift approximately $257
million of depreciation reserves from transmission and distribution
assets to nuclear production assets was also approved. The PSC's ruling
does not apply to wholesale electric revenues under the FERC's
jurisdiction, which constitutes approximately 5% of the Company's
electric revenues.
3. RETAINED EARNINGS:
The Restated Articles of Incorporation of the Company and the Indenture
underlying certain of its bond issues contain provisions that may limit
the payment of cash dividends on common stock. In addition, with respect
to hydroelectric projects, the Federal Power Act may require the
appropriation of a portion of the earnings therefrom. At September
30, 1996 approximately $15.5 million of retained earnings were restricted
as to payment of cash dividends on common stock.
4. COMMITMENTS AND CONTINGENCIES:
With respect to commitments at September 30, 1996, reference is made to
Note 10 of Notes to Consolidated Financial Statements appearing in the
Company's Annual Report on Form 10-K for the year ended December 31,
1995. No significant changes have occurred with respect to those matters
as reported therein, except with regard to the Calhoun Park area site
discussed in Note 4B below.
Contingencies at September 30, 1996 are as follows:
A. Nuclear Insurance
The Price-Anderson Indemnification Act, which deals with the Company's
public liability for a nuclear incident, currently establishes the
liability limit for third-party claims associated with any nuclear
incident at $8.9 billion. Each reactor licensee is currently liable for
up to $79.3 million per reactor owned for each nuclear incident occurring
at any reactor in the United States, provided that not more than $10
million of the liability per reactor would be assessed per year. The
Company's maximum assessment, based on its two-thirds ownership of Summer
Station, would be approximately $52.9 million per incident, but not more
than $6.7 million per year.
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The Company currently maintains policies (for itself and on behalf of the
PSA) with American Nuclear Insurers (ANI) and Nuclear Electric Insurance
Limited (NEIL) providing combined property and decontamination insurance
coverage of $1.9 billion for any losses at Summer Station. The Company
pays annual premiums and, in addition, could be assessed a retroactive
premium assessment not to exceed 7 1/2 times its annual premium in the
event of property damage loss to any nuclear generating facility covered
under the NEIL program. Based on the current annual premium, this
retroactive premium assessment would not exceed $8.7 million.
To the extent that insurable claims for property damage, decontamination,
repair and replacement and other costs and expenses arising from a
nuclear incident at Summer Station exceed the policy limits of insurance,
or to the extent such insurance becomes unavailable in the future, and to
the extent that the Company's rates would not recover the cost of any
purchased replacement power, the Company will retain the risk of loss as
a self-insurer. The Company has no reason to anticipate a serious
nuclear incident at Summer Station. If such an incident were to occur,
it could have a material adverse impact on the Company's financial
position and results of operations.
B. Environmental
The Company has an environmental assessment program to identify and
assess current and former operations sites that could require
environmental cleanup. As site assessments are initiated, estimates are
made of the cost, if any, to investigate and clean up each site. These
estimates are refined as additional information becomes available;
therefore, actual expenditures could differ significantly from original
estimates. Amounts estimated and accrued to date for site assessments
and cleanup relate primarily to regulated operations; such amounts are
deferred (approximately $16 million) and are being amortized and
recovered through rates over a ten-year period for electric operations
and an eight-year period for gas operations. The deferral includes the
costs estimated to be associated with the matters discussed below.
The Company owns four decommissioned manufactured gas plant sites
which contain residues of by- product chemicals. The Company
maintains an active review of the sites to monitor the nature and
extent of the residual contamination.
In September 1992 the Environmental Protection Agency (EPA) notified
the Company, the City of Charleston and the Charleston Housing
Authority of their potential liability for the investigation and
cleanup of the Calhoun Park area site in Charleston, South
Carolina. This site originally encompassed approximately 18 acres
and included properties which were the locations for industrial
operations, including a wood preserving (creosote) plant and one of
the Company's decommissioned manufactured gas plants. The original
scope of this investigation has been expanded to approximately 30
acres, including adjacent properties owned by the National Park
Service and the City of Charleston, and private properties. The site
has not been placed on the National Priority List, but may be added
before cleanup is initiated. The potentially responsible parties
(PRP) have agreed with the EPA to participate in an innovative
approach to site investigation and cleanup called "Superfund
Accelerated Cleanup Model," allowing the pre-cleanup site
investigation process to be compressed significantly. The PRPs have
negotiated an administrative order by consent for the conduct of a
Remedial Investigation/Feasibility Study and a corresponding Scope of
Work. Field work began in November 1993 and a draft Remedial
Investigation report was submitted to the EPA in February 1995. The
Company is currently resolving the comments of the EPA and other
regulatory agencies related to the draft.
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In addition contamination may have migrated to the City's aquarium
site from the manufactured gas plant. In October 1996 the City of
Charleston and the Company settled all environmental claims the City
may have had against the Company involving the Calhoun Park area for
a payment of $26 million over four years by the Company to the City.
The Company expects to recover the amount of the settlement through
rates in the same manner as other amounts accrued for site
assessments and cleanup as discussed above. The Company is pursuing
recovery of environmental liabilities from appropriate pollution
insurance carriers. The Company does not expect the settlement to
have a material impact on the Company's financial position or results
of operations.
10
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SOUTH CAROLINA ELECTRIC & GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Competition
The electric utility industry has begun a major transition that could lead
to expanded market competition and less regulatory protection. Future
deregulation of electric wholesale and retail markets will create opportunities
to compete for new and existing customers and markets. As a result, profit
margins and asset values of some utilities could be adversely affected.
The pace of deregulation, the future market price of electricity, and the
regulatory actions which may be taken by the PSC and the Federal Energy
Regulatory Commission (FERC) in response to the changing environment cannot
be predicted. However, recent FERC actions will likely accelerate competition
among electric utilities by providing for wholesale transmission access. In
April 1996 the FERC issued Order 888, which addresses open access to
transmission lines and stranded cost recovery. Order 888 requires utilities
under FERC jurisdiction that own, control or operate transmission lines to
file nondiscriminatory open access tariffs that offer to others the same
transmission service they provide themselves. The FERC has also permitted
utilities to seek recovery of wholesale stranded costs from departing
customers by direct assignment. Approximately 5% of the Company's electric
revenues is under FERC jurisdiction.
The Company is aggressively pursuing actions to position itself
strategically for the transformed environment. To enhance its flexibility and
responsiveness to change, the Company operates Strategic Business Units.
Maintaining a competitive cost structure is of paramount importance in the
Company's strategic plan. The Company has undertaken a variety of initiatives,
including reductions in operation and maintenance costs and in staffing levels.
In January 1996 the PSC approved (as discussed under "Liquidity and Capital
Resources") the accelerated recovery of the Company's electric regulatory assets
and the shift of depreciation reserves from transmission and distribution assets
to nuclear production assets. The shift of depreciation reserves was not
approved by the FERC. In May 1996 the FERC approved the Company's application
establishing open access transmission tariffs and requesting authorization to
sell bulk power to wholesale customers at market-based rates. The Company
believes that these actions as well as numerous others that have been and will
be taken demonstrate its ability and commitment to succeed in the new operating
environment to come.
Regulated public utilities are allowed to record as assets some costs that
would be expensed by other enterprises. If deregulation or other changes in the
regulatory environment occur, the Company may no longer be eligible to apply
this accounting treatment and may be required to eliminate such regulatory
assets from its balance sheet. Such an event could have a material adverse
effect on the Company's results of operations in the period the write-off
is recorded. The Company reported approximately $236 million and $54 million
of regulatory assets and liabilities, respectively, including amounts recorded
for accumulated deferred income tax assets and liabilities of approximately
$82 million and $50 million, respectively, on its balance sheet at September
30, 1996.
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Material Changes in Capital Resources and Liquidity
From December 31, 1995 to September 30, 1996
Liquidity and Capital Resources
The cash requirements of the Company arise primarily from its operational
needs and construction program. The ability of the Company to replace existing
plant investment, as well as to expand to meet future demands for electricity
and gas, will depend upon its ability to attract the necessary financial
capital on reasonable terms. The Company recovers the costs of providing
services through rates charged to customers. Rates for regulated
services are generally based on historical costs. As customer growth
and inflation occur and the Company expands its construction program, it is
necessary to seek increases in rates. As a result, the Company's financial
position and results of operations are affected by its ability to obtain
adequate and timely rate relief and in the future will be dependent on the
Company's ability to compete in a deregulated environment (see "Competition").
On July 10, 1995 the Company filed an application with the PSC for an
increase in retail electric rates. On January 9, 1996 the PSC issued an order
granting the Company an increase of 7.34% which will produce additional
revenues of approximately $67.5 million annually. The increase is being
implemented in two phases. The first phase, an increase in revenues of
approximately $59.5 million annually based on a test year, or 6.47%,
commenced on January 15, 1996. The second phase will be implemented in
January 1997 and will produce additional revenues of approximately
$8.0 million annually, or .87% more than current rates. The PSC authorized
a return on common equity of 12.0%. The PSC also approved establishment
of a Storm Damage Reserve Account capped at $50 million and collected through
rates over a ten-year period. Additionally, the PSC approved accelerated
recovery of a significant portion of the Company's electric regulatory
assets (excluding accumulated deferred income tax assets) and the remaining
transition obligation for postretirement benefits other than pensions,
changing the amortization periods to allow recovery by the end of the year
2000. The Company's request to shift approximately $257 million of
depreciation reserves from transmission and distribution assets to nuclear
production assets was also approved. The PSC's ruling does not apply to
wholesale electric revenues under the FERC's jurisdiction.
The following table summarizes how the Company generated funds for its
utility property additions and construction expenditures during the nine
months ended September 30, 1996 and 1995:
Nine Months Ended
September 30,
1996 1995
(Thousands of Dollars)
Net cash provided from operating activities $258,656 $176,608
Net cash provided from (used for)
financing activities (118,383) 75,861
Cash and temporary cash investments available
at the beginning of the period 6,798 346
Net cash available for utility property
additions and construction expenditures $147,071 $252,815
Funds used for utility property additions
and construction expenditures, net of
noncash allowance for funds used during
construction $128,386 $173,685
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On August 7, 1996 the City of Charleston executed 30-year electric and gas
franchise agreements with the Company. In consideration for the electric
franchise agreement, the City will receive from the Company $25 million paid
over seven years and the Company will donate to the City the existing
transit assets in Charleston. In settlement of environmental claims the City
may have had against the Company involving the Calhoun Park area, where
the Company and its predecessor companies operated a manufactured gas
plant until the 1960's, the Company will pay the City $26 million over a
four-year period. As part of the environmental settlement, the Company
has agreed to construct an 1,100 space parking garage on the Calhoun Park
site and to transfer the facility to the City in exchange for a 20-year
municipal bond backed by revenues from the parking garage and a mortgage
on the parking garage. The total amount of the bond is not to exceed $16.9
million, the maximum expected project cost. The Company will invest up to
$500,000 annually for 30 years in the City to defray the cost of underground
wiring or other nonstandard service projects within scenic or historic
districts of the City, which amounts will be matched by city funds.
The City has agreed to limit such projects to those which can be
paid for from a combined pool of funds created by the Company's and the
City's contributions. It is anticipated that the Company's payments for
underground wiring/nonstandard service will be treated as investments in the
electric distribution rate base by the Company's regulators.
SCANA and Westvaco Corporation have formed a limited liability company,
Cogen South LLC, to build and operate a $170 million cogeneration
facility at Westvaco's Kraft Division Paper Mill in North Charleston, S. C.
The facility will provide industrial process steam for the Westvaco paper
mill and shaft horsepower to enable the Company to generate up to 99
megawatts of electricity. Construction financing is being provided to
Cogen South LLC by banks. In addition to the cogeneration partnership,
Westvaco has entered into a 20-year contract with the Company for all
its electricity requirements at the Company's standard industrial rate.
Construction of the plant began August 26, 1996, and it is expected to be
operational in the fall of 1998.
The Company anticipates that the remainder of its 1996 cash requirements
will be met through internally generated funds, additional equity contributions
from SCANA and the incurrence of additional short-term and long-term
indebtedness. The timing and amount of such financings will depend upon market
conditions and other factors.
The ratio of earnings to fixed charges for the twelve months ended
September 30, 1996 was 3.74.
The Company expects that it has or can obtain adequate sources of financing
to meet its cash requirements for the next twelve months and for the
foreseeable future.
13
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Results of Operations
For the Three and Nine Months ended September 30, 1996
As Compared to the Corresponding Periods in 1995
Earnings and Dividends
Net income for the three and nine months ended September 30, 1996
increased approximately $1.1 million and $16.2 million, respectively,
when compared to the corresponding periods in 1995. Increases in the electric
sales margins more than offset increases in operating costs.
Allowance for funds used during construction (AFC) is a utility
accounting practice whereby a portion of the cost of both equity and
borrowed funds used to finance construction (which is shown on the balance
sheet as construction work in progress) is capitalized. Both the equity
and the debt portions of AFC are noncash items of nonoperating income
which have the effect of increasing reported net income. AFC represented
approximately 3% and 7% of income before income taxes for the nine months ended
September 30, 1996 and 1995, respectively.
On February 20, 1996 the Company's Board of Directors authorized the
payment of a dividend on common stock of approximately $32.8 million
for the quarter ended March 31, 1996. The dividend was paid on April 1,
1996 to SCANA Corporation.
On April 25, 1996 the Company's Board of Directors authorized the payment
of a dividend on common stock of $34.2 million for the quarter ended
June 30, 1996. The dividend was paid on July 1, 1996 to SCANA Corporation.
On August 21, 1996 the Company's Board of Directors authorized the payment
of a dividend on common stock of $34.2 million for the quarter ended
September 30, 1996. The dividend was paid on October 1, 1996
to SCANA Corporation.
On October 22, 1996 the Company's Board of Directors authorized the
payment of a dividend on common stock of $34.6 million for the quarter ended
December 31, 1996. The dividend is payable on January 1, 1997
to SCANA Corporation.
Sales Margins
The changes in the electric sales margins for the three and nine months
ended September 30, 1996, when compared to the corresponding periods in 1995,
were as follows:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Electric operating revenues $21.4 7.0 $83.4 10.7
Less: Fuel used in electric
generation (1.2) (2.2) 17.7 13.6
Purchased power 4.1 16.0 1.1 1.3
Margin $18.5 8.1 $64.6 11.4
The electric sales margins increased for the three and nine months
ended September 30, 1996, when compared to the corresponding periods in 1995
as a result of the rate increase received by the Company in January 1996,
and economic growth factors.
14
<PAGE>
The changes in the gas sales margins for the three and nine months ended
September 30, 1996, when compared to the corresponding periods in 1995,
were as follows:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Gas operating revenues $3.2 10.2 $22.4 15.6
Less: Gas purchased for resale 3.0 13.4 21.2 24.5
Margin $0.2 2.6 $ 1.2 2.1
The gas sales margins increased slightly for the three and nine months
ended September 30, 1996, when compared to the corresponding periods in
1995 primarily as a result of increased firm sales.
Other Operating Expenses
Changes in other operating expenses, including taxes, for the three and
nine months ended September 30, 1996, when compared to the corresponding
periods in 1995 are presented in the following table:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Other operation and maintenance $ 7.1 10.8 $10.1 5.1
Depreciation and amortization 5.8 20.8 17.0 20.4
Income taxes 1.0 2.7 10.9 13.4
Other taxes 1.7 8.7 6.1 11.0
Total $15.6 10.3 $44.1 10.5
Other operation and maintenance expenses for the three and nine months
ended September 30, 1996 increased from 1995 levels primarily as a result
of higher production costs attributable to the Cope Plant which was
brought on line in January 1996. Increases in depreciation and amortization
expenses for the three and nine months comparisons reflect the addition of
the Cope Plant and other additions to plant in service. The increases
in income tax expense for the two periods correspond to the increases in
operating income. The increases in other taxes reflect higher property taxes
resulting from property additions and higher millages and assessments.
Interest Charges
Interest expense, excluding the debt component of AFC, for the
three and nine months ended September 30, 1996 decreased $1.3 million
and $2.4 million, respectively, when compared to the corresponding
periods in 1995 primarily as a result of reductions in outstanding debt.
15
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings see Note 2 "Rate Matters"
and Note 4 "Commitments and Contingencies" of Notes to Consolidated
Financial Statements.
Items 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibits filed with this Quarterly Report on Form 10-Q are listed in
the following Exhibit Index. Certain of such exhibits which have
heretofore been filed with the Securities and Exchange Commission
and which are designated by reference to their exhibit numbers
in prior filings are hereby incorporated herein by reference
and made a part hereof.
B. Reports on Form 8-K
None
16
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
(Registrant)
November 12, 1996 By: s/Jimmy E. Addison
Jimmy E. Addison
Vice President and Controller
(Principal Accounting Officer)
17
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially
EXHIBIT INDEX Numbered
Number Pages
2. Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
Not Applicable
3. Articles of Incorporation and By-Laws
A. Restated Articles of Incorporation of the
Company as adopted on December 15, 1993
(Exhibit 3-A to Form 10-Q for the quarter
ended June 30, 1994, File No. 1-3375)...................... #
B. Articles of Amendment, dated June 7, 1994,
filed June 9, 1994 (Exhibit 3-B to Form 10-Q
for the quarter ended June 30, 1994, File
No. 1-3375)
C. Articles of Amendment, dated November 9, 1994
(Exhibit 3-C to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
D. Articles of Amendment, dated December 9, 1994
(Exhibit 3-D to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
E. Articles of Correction, dated January 17, 1995
(Exhibit 3-E to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
F. Articles of Amendment, dated January 13, 1995
(Exhibit 3-F to Form 10-K for the year ended
December 31, 1994, File No. 1-3375)........................ #
G. Articles of Amendment, dated March 31, 1995
(Exhibit 3-G to Form 10-Q for the quarter
ended March 31, 1995, File No. 1-3375)..................... #
H. Articles of Correction - Amendment to Statement
filed March 31, 1995, dated December 13, 1995
(Exhibit 3-H to Form 10-K for the year ended
December 31, 1995, File No. 1-3375)........................ #
I. Articles of Amendment dated December 13, 1995
(Exhibit 3-I to Form 10-K for the year ended
December 31, 1995, File No. 1-3375)........................ #
J. Copy of By-Laws of the Company as revised and
amended on June 18, 1996 (Exhibit 3-J to Form
10-Q for the quarter ended March 31, 1996).................. #
4. Instruments Defining the Rights of Security
Holders, Including Indentures
A. Indenture dated as of January 1, 1945, from the
South Carolina Power Company (the "Power Company")
to Central Hanover Bank and Trust Company, as
Trustee, as supplemented by three Supplemental
Indentures dated respectively as of May 1, 1946,
May 1, 1947 and July 1, 1949 (Exhibit 2-B to
Registration No. 2-26459).................................. #
B. Fourth Supplemental Indenture dated as of April 1,
1950, to Indenture referred to in Exhibit 4A,
pursuant to which the Company assumed said
Indenture (Exhibit 2-C to Registration No. 2-26459)........ #
C. Fifth through Fifty-second Supplemental Indentures
to Indenture referred to in Exhibit 4A dated as
of the dates indicated below and filed as
exhibits to the Registration Statements and
1934 Act reports whose file numbers are set
forth below................................................ #
December 1, 1950 Exhibit 2-D to Registration No. 2-26459
July 1, 1951 Exhibit 2-E to Registration No. 2-26459
June 1, 1953 Exhibit 2-F to Registration No. 2-26459
# Incorporated herein by reference as indicated.
18
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially
EXHIBIT INDEX Numbered
Number Pages
4. (Continued)
June 1, 1955 Exhibit 2-G to Registration No. 2-26459
November 1, 1957 Exhibit 2-H to Registration No. 2-26459
September 1, 1958 Exhibit 2-I to Registration No. 2-26459
September 1, 1960 Exhibit 2-J to Registration No. 2-26459
June 1, 1961 Exhibit 2-K to Registration No. 2-26459
December 1, 1965 Exhibit 2-L to Registration No. 2-26459
June 1, 1966 Exhibit 2-M to Registration No. 2-26459
June 1, 1967 Exhibit 2-N to Registration No. 2-29693
September 1, 1968 Exhibit 4-O to Registration No. 2-31569
June 1, 1969 Exhibit 4-C to Registration No. 33-38580
December 1, 1969 Exhibit 4-Q to Registration No. 2-35388
June 1, 1970 Exhibit 4-R to Registration No. 2-37363
March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324
January 1, 1972 Exhibit 4-C to Registration No. 33-38580
July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291
May 1, 1975 Exhibit 4-C to Registration No. 33-38580
July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908
February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304
December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936
March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662
May 1, 1977 Exhibit 4-C to Registration No. 33-38580
February 1, 1978 Exhibit 4-C to Registration No. 33-38580
June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653
April 1, 1979 Exhibit 4-C to Registration No. 33-38580
June 1, 1979 Exhibit 4-C to Registration No. 33-38580
April 1, 1980 Exhibit 4-C to Registration No. 33-38580
June 1, 1980 Exhibit 4-C to Registration No. 33-38580
December 1, 1980 Exhibit 4-C to Registration No. 33-38580
April 1, 1981 Exhibit 4-D to Registration No. 33-49421
June 1, 1981 Exhibit 4-D to Registration No. 2-73321
March 1, 1982 Exhibit 4-D to Registration No. 33-49421
April 15, 1982 Exhibit 4-D to Registration No. 33-49421
May 1, 1982 Exhibit 4-D to Registration No. 33-49421
December 1, 1984 Exhibit 4-D to Registration No. 33-49421
December 1, 1985 Exhibit 4-D to Registration No. 33-49421
June 1, 1986 Exhibit 4-D to Registration No. 33-49421
February 1, 1987 Exhibit 4-D to Registration No. 33-49421
September 1, 1987 Exhibit 4-D to Registration No. 33-49421
January 1, 1989 Exhibit 4-D to Registration No. 33-49421
January 1, 1991 Exhibit 4-D to Registration No. 33-49421
February 1, 1991 Exhibit 4-D to Registration No. 33-49421
July 15, 1991 Exhibit 4-D to Registration No. 33-49421
August 15, 1991 Exhibit 4-D to Registration No. 33-49421
April 1, 1993 Exhibit 4-E to Registration No. 33-49421
July 1, 1993 Exhibit 4-D to Registration No. 33-57955
D. Indenture dated as of April 1, 1993 from South Carolina
Electric & Gas Company to NationsBank of Georgia, National
Association (Filed as Exhibit 4-F to Registration
Statement No. 33-49421)...................................... #
E. First Supplemental Indenture to Indenture referred to
in Exhibit 4-D dated as of June 1, 1993 (Filed as
Exhibit 4-G to Registration Statement No. 33-49421).......... #
F. Second Supplemental Indenture to Indenture referred to
in Exhibit 4-D dated as of June 15, 1993 (Filed as
Exhibit 4-G to Registration Statement No. 33-57955).......... #
10. Material Contracts
Not Applicable
11. Statement Re Computation of Per Share Earnings
Not Applicable
# Incorporated herein by reference as indicated.
19
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Exhibit Index (Continued)
Number
15. Letter Re Unaudited Interim Financial Information
Not Applicable
18. Letter Re Change in Accounting Principles
Not Applicable
19. Report Furnished to Security Holders
Not Applicable
22. Published Report Regarding Matters Submitted to
Vote of Security Holders
Not Applicable
23. Consents of Experts and Counsel
Not Applicable
24. Power of Attorney
Not Applicable
27. Financial Data Schedule (Filed herewith)
99. Additional Exhibits
Not Applicable
20
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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<OTHER-PROPERTY-AND-INVEST> 11,729
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43,354
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