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, 1997
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, 1997, 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, 1997
and December 31, 1996........................................ 3
Consolidated Statements of Income and Retained Earnings
for the Periods Ended September 30, 1997 and 1996............ 5
Consolidated Statements of Cash Flows for the Periods
Ended September 30, 1997 and 1996............................ 6
Notes to Consolidated Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 15
Item 6. Exhibits and Reports on Form 8-K.......................... 15
Signatures............................................................ 16
Exhibit Index......................................................... 17
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PART I
FINANCIAL INFORMATION
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of September 30, 1997 and December 31, 1996
(Unaudited)
September 30, December 31,
1997 1996
<S> <C> <C> <C>
(Thousands of Dollars)
ASSETS
Utility Plant:
Electric............................................. $3,923,313 $3,870,561
Gas.................................................. 342,882 338,095
Transit.............................................. 3,819 3,923
Common............................................... 74,650 81,858
Total.............................................. 4,344,664 4,294,437
Less accumulated depreciation and amortization....... 1,393,827 1,331,824
Total.............................................. 2,950,837 2,962,613
Construction work in progress........................ 265,314 193,278
Nuclear fuel, net of accumulated amortization........ 53,457 41,006
Utility Plant, Net............................... 3,269,608 3,196,897
Nonutility Property and Investments, net of
accumulated depreciation............................. 16,235 11,529
Current Assets:
Cash and temporary cash investments.................. 37,347 5,399
Receivables - customer and other..................... 166,027 170,476
Receivables - affiliated companies................... 1,014 1,021
Inventories (at average cost):
Fuel............................................... 28,341 33,121
Materials and supplies............................. 46,683 45,375
Prepayments.......................................... 11,469 8,758
Deferred income taxes................................ 20,025 20,025
Total Current Assets............................. 310,906 284,175
Deferred Debits:
Emission allowances.................................. 30,555 30,457
Environmental........................................ 33,940 41,375
Nuclear plant decommissioning fund................... 47,140 42,194
Pension asset, net................................... 69,928 57,931
Other................................................ 242,847 294,244
Total Deferred Debits............................ 424,410 466,201
Total................................. $4,021,159 $3,958,802
See notes to consolidated financial statements.
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SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of September 30, 1997 and December 31, 1996
(Unaudited)
<S> <C> <S> <C> <C> <C>
September 30, December 31,
1997 1996
(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... 834,088 821,984
Capital stock expense............................... (6,296) (5,340)
Retained earnings................................... 454,620 415,485
Total Common Equity............................... 1,463,745 1,413,462
Preferred Stock (not subject to purchase or sinking
funds).............................................. 126,027 26,027
Total Stockholders' Investment.................... 1,589,772 1,439,489
Preferred Stock, net (subject to purchase or
sinking funds)........................................ 40,093 43,014
Long-term debt, net..................................... 1,246,585 1,276,758
Total Capitalization............................ 2,876,450 2,759,261
Current Liabilities:
Short-term borrowings................................. - 90,000
Current portion of long-term debt..................... 47,735 42,755
Current portion of preferred stock.................... 2,442 2,432
Accounts payable...................................... 66,334 66,741
Accounts payable - affiliated companies............... 17,967 31,395
Customer deposits..................................... 16,311 14,944
Taxes accrued......................................... 93,850 66,900
Interest accrued...................................... 25,015 21,304
Dividends declared.................................... 39,167 35,972
Other................................................. 6,643 5,004
Total Current Liabilities....................... 315,464 377,447
Deferred Credits:
Deferred income taxes................................. 525,567 521,745
Deferred investment tax credits....................... 72,639 75,073
Reserve for nuclear plant decommissioning............. 47,140 42,194
Postretirement benefits............................... 46,197 37,344
Other................................................. 137,702 145,738
Total Deferred Credits.......................... 829,245 822,094
Total ................................. $4,021,159 $3,958,802
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, 1997 and 1996
(Unaudited)
<S> <C> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
(Thousands of Dollars)
OPERATING REVENUES:
Electric.............................. $340,371 $329,078 $ 840,465 $ 860,677
Gas................................... 36,026 34,575 161,981 166,002
Transit............................... 395 917 1,239 2,720
Total Operating Revenues......... 376,792 364,570 1,003,685 1,029,399
OPERATING EXPENSES:
Fuel used in electric generation...... 57,983 53,138 135,756 147,252
Purchased power (including
affiliated purchases)............... 28,587 29,410 80,614 80,941
Gas purchased from affiliate
for resale.......................... 25,784 25,090 100,509 107,884
Other operation....................... 58,081 56,334 162,234 162,148
Maintenance........................... 15,215 16,053 49,249 47,408
Depreciation and amortization......... 34,675 33,950 104,498 100,483
Income taxes.......................... 41,180 39,738 85,121 92,196
Other taxes........................... 22,494 20,622 66,990 62,218
Total Operating Expenses......... 283,999 274,335 784,971 800,530
OPERATING INCOME........................ 92,793 90,235 218,714 228,869
OTHER INCOME:
Allowance for equity funds used
during construction................. 1,394 1,091 3,971 3,282
Other income (loss), net of
income taxes........................ 1,627 (409) 2,056 179
Total Other Income............... 3,021 682 6,027 3,461
INCOME BEFORE INTEREST CHARGES.......... 95,814 90,917 224,741 232,330
INTEREST CHARGES (CREDITS):
Interest expense...................... 24,824 26,171 76,610 79,351
Allowance for borrowed funds
used during construction............ (1,599) (1,376) (4,540) (4,424)
Total Interest Charges, net...... 23,225 24,795 72,070 74,927
NET INCOME.............................. 72,589 66,122 152,671 157,403
Preferred Stock Cash Dividends
(at stated rates)..................... (2,916) (1,351) (6,736) (4,090)
Earnings Available for Common Stock..... 69,673 64,771 145,935 153,313
Retained Earnings at Beginning
of Period............................. 421,147 387,778 415,485 366,236
Common Stock Cash Dividends
Declared.............................. (36,200) (34,200) (106,800) (101,200)
Retained Earnings at End of Period...... $454,620 $418,349 $ 454,620 $ 418,349
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, 1997 and 1996
(Unaudited)
<S> <C> <C> <C>
Nine Months Ended
September 30,
1997 1996
(Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 152,671 $157,403
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization...................... 104,589 100,572
Amortization of nuclear fuel....................... 16,266 13,282
Deferred income taxes, net......................... 3,358 10,040
Pension asset...................................... (11,997) (11,167)
Allowance for funds used during construction....... (8,511) (7,706)
Over collections, fuel adjustment clause........... 9,612 (2,025)
Early retirements.................................. 12,391 (4,766)
Changes in certain current assets and liabilities:
(Increase) decrease in receivables............... 4,457 (9,047)
(Increase) decrease in inventories............... 3,472 11,423
Increase (decrease) in accounts payable.......... (13,833) (35,023)
Increase (decrease) in taxes accrued............. 26,950 25,674
Increase (decrease) in interest accrued.......... 3,711 2,754
Other, net......................................... 8,656 7,242
Net Cash Provided From Operating Activities............ 311,792 258,656
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility property additions and construction
expenditures, net of AFC........................... (157,660) (128,386)
Nonutility property and investments.................. (4,693) (137)
Net Cash Used For Investing Activities................. (162,353) (128,523)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds:
Equity contributions from parent................... 12,148 32,796
Other long-term debt............................... 1,200 -
Issuance of preferred stock........................ 99,000 -
Repayments:
First and Refunding Mortgage Bonds................. (15,000) (22,000)
Bank loans......................................... - (1,886)
Other long-term debt............................... (10,096) (1,382)
Preferred stock.................................... (2,911) (2,876)
Dividend payments:
Common stock....................................... (105,200) (98,700)
Preferred stock.................................... (5,141) (4,111)
Short-term borrowings, net........................... (90,000) (16,500)
Fuel and emission allowance financings, net.......... (1,351) (3,724)
Other................................................ (140) -
Net Cash Used For Financing Activities................. (117,491) (118,383)
NET DECREASE IN CASH AND TEMPORARY
CASH INVESTMENTS..................................... 31,948 11,750
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1....... 5,399 6,798
CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30.... $ 37,347 $ 18,548
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for - Interest (includes capitalized
interest of $4,540 and $4,424)...... $ 70,593 $ 74,535
- Income taxes......................... 51,169 50,576
NONCASH INVESTING 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, 1997
(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, 1996. 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. Basis of Accounting
The Company accounts for its regulated utility operations,
assets and liabilities in accordance with the provisions of
Statement of Financial Accounting Standards No. 71 (SFAS 71).
The accounting standard requires cost-based rate-regulated
utilities, 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, 1997, approximately
$222 million and $57 million of regulatory assets and
liabilities, respectively, including amounts recorded for
deferred income tax assets and liabilities of approximately
$104 million and $48 million, respectively. The electric
regulatory assets of approximately $77 million (excluding
deferred income tax assets) are being recovered through rates,
and the Public Service Commission of South Carolina (PSC) has
approved accelerated recovery of approximately $51 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, but it is not expected that cash flows
or financial position would be materially affected.
B. Reclassifications
Certain amounts from prior periods have been reclassified to
conform with the 1997 presentation.
2. 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, 1997
approximately $20.8 million of retained earnings were
restricted as to payment of cash dividends on common stock.
3. CONTINGENCIES:
With respect to commitments at September 30, 1997, 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, 1996. Contingencies at September 30,
1997 are as follows:
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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.
The Company currently maintains policies (for itself and on
behalf of the South Carolina Public Service Authority) with
American Nuclear Insurers (ANI) and Nuclear Electric Insurance
Limited (NEIL) providing combined property and decontamination
insurance coverage of $2.0 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 five 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 $5.7
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 results of operations, cash
flows and financial position.
B. Environmental
The Company has an environmental assessment program to identify
and assess current and former operations sites that could
require environmental cleanup. As site assessments are
initiated an estimate is made of the amount of expenditures, if
any, necessary to investigate and clean up each site. These
estimates are refined as additional information becomes
available; therefore, actual expenditures could differ
significantly from the original estimates. Amounts estimated,
accrued and actually expended to date for site assessments and
cleanup relate primarily to regulated operations; such amounts
are deferred and are being amortized and recovered through
rates over a five-year period for electric operations and an
eight-year period for gas operations. The Company has also
recovered portions of its environmental liabilities through
settlements with various insurance carriers. At September 30,
1997, the balance of the deferral, net of amounts recovered
through rates and insurance settlements received to date, was
approximately $33.9 million. The deferral includes the costs
estimated to be associated with the matters discussed below.
8
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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, 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 the EPA conditionally approved
a Remedial Investigation Report in March 1997. The
Company is continuing to investigate cost effective
cleanup methodologies.
In October 1996 the City of Charleston and the
Company settled all environmental claims the City may
have had against the Company involving the Calhoun
Park area for a payment of $26 million over four
years (1996-1999) by the Company to the City. The
Company is recovering the amount of the settlement,
which does not encompass site assessment and cleanup
costs, in the same manner as other amounts accrued
for site assessments and cleanup as discussed above.
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 owns three other decommissioned
manufactured gas plant sites which contain residues
of by-product chemicals. The Company is actively
investigating the sites to monitor the nature and
extent of the residual contamination.
C. Year 2000
The Company is currently evaluating the impact of the year 2000
on its computer systems and applications and is nearing
completion of an impact assessment. The Company has also begun
evaluating embedded processors located in field operations
areas for the purpose of identifying those that will have to
be modified or replaced. The Company believes that all required
modifications and replacements can be implemented in time to
prevent problems with financial or operational systems related
to date codes. Although an estimate of the cost of the required
charges is not available at this time, management expects the
evaluation of this issue to be completed by early 1998.
4. SUBSEQUENT EVENTS
On October 28, 1997 SCE&G Trust I (the "Trust"), a Delaware
statutory business trust and a subsidiary of SCE&G, issued $50
million of 7.55% trust preferred securities. The Trust used
the proceeds from the sale to purchase unsecured 7.55% junior
subordinated debentures of SCE&G. SCE&G will use the funds to
redeem certain series of its preferred stock. The financial
statements of the Trust will be consolidated with those of the
Company.
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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 regulation.
Deregulation of electric wholesale and retail markets is creating
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. Legislative initiatives at
the Federal and state levels are being considered and, if enacted,
could mandate market deregulation. The pace of deregulation,
future prices 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 five
percent 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 utility's strategic plan. The
Company has undertaken a variety of initiatives, including
reductions in operation and maintenance costs and in staffing
levels, the accelerated recovery of the Company's electric
regulatory assets and the shift, for retail ratemaking purposes
only, of depreciation reserves from transmission and distribution
assets to nuclear production assets. The Company has also
established open access transmission tariffs and is selling bulk
power to wholesale customers at market-based rates. Significant
investments are being made in customer and management information
systems. Marketing of services to commercial and industrial
customers has been increased significantly. The Company has
obtained long term power supply contracts with a significant
portion of its industrial customers. 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. Although the potential effects of deregulation
cannot be determined at present, discontinuation of the accounting
treatment could have a material adverse effect on the Company's
results of operations in the period the write-off is recorded. It
is expected that cash flows and the financial position of the
Company would not be materially affected by the discontinuation of
the accounting treatment. The Company reported approximately $222
million and $57 million of regulatory assets and liabilities,
respectively, including amounts recorded for deferred income tax
assets and liabilities of approximately $104 million and $48
million, respectively, on its balance sheet at September 30, 1997.
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Material Changes in Capital Resources and Liquidity
Since December 31, 1996
Liquidity and Capital Resources
The cash requirements of the Company arise primarily from its
operational needs and its construction program. The ability of the
Company to replace existing plant investment, as well as to expand
to meet future demand 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 continues its ongoing construction
program, it is necessary to seek increases in rates. As a result,
the Company's future financial position and results of operations
will be affected by its ability to obtain adequate and timely rate
and other regulatory relief.
On January 9, 1996 the PSC issued an order granting the
Company an increase in retail electric rates of 7.34%, which
produces additional revenues of approximately $67.5 million
annually. The increase was 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 in January 1996.
The second phase, an increase in revenues of approximately $8.0
million annually or .87%, based on a test year, was implemented in
January 1997. 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 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, for
ratemaking purposes, 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 revenue under the FERC's jurisdiction,
which constitute approximately five percent of the Company's
electric revenues. The FERC has rejected the transfer of
depreciation reserves for rates subject to its 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, 1997 and 1996:
Nine Months Ended
September 30,
1997 1996
(Thousands of Dollars)
Net cash provided from operating activities $ 311,792 $ 258,656
Net cash used for financing activities (117,491) (118,383)
Cash and temporary cash investments available
at the beginning of the period 5,399 6,798
Net cash available for utility property
additions and construction expenditures $ 199,700 $ 147,071
Funds used for utility property additions
and construction expenditures, net of
noncash allowance for funds used during
construction $ 157,660 $ 128,386
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On April 24, 1997 the Company sold 1,000,000 shares of 6.52%
cumulative preferred stock, $100 par value. Net proceeds from the
sale were used to reduce short term indebtedness incurred for the
Company's construction program and for general corporate purposes.
On October 28, 1997 SCE&G Trust I (the "Trust"), a Delaware
statutory business trust and a subsidiary of the Company, issued
$50 million of 7.55% trust preferred securities. The Trust used
the proceeds from the sale to purchase unsecured 7.55% junior
subordinated debentures of the Company. The Company will use the
funds to redeem certain series of its preferred stock. The
financial statements of the Trust will be consolidated with those
of the Company.
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 Company
will pay the City $25 million over seven years (1996-2002) and has
donated 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 (1996-1999). 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.
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, South Carolina. 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 LLC, Westvaco
has entered into a 20-year contract with the Company for all its
electricity requirements at the North Charleston mill at the
Company's standard industrial rate. Construction of the plant
began in September 1996 and it is expected to be operational in the
fall of 1998.
The Company anticipates that the remainder of its 1997 cash
requirements will be met through internally generated funds 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, 1997 was 3.78.
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.
The Company is currently evaluating the impact of the year
2000 on its computer systems and applications and is nearing
completion of an impact assessment. The Company has also begun
evaluating embedded processors located in field operations areas
for the purpose of identifying those that will have to be modified
or replaced. The Company believes that all required modifications
and replacements can be implemented in time to prevent problems
with financial or operational systems related to date codes.
Although an estimate of the cost of the required charges is not
available at this time, management expects the evaluation of this
issue to be completed by early 1998.
12
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Results of Operations
For the Three and Nine Months ended September 30, 1997
As Compared to the Corresponding Periods in 1996
Earnings and Dividends
Net income for the three months ended September 30, 1997
increased approximately $6.5 million when compared to the
corresponding period in 1996. The increase in the electric margin,
attributable primarily to customer growth and other economic
factors, more than offset the impact of higher operating costs.
Net income for the nine months ending September 30, 1997 decreased
by approximately $4.7 million when compared to the corresponding
period in 1996. A lower electric margin, resulting from milder
weather in the current period, was the primary factor for the
decline in earnings. The negative impact of weather on the
electric margin was partially offset by higher retail electric
rates and economic and customer growth.
Allowance for funds used during construction (AFC) is a
utility accounting practice whereby a portion of the cost of both
equity and borrowed funds used to finance construction (which is
shown on the balance sheet as construction work in progress) is
capitalized. Both the equity and the debt portions of AFC are
noncash items of nonoperating income which have the effect of
increasing reported net income. AFC represented approximately 4%
and 3% of income before income taxes for the nine months ended
September 30, 1997 and 1996, respectively.
On February 18, 1997 the Company's Board of Directors
authorized the payment of a dividend on common stock of
approximately $34.4 million for the quarter ended March 31, 1997.
The dividend was paid on April 1, 1997 to SCANA Corporation, the
Company's parent.
On April 24, 1997 the Company's Board of Directors authorized
the payment of a dividend on common stock of approximately $36.2
million for the quarter ended June 30, 1997. The dividend was paid
on July 1, 1997 to SCANA Corporation, the Company's parent.
On August 20, 1997 the Company's Board of Directors authorized
the payment of a dividend on common stock of approximately $36.2
million for the quarter ended September 30, 1997. The
dividend was paid on October 1, 1997 to SCANA Corporation, the
Company's parent.
On October 21, 1997 the Company's Board of Directors
authorized the payment of a dividend on common stock of
approximately $36.6 million for the quarter ended December 31,
1997. The dividend is payable on January 1, 1998 to SCANA
Corporation, the Company's parent.
Sales Margins
The changes in the electric sales margins for the three and
nine months ended September 30, 1997, when compared to the
corresponding periods in 1996, were as follows:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Electric operating revenues $11.3 3.4 $(20.2) (2.3)
Less: Fuel used in electric
generation 4.8 9.1 (11.5) (7.8)
Purchased power (0.8) (2.8) (0.3) (0.4)
Margin $ 7.3 2.9 $ (8.4) (1.3)
13
<PAGE>
The electric sales margin increased for the three months ended
September 30, 1997 when compared to the corresponding period in
1996 primarily as a result of economic and customer growth.
The electric sales margin decreased for the nine months ended
September 30, 1997, when compared to the corresponding period in
1996 as a result of the effect of milder weather which more than
offset the favorable impact of the rate increases placed into
effect in January 1996 and January 1997 and economic growth
factors.
The changes in the gas sales margins for the three and nine
months ended September 30, 1997, when compared to the corresponding
periods in 1996, were as follows:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Gas operating revenues $1.5 4.2 $(4.0) (2.4)
Less: Gas purchased for resale 0.7 2.8 (7.4) (6.8)
Margin $0.8 8.0 $ 3.4 5.8
The gas sales margins increased for the three and nine months
ended September 30, 1997, when compared to the corresponding
periods in 1996 primarily as a result of higher margins on sales to
interruptible customers.
Increased sales to interruptible customers on a year-to-date basis
were attributable to fewer curtailments.
Other Operating Expenses
Changes in other operating expenses, including taxes, for the
three and nine months ended September 30, 1997, when compared to
the corresponding periods in 1996, are presented in the following
table:
Three Months Nine Months
Change % Change Change % Change
(Millions) (Millions)
Other operation and maintenance $0.9 1.3 $ 1.9 0.9
Depreciation and amortization 0.7 2.1 4.0 4.0
Income taxes 1.4 3.6 (7.1) (7.7)
Other taxes 1.9 9.1 4.8 7.7
Total $4.9 3.0 $ 3.6 0.8
Other operation and maintenance expenses for the three and
nine months ended September 30, 1997 increased only slightly from
1996 levels. A decrease in transit operating costs resulting
from the Company's transfer of the ownership of the Charleston
transit system to the City of Charleston in October 1996 largely
offset increases in costs at electric generating plants and other
operating costs. The 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 changes in income tax expense reflect the changes
in operating income. The increases in other taxes results
primarily from the accrual of additional property taxes,
beginning in January 1997, related to the Cope Plant and other
property additions and partially offset by a reduction in the
1997 property tax assessment. Recovery of the Cope Plant
property taxes is provided for in a retail electric rate increase
that became effective in January 1997.
Interest Charges
Interest expense, excluding the debt component of AFC, for the
three and nine months ended September 30, 1997 decreased $1.3
million and $2.7 million, respectively, when compared to the
corresponding periods in 1996 primarily as a result of reductions
in outstanding debt.
14
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings see Note 2 "Rate
Matters," appearing in the Company's Annual Report on Form
10-K for the year ended December 31, 1996, and Note 3
"Contingencies" of Notes to Consolidated Financial
Statements appearing in this Quarterly Report on Form 10-Q.
Items 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibits filed with this Quarterly Report on Form 10-Q
are listed in the following Exhibit Index. Certain of
such exhibits which have heretofore been filed with the
Securities and Exchange Commission and which are
designated by reference to their exhibit numbers in
prior filings are hereby incorporated herein by
reference and made a part hereof.
B. Reports on Form 8-K
None
15
<PAGE>
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 13, 1997 By: s/Jimmy E. Addison
Jimmy E. Addison
Vice President and Controller
(Principal Accounting Officer)
16
<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).................. #
K. Articles of Amendment dated February 18, 1997
(Exhibit 3-L to Registration Statement No. 333-
24919)...................................................... #
L. Articles of Amendment dated February 21, 1997
(Exhibit 3-L to Form 10-Q for the quarter ended
March 31, 1997)............................................. #
M. Articles of Amendment dated April 22, 1997
(Exhibit 3-M to Form 10-Q for the quarter ended
June 30, 1997).............................................. #
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)........ #
# Incorporated herein by reference as indicated.
17
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially
EXHIBIT INDEX Numbered
Number Pages
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................................................ #
4. (Continued)
December 1, 1950 Exhibit 2-D to Registration No. 2-26459
July 1, 1951 Exhibit 2-E to Registration No. 2-26459
June 1, 1953 Exhibit 2-F to Registration No. 2-26459
June 1, 1955 Exhibit 2-G to Registration No. 2-26459
November 1, 1957 Exhibit 2-H to Registration No. 2-26459
September 1, 1958 Exhibit 2-I to Registration No. 2-26459
September 1, 1960 Exhibit 2-J to Registration No. 2-26459
June 1, 1961 Exhibit 2-K to Registration No. 2-26459
December 1, 1965 Exhibit 2-L to Registration No. 2-26459
June 1, 1966 Exhibit 2-M to Registration No. 2-26459
June 1, 1967 Exhibit 2-N to Registration No. 2-29693
September 1, 1968 Exhibit 4-O to Registration No. 2-31569
June 1, 1969 Exhibit 4-C to Registration No. 33-38580
December 1, 1969 Exhibit 4-Q to Registration No. 2-35388
June 1, 1970 Exhibit 4-R to Registration No. 2-37363
March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324
January 1, 1972 Exhibit 4-C to Registration No. 33-38580
July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291
May 1, 1975 Exhibit 4-C to Registration No. 33-38580
July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908
February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304
December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936
March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662
May 1, 1977 Exhibit 4-C to Registration No. 33-38580
February 1, 1978 Exhibit 4-C to Registration No. 33-38580
June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653
April 1, 1979 Exhibit 4-C to Registration No. 33-38580
June 1, 1979 Exhibit 4-C to Registration No. 33-38580
April 1, 1980 Exhibit 4-C to Registration No. 33-38580
June 1, 1980 Exhibit 4-C to Registration No. 33-38580
December 1, 1980 Exhibit 4-C to Registration No. 33-38580
April 1, 1981 Exhibit 4-D to Registration No. 33-49421
June 1, 1981 Exhibit 4-D to Registration No. 2-73321
March 1, 1982 Exhibit 4-D to Registration No. 33-49421
April 15, 1982 Exhibit 4-D to Registration No. 33-49421
May 1, 1982 Exhibit 4-D to Registration No. 33-49421
December 1, 1984 Exhibit 4-D to Registration No. 33-49421
December 1, 1985 Exhibit 4-D to Registration No. 33-49421
June 1, 1986 Exhibit 4-D to Registration No. 33-49421
February 1, 1987 Exhibit 4-D to Registration No. 33-49421
September 1, 1987 Exhibit 4-D to Registration No. 33-49421
January 1, 1989 Exhibit 4-D to Registration No. 33-49421
January 1, 1991 Exhibit 4-D to Registration No. 33-49421
February 1, 1991 Exhibit 4-D to Registration No. 33-49421
July 15, 1991 Exhibit 4-D to Registration No. 33-49421
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).......... #
# Incorporated herein by reference as indicated.
18
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Exhibit Index (Continued)
Number
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).......... #
G. Trust Agreement for SCE&G Trust I (Filed as
Exhibit 4-C to Registration Statement No.
333-37787 and 333-37787-01).................................. #
H. Certificate of Trust for SCE&G Trust I (Filed as
Exhibit 4-B to Registration Statement No.
333-37787 and 333-37787-01).................................. #
I. Form of Junior Subordinated Indenture for SCE&G Trust I
(Filed as Exhibit 4-A to Registration Statement
No. 333-37787 and 333-37787-01).............................. #
J. Form of Guarantee Agreement for SCE&G Trust I
(Filed as Exhibit 4-F to Registration Statement
No. 333-37787 and 333-37787-01).............................. #
K. Form of Amended & Restated Trust Agreement for SCE&G
Trust I (Filed as Exhibit 4-D to Registration Statement
No. 333-37787 and 333-37787-01).............................. #
10. Material Contracts
Not Applicable
11. Statement Re Computation of Per Share Earnings
Not Applicable
15. Letter Re Unaudited Interim Financial Information
Not Applicable
18. Letter Re Change in Accounting Principles
Not Applicable
19. Report Furnished to Security Holders
Not Applicable
22. Published Report Regarding Matters Submitted to
Vote of Security Holders
Not Applicable
23. Consents of Experts and Counsel
Not Applicable
24. Power of Attorney
Not Applicable
27. Financial Data Schedule (Filed herewith)
99. Additional Exhibits
Not Applicable
# Incorporated herein by reference as indicated.
19
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,269,608
<OTHER-PROPERTY-AND-INVEST> 16,235
<TOTAL-CURRENT-ASSETS> 310,906
<TOTAL-DEFERRED-CHARGES> 424,410
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,021,159
<COMMON> 181,333
<CAPITAL-SURPLUS-PAID-IN> 827,792
<RETAINED-EARNINGS> 454,620
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,463,745
40,093
126,027
<LONG-TERM-DEBT-NET> 1,278,659
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<INCOME-TAX-EXPENSE> 85,121
<OTHER-OPERATING-EXPENSES> 699,850
<TOTAL-OPERATING-EXPENSES> 784,971
<OPERATING-INCOME-LOSS> 218,714
<OTHER-INCOME-NET> 6,027
<INCOME-BEFORE-INTEREST-EXPEN> 224,741
<TOTAL-INTEREST-EXPENSE> 72,070
<NET-INCOME> 152,671
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<EARNINGS-AVAILABLE-FOR-COMM> 145,935
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