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 June 30, 1998
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) 217-9000
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 June 30, 1998, 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.
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997.................................... 3
Consolidated Statements of Income and Retained Earnings
for the Periods Ended June 30, 1998 and 1997............. 5
Consolidated Statements of Cash Flows for the Periods
Ended June 30, 1998 and 1997............................. 6
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings......................................... 15
Item 6. Exhibits and Reports on Form 8-K.......................... 15
Signatures............................................................ 16
Exhibit Index......................................................... 17
2
<PAGE>
<TABLE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of June 30, 1998 and December 31, 1997
(Unaudited)
<S> <C> <C> <C>
June 30, December 31,
1998 1997
(Millions of Dollars)
ASSETS
Utility Plant:
Electric............................................. $4,030 $4,020
Gas.................................................. 354 353
Other................................................ 86 84
Total.............................................. 4,470 4,457
Less accumulated depreciation and amortization....... 1,474 1,421
Total.............................................. 2,996 3,036
Construction work in progress........................ 309 221
Nuclear fuel, net of accumulated amortization........ 44 53
Utility Plant, Net............................... 3,349 3,310
Nonutility Property and Investments, net of
accumulated depreciation............................. 17 17
Current Assets:
Cash and temporary cash investments.................. 6 6
Receivables - customer and other..................... 173 165
Inventories (at average cost):
Fuel............................................... 32 23
Materials and supplies............................. 46 48
Prepayments.......................................... 17 10
Deferred income taxes................................ 21 21
Total Current Assets............................. 295 273
Deferred Debits:
Emission allowances.................................. 31 31
Environmental........................................ 28 32
Nuclear plant decommissioning fund................... 52 49
Pension asset, net................................... 86 82
Other................................................ 267 260
Total Deferred Debits............................ 464 454
Total................................. $4,125 $4,054
See notes to consolidated financial statements.
3
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED BALANCE SHEETS
As of June 30, 1998 and December 31, 1997
(Unaudited)
<S> <C> <C> <C>
June 30, December 31,
1998 1997
(Millions of Dollars)
CAPITALIZATION AND LIABILITIES
Stockholders' Investment:
Common Equity......................................... $1,472 $1,447
Preferred Stock (not subject to purchase or sinking
funds).............................................. 106 106
Total Stockholders' Investment.................... 1,578 1,553
Preferred Stock, net (subject to purchase or
sinking funds)........................................ 12 12
Company - Obligated Mandatorily Redeemable Preferred
Securities of the Company's Subsidiary Trust, SCE&G
Trust I holding solely $50 million, principal amount
of 7.55% of Junior Subordinated Debentures of the
Company, due 2027..................................... 50 50
Long-term debt, net..................................... 1,255 1,262
Total Capitalization............................ 2,895 2,877
Current Liabilities:
Short-term borrowings................................. 66 13
Current portion of long-term debt..................... 48 48
Accounts payable...................................... 51 53
Accounts payable - affiliated companies............... 21 32
Customer deposits..................................... 17 16
Taxes accrued......................................... 48 45
Interest accrued...................................... 22 22
Dividends declared.................................... 40 58
Other................................................. 7 7
Total Current Liabilities....................... 320 294
Deferred Credits:
Deferred income taxes................................. 557 539
Deferred investment tax credits....................... 88 89
Reserve for nuclear plant decommissioning............. 52 49
Postretirement benefits............................... 68 61
Other................................................. 145 145
Total Deferred Credits.......................... 910 883
Total ................................. $4,125 $4,054
See notes to consolidated financial statements.
4
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Periods Ended June 30, 1998 and 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
(Millions of Dollars)
OPERATING REVENUES:
Electric.......................................... $299 $247 $569 $500
Gas............................................... 44 41 132 126
Transit........................................... - 1 1 1
Total Operating Revenues..................... 343 289 702 627
OPERATING EXPENSES:
Fuel used in electric generation.................. 54 40 96 78
Purchased power (including
affiliated purchases)........................... 35 27 61 52
Gas purchased from affiliate
for resale...................................... 29 27 79 75
Other operation................................... 55 52 111 104
Maintenance....................................... 21 19 39 34
Depreciation and amortization..................... 35 35 61 70
Income taxes...................................... 24 16 58 44
Other taxes....................................... 23 21 47 44
Total Operating Expenses..................... 276 237 552 501
OPERATING INCOME.................................... 67 52 150 126
OTHER INCOME:
Allowance for equity funds used
during construction............................. 2 1 3 3
Total Other Income........................... 2 1 3 3
INCOME BEFORE INTEREST CHARGES...................... 69 53 153 129
INTEREST CHARGES (CREDITS):
Interest expense on long term debt................ 24 24 47 48
Other interest expense............................ 2 1 3 4
Allowance for borrowed funds
used during construction........................ (2) (1) (3) (3)
Total Interest Charges, net.................. 24 24 47 49
INCOME BEFORE PREFERRED DIVIDEND REQUIREMENTS
ON MANDATORILY REDEEMABLE PREFERRED
SECURITIES 45 29 106 80
PREFERRED DIVIDEND REQUIREMENT OF COMPANY
- OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES 1 - 2 -
NET INCOME.......................................... 44 29 104 80
Preferred Stock Cash Dividends
(at stated rates)................................. (2) (2) (4) (4)
Earnings Available for Common Stock................. 42 27 100 76
Retained Earnings at Beginning
of Period......................................... 459 430 438 415
Common Stock Cash Dividends
Declared.......................................... (37) (36) (74) (70)
Retained Earnings at End of Period.................. $464 $421 $464 $421
See notes to consolidated financial statements.
5
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended June 30, 1998 and 1997
(Unaudited)
<S> <C> <C> <C>
Six Months Ended
June 30,
1998 1997
(Millions of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $104 $ 80
Adjustments to reconcile net income to net cash
provided from operating activities:
Depreciation and amortization...................... 61 70
Amortization of nuclear fuel....................... 10 11
Deferred income taxes, net......................... 17 8
Pension asset...................................... (4) (8)
Postretirement benefits............................ 7 6
Allowance for funds used during construction....... (6) (6)
Over collections, fuel adjustment clause........... 9 16
Changes in certain current assets and liabilities:
(Increase) decrease in receivables............... (8) 19
(Increase) decrease in inventories............... (7) (5)
(Increase) decrease in prepayments............... (7) (8)
Increase (decrease) in accounts payable.......... (13) (25)
Increase (decrease) in taxes accrued............. 3 (9)
Other, net......................................... (17) -
Net Cash Provided From Operating Activities............ 149 149
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility property additions and construction
expenditures, net of AFC........................... (98) (95)
Nonutility property and investments.................. - (4)
Net Cash Used For Investing Activities................. (98) (99)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds:
Equity contributions from parent................... - 12
Issuance of preferred stock........................ - 99
Repayments:
Preferred stock.................................... - (2)
First and refunding mortgage bonds................. - (15)
Dividend payments:
Common stock....................................... (93) (69)
Preferred stock.................................... (4) (3)
Short-term borrowings, net........................... 53 (75)
Fuel and emission allowance financings, net.......... (7) 2
Net Cash Used For Financing Activities................. (51) (51)
NET DECREASE IN CASH AND TEMPORARY
CASH INVESTMENTS..................................... - (1)
CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1....... 6 5
CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30......... $ 6 $ 4
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for - Interest (includes capitalized
interest of $3 for 1998 and 1997.... $ 50 $ 50
- Income taxes......................... 9 22
See notes to consolidated financial statements.
</TABLE>
6
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
The following notes should be read in conjunction with the
Notes to Consolidated Financial Statements appearing in South
Carolina Electric & Gas Company's (the Company) Annual Report on
Form 10-K for the year ended December 31, 1997. These are interim
financial statements, and 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 except as described in Note 2, 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 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 June 30, 1998, approximately $232 million and $67
million of regulatory assets and liabilities, respectively,
including amounts recorded for deferred income tax assets and
liabilities of approximately $118 million and $52 million,
respectively. The electric and gas regulatory assets
(excluding deferred income tax assets) of approximately $77
million and $35 million, respectively, are being recovered
through rates, and the Public Service Commission of South
Carolina (PSC) has approved accelerated recovery of
approximately $31 million of the electric regulatory 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 could 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 1998 presentation.
2. RATE MATTERS
On January 9, 1996 the PSC issued an order granting the Company
an increase in retail electric rates of 7.34%, which was
designed to produce additional revenues, based on a test year,
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, or 6.47%,
commenced in January 1996. The second phase, an increase in
revenues of approximately $8.0 million annually, or .87%, 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 to be
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
7
<PAGE>
$257 million of depreciation reserves from transmission and
distribution assets to nuclear production assets was also
approved. The Consumer Advocate and two other intervenors
appealed certain issues in the order to the South Carolina
Circuit Court, which affirmed the PSC's decisions, and,
subsequently, to the South Carolina Supreme Court. In March
1998, the Company, the PSC and the Consumer Advocate and one of
the other intervenors reached an agreement that provided for
the reversal of the shift in depreciation reserves and the
dismissal of the appeal of all other issues. The PSC also
authorized the Company to adjust depreciation rates that had
been approved in the 1996 rate order for its electric
transmission, distribution and nuclear production properties to
eliminate the effect of the depreciation reserve shift and to
retroactively apply such depreciation rates to February 1996.
As a result, a one-time reduction in depreciation expense of
$5.5 million after taxes was recorded in March 1998. The
agreement does not affect retail electric rates. The remaining
intervenor continues to contest establishment of the Storm
Damage Reserve Account and the authorized return on common
equity. The Supreme Court heard the case in April 1998 and is
expected to issue a ruling during 1998. While the outcome of
this proceeding is uncertain, the Company does not believe that
any significant adverse change in the rate order is likely.
The Federal Energy Regulatory Commission (FERC) had previously
rejected the transfer of depreciation reserves for rates
subject to its jurisdiction.
3. RETAINED EARNINGS:
The Restated Articles of Incorporation of the Company and the
Indenture underlying its First and Refunding Mortgage Bonds
contain provisions that under certain circumstances, could
limit the payment of cash dividends on its common stock. In
addition, with respect to hydroelectric projects, the Federal
Power Act requires the appropriation of a portion of certain
earnings therefrom. At June 30, 1998 approximately $23.5
million of retained earnings were restricted by this
requirement as to payment of cash dividends on common stock.
4. CONTINGENCIES:
With respect to commitments at June 30, 1998, 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, 1997. Contingencies at June 30, 1998
are as follows:
A. Nuclear Insurance
The Price-Anderson Indemnification Act, which deals with public
liability for a nuclear incident, currently establishes the
liability limit for third-party claims associated with any
nuclear incident at $9.9 billion. Each reactor licensee is
currently liable for up to $88.1 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 the V. C. Summer Nuclear Station (Summer
Station), would be approximately $58.7 million per incident,
but not more than $6.7 million per year.
The Company currently maintains policies (for itself and on
behalf of the PSA) with Nuclear Electric Insurance Limited
(NEIL) and American Nuclear Insurers (ANI) 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 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 $6.1 million.
8
<PAGE>
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 and accrued to date for site
assessment and cleanup relate primarily to regulated operations;
such amounts are deferred (approximately $28 million) 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 deferral includes the costs estimated to be
associated with the matters discussed below.
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 encompasses
approximately 30 acres and includes properties which were the
locations for industrial operations, including a wood
preserving (creosote) plant, one of the Company's
decommissioned manufactured gas plants, properties owned by
the National Park Service and the City of Charleston and
private properties. The site has not been placed on the
National Priorities List, but may be added before cleanup
is initiated. The Potentially Responsible Parties (PRPs)
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 approved a Remedial Investigation Report in
February 1997 and a Feasibility Study Report in June 1998.
A Record of Decision, which outlines the EPA and PRP's
agreement as to the extent each PRP is responsible for site
contamination and the level to which the site must be
remediated, has not been issued. However, in July 1998, the
EPA approved the Company's Removal Action Work Plan for soil
excavation. Accordingly, the Company is scheduled to begin
site soil excavation in August 1998. In addition, the Company
is continuing to investigate cost-effective clean up
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, through rates 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.
Construction is expected to begin in 1998. 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 investigating the sites to monitor the nature
and extent of the residual contamination.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The following discussion should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and
Results of Operations appearing in SCE&G's (the Company) Annual
Report on Form 10-K for the year ended December 31, 1997.
Statements included in this discussion and analysis (or
elsewhere in this quarterly report) which are not statements of
historical fact are intended to be, and are hereby identified as,
"forward-looking statements" for purposes of the safe harbor
provided by Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended.
Readers are cautioned that any such forward-looking statements are
not guarantees of future performance and involve a number of risks
and uncertainties, and that actual results could differ materially
from those indicated by such forward-looking statements. Important
factors that could cause actual results to differ materially from
those indicated by such forward-looking statements include, but are
not limited to, the following: (1) that the information is of a
preliminary nature and may be subject to further and/or continuing
review and adjustment, (2) changes in the utility regulatory
environment, (3) changes in the economy in areas served by the
Company, (4) the impact of competition from other energy
suppliers, (5) the management of the Company's operations, (6)
growth opportunities for the Company, (7) the results of financing
efforts, (8) changes in the Company's accounting policies, (9)
weather conditions in areas served by the Company, (10) inflation,
(11) changes in environmental regulations and (12) the other risks
and uncertainties described from time to time in the Company's
periodic reports filed with the Securities and Exchange Commission.
The Company disclaims any obligation to update any forward-looking
statements.
10
<PAGE>
Material Changes in Capital Resources and Liquidity
Since December 31, 1997
Liquidity and Capital Resources
On January 9, 1996 the PSC issued an order which, among other
things, authorized the Company to earn a return on common equity of
12.0%. The PSC also approved establishment of a Storm Damage
Reserve Account capped at $50 million to be collected through rates
over a ten-year period. Additionally, 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 approved. The Consumer Advocate and
two other intervenors appealed certain issues in the order to the
South Carolina Circuit Court, which affirmed the PSC's decisions,
and, subsequently, to the South Carolina Supreme Court. In March
1998, the Company, the PSC and the Consumer Advocate and one of the
other intervenors reached an agreement that provided for the
reversal of the shift in depreciation reserves and the dismissal of
the appeal of all other issues. The PSC also authorized the
Company to adjust depreciation rates that had been approved in the
1996 rate order for its electric transmission, distribution and
nuclear production properties to eliminate the effect of the
depreciation reserve shift and to retroactively apply such
depreciation rates to February 1996. As a result, a one-time
reduction in depreciation expense of $5.5 million after taxes was
recorded in March 1998. The agreement does not affect retail
electric rates. See "Results of Operations - Earnings and
Dividends." The remaining intervenor continues to contest
establishment of the Storm Damage Reserve Account and the
authorized return on common equity. The Supreme Court heard the
case in April 1998 and is expected to issue a ruling during 1998.
While the outcome of this proceeding is uncertain, the Company does
not believe that any significant adverse change in the rate order
is likely. The FERC had previously 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 six months ended June 30, 1998 and 1997:
Six Months Ended
June 30,
1998 1997
(Millions of Dollars)
Net cash provided from operating activities $149 $149
Net cash used for financing activities (51) (51)
Cash and temporary cash investments available
at the beginning of the period 6 5
Net cash available for utility property
additions and construction expenditures $104 $103
Funds used for utility property additions
and construction expenditures, net of
noncash allowance for funds used during
construction $ 98 $ 95
Funds used for nonutility property
additions and investments $ - $ 4
11
<PAGE>
The Environmental Protection Agency has proposed new
regulations relating to nitrogen oxide emissions which, if enacted
in their present form, could have a material adverse effect on the
results of operations, cash flows and financial position of the
Company.
SCANA Corporation, the Company's parent, 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.
Construction of the plant began in September 1996 and it is
expected to be operational in the fall of 1998. 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.
The Company anticipates that the remainder of its 1998 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 Company expects that it has or
can obtain adequate sources of financings to meet its projected
cash requirements for the next twelve months and for the
foreseeable future. The ratio of earnings to fixed charges for the
twelve months ended June 30, 1998 was 4.23.
The year 2000 issue could have a material impact on the
operations of the Company if required modifications and conversions
are not made to ensure that all critical system software and
equipment with embedded processors are date code compliant. The
Company has formed a steering committee to direct the resolution of
this major issue. The steering committee, which reports to the
senior officers of the Company and to the board of directors, is
chaired by the chief financial officer of the Company and is
comprised of officers representing all operational areas. A Year
2000 Project Office, made up of nine full time project managers
plus support personnel is responsible for addressing year 2000
issues and coordinating the required assessment and remediation
efforts. The Year 2000 Project Office reports directly to the
Steering Committee.
The Company has completed an initial inventory of impacted
information systems applications, operating software, hardware and
embedded processors. A risk prioritization of these systems was
completed to determine the Company's critical systems. The
assessment process to determine which systems have year 2000
compliance issues is well underway. Remediation efforts on
critical systems have begun and are expected to be completed by
mid-1999. The Company has identified and assigned key employees to
develop year 2000 contingency plans. The cost of the project is
not expected to have a material impact on the results of
operations, cash flows and financial position of the Company.
In particular, with regard to the evaluation and remediation
of the year 2000 issue at V. C. Summer Nuclear Station, the Company
is cooperating closely with other utilities, including utilities in
the southeast, that own nuclear power plants. The utilities are
sharing technical nuclear plant operating and monitoring systems
information to ensure the prompt and effective resolution of year
2000 issues.
The Company is communicating with all of its significant
suppliers to determine the extent to which the Company is
vulnerable to those suppliers' failure to remediate their own year
2000 issues. The extent to which significant customers have
resolved the year 2000 issues, and the resulting impact on the
demand for the Company's products, is not determinable. There can
be no guarantee that the systems of other companies on which the
Company's systems rely will be timely converted. A failure to
convert by another company, or a conversion that is incompatible
with the Company's systems, could have a material adverse effect on
the results of operations, cash flows and financial position of the
Company.
12
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Results of Operations
For the Three and Six Months ended June 30, 1998
As Compared to the Corresponding Periods in 1997
Earnings and Dividends
Net income for the three and six months ended June 30, 1998
increased approximately $14.6 million and $23.6 million,
respectively, when compared to the corresponding periods in 1997.
Higher electric margins more than offset the impact of higher
operating costs. Net income for the six months ended June 30, 1998
includes a one-time, after-tax adjustment to depreciation expense
of approximately $5.5 million related to a change in depreciation
rates retroactive to February 1996. This change in rates results
from the reversal of a $257 million shift of depreciation reserves
from electric transmission and distribution assets to nuclear
production assets, previously approved in a PSC rate order in
January 1996. See "Liquidity and Capital Resources."
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%
of income before income taxes for the six months ended June 30,
1998 and 1997, respectively.
On February 17, 1998 the Company's Board of Directors
authorized the payment of a dividend on common stock of
approximately $36.9 million for the quarter ended March 31,
1998. The dividend was paid on April 1, 1998 to SCANA.
On April 23, 1998 the Company's Board of Directors authorized
the payment of a dividend on common stock of approximately $37.7
million for the quarter ended June 30, 1998. The dividend was paid
on July 1, 1998 to SCANA.
Sales Margins
Changes in the electric sales margin for the three and six
months ended June 30, 1998, when compared to the corresponding
periods in 1997, were as follows:
Three Months Six Months
Change % Change Change % Change
(Millions) (Millions)
Electric operating revenues $51.8 20.9 $68.6 13.7
Less: Fuel used in electric
generation 14.0 35.3 18.8 24.2
Purchased power 7.7 28.0 9.3 17.9
Margin $30.1 16.7 $40.5 10.9
The electric sales margin increased for the three and six
months ended June 30, 1998 when compared to the corresponding
periods in 1997 primarily as a result of more favorable weather and
customer growth.
13
<PAGE>
Changes in the gas sales margin for the three and six months
ended June 30, 1998, when compared to the corresponding periods in
1997, were as follows:
Three Months Six Months
Change % Change Change % Change
(Millions) (Millions)
Gas operating revenues $2.3 5.4 $6.0 4.8
Less: Gas purchased for resale 2.6 9.6 3.8 5.1
Margin $(.3) (2.2) $2.2 4.3
The gas sales margin increased for the six months ended June
30, 1998, when compared to the corresponding period in 1997
primarily as a result of colder weather and increased interruptible
sales attributable to fewer curtailments in the first quarter 1998.
Other Operating Expenses
Changes in other operating expenses, including taxes, for the
three and six months ended June 30, 1998 when compared to the
corresponding periods in 1997, are presented in the following
table:
Three Months Six Months
Change % Change Change % Change
(Millions) (Millions)
Other operation and maintenance $ 4.6 6.4 $11.8 8.6
Depreciation and amortization 0.1 0.3 (8.6) (12.3)
Income taxes 8.4 53.7 13.7 31.2
Other taxes 2.3 11.0 2.2 4.9
Total $15.4 10.8 $19.1 6.5
Other operation and maintenance expenses for the three and six
months ended June 30, 1998 increased from 1997 levels primarily as
a result of increases in costs at electric generating plants and
various operating costs. The decrease in depreciation and
amortization expenses for the six months ended June 30, 1998
reflects the non-recurring adjustment to depreciation expense
discussed under "Earnings and Dividends." The changes in income
tax expense reflect the changes in operating income. The increase
in other taxes for the periods primarily results from increases in
property taxes.
14
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market
Risk
With regard to the market risk information disclosed in
the Company's Annual Report on Form 10-K at December 31,
1997 there have been no material changes in market risk
exposure related to interest rate risk.
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, 1997, and Note 4
"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)
August 13, 1998 By: s/Jimmy E. Addison
Jimmy E. Addison
Vice President and Controller
(Chief 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 December 17, 1997 (Exhibit
4-J to Form 10-K for the year ended
December 31, 1997, File No. 1-3375)........................ #
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).............................................. #
N. Articles of Amendment dated April 9, 1998 (Exhibit 3-N
to Form 10-Q for the quarter ended March 31, 1998).......... #
# Incorporated herein by reference as indicated.
17
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially
EXHIBIT INDEX Numbered
Number Pages
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................................................ #
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
# Incorporated herein by reference as indicated.
18
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Exhibit Index (Continued)
Number
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).......... #
G. Trust Agreement for SCE&G Trust I (Filed as
Exhibit 4-G to Form 10-K for the year ended
December 31, 1997)........................................... #
H. Certificate of Trust for SCE&G Trust I (Filed as
Exhibit 4-H to Form 10-K for the year ended
December 31, 1997)........................................... #
I. Junior Subordinated Indenture for SCE&G Trust I
(Filed as Exhibit 4-I to Form 10-K for the year
ended December 31, 1997)..................................... #
J. Guarantee Agreement for SCE&G Trust I
(Filed as Exhibit 4-J to Form 10-K for the year
ended December 31, 1997)..................................... #
K. Amended & Restated Trust Agreement for SCE&G
Trust I (Filed as Exhibit 4-K to Form 10-K for the
year ended December 31, 1997)................................ #
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
# Incorporated herein by reference as indicated.
19
<PAGE>
SOUTH CAROLINA ELECTRIC & GAS COMPANY
Exhibit Index (Continued)
Number
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 JUNE 30, 1998 AND THE CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS AND OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,349
<OTHER-PROPERTY-AND-INVEST> 17
<TOTAL-CURRENT-ASSETS> 295
<TOTAL-DEFERRED-CHARGES> 464
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 4,125
<COMMON> 181
<CAPITAL-SURPLUS-PAID-IN> (5)
<RETAINED-EARNINGS> 464
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,472
62
106
<LONG-TERM-DEBT-NET> 1,255
<SHORT-TERM-NOTES> 66
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 48
1
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,115
<TOT-CAPITALIZATION-AND-LIAB> 4,125
<GROSS-OPERATING-REVENUE> 702
<INCOME-TAX-EXPENSE> 58
<OTHER-OPERATING-EXPENSES> 494
<TOTAL-OPERATING-EXPENSES> 552
<OPERATING-INCOME-LOSS> 150
<OTHER-INCOME-NET> 3
<INCOME-BEFORE-INTEREST-EXPEN> 153
<TOTAL-INTEREST-EXPENSE> 47
<NET-INCOME> 104
4
<EARNINGS-AVAILABLE-FOR-COMM> 100
<COMMON-STOCK-DIVIDENDS> 74
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 149
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
