-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L2i3XQyQYXarWqIAP3SehHUkwpdcWU30iar4de+XID0yd5QtYX1KEwTaEesthouN MHKL3FLCzNaCOAzFHwnz3w== 0000754737-96-000013.txt : 19961113 0000754737-96-000013.hdr.sgml : 19961113 ACCESSION NUMBER: 0000754737-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANA CORP CENTRAL INDEX KEY: 0000754737 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570784499 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08809 FILM NUMBER: 96658266 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: P O BOX 764 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8037483000 MAIL ADDRESS: STREET 1: MAIL CODE 051 CITY: COLUMBIA STATE: SC ZIP: 29218 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8809 SCANA Corporation (Exact name of registrant as specified in its charter) South Carolina 57-0784499 (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. 105,559,482 Common Shares, without par value, as of September 30, 1996 1 SCANA CORPORATION INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995.................................... 3 Consolidated Statements of Income and Retained Earnings for the Periods Ended September 30, 1996 and 1995........ 5 Consolidated Statements of Cash Flows for the Periods Ended September 30, 1996 and 1995........................ 6 Notes to Consolidated Financial Statements............... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 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 2 PART I FINANCIAL INFORMATION SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of September 30, 1996 and December 31, 1995 (Unaudited) September 30, December 31, 1996 1995 (Thousands of Dollars) ASSETS Utility Plant: Electric................................................... $4,018,316 $3,539,068 Gas........................................................ 495,959 484,752 Transit.................................................... 4,106 3,768 Common..................................................... 88,160 91,616 Total.................................................... 4,606,541 4,119,204 Less accumulated depreciation and amortization............. 1,502,187 1,367,541 Total.................................................... 3,104,354 2,751,663 Construction work in progress.............................. 322,529 644,661 Nuclear fuel, net of accumulated amortization.............. 38,573 46,492 Acquisition adjustment-gas, net of accumulated amortization............................................. 25,425 26,172 Utility Plant, Net.................................... 3,490,881 3,468,988 Nonutility Property and Investments, net of accumulated depreciation and depletion................................. 337,674 314,207 Current Assets: Cash and temporary cash investments........................ 32,396 16,082 Receivables................................................ 234,272 211,173 Inventories (at average cost): Fuel..................................................... 46,472 61,499 Materials and supplies................................... 50,414 47,674 Prepayments................................................ 13,622 15,870 Accumulated deferred income taxes.......................... 19,799 20,186 Total Current Assets.................................. 396,975 372,484 Deferred Debits: Emission allowances........................................ 30,428 28,514 Unamortized debt expense................................... 12,547 13,432 Unamortized deferred return on plant investment............ 3,184 6,369 Nuclear plant decommissioning fund......................... 40,663 36,070 Other...................................................... 334,631 294,362 Total Deferred Debits................................. 421,453 378,747 Total....................................... $4,646,983 $4,534,426 See notes to consolidated financial statements. 3 SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of September 30, 1996 and December 31, 1995 (Unaudited) September 30, December 31, 1996 1995 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Stockholders' Investment: Common Equity: Common stock (without par value)......................... $1,108,918 $1,056,689 Retained earnings........................................ 559,362 497,991 Total Common Equity..................................... 1,668,280 1,554,680 Preferred Stock of Subsidiary (not subject to purchase or sinking funds)........................................ 26,027 26,027 Total Stockholders' Investment.......................... 1,694,307 1,580,707 Preferred Stock of Subsidiary, net (subject to purchase or sinking funds).......................................... 43,354 46,243 Long-term debt, net.......................................... 1,522,895 1,588,879 Total Capitalization.................................. 3,260,556 3,215,829 Current Liabilities: Short-term borrowings...................................... 103,522 112,524 Current portion of long-term debt.......................... 101,329 40,983 Current portion of preferred stock......................... 2,453 2,439 Accounts payable........................................... 116,374 138,778 Customer deposits.......................................... 14,825 13,643 Taxes accrued.............................................. 89,732 66,914 Interest accrued........................................... 31,015 25,884 Dividends declared......................................... 40,552 39,056 Other...................................................... 9,577 8,071 Total Current Liabilities............................. 509,379 448,292 Deferred Credits: Accumulated deferred income taxes.......................... 557,501 542,022 Accumulated deferred investment tax credits................ 84,986 87,719 Accumulated reserve for nuclear plant decommissioning...... 40,663 36,070 Other...................................................... 193,898 204,494 Total Deferred Credits................................ 877,048 870,305 Total....................................... $4,646,983 $4,534,426 See notes to consolidated financial statements. 4 SCANA CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Periods Ended September 30, 1996 and 1995 (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 (Thousands of Dollars, Except Per Share Amounts) OPERATING REVENUES: Electric............................... $329,038 $307,620 $ 860,565 $ 777,198 Gas.................................... 72,329 64,960 284,347 249,235 Transit................................ 917 896 2,720 2,939 Total Operating Revenues........... 402,284 373,476 1,147,632 1,029,372 OPERATING EXPENSES: Fuel used in electric generation....... 70,584 67,120 194,714 173,244 Purchased power........................ 3,381 4,869 9,137 12,207 Gas purchased for resale............... 50,504 40,679 191,090 151,042 Other operation........................ 60,594 56,063 174,507 169,792 Maintenance............................ 16,979 14,451 50,241 44,987 Depreciation and amortization.......... 37,054 31,185 109,901 92,704 Income taxes........................... 42,585 42,561 99,615 91,163 Other taxes............................ 22,877 21,110 68,868 62,737 Total Operating Expenses........... 304,558 278,038 898,073 797,876 OPERATING INCOME......................... 97,726 95,438 249,559 231,496 OTHER INCOME: Allowance for equity funds used during construction.................. 1,965 2,735 5,272 7,659 Other income, net of income taxes...... 2,133 1,671 18,428 (7,859) Total Other Income................. 4,098 4,406 23,700 (200) INCOME BEFORE INTEREST CHARGES AND PREFERRED STOCK DIVIDENDS.............. 101,824 99,844 273,259 231,296 INTEREST CHARGES (CREDITS): Interest expense....................... 32,085 33,979 97,036 101,150 Allowance for borrowed funds used during construction.................. (1,575) (3,580) (4,944) (9,014) Total Interest Charges, Net........ 30,510 30,399 92,092 92,136 INCOME BEFORE PREFERRED STOCK CASH DIVIDENDS OF SUBSIDIARY................ 71,314 69,445 181,167 139,160 PREFERRED STOCK CASH DIVIDENDS OF SUBSIDIARY (At stated rates)........... (1,351) (1,416) (4,090) (4,280) NET INCOME............................... 69,963 68,029 177,077 134,880 RETAINED EARNINGS AT BEGINNING OF PERIOD. 528,192 469,247 497,991 472,371 COMMON STOCK CASH DIVIDENDS DECLARED..... (38,793) (35,440) (115,706) (105,415) RETAINED EARNINGS AT END OF PERIOD....... $559,362 $501,836 $ 559,362 $ 501,836 NET INCOME............................... $ 69,963 $ 68,029 $ 177,077 $ 134,880 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (THOUSANDS) (Note 1C)............................ 105,447 98,562 104,812 97,544 EARNINGS PER WEIGHTED AVERAGE SHARE OF COMMON STOCK........................ $ .66 $ .69 $ 1.69 $ 1.38 CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK.......................... $ .3675 $ .360 $ 1.1025 $ 1.080 See notes to consolidated financial statements. 5 SCANA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended September 30, 1996 and 1995 (Unaudited) Nine Months Ended September 30, 1996 1995 (Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income............................................ $ 177,077 $ 134,880 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation, depletion and amortization............ 135,875 154,376 Amortization of nuclear fuel........................ 13,282 5,264 Deferred income taxes, net.......................... 8,647 (10,461) Deferred investment tax credits, net................ (2,733) (2,723) Dividends declared on preferred stock of subsidiary. 4,090 4,280 Equity in (earnings) losses of investees............ (2,721) (349) Nuclear refueling accrual........................... (2,723) 5,218 Allowance for funds used during construction........ (10,216) (16,673) Unamortized loss on reacquired debt................. (107) (3,636) Over (under) collections, fuel adjustment clauses... (2,025) 20,750 Early retirements................................... (4,766) (21,291) Emission allowances, net of AFC..................... (1,885) (7,593) Changes in certain current assets and liabilities: (Increase) decrease in receivables................. (23,099) (9,724) (Increase) decrease in inventories................. 12,287 3,241 (Increase) decrease in prepayments................. 2,248 4,209 Increase (decrease) in accounts payable............ (22,404) (47,598) Increase (decrease) in taxes accrued............... 22,818 31,710 Increase (decrease) in interest accrued ........... 5,131 8,618 Other, net.......................................... 27,628 17,537 Net Cash Provided From Operating Activities............. 336,404 270,035 CASH FLOWS FROM INVESTING ACTIVITIES: Utility property additions and construction expenditures, net of AFC............................ (151,428) (182,373) Sale of interests in oil and gas properties........... 42,554 - Increase in other property and investments............ (104,041) (67,532) Net Cash Used For Investing Activities.................. (212,915) (249,905) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds: Issuance of First Mortgage Bonds.................... - 99,583 Issuance of notes and loans......................... 60,000 28,170 Issuance of other long-term debt.................... - 61,019 Issuance of common stock............................ 53,231 155,498 Repayments: First and Refunding Mortgage Bonds.................. (22,000) (48,779) Redemption of notes................................. (63,158) (63,917) Other long-term debt................................ (1,318) (11,300) Preferred stock..................................... (2,876) (2,846) Dividend payments: Common stock........................................ (114,217) (103,858) Preferred stock of subsidiary....................... (4,111) (4,336) Short-term borrowings, net............................ (9,002) (37,937) Fuel and emission allowance financings, net........... (3,724) (247) Net Cash Provided From (Used For) Financing Activities.. (107,175) 71,050 NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS............................ 16,314 91,180 CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1........ 16,082 12,938 CASH AND TEMPORARY CASH INVESTMENTS AT SEPTEMBER 30..... $ 32,396 $ 104,118 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for - Interest (includes capitalized interest of $4,944 and $9,014)....... $ 89,596 $ 90,893 - Income taxes.......................... 65,313 49,411 NONCASH FINANCING ACTIVITIES: City of Charleston Franchise Fee...................... 25,000 - See notes to consolidated financial statements.
6 SCANA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1996 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in SCANA Corporation's Annual Report on Form 10-K for the year ended December 31, 1995. These are interim financial statements and, because of temperature variations between seasons of the year, the amounts reported in the Consolidated Statements of Income are not necessarily indicative of amounts expected for the year. In the opinion of management, the information furnished herein reflects all adjustments, all of a normal recurring nature, which are necessary for a fair statement of the results for the interim periods reported. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Principles of Consolidation The accounts of SCANA Corporation and its wholly owned subsidiaries (Company) are consolidated in the accompanying Consolidated Financial Statements. Certain investments are reported using the equity method of accounting. Significant intercompany balances and transactions have been eliminated in consolidation in compliance with Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation" which provides that profits on intercompany sales to regulated affiliates are not eliminated if the sales price is reasonable and the future recovery of the sales price through the rate making process is probable. B. Basis of Accounting The Company prepares its financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation." The accounting standard allows cost-based rate-regulated utilities, such as the Company, to recognize in their financial statements revenues and expenses in different time periods than do enterprises that are not rate-regulated. As a result, the Company has recorded, as of September 30, 1996, approximately $239 million and $63 million of regulatory assets and liabilities, respectively, including amounts recorded for accumulated deferred income tax assets and liabilities of approximately $86 million and $59 million, respectively. The electric regulatory assets of approximately $123 million (excluding accumulated deferred income tax assets) are being recovered through rates and, as discussed in Note 2, the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $67 million of these assets. In the future, as a result of deregulation or other changes in the regulatory environment, the Company may no longer meet the criteria for continued application of SFAS 71 and would be required to write off its regulatory assets and liabilities. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. C. Stock Split On April 27, 1995, the Company's Board of Directors approved a two-for-one split of the Company's Common Stock effective at the close of business May 11, 1995. The weighted average number of common shares outstanding, earnings per weighted average share of common stock and cash dividends declared per share of common stock have been restated to reflect the stock split for the prior period reported. D. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1996 presentation. 7 2.RATE MATTERS: With respect to rate matters at September 30, 1996, reference is made to Note 2 of Notes to Consolidated Financial Statements in The Company's Annual Report on Form 10-K for the year ended December 31, 1995. On July 10, 1995 SCE&G filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting SCE&G an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase is being implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of SCE&G's electric regulatory assets (excluding accumulated deferred income tax assets) and the transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction, which constitutes approximately 5% of the Company's electric revenues. 3. RETAINED EARNINGS: The Restated Articles of Incorporation of the Company do not limit the dividends that may be payable on its common stock. However, the Restated Articles of Incorporation of SCE&G and the Indenture underlying certain of its bond issues contain provisions that may limit the payment of cash dividends on common stock. In addition, with respect to hydroelectric projects, the Federal Power Act may require the appropriation of a portion of the earnings therefrom. At September 30, 1996 approximately $15.5 million of SCE&G's retained earnings were restricted as to payment of cash dividends on common stock. 4. COMMITMENTS AND CONTINGENCIES: With respect to commitments at September 30, 1996, reference is made to Note 10 of Notes to Consolidated Financial Statements appearing in The Company's Annual Report on Form 10-K for the year ended December 31, 1995. No significant changes have occurred with respect to those matters as reported therein, except with regard to the Calhoun Park area site discussed in Note 4B below. Contingencies at September 30, 1996 are as follows: A. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with the Company's public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $8.9 billion. Each reactor licensee is currently liable for up to $79.3 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. SCE&G'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. SCE&G currently maintains policies (for itself and on behalf of the PSA) with American Nuclear Insurers (ANI) and Nuclear Electric Insurance Limited (NEIL) providing combined property and decontamination insurance coverage of $1.9 billion for any losses at Summer Station. SCE&G pays annual premiums and, in addition, could be assessed a retroactive premium assessment not to exceed 7 1/2 times its annual premium in the event of property damage loss to any nuclear generating facility covered under the NEIL program. Based on the current annual premium, this retroactive premium assessment would not exceed $8.7 million. 8 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 SCE&G's rates would not recover the cost of any purchased replacement power, SCE&G will retain the risk of loss as a self-insurer. SCE&G has no reason to anticipate a serious nuclear incident at Summer Station. If such an incident were to occur, it could have a material adverse impact on the Company's financial position and results of operations. B. Environmental The Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the cost, if any, to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts are deferred (approximately $16 million) and are being amortized and recovered through rates over a ten-year period for electric operations and an eight-year period for gas operations. The deferral includes the costs estimated to be associated with the matters discussed below. SCE&G, the Company's principal subsidiary, owns four decommissioned manufactured gas plant sites which contain residues of by-product chemicals. SCE&G maintains an active review of the sites to monitor the nature and extent of the residual contamination. In September 1992 the Environmental Protection Agency (EPA) notified SCE&G, 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 SCE&G's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The potentially responsible parties (PRP) have agreed with the EPA to participate in an innovative approach to site investigation and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre- cleanup site investigation process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993 and a draft Remedial Investigation report was submitted to the EPA in February 1995. SCE&G is currently resolving the comments of the EPA and other regulatory agencies related to the draft. In addition, contamination may have migrated to the City's aquarium site from the manufactured gas plant. In October 1996 the City of Charleston and SCE&G settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years by SCE&G to the City. SCE&G expects to recover the amount of the settlement through rates in the same manner as other amounts accrued for site assessments and cleanup as discussed above. SCE&G is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. The Company does not expect the settlement to have a material impact on the Company's financial position or results of operations. C. SCANA Communications, Inc. Guarantee A percentage of the projected annual revenues for the years 1996-2003 of certain fiber optic routes of a joint venture between SCANA Communications, Inc. (SCI), formerly MPX Systems, Inc., and a subsidiary of ITC Holding Company, Inc., a Georgia-based telecommunications holding company, has been guaranteed by SCI. The amount of such guarantee over the remaining portion of the eight-year period, net of $22.2 million for revenue contracts obtained by the joint venture, is approximately $19.9 million. 9 SCANA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Competition The electric utility industry has begun a major transition that could lead to expanded market competition and less regulatory protection. Future deregulation of electric wholesale and retail markets will create opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. The paceof deregulation, the future market price of electricity, and the regulatory actions which may be taken by the PSC and the Federal Energy Regulatory Commission (FERC) in response to the changing environment cannot be predicted. However, recent FERC actions will likely accelerate competition among electric utilities by providing for wholesale transmission access. In April, 1996 the FERC issued Order 888, which addresses open access to transmission lines and stranded cost recovery. Order 888 requires utilities under FERC jurisdiction that own, control or operate transmission lines to file nondiscriminatory open access tariffs that offer to others the same transmission service they provide themselves. The FERC has also permitted utilities to seek recovery of wholesale stranded costs from departing customers by direct assignment. Approximately 5% of the Company's electric revenues is under FERC jurisdiction. The Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company's electric and gas utility, SCE&G, operates Strategic Business Units. Maintaining a competitive cost structure is of paramount importance in the utility's strategic plan. SCE&G has undertaken a variety of initiatives, including reductions in operation and maintenance costs and in staffing levels. In January 1996 the PSC approved (as discussed under "Liquidity and Capital Resources") the accelerated recovery of SCE&G's electric regulatory assets and the shift of depreciation reserves from transmission and distribution assets to nuclear production assets. The shift of depreciation reserves was not approved by the FERC. In May 1996 the FERC approved SCE&G's application establishing open access transmission tariffs and requesting authorization to sell bulk power to wholesale customers at market-based rates. The FERC also approved SCANA Energy Marketing's (SEM) application to become a power marketer. That designation will allow SEM, a subsidiary of the Company and a natural gas marketer, to buy and sell large blocks of electric capacity in wholesale markets. The Company believes that these actions as well as numerous others that have been and will be taken demonstrate its ability and commitment to succeed in the new operating environment to come. Regulated public utilities are allowed to record as assets some costs that would be expensed by other enterprises. If deregulation or other changes in the regulatory environment occur, the Company may no longer be eligible to apply this accounting treatment and may be required to eliminate such regulatory assets from its balance sheet. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. The Company reported approximately $239 million and $63 million of regulatory assets and liabilities, respectively, including amounts recorded for accumulated deferred income tax assets and liabilities of approximately $86 million and $59 million, respectively, on its balance sheet at September 30, 1996. Material Changes in Capital Resources and Liquidity From December 31, 1995 to September 30, 1996 Liquidity and Capital Resources The cash requirements of the Company arise primarily from SCE&G's operational needs, the Company's construction program and the need to fund the activities or investments of the Company's nonregulated subsidiaries. The ability of the Company's regulated subsidiaries to replace existing plant investment, as well as to expand to meet future demands for electricity and gas, will depend upon their ability to attract the necessary financial capital on reasonable terms. The Company's regulated subsidiaries recover 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 regulated subsidiaries expand their construction programs, it is necessary to seek increases in rates. As a result, the Company's financial position and results of operations are affected by the regulated subsidiaries' ability to obtain adequate and timely rate relief and in the future will be dependent on the Company's ability to compete in a deregulated environment (see "Competition"). 10 On July 10, 1995 SCE&G filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting SCE&G an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase is being implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of SCE&G's electric regulatory assets (excluding accumulated deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction. The following table summarizes how the Company generated funds for its property acquisitions and utility property additions and construction expenditures during the nine months ended September 30, 1996 and 1995: Nine months Ended September 30, 1996 1996 1995 (Thousands of Dollars) Net cash provided from operating activities $336,404 $270,035 Net cash provided from (used for) financing activities (107,175) 71,050 Cash provided from sale of oil and gas properties 42,554 - Cash and temporary cash investments available at the beginning of the period 16,082 12,938 Net cash available for property acquisitions and utility property additions and construction expenditures $287,865 $354,023 Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $151,428 $182,373 Funds used for nonutility property additions $ 23,042 $ 67,532 On January 13, 1995 the Company closed a $60 million unsecured bank loan due January 12, 1996, and used the proceeds to pay off loans in a like total amount. In January 1996 the Company refinanced the loan with unsecured bank loans totaling $60 million due January 10, 1997 at initial interest rates between 5.684% and 5.730%, subject to reset quarterly at LIBOR plus a spread of nine to fifteen basis points. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with SCE&G. In consideration for the electric franchise agreement, the City will receive from SCE&G $25 million paid over seven years and SCE&G will donate to the City the existing transit assets in Charleston. In settlement of environmental claims the City may have had against SCE&G involving the Calhoun Park area, where SCE&G and its predecessor companies operated a manufactured gas plant until the 1960's, SCE&G will pay the City $26 million over a four-year period. As part of the environmental settlement, SCE&G 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. SCE&G will invest up to $500,000 annually for 30 years in the City to defray the cost of underground wiring or other nonstandard service projects within scenic or historic districts of the City, which amounts will be matched by city funds. The City has agreed to limit such projects to those which can be paid for from a combined pool of funds created by SCE&G's and the City's contributions. It is anticipated that SCE&G's payments for underground wiring/nonstandard service will be treated as investments in the electric distribution rate base by SCE&G's regulators. 11 The Company and Westvaco Corporation have formed a limited liability company, Cogen South LLC, to build and operate a $170 million cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, S. C. SCANA & Westvaco each own 50% interest in the joint venture. The facility will provide industrial process steam for the Westvaco paper mill and shaft horsepower to enable SCE&G to generate up to 99 megawatts of electricity. Construction financing is being provided to Cogen South LLC by banks. A $15 million capital contribution to the partnership by each partner is expected prior to operation of the facility. In addition to the cogeneration partnership, Westvaco has entered into a 20-year contract with SCE&G for all its electricity requirements at SCE&G's standard industrial rate. Construction of the plant began August 26, 1996 and it is expected to be operational in the fall of 1998. SCANA Communications, Inc. (SCI), a wholly owned subsidiary of SCANA, through a joint venture with a subsidiary of ITC Holding Company, Inc., a Georgia-based telecommunications holding company, has constructed a fiber optic network through Texas, Louisiana, Mississippi, Alabama and Georgia. The network, which cost approximately $70 million, consists of more than 900 miles of fiber optic lines. SCI holds an approximate 17% interest in the common stock of InterCel, Inc. (InterCel), a publicly traded telecommunications company providing services in Georgia, Alabama, Florida, Tennessee, Mississippi and Maine. On June 28, 1996 InterCel purchased the PCS license for the Atlanta MTA from GTE Mobilnet Incorporated. InterCel financed the purchase principally through a private placement of convertible preferred stock. SCI purchased $75 million of a series of InterCel non-voting preferred stock that is convertible to InterCel common stock after four years. SCANA Petroleum Resources, Inc. (SPR) and Fina Oil and Chemical Company (Fina) are parties to a joint exploration and development agreement providing for the exclusive oil and gas development rights on approximately 183,000 acres of onshore lands owned by Fina in Terrebonne and LaFourche Parishes in southern Louisiana. SPR and Fina are continuing an extensive 3-D seismic acquisition program on the property. Fina is the operator of the multi-million dollar seismic program, which is financed and owned on a 50-50 basis between the companies. SPR's participation in the seismic and drilling activity is financed largely with internal cash flows from the existing SPR operations. Drilling activities began in September 1996. On April 22, 1996, SPR closed a $46.7 million sale of substantially all of its oil and gas properties in the state of Oklahoma to ONEOK Resources Company, a subsidiary of ONEOK, Inc. Under the full cost method of accounting, the sale resulted in an adjustment of the Company's oil and gas reserves and associated costs and did not result in any gain or loss. There was no material affect on SPR's cost per barrel equivalent of reserves. Following the sale, over 95 percent of its remaining reserves are located on properties in East Texas, Louisiana, Mississippi and other onshore and offshore Gulf Coast areas. SPR 's long-term operating strategy will be focused on these areas. The Company's forward contracts have the effect of stabilizing the price that the Company receives on approximately sixty percent of its forecasted natural gas production for the remainder of 1996 and 1997. Contracts related to the period 1998-2001 have been lifted. The remaining contracts are at an average price of $1.82 per dekatherm. The Company remains exposed to price risk for any production that is not subject to such forward contracts. The Company anticipates that the remainder of its 1996 cash requirements will be met through internally generated funds, the sales of additional equity securities and medium-term notes and the incurrence of additional short-term and long-term indebtedness. The timing and amount of such financing will depend upon market conditions and other factors. The ratio of earnings to fixed charges for the twelve months ended September 30, 1996 was 3.58. 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. 12 SCANA CORPORATION Results of Operations For the Three and Nine Months ended September 30, 1996 As Compared to the Corresponding Periods in 1995 Earnings and Dividends Net income for the three and nine months ended September 30, 1996 increased approximately $1.9 million and $42.2 million, respectively, when compared to the corresponding periods in 1995. The primary factors accounting for the improved earnings performance were higher electric sales margins at SCE&G and improved earnings at SPR which more than offset increases in operating expenses. SPR's net income for the three and nine months ended September 30, 1996 increased by approximately $1.4 million and $28.8 million, respectively, when compared to the corresponding periods in 1995. A non-recurring after-tax gain of $5.7 million reported by SCI as a result of the business combination of Powertel PCS Partners and Intercel, Inc. in February 1996 is included in reported net income for the nine months ended September 30, 1996. 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 8% of income before income taxes for the nine months ended September 30, 1996 and 1995, respectively. On February 20, 1996 the Company's Board of Directors declared a quarterly dividend on common stock of 36 3/4 cents per share, for the quarter ended March 31, 1996. The dividend was paid on April 1, 1996 to common stockholders of record on March 8, 1996. On April 25, 1996 the Company's Board of Directors declared a quarterly dividend on common stock of 36 3/4 cents per share for the quarter ended June 30, 1996. The dividend was paid on July 1, 1996 to common stockholders of record on June 10, 1996. On August 21, 1996 the Company's Board of Directors declared a quarterly dividend on common stock of 36 3/4 cents per share for the quarter ended September 30, 1996. The dividend was paid on October 1, 1996 to common stockholders of record on September 10, 1996. On October 22, 1996 the Company's Board of Directors declared a quarterly dividend on common stock of 36 3/4 cents per share for the quarter ended December 31, 1996. The dividend is payable on January 1, 1997 to common stockholders of record on December 10, 1996. Sales Margins The changes in the electric sales margins for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995, were as follows: Three Months Nine Months Change % Change Change % Change (Millions) (Millions) Electric operating revenues $21.4 7.0 $83.4 10.7 Less: Fuel used in electric generation 3.5 5.2 21.5 12.4 Purchased power (1.5) (30.6) (3.1) (25.1) Margin $19.4 8.3 $65.0 11.0 The electric sales margins increased for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995 as a result of the rate increase received by SCE&G in January 1996 and economic growth factors. 13 The changes in the gas sales margins for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995, were as follows: Three Months Nine Months Change % Change Change % Change (Millions) (Millions) Gas operating revenues $ 7.4 11.3 $35.1 14.1 Less: Gas purchased for resale 9.8 24.2 40.0 26.5 Margin $(2.4) (10.1) $(4.9) (5.0) The decreases in the gas sales margins are primarily a result of higher gas costs and curtailments imposed on interruptible industrial customers as a result of abnormally cold weather in the first quarter of 1996. Also, lower gas prices in 1995 allowed the Company to compete more successfully with alternate fuel suppliers in industrial markets. Other Operating Expenses Changes in other operating expenses, including taxes, for the three and nine months ended September 30, 1996, when compared to the corresponding periods in 1995 are presented in the following table: Three Months Nine Months Change % Change Change % Change (Millions) (Millions) Other operation and maintenance $ 7.0 10.0 $10.0 4.6 Depreciation and amortization 5.9 18.8 17.2 18.6 Income taxes - - 8.4 9.3 Other taxes 1.8 8.4 6.1 9.8 Total $14.7 8.9 $41.7 9.0 Other operation and maintenance expenses for the three and nine months ended September 30, 1996 increased from 1995 levels primarily as a result of higher production costs attributable to the Cope Plant which was brought on line in January 1996. Increases in depreciation and amortization expenses for the three and nine months comparisons reflect the addition of the Cope Plant and other additions to plant in service. The increase in income tax expense for the nine months corresponds to the increase in operating income. The increases in other taxes reflect higher property taxes resulting from property additions and higher millages and assessments. Other Income Other income, net of income taxes, for the three and nine months ended September 30, 1996 increased $0.5 million and $26.3 million, respectively, when compared to the corresponding periods of 1995. The increase for the nine months is due primarily to the improved earnings performance of SPR attributable to a noncash reserve adjustment recorded in the second quarter of 1995 and to higher gas prices and lower production costs. The gain reported by SCI, discussed under "Earnings and Dividends", is included in other income reported for the nine months ended September 30, 1996. Interest Charges Interest expense, excluding the debt component of AFC, for the three and nine months ended September 30, 1996 decreased $1.9 million and $4.1 million, respectively, when compared to the corresponding periods in 1995 primarily as a result of reductions in outstanding debt. 14 SCANA CORPORATION Part II OTHER INFORMATION Item 1. Legal Proceedings For information regarding legal proceedings see Note 2 "Rate Matters" and Note 4 "Commitments and Contingencies" of Notes to Consolidated Financial Statements. Items 2, 3, 4 and 5 are not applicable. Item 6. Exhibits and Reports on Form 8-K A. Exhibits Exhibits filed with this Quarterly Report on Form 10-Q are listed in the following Exhibit Index. Certain of such exhibits which have heretofore been filed with the Securities and Exchange Commission and which are designated by reference to their exhibit numbers in prior filings are hereby incorporated herein by reference and made a part hereof. B. Reports on Form 8-K None 15 SCANA CORPORATION 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. SCANA CORPORATION (Registrant) November 12, 1996 By: s/K. B. Marsh K. B. Marsh, Vice President - Finance, Chief Financial Officer and Controller 16 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number 2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession Not Applicable 3. Articles of Incorporation and By-Laws A. Restated Articles of Incorporation of SCANA Corporation as adopted on April 26, 1989 (Exhibit 3-A to Registration Statement No. 33-49145)........................................... # B. Articles of Amendment dated April 27, 1995 (Exhibit 4-B to Registration Statement No. 33-62421)............................................... # C. Copy of By-Laws of SCANA Corporation as revised and amended on June 18, 1996 (Filed as Exhibit 3-C in Form 10-Q for the quarter ended March 31, 1996)... # 4. Instruments Defining the Rights of Security Holders, Including Indentures A. Articles of Exchange of South Carolina Electric & Gas Company and SCANA Corporation (Exhibit 4-A to Post-Effective Amendment No. 1 to Registration Statement No. 2-90438).................. # B. Indenture dated as of November 1, 1989 to The Bank of New York, Trustee (Exhibit 4-A to Registration No. 33-32107)........................... # C. 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)............... # D. Fourth Supplemental Indenture dated as of April 1, 1950, to Indenture referred to in Exhibit 4C, pursuant to which the Company assumed said Indenture (Exhibit 2-C to Registration No. 2-26459)............................... # E. Fifth through Fifty-second Supplemental Indentures referred to in Exhibit 4C 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......................................... # # Incorporated herein by reference as indicated. 17 SCANA CORPORATION EXHIBIT INDEX Number 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 # Incorporated herein by reference as indicated. 18 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number 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 F. 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)........................................... # G. First Supplemental Indenture to Indenture referred to in Exhibit 4-F dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421)........................................... # H. Second Supplemental Indenture to Indenture referred to in Exhibit 4-F dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955)........................................... # 10. Material Contracts Not Applicable 11. Statement Re Computation of Per Share Earnings Not Applicable 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 19 EX-27 2
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1995 SEP-30-1996 PER-BOOK 3,490,881 337,674 396,975 421,453 0 4,646,983 1,108,918 0 559,362 1,668,280 43,354 26,027 1,522,895 103,522 0 0 101,329 2,453 0 0 1,179,123 4,646,983 402,284 42,585 261,973 304,558 97,726 4,098 101,824 30,510 71,314 (1,351) 69,963 38,793 0 336,404 .66 0
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