-----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, KxynDePR/JC48fp7h2ztBU4umyhhka0vcKumpncwzm3LNY50NidbktX6B05vAHC+ dgaUO9Fcjgw3VggikOpyww== 0000754737-97-000005.txt : 19970317 0000754737-97-000005.hdr.sgml : 19970317 ACCESSION NUMBER: 0000754737-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08809 FILM NUMBER: 97556659 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: P O BOX 764 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8033768547 MAIL ADDRESS: STREET 1: MAIL CODE 051 CITY: COLUMBIA STATE: SC ZIP: 29218 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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 (IRS 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 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, without par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non- affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 405.) Note: If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this form. The aggregate market value of the voting stock held by nonaffiliates of the registrant was $2,785,523,916 at February 28, 1997 based on the closing price of the Common Stock on such date, as reported by the New York Stock Exchange composite tape in The Wall Street Journal. APPLICABLE ONLY TO REGISTRANTS 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 REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. The total number of shares of the registrant's Common Stock, no par value, outstanding at February 28, 1997 was 106,622,925. DOCUMENTS INCORPORATED BY REFERENCE. List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security-holders for fiscal year ended December 24, 1980). Specified sections of the Registrant's 1997 Proxy Statement, dated March 17, 1997, in connection with its 1997 Annual Meeting of Stockholders, are incorporated by reference in Part III hereof. 2 TABLE OF CONTENTS Page DEFINITIONS ....................................................... 4 PART I Item 1. Business ............................................ 5 Item 2. Properties .......................................... 24 Item 3. Legal Proceedings ................................... 26 Item 4. Submission of Matters to a Vote of Security Holders ................................... 26 Corporate Structure .......................................... 27 Executive Officers of the Registrant ......................... 28 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 30 Item 6. Selected Financial Data ............................. 31 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 32 Item 8. Financial Statements and Supplementary Data ......... 43 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............. 71 PART III Item 10. Directors and Executive Officers of the Registrant ......................................... 71 Item 11. Executive Compensation .............................. 71 Item 12. Security Ownership of Certain Beneficial Owners and Management .............................. 71 Item 13. Certain Relationships and Related Transactions ...... 71 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................ 72 SIGNATURES ........................................................ 73 3 DEFINITIONS The following abbreviations used in the text have the meanings set forth below unless the context requires otherwise: ABBREVIATION TERM AFC......................... Allowance for Funds Used During Construction BTU......................... British Thermal Unit Circuit Court............... South Carolina Circuit Court Clean Air Act............... Clean Air Act Amendments of 1990 Company..................... SCANA Corporation and Its Subsidiaries Consumer Advocate........... Consumer Advocate of South Carolina Dekatherm................... One Million BTUs DHEC........................ South Carolina Department of Health and Environmental Control DOE......................... United States Department of Energy Energy Marketing............ SCANA Energy Marketing, Inc. EPA......................... United States Environmental Protection Agency FERC........................ United States Federal Energy Regulatory Commission Fuel Company................ South Carolina Fuel Company, Inc. GENCO....................... South Carolina Generating Company, Inc. InterCel.................... InterCel, Inc. Investor Plus Plan.......... SCANA Corporation Investor Plus Plan ITC......................... ITC Holding Company, Inc. KVA......................... Kilovolt-ampere KW.......................... Kilowatt KWH......................... Kilowatt-hour LNG......................... Liquefied Natural Gas MCF......................... Thousand Cubic Feet Mhz......................... Megahertz MTA......................... Major Trading Area MW.......................... Megawatt NEPA........................ National Energy Policy Act of 1992 NRC......................... United States Nuclear Regulatory Commission PCS......................... Personal Communications Service Petroleum Resources......... SCANA Petroleum Resources, Inc. Pipeline Corporation........ South Carolina Pipeline Corporation PRP......................... Potentially Responsible Party PSA......................... The South Carolina Public Service Authority PSC......................... The Public Service Commission of South Carolina PUHCA....................... Public Utility Holding Company Act of 1935, as amended SCI......................... SCANA Communications, Inc. SCANA....................... SCANA Corporation, the parent company SCE&G....................... South Carolina Electric & Gas Company SEC......................... United States Securities and Exchange Commission Southern Natural............ Southern Natural Gas Company SPSP........................ SCANA Corporation Stock Purchase-Savings Plan Suburban.................... Suburban Propane Group, Inc. Summer Station.............. V. C. Summer Nuclear Station Supreme Court............... South Carolina Supreme Court Transco..................... Transcontinental Gas Pipeline Corporation USEC........................ United States Enrichment Corporation Westinghouse................ Westinghouse Electric Corporation Williams Station............ A. M. Williams Coal-Fired, Electric Generating Station Owned by GENCO 4 PART I ITEM 1. BUSINESS THE COMPANY ORGANIZATION SCANA, a South Carolina corporation having general business powers, was incorporated on October 10, 1984 and is a public utility holding company within the meaning of PUHCA but is exempt from registration under such Act (see "Regulation"). SCANA has its principal executive office at 1426 Main Street, Columbia, South Carolina 29201, telephone number (803) 748-3000. SCANA holds, directly or indirectly, all the capital stock of each of its subsidiaries except for the Preferred Stock of SCE&G. SCANA and its subsidiaries had 4,285 full-time, permanent employees as of December 31, 1996 as compared to 4,347 full-time, permanent employees as of December 31, 1995. SEGMENTS OF BUSINESS SCANA neither owns nor operates any physical properties. It has thirteen direct, wholly owned subsidiaries which are engaged in the functionally distinct operations described below. Regulated Utilities The Company's principal subsidiary, SCE&G, is a regulated public utility engaged in the generation, transmission, distribution and sale of electricity and in the purchase and sale, primarily at retail, of natural gas in South Carolina. SCE&G also renders urban bus service in the metropolitan area of Columbia, South Carolina. SCE&G's business is subject to seasonal fluctuations. Generally, sales of electricity are higher during the summer and winter months because of air-conditioning and heating requirements, and sales of natural gas are greater in the winter months due to its use for heating requirements. SCE&G's electric service area extends into 24 counties covering more than 15,000 square miles in the central, southern and southwestern portions of South Carolina. The service area for natural gas encompasses all or part of 30 of the 46 counties in South Carolina and covers more than 20,000 square miles. The total population of the counties representing the combined service area is approximately 2.4 million. The predominant industries in the territories served by SCE&G include: synthetic fibers; chemicals and allied products; fiberglass and fiberglass products; paper and wood products; metal fabrication; stone, clay and sand mining and processing; and various textile-related products. GENCO owns and operates Williams Station and sells electricity solely to SCE&G. Fuel Company acquires, owns and provides financing for SCE&G's nuclear fuel, fossil fuel and sulfur dioxide emission allowance requirements. 5 Pipeline Corporation is engaged in the purchase, transmission and sale of natural gas on a wholesale basis to distribution companies and directly to industrial customers in 40 counties throughout South Carolina. Pipeline Corporation owns LNG liquefaction and storage facilities. It owns and operates a 62-mile, six-inch propane pipeline that connects the SCANA Propane Services, Inc. propane storage facility with Dixie Pipeline Company's system, which traverses central South Carolina. It also supplies the natural gas for SCE&G's gas distribution system. Other resale customers include municipalities and county gas authorities and gas utilities. The industrial customers of Pipeline Corporation are primarily engaged in the manufacturing or processing of ceramics, paper, metal, food and textiles. Nonregulated Businesses Petroleum Resources is engaged in oil and natural gas exploration, development and production activities. It currently owns and/or operates interests in oil and gas properties in Alabama, Arkansas, Louisiana, Mississippi, New Mexico, Texas and Federal and state waters offshore Alabama, Louisiana and Texas. Energy Marketing markets natural gas and other light hydrocarbons. Energy Marketing also owns and operates gas gathering systems in Waskom, Texas and offshore Alabama in Mobile Bay. Suburban purchases, delivers and sells propane within the Southeast. In 1996 Suburban sold approximately 34 million gallons of propane and had approximately 35,000 residential, commercial and industrial customers at year end. SCANA Propane Services, Inc. owns and operates a 60-million gallon under- ground propane storage facility near York, South Carolina and leases cavern storage space to industries, utilities and others. SCI, through a joint venture with a subsidiary of ITC, a Georgia-based telecommunications holding company, owns and operates a 900 mile fiber optic network through Alabama, Georgia, Louisiana, Mississippi, and Texas. SCI holds an approximate 17% interest in the common stock of InterCel, a publicly traded telecommunications company which owns PCS licenses for the Atlanta, Georgia; Birmingham, Alabama; Jacksonville, Florida; and Memphis, Tennessee/Jackson, Mississippi MTAs. InterCel was the winning bidder for additional PCS licenses to provide service to 13 Basic Trading Areas ("BTA") in Kentucky, Tennessee and Indiana. InterCel will market PCS in portions of 12 southeastern states with a population of 23 million. (See "Other Matters.") ServiceCare, Inc. is engaged in providing energy-related products and services beyond the energy meter. Its primary business is providing homeowners with service contracts on their home appliances. On January 1, 1997 ServiceCare initiated its home security monitoring business. At year end, ServiceCare had approximately 34,000 members in South Carolina and, through a franchise agreement with another company, 12,150 members in Kentucky. Primesouth, Inc. is engaged in power plant management and maintenance services. SCANA Resources, Inc. conducts energy-related businesses and services. 6 Information with respect to major segments of business for the years ended December 31, 1996, 1995 and 1994 is contained in Note 11 of the Notes to Consolidated Financial Statements and all such information is incorporated herein by reference. COMPETITION The electric utility industry has begun a major transition that could lead to expanded market competition and less regulation. Deregulation of electric wholesale and retail markets is creating opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. Legislative initiatives at the Federal and state levels are being considered and, if enacted, could mandate market deregulation. The pace of deregulation, the future prices of electricity, and the regulatory actions which may be taken by the PSC and the FERC in response to the changing environment cannot be predicted. However, recent FERC actions will likely accelerate competition among electric utilities by providing for wholesale transmission access. In April 1996 the FERC issued Order 888, which addresses open access to transmission lines and stranded cost recovery. Order 888 requires utilities under FERC jurisdiction that own, control or operate transmission lines to file nondiscriminatory open access tariffs that offer to others the same transmission service they provide themselves. The FERC has also permitted utilities to seek recovery of wholesale stranded costs from departing customers by direct assignment. Approximately five percent of the Company's electric revenues is under FERC jurisdiction. The Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company'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 "Capital Requirements and Financing Program") the accelerated recovery of SCE&G's electric regulatory assets and the shift, for ratemaking purposes, of depreciation reserves from transmission and distribution assets to nuclear production assets. The FERC has rejected the depreciation reserve transfer for rates subject to its jurisdiction. 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. Significant investments are being made in customer and management information systems. Marketing of services to commercial and industrial customers has been increased significantly. The Company believes that these actions as well as numerous others that have been and will be taken demonstrate its ability and commitment to succeed in the new operating environment to come. Regulated public utilities are allowed to record as assets some costs that would be expensed by other enterprises. If deregulation or other changes in the regulatory environment occur, the Company may no longer be eligible to apply this accounting treatment and may be required to eliminate such regulatory assets from its balance sheet. Although the potential effects of deregulation cannot be determined at present, discontinuation of the accounting treatment could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. It is expected that cash flows and the financial position of the Company would not be materially affected by the discontinuation of the accounting treatment. The Company reported approximately $287 million and $59 million of regulatory assets and liabilities, respectively, including amounts recorded for net deferred income tax assets and liabilities of approximately $107 million and $57 million, respectively, on its balance sheet at December 31, 1996. 7 CAPITAL REQUIREMENTS AND FINANCING PROGRAM Capital Requirements 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 demand 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 continue their ongoing construction programs, it is necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by the regulated subsidiaries' ability to obtain adequate and timely rate and other regulatory relief. On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34%, which will produce additional revenues of approximately $67.5 million annually. The increase has been implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, based on a test year, 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 SCE&G'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. SCE&G's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction, which constitute approximately five percent of the Company's electric revenues. The FERC has rejected the transfer of depreciation reserves for rates subject to its jurisdiction. During 1997 the Company is expected to meet its capital requirements principally through internally generated funds (approximately 67%, after payment of dividends), sales of additional shares of common stock including sales pursuant to the Investor Plus Plan and the SPSP, and the issuance and sale of debt securities. Short-term liquidity is expected to be provided primarily by issuance of commercial paper. The timing and amount of such sales and the type of securities to be sold will depend upon market conditions and other factors. 8 The Company's revised estimates of its cash requirements for construction and nuclear fuel expenditures, which are subject to continuing review and adjustment, for 1997 and the two-year period 1998-1999 are as follows: Type of Facilities 1998-1999 1997 (Thousands of Dollars) South Carolina Electric & Gas Company: Electric Plant: Generation . . . . . . . . . . . . . . $127,397 $ 61,869 Transmission . . . . . . . . . . . . . 40,442 19,801 Distribution . . . . . . . . . . . . . 121,821 63,250 Other. . . . . . . . . . . . . . . . . 18,667 18,344 Nuclear Fuel. . . . . . . . . . . . . . . 24,257 30,706 Gas . . . . . . . . . . . . . . . . . . . 35,792 21,327 Common . . . . . . . . . . . . . . . . . 14,161 39,666 Other . . . . . . . . . . . . . . . . . . 701 559 Total . . . . . . . . . . . . . . . . . 383,238 255,522 Other Companies Combined. . . . . . . . . . 108,596 72,006 Total . . . . . . . . . . . $491,834 $327,528 The above estimates exclude AFC. Actual expenditures for the years 1997 and 1998-1999 may vary from the estimates set forth above due to factors such as inflation, economic conditions, regulation, legislation, rates of load growth, environmental protection standards and the cost and availability of capital. During 1996 SCE&G and GENCO expended approximately $18.6 million as part of a program to extend the operating lives of certain non-nuclear generating facilities. Additional improvements to be made under the program during 1997, included in the table above, are estimated to cost approximately $37.6 million. Other In addition to the Company's capital requirements for 1997 described above, approximately $36.4 million will be required for refunding and retiring outstanding securities and obligations. For the years 1998-2001, the Company has an aggregate of $476.6 million of long-term debt maturing (including approximately $69.2 million for sinking fund requirements, of which $68.7 million may be satisfied by deposit and cancellation of bonds issued upon the basis of property additions or bond retirement credits) and $9.8 million of purchase or sinking fund requirements for preferred stock. 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, South Carolina. SCANA and Westvaco each own 50% interest in the LLC. 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 LLC by each partner is expected prior to operation of the facility. In addition to the cogeneration LLC, Westvaco has entered into a 20-year contract with SCE&G for all its electricity requirements at the North Charleston mill at SCE&G's standard industrial rate. Construction of the plant began in September 1996 and it is expected to be operational in the fall of 1998. A percentage of the projected annual revenues for the years 1997-2003 of certain fiber optic routes of a joint venture between SCI and a subsidiary of ITC, has been guaranteed by SCI. The amount of such guarantee over its remaining term, net of $33.5 million for revenue contracts obtained by the joint venture, is approximately $7.3 million. (See "Other Matters.") 9 Financing Program The Company has in effect a medium-term note program for the issuance from time to time of unsecured medium-term debt securities. The proceeds from the sales of these securities may be used to fund additional business activities in nonutility subsidiaries, to reduce short-term debt incurred in connection therewith or for general corporate purposes. At December 31, 1996 the Company had available for issuance $317.6 million under this program, of which $25 million was issued on February 12, 1997. SCE&G's First and Refunding Mortgage Bond Indenture, dated April 1, 1945 (Old Mortgage), contains provisions prohibiting the issuance of additional bonds thereunder (Class A Bonds) unless net earnings (as therein defined) for twelve consecutive months out of the fifteen months prior to the month of issuance are at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1996 the Bond Ratio was 4.37. The issuance of additional Class A Bonds also is restricted to an additional principal amount equal to (i) 60% of unfunded net property additions (which unfunded net property additions totaled approximately $379 million at December 31, 1996), (ii) retirements of Class A Bonds (which retirement credits totaled $69.6 million at December 31, 1996), and (iii) cash on deposit with the Trustee. SCE&G has a bond indenture dated April 1, 1993 (New Mortgage) covering substantially all of its electric properties under which its future mortgage- backed debt (New Bonds) will be issued. New Bonds are issued under the New Mortgage on the basis of a like principal amount of Class A Bonds issued under the Old Mortgage which have been deposited with the Trustee of the New Mortgage (of which $185 million were available for such purpose at December 31, 1996), until such time as all presently outstanding Class A Bonds are retired. Thereafter, New Bonds will be issuable on the basis of property additions in a principal amount equal to 70% of the original cost of electric and common plant properties (compared to 60% of value for Class A Bonds under the Old Mortgage), cash deposited with the Trustee, and retirement of New Bonds. New Bonds will be issuable under the New Mortgage only if adjusted net earnings (as therein defined) for twelve consecutive months out of the eighteen months immediately preceding the month of issuance are at least twice the annual interest requirements on all outstanding bonds (including Class A Bonds) and New Bonds to be outstanding (New Bond Ratio). For the year ended December 31, 1996 the New Bond Ratio was 5.90. The following additional financing transactions have occurred since December 31, 1995: On January 12, 1996 SCANA closed on unsecured bank loans totaling $60 million due January 10, 1997, and used the proceeds to pay off a loan in a like total amount. On January 10, 1997 SCANA refinanced the loans with unsecured bank loans totaling $60 million due January 9, 1998 at initial interest rates between 5.995% and 6.031%, at a fixed 12-month LIBOR plus a spread of 10 to 12 1/2 basis points. On February 12, 1997 SCANA closed on the sale of $25 million of Medium- Term Notes having an annual interest rate of 6.9% and maturing February 15, 2007. These funds were used to reduce short-term borrowings at SCANA. Without the consent of at least a majority of the total voting power of SCE&G's preferred stock, SCE&G may not issue or assume any unsecured indebtedness if, after such issue or assumption, the total principal amount of all such unsecured indebtedness would exceed 10% of the aggregate principal amount of all of SCE&G's secured indebtedness and capital and surplus; provided, however, that no such consent shall be required to enter into agreements for payment of principal, interest and premium for securities issued for pollution control purposes. 10 Pursuant to Section 204 of the Federal Power Act, SCE&G and GENCO must obtain FERC authority to issue short-term debt. As amended by SCE&G's request approved in 1997, the FERC has authorized SCE&G to issue up to $250 million of unsecured promissory notes or commercial paper with maturity dates of twelve months or less but not later than December 31, 1999. Commercial paper outstanding at December 31, 1996 was $90.0 million. GENCO has not sought such authorization. SCE&G had $145 million authorized and unused lines of credit at December 31, 1996. In addition, Fuel Company has a credit agreement for a maximum of $125 million with the full amount available at December 31, 1996. The credit agreement supports the issuance of short-term commercial paper for the financing of nuclear and fossil fuels and sulfur dioxide emission allowances. (See "Fuel Financing Agreements.") Fuel Company commercial paper outstanding at December 31, 1996 was $66.1 million, SCE&G's Restated Articles of Incorporation prohibit issuance of additional shares of preferred stock without consent of the preferred stockholders unless net earnings (as defined therein) for the twelve consecutive months immediately preceding the month of issuance are at least one and one-half times the aggregate of all interest charges and preferred stock dividend requirements (Preferred Stock Ratio). For the year ended December 31, 1996 the Preferred Stock Ratio was 2.80. During 1996 SCANA issued 1,118,366 shares of the Company's common stock under its Investor Plus Plan. In addition, SCANA issued 1,393,761 shares of its common stock pursuant to its SPSP. At December 31, 1996 SCANA has authorized and reserved for issuance, and registered under effective registration statements, 387,742 and 1,157,378 shares of common stock pursuant to the Investor Plus Plan and the SPSP, respectively. On January 14, 1997 an additional 2,500,000 shares of SCANA common stock were registered for sale under the Investor Plus Plan. Effective February 1, 1997 the Investor Plus Plan converted from an original issue plan to a market purchase plan. The ratios of earnings to fixed charges (SEC method) were 3.60, 3.00, 2.55, 3.38 and 2.79 for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the next twelve months and for the foreseeable future. Fuel Financing Agreements SCE&G has assigned to Fuel Company all of its rights and interests in its various contracts relating to the acquisition and ownership of nuclear and fossil fuels. To finance nuclear and fossil fuels and sulfur dioxide emission allowances, Fuel Company issues, from time to time, commercial paper which is supported, up to $125 million, by an irrevocable revolving credit agreement which expires July 31, 1998. Accordingly, the amounts outstanding have been included in long-term debt. This commercial paper and amounts outstanding under the revolving credit agreement, if any, are guaranteed by SCE&G. At December 31, 1996 commercial paper outstanding was approximately $66.1 million at a weighted average interest rate of 5.62%. (See Note 4 of Notes to Consolidated Financial Statements.) 11 ELECTRIC OPERATIONS Electric Sales In 1996 residential sales of electricity accounted for 43% of electric sales revenues; commercial sales 30%; industrial sales 19%; sales for resale 4%; and all other 4%. KWH sales by classification for the years ended December 31, 1996 and 1995 are presented below: Sales KWH % Classification 1996 1995 Change (thousands) Residential 5,939,703 5,726,815 3.72 Commercial 5,220,627 5,076,091 2.85 Industrial 5,320,515 5,210,368 2.11 Sale for resale 1,023,211 1,063,064 (3.75) Other 505,793 506,806 (0.20) Total Territorial 18,009,849 17,583,144 2.43 Interchange 895,016 195,591 357.60 Total 18,904,865 17,778,735 6.33 Sales for resale includes electricity furnished for resale to three municipalities, two electric cooperatives and, for 1995, one state electric agency. One municipality and one electric cooperative have notified SCE&G of their intent to terminate in the year 2000 their wholesale power contracts with SCE&G and bid out their electric requirements. Interchange sales during 1996 include sales to thirteen investor-owned utilities, one electric cooperative and two federal/state electric agencies. During 1995, interchange sales includes sales to four investor-owned utilities, one electric cooperative and one state electric agency. Interchange sales volume for 1996 increased as a result of additional system capacity resulting from the startup of the Cope plant in early 1996. The electric sales volume from territorial sales increased for the year ended December 31, 1996 compared to the prior year as a result of increased residential and commercial sales due primarily to customer growth. The all- time peak demand of 3,698 MW was set on July 23, 1996. During 1996 the Company recorded a net increase of 8,966 electric customers, increasing its total customers to 493,320. On August 8, 1995 SCE&G signed an agreement with the DOE to lease the Savannah River Site's (SRS) power and steam generation and transmission facilities. The agreement calls for SRS to purchase all its electrical and a majority of its steam requirements from SCE&G. SCE&G is leasing (with an option to renew) the power plant for ten years and the electrical transmission lines for 40 years, with an option to refurbish the facilities or build a new system. Electric Interconnections SCE&G's transmission system is part of the interconnected grid extending over a large part of the southern and eastern portions of the nation. SCE&G, Virginia Power Company, Duke Power Company, Carolina Power & Light Company, Yadkin, Incorporated and PSA are members of the Virginia-Carolinas Reliability Group, one of the several geographic divisions within the Southeastern Electric Reliability Council. This Council provides for coordinated planning for reliability among bulk power systems in the Southeast. SCE&G is also interconnected with Georgia Power Company, Savannah Electric & Power Company, Oglethorpe Power Corporation and Southeastern Power Administration's Clark Hill Project. 12 Fuel Costs The following table sets forth the average cost of nuclear fuel and coal and the weighted average cost of all fuels (including oil and natural gas) used by the Company for the years 1994-1996. 1996 1995 1994 Nuclear: Per million BTU $ .47 $ .48 $ .51 Coal: Per ton $39.33 $40.57 $40.43 Per million BTU 1.57 1.58 1.59 Weighted Average Cost of All Fuels: Per million BTU $ 1.52 $ 1.47 $ 1.53 The fuel costs for 1994 shown above exclude the effects of a PSC-approved offsetting of fuel costs through the application of credits carried on SCE&G's books as a result of a 1980 settlement of certain litigation. Fuel Supply The following table shows the sources and approximate percentages of the Company's total KWH generation by each category of fuel for the years 1994- 1996 and the estimates for 1997 and 1998. Percent of Total KWH Generated Estimated Actual 1998 1997 1996 1995 1994 Coal 69% 71% 71% 65% 76% Nuclear 26 24 24 27 17 Hydro 5 5 5 5 6 Natural Gas & Oil - - - 3 1 100% 100% 100% 100% 100% Coal is used at all five of SCE&G's major fossil fuel-fired plants and GENCO's Williams Station. Unit train deliveries are used at all of these plants. On December 31, 1996 SCE&G had approximately a 37-day supply of coal in inventory and GENCO had approximately a 30-day supply. The supply of coal is obtained through contracts and purchases on the spot market. Spot market purchases are expected to continue for coal requirements in excess of those provided by the Company's existing contracts. Contracts for the purchase of coal represent 89.1% of estimated requirements for 1997 (approximately 5.4 million tons). The supply of contract coal is purchased from six suppliers located in eastern Kentucky and southwest Virginia. Contract commitments, which expire at various times from 1997-2003, approximate 4.4 million tons annually. Sulfur restrictions on the contract coal range from .75% to 2%. 13 The Company believes that SCE&G's and GENCO's operations are in substantial compliance with all existing regulations relating to the discharge of sulfur dioxide. The Company is unaware that any more stringent sulfur content requirements for existing plants are contemplated at the State level by DHEC. However, the Company will be required to meet the more stringent Federal emissions standards established by the Clean Air Act (see "Environmental Matters"). SCE&G has adequate supplies of uranium or enriched uranium product under contract to manufacture nuclear fuel for Summer Station through 2005. The following table summarizes all contract commitments for the stages of nuclear fuel assemblies: Remaining Expiration Commitment Contractor Regions(1) Date Uranium Energy Resources of Australia 13 1997 Uranium Everest Minerals 13 1996 Conversion ConverDyn 13 1997 Enrichment USEC (2) 13-18 2005 Fabrication Westinghouse 13-21 2009 Reprocessing None (1) A region represents approximately one-third to one-half of the nuclear core in the reactor at any one time. Region no. 12 was loaded in 1996 and Region no. 13 will be loaded in 1997. (2) Contract provisions for the delivery of enriched uranium product encompass uranium supply and conversion and enrichment services. SCE&G has on-site spent nuclear fuel storage capability until at least 2009 and expects to be able to expand its storage capacity to accommodate the spent fuel output for the life of the plant through rod consolidation, dry cask storage or other technology as it becomes available. In addition, there is sufficient on-site storage capacity over the life of Summer Station to permit storage of the entire reactor core in the event that complete unloading should become desirable or necessary for any reason. (See "Nuclear Fuel Disposal" under "Environmental Matters" for information regarding the contract with the DOE for disposal of spent fuel.) 14 Decommissioning Decommissioning of Summer Station is presently scheduled to commence when the operating license expires in the year 2022. Based on a 1991 study, the expenditures (on a before-tax basis) related to SCE&G's share of decommissioning activities are estimated, in 2022 dollars assuming a 4.5% annual rate of inflation, to be $545.3 million including partial reclamation costs. SCE&G is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. SCE&G's method of funding decommissioning costs is referred to as COMReP (Cost of Money Reduction Plan). Under this plan, funds collected through rates ($3.2 million in each of 1996 and 1995) are used to pay premiums on insurance policies on the lives of certain Company personnel. SCE&G is the beneficiary of these policies. Through these insurance contracts, SCE&G is able to take advantage of income tax benefits and accrue earnings on the fund on a tax-deferred basis at a rate higher than can be achieved using more traditional funding approaches. Amounts for decommissioning collected through electric rates, insurance proceeds, and interest on proceeds less expenses are transferred by SCE&G to an external trust fund in compliance with the financial assurance requirements of the NRC. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis. The trust's sources of decommissioning funds under the COMReP program include investment components of life insurance policy proceeds, return on investment and the cash transfers from SCE&G described above. SCE&G records its liability for decommissioning costs in deferred credits. GAS OPERATIONS Gas Sales In 1996 residential sales accounted for 27% of gas sales revenues; commercial sales 18%; industrial sales 41%; sales for resale 14%. Dekatherm sales by classification for the years ended December 31, 1996 and 1995 are presented below: SALES DEKATHERMS % CLASSIFICATION 1996 1995 CHANGE Residential 14,108,058 12,333,769 14.4 Commercial 11,105,250 10,519,581 5.6 Industrial 47,909,555 49,474,314 (3.2) Sale for resale 16,506,523 15,923,483 3.7 Transportation gas 6,758,348 7,978,251 (15.3) Total 96,387,734 96,229,398 0.2 During 1996 the Company recorded a net increase of 5,158 customers, increasing its total customers to 248,681. The demand for gas is affected by conservation, the weather, the price relationship between gas and alternate fuels and other factors. Pipeline Corporation has been successful in purchasing lower cost natural gas in the spot market and arranging for its transportation to South Carolina. Pipeline Corporation has also negotiated contracts with certain direct and indirect industrial customers for the transportation of natural gas that the industrial customers purchase directly from suppliers. 15 On November 1, 1993 Transco and Southern Natural (Pipeline Corporation's interstate suppliers) began operations under Order No. 636, which deregulated the markets for interstate sales of natural gas by requiring that pipelines provide transportation services that are equal in quality for all gas suppliers whether the customer purchases gas from the pipeline or another supplier. Pipeline Corporation, operating wholly within the State of South Carolina, provides natural gas utility service, including transportation services, for its customers, and supplies natural gas to SCE&G and other wholesale purchasers. Energy Marketing acquires and sells natural gas in the newly deregulated markets. Petroleum Resources owns natural gas reserves and supplies natural gas in the interstate markets. Neither Energy Marketing nor Petroleum Resources supplies natural gas to any affiliate for use in providing regulated gas utility services. Gas Cost and Supply Pipeline Corporation purchases natural gas under contracts with producers and marketers on a short-term basis at current price indices and on a long- term basis for reliability assurance at index prices plus a gas inventory charge. The gas is brought to South Carolina through transportation agreements with both Southern Natural and Transco, which expire at various times from 1997 to 2003. The volume of gas which Pipeline Corporation is entitled to transport under these contracts on a firm basis is shown below: Maximum Daily Supplier Contract Demand Capacity (MCF) Southern Natural Firm Transportation 188,000 Transco Firm Transportation 29,300 Total 217,300 Additional natural gas volumes are brought to Pipeline Corporation's system as capacity is available for interruptible transportation. During 1996 the average cost per MCF of natural gas purchased for resale, excluding firm service demand charges, was approximately $2.85 compared to approximately $1.95 during 1995. Pipeline Corporation has engaged in hedging activities on the New York Mercantile Exchange (NYMEX) of its gas supply pursuant to an experimental and limited program monitored by the PSC. Any gains or losses associated with that hedging activity are accounted for in Pipeline Corporation's purchased gas adjustment clause and, therefore, have no impact on net income. To meet the requirements of its other high priority natural gas customers during periods of maximum demand, Pipeline Corporation supplements its supplies of natural gas from two LNG plants. The LNG plants are capable of storing the liquefied equivalent of 1,900,000 MCF of natural gas, of which approximately 1,746,830 MCF were in storage at December 31, 1996. On peak days the LNG plants can regasify up to 150,000 MCF per day. Additionally, Pipeline Corporation had contracted for 6,450,727 MCF of natural gas storage space of which 6,294,474 MCF were in storage on December 31, 1996. The Company believes that supplies under contract and available for spot market purchase are adequate to meet existing customer demands and to accommodate growth. 16 Curtailment Plans The FERC has established allocation priorities applicable to firm and interruptible capacities on interstate pipeline companies which require Southern Natural and Transco to allocate capacity to Pipeline Corporation. The FERC allocation priorities are not applicable to deliveries by Pipeline Corporation to its customers, which are governed by a separate curtailment plan approved by the PSC. Gas Reserves Petroleum Resources owns and/or operates interests in oil and gas properties in Alabama, Arkansas, Louisiana, Mississippi, New Mexico and Texas and Federal and state waters offshore Alabama, Louisiana and Texas. Petroleum Resources 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 400,000 acres in southern Louisiana. Petroleum Resources 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. During 1996, Petroleum Resources participated in two seismic surveys covering approximately 175 square miles. In 1997 and 1998, Petroleum Resources plans to participate in two additional seismic surveys totaling approximately 250 square miles. Of three wells drilled during 1996, one was completed with a production rate at year end of five million cubic feet of natural gas per day and one is expected to begin producing in February 1997 at an expected rate of five million cubic feet of natural gas per day. One additional exploration well is being drilled in early 1997. Petroleum Resources' participation in the seismic and drilling activity is financed largely with internal cash flows from the existing Petroleum Resources operations. On April 22, 1996 Petroleum Resources closed a $46.7 million sale of substantially all of its interests in oil and gas properties in the state of Oklahoma to ONEOK Resources Company, a subsidiary of ONEOK, Inc. In August 1996 Petroleum Resources and Cobra Oil and Gas Corporation (COBRA) entered into an agreement providing for the joint exploration and development of fifteen field areas in Alabama, Arkansas, Louisiana, New Mexico and Texas. Petroleum Resources' average interest in the program is approximately 30%. Under the agreement, Petroleum Resources has acquired interests in 83,000 acres of processed 3-D seismic data covering 900 square miles. Energy Marketing markets natural gas and light hydrocarbons, provides energy-related risk management services to producers and consumers, and owns and operates gas gathering systems in Waskom, Texas and offshore Alabama in Mobile Bay. In 1996, the FERC approved Energy Marketing's application to become a power marketer, allowing Energy Marketing to buy and sell large blocks of electric capacity in wholesale markets. Propane Operations Suburban purchases, delivers and sells propane in the Southeast. In 1996 Suburban sold approximately 34 million gallons of propane and had approximately 35,000 residential, commercial and industrial customers at year- end. SCANA Propane Services, Inc. owns and operates a 60-million gallon under- ground propane storage facility near Rock Hill, South Carolina and leases storage space to industrial companies, utilities and others. 17 Pipeline Corporation owns and operates a 62-mile propane pipeline that connects SCANA Propane Services, Inc.'s propane storage facility with the Dixie Pipeline System which traverses central South Carolina. REGULATION General SCANA is a public utility holding company within the meaning of PUHCA, but is exempt under Section 3(a)(1) of PUHCA from regulation by the SEC as a registered holding company unless and until the SEC otherwise orders, except for Section 9(a)(2) thereof prohibiting the acquisition of securities of other public utilities without a prior order of the SEC. SCE&G is subject to the jurisdiction of the PSC as to retail electric, gas and transit rates, service, accounting, issuance of securities (other than short-term promissory notes) and other matters. Federal Energy Regulatory Commission SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by the FERC and the DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting and the issuance of short-term promissory notes. (See "Capital Requirements and Financing Program.") SCE&G holds licenses under the Federal Water Power Act or the Federal Power Act with respect to all its hydroelectric projects. The expiration dates of the licenses covering the projects are as follows: Project Capability (KW) License Expiration Date Neal Shoals 5,000 2036 Stevens Creek 9,000 2025 Columbia 10,000 2000 Saluda 206,000 2007 Parr Shoals 14,000 2020 Fairfield Pumped Storage 512,000 2020 Pursuant to the provisions of the Federal Power Act, as amended, an application for a new license for Neal Shoals was filed with the FERC on December 30, 1991. No competing applications were filed. The FERC issued a new 40-year license for the Neal Shoals project on June 17, 1996. SCE&G filed a notice of intent to file an application for a new license for Columbia on June 29, 1995. The application for the new license will be filed by June 30, 1998. At the termination of a license under the Federal Power Act, the United States government may take over the project covered thereby, or the FERC may extend the license or issue a license to another applicant. If the Federal government takes over a project or the FERC issues a license to another applicant, the original licensee is entitled to be paid its net investment in the project, not to exceed fair value, plus severance damages. In May 1996 the FERC approved the Company's application establishing open access transmission tariffs and requesting authorization to sell bulk power to wholesale customers at market-based rates. 18 Nuclear Regulatory Commission SCE&G is subject to regulation by the NRC with respect to the ownership and operation of Summer Station. The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considera- tions and environmental impact. In addition, the Federal Emergency Management Agency is responsible for the review, in conjunction with the NRC, of certain aspects of emergency planning relating to the operation of nuclear plants. In 1996 the NRC completed the Systematic Assessment of Licensee Performance (SALP) for Summer Station. The station was assessed in four functional areas. The results of the assessment identified superior performance in Plant Operations, Maintenance and Engineering and good performance in Plant Support. Superior is the highest assessment given by the NRC. Summer Station has received a category one rating from the Institute of Nuclear Power Operations (INPO) in the last four out of five evaluations. The category one rating is the highest given by INPO for a nuclear plant's overall operations. National Energy Policy Act of 1992 and FERC Orders 636 and 888 The Company's regulated business operations were impacted by the NEPA and FERC Orders No. 636 and 888. NEPA was designed to create a more competitive wholesale power supply market by creating "exempt wholesale generators" and by potentially requiring utilities owning transmission facilities to provide transmission access to wholesalers. See "Competition" for a discussion of FERC Order 888. Order No. 636 was intended to deregulate the markets for interstate sales of natural gas by requiring that pipelines provide transportation services that are equal in quality for all gas suppliers whether the customer purchases gas from the pipeline or another supplier. In the opinion of the Company, it continues to be able to meet successfully the challenges of these altered business climates and does not anticipate there to be any material adverse impact on the results of operations, cash flows, financial position or business prospects. RATE MATTERS The following table presents a summary of significant rate activity for the years 1992 - 1996 based on test years: REQUESTED GRANTED Date of % of General Rate Application/ Amount % Increase Date of Amount Increase Applications Hearing (Millions) Requested Order (Millions) Granted PSC Electric Retail 07/10/95 $ 76.7 8.4% 1/09/96 $ 67.5 88% Retail 12/07/92 $ 72.0* 11.4% 6/07/93 $ 60.5 84% Transit Fares 03/12/92 $ 1.7 42.0% 9/14/92 $ 1.0 59% *As modified to reflect lowering of rate of return SCE&G was seeking. 19 On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34%, which will produce additional revenues of approximately $67.5 million annually. The increase has been implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, or .87%, 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 SCE&G'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. SCE&G's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction, which constitute approximately five percent of the Company's electric revenues. The FERC has rejected the transfer of depreciation reserves for rates subject to its jurisdiction. In 1994 the PSC issued an order approving the Company's request to recover through a billing surcharge to its gas customers the costs of environmental cleanup at the sites of former manufactured gas plants. The billing surcharge is subject to annual review and provides for the recovery of substantially all actual and projected site assessment and cleanup costs and environmental claims settlements for the Company's gas operations that had previously been deferred. In October 1996, as a result of the on-going annual review, the PSC approved the continued use of the billing surcharge. The balance remaining to be recovered amounts to approximately $38.0 million. In September 1992 the PSC issued an order granting the Company a $.25 increase in transit fares from $.50 to $.75 in both Columbia and Charleston, South Carolina; however, the PSC also required $.40 fares for low income customers and denied the Company's request to reduce the number of routes and frequency of service. The new rates were placed into effect in October 1992. The Company appealed the PSC's order to the Circuit Court, which in May 1995 ordered the case back to the PSC for reconsideration of several issues including the low income rider program, routing changes, and the $.75 fare. The Supreme Court declined to review an appeal of the Circuit Court decision and dismissed the case. The PSC and other intervenors filed another Petition for Reconsideration, which the Supreme Court denied. The PSC and other intervenors filed another appeal to the Circuit Court which the Circuit Court denied in an Order dated May 9, 1996. In this Order, the Circuit Court upheld its previous Orders and remanded them back to the PSC. During August, the PSC heard oral arguments on the Orders on remand for the Circuit Court. On September 30, 1996, the PSC issued an order affirming its previous orders and denied the Company's request for reconsideration. The Company has appealed these two PSC orders back to the Circuit Court where they are awaiting action. 20 On August 8, 1990, the PSC issued an order effective November 1, 1990, approving changes in Pipeline Corporation's gas rate design for sales for resale service and upholding the "value-of-service" method of regulation for its direct industrial service. Direct industrial customers seeking "cost-of- service" based rates initiated two separate appeals to the Circuit Court, which reversed and remanded to the PSC its August 8, 1990 order. Pipeline Corporation appealed that decision to the Supreme Court, which on January 10, 1994 reversed the two Circuit Court decisions and reinstated the PSC Order. The Supreme Court held that the industrial customer group's appeal was premature and failed to exhaust administrative remedies. Additionally, the Supreme Court interpreted the rate-making statutes of South Carolina to give discretion to the PSC in selecting the methodology to be used in setting rates for natural gas service. The PSC then held another hearing and issued its Order dated December 12, 1995 maintaining the present level of the caps. This Order was appealed to the Circuit Court by Pipeline Corporation and the industrial customer group with several other parties intervening. The Circuit Court judge has written a letter to the parties indicating that he will rule to require the PSC to set an overall rate of return. However, no order has been issued. The impact, if any, on the Company's results of operations, cash flows and financial position is not presently determinable. Fuel Cost Recovery Procedures The PSC has established a fuel cost recovery procedure which determines the fuel component in SCE&G's retail electric base rates annually based on projected fuel costs for the ensuing twelve-month period, adjusted for any overcollection or undercollection from the preceding twelve-month period. SCE&G has the right to request a formal proceeding at any time should circumstances dictate such a review. In the April 1996 annual review of the fuel cost component of electric rates, the PSC decreased the rate from 13.48 mills per KWH to 13.10 mills per KWH, a monthly decrease of $0.38 for an average customer using 1,000 KWH per month. SCE&G's gas rate schedules and contracts include mechanisms which allow it to recover from its customers changes in the actual cost of gas. SCE&G's firm gas rates allow for the recovery of a fixed cost of gas, based on projections, as established by the PSC in annual gas cost and gas purchase practice hearings. Any differences between actual and projected gas costs are deferred and included when projecting gas costs during the next annual gas cost recovery hearing. In the October 1996 review the PSC decreased the base cost of gas from 43.081 cents per therm to 42.800 cents per therm which resulted in a monthly decrease of $0.28 (including applicable taxes) based on an average of 100 therms per month on a residential bill during the heating season. In November 1996, the Company requested that the base cost of gas be increased to 51.260 cents per therm as a result of unforeseen increases in current and projected natural gas costs. The PSC approved the Company's request effective for bills rendered beginning in December 1996. An average residential bill for 100 therms per month increased by $8.50 (including application taxes). ENVIRONMENTAL MATTERS General Federal and state authorities have imposed environmental regulations and standards relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. Developments in these areas may require that equipment and facilities be modified, supplemented or replaced. The ultimate effect of these regulations and standards upon existing and proposed operations cannot be forecast. 21 Capital Expenditures In the years 1994 through 1996, capital expenditures for environmental control amounted to approximately $76.5 million. In addition, approximately $13.9 million, $12.6 million, and $11.1 million of environmental control expenditures were made during 1996, 1995 and 1994, respectively, which are included in "Other operation" and "Maintenance" expenses. It is not possible to estimate all future costs for environmental purposes, but forecasts for capitalized expenditures are $19.6 million for 1997 and $131.7 million for the four-year period 1998 through 2001. These expenditures are included in the Company's construction program. Air Quality Control The Clean Air Act requires electric utilities to reduce substantially emissions of sulfur dioxide and nitrogen oxide by the year 2000. These requirements are being phased in over two periods. The first phase had a compliance date of January 1, 1995 and the second, January 1, 2000. The Company's facilities did not require modifications to meet the requirements of Phase I. The Company will most likely meet the Phase II requirements through the burning of natural gas and/or lower sulfur coal in its generating units and the purchase and use of sulfur dioxide emission allowances. Low nitrogen oxide burners are being installed to reduce nitrogen oxide emissions to the levels required by Phase II. Air toxicity regulations for the electric generating industry are likely to be promulgated around the year 2000. The Company filed compliance plans related to Phase II requirements with DHEC during 1995. The Company currently estimates that air emissions control equipment will require capital expenditures of $114 million over the 1997-2001 period to retrofit existing facilities, with increased operation and maintenance cost of approximately $1 million per year. To meet compliance requirements through the year 2006, the Company anticipates total capital expenditures of approximately $131 million. Water Quality Control The Federal Clean Water Act, as amended, provides for the imposition of effluent limitations that require various levels of treatment for each wastewater discharge. Under this Act, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued for all and renewed for nearly all of SCE&G's and GENCO's generating units. Concurrent with renewal of these permits the permitting agency has implemented a more rigorous control program. The Company has been developing compliance plans for this program. Amendments to the Clean Water Act proposed in Congress include several provisions which, if passed, could prove costly to SCE&G. These include limitations to mixing zones and the implementation of technology-based standards. Superfund Act and Environmental Assessment Program 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 and environmental claims settlements relate primarily to regulated operations; such amounts are deferred and are being amortized and recovered through rates over a five-year period for electric operations and an eight-year period for gas operations. Deferred amounts totaled $41.4 million and $18.0 million at December 31, 1996 and 1995, respectively. The deferral includes the costs estimated to be associated with the matters discussed below. 22 In September 1992, the 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 eighteen 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, 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 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 a draft Remedial Investigation report was submitted to the EPA in February 1995. SCE&G resolved second and third round comments and submitted a Final Draft Remedial Investigation Report in October 1996. Although SCE&G is continuing to investigate cost-effective clean-up methodologies, further work is pending EPA approval of the Final Draft Remedial Investigation Report. 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 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 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. The Company does not expect the settlement to have a material impact on the Company's results of operations, cash flows or financial position. SCE&G owns three other 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. SCE&G is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. Solid Waste Control The South Carolina Solid Waste Policy and Management Act of 1991 directed DHEC to promulgate regulations for the disposal of industrial solid waste. DHEC has proposed a regulation, which if adopted as a final regulation in its present form, would significantly increase SCE&G's and GENCO's costs of construction and operation of existing and future ash management facilities. Nuclear Fuel Disposal The Nuclear Waste Policy Act of 1982 requires that the United States government make available by 1998 a permanent repository for high-level radioactive waste and spent nuclear fuel and imposes a fee of 1.0 mil per KWH of net nuclear generation after April 7, 1983. Payments, which began in 1983, are subject to change and will extend through the operating life of SCE&G's Summer Station. SCE&G entered into a contract with the DOE on June 29, 1983 providing for permanent disposal of its spent nuclear fuel by the DOE. The DOE presently estimates that the permanent storage facility will not be available until 2010. SCE&G has on-site spent nuclear fuel storage capability until at least 2009 and expects to be able to expand its storage capacity to accommodate the spent nuclear fuel output for the life of the plant through rod consolidation, dry cask storage or other technology as it becomes available. The Act also imposes on utilities the primary responsibility for storage of their spent nuclear fuel until the repository is available. 23 OTHER MATTERS With regard to SCE&G's insurance coverage for Summer Station, reference is made to Note 10B of Notes to Consolidated Financial Statements, which is incorporated herein by reference. The Company's net investment in oil and gas properties is subject to a quarterly ceiling test calculation that limits capitalized costs to the aggregate of the estimated present value of future net cash flows from proved oil and gas reserves plus the lower of cost or fair market value of unproved properties. Carrying values of proved reserves in excess of the ceiling limitation are expensed currently. In an effort to limit exposure to changing natural gas prices, in January 1995 the Company entered into a series of forward contracts for approximately sixty percent of its forecasted natural gas production for the years 1996- 2001. In 1996, portions of the forward contracts for the year 1997 and all of the forward contracts for the years 1998-2001 were removed. The closing of the contracts did not result in a material gain or loss to the Company. In March 1997 SCI reached an agreement with ITC to sell to ITC, in exchange for non-voting convertible preferred stock and a subordinated note of ITC, SCI's 64% interest in GulfStates Fibernet, a Georgia general partnership (constituting the remaining joint venture interests of SCI), and certain fiber optic assets of SCI located within the State of Georgia (see "Segments of Business - Nonregulated Businesses"). Upon closing of the transaction and expected refinancing of debt associated with the joint venture, SCI is to be released from its revenue guarantee. SCI, to support the purchase of InterCel of the BTA licenses and build- out of the system, agreed to purchase 50,000 shares of InterCel Series D non-voting convertible preferred stock for $22.5 million. The stock is convertible after five years into InterCel common stock. (See "Segments of Business - Nonregulated Businesses.") ITEM 2. PROPERTIES SCANA owns no significant property other than the capital stock of each of its subsidiaries. It holds, directly or indirectly, all of the capital stock of each of its subsidiaries except for the preferred stock of SCE&G. SCE&G's bond indentures, securing the First and Refunding Mortgage Bonds and First Mortgage Bonds issued thereunder, constitute direct mortgage liens on substantially all of its property. GENCO's Williams Station is subject to a first mortgage lien. For a brief description of the properties of the Company's other subsidiaries, which are not significant as defined in Rule 1-02 of Regulation S-X, see Item 1, "Business-Segments of Business-Nonregulated Businesses." 24 ELECTRIC The following table gives information with respect to electric generating facilities, all of which are owned by SCE&G except as noted. Net Generating Present Year Capability Facility Fuel Capability Location In-Service (KW)(1) Steam Urquhart Coal/Gas Beech Island, SC 1953 250,000 McMeekin Coal/Gas Irmo, SC 1958 252,000 Canadys Coal/Gas Canadys, SC 1962 430,000 Wateree Coal Eastover, SC 1970 700,000 Williams (2) Coal Goose Creek, SC 1973 560,000 Summer (3) Nuclear Parr, SC 1984 628,000 D-Area (4) Coal DOE Savannah River Site, SC 1995 17,000 Cope (5) Coal Cope, SC 1996 385,000 Gas Turbines Burton Gas/Oil Burton, SC 1961 28,500 Faber Place Gas Charleston, SC 1961 9,500 Hardeeville Oil Hardeeville, SC 1968 14,000 Canadys Gas/Oil Canadys, SC 1968 14,000 Urquhart Gas/Oil Beech Island, SC 1969 38,000 Coit Gas/Oil Columbia, SC 1969 30,000 Parr Gas/Oil Parr, SC 1970 60,000 Williams (6) Gas/Oil Goose Creek, SC 1972 49,000 Hagood Gas/Oil Charleston, SC 1991 95,000 Hydro Neal Shoals Carlisle, SC 1905 5,000 Parr Shoals Parr, SC 1914 14,000 Stevens Creek Martinez, GA 1914 9,000 Columbia Columbia, SC 1927 10,000 Saluda Irmo, SC 1930 206,000 Pumped Storage Fairfield Parr, SC 1978 512,000 Total 4,316,000 (1) Summer rating. (2) The steam unit at Williams Station is owned by GENCO. (3) Represents SCE&G's two-thirds portion of the Summer Station. (4) This plant is operated under lease from the DOE and is dispatched to DOE's Savannah River Site steam needs. "Net Generating Capability" for this plant is expected average hourly output. The lease expires on October 1, 2005. (5) Plant began commercial operation in January 1996. (6) The two gas turbines at Williams are leased and have a net capability of 49,000 KW. This lease expires on June 29, 1997. 25 SCE&G owns 430 substations having an aggregate transformer capacity of 21,078,351 KVA. The transmission system consists of 3,142 miles of lines and the distribution system consists of 15,840 pole miles of overhead lines and 3,331 trench miles of underground lines. GAS Natural Gas SCE&G's gas system consists of approximately 7,029 miles of three-inch equivalent distribution pipelines and approximately 11,474 miles of distribution mains and related service facilities. Pipeline Corporation's gas system consists of approximately 1,904 miles of transmission pipeline of up to 24 inches in diameter which connect its resale customers' distribution systems with transmission systems of Southern Natural and Transco. Pipeline Corporation owns two LNG plants, one located near Charleston, South Carolina and the other in Salley, South Carolina. The Charleston facility can liquefy up to 6,000 MCF per day and store the liquefied equivalent of 1,000,000 MCF of natural gas. The Salley facility can store the liquefied equivalent of 900,000 MCF of natural gas and has no liquefying capabilities. On peak days, the Charleston facility can regasify up to 60,000 MCF per day and the Salley facility can regasify up to 90,000 MCF. Petroleum Resources owns and/or operates interests in oil and gas properties in Alabama, Arkansas, Louisiana, Mississippi, New Mexico, Texas, and Federal and state waters offshore Alabama, Louisiana and Texas. Propane SCE&G has propane air peak shaving facilities which can supplement the supply of natural gas by gasifying propane to yield the equivalent of 102,000 MCF per day of natural gas. These facilities can store the equivalent of 430,405 MCF of natural gas. TRANSIT SCE&G owns 54 motor coaches used in the operation of the Columbia transit system. The Columbia system is comprised of fifteen routes covering 177 miles. Effective October 1, 1996, SCE&G transferred ownership and operation of the Charleston transit system to the City of Charleston. As part of the transfer, the Company conveyed ownership to the City of the facilities, equipment and four motor coaches used in the operation of the transit system. The City and SCE&G also entered into an interim operating agreement, renewable semiannually, whereby SCE&G will operate the system for the City until a Regional Transit Authority is established. SCE&G and the City have agreed upon a rate structure that is designed to allow SCE&G to recover its costs of operating the Charleston transit system. The Charleston system is comprised of fourteen routes covering 110 miles. ITEM 3. LEGAL PROCEEDINGS For information regarding legal proceedings, see ITEM 1., "BUSINESS - RATE MATTERS" and "BUSINESS - ENVIRONMENTAL MATTERS - Superfund Act and Environmental Assessment Program" and Note 10 of Notes to Consolidated Financial Statements appearing in Item 8., "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable 26 CORPORATE STRUCTURE SCANA CORPORATION A Holding Company, Owning Thirteen Direct, Wholly Owned Subsidiaries SOUTH CAROLINA SCANA ENERGY MARKETING, INC. ELECTRIC & GAS COMPANY Markets natural gas and other Generates and sells electricity light hydrocarbons. Also owns to wholesale and retail customers, several gas gathering systems purchases, sells and transports and provides energy-related risk natural gas at retail and provides management services to producers public transit service in Columbia. and consumers. SOUTH CAROLINA GENERATING SCANA PETROLEUM RESOURCES, INC. COMPANY, INC. Owns and/or operates interests Owns and operates Williams in oil and gas properties. Station and sells electricity to SCE&G. SERVICECARE, INC. Provides energy-related products SOUTH CAROLINA FUEL and services beyond the energy COMPANY, INC. meter, principally service Acquires, owns and provides contracts on home appliances. financing for SCE&G's nuclear fuel, fossil fuel and sulfur PRIMESOUTH, INC. dioxide emission allowances. Engages in power plant management and maintenance SUBURBAN PROPANE GROUP, INC. services. Purchases, delivers and sells propane. SCANA DEVELOPMENT CORPORATION Engaged in the acquisition, SCANA RESOURCES, INC. development, management and Conducts energy-related sale of real estate. (In businesses and services. liquidation.) SCANA COMMUNICATIONS, INC. SOUTH CAROLINA PIPELINE Provides fiber optic CORPORATION telecommunications and video Purchases, sells and transports conferencing and invests natural gas to wholesale and in companies developing direct industrial customers. personal communications services Owns and operates two LNG plants for wireless communications. for the liquefaction, regasifi- cation and storage of natural gas. SCANA PROPANE SERVICES, INC. Owns and operates an underground propane storage facility and leases cavern storage to industries, utilities and others. Each of the above listed companies is organized and incorporated under the laws of the State of South Carolina. 27 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers are elected at the annual organizational meeting of the Board of Directors, held immediately after the annual meeting of stockholders, and hold office until the next such organizational meeting, unless a resignation is submitted, or unless the Board of Directors shall otherwise determine. Positions Held During Name Age Past Five Years Dates L. M. Gressette, Jr. 65 Chairman of the Board and Chief Executive Officer *-present President *-1995 W.B. Timmerman ** 50 President 1995-present President-SCI 1996-present Executive Vice President 1994-1995 Assistant Secretary 1993-1996 Chief Financial Officer and Controller *-1996 Senior Vice President *-1994 J. L. Skolds 46 President and Chief Operating Officer - SCE&G 1996-present Senior Vice President - Generation 1994-1996 Vice President - Nuclear Operations *-1994 A.H. Gibbes 50 Group Executive - SCANA Gas Group 1996-present President - Pipeline Corporation 1996-present President - C&T Pipeline, Inc. 1996-present Senior Vice President General Counsel and Assistant Secretary 1994-1996 Assistant Secretary - SCE&G, GENCO, Fuel Company, SCI, PrimeSouth, ServiceCare and SCANA Development Corp. 1994-1996 Vice President, General Counsel and Assistant Secretary 1993-1994 President and Treasurer - SCANA Development Corp. *-present C.B. Novinger 47 Senior Vice President - Administration *-present Max Earwood 64 Vice-Chairman - Pipeline Corporation, Petroleum Resources and Energy Marketing 1996-present President and Treasurer - Pipeline Corporation *-1996 President and Treasurer - Energy Marketing and Petroleum Resources *-present * Indicates position held at least since March 1, 1992. ** On October 22, 1996 the Board of Directors elected W. B. Timmerman to be Chairman of the Board and Chief Executive Officer effective March 1, 1997 upon the retirement of L. M. Gressette, Jr. Mr. Timmerman continues to serve as President of SCANA. 28 H.T. Arthur 51 Vice President, General Counsel and Assistant Secretary 1996-present Assistant Secretary - SCE&G, and other subsidiaries 1996-present Vice President and General Counsel - Pipeline *-1996 K.B. Marsh 41 Vice President - Finance, Chief Financial Officer and Controller 1996-present Vice President - Finance, Treasurer and Secretary *-1996 B.T. Zeigler 41 Vice President 1996-present General Counsel - SCE&G 1995-present Associate General Counsel - SCE&G 1992-1995 Partner - Lewis, Babcock & Hawkins Law Firm *-1992 D. N. Vannort 59 Vice President - Corporate Compliance 1996-present Partner - Deloitte & Touche LLP *-1996 * Indicates position held at least since March 1, 1992. 29 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK INFORMATION 1996 1995 4th 3rd 2nd 1st 4th 3rd 2nd 1st Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Price Range: (a) High 28 28 1/4 28 1/4 28 5/8 28 5/8 24 1/4 23 3/8 22 1/2 Low 25 3/8 25 1/2 25 1/4 25 1/2 24 1/8 21 1/8 20 3/4 20 1/2 (a) As reported on the New York Stock Exchange Composite Listing. Dividends Per Share: 1996 Amount Date Declared Date Paid First Quarter .3675 February 20, 1996 April 1, 1996 Second Quarter .3675 April 25, 1996 July 1, 1996 Third Quarter .3675 August 21, 1996 October 1, 1996 Fourth Quarter .3675 October 22, 1996 January 1, 1997 1995 Amount Date Declared Date Paid First Quarter .36 February 14, 1995 April 1, 1995 Second Quarter .36 April 27, 1995 July 1, 1995 Third Quarter .36 August 23, 1995 October 1, 1995 Fourth Quarter .36 October 17, 1995 January 1, 1996 December 31, 1996 1995 Number of common shares outstanding 106,175,273 103,623,863 Number of common stockholders of record 36,178 38,231 The principal market for SCANA common stock is the New York Stock Exchange. The ticker symbol used is SCG. The corporate name SCANA is used in newspaper stock listings. The total number of shares of SCANA common stock outstanding at February 28, 1997 was 106,622,925. (a) As reported on the New York Stock Exchange Composite Listing. SECURITIES RATINGS (As of December 31, 1996) SCANA CORPORATION SOUTH CAROLINA ELECTRIC & GAS COMPANY Rating First Mortgage First and Refunding Preferred Commercial Agency Medium-Term Notes Bonds Mortgage Bonds Stock Paper Duff & Phelps A- A+ A+ A D-1 Moody's A3 A1 A1 a2 P-1 Standard & Poor's A- A A A- A-1 Further reference is made to Note 5 of Notes to Consolidated Financial Statements. 30 ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA For the Years Ended December 31, 1996 1995 1994 1993 1992 Statement of Income Data (Thousands of dollars except statistics and per share amounts) Operating Revenues $1,512,831 $1,352,971 $1,322,062 $1,264,167 $1,138,375 Operating Income 313,883 287,514 259,553 245,311 209,780 Other Income 28,992 8,060 (29,749) 27,335 11,960 Net Income 215,286 168,339 115,452 165,240 117,667 Balance Sheet Data Utility Plant, Net $3,529,028 $3,468,988 $3,293,667 $3,004,075 $2,810,279 Total Assets 4,759,346 4,534,426 4,316,512 4,026,701 3,543,057 Capitalization: Common Equity 1,683,448 1,554,680 1,359,141 1,317,495 1,149,087 Preferred Stock (Not subject to purchase or sinking fund) 26,027 26,027 26,027 26,027 26,027 Preferred Stock, Net (Subject to purchase or sinking fund) 43,014 46,243 49,528 52,840 56,154 Long-Term Debt, Net 1,581,608 1,588,879 1,548,824 1,424,399 1,204,754 Total Capitalization $3,334,097 $3,215,829 $2,983,520 $2,820,761 $2,436,022 Common Stock Data Weighted Average Number of Common Shares Outstanding (Thousands) 105,123 99,044 94,762 90,407 82,950 Earnings Per Weighted Average Share of Common Stock $2.05 $1.70 $1.22 $1.83 $1.42 Dividends Declared Per Share of Common Stock $1.47 $1.44 $1.41 $1.37 $1.34 Common Shares Outstanding (Year-End) (Thousands) 106,175 103,624 96,035 93,239 87,821 Book Value Per Share of Common Stock (Year-End) $15.86 $15.00 $14.15 $14.13 $13.08 Number of Common Shareholders of Record 36,178 38,231 39,516 41,564 42,937 Other Statistics Electric: Customers (Year-End) 493,320 484,354 476,412 468,874 461,900 Territorial Sales (Million KWH) 18,010 17,583 16,838 16,880 15,794 Residential: Average annual use per customer (KWH) 14,149 13,859 13,048 14,077 13,037 Average annual rate per KWH $.0785 $.0747 $.0743 $.0707 $.0695 Generating Capability - Net MW (Year-End) 4,316 4,282 3,876 3,864 3,912 Territorial Peak Demand - Net MW 3,698 3,683 3,444 3,557 3,380 Gas: Customers (Year-End) 248,681 243,523 238,614 234,736 231,153 Sales, excluding transportation (Thousand Therms) 896,294 882,511 781,109 717,417 761,721 Residential: Average annual use per customer (Therms) 639 570 543 605 577 Average annual rate per therm $ .74 $.82 $.84 $.76 $.74
31 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPETITION The electric utility industry has begun a major transition that could lead to expanded market competition and less regulation. Deregulation of electric wholesale and retail markets is creating opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. Legislative initiatives at the Federal and state levels are being considered and, if enacted, could mandate market deregulation. The pace of deregulation, future prices of electricity, and the regulatory actions which may be taken by the PSC and the FERC in response to the changing environment cannot be predicted. However, recent FERC actions will likely accelerate competition among electric utilities by providing for wholesale transmission access. In April 1996 the FERC issued Order 888, which addresses open access to transmission lines and stranded cost recovery. Order 888 requires utilities under FERC jurisdiction that own, control or operate transmission lines to file nondiscriminatory open access tariffs that offer to others the same transmission service they provide themselves. The FERC has also permitted utilities to seek recovery of wholesale stranded costs from departing customers by direct assignment. Approximately five percent of the Company's electric revenues is under FERC jurisdiction. The Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company'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, for ratemaking purposes, of depreciation reserves from transmission and distribution assets to nuclear production assets. The FERC has rejected the depreciation reserve transfer for rates subject to its jurisdiction. 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. Significant investments are being made in customer and management information systems. Marketing of services to commercial and industrial customers has been increased significantly. The Company believes that these actions as well as numerous others that have been and will be taken demonstrate its ability and commitment to succeed in the new operating environment to come. Regulated public utilities are allowed to record as assets some costs that would be expensed by other enterprises. If deregulation or other changes in the regulatory environment occur, the Company may no longer be eligible to apply this accounting treatment and may be required to eliminate such regulatory assets from its balance sheet. Although the potential effects of deregulation cannot be determined at present, discontinuation of the accounting treatment could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. It is expected that cash flows and the financial position of the Company would not be materially affected by the discontinuation of the accounting treatment. The Company reported approximately $287 million and $59 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $107 million and $57 million, respectively, on its balance sheet at December 31, 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 demand 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 continue their ongoing construction programs, it is necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by the regulated subsidiaries' ability to obtain adequate and timely rate and other regulatory relief. 32 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, South Carolina. The Company and Westvaco each own a 50% interest in the LLC. 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 LLC by each partner is expected prior to operation of the facility. In addition to the cogeneration LLC, Westvaco has entered into a 20-year contract with SCE&G for all its electricity requirements at the North Charleston mill at SCE&G's standard industrial rate. Construction of the plant began in September 1996 and it is expected to be operational in the fall of 1998. 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, SCE&G will pay the City $25 million over seven years (1996-2002) and has donated to the City the existing transit assets in Charleston. On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34%, which will produce additional revenues of approximately $67.5 million annually. The increase has been implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, or .87%, was implemented in January 1997. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of SCE&G'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. SCE&G's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction, which constitute approximately five percent of the Company's electric revenues. The FERC has rejected the transfer of depreciation reserves for rates subject to its jurisdiction. On August 8, 1990 the PSC issued an order effective November 1, 1990, approving changes in Pipeline Corporation's gas rate design for sales for resale service and upholding the "value-of-service" method of regulation for its direct industrial service. Direct industrial customers seeking "cost-of- service" based rates initiated two separate appeals to the Circuit Court, which reversed and remanded to the PSC its August 8, 1990 order. Pipeline Corporation appealed that decision to the Supreme Court which on January 10, 1994 reversed the two Circuit Court decisions and reinstated the PSC Order. The Supreme Court held that the industrial customer group's appeal was premature and failed to exhaust administrative remedies. Additionally, the Supreme Court interpreted the rate-making statutes of South Carolina to give discretion to the PSC in selecting the methodology to be used in setting rates for natural gas service. The PSC then held another hearing and issued its Order dated December 12, 1995 maintaining the present level of the caps. This Order was appealed to the Circuit Court by Pipeline Corporation and the industrial customer group with several other parties intervening. The Circuit Court judge has written a letter to the parties indicating that he will rule to require the PSC to set an overall rate of return. However, no order has been issued. The impact, if any, on the Company's results of operations, cash flows and financial position is not presently determinable. 33 The revised estimated primary cash requirements for 1997, excluding requirements for fuel liabilities and short-term borrowings, and the actual primary cash requirements for 1996 are as follows: 1997 1996 (Thousands of Dollars) Property additions and construction expenditures, net of allowance for funds used during construction $296,822 $280,749 Nuclear fuel expenditures 30,706 12,724 Maturing obligations, redemptions and sinking and purchase fund requirements 37,285 33,717 Total $364,812 $327,190 Approximately 51% of total cash requirements (after payment of dividends) was provided from internal sources in 1996 as compared to 56% in 1995. The Company has in effect a medium-term note program for the issuance from time to time of unsecured medium-term debt securities. The proceeds from the sales of these securities may be used to fund additional business activities in nonutility subsidiaries, to reduce short-term debt incurred in connection therewith or for general corporate purposes. At December 31, 1996 the Company had available for issuance $317.6 million under this program, of which $25 million was issued on February 12, 1997. SCE&G's First and Refunding Mortgage Bond Indenture, dated April 1, 1945 (Old Mortgage), contains provisions prohibiting the issuance of additional bonds thereunder (Class A Bonds) unless net earnings (as therein defined) for twelve consecutive months out of the fifteen months prior to the month of issuance are at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1996 the Bond Ratio was 4.37. The issuance of additional Class A Bonds also is restricted to an additional principal amount equal to (i) 60% of unfunded net property additions (which unfunded net property additions totaled approximately $379 million at December 31, 1996), (ii) retirements of Class A Bonds (which retirement credits totaled $69.6 million at December 31, 1996), and (iii) cash on deposit with the Trustee. SCE&G has a bond indenture dated April 1, 1993 (New Mortgage) covering substantially all of its electric properties under which its future mortgage- backed debt (New Bonds) will be issued. New Bonds are issued under the New Mortgage on the basis of a like principal amount of Class A Bonds issued under the Old Mortgage which have been deposited with the Trustee of the New Mortgage (of which $185 million were available for such purpose as of December 31, 1996), until such time as all presently outstanding Class A Bonds are retired. Thereafter, New Bonds will be issuable on the basis of property additions in a principal amount equal to 70% of the original cost of electric and common plant properties (compared to 60% of value for Class A Bonds under the Old Mortgage), cash deposited with the Trustee, and retirement of New Bonds. New Bonds will be issuable under the New Mortgage only if adjusted net earnings (as therein defined) for twelve consecutive months out of the eighteen months immediately preceding the month of issuance are at least twice the annual interest requirements on all outstanding bonds (including Class A Bonds) and New Bonds to be outstanding (New Bond Ratio). For the year ended December 31, 1996 the New Bond Ratio was 5.90. 34 The following additional financing transactions have occurred since December 31, 1995: On January 12, 1996 SCANA closed on unsecured bank loans totaling $60 million due January 10, 1997, and used the proceeds to pay off a loan in a like total amount. On January 10, 1997 SCANA refinanced the loans with unsecured bank loans totaling $60 million due January 9, 1998 at initial interest rates between 5.995% and 6.031%, at a fixed 12-month LIBOR plus a spread of 10 to 12 1/2 basis points. On February 12, 1997 SCANA closed on the sale of $25 million of Medium- Term Notes having an annual interest rate of 6.9% and maturing February 15, 2007. These funds were used to reduce short-term borrowings at SCANA, which borrowings had been incurred in support of nonregulated subsidiaries' construction activities. Without the consent of at least a majority of the total voting power of SCE&G's preferred stock, SCE&G may not issue or assume any unsecured indebtedness if, after such issue or assumption, the total principal amount of all such unsecured indebtedness would exceed 10% of the aggregate principal amount of all of SCE&G's secured indebtedness and capital and surplus; provided, however, that no such consent shall be required to enter into agreements for payment of principal, interest and premium for securities issued for pollution control purposes. Pursuant to Section 204 of the Federal Power Act, SCE&G and GENCO must obtain FERC authority to issue short-term indebtedness. The FERC has authorized SCE&G to issue up to $250 million of unsecured promissory notes or commercial paper with maturity dates of twelve months or less, but not later than December 31, 1999. GENCO has not sought such authorization. SCE&G had $145 million authorized and unused lines of credit at December 31, 1996. In addition, Fuel Company has a credit agreement for a maximum of $125 million with the full amount available at December 31, 1996. The credit agreement supports the issuance of short-term commercial paper for the financing of nuclear and fossil fuels and sulfur dioxide emission allowances. Fuel Company commercial paper outstanding at December 31, 1996 was $66.1 million. SCE&G's Restated Articles of Incorporation prohibit issuance of additional shares of preferred stock without consent of the preferred stockholders unless net earnings (as defined therein) for the twelve consecutive months immediately preceding the month of issuance are at least one and one-half times the aggregate of all interest charges and preferred stock dividend requirements (Preferred Stock Ratio). For the year ended December 31, 1996 the Preferred Stock Ratio was 2.80. During 1996 SCANA issued 1,118,366 shares of the Company's common stock under its Investor Plus Plan. In addition, SCANA issued 1,393,761 shares of its common stock pursuant to its Stock Purchase-Savings Plan (SPSP). At December 31, 1996 SCANA has authorized and reserved for issuance, and registered under effective registration statements, 387,742 and 1,157,378 shares of common stock pursuant to the Investor Plus Plan and the SPSP, respectively. On January 14, 1997 an additional 2,500,000 shares of SCANA common stock were registered for sale under the Investor Plus Plan. Effective February 1, 1997 the Investor Plus Plan converted from an original issue plan to a market purchase plan. 35 The Company anticipates that its revised 1997 cash requirements of $364.8 million will be met through internally generated funds (approximately 67%, after payment of dividends), the sales of additional equity securities 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. Actual 1997 expenditures may vary from the estimates set forth above due to factors such as inflation and economic conditions, regulation and legislation, rates of load growth, environmental protection standards and the cost and availability of capital. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the next twelve months and for the foreseeable future. Environmental Matters The Clean Air Act requires electric utilities to reduce substantially emissions of sulfur dioxide and nitrogen oxide by the year 2000. These requirements are being phased in over two periods. The first phase had a compliance date of January 1, 1995 and the second, January 1, 2000. The Company's facilities did not require modifications to meet the requirements of Phase I. The Company will most likely meet the Phase II requirements through the burning of natural gas and/or lower sulfur coal in its generating units and the purchase and use of sulfur dioxide emission allowances. Low nitrogen oxide burners are being installed to reduce nitrogen oxide emissions to the levels required by Phase II. Air toxicity regulations for the electric generating industry are likely to be promulgated around the year 2000. During 1995 the Company filed compliance plans related to Phase II requirements with DHEC. The Company currently estimates that air emissions control equipment will require capital expenditures of $114 million over the 1997-2001 period to retrofit existing facilities, with increased operation and maintenance costs of approximately $1 million per year. To meet compliance requirements through the year 2006, the Company anticipates total capital expenditures of approximately $131 million. The Federal Clean Water Act, as amended, provides for the imposition of effluent limitations that require various levels of treatment for each wastewater discharge. Under this Act, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued for all and renewed for nearly all of SCE&G's and GENCO's generating units. Concurrent with renewal of these permits, the permitting agency has implemented more rigorous control programs. The Company has been developing compliance plans for this program. Amendments to the Clean Water Act proposed in Congress include several provisions which, if passed, could prove costly to SCE&G. These include limitations to mixing zones and the implementation of technology-based standards. The South Carolina Solid Waste Policy and Management Act of 1991 directed DHEC to promulgate regulations for the disposal of industrial solid waste. DHEC has promulgated a proposed regulation, which, if adopted as a final regulation in its present form, would significantly increase SCE&G's and GENCO's costs of construction and operation of existing and future ash management facilities. 36 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 and environmental claims settlements relate primarily to regulated operations; such amounts are deferred and are being amortized and recovered through rates over a five-year period for electric operations and an eight-year period for gas operations. Deferred amounts totaled $41.4 million and $18.0 million at December 31, 1996 and 1995, respectively. The deferral includes the estimated costs associated with the matters discussed below. In September 1992 the 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 eighteen 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, 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 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 a draft Remedial Investigation report was submitted to the EPA in February 1995. SCE&G resolved second and third round comments and submitted a Final Draft Remedial Investigation Report in October 1996. Although SCE&G is continuing to investigate cost-effective cleanup methodologies, further work is pending EPA approval of the Final Draft Remedial Investigation Report. 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 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 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 owns three other 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. SCE&G is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. 37 Regulatory Matters SCE&G filed for electric rate relief in 1995 to encompass primarily the remaining costs of completing the Cope Generating Station. As discussed under "Liquidity and Capital Resources," the PSC issued an order on January 9, 1996 increasing electric retail rates. The Company's regulated business operations were impacted by the NEPA and FERC Orders No. 636 and 888. NEPA was designed to create a more competitive wholesale power supply market by creating "exempt wholesale generators" and by potentially requiring utilities owning transmission facilities to provide transmission access to wholesalers. See "Competition" for a discussion of FERC Order 888. Order No. 636 was intended to deregulate the markets for interstate sales of natural gas by requiring that pipelines provide transportation services that are equal in quality for all gas suppliers whether the customer purchases gas from the pipeline or another supplier. In the opinion of the Company, it continues to be able to meet successfully the challenges of these altered business climates and does not anticipate there to be any material adverse impact on the results of operations, cash flows, financial position or business prospects. Other SCI holds an approximate 17% interest in the common stock of InterCel, a publicly traded telecommunications company which owns PCS licenses for the Birmingham, Alabama; Jacksonville, Florida; and Memphis, Tennessee/Jackson, Mississippi MTAs. In June 1996 InterCel purchased a PCS license for the Atlanta MTA, financing the purchase principally through a private placement of non-voting convertible preferred stock, of which SCI purchased $75 million. The non-voting preferred stock is convertible to InterCel common stock in April 2000. InterCel was the winning bidder for additional PCS licenses to provide service to thirteen BTAs in Kentucky, Tennessee and Indiana. In March 1997 SCI, to support the purchase by InterCel of the BTA licenses and build-out of the system, agreed to purchase 50,000 shares of InterCel Series D non-voting convertible preferred stock for $22.5 million. The stock is convertible after five years into InterCel common stock. InterCel will market PCS in portions of twelve states with a population of 23 million. SCI, through GulfStates FiberNet, a joint venture with a subsidiary of ITC, owns and operates a 900 mile fiber optic network through Alabama, Georgia, Louisiana, Mississippi and Texas. A percentage of the projected annual revenues for the years 1997-2003 of certain fiber optic routes of the joint venture has been guaranteed by SCI. The amount of such guarantee over its remaining term, net of $33.5 million for revenue contracts obtained by the joint venture, is approximately $7.3 million. In March 1997 SCI reached an agreement with ITC to sell to ITC, in exchange for non-voting convertible preferred stock and a subordinated note of ITC, SCI's 64% interest in GulfStates Fibernet, a Georgia general partnership (constituting the remaining joint venture interests of SCI), and certain fiber optic assets of SCI located within the State of Georgia. Upon closing of the transaction and expected refinancing of debt associated with the joint venture, SCI is to be released from its revenue guarantee. SCI, as a result of an internal audit, informed the FCC that it violated certain licensing requirements in establishing and operating an 800 Mhz radio system in South Carolina for public safety and utility use. As a result, SCI has returned to the FCC several licenses obtained in violation of FCC rules and the FCC is conducting an investigation of the system. The Company does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. SCI has agreed to purchase 50,000 shares of InterCel Series D convertible preferred stock for $22.5 million. The stock is convertible after five years into 1,764,706 shares of InterCel common stock. The Company's net investment in oil and gas properties is subject to a quarterly ceiling test calculation that limits capitalized costs to the aggregate of the estimated present value of future net cash flows from proved oil and gas reserves plus the lower of cost or fair market value of unproved properties. Carrying values of proved reserves in excess of the ceiling limitation are expensed currently. 38 In an effort to limit exposure to changing natural gas prices, in January 1995 the Company entered into a series of forward contracts for approximately sixty percent of its forecasted natural gas production for the years 1996- 2001. In 1996 portions of the forward contracts for the year 1997 and all of the forward contracts for the years 1998-2001 were removed. The closing of the contracts did not result in a material gain or loss to the Company. Petroleum Resources 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 400,000 acres in southern Louisiana. Petroleum Resources 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. Petroleum Resources' participation in the seismic and drilling activity is financed largely with internal cash flows from the existing Petroleum Resources operations. On April 22, 1996 Petroleum Resources closed a $46.7 million sale of substantially all of its interests in oil and gas properties in the state of Oklahoma to ONEOK Resources Company, a subsidiary of ONEOK, Inc. In August 1996, Petroleum Resources and Cobra Oil and Gas Corporation (COBRA) entered into an agreement providing for the joint exploration and development of fifteen field areas in Alabama, Arkansas, Louisiana, New Mexico and Texas. Petroleum Resources' average interest in the program is approximately 30%. Under the agreement, Petroleum Resources has acquired interests in 83,000 acres of processed 3-D seismic data covering 900 square miles. RESULTS OF OPERATIONS Earnings and Dividends Earnings per share of common stock, the percent increase (decrease) from the previous year and the rate of return earned on common equity for the years 1994 through 1996 were as follows: 1996 1995 1994 Earnings per weighted average share $2.05 $1.70 $1.22 Percent increase (decrease) in earnings per share 20.6% 39.3% (33.3%) Return earned on common equity (year-end) 12.8% 10.8% 8.5% 1996 Earnings per share and return on common equity increased primarily as a result of higher electric sales margins at SCE&G and improved earnings at Petroleum Resources which more than offset increases in operating expenses. Additionally, SCI reported a nonrecurring after-tax gain of $5.7 million as a result of the business combination of Powertel PCS Partners and InterCel in February 1996. 1995 Earnings per share and return on common equity increased primarily as a result of improved results of operations at Petroleum Resources, which recorded net losses of $16.7 million in 1995 and $54.9 million in 1994. Higher electric and gas margins and lower operation and maintenance costs, which more than offset the negative impact of higher fixed costs, also contributed to the favorable earnings performance in 1995. 39 The Company's financial statements include AFC. 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. An equity portion of AFC is included in nonoperating income and a debt portion of AFC is included in interest charges (credits) as noncash items, both of which have the effect of increasing reported net income. AFC represented approximately 3.9% of income before income taxes in 1996, 8.0% in 1995 and 8.3% in 1994. In 1996 SCANA's Board of Directors raised the quarterly cash dividend on common stock to 36 3/4 cents per share from 36 cents per share. The increase, effective with the dividend payable on April 1, 1996, raised the indicated annual dividend rate to $1.47 per share from $1.44. SCANA has increased the dividend rate on its common stock in 43 of the last 44 years. Electric Operations Electric sales margins for 1996, 1995 and 1994 were as follows: 1996 1995 1994 (Millions of Dollars) Electric operating revenues $1,106.5 $1,006.4 $975.4 Less: Fuel used in electric generation 250.5 227.4 235.1 Purchased power 11.4 14.7 20.1 Margin $ 844.6 $ 764.3 $720.2 1996 The electric sales margin increased primarily as a result of the rate increase received by SCE&G in January 1996. Economic growth factors also contributed to the increase. 1995 The electric sales margin increased primarily as a result of the combined impact of warmer weather in the third quarter of 1995, colder weather in the fourth quarter of 1995 and the base rate increase received by the Company in mid-1994. These factors more than offset the negative impact of milder weather experienced during the first half of 1995. Increases (decreases) from the prior year in megawatt hour (MWH) sales volume by classes were as follows: Classification 1996 1995 Residential 212,888 415,676 Commercial 144,536 229,472 Industrial 110,147 48,651 Sale for Resale (excluding interchange) (39,853) 38,688 Other (1,013) 12,776 Total territorial 426,705 745,263 Interchange 699,425 24,545 Total 1,126,130 769,808 Interchange sales volume for 1996 increased as a result of additional capacity resulting from the startup of the Cope plant in early 1996. 40 Gas Operations Gas sales margins for 1996, 1995 and 1994 were as follows: 1996 1995 1994 (Millions of Dollars) Gas operating revenues $403.2 $342.7 $342.7 Less: Gas purchased for resale 276.8 212.4 220.9 Margin $126.4 $130.3 $121.8 1996 The gas sales margin decreased primarily as a result of higher gas costs and curtailments imposed on interruptible industrial customers during abnormally cold weather. Also, contributing to the decline in the gas sales margin from 1995 to 1996 were lower gas prices in 1995 which allowed Pipeline Corporation to compete more successfully in that year with alternate fuel suppliers in industrial markets. 1995 The gas sales margin increased primarily as a result of lower gas costs which allowed Pipeline Corporation to compete successfully with alternate fuel suppliers in industrial markets. A shifting of transportation customers to the industrial class and an increase in interruptible gas sales also contributed to the improved margin. Increases (decreases) from the prior year in dekatherm (DT) sales volume by classes, including transportation gas, were as follows: Classification 1996 1995 Residential 1,774,289 802,211 Commercial 585,669 632,959 Industrial (1,564,759) 7,960,434 Sale for resale 583,040 744,663 Transportation gas (1,219,903) (8,089,043) Total 158,336 2,051,224 Other Operating Expenses and Taxes Increases (decreases) in other operating expenses, including taxes, were as follows: Classification 1996 1995 (Millions of Dollars) Other operation and maintenance $20.1 $(6.6) Depreciation and amortization 17.7 10.7 Income taxes 8.1 15.4 Other taxes 3.3 5.0 Total $49.2 $24.5 41 1996 Other operation and maintenance expenses increased primarily as a result of higher production costs attributable to the Cope plant which became operational in January, 1996. The increase in depreciation and amortization expenses reflects the addition of the Cope plant and other additions to plant-in-service. The increase in income tax expense corresponds to the increase in operating income. The increase in other taxes reflects higher property taxes resulting from property additions and higher millages and assessments. 1995 Other operation and maintenance expenses decreased primarily as a result of lower pension costs and lower costs at electric generating stations. The increase in depreciation and amortization expenses is primarily attributable to additions to plant-in-service and the write-off of certain software costs. The increase in income tax expense corresponds to the increase in operating income. The increase in other taxes reflects higher property taxes resulting from higher millages and assessments partially offset by lower payroll taxes resulting from early retirements of employees. Other Income 1996 Other income, net of taxes, increased approximately $23.9 million in 1996 primarily due to the improved earnings performance of Petroleum Resources 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 also included in other income reported for 1996. 1995 Other income, net of taxes, increased $36.0 million in 1995 primarily due to the improved earnings performance of Petroleum Resources as discussed under "Earnings and Dividends." Interest Expense Increases (decreases) in interest expense, excluding the debt component of AFC, were as follows: Classification 1996 1995 (Millions of Dollars) Interest on long-term debt, net $(1.4) $ 7.6 Other interest expense (3.8) 10.4 Total $(5.2) $18.0 1996 The decrease in interest expense is due primarily to reductions in outstanding debt throughout most of the year. 1995 The increase in interest expense is due primarily to the issuance of additional debt, including commercial paper, during the latter part of 1994 and early 1995. 42 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA Page Independent Auditors' Report....................................... 44 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1996 and 1995... 45 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1996, 1995 and 1994............. 47 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994............................. 48 Consolidated Statements of Capitalization as of December 31, 1996 and 1995................................... 49 Notes to Consolidated Financial Statements..................... 51 Supplemental financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or in the notes thereto. 43 INDEPENDENT AUDITORS' REPORT SCANA CORPORATION: We have audited the accompanying Consolidated Balance Sheets and Consolidated Statements of Capitalization of SCANA Corporation and subsidiaries (Company) as of December 31, 1996 and 1995 and the related Consolidated Statements of Income and Retained Earnings and of Cash Flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina February 7, 1997 44 CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 ASSETS (Thousands of Dollars) Utility Plant (Notes 1, 3 and 4): Electric $4,135,567 $3,539,068 Gas 540,196 484,752 Transit 3,923 3,768 Common 81,858 91,616 Total 4,761,544 4,119,204 Less accumulated depreciation and amortization 1,517,847 1,367,541 Total 3,243,697 2,751,663 Construction work in progress 219,150 644,661 Nuclear fuel, net of accumulated amortization 41,006 46,492 Acquisition adjustment-gas, net of accumulated amortization 25,175 26,172 Utility Plant, Net 3,529,028 3,468,988 Nonutility Property and Investments (Net of accumulated depreciation and depletion)(Note 1) 345,248 314,207 Current Assets: Cash and temporary cash investments (Note 8) 17,349 16,082 Receivables 239,286 211,173 Inventories (At average cost): Fuel (Notes 3 and 4) 67,428 61,499 Materials and supplies 49,449 47,674 Prepayments 13,276 15,870 Deferred income taxes 20,776 20,186 Total Current Assets 407,564 372,484 Deferred Debits: Emission allowances 30,457 28,514 Environmental 41,375 18,016 Nuclear plant decommissioning fund (Note 1) 42,194 36,070 Pension asset, net (Note 1) 57,931 35,354 Other (Notes 1 and 10) 305,549 260,793 Total Deferred Debits 477,506 378,747 Total $4,759,346 $4,534,426 45 December 31, 1996 1995 CAPITALIZATION AND LIABILITIES (Thousands of Dollars) Stockholders' Investment: Common equity (Note 5) $1,683,448 $1,554,680 Preferred stock (Not subject to purchase or sinking funds) 26,027 26,027 Total Stockholders' Investment 1,709,475 1,580,707 Preferred Stock, Net (Subject to purchase or sinking funds)(Notes 6 and 8) 43,014 46,243 Long-Term Debt, Net (Notes 3, 4 and 8) 1,581,608 1,588,879 Total Capitalization 3,334,097 3,215,829 Current Liabilities: Short-term borrowings (Notes 8 and 9) 144,599 112,524 Current portion of long-term debt (Note 3) 51,220 40,983 Current portion of preferred stock (Note 6) 2,432 2,439 Accounts payable 157,475 138,778 Customer deposits 16,122 13,643 Taxes accrued 70,610 66,914 Interest accrued 25,609 25,884 Dividends declared 40,773 39,056 Other 7,200 8,071 Total Current Liabilities 516,040 448,292 Deferred Credits: Deferred income taxes (Notes 1 and 7) 577,509 542,022 Deferred investment tax credits (Notes 1 and 7) 84,100 87,719 Reserve for nuclear plant decommissioning (Note 1) 42,194 36,070 Other (Note 1) 205,406 204,494 Total Deferred Credits 909,209 870,305 Commitments and Contingencies (Note 10) - - Total $4,759,346 $4,534,426 See Notes to Consolidated Financial Statements. 46 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Years Ended December 31, 1996 1995 1994 (Thousands of Dollars except per share amounts) Operating Revenues (Notes 1 and 2): Electric $1,106,524 $1,006,420 $ 975,388 Gas 403,199 342,662 342,672 Transit 3,108 3,889 4,002 Total Operating Revenues 1,512,831 1,352,971 1,322,062 Operating Expenses: Fuel used in electric generation 250,516 227,405 235,136 Purchased power 11,449 14,704 20,104 Gas purchased for resale 276,843 212,427 220,923 Other operation (Note 1) 238,901 228,682 229,996 Maintenance (Note 1) 68,362 58,432 63,725 Depreciation and amortization (Note 1) 147,557 129,888 119,177 Income taxes (Notes 1 and 7) 118,023 109,949 94,510 Other taxes 87,297 83,970 78,938 Total Operating Expenses 1,198,948 1,065,457 1,062,509 Operating Income 313,883 287,514 259,553 Other Income (Note 1): Other income (loss), net of income taxes 21,964 (1,915) (37,925) Allowance for equity funds used during construction 7,028 9,975 8,176 Total Other Income 28,992 8,060 (29,749) Income Before Interest Charges and Preferred Stock Dividends 342,875 295,574 229,804 Interest Charges (Credits): Interest on long-term debt, net 114,954 116,368 108,804 Other interest expense 13,283 17,102 6,749 Allowance for borrowed funds used during construction (Note 1) (6,081) (11,922) (7,156) Total Interest Charges, Net 122,156 121,548 108,397 Income Before Preferred Stock Cash Dividends of Subsidiary 220,719 174,026 121,407 Preferred Stock Cash Dividends of Subsidiary (At stated rates) (5,433) (5,687) (5,955) Net Income 215,286 168,339 115,452 Retained Earnings at Beginning of Year, as adjusted 497,991 472,371 490,830 Other (386) - - Common Stock Cash Dividends Declared (Note 5) (154,725) (142,719) (133,911) Retained Earnings at End of Year $ 558,166 $ 497,991 $ 472,371 Net Income $ 215,286 $ 168,339 $ 115,452 Weighted Average Number of Common Shares Outstanding (Thousands) 105,123 99,044 94,762 Earnings Per Weighted Average Share of Common Stock $2.05 $1.70 $1.22 See Notes to Consolidated Financial Statements. 47 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996 1995 1994 (Thousands of Dollars) Cash Flows From Operating Activities: Net income $215,286 $168,339 $115,452 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation, depletion and amortization 182,561 197,735 272,106 Amortization of nuclear fuel 18,601 20,017 13,487 Deferred income taxes, net 53,035 (21,969) (9,282) Deferred investment tax credits, net (3,619) (3,630) (3,632) Pension asset (22,577) (15,573) (8,452) Dividends declared on preferred stock of subsidiary 5,433 5,687 5,955 Allowance for funds used during construction (13,109) (21,897) (15,332) Nuclear refueling accrual (2,454) 6,957 (4,881) Equity in (earnings) losses of investees (3,020) 666 (230) Over (under) collections, fuel adjustment clauses (8,261) 18,986 (16,966) Early retirements (1,943) (24,823) (7,086) Emission allowances, net of AFC (1,885) (7,592) (19,409) Changes in certain current assets and liabilities: (Increase) decrease in receivables (28,113) (27,993) (9,059) (Increase) decrease in inventories (7,704) (1,437) 2,131 (Increase) decrease in prepayments 2,594 3,983 1,973 Increase (decrease) in accounts payable 18,697 18,815 (19,331) Increase (decrease) in taxes accrued 3,696 20,244 (3,393) Increase (decrease) in interest accrued (275) 658 3,442 Other, net (6,140) 28,572 (1,585) Net Cash Provided From Operating Activities 400,803 365,745 295,908 Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (235,331) (299,993) (389,268) (Increase) decrease in nonutility property and investments: (Acquisition) sale of oil and gas producing properties 53,020 - (47,189) Nonutility property (36,656) (25,646) (115,541) Investments (84,669) (62,750) (19,006) Sale of real estate assets 2,123 18,528 79,439 Net Cash Used For Investing Activities (301,513) (369,861) (491,565) Cash Flows From Financing Activities: Proceeds: Issuance of mortgage bonds - 99,583 99,207 Issuance of common stock 69,099 172,036 63,317 Issuance of notes and loans 63,815 62,542 60,000 Issuance of pollution control bonds - - 30,000 Repayments: Mortgage bonds (22,000) (64,779) - Notes and loans (68,480) (69,444) (75,545) Other long-term debt (110) (11,300) (230) Preferred stock (3,236) (3,264) (3,398) Dividend payments: Common stock (153,010) (139,297) (131,925) Preferred stock (5,487) (5,750) (6,048) Short-term borrowings, net 32,075 (59,303) 128,808 Fuel financings, net (10,689) 26,236 13,844 Net Cash Provided By (Used For) Financing Activities (98,023) 7,260 178,030 Net Increase (Decrease) in Cash and Temporary Cash Investments 1,267 3,144 (17,627) Cash and Temporary Cash Investments, January 1 16,082 12,938 30,565 Cash and Temporary Cash Investments, December 31 $ 17,349 $ 16,082 $ 12,938 Supplemental Cash Flow Information: Cash paid for - Interest (Includes capitalized interest of $6,081, $11,922 and $7,156) $125,958 $130,495 $110,347 - Income taxes 115,365 99,050 90,012 Noncash Financing Activities: Charleston Franchise Agreement 21,429 - - Charleston Environmental Agreement 19,500 - - See Notes to Consolidated Financial Statements. 48 SCANA Corporation CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1996 1995 Common Equity (Note 5): (Thousands of Dollars) Common stock, without par value, authorized 150,000,000 shares; issued and outstanding, 1996 - 106,175,273 shares and 1995 -103,623,863 shares $1,125,282 $1,056,689 Retained earnings 558,166 497,991 Total Common Equity 1,683,448 51% 1,554,680 48% South Carolina Electric & Gas Company: Cumulative Preferred Stock (Not subject to purchase or sinking funds): $100 Par Value - Authorized 200,000 shares $50 Par Value - Authorized 125,209 shares Shares Outstanding Redemption Price Eventual Series 1996 1995 Current Through Minimum $100 Par 8.40% 197,668 197,668 101.00 - 101.00 19,767 19,767 $50 Par 5.00% 125,209 125,209 52.50 - 52.50 6,260 6,260 Total Preferred Stock (Not subject to purchase or sinking funds) 26,027 1% 26,027 1% South Carolina Electric & Gas Company: Cumulative Preferred Stock (Subject to purchase or sinking funds)(Notes 6 and 8): $100 Par Value - Authorized 1,550,000 shares Shares Outstanding Redemption Price Eventual Series 1996 1995 Current Through Minimum 7.70% 84,000 86,965 101.00 - 101.00 8,400 8,696 8.12% 118,812 123,045 102.03 - 102.03 11,881 12,305 Total 202,812 210,010 $50 Par Value - Authorized 1,602,539 shares Shares Outstanding Redemption Price Eventual Series 1996 1995 Current Through Minimum 4.50% 16,000 17,519 51.00 - 51.00 800 876 4.60% 87 834 50.50 - 50.50 4 42 4.60%(A) 24,052 26,052 51.00 - 51.00 1,203 1,303 4.60%(B) 71,400 74,800 50.50 - 50.50 3,570 3,740 5.125% 71,000 72,000 51.00 - 51.00 3,550 3,600 6.00% 80,000 83,200 50.50 - 50.50 4,000 4,160 8.72% 64,000 95,985 51.00 12-31-98 50.00 3,200 4,799 9.40% 176,751 183,219 51.175 - 51.175 8,838 9,161 Total 503,290 553,609 $25 Par Value - Authorized 2,000,000 shares; None outstanding in 1996 and 1995 Total Preferred Stock (Subject to purchase or sinking funds) 45,446 48,682 Less: Current portion, including sinking fund requirements 2,432 2,439 Total Preferred Stock, Net (Subject to purchase or sinking funds) 43,014 1% 46,243 1% See Notes to Consolidated Financial Statements. 49 December 31, 1996 1995 Long-Term Debt (Notes 3, 4 and 8): (Thousands of Dollars) SCANA Corporation: Bank Notes, due 1998 (Various rates between 5.99% and 6.03%, reset annually) 60,000 60,000 Medium-Term Notes: Year of Series Maturity 5.76% 1998 20,000 20,000 7.17% 1999 42,400 42,400 6.60% 1999 30,000 30,000 6.15% 2000 20,000 20,000 6.51% 2003 20,000 20,000 South Carolina Electric & Gas Company: First Mortgage Bonds: Year of Series Maturity 6% 2000 100,000 100,000 6 1/4% 2003 100,000 100,000 7.70% 2004 100,000 100,000 7 1/8% 2013 150,000 150,000 7 1/2% 2023 150,000 150,000 7 5/8% 2023 100,000 100,000 7 5/8% 2025 100,000 100,000 First and Refunding Mortgage Bonds: Year of Series Maturity 5.45% 1996 - 15,000 6% 1997 15,000 15,000 6 1/2% 1998 20,000 20,000 7 1/4% 2002 30,000 30,000 9% 2006 130,771 130,771 8 7/8% 2021 113,450 120,450 Pollution Control Facilities Revenue Bonds: 5.95% Series, due 2003 6,450 6,560 Fairfield County Series 1984, due 2014 (6.50%) 56,820 56,820 Richland County Series 1985, due 2014 (6.50%) 5,210 5,210 Fairfield County Series 1986, due 2014 (6.50%) 1,090 1,090 Colleton and Dorchester Counties Series 1987, due 2014 (6.60%) 4,365 4,365 Orangeburg County Series 1994, due 2024 (Daily adjusted rate) 30,000 30,000 Department of Energy Decontamination and Decommissioning Obligation 3,187 3,560 Charleston Franchise Agreement due 1997-2002 21,429 - Charleston Environmental Agreement due 1997-1999 19,500 - South Carolina Generating Company, Inc.: Berkeley County Pollution Control Facilities Revenue Bonds, due 2014 (6.50%) 35,850 35,850 Note, 7.78%, due 2011 60,000 63,700 South Carolina Fuel Company, Inc.: Commercial Paper 66,141 76,830 South Carolina Pipeline Corporation: Notes, 6.72%, due 2013 21,250 22,500 Other 3,840 3,993 Total Long-Term Debt 1,636,753 1,634,099 Less - Current maturities, including sinking fund requirements 51,220 40,983 - Unamortized discount 3,925 4,237 Total Long-Term Debt, Net 1,581,608 47% 1,588,879 50% Total Capitalization $3,334,097 100% $3,215,829 100% See Notes to Consolidated Financial Statements.
50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Organization and Principles of Consolidation SCANA Corporation (Company), a South Carolina corporation, is a public utility holding company within the meaning of the Public Utility Holding Company Act of 1935 but is exempt from registration under such Act. The Company, through wholly owned subsidiaries, is engaged predominately in the generation and sale of electricity to wholesale and retail customers in South Carolina and in the purchase, sale and transportation of natural gas to wholesale and retail customers in South Carolina. The Company is also engaged in other energy-related businesses, such as owning and operating interests in oil and gas properties and natural gas marketing. The Company also provides, in the South and Southeast, fiber optic communications and invests in companies developing personal communications services for wireless communications. The accompanying Consolidated Financial Statements reflect the accounts of the Company and its wholly owned subsidiaries: Regulated utilities South Carolina Electric & Gas Company (SCE&G) South Carolina Fuel Company, Inc. (Fuel Company) South Carolina Generating Company, Inc. (GENCO) South Carolina Pipeline Corporation (Pipeline Corporation) Nonregulated businesses SCANA Petroleum Resources, Inc. (Petroleum Resources) SCANA Energy Marketing, Inc. Suburban Propane Group, Inc. SCANA Propane Services, Inc. SCANA Communications, Inc. (SCI) Primesouth, Inc. ServiceCare, Inc. SCANA Resources, Inc. SCANA Development Corporation (in liquidation) Certain investments are reported using the cost or equity method of accounting, as appropriate. Significant intercompany balances and transactions have been eliminated in consolidation in compliance with Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation" which provides that profit 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. 51 B. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of SFAS 71. The accounting standard requires cost-based rate-regulated utilities, such as the Company, to recognize in their financial statements revenues and expenses in different time periods than do enterprises that are not rate-regulated. As a result the Company has recorded, as of December 31, 1996, approximately $287 million and $59 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $107 million and $57 million, respectively. The electric regulatory assets of approximately $119 million (excluding deferred income tax assets) are being recovered through rates and, as discussed in Note 2A, the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $64 million of these assets. In the future, as a result of deregulation or other changes in the regulatory environment, the Company may no longer meet the criteria for continued application of SFAS 71 and would be required to write-off its regulatory assets and liabilities. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded, but it is not expected that cash flows or financial position would be materially affected. C. System of Accounts The accounting records of the Company's regulated subsidiaries are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and as adopted by the PSC. D. Utility Plant Utility plant is stated substantially at original cost. The costs of additions, renewals and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged, along with the cost of removal, less salvage, to accumulated depreciation. The costs of repairs, replacements and renewals of items of property determined to be less than a unit of property are charged to maintenance expense. SCE&G, operator of the V. C. Summer Nuclear Station (Summer Station), and the South Carolina Public Service Authority (PSA) are joint owners of Summer Station in the proportions of two-thirds and one-third, respectively. The parties share the operating costs and energy output of the plant in these proportions. Each party, however, provides its own financing. Plant-in- service related to SCE&G's portion of Summer Station was approximately $937.2 million and $925.1 million as of December 31, 1996 and 1995, respectively. Accumulated depreciation associated with SCE&G's share of Summer Station was approximately $313.2 million and $261.0 million as of December 31, 1996 and 1995, respectively. SCE&G's share of the direct expenses associated with operating Summer Station is included in "Other operation" and "Maintenance" expenses. 52 E. Allowance for Funds Used During Construction AFC, a noncash item, reflects the period cost of capital devoted to plant under construction. This accounting practice results in the inclusion of, as a component of construction cost, the costs of debt and equity capital dedicated to construction investment. AFC is included in rate base investment and depreciated as a component of plant cost in establishing rates for utility services. The Company's regulated subsidiaries calculated AFC using composite rates of 9.1%, 8.6% and 8.5% for 1996, 1995 and 1994, respectively. These rates do not exceed the maximum allowable rate as calculated under FERC Order No. 561. Interest on nuclear fuel in process and sulfur dioxide emission allowances is capitalized at the actual interest amount. F. Revenue Recognition Customers' meters are read and bills are rendered on a monthly cycle basis. Base revenue is recorded during the accounting period in which the meters are read. Fuel costs for electric generation are collected through the fuel cost component in retail electric rates. The fuel cost component contained in electric rates is established by the PSC during semiannual fuel cost hearings. Any difference between actual fuel costs and that contained in the fuel cost component is deferred and included when determining the fuel cost component during the next semiannual fuel cost hearing. SCE&G had overcollected through the electric fuel cost component approximately $1.9 million and $3.8 million at December 31, 1996 and December 31, 1995, respectively, which are included in "Deferred Credits - Other." Customers subject to the gas cost adjustment clause are billed based on a fixed cost of gas determined by the PSC during annual gas cost recovery hearings. Any difference between actual gas costs and that contained in rates is deferred and included when establishing gas costs during the next annual gas cost recovery hearing. At December 31, 1996 and 1995 the Company had undercollected through the gas cost recovery procedure approximately $10.9 million and $4.6 million, respectively, which are included in "Deferred Debits - - Other." SCE&G's gas rate schedules for residential, small commercial and small industrial customers include a weather normalization adjustment, which minimizes fluctuations in gas revenues due to abnormal weather conditions. G. Depreciation and Amortization Provisions for depreciation are recorded using the straight-line method for financial reporting purposes and are based on the estimated service lives of the various classes of property. The composite weighted average depreciation rates were as follows: 1996 1995 1994 SCE&G 3.13% 3.02% 3.01% GENCO 2.68% 2.67% 2.70% Pipeline Corporation 2.56% 2.78% 2.79% Aggregate of Above 3.08% 2.98% 2.98% Nuclear fuel amortization, which is included in "Fuel used in electric generation" and is recovered through the fuel cost component of SCE&G's rates, is recorded using the units-of-production method. Provisions for amortization of nuclear fuel include amounts necessary to satisfy obligations to the Department Of Energy (DOE) under a contract for disposal of spent nuclear fuel. The acquisition adjustment relating to the purchase of certain gas properties in 1982 is being amortized over a 40-year period using the straight-line method. 53 H. Nuclear Decommissioning Decommissioning of Summer Station is presently scheduled to commence when the operating license expires in the year 2022. Based on a 1991 study, the expenditures (on a before-tax basis) related to SCE&G's share of decommissioning activities are estimated, in 2022 dollars assuming a 4.5% annual rate of inflation, to be $545.3 million including partial reclamation costs. SCE&G is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. SCE&G's method of funding decommissioning costs is referred to as COMReP (Cost of Money Reduction Plan). Under this plan, funds collected through rates ($3.2 million in each of 1996 and 1995) are used to pay premiums on insurance policies on the lives of certain Company personnel. SCE&G is the beneficiary of these policies. Through these insurance contracts, SCE&G is able to take advantage of income tax benefits and accrue earnings on the fund on a tax-deferred basis at a rate higher than can be achieved using more traditional funding approaches. Amounts for decommissioning collected through electric rates, insurance proceeds, and interest on proceeds less expenses are transferred by SCE&G to an external trust fund in compliance with the financial assurance requirements of the Nuclear Regulatory Commission. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis. The trust's sources of decommissioning funds under the COMReP program include investment components of life insurance policy proceeds, return on investment and the cash transfers from SCE&G described above. SCE&G records its liability for decommissioning costs in deferred credits. Pursuant to the National Energy Policy Act passed by Congress in 1992 and the requirements of the DOE, SCE&G has recorded a liability for its estimated share of the DOE's decontamination and decommissioning obligation. The liability, approximately $3.2 million at December 31, 1996, has been included in "Long-Term Debt, Net." SCE&G is recovering the cost associated with this liability through the fuel cost component of its rates; accordingly, this amount has been deferred and is included in "Deferred Debits - Other." I. Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return. Income taxes are allocated to individual companies based on their contributions to the consolidated total. Deferred tax assets and liabilities are recorded for the tax effects of temporary differences between the book basis and tax basis of assets and liabilities at currently enacted tax rates. Deferred tax assets and liabilities are adjusted for changes in such rates through charges or credits to regulatory assets or liabilities if they are expected to be recovered from, or passed through to, customers of the Company's regulated subsidiaries; otherwise, they are charged or credited to income tax expense. J. Pension Expense The Company has a noncontributory defined benefit pension plan, which covers all permanent employees. Benefits are based on years of accredited service and the employee's average annual base earnings received during the last three years of employment. The Company's policy has been to fund the plan to the extent permitted by the applicable Federal income tax regulations as determined by an independent actuary. 54 Net periodic pension cost for the years ended December 31, 1996, 1995 and 1994 included the following components: 1996 1995 1994 (Thousands of Dollars) Service cost--benefits earned during the period $ 6,511 $ 5,187 $ 8,684 Interest cost on projected benefit obligation 21,985 19,473 21,711 Adjustments: Return on plan assets (78,614) (103,874) 2,365 Net amortization and deferral 40,150 74,769 (29,760) Net periodic pension (income) expense $ (9,968) $ (4,445) $ 3,000 The determination of net periodic pension cost is based upon the following assumptions: 1996 1995 1994 Annual discount rate 7.5% 8.0% 7.25% Expected long-term rate of return on plan assets 8.0% 8.0% 8.0% Annual rate of salary increases 3.0% 2.5% 4.75% The following table sets forth the funded status of the plan at December 31, 1996 and 1995: 1996 1995 (Thousands of Dollars) Actuarial present value of benefit obligations: Vested benefit obligation $243,872 $228,434 Nonvested benefit obligation 23,732 15,540 Accumulated benefit obligation $267,604 $243,974 Plan assets at fair value (invested primarily in equity and debt securities) $523,530 $447,760 Projected benefit obligation 306,881 284,145 Plan assets greater than projected benefit obligation 216,649 163,615 Unrecognized net transition liability 8,178 9,022 Unrecognized prior service costs 8,223 9,660 Unrecognized net gain (175,119) (146,943) Pension asset recognized in Consolidated Balance Sheets $ 57,931 $ 35,354 The accumulated benefit obligation is based on the plan's benefit formulas without considering expected future salary increases. The following table sets forth the assumptions used in determining the amounts shown above for the years 1996 and 1995. 1996 1995 Annual discount rate used to determine benefit obligations 7.5% 7.5% Assumed annual rate of future salary increases for projected benefit obligation 3.0% 3.0% 55 In addition to pension benefits, the Company provides certain health care and life insurance benefits to active and retired employees. The costs of postretirement benefits other than pensions are accrued during the years the employees render the service necessary to be eligible for the applicable benefits. Prior to 1993, the Company expensed these benefits, which are primarily health care, as claims were incurred. In its June 1993 electric rate order the PSC approved the inclusion in rates of the portion of increased expenses related to electric operations. The Company expensed approximately $9.8 million, $8.5 million and $8.6 million, net of payments to current retirees, for the years ended December 31, 1996, 1995 and 1994, respectively. Additionally, in 1996 the Company expensed approximately $6.2 million to accelerate the amortization of the remaining transition obligation for postretirement benefits other than pensions, as authorized by the PSC. (See Note 2A.) Net periodic postretirement benefit cost for the years ended December 31, 1996, 1995 and 1994, included the following components: 1996 1995 1994 (Thousands of Dollars) Service cost--benefits earned during the period $ 2,631 $ 2,076 $ 2,417 Interest cost on accumulated postretirement benefit obligation 7,841 7,253 6,644 Adjustments: Return on plan assets - - - Amortization of unrecognized transition obligation 9,513 3,344 3,344 Other net amortization and deferral 1,150 661 860 Net periodic postretirement benefit cost $21,135 $13,334 $13,265 The determination of net periodic postretirement benefit cost is based upon the following assumptions: 1996 1995 1994 Annual discount rate 7.5% 8.0% 7.25% Health care cost trend rate 9.5% 11.0% 11.25% Ultimate health care cost trend rate (to be achieved in 2004) 5.5% 6.0% 5.25% The following table sets forth the funded status of the plan at December 31, 1996 and 1995: 1996 1995 (Thousands of Dollars) Accumulated postretirement benefit obligations for: Retirees $ 74,181 $ 64,989 Other fully eligible participants 6,674 6,685 Other active participants 29,275 27,076 Accumulated postretirement benefit obligation 110,130 98,750 Plan assets at fair value - - Accumulated postretirement benefit obligation 110,130 98,750 Plan assets less than accumulated postretirement benefit obligation (110,130) (98,750) Unrecognized net transition liability 48,724 58,237 Unrecognized prior service costs 6,224 5,320 Unrecognized net loss 17,838 13,840 Postretirement benefit liability recognized in Consolidated Balance Sheets $(37,344) $(21,353) 56 The accumulated postretirement benefit obligation is based upon the plan's benefit provisions and the following assumptions: 1996 1995 Assumed health care cost trend rate used to measure expected costs 9.5% 10.5% Ultimate health care cost trend rate (to be achieved in 2004) 5.5% 5.5% Annual discount rate 7.5% 7.5% Annual rate of salary increases 3.0% 3.0% The effect of a one percentage-point increase in the assumed health care cost trend rate for each future year on the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1996 and the accumulated postretirement benefit obligation as of December 31, 1996 would be to increase such amounts by $191,000 and $3.2 million, respectively. K. Debt Premium, Discount and Expense, Unamortized Loss on Reacquired Debt Long-term debt premium, discount and expense are being amortized as components of "Interest on long-term debt, net" over the terms of the respective debt issues. Gains or losses on reacquired debt that is refinanced are deferred and amortized over the term of the replacement debt. L. Environmental The Company has an environmental assessment program to identify and assess current and former operating 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 assessments and cleanup and environmental claims settlements relate primarily to regulated operations; such amounts are deferred and are being amortized and recovered through rates over a five-year period for electric operations and an eight- year period for gas operations. Such deferred amounts totaled $41.4 million and $18.0 million at December 31, 1996 and 1995, respectively. The deferral includes the costs estimated to be associated with the matters discussed in Note 10C. M. Oil and Gas The Company follows the full cost method of accounting for its oil and gas operations and, accordingly, capitalizes all costs it incurs in the acquisition, exploration and development of interests in oil and gas properties. The Company amortizes capitalized costs on the units-of- production method, based on total estimated proved recoverable reserves. The Company accounts for normal dispositions of interests in oil and gas properties as adjustments to capitalized costs and does not recognize any gain or loss. In addition, the capitalized costs are subject to a "ceiling test," which limits such costs to the aggregate of the estimated present value of future net cash flows from proved oil and gas reserves, plus the lower of cost or fair market value of unproved properties. Non-cash write-downs resulting from the application of the ceiling test were $0 millon, $24.2 million and $94.1 million in the years ended December 31, 1996, 1995 and 1994, respectively. The valuation estimates of interests in oil and natural gas properties are significantly influenced by oil and natural gas market prices and the results of recurring reserve studies of such properties. Net income of the Company may be materially adversely affected by a decline in oil and natural gas prices or reserve estimates. 57 N. Temporary Cash Investments The Company considers temporary cash investments having original maturities of three months or less to be cash equivalents. Temporary cash investments are generally in the form of commercial paper, certificates of deposit and repurchase agreements. O. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1996 presentation. P. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. RATE MATTERS: A. On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34%, which will produce additional revenues of approximately $67.5 million annually. The increase has been implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, or .87%, 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 SCE&G'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. SCE&G's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenues under the FERC's jurisdiction, which constitute approximately five percent of the Company's electric revenues. The FERC has rejected the transfer of depreciation reserves for rates subject to its jurisdiction. B. In 1994 the PSC issued an order approving the Company's request to recover through a billing surcharge to its gas customers the costs of environmental cleanup at the sites of former manufactured gas plants. The billing surcharge is subject to annual review and provides for the recovery of substantially all actual and projected site assessment and cleanup costs and environmental claims settlements for the Company's gas operations that had previously been deferred. In October 1996, as a result of the ongoing annual review, the PSC approved the continued use of the billing surcharge. The balance remaining to be recovered amounts to approximately $38.0 million. 58 C. In September 1992 the PSC issued an order granting the Company a $.25 increase in transit fares from $.50 to $.75 in both Columbia and Charleston, South Carolina; however, the PSC also required $.40 fares for low income customers and denied the Company's request to reduce the number of routes and frequency of service. The new rates were placed into effect in October 1992. The Company appealed the PSC's order to the Circuit Court, which in May 1995 ordered the case back to the PSC for reconsideration of several issues including the low income rider program, routing changes, and the $.75 fare. The Supreme Court declined to review an appeal of the Circuit Court decision and dismissed the case. The PSC and other intervenors filed another Petition for Reconsideration, which the Supreme Court denied. The PSC and other intervenors filed another appeal to the Circuit Court which the Circuit Court denied in an Order dated May 9, 1996. In this Order, the Circuit Court upheld its previous Orders and remanded them back to the PSC. During August, the PSC heard oral arguments on the Orders on remand for the Circuit Court. On September 30, 1996, the PSC issued an order affirming its previous orders and denied the Company's request for reconsideration. The Company has appealed these two PSC orders back to the Circuit Court where they are awaiting action. D. On August 8, 1990, the PSC issued an order effective November 1, 1990, approving changes in Pipeline Corporation's gas rate design for sales for resale service and upholding the "value-of-service" method of regulation for its direct industrial service. Direct industrial customers seeking "cost-of- service" based rates initiated two separate appeals to the Circuit Court, which reversed and remanded to the PSC its August 8, 1990 order. Pipeline Corporation appealed that decision to the Supreme Court, which on January 10, 1994 reversed the two Circuit Court decisions and reinstated the PSC Order. The Supreme Court held that the industrial customer group's appeal was premature and failed to exhaust administrative remedies. Additionally, the Supreme Court interpreted the rate-making statutes of South Carolina to give discretion to the PSC in selecting the methodology to be used in setting rates for natural gas service. The PSC then held another hearing and issued its Order dated December 12, 1995 maintaining the present level of the caps. This Order was appealed to the Circuit Court by Pipeline Corporation and the industrial customer group with several other parties intervening. The Circuit Court judge has written a letter to the parties indicating that he will rule to require the PSC to set an overall rate of return. However, no order has been issued. The impact, if any, on the Company's results of operations, cash flows and financial position is not presently determinable. 3. LONG-TERM DEBT: The annual amounts of long-term debt maturities, including the amounts due under the nuclear and fossil fuel agreements (see Note 4), and sinking fund requirements for the years 1997 through 2001 are summarized as follows: Year Amount Year Amount (Thousands of Dollars) 1997 $ 51,220 2000 $146,200 1998 199,126 2001 26,205 1999 105,095 Approximately $17.3 million of the portion of long-term debt payable in 1997 may be satisfied by either deposit and cancellation of bonds issued upon the basis of property additions or bond retirement credits, or by deposit of cash with the Trustee. On January 10, 1997 the Company made unsecured bank loans totaling $60 million, due January 9, 1998 at initial rates between 5.995% and 6.031%, at a fixed 12-month LIBOR plus a spread of 10 to 12 1/2 basis points. Proceeds from the loans were used to repay unsecured bank loans totaling $60 million due January 10, 1997 which were classified as long-term debt at December 31, 1996. 59 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, SCE&G will pay the City $25 million over seven years (1996-2002) and has donated to the City the existing transit assets in Charleston. The $25 million is included in electric plant-in-service. 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 (1996-1999). Such amount is deferred (see Note 1L). Accordingly, the unpaid balances of these amounts are included in "Long-Term Debt." SCE&G has three-year revolving lines of credit totaling $100 million, in addition to other lines of credit, that provide liquidity for issuance of commercial paper. The three-year lines of credit provide back-up liquidity when commercial paper outstanding is in excess of $100 million. The long-term nature of the lines of credit allow commercial paper in excess of $100 million to be classified as long-term debt. SCE&G had outstanding commercial paper of $90 million at December 31, 1996. Substantially all utility plant and fuel inventories are pledged as collateral in connection with long-term debt. 4. FUEL FINANCINGS: Nuclear and fossil fuel inventories and sulfur dioxide emission allowances are financed through the issuance by Fuel Company of short-term commercial paper. These short-term borrowings are supported by an irrevocable revolving credit agreement which expires July 31, 1998. Accordingly, the amounts outstanding have been included in long-term debt. The credit agreement provides for a maximum amount of $125 million that may be outstanding at any time. Commercial paper outstanding totaled $66.1 million and $76.8 million at December 31, 1996 and 1995 at weighted average interest rates of 5.62% and 5.76%, respectively. 5. COMMON EQUITY: The changes in "Common Stock," without par value, during 1996, 1995 and 1994 are summarized as follows: Number Thousands of Shares of Dollars Balance December 31, 1993 93,238,914 $ 826,665 Issuance of common stock 2,796,106 60,105 Balance December 31, 1994 96,035,020 886,770 Issuance of common stock 7,588,843 169,919 Balance December 31, 1995 103,623,863 1,056,689 Issuance of common stock 2,551,410 68,593 Balance December 31, 1996 106,175,273 $1,125,282 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 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 December 31, 1996 approximately $17.6 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G's common stock. 60 Cash dividends on common stock were declared at an annual rate per share of $1.47, $1.44 and $1.41 for 1996, 1995 and 1994, respectively. 6. PREFERRED STOCK (Subject to Purchase or Sinking Funds): The call premium of the respective series of preferred stock in no case exceeds the amount of the annual dividend. Retirements under sinking fund requirements are at par values. The aggregate annual amounts of purchase fund or sinking fund requirements for preferred stock for the years 1997 through 2001 are summarized as follows: Year Amount Year Amount (Thousands of Dollars) 1997 $2,432 2000 $2,440 1998 2,440 2001 2,440 1999 2,440 The changes in "Total Preferred Stock (Subject to purchase or sinking funds)" during 1996, 1995 and 1994 are summarized as follows: Number Thousands of Shares of Dollars Balance December 31, 1993 881,968 $55,344 Shares Redeemed: $100 par value (8,072) (807) $50 par value (51,802) (2,591) Balance December 31, 1994 822,094 51,946 Shares Redeemed: $100 par value (6,809) (681) $50 par value (51,666) (2,583) Balance December 31, 1995 763,619 48,682 Shares Redeemed: $100 par value (7,198) (720) $50 par value (50,319) (2,516) Balance December 31, 1996 706,102 $45,446 7. INCOME TAXES: Total income tax expense for 1996, 1995 and 1994 is as follows: 1996 1995 1994 (Thousands of Dollars) Current taxes: Federal $ 98,286 $101,656 $62,033 State 14,051 16,193 13,178 Total current taxes 112,337 117,849 75,211 Deferred taxes, net: Federal 8,635 (13,878) (9,006) State 1,706 (1,224) (86) Total deferred taxes 10,341 (15,102) (9,092) Investment tax credits: Amortization of amounts deferred (credit) (3,619) (3,630) (3,631) Total income tax expense $119,059 $ 99,117 $62,488 61 The difference in total income tax expense and the amount calculated from the application of the statutory Federal income tax rate (35% for 1996, 1995 and 1994) to pretax income is reconciled as follows: 1996 1995 1994 (Thousands of Dollars) Net income $215,286 $168,339 $115,452 Total income tax expense: Charged to operating expenses 118,023 109,949 94,510 Charged (credited) to other income 1,036 (10,832) (32,022) Preferred stock dividends 5,433 5,687 5,955 Total pretax income $339,778 $273,143 $183,895 Income taxes on above at statutory Federal income tax rate $118,922 $ 95,600 $ 64,363 Increases (decreases) attributable to: State income taxes (less Federal income tax effect) 10,242 9,730 8,510 Deferred income tax reversal at higher than statutory rates (4,073) (3,941) (4,327) Amortization of investment tax credits (3,619) (3,630) (3,631) Other differences, net (2,413) 1,358 (2,427) Total income tax expense $119,059 $ 99,117 $ 62,488 The tax effects of significant temporary differences comprising the Company's net deferred tax liability of $556.7 million at December 31, 1996 and $521.8 million at December 31, 1995 are as follows: 1996 1995 (Thousands of Dollars) Deferred tax assets: Unamortized investment tax credits $ 52,113 $ 54,342 Cycle billing 19,799 19,143 Nuclear operations expenses 4,722 3,755 Oil and gas properties 8,267 9,738 Deferred compensation 6,749 5,647 Other postretirement benefits 10,764 6,371 Other 12,883 7,599 Total deferred tax assets 115,297 106,595 Deferred tax liabilities: Property, plant and equipment 610,957 592,160 Pension expense 21,790 14,191 Research and experimentation 12,528 6,196 Reacquired debt 8,334 6,680 Deferred Fuel 3,701 541 Other 14,721 8,662 Total deferred tax liabilities 672,031 628,430 Net deferred tax liability $556,734 $521,835 The Internal Revenue Service has examined and closed consolidated Federal income tax returns of the Company through 1989, has examined and proposed adjustments to the Company's Federal returns for 1990 through 1992 and is currently examining the Company's Federal returns for 1993 through 1995. The Company does not anticipate that any adjustments which might result from these examinations will have a significant impact on the results of operations, cash flows or financial position of the Company. 62 8. FINANCIAL INSTRUMENTS: The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1996 and 1995 are as follows: 1996 1995 Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value (Thousands of Dollars) Assets: Cash and temporary cash investments $ 17,349 $ 17,349 $ 16,082 $ 16,082 Investments 179,809 167,657 90,380 105,280 Liabilities: Short-term borrowings 144,599 144,599 112,524 112,524 Long-term debt 1,632,828 1,673,085 1,629,862 1,737,686 Preferred stock (subject to purchase or sinking funds) 45,446 44,342 48,682 46,603 The information presented herein is based on pertinent information available to the Company as of December 31, 1996 and 1995. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such financial instruments have not been comprehensively revalued since December 31, 1996, and the current estimated fair value may differ significantly from the estimated fair value at that date. The following methods and assumptions were used to estimate the fair value of the above classes of financial instruments: Cash and temporary cash investments, including commercial paper, repurchase agreements, treasury bills and notes are valued at their carrying amount. Fair values of investments and long-term debt are based on quoted market prices of the instruments or similar instruments, or for those instruments for which there are no quoted market prices available, fair values are based on net present value calculations. Investments which are not considered to be financial instruments (goodwill) have been excluded from the carrying amount and estimated fair value. Settlement of long-term debt may not be possible or may not be a prudent management decision. Short-term borrowings are valued at their carrying amount. The fair value of preferred stock (subject to purchase or sinking funds) is estimated on the basis of market prices. Potential taxes and other expenses that would be incurred in an actual sale or settlement have not been taken into consideration. 63 SCI was a principal partner in Powertel PCS Partners L.P. (Powertel), which owned licenses to develop a personal communications services (PCS) system in major markets in the Southeast. As a result of the February 7, 1996 merger of Powertel with InterCel, Inc., an established provider of cellular telephone services, SCI received approximately 4.5 million shares of InterCel common stock at a distribution price per share of $16.50. Such shares are restricted securities until early 1998. Based on the value of InterCel common stock on the distribution date, SCI recorded in "Other Income" a one-time after-tax gain on its investment of approximately $5.7 million. In April 1996, SCI purchased 100,000 shares of InterCel non-voting convertible preferred stock for $75 million. Such stock is convertible in April 2000 at a conversion price of $16.50, or approximately 4.5 million common shares. InterCel common stock closed at 12 1/4 per share on December 31, 1996, resulting in a pretax unrealized holding loss of approximately $31.1 million. The common stock ranged from a low of 11 3/4 to a high of 26 1/4 during 1996 and, through February 12, ranged from a low of 12 1/16 to a high of 17 during 1997. 9. SHORT-TERM BORROWINGS: The Company pays fees to banks as compensation for its committed lines of credit. Commercial paper borrowings are for 270 days or less. Details of lines of credit and short-term borrowings, excluding amounts classified as long-term (Notes 3 and 4), at December 31, 1996, 1995 and 1994 and for the years then ended are as follows: 1996 1995 1994 (Millions of Dollars) Authorized lines of credit at year-end $525.1 $477.1 $379.1 Unused lines of credit at year-end $470.4 $470.0 $355.1 Short-term borrowings outstanding at year-end: Bank loans $ 54.6 $ 32.0 $ 71.8 Weighted average interest rate 5.81% 6.21% 6.38% Commercial paper $ 90.0 $ 80.5 $100.0 Weighted average interest rate 5.53% 5.83% 6.04% 10. COMMITMENTS AND CONTINGENCIES: A. Construction 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, South Carolina. SCANA and Westvaco each own a 50% interest in the LLC. 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 LLC by each partner is expected prior to operation of the facility. In addition to the cogeneration LLC, Westvaco has entered into a 20-year contract with SCE&G for all its electricity requirements at the North Charleston mill at SCE&G's standard industrial rate. Construction of the plant began in September 1996 and it is expected to be operational in the fall of 1998. 64 B. 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 $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 Nuclear Electric Insurance Limited (NEIL) and American Nuclear Insurers (ANI) 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 not to exceed five times its annual premium in the event of property damage loss to any nuclear generating facilities covered under the NEIL program. Based on the current annual premium, this retroactive premium would not exceed $5.7 million. To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that 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 results of operations, cash flows and financial position. C. Environmental 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 eighteen 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, 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 resolved second and third round comments and submitted a Final Draft Remedial Investigation Report in October 1996. Although SCE&G is continuing to investigate cost-effective cleanup methodologies, further work is pending EPA approval of the Final Draft Remedial Investigation Report. 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 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 (see Note 1L). 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. 65 SCE&G owns three other 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. SCE&G is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. D. Franchise Agreement See Note 3 for a discussion of an electric franchise agreement between SCE&G and the City of Charleston. E. Oil and Gas Forward Contracts In an effort to limit exposure to changing natural gas prices, in January 1995 the Company entered into a series of forward contracts for approximately sixty percent of its forecasted natural gas production for the years 1996- 2001. In 1996, portions of the forward contracts for the year 1997 and all of the forward contracts for the years 1998-2001 were removed. The closing of the contracts did not result in a material gain or loss to the Company. F. SCI Matters A percentage of the projected annual revenues for the years 1996-2003 of certain fiber optic routes of a joint venture between SCI and a subsidiary of ITC has been guaranteed by SCI. The amount of such guarantee over the remaining portion of the eight-year period, net of $33.5 million for revenue contracts obtained by the joint venture, is approximately $7.3 million. SCI, as a result of an internal audit, informed the Federal Communications Commission (FCC) that it violated certain licensing requirements in establishing and operating an 800 Mhz radio system in South Carolina for public safety and utility use. As a result, SCI has returned to the FCC several licenses obtained in violation of FCC rules and the FCC is conducting an investigation of the system. The Company does not believe that the resolution of this issue will have a material impact on results of operations, cash flows or financial position. G. Claims and Litigation The Company is engaged in various claims and litigation incidental to its business operations which management anticipates will be resolved without material loss to the Company. No estimate of the range of loss from these matters can currently be determined. 66 11. SEGMENT OF BUSINESS INFORMATION: Segment information at December 31, 1996, 1995 and 1994 and for the years then ended is as follows: 1996 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $1,106,524 $403,199 $ 3,108 $1,512,831 Operating expenses, excluding depreciation and amortization 692,127 349,918 9,346 1,051,391 Depreciation and amortization 129,588 17,706 263 147,557 Total operating expenses 821,715 367,624 9,609 1,198,948 Operating income (loss) $ 284,809 $ 35,575 $(6,501) 313,883 Add - Other income, net 28,992 Less - Interest charges, net 122,156 - Preferred stock dividends 5,433 Net income $ 215,286 Capital expenditures: Identifiable $ 198,671 $ 48,338 $ 443 $ 247,452 Utilized for overall Company operations 23,981 Total $ 271,433 Identifiable assets at December 31, 1996: Utility plant, net $3,047,648 $370,772 $ 1,875 $3,420,295 Inventories 83,931 26,057 423 110,411 Total $3,131,579 $396,829 $ 2,298 3,530,706 Other assets 1,228,640 Total assets $4,759,346 67 1995 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $1,006,420 $ 342,662 $ 3,889 $1,352,971 Operating expenses, excluding depreciation and amortization 638,480 286,660 10,429 935,569 Depreciation and amortization 110,865 18,016 1,007 129,888 Total operating expenses 749,345 304,676 11,436 1,065,457 Operating income (loss) $ 257,075 $ 37,986 $ (7,547) 287,514 Add - Other income, net 8,060 Less - Interest charges, net 121,548 - Preferred stock dividends 5,687 Net income $ 168,339 Capital expenditures: Identifiable $ 253,577 $ 38,718 $ 265 $ 292,560 Utilized for overall Company operations 27,816 Total $ 320,376 Identifiable assets at December 31, 1995: Utility plant, net $3,033,887 $ 337,939 $ 1,878 $3,373,704 Inventories 87,143 15,714 561 103,418 Total $3,121,030 $ 353,653 $ 2,439 3,477,122 Other assets 1,057,304 Total assets $4,534,426 68 1994 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $975,388 $342,672 $ 4,002 $1,322,062 Operating expenses, excluding depreciation and amortization 640,528 292,227 10,577 943,332 Depreciation and amortization 102,647 16,304 226 119,177 Total operating expenses 743,175 308,531 10,803 1,062,509 Operating income (loss) $232,213 $ 34,141 $ (6,801) 259,553 Add - Other income, net (29,749) Less - Interest charges, net 108,397 - Preferred stock dividends 5,955 Net income $ 115,452 Capital expenditures: Identifiable $364,007 $ 20,079 $ 347 $ 384,433 Utilized for overall Company operations 20,167 Total $ 404,600 Identifiable assets at December 31, 1994: Utility plant, net $2,897,954 $315,746 $ 1,791 $3,215,491 Inventories 79,260 17,026 495 96,781 Total $2,977,214 $332,772 $ 2,286 3,312,272 Other assets 1,004,240 Total assets $4,316,512 69 12. QUARTERLY FINANCIAL DATA (UNAUDITED): 1996 First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $394,962 $350,386 $402,284 $365,199 $1,512,831 Operating income (000) 85,386 66,447 97,726 64,324 313,883 Net income (000) 68,813 38,300 69,963 38,210 215,286 Earnings per weighted average share of common stock as reported .66 .37 .66 .36 2.05 1995 First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $344,760 $311,136 $373,476 $323,599 $1,352,971 Operating income (000) 75,046 61,012 95,438 56,018 287,514 Net income (000) 51,265 15,586 68,029 33,459 168,339 Earnings per weighted average share of common stock as reported .53 .16 .69 .32 1.70 70 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III The information required by Item 10, "Directors and Executive Officers of the Registrant," with respect to executive officers is, pursuant to General Instruction G(3) to Form 10-K, set forth in Part I of this Form 10-K under the heading "Executive Officers of the Registrant" on page 28 herein. The other information required by Item 10 is incorporated herein by reference to the captions "Election of Directors - Proposal 1" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive proxy statement for the 1997 annual meeting of stockholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934. The information called for by Item 11, "Executive Compensation", is incorporated herein by reference to the captions "Compensation of Directors," "Compensation Committee Interlocks and Insider Participation," and "Executive Compensation" in the Company's definitive proxy statement for the 1997 annual meeting of stockholders. The information called for by Item 12, "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference to the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement for the 1997 annual meeting of stockholders. The information called for by Item 13, "Certain Relationships and Related Transactions" is incorporated herein by reference to the caption "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for the 1997 annual meeting of stockholders. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate by reference future filings, including this Annual Report on Form 10-K, in whole or in part, the Report of the Management Development and Corporate Performance Committee and the Long-term Compensation Committee on Executive Compensation and the Performance Graph included in the Company's definitive proxy statement for the 1997 annual meeting of stockholders shall not be incorporated by reference into any such filings. 71 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as a part of this report: 1. Financial Statements and Schedules: See Table of Contents of Consolidated Financial Statements and Supplementary Financial Data on page 40. 2. Exhibits: Exhibits required to be filed with this Annual Report on Form 10-K are listed in the Exhibit Index following the signature page. Certain of such exhibits which have heretofore been filed with the SEC and which are designated by reference to their exhibit numbers in prior filings are incorporated herein by reference and made a part hereof. Pursuant to Rule 15d-21 promulgated under the Securities Exchange Act of 1934, the annual reports for the Company's employee stock purchase plan will be furnished under cover of Form 10-K/A to the Commission when the information becomes available. As permitted under Item 601(b)(4)(iii), instruments defining the rights of holders of long-term debt of less than 10 percent of the total consolidated assets of the Company and its subsidiaries, have been omitted and the Company agrees to furnish a copy of such instruments to the Commission upon request. (b) Reports on Form 8-K None 72 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. (REGISTRANT) SCANA CORPORATION BY (SIGNATURE) s/L. M. Gressette, Jr. (NAME AND TITLE) L. M. Gressette, Jr., Chairman of the Board, Chief Executive Officer and Director DATE February 18, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. (i) Principal executive officer: BY (SIGNATURE) s/L. M. Gressette, Jr. (NAME AND TITLE) L. M. Gressette, Jr., Chairman of the Board, Chief Executive Officer and Director DATE February 18, 1997 (ii) Principal financial and accounting officer: BY (SIGNATURE) s/K. B. Marsh (NAME AND TITLE) K. B. Marsh, Vice President - Finance, Chief Financial Officer and Controller DATE February 18, 1997 BY (SIGNATURE) s/B. L. Amick (NAME AND TITLE) B. L. Amick, Director DATE February 18, 1997 BY (SIGNATURE) s/W. B. Bookhart, Jr. (NAME AND TITLE) W. B. Bookhart, Jr., Director DATE February 18, 1997 BY (SIGNATURE) s/W. T. Cassels, Jr. (NAME AND TITLE) W. T. Cassels, Jr., Director DATE February 18, 1997 BY (SIGNATURE) s/H. M. Chapman (NAME AND TITLE) H. M. Chapman, Director DATE February 18, 1997 73 BY (SIGNATURE) s/J. B. Edwards (NAME AND TITLE) J. B. Edwards, Director DATE February 18, 1997 BY (SIGNATURE) s/E. T. Freeman (NAME AND TITLE) E. T. Freeman, Director DATE February 18, 1997 BY (SIGNATURE) s/B. A. Hagood (NAME AND TITLE) B. A. Hagood, Director DATE February 18, 1997 BY (SIGNATURE) s/W. Hayne Hipp (NAME AND TITLE) W. Hayne Hipp, Director DATE February 18, 1997 BY (SIGNATURE) s/F. C. McMaster (NAME AND TITLE) F. C. McMaster, Director DATE February 18, 1997 BY (SIGNATURE) s/Henry Ponder (NAME AND TITLE) Henry Ponder, Director DATE February 18, 1997 BY (SIGNATURE) s/W. B. Timmerman (NAME AND TITLE) W. B. Timmerman, Director DATE February 18, 1997 BY (SIGNATURE) s/J. B. Rhodes (NAME AND TITLE) J. B. Rhodes, Director DATE February 18, 1997 BY (SIGNATURE) s/E. C. Wall, Jr. (NAME AND TITLE) E. C. Wall, Jr., Director DATE February 18, 1997 74 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 (Exhibit 4(B) to Registration Statement No. 333-18149)................................................ # 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 dates 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 Indenture 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........................................... # 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 # Incorporated herein by reference as indicated. 75 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number June 1, 1966 Exhibit 2-M to Registration No. 2-26459 June 1, 1967 Exhibit 2-N to Registration No. 2-29693 September 1, 1968 Exhibit 4-O to Registration No. 2-31569 June 1, 1969 Exhibit 4-C to Registration No. 33-38580 December 1, 1969 Exhibit 4-Q to Registration No. 2-35388 June 1, 1970 Exhibit 4-R to Registration No. 2-37363 March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324 January 1, 1972 Exhibit 4-C to Registration No. 33-38580 July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291 May 1, 1975 Exhibit 4-C to Registration No. 33-38580 July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908 February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304 December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936 March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662 May 1, 1977 Exhibit 4-C to Registration No. 33-38580 February 1, 1978 Exhibit 4-C to Registration No. 33-38580 June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653 April 1, 1979 Exhibit 4-C to Registration No. 33-38580 June 1, 1979 Exhibit 4-C to Registration No. 33-38580 April 1, 1980 Exhibit 4-C to Registration No. 33-38580 June 1, 1980 Exhibit 4-C to Registration No. 33-38580 December 1, 1980 Exhibit 4-C to Registration No. 33-38580 April 1, 1981 Exhibit 4-D to Registration No. 33-49421 June 1, 1981 Exhibit 4-D to Registration No. 2-73321 March 1, 1982 Exhibit 4-D to Registration No. 33-49421 April 15, 1982 Exhibit 4-D to Registration No. 33-49421 May 1, 1982 Exhibit 4-D to Registration No. 33-49421 December 1, 1984 Exhibit 4-D to Registration No. 33-49421 December 1, 1985 Exhibit 4-D to Registration No. 33-49421 June 1, 1986 Exhibit 4-D to Registration No. 33-49421 February 1, 1987 Exhibit 4-D to Registration No. 33-49421 September 1, 1987 Exhibit 4-D to Registration No. 33-49421 January 1, 1989 Exhibit 4-D to Registration No. 33-49421 January 1, 1991 Exhibit 4-D to Registration No. 33-49421 February 1, 1991 Exhibit 4-D to Registration No. 33-49421 July 15, 1991 Exhibit 4-D to Registration No. 33-49421 August 15, 1991 Exhibit 4-D to Registration No. 33-49421 April 1, 1993 Exhibit 4-E to Registration No. 33-49421 July 1, 1993 Exhibit 4-D to Registration No. 33-57955 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)............................................. # 9. Voting Trust Agreement Not Applicable # Incorporated herein by reference as indicated. 76 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number 10. Material Contracts A. Copy of Voluntary Deferral Plan as amended through October 26, 1988 (Exhibit 10-A to Form 10-K for the year ended December 31, 1988 under cover of Form SE, File No. 1-8809)................................. # B. Copy of Supplementary Voluntary Deferral Plan as amended and restated through August 28, 1991 (Exhibit 10-B to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809).......................................... # C. Copy of Key Executive Severance Benefit Plan as adopted on February 28, 1990 (Exhibit 10-C to Form 10-K for the year ended December 31, 1989 under cover of Form SE, File No. 1-8809)................................. # D. Copy of SCANA Corporation Performance Share Plan as amended and restated effective February 16, 1993 (Exhibit 10-D to Form 10-K for the year ended December 31, 1992, File No. 1-8809)....................... # E. Form of Agreement under SCANA Corporation Key Employee Retention Program (Exhibit 10-E to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809)........................ # F. Description of SCANA Corporation Whole Life Option (Exhibit 10-F to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809)............................................... # G. Description of SCANA Corporation Performance Incentive Plan (Exhibit 10-G to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809).............................. # 11. Statement Re Computation of Per Share Earnings Not Applicable 12. Statements Re Computation of Ratios (Filed herewith)......... 79 13. Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders Not Applicable 16. Letter Re Change in Certifying Accountant Not Applicable 18. Letter Re Change in Accounting Principles Not Applicable 21. Subsidiaries of the Registrant Included herein on Page 27 # Incorporated herein by reference as indicated. 77 SCANA CORPORATION EXHIBIT INDEX Number 22. Published Report Regarding Matters Submitted to Vote of Security Holders Not Applicable 23. Consents of Experts and Counsel Consent of Deloitte & Touche LLP (Filed herewith)............ 83 24. Power of Attorney Not Applicable 27. Financial Data Schedule Filed herewith 99. Additional Exhibits Not Applicable # Incorporated herein by reference as indicated. 78 EX-12 2 Exhibit 12 SCANA CORPORATION CALCULATIONS OF BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1996 (Thousands of Dollars) Net earnings(1) $408,299 Divide by annualized interest charges on: Bonds authenticated under the Company's First and Refunding Mortgage Bond Indenture $36,336 Other indebtedness(1) $57,137 Total annualized interest charges $ 93,473 Bond ratio 4.37 (1) As defined under the Company's First and Refunding Mortgage Bond Indenture (Old Mortgage). 79 SCANA CORPORATION CALCULATION OF NEW BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1996 (Thousands of Dollars) Net earnings(1) $551,360 Divide by annualized interest charges on: Bonds authenticated under the Company's First Mortgage Bond Indenture $57,137 Other indebtedness(1) $36,336 Total annualized interest charges $ 93,473 New Bond Ratio 5.90 (1) As defined under the Company's Collateral Trust Mortgage Indenture (New Mortgage). 80 SCANA CORPORATION CALCULATIONS OF PREFERRED STOCK RATIO FOR THE YEAR ENDED DECEMBER 31, 1996 (Thousands of Dollars) Net Earnings (1) $294,998 Divide by annualized interest charges on: Bonds authenticated under SCE&G's mortgage bond indentures $93,473 Other indebtedness (1) $ 6,416 Preferred Dividend Requirements $ 5,372 Total annualized interest charges $105,261 Preferred stock ratio 2.80 (1) As defined under SCE&G's Restated Articles of Incorporation. 81 SCANA CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For Each of the Five Years Ended December 31, 1996 (Thousands of Dollars) Years Ended December 31, 1996 1995 1994 1993 1992 Fixed Charges as defined: Interest on long-term debt.................. $112,313 $113,882 $106,573 $ 96,916 $ 92,178 Amortization of debt premium, discount and expense (net).............................. 2,641 2,486 2,231 1,779 874 Other interest expense...................... 13,283 17,102 6,749 8,672 8,819 Interest component of rentals............... 2,277 2,771 2,717 2,853 929 Total Fixed Charges (A)................. $130,514 $136,241 $118,270 $110,220 $102,800 Earnings, as defined: Income...................................... $220,719 $174,026 $121,407 $171,457 $124,140 Income taxes................................ 119,059 99,116 62,488 90,714 60,291 Total fixed charges above................... 130,514 136,241 118,270 110,220 102,800 Total Earnings (B)...................... $470,292 $409,383 $302,165 $372,391 $287,231 Ratio of Earnings to fixed charges (B/A)...... 3.60 3.00 2.55 3.38 2.79
82 EX-23 3 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 33-32107 on Form S-3, Post-Effective Amendment No. 1 to Registration Statement No. 33-49333 on Form S-8, Post Effective Amendment No. 1 to Registration Statement No. 33-55861 on Form S-3, Post-effective Amendment No. 2 on Registration Statement No. 33-50571 on Form S-3, Post- Effective Amendment No. 1 to Registration Statement No. 33-56923 on Form S-8, Registration Statement No. 333-18149 on Form S-3 and Registration Statement No. 333-18973 on Form S-8 of our report dated February 7, 1997 appearing in this Annual Report on Form 10-K of SCANA Corporation for the year ended December 31, 1996. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina March 13, 1997 83 EX-27 4
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 PER-BOOK 3,529,028 345,248 407,564 477,506 0 4,759,346 1,132,787 (7,505) 558,166 1,683,448 43,014 26,027 1,581,608 144,599 0 0 51,220 2,432 0 0 1,226,998 4,759,346 1,512,831 118,023 1,080,925 1,198,948 313,883 28,992 342,875 122,156 220,719 5,433 215,286 154,725 89,717 400,803 2.05 0
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