-----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, VN3ya8ixZzgL5+YJIxJPd5WQ7CJgGO0F4cn5PoEa82cXr9P3t/6usXzysMt/G9Tn llhaFlfEzPQIPcQpKRXobQ== 0000950137-03-005165.txt : 20031014 0000950137-03-005165.hdr.sgml : 20031013 20031014114600 ACCESSION NUMBER: 0000950137-03-005165 CONFORMED SUBMISSION TYPE: POS AMC PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20031014 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: POS AMC SEC ACT: 1935 Act SEC FILE NUMBER: 070-09533 FILM NUMBER: 03938578 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: MAIL CODE - 051 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032179000 MAIL ADDRESS: STREET 1: 1426 MAIN STREET STREET 2: MAIL CODE - 051 CITY: COLUMBIA STATE: SC ZIP: 29218 POS AMC 1 c80034a6posamc.txt POST-EFFECTIVE AMENDMENT TO U-1 As filed with the Securities and Exchange Commission on October 14, 2003 File No. 70- 9533 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------- POST-EFFECTIVE AMENDMENT NO. 6 TO FORM U-1 APPLICATION-DECLARATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935 --------------------------------- SCANA CORPORATION PRIMESOUTH, INC. SOUTH CAROLINA ELECTRIC & GAS COMPANY PALMARK, INC. SOUTH CAROLINA GENERATING COMPANY, INC. SCANA RESOURCES, INC. SOUTH CAROLINA FUEL COMPANY, INC. SCANA DEVELOPMENT CORPORATION SOUTH CAROLINA PIPELINE CORPORATION SCANA PETROLEUM RESOURCES, INC. SCG PIPELINE, INC. SCANA SERVICES, INC. SCANA ENERGY MARKETING, INC. PUBLIC SERVICE COMPANY OF NORTH CAROLINA, SCANA ENERGY TRADING, LLC INCORPORATED SCANA PUBLIC SERVICE COMPANY, LLC PSNC BLUE RIDGE CORPORATION SCANA COMMUNICATIONS, INC. PSNC CARDINAL PIPELINE COMPANY SERVICECARE, INC. CLEAN ENERGY ENTERPRISES INC.
1426 Main Street Columbia, South Carolina 29201 (Name of company or companies filing this statement and address of principal executive offices) - -------------------------------------------------------------------------------- SCANA CORPORATION (Name of top registered holding company parent of each applicant or declarant) --------------------------------- Kevin B. Marsh H. Thomas Arthur SCANA CORPORATION 1426 Main Street Columbia, South Carolina 29201 (Name and address of agent for service) --------------------------------- The Commission is requested to send copies of all notices, orders and communications in connection with this Application-Declaration to: William J. Harmon Michael G. Strohmeier Jones Day 77 West Wacker, Suite 3500 Chicago, IL 60601 (312) 782-3939 TABLE OF CONTENTS
PAGE Item 1. Description of Proposed Transaction....................................................................1 A. Background.....................................................................................1 B. Overview of the Requests.......................................................................2 C. Tax Allocation Agreement.......................................................................3 1. Overview of the Mergers...............................................................3 2. Acquisition Debt Issued in Mergers....................................................3 3. Proposed Tax Allocation Agreement.....................................................4 D. Payment of Dividends Out of Capital............................................................5 1. Existing Authorization................................................................5 2. Change in Accounting Principles.......................................................5 3. Request for Further Authority.........................................................5 E. Reports Under Rule 24..........................................................................6 Item 2. Fees, Commissions And Expenses.........................................................................6 Item 3. Applicable Statutory Provisions........................................................................6 A. Section 12(b)..................................................................................6 B. Section 12(c)..................................................................................8 C. Rule 54 Analysis...............................................................................9 Item 4. Regulatory Approval....................................................................................9 Item 5. Procedure..............................................................................................9 Item 6. Exhibits And Financial Statements.....................................................................10 A. Exhibits......................................................................................10 B. Financial Statements..........................................................................10
-i- This Post-Effective Amendment No. 6 amends the Form U-1 Application-Declaration (the "Application") in File No. 70-9533, as previously amended, to add the following: ITEM 1. Description of Proposed Transaction A. Background. By order dated February 9, 2000 (the "Merger Order")(1), the Commission authorized SCANA Corporation ("SCANA"), a South Carolina corporation, to acquire all of the issued and outstanding common stock of Public Service Company of North Carolina, Incorporated ("PSNC"), an exempt holding company. SCANA registered as a holding company under the Act on February 11, 2000. SCANA now owns directly all of the issued and outstanding common stock of three public utility companies within the meaning of the Act, PSNC, South Carolina Electric & Gas Company ("SCE&G"), which generates, transmits, distributes and sells electricity and purchases and sells natural gas in South Carolina, and South Carolina Generating Company, Inc. ("GENCO"), which owns and operates a 580 MW generating facility in Goose Creek, South Carolina and sells all of the power generated by the facility to SCE&G (PSNC, SCE&G and GENCO are collectively referred to as the "Utility Subsidiaries"). SCANA, the Utility Subsidiaries and the additional companies listed on the signature page of this Application are collectively referred to as the "Applicants." SCANA also holds directly all of the outstanding equity securities of (1) SCANA Services, Inc. ("SCANA Services"), a subsidiary service company that provides administrative, management and other services to subsidiaries and business units within the SCANA system; (2) South Carolina Pipeline Corporation ("SCPC"), a subsidiary engaged in the purchase, transmission and sale of natural gas to commercial, industrial and wholesale customers, including SCE (3) South Carolina Fuel Company, Inc. ("SC Fuel"), which acquires, owns and provides financing for SCE&G's nuclear fuel, fossil fuel and sulfur dioxide emission allowances;(4) SCANA Energy Marketing, Inc. ("SCANA Marketing"), a subsidiary that markets natural gas and wholesale electricity, primarily in the southeast and provides energy-related risk management services to producers and customers; (5) ServiceCare, Inc. ("ServiceCare"), a subsidiary that provides energy-related products and service contracts on home appliances; (6) Primesouth, Inc., a subsidiary engaged in power plant management and maintenance services; (7) SCANA Resources, Inc., a subsidiary that conducts energy-related businesses and provides energy-related services; and (8) SCG Pipeline, Inc. a subsidiary organized to engage in the transportation of natural gas in Georgia and South Carolina. SCANA also owns all of the issued and outstanding stock of SCANA Communications, Inc., an "exempt telecommunications company," as defined in Section 34 of the Act, and subsidiary thereof that invests in telecommunications companies. A complete description of SCANA's direct and indirect nonutility subsidiaries is contained in SCANA's Annual Report on Form U-5S for the year ended December 31, 2002, to which reference is made. - --------------------- (1) See Holding Co. Act Release No. 27133. 1 In connection with the Merger, the Commission issued an order dated February 14, 2000, (as supplemented and amended, the "Prior Orders"),(2) authorizing SCANA, the Utility Subsidiaries and the Non-Utility Subsidiaries to engage, subject to certain limitations, in certain financing and related activities. Authorization for these financing related activities (the "Financing Activities") under the Prior Orders expired February 11, 2003.(3) Other authorizations in the Prior Orders, including PSNC's ability to pay dividends out of capital or unearned surplus were not subject to this expiration date. The Commission reserved jurisdiction in the Prior Orders over a proposal to allocate the consolidated income tax liability of SCANA among the members of the consolidated group in a manner that would differ in one respect from the method allowed under Rule 45(c) of the rules and regulations under the Act. Under the Prior Orders, the Commission approved the ability of PSNC to pay dividends out of the additional paid-in-capital account up to the amount of its aggregate retained earnings immediately prior to the Merger and out of earnings before the amortization of the goodwill thereafter. The authorization was granted to take into consideration the application of the purchase method of accounting to the Merger that caused the retained earnings of PSNC prior to the Merger to be recharacterized as additional paid-in-capital and the circumstance that the Merger gave rise to a substantial level of goodwill, which was to be "pushed-down" to PSNC and reflected as additional paid-in-capital after the Merger, effectively leaving PSNC with no retained earnings, the traditional source of dividend payments, but a strong balance sheet showing a significant equity level. B. Overview of the Requests Applicants are now requesting that the Commission act on two outstanding matters related to the Prior Orders. Applicants request that the Commission: - Release jurisdiction over the proposed Tax Allocation Agreement described below. Applicants' request for approval of its Tax Allocation Agreement is substantially similar to the facts and circumstances underlying the request sought by other registered holding companies with respect to their tax allocation agreements.(4) - --------------------- (2) See Holding Co. Act Release Nos. 27135 and 27137. In Holding Co. Act Release No. 27341 (Jan. 31, 2001) and Holding Co. Act Release No. 27476 (Dec. 19, 2001) the Commission issued supplemental orders increasing various financing limitations throughout the authorization period. (3) New financing authorization was granted in Holding Co. Act release No. 27649 (February 12, 2003) (the "Current Financing Order"). (4) FirstEnergy Corp., Holding Co. Act Release No. 27694 (June 30, 2003) (Authorizing FirstEnergy to retain the benefit that is attributable to the interest expense on the acquisition debt, rather than reallocate that tax savings to its subsidiary companies); Energy East Corporation, Holding Co. Act Release No. 27643 (January 28, 2003) (Authorizing Energy East to retain the benefit that is attributable to the interest expense associated with the debentures issued to help finance the cash portion of the consideration paid in the RGS merger, and the unsecured debt issued to help finance the cash portions of the consideration in the Energy East merger); and Pepco Holdings Inc., Holding Co. Act Release No. 27553 (July 24, 2002) (Authorizing a tax allocation agreement that provides for the retention by Pepco Holdings Inc. of payments for tax losses that it will incur in connection with financing or refinancing approximately $700 million of the cash consideration to be paid in the acquisition of Pepco and 2 - Grant PSNC authorization to pay dividends out of capital or unearned surplus, before taking into consideration any amortization of intangibles recognized as a result of the Merger, and any impairment of either goodwill or other intangibles recognized as a result of the Merger. C. Tax Allocation Agreement 1. Overview of the Mergers. Pursuant to an Amended and Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of February 16, 1999 and amended and restated as of May 10, 1999 by and among PSNC, SCANA, New Sub I, Inc., a South Carolina corporation and a wholly owned subsidiary company of SCANA ("New Sub I"), and New Sub II, Inc., a South Carolina corporation and a wholly owned subsidiary company of SCANA ("New Sub II"), New Sub I was merged with and into SCANA with SCANA as the surviving corporation (the "First Merger"), and PSNC was merged with and into New Sub II with New Sub II as the surviving corporation (the "Second Merger", and together with the First Merger, the "Mergers"). Pursuant to the Mergers, PSNC became a wholly owned subsidiary company of SCANA. The total cash paid in the Merger was $700 million, further described below. In the First Merger, each share of SCANA common stock outstanding immediately prior to the effective time of the First Merger was converted into the right to receive either (i) $30 in cash or (ii) one share of SCANA common stock. The aggregate cash consideration paid by SCANA in the First Merger was $488 million. This cash payment effectively resulted in the repurchase and retirement of approximately 16.3 million shares of SCANA common stock. In the Second Merger, each share of PSNC common stock outstanding immediately prior to the effective time of the Second Merger was converted into the right to receive either (i) $33.00 in cash or (ii) a number of shares of SCANA common stock equal to the PSNC exchange ratio. The aggregate cash consideration paid by SCANA in the Second Merger was $212 million. 2. Acquisition Debt Issued in Mergers. SCANA financed the cash portion of the consideration paid in the Mergers and other expenses associated with the Mergers by issuing $400 million of two-year floating rate notes and borrowing $300 million for a three-year term under a credit agreement with several banks. These notes and borrowings subsequently were refinanced by issuing medium term notes of various maturities and interest rates totaling an aggregate of $700 million. As of June 30, 2003 such debt consisted of $300 million of 6.875% medium term notes due 2011, $250 million of 6.25% medium term notes due 2012 and $150 million of floating rate medium term notes due 2004. As used in this Post-Effective Amendment and in the proposed Tax Allocation - --------------------- (continued...) Conectiv), Progress Energy, Inc., Holding Co. Act Release No. 27522 (April 18, 2002) (collectively, the ("Acquisition Debt Orders"). 3 Agreement, the term "Acquisition Debt" means indebtedness incurred by SCANA to finance the Mergers, and any renewals or extensions thereof and any refinancings or refundings thereof. SCANA's interest expense on the Acquisition Debt for 2000, 2001 and 2002 was approximately $45.1 million, $33.9 million and $25.8 million, respectively. Because SCANA and its consolidated subsidiaries file a consolidated income tax return, the interest expense on the Acquisition Debt will offset the group's consolidated taxable income and therefore reduce the overall tax liability of the group. Applying a hypothetical 38 1/4% composite federal and state tax rate to the actual or estimated consolidated taxable income of the group, the interest expense on the Acquisition Debt reduced the group's tax liability by $17.25 million in 2000, $12.97 million in 2001 and by $9.87 million in 2002. Under the existing tax allocation agreement of the SCANA group, SCANA was not able to retain, or share in, this tax benefit. In addition, as discussed below, unless the relief requested in this Post-Effective Amendment is granted, SCANA will not be able to retain, or share in, the tax benefit (i.e., the reduction in the group's income tax liability) that is associated with the interest it pays on the Acquisition Debt in future years. Rather, under Rule 45(c), the benefit of the interest expense is allocated to other members of the group with a positive corporate tax (primarily SCE&G and PNSC). 3. Proposed Tax Allocation Agreement. The Applicants request that the Commission authorize SCANA and its subsidiaries to allocate the consolidated income tax liability of the group in accordance with the Tax Allocation Agreement that is filed herewith as Exhibit B-5 (Rev) for the period through April 15, 2006, as such period may be extended by any subsequent order or orders. Under the proposed Tax Allocation Agreement, the consolidated tax would be allocated among the members of the group in proportion to the separate return tax of each member, provided that the tax apportioned to any subsidiary company of SCANA will not exceed the "separate return tax" of such subsidiary.(5) This is the method of allocation permitted under Rule 45(c)(2)(ii). The agreement further provides that SCANA will retain the benefit (in the form of the reduction in consolidated tax) that is attributable to the interest expense on the Acquisition Debt, rather than reallocate that tax savings to its subsidiary companies, as would be required by Rule 45(c)(5). In this respect, the proposed Tax Allocation Agreement does not comply with all of the requirements of Rule 45(c). The proposed Tax Allocation Agreement will have the effect of assigning the tax benefit associated with the interest expense on the Acquisition Debt to the entity that is legally obligated for its payment - SCANA. At the same time, in accordance with Rule 45(c)(2), the portion of the consolidated tax allocated to any of SCANA's subsidiaries will not exceed the "separate return tax" of such subsidiary (the "separate return limitation"). Thus, the proposed Tax Allocation Agreement will not have the effect of shifting a larger portion of the group's tax liability to any member than it would otherwise pay on a separate return basis. Exhibit K-1 illustrates the difference between the Rule 45(c) method and the proposed method in the amounts of tax that would be allocated to the members of the SCANA group. - --------------------- (5) Under Rule 45(c), the "separate return tax" is defined to mean "the tax on the corporate taxable income of an associate company computed as though such company were not a member of a consolidated group." 4 The Applicants will file a new application/declaration in order to extend the period in which they may allocate consolidated income taxes in accordance with the Tax Allocation Agreement past April 15, 2006. Such application/declaration will include, among other things, information on the actual and pro forma effect of the proposed tax allocation method on the capitalization and cash flow of the members of the SCANA group for the period covered by any such requested extension. D. Payment of Dividends Out of Capital 1. Existing Authorization. As stated above, in connection with the Merger that resulted in SCANA becoming a registered holding company, SCANA obtained Commission approval for PSNC to pay dividends (i) out of the additional paid-in-capital account up to the amount of its aggregate retained earnings immediately prior to the Merger and (ii) out of earnings before the amortization of the goodwill thereafter.(6) 2. Change in Accounting Principles. Subsequent to the Merger, Statement of Financial Accounting Standards ("SFAS") 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets," were issued in 2001. SFAS 142 eliminated the amortization of goodwill as was required previously and provides for an annual assessment to determine if goodwill amounts are impaired. If an analysis discloses an impairment, the company must take an impairment charge. SCANA did such an analysis as of January 1, 2002, which resulted in an impairment charge relating to PSNC of $230 million. 3. Request for Further Authority. Applicants request that PSNC be authorized to pay dividends out of earnings before any amortization of intangibles as a result of the Merger, and before any deductions resulting from any impairment of either goodwill or other intangibles recognized as a result of the Merger. In accordance with the further authorization sought herein, PSNC will be authorized to pay dividends as follows:
(in millions) --------------------------------------------------------------------------------------- Retained earnings prior to Merger $ 72 Net earnings 2000-2001 43 Amortization of goodwill 2000-2001 26 Dividends paid 2000-2001 34 GAAP Retained earnings 12/31/01 9 Available for dividends in 2002 (including out of capital -- "old" retained earnings $73, amortization $26, GAAP retained earnings $9) 107
- --------------------- (6) See the Prior Orders. 5 20 Dividends in 2002 Net earnings in 2002 (including effects of impairment charge) (207) Amount available for future dividends (unused amount authorized out of capital - $108 less 2002 dividend - $20 plus 2002 net income before impairment - $23) $110
PSNC's common equity percentage at September 30, 2002 according to generally accepted accounting principles ("GAAP") was 70.5%. PSNC's common equity percentage at December 31, 2002 was 60%, taking into consideration the reduction in equity resulting from the goodwill impairment charge. If all of the goodwill associated with the acquisition of PSNC by SCANA were found to be impaired, the pro forma common equity of PSNC at December 31, 2002, would be 46%. PSNC has authority to issue $600 million of additional debt under the Current Financing Order. PSNC's common equity, assuming all $600 million were issued, and taking into account the 2002 impairment charge, would be 34.5% (based on PSNC's balance sheet as of December 31, 2002). SCANA believes that based on anticipated earnings and dividend levels, as well as estimated financing, that PSNC will not have common equity below 30% over the next several years. SCANA believes it can manage PSNC's common equity and maintain it at least at a 30% level (through control of debt and dividend levels) even if it were to incur additional goodwill impairment charges. E. Reports Under Rule 24. The Applicants will supplement the quarterly report under Rule 24 filed in this proceeding for the quarterly period in which they file their consolidated federal income tax return with information showing the calculation of the portion of SCANA's loss that is attributable to interest expense on the Acquisition Debt and a spreadsheet showing the actual allocation of income taxes to each of the members of the consolidated group. ITEM 2. FEES, COMMISSIONS AND EXPENSES. The fees, commissions and expenses paid or incurred or to be incurred in connection with this Post-Effective Amendment are estimated at not more than $25,000. ITEM 3. APPLICABLE STATUTORY PROVISIONS. A. Section 12(b). Provisions in a tax allocation agreement between a registered holding company and its subsidiaries are subject to Section 12(b) of the Act and Rule 45 thereunder. Rule 45(a) of the Act generally prohibits any registered holding company or subsidiary company from, directly or indirectly, lending or in any manner extending its credit to or indemnifying, or making any donation or capital contribution to, any company in the same holding company system, except pursuant to a Commission order. Rule 45(c) provides, however, that approval under Rule 45(a) 6 is not required for the filing of a consolidated tax return pursuant to a tax allocation agreement between eligible associate companies in a registered holding company system that complies with the terms of the Rule 45(c). However, if a tax allocation agreement does not comply in all respects with the provisions of Rule 45(c), it may nonetheless be approved by the Commission under Section 12(b) and Rule 45(a).(7) The Commission has previously approved a tax allocation methodology that does not comply with Rule 45(c) because it allows the registered holding company to retain tax benefits on indebtedness incurred in a merger transaction.(8) Applicants maintain that the proposed Tax Allocation Agreement is substantially the same as that approved in the Acquisition Debt Orders and that there are no other facts or circumstances in this case which would warrant a contrary result. In particular, consistent with the Acquisition Debt Orders, the Tax Allocation Agreement proposed by SCANA: 1. assigns the tax benefit of the interest expense on the Acquisition Debt to SCANA, the company that is legally obligated for the payment of that interest expense; 2. will not lead to the types of abuse that Section 12 is intended to prevent; 3. will preserve the "separate return" limitation that assures that the Utility Subsidiaries tax liabilities will not be higher than they otherwise would have been; and 4. will not shift to any member of SCANA's group any larger portion of the group's overall tax liability than such member would otherwise pay on a separate return basis. As was the case in the Acquisition Debt Orders, the Acquisition Debt here was not incurred to fund investments in SCANA's other subsidiaries, but instead incurred in connection with the Mergers. The Acquisition Debt represents indebtedness of SCANA. Importantly, SCANA could not, without the approval of the commissions having jurisdiction over rates of the Utility Subsidiaries, recover in rates of the Utility Subsidiaries any costs, including the interest on the Acquisition Debt, associated with the Mergers. As the Commission stated in the Energy East order,(9) where the registered holding company's subsidiaries have not assumed any legal - --------------------- (7) See the Progress Order and the Acquisition Debt Orders. (8) See the Acquisition Debt Orders. Similarly, in The National Grid Group plc, Holding Co. Act Release No. 27154 (March 15, 2000) (the "National Grid Order"), the Commission authorized National Grid Group and its subsidiaries to enter into a tax allocation agreement under which the tax benefit of the interest expense on acquisition debt would be allocated to the U.S. sub-holding company of National Grid Group that had incurred the debt. Except for the specific interplay between foreign and U.S. tax laws, SCANA's circumstances are essentially the same as presented by National Grid. In approving the proposed tax allocation agreement of National Grid, the Commission observed that the agreement would not lead to the abuses that section 12 is intended to prevent and that the 'separate return' limitation will assure that the NEES' utility subsidiaries tax liability will not be higher than it otherwise would have been. The Commission further concluded that "because the NEES Group has no obligation with respect to the Merger-Related Debt and the debt does not affect the NEES Group's financial position or credit, it is not inappropriate to exclude these companies from the benefits of the tax consequences arising out of the debt." (9) See Energy East Corporation, Holding Co. Act Release No. 27643 (January 28, 2003). 7 obligation for the Acquisition Debt, as is the case here, it is not detrimental to SCANA's subsidiaries or to consumers if SCANA retains the benefit associated with its interest expense. Moreover, the Acquisition Debt is and will remain unsecured. Thus, the lenders will not have any call on the assets of SCANA's subsidiaries or any security interest in the common stock of the subsidiaries that is held by SCANA. Although SCANA's subsidiaries do not have any legal obligation for the Acquisition Debt, SCANA's ability to pay interest on the Acquisition Debt, as well as to pay common dividends, is largely dependent upon its receipt of dividends from subsidiaries (primarily SCE&G and PSNC, its largest subsidiaries). Currently, SCANA is not projecting any change in its dividend policy. Exhibit K-2 lays out the dividend payout ratio of SCE&G and PSNC in 2000 through 2002. Dividends will be paid from current and retained earnings of the Utility Subsidiaries, as allowed by Rule 46, except as otherwise may be allowed by the Commission with respect to PSNC as described herein.(10) Finally, because the amount of tax allocated to the Utility Subsidiaries will remain subject to the separate return limitation, the Tax Allocation Agreement will have no impact on the rates or revenue requirements of the Utility Subsidiaries. A basic premise of regulation followed by the state commissions that regulate the Utility Subsidiaries is that utility operations should not subsidize other operations nor should they be subsidized by other operations. Income taxes are, therefore, calculated on a standalone basis for jurisdictional ratemaking. B. Section 12(c) Section 12(c) of the Act and Rule 46 thereunder prohibit a registered holding company or subsidiary thereof to declare or pay dividends out of capital or unearned surplus absent an order by the Commission. Under the Prior Order, PSNC has authority to pay dividends out of the additional paid-in-capital account up to the amount of its aggregate retained earnings immediately prior to the Merger and out of earnings before the amortization of the goodwill thereafter. Applicants request additional authority taking into consideration the adoption of SFAS 142. PSNC seeks authority to pay dividends out of earnings before any amortization of intangibles as a result of the Merger, and before any deductions resulting from any impairment of either goodwill or other intangibles recognized as a result of the Merger. The Commission has granted this relief before. Energy East Corporation was authorized to pay dividends out of capital to the extent of retained earnings of its merger partner prior to the merger plus amortization of goodwill.(11) After SFAS 142 was adopted, the Commission stated: In the Financing Order, the Commission authorized the companies Energy East previously acquired to pay dividends out of earnings before amortization of goodwill. Because goodwill and certain intangible assets recognized as a result of the RGS' - --------------------- (10) Under the Prior Order, SCANA has authority to cause PSNC to pay dividends out of the additional paid-in-capital account up to the amount of its aggregate retained earnings immediately prior to the Merger and out of earnings before the amortization of the goodwill thereafter. (11) Energy East Corporation, Holding Co. Act Release No. 27643 (Jan. 28, 2003) referring to Energy East Corporation, Holding Co. Act Release No. 27288 (Sept. 12, 2000). 8 Merger with Energy East are not amortized, any decrease in the value of those assets is recognized as an impairment instead of amortization expense. Therefore, RGS is requesting authorization to pay dividends out of earnings before any impairment of goodwill and any impairment or amortization of intangible assets recognized as a result of the Merger. SCANA is seeking the same additional authority for PSNC: to pay dividends out of capital or unearned surplus based on substantially similar circumstances underlying the authority granted to Energy East. As stated above, SCANA believes that based on anticipated earnings and dividend levels, as well as estimated financing, that PSNC will not have common equity below 30% over the next several years. SCANA believes it can manage PSNC's common equity and maintain it at least at a 30% level (through control of debt and dividend levels) even if it were to incur additional goodwill impairment charges. C. Rule 54 Analysis. The proposed transaction is also subject to Rule 54, which refers to Rule 53. Rule 54 under the Act provides that in determining whether to approve certain transactions other than those involving exempt wholesale generators ("EWGs") or foreign utility companies ("FUCOs"), as defined in the Act, the Commission will not consider the effect of the capitalization or earnings of any subsidiary which is an EWG or FUCO if Rule 53(a), (b) and (c) under the Act are satisfied. Neither SCANA nor any of its subsidiaries presently has, or as a consequence of the proposed transaction will have, an interest in any EWG or FUCO. Consequently, all applicable requirements of Rule 53 (a) - (c) under the Act are satisfied as required by Rule 54 under the Act. ITEM 4. REGULATORY APPROVAL. No state commission and no federal commission, other than the Commission, has direct jurisdiction over the proposed Tax Allocation Agreement or dividend payments. ITEM 5. PROCEDURE. The Applicants request that the Commission's supplemental order releasing jurisdiction be issued as soon as the rules allow, and that there not be a 30-day waiting period between issuance of the Commission's supplemental order and the date on which the order is to become effective. The Applicants hereby waive a recommended decision by a hearing officer or any other responsible officer of the Commission and consent that the Division of Investment Management may assist in the preparation of the Commission's decision and/or order, unless the Division opposes the matters proposed herein. ITEM 6. EXHIBITS AND FINANCIAL STATEMENTS. A. Exhibits. B-5 Form of Tax Allocation Agreement (Revised) (Filed herewith). 9 K-1 Comparison of Allocation of Federal Income Tax Liability under Tax Allocation Agreement and Rule 45(c). (Filed herewith) K-2 Calculation of Dividend Payout Ratio of SCANA, SCE&G and PSNC for the Years 2000 - 2002. (Filed confidentially pursuant to Rule 104 under Form SE). B. Financial Statements. FS-1 Consolidated Balance Sheet of SCANA Corporation as of December 31, 2002 (Incorporated by reference to the filing of SCANA Corporation on Form 10-K for the year ended December 31, 2002) FS-2 Consolidated Statement of Operations of SCANA Corporation for the year ended December 31, 2002 (Incorporated by reference to the filing of SCANA Corporation on Form 10-K for the year ended December 31, 2002) FS-3 Condensed Consolidated Balance Sheet of SCANA Corporation as of June 30, 2003 (Incorporated by reference to the filing of SCANA Corporation on Form 10-Q for the quarter ended June 30, 2003) FS-2 Condensed Consolidated Statement of Operations of SCANA Corporation for the period ended December 31, 2002 (Incorporated by reference to the filing of SCANA Corporation on Form 10-Q for the quarter ended June 30, 2003) 10 SIGNATURES Pursuant to the requirements of the Public Utility Holding Company Act of 1935, each of the undersigned companies has duly caused this Post-Effective Amendment to be signed on its behalf by the undersigned thereunto duly authorized. SCANA CORPORATION By /s/ H. Thomas Arthur ------------------------------------ Name: H. Thomas Arthur Title: Senior Vice President and General Counsel SOUTH CAROLINA ELECTRIC & GAS COMPANY SOUTH CAROLINA GENERATING COMPANY, INC. SOUTH CAROLINA FUEL COMPANY, INC. SOUTH CAROLINA PIPELINE CORPORATION SCG PIPELINE, INC. SCANA ENERGY MARKETING, INC. SCANA ENERGY TRADING, LLC SCANA PUBLIC SERVICE COMPANY, LLC SCANA COMMUNICATIONS, INC. SERVICECARE, INC. PRIMESOUTH, INC. PALMARK, INC. SCANA RESOURCES, INC. SCANA DEVELOPMENT CORPORATION SCANA PETROLEUM RESOURCES, INC. SCANA SERVICES, INC. PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED PSNC BLUE RIDGE CORPORATION PSNC CARDINAL PIPELINE COMPANY, LLC CLEAN ENERGY ENTERPRISES INC. By: SCANA CORPORATION By /s/ H. Thomas Arthur ------------------------------------ Name: H. Thomas Arthur Title: Senior Vice President and General Counsel Date: October 14, 2003 11 EX-99.B5 3 c80034a6exv99wb5.txt FORM OF TAX ALLOCATION AGREEMENT EXHIBIT B-5 (revised) INTERCOMPANY INCOME TAX ALLOCATION AGREEMENT THIS INTERCOMPANY INCOME TAX ALLOCATION AGREEMENT (this "Agreement") is made as of the ____ day of ____________,____, by and between SCANA Corporation ("SCANA") and each of its wholly owned subsidiaries, namely (i) SCANA Services, Inc., (ii) South Carolina Electric & Gas Company, (iii) South Carolina Pipeline Corporation and its wholly owned subsidiary C&T Pipeline, LLC, (iv) South Carolina Fuel Company, Inc., (v) South Carolina Generating Company, Inc., (vi) SCANA Communications, Inc. and its wholly owned subsidiary SCANA Communications Holdings, Inc. (Holdings being a Delaware corporation), (vii) Public Service Company of North Carolina, Inc. ("PSNC") and its wholly owned subsidiaries Clean Energy Enterprises, Inc., PSNC Blue Ridge Corporation and PSNC Cardinal Pipeline Company, (viii) Primesouth, Inc. and its wholly owned subsidiary Palmark, Inc., (ix) SCANA Development Corporation, (x) SCANA Energy Marketing, Inc. and its wholly owned subsidiaries PSNC Production Corporation (which wholly owns SCANA Public Service Co. LLC) and SCANA Energy Trading, LLC, (xi) SCANA Propane Gas, Inc. and its wholly owned subsidiaries USA Cylinder Exchange, Inc. and SCANA Propane Supply, Inc., (xii) SCANA Propane Storage, Inc., (xiii) ServiceCare, Inc., (xiv) SCANA Resources, Inc., and (xv) SCG Pipeline, Inc., each being a South Carolina corporation, except SCANA Communications Holdings, Inc. as above indicated. All of the aforementioned corporations are hereinafter referred to individually as a "Company" and collectively referred to as the "Companies". The term Company shall also include subsidiaries of SCANA who subsequently sign a counterpart to this Agreement to become part of the consolidated group for federal income tax purposes. WITNESSETH: WHEREAS, the Companies file a consolidated federal income tax return in accordance with the provisions of subparagraph (a)(1) of Section 1552 of the Internal Revenue Code of 1986; WHEREAS, by order dated ________,____, the Securities and Exchange Commission has authorized the Companies to enter into this agreement and to allocate consolidated federal income tax liability and certain other taxes described below in the manner provided herein; and WHEREAS, the Companies desire to allocate such tax liability in accordance with the following procedures; NOW THEREFORE, the Companies do agree as follows: ARTICLE I. DEFINITIONS 1.1 "Acquisition Indebtedness" means indebtedness incurred by SCANA to finance the mergers contemplated by the Amended and Restated Agreement and Plan of Merger dated as of February 16, 1999, and as amended as of May 10, 1999, by and among PSNC, SCANA, New Sub I, Inc. and New Sub II, Inc., pursuant to which PSNC became a wholly-owned subsidiary of SCANA, and any renewals or extensions thereof and any refinancings or refundings thereof. 1.2 "Associate Companies" shall mean all Companies party hereto other than SCANA. 1.3 "Consolidated Tax" is the aggregate tax liability for a tax year, being the tax shown on the consolidated return and any adjustments thereto thereafter determined. The consolidated tax will be the refund if the consolidated return shows a negative tax. 1.4 "Corporate Tax Credit" is a negative separate return tax of a Company for a tax year, equal to the amount by which the consolidated tax is reduced by including a net corporate taxable loss or other net tax benefit of such Company in the consolidated tax return. 1.5 "Corporate Taxable Income" is the income or loss of a Company for a tax year, computed as though such Company had filed a separate return on the same basis as used in the consolidated return, except that dividend income from the Companies shall be disregarded, and other intercompany transactions eliminated in the consolidated return shall be given appropriate effect. It shall further be adjusted to allow for applicable rights accrued to a Company for the recognition of negative corporate taxable income consistent with the provisions of Article II herein, but carryovers and carrybacks shall not be taken into account as loss Companies are to receive current payment of their Corporate Tax Credits. If a Company is a member of the registered system's consolidated tax group for only part of a tax year, that period will be deemed to be its tax year for all purposes for that year under this Agreement. 1.6 "Other Return" means any consolidated, combined or unitary return of Other Taxes filed by SCANA or any Company, whether before or after the date hereof, which covers the operations of one or more Companies. 1.7 "Other Taxes" means any taxes (including interest and penalties) payable by SCANA or any Company to the government of any state, municipal or other political subdivision, including all agencies and instrumentalities of such government. 1.8 "Separate Return Tax" is the tax on the Corporate Taxable Income of a Company computed as though such Company was not a member of a consolidated group. ARTICLE II. TAX ALLOCATION PROCEDURES 2.1 (a) The Consolidated Tax shall be apportioned among the Companies in proportion to the Corporate Taxable Income of each member of the affiliated group. Each Associate Company which incurs a tax loss for the year shall be included in the allocation of Consolidated Tax and shall receive a Corporate Tax Credit, the amount of which shall be currently paid to such Associate Company by SCANA increased by any amounts previously assessed by SCANA and remitted by such Associate Company to SCANA for estimated tax payment purposes attributable to the subject taxable year. Each Company with a positive allocation of the Consolidated Tax shall currently pay the amount so allocated, decreased by any 2 amounts previously assessed by SCANA and remitted by such Company to SCANA for estimated tax payment purposes attributable to the subject taxable year. (b) If and to the extent that SCANA has a Corporate Tax Credit, SCANA may receive and retain payment of an amount equal to the portion of SCANA's Corporate Tax Credit attributable to the interest deduction associated with SCANA's Acquisition Indebtedness. The portion of SCANA's Corporate Tax Credit which cannot be allocated and paid to SCANA due to the limitations of this section shall be allocated to the Associate Companies with a positive allocation of the Consolidated Tax in proportion to the Corporate Taxable Income of such Associate Companies. (c) In making the tax allocations provided for in this Agreement, except as provided in Section 2.1(b) above, notwithstanding any of the foregoing, no corporate tax benefits shall be allocated to SCANA and SCANA shall be required to contribute towards the payment of the Consolidated Tax (and any other amounts required to be paid to any Company by SCANA pursuant to Section 2.1 of this Agreement) an amount equal to the Separate Return Tax attributable to SCANA for such tax year. SCANA will remit, from its separate resources, funds for the payment of tax liabilities owed by SCANA pursuant to this Section 2.1. 2.2 A U.S. consolidated federal income tax return shall be prepared and filed by SCANA for each taxable year in respect of which this Agreement is in effect and for which the Companies are required or permitted to file a consolidated federal income tax return. SCANA and each of the Associate Companies shall execute and file such consents, elections and other documents that may be required or appropriate for the proper filing of such returns. SCANA shall pay to the Internal Revenue Service the group's Consolidated Tax liability from the net of the receipts and payments. 2.3 No Associate Company shall be allocated any income tax greater than the Separate Return Tax of such Associate Company. 2.4 To the extent that the Consolidated and Corporate Taxable Incomes include material items taxed at rates other than the statutory rate (such as capital gains and preference items), the portion of the Consolidated Tax attributable to these items shall be apportioned directly to the members of the group giving rise to such items. 2.5 Should the Companies generate a net consolidated tax loss for a tax year that is too large to be used in full for that year, with the result that there are uncompensated Corporate Tax Credit benefits for that year, the carryover of uncompensated benefits related to the carryforward of tax losses applied to reduce Consolidated Taxable Income in future tax years shall be apportioned in accordance with the respective Companies' contributions to such loss. The tax benefits of any resultant carryback shall be allocated proportionally to the Companies that generated corporate tax losses in the year the consolidated net operating tax loss was generated. Any related loss of credits, including investment tax credit reversals, shall be allocated to the Company that utilized the credits in the prior year in the same proportion that the credit lost is to the total credit utilized in the prior year. Investment tax credit reversals allocated to a Company will be added to that Company's available corporate investment tax credit for future allocations. A prior year consolidated net operating tax loss carryforward applied to 3 reduce current year Consolidated Taxable Income shall be allocated proportionally to Companies that generated a corporate tax loss in the year the consolidated net operating loss was generated. 2.6 Adjustments to or revisions of the Consolidated Tax as a result of subsequent events such as amended returns, revenue agents' reports, litigation or negotiated settlements shall be allocated in accordance with the principles established in this Agreement. ARTICLE III. OTHER TAXES 3.1 SCANA will prepare and file (or cause to be prepared and filed) all Other Returns of Other Taxes which are required to be filed with respect to the operations of SCANA and its subsidiaries. In the event any taxing authority requires or permits that a combined, consolidated or unitary return be filed for Other Taxes, which return includes both SCANA and a subsidiary, SCANA may elect to file such return and shall have the right to require any Company to be included in such return. SCANA will advise each of its subsidiaries included in each Other Return and each governmental office in which any Other Return is filed. Other Taxes shall be allocated among the Companies, and adjustments made regarding tax rates, carryforwards and carrybacks and subsequent events, in a manner that is consistent with the method set forth in Article II hereof. Furthermore, amounts due to SCANA or from SCANA, with respect to Other Taxes shall be paid as provided in Article II. 3.2 Each Company that does not file an Other Return or for which SCANA has not filed an Other Return shall be solely responsible and obligated to pay the tax liability with respect to its required returns from its own funds. Such returns shall be prepared and filed by SCANA on behalf of such Company. 3.3 If any Company is required to file a combined, consolidated or unitary return for Other Taxes with another Company, but not with SCANA, then SCANA shall have the rights, powers and obligations to file such tax returns and apportion among, and collect and remit from, the applicable Companies such Other Taxes as the rights, powers and obligations given to SCANA under this Agreement with respect to the Consolidated Tax. Such returns shall be prepared and filed by SCANA. If the right to file a combined, consolidated or unitary return for Other Taxes is optional, then SCANA shall decide which of its subsidiaries should, to the extent permitted by law, join in the filing of such return. 3.4 SCANA and each of the Associate Companies shall execute and file such consents, elections and other documents that may be required or appropriate for the proper filing of Other Returns. SCANA shall pay to the appropriate taxing body the combined tax liability in respect of Other Taxes from the net of the receipts and payments made by it and the Associate Companies. 3.5 No Associate Company shall be allocated any Other Tax greater than the amount computed as though such Company was not a member of a group filing such Other Return. 4 ARTICLE IV. AMENDMENT This Agreement is subject to revision as a result of changes in income tax law and changes in relevant facts and circumstances, subject to approval of the Securities and Exchange Commission as and to the extent required by the Public Utility Holding Company Act of 1935, as amended. ARTICLE V. EFFECTIVENESS This Agreement shall apply to the tax period ending December 31, 2002, and, subject to receipt of approval of the Securities and Exchange Commission, all subsequent taxable periods unless and until (a) this Agreement is terminated by the mutual consent of the signatories hereto, or (b) this Agreement is terminated by SCANA (in its sole discretion) as to any one or more Associate Companies at any time that such Associate Company(ies) are no longer members of an affiliated group with SCANA under Section 1504(a) of the Code. Notwithstanding such termination, this Agreement shall continue in effect with respect to any payment or refunds due for all taxable periods ending on or prior to termination. ARTICLE VI. PARTIES TO THIS AGREEMENT This Agreement shall be binding upon and inure to the benefit of any successor of the Companies, whether by operation of law or otherwise, to the same extent as if the successor had been an original party to the Agreement. If during a consolidated return period SCANA or any Associate Company acquires or organizes another corporation that is required to be included in the consolidated return, then such corporation shall join in and be bound by this Agreement. 5 IN WITNESS WHEREOF, this Agreement has been executed by an officer of each company as of the day and year first above written by the Companies. ATTEST: SCANA Corporation ATTEST: SCANA Services, Inc. ATTEST: South Carolina Electric & Gas Company ATTEST: South Carolina Pipeline Corporation ATTEST: South Carolina Fuel Company, Inc. ATTEST: South Carolina Generating Company, Inc. ATTEST: SCANA Communications, Inc. ATTEST: SCANA Communications Holdings, Inc. ATTEST: Primesouth, Inc. ATTEST: Palmark, Inc. ATTEST: SCANA Development Corporation ATTEST: SCANA Energy Marketing, Inc. ATTEST: PSNC Production Corporation ATTEST: SCANA Propane Gas, Inc. ATTEST: USA Cylinder Exchange, Inc. ATTEST: SCANA Propane Supply, Inc. ATTEST: SCANA Propane Storage, Inc. ATTEST: Service Care, Inc. ATTEST: SCANA Resources, Inc. ATTEST: SCG Pipeline, Inc. ATTEST: Public Service Company of North Carolina, Inc. ATTEST: Clean Energy Enterprises, Inc. ATTEST: PSNC Blue Ridge Corporation ATTEST: PSNC Cardinal Pipeline Company EX-99.K1 4 c80034a6exv99wk1.txt COMPARISON OF ALLOCATION OF FED. INC. TAX LIAB. EXHIBIT K-1 SCANA CORPORATION Consolidated Federal Income Tax Calendar Year 2002 (preliminary) (Dollars in Thousands)
Scenario 1 Scenario 2 Scenario 3 Difference between Separate Return Current Alloc. Proposed Alloc. Current Alloc. Method Method Method and (Section 45C) Proposed Alloc. Method - ------------------------------------------------------------------------------------------------------------------------------------ SCANA $ (5,432) - $ (5,432) $ (5,432) SCE&G 53,596 52,025 53,596 1,571 S.C. Generating Co. 4,046 3,927 4,046 119 S.C. Fuel Co. (40) (40) (40) - S.C. Pipeline SubConsolidated Group 170 165 170 5 SCANA Communications SubConsolidated 114,425 111,072 114,425 3,353 Group SCANA Petroleum (858) (858) (858) - SCANA Development 65 63 65 2 SCANA EM SubConsolidated Group 1,870 1,815 1,870 55 Primesouth SubConsolidated Group 3,851 3,738 3,851 113 PSNC SubConsolidated Group 6,655 6,460 6,655 195 Service Care 695 675 695 20 SCANA Resources (77) (77) (77) - SCG Pipeline - - - - SCANA Services Co. (465) (465) (465) - Total $ 178,501 $ 178,501 $ 178,501 -
NOTE 1: Tax allocations not performed below subconsolidated group levels. NOTE 2: The effect on 2002 of the proposed allocation method would have resulted in no allocation of tax benefits from SCANA to its subsidiaries. The tax benefit of $9.0 million arising from the interest expense on the Acquisition Debt discussed previously would eliminate SCANA's tax expense reflected above. -----END PRIVACY-ENHANCED MESSAGE-----