-----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, CEtsA9JJ8aLBrfUnadmcxER18MxByoWQ0wlQ/oIqUT7dM+flIBHxWdh8OhJg4276 bl3jmkLaCngPIk2JAuiapw== 0000091882-97-000001.txt : 19970317 0000091882-97-000001.hdr.sgml : 19970317 ACCESSION NUMBER: 0000091882-97-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970314 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTH CAROLINA ELECTRIC & GAS CO CENTRAL INDEX KEY: 0000091882 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570248695 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03375 FILM NUMBER: 97556945 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8037483000 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 1-3375 SOUTH CAROLINA ELECTRIC & GAS COMPANY (Exact name of registrant as specified in its charter) SOUTH CAROLINA 57-0248695 (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 5% Cumulative Preferred Stock par value $50 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Title of Class The Class is comprised of the following series of Cumulative Preferred Stock, par value $50 per share or $100 per share, having a periodic sinking fund: 9.40% Cumulative Preferred Stock 8.72% Cumulative Preferred Stock par value $50 per share par value $50 per share 8.12% Cumulative Preferred Stock 7.70% Cumulative Preferred Stock par value $100 per share par value $100 per share 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 . 1 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. [X] State the aggregate market value of the voting stock held by nonaffiliates 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 non- affiliates of the registrant as of February 28, 1997 was zero. 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. As of February 28, 1997 there were issued and outstanding 40,296,147 shares of the registrant's common stock, $4.50 par value, all of which were held, beneficially and of record, by SCANA Corporation. 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). NONE 2 TABLE OF CONTENTS Page DEFINITIONS ....................................................... 4 PART I Item 1. Business ............................................ 5 Item 2. Properties .......................................... 19 Item 3. Legal Proceedings ................................... 21 Item 4. Submission of Matters to a Vote of Security Holders ................................... 21 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 21 Item 6. Selected Financial Data ............................. 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 23 Item 8. Financial Statements and Supplementary Data ......... 30 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................ 57 PART III Item 10. Directors and Executive Officers of the Registrant ......................................... 57 Item 11. Executive Compensation .............................. 61 Item 12. Security Ownership of Certain Beneficial Owners and Management .............................. 65 Item 13. Certain Relationships and Related Transactions ...... 66 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................ 66 SIGNATURES ........................................................ 67 3 DEFINITIONS The following abbreviations used in the text have the meaning 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..................... South Carolina Electric & Gas Company 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 EPA......................... United States Environmental Protection Agency FERC........................ United States Federal Energy Regulatory Commission Fuel Company................ South Carolina Fuel Company, Inc., an affiliate GENCO....................... South Carolina Generating Company, Inc., an affiliate KVA......................... Kilovolt-ampere KW.......................... Kilowatt KWH......................... Kilowatt-hour LNG......................... Liquefied Natural Gas MCF......................... Thousand Cubic Feet MW.......................... Megawatt NEPA........................ National Energy Policy Act of 1992 NRC......................... United States Nuclear Regulatory Commission Pipeline Corporation........ South Carolina Pipeline Corporation, an affiliate 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 SCANA....................... SCANA Corporation and its subsidiaries Southern Natural............ Southern Natural Gas Company 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 The Company, a wholly owned subsidiary of SCANA, is a South Carolina corporation organized in 1924 and has its principal executive office at 1426 Main Street, Columbia, South Carolina 29201, telephone number (803) 748-3000. The Company had 3,637 full-time, permanent employees as of December 31, 1996 as compared to 3,721 full-time, permanent employees as of December 31, 1995. SCANA, a South Carolina corporation, was organized in 1984 and is a public utility holding company within the meaning of PUHCA but is presently exempt from registration under such Act. SCANA holds all of the issued and outstanding common stock of the Company. (See Note 1A of Notes to Consolidated Financial Statements.) INDUSTRY SEGMENTS The Company 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. The Company also renders urban bus service in the metropolitan area of Columbia, South Carolina. The Company'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. The Company'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 Company's combined service area is approximately 2.4 million. The predominant industries in the territories served by the Company 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. Information with respect to industry segments for the years ended December 31, 1996, 1995 and 1994 is contained in Note 11 of 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. 5 The Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company operates Strategic Business Units. Maintaining a competitive cost structure is of paramount importance in the utility's strategic plan. The Company has undertaken a variety of initiatives, including reductions in operation and maintenance costs and in staffing levels. In January 1996 the PSC approved (as discussed under "Capital Requirements and Financing Program") the accelerated recovery of the Company'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 the Company'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 SCANA would not be materially affected by the discontinuation of the accounting treatment. The Company reported approximately $284 million and $51 million of regulatory assets and liabilities, respectively, including amounts recorded for net deferred income tax assets and liabilities of approximately $104 million and $49 million, respectively, on its balance sheet at December 31, 1996. CAPITAL REQUIREMENTS AND FINANCING PROGRAM Capital Requirements The cash requirements of the Company arise primarily from its operational needs and its construction program. The ability of the Company to replace existing plant investments, as well as to expand to meet future demand for electricity and gas, will depend upon its ability to attract the necessary financial capital on reasonable terms. The Company recovers the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and the Company continues its ongoing construction program it is necessary to seek increases in rates. As a result the Company's future financial position and results of operations will be affected by its ability to obtain adequate and timely rate and other regulatory relief. On January 9, 1996 the PSC issued an order granting the Company an increase in retail electric rates of 7.34%, which 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 the Company's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. The Company's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric 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 reserve for rates subject to its jurisdiction. 6 During 1997 the Company is expected to meet its capital requirements principally through internally generated funds (approximately 72%, after payment of dividends), the issuance and sale of debt securities and additional equity contributions from SCANA. Short-term liquidity is expected to be provided 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. 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 as now scheduled, are as follows: Type of Facilities 1998-1999 1997 (Thousands of Dollars) 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 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 the Company expended approximately $17.2 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 $34.6 million. The Company's revised cost estimates for its construction program for the periods 1997 and 1998-1999, shown in the above table, include costs of the projects described below. Other In addition to the Company's capital requirements for 1997 described in "Capital Requirements" above, approximately $45.2 million will be required for refunding and retiring outstanding securities and obligations. For the years 1998-2001, the Company has an aggregate of $293.9 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. SCANA and Westvaco Corporation have formed a limited liability company, Cogen South LLC, to build and operate a $170 million cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. The facility will provide industrial process steam for the Westvaco paper mill and shaft horsepower to enable the Company to generate up to 99 megawatts of electricity. Construction financing is being provided to Cogen South LLC by banks. In addition to the cogeneration LLC, Westvaco has entered into a 20-year contract with the Company for all its electricity requirements at the North Charleston mill at the Company's standard industrial rate. Construction of the plant began in September 1996 and it is expected to be operational in the fall of 1998. 7 Financing Program The Company'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. The Company 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. Without the consent of at least a majority of the total voting power of the Company's preferred stock, the Company 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 the Company'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, the Company must obtain the FERC authority to issue short-term debt. As amended by SCE&G's request approved in 1997 the FERC has authorized the Company 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. The Company 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. The Company'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. The ratios of earnings to fixed charges (SEC Method) were 3.80, 3.41, 3.46, 3.57 and 2.73 for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively. 8 During 1996 the Company received $48.7 million in equity contributions from SCANA. These contributions represented proceeds from the sale of common stock through SCANA's Investor Plus Plan and Stock Purchase Savings Program which in 1996 raised $20.8 million and $27.9 million, respectively, in equity capital. Effective February 1, 1997 SCANA announced the conversion of the Investor Plus Plan from an original issue plan to a market purchase plan. 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 The Company 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 the Company. At December 31, 1996 commercial paper outstanding was approximately $66.1 million at a weighted average interest rate of 5.62%. (See Notes 1M and 4 of Notes to Consolidated Financial Statements.) 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 5,222,517 5,078,185 2.84 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 18,011,739 17,585,238 2.43 Interchange 895,016 195,591 357.60 Total 18,906,755 17,780,829 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 the Company of their intent to terminate in the year 2000 their wholesale power contracts with the Company and bid out their electric requirements. Interchange sales during 1996 includes 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. During 1996 the Company recorded a net increase of 8,965 electric customers, increasing its total customers to 493,346. 9 The electric sales volume for 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. Interchange sales volume for 1996 increased as a result of additional system capacity resulting from the startup of the Cope plant in early 1996. On August 8, 1995 the Company 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 the Company. The Company 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 The Company purchases all of the electric generation of Williams Station, owned by GENCO, under a Unit Power Sales Agreement which has been approved by the FERC. Williams Station has a generating capacity of 560 MW. The Company's transmission system is part of the interconnected grid extending over a large part of the southern and eastern portions of the nation. The Company, 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. The Company is also interconnected with Georgia Power Company, Savannah Electric & Power Company, Oglethorpe Power Corporation and Southeastern Power Administration's Clark Hill Project. 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 and GENCO for the years 1994-1996. 1996 1995 1994 Nuclear: Per million BTU $ .47 $ .48 $ .51 Coal: Company: Per ton $39.27 $40.01 $39.92 Per million BTU 1.55 1.57 1.57 GENCO: Per ton $41.66 $42.21 $41.85 Per million BTU 1.62 1.63 1.63 Weighted Average Cost of All Fuels: Per million BTU $ 1.52 $ 1.26 $ 1.39 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 the Company's books as a result of a 1980 settlement of certain litigation. 10 Fuel Supply The following table shows the sources and approximate percentages of total for the Company's KWH generation (including Williams Station) 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% 74% 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 the Company'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 the Company 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, including requirements of Williams Station). 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%. The Company believes that its 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"). The Company 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. 11 The Company 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.) 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 the Company'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. The Company is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. The Company'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. The Company is the beneficiary of these policies. Through these insurance contracts, the Company 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 the Company 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 the Company described above. The Company records its liability for decommissioning costs in deferred credits. GAS OPERATIONS Gas Sales In 1996 residential sales accounted for 46% of gas sales revenues; commercial sales 31%; industrial sales 23%. 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 11,027,830 10,436,987 5.7 Industrial 13,909,258 13,467,687 3.3 Transportation gas 3,108,058 3,603,314 (13.7) Total 42,153,204 39,841,757 5.8 During 1996 the Company recorded a net increase of 5,154 gas customers, increasing its total customers to 248,496. The Company purchases all of its natural gas from Pipeline Corporation. 12 The demand for gas is affected by conservation, the weather, the price relationship between gas and alternate fuels and other factors. The deregulation of natural gas prices at the wellhead and the changes in the prices of natural gas that have occurred under Federal regulation have resulted in the development of a spot market for natural gas in the producing areas of the country. Pipeline Corporation has been successful in purchasing lower cost natural gas in the spot market and arranging for its transportation to South Carolina. 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. The impact of this order on the Company will be primarily through changes affecting its supplier, Pipeline Corporation. 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 Under a contract with Pipeline Corporation, the Company's maximum daily contract demand is 224,270 dekatherms. The contract allows the Company to receive amounts in excess of this demand based on availability. The average cost per MCF of natural gas purchased from Pipeline Corporation was approximately $4.30 in 1996 compared to $3.77 in 1995. To meet the requirements of the Company and 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 lique- fied 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. 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 the Company to its customers, which are governed by a separate curtailment plan approved by the PSC. 13 REGULATION General The Company 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. The Company is 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"). In the opinion of the Company, it will be able to meet successfully the challenges of the NEPA without any material adverse impact on its results of operations, financial position or business prospects. The Company 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. The Company 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. Nuclear Regulatory Commission The Company 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 considerations 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. 14 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 the Company was seeking. 15 On January 9, 1996 the PSC issued an order granting the Company 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 the Company's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. The Company's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenue under the FERC's jurisdiction, which constitute approximately five percent of the Company's electric revenues. The FERC has rejected the transfer of depreciation reserves for rates subject to its jurisdiction. 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. 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. Fuel Cost Recovery Procedures The PSC has established a fuel cost recovery procedure which determines the fuel component in the Company'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. The Company 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 a month. The Company's gas rate schedules and contracts include mechanisms which allow it to recover from its customers changes in the actual cost of gas. The Company'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. 16 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 unforseen 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. ENVIRONMENTAL MATTERS General Federal and state authorities have imposed environmental regulations and standards requirements 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. Capital Expenditures In the years 1994 through 1996, capital expenditures for environmental control amounted to approximately $73.2 million. In addition, approximately $12.2 million, $10.4 million and $8.8 million of environmental control expenditures were made during 1996, 1995 and 1994, respectively, which were 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 $18.0 million for 1997 and $119.2 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 $105 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 $122 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 the Company'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 to meet this program. Amendments to the Clean Water Act proposed in Congress include several provisions which, if passed, could prove costly to the Company. These include limitations to mixing zones and the implementation of technology-based standards. 17 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. In September 1992 the EPA notified the Company, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park Area site in Charleston, South Carolina. This site originally encompassed approximately eighteen acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of the Company's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service, the City of Charleston and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The 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. The Company resolved second and third round comments and submitted a Final Draft Remedial Investigation Report in October 1996. Although the Company 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 the Company settled all environmental claims the City may have had against the Company involving the Calhoun Park area for a payment of $26 million over four years by the Company to the City. The Company is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup. As part of the environmental settlement, the Company has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The Company does not expect the settlement to have a material impact on the Company's results of operations, cash flows or financial position. The Company owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. The Company maintains an active review of the sites to monitor the nature and extent of the residual contamination. The Company is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. 18 Solid Waste Control The South Carolina Solid Waste Policy and Management Act of 1991 directed the 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 the Company'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 Summer Station. The Company 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. The Company 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. OTHER MATTERS With regard to the Company's insurance coverage for Summer Station, reference is made to Note 10B of Notes to Consolidated Financial Statements which is incorporated herein by reference. ITEM 2. PROPERTIES The Company'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. 19 ELECTRIC The following table gives information with respect to the Company's electric generating facilities. 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 Summer (2) Nuclear Parr, SC 1984 628,000 D-Area (3) Coal DOE Savannah River Site, SC 1995 17,000 Cope (4) 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 (5) 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 (6) 3,756,000 (1) Summer rating. (2) Represents the Company's two-thirds portion of the Summer Station. (3) 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. (4) Plant began commercial operation in January 1996. (5) The two gas turbines at Williams are leased and have a net capability of 49,000 KW. This lease expires on June 29, 1997. (6) Excludes Williams Station. 20 The Company 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 The Company'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. Propane The Company 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 The Company 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, the Company 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 the Company also entered into an interim operating agreement, renewable semiannually, whereby the Company will operate the system for the City until a Regional Transit Authority is established. The Company and the City have agreed upon a rate structure that is designed to allow the Company 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 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS All of the Company's common stock is owned by SCANA and therefore there is no market for such stock. During 1996 and 1995 the Company paid $132.9 million and $116.7 million, respectively, in cash dividends to SCANA. The Restated Articles of Incorporation of the Company and the Indenture underlying its First and Refunding Mortgage Bonds contain provisions that may limit the payment of cash dividends on common stock. In addition, with respect to hydroelectric projects, the Federal Power Act may require the appropriation of a portion of the earnings therefrom. At December 31, 1996 approximately $17.6 million of retained earnings were restricted as to payment of cash dividends on common stock. 21 ITEM 6. SELECTED FINANCIAL DATA For the Years Ended December 31, 1996 1995 1994 1993 1992 Statement of Income Data (Thousands of Dollars, except statistics) Operating Revenues $1,344,597 $1,211,087 $1,181,274 $1,118,433 $ 994,381 Operating Income 285,525 255,854 230,418 219,319 182,267 Other Income 4,120 9,553 7,271 6,585 3,006 Net Income 190,482 169,185 152,043 145,968 102,163 Earnings Available for Common Stock 185,049 163,498 146,088 139,751 95,689 Balance Sheet Data Utility Plant, Net $3,196,897 $3,157,657 $2,998,132 $2,687,193 $2,503,201 Total Assets 3,958,802 3,802,433 3,587,091 3,189,939 2,890,953 Capitalization: Common equity 1,413,462 1,315,072 1,133,432 1,051,334 963,741 Preferred stock (Not subject to purchase or sinking funds) 26,027 26,027 26,027 26,027 26,027 Preferred stock, Net (Subject to purchase or sinking funds) 43,014 46,243 49,528 52,840 56,154 Long-term debt, Net 1,276,758 1,279,379 1,231,191 1,097,043 945,964 Total Capitalization $2,759,261 $2,666,721 $2,440,178 $2,227,244 $1,991,886 Other Statistics Electric: Customers (Year-End) 493,346 484,381 476,438 468,901 461,928 Territorial Sales (Million KWH) 18,012 17,585 16,840 16,889 15,801 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 Gas: Customers (Year-End) 248,496 243,342 238,433 221,278 218,582 Sales, excluding transportation (Thousand Therms) 390,451 362,384 322,837 267,335 256,495 Residential: Average annual use per customer (Therms) 639 570 538 606 577 Average annual rate per therm $.74 $.82 $.84 $.76 $.74
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, 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 operates Strategic Business Units. Maintaining a competitive cost structure is of paramount importance in the utility's strategic plan. The Company has undertaken a variety of initiatives, including reductions in operation and maintenance costs and in staffing levels. In January 1996 the PSC approved (as discussed under "Liquidity and Capital Resources") the accelerated recovery of the Company'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 the Company'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 SCANA would not be materially affected by the discontinuation of the accounting treatment. The Company reported approximately $284 million and $51 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $104 million and $49 million, respectively, on its balance sheet at December 31, 1996. LIQUIDITY AND CAPITAL RESOURCES The cash requirements of the Company arise primarily from its operational needs and its construction program. The ability of the Company to replace existing plant investment, as well as to expand to meet future demand for electricity and gas, will depend upon its ability to attract the necessary financial capital on reasonable terms. The Company recovers the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and the Company continues its ongoing construction program, it is necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by its ability to obtain adequate and timely rate and other regulatory relief. 23 On January 9, 1996 the PSC issued an order granting the Company 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 and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of the Company's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. The Company's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric revenue under the FERC's jurisdiction, which constitute approximately five percent of the Company's electric revenues. The FERC has rejected the transfer of depreciation reserve for rates subject to its jurisdiction. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with the Company. In consideration for the electric franchise agreement, the Company will pay the City $25 million over seven years (1996-2002) and has donated to the City the existing transit assets in Charleston. SCANA and Westvaco Corporation have formed a limited liability company, Cogen South LLC, to build and operate a $170 million cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. The facility will provide industrial process steam for the Westvaco paper mill and shaft horsepower to enable the Company to generate up to 99 megawatts of electricity. Construction financing is being provided to Cogen South LLC by banks. In addition to the cogeneration LLC, Westvaco has entered into a 20-year contract with the Company for all its electricity requirements at the North Charleston mill at the Company's standard industrial rate. Construction of the plant began in September 1996 and it is expected to be operational in the fall of 1998. The estimated primary cash requirements for 1997, excluding requirements for fuel liabilities and short-term borrowings, (including notes payable to affiliated companies), 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 $224,816 $218,179 Nuclear fuel expenditures 30,706 12,724 Maturing obligations, redemptions and sinking and purchase fund requirements 27,901 27,888 Total $283,423 $258,791 Approximately 72% of total cash requirements (after payment of dividends) was provided from internal sources in 1996 as compared to 45% in 1995. The Company'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. 24 The Company 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. Without the consent of at least a majority of the total voting power of the Company's preferred stock, the Company 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 the Company'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, the Company must obtain the FERC authority to issue short-term indebtedness. The FERC has authorized the Company 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. The Company had $145 million authorized and unused lines of credit at December 31, 1996. In addition, the 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. The Company'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. The Company anticipates that its 1997 cash requirements of $283.4 million will be met through internally generated funds (approximately 72%, after payment of dividends), the sales of additional equity securities, additional equity contributions from SCANA 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. 25 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 $105 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 $122 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 the Company'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 the Company. 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 the Company's and GENCO's costs of construction and operation of existing and future ash management facilities. 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 the Company, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park Area site in Charleston, South Carolina. This site originally encompassed approximately eighteen acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of the Company's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The 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. The Company resolved second and third round comments and submitted a Final Draft Remedial Investigation Report in October 1996. Although the Company is continuing to investigate cost-effective cleanup methodologies, further work is pending EPA approval of the Final Draft Remedial Investigation Report. 26 In October 1996 the City of Charleston and the Company settled all environmental claims the City may have had against the Company involving the Calhoun Park area for a payment of $26 million over four years by the Company to the City. The Company is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup. As part of the environmental settlement, the Company has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The Company owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. The Company maintains an active review of the sites to monitor the nature and extent of the residual contamination. The Company is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. Regulatory Matters The Company 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. RESULTS OF OPERATIONS Net Income Net income and the percent increase (decrease) from the previous year for the years 1996, 1995 and 1994 were as follows: 1996 1995 1994 Net income $190,482 $169,185 $152,043 Percent increase (decrease) in net income 12.59% 11.27% 4.16% 1996 Net income increased for the year primarily as a result of increases in electric and gas sales margins which more than offset increases in operating expenses. 1995 Net income increased for the year primarily due to increases in electric and gas sales margins and lower operating and maintenance expenses which more than offset increases in fixed costs. 27 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 3.2% of income before income taxes in 1996, 7.9% in 1995 and 6.3% in 1994. Electric Operations Electric sales margins for 1996, 1995 and 1994 were as follows: 1996 1995 1994 (Millions of Dollars) Electric revenues $1,106.7 $1,006.6 $974.3 (Provision) for rate refunds - - 1.2 Net Electric operating revenues 1,106.7 1,006.6 975.5 Less: Fuel used in electric generation 187.1 177.6 176.6 Purchased power 106.8 98.2 112.9 Margin $ 812.8 $ 730.8 $686.0 1996 The electric sales margin increased primarily over the prior year primarily as a result of the rate increase received by the Company in January 1996 and economic growth factors. 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 144,332 229,565 Industrial 110,147 48,651 Sale for Resale (excluding interchange) (39,853) 38,688 Other (1,013) 12,776 Total territorial 426,501 745,356 Interchange 699,425 24,545 Total 1,125,926 769,901 Interchange sales volume for 1996 increased as a result of additional capacity resulting from the startup of the Cope plant in early 1996. Gas Operations Gas sales margins for 1996, 1995 and 1994 were as follows: 1996 1995 1994 (Millions of Dollars) Gas operating revenues $234.8 $200.6 $201.7 Less: Gas purchased for resale 157.1 125.0 127.8 Margin $ 77.7 $ 75.6 $ 73.9 1996 The gas sales margin increased over the prior year as a result of increased firm sales. 28 1995 The gas sales margin increased over the prior year primarily as a result of increases in interruptible gas sales. 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 590,843 623,533 Industrial 441,571 2,528,974 Transportation gas (495,256) (1,866,414) Total 2,311,447 2,088,304 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 $22.3 $(7.8) Depreciation and amortization 17.4 10.6 Income taxes 10.8 12.9 Other taxes 3.2 5.1 Total $53.7 $20.8 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 expense primarily is 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. 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 $(1.2) $11.0 Other interest expense (2.0) 4.1 Total $(3.2) $15.1 1996 The decrease in interest expense is primarily a result of 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. 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Page Independent Auditors' Report....................................... 31 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1996 and 1995... 33 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1996, 1995 and 1994............. 34 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994............................. 35 Consolidated Statements of Capitalization as of December 31, 1996 and 1995................................... 36 Notes to Consolidated Financial Statements..................... 38 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. 30 INDEPENDENT AUDITOR'S REPORT South Carolina Electric & Gas Company: We have audited the accompanying Consolidated Balance Sheets and Statements of Capitalization of South Carolina Electric & Gas Company (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 the 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 31 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 (Thousands of Dollars) ASSETS Utility Plant (Notes 1, 3 and 4): Electric $3,870,561 $3,277,530 Gas 338,095 320,847 Transit 3,923 3,768 Common 81,858 91,616 Total 4,294,437 3,693,761 Less accumulated depreciation and amortization 1,331,824 1,196,279 Total 2,962,613 2,497,482 Construction work in progress 193,278 613,683 Nuclear fuel, net of accumulated amortization 41,006 46,492 Utility Plant, Net 3,196,897 3,157,657 Nonutility Property and Investments, net of accumulated depreciation (Note 8) 11,529 11,603 Current Assets: Cash and temporary cash investments (Note 8) 5,399 6,798 Receivables - customer and other 170,476 154,816 Receivables - affiliated companies (Note 1) 1,021 7,132 Inventories (At average cost): Fuel (Notes 1, 3 and 4) 33,121 35,812 Materials and supplies 45,375 43,583 Prepayments 8,758 10,158 Deferred income taxes 20,025 19,420 Total Current Assets 284,175 277,719 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 (Note 1) 294,244 237,500 Total Deferred Debits 466,201 355,454 Total $3,958,802 $3,802,433 32 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS December 31, 1996 1995 (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Stockholders' Investment: Common equity (Note 5) $1,413,462 $1,315,072 Preferred stock (Not subject to purchase or sinking funds) 26,027 26,027 Total Stockholders' Investment 1,439,489 1,341,099 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) 1,276,758 1,279,379 Total Capitalization 2,759,261 2,666,721 Current Liabilities: Short-term borrowings (Notes 8 and 9) 90,000 80,500 Current portion of long-term debt (Note 3) 42,755 36,033 Current portion of preferred stock (Note 6) 2,432 2,439 Accounts payable 66,741 71,731 Accounts payable - affiliated companies (Notes 1 and 3) 31,395 26,212 Customer deposits 14,944 12,518 Taxes accrued 66,900 64,008 Interest accrued 21,304 21,626 Dividends declared 35,972 33,126 Other 5,004 5,953 Total Current Liabilities 377,447 354,146 Deferred Credits: Deferred income taxes (Notes 1 and 7) 521,745 488,310 Deferred investment tax credits (Notes 1 and 7) 75,073 78,316 Reserve for nuclear plant decommissioning (Note 1) 42,194 36,070 Other (Note 1) 183,082 178,870 Total Deferred Credits 822,094 781,566 Commitments and Contingencies (Note 10) - - Total $3,958,802 $3,802,433 See Notes to Consolidated Financial Statements. 33 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Years Ended December 31, 1996 1995 1994 (Thousands of Dollars) Operating Revenues (Notes 1 and 2): Electric $1,106,664 $1,006,566 $ 975,526 Gas 234,825 200,632 201,746 Transit 3,108 3,889 4,002 Total Operating Revenues 1,344,597 1,211,087 1,181,274 Operating Expenses: Fuel used in electric generation 187,100 177,579 176,581 Purchased power (including affiliated purchases)(Note 1) 106,792 98,231 112,900 Gas purchased from affiliate for resale (Note 1) 157,118 125,032 127,846 Other operation 222,361 211,318 214,344 Maintenance 64,369 53,071 57,801 Depreciation and amortization (Note 1) 134,951 117,584 106,952 Income taxes (Notes 1 and 7) 107,734 96,956 84,066 Other taxes (Note 12) 78,647 75,462 70,366 Total Operating Expenses 1,059,072 955,233 950,856 Operating Income 285,525 255,854 230,418 Other Income (Note 1): Allowance for equity funds used during construction 4,055 9,499 7,989 Other income (loss), net of income taxes 65 54 (718) Total Other Income 4,120 9,553 7,271 Income Before Interest Charges 289,645 265,407 237,689 Interest Charges (Credits): Interest on long-term debt, net 97,149 98,361 87,361 Other interest expense (Notes 1 and 3) 7,367 9,324 5,189 Allowance for borrowed funds used during construction (Note 1) (5,353) (11,463) (6,904) Total Interest Charges, Net 99,163 96,222 85,646 Net Income 190,482 169,185 152,043 Preferred Stock Cash Dividends (At stated rates) (5,433) (5,687) (5,955) Earnings Available for Common Stock 185,049 163,498 146,088 Retained Earnings at Beginning of Year 366,236 324,101 291,713 Common Stock Cash Dividends Declared (Note 5) (135,800) (121,363) (113,700) Retained Earnings at End of Year $ 415,485 $ 366,236 $ 324,101 See Notes to Consolidated Financial Statements. 34 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996 1995 1994 (Thousands of Dollars) Cash Flows From Operating Activities: Net income $190,482 $169,185 $152,043 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 135,070 117,839 107,103 Amortization of nuclear fuel 18,601 20,017 13,487 Deferred income taxes, net 32,098 (17,632) 13,133 Deferred investment tax credits, net (3,243) (3,230) (2,901) Pension asset (22,577) (15,573) (8,452) Allowance for funds used during construction (9,408) (20,962) (14,893) Early retirements (1,890) (24,823) (7,086) Nuclear refueling accrual (2,454) 6,957 (4,881) Over (under) collections, fuel adjustment clause (8,261) 18,986 (17,965) Emission allowances, net of AFC (1,885) (7,592) (19,409) Changes in certain current assets and liabilities: (Increase) decrease in receivables (9,549) (16,148) (26,260) (Increase) decrease in inventories 899 (4,857) 26 Increase (decrease) in accounts payable 193 3,120 (430) Increase (decrease) in estimated rate refunds and related interest - - (2,509) Increase (decrease) in taxes accrued 2,892 17,362 6,681 Increase (decrease) in interest accrued (322) 92 3,770 Other, net (12,817) 11,185 20,444 Net Cash Provided From Operating Activities 307,829 253,926 211,901 Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (230,603) (273,317) (406,054) Nonutility property and investments (243) (111) (287) Transfer of assets from SCANA - - 6,285 Net Cash Used For Investing Activities (230,846) (273,428) (400,056) Cash Flows From Financing Activities: Proceeds: Issuance of notes payable - affiliated company - - 19,409 Issuance of mortgage bonds - 99,583 99,207 Issuance of pollution control bonds - - 30,000 Equity contributions from parent 49,141 139,505 43,426 Other long-term debt 39,941 2,543 11,200 Repayments: Notes payable - affiliated company - (19,409) - Mortgage bonds (22,000) (64,779) - Other long-term debt - (12,548) (1,662) Preferred stock (3,236) (3,264) (3,398) Redemption of Pollution Control Bonds (110) - - Repayment of Bank Loans (2,542) - - Dividend Payments: Common stock (132,900) (116,663) (115,100) Preferred stock (5,487) (5,750) (6,048) Short-term borrowings, net 9,500 (19,500) 98,989 Fuel and emission allowance financings, net (10,689) 26,236 13,844 Advances - affiliated companies, net - - (1,559) Net Cash Provided From Financing Activities (78,382) 25,954 188,308 Net Increase (Decrease) in Cash and Temporary Cash Investments (1,399) 6,452 153 Cash and Temporary Cash Investments, January 1 6,798 346 193 Cash and Temporary Cash Investments, December 31 $ 5,399 $ 6,798 $ 346 Supplemental Cash Flows Information: Cash paid for - Interest (includes capitalized interest of $5,353, $11,463 and $6,904) $102,609 $105,537 $ 87,255 - Income taxes 101,663 95,827 77,295 Noncash Financing Activities: Charleston Franchise Agreement 21,429 - - Charleston Environmental Agreement 19,500 - - See Notes to Consolidated Financial Statements. 35 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1996 1995 Common Equity (Note 5): (Thousands of Dollars) Common stock, 4.50 par value, authorized 50,000,000 shares; issued and outstanding, 40,296,147 shares $ 181,333 $ 181,333 Premium on common stock 395,072 395,072 Other paid-in capital 426,912 377,822 Capital stock expense (5,340) (5,391) Retained earnings 415,485 366,236 Total Common Equity 1,413,462 51% 1,315,072 49% 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% 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 2% 46,243 2% See Notes to Consolidated Financial Statements. 36 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1996 1995 (Thousands of Dollars) Long-Term Debt (Notes 3, 4 and 8): 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 Commercial Paper 66,141 76,830 Charleston Franchise Agreement due 1997-2002 21,429 - Charleston Environmental Agreement due 1997-1999 19,500 - Other 25 3,993 Total Long-Term Debt 1,323,438 1,319,649 Less: Current maturities, including sinking fund requirements 42,755 36,033 Unamortized discount 3,925 4,237 Total Long-Term Debt, Net 1,276,758 46% 1,279,379 48% Total Capitalization $2,759,261 100% $2,666,721 100% See Notes to Consolidated Financial Statements. 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Organization and Principles of Consolidation The Company, a public utility, is a South Carolina corporation organized in 1924 and a wholly owned subsidiary of SCANA Corporation (SCANA), a South Carolina holding company. The Company 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 retail customers in South Carolina. The accompanying Consolidated Financial Statements include the accounts of the Company and South Carolina Fuel Company, Inc. (Fuel Company). (See Note 1N.) Intercompany balances and transactions between the Company and Fuel Company have been eliminated in consolidation. Affiliated Transactions The Company has entered into agreements with certain affiliates to purchase gas for resale to its distribution customers and to purchase electric energy. The Company purchases all of its natural gas requirements from Pipeline Corporation and at December 31, 1996 and 1995 the Company had approximately $22.3 million and $17.5 million, respectively, payable to Pipeline Corporation for such gas purchases. The Company purchases all of the electric generation of Williams Station, which is owned by GENCO, under a unit power sales agreement. At December 31, 1996 and 1995 the Company had approximately $8.6 million and $8.2 million, respectively, payable to GENCO for unit power purchases. Such unit power purchases, which are included in "Purchased power," amounted to approximately $95.3 million, $83.5 million and $92.8 million in 1996, 1995 and 1994, respectively. Total interest income, based on market interest rates, associated with the Company's advances to affiliated companies was approximately $36,000, $174,000 and $5,000 in 1996, 1995 and 1994, respectively. In 1996 there were no amounts relating to advances from affiliated companies included in "Other interest expense"; however, for 1995 and 1994 $114,000 and $279,000, respectively, was included. Intercompany interest is calculated at market rates. B. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of Statements of Financial Accounting Standards No. 71 (SFAS 71). The accounting standard requires cost-based rate-regulated utilities, such as the Company, to recognize in their financial statements revenues and expenses in different time periods than do enterprises that are not rate-regulated. As a result the Company has recorded, as of December 31, 1996, approximately $284 million and $51 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $104 million and $49 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 are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and as adopted by the PSC. 38 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. The Company, 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 the Company'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 the Company's share of Summer Station was approximately $313.2 million and $261.0 million as of December 31, 1996 and 1995, respectively. The Company's share of the direct expenses associated with operating Summer Station is included in "Other operation" and "Maintenance" expenses. 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 has calculated AFC using composite rates of 8.1%, 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. The Company 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". 39 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 cost and that contained in the 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." The Company'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 3.13%, 3.02% and 3.01% for 1996, 1995 and 1994, respectively. Nuclear fuel amortization, which is included in "Fuel used in electric generation" and is recovered through the fuel cost component of the Company'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. 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 the Company'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. The Company is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. The Company's method of funding decommissioning cost 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. The Company is the beneficiary of these policies. Through these insurance contracts, the Company 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 the Company 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 the Company described above. The Company records its liability for decommissioning costs in deferred credits. 40 Pursuant to the National Energy Policy Act passed by Congress in 1992 and the requirements of the DOE, the Company 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." The Company 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 is included in the consolidated Federal income tax return filed by SCANA. Income taxes are allocated to the Company based on its contribution 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; otherwise, they are charged or credited to income tax expense. J. Pension Expense The Company participates in SCANA's 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. SCANA'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. 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) Amounts contributed by the Company's affiliates (335) (203) (130) Net periodic pension (income) expense $(10,303) $ (4,648) $ 2,870 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% 41 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% 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 Amounts contributed by the Company's affiliates (711) (610) (575) Net periodic postretirement benefit cost $20,424 $12,724 $12,690 42 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) 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. 43 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. Fuel Inventories Nuclear fuel and fossil fuel inventories and sulfur dioxide emission allowances are purchased and financed by Fuel Company under a contract which requires the Company to reimburse Fuel Company for all costs and expenses relating to the ownership and financing of fuel inventories and sulfur dioxide emission allowances. Accordingly, such fuel inventories and emission allowances and fuel-related assets and liabilities are included in the Company's consolidated financial statements. (See Note 4.) 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. 44 2. RATE MATTERS: A. On January 9, 1996 the PSC issued an order granting the Company 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 the Company's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. The Company's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The PSC's ruling does not apply to wholesale electric 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. 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. 45 3. LONG-TERM DEBT: The annual amounts of long-term debt maturities, including amounts due under 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 $ 42,755 2000 $ 121,250 1998 113,876 2001 21,255 1999 27,746 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 August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with the Company. In consideration for the electric franchise agreement, the Company will pay the City $25 million over seven years (1996-2002) and has donated to the City the existing transit assets in Charleston. The $25 million is included in electric plant-in- service. In settlement of environmental claims the City may have had against the Company involving the Calhoun Park area, where the Company and its predecessor companies operated a manufactured gas plant until the 1960's, the Company will pay the City $26 million over a four-year period (1996-1999). Such amount is deferred (see Note 1L). Accordingly, the unpaid balances of these amounts are included in "Long-Term Debt." The Company 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. 46 5. COMMON EQUITY: The changes in "Stockholders' Investment" (Including Preferred Stock Not Subject to Purchase or Sinking Funds) during 1996, 1995 and 1994 are summarized as follows: Common Preferred Thousands Shares Shares of Dollars Balance December 31, 1993 40,296,147 322,877 $1,077,361 Changes in Retained Earnings: Net Income 152,043 Cash Dividends Declared: Preferred Stock (at stated rates) (5,955) Common Stock (113,700) Equity Contributions from Parent 49,710 Balance December 31, 1994 40,296,147 322,877 1,159,459 Changes in Retained Earnings: Net Income 169,185 Cash Dividends Declared: Preferred Stock (at stated rates) (5,687) Common Stock (121,363) Equity Contributions from Parent including transfer of assets 139,505 Balance December 31, 1995 40,296,147 322,877 1,341,099 Changes in Retained Earnings: Net Income 190,482 Cash Dividends Declared: Preferred Stock (at stated rates) (5,433) Common Stock (135,800) Equity Contributions from Parent 49,141 Balance December 31, 1996 40,296,147 322,877 $1,439,489 The Restated Articles of Incorporation of the Company and the Indenture underlying its First and Refunding Mortgage Bonds contain provisions that under certain circumstances could limit the payment of cash dividends on common stock. In addition, with respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of the 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 common stock. 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 47 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 $ 88,199 $94,137 $66,597 State 13,122 14,265 9,505 Total current taxes 101,321 108,402 76,102 Deferred taxes, net: Federal 8,322 (7,319) 7,727 State 1,776 (603) 2,118 Total deferred taxes 10,098 (7,922) 9,845 Investment tax credits: Amortization of amounts deferred (credit) (3,243) (3,230) (3,231) Total income tax expense $108,176 $97,250 $82,716 48 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 $190,482 $169,185 $152,043 Total income tax expense: Charged to operating expenses 107,734 96,956 84,066 Charged (credited) to other income 442 294 (1,350) Total pretax income $298,658 $266,435 $234,759 Income taxes on above at statutory Federal income tax rate $104,530 $ 93,252 $ 82,166 Increases (decreases) attributable to: State income taxes (less Federal income tax effect) 9,684 8,880 7,555 Deferred income tax reversal at higher than statutory rates (3,418) (3,310) (3,647) Amortization of investment tax credits (3,243) (3,230) (3,231) Other differences, net 623 1,658 (127) Total income tax expense $108,176 $ 97,250 $ 82,716 The tax effects of significant temporary differences comprising the Company's net deferred tax liability of $501.7 million at December 31, 1996 and $468.9 million at December 31, 1995 are as follows: 1996 1995 (Thousands of Dollars) Deferred tax assets: Unamortized investment tax credits $ 46,503 $ 48,512 Cycle billing 19,799 19,143 Nuclear operations expenses 4,722 3,755 Deferred compensation 6,633 5,562 Other postretirement benefits 10,764 6,371 Other 6,579 2,929 Total deferred tax assets 95,000 86,272 Deferred tax liabilities: Property plant and equipment 540,884 520,294 Pension expense 21,790 14,191 Reacquired debt 8,334 6,680 Research and experimentation 12,528 6,196 Deferred fuel 3,701 541 Other 9,483 7,260 Total deferred tax liabilities 596,720 555,162 Net deferred tax liability $501,720 $468,890 49 The Internal Revenue Service has examined and closed consolidated Federal income tax returns of SCANA Corporation through 1989, has examined and proposed adjustments to SCANA's Federal returns for 1990 through 1992, and is currently examining SCANA's Federal income tax 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. 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 $ 5,399 $ 5,399 $ 6,798 $ 6,798 Investments 61 61 61 61 Liabilities: Short-term borrowings 90,000 90,000 80,500 80,500 Long-term debt 1,319,513 1,352,939 1,315,412 1,412,213 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. 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. 50 Potential taxes and other expenses that would be incurred in an actual sale or settlement have not been taken into consideration. 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 $145.0 $165.0 $165.0 Unused lines of credit at year-end $145.0 $165.0 $165.0 Short-term borrowings outstanding at year-end: Commercial paper $ 90.0 $ 80.5 $100.0 Weighted average interest rate 5.53% 5.83% 6.04% 10. COMMITMENTS AND CONTINGENCIES: A. Construction SCANA and Westvaco Corporation have formed a limited liability company, Cogen South LLC, to build and operate a $170 million cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. The facility will provide industrial process steam for the Westvaco paper mill and shaft horsepower to enable the Company to generate up to 99 megawatts of electricity. Construction financing is being provided to Cogen South LLC by banks. In addition to the cogeneration LLC, Westvaco has entered into a 20-year contract with the Company for all its electricity requirements at the North Charleston mill at the Company's standard industrial rate. Construction of the plant began in September 1996 and it is expected to be operational in the fall of 1998. B. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with the Company's public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $8.9 billion. Each reactor licensee is currently liable for up to $79.3 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. The Company's maximum assessment, based on its two-thirds ownership of Summer Station, would be approximately $52.9 million per incident, but not more than $6.7 million per year. The Company currently maintains policies (for itself and on behalf of the 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. The Company pays annual premiums and, in addition, could be assessed a retroactive premium not to exceed 5 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. 51 To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that the Company's rates would not recover the cost of any purchased replacement power, the Company will retain the risk of loss as a self-insurer. The Company has no reason to anticipate a serious nuclear incident at Summer Station. If such an incident were to occur, it could have a material adverse impact on the Company's results of operations, cash flows and financial position. C. Environmental In September 1992 the Environmental Protection Agency (EPA) notified the Company, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park Area site in Charleston, South Carolina. This site originally encompassed approximately eighteen acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of the Company's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service, the City of Charleston and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The potentially responsible parties (PRP) have agreed with the EPA to participate in an innovative approach to site investigation and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre-cleanup site investigation process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993 and a draft Remedial Investigation Report was submitted to the EPA in February 1995. The Company resolved second and third round comments and submitted a Final Draft Remedial Investigation Report in October 1996. Although the Company 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 the Company settled all environmental claims the City may have had against the Company involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by the Company to the City. The Company is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup (see Note 1L). As part of the environmental settlement, the Company has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The Company owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. The Company maintains an active review of the sites to monitor the nature and extent of the residual contamination. The Company is pursuing recovery of environmental liabilities from appropriate pollution insurance carriers. 52 D. Franchise Agreements See Note 3 for a discussion of an electric franchise agreement between the Company and the City of Charleston. E. 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. 53 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 $1,106,664 $234,825 $ 3,108 $1,344,597 Operating expenses, excluding depreciation and amortization 710,666 204,109 9,346 924,121 Depreciation and amortization 122,581 12,107 263 134,951 Total operating expenses 833,247 216,216 9,609 1,059,072 Operating income (loss) $ 273,417 $ 18,609 $(6,501) 285,525 Add - Other income, net 4,120 Less - Interest charges, net 99,163 Net income $ 190,482 Capital expenditures: Identifiable $196,891 $ 18,638 $ 443 $ 215,972 Utilized for overall Company operations 23,981 Total $ 239,953 Identifiable assets at December 31, 1996: Utility plant, net $2,869,642 $216,647 $ 1,875 $3,088,164 Inventories 75,838 2,104 423 78,365 Total $2,945,480 $218,751 $ 2,298 3,166,529 Other assets 792,273 Total assets $3,958,802 54 1995 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $1,006,566 $ 200,632 $ 3,889 $1,211,087 Operating expenses, excluding depreciation and amortization 657,452 169,768 10,429 837,649 Depreciation and amortization 103,961 12,616 1,007 117,584 Total operating expenses 761,413 182,384 11,436 955,233 Operating income (loss) $ 245,153 $ 18,248 $ (7,547) 255,854 Add - Other income, net 9,553 Less - Interest charges, net 96,222 Net income $ 169,185 Capital expenditures: Identifiable $ 245,016 $ 19,670 $ 265 $ 264,951 Utilized for overall Company operations 27,816 Total $ 292,767 Identifiable assets at December 31, 1995: Utility plant, net $2,850,647 $ 209,847 $ 1,878 $3,062,372 Inventories 76,697 2,155 561 79,413 Total $2,927,344 $ 212,002 $ 2,439 3,141,785 Other assets 660,648 Total assets $3,802,433 1994 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $975,526 $201,746 $ 4,002 $1,181,274 Operating expenses, excluding depreciation and amortization 659,610 173,717 10,577 843,904 Depreciation and amortization 95,666 11,060 226 106,952 Total operating expenses 755,276 184,777 10,803 950,856 Operating income (loss) $ 220,250 $ 16,969 $ (6,801) 230,418 Add - Other income, net 7,271 Less - Interest charges, net 85,646 Net income $ 152,043 Capital expenditures: Identifiable $ 359,510 $ 40,923 $ 347 $ 400,780 Utilized for overall Company operations 20,167 Total $ 420,947 Identifiable assets at December 31, 1994: Utility plant, net $2,717,147 $201,018 $ 1,791 $2,919,956 Inventories 85,113 2,605 495 88,213 Total $2,802,260 $203,623 $ 2,286 3,008,169 Other assets 578,922 Total assets $3,587,091 55 12. QUARTERLY FINANCIAL DATA (UNAUDITED): 1996 (Thousands of Dollars) First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues $354,264 $310,566 $364,570 $315,197 $1,344,597 Operating income 79,479 59,154 90,235 56,657 285,525 Net Income 56,084 35,197 66,122 33,079 190,482 1995 (Thousands of Dollars) First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues $308,759 $275,139 $339,937 $287,252 $1,211,087 Operating income 67,189 53,153 87,023 48,489 255,854 Net Income 45,249 30,870 65,040 28,026 169,185 56 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE NONE PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS The directors listed below were elected April 25, 1996 to hold office until the next annual meeting of the Company's stockholders on April 24, 1997. Name and Year First Became Director Age Principal Occupation; Directorships Bill L. Amick 53 For more than five years, Chairman of the (1990) Board and Chief Executive Officer of Amick Farms, Inc., Batesburg, SC (vertically integrated broiler operation). For more than five years, Chairman and Chief Executive Officer of Amick Processing, Inc. and Amick Broilers, Inc. Director, SCANA Corporation, Columbia, SC. William B. Bookhart, Jr. 55 For more than five years, a partner in (1979) Bookhart Farms, Elloree, SC (general farming). Director, SCANA Corporation, Columbia, SC. William T. Cassels, Jr. 67 For more than five years, Chairman of the (1990) Board, Southeastern Freight Lines, Inc., Columbia, SC (trucking business). Director, SCANA Corporation, Columbia, SC; South Carolina National Corporation, Columbia, SC; Wachovia Bank of South Carolina, N.A., Columbia, SC. Hugh M. Chapman 64 For more than five years, Chairman of (1988) NationsBank South, Atlanta, GA (a division of NationsBank Corporation, bank holding company). Director, SCANA Corporation, Columbia, SC. 57 Name and Year First Became Director Age Principal Occupation; Directorships James B. Edwards, D.M.D. 69 For more than five years, President and (1986) Professor of Maxillofacial Surgery, Medical University of South Carolina, Charleston, SC. U.S. Secretary of Energy from January 1981 to November 1982. Governor of South Carolina, 1975-1979. Director, Phillips Petroleum Co., Bartlesville, OK; WMX Technologies, Inc., Oak Brook, IL; General Engineering Laboratories, Inc., Charleston SC; GS Industries, Inc., Charlotte, NC; IMO Industries, Inc., Lawrenceville, NJ; National Data Corporation, Atlanta, GA; SCANA Corporation, Columbia, SC. Elaine T. Freeman 61 For more than five years, Executive Director (1992) of ETV Endowment of South Carolina, Inc. (non-profit organization), Spartanburg, S.C. Director National Bank of South Carolina, Columbia, SC; SCANA Corporation, Columbia, SC. Lawrence M. Gressette, Jr. 65 For more than five years, Chairman of the (1987) Board and Chief Executive Officer of SCANA Corporation and Chairman of the Board and Chief Executive Officer of all SCANA subsidiaries, including the Company. For more than five years prior to December 13, 1995, President of SCANA Corporation. Director, Wachovia Corporation, Winston- Salem, NC; InterCel, Inc., West Point, GA; The Liberty Corporation, Greenville, SC; SCANA Corporation, Columbia, SC. Benjamin A. Hagood 69 Since January 1, 1993, Chairman of the (1974) Board, William M. Bird and Company, Inc., Charleston, SC (wholesale distributor of floor covering material). For more than one year prior to January 1, 1993, President and Director, William M. Bird and Company, Inc., Charleston, SC. Director, SCANA Corporation, Columbia, SC. 58 Name and Year First Became Director Age Principal Occupation; Directorships W. Hayne Hipp 57 For more than five years, President and (1983) Chief Executive Officer, The Liberty Corporation, Greenville, SC (insurance and broadcasting holding company). Director, The Liberty Corporation, Greenville, SC; Wachovia Corporation, Winston-Salem, NC; SCANA Corporation, Columbia, SC. F. Creighton McMaster 67 For more than five years, President and (1974) Manager, Winnsboro Petroleum Company, Winnsboro, SC (wholesale distributor of petroleum products). Director, First Union National Bank of South Carolina, Greenville, SC; SCANA Corporation, Columbia, SC. Henry Ponder, Ph.D. 68 For more than five years, President, Fisk (1983) University, Nashville, TN. Director, Suntrust Banks, Inc., Nashville, TN; SCANA Corporation, Columbia, SC. John B. Rhodes 66 For more than five years, Chairman and (1967) Chief Executive Officer, Rhodes Oil Company, Inc., Walterboro, SC (distributor of petroleum products). Director, SCANA Corporation, Columbia, SC. William B. Timmerman 50 Since December 13, 1995, President of SCANA (1991) Corporation. From May 1, 1994 to December 13, 1995, Executive Vice President of SCANA Corporation. Since August 25, 1993, Assistant Secretary ofSCANA Corporation and all of its subsidiaries, including the Company. From August 28, 1991 to February 20, 1996, Chief Financial Officer of the Company. For more than five years prior to May 1, 1994, Senior Vice President of SCANA Corporation. For more than five years prior to February 20, 1996, Controller of SCANA Corporation. Director, SCANA Corporation, Columbia, SC; InterCel, Inc., West Point, GA and Wachovia Bank of South Carolina, Columbia, S. C. E. Craig Wall, Jr. 59 For more than five years, President and (1982) Director, Canal Industries, Conway, SC (forest products industry). Director, Sonoco Products Company, Hartsville, SC; Ruddick Corporation, Charlotte, NC; NationsBank Corp., Charlotte, NC; Blue Cross/ Blue Shield of South Carolina, Columbia, SC; SCANA Corporation, Columbia, SC. 59 EXECUTIVE OFFICERS OF THE COMPANY The Company's officers are elected at the annual organizational meeting of the Board of Directors and hold office until the next such organizational meeting,unless the Board of Directors shall otherwise determine, or unless a resignation is submitted. Positions Held During Name Age Past Five Years Dates L. M. Gressette, Jr. (1) 65 Chairman of the Board and Chief Executive Officer *-present President of SCANA *-1995 W.B. Timmerman (1) 50 President and Chief Operating Officer of SCANA 1995-present President of SCANA Communications, Inc., an affiliate 1996-present Executive Vice President, 1994-1995 SCANA Assistant Secretary 1993-1996 Chief Financial Officer *-1996 Controller, SCANA *-1996 Senior Vice President, *-1994 SCANA J. L. Skolds 46 President and Chief Operating Officer 1996-present Senior Vice President - Generation 1994-1996 Vice President - Nuclear Operations *-1994 G.J. Bullwinkel, Jr. 48 Senior Vice President- Retail Electric 1995-present Senior Vice President- Fossil & Hydro Production 1993-1994 Senior Vice President- Production *-1992 W.A. Darby 51 Senior Vice President - Gas, SCANA Gas Group 1996-present Vice President-Gas Operations *-1996 President and Treasurer of ServiceCare 1996-present General Manager of ServiceCare, Inc., an affiliate 1994-present K. B. Marsh (1) 41 Vice President - Finance, Chief Financial Officer and Controller - SCANA 1996-present Vice President - Finance, Treasurer and Secretary *-1996 B.T. Zeigler (1) 41 Vice President - SCANA 1996-present General Counsel 1995-present Associate General Counsel 1992-1995 Partner - Lewis, Babcock & Hawkins Law Firm *-1992 *Indicates position held at least since March 1, 1992 (1) 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. 60 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE All of the Company's common stock is held by its parent, SCANA Corporation. The required forms indicate that no equity securities of the Company are owned by its directors and executive officers. Based solely on a review of the copies of such forms and amendments furnished to the Company and written representations from the executive officers and directors, the Company believes that during 1996 all Section 16(a) filing requirements applicable to its executive officers, directors and greater than 10% beneficial owners were complied with. ITEM 11. EXECUTIVE COMPENSATION The following table contains information with respect to compensation paid or accrued during the years 1996, 1995 and 1994 to the Chief Executive Officer of the Company, to each of the other four most highly compensated executive officers of the Company during 1996 who were serving as executive officers of the Company at the end of 1996 and to Bruce D. Kenyon, former President and Chief Operating Officer, South Carolina Electric and Gas Company, who retired from the Company on September 1, 1996. SUMMARY COMPENSATION TABLE
Name and Principal Year Annual Compensation Long-Term Position Compensation (1) (2) Salary Bonus Other Payouts ($) ($) Annual (3) (4) Compensation LTIP All Other ($) Payouts Compensation ($) ($) L. M. Gressette, Jr. 1996 483,952(5) 274,320 50,998 285,408 29,037 Chairman of the Board, 1995 449,246 197,500 65,779 390,156 26,955 Chief Executive Officer 1994 416,609 0 2,255 173,375 24,996 W. B. Timmerman 1996 335,266 196,832 6,399 109,819 20,116 President and Chief 1995 254,214 101,588 987 150,353 15,127 Operating Officer - 1994 235,099 19,725 5,524 70,751 14,106 SCANA Corporation J. L. Skolds 1996 215,708 114,099 2,453 55,513 12,943 President and Chief 1995 176,156 74,151 54 76,128 10,569 Operating Officer 1994 156,731 0 4,215 38,249 9,404 G. J. Bullwinkel 1996 205,980 90,370 3,710 66,374 12,359 Senior Vice President 1995 189,097 70,904 487 90,402 11,346 - - Retail Electric 1994 170,828 50,765 3,907 38,249 9,826 J. H. Young 1996 182,990 63,056 7,873 66,374 10,979 Senior Vice President 1995 176,998 53,170 850 90,402 13,620 - -Business Development 1994 174,771 50,765 8,119 45,251 10,054 B. D. Kenyon 1996 229,820 92,012 7,989 131,240 106,304 former President and 1995 318,542 104,353 7,107 172,240 19,113 Chief Operating Officer 1994 313,581 96,768 10,638 81,619 18,815 ______________ (1) Payments under the annual Performance Incentive Plan described hereafter. (2) For 1996, other annual compensation consists of life insurance premiums on policies owned by named executive officers and payments to cover taxes on benefits of $50,018 and $980 for Mr. Gressette; $4,201 and $2,198 for Mr. Timmerman; $2,070 and $383 for Mr. Skolds; $3,171 and $539 for Mr. Bullwinkel; $7,800 and $73 for Mr. Young and $7,989 and $0 for Mr. Kenyon. (3) Payments under the long-term Performance Share Plan described hereafter. (4) All other compensation for all named executive officers consists of Company contributions to defined contribution plans based on the funding formula applicable to all Company employees and for Mr. Kenyon, 1996 early retirement payment of $55,850, and $36,665, representing the value of certain property which was transferred to Mr. Kenyon upon his leaving the Company. Mr. Kenyon will receive early retirement benefits of $13,962 per month reduced by all amounts received under the Company's Retirement Plan, his SERP or Social Security. (5) Reflects actual salary paid in 1996. Base salary of $496,000, became effective in May of 1996.
61 Long-Term Performance Share Plan The long-term Performance Share Plan for officers of SCANA and its subsidiaries measures SCANA's Total Shareholder Return ("TSR") relative to a group of peer companies over a three-year period. The "PSP Peer Group" includes 94 electric and gas utilities, none of which have annual revenues of less than $100 million. TSR is stock price increase over the three-year period, plus cash dividends paid during the period, divided by stock price as of the beginning of the period. Comparing SCANA's TSR to the TSR of a large group of other utilities reflects SCANA's recognition that investors could have invested their funds in other utility companies and measures how well SCANA did when compared to others operating in similar interest, tax, economic and regulatory environments. Executives eligible to participate in the Performance Share Plan are assigned target award opportunities at the beginning of each three-year period based primarily on their salary level. In determining award sizes, levels of responsibilities and competitive practices also are considered. Awards under this plan represent a significant portion of executives "at-risk" compensation. To provide additional incentive for executives, and to ensure that executives are only rewarded when shareholders gain, actual payouts may exceed the median of the market when performance is above the 50th percentile of the peer group. For lesser performance, awards will be at or below the market median. Payouts occur when SCANA's TSR is in the top two-thirds of the PSP Peer Group, and vary based on SCANA's ranking against the peer group. Executives earn threshold payouts of 0.4 times target at the 33rd percentile of three-year performance. Target payouts will be made at the 50th percentile of three-year performance. Maximum payouts will be made at 1.5 times target when SCANA's TSR is at or above the 75th percentile of the peer group. No payouts will be earned if performance is at less than the 33rd percentile. Awards are denominated in shares of SCANA Common Stock and may be paid in either stock, cash or a combination of stock and cash. For the three-year period from 1994 through 1996, SCANA's TSR was at the 69th percentile of the PSP Peer Group. This resulted in payouts at 138% of target shares awarded to be paid in a combination of stock and cash. The following table shows the target awards made in 1996 for potential payment in 1999 under the long-term Performance Share Plan, and estimated future payouts under that plan at threshold, target and maximum levels for the named executive officers. Mr. Gressette's and Mr. Kenyon's estimated future payouts will be reduced to reflect their retirements. LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR TARGET AWARDS FOR 1996 TO BE PAID IN 1999 Number of Performance Estimated Future Payouts Under Shares, or Other Non-Stock Price-Based Plans Units or Period Until Other Maturation Name Rights (#) or Payout Threshold Target Maximum ($ or #) ($ or #) ($ or #) L. M. Gressette, Jr. 8,340 1996-1998 1,297 3,243 4,865 W. B. Timmerman 6,150 1996-1998 2,460 6,150 9,225 B. D. Kenyon 3,920 1996-1998 348 871 1,307 J. L. Skolds 2,340 1996-1998 936 2,340 3,510 G. J. Bullwinkel 2,340 1996-1998 936 2,340 3,510 J. H. Young 1,840 1996-1998 736 1,840 2,760 62 DEFINED BENEFIT PLANS In addition to the qualified Retirement Plan for all employees, the Company has Supplemental Executive Retirement Plans ("SERPs") for certain eligible employees, including officers. A SERP is an unfunded plan which provides for benefit payments in addition to those payable under a qualified retirement plan. It maintains uniform application of the Retirement Plan benefit formula and would provide, among other benefits, payment of Retirement Plan formula pension benefits, if any, which exceed those payable under the Internal Revenue Code ("IRC") maximum benefit limitations. The following table illustrates the estimated maximum annual benefits payable upon retirement at normal retirement date under the Retirement Plan and the SERPs. Pension Plan Table Final Service Years Average Pay 15 20 25 30 35 $150,000 $ 42,143 $ 56,190 $ 70,238 $ 84,286 $ 87,083 200,000 57,143 76,190 95,238 114,286 118,333 250,000 72,143 96,190 120,238 144,286 149,583 300,000 87,143 116,190 145,238 174,286 180,833 350,000 102,143 136,190 170,238 204,286 212,083 400,000 117,143 156,190 195,238 234,286 243,333 450,000 132,143 176,190 220,238 264,286 274,583 500,000 147,143 196,190 245,238 294,286 305,833 550,000 162,143 216,190 270,238 324,286 337,083 600,000 177,143 236,190 295,238 354,286 368,333 650,000 192,143 256,190 320,238 384,286 299,583 700,000 207,143 276,190 345,238 414,286 430,833 750,000 222,143 296,190 370,238 444,286 462,083 800,000 237,143 316,190 395,238 474,286 493,333 850,000 252,143 336,190 420,238 504,286 524,583 900,000 267,143 256,190 445,238 534,286 555,833 950,000 282,143 376,190 470,238 564,286 587,083 1,000,000 297,143 396,190 495,238 594,286 618,333 The compensation shown in the column labeled "Salary" of the Summary Compensation Table for all the named executive officers except Mr. Gressette is covered by the Retirement Plan and/or a SERP. The compensation shown in the columns labeled "Salary" and "Bonus" for Mr. Gressette are covered by the Retirement Plan and/or SERP. As of December 31, 1996, Messrs. Gressette, Timmerman, Bullwinkel, Skolds, Young and Kenyon had credited service under the Retirement Plan (or its equivalent under the SERP) of 34, 18, 25, 10, 34 and 23 years, respectively. Benefits are computed based on a straight-life annuity with an unreduced 60% surviving spouse benefit. The amounts in this table assume continuation of the primary Social Security benefits in effect at January 1, 1997 and are not subject to any deduction for Social Security or other offset amounts. The Company also has a Key Employee Retention Program (the "Key Employee Retention Program") covering officers and certain other executive employees that provides supplemental retirement and/or death benefits for participants. Under the program, each participant may elect to receive either a monthly retirement benefit for 180 months upon retirement at or after age 65 equal to 25% of the average monthly salary of the participant over his final 36 months of employment prior to age 65, or an optional death benefit payable to a participant's designated beneficiary monthly for 180 months, in an amount equal to 35% of the average monthly salary of the participant over his final 36 months of employment prior to age 65. In the event of the participant's death prior to age 65, the Company will pay to the participant's designated beneficiary for 180 months, a monthly benefit equal to 50% of such participant's base monthly salary in effect at death. 63 All of the executive officers named in the Summary Compensation Table are participating in the program. Mr. Gressette is now receiving annual benefits of $113,855 under the program. In connection with his early retirement, the Company agreed to begin Mr. Kenyon's payments under the program on September 1, 1996. He will receive annual payments of $79,412 until September 1, 2011. The estimated annual retirement benefits payable at age 65 based on projected eligible compensation (assuming increases of 4% per year) to the other persons named in the Summary Compensation Table are as follows: Mr. Timmerman - $147,017; Mr. Bullwinkel - $95,496; Mr. Skolds - $122,777; and Young - $54,424. TERMINATION, SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS At its December 18, 1996 meeting, the Board of Directors of the Company approved the SCANA Corporation Executive Benefit Plan Trust Agreement (the "Trust"). The purpose of the Trust is to protect the deferred compensation benefits of certain directors, executives and other key employees of the Company in the event of a Change in Control (as defined in the Trust). Executive officers named in the Summary Compensation Table participate in certain plans and agreements listed below (the "Plans") covered by the Trust: (1) SCANA Corporation Voluntary Deferral Plan (2) SCANA Corporation Supplementary Voluntary Deferral Plan (3) SCANA Corporation Key Executive Severance Benefits Plan (4) SCANA Corporation Key Employee Retention Plan (5) SCANA Corporation Supplemental Executive Retirement Plan (6) South Carolina Electric & Gas Company Supplemental Executive Retirement Plan (7) Individual Supplemental Executive Retirement Plan Agreements When a Potential Change in Control (as defined in the Trust) occurs, the Company is required to pay into the Trust an amount equal to the sum of (i) 125% of the estimated deferred compensation benefits payable under each Plan and (ii) the estimated federal, state and local income taxes and excise taxes payable by Plan participants on those benefits. Recalculations are required to be made at least once every three months and funding adjusted appropriately. The Trust provides for lump sum distributions to be made to Plan participants within 30 business days following written notification to the Trustee that a Change in Control has occurred. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1996, no officer, employee or former officer of the Company or any of its affiliates served as a member of the Long- Term Compensation Committee or the Management Development and Corporate Performance Committee ("Performance Committee"), except Mr. Gressette who served as a member of the Performance Committee. Although Mr. Gressette was an ex-officio, nonvoting member of the Performance Committee during 1996, he did not participate in any of its decisions concerning executive officer compensation. Since January 1, 1996, the Company has engaged in business transactions with entities with which Mr. Chapman (Chairman of both the Performance Committee and the Long-Term Compensation Committee), Mr. McMaster (a member of the Long-Term Compensation Committee) and Mr. Rhodes (a member of the Performance Committee and the Long-Term Compensation Committee) are executive officers. Mr. Chapman is Chairman of NationsBank South, a division of NationsBank Corporation. Since January 1, 1996, the Company has engaged in various transactions in which affiliates of NationsBank Corporation acted as lender or provider of lines of credit or credit support to the Company and its affiliates. The amount paid during 1996 by the Company and its affiliates to NationsBank Corporation affiliates on account of such transactions was $1,034,320. In addition, during 1996 a NationsBank Corporation affiliate and a Company affiliates have engaged in options and futures transactions and forward contracts relating to forecasted natural gas production. The amount paid during 1996 by the Company's affiliate to NationsBank Corporation affiliates on account of such transactions was $10,814,458. It is anticipated that similar transactions will continue in the future. 64 Mr. McMaster is the President and Manager of Winnsboro Petroleum Company. Purchases from Winnsboro Petroleum Company totaling $81,405 for petroleum products were made during 1996 by the Company and its affiliates. It is anticipated that similar transactions will continue in the future. Mr. Rhodes is the Chairman and Chief Executive Officer of Rhodes Oil Company. Purchases from Rhodes Oil Company totaling $80,059 for petroleum products were made during 1996 by the Company and its affiliates. It is anticipated that similar transactions will continue in the future. Compensation of Directors Fees. During 1996, directors who were not employees of the Company or SCANA Corporation were paid $17,600 annually for services rendered, plus $1,800 for each Board meeting attended and $850 for attendance at a committee meeting which is not held on the same day as a regular meeting of the Board. The fee for attendance at a telephone conference meeting is $200. The fee for attendance at a conference is $850. In addition, directors are paid, as part of their compensation, travel, lodging and incidental expenses related to attendance at meetings and conferences. The Board of Directors approved a Plan effective January 1, 1997 whereby non-employee directors receive on a quarterly basis, 41% of their retainer in shares of SCANA's common stock. The purpose of the Plan is to promote the achievement of long-term objectives of the Company by linking the personal interests of the non-employee directors to those of SCANA's shareholders by paying a portion of director compensation in stock. SCANA believes this linkage will further promote the achievement of its long-term objectives. Directors who are employees of the Company or its affiliates receive no compensation for serving as directors or attending meetings. Deferral Plan. SCANA has a plan pursuant to which directors may defer all or a portion of their fees paid to them in cash for services rendered and meeting attendance. Interest is earned on the deferred amounts at a rate set by the Performance Committee. During 1996 and currently, the rate is set at the announced prime rate of Wachovia Bank of South Carolina. Mr. Cassels, Mr. Hagood and Mr. Rhodes were the only directors participating in the plan during 1996. Mr. Cassels became a participant in January 1994, Mr. Hagood in July, 1996 and Mr. Rhodes in July 1987, and interest credited to their deferral accounts during 1996 was $5,974, $378 and $22,497, respectively. Endowment Plan. Each director participates in the Directors' Endowment Plan, which provides that SCANA make a tax deductible, charitable contribution totaling $500,000 to institutions of higher education nominated by the director. A portion is contributed upon retirement of the director and the remainder upon the director's death. The plan is funded in part through insurance on the lives of the directors. Designated in- state institutions of higher education must be approved by the Chief Executive Officer of SCANA. Any out-of-state designation must be approved by the Performance Committee. The designated institutions are reviewed on an annual basis by the Chief Executive Officer to assure compliance with the intent of the program. The plan is intended to reinforce SCANA's commitment to quality higher education and is intended to enhance SCANA's ability to attract and retain qualified board members. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The table set forth below indicates the shares of SCANA's common stock beneficially owned as of March 10, 1997 by each director, each of the persons named in the Summary Compensation Table on page 61, and the current directors and executive officers of the Company as a group. 65 SECURITY OWNERSHIP OF MANAGEMENT Name of Beneficial Amount and Nature Name of Beneficial Amount and Nature Owner of Ownership 1 Owner of Ownership 1 B. L. Amick 2,653 W. Hayne Hipp 2,870 W. B. Bookhart, Jr. 16,709 J. H. Young 15,743 G. J. Bullwinkel 18,187 F. C. McMaster 5,700 W. T. Cassels, Jr. 2,070 L. M. Miller 1,000 H. M. Chapman 6,070 Henry Ponder 13,723 J. B. Edwards 4,845 J. B. Rhodes 8,283 E. T. Freeman 4,390 J. L. Skolds 6,988 L. M. Gressette, Jr. 49,792 W. B. Timmerman 30,422 B. A. Hagood 2,483 E. C. Wall 17,070 B. D. Kenyon* 20,613 All directors and executive officers as a group (20 persons) TOTAL 237,366. TOTAL PERCENT OF CLASS 0.2% * Bruce D. Kenyon, former President and Chief Operating Officer, South Carolina Electric & Gas Company, retired these positions on September 1, 1996. The information set forth above as to the security ownership has been furnished to the Company by such persons. _____________________ 1 Includes shares owned by close relatives, the beneficial ownership of which is disclaimed by the director or nominee, as follows: Mr. Amick - 480; Mr. Bookhart - 4,748; Mr. Gressette - 1,060; Mr. Hagood - 341; Mr. McMaster - 2,000. Includes shares purchased through December 31, 1996, but not thereafter, by the Trustee under the SCANA Corporation Stock Purchase Savings Plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information regarding certain relationships and related transactions, see Item 11, "Compensation Committee Interlocks and Insider Participation." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K Financial Statements and Schedules See Index to Consolidated Financial Statements and Supplementary Data on page 30. Exhibits Filed 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 Securities and Exchange Commission and which are designated by reference to their exhibit number in prior filings are hereby incorporated herein by reference and made a part hereof. 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. Reports on Form 8-K None 66 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) SOUTH CAROLINA ELECTRIC & GAS COMPANY BY (SIGNATURE) s/J. L. Skolds (NAME AND TITLE) J. L. Skolds, President and Chief Operating Officer 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 officer: BY (SIGNATURE) s/K. B. Marsh (NAME AND TITLE) K. B. Marsh, Chief Financial Officer DATE February 18, 1997 (iii) Principal accounting officer: BY (SIGNATURE) s/J. E. Addison (NAME AND TITLE) J. E. Addison, Vice President 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 67 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 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 68 SOUTH CAROLINA ELECTRIC & GAS COMPANY Sequentially EXHIBIT INDEX Numbered Number Pages 2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession Not Applicable 3. Articles of Incorporation and By-Laws A. Restated Articles of Incorporation of the Company as adopted on December 15, 1993 (Exhibit 3-A to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3375).................... # B. Articles of Amendment, dated June 7, 1994, filed June 9, 1994 (Exhibit 3-B to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3375).... # C. Articles of Amendment, dated November 9, 1994 (Exhibit 3-C to Form 10-K for the year ended December 31, 1994, File No. 1-3375)...................... # D. Articles of Amendment, dated December 9, 1994 (Exhibit 3-D to Form 10-K for the year ended December 31, 1994, File No. 1-3375)...................... # E. Articles of Correction, dated January 17, 1995 (Exhibit 3-E to Form 10-K for the year ended December 31, 1994, File No. 1-3375)...................... # F. Articles of Amendment, dated January 13, 1995 and filed January 17, 1995 (Exhibit 3-F to Form 10-K for the year ended December 31, 1994, File No. 1-3375)......................................... # G. Articles of Amendment dated March 31, 1995 (Exhibit 3-G to Form 10-Q for the quarter ended March 31, 1995, File No. 1-3375)................... # H. Articles of Correction - Amendment to Statement filed March 31, 1995, dated December 13, 1995 (Filed herewith)......................................... 74 I. Articles of Amendment dated December 13, 1995 (Filed herewith)......................................... 75 J. Articles of Amendment dated February 21, 1997 (Filed herewith)......................................... 77 K. Copy of By-Laws of the Company as revised and amended thru June 18, 1996 (Filed herewith).............. 79 4. Instruments Defining the Rights of Security Holders, Including Indentures A. Indenture dated as of January 1, 1945, from the South Carolina Power Company (the "Power Company") to Central Hanover Bank and Trust Company, as Trustee, as supplemented by three Supplemental Indentures dated respectively as of May 1, 1946, May 1, 1947 and July 1, 1949 (Exhibit 2-B to Registration No. 2-26459)................................ # B. Fourth Supplemental Indenture dated as of April 1, 1950, to Indenture referred to in Exhibit 4A, pursuant to which the Company assumed said Indenture (Exhibit 2-C to Registration No. 2-26459)...... # C. Fifth through Fifty-second Supplemental Indentures to Indenture referred to in Exhibit 4A dated as of the dates indicated below and filed as exhibits to the Registration Statements and 1934 Act reports whose file numbers are set forth below.............................................. # 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 # Incorporated herein by reference as indicated. 69 SOUTH CAROLINA ELECTRIC & GAS COMPANY Exhibit Index (Continued) Sequentially Numbered Number Pages 4. (continued) November 1, 1957 Exhibit 2-H to Registration No. 2-26459 September 1, 1958 Exhibit 2-I to Registration No. 2-26459 September 1, 1960 Exhibit 2-J to Registration No. 2-26459 June 1, 1961 Exhibit 2-K to Registration No. 2-26459 December 1, 1965 Exhibit 2-L to Registration No. 2-26459 June 1, 1966 Exhibit 2-M to Registration No. 2-26459 June 1, 1967 Exhibit 2-N to Registration No. 2-29693 September 1, 1968 Exhibit 4-O to Registration No. 2-31569 June 1, 1969 Exhibit 4-C to Registration No. 33-38580 December 1, 1969 Exhibit 4-Q to Registration No. 2-35388 June 1, 1970 Exhibit 4-R to Registration No. 2-37363 March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324 January 1, 1972 Exhibit 4-C to Registration No. 33-38580 July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291 May 1, 1975 Exhibit 4-C to Registration No. 33-38580 July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908 February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304 December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936 March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662 May 1, 1977 Exhibit 4-C to Registration No. 33-38580 February 1, 1978 Exhibit 4-C to Registration No. 33-38580 June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653 April 1, 1979 Exhibit 4-C to Registration No. 33-38580 June 1, 1979 Exhibit 4-C to Registration No. 33-38580 April 1, 1980 Exhibit 4-C to Registration No. 33-38580 June 1, 1980 Exhibit 4-C to Registration No. 33-38580 December 1, 1980 Exhibit 4-C to Registration No. 33-38580 April 1, 1981 Exhibit 4-D to Registration No. 33-49421 June 1, 1981 Exhibit 4-D to Registration No. 2-73321 March 1, 1982 Exhibit 4-D to Registration No. 33-49421 April 15, 1982 Exhibit 4-D to Registration No. 33-49421 May 1, 1982 Exhibit 4-D to Registration No. 33-49421 December 1, 1984 Exhibit 4-D to Registration No. 33-49421 December 1, 1985 Exhibit 4-D to Registration No. 33-49421 June 1, 1986 Exhibit 4-D to Registration No. 33-49421 February 1, 1987 Exhibit 4-D to Registration No. 33-49421 September 1, 1987 Exhibit 4-D to Registration No. 33-49421 January 1, 1989 Exhibit 4-D to Registration No. 33-49421 January 1, 1991 Exhibit 4-D to Registration No. 33-49421 February 1, 1991 Exhibit 4-D to Registration No. 33-49421 July 15, 1991 Exhibit 4-D to Registration No. 33-49421 August 15, 1991 Exhibit 4-D to Registration No. 33-49421 April 1, 1993 Exhibit 4-E to Registration No. 33-49421 July 1, 1993 Exhibit 4-D to Registration No. 33-57955 D. Indenture dated as of April 1, 1993 from South Carolina Electric & Gas Company to NationsBank of Georgia, National Association (Filed as Exhibit 4-F to Registration Statement No. 33-49421)......................................... # E. First Supplemental Indenture to Indenture referred to in 4-D dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421)......................... # F. Second Supplemental Indenture to Indenture referred to in 4-D dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955)......................... # 9. Voting Trust Agreement Not Applicable 10. Material Contracts A. Copy of Supplemental Executive Retirement Plan (Exhibit 10-A to Form 10-K for the year ended December 31, 1980)............................................ # # Incorporated herein by reference as indicated. 70 SOUTH CAROLINA ELECTRIC & GAS COMPANY Exhibit Index (Continued) Sequentially Numbered Number Pages 11. Statement Re Computation of Per Share Earnings Not Applicable 12. Statement re Computation of Ratios (Filed herewith)........ 95 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 Not Applicable 22. Published Report Regarding Matters Submitted to Vote of Security Holders Not Applicable 23. Consents of Experts and Counsel Consent of Deloitte & Touche LLP.......................... 99 24. Power of Attorney Not Applicable 27. Financial Data Schedule Filed herewith 99. Additional Exhibits Not Applicable # Incorporated herein by reference as indicated. 71 EX-1 2 Exhibit 3-H STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF CORRECTION The following information is submitted pursuant to Section 33-1-240 of the 1976 South Carolina Code, as amended: 1. The name of the corporation is SOUTH CAROLINA ELECTRIC & GAS COMPANY. 2. That on March 31, 1995, the corporation filed (fill out whichever is applicable): (a) XX The following described document: Articles of Amendment dated March 30, 1995. (b) The attached document (attach copy of the document). 3. That this document was incorrect in the following manner: 3(d) The number of shares which the corporation has authority to issue after giving effect to such cancellation is 55,502,283, itemized as follows: 4. That the incorrect matters stated in Paragraph 3 should be revised as follows: 3(d) The number of shares which the corporation has authority to issue after giving effect to such cancellation is 55,499,083, itemized as follows: SOUTH CAROLINA ELECTRIC & GAS COMPANY Date: December 13, 1995 By: Kevin B. Marsh Secretary 72 EX-2 3 Exhibit 3-I STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-196 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the Corporation is SOUTH CAROLINA ELECTRIC & GAS COMPANY. 2. On , the corporation adopted the following Amendment(s) of its Articles of Incorporation: NOT APPLICABLE 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (a) The number of redeemable shares of the Corporation reacquired by redemption or purchase is 22,960 itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 4.50% 1,569 Cumulative Preferred Stock ($50 par value) 4.60% 1,500 Cumulative Preferred Stock ($50 par value) 4.60% (Series A) 2,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series B) 3,400 Cumulative Preferred Stock ($50 par value) 5.125% 1,000 Cumulative Preferred Stock ($100 par value) 7.70% 2,759 Cumulative Preferred Stock ($100 par value) 8.12% 3,741 Cumulative Preferred Stock ($50 par value) 9.40% 6,991 (b) The aggregate number of issued shares of the Corporation after giving effect to such cancellation is 41,382,643, itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 Cumulative Preferred Stock ($50 par value) 4.60% 834 Cumulative Preferred Stock ($50 par value) 4.50% 17,519 Cumulative Preferred Stock ($50 par value) 4.60% (Series A) 26,052 Cumulative Preferred Stock ($50 par value) 5.125% 72,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series B) 74,800 Cumulative Preferred Stock ($50 par value) 6% 83,200 Cumulative Preferred Stock ($50 par value) 9.40% 183,219 Cumulative Preferred Stock ($100 par value) 8.12% 123,045 Cumulative Preferred Stock ($100 par value) 7.70% 86,965 Cumulative Preferred Stock ($100 par value) 8.40% 197,668 Cumulative Preferred Stock ($50 par value) 8.72% 95,985 Common Stock ($4.50 par value) 40,296,147 41,382,643 (c) The amount of the stated capital of the Corporation after giving effect to such cancellation is $256,041,361.50. (d) The number of shares which the Corporation has authority to issue after giving effect to such cancellation is 55,489,614, itemized as follows: 73 Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 Cumulative Preferred Stock ($50 par value) 4.60% 834 Cumulative Preferred Stock ($50 par value) 4.50% 17,519 Cumulative Preferred Stock ($50 par value) 4.60% (Series A) 26,052 Cumulative Preferred Stock ($50 par value) 5.125% 72,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series B) 74,800 Cumulative Preferred Stock ($50 par value) 6% 83,200 Cumulative Preferred Stock ($50 par value) 9.40% 183,219 Cumulative Preferred Stock ($100 par value) 8.12% 123,045 Cumulative Preferred Stock ($100 par value) 7.70% 86,965 Cumulative Preferred Stock ($100 par value) 8.40% 197,668 Cumulative Preferred Stock ($50 par value) 8.72% 95,985 Serial Preferred Stock ($50 par value) (1 vote) 456,781 Serial Preferred Stock ($100 par value) (1 vote) 1,342,322 Serial Preferred Stock ($25 par value) (1/4 vote) 2,000,000 Serial Preferred Stock ($50 par value) (1/2 vote) 604,015 Common Stock ($4.50 par value) 50,000,000 55,489,614 4. (a) / / Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was: Number of Number of Number of Votes Number of Undisputed Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the meeting For Against (b) / XX / The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33- 10-102 and 33-10-105 of the 1976 South Carolina Code, as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State (See Section 33-1-230(b)). Date December 13, 1995 SOUTH CAROLINA ELECTRIC & GAS COMPANY By: K. B. Marsh Secretary 74 EX-3 4 Exhibit 3-J STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the Corporation is SOUTH CAROLINA ELECTRIC & GAS COMPANY. 2. On , the corporation adopted the following Amendment(s) of its Articles of Incorporation: NOT APPLICABLE 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (a) The number of redeemable shares of the Corporation reacquired by redemption or purchase is 57,517, itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 4.50% 1,519 Cumulative Preferred Stock ($50 par value) 4.60% 747 Cumulative Preferred Stock ($50 par value) 4.60% (Series A) 2,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series B) 3,400 Cumulative Preferred Stock ($50 par value) 5.125% 1,000 Cumulative Preferred Stock ($100 par value) 7.70% 2,965 Cumulative Preferred Stock ($100 par value) 8.12% 4,233 Cumulative Preferred Stock ($50 par value) 9.40% 6,468 Cumulative Preferred Stock ($50 par value) 8.72% 31,985 Cumulative Preferred Stock ($50 par value) 6.00% 3,200 (b) The aggregate number of issued shares of the Corporation after giving effect to such cancellation is 41,325,126, itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 Cumulative Preferred Stock ($50 par value) 4.60% 87 Cumulative Preferred Stock ($50 par value) 4.50% 16,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series A) 24,052 Cumulative Preferred Stock ($50 par value) 5.125% 71,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series B) 71,400 Cumulative Preferred Stock ($50 par value) 6% 80,000 Cumulative Preferred Stock ($50 par value) 9.40% 176,751 Cumulative Preferred Stock ($100 par value) 8.12% 118,812 Cumulative Preferred Stock ($100 par value) 7.70% 84,000 Cumulative Preferred Stock ($100 par value) 8.40% 197,668 Cumulative Preferred Stock ($50 par value) 8.72% 64,000 Common Stock ($4.50 par value) 40,296,147 41,325,126 (c) The amount of the stated capital of the Corporation after giving effect to such cancellation is $252,805,611.50. (d) The number of shares which the Corporation has authority to issue after giving effect to such cancellation is 55,477,748, itemized as follows: 75 Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 Cumulative Preferred Stock ($50 par value) 4.60% 87 Cumulative Preferred Stock ($50 par value) 4.50% 16,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series A) 24,052 Cumulative Preferred Stock ($50 par value) 5.125% 71,000 Cumulative Preferred Stock ($50 par value) 4.60% (Series B) 71,400 Cumulative Preferred Stock ($50 par value) 6% 80,000 Cumulative Preferred Stock ($50 par value) 9.40% 176,751 Cumulative Preferred Stock ($100 par value) 8.12% 118,812 Cumulative Preferred Stock ($100 par value) 7.70% 84,000 Cumulative Preferred Stock ($100 par value) 8.40% 197,668 Cumulative Preferred Stock ($50 par value) 8.72% 64,000 Serial Preferred Stock ($50 par value) (1 vote) 463,249 Serial Preferred Stock ($100 par value) (1 vote) 1,349,520 Serial Preferred Stock ($25 par value) (1/4 vote) 2,000,000 Serial Preferred Stock ($50 par value) (1/2 vote) 636,000 Common Stock ($4.50 par value) 50,000,000 55,477,748 4. (a) / / Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was: Number of Number of Number of Votes Number of Undisputed Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the meeting For Against (b) / XX / The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33- 10-102 and 33-10-105 of the 1976 South Carolina Code, as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of the acceptance for filing by the Secretary of State (See Section 33-1-230(b)): Date: February 21, 1997 SOUTH CAROLINA ELECTRIC & GAS COMPANY By: L. M. Williams Secretary 76 EX-4 5 Exhibit 3-K BY-LAWS OF SOUTH CAROLINA ELECTRIC & GAS COMPANY AS AMENDED AND ADOPTED June 18, 1996 77 ARTICLE I OFFICES Section 1. The principal office of the Corporation, which shall also be designated as its registered office, shall be located in the City of Columbia, County of Richland, State of South Carolina. Section 2. The Corporation may also have offices and places of business at such other places, within or without the State of South Carolina, as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II SEAL Section 1. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "South Carolina". If authorized by the Board of Directors, the corporate seal may be affixed to any certificates of stock, bonds, debentures, notes or other engraved, lithographed or printed instruments, by engraving, lithographing or printing thereon such seal or a facsimile thereof, and such seal or facsimile thereof so engraved, lithographed or printed thereon shall have the same force and effect, for all purposes, as if such corporate seal had been affixed thereto by indentation. ARTICLE III STOCKHOLDERS' MEETINGS Section 1. Written or printed notices for annual or special meetings of stockholders shall state the place, day and hour of such meetings and, in case of special meetings, the purpose or purposes for which the meetings are called. Section 2. Annual meetings of stockholders for the election of Directors and for the transaction of any other business permitted by law to be transacted at the annual meeting of stockholders, and all special meetings of stockholders, for that or any other purpose, shall be held at such time and place as shall be stated in a notice thereof, or in a duly executed waiver of notice, or may be held by written consent in lieu of meeting as permitted by law. At the annual meeting, the stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meeting. All meetings of stockholders shall be presided over by the Chairman of the Board, if any, or if there be none, or in his absence, by the Vice Chairman, or if there be none, or in his absence, by the President or a Vice President. Section 3. Except as otherwise provided by law, by the Articles of Incorporation as the same may be amended from time to time, or by these By-Laws as they may be amended from time to time, the holders of a majority of the shares of stock of the Corporation issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of the stockholders for the transaction of business. 78 If, however, such quorum shall not be present or represented at such meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power, by a majority vote of those present, to adjourn the meeting from time to time without notice (unless otherwise provided in Section 8 of this Article III) other than by announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which may have been transacted at the meeting as originally noticed provided notice of such adjourned meeting, when required by Section 8 of this Article III, shall have been given or waived. Section 4. At each meeting of the stockholders each stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by written or printed instrument executed by such stockholder or by his duly authorized attorney or by telegram or cablegram appearing to have been transmitted by such stockholder but, except as otherwise provided by statute, no proxy shall be valid after expiration of eleven months from the date of its execution. Every proxy shall be dated as of its execution and no proxy shall be undated or postdated. Every holder of record of stock having voting power shall be entitled to one vote for every share of stock standing in his name on the books of the Corporation. The vote for directors and, upon the demand of any stockholder or his duly authorized proxy, the vote upon any question before the meeting shall be by ballot. All elections shall be decided by a plurality of the votes cast by the holders of the shares entitled to vote at the meeting of stockholders and except as otherwise provided by statute or by the Articles of Incorporation all other questions by a majority of the votes cast by holders of shares entitled to vote on such question at such meeting. Section 5. The Secretary or the agent of the Corporation having charge of its stock transfer books shall, in advance of each meeting of stockholders, prepare a complete list of the stockholders entitled to vote at such meeting of stockholders or adjournment thereof, which list shall be arranged in alphabetical order with the address of and the number of shares held by each stockholder. Unless the record of stockholders kept by the Secretary or agent of the Corporation having charge of its stock transfer books readily shows, in alphabetical order or by alphabetical index, the information required to appear on such a list of stockholders, such list of stockholders shall, for a period commencing upon the date when notice of such meeting is given, and in no event less than 10 days prior to the date of such meeting, be kept on file at the registered office of the Corporation or at its principal place of business or at the office of its transfer agent or registrar, and shall be subject to inspection by any stockholder at any time during usual business hours. In any event, such list shall be produced and kept open at the time and place of such meeting and shall be subject to the inspection of any stockholder during the whole time of such meeting. Section 6. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board, by the Vice Chairman of the Board or by the President, and shall be called by the President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of holders of ten per cent or more of the shares of stock of the Corporation issued and outstanding and entitled to vote at the proposed meeting. Such request shall state the purpose or purposes of the proposed meeting. 79 Section 7. Business transacted at all special meetings shall be confined to the objects stated in the call; provided, however, that if all the stockholders of the Corporation entitled to vote shall be present in person or by proxy, any business pertaining to the affairs of the Corporation may be transacted. Section 8. Notice of annual meetings of stockholders and notice of any special meeting of stockholders for the election of directors or for any other purpose, unless otherwise provided by statute, shall be delivered personally or mailed, not less than ten nor more than fifty days before the meeting, to each person who appears on the books of the Corporation as a stockholder entitled to vote at said meeting. In the event of the adjournment of any meeting of stockholders, for whatever reason, for 30 days or more, notice of the adjourned meeting shall be delivered personally or mailed not less than ten nor more than fifty days before the date for such adjourned meeting to each person whose name appears on the books of the Corporation as a stockholder entitled to vote at said adjourned meeting. Any such notice may be either written or printed, or partly written and partly printed, and if mailed it shall be directed to the stockholder at his address as it appears on the books of the Corporation. Such notice shall briefly state the business which it is proposed to present or to submit to such meeting. ARTICLE IV DIRECTORS Section 1. The property and business of the Corporation shall be managed by its Board of Directors. The number of directors shall be not more than twenty (20). The directors shall be elected at the annual meeting of the stockholders or at a special meeting called for that purpose. Each director shall be elected to serve until the next annual meeting of stockholders and thereafter until his successor shall be elected and shall qualify. Any director may be removed with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors, provided, however, such removal shall be subject to the following: (1) Whenever the shares of a class of stock are entitled to elect one or more directors, any director so elected may be removed only by the vote of the holders of the outstanding shares of that class voting separately as a class, and (2) No director who has been elected by cumulative voting may be removed if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. Section 2. In addition to the powers and authorities by these By-Laws expressly conferred upon them, the Board may exercise all such power of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. A director or officer of this Corporation shall not be disqualified by his office from dealing or contracting with the Corporation either as a vendor, purchaser or otherwise, nor shall any transaction or contract of this Corporation be void or voidable solely by reason of the fact that any director or officer or any firm of which any director or officer is a member or employee, or any corporation of which any director or officer is a shareholder, director, officer or 80 employee, is in any way interested in such transaction or contract, provided that the material facts as to such interest and as to such transaction or contract are disclosed or known to the Board of Directors or the Executive Committee and noted in their respective minutes, or to the stockholders entitled to vote with respect thereto, as the case may be, and that such transaction or contract is or shall be authorized, ratified or approved either (1) by the vote of a majority of a quorum of the Board of Directors or of the Executive Committee, or (2) by a majority of the votes cast by holders of shares of stock entitled to vote with respect thereto, without counting (except for quorum purposes) the vote of or shares held or controlled and voted by, as the case may be, any director so interested or member or employee of a firm so interested or a shareholder, director, officer or employee of a corporation so interested; nor shall any director or officer be liable to account to the Corporation for any profits realized by and from or through any such transaction, or contract of this Corporation authorized, ratified or approved as aforesaid by reason of the fact that he or any firm of which he is a member or employee, or any corporation of which he is a shareholder, director, officer or employee was interested in such transaction or contract. ARTICLE V MEETINGS OF THE BOARD Section 1. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of South Carolina. If so authorized by law, members of the Board of Directors may participate in a meeting of the Board by means of telephone conference call or similar communications by which all persons participating in the meeting may hear each other at the same time. Section 2. Regular meetings of the Board may be held without notice at such time and place as shall from time to time be designated by the Board. Section 3. Special meetings of the Board may be called by the Chairman of the Board, or the Vice Chairman of the Board, if any, or the President or any two directors and may be held at the time and place designated in the call and notice of the meeting. The Secretary or other officer performing his duties shall give notice either personally or by mail or telegram not less than twenty-four hours before the meeting. Meetings may be held at any time and place without notice if all the directors are present or if those not present sign waivers of notice either before or after the meeting. Section 4. At all meetings of the Board a majority of the total number of directors then in office shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these By-Laws. Section 5. Any regular or special meeting of the Board may be adjourned to any other time at the same or any other place by a majority of the directors present at the meeting, whether or not a quorum shall be present at such meeting, and no notice of the adjourned meeting shall be required other than announcement at the meeting. 81 Section 6. Whenever, by any provision of law, the vote of directors at a meeting thereof is required or permitted to be taken in connection with any corporate action, the meeting and vote of directors may be dispensed with, if all the directors shall consent in writing to such corporate action being taken. Such consents shall be filed with the minutes of meetings of the Board of Directors. Section 7. Directors, as such, shall not receive any stated salary for their services, but, by resolution of the Board of Directors, a fixed fee and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board (or of any committee of the Board), provided that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Section 8. Directors who are salaried officers or employees of the Corporation or of any affiliated Company and who are members of the Executive Committee shall receive no compensation for their services as such members in addition to such compensation as may be paid to them as officers or directors, but shall be reimbursed for their reasonable expenses, if any, in attending meetings of the Executive Committee, or otherwise performing their duties as members of the Executive Committee. ARTICLE VI EXECUTIVE AND OTHER COMMITTEES Section 1. The Board of Directors may, by vote of a majority of the full Board, designate three or more of their number to constitute an Executive Committee, to hold office for one year and until their respective successors shall be designated. Such Executive Committee shall advise with and aid the officers of the Corporation in all matters concerning its interests and the management of its business, and shall, between sessions of the Board, except as otherwise provided by law, have all the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. The taking of any action by the Executive Committee shall be conclusive evidence that the Board of Directors was not at the time of such action in session. The Board of Directors may, by vote of a majority of the full Board, appoint from among their number, one or more additional committees, consisting of three or more directors, which shall have such powers and duties as may be fixed by the resolution of the Board of Directors appointing such Committee. Section 2. The Executive Committee shall cause to be kept regular minutes of its proceedings, which may be transcribed in the regular minute book of the Corporation, and all such proceedings shall be reported to the Board of Directors at its next succeeding meeting, and shall be subject to revision or alteration by the Board, provided that no rights of third persons shall be affected by such revision or alteration. A majority of the Executive Committee shall constitute a quorum at any meeting. The Executive Committee may take action without a meeting on the written approval of such action by all the members of the Committee. The Board of Directors may by vote of a majority of the full Board fill any vacancies in the Executive Committee. The Executive Committee may, from time to time, subject to the approval of the Board of Directors, prescribe rules and regulations for the calling and conduct of meetings of the Committee, and other matters relating to its procedure and the exercise of its powers. 82 Section 3. Other committees appointed by the Board shall cause to be kept regular minutes of their proceedings and in general the provisions as to procedure for such committees shall be that set forth above with respect to the Executive Committee. ARTICLE VII OFFICERS Section 1. The officers of the Corporation shall be elected by the Board of Directors. They shall include a President, one or more Vice Presidents, a Secretary, a Treasurer and a Controller and may include a Chairman of the Board and a Vice Chairman of the Board. In the event there shall be a Chairman of the Board and a Vice Chairman of the Board, the Board of Directors shall designate which of the Chairman of the Board, the Vice Chairman of the Board or the President shall be the Chief Executive Officer of the Corporation. If there shall be no Chairman of the Board or Vice Chairman of the Board, the President shall be the Chief Executive Officer of the Corporation. Any two or more of such offices, except those of Treasurer and Controller, may be occupied by the same person; provided, however, the same person may not act in more than one capacity where action by two or more officers is required. Section 2. The Board of Directors, at its first meeting after the election of directors by the stockholders, shall elect from among its members, if it deems proper, a Chairman of the Board and a Vice Chairman of the Board. It shall also elect a President and one or more Vice Presidents, a Secretary, a Treasurer and a Controller, none of whom need be members of the Board. The Board of Directors, at any meeting, may elect such additional Vice Presidents, and such Assistant Vice Presidents, Assistant Secretaries, Assistant Treasurers and Assistant Controllers, as it shall deem necessary, none of whom need be members of the Board. Section 3. The Board of Directors, at any meeting, may elect or appoint such other officers and agents as it shall deem necessary. The tenure and duties of such officers and agents shall be fixed by the Board of Directors or, in the absence of any action by the Board of Directors so fixing such tenure and duties, the tenure and duties shall be fixed by the Chief Executive Officer of the Corporation, or by such officers or department heads to whom he shall delegate such authority. Section 4. The salaries and compensation of the officers of the Corporation and of agents of the Corporation appointed by the Board shall be fixed by the Board of Directors. The salaries and compensation of all other employees of the Corporation shall, in the absence of any action by the Board of Directors, be fixed by the Chief Executive Officer of the Corporation. No officer receiving compensation from any affiliated company shall at the same time be compensated by the Corporation. Section 5. The officers of the Corporation elected pursuant to Section 2 of this Article VII shall hold office until the first meeting of the Board of Directors after the next succeeding annual meeting of stockholders and until their successors are elected and qualify in their stead. The Chief Executive Officer may be removed at any time, with or without cause, by the affirmative vote of a majority of the total number of directors then in office. Any other officer or employee of the Corporation may be removed at any time, with or without cause, either (a) by vote of a majority of the directors present 83 at any meeting of the Board of Directors at which a quorum is present, or (b) by vote of a majority of the members of the Executive Committee, or (c) by the Chief Executive Officer of the Corporation or by any officer who shall be exercising the powers of the Chief Executive Officer of the Corporation, or by any superior of such employee to whom such power of removal shall be delegated by the Chief Executive Officer of the Corporation or the officer exercising the powers of the Chief Executive Officers of the Corporation. ARTICLE VIII CHIEF EXECUTIVE OFFICER Section 1. The Chief Executive Officer of the Corporation shall supervise, direct and control the conduct of the business of the Corporation subject, however, to the general policies determined by the Board of Directors and the Executive Committee, if there be one. He shall be a member of the Executive Committee and all committees appointed by the Board of Directors, except the Audit Committee, shall have the general powers and duties usually vested in the chief executive officer of a corporation, and shall have such other powers and perform such other duties as may be prescribed from time to time by law, by the By-Laws, or by the Board of Directors. He shall, whenever it may in his opinion be necessary, prescribe the duties of officers and employees of the Corporation whose duties are not otherwise defined. He shall have power to remove at any time, with or without cause, any employee of the Corporation other than officers and agents elected or appointed by the Board of Directors. He may, in accordance with Section 5 of Article VII of these By-Laws, delegate such power of removal. ARTICLE IX CHAIRMAN OF THE BOARD Section 1. The Chairman of the Board, if there be one, shall preside at all meetings of the Board of Directors and of the stockholders, except when by statute the election of a presiding officer shall be required. He shall, if designated Chief Executive Officer pursuant to Section 1 of Article VII of these By-Laws, have all the powers and duties granted and delegated to the Chief Executive Officer by Section 1 of Article VIII of these By-Laws. In such event he may sign in the name of and on behalf of the Corporation any and all contracts, agreements or other instruments pertaining to matters which arise in the ordinary course of business of the Corporation and, if authorized by the Board of Directors or the Executive Committee, may sign in the name of and on behalf of the Corporation any other contracts, agreements or instruments of any nature pertaining to the business of the Corporation. He shall have such other powers and perform such other duties as may be prescribed from time to time by law, by the By-Laws or by the Board of Directors. ARTICLE X THE VICE CHAIRMAN OF THE BOARD The Vice Chairman of the Board, if there be one, shall perform necessary duties of the Chairman in case of the absence or temporary incapacity of the Chairman. He shall have such other powers and perform such other duties as may be prescribed from time to time by law, by the By-Laws or by the Board of Directors. 84 ARTICLE XI THE PRESIDENT Section 1. The President shall, in the absence of the Chairman and Vice Chairman of the Board, or if there shall be no Chairman or Vice Chairman of the Board, preside at all meetings of the Board of Directors and of the stockholders, except when by statute the election of a presiding officer shall be required. He shall, if designated Chief Executive Officer of the Corporation pursuant to Section 1 of Article VII of these By-Laws, have all the powers and duties granted and delegated to the Chief Executive Officer by Section 1 of Article VIII of these By-Laws. In the event there shall be a Chairman of the Board or a Vice Chairman of the Board who shall have been designated as Chief Executive Officer of the Corporation pursuant to Section 1 of Article VII of these By-Laws, then the President shall have such powers and duties as may be assigned to him by the Chief Executive Officer. In addition, he shall be a member of the Executive Committee, and, in the absence or disability of the Chairman of the Board or the Vice Chairman of the Board, he shall have all the powers and duties of the Chairman of the Board or the Vice Chairman of the Board. He may sign in the name of and on behalf of the Corporation any and all contracts, agreements or other instruments pertaining to matters which arise in the ordinary course of business of the Corporation and, if authorized by the Board of Directors or the Executive Committee, may sign in the name of and on behalf of the Corporation any other contracts, agreements or instruments of any nature pertaining to the business of the Corporation. He shall have such other powers and perform such other duties as may be prescribed from time to time by law, by the By-Laws or by the Board of Directors. ARTICLE XII THE VICE PRESIDENT Section 1. The Vice President shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties as the Board of Directors may prescribe. The Vice President may sign in the name of and on behalf of the Corporation contracts, agreements, or other instruments pertaining to matters which arise in the ordinary course of business of the Corporation, except in cases where the signing thereof shall be expressly delegated by the Board of Directors or the Executive Committee to some other officer or agent of the Corporation. If authorized by the Board of Directors or the Executive Committee, he may sign in the name of and on behalf of the Corporation any other contracts, agreements or instruments of any nature pertaining to the business of the Corporation. He shall have such other powers and perform such other duties as may be prescribed from time to time by law, by the By-Laws, or by the Board of Directors. If there be more than one Vice President, the Board of Directors or the Chief Executive Officer of the Corporation shall assign to such Vice Presidents their respective duties, and the Board may designate any of such Vice Presidents as Executive Vice Presidents and Senior Vice Presidents. 85 ARTICLE XIII THE SECRETARY Section 1. The Secretary shall attend all sessions of the Board and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the committees appointed by the Board of Directors when required. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or Chief Executive Officer, under whose supervision he shall be. He shall be sworn to the faithful discharge of his duty. Any records kept by him shall be the property of the Corporation and shall be restored to the Corporation in case of his death, resignation, retirement or removal from office. He or his agent shall be the custodian of the seal of the Corporation, the stock ledger, stock certificate book and minute books of the Corporation, and its committees, and other formal records and documents relating to the corporate affairs of the Corporation. Section 2. The Assistant Secretary or Assistant Secretaries shall assist the Secretary in the performance of his duties, exercise and perform his powers and duties, in his absence or disability, and such other powers and duties as may be conferred or required by the Board. ARTICLE XIV THE TREASURER Section 1. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors or as may be designated by persons to whom the Board of Directors delegates such authority. He shall disburse the funds of the Corporation in such manner as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer and directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. He shall give the Corporation a bond if required by the Board of Directors in a sum, and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office, and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 2. The Assistant Treasurer or Assistant Treasurers shall assist the Treasurer in the performance of his duties, exercise and perform his powers and duties, in his absence or disability, and such other powers and duties as may be conferred or required by the Board. 86 ARTICLE XV THE CONTROLLER Section 1. The Controller of the Corporation shall be the principal accounting officer of the Corporation. He shall have full control of all the books of the Corporation and keep a true and accurate record of all property owned by it, of its debts and of its revenues and expenses, and shall keep all accounting records of the Corporation other than the record of receipts and disbursements and those relating to deposit or custody of money and securities of the Corporation, which shall be kept by the Treasurer, and shall also make reports to the directors and others of or relating to the financial condition of the Corporation. He shall exhibit at all reasonable times his books of account and records to any director of the Corporation upon application during business hours at the office of the Corporation where such books of accounts and records are kept. He shall perform all duties generally incident to the office of Controller and shall have such other powers and duties as, from time to time, may be prescribed by law, by the By-Laws, or by the Board of Directors. Section 2. The Assistant Controller or Assistant Controllers shall assist the Controller in the performance of his duties, exercise and perform his powers and duties, in his absence or disability, and such other powers and duties as may be conferred or required by the Board of Directors. ARTICLE XVI VACANCIES Section 1. If the office of any director becomes vacant by reason of death, resignation, retirement, disqualification, or otherwise, the directors then in office, although less than a quorum, by a majority vote, may elect a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred. Notwithstanding anything contained in the preceding sentence, if a vacancy occurs with respect to a director elected by the votes of a particular class of stock such vacancy shall be filled by the remaining director or directors elected by that class, or by the stockholders of that class, and any vacancy created by an increase in the number of directors of the Corporation shall be filled only by election by the stockholders entitled to vote with respect thereto at an annual meeting or a special meeting of stockholders called for that purpose. If the office of any officer of the Company shall become vacant for any reason, the Board of Directors, by a majority vote of those present at any meeting at which a quorum is present, may elect a successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurred. ARTICLE XVII RESIGNATIONS Section 1. Any officer or any director of the Corporation may resign at any time, such resignation to be made in writing and to take effect from the time of its receipt by the Corporation, unless some time be fixed in the resignation, and then from that time. The acceptance of a resignation shall not be required to make it effective. A vacancy shall be deemed to exist upon receipt by the Corporation of such written resignation, and a successor may, then or thereafter, be elected to take office when such resignation becomes effective. 87 ARTICLE XVIII DUTIES OF OFFICERS MAY BE DELEGATED Section 1. In case of the absence of any officer of the Corporation, or for any other reason the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officers to any other officer or to any director. ARTICLE XIX STOCK OF OTHER CORPORATIONS Section 1. The Board of Directors shall have the right to authorize any officer or other person on behalf of the Corporation to attend, act and vote at meetings, of the stockholders of any corporation in which the Corporation shall hold stock, and to exercise thereat any and all the rights and powers incident to the ownership of such stock and to execute waivers of notice of such meetings and calls therefor; and authority may be given to exercise the same either on one or more designated occasions, or generally on all occasions until revoked by the Board. In the event that the Board shall fail to give such authority it may be exercised by the Chief Executive Officer of the Corporation in person or by proxy appointed by him on behalf of the Corporation. ARTICLE XX CERTIFICATES OF STOCK Section 1. The certificates of stock of the Corporation shall be entered in the books of the Corporation as they are issued. No fractional shares of stock shall be issued. Certificates of stock shall be signed by the Chairman of the Board, the Vice Chairman of the Board, the President or a Vice President and by the Secretary, or an Assistant Secretary, and the seal of the Corporation shall be affixed thereto. Such seal may be facsimile, engraved or printed. Where any certificate of stock is signed by a transfer agent or transfer clerk or by a registrar, the signatures of any such Chairman of the Board, Vice Chairman of the Board, President, Vice President, Secretary or Assistant Secretary, upon such stock certificate may be facsimiles, engraved or printed. In case any such officer who has signed, or whose facsimile signature has been placed upon, such certificate of stock, shall have ceased to be such officer before such certificate of stock is issued, it may be issued by the Corporation with the same effect as if such officer had not ceased to be such at the date of its issue. ARTICLE XXI TRANSFERS OF STOCK Section 1. Transfer of stock shall be made on the books of the Corporation only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. ARTICLE XXII FIXING OF RECORD DATE Section 1. The Board of Directors is hereby authorized to fix a time, not less than ten (10) days nor more than fifty (50) days preceding the date of any meeting of stockholders or the date fixed for the payment of any dividend or the making of any distribution, or for the delivery of evidences of rights or evidences of interests arising out of any change, conversion or 88 exchange of shares of stock, as a record date for the determination of the stockholders entitled to notice of and to vote at such meeting or entitled to receive any such dividend, distribution, rights or interests, as the case may be; and all persons who are holders of record of shares of stock at the date so fixed and no others, shall be entitled to notice of and to vote at such meeting, and only stockholders of record at such date shall be entitled to receive any such notice, dividend, distribution, rights or interests; and the stock transfer books shall not be closed during any such period. ARTICLE XXIII REGISTERED STOCKHOLDERS Section 1. The Corporation shall be entitled to treat the holders of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to, or interest in, such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the statutes of the State of South Carolina. ARTICLE XXIV LOST CERTIFICATES Section 1. Whenever any stockholder shall desire a new certificate of stock to replace an original certificate of stock which has been lost, destroyed or wrongfully taken, he shall make application to the Corporation for the issuance of a new certificate or certificates in replacement of the certificate or certificates which were lost, destroyed or wrongfully taken, and shall file with the Corporation a good and sufficient indemnity bond, together with an affidavit stating that the applicant is the bona fide owner of such share(s) of stock and specifying the number(s) of the certificate or certificates which were lost, destroyed or wrongfully taken, the particular circumstances of such loss, destruction or wrongful taking (including a statement that the share(s) represented by such certificate or certificates has or have not been transferred or otherwise disposed of by such applicant in any manner.) Upon completion by a stockholder of the requirements set forth in the preceding paragraph, the Corporation shall issue a certificate or certificates in replacement of the certificate or certificates referred to in such stockholder's application if such application is received by the Corporation before it has notice that such certificate or certificates has or have been acquired by a bona fide purchaser. ARTICLE XXV INSPECTION OF BOOKS Section 1. The Board of Directors shall have power to determine whether and to what extent, and at what time and places and under what conditions and regulations, the accounts and books of the Corporation (other than the books required by statute to be open to the inspection of stockholders), or any of them, shall be open to the inspection of stockholders, and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as such right may be conferred by the statutes of the State of South Carolina or by resolution of the directors or of the stockholders. 89 ARTICLE XXVI CHECKS, NOTES, BONDS AND OTHER INSTRUMENTS Section 1. All checks or demands for money and notes of the Corporation shall be signed by such person or persons (who may but need not be an officer or officers of the Corporation) as the Board of Directors may from time to time designate or as may be designated by persons to whom the Board of Directors delegates such authority. The Board of Directors shall have authority to make provision, with proper safeguards, for the signatures to appear on all checks, including, but not by way of limitation, payroll checks, to be made by facsimile, whether engraved or printed. Whenever the seal of this Corporation is to be affixed to any instrument being executed on behalf of this Corporation, such seal shall be affixed thereto by the Secretary or an Assistant Secretary and the fact of such affixation shall be attested to by the person so affixing the seal. ARTICLE XXVII RECEIPT FOR SECURITIES Section 1. All receipts for stocks, bonds or other securities received by the Corporation shall be signed by the Treasurer or an Assistant Treasurer, or by such other person or persons as the Board of Directors or Executive Committee shall designate. ARTICLE XXVIII FISCAL YEAR Section 1. The fiscal year shall begin the first day of January in each year. ARTICLE XXIX RESERVES Section 1. The Board of Directors shall have power to fix and determine, and from time to time to vary, the amount to be reserved as working capital; to determine whether any, or if any, what part of any, surplus shall be declared and paid as dividends, to determine the date or dates for the declaration or payment of dividends and to direct and determine the use and disposition of any surplus, and before payment of any dividend or making any distribution of surplus there may be set aside out of the surplus of the Corporation such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation. ARTICLE XXX NOTICES Section 1. In addition to the telegraphic notice permitted by Section 3 of Article V of these By-Laws, whenever under the provisions of these By-Laws notice is required to be given to any director, officer or stockholder, it shall not be construed to require personal notice, but such notice may be given in writing, by mail, by depositing a copy of the same in a post office, letter box or mail chute, maintained by the Post Office Department, in a postpaid sealed wrapper, addressed to such stockholder, officer or director, at his address as the same appears on the books of the Corporation. A stockholder, director or officer may waive any notice required to be given to him under these By-Laws. 90 ARTICLE XXXI INSPECTORS OF ELECTION Section 1. Prior to every meeting of the stockholders the Board of Directors may appoint any odd number of inspectors of election to act as inspectors at such meeting. In the event that inspectors shall not be so appointed, they shall be appointed by the person presiding at such meeting and if any inspector shall refuse to serve, or neglect to attend such meeting or his office becomes vacant, the person presiding at the meeting may appoint another inspector in his place. The inspectors appointed to act at any meeting of the stockholders shall, before entering upon the discharge of their duties, be sworn faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of their ability. ARTICLE XXXII DIRECTOR, OFFICER AND EMPLOYEE INDEMNIFICATION Section 1. The Corporation shall indemnify any and all of its employees, officers, or directors, or former officers or directors (including their heirs, executors, and administrators), or any person who may have served at its request or by its election, designation, or request as a member, agent, employee, director or officer of any other corporation or partner, trustee or otherwise, of any organization against expenses actually and necessarily incurred by them in connection with the defense or settlement of any action, suit or proceeding (which shall include any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or arbitrative) in which they, or any of them, are made parties, or a party, by reason of being or having been agents, employees, directors or officers of the Corporation, or of such other organization, except in relation to matters as to which any such agent, employee, director or officer or former employee, director or officer or person shall be adjudged in such action, suit or proceeding to be liable for willful misconduct in the performance of duty and to such matters, as shall be settled by agreement predicated on the existence of such liability. Such indemnity shall be in accordance with a written plan adopted by the Board of Directors, which plan shall be in accordance with the law of South Carolina. The indemnification provided hereby shall not be deemed exclusive of any other right to which anyone seeking indemnification hereunder may be entitled under any By-Law, agreement, or otherwise. The Corporation may purchase and maintain insurance on the behalf of any director, officer, agent, employee or former employee, director or officer or other person, against any liability asserted against them and incurred by them. ARTICLE XXXIII AMENDMENTS Section 1. Any of these By-Laws may be altered, amended or repealed, and/or one or more new By-Laws may be adopted, at a meeting of the stockholders, by a vote of the holders of a majority of all shares of stock entitled to vote to elect directors who are entitled to vote at such meeting, provided that written notice of such proposed alteration, amendment, repeal and/or adoption, as the case may be, shall have been given to all such stockholders at least ten days before such meeting. Any of these By-Laws may also be altered, amended or repealed, and/or one or more new By-Laws may be adopted, by the vote of a majority of all directors then in office, at a meeting of the Board of Directors, provided that the notice of such meeting includes therein notice of such alteration, amendment, repeal and/or 91 adoption, as the case may be. At a meeting thereof, the stockholders, by the vote of the holders of a majority or by written consent of all shares of stock entitled to vote to elect directors who are entitled to vote at such meeting, may repeal any alteration or amendment of these By-Laws made by the Board of Directors and/or reinstate any of these By-Laws repealed by the Board of Directors, and/or repeal any new By-Law adopted by the Board of Directors. 92 EX-12 6 Exhibit 12 SOUTH CAROLINA ELECTRIC & GAS COMPANY CALCULATION 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). 93 SOUTH CAROLINA ELECTRIC & GAS COMPANY 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). 94 SOUTH CAROLINA ELECTRIC & GAS COMPANY CALCULATION 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 the Company'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 the Company's Restated Articles of Incorporation. 95 SOUTH CAROLINA ELECTRIC & GAS COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For Each of the Five Years Ended December 31, 1996 (Thousands of Dollars) Year Ended December 31, 1996 1995 1994 1993 1992 Fixed Charges as defined: Interest on long-term debt.................. $ 94,834 $ 96,138 $ 85,368 $ 77,975 $ 79,452 Amortization of debt premium, discount and expense (net).............................. 2,315 2,223 1,993 1,435 765 Interest on debt to affiliate............... - 114 279 29 16 Other interest expense...................... 7,367 9,210 4,910 5,783 6,761 Interest component of rentals............... 2,255 2,771 2,692 2,823 923 Total Fixed Charges (A)................. $106,771 $110,456 $ 95,242 $ 88,045 $ 87,917 Earnings, as defined: Income...................................... $190,482 $169,185 $152,043 $145,968 $102,163 Income taxes................................ 108,176 97,249 82,716 80,738 50,158 Total fixed charges above................... 106,771 110,456 95,242 88,045 87,917 Total Earnings (B)...................... $405,429 $376,890 $330,001 $314,751 $240,238 Ratio of Earnings to fixed charges (B/A)...... 3.80 3.41 3.46 3.57 2.73
96 EX-23 7 Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement No. 33-57955 of South Carolina Electric & Gas Company on Form S-3 of our report dated February 7, 1997 appearing in this Annual Report on Form 10-K of South Carolina Electric & Gas Company for the year ended December 31, 1996. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina March 14, 1997 97 EX-27 8
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND TH 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 3,196,897 11,529 284,175 466,201 0 3,958,802 181,333 816,644 415,485 1,413,462 43,014 26,027 1,276,758 90,000 0 0 42,755 2,432 0 0 1,064,354 3,958,802 1,344,597 107,734 951,338 1,059,072 285,525 4,120 289,645 99,163 190,482 5,433 185,049 135,800 89,717 307,829 0 0
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