-----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, Fth7YvwFyhmraNmGXaRYd8GhV6/t0F2edFj32mccf8IQgDGpT506guTUR4h8gjZQ c6YiUQV11X3Bh0JjW1qMfw== 0000091882-99-000008.txt : 19990326 0000091882-99-000008.hdr.sgml : 19990326 ACCESSION NUMBER: 0000091882-99-000008 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 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: 586353075 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-03375 FILM NUMBER: 99572151 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032179000 MAIL ADDRESS: STREET 1: 1426 MAIN ST CITY: COLUMBIA STATE: SC ZIP: 29201 10-K405 1 10-K ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-8809 SCANA Corporation 57-0784499 (A South Carolina Corporation) 1426 Main Street Columbia, South Carolina 29201 (803) 217-9000 1-3375 South Carolina Electric & Gas Company 57-0248695 (A South Carolina Corporation) 1426 Main Street Columbia, South Carolina 29201 (803) 217-9000 Securities registered pursuant to Section 12(b) of the Act: Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange. Title of each class Registrant Common Stock, without par value SCANA Corporation 5% Cumulative Preferred Stock South Carolina Electric & Gas Company par value $50 per share 7.55%Trust Preferred Securities, Series A liquidation value $25 per Trust Preferred Security ================================================================================ Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) The aggregate market value of voting stock held by non-affiliates of SCANA Corporation was $2,433,956,641 at February 26, 1999. South Carolina Electric & Gas Company is a wholly-owned subsidiary of SCANA Corporation and has no voting stock other than its common stock. At February 26, 1999, there were issued and outstanding 40,296,147 Common Shares, $4.50 par value, of South Carolina Electric & Gas Company. Documents incorporated by reference: Specified sections of SCANA Corporation's 1999 Proxy Statement, dated March 15, 1999, in connection with its 1999 Annual Meeting of Stockholders, are incorporated by reference in Part III hereof. This combined Form 10-K is separately filed by SCANA Corporation and South Carolina Electric & Gas Company. Information contained herein relating to SCANA Corporation or any of its direct or indirect subsidiaries other than South Carolina Electric & Gas Company is provided solely by SCANA Corporation and shall be deemed not included in the Form 10-K of South Carolina Electric & Gas Company. TABLE OF CONTENTS Page DEFINITIONS 4 PART I Item 1. Business 5 Item 2. Properties 17 Item 3. Legal Proceedings 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Corporate Structure 20 Executive Officers of SCANA Corporation 21 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 22 Item 6. Selected Financial Data 23 SCANA Corporation Financial Section 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 39 Item 8. Financial Statements and Supplementary Data 40 South Carolina Electric & Gas Company Financial Section 68 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 69 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 78 Item 8. Financial Statements and Supplementary Data 78 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 103 PART III Item 10. Directors and Executive Officers of the Registrants 104 Item 11. Executive Compensation 108 Item 12. Security Ownership of Certain Beneficial Owners and Management 114 Item 13. Certain Relationships and Related Transactions 114 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 115 SIGNATURES 116 DEFINITIONS The following abbreviations used in the text have the meanings set forth below unless the context requires otherwise: TERM MEANING AFC......................... Allowance for Funds Used During Construction BTU......................... British Thermal Unit Circuit Court............... South Carolina Circuit Court Clean Air Act............... Clean Air Act Amendments of 1990 Company..................... SCANA Corporation and its subsidiaries, unless otherwise specified Consumer Advocate........... Consumer Advocate of South Carolina Dekatherm................... One Million BTUs DHEC........................ South Carolina Department of Health and Environmental Control DOE......................... United States Department of Energy Energy Marketing............ SCANA Energy Marketing, Inc. EPA......................... United States Environmental Protection Agency FERC........................ United States Federal Energy Regulatory Commission Fuel Company................ South Carolina Fuel Company, Inc. GENCO....................... South Carolina Generating Company, Inc. Investor Plus Plan.......... SCANA Corporation Investor Plus Plan KVA......................... Kilovolt-ampere KW.......................... Kilowatt KWH......................... Kilowatt-hour LLC......................... Limited Liability Company LNG......................... Liquefied Natural Gas MCF......................... Thousand Cubic Feet Mhz......................... Megahertz MMCF........................ Million Cubic Feet MW.......................... Megawatt NEPA........................ National Energy Policy Act of 1992 NRC......................... United States Nuclear Regulatory Commission PCS......................... Personal Communications Service Petroleum Resources......... SCANA Petroleum Resources, Inc. Pipeline Corporation........ South Carolina Pipeline Corporation PRP......................... Potentially Responsible Party PSC......................... The Public Service Commission of South Carolina PUHCA....................... Public Utility Holding Company Act of 1935, as amended SCI......................... SCANA Communications, Inc. SCANA....................... SCANA Corporation, the parent company SCE&G....................... South Carolina Electric & Gas Company SEC......................... United States Securities and Exchange Commission Southern Natural............ Southern Natural Gas Company SPSP........................ SCANA Corporation Stock Purchase-Savings Plan Summer Station.............. V. C. Summer Nuclear Station Supreme Court............... South Carolina Supreme Court Transco..................... Transcontinental Gas Pipeline Corporation Williams Station............ A. M. Williams Coal-Fired, Electric Generating Station Owned by GENCO PART I ITEM 1. BUSINESS THE COMPANY Organization SCANA, a South Carolina corporation having general business powers, was incorporated on October 10, 1984 and is a public utility holding company within the meaning of PUHCA but is exempt from registration under such Act (see "Regulation"). SCANA holds, directly or indirectly, all of the capital stock of each of its subsidiaries except for the preferred stock of SCE&G, the preferred securities of SCE&G Trust I and 30% of the common stock of an indirect subsidiary. SCANA and its subsidiaries had 4,697 full-time, permanent employees as of December 31, 1998 as compared to 4,545 full-time, permanent employees as of December 31, 1997. SCE&G was incorporated under the laws of South Carolina in 1924, and is an operating public utility. Segments of Business SCANA neither owns nor operates any physical properties. It has thirteen direct, wholly owned subsidiaries which are engaged in the functionally distinct operations described below. It also has investments in two LLCs, one of which is building and will operate a cogeneration facility in Charleston, South Carolina, and the other of which is constructing a lime production facility. Regulated Utilities SCE&G is a regulated public utility engaged in the generation, transmission, distribution and sale of electricity and in the purchase and sale, primarily at retail, of natural gas in South Carolina. SCE&G also renders urban bus service in the metropolitan area of Columbia, South Carolina. SCE&G's business is subject to seasonal fluctuations. Generally, sales of electricity are higher during the summer and winter months because of air-conditioning and heating requirements, and sales of natural gas are greater in the winter months due to its use for heating. SCE&G's electric service area extends into 24 counties covering more than 15,000 square miles in the central, southern and southwestern portions of South Carolina. The service area for natural gas encompasses all or part of 31 of the 46 counties in South Carolina and covers more than 21,000 square miles. The total population of the counties representing the combined service area is approximately 2.3 million. Predominant industries in the areas served by SCE&G include: synthetic fibers; chemicals ; fiberglass ; paper and wood; metal fabrication; stone, clay and sand mining and processing; and textile. GENCO owns and operates Williams Station and sells electricity solely to SCE&G. Fuel Company acquires, owns and provides financing for SCE&G's nuclear fuel, fossil fuel and sulfur dioxide emission allowance requirements. Pipeline Corporation is engaged in the purchase, transmission and sale of natural gas on a wholesale basis to distribution companies and directly to industrial customers in 40 counties throughout South Carolina. Pipeline Corporation owns LNG liquefaction and storage facilities. Pipeline Corporation, through a wholly owned subsidiary, owns and operates a 62-mile, six-inch propane pipeline that connects the SCANA Propane Storage, Inc. propane storage facility with Dixie Pipeline Company's system, which traverses central South Carolina. It also supplies the natural gas for SCE&G's gas distribution system. Other resale customers include municipalities and county gas authorities and gas utilities. The industrial customers of Pipeline Corporation are primarily engaged in the manufacturing or processing of ceramics, paper, metal, food and textiles. Nonregulated Businesses Energy Marketing markets electricity, natural gas and other light hydrocarbons primarily in the Southeast. In addition, Energy Marketing markets natural gas in Georgia's deregulated natural gas market. Energy Marketing also provides energy-related risk management services to producers and consumers. SCANA Propane Gas, Inc. purchases, delivers and sells propane within the Southeast. SCANA Propane Storage, Inc. owns and operates a 60 million gallon underground propane storage facility near York, South Carolina and leases cavern storage space to industries, utilities and others. SCI owns and operates a 500 mile fiber optics telecommunications network in South Carolina as well as an 800 Mhz radio service network within the state. In addition, SCI provides tower site construction, management and rental services in South Carolina and Georgia. SCI also has investments in Powertel, Inc., ITC Holding Company, Inc., ITC^DeltaCom, Inc., and Knology Holdings, Inc., which are companies providing telecommunications services in the southeastern United States. ServiceCare, Inc. is engaged in providing energy-related products and services beyond the energy meter. Its primary businesses are providing homeowners with service contracts on their home appliances and home security monitoring. Primesouth, Inc. is engaged in power plant management and maintenance services. SCANA Resources, Inc. conducts energy-related businesses and services. Information with respect to major segments of business for the years ended December 31, 1998, 1997 and 1996 is contained in Management's Discussion and Analysis and in Note 11 of the Notes to Consolidated Financial Statements of SCANA or SCE&G. All such information is incorporated herein by reference. Competition The electric utility industry continues a major transition that is resulting in expanded market competition and less regulation. Deregulation of electric wholesale and retail markets is creating opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. Legislative initiatives at the Federal and state levels are being considered and, if enacted, could mandate market deregulation. The pace of deregulation, future prices of electricity, and the regulatory actions which may be taken by the PSC and the FERC in response to the changing environment cannot be predicted. However, the FERC, in issuing Order 888 in April 1996, has accelerated competition among electric utilities by providing for open access to wholesale transmission service. 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 two percent of the Company's electric revenue is under FERC jurisdiction for the purpose of setting rates for wholesale service. Legislation is pending in South Carolina that would deregulate the state's retail electric market and enable customers to choose their supplier of electricity. The Company is not able to predict whether the legislation will be enacted and, if it is, the conditions it will impose on utilities that currently operate in the state and future market participants. The Company is aggressively pursuing actions to position itself strategically for the transformed environment. The Company's entry into the newly deregulated retail natural gas market in Georgia is designed in part to provide a potential market for any future deregulated electric industry. (For additional discussion see Georgia Retail Gas Market in the Competition section of Management's Discussion and Analysis for the Company.) In addition, SCE&G has undertaken a variety of initiatives, including reductions in staffing levels and the accelerated recovery of its electric regulatory assets. SCE&G has also established open access transmission tariffs and is selling bulk power to wholesale customers at market-based rates. A significant new management information system was implemented in 1998, and a new customer information system will be fully implemented in the first half of 1999. Marketing of services to commercial and industrial customers has been increased significantly. SCE&G has obtained long-term power supply contracts with a significant portion of its industrial customers. The Company believes that these actions as well as numerous others that have been and will be taken demonstrate its 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 that a write-off would be required. It is expected that cash flows and the financial position of the Company would not be materially affected by the discontinuation of the accounting treatment. In addition, the Company's generation assets are exposed to considerable financial risks in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, the Company could be required to write down its investment in these assets. The Company cannot predict whether any write-downs will be necessary and, if they are, the extent to which they would adversely affect the Company's results of operations in the period in which they are recorded. Capital Requirements and Financing Program Capital Requirements The Company's cash requirements arise primarily from SCE&G's operational needs, SCE&G's construction program and the need to fund the activities or investments of SCANA's nonregulated subsidiaries. The ability of SCANA's regulated subsidiaries to replace existing plant investment, as well as to expand to meet future demand for electricity and gas, will depend upon their ability to attract the necessary financial capital on reasonable terms. The Company's regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and the regulated subsidiaries continue their ongoing construction programs, it may be necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by the regulated subsidiaries' ability to obtain adequate and timely rate and other regulatory relief, if requested. For a discussion of the impact of various rate matters on capital requirements, see Regulatory Matters in the Liquidity and Capital Resources section of Management's Discussion and Analysis for the Company and SCE&G. During 1999 the Company is expected to meet its capital requirements principally through internally generated funds (approximately 51%, after payment of dividends) and the issuance and sale of debt securities. Short-term liquidity is expected to be provided primarily by issuance of commercial paper. The timing and amount of such sales and the type of securities to be sold will depend upon market conditions and other factors. The Company's current estimates of its cash requirements for construction and nuclear fuel expenditures, which are subject to continuing review and adjustment, for 1999 and the two-year period 2000-2001 are as follows: Type of Facilities 2000-2001 1999 (Millions of Dollars) SCE&G: Electric Plant: Generation $119 $89 Transmission 39 23 Distribution 137 71 Other 19 11 Nuclear Fuel 57 5 Gas 31 21 Common 29 26 Other 2 1 ---- ---- Total 433 247 Other Companies Combined 98 66 ---- ---- Total $531 $313 ==== ==== The above estimates exclude AFC. During 1998 SCE&G and GENCO expended approximately $36.2 million and $10.7 million, respectively, 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 1999, included in the table above, are estimated to cost approximately $42.1 million and $8 million, respectively. In addition to the capital requirements for 1999 described above, the Company and SCE&G will require approximately $107.0 million and $29.6 million, respectively, to refund and retire outstanding securities and obligations. For the years 2000-2003, the Company has an aggregate of $555.3 million of long-term debt maturing, which includes an aggregate of $360.4 million for SCE&G and $2.2 million of purchase or sinking fund requirements for SCE&G's preferred stock. SCE&G's long term debt maturities for the years 2000-2003 include approximately $79.9 million for sinking fund requirements, of which $73.9 million may be satisfied by deposit and cancellation of bonds issued upon the basis of property additions or bond retirement credits. SCANA and Westvaco each own a 50% interest in Cogen South LLC (Cogen). Cogen was formed to build and operate a cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. Construction of the facility began in September 1996 and is in the final stages. Construction financing of approximately $170 million, was provided to Cogen by banks. On December 30, 1998, SCANA provided a capital contribution of approximately $15.5 million to Cogen. On September 10, 1998, the contractor in charge of construction filed suit in Circuit Court seeking approximately $51 million from Cogen, alleging that construction cost overruns were incurred, and that the construction contract provides for recovery of these costs. In addition to Cogen, Westvaco, SCE&G and SCANA were also named in the suit. SCANA and the other defendants believe the suit is without merit and are mounting an appropriate defense. SCANA does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. Financing Program SCANA has in effect a medium-term note program for the issuance from time to time of unsecured medium-term debt securities. The proceeds from the sales of these securities may be used to fund additional business activities in nonutility subsidiaries, to reduce short-term debt incurred in connection therewith or for general corporate purposes. At December 31, 1998, SCANA had registered with the SEC and available for issuance $200.0 million under this program. SCE&G's First and Refunding Mortgage Bond Indenture, dated April 1, 1945 (Old Mortgage), contains provisions prohibiting the issuance of additional bonds thereunder (Class A Bonds) unless net earnings (as therein defined) for twelve consecutive months out of the fifteen months prior to the month of issuance are at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1998 the Bond Ratio was 5.30. 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 $396 million at December 31, 1998), (ii) retirements of Class A Bonds (which retirement credits totaled $100.3 million at December 31, 1998), and (iii) cash on deposit with the Trustee. SCE&G has a bond indenture dated April 1, 1993 (New Mortgage) covering substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are issued under the New Mortgage on the basis of a like principal amount of Class A Bonds issued under the Old Mortgage which have been deposited with the Trustee of the New Mortgage (of which $315 million were available for such purpose at December 31, 1998), until such time as two-thirds of all Class A Bonds are held by the Trustee. Thereafter, the Old Mortgage may be amended to allow New Bonds to 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, 1998 the New Bond Ratio was 6.72. SCE&G expects in 1999 to amend the Old Mortgage to conform certain of its provisions to those of the New Mortgage, including (i) the elimination of the maintenance and replacement fund and the utilization of unfunded net property additions previously applied in satisfaction thereof as a basis for the issuance of bonds; (ii) the issuance of bonds in a principal amount equal to 70% of unfunded net property additions instead of 60%; and (iii) the conformance of the interest coverage requirements for the issuance of bonds to those of the New Mortgage. The following additional financing transactions have occurred since December 31, 1997: o On January 13, 1998 SCANA issued $60 million of medium-term notes due January 13, 2003 at an interest rate of 6.05%. These funds were used to refinance unsecured bank loans in a like total amount. o On July 8, 1998, SCANA issued $75 million of medium-term notes due on July 8, 2003 at an annual interest rate of 6.25%. These funds were used to finance an additional investment of $75 million in Powertel. o On October 23, 1998, SCANA issued $115 million of medium-term notes due on October 23, 2008 at an annual interest rate of 5.81%. These funds were used to reduce short-term debt. o On October 29, 1998, SCANA's shelf registration statement filed with the SEC became effective, providing for the issuance of up to an additional $200 million in medium-term notes. o On November 2, 1998, SCE&G redeemed, prior to maturity, all $30 million principal amount outstanding of its 7.25% Series First and Refunding Mortgage Bonds due January 1, 2002. Without the consent of at least a majority of the total voting power of SCE&G's preferred stock, SCE&G may not issue or assume any unsecured indebtedness if, after such issue or assumption, the total principal amount of all such unsecured indebtedness would exceed 10% of the aggregate principal amount of all of SCE&G's secured indebtedness and capital and surplus; however, no such consent is required to enter into agreements for payment of principal, interest and premium for securities issued for pollution control purposes. Pursuant to Section 204 of the Federal Power Act, SCE&G and GENCO must obtain FERC authority to issue short-term debt. The FERC has authorized SCE&G to issue up to $250 million of unsecured promissory notes or commercial paper with maturity dates of twelve months or less but not later than December 31, 2001. GENCO has not sought such authorization. At December 31, 1998 SCE&G had $285 million of authorized lines of credit which includes credit agreements for a maximum of $250 million to support the issuance of commercial paper. Unused lines of credit at December 31, 1998 totaled $285 million. SCE&G's commercial paper outstanding at December 31, 1998 and 1997 was $125.2 million and $13.3 million, respectively. See "Fuel Financing Agreements" for a discussion of Fuel Company's credit agreement. SCE&G's Restated Articles of Incorporation prohibit issuance of additional shares of preferred stock without the 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, 1998 the Preferred Stock Ratio was 2.27. On January 26, 1998 an additional 3,000,000 shares of SCANA common stock were registered for sale under the SPSP. During 1998, shares for the SPSP and the Investor Plus Plan were purchased on the open market. The Company's ratios of earnings to fixed charges (SEC method) were 3.75, 3.65, 3.60, 3.00 and 2.55 for the years ended December 31, 1998, 1997, 1996, 1995 and 1994, respectively. For SCE&G these ratios were 4.52, 3.85, 3.80, 3.41 and 3.46 for the same periods. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the next twelve months and for the foreseeable future. Fuel Financing Agreements SCE&G has assigned to Fuel Company all of its rights and interests in its various contracts relating to the acquisition and ownership of nuclear and fossil fuels. To finance nuclear and fossil fuels and sulfur dioxide emission allowances, Fuel Company issues, from time to time, commercial paper which is supported, up to $125 million, by an irrevocable revolving credit agreement which expires December 19, 2000. Accordingly, the amounts outstanding have been included in long-term debt. This commercial paper and amounts outstanding under the revolving credit agreement, if any, are guaranteed by SCE&G. The full amount of the credit agreement was available at December 31, 1998. At December 31, 1998 commercial paper outstanding was approximately $66.0 million at a weighted average interest rate of 5.45%. (See Note 4 of Notes to Consolidated Financial Statements for the Company and for SCE&G.) Electric Operations Electric Sales In 1998 residential sales of electricity accounted for 42% of electric sales revenues; commercial sales 30%; industrial sales 19%; sales for resale 3%; and all other 6%. The Company's KWH sales by classification for the years ended December 31, 1998 and 1997 are as follows: Sales KWH (Millions) Classification 1998 1997 %Change Residential 6,324 5,647 11.98 Commercial 5,899 5,321 10.87 Industrial 5,824 5,434 7.18 Sale for resale 1,125 1,060 6.17 Other 536 506 5.90 Total Territorial 19,708 17,968 9.68 Negotiated Market Sales Tariff 1,495 884 69.08 Total 21,203 18,852 12.47 Sales for resale includes electricity furnished for resale to three municipalities and two electric cooperatives. One electric cooperative has notified SCE&G of its intent to terminate in the year 2000 its wholesale power contract with SCE&G and bid out its electric requirements. Sales under the Negotiated Market Sales Tariff during 1998 include sales to 34 investor-owned utilities, three electric cooperatives, one municipality and four federal/state electric agencies. During 1997, sales under the Negotiated Market Sales Tariff included sales to 28 investor-owned utilities, three electric cooperatives, two municipalities and three federal/state electric agencies. The electric sales volume from residential sales increased for 1998 primarily as a result of warmer weather. During 1998 SCE&G recorded a net increase of 13,542 customers, increasing its total customers to 517,447. The all-time peak demand of 3,935 MW was set on July 9, 1998. Electric Interconnections SCE&G 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 580 MW. SCE&G's transmission system is part of the interconnected grid extending over a large part of the southern and eastern portions of the nation. SCE&G, Virginia Power Company, Duke Power Company, Carolina Power & Light Company, Yadkin, Incorporated and Santee Cooper (formerly The South Carolina Public Service Authority) are members of the Virginia-Carolinas Reliability Group, one of the several geographic divisions within the Southeastern Electric Reliability Council. This Council provides for coordinated planning for reliability among bulk power systems in the Southeast. SCE&G is also interconnected with Georgia Power Company, Savannah Electric & Power Company, Oglethorpe Power Corporation and Southeastern Power Administration's Clark Hill Project. Fuel Costs The following table sets forth the average cost of nuclear fuel and coal and the weighted average cost of all fuels (including oil and natural gas) used by the Company for the years 1996-1998. 1998 1997 1996 ---- ---- ---- Nuclear: Per million BTU $ .46 $ .47 $ .47 Coal: SCE&G Per ton $38.19 $38.22 $39.27 Per million BTU 1.50 1.54 1.55 GENCO: Per ton $41.67 $44.49 $41.66 Per million BTU 1.63 1.61 1.62 Weighted Average Cost of All Fuels: Per million BTU $ 1.49 $ 1.52 $ 1.52 Fuel Supply The following table shows the sources and approximate percentages of the Company's total KWH generation by each category of fuel for the years 1996-1998 and the estimates for 1999 and 2000. Percent of Total KWH Generated Estimated Actual 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Coal 73% 73% 69% 71% 71% Nuclear 22 22 25 24 24 Hydro 5 5 5 5 5 Natural Gas & Oil - - 1 - - --- --- --- ---- --- 100% 100% 100% 100% 100% === === === === === Coal is used at all five of SCE&G's fossil fuel-fired plants and GENCO's Williams Station. Unit train deliveries are used at all of these plants and truck deliveries are used at three of these plants. On December 31, 1998 SCE&G had approximately a 68-day supply of coal in inventory and GENCO had approximately an 83-day supply. 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 existing contracts. Contracts for the purchase of coal represent 86.6% of estimated requirements for 1999 (approximately 6.1 million tons). Contract coal is purchased from nine suppliers located in eastern Kentucky, Tennessee and southwest Virginia. Contract commitments, which expire at various times from 1999 through 2006, approximate 5.3 million tons annually. Sulfur restrictions on the contract coal range from .75% to 2%. The Company believes that SCE&G's and GENCO's operations are in substantial compliance with all existing regulations relating to the discharge of sulfur dioxide. The Company is unaware that any more stringent sulfur content requirements for existing plants are contemplated at the State level by DHEC. However, the Company will be required to meet the more stringent Federal emissions standards established by the Clean Air Act (see "Environmental Matters"). SCE&G has adequate supplies of uranium or enriched uranium product under contract to manufacture nuclear fuel for Summer Station through 2005. The following table summarizes all contract commitments for the stages of nuclear fuel assemblies: Remaining Expiration Commitment Contractor Regions (1) Date - ---------- ---------- ----------- ---- Enrichment United States Enrichment Corporation(2) 14-18 2005 Fabrication Westinghouse Electric Corporation 14-21 2009 (1) A region represents approximately one-third to one-half of the nuclear core in the reactor at any one time. Region 14 will be loaded in 1999. (2) Contract provisions for the delivery of enriched uranium product encompass supply, conversion and enrichment services. SCE&G has on-site spent nuclear fuel storage capability until at least 2009 and expects to be able to expand its storage capacity to accommodate the spent fuel output for the life of the plant through rod consolidation, dry cask storage or other technology as it becomes available. In addition, there is sufficient on-site storage capacity over the life of Summer Station to permit storage of the entire reactor core in the event that complete unloading should become desirable or necessary for any reason. (See "Nuclear Fuel Disposal" under "Environmental Matters" for information regarding the contract with the DOE for disposal of spent fuel.) Summer Station will conduct a refueling outage in April 1999 which is expected to last approximately 30 days. Decommissioning Decommissioning of Summer Station is presently scheduled to commence when the operating license expires in the year 2022. Based on a 1991 study, the expenditures (on a before-tax basis) related to SCE&G's share of decommissioning activities were estimated to be approximately $200.0 million, including partial reclamation costs. SCE&G is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. SCE&G's method of funding decommissioning costs is referred to as COMReP (Cost of Money Reduction Plan). Under this plan, funds collected through rates ($3.2 million in each of 1998 and 1997) are used to pay premiums on insurance policies on the lives of certain Company personnel. SCE&G is the beneficiary of these policies. Through these insurance contracts, SCE&G is able to take advantage of income tax benefits and accrue earnings on the fund on a tax-deferred basis. Amounts for decommissioning collected through electric rates, insurance proceeds, and interest on proceeds less expenses are transferred by SCE&G to an external trust fund in compliance with the financial assurance requirements of the NRC. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis. The trust's sources of decommissioning funds under the COMReP program include investment components of life insurance policy proceeds, return on investment and the cash transfers from SCE&G described above. SCE&G records its liability for decommissioning costs in deferred credits. Gas Operations Gas Sales The Company derives gas sales revenues from three sources: SCE&G's gas distribution, Pipeline Corporation's gas transmission and Energy Marketing's retail market in Georgia. Energy marketing began signing up retail customers on November 1, 1998. By December 31, 1998, Energy Marketing had approximately 76,500 such customers. However, due to the timing lag between signing up customers and actually billing them, sales of gas and associated revenues by Energy Marketing were insignificant as of December 31, 1998, and are not included in the following discussion. In 1998 the Company's residential sales accounted for 24% of gas sales revenues; commercial sales 18%; industrial sales 46%; and sales for resale 12%. During the same period, SCE&G's residential sales accounted for 43% of gas sales revenues; commercial sales 31%; industrial sales 26%. Dekatherm sales by classification for the years ended December 31, 1998 and 1997 are presented below: Sales Dekatherms (000) The Company SCE&G Classification 1998 1997 % Change 1998 1997 % Change - ---------------------------------------------------------------------------- Residential 11,917 11,920 - 11,917 11,920 - Commercial 11,383 10,986 3.6 11,294 10,905 3.6 Industrial 62,030 55,337 12.1 18,093 15,729 15.0 Sales for resale 15,744 16,667 (5.5) - - - Transportation gas 4,435 5,804 (23.6) 2,004 2,677 (25.2) - ---------------------------------------------------------------------------- Total 105,509 100,714 4.8 43,308 41,231 5.0 =========================================================================== The Company's and SCE&G's gas sales volume increased for 1998 as a result of increased sales to electric generation facilities and customer growth. During 1998 the Company recorded a net increase of 4,256 customers, increasing its total customers to 256,957. SCE&G recorded a net increase of 4,255 gas customers, increasing its total customers to 256,842. The demand for gas is affected by conservation, the weather, the price relationship between gas and alternate fuels and other factors. Pipeline Corporation has been successful in purchasing lower cost natural gas in the spot market and arranging for its transportation to South Carolina. Pipeline Corporation has also negotiated contracts with certain direct and indirect industrial customers for the transportation of natural gas that the industrial customers purchase directly from suppliers. Pipeline Corporation, operating wholly within the State of South Carolina, provides natural gas utility service, including transportation services, for its customers, and supplies natural gas to SCE&G and other wholesale purchasers. Energy Marketing acquires and sells natural gas in regulated and deregulated markets. Energy Marketing has not supplied natural gas to any affiliate for use in providing regulated gas utility services. Gas Cost and Supply Pipeline Corporation purchases natural gas under contracts with producers and marketers on a short-term basis at current price indices and on a long-term basis for reliability assurance at index prices plus a gas inventory charge. The gas is brought to South Carolina through transportation agreements with Southern Natural (expiring in 2003) and Transco (expiring in 2008 and 2017). The volume of gas which Pipeline Corporation is entitled to transport under these contracts on a firm basis is 188 MMCF from Southern Natural and 105 MMCF from Transco. Additional natural gas volumes are brought to Pipeline Corporation's system as capacity is available for interruptible transportation. SCE&G, under contract with Pipeline Corporation, is entitled to receive a daily contract demand of 224,270 dekatherms. The contract allows SCE&G to receive amounts in excess of this demand based on availability. During 1998 Pipeline Corporation's average cost per MCF of natural gas purchased for resale, excluding firm service demand charges, was $2.39 compared to $2.71 during 1997. SCE&G's average cost per MCF was $3.67 and $3.94 during 1998 and 1997, respectively. Pipeline Corporation has engaged in hedging activities on the New York Mercantile Exchange (NYMEX) of its gas supply pursuant to a limited program authorized and monitored by the PSC. Any gains or losses associated with that hedging activity are accounted for in Pipeline Corporation's purchased gas adjustment clause and, therefore, have no impact on net income. To meet the requirements of its high priority natural gas customers during periods of maximum demand, Pipeline Corporation supplements its supplies of natural gas from two LNG plants. The LNG plants are capable of storing the liquefied equivalent of 1,880 MMCF of natural gas, of which approximately 928 MMCF were in storage at December 31, 1998. On peak days the LNG plants can regasify up to 150 MMCF per day. Additionally, Pipeline Corporation had contracted for 6,447 MMCF of natural gas storage space of which 3,888 MMCF were in storage on December 31, 1998. The Company believes that supplies under contract and supplies available for spot market purchase are adequate to meet existing customer demands and to accommodate growth. Curtailment Plans The PSC has established allocation priorities applicable to firm and interruptible capacities on Pipeline Corporation. The curtailment plan priorities of Pipeline Corporation apply to the resale distribution customers of Pipeline Corporation, including SCE&G. Gas Marketing Energy Marketing markets natural gas and light hydrocarbons and provides energy-related risk management services to producers and consumers. In 1998, Energy Marketing began marketing natural gas to residential and commercial customers in Georgia. In 1996, the FERC approved Energy Marketing's application to become a power marketer, allowing Energy Marketing to buy and sell large blocks of electric capacity in wholesale markets. Propane Operations SCANA Propane Gas, Inc. purchases, delivers and sells propane in the Southeast. SCANA Propane Storage, Inc. owns and operates a 60-million gallon underground propane storage facility near Rock Hill, South Carolina and leases storage space to industrial companies, utilities and others. Pipeline Corporation, through a wholly owned subsidiary, owns and operates a 62-mile propane pipeline that connects SCANA Propane Services, Inc.'s propane storage facility with the Dixie Pipeline System which traverses central South Carolina. Regulation General SCANA is a public utility holding company within the meaning of PUHCA, but is exempt under Section 3(a)(1) of PUHCA from regulation by the SEC as a registered holding company unless and until the SEC otherwise orders, except for Section 9(a)(2) thereof prohibiting the acquisition of securities of other public utilities without a prior order of the SEC. SCE&G is subject to the jurisdiction of the PSC as to retail electric, gas and transit rates, service, accounting, issuance of securities (other than short-term promissory notes) and other matters. Federal Energy Regulatory Commission SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by the FERC and the DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting and the issuance of short-term promissory notes. (See "Capital Requirements and Financing Program.") SCE&G holds licenses under the Federal Water Power Act or the Federal Power Act with respect to all of its hydroelectric projects. The expiration dates of the licenses covering the projects are as follows: Project Capability (KW) License Expiration Neal Shoals 5,000 2036 Parr Shoals 14,000 2020 Stevens Creek 9,000 2025 Columbia 10,000 2000 Saluda 206,000 2007 Fairfield Pumped Storage 512,000 2020 SCE&G filed an application for a new license for Columbia on 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 SCE&G is subject to regulation by the NRC with respect to the ownership and operation of Summer Station. The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust 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. In 1998 the NRC completed the Systematic Assessment of Licensee Performance (SALP) for Summer Station. The SALP assesses the four functional areas of plant operations, maintenance, engineering and plant support. In 1998 Summer Station received a superior rating (the NRC's highest rating) in each of the four functional areas. 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 For a discussion of the impact of various rate matters, see Regulatory Matters in the Liquidity and Capital Resources section of Management's Discussion and Analysis for the Company and SCE&G. Fuel Cost Recovery Procedures The PSC has established a fuel cost recovery procedure which determines the fuel component in SCE&G's retail electric base rates annually based on projected fuel costs for the ensuing twelve-month period, adjusted for any overcollection or undercollection from the preceding twelve-month period. SCE&G has the right to request a formal proceeding at any time should circumstances dictate such a review. In the April 1998 annual review of the fuel cost component of electric rates, the PSC left the rate unchanged at 12.85 mills per KWH. SCE&G's gas rate schedules and contracts include mechanisms which allow it to recover from its customers changes in the actual cost of gas. SCE&G's firm gas rates allow for the recovery of a fixed cost of gas, based on projections, as established by the PSC in annual gas cost and gas purchase practice hearings. Any differences between actual and projected gas costs are deferred and included when projecting gas costs during the next annual gas cost recovery hearing. In the October 1998 review the PSC left the base cost of gas unchanged at 48.182 cents per therm. Environmental Matters General Federal and state authorities have imposed environmental regulations and standards relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. Developments in these areas may require that equipment and facilities be modified, supplemented or replaced. The ultimate effect of these regulations and standards upon existing and proposed operations cannot be forecast. Capital Expenditures In the years 1996 through 1998, capital expenditures for environmental control amounted to approximately $75.5 million. This was in addition to expenditures included in "Other operation" and "Maintenance" expenses, which were approximately $18.8 million, $17.1 million, and $13.9 million during 1998, 1997 and 1996, respectively. It is not possible to estimate all future costs for environmental purposes, but forecasts for capitalized expenditures are $34.6 million for 1999 and $108.3 million for the four-year period 2000 through 2003. These expenditures are included in the Company's construction program. Air Quality Control The Clean Air Act requires electric utilities to reduce emissions of sulfur dioxide and nitrogen oxide substantially 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. SCE&G and GENCO filed compliance plans with DHEC related to Phase II sulfur dioxide requirements in 1995 and Phase II nitrogen oxide requirements in 1997. The Company currently estimates that air emissions control equipment will require capital expenditures of $170 million over the 1999-2003 period to retrofit existing facilities, with increased operation and maintenance cost of approximately $18 million per year. To meet compliance requirements through the year 2008, the Company anticipates total capital expenditures of approximately $268 million. Water Quality Control The Federal Clean Water Act, as amended, provides for the imposition of effluent limitations that require various levels of treatment for each wastewater discharge. Under this Act, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued for all and renewed for nearly all of SCE&G's and GENCO's generating units. Concurrent with renewal of these permits the permitting agency has implemented a more rigorous program in monitoring and controlling thermal discharges and strategies for toxicity reduction in wastewater streams. The Company has been developing compliance plans for these initiatives. Comprehensive Environmental Response, Compensation and Liabilities Act (Superfund) 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 expenditures, if any, deemed 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 relate primarily to regulated operations. Such amounts are deferred and amortized with recovery provided through rates. The Company has also recovered portions of its environmental liabilities through settlements with various insurance carriers. As of December 31, 1998, the Company has recovered all amounts previously deferred for its electric operations. The Company expects to recover all deferred amounts related to its gas operations by December 2002. Deferred amounts, net of amounts recovered through rates and settlements, totaled $21.3 million and $32.4 million at December 31, 1998 and 1997, respectively. The deferral includes the estimated costs associated with the matters discussed below. o In September 1992, the EPA notified SCE&G, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park area site in Charleston, South Carolina. This site encompasses approximately 30 acres and includes properties which were locations for industrial operations, including a wood preserving (creosote) plant, one of SCE&G's decommissioned manufactured gas plants, properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priorities List, but may be added in the future. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993, and the EPA approved a Remedial Investigation Report in February 1997 and a Feasibility Study Report in June 1998. In July 1998, the EPA approved SCE&G's Removal Action Work Plan for soil excavation. SCE&G completed Phase One of the Removal Action in 1998, at a cost of approximately $1.5 million. Phase Two will include excavation and installation of several permanent barriers to mitigate coal tar seepage. Phase Two began in November 1998, and is expected to cost approximately $2.2 million. On September 30, 1998 a Record of Decision was issued which sets forth the EPA's view of the extent of each PRP's responsibility for site contamination and the level to which the site must be remediated. On January 13, 1999, the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action directing SCE&G to design and carry out a plan of remediation for the Calhoun Park site. The Order is temporarily stayed pending further negotiations between SCE&G and the EPA. In October 1996 the City of Charleston and SCE&G settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by SCE&G to the City. SCE&G is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup as discussed above. As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The parking garage is currently under construction, and is scheduled for completion in the spring of the year 2000. o SCE&G owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. For the site located in Sumter, South Carolina, effective September 15, 1998, SCE&G entered into a Remedial Action Plan Contract with DHEC pursuant to which it agreed to undertake a full site investigation and remediation under the oversight of DHEC. Site investigation and characterization are proceeding according to schedule. Upon selection and successful implementation of a site remedy, DHEC will give SCE&G a Certificate of Completion, and a covenant not to sue. SCE&G is continuing to investigate the other two sites, and is monitoring the nature and extent of residual contamination. Solid Waste Control In 1998 DHEC promulgated regulations for the disposal of industrial solid waste as directed by the South Carolina Solid Waste Policy and Management Act of 1991. The full impact of these regulations is not yet known; however, they may significantly increase SCE&G's and GENCO's costs of construction and operation of existing and future ash management facilities. Nuclear Fuel Disposal The Nuclear Waste Policy Act of 1982 required that the United States government make available by 1998 a permanent repository for high-level radioactive waste and spent nuclear fuel and imposes a fee of 1.0 mil per KWH of net nuclear generation after April 7, 1983. Payments, which began in 1983, are subject to change and will extend through the operating life of SCE&G's Summer Station. SCE&G entered into a contract with the DOE on June 29, 1983 providing for permanent disposal of its spent nuclear fuel by the DOE. The DOE presently estimates that the permanent storage facility will not be available until 2010. SCE&G has on-site spent nuclear fuel storage capability until at least 2009 and expects to be able to expand its storage capacity to accommodate the spent nuclear fuel output for the life of the plant through rod consolidation, dry cask storage or other technology as it becomes available. The Act also imposes on utilities the primary responsibility for storage of their spent nuclear fuel until the repository is available. Year 2000 Issue For a discussion of the measures being taken to address the Year 2000 issue, see Other Matters in the Liquidity and Capital Resources section of Management's Discussion and Analysis for the Company and SCE&G. Other Matters With regard to SCE&G's insurance coverage for Summer Station, reference is made to Note 10B of Notes to Consolidated Financial Statements for the Company and for SCE&G, which is incorporated herein by reference. On December 1, 1997, Petroleum Resources sold substantially all of its assets for $110 million. The resulting gain of $17.6 million was recorded in "Other Income." Proceeds from the sale were used to repurchase approximately 3.7 million shares of SCANA's outstanding common stock through open market purchases. All of the repurchased shares were retired, reducing the number of shares issued and outstanding. For a description of the Company's investments in various telecommunications companies, see Other Matters in the Liquidity and Capital Resources section of Management's Discussion and Analysis for the Company. ITEM 2. PROPERTIES The Company owns, directly or indirectly, all of the capital stock of each of its subsidiaries except for the preferred stock of SCE&G, the preferred securities of SCE&G Trust I and 30% of the common stock of an indirect subsidiary. It also has investments in two LLC's, one of which is building and will operate a cogeneration facility in Charleston, South Carolina, and the other which is constructing a lime production facility. The Company owns no other significant property. SCE&G's bond indentures, securing the First and Refunding Mortgage Bonds and First Mortgage Bonds issued thereunder, constitute direct mortgage liens on substantially all of its property. GENCO's Williams Station is subject to a first mortgage lien. For a brief description of the properties of the Company's other subsidiaries, which are not significant as defined in Rule 1-02 of Regulation S-X, see Item 1, "Business-Segments of Business-Nonregulated Businesses." Electric Information on electric generating facilities, all of which are owned by SCE&G except as noted, are as follows: Net Generating Present Year Capability Facility Fuel Capability Location In-Service (Summer Rating)(KW) Steam Urquhart Coal/Gas Beech Island, SC 1953 250,000 McMeekin Coal/Gas Irmo, SC 1958 252,000 Canadys Coal/Gas Canadys, SC 1962 415,000 Wateree Coal Eastover, SC 1970 720,000 Williams (1) Coal Goose Creek, SC 1973 580,000 Summer (2) Nuclear Parr, SC 1984 635,000 D-Area (3) Coal DOE Savannah River Site, SC 1995 35,000 Cope Coal Cope, SC 1996 420,000 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 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 Gas/Oil Goose Creek, SC 1972 49,000 Hagood Gas/Oil Charleston, SC 1991 95,000 Hydro Neal Shoals Carlisle, SC 1905 5,000 Parr Shoals Parr, SC 1914 14,000 Stevens Creek Martinez, GA 1914 9,000 Columbia Columbia, SC 1927 10,000 Saluda Irmo, SC 1930 206,000 Pumped Storage Fairfield Parr, SC 1978 512,000 --------- Total 4,387,000 (1) The steam unit at Williams Station is owned by GENCO. (2) Represents SCE&G's two-thirds portion of the Summer Station. (3) This plant is leased from the DOE and is dedicated 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. SCE&G owns 428 substations having an aggregate transformer capacity of 21,928,145 KVA. The transmission system consists of 3,140 miles of lines and the distribution system consists of 16,346 pole miles of overhead lines and 3,590 trench miles of underground lines. Gas Natural Gas SCE&G's gas system consists of approximately 11,963 miles of distribution mains and related service facilities. Pipeline Corporation's gas system consists of approximately 1,919 miles of transmission pipeline of up to 24 inches in diameter which connect its resale customers' distribution systems with transmission systems of Southern Natural and Transco. Pipeline Corporation owns two LNG plants, one located near Charleston, South Carolina and the other in Salley, South Carolina. The Charleston facility can liquefy up to 6 MMCF per day and store the liquefied equivalent of 980 MMCF of natural gas. The Salley facility can store the liquefied equivalent of 900 MMCF of natural gas and has no liquefying capabilities. On peak days, the Charleston facility can regasify up to 60 MMCF per day and the Salley facility can regasify up to 90 MMCF. Propane SCE&G has propane air peak shaving facilities which can supplement the supply of natural gas by gasifying propane to yield the equivalent of 102 MMCF per day. These facilities can store the equivalent of 430 MMCF of natural gas. Transit SCE&G owns 61 motor coaches used in the operation of the Columbia transit system. The Columbia system is comprised of fifteen routes covering 177 miles. Effective October 1, 1996, SCE&G transferred ownership and operation of the Charleston transit system to the City of Charleston. As part of the transfer, the Company conveyed to the City ownership of facilities, equipment and four motor coaches used in the operation of the transit system. The City and SCE&G entered into an interim operating agreement whereby SCE&G would operate the system for the City until a Regional Transit Authority was established. On January 1, 1999, the Regional Transit Authority was established and became responsible to operate and maintain the Charleston system. ITEM 3. LEGAL PROCEEDINGS For information regarding legal proceedings, see ITEM 1., BUSINESS Rate Matters and BUSINESS - Environmental Matters Comprehensive Environmental Response, Compensation and Liabilities Act (Superfund) and Environmental Assessment Program and Note 10 of Notes to Consolidated Financial Statements appearing in Item 8., FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA for the Company and for SCE&G. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable CORPORATE STRUCTURE SCANA CORPORATION A holding company, owning thirteen direct, wholly owned subsidiaries SOUTH CAROLINA ELECTRIC SCANA ENERGY MARKETING, INC. & GAS COMPANY Markets electricity, natural gas Generates and sells electricity and other light hydrocarbons to wholesale and retail customers, primarily in the Southeast. purchases, sells and transports Markets natural gas in Georgia's natural gas at retail and provides deregulated natural gas market. provides public transit service Provides energy-related risk in Columbia. management services to producers and consumers. SOUTH CAROLINA GENERATING COMPANY, INC. SERVICECARE, INC. Owns and operates William Station Provides energy-related products and sells electricity to SCE&G. and services, principally service contracts on home appliances and SOUTH CAROLINA FUEL COMPANY, INC. home security services. Acquires, owns and provides financing for SCE&G's nuclear PRIMESOUTH, INC. fuel, fossil fuel and sulfur Engages in power plant management dioxide emission allowance. and maintenance services. SOUTH CAROLINA PIPELINE CORPORATION SCANA RESOURCES, INC. Purchases, sells and transports Conducts energy-related businesses natural gas to wholesale and direct and services. industrial customers. Owns and operates a propane pipeline and two SCANA PETROLEUM RESOURCES, INC. LNG plants for the liquefaction, In liquidation following sale of storage and regasification of natural oil and gas properties. gas. SCANA COMMUNICATIONS, INC. SCANA DEVELOPMENT CORPORATION -------------------------- ----------------------------- Provides fiber optic telecommun- Engaged in the sale of real estate. ications in South Carolina, a (In liquidation.) public safety radio communi- cations network, and tower construction, management and rental services for wireless providers and invests in telecommunications companies. SCANA PROPANE GAS, INC. Purchases, delivers and sells propane. SCANA PROPANE STORAGE, INC. Owns and operates an underground propane storage facility and leases storage to industries, utilities and others. Each of the above listed companies is organized and incorporated under the laws of the State of South Carolina. EXECUTIVE OFFICERS OF SCANA CORPORATION The executive officers are elected at the annual organizational meeting of the Board of Directors, held immediately after the annual meeting of stockholders, and hold office until the next such organizational meeting, unless a resignation is submitted, or unless the Board of Directors shall otherwise determine. Positions Held During Name Age Past Five Years Dates W. B. Timmerman 52 Chairman of the Board and Chief Executive Officer 1997-present Chief Operating Officer 1996-1997 President 1995-present President, SCI 1996-1997 Executive Vice President *-1995 Chief Financial Officer and Controller *-1996 Senior Vice President *-1994 J. L. Skolds 48 Group Executive - SCANA Electric Group 1997-present President and Chief Operating Officer,SCE&G 1996-present Senior Vice President - Generation, SCE&G *-1996 Senior Vice President - Nuclear Operations, SCE&G 1994-1995 Vice President - Nuclear Operations, SCE&G *-1994 A. H. Gibbes 52 Group Executive - SCANA Gas Group 1996-present President, Pipeline Corporation 1996-present President, C&T Pipeline, LLC 1996-present Senior Vice President, General Counsel and Assistant Secretary *-1996 Vice President and General Counsel *-1994 President and Treasurer, SCANA Development Corp. *-present C. B. Novinger** 49 Senior Vice President - Administration, Governmental and Public Affairs *-present K. B. Marsh 43 Senior Vice President - Finance, Chief Financial and Controller 1998-present Vice President - Finance, Chief Financial Officer and Controller 1996-1998 Vice President - Finance, Treasurer and Secretary *-1996 H. T. Arthur, II 53 Senior Vice President and General Counsel 1998-present Vice President and General Counsel 1996-1998 Assistant Secretary, SCE&G, and other subsidiaries 1996-present Vice President and General Counsel, Pipeline Corporation *-1996 A. M. Milligan 39 Senior Vice President - Marketing 1998-present Director of Consumer Credit Marketing, Barnett Bank, N. A., Florida 1996-1998 Senior Vice President - Marketing, Barnett Card Services, Florida *-1996 G. J. Bullwinkel 50 President, SCI 1997-present Senior Vice President- Retail Electric, SCE&G 1995-present Senior Vice President- Fossil & Hydro Production, SCE&G *-1994 * Indicates position held at least since March 1, 1994. ** C. B. Novinger has announced her retirement effective May 26, 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS COMMON STOCK INFORMATION - SCANA Corporation 1998 1997 4th 3rd 2nd 1st 4th 3rd 2nd 1st Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Price Range: (a) High 37 1/4 33 7/8 31 3/8 31 29 15/16 25 5/8 25 5/8 26 5/8 Low 31 5/16 28 1/2 28 27 7/8 24 23 7/8 23 3/8 24 7/8 (a) As reported on the New York Stock Exchange Composite Listing. Dividends Per Share: 1998 Amount Date Declared Date Paid First Quarter .3850 February 17, 1998 April 1, 1998 Second Quarter .3850 April 23, 1998 July 1, 1998 Third Quarter .3850 August 19, 1998 October 1, 1998 Fourth Quarter .3850 October 20, 1998 January 1, 1999 1997 Amount Date Declared Date Paid First Quarter .3775 February 18, 1997 April 1, 1997 Second Quarter .3775 April 24, 1997 June 30, 1997 Third Quarter .3775 August 20, 1997 October 1, 1997 Fourth Quarter .3775 October 21, 1997 January 1, 1998 As of December 31, 1998 1997 Number of common shares outstanding 103,572,623 107,321,113 Number of common shareholders of record 30,983 33,395
The principal market for SCANA common stock is the New York Stock Exchange. The ticker symbol used is SCG. The corporate name SCANA is used in newspaper stock listings. The total number of shares of SCANA common stock outstanding at February 26, 1999 was 103,572,623 which was held by 30,679 shareholders of record. All of SCE&G's common stock is owned by SCANA and has no market. During 1998 and 1997 SCE&G paid $167.3 million and $141.4 million, respectively, in cash dividends to SCANA. SECURITIES RATINGS (As of December 31, 1998) SCANA Corporation South Carolina Electric & Gas Company First First and Trust Rating Medium-Term Mortgage Refunding Preferred Preferred Commercial Agency Notes Bonds Mortgage Bonds Stock Securities Paper Duff & Phelps A- A+ A+ A A D-1 Moody's A3 A1 A1 a2 a2 P-1 Standard & Poor's A A+ A+ A A A-1 Further reference is made to Note 5 of Notes to Consolidated Financial Statements for the Company and SCE&G. The Restated Articles of Incorporation of SCE&G 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, 1998 approximately $25.1 million of retained earnings were restricted as to payment of cash dividends on common stock of SCE&G. ITEM 6. SELECTED FINANCIAL DATA SCANA SELECTED FINANCIAL DATA For the Years Ended December 31, 1998 1997 1996 1995 1994 - ------------------------------------ (Millions of dollars, except statistics and per share amounts) Statement of Income Data Operating Revenues $1,632 $1,523 $1,513 $1,353 $1,322 Operating Income 345 314 314 288 260 Other Income 13 38 29 8 (30) Net Income 223 221 215 168 115 Balance Sheet Data Utility Plant, Net $3,787 $3,648 $3,529 $3,469 $3,294 Total Assets 5,281 4,932 4,759 4,534 4,317 Capitalization: Common equity 1,746 1,788 1,684 1,555 1,359 Preferred Stock (Not subject to purchase or sinking fund) 106 106 26 26 26 Preferred Stock, net (Subject to purchase or sinking fund) 11 12 43 46 50 SCE&G - obligated mandatorily redeemable preferred securities of SCE&G's subsidiary, SCE&G Trust I, holding solely $50 million principal amount of 7.55% Junior Subordinated Debentures of SCE&G, due 2027 50 50 - - - Long-term debt, net 1,623 1,566 1,581 1,589 1,549 - ------------------------------------ Total Capitalization $3,536 $3,522 $3,334 $3,216 $2,984 ===================================== = Common Stock Data Weighted Average Number of Common Shares Outstanding (Millions) 105.3 107.1 105.1 99.0 94.7 Earnings Per Weighted Average Share of Common Stock $ 2.12 $2.06 $2.05 $1.70 $1.22 Dividends Declared Per Share of Common Stock $ 1.54 $1.51 $1.47 $1.44 $1.41 Common Shares Outstanding (Year-End) (Millions) 103.6 107.3 106.1 103.6 96.0 Book Value Per Share of Common Stock (Year-End) $16.86 $16.66 $15.86 $15.00 $14.15 Number of Common Shareholders of Record 30,983 33,395 36,178 38,231 39,516 Other Statistics Electric: Customers (Year-End) 517,447 503,905 493,320 484,354 476,412 Total sales (Million KWH) 21,203 18,853 18,904 17,779 17,009 Residential: Average annual use per customer (KWH) 14,481 13,214 14,149 13,859 13,048 Average annual rate per KWH $.0801 $.0799 $.0785 $.0747 $.0743 Generating capability - Net MW (Year-End) 4,387 4,350 4,316 4,282 3,876 Territorial peak demand - Net MW 3,935 3,734 3,698 3,683 3,444 Gas:1 Customers (Year-End) 256,957 252,701 248,681 243,523 238,614 Sales, excluding transportation (Thousand Therms) 1,010,742 949,100 896,294 882,511 781,109 Residential: Average annual use per customer (Therms) 521 531 639 570 543 Average annual rate per therm $.86 $.86 $.74 $.82 $.84 1 Excludes data from Energy Marketing. See previous discussion at Gas Operations. SCE&G SELECTED FINANCIAL DATA For the Years Ended December 31, 1998 1997 1996 1995 1994 (Millions of dollars, except statistics) Statement of Income Data Operating Revenues $1,451 $1,338 $1,345 $1,211 $1,181 Operating Income 312 282 286 256 230 Other Income 13 9 4 9 7 Net Income 227 195 190 169 152 Earnings Available for Common Stock 219 186 185 163 146 Balance Sheet Data Utility Plant, Net $3,432 $3,310 $3,197 $3,158 $2,998 Total Assets 4,246 4,054 3,959 3,802 3,587 Capitalization: Common equity 1,499 1,447 1,413 1,315 1,133 Preferred Stock (Not subject to purchase or sinking funds) 106 106 26 26 26 Preferred Stock, Net (Subject to purchase or sinking funds) 11 12 43 46 50 Company - Obligated mandatorily redeemable preferred securities of the Company's Subsidiary Trust, SCE&G Trust I, holding solely $50 million, principal amount of 7.55% of Junior Subordinated Debentures of the Company, due 2027 50 50 - - - Long-term debt, net 1,206 1,262 1,277 1,279 1,231 Total Capitalization $2,872 $2,877 $2,759 $2,666 $2,440 ===================================================================================================== Other Statistics Electric: Customers (Year-End) 517,472 503,930 493,346 484,381 476,438 Total sales (Million KWH) 21,204 18,853 18,012 17,585 16,840 Residential: Average annual use per customer (KWH)14,481 13,214 14,149 13,859 13,048 Average annual rate per KWH $.0801 $.0799 $.0785 $.0747 $.0743 Generating capability - Net MW (Year-End) 3,807 3,790 3,756 3,722 3,316 Territorial peak demand - Net MW 3,935 3,734 3,698 3,683 3,444 Gas: Customers (Year-End) 256,842 252,587 248,496 242,342 238,433 Sales, excluding transportation (Thousand Therms) 413,038 385,537 390,451 362,384 322,837 Residential: Average annual use per customer (Therms) 521 531 639 570 538 Average annual rate per therm $.86 $.86 $.74 $.82 $.84 - ----
SCANA CORPORATION FINANCIAL SECTION ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements included in this discussion and analysis (or elsewhere in this annual report) which are not statements of historical fact are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following: (1) that the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment, (2) changes in the utility regulatory environment, including the pace of deregulation of retail natural gas and electricity markets in the United States, (3) changes in the economy in areas served by SCANA's subsidiaries, (4) the impact of competition from other energy suppliers, (5) the management of the Company's operations, (6) variations in prices of natural gas and fuels used for electric generation, (7) growth opportunities for the Company's regulated and non-regulated subsidiaries, (8) the results of financing efforts, (9) changes in the Company's accounting policies, (10) weather conditions in areas served by the Company's utility subsidiaries, (11) performance of the telecommunications companies in which the Company has made significant investments, (12) inflation, (13) exposure to environmental issued and liabilities, (14) changes in environmental regulation, (15) successful correction of any material Year 2000 problem or, alternatively, successful implementation of a contingency plan by the Company and any critical third party suppliers and (15) the other risks and uncertainties described from time to time in the Company's periodic reports filed with the SEC. The Company disclaims any obligation to update any forward-looking statements. COMPETITION The electric utility industry continues a major transition that is resulting in expanded market competition and less regulation. Deregulation of electric wholesale and retail markets is creating opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. Legislative initiatives at the Federal and state levels are being considered and, if enacted, could mandate market deregulation. The pace of deregulation, future prices of electricity, and the regulatory actions which may be taken by the PSC and the FERC in response to the changing environment cannot be predicted. However, the FERC, in issuing Order 888 in April 1996, accelerated competition among electric utilities by providing for open access to wholesale transmission service. 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 two percent of SCANA's electric revenues is under FERC jurisdiction for the purpose of setting rates for wholesale service. Legislation is pending in South Carolina that would deregulate the state's retail electric market and enable customers to choose their supplier of electricity. The Company is not able to predict whether the legislation will be enacted and, if it is, the conditions it will impose on utilities that currently operate in the state and future market participants. The Company is aggressively pursuing actions to position itself strategically for the transformed environment. The Company's entry into the newly deregulated retail natural gas market in Georgia is designed in part to provide a potential market for any future deregulated electric industry (see Georgia Retail Gas Market below). In addition, SCE&G has undertaken a variety of initiatives, including reductions in staffing levels and the accelerated recovery of its electric regulatory assets. SCE&G has also established open access transmission tariffs and is selling bulk power to wholesale customers at market-based rates. A significant new management information system was implemented in 1998, and a new customer information system will be fully implemented in the first half of 1999. Marketing of services to commercial and industrial customers has increased significantly. SCE&G has obtained long term power supply contracts with a significant portion of its industrial customers. The Company believes that these actions as well as numerous others that have been and will be taken demonstrate its 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 that a write-off would be required. It is expected that cash flows and the financial position of the Company would not be materially affected by the discontinuation of the accounting treatment. The Company reported approximately $216 million and $71 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $130 million and $56 million, respectively, on its balance sheet at December 31, 1998. The Company's generation assets are exposed to considerable financial risks in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, the Company could be required to write down its investment in these assets. The Company cannot predict whether any write-downs will be necessary and, if they are, the extent to which they would adversely affect the Company's results of operations in the period in which they are recorded. As of December 31, 1998, the Company's net investment in fossil/hydroelectric generation and nuclear generation assets was $1,220.3 million and $619.2 million, respectively. Georgia Retail Gas Market In October 1998, Georgia's retail natural gas market opened to competition. The Company's subsidiary, Energy Marketing, is among the 19 marketers authorized to market natural gas to the 1.4 million residential and commercial customers served by a Georgia utility. Energy Marketing is offering customers a competitive rate without requiring a long-term contract or deposit. Energy Marketing's strategy relies heavily on direct advertising, including incentives to customers who choose Energy Marketing to be their new service provider. In addition, Energy Marketing has numerous alliances and affinity relationships with electric member cooperatives, churches and community organizations, among others, through which it offers incentives. Energy Marketing's success in acquiring customers is significantly exceeding its projections. As a result, expenses are also significantly higher than expected. For the period ending December 31, 1998, Energy Marketing had incurred approximately $8 million in losses (net of taxes), including startup costs which were expensed as incurred. At the current rate of expansion, Energy Marketing anticipates incurring losses during 1999 equal or greater than those experienced in 1998. The level of future revenues and expenditures, including startup costs, is dependent on several factors that cannot be reasonably predicted. These factors included how rapidly Energy Marketing gains market share, the intensity of competition as it continues to develop, the margin Energy Marketing is able to achieve on gas sales and its ability to find industrial interruptible customers to purchase available capacity. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements arise primarily from SCE&G's operational needs, SCE&G's construction program and the need to fund the activities or investments of the Company's nonregulated subsidiaries. The ability of the Company's regulated subsidiaries to replace existing plant investment, as well as to expand to meet future demand for electricity and gas, will depend upon their ability to attract the necessary financial capital on reasonable terms. The Company's regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and the regulated subsidiaries continue their ongoing construction programs, it may be necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by the regulated subsidiaries' ability to obtain adequate and timely rate and other regulatory relief if requested. SCANA and Westvaco each own a 50% interest in Cogen South LLC (Cogen). Cogen was formed to build and operate a cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. Construction of the facility began in September 1996 and is in the final stages. Construction financing of approximately $170 million was provided to Cogen by banks. On December 30, 1998, SCANA provided a capital contribution of approximately $15.5 million to Cogen. On September 10, 1998, the contractor in charge of construction filed suit in Circuit Court seeking approximately $51 million from Cogen, alleging that construction cost overruns were incurred, and that the construction contract provides for recovery of these costs. In addition to Cogen, Westvaco, SCE&G and SCANA were also named in the suit. SCANA and the other defendants believe the suit is without merit and are mounting an appropriate defense. SCANA does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with SCE&G. In consideration for the electric franchise agreement, SCE&G is paying the City $25 million over seven years (1996 through 2002) and has donated to the City the existing transit assets in Charleston. The $25 million is included in electric plant-in-service. In settlement of environmental claims the City may have had against SCE&G involving the Calhoun Park area, where SCE&G and its predecessor companies operated a manufactured gas plant until the 1960's, SCE&G is paying the City $26 million over a four-year period (1996 through 1999). As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The parking garage is currently under construction, and is scheduled for completion in the spring of the year 2000. The revised estimated primary cash requirements for 1999, excluding requirements for fuel liabilities and short-term borrowings, and the actual primary cash requirements for 1998 are as follows: 1999 1998 - ---------------------------------------------------------------------------- (Millions of Dollars) Property additions and construction expenditures, net of allowance for funds used during construction $308 $281 Nuclear fuel expenditures 5 23 Maturing obligations, redemptions and sinking and purchase fund requirements 158 257 - ---------------------------------------------------------------------------- Total $471 $561 ============================================================================ Approximately 45% of total cash requirements (after payment of dividends) was provided from internal sources in 1998 as compared to 62% in 1997. SCANA has in effect a medium-term note program for the issuance from time to time of unsecured medium-term debt securities. The proceeds from the sales of these securities may be used to fund additional business activities in nonutility subsidiaries, to reduce short-term debt incurred in connection therewith or for general corporate purposes. At December 31, 1998, SCANA had registered with the SEC and available for issuance $200.0 million under this program. SCE&G's First and Refunding Mortgage Bond Indenture, dated April 1, 1945 (Old Mortgage), contains provisions prohibiting the issuance of additional bonds thereunder (Class A Bonds) unless net earnings (as therein defined) for twelve consecutive months out of the fifteen months prior to the month of issuance are at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1998 the Bond Ratio was 5.30. 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 $396 million at December 31, 1998), (ii) retirements of Class A Bonds (which retirement credits totaled $100.3 million at December 31, 1998), and (iii) cash on deposit with the Trustee. SCE&G has a bond indenture dated April 1, 1993 (New Mortgage) covering substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are issued under the New Mortgage on the basis of a like principal amount of Class A Bonds issued under the Old Mortgage which have been deposited with the Trustee of the New Mortgage (of which $315 million were available for such purpose at December 31, 1998), until such time as two thirds of all Class A Bonds are held by the Trustee. Thereafter, the Old Mortgage may be amended to allow New Bonds to 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, 1998 the New Bond Ratio was 6.72. SCE&G expects in 1999 to amend the Old Mortgage to conform certain of its provisions to those of the New Mortgage, including (i) the elimination of the maintenance and replacement fund and the utilization of unfunded net property additions previously applied in satisfaction thereof as a basis for the issuance of bonds; (ii) the issuance of bonds in a principal amount equal to 70% of unfunded net property additions instead of 60%; and (iii) the conformance of the interest coverage requirements for the issuance of bonds to those of the New Mortgage. The following additional financing transactions have occurred since December 31, 1997: o On January 13, 1998 SCANA issued $60 million of medium-term notes due January 13, 2003 at an interest rate of 6.05%. The funds were used to refinance unsecured bank loans in a like total amount. o On July 8, 1998, SCANA issued $75 million of medium-term notes having an annual interest rate of 6.25% and maturing on July 8, 2003. These funds were used to finance an additional investment of $75 million in Powertel, Inc. o On October 23, 1998, SCANA issued $115 million of medium-term notes having an annual interest rate of 5.81% and maturing on October 23, 2008. These funds were used to reduce short-term debt. o On October 29, 1998, SCANA's shelf registration statement filed with the SEC became effective, providing for the issuance of up to an additional $200 million in medium-term notes. o On November 2, 1998, SCE&G redeemed, prior to maturity, all $30 million principal amount outstanding of its 7.25% Series First and Refunding Mortgage Bonds due January 1, 2002. Without the consent of at least a majority of the total voting power of SCE&G's preferred stock, SCE&G may not issue or assume any unsecured indebtedness if, after such issue or assumption, the total principal amount of all such unsecured indebtedness would exceed 10% of the aggregate principal amount of all of SCE&G's secured indebtedness and capital and surplus; however, no such consent is required to enter into agreements for payment of principal, interest and premium for securities issued for pollution control purposes. Pursuant to Section 204 of the Federal Power Act, SCE&G and GENCO must obtain FERC authority to issue short-term debt. The FERC has authorized SCE&G to issue up to $250 million of unsecured promissory notes or commercial paper with maturity dates of twelve months or less, but not later than December 31, 2001. GENCO has not sought such authorization. At December 31, 1998 SCE&G had $285 million of authorized lines of credit which includes a credit agreement for a maximum of $250 million to support the issuance of commercial paper. Unused lines of credit at December 31, 1998 totaled $285 million. SCE&G commercial paper outstanding at December 31, 1998 and December 31, 1997 was $125.2 million and $13.3 million, respectively. In addition, Fuel Company had a credit agreement for a maximum of $125 million with the full amount available at December 31, 1998. 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, 1998 was $66.0 million. SCE&G's Restated Articles of Incorporation prohibit issuance of additional shares of preferred stock without consent of the preferred stockholders unless net earnings (as defined therein) for the twelve consecutive months immediately preceding the month of issuance are at least one and one-half times the aggregate of all interest charges and preferred stock dividend requirements (Preferred Stock Ratio). For the year ended December 31, 1998 the Preferred Stock Ratio was 2.27. On January 26, 1998 an additional three million shares of SCANA common stock were registered for sale under the SPSP. During 1998, approximately 1.3 million shares of SCANA's common stock were purchased on the open market for issuance under the SPSP. The Company anticipates that its 1999 cash requirements of $633 million will be met through internally generated funds (approximately 51%, after payment of dividends), and the incurrence of additional short-term and long-term indebtedness. Sales of additional equity securities may also be made. 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 emissions of sulfur dioxide and nitrogen oxide substantially 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. SCE&G and GENCO filed compliance plans with DHEC related to Phase II sulfur dioxide requirements in 1995 and Phase II nitrogen oxide requirements in 1997. The Company currently estimates that air emissions control equipment will require capital expenditures of $170 million over the 1999-2003 period to retrofit existing facilities, with increased operation and maintenance cost of approximately $18 million per year. To meet compliance requirements through the year 2008, the Company anticipates total capital expenditures of approximately $268 million. On September 24, 1998, the United States Environmental Protection Agency (EPA) issued its final regional nitrogen oxide state implementation plan (SIP) call rule. The rule finds that 22 eastern states, including South Carolina, and the District of Columbia are all contributing significantly to ozone non-attainment in downwind states. In response to that finding, EPA is requiring that those 22 states amend their SIP's to achieve significant reductions in ozone emissions within those states, and has targeted primarily utility sources for the application of more rigorous nitrogen oxide emissions controls. A number of states, including South Carolina, and other parties, including a utility coalition of which the Company is a member, have filed suit in federal court to challenge the EPA rule. Should the rule be upheld, the Company may be required to make significant capital expenditures to add supplemental nitrogen oxide control technology to one or more of its fossil generation plants. The Federal Clean Water Act, as amended, provides for the imposition of effluent limitations that require various levels of treatment for each wastewater discharge. Under this Act, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued for all and renewed for nearly all of SCE&G's and GENCO's generating units. Concurrent with renewal of these permits, the permitting agency has implemented a more rigorous program in monitoring and controlling thermal discharges and strategies for toxicity reduction in wastewater streams. The Company has been developing compliance plans for these initiatives. In 1998 DHEC promulgated regulations for the disposal of industrial solid waste as directed by the South Carolina Solid Waste Policy and Management Act of 1991. The full impact of these regulations is not yet known; however, they may significantly increase SCE&G'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 expenditures, if any, deemed 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 relate primarily to regulated operations. Such amounts are deferred and amortized with recovery provided through rates. The Company has also recovered portions of its environmental liabilities through settlements with various insurance carriers. As of December 31, 1998, the Company has recovered all amounts previously deferred for its electric operations. The Company expects to recover all deferred amounts related to its gas operations by December 2002. Deferred amounts, net of amounts recovered through rates and insurance settlements, totaled $21.3 million and $32.4 million at December 31, 1998 and 1997, respectively. The deferral includes the estimated costs associated with the matters discussed below. o In September 1992, the EPA notified SCE&G, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park area site in Charleston, South Carolina. This site encompasses approximately 30 acres and includes properties which were locations for industrial operations, including a wood preserving (creosote) plant, one of SCE&G's decommissioned manufactured gas plants, properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priorities List, but may be added in the future. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993, and the EPA approved a Remedial Investigation Report in February 1997 and a Feasibility Study Report in June 1998. In July 1998, the EPA approved SCE&G's Removal Action Work Plan for soil excavation. SCE&G completed Phase One of the Removal Action in 1998 at a cost of approximately $1.5 million. Phase Two will include excavation and installation of several permanent barriers to mitigate coal tar seepage. Phase Two began in November 1998, and is expected to cost approximately $2.2 million. On September 30, 1998 a Record of Decision was issued which sets forth the EPA's view of the extent of each PRP's responsibility for site contamination and the level to which the site must be remediated. On January 13, 1999 the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action directing SCE&G to design and carry out a plan of remediation for the Calhoun Park site. The Order is temporarily stayed pending further negotiations between SCE&G and the EPA. In October 1996 the City of Charleston and SCE&G settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by SCE&G to the City. SCE&G is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup as discussed above. As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The parking garage is currently under construction and is scheduled for completion in the spring of the year 2000. o SCE&G owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. For the site located in Sumter, South Carolina, effective September 15, 1998, SCE&G entered into a Remedial Action Plan Contract with DHEC pursuant to which it agreed to undertake a full site investigation and remediation under the oversight of DHEC. Site investigation and characterization are proceeding according to schedule. Upon selection and successful implementation of a site remedy, DHEC will give SCE&G a Certificate of Completion, and a covenant not to sue. SCE&G is continuing to investigate the other two sites, and is monitoring the nature and extent of residual contamination. Regulatory Matters On December 11, 1998, the PSC issued an order requiring SCE&G to reduce retail electric rates on a prospective basis. The PSC acted in response to SCE&G reporting that it earned a 13.04% return on common equity for its retail electric operations for the twelve months ended September 30, 1998. This return on common equity exceeded SCE&G's authorized return of 12.0% by 1.04%, or $22.7 million, primarily as a result of record-breaking heat experienced during the summer. The order requires prospective rate reductions on a per kilowatt-hour basis, based on actual retail sales for the twelve months ended September 30, 1998. This action will reduce future reported return on common equity to the Commission-authorized level if SCE&G experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. The order requires the rate reductions to be placed into effect with the first billing cycle of January 1999. On December 21, 1998, SCE&G filed a motion for reconsideration with the PSC. On January 12, 1999, the PSC denied SCE&G's motion for reconsideration, ruled that no further rate action was required, and reaffirmed SCE&G's return on equity of 12.0%. On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34%, which was designed to produce additional revenues, based on a test year, of approximately $67.5 million annually. The increase was implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, or .87%, was implemented in January 1997. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million to be collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of SCE&G's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The Consumer Advocate and two other intervenors appealed certain issues in the order initially to the Circuit Court, which affirmed the PSC's decisions, and, subsequently, to the Supreme Court. In March 1998, SCE&G, the PSC, the Consumer Advocate and one of the other intervenors reached an agreement that provided for the reversal of the shift in depreciation reserves and the dismissal of the appeal of all other issues. The PSC also authorized SCE&G to adjust depreciation rates that had been approved in the 1996 rate order for its electric transmission, distribution and nuclear production properties to eliminate the effect of the depreciation reserve shift and to retroactively apply such depreciation rates to February 1996. As a result, a one-time reduction in depreciation expense of $5.5 million after taxes was recorded in March 1998. The agreement does not affect retail electric rates. The FERC had previously rejected the transfer of depreciation reserves for rates subject to its jurisdiction. In September 1998, the Supreme Court affirmed the Circuit Court's rulings on the issues contested by the remaining intervenor. On August 8, 1990, the PSC issued an order approving changes in Pipeline Corporation's gas rate design for sales for resale service and upholding the "value-of-service" method of regulation for its direct industrial service. Direct industrial customers seeking "cost-of-service" based rates appealed to the Circuit Court, which reversed and remanded to the PSC its August 8, 1990 order. Pipeline Corporation appealed that decision to the Supreme Court, which on January 10, 1994 reversed the Circuit Court decision and reinstated the PSC order. Additionally, the Supreme Court interpreted the rate-making statutes of South Carolina to give discretion to the PSC in selecting the methodology to be used in setting rates for natural gas service. The PSC then held another hearing and issued its order dated December 12, 1995 maintaining the present level of the maximum markup on industrial sales ("cap"). This Order was appealed to the Circuit Court by Pipeline Corporation and the industrial customer group with several other parties intervening, including the Consumer Advocate of South Carolina. On October 10, 1997, the Circuit Court issued an order in favor of the Consumer Advocate and the industrial customer group and remanded the case to the PSC to determine an overall rate of return for Pipeline Corporation. The Circuit Court also issued a second order which ruled against Pipeline Corporation and affirmed the PSC's decision that the cap should not be increased. Several motions and appeals were filed subsequently at the Supreme Court. The Supreme Court has dismissed the appeals of the PSC and Pipeline Corporation from the first order without prejudice until the PSC completes proceedings on remand and has held Pipeline Corporation's appeal of the second order in abeyance until the PSC completes proceedings on remand. The remanded case was heard by the PSC in June 1998. The PSC set an overall rate of return on equity for Pipeline Corporation of 12.5-16.5%. The South Carolina Energy Users Committee (SCEUC) appealed the order to the Circuit Court. Pipeline Corporation subsequently filed a Motion to Dismiss the SCEUC's appeal on the grounds that it was not timely filed. These cases should be heard in 1999. 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 any material adverse impact on the results of operations, cash flows, financial position or business prospects. Year 2000 Issue The Year 2000 is an issue because many computers, embedded systems and software were originally programmed using two digits rather than four digits to identify the applicable year. This may prevent them from accurately processing information with dates beyond 1999. Because the Year 2000 issue could have a material impact on the operations of the Company if not addressed, the Company's goal is to be Year 2000 ready. This means that before the year 2000, critical systems, equipment, applications and business relationships will have been evaluated and should be suitable to continue into and beyond the year 2000 and that applicable contingency plans are in place. In 1993, SCANA began the first of several projects to replace many of its business application systems to provide increased functionality and to improve access to business information. Accordingly, SCANA has implemented new general ledger, purchasing, materials inventory and accounts payable systems, and is currently implementing a new customer information system. The new customer information system is being phased into production by geographical area, and should be fully implemented in the first half of 1999. These new systems, which comprise a significant portion of SCANA's applications software, are designed to be Year 2000 compliant, and therefore mitigate overall Year 2000 exposure. In 1997, SCANA established a Corporate Year 2000 Project Office (Project Office) to direct Year 2000 efforts throughout the Company. A Steering Committee was formed to direct the efforts of the Project Office. The Steering Committee reports to the senior officers of SCANA and to the board of directors. It is chaired by the chief financial officer of SCANA and is comprised of officers representing all operational areas. The Project Office is staffed by nine full time project managers and extensive support personnel. The Project Office is responsible for addressing Year 2000 issues and coordinating the required assessment and remediation efforts. SCANA's Year 2000 efforts encompass three projects, all reporting to the Steering Committee. The Information Technology Project covers all mainframe and client server application software, infrastructure hardware, system software, desktop computers and network equipment. The Embedded Systems Project covers all microprocessors, instruments and control devices, monitoring equipment on power lines and in substations, security and control devices, telephone systems and certain types of meters. The Procedures and External Interfaces Project covers Year 2000 procedures, documentation and communications with key suppliers, vendors, customers, financial institutions and governmental agencies. SCANA's Year 2000 project approach involves the following: (1) inventorying all Year 2000 internal and external items and entities and updating the Year 2000 Inventory Database; (2) performing risk analysis and corporate prioritization of all inventory entries; (3) performing detailed assessments of all inventory entries to determine Year 2000 readiness and establishing a remediation action plan where necessary; (4) remediating all inventory entries assessed as non-compliant, including repairing, replacing or developing acceptable work-arounds; (5) testing through date simulation and comprehensive test data; (6) implementation of all converted systems and equipment into production operations; and (7) contingency planning. Detailed project plans exist for each of the Year 2000 projects. These project plans, work schedules and resource requirements are reviewed weekly by the project managers and monthly by the Steering Committee. The Year 2000 projects, which will address the Company's critical systems and business relationships, are appropriately staffed and are currently on schedule to be completed by July 1999. As reported to the North American Electric Reliability Council (NERC) in January 1999, the Company was 100% complete with inventory tasks, 63% complete with detailed assessment tasks and 58% complete with remediation tasks. The Information Technology Project Team has completed the assessment and initial code remediation for all application software. Many of the applications have been tested in an isolated Year 2000 testing environment and the rest are being tested according to the project schedule. The assessment of the technical infrastructure and desktop computing environment is complete and required remediation is in process. Testing of all network equipment is in process. The Information Technology Project was approximately 55% complete through December 1998. The Embedded Systems Project Team, which includes approximately 20 engineers with prior experience with microprocessors, was formed, and detailed assessment, remediation and testing procedures were developed. This team is currently working closely with each of SCANA's business units to complete the assessments of critical systems and equipment based on the corporate prioritization process. An Embedded Systems Audit Review Committee has been established to review all assessments for critical systems. As assessments are completed, any required remediation efforts are evaluated and implemented. Independent verifications for selected completed assessments are planned during the first quarter of 1999. The Embedded Systems Project was approximately 50% complete through December 1998. The Procedures and External Interfaces Project Team has developed written documentation and procedures for Year 2000 compliance definition, document control, inventory, prioritization, assessment, remediation, change control, business continuity planning, and vendor and supplier communications. This team is coordinating communications with all significant vendors and suppliers in an attempt to determine the extent to which the Company may be vulnerable to their failure to remediate their own Year 2000 issues. The Company has completed an initial survey of vendors and is currently evaluating the responses to the survey and conducting additional inquiries where necessary. The Company is also in the process of evaluating critical third party service providers to ascertain their Year 2000 readiness. The Company has developed communications materials explaining its year 2000 efforts and is continuing communications with significant customers and external groups, including the South Carolina and Georgia Public Service Commissions. The Procedures and External Interfaces Project was approximately 45% complete through December 1998. The Company's projected total cost of its Year 2000 efforts and the anticipated timing and breakdown of those expenditures, is as follows: ------------------- -------------- ------------------ ---------------- Internal Out of Pocket Total ------------------- -------------- ------------------ ---------------- (Millions of Dollars) Project To Date $ 2 $ 6 $ 8 1999 3 9 12 ----- - ------- ---- Total $ 5 $ 15 $20 ------------------- -------------- ------------------ ---------------- The cost of the project is based on management's best estimates, which are based on assumptions regarding future events. These future events include continued availability of key resources, third parties' Year 2000 readiness and other factors. The cost of the project is not expected to have a material impact on the results of operations or on the financial position or cash flows of SCANA or SCE&G. The costs of implementing the new business application systems referred to earlier are not included in these cost estimates. A failure to correct a material Year 2000 problem by the Company or by a critical third party supplier could result in an interruption in, or a failure of the Company's ability to provide energy services. At this time, the Company believes its most reasonably likely worst case scenario is that Year 2000 failures could lead to temporary reduced generating capacity on the Company's electrical grid, temporary intermittent interruptions in communications and temporary intermittent interruptions in gas supply from interstate suppliers or producers. A Year 2000 problem of this nature could result in temporary interruptions in electric or gas service to customers. The Company has no historical experience with interruptions caused by this scenario. However, these temporary interruptions in service, if any, might be similar to weather-related outages that the Company encounters from time to time in its business today. Although the Company does not believe that this scenario will occur, the Company is enhancing existing contingency plans to ensure preparedness and to mitigate the long term effect of such a scenario. Since the expected impact of this scenario on the Company's operations, cash flow and financial position cannot be determined, there is no assurance that it would not be material. The Company has established eight business continuity planning task groups to develop Year 2000 business continuity plans. These task groups have developed initial draft plans to cover the Company's Corporate Operations, Customer Service Operations, Electric Generation, Transmission and Distribution Operations, Gas Delivery Operations, Telecommunications and Emergency Preparedness, Information Technology and Procurement. Detailed contingency plans that were already in place to cover weather-related outages, computer failures and generation outages were used and/or referenced as the basis for the initial draft Year 2000 business continuity plans. The initial draft plans are continuing to be enhanced, and where necessary, new plans will be developed to include mitigation strategies and emergency response action plans to address potential Year 2000 scenarios and critical system failures. The final plans will also include mitigation strategies to address reliance on critical suppliers. NERC is coordinating Year 2000 efforts of the electric utility industry in the United States and contingency planning within the regional electric reliability councils. Coordination in SCE&G's region is through the Southeastern Electric Reliability Council (SERC). SCE&G's contingency planning efforts are in compliance with the SERC and NERC contingency planning guidelines which required draft contingency plans to be complete by December 31, 1998 and will require final contingency plans to be complete by June 30, 1999. In addition to NERC and SERC, SCE&G is working with the Electric Power Research Institute to address the issue of overall grid reliability and protection. To ensure that all Year 2000 issues at its Summer Station nuclear plant are addressed, SCE&G is closely cooperating with other utility companies that own nuclear power plants. The utilities are sharing technical nuclear plant operating and monitoring systems information to ensure the prompt and effective resolution of the year 2000 issue. Other Matters On December 1, 1997, Petroleum Resources sold substantially all of its assets for $110 million. The resulting gain of $17.6 million was recorded in "Other Income." Proceeds from the sale were used to repurchase approximately 3.7 million shares of SCANA's outstanding common stock through open market purchases and through privately negotiated transactions. All of the repurchased shares were retired, reducing the number of shares issued and outstanding. Investments in Equity Securities The Company, through a subsidiary (SCI), has made significant investments in the equity securities of various telecommunications companies. The performance of these investments is subject to a number of risks and uncertainties. Important factors that impact the performance of these investments include continuing rapid and significant changes in technology, increasingly intense competition and changing consumer preferences and expectations, among others. At December 31, 1998, SCI held the following investments in ITC Holding Company (ITC) and its affiliates: o Powertel, Inc. (Powertel) is a publicly traded company that owns and operates PCS systems in several major Southeastern markets. SCI owns approximately 4.6 million common shares of Powertel at a cost of approximately $68.0 million. Common shares were initially recorded at $14.85 per share, and closed at $13.5625 on December 31, 1998, resulting in a pre-tax unrealized holding loss of $5.8 million. The after-tax amount of such loss is included in the balance sheet as a component of "Common Equity." On June 30, 1998, SCI purchased 50,000 shares of non-voting 6.5% series E convertible preferred stock of Powertel. In addition, SCI owns the following series of non-voting convertible preferred shares, at the approximate cost noted: 100,000 shares series B ($75.1 million) and 50,000 shares series D ($22.5 million). Preferred series B shares are convertible in March 2002 at a conversion price of $16.50 per common share or approximately 4.5 million common shares. Preferred series D shares are convertible in March 2002 at a conversion price of $12.75 per common share or approximately 1.7 million common shares. Preferred series E shares are convertible in June 2003 at a conversion price of $22.01 per common share or approximately 3.4 million common shares. The market value of the convertible preferred shares of Powertel is not readily determinable. However, on an as converted basis, the market value of the underlying common shares for the preferred shares was approximately $131.8 million at December 31, 1998, resulting in an unrecorded pre-tax holding loss of $40.8 million. On September 15, 1998, SCI received 113,656 shares of Powertel Common Stock as its quarterly dividend on the preferred series E investment. o ITC Delta^Com, Inc. (ITCD) is a fiber optic telecommunications provider. On November 9 1998, SCI purchased 500,000 common shares of ITCD at a cost of $14.50 per share. Prior to this SCI owned approximately 3.6 million common shares of ITCD (after giving effect to a two-for-one stock split announced July 29, 1998) at a cost of approximately $9 million. ITCD common stock closed at $15.25 per share on December 31, 1998, resulting in a pre-tax unrealized holding gain of $45.6 million. The after-tax amount of such gain is included in the balance sheet as a component of "Common Equity." In addition, SCI owns 1,480,771 shares of series A preferred stock of ITCD at a cost of approximately $11.2 million. Series A preferred shares are convertible in March 2002 into 2,961,542 shares of ITCD common stock (after giving effect to the two-for-one stock split). The market value of series A preferred stock of ITCD is not readily determinable. However, on an as converted basis the market value of the underlying common stock for the series A preferred stock was approximately $45.2 million at December 31, 1998, resulting in an unrecorded pre-tax holding gain of $33.9 million. o Knology Holdings, Inc. (Knology) is a broad-band service provider of cable, television, telephone and internet services. SCI owns 71,050 units of Knology. Each unit consists of one 11.875% Senior Discount Note due 2007 and one warrant entitling the holder to purchase .003734 shares of preferred stock of Knology. The cost of this investment was approximately $40 million. SCI also owns an additional 753 warrants which entitles it to purchase 753 shares of preferred stock at $1,500 per share. Effective July 31, 1998, SCI sold all of its 3,639 shares of preferred stock in Knology to ITC. For each preferred share sold, SCI received $1,600 of ITC series B convertible preferred shares, for a total of 133,664 shares. SCI also received approximately $0.4 million in cash. SCI's original investment in these shares was approximately $5.3 million. o ITC has an ownership interest in several Southeastern communications companies. SCI owns approximately 3.1 million common shares (after giving effect to a four-for-one stock split on August 25, 1998), 645,153 series A convertible preferred shares, and 133,664 series B convertible preferred shares of ITC. These investments cost approximately $7.1 million, $8.9 million, and $5.0 million, respectively. Series A and series B preferred shares are convertible in March 2002 into ITC common shares at a conversion price of $13.45 and $43.56, respectively, on a four to one basis. The market value of these investments is not readily determinable. Subsequent Events On February 17, 1999, SCANA and Public Service Company of North Carolina, Inc. (PSNC) announced a definitive agreement whereby SCANA will acquire PSNC in a transaction valued at approximately $900 million, including the assumption of debt. The transaction will be accounted for as a purchase. It is anticipated that PSNC will be operated as a wholly-owned subsidiary of SCANA. Completion of the transaction is subject to the approval of the shareholders of both companies and applicable regulatory approvals. It is anticipated that the approval process can be completed by the end of 1999. On February 17, 1999, the Board of Directors also announced the adoption of a new common stock dividend policy to bring the Company's dividend payout ratio more in line with that of growth-oriented utilities. Under the new policy, the board anticipated declaring the current dividend of $0.385 cents per share payable July 1, 1999 and reducing the dividend to $0.275 per share, effective with the dividend to be paid thereafter. This action would make the Company's indicated annual dividend rate on common stock $1.10 per share. On March 9, 1999, SCE&G issued $100 million First Mortgage Bonds due March 1, 2009 at an interest rate of 6.125%. The funds were used to reduce short-term debt. RESULTS OF OPERATIONS Earnings and Dividends Earnings per share of common stock, the percent increase (decrease) from the previous year and the rate of return earned on common equity for the years 1996 through 1998 were as follows: 1998 1997 1996 - -------------------------------------------------------------------------- Earnings per weighted average share $2.12 $2.06 $2.05 Percent increase in earnings per share 2.9% 0.5% 20.6% Return earned on common equity 12.8% 12.3% 12.8% - -------------------------------------------------------------------------- o 1998 Earnings per share and return on common equity increased primarily as a result of more favorable weather and customer growth, which more than offset higher operating costs in 1998 and the gain from the sale of oil and gas properties in 1997. In addition, net income for 1998 includes a one-time, after-tax reduction to depreciation rates retroactive to February 1996. This change in rates results from the reversal of a $257 million shift in depreciation reserves from electric transmission and distribution assets to nuclear production assets, previously approved in a PSC rate order in January 1996. See "Liquidity and Capital Resources." o 1997 Earnings per share and return on common equity increased primarily as a result of the $17.6 million after-tax gain on the sale of the oil and gas properties of Petroleum Resources and higher gas sales margins. These increases more than offset increases in operating expenses and the reduction to other income from the 1996 after-tax gain reported by SCI as a result of a business combination of Powertel. 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 4.4% of income before income taxes in 1998, 4.0% in 1997 and 3.9% in 1996. In 1998 SCANA's Board of Directors raised the quarterly cash dividend on common stock to 38 1/2 cents per share from 37 3/4 cents per share. The increase, effective with the dividend payable on April 1, 1998, raised the indicated annual dividend rate to $1.54 per share from $1.51. See additional discussion of the Company's dividend policy at Subsequent Events. On December 1, 1997, Petroleum Resources sold substantially all of its assets for $110 million. The resulting after-tax gain of $17.6 million was recorded in "Other Income." Electric Operations Electric operations sales margins for 1998, 1997 and 1996 were as follows: 1998 1997 1996 - --------------------------------------------------------------------------- (Millions of Dollars) Operating revenues $1,219.8 $1,103.0 $1,106.5 Less: Fuel used in generation 262.3 248.4 250.5 Purchased power 31.5 9.4 11.4 - --------------------------------------------------------------------------- Margin $ 926.0 $ 845.2 $ 844.6 =========================================================================== o 1998 The sales margin increased for 1998 primarily due to morefavorable weather and customer growth. o 1997 The sales margin increased slightly due to the favorable impact of the rate increase placed into effect in January 1997 and economic growth factors which were offset by the effect of milder weather. Increases (decreases) from the prior year in megawatt-hour (MWH) sales volume by classes were as follows: Classification 1998 1997 - ----------------------------------------------------------------------- Residential 676,578 (292,518) Commercial 578,290 100,324 Industrial 389,931 113,717 Sales for Resale (excluding interchange) 65,367 36,894 Other 29,823 15 - ------------------------------------------------------------------------ Total territorial 1,739,989 (41,569) Negotiated Market Sales Tariff 610,784 (10,818) ======================================================================= Total 2,350,773 (52,387) ======================================================================= o 1998 The sales volume increases for 1998 were primarily due to morefavorable weather and customer growth. o 1997 The sales volume for residential sales decreased for 1997 as a result of milder weather. Gas Distribution Gas distribution sales margins for 1998, 1997 and 1996 were as follows: 1998 1997 1996 - ---------------------------------------------------------------------- (Millions of Dollars) Operating revenues $230.4 $233.6 $234.8 Less: Gas purchased for resale 142.4 151.9 157.1 - ---------------------------------------------------------------------- Margin $ 88.0 $ 81.7 $ 77.7 ====================================================================== o 1998The sales margin increased over 1997 due to renegotiation of industrial customers' contracts, lower gas prices and increased sales to electric generation facilities. o 1997 The sales margin increased over the prior year primarily as a result of increases in contract prices and sales to industrial interruptible customers. Increases (decreases) from the prior year in dekatherm (DT) sales volume by classes, including transportation gas, were as follows: Classification 1998 1997 - ---------------------------------------------------------------------- Residential (2,685) (2,188,215) Commercial 389,468 (123,385) Industrial 2,363,341 1,820,166 Transportation gas (673,795) (430,610) - --------------------------------------------------------------------- - Total 2,076,329 (922,044) ===================================================================== o 1998 The sales volume for commercial and industrial customers increased, and transportation decreased, for 1998 as a result of lower gas prices and increased sales to electric generation facilities. o 1997 The sales volume for residential customers decreased for 1997 as a result of milder weather which was partially offset by increases in sales to industrial interruptible customers. Gas Transmission Gas transmission sales margins for 1998, 1997 and 1996 were as follows: 1998 1997 1996 - ---------------------------------------------------------------------- (Millions of Dollars) Operating revenues $329.8 $339.9 $326.6 Less: Gas purchased for resale 276.7 289.3 279.6 - ---------------------------------------------------------------------- Margin $ 53.1 $ 50.6 $ 47.0 ====================================================================== o 1998 The sales margin increased over 1997 primarily as a result of increased sales to electric generation facilities. o 1997 The sales margin increased over the prior year primarily as a result of higher margins on sales to industrial interruptible customers. The higher margins were attributable to fewer curtailments due to higher system capacity from a pipeline expansion completed in late 1996. Increases (decreases) from the prior year in dekatherms (DT) sales volume by classes including transportation gas were as follows: Classification 1998 1997 - ----------------------------------------------------------------------- Commercial 9,799 4,056 Industrial 5,238,940 5,690,034 Transportation (695,921) (523,291) Sale for resale 314,895 673,205 - ---------------------------------------------------------------------- Total 4,867,713 5,844,004 ======================================================================= o 1998 The sales volume for industrial customers increased, and transportation decreased, for 1998 as a result of lower gas prices and increased sales to electric generation facilities. Sales for resale increased due to lower gas prices. o 1997 The sales volume for industrial customers increased, and transportation decreased, for 1997 as a result of fewer curtailments due to higher system capacity from a pipeline expansion completed in late 1996. Energy Marketing Energy marketing sales margins for 1998, 1997 and 1996 were as follows: 1998 1997 1996 - ----------------------------------------------------------------------- (Millions of Dollars) Operating revenues $568.1 $205.9 $261.4 Less: Gas and electricity purchased for resale 569.8 203.3 253.4 - ------------------------------------------------------------------------ Margin $ (1.7) $ 2.6 $ 8.0 ======================================================================= o 1998 The sales margin decreased for 1998 primarily due to losses on energy trading and continued mild weather. o 1997 The sales margin decreased for 1997 primarily due to mild weather. Other Operating Expenses and Taxes Increases (decreases) in other operating expenses, including taxes, were as follows: Classification 1998 1997 - ------------------------------------------------------------------------- (Millions of Dollars) Other operation and maintenance $31.1 $ 3.1 Depreciation and amortization (8.2) 5.5 Income taxes 30.7 (12.5) Other taxes 5.7 8.6 - ------------------------------------------------------------------------ Total $59.3 $ 4.7 ========================================================================= o 1998 Other operating and maintenance expenses increased over 1997 primarily due to increased maintenance costs for electric generating and distribution facilities, various other electric operating costs and Year 2000 testing and remediation. The decrease in depreciation and amortization expense reflects the non-recurring adjustment to depreciation expense discussed under earnings and dividends. The increase in income tax expense primarily reflects changes in operating income. The increase in other taxes primarily results from increased property taxes. o 1997 Other operation and maintenance expenses increased somewhat from 1996 levels. A decrease in transit operating costs resulting from the Company's transfer of the ownership of the Charleston transit system to the City of Charleston in October 1996 largely offset increases in costs at electric generating plants and other operating costs. The increase in depreciation and amortization expenses for 1997 reflects the additions to plant-in-service. The change in income tax expense is primarily due to changes in pre-tax operating income and the difference between estimated income taxes accrued and actual income tax expense per the tax returns as filed. The increase in other taxes results primarily from the accrual of additional property taxes, beginning in January 1997, related to the Cope plant and other property additions which was partially offset by a reduction in the 1997 property tax assessment. Recovery of the Cope Plant property taxes is provided for in a retail electric rate increase that became effective January 1997. Other Income o 1998Other income, net of taxes, decreased approximately $25.1 million, primarily as a result of the gain on the sale of Petroleum Resources recorded in 1997. In addition, lower earnings from non-regulated businesses, primarily losses from energy marketing activities, resulted from decreased gas margins, volatility in power markets related to unusually hot summer weather and startup costs in new markets. o 1997Other income, net of taxes, increased approximately $8.5 million. The primary factors accounting for the change in other income were the Petroleum Resources gain on the sale of oil and gas properties in 1997, offset by the gain reported by SCI in 1996 referred to under "Earnings and Dividends" and which is included in other income reported for 1996. Interest Expense Increases (decreases) in interest expense, excluding the debt component of AFC, were as follows: Classification 1998 1997 - ------------------------------------------------------------------------- (Millions of Dollars) Interest on long-term debt, net $ 5.4 $ 1.1 Other interest expense (1.8) (1.5) - ------------------------------------------------------------------------- Total $ 3.6 $(0.4) ========================================================================= o 1998 Interest expense increased over 1997 as a result of the issuance of medium-term notes in the third quarter of 1998. o 1997 There was no material change in interest expense. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK All financial instruments held by the Company described below are held for purposes other than trading. Interest rate risk - The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.
December 31, 1998 Expected Maturity Date (Millions of Dollars) There- Fair Liabilities 1999 2000 2001 2002 2003 after Total Value ---------------------------------------------------------------- Long-Term Debt: Fixed Rate ($) 106.5 213.5 27.5 27.5 284.4 1,165.8 1,789.5 1,869.1 Average Interest Rate 6.86 5.93 6.87 6.87 6.29 7.47 7.04
While a decrease in interest rates would increase the fair value of debt, it is unlikely that events which would result in a realized loss will occur. In addition, the Company has invested in a telecommunications company approximately $40 million for 11.875% senior discount notes due 2007. The fair value of these notes approximates cost. An increase in market interest rates would result in a decrease in fair value of these notes and a corresponding adjustment, net of tax, to other comprehensive income. Equity price risk - Investments in telecommunications companies' marketable equity securities are carried at their market value of $375.1 million, in accordance with Statement of Financial Accounting Standards No. 115. A ten percent decline in market value would result in a $37.5 million reduction in fair value and a corresponding adjustment, net of tax effect, to the related equity account for unrealized gains/losses. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA Page Independent Auditors' Report............................................ 41 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1998 and 1997............ 42 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1998, 1997 and 1996..................... 44 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996... 45 Consolidated Statements of Capitalization as of December 31, 1998 and 1997.................... 46 Consolidated Statements of Changes in Common Equity for the years ended December 31, 1998 and 1997.......................................... 48 Notes to Consolidated Financial Statements............................. 49 Information required to be disclosed in supplemental financial statement schedules is included in the consolidated financial statements or in the notes thereto. INDEPENDENT AUDITORS' REPORT SCANA Corporation: We have audited the accompanying Consolidated Balance Sheets, Statements of Capitalization and Statements of Changes in Common Equity of SCANA Corporation and subsidiaries (Company) as of December 31, 1998 and 1997 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, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, SC February 8, 1999 (February 17, 1999 as to Note 13) SCANA Corporation CONSOLIDATED BALANCE SHEETS December 31, 1998 1997 ASSETS (Millions of Dollars) Utility Plant (Notes 1, 3 & 4): Electric $4,406 $4,292 Gas 604 580 Other 175 84 - ------------------------------------------------------------------------------------------- Total 5,185 4,956 Less accumulated depreciation and amortization 1,728 1,619 - ------------------------------------------------------------------------------------------- Total 3,457 3,337 Construction work in progress 251 234 Nuclear fuel, net of accumulated amortization 56 53 Acquisition adjustment-gas, net of accumulated amortization 23 24 - ------------------------------------------------------------------------------------------- Utility Plant, Net 3,787 3,648 - ------------------------------------------------------------------------------------------- Nonutility Property and Investments (net of accumulated depreciation and depletion)(Note 1) 493 364 - ------------------------------------------------------------------------------------------- Current Assets: Cash and temporary cash investments (Note 8) 62 60 Receivables 276 248 Inventories (At average cost): Fuel (Notes 3 & 4) 63 51 Materials and supplies 56 52 Prepayments 22 16 Deferred income taxes 22 25 - ------------------------------------------------------------------------------------------- Total Current Assets 501 452 - ------------------------------------------------------------------------------------------- Deferred Debits: Emission allowances 31 31 Environmental 22 32 Nuclear plant decommissioning fund (Note 1) 56 49 Pension asset, net (Note 1) 115 82 Other (Notes 1 & 10) 276 274 - ------------------------------------------------------------------------------------------- Total Deferred Debits 500 468 - ------------------------------------------------------------------------------------------- Total $5,281 $4,932 =========================================================================================== PAGE December 31, 1998 1997 CAPITALIZATION AND LIABILITIES (Millions of Dollars) Stockholders' Investment: Common Equity (Note 5) $1,746 $1,788 Preferred stock (Not subject to purchase or sinking funds) 106 106 - ------------------------------------------------------------------------------------------- Total Stockholders' Investment 1,852 1,894 Preferred Stock, Net (Subject to purchase or sinking funds)(Notes 6 & 8) 11 12 SCE&G-Obligated Mandatorily Redeemable Preferred Securities of SCE&G's Subsidiary Trust, SCE&G Trust I, holding solely $50 million principal amount of the 7.55% Junior Subordinated Debentures of SCE&G, due 2027 50 50 Long-Term Debt, Net (Notes 3, 4 & 8) 1,623 1,566 - ------------------------------------------------------------------------------------------- Total Capitalization 3,536 3,522 - ------------------------------------------------------------------------------------------- Current Liabilities: Short-term borrowings (Notes 8 & 9) 195 59 Current portion of long-term debt (Note 3) 107 73 Accounts payable 219 131 Customer deposits 18 18 Taxes accrued 72 59 Interest accrued 28 26 Dividends declared 42 43 Other 13 14 - ------------------------------------------------------------------------------------------- Total Current Liabilities 694 423 - ------------------------------------------------------------------------------------------- Deferred Credits: Deferred income taxes (Notes 1 & 7) 628 612 Deferred investment tax credits (Notes 1 & 7) 108 98 Reserve for nuclear plant decommissioning (Note 1) 56 49 Postretirement benefits 87 61 Other (Note 1) 172 167 - ------------------------------------------------------------------------------------------- Total Deferred Credits 1,051 987 - ------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 10) - - - ------------------------------------------------------------------------------------------- Total $5,281 $4,932 =========================================================================================== See Notes to Consolidated Financial Statements. PAGE SCANA Corporation CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Years Ended December 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------- (Millions of Dollars except per share amounts) Operating Revenues (Notes 1 & 2): Electric $1,220 $1,103 $1,107 Gas 411 419 403 Transit 1 1 3 - ------------------------------------------------------------------------------------------ Total Operating Revenues 1,632 1,523 1,513 - ------------------------------------------------------------------------------------------ Operating Expenses: Fuel used in electric generation 262 248 251 Purchased power 31 9 11 Gas purchased for resale 269 287 277 Other operation (Note 1) 257 239 239 Maintenance (Note 1) 84 72 68 Depreciation and amortization (Note 1) 145 153 148 Income taxes (Notes 1 & 7) 136 105 118 Other taxes 103 96 87 - ------------------------------------------------------------------------------------------ Total Operating Expenses 1,287 1,209 1,199 - ------------------------------------------------------------------------------------------ Operating Income 345 314 314 - ------------------------------------------------------------------------------------------ Other Income (Note 1): Other income, net of income taxes 5 13 22 Gain on sale of subsidiary assets, net of income taxes - 18 - Allowance for equity funds used during construction 8 7 7 - ------------------------------------------------------------------------------------------ Total Other Income 13 38 29 - ------------------------------------------------------------------------------------------ Income Before Interest Charges and Preferred Stock Dividends 358 352 343 - ------------------------------------------------------------------------------------------ Interest Charges (Credits): Interest on long-term debt, net 121 115 115 Other interest expense 10 12 13 Allowance for borrowed funds used during construction (Note 1) (8) (6) (6) - ------------------------------------------------------------------------------------------ Total Interest Charges, Net 123 121 122 - ------------------------------------------------------------------------------------------ Income Before Preferred Dividend Requirements on Mandatorily Redeemable Preferred Securities 235 231 221 Preferred Dividend Requirement of SCE&G - Obligated Mandatorily Redeemable Preferred Securities 4 1 - - ------------------------------------------------------------------------------------------ Income Before Preferred Stock Cash Dividends of Subsidiary 231 230 221 Preferred Stock Cash Dividends of Subsidiary (At stated rates) (8) (9) (6) - ------------------------------------------------------------------------------------------ Net Income 223 221 215 Retained Earnings at Beginning of Year 617 558 498 Common Stock Cash Dividends Declared (Note 5) (162) (162) (155) - ------------------------------------------------------------------------------------------ Retained Earnings at End of Year $ 678 $ 617 $ 558 ========================================================================================== Net Income $ 223 $ 221 $ 215 Weighted Average Number of Common Shares Outstanding (Millions) 105.3 107.1 105.1 Earnings Per Weighted Average Share of Common Stock (Basic and Diluted) $2.12 $2.06 $2.05 ========================================================================================== See Notes to Consolidated Financial Statements. PAGE SCANA Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- (Millions of Dollars) Cash Flows From Operating Activities: Net income $223 $221 $215 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation, depletion and amortization 152 176 183 Amortization of nuclear fuel 20 19 19 Deferred income taxes, net 15 30 34 Pension asset (33) (24) (23) Postretirement benefits 26 24 16 Allowance for funds used during construction (16) (13) (13) Changes in certain current assets and liabilities: (Increase) decrease in receivables (28) 1 (28) (Increase) decrease in inventories (16) 15 (8) Increase (decrease) in accounts payable 88 (26) 19 Increase (decrease) in taxes accrued 13 (12) 4 Other, net 23 1 (17) - ---------------------------------------------------------------------------------------------------------- Net Cash Provided From Operating Activities 467 412 401 - --------------------------------------------------------------------------------------------------------- Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (281) (250) (235) (Increase) decrease in nonutility property and investments: Sale of oil and gas producing properties - 110 53 Nonutility property (22) (38) (37) Investments (106) (75) (85) Sale of real estate assets - 8 2 - --------------------------------------------------------------------------------------------------------- Net Cash Used For Investing Activities (409) (245) (302) - ---------------------------------------------------------------------------------------------------------- Cash Flows From Financing Activities: Proceeds: Issuance of notes and loans 249 86 64 Issuance of SCE&G - obligated mandatorily redeemable trust preferred securities - 49 - Issuance of preferred stock - 99 - Issuance of common stock - 29 69 Repayments: Common stock (110) - - Mortgage bonds (50) (15) (22) Notes and loans (96) (70) (69) Other long-term debt - (8) - Preferred stock (1) (53) (3) Dividend payments: Common stock (163) (160) (153) Preferred stock (7) (9) (5) Short-term borrowings, net 136 (86) 32 Fuel financings, net (14) 14 (11) - ---------------------------------------------------------------------------------------------------------- Net Cash Used For Financing Activities (56) (124) (98) - ---------------------------------------------------------------------------------------------------------- Net Increase in Cash and Temporary Cash Investments 2 43 1 Cash and Temporary Cash Investments, January 1 60 17 16 - --------------------------------------------------------------------------------------------------------- Cash and Temporary Cash Investments, December 31 $ 62 $ 60 $ 17 ========================================================================================================= Supplemental Cash Flow Information: Cash paid for - Interest (Includes capitalized interest of $7, $6 and $6) $127 $124 $126 - Income taxes 114 113 115 Noncash Financing Activities: Unrealized gain on securities available for sale (net of tax) 7 18 - Charleston Franchise Agreement - - 21 Charleston Environmental Agreement - - 20 See Notes to Consolidated Financial Statements. PAGE SCANA Corporation CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - ------------------------------------------------------------------------------------------------------ (Millions of Dollars) Common Equity (Note 5): Common stock, without par value, authorized 150,000,000 shares; issued and outstanding, 1998 - 103,572,623 shares and 1997 -107,321,113 shares $1,043 $1,153 Unrealized gain on securities available for sale 25 18 Retained earnings 678 617 - ------------------------------------------------------------------------------------------------------ Total Common Equity 1,746 50% 1,788 51% - ------------------------------------------------------------------------------------------------------------ South Carolina Electric & Gas Company: Cumulative Preferred Stock (Not subject to purchase or sinking funds): $100 Par Value - Authorized 1,200,000 shares $50 Par Value - Authorized 125,209 shares Shares Outstanding Redemption Price Series 1998 1997 $100 Par 6.52% 1,000,000 1,000,000 100.00 100 100 $50 Par 5.00% 125,209 125,209 52.50 6 6 - ------------------------------------------------------------------------------------------------------ Total Preferred Stock (Not subject to purchase or sinking funds) 106 3% 106 3% - ------------------------------------------------------------------------------------------------------------ South Carolina Electric & Gas Company: Cumulative Preferred Stock (Subject to purchase or sinking funds)(Notes 6 & 8): $100 Par Value - Authorized 1,550,000 shares; None outstanding in 1998 and 1997 $50 Par Value - Authorized 1,580,052 shares Shares Outstanding Redemption Price Series 1998 1997 4.50% 12,800 14,400 51.00 1 1 4.60%(A) 20,052 21,894 51.00 1 1 4.60%(B) 64,600 68,000 50.50 3 4 5.125% 69,000 70,000 51.00 3 3 6.00% 73,600 76,800 50.50 4 4 ------------------- Total 240,052 251,094 =================== $25 Par Value - Authorized 2,000,000 shares; None outstanding in 1998 and 1997 Total Preferred Stock (Subject to purchase or sinking funds) 12 13 Less: Current portion, including sinking fund requirements 1 1 - ------------------------------------------------------------------------------------------------------ Total Preferred Stock, Net (Subject to purchase or sinking funds) 11 - 12 - - ----------------------------------------------------------------------------------------------------------- SCE&G-Obligated Mandatorily Redeemable, Preferred Securities of SCE&G's Subsidiary Trust, SCE&G Trust I, holding solely $50 million principal amount of 7.55% Junior Subordinated Debentures of SCE&G, due 2027 50 1% 50 1% - ------------------------------------------------------------------------------------------------------------ December 31, 1998 1997 - --------------------------------------------------------------------------------------------- Long-Term Debt (Notes 3, 4 and 8): (Millions of Dollars) SCANA Corporation: Bank Notes, due 1998 - 60 Medium-Term Notes: Year of Series Maturity 5.76% 1998 - 20 7.17% 1999 43 43 6.60% 1999 30 30 6.15% 2000 20 20 6.51% 2003 20 20 6.90% 2007 25 25 6.05% 2003 60 - 6.25% 2003 75 - 5.81% 2008 115 - South Carolina Electric & Gas Company: First Mortgage Bonds: Year of Series Maturity 6% 2000 100 100 6 1/4% 2003 100 100 7.70% 2004 100 100 7 1/8% 2013 150 150 7 1/2% 2023 150 150 7 5/8% 2023 100 100 7 5/8% 2025 100 100 First and Refunding Mortgage Bonds: Year of Series Maturity 6 1/2% 1998 - 20 7 1/4% 2002 - 30 9% 2006 131 131 8 7/8% 2021 114 114 Pollution Control Facilities Revenue Bonds: Fairfield County Series 1984, due 2014 (6.50%) 57 57 Orangeburg County Series 1994, due 2024 (5.70%) 30 30 Other 16 16 Charleston Franchise Agreement due 1997-2002 14 18 Charleston Environmental Agreement due 1997-1999 6 13 South Carolina Generating Company, Inc.: Berkeley County Pollution Control Facilities Revenue Bonds, Series 1984 due 2014 (6.50%) 36 36 Note, 7.78%, due 2011 53 56 South Carolina Fuel Company, Inc. Commercial Paper 66 80 South Carolina Pipeline Corporation Notes, 6.72%, due 2013 19 20 Other 3 4 - --------------------------------------------------------------------------------------------- Total Long-Term Debt 1,733 1,643 Less - Current maturities, including sinking fund requirements 107 73 - Unamortized discount 3 4 - --------------------------------------------------------------------------------------------- Total Long-Term Debt, Net 1,623 46% 1,566 45% - -------------------------------------------------------------------------------------------- Total Capitalization $3,536 100% $3,522 100% ============================================================================================
See Notes to Consolidated Financial Statements. SCANA Corporation CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY For the Years Ended December 31, 1998 1997 - -------------------------------------------------------------------------------- Common Comprehensiv eCommon Comprehensive Equity Income Equity Income (Millions of Dollars) Retained Earnings: Balance at January 1 $ 617 $ 558 Net Income 223 $223 221 $221 Dividend declared on common stock (162) (162) ------ ------ Balance at December 31 678 617 ------ ------ Accumulated other comprehensive income: Balance at January 1 18 - Unrealized gains on securities, net of taxes ($4 and $11 in 1998 and 1997, respectively) 7 7 18 18 ------ ---- ------ ---- Comprehensive income $230 $239 ==== ==== Balance at December 31 25 18 ------ ------ Common Stock: Balance at January 1 1,153 1,125 Shares issued - 28 Shares repurchased (110) - ------ ------ Balance at December 31 1,043 1,153 ------ ------ Total Common Equity $1,746 $1,788 ====== ====== Accumulated other comprehensive income at December 31, 1998 and 1997 was comprised of unrealized holding gains on securities, net of taxes. Net income reported for the years ended December 31, 1998 and 1997 does not include any realized gains or losses from securities. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization and Principles of Consolidation SCANA Corporation (Company), a South Carolina corporation, is a public utility holding company within the meaning of the Public Utility Holding Company Act of 1935 but is exempt from registration under such Act. The Company, through wholly owned subsidiaries, is engaged predominately in the generation and sale of electricity to wholesale and retail customers in South Carolina and in the purchase, sale and transportation of natural gas to wholesale and retail customers in South Carolina. The Company is also engaged in other energy-related businesses, such as the marketing of natural gas in Georgia's newly deregulated natural gas market. The Company has investments in telecommunications companies and provides fiber optic communications in South Carolina. The accompanying Consolidated Financial Statements reflect the accounts of the Company and its wholly owned subsidiaries: Regulated utilities South Carolina Electric & Gas Company (SCE&G) South Carolina Fuel Company, Inc. (Fuel Company) South Carolina Generating Company, Inc. (GENCO) South Carolina Pipeline Corporation (Pipeline Corporation) Nonregulated businesses SCANA Energy Marketing, Inc. (Energy Marketing) SCANA Communications, Inc. (SCI) SCANA Propane Gas, Inc. SCANA Propane Storage, Inc. ServiceCare, Inc. Primesouth, Inc. SCANA Resources, Inc. SCANA Petroleum Resources, Inc. (Petroleum Resources) (in liquidation) SCANA Development Corporation (in liquidation) Certain investments are reported using the cost or equity method of accounting, as appropriate. Significant intercompany balances and transactions have been eliminated in consolidation except as permitted by Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation" which provides that profits on intercompany sales to regulated affiliates are not eliminated if the sales price is reasonable and the future recovery of the sales price through the rate-making process is probable. B. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of SFAS 71. The accounting standard requires cost-based rate-regulated utilities 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, 1998, approximately $216 million and $71 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $130 million and $56 million, respectively. The electric and gas regulatory assets of approximately $50 million and $33 million, respectively (excluding deferred income tax assets) are being recovered through rates and, as discussed in Note 2B, the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $14 million of the electric regulatory assets. In the future, as a result of deregulation or other changes in the regulatory environment, the Company may no longer meet the criteria for continued application of SFAS 71 and could be required to write off its regulatory assets and liabilities. Such an event could have a material adverse effect on the Company's results of operations in the period that a write-off would be required, but it is not expected that cash flows or financial position would be materially affected. C. System of Accounts The accounting records of the Company's regulated subsidiaries are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and as adopted by the PSC. D. Utility Plant Utility plant is stated substantially at original cost. The costs of additions, renewals and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged, along with the cost of removal, less salvage, to accumulated depreciation. The costs of repairs, replacements and renewals of items of property determined to be less than a unit of property are charged to maintenance expense. SCE&G, operator of the V. C. Summer Nuclear Station (Summer Station), and Santee Cooper (formerly the South Carolina Public Service Authority) are joint owners of Summer Station in the proportions of two-thirds and one-third, respectively. The parties share the operating costs and energy output of the plant in these proportions. Each party, however, provides its own financing. Plant-in-service related to SCE&G's portion of Summer Station was approximately $983.3 million and $978.2 million as of December 31, 1998 and 1997, respectively. Accumulated depreciation associated with SCE&G's share of Summer Station was approximately $369.2 million and $323.6 million as of December 31, 1998 and 1997, respectively. SCE&G'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's regulated subsidiaries calculated AFC using composite rates of 8.7%, 9.1% and 9.1% for 1998, 1997 and 1996, 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 incurred. 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 annual 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 annual fuel cost hearing. SCE&G had undercollected through the electric fuel cost component approximately $3.1 million and $1.3 million at December 31, 1998 and December 31, 1997, respectively, which are included in "Deferred Debits - Other." Customers subject to the gas cost adjustment clause are billed based on a fixed cost of gas determined by the PSC during annual gas cost recovery hearings. Any difference between actual gas costs and that contained in rates is deferred and included when establishing gas costs during the next annual gas cost recovery hearing. At December 31, 1998 and 1997 the Company had undercollected through the gas cost recovery procedure approximately $5.2 million and $7.6 million, respectively, which are included in "Deferred Debits Other." SCE&G's gas rate schedules for residential, small commercial and small industrial customers include a weather normalization adjustment, which minimizes fluctuations in gas revenues due to abnormal weather conditions. G. Depreciation and Amortization Provisions for depreciation are recorded using the straight-line method for financial reporting purposes and are based on the estimated service lives of the various classes of property. The composite weighted average depreciation rates were as follows: 1998 1997 1996 - ---------------------------------------------------------------------------- SCE&G 3.02% 3.09% 3.13% GENCO 2.65% 2.63% 2.68% Pipeline Corporation 2.63% 2.62% 2.56% Aggregate of Above 2.98% 3.05% 3.08% - ----------------------------------------------------------------------------- Nuclear fuel amortization, which is included in "Fuel used in electric generation" and is recovered through the fuel cost component of SCE&G's rates, is recorded using the units-of-production method. Provisions for amortization of nuclear fuel include amounts necessary to satisfy obligations to the Department of Energy (DOE) under a contract for disposal of spent nuclear fuel. The acquisition adjustment relating to the purchase of certain gas properties in 1982 is being amortized over a 40-year period using the straight-line method. H. Nuclear Decommissioning Decommissioning of Summer Station is presently scheduled to commence when the operating license expires in the year 2022. Based on a 1991 study, the expenditures (on a before-tax basis) related to SCE&G's share of decommissioning activities were estimated to be approximately $200 million, including partial reclamation costs. SCE&G is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. SCE&G's method of funding decommissioning costs is referred to as COMReP (Cost of Money Reduction Plan). Under this plan, funds collected through rates ($3.2 million in each of 1998 and 1997) are used to pay premiums on insurance policies on the lives of certain Company personnel. SCE&G is the beneficiary of these policies. Through these insurance contracts, SCE&G is able to take advantage of income tax benefits and accrue earnings on the fund on a tax-deferred basis. Amounts for decommissioning collected through electric rates, insurance proceeds, and interest on proceeds less expenses are transferred by SCE&G to an external trust fund in compliance with the financial assurance requirements of the Nuclear Regulatory Commission. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis. The trust's sources of decommissioning funds under the COMReP program include investment components of life insurance policy proceeds, return on investment and the cash transfers from SCE&G described above. SCE&G records its liability for decommissioning costs in deferred credits. Pursuant to the National Energy Policy Act passed by Congress in 1992 and the requirements of the DOE, SCE&G has recorded a liability for its estimated share of the DOE's decontamination and decommissioning obligation. The liability, approximately $3.6 million at December 31, 1998, has been included in "Long-Term Debt, Net." SCE&G is recovering the cost associated with this liability through the fuel cost component of its rates; accordingly, this amount has been deferred and is included in "Deferred Debits - Other." I. Income Taxes Deferred tax assets and liabilities are recorded for the tax effects of temporary differences between the book basis and tax basis of assets and liabilities at currently enacted tax rates. Deferred tax assets and liabilities are adjusted for changes in such rates through charges or credits to regulatory assets or liabilities if they are expected to be recovered from, or passed through to, customers of the Company's regulated subsidiaries; otherwise, they are charged or credited to income tax expense. J. Pension Expense The Company has a noncontributory defined benefit pension plan, which covers substantially all permanent employees. Benefits are based on years of accredited service and the employee's average annual base earnings received during the last three years of employment. The Company's policy has been to fund the plan to the extent permitted by the applicable Federal income tax regulations as determined by an independent actuary. In addition to pension benefits, the Company provides certain health care and life insurance benefits to active and retired employees. Retirees share in a portion of their medical care cost. The Company provides life insurance benefits to retirees at no charge. 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. Additionally, to accelerate the amortization of the remaining transition obligation for postretirement benefits other than pensions, as authorized by the PSC, the Company amortized approximately $15.7 million, $15.6 million and $6.2 million for the years ended December 31, 1998, 1997 and 1996, respectively. (See Note 2B.) Disclosure required for these plans under Statement of Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits" are set forth in the following tables: Components of Net Periodic Benefit Cost Other Retirement Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 (Millions of Dollars) (Millions of Dollars) Service Cost $ 8.3 $ 6.8 $ 6.5 $ 2.6 $ 2.5 $ 2.6 Interest Cost 25.9 23.5 22.0 9.4 7.8 7.8 Expected return on assets (59.3) (41.6) (35.5) N/A N/A N/A Prior service cost amortization 1.1 1.1 1.4 0.7 0.7 0.7 Actuarial (gain) loss (9.6) (7.0) (5.2) 1.0 0.1 0.5 Transition amount amortization 0.8 0.8 0.8 19.1 18.9 9.5 ------ ------ ------ ----- ----- ----- Net periodic benefit (income)/cost $(32.8) $(16.4) $(10.0) $32.8 $30.0 $21.1 ====== ====== ====== ===== ===== ===== Weighted-Average Assumptions as of December 31 Other Retirement Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Discount rate 7.0% 7.5% 7.5% 7.0% 7.5% 7.5% Expected return on plan assets 9.5% 8.0% 8.0% NA NA NA Rate of compensation increase 4.0% 4.0% 3.0% 4.0% 4.0% 3.0% Change in Benefit Obligation Other Retirement Benefits Postretirement Benefits 1998 1997 1998 1997 (Millions of Dollars) (Millions of Dollars) Benefit obligation, January 1 $344.3 $306.9 $108.8 $110.1 Service cost 8.3 6.8 2.6 2.5 Interest cost 25.9 23.5 9.4 7.8 Plan participants' contributions 0.2 0.2 0.5 0.5 Actuarial (gain)/loss 28.3 25.1 23.3 (5.2) Benefits paid (17.7) (18.1) (7.6) (6.9) ------ ----- ------ ------ Benefit obligation, December 31 $389.3 $344.4 $137.0 $108.8 ====== ====== ====== ====== Change in Plan Assets Retirement Benefits 1998 1997 (Millions of Dollars) Fair value of plan assets, January 1 $632.9 $523.5 Actual return on plan assets 83.5 119.5 Company contribution - 7.8 Plan participants' contributions 0.2 0.2 Benefits paid (17.7) (18.1) ------ ------ Fair value of plan assets, December 31 $698.8 $632.9 ====== ====== The Company does not fund postretirement benefits other than pensions. Funded Status of Plans Other Retirement Benefits Postretirement Benefits 1998 1997 1998 1997 Millions of Dollars) (Millions of Dollars) Funded status, December 31 $309.5 $288.5 $(137.0) $(108.8) Unrecognized actuarial (gain)/loss (213.4) (227.1) 34.5 12.2 Unrecognized prior service cost 12.3 13.4 5.1 5.8 Unrecognized net transition obligation 6.5 7.4 10.7 29.8 ------ ------ ------- ------- Net amount recognized in Consolidated Balance Sheets $114.9 $ 82.2 $ (86.7) $ (61.0) ====== ====== ======= ======= Health Care Trends The determination of net periodic postretirement benefit cost is based on the following assumptions: 1998 1997 1996 - -------------------------------------------------------------------------------- Health care cost trend rate 8.5% 9.0% 9.5% Ultimate health care cost trend rate 5.0% 5.5% 5.5% Year achieved 2005 2004 2004 The effect of a one-percentage-point increase or decrease in the assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic postretirement health care benefit cost and the accumulated postretirement benefit obligation for health care benefits are as follows: 1% 1% Increase Decrease (Millions of Dollars) Effect on health care cost $0.2 $(0.3) Effect on postretirement obligation 3.5 (3.9) K. Debt Premium, Discount and Expense, Unamortized Loss on Reacquired Debt For regulatory purposes, long-term debt premium, discount and expense are being amortized as components of "Interest on long-term debt, net" over the terms of the respective debt issues. Gains or losses on reacquired debt that is refinanced are deferred and amortized over the term of the replacement debt. L. Environmental The Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the amount of expenditures, if any, deemed 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 relate primarily to regulated operations. Such amounts are deferred and amortized with recovery provided through rates. The Company has also recovered portions of its environmental liabilities through settlements with various insurance carriers. As of December 31, 1998, the Company has recovered all amounts previously deferred for its electric operations. The Company expects to recover all deferred amounts related to its gas operations by December 2002. Deferred amounts, net of amounts recovered through rates and insurance settlements, totaled $21.3 million and $32.4 million at December 31, 1998 and 1997, respectively. The deferral includes the estimated costs associated with the matters discussed in Note 10C. M. Oil and Gas On December 1, 1997 substantially all of the assets of the Company's oil and gas exploration and production subsidiary, Petroleum Resources, were sold for $110 million, resulting in an after-tax gain of $17.6 million. The Company followed the full cost method of accounting for its oil and gas operations and, accordingly, capitalized all costs it incurred in the acquisition, exploration and development of interests in oil and gas properties. In addition, the capitalized costs were subject to a ceiling test. However, no non-cash writedowns resulted from the application of the ceiling test for the years ended December 31, 1997 or 1996. 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. Recently Issued Accounting Standard The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The provisions of the Statement, which will be implemented by the Company for the fiscal year beginning January 1, 2000, establish accounting and reporting standards for derivative instruments, including those imbedded in other contracts, and hedging activities. The impact that adoption of the provisions of the Statement will have on the Company's results of operations, cash flows and financial position has not been determined. P. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1998 presentation. Q. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. RATE MATTERS A. On December 11, 1998, the PSC issued an order requiring SCE&G to reduce retail electric rates on a prospective basis. The PSC acted in response to SCE&G reporting that it earned a 13.04 percent return on common equity for its retail electric operations for the twelve months ended September 30, 1998. This return on common equity exceeded SCE&G's authorized return of 12.0 percent by 1.04 percent, or $22.7 million, primarily as a result of record heat experienced during the summer. The order requires prospective rate reductions on a per kilowatt-hour basis, based on actual retail sales for the twelve months ended September 30, 1998. This action will reduce future reported return on common equity to the Commission-authorized level if SCE&G experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. The order requires the rate reductions to be placed into effect with the first billing cycle of January 1999. On December 21, 1998, SCE&G filed a motion for reconsideration with the PSC. On January 12, 1999, the PSC denied SCE&G's motion for reconsideration, ruled that no further rate action was required, and reaffirmed SCE&G's return on equity of 12.0 percent. B. On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34%, which was designed to produce additional revenues, based on a test year, of approximately $67.5 million annually. The increase was implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, or .87%, was implemented in January 1997. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million to be collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of SCE&G's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift, for ratemaking purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The Consumer Advocate and two other intervenors appealed certain issues in the order initially to the Circuit Court, which affirmed the PSC's decisions, and, subsequently, to the Supreme Court. In March 1998, SCE&G, the PSC, the Consumer Advocate and one of the other intervenors reached an agreement that provided for the reversal of the shift in depreciation reserves and the dismissal of the appeal of all other issues. The PSC also authorized SCE&G to adjust depreciation rates that had been approved in the 1996 rate order for its electric transmission, distribution and nuclear production properties to eliminate the effect of the depreciation reserve shift and to retroactively apply such depreciation rates to February 1996. As a result, a one-time reduction in depreciation expense of $5.5 million after taxes was recorded in March 1998. The agreement does not affect retail electric rates. The FERC had previously rejected the transfer of depreciation reserves for rates subject to its jurisdiction. In September 1998, the Supreme Court affirmed the Circuit Court's rulings on the issues contested by the remaining intervenor. C. In 1994 the PSC issued an order approving SCE&G'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 SCE&G's gas operations that had previously been deferred. In October 1998, as a result of the annual review, the PSC approved SCE&G's request to maintain the billing surcharge at $.011 per therm which should enable SCE&G to recover the remaining balance of $22.1 million by December 2002. D. In September 1992 the PSC issued an order granting SCE&G a $.25 increase in transit fares from $.50 to $.75 in Columbia, South Carolina; however, the PSC also required $.40 fares for low income customers and denied SCE&G's request to reduce the number of routes and frequency of service. The new rates were placed into effect in October 1992. SCE&G 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 to the PSC. During August 1996, the PSC heard oral arguments on the orders on remand from the Circuit Court. On September 30, 1996, the PSC issued an order affirming its previous orders and denied SCE&G's request for reconsideration. SCE&G has appealed these two PSC orders to the Circuit Court where they are awaiting action. E. On August 8, 1990, the PSC issued an order approving changes in Pipeline Corporation's gas rate design for sales for resale service and upholding the "value-of-service" method of regulation for its direct industrial service. Direct industrial customers seeking "cost-of-service" based rates appealed to the Circuit Court, which reversed and remanded to the PSC its August 8, 1990 order. Pipeline Corporation appealed that decision to the Supreme Court, which on January 10, 1994 reversed the Circuit Court decision and reinstated the PSC order. Additionally, the Supreme Court interpreted the rate-making statutes of South Carolina to give discretion to the PSC in selecting the methodology to be used in setting rates for natural gas service. The PSC then held another hearing and issued its order dated December 12, 1995 maintaining the present level of the maximum markup on industrial sales ("cap"). This Order was appealed to the Circuit Court by Pipeline Corporation and the industrial customer group with several other parties intervening, including the Consumer Advocate of South Carolina. On October 10, 1997, the Circuit Court issued an order in favor of the Consumer Advocate and the industrial customer group and remanded the case to the PSC to determine an overall rate of return for Pipeline Corporation. The Circuit Court also issued a second order which ruled against Pipeline Corporation and affirmed the PSC's decision that the cap should not be increased. Several motions and appeals were filed subsequently at the Supreme Court. The Supreme Court has dismissed the appeals of the PSC and Pipeline Corporation from the first order without prejudice until the PSC completes proceedings on remand and has held Pipeline Corporation's appeal of the second order in abeyance until the PSC completes proceedings on remand. The remanded case was heard by the PSC in June 1998. The PSC set an overall rate of return on equity for Pipeline Corporation of 12.5-16.5%. The South Carolina Energy Users Committee (SCEUC) appealed the order to the Circuit Court. Pipeline Corporation subsequently filed a Motion to Dismiss the SCEUC's appeal on the grounds that it was not timely filed. These cases should be heard in 1999. 3. LONG-TERM DEBT: The annual amounts of long-term debt maturities, including the amounts due under the nuclear and fossil fuel agreements (see Note 4), and sinking fund requirements for the years 1999 through 2003 are summarized as follows: Year Amount Year Amount (Millions of Dollars) 1999 $106.5 2002 $ 27.5 2000 213.5 2003 284.4 2001 27.5 Approximately $18.5 million of the portion of long-term debt payable in 1999 may be satisfied by either deposit and cancellation of bonds issued upon the basis of property additions or bond retirement credits, or by deposit of cash with the Trustee. On January 13, 1998 the Company issued $60 million of medium-term notes due January 13, 2003 at an interest rate of 6.05%. Proceeds from the notes were used to repay unsecured bank loans totaling $60 million due January 9, 1998 which were classified as long-term debt at December 31, 1997. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with SCE&G. In consideration for the electric franchise agreement, SCE&G is paying the City $25 million over seven years (1996-2002) and has donated to the City the existing transit assets in Charleston. The $25 million is included in electric plant-in-service. In settlement of environmental claims the City may have had against SCE&G involving the Calhoun Park area, where SCE&G and its predecessor companies operated a manufactured gas plant until the 1960's, SCE&G is paying the City $26 million over a four-year period (1996-1999). Such amount is deferred (see Note 1L). The unpaid balances of these amounts are included in "Long-Term Debt." SCE&G has three-year revolving lines of credit totaling $75 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 $175 million. The long-term nature of the lines of credit allow commercial paper in excess of $175 million to be classified as long-term debt. SCE&G's commercial paper outstanding totaled $ 125.2 million and $13.3 million at December 31, 1998 and 1997 at weighted average interest rates of 5.32% and 5.90%, respectively. 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 by Fuel Company through the issuance of short-term commercial paper. These short-term borrowings are supported by an irrevocable revolving credit agreement which expires December 19, 2000. 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 $66.0 million and $80.3 million at December 31, 1998 and 1997 at weighted average interest rates of 5.45% and 5.87%, respectively. 5. COMMON EQUITY: The changes in "Common Stock," without par value, during 1998, 1997 and 1996 are summarized as follows: Number Millions of Shares of Dollars Balance December 31, 1995 103,623,863 $1,056.7 Issuance of common stock 2,551,410 68.6 - ---------------------------------------------------------------------------- Balance December 31, 1996 106,175,273 1,125.3 Issuance of common stock 1,145,840 27.6 - --------------------------------------------------------------------------- Balance December 31, 1997 107,321,113 1,152.9 Repurchase of common stock (3,748,490) (110.0) - --------------------------------------------------------------------------- Balance December 31, 1998 103,572,623 $1,042.9 ============================================================================ The Restated Articles of Incorporation of the Company do not limit the dividends that may be payable on its common stock. However, the Restated Articles of Incorporation of SCE&G and the Indenture underlying its First and Refunding Mortgage Bonds contain provisions that, under certain circumstances, could limit the payment of cash dividends on its common stock. In addition, with respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At December 31, 1998 approximately $25.1 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G's common stock. Cash dividends on common stock were declared at an annual rate per share of $1.54, $1.51 and $1.47 for 1998, 1997 and 1996, respectively. 6. PREFERRED STOCK: 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 amount of purchase fund or sinking fund requirements for preferred stock for the years 1999 through 2003 is $2.8 million. The changes in "Total Preferred Stock (Subject to purchase or sinking funds)" during 1998, 1997 and 1996 are summarized as follows: Number Millions of Shares of Dollars Balance December 31, 1995 763,619 $ 48.7 Shares Redeemed: $100 par value (7,198) (0.7) $50 par value (50,319) (2.6) - ------------------------------------------------------------------------- Balance December 31, 1996 706,102 45.4 Shares Redeemed: $100 par value (202,812) (20.3) $50 par value (252,196) (12.6) - ------------------------------------------------------------------------- Balance December 31, 1997 251,094 12.5 Shares Redeemed: $50 par value (11,042) (1.0) ----------------------------------------------------------------------- Balance December 31, 1998 240,052 $ 11.5 ========================================================================= On October 28, 1997, SCE&G Trust I (the "Trust"), a wholly-owned subsidiary of SCE&G, issued $50 million (2,000,000 shares) of 7.55% Trust Preferred Securities, Series A (the "Preferred Securities"). SCE&G owns all of the Common Securities of the Trust (the "Common Securities"). The Preferred Securities and the Common Securities (the "Trust Securities") represent undivided beneficial ownership interests in the assets of the Trust. The Trust exists for the sole purpose of issuing the Trust Securities and using the proceeds thereof to purchase from SCE&G its 7.55% Junior Subordinated Debentures due September 30, 2027. The sole asset of the Trust is $50 million of Junior Subordinated Debentures of SCE&G. Accordingly, no financial statements of the Trust are presented. SCE&G's obligations under the Guarantee Agreement entered into in connection with the Preferred Securities, when taken together with SCE&G's obligation to make interest and other payments on the Junior Subordinated Debentures issued to the Trust and SCE&G's obligations under the Indenture pursuant to which the Junior Subordinated Debentures were issued, provides a full and unconditional guarantee by SCE&G of the Trust's obligations under the Preferred Securities. Proceeds were used to redeem preferred stock of SCE&G. The preferred securities of SCE&G Trust I are redeemable only in conjunction with the redemption of the related 7.55% Junior Subordinated Debentures. The Junior Subordinated Debentures will mature on September 30, 2027 and may be redeemed, in whole or in part, at any time on or after September 30, 2002 or upon the occurrence of a Tax Event. A Tax Event occurs if an opinion is received from counsel experienced in such matters that there is more than an insubstantial risk that: (1) the Trust is or will be subject to Federal income tax, with respect to income received or accrued on the Junior Subordinated Debentures, (2) interest payable by SCE&G on the Junior Subordinated Debentures will not be deductible, in whole or in part, by SCE&G for Federal income tax purposes, or (3) the Trust will be subject to more than a de minimis amount of other taxes, duties, or other governmental charges. Upon the redemption of the Junior Subordinated Debentures, payment will simultaneously be applied to redeem Preferred Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Junior Subordinated Debentures. The Preferred Securities are redeemable at $25 per preferred security plus accrued dividends. 7. INCOME TAXES: Total income tax expense for 1998, 1997 and 1996 is as follows: 1998 1997 1996 - -------------------------------------------------------------------------- (Millions of Dollars) Current taxes: Federal $114.8 $101.3 $ 98.3 State 2.2 (5.4) 14.1 - ---------------------------------------------------------------------------- Total current taxes 117.0 95.9 112.4 - ---------------------------------------------------------------------------- Deferred taxes, net: Federal 2.3 3.5 8.6 State 2.0 0.3 1.7 - ---------------------------------------------------------------------------- Total deferred taxes 4.3 3.8 10.3 - ---------------------------------------------------------------------------- Investment tax credits: Deferred - State 14.3 19.0 - Amortization of amounts deferred - State (0.9) (1.5) - Amortization of amounts deferred - Federal (3.6) (3.6) (3.6) - ---------------------------------------------------------------------------- Total investment tax credits 9.8 13.9 (3.6) - ---------------------------------------------------------------------------- Total income tax expense $131.1 $113.6 $119.1 ============================================================================ The difference in total income tax expense and the amount calculated from the application of the statutory Federal income tax rate (35% for 1998, 1997 and 1996) to pre-tax income is reconciled as follows: 1998 1997 1996 - ---------------------------------------------------------------------------- (Millions of Dollars) Net income $223.4 $220.7 $215.3 Total income tax expense: Charged to operating expenses 136.2 105.4 118.0 Charged (credited) to other items (5.1) 8.2 1.1 Preferred stock dividends 7.5 9.2 5.4 - ---------------------------------------------------------------------------- Total pre-tax income $362.0 $343.5 $339.8 ============================================================================ Income taxes on above at statutory Federal income tax rate $126.7 $120.2 $118.9 Increases (decreases) attributable to: State income taxes (less Federal income tax effect) 11.4 8.1 10.2 Deferred income tax reversal at higher than statutory rates (3.6) (4.2) (4.1) Amortization of Federal investment tax credits (3.6) (3.6) (3.6) Allowance for equity funds used during construction (2.8) (2.5) (2.5) Other differences, net 3.0 (4.4) 0.2 - ---------------------------------------------------------------------------- Total income tax expense $131.1 $113.6 $119.1 ============================================================================ The tax effects of significant temporary differences comprising the Company's net deferred tax liability at December 31, 1998 and 1997 are as follows: 1998 1997 - ------------------------------------------------------------------------------ (Millions of Dollars) Deferred tax assets: Unamortized investment tax credits $ 66.9 $ 60.7 Cycle billing 20.6 20.5 Early retirement programs 13.0 2.7 Deferred compensation 7.4 6.9 Other postretirement benefits 32.9 14.6 Other 23.7 11.6 - ------------------------------------------------------------------------------ Total deferred tax assets 164.5 117.0 - ------------------------------------------------------------------------------ Deferred tax liabilities: Property, plant and equipment 658.8 634.3 Pension expense 39.2 27.5 Research and experimentation 32.5 19.5 Reacquired debt 7.5 7.5 Investments in equity securities 20.5 5.3 Other 12.2 10.4 - ------------------------------------------------------------------------------ Total deferred tax liabilities 770.7 704.5 - ------------------------------------------------------------------------------ Net deferred tax liability $606.2 $587.5 ============================================================================== The Internal Revenue Service has examined and closed consolidated Federal income tax returns of the Company through 1989, and has examined and proposed adjustments to the Company's Federal returns for 1990 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, 1998 and 1997 are as follows: 1998 1997 - ------------------------------------------------------------------------------ Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value (Millions of Dollars) Assets: Cash and temporary cash investments $ 62.0 $ 62.0 $ 59.7 $ 59.7 Investments 409.7 464.7 290.5 341.9 Liabilities: Short-term borrowings 194.6 194.6 58.7 58.7 Long-term debt 1,729.7 1,869.2 1,639.5 1,722.4 Preferred stock (subject to purchase or sinking funds) 11.5 11.3 12.5 11.3 - ----------------------------------------------------------------------------- The information presented herein is based on pertinent information available to the Company as of December 31, 1998 and 1997. 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, 1998, 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: o Cash and temporary cash investments, including commercial paper, repurchase agreements, treasury bills and notes, are valued at their carrying amount. o Fair values of investments and long-term debt are based on quoted market prices of the instruments or similar instruments, or for those instruments for which there are no quoted market prices available, fair values are based on net present value calculations. Investments which are not considered to be financial instruments have been excluded from the carrying amount and estimated fair value. Settlement of long-term debt may not be possible or may not be a prudent management decision. o Short-term borrowings are valued at their carrying amount. o The fair value of preferred stock (subject to purchase or sinking funds) is estimated on the basis of market prices. o Potential taxes and other expenses that would be incurred in an actual sale or settlement have not been taken into consideration. At December 31, 1998, SCI held the following investments in ITC Holding Company (ITC) and its affiliates: o Powertel, Inc. (Powertel) is a publicly traded company that owns and operates personal communications services (PCS) systems in several major Southeastern markets. SCI owns approximately 4.6 million common shares of Powertel. SCI's investment in Powertel's common shares of approximately $68.0 million had a market value of $62.5 million at December 31, 1998, resulting in a pre-tax unrealized holding loss of $5.5 million. The after-tax amount of such loss is included in the balance sheet as a component of "Common Equity." In addition, SCI owns the following series of non-voting convertible preferred shares, at the approximate cost noted: 100,000 shares series B ($75.1 million), 50,000 shares series D ($22.5 million) and 50,000 shares 6.5% series E ($75.0 million). Preferred series B shares are convertible in March 2002 at a conversion price of $16.50 per common share or approximately 4.5 million common shares. Preferred series D shares are convertible in March 2002 at a conversion price of $12.75 per common share or approximately 1.7 million common shares. Preferred series E shares purchased in June 1998 are convertible in June 2003 at a conversion price of $22.01 per common share or approximately 3.4 million common shares. The market value of the convertible preferred shares of Powertel is not readily determinable. However, on an as converted basis, the market value of the underlying common shares for the preferred shares was approximately $131.8 million at December 31, 1998, resulting in an unrecorded pre-tax holding loss of $40.8 million. o ITC Delta^Com, Inc. (ITCD) is a fiber optic telecommunications provider. SCI owns approximately 4.1 million common shares of ITCD. SCI's investment in ITCD's common shares of approximately $16.2 million had a market value of $61.8 million at December 31, 1998, resulting in a pre-tax unrealized holding gain of $45.6 million. The after-tax amount of such gain is included in the balance sheet as a component of "Common Equity." In addition, SCI owns 1,480,771 shares of series A preferred stock of ITCD at a cost of approximately $11.2 million. Series A preferred shares are convertible in March 2002 into 2,961,542 shares of ITCD common stock (after giving effect to the two-for-one stock split). The market value of series A preferred stock of ITCD is not readily determinable. However, on an as converted basis the market value of the underlying common stock for the series A preferred stock was approximately $45.2 million at December 31, 1998, resulting in an unrecorded pre-tax holding gain of $33.9 million. o Knology Holdings, Inc. (Knology) is a broad-band service provider of cable, television, telephone and internet services. SCI owns 71,050 units of Knology. Each unit consists of one 11.875% Senior Discount Note due 2007 and one warrant entitling the holder to purchase .003734 shares of preferred stock of Knology. The cost of this investment was approximately $40 million. SCI also owns an additional 753 warrants which entitles it to purchase 753 shares of preferred stock at $1,500 per share. Effective July 31, 1998, SCI sold all of its 3,639 shares of preferred stock in Knology to ITC. For each preferred share sold, SCI received $1,600 of ITC series B convertible preferred shares, for a total of 133,664 shares. SCI also received approximately $0.4 million in cash. SCI's original investment in these shares was approximately $5.3 million. o ITC has an ownership interest in several Southeastern communications companies. SCI owned approximately 3.1 million common shares (after giving effect to a four-for-one stock split on August 25, 1998), 645,153 series A convertible preferred shares, and 133,664 series B convertible preferred shares of ITC. These investments cost approximately $7.1 million, $8.9 million, and $5.0 million, respectively. Series A and series B preferred shares are convertible in March 2002 into ITC common shares at a conversion price of $13.45 and $43.56, respectively, on a four to one basis. The market value of these investments is not readily determinable. 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 (including uncommitted lines of credit) and short-term borrowings, excluding amounts classified as long-term (Notes 3 and 4), at December 31, 1998 and 1997 and for the years then ended are as follows: 1998 1997 (Millions of Dollars) Authorized lines of credit at year-end $513.0 $564.0 Unused lines of credit at year-end $443.8 $518.8 Short-term borrowings outstanding at year-end: Bank loans $69.4 $45.4 Weighted average interest rate 6.66% 6.44% Commercial paper $125.2 $13.3 Weighted average interest rate 5.32% 5.90% - ------------------------------------------------------------------------- 10. COMMITMENTS AND CONTINGENCIES: A. Construction The Company and Westvaco each own a 50% interest in Cogen South LLC (Cogen). Cogen was formed to build and operate a cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. Construction of the facility began in September 1996 and is in the final stages. Construction financing of approximately $170 million was provided to Cogen by banks. On September 10, 1998, the contractor in charge of construction filed suit in Circuit Court seeking approximately $51 million from Cogen, alleging that construction cost overruns relating to the facility were incurred and that the construction contract provides for recovery of these costs. In addition to Cogen, Westvaco, SCE&G and the Company are also named in the suit. The Company and the other defendants believe the suit is without merit and are mounting an appropriate defense. The Company does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. B. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $9.7 billion. Each reactor licensee is currently liable for up to $88.1 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. SCE&G's maximum assessment, based on its two-thirds ownership of Summer Station, would be approximately $58.7 million per incident, but not more than $6.7 million per year. SCE&G currently maintains policies (for itself and on behalf of Santee Cooper) with Nuclear Electric Insurance Limited (NEIL) and American Nuclear Insurers (ANI) providing combined property and decontamination insurance coverage of $2.0 billion for any losses at Summer Station. SCE&G pays annual premiums and, in addition, could be assessed a retroactive premium not to exceed five times its annual premium in the event of property damage loss to any nuclear generating facility covered under the NEIL program. Based on the current annual premium, this retroactive premium assessment would not exceed $6.1 million. To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that SCE&G's rates would not recover the cost of any purchased replacement power, SCE&G will retain the risk of loss as a self-insurer. SCE&G has no reason to anticipate a serious nuclear incident at Summer Station. If such an incident were to occur, it could have a material adverse impact on the Company's results of operations, cash flows and financial position. C. Environmental In September 1992, the Environmental Protection Agency (EPA) notified SCE&G, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park area site in Charleston, South Carolina. This site encompasses approximately 30 acres and includes properties which were locations for industrial operations, including a wood preserving (creosote) plant, one of SCE&G's decommissioned manufactured gas plants, properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priorities List, but may be added in the future. The Potentially Responsible Parties (PRPs) have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993, and the EPA approved a Remedial Investigation Report in February 1997 and a Feasibility Study Report in June 1998. In July 1998, the EPA approved SCE&G's Removal Action Work Plan for soil excavation. SCE&G completed Phase One of the Removal Action in 1998 at a cost of approximately $1.5 million. Phase Two will include excavation and installation of several permanent barriers to mitigate coal tar seepage. Phase Two began in November 1998, and is expected to cost approximately $2.2 million. On September 30, 1998 a Record of Decision, was issued which sets forth EPA's view of the extent of each PRP's responsibility for site contamination and the level to which the site must be remediated. On January 13, 1999 the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action directing SCE&G to design and carry out a plan of remediation for the Calhoun Park site. The Order is temporarily stayed pending further negotiations between SCE&G and the EPA. In October 1996 the City of Charleston and SCE&G settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by SCE&G to the City. SCE&G is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup as discussed above. As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The parking garage is currently under construction and is scheduled for completion in the spring of the year 2000. SCE&G owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. For the site located in Sumter, South Carolina, effective September 15, 1998, SCE&G entered into a Remedial Action Plan Contract with the South Carolina Department of Health and Environmental Control (DHEC) pursuant to which it agreed to undertake a full site investigation and remediation under the oversight of DHEC. Site investigation and characterization are proceeding according to schedule. Upon selection and successful implementation of a site remedy, DHEC will give SCE&G a Certificate of Completion, and a covenant not to sue. SCE&G is continuing to investigate the other two sites, and is monitoring the nature and extent of residual contamination. D. Franchise Agreement See Note 3 for a discussion of the electric franchise agreement between SCE&G 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. 11. SEGMENT OF BUSINESS INFORMATION: The Company's reportable segments, based on combined revenues from external and internal sources, are Electric Operations, Gas Distribution, Gas Transmission and Energy Marketing. Electric Operations is comprised of the electric portion of SCE&G, GENCO and Fuel Company. This segment is primarily engaged in the generation, transmission and distribution of electricity. SCE&G's electric service territory extends into 24 counties covering more than 15,000 square miles in the central, southern and southwestern portions of South Carolina. Sales of electricity to industrial, commercial and residential customers are regulated by the PSC. SCE&G is also regulated by the FERC. GENCO owns and operates the Williams Station generating facility and sells all of its electric generation to SCE&G. GENCO is regulated by the FERC. Fuel Company acquires, owns and provides financing for the fuel and emission allowances required for the operation of SCE&G's generation facilities. Gas Distribution is comprised of SCE&G's local distribution operations. This segment is engaged in the purchase and sale, primarily at retail, of natural gas. These operations extend to 30 counties in South Carolina covering approximately 21,000 square miles. Gas Transmission is comprised of Pipeline Corporation, which is engaged in the purchase, transmission and sale of natural gas on a wholesale basis to distribution companies (including SCE&G), and directly to industrial customers in 40 counties throughout South Carolina. Pipeline Corporation also owns LNG liquefaction and storage facilities. Both gas segments are regulated by the PSC. Energy Marketing is comprised of SCANA Energy, which markets electricity, natural gas and other light hydrocarbons primarily in the southeast. SCANA Energy also markets natural gas in Georgia's deregulated natural gas market. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company records regulated inter-affiliate sales and transfers of electricity and gas based on rates established by the appropriate regulatory authority. Non-regulated sales and transfers are recorded at current market prices. The Company's reportable segments share a similar regulatory environment and, in some cases, an overlapping service area. However, Electric Operations' product differs from the other segments, as does its generation process and method of distribution. The gas segments differ from each other primarily based on the class of customers each serves and the marketing strategies resulting from those differences. Energy Marketing is a non-regulated segment. Disclosure of Reportable Segments (Millions of Dollars) Electric Gas Gas Energy All 1998 Operations1 Distribution Transmission Marketing Other2 Total External Customer Revenue 1,220 226 185 568 69 2,268 Revenue from Affiliates 286 5 145 - 8 444 Operating Income (Loss) 319 21 20 - (5) 355 Interest Expense n/a n/a 4 - 19 23 Depreciation & Amortization 126 12 7 - 11 156 Income Tax n/a n/a 8 (8) (2) (2) Segment Net Income n/a n/a 16 (14) (4) (2) Segment Assets 4,600 381 239 73 764 6,057 Expenditures for Assets 205 19 11 4 56 295 Deferred Tax Assets n/a n/a 3 - 9 12 Electric Gas Gas Energy All 1997 Operations1 Distribution Transmission Marketing Other2 Total External Customer Revenue 1,103 231 188 207 88 1,817 Revenue from Affiliates 124 3 152 2 50 331 Operating Income (Loss) 280 22 21 - (4) 319 Interest Expense n/a n/a 4 - 14 18 Depreciation & Amortization 135 11 6 1 28 181 Income Tax n/a n/a 7 - 9 16 Segment Net Income n/a n/a 18 (1) 19 36 Segment Assets 4,417 364 243 40 614 5,678 Expenditures for Assets 189 15 18 - 70 292 Deferred Tax Assets n/a n/a 5 - (1) 4 Electric Gas Gas Energy All 1996 Operations1 Distribution Transmission Marketing Other2 Total External Customer Revenue 1,107 232 171 252 71 1,833 Revenue from Affiliates 119 2 156 1 71 349 Operating Income (Loss) 289 19 17 - (6) 319 Interest Expense n/a n/a 2 - 11 13 Depreciation & Amortization 129 12 6 1 38 186 Income Tax n/a n/a 9 (3) 6 12 Segment Net Income n/a n/a 17 (4) 16 29 Segment Assets 4,256 350 231 34 551 5,422 Expenditures for Assets 185 19 30 1 59 294 Deferred Tax Assets n/a n/a 3 - 12 15 Significant non-cash activities 21 20 - - - 41
1Management uses operating income and utility plant to measure segment profitability and financial position, respectively, for Electric Operations, Gas Distribution and Transit Operations. Therefore, SCE&G's interest expense, depreciation and amortization, income taxes, segment net income and deferred tax assets are not allocated between segments. Management uses net income and total assets to measure segment profitability and financial position for all other segments. Interest income is not reported by segment and is not material. 2Revenues and assets from segments below the quantitative thresholds are attributable to SCE&G's transit operations, which are regulated by the PSC, and to nine other wholly owned subsidiaries of SCANA. These subsidiaries conduct non-regulated operations in the electric, natural gas and telecommunications industries. Revenues are derived primarily from sales of propane, appliance warranties and home security systems and from fiber optics and radio networks. None of these subsidiaries met any of the quantitative thresholds for determining reportable segments in 1998, 1997 or 1996. Significant non-cash activities included the Charleston electric franchise agreement and the Charleston environmental agreement related to a manufactured gas plant site. Reconciliation of Reportable Segments To Consolidated Financial Statements (Millions of Dollars) Total Operating Net 1998 Revenue Income/(Loss) Income Assets - --------------------------------------------------------------------------- Reportable Segments $2,635 $360 $ 2 $5,293 All Other 77 (5) (4) 764 Unallocated - (6) 225 (625) Elimination of Affiliates (444) (4) - (41) Adjustments (636) - - (110) - --------------------------------------------------------------------------- Consolidated Totals $1,632 $345 $223 $5,281 - --------------------------------------------------------------------------- Total Operating Net 1997 Revenue Income/(Loss) Income Assets - --------------------------------------------------------------------------- Reportable Segments $2,010 $323 $ 17 $5,064 All Other 138 (4) 19 614 Unallocated - - 190 (614) Elimination of Affiliates (331) (5) (5) (49) Adjustments (294) - - (83) - --------------------------------------------------------------------------- Consolidated Totals $1,523 $314 $221 $4,932 - ------------------------------------------------------------------------------- Total Operating Net 1996 Revenue Income/(Loss) Income Assets - ----------------------------------------------------------------------------- Reportable Segments $2,040 $325 $ 13 $4,871 All Other 142 (6) 16 551 Unallocated - - 190 (529) Elimination of Affiliates (349) (5) (4) (53) Adjustments (320) - - (81) - ----------------------------------------------------------------------------- Consolidated Totals $1,513 $314 $215 $4,759 - ----------------------------------------------------------------------------- The Consolidated Financial Statements report operating revenues, comprised of the reportable segments, except Energy Marketing, and the non-reportable transit operations segment. Energy Marketing's revenues and revenues from other non-reportable segments are included in Other Income. Therefore, the adjustments to total revenue remove revenues from non-regulated segments. Adjustments to assets consist of various reclassifications made for external reporting purposes. Unallocated net income consists of SCE&G's net income. Segment assets include utility plant only (excluding accumulated depreciation) for Electric Operations, Gas Distribution and Transit Operations, and all assets for Gas Transmission and the remaining non-reportable segments. As a result, unallocated assets include accumulated depreciation, offset in part by common, non-utility and non-regulated plant for SCANA and SCE&G, and by non-fixed assets for Electric Operations, Gas Distribution and Transit Operations. Reconciliation of Other Significant Items (Millions of Dollars) Segment Consolidated 1998 Totals Adjustments Totals - ------------------------------------------------------------------------------ Interest Charges $ 23 100 123 Depreciation and Amortization 156 (11) 145 Income Tax/(Benefit) (2) 138 136 Expenditures for Assets 295 8 303 Deferred Tax Assets 12 10 22 - ----------------------------------------------------------------------------- Segment Consolidated 1997 Totals Adjustments Totals - ---------------------------------------------------------------------------- Interest Charges $ 18 103 121 Depreciation and Amortization 181 (28) 153 Income Tax/(Benefit) 16 89 105 Expenditures for Assets 292 (4) 288 Deferred Tax Assets 4 21 25 - ---------------------------------------------------------------------------- Segment Consolidated 1996 Totals Adjustments Totals - ------------------------------------------------------------------------------ Interest Charges $ 13 109 122 Depreciation and Amortization 186 (38) 148 Income Tax/(Benefit) 12 106 118 Expenditures for Assets 294 (22) 272 Deferred Tax Assets 15 6 21 Significant Non-cash Activities 41 - 41 - ------------------------------------------------------------------------------ Adjustments to Interest Charges, Income Tax/(Benefit) and Deferred Tax Assets include primarily the totals from SCANA or SCE&G that are not allocated to the segments. Interest Charges is also adjusted to eliminate inter-affiliate charges. Adjustments to depreciation and amortization consist of non-regulated segment expenses, which are not included in the depreciation and amortization reported on a consolidated basis. Deferred Tax Assets are also adjusted to remove the non-current portion of those assets. Expenditures for Assets in 1996 are adjusted primarily to remove the non-cash transaction related to the Charleston Franchise Agreement. 12. QUARTERLY FINANCIAL DATA (UNAUDITED): 1998 First Second Third Fourth Quarter Quarter Quarter Quarter Annual (Millions of Dollars, except per share amounts) Total operating revenues $406 $387 $474 $365 $1,632 Operating income 91 74 120 60 345 Net income 64 42 86 31 223 Earnings per weighted average share of common stock as reported .60 .40 .82 .30 2.12 - ---------------------------------------------------------------------------- 1997 First Second Third Fourth Quarter Quarter Quarter Quarter Annual (Millions of Dollars, except per share amounts) Total operating revenues $385 $332 $418 $388 $1,523 Operating income 81 61 100 72 314 Net income 57 30 75 59 221 Earnings per weighted average share of common stock as reported .54 .28 .69 .55 2.06 - ----------------------------------------------------------------------------- 13. Subsequent Event On February 17, 1999, the Company and Public Service Company of North Carolina, Inc. (PSNC) announced a definitive agreement whereby the Company will acquire PSNC in a transaction valued at approximately $900 million, including the assumption of debt. The transaction will be accounted for as a purchase. It is anticipated that PSNC will be operated as a wholly-owned subsidiary of the Company. Completion of the transaction is subject to the approval of the shareholders of both companies and applicable regulatory approvals. It is anticipated that the approval process can be completed by the end of 1999. SOUTH CAROLINA ELECTRIC & GAS COMPANY FINANCIAL SECTION ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements included in this discussion and analysis (or elsewhere in this annual report) which are not statements of historical fact are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following: (1) that the information is of a preliminary nature and may be subject to further and/or continuing review and adjustment, (2) changes in the utility regulatory environment, including the pace of deregulation of retail natural gas and electricity markets in the United Sates,(3) changes in the economy in areas served by SCE&G, (4) the impact of competition from other energy suppliers, (5) the management of SCE&G's operations, (6) variations in prices of natural gas and fuels used for electric generation,(7) growth opportunities, (8) the results of financing efforts, (9) changes in SCE&G's accounting policies, (10) weather conditions, (11) inflation, (12)exposure to environmental issued and liabilities, (13) changes in environmental regulation, (14) successful correction of any material Year 2000 problem or, alternatively, successful implementation of a contingency plan by SCE&G and any critical third party suppliers and (15) the other risks and uncertainties described from time to time in SCE&G's periodic reports filed with the SEC. SCE&G disclaims any obligation to update any forward-looking statements. COMPETITION The electric utility industry continues a major transition that is resulting in 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, the FERC, in issuing Order 888 in April 1996, accelerated competition among electric utilities by providing for open access to wholesale transmission service. 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 two percent of SCE&G's electric revenue is under FERC jurisdiction for the purpose of setting rates for wholesale service. Legislation is pending in South Carolina that would deregulate the state's retail electric market and enable customers to choose their supplier of electricity. SCE&G is not able to predict whether the legislation will be enacted and, if it is, the conditions it will impose on utilities that currently operate in the state and future market participants. SCE&G and its parent company, SCANA, are aggressively pursuing actions to position themselves strategically for the transformed environment. To enhance its flexibility and responsiveness to change, one of SCANA's subsidiaries, Energy Marketing, is aggressively marketing natural gas to residential and commercial customers in Georgia's newly deregulated natural gas market. Management believes that successfully competing in the Georgia market will provide necessary experience and potential market share for a deregulated electric industry. In addition, SCE&G has undertaken a variety of initiatives, including reductions in staffing levels and the accelerated recovery of its electric regulatory assets. SCE&G has also established open access transmission tariffs and is selling bulk power to wholesale customers at market-based rates. A significant new management information system was implemented in 1998, and a new customer information system will be fully implemented in the first half of 1999. Marketing of services to commercial and industrial customers has increased significantly. SCE&G has obtained long term power supply contracts with a significant portion of its industrial customers. SCE&G 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, SCE&G 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 SCE&G's results of operations in the period the write-off is recorded. It is expected that cash flows and the financial position of SCE&G would not be materially affected by the discontinuation of the accounting treatment. SCE&G reported approximately $208 million and $66 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $123 million and $51 million, respectively, on its balance sheet at December 31, 1998. SCE&G's generation assets are exposed to considerable financial risks in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, SCE&G could be required to write down its investment in these assets. SCE&G cannot predict whether any write-downs will be necessary and, if they are, the extent to which they would adversely affect SCE&G's results of operations in the period in which they are recorded. As of December 31, 1998, SCE&G's net investment in fossil\hydroelectric generation and nuclear generation assets was $1,033.9 million and $619.2 million, respectively. LIQUIDITY AND CAPITAL RESOURCES The cash requirements of SCE&G arise primarily from its operational needs and construction program. The ability of SCE&G 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. SCE&G 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 SCE&G continues its ongoing construction program, it may be necessary to seek increases in rates. As a result, SCE&G's future financial position and results of operations will be affected by its ability to obtain adequate and timely rate and other regulatory relief, if requested. SCANA and Westvaco each own a 50% interest in Cogen South LLC (Cogen). Cogen was formed to build and operate a cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. Construction of the facility began in September 1996 is in the final stages. Construction financing of approximately $170 million was provided to Cogen by banks. On September 10, 1998 the contractor in charge of construction filed suit in Circuit Court seeking approximately $51 million from Cogen, alleging that construction cost overruns were incurred, and that the construction contract provides for recovery of these costs. In addition to Cogen, Westvaco, SCE&G and SCANA were also named in the suit. SCE&G and the other defendants believe the suit is without merit and are mounting an appropriate defense. SCE&G does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. On August 7, 1996 the City of Charleston executed 30-year electric and gas franchise agreements with SCE&G. In consideration for the electric franchise agreement, SCE&G is paying the City $25 million over seven years (1996-2002) and has donated to the City the existing transit assets in Charleston. The $25 million is included in electric plant-in-service. In settlement of environmental claims the City may have had against SCE&G involving the Calhoun Park area, where SCE&G and its predecessor companies operated a manufactured gas plant until the 1960's, SCE&G is paying the City $26 million over a four-year period (1996-1999). As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The parking garage is currently under construction, and is scheduled for completion in the spring of the year 2000. The revised estimated primary cash requirements for 1999, excluding requirements for fuel liabilities and short-term borrowings and including notes payable to affiliated companies, and the actual primary cash requirements for 1998 are as follows: 1999 1998 - ----------------------------------------------------------------------- (Millions of Dollars) Property additions and construction expenditures, net of allowance for funds used during construction $242 $231 Nuclear fuel expenditures 5 23 Maturing obligations, redemptions and sinking and purchase fund requirements 81 61 - ---------------------------------------------------------------------- Total $328 $315 ====================================================================== Approximately 78% of total cash requirements (after payment of dividends) was provided from internal sources in 1998 as compared to 69% in 1997. SCE&G's First and Refunding Mortgage Bond Indenture, dated April 1, 1945 (Old Mortgage), contains provisions prohibiting the issuance of additional bonds thereunder (Class A Bonds) unless net earnings (as therein defined) for twelve consecutive months out of the fifteen months prior to the month of issuance are at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1998 the Bond Ratio was 5.30. 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 $396 million at December 31, 1998), (ii) retirements of Class A Bonds (which retirement credits totaled $100.3 million at December 31, 1998), and (iii) cash on deposit with the Trustee. SCE&G has a bond indenture dated April 1, 1993 (New Mortgage) covering substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are issued under the New Mortgage on the basis of a like principal amount of Class A Bonds issued under the Old Mortgage which have been deposited with the Trustee of the New Mortgage (of which $315 million were available for such purpose as of December 31, 1998), until such time as two-thirds of all Class A Bonds are held by the Trustee. Thereafter, the Old Mortgage may be amended to allow New Bonds to 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, 1998 the New Bond Ratio was 6.72. SCE&G expects in 1999 to amend the Old Mortgage to conform certain of its provisions to those of the New Mortgage, including (i) the elimination of the maintenance and replacement fund and the utilization of unfunded net property additions previously applied in satisfaction thereof as a basis for the issuance of bonds; (ii) the issuance of bonds in a principal amount equal to 70% of unfunded net property additions instead of 60%; and (iii) the conformance of the interest coverage requirements for the issuance of bonds to those of the New Mortgage. On November 2, 1998, SCE&G redeemed, prior to maturity, all $30 million principal amount outstanding of its 7.25% series First and Refunding Mortgage Bonds due January 1, 2002. Without the consent of at least a majority of the total voting power of SCE&G's preferred stock, SCE&G may not issue or assume any unsecured indebtedness if, after such issue or assumption, the total principal amount of all such unsecured indebtedness would exceed 10% of the aggregate principal amount of all of SCE&G's secured indebtedness and capital and surplus; however, no such consent is required to enter into agreements for payment of principal, interest and premium for securities issued for pollution control purposes. Pursuant to Section 204 of the Federal Power Act, SCE&G must obtain FERC authority to issue short-term debt. The FERC has authorized SCE&G to issue up to $250 million of unsecured promissory notes or commercial paper with maturity dates of twelve months or less, but not later than December 31, 2001. At December 31, 1998 SCE&G had $285 million of authorized lines of credit which includes a credit agreement for a maximum of $250 million to support the issuance of commercial paper. Unused lines of credit at December 31, 1998 totaled $285 million. SCE&G's commercial paper outstanding at December 31, 1998 and December 31, 1997 was $125.2 million and $13.3 million, respectively. In addition, Fuel Company has a credit agreement for a maximum of $125 million with the full amount available at December 31, 1998. 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, 1998 was $66.0 million. This commercial paper and amounts outstanding under the revolving credit agreement, if any, are guaranteed by SCE&G. SCE&G's Restated Articles of Incorporation prohibit issuance of additional shares of preferred stock without consent of the preferred stockholders unless net earnings (as defined therein) for the twelve consecutive months immediately preceding the month of issuance are at least one and one-half times the aggregate of all interest charges and preferred stock dividend requirements (Preferred Stock Ratio). For the year ended December 31, 1998 the Preferred Stock Ratio was 2.27. SCE&G anticipates that its 1999 cash requirements of $474 million will be met through internally generated funds (approximately 65%, after payment of dividends) and the incurrence of additional short-term and long-term indebtedness. SCE&G 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 emissions of sulfur dioxide and nitrogen oxide substantially 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. SCE&G's facilities did not require modifications to meet the requirements of Phase I. SCE&G 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. SCE&G filed compliance plans with DHEC related to Phase II sulfur dioxide requirements in 1995, and Phase II nitrogen oxide requirements in 1997. SCE&G currently estimates that air emissions control equipment will require capital expenditures of $121 million over the 1999-2003 period to retrofit existing facilities, with increased operation and maintenance cost of approximately $10 million per year. To meet compliance requirements through the year 2008, SCE&G anticipates total capital expenditures of approximately $154 million. On September 24, 1998, the United States Environmental Protection Agency (EPA) issued its final regional nitrogen oxide state implementation plan (SIP) call rule. The rule finds that 22 eastern states, including South Carolina, and the District of Columbia are all contributing significantly to ozone non-attainment in downwind states. In response to that finding, EPA is requiring that those 22 states amend their SIP's to achieve significant reductions in ozone emissions within those states, and has targeted primarily utility sources for the application for more rigorous nitrogen oxide emissions controls. A number of states, including South Carolina ,and other parties, including a utility coalition of which SCE&G is a member, have filed suit in federal court to challenge the EPA rule. Should the rule be upheld, SCE&G may be required to make significant capital expenditures to add supplemental nitrogen oxide control technology to one or more of its fossil generation plants. The Federal Clean Water Act, as amended, provides for the imposition of effluent limitations that require various levels of treatment for each wastewater discharge. Under this Act, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued for all and renewed for nearly all of SCE&G's generating units. Concurrent with renewal of these permits, the permitting agency has implemented a more rigorous program in monitoring and controlling thermal discharges and strategies for toxicity reduction in wastewater streams. SCE&G has been developing compliance plans for these initiatives. In 1998 DHEC promulgated regulations for the disposal of industrial solid waste as directed by the South Carolina Solid Waste Policy and Management Act of 1991. The full impact of these regulations is not yet known; however, they may significantly increase SCE&G's costs of construction and operation of existing and future ash management facilities. SCE&G 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 expenditures, if any, deemed 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 relate primarily to regulated operations; such amounts are deferred and amortized with recovery provided through rates. SCE&G has also recovered portions of its environmental liabilities through settlements with various insurance carriers. As of December 31, 1998, SCE&G has recovered all amounts previously deferred for its electric operations. SCE&G expects to recover all deferred amounts related to its gas operations by December 2002. Deferred amounts, net of amounts recovered through rates and insurance settlements, totaled $21.3 million and $32.4 million at December 31, 1998 and 1997, respectively. The deferral includes the estimated costs to be associated with the matters discussed below. o In September 1992 the EPA notified SCE&G, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park area site in Charleston, South Carolina. This site encompasses approximately 30 acres and includes properties which were locations for industrial operations, including a wood preserving (creosote) plant, one of SCE&G's decommissioned manufactured gas plants, properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priorities List, but may be added in the future. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993, and the EPA approved a Remedial Investigation Report in February 1997 and a Feasibility Study Report in June 1998. In July 1998, the EPA approved SCE&G's Removal Action Work Plan for soil excavation. SCE&G completed Phase One of the Removal Action in 1998 at a cost of approximately $1.5 million. Phase Two will include excavation and installation of several permanent barriers to mitigate coal tar seepage. Phase Two began in November 1998, and is expected to cost approximately $2.2 million. On September 30, 1998 a Record of Decision was issued which sets forth the EPA's view of the extent of each PRP's responsibility for site contamination and the level to which the site must be remediated. On January 13, 1999 the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action directing SCE&G to design and carry out a plan of remediation for the Calhoun Park site. The Order is temporarily stayed pending further negotiations between SCE&G and the EPA. In October 1996 the City of Charleston and SCE&G settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by SCE&G to the City. SCE&G is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup as discussed above. As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The parking garage is currently under construction, and is scheduled for completion in the spring of the year 2000. o SCE&G owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. For the site located in Sumter, South Carolina, effective September 15, 1998, SCE&G entered into a Remedial Action Plan Contract with DHEC pursuant to which it agreed to undertake a full site investigation and remediation under the oversight of DHEC. Site investigation and characterization are proceeding according to schedule. Upon selection and successful implementation of a site remedy, DHEC will give SCE&G a Certificate of Completion, and a covenant not to sue. SCE&G is continuing to investigate the other two sites, and is monitoring the nature and extent of residual contamination. Regulatory Matters On December 11, 1998, the PSC issued an order requiring SCE&G to reduce retail electric rates on a prospective basis. The PSC acted in response to SCE&G reporting that it earned a 13.04% return on common equity for its retail electric operations for the twelve months ended September 30, 1998. This return on common equity exceeded SCE&G's authorized return of 12.0% by 1.04%, or $22.7 million, primarily as a result of record-breaking heat experienced during the summer. The order requires prospective rate reductions on a per kilowatt-hour basis, based on actual retail sales for the twelve months ended September 30, 1998. This action will reduce future reported return on common equity to the Commission-authorized level if SCE&G experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. The order requires the rate reductions to be placed into effect with the first billing cycle of January 1999. On December 21, 1998, SCE&G filed a motion for reconsideration with the PSC. On January 12, 1999, the PSC denied SCE&G's motion for reconsideration and reaffirmed SCE&G's return on equity of 12.0%. On January 9, 1996 the PSC issued an order granting SCE&G an increase in retail electric rates of 7.34%, which was designed to produce additional revenues, based on a test year, of approximately $67.5 million annually. The increase was implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually, or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, or .87%, was implemented in January 1997. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million to be collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of SCE&G's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift, for rate-making purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The Consumer Advocate and two other intervenors appealed certain issues in the order initially to the Circuit Court, which affirmed the PSC's decisions, and, subsequently, to the Supreme Court. In March 1998, SCE&G, the PSC, the Consumer Advocate and one of the other intervenors reached an agreement that provided for the reversal of the shift in depreciation reserves and the dismissal of the appeal of all other issues. The PSC also authorized SCE&G to adjust depreciation rates that had been approved in the 1996 rate order for its electric transmission, distribution and nuclear production properties to eliminate the effect of the depreciation reserve shift and to retroactively apply such depreciation rates to February 1996. As a result, a one-time reduction in depreciation expense of $5.5 million after taxes was recorded in March 1998. The agreement does not affect retail electric rates. FERC had previously rejected the transfer of depreciation reserves for rates subject to its jurisdiction. In September 1998, the Supreme Court affirmed the Circuit Court's rulings on the issues contested by the remaining intervenor. SCE&G'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 SCE&G, it continues to be able to meet successfully the challenges of these altered business climates and does not anticipate any material adverse impact on the results of operations, cash flows, financial position or business prospects. Year 2000 Issue The Year 2000 is an issue because many computers, embedded systems and software were originally programmed using two digits rather than four digits to identify the applicable year. This may prevent them from accurately processing information with dates beyond 1999. Because the Year 2000 issue could have a material impact on the operations of SCE&G if not addressed, SCE&G's goal is to be Year 2000 ready. This means that before the year 2000, critical systems, equipment, applications and business relationships will have been evaluated and should be suitable to continue into and beyond the year 2000 and that applicable contingency plans are in place. In 1993, SCE&G began the first of several projects to replace many of its business application systems to provide increased functionality and to improve access to business information. Accordingly, SCE&G has implemented new general ledger, purchasing, materials inventory and accounts payable systems, and is currently implementing a new customer information system. The new customer information system is being phased into production by geographical area, and should be fully implemented in the first half of 1999. These new systems, which comprise a significant portion of SCE&G's application software, are designed to be Year 2000 compliant, and therefore mitigate overall Year 2000 exposure. In 1997, SCANA established a Corporate Year 2000 Project Office (Project Office) to direct Year 2000 efforts for itself and each of its subsidiaries, including SCE&G. A Steering Committee was formed to direct the efforts of the Project Office. The Steering Committee reports to the senior officers of the Company and its board of directors. It is chaired by the Company's chief financial officer, and is comprised of officers representing all operational areas. The Project Office is staffed by nine full time project managers and extensive support personnel. The Project Office is responsible for addressing Year 2000 issues and coordinating the required assessment and remediation efforts. The Company's Year 2000 efforts encompass three projects, all reporting to the Steering Committee. The Information Technology Project covers all mainframe and client server application software, infrastructure hardware, system software, desktop computers and network equipment. The Embedded Systems Project covers all microprocessors, instrument and control devices, monitoring equipment on power lines and in substations, security and control devices, telephone systems and certain types of meters. The Procedures and External Interfaces Project covers Year 2000 procedures, documentation and communications with key suppliers, vendors, customers, financial institutions and governmental agencies. The Company's Year 2000 project approach involves the following: (1) inventorying all Year 2000 internal and external items and entities and updating the Year 2000 Inventory Database; (2) performing risk analysis and corporate prioritization of all inventory entries; (3) performing detailed assessments of all inventory entries to determine Year 2000 readiness and establishing a remediation action plan where necessary; (4) remediating all inventory entries assessed as non-compliant, including repairing, replacing or developing acceptable work-arounds; (5) testing through date simulation and comprehensive test data (6) implementation of all converted systems and equipment into production operations; and (7) contingency planning. Detailed project plans exist for each of the Year 2000 projects. These project plans, work schedules and resource requirements are reviewed weekly by the project managers and monthly by the Steering Committee. The Year 2000 projects, which will address SCE&G's critical systems and business relationships, are appropriately staffed and are currently on schedule to be completed by July 1999. As reported to the North American Electric Reliability Council (NERC) in January 1999, the Company was 100% complete with inventory tasks, 63% complete with detailed assessment tasks and 58% complete with remediation tasks. The Information Technology Project Team has completed the assessment and initial code remediation for all application software. Most of the applications have been tested in an isolated Year 2000 testing environment and the rest are being tested according to the project schedule. The assessment of the technical infrastructure and desktop computing environment is complete and required remediation is in process. Testing of all network equipment is in process. The Information Technology Project was approximately 55% complete through December 1998. The Embedded Systems Project Team, which includes approximately 20 engineers with prior experience with microprocessors, was formed, and detailed assessment, remediation and testing procedures were developed. This team is currently working closely with each of the Company's business units to complete the assessments of critical systems and equipment based on the corporate prioritization process. An Embedded Systems Audit Review Committee has been established to review all assessments for critical systems. As assessments are completed, any required remediation efforts are evaluated and implemented. Independent verifications for selected completed assessments are planned during the first quarter of 1999. The Embedded Systems Project was approximately 50% complete through December 1998. The Procedures and External Interfaces Project Team has developed written documentation and procedures for Year 2000 compliance definition, document control, inventory, prioritization, assessment, remediation, change control, business continuity planning, and vendor and supplier communications. This team is coordinating communications with all significant vendors and suppliers in an attempt to determine the extent to which the Company may be vulnerable to their failure to remediate their own Year 2000 issues. The Company has completed an initial survey of vendors and is currently evaluating the responses to those surveys and conducting additional inquiries where necessary. The Company is also in the process of evaluating critical third party service providers to ascertain their Year 2000 readiness. The Company has developed communications materials explaining its year 2000 efforts and is continuing communications with significant customers and external groups, including the PSC. The Procedures and External Interfaces Project was approximately 45% complete through December 1998. SCE&G has projected the total cost of its Year 2000 efforts to be approximately $19 million. The table below outlines the anticipated timing and breakdown of these expenditures: - --------------------------------------------------------------------------- Internal Out of Pocket Total - --------------------------------------------------------------------------- Project To Date $ 2 $ 6 $ 8 1999 3 8 11 --- ---- --- Total $ 5 $ 14 $19 - --------------------------------------------------------------------------- The cost of the project is based on management's best estimates, which are based on assumptions regarding future events. These future events include continued availability of key resources, third parties' Year 2000 readiness and other factors. The cost of the project is not expected to have a material impact on the results of operations or on the financial position or cash flows of SCE&G. The costs of implementing the new business application systems referred to earlier are not included in these cost estimates. A failure to correct a material Year 2000 problem by SCE&G or by a critical third party supplier could result in an interruption in, or a failure of SCE&G's ability to provide energy services. At this time, SCE&G believes its most reasonably likely worst case scenario is that Year 2000 failures could lead to temporary reduced generating capacity on SCE&G's electrical grid, temporary intermittent interruptions in communications and temporary intermittent interruptions in gas supply from interstate suppliers or producers. A Year 2000 problem of this nature could result in temporary interruptions in electric or gas service to our customers. SCE&G has no historical experience with interruptions caused by this scenario. However, these temporary interruptions in service, if any, might be similar to weather-related outages that SCE&G encounters from time to time in its business today. Although SCE&G does not believe that this scenario will occur, SCE&G is enhancing existing contingency plans to ensure preparedness and to mitigate the long term effect of such a scenario. Since the expected impact of this scenario on SCE&G's operations, cash flow and financial position cannot be determined, there is no assurance that it would not be material. SCE&G has established eight business continuity planning task groups to develop Year 2000 business continuity plans. These task groups have developed initial draft plans to cover SCE&G's Corporate Operations, Customer Service Operations, Electric Generation, Transmission and Distribution Operations, Gas Delivery Operations, Telecommunications and Emergency Preparedness, Information Technology and Procurement. Detailed contingency plans that were already in place to cover weather-related outages, computer failures and generation outages were used and/or referenced as the basis for the initial draft Year 2000 business continuity plans. The initial draft plans are continuing to be enhanced, and where necessary, new plans will be developed to include mitigation strategies and emergency response action plans to address potential Year 2000 scenarios and critical system failures. The final plans will also include mitigation strategies to address reliance on critical suppliers. NERC is coordinating Year 2000 efforts of the electric utility industry in the United States and contingency planning within the regional electric reliability councils. Coordination in SCE&G's region is through the Southeastern Electric Reliability Council (SERC). SCE&G's contingency planning efforts are in compliance with the SERC and NERC contingency planning guidelines which required draft contingency plans to be complete by December 31, 1998 and will require final contingency plans to be complete by June 30, 1999. In addition to NERC and SERC, SCE&G is working with the Electric Power Research Institute to address the issue of overall grid reliability and protection. To ensure that all Year 2000 issues at its Summer Station nuclear plant are addressed, SCE&G is closely cooperating with other utility companies that own nuclear power plants. The utilities are sharing technical nuclear plant operating and monitoring systems information to ensure the prompt and effective resolution of the year 2000 issue. Subsequent Event On March 9, 1999, SCE&G issued $100 million First Mortgage Bonds due March 1, 2009 at an interest rate of 6.125%. The funds were issued to reduce short-term debt. RESULTS OF OPERATIONS Net Income Net income and the percent increase from the previous year for the years 1998, 1997 and 1996 were as follows: 1998 1997 1996 - -------------------------------------------------------------------------- (Millions of Dollars) Net income $227.2 $194.7 $190.5 Percent increase in net income 16.72% 2.19% 12.59% - -------------------------------------------------------------------------- o 1998 Net income increased for the year primarily as a result of more favorable weather and customer growth which more than offset the impact of higher operating costs. In addition, net income includes a one-time, after-tax reduction to depreciation expense of approximately $5.5 million related to a change in depreciation rates retroactive to February 1996. This change in rates results from the reversal of a $257 million shift of depreciation reserves from electric transmission and distribution assets to nuclear production assets, previously approved in a PSC rate order in January 1996. See "Liquidity and Capital Resources." o 1997 Net income increased for the year primarily as a result of increases in gas sales margins. SCE&G'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 3.8% of income before income taxes in 1998, 4.0% in 1997 and 3.2% in 1996. Electric Operations Electric operations sales margins for 1998, 1997 and 1996 were as follows: 1998 1997 1996 - -------------------------------------------------------------------------- (Millions of Dollars) Operating revenues $1,219.8 $1,103.1 $1,106.7 Less: Fuel used in generation 212.3 181.0 187.1 Purchased power 116.4 109.2 106.8 - -------------------------------------------------------------------------- Margin $ 891.1 $ 812.9 $ 812.8 ========================================================================== o 1998 The sales margin increased for 1998 primarily due to more favorable weather and customer growth. o 1997 The sales margin increased slightly due to the favorable impact of the rate increase placed into effect in January 1997 and economic growth factors which were offset by the effect of milder weather. Increases (decreases) from the prior year in megawatt-hour (MWH) sales volume by classes were as follows: Classification 1998 1997 - --------------------------------------------------------------------- Residential 676,578 (292,518) Commercial 577,852 99,221 Industrial 389,931 113,716 Sales for Resale (excluding interchange) 65,367 36,894 Other 29,823 15 - ---------------------------------------------------------------------- Total territorial 1,739,551 (42,672) Negotiated Market Sales Tariff 610,784 (10,818) - ---------------------------------------------------------------------- Total 2,350,335 (53,490) ===================================================================== o 1998 The sales volume increases for 1998 were primarily due to more favorable weather and customer growth. o 1997 The sales volume for residential sales decreased for 1997 as a result of milder weather. Gas Distribution Gas distribution sales margins for 1998, 1997 and 1996 were as follows: 1998 1997 1996 - --------------------------------------------------------------------- (Millions of Dollars) Operating revenues $230.4 $233.6 $234.8 Less: Gas purchased for resale 142.4 151.9 157.1 - --------------------------------------------------------------------- Margin $ 88.0 $ 81.7 $ 77.7 ===================================================================== o 1998 The sales margin increased over 1997 due to renegotiation of industrial customers' contracts, lower gas prices and increased sales to electric generation facilities. o 1997 The sales margin increased over the prior year primarily as a result of increases in contract prices and sales to industrial interruptible customers. Increases (decreases) from the prior year in dekatherm (DT) sales volume by classes, including transportation gas, were as follows: Classification 1998 1997 - ----------------------------------------------------------------- Residential (2,685) (2,188,215) Commercial 389,468 (123,385) Industrial 2,363,341 1,820,166 Transportation gas (673,795) (430,610) - ----------------------------------------------------------------- Total 2,076,329 (922,044) =================================================================- o 1998 The sales volume for commercial and industrial customers increased, and transportation decreased, for 1998 as a result of lower gas prices and increased sales to electric generation facilities. o 1997 The sales volume for residential customers decreased for 1997 as a result of milder weather which was partially offset by increases in sales to industrial interruptible customers. Other Operating Expenses and Taxes Increases (decreases) in other operating expenses, including taxes, were as follows: Classification 1998 1997 - ------------------------------------------------------------------ (Millions of Dollars) Other operation and maintenance $27.4 $ 3.0 Depreciation and amortization (9.0) 4.7 Income taxes 29.9 (9.7) Other taxes 5.6 8.1 - ------------------------------------------------------------------ Total $53.9 $ 6.1 ================================================================== o 1998 Other operation and maintenance expenses increased primarily due to increased maintenance costs for electric generation and distribution facilities, various other electric operating costs and Year 2000 testing and remediation. The decrease in depreciation and amortization expense reflects the non-recurring adjustment to depreciation expense discussed under Net Income. The increase in income tax expense primarily reflects changes in operating income. The increase in other taxes primarily results from increased property taxes. o 1997 Other operation and maintenance expenses increased somewhat from 1996 levels. A decrease in transit operating costs resulting from SCE&G's transfer of the ownership of the Charleston transit system to the City of Charleston in October 1996 largely offset increases in costs at electric generating plants and other operating costs. The increase in depreciation and amortization expenses for 1997 reflects the additions to plant-in-service. The change in income tax expense is primarily due to a change in pre-tax operating income and the difference between estimated income taxes accrued and actual income tax expense per the tax returns as filed. The increase in other taxes results primarily from the accrual of additional property taxes, beginning in January 1997, related to the Cope plant and other property additions which was partially offset by a reduction in the 1997 property tax assessment. Recovery of the Cope plant property taxes is provided for in a retail electric rate increase that became effective January 1997. Interest Expense Increases (decreases) in interest expense, excluding the debt component of AFC, were as follows: Classification 1998 1997 - ------------------------------------------------------------------------------ (Millions of Dollars) Interest on long-term debt, net $(1.4) $(0.1) Other interest expense 1.3 2.7 - ------------------------------------------------------------------------------ Total $(0.1) $ 2.6 ============================================================================== There was no material change in interest expense from 1997 to 1998, or 1996 to 1997. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK All financial instruments held by SCE&G described below are held for purposes other than trading. Interest rate risk - The table below provides information about SCE&G's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. December 31, 1998 Expected Maturity Date (Millions of Dollars) There- Fair Liabilities 1999 2000 2001 2002 2003 after Total Value -------------------------------------------------------- Long-Term Debt: Fixed Rate ($) 29.1 188.6 22.6 22.6 124.5 943.4 1,330.6 1,356.4 Average Interest Rate 6.56 5.89 6.72 6.72 7.56 7.77 7.38 While a decrease in interest rates would increase the fair value of debt, it is unlikely that events which would result in a realized loss will occur. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA Page Independent Auditors' Report............ ........................ 79 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1998 and 1997......... 80 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1998, 1997 and 1996.................. 82 Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996... 83 Consolidated Statements of Capitalization as of December 31, 1998 and 1997 .................. 84 Notes to Consolidated Financial Statements............................ 86 Information required to be disclosed in supplemental financial statement schedules is included in the consolidated financial statements or in the notes thereto. INDEPENDENT AUDITORS' 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, 1998 and 1997 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, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina February 8 , 1999 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS December 31, 1998 1997 - ------------------------------------------------------------------------------ (Millions of Dollars) ASSETS Utility Plant (Notes 1, 3 and 4): Electric $4,133 $4,020 Gas 366 353 Other 175 84 - ------------------------------------------------------------------------------ Total 4,674 4,457 Less accumulated depreciation and amortization 1,517 1,421 - ------------------------------------------------------------------------------ Total 3,157 3,036 Construction work in progress 219 221 Nuclear fuel, net of accumulated amortization 56 53 - ------------------------------------------------------------------------------ Utility Plant, Net 3,432 3,310 - ------------------------------------------------------------------------------ Nonutility Property and Investments, net of accumulated depreciation (Note 8) 16 17 - ------------------------------------------------------------------------------ Current Assets: Cash and temporary cash investments (Note 8) 36 6 Receivables - customer and other 178 165 Inventories (At average cost): Fuel (Notes 1, 3 and 4) 32 23 Materials and supplies 47 48 Prepayments 8 10 Deferred income taxes 21 21 - ------------------------------------------------------------------------------ Total Current Assets 322 273 - ------------------------------------------------------------------------------ Deferred Debits: Emission allowances 31 31 Environmental 22 32 Nuclear plant decommissioning fund (Note 1) 56 49 Pension asset, net (Note 1) 115 82 Other (Note 1) 252 260 - ------------------------------------------------------------------------------ Total Deferred Debits 476 454 - ------------------------------------------------------------------------------ Total $4,246 $4,054 ============================================================================== PAGE SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS December 31, 1998 1997 Millions of Dollars) CAPITALIZATION AND LIABILITIES Stockholders' Investment: Common equity (Note 5) $1,499 $1,447 Preferred stock (Not subject to purchase or sinking funds) 106 106 - -------------------------------------------------------------------------------- Total Stockholders' Investment 1,605 1,553 Preferred Stock, Net (Subject to purchase or sinking funds)(Notes 6 and 8) 11 12 Company - Obligated Mandatorily Redeemable Preferred Securities of the Company's Subsidiary Trust, SCE&G Trust I holding solely $50 million, principal amount of 7.55% of Junior Subordinated Debentures of the Company, due 2027 50 50 Long-Term Debt, Net (Notes 3, 4 and 8) 1,206 1,262 - -------------------------------------------------------------------------------- Total Capitalization 2,872 2,877 - -------------------------------------------------------------------------------- Current Liabilities: Short-term borrowings (Notes 8 and 9) 125 13 Current portion of long-term debt (Note 3) 29 48 Accounts payable 97 53 Accounts payable - affiliated companies (Notes 1 and 3) 23 32 Customer deposits 17 16 Taxes accrued 75 45 Interest accrued 21 22 Dividends declared 38 58 Other 10 7 - -------------------------------------------------------------------------------- Total Current Liabilities 435 294 - -------------------------------------------------------------------------------- Deferred Credits: Deferred income taxes (Notes 1 and 7) 549 539 Deferred investment tax credits (Notes 1 and 7) 100 89 Reserve for nuclear plant decommissioning (Note 1) 56 49 Postretirement benefits 87 61 Other (Note 1) 147 145 - -------------------------------------------------------------------------------- Total Deferred Credits 939 883 - -------------------------------------------------------------------------------- Total $4,246 $4,054 ================================================================================ See Notes to Consolidated Financial Statements. PAGE SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Years Ended December 31, 1998 1997 1996 - -------------------------------------------------------------------------------- (Millions of Dollars) Operating Revenues (Notes 1 and 2): Electric $1,220 $1,103 $1,107 Gas 230 234 235 Transit 1 1 3 - -------------------------------------------------------------------------------- Total Operating Revenues 1,451 1,338 1,345 - -------------------------------------------------------------------------------- Operating Expenses: Fuel used in electric generation 212 181 187 Purchased power (including affiliated purchases)(Note 1) 116 109 107 Gas purchased from affiliate for resale (Note 1) 142 152 157 Other operation 239 222 222 Maintenance (Note 1) 79 67 64 Depreciation and amortization (Note 1) 131 140 135 Income taxes (Notes 1 and 7) 128 98 108 Other taxes 92 87 79 - -------------------------------------------------------------------------------- Total Operating Expenses 1,139 1,056 1,059 - -------------------------------------------------------------------------------- Operating Income 312 282 286 - -------------------------------------------------------------------------------- Other Income (Note 1): Allowance for equity funds used during construction 7 6 4 Other income (loss), net of income taxes 6 3 - - -------------------------------------------------------------------------------- Total Other Income 13 9 4 - -------------------------------------------------------------------------------- Income Before Interest Charges 325 291 290 - -------------------------------------------------------------------------------- Interest Charges (Credits): Interest on long-term debt, net 95 96 97 Other interest expense (Notes 1 and 3) 6 5 7 Allowance for borrowed funds used during construction (Note 1) (7) (6) (5) - -------------------------------------------------------------------------------- Total Interest Charges, Net 94 95 99 - -------------------------------------------------------------------------------- Income Before Preferred Dividend Requirements on Mandatorily Redeemable Preferred Securities 231 196 191 Preferred Dividend Requirement of Company - Obligated Mandatorily Redeemable Preferred Securities. 4 1 - - -------------------------------------------------------------------------------- Net Income 227 195 191 Preferred Stock Cash Dividends (At stated rates) (8) (9) (6) - -------------------------------------------------------------------------------- Earnings Available for Common Stock 219 186 185 Retained Earnings at Beginning of Year 438 415 366 Common Stock Cash Dividends Declared (Note 5) (166) (163) (136) - -------------------------------------------------------------------------------- Retained Earnings at End of Year $ 491 $ 438 $ 415 ================================================================================ See Notes to Consolidated Financial Statements. 85 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1998 1997 1996 - ------------------------------------------------------------------------------ (Millions of Dollars) Cash Flows From Operating Activities: Net income $ 227 $ 195 $ 190 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 131 140 135 Amortization of nuclear fuel 20 19 19 Deferred income taxes, net 49 16 32 Pension asset (33) (24) (23) Postretirement benefits 26 24 16 Allowance for funds used during construction (14) (12) (9) Changes in certain current assets and liabilities: (Increase) decrease in receivables (13) 6 (10) (Increase) decrease in inventories (8) 8 1 Increase (decrease) in accounts payable 35 (13) - Increase (decrease) in taxes accrued 30 (22) 3 Other, net (9) 31 (27) - ------------------------------------------------------------------------------ Net Cash Provided From Operating Activities 441 368 327 - ------------------------------------------------------------------------------ Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (252) (232) (209) Increase in nonutility property and investments (1) (5) - - ------------------------------------------------------------------------------ Net Cash Used For Investing Activities (253) (237) (209) - ------------------------------------------------------------------------------ Cash Flows From Financing Activities: Proceeds: Issuance of mortgage bonds and other long-term debt - 1 - Issuance of company - obligated mandatorily redeemable trust preferred securities - 49 - Equity contributions from parent - 12 49 Issuance of preferred stock - 99 - Repayments: Mortgage bonds (50) (15) (22) Other long-term debt (11) - (1) Preferred stock (1) (53) (3) Repayment of bank loans - (10) (3) Dividend Payments: Common stock (187) (141) (133) Preferred stock (7) (9) (5) Short-term borrowings, net 112 (77) 10 Fuel and emission allowance financings, net (14) 14 (11) - ------------------------------------------------------------------------------ Net Cash Used For Financing Activities (158) (130) (119) - ------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Temporary Cash Investments 30 1 (1) Cash and Temporary Cash Investments, January 1 6 5 6 - ------------------------------------------------------------------------------ Cash and Temporary Cash Investments, December 31 $ 36 $ 6 $ 5 ============================================================================== Supplemental Cash Flows Information: Cash paid for - Interest (includes capitalized interest of $7, $6 and $5) $ 101 $ 98 $ 103 - Income taxes 92 (48) 102 Noncash Financing Activities: Charleston Franchise Agreement - - 21 Charleston Environmental Agreement - - 20 See Notes to Consolidated Financial Statements.
SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 Common Equity (Note 5): (Millions of Dollars) Common stock, 4.50 par value, authorized 50,000,000 shares; issued and outstanding, 40,296,147 shares $ 181 $ 181 Premium on common stock 395 395 Other paid-in capital 437 438 Capital stock expense (5) (5) Retained earnings 491 438 - ----------------------------------------------------------------------------------------------------------------- Total Common Equity 1,499 52% 1,447 50% - ---------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock (Not subject to purchase or sinking funds): $100 Par Value - Authorized 1,200,000 shares $50 Par Value - Authorized 125,209 shares Shares Outstanding Redemption Price Series 1998 1997 $100 Par 6.52% 1,000,000 1,000,000 100.00 100 100 $50 Par 5.00% 125,209 125,209 52.50 6 6 --------------------------------------------------------------------------------------------------------------- Total Preferred Stock (Not subject to purchase or sinking funds) 106 4% 106 4% - ---------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock (Subject to purchase or sinking funds)(Notes 6 and 8): $100 Par Value - Authorized 1,550,000 shares; None outstanding in 1998 and 1997 $50 Par Value - Authorized 1,580,052 shares Shares Outstanding Redemption Price Series 1998 1997 4.50% 12,800 14,400 51.00 1 1 4.60%(A) 20,052 21,894 51.00 1 1 4.60%(B) 64,600 68,000 50.50 3 4 5.125% 69,000 70,000 51.00 3 3 6.00% 73,600 76,800 50.50 4 4 ------------------- Total 240,052 251,094 =================== $25 Par Value - Authorized 2,000,000 shares; None outstanding in 1998 and 1997 Total Preferred Stock (Subject to purchase or sinking funds) 12 13 Less: Current portion, including sinking fund requirements 1 1 - ---------------------------------------------------------------------------------------------------------------- Total Preferred Stock, Net (Subject to purchase or sinking funds) 11 -% 12 -% - --------------------------------------------------------------------------------------------------------------- Company-Obligated Mandatorily Redeemable Preferred Securities of the Company's Subsidiary Trust, SCE&G Trust I, holding solely $50 million principal amount of 7.55% of Junior Subordinated Debentures of the Company, due 2027. 50 2% 50 2% - --------------------------------------------------------------------------------------------------------------- SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1998 1997 - --------------------------------------------------------------------------------------------------- (Millions of Dollars) Long-Term Debt (Notes 3, 4 and 8): First Mortgage Bonds: Year of Series Maturity 6% 2000 100 100 6 1/4% 2003 100 100 7.70% 2004 100 100 7 1/8% 2013 150 150 7 1/2% 2023 150 150 7 5/8% 2023 100 100 7 5/8% 2025 100 100 First and Refunding Mortgage Bonds: Year of Series Maturity 6 1/2% 1998 - 20 7 1/4% 2002 - 30 9% 2006 131 131 8 7/8% 2021 114 114 Pollution Control Facilities Revenue Bonds: Fairfield County Series 1984, due 2014 (6.50%) 57 57 Orangeburg County Series 1994 due 2024 (5.70%) 30 30 Other 16 16 Commercial Paper 66 80 Charleston Franchise Agreement due 1997-2002 14 18 Charleston Environmental Agreement due 1997-1999 6 13 Other 4 4 - ------------------------------------------------------------------------------------------------------ Total Long-Term Debt 1,238 1,313 Less: Current maturities, including sinking fund requirements 29 48 Unamortized discount 3 3 - ------------------------------------------------------------------------------------------------------ Total Long-Term Debt, Net 1,206 42% 1,262 44% - ----------------------------------------------------------------------------------------------------- Total Capitalization $2,872 100% $2,877 100% ===================================================================================================== See Notes to Consolidated Financial Statements.
106 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Organization and Principles of Consolidation South Carolina Electric & Gas Company (the Company), a public utility, is a South Carolina corporation organized in 1924 and a wholly owned subsidiary of SCANA Corporation, 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, South Carolina Fuel Company, Inc. (Fuel Company) and SCE&G Trust I. Intercompany balances and transactions between the Company, Fuel Company and SCE&G Trust I 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, 1998 and 1997 the Company had approximately $16.1 million and $22.1 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, 1998 and 1997 the Company had approximately $5.8 million and $9.1 million, respectively, payable to GENCO for unit power purchases. Such unit power purchases, which are included in "Purchased power," amounted to approximately $85.0 million, $99.8 million and $95.3 million in 1998, 1997 and 1996, respectively. Total interest income, based on market interest rates, associated with the Company's advances to affiliated companies was approximately $281,000, $20,000 and $36,000 in 1998, 1997 and 1996, respectively. In 1998, 1997 and 1996 there were no amounts relating to advances from affiliated companies included in "Other interest expense." 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 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, 1998, approximately $208 million and $66 million of regulatory assets and liabilities, respectively, including amounts recorded for deferred income tax assets and liabilities of approximately $123 million and $51 million, respectively. The electric and gas regulatory assets of approximately $50 million and $33 million, respectively (excluding deferred income tax assets) are being recovered through rates and, as discussed in Note 2B, the PSC has approved accelerated recovery of approximately $14 million of the electric regulatory assets. In the future, as a result of deregulation or other changes in the regulatory environment, the Company may no longer meet the criteria for continued application of SFAS 71 and 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 South Carolina Public Service Commission (PSC). D. Utility Plant Utility plant is stated substantially at original cost. The costs of additions, renewals and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged, along with the cost of removal, less salvage, to accumulated depreciation. The costs of repairs, replacements and renewals of items of property determined to be less than a unit of property are charged to maintenance expense. The Company, operator of the V. C. Summer Nuclear Station (Summer Station), and Santee Cooper (formerly the South Carolina Public Service Authority) 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 $983.3 million and $978.2 million as of December 31, 1998 and 1997, respectively. Accumulated depreciation associated with the Company's share of Summer Station was approximately $369.2 million and $323.6 million as of December 31, 1998 and 1997, 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 8.5%, 8.8% and 8.1% for 1998, 1997 and 1996, 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 incurred. 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 annual 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 annual fuel cost hearing. The Company had undercollected through the electric fuel cost component approximately $3.1 million and $1.3 million at December 31, 1998 and 1997, respectively, which are included in "Deferred Debits - - Other." Customers subject to the gas cost adjustment clause are billed based on a fixed cost of gas determined by the PSC during annual gas cost recovery hearings. Any difference between actual gas 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, 1998 and 1997 the Company had undercollected through the gas cost recovery procedure approximately $5.2 million and $7.6 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 3.02%, 3.09% and 3.13% for 1998, 1997 and 1996, 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. The acquisition adjustment relating to the purchase of certain gas properties in 1982 is being amortized over a 40-year period using the straight-line method. 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 were estimated to be approximately $200 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 1998 and 1997) 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. 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. 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 $3.6 million at December 31, 1998, 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 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. In addition to pension benefits, the Company provides certain health care and life insurance benefits to active and retired employees. Retirees share in a portion of their medical care cost. The Company provides life insurance benefits to retirees at no charge. 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. Additionally, to accelerate the amortization of the remaining transition obligation for postretirement benefits other than pensions, as authorized by the PSC, the Company expensed approximately $15.7 million, $15.6 million and $6.2 million for the years ended December 31, 1998, 1997 and 1996, respectively. (See Note 2B.) Disclosure required for these plans under Statement of Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits" are set forth in the following tables: Components of Net Periodic Benefit Cost Other Retirement Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- (Millions of Dollars) (Millions of Dollars) Service Cost $ 8.3 $ 6.8 $ 6.5 $ 2.6 $ 2.5 $ 2.6 Interest Cost 25.9 23.5 22.0 9.4 7.8 7.8 Expected return on assets (59.3) (41.6) (35.5) N/A N/A N/A Prior service cost amortization 1.1 1.1 1.4 0.7 0.7 0.7 Actuarial (gain) loss (9.6) (7.0) (5.2) 1.0 0.1 0.5 Transition amount amortization 0.8 0.8 0.8 19.1 18.9 9.5 Amounts contributed by (to) Company affiliates 0.3 0.3 0.2 (0.7) (0.7) (0.6) ------ ------ ----- ----- ----- ----- Net periodic benefit cost $(32.5) $(16.1) $(9.8) $32.1 $29.3 $20.5 ====== ====== ===== ===== ===== ===== Weighted-Average Assumptions as of December 31 Other Retirement Benefits Postretirement Benefits 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Discount rate 7.0% 7.5% 7.5% 7.0% 7.5% 7.5% Expected return on plan assets 9.5% 8.0% 8.0% NA NA NA Rate of compensation increase 4.0% 4.0% 3.0% 4.0% 4.0% 3.0% Change in Benefit Obligation Other Retirement Benefits Postretirement Benefits 1998 1997 1998 1997 (Millions of Dollars) (Millions of Dollars) Benefit obligation, January 1 $344.4 $306.9 $108.8 $110.1 Service cost 8.3 6.8 2.6 2.5 Interest cost 25.9 23.5 9.4 7.8 Plan participants' contributions 0.1 0.2 0.5 0.5 Actuarial (gain)/loss 28.3 25.1 23.3 (5.2) Benefits paid (17.7) (18.1) (7.6) (6.9) ------ ------ ------ ------ Benefit obligation, December 31 $389.3 $344.4 $137.0 $108.8 ====== ====== ====== ======
Change in Plan Assets Retirement Benefits 1998 1997 ---- ---- (Millions of Dollars) Fair value of plan assets, January 1 $632.9 $523.5 Actual return on plan assets 83.5 119.5 Company contribution - 7.8 Plan participants' contributions 0.1 0.2 Benefits paid (17.7) (18.1) ------ ------ Fair value of plan assets, December 31 $698.8 $632.9 ====== ====== The Company does not fund postretirement benefits other than pensions. Funded Status of Plans Other Retirement Benefits Postretirement Benefits 1998 1997 1998 1997 (Millions of Dollars) (Millions of Dollars) Funded status, December 31 $309.5 $288.5 $(137.0) $(108.8) Unrecognized actuarial (gain)/loss (213.4) (227.1) 34.5 12.2 Unrecognized prior service cost 12.3 13.4 5.1 5.8 Unrecognized net transition obligation 6.5 7.4 10.7 29.8 ------ ------ ------- ------- Net amount recognized in Consolidated Balance Sheets $114.9 $ 82.2 $ (86.7) $ (61.0) ====== ====== ======== =======
Health Care Trends The determination of net periodic postretirement benefit cost is based on the following assumptions: 1998 1997 1996 - ------------------------------------------------------------------------------- Health care cost trend rate 8.5% 9.0% 9.5% Ultimate health care cost trend rate 5.0% 5.5% 5.5% Year achieved 2005 2004 2004 The effect of a one-percentage-point increase or decrease in the assumed health care cost trend rates on the aggregate of the service and interest cost components of net periodic postretirement health care benefit cost and the accumulated postretirement benefit obligation for health care benefits are as follows: 1% 1% Increase Decrease (Millions of Dollars) Effect on health care cost $0.2 $(0.3) Effect on postretirement obligation 3.5 (3.9) K. Debt Premium, Discount and Expense, Unamortized Loss on Reacquired Debt For regulatory purposes, long-term debt premium, discount and expense are being amortized as components of "Interest on long-term debt, net" over the terms of the respective debt issues. Gains or losses on reacquired debt that is refinanced are deferred and amortized over the term of the replacement debt. L. Environmental The Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the amount of expenditures, if any, deemed 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 relate primarily to regulated operations. Such amounts are deferred and amortized with recovery provided through rates. The Company has also recovered portions of its environmental liabilities through settlements with various insurance carriers. As of December 31, 1998, the Company has recovered all amounts previously deferred for its electric operations. The Company expects to recover all deferred amounts related to its gas operations by December 2002. Deferred amounts, net of amounts recovered through rates and insurance settlements, totaled $21.3 million and $32.4 million at December 31, 1998 and 1997, respectively. The deferral includes the estimated costs 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. P. Recently Issued Accounting Standard The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities." The provisions of the Statement, which will be implemented by the Company for the fiscal year beginning January 1, 2000, establish accounting and reporting standards for derivative instruments, including those imbedded in other contracts, and hedging activities. The impact that adoption of the provisions of the Statement will have on the Company's results of operations, cash flows and financial position has not been determined. Q. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1998 presentation. R. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. RATE MATTERS: A. On December 11, 1998, the PSC issued an order requiring the Company to reduce retail electric rates on a prospective basis. The PSC acted in response to the Company reporting that it earned a 13.04 percent return on common equity for its retail electric operations for the twelve months ended September 30, 1998. This return on common equity exceeded the Company's authorized return of 12 percent by 1.04 percent, or $22.7 million, primarily as a result of record heat experienced during the summer. The order requires prospective rate reductions on a per kilowatt-hour basis, based on actual retail sales for the twelve months ended September 30, 1998. This action will reduce future reported return on common equity to the Commission-authorized level if the Company experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. The order requires the rate reductions to be placed into effect with the first billing cycle of January 1999. On December 21, 1998, the Company filed a motion for reconsideration with the PSC. On January 12, 1999, the PSC denied the Company's motion for reconsideration, ruled that no further rate action was required, and reaffirmed the Company's return on equity of 12 percent. B. On January 9, 1996 the PSC issued an order granting the Company an increase in retail electric rates of 7.34%, which was designed to produce additional revenues, based on a test year, of approximately $67.5 million annually. The increase was implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually, or 6.47%, commenced in January 1996. The second phase, an increase in revenues of approximately $8.0 million annually, or .87%, was implemented in January 1997. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million to be collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of a significant portion of the Company's electric regulatory assets (excluding deferred income tax assets) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. The Company's request to shift, for rate- making purposes, approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The Consumer Advocate and two other intervenors appealed certain issues in the order initially to the Circuit Court, which affirmed the PSC's decisions, and, subsequently, to the Supreme Court. In March 1998, the Company, the PSC, the Consumer Advocate and one of the other intervenors reached an agreement that provided for the reversal of the shift in depreciation reserves and the dismissal of the appeal of all other issues. The PSC also authorized the Company to adjust depreciation rates that had been approved in the 1996 rate order for its electric transmission, distribution and nuclear production properties to eliminate the effect of the depreciation reserve shift and to retroactively apply such depreciation rates to February 1996. As a result, a one-time reduction in depreciation expense of $5.5 million after taxes was recorded in March 1998. The agreement does not affect retail electric rates. The FERC had previously rejected the transfer of depreciation reserves for rates subject to its jurisdiction. In September 1998, the Supreme Court affirmed the Circuit Court's rulings on the issues contested by the remaining intervenor. C. 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 1998, as a result of the annual review, the PSC approved the Company's request to maintain the billing surcharge at $.011 per therm which should enable the Company to recover the remaining balance of $22.1 million by December 2002. D. In September 1992 the PSC issued an order granting the Company a $.25 increase in transit fares from $.50 to $.75 in Columbia , 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 to the PSC. During August 1996, the PSC heard oral arguments on the orders on remand from 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 to the Circuit Court where they are awaiting action. 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 1999 through 2003 are summarized as follows: Year Amount Year Amount (Millions of Dollars) 1999 $ 29.1 2002 $ 22.6 2000 188.6 2003 124.5 2001 22.6 -------------------------------------------------------------- Approximately $18.5 million of the portion of long-term debt payable in 1999 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 is paying 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 is paying the City $26 million over a four-year period (1996-1999). Such amount is deferred (see Note 1L). The unpaid balances of these amounts are included in "Long-Term Debt." The Company has three-year revolving lines of credit totaling $75 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 $175 million. The long-term nature of the lines of credit allow commercial paper in excess of $175 million to be classified as long-term debt. The Company had outstanding commercial paper of $125.2 million and $13.3 million at December 31, 1998 and 1997, at weighted average interest rates of 5.32% and 5.90%, respectively. 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 December 19, 2000. 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 $66.0 million and $80.3 million at December 31, 1998 and 1997 at weighted average interest rates of 5.45% and 5.87%, respectively. 5. COMMON EQUITY: The changes in "Stockholders' Investment" (Including Preferred Stock Not Subject to Purchase or Sinking Funds) during 1998, 1997 and 1996 are summarized as follows: Common Preferred Millions Shares Shares of Dollars Balance December 31, 1995 40,296,147 322,877 $1,341.1 Changes in Retained Earnings: Net Income 190.5 Cash Dividends Declared: Preferred Stock (at stated rates) (5.4) Common Stock (135.8) Equity Contributions from Parent including transfer of assets 49.1 - -------------------------------------------------------------------------- Balance December 31, 1996 40,296,147 322,877 1,439.5 Changes in Retained Earnings: Net Income 194.6 Cash Dividends Declared: Preferred Stock (at stated rates) (9.3) Common Stock (162.6) Equity Contributions from Parent 12.1 Issuance of Preferred Stock 1,000,000 100.0 Redemption of Preferred Stock (197,668) (19.8) Changes in Capital Stock Expense 0.1 Changes in Loss on Resale of Reacquired Stock (1.6) - -------------------------------------------------------------------------- Balance December 31, 1997 40,296,147 1,125,209 1,553.0 Changes in Retained Earnings: Net Income 227.2 Cash Dividends Declared: Preferred Stock (at stated rates) (7.5) Common Stock (167.3) Changes in Other Paid in Capital (0.2) ------------------------------------------------------------------------- Balance December 31, 1998 40,296,147 1,125,209 $1,605.2 ========================================================================= 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, 1998 approximately $25.1 million of retained earnings were restricted by this requirement as to payment of cash dividends on common stock. 6. PREFERRED STOCK: 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 amount of purchase fund or sinking fund requirements for preferred stock for the years 1999 through 2003 is $2.8 million. The changes in "Total Preferred Stock (Subject to Purchase or Sinking Funds)" during 1998, 1997 and 1996 are summarized as follows: Number Millions of Shares of Dollars Balance December 31, 1995 763,619 $ 48.7 Shares Redeemed: $100 par value (7,198) (0.7) $50 par value (50,319) (2.6) - --------------------------------------------------------------------------- Balance December 31, 1996 706,102 45.4 Shares Redeemed: $100 par value (202,812) (20.3) $50 par value (252,196) (12.6) - --------------------------------------------------------------------------- Balance December 31, 1997 251,094 12.5 Shares Redeemed: $50 par value (11,042) (1.0) - --------------------------------------------------------------------------- Balance December 31, 1998 240,052 $ 11.5 =========================================================================== On October 28, 1997 SCE&G Trust I (the "Trust"), a wholly-owned subsidiary of the Company, issued $50 million (2,000,000 shares) of 7.55% Trust Preferred Securities, Series A (the "Preferred Securities"). The Company owns all of the Common Securities of the Trust (the "Common Securities"). The Preferred Securities and the Common Securities (the "Trust Securities") represent undivided beneficial ownership interests in the assets of the Trust. The Trust exists for the sole purpose of issuing the Trust Securities and using the proceeds thereof to purchase from the Company its 7.55% Junior Subordinated Debentures due September 30, 2027. The sole asset of the Trust is $50 million of Junior Subordinated Debentures of the Company. Accordingly, no financial statements of the Trust are presented. The Company's obligations under the Guarantee Agreement entered into in connection with the Preferred Securities, when taken together with the Company's obligation to make interest and other payments on the Junior Subordinated Debentures issued to the Trust and the Company's obligations under its Indenture pursuant to which the Junior Subordinated Debentures are issued, provides a full and unconditional guarantee by the Company of the Trust's obligations under the Preferred Securities. Proceeds were used to redeem preferred stock of the Company. The preferred securities of the Trust are redeemable only in conjunction with the redemption of the related 7.55% Junior Subordinated Debentures. The Junior Subordinated Debentures will mature on September 30, 2027 and may be redeemed, in whole or in part, at any time on or after September 30, 2002 or upon the occurrence of a Tax Event. A Tax Event occurs if an opinion is received from counsel experienced in such matters that there is more than an insubstantial risk that: (1) the Trust is or will be subject to Federal income tax, with respect to income received or accrued on the Junior Subordinated Debentures, (2) interest payable by the Company on the Junior Subordinated Debentures will not be deductible, in whole or in part, by the Company for Federal income tax purposes, and (3) the Trust will be subject to more than a de minimis amount of other taxes, duties, or other governmental charges. Upon the redemption of the Junior Subordinated Debentures, payment will simultaneously be applied to redeem Preferred Securities having an aggregate liquidation amount equal to the aggregate principal amount of the Junior Subordinated Debentures. The Preferred Securities are redeemable at $25 per preferred security plus accrued distributions. 7. INCOME TAXES: Total income tax expense for 1998, 1997 and 1996 is as follows: 1998 1997 1996 - ---------------------------------------------------------------------------- (Millions of Dollars) Current taxes: Federal $116.1 $ 88.0 $ 88.2 State 2.1 (6.9) 13.1 - ---------------------------------------------------------------------------- Total current taxes 118.2 81.1 101.3 - ---------------------------------------------------------------------------- Deferred taxes, net: Federal 1.8 3.7 8.3 State 2.0 1.5 1.8 - ----------------------------------------------------------------------------- Total deferred taxes 3.8 5.2 10.1 - ----------------------------------------------------------------------------- Investment tax credits: Deferred - State 14.3 19.0 - Amortization of amounts deferred-State (0.9) (1.5) - Amortization of amounts deferred-Federal (3.2) (3.2) (3.2) - ---------------------------------------------------------------------------- Total Investment Tax credit 10.2 14.3 (3.2) - ---------------------------------------------------------------------------- Total income tax expense $132.2 $100.6 $108.2 ============================================================================ The difference in total income tax expense and the amount calculated from the application of the statutory Federal income tax rate (35% for 1998, 1997 and 1996) to pre-tax income is reconciled as follows: 1998 1997 1996 - --------------------------------------------------------------------------- (Millions of Dollars) Net income $227.2 $194.7 $190.5 Total income tax expense: Charged to operating expenses 128.0 98.1 107.7 Charged (credited) to other items 4.2 2.5 0.5 - --------------------------------------------------------------------------- Total pre-tax income $359.3 $295.3 $298.7 ========================================================================== Income taxes on above at statutory Federal income tax rate $125.8 $103.4 $104.5 Increases (decreases) attributable to: State income taxes (less Federal income tax effect) 11.4 7.9 9.7 Deferred income tax reversal at higher than statutory rates (3.0) (3.5) (3.4) Amortization of Federal investment tax credits (3.2) (3.2) (3.2) Allowance for equity funds used during construction (2.4) (2.1) (1.4) Other differences, net 3.6 (1.9) 2.0 - -------------------------------------------------------------------------- Total income tax expense $132.2 $100.6 $108.2 ========================================================================== The tax effects of significant temporary differences comprising the Company's net deferred tax liability at December 31, 1998 and 1997 are as follows: 1998 1997 - ---------------------------------------------------------------------------- (Millions of Dollars) Deferred tax assets: Unamortized investment tax credits $ 61.7 $ 55.4 Cycle billing 20.6 20.5 Early retirement programs 13.0 3.1 Deferred compensation 7.2 6.7 Other postretirement benefits 32.9 14.6 Other 12.0 8.1 - ---------------------------------------------------------------------------- Total deferred tax assets 147.4 108.4 - ---------------------------------------------------------------------------- Deferred tax liabilities: Property plant and equipment 584.9 561.2 Pension expense 39.2 27.5 Reacquired debt 7.5 7.5 Research and experimentation 32.5 19.5 Deferred fuel 3.4 3.6 Other 8.1 7.6 - ---------------------------------------------------------------------------- Total deferred tax liabilities 675.6 626.9 - ---------------------------------------------------------------------------- Net deferred tax liability $528.2 $518.5 ============================================================================ The Internal Revenue Service has examined and closed consolidated Federal income tax returns of SCANA Corporation through 1989, and has examined and proposed adjustments to SCANA's Federal returns for 1990 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, 1998 and 1997 are as follows: 1998 1997 Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value (Millions of Dollars) Assets: Cash and temporary cash investments $ 35.6 $ 35.6 $ 6.0 $ 6.0 Investments 5.1 5.1 5.3 5.3 Liabilities: Short-term borrowings 125.2 125.2 13.3 13.3 Long-term debt 1,234.8 1,356.4 1,309.5 1,384.7 Preferred stock (subject to purchase or sinking funds) 12.0 11.3 12.5 11.3 The information presented herein is based on pertinent information available to the Company as of December 31, 1998 and 1997. 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, 1998, 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: o Cash and temporary cash investments, including commercial paper, repurchase agreements, treasury bills and notes, are valued at their carrying amount. o Fair values of investments and long-term debt are based on quoted market prices of the instruments or similar instruments, or for those instruments for which there are no quoted market prices available, fair values are based on net present value calculations. Investments which are not considered to be financial instruments have been excluded from the carrying amount and estimated fair value. Settlement of long term debt may not be possible or may not be a prudent management decision. o Short-term borrowings are valued at their carrying amount. o The fair value of preferred stock (subject to purchase or sinking funds) is estimated on the basis of market prices. o 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 (including uncommitted lines of credit) and short-term borrowings, excluding amounts classified as long-term (Notes 3 and 4), at December 31, 1998 and 1997 and for the years then ended are as follows: 1998 1997 (Millions of dollars) Authorized lines of credit at year-end $285 $315 Unused lines of credit at year-end $285 $315 Short-term borrowings outstanding at year-end: Commercial paper $125.2 $13.3 Weighted average interest rate 5.32% 5.90% - -------------------------------------------------------------------------- 10. COMMITMENTS AND CONTINGENCIES: A. Construction SCANA and Westvaco, each own a 50% interest in Cogen South LLC (Cogen). Cogen was formed to build and operate a cogeneration facility at Westvaco's Kraft Division Paper Mill in North Charleston, South Carolina. Construction of the facility began in September 1996 and is in the final stages. Construction financing of approximately $170 million was provided to Cogen by banks. On September 10, 1998, the contractor in charge of construction filed suit in Circuit Court seeking approximately $51 million from Cogen, alleging that construction cost overruns relating to the facility were incurred and that the construction contract provides for recovery of these costs. In addition to Cogen, Westvaco, the Company and SCANA were also named in the suit. The Company and the other defendants believe the suit is without merit and are mounting an appropriate defense. The Company does not believe that the resolution of this issue will have a material impact on its results of operations, cash flows or financial position. B. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $9.7 billion. Each reactor licensee is currently liable for up to $88.1 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. The Company's maximum assessment, based on its two-thirds ownership of Summer Station, would be approximately $58.7 million per incident, but not more than $6.7 million per year. The Company currently maintains policies (for itself and on behalf of Santee Cooper) with Nuclear Electric Insurance Limited (NEIL) and American Nuclear Insurers (ANI) providing combined property and decontamination insurance coverage of $2.0 billion for any losses at Summer Station. The Company pays annual premiums and, in addition, could be assessed a retroactive premium not to exceed five times its annual premium in the event of property damage loss to any nuclear generating facilities covered under the NEIL program. Based on the current annual premium, this retroactive premium would not exceed $6.1 million. To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that 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 EPA notified the Company, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park area site in Charleston, South Carolina. This site encompasses approximately 30 acres and includes properties which were locations for industrial operations, including a wood preserving (creosote) plant, one of the Company's decommissioned manufactured gas plants, properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priorities List, but may be added in the future. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993, and the EPA approved a Remedial Investigation Report in February 1997 and a Feasibility Study Report in June 1998. In July 1998, the EPA approved the Company's Removal Action Work Plan for soil excavation. The Company completed Phase One of the Removal Action in 1998 at a cost of approximately $1.5 million. Phase Two will include excavation and installation of several permanent barriers to mitigate coal tar seepage. Phase Two began in November 1998, and is expected to cost approximately $2.2 million. On September 30, 1998 a Record of Decision, was issued which sets forth EPA's view of the extent of each PRP's responsibility for site contamination and the level to which the site must be remediated. On January 13, 1999 the EPA issued a Unilateral Administrative Order for Remedial Design and Remedial Action directing the Company to design and carry out a plan of remediation for the Calhoun Park site. The Order is temporarily stayed pending further negotiations between the Company and the EPA. In October 1996 the City of Charleston and the Company settled all environmental claims the City may have had against SCE&G involving the Calhoun Park area for a payment of $26 million over four years (1996-1999) by SCE&G to the City. The Company is recovering the amount of the settlement, which does not encompass site assessment and cleanup costs, through rates in the same manner as other amounts accrued for site assessments and cleanup as discussed above. As part of the environmental settlement, SCE&G has agreed to construct an 1,100 space parking garage on the Calhoun Park site and to transfer the facility to the City in exchange for a 20-year municipal bond backed by revenues from the parking garage and a mortgage on the parking garage. The total amount of the bond is not to exceed $16.9 million, the maximum expected project cost. The parking garage is currently under construction, and is scheduled for completion in the spring of the year 2000. The Company owns three other decommissioned manufactured gas plant sites which contain residues of by-product chemicals. For the site located in Sumter, South Carolina, effective September 15, 1998, the Company entered into a Remedial Action Plan Contract with South Carolina Department of Health and Environmental Control (DHEC) pursuant to which it agreed to undertake a full site investigation and remediation under the oversight of DHEC. Site investigation and characterization are proceeding according to schedule. Upon selection and successful implementation of a site remedy, DHEC will give the Company a Certificate of Completion, and a covenant not to sue. The Company is continuing to investigate the other two sites, and is monitoring the nature and extent of residual contamination. D. Franchise Agreements See Note 3 for a discussion of the 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. 11. SEGMENT OF BUSINESS INFORMATION: The Company's reportable segments, based on combined revenues from external and internal sources, are Electric Operations and Gas Distribution. Electric Operations is comprised of the electric portion of the Company and Fuel Company. This segment is primarily engaged in the generation, transmission, and distribution of electricity. The Company's electric service territory extends into 24 counties covering more than 15,000 square miles in the central, southern, and southwestern portions of South Carolina. Sales of electricity to industrial, commercial, and residential customers are regulated by the PSC. Fuel Company acquires, owns, and provides financing for the fuel and emission allowances required for the operation of SCE&G's generation facilities. Gas Distribution is comprised of the Company's local distribution operations. This segment is engaged in the purchase and sale, primarily at retail, of natural gas. These operations extend to 30 counties in South Carolina covering approximately 21,000 square miles. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company records intersegment sales and transfers of electricity and gas based on rates established by the appropriate regulatory authority. Non-regulated sales and transfers are recorded at current market prices. The Company's reportable segments share a similar regulatory environment and, in some cases, an overlapping service area. However, Electric Operation's product differs from Gas Distribution, as does its generation process and method of distribution. Disclosure of Reportable Segments (Millions of Dollars) - -------------------------------------------------------------------------------- Electric Gas All 1998 Operations1 Distribution Other2 Total - -------------------------------------------------------------------------------- External Customer Revenue 1,220 230 1 1,451 Revenue from Affiliates 201 3 - 204 Operating Income (Loss) 307 21 (5) 323 Depreciation and Amortization 120 11 - 131 Segment Assets 4,305 381 209 4,895 Expenditures for Assets 179 19 39 237 - ------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Electric Gas All 1997 Operations1 Distribution Other2 Total - -------------------------------------------------------------------------------- External Customer Revenue 1,103 234 2 1,338 Revenue from Affiliates 24 1 - 25 Operating Income (Loss) 269 22 (4) 287 Depreciation and Amortization 129 11 - 140 Segment Assets 4,240 364 227 4,831 Expenditures for Assets 186 15 32 233 - ----------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Electric Gas All 1996 Operations1 Distribution Other2 Total - -------------------------------------------------------------------------------- External Customer Revenue 1,107 235 3 1,345 Revenue from Affiliates 23 1 - 24 Operating Income (Loss) 278 19 (7) 290 Depreciation and Amortization 123 12 - 135 Segment Assets 4,073 350 158 4,581 Expenditures for Assets 183 19 25 226 Significant non-cash activities 21 20 - 41 - ---------------------------------------------------------------------- 1Management uses operating income and utility plant to measure segment profitability and financial position, respectively. Accordingly, the Company does not allocate interest charges, income tax/(benefit), accumulated depreciation, common and non-utility plant, or deferred tax assets to its segments. Interest income is not reported by segment and is not material. 2Revenues and assets from segments below the quantitative thresholds are attributable primarily to the Company's transit operations, SCE&G Trust I and non-regulated activities. None of these segments met any of the quantitative thresholds for determining reportable segments in 1998, 1997 or 1996. Significant non-cash activities included the Charleston electric franchise agreement and the Charleston environmental agreement related to a manufactured gas plant site. Reconciliation of Reportable Segments to Consolidated Financial Statements (Millions of Dollars) -------------------------------------------------------------------------- Total Operating 1998 Revenue Income/(Loss) Assets -------------------------------------------------------------------------- Reportable Segments 1,653 328 4,686 All Other 2 (5) 209 Unallocated - - (469) Elimination of Affiliates (204) (11) (65) Adjustments - - (115) ------------------------------------------------------------------- Consolidated Totals 1,451 312 4,246 -------------------------------------------------------------------------- --------------------------------------------------------------------------- Total Operating 1997 Revenue Income/(Loss) Assets --------------------------------------------------------------------------- Reportable Segments $ 1,362 $ 291 $ 4,603 All Other 2 (4) 227 Unallocated - - (631) Elimination of Affiliates (26) (5) (65) Adjustments - - (80) ------------------------------------------------------------------------- Consolidated Totals $ 1,338 $ 282 $ 4,054 ------------------------------------------------------------------------- --------------------------------------------------------------------------- Total Operating 1996 Revenue Income/(Loss) Assets --------------------------------------------------------------------------- Reportable Segments $ 1,366 $ 297 $ 4,423 All Other 3 (7) 158 Unallocated - - (547) Elimination of Affiliates (24) (4) (12) Adjustments - - (63) ------------------------------------------------------------------------- Consolidated Totals $ 1,345 $ 286 $ 3,959 ------------------------------------------------------------------------- The Consolidated Financial Statements report operating revenues, comprised of the reportable segments and the non-reportable transit operations segment. Adjustments to assets consist of various reclassifications made for external reporting purposes. Unallocated net income consists of the Company's net income. Segment assets include utility plant only (excluding accumulated depreciation) for all segments. As a result, unallocated assets include accumulated depreciation, offset in part by common and non-utility plant and non-fixed assets for the segments. Reconciliation of Other Significant Items (Millions of Dollars) --------------------------------------------------------------------------- Consolidated Segment Totals Adjustments Totals 1998 Depreciation and Amortization 131 - 131 Expenditures for Assets 237 8 245 1997 Depreciation and Amortization 140 - 140 Expenditures for Assets 233 (1) 232 1996 Depreciation and Amortization 135 - 135 Expenditures for Assets 227 (18) 209 Significant Non-cash Activities 41 - 41 --------------------------------------------------------------------------- Expenditures for Assets in 1996 are adjusted primarily to remove the non-cash transaction related to the Charleston Franchise Agreement. 12. QUARTERLY FINANCIAL DATA (UNAUDITED): 1998 First Second Third Fourth Quarter Quarter Quarter Quarter Annual (Millions of Dollars) Total operating revenues $358 $343 $431 $320 $1,452 Operating income 83 67 112 51 313 Net income 60 44 88 35 227 - ---------------------------------------------------------------------------- 1997 First Second Third Fourth Quarter Quarter Quarter Quarter Annual (Millions of Dollars) Total operating revenues $337 $289 $377 $335 $1,338 Operating income 74 52 93 63 282 Net income 50 30 73 42 195 - ---------------------------------------------------------------------------- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT SCANA: The information required by Item 10, "Directors and Executive Officers of the Registrant," with respect to executive officers is, pursuant to General Instruction G(3) to Form 10-K, set forth in Part I of this Form 10-K under the heading "Executive Officers of SCANA Corporation" on page 21 herein. The other information required by Item 10 is incorporated herein by reference to the captions "Election of Directors - Proposals 1 and 2" and "Other Information Section 16(a) Beneficial Ownership Reporting Compliance" in SCANA's definitive proxy statement for the 1999 annual meeting of shareholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934. SCE&G: DIRECTORS The directors listed below were elected April 23, 1998 to hold office until the next annual meeting of SCE&G's stockholders on April 22, 1999. Name and Year First Became Director Age Principal Occupation; Directorships Bill L. Amick 55 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, Blue Cross and Blue Shield of South Carolina, Columbia, SC; SCANA Corporation, Columbia, SC. James A. Bennett 38 Since December 1998, Senior Vice President and (1997) Director of Professional Banking, First Citizens Bank, Columbia, SC. From December 1994 to December 1998, Senior Vice President and Director of Community Banking, First Citizens Bank, Columbia, SC. From March 1991 to December 1994,President of Victory Savings Bank, Columbia, SC. Director, SCANA Corporation William B. Bookhart, Jr. 57 For more than five years, a partner in (1979) Bookhart Farms, Elloree, SC (general farming). Director, SCANA Corporation, Columbia, SC. William T. Cassels, Jr. 69 For more than five years, Chairman of the (1990) Board, Southeastern Freight Lines, Inc., Columbia, SC (trucking business). Director, SCANA Corporation, Columbia, SC; Member, Advisory Board of Liberty Mutual Insurance Group. Name and Year First Became Director Age Principal Occupation; Directorships Hugh M. Chapman 66 Since June 30, 1997, retired from NationsBank (1988) South, Atlanta, GA (a division of NationsBank Corporation, bank holding company). For more than five years prior to June 30,1997, Chairman of NationsBank South, Atlanta, GA Director, SCANA Corporation, Columbia, SC; West Point-Stevens, Inc and PrintPak, Inc. Elaine T. Freeman 63 For more than five years, Executive Director (1992) of ETV Endowment of South Carolina, Inc. (non-profit organization), Spartanburg, SC. Director, National Bank of South Carolina, Columbia, SC; SCANA Corporation, Columbia, SC. Lawrence M. Gressette, Jr. 67 Since February 28, 1997, Chairman Emeritus (1987) of SCANA Corporation. For more than five years prior to February 28, 1997, Chairman of the Board and Chief Executive Officer of SCANA Corporation all SCANA subsidiaries. Director, Wachovia Corporation, Winston- Salem, NC; SCANA Corporation, Columbia, SC. W. Hayne Hipp 59 For more than five years, Chairman, President (1983) and 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 69 For more than five years, President and (1974) Manager, Winnsboro Petroleum Company, Winnsboro, SC (wholesale distributor of petroleum products). Director, First Union National Bank South Carolina, Greenville, SC; SCANA Corporation, Columbia, SC. Name and Year First Became Director Age Principal Occupation; Directorships Lynne M. Miller 47 Since February, 1998, Chief Executive (1997) Officer of Environmental Strategies Corporation, Reston, VA (environmental consulting and engineering firm). For more than five years prior to February 1998,President of Environmental Strategies Corporation, Reston, VA. Director, SCANA Corporation, Columbia, SC. John B. Rhodes 68 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. Maceo K. Sloan 49 For more than five years, Chairman, President (1997) and CEO of Sloan Financial Group, Inc. and Chairman, President and CEO of NCM Capital Management Group, Inc, both of which are located in Durham, NC. Director, SCANA Corporation, Columbia, SC. William B. Timmerman 52 Since March 1, 1997, Chairman and Chief (1991) Executive Officer of SCANA Corporation. From August 21, 1996 to March 1, 1997, Chief Operating Officer of SCANA Corporation. Since December 13, 1995, President of SCANA Corporation. From May 1, 1994 to December 13, 1995, Executive Vice President, Chief Financial Officer and Controller of SCANA Corporation. For more than five years prior to May 1, 1994, Senior Vice President, Chief Financial Officer and Controller of SCANA Corporation. Director, SCANA Corporation, Columbia, SC; Powertel, Inc., West Point, GA, ITC^DeltaCom, West Point, GA; and The Liberty Corporation, Greenville, SC. 117 EXECUTIVE OFFICERS OF SCE&G SCE&G'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 W. B. Timmerman 52 Chairman of the Board and Chief Executive Officer 1997-present Chief Operating Officer of SCANA 1996-1997 President of SCANA 1995-present President of SCANA Communications, Inc., an affiliate 1996-1997 Executive Vice President, *-1995 Chief Financial Officer, and Controller 1994-1996 Senior Vice President, Chief Financial Officer and Controller, *-1994 J. L. Skolds 48 Group Executive - SCANA Electric Group 1997-present President and Chief Operating Officer, SCE&G 1996-present Senior Vice President - Generation, SCE&G 1994-1996 Vice President - Nuclear Operations, SCE&G *-1994 G. J. Bullwinkel, Jr. 50 President of SCANA Communications, Inc. 1997-present Senior Vice President- Retail Electric, SCE&G 1995-present Senior Vice President- Fossil & Hydro Production *-1994 W. A. Darby 53 Senior Vice President - Gas, SCANA Gas Group 1996-present Vice President-Gas Operations *-1996 President and Treasurer of ServiceCare, Inc. an affiliate 1996-present General Manager of ServiceCare, Inc., an affiliate 1994-1996 K. B. Marsh 43 Senior Vice President - Finance Chief Financial Officer and Controller - SCANA 1998-present Vice President - Finance, Chief Financial Officer and Controller - SCANA 1996-1998 Vice President - Finance, Treasurer and Secretary, SCANA *-1996 Vice President 1996-present *Indicates position held at least since March 1, 1994 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE All of SCE&G's common stock is held by its parent, SCANA Corporation. The required forms indicate that no equity securities of SCE&G are owned by its directors and executive officers. Based solely on a review of the copies of such forms and amendments furnished to SCE&G and written representations from the executive officers and directors, SCE&G believes that during 1998 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 SCANA: The information called for by Item 11, "Executive Compensation", is incorporated herein by reference to the captions "Director Compensation" and "Compensation Committee Interlocks and Insider Participation," and "Executive Compensation" in SCANA's definitive proxy statement for the 1999 annual meeting of shareholders. SCE&G: The following table contains information with respect to compensation paid or accrued during the years 1998, 1997 and 1996 to the Chief Executive Officer of SCE&G and to each of the other four most highly compensated executive officers of SCE&G during 1998. SUMMARY COMPENSATION TABLE Name and Principal Year Annual Compensation Long-Term Position Compensation (1) (2) (3) (4) (5) Salary Bonus Other Payouts All Other ($) ($) Annual LTIP Compensation Compensation Payouts ($) ($) ($) W. B. Timmerman Chairman, President, 1998 455,909 303,780 17,514 - 27,138 Chief Executive 1997 400,634 318,815 12,220 88,338 24,038 Officer and Director 1996 335,266 196,832 6,399 109,819 20,116 - - SCANA Corporation J. L. Skolds SCANA Group Executive 1998 305,123 163,399 14,099 - 18,201 Electric Group; 1997 277,132 161,677 5,777 70,283 16,628 President and Chief 1996 215,708 114,099 2,453 55,513 12,943 Operating Officer - SCE&G G. J. Bullwinkel 1998 229,152 99,372 11,726 - 13,706 Senior Vice President 1997 219,273 92,796 7,776 70,283 13,156 - - Retail Electric - SCE&G 1996 205,980 90,370 3,710 66,374 12,359 K. B. Marsh 1998 219,860 99,372 8,654 - 13,122 Senior Vice President, 1997 199,845 104,276 2,945 44,491 11,991 Chief Financial Officer 1996 166,616 75,667 1,189 46,462 9,997 and Controller - SCANA W. A. Darby 1998 179,923 62,213 7,961 - 10,276 Senior Vice President, 1997 169,606 73,800 7,025 44,491 10,176 Gas, SCANA Gas Group 1996 157,659 54,090 3,566 46,462 9,460 President of ServiceCare
- ---------------- (1) Payments under SCANA's Annual Incentive Plan. (2) For 1998, other annual compensation consists of automobile allowance, life insurance premiums on policies owned by named executive officers and payments to cover taxes on benefits of $4,500, $7,435 and $5,579 for Mr. Timmerman; $6,000, $6,878 and $1,221 for Mr. Skolds; $6,000, $4,993 and $733 for Mr. Bullwinkel; $6,905, $1,183 and $566 for Mr. Marsh; and $2,748, $4,340 and $873 for Mr. Darby. (3) Payments under the SCANA's Performance Share Plan. (4) All other compensation for all named executive officers consists solely of SCANA's contributions to defined contribution plans. (5) Reflects actual salary paid in 1998. Base salary of $472,000 became effective on May 1, 1998. The following table shows the target awards made in 1998, (for potential payment in 2000) under the Performance Share Plan and estimated future payouts under that plan at threshold, target and maximum levels for each of the executive officers included in the Summary Compensation Table. LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR TARGET AWARDS FOR 1998 TO BE PAID IN 2001 Number of Performance Estimated Future Payouts Under Shares, or Other Non-Stock Price-Based Plans Units or Period Until Other Maturation Name Rights (#) or Payout Threshold Target Maximum ($ or #) ($ or #) ($ or #) W. B. Timmerman 10,230 1998-2000 4,092 10,230 15,345 J. L. Skolds 5,160 1998-2000 2,064 5,160 7,740 G. J. Bullwinkel 2,790 1998-2000 1,116 3,990 4,185 K. B. Marsh 2,790 1998-2000 1,116 2,790 4,185 W. A. Darby 2,000 1998-2000 800 2,000 3,000 Payouts occur when SCANA's Total Shareholder Return is in the top two-thirds of the Performance Share Plan peer group, and will vary based on SCANA's ranking against the peer group. Executives earn threshold payouts 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 when Performance is at or above the 75th percentile of the peer group. Payments will be made on a sliding scale for performance between threshold and target and target and maximum. No payouts will be earned if performance is at less than the 33rd percentile. Awards are designated as target shares of SCANA Common Stock and may be paid in stock or cash or a combination of stock and cash. DEFINED BENEFIT PLANS In addition to its Retirement Plan for all employees, SCANA 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 maximum benefit limitations. The following table illustrates the estimated maximum annual benefits payable upon retirement at normal retirement date under SCANA's Retirement Plan and the SERPs. Pension Plan Table Final Service Years Average Pay 15 20 25 30 35 $150,000 $ 41,777 $ 55,702 $ 69,628 $ 83,553 $ 86,229 200,000 56,777 75,702 94,628 113,553 117,479 250,000 71,777 95,702 119,628 143,553 148,729 300,000 86,777 115,702 144,628 173,553 179,979 350,000 101,777 135,702 169,628 203,553 211,229 400,000 116,777 155,702 194,628 233,553 242,479 450,000 131,777 175,702 219,628 263,553 273,729 500,000 146,777 195,702 244,628 293,553 304,979 550,000 161,777 215,702 269,628 323,553 336,229 600,000 176,777 235,702 294,628 353,553 367,479 650,000 191,777 255,702 319,628 383,553 398,729 700,000 206,777 275,702 344,628 413,553 429,979 750,000 221,777 295,702 369,628 443,553 461,229 800,000 236,777 315,702 394,628 473,553 492,479 850,000 251,777 335,702 419,628 503,553 523,729 900,000 266,777 355,702 444,628 533,553 554,979 950,000 281,777 375,702 469,628 563,553 586,229 1,000,000 296,777 395,702 494,628 593,553 617,479 For all the executive officers included in the Summary Compensation Table for 1998, compensation shown in the column labeled "Salary" of the Summary Compensation Table is covered by the Retirement Plan or a SERP. As of December 31, 1998, Mr. Timmerman had credited service under the Retirement Plan (or its equivalent under the SERP) of 20 years; Mr. Skolds of 12 years; Mr. Bullwinkel of 27 years; Mr. Marsh of 14 years; and Mr. Darby of 30 years. 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, 1999 and are not subject to any deduction for Social Security or other offset amounts. The Company also has a Key Employee Retention Plan covering officers and certain other executive employees, that provides supplemental retirement or death benefits for participants. Under the plan, each participant may elect to receive either (i) a monthly retirement benefit for 180 months upon retirement at or after the earlier of the attainment of age 65, or completion of 35 years of service with the Company, equal to 25% of the average monthly salary of the participant over his final 36 months of employment prior to such retirement, or (ii) an optional death benefit payable monthly to a participant's designated beneficiary 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 such retirement. In the event of the participant's death prior to such retirement, SCANA will pay to the participant's designated beneficiary for 180 months, a monthly benefit equal to 50% of the participant's base monthly salary in effect at death. All of the executive officers named in the Summary Compensation Table are participating in the plan. The estimated annual retirement benefits payable at age 65, under the Key Employee Retention Plan based on projected eligible compensation (assuming increases of 4% per year) to the executive officers named in the Summary Compensation Table are as follows: Mr. Timmerman-$181,746; Mr. Skolds-$140,995; Mr. Bullwinkel-$96,772; Mr. Marsh-$123,310 and Mr. Darby-$67,755. TERMINATION, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS SCANA maintains an Executive Benefit Plan Trust. The purpose of the Trust is to help retain and attract quality leadership in key SCANA positions in the current transitional environment of the utilities industry. The Trust is used to receive SCANA contributions which may be used to pay the deferred compensation benefits of certain directors, executives and other key employees of SCANA in the event of a Change in Control (as defined in the Trust). All the executive officers included in the Summary Compensation Table participate in some of the plans listed below (the "Plans") which are covered by the Trust including, in all cases, the Plans listed at (7) and (8). (1) SCANA Corporation Voluntary Deferral Plan (2) SCANA Corporation Supplementary Voluntary Deferral Plan (3) SCANA Corporation Key Employee Retention Plan (4) SCANA Corporation Supplemental Executive Retirement Plan (5) SCANA Corporation Performance Share Plan (6) SCANA Corporation Annual Incentive Plan (7) SCANA Corporation Key Executive Severance Benefits Plan (8) SCANA Corporation Supplementary Key Executive Severance Benefits Plan The Trust and the Plans provide flexibility to SCANA in responding to a Potential Change in Control (as defined in the Trust) depending upon whether the Change in Control would be viewed as being "hostile" or "friendly". This flexibility includes the ability to deposit and withdraw SCANA contributions up to the point of a Change in Control, and to affect the number of plan participants who may be eligible for benefit distributions upon, or following, a Change in Control. The Key Executive Severance Benefits Plan is operative as a "single trigger" plan, meaning that upon the occurrence of a "hostile" Change in Control, benefits provided under Plans (1) through (6) above would be distributed in a lump sum. In contrast, the Supplementary Key Executive Severance Benefits Plan is operative for a period of 24 months following a Change in Control which prior to its occurrence is viewed as being "friendly." In this circumstance, the Key Executive Severance Benefits Plan is inoperative. The Supplementary Key Executive Severance Benefits Plan is a "double trigger" plan that would pay benefits in lieu of those otherwise provided under plans (1) through (6) in either of two circumstances: (a) the participant's involuntary termination of employment without "Just Cause", or (b) the participant's voluntary termination of employment for "Good Reason" (as these terms are defined in the Supplementary Key Executive Benefits Plan). Benefit distributions relative to a Change in Control, as to which either the Key Executive Severance Benefits Plan or the Supplementary Key Executive Severance Benefits Plan is operative, will be grossed up to include estimated federal, state and local income taxes and any applicable excise taxes owed by plan participants on those benefits. The benefit distributions under the Key Executive Severance Benefits Plans would include the following: o An amount equal to three times the sum of: (1) the officer's annual base salary in effect as of the Change in Control and (2) the larger of (i) the officer's target award in effect as of the Change in Control under the Annual Incentive Plan or (ii) the officer's average of actual annual incentive bonuses received during the prior three years under the Annual Incentive Plan. o An amount equal to the projected cost for coverage for three full years following the Change in Control as though the officer had continued to be a SCANA employee with respect to medical coverage, long-term disability coverage and either Life Plus (a special life insurance program combining whole life and term coverages) or group term life coverage, in accordance with the officer's actual election, in each case so as to provide substantially the same level of coverage and benefits as the officer enjoyed as of the date of the Change in Control. o A benefit distribution under the Voluntary Deferral Plan calculated as of the date of the Change in Control including implied interest through such date, and a benefit under the Supplementary Voluntary Deferral Plan calculated to include any implied dividends accrued under the plan through the date of the Change in Control. o A benefit distribution under the Key Employee Retention Plan calculated as of the date of the Change in Control to include projected increases to each participant's base salary applying cost of living increases and as though the participant had reached the earlier of age 65 or completed 35 years of service. o A benefit distribution under the Supplemental Executive Retirement Plan calculated as an actuarial equivalent through the date of the Change in Control with three additional years of compensation at the participant's rate then in effect as though the participant had attained age 65 and completed 35 years of benefit service and without any early retirement or other actuarial reductions, which benefit would then be reduced by the actuarial equivalent of the participant's qualified plan benefit amount under the Retirement Plan. o A benefit distribution under the Performance Share Plan equal to 100% of the targeted awards for all performance periods which are not yet completed as of the date of the Change in Control. o A benefit distribution under the Annual Incentive Plan equal to 100% of the target award in effect as of the date of the Change in Control. Benefits under the Supplementary Key Employee Severance Benefits Plan would be the same except that the benefits under the Voluntary Deferral Plan and the Supplementary Voluntary Deferral Plan would be increased by implied interest from the date of the Change in Control until the end of the month preceding the month in which the benefit is distributed. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION For the 1998 fiscal year, decisions on various elements of executive compensation were made by the Management Development and Corporate Performance Committee, the Long-Term Compensation Committee and the Performance Share Plan Committee. No officer, employee or former officer of SCANA or any of its subsidiaries served as a member of the Long-Term Compensation Committee, the Management Development and Corporate Performance Committee or the Performance Share Plan Committee, except Mr. Timmerman who served as an ex-officio, non-voting member of the Management Development and Corporate Performance Committee and Mr. Gressette, who served as a member of the Long-Term Compensation Committee. Although Mr. Timmerman served as a member of the Management Development and Corporate Performance Committee, he did not participate in any of its decisions concerning executive officer compensation. Since January 1, 1998, SCANA and its subsidiaries have engaged in business transactions with entities with which Mr. Amick (a member of the Management Development and Corporate Performance Committee and the Long-Term Compensation Committee) and Mrs. Freeman (a member of the Long-Term Compensation Committee) are related. Mr. Amick is President and a 20% owner of Team Amick Motor Sports LLC, a business that owns and operates a NASCAR sanctioned racing car. This car participates in the Busch Grand National Racing Series. During 1998, SCANA participated in a shared sponsorship agreement with Team Amick Motor Sports LLC, for an annual fee and related costs totaling $512,919. SCANA has recently entered into a co-sponsorship agreement with Powertel, a wireless personal communications services (PCS) provider, to sponsor the Team Amick racing car during 1999. As of January 31, 1999 SCANA Communications, Inc., a subsidiary of SCANA, owned a 29.2% interest in Powertel on a fully converted basis. SCANA's portion of the racing car sponsorship is a base level of $800,000, with incentives to increase the level of sponsorship up to an additional $200,000. Powertel's sponsorship is at the $600,000 level. This agreement is subject to termination within 30 days written notice. Mrs. Freeman has a 28% beneficial ownership interest in Carolina Wholesale Gas Company located in Spartanburg, South Carolina. During 1998, Carolina Wholesale Gas Company rented cavern storage space for two million gallons of propane from SCANA Propane Storage, Inc., a subsidiary of SCANA, at a monthly rate of $10,000, for a total of $120,000. It is anticipated that this arrangement will continue. Directors Compensation Board Fees Officers of SCANA who are also directors do not receive additional compensation for their service as directors. Since April 1998, compensation for non-employee directors has included the following: o an annual retainer of $19,400 (41% of the annual retainer fee is paid in shares of SCANA Common Stock); o a fee of $2,000 for each board meeting attended; o a fee of $1,000 for attendance at a committee meeting which is held on a day other than a regular meeting of the board (no additional fees are paid if a committee meeting is held on the same day as a board meeting); o a fee of $200 for participation in a telephone conference meeting; o a fee of $1,000 for attendance at an all-day conference; and o reimbursement for expenses incurred in connection with all of the above. Deferral Plan Non-employee directors may participate in SCANA's Voluntary Deferral Plan. This plan permits non-employee directors to defer receipt of all or part of their fees (except the portion paid in shares of SCANA Common Stock) and receive, upon ceasing to serve as a director, the amount that would have resulted from investing the deferred amounts in an interest bearing savings account. Since January 1, 1998, the interest rate has been set at the announced prime rate of Wachovia Bank, N.A. Mr. Rhodes, Mr. Cassels and Mr. Bennett were the only directors who participated in the plan during 1998. Mr. Rhodes became a participant in July 1987, Mr. Cassels in January 1994 and Mr. Bennett in December 1997. During 1998, interest credited to Mr. Rhodes' deferral account was $31,322; interest credited to Mr. Cassels' deferral account was $10,788 and interest credited to Mr. Bennett's deferral account was $196. Endowment Plan. Upon election to a second term, a director becomes eligible to participate in the SCANA Director Endowment Plan, which provides for SCANA to make a tax deductible, charitable contribution totaling $500,000 to institutions of higher education designated by the director. The plan is intended to reinforce SCANA's commitment to quality higher education and to enhance its ability to attract and retain qualified board members. 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 Management Development and Corporate 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. Other As a Company retiree, Mr. Gressette receives a monthly benefit of $9,488 under the Key Employee Retention Plan and a monthly benefit of $28,380 under the Retirement Plan and a SERP. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SCANA: The information called for by Item 12, "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference to the captions "Share Ownership of Directors, Nominees and Executive Officers" and "Five Percent Owner of SCANA Common Stock" in the Company's definitive proxy statement for the 1999 annual meeting of shareholders. SCE&G: The following table list shares of SCANA common stock beneficially owned as of March 10, 1999 by each director, each nominee and each executive officer named in the Summary Compensation Table on page 110. 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 4,074 W. Hayne Hipp 3,482 J. A. Bennett 1,146 K. B. Marsh 10,127 W. B. Bookhart, Jr. 19,101 F. C. McMaster 6,219 G. J. Bullwinkel 22,556 L. M. Miller 1,543 W. T. Cassels, Jr. 2,621 J. B. Rhodes 9,743 H. M. Chapman 6,589 J. L. Skolds 9,037 W. A. Darby 25,176 M. K. Sloan 1,215 E. T. Freeman 4,941 H. C. Stowe 100 L. M. Gressette, Jr. 61,716 W. B. Timmerman 40,775 D. M. Hagood 100 *Each of the directors, nominees and named executive officers owns less than 1% of the shares outstanding. - ---------- 1 Includes shares owned by close relatives, the beneficial ownership of which is disclaimed by the director, nominee or named executive officers, as follows: Mr. Amick-480; Mr. Bookhart-4,613; Mr. Gressette-1,060; and Mr. McMaster-2,000; and by all directors, nominees and executive officers - - 8,238 in total. Includes shares purchased through January 31, 1999, by the Trustee under the SPSP. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS SCANA: The information called for by Item 13, "Certain Relationships and Related Transactions" is incorporated herein by reference to the caption "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for the 1999 annual meeting of shareholders. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate by reference future filings, including this Annual Report on Form 10-K, in whole or in part, the "Report on Executive Compensation" and the "Performance Graph" included in the Company's definitive proxy statement for the 1999 annual meeting of shareholders shall not be incorporated by reference into any such filings. SCE&G: For information regarding certain relationships and related transactions, see Item 11, "Executive Compensation" at "Compensation Committee Interlocks and Insider Participation." PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report on this Form 10-K: (1) Financial Statements and Schedules: Independent Auditor's Reports on the financial statements for SCANA and SCE&G are listed under Item 8 herein. The financial statements and supplementary financial data filed as part of this report for SCANA and SCE&G are listed under Item 8 herein. (2) Exhibits Exhibits required to be filed with this Annual Report on Form 10-K are listed in the Exhibit Index following the signature pages. 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. Pursuant to rule 15d-21 promulgated under the Securities Exchange Act of 1934, the annual report for the Company's employee stock purchase plan will be furnished under cover of Form 10-K/A to the Commission when the information becomes available. As permitted under Item 601(b)(4)(iii) of Regulation S-K, instruments defining the rights of holders of long-term debt of less than 10 percent of the total consolidated assets of the Company and its subsidiaries, have been omitted and the Company agrees to furnish a copy of such instruments to the Commission upon request. (b) Reports on Form 8-K during the fourth quarter of 1998 were as follows: SCANA filed a current report on Form 8-K: Date of report: December 15, 1998 Item reported: Item 5 SCE&G filed a current report on Form 8-K: Date of report: December 15, 1998 Item reported: Item 5 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SCANA CORPORATION By: s/W. B. Timmerman, Chairman of the Board, President, Chief Executive Officer and Director DATE: March 18, 1999 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: s/W. B. Timmerman W. B. Timmerman, Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer) Date: March 18, 1999 By: s/K. B. Marsh K. B. Marsh, Senior Vice President - Finance, Chief Financial Officer and Controller (Principal Financial and Accounting Officer) Date: March 18, 1999 Directors: B. L. Amick J. A. Bennette W. B. Bookhart, Jr. W. T. Cassels, Jr. H. M. Chapman E. T. Freeman L. M. Gressette, Jr. W. Hayne Hipp F. C. McMaster L. M. Miller J. B. Rhodes M. K. Sloan By: s/K. B. Marsh (K. B. Marsh, Attorney-in-fact) Date: March 18, 1999 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. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SOUTH CAROLINA ELECTRIC & GAS COMPANY By: s/J. L. Skolds J. L. Skolds, President and Chief Operating Officer Date: March 18, 1999 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. By: s/W. B. Timmerman W. B. Timmerman Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) Date: March 18, 1999 By: s/K. B. Marsh K. B. Marsh, Senior Vice President - Finance, Chief Financial Officer and Controller (Principal Financial Officer) Date: March 18, 1999 By: s/J. E. Addison J. E. Addison, Vice President and Controller (Principal Accounting Officer) Date: March 18, 1999 Directors: B. L. Amick J. A. Bennette W. B. Bookhart, Jr. W. T. Cassels, Jr. H. M. Chapman E. T. Freeman L. M. Gressette, Jr. W. Hayne Hipp F. C. McMaster L. M. Miller J. B. Rhodes M. K. Sloan By: s/K. B. Marsh (K. B. Marsh, Attorney-in-Fact) Date: March 18, 1999 EXHIBIT INDEX Applicable to Form 10-K of Exhibit No. SCANA SCE&G Description 2.01 X Agreement and Plan of Merger, dated as of February 16, 1999, by and among Public Service Company of North Carolina, Incorporated, SCANA Corporation , New Sub I, Inc. and New Sub II, Inc. (Filed as Exhibit 10.1 to Form 8-K on February 23, 1999) 3.01 X Restated Articles of Incorporation of SCANA as adopted on April 26, 1989 (Filed as Exhibit 3-A to Registration Statement No. 33-49145) 3.02 X Restated Articles of Incorporation of SCE&G, as adopted on December 15, 1993 (Filed as Exhibit 3-A to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3375) 3.03 X Articles of Amendment of SCANA, dated April 27, 1995 (Filed as Exhibit 4-B to Registration Statement No. 33-62421) 3.04 X Articles of Amendment of SCE&G, dated June 7, 1994 filed June 9, 1994 (Filed as Exhibit 3-B to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3375) 3.05 X Articles of Amendment of SCE&G, dated November 9, 1994 (Filed as Exhibit 3-C to Form 10-K for the year ended December 31, 1994, File No. 1-3375) 3.06 X Articles of Amendment of SCE&G, dated December 9, 1994 (Filed as Exhibit 3-D to Form 10-K for the year ended December 31, 1994, File No. 1-3375) 3.07 X Articles of Correction of SCE&G, dated January 17, 1995 (Filed as Exhibit 3-E to From 10-K for the year ended December 31, 1994, File No. 1-3375) 3.08 X Articles of Amendment of SCE&G, dated January 13, 1995 and filed January 17, 1995 (Filed as Exhibit 3-F to Form 10-K for the year ended December 31, 1994, File No. 1-3375) 3.09 X Articles of Amendment of SCE&G, dated March 31, 1995 (Filed as Exhibit 3-G to Form 10-Q for the quarter ended March 31, 1995, File No. 1-3375) 3.10 X Articles of Correction of SCE&G - Amendment to Statement filed March 31, 1995, dated December 12, 1995 (Filed as Exhibit 3-H to Form 10-K for the year ended December 31, 1995,Filed No. 1-3375) 3.11 X Articles of Amendment of SCE&G, dated December 13, 1995 (Filed as Exhibit 3-I to Form 10-K for the year ended December 31, 1995, File No. 1-3375) 3.12 X Articles of Amendment of SCE&G, dated February 18, 1997 (Filed as Exhibit 3-L to Registration Statement No. 333-24919) 3.13 X Articles of Amendment of SCE&G, dated February 21, 1997 (Filed as Exhibit 3-L to Form 10-Q for the quarter ended March 31, 1997) 3.14 X Articles of Amendment of SCE&G, dated April 22, 1997 (Filed as Exhibit 3-M to Form 10-Q for the quarter ended June 30, 1997) 3.15 X Copy of By-Laws of SCANA as revised and amended on December 17, 1997 (Filed as Exhibit 3-C to Form 10-K for the year ended December 31, 1997) Applicable to Form 10-K of Exhibit No. SCANA SCE&G Description 3.16 X Copy of By-Laws of SCE&G as revised and amended on December 17, 1997 (Filed as Exhibit 3-J to Form 10-K for the year ended December 31, 1997) 4.01 X Articles of Exchange of South Carolina Electric and Gas Company and SCANA Corporation (Filed as Exhibit 4-A to Post-Effective Amendment No. 1 to Registration Statement No. 2-90438) 4.02 X Copy of Supplemental Executive Retirement Plan as amended and restated effective as of October 21, 1997 (Filed as Exhibit 10-A to Form 10-K for the year ended December 31, 1997) 4.03 X Indenture dated as of November 1, 1989 to The Bank of New York, Trustee (Filed as Exhibit 4-A to Registration No. 33-32107) 4.04 X X 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 (Filed as Exhibit 2-B to Registration Statement No. 2-26459) 4.05 X X Fourth Supplemental Indenture dated as of April 1, 1950, to Indenture referred to in Exhibit 4.04, pursuant to which SCE&G assumed said Indenture (Exhibit 2-C to Registration Statement No. 2-26459) 4.06 X X Fifth through Fifty-second Supplemental Indenture referred to in Exhibit 4.04 dated as of the dates indicated below and filed as exhibits to the Registration Statements and 1934 Act reports whose file numbers are set forth below: December 1, 1950 Exhibit 2-D to Registration No. 2-26459 July 1, 1951 Exhibit 2-E to Registration No. 2-26459 June 1, 1953 Exhibit 2-F to Registration No. 2-26459 June 1, 1955 Exhibit 2-G to Registration No. 2-26459 November 1, 1957 Exhibit 2-H to Registration No. 2-26459 September 1, 1958 Exhibit 2-I to Registration No. 2-26489 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-O 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 2-B 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 Applicable to Form 10-K of Exhibit No. SCANA SCE&G Description 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 2-A-3 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 4.04 X X Indenture dated as of April 1, 1993 from South Carolina Electric & Gas Company to NationsBank of Georgia, National Association (Filed as Exhibit 4.07 to Registration Statement No. 33-49421) 4.08 X X First Supplemental Indenture to Indenture referred to in Exhibit 4.07 dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421) 4.09 X X Second Supplemental Indenture to Indenture referred to in Exhibit 4.07 dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955) 4.10 X X Trust Agreement for SCE&G Trust I (Filed as Exhibit 4-I to Form 10-K for the year ended December 31, 1997) 4.11 X X Certificate of Trust for SCE&G Trust I (Filed as Exhibit 4-I to Form 10-K for the year ended December 31, 1997) 4.12 X X Junior Subordinated Indenture for SCE&G Trust I (Filed as Exhibit 4-K to Form 10-K for the year ended December 31, 1997) 4.13 X X Guarantee Agreement for SCE&G Trust I (Filed as Exhibit 4-L to Form 10-K for the year ended December 31, 1997) 4.14 X X Amended and Restated Trust Agreement for SCE&G Trust I (Filed as Exhibit 4-M to Form 10-K for the year ended December 31, 1997) Applicable to Form 10-K of Exhibit No. SCANA SCE&G Description 10.01 X Copy of SCANA Voluntary Deferral Plan as amended through October 21, 1997 (Filed herewith at page 122) 10.02 X Copy of SCE&G Supplemental Executive Retirement Plan (Filed as Exhibit 10A to Form 10-K for the year ended December 31, 1997) 10.03 X Copy of SCANA Supplemental Executive Retirement Plan (Filed herewith at page 148) 10.04 X Copy of SCANA Supplementary Voluntary Deferral Plan as amended and restated through October 21, 1997 (Filed as Exhibit 10-B to Form 10-K for the year ended December 31, 1997) 10.05 X Copy of SCANA Key Executive Severance Benefit Plan as amended and restated effective as of October 21, 1997 (Filed as Exhibit 10-C to Form 10-K for the year ended December 31, 1997) 10.06 X Copy of SCANA Supplementary Key Executive Severance Benefit Plan as amended and restated effective October 21, 1997 (Filed herewith on page 165) 10.07 X Copy of SCANA Performance Share Plan as amended and restated effective January 1, 1998 (Filed herewith at page 187) 10.08 X Form of Agreement under SCANA Key Employee Retention Plan as amended and restated effective as of October 21, 1997 (Filed as Exhibit 10-E to Form 10-K for the year ended December 31, 1997) 10.09 X Description of SCANA Whole Life Option (Filed as Exhibit 10-F to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 10.10 X Description of SCANA Corporation Annual Incentive Plan (Filed as Exhibit 10-G to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 12.01 X X Statements Re computation of Ratios (Filed herewith at page 124) 21.01 X Subsidiaries of the Registrant (Filed herewith at page 20) 23.01 X Consents of Experts and Counsel (Filed herewith at page 132) 23.02 X Consents of Experts and Counsel (Filed herewith at page 133) 24.01 X Power of Attorney (Filed herewith at page 118) 24.02 X Power of Attorney (Filed herewith at page 119) 27.01 X Financial Data Schedule (Filed herewith) 27.02 X Financial Data Schedule (Filed herewith) EX-10 2 EXHIBIT 10.01 Exhibit 10.01 SCANA CORPORATION VOLUNTARY DEFERRAL PLAN as amended and restated effective as of October 21, 1997 124 SCANA CORPORATION VOLUNTARY DEFERRAL PLAN TABLE OF CONTENTS Page SECTION 1. ESTABLISHMENT AND PURPOSE................................. 1 1.1 Establishment of the Plan........................... 1 1.2 Description of the Plan............................. 1 1.3 Purpose of the Plan................................. 1 SECTION 2. DEFINITIONS............................................... 2 2.1 Definitions......................................... 2 2.2 Gender and Number................................... 4 SECTION 3. ELIGIBILITY AND PARTICIPATION............................. 5 3.1 Eligibility......................................... 5 3.2 Continued Participation............................. 5 SECTION 4. ELECTION TO DEFER......................................... 6 4.1 Deferral Election................................... 6 4.2 Deferral Period..................................... 7 4.3 Manner of Payment Election.......................... 7 4.4 Election to Defer a Previously Deferred Amount...... 8 SECTION 5. DEFERRED COMPENSATION ACCOUNT.............................. 9 5.1 Participant Accounts................................. 9 5.2 Growth Increments.................................... 9 5.3 Charges Against Accounts............................. 9 SECTION 6. PAYMENT OF DEFERRED AMOUNTS............................... 10 6.1 Payment of Deferred Amounts......................... 10 6.2 Acceleration of Payments............................ 10 6.3 Financial Emergency................................. 10 SECTION 7. BENEFICIARY DESIGNATION................................... 12 7.1 Designation of Beneficiary.......................... 12 7.2 Death of Beneficiary................................ 12 7.3 Ineffective Designation............................. 13 SECTION 8. CHANGE IN CONTROL DISTRIBUTIONS........................... 14 8.1 Accelerated Distributions Upon Change in Control.... 14 8.2 Tax Computation..................................... 14 8.3 No Subsequent Recalculation of Tax Liability........ 14 8.4 Successors...........................................15 8.5 Amendment and Termination After Change in Control....15 SECTION 9. GENERAL PROVISIONS........................................ 16 9.1 Contractual Obligation.............................. 16 9.2 Unsecured Interest.................................. 16 9.3 "Rabbi" Trust....................................... 16 9.4 Employment/Participation Rights..................... 16 9.5 Nonalienation of Benefits........................... 17 9.6 Severability........................................ 17 9.7 No Individual Liability............................. 17 9.8 Applicable Law...................................... 17 SECTION 10. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION........... 18 10.1 In General.......................................... 18 10.2 Claims Procedure.................................... 18 10.3 Finality of Determination........................... 18 10.4 Delegation of Authority............................. 18 10.5 Expenses............................................ 18 10.6 Tax Withholding..................................... 18 10.7 Incompetency........................................ 18 10.8 Action by Corporation............................... 19 10.9 Notice of Address................................... 19 10.10 Amendment and Termination........................... 19 SECTION 11. EXECUTION................................................ 20 - 142 - SCANA CORPORATION VOLUNTARY DEFERRAL PLAN (As Amended and Restated) SECTION 1. ESTABLISHMENT AND PURPOSE 1.1 Establishment of the Plan. SCANA Corporation has established, effective as of October 15, 1986, a deferred compensation plan for executives as described, amended and restated herein effective as of October 15, 1986, which is known as the "SCANA Corporation Voluntary Deferral Plan" (hereinafter called the "Plan"). Effective June 24, 1987, this Plan is also applicable to members of the Board. The Plan was amended from time to time thereafter, with the latest amendments effective as of October 21, 1997. 1.2 Description of the Plan. This Plan is intended to constitute a non-qualified deferred compensation plan which, in accordance with ERISA Sections 201(2), 301(a)(3) and 401(a)(1), is unfunded and established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. 1.3 Purpose of the Plan. The purpose of this Plan is to enable the Company to attract and retain persons of outstanding competence, to provide incentive benefits to a very select group of key management employees who contribute materially to the continued growth, development, and future business success of the Company, and to provide a means whereby certain amounts payable by the Company to selected executives may be deferred to some future period. SECTION 2. DEFINITIONS 2.1 Definitions. Whenever used herein, the following terms shall have the meanings set forth below, unless otherwise expressly provided herein or unless a different meaning is plainly required by the context, and when the defined meaning is intended, the term is capitalized: (a) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (b) "Beneficiary" means any person or entity who, upon the Participant's death, is entitled to receive the Participant's benefits under the Plan in accordance with Section 7 hereof. (c) "Board" means the Board of Directors of the Corporation. (d) "Change in Control" means a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is then subject to such reporting requirements; provided that, without limitation, such a Change in Control shall be deemed to have occurred if: i) Any Person (as defined in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d)) is or becomes the Beneficial Owner, directly or indirectly, of twenty five percent (25%) or more of the combined voting power of the outstanding shares of capital stock of the Corporation; ii) During any period of two (2) consecutive years (not including any period prior to December 18, 1996) there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board and any new director(s) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; iii) The issuance of an Order by the Securities and Exchange Commission (SEC), under Section 9(a)(2) of the Public Utility Holding Company Act of 1935 (the "1935 Act"), authorizing a third party to acquire five percent (5%) or more of the Corporation's voting shares of capital stock; iv) The shareholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting shares of capital stock of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting shares of capital stock of the surviving entity) at least eighty percent (80%) of the combined voting power of the voting shares of capital stock of the Corporation or such surviving entity outstanding immediately after such merger or consolidation; or the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets; or v) The shareholders of the Corporation approve a plan of complete liquidation, or the sale or disposition of South Carolina Electric & Gas Company (hereinafter SCE&G), South Carolina Pipeline Corporation, or any subsidiary of SCANA designated by the Board of Directors of SCANA as a "Material Subsidiary," but such event shall represent a Change in Control only with respect to a Participant who has been exclusively assigned to SCE&G, South Carolina Pipeline Corporation, or the affected Material Subsidiary. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means the Management Development and Corporate Performance Committee of the Board. (g) "Company" means the Corporation and any subsidiaries of the Corporation and their successor(s) or assign(s) that adopt this Plan through execution of Agreements with any of their Employees or otherwise. (h) "Compensation" means the gross Salary, Bonuses, and Long-Term Incentive Awards payable to a Participant during a Year by the Company, and, with respect to Board of Director-Participants, cash retainer fees, meeting attendance and conference fees payable to such a Participant during a Year by the Corporation. The term "Compensation" specifically does not include retainer fee amounts required to be paid in shares of SCANA Corporation common stock pursuant to the SCANA Corporation Nonemployee Director Stock Plan. For purposes of this Plan, the following terms have the following meanings: (i) "Salary" means all regular, basic compensation, before reduction for amounts deferred or foregone pursuant to this Plan or any other plan of the Corporation (including, without limitation, any tax-qualified or non-qualified plans of deferred compensation and any cafeteria plans, as defined in section 125 of the Internal Revenue Code), otherwise payable in cash to a Participant for services during the Year, and for services during the last days of the immediately preceding Year as to which payment is not receivable until the Year for which the election is made and which has not yet been earned at the time of making this election, exclusive of any Bonuses or Long-Term Incentive Awards, special fees or awards, allowances, or amounts designated by the Corporation as payments toward or reimbursement of expenses. (ii) "Bonus" or "Bonuses" means any annual Bonus payable from any SCANA Corporation short term incentive plan by the Corporation to a Participant in a Year. (iii) "Long-Term Incentive Award" means any amount payable in cash from any long-term incentive plan by the Corporation to a Participant in a Year, including distributions made under the SCANA Corporation Performance Share Plan. In no event shall any amounts attributable to Long-Term Incentive Awards which are to be paid in shares of SCANA Corporation common stock be eligible for deferral under this Plan. (i) "Corporation" means SCANA Corporation, a South Carolina corporation, or any successor thereto. (j) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (k) "Growth Increment" means the amount of interest credited to a Participant's deferred amounts. (l) "Participant" means an individual satisfying the eligibility requirements of Section 3. (m) "Retirement" means retirement as defined under the SCANA Corporation Retirement Plan. (n) "Year" means the calendar year. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology used herein also shall include the feminine and the feminine shall include the masculine, and the use of any term herein in the singular may also include the plural and the plural shall include the singular. SECTION 3. ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. Key executives in the employ of the Company as Officers thereof and all members of the Board, shall automatically be eligible to participate in this Plan. 3.2 Continued Participation. Once an individual is eligible to participate in this Plan, he shall continue to be eligible to participate for all future years unless and until the Committee shall designate that individual as ineligible to participate. If a Participant becomes ineligible to participate for future deferrals under this Plan, he shall retain all the rights described under this Plan with respect to deferrals previously made while an active Participant. SECTION 4. ELECTION TO DEFER 4.1 Deferral Election. Subject to the conditions set forth in this Plan, a Participant may elect to defer amounts of Compensation as follows: (a) At least 10 days before the beginning of the Year, a Participant other than a member of the Board may irrevocably elect, by written notice to the Secretary of SCANA Corporation (or his designate), to defer up to 25% of Salary payable during the Year, and/or all or a percentage of the Bonus, and/or all or a percentage of the Long-Term Incentive Award. Each deferral election is independent of the other and must be at least $5,000 for Salary and a minimum of $2,500 or 50% of the Bonus, or Long-Term Incentive Award to the extent payable in cash, whichever is less. As a part of his prior Year deferral election, a Participant may also elect to defer all or a specified percentage or dollar amount of any and all Salary increases that may be awarded to him during the Year to which his election pertains, or make a new election with respect to a Salary raise as further explained in Subsection 4.1(g) below, provided that no more than 25% of Salary payable during the Year is deferred and the Deferral Period Election and Manner of Payment Election are the same for both Salary and increases in Salary. (b) At least 10 days before the beginning of the Year, a Participant who is a member of the Board irrevocably may elect, by written notice to the Secretary of SCANA Corporation (or his designate), to defer up to 100% of his Compensation. (c) With respect to Salary deferrals, the deferral percentage elected shall be applied to the Participant's Salary for each pay period of the Year to which the deferral election applies. (d) With respect to Bonus deferrals, the deferral percentage elected shall apply only to the Participant's Bonus to be earned in the upcoming Year and payable, if at all, in the immediately following Year. (e) With respect to Long-Term Incentive Award deferrals attributable to amounts under the SCANA Corporation Performance Share Plan ("Performance Share Plan"), the deferral percentage shall be elected no later than the end of the second Year of any three-year award cycle established under the Performance Share Plan, and shall apply to the Participant's award that is otherwise payable, if at all, in the Year following the Year beginning immediately after the date the deferral election is made. With respect to all other Long-Term Incentive Award deferrals, the deferral percentage shall be elected at a time prescribed by the Committee prior to the date that the amounts otherwise earned or to be earned are determinable. Further, in the event that a Participant's elected deferral hereunder with respect to the Long-Term Incentive Award conflicts with the mandated payout for any year in SCANA Corporation common stock under the Performance Share Plan, the Participant's deferral election hereunder shall be modified (reduced) as needed without the consent of the Participant so as to no longer conflict with the payment in shares by the Performance Share Plan. (f) With respect to Board member Compensation deferrals, the deferral percentage elected shall be applied to the Participant's Compensation for each pay period of the Year to which the deferral election applies. (g) If a Participant is notified of an increase in his Salary, he may amend in writing his existing Salary deferral to reflect a deferral of any or all of his increase in Salary, or he may initiate a Salary deferral if one had not previously been elected, provided, however, that such election shall be applicable as of the beginning of the second full bi-weekly period for which compensation has not yet been earned, determined relative to the date that such written notice is received by the Secretary of SCANA Corporation, and provided, however, that the exercise of this election does not result in a cumulative deferral for such Year of more than 25% of Salary. An amending election for an increase in Salary shall not alter either the Deferral Period Election (Section 4.2 below) nor the Manner of Payment Election (Section 4.3 below) for any Salary previously elected to be deferred for the Year, but shall be deferred for the same period and in the same manner that Salary has elected to be deferred for said Year. 4.2 Deferral Period. With respect to deferrals made in accordance with Section 4.1, each Participant must elect the deferral period for each separate deferral. Subject to the additional deferral provisions of Section 4.4 and the acceleration provisions of Section 6, a Participant's deferral period may be for a specified number of years or until a specified date, subject to any limitations that the Committee in its discretion may choose to apply. However, notwithstanding the deferral period otherwise specified, payments shall be paid or begin to be paid following the earliest to occur of: (a) Death, (b) Disability as defined by the SCANA Corporation Long-Term Disability Benefit Plan for Employees where the prognosis is that such condition will not change, (c) Retirement, (d) Severance of employment, or (e) With respect to members of the Board, departure from the Board by reason of death, resignation or otherwise. 4.3 Manner of Payment Election. At the same time as the election made pursuant to Section 4.1, and subject to the acceleration provisions of Section 6, each Participant must also irrevocably elect the manner in which his deferred amounts will be paid. A Participant may elect to have a different manner of payment apply to each separate deferral election and each separate category of Compensation deferred. Participants must choose to have payment made in accordance with any of the following distribution forms: (a) a lump sum, (b) a designated number of installments payable monthly, quarterly or annually, as elected, which shall be paid or commence to be paid as soon as practicable after the conclusion of the deferral period elected pursuant to Section 4.2. Unless otherwise specifically elected, payments of all deferred amounts will be made in a single lump sum cash payment made as soon as practicable after the conclusion of the deferral period elected pursuant to Section 4.2. 4.4 Election to Defer a Previously Deferred Amount. (a) A Participant may request that the Committee (or its delegate) approve an additional deferral period of at least twelve (12) months with respect to any previously deferred amount. Any such request must be made by written notice to the Committee (or its delegate) at least twelve (12) months before the expiration of the deferral period for any previously deferred amount with respect to which an additional deferral election is requested. Such additional deferral election request may be made for each separate deferral previously made. Each such additional deferral election request shall include a newly designated manner of payment election in accordance with the provision of Section 4.3 above. (b) Notwithstanding the additional deferral election requests made by the Participant pursuant to Subsection 4.4(a) above, neither the deferral period elected nor the related manner of payment elected shall be automatically binding upon the Corporation by the mere fact of the election requests having been made. The Committee (or its delegate) shall review each such election submitted and determine whether or not it is in the best interest of the Corporation to accept the elections as submitted. Such Committee review will be made on a case-by-case basis and all determinations shall be made by the Committee (or its delegate) in its sole and complete discretion after consideration of such factors as it deems relevant, including broad economic and policy implications to the Corporation of approving any request. The Committee, or its designate, shall notify each Participant in writing within the first sixty (60) days of the twelve (12) month period noted in Section 4.4(a) above as to whether the deferral period and related manner of payment elections are accepted by the Committee as submitted, and if not, the terms upon which such elections would be accepted; in the latter instance, the Participant shall, no later than on the seventy-fifth (75th) day of the twelve (12) month period noted in Section 4.4(a), inform the Committee in writing of his acceptance or rejection of the terms proffered by the Committee or its delegate. All determinations made by the Committee or its delegate shall be final and binding on all parties. SECTION 5. DEFERRED COMPENSATION ACCOUNT 5.1 Participant Accounts. The Corporation shall establish and maintain for each Participant a bookkeeping account for deferrals made by such Participant. This account shall be credited as of the date the amount deferred otherwise would have become due and payable. 5.2 Growth Increments. The Corporation will provide for Growth Increments to be credited to the deferred accounts based on the prime interest rate charged from time to time by the Wachovia Bank of South Carolina, N.A. The Committee will have the authority to change the interest rate that may be applied to the deferred amounts. The Participant's account shall be credited on the first day of each calendar quarter, with a Growth Increment computed on the average balance in the Participant's account during the preceding calendar quarter. The Growth Increment shall be equal to said account balance multiplied by the average interest rate selected by the Committee during the preceding calendar quarter times a fraction the numerator of which is the number of days during such quarter and the denominator of which is 365. Growth Increments will continue to be credited until all of a Participant's benefits have been paid out of the Plan. Notwithstanding the foregoing, and subject to Section 9.2, no Participant shall have a right to designate the specific investment of deferred amounts. 5.3 Charges Against Accounts. There shall be charged against each Participant's account any payments made to the Participant or to his Beneficiary in accordance with Section 6 hereof. SECTION 6. PAYMENT OF DEFERRED AMOUNTS 6.1 Payment of Deferred Amounts. Payment of a Participant's Deferred Compensation Account balance, including accumulated Growth Increments attributable thereto (adjusted to reflect any change since the most recent Growth Increment calculation), shall be paid in cash commencing with the conclusion of the deferral period selected by the Participant in Section 4.2 or Section 4.4 hereof. The payments shall be made in the manner selected by the Participant under Section 4.3 of this Plan. The amount of each payment shall be equal to a Participant's then distributable account balance multiplied by a fraction, the numerator of which is one and the denominator of which is the number of installment payments remaining. 6.2 Acceleration of Payments. Notwithstanding the election made pursuant to Section 4.2 or Section 4.4: ------------------------ (a) if a Participant dies prior to the payment of all or a portion of his deferred compensation account balance, the balance of any amount payable shall be paid in a lump sum to the Beneficiaries designated under Section 7 hereof; (b) if a Participant's account balance is less than $5,000 at the time for payment specified, such amount shall be paid in a lump sum; and (c) if applicable, the provisions of Section 8 shall apply. 6.3 Financial Emergency. The Committee (or its delegate), at its sole discretion, may alter the timing or manner of payment of deferred amounts if the Participant establishes, to the satisfaction of the Committee (or its delegate), an unanticipated and severe financial hardship that is caused by an event beyond the Participant's control. In such event, the Committee (or its delegate) may: (a) provide that all, or a portion of, the amount previously deferred by the Participant immediately shall be paid in a lump sum cash payment, (b) provide that all, or a portion of, the installments payable over a period of time immediately shall be paid in a lump sum, or (c) provide for such other installment payment schedules as it deems appropriate under the circumstances, as long as the amount distributed shall not be in excess of that amount which is necessary for the Participant to satisfy the financial emergency. Severe financial hardship will be deemed to have occurred in the event of the Participant's or a dependent's sudden, lengthy and serious illness as to which considerable medical expenses are not covered by insurance or relative to which there results a significant loss of family income, or other unanticipated events of similar magnitude. The Committee's decision (or that of its delegate) in passing on the severe financial hardship of the Participant and the manner in which, if at all, the payment of deferred amounts shall be altered or modified shall be final, conclusive, and not subject to appeal. SECTION 7. BENEFICIARY DESIGNATION 7.1 Designation of Beneficiary. (a) A Participant shall designate a Beneficiary or Beneficiaries who, upon the Participant's death, are to receive the amounts that otherwise would have been paid to the Participant. All designations shall be in writing and signed by the Participant. The designation shall be ------- ------ effective only if and when delivered to the Corporation during the lifetime of the Participant. The Participant also may change his Beneficiary or Beneficiaries by a signed, written instrument delivered to the Corporation. The payment of amounts shall be in accordance with the last unrevoked written designation of Beneficiary that has been signed and delivered to the Corporation. All Beneficiary designations shall be addressed to the Secretary of SCANA Corporation and delivered to his office, and shall be processed as indicated in subsection (b) below by the Secretary or by his authorized designee. (b) The Secretary of SCANA Corporation (or his authorized designee) shall, upon receipt of the Beneficiary designation: (1) ascertain that the designation has been signed, and if it has not been, return it to the Participant for his signature; (2) if signed, stamp the designation "Received", indicate the date of receipt, and initial the designation in the proximity of the stamp. 7.2 Death of Beneficiary. (a) In the event that all of the Beneficiaries named in Section 7.1 predecease the Participant, the amounts that otherwise would have been paid to said Beneficiaries shall, where the designation fails to redirect to alternate Beneficiaries in such circumstance, be paid to the Participant's estate as the alternate Beneficiary. (b) In the event that two or more Beneficiaries are named, and one or more but less than all of such Beneficiaries predecease the Participant, each surviving Beneficiary shall receive any dollar amount or proportion of funds designated or indicated for him per the designation of Section 7.1, and the dollar amount or designated or indicated share of each predeceased Beneficiary which the designation fails to redirect to an alternate Beneficiary in such circumstance shall be paid to the Participant's estate as an alternate Beneficiary. 7.3 Ineffective Designation. (a) In the event the Participant does not designate a Beneficiary, or if for any reason such designation is entirely ineffective, the amounts that otherwise would have been paid to the Beneficiary shall be paid to the Participant's estate as the alternate Beneficiary. (b) In the circumstance that designations are effective in part and ineffective in part, to the extent that a designation is effective, distribution shall be made so as to carry out as closely as discernable the intent of the Participant, with result that only to the extent that a designation is ineffective shall distribution instead be made to the Participant's estate as an alternate Beneficiary. SECTION 8. CHANGE IN CONTROL PROVISIONS 8.1 Accelerated Distributions Upon Change in Control. Notwithstanding anything in this Plan to the contrary and subject to the terms of an individual Participant agreement, if any, upon the occurrence of a Change in Control where there has not been a termination of the SCANA Corporation Key Employee Severance Benefits Plan prior thereto, the amounts (or remaining amounts) held in each Participant's Deferred Compensation Account under this Plan as of the date of such Change in Control (referred to as each Participant's "VDP Benefit") shall become immediately due and payable. All VDP Benefits payable under this Section 8.1 shall be paid to each Participant (and his or her Beneficiary) in the form of a single lump sum cash payment, together with an amount (the "Gross-Up Payment") such that the net amount retained by each Participant after deduction of any excise tax imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed) on such benefits (the "Excise Tax") and any Federal, state, and local income tax and Excise Tax upon the VDP Benefit and the Gross-Up Payment provided for by this Section 8 shall be equal to the value of the Participant's VDP Benefit. Such payment shall be made by the Corporation (or to the extent assets are transferred to the SCANA Corporation Executive Benefit Plan Trust by the trustee of such trust in accordance with the trust's terms) to the Participant (or his or her Beneficiary) as soon as practicable following the Change in Control, but in no event later than the date specified by the terms of the SCANA Corporation Executive Benefit Plan Trust. In all events, if the SCANA Corporation Key Employee Severance Benefits Plan was terminated prior to such Change in Control, then the provisions of this Section shall not apply and Participants' benefits shall be determined and paid under the otherwise applicable provisions of the Plan and/or any individual Participant agreement. 8.2 Tax Computation. For purposes of determining the amount of the Gross-Up Payment referred to in Section 8.1, whether any of a Participant's VDP Benefit will be subject to the Excise Tax, and the amounts of such Excise Tax: (i) there shall be taken into account all other payments or benefits received or to be received by a Participant in connection with a Change in Control of the Corporation (whether pursuant to the terms of this Plan or any other plan, arrangement, or agreement with the Corporation, any person whose actions result in a Change in Control of the Corporation or any person affiliated with the Corporation or such person); and (ii) the amount of any Gross-Up Payment payable with respect to any Participant (or his or her Beneficiary) by reason of such payment shall be determined in accordance with a customary "gross-up formula," as determined by the Committee it its sole discretion. 8.3 No Subsequent Recalculation of Tax Liability. The Gross-Up Payments described in the foregoing provisions of this Section 8 are intended and hereby deemed to be a reasonably accurate calculation of each Participant's actual income tax and Excise Tax liability under the circumstances (or such tax liability of his or her Beneficiary), the payment of which is to be made by the Corporation or the SCANA Corporation Executive Benefit Plan Trust. All such calculations of tax liability shall not be subject to subsequent recalculation or adjustment in either an underpayment or overpayment context with respect to the actual tax liability of the Participant (or his or her Beneficiary) ultimately determined as owed. 8.4 Successors. Notwithstanding anything in this Plan to the contrary, and subject to the terms of an individual Participant agreement, if any, upon the occurrence of a Change in Control, and only if the SCANA Corporation Key Employee Severance Benefits Plan ("KESBP") was terminated prior to such Change in Control, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to perform this Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, subject to the remaining provisions of this Section 8.4. In the event of such a Change in Control where the KESBP is terminated, Participants shall become entitled to benefits hereunder in accordance with the terms of this Plan, and any individual Participant agreement, based on amounts credited to each Participant's Deferred Compensation Account as of the date of such Change in Control plus accumulated Growth Increments attributable thereto (adjusted to reflect any change from the most recent Growth Increment calculation to the end of the month prior to the month such amounts are distributed to each Participant). In such case, any successor to the Company shall not be required to provide for additional deferral of benefits beyond the date of such Change in Control. In addition, and notwithstanding Section 8.5 to the contrary, if there is a Change in Control and the KESBP is terminated prior to such Change in Control, a successor to the Company may amend this Plan to provide for an automatic lump sum distribution of the then current value of Participants' Deferred Compensation Account, including accumulated Growth Increments attributable thereto (adjusted to reflect any change since the most recent Growth Increment calculation) hereunder without such amendment being treated as an amendment reducing any benefits earned. 8.5 Amendment and Termination After Change in Control. Notwithstanding the foregoing, and subject to this Section 8, no amendment, modification or termination of the Plan may be made, and no Participants may be added to the Plan, upon or following a Change in Control if it would have the effect of reducing any benefits earned (including optional forms of distribution) prior to such Change in Control without the written consent of all of the Plan's Participants covered by the Plan at such time. In all events, however, the Corporation reserves the right to amend, modify or delete the provisions of Section 8 at any time prior to a Change in Control, pursuant to a Board resolution adopted by a vote of two-thirds (2/3) of the Board members then serving on the Board. SECTION 9. GENERAL PROVISIONS 9.1 Contractual Obligation. It is intended that the Corporation is under a contractual obligation to make payments from a Participant's account when due. Payment of account balances shall be made out of the general funds of the Corporation as determined by the Board without any restriction of the assets of the Corporation relative to the payment of such contractual obligations; the Plan is, and shall operate as, an unfunded plan. 9.2 Unsecured Interest. No Participant or Beneficiary shall have any interest whatsoever in any specific asset of the Corporation. To the extent that any person acquires a right to receive payment under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Corporation. 9.3 "Rabbi" Trust. In connection with this Plan, the Board shall establish a grantor trust (known as the "SCANA Corporation Executive Benefit Plan Trust") for the purpose of accumulating funds to satisfy the obligations incurred by the Corporation under this Plan (and such other plans and arrangements as determined from time to time by the Corporation). At any time prior to a Change in Control, as that term is defined in such Trust, the Corporation may transfer assets to the Trust to satisfy all or part of the obligations incurred by the Corporation under this Plan, as determined in the sole discretion of the Committee, subject to the return of such assets to the Corporation at such time as determined in accordance with the terms of such Trust. Any assets of such Trust shall remain at all times subject to the claims of creditors of the Corporation in the event of the Corporation's insolvency; and no asset or other funding medium used to pay benefits accrued under the Plan shall result in the Plan being considered as other than "unfunded" under ERISA. Notwithstanding the establishment of the Trust, the right of any Participant to receive future payments under the Plan shall remain an unsecured claim against the general assets of the Corporation. 9.4 Employment/Participation Rights. . (a) Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. (b) Nothing in the Plan shall be construed to be evidence of any agreement or understanding, express or implied, that the Company will continue to employ a Participant in any particular position or at any particular rate of remuneration. (c) No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. (d) Nothing in this Plan shall affect the right of a recipient to participate in and receive benefits under and in accordance with any pension, profit-sharing, deferred compensation or other benefit plan or program of the Corporation. 9.5 Nonalienation of Benefits. (a) No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or change, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or change the same shall be void; nor shall any such disposition be compelled by operation of law. (b) No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to benefits under the Plan. (c) If any Participant or Beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or change any right or benefit hereunder, then such right or benefit shall, in the discretion of the Committee, cease, and the Committee shall direct in such event that the Corporation hold or apply the same or any part thereof for the benefit of the Participant or Beneficiary in such manner and in such proportion as the Committee may deem proper. 9.6 Severability. If any particular provision of the Plan shall be found to be illegal or unenforceable for any reason, the illegality or lack of enforceability of such provision shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or unenforceable provision had not been included. 9.7 No Individual Liability. It is declared to be the express purpose and intention of the Plan that no liability whatsoever shall attach to or be incurred by the shareholders, officers, or directors of the Corporation or any representative appointed hereunder by the Corporation, under or by reason of any of the terms or conditions of the Plan. 9.8 Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of South Carolina except to the extent governed by applicable Federal law. SECTION 10. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION 10.1 In General. This Plan shall be administered by the Committee, which shall have the sole authority to construe and interpret the terms and provisions of the Plan and determine the amount, manner and time of payment of any benefits hereunder. The Committee shall maintain records, make the requisite calculations and disburse payments hereunder, and its interpretations, determinations, regulations and calculations shall be final and binding on all persons and parties concerned. The Committee may adopt such rules as it deems necessary, desirable or appropriate in administering this Plan and the Committee may act at a meeting, in a writing without a meeting, or by having actions otherwise taken by a member of the Committee pursuant to a delegation of duties from the Committee. 10.2 Claims Procedure. Any person dissatisfied with the Committee's determination of a claim for benefits hereunder must file a written request for reconsideration with the Committee. This request must include a written explanation setting forth the specific reasons for such reconsideration. The Committee shall review its determination promptly and render a written decision with respect to the claim, setting forth the specific reasons for such denial written in a manner calculated to be understood by the claimant. Such claimant shall be given a reasonable time within which to comment, in writing, to the Committee with respect to such explanation. The Committee shall review its determination promptly and render a written decision with respect to the claim. Such decision upon matters within the scope of the authority of the Committee shall be conclusive, binding, and final upon all claimants under this Plan. 10.3 Finality of Determination. The determination of the Committee as to any disputed questions arising under this Plan, including questions of construction and interpretation, shall be final, binding, and conclusive upon all persons. 10.4 Delegation of Authority. The Committee may, in its discretion, delegate its duties to an officer or other employee of the Company, or to a committee composed of officers or employees of the Company. 10.5 Expenses. The cost of payment from this Plan and the expenses of administering the Plan shall be borne -------- by the Corporation. 10.6 Tax Withholding. The Corporation shall have the right to deduct from all payments made from the Plan any federal, state, or local taxes required by law to be withheld with respect to such payments. 10.7 Incompetency. Any person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent and of age until the Company receives written notice, in a form and manner acceptable to it, that such person is incompetent or a minor, and that a guardian, conservator, statutory committee under the South Carolina Code of Laws, or other person legally vested with the care of his estate has been appointed. In the event that the Company finds that any person to whom a benefit is payable under the Plan is unable to properly care for his affairs, or is a minor, then any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Company to have incurred expense for the care of such person otherwise entitled to payment. In the event a guardian or conservator or statutory committee of the estate of any person receiving or claiming benefits under the Plan shall be appointed by a court of competent jurisdiction, payments shall be made to such guardian or conservator or statutory committee provided that proper proof of appointment is furnished in a form and manner suitable to the Company. Any payment made under the provisions of this Section 10.7 shall be a complete discharge of liability therefor under the Plan. 10.8 Action by Corporation. Any action required or permitted to be taken hereunder by the Corporation or its Board shall be taken by the Board, or by any person or persons authorized by the Board. 10.9 Notice of Address. Any payment made to a Participant or to his Beneficiary at the last known post office address of the distributee on file with the Corporation, shall constitute a complete acquittance and discharge to the Corporation and any director or officer with respect thereto, unless the Corporation shall have received prior written notice of any change in the condition or status of the distributee. Neither the Corporation nor any director or officer shall have any duty or obligation to search for or ascertain the whereabouts of the Participant or his Beneficiary. 10.10 Amendment and Termination. The Corporation expects the Plan to be permanent but, since future conditions affecting the Corporation cannot be anticipated or foreseen, the Corporation reserves the right to amend, modify, or terminate the Plan at any time by action of its Board; provided, however, that any such action shall not diminish retroactively any amounts, both deferred Compensation and Growth Increments thereon, which have been credited to any Participant's Deferred Compensation Account. If the Board amends the Plan to cease future deferrals hereunder or terminates the Plan, the Board may, in its sole discretion, direct that the value of each Participant's Deferred Compensation Account be paid to each Participant (or Beneficiary, if applicable) in an immediate lump sum payment. In the absence of any such direction from the Board, the Plan shall continue as a "frozen" plan under which no future deferrals will be recognized (however, Growth Increments shall continue to be recognized) and each Participant's benefits shall be paid in accordance with the otherwise applicable terms of the Plan. SECTION 11. EXECUTION IN WITNESS WHEREOF, the Company has caused this SCANA Corporation Voluntary Deferral Plan to be executed by its duly authorized officer this ______ day of __________________________, 199___, to be effective as of October 21, 1997. SCANA Corporation By:________________________________ Title:_______________________________ ATTEST: - ------------------------------------ Secretary - 146 - SCANA CORPORATION VOLUNTARY DEFERRAL PLAN ELECTION TO DEFER EXECUTED FOR CALENDAR YEAR 199___ As a Participant in the SCANA Corporation Voluntary Deferral Plan, I hereby elect to defer amounts set forth below and to have such amounts paid to me as set forth in this election form. I understand and agree that all deferrals shall be subject to the terms of the Plan, a copy of which has been provided to me. I understand that the decision to participate in this Plan is voluntary and that the Corporation is not responsible for advising me with respect to the tax or financial consequences of my participation in this Plan. Deferral Election(s): [ ] I hereby elect to defer in accordance with this Plan Salary compensation to be payable during calendar year 19___ in the amount of $__________, which amount is at least $5,000 and does not exceed 25% of the Salary compensation payable to me during the subject calendar year. [ ] Concurrently with this election, I also hereby elect to defer [ ] ___% of each increase in Salary compensation which I may become entitled to receive during the subject calendar year, or [ ] $__________ of each increase in Salary compensation which I may become entitled to receive during the subject calendar year, provided that this election with regard to Salary increases shall be reduced if necessary such that the total amount of Salary and Salary increases deferred during the subject calendar year does not exceed 25% of my Salary compensation otherwise payable to me during the subject calendar year in accordance with Sections 1.2(d)(i) and 4.1 of the Plan. [ ] I hereby elect to defer in accordance with this Plan: [ ] a. 100% of the Bonus payable to me during calendar year 19___, or [ ] b. ___% of the Bonus payable to me during calendar year 19___ (which is at least the lesser of 50% of the Bonus amount or $2,500). [ ] I hereby elect to defer in accordance with this Plan (exclusive of any amount required to be paid to me in shares of SCANA Corporation common stock): [ ] a. 100% of the Long-Term Incentive Award otherwise payable to me in cash during calendar year 19___, or [ ] b. $__________ of the Long-Term Incentive Award otherwise payable to me in cash during calendar year 19___ (which is at least the lesser of 50% of the Long-Term Incentive Award cash amount or $2,500). [ ] I hereby elect to defer in accordance with this Plan ____% of each and all of: [ ] a. cash retainer fees (exclusive of the amounts required to be paid to me in shares of SCANA Corporation common stock) [ ] b. meeting attendance fees [ ] c. conference fees payable to me as a member of the Board of Directors during calendar year 19___. Deferral Period(s): [ ] Salary deferred above per this election shall be deferred: [ ] a. ____ years from the close of the calendar year for which this election is made so as to be payable in whole or in part under the Manner of Payment Election indicated below as of . (Month - Day - Year) or [ ] b. until my retirement from the Corporation (subject to my earlier death, total and permanent disability or termination of employment as indicated in Section 4.2 of this Plan). [ ] The Bonus deferred above per this election shall be deferred: [ ] a. ____ years from the close of the calendar year for which this election is made so as to be payable in whole or in part under the Manner of Payment Election indicated below as of . (Month - Day - Year) or [ ] b. until my retirement from the Corporation (subject to my earlier death, total and permanent disability or termination of employment as indicated in Section 4.2 of this Plan). [ ] The Long-Term Incentive Award deferred above per this election shall be deferred: [ ] a. ____ years from the close of the calendar year for which this election is made so as to be payable in whole or in part under the Manner of Payment Election indicated below as of . (Month - Day - Year) or [ ] b. until my retirement from the Corporation (subject to my earlier death, total and permanent disability or termination of employment as indicated in Section 4.2 of this Plan). [ ] Board of Directors' fees deferred above per this election shall be deferred: [ ] a. ____ years from the close of the calendar year for which this election is made so as to be payable in whole or in part under the Manner of Payment Election indicated below as of . (Month - Day - Year) or [ ] b. until my departure from the Board of Directors as indicated in Section 4.2 of this Plan by reason of death, resignation or otherwise. Manner of Payment Election(s): I understand and agree that, with respect to all deferred amounts, unless I elect otherwise, the amounts will be paid to me at the time otherwise specified in the form of a single lump sum payment. [ ] The Salary deferred above per this election shall be at the conclusion of the deferral period above be paid (subject to an Acceleration of Payments under Section 6.2 or Forfeiture under Section 7 of the Plan): [ ] a. in a lump sum, or [ ] b. in installment payments, payable: (Number) [ ] monthly or [ ] quarterly or [ ] annually. [ ] The Bonus deferred above per this election shall at the conclusion of the deferral period above be paid (subject to an Acceleration of Payments under Section 6.2 or Forfeiture under Section 7 of the Plan): [ ] a. in a lump sum, or [ ] b. in installment payments, payable: (Number) [ ] monthly or [ ] quarterly or [ ] annually. [ ] The Board of Directors fees deferred above per this election shall be paid (subject to an Acceleration of Payments under Section 6.2 of the Plan): [ ] a. in a lump sum, or [ ] b. in installment payments, payable: (Number) [ ] monthly or [ ] quarterly or [ ] annually. Name _________________________________ SS # __________________________________ Employee # ___________________________ - ----------------------------- --------------------------------------- Secretary, SCANA Corporation Employee's or Board Member's Signature - ------------- ------------ Date Date (Rev. Jan. 1997) SCANA CORPORATION VOLUNTARY DEFERRAL PLAN DESIGNATION OF BENEFICIARY To: Secretary of SCANA Corporation I hereby designate the following person(s), trust(s) or estate, to be the recipient(s) of any and all amounts which may become payable or may remain to be paid upon my death under the SCANA Corporation Voluntary Deferral Plan. =================================-----------------------------------============ Beneficiary's Name and Social Security Relationship or Employer Beneficiary's to Dollars or Identification No. Address Participant % Share ================================================================================ ================================================================================ I hereby designate the following person, trust or estate as Alternate Beneficiary with respect to the contingency events described in Sections 7.2(a) and 7.2(b) of this Plan. =====================================----------------------===================== Alternate Beneficiary's Name and Social Alternate Relationship Security or Employer Beneficiary's to Identification No. Address Participant ================================================================================ ================================================================================ Spouse's Consent: (Community Property States Only -- S.C.domiciliaries ignore): I hereby agree to the Beneficiary(ies) designated above: - ----------------------------------- ------------------------ Spouse's Signature Date I hereby revoke any Beneficiary designation previously made by me and reserve the right to change this designation at any time by filing a new Designation of Beneficiary form. Signature of Participant Date Social Security Number Signature of Corporate Secretary Date Received (Rev. 1997) EX-10 3 EXHIBIT 10.03 Exhibit 10.03 SCANA CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN as amended and restated effective as of October 21, 1997 SCANA CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN TABLE OF CONTENTS Page SECTION 1. ESTABLISHMENT OF THE PLAN............................ 1 1.1 Establishment of the Plan...................... 1 1.2 Description of the Plan........................ 1 1.3 Purpose of the Plan............................ 1 SECTION 2. DEFINITIONS........................................ 2 2.1 Definitions.................................... 2 2.2 Gender and Number.............................. 4 SECTION 3. ELIGIBILITY AND PARTICIPATION....................... 5 3.1 Eligibility.................................... 5 3.2 Termination of Participation................... 5 3.3 Reemployment of Former Participant............. 5 SECTION 4. BENEFITS............................................ 6 4.1 Eligibility for Benefits....................... 6 4.2 Amount of Retirement Benefit................... 6 4.3 Commencement, Form and Duration of Payment..... 6 4.4 Pre-retirement Spouse Benefit.................. 7 4.5 Documentation.................................. 7 SECTION 5. FINANCING........................................... 8 5.1 Financing of Benefits.......................... 8 5.2 "Rabbi" Trust.................................. 8 SECTION 6. GENERAL PROVISIONS...................................... 9 6.1 Employment/Participation Rights.................... 9 6.2 Nonalienation of Benefits.......................... 9 6.3 Severability....................................... 9 6.4 No Individual Liability........................... 10 6.5 Applicable Law.................................... 10 SECTION 7. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION......... 11 7.1 In General........................................ 11 7.2 Claims Procedure.................................. 11 7.3 Finality of Determination......................... 11 7.4 Delegation of Authority........................... 11 7.5 Expenses.......................................... 11 7.6 Tax Withholding................................... 11 7.7 Incompetency...................................... 11 7.8 Action by Corporation............................. 12 7.9 Notice of Address................................. 12 7.10 Amendment and Termination......................... 12 SECTION 8. CHANGE IN CONTROL PROVISIONS........................... 13 8.1 Accelerated Distributions Upon Change in Control.. 13 8.2 Tax Computation................................... 13 8.3 No Subsequent Recalculation of Tax Liability...... 13 8.4 Successors.........................................14 8.5 Amendment and Termination after Change in Control..14 SECTION 10. EXECUTION ....................................... 15 SCANA CORPORATION SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN SECTION 1. ESTABLISHMENT OF THE PLAN 1.1 Establishment of the Plan. SCANA CORPORATION (the "Corporation") established the SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (the "Supplemental Plan") effective as of January 1, 1994. The Supplemental Plan was amended and restated, effective December 18, 1996, and is hereby further amended and restated effective as of October 21, 1997. 1.2 Description of the Plan. This Supplemental Plan is intended to constitute a nonqualified deferred compensation plan which, in accordance with ERISA Sections 201(2), 301(a)(3) and 401(a)(1), is unfunded and established primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. 1.3 Purpose of the Plan. In addition to the description of the Supplemental Plan as set forth in subsection 1.2 above, the primary objective of the Corporation in establishing this Supplemental Plan is to provide supplemental retirement income to certain employees of the Company whose benefits under the SCANA Corporation Retirement Plan are limited in accordance with the limitations imposed by Code Section 415 on the amount of annual retirement benefits payable to employees from qualified pension plans, by Code Section 401(a)(17) on the amount of annual compensation that may be taken into account for all qualified plan purposes, or by certain other design limitations on determining compensation under the Qualified Plan. SECTION 2. DEFINITIONS 2.1 Definitions. Whenever used in the Supplemental Plan, the following terms shall have the respective meanings set forth below, unless otherwise expressly provided herein or unless a different meaning is plainly required by the context, and when the defined meaning is intended, the term is capitalized. Capitalized terms not defined herein shall have the respective meanings set forth in the Qualified Plan. (a) "Actuarial Equivalent" shall mean the actuarial equivalent factors applied under the Qualified Plan. In applying Actuarial Equivalent factors under this Supplemental Plan, the same procedures shall apply as would apply under the Qualified Plan under similar circumstances. (b) "Agreement" means a contract between an Eligible Employee and the Company permitting the Eligible Employee to participate in the Supplemental Plan and delineating the benefits (if any) that are to be provided to the Eligible Employee in lieu of or in addition to the benefits described under the terms of this Supplemental Plan. (c) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (d) "Beneficiary" means the individual designated by the Participant (on such form as prescribed by the Committee) to receive the Participant's benefits under Section 8 if the Participant shall have died prior to receipt thereof. In the absence of an effective Beneficiary designation, such amounts shall be paid to the Participant's Beneficiary determined under the Qualified Plan. (e) "Board" means the Board of Directors of the Corporation. (f) "Change in Control" means a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is then subject to such reporting requirements; provided that, without limitation, such a Change in Control shall be deemed to have occurred if: i) Any Person (as defined in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d)) is or becomes the Beneficial Owner, directly or indirectly, of twenty five percent (25%) or more of the combined voting power of the outstanding shares of capital stock of the Corporation; ii) During any period of two (2) consecutive years (not including any period prior to December 18, 1996) there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board and any new director(s) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; iii) The issuance of an Order by the Securities and Exchange Commission (SEC), under Section 9(a)(2) of the Public Utility Holding Company Act of 1935 as amended (the "1935 Act"), authorizing a third party to acquire five percent (5%) or more of the Corporation's voting shares of capital stock; iv) The shareholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting shares of capital stock of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting shares of capital stock of the surviving entity) at least eighty percent (80%) of the combined voting power of the voting shares of capital stock of the Corporation or such surviving entity outstanding immediately after such merger or consolidation; or the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets; or v) The shareholders of the Corporation approve a plan of complete liquidation, or the sale or disposition of South Carolina Electric & Gas Company (hereinafter SCE&G), South Carolina Pipeline Corporation, or any subsidiary of SCANA designated by the Board as a "Material Subsidiary," but such event shall represent a Change in Control only with respect to a Participant who has been exclusively assigned to SCE&G, South Carolina Pipeline Corporation, or the affected Material Subsidiary. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Code Limitations" means the limitations imposed by Code Section 415 on the amount of annual retirement benefits payable to employees from qualified pension plans and by Code Section 401(a)(17) on the amount of annual compensation that may be taken into account for all qualified plan purposes. (i) "Committee" means the Management Development and Corporate Performance Committee of the Board. (j) "Company" means the Corporation and any subsidiaries of the Corporation and their successor(s) or assign(s) that adopt this Supplemental Plan through execution of Agreements with any of their Employees or otherwise. (k) "Compensation" means "Compensation" as determined under the Qualified Plan, without regard to the limitation under Section 401(a)(17) of the Code and including any amounts deferred under any non-qualified deferred compensation plan of the Corporation (excluding the Supplemental Plan). (l) "Corporation" means SCANA Corporation, a South Carolina corporation, or any successor thereto. (m) "Effective Date" means December 18, 1996. (n) "Eligible Employee" means an Employee who is employed by the Company in a high-level management or administrative position, including employees who also serve as officers and/or directors of the Company. (o) "Employee" means a person who is actively employed by the Company and who falls under the usual common law rules applicable in determining the employer-employee relationship. (p) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (q) "Participant" means any Eligible Employee who is participating in the Supplemental Plan in accordance with the provisions herein set forth. (r) "Qualified Plan" means the SCANA Corporation Retirement Plan, as in effect on the Effective Date, and as may be further amended and in effect from time to time. (s) "Supplemental Plan" means this plan, the SCANA Corporation Supplemental Executive Retirement Plan. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and the feminine shall include the masculine, and the use of any term herein in the singular may also include the plural and the plural shall include the singular. SECTION 3. ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. An Eligible Employee shall become a Participant in the Supplemental Plan on the first day on which: (a) his accrued benefit calculated under the Qualified Plan is limited in accordance with either of the Code Limitations or due to his participation in a non-qualified deferred compensation plan of the Corporation (other than this Supplemental Plan); and (b) he enters into an Agreement with the Company regarding his participation in the Supplemental Plan. 3.2 Termination of Participation. An Eligible Employee who is eligible to participate in this Supplemental Plan under subsection 3.1 above shall remain covered hereunder until the date upon which his employment terminates for any reason and, thereafter, so long as any benefits are payable from this Supplemental Plan. Unless the terms of the Participant's Agreement provide to the contrary, if the Participant is not eligible for benefits in accordance with the provisions of Section 4.1 at the time his employment terminates, the Participant shall terminate his participation in the Supplemental Plan when his employment with the Company terminates. 3.3 Reemployment of Former Participant. Notwithstanding any provision of the Supplemental Plan or an Agreement to the contrary, any person reemployed as an Employee who previously participated in and received benefits under the Supplemental Plan shall not be eligible to participate again in the Supplemental Plan, and any payments or future rights to payments under the Supplemental Plan made or to be made with respect to such Participant shall not be discontinued on account of such reemployment. SECTION 4. BENEFITS 4.1 Eligibility for Benefits. A Participant shall be eligible to commence receipt of a benefit under the Supplemental Plan in accordance with and subject to the provisions of the Supplemental Plan, upon the later of the Participant's termination of employment with the Company or the Participant's Earliest Retirement Date or in an Agreement; provided, however, that, except as provided in the following sentence or as may otherwise be provided by an Agreement, no benefit shall be payable under this Supplemental Plan with respect to a Participant who terminates employment with the Company prior to becoming vested in his accrued benefit under the Qualified Plan. Notwithstanding the foregoing, if a Participant is involuntarily terminated following or incident to a Change in Control and prior to becoming fully vested in his accrued benefit under the Qualified Plan, a benefit will be paid under this Supplemental Plan, based on the Participant's Compensation and Years of Benefit Service at the time of the Participant's termination of employment. 4.2 Amount of Retirement Benefit. Unless otherwise provided in an Agreement, the amount of any retirement benefit payable to a Participant pursuant to this Supplemental Plan shall be determined at the time the Participant first becomes eligible to receive benefits under the Supplemental Plan and shall be equal to the excess, if any, of: i) The monthly pension amount that would have been payable at Normal Retirement Age or, if applicable, Delayed Retirement Age under the Qualified Plan to the Participant determined based on Compensation as defined under this Supplemental Plan and disregarding the Code Limitations and any reductions due to the Participant's deferral of compensation under any nonqualified deferred compensation plan of the Company (other than this Supplemental Plan); over ii) The monthly pension amount payable at Normal Retirement Age or, if applicable, Delayed Retirement Age under the Qualified Plan to the Participant. If such benefit is scheduled to commence prior to a Participant's Normal Retirement Date, the benefit to be paid under this Plan shall be reduced in accordance with the Early Retirement reduction factors and Actuarial Equivalent factors under the Qualified Plan as of the date of determination. 4.3 Commencement, Form and Duration of Payment. Unless the terms of the Participant's Agreement provide to the contrary: (a) Participant's Benefit. Monthly benefit payments for a Participant shall begin as of the first day of the calendar month next following the later of the date the Participant's employment with the Company terminates or the Participant's Earliest Retirement Date under the Qualified Plan and shall be paid under the normal form of benefit payment under the Qualified Plan; and (b) Post-Retirement Spouse Benefit. If the Participant dies after benefit payments have commenced, and he has an eligible Spouse, such Spouse will then receive monthly benefits equal to 60 percent of the Participant's benefit for the rest of the Spouse's lifetime. 4.4 Pre-retirement Spouse Benefit. Unless the terms of the Participant's Agreement provide to the contrary, if a Participant dies on or after the Effective Date, and satisfies the following conditions: (a) on the date of his death, he was legally married and had been so married to the same spouse for at least one year; and (b) on the date of his death, he was entitled to a benefit pursuant to Section 4.1; and (c) he had not begun to receive payments under this Supplemental Plan, his Spouse shall be eligible for a pre-retirement Spouse benefit under this Supplemental Plan. The Participant's surviving Spouse shall be entitled to receive monthly benefits beginning on the first of the month next following the Participant's death and continuing for the remainder of the Spouse's lifetime. The surviving Spouse's Pre-retirement Spouse Benefit shall be equal to the excess, if any, of: i) The monthly pension amount that would have been payable under the Qualified Plan to the surviving Spouse (as a 60 percent survivor annuity) determined based on the Participant's Compensation as defined under this Supplemental Plan and disregarding the Code Limitations and any reductions due to the Participant's deferral of compensation under any nonqualified deferred compensation plan of the Company (other than this Supplemental Plan); over ii) The actual monthly pension amount payable to the surviving Spouse under the Qualified Plan. 4.5 Documentation. Each person eligible for a benefit under the Supplemental Plan shall furnish the Corporation with such documents, evidence, data or information in support of such application as the Corporation considers necessary or desirable. SECTION 5. FINANCING 5.1 Financing of Benefits. Participants shall not be required or permitted to make any contribution under the Supplemental Plan. Benefits shall be payable, when due, by the Corporation, out of its current operating revenue to the extent not paid from a trust created pursuant to Section 5.2. The Corporation's obligation to make payments to the recipient when due shall be contractual in nature only, and participation in the Supplemental Plan will not create in favor of any Participant any right or lien against the assets of the Corporation. No benefits under the Supplemental Plan shall be required to be funded by a trust fund or insurance contracts or otherwise. Prior to benefits becoming due, the Corporation shall expense the calculated liabilities in accordance with policies determined appropriate by the Corporation and its auditors. 5.2 "Rabbi" Trust. In connection with this Plan, the Board shall establish a grantor trust (known as the "SCANA Corporation Executive Benefit Plan Trust") for the purpose of accumulating funds to satisfy the obligations incurred by the Corporation under this Plan (and such other plans and arrangements as determined from time to time by the Corporation). At any time prior to a Change in Control, as that term is defined in such Trust, the Corporation may transfer assets to the Trust to satisfy all or part of the obligations incurred by the Corporation under this Plan, as determined in the sole discretion of the Committee or its designee, subject to the return of such assets to the Corporation at such time as determined in accordance with the terms of such Trust. Any assets of such Trust shall remain at all times subject to the claims of creditors of the Corporation in the event of the Corporation's insolvency; and no asset or other funding medium used to pay benefits accrued under the Plan shall result in the Plan being considered as other than "unfunded" under ERISA. Notwithstanding the establishment of the Trust, the right of any Participant to receive future payments under the Plan shall remain an unsecured claim against the general assets of the Corporation. ECTION 6. GENERAL PROVISIONS 6.1 Employment/Participation Rights. (a) Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. (b) Nothing in the Plan shall be construed to be evidence of any agreement or understanding, express or implied, that the Company will continue to employ a Participant in any particular position or at any particular rate of remuneration. (c) No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. (d) Nothing in this Supplemental Plan shall affect the right of a recipient to participate in and receive benefits under and in accordance with any pension, profit-sharing, deferred compensation or other benefit plan or program of the Company. 6.2 Nonalienation of Benefits. (a) No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or change, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or change the same shall be void; nor shall any such disposition be compelled by operation of law, except as may be applicable in the circumstance of death of a Participant under South Carolina law. (b) No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to benefits under the Plan. (c) If any Participant or Beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or change any right or benefit hereunder, then such right or benefit shall, in the discretion of the Committee, cease, and the Committee shall direct in such event that the Corporation hold or apply the same or any part thereof for the benefit of the Participant or Beneficiary in such manner and in such proportion as the Committee may deem proper. 6.3 Severability. If any particular provision of the Supplemental Plan shall be found to be illegal or unenforceable for any reason, the illegality or lack of enforceability of such provision shall not affect the remaining provisions of the Supplemental Plan, and the Supplemental Plan shall be construed and enforced as if the illegal or unenforceable provision had not been included. 6.4 No Individual Liability. It is declared to be the express purpose and intention of the Supplemental Plan that no liability whatsoever shall attach to or be incurred by the shareholders, officers, or directors of the Corporation or any representative appointed hereunder by the Corporation, under or by reason of any of the terms or conditions of the Supplemental Plan. 6.5 Applicable Law. The Supplemental Plan shall be governed by and construed in accordance with the laws of the State of South Carolina except to the extent governed by applicable Federal law. SECTION 7. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION 7.1 In General. The Supplemental Plan shall be administered by the Committee, which shall have the sole authority to construe and interpret the terms and provisions of the Supplemental Plan and determine the amount, manner and time of payment of any benefits hereunder. The Committee shall maintain records, make the requisite calculations and disburse payments hereunder, and its interpretations, determinations, regulations and calculations shall be final and binding on all persons and parties concerned. The Committee may adopt such rules as it deems necessary, desirable or appropriate in administering the Supplemental Plan and the Committee may act at a meeting, in a writing without a meeting, or by having actions otherwise taken by a member of the Committee pursuant to a delegation of duties from the Committee. 7.2 Claims Procedure. Any person dissatisfied with the Committee's determination of a claim for benefits hereunder must file a written request for reconsideration with the Committee. This request must include a written explanation setting forth the specific reasons for such reconsideration. The Committee shall review its determination promptly and render a written decision with respect to the claim, setting forth the specific reasons for such denial written in a manner calculated to be understood by the claimant. Such claimant shall be given a reasonable time within which to comment, in writing, to the Committee with respect to such explanation. The Committee shall review its determination promptly and render a written decision with respect to the claim. Such decision upon matters within the scope of the authority of the Committee shall be conclusive, binding, and final upon all claimants under this Plan. 7.3 Finality of Determination. The determination of the Committee as to any disputed questions arising under this Plan, including questions of construction and interpretation, shall be final, binding, and conclusive upon all persons. 7.4 Delegation of Authority. The Committee may, in its discretion, delegate its duties to an officer or other employee of the Company, or to a committee composed of officers or employees of the Company. 7.5 Expenses. The cost of payment from this Plan and the expenses of administering the Supplemental Plan shall be borne by the Corporation. 7.6 Tax Withholding. The Corporation shall have the right to deduct from all payments made from the Supplemental Plan any federal, state, or local taxes required by law to be withheld with respect to such payments. 7.7 Incompetency. Any person receiving or claiming benefits under the Supplemental Plan shall be conclusively presumed to be mentally competent and of age until the Corporation receives written notice, in a form and manner acceptable to it, that such person is incompetent or a minor, and that a guardian, conservator, statutory committee under the South Carolina Code of Laws, or other person legally vested with the care of his estate has been appointed. In the event that the Corporation finds that any person to whom a benefit is payable under the Supplemental Plan is unable to properly care for his affairs, or is a minor, then any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Corporation to have incurred expense for the care of such person otherwise entitled to payment. In the event a guardian or conservator or statutory committee of the estate of any person receiving or claiming benefits under the Supplemental Plan shall be appointed by a court of competent jurisdiction, payments shall be made to such guardian or conservator or statutory committee provided that proper proof of appointment is furnished in a form and manner suitable to the Corporation. Any payment made under the provisions of this Section 7.7 shall be a complete discharge of liability therefor under the Supplemental Plan. 7.8 Action by Corporation. Any action required or permitted to be taken hereunder by the Corporation or its Board shall be taken by the Board, or by any person or persons authorized by the Board. 7.9 Notice of Address. Any payment made to a Participant or to his surviving Spouse at the last known post office address of the distributee on file with the Corporation, shall constitute a complete acquittance and discharge to the Corporation and any director or officer with respect thereto, unless the Corporation shall have received prior written notice of any change in the condition or status of the distributee. Neither the Corporation nor any director or officer shall have any duty or obligation to search for or ascertain the whereabouts of the Participant or his Spouse. 7.10 Amendment and Termination. The Corporation expects the Supplemental Plan to be permanent, but since future conditions affecting the Corporation cannot be anticipated or foreseen, the Corporation reserves the right to amend, modify, or terminate the Supplemental Plan at any time by action of its Board; provided, however, that if the Supplemental Plan is amended to discontinue or reduce the amount of Supplemental Plan benefit payments (except as may be required pursuant to any plan arising from insolvency or bankruptcy proceedings): (a) Participants who have retired under the Supplemental Plan or their surviving Spouses shall continue to be paid in the amount and manner (as provided under Section 4 hereof) as they were being paid at the time of the amendment or discontinuance of the Supplemental Plan, and (b) the accrued benefits under the Supplemental Plan of any future retirees shall not be reduced below the level accrued as of the date of amendment. If the Board amends the Supplemental Plan to cease future accruals hereunder or terminates the Supplemental Plan, the Board may, in its sole discretion, direct that the actuarial equivalent present value of each Participant's accrued benefits be paid to each Participant (or surviving Spouse, if applicable) in an immediate lump sum payment (with such Actuarial Equivalent present value being determined in the manner indicated in Section 4); in the absence of any such direction from the Board, the Supplemental Plan shall continue as a "frozen" plan under which no future accruals will be recognized and each Participant's benefits shall be paid in accordance with Section 4. SECTION 8. CHANGE IN CONTROL PROVISIONS 8.1 Accelerated Distributions Upon Change in Control. Notwithstanding anything in this Supplemental Plan to the contrary, and subject to the terms of any Agreement, upon the occurrence of a Change in Control where there has not been a termination of the SCANA Corporation Key Employee Severance Benefits Plan prior thereto, the Present Value of all amounts (or remaining amounts) owed under this Supplemental Plan and each underlying Agreement as of the date of such Change in Control (referred to as each Participant's "SERP Benefit") shall become immediately due and payable. All SERP Benefits payable under this Section 8.1 shall be paid to each Participant (and his or her Beneficiary) in the form of a single lump sum payment of the Actuarial Equivalent present value of all such amounts owed, together with an amount (the "Gross-Up Payment") such that the net amount retained by each Participant after deduction of any excise tax imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed) on such benefits (the "Excise Tax") and any Federal, state, and local income tax and Excise Tax upon the SERP Benefit and the Gross-Up Payment provided for by this Section 8 shall be equal to the Actuarial Equivalent present value of the Participant's SERP Benefit. Such payment shall be made by the Corporation (or to the extent assets are transferred to a "rabbi trust" for such purpose, by the trustee of such trust in accordance with the trust's terms) to the Participant (or his or her Beneficiary) as soon as practicable following the Change in Control, but in no event later than the date specified by the terms of the SCANA Corporation Executive Benefit Plan Trust. In all events, if the Key Employee Severance Benefits Plan was terminated prior to such Change in Control, then the provisions of this Section shall not apply and Participants' benefits shall be determined under the other applicable provisions of this Supplemental Plan and/or any Agreement. 8.2 Tax Computation. For purposes of determining the amount of the Gross-Up Payment referred to in Section 8.1, whether any of a Participant's SERP Benefit will be subject to the Excise Tax, and the amounts of such Excise Tax: (i) there shall be taken into account all other payments or benefits received or to be received by a Participant in connection with a Change in Control of the Corporation (whether pursuant to the terms of this Supplemental Plan or any other plan, arrangement, or agreement with the Corporation, any person whose actions result in a Change in Control of the Corporation or any person affiliated with the Corporation or such person); and (ii) the amount of any Gross-Up Payment payable with respect to any Participant (or his or her Beneficiary) by reason of such payment shall be determined in accordance with a customary "gross-up formula," as determined by the Committee it its sole discretion. 8.3 No Subsequent Recalculation of Tax Liability. The Gross-Up Payments described in the foregoing provisions of this Section 8 are intended and hereby deemed to be a reasonably accurate calculation of each Participant's actual income tax and Excise Tax liability under the circumstances (or such tax liability of his or her Beneficiary), the payment of which is to be made by the Corporation or any "rabbi trust" established by the Corporation for such purposes. All such calculations of tax liability shall not be subject to subsequent recalculation or adjustment in either an underpayment or overpayment context with respect to the actual tax liability of the Participant (or his or her Beneficiary) ultimately determined as owed. 8.4 Successors. Notwithstanding anything in this Supplemental Plan to the contrary, and subject to the terms of an Agreement, upon the occurrence of a Change in Control, and only if the SCANA Corporation Key Employee Severance Benefits Plan ("KESBP") was terminated prior to such Change in Control, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to perform this Supplemental Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place, subject to the remaining provisions of this Section 8.4. In the event of such a Change in Control where the KESBP is terminated, Participants shall become entitled to benefits hereunder in accordance with the terms of this Supplemental Plan, and/or any Agreement, based on benefits earned to the date of such Change in Control, with no requirement for a successor to provide for accruals of benefits beyond the date of such Change in Control. In addition, and notwithstanding Section 8.5 to the contrary, if there is a Change in Control and the KESBP is terminated prior to such Change in Control, a successor to the Company may amend this Supplemental Plan to provide for an automatic lump sum distribution of the Actuarial Equivalent of Participants' benefits hereunder without such amendment being treated as an amendment reducing any benefits earned. 8.5 Amendment and Termination After Change in Control. Notwithstanding the foregoing, and subject to Section 8, no amendment, modification or termination of the Supplemental Plan may be made, and no Participants may be added to the Supplemental Plan, upon or following a Change in Control if it would have the effect of reducing any benefits earned (including optional forms of distribution) prior to such Change in Control without the written consent of all of the Supplemental Plan's Participants covered by the Supplemental Plan at such time. In all events, however, the Corporation reserves the right to amend, modify or delete the provisions of this Section 8 at any time prior to a Change in Control, pursuant to a Board resolution adopted by a vote of two-thirds (2/3) of the Board members then serving on the Board. IN WITNESS WHEREOF, SCANA Corporation has caused this instrument to be executed by its duly authorized officers and its corporate seal to be hereunto affixed, this _____ day of __________, 1997, effective as of October 21, 1997. SCANA CORPORATION By: ________________________ Title: ______________________ ATTEST: By: __________________________ Secretary EX-10 4 EXHIBIT 10-06 Exhibit 10.06 SCANA CORPORATION SUPPLEMENTARY KEY EXECUTIVE SEVERANCE BENEFITS PLAN effective as of December 17, 1997 SCANA CORPORATION SUPPLEMENTARY KEY EXECUTIVE SEVERANCE BENEFITS PLAN TABLE OF CONTENTS SECTION 1. ESTABLISHMENT AND PURPOSE............................... 1 1.1 Establishment of the Plan......................... 1 1.2 Description of the Plan........................... 1 1.3 Purpose of the Plan............................... 1 SECTION 2. DEFINITIONS............................................. 2 2.1 Definitions....................................... 2 2.2 Gender and Number................................. 7 SECTION 3. ELIGIBILITY AND PARTICIPATION.......................... 8 3.1 Eligibility....................................... 8 3.2 Termination of Participation...................... 8 SECTION 4. BENEFITS............................................... 9 4.1 Right to SKESBP Benefits.......................... 9 4.2 Qualifying Termination............................ 9 4.3 Description of SKESBP Benefits.................... 9 4.4 Termination for Total and Permanent Disability.... 11 4.5 Termination for Retirement or Death............... 11 4.6 Termination for Cause or by Participant Other Than for Good Reason 11 4.7 Notice of Termination............................. 11 4.8 Participant's Obligations......................... 12 4.9 Termination for Just Cause........................ 12 4.10 Form and Timing of SKESBP Benefits................ 12 4.11 Tax Indemnity or "Gross-Up Payment.".............. 12 4.12 Tax Computation................................... 12 4.13 Subsequent Recalculation of Plan Liability........ 13 4.14 Benefits Under Other Plans........................ 13 SECTION 5. BENEFICIARY DESIGNATION................................. 14 5.1 Designation of Beneficiary........................ 14 5.2 Death of Beneficiary.............................. 14 5.3 Ineffective Designation........................... 14 SECTION 6. GENERAL PROVISIONS...................................... 16 6.1 Contractual Obligation............................ 16 6.2 Unsecured Interest................................ 16 6.3 "Rabbi" Trust..................................... 16 6.4 Successors........................................ 16 6.5 Employment/Participation Rights................... 17 6.6 Nonalienation of Benefits......................... 17 6.7 Severability...................................... 18 6.8 No Individual Liability........................... 18 6.9 Applicable Law.................................... 18 6.10 Legal Fees and Expenses........................... 18 6.11 Arbitration....................................... 18 SECTION 7. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION.......... 19 7.1 In General........................................ 19 7.2 Claims Procedure.................................. 19 7.3 Finality of Determination......................... 19 7.4 Delegation of Authority........................... 19 7.5 Expenses.......................................... 19 7.6 Tax Withholding................................... 19 7.7 Incompetency...................................... 19 7.8 Action by Corporation............................. 20 7.9 Notice of Address................................. 20 7.10 Amendment and Termination......................... 20 SECTION 8. EXECUTION................................................22 SCANA CORPORATION SUPPLEMENTARY KEY EXECUTIVE SEVERANCE BENEFITS PLAN SECTION 1. ESTABLISHMENT AND PURPOSE 1.1 Establishment of the Plan. SCANA Corporation, a South Carolina corporation, hereby establishes a severance plan to be known as the "SCANA Corporation Supplementary Key Executive Severance Benefits Plan" (hereinafter referred to as the "SKESB" or "Plan"), as set forth in this document. The Plan is hereby adopted as of December 17, 1997. 1.2 Description of the Plan. This Plan is intended to constitute a severance benefits plan which is unfunded and established primarily for the purpose of providing severance benefits for a select group of management or highly compensated employees. 1.3 Purpose of the Plan. The purpose of this Plan is to advance the interests of the Company by providing highly qualified Company executives and other key personnel with an assurance of equitable treatment in terms of compensation and economic security and to induce continued employment with the Company in the event of certain spin-offs, divestitures, or an acquisition or other Change in Control. The Corporation believes that an assurance of equitable treatment will enable valued executives and key personnel to maintain productivity and focus during a period of significant uncertainty inherent in such situations and that a severance compensation plan of this kind will aid the Company in attracting and retaining the highly qualified professionals who are essential to its success. SECTION 2. DEFINITIONS 2.1 Definitions. Whenever used herein, the following terms shall have the meanings set forth below, unless otherwise expressly provided herein or unless a different meaning is plainly required by the context, and when the defined meaning is intended, the term is capitalized: (a) "Base Salary" means the base rate of compensation payable to a Participant as annual salary, not reduced by any pre-tax deferrals under any tax-qualified plan, non-qualified deferred compensation plan, or cafeteria plan (under Section 125 of the Code) maintained by the Company, but excluding amounts received or receivable under all incentive or other bonus plans. (b) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (c) "Beneficiary" means any person or entity who, upon the Participant's death, is entitled to receive the Participant's benefits under the Plan in accordance with Section 5 hereof. (d) "Board" means the Board of Directors of SCANA Corporation. (e) "Change in Control" means a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is then subject to such reporting requirements; provided that, without limitation, such a Change in Control shall be deemed to have occurred if: i) Any Person is or becomes the Beneficial Owner, directly or indirectly, of twenty five percent (25%) or more of the combined voting power of the outstanding shares of capital stock of the Corporation; ii) During any period of two (2) consecutive years (not including any period prior to December 18, 1996) there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board and any new director(s) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; iii) The issuance of an Order by the Securities and Exchange Commission (SEC), under Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as amended (the "1935 Act"), authorizing a third party to acquire five percent (5%) or more of the Corporation's voting shares of capital stock; iv) The shareholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting shares of capital stock of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting shares of capital stock of the surviving entity) at least eighty percent (80%) of the combined voting power of the voting shares of capital stock of the Corporation or such surviving entity outstanding immediately after such merger or consolidation; or the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets; or v) The shareholders of the Corporation approve a plan of complete liquidation, or the sale or disposition of South Carolina Electric & Gas Company (hereinafter SCE&G), South Carolina Pipeline Corporation, or any subsidiary of the Corporation designated by the Board of Directors of SCANA as a "Material Subsidiary," but such event shall represent a Change in Control only with respect to a Participant who has been exclusively assigned to SCE&G, South Carolina Pipeline Corporation, or the affected Material Subsidiary. (f) "Code" means the Internal Revenue Code of 1986, as amended. (g) "Committee" means the Management Development and Corporate Performance Committee of the Board. (h) "Company" means the Corporation and any subsidiaries of the Corporation and their successor(s) or assign(s) that adopt this Plan through execution of agreements with any of their Employees or otherwise. (i) "Corporation" means SCANA Corporation, a South Carolina corporation, or any successor thereto. (j) "Effective Date of Termination" means the date on which a Qualifying Termination occurs which triggers SKESBP Benefits hereunder. (k) "Eligible Employee" means an Employee who is employed by the Company in a high-level management or administrative position, including employees who also serve as officers of the Company, as determined under the SCANA Corporation Key Executive Severance Benefits Plan. (l) "Employee" means a person who is actively employed by the Company and who falls under the usual common law rules applicable in determining the employer-employee relationship. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Good Reason" means, without the Participant's written consent, the occurrence after a Change in Control of the Company of any one or more of the following: (i) The assignment of a Participant to duties inconsistent with his/her duties, responsibilities, and status as an officer of the Company or reduction or alteration in the nature or status of his/her responsibilities from those in effect as of ninety (90) days prior to the effective date of the Change in Control. A record, called "Exhibit A (of the KESB)," of each Plan Participant's responsibilities, duties, and status as an officer shall be maintained as a point of reference for the purpose of identifying changes in these responsibilities, duties and status as an officer that would constitute "Good Reason;" (ii) A reduction by the Company in a Participant's Base Salary as in effect 30 days prior to the identification of a Potential Change in Control; (iii) The Company's requiring a Participant to be based at a location in excess of twenty-five (25) miles from the location where a Participant is based as of the Effective Date of this Plan; (iv) The failure of the Company to continue in effect any annual or long-term incentive program for officers which is in effect as of the effective date of the Change in Control, or any of the Company's employee benefit plans, policies, practices, or arrangements in which the Participant participates, unless similar plans of equal value are established in their place, or the failure by the Company to continue the Participant's participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Participant's participation relative to other participants, as existed as of the date of the Change in Control; (v) The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Plan, as contemplated in Section 6.3 herein; and (vi) Any purported termination by the Company of the Participant's employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 4.7 herein, and for purposes of this Plan, no such purported termination shall be effective. A Participant's right to terminate his/her employment for Good Reason shall not be affected by his/her incapacity due to physical or mental illness. A Participant's continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein. (o) "Just Cause" means any one or more of the following: (i) Willful and continued failure by a Participant to substantially perform his/her duties with the Company (other than any such failure resulting from a Qualifying Termination), after a demand for substantial performance is delivered to the Participant that specifically identifies the manner in which the Company believes that the Participant has not substantially performed his/her duties, and the Participant has failed to resume substantial performance of his/her duties on a continuous basis within fourteen (14) days of receiving such demand; (ii) The willful engaging by a Participant in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise; or (iii) A Participant's conviction of a felony or conviction of a misdemeanor which impairs his/her ability substantially to perform his/her duties with the Company. For purposes of this Section 2.1(o), no act, or failure to act, on a Participant's part shall be deemed "willful" unless done, or omitted to be done, by a Participant not in good faith and without reasonable belief that the Participant's action or omission was in the best interest of the Company. (p) "Material Subsidiary" means any subsidiary of SCANA designated by the SCANA Board of Directors as a Material Subsidiary for purposes of Section 2.1(e)(v). (q) "Participant" means an individual satisfying the eligibility requirements of Section 3. (r) "Person" means any individual as defined in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (s) "Plan" means the SCANA Corporation Supplementary Key Employee Severance Benefits Plan, as herein described. (t) "Potential Change in Control" means and includes the event of any one or more of the following occurrences: i) The Corporation enters into an agreement, the consummation of which would result in the occurrence of a Change in Control of the Corporation; ii) Any person including the Corporation publicly announces an intention to take or to consider taking actions which if consummated, would constitute a Change of Control of the Corporation; iii) Any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Corporation (or corporation owned, directly or indirectly, by the stockholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation), becomes the beneficial owner (as defined in Rule 13d-3 of the General Rules and Regulations of the Exchange Act), directly or indirectly, of securities of the Corporation representing eight and one-half percent (8.5%) or more of the combined voting power of the Corporation's then outstanding securities; iv) The filing of an application by a third party with the SEC under Section 9(a)(2) of the Public Utility Holding Company Act of 1935, as amended, for authorization to acquire shares so as to hold, own or control, directly or indirectly, five percent (5%) or more of the voting stock of the Corporation; or v) The Board adopts a resolution to the effect that for purposes of the SCANA Corporation Executive Benefit Plan Trust and affected plans, a Potential Change in Control has occurred. (u) "Qualifying Termination" means any of the events described in Section 4.2 herein, the occurrence of which triggers the payment of SKESBP Benefits hereunder. (v) "Retirement" means the Retirement of a Participant at the "normal retirement age," as defined in the Company's Tax Qualified Retirement Plan, as of the Effective Date, or in accordance with any Retirement arrangement established with the Participant's consent with respect to the Participant. (w) "SKESBP Benefit" means the benefits as provided in Section 4.3 herein. (x) "Total and Permanent Disability" means a physical or mental condition which: (i) Renders a Participant unable to discharge his/her normal work responsibility with the Company and which, in the opinion of a licensed physician selected by the Participant, based upon significant medical evidence, can be reasonably expected to continue for a period of at least one (1) year; or (ii) Causes a Participant to be absent from the full-time performance of his/her duties with the Company for six (6) consecutive months and, within thirty (30) days after the Company delivers to the Participant written notice of termination, the Participant does not return to the full-time performance of his/her duties. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology used herein also shall include the feminine and the feminine shall include the masculine, and the use of any term herein in the singular may also include the plural and the plural shall include the singular. SECTION 3. ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. An Eligible Employee who is a Participant for purposes of the SCANA Corporation Key Employee Severance Benefits Plan shall be a Participant automatically for purposes of this Plan. 3.2 Termination of Participation. A Participant in this Plan under subsection 3.1 above shall remain covered hereunder until the date upon which his employment terminates for any reason and, thereafter, so long as any benefits are payable from this Plan. SECTION 4. BENEFITS 4.1 Right to SKESBP Benefits. A Participant shall be entitled to receive from the Company SKESBP Benefits as described in Section 4 herein, if there has been a Change in Control of the Company and if, within twenty-four (24) calendar months thereafter, the Participant's employment with the Company shall end for any reason specified in Section 4.2 herein as being a Qualifying Termination. 4.2 Qualifying Termination. Subject to the terms of this Plan, the occurrence of any one (1) of the following events within twenty-four (24) calendar months after a Change in Control of the Company shall trigger the payment of SKESBP Benefits under this Plan: (a) An involuntary termination of a Participant's employment with the Company without Just Cause; or (b) A voluntary termination of a Participant's employment with the Company for Good Reason. A termination of a Participant's employment with the Company by reason of death, Total and Permanent Disability, Retirement, a voluntary termination by the Participant without Good Reason, or an involuntary termination by the Company for Just Cause shall not entitle a Participant to receive SKESBP Benefits hereunder. In the event a successor company fails or refuses to assume the Company's obligations under this Plan on or before the effective date of a Change in Control, as required by Section 6.4 herein, or in the event the Company or a successor company breaches any provision of this Plan, each Participant shall be paid the SKESBP Benefits described herein, as if a qualifying employment termination had occurred on the effective date of the Change in Control. Notwithstanding the above, a Participant shall not be considered to have terminated his/her employment solely by reason of his/her transfer to a corporation whose stock was acquired from the Company in a transaction intended to qualify for tax-free treatment under Section 355 of the Code. 4.3 Description of SKESBP Benefits. If a Participant becomes entitled to receive SKESBP Benefits, the Company shall pay to such Participant and provide him/her with the following benefits, as determined by the Committee (or, for purposes of this Section 4, its designee) subject to the tax "gross-up" payment described in Section 4.11 and Section 4.12 and the reduction for benefits described in Section 4.3(i): (a) An amount equal to three (3) times the sum of: (1) the Participant's annual Base Salary in effect as of the Change in Control, and (2) the greater of the Participant's full targeted annual incentive opportunity in effect as of the Change in Control or the Participant's average actual bonus received during the prior three years; (b) An amount equal to the Participant's full targeted annual incentive opportunity in effect under each existing annual incentive plan or program for the year in which the Change in Control occurs; (c) An amount equal to a payout of the Participant's long-term incentive opportunities at the full targeted award level in effect under each existing long-term incentive plan or program with respect to all performance periods which are not completed as of the Change in Control; (d) An amount equal to the present lump sum value (determined using a reasonable interest rate determined by the Committee or its designee) of the actuarial equivalent of the Participant's accrued benefit under the SCANA Corporation Retirement Plan and any supplemental retirement arrangement applicable to the Participant (other than the SCANA Corporation Key Employee Retention Plan) through the date of the Change in Control, calculated with three additional years of compensation at the participant's rate then in effect (in each case to the extent applicable to calculating the Participant's benefit): (i) as though the Participant had attained age 65 and completed 35 years of benefit service as of the date of the Change in Control; and (ii) without regard to any early retirement or other actuarial reductions otherwise provided in any such plan, which benefit shall be offset by the actuarial equivalent of the Participant's benefit provided by the SCANA Corporation Retirement Plan. For purposes of calculating the foregoing benefits, "actuarial equivalent" shall be determined using the same methods and assumptions in effect under the SCANA Corporation Retirement Plan Plan, or any applicable individual Participant agreement, immediately prior to the Change in Control. (e) An amount equal to the present lump sum value (determined based on the Participant's age as of the Change in Control and based on a reasonable interest rate assumption, determined by the Committee or its designee) of the actuarial equivalent of the Participant's accrued benefit through the Change in Control under the Company's Key Employee Retention Plan which amount shall be calculated as if the Participant's Compensation Base under such plan was equal to the amount determined after applying cost-of-living increases (as determined by the Committee or its designee) to the Participant's annual base salary from the date of the Change in Control until the earlier of the date the Participant would reach age 65 or the date the Participant would have otherwise completed 35 years of service with the Company had he remained continuously employed on and after the Change in Control. For purposes of calculating the foregoing benefits, "actuarial equivalent" shall be determined using the same methods and assumptions in effect under the SCANA Corporation Key Employee Retention Plan, immediately prior to the Change in Control; (f) An amount equal to the value of the amounts credited to each Participant's Deferred Compensation Account under the SCANA Corporation Voluntary Deferral Plan as of the date of such Change in Control plus accumulated Growth Increments, as defined in such Plan, attributable thereto, adjusted to reflect any change from the most recent Growth Increment calculation to the end of the month prior to the month such amounts are distributed to each Participant. (g) An amount equal to the value of the amounts credited to each Participant's SVDP Ledger under the SCANA Corporation Supplementary Voluntary Deferral Plan as of the date of such Change in Control plus interest on such amounts at the prime interest rate charged from time to time by the Wachovia Bank of South Carolina, N.A. to the end of the month prior to the month such amounts are distributed to each Participant. (h) A single sum amount equal to the total cost of coverage for medical coverage, long-term disability coverage, and LifePlus coverage, as determined in the discretion of the Committee, so as to provide substantially the same level of coverage and benefits enjoyed as if the Participant continued to be an employee of the Company for three (3) full years after the Change in Control; and (i) Notwithstanding the above, the amount payable to each Participant under this Plan shall be reduced (but not below zero) by all amounts received by such Participant, if any, under the SCANA Corporation Key Executive Severance Benefits Plan. 4.4 Termination for Total and Permanent Disability. Following a Change in Control of the Company, if a Participant's employment is terminated due to Total and Permanent Disability, the Participant shall receive his/her Base Salary, through the Effective Date of Termination, at which point in time the Participant's benefits shall be determined in accordance with the Company's retirement, insurance, and other applicable plans and programs then in effect. 4.5 Termination for Retirement or Death. Following a Change in Control of the Company, if a Participant's employment is terminated by reason of his/her Retirement or by reason of his/her death, the Participant's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable programs of the Company then in effect. 4.6 Termination for Cause or by Participant Other Than for Good Reason. Following a Change in Control of the Company, if a Participant's employment is terminated either (i) by the Company for Just Cause; or (ii) by the Participant other than for Good Reason, the Company shall pay the Participant his/her full Base Salary and accrued vacation through the Effective Date of Termination, at the rate then in effect, plus all other amounts to which the Participant is entitled under any compensation plan of the Company, at the time such payments are due, and the Company shall have no further obligations to the Participant under this Plan. 4.7 Notice of Termination. Any Qualifying Termination (or upon a Change in Control described in Section 2.1(e) shall be communicated by Notice of Termination from the party initiating the termination to the other party. For purposes of this Plan, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Plan relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Participant's employment under the provision so indicated, so as to entitle the Participant to benefits. 4.8 Participant's Obligations. Subject to the terms and conditions of this Plan, in the event of a Potential Change in Control of the Company, each Participant is required to remain with the Company until the earliest of (i) a date which is six (6) months after the occurrence of such Potential Change in Control of the Company; or (ii) a termination by a Participant of the Participant's employment by reason of Total and Permanent Disability or Retirement; or (iii) the occurrence of a Change in Control of the Company. 4.9 Termination for Just Cause. Nothing in this Plan shall be construed to prevent the Company from terminating a Participant's employment for Just Cause. In such case, no Severance Benefits shall be payable to the Participant under this Plan. 4.10 Form and Timing of SKESBP Benefits. The SKESBP Benefits described in Section 4.3, together with the payments described in Section 4.11 and Section 4.12 shall be paid in cash to a qualifying Participant in a single lump sum as soon as practicable following the Effective Date of Termination, but in no event beyond thirty (30) days from such date. 4.11 Tax Indemnity or "Gross-Up Payment". Notwithstanding anything in this Plan to the contrary, the benefits described in Section 4.3 (referred to as each Participant's "SKESBP Benefit") shall be paid to each Participant (and his or her Beneficiary) in the form of a single lump sum cash payment, together with an amount (the "Gross-Up Payment") such that the net amount retained by each Participant after deduction of any excise tax imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed) on such benefits (the "Excise Tax") and any Federal, state, and local income tax and Excise Tax upon the SKESBP Benefit and the Gross-Up Payment provided for by this Section 4.11 shall be equal to the value of the Participant's SKESBP Benefit. 4.12 Tax Computation. For purposes of determining the amount of the Gross-Up Payment referred to in Section 4.11, whether any of a Participant's SKESBP Benefit will be subject to the Excise Tax, and the amounts of such Excise Tax: (i) there shall be taken into account all other payments or benefits received or to be received by a Participant in connection with a Change in Control of the Corporation (whether pursuant to the terms of this Plan or any other plan, arrangement, or agreement with the Corporation, any person whose actions result in a Change in Control of the Corporation or any person affiliated with the Corporation or such person); and (ii) the amount of any Gross-Up Payment payable with respect to any Participant (or his or her Beneficiary) by reason of such payment shall be determined in accordance with a customary "gross-up formula," as determined by the Committee it its sole discretion. 4.13 No Subsequent Recalculation of Plan Liability. The Gross-Up Payments described in Sections 4.11 and 4.12 are intended and hereby deemed to be a reasonably accurate calculation of each Participant's actual income tax and Excise Tax liability under the circumstances (or such tax liability of his or her Beneficiary), the payment of which is to be made by the Corporation or any "rabbi trust" established by the Corporation for such purposes. All such calculations of tax liability shall not be subject to subsequent recalculation or adjustment in either an underpayment or overpayment context with respect to the actual tax liability of the Participant (or his or her Beneficiary) ultimately determined as owed. 4.14 Benefits Under Other Plans. Any other amounts due the Participant or his or her Beneficiary under the terms of any other Company plans or programs are in addition to the payments under this Plan. SECTION 5. BENEFICIARY DESIGNATION 5.1 Designation of Beneficiary. (a) A beneficiary who is a Beneficiary for purposes of the SCANA Corporation Key Employee Severance Benefit Plan shall be a Beneficiary automatically for purposes of this Plan. (b) The Secretary of SCANA Corporation (or his authorized designee) shall, upon receipt of the Beneficiary designation: (i) ascertain that the designation has been signed, and if it has not been, return it to the Participant for his signature; (ii) if signed, stamp the designation "Received", indicate the date of receipt, and initial the designation in the proximity of the stamp. 5.2 Death of Beneficiary. (a) In the event that all of the Beneficiaries named in Section 5.1 predecease the Participant, the amounts that otherwise would have been paid to said Beneficiaries shall, where the designation fails to redirect to alternate Beneficiaries in such circumstance, be paid to the Participant's estate as the alternate Beneficiary. (b) In the event that two or more Beneficiaries are named, and one or more but less than all of such Beneficiaries predecease the Participant, each surviving Beneficiary shall receive any dollar amount or proportion of funds designated or indicated for him per the designation of Section 5.1, and the dollar amount or designated or indicated share of each predeceased Beneficiary which the designation fails to redirect to an alternate Beneficiary in such circumstance shall be paid to the Participant's estate as an alternate Beneficiary. 5.3 Ineffective Designation. (a) In the event the Participant does not designate a Beneficiary, or if for any reason such designation is entirely ineffective, the amounts that otherwise would have been paid to the Beneficiary shall be paid to the Participant's estate as the alternate Beneficiary. (b) In the circumstance that designations are effective in part and ineffective in part, to the extent that a designation is effective, distribution shall be made so as to carry out as closely as discernable the intent of the Participant, with result that only to the extent that a designation is ineffective shall distribution instead be made to the Participant's estate as an alternate Beneficiary. SECTION 6. GENERAL PROVISIONS 6.1 Contractual Obligation. It is intended that the Corporation is under a contractual obligation to make payments from a Participant's account when due. Payment of account balances shall be made out of the general funds of the Corporation as determined by the Board without any restriction of the assets of the Corporation relative to the payment of such contractual obligations; the Plan is, and shall operate as, an unfunded plan. 6.2 Unsecured Interest. No Participant or Beneficiary shall have any interest whatsoever in any specific asset of the Corporation. To the extent that any person acquires a right to receive payment under this Plan, such right shall be no greater than the right of any unsecured general creditor of the Corporation. 6.3 "Rabbi" Trust. In connection with this Plan, the Board shall establish a grantor trust (known as the "SCANA Corporation Executive Benefit Plan Trust") for the purpose of accumulating funds to satisfy the obligations incurred by the Corporation under this Plan (and such other plans and arrangements as determined from time to time by the Corporation). At any time prior to a Change in Control, as that term is defined in such Trust, the Corporation may transfer assets to the Trust to satisfy all or part of the obligations incurred by the Corporation under this Plan, as determined in the sole discretion of the Committee, subject to the return of such assets to the Corporation at such time as determined in accordance with the terms of such Trust. Any assets of such Trust shall remain at all times subject to the claims of creditors of the Corporation in the event of the Corporation's insolvency; and no asset or other funding medium used to pay benefits accrued under the Plan shall result in the Plan being considered as other than "unfunded" under ERISA. Notwithstanding the establishment of the Trust, the right of any Participant to receive future payments under the Plan shall remain an unsecured claim against the general assets of the Corporation. 6.4 Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to perform this Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Plan and shall entitle each Participant to compensation from the Company in the same amount and on the same terms as they would be entitled hereunder if terminated voluntarily for Good Reason, except for the purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Effective Date of Termination. 6.5 Employment/Participation Rights. (a) Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company. (b) Nothing in the Plan shall be construed to be evidence of any agreement or understanding, express or implied, that the Company will continue to employ a Participant in any particular position or at any particular rate of remuneration. (c) No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. (d) Nothing in this Plan shall affect the right of a recipient to participate in and receive benefits under and in accordance with any pension, profit-sharing, deferred compensation or other benefit plan or program of the Corporation. (e) Participation in this Plan shall constitute the entire agreement between the Company and each Participant and shall supersede those provisions of any employment agreement with the Company affecting a Participant's rights to receive benefits as a result of his/her termination of employment within twenty-four (24) months following a Change in Control of the Company. In all other respects, any employment agreement shall continue in full force and effect. 6.6 Nonalienation of Benefits. (a) No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance, or change, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or change the same shall be void; nor shall any such disposition be compelled by operation of law. (b) No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities, or torts of the person entitled to benefits under the Plan. (c) If any Participant or Beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber, or change any right or benefit hereunder, then such right or benefit shall, in the discretion of the Committee, cease, and the Committee shall direct in such event that the Corporation hold or apply the same or any part thereof for the benefit of the Participant or Beneficiary in such manner and in such proportion as the Committee may deem proper. 6.7 Severability. If any particular provision of the Plan shall be found to be illegal or unenforceable for any reason, the illegality or lack of enforceability of such provision shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or unenforceable provision had not been included. 6.8 No Individual Liability. It is declared to be the express purpose and intention of the Plan that no liability whatsoever shall attach to or be incurred by the shareholders, officers, or directors of the Corporation or any representative appointed hereunder by the Corporation, under or by reason of any of the terms or conditions of the Plan. 6.9 Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of South Carolina except to the extent governed by applicable federal law. 6.10 Legal Fees and Expenses. The Company shall pay all legal fees, costs of litigation, and other expenses incurred in good faith by each Participant as a result of the Company's refusal to provide the SKESBP Benefits to which the Participant becomes entitled under this Plan, or as a result of the Company's contesting the validity, enforceability, or interpretation of the Plan. 6.11 Arbitration. Each Participant shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with the Plan settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Participant within fifty (50) miles from the location of his or her job, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the award of the arbitrator in any court having jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Participant, shall be borne by the Company. SECTION 7. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION 7.1 In General. This Plan shall be administered by the Committee, which shall have the sole authority to construe and interpret the terms and provisions of the Plan and determine the amount, manner and time of payment of any benefits hereunder. The Committee shall maintain records, make the requisite calculations and disburse payments hereunder, and its interpretations, determinations, regulations and calculations shall be final and binding on all persons and parties concerned. The Committee may adopt such rules as it deems necessary, desirable or appropriate in administering this Plan and the Committee may act at a meeting, in a writing without a meeting, or by having actions otherwise taken by a member of the Committee pursuant to a delegation of duties from the Committee. 7.2 Claims Procedure. Any person dissatisfied with the Committee's determination of a claim for benefits hereunder must file a written request for reconsideration with the Committee. This request must include a written explanation setting forth the specific reasons for such reconsideration. The Committee shall review its determination promptly and render a written decision with respect to the claim, setting forth the specific reasons for such denial written in a manner calculated to be understood by the claimant. Such claimant shall be given a reasonable time within which to comment, in writing, to the Committee with respect to such explanation. The Committee shall review its determination promptly and render a written decision with respect to the claim. Such decision upon matters within the scope of the authority of the Committee shall be conclusive, binding, and final upon all claimants under this Plan. 7.3 Finality of Determination. The determination of the Committee as to any disputed questions arising under this Plan, including questions of construction and interpretation, shall be final, binding, and conclusive upon all persons. 7.4 Delegation of Authority. The Committee may, in its discretion, delegate its duties to an officer or other employee of the Company, or to a committee composed of officers or employees of the Company. 7.5 Expenses. The cost of payment from this Plan and the expenses of administering the Plan shall be borne by the Corporation. 7.6 Tax Withholding. The Corporation shall have the right to deduct from all payments made from the Plan any federal, state, or local taxes required by law to be withheld with respect to such payments. 7.7 Incompetency. Any person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent and of age until the Company receives written notice, in a form and manner acceptable to it, that such person is incompetent or a minor, and that a guardian, conservator, statutory committee under the South Carolina Code of Laws, or other person legally vested with the care of his estate has been appointed. In the event that the Company finds that any person to whom a benefit is payable under the Plan is unable to properly care for his affairs, or is a minor, then any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Company to have incurred expense for the care of such person otherwise entitled to payment. In the event a guardian or conservator or statutory committee of the estate of any person receiving or claiming benefits under the Plan shall be appointed by a court of competent jurisdiction, payments shall be made to such guardian or conservator or statutory committee provided that proper proof of appointment is furnished in a form and manner suitable to the Company. Any payment made under the provisions of this Section 7.7 shall be a complete discharge of liability therefor under the Plan. 7.8 Action by Corporation. Any action required or permitted to be taken hereunder by the Corporation or its Board shall be taken by the Board, or by any person or persons authorized by the Board. 7.9 Notice of Address. Any payment made to a Participant or to his Beneficiary at the last known post office address of the distributee on file with the Corporation, shall constitute a complete acquittance and discharge to the Corporation and any director or officer with respect thereto, unless the Corporation shall have received prior written notice of any change in the condition or status of the distributee. Neither the Corporation nor any director or officer shall have any duty or obligation to search for or ascertain the whereabouts of the Participant or his Beneficiary. 7.10 Amendment and Termination. The Corporation expects the Plan to be permanent, but since future conditions affecting the Corporation cannot be anticipated or foreseen, the Corporation reserves the right to amend, modify, or terminate the Plan at any time by action of its Board at any time prior to a Change in Control, pursuant to a Board resolution adopted by a vote of two-thirds (2/3) of the Board members then serving on the Board. Upon any such amendment, and except as provided hereunder upon the occurrence of a Change in Control, each Participant and his Beneficiary(ies) shall only be entitled to such benefits as determined by the Board pursuant to such amendment. Upon any such termination, and except as provided hereunder upon the occurrence of a Change in Control, no Participant or Beneficiary(ies) shall be entitled to any further benefits hereunder, unless determined otherwise by the Board, in its sole discretion. Notwithstanding the foregoing, no amendment, modification or termination of the Plan may be made, and no Participants may be added to the Plan, upon or following a Change in Control without the express written consent of all of the Plan's Participants covered by the Plan at such time. Notwithstanding the above, however, in the event a Change in Control occurs during the term of the Plan, this Plan will remain in effect until all benefits have been paid to all Participants existing at the time of the Change in Control. SECTION 8. EXECUTION IN WITNESS WHEREOF, the Company has caused this SCANA Corporation Supplementary Key Executive Severance Benefits Plan to be executed by its duly authorized officer this ______ day of __________________________, 199___, to be effective as of December 17, 1997. SCANA Corporation By:________________________________ Title:_______________________________ ATTEST: - ------------------------------------ Secretary EX-10 5 EXHIBIT 10-07 Exhibit 10.07 SCANA CORPORATION PERFORMANCE SHARE PLAN (As Amended and Restated Effective January 1, 1998) 192 SCANA CORPORATION PERFORMANCE SHARE PLAN TABLE OF CONTENTS SECTION 1. PURPOSE AND EFFECTIVE DATE.........................................1 1.1 Purpose of the Plan..........................................1 1.2 Effective Date of the Plan...................................1 SECTION 2. DEFINITIONS........................................................3 2.1 Definitions..................................................3 2.2 Gender and Number............................................4 SECTION 3. ELIGIBILITY AND PARTICIPATION......................................5 3.1 Eligibility..................................................5 3.2 Participation................................................5 SECTION 4. HOW THE PLAN WORKS.................................................6 4.1 Overview.....................................................6 4.2 Performance Periods and Cycles...............................6 4.3 Target Awards and Target Shares..............................6 4.4 Performance Criteria and Measurement.........................6 4.5 New Performance Award Periods................................7 SECTION 5. AWARD DETERMINATION................................................8 5.1 Preliminary Determination....................................8 5.2 Final Determination..........................................8 5.3 Dividends....................................................9 SECTION 6. FORM AND TIMING OF PAYMENT........................................10 6.1 Form and Timing of Payment..................................10 6.2 Committee Certification.....................................10 6.3 Performance Award Tax Consequences..........................10 6.4 Number of Corporation's Shares that may be Distributed......10 6.5 Recapitalization............................................10 SECTION 7. TERMINATION OF EMPLOYMENT.........................................12 7.1 General Rule................................................12 7.2 Termination of Employment for Reasons Other Than Death, Disability or Retirement............... 12 SECTION 8. BENEFICIARY DESIGNATION..........................................13 8.1 Designation of Beneficiary.................................13 8.2 Death of Beneficiary.......................................13 8.3 Ineffective Designation....................................14 SECTION 9. CHANGE IN CONTROL DISTRIBUTIONS..................................15 9.1 Accelerated Distributions Upon Change in Control...........15 9.2 Tax Computation............................................15 9.3 No Subsequent Recalculation of Tax Liability...............15 SECTION 10. GENERAL PROVISIONS..............................................16 10.1 Employment/Participation Rights............................16 10.2 Nonalienation of Benefits..................................16 10.3 Transferability Restriction as to Target Shares............16 10.4 Regarding the Securities Act of 1933.......................16 10.5 Regarding Section 16 of the Securities Exchange Act of 1934 17 10.6 Severability...............................................17 10.7 No Individual Liability....................................17 10.8 Applicable Law.............................................17 SECTION 11. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION..................18 11.1 In General.................................................18 11.2 Claims Procedure...........................................18 11.3 Finality of Determination..................................18 11.4 Expenses...................................................18 11.5 Tax Withholding............................................19 11.6 Incompetency...............................................19 11.7 Action by Corporation......................................19 11.8 Notice of Address..........................................19 11.9 Amendment and Termination..................................19 SCANA CORPORATION PERFORMANCE SHARE PLAN (As Amended and Restated Effective January 1, 1998) SECTION 1. PURPOSE AND EFFECTIVE DATE 1.1 Purpose of the Plan. The SCANA Corporation Performance Share Plan ("Plan") is a long-term executive compensation incentive plan having as its purpose the rewarding of superior performance with a variable component of pay. The Plan provides as an element of executive compensation an award amount tied directly to corporate performance over three years. The Plan is intended to balance the short-term emphasis of the annual cash incentive portion of the Executive Incentive Plan with a longer-term perspective and to reinforce strategic goals by linking them to compensation. The Plan is an incentive program within the context of Department of Labor Regulation ss.2510.3-2(c), and as such is not an "employee pension benefit plan" or "pension plan" for purposes of the Employee Retirement Income Security Act of 1974, as amended, as the payouts hereunder are not systematically deferred to the termination of covered employment or beyond or to provide retirement income to executive employees. Under Section 162(m) of the Internal Revenue Code of 1986, as amended and the treasury regulations promulgated thereunder, the $1 million deduction limitation on compensation paid to covered employees by a publicly held corporation does not apply to qualified performance-based compensation. Under the Plan, the Committee (as hereinafter defined) may award qualified performance-based compensation (within the meaning of Treas. Reg. ss. 1.162-27(e)) or the Committee may grant awards that do not qualify as qualified performance-based compensation. 1.2 Effective Date of the Plan. The effective date of the Plan is January 1, 1990, as adopted by the Board of Directors of SCANA Corporation ("Board") on April 25, 1990. The Plan was amended and restated by the Board on February 18, 1992, effective as of January 1, 1992; the Target Awards for the 1992 Cycle were made subject to the approval by SCANA Corporation shareholders of the Plan which was received on April 22, 1992. The Plan was amended on February 16, 1993 and December 18, 1996 and subject to receiving shareholder approval at the 1998 annual meeting was amended and restated in its entirety on February 17, 1998, to be effective for Target Awards granted after January 1, 1998. Target Awards granted prior to January 1, 1998 shall be governed by the terms of the Plan in effect prior to this amendment and restatement; except that any issuances of the common stock of the Corporation (as hereinafter defined) shall be subject to Section 10.5. SECTION 2. DEFINITIONS 2.1 Definitions. Whenever used herein, the following terms shall have the meanings set forth below, unless otherwise expressly provided herein or unless a different meaning is plainly required by the context, and when the defined meaning is intended, the term is capitalized: (a) "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. (b) "Beneficiary" means any person or entity who, upon a Participant's death, is entitled to receive the Participant's benefits under the Plan in accordance with Section 8 hereof. (c) "Board" means the Board of Directors of the Corporation. (d) "Change in Control" means a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act, whether or not the Corporation is then subject to such reporting requirements; provided that, without limitation, such a Change in Control shall be deemed to have occurred if: (1) Any Person (as defined in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as such term is used in Section 13(d)) is or becomes the Beneficial Owner, directly or indirectly, of 25% or more of the combined voting power of the outstanding shares of capital stock of the Corporation; (2) During any period of two consecutive years (not including any period prior to December 18, 1996) there shall cease to be a majority of the Board comprised as follows: individuals who at the beginning of such period constitute the Board and any new director(s) whose election by the Board or nomination for election by the Corporation's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved; (3) The Securities and Exchange Commission (SEC) issues an order under Section 9(a)(2) of the Public Utility Holding Act of 1935 (the "1935 Act"), authorizing a third party to acquire 5% or more of the Corporation's voting shares of capital stock; (4) The shareholders of the Corporation approve a merger or consolidation of the Corporation with any other corporation, other than a merger or consolidation which would result in the voting shares of capital stock of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting shares of capital stock of the surviving entity) at least 80% of the combined voting power of the voting shares of capital stock of the Corporation or such surviving entity outstanding immediately after such merger or consolidation; or the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation's assets; or (5) The shareholders of the Corporation approve a plan of complete liquidation, or sale or disposition of, South Carolina Electric & Gas Company ("SCE&G"), South Carolina Pipeline Corporation or any subsidiary of the Corporation designated by the Board as a "Material Subsidiary," but such event shall represent a Change in Control only with respect to a Participant who has been assigned exclusively to SCE&G, South Carolina Pipeline Corporation or the affected Material Subsidiary. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means the committee established pursuant to Section 11.1 to administer the Plan. (g) "Corporation" means SCANA Corporation, a South Carolina corporation, or any successor thereto. (h) "Covered Participant" means a Participant who is a "covered employee" within the meaning of Section 1.162-27(c)(2) of the Treasury Regulations promulgated with respect to Section 162 of the Code. (i) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (j) "Participant" means an individual satisfying the eligibility requirements of Section 3. (k) "Plan" means this Amended and Restated Performance Share Plan. (l) Year" means the calendar year. 2.2 Gender and Number. Except when otherwise indicated by the context, any masculine terminology used herein also shall include the feminine and the feminine shall include the masculine, and the use of any term herein in the singular may also include the plural and the plural shall include the singular. SECTION 3. ELIGIBILITY AND PARTICIPATION 3.1 Eligibility. Eligibility in the Plan is restricted to (a) those executives of the Corporation and of subsidiaries of the Corporation who the Chief Executive Officer of the Corporation ("CEO") nominates for participation, and (b) the CEO. The underlying criteria for nomination is an executive within salary grades E-1 through E-12 (or, in the case of a nonofficer executive, a salary that is equivalent to the above enumerated grades), and determination in the discretion of the CEO that the selected executive serves in a role that is directly or indirectly (as per employment with a Corporation subsidiary) key to the Corporation's success. 3.2 Participation. Participation in the Plan is restricted to (a) those executives of the Corporation and of the subsidiaries of the Corporation who are eligible to participate in the Plan pursuant to Section 3.1 of the Plan, and (b) who are determined, in the discretion of the Committee, to serve in a role that is directly or indirectly (as per employment with a Corporation subsidiary) key to the Corporation's success. Participation will be reevaluated and determined at the beginning of each Performance Period. No executive shall have the right to be nominated by the CEO or selected by the Committee for participation in the Plan. To the extent that the Committee intends for an award to qualify as qualified performance-based compensation, the Committee will need to make the participation determination with respect to a Covered Participant not later than 90 days after the commencement of the Performance Period (as defined in Section 4.2). SECTION 4. HOW THE PLAN WORKS 4.1 Overview. The objective of the Plan is to measure the Corporation's Total Shareholder Return (as defined in Section 4.4) over each Performance Period relative to a peer group of utilities, and, based upon the performance achieved, make a payout ranging from 0% to 150% of a target award ("Target Award") expressed as a number of shares of the Corporation's common stock ("Target Shares") assigned to each Participant in accordance with the Participant's control point (E-1 through E-12 classification or, in the case of a nonofficer executive, the control point determined by the Committee), the higher the pay grade the greater the number of Target Shares. 4.2 Performance Periods and Cycles. Each performance period (a "Performance Period") shall be a period of three consecutive calendar years, and shall be designated as a cycle (a "Cycle"). Each calendar year shall begin a new cycle, as demonstrated by the following: 1998 1999 2000 2001 2002 2003 1998 Cycle: A A A 1999 Cycle: B B B 2000 Cycle: C C C 2001 Cycle: D D D 4.3 Target Awards and Target Shares. Target Awards in dollars for each Cycle are designated for each Participant as a function of a designated percentage of the Participant's control point for his pay grade. The Target Award in dollars for each Participant is then converted to a Target Share designation by dividing the Target Award amount by the closing price per share of the Corporation's common stock on December 31 (or last trading date) of the calendar year immediately preceding the first calendar year of the Cycle. To the extent that the Committee intends for an award to qualify as qualified performance-based compensation, the Committee must determine the Target Awards with respect to a Covered Participant not later than 90 days after the commencement of the Performance Period (as defined in Section 4.2). 4.4 Performance Criteria and Measurement. The Corporation's Total Shareholder Return is measured over the three calendar years of each Cycle in comparison to a peer group of electric and gas utilities each having annual revenue in excess of $100 million. The Committee may change for each Cycle the number of and/or individual composite companies of the peer group. Subsequently within a Cycle and subject to the limitations contained in Section 5.2, in response to circumstances affecting certain individual companies of the peer group (e.g., merger), the Committee may find it necessary to add to or otherwise modify the listing of companies comprising the peer group. The purpose of any such change is to establish and maintain a peer group that is objectively comparable to the Corporation to promote consistency within and between Cycles as an underlying premise for the integrity of performance evaluation. It is within this context, as an additional corrective measure, that per Section 5.2 the Committee may adjust the payout amounts otherwise indicated per Section 5.1. Total shareholder return ("Total Shareholder Return") for each Cycle is calculated after the end of the third calendar year of the Cycle using the following formula: (A) Closing Stock Price at December 31st (or last trading date) of the third calendar year of Cycle ("Ending Stock Price") less: (B) Closing Stock Price at December 31st (or last trading date) of the calendar year immediately preceding the first calendar year of the Cycle ("Beginning Stock Price") plus: (C) The sum of all cash dividends paid per share during the Cycle equals: (D) Net Number Divide (D) by (B) to yield Total Shareholder Return The result for the Corporation is then compared to the individual results of the companies comprising the peer group to determine the award in accordance with Section 5. Calculations will be adjusted by the Committee as appropriate for transactions described in Section 1.162-27(e)(2)(iii)(C) of the Treasury Regulations (e.g. stock split, dividend, merger, etc.) The computation of Total Shareholder Return also will be made for the Corporation and each of the companies of the peer group after the close of each of the first and second calendar years within each Cycle, with the data for items (A) and (C) of the above formula. The annual computation will render an on-going indication of the Corporation's comparative economic performance to the peer group for the subject Cycle. 4.5 New Performance Award Periods. Subject to Section 11.9, new performance award periods may be initiated under the Plan for five years from the effective date of this amendment and restatement. SECTION 5. AWARD DETERMINATION 5.1 Preliminary Determination. The performance achieved during each three-year Cycle will preliminarily indicate a payout as a percent of Target Shares awarded as follows: As Compared Payout As A % Performance To Peer of Target Achieved Group Companies Awarded Outstanding at or above 75 150% only (the percentile maximum) Target at or above 50 100% to 148% percentile but less than 75 percentile Threshold at or above 33 40% to 95% percentile but less than 50 percentile Below Threshold below 33 0% percentile The Threshold and Target performance categories, unlike the other two performance categories, renders payout on a sliding scale depending upon where the Corporation's performance ranking lies in comparison to the performance ranking of the individual companies comprising the peer group. Addendum A, Total Shareholder Return Award Calculations, sets forth the detailed table of payouts for the respective range of performance ranking percentages. Performance Achieved is categorized per Addendum A in whole percentages only, requiring the rounding of computational results to the nearest whole number, with .5 results rounded up if the resulting whole number would be an even number or rounded down if the resulting whole number would be an odd number. Notwithstanding the foregoing, the Committee may redefine for any Cycle the above category levels of performance as well as the respective payout percentages of Target Shares awarded. To the extent that the Committee intends for an award to qualify as qualified performance-based compensation, the Committee will need to redefine the performance levels and payout percentages for a Covered Participant not later than 90 days after the commencement of the applicable Performance Period. 5.2 Final Determination. The Committee will review the award amounts determined based on the performance achieved and, at its discretion, adjust the final payout amounts for all Participants in accordance with the purposes expressed in Section 4.4. In making adjustments, the Committee may consider factors such as, but not limited to, the following: (a) Significant acquisitions (or divestitures) within the Corporation's affiliated group; (b) Significant acquisitions or divestitures among peer group companies; and (c) Other unusual items of material consequence. If the Committee's exercise of discretion pursuant to Section 4.4 or 5.2 results in an increase in the amount of compensation to be payable under the Plan, the Committee's modifications made pursuant to Section 4.4 or 5.2 may cause the performance awards for Covered Participants to fail to qualify as qualified performance-based compensation. Except for distributions pursuant to Section 9, the maximum annual award distributed to any employee under this Plan (including amounts awarded pursuant to Section 5.3) shall not exceed an amount having a value equal to the value of 25,000 shares of common stock of the Corporation as of the date of distribution. 5.3 Dividends. After the end of a Cycle, dividends will be paid on the award shares earned, 40% to 150% of Target Shares earned (the "Earned Shares"), as if the Earned Shares had been outstanding during the entire Cycle as provided in Section 6.1. The amount of such dividends payable will be computed by multiplying the number of Earned Shares by the sum of all cash dividends paid per share during the Cycle as noted in Section 4.4(C) above. SECTION 6. FORM AND TIMING OF PAYMENT 6.1 Form and Timing of Payment. Except as provided in Section 9, the award values (Earned Shares plus related dividends) may be paid in shares of the Corporation's common stock or in cash, or in any combination thereof. Unless otherwise deferred in accordance with the terms of the Corporation's Voluntary Deferral Plan, awards will be paid out as soon as possible after the end of each Cycle except as provided in Section 9. If award dividends are paid in stock, the number of shares to be issued will be determined by dividing the amount of the award dividends earned by the closing stock price at December 31st (or last trading date) of the third calendar year of the Cycle. If Earned Shares are paid in cash, the amount to be paid shall be determined by multiplying the number of Earned Shares by the closing stock price at December 31st (or last trading date) of the third calendar year of the Cycle. 6.2 Committee Certification. Prior to the payment of any performance awards to a Covered Participant, the Committee shall certify in writing the computation of the Covered Participant's performance awards (including the extent that performance goals were in fact satisfied). For purposes of satisfying the requirements of this section, approved minutes of the Committee meeting in which the computation is made or reviewed will be deemed to constitute written certification. 6.3 Performance Award Tax Consequences. The Committee shall administer and construe the Plan in a manner so that no tax liability is incurred by the participating executive until the performance awards are actually paid. 6.4 Number of Corporation's Shares that may be Distributed. The total number of shares of the Corporation's common stock that may be distributed under this Plan originally set at 500,000 shares, and having an undistributed balance of 460,772 shares immediately prior to the 2-for-1 split of the Corporation's common stock approved by the Board effective at the close of business on May 11, 1995, per Resolution dated April 27, 1995, was on May 11, 1995 adjusted to an undistributed balance of 921,544 shares in accordance with the recapitalization provision of the Plan (see Section 6.5), and as of the effective date of this Amended and Restated Plan document, the undistributed balance is 849,712 shares. The shares to be issued under this Plan may be either original issue shares or shares purchased by the Plan in the open market. With respect to any applicable Cycle under this Plan, if the maximum number of shares of the Corporation's common stock which could be distributed as to both Earned Shares and the related dividend awards thereon are not in fact paid out after the end of the Cycle, then the number of shares of such common stock not distributed shall be available for payouts under this Plan with respect to subsequent Cycles. 6.5 Recapitalization. In the event of any increase or decrease in the total number of shares of the Corporation's common stock resulting from a subdivision or consolidation of shares or other capital adjustment or the payment of a stock dividend or other increase or decrease in such shares effected without receipt of consideration by the Corporation, the maximum number of shares of such common stock which may be distributed under the Plan, the number of Target Shares awarded under the Plan and the number of shares of the Corporation's common stock covered by each outstanding Target Share award shall be adjusted accordingly. Any such shares shall be subject to the same Plan provisions as the shares originally covered under the award. SECTION 7. TERMINATION OF EMPLOYMENT 7.1 General Rule. If death, disability or early or normal retirement, as defined in the SCANA Corporation Retirement Plan, occurs prior to the end of one or more Cycles in which an executive was a Participant, the Participant's performance award for each such Cycle will be paid as soon as possible after the end of each cycle except as provided in Section 9. Any award under this Section will be calculated as follows for each Cycle in which the executive was a Participant: (Target Shares) x (Payout % determined under Section 5.1 based upon performance results determined under Section 4) x (the fraction, the numerator of which is the number of months of continuous employment completed of the Cycle, counting the month of death, disability or retirement as though a full month of employment, and the denominator of which is 36). Added to this amount will be an award for dividends attributable to the Earned Shares in accordance with Section 5.3 above, but for each incomplete Cycle applicable only for the months of continuous employment completed, counting the month of death, disability or retirement as though a full month employment. 7.2 Termination of Employment for Reasons Other Than Death, Disability or Retirement. If a Participant's employment is terminated for reasons other than death, disability or normal or early retirement before the end of one or more Cycles in which the executive is a Participant, the individual's performance awards will be canceled and his tentative rights thereto forfeited unless the Committee in the exercise of its discretion determines that a performance payout should be made to the Participant under the circumstances of the termination. In this latter event, the payout shall be in whatever amount the Board determines, not to exceed, however, the amount that would be calculated if Section 7.1 was applicable as to each Cycle in which the executive was a Participant. Subject to Section 9, any such payout will be made in accordance with the provisions of Section 7.1. SECTION 8. BENEFICIARY DESIGNATION 8.1 Designation of Beneficiary. (a) A Participant shall designate a Beneficiary or Beneficiaries who, upon the Participant's death, are to receive the amounts that otherwise would have been paid to the Participant. All designations must be in writing and signed by the Participant. A designation shall be ------- ------ effective only if and when delivered to the Corporation during the lifetime of the Participant. The Participant also may change the Beneficiary or Beneficiaries by a signed, written instrument delivered to the Corporation. The payment of amounts shall be in accordance with the last unrevoked written designation of Beneficiary that has been signed and delivered to the Corporation. All Beneficiary designations shall be addressed to the Secretary of SCANA Corporation and delivered to the office of the Secretary, and shall be processed as indicated in subsection (b) below by the Secretary or by her authorized designee. (b) The Secretary of SCANA Corporation (or her authorized designee) shall, upon receipt of the Beneficiary designation: (1) ascertain that the designation has been signed, and if it has not been, return it to the Participant to be signed; and (2) if signed, stamp the designation "Received", indicate the date of receipt, and initial the designation in the proximity of the stamp. 8.2 Death of Beneficiary. (a) In the event that all of the Beneficiaries named pursuant to Section 8.1 predecease the Participant, the amounts that otherwise would have been paid to said Beneficiaries shall, where the designation fails to redirect to alternate Beneficiaries in such circumstance, be paid to the Participant's estate as the alternate Beneficiary. (b) In the event that two or more Beneficiaries are named, and one or more but less than all of such Beneficiaries predecease the Participant, each surviving Beneficiary shall receive any dollar amount or proportion of funds designated or indicated per the designation made pursuant to Section 8.1, and the dollar amount or designated or indicated share of each predeceased Beneficiary which the designation fails to redirect to an alternate Beneficiary in such circumstance shall be paid to the Participant's estate as an alternate Beneficiary. 8.3 Ineffective Designation. (a) In the event a Participant does not designate a Beneficiary, or if for any reason a designation is entirely ineffective, the amounts that otherwise would have been paid to the Beneficiary shall be paid to the Participant's estate as the alternate Beneficiary. (b) In the circumstance that designations are effective in part and ineffective in part, to the extent that a designation is effective, distribution shall be made so as to carry out as closely as discernable the intent of the Participant, with the result that only to the extent that a designation is ineffective shall distribution instead be made to the Participant's estate as an alternate Beneficiary. SECTION 9. CHANGE IN CONTROL DISTRIBUTIONS 9.1 Accelerated Distributions Upon Change in Control. Notwithstanding anything in this Plan to the contrary, upon the occurrence of a Change in Control, as to which the Key Employee Severance Benefits Plan ("KESBP") was not terminated prior to such Change in Control, all amounts (or remaining amounts) owed under this Plan as of the date of such Change in Control (referred to as each participant's "PSP Benefit") shall become immediately due and payable. The PSP Benefit shall be an amount equal to 100% of the targeted award as granted at the beginning of all Cycles which are not yet completed as of the date of the Change in Control. Each Participant's PSP Benefit determined under this Section 9.1 shall be paid to each Participant (and his Beneficiary) in the form of a single lump sum payment of all such amounts owed, together with an amount (the "Gross-Up Payment") such that the net amount retained by each Participant after deduction of any excise tax imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed) on such benefits (the "Excise Tax") and any Federal, state and local income tax upon the PSP Benefit and the Gross-Up Payment provided for by this Section 9 shall be equal to the value of the Participant's PSP Benefit. 9.2 Tax Computation. For purposes of determining the amount of the Gross-Up Payment referred to in Section 9.1, whether any of a Participant's PSP Benefit will be subject to the Excise Tax and the amounts of such Excise Tax: (i) there shall be taken into account all other payments or benefits received or to be received by a Participant in connection with a Change in Control of the Corporation (whether pursuant to the terms of the Plan or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change in Control of the Corporation or any person affiliated with the Corporation or such person); and (ii) the amount of any Gross-Up Payment payable with respect to any Participant (or his Beneficiary) by reason of such payment shall be determined in accordance with a customary "gross-up formula," as determined by the Committee in its sole discretion. 9.3 No Subsequent Recalculation of Tax Liability. The Gross-Up Payments described in the foregoing provisions of this Section 9 are intended and hereby deemed to be a reasonably accurate calculation of each Participant's actual income tax and Excise Tax liability under the circumstances (or such tax liability of his Beneficiary), the payment of which is to be made by the Corporation or any "rabbi trust" established by the Corporation for such purposes. All such calculations of tax liability shall not be subject to subsequent recalculation or adjustment in either an underpayment or overpayment context with respect to the actual tax liability of the Participant (or his Beneficiary) ultimately determined as owed. SECTION 10. GENERAL PROVISIONS 10.1 Employment/Participation Rights. (a) Nothing in the Plan shall interfere with or limit in any way the right of the Corporation to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Corporation. (b) Nothing in the Plan shall be construed to be evidence of any agreement or understanding, express or implied, that the Corporation will continue to employ a Participant in any particular position or at any particular rate of remuneration. (c) No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. (d) Nothing in this Plan shall affect the right of a recipient to participate in and receive benefits under and in accordance with any pension, profit-sharing, deferred compensation or other benefit plan or program of the Corporation. 10.2 Nonalienation of Benefits. (a) No right or benefit under this Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge the same shall be void; nor shall any such disposition be compelled by operation of law, except as may be applicable in the circumstance of death of a Participant under South Carolina law or as a result of a qualified domestic relations order. (b) No right or benefit hereunder shall in any manner be liable for or subject to the debts, contracts, liabilities or torts of the person entitled to benefits under the Plan. (c) If any Participant or Beneficiary hereunder should become bankrupt or attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit hereunder, then such right or benefit shall, in the discretion of the Board cease, and the Board shall direct in such event that the Corporation hold or apply the same or any part thereof for the benefit of the Participant or Beneficiary in such manner and in such proportion as the Board may deem proper. 10.3 Transferability Restriction as to Target Shares. Target Shares are not transferrable by a Participant other than by will or the laws of descent and distribution. 10.4 Regarding the Securities Act of 1933. The Corporation shall not be deemed by reason of the granting of any Target Shares hereunder to have any obligation to register any shares of the Corporation's common stock with respect to this Plan under the Securities Act of 1933, as amended, or to maintain in effect any registration of such shares, or to list such shares on any exchange. As a condition to the issuance or transfer of shares of the Corporation's common stock to a Participant or to his Beneficiary or legal representative, the Committee may require such Participant, Beneficiary or legal representative to represent that the shares of stock are taken for investment and not for resale and to make such other representations as the Committee shall deem necessary to qualify the issuance of the shares as exempt from the registration requirements of the Securities Act of 1933 and any other applicable securities laws. The Corporation reserves the right to place a legend on any stock certificate issued pursuant to the Plan to further the purposes expressed herein. 10.5 Regarding Section 16 of the Securities Exchange Act of 1934. With respect to persons subject to Section 16 of the Securities Exchange Act of 1934, or any successor thereto ("Section 16"), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the Act. Accordingly, all issuances of shares of common stock of the Corporation to persons subject to the reporting requirements of Section 16 shall be, to the extent required by Section 16, approved by the Committee or in another manner provided in Section 16 or subject to a six month holding period. To the extent any provision of the Plan or action by the Committee is deemed not in compliance with an applicable condition of Rule 16b-3, that provision or action shall be deemed null and void to the extent permitted by law and deemed advisable by the Committee. 10.6 Severability. If any particular provision of the Plan shall be found to be illegal or unenforceable for any reason, the illegality or lack of enforceability of such provision shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if the illegal or unenforceable provision had not been included. 10.7 No Individual Liability. It is declared to be the express purpose and intention of the Plan that no liability whatsoever shall attach to or be incurred by the Committee, the shareholders, the officers or the directors of the Corporation or any representative appointed hereunder by the Committee, under or by reason of any of the terms or conditions of the Plan. 10.8 Applicable Law. The Plan shall be governed by and construed in accordance with the laws of the State of South Carolina, except to the extent governed by applicable federal law. SECTION 11. PLAN ADMINISTRATION, AMENDMENT AND TERMINATION 11.1 In General. The Plan shall be administered by the Committee which shall have the sole authority to construe and interpret the terms and provisions of the Plan and determine the amount, manner and time of payment of any benefits hereunder. The Committee shall consist of not less than three persons who shall be members of the Board. Each member of the Committee shall be at all times a "non-employee director" within the meaning of Rule 16b-3 of the General Rules and Regulations (Reg. ss. 16b-3(C)(2)(i)) under the Exchange Act. Additionally, each member of the Committee shall be at all times an "outside director" within the meaning of Section 1.162-27(e)(3) of the Treasury Regulations promulgated with respect to Section 162 of the Code. Once designated and for as long as the individuals qualify as members of the Committee, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution thereof, fill vacancies however caused and remove all members of the Committee. A majority of the entire Committee shall constitute a quorum, and the action of a majority of the members present at any meeting at which a quorum is present shall be deemed the action of the Committee. In addition, any decision or determination reduced to writing and signed by all the members of the Committee shall be fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee shall maintain records and cause payments to be made hereunder, and the requisite calculations, interpretations, determinations, regulations and, subject to the provisions of Section 11.2, calculations of the Committee shall be final and binding on all persons and parties concerned. The Committee may adopt such rules as it deems necessary, desirable or appropriate in administering the Plan. 11.2 Claims Procedure. Any person dissatisfied with the Committee's determination of a claim for benefits hereunder must file a written request for review with the Board. This request must include a written explanation setting forth the specific reasons for the requested review. The Board shall review the Committee's determination promptly and render a written decision with respect to the claim. Such decision shall be final, binding and conclusive upon all claimants under this Plan. The Board's exercise of discretion under this Section may cause the performance awards for a Covered Participant to fail to qualify as qualified performance-based compensation. 11.3 Finality of Determination. The determination of the Board as to any disputed questions arising under this Plan, including questions of construction and interpretation, shall be final, binding and conclusive upon all persons. 11.4 Expenses. The cost of payments from this Plan and the expenses of administering the Plan shall be borne by the Corporation. 11.5 Tax Withholding. The Corporation shall have the right to deduct from all payments made under the Plan any federal, state or local taxes required by law to be withheld with respect to such payments. 11.6 Incompetency. Any person receiving or claiming benefits under the Plan shall be conclusively presumed to be mentally competent and of age until the Corporation receives written notice, in a form and manner acceptable to it, that such person is incompetent or a minor, and that a guardian, conservator, statutory committee under the South Carolina Code of Laws, or other person legally vested with the care of his estate has been appointed. In the event that the Corporation finds that any person to whom a benefit is payable under the Plan is unable to properly care for his affairs, or is a minor, then any payment due (unless a prior claim therefor shall have been made by a duly appointed legal representative) may be paid to the spouse, a child, a parent or a brother or sister, or to any person deemed by the Corporation to have incurred expense for the care of such person otherwise entitled to payment. In the event a guardian or conservator or statutory committee of the estate of any person receiving or claiming benefits under the Plan shall be appointed by a court of competent jurisdiction, payments shall be made to such guardian or conservator or statutory committee provided that proper proof of appointment is furnished in a form and manner suitable to the Corporation. Any payment made under the provisions of this Section 11.6 shall be a complete discharge of liability therefor under the Plan. 11.7 Action by Corporation. Any action required or permitted to be taken hereunder by the Corporation or the Board shall be taken by the Board. 11.8 Notice of Address. Any payment made to a Participant or his Beneficiary at the last known post office address of the distributee on file with the Corporation, shall constitute a complete acquittance and discharge to the Corporation and any director or officer with respect thereto, unless the Corporation shall have received prior written notice of any change in the condition or status of the distributee. Neither the Corporation nor any director or officer shall have any duty or obligation to search for or ascertain the whereabouts of a Participant or his Beneficiary. 11.9 Amendment and Termination. If approved by the shareholders of the Corporation, the Corporation reserves the right to amend, modify or terminate the Plan at any time by action of its Board without further action of shareholders. However, no amendment will increase the total number of shares of the Corporation's common stock that may be distributed under the Plan beyond the number of shares indicated in Section 6.4 or the maximum annual award set forth in Section 5.2 without obtaining shareholder approval. Upon any such amendment, and except as provided hereunder, upon the occurrence of a Change in Control of the Corporation, each Participant and his Beneficiary shall be entitled only to such benefits as determined by the Committee pursuant to such amendment. Upon any termination of the Plan, and except as provided hereunder, upon the occurrence of a Change in Control, no Participant or Beneficiary shall be entitled to any further benefits hereunder, unless determined otherwise by the Committee, in its sole discretion. Notwithstanding the foregoing, and subject to Section 9, no amendment, modification or termination of the Plan may be made, and no Participants may be added to the Plan, upon or following a Change in Control of the Corporation without the express written consent of all of the Plan's Participants covered by the Plan at such time. In all events, however, the Corporation reserves the right to amend, modify or delete the provisions of Section 9 at any time prior to a Change in Control of the Corporation, pursuant to a Board resolution adopted by a vote of at least two-thirds of the members of the Board. 206 ADDENDUM A TOTAL SHAREHOLDER RETURN AWARD CALCULATIONS PERFORMANCE PAYOUT AS A % OF ACHIEVED TARGET SHARES AWARDED 33 40 34 44 35 48 36 51 37 55 38 59 39 63 40 66 41 70 42 74 43 78 45 81 46 85 47 89 48 93 49 95 50 100 51 102 52 104 53 106 54 108 55 110 56 112 57 114 58 116 59 118 60 120 61 122 62 124 63 126 64 128 65 130 66 132 67 134 68 136 69 138 70 140 71 142 72 144 73 146 74 148 75 150 ADDENDUM B SCANA CORPORATION PERFORMANCE SHARE PLAN DESIGNATION OF BENEFICIARY To: Secretary of SCANA Corporation I hereby designate the following person(s), trust(s) or estate, to be the recipient(s) of any and all amounts which may become payable or may remain to be paid upon my death under the SCANA Corporation Performance Share Plan. =============================--------------------------------------============= Beneficiary's Name and Social Security Relationship or Employer Beneficiary's to Dollars or Identification No. Address Participant % Share ================================================================================ ================================================================================ I hereby designate the following person, trust or estate as Alternate Beneficiary with respect to the contingency events described in Sections 8.2(a) and 8.2(b) of this Plan. ====================================------------------------==================== Alternate Beneficiary's Name and Social Alternate Relationship Security or Employer Beneficiary's to Identification No. Address Participant ================================================================================ ================================================================================ Spouse's Consent: (Community Property States Only -- S.C. domiciliaries ignore): I hereby agree to the Beneficiary(ies) designated above: - ----------------------------------- ------------------------ Spouse's Signature Date I hereby revoke any Beneficiary designation previously made by me and reserve the right to change this designation at any time by filing a new Designation of Beneficiary form. Signature of Participant Date Social Security Number Signature of Corporate Secretary Date Received (Rev. 1996) EX-12 6 EXHIBIT 12 PAGE 1 Exhibit 12 SCANA CORPORATION CALCULATION OF BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1998 (Millions of Dollars) Net earnings(1) $472.4 Divide by annualized interest charges on: Bonds authenticated under SCE&G's First and Refunding Mortgage Bond Indenture $32.0 Other indebtedness(1) $51.7 Total annualized interest charges $89.1 Bond ratio 5.30 (1) As defined under SCE&G's First and Refunding Mortgage Bond Indenture (Old Mortgage). PAGE 2 SCANA CORPORATION CALCULATION OF NEW BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1998 (Millions of Dollars) Net earnings(1) $599.1 Divide by annualized interest charges on: Bonds authenticated under SCE&G's First Mortgage Bond Indenture $32.0 Other indebtedness(1) $57.1 Total annualized interest charges $89.1 New Bond Ratio 6.72 (1) As defined under SCE&G's Collateral Trust Mortgage Indenture(New Mortgage). PAGE 3 SCANA CORPORATION CALCULATION OF PREFERRED STOCK RATIO FOR THE YEAR ENDED DECEMBER 31, 1998 (Millions of Dollars) Net Earnings (1) $219.7 Divide by annualized interest charges on: Bonds authenticated under SCE&G's mortgage bond indentures $32.0 Other indebtedness (1) $57.1 Preferred Dividend Requirements $ 7.5 Total annualized interest charges $ 96.6 Preferred stock ratio 2.27 (1) As defined under SCE&G's Restated Articles of Incorporation. PAGE 4 SCANA CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For Each of the Five Years Ended December 31, 1998 (Millions of Dollars) Years Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Fixed Charges as defined: Interest on long-term debt.................. $118.1 $113.6 $112.3 $113.9 $106.6 Amortization of debt premium, discount and expense (net).............................. 2.7 2.6 2.6 2.5 2.2 Other interest expense...................... 10.0 11.7 13.3 17.1 6.8 Interest component of rentals............... 0.8 1.7 2.3 2.8 2.7 ------ ------ ------ ------ ------ Total Fixed Charges (A)................. $131.6 $129.6 $130.5 $136.3 $118.3 ====== ====== ====== ====== ====== Earnings, as defined: Income...................................... $230.9 $230.0 $220.7 $174.0 $121.4 Income taxes................................ 131.1 113.6 119.1 99.1 62.5 Total fixed charges above................... 131.6 129.6 130.5 136.3 118.3 ------ ------ ------ ------ ------ Total Earnings (B)...................... $493.6 $473.2 $470.3 $409.4 $302.2 ====== ====== ====== ====== ====== Ratio of Earnings to fixed charges (B/A)...... 3.75 3.65 3.60 3.00 2.55 ==== ==== ==== === ====
PAGE 5 SOUTH CAROLINA ELECTRIC & GAS COMPANY CALCULATION OF BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1998 (Millions of Dollars) Net earnings(1) $472.4 Divide by annualized interest charges on: Bonds authenticated under SCE&G's First and Refunding Mortgage Bond Indenture $32.0 Other indebtedness(1) $57.1 Total annualized interest charges $89.1 Bond ratio 5.30 (1) As defined under SCE&G's First and Refunding Mortgage Bond Indenture (Old Mortgage). PAGE 6 SOUTH CAROLINA ELECTRIC & GAS COMPANY CALCULATION OF NEW BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1998 (Millions of Dollars) Net earnings(1) $599.1 Divide by annualized interest charges on: Bonds authenticated under SCE&G's First Mortgage Bond Indenture $32.0 Other indebtedness(1) $57.1 Total annualized interest charges $89.1 New Bond Ratio 6.72 (1) As defined under SCE&G's Collateral Trust Mortgage Indenture (New Mortgage). PAGE 7 SOUTH CAROLINA ELECTRIC & GAS COMPANY CALCULATION OF PREFERRED STOCK RATIO FOR THE YEAR ENDED DECEMBER 31, 1998 (Millions of Dollars) Net Earnings (1) $219.7 Divide by annualized interest charges on: Bonds authenticated under SCE&G's mortgage bond indentures $32.0 Other indebtedness (1) $57.1 Preferred Dividend Requirements $ 7.5 Total annualized interest charges $ 96.6 Preferred stock ratio 2.27 (1) As defined under SCE&G's Restated Articles of Incorporation. 215 PAGE 8 SOUTH CAROLINA ELECTRIC & GAS COMPANY COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For Each of the Five Years Ended December 31, 1998 (Millions of Dollars) Year Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Fixed Charges as defined: Interest on long-term debt.................. $ 92.7 $ 94.7 $ 94.8 $ 96.2 $ 85.4 Amortization of debt premium, discount and expense (net).............................. 2.3 2.3 2.3 2.2 2.0 Interest on debt to affiliate............... - - - - - Other interest expense...................... 6.2 4.9 7.4 9.2 5.1 Interest component of rentals............... 0.8 1.8 2.3 2.8 2.7 ------- ------ ------ ------ ------ Total Fixed Charges (A)................. $102.0 $103.7 $106.8 $110.4 $ 95.2 ====== ====== ====== ====== ====== Earnings, as defined: Income...................................... $227.2 $194.7 $190.5 $169.2 $152.0 Income taxes................................ 132.2 100.6 108.1 97.3 82.7 Total fixed charges above................... 102.0 103.7 106.8 110.4 95.2 ------ ------ ------ ------ ------ Total Earnings (B)...................... $461.1 $399.0 $405.4 $376.9 $329.9 ====== ====== ====== ====== ====== Ratio of Earnings to fixed charges (B/A)...... 4.52 3.85 3.80 3.41 3.46
EX-23 7 EXHIBIT 23.01 & 23.02 218 PAGE 1 EXHIBIT 23.1 SCANA CORPORATION INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 33-49333 on Form S-8, Registration Statement No. 333-18149 on Form S-3, Registration Statement No. 333-18973 on Form S-8, Registration Statement No. 333-44885 on Form S-8 and Registration Statement No. 333-65105 on Form S-3 of our report dated February 8, 1999 appearing in this Annual Report on Form 10-K of SCANA Corporation for the year ended December 31, 1998. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina March 15, 1999 Exhibit 23.2 SOUTH CAROLINA ELECTRIC & GAS COMPANY 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 8, 1999 appearing in this Annual Report on Form 10-K of South Carolina Electric & Gas Company for the year ended December 31, 1998. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina March 15, 1999 EX-27 8 SCANA FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT 12-MOS DEC-31-1998 DEC-31-1998 PER-BOOK 3787 493 501 500 0 5281 1051 (9) 678 1746 61 106 1623 195 0 0 107 0 0 0 1443 5281 1632 136 1151 1287 345 13 358 123 231 8 223 162 88 467 2.12 0
EX-27 9 SCE&G FINANCIAL DATA SCHEDULE
UT 0000091882 SCE&G 12-MOS DEC-31-1998 DEC-31-1998 PER-BOOK 3432 16 322 476 0 4246 181 827 491 1499 61 106 1206 125 0 0 29 0 0 0 1220 4246 1451 128 1011 1139 312 13 325 94 227 8 219 166 86 441 0 0
-----END PRIVACY-ENHANCED MESSAGE-----