
1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation and Variable Interest Entities

DESC has determined that it has a controlling financial interest in each of GENCO and Fuel Company (which are considered to be VIEs) and, accordingly, DESC's Consolidated Financial Statements include, after eliminating intercompany balances and transactions, the accounts of DESC, GENCO and Fuel Company. The equity interests in GENCO and Fuel Company are held solely by SCANA, DESC’s parent. As a result, GENCO’s and Fuel Company’s equity and results of operations are reflected as noncontrolling interest in the Consolidated Financial Statements.

GENCO owns a coal-fired electric generating station with a 605 MW net generating capacity (summer rating). GENCO’s electricity is sold, pursuant to a FERC-approved tariff, solely to DESC under the terms of a power purchase agreement and related operating agreement. The effects of these transactions are eliminated in consolidation. Substantially all of GENCO’s property (carrying value of $499 million) serves as collateral for its long-term borrowings. Fuel Company acquires, owns and provides financing for DESC’s nuclear fuel, certain fossil fuels and emission and other environmental allowances. See also Note 5.

Additionally, DESC purchases shared services from DESS, an affiliated VIE that provides accounting legal, finance and certain administrative and technical services to all SCANA subsidiaries, including DESC. DESC has determined that it is not the primary beneficiary of DESS as it does not have either the power to direct the activities that most significantly impact its economic performance or an obligation to absorb losses and benefits which could be significant to it. See Note 13 for amounts attributable to related parties.

Significant Accounting Policies

There have been no significant changes from Note 1 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2018, with the exception of the item described below.

Leases

DESC leases certain assets including vehicles, real estate, office equipment and other assets under both operating and finance leases. Rent expense is expensed as incurred over the term of the lease and is primarily recorded in other operations and maintenance expense in the Consolidated Statements of Comprehensive Income (Loss).

Certain leases include one or more options to renew, with renewal terms that can extend the lease from one to 70 years. The exercise of lease renewal options is at DESC's sole discretion. Leases with original lease terms of one year or less are not included in the Consolidated Balance Sheets and DESC has concluded that the renewal of such leases is unlikely. Were such leases to contain renewal options that DESC is reasonably certain will be exercised, the related right-of-use asset and lease liability would be included in the Consolidated Balance Sheets.

The determination of the discount rate utilized has a significant impact on the calculation of the present value of the lease liability included in the Consolidated Balance Sheets. For DESC's leased assets, the discount rate implicit in the lease is generally unavailable to be determined from a lessee perspective. As such, DESC uses internally-developed incremental borrowing rates as a discount rate in the calculation of the present value of the lease liability. The incremental borrowing rates are determined based on an analysis of DESC's publicly available secured borrowing rates over various lengths of time that most closely corresponds to DESC's lease maturities.

Amortization expense and interest charges associated with finance leases are recorded in depreciation and amortization and interest expense, respectively, in the Consolidated Statement of Comprehensive Income (Loss) or deferred within regulatory assets in the Consolidated Balance Sheets. Costs associated with operating leases, short-term leases and variable leases are primarily recorded in other operations and maintenance expenses in the Consolidated Statements of Comprehensive Income (Loss).

Recently Adopted Accounting Matters

In February 2016, the FASB issued revised accounting guidance for the recognition, measurement, presentation and disclosure of leasing arrangements. The update requires that a liability and corresponding right-of-use asset are recorded on the balance sheet for all leases, including those leases classified as operating leases, while also refining the definition of a lease. In addition lessees will be required to disclose key information about the amount, timing, and uncertainty of cash flows arising from leasing arrangements. Lessor accounting remains largely unchanged.

The guidance became effective for DESC's interim and annual reporting periods beginning January 1, 2019. DESC adopted this revised accounting guidance using a modified retrospective approach, which requires lessees and lessors to recognize and measure leases at the date of adoption. Under this approach, DESC utilized the transition practical expedient to maintain historical presentation for periods before January 1, 2019. DESC also applied the other practical expedients, which required no reassessment of whether existing contracts are or contain leases, no reassessment of lease classification for existing leases and no evaluation of existing or expired land easements that were not previously accounted for as leases. In connection with the adoption of this revised accounting guidance, DESC recorded $19 million of offsetting right-of-use assets and liabilities for operating leases in effect at the adoption date. See Note 11 for additional information.