-----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, Qy8G3VrJ6l27nVGPaFH4BaPwO0q4wrS0zZbxVNHeh65gIAmbyO2Ut38rbg12W1ZN QDC4jXRJh4chIAuEGBPTEA== 0000754737-99-000008.txt : 19990518 0000754737-99-000008.hdr.sgml : 19990518 ACCESSION NUMBER: 0000754737-99-000008 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANA CORP CENTRAL INDEX KEY: 0000754737 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 570784499 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-08809 FILM NUMBER: 99627058 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: P O BOX 764 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8032179000 MAIL ADDRESS: STREET 1: MAIL CODE 051 CITY: COLUMBIA STATE: SC ZIP: 29218 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-Q/A SEC ACT: SEC FILE NUMBER: 001-03375 FILM NUMBER: 99627059 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-Q/A 1 1ST QUARTER FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended March 31, 1999 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 Indicate by check mark whether the registrants: (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No Description of Shares Outstanding Registrant Common Stock at April 30, 1999 SCANA Corporation Without Par Value 103,572,623 South Carolina Electric Par Value $4.50 Per Share 40,296,147 1 & Gas Company 1Held, beneficially and of record, by SCANA Corporation. This combined Form 10-Q 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-Q of South Carolina Electric & Gas Company. INDEX Page PART 1. FINANCIAL INFORMATION SCANA Corporation Financial Section..................................... 3 Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 ........................................... 4 Consolidated Statements of Income and Retained Earnings for the Periods Ended March 31, 1999 and 1998.................... 6 Consolidated Statements of Cash Flows for the Periods Ended March 31, 1999 and 1998...................................... 7 Notes to Consolidated Financial Statements..................... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 13 Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 21 South Carolina Electric & Gas Company Financial Section................. 22 Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 ........................................... 23 Consolidated Statements of Income and Retained Earnings for the Periods Ended March 31, 1999 and 1998.................... 25 Consolidated Statements of Cash Flows for the Periods Ended March 31, 1999 and 1998...................................... 26 Notes to Consolidated Financial Statements..................... 27 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 30 Item 3. Quantitative and Qualitative Disclosure About Market Risk...... 35 PART II. OTHER INFORMATION Item 1. Legal Proceedings.......................................... 36 Item 6. Exhibits and Reports on Form 8-K........................... 36 Signatures.......................................................... 37 Exhibit Index....................................................... 39 2 SCANA CORPORATION FINANCIAL SECTION 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements.
SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of March 31, 1999 and December 31, 1998 March 31, December 31, - ----------------------------------------------------------------------------- ------ --------- 1999 1998 - ---------------------------------------------------------------------------- ------ ---------- ASSETS (Millions of Dollars) Utility Plant: Electric $4,408 $4,406 Gas 604 604 Other 175 175 - ----------------------------------------------------------------------------- ---------------- Total 5,187 5,185 Less accumulated depreciation and amortization 1,765 1,728 - ----------------------------------------------------------------------------- ---------------- Total 3,422 3,457 Construction work in progress 296 251 Nuclear fuel, net of accumulated amortization 56 56 Acquisition adjustment-gas, net of accumulated amortization 23 23 - ----------------------------------------------------------------------------- ---------------- Utility Plant, Net 3,797 3,787 - ----------------------------------------------------------------------------- ---------------- Nonutility Property and Investments (net of accumulated depreciation) 531 493 - ----------------------------------------------------------------------------- ---------------- Current Assets: Cash and temporary cash investments 71 62 Receivables 265 276 Inventories (at average cost): Fuel 69 63 Materials and supplies 60 56 Prepayments 28 22 Deferred income taxes 20 22 - ----------------------------------------------------------------------------- ------- -------- Total Current Assets 513 501 - ----------------------------------------------------------------------------- ---------------- Deferred Debits: Emission allowances 31 31 Environmental 22 22 Nuclear plant decommissioning fund 58 56 Pension asset, net 121 115 Other 270 276 - ----------------------------------------------------------------------------- ---------------- Total Deferred Debits 502 500 - ----------------------------------------------------------------------------- ---------------- Total $5,343 $5,281 ============================================================================= ================ 4 SCANA CORPORATION CONSOLIDATED BALANCE SHEETS As of March 31, 1999 and December 31, 1998 (Unaudited) March 31, December 31, - ------------------------------------------------------------------------------- -------------------- 1999 1998 - ------------------------------------------------------------------------------- -------------------- CAPITALIZATION AND LIABILITIES (Millions of Dollars) Stockholders' Investment: Common Equity $1,762 $1,746 Preferred stock (not subject to purchase or sinking funds) 106 106 - ---------------------------------------------------------------------------------- ----------------- Total Stockholders' Investment 1,868 1,852 Preferred Stock, Net (subject to purchase or sinking funds) 11 11 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 1,736 1,623 - ---------------------------------------------------------------------------------- ----------------- Total Capitalization 3,665 3,536 - ---------------------------------------------------------------------------------- ----------------- Current Liabilities: Short-term borrowings 174 195 Current portion of long-term debt 107 107 Accounts payable 196 219 Customer deposits 18 18 Taxes accrued 12 72 Interest accrued 39 28 Dividends declared 42 42 Other 14 13 - ---------------------------------------------------------------------------------- ----------------- Total Current Liabilities 602 694 - ---------------------------------------------------------------------------------- ----------------- Deferred Credits: Deferred income taxes 661 628 Deferred investment tax credits 106 108 Reserve for nuclear plant decommissioning 58 56 Postretirement benefits 90 87 Other 161 172 - ---------------------------------------------------------------------------------- ----------------- Total Deferred Credits 1,076 1,051 - ---------------------------------------------------------------------------------- ----------------- Total $5,343 $5,281 ================================================================================== ================= See Notes to Consolidated Financial Statements. 5 SCANA CORPORATION CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Periods Ended March 31, 1999 and 1998 (Unaudited) Three Months Ended March 31, - -------------------------------------------------------------------------------- ------------- 1999 1998 - -------------------------------------------------------------------------------- ------------- (Millions of Dollars Except Per Share Amounts) OPERATING REVENUES: Electric $ 266 $ 269 Gas 130 137 Transit 1 - - -------------------------------------------------------------------------------- ------------- Total Operating Revenues 397 406 - -------------------------------------------------------------------------------- ------------- Operating Expenses: Fuel used in electric generation 61 59 Purchased power 4 2 Gas purchased for resale 81 83 Other operation 58 60 Maintenance 18 19 Depreciation and amortization 42 30 Income taxes 28 36 Other taxes 27 26 - -------------------------------------------------------------------------------- ------------- Total Operating Expenses 319 315 - -------------------------------------------------------------------------------- ------------- OPERATING INCOME 78 91 - -------------------------------------------------------------------------------- ------------- OTHER INCOME: Allowance for equity funds used during construction 1 2 Other income (loss), net of income taxes (5) 3 - -------------------------------------------------------------------------------- ------------- Total Other Income (Loss) (4) 5 - -------------------------------------------------------------------------------- ------------- INCOME BEFORE INTEREST CHARGES AND PREFERRED STOCK DIVIDENDS 74 96 - -------------------------------------------------------------------------------- ------------- INTEREST CHARGES (CREDITS): Interest expense on long-term debt 31 29 Other interest expense 4 2 Allowance for borrowed funds used during construction (1) (2) - -------------------------------------------------------------------------------- ------------- Total Interest Charges, Net 34 29 - -------------------------------------------------------------------------------- ------------- INCOME BEFORE PREFERRED DIVIDEND REQUIREMENTS ON MANDATORILY REDEEMABLE PREFERRED SECURITIES 40 67 PREFERRED DIVIDEND REQUIREMENT OF SCE&G - OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES 1 1 - -------------------------------------------------------------------------------- ------------- INCOME BEFORE PREFERRED STOCK CASH DIVIDENDS OF SUBSIDIARY 39 66 PREFERRED STOCK CASH DIVIDENDS OF SUBSIDIARY (At stated rates) 2 2 - -------------------------------------------------------------------------------- ------------- NET INCOME 37 64 RETAINED EARNINGS AT BEGINNING OF PERIOD 678 617 COMMON STOCK CASH DIVIDENDS DECLARED (40) (41) ================================================================================ ============= RETAINED EARNINGS AT END OF PERIOD $ 675 $ 640 ================================================================================ ============= NET INCOME $ 37 $ 64 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (MILLIONS) 103.6 107.3 EARNINGS PER WEIGHTED AVERAGE SHARE OF COMMON STOCK (BASIC AND DILUTED) $ .36 $ .60 CASH DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $.385 $.385 ================================================================================ ============= See Notes to Consolidated Financial Statements. 6
SCANA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended March 31, 1999 and 1998 (Unaudited) Three Months Ended March 31, - -------------------------------------------------------------------------------- 1999 1998 - ---------------------------------------------------------------------- --------- (Millions of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $37 $ 64 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 44 32 Amortization of nuclear fuel 5 5 Deferred income taxes, net 3 23 Pension asset (6) (1) Post-retirement benefits 3 3 Allowance for funds used during construction (3) (4) Over (under) collections, fuel adjustment clauses 9 16 Changes in certain current assets and liabilities: (Increase) decrease in receivables 11 (10) (Increase) decrease in inventories (10) 4 Increase (decrease) in accounts payable (23) 15 Increase (decrease) in taxes accrued (60) (34) Other, net 11 (17) - -------------------------------------------------------------------------------- Net Cash Provided From Operating Activities 21 96 - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Utility property additions and construction expenditures, net of AFC (50) (51) Increase in other property and investments (13) (7) Sale of subsidiary assets 3 - - -------------------------------------------------------------------------------- Net Cash Used For Investing Activities (60) (58) - -------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds: Issuance of First Mortgage Bonds 99 - Issuance of notes and loans - 60 Repayments: Notes and loans - (60) Other long-term debt (1) - Repurchase of common stock - (3) Dividend payments: Common stock (40) (40) Preferred stock of subsidiary (2) (2) Short-term borrowings, net (21) (1) Fuel and emission allowance financings, net 13 (2) - -------------------------------------------------------------------------------- Net Cash Provided From (Used For) Financing Activities 48 (48) - -------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 9 (10) CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 62 60 - -------------------------------------------------------------------------------- CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31 $71 $ 50 ================================================================================ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for - Interest (includes capitalized interest of $1 for 1999 and $2 for 1998) $24 $ 24 - Income taxes 5 (3) Noncash investing activities - Unrealized gain on securities available for sale (net of 18 31 tax) See Notes to Consolidated Financial Statements. 7 SCANA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in SCANA Corporation's (the Company) Annual Report on Form 10-K for the year ended December 31, 1998. These are interim financial statements, and the amounts reported in the Consolidated Statements of Income are not necessarily indicative of amounts expected for the year. In the opinion of management, the information furnished herein reflects all adjustments, all of a normal recurring nature except as described in Note 2, which are necessary for a fair statement of the results for the interim periods reported. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of Statement 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 March 31, 1999, approximately $203 million and $75 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 (excluding deferred income tax assets) of approximately $43 million and $27 million, respectively, are being recovered through rates, and the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $12 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. B. Comprehensive Income Comprehensive income includes net income and all other changes in equity except those resulting from investments by and distributions to stockholders. Comprehensive income of the Company totaled $56 million and $95 million for the three months ended March 31, 1999 and 1998, respectively. For each period, comprehensive income included net income and unrealized gains/losses on securities available for sale. C. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1999 presentation. 2. RATE MATTERS On December 11, 1998, the PSC issued an order requiring South Carolina Electric & Gas Company (SCE&G), a wholly owned subsidiary of the Company, 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 required 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 PSC-authorized level if SCE&G experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. 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 percent. The rate reductions were placed into effect with the first billing cycle of January 1999. 8 3. RETAINED EARNINGS: 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 March 31, 1999 approximately $26.0 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G's common stock. 4. INVESTMENTS IN EQUITY SECURITIES: At March 31, 1999, SCANA Communications, Inc. (SCI) held the following investments in ITC Holding Company, Inc.(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 4.7 million common shares of Powertel. SCI's investment in Powertel's common shares of approximately $69.2 million had a market value of $67.1 million at March 31, 1999, resulting in a pre-tax unrealized holding loss of $2.1 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 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 series E 6.5% ($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 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 $138.5 million at March 31, 1999, resulting in an unrecorded pre-tax holding loss of $34.1 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 $88.4 million at March 31, 1999, resulting in a pre-tax unrealized holding gain of $72.2 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 $11.3 million. Series A preferred shares are convertible in March 2002 into ITCD common shares on a two for one basis. 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 $64.6 million at March 31, 1999, resulting in an unrecorded pre-tax holding gain of $53.3 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. 9 o ITC has an ownership interest in several Southeastern communications companies. SCI owns approximately 3.1 million common shares, 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 for one basis. The market value of these investments is not readily determinable. 5. CONTINGENCIES: With respect to commitments at March 31, 1999, reference is made to Note 10 of Notes to Consolidated Financial Statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Contingencies at March 31, 1999 are as follows: A. 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 $10.0 million of the liability per reactor would be assessed per year. SCE&G's maximum assessment, based on its two-thirds ownership of V. C. Summer Nuclear Station (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. B. 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 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. 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 $20.8 million at March 31, 1999. The deferral includes the estimated costs associated with the following matters . 10 o 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. 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 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. 11 6. SEGMENT OF BUSINESS INFORMATION: The Company's reportable segments are listed in the following table. The Company uses operating income to measure profitability for its Electric Operations and Gas Distribution segments. Therefore, net income is not allocated to these segments. The Company uses net income to measure profitability for its Energy Marketing segment, which includes the Company's unregulated gas sales in Georgia. Affiliate revenue is derived from transactions between reportable segments as well as transactions between separate legal entities that are combined into the same reportable segment. Assets for the period did not change significantly. Disclosure and Reconciliation of Reportable Segments (unaudited) Three Months Ended Three Months Ended March 31, 1999 March 31, 1998 - ------------ --------------------------------- --------------------------------- Net Operating Net Operating Income Income Income Income (Millions of Dollars) Electric Operations n/a $62 n/a $73 Gas Distribution n/a 14 n/a 16 Gas Transmission $ 3 4 $ 5 5 Energy Marketing (13) n/a (1) n/a - ----------- ---------------- ---------------- ---------------- ---------------- Total Reportable Segments (10) 80 4 94 Elimination of Affiliates - (1) - (1) Non-reportable Segments - (1) 1 (1) Unallocated 47 - 59 (1) - ---------------------------- ---------------- ---------------- ---------------- Consolidated Totals $37 $78 $64 $91 ============================ ================ ================ ================ External Affiliate External Affiliate Revenue Revenue Revenue Revenue (Millions of Dollars) Electric Operations $266 $ 68 $269 $ 67 Gas Distribution 86 - 88 - Gas Transmission 44 49 49 49 Energy Marketing 142 - 93 - - ----------- ---------------- ---------------- ---------------- ---------------- Total Reportable Segments $538 $117 $499 $116 ============ ================ ================ ================ ================ 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SCANA CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in SCANA Corporation's (the Company) Annual Report on Form 10-K for the year ended December 31, 1998. Statements included in this discussion and analysis (or elsewhere in this quarterly 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, (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 issues and liabilities, (14) changes in environmental regulation, (15) unsuccessful correction of any material Year 2000 problem or, alternatively, unsuccessful implementation of a contingency plan by the Company and any critical third party suppliers, and (16) the other risks and uncertainties described from time to time in the Company's periodic reports filed with the Securities and Exchange Commission. The Company disclaims any obligation to update any forward-looking statements. MATERIAL CHANGES IN CAPITAL RESOURCES AND LIQUIDITY SINCE DECEMBER 31, 1998 COMPETITION North Carolina Acquisition 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. Georgia Retail Gas Market SCANA Energy Marketing (Energy Marketing), a wholly-owned subsidiary of the Company, continues to exceed projections for acquiring customers in Georgia's natural gas market. At March 31, 1999, Energy Marketing had approximately 236,000 customers compared to approximately 72,000 at December 31, 1998. Energy Marketing's success has resulted in expenses being significantly higher than expected. For the three months ended March 31, 1999, Energy Marketing incurred losses (net of taxes) of approximately $12.5 million, including startup costs which were expensed as incurred. A substantial portion of those costs came from a $50 per customer promotional sign-up offer, which expired April 15, 1999. In March 1999, the Georgia legislature approved a bill that resulted in Georgia's natural gas market being declared competitive. As a result, customers who have not chosen a new gas supplier by August 11, 1999 will be randomly assigned to a new supplier based on market share. At the current rate of expansion, Energy Marketing could have approximately 600,000 customers after the random assignment process is completed. As a result, Energy Marketing anticipates incurring significant losses through the 13 rest of 1999. The level of future revenues and expenditures, including startup cost, is dependent on several factors that cannot be reasonably predicted. These factors include how rapidly Energy Marketing gains additional customers and 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. Proposed Interstate Natural Gas Pipeline On April 14, 1999, South Carolina Pipeline Corporation, a wholly-owned subsidiary of the Company, announced plans to develop an interstate natural gas pipeline to ensure adequate supplies to growing gas markets in South Carolina and North Carolina. Details of the proposal, which is competing with another similar proposed project, are being finalized. Construction of the project will require approval by the Federal Energy Regulatory Commission and other federal and state agencies. LIQUIDITY AND CAPITAL RESOURCES On December 11, 1998, the Public Service Commission of South Carolina (PSC) issued an order requiring South Carolina Electric & Gas Company (SCE&G), a wholly owned subsidiary of the Company, 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-breaking heat experienced during the summer. The order required 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 PSC-authorized level if SCE&G experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. 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 percent. The rate reductions were placed into effect with the first billing cycle of January 1999. The following table summarizes how the Company generated funds for property additions and construction expenditures during the three months ended March 31, 1999 and 1998: Three Months Ended March 31, 1999 1998 - --------------------------------------------------------------- -------------- (Millions of Dollars) Net cash provided from operating activities $ 21 $ 96 Net cash provided (used) for financing activities 48 (48) Cash provided from sale of subsidiary assets 3 - - --------------------------------------------------------------- -------------- Cash and temporary cash investments available at the beginning of the period 62 60 =============================================================== ============== Net cash available for property additions and construction expenditures $134 $108 =============================================================== ============== Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $ 50 $ 51 =============================================================== ============== Funds used for nonutility property additions $13 $ 7 =============================================================== ============== On March 9, 1999, SCE&G issued $100 million of First Mortgage Bonds having an annual interest rate of 6 1/8% and maturing on March 1, 2009. These funds were used to reduce short-term debt. The Company anticipates that the remainder of its 1999 cash requirements will be met through internally generated funds, and the incurrence of additional short-term and long-term indebtedness. The Company anticipates incurring short-term and long-term debt to fund the cash consideration to be paid to shareholders related to the Company's acquisition of PSNC. The timing and amount of such financings will depend upon market conditions and other factors. 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. The ratio of earnings to fixed charges for the twelve months ended March 31, 1999 was 3.29. 14 Investments in Equity Securities At March 31, 1999, SCANA Communications, Inc. (SCI), a wholly owned subsidiary of the Company, held the following investments in ITC Holding Company, Inc. (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 4.7 million common shares of Powertel. SCI's investment in Powertel's common shares of approximately $69.2 million had a market value of $67.1 million at March 31, 1999, resulting in a pre-tax unrealized holding loss of $2.1 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 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 series E 6.5% ($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 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 $138.5 million at March 31, 1999, resulting in an unrecorded pre-tax holding loss of $34.1 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 $88.4 million at March 31, 1999, resulting in a pre-tax unrealized holding gain of $72.2 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 $11.3 million. Series A preferred shares are convertible in March 2002 into ITCD common shares on a two for one basis. 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 $64.6 million at March 31, 1999, resulting in an unrecorded pre-tax holding gain of $53.3 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. o ITC has an ownership interest in several Southeastern communications companies. SCI owns approximately 3.1 million common shares, 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 for one basis. The market value of these investments is not readily determinable. 15 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 March 1999, the Company was 100% complete with inventory tasks, 78% complete with detailed assessment tasks and 70% 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. Independent vendor verifications of remediated code for selected applications are planned for the second quarter of 1999. 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. An Information Technology Audit Review Committee has been established to review all assessments for mission critical applications and technical infrastructure items. The Information Technology Project was approximately 65% complete through March 1999. 16 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 continues to review all assessments for critical systems. As assessments are completed, any required remediation efforts are evaluated and implemented. Independent vendor verifications for selected completed assessments were completed during the first quarter of 1999 and confirmed the Company's previous conclusions. The Embedded Systems Project was approximately 75% complete through March 1999. 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, customer 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 60% complete through March 1999. 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 $ 9 $11 1999 3 6 9 ----- ------- ----- 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 temporarily 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. 17 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. On April 9, 1999, the Company participated in the first of two NERC required contingency planning drills that are intended to test backup communications systems and the Company's ability to operate the electric grid with manually read data instead of computerized systems. The Company's gas transmission and distribution operations areas also participated in the drill. The drills were successful and no major problems with the Company's backup procedures were found. 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. 18 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO THE CORRESPONDING PERIOD IN 1998 Earnings and Dividends Net income for the three months ended March 31, 1999 decreased approximately $27.2 million when compared to the corresponding period in 1998. Lower electric margins, the impact of a rate reduction, and losses from the Company's entry into the Georgia retail gas market were only partially offset by reduced other operation and maintenance expenses. In addition, net income for the three months ended March 31, 1998 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 depreciation rates resulted 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. Allowance for funds used during construction (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. Both the equity and the debt portions of AFC are noncash items of nonoperating income which have the effect of increasing reported net income. AFC represented approximately 5% and 4% of income before income taxes for the three months ended March 31, 1999 and 1998, respectively. The Company's Board of Directors declared the following quarterly dividends on common stock: - ------------------- ---------------- ------------------ ------------------- Declaration Dividend Record Payment Date Per Share Date Date - ------------------- ---------------- ------------------ ------------------- February 7, 1999 38 1/2 cents March 9, 1999 April 1, 1999 April 22, 1999 38 1/2 cents June 9, 1999 July 1, 1999 - ------------------- ---------------- ------------------ ------------------- On February 17, 1999, the Board of Directors 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. Electric Operations Electric operations sales margins (including transactions with affiliates) for the three months ended March 31, 1999 and 1998 were as follows: Three Months Ended March 31, 1999 1998 Change % Change - ------------------------------- --------------- --------- --------- ------------ (Million of Dollars) Electric operating revenue $334.3 $336.2 $ (1.9) (0.6%) Less: Fuel used in generation 103.8 100.3 3.5 3.5% Purchased power 28.1 26.3 1.8 6.8% - ------------------------------- --------------- --------- --------- ------------ Margin $202.4 $209.6 $ (7.2) (3.4%) =============================== =============== ========= ========= ============ The electric operations sales margin decreased for the three months ended March 31, 1999 when compared to the corresponding period in 1998 primarily as a result of milder weather in the first quarter of 1999 and implementation in January 1999 of a $22.7 million annual rate reduction ordered by the PSC. See LIQUIDITY AND CAPITAL RESOURCES. 19 Gas Distribution Gas distribution sales margins for the three months ended March 31, 1999 and 1998, were as follows: Three Months Ended March 31, 1999 1998 Change % Change - ------------------------------------------------ ---------- ------------------- (Million of Dollars) Gas distribution operating revenue $86.1 $88.2 $(2.1) (2.4%) Less: Gas purchased for resale 49.1 48.9 0.2 0.4% - ------------------------------------------------------------------------------- Margin $37.0 $39.3 $(2.3) (5.9%) =============================================================================== The gas distribution sales margin for the three months ended March 31, 1999 decreased from 1998 levels primarily as a result of increased competitiveness of alternative fuels and milder weather. Gas Transmission Gas transmission sales margins (including transactions with affiliates) for the three months ended March 31, 1999 and 1998 were as follows: Three Months Ended March 31, 1999 1998 Change % Change - --------------------------------------------- ----------------- --------------- (Million of Dollars) Gas transmission operating revenue $92.8 $97.2 $(4.4) (4.5%) Less: Gas purchased for resale 80.5 83.0 (2.5) (3.0%) - ------------------------------------------------------------------------------- Margin $12.3 $14.2 $(1.9) (13.4%) =============================================================================== The gas transmission sales margin for the three months ended March 31, 1999 decreased from 1998 levels primarily as a result of increased competitiveness of alternate fuels. Energy Marketing Energy Marketing sales margins for the three months ended March 31, 1999 and 1998 were as follows: Three Months Ended March 31, 1999 1998 Change % Change - ---------------------------------------------------------------- --------------- (Million of Dollars) Gas and electric sales revenue $149.4 $92.5 $56.9 61.5% Less: Gas and electricity purchased for resale 147.8 92.2 55.6 60.3% - -------------------------------------------------------------------------------- Margin $ 1.6 $ .3 $ 1.3 433.3% ================================================================================ The energy marketing sales margin for the three months ended March 31, 1999 increased from 1998 levels primarily as a result of positive margins achieved in the Georgia retail natural gas market. Other Operating Expenses Other operating expenses, including taxes, for the three months ended March 31, 1999 and 1998 were as follows: Three Months Ended March 31, 1999 1998 Change % Change - --------------------------------------------- --------------- ------------- --- (Million of Dollars) Other operation and maintenance $ 76.2 $ 79.2 $ (3.0) (3.8%) Depreciation and amortization 41.8 29.9 11.9 39.8% Income taxes 28.3 36.6 (8.3) (22.8%) Other taxes 27.2 26.0 1.2 4.6% - ------------------------------------------------------------------------------- Total $173.5 $171.7 $ 1.8 1.0% =============================================================================== 20 Other operation and maintenance expenses for the three months ended March 31, 1999 decreased from 1998 levels primarily as a result of decreased maintenance costs for electric generation and distribution facilities. The increase in depreciation and amortization expenses for the three months ended March 31, 1999 reflects the non-recurring adjustment to depreciation expense in 1998 discussed under "Earnings and Dividends." The change in income tax expense primarily reflects the change in operating income. The increase in other taxes for the periods primarily results from increases in property taxes. Other Income Other income, net of income taxes, for the three months ended March 31, 1999 decreased approximately $8.7 million, when compared to the corresponding period of 1998. This decrease was primarily attributable to losses from energy marketing activities as a result of startup costs in new markets. Interest Expense Interest expense, excluding the debt component of AFC, for the three months ended March 31, 1999 increased approximately $4.4 million, when compared to the corresponding period in 1998. The increase was primarily due to the issuance of medium-term notes in the third quarter of 1998, the issuance of First Mortgage Bonds in the first quarter of 1999 and increased borrowings of short-term debt. Item 3. Quantitative and Qualitative Disclosure About Market Risk All financial instruments held by the Company described below are held for purposes other than trading. Interest rate risk - The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. March 31, 1999 Expected Maturity Date -------------- ------------------ ------------------------------- --------- -------------------- (Millions of Dollars) There- Fair Liabilities 1999 2000 2001 2002 2003 After Total Value -------------- --------- ----------- ----------- ----------- ----------- ----------- ----------- Long-Term Debt Fixed Rate ($) 106.5 213.5 27.5 27.5 284.4 1,265.8 1,925.3 1,969.1 Average Interest Rate 6.86 5.93 6.87 6.87 6.29 7.35 6.99
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. 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, a component of other comprehensive income. 21 SOUTH CAROLINA ELECTRIC & GAS COMPANY FINANCIAL SECTION 22 Item 1. Financial Statements SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS As of March 31, 1999 and December 31, 1998 (Unaudited) March 31, December 31, - ----------------------------------------------------------------------- -------- 1999 1998 - ----------------------------------------------------------------------- -------- ASSETS (Millions of Dollars) Utility Plant: Electric $4,135 $4,133 Gas 366 366 Other 175 175 - -------------------------------------------------------------------------------- Total 4,676 4,674 Less accumulated depreciation and amortization 1,552 1,517 - -------------------------------------------------------------------------------- Total 3,124 3,157 Construction work in progress 262 219 Nuclear fuel, net of accumulated amortization 56 56 - -------------------------------------------------------------------------------- Utility Plant, Net 3,442 3,432 - -------------------------------------------------------------------------------- Nonutility Property and Investments, net of accumulated depreciation 17 16 - -------------------------------------------------------------------------------- Current Assets: Cash and temporary cash investments 46 36 Receivables 164 178 Inventories (at average cost): Fuel 47 32 Materials and supplies 47 47 Prepayments 11 8 Deferred income taxes 21 21 - -------------------------------------------------------------------------------- Total Current Assets 336 322 - -------------------------------------------------------------------------------- Deferred Debits: Emission allowances 31 31 Environmental 22 22 Nuclear plant decommissioning fund 58 56 Pension asset, net 121 115 Other 251 252 - -------------------------------------------------------------------------------- Total Deferred Debits 483 476 - -------------------------------------------------------------------------------- Total $4,278 $4,246 ================================================================================ 23
SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS As of March 1999 and December 31, 1998 (Unaudited) March 31, December 31, - ------------------------------------------------------------------------------- ----------- 1999 1998 - ------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES (Millions of Dollars) Stockholders' Investment: Common Equity $1,510 $1,499 Preferred stock (not subject to purchase or sinking funds) 106 106 - ------------------------------------------------------------------------------------------- Total Stockholders' Investment 1,616 1,605 Preferred Stock, Net (subject to purchase or sinking funds) 11 11 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 1,318 1,206 - ------------------------------------------------------------------------------------------- Total Capitalization 2,995 2,872 - ------------------------------------------------------------------------------------------- Current Liabilities: Short-term borrowings 78 125 Current portion of long-term debt 29 29 Accounts payable 81 97 Accounts payable - affiliated companies 27 23 Customer deposits 17 17 Taxes accrued 26 75 Interest accrued 25 21 Dividends declared 38 38 Other 10 10 - ------------------------------------------------------------------------------------------- Total Current Liabilities 331 435 - ------------------------------------------------------------------------------- ----------- Deferred Credits: Deferred income taxes 570 549 Deferred investment tax credits 99 100 Reserve for nuclear plant decommissioning 58 56 Postretirement benefits 90 87 Other 135 147 - ------------------------------------------------------------------------------------------- Total Deferred Credits 952 939 - ------------------------------------------------------------------------------------------- Total $4,278 $4,246 =========================================================================================== See Notes to Consolidated Financial Statements.
24 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Periods Ended March 31, 1999 and 1998 (Unaudited) Three Months Ended March 31, - -------------------------------------------------------------------------------- 1999 1998 - -------------------------------------------------------------------------------- (Millions of Dollars) OPERATING REVENUES: Electric $266 $270 Gas 86 88 Transit 1 - - -------------------------------------------------------------------------------- Total Operating Revenues 353 358 - -------------------------------------------------------------------------------- Operating Expenses: Fuel used in electric generation 45 43 Purchased power (including affiliated purchases) 28 26 Gas purchased from affiliate for resale 49 49 Other operation 53 56 Maintenance 17 18 Depreciation and amortization 38 26 Income taxes 26 33 Other taxes 25 24 - -------------------------------------------------------------------------------- Total Operating Expenses 281 275 - -------------------------------------------------------------------------------- OPERATING INCOME 72 83 - -------------------------------------------------------------------------------- OTHER INCOME: Allowance for equity funds used during construction 1 2 Other income 1 - - -------------------------------------------------------------------------------- Total Other Income 2 2 - -------------------------------------------------------------------------------- INCOME BEFORE INTEREST CHARGES 74 85 - -------------------------------------------------------------------------------- INTEREST CHARGES (CREDITS): Interest expense on long-term debt 23 24 Other interest expense 3 2 Allowance for borrowed funds used during construction (1) (2) - -------------------------------------------------------------------------------- Total Interest Charges, Net 25 24 - -------------------------------------------------------------------------------- INCOME BEFORE PREFERRED DIVIDEND REQUIREMENTS ON MANDATORILY REDEEMABLE PREFERRED SECURITIES 49 61 PREFERRED DIVIDEND REQUIREMENT OF SCE&G - OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES 1 1 - -------------------------------------------------------------------------------- NET INCOME 48 60 Preferred Stock Cash Dividends (At stated rates) (2) (2) - -------------------------------------------------------------------------------- Earnings Available for Common Stock 46 58 Retained Earnings at Beginning of Period 491 438 Common Stock Cash Dividends Declared (36) (37) ================================================================================ Retained Earnings at End of Period $501 $459 ================================================================================ See Notes to Consolidated Financial Statements. 25 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the Periods Ended March 31, 1999 and 1998 (Unaudited) Three Months Ended March 31, - -------------------------------------------------------------------- ----------- 1999 1998 - -------------------------------------------------------------------- ----------- (Millions of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 48 $ 60 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation and amortization 38 26 Amortization of nuclear fuel 5 5 Deferred income taxes, net 22 20 Pension asset (7) (1) Post retirement benefits 3 3 Allowance for funds used during construction (2) (4) Over (under) collections, fuel adjustment clauses 9 16 Changes in certain current assets and liabilities: (Increase) decrease in receivables 14 1 (Increase) decrease in inventories (15) (5) Increase (decrease) in accounts payable (12) (9) Increase (decrease) in taxes accrued (49) (15) Other, net (22) (21) - -------------------------------------------------------------------- ----------- Net Cash Provided From Operating Activities 32 76 - -------------------------------------------------------------------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Utility property additions and construction expenditures, net of AFC (48) (46) - -------------------------------------------------------------------- ----------- Net Cash Used For Investing Activities (48) (46) - -------------------------------------------------------------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds: Issuance of First Mortgage Bonds 99 - Dividend payments: Common stock (36) (56) Preferred stock (2) (2) Short-term borrowings, net (48) 44 Fuel and emission allowance financings, net 13 (2) - -------------------------------------------------------------------- ----------- Net Cash Provided From (Used For) Financing Activities 26 (16) - -------------------------------------------------------------------- ----------- NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 10 14 CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 36 6 ==================================================================== =========== CASH AND TEMPORARY CASH INVESTMENTS AT MARCH 31 $ 46 $ 20 ==================================================================== =========== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for - Interest (includes capitalized interest of $1 for 1999 and $2 for 1998) $ 21 $ 21 - Income taxes 4 (20) See Notes to Consolidated Financial Statements. 26 SOUTH CAROLINA ELECTRIC & GAS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 (Unaudited) The following notes should be read in conjunction with the Notes to Consolidated Financial Statements appearing in South Carolina Electric & Gas Company's (the Company) Annual Report on Form 10-K for the year ended December 31, 1998. These are interim financial statements, and the amounts reported in the Consolidated Statements of Income are not necessarily indicative of amounts expected for the year. In the opinion of management, the information furnished herein reflects all adjustments, all of a normal recurring nature except as described in Note 2, which are necessary for a fair statement of the results for the interim periods reported. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Basis of Accounting The Company accounts for its regulated utility operations, assets and liabilities in accordance with the provisions of Statement 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 March 31, 1999, approximately $195 million and $69 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 (excluding deferred income tax assets) of approximately $43 million and $27 million, respectively, are being recovered through rates, and the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of approximately $12 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. B. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1999 presentation. 2. RATE MATTERS 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 required 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 PSC-authorized level if the Company experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. 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. The rate reductions were placed into effect with the first billing cycle of January 1999. 3. RETAINED EARNINGS: 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 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 March 31, 1999, approximately $26.0 million of retained earnings were restricted by this requirement as to payment of cash dividends on common stock. 27 4. CONTINGENCIES: With respect to commitments at March 31, 1999, reference is made to Note 10 of Notes to Consolidated Financial Statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. Contingencies at March 31, 1999 are as follows: A. 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 the V. C. Summer Nuclear Station (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 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 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. B. 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 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. 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 $20.8 million at March 31, 1999. The deferral includes the estimated costs associated with the following matters. o 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 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 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 28 $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. o 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 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 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. 5. SEGMENT OF BUSINESS INFORMATION: The Company's reportable segments are listed in the following table. The Company uses operating income to measure profitability for its Electric Operations and Gas Distribution segments. Therefore, net income is not allocated to these segments. Affiliate revenue is derived from transactions between reportable segments as well as transactions between separate legal entities that are combined into the same reportable segment. Assets for the period did not change significantly. Disclosure and Reconciliation of Reportable Segments (unaudited) Three Months Ended Three Months Ended March 31, 1999 March 31, 1998 - --------------------------------------------------------------------- ---------- Operating External Affiliate Operating External Affiliate Income Revenue Revenue Income Revenue Revenue (Millions of Dollars) Electric Operations $60 $266 $44 $69 $269 $42 Gas Distribution 14 86 - 16 88 - - -------------------------------------------------------------------------------- Total Reportable Segments 74 $352 $44 85 $357 $42 ==== === ==== === Elimination of Affiliates (1) (1) Non-reportable Segments (1) (1) - -------------------------------------------------------------------------------- Consolidated Totals $72 $83 === === 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations SOUTH CAROLINA ELECTRIC & GAS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in SCE&G's Annual Report on Form 10-K for the year ended December 31, 1998. Statements included in this discussion and analysis (or elsewhere in this quarterly 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, (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 in areas served by SCE&G, (11) inflation, (12) exposure to environmental issues and liabilities, (13) changes in environmental regulation, (14) unsuccessful correction of any material Year 2000 problem or, alternatively, unsuccessful 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. MATERIAL CHANGES IN CAPITAL RESOURCES AND LIQUIDITY SINCE DECEMBER 31, 1998 LIQUIDITY AND CAPITAL RESOURCES On December 11, 1998, the South Carolina Public Service Commission (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 required 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 PSC-authorized level if SCE&G experiences the same weather effect and other business results as that of the twelve months ended September 30, 1998. 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%. The rate reductions were placed into effect with the first billing cycle of January 1999. 30 The following table summarizes how SCE&G generated funds for its utility property additions and construction expenditures during the three months ended March 31, 1999 and 1998: Three Months Ended March 31, 1999 1998 - ----------------------------------------------------------------------------- (Millions of Dollars) Net cash provided for operating activities $32 $76 Net cash provided from (used for) financing activities 26 (16) Cash and temporary cash investments available at the beginning of the period 36 6 - ---------------------------------------------------------------------------- Net cash available for utility property additions and construction expenditures $94 $66 ============================================================================ Funds used for utility property additions and construction expenditures, net of noncash allowance for funds used during construction $48 $ 46 ============================================================================ On March 9, 1999, SCE&G issued $100 million of First Mortgage Bonds having an annual interest rate of 6 1/8% and maturing on March 1, 2009. These funds were used to reduce short-term debt. SCE&G anticipates that the remainder of its 1998 cash requirements will be met through internally generated funds and the incurrence of additional short-term and long-term indebtedness. The timing and amount of such financings will depend upon market conditions and other factors. 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. The ratio of earnings to fixed charges for the twelve months ended March 31, 1999 was 4.21. 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 Corporation (SCANA), SCE&G's parent company, 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 SCANA and its board of directors. It is chaired by SCANA'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. 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, 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. 31 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 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 March 1999, SCE&G was 100% complete with inventory tasks, 78% complete with detailed assessment tasks and 70% 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 continue to be tested according to the project schedule. Independent vendor verifications of remediated code for selected applications are planned for the second quarter of 1999. 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. An Information Technology Audit Review Committee has been established to review all assessments for mission critical applications and technical infrastructure items. The Information Technology Project was approximately 65% complete through March 1999. 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 SCE&G's business units to complete the assessments of critical systems and equipment based on the corporate prioritization process. An Embedded Systems Audit Review Committee continues to review all assessments for critical systems. As assessments are completed, any required remediation efforts are evaluated and implemented. Independent vendor verifications for selected completed assessments were completed during the first quarter of 1999 and confirmed SCE&G's previous conclusions. The Embedded Systems Project was approximately 75% complete through March 1999. 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, customer and supplier communications. This team is coordinating communications with all significant vendors and suppliers in an attempt to determine the extent to which SCE&G may be vulnerable to their failure to remediate their own Year 2000 issues. SCE&G has completed an initial survey of vendors and is currently evaluating the responses to the survey and conducting additional inquiries where necessary. SCE&G 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 Public Service Commission. The Procedures and External Interfaces Project was approximately 60% complete through March 1999. SCE&G's projected total cost of its Year 2000 efforts and the anticipated timing and breakdown of these expenditures is a follows: - ---------------------------------------------------------------------------- Internal Out of Pocket Total - ---------------------------------------------------------------------------- Project To Date $ 2 $ 8 $ 10 1999 3 6 9 - - - Total $ 5 $ 14 $19 - ---------------------------------------------------------------------------- 32 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 temporarily 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 are being 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. On April 9, 1999, SCE&G participated in the first of two NERC required contingency planning drills that are intended to test backup communications systems and the Company's ability to operate the electric grid with manually read data instead of computerized systems. SCE&G's gas distribution operations also participated in the drill. The drills were successful and no major problems with the Company's backup procedures were found. 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. 33 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AS COMPARED TO THE CORRESPONDING PERIOD IN 1998 Earnings and Dividends Net income for the three months ended March 31, 1999 decreased approximately $11.7 million when compared to the corresponding periods in 1998. Lower electric margins and the impact of a rate reduction were only partially offset by reduced other operation and maintenance expenses. In addition, net income for the three months ended March 31, 1998 include 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 depreciation rates resulted 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. Allowance for funds used during construction (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. Both the equity and the debt portions of AFC are noncash items of nonoperating income which have the effect of increasing reported net income. AFC represented approximately 3% and 4% of income before income taxes for the three months ended March 31, 1999 and 1998, respectively. SCE&G's Board of Directors authorized payment of dividends on common stock held by SCANA, as follows: - -------------------- ----------------- ----------------- ----------------- Declaration Dividend Quarter Payment Date Amount Ended Date - -------------------- ----------------- ----------------- ----------------- February 17, 1999 $35.8 million March 31, 1999 April 1, 1999 April 22, 1999 $35.8 million June 30, 1999 July 1, 1999 - -------------------- ----------------- ----------------- ----------------- Electric Operations Electric operations sales margins (including transactions with affiliates) for the three months ended March 31, 1999 and 1998 were as follows: Three Months Ended March 31, 1999 1998 Change % Change - -------------------------------------------------------------------------------- (Million of Dollars) Electric operating revenue $309.8 $311.6 $(1.8) (0.6%) Less: Fuel used in generation 87.3 84.0 3.3 3.9% Purchased power 28.1 26.3 1.8 6.8% - -------------------------------------------------------------------------------- Margin $194.4 $201.3 $(6.9) (3.4%) ================================================================================ The electric operations sales margin decreased for the three months ended March 31, 1999 when compared to the corresponding period in 1998 primarily as a result of milder weather in the first quarter of 1999 and implementation in January 1999 of a $22.7 million annual rate reduction ordered by the South Carolina Public Service Commission. See LIQUIDITY AND CAPITAL RESOURCES. Gas Distribution Gas distribution sales margins for the three months ended March 31, 1999 and 1998 were as follows: Three Months Ended March 31, 1999 1998 Change % Change - -------------------------------------------------------------------------------- (Million of Dollars) Gas operating revenue $86.1 $88.2 $(2.1) (2.3%) Less: Gas purchased for resale 49.1 48.9 0.2 0.3% - -------------------------------------------------------------------------------- Margin $37.0 $39.3 $(2.3) (5.6%) ================================================================================ 34 The gas distribution sales margin for the three months ended March 31, 1999 decreased from 1998 levels primarily as a result of increased competitiveness of alternative fuels and milder weather. Other Operating Expenses Changes in other operating expenses, including taxes, for the three months ended March 31, 1999 when compared to the corresponding periods in 1998, were as follows: Three Months Ended March 31, 1999 1998 Change % Change - ------------------------------------------------------------------------------- (Million of Dollars) Other operation and maintenance $ 70.2 $ 73.9 $(3.7) (5.0%) Depreciation and amortization 38.2 26.2 12.0 45.8% Income taxes 26.1 33.5 (7.4) (22.1%) Other taxes 24.6 23.5 1.1 4.7% - ------------------------------------------------------------------------------- Margin $159.1 $157.1 $ 2.0 1.3% =============================================================================== Other operation and maintenance expenses for the three months ended March 31, 1999 decreased from 1998 levels primarily as a result of decreased maintenance costs for electric generation and distribution facilities. The increase in depreciation and amortization expenses for the three months ended March 31, 1999 reflects the non-recurring adjustment to depreciation expense discussed under "Earnings and Dividends." The change in income tax expense primarily reflects the change in operating income. The increase in other taxes for the period primarily results from increases in property taxes. Other Income Other income, net of income taxes, for the three months ended March 31, 1999 increased approximately $0.8 million and is not material. Item 3. Quantitative and Qualitative Disclosure About Market Risk All financial instruments held by SCE&G described below are held for purposes other than trading. Interest rate risk - The table below provides information about SCE&G's financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates.
March 31, 1999 Expected Maturity Date -------------- ------------------ ------------------------------- --------- -------------------- (Millions of Dollars) There- Fair Liabilities 1999 2000 2001 2002 2003 After Total Value -------------- --------- ----------- ----------- ----------- ----------- ----------- ----------- Long-Term Debt Fixed Rate ($) 29.1 188.6 22.6 22.6 124.5 1,043.4 1,437.1 1,456.4 Average Interest Rate 6.56 5.89 6.72 6.72 7.56 7.55 7.28
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. 35 PART II. OTHER INFORMATION Item 1. Legal Proceedings SCANA Corporation: For information regarding legal proceedings see Note 2 "Rate Matters," appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and Note 5 "Contingencies" of Notes to Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. South Carolina Electric & Gas Company: For information regarding legal proceeding see Note 2 "Rate Matters, " appearing in South Carolina Electric & Gas Company's Annual Report on Form 10-K for the year ended December 31, 1998, and Note 4 "Contingencies" of Notes to Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q. Items 2, 3, 4 and 5 are not applicable for SCANA Corporation or South Carolina Electric & Gas Company. Item 6. Exhibits and Reports on Form 8-K SCANA Corporation and South Carolina Electric & Gas Company: A. Exhibits Exhibits filed with this Quarterly Report on Form 10-Q are listed in the following Exhibit Index. Certain of such exhibits which have heretofore been filed with the Securities and Exchange Commission and which are designated by reference to their exhibit numbers in prior filings are hereby incorporated herein by reference and made a part hereof. B. Reports on Form 8-K during the first quarter 1999 were as follows: SCANA filed a current report on Form 8-K: Date of report: February 16, 1999 Items reported: Item 5 and Item 7 SCE&G filed a current report on Form 8-K: Date of report: February 16, 1999 Items reported: Item 5 and Item 7 36 SCANA CORPORATION SIGNATURES Pursuant to the requirements 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. SCANA CORPORATION (Registrant) May 17, 1999 By: s/K. B. Marsh ------------------- K. B. Marsh,Senior Vice President -Finance, Chief Financial Officer and Controller (Principal financial officer) 37 SOUTH CAROLINA ELECTRIC & GAS COMPANY SIGNATURES Pursuant to the requirements 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. SOUTH CAROLINA ELECTRIC & GAS COMPANY (Registrant) May 17, 1999 By: s/Jimmy E. Addison Jimmy E. Addison Vice President and Controller (Principal accounting officer) 38 EXHIBIT INDEX Applicable to Form 10-Q of Exhibit No. SCANA SCE&G Description 2.01 X X Agreement and Plan of Merger, dated as of February 16, 1999 as amended and restated as of May 10, 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 2.1 to SCANA Form S-4 on May 11, 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 Articles of Amendment of SCE&G, dated April 9, 1998 (Filed herewith on page 43) 3.16 X 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) 39 Applicable to Form 10-Q of Exhibit No. SCANA SCE&G Description 3.17 X 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 Indenture dated as of November 1, 1989 to The Bank of New York, Trustee (Filed as Exhibit 4-A to Registration Statement No. 33-32107) 4.03 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) 4.04 X X Fourth Supplemental Indenture dated as of April 1, 1950, to Indenture referred to in Exhibit 4.03, pursuant to which SCE&G assumed said Indenture (Filed as Exhibit 2-C to Registration Statement No. 2-26459) 4.05 X X Fifth through Fifty-second Supplemental Indenture referred to in Exhibit 4.03 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 40 Applicable to Form 10-Q 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 4.06 X X Fifty-Third Supplemental Indenture, dated May 1, 1999, to Indenture referred to in Exhibit 4.03 (Filed herewith on page 45) 4.07 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-G to SCE&G 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-H to SCE&G 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-I to SCE&G 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-J to SCE&G Form 10-K for the year ended December 31, 1997) 41 Applicable to Form 10-Q of Exhibit No. SCANA SCE&G Description 4.14 X X Amended and Restated Trust Agreement for SCE&G Trust I (Filed as Exhibit 4-K to SCE&G Form 10-K for the year ended December 31, 1997) 10.01 X SCANA Voluntary Deferral Plan as amended through October 21, 1997 (Filed as Exhibit 10.01 to SCANA Form 10-K for the year ended December 31, 1998) 10.02 X X Supplemental Executive Retirement Plan (Filed as Exhibit 10-A to SCE&G Form 10-K for the year ended December 31, 1997) 10.03 X SCANA Supplementary Voluntary Deferral Plan as amended and restated through October 21, 1997 (Filed as Exhibit 10-B to SCANA Form 10-K for the year ended December 31, 1997) 10.04 X SCANA Key Executive Severance Benefits Plan as amended and restated effective as of October 21, 1997 (Filed as Exhibit 10-C to SCANA Form 10-K for the year ended December 31, 1997) 10.05 X SCANA Supplementary Key Executive Severance Benefit Plan as amended and restated effective October 21, 1997 (Filed as Exhibit 10.06 to SCANA Form 10-K for the year ended December 31, 1998) 10.06 X SCANA Performance Share Plan as amended and restated effective January 1, 1998 (Filed as Exhibit 10.07 to SCANA Form 10-K for the year ended December 31, 1998) 10.07 X SCANA Key Employee Retention Plan as amended and restated effective as of October 21, 1997 (Filed as Exhibit 10-E to SCANA Form 10-K for the year ended December 31, 1997) 10.08 X Description of SCANA Whole Life Option (Filed as Exhibit 10-F to SCANA Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 10.9 X Description of SCANA Corporation Annual Incentive Plan (Filed as Exhibit 10-G to SCANA Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809) 27.01 X Financial Data Schedule (Filed herewith) 27.02 X Financial Data Schedule (Filed herewith) 42 EX-3.(I) 2 ARTICLES OF AMENDMENT 3 Exhibit 3.15 STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is SOUTH CAROLINA ELECTRIC & GAS COMPANY. 2. On , the corporation adopted the following Amendment(s) of its Articles of Incorporation: NOT APPLICABLE 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (a) The number of redeemable shares of the corporation reacquired by redemption or purchase is 659,276 itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 4.50% 1,600 Cumulative Preferred Stock ($50 par value) 4.60% 87 Cumulative Preferred Stock ($50 par value) 4.60% (Series A) 2,158 Cumulative Preferred Stock ($50 par value) 4.60% (Series B) 6,800 Cumulative Preferred Stock ($50 par value) 5.125% 1,000 Cumulative Preferred Stock ($100 par value) 7.70% 84,000 Cumulative Preferred Stock ($100 par value) 8.12% 118,812 Cumulative Preferred Stock ($50 par value) 9.40% 176,751 Cumulative Preferred Stock ($50 par value) 8.72% 64,000 Cumulative Preferred Stock ($50 par value) 6.00% 6,400 Cumulative Preferred Stock ($100 par value) 8.40% 197,668 (b) The aggregate number of issued shares of the corporation after giving effect to such cancellation is 41,665,850, itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 " " " " 4.60% 0 " " " " 4.50% 14,400 " " " " 4.60% (Series A) 21,894 " " " " 5.125% 70,000 " " " " 4.60% (Series B) 64,600 " " " " 6% 73,600 " " " " 9.40% 0 " " " ($100 par value) 8.12% 0 " " " " 7.70% 0 " " " " 8.40% 0 " " " ($50 par value) 8.72% 0 " " ($100 par value) 6.52% 1,000,000 Common Stock ($4.50 par value) ------ 40,296,147 ---------- 41,665.850 (c) The amount of the stated capital of the corporation after giving effect to such cancellation is $299,817,811.50. 43 (d) The number of shares which the corporation has authority to issue after giving effect to such cancellation is 56,459,703, itemized as follows: Class Series No. of Shares Cumulative Preferred Stock ($50 par value) 5% 125,209 " " " " 4.60% 0 " " " " 4.50% 14,400 " " " " 4.60% (Series A) 21,894 " " " " 5.125% 70,000 " " " " 4.60% (Series B) 64,600 " " " " 6% 73,600 " " " " 9.40% 0 " " " ($100 par value) 8.12% 0 " " " " 7.70% 0 " " " " 8.40% 0 " " " ($50 par value) 8.72% 0 " " " ($100 par value) 6.52% 1,000,000 Serial Preferred Stock ($50 par value) (1 vote) ---- 640,000 Serial Preferred Stock ($100 par value) (1 vote) ---- 1,750,000 Serial Preferred Stock ($25 par value) (1/4 vote) ---- 2,000,000 Serial Preferred Stock ($50 par value) (1/2 vote) ---- 700,000 Common Stock ($4.50 par value) ---- 50,000,000 ---------- 56,459,703 -- 4. (a) |__| Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was: Number of Number of Number of Votes Number of Undisputed Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the meeting For Against ----- ------------- ---------------- ---------------- -------------------- --- (b) |XX| The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Sections 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code, as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of the acceptance for filing by the Secretary of State (See Section 33-1-230(b)): SOUTH CAROLINA ELECTRIC & GAS COMPANY Date: April 9, 1998 By:___s/Lynn M. Williams________________ ---------------------- Secretary 44 EX-99 3 FIFTY-THIRD SUPPLMENTAL INDENTURE SOUTH CAROLINA ELECTRIC & GAS COMPANY TO THE CHASE MANHATTAN BANK, Trustee ______________________________ FIFTY-THIRD SUPPLEMENTAL INDENTURE (SUPPLEMENTAL TO INDENTURE OF SOUTH CAROLINA POWER COMPANY DATED AS OF JANUARY 1, 1945) PROVIDING FOR FIRST AND REFUNDING MORTGAGE BONDS, 0% SERIES DUE DECEMBER 31, 2098 ISSUED BY SOUTH CAROLINA ELECTRIC & GAS COMPANY, AS SUCCESSOR CORPORATION TO SOUTH CAROLINA POWER COMPANY Dated as of May 1, 1999 THE INDENTURE OF SOUTH CAROLINA ELECTRIC & GAS COMPANY TO CENTRAL HANOVER BANK AND TRUST COMPANY, PREDECESSOR TRUSTEE TO THE CHASE MANHATTAN BANK, AS TRUSTEE, DATED AS OF JANUARY 1, 1945 (THE "INDENTURE"), RECORDED IN THE RMC OFFICE OF THIS COUNTY AS DESCRIBED ON EXHIBIT A HERETO, AS HERETOFORE AMENDED AND SUPPLEMENTED AND AS AMENDED AND SUPPLEMENTED BY THIS FIFTY-THIRD SUPPLEMENTAL INDENTURE THERETO IS SUBJECT TO, AND IS INTENDED TO TAKE ADVANTAGE OF, THE PROVISIONS OF SECTIONS 29-1-10 AND 29-3-80, S. C. CODE OF LAWS (1976), AS AMENDED. THE LIEN OF THE INDENTURE, AS SUPPLEMENTED OR AMENDED FROM TIME TO TIME, SHALL CONTINUE UNTIL SATISFIED OR RELEASED OF RECORD REGARDLESS OF WHETHER OR NOT SUCH INDENTURE STATES A MATURITY DATE. FURTHER, AS SET FORTH IN THE INDENTURE, THE LIEN AFFECTS AFTER-ACQUIRED PROPERTY. (The Chase Manhattan Bank, formerly known as Chemical Bank) 45 THIS FIFTY-THIRD SUPPLEMENTAL INDENTURE, dated as of May 1, 1999, made and entered into by and between SOUTH CAROLINA ELECTRIC & GAS COMPANY, a corporation organized and existing under the laws of the State of South Carolina, with its principal place of business in Columbia, Richland County, South Carolina (the "Company"), party of the first part, and THE CHASE MANHATTAN BANK (successor to Central Hanover Bank and Trust Company), a corporation organized and existing under the laws of the State of New York, with its principal office in the Borough of Manhattan, The City of New York (the "Trustee"), as Trustee under the Indenture dated as of January 1, 1945 between the South Carolina Power Company (the "Power Company") and Central Hanover Bank and Trust Company, as Trustee, party of the second part; Whereas, the Power Company heretofore executed and delivered to the Trustee an Indenture dated as of January 1, 1945 (the "Original Indenture"), a Supplemental Indenture thereto dated as of May 1, 1946, a Supplemental Indenture thereto dated as of May 1, 1947 and a Third Supplemental Indenture thereto dated as of July 1, 1949; and Whereas, the Company heretofore executed and delivered to the Trustee a Fourth Supplemental Indenture, dated as of April 1, 1950, wherein, among other things, (i) the Company assumed the due and punctual payment of the principal of, premium, if any, and interest on all bonds theretofore authenticated under the Original Indenture as theretofore supplemented, according to their tenor, and the due and punctual performance of all of the covenants and agreements of the Original Indenture, as theretofore supplemented, required to be kept or performed by the Power Company and (ii) the Company conveyed, transferred and mortgaged to the Trustee and subjected to the lien of the Original Indenture as theretofore supplemented, as supplemented by the Fourth Supplemental Indenture, and as it might thereafter be supplemented, all property then owned or thereafter to be acquired by the Company, except property of a character similar to that excluded from the lien of the Original Indenture; and Whereas, upon the execution and delivery of said Fourth Supplemental Indenture, dated as of April 1, 1950, the Company succeeded to and became substituted for the Power Company as Successor Corporation to the Power Company under the Original Indenture, as contemplated by Article XV of the Original Indenture; and Whereas, the Company, as such Successor Corporation, has heretofore executed and delivered to the Trustee the following supplemental indentures: DESIGNATION DATED AS OF Fifth Supplemental Indenture..........................December 1, 1950 Sixth Supplemental Indenture..............................July 1, 1951 Seventh Supplemental Indenture............................June 1, 1953 Eighth Supplemental Indenture.............................June 1, 1955 Ninth Supplemental Indenture..........................November 1, 1957 Tenth Supplemental Indenture.........................September 1, 1958 Eleventh Supplemental Indenture......................September 1, 1960 Twelfth Supplemental Indenture............................June 1, 1961 Thirteenth Supplemental Indenture.....................December 1, 1965 Fourteenth Supplemental Indenture.........................June 1, 1966 Fifteenth Supplemental Indenture..........................June 1, 1967 Sixteenth Supplemental Indenture.....................September 1, 1968 Seventeenth Supplemental Indenture........................June 1, 1969 Eighteenth Supplemental Indenture.....................December 1, 1969 Nineteenth Supplemental Indenture.........................June 1, 1970 46 Twentieth Supplemental Indenture.........................March 1, 1971 Twenty-first Supplemental Indenture....................January 1, 1972 Twenty-second Supplemental Indenture......................July 1, 1974 Twenty-third Supplemental Indenture........................May 1, 1975 Twenty-fourth Supplemental Indenture......................July 1, 1975 Twenty-fifth Supplemental Indenture...................February 1, 1976 Twenty-sixth Supplemental Indenture...................December 1, 1976 Twenty-seventh Supplemental Indenture....................March 1, 1977 Twenty-eighth Supplemental Indenture.......................May 1, 1977 Twenty-ninth Supplemental Indenture...................February 1, 1978 Thirtieth Supplemental Indenture..........................June 1, 1978 Thirty-first Supplemental Indenture......................April 1, 1979 Thirty-second Supplemental Indenture......................June 1, 1979 Thirty-third Supplemental Indenture......................April 1, 1980 Thirty-fourth Supplemental Indenture......................June 1, 1980 Thirty-fifth Supplemental Indenture...................December 1, 1980 Thirty-sixth Supplemental Indenture......................April 1, 1981 Thirty-seventh Supplemental Indenture.....................June 1, 1981 Thirty-eighth Supplemental Indenture.....................March 1, 1982 Thirty-ninth Supplemental Indenture.....................April 15, 1982 Fortieth Supplemental Indenture............................May 1, 1982 Forty-first Supplemental Indenture....................December 1, 1984 Forty-second Supplemental Indenture...................December 1, 1985 Forty-third Supplemental Indenture........................June 1, 1986 Forty-fourth Supplemental Indenture...................February 1, 1987 Forty-fifth Supplemental Indenture...................September 1, 1987 Forty-sixth Supplemental Indenture.....................January 1, 1989 Forty-seventh Supplemental Indenture...................January 1, 1991 Forty-eighth Supplemental Indenture...................February 1, 1991 Forty-ninth Supplemental Indenture.......................July 15, 1991 Fiftieth Supplemental Indenture........................August 15, 1991 Fifty-first Supplemental Indenture.......................April 1, 1993 Fifty-second Supplemental Indenture.......................July 1, 1993 all supplemental to the Original Indenture; the Original Indenture, together with all instruments stated to be supplemental thereto to which the Trustee has heretofore been or shall hereafter be a party, including the aforesaid supplemental indentures and this Fifty-third Supplemental Indenture (herein sometimes referred to as "this Supplemental Indenture"), being herein sometimes referred to collectively as the "Mortgage"; and Whereas, the Company, as such Successor Corporation, has executed certain mortgages, specifically subjecting to the lien of the Mortgage certain property purchased, constructed or otherwise acquired by the Company subsequent to January 1, 1965; and Whereas, there have been issued under the Original Indenture as heretofore supplemented, the following series of First and Refunding Mortgage Bonds, of which the following principal amounts were outstanding at the date of this Supplemental Indenture: 47 PRINCIPAL PRINCIPAL AMOUNT AMOUNT SERIES ISSUED OUTSTANDING 3% Series due 1975 "Bonds of the First Series".................... $ 8,000,000 None 3% Series due 1977 "Bonds of the Second Series"................... 4,000,000 None 3 1/8% Series due 1979 "Bonds of the Third Series".................... 4,000,000 None 3% Series due 1980 "Bonds of the Fourth Series"................... 72,445,000 None 3% Series A due 1980 "Bonds of the Fifth Series".................... 4,000,000 None 3 3/4% Series due 1981 "Bonds of the Sixth Series".................... 6,000,000 None 4 1/8% Series due 1983 "Bonds of the Seventh Series".................. 4,000,000 None 3 1/2% Series due 1985 "Bonds of the Eighth Series"................... 5,000,000 None 5 1/2% Series due 1987 "Bonds of the Ninth Series".................... 10,000,000 None 4 7/8% Series due 1988 "Bonds of the Tenth Series".................... 10,000,000 None 5% Series due 1990 "Bonds of the Eleventh Series"................. 10,000,000 None 5% Series due June 1, 1991 "Bonds of the Twelfth Series".................. 8,000,000 None 4 7/8% Series due 1995 "Bonds of the Thirteenth Series"............... 16,000,000 None 5.45% Series due 1996 "Bonds of the Fourteenth Series"............... 15,000,000 None 6% Series due June 1, 1997 "Bonds of the Fifteenth Series"................ 15,000,000 None 6 1/2% Series due September 1, 1998 "Bonds of the Sixteenth Series"................ 112,064,000 None 8% Series due June 1 1999 "Bonds of the Seventeenth Series".............. 35,000,000 None 9 1/8% Series due December 1, 1999 "Bonds of the Eighteenth Series"............... 15,000,000 None 9 7/8% Series due June 1, 2000 "Bonds of the Nineteenth Series"............... 30,000,000 None 8% Series due March 1, 2001 "Bonds of the Twentieth Series"................ 35,000,000 None 48 PRINCIPAL AMOUNT AMOUNT SERIES ISSUED OUTSTANDING 7 1/4% series due January 1, 2002 "Bonds of the Twenty-first Series".................. $30,000,000 None 10 1/2% Series due July 1, 1979 "Bonds of the Twenty-second Series"................. 35,000,000 None 10 1/2% Series due May 1, 1990 "Bonds of the Twenty-third Series".................. 15,000,000 None 9 3/8% Series due July 1, 1984 "Bonds of the Twenty-fourth Series"................. 25,000,000 None 9 1/8% Series due February 1, 2006 "Bonds of the Twenty-fifth Series".................. 50,000,000 None 8.40% Series due December 1, 2006 "Bonds of the Twenty-sixth Series".................. 50,000,000 None 8 3/8% Series due March 1, 2007 "Bonds of the Twenty-seventh Series"................ 30,000,000 None 7% Series due May 1, 1982 "Bonds of the Twenty-eighth Series"................. 50,000,000 None 8.90% Series due February 1, 2008 "Bonds of the Twenty-ninth Series".................. 30,000,000 None 8.45% Series due June 1, 1981 "Bonds of the Thirtieth Series"..................... 40,000,000 None 10 1/8% Series due April 1, 2009 "Bonds of the Thirty-first Series".................. 35,000,000 None 9 7/8% Series due June 1, 2009 "Bonds of the Thirty-second Series" ................ 50,000,000 None 14 1/2% Series due 1983-1987 "Bonds of the Thirty-third Series".................. 80,000,000 None 12.15% Series due June 1, 2010 "Bonds of the Thirty-fourth Series"................. 50,000,000 None 14 1/2% Series due April 1, 1982 "Bonds of the Thirty-fifth Series".................. 15,000,000 None 14 3/8% Series due October 1, 1986 "Bonds of the Thirty-sixth Series".................. 15,000,000 None 16% Series due June 1, 2011 "Bonds of the Thirty-seventh Series"................ 70,000,000 None 14 1/2% Series due April 1,1984 "Bonds of the Thirty-eighth Series"................. 15,000,000 None 15 1/2% Series due April 15, 1989 "Bonds of the Thirty-ninth Series".................. 60,000,000 None 15 5/8% Series due May 1, 1987 "Bonds of the Fortieth Series"...................... 25,000,000 None 15% Series due September 1, 2014 "Bonds of the Forty-first Series"................... 57,000,000 $ 56,820,000 49 PRINCIPAL SERIES ISSUED OUTSTANDING 15% Series A due September 1, 2014 "Bonds of the Forty-second Series".............. $ 5,500,000 $ 5,210,000 15% Series B due September 1, 2014 "Bonds of the Forty-third Series"............... 1,100,000 1,090,000 8 3/4% Series due February 1, 2017 "Bonds of the Forty-fourth Series".............. 100,000,000 None 15% Series C due September 1 2014 "Bonds of the Forty-fifth Series"............... 4,365,000 4,365,000 20% Series due February 1, 1991 "Bonds of the Forty-sixth Series"............... 75,000,000 None 20% Series due January 14, 1991 "Bonds of the Forty-seventh Series"............. 70,000,000 None 20% Series due February 4, 1992 "Bonds of the Forty-eighth Series".............. 75,000,000 None 9% Series due July 15, 2006 "Bonds of the Forty-ninth Series"............... 145,000,000 130,771,000 8 7/8% Series due August 15, 2021 "Bonds of the Fiftieth Series".................. 155,000,000 113,450,000 Series A due December 1, 2093 "Bonds of the Fifty-first Series"............... 375,000,000 375,000,000 Series B due December 1, 2093 "Bonds of the Fifty-second Series".............. 740,035,000 425,000,000 ; and Whereas, it is provided in Section 2.01 of the Original Indenture that the aggregate principal amount of bonds which may be secured by the Mortgage shall be such aggregate principal amount as may from time to time be authenticated and delivered under the provisions thereof, provided, however, that until an indenture or indentures supplemental thereto shall be executed and delivered by the Company to the Trustee pursuant to authorization by the Board of Directors and filed for record in all counties in which the mortgaged and pledged property is located, increasing or decreasing the amount of future advances and other indebtedness and sums which may be secured thereby, the Mortgage may secure future advances and other indebtedness and sums not to exceed in the aggregate $50,000,000; and Whereas, Section 1.01 of the aforesaid Sixth Supplemental Indenture increased the aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, from $50,000,000 to $100,000,000; and Whereas, Section 1.01 of the aforesaid Twelfth Supplemental Indenture increased the aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, from $100,000,000 to $200,000,000; and Whereas, Section 2.01 of the aforesaid Seventeenth Supplemental Indenture increased the aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, from $200,000,000 to $300,000,000; and 50 Whereas, Section 2.01 of the aforesaid Twenty-first Supplemental Indenture increased the aggregate principal amount of bonds Whereas, Section 2.01 of the aforesaid Twenty-first Supplemental Indenture increased the aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, from $300,000,000 to $500,000,000; and Whereas, Section 2.01 of the aforesaid Twenty-seventh Supplemental Indenture increased the aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, from $500,000,000 to $1,000,000,000; and Whereas, Section 1.04 of the aforesaid Forty-ninth Supplemental Indenture increased the aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, from $1,000,000,000 to $1,500,000,000; and Whereas, the Company, as Successor Corporation as aforesaid, by appropriate corporate action taken by its Board of Directors in accordance with the provisions of said Section 2.01 of the Original Indenture, has determined to increase the aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, from $1,500,000,000 to $5,000,000,000 and has duly authorized the execution and delivery to the Trustee of this Fifty-third Supplemental Indenture to effect such increase; and Whereas, it is provided in Section 2.01 of the Twenty-third Supplemental Indenture that Article XVII of the Original Indenture shall be amended as set forth therein at such time after the required consents, if any, of the holders of bonds of other series shall have been given as therein provided; and Whereas, it is further provided in Section 2.01 of the Twenty-third Supplemental Indenture that the amendments to Article XVII of the Original Indenture set forth therein shall, subject to the Company and the Trustee entering into an indenture or indentures supplemental to the Original Indenture for the purpose of so amending said Article XVII, become effective at the earlier of (a) such date as no bonds created prior to the bonds of the Twenty-third Series shall remain outstanding or (b) such date as the holders of all series created prior to the bonds of the Twenty-third Series shall have consented thereto; and Whereas, no bonds created prior to the bonds of the Twenty-third Series remain outstanding on the date of this Supplemental Indenture and the holders of all bonds of other series thereafter issued and now outstanding under the Original Indenture have consented to the aforesaid amendments to Article XVII of the Original Indenture; and Whereas, the Company, as Successor Corporation as aforesaid, by appropriate corporate action taken by its Board of Directors in accordance with the provisions of the Original Indenture as heretofore supplemented, has duly authorized the execution and delivery to the Trustee of this Fifty-third Supplemental Indenture to effect such amendments to said Article XVII; and Whereas, the Company, as Successor Corporation as aforesaid, by appropriate corporate action in conformity with the terms of the Original Indenture has duly determined to create a series of bonds under the Original Indenture, to be issued under the name of the Company, to be designated as "First and Refunding Mortgage Bonds, 0% Series due December 31, 2098" (hereinafter sometimes referred to as the "bonds of the Fifty-third Series"); and 51 Whereas, all acts and things necessary to make the bonds of the Fifty-third Series, when authenticated by the Trustee and issued as in the Original Indenture and herein provided, valid, binding and legal obligations of the Company and to constitute the Original Indenture as heretofore supplemented and this Supplemental Indenture valid, binding and legal instruments for the security thereof, have been done and performed, and the execution and delivery of this Supplemental Indenture, and the creation, execution and issue of the bonds of the Fifty-third Series subject to the Original Indenture as heretofore and hereby supplemented, have in all respects been duly authorized; Now, therefore, in consideration of the premises and of the acceptance by the holders thereof of bonds of the Fifty-third Series, and to set forth the form and substance of the bonds of the Fifty-third Series and the terms, provisions and conditions thereof, the Company does hereby covenant and agree to and with the Trustee and its successor or successors in trust and its and their assigns forever for the benefit of those who shall hold the bonds of the Fifty-third Series, as follows: ARTICLE ONE BONDS OF THE FIFTY-THIRD SERIES AND CERTAIN PROVISIONS RELATING THERETO Section 1.01. A. Creation of bonds of the Fifty-third Series. There is hereby created a series of bonds designated First and Refunding Mortgage Bonds, 0% Series due December 31, 2098. Such bonds of the Fifty-third Series shall be issued by the Company in its name, shall be unlimited in principal amount, subject to the limitation on the maximum aggregate principal amount of bonds permitted to be secured by the Mortgage pursuant to Section 2.01 of the Original Indenture and Section 1.04 of this Supplemental Indenture ($5,000,000,000 as of the date hereof), as the same may hereafter be increased or decreased by amendment or supplement to the Mortgage, shall mature on December 31, 2098, unless previously redeemed pursuant to the provisions hereof, and shall be issuable only in fully registered form without coupons in denominations of $1,000 and any multiple thereof. The serial numbers of bonds of the Fifty-third Series shall be such as may be approved by any officer of the Company, the execution thereof by any such officer to be conclusive evidence of such approval. Bonds of the Fifty-third Series shall not bear interest. The principal of said bonds shall be payable in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, at the corporate trust offices of the Trustee. Bonds of the Fifty-third Series shall be dated as of their date of authentication, and shall be executed on behalf of the Company by its President or a Vice President by his manual signature or a facsimile thereof. Bonds of the Fifty-third Series may be transferred at the principal office of the Trustee in the Borough of Manhattan, the City of New York. B. Form of bonds of the Fifty-third Series. The bonds of the Fifty-third Series and the Trustee's authentication certificate to be executed on all of the bonds of the Fifty-third Series shall be substantially in the following forms, respectively: 52 (Form of Bond of the Fifty-third Series) SOUTH CAROLINA ELECTRIC & GAS COMPANY First and Refunding Mortgage Bond, 0% Series due December 31, 2098 No. $ South Carolina Electric & Gas Company, a South Carolina corporation (hereinafter called the "Company"), for value received, hereby promises to pay to _______________ or registered assigns, the principal sum of _________________ Dollars on December 31, 2098, unless previously redeemed pursuant to the provisions hereof, without interest. The principal of this bond shall be payable at the office or agency of the Company in the Borough of Manhattan, The City of New York, designated for such purpose, in any coin or currency of the United States of America which at the time of payment is legal tender for public and private debts. This bond is one of the bonds issued and to be issued from time to time under and in accordance with and all secured by an indenture of mortgage or deed of trust dated as of January 1, 1945 (the "Original Indenture"), and indentures supplemental thereto, given by South Carolina Power Company to Central Hanover Bank and Trust Company (now The Chase Manhattan Bank and hereinafter sometimes referred to as the "Trustee"), as trustee, and indentures supplemental thereto dated as of April 1, 1950, as of December 1, 1950, as of July 1, 1951, as of June 1, 1953, as of June 1, 1955, as of November 1, 1957, as of September 1, 1958, as of September 1, 1960, as of June 1, 1961, as of December 1, 1965, as of June 1, 1966, as of June 1, 1967, as of September 1, 1968, as of June 1, 1969, as of December 1,1969, as of June 1, 1970, as of March 1, 1971, as of January 1, 1972, as of July 1, 1974, as of May 1, 1975, as of July 1, 1975, as of February 1, 1976, as of December 1, 1976, as of March 1, 1977, as of May 1, 1977, as of February 1, 1978, as of June 1, 1978, as of April 1, 1979, as of June 1, 1979, as of April 1, 1980, as of June 1, 1980, as of December 1, 1980, as of April 1, 1981, as of June 1, 1981, as of March 1, 1982, as of April 15, 1982, as of May 1, 1982, as of December 1, 1984, as of December 1, 1985, as of June 1, 1986, as of February 1, 1987, as of September 1, 1987, as of January 1, 1989, as of January 1, 1991, as of February 1, 1991, as of July 15, 1991, as of August 15, 1991, as of April 1, 1993, as of July 1, 1993, and as of May 1, 1999, respectively, given by the Company to said Trustee, to which Original Indenture and all indentures supplemental thereto (hereinafter referred to collectively as the "Indenture") reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security and the rights, duties and immunities thereunder of the Trustee and the rights of the holders of said bonds and of the Trustee and of the Company in respect of such security, and the limitations on such rights. By the terms of the Indenture, the bonds to be secured thereby are issuable in series which may vary as to date, amount, date of maturity, rate of interest and in other respects as in the Indenture provided. By the terms of the aforesaid supplemental indenture, dated as of April 1, 1950, the Company, among other things, assumed the due and punctual payment of the principal of, premium, if any, and interest on all of the bonds of South Carolina Power Company then outstanding under the aforesaid indenture of mortgage or deed of trust, dated as of January 1, 1945, of South Carolina Power Company, as theretofore supplemented, and, except as therein provided, the due and punctual performance of all the covenants and agreements of South Carolina Power Company contained in said indenture of mortgage or deed of trust as so supplemented. 53 Bonds of this series are issuable only in fully registered form without coupons in denominations of $1,000 and any multiple thereof. This bond may be exchanged by the registered holder hereof, in person or by attorney duly authorized, at the principal office of the Trustee, in the Borough of Manhattan, City of New York, for a like aggregate principal amount of bonds of this series of any other authorized denomination or denominations, but only in the manner and subject to the conditions prescribed in the Indenture, upon the surrender and cancellation of this bond and the payment of any taxes or other governmental charges payable upon such exchange. Upon the giving of notice of redemption, by first class mail postage prepaid, not less than thirty nor more than forty-five days prior to the date fixed for redemption to each registered holder of a bond to be redeemed, in whole or in part, at the last address of such holder appearing on the registry books, any or all of the bonds of this series may be redeemed by the Company, at its option, or by operation of various provisions of the Indenture, at any time and from time to time, upon payment of the principal amount thereof. In case of certain defaults as specified in the Indenture, the principal of this bond may be declared or may become due and payable on the conditions, at the time, in the manner and with the effect provided in the Indenture. No recourse shall be had for the payment of the principal of or premium, if any, or interest on this bond, or for any claim based hereon, or otherwise in respect hereof or of the Indenture, to or against any incorporator, stockholder, director or officer, past, present or future, as such, of the Company, or of any predecessor or successor company, either directly or through the Company, or such predecessor or successor company, or otherwise, under any constitution or statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability of incorporators, stockholders, directors and officers, as such, being waived and released by the holder and owner hereof by the acceptance of this bond and being likewise waived and released by the terms of the Indenture. Subject to the restrictions noted hereon, this bond is transferable by the registered holder hereof, in person or by attorney duly authorized, at the principal office of the Trustee, in the Borough of Manhattan, the City of New York, but only in the manner and subject to the conditions prescribed in the Indenture, upon the surrender and cancellation of this bond and the payment of any taxes or other governmental charges payable upon such transfer, and upon any such transfer a new bond or bonds of the same series and for the same aggregate principal amount, in authorized denominations, will be issued to the transferee in exchange herefor. The Company and the Trustee may deem and treat the person in whose name this bond is registered as the absolute owner for the purpose of receiving payment and for all other purposes. This bond shall not be valid or become obligatory for any purpose unless and until it shall have been authenticated by the execution by the Trustee or its successor in trust under the Indenture of the certificate endorsed hereon. 53 IN WITNESS WHEREOF, South Carolina Electric & Gas Company has caused this bond to be executed in its name by its President or one of its Vice Presidents, by his manual signature or a facsimile thereof, and its corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon and attested by its Secretary or one of its Assistant Secretaries. Dated................................................ SOUTH CAROLINA ELECTRIC & GAS COMPANY, By President or Vice President Attest: ..................................................... Secretary or Assistant Secretary (FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE) TRUSTEE'S AUTHENTICATION CERTIFICATE This bond is one of the bonds, of the series designated therein, described in the within-mentioned Indenture. as Trustee, By Authorized Officer Section 1.02. Redemption Provisions. Any or all of the bonds of the Fifty-third Series shall be redeemable, at the option of the Company, or by operation of various provisions of the Original Indenture, at any time and from time to time, prior to maturity, upon the giving of notice of redemption, by first class mail postage prepaid, not less than thirty nor more than forty-five days prior to the date fixed for redemption to each registered holder of a bond of the Fifty-third Series to be redeemed in whole or in part, at the last address of such holder appearing on the registry books, upon payment of the principal amount thereof. Section 1.03. Sinking Fund. The respective portions of the sinking fund requirement for any year which are measured by bonds of the Fifteenth through Twenty-second Series, bonds of the Twenty-fourth through Thirty-first Series, bonds of the Thirty-third Series, bonds of the Thirty-seventh Series, bonds of the Thirty-ninth Series, bonds of the Forty-first Series, bonds of the Forty-second Series, bonds of the Forty-fourth Series, bonds of the Forty-sixth Series, bonds of the Fiftieth Series, bonds of the Fifty-first Series, bonds of the Fifty-second Series and bonds of the Fifty-third Series or by bonds of any other series the holders of which shall have consented thereto may be satisfied by certifying to the 54 Trustee unfunded net property additions in an amount equal to 166-2/3% of such portion of such sinking fund requirement; provided, further, however, that no unfunded net property additions shall be used to satisfy any portion of any sinking fund requirement unless there shall be delivered to the Trustee, with such certification, the applicable certificates, opinions of counsel, instruments and cash, if any, required by paragraphs (3), (4), (5), (7), (9) and (10) of Section 4.01 of the Original Indenture showing that the Company has unfunded net property additions equal to the amounts so certified. Section 1.04. Increase in amount of indebtedness which may be secured by the Mortgage. The aggregate principal amount of bonds which may be secured by the Mortgage, including future advances and other indebtedness and sums, is increased from $1,500,000,000 as specified in Section 2.01 of the Original Indenture, as amended by Section 1.01 of the Sixth Supplemental Indenture dated as of July 1, 1951, by Section 1.01 of the Twelfth Supplemental Indenture dated as of June 1, 1961, by Section 2.01 of the Twenty-first Supplemental Indenture dated as of January 1, 1972, by Section 2.01 of the Twenty-seventh Supplemental Indenture dated as of March 1, 1977, and by Section 1.04 of the Forty-ninth Supplemental Indenture dated as of July 15, 1991, to $5,000,000,000. Section 1.05. Waiver of certain rights in respect of property additions. The Company covenants and agrees that the provisions of Section 3.01 of the Fourth Supplemental Indenture, dated as of April 1, 1950, shall remain in full force and effect so long as any bonds of the Fifty-third Series shall be outstanding under the Mortgage. Section 1.06. Certain restriction on sale of property. The Company covenants and agrees that so long as any bonds of the Fifty-third Series shall be outstanding under the Mortgage it will not enter into any agreement with any governmental or public body, authority, agency or licensee, providing for the sale by the Company to such governmental or public body, authority, agency or licensee of any part of the mortgaged and pledged property for a consideration less than the current fair value of such property at the time of payment to the Company of such consideration. Section 1.07. Waiver of service charge for exchange or transfer of bonds of the Fifty-third Series. Notwithstanding the provisions of Section 2.05 of the Original Indenture, the Company covenants and agrees that so long as any bonds of the Fifty-third Series shall be outstanding under the Mortgage it will not impose any service charge for any new bond of the Fifty-third Series issued upon any exchange or transfer thereof as permitted by Section 2.06 of the Original Indenture, but the Company shall be entitled to receive funds sufficient to reimburse it for any tax or taxes or other governmental charge required to be paid by the Company in relation thereto. Section 1.08 . Limitations on certain transfers of bonds of the Fifty-third Series. In case less than all of the bonds of the Fifty-third Series at the time outstanding are called for redemption, the Company shall not be required to transfer or exchange any bonds of the Fifty-third Series for a period of ten days before the mailing of a notice of redemption of bonds of the Fifty-third Series selected for redemption, to transfer or exchange any bond of the Fifty-third Series called for redemption in its entirety or to transfer or exchange any portion of a bond of the Fifty-third Series which portion has been called for redemption. 55 ARTICLE TWO AMENDMENT OF MORTGAGE Section 2.01. Amendments described in Twenty-third Supplemental Indenture and subsequent supplemental indentures. Article XVII of the Original Indenture is hereby amended in the following respects: A. The introductory clause of Section 17.02, which presently reads "In each and every case provided for in this Article," shall be amended so as to read "In each and every case provided for in Section 17.01 above,". B. Section 17.02 shall be further amended by the addition of the following new paragraph immediately after the existing text, as amended by Paragraph A above: "Any supplemental indenture authorized by the provisions of Section 17.01 above may be executed by the Company and the Trustee without the consent of the holders of any of the bonds at the time outstanding, notwithstanding any of the provisions of Section 17.03 hereof." C. There shall be inserted new Sections 17.03, 17.04 and 17.05, which Sections shall read as follows: "Section 17.03. With the consent (evidenced as provided in Section 12.01 hereof) of the holders of not less than sixty-six and two-thirds per centum (66 2/3%) in aggregate principal amount of the bonds at the time outstanding which would be affected by the action proposed to be taken, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may, from time to time and at any time, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the bonds and coupons; provided, however, that anything in this Article to the contrary notwithstanding (a) the bondholders shall have no power (i) to extend the fixed maturity of any bonds, or reduce the rate or extend the time of payment of interest thereon, or reduce the principal amount thereof, or change in any manner provisions relating to the sinking fund or the redemption provisions of any series of bonds outstanding hereunder, without the express consent of the holder of each bond which would be so affected, or (ii) to reduce the aforesaid percentage of bonds, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all bonds outstanding, or (iii) to permit the creation by the Company, after the date hereof, of any mortgage or pledge or lien in the nature thereof, ranking prior to or equal with the lien of this Indenture on any of the mortgaged property, or (iv) to deprive the holder of any bond outstanding hereunder of the lien of this Indenture on any of the mortgaged property; (b) no action hereinabove specified which would affect the rights of the holders of bonds of one or more but less than all series as evidenced by an opinion of counsel may be taken unless approved by holders of not less than sixty-six and two-thirds per centum (66 2/3%) in principal amount of outstanding bonds of such one or more series affected, but if any such action would affect the bonds of two or more series, the approval of such action on behalf of the holders of bonds of such two or more series may be approved by holders of not less than sixty-six and two-thirds per centum (66 2/3%) in aggregate principal amount of outstanding bonds of such two or more series, which approval need not include sixty-six and two-thirds per centum (66 2/3%) in principal amount of outstanding bonds of each of such series. 56 Upon the request of the Company, accompanied by a copy of a resolution of its Board of Directors certified by the Secretary or an Assistant Secretary of the Company authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of any required evidence of the consent of bondholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. It shall not be necessary for the consent of the bondholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall publish a notice, setting forth in general terms the substance of such supplemental indenture, at least once in a daily newspaper of general circulation in the Borough of Manhattan, The City of New York. Any failure of the Company to publish such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. "Section 17.04. Upon the execution of any supplemental indenture pursuant to the provisions of this Article, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, duties and obligations under this Indenture of the Company, the Trustee and the holders of bonds of all series outstanding thereunder shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. "Section 17.05. Bonds authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new bonds so modified as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered without cost to the holders of bonds then outstanding, upon surrender of such bonds and, in the case of coupon bonds, with all unmatured coupons and all matured coupons not fully paid, the new bonds so issued to be of an aggregate principal amount equal to the aggregate principal amount of those so surrendered." D. Section 17.03 shall be renumbered as Section 17.06. E. There shall be inserted a new Section 17.07, which Section shall read as follows: "Section 17.07. For all purposes of this Indenture, in any case in which the "sinking fund requirement" for any year (as such term is used in Section 2.12 of the Original Indenture as modified by any supplemental indenture) shall, because of the provisions of any supplemental indenture, include an amount in excess of one per centum (1%) of the aggregate principal amount of bonds of any series authenticated and delivered by the Trustee pursuant to the provisions of Articles III, IV and VI of the Original Indenture prior to January 1 of such year, to the extent that (i) the principal amount of bonds of such series deposited with the Trustee pursuant to said Section 2.12 in such year and/or the principal amount of bonds of such series purchased, paid or redeemed by the use of cash deposited pursuant to said Section 2.12 in such year, 57 shall, as a result of the provisions of such supplemental indenture, exceed (ii) an amount equal to one per centum (1%) of the aggregate principal amount of bonds of such series authenticated and delivered by the Trustee pursuant to the provisions of Articles III, IV and VI of the Original Indenture prior to January 1 of the year of such deposit of bonds and/or cash (after deducting from such aggregate principal amount of bonds of such series so authenticated, the principal amount of bonds of such series which, prior to such January 1, have been deposited with the Trustee for cancellation as the basis for the release of property or for the withdrawal of cash representing proceeds of released property or have been purchased, redeemed or paid at maturity by the use of proceeds of released property), from and after the time when all bonds of such series shall have ceased to be outstanding, such excess principal amount of bonds of such series shall be deemed not to have been cancelled or redeemed pursuant to the provisions of said Section 2.12 of the Original Indenture, but shall be deemed to have been redeemed pursuant to Section 9.01 of the Original Indenture." Section 2.02. Additional amendments requiring consent of requisite holders of outstanding bonds. The holder of all of the outstanding bonds of the Fifty-first and Fifty-second Series, being the holder of 82.0% of the outstanding bonds under the Original Indenture, having consented thereto, the Original Indenture is further amended in the following respects: A. Clause (a) of Section 1.11 of the Original Indenture shall be amended to read as follows: "(a) ten-sevenths (10\7ths) of the aggregate principal amount of bonds theretofore authenticated and delivered upon the basis of unfunded net property additions or for the authentication and delivery of which upon such basis any other application is then pending;" B. Section 7.07 of the Original Indenture (except the first paragraph of such Section) and all provisions and references relating to Section 7.07 in the Mortgage, and clause (c) of Section 1.11 of the Original Indenture, shall be deleted. C. The fraction set forth at the beginning of clause (b) of Section 1.11 of the Original Mortgage is hereby amended from "ten-sixths (10/6ths)" to "ten-sevenths (10/7ths)". D. The first paragraph of Section 4.01 and paragraph 3(b) of Section 10.03 of the Original Mortgage shall be amended by changing the percentage therein from "sixty per centum (60%)" to "seventy per centum (70%)". E. Section 1.03 of the Original Indenture shall be amended to read as follows: "Section 1.03. The term 'net earnings certificate' shall mean an accountant's certificate stating: I. for a period of twelve (12) consecutive calendar months within the eighteen (18) consecutive calendar months immediately preceding the date of the application for the authentication and delivery of bonds of which the net earnings certificate is a part, the 'net earnings' of the Company, which shall be the amount stated in (7) below; and specifying 58 (1) its gross operating revenues (which may include revenues of the Company subject when collected to possible refund at a future date); (2) its operating expenses, including, without limitation, (A) expenses and accruals for repairs and maintenance, (B) expenses for taxes (other than income, profits and other taxes measured by, or dependent on, net income), (C) assessments, (D) rentals and (E) insurance, but excluding (W) provisions for reserves for renewals, replacements, depreciation, depletion or retirement of property (or any expenditures therefor), or provisions for amortization of property, (X) expenses or provisions for interest on any indebtedness of the Company, for the amortization of debt discount, premium, expense or loss on reacquired debt, for any maintenance and replacement, improvement or sinking fund or other device for the retirement of any indebtedness, or for other amortization, (Y) expenses or provisions for any non-recurring charge to income of whatever kind or nature (including without limitation the recognition of expense due to the non-recoverability of investment), whether or not recorded as an extraordinary item in the Company's books of account, and (Z) provisions for any refund of revenues subject to possible refund at a future date; (3) the amount remaining after deducting the amount required to be stated in such certificate by clause (2) above from the amount required to be stated therein by clause (1) above; (4) its non-operating revenues, which amount may include any portion of the allowance for funds used during construction (or any analogous amount); (5) the sum of the amounts required to be stated in such certificate by clauses (3) and (4) above; (6) the amount, if any, by which the amount required to be stated in such certificate by clause (4) above exceeds twenty per centum (20%) of the sum required to be stated by clause (5) above; and (7) the Company's 'net earnings' for such period (being the amount remaining after deducting in such certificate the amount required to be stated by clause (6) above from the sum required to be stated by clause (5) above). II. (A) the interest requirements for one year, at the respective interest rates, if any, borne prior to maturity, upon; (i) all bonds authenticated hereunder and outstanding at the date of such certificate, except any for the payment or redemption of which the bonds applied for are to be issued; provided, however, that, if outstanding bonds of any series bear interest at a variable rate or rates, then the interest requirement on the bonds of such series shall be determined by reference to the rate or rates in effect on the date next preceding the date of such certificate; (ii) all bonds then applied for in pending applications for new bonds, including the application in connection with which such certificate is made; provided, however, that if bonds of any series are to bear interest at a variable rate or rates, then the interest requirement on the bonds of such series shall be determined by reference to the rate or rates to be in effect at the time of the initial authentication and delivery of such bonds; and 59 (iii) the principal amount of all other indebtedness (except indebtedness for the payment of which the bonds applied for are to be issued and indebtedness secured by a lien, prior to the lien of this Indenture, for the payment of which money in the necessary amount shall have been irrevocably deposited in trust with the trustee or other holder of such lien) outstanding on the date of such certificate and secured by a lien prior to the lien of this Indenture on any property subject to the lien of this Indenture, if such indebtedness has been issued, assumed or guaranteed by the Company or if the Company customarily pays the interest on the principal thereof; provided, however, that if any such indebtedness bears interest at a variable rate or rates, then the interest requirement on such indebtedness shall be determined by reference to the rate or rates in effect on the date next preceding the date of such certificate. (B) the principal amount of the respective bonds and other obligations and indebtedness on which the annual interest charges referred to in subdivision II.(A) of this Section are calculated and the respective interest rates at which computed; and III. the 'interest earnings requirement', which shall be a figure equal to 200% of the aggregate annual interest charges specified in accordance with subdivision II (A) of this Section. "Notwithstanding anything herein to the contrary, neither profits nor losses from the sale or other disposition of property, nor extraordinary items of any kind or nature, whether items of revenue or expense, shall be included in calculating the 'interest earnings requirement'. "If any of the property of the Company owned by it at the time of the making of any net earnings certificate (a) shall have been acquired during or after any period for which the Company's net earnings are to be computed, (b) shall not have been acquired in exchange or substitution for property the net earnings of which have been included in the Company's net earnings and (c) had been operated as a separate unit and items of revenue and expense attributable thereto are readily ascertainable, then the net earnings of such property (computed in the manner in this Section provided for the computation of the Company's net earnings, during such period or such part of such period as shall have preceded the acquisition thereof, to the extent that the same have not otherwise been included in the Company's net earnings, shall be so included. "In any case where a net earnings certificate is required as a condition precedent to the authentication and delivery of bonds, such certificate shall also be made and signed by an independent public accountant, if the aggregate principal amount of bonds then applied for plus the aggregate principal amount of bonds authenticated and delivered hereunder since the commencement of the then current calendar year (other than those with respect to which a net earnings certificate is not required, or with respect to which a net earnings certificate made and signed by an independent public accountant has previously been furnished to the Trustee) is ten per centum (10%) or more of the aggregate principal amount of the bonds at the time outstanding; but no net earnings certificate need be made and signed by any person other than an accountant, as to dates or periods not covered by annual reports required to be filed by the Company, in the case of conditions precedent which depend upon a state of facts as of a date or dates or for a period or periods different from that required to be covered by such annual reports." 6. Section 7.05 of the Original Indenture shall be amended by changing the second percentage therein from "sixty per centum (60%)" to "seventy per centum (70%)". G. Section 7.15 of the Original Indenture shall be deleted. 60 H. Section 7.06 of the Original Indenture shall be amended by substituting for the amount of "$50,000", wherever the same appears therein, the phrase "an amount equal to the greater of $10,000,000 and 3% of the aggregate principal amount of the bonds then outstanding hereunder". I. The first paragraph of Section 10.04 shall be amended to read as follows: "The Trustee shall, whenever from time to time requested by the Company, such request to be evidenced by an officer's certificate, without requiring compliance with any of the foregoing provisions of Section 10.03 hereof unless, under the provisions of said Section 10.03, the Company would then be required to furnish an independent engineer's certificate, in which event this paragraph shall not be applicable, release from the lien hereof any property, the fair value of which shall be stated in an engineer's certificate delivered to the Trustee simultaneously with such officer's certificate, which property, as stated in such engineer's certificate, is not useful or necessary in the conduct of the business of the Company, and provided further that the aggregate fair value of all property released pursuant to this Section in any calendar year shall not exceed an amount equal to the greater of $5,000,000 and 3% of the aggregate principal amount of bonds outstanding hereunder. Said engineer's certificate shall also state that such release will not impair the security under this Indenture in contravention of the provisions thereof. The Company covenants that it will deposit with the Trustee the consideration, if any, received by it upon the sale or other disposition of any property so released." J. A new Section 15.04 reading as follows shall be added: "Section 15.04. (a) Nothing in this Indenture shall be deemed to prevent or restrict any consolidation or merger after the consummation of which the Company would be the surviving or resulting corporation or any conveyance or other transfer or lease, subject to the lien of this Indenture, of any part of the mortgaged and pledged property which does not constitute the entirety, or substantially the entirety, thereof. (b) Unless, in the case of a consolidation or merger described in subsection (a) of this Section, an indenture supplemental hereto shall otherwise provide, this Indenture shall not become or be, or be required to become or be, a lien upon any of the properties acquired by the Company in or as a result of such transaction or any improvements, extensions or additions to such properties or any renewals, replacements or substitutions of or for any part or parts of such properties." K. Section 7.16 of the Original Indenture shall be amended by deleting the word "independent" therefrom wherever it appears. L. The proviso at the end of paragraph (1) of Section 10.02 of the Original Indenture shall be deleted. Section 2.03. Additional amendments requiring consent of holders of all outstanding bonds. Each holder of a bond of the Fifty-third Series, by his acceptance thereof, shall thereby consent that at any time after the requisite consents, if any, of the holders of the bonds of other Series shall have been given as hereinafter provided, the Mortgage shall be amended in the following respects: 61 A. Section 2.12 of the Original Indenture and all references to Section 2.12 within the Mortgage shall be deleted. B. Clause (a) of Section 1.11 of the Original Indenture shall be amended to read as follows: "(a) ten-sevenths (10\7ths) of the aggregate principal amount of bonds theretofore authenticated and delivered upon the basis of unfunded net property additions (other than bonds deposited with the Trustee in satisfaction of sinking fund requirements under former Section 2.12 hereof) or for the authentication and delivery of which upon such basis any other application is then pending;" The amendments to the Mortgage set forth above shall become effective at the earlier of (a) such date as no bonds created prior to the bonds of the Fifty-third Series shall remain outstanding or (b) such date as the holders of all then outstanding bonds of all series created prior to the bonds of the Fifty-third Series shall have consented thereto. No further vote or consent of the holders of bonds of the Fifty-third Series shall be required to permit such amendments to become effective. ARTICLE THREE SUNDRY PROVISIONS Section 3.01. This Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Original Indenture, and shall form a part thereof, and the Original Indenture as heretofore supplemented is hereby confirmed and adopted by the Company as its obligation. All terms used in this Supplemental Indenture shall be taken to have the same meaning as in the Original Indenture except in cases where the context clearly indicates otherwise. Section 3.02. All recitals in this Supplemental Indenture are made by the Company only and not by the Trustee; and all of the provisions contained in the Original Indenture as heretofore supplemented in respect of the rights, privileges, immunities, powers and duties of the Trustee shall be applicable in respect hereof as fully and with like effect as if set forth herein in full. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or the due execution hereof by the Company. Section 3.03. Although this Supplemental Indenture is dated for convenience and for the purpose of reference as of May 1, 1999 the actual date or dates of execution by the Company and by the Trustee are as indicated by their respective acknowledgments hereto annexed. Section 3.04. Nothing in this Supplemental Indenture contained shall, or shall be construed to, confer upon any person other than a holder of bonds issued under the Mortgage, the Company and the Trustee any right or interest to avail himself of any benefit under any provision of the Mortgage. Section 3.05. This Supplemental Indenture may be simultaneously executed in several counterparts and all such counterparts executed and delivered, each as an original, shall constitute but one and the same instrument. Section 3.06. The headings of Articles, Sections and subsections contained in this Supplemental Indenture are included for convenient reference only and shall not be deemed to be a part of this Supplemental Indenture. 62 Section 3.07. The Company gives notice that it claims the benefit of Sections 29-1-10 and 29-3-80, S.C. Code of Laws (1976), as amended, concerning the continuation of the lien until satisfied or released of record and attachment to after-acquired real property of the lien of both the Original Indenture, dated as of January 1, 1945, and all supplements and amendments thereto, consisting of Fifty-two Supplemental Indentures (and various other unnumbered, but recorded supplemental mortgages of after-acquired property for individual tracts or parcels), including the Fourth Supplemental Indenture, dated as of April 1, 1950, under which the Company assumed the Original Indenture as described on page two herein. The Original Indenture and the Fifty-two Supplemental Indentures and unnumbered supplements are recorded in the mortgage book of the appropriate counties; the Original Indenture and the Fourth Supplemental Indenture being recorded at the book and page numbers in such counties as set forth on Exhibit A attached hereto. The notice on the cover of this Fifty-third Supplemental Indenture is given pursuant to the aforesaid laws. Section 3.08. This Supplemental Indenture is intended by the parties hereto, as to properties now or hereafter encumbered by the Mortgage and located within the State of Georgia, to operate and is to be construed as granting a lien only on such properties and not as a deed passing title thereto. The debtor and its mailing address are South Carolina Electric & Gas Company, 1426 Main Street, Columbia, South Carolina 29218. The secured party and its address from which information concerning the security interest may be obtained are The Chase Manhattan Bank, 450 West 33rd, New York, New York 10001. 63 IN WITNESS WHEREOF, South Carolina Electric & Gas Company has caused this Supplemental Indenture to be executed in its corporate name by its President or one of its Vice Presidents and its corporate seal to be hereunto affixed and to be attested by its Secretary or one of its Assistant Secretaries, and The Chase Manhattan Bank, to evidence its acceptance hereof, has caused this Supplemental Indenture to be executed in its corporate name by its President or one of its Vice Presidents or Assistant Vice Presidents and its corporate seal to be hereunto affixed and to be attested by its Secretary or one of its Assistant Secretaries, in several counterparts, all as of the day and year first above written. SOUTH CAROLINA ELECTRIC & GAS COMPANY (SEAL) By ............................................... President or Vice President Attest: ................................................. Secretary or Assistant Secretary In the presence of: ................................................. ................................................. THE CHASE MANHATTAN BANK (SEAL) By .................................................... Vice President Attest: ............................................. Assistant Secretary In the presence of: ............................................. ............................................. 64 CONSENT The Bank of New York, as successor to NationsBank of Georgia, N.A., as the holder under the Indenture of the South Carolina Electric & Gas Company, dated as of April 1, 1993, as supplemented, of $1,115,035,000 principal amount of the First and Refunding Mortgage Bonds, hereby consents to the amendments set forth in Sections 2.02 and 2.03 of the Fifty-third Supplemental Indenture of South Carolina Electric & Gas Company dated as of May 1, 1999. THE BANK OF NEW YORK, as successor to NATIONSBANK OF GEORGIA, N.A. (SEAL) By ............................................... Its ............................................. ATTEST: By ..................................................................... Its ...................................................................... 65 STATE OF SOUTH CAROLINA ) ss.: COUNTY OF RICHLAND ) Personally appeared before me _______________, and, being duty sworn, made oath that she saw the corporate seal of SOUTH CAROLINA ELECTRIC & GAS COMPANY affixed to the above written Supplemental Indenture, and that she also saw ______________, the ___________________, with ____________, Secretary, of said SOUTH CAROLINA ELECTRIC & GAS COMPANY sign and attest the same, and that she, deponent, with ______________, witnessed the execution and delivery thereof as the act and deed of SOUTH CAROLINA ELECTRIC & GAS COMPANY. Kelly Elkins Subscribed and sworn to before me this ____ day of _______________, ______. (NOTARIAL SEAL) Patricia K. Haltiwanger Notary Public for South Carolina My Commission Expires May 15, 2006. STATE OF SOUTH CAROLINA ) ss.: COUNTY OF RICHLAND ) On this 1st day of May, in the year one thousand nine hundred and ninety-nine, before me personally came Kevin Marsh, to me known, who, being by me duly sworn, did depose and say that he resides at 1003 Steeple Ridge Road, Irmo, South Carolina; that he is the Senior Vice President and Chief Financial Officer of SOUTH CAROLINA ELECTRIC & GAS COMPANY, the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation; and that he signed his name thereto by like order. Patricia K. Haltiwanger................... Notary Public for South Carolina My Commission Expires May 15, 2006 (NOTARIAL SEAL) 66 STATE OF NEW YORK ) ss: COUNTY OF NEW YORK ) Personally appeared before me Eric Butler, and, being duly sworn, made oath that he saw the corporate seal of THE CHASE MANHATTAN BANK affixed to the above Supplemental Indenture, and that he also saw Glenn G. McKeever, Vice President, with William G. Keenan, Trust Officer, of said THE CHASE MANHATTAN BANK, sign and attest the same, and that he, deponent, with Natalia Rodriguez, witnessed the execution and delivery thereof as the act and deed of THE CHASE MANHATTAN BANK. Subscribed and sworn to before me this Eric Butler 1st day of May, 1999. Emily Fayan (NOTARIAL SEAL) Notary Public, State of New York No. 24-4737006 Qualified in Kings County Certificate filed in New York County Commission Expires December 31, 1999 STATE OF NEW YORK ) ss: COUNTY OF NEW YORK ) On this 1st day of May, in the year one thousand nine hundred and ninety-nine, before me personally came Glenn G. McKeever, to me known, who, being by me duly sworn, did depose and say that he resides at 213-08 73rd Avenue, Bayside, New York; that he is a Vice President of THE CHASE MANHATTAN BANK, the corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was so affixed by order of the Board of Directors of said corporation, and that he signed his name thereto by like order. Emily Fayan Notary Public, State of New York No. 24-4737006 Qualified in Kings County Certificate filed in New York County Commission Expires December 31, 1999 (NOTARIAL SEAL) 67 EX-27 4 SCANA FDS
UT THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS AND OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH FINANCIAL STATEMENTS. 0000754737 SCANA CORPORATION 1,000,000 3-MOS DEC-31-1998 MAR-31-1999 PER-BOOK 3,797 531 513 502 0 5,343 1,052 (8) 675 1,762 61 106 1,736 174 0 0 107 0 0 0 1,397 5,343 397 28 291 319 78 (4) 74 34 39 2 37 40 0 21 0.36 0.36
EX-27 5 SCE&G FINANCIAL DATA SCHEDULE
UT 0000091882 SCE&G 3-MOS DEC-31-1998 MAR-31-1999 PER-BOOK 3,442 17 336 483 0 4,278 181 828 501 1,510 61 106 1,318 78 0 0 29 0 0 0 1,176 4,278 353 26 255 281 72 2 74 25 48 2 46 36 0 32 0 0
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