-----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, AeQ2VRY18CFXGgowDVXAP6UcD7HH4UX82Y5ywhh7XVvN+iNjBXShWQfgftblOhzi IetedAoW50kNhAyvBAn2LA== 0000754737-96-000006.txt : 19960329 0000754737-96-000006.hdr.sgml : 19960329 ACCESSION NUMBER: 0000754737-96-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCANA CORP CENTRAL INDEX KEY: 0000754737 STANDARD INDUSTRIAL CLASSIFICATION: 4931 IRS NUMBER: 570784499 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08809 FILM NUMBER: 96538967 BUSINESS ADDRESS: STREET 1: 1426 MAIN ST STREET 2: P O BOX 764 CITY: COLUMBIA STATE: SC ZIP: 29201 BUSINESS PHONE: 8037483000 MAIL ADDRESS: STREET 1: MAIL CODE 051 CITY: COLUMBIA STATE: SC ZIP: 29218 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission File Number 1-8809 SCANA CORPORATION (Exact name of registrant as specified in its charter) SOUTH CAROLINA 57-0784499 (State or other jurisdiction of (IRS employer incorporation or organization) identification no.) 1426 MAIN STREET, COLUMBIA, SOUTH CAROLINA 29201 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (803) 748-3000 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, without par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non- affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of a specified date within 60 days prior to the date of filing. (See definition of affiliate in Rule 405.) 1 Note: If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this form. The aggregate market value of the voting stock held by nonaffiliates of the registrant was $2,865,232,398 at February 29, 1996 based on the closing price of the Common Stock on such date, as reported by the New York Stock Exchange composite tape in The Wall Street Journal. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No (APPLICABLE ONLY TO CORPORATE REGISTRANTS) Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. The total number of shares of the registrant's Common Stock, no par value, outstanding at February 29, 1996 was 104,190,269. DOCUMENTS INCORPORATED BY REFERENCE. List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security-holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security-holders for fiscal year ended December 24, 1980). Specified sections of the Registrant's 1996 Proxy Statement, dated March 15, 1996, in connection with its 1996 Annual Meeting of Stockholders, are incorporated by reference in Part III hereof. 2 TABLE OF CONTENTS Page DEFINITIONS ....................................................... 4 PART I Item 1. Business ............................................ 5 Item 2. Properties .......................................... 22 Item 3. Legal Proceedings ................................... 24 Item 4. Submission of Matters to a Vote of Security Holders ................................... 24 Corporate Structure .......................................... 25 Executive Officers of the Registrant ......................... 26 PART II Item 5. Market for Registrant's Common Stock and Related Security Holder Matters ................ 28 Item 6. Selected Financial Data ............................. 29 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ...... 30 Item 8. Financial Statements and Supplementary Data ......... 40 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............. 69 PART III Item 10. Directors and Executive Officers of the Registrant ......................................... 69 Item 11. Executive Compensation .............................. 69 Item 12. Security Ownership of Certain Beneficial Owners and Management .............................. 69 Item 13. Certain Relationships and Related Transactions ...... 69 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................ 70 SIGNATURES ........................................................ 71 3 DEFINITIONS The following abbreviations used in the text have the meanings set forth below unless the context requires otherwise: ABBREVIATION TERM AFC......................... Allowance for Funds Used During Construction BTU......................... British Thermal Unit Circuit Court............... South Carolina Circuit Court Clean Air Act............... Clean Air Act Amendments of 1990 Company..................... SCANA Corporation and its subsidiaries Consumer Advocate........... Consumer Advocate of South Carolina Dekatherm................... One million BTUs DHEC........................ South Carolina Department of Health and Environmental Control DOE......................... United States Department of Energy Energy Marketing............ SCANA Energy Marketing, Inc. EPA......................... United States Environmental Protection Agency FERC........................ United States Federal Energy Regulatory Commission Fuel Company................ South Carolina Fuel Company, Inc. GENCO....................... South Carolina Generating Company, Inc. InterCel.................... InterCel, Inc. Investor Plus Plan.......... SCANA Corporation Investor Plus Plan KVA......................... Kilovolt-ampere KW.......................... Kilowatt KWH......................... Kilowatt-hour LNG......................... Liquefied Natural Gas MCF......................... Thousand Cubic Feet MHz......................... Megahertz MPX......................... MPX Systems, Inc. MTA......................... Major Trading Area MW.......................... Megawatt NEPA........................ National Energy Policy Act of 1992 NRC......................... United States Nuclear Regulatory Commission PCS......................... Personal Communications Service Petroleum Resources......... SCANA Petroleum Resources, Inc. Pipeline Corporation........ South Carolina Pipeline Corporation PRP......................... Potentially Responsible Party PSA......................... The South Carolina Public Service Authority PSC......................... The Public Service Commission of South Carolina PUHCA....................... Public Utility Holding Company Act of 1935, as amended SCANA....................... SCANA Corporation, the parent company SCE&G....................... South Carolina Electric & Gas Company SEC......................... United States Securities and Exchange Commission Southern Natural............ Southern Natural Gas Company SPSP........................ SCANA Corporation Stock Purchase-Savings Plan Suburban.................... Suburban Propane Group, Inc. Summer Station.............. V. C. Summer Nuclear Station Supreme Court............... South Carolina Supreme Court Transco..................... Transcontinental Gas Pipeline Corporation USEC........................ United States Enrichment Corporation Westinghouse................ Westinghouse Electric Corporation Williams Station............ A. M. Williams coal-fired, electric generating station owned by GENCO 4 PART I ITEM 1. BUSINESS THE COMPANY ORGANIZATION SCANA, a South Carolina corporation having general business powers, was incorporated on October 10, 1984 and is a public utility holding company within the meaning of PUHCA but is exempt from registration under such Act (see "Regulation"). SCANA has its principal executive office at 1426 Main Street, Columbia, South Carolina 29201, telephone number (803) 748-3000. SCANA holds, directly or indirectly, all the capital stock of each of its subsidiaries except for the Preferred Stock of SCE&G. SCANA and its subsidiaries had 4,347 full-time, permanent employees as of December 31, 1995 as compared to 4,575 full-time, permanent employees as of December 31, 1994. RESTATEMENTS Prior year financial information in this Annual Report on Form 10-K has been restated to reflect the effect of a two-for- one stock split in May 1995 and the effect of a change in accounting principle during the second quarter of 1995 from the successful efforts method of accounting to the full cost method of accounting for the Company's oil and natural gas operations. SEGMENTS OF BUSINESS SCANA neither owns nor operates any physical properties. It has twelve direct, wholly owned subsidiaries which are engaged in the functionally distinct operations described below. Regulated Utilities The Company's principal subsidiary, SCE&G, is a regulated public utility engaged in the generation, transmission, distribution and sale of electricity and in the purchase and sale, primarily at retail, of natural gas in South Carolina. SCE&G also renders urban bus service in the metropolitan areas of Columbia and Charleston, South Carolina. SCE&G's business is subject to seasonal fluctuations. Generally, sales of electricity are higher during the summer and winter months because of air-conditioning and heating requirements, and sales of natural gas are greater in the winter months due to its use for heating requirements. SCE&G's electric service area extends into 24 counties covering more than 15,000 square miles in the central, southern and southwestern portions of South Carolina. The service area for natural gas encompasses all or part of 30 of the 46 counties in South Carolina and covers more than 20,000 square miles. The total population of the counties representing the combined service area is approximately 2.3 million. The predominant industries in the territories served by SCE&G include: synthetic fibers; chemicals and allied products; fiberglass and fiberglass products; paper and wood products; metal fabrication; stone, clay and sand mining and processing; and various textile-related products. GENCO owns and operates Williams Station and sells electricity solely to SCE&G. Fuel Company acquires, owns and provides financing for SCE&G's nuclear fuel, fossil fuel and sulfur dioxide emission allowance requirements. 5 Pipeline Corporation is engaged in the purchase, transmission and sale of natural gas on a wholesale basis to distribution companies and directly to industrial customers in 40 counties throughout South Carolina. Pipeline Corporation owns LNG liquefaction and storage facilities. It also supplies the natural gas for SCE&G's gas distribution system. Other resale customers include municipalities and county gas authorities and gas utilities. The industrial customers of Pipeline Corporation are primarily engaged in the manufacturing or processing of ceramics, paper, metal, food and textiles. Nonregulated Businesses Petroleum Resources owns and/or operates interests in oil and gas properties in nine states and Federal waters offshore Texas, Louisiana and Alabama. Petroleum Resources and Fina Oil and Chemical Company (Fina) have entered into a joint exploration and development agreement providing for the exclusive oil and gas development rights on approximately 183,000 acres of onshore lands owned by Fina in Terrebonne and LaFourche Parishes in southern Louisiana. Petroleum Resources and Fina are continuing an extensive 3-D seismic acquisition program on the property. Fina is the operator of the multi-million dollar seismic program which is financed primarily with internal cash flows from the existing Petroleum Resources operations. Energy Marketing markets natural gas and light hydrocarbons, provides energy-related risk management services to producers and consumers, and owns and operates gas gathering systems in Wilburton, Oklahoma; Waskom, Texas; and offshore Alabama in Mobile Bay. It also owns and operates a 60-million gallon under- ground propane storage facility near York, South Carolina and a 62-mile, six-inch propane pipeline that connects the facility with Dixie Pipeline Company's system, which traverses central South Carolina. Energy Marketing leases cavern storage space to industries, utilities and others. Energy Marketing has filed with the FERC requesting certification for power marketing status. Suburban Propane purchases, delivers and sells propane. In 1995 Suburban sold approximately 27 million gallons of propane and had approximately 34,000 residential, commercial and industrial customers at year end. MPX is involved in telecommunications-related ventures providing fiber optic telecommunications, video conferencing and specialized mobile radio services. MPX has installed over 900 miles of fiber optic cable in South Carolina, Georgia, Alabama, Mississippi, Louisiana and Texas, and in addition, is active in video conferencing and the establishment of a Specialized Mobile Radio system in South Carolina. MPX has signed a seven-year contract with the State of South Carolina for the build-out of the 800 MHz radio system which will allow emergency agencies to establish statewide communications during a disaster. Powertel PCS Partners, L.P. (Powertel), a limited partnership that includes MPX, successfully bid for three PCS licenses in the Southeast offered by the Federal Communications Commission for the development of a new generation of wireless communications. Powertel had winning bids totaling $124.5 million in the FCC's auction for radio airspace in three MTAs that cover parts of six states. The areas are the Jacksonville MTA, a 50-county area of northern Florida and southern Georgia; the Memphis MTA, a 93- county area that includes southwest Tennessee, northern and middle Mississippi and parts of eastern Arkansas; and the Birmingham MTA, a 53-county area of Alabama. MPX held the largest partnership interest, approximately 40%, of Powertel. Powertel signed and consummated a business combination agreement with InterCel, a publicly- traded cellular telephone company providing services in Georgia, Alabama and Maine. MPX's interest in the combined entity, after giving effect to public offerings of common stock of the combined entity consummated February 7, 1996, is approximately 17%. On March 6, 1996 InterCel entered into a definitive agreement with GTE Mobilnet Incorporated (GTE) to purchase GTE's PCS license for the Atlanta MTA for $195 million. InterCel plans to finance the purchase principally through a $150 million private placement of convertible preferred stock. The Company has agreed to purchase $75 million of a series of preferred stock that is non-convertible for four years. Closing of the purchase is subject to regulatory approval. 6 ServiceCare, Inc. is engaged in providing energy related products and services beyond the energy meter. Its primary business is providing homeowners with service contracts on their home appliances. At year end, ServiceCare had approximately 36,542 customers. Primesouth, Inc. is engaged in power plant management and maintenance services. SCANA Resources, Inc. conducts energy-related businesses and services. Information with respect to major segments of business for the years ended December 31, 1995, 1994 and 1993 is contained in Note 11 of the Notes to Consolidated Financial Statements and all such information is incorporated herein by reference. COMPETITION The electric utility industry has begun a major transition that could lead to expanded market competition and less regulatory protection. Future deregulation of electric wholesale and retail markets will create opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. The pace of deregulation, the future market price of electricity, and the regulatory actions which may be taken by the PSC in response to the changing environment cannot be predicted. However, the Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company's electric and gas utility, SCE&G, operates Strategic Business Units. Maintaining a competitive cost structure is of paramount importance in the utility's strategic plan. SCE&G has undertaken a variety of initiatives, including reductions in operation and maintenance costs and in staffing levels. In January 1996 the PSC approved (as discussed under "Capital Requirements and Financing Program") the accelerated recovery of SCE&G's electric regulatory assets and the shift of depreciation reserves from transmission and distribution assets to nuclear production assets. SCE&G believes that these actions as well as numerous others that have been and will be taken demonstrate its ability and commitment to succeed in the new operating environment to come. Regulated public utilities are allowed to record as assets some costs that would be expensed by other enterprises. If deregulation or other changes in the regulatory environment occur, the Company may no longer be qualified to apply this accounting treatment and may be required to eliminate such regulatory assets from its balance sheet. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. The Company reported approximately $116 million and $4 million of regulatory assets and liabilities, respectively, excluding amounts related to net accumulated deferred income tax assets of approximately $27 million, on its balance sheet at December 31, 1995. CAPITAL REQUIREMENTS AND FINANCING PROGRAM Capital Requirements The cash requirements of the Company arise primarily from SCE&G's operational needs, the Company's construction program and the need to fund the activities or investments of the Company's nonregulated subsidiaries. The ability of the Company's regulated subsidiaries to replace existing plant investment, as well as to expand to meet future demand for electricity and gas, will depend upon their ability to attract the necessary financial capital on reasonable terms. The Company's regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and the regulated subsidiaries expand their construction programs, it is necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by the regulated subsidiaries' ability to obtain adequate and timely rate and other regulatory relief. 7 On July 10, 1995, SCE&G filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting SCE&G an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase will be implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million to be collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of substantially all of SCE&G's electric regulatory assets (excluding accumulated deferred income taxes) and the transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. During 1996 the Company is expected to meet its capital requirements, exclusive of additional PCS investments by MPX (see "Other" below), principally through internally generated funds (approximately 75%, after payment of dividends), sales of additional shares of common stock including sales pursuant to the Investor Plus Plan and the SPSP, and the issuance and sale of debt securities. Short-term liquidity is expected to be provided primarily by issuance of commercial paper. The timing and amount of such sales and the type of securities to be sold will depend upon market conditions and other factors. The Company's estimates of its cash requirements for construction and nuclear fuel expenditures, which are subject to continuing review and adjustment, for 1996 and the four-year period 1997-2000 are as follows: Type of Facilities 1997-2000 1996 (Thousands of Dollars) South Carolina Electric & Gas Company: Electric Plant: Generation . . . . . . . . . . . . . . $ 268,987 $ 49,036 Transmission . . . . . . . . . . . . . 92,502 17,976 Distribution . . . . . . . . . . . . . 319,092 64,227 Other. . . . . . . . . . . . . . . . . 34,152 13,835 Nuclear Fuel. . . . . . . . . . . . . . . 86,413 21,147 Gas . . . . . . . . . . . . . . . . . . . 94,147 16,918 Common . . . . . . . . . . . . . . . . . 34,089 34,633 Other . . . . . . . . . . . . . . . . . . 1,511 553 Total . . . . . . . . . . . . . . . . . 930,893 218,325 Other Companies Combined. . . . . . . . . . 138,708 79,101 Total . . . . . . . . . . . $1,069,601 $297,426 The above estimates exclude AFC. Construction The Company's cost estimates for its construction program for the periods 1996 and 1997-2000, shown in the above table, include costs of the projects described below. 8 SCE&G entered into a contract with Duke/Fluor Daniel in 1991 to design, engineer and build a 385 MW coal-fired electric generating plant near Cope, South Carolina. Construction of the plant started in November 1992. Commercial operation began in January 1996. The cost of the Cope plant, excluding AFC, is $410.9 million. In addition, the transmission lines for interconnection with SCE&G's system cost $22.5 million. Approximately $9.8 million of the amounts included in the above table for 1996 relate to the completion of the Cope plant. During 1995 SCE&G and GENCO expended approximately $23.4 million as part of a program to extend the operating lives of certain non-nuclear generating facilities. Additional improvements to be made under the program during 1996 are estimated to cost approximately $21.5 million. Actual expenditures for the years 1996 and 1997-2000 may vary from the estimates set forth above due to factors such as inflation, economic conditions, regulation, legislation, rates of load growth, environmental protection standards and the cost and availability of capital. Other In addition to the Company's capital requirements for 1996 described above, approximately $26.1 million will be required for refunding and retiring outstanding securities and obligations. For the years 1997-2000, the Company has an aggregate of $485 million of long-term debt maturing (including approximately $69.2 million for sinking fund requirements, of which $68.7 million may be satisfied by deposit and cancellation of bonds issued upon the basis of property additions or bond retirement credits) and $9.8 million of purchase or sinking fund requirements for preferred stock. On March 6, 1996 InterCel entered into a definitive agreement with GTE Mobilnet Incorporated (GTE) to purchase GTE's PCS license for the Atlanta MTA for approximately $195 million. InterCel plans to finance the purchase principally through a $150 million private placement of convertible preferred stock. The Company has agreed to purchase $75 million of a series of preferred stock that is non-convertible for four years. Closing of the purchase is subject to regulatory approval. The purchase is expected to be financed through internally generated funds, the sales of additional equity securities and the incurrence of additional short-term and long-term indebtedness. A percentage of the projected annual revenues for the year's 1996-2003 of certain fiber optic routes of a joint venture between MPX and a subsidiary of ITC has been guaranteed by MPX. The aggregate maximum amount of such guarantee over the eight- year period is approximately $46.2 million, prior to reduction for revenue contracts obtained by the joint venture. Financing Program The Company has in effect a medium-term note program for the issuance from time to time of unsecured medium-term debt securities. The proceeds from the sales of these securities may be used to fund additional business activities in nonutility subsidiaries, to reduce short-term debt incurred in connection therewith or for general corporate purposes. At December 31, 1995 the Company had available for issuance $317.6 million under this program. SCE&G's First and Refunding Mortgage Bond Indenture, dated April 1, 1945 (Old Mortgage), contains provisions prohibiting the issuance of additional bonds thereunder (Class A Bonds) unless net earnings (as therein defined) for twelve consecutive months out of the fifteen months prior to the month of issuance are at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1995 the Bond Ratio was 3.97. The issuance of additional Class A Bonds also is restricted to an additional principal amount equal to (i) 60% of unfunded net property additions (which unfunded net property additions totaled approximately $162.3 million at December 31, 1995), (ii) retirements of Class A Bonds (which retirement credits totaled $64.8 million at December 31, 1995), and (iii) cash on deposit with the Trustee. 9 SCE&G has a new bond indenture (New Mortgage) dated April 1, 1993 covering substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are issued under the New Mortgage on the basis of a like principal amount of Class A Bonds issued under the Old Mortgage which have been deposited with the Trustee of the New Mortgage (of which $185 million were available for such purpose at December 31, 1995), until such time as all presently outstanding Class A Bonds are retired. Thereafter, New Bonds will be issuable on the basis of property additions in a principal amount equal to 70% of the original cost of electric and common plant properties (compared to 60% of value for Class A Bonds under the Old Mortgage), cash deposited with the Trustee, and retirement of New Bonds. New Bonds will be issuable under the New Mortgage only if adjusted net earnings (as therein defined) for twelve consecutive months out of the eighteen months immediately preceding the month of issuance are at least twice the annual interest requirements on all outstanding bonds (including Class A Bonds) and New Bonds to be outstanding (New Bond Ratio). For the year ended December 31, 1995 the New Bond Ratio was 5.31. The following additional financing transactions have occurred since December 31, 1994: On January 13, 1995 SCANA closed a $60 million unsecured bank loan due January 12, 1996, and used the proceeds to pay off loans in a like total amount. On January 12, 1996 SCANA refinanced the loan with unsecured bank loans totaling $60 million due January 10, 1997 at initial interest rates between 5.684% and 5.730%, subject to reset quarterly at LIBOR plus a spread of nine to fifteen basis points. On April 12, 1995 SCE&G issued $100 million of First Mortgage Bonds, 7 5/8% series due April 1, 2025 to repay short-term borrowings. On September 25, 1995, SCANA sold 4,500,000 shares of its common stock. Net proceeds were used for the reduction of short-term indebtedness incurred by the Company for investment in utility plant and nonregulated subsidiaries, and for general corporate purposes. Without the consent of at least a majority of the total voting power of SCE&G's preferred stock, SCE&G may not issue or assume any unsecured indebtedness if, after such issue or assumption, the total principal amount of all such unsecured indebtedness would exceed 10% of the aggregate principal amount of all of SCE&G's secured indebtedness and capital and surplus; provided, however, that no such consent shall be required to enter into agreements for payment of principal, interest and premium for securities issued for pollution control purposes. Pursuant to Section 204 of the Federal Power Act, SCE&G and GENCO must obtain FERC authority to issue short-term debt. The FERC has authorized SCE&G to issue up to $200 million of unsecured promissory notes or commercial paper with maturity dates of twelve months or less but not later than December 31, 1997. GENCO has not sought such authorization. SCE&G had $165 million authorized and unused lines of credit at December 31, 1995. In addition, Fuel Company has a credit agreement for a maximum of $125 million with the full amount available at December 31, 1995. The credit agreement supports the issuance of short-term commercial paper for the financing of nuclear and fossil fuels and sulfur dioxide emission allowances. Fuel Company commercial paper outstanding at December 31, 1995 was $76.8 million. SCE&G's Restated Articles of Incorporation prohibit issuance of additional shares of preferred stock without consent of the preferred stockholders unless net earnings (as defined therein) for the twelve consecutive months immediately preceding the month of issuance are at least one and one-half times the aggregate of all interest charges and preferred stock dividend requirements (Preferred Stock Ratio). For the year ended December 31, 1995 the Preferred Stock Ratio was 2.58. 10 During 1995 SCANA issued 1,434,664 shares of the Company's common stock under its Investor Plus Plan. In addition, SCANA issued 1,630,993 shares of its common stock pursuant to its SPSP. At December 31, 1995 SCANA has authorized and reserved for issuance, and registered under effective registration statements, 1,506,108 and 2,551,139 shares of common stock pursuant to the Investor Plus Plan and the SPSP, respectively. The ratios of earnings to fixed charges (SEC method) were 3.00, 2.55, 3.38, 2.79 and 3.04 for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 respectively. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the next twelve months and for the foreseeable future. Fuel Financing Agreements SCE&G has assigned to Fuel Company all of its rights and interests in various contracts relating to the acquisition and ownership of nuclear and fossil fuels. To finance nuclear and fossil fuels and sulfur dioxide emission allowances, Fuel Company issues, from time to time, commercial paper which is supported, up to $125 million, by an irrevocable revolving credit agreement which expires July 31, 1998. Accordingly, the amounts outstanding have been included in long-term debt. This commercial paper and amounts outstanding under the revolving credit agreement, if any, are guaranteed by SCE&G. At December 31, 1995 commercial paper outstanding was approximately $76.8 million at a weighted average interest rate of 5.76%. (See Note 4 of Notes to Consolidated Financial Statements). ELECTRIC OPERATIONS Electric Sales In 1995 residential sales of electricity accounted for 43% of electric sales revenues; commercial sales 30%; industrial sales 20%; sales for resale 4%; and all other 3%. KWH sales by classification for the years ended December 31, 1995 and 1994 are presented below: Sales KWH % Classification 1995 1994 Change (thousands) Residential 5,726,815 5,311,139 7.83 Commercial 5,076,091 4,846,619 4.73 Industrial 5,210,368 5,161,717 0.94 Sale for resale 1,063,064 1,024,376 3.78 Other 506,806 494,030 2.59 Total Territorial 17,583,144 16,837,881 4.43 Interchange 195,591 171,046 14.35 Total 17,778,735 17,008,927 4.53 11 SCE&G furnishes electricity for resale to three municipalities, four investor-owned utilities, two electric cooperatives and one public power authority. Such sales for resale accounted for 4% of SCE&G's total electric sales revenues in 1995. During 1995 the Company recorded a net increase of 7,942 electric customers, increasing its total customers to 484,354. The electric sales volume increased for the year ended December 31, 1995 compared to the prior year as a result of increased residential and commercial sales due to favorable weather and customer growth. The all-time peak demand of 3,683 MW was set on August 14, 1995. On August 8, 1995 SCE&G signed an agreement with the DOE to lease the Savannah River Site's (SRS) power and steam generation and transmission facilities. The agreement calls for SRS to purchase all its electrical and a majority of its steam requirements from SCE&G. SCE&G will lease (with an option to renew) the power plant for ten years and the electrical transmission lines for 40 years, with an option to refurbish the facilities or build a new system. Electric Interconnections SCE&G's transmission system is part of the interconnected grid extending over a large part of the southern and eastern portions of the nation. SCE&G, Virginia Power Company, Duke Power Company, Carolina Power & Light Company, Yadkin, Incorporated and PSA are members of the Virginia-Carolinas Reliability Group, one of the several geographic divisions within the Southeastern Electric Reliability Council. The Council provides for coordinated planning for reliability among bulk power systems in the Southeast. SCE&G is also interconnected with Georgia Power Company, Savannah Electric & Power Company, Oglethorpe Power Corporation and Southeastern Power Administration's Clark Hill Project. Fuel Costs The following table sets forth the average cost of nuclear fuel and coal and the weighted average cost of all fuels (including oil and natural gas) used by the Company for the years 1993-1995. 1995 1994 1993 Nuclear: Per million BTU $ .48 $ .51 $ .47 Coal: Per ton $40.57 $40.43 $40.48 Per million BTU 1.58 1.59 1.57 Weighted Average Cost of All Fuels: Per million BTU $ 1.26 $ 1.39 $ 1.31 The fuel costs shown above exclude the effects of a PSC- approved offsetting of fuel costs through the application of credits carried on SCE&G's books as a result of a 1980 settlement of certain litigation. 12 Fuel Supply The following table shows the sources and approximate percentages of total KWH generation by each category of fuel for the years 1993-1995 and the estimates for 1996 and 1997. Percent of Total KWH Generated Estimated Actual 1997 1996 1995 1994 1993 Coal 73% 71% 65% 76% 72% Nuclear 24 24 27 17 23 Hydro 3 3 5 6 5 Natural Gas & Oil - 2 3 1 - 100% 100% 100% 100% 100% Coal is used at all five of SCE&G's major fossil fuel-fired plants and GENCO's Williams Station. Unit train deliveries are used at all of these plants. On December 31, 1995 SCE&G had approximately a 73-day supply of coal in inventory and GENCO had approximately a 49-day supply. The supply of coal is obtained through contracts and purchases on the spot market. Spot market purchases are expected to continue for coal requirements in excess of those provided by the Company's existing contracts. Contracts for the purchase of coal represent 91.5% of estimated requirements for 1996 (approximately 5.3 million tons). The supply of contract coal is purchased from seven suppliers located in eastern Kentucky and southwest Virginia. Contract commitments, which expire at various times from 1997- 2003, approximate 4.85 million tons annually. Sulfur restrictions on the contract coal range from .75% to 2%. The Company believes that SCE&G's and GENCO's operations are in substantial compliance with all existing regulations relating to the discharge of sulfur dioxide. The Company has not been advised by officials of DHEC that any more stringent sulfur content requirements for existing plants are contemplated at the State level. However, the Company will be required to meet the more stringent Federal emissions standards established by the Clean Air Act (see "Environmental Matters"). SCE&G has adequate supplies of uranium under contract to manufacture nuclear fuel for Summer Station through 2005. The following table summarizes all contract commitments for the stages of nuclear fuel assemblies: Commitment Contractor Regions(1) Term Uranium Energy Resources of Australia 9-13 1990-1997 Uranium Everest Minerals 9-13 1990-1996 Conversion Sequoyah Fuel Corp. 8-12 1989-1995 Enrichment USEC 12-18 1995-2005 Fabrication Westinghouse 1-21 1982-2009 Reprocessing None (1) A region represents approximately one-third to one-half of the nuclear core in the reactor at any one time. Region no. 11 was loaded in 1994 and Region no. 12 will be loaded in 1996. 13 SCE&G has on-site spent nuclear fuel storage capability until at least 2009 and expects to be able to expand its storage capacity to accommodate the spent fuel output for the life of the plant through rod consolidation, dry cask storage or other technology as it becomes available. In addition, there is sufficient on-site storage capacity over the life of Summer Station to permit storage of the entire reactor core in the event that complete unloading should become desirable or necessary for any reason. (See "Nuclear Fuel Disposal" under "Environmental Matters" for information regarding the contract with the DOE for disposal of spent fuel.) Decommissioning Decommissioning of Summer Station is presently projected to commence in the year 2022 when the operating license expires. Based on a 1991 study, the expenditures (on a before-tax basis) related to SCE&G's share of decommissioning activities are estimated, in 2022 dollars assuming a 4.5% annual rate of inflation, to be $545.3 million including partial reclamation costs. SCE&G is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. SCE&G's method of funding decommissioning costs is referred to as COMReP (Cost of Money Reduction Plan). Under this plan, funds collected through rates ($3.2 million in each of 1995 and 1994) are used to purchase insurance policies on the lives of certain Company personnel. Through the purchase of insurance contracts, SCE&G is able to take advantage of income tax benefits and accrue earnings on the fund on a tax-deferred basis at a rate higher than can be achieved using more traditional funding approaches. Amounts for decommissioning collected through electric rates, insurance proceeds, and interest on proceeds less expenses are transferred by SCE&G to an external trust fund in compliance with the financial assurance requirements of the NRC. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis. The trust's sources of decommissioning funds under the COMReP program include investment components of life insurance policy proceeds, return on investment and the cash transfers from SCE&G described above. SCE&G records its liability for decommissioning costs in deferred credits. GAS OPERATIONS Gas Sales In 1995 residential sales accounted for 27% of gas sales revenues; commercial sales 19%; industrial sales 42%; sales for resale 12%. Dekatherm sales by classification for the years ended December 31, 1995 and 1994 are presented below: SALES DEKATHERMS % CLASSIFICATION 1995 1994 CHANGE Residential 12,333,769 11,531,558 7.0 Commercial 10,519,581 9,886,622 6.4 Industrial 49,474,314 41,513,880 19.2 Sale for resale 15,923,483 15,178,820 4.9 Transportation gas 7,978,251 16,067,294 (50.4) Total 96,229,398 94,178,174 2.2 14 During 1995 the Company recorded a net increase of 4,909 customers, increasing its total customers to 243,523. The demand for gas is affected by conservation, the weather, the price relationship between gas and alternate fuels and other factors. Pipeline Corporation has been successful in purchasing lower cost natural gas in the spot market and arranging for its transportation to South Carolina. Pipeline Corporation has also negotiated contracts with certain direct and indirect industrial customers for the transportation of natural gas that the industrial customers purchase directly from suppliers. On November 1, 1993 Transco and Southern Natural (Pipeline Corporation's interstate suppliers) began operations under Order No. 636, which deregulated the markets for interstate sales of natural gas by requiring that pipelines provide transportation services that are equal in quality for all gas supplies whether the customer purchases gas from the pipeline or another supplier. Pipeline Corporation, operating wholly within the State of South Carolina, provides natural gas utility service, including transportation services, for its customers, and supplies natural gas to SCE&G and other wholesale purchasers. Energy Marketing acquires and sells natural gas in the newly deregulated markets. Petroleum Resources owns natural gas reserves and supplies natural gas in the interstate markets. Neither Energy Marketing nor Petroleum Resources supplies natural gas to any affiliate for use in providing regulated gas utility services. To reduce dependence on imported oil, NEPA imposes purchase requirements for the purchase of alternate fuel vehicles on Federal, state, municipal and private fleets. The Company expects these requirements to develop business opportunities for the sale of compressed natural gas as fuel for vehicles, but it cannot predict the magnitude of this new market. Gas Cost and Supply Pipeline Corporation purchases natural gas under contracts with producers and marketers on a short-term basis at current price indices and on a long-term basis for reliability assurance at index prices plus a gas inventory charge. The gas is brought to South Carolina through transportation agreements with both Southern Natural and Transco, which expire at various times from 1996 to 2003. The volume of gas which Pipeline Corporation is entitled to transport under these contracts on a firm basis is shown below: Maximum Daily Supplier Contract Demand Capacity (MCF) Southern Natural Firm Transportation 184,974 Transco Firm Transportation 29,300 Total 214,274 Additional natural gas volumes are brought to Pipeline Corporation's system as capacity is available for interruptible transportation. During 1995 the average cost per MCF of natural gas purchased for resale, excluding firm service demand charges, was approximately $1.95 compared to approximately $2.00 during 1994. 15 Pipeline Corporation has engaged in hedging activities on the New York Mercantile Exchange (NYMEX) of its gas supply pursuant to an experimental and limited program monitored by the PSC. Any gains or losses associated with that hedging activity are accounted for in Pipeline Corporation's purchased gas adjustment clause and have impact on corporate earnings. To meet the requirements of its other high priority natural gas customers during periods of maximum demand, Pipeline Corporation supplements its supplies of natural gas from two LNG plants. The plants are capable of storing the liquefied equivalent of 1,900,000 MCF of natural gas, of which approximately 1,695,489 MCF were in storage at December 31, 1995. On peak days the LNG plants can regasify up to 150,000 MCF per day. Additionally, Pipeline Corporation had contracted for 6,450,727 MCF of natural gas storage space of which 4,307,796 MCF were in storage on December 31, 1995. The Company believes that supplies under contract and available for spot market purchase are adequate to meet existing customer demands and to accommodate growth. Curtailment Plans The FERC has established allocation priorities applicable to firm and interruptible capacities on interstate pipeline companies which require Southern Natural and Transco to allocate capacity to Pipeline Corporation. The FERC allocation priorities are not applicable to deliveries by Pipeline Corporation to its customers, which are governed by a separate curtailment plan approved by the PSC. Gas Reserves Petroleum Resources is engaged in oil and natural gas exploration, development and production activities. It currently owns and/or operates interests in oil and gas properties in Texas, Louisiana, Mississippi, Oklahoma, California, Arkansas, New Mexico, Alabama, Wyoming and Federal waters offshore Texas, Louisiana and Alabama. Gas Marketing Energy Marketing markets natural gas and other light hydrocarbons. It also owns and operates gas gathering systems in Wilburton, Oklahoma; Waskom, Texas; and offshore Alabama in Mobile Bay. Propane Operations Suburban purchases, delivers and sells propane. In 1995 Suburban sold approximately 27 million gallons of propane and had approximately 34,000 residential, commercial and industrial customers at year end. Energy Marketing owns and operates a 60-million gallon underground propane storage facility and leases storage space to industrial companies, utilities and others. It also owns and operates a 62-mile propane pipeline that connects the storage facility with the Dixie Pipeline System which traverses central South Carolina. 16 REGULATION General SCANA is a public utility holding company within the meaning of PUHCA, but is exempt under Section 3(a)(1) of PUHCA from regulation by the SEC as a registered holding company unless and until the SEC shall otherwise order, except for Section 9(a)(2) thereof prohibiting the acquisition of securities of other public utilities without a prior order of the SEC. SCE&G is subject to the jurisdiction of the PSC as to retail electric, gas and transit rates, service, accounting, issuance of securities (other than short-term promissory notes) and other matters. Federal Energy Regulatory Commission SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by the FERC and the DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting and the issuance of short-term promissory notes. (See "Capital Requirements and Financing Program.") SCE&G holds licenses under the Federal Water Power Act or the Federal Power Act with respect to all its hydroelectric projects. The expiration dates of the licenses covering the projects are as follows: Project Capability (KW) License Expiration Date Neal Shoals 5,000 1993 Stevens Creek 9,000 2025 Columbia 10,000 2000 Saluda 206,000 2007 Parr Shoals 14,000 2020 Fairfield Pumped Storage 512,000 2020 Pursuant to the provisions of the Federal Power Act, as amended, applications for new licenses for Neal Shoals and Stevens Creek were filed with the FERC on December 30, 1991. No competing applications were filed. The FERC issued a new 30-year license for the Stevens Creek project on November 22, 1995. The Neal Shoals license application is in the final stage of review. The FERC has issued a Notice of Authorization for Continued Project Operation for Neal Shoals until the FERC acts on SCE&G's application for a new license. At the termination of a license under the Federal Power Act, the United States government may take over the project covered thereby, or the FERC may extend the license or issue a license to another applicant. If the United States takes over a project or the FERC issues a license to another applicant, the original licensee is entitled to be paid its net investment in the project, not to exceed fair value, plus severance damages. SCE&G has filed an application with the FERC requesting authorization to sell bulk power at market based rates. The application also included proposed open access transmission tariffs. (See "National Energy Policy Act of 1992 and FERC Order 636.") Nuclear Regulatory Commission SCE&G is subject to regulation by the NRC with respect to the ownership and operation of Summer Station. The NRC's jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considerations and environmental impact. In addition, the Federal Emergency Management Agency is responsible for the review, in conjunction with the NRC, of certain aspects of emergency planning relating to the operation of nuclear plants. 17 For the fourth time in the last five evaluations, Summer Station received a category one rating from the Institute of Nuclear Power Operations (INPO). The category one rating is the highest given by INPO for a nuclear plant's overall operations. National Energy Policy Act of 1992 and FERC Order 636 The Company's regulated business operations are likely to be impacted by the NEPA and FERC Order No. 636. NEPA is designed to create a more competitive wholesale power supply market by creating "exempt wholesale generators" and by potentially requiring utilities owning transmission facilities to provide transmission access to wholesalers. Order No. 636 is intended to deregulate the markets for interstate sales of natural gas by requiring that pipelines provide transportation services that are equal in quality for all gas suppliers whether the customer purchases gas from the pipeline or another supplier. In the opinion of the Company, it will be able to meet successfully the challenges of these altered business climates and does not anticipate there to be any material adverse impact on the results of its operations, its financial position or its business prospects. RATE MATTERS The following table presents a summary of significant rate activity for the years 1991 - 1995 based on test years: REQUESTED GRANTED Date of % of General Rate Application/ Amount % Increase Date of Amount Increase Applications Hearing (Millions) Requested Order (Millions) Granted PSC Electric Retail 07/10/95 $ 76.7 8.4% 1/09/96 $ 67.5 88% Retail 12/07/92 $ 72.0* 11.4% 6/07/93 $ 60.5 84% Transit Fares 03/12/92 $ 1.7 42.0% 9/14/92 $ 1.0 59% *As modified to reflect lowering of rate of return SCE&G was seeking.
On July 10, 1995, SCE&G filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting SCE&G an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase will be implemented in two phases. The first phase, an increase in revenues of approximately $59.5 annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million to be collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of substantially all (excluding accumulated deferred income taxes) of SCE&G's electric regulatory assets and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. 18 On October 27, 1994 the PSC issued an order approving the Company's request to recover through a billing surcharge to its gas customers the costs of environmental cleanup at the sites of former manufactured gas plants. The billing surcharge, which was effective with the first billing cycle in November 1994 and is subject to annual review, provides for the recovery of approximately $16.2 million representing substantially all actual and projected site assessment and cleanup costs for the Company's gas operations that had previously been deferred. In October 1995, as a result of the on-going annual review, the PSC approved the continued use of the billing surcharge. The balance remaining to be recovered amounts to approximately $14.5 million. On September 14, 1992 the PSC issued an order granting the Company a $.25 increase in transit fares from $.50 to $.75 in both Columbia and Charleston, South Carolina; however, the PSC also required $.40 fares for low income customers and denied the Company's request to reduce the number of routes and frequency of service. The new rates were placed into effect on October 5, 1992. The Company has appealed the PSC's order to the Circuit Court. On May 23, 1995, the Circuit Court ordered the case back to the PSC for reconsideration of several issues including the low income rider program, routing changes, and the $.75 fare. The Supreme Court declined to review an appeal of the Circuit Court decision and dismissed the case. The PSC and other intervenors filed another Petition for Reconsideration, which the Circuit Court denied. Procedural matters in this case are yet to be resolved in the court. Fuel Cost Recovery Procedures The PSC has established a fuel cost recovery procedure which determines the fuel component in SCE&G's retail electric base rates semiannually based on projected fuel costs for the ensuing six-month period, adjusted for any overcollection or undercollection from the preceding six-month period. SCE&G has the right to request a formal proceeding at any time should circumstances dictate such a review. In the April 1995 semiannual review of the fuel cost component of electric rates, the PSC decreased the rate from 14.16 mills per KWH to 13.48 mills per KWH, a monthly decrease of $.68 for an average customer using 1,000 KWH per month. For the October 1995 review the PSC continued the rate of 13.48 mills per KWH. SCE&G's gas rate schedules and contracts include mechanisms which allow it to recover from its customers changes in the actual cost of gas. SCE&G's firm gas rates allow for the recovery of a fixed cost of gas, based on projections, as established by the PSC in annual gas cost and gas purchase practice hearings. Any differences between actual and projected gas costs are deferred and included when projecting gas costs during the next annual gas cost recovery hearing. In the October 1995 review the PSC decreased the base cost of gas from 51.058 cents per therm to 43.081 cents per therm which resulted in a monthly decrease of $7.98 (including applicable taxes) based on an average of 100 therms per month on a residential bill during the heating season. ENVIRONMENTAL MATTERS General Federal and state authorities have imposed upon the Company environmental regulations and standards relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. Developments in these areas may require that equipment and facilities be modified, supplemented or replaced. The ultimate effect of these regulations and standards upon existing and proposed operations cannot be forecast. 19 Capital Expenditures In the years 1993 through 1995, capital expenditures for environmental control amounted to approximately $93.9 million. In addition, approximately $12.6 million, $11.1 million, and $9.4 million of environmental control expenditures were made during 1995, 1994 and 1993, respectively, which are included in "Other operation" and "Maintenance" expenses. It is not possible to estimate all future costs for environmental purposes but forecasts for capitalized expenditures are $10.8 million for 1996 and $151.3 million for the four-year period 1997 through 2000. These expenditures are included in the Company's construction program. Air Quality Control The Clean Air Act requires electric utilities to reduce substantially emissions of sulfur dioxide and nitrogen oxide by the year 2000. These requirements are being phased in over two periods. The first phase had a compliance date of January 1, 1995 and the second, January 1, 2000. The Company's facilities did not require modifications to meet the requirements of Phase I. The Company will most likely meet the Phase II requirements through the burning of natural gas and/or lower sulfur coal in its generating units and the purchase and use of sulfur dioxide emission allowances. Low nitrogen oxide burners are being installed to reduce nitrogen oxide emissions to the levels required by Phase II. Air toxicity regulations for the electric generating industry are likely to be promulgated around the year 2000. The Company filed compliance plans related to Phase II requirements with DHEC by December 31, 1995. The Company currently estimates that air emissions control equipment will require capital expenditures of $122 million over the 1996-2000 period to retrofit existing facilities, with increased operation and maintenance cost of approximately $1 million per year. To meet compliance requirements through the year 2005, the Company anticipates total capital expenditures of approximately $159 million. Water Quality Control The Federal Clean Water Act, as amended, provides for the imposition of effluent limitations that require various levels of treatment for each wastewater discharge. Under this Act, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued for all and renewed for nearly all of SCE&G's and GENCO's generating units. Concurrent with renewal of these permits the permitting agency has implemented a more rigorous control program. The Company has been developing compliance plans to meet this program. Amendments to the Clean Water Act proposed in Congress include several provisions which, if passed, could prove costly to SCE&G. These include limitations to mixing zones and the implementation of technology-based standards. Superfund Act and Environmental Assessment Program The Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the cost, if any, to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts are deferred and are being amortized and recovered through rates over a ten-year period for electric operations and an eight-year period for gas operations. Deferred amounts totaled $18.0 million and $20.2 million at December 31, 1995 and 1994, respectively. Estimates include, among other items, the costs estimated to be associated with the matters discussed in the following paragraphs. SCE&G, owns four decommissioned manufactured gas plant sites which contain residues of by-product chemicals. SCE&G has maintained an active review of the sites to monitor the nature and extent of the residual contamination. 20 In September 1992, the EPA notified SCE&G, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park Area Site in Charleston, South Carolina. This site originally encompassed approximately eighteen acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of SCE&G's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The PRPs have agreed with the EPA to participate in an innovative approach to site investigation and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre-cleanup site investigation process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993. SCE&G is also working with the City of Charleston to investigate potential contamination from the manufactured gas plant which may have migrated to the city's aquarium site. In 1994 the City of Charleston notified SCE&G that it considers SCE&G to be responsible for a $43.5 million increase in costs of the aquarium project attributable to delays resulting from contamination of the Calhoun Park Area Site. SCE&G believes it has meritorious defenses against this claim and does not expect its resolution to have a material impact on its financial position or results of operations. SCE&G has been listed as a PRP and has recorded liabilities, which are not material, for the Macon-Dockery waste disposal site near Rockingham, North Carolina. SCE&G has participated in de minimis buy-outs for the Aqua-Tech Environmental Inc. site in Greer, South Carolina and a landfill owned by Lexington County in South Carolina. SCE&G expects to have no further involvement with these two sites. The Arkansas Department of Pollution Control and Ecology has identified SCE&G as a PRP for clean-up of PCBs at an abandoned transformer rebuilding plant in Little Rock, Arkansas. No formal notice from the Department has been received. SCE&G believes that its identification as a PRP was in error, and that the resolution of this issue will not have a material effect on SCE&G's results of operations or financial position. Solid Waste Control The South Carolina Solid Waste Policy and Management Act of 1991 directed DHEC to promulgate regulations for the disposal of industrial solid waste. DHEC has promulgated a proposed regulation, which if adopted as a final regulation in its present form, would significantly increase SCE&G's and GENCO's costs of construction and operation of existing and future ash management facilities. Nuclear Fuel Disposal The Nuclear Waste Policy Act of 1982 requires that the United States government make available by 1998 a permanent repository for high-level radioactive waste and spent nuclear fuel and imposes a fee of 1.0 mill per KWH of net nuclear generation after April 7, 1983. Payments, which began in 1983, are subject to change and will extend through the operating life of SCE&G's Summer Station. SCE&G entered into a contract with the DOE on June 29, 1983 providing for permanent disposal of its spent nuclear fuel by the DOE. The DOE presently estimates that the permanent storage facility will not be available until 2010. SCE&G has on-site spent nuclear fuel storage capability until at least 2009 and expects to be able to expand its storage capacity to accommodate the spent fuel output for the life of the plant through rod consolidation, dry cask storage or other technology as it becomes available. The Act also imposes on utilities the primary responsibility for storage of their spent nuclear fuel until the repository is available. 21 OTHER MATTERS With regard to SCE&G's insurance coverage for Summer Station, reference is made to Note 10B of Notes to Consolidated Financial Statements, which is incorporated herein by reference. The Company's net investment in oil and gas properties is subject to a quarterly ceiling test calculation that limits capitalized costs to the aggregate of the estimated present value of future net cash flows from proved oil and gas reserves plus the lower of cost or fair market value of unproved properties. Carrying values of proved reserves in excess of the ceiling limitation are expensed currently. In an effort to limit exposure to changing natural gas prices, in January 1995 the Company entered into a series of forward contacts relating to natural gas production. These forward contracts have the effect of stabilizing the price that the Company will receive on approximately sixty percent of its forecasted natural gas production for the years 1996-2001. The forward contracts are at an average price of $1.92 per dekatherm. The Company remains exposed to price risk for any production that is not subject to such forward contracts. ITEM 2. PROPERTIES SCANA owns no significant property other than the capital stock of each of its subsidiaries. It holds, directly or indirectly, all of the capital stock of each subsidiaries except for the Preferred Stock of SCE&G. SCE&G's bond indentures, securing the First and Refunding Mortgage Bonds and First Mortgage Bonds issued thereunder, constitute direct mortgage liens on substantially all of its property. GENCO's Williams Station is subject to a first mortgage lien. For a brief description of the properties of the Company's other subsidiaries, which are not significant as defined in Rule 1-02 of Regulation S-X, see Item 1, "Business-Segments of Business-Nonregulated Businesses." 22 ELECTRIC The following table gives information with respect to electric generating facilities, all of which are owned by SCE&G except as noted. Net Generating Present Year Capability Facility Fuel Capability Location In-Service (KW)(1) Steam Urquhart Coal/Gas Beech Island, SC 1953 250,000 McMeekin Coal/Gas Irmo, SC 1958 252,000 Canadys Coal/Gas Canadys, SC 1962 430,000 Wateree Coal Eastover, SC 1970 700,000 Williams (2) Coal Goose Creek, SC 1973 560,000 Summer (3) Nuclear Parr, SC 1984 594,000 D-Area (4) Coal DOE Savannah River Site, SC 1995 17,000 Cope (5) Coal Cope, SC 1996 385,000 Gas Turbines Burton Gas/Oil Burton, SC 1961 28,500 Faber Place Gas Charleston, SC 1961 9,500 Hardeeville Oil Hardeeville, SC 1968 14,000 Canadys Gas/Oil Canadys, SC 1968 14,000 Urquhart Gas/Oil Beech Island, SC 1969 38,000 Coit Gas/Oil Columbia, SC 1969 30,000 Parr (6) Gas/Oil Parr, SC 1970 60,000 Williams (7) Gas/Oil Goose Creek, SC 1972 49,000 Hagood Gas/Oil Charleston, SC 1991 95,000 Hydro Neal Shoals Carlisle, SC 1905 5,000 Parr Shoals Parr, SC 1914 14,000 Stevens Creek Martinez, GA 1914 9,000 Columbia Columbia, SC 1927 10,000 Saluda Irmo, SC 1930 206,000 Pumped Storage Fairfield Parr, SC 1978 512,000 Total 4,282,000 (1) Summer rating. (2) The steam unit at Williams Station is owned by GENCO. (3) Represents SCE&G's two-thirds portion of the Summer Station. (4) This plant is operated under lease from the DOE and is dispatched to DOE's Savannah River Site steam needs. "Net Capacity Rating" for this plant is expected average hourly output. The lease, which may be extended, expires on October 1, 2005. (5) Plant began commercial operation in January 1996. (6) Two of the four Parr gas turbines are leased and have a net capability of 34,000 KW. This lease expires on June 29, 1996. SCE&G has agreed to purchase the leased turbines on the lease expiration date. (7) The two gas turbines at Williams are leased and have a net capability of 49,000 KW. This lease expires on June 29, 1997. 23 SCE&G owns 429 substations having an aggregate transformer capacity of 19,577,868 KVA. The transmission system consists of 3,090 miles of lines and the distribution system consists of 15,596 pole miles of overhead lines and 3,191 trench miles of underground lines. GAS Natural Gas SCE&G's gas system consists of approximately 6,833 miles of three-inch equivalent distribution pipelines and approximately 11,265 miles of distribution mains and related service facilities. Pipeline Corporation's gas system consists of approximately 1,776 miles of transmission pipeline of up to 24 inches in diameter which connect its resale customers' distribution systems with transmission systems of Southern Natural and Transco. Pipeline Corporation owns two LNG plants, one located near Charleston, South Carolina and the other in Salley, South Carolina. The Charleston facility can liquefy up to 6,000 MCF per day and store the liquefied equivalent of 1,000,000 MCF of natural gas. The Salley facility can store the liquefied equivalent of 900,000 MCF of natural gas and has no liquefying capabilities. On peak days, the Charleston facility can regasify up to 60,000 MCF per day and the Salley facility can regasify up to 90,000 MCF. Petroleum Resources owns and/or operates interests in oil and gas properties in Texas, Louisiana, Mississippi, Oklahoma, California, Arkansas, New Mexico, Alabama, Wyoming and Federal waters offshore Texas, Louisiana and Alabama. Propane SCE&G has propane air peak shaving facilities which can supplement the supply of natural gas by gasifying propane to yield the equivalent of 102,000 MCF per day of natural gas. These facilities can store the equivalent of 430,405 MCF of natural gas. TRANSIT SCE&G owns 98 motor coaches which operate on a route system of 286 miles. ITEM 3. LEGAL PROCEEDINGS For information regarding legal proceedings, see ITEM 1., "BUSINESS - RATE MATTERS" and "BUSINESS - ENVIRONMENTAL MATTERS - Superfund Act and Environmental Assessment Program" and Note 10 of Notes to Consolidated Financial Statements appearing in Item 8., "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable 24 CORPORATE STRUCTURE SCANA CORPORATION A Holding Company, Owning Twelve Direct, Wholly Owned Subsidiaries SOUTH CAROLINA SCANA ENERGY MARKETING, INC. ELECTRIC & GAS COMPANY Markets natural gas and other Generates and sells electricity light hydrocarbons and provides to wholesale and retail customers, transportation and bulk storage purchases, sells and transports of propane. Also owns several natural gas at retail and provides gas gathering systems and provides public transit service in Columbia provides energy-related risk and Charleston. management services to producers and consumers. SOUTH CAROLINA GENERATING SCANA PETROLEUM RESOURCES, INC. COMPANY, INC. Owns and/or operates interests Owns and operates Williams in oil and gas properties. Station and sells electricity to SCE&G. SERVICECARE, INC. Provides energy-related products SOUTH CAROLINA FUEL and services beyond the energy COMPANY, INC. meter, principally service Acquires, owns and provides contracts on home appliances. financing for SCE&G's nuclear fuel, fossil fuel and sulfur PRIMESOUTH, INC. dioxide emission allowances. Engages in power plant management and maintenance SUBURBAN PROPANE GROUP, INC. services. Purchases, delivers and sells propane. SCANA DEVELOPMENT CORPORATION Engaged in the acquisition, SCANA RESOURCES, INC. development, management and Conducts energy-related sale of real estate. (In businesses and services. liquidation.) MPX SYSTEMS, INC. SOUTH CAROLINA PIPELINE Provides fiber optic CORPORATION telecommunications, video Purchases, sells and transports conferencing, specialized natural gas to wholesale and mobile radio services and, direct industrial customers. through joint ventures, is Owns and operates two LNG plants developing PCS for wireless for the liquefaction, regasifi- communications. cation and storage of natural gas. Each of the above listed companies is organized and incorporated under the laws of the State of South Carolina. 25 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers are elected at the annual organizational meeting of the Board of Directors, held immediately after the annual meeting of stockholders, and hold office until the next such organizational meeting, unless a resignation is submitted, or unless the Board of Directors shall otherwise determine. Positions Held During Name Age Past Five Years Dates L.M. Gressette, Jr. 64 Chairman of the Board and Chief Executive Officer *-present President *-1995 W.B. Timmerman 49 President 1995-present President MPX 1996-present Executive Vice President 1994-1995 Assistant Secretary 1993-1996 Chief Financial Officer and Controller *-1996 Senior Vice President *-1994 B.D. Kenyon 53 President and Chief Operating Officer - SCE&G *-present A.H. Gibbes 49 Group Executive - SCANA Gas Group 1996-present President - Pipeline Corporation 1996-present President - C&T Pipeline, Inc. 1996-present Senior Vice President General Counsel and Assistant Secretary 1994-1996 Assistant Secretary - SCE&G, GENCO, Fuel Company, MPX, PrimeSouth, ServiceCare and SCANA Development Corp. 1994-1996 Vice President, General Counsel and Assistant Secretary 1993-1994 President and Treasurer - SCANA Development Corp. *-present C.B. Novinger 46 Senior Vice President - Administration *-present Max Earwood 63 Vice-Chairman - Pipeline Corporation, Petroleum Resources and Energy Marketing 1996-present President and Treasurer - Pipeline Corporation *-1996 President and Treasurer - Energy Marketing and Petroleum Resources *-present H.T. Arthur 50 Vice President, General Counsel and Assistant Secretary - SCANA 1996-present Assistant Secretary of SCE&G, and other subsidiaries 1996-present Vice President and General Counsel of Pipeline *-1996 *Indicates position held at least since March 1, 1991. 26 K.B. Marsh 40 Vice President - Finance, Chief Financial Officer and Controller 1996-present Vice President - Finance, Treasurer and Secretary 1992-1996 Vice President of Corporate Planning - SCE&G 1991 Vice President and Controller - SCE&G *-1991 B.T. Zeigler 40 Vice President 1996-present General Counsel of SCE&G 1995-present Associate General Counsel - SCE&G Legal Department 1992-1995 Partner - Lewis, Babcock & Hawkins Law Firm *-1992 *Indicates position held at least since March 1, 1991. 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS COMMON STOCK INFORMATION 1995 1994 4th 3rd 2nd 1st 4th 3rd 2nd 1st Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Price Range: (a) High 28 5/8 24 1/4 23 3/8 22 1/2 22 1/4 23 23 1/4 25 Low 24 1/8 21 1/8 20 3/4 20 1/2 20 1/2 21 3/8 21 22 3/8 (a) As reported on the New York Stock Exchange Composite Listing. Information prior to the May 1995 two-for-one stock split has been restated. Dividends Per Share: 1995 Amount Date Declared Date Paid First Quarter .36 February 14, 1995 April 1, 1995 Second Quarter .36 April 27, 1995 July 1, 1995 Third Quarter .36 August 23, 1995 October 1, 1995 Fourth Quarter .36 October 17, 1995 January 1, 1996 1994 Amount Date Declared Date Paid First Quarter .3525 February 15,1994 April 1, 1994 Second Quarter .3525 April 28, 1994 July 1, 1994 Third Quarter .3525 August 24, 1994 October 1, 1994 Fourth Quarter .3525 October 18, 1994 January 1, 1995 December 31, 1995 1994 Number of common shares outstanding 103,623,863 96,035,020 Number of common stockholders of record 38,231 39,516
The principal market for SCANA common stock is the New York Stock Exchange. The ticker symbol used is SCG. The corporate name SCANA is used in newspaper stock listings. The total number of shares of SCANA common stock outstanding at February 29, 1996 was 104,190,269. (a) As reported on the New York Stock Exchange Composite Listing. SECURITIES RATINGS (As of December 31, 1995) SCANA CORPORATION SOUTH CAROLINA ELECTRIC & GAS COMPANY Rating First Mortgage First and Refunding Preferred Commercial Agency Medium-Term Notes Bonds Mortgage Bonds Stock Paper Duff & Phelps A- A+ A+ A D-1 Moody's A3 A1 A1 a1 P-1 Standard & Poor's A- A A A- A-1 Further reference is made to Note 5 of Notes to Consolidated Financial Statements. 28
ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL DATA For the Years Ended December 31, 1995 1994* 1993* 1992* 1991* Statement of Income Data (Thousands of dollars except statistics and per share amounts) Operating Revenues $1,352,971 $1,322,062 $1,264,167 $1,138,375 $1,147,826 Operating Income 287,514 259,553 245,311 209,780 222,360 Other Income 8,060 (29,749) 27,335 11,960 (1,231) Net Income 168,339 115,452 165,240 117,667 122,965 Balance Sheet Data Utility Plant, Net $3,468,988 $3,293,667 $3,004,075 $2,810,279 $2,664,651 Total Assets 4,534,426 4,316,512 4,026,701 3,543,057 3,290,668 Capitalization: Common Equity 1,554,680 1,359,141 1,317,495 1,149,087 1,016,104 Preferred Stock (Not subject to purchase or sinking fund) 26,027 26,027 26,027 26,027 26,027 Preferred Stock, Net (Subject to purchase or sinking fund) 46,243 49,528 52,840 56,154 59,469 Long-Term Debt, Net 1,588,879 1,548,824 1,424,399 1,204,754 1,122,396 Total Capitalization $3,215,829 $2,983,520 $2,820,761 $2,436,022 $2,223,996 Common Stock Data Weighted Average Number of Common Shares Outstanding (Thousands) 99,044 94,762 90,407 82,950 80,722 Earnings Per Weighted Average Share of Common Stock $1.70 $1.22 $1.83 $1.42 $1.52 Dividends Declared Per Share of Common Stock $1.44 $1.41 $1.37 $1.34 $1.31 Common Shares Outstanding (Year-End) (Thousands) 103,624 96,035 93,239 87,821 81,569 Book Value Per Share of Common Stock (Year-End) $15.00 $14.15 $14.13 $13.08 $12.46 Number of Common Shareholders of Record 38,231 39,516 41,564 42,937 42,811 Other Statistics Electric: Customers (Year-End) 484,354 476,412 468,874 461,900 453,660 Territorial Sales (Million KWH) 17,583 16,838 16,880 15,794 15,695 Residential: Average annual use per customer (KWH) 13,859 13,048 14,077 13,037 13,246 Average annual rate per KWH $.0747 $.0743 $.0707 $.0695 $.0700 Generating Capability - Net MW (Year-End) 4,282 3,876 3,864 3,912 3,912 Territorial Peak Demand - Net MW 3,683 3,444 3,557 3,380 3,300 Gas: Customers (Year-End) 243,523 238,614 234,736 231,153 225,819 Sales (Thousand Therms) 882,511 781,109 717,417 761,721 694,801 Residential: Average annual use per customer (Therms) 570 543 605 577 521 Average annual rate per therm $ .82 $.84 $.76 $.74 $.77 * Prior year information has been retroactively restated for the effects of a two-for-one stock split in May 1995 and for a change in accounting principle in the second quarter of 1995 from the successful efforts method of accounting to the full cost method of accounting for the Company's oil and natural gas operations.
29 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS COMPETITION The electric utility industry has begun a major transition that could lead to expanded market competition and less regulatory protection. Future deregulation of electric wholesale and retail markets will create opportunities to compete for new and existing customers and markets. As a result, profit margins and asset values of some utilities could be adversely affected. The pace of deregulation, future prices of electricity, and the regulatory actions which may be taken by the PSC in response to the changing environment cannot be predicted. However, the Company is aggressively pursuing actions to position itself strategically for the transformed environment. To enhance its flexibility and responsiveness to change, the Company's electric and gas utility, SCE&G, operates Strategic Business Units. Maintaining a competitive cost structure is of paramount importance in the utility's strategic plan. SCE&G has undertaken a variety of initiatives, including reductions in operation and maintenance costs and in staffing levels. In January 1996 the PSC approved (as discussed under "Liquidity and Capital Resources") the accelerated recovery of SCE&G's electric regulatory assets and the shift of depreciation reserves from transmission and distribution assets to nuclear production assets. SCE&G believes that these actions as well as numerous others that have been and will be taken demonstrate its ability and commitment to succeed in the new operating environment to come. Regulated public utilities are allowed to record as assets some costs that would be expensed by other enterprises. If deregulation or other changes in the regulatory environment occur, the Company may no longer be eligible to apply this accounting treatment and may be required to eliminate such regulatory assets from its balance sheet. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. The Company reported approximately $116 million and $4 million of regulatory assets and liabilities, respectively, excluding amounts related to net accumulated deferred income tax assets of approximately $27 million, on its balance sheet at December 31, 1995. LIQUIDITY AND CAPITAL RESOURCES The cash requirements of the Company arise primarily from SCE&G's operational needs, the Company's construction program and the need to fund the activities or investments of the Company's nonregulated subsidiaries. The ability of the Company's regulated subsidiaries to replace existing plant investment, as well as to expand to meet future demand for electricity and gas, will depend upon their ability to attract the necessary financial capital on reasonable terms. The Company's regulated subsidiaries recover the costs of providing services through rates charged to customers. Rates for regulated services are generally based on historical costs. As customer growth and inflation occur and the regulated subsidiaries expand their construction programs, it is necessary to seek increases in rates. As a result, the Company's future financial position and results of operations will be affected by the regulated subsidiaries' ability to obtain adequate and timely rate and other regulatory relief. Due to continuing customer growth, SCE&G entered into a contract with Duke/Fluor Daniel in 1991 to design, engineer and build a 385 MW coal-fired electric generating plant near Cope, South Carolina. Construction of the plant started in November 1992. Commercial operation began in January 1996. The estimated cost of the Cope plant, excluding AFC, is $410.9 million. In addition, the transmission lines for interconnection with SCE&G's system cost $22.5 million. 30 On July 10, 1995, SCE&G filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting SCE&G an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase will be implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of substantially all of SCE&G's electric regulatory assets (excluding accumulated deferred income taxes) and the remaining transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. The estimated primary cash requirements for 1996, excluding requirements for fuel liabilities and short-term borrowings, and the actual primary cash requirements for 1995 are as follows: 1996 1995 (Thousands of Dollars) Property additions and construction expenditures, net of allowance for funds used during construction $276,280 $303,081 Nuclear fuel expenditures 21,147 21,045 Maturing obligations, redemptions and sinking and purchase fund requirements 26,147 24,008 Total $323,574 $348,134 Approximately 56% of total cash requirements (after payment of dividends) was provided from internal sources in 1995 as compared to 31% in 1994. The Company has in effect a medium-term note program for the issuance from time to time of unsecured medium-term debt securities. The proceeds from the sales of these securities may be used to fund additional business activities in nonutility subsidiaries, to reduce short-term debt incurred in connection therewith or for general corporate purposes. At December 31, 1995 the Company had $317.6 million available for issuance. SCE&G's First and Refunding Mortgage Bond Indenture, dated April 1, 1945 (Old Mortgage), contains provisions prohibiting the issuance of additional bonds thereunder (Class A Bonds) unless net earnings (as therein defined) for twelve consecutive months out of the fifteen months prior to the month of issuance are at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1995 the Bond Ratio was 3.97. The issuance of additional Class A Bonds also is restricted to an additional principal amount equal to (i) 60% of unfunded net property additions (which unfunded net property additions totaled approximately $162.3 million at December 31, 1995), (ii) retirements of Class A Bonds (which retirement credits totaled $64.8 million at December 31, 1995), and (iii) cash on deposit with the Trustee. 31 SCE&G has a new indenture (New Mortgage) dated April 1, 1993 covering substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are issued under the New Mortgage on the basis of a like principal amount of Class A Bonds issued under the Old Mortgage which have been deposited with the Trustee of the New Mortgage (of which $185 million were available for such purpose as of December 31, 1995), until such time as all presently outstanding Class A Bonds are retired. Thereafter, New Bonds will be issuable on the basis of property additions in a principal amount equal to 70% of the original cost of electric and common plant properties (compared to 60% of value for Class A Bonds under the Old Mortgage), cash deposited with the Trustee, and retirement of New Bonds. New Bonds will be issuable under the New Mortgage only if adjusted net earnings (as therein defined) for twelve consecutive months out of the eighteen months immediately preceding the month of issuance are at least twice the annual interest requirements on all outstanding bonds (including Class A Bonds) and New Bonds to be outstanding (New Bond Ratio). For the year ended December 31, 1995 the New Bond Ratio was 5.31. The following additional financing transactions have occurred since December 31, 1994: On January 13, 1995 SCANA closed a $60 million unsecured bank loan due January 12, 1996, and used the proceeds to pay off loans in a like total amount. On January 12, 1996 SCANA refinanced the loan with unsecured bank loans totaling $60 million due January 10, 1997 at initial interest rates between 5.684% and 5.730%, subject to reset quarterly at LIBOR plus a spread of nine to fifteen basis points. On April 12, 1995 SCE&G issued $100 million of First Mortgage Bonds, 7 5/8% series due April 1, 2025 to repay short-term borrowings. On September 25, 1995 SCANA sold 4,500,000 shares of its common stock. Net proceeds were used for the reduction of short-term indebtedness incurred by the Company for investment in utility plant and nonregulated subsidiaries, and for general corporate purposes. Without the consent of at least a majority of the total voting power of SCE&G's preferred stock, SCE&G may not issue or assume any unsecured indebtedness if, after such issue or assumption, the total principal amount of all such unsecured indebtedness would exceed 10% of the aggregate principal amount of all of SCE&G's secured indebtedness and capital and surplus; provided, however, that no such consent shall be required to enter into agreements for payment of principal, interest and premium for securities issued for pollution control purposes. Pursuant to Section 204 of the Federal Power Act, SCE&G and GENCO must obtain FERC authority to issue short-term indebtedness. The FERC has authorized SCE&G to issue up to $200 million of unsecured promissory notes or commercial paper with maturity dates of twelve months or less, but not later than December 31, 1997. GENCO has not sought such authorization. SCE&G had $165 million authorized and unused lines of credit at December 31, 1995. In addition, Fuel Company has a credit agreement for a maximum of $125 million with the full amount available at December 31, 1995. The credit agreement supports the issuance of short-term commercial paper for the financing of nuclear and fossil fuels and sulfur dioxide emission allowances. Fuel Company commercial paper outstanding at December 31, 1995 was $76.8 million. 32 SCE&G's Restated Articles of Incorporation prohibit issuance of additional shares of preferred stock without consent of the preferred stockholders unless net earnings (as defined therein) for the twelve consecutive months immediately preceding the month of issuance are at least one and one-half times the aggregate of all interest charges and preferred stock dividend requirements (Preferred Stock Ratio). For the year ended December 31, 1995 the Preferred Stock Ratio was 2.58. During 1995 SCANA issued 1,434,664 shares of the Company's common stock under its Investor Plus Plan. In addition, SCANA issued 1,630,993 shares of its common stock pursuant to its Stock Purchase-Savings Plan (SPSP). At December 31, 1995 SCANA has authorized and reserved for issuance, and registered under effective registration statements, 1,506,108 and 2,551,139 shares of common stock pursuant to the Investor Plus Plan and the SPSP, respectively. The Company anticipates that its 1996 cash requirements of $323.6 million, exclusive of additional investments by MPX (see "Other" below"), will be met through internally generated funds (approximately 75%, after payment of dividends), the sales of additional equity securities and the incurrence of additional short-term and long-term indebtedness. The timing and amount of such financing will depend upon market conditions and other factors. Actual 1996 expenditures may vary from the estimates set forth above due to factors such as inflation and economic conditions, regulation and legislation, rates of load growth, environmental protection standards and the cost and availability of capital. The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements for the next twelve months and for the foreseeable future. Environmental Matters The Clean Air Act requires electric utilities to reduce substantially emissions of sulfur dioxide and nitrogen oxide by the year 2000. These requirements are being phased in over two periods. The first phase had a compliance date of January 1, 1995 and the second, January 1, 2000. The Company's facilities did not require modifications to meet the requirements of Phase I. The Company will most likely meet the Phase II requirements through the burning of natural gas and/or lower sulfur coal in its generating units and the purchase and use of sulfur dioxide emission allowances. Low nitrogen oxide burners are being installed to reduce nitrogen oxide emissions to the levels required by Phase II. Air toxicity regulations for the electric generating industry are likely to be promulgated around the year 2000. By December 31, 1995 the Company had filed compliance plans related to Phase II requirements with DHEC. The Company currently estimates that air emissions control equipment will require capital expenditures of $122 million over the 1996-2000 period to retrofit existing facilities, with increased operation and maintenance costs of approximately $1 million per year. To meet compliance requirements through the year 2005, the Company anticipates total capital expenditures of approximately $159 million. The Federal Clean Water Act, as amended, provides for the imposition of effluent limitations that require various levels of treatment for each wastewater discharge. Under this Act, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued for all and renewed for nearly all of SCE&G's and GENCO's generating units. Concurrent with renewal of these permits, the permitting agency has implemented more rigorous control programs. The Company has been developing compliance plans for this program. Amendments to the Clean Water Act proposed in Congress include several provisions which, if passed, could prove costly to SCE&G. These include limitations to mixing zones and the implementation of technology-based standards. 33 The South Carolina Solid Waste Policy and Management Act of 1991 directed DHEC to promulgate regulations for the disposal of industrial solid waste. DHEC has promulgated a proposed regulation, which if adopted as a final regulation in its present form, would significantly increase SCE&G's and GENCO's costs of construction and operation of existing and future ash management facilities. The Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the cost, if any, to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts are deferred and are being amortized and recovered through rates over a ten-year period for electric operations and an eight-year period for gas operations. Deferred amounts totaled $18.0 million and $20.2 million at December 31, 1995 and 1994, respectively. Estimates include, among other items, the costs associated with the matters discussed in the following paragraphs. SCE&G owns four decommissioned manufactured gas plant sites which contain residues of by-product chemicals. SCE&G maintains an active review of the sites to monitor the nature and extent of the residual contamination. In September 1992 the EPA notified SCE&G, the City of Charleston and the Charleston Housing Authority of their potential liability for the investigation and cleanup of the Calhoun Park Area Site in Charleston, South Carolina. This site originally encompassed approximately eighteen acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of SCE&G's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The PRPs have agreed with the EPA to participate in an innovative approach to site investigation and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre-cleanup site investigation process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993. SCE&G is also working with the City of Charleston to investigate potential contamination from the manufactured gas plant which may have migrated to the city's aquarium site. In 1994 the City of Charleston notified SCE&G that it considers SCE&G to be responsible for a $43.5 million increase in costs of the aquarium project attributable to delays resulting from contamination of the Calhoun Park Area Site. SCE&G believes it has meritorious defenses against this claim and does not expect its resolution to have a material impact on its financial position or results of operations. Regulatory Matters SCE&G filed for electric rate relief in 1995 to encompass primarily the remaining costs of completing the Cope Generating Station. As discussed under "Liquidity and Capital Resources," the PSC issued an order on January 9, 1996 increasing electric retail rates. 34 The Company's regulated business operations are likely to be impacted by the NEPA and FERC Order No. 636. NEPA is designed to create a more competitive wholesale power supply market by creating "exempt wholesale generators" and by potentially requiring utilities owning transmission facilities to provide transmission access to wholesalers. Order No. 636 is intended to deregulate the markets for interstate sales of natural gas by requiring that pipelines provide transportation services that are equal in quality for all gas suppliers whether the customer purchases gas from the pipeline or another supplier. In the opinion of the Company, it will be able to meet successfully the challenges of these altered business climates and does not anticipate there to be any material adverse impact on the results of its operations, its financial position or its business prospects. Other MPX, a wholly owned subsidiary of SCANA, through a joint venture with subsidiaries of ITC Holding Company, Inc., a Georgia-based telecommunications holding company, is constructing a fiber optic network through Texas, Louisiana, Mississippi, Alabama and Georgia. The network, which will consist of more than 900 miles of fiber optic lines, has been substantially completed and will cost approximately $73.5 million. MPX has signed a seven-year contract with the State of South Carolina for the build-out of the 800 MHz radio system which will allow emergency agencies to establish statewide communications during a disaster. Powertel PCS Partners, L.P. (Powertel), a limited partnership that included MPX, successfully bid for three PCS licenses in the Southeast offered by the Federal Communications Commission for the development of a new generation of wireless communications. Powertel had winning bids totaling $124.5 million in the FCC's auction for radio airspace in three Major Trading Areas (MTA) that cover parts of six states. The areas are the Jacksonville MTA, a 50-county area of northern Florida and southern Georgia; the Memphis MTA, a 93-county area that includes southwest Tennessee, northern and middle Mississippi and parts of eastern Arkansas; and the Birmingham MTA, a 53-county area of Alabama. MPX held the largest partnership interest, approximately 40%, of Powertel. Powertel signed and consummated a business combination agreement with InterCel, Inc. (InterCel), a publicly traded cellular telephone company providing services in Georgia, Alabama and Maine. MPX's interest in the combined entity, after giving effect to public offerings of common stock of the combined entity consummated February 7, 1996, is approximately 17%. All new ventures currently capitalize on fiber infrastructure in place and provide for expansion of the network. On March 6, 1996 InterCel entered into a definitive agreement with GTE Mobilnet Incorporated (GTE) to purchase GTE's PCS license for the Atlanta MTA for approximately $195 million. InterCel plans to finance the purchase principally through a $150 million private placement of convertible preferred stock. The Company has purchased $75 million of a series of preferred stock that is non-convertible for four years. Closing of the purchase is subject to regulatory approval. The purchase is expected to be financed through internally generated funds, the sales of additional equity securities and the incurrence of additional short-term and long-term indebtedness. A percentage of the projected annual revenues for the year's 1996-2003 of certain fiber optic routes of a joint venture between MPX and a subsidiary of ITC has been guaranteed by MPX. The aggregate maximum amount of such guarantee over the eight- year period is approximately $46.2 million, prior to reduction for revenue contracts obtained by the joint venture. The Company's net investment in oil and gas properties is subject to a quarterly ceiling test calculation that limits capitalized costs to the aggregate of the estimated present value of future net cash flows from proved oil and gas reserves plus the lower of cost or fair market value of unproved properties. Carrying values of proved reserves in excess of the ceiling limitation are expensed currently. In an effort to limit exposure to changing natural gas prices, in January 1995 the Company entered into a series of forward contacts relating to natural gas production. These forward contracts have the effect of stabilizing the price that the Company receives on approximately sixty percent of its forecasted natural gas production for the years 1996-2001. The forward contracts are at an average price of $1.92 per dekatherm. The Company remains exposed to price risk for any production that is not subject to such forward contracts. 35 Petroleum Resources and Fina Oil and Chemical Company (Fina) have entered into a joint exploration and development agreement providing for the exclusive oil and gas development rights on approximately 183,000 acres of onshore lands owned by Fina in Terrebonne and LaFourche Parishes in southern Louisiana. Petroleum Resources and Fina are continuing an extensive 3-D seismic acquisition program on the property. Fina is the operator of the multi-million dollar seismic program, which is financed and owned on a 50-50 basis between the companies. Petroleum Resources' participation in the seismic and drilling activity is financed primarily with internal cash flows from the existing Petroleum Resources operations. Petroleum Resources' change to the full cost method of accounting during the second quarter of 1995 provides a better matching of revenues and expenses given the primary focus of Petroleum Resources on developing reserves on its own or others' properties. In connection with the change, additional reserve adjustments were recorded in the current and restated prior periods. All reserve adjustments were non-cash and had no impact on the liquidity of Petroleum Resources. Statements of Financial Accounting Standards To Be Adopted The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The provisions of the Statement, which will be implemented by the Company for the fiscal year beginning January 1, 1996, require the recognition of a loss in the income statement and related disclosures whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. The Company does not believe that adoption of the provisions of the Statement will have a material impact on its results of operations or financial position. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation," which will be implemented by the Company on January 1, 1996. The Company does not believe that adoption of the provisions of the Statement will have a material impact on its results of operations or financial position. RESULTS OF OPERATIONS Earnings and Dividends Earnings per share of common stock, the percent increase (decrease) from the previous year and the rate of return earned on common equity for the years 1993 through 1995 were as follows: 1995 1994 1993 Earnings per weighted average share $1.70 $1.22 $1.83 Percent increase (decrease) in earnings per share 39.3% (33.3%) 28.9% Return earned on common equity (year-end) 10.8% 8.5% 12.5% 1995 Earnings per share and return on common equity increased primarily as a result of improved results of operations at Petroleum Resources, which recorded net losses of $16.7 million in 1995 and $54.9 million in 1994. Higher electric and gas margins and lower operation and maintenance costs, which more than offset the negative impact of higher fixed costs, also contributed to the favorable earnings performance in 1995. 1994 Earnings per share and return on common equity decreased primarily due to operations at Petroleum Resources, which reported a net loss of $54.9 million for 1994 as compared to net income of $8.4 million for 1993. The change results primarily from charges recorded from application of the ceiling test. (See Note 1O of Notes to Consolidated Financial Statements.) 36 The Company's financial statements include AFC. AFC is a utility accounting practice whereby a portion of the cost of both equity and borrowed funds used to finance construction (which is shown on the balance sheet as construction work in progress) is capitalized. An equity portion of AFC is included in nonoperating income and a debt portion of AFC is included in interest charges (credits) as noncash items both of which have the effect of increasing reported net income. AFC represented approximately 8.0% of income before income taxes in 1995, 8.3% in 1994 and 5.8% in 1993. In 1995 SCANA's Board of Directors raised the quarterly cash dividend on common stock to 36 cents per share from 35 1/4 cents per share. The increase, effective with the dividend payable on April 1, 1995, raised the indicated annual dividend rate to $1.44 per share from $1.41. SCANA has increased the dividend rate on its common stock in 42 of the last 43 years. Electric Operations Electric sales margins for 1995, 1994 and 1993 were as follows: 1995 1994 1993 (Millions of Dollars) Electric operating revenues $1,006.4 $975.4 $940.1 Less: Fuel used in electric generation 227.4 235.1 229.7 Purchased power 14.7 20.1 13.1 Margin $ 764.3 $720.2 $697.3 1995 The electric sales margin increased primarily as a result of the combined impact of warmer weather in the third quarter of 1995, colder weather in the fourth quarter of 1995 and the base rate increase received by the Company in mid- 1994. These factors more than offset the negative impact of milder weather experienced during the first half of 1995. An increase of 7,942 electric customers to 484,354 total customers contributed to an all-time peak demand record of 3,683 MW set on August 14, 1995. 1994 The increase in the electric sales margin is primarily the result of an increase in retail electric rates phased in over a two-year period beginning June 1993 and an increase in industrial sales, which more than offset the negative impact of a six percent decrease in residential sales of electricity due to milder weather in 1994. Increases (decreases) from the prior year in megawatt hour (MWH) sales volume by classes were as follows: Classification 1995 1994 Residential 415,676 (339,620) Commercial 229,472 11,262 Industrial 48,651 274,467 Sale for Resale (excluding interchange) 38,688 18,408 Other 12,776 (6,907) Total territorial 745,263 (42,390) Interchange 24,545 (27,013) Total 769,808 (69,403) 37 Gas Operations Gas sales margins for 1995, 1994 and 1993 were as follows: 1995 1994 1993 (Millions of Dollars) Gas operating revenues $342.7 $342.7 $320.2 Less: Gas purchased for resale 212.4 220.9 208.7 Margin $130.3 $121.8 $111.5 1995 The gas sales margin increased primarily as a result of lower gas costs which allowed Pipeline Corporation to compete successfully with alternate fuel suppliers in industrial markets. A shifting of transportation customers to the industrial class and an increase in interruptible gas sales also contributed to the improved margin. 1994 The gas sales margin increased primarily as a result of lower gas costs which allowed Pipeline Corporation to compete successfully with alternate fuel suppliers in industrial markets. Higher oil prices and a stronger economy had a positive impact on industrial sales which increased for both SCE&G and Pipeline Corporation. Increases (decreases) from the prior year in dekatherm (DT) sales volume by classes, including transportation gas, were as follows: Classification 1995 1994 Residential 802,211 (1,119,442) Commercial 632,959 275,066 Industrial 7,960,434 11,178,821 Sale for resale 744,663 (3,965,310) Transportation gas (8,089,043) (13,475,511) Total 2,051,224 (7,106,376) Other Operating Expenses 1995 Other operation and maintenance expenses decreased $6.6 million primarily as a result of lower pension costs and lower costs at electric generating stations. The increase of $10.7 million in depreciation and amortization expenses is primarily attributable to additions to plant-in-service and the write off of certain software costs. The $15.4 million increase in income tax expense corresponds to the increase in operating income. The increase in other taxes of $5.0 million reflects higher property taxes resulting from higher millages and assessments partially offset by lower payroll taxes resulting from early retirements of employees. 1994 Other operation and maintenance expenses increased $2.8 million primarily due to an increase in the costs of postretirement benefits other than pensions which are accrued in accordance with Financial Accounting Standards Board Statement No. 106. (See Note 1L of Notes to Consolidated Financial Statements.) The $6.3 million increase in depreciation and amortization expenses is attributable to property additions and to increases in depreciation rates. The increase in other taxes of $5.3 million reflects an increase in SCE&G's property taxes. 38 Other Income Other income, net of taxes, increased approximately $36 million in 1995 primarily due to the improved earnings performance of Petroleum Resources as discussed under "Earnings and Dividends." Interest Expense 1995 The $17.9 million increase in interest expense, excluding the debt component of AFC, is due primarily to the issuance of additional debt, including commercial paper, during the latter part of 1994 and early 1995. 1994 The $8.2 million increase in interest expense, excluding the debt component of AFC, is primarily attributable to the issuance of $100 million of First Mortgage Bonds in July and $30 million of Pollution Control Facilities Revenue Bonds in November, both to finance utility construction, and to the issuance of long-term debt during 1993. 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA Page Independent Auditors' Report....................................... 41 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1995 and 1994... 42 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1995, 1994 and 1993............. 44 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993............................. 45 Consolidated Statements of Capitalization as of December 31, 1995 and 1994................................... 46 Notes to Consolidated Financial Statements..................... 48 Supplemental financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or in the notes thereto. 40 INDEPENDENT AUDITORS' REPORT SCANA CORPORATION: We have audited the accompanying Consolidated Balance Sheets and Consolidated Statements of Capitalization of SCANA Corporation and subsidiaries (Company) as of December 31, 1995 and 1994 and the related Consolidated Statements of Income and Retained Earnings and of Cash Flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1B, the financial statements have been restated to reflect the change from the successful efforts method to the full cost method of accounting for the Company's oil and gas operations. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina February 7, 1996 41 CONSOLIDATED BALANCE SHEETS December 31, 1995 1994 ASSETS (Thousands of Dollars) Utility Plant (Notes 1, 3 and 4): Electric $3,539,068 $3,424,951 Gas 484,752 467,576 Transit 3,768 3,785 Common 91,616 77,327 Total 4,119,204 3,973,639 Less accumulated depreciation and amortization 1,367,541 1,333,360 Total 2,751,663 2,640,279 Construction work in progress 644,661 582,628 Nuclear fuel, net of accumulated amortization 46,492 43,591 Acquisition adjustment-gas, net of accumulated amortization 26,172 27,169 Utility Plant, Net 3,468,988 3,293,667 Nonutility Property and Investments (Net of accumulated depreciation and depletion)(Note 1) 314,207 317,309 Current Assets: Cash and temporary cash investments (Note 8) 16,082 12,938 Receivables 211,173 183,180 Inventories (At average cost): Fuel (Notes 3 and 4) 61,499 60,273 Materials and supplies 47,674 47,463 Prepayments 15,870 19,853 Accumulated deferred income taxes 20,186 18,629 Total Current Assets 372,484 342,336 Deferred Debits: Emission allowances 28,514 19,409 Unamortized debt expense 13,432 13,488 Unamortized deferred return on plant investment (Note 1) 6,369 10,614 Nuclear plant decommissioning fund (Note 1) 36,070 30,383 Other (Notes 1 and 10) 294,362 289,306 Total Deferred Debits 378,747 363,200 Total $4,534,426 $4,316,512 42 December 31, 1995 1994 CAPITALIZATION AND LIABILITIES (Thousands of Dollars) Stockholders' Investment: Common equity (Note 5) $1,554,680 $1,359,141 Preferred stock (Not subject to purchase or sinking funds) 26,027 26,027 Total Stockholders' Investment 1,580,707 1,385,168 Preferred Stock, Net (Subject to purchase or sinking funds)(Notes 6 and 8) 46,243 49,528 Long-Term Debt, Net (Notes 3, 4 and 8) 1,588,879 1,548,824 Total Capitalization 3,215,829 2,983,520 Current Liabilities: Short-term borrowings (Notes 8 and 9) 112,524 171,827 Current portion of long-term debt (Note 3) 40,983 38,055 Current portion of preferred stock (Note 6) 2,439 2,418 Accounts payable 138,778 119,963 Customer deposits 13,643 13,768 Taxes accrued 66,914 46,670 Interest accrued 25,884 25,226 Dividends declared 39,056 35,530 Other 14,625 17,220 Total Current Liabilities 454,846 470,677 Deferred Credits: Accumulated deferred income taxes (Notes 1 and 7) 542,022 561,703 Accumulated deferred investment tax credits (Notes 1 and 7) 87,719 91,349 Accumulated reserve for nuclear plant decommissioning (Note 1) 36,070 30,383 Other (Note 1) 197,940 178,880 Total Deferred Credits 863,751 862,315 Commitments and Contingencies (Note 10) - - Total $4,534,426 $4,316,512 See Notes to Consolidated Financial Statements. 43 CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS For the Years Ended December 31, 1995 1994 1993 (Thousands of Dollars except per share amounts) Operating Revenues (Notes 1 and 2): Electric $1,006,420 $ 975,388 $ 940,121 Gas 342,662 342,672 320,195 Transit 3,889 4,002 3,851 Total Operating Revenues 1,352,971 1,322,062 1,264,167 Operating Expenses: Fuel used in electric generation 227,405 235,136 229,736 Purchased power 14,704 20,104 13,057 Gas purchased for resale 212,427 220,923 208,695 Other operation (Note 1) 228,682 229,996 223,239 Maintenance (Note 1) 58,432 63,725 67,652 Depreciation and amortization (Note 1) 129,888 119,177 112,844 Income taxes (Notes 1 and 7) 109,949 94,510 90,007 Other taxes 83,970 78,938 73,626 Total Operating Expenses 1,065,457 1,062,509 1,018,856 Operating Income 287,514 259,553 245,311 Other Income (Note 1): Other income (loss), net of income taxes (1,915) (37,925) 18,406 Allowance for equity funds used during construction 9,975 8,176 8,929 Total Other Income 8,060 (29,749) 27,335 Income Before Interest Charges and Preferred Stock Dividends 295,574 229,804 272,646 Interest Charges (Credits): Interest on long-term debt, net 116,368 108,804 98,695 Other interest expense 17,102 6,749 8,672 Allowance for borrowed funds used during construction (Note 1) (11,922) (7,156) (6,178) Total Interest Charges, Net 121,548 108,397 101,189 Income Before Preferred Stock Cash Dividends of Subsidiary 174,026 121,407 171,457 Preferred Stock Cash Dividends of Subsidiary (At stated rates) (5,687) (5,955) (6,217) Net Income 168,339 115,452 165,240 Retained Earnings at Beginning of Year, as previously reported 523,668 506,380 462,893 Adjustments for the Cumulative Effect on Prior Years of Applying Retroactively the Full Cost Method of Accounting for Oil and Gas (Note 1) (51,297) (15,550) (12,809) Retained Earnings at Beginning of Year, as adjusted 472,371 490,830 450,084 Common Stock Cash Dividends Declared (Note 5) (142,719) (133,911) (124,494) Retained Earnings at End of Year $ 497,991 $ 472,371 $ 490,830 Net Income $ 168,339 $ 115,452 $ 165,240 Weighted Average Number of Common Shares Outstanding (Thousands) 99,044 94,762 90,407 Earnings Per Weighted Average Share of Common Stock $1.70 $1.22 $1.83 See Notes to Consolidated Financial Statements. 44 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1995 1994 1993 (Thousands of Dollars) Cash Flows From Operating Activities: Net income $168,339 $115,452 $165,240 Adjustments to reconcile net income to net cash provided from operating activities: Depreciation, depletion and amortization 197,735 272,106 163,263 Amortization of nuclear fuel 20,017 13,487 18,156 Deferred income taxes, net (21,969) (9,282) 63,729 Deferred investment tax credits, net (3,630) (3,632) (3,658) Net regulatory asset - adoption of SFAS No. 109 10,797 (1,951) (31,531) Dividends declared on preferred stock of subsidiary 5,687 5,955 6,217 Allowance for funds used during construction (21,897) (15,332) (15,107) Loss on reacquired debt (3,313) (60) (17,063) Nuclear refueling accrual 6,957 (4,881) (6,086) Equity in (earnings) losses of investees 666 (230) (319) Over (under) collections, fuel adjustment clauses 18,986 (16,966) (14,308) Early retirements (24,823) (7,086) (11,840) Emission allowances (9,105) (19,409) - Changes in certain current assets and liabilities: (Increase) decrease in receivables (27,993) (9,059) (35,244) (Increase) decrease in inventories (1,437) 2,131 (10,995) (Increase) decrease in prepayments 3,983 1,973 802 Increase (decrease) in accounts payable 18,815 (19,331) 33,165 Increase (decrease) in estimated rate refunds and related interest - (2,509) (15,302) Increase (decrease) in taxes accrued 20,244 (3,393) (14,941) Increase (decrease) in interest accrued 658 3,442 (7,511) Other, net 5,515 (5,517) 22,109 Net Cash Provided From Operating Activities 364,232 295,908 288,776 Cash Flows From Investing Activities: Utility property additions and construction expenditures, net of AFC (298,480) (389,268) (307,274) (Increase) decrease in nonutility property and investments: Acquisition of oil and gas producing properties - (47,189) (122,621) Nonutility property (25,646) (115,541) (82,066) Investments (62,750) (19,006) (4,066) Sale of Real Estate Assets 18,528 79,439 - Net Cash Used For Investing Activities (368,348) (491,565) (516,027) Cash Flows From Financing Activities: Proceeds: Issuance of mortgage bonds 99,583 99,207 592,884 Issuance of common stock 172,036 63,317 129,066 Issuance of notes and loans 62,542 60,000 148,059 Issuance of pollution control bonds - 30,000 - Other long-term debt - - 3,005 Repayments: Mortgage bonds (64,779) - (430,000) Notes (69,444) (75,545) (72,040) Other long-term debt (11,300) (230) (1,195) Preferred stock (3,264) (3,398) (3,295) Dividend payments: Common stock (139,297) (131,925) (122,129) Preferred stock (5,750) (6,048) (6,247) Short-term borrowings, net (59,303) 128,808 1,863 Fuel financings, net 26,236 13,844 (18,948) Net Cash Provided By Financing Activities 7,260 178,030 221,023 Net Increase (Decrease) in Cash and Temporary Cash Investments 3,144 (17,627) (6,228) Cash and Temporary Cash Investments, January 1 12,938 30,565 36,793 Cash and Temporary Cash Investments, December 31 $ 16,082 $ 12,938 $ 30,565 Supplemental Cash Flows Information: Cash paid for - Interest $130,495 $110,347 $113,010 - Income taxes 99,050 90,012 93,337 Noncash Financing Activities: Department of Energy decontamination and decommissioning obligation - - 4,965 See Notes to Consolidated Financial Statements. 45 SCANA Corporation CONSOLIDATED STATEMENTS OF CAPITALIZATION December 31, 1995 1994 Common Equity (Note 5): (Thousands of Dollars) Common stock, without par value, authorized 150,000,000 shares; issued and outstanding, 1995 - 103,623,863 shares and 1994 - 96,035,020 shares $1,056,689 $ 886,770 Retained earnings 497,991 472,371 Total Common Equity 1,554,680 48% 1,359,141 46% South Carolina Electric & Gas Company: Cumulative Preferred Stock (Not subject to purchase or sinking funds): $100 Par Value - Authorized 200,000 shares $50 Par Value - Authorized 125,209 shares Shares Outstanding Redemption Price Eventual Series 1995 1994 Current Through Minimum $100 Par 8.40% 197,668 197,668 102.80 11-30-96 101.00 19,767 19,767 $50 Par 5.00% 125,209 125,209 52.50 - 52.50 6,260 6,260 Total Preferred Stock (Not subject to purchase or sinking funds) 26,027 1% 26,027 1% Cumulative Preferred Stock (Subject to purchase or sinking funds)(Notes 6 and 8): $100 Par Value - Authorized 1,550,000 shares Shares Outstanding Redemption Price Eventual Series 1995 1994 Current Through Minimum 7.70% 86,965 89,984 101.00 - 101.00 8,696 8,998 8.12% 123,045 126,835 102.03 - 102.03 12,305 12,684 Total 210,010 216,819 $50 Par Value - Authorized 1,614,405 shares Shares Outstanding Redemption Price Eventual Series 1995 1994 Current Through Minimum 4.50% 17,519 19,088 51.00 - 51.00 876 954 4.60% 834 2,334 50.50 - 50.50 42 117 4.60%(A) 26,052 28,052 51.00 - 51.00 1,303 1,403 4.60%(B) 74,800 78,200 50.50 - 50.50 3,740 3,910 5.125% 72,000 73,000 51.00 - 51.00 3,600 3,650 6.00% 83,200 86,400 50.50 - 50.50 4,160 4,320 8.72% 95,985 127,956 51.00 12-31-98 50.00 4,799 6,398 9.40% 183,219 190,245 51.175 - 51.175 9,161 9,512 Total 553,609 605,275 $25 Par Value - Authorized 2,000,000 shares; None outstanding in 1995 and 1994 Total Preferred Stock (Subject to purchase or sinking funds) 48,682 51,946 Less: Current portion, including sinking fund requirements 2,439 2,418 Total Preferred Stock, Net (Subject to purchase or sinking funds) 46,243 1% 49,528 2% See Notes to Consolidated Financial Statements. 46 December 31, 1995 1994 Long-Term Debt (Notes 3, 4 and 8): (Thousands of Dollars) SCANA Corporation: Bank Notes, due 1997 (Various rates between 5.684% and 5.730%, reset quarterly) 60,000 60,000 Medium-Term Notes: Year of Series Maturity 5.76% 1998 20,000 20,000 7.17% 1999 42,400 42,400 6.60% 1999 30,000 30,000 6.15% 2000 20,000 20,000 6.51% 2003 20,000 20,000 South Carolina Electric & Gas Company: First Mortgage Bonds: Year of Series Maturity 6% 2000 100,000 100,000 6 1/4% 2003 100,000 100,000 7.70% 2004 100,000 100,000 7 1/8% 2013 150,000 150,000 7 1/2% 2023 150,000 150,000 7 5/8% 2023 100,000 100,000 7 5/8% 2025 100,000 - First and Refunding Mortgage Bonds: Year of Series Maturity 4 7/8% 1995 - 16,000 5.45% 1996 15,000 15,000 6% 1997 15,000 15,000 6 1/2% 1998 20,000 20,000 7 1/4% 2002 30,000 30,000 9% 2006 130,771 145,000 8 7/8% 2021 120,450 155,000 Pollution Control Facilities Revenue Bonds: 5.95% Series, due 2003 6,560 6,660 Fairfield County Series 1984, due 2014 (6.50%) 56,820 56,820 Richland County Series 1985, due 2014 (6.50%) 5,210 5,210 Fairfield County Series 1986, due 2014 (6.50%) 1,090 1,090 Colleton and Dorchester Counties Series 1987, due 2014 (6.60%) 4,365 4,365 Orangeburg County Series 1994, due 2024 (Daily adjusted rate) 30,000 30,000 Department of Energy Decontamination and Decommissioning Obligation 3,560 3,922 Commercial Paper - 11,200 Other 3,993 3,294 South Carolina Generating Company, Inc.: Berkeley County Pollution Control Facilities Revenue Bonds, due 2014 (6.50%) 35,850 35,850 Note, 7.78%, due 2011 63,700 67,400 South Carolina Fuel Company, Inc.: Commercial Paper 76,830 50,594 South Carolina Pipeline Corporation: Notes, 6.72%, due 2013 22,500 23,750 SCANA Development Corporation: Bank Loans - 3,246 Total Long-Term Debt 1,634,099 1,591,801 Less - Current maturities, including sinking fund requirements 40,983 38,055 - Unamortized discount 4,237 4,922 Total Long-Term Debt, Net 1,588,879 50% 1,548,824 51% Total Capitalization $3,215,829 100% 2,983,520 100% See Notes to Consolidated Financial Statements. 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: A. Organization and Principles of Consolidation SCANA Corporation (Company), a South Carolina corporation, is a public utility holding company within the meaning of the Public Utility Holding Company Act of 1935 but is exempt from registration under such Act. The Company, through wholly owned subsidiaries, is predominately engaged in the generation and sale of electricity to wholesale and retail customers in South Carolina and in the purchase, sale and transportation of natural gas to wholesale and retail customers in South Carolina. The Company is also engaged in other energy-related businesses, such as owning and operating interests in oil and gas properties and natural gas marketing. The Company also provides, in the South and Southeast, fiber optic communications and, through joint ventures, is developing personal communication services for wireless communications. The accompanying Consolidated Financial Statements reflect the consolidation of the accounts of the Company and its wholly owned subsidiaries: Regulated utilities South Carolina Electric & Gas Company (SCE&G) South Carolina Fuel Company, Inc. South Carolina Generating Company, Inc. (GENCO) South Carolina Pipeline Corporation (Pipeline Corporation) Nonregulated businesses SCANA Petroleum Resources, Inc. (Petroleum Resources) SCANA Energy Marketing, Inc. Suburban Propane Group, Inc. MPX Systems, Inc. (MPX) Primesouth, Inc. ServiceCare, Inc. SCANA Resources, Inc. SCANA Development Corporation (in liquidation) Certain investments are reported using the equity method of accounting. Significant intercompany balances and transactions have been eliminated in consolidation in compliance with Statement of Financial Accounting Standards No. 71 "Accounting for the Effects of Certain Types of Regulation" which provides that profit on intercompany sales to regulated affiliates are not eliminated if the sales price is reasonable and the future recovery of the sales price through the rate-making process is probable. B. Stock Split and Change in Accounting Principle On April 27, 1995 the Company's Board of Directors approved a two-for-one split of the Company's common stock effective at the close of business May 11, 1995. The weighted average number of common shares outstanding, earnings per weighted average share of common stock and cash dividends declared per share of common stock have been restated to reflect the stock split for all periods reported. 48 During the second quarter of 1995, Petroleum Resources changed from the successful efforts method to the full cost method of accounting for its oil and gas operations. The Company believes the full cost method provides a better matching of revenues and expenses given the change in Petroleum Resources' primary focus from a purchaser of interests in producing oil and gas properties to a developer of reserves on its own and others' properties. The financial statements have been restated to apply the new method retroactively. The effects of the accounting change on the income statements for the years ended December 31, 1995, 1994 and 1993, respectively, are as follows: Increase (Decrease) Year Ended December Effect on-- 1995 1994 1993 (Thousands, except per share amounts) Other income, net of income taxes $ (349) $(35,747) $(2,741) Net income (349) (35,747) (2,741) Earnings Per Weighted Average Share of Common Stock $ - $ (.38) $ (.03) The balances of retained earnings as of December 31, 1995, 1994 and 1993 have been reduced for the effect (net of income taxes) of applying retroactively the new method of accounting. C. Basis of Accounting The Company prepares its financial statements in accordance with the provisions of Statement of Financial Accounting Standards No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulations." The accounting standard allows cost-based rate-regulated utilities, such as the Company, to recognize in their financial statements revenues and expenses in different time periods than do enterprises that are not rate- regulated. As a result the Company has recorded, as of December 31, 1995, approximately $116 million and $4 million of regulatory assets and liabilities, respectively, excluding net accumulated deferred income tax assets of approximately $27 million. As discussed in Note 2A, the Public Service Commission of South Carolina (PSC) has approved accelerated recovery of substantially all of SCE&G's electric regulatory assets (approximately $84.8 million). In the future, as a result of deregulation or other changes in the regulatory environment, the Company may no longer meet the criteria for continued application of SFAS 71 and would be required to write off its regulatory assets and liabilities. Such an event could have a material adverse effect on the Company's results of operations in the period the write-off is recorded. D. System of Accounts The accounting records of the Company's regulated subsidiaries are maintained in accordance with the Uniform System of Accounts prescribed by FERC and as adopted by the PSC. 49 E. Utility Plant Utility plant is stated substantially at original cost. The costs of additions, renewals and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged, along with the cost of removal, less salvage, to accumulated depreciation. The costs of repairs, replacements and renewals of items of property determined to be less than a unit of property are charged to maintenance expense. SCE&G, operator of Summer Station and the PSA are joint owners of Summer Station in the proportions of two-thirds and one-third, respectively. The parties share the operating costs and energy output of the plant in these proportions. Each party, however, provides its own financing. Plant-in-service related to SCE&G's portion of Summer Station was approximately $925.1 million and $923.1 million as of December 31, 1995 and 1994, respectively. Accumulated depreciation associated with SCE&G's share of Summer Station was approximately $261.0 million and $297.9 million as of December 31, 1995 and 1994, respectively. (See Note 2A.) SCE&G's share of the direct expenses associated with operating Summer Station is included in "Other operation" and "Maintenance" expenses. F. Allowance for Funds Used During Construction AFC, a noncash item, reflects the period cost of capital devoted to plant under construction. This accounting practice results in the inclusion of, as a component of construction cost, the costs of debt and equity capital dedicated to construction investment. AFC is included in rate base investment and depreciated as a component of plant cost in establishing rates for utility services. The Company's regulated subsidiaries calculated AFC using composite rates of 8.6%, 8.5% and 9.3% for 1995, 1994 and 1993, respectively. These rates do not exceed the maximum allowable rate as calculated under FERC Order No. 561. Interest on nuclear fuel in process and sulfur dioxide emission allowances is capitalized at the actual interest amount. G. Deferred Return on Plant Investment Commencing July 1, 1987, as approved by a PSC order on that date, SCE&G ceased the deferral of carrying costs associated with 400 MW of electric generating capacity previously removed from rate base and began amortizing the accumulated deferred carrying costs on a straight-line basis over a ten-year period. Amortization of deferred carrying costs, included in "Depreciation and amortization," was approximately $4.2 million for each of 1995, 1994 and 1993. H. Revenue Recognition Customers' meters are read and bills are rendered on a monthly cycle basis. Base revenue is recorded during the accounting period in which the meters are read. Fuel costs for electric generation are collected through the fuel cost component in retail electric rates. The fuel cost component contained in electric rates is established by the PSC during semiannual fuel cost hearings. Any difference between actual fuel costs and that contained in the fuel cost component is deferred and included when determining the fuel cost component during the next semiannual fuel cost hearing. SCE&G had overcollected through the electric fuel cost component approximately $3.8 million at December 31, 1995 and undercollected approximately $3.5 million at December 31, 1994 which are included in "Deferred Credits - Other" and "Deferred Debits - Other," respectively. 50 Customers subject to the gas cost adjustment clause are billed based on a fixed cost of gas determined by the PSC during annual gas cost recovery hearings. Any difference between actual gas cost and that contained in rates is deferred and included when establishing gas costs during the next annual gas cost recovery hearing. At December 31, 1995 and 1994 the Company had undercollected through the gas cost recovery procedure approximately $4.6 million and $16.3 million, respectively, which are included in "Deferred Debits - Other." SCE&G's gas rate schedules for residential, small commercial and small industrial customers include a weather normalization adjustment, which minimizes fluctuations in gas revenues due to abnormal weather conditions. I. Depreciation, Depletion and Amortization Provisions for depreciation are recorded using the straight- line method for financial reporting purposes and are based on the estimated service lives of the various classes of property. The composite weighted average depreciation rates were as follows: 1995 1994 1993 SCE&G 3.02% 3.01% 2.97% GENCO 2.67% 2.70% 2.64% Pipeline Corporation 2.78% 2.79% 2.62% Aggregate of Above 2.98% 2.98% 2.92% Nuclear fuel amortization, which is included in "Fuel used in electric generation" and is recovered through the fuel cost component of SCE&G's rates, is recorded using the units-of- production method. Provisions for amortization of nuclear fuel include amounts necessary to satisfy obligations to the DOE under a contract for disposal of spent nuclear fuel. The acquisition adjustment relating to the purchase of certain gas properties in 1982 is being amortized over a 40-year period using the straight-line method. Depreciation, depletion and amortization of the capitalized costs of oil and gas producing properties is provided for on the units-of-production basis. Units-of-production rates are based on estimated proved reserves. J. Nuclear Decommissioning Decommissioning of Summer Station is presently projected to commence in the year 2022 when the operating license expires. Based on a 1991 study, the expenditures (on a before-tax basis) related to SCE&G's share of decommissioning activities are estimated, in 2022 dollars assuming a 4.5% annual rate of inflation, to be $545.3 million including partial reclamation costs. SCE&G is providing for its share of estimated decommissioning costs of Summer Station over the life of Summer Station. SCE&G's method of funding decommissioning costs is referred to as COMReP (Cost of Money Reduction Plan). Under this plan, funds collected through rates ($3.2 million in each of 1995 and 1994) are used to purchase insurance policies on the lives of certain Company personnel. Through the purchase of insurance contracts, SCE&G is able to take advantage of income tax benefits and accrue earnings on the fund on a tax-deferred basis at a rate higher than can be achieved using more traditional funding approaches. Amounts for decommissioning collected through electric rates, insurance proceeds, and interest on proceeds less expenses are transferred by SCE&G to an external trust fund in compliance with the financial assurance requirements of the NRC. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis. The trust's sources of decommissioning funds under the COMReP program include investment components of life insurance policy proceeds, return on investment and the cash transfers from SCE&G described above. SCE&G records its liability for decommissioning costs in deferred credits. 51 The staff of the SEC has questioned certain of the current accounting practices of the electric utility industry regarding the recognition, measurement and classification of decommissioning costs for financial statements of electric utilities with nuclear generating facilities. In response to these questions, the Financial Accounting Standards Board has agreed to review the accounting for removal costs, including decommissioning. If the current electric utility industry accounting practices for such decommissioning are changed: (1) annual provisions for decommissioning could increase, and (2) trust fund income from the external decommissioning trusts could be reported as investment income rather than as a reduction of decommissioning expense. Pursuant to the NEPA passed by Congress in 1992, SCE&G has recorded a liability for its estimated share of amounts required by the DOE for its decommissioning fund. The liability, approximately $3.6 million at December 31, 1995, has been included in "Long-Term Debt, Net." SCE&G will recover the cost associated with this liability through the fuel cost component of its rates; accordingly, this amount has been deferred and is included in "Deferred Debits - Other." K. Income Taxes The Company and its subsidiaries file a consolidated Federal income tax return. Income taxes are allocated to individual companies based on their contributions to the consolidated total. As required by Statement of Financial Accounting Standards No. 109, deferred tax assets and liabilities are recorded for the tax effects of temporary differences between the book basis and tax basis of assets and liabilities at currently enacted tax rates. Deferred tax assets and liabilities are adjusted for changes in such rates through charges or credits to regulatory assets or liabilities if they are expected to be recovered from, or passed through to, customers of the Company's regulated subsidiaries; otherwise, they are charged or credited to income tax expense. L. Pension Expense The Company has a noncontributory defined benefit pension plan covering substantially all permanent employees. Benefits are based on years of accredited service and the employee's average annual base earnings received during the last three years of employment. The Company's policy has been to fund pension costs accrued to the extent permitted by the applicable Federal income tax regulations as determined by an independent actuary. Net periodic pension cost for the years ended December 31, 1995, 1994 and 1993 included the following components: 1995 1994 1993 (Thousands of Dollars) Service cost--benefits earned during the period $ 5,187 $ 8,684 $ 7,629 Interest cost on projected benefit obligation 19,473 21,711 20,413 Adjustments: Return on plan assets (103,874) 2,365 (50,389) Net amortization and deferral 74,769 (29,760) 25,936 Net periodic pension (income) expense $ (4,445) $ 3,000 $ 3,589 The determination of net periodic pension cost is based upon the following assumptions: 1995 1994 1993 Annual discount rate 8.0% 7.25% 8.0% Expected long-term rate of return on plan assets 8.0% 8.0% 8.0% Annual rate of salary increases 2.5% 4.75% 5.5% 52 The following table sets forth the funded status of the plan at December 31, 1995 and 1994: 1995 1994 (Thousands of Dollars) Actuarial present value of benefit obligations: Vested benefit obligation $228,434 $205,364 Nonvested benefit obligation 15,540 13,966 Accumulated benefit obligation $243,974 $219,330 Plan assets at fair value (invested primarily in equity and debt securities) $447,760 $347,702 Projected benefit obligation 284,145 246,318 Plan assets greater than projected benefit obligation 163,615 101,384 Unrecognized net transition liability 9,022 11,307 Unrecognized prior service costs 9,660 9,374 Unrecognized net gain (146,943) (102,284) Pension asset recognized in Consolidated Balance Sheets $ 35,354 $ 19,781 The accumulated benefit obligation is based on the plan's benefit formulas without considering expected future salary increases. The following table sets forth the assumptions used in determining the amounts shown above for the years 1995 and 1994. 1995 1994 Annual discount rate used to determine benefit obligations 7.5% 8.0% Assumed annual rate of future salary increases for projected benefit obligation 3.0% 2.5% The change in the annual discount rate used to determine benefit obligations from 8.0% to 7.5% and the change in the expected salary increase rate from 2.5% to 3.0% as of December 31, 1995 increased the projected benefit obligation and decreased the unrecognized net gain by approximately $28.6 million. In addition to pension benefits, the Company provides certain health care and life insurance benefits to active and retired employees. The costs of postretirement benefits other than pensions are accrued during the years the employees render the service necessary to be eligible for the applicable benefits. Prior to 1993 the Company expensed these benefits, which are primarily health care, as claims were incurred. In its June 1993 electric rate order, the PSC approved the inclusion in rates of the portion of increased expenses related to electric operations. The Company expensed approximately $8.5 million and $8.6 million, net of payments to current retirees, for the years ended December 31, 1995 and 1994, respectively. The PSC has authorized accelerated amortization of SCE&G's remaining transition obligation for postretirement benefits other than pensions related to electric operations (See Note 2A.) 53 Net periodic postretirement benefit cost for the years ended December 31, 1995, 1994 and 1993, included the following components: 1995 1994 1993 (Thousands of Dollars) Service cost--benefits earned during the period $ 2,076 $ 2,417 $ 1,908 Interest cost on accumulated postretirement benefit obligation 7,253 6,644 5,502 Adjustments: Return on plan assets - - - Amortization of unrecognized transition obligation 3,344 3,344 3,344 Other net amortization and deferral 661 860 - Net periodic postretirement benefit cost $13,334 $13,265 $10,754 The determination of net periodic postretirement benefit cost is based upon the following assumptions: 1995 1994 1993 Annual discount rate 8.0% 7.25% 8.0% Health care cost trend rate 11.0% 11.25% 13.0% Ultimate health care cost trend rate (to be achieved in 2004) 6.0% 5.25% 6.0% The following table sets forth the funded status of the plan at December 31, 1995 and 1994: 1995 1994 (Thousands of Dollars) Accumulated postretirement benefit obligations for: Retirees $ 64,989 $ 59,174 Other fully eligible participants 6,685 4,995 Other active participants 27,076 24,889 Accumulated postretirement benefit obligation 98,750 89,058 Plan assets at fair value - - Plan assets less accumulated postretirement benefit obligation (98,750) (89,058) Unrecognized net transition liability 58,237 61,581 Unrecognized prior service costs 5,320 3,453 Unrecognized net loss 13,840 11,156 Postretirement benefit liability recognized in Consolidated Balance Sheets $(21,353) $(12,868) The accumulated postretirement benefit obligation is based upon the plan's benefit provisions and the following assumptions: 1995 1994 Assumed health care cost trend rate used to measure expected costs 10.5% 12.0% Ultimate health care cost trend rate (to be achieved in 2004) 5.5% 6.0% Annual discount rate 7.5% 8.0% Annual rate of salary increases 3.0% 2.5% 54 The effect of a one percentage-point increase in the assumed health care cost trend rate for each future year on the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 1995 and the accumulated postretirement benefit obligation as of December 31, 1995 would be to increase such amounts by $203,000 and $3.4 million, respectively. M. Debt Premium, Discount and Expense, Unamortized Loss on Reacquired Debt Long-term debt premium, discount and expense are being amortized as components of "Interest on long-term debt, net" over the terms of the respective debt issues. Gains or losses on reacquired debt that is refinanced are deferred and amortized over the term of the replacement debt. N. 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 an estimate is made of the amount of expenditures, if any, necessary to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from the original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts are deferred and are being amortized and recovered through rates over a ten-year period for electric operations and an eight-year period for gas operations. Such deferred amounts totaled $18.0 million and $20.2 million at December 31, 1995 and 1994, respectively, and are included in "Deferred Debits - Other." O. Oil and Gas The Company follows the full cost method of accounting for its oil and gas operations and, accordingly, capitalizes all costs it incurs in the acquisition, exploration and development of interests in oil and gas properties. The Company amortizes capitalized costs on the units-of-production method, based on total estimated proved recoverable reserves. The Company accounts for normal dispositions of interests in oil and gas properties as adjustments to capitalized costs and does not recognize any gain or loss. In addition, the capitalized costs are subject to a "ceiling test," which limits such costs to the aggregate of the estimated present value of future net cash flows from proved oil and gas reserves, plus the lower of cost or fair market value of unproved properties. Non-cash write-downs resulting from the application of the ceiling test were $118.2 million and $94.1 million in the years ended December 31, 1995 and 1994, respectively. The valuation estimates of interests in oil and natural gas properties are significantly influenced by oil and natural gas market prices and the results of recurring reserve studies of such properties. Net income of the Company may be materially adversely affected by a decline in oil and natural gas prices or reserve estimates. P. Temporary Cash Investments The Company considers temporary cash investments having original maturities of three months or less to be cash equivalents. Temporary cash investments are generally in the form of commercial paper, certificates of deposit and repurchase agreements. 55 Q. Recently Issued Accounting Standards The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The provisions of the Statement, which will be implemented by the Company for the fiscal year beginning January 1, 1996, require the recognition of a loss in the income statement and related disclosures whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. The Company does not believe that adoption of the provisions of the Statement will have a material impact on its results of operations or financial position. The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock- Based Compensation," which will be implemented by the Company on January 1, 1996. The Company does not believe that adoption of the provisions of the Statement will have a material impact on its results of operations or financial position. R. Reclassifications Certain amounts from prior periods have been reclassified to conform with the 1995 presentation. S. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. RATE MATTERS: A. On July 10, 1995, SCE&G filed an application with the PSC for an increase in retail electric rates. On January 9, 1996 the PSC issued an order granting SCE&G an increase of 7.34% which will produce additional revenues of approximately $67.5 million annually. The increase will be implemented in two phases. The first phase, an increase in revenues of approximately $59.5 million annually based on a test year, or 6.47%, commenced on January 15, 1996. The second phase will be implemented in January 1997 and will produce additional revenues of approximately $8.0 million annually, or .87% more than current rates. The PSC authorized a return on common equity of 12.0%. The PSC also approved establishment of a Storm Damage Reserve Account capped at $50 million and collected through rates over a ten-year period. Additionally, the PSC approved accelerated recovery of substantially all of SCE&G's electric regulatory assets (excluding accumulated deferred income taxes) and the transition obligation for postretirement benefits other than pensions, changing the amortization periods to allow recovery by the end of the year 2000. SCE&G's request to shift approximately $257 million of depreciation reserves from transmission and distribution assets to nuclear production assets was also approved. B. On October 27, 1994 the PSC issued an order approving the Company's request to recover through a billing surcharge to its gas customers the costs of environmental cleanup at the sites of former manufactured gas plants. The billing surcharge, which was effective with the first billing cycle in November 1994 and is subject to annual review, provides for the recovery of approximately $16.2 million representing substantially all site assessment and cleanup costs for the Company's gas operations that had previously been deferred. In October 1995, as a result of the ongoing annual review, the PSC approved the continued use of the billing surcharge. The balance remaining to be recovered amounts to approximately $14.5 million. 56 C. In September 1992 the PSC issued an order granting the Company a $.25 increase in transit fares from $.50 to $.75 in both Columbia and Charleston, South Carolina; however, the PSC also required $.40 fares for low-income customers and denied the Company's request to reduce the number of routes and frequency of service. The new rates were placed into effect in October 1992. The Company appealed the PSC's order to the Circuit Court, which on May 23, 1995, ordered the case back to the PSC for reconsideration of several issues, including the low-income rider program, routing changes, and the $.75 fare. The Supreme Court declined to review an appeal of the Circuit Court decision and dismissed the case. Another Petition for Reconsideration was filed by the PSC and other intervenors, which was denied by the Circuit Court. Procedural matters in this case are yet to be resolved in the court. 3. LONG-TERM DEBT: The annual amounts of long-term debt maturities, including the amounts due under the nuclear and fossil fuel agreement (see Note 4), and sinking fund requirements for the years 1996 through 2000 are summarized as follows: Year Amount Year Amount (Thousands of Dollars) 1996 $ 40,983 1999 $ 95,013 1997 98,202 2000 142,618 1998 139,433 Approximately $17.3 million of the portion of long-term debt payable in 1996 may be satisfied by either deposit and cancellation of bonds issued upon the basis of property additions or bond retirement credits, or by deposit of cash with the Trustee. On January 12, 1996 the Company arranged for unsecured bank loans totaling $60 million, due January 10, 1997 at initial rates between 5.684% and 5.730%, subject to reset quarterly at LIBOR plus a spread of nine to fifteen basis points. Proceeds from the loans were used to repay a bank loan of $60 million due January 12, 1996; accordingly, the loan is included in long-term debt at December 31, 1995. SCE&G has three-year revolving lines of credit totaling $100 million, in addition to other lines of credit, that provide liquidity for issuance of commercial paper. The three-year lines of credit provide back-up liquidity when commercial paper outstanding is in excess of $100 million. The long-term nature of the lines of credit allow commercial paper in excess of $100 million to be classified as long-term debt. SCE&G had outstanding commercial paper of $111.2 million at December 31, 1994, of which $11.2 million was reclassified to long-term debt. Substantially all utility plant and fuel inventories are pledged as collateral in connection with long-term debt. 4. FUEL FINANCINGS: Nuclear and fossil fuel inventories and sulfur dioxide emission allowances are financed through the issuance by Fuel Company of short-term commercial paper. These short-term borrowings are supported by an irrevocable revolving credit agreement which expires July 31, 1998. Accordingly, the amounts outstanding have been included in long-term debt. The credit agreement provides for a maximum amount of $125 million that may be outstanding at any time. 57 Commercial paper outstanding totaled $76.8 million and $50.6 million at December 31, 1995 and 1994 at weighted average interest rates of 5.76% and 6.06%, respectively. 5. COMMON EQUITY: The changes in "Common Stock," without par value, during 1995, 1994 and 1993 are summarized as follows: Number Thousands of Shares of Dollars Balance December 31, 1992 87,821,262 $ 699,003 Issuance of common stock 5,417,652 127,662 Balance December 31, 1993 93,238,914 826,665 Issuance of common stock 2,796,106 60,105 Balance December 31, 1994 96,035,020 886,770 Issuance of common stock 7,588,843 169,919 Balance December 31, 1995 103,623,863 $1,056,689 The Restated Articles of Incorporation of the Company do not limit the dividends that may be payable on its common stock. However, the Restated Articles of Incorporation of SCE&G and the Indenture underlying its First and Refunding Mortgage Bonds contain provisions that, under certain circumstances, could limit the payment of cash dividends on its common stock. In addition, with respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At December 31, 1995 approximately $14.5 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G's common stock. Cash dividends on common stock were declared at an annual rate per share of $1.44, $1.41 and $1.37 for 1995, 1994 and 1993, respectively. 6. PREFERRED STOCK (Subject to Purchase or Sinking Funds): The call premium of the respective series of preferred stock in no case exceeds the amount of the annual dividend. Retirements under sinking fund requirements are at par values. The aggregate annual amounts of purchase fund or sinking fund requirements for preferred stock for the years 1996 through 2000 are summarized as follows: Year Amount Year Amount (Thousands of Dollars) 1996 $2,439 1999 $2,440 1997 2,440 2000 2,440 1998 2,440 58 The changes in "Total Preferred Stock (Subject to purchase or sinking funds)" during 1995, 1994 and 1993 are summarized as follows: Number Thousands of Shares of Dollars Balance December 31, 1992 940,529 $58,639 Shares Redeemed: $100 par value (7,374) (737) $50 par value (51,187) (2,558) Balance December 31, 1993 881,968 55,344 Shares Redeemed: $100 par value (8,072) (807) $50 par value (51,802) (2,591) Balance December 31, 1994 822,094 51,946 Shares Redeemed: $100 par value (6,809) (681) $50 par value (51,666) (2,583) Balance December 31, 1995 763,619 $48,682 7. INCOME TAXES: Total income tax expense for 1995, 1994 and 1993 is as follows: 1995 1994 1993 (Thousands of Dollars) Current taxes: Federal $101,656 $62,033 $59,590 State 16,193 13,178 6,409 Total current taxes 117,849 75,211 65,999 Deferred taxes, net: Federal (13,878) (9,006) 21,743 State (1,224) (86) 6,003 Total deferred taxes (15,102) (9,092) 27,746 Investment tax credits: Amortization of amounts deferred (credit) (3,630) (3,631) (3,659) Total income tax expense $ 99,117 $62,488 $90,086 59 The difference in actual income taxes and the income taxes calculated from the application of the statutory Federal income tax rate (35% for 1995, 1994 and 1993) to pretax income is reconciled as follows: 1995 1994 1993 (Thousands of Dollars) Net income $168,339 $115,452 $165,240 Total income tax expense: Charged to operating expenses 109,949 94,510 90,007 Charged (credited) to other income (10,832) (32,022) 79 Preferred stock dividends 5,687 5,955 6,217 Total pretax income $273,143 $183,895 $261,543 Income taxes on above at statutory Federal income tax rate $ 95,600 $ 64,363 $ 91,540 Increases (decreases) attributable to: Allowance for equity funds used during construction (3,491) (2,862) (3,125) Amortization of deferred return on plant investment 1,486 1,486 1,486 Depreciation differences 3,086 2,860 2,794 Amortization of investment tax credits (3,630) (3,631) (3,659) State income taxes (less Federal income tax effect) 9,730 8,510 8,068 Deferred income tax flowback at higher than statutory rates (3,941) (4,327) (4,411) Alternate fuel production tax credit (850) (1,274) (1,373) Other differences, net 1,127 (2,637) (1,234) Total income tax expense $ 99,117 $ 62,488 $ 90,086 The tax effects of significant temporary differences comprising the Company's net deferred tax liability of $521.8 million at December 31, 1995 and $543.1 million at December 31, 1994 determined in accordance with Statement No. 109 (see Note 1K) are as follows: 1995 1994 (Thousands of Dollars) Deferred tax assets: Unamortized investment tax credits $ 54,342 $ 56,588 Cycle billing 19,143 17,521 Nuclear operations expenses 3,755 206 Oil and gas properties 9,738 - Deferred compensation 5,647 5,513 Other postretirement benefits 6,371 3,187 Other 7,599 8,392 Total deferred tax assets 106,595 91,407 Deferred tax liabilities: Property, plant and equipment 592,160 598,313 Pension expense 14,191 9,022 Reacquired debt 6,680 7,146 Research and experimentation 6,196 2,276 Other 9,203 17,724 Total deferred tax liabilities 628,430 634,481 Net deferred tax liability $521,835 $543,074 The Internal Revenue Service has examined and closed consolidated Federal income tax returns of the Company through 1989 and is currently examining the 1990, 1991 and 1992 Federal income tax returns. Adjustments are currently proposed by the examining agent. The Company does not anticipate that any adjustments which might result from this examination will have a significant impact on the earnings or financial position of the Company. 60 8. FINANCIAL INSTRUMENTS: The carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1995 and 1994 are as follows: 1995 1994 Estimated Estimated Carrying Fair Carrying Fair Amount Value Amount Value (Thousands of Dollars) Assets: Cash and temporary cash investments $ 16,082 $ 16,082 $ 12,938 $ 12,938 Investments 90,380 105,280 24,858 40,299 Liabilities: Short-term borrowings 112,524 112,524 171,827 171,827 Long-term debt 1,629,862 1,737,686 1,586,879 1,502,052 Preferred stock (subject to purchase or sinking funds) 48,682 46,603 51,946 49,348 The information presented herein is based on pertinent information available to the Company as of December 31, 1995 and 1994. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such financial instruments have not been comprehensively revalued since December 31, 1995, and the current estimated fair value may differ significantly from the estimated fair value at that date. The following methods and assumptions were used to estimate the fair value of the above classes of financial instruments: Cash and temporary cash investments, including commercial paper, repurchase agreements, treasury bills and notes are valued at their carrying amount. Fair values of investments and long-term debt are based on quoted market prices of the instruments or similar instruments, or for those instruments for which there are no quoted market prices available, fair values are based on net present value calculations. Investments which are not considered to be financial instruments (goodwill) have been excluded from the carrying amount and estimated fair value. Settlement of long- term debt may not be possible or may not be a prudent management decision. Short-term borrowings are valued at their carrying amount. The fair value of preferred stock (subject to purchase or sinking funds) is estimated on the basis of market prices. Potential taxes and other expenses that would be incurred in an actual sale or settlement have not been taken into consideration. 61 9. SHORT-TERM BORROWINGS: The Company pays fees to banks as compensation for its committed lines of credit. Commercial paper borrowings are for 270 days or less. Details of lines of credit and short-term borrowings, excluding amounts classified as long-term (Notes 3 and 4), at December 31, 1995, 1994 and 1993 and for the years then ended are as follows: 1995 1994 1993 (Millions of Dollars) Authorized lines of credit at year-end $477.1 $379.1 $335.0 Unused lines of credit at year-end $470.0 $355.1 $308.0 Short-term borrowings outstanding at year-end: Bank loans $ 32.0 $ 71.8 $ 42.0 Weighted average interest rate 6.21% 6.38% 3.71% Commercial paper $ 80.5 $100.0 $ 1.0 Weighted average interest rate 5.83% 6.04% 3.35% 10. COMMITMENTS AND CONTINGENCIES: A. Construction SCE&G entered into a contract with Duke/Fluor Daniel in 1991 to design, engineer and build a 385 MW coal-fired electric generating plant near Cope, South Carolina. Construction of the plant started in November 1992. Commercial operation began in January 1996. The cost of the Cope plant, excluding AFC, is $410.9 million. In addition, the transmission lines for interconnection with SCE&G's system cost $22.5 million. Under the Duke/Fluor Daniel contract the aggregate amount of required minimum payments remaining at December 31, 1995 is $4.2 million due in 1996. Through December 31, 1995 SCE&G had paid $378.7 million under the contract. B. Nuclear Insurance The Price-Anderson Indemnification Act, which deals with public liability for a nuclear incident, currently establishes the liability limit for third-party claims associated with any nuclear incident at $8.9 billion. Each reactor licensee is currently liable for up to $79.3 million per reactor owned for each nuclear incident occurring at any reactor in the United States, provided that not more than $10 million of the liability per reactor would be assessed per year. SCE&G's maximum assessment, based on its two-thirds ownership of Summer Station, would be approximately $52.9 million per incident, but not more than $6.7 million per year. SCE&G currently maintains policies (for itself and on behalf of the PSA) with Nuclear Electric Insurance Limited (NEIL) and American Nuclear Insurers (ANI) providing combined property and decontamination insurance coverage of $1.9 billion for any losses at Summer Station. SCE&G pays annual premiums and, in addition, could be assessed a retroactive premium not to exceed 7 1/2 times its annual premium in the event of property damage loss to any nuclear generating facilities covered under the NEIL program. Based on the current annual premium, this retroactive premium would not exceed $8.2 million. 62 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 financial position and results of operations. C. Environmental As described in Note 1N of Notes to Consolidated Financial Statements, the Company has an environmental assessment program to identify and assess current and former operations sites that could require environmental cleanup. As site assessments are initiated, estimates are made of the cost, if any, to investigate and clean up each site. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts are deferred and are being amortized and recovered through rates over a ten-year period for electric operations and an eight-year period for gas operations. Such deferred amounts totaled $18.0 million and $20.2 million at December 31, 1995 and 1994, respectively. Estimates to date include, among other items, the costs estimated to be associated with the matters discussed in the following paragraphs. SCE&G, the Company's principal subsidiary, owns four decommissioned manufactured gas plant sites which contain residues of by-product chemicals. SCE&G maintains an active review of the sites to monitor the nature and extent of the residual contamination. 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 originally encompassed approximately eighteen acres and included properties which were the locations for industrial operations, including a wood preserving (creosote) plant and one of SCE&G's decommissioned manufactured gas plants. The original scope of this investigation has been expanded to approximately 30 acres, including adjacent properties owned by the National Park Service and the City of Charleston, and private properties. The site has not been placed on the National Priority List, but may be added before cleanup is initiated. The potentially responsible parties (PRP) have agreed with the EPA to participate in an innovative approach to site investigation and cleanup called "Superfund Accelerated Cleanup Model," allowing the pre-cleanup site investigation process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study and a corresponding Scope of Work. Field work began in November 1993. SCE&G is also working with the City of Charleston to investigate potential contamination from the manufactured gas plant which may have migrated to the city's aquarium site. In 1994 the City of Charleston notified SCE&G that it considers SCE&G to be responsible for a $43.5 million increase in costs of the aquarium project attributable to delays resulting from contamination of the Calhoun Park Area Site. SCE&G believes it has meritorious defenses against this claim and does not expect its resolution to have a material impact on its financial position or results of operations. 63 D. Oil and Gas Forward Contracts In an effort to limit exposure to changing natural gas prices, in January 1995 the Company entered into a series of forward contracts relating to natural gas production. These forward contracts have the effect of stabilizing the price that the Company receives on approximately sixty percent of its forecasted natural gas production for the years 1996-2001. The forward contracts are at an average price of $1.92 per dekatherm. E. MPX Guarantee A percentage of the projected annual revenues for the years 1996-2003 of certain fiber optic routes of a joint venture between MPX and a subsidiary of ITC Holding Company, Inc., a Georgia-based telecommunications holding company, has been guaranteed by MPX. The aggregate maximum amount of such guarantee over the eight-year period is approximately $46.2 million, prior to reduction for revenue contracts obtained by the joint venture. F. Claims and Litigation The Company is engaged in various claims and litigation incidental to its business operations which management anticipates will be resolved without loss to the Company. No estimate of the range of loss from these matters can currently be determined. 64 11. SEGMENT OF BUSINESS INFORMATION: Segment information at December 31, 1995, 1994 and 1993 and for the years then ended is as follows: 1995 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $1,006,420 $ 342,662 $ 3,889 $1,352,971 Operating expenses, excluding depreciation and amortization 638,480 286,660 10,429 935,569 Depreciation and amortization 110,865 18,016 1,007 129,888 Total operating expenses 749,345 304,676 11,436 1,065,457 Operating income (loss) $ 257,075 $ 37,986 $ (7,547) 287,514 Add - Other income, net 8,060 Less - Interest charges 121,548 - Preferred stock dividends 5,687 Net income $ 168,339 Capital expenditures: Identifiable $ 253,577 $ 38,718 $ 265 $ 292,560 Utilized for overall Company operations 27,816 Total $ 320,376 Identifiable assets at December 31, 1995: Utility plant, net $3,033,887 $ 337,939 $ 1,878 $3,373,704 Inventories 87,143 15,714 561 103,418 Total $3,121,030 $ 353,653 $ 2,439 3,477,122 Other assets 1,057,304 Total assets $4,534,426 65 1994 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $975,388 $342,672 $ 4,002 $1,322,062 Operating expenses, excluding depreciation and amortization 640,528 292,227 10,577 943,332 Depreciation and amortization 102,647 16,304 226 119,177 Total operating expenses 743,175 308,531 10,803 1,062,509 Operating income (loss) $232,213 $ 34,141 $ (6,801) 259,553 Add - Other income, net (29,749) Less - Interest charges 108,397 - Preferred stock dividends 5,955 Net income $ 115,452 Capital expenditures: Identifiable $364,007 $ 20,079 $ 347 $ 384,433 Utilized for overall Company operations 20,167 Total $ 404,600 Identifiable assets at December 31, 1994: Utility plant, net $2,897,954 $315,746 $ 1,791 $3,215,491 Inventories 79,260 17,026 495 96,781 Total $2,977,214 $332,772 $ 2,286 3,312,272 Other assets 1,004,240 Total assets $4,316,512 66 1993 Electric Gas Transit Total (Thousands of Dollars) Operating revenues $ 940,121 $320,195 $ 3,851 $1,264,167 Operating expenses, excluding depreciation and amortization 621,339 274,936 9,737 906,012 Depreciation and amortization 97,849 14,820 175 112,844 Total operating expenses 719,188 289,756 9,912 1,018,856 Operating income (loss) $ 220,933 $ 30,439 $(6,061) 245,311 Add - Other income, net 27,335 Less - Interest charges 101,189 - Preferred stock dividends 6,217 Net income $ 165,240 Capital expenditures: Identifiable $ 279,082 $ 28,761 $ 604 $ 308,447 Utilized for overall Company operations 13,934 Total $ 322,381 Identifiable assets at December 31, 1993: Utility plant, net $2,628,374 $312,437 $ 1,673 $2,942,484 Inventories 77,805 22,019 463 100,287 Total $2,706,179 $334,456 $ 2,136 3,042,771 Other assets 983,930 Total assets $4,026,701 67 12. QUARTERLY FINANCIAL DATA (UNAUDITED): 1995 First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $344,760 $311,136 $373,476 $323,599 $1,352,971 Operating income (000) 75,046 61,012 95,438 56,018 287,514 Net income (000) 51,265 15,586 68,029 33,459 168,339 Earnings per weighted average share of common stock as reported .53 .16 .69 .32 1.70 1994 First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $347,309 $296,046 $361,329 $317,378 $1,322,062 Operating income (000) 69,398 50,048 86,708 53,399 259,553 Net income (000) 51,442 30,254 16,701 17,055 115,452 Earnings per weighted average share of common stock as reported .55 .32 .18 .17 1.22 68 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III The information required by Item 10, "Directors and Executive Officers of the Registrant," with respect to executive officers is, pursuant to General Instruction G(3) to Form 10-K, set forth in Part I of this Form 10-K under the heading "Executive Officers of the Registrant" on page 26 herein. The other information required by Item 10 is incorporated herein by reference to the captions "Election of Directors - Proposal 1" and "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Company's definitive proxy statement for the 1996 annual meeting of stockholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934. The information called for by Item 11, Executive Compensation is incorporated herein by reference to the captions "Compensation of Directors," "Compensation Committee Interlocks and Insider Participation," and "Executive Compensation" in the Company's definitive proxy statement for the 1996 annual meeting of stockholders. The information called for by Item 12, "Security Ownership of Certain Beneficial Owners and Management" is incorporated herein by reference to the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's definitive proxy statement for the 1996 annual meeting of stockholders. The information called for by Item 13, "Certain Relationships and Related Transactions" is incorporated herein by reference to the caption "Compensation Committee Interlocks and Insider Participation" in the Company's definitive proxy statement for the 1996 annual meeting of stockholders. Notwithstanding anything to the contrary set forth in any of the Company's previous filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate by reference future filings, including this Annual Report on Form 10-K, in whole or in part, the Report of the Management Development and Corporate Performance Committee and the Long-term Compensation Committee on Executive Compensation and the Performance Graph included in the Company's definitive proxy statement for the 1996 annual meeting of stockholders shall not be incorporated by reference into any such filings. 69 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as a part of this report: 1. Financial Statements and Schedules: See Table of Contents of Consolidated Financial Statements and Supplementary Financial Data on page 40. 2. Exhibits: Exhibits required to be filed with this Annual Report on Form 10-K are listed in the Exhibit Index following the signature page. Certain of such exhibits which have heretofore been filed with the SEC and which are designated by reference to their exhibit numbers in prior filings are incorporated herein by reference and made a part hereof. Pursuant to Rule 15d-21 promulgated under the Securities Exchange Act of 1934, the annual reports for the Company's employee stock purchase plan will be furnished under cover of Form 10-K/A to the Commission when the information becomes available. As permitted under Item 601(b)(4)(iii), instruments defining the rights of holders of long-term debt of less than 10 percent of the total consolidated assets of the Company and its subsidiaries, have been omitted and the Company agrees to furnish a copy of such instruments to the Commission upon request. (b) Reports on Form 8-K None 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (REGISTRANT) SCANA CORPORATION BY (SIGNATURE) s/L. M. Gressette, Jr. (NAME AND TITLE) L. M. Gressette, Jr., Chairman of the Board, Chief Executive Officer and Director DATE February 20, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. (i) Principal executive officer: BY (SIGNATURE) s/L. M. Gressette, Jr. (NAME AND TITLE) L. M. Gressette, Jr., Chairman of the Board, Chief Executive Officer and Director DATE February 20, 1996 (ii) Principal financial and accounting officer: BY (SIGNATURE) s/K. B. Marsh (NAME AND TITLE) K. B. Marsh, Vice President - Finance, Chief Financial Officer and Controller DATE February 20, 1996 BY (SIGNATURE) s/B. L. Amick (NAME AND TITLE) B. L. Amick, Director DATE February 20, 1996 BY (SIGNATURE) s/W. B. Bookhart, Jr. (NAME AND TITLE) W. B. Bookhart, Jr., Director DATE February 20, 1996 BY (SIGNATURE) s/W. T. Cassels, Jr. (NAME AND TITLE) W. T. Cassels, Jr., Director DATE February 20, 1996 BY (SIGNATURE) s/H. M. Chapman (NAME AND TITLE) H. M. Chapman, Director DATE February 20, 1996 BY (SIGNATURE) s/J. B. Edwards (NAME AND TITLE) J. B. Edwards, Director DATE February 20, 1996 71 BY (SIGNATURE) s/E. T. Freeman (NAME AND TITLE) E. T. Freeman, Director DATE February 20, 1996 BY (SIGNATURE) s/B. A. Hagood (NAME AND TITLE) B. A. Hagood, Director DATE February 20, 1996 BY (SIGNATURE) s/W. Hayne Hipp (NAME AND TITLE) W. Hayne Hipp, Director DATE February 20, 1996 BY (SIGNATURE) s/B. D. Kenyon (NAME AND TITLE) B. D. Kenyon, Director DATE February 20, 1996 BY (SIGNATURE) s/F. C. McMaster (NAME AND TITLE) F. C. McMaster, Director DATE February 20, 1996 BY (SIGNATURE) s/Henry Ponder (NAME AND TITLE) Henry Ponder, Director DATE February 20, 1996 BY (SIGNATURE) s/W. B. Timmerman (NAME AND TITLE) W. B. Timmerman, Director DATE February 20, 1996 BY (SIGNATURE) s/J. B. Rhodes (NAME AND TITLE) J. B. Rhodes, Director DATE February 20, 1996 BY (SIGNATURE) s/E. C. Wall, Jr. (NAME AND TITLE) E. C. Wall, Jr., Director DATE February 20, 1996 72 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number 2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession Not applicable 3. Articles of Incorporation and By-Laws A. Restated Articles of Incorporation of SCANA Corporation as adopted on April 26, 1989 (Exhibit 3-A to Registration Statement No. 33-49145)................................................. # B. Articles of Amendment dated April 27, 1995 (Exhibit 4-B to Registration Statement No. 33-62421)............................................. # C. Copy of By-Laws of SCANA Corporation as revised and amended on February 15, 1994 (Exhibit 4.2 to Post-Effective Amendment No. 1 to Registration Statement No. 33-56923)................... # 4. Instruments Defining the Rights of Security Holders, Including Indentures A. Articles of Exchange of South Carolina Electric & Gas Company and SCANA Corporation (Exhibit 4-A to Post-Effective Amendment No. 1 to Registration Statement No. 2-90438).................... # B. Indenture dated as of November 1, 1989 to The Bank of New York, Trustee (Exhibit 4-A to Registration No. 33-32107)............................. # C. Indenture dated as of January 1, 1945, from the South Carolina Power Company (the "Power Company") to Central Hanover Bank and Trust Company, as Trustee, as supplemented by three Supplemental Indentures dated respectively as of May 1, 1946, May 1, 1947 and July 1, 1949 (Exhibit 2-B to Registration No. 2-26459)................. # D. Fourth Supplemental Indenture dates as of April 1, 1950, to Indenture referred to in Exhibit 4C, pursuant to which the Company assumed said Indenture (Exhibit 2-C to Registration No. 2-26459)................................. # E. Fifth through Fifty-second Supplemental Indenture referred to in Exhibit 4C 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. 2-26459 September 1, 1960 Exhibit 2-J to Registration No. 2-26459 June 1, 1961 Exhibit 2-K to Registration No. 2-26459 December 1, 1965 Exhibit 2-L to Registration No. 2-26459 # Incorporated herein by reference as indicated. 73 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number June 1, 1966 Exhibit 2-M to Registration No. 2-26459 June 1, 1967 Exhibit 2-N to Registration No. 2-29693 September 1, 1968 Exhibit 4-O to Registration No. 2-31569 June 1, 1969 Exhibit 4-C to Registration No. 33-38580 December 1, 1969 Exhibit 4-Q to Registration No. 2-35388 June 1, 1970 Exhibit 4-R to Registration No. 2-37363 March 1, 1971 Exhibit 2-B-17 to Registration No. 2-40324 January 1, 1972 Exhibit 4-C to Registration No. 33-38580 July 1, 1974 Exhibit 2-A-19 to Registration No. 2-51291 May 1, 1975 Exhibit 4-C to Registration No. 33-38580 July 1, 1975 Exhibit 2-B-21 to Registration No. 2-53908 February 1, 1976 Exhibit 2-B-22 to Registration No. 2-55304 December 1, 1976 Exhibit 2-B-23 to Registration No. 2-57936 March 1, 1977 Exhibit 2-B-24 to Registration No. 2-58662 May 1, 1977 Exhibit 4-C to Registration No. 33-38580 February 1, 1978 Exhibit 4-C to Registration No. 33-38580 June 1, 1978 Exhibit 2-A-3 to Registration No. 2-61653 April 1, 1979 Exhibit 4-C to Registration No. 33-38580 June 1, 1979 Exhibit 4-C to Registration No. 33-38580 April 1, 1980 Exhibit 4-C to Registration No. 33-38580 June 1, 1980 Exhibit 4-C to Registration No. 33-38580 December 1, 1980 Exhibit 4-C to Registration No. 33-38580 April 1, 1981 Exhibit 4-D to Registration No. 33-49421 June 1, 1981 Exhibit 4-D to Registration No. 2-73321 March 1, 1982 Exhibit 4-D to Registration No. 33-49421 April 15, 1982 Exhibit 4-D to Registration No. 33-49421 May 1, 1982 Exhibit 4-D to Registration No. 33-49421 December 1, 1984 Exhibit 4-D to Registration No. 33-49421 December 1, 1985 Exhibit 4-D to Registration No. 33-49421 June 1, 1986 Exhibit 4-D to Registration No. 33-49421 February 1, 1987 Exhibit 4-D to Registration No. 33-49421 September 1, 1987 Exhibit 4-D to Registration No. 33-49421 January 1, 1989 Exhibit 4-D to Registration No. 33-49421 January 1, 1991 Exhibit 4-D to Registration No. 33-49421 February 1, 1991 Exhibit 4-D to Registration No. 33-49421 July 15, 1991 Exhibit 4-D to Registration No. 33-49421 August 15, 1991 Exhibit 4-D to Registration No. 33-49421 April 1, 1993 Exhibit 4-E to Registration No. 33-49421 July 1, 1993 Exhibit 4-D to Registration No. 33-57955 F. Indenture dated as of April 1, 1993 from South Carolina Electric & Gas Company to NationsBank of Georgia, National Association (Filed as Exhibit 4-F to Registration Statement No. 33-49421)............................................. # G. First Supplemental Indenture to Indenture referred to in Exhibit 4-F dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421)............................................. # H. Second Supplemental Indenture to Indenture referred to in Exhibit 4-F dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955)............................................. # 9. Voting Trust Agreement Not Applicable # Incorporated herein by reference as indicated. 74 SCANA CORPORATION EXHIBIT INDEX Sequentially Numbered Pages Number 10. Material Contracts A. Copy of Voluntary Deferral Plan as amended through October 26, 1988 (Exhibit 10-A to Form 10-K for the year ended December 31, 1988 under cover of Form SE, File No. 1-8809)................................. # B. Copy of Supplementary Voluntary Deferral Plan as amended and restated through August 28, 1991 (Exhibit 10-B to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809).......................................... # C. Copy of Key Executive Severance Benefit Plan as adopted on February 28, 1990 (Exhibit 10-C to Form 10-K for the year ended December 31, 1989 under cover of Form SE, File No. 1-8809)................................. # D. Copy of SCANA Corporation Performance Share Plan as amended and restated effective February 16, 1993 (Exhibit 10-D to Form 10-K for the year ended December 31, 1992, File No. 1-8809)....................... # E. Form of Agreement under SCANA Corporation Key Employee Retention Program (Exhibit 10-E to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809)........................ # F. Description of SCANA Corporation Whole Life Option (Exhibit 10-F to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809)............................................... # G. Description of SCANA Corporation Performance Incentive Plan (Exhibit 10-G to Form 10-K for the year ended December 31, 1991, under cover of Form SE, File No. 1-8809).............................. # 11. Statement Re Computation of Per Share Earnings Not Applicable 12. Statements Re Computation of Ratios (Filed herewith)......... 77 13. Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders Not Applicable 16. Letter Re Change in Certifying Accountant Not Applicable 18. Letter Re Change in Accounting Principles (Exhibit 18 to Form 10-Q for the quarter ended June 30, 1995, File No. 1-8809).............................. # 21. Subsidiaries of the Registrant Included herein on Page 25 # Incorporated herein by reference as indicated. 75 SCANA CORPORATION EXHIBIT INDEX Number 22. Published Report Regarding Matters Submitted to Vote of Security Holders Not Applicable 23. Consents of Experts and Counsel Consent of Deloitte & Touche LLP (Filed herewith)............ 81 24. Power of Attorney Not Applicable 27. Financial Data Schedule Filed herewith 28. Information from Reports Furnished to State Insurance Regulatory Authorities Not Applicable 99. Additional Exhibits Not Applicable # Incorporated herein by reference as indicated. 76
EX-12 2 Exhibit 12 SCANA CORPORATION CALCULATIONS OF BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1995 (Thousands of Dollars) Net earnings(1) $377,720 Divide by annualized interest charges on: Bonds authenticated under the Company's First and Refunding Mortgage Bond Indenture $37,774 Other indebtedness(1) $57,260 Total annualized interest charges $ 95,034 Bond ratio 3.97 (1) As defined under the Company's First and Refunding Mortgage Bond Indenture (Old Mortgage). 77 SCANA CORPORATION CALCULATION OF NEW BOND RATIO FOR THE YEAR ENDED DECEMBER 31, 1995 (Thousands of Dollars) Net earnings(1) $503,940 Divide by annualized interest charges on: Bonds authenticated under the Company's First Mortgage Bond Indenture $94,912 Other indebtedness(1) $ - Total annualized interest charges $ 94,912 New Bond Ratio 5.31 (1) As defined under the Company's Collateral Trust Mortgage Indenture (New Mortgage). 78 SCANA CORPORATION CALCULATIONS OF PREFERRED STOCK RATIO FOR THE YEAR ENDED DECEMBER 31, 1995 (Thousands of Dollars) Net Earnings (1) $276,870 Divide by annualized interest charges on: Bonds authenticated under SCE&G's mortgage bond indentures $94,912 Other indebtedness (1) $ 6,621 Preferred Dividend Requirements $ 5,629 Total annualized interest charges $107,162 Preferred stock ratio 2.58 (1) As defined under SCE&G's Restated Articles of Incorporation. 79 SCANA CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For Each of the Five Years Ended December 31, 1995 (Thousands of Dollars) Years Ended December 31, 1995 1994 1993 1992 1991 Fixed Charges as defined: Interest on long-term debt.................. $113,882 $106,573 $ 96,916 $ 92,178 $ 87,854 Amortization of debt premium, discount and expense (net).............................. 2,486 2,231 1,779 874 836 Other interest expense...................... 17,102 6,749 8,672 8,819 7,648 Interest component of rentals............... 2,771 2,717 2,853 929 897 Total Fixed Charges (A)................. $136,241 $118,270 $110,220 $102,800 $ 97,235 Earnings, as defined: Income...................................... $174,026 $121,407 $171,457 $124,140 $129,671 Income taxes................................ 99,116 62,488 90,714 60,291 68,687 Total fixed charges above................... 136,241 118,270 110,220 102,800 97,235 Total Earnings (B)...................... $409,383 $302,165 $372,391 $287,231 $295,593 Ratio of Earnings to fixed charges (B/A)...... 3.00 2.55 3.38 2.79 3.04
80 EX-23 3 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Post-Effective Amendment No. 1 to Registration Statement No. 33-32107 on Form S- 3, Post-Effective Amendment No. 1 to Registration Statement No. 33-43636 on Form S-3, Post-Effective Amendment No. 1 to Registration Statement No. 33-49333 on Form S-8, Post Effective Amendment No. 1 to Registration Statement No. 33-55861 on Form S-3, Post-effective Amendment No. 2 on Registration No. 33-50571 on Form S-3 and Post-Effective Amendment No. 1 to Registration Statement No. 33-56923 on Form S-8 of our report dated February 7, 1996 appearing in this Annual Report on Form 10-K of SCANA Corporation for the year ended December 31, 1995. s/Deloitte & Touche LLP DELOITTE & TOUCHE LLP Columbia, South Carolina March 27, 1996 81 -----END PRIVACY-ENHANCED MESSAGE-----