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 presently 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 all the capital stock of each of its subsidiaries except for the Preferred Stock of SCE&G and the capital stock of SCANA's indirect, wholly owned subsidiaries which are not material individually or in the aggregate. SCANA and its subsidiaries had 4,788 full-time, permanent employees as of December 31, 1993 as compared to 4,849 full-time, permanent employees as of December 31, 1992.
SEGMENTS OF BUSINESS
SCANA neither owns nor operates any physical properties. It currently has 11 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 29 of the 46 counties in South Carolina and covers more than 19,000 square miles. Total estimated population of 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 and fossil fuel requirements.
Pipeline Corporation is engaged in the purchase, transmission and sale of natural gas on a wholesale basis to distribution companies and directly to industrial customers in 39 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 operates oil and gas producing properties with net proven reserves in 16 states and Federal waters offshore Texas and Louisiana.
Hydrocarbons markets natural gas and light hydrocarbons. It also owns and operates an 80 million gallon underground propane storage cavern near York, South Carolina and a 62 mile, six-inch propane pipeline that connects the cavern facility with Dixie Pipeline Company near Bethune, South Carolina. The cavern leases storage space to industries, utilities and propane suppliers. Hydrocarbons also owns and operates the Wilburton Gathering System in Oklahoma.
Suburban purchases, delivers and sells propane. In 1993 Suburban sold approximately 20 million gallons of propane and had approximately 31,400 residential, commercial and industrial customers at year end.
MPX Systems, Inc. is involved in telecommunication related ventures providing fiber optic telecommunications, video conferencing and specialized mobile radio services. Having installed over 600 miles of fiber optic cable in South Carolina, Georgia and Alabama, the company has recently turned its efforts toward video conferencing and the establishment of a Specialized Mobile Radio system in South Carolina. Both new ventures capitalize on the fiber infrastructure in place and provide for expansion of the network.
Development Corporation is engaged in the development, management and sale of real estate. In January 1994 SCANA signed an agreement to sell in 1994 substantially all of the real estate assets of Development Corporation to Liberty Properties Group, Inc. of Greenville, South Carolina for $91.5 million. On March 4, 1994 the Company and Liberty amended the agreement regarding the sale. Under the terms of the amended agreement certain projects currently under construction will be excluded from the transaction and the sales price will be $49.6 million. All of the sales price will be received at the time of closing. The transaction will not have a material impact on the Company's financial position or results of operation.
Primesouth, Inc. is engaged in power plant management and maintenance services.
SCANA Capital Resources, Inc. has provided equity capital for diversified investments.
Information with respect to major segments of business for the years ended December 31, 1993, 1992 and 1991 is contained in Note 11 of the Notes to Consolidated Financial Statements and all such information is incorporated herein by reference.
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 relief.
As discussed in Note 2A of Notes to Consolidated Financial Statements, on June 7, 1993 the PSC issued an order granting SCE&G a 7.4% annual increase in retail electric rates to be implemented in two phases of $42.0 million annually effective June 1993 and $18.5 million annually effective June 1994, based on a test year.
During 1994 the Company is expected to meet its capital requirements principally through internally generated funds (approximately 38% excluding dividends), sales of additional shares of common stock including sales pursuant to the DRP and SPSP, and the issuance and sale of debt securities. Short-term liquidity is expected to be provided by issuance of commercial paper. The timing and amount of such sales and the type of securities to be sold will depend upon market conditions and other factors.
The Company's estimates of its cash requirements for construction (excluding potential oil and gas investments) and nuclear fuel expenditures, which are subject to continuing review and adjustment, for 1994 and the four-year period 1995-1998 as now scheduled are as follows:
Construction
The Company's cost estimates for its construction program for the periods 1994 and 1995-1998 shown in the above table include costs of the projects described below.
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 in Orangeburg County. Construction of the plant began in November 1992 with commercial operation expected in late 1995 or early 1996. The estimated price of the Cope plant, excluding financing costs and AFC but including an allowance for escalation, is $450 million. In addition, the transmission lines for interconnection with SCE&G's system are expected to cost $26 million.
The steam generators at Summer Station will be replaced during the 1994 regularly scheduled refueling outage. In January 1994 SCE&G, acting on behalf of itself and the PSA (as co-owners of the 885 Megawatt Summer Station), reached a settlement with Westinghouse Electric Corporation (Westinghouse) resolving a dispute involving steam generators provide by Westinghouse to Summer Station which are defective in design, workmanship and materials. Terms of the settlement are confidential by agreement of the parties and order of the court. SCE&G had filed an action in May 1990 against Westinghouse in the U. S. District Court for South Carolina; an order dismissing this suit was issued on January 12, 1994.
Pipeline Corporation completed construction in 1993 of an LNG facility near Sally, South Carolina at a price of $23.5 million. The facility will store up to 900,000 MCF of LNG.
During 1993 SCE&G and GENCO expended approximately $24 million as part of a program to extend the operating lives of certain generating facilities. Additional improvements to be made under the program during 1994 are estimated to cost approximately $22 million.
Additional Capital Requirements
In addition to the Company's capital requirements for 1994 described above, $25.6 million will be required for refunding and retiring outstanding securities and obligations. For the years 1995-1998, the Company has an aggregate of $255.8 million of long-term debt maturing (including approximately $43.9 million for sinking fund requirements, of which $43.5 million may be satisfied by deposit and cancellation of bonds issued upon the basis of property additions or bond retirement credits) and $9.9 million of purchase or sinking fund requirements for preferred stock.
Actual 1994 expenditures 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.
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. In 1993 the Company issued $60 million of such medium-term notes. The proceeds from the sales of these securities were used for the funding of nonutility subsidiary activities. At December 31, 1993 the Company had available for issuance $67.6 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 12 consecutive months out of the 15 months prior to the month of issuance is at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1993 the Bond Ratio was 3.70. The issuance of additional Class A Bonds is restricted also to an additional principal amount equal to 60% of unfunded net property additions (which unfunded property additions totaled approximately $219.9 million at December 31, 1993), Class A Bonds issued on the basis of retirements of Class A Bonds (which retirement credits totaled $10.9 million at December 31, 1993) and Class A Bonds issued on the basis of cash on deposit with the Trustee.
SCE&G has placed a new bond indenture (New Mortgage) dated April 1, 1993 on substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are expected to be 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 $157 million were available for such purpose at December 31, 1993), 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 12 consecutive months out of the 18 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, 1993 the New Bond Ratio was 5.0.
On April 29, 1993 the Securities and Exchange Commission (SEC) declared effective a registration statement for the issuance of up to $700 million of New Bonds by SCE&G. The following series, aggregating $600 million, have been issued under such registration statement:
On June 9, 1993, $100 million, 7 5/8% Series due June 1, 2023 to repay short-term borrowings in a like amount.
On July 1, 1993, $100 million, 6% Series due June 15, 2000, and $150 million, 7 1/8% Series due June 15, 2013, and on July 20, 1993, $150 million, 7 1/2% Series due June 15, 2023, to redeem, on July 20, 1993, $382,035,000 of First and Refunding Mortgage Bonds maturing between 1999 and 2017 and bearing interest at rates between 8% and 9 7/8% per annum.
On December 20, 1993, $100 million, 6 1/4% Series due December 15, 2003 to repay short-term borrowings in a like amount.
The following additional financing transactions have occurred since December 31, 1992:
On January 15, 1993 the Company closed on an unsecured bank loan in the principal amount of $60 million, due January 14, 1994, and used the proceeds to pay off a loan in a like amount. The interest rate is the three month LIBOR plus 30 basis points and is reset quarterly. On January 14, 1994 the Company refinanced the loan with unsecured bank loans totaling $60 million, due January 13, 1995 at interest rates between 3.875% and 3.89%.
On April 15, 1993 the Company arranged for a $15 million term loan, due April 14, 1994, to repay short-term borrowings in a like amount. The interest rate is the three month LIBOR plus 16 basis points and is reset quarterly.
On June 1, 1993 SCE&G redeemed the following amounts of First and Refunding Mortgage Bonds: $35 million, 10 1/8% Series due 2009 and $13 million, 9 7/8% Series due 2009.
On June 2, 1993 the Company entered into a $123 million 90-day bank loan (90-day bank loan) to finance the acquisition by Petroleum Resources of approximately 125 billion cubic feet equivalent of natural gas reserves through the purchase of NICOR Exploration and Production Co.
On July 1, 1993 the Company issued $60 million of medium-term notes bearing interest at the following rates and maturing on the following dates in the following amounts: $20 million, 5.76%, due July 1, 1998; $20 million, 6.15%, due July 3, 2000; $20 million, 6.51%, due July 1, 2003. The proceeds were used to repay a portion of the 90-day bank loan discussed above.
In early August 1993 the Company issued 1,467,000 shares of common stock with net proceeds totalling $69,345,090. The proceeds were used to repay the remainder of the 90-day bank loan discussed above and for general corporate purposes.
On September 30, 1993 Pipeline Corporation sold unsecured promissory notes totalling $25 million, 6.72% due September 30, 2013. The proceeds were used to repay short-term borrowings in a like amount.
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 in- debtedness. The FERC has authorized SCE&G to issue up to $200 million of unsecured promissory notes or commercial paper with maturity dates of 12 months or less but not later than December 31, 1995. GENCO has not sought such authorization.
The Company had $175.0 million authorized lines of credit and had unused lines of credit of $148.0 million at December 31, 1993.
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 12 consecutive months immediately preceding the month of issuance is 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, 1993 the Preferred Stock Ratio was 2.52.
On October 12, 1993 the Company registered with the SEC 2,000,000 additional shares of the Company's common stock to be issued and sold under the DRP.
During 1993 the Company issued 529,954 shares of the Company's common stock under the DRP. In addition, the Company issued 705,498 shares of its common stock pursuant to its SPSP. The Company has authorized and reserved for issuance, and registered under effective registration statements, 2,065,824 and 872,420 shares of common stock pursuant to the DRP and the SPSP, respectively.
In January 1994 SCANA signed an agreement to sell in 1994 substantially all of the real estate assets of Development Corporation to Liberty Properties Group, Inc. of Greenville, South Carolina for $91.5 million. On March 4, 1994 the Company and Liberty amended the agreement regarding the sale. Under the terms of the amended agreement certain projects currently under construction will be excluded from the transaction and the sales price will be $49.6 million. All of the sales price will be received at the time of closing. The net proceeds from the sale will be used to retire Development Corporation's debt and for general corporate purposes, including the funding of other nonutility subsidiaries' business activities. The transaction will not have a material impact on the Company's financial position or results of operations.
The ratio of earnings to fixed charges (SEC method) was 3.41, 2.79, 3.24, 4.07 and 2.93 for the years ended December 31, 1993, 1992, 1991, 1990 and 1989 respectively.
The Company expects that it has or can obtain adequate sources of financing to meet its projected cash requirements.
Fuel Financing Agreements
SCE&G has assigned to Fuel Company all of its rights and interests in its various contracts relating to the acquisition and ownership of nuclear and fossil fuel. To finance nuclear and fossil fuel inventories, Fuel Company issues, from time to time, its promissory notes with maturities of less than 270 days (Commercial Paper). The issuance of Commercial Paper is supported by an irrevocable revolving credit agreement which expires July 31, 1996 and is guaranteed by SCE&G. Accordingly, the amounts outstanding have been included in long-term debt. The credit agreement provides for a maximum amount of $75 million that may be outstanding at any time.
At December 31, 1993 Commercial Paper outstanding for nuclear and fossil fuel inventories was approximately $36.8 million at a weighted average interest rate of 3.47%.
ELECTRIC OPERATIONS
Electric Sales
In 1993 residential sales of electricity accounted for 43% of electric sales revenues; commercial sales 29%; industrial sales 21%; sales for resale 4%; and all other 3%. KWH sales by classification for the years ended December 31, 1993 and 1992 are presented below:
Sales KWH % Classification 1993 1992 Change (thousands)
Residential 5,650,753 5,155,886 9.60 Commercial 4,835,492 4,531,683 6.70 Industrial 4,887,121 4,684,012 4.34 Sale for resale 1,005,968 946,357 6.30 Other 500,937 476,064 5.22 Total Territorial 16,880,271 15,794,002 6.88 Interchange 198,059 77,046 157.07 Total 17,078,330 15,871,048 7.61
SCE&G furnishes electricity for resale to three municipalities, three 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 1993.
An increase of 6,974 electric customers to 468,874 total customers contributed to in an all-time peak demand record of 3,557 MW on July 29, 1993. The previous years' record of 3,380 MW was set July 13, 1992.
Electric Interconnections
SCE&G's transmission system is part of the interconnected grid extending over a large part of the southern and eastern portion 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 which 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 1991-1993.
1991 1992 1993 Nuclear: Per million BTU $ .57 $ .52 $ .47 Coal: Per ton $41.78 $40.45 $40.48 Per million BTU 1.63 1.57 1.57 Weighted Average Cost of All Fuels: Per million BTU $ 1.38 $ 1.27 $ 1.33
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.
Fuel Supply
The following table shows the sources and approximate percentages of total KWH generation by each category of fuel for the years 1991-1993 and the estimates for 1994 and 1995.
Percent of Total KWH Generated Actual Estimated 1991 1992 1993 1994 1995
Coal 68% 65% 72% 77% 69% Nuclear 21 29 22 17 26 Hydro 5 5 5 5 5 Natural Gas & Oil 6 1 1 1 - 100% 100% 100% 100% 100%
Coal is currently used at all four 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, 1993 SCE&G had approximately a 73-day supply of coal in inventory and GENCO had approximately a 56-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 the following percentages of estimated requirements for 1994 (approximately 5.3 million tons) and expire at the dates indicated (giving effect to the Company's potential to exercise renewal options):
Range of % of Final No. of Tons % of 1994 Sulfur Content Expiration Renegotiation Per Year Requirement per Contract Date (1) Date (1)
966,664 18.2 up to 1.55 02/28/2001 02/28/1995 360,000 6.8 1.00-1.80 12/31/2002 12/31/1996 134,000 2.5 1.10-2.00 03/31/1996 03/31/1994 120,000 2.3 1.10-1.60 04/30/1996 04/30/1994 972,000 18.3 up to 1.50 12/31/2002 12/31/1996 192,832 3.6 0.80-1.50 06/30/2000 06/30/1994 2,745,496 51.7
(1) Contract extensions beyond the stated renegotiation date to the final expiration date are subject to mutual agreement on price, terms, quantity and quality.
All of the above contracts, except the contracts expiring in March 1994 and April 1994 which have firm prices, are subject to periodic price adjustments based on changes in indices published by the U. S. Department of Labor.
Coal purchased in December 1993 had an average sulfur content of 1.17%, which permitted SCE&G and GENCO to comply with existing environmental regulations. 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. However, the Company will be required to meet the more stringent emissions standards established by the Clean Air Act (see "Environmental Control Matters").
SCE&G currently has adequate supplies of uranium under contract to manufacture nuclear fuel for Summer Station through 1996. The following table summarizes all contract commitments for the stages of nuclear fuel assemblies:
Commitment Contractor Regions(1) Term
Uranium NUEXCO Trading Corporation 11 1994 Uranium Energy Resources of Australia 9-13 1990-1996 Uranium Everest Minerals 9-13 1990-1996 Conversion Sequoyah Fuel Corp. 8-12 1989-1995 Enrichment DOE (2) Through 2022 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. 10 was loaded in 1993 and region no. 11 will be loaded in 1994.
(2) The contract with the DOE is a "requirements" type contract whereby the DOE supplies total enrichment requirements for the unit through the year 2022, as specified by its then current schedule.
SCE&G has on-site spent fuel storage capability until at least 2008 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 Control Matters" for information regarding the contract with the DOE for disposal of spent fuel.)
GAS OPERATIONS
Gas Sales
In 1993 residential sales accounted for 13% of gas sales revenues; commercial sales 9%; industrial sales 30%; sales for resale 19% and transportation gas 29%. Dekatherm sales by classification for the years ended December 31, 1993 and 1992 are presented below:
SALES DEKATHERMS % CLASSIFICATION 1993 1992 CHANGE
Residential 12,651,000 11,847,723 6.8 Commercial 9,611,556 9,729,723 (1.2) Industrial 30,335,059 33,157,246 (8.5) Sale for resale 19,144,130 21,437,448 (10.7) Transportation gas 29,542,805 25,720,633 14.9 Total 101,284,550 101,892,773 (0.6)
During 1993 the Company added 3,853 customers, increasing its total customers to 234,736.
The demand for gas is affected by conservation, the weather, the price relationship between gas and alternative fuels and other factors.
The deregulation of natural gas prices at the wellhead which took place on January 1, 1985, and the changes in the prices of natural gas that have occurred under Federal regulation have resulted in the development of a spot market for natural gas in the producing areas of the country. Pipeline Corporation has been successful in purchasing lower cost natural gas in the spot market and arranging for its transportation to South Carolina. 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 April 8, 1992, the FERC promulgated its Order No. 636, which 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 supplies whether the customer purchases gas from the pipeline or another supplier. Both of Pipeline Corporation's interstate suppliers initiated transportation services in compliance with FERC Order No. 636 on November 1, 1993. The Company's gas subsidiaries are positioned for the related market changes arising from this order. 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. Hydrocarbons acquires and sells natural gas in the newly deregulated markets. Petroleum Resources owns natural gas reserves that supply natural gas for the interstate markets. Neither Hydrocarbons nor Petroleum Resources supply natural gas to any affiliate for use in providing regulated gas utility services.
To reduce dependence on imported oil, NEPA imposes purchase requirements for alternate fuel vehicles for federal, state, municipal and private fleets which increase over a period of years. The Company expects these requirements for alternate fuel vehicles to develop business opportunities for the sale of compressed natural gas as fuel for vehicles, but it cannot predict the extent of this new market.
Expansion
SCANA and Sonat, Inc., parent company of Southern Natural, are evaluating the potential market to determine the feasibility of providing natural gas transportation service to North Carolina.
Gas Cost and Supply
Pipeline Corporation purchases natural gas under contracts with producers, brokers and interstate pipelines. The gas is brought to South Carolina through contracts with both Southern Natural and Transco. The volume of gas which Pipeline Corporation is entitled to transport through these contracts is shown below:
Maximum Daily Supplier Contract Demand Capacity (MCF)
Southern Natural Firm Transportation 160,000 Transco Firm Transportation 29,900 Total 189,900
A liquid natural gas storage facility was completed in 1993 and has been used and useful in providing supplemental supplies to meet firm system requirements this winter season. No difficulty in obtaining natural gas is anticipated.
During 1993 the average cost per MCF of natural gas purchased for resale, including spot market purchases, was approximately $2.68 compared to approximately $2.51 during 1992.
To meet the requirements of its high priority natural gas customers during periods of maximum demand, Pipeline Corporation supplements its supplies of natural gas from two LNG plants. The LNG storage tanks are capable of storing the liquefied equivalent of 1,900,000 MCF of natural gas, of which approximately 1,450,000 MCF were in storage at December 31, 1993. On peak days the LNG plants can regasify up to 150,000 MCF per day. Additionally, Pipeline Corporation had contracted for 6,398,035 MCF of natural gas storage space on December 31, 1993, of which 4,880,484 MCF were in storage at such date. Propane air peak shaving facilities located in the Company's service area can supply an additional 137,400 MCF per day.
The Company believes that current supplies under contract and spot market purchases of natural gas are adequate to meet existing customer demands for service and to accommodate growth.
Curtailment Plans
The FERC has established allocation priorities applicable to firm and interruptible capacities on interstate pipeline companies to their customers 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 actively involved in oil and natural gas development and production activities. It currently own and operates oil and gas production properties with net proven reserves in Texas, Louisiana, Mississippi, Oklahoma, California, Arkansas, Nebraska, Colorado, Kansas, Montana, North Dakota, Michigan, Illinois, New Mexico, Alabama, Wyoming and Federal waters offshore Texas and Louisiana.
Gas Marketing
Hydrocarbons markets natural gas as well as other light hydrocarbons.
Propane Operations
Suburban purchases, delivers and sells propane. In 1993 Suburban sold approximately 20 million gallons of propane and had approximately 31,400 residential, commercial and industrial customers at year end.
Hydrocarbons owns and operates an 80 million gallon under- ground propane storage facility that leases storage space to industrial companies, utilities and others. It also owns and operates a 62 mile propane pipeline connected to the Dixie Pipeline System which traverses central South Carolina. Hydrocarbons also owns and operates the Wilburton Gathering System in Oklahoma.
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.
National Energy Policy Act of 1992
Congress has passed NEPA, the principal thrust of which is to create a more competitive wholesale power supply market by creating "exempt wholesale generators" (EWGs) designated by the FERC, which are independent power producers (IPPs) whose owners will not become holding companies under PUHCA. Upon application of a wholesaler of electric energy, the FERC may order any electric utility that owns transmission facilities used for wholesale sales of electric energy to provide transmission service (including any enlargement of transmission capacity needed to provide the service) to the applicant. Charges for transmission service must be "just and reasonable" and a utility is entitled to recover "all legitimate, verifiable economic costs" incurred in connection with any transmission service so ordered. The FERC may not order such service where it (1) would "unreasonably impair the continued reliability of electric wheeling" judged by reference to "consistently applied regional or national reliability standards, guidelines or criteria;" (2) would result in "retail wheeling;" or (3) would conflict with state laws governing retail marketing areas of electric utilities. Electric utilities, including exempt and non-exempt holding companies, may own and operate EWGs subject to advance approval by state utility commissions, which are given access to books and records of the EWG and its affiliates to the extent that such a commission requires access to perform its regulatory duties. It allows both registered and exempt utility holding companies to acquire interests in foreign utility companies engaged in the generation, transmission or distribution of electricity or the retail distribution of gas, where a state commission has certified that it has the ability to protect the utility's retail ratepayers against adverse investments in foreign utilities by affiliates of public utilities that such commissions regulate. State Commissions must consider rate making changes and other regulatory reform to ensure that electric utilities' investments in energy efficiency and demand side management programs are at least as profitable as investing in new generating capacity. FERC has issued a Notice of Proposed Rule Making to develop regulations under NEPA concerning EWGs and electric transmission service.
NEPA also has provisions concerning nuclear power, alternate fuel vehicles, minimum efficiency standards, integrated resource planning, demand side management incentives, a variety of energy research projects relating to environmental measures, electric and magnetic fields, hydroelectric projects, and global warming. It authorizes one step licensing for nuclear power plants and requires EPA to issue standards for the Yucca Mountain repository site for nuclear waste (see "Nuclear Fuel Disposal" under "Environmental Control Matters"). To reduce dependence on imported oil, NEPA imposes purchase requirements for alternate fuel vehicles for federal, state, municipal and private fleets which increase over a period of years (see "Gas Operations").
In the opinion of the Company, it will be able to meet successfully the challenges of an altered business climate for electric and gas utilities and natural gas businesses. Neither the application of NEPA or FERC Order No. 636 to it and its subsidiaries, nor the development of an EWG industry, new markets and obligations for transmission services for wholesale sales of electricity, nor deregulated interstate natural gas markets is expected to have a material adverse impact on the results of its operations, its financial position or its business prospects.
Federal Energy Regulatory Commission
SCE&G and GENCO are subject to regulatory jurisdiction 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.
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: Neal Shoals (5,000 KW capability) and Stevens Creek (9,000 KW capability) 1993; Columbia (10,000 KW capability) 2000; Saluda Project (206,000 KW capability) 2007; and Parr Shoals (14,000 KW capability) and Fairfield Pumped Storage Project (512,000 KW capability) 2020. Pursuant to the provisions of the Federal Power Act as amended by the Electric Consumers Protection Act of 1986, 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 Neal Shoals license application was accepted for filing by the FERC on September 30, 1992 and the Stevens Creek application was accepted September 15, 1993. FERC has issued Notices of Authorization for Continued Project Operation for both projects until FERC has acted on SCE&G's applications for new licenses. FERC has announced its intentions to perform a Multiple-project Environmental Assessment for Neal Shoals, and a Multiple-project Environmental Impact Statement for Stevens Creek.
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 shall be paid its net investment in the project (not to exceed fair value) plus severance damages. 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. The NRC conducts semiannual reviews that identify plants that have demonstrated an excellent level of safety performance. Summer Station was recognized in both 1993 reviews as one of the top nuclear plants in the country.
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.
RATE MATTERS
The following table presents a summary of significant rate activity for the years 1990 - 1993 based on test years:
On June 7, 1993 the PSC issued an order on the Company's pending electric rate proceeding allowing an authorized return on common equity of 11.5%, resulting in a 7.4% annual increase in retail electric rates, or a projected $60.5 million annually based on a test year. These rates are to be implemented in two phases over a two-year period: phase one, effective June 1993, producing $42.0 million annually, and phase two, effective June 1994, producing $18.5 million annually, based on a test year. The Company's request, as modified, had proposed a return on equity of 12.05% and had projected annual increases of $53.0 million and $19.0 million for phases one and two, respectively.
On September 14, 1992 the PSC issued an order granting SCE&G 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 SCE&G's request to reduce the number of routes and frequency of service. The new rates were placed into effect on October 5, 1992. SCE&G has appealed the PSC's order to the Circuit Court. During oral arguments in February 1994 the Circuit Court retained jurisdiction and remanded the decision to the PSC for the limited purpose of answering questions concerning the applicable regulatory principles used by the PSC in determining these transit rates.
Since November 1, 1991 SCE&G's gas rate schedules for its residential, small commercial and small industrial customers have included a weather normalization adjustment (WNA). The WNA minimizes fluctuations in gas revenues due to abnormal weather conditions and has been approved through November 1994 subject to an annual review by the PSC. The PSC order was based on a return on common equity of 12.25%. The WNA became effective the first billing cycle in December 1991.
In May 1989 the PSC approved a volumetric and direct billing method for Pipeline Corporation to recover take-or-pay costs incurred from its interstate pipeline suppliers pursuant to FERC-approved final and non-appealable settlements. In December 1992 the Supreme Court approved Pipeline Corporation's full recovery of the take-or-pay charges imposed by its suppliers and treatment of these charges as a cost of gas. However, the Supreme Court declared the PSC-approved "purchase deficiency" methodology for recovery of these costs to be unlawful retroactive ratemaking and remanded the docket to the PSC to reconsider its recovery methodology. The Company believes that the elimination of the purchase deficiency method of recovery will affect the timing for recovery of take-or-pay charges and shift the allocations among Pipeline Corporation's customers (including SCE&G) but that all such charges should be ultimately recovered. The case has been remitted to the PSC by the Supreme Court and the Company anticipates the PSC will issue an Order authorizing full recovery of incurred take-or-pay costs on a prospective volumetric basis after the completion of accounting verification by the PSC Staff of the principal and associated interest costs.
On August 8, 1990 the PSC issued an order effective November 1, 1990, approving changes in Pipeline Corporation's gas rate design for sales for resale service and upholding the "value-of- service" method of regulation for its direct industrial service. Direct industrial customers seeking "cost-of-service" based rates initiated two separate appeals to the Circuit Court, which reversed and remanded to the PSC its August 8, 1990 order. Pipeline Corporation appealed that decision to the Supreme Court which reversed the two Circuit Court decisions and reinstated the PSC Order. The Supreme Court held that the industrial customer group's appeal was premature and failed to exhaust administrative remedies. Additionally, the Supreme Court interpreted the rate- making statutes of South Carolina to give discretion to the PSC in selecting the methodology to be used in setting rates for natural gas service.
On July 3, 1989 the PSC granted SCE&G approximately $21.9 million of a requested $27.2 million annual increase in retail electric revenues based upon an allowed return on common equity of 13.25%. The Consumer Advocate appealed the decision to the Supreme Court which, on August 31, 1992, found that the evidence in the record of that case did not support a return on common equity higher than 13.0% and remanded to the PSC a portion of its July 1989 order for a determination of the proper return on common equity consistent with the Supreme Court's opinion. On January 19, 1993 the PSC issued an order allowing a return on common equity of 13.0%, approving a refund based on the difference in rates created by the difference between the 13.0% and the 13.25% return on common equity and making other non- material adjustments to the calculation of cost-of-service. The total refund, before interest and income taxes, was approximately $14.6 million and was charged against 1992 "Electric Revenues." The refund plus interest was made during 1993.
On November 28, 1989 the PSC granted SCE&G an increase in firm retail natural gas rates, effective November 30, 1989, designed to increase annual revenues by $10.1 million, or 89.5% out of the requested increase of approximately $11.3 million. In its order the PSC authorized a 12.75% return on common equity. The Consumer Advocate appealed to the Supreme Court which on August 31, 1992 remanded the order to the PSC for redetermination of the proper amount of litigation expenses to include in the test period. In January 1993 the PSC reduced the amount of litigation expense and ordered a refund totaling approximately $163,000 which was charged against 1992 "Gas Revenues." The refund was made during 1993.
Fuel Cost Recovery Procedures
The PSC has established a fuel 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 1993 semiannual review of the fuel cost component of electric rates, the PSC voted to reduce the rate from 13.5 mills per KWH to 13.0 mills per KWH, a monthly decrease of $.50 for an average customer using 1,000 KWH per month. This reduction coincided with the retail electric rate case effective June 1993. For the October 1993 review the PSC voted to continue the rate of 13.0 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 1993 review the PSC authorized an increase in the base cost of gas from 41.963 cents per therm to 47.100 cents per therm which resulted in a monthly increase of $5.14 (including applicable taxes) based on an average of 100 therms per month on a residential bill during the heating season. In July 1990 the PSC initiated proceedings for a generic hearing on the Industrial Sales Program Rider (ISPR) for SCE&G and Pipeline Corporation. The PSC issued an order dated December 20, 1991 approving a Stipulation and Agreement signed in December 1991 by all parties involved which retained the ISPR with modifications to Pipeline Corporation's gas cost mechanisms.
ENVIRONMENTAL CONTROL MATTERS General
Federal and state authorities have imposed environmental control requirements relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. The Company is attempting to ensure that its operations meet applicable environmental regulations and standards. It is difficult to forecast the ultimate effect of environmental quality regulations upon the existing and proposed operations. Moreover, developments in these and other areas may require that equipment and facilities be modified, supplemented or replaced.
Capital Expenditures
In the years 1991 through 1993, capital expenditures for environmental control amounted to approximately $83.9 million. In addition, approximately $9.4 million, $7.9 million, and $6.5 million of environmental control expenditures were made during 1993, 1992 and 1991, 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 minimum capitalized expenditures are $44.7 million for 1994 and $320.8 million for the four-year period 1995 through 1998. These expenditures are included in the Company's construction program.
Air Quality Control
The Federal Clean Air Act of 1970 (the "1970 Act") requires that electric generating plants comply with primary and secondary ambient air quality standards with respect to certain air pollutants including particulates, sulfur oxides and nitrogen oxides and imposes economic penalties for noncompliance. This Act was amended with the passage of the Clean Air Act Amendments of 1990.
Currently, the Company uses a variety of methods to comply with the State Implementation Plan (developed pursuant to the 1970 Act), including the use of low sulfur fuel, fuel switching, reduction of load during periods when compliance cannot be met at full power, maintenance and improvement of existing electrostatic precipitators and the installation of new baghouses. SCE&G and GENCO have been able to purchase sufficient fuel meeting current sulfur standards for all of their plants. With respect to sulfur dioxide emissions, none of the Company's electric generating plants is included among the Phase I plants listed in the Clean Air Act Amendments of 1990 with a compliance date of January 1, 1995. Both companies will, however, be affected by Phase II requirements, which have a compliance date of January 1, 2000. The companies undertook a study in 1992 to determine the most cost-effective mix of control options to meet the requirements of the Clean Air Act. Such a control strategy will most likely result in requiring SCE&G and GENCO to utilize a combination of the following alternatives to meet its compliance requirements: (1) burn lower sulfur coal, (2) burn natural gas, (3) retrofit at least one coal-fired electric generating unit with a scrubber to remove sulfur dioxide and (4) purchase sulfur dioxide emission allowances to the extent necessary. In addition, the Company will install on most of its coal-fired units low nitrogen oxide burners to reduce nitrogen oxide emissions.
The Company currently estimates that air emissions control equipment will require capital expenditures of $252 million over the 1994-1998 period to retrofit existing facilities and an increased operation and maintenance cost of $31 million per year. Total capital expenditures required to meet compliance requirements through the year 2003 are anticipated to be approximately $275 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. Commensurate with renewal of these permits has been implementation of a more rigorous control program on behalf of the permitting agency. The facilities have been developing compliance plans to meet the additional parameters of control and compliance has involved updating wastewater treatment technologies. Amendments to the Clean Water Act proposed recently in Congress include several provisions which 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
As described in Note 1L 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, 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 significantly differ from the original estimates. Amounts estimated and accrued to date ($19.6 million) for site assessments and cleanup relate primarily to regulated operations; such amounts have been deferred and are being amortized and recovered through rates over a ten-year period. Estimates to date include, among other things, the costs estimated to be associated with the matters discussed in the following paragraphs. The Company and its principal subsidiary, SCE&G, each own two decommissioned manufactured gas plant sites which contain residues of by-product chemicals. The Company and SCE&G have each maintained an active review of their respective 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 18 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 investigations process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study (RI/FS) and a corresponding Scope of Work. Actual field work began November 1, 1993 after final approval and authorization was granted by EPA. SCE&G is also working with the City of Charleston to investigate potential contamination from the manufactured gas plant at the city's aquarium site.
During 1993 SCE&G settled its obligations at the Yellow Water Road Superfund Site near Jacksonville, Florida, the Spencer Transformer and Equipment Site in West Virginia and Elliott's Auto Parts in Benton, Arkansas. No further expenses are anticipated for these sites.
SCE&G has been listed as a PRP and has recorded liabilities, which are not considered material, for the Macon-Dockery waste disposal site near Rockingham, North Carolina, the Aqua-Tech Environmental, Inc. site in Greer, South Carolina and a landfill owned by Lexington County in South Carolina.
Solid Waste Control
The South Carolina Solid Waste Policy and Management Act of 1991 requires promulgation of regulations addressing specified subjects, one of which affects the management of industrial solid waste. This regulation will establish minimum criteria for industrial landfills as mandated under the Act. The proposed regulation, if adopted as a final regulation in its present form, could significantly impact SCE&G's and GENCO's engineering, design and operation of existing and future ash management facilities. Potential cost impacts could be substantial.
Nuclear Fuel Disposal
The Nuclear Waste Policy Act of 1982 (the "1982 Act") requires that the Federal 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 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 fuel storage capability until at least 2008 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 1982 Act also imposes on utilities the primary responsibility for storage of their spent nuclear fuel until the repository is available. (See "Fuel Supply" under "Electric Operations" for a discussion of spent fuel storage facilities at Summer Station.)
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.
ITEM 2.
ITEM 2. PROPERTIES
The parent company, SCANA Corporation, owns no property other than the capital stock of each of its subsidiaries. It owns all of the capital stock of each subsidiary except for the Preferred Stock of SCE&G and the capital stock of SCANA's indirect, wholly owned subsidiaries which are not material individually or in the aggregate. The assets formerly belonging to Peoples, which were owned by SCANA Corporation, were transferred to SCE&G on January 1, 1994.
Reference is made to Schedule V - Property Plant and Equipment, pages 65 through 70, for information concerning investments in utility plant and nonutility property. SCE&G's bond indentures, securing the First and Refunding Mortgage Bonds and First Mortgage Bonds issued thereunder, constitute direct mortgage liens on substantially all of its property. GENCO's Williams Station is subject to a first mortgage lien.
For a brief description of the properties of the Company's other subsidiaries, which are not significant as defined in Rule 1-02 of Regulation S-X, see Item 1., "Business."
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 590,000
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 26,000 Coit Gas/Oil Columbia, SC 1969 30,000 Parr (4) Gas/Oil Parr, SC 1970 60,000 Williams (5) Gas/Oil Goose Creek, SC 1972 49,000 Hagood Gas/Oil Charleston, SC 1991 95,000
Hydro Neal Shoals Carlisle, SC 1905 5,000 Parr Shoals Parr, SC 1914 14,000 Stevens Creek Martinez, GA 1914 9,000 Columbia Columbia, SC 1927 10,000 Saluda Irmo, SC 1930 206,000
Pumped Storage Fairfield Parr, SC 1978 512,000
Total 3,864,000
(1) Summer rating. (2) The steam unit at Williams Station, owned by GENCO, was converted from oil-fired to coal-fired operation in 1984 and, with modifications, can be reconverted to oil-fired operation should the need arise. (3) Represents SCE&G's two-thirds portion of the Summer Station. (4) 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. (5) The two gas turbines at Williams are leased and have a net capability of 49,000 KW. This lease expires on June 29, 1997.
SCE&G owns 424 substations having an aggregate transformer capacity of 18,624,780 KVA. The transmission system consists of 3,033 miles of lines and the distribution system consists of 15,186 pole miles of lines and 3,006 trench miles of underground lines.
GAS Natural Gas
SCE&G's gas system, including the system acquired by the Company from Peoples and transferred to SCE&G on January 1, 1994, consists of approximately 6,629 miles of three-inch equivalent distribution pipelines and approximately 10,864 miles of distribution mains and related service facilities.
Pipeline Corporation's gas system consists of approximately 1,735 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 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, which became operational in 1994, 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 operates oil and gas producing properties with net proven reserves in Texas, Louisiana, Mississippi, Oklahoma, California, Arkansas, Nebraska, Colorado, Kansas, Montana, North Dakota, Michigan, Illinois, New Mexico, Alabama, Wyoming and Federal Waters offshore Texas and Louisiana.
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.
TRANSIT
SCE&G owns 93 motor coaches which operate on a route system of 285 miles.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
For information regarding legal proceedings, see ITEM 1., "BUSINESS" and Note 10 of Notes to Consolidated Financial Statements appearing in Item 8., "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
CORPORATE STRUCTURE
SCANA CORPORATION A Holding Company, Owning Eleven Direct, Wholly Owned Subsidiaries
SOUTH CAROLINA MPX SYSTEMS, INC. ELECTRIC & GAS COMPANY Provides fiber optic Generates and sells electricity telecommunications, video to wholesale and retail customers, conferencing and specialized purchases, sells and transports mobile radio services. natural gas at retail and provides public transit service in Columbia SCANA DEVELOPMENT and Charleston. CORPORATION Engages in the acquisition, SOUTH CAROLINA GENERATING development, management and COMPANY, INC. sale of real estate. Owns and operates Williams Station and sells electricity PRIMESOUTH, INC. to SCE&G. Engages in power plant management and maintenance SOUTH CAROLINA FUEL services. COMPANY, INC. Acquires, owns and provides for SCANA HYDROCARBONS, INC. financing for SCE&G's nuclear and Markets natural gas as well fossil fuel requirements. as other light hydrocarbons. Owns and operates a propane SUBURBAN PROPANE GROUP, INC. pipeline and provides for Purchases, delivers and transportation and bulk sells propane. storage of propane.
SCANA CAPITAL RESOURCES, INC. SCANA PETROLEUM RESOURCES, INC. Has provided equity capital Owns and operates oil and gas for diversified investments. producing properties.
SOUTH CAROLINA PIPELINE CORPORATION Purchases, sells and transports natural gas to wholesale and direct industrial customers. Owns and operates an LNG plant for the liquefaction, regasification and storage of natural gas.
Each of the above listed companies is organized and incorporated under the laws of the State of South Carolina.
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 organization meeting, unless the Board of Directors shall otherwise determine, or unless a resignation is submitted.
Positions Held During Name Age Past Five Years Dates
L.M. Gressette, Jr. 62 Chairman of the Board, Chief Executive Officer and President 1990-present President 1989-1990
B.D. Kenyon 51 President and Chief Operating Officer, SCE&G 1990-present Senior Vice President - Division Operations, Pennsylvania Power and Light Company *-1990
C.B. Novinger 44 Senior Vice President - Administration *-present
W.B. Timmerman 47 Senior Vice President, Chief Financial Officer and Controller *-present
Max Earwood 61 President and Treasurer - South Carolina Pipeline Corporation *-present President and Treasurer - SCANA Hydrocarbons, Inc.; SCANA Petroleum Resources, Inc.; and Carolina Exploration Corporation *-present Vice President - Gas Distribution, SCE&G *-1991
K.B. Marsh 38 Vice President - Finance, Treasurer & Secretary 1992-present Vice President of Corporate Planning - SCE&G 1991 Vice President and Controller - SCE&G 1989-1991
*Indicates position held at least since March 1, 1989
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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 in Orangeburg County. Construction of the plant began in November 1992 with commercial operation expected in late 1995 or early 1996. The estimated price of the Cope plant, excluding financing costs and AFC but including an allowance for escalation, is $450 million. In addition, the transmission lines for interconnection with the Company's system are expected to cost $26 million. Until the completion of the new plant, SCE&G is contracting for additional capacity as necessary to ensure that the energy demands of its customers can be met.
As discussed in Note 2A of Notes to Consolidated Financial Statements, on June 7, 1993 the PSC issued an order granting SCE&G a 7.4% annual increase in retail electric rates to be implemented in two phases of $42.0 million annually effective June 1993 and $18.5 million annually effective June 1994, based on a test year.
The estimated primary cash requirements for 1994, excluding requirements for fuel liabilities and short-term borrowings, and the actual primary cash requirements for 1993 are as follows:
1994 1993 (Thousands of Dollars)
Property additions and construction expenditures, excluding allowance for funds used during construction (AFC) $506,010 $381,141 Acquisition of oil and gas producing properties - 122,621 Nuclear fuel expenditures 28,064 7,177 Maturing obligations, redemptions and sinking and purchase fund requirements 25,627 16,530 Total $559,701 $527,469
Approximately 28% of total cash requirements (excluding dividends) was provided from internal sources in 1993 as compared to 40% in 1992.
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. In 1993 the Company issued $60 million of such medium-term notes. The proceeds from the sales of these securities were used for the funding of nonutility subsidiary activities. At December 31, 1993 the Company had available for issuance $67.6 million under the current registration statement.
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 12 consecutive months out of the 15 months prior to the month of issuance is at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1993 the Bond Ratio was 3.70. The issuance of additional Class A Bonds is restricted also to an additional principal amount equal to 60% of unfunded net property additions (which unfunded net property additions totaled approximately $219.9 million at December 31, 1993), Class A Bonds issued on the basis of retirements of Class A Bonds (which retirement credits totaled $10.9 million at December 31, 1993), and Class A Bonds issued on the basis of cash on deposit with the Trustee.
SCE&G has placed a new bond indenture (New Mortgage) dated April 1, 1993 on substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are expected to be 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 $157 million were available for such purpose as of December 31, 1993), 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 12 consecutive months out of the 18 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, 1993 the New Bond Ratio was 5.0.
On April 29, 1993 the Securities and Exchange Commission (SEC) declared effective a registration statement for the issuance of up to $700 million of New Bonds. The following series, aggregating $600 million, have been issued under such registration statement:
On June 9, 1993, $100 million, 7 5/8% Series due June 1, 2023 to repay short-term borrowings in a like amount.
On July 1, 1993, $100 million, 6% Series due June 15, 2000; and $150 million, 7 1/8% Series due June 15, 2013; and on July 20, 1993, $150 million, 7 1/2% Series due June 15, 2023, to redeem, on July 20, 1993, $382,035,000 of First and Refunding Mortgage Bonds maturing between 1999 and 2017 and bearing interest at rates between 8% and 9 7/8% per annum.
On December 20, 1993, $100 million, 6 1/4% Series due December 15, 2003 to repay short-term borrowings in a like amount.
The following additional financing transactions have occurred since December 31, 1992:
On January 15, 1993 the Company closed on an unsecured bank loan in the principal amount of $60 million, due January 14, 1994, and used the proceeds to pay off a loan in a like amount. The interest rate is the three month LIBOR plus 30 basis points and is reset quarterly. On January 14, 1994 the Company refinanced the loan with unsecured bank loans totaling $60 million, due January 13, 1995 at interest rates between 3.875% and 3.89%.
On April 15, 1993 the Company arranged for a $15 million term loan, due April 14, 1994, to repay short-term borrowings in a like amount. The interest rate is the three month LIBOR plus 16 basis points and is reset quarterly.
On June 1, 1993 SCE&G redeemed the following amounts of First and Refunding Mortgage Bonds: $35 million, 10 1/8% Series due 2009 and $13 million, 9 7/8% Series due 2009.
On June 2, 1993 the Company entered into a $123 million 90-day bank loan (90-day bank loan) to finance the acquisition by Petroleum Resources of approximately 125 billion cubic feet equivalent of natural gas reserves through the purchase of NICOR Exploration and Production Company (NICOR).
On July 1, 1993 the Company issued $60 million of medium-term notes bearing interest at the following rates and maturing on the following dates in the following amounts: $20 million, 5.76%, due July 1, 1998; $20 million, 6.15%, due July 3, 2000; and $20 million, 6.51%, due July 1, 2003. The proceeds were used to repay a portion of the 90-day bank loan discussed above.
In early August 1993 the Company issued 1,467,000 shares of common stock with net proceeds totaling $69,345,090. The proceeds were used to repay the remainder of the 90-day bank loan discussed above and for general corporate purposes.
On September 30, 1993 Pipeline Corporation sold unsecured promissory notes totaling $25 million, 6.72% due September 30, 2013. The proceeds were used to repay short-term borrowings in a like amount.
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 12 months or less but not later than December 31, 1995. GENCO has not sought such authorization.
The Company had $175.0 million authorized lines of credit and had unused lines of credit of $148.0 million at December 31, 1993. In addition, the Company has a credit agreement for a maximum of $75 million to finance nuclear and fossil fuel inventories, with $38.2 million available at December 31, 1993.
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 12 consecutive months immediately preceding the month of issuance is 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, 1993 the Preferred Stock Ratio was 2.52.
On October 12, 1993 the Company registered with the SEC 2,000,000 additional shares of the Company's common stock to be issued and sold under the Dividend Reinvestment and Stock Purchase Plan (DRP).
During 1993 the Company issued 529,954 shares of the Company's common stock under the DRP. In addition, the Company issued 705,498 shares of its common stock pursuant to its Stock Purchase-Savings Plan (SPSP). The Company has authorized and reserved for issuance, and registered under effective registration statements, 2,065,824 and 872,420 shares of common stock pursuant to the DRP and the SPSP, respectively.
In January 1994 the Company signed an agreement to sell in 1994 substantially all of the real estate assets of SCANA Development Corporation (Development Corporation) to Liberty Properties Group, Inc. of Greenville, South Carolina for $91.5 million. Under the terms of the agreement, a portion of the sales price will be received in cash at the time of closing. The remainder of the sales price, which is related to certain projects currently under construction, will be received in cash as those projects are completed. On March 4, 1994 the Company and Liberty amended the agreement regarding the sale. Under the terms of the amended agreement certain projects currently under construction will be excluded from the transaction and the sales price will be $49.6 million. All of the sales price will be received at the time of closing. The net proceeds from the sale will be used to retire Development Corporation's debt and for general corporate purposes, including the funding of other nonutility subsidiaries' business activities. The transaction will not have a material impact on the Company's financial position or results of operations.
The Company anticipates that its 1994 cash requirements of $559.7 will be met through internally generated funds (approximately 38% excluding 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 1994 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. 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 has a compliance date of January 1, 1995 and the second, January 1, 2000. The Company meets all requirements of Phase I and therefore will not have to implement changes until compliance with Phase II requirements is necessary. The Company then will most likely meet its compliance requirements through the burning of natural gas and/or lower sulfur coal, the addition of scrubbers to coal-fired generating units, and the purchase of sulfur dioxide emission allowances. Low nitrogen oxide burners will be installed to reduce nitrogen oxide emissions.
The Company is continuing to refine a compliance plan that must be filed with the U.S. Environmental Protection Agency (EPA) by January 1, 1996. The Company currently estimates that air emissions control equipment will require capital expenditures of $252 million over the 1994-1998 period to retrofit existing facilities and an increased operation and maintenance cost of $31 million per year. To meet compliance requirements through the year 2003, the Company anticipates total capital expenditures of $275 million.
The South Carolina Solid Waste Policy and Management Act of 1991 requires promulgation of regulations addressing specified subjects, one of which affects the management of industrial solid waste. This regulation will establish minimum criteria for industrial landfills as mandated under the Act. The proposed regulation, if adopted as a final regulation in its present form, could significantly impact SCE&G's and GENCO's engineering, design and operation of existing and future ash management facilities. Potential cost impacts could be substantial.
As described in Note 1L 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, 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 significantly differ from the original estimates. Amounts estimated and accrued to date ($19.6 million) for site assessments and cleanup of regulated operations have been deferred and are being amortized and recovered through rates over a ten-year period. Estimates to date include, among other things, the costs estimated to be associated with the matters discussed in the following paragraphs.
The Company and its principal subsidiary, SCE&G, each own two decommissioned manufactured gas plant sites which contain residues of by-product chemicals. The Company and SCE&G have each maintained an active review of their respective 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 18 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 investigations process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study (RI/FS) and a corresponding Scope of Work. Actual field work began November 1, 1993 after final approval and authorization was granted by EPA. SCE&G is also working with the City of Charleston to investigate potential contamination from the manufactured gas plant at the city's aquarium site.
During 1993 SCE&G settled its obligations at the Yellow Water Road Superfund Site near Jacksonville, Florida, the Spencer Transformer and Equipment Site in West Virginia and Elliott's Auto Parts in Benton, Arkansas. No further expenses are anticipated for these sites.
SCE&G has been listed as a PRP and has recorded liabilities, which are not considered material, for the Macon-Dockery waste disposal site near Rockingham, North Carolina, the Aqua-Tech Environmental, Inc. site in Greer, South Carolina and a landfill owned by Lexington County in South Carolina.
Litigation
In January 1994 SCE&G, acting on behalf of itself and the PSA (as co-owners of Summer Station), reached a settlement with Westinghouse Electric Corporation (Westinghouse) resolving a dispute involving steam generators provided by Westinghouse to Summer Station which are defective in design, workmanship and materials. Terms of the settlement are confidential. SCE&G had filed an action in May 1990 against Westinghouse in the U.S. District Court for South Carolina; an order dismissing this suit was issued on January 12, 1994.
Regulatory Matters
On June 7, 1993 the PSC issued an order on SCE&G's pending electric rate proceeding allowing an authorized return on common equity of 11.5%, resulting in a 7.4% annual increase in retail electric rates, or a projected $60.5 million annually on a test year basis. These rates are to be implemented in two phases over a two-year period: phase one, effective June 1993, producing $42.0 million annually, and phase two, effective June 1994, producing $18.5 million annually, on a test year basis.
The Company's regulated business operations are likely to be impacted by the National Energy Policy Act (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 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.
Other
In November 1992 the Financial Accounting Standards Board issued Statement No. 112 "Employers' Accounting for Postemployment Benefits." The Statement, which is effective for calendar year 1994, establishes certain conditions for the recognition of costs of benefits to former employees after employment but before retirement. The Statement requires recognition of the obligation to provide postemployment benefits if such obligation is attributable to services previously rendered, the obligation relates to rights which vest, payment of the benefits is probable and the amount of such benefits can be reasonably estimated. The Company does not anticipate that application of this Statement will have a significant impact on 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 1991 through 1993 were as follows:
1993 1992 1991 Earnings per share $3.72 $2.84 $3.37 Percent increase (decrease) in earnings per share 31.0% (15.7%) (24.1%) Return earned on common equity (year-end) 12.6% 10.1% 13.2%
1993 Earnings per share and return on common equity increased in 1993 primarily due to a higher electric sales margin and additional nonoperating income.
1992 Earnings per share and return on common equity in 1992 decreased primarily due to the recording of an $11.1 million (after interest and income taxes) reserve against earnings related to the August 31, 1992 retail electric rate ruling from the South Carolina Supreme Court (see Note 2F of Notes to the Consolidated Financial Statements) and increases in other operating and interest expenses.
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. Both an equity and debt portion of AFC are included in nonoperating income as noncash items which have the effect of increasing reported net income. AFC represented approximately 5.8% of income before income taxes in 1993, 5.5% in 1992 and 3.9% in 1991.
In 1993 the Company's Board of Directors raised the quarterly cash dividend on common stock to 68.5 cents per share from 67 cents per share. The increase, effective with the dividend payable on April 1, 1993, raised the indicated annual dividend rate to $2.74 per share from $2.68. The Company has increased the dividend rate on its common stock in 40 of the last 41 years.
Electric Operations
Electric sales margins for 1993, 1992 and 1991 were as follows:
1993 1992 1991 (Millions of Dollars)
Electric revenues $940.1 $829.5 $867.2 Less: Fuel used in electric generation 228.7 206.2 224.9 Purchased power 13.0 7.3 9.8 Margin $698.4 $616.0 $632.5
1993 The increase in electric sales margin from 1992 to 1993 is primarilya result of increased residential and commercial KWH sales due to weather and customer growth, an increase in retail electric rates beginning in June 1993 and the recording in 1992 of a $14.6 million reserve as discussed below.
1992 The 1992 electric sales margin decreased from 1991 due to therecording of a $14.6 million reserve, before interest and income taxes, related to the August 31, 1992 ruling from the South Carolina Supreme Court (see Note 2F of Notes to Consolidated Financial Statements) and a $1.9 million billing related litigation settlement included in 1991 electric operating revenues.
Warmer weather and an increase in the number of electric customers resulted in an all-time peak demand record of 3,557 MW on July 29, 1993. The previous year's record of 3,380 MW was set on July 13, 1992.
Gas Operations
Gas sales margins for 1993, 1992 and 1991 were as follows:
1993 1992 1991 (Millions of Dollars)
Gas revenues $320.2 $305.3 $276.7 Less: Gas purchased for resale 209.7 191.6 171.9 Margin $110.5 $113.7 $104.8
1993 In 1993 the gas sales margin decreased from 1992 as a result of higher gas prices which reduced Pipeline Corporation's sales due to the competitiveness of alternative fuels. This reduction was partially offset by increases in higher margin residential and commercial sales and increased transportation volumes.
1992 The gas sales margin for 1992 increased from 1991 as a result of recoveries of $4.2 million allowed under a weather normalization adjustment which became effective the first billing cycle in December 1991; increases in residential usage due to cooler weather during 1992; and increased transportation volumes.
Other Operating Expenses and Taxes
Increases (decreases) in other operating expenses, including taxes, are presented in the following table:
Increase (Decrease) From Prior Year Classification 1993 1992 (Millions of Dollars)
Other operation and maintenance $ 9.6 $ 11.0 Depreciation and amortization 4.5 5.6 Income taxes 29.1 (16.6) Other taxes .6 4.6 Total $43.8 $ 4.6
, 1993 Other operation and maintenance expenses increased for 1993 primarily due to the implementation of Financial Accounting Standards Board Statement No. 106 (see Note 1J of Notes to Consolidated Financial Statements) pursuant to the June 1993 PSC electric rate order and the amortization of environmental expenses. The depreciation and amortization increase reflects additions to plant in service. The increase in income taxes corresponds to the increase in income and reflects the increase in the corporate tax rate from 34% to 35% retroactive to January 1, 1993.
1992 Other operation and maintenance expenses increased for 1992 primarily due to increases in administrative and general expenses, increases in nuclear regulatory fees and nuclear and transmission systems maintenance. The increase in depreciation and amortization expense reflects additions to plant in service. Income taxes decreased primarily due to the tax impact of the rate refund (see Note 2F of Notes to Consolidated Financial Statements) and to other decreases in income. Other taxes increased primarily from higher property taxes caused by property additions and increased millage rates. In addition to the above, other taxes increased due to increases in state license fees.
Other income, net of income taxes, increased approximately $14.7 million in 1993 primarily due to additional income from Petroleum Resources related to higher natural gas prices and additional income resulting from the acquisition of NICOR in June 1993.
Interest Expense
Increases (decreases) in interest expense are presented in the following table:
Increase (Decrease) From Prior Year Classification 1993 1992 (Millions of Dollars)
Interest on long-term debt, net $5.6 $4.3 Other interest expense (.1) 1.2 Total $5.5 $5.5
1993 Interest on long-term debt increased approximately $5.6 million in 1993 compared to 1992 due to the issuance of $72.4 million medium-term notes during the latter part of 1992 and $60 million medium-term notes in July 1993 to finance acquisitions of natural gas reserves and the issuance of $200 million of SCE&G's First Mortgage Bonds to finance utility construction. The resulting increases more than offset the interest savings resulting from the redemption and refinancing of $382 million of First and Refunding Mortgage Bonds with the proceeds from the issuance of $400 million of First Mortgage Bonds by SCE&G at lower interest rates.
1992 Interest on long-term debt increased approximately $4.4 million in 1992 compared to 1991 due to the issuances of $145 million and $155 million of First and Refunding Mortgage Bonds on July 24, 1991 and August 29, 1991, respectively, which more than offset the decreases in interest expense resulting from the repayment of debt and lower interest rates on remaining debt.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
Page
Independent Auditor's Report....................................... 39
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1993 and 1992... 40
Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1993, 1992 and 1991............. 42
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991............................. 43
Consolidated Statements of Capitalization as of December 31, 1993 and 1992................................... 44
Notes to Consolidated Financial Statements..................... 46
Supplemental Financial Statement Schedules:
Schedule V - Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991................. 65
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991....................... 68
Schedule X - Supplementary Income Statement Information for the years ended December 31, 1993, 1992 and 1991............................. 71
Supplemental financial statement schedules other than those listed above 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.
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, 1993 and 1992 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, 1993. Our audits also included the financial statement schedules listed in the index on page 38. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules 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, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
s/Deloitte & Touche DELOITTE & TOUCHE Columbia, South Carolina February 7, 1994
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 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 Hydrocarbons, Inc. Suburban Propane Group, Inc. SCANA Development Corporation MPX Systems, Inc. Primesouth, Inc. SCANA Capital Resources, Inc.
Investments in joint ventures in real estate are reported using the equity method of accounting. Significant intercompany balances and transactions have been eliminated in consolidation.
In January 1994 the Company signed an agreement to sell in 1994 substantially all of the real estate assets of SCANA Development Corporation to Liberty Properties Group, Inc. of Greenville, South Carolina for $91.5 million. Under the terms of the agreement, a portion of the sales price will be received in cash at the time of closing. The remainder of the sales price, which is related to certain projects currently under construction, will be received in cash as those projects are completed. The transaction will not have a material impact on results of operations.
B. System of Accounts
The accounting records of the Company's regulated subsidiaries are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and as adopted by the Public Service Commission of South Carolina (PSC).
C. Utility Plant
Utility plant is stated substantially at original cost. The costs of additions, renewals and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged, along with the cost of removal, less salvage, to accumulated depreciation. The costs of repairs, replacements and renewals of items of property determined to be less than a unit of property are charged to maintenance expense.
SCE&G, operator of the V. C. Summer Nuclear Station (Summer Station), and the South Carolina Public Service Authority (PSA) are joint owners of Summer Station in the proportions of two- thirds and one-third, respectively. The parties share the op- erating 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 $920.2 million and $916.0 million as of December 31, 1993 and 1992, respectively. Accumulated depreciation associated with SCE&G's share of Summer Station was approximately $285.3 million and $262.2 million as of December 31, 1993 and 1992, respectively. SCE&G's share of the direct expenses associated with operating Summer Station is included in the Company's "Other operation" and "Maintenance" expenses.
D. Allowance for Funds Used During Construction
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, as a component of construction cost, of 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 9.3%, 9.6% and 9.7% for 1993, 1992 and 1991, respectively. These rates do not exceed the maximum allowable rate as calculated under FERC Order No. 561. Interest on nuclear fuel in process is capitalized at the actual interest amount.
E. 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 1993, 1992 and 1991.
F. Revenue Recognition
Customers' meters are read and bills are rendered on a monthly cycle basis. Base revenue is recorded during the accounting period in which the meters are read.
Fuel costs for electric generation are collected through the fuel component in retail electric rates. The fuel component contained in electric rates is established by the PSC during semiannual fuel cost hearings. Any difference between actual fuel cost and that contained in the fuel component is deferred and included when determining the fuel cost component during the next semiannual fuel cost hearing. At December 31, 1993 and 1992 SCE&G had overcollected through the electric fuel clause component approximately $9.2 million and $17.7 million, respectively, which are included in "Deferred Credits-Other."
Customers subject to the gas cost adjustment clause are billed based on a fixed cost of gas determined by the PSC during annual gas cost recovery hearings. Any difference between actual gas cost and that contained in the rates is deferred and included when establishing gas costs during the next annual gas cost recovery hearing. At December 31, 1993 and 1992 the Company had undercollected through the gas cost recovery procedure approximately $12.0 million and $6.2 million, respectively, which are included in "Deferred Debits-Other."
G. 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:
Fair values of investments and long-term debt are based on quoted market prices for 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) and gas futures contracts 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.
9. SHORT-TERM BORROWINGS:
The Company pays fees to banks as compensation for its lines of credit. Commercial paper borrowings are for 270 days or less. Details of lines of credit and short-term borrowings at December 31, 1993, 1992 and 1991 and for the years then ended are as follows:
1993 1992 1991 (Millions of Dollars)
Authorized lines of credit at year-end $175.0 $153.9 $141.7 Unused lines of credit at year-end $148.0 $127.8 $141.6
Short-term borrowings (including commercial paper) during the year: Maximum outstanding $304.8 $143.0 $134.0 Average outstanding $117.2 $ 75.3 $ 74.3 Weighted average daily interest rates: Bank loans 3.57% 4.47% 6.32% Commercial paper 3.13% 3.69% 6.31%
Short-term borrowings outstanding at year-end: Bank loans $ 42.0 $ 41.1 $ 20.7 Weighted average interest rate 3.71% 4.49% 5.89% Commercial paper $ 1.0 - - Weighted average interest rate 3.50% - -
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 in Orangeburg County. Construction of the plant began in November 1992 and commercial operation is expected in late 1995 or early 1996. The estimated price of the Cope plant, excluding financing costs and AFC but including an allowance for escalation, is $450 million. In addition, the transmission lines for interconnection with the Company's system are expected to cost $26 million.
Under the Duke/Fluor Daniel contract SCE&G must make specified monthly minimum payments. These minimum payments do not include amounts for inflation on a portion of the contract which is subject to escalation (approximately 34% of the total contract amount). The aggregate amount of such required minimum payments remaining at December 31, 1993 is as follows (thousands of dollars):
1994 $168,152 1995 59,766 1996 5,603
Total $233,521
Through December 31, 1993 SCE&G paid $142.0 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 $9.4 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 $1.4 billion for any losses in excess of $500 million pursuant to existing primary coverages (with ANI) on 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 damages loss to any nuclear generating facilities covered by NEIL. Based on the current annual premium, this retroactive premium would not exceed $8.1 million.
To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that SCE&G's rates would not recover the cost of any purchased replacement power, SCE&G will retain the risk of loss as a self-insurer. SCE&G has no reason to anticipate a serious nuclear incident at Summer Station. If such an incident were to occur, it could have a materially adverse impact on the Company's financial position.
C. Litigation
In January 1994 SCE&G, acting on behalf of itself and the PSA (as co-owners of Summer Station), reached a settlement with Westinghouse Electric Corporation (Westinghouse) resolving a dispute involving steam generators provided by Westinghouse to Summer Station which are defective in design, workmanship and materials. Terms of the settlement are confidential. SCE&G had filed an action in May 1990 against Westinghouse in the U.S. District Court for South Carolina; an order dismissing this suit was issued on January 12, 1994.
D. Environmental
As described in Note 1L, 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 significantly differ from the original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts have been deferred and are being amortized and recovered through rates over a ten-year period.
11. SEGMENT OF BUSINESS INFORMATION:
Segment information at December 31, 1993, 1992 and 1991 and for the years then ended is as follows:
Electric Gas Transit Total (Thousands of Dollars) Operating revenues $ 940,121 $320,195 $ 3,851 $1,264,167 Operating expenses, excluding depreciation and amortization 620,291 275,984 9,737 906,012 Depreciation and amortization 97,849 14,820 175 112,844
Total operating expenses 718,140 290,804 9,912 1,018,856
Operating income (loss) $ 221,981 $ 29,391 $(6,061) 245,311
Add - Other income, net 30,076 Less - Interest charges 101,189 - Preferred stock dividends 6,217 Net income $ 167,981
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
Assets utilized for overall Company operations 997,755 Total assets $4,040,526
Electric Gas Transit Total (Thousands of Dollars) Operating revenues $ 829,477 $305,275 $ 3,623 $1,138,375 Operating expenses, excluding depreciation and amortization 554,897 256,178 9,205 820,280 Depreciation and amortization 93,978 14,174 163 108,315
Total operating expenses 648,875 270,352 9,368 928,595
Operating income (loss) $ 180,602 $ 34,923 $(5,745) 209,780
Add - Other income, net 11,883 Less - Interest charges 97,600 - Preferred stock dividends 6,473 Net income $ 117,590
Capital expenditures: Identifiable $ 234,918 $ 33,495 $ 346 $ 268,759
Utilized for overall Company operations 8,877 Total $ 277,636
Identifiable assets at December 31, 1992: Utility plant, net $2,456,691 $299,591 $ 1,240 $2,757,522 Inventories 82,717 8,155 481 91,353 Total $2,539,408 $307,746 $ 1,721 2,848,875
Assets utilized for overall Company operations 708,846 Total assets $3,557,721
Electric Gas Transit Total (Thousands of Dollars) Operating revenues $ 867,215 $ 276,742 $ 3,869 $1,147,826 Operating expenses, excluding depreciation and amortization 580,265 233,509 9,023 822,797 Depreciation and amortization 88,803 13,720 146 102,669
Total operating expenses 669,068 247,229 9,169 925,466
Operating income (loss) $ 198,147 $ 29,513 $ (5,300) 222,360
Add - Other income, net 11,655 Less - Interest charges 91,458 - Preferred stock dividends 6,706 Net income $ 135,851
Capital expenditures: Identifiable $ 205,704 $ 25,380 $ 89 $ 231,173
Utilized for overall Company operations 7,967 Total $ 239,140
Identifiable assets at December 31, 1991: Utility plant, net $2,333,877 $ 280,805 $ 1,073 $2,615,755 Inventories 83,637 7,242 476 91,355 Total $2,417,514 $ 288,047 $ 1,549 2,707,110
Assets utilized for overall Company operations 598,752 Total assets $3,305,862
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $321,840 $280,382 $359,453 $302,492 $1,264,167 Operating income (000) 63,714 45,370 84,638 51,589 245,311 Net income (000) 45,110 26,909 64,427 31,535 167,981 Earnings per weighted average share of common stock as reported 1.02 .61 1.41 .68 3.72
First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $297,414 $255,343 $305,594 $280,024 $1,138,375 Operating income (000) 56,978 40,203 64,486 48,113 209,780 Net income (000) 34,132 16,753 39,643 27,062 117,590 Earnings per weighted average share of common stock as reported .83 .41 .96 .64 2.84
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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 in Orangeburg County. Construction of the plant began in November 1992 with commercial operation expected in late 1995 or early 1996. The estimated price of the Cope plant, excluding financing costs and AFC but including an allowance for escalation, is $450 million. In addition, the transmission lines for interconnection with the Company's system are expected to cost $26 million. Until the completion of the new plant, SCE&G is contracting for additional capacity as necessary to ensure that the energy demands of its customers can be met.
As discussed in Note 2A of Notes to Consolidated Financial Statements, on June 7, 1993 the PSC issued an order granting SCE&G a 7.4% annual increase in retail electric rates to be implemented in two phases of $42.0 million annually effective June 1993 and $18.5 million annually effective June 1994, based on a test year.
The estimated primary cash requirements for 1994, excluding requirements for fuel liabilities and short-term borrowings, and the actual primary cash requirements for 1993 are as follows:
1994 1993 (Thousands of Dollars)
Property additions and construction expenditures, excluding allowance for funds used during construction (AFC) $506,010 $381,141 Acquisition of oil and gas producing properties - 122,621 Nuclear fuel expenditures 28,064 7,177 Maturing obligations, redemptions and sinking and purchase fund requirements 25,627 16,530 Total $559,701 $527,469
Approximately 28% of total cash requirements (excluding dividends) was provided from internal sources in 1993 as compared to 40% in 1992.
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. In 1993 the Company issued $60 million of such medium-term notes. The proceeds from the sales of these securities were used for the funding of nonutility subsidiary activities. At December 31, 1993 the Company had available for issuance $67.6 million under the current registration statement.
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 12 consecutive months out of the 15 months prior to the month of issuance is at least twice the annual interest requirements on all Class A Bonds to be outstanding (Bond Ratio). For the year ended December 31, 1993 the Bond Ratio was 3.70. The issuance of additional Class A Bonds is restricted also to an additional principal amount equal to 60% of unfunded net property additions (which unfunded net property additions totaled approximately $219.9 million at December 31, 1993), Class A Bonds issued on the basis of retirements of Class A Bonds (which retirement credits totaled $10.9 million at December 31, 1993), and Class A Bonds issued on the basis of cash on deposit with the Trustee.
SCE&G has placed a new bond indenture (New Mortgage) dated April 1, 1993 on substantially all of its electric properties under which its future mortgage-backed debt (New Bonds) will be issued. New Bonds are expected to be 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 $157 million were available for such purpose as of December 31, 1993), 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 12 consecutive months out of the 18 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, 1993 the New Bond Ratio was 5.0.
On April 29, 1993 the Securities and Exchange Commission (SEC) declared effective a registration statement for the issuance of up to $700 million of New Bonds. The following series, aggregating $600 million, have been issued under such registration statement:
On June 9, 1993, $100 million, 7 5/8% Series due June 1, 2023 to repay short-term borrowings in a like amount.
On July 1, 1993, $100 million, 6% Series due June 15, 2000; and $150 million, 7 1/8% Series due June 15, 2013; and on July 20, 1993, $150 million, 7 1/2% Series due June 15, 2023, to redeem, on July 20, 1993, $382,035,000 of First and Refunding Mortgage Bonds maturing between 1999 and 2017 and bearing interest at rates between 8% and 9 7/8% per annum.
On December 20, 1993, $100 million, 6 1/4% Series due December 15, 2003 to repay short-term borrowings in a like amount.
The following additional financing transactions have occurred since December 31, 1992:
On January 15, 1993 the Company closed on an unsecured bank loan in the principal amount of $60 million, due January 14, 1994, and used the proceeds to pay off a loan in a like amount. The interest rate is the three month LIBOR plus 30 basis points and is reset quarterly. On January 14, 1994 the Company refinanced the loan with unsecured bank loans totaling $60 million, due January 13, 1995 at interest rates between 3.875% and 3.89%.
On April 15, 1993 the Company arranged for a $15 million term loan, due April 14, 1994, to repay short-term borrowings in a like amount. The interest rate is the three month LIBOR plus 16 basis points and is reset quarterly.
On June 1, 1993 SCE&G redeemed the following amounts of First and Refunding Mortgage Bonds: $35 million, 10 1/8% Series due 2009 and $13 million, 9 7/8% Series due 2009.
On June 2, 1993 the Company entered into a $123 million 90-day bank loan (90-day bank loan) to finance the acquisition by Petroleum Resources of approximately 125 billion cubic feet equivalent of natural gas reserves through the purchase of NICOR Exploration and Production Company (NICOR).
On July 1, 1993 the Company issued $60 million of medium-term notes bearing interest at the following rates and maturing on the following dates in the following amounts: $20 million, 5.76%, due July 1, 1998; $20 million, 6.15%, due July 3, 2000; and $20 million, 6.51%, due July 1, 2003. The proceeds were used to repay a portion of the 90-day bank loan discussed above.
In early August 1993 the Company issued 1,467,000 shares of common stock with net proceeds totaling $69,345,090. The proceeds were used to repay the remainder of the 90-day bank loan discussed above and for general corporate purposes.
On September 30, 1993 Pipeline Corporation sold unsecured promissory notes totaling $25 million, 6.72% due September 30, 2013. The proceeds were used to repay short-term borrowings in a like amount.
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 12 months or less but not later than December 31, 1995. GENCO has not sought such authorization.
The Company had $175.0 million authorized lines of credit and had unused lines of credit of $148.0 million at December 31, 1993. In addition, the Company has a credit agreement for a maximum of $75 million to finance nuclear and fossil fuel inventories, with $38.2 million available at December 31, 1993.
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 12 consecutive months immediately preceding the month of issuance is 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, 1993 the Preferred Stock Ratio was 2.52.
On October 12, 1993 the Company registered with the SEC 2,000,000 additional shares of the Company's common stock to be issued and sold under the Dividend Reinvestment and Stock Purchase Plan (DRP).
During 1993 the Company issued 529,954 shares of the Company's common stock under the DRP. In addition, the Company issued 705,498 shares of its common stock pursuant to its Stock Purchase-Savings Plan (SPSP). The Company has authorized and reserved for issuance, and registered under effective registration statements, 2,065,824 and 872,420 shares of common stock pursuant to the DRP and the SPSP, respectively.
In January 1994 the Company signed an agreement to sell in 1994 substantially all of the real estate assets of SCANA Development Corporation (Development Corporation) to Liberty Properties Group, Inc. of Greenville, South Carolina for $91.5 million. Under the terms of the agreement, a portion of the sales price will be received in cash at the time of closing. The remainder of the sales price, which is related to certain projects currently under construction, will be received in cash as those projects are completed. On March 4, 1994 the Company and Liberty amended the agreement regarding the sale. Under the terms of the amended agreement certain projects currently under construction will be excluded from the transaction and the sales price will be $49.6 million. All of the sales price will be received at the time of closing. The net proceeds from the sale will be used to retire Development Corporation's debt and for general corporate purposes, including the funding of other nonutility subsidiaries' business activities. The transaction will not have a material impact on the Company's financial position or results of operations.
The Company anticipates that its 1994 cash requirements of $559.7 will be met through internally generated funds (approximately 38% excluding 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 1994 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. 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 has a compliance date of January 1, 1995 and the second, January 1, 2000. The Company meets all requirements of Phase I and therefore will not have to implement changes until compliance with Phase II requirements is necessary. The Company then will most likely meet its compliance requirements through the burning of natural gas and/or lower sulfur coal, the addition of scrubbers to coal-fired generating units, and the purchase of sulfur dioxide emission allowances. Low nitrogen oxide burners will be installed to reduce nitrogen oxide emissions.
The Company is continuing to refine a compliance plan that must be filed with the U.S. Environmental Protection Agency (EPA) by January 1, 1996. The Company currently estimates that air emissions control equipment will require capital expenditures of $252 million over the 1994-1998 period to retrofit existing facilities and an increased operation and maintenance cost of $31 million per year. To meet compliance requirements through the year 2003, the Company anticipates total capital expenditures of $275 million.
The South Carolina Solid Waste Policy and Management Act of 1991 requires promulgation of regulations addressing specified subjects, one of which affects the management of industrial solid waste. This regulation will establish minimum criteria for industrial landfills as mandated under the Act. The proposed regulation, if adopted as a final regulation in its present form, could significantly impact SCE&G's and GENCO's engineering, design and operation of existing and future ash management facilities. Potential cost impacts could be substantial.
As described in Note 1L 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, 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 significantly differ from the original estimates. Amounts estimated and accrued to date ($19.6 million) for site assessments and cleanup of regulated operations have been deferred and are being amortized and recovered through rates over a ten-year period. Estimates to date include, among other things, the costs estimated to be associated with the matters discussed in the following paragraphs.
The Company and its principal subsidiary, SCE&G, each own two decommissioned manufactured gas plant sites which contain residues of by-product chemicals. The Company and SCE&G have each maintained an active review of their respective 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 18 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 investigations process to be compressed significantly. The PRPs have negotiated an administrative order by consent for the conduct of a Remedial Investigation/Feasibility Study (RI/FS) and a corresponding Scope of Work. Actual field work began November 1, 1993 after final approval and authorization was granted by EPA. SCE&G is also working with the City of Charleston to investigate potential contamination from the manufactured gas plant at the city's aquarium site.
During 1993 SCE&G settled its obligations at the Yellow Water Road Superfund Site near Jacksonville, Florida, the Spencer Transformer and Equipment Site in West Virginia and Elliott's Auto Parts in Benton, Arkansas. No further expenses are anticipated for these sites.
SCE&G has been listed as a PRP and has recorded liabilities, which are not considered material, for the Macon-Dockery waste disposal site near Rockingham, North Carolina, the Aqua-Tech Environmental, Inc. site in Greer, South Carolina and a landfill owned by Lexington County in South Carolina.
Litigation
In January 1994 SCE&G, acting on behalf of itself and the PSA (as co-owners of Summer Station), reached a settlement with Westinghouse Electric Corporation (Westinghouse) resolving a dispute involving steam generators provided by Westinghouse to Summer Station which are defective in design, workmanship and materials. Terms of the settlement are confidential. SCE&G had filed an action in May 1990 against Westinghouse in the U.S. District Court for South Carolina; an order dismissing this suit was issued on January 12, 1994.
Regulatory Matters
On June 7, 1993 the PSC issued an order on SCE&G's pending electric rate proceeding allowing an authorized return on common equity of 11.5%, resulting in a 7.4% annual increase in retail electric rates, or a projected $60.5 million annually on a test year basis. These rates are to be implemented in two phases over a two-year period: phase one, effective June 1993, producing $42.0 million annually, and phase two, effective June 1994, producing $18.5 million annually, on a test year basis.
The Company's regulated business operations are likely to be impacted by the National Energy Policy Act (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 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.
Other
In November 1992 the Financial Accounting Standards Board issued Statement No. 112 "Employers' Accounting for Postemployment Benefits." The Statement, which is effective for calendar year 1994, establishes certain conditions for the recognition of costs of benefits to former employees after employment but before retirement. The Statement requires recognition of the obligation to provide postemployment benefits if such obligation is attributable to services previously rendered, the obligation relates to rights which vest, payment of the benefits is probable and the amount of such benefits can be reasonably estimated. The Company does not anticipate that application of this Statement will have a significant impact on 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 1991 through 1993 were as follows:
1993 1992 1991 Earnings per share $3.72 $2.84 $3.37 Percent increase (decrease) in earnings per share 31.0% (15.7%) (24.1%) Return earned on common equity (year-end) 12.6% 10.1% 13.2%
1993 Earnings per share and return on common equity increased in 1993 primarily due to a higher electric sales margin and additional nonoperating income.
1992 Earnings per share and return on common equity in 1992 decreased primarily due to the recording of an $11.1 million (after interest and income taxes) reserve against earnings related to the August 31, 1992 retail electric rate ruling from the South Carolina Supreme Court (see Note 2F of Notes to the Consolidated Financial Statements) and increases in other operating and interest expenses.
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. Both an equity and debt portion of AFC are included in nonoperating income as noncash items which have the effect of increasing reported net income. AFC represented approximately 5.8% of income before income taxes in 1993, 5.5% in 1992 and 3.9% in 1991.
In 1993 the Company's Board of Directors raised the quarterly cash dividend on common stock to 68.5 cents per share from 67 cents per share. The increase, effective with the dividend payable on April 1, 1993, raised the indicated annual dividend rate to $2.74 per share from $2.68. The Company has increased the dividend rate on its common stock in 40 of the last 41 years.
Electric Operations
Electric sales margins for 1993, 1992 and 1991 were as follows:
1993 1992 1991 (Millions of Dollars)
Electric revenues $940.1 $829.5 $867.2 Less: Fuel used in electric generation 228.7 206.2 224.9 Purchased power 13.0 7.3 9.8 Margin $698.4 $616.0 $632.5
1993 The increase in electric sales margin from 1992 to 1993 is primarilya result of increased residential and commercial KWH sales due to weather and customer growth, an increase in retail electric rates beginning in June 1993 and the recording in 1992 of a $14.6 million reserve as discussed below.
1992 The 1992 electric sales margin decreased from 1991 due to therecording of a $14.6 million reserve, before interest and income taxes, related to the August 31, 1992 ruling from the South Carolina Supreme Court (see Note 2F of Notes to Consolidated Financial Statements) and a $1.9 million billing related litigation settlement included in 1991 electric operating revenues.
Warmer weather and an increase in the number of electric customers resulted in an all-time peak demand record of 3,557 MW on July 29, 1993. The previous year's record of 3,380 MW was set on July 13, 1992.
Gas Operations
Gas sales margins for 1993, 1992 and 1991 were as follows:
1993 1992 1991 (Millions of Dollars)
Gas revenues $320.2 $305.3 $276.7 Less: Gas purchased for resale 209.7 191.6 171.9 Margin $110.5 $113.7 $104.8
1993 In 1993 the gas sales margin decreased from 1992 as a result of higher gas prices which reduced Pipeline Corporation's sales due to the competitiveness of alternative fuels. This reduction was partially offset by increases in higher margin residential and commercial sales and increased transportation volumes.
1992 The gas sales margin for 1992 increased from 1991 as a result of recoveries of $4.2 million allowed under a weather normalization adjustment which became effective the first billing cycle in December 1991; increases in residential usage due to cooler weather during 1992; and increased transportation volumes.
Other Operating Expenses and Taxes
Increases (decreases) in other operating expenses, including taxes, are presented in the following table:
Increase (Decrease) From Prior Year Classification 1993 1992 (Millions of Dollars)
Other operation and maintenance $ 9.6 $ 11.0 Depreciation and amortization 4.5 5.6 Income taxes 29.1 (16.6) Other taxes .6 4.6 Total $43.8 $ 4.6
, 1993 Other operation and maintenance expenses increased for 1993 primarily due to the implementation of Financial Accounting Standards Board Statement No. 106 (see Note 1J of Notes to Consolidated Financial Statements) pursuant to the June 1993 PSC electric rate order and the amortization of environmental expenses. The depreciation and amortization increase reflects additions to plant in service. The increase in income taxes corresponds to the increase in income and reflects the increase in the corporate tax rate from 34% to 35% retroactive to January 1, 1993.
1992 Other operation and maintenance expenses increased for 1992 primarily due to increases in administrative and general expenses, increases in nuclear regulatory fees and nuclear and transmission systems maintenance. The increase in depreciation and amortization expense reflects additions to plant in service. Income taxes decreased primarily due to the tax impact of the rate refund (see Note 2F of Notes to Consolidated Financial Statements) and to other decreases in income. Other taxes increased primarily from higher property taxes caused by property additions and increased millage rates. In addition to the above, other taxes increased due to increases in state license fees.
Other income, net of income taxes, increased approximately $14.7 million in 1993 primarily due to additional income from Petroleum Resources related to higher natural gas prices and additional income resulting from the acquisition of NICOR in June 1993.
Interest Expense
Increases (decreases) in interest expense are presented in the following table:
Increase (Decrease) From Prior Year Classification 1993 1992 (Millions of Dollars)
Interest on long-term debt, net $5.6 $4.3 Other interest expense (.1) 1.2 Total $5.5 $5.5
1993 Interest on long-term debt increased approximately $5.6 million in 1993 compared to 1992 due to the issuance of $72.4 million medium-term notes during the latter part of 1992 and $60 million medium-term notes in July 1993 to finance acquisitions of natural gas reserves and the issuance of $200 million of SCE&G's First Mortgage Bonds to finance utility construction. The resulting increases more than offset the interest savings resulting from the redemption and refinancing of $382 million of First and Refunding Mortgage Bonds with the proceeds from the issuance of $400 million of First Mortgage Bonds by SCE&G at lower interest rates.
1992 Interest on long-term debt increased approximately $4.4 million in 1992 compared to 1991 due to the issuances of $145 million and $155 million of First and Refunding Mortgage Bonds on July 24, 1991 and August 29, 1991, respectively, which more than offset the decreases in interest expense resulting from the repayment of debt and lower interest rates on remaining debt.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TABLE OF CONTENTS OF CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
Page
Independent Auditor's Report....................................... 39
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1993 and 1992... 40
Consolidated Statements of Income and Retained Earnings for the years ended December 31, 1993, 1992 and 1991............. 42
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991............................. 43
Consolidated Statements of Capitalization as of December 31, 1993 and 1992................................... 44
Notes to Consolidated Financial Statements..................... 46
Supplemental Financial Statement Schedules:
Schedule V - Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991................. 65
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment for the years ended December 31, 1993, 1992 and 1991....................... 68
Schedule X - Supplementary Income Statement Information for the years ended December 31, 1993, 1992 and 1991............................. 71
Supplemental financial statement schedules other than those listed above 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.
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, 1993 and 1992 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, 1993. Our audits also included the financial statement schedules listed in the index on page 38. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules 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, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
s/Deloitte & Touche DELOITTE & TOUCHE Columbia, South Carolina February 7, 1994
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 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 Hydrocarbons, Inc. Suburban Propane Group, Inc. SCANA Development Corporation MPX Systems, Inc. Primesouth, Inc. SCANA Capital Resources, Inc.
Investments in joint ventures in real estate are reported using the equity method of accounting. Significant intercompany balances and transactions have been eliminated in consolidation.
In January 1994 the Company signed an agreement to sell in 1994 substantially all of the real estate assets of SCANA Development Corporation to Liberty Properties Group, Inc. of Greenville, South Carolina for $91.5 million. Under the terms of the agreement, a portion of the sales price will be received in cash at the time of closing. The remainder of the sales price, which is related to certain projects currently under construction, will be received in cash as those projects are completed. The transaction will not have a material impact on results of operations.
B. System of Accounts
The accounting records of the Company's regulated subsidiaries are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission (FERC) and as adopted by the Public Service Commission of South Carolina (PSC).
C. Utility Plant
Utility plant is stated substantially at original cost. The costs of additions, renewals and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged, along with the cost of removal, less salvage, to accumulated depreciation. The costs of repairs, replacements and renewals of items of property determined to be less than a unit of property are charged to maintenance expense.
SCE&G, operator of the V. C. Summer Nuclear Station (Summer Station), and the South Carolina Public Service Authority (PSA) are joint owners of Summer Station in the proportions of two- thirds and one-third, respectively. The parties share the op- erating 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 $920.2 million and $916.0 million as of December 31, 1993 and 1992, respectively. Accumulated depreciation associated with SCE&G's share of Summer Station was approximately $285.3 million and $262.2 million as of December 31, 1993 and 1992, respectively. SCE&G's share of the direct expenses associated with operating Summer Station is included in the Company's "Other operation" and "Maintenance" expenses.
D. Allowance for Funds Used During Construction
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, as a component of construction cost, of 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 9.3%, 9.6% and 9.7% for 1993, 1992 and 1991, respectively. These rates do not exceed the maximum allowable rate as calculated under FERC Order No. 561. Interest on nuclear fuel in process is capitalized at the actual interest amount.
E. 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 1993, 1992 and 1991.
F. Revenue Recognition
Customers' meters are read and bills are rendered on a monthly cycle basis. Base revenue is recorded during the accounting period in which the meters are read.
Fuel costs for electric generation are collected through the fuel component in retail electric rates. The fuel component contained in electric rates is established by the PSC during semiannual fuel cost hearings. Any difference between actual fuel cost and that contained in the fuel component is deferred and included when determining the fuel cost component during the next semiannual fuel cost hearing. At December 31, 1993 and 1992 SCE&G had overcollected through the electric fuel clause component approximately $9.2 million and $17.7 million, respectively, which are included in "Deferred Credits-Other."
Customers subject to the gas cost adjustment clause are billed based on a fixed cost of gas determined by the PSC during annual gas cost recovery hearings. Any difference between actual gas cost and that contained in the rates is deferred and included when establishing gas costs during the next annual gas cost recovery hearing. At December 31, 1993 and 1992 the Company had undercollected through the gas cost recovery procedure approximately $12.0 million and $6.2 million, respectively, which are included in "Deferred Debits-Other."
G. 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:
Fair values of investments and long-term debt are based on quoted market prices for 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) and gas futures contracts 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.
9. SHORT-TERM BORROWINGS:
The Company pays fees to banks as compensation for its lines of credit. Commercial paper borrowings are for 270 days or less. Details of lines of credit and short-term borrowings at December 31, 1993, 1992 and 1991 and for the years then ended are as follows:
1993 1992 1991 (Millions of Dollars)
Authorized lines of credit at year-end $175.0 $153.9 $141.7 Unused lines of credit at year-end $148.0 $127.8 $141.6
Short-term borrowings (including commercial paper) during the year: Maximum outstanding $304.8 $143.0 $134.0 Average outstanding $117.2 $ 75.3 $ 74.3 Weighted average daily interest rates: Bank loans 3.57% 4.47% 6.32% Commercial paper 3.13% 3.69% 6.31%
Short-term borrowings outstanding at year-end: Bank loans $ 42.0 $ 41.1 $ 20.7 Weighted average interest rate 3.71% 4.49% 5.89% Commercial paper $ 1.0 - - Weighted average interest rate 3.50% - -
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 in Orangeburg County. Construction of the plant began in November 1992 and commercial operation is expected in late 1995 or early 1996. The estimated price of the Cope plant, excluding financing costs and AFC but including an allowance for escalation, is $450 million. In addition, the transmission lines for interconnection with the Company's system are expected to cost $26 million.
Under the Duke/Fluor Daniel contract SCE&G must make specified monthly minimum payments. These minimum payments do not include amounts for inflation on a portion of the contract which is subject to escalation (approximately 34% of the total contract amount). The aggregate amount of such required minimum payments remaining at December 31, 1993 is as follows (thousands of dollars):
1994 $168,152 1995 59,766 1996 5,603
Total $233,521
Through December 31, 1993 SCE&G paid $142.0 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 $9.4 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 $1.4 billion for any losses in excess of $500 million pursuant to existing primary coverages (with ANI) on 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 damages loss to any nuclear generating facilities covered by NEIL. Based on the current annual premium, this retroactive premium would not exceed $8.1 million.
To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that SCE&G's rates would not recover the cost of any purchased replacement power, SCE&G will retain the risk of loss as a self-insurer. SCE&G has no reason to anticipate a serious nuclear incident at Summer Station. If such an incident were to occur, it could have a materially adverse impact on the Company's financial position.
C. Litigation
In January 1994 SCE&G, acting on behalf of itself and the PSA (as co-owners of Summer Station), reached a settlement with Westinghouse Electric Corporation (Westinghouse) resolving a dispute involving steam generators provided by Westinghouse to Summer Station which are defective in design, workmanship and materials. Terms of the settlement are confidential. SCE&G had filed an action in May 1990 against Westinghouse in the U.S. District Court for South Carolina; an order dismissing this suit was issued on January 12, 1994.
D. Environmental
As described in Note 1L, 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 significantly differ from the original estimates. Amounts estimated and accrued to date for site assessments and cleanup relate primarily to regulated operations; such amounts have been deferred and are being amortized and recovered through rates over a ten-year period.
11. SEGMENT OF BUSINESS INFORMATION:
Segment information at December 31, 1993, 1992 and 1991 and for the years then ended is as follows:
Electric Gas Transit Total (Thousands of Dollars) Operating revenues $ 940,121 $320,195 $ 3,851 $1,264,167 Operating expenses, excluding depreciation and amortization 620,291 275,984 9,737 906,012 Depreciation and amortization 97,849 14,820 175 112,844
Total operating expenses 718,140 290,804 9,912 1,018,856
Operating income (loss) $ 221,981 $ 29,391 $(6,061) 245,311
Add - Other income, net 30,076 Less - Interest charges 101,189 - Preferred stock dividends 6,217 Net income $ 167,981
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
Assets utilized for overall Company operations 997,755 Total assets $4,040,526
Electric Gas Transit Total (Thousands of Dollars) Operating revenues $ 829,477 $305,275 $ 3,623 $1,138,375 Operating expenses, excluding depreciation and amortization 554,897 256,178 9,205 820,280 Depreciation and amortization 93,978 14,174 163 108,315
Total operating expenses 648,875 270,352 9,368 928,595
Operating income (loss) $ 180,602 $ 34,923 $(5,745) 209,780
Add - Other income, net 11,883 Less - Interest charges 97,600 - Preferred stock dividends 6,473 Net income $ 117,590
Capital expenditures: Identifiable $ 234,918 $ 33,495 $ 346 $ 268,759
Utilized for overall Company operations 8,877 Total $ 277,636
Identifiable assets at December 31, 1992: Utility plant, net $2,456,691 $299,591 $ 1,240 $2,757,522 Inventories 82,717 8,155 481 91,353 Total $2,539,408 $307,746 $ 1,721 2,848,875
Assets utilized for overall Company operations 708,846 Total assets $3,557,721
Electric Gas Transit Total (Thousands of Dollars) Operating revenues $ 867,215 $ 276,742 $ 3,869 $1,147,826 Operating expenses, excluding depreciation and amortization 580,265 233,509 9,023 822,797 Depreciation and amortization 88,803 13,720 146 102,669
Total operating expenses 669,068 247,229 9,169 925,466
Operating income (loss) $ 198,147 $ 29,513 $ (5,300) 222,360
Add - Other income, net 11,655 Less - Interest charges 91,458 - Preferred stock dividends 6,706 Net income $ 135,851
Capital expenditures: Identifiable $ 205,704 $ 25,380 $ 89 $ 231,173
Utilized for overall Company operations 7,967 Total $ 239,140
Identifiable assets at December 31, 1991: Utility plant, net $2,333,877 $ 280,805 $ 1,073 $2,615,755 Inventories 83,637 7,242 476 91,355 Total $2,417,514 $ 288,047 $ 1,549 2,707,110
Assets utilized for overall Company operations 598,752 Total assets $3,305,862
12. QUARTERLY FINANCIAL DATA (UNAUDITED):
First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $321,840 $280,382 $359,453 $302,492 $1,264,167 Operating income (000) 63,714 45,370 84,638 51,589 245,311 Net income (000) 45,110 26,909 64,427 31,535 167,981 Earnings per weighted average share of common stock as reported 1.02 .61 1.41 .68 3.72
First Second Third Fourth Quarter Quarter Quarter Quarter Annual Total operating revenues (000) $297,414 $255,343 $305,594 $280,024 $1,138,375 Operating income (000) 56,978 40,203 64,486 48,113 209,780 Net income (000) 34,132 16,753 39,643 27,062 117,590 Earnings per weighted average share of common stock as reported .83 .41 .96 .64 2.84