Attached files
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2009
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
Transition Period from to
Commission
|
Registrant,
State of Incorporation,
|
I.R.S.
Employer
|
File
Number
|
Address
and Telephone Number
|
Identification
No.
|
1-8809
|
SCANA
Corporation
|
57-0784499
|
(a
South Carolina corporation)
|
||
100
SCANA Parkway, Cayce, South Carolina 29033
|
||
(803)
217-9000
|
||
1-3375
|
South
Carolina Electric & Gas Company
|
57-0248695
|
(a
South Carolina corporation)
|
||
100
SCANA Parkway, Cayce, South Carolina 29033
|
||
(803)
217-9000
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. SCANA Corporation Yes x
No o
South Carolina Electric & Gas Company Yes x
No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). SCANA Corporation Yes o
No o South
Carolina Electric & Gas Company Yes o
No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
SCANA
Corporation
|
Large accelerated filer x
|
Accelerated filer o
|
Non-accelerated filer o
|
Smaller reporting company o
|
|||
South
Carolina Electric & Gas Company
|
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer x
|
Smaller reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
SCANA Corporation Yes o No
x South
Carolina Electric & Gas Company Yes o No x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.
Description
of
|
Shares
Outstanding
|
|
Registrant
|
Common
Stock
|
at
October 31, 2009
|
SCANA
Corporation
|
Without
Par Value
|
123,132,614
|
South
Carolina Electric & Gas Company
|
$4.50
Par Value
|
40,296,147 (a)
|
(a)
Owned beneficially and of record by SCANA
Corporation.
|
This
combined Form 10-Q is separately filed by SCANA Corporation and South Carolina
Electric & Gas Company. Information contained herein relating to any
individual company is filed by such company on its own behalf. Each company
makes no representation as to information relating to the other
company.
SEPTEMBER
30, 2009
Page
|
|||||
Cautionary Statement Regarding Forward-Looking
Information
|
3
|
||||
PART I.
FINANCIAL INFORMATION
|
|||||
|
|||||
SCANA
Corporation Financial
Section
|
4
|
||||
Item
1.
|
Financial
Statements
|
5
|
|||
Condensed
Consolidated Balance Sheets
|
5
|
||||
Condensed
Consolidated Statements of Income
|
7
|
||||
Condensed
Consolidated Statements of Cash
Flows
|
8
|
||||
Condensed
Consolidated Statements of Comprehensive Income
|
9
|
||||
Notes to Condensed Consolidated Financial
Statements
|
10
|
||||
Item
2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
23
|
|||
Quantitative
and Qualitative Disclosures About Market Risk
|
31
|
||||
Controls
and Procedures
|
32
|
||||
South
Carolina Electric & Gas Company Financial
Section
|
33
|
||||
Item
1.
|
Financial
Statements
|
34
|
|||
Condensed
Consolidated Balance Sheets
|
34
|
||||
Condensed
Consolidated Statements of Income
|
36
|
||||
Condensed
Consolidated Statements of Cash
Flows
|
37
|
||||
Condensed
Consolidated Statements of Comprehensive Income
|
38
|
||||
Notes to Condensed Consolidated Financial
Statements
|
39
|
||||
Item
2.
|
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
|
50
|
|||
Quantitative
and Qualitative Disclosures About Market Risk
|
56
|
||||
Controls
and Procedures
|
57
|
||||
PART
II. OTHER INFORMATION
|
58
|
||||
Item 1. | Legal Proceedings | 58 | |||
Exhibits
|
58
|
||||
59
|
|||||
60
|
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
Statements
included in this Quarterly Report on Form 10-Q which are not statements of
historical fact are intended to be, and are hereby identified as,
“forward-looking statements” for purposes of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements include, but are not limited
to, statements concerning key earnings drivers, customer growth,
environmental regulations and expenditures, leverage ratio, projections for
pension fund contributions, financing activities, access to sources of capital,
impacts of the adoption of new accounting rules and estimated construction and
other expenditures. In some cases, forward-looking statements can be identified
by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” or
“continue” or the negative of these terms or other similar
terminology. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties, and that actual results could differ materially from
those indicated by such forward-looking statements. Important factors
that could cause actual results to differ materially from those indicated by
such forward-looking statements include, but are not limited to, the
following:
(1) the
information is of a preliminary nature and may be subject to further and/or
continuing review and adjustment;
(2) regulatory
actions, particularly changes in rate regulation and environmental
regulations;
(3) current
and future litigation;
(4) changes
in the economy, especially in areas served by subsidiaries of SCANA Corporation
(SCANA);
(5) the
impact of competition from other energy suppliers, including competition from
alternate fuels in industrial
interruptible
markets;
(6) growth
opportunities for SCANA’s regulated and diversified subsidiaries;
(7) the
results of short- and long-term financing efforts, including future prospects
for obtaining access to
capital
markets and other sources of liquidity;
(8) changes
in SCANA’s or its subsidiaries’ accounting rules and accounting
policies;
(9) the
effects of weather, including drought, especially in areas where the generation
and transmission
facilities of
SCANA and its subsidiaries are located and in areas served by SCANA’s
subsidiaries;
(10) payment
by counterparties as and when due;
(11) the
results of efforts to license, site, construct and finance facilities for
baseload electric generation;
(12) the
availability of fuels such as coal, natural gas and enriched uranium used to
produce electricity; the
availability of
purchased power and natural gas for distribution; the level and volatility of
future market
prices
for such fuels and purchased power; and the ability to recover the costs
for such fuels and
purchased
power;
(13) performance
of SCANA’s pension plan assets;
(14) inflation;
(15) compliance
with regulations; and
(16) the
other risks and uncertainties described from time to time in the periodic
reports filed by SCANA or
South Carolina Electric & Gas Company (SCE&G) with the United
States Securities and Exchange
Commission
(SEC).
SCANA
and SCE&G disclaim any obligation to update any forward-looking
statements.
SCANA CORPORATION
FINANCIAL
SECTION
PART I. FINANCIAL
INFORMATION
ITEM
1. FINANCIAL STATEMENTS
SCANA
CORPORATION
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September
30,
|
December
31,
|
|||||||
Millions
of dollars
|
2009
|
2008
|
||||||
Assets
|
||||||||
Utility
Plant In Service
|
$
|
10,697
|
$
|
10,433
|
||||
Accumulated
Depreciation and Amortization
|
(3,296
|
)
|
(3,146
|
)
|
||||
Construction
Work in Progress
|
1,092
|
711
|
||||||
Nuclear
Fuel, Net of Accumulated Amortization
|
99
|
77
|
||||||
Acquisition
Adjustments
|
230
|
230
|
||||||
Utility
Plant, Net
|
8,822
|
8,305
|
||||||
Nonutility
Property and Investments:
|
||||||||
Nonutility property, net of accumulated depreciation of $104 and
$94
|
279
|
194
|
||||||
Assets held in trust, net-nuclear decommissioning
|
65
|
54
|
||||||
Other investments
|
70
|
68
|
||||||
Nonutility Property and Investments, Net
|
414
|
316
|
||||||
Current
Assets:
|
||||||||
Cash and cash equivalents
|
103
|
272
|
||||||
Receivables, net of allowance for uncollectible accounts of $7 and
$11
|
498
|
828
|
||||||
Inventories (at average cost):
|
||||||||
Fuel and gas supply
|
371
|
358
|
||||||
Materials and supplies
|
110
|
108
|
||||||
Emission allowances
|
11
|
15
|
||||||
Prepayments and other
|
166
|
232
|
||||||
Deferred income taxes
|
-
|
23
|
||||||
Total Current Assets
|
1,259
|
1,836
|
||||||
Deferred
Debits and Other Assets:
|
||||||||
Regulatory assets
|
1,009
|
905
|
||||||
Other
|
144
|
140
|
||||||
Total Deferred Debits and Other Assets
|
1,153
|
1,045
|
||||||
Total
|
$
|
11,648
|
$
|
11,502
|
September
30,
|
December
31,
|
|||||||
Millions
of dollars
|
2009
|
2008
|
||||||
Capitalization
and Liabilities
|
||||||||
Common
Equity
|
$
|
3,345
|
$
|
3,045
|
||||
Preferred
Stock (Not subject to purchase or sinking funds)
|
106
|
106
|
||||||
Preferred
Stock (Subject to purchase or sinking funds)
|
7
|
7
|
||||||
Long-Term
Debt, net
|
4,166
|
4,361
|
||||||
Total Capitalization
|
7,624
|
7,519
|
||||||
Current
Liabilities:
|
||||||||
Short-term borrowings
|
311
|
80
|
||||||
Current portion of long-term debt
|
30
|
144
|
||||||
Accounts payable
|
292
|
405
|
||||||
Customer deposits and customer prepayments
|
91
|
97
|
||||||
Taxes accrued
|
108
|
128
|
||||||
Interest accrued
|
69
|
69
|
||||||
Dividends declared
|
60
|
56
|
||||||
Other
|
102
|
176
|
||||||
Total Current Liabilities
|
1,063
|
1,155
|
||||||
Deferred
Credits and Other Liabilities:
|
||||||||
Deferred income taxes, net
|
1,075
|
1,009
|
||||||
Deferred investment tax credits
|
111
|
103
|
||||||
Asset retirement obligations
|
476
|
458
|
||||||
Pension and other postretirement benefits
|
273
|
261
|
||||||
Regulatory liabilities
|
889
|
838
|
||||||
Other
|
137
|
159
|
||||||
Total Deferred Credits and Other Liabilities
|
2,961
|
2,828
|
||||||
Commitments
and Contingencies (Note 7)
|
-
|
-
|
||||||
Total
|
$
|
11,648
|
$
|
11,502
|
See Notes
to Condensed Consolidated Financial Statements.
SCANA
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30,
|
September
30,
|
||||||||||||
Millions
of dollars, except per share amounts
|
2009
|
2008
|
2009
|
2008
|
|||||||||
Operating
Revenues:
|
|||||||||||||
Electric
|
$
|
615
|
$
|
671
|
$
|
1,633
|
$
|
1,735
|
|||||
Gas
- regulated
|
117
|
179
|
675
|
871
|
|||||||||
Gas
- nonregulated
|
189
|
416
|
835
|
1,412
|
|||||||||
Total Operating Revenues
|
921
|
1,266
|
3,143
|
4,018
|
|||||||||
Operating
Expenses:
|
|||||||||||||
Fuel used in electric generation
|
220
|
267
|
595
|
672
|
|||||||||
Purchased power
|
3
|
8
|
11
|
28
|
|||||||||
Gas purchased for resale
|
233
|
519
|
1,146
|
1,912
|
|||||||||
Other operation and maintenance
|
163
|
160
|
485
|
504
|
|||||||||
Depreciation and amortization
|
83
|
83
|
248
|
242
|
|||||||||
Other taxes
|
44
|
40
|
135
|
127
|
|||||||||
Total Operating Expenses
|
746
|
1,077
|
2,620
|
3,485
|
|||||||||
Operating
Income
|
175
|
189
|
523
|
533
|
|||||||||
Other
Income (Expense):
|
|||||||||||||
Other income
|
27
|
17
|
51
|
53
|
|||||||||
Other expenses
|
(10
|
)
|
(12
|
)
|
(30
|
)
|
(31
|
)
|
|||||
Interest
charges, net of allowance for borrowed funds
|
|||||||||||||
used
during construction of $7, $4, $19 and $11
|
(59
|
)
|
(56
|
)
|
(172
|
)
|
(163
|
)
|
|||||
Allowance
for equity funds used during construction
|
9
|
4
|
23
|
8
|
|||||||||
Total Other Expense
|
(33
|
)
|
(47
|
)
|
(128
|
)
|
(133
|
)
|
|||||
Income
Before Income Tax Expense and
|
|||||||||||||
Earnings
from Equity Method Investments
|
142
|
142
|
395
|
400
|
|||||||||
Income
Tax Expense
|
40
|
50
|
122
|
141
|
|||||||||
Income
Before Earnings from Equity Method Investments
|
102
|
92
|
273
|
259
|
|||||||||
Earnings
from Equity Method Investments
|
2
|
4
|
4
|
7
|
|||||||||
Net
Income
|
104
|
96
|
277
|
266
|
|||||||||
Less
Preferred Dividends of Subsidiary
|
1
|
2
|
5
|
6
|
|||||||||
Income
Available to Common Shareholders of SCANA
Corporation
|
$
|
103
|
$
|
94
|
$
|
272
|
$
|
260
|
|||||
Basic
and Diluted Earnings Per Share of Common Stock
|
$
|
.84
|
$
|
.80
|
$
|
2.23
|
$
|
2.22
|
|||||
Weighted
Average Shares Outstanding (millions)
|
122.5
|
117.1
|
121.8
|
116.8
|
|||||||||
Dividends
Declared Per Share of Common Stock
|
$
|
.47
|
$
|
.46
|
$
|
1.41
|
$
|
1.38
|
|||||
See
Notes to Condensed Consolidated Financial
Statements.
|
SCANA
CORPORATION
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine
Months Ended
|
|||||||
September
30,
|
|||||||
Millions
of dollars
|
2009
|
2008
|
|||||
Cash
Flows From Operating Activities:
|
|||||||
Net
income
|
$
|
277
|
$
|
266
|
|||
Adjustments
to reconcile net income to net cash provided from operating
activities:
|
|||||||
Excess
earnings from equity method investments, net of
distributions
|
(2
|
)
|
(3
|
)
|
|||
Deferred
income taxes, net
|
60
|
32
|
|||||
Depreciation
and amortization
|
256
|
245
|
|||||
Amortization
of nuclear fuel
|
16
|
12
|
|||||
Allowance
for equity funds used during construction
|
(23
|
)
|
(8
|
)
|
|||
Carrying
cost recovery
|
(4
|
)
|
(4
|
)
|
|||
Changes
in certain assets and liabilities:
|
|||||||
Receivables
|
330
|
52
|
|||||
Inventories
|
(57
|
)
|
(66
|
)
|
|||
Prepayments
and other
|
55
|
(46
|
)
|
||||
Other
regulatory assets
|
(108
|
)
|
42
|
||||
Regulatory
liabilities
|
12
|
(3
|
)
|
||||
Accounts
payable
|
(138
|
)
|
(64
|
)
|
|||
Taxes
accrued
|
(20
|
)
|
(54
|
)
|
|||
Interest
accrued
|
-
|
11
|
|||||
Changes
in other assets
|
(27
|
)
|
(8
|
)
|
|||
Changes
in other liabilities
|
(23
|
)
|
-
|
||||
Net
Cash Provided From Operating Activities
|
604
|
404
|
|||||
Cash
Flows From Investing Activities:
|
|||||||
Utility
property additions and construction expenditures
|
(623
|
)
|
(646
|
)
|
|||
Proceeds
from investments and sale of assets
|
30
|
18
|
|||||
Nonutility
property additions
|
(95
|
)
|
(48
|
)
|
|||
Investments | (5 | ) | - | ||||
Net
Cash Used For Investing Activities
|
(693
|
)
|
(676
|
)
|
|||
Cash
Flows From Financing Activities:
|
|||||||
Proceeds
from issuance of common stock
|
167
|
23
|
|||||
Proceeds
from issuance of long-term debt
|
285
|
1,063
|
|||||
Repayment
of long-term debt
|
(590
|
)
|
(114
|
)
|
|||
Dividends
|
(173
|
)
|
(165
|
)
|
|||
Short-term
borrowings, net
|
231
|
(547
|
)
|
||||
Net
Cash (Used For) Provided From Financing Activities
|
(80
|
)
|
260
|
||||
Net
Decrease In Cash and Cash Equivalents
|
(169
|
)
|
(12
|
)
|
|||
Cash
and Cash Equivalents, January 1
|
272
|
134
|
|||||
Cash
and Cash Equivalents, September 30
|
$
|
103
|
$
|
122
|
|||
Supplemental
Cash Flow Information:
|
|||||||
Cash
paid for - Interest (net of capitalized interest of $19 and
$11)
|
$
|
170
|
$
|
145
|
|||
- Income
taxes
|
53
|
113
|
|||||
Noncash
Investing and Financing Activities:
|
|||||||
Accrued
construction expenditures
|
111
|
42
|
See
Notes to Condensed Consolidated Financial
Statements.
|
SCANA
CORPORATION
|
||||||||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
|
||||||||||||||
(Unaudited)
|
||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||
September
30,
|
September
30,
|
|||||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
||||||||||
Net
Income
|
$
|
104
|
$
|
96
|
$
|
277
|
$
|
266
|
||||||
Other
Comprehensive Income (Loss), net of tax:
|
||||||||||||||
Unrealized
holding losses arising during period, net
|
(3
|
)
|
(35
|
)
|
(22
|
)
|
(15
|
)
|
||||||
Reclassified
to net income:
|
||||||||||||||
Gains
(losses) on cash flow hedging activities
|
11
|
-
|
54
|
(4
|
)
|
|||||||||
Amortization
of deferred employee benefit plan costs, net of
taxes
|
1
|
-
|
3
|
-
|
||||||||||
Total
Comprehensive Income
|
113
|
61
|
312
|
247
|
||||||||||
Less
Comprehensive Income Attributable to Noncontrolling
Interest
|
(1
|
)
|
(2
|
)
|
(5
|
)
|
(6
|
)
|
||||||
Comprehensive
Income Attributable to Common
Shareholders
of SCANA Corporation (1)
|
$
|
112
|
$
|
59
|
$
|
307
|
$
|
241
|
||||||
(1)
Accumulated other comprehensive loss totaled $74.3 million as of
September 30, 2009 and $108.6 million as
|
||||||||||||||
of December 31, 2008.
|
||||||||||||||
|
||||||||||||||
See
Notes to Condensed Consolidated Financial
Statements.
|
SCANA
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September
30, 2009
(Unaudited)
The
following notes should be read in conjunction with the Notes to Consolidated
Financial Statements appearing in SCANA Corporation’s (SCANA and, together with
its consolidated subsidiaries, the Company) Annual Report on Form 10-K for
the year ended December 31, 2008. These are interim financial statements, and
due to the seasonality of the Company’s business and matters that may occur
during the rest of the year, the amounts reported in the Condensed Consolidated
Statements of Income are not necessarily indicative of amounts expected
for the full year. In the opinion of management, the information
furnished herein reflects all adjustments, all of a normal recurring nature,
which are necessary for a fair statement of the results for the interim periods
reported. The Company has evaluated subsequent events through
November 4, 2009, which is the date these financial statements were
issued.
On July
1, 2009 the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (the Codification or ASC) became the single source of authoritative
accounting principles generally accepted in the United States (GAAP). Throughout
these notes, references to previous GAAP have been replaced with references to
the ASC.
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
A. Basis
of Accounting
The Company’s
cost-based, rate-regulated utilities recognize in their financial statements
certain revenues and expenses in different time periods than do enterprises that
are not rate-regulated. As a result, the Company has recorded regulatory assets
and regulatory liabilities, summarized as follows.
September
30,
|
December
31,
|
||||||
Millions
of dollars
|
2009
|
2008
|
|||||
Regulatory
Assets:
|
|||||||
Accumulated
deferred income taxes
|
$
|
171
|
$
|
171
|
|||
Under-collections
- electric fuel adjustment clause
|
65
|
-
|
|||||
Environmental
remediation costs
|
26
|
27
|
|||||
Asset
retirement obligations and related funding
|
277
|
265
|
|||||
Franchise
agreements
|
47
|
50
|
|||||
Deferred
employee benefit plan costs
|
353
|
345
|
|||||
Other
|
70
|
47
|
|||||
Total
Regulatory Assets
|
$
|
1,009
|
$
|
905
|
Regulatory
Liabilities:
|
|||||||
Accumulated
deferred income taxes
|
$
|
31
|
$
|
32
|
|||
Other
asset removal costs
|
725
|
688
|
|||||
Storm
damage reserve
|
51
|
48
|
|||||
Planned
major maintenance
|
16
|
11
|
|||||
Monetization
of bankruptcy claim
|
41
|
43
|
|||||
Other
|
25
|
16
|
|||||
Total
Regulatory Liabilities
|
$
|
889
|
$
|
838
|
Accumulated
deferred income tax liabilities arising from utility operations that have not
been included in customer rates are recorded as a regulatory asset. Accumulated
deferred income tax assets arising from deferred investment tax credits are
recorded as a regulatory liability.
Under-collections - electric
fuel adjustment clause represent amounts due from customers pursuant to the
fuel adjustment clause as approved by the Public Service Commission of
South Carolina (SCPSC) during annual hearings which are expected to be recovered
in retail electric rates during the period October 2010 through April
2012. As a part of a settlement agreement approved by the SCPSC in
April 2009, SCE&G is allowed to collect interest on the deferred balance
during the recovery period.
Environmental
remediation costs represent costs associated with the assessment and clean-up of
manufactured gas plant (MGP) sites currently or formerly owned by the Company.
Costs incurred at sites owned by South Carolina Electric & Gas Company
(SCE&G) are being recovered through rates, of which $19.3 million, net of
insurance recovery, remain to be recovered. SCE&G is authorized to amortize
$1.4 million of these costs annually. At sites owned by Public
Service Company of North Carolina, Incorporated (PSNC Energy), costs of $2.4
million are being recovered through rates over a period ending
October
2011. In
addition, management believes that estimated remaining costs of $4.4 million,
net of insurance recovery, will be recoverable through rates.
Asset
retirement obligations (ARO) and related funding represents the regulatory asset
associated with the legal obligation to decommission and dismantle V. C. Summer
Nuclear Station (Summer Station) and conditional AROs.
Franchise
agreements represent costs associated with electric and gas franchise agreements
with the cities of Charleston and Columbia, South Carolina. Based on
an SCPSC order, SCE&G began amortizing these amounts through cost of
service rates in February 2003 over approximately 20 years.
Deferred
employee benefit plan costs represent amounts of pension and other
postretirement benefit costs which were accrued as liabilities, and costs
deferred pursuant to specific regulatory orders (Note 1C), but which are
expected to be recovered through utility rates.
Other
asset removal costs represent net collections through depreciation rates of
estimated costs to be incurred for the removal of assets in the
future.
The storm
damage reserve represents an SCPSC-approved collection through SCE&G
electric rates, capped at $100 million, which can be applied to offset
incremental storm damage costs in excess of $2.5 million in a calendar year,
certain transmission and distribution insurance premiums and certain tree
trimming expenditures in excess of amounts included in base
rates. During the nine months ended September 30, 2009 and 2008,
SCE&G applied costs of $1.6 million and $3.7 million, respectively, to the
reserve.
Planned
major maintenance related to certain fossil hydro turbine/generation
equipment and nuclear refueling outages is accrued in advance of the time the
costs are incurred, as approved through specific SCPSC orders. SCE&G is
collecting $8.5 million annually, ending December 2013, through electric rates
to offset turbine maintenance expenditures. Nuclear refueling charges are
accrued during each 18-month refueling outage cycle as a component of cost of
service.
The
monetization of bankruptcy claim represents proceeds from the sale of a
bankruptcy claim which will be amortized into operating revenue through the year
2024.
The SCPSC
or the North Carolina Utilities Commission (NCUC) (collectively, state
commissions) or the United States Federal Energy Regulatory Commission (FERC)
have reviewed and approved through specific orders most of the items shown as
regulatory assets. Other regulatory assets include certain costs which have not
been approved for recovery by a state commission or by FERC. In recording these
costs as regulatory assets, management believes the costs will be allowable
under existing rate-making concepts that are embodied in rate orders received by
the Company. In addition, the Company has deferred in utility
plant in service approximately $74.2 million of unrecovered costs related to the
Lake Murray backup dam project and $70.1 million of costs related to the
installation of selective catalytic reactor (SCR) technology at its Cope
Station generating facility. See Note 7B. These costs are not
currently being recovered, but are expected to be recovered through rates in
future periods. In the future, as a result of deregulation or other
changes in the regulatory environment, the Company may no longer meet the
criteria of accounting for rate-regulated utilities, and could be required to
write off its regulatory assets and liabilities. Such an event could
have a material adverse effect on the Company’s results of operations, liquidity
or financial position in the period the write-off would be
recorded.
B. Earnings
Per Share
The Company
computes basic earnings per share by dividing net income by the weighted average
number of common shares outstanding for the period. The Company computes
diluted earnings per share using this same formula, after giving effect to
securities considered to be dilutive potential common stock. The Company uses
the treasury stock method in determining total dilutive potential common stock.
The Company has issued no securities that would have an antidilutive
effect on earnings per share.
C. Pension
and Other Postretirement Benefit Plans
Components
of net periodic benefit income or cost recorded by the Company were as
follows:
Pension
Benefits
|
Other
Postretirement Benefits
|
||||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
|||||||||
Three
months ended September 30,
|
|||||||||||||
Service
cost
|
$
|
4.1
|
$
|
3.5
|
$
|
0.6
|
$
|
0.8
|
|||||
Interest
cost
|
11.1
|
10.6
|
3.1
|
2.9
|
|||||||||
Expected
return on assets
|
(12.4
|
)
|
(19.9
|
)
|
-
|
-
|
|||||||
Prior
service cost amortization
|
-
|
1.8
|
0.2
|
0.2
|
|||||||||
Transition
obligation amortization
|
1.8
|
-
|
0.1
|
0.1
|
|||||||||
Amortization
of actuarial loss
|
6.0
|
-
|
-
|
-
|
|||||||||
Net
periodic benefit (income) cost
|
$
|
10.6
|
$
|
(4.0
|
)
|
$
|
4.0
|
$
|
4.0
|
Nine
Months ended September 30,
|
||||||||||||||
Service
cost
|
$
|
11.7
|
$
|
11.3
|
$
|
2.8
|
$
|
3.0
|
||||||
Interest
cost
|
33.6
|
32.4
|
9.2
|
9.0
|
||||||||||
Expected
return on assets
|
(38.1
|
)
|
(60.8
|
)
|
-
|
-
|
||||||||
Prior
service cost amortization
|
-
|
5.3
|
0.8
|
0.8
|
||||||||||
Transition
obligation amortization
|
5.3
|
-
|
0.5
|
0.5
|
||||||||||
Amortization
of actuarial loss
|
17.5
|
-
|
-
|
-
|
||||||||||
Net
periodic benefit (income) cost
|
$
|
30.0
|
$
|
(11.8
|
)
|
$
|
13.3
|
$
|
13.3
|
In
February 2009, SCE&G was granted accounting orders by the SCPSC to allow the
deferral until future rate filings of pension expense related to its utility
operations above that which is included in current rates. Costs
totaling $7.8 million of the $10.6 million for the three months ended September
30, 2009 have been deferred. Costs totaling $23.4 million of the
$30.0 million for the nine months ended September 30, 2009 have been
deferred.
D. New
Accounting Matters
The
Company adopted Statement of Financial Accounting Standards (SFAS) 165, codified
as ASC 855, Subsequent
Events, effective June 30, 2009. ASC 855 makes the Company’s
management responsible for subsequent-events accounting and
disclosure. The adoption of SFAS 165 did not impact the Company’s
results of operations, cash flows or financial
position.
The
Company adopted FASB Staff Position FAS 107-1 and APB 28-1, codified as ASC 825, Financial Instruments,
effective June 30, 2009. This Staff Position amended previous
guidance to require certain disclosures related to fair value in interim
financial statements. See Note 6 for the required
disclosure.
The
Company adopted SFAS 161, codified as ASC 815, Derivatives and
Hedging, in the first quarter of 2009. ASC 815 requires enhanced
disclosures about an entity’s derivative and hedging activities to include how
derivative instruments are accounted for and the effect of such activities on
the entity’s financial statements. The initial adoption of SFAS 161
did not impact the Company’s results of operations, cash flows or financial
position. See Note 5 for the required disclosure.
The
Company adopted SFAS 160, codified as ASC 810, Consolidation in the
first quarter of 2009. ASC 810 requires entities to
report noncontrolling (minority) interests in subsidiaries as
equity. The initial adoption of FAS 160 did not significantly
impact the Company’s results of operations, cash flows or financial
position.
The
Company adopted SFAS 141(R), codified as ASC 805, Business
Combinations in the first quarter of 2009. ASC
805 requires the
acquiring entity in a business combination to recognize the assets acquired and
the liabilities assumed at their fair values at the acquisition
date. ASC 805 also requires the acquiring entity to disclose all of
the information needed to evaluate and understand the nature and financial
effect of the business combination. The initial adoption of SFAS
141(R) did not
impact the Company’s results of operations, cash flows or financial
position.
FASB
Staff Position FAS 132(R-1), codified as ASC 715-20-65-2,
Compensation-Retirement Benefits, was issued on December
30, 2008. ASC 715-20-65-2 amends previous
guidance to require enhanced disclosures about an employer’s plan assets in a
defined benefit pension plan or other postretirement plan. The
required disclosures include a discussion of the inputs and evaluation
techniques used to develop fair value measurements of plan assets. In
addition, the fair value of each major category of plan assets is required to be
disclosed separately for pension plans and other postretirement benefit
plans. ASC 715-20-65-2 is effective for fiscal years ending after
December 15, 2009 and its initial adoption is not expected to affect the
Company’s results of operations, cash flows or financial position.
E. Preferred
Stock
The
Company has corrected the presentation of the preferred stock not subject to
purchase or sinking funds to present these preferred securities in a manner
consistent with temporary equity. Although the effects are not
material to previously issued balance sheets, the presentation of these amounts
has been corrected as of December 31, 2008 by presenting these $106 million of
preferred securities separately from common equity and eliminating the
“Shareholders’ Investment” section and related total. This change had no impact
on income, earnings per share, or on cash flows for any period
presented.
F. Income
Taxes
In September 2009, an income tax
uncertainty was resolved in the Company’s favor upon the receipt of a favorable
ruling in litigation of a state tax issue, which resulted in a refund of $15
million in state income taxes, plus interest. While the total of this
tax benefit that will impact the effective tax rate will be $15
million, such impact is not expected to be material in the current or
future years because, under regulatory accounting provisions, the tax benefit
recorded is being amortized into earnings over the remaining life of property
additions that gave rise to the tax benefit. No other material
changes in the status of the Company’s tax positions have occurred through
September 30, 2009.
G. Asset
Management and Supply Service Agreements
PSNC
Energy utilizes asset management and supply service agreements with
counterparties for certain natural gas storage facilities. At
September 30, 2009, such counterparties held 48% of PSNC Energy’s natural
gas inventory, with a carrying value of $32 million, through either capacity
release or agency relationships. Under the terms of the asset
management agreements, PSNC Energy receives storage asset management fees and,
in certain instances, a share of profits. No fees are received under
supply service agreements. The agreements expire at various times
through March 31, 2011.
2. RATE
AND OTHER REGULATORY MATTERS
SCE&G
Electric
SCE&G’s
rates are established using a cost of fuel component approved by the SCPSC which
may be adjusted periodically to reflect changes in the price of fuel purchased
by SCE&G. In April 2009, the SCPSC approved a settlement
agreement between SCE&G, the South Carolina Office of Regulatory Staff
(ORS), and others authorizing SCE&G to increase the fuel cost
portion of its electric rates, effective with the first billing cycle of
May 2009. As a part of the settlement, SCE&G agreed to spread the recovery
of undercollected fuel costs over a three-year period ending April 2012, as
further described in Note 1A. Due to the extended recovery period,
SCE&G is allowed to collect interest on the deferred
balance.
In July
2009, SCE&G filed with the SCPSC requests for an order pursuant to the Base
Load Review Act (the BLRA) to approve an updated construction and capital cost
schedule for the construction of two new nuclear generating units at Summer
Station. The updated schedule provides details of the construction
and capital cost schedule beyond what was proposed and included in the original
BLRA filing described below. The revised schedule does not change the
previously announced completion date for the two nuclear units or the originally
announced cost. The SCPSC has scheduled a hearing on this matter for
November 4, 2009, and is expected to issue an order in January
2010.
In June
2009, SCE&G filed a request with the SCPSC for approval of certain demand
reduction and energy efficiency programs (DSM programs). SCE&G
has requested the establishment of an annual rider to allow recovery of the
costs and lost net margin revenue associated with DSM programs along with an
incentive for investing in such programs. The SCPSC is expected to
conduct a hearing on SCE&G’s request in January 2010.
In February 2009, the SCPSC
approved SCE&G’s combined application pursuant to the BLRA, seeking a
certificate of environmental compatibility and public convenience and necessity
and for a base load review order, relating to proposed construction by SCE&G
and the South Carolina Public Service Authority (Santee Cooper) to build and
operate two new nuclear generating units at Summer Station. Under the
BLRA, the SCPSC conducted a full pre-construction prudency review of the
proposed units and the engineering, procurement and construction contract under
which they will be built. The SCPSC prudency finding is binding on all future
related rate proceedings so long as the construction proceeds in accordance with
the schedules, estimates and projections, including contingencies set forth in
the approved application. As part of its order, the SCPSC approved
the initial rate increase of $7.8 million, or 0.4%, related to recovery of the
cost of capital on project expenditures through June 30, 2008, and the revised
rates became effective for bills rendered on and after March 29,
2009. In addition, SCE&G is allowed to file revised rates with
the SCPSC each year to incorporate any incremental construction work in progress
incurred for new nuclear generation. Requested rate adjustments would
be based on SCE&G’s updated cost of debt and capital structure and on
an allowed
return on
common equity of 11%. In May 2009, two intervenors filed separate appeals
of the order with the South Carolina Supreme Court. The appeals are
pending, and SCE&G cannot predict how or when they will be
resolved. In September 2009, the SCPSC approved SCE&G’s first
annual revised rate request under the BLRA. The $22.5 million or 1.1% increase
to retail electric rates is effective for bills rendered on or after October 30,
2009.
In March
2008, SCE&G and Santee Cooper filed an application with the Nuclear
Regulatory Commission (NRC) for a combined construction and operating license
(COL). This COL application for the two new units was reviewed for
completeness by the NRC and docketed on July 31, 2008. In September
2008 the NRC issued a 30-month review schedule from the docketing date to the
issuance of the safety evaluation report which would signify satisfactory
completion of its review. Both the environmental and safety reviews
by the NRC are in progress and should support a COL issuance in
late 2011. This date would support both the project schedule and
the substantial completion dates for the two new units in 2016 and 2019,
respectively.
Gas
SCE&G
In June
2009, SCE&G filed an application with the SCPSC requesting an increase in
retail natural gas base rates of 2.53% under the terms of the Natural Gas Rate
Stabilization Act (Stabilization Act). The Stabilization Act is
designed to reduce the volatility of costs charged to customers by allowing for
more timely recovery of the costs that regulated utilities incur related to
natural gas infrastructure. In October 2009, the SCPSC approved an
increase in retail natural gas base rates of $13 million. The rate
adjustment will be implemented with the first billing cycle of November
2009.
In
October 2008, the SCPSC approved an increase in SCE&G’s retail natural gas
base rates of $3.7 million under the terms of the Stabilization
Act. The rate adjustment was effective with the first billing cycle
of November 2008.
SCE&G’s
tariffs include a purchase gas adjustment (PGA) clause that provides for the
recovery of actual gas costs incurred including costs related to hedging natural
gas purchasing activities. SCE&G's rates are calculated using a
methodology which adjusts the cost of gas monthly based on a 12-month rolling
average. In August 2008, in connection with the annual review of
the PGA and the gas purchasing policies of SCE&G, the SCPSC determined
that SCE&G’s gas costs, including all hedging transactions, were reasonable
and prudently incurred during the 12 months ended February 29,
2008. The next annual review is scheduled for November
2009.
PSNC
Energy
PSNC
Energy’s rates are established using a benchmark cost of gas approved by the
NCUC, which may be modified periodically to reflect changes in the market price
of natural gas. PSNC Energy revises its tariffs with the NCUC as necessary to
track these changes and defers any over- or under-collections of the delivered
cost of gas for subsequent rate consideration. The NCUC reviews PSNC Energy’s
gas purchasing practices annually.
In October 2009, in connection
with PSNC Energy’s 2009 Annual Prudence Review, the NCUC determined that
PSNC Energy’s gas costs, including all hedging transactions, were reasonable and
prudently incurred during the 12 months ended March 31, 2009.
In
September 2009, the NCUC approved PSNC Energy’s semi-annual rate adjustment
under the Customer Usage Tracker (CUT). The CUT allows PSNC Energy to
adjust its base rates for residential and commercial customers based on average
per customer consumption. As a result of this rate adjustment,
increases for residential and commercial customers are in effect for service
rendered on and after October 1, 2009. The previous semi-annual rate
adjustment under the CUT, which was effective for service rendered from April 1
through September 30, 2009, resulted in rate decreases.
In
October 2008, the NCUC granted PSNC Energy an annual increase in natural
gas margin revenues of approximately $9.1 million, offset by an $8.4 million
reduction in fixed gas costs, for a net annual increase in rates and charges to
customers of approximately $0.7 million. The new rates were
effective for services rendered on or after November 1, 2008.
3. LONG-TERM
DEBT AND LIQUIDITY
Long-term
Debt
In September 2009, PSNC Energy entered
into an agreement to issue and sell $100 million of ten-year unsecured
notes. PSNC Energy has until March 31, 2010 to draw funds on the
notes.
In June 2009, SCANA issued $30 million
of Floating Rate Senior Notes due June 1, 2034. This final
installment of notes, together with notes in the same series previously issued
in 2007 and 2008, represents total borrowings in the series of $110 million
principal amount. Proceeds from these notes were used to finance
capital expenditures and for general corporate purposes.
In March
2009, SCE&G issued $175 million of First Mortgage Bonds bearing an annual
interest rate of 6.05% and maturing on January 15, 2038. Proceeds
from the sale were used to repay short-term debt and for general corporate
purposes.
Substantially
all of SCE&G's and South Carolina Generating Company, Inc.’s (GENCO)
electric utility plant is pledged as collateral in connection with long-term
debt. The Company is in compliance with all debt covenants.
Liquidity
SCANA,
SCE&G (including South Carolina Fuel Company, Inc. (Fuel Company)) and PSNC
Energy had available the following committed lines of credit (LOC), and had
outstanding the following LOC advances, commercial paper, and LOC-supported
letter of credit obligations:
SCANA
|
SCE&G (a)(b)
|
PSNC Energy
(b)
|
||||||||||||||||
September
30,
|
December
31,
|
September
30,
|
December
31,
|
September
30,
|
December
31,
|
|||||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Lines
of credit:
|
||||||||||||||||||
Committed
long-term (expire December
2011)
|
||||||||||||||||||
Total
|
$
|
200
|
$
|
200
|
$
|
650
|
$
|
650
|
$
|
250
|
$
|
250
|
||||||
LOC
advances
|
-
|
15
|
75
|
285
|
-
|
156
|
||||||||||||
Weighted
average interest rate
|
-
|
%
|
2.17
|
%
|
.52
|
%
|
1.61
|
%
|
-
|
%
|
1.72
|
%
|
||||||
Outstanding
commercial paper
(270
or fewer days)
|
-
|
-
|
242
|
34
|
69
|
46
|
||||||||||||
Weighted
average interest rate
|
-
|
%
|
-
|
%
|
.36
|
%
|
5.69
|
%
|
.35
|
%
|
6.15
|
%
|
||||||
Letters
of credit supported by LOC
|
3
|
-
|
.3
|
-
|
-
|
-
|
||||||||||||
Available
|
197
|
185
|
333
|
331
|
181
|
48
|
(a) Nuclear
and fossil fuel inventories and emission allowances are financed through the
issuance by Fuel Company of
LOC advances or short-term commercial paper.
(b) SCE&G,
Fuel Company and PSNC Energy may issue commercial paper in the amounts of
up to $350
million, $250
million and $250 million, respectively.
The
committed long-term facilities are revolving lines of credit under credit
agreements with a syndicate of banks. Wachovia Bank, National
Association and Bank of America, N.A. each provide 14.3% of the aggregate $1.1
billion credit facilities, Branch Banking and Trust Company, UBS Loan Finance
LLC, Morgan Stanley Bank, and Credit Suisse, each provide 10.9%, and The Bank of
New York and Mizuho Corporate Bank, Ltd each provide 9.1%. Four other
banks provide the remaining 9.6%. These bank credit facilities
support the issuance of commercial paper by SCE&G (including Fuel Company)
and PSNC Energy. When the commercial paper markets are dislocated
(due to either price or availability constraints), the credit facilities are
available to support the borrowing needs of SCE&G (including Fuel Company)
and PSNC Energy. In addition, a portion of the credit facilities supports
SCANA’s borrowing needs.
4. COMMON
EQUITY
On
January 7, 2009, SCANA closed on the sale of 2.875 million shares of common
stock at $35.50 per share. Net proceeds of $100.5 million were used to finance
capital expenditures, including the construction of new nuclear units, and for
general corporate purposes. In addition, SCANA issued common stock valued
at $68.0 million (when issued) during the nine months ended September 30, 2009
through various compensation and dividend reinvestment plans.
5. DERIVATIVE
FINANCIAL INSTRUMENTS
The
Company recognizes all derivative instruments as either assets or liabilities in
the statement of financial position and measures those instruments at fair
value. The Company recognizes changes in the fair value of derivative
instruments either in earnings or as a component of other comprehensive income
(loss), depending upon the intended use of the derivative and the resulting
designation. The fair value of derivative instruments is determined by reference
to quoted market prices of listed contracts, published quotations or, for
interest rate swaps, discounted cashflow models with independently sourced
data.
Policies and
procedures and risk limits are established to control the level of market,
credit, liquidity and operational and administrative risks assumed by the
Company. SCANA's Board of Directors has delegated to a Risk Management Committee
the authority to set risk limits, establish policies and procedures for risk
management and measurement, and oversee and review the risk management process
and infrastructure. The Risk Management Committee, which is comprised of certain
officers, including the
Company's
Risk Management Officer and senior officers, apprises the Board of Directors
with regard to the management of risk and brings to the Board's attention any
areas of concern. Written policies define the physical and financial
transactions that are approved, as well as the authorization requirements and
limits for transactions.
Commodity
Derivatives
The
Company uses derivative instruments to hedge forward purchases and sales of
natural gas, which create market risks of different types. Instruments
designated as cash flow hedges are used to hedge risks associated with fixed
price obligations in a volatile market and risks associated with price
differentials at different delivery locations. Instruments designated as
fair value hedges are used to mitigate exposure to fluctuating market prices
created by fixed prices of stored natural gas. The basic types of financial
instruments utilized are exchange-traded instruments, such as New York
Mercantile Exchange (NYMEX) futures contracts or options, and over-the-counter
instruments such as options and swaps, which are typically offered by energy and
financial institutions.
The
Company’s regulated gas operations (SCE&G and PSNC Energy) hedge natural gas
purchasing activities using over-the-counter options and swaps and NYMEX futures
and options. SCE&G’s tariffs include a PGA that provides for the recovery of
actual gas costs incurred. The SCPSC has ruled that the results of these hedging
activities are to be included in the PGA. As such, the cost of derivatives and
gains and losses on such derivatives utilized to hedge gas purchasing activities
are recoverable through the weighted average cost of gas calculation. The
offset to the change in fair value of these derivatives is recorded as a
regulatory asset or liability. PSNC Energy’s tariffs also include a provision
for the recovery of actual gas costs incurred. PSNC Energy records premiums,
transaction fees, margin requirements and any realized gains or losses from
its hedging program in deferred accounts as a regulatory asset or liability for
the over- or under-recovery of gas costs. These derivative financial
instruments utilized by the Company’s regulated gas operations are not
designated as hedges.
The
unrealized gains and losses on qualifying cash flow hedges of nonregulated
operations are deferred in other comprehensive income. When the hedged
transactions affect earnings, the previously deferred gains and losses are
reclassified from other comprehensive income to cost of gas. The
effects of gains or losses resulting from these hedging activities are either
offset by the recording of the related hedged transactions or are included in
gas sales pricing decisions made by the business unit.
As an
accommodation to certain customers, SCANA Energy Marketing, Inc. (SEMI), as part
of its energy management services, offers fixed price supply contracts which are
accounted for as derivatives. These sales contracts are offset by the purchase
of supply futures and swaps which are also accounted for as
derivatives.
Interest
Rate Swaps
The
Company uses interest rate swaps to manage interest rate risk on certain debt
issuances. These swaps are classified as either fair value hedges or cash
flow hedges.
The
Company uses swaps to synthetically convert fixed rate debt to variable rate
debt. These swaps are designated as fair value hedges. Some of these
swaps were terminated prior to maturity of the underlying debt
instruments. The gains on these swaps, which were terminated at
various times prior to 2006, are being amortized over the life of the debt
they hedged.
The
Company also uses swaps to synthetically convert variable rate debt to fixed
rate debt. In addition, in anticipation of the issuance of debt, the
Company may use treasury rate lock or forward starting swap agreements. These
arrangements are designated as cash flow hedges. The effective
portions of changes in fair value and payments made or received upon termination
of such agreements for regulated subsidiaries are recorded in regulatory assets
or regulatory liabilities, and if for the holding company or nonregulated
subsidiaries, are recorded in other comprehensive income. Ineffective
portions are recognized in income.
The
effective portion of settlement payments made or received upon termination are
amortized to interest expense over the term of the underlying debt and are
classified as a financing activity in the consolidated statements of cash
flows.
Quantitative
Disclosures Related to Derivatives
At
September 30, 2009, the Company was party to natural gas derivative contracts
outstanding in the following quantities:
Commodity
and Other Energy Management Contracts (in dekatherms)
|
||||
Hedge
designation
|
Gas
Distribution
|
Retail
Gas Marketing
|
Energy
Marketing
|
Total
|
Cash
flow
|
-
|
8,008,850
|
8,586,806
|
16,595,656
|
Not
designated (a)
|
5,799,000
|
800,000
|
31,139,198
|
37,738,198
|
Total
(a)
|
5,799,000
|
8,808,850
|
39,726,004
|
54,333,854
|
(a) Includes
an aggregate 14,240,162 dekatherms related to basis swap contracts in Retail Gas
Marketing and Energy Marketing.
At
September 30, 2009, the Company was party to interest rate swaps designated
as fair value hedges with an aggregate notional amount of $9.6 million and was
party to interest rate swaps designated as cash flow hedges with an aggregate
notional amount of $331.4 million.
Fair
Values of Derivative Instruments
|
||||||||||
Asset
Derivatives
|
Liability
Derivatives
|
|||||||||
As
of September 30, 2009
|
Balance
Sheet
|
Fair
|
Balance
Sheet
|
Fair
|
||||||
Millions
of dollars
|
Location (b)
|
Value
|
Location (b)
|
Value
|
||||||
Derivatives
designated as hedging instruments
|
||||||||||
Interest
rate contracts
|
Other
deferred debits
|
$
|
4
|
Other
current liabilities
|
$
|
9
|
||||
Other
deferred credits
|
21
|
|||||||||
Commodity
contracts
|
Other
current liabilities
|
3
|
Prepayments
and other
|
1
|
||||||
Other
current liabilities
|
12
|
|||||||||
Other
deferred credits
|
2
|
|||||||||
Total
|
$
|
7
|
$
|
45
|
Derivatives
not designated as
|
||||||||||
hedging
instruments
|
||||||||||
Commodity
contracts
|
Prepayments
and other
|
$
|
3
|
Accounts
receivable
|
$
|
1
|
||||
Other
current liabilities
|
2
|
|||||||||
Energy management
contracts
|
Prepayments
and other
|
3
|
Prepayments
and other
|
2
|
||||||
Other
current liabilities
|
2
|
Other
current liabilities
|
3
|
|||||||
Total
|
$
|
8
|
$
|
8
|
(b)
Asset derivatives represent unrealized gains to the Company, and
liability derivatives represent unrealized losses. In
the
Company’s condensed consolidated balance sheet, unrealized gain and loss
positions with the same counterparty are reported as
either a net asset or liability.
The
effect of derivative instruments on the statements of income for the three and
nine months ended September 30, 2009 is as follows:
Derivatives
in Fair Value Hedging Relationships
The
Company’s interest rate swaps designated as fair value hedges, including the
amortization of gains on those terminated prior to 2006 discussed above,
resulted in reductions to interest expense of $1.3 million and $4.0 million for
the three and nine months ended September 30, 2009, respectively.
Derivatives
in Cash Flow Hedging Relationships
Gain
or (Loss) Deferred
|
Gain
or (Loss) Reclassified from
|
||||||||
Derivatives
in Cash Flow
|
in
Regulatory Accounts
|
Deferred
Accounts into Income
|
|||||||
Hedging
Relationships
|
(Effective
Portion)
|
(Effective
Portion)
|
|||||||
Millions
of dollars
|
2009
|
Location
|
Amount
|
||||||
Third
Quarter
|
|||||||||
Interest
rate contracts
|
$
|
(11
|
)
|
Interest
expense
|
$
|
(1
|
)
|
||
Total
|
$
|
(11
|
)
|
$
|
(1
|
)
|
Year
to Date
|
|||||||||
Interest
rate contracts
|
$
|
39
|
Interest
expense
|
$
|
(2
|
)
|
|||
Total
|
$
|
39
|
$
|
(2
|
)
|
Gain
or (Loss)
|
Gain
or (Loss) Reclassified from
|
||||||||
Derivatives
in Cash Flow
|
Recognized
in OCI, net of tax
|
Accumulated
OCI into Income,
|
|||||||
Hedging
Relationships
|
(Effective
Portion)
|
net
of tax (Effective Portion)
|
|||||||
Millions
of dollars
|
2009
|
Location
|
Amount
|
||||||
Third
Quarter
|
|||||||||
Interest
rate contracts
|
$
|
(3
|
)
|
Interest
expense
|
$
|
(1
|
)
|
||
Commodity
contracts
|
(3
|
)
|
Gas
purchased for resale
|
(12
|
)
|
||||
Total
|
$
|
(6
|
)
|
$
|
(13
|
)
|
Year
to Date
|
|||||||||
Interest
rate contracts
|
$
|
6
|
Interest
expense
|
$
|
(2
|
)
|
|||
Commodity
contracts
|
(32
|
)
|
Gas
purchased for resale
|
(54
|
)
|
||||
Total
|
$
|
(26
|
)
|
$
|
(56
|
)
|
As of
September 30, 2009, the Company expects that during the next 12 months
reclassifications from accumulated other comprehensive loss to earnings arising
from cash flow hedges will include approximately $10.2 million as an increase to
gas cost and approximately $2 million as an increase to interest
expense, assuming natural gas and financial markets remain at their current
levels. As of September 30, 2009, all of the Company’s commodity cash
flow hedges settle by their terms before the end of 2013.
Derivatives
Not Designated as
|
||||||
Hedging
Instruments
|
Gain
or (Loss) Recognized in Income
|
|||||
Millions
of dollars
|
Location
|
Amount
|
||||
Third
Quarter
|
||||||
Commodity
contracts
|
Gas
purchased for resale
|
$
|
(6
|
)
|
||
Other
energy management contracts
|
Gas
purchased for resale
|
(1
|
)
|
|||
Total
|
$
|
(7
|
)
|
Year
to Date
|
||||||
Commodity
contracts
|
Gas
purchased for resale
|
$
|
(12
|
)
|
||
Other
energy management contracts
|
Gas
purchased for resale
|
(1
|
)
|
|||
Total
|
$
|
(13
|
)
|
Hedge
Ineffectiveness
Other
gains (losses) recognized in income representing interest rate hedge
ineffectiveness were $(0.8) million and $1.2 million, net of tax, for the three
and nine months ended September 30, 2009, respectively. These amounts
are recorded within interest expense on the statement of income.
Credit
Risk Considerations
Certain
of the Company’s derivative instruments contain contingent provisions that
require the Company to provide collateral upon the occurrence of specific
events, primarily credit downgrades. As of September 30, 2009, the Company has
posted $16.7 million of collateral related to derivatives with contingent
provisions that are in a net liability position. If all of the contingent
features underlying these instruments were fully triggered as of September 30,
2009, the Company would be required to post an additional $21.3 million of
collateral to its counterparties. The aggregate fair value of all derivative
instruments with contingent provisions that are in a net liability position as
of September 30, 2009, is $38.0 million.
6. FAIR
VALUE MEASUREMENTS, INCLUDING DERIVATIVES
The
Company values available for sale securities using quoted prices from a national
stock exchange, such as the NASDAQ, where the securities are actively
traded. For commodity derivative assets and liabilities, the Company
uses unadjusted NYMEX prices to determine fair value, and considers such
measures of fair value to be Level 1 for exchange traded instruments and Level 2
for over-the-counter instruments. The Company’s interest rate swap
agreements are valued using discounted cashflow models with independently
sourced data. Fair value measurements, and the level within the fair
value hierarchy in
which the measurements fall, were as follows:
Fair
Value Measurements Using
|
|||||||
Quoted
Prices in Active
|
Significant
Other
|
||||||
Markets
for Identical Assets
|
Observable
Inputs
|
||||||
Millions
of dollars
|
(Level
1)
|
(Level
2)
|
|||||
As
of September 30, 2009
|
|||||||
Assets
- Available for sale securities
|
$
|
3
|
$
|
-
|
|||
Assets
- Derivative instruments
|
3
|
13
|
|||||
Liabilities
- Derivative instruments
|
1
|
52
|
|||||
As
of December 31, 2008
|
|||||||
Assets
- Available for sale securities
|
$
|
2
|
$
|
-
|
|||
Assets
- Derivative instruments
|
9
|
26
|
|||||
Liabilities
- Derivative instruments
|
2
|
138
|
There
were no fair value measurements based on significant unobservable inputs (Level
3) for either date presented.
The
financial instruments for which the carrying amount may not equal estimated fair
value at September 30, 2009 and December 31, 2008 were as
follows:
September
30, 2009
|
December
31, 2008
|
|||||||||||||
Millions
of dollars
|
Carrying
Amount
|
Estimated
Fair
Value
|
Carrying
Amount
|
Estimated
Fair
Value
|
||||||||||
Long-term
debt
|
$
|
4,195.5
|
$
|
4,533.1
|
$
|
4,505.6
|
$
|
4,591.7
|
||||||
Preferred
stock (not subject to purchase or sinking funds)
|
106.3
|
103.6
|
106.3
|
89.3
|
||||||||||
Preferred
stock (subject to purchase or sinking funds)
|
7.1
|
6.6
|
7.5
|
7.5
|
Fair
values of long-term debt are based on quoted market prices of the instruments or
similar instruments. For debt instruments for which no quoted market prices are
available, fair values are based on net present value calculations. Carrying
values reflect the fair values of interest rate swaps based on settlement values
obtained from counterparties. Early settlement of long-term debt may not be
possible or may not be considered prudent.
The fair
value of preferred stock is estimated using market quotes.
Potential
taxes and other expenses that would be incurred in an actual sale or settlement
have not been considered.
7. COMMITMENTS
AND CONTINGENCIES
Commitments
and contingencies at September 30, 2009 include the following:
A. Nuclear
Insurance
The
Price-Anderson Indemnification Act deals with public liability for a nuclear
incident and establishes the liability limit for third-party claims associated
with any nuclear incident at $12.5 billion. Each reactor licensee is
currently liable for up to $117.5 million per reactor owned by such licensee for
each nuclear incident occurring at any reactor in the United States, provided
that not more than $17.5 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 $78.3 million per incident, but not more
than $11.7 million per year.
SCE&G
currently maintains policies (for itself and on behalf of Santee Cooper, a
one-third owner of Summer Station) with Nuclear Electric Insurance
Limited. The policies, covering the nuclear facility for property damage,
excess property damage and outage costs, permit retrospective assessments under
certain conditions to cover insurer’s losses. Based on the current annual
premium, SCE&G’s portion of the retrospective premium assessment would not
exceed $14.2 million.
To the
extent that insurable claims for property damage, decontamination, repair and
replacement and other costs and expenses, including replacement power, 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.
However,
if such an incident were to occur, it would have a material adverse impact on
the Company’s results of operations, cash flows and financial
position.
B. Environmental
SCE&G
The
United States Environmental Protection Agency (EPA) issued a final rule in 2005
known as the Clean Air Interstate Rule (CAIR). CAIR requires the District of
Columbia and 28 states, including South Carolina, to reduce nitrogen oxide and
sulfur dioxide emissions in order to attain mandated state
levels. CAIR set emission limits to be met in two phases beginning in
2009 and 2015, respectively, for nitrogen oxide and beginning in 2010 and 2015,
respectively, for sulfur dioxide. Numerous states, environmental
organizations, industry groups and individual companies challenged the rule,
seeking a change in the method CAIR used to allocate sulfur dioxide emission
allowances. On December 23, 2008, the United States Court of Appeals for
the District of Columbia Circuit remanded the rule but did not vacate
it. Prior to the Court of Appeals’ decision, SCE&G and GENCO had
determined that additional air quality controls would be needed to meet the CAIR
requirements. SCE&G has completed the installation of SCR
technology at Cope Station for nitrogen oxide reduction and SCE&G and GENCO
are installing wet limestone scrubbers at Wateree and Williams Stations for
sulfur dioxide reduction. The Company expects to incur capital
expenditures totaling approximately $559 million through 2010 for
these scrubber projects. The Company cannot predict when the EPA will
issue a revised rule or what impact the rule will have on SCE&G and
GENCO. Any costs incurred to comply with this rule or other rules
issued by the EPA in the future are expected to be recoverable through
rates.
On April
17, 2009 the EPA issued a proposed finding that atmospheric concentrations of
greenhouse gasses endanger public health and welfare within the meaning of
Section 202(a) of the Clean Air Act. The proposed finding, as finalized,
enables the EPA to regulate greenhouse gas emissions under the Clean Air
Act. On September 30, 2009, the EPA issued a proposed rule that would
require large facilities emitting over 25,000 tons of greenhouse gases (GHG) a
year (such as SCE&G) to obtain permits demonstrating that they are using the
best practices and technologies to minimize GHG emissions. The
Company expects that any costs incurred to comply with greenhouse gas emission
requirements will be recoverable through rates.
SCE&G
maintains an environmental assessment program to identify and evaluate its
current and former operations sites that could require environmental clean-up.
As site assessments are initiated, estimates are made of the amount of
expenditures, if any, deemed necessary to investigate and remediate each site.
These estimates are refined as additional information becomes available;
therefore, actual expenditures could differ significantly from the original
estimates. Amounts estimated and accrued to date for site assessments and
clean-up relate solely to regulated operations. SCE&G defers site
assessment and cleanup costs and recovers them through rates (see Note
1).
SCE&G
is responsible for four decommissioned MGP sites in South
Carolina which contain residues of by-product chemicals. These
sites are in various stages of investigation, remediation and monitoring under
work plans approved by the South Carolina Department of Health and Environmental
Control. SCE&G anticipates that major remediation activities at
these sites will continue until 2012 and will cost an additional $9.3
million. In addition, the National Park Service of the Department of
the Interior made an initial demand to SCE&G for payment of
$9.1 million for certain costs and damages relating to the MGP site in
Charleston, South Carolina. SCE&G expects to recover any cost arising from
the remediation of these four sites, net of insurance recovery,
through
rates. At September 30, 2009, deferred amounts, net of amounts
previously recovered through rates and insurance settlements, totaled $19.3
million.
PSNC
Energy
PSNC
Energy is responsible for environmental clean-up at five sites in North Carolina
on which MGP residuals are present or suspected. PSNC Energy's actual
remediation costs for these sites will depend on a number of factors, such as
actual site conditions, third-party claims and recoveries from other potentially
responsible parties. PSNC Energy has recorded a liability and associated
regulatory asset of $4.4 million, which reflects its estimated remaining
liability at September 30, 2009. PSNC Energy expects to recover through
rates any costs, net of insurance recovery, allocable to PSNC Energy arising
from the remediation of these sites.
The
Company is also engaged in various other environmental matters incidental
to its business operations which management anticipates will be resolved without
a material adverse impact on the Company’s results of operations, cash flows or
financial condition.
C. Claims
and Litigation
In
May 2004, a purported class action lawsuit styled as Douglas E. Gressette,
individually and on behalf of other persons similarly situated v. South Carolina
Electric & Gas Company and SCANA Corporation was filed in South
Carolina's Circuit Court of Common Pleas for the Ninth Judicial Circuit. The
plaintiff alleges that SCANA and SCE&G made improper use of certain
easements and rights-of-way by allowing fiber optic communication lines and/or
wireless communication equipment to transmit communications other than SCANA’s
and SCE&G’s electricity-related internal communications. The plaintiff
asserted causes of action for unjust enrichment, trespass, injunction and
declaratory judgment, but did not assert a specific dollar amount for the
claims. SCANA and SCE&G believe their actions are consistent with governing
law and the applicable documents granting easements and rights-of-way. In June
2007, the Circuit Court issued a ruling that limits the plaintiff’s purported
class to owners of easements situated in Charleston County, South
Carolina. In February 2008 the Circuit Court issued an
order to conditionally certify the class, which remains limited to easements in
Charleston County. In July 2008, the plaintiff’s motion to add SCANA
Communications, Inc. (SCI) to the lawsuit as an additional defendant was
granted. Trial is not anticipated before the summer
of 2010. SCANA, SCI and SCE&G will continue to mount a
vigorous defense and believe that the resolution of these claims will not have a
material adverse impact on their results of operations, cash flows or financial
condition.
The
Company is also engaged in various other claims and litigation incidental to its
business operations which management anticipates will be resolved without a
material adverse impact on the Company’s results of operations, cash flows or
financial condition.
D. Nuclear
Generation
In May
2008, SCE&G and Santee Cooper announced that they had entered into a
contractual agreement for the design and construction of two 1,117-megawatt
nuclear electric generation units at the site of Summer
Station. SCE&G and Santee Cooper will be joint owners and share
operating costs and generation output of the two additional units, with
SCE&G responsible for 55 percent of the cost and receiving 55 percent of the
output, and Santee Cooper responsible for and receiving the remaining 45
percent. Assuming timely receipt of federal and state approvals and
construction proceeding as scheduled, the first unit is expected to be completed
and in service in 2016, the second in 2019. SCE&G’s share of the
estimated cash outlays (future value) totals $6.5 billion for plant costs and
related transmission infrastructure costs, and is projected based on historical
one-year and five-year escalation rates as required by the SCPSC.
8. SEGMENT
OF BUSINESS INFORMATION
The
Company’s reportable segments are listed in the following table. The Company
uses operating income to measure profitability for its regulated operations;
therefore, net income is not allocated to the Electric Operations, Gas
Distribution and Gas Transmission segments. The Company uses income available to
common shareholders to measure profitability for its Retail Gas Marketing and
Energy Marketing segments. Gas Distribution is comprised of the local
distribution operations of SCE&G and PSNC Energy which meet the criteria for
aggregation. All Other includes equity method investments and other
nonreportable segments.
External
|
Intersegment
|
Operating
|
Income
Available to
|
Segment
|
||||||||||
Millions
of dollars
|
Revenue
|
Revenue
|
Income
|
Common
Shareholders
|
Assets
|
|||||||||
Three
Months Ended September 30, 2009
|
||||||||||||||
Electric
Operations
|
$
|
615
|
$
|
-
|
$
|
182
|
n/a
|
|||||||
Gas
Distribution
|
114
|
-
|
(9
|
)
|
n/a
|
|||||||||
Gas
Transmission
|
3
|
10
|
5
|
n/a
|
||||||||||
Retail
Gas Marketing
|
64
|
-
|
n/a
|
$
|
(4
|
)
|
||||||||
Energy
Marketing
|
125
|
38
|
n/a
|
1
|
||||||||||
All
Other
|
7
|
95
|
n/a
|
(2
|
)
|
|||||||||
Adjustments/Eliminations
|
(7
|
)
|
(143
|
)
|
(3
|
)
|
108
|
|||||||
Consolidated
Total
|
$
|
921
|
$
|
-
|
$
|
175
|
$
|
103
|
Nine
Months Ended September 30, 2009
|
|||||||||||||||
Electric
Operations
|
$
|
1,633
|
$
|
6
|
$
|
405
|
n/a
|
$
|
7,122
|
||||||
Gas
Distribution
|
667
|
-
|
74
|
n/a
|
1,956
|
||||||||||
Gas
Transmission
|
8
|
31
|
15
|
n/a
|
267
|
||||||||||
Retail
Gas Marketing
|
373
|
-
|
n/a
|
$
|
15
|
128
|
|||||||||
Energy
Marketing
|
462
|
117
|
n/a
|
3
|
74
|
||||||||||
All
Other
|
20
|
275
|
n/a
|
(6
|
)
|
896
|
|||||||||
Adjustments/Eliminations
|
(20
|
)
|
(429
|
)
|
29
|
260
|
1,205
|
||||||||
Consolidated
Total
|
$
|
3,143
|
$
|
-
|
$
|
523
|
$
|
272
|
$
|
11,648
|
Three
Months Ended September 30, 2008
|
|||||||||||||||
Electric
Operations
|
$
|
671
|
$
|
3
|
$
|
195
|
n/a
|
||||||||
Gas
Distribution
|
177
|
-
|
(9
|
)
|
n/a
|
||||||||||
Gas
Transmission
|
2
|
9
|
3
|
n/a
|
|||||||||||
Retail
Gas Marketing
|
80
|
-
|
n/a
|
$
|
-
|
||||||||||
Energy
Marketing
|
336
|
86
|
n/a
|
1
|
|||||||||||
All
Other
|
9
|
93
|
n/a
|
(1
|
)
|
||||||||||
Adjustments/Eliminations
|
(9
|
)
|
(191
|
)
|
-
|
94
|
|||||||||
Consolidated
Total
|
$
|
1,266
|
$
|
-
|
$
|
189
|
$
|
94
|
Nine
Months Ended September 30, 2008
|
|||||||||||||||
Electric
Operations
|
$
|
1,735
|
$
|
9
|
$
|
421
|
n/a
|
$
|
6,223
|
||||||
Gas
Distribution
|
865
|
-
|
68
|
n/a
|
2,000
|
||||||||||
Gas
Transmission
|
6
|
30
|
12
|
n/a
|
315
|
||||||||||
Retail
Gas Marketing
|
448
|
-
|
n/a
|
$
|
21
|
140
|
|||||||||
Energy
Marketing
|
964
|
254
|
n/a
|
2
|
144
|
||||||||||
All
Other
|
25
|
266
|
n/a
|
(5
|
)
|
1,327
|
|||||||||
Adjustments/Eliminations
|
(25
|
)
|
(559
|
)
|
32
|
242
|
475
|
||||||||
Consolidated
Total
|
$
|
4,018
|
$
|
-
|
$
|
533
|
$
|
260
|
$
|
10,624
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
SCANA
CORPORATION
The
following discussion should be read in conjunction with Management’s Discussion
and Analysis of Financial Condition and Results of Operations appearing in SCANA
Corporation’s (SCANA, and together with its consolidated subsidiaries, the
Company) Annual Report on Form 10-K for the year ended December 31,
2008.
RESULTS
OF OPERATIONS
|
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2009
|
AS
COMPARED TO THE CORRESPONDING PERIODS IN 2008
Earnings
Per Share
Earnings
per share was as follows:
Third
Quarter
|
Year
to Date
|
|||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||
Earnings
per share
|
$
|
.84
|
$
|
.80
|
$
|
2.23
|
$
|
2.22
|
Third
Quarter
Earnings per share increased $.11 due
to the tax benefit and related interest income arising from the resolution of an
income tax uncertainty in favor of the Company and $.06 due to increased
allowance for funds used during construction. This increase was
partially offset by lower electric margin of $.02, lower gas margin of $.02,
dilution from additional shares outstanding of $.03 and by higher operating
expenses which are explained in the following pages.
Year
to Date
Earnings
per share increased $.11 due to the tax benefit and related interest income
arising from the resolution of an income tax uncertainty in favor of the Company
and by $.17 due to increased allowance for funds used during
construction. These items were partially offset by lower electric
margin of $.04, lower gas margin of $.04, higher interest expense of $.04,
dilution from additional shares outstanding of $.09 and higher operating
expenses which are explained in the following pages.
Dividends
Declared
The
Company’s Board of Directors has declared the following dividends on common
stock during 2009:
Declaration
Date
|
Dividend
Per Share
|
Record
Date
|
Payment Date
|
February
19, 2009
|
$.47
|
March 10, 2009
|
April
1, 2009
|
April
23, 2009
|
.47
|
June 10, 2009
|
July
1, 2009
|
July
30, 2009
|
.47
|
September 10, 2009
|
October 1, 2009
|
October
28, 2009
|
.47
|
December 10, 2009
|
January 1, 2010
|
Electric
Operations
Electric
Operations is comprised of the electric operations of South Carolina Electric
& Gas Company (SCE&G), South Carolina Generating Company, Inc. (GENCO)
and South Carolina Fuel Company, Inc. (Fuel Company). Electric operations
sales margin (including transactions with affiliates) was as
follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
%
Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Operating
revenues
|
$
|
615.3
|
(8.4
|
)%
|
$
|
671.4
|
$
|
1,633.2
|
(5.9
|
)%
|
$
|
1,735.1
|
|||||
Less: Fuel
used in generation
|
220.1
|
(17.7
|
)%
|
267.5
|
595.1
|
(11.4
|
)%
|
671.8
|
|||||||||
Purchased
power
|
3.1
|
(58.1
|
)%
|
7.4
|
11.0
|
(61.1
|
)%
|
28.3
|
|||||||||
Margin
|
$
|
392.1
|
(1.1
|
)%
|
$
|
396.5
|
$
|
1,027.1
|
(0.8
|
)%
|
$
|
1,035.0
|
Electric
sales for three and nine months ended September 30, 2009 and 2008, and the
amount and percentage change by customer class were as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||
Sales (Million KWH)
|
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
|||||||
Residential
|
2,350
|
2,350
|
-
|
6,153
|
6,035
|
2.0
|
%
|
||||||
Commercial
|
2,112
|
2,144
|
(1.5
|
)%
|
5,676
|
5,756
|
(1.4
|
)%
|
|||||
Industrial
|
1,447
|
1,625
|
(11.0
|
)%
|
4,014
|
4,765
|
(15.8
|
)%
|
|||||
Other
|
158
|
163
|
(3.1
|
)%
|
429
|
435
|
(1.4
|
)%
|
|||||
Total
Retail Sales
|
6,067
|
6,282
|
(3.4
|
)%
|
16,272
|
16,991
|
(4.2
|
)%
|
|||||
Wholesale
|
586
|
702
|
(16.5
|
)%
|
1,587
|
1,814
|
(12.5
|
)%
|
|||||
Total
Sales
|
6,653
|
6,984
|
(4.7
|
)%
|
17,859
|
18,805
|
(5.0
|
)%
|
Third
Quarter
Margin
decreased due to lower residential and commercial customer usage (including the
effects of weather) of $3.3 million, lower industrial sales of $3.3 million and
lower margins on off-system sales of $4.9 million, partially offset by higher
residential and commercial customer growth of $2.1 million and an increase in
base rates by the Public Service Commission of South Carolina (SCPSC) under the
Base Load Review Act (the BLRA) of $2.4 million which became effective for bills
rendered on or after March 29, 2009.
Year
to Date
Margin
decreased due to lower off-system sales of $13.0 million and lower industrial
sales of $9.8 million, partially offset by higher residential and commercial
customer usage (including the effects of weather) of $1.8 million, residential
and commercial customer growth of $5.4 million and an increase in base rates by
the SCPSC under the BLRA of $4.2 million which became effective for bills
rendered on or after March 29, 2009.
Gas
Distribution
Gas
Distribution is comprised of the local distribution operations of SCE&G and
Public Service Company of North Carolina, Incorporated (PSNC Energy). Gas
distribution sales margin (including transactions with affiliates) was as
follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
%
Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Operating
revenues
|
$
|
114.0
|
(35.6
|
)%
|
$
|
177.1
|
$
|
667.7
|
(22.8
|
)%
|
$
|
865.3
|
|||||
Less: Gas
purchased for resale
|
64.8
|
(50.1
|
)%
|
129.8
|
420.8
|
(32.6
|
)%
|
624.0
|
|||||||||
Margin
|
$
|
49.2
|
4.0
|
%
|
$
|
47.3
|
$
|
246.9
|
2.3
|
%
|
$
|
241.3
|
Gas sales
volume for Gas Distribution for the three and nine months periods ended
September 30, 2009 and 2008, and the amount and percentage change by customer
class were as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||
Sales
(Thousand Dekatherms)
|
2009
|
2008
|
%
Change
|
2009
|
2008
|
%
Change
|
|||||||
Residential
|
4,293
|
4,276
|
0.4
|
%
|
44,215
|
43,672
|
1.2
|
%
|
|||||
Commercial
|
5,622
|
5,576
|
0.8
|
%
|
27,244
|
27,037
|
0.8
|
%
|
|||||
Industrial
|
41,317
|
41,702
|
(0.9
|
)%
|
119,539
|
120,568
|
(0.9
|
)%
|
|||||
Sales
for Resale
|
1,809
|
1,464
|
23.6
|
%
|
7,443
|
6,339
|
17.4
|
%
|
|||||
Total
Retail Sales
|
53,041
|
53,018
|
-
|
198,441
|
197,616
|
0.4
|
%
|
||||||
Transportation
Volumes
|
31,779
|
31,514
|
0.8
|
%
|
99,688
|
104,310
|
(4.4
|
)%
|
|||||
Total
Sales
|
84,820
|
84,532
|
0.3
|
%
|
298,129
|
301,926
|
(1.3)
|
%
|
Third
Quarter
Operating
revenues and gas purchased for resale decreased primarily due to lower commodity
prices. Margin at SCE&G increased $0.5 million primarily due to
the SCPSC-approved increase in retail gas base rates which became effective with
the first billing cycle of November 2008. Margin at PSNC Energy
increased by $1.2 million primarily due to the North Carolina Utilities
Commission (NCUC)-approved increase in retail gas base rates which became
effective for services rendered on or after November 1, 2008 and due to customer
growth.
Year
to Date
Operating
revenues and gas purchased for resale decreased primarily due to lower commodity
prices. Margin at SCE&G decreased due to lower customer usage of
$3.0 million, partially offset by an increase of $2.5 million due to the
SCPSC-approved increase in retail gas base rates which became effective with the
first billing cycle of November 2008. Margin at PSNC Energy increased
by $5.5 million primarily due to the NCUC-approved increase in retail gas base
rates which became effective for services rendered on or after November 1, 2008
and due to customer growth.
Gas
Transmission
Gas
Transmission is comprised of the operations of Carolina Gas Transmission
Corporation (CGT). Gas transmission revenues (including transactions
with affiliates) were as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
%
Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Transportation
revenue
|
$
|
12.6
|
7.7
|
%
|
$
|
11.7
|
$
|
38.4
|
5.2
|
%
|
$
|
36.5
|
Third
Quarter and Year to Date
Transportation
revenue increased primarily due to the sale of additional firm transportation
capacity.
Retail
Gas Marketing
Retail
Gas Marketing is comprised of SCANA Energy, which operates in Georgia’s natural
gas market. Retail Gas Marketing revenues and income (loss) available to common
shareholders were as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
%
Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Operating
revenues
|
$
|
64.1
|
(21.2
|
)%
|
$
|
81.3
|
$
|
372.2
|
(17.0
|
)%
|
$
|
448.2
|
|||||
Income
(loss) available to common shareholders
|
(3.6
|
)
|
*
|
(0.5
|
)
|
15.4
|
(25.2
|
)%
|
20.6
|
*Greater
than 100%
Third
Quarter and Year to Date
Operating
revenues decreased as a result of lower average retail prices arising from lower
natural gas commodity prices and lower sales volume. These
decreases in margin result primarily from a shift in the marketplace as more
customers have opted for a fixed-rate pricing plan to lock in recent lower
natural gas prices. Fixed rate plans generally result in lower
margins as their terms are known and the gas cost can be
hedged. Income available to common shareholders decreased primarily
as a result of lower margin, partially offset by lower operating
expenses.
Energy
Marketing
Energy
Marketing is comprised of the Company’s non-regulated marketing operations,
excluding SCANA Energy. Energy Marketing operating revenues and
income available to common shareholders were as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
%
Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Operating
revenues
|
$
|
163.8
|
(61.1
|
)%
|
$
|
421.4
|
$
|
579.7
|
(52.4
|
)%
|
$
|
1,217.5
|
|||||
Net
income
|
1.3
|
(13.3
|
)%
|
1.5
|
3.2
|
100
|
%
|
1.6
|
Third
Quarter and Year to Date
Operating
revenues decreased primarily due to lower natural gas commodity
prices. Year to date income available to common shareholders
increased primarily due to lower bad debt expense.
Other
Operating Expenses
Other
operating expenses arising from the operating segments previously discussed were
as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
%
Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Other
operation and maintenance
|
$
|
162.9
|
1.6
|
%
|
$
|
160.4
|
$
|
484.8
|
(3.9
|
)%
|
$
|
504.4
|
|||||
Depreciation
and amortization
|
82.5
|
(0.6
|
)%
|
83.0
|
247.8
|
2.5
|
%
|
241.6
|
|||||||||
Other
taxes
|
44.9
|
11.7
|
%
|
40.2
|
134.8
|
6.0
|
%
|
127.2
|
Third
Quarter
Other operation and maintenance
expenses increased primarily due to higher incentive compensation and other
benefits. Depreciation and amortization expense decreased $3.9 million due to a
true up of depreciation expense related to SCE&G’s synthetic fuel
investments in the third quarter of 2008, partially offset by net property
additions in 2009. Other taxes increased primarily due to higher
property taxes.
Year
to Date
Other
operation and maintenance expenses decreased primarily due to lower generating,
transmission and distribution expense of $4.6 million, lower customer service
expense of $5.5 million, and $2.5 million due to a Georgia Public Service
Commission settlement and related legal costs in
2008. Depreciation and amortization expense increased primarily
due to net property additions, partially offset by $3.9 million due to a true up
of depreciation expense related to SCE&G’s synthetic fuel investments in
third quarter of 2008. Other taxes increased primarily due to higher
property taxes.
Other
Income (Expense)
Other
income (expense) includes the results of certain incidental (non-utility)
activities and the activities of certain non-regulated subsidiaries. Other
income (expense) changed for the three and nine months ended September 30, 2009
compared to 2008 primarily due to increased interest income and lower pension
income described below.
Resolution
of Economic Impact Zone (EIZ) Tax Credit Uncertainty
SCE&G
earned an Economic Income Zone state income tax credit (EIZ credit) in 1996
based on qualifying property additions. This EIZ credit exceeded the
Company’s state tax liability for the 1996 tax year, leaving $15.3 million
unused. The Company’s attempt to carry forward the unused credit to
tax years 1997 and 1998 was contested by the South Carolina Department of
Revenue. In September 2009, the South Carolina Supreme Court decided
the matter in the Company’s favor. As a result of the favorable
resolution of this uncertainty, the Company recorded the refund for the
previously contested EIZ credit of $15.3 million and an additional $14.3 million
of interest income.
Prior to
this favorable Supreme Court decision, and pursuant to accounting guidance
concerning income tax uncertainties, the value of the contested credit had not
been reflected in the Company’s statement of income. SCE&G’s
practice is to amortize EIZ credits to income over the lives of the properties
that gave rise to the credits. Accordingly, upon resolution of this
prior uncertainty, the Company recorded a multi-year catch-up
adjustment in the third quarter 2009 of approximately $6.3 million ($4.0 million
after federal tax effect) as a reduction in income taxes. The
remainder of these EIZ credits (approximately $9.0 million) will be amortized to
income over approximately 12 years (the remaining life of the related
properties) as a reduction in income taxes. The interest income of
$14.3 million ($8.8 million after tax effect) was recorded in the third quarter
of 2009 within other income.
Pension
Expense (Income)
Pension
expense (income) was recorded on the Company’s income statements and balance
sheets as follows:
Third
Quarter
|
Year
to Date
|
|||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
||||||||
Income
Statement Impact:
|
||||||||||||
Reduction
in employee benefit costs
|
$
|
-
|
$
|
(0.2
|
)
|
$
|
-
|
$
|
(0.4
|
)
|
||
Other
income
|
(0.8
|
)
|
(3.6
|
)
|
(2.8
|
)
|
(11.0
|
)
|
||||
Balance
Sheet Impact:
|
||||||||||||
Increase
(reduction) in capital expenditures
|
2.9
|
(0.1
|
)
|
7.4
|
(0.2
|
)
|
||||||
Component
of amount (due to) payable from Summer Station
co-owner
|
0.7
|
(0.1
|
)
|
2.0
|
(0.2
|
)
|
||||||
Regulatory
asset
|
7.8
|
-
|
23.4
|
-
|
||||||||
Total
Pension Expense (Income)
|
$
|
10.6
|
$
|
(4.0
|
)
|
$
|
30.0
|
$
|
(11.8
|
)
|
The
Company is recording pension expense in 2009, while it recorded pension
income in 2008. This unfavorable change is due to the
significant decline in plan asset values during the fourth quarter of 2008
stemming from turmoil in the financial markets. However, no contribution to the
pension trust will be necessary in or for 2009, nor will limitations on benefit
payments apply. Additionally, in February 2009, SCE&G was granted accounting
orders by the SCPSC under which it will mitigate a significant portion of this
increased pension expense by deferring as a regulatory asset the amount of
pension expense above that which is included in current rates for its retail
electric and gas distribution regulated operations. These costs are
being deferred until future rate filings, at which time the accumulated deferred
costs will be addressed prospectively.
Allowance
for Funds Used During Construction (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. The Company includes an equity
portion of AFC in nonoperating income and a debt portion of AFC in interest
charges (credits) as noncash items, both of which have the effect of increasing
reported net income. AFC increased in 2009 due to the Company’s various
construction projects, including the new nuclear generating units and pollution
abatement projects at coal-fired plants.
Interest
Expense
Interest
charges increased primarily due to the additional borrowings described in Note 3
to the condensed consolidated financial statements.
Income
Taxes
Income
tax expense decreased primarily due to lower income before taxes, which excludes
the allowance for equity funds used during construction, a nontaxable item, and
due to the recognition in the third quarter of 2009 of the tax benefit arising
from the resolution of an income tax uncertainty (e.g., previously contested EIZ
tax credits (See Other Income (Expense) - Resolution of Economic Impact Zone (EIZ) Tax
Credit Uncertainty above)).
LIQUIDITY
AND CAPITAL RESOURCES
Cash
requirements for the Company’s regulated subsidiaries arise primarily from their
operational needs, funding their construction programs, payment of dividends to
SCANA and refinancing of securities when deemed prudent. The ability of the
regulated subsidiaries to replace existing plant investment, to expand to meet
future demand for electricity and gas and to install equipment necessary to
comply with environmental regulations will depend on their ability to attract
the necessary financial capital on reasonable terms. 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 these subsidiaries continue their
ongoing construction programs, rate increases will be sought. The future
financial position and results of operations of the regulated subsidiaries will
be affected by their ability to obtain adequate and timely rate and other
regulatory relief, as requested.
The issuance
of various securities by the Company or its regulated subsidiaries, including
short- and long-term debt, is subject to customary approval or authorization by
one or more state or federal regulatory bodies, including state public service
commissions and the Federal Energy Regulatory Commission (FERC).
In September 2009, PSNC Energy entered
into an agreement to issue and sell $100 million of ten-year unsecured
notes. PSNC Energy has until March 31, 2010 to draw funds on the
notes.
In June
2009, SCANA issued $30 million of Floating Rate Senior Notes due June 1,
2034. This final installment of notes, together with notes in the
same series previously issued in 2007 and 2008, represents total borrowings in
the series of $110 million principal amount. Proceeds from these
notes were used to finance capital expenditures and for general corporate
purposes.
In March
2009, SCE&G issued $175 million of First Mortgage Bonds bearing an annual
interest rate of 6.05% and maturing on January 15, 2038. Proceeds
from the sale were used to repay short-term debt and for general corporate
purposes.
In
January 2009, SCANA closed on the sale of 2.875 million shares of common stock
at $35.50 per share. Proceeds of $100.5 million were used to finance
capital expenditures, including the construction of new nuclear units, and for
general corporate purposes. In addition, SCANA issued stock valued at
$68.0 million (when issued) during the nine months ended September 30, 2009
through various compensation and dividend reinvestment plans.
Each of
the rating agencies that rate the Company and its subsidiaries issued downgrades
in 2009. The principal reasons stated by the rating agencies for
these downgrades were the Company’s increased debt to finance capital
expenditures and the overall business risk associated with nuclear generation
construction. The ratings as of November 4, 2009 of SCANA and
SCE&G are as follows:
SECURITIES
RATINGS (As of November 4, 2009)
SCANA
|
SCE&G
|
|||||||
Rating
Agency
|
Senior
Unsecured
|
Senior
Secured
|
Senior
Unsecured
|
Preferred
Stock
|
Commercial
Paper
|
Outlook
|
||
Moody's
|
Baa2
|
A3
|
Baa1
|
Baa3
|
P-2
|
Negative
|
||
Standard
& Poor’s (S&P)
|
BBB
|
A-
|
BBB+
|
BBB-
|
A-2
|
Stable
|
||
Fitch
|
BBB+
|
A
|
A-
|
BBB+
|
F2
|
Stable
|
The
outlook applies to all ratings provided by the applicable rating agency for
SCANA and SCE&G.
Securities
ratings used by Moody's, S&P and Fitch are as follows:
Long-term
(investment grade)
|
Short-term
|
|||||
Moody's
(1)
|
S&P
(2)
|
Fitch
(2)
|
Moody's
|
S&P
|
Fitch
|
|
Aaa
|
AAA
|
AAA
|
Prime-1
(P-1)
|
A-1
|
F1
|
|
Aa
|
AA
|
AA
|
Prime-2
(P-2)
|
A-2
|
F2
|
|
A
|
A
|
A
|
Prime-3
(P-3)
|
A-3
|
F3
|
|
Baa
|
BBB
|
BBB
|
Not
Prime
|
B
|
B
|
|
C
|
C
|
|||||
D
|
D
|
(1)
Additional Modifiers: 1, 2, 3 (Aa to Baa) (2)
Additional Modifiers: +, - (AA to BBB)
A
security rating should be evaluated independently of other ratings and is not a
recommendation to buy, sell or hold securities. The assigning rating
organization may revise or withdraw its security ratings at any
time.
SCE&G
and GENCO have obtained FERC authority to issue short-term indebtedness
(pursuant to Section 204 of the Federal Power Act). SCE&G may
issue up to $700 million of unsecured promissory notes or commercial paper with
maturity of one year or less, and GENCO may issue up to $100 million of
short-term indebtedness. FERC’s approval expires in February
2010.
SCANA,
SCE&G (including Fuel Company) and PSNC Energy had available the
following committed lines of credit (LOC), and had outstanding the following LOC
advances, commercial paper, and LOC-supported letter of credit
obligations:
SCANA
|
SCE&G (a)(b)
|
PSNC Energy
(b)
|
||||||||||||||||
September
30,
|
December
31,
|
September
30,
|
December
31,
|
September
30,
|
December
31,
|
|||||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Lines
of credit:
|
||||||||||||||||||
Committed
long-term (expire
December
2011)
|
||||||||||||||||||
Total
|
$
|
200
|
$
|
200
|
$
|
650
|
$
|
650
|
$
|
250
|
$
|
250
|
||||||
LOC
advances
|
-
|
15
|
75
|
285
|
-
|
156
|
||||||||||||
Weighted
average interest rate
|
-
|
%
|
2.17
|
%
|
.52
|
%
|
1.61
|
%
|
-
|
%
|
1.72
|
%
|
||||||
Outstanding
commercial paper
(270
or fewer days)
|
-
|
-
|
242
|
34
|
69
|
46
|
||||||||||||
Weighted
average interest rate
|
-
|
%
|
-
|
%
|
.36
|
%
|
5.69
|
%
|
.35
|
%
|
6.15
|
%
|
||||||
Letters
of credit supported by LOC
|
3
|
-
|
.3
|
-
|
-
|
-
|
||||||||||||
Available
|
197
|
185
|
333
|
331
|
181
|
48
|
(a) Nuclear and fossil fuel inventories and
emission allowances are financed through the issuance by Fuel Company
of
LOC
advances or short-term commercial paper.
(b)
|
SCE&G,
Fuel Company and PSNC Energy may issue commercial paper in the
amounts of up to $350 million,
|
$250
million and $250 million, respectively.
The
committed long-term facilities are revolving lines of credit under credit
agreements with a syndicate of banks. Wachovia Bank, National
Association and Bank of America, N.A. each provide 14.3% of the aggregate $1.1
billion credit facilities, Branch Banking and Trust Company, UBS Loan Finance
LLC, Morgan Stanley Bank, and Credit Suisse, each provide 10.9%, and The Bank of
New York and Mizuho Corporate Bank, Ltd each provide 9.1%. Four other
banks provide the remaining 9.6%. These bank credit facilities
support the issuance of commercial paper by SCE&G (including Fuel Company)
and PSNC Energy. When the commercial paper markets are dislocated
(due to either price or availability constraints), the credit facilities are
available to support the borrowing needs of SCE&G (including Fuel Company)
and PSNC Energy. In addition, a portion of the credit facilities supports
SCANA’s borrowing needs.
Challenging
conditions during 2008 tested the Company’s liquidity and its ability to access
short-term funding sources. During this period, all of the banks in
the Company’s committed revolving credit facilities fully funded draws requested
of them. As of September 30, 2009, the Company had drawn
approximately $75 million from its $1.1 billion facilities, had approximately
$311 million in commercial paper borrowings outstanding, was obligated under $3
million in LOC-supported letters of credit and had approximately $103 million in
cash and temporary investments. The Company regularly monitors the
commercial paper and short-term credit markets to optimize the timing for
repayment of the outstanding balance on its draws, while maintaining appropriate
levels of liquidity.
At
September 30, 2009, the Company had net available liquidity of approximately
$814 million, and the Company’s committed revolving credit facilities have
a stated expiration of December 2011. The Company’s long-term debt
portfolio has a weighted average maturity of approximately 14 years and bears an
average cost of 5.96%. Most long-term debt, including facility draws,
effectively bears fixed interest rates. To further preserve
liquidity, the Company rigorously reviewed its projected capital expenditures
and operating costs for 2009 and reduced them where possible without impacting
safety, reliability, and core customer service.
The
Company also obtains cash from SCANA’s stock plans. Since July 1,
2008, shares of SCANA common stock purchased on behalf of participants in
SCANA’s Investor Plus Plan and Stock Purchase-Savings Plan have been acquired
through original issue shares, rather than on the open market. This
provided over $40 million of additional cash during 2008 and is expected to
provide approximately $80 million annually for 2009 and forward. Due
primarily to new nuclear construction plans, the Company anticipates keeping
this strategy in place for the foreseeable future. The Company anticipates
that its contractual cash obligations will be met through internally generated
funds, the incurrence of additional short- and long-term indebtedness and
sales of equity securities. The Company expects, barring further impairment of
the capital markets, that it has or can obtain adequate sources of financing to
meet its projected cash requirements for the foreseeable future, including cash
requirements for nuclear construction. The Company’s ratios of earnings to fixed
charges for the nine and twelve months ended September 30, 2009 were 2.88
and 2.89, respectively.
ENVIRONMENTAL
AND REGULATORY MATTERS
On June
26, 2009, the United States House of Representatives narrowly passed energy
legislation that, if it becomes law, would mandate significant reduction in
greenhouse gas emissions and require electric utilities to generate an
increasing percentage of their power from renewable sources. The bill
would require, among other things, that greenhouse gas emissions be reduced to
17% below 2005 levels by 2020, and to 83% below 2005 levels by
2050. Companies could meet these standards either through emission
reductions or by obtaining emission allowances (“Cap and Trade”). The
bill also would impose a renewable electric standard (RES) on the total
generation of electric utilities beginning at 6% in 2012 and increasing to 20%
by 2020. New nuclear generation could be subtracted from the RES
total generation baseline calculation, and one quarter of the RES mandate could
be met through energy efficiency measures. The United States Senate
is also considering legislation that would address greenhouse gas emissions and
would establish an RES. The Company cannot predict if or when the
legislation described above will become law or what requirements would be
imposed on the Company by such legislation. The Company expects that
any costs incurred to comply with such legislation would be recoverable through
rates.
On April
17, 2009 the EPA issued a proposed finding that atmospheric concentrations of
greenhouse gasses endanger public health and welfare within the meaning of
Section 202(a) of the Clean Air Act. The proposed finding, as finalized,
enables the EPA to regulate greenhouse gas emissions under the Clean Air
Act. The EPA has commited to issue new rules regulating such
emissions by November 2011. On September 30, 2009, the EPA issued a
proposed rule that would require large facilities emitting over 25,000 tons of
greenhouse gases (GHG) a year (such as SCE&G’s generating facilities) to
obtain permits demonstrating that they are using the best practices and
technologies to minimize GHG emissions. The Company expects that any
costs incurred to comply with greenhouse gas emission requirements will be
recoverable through rates.
With the
pervasive emergence of concern over the issue of global warming as a significant
influence upon the economy, SCANA, SCE&G and GENCO are subject to certain
climate-related financial risks, including those involving regulatory
requirements responsive to greenhouse gas emissions, as well as those involving
physical impacts which could arise from global warming. Certain other
business and financial risks arising from such climate change could also
arise. The Company cannot predict all of the climate-related
regulatory and physical risks nor the related consequences which might impact
the Company, and the following discussion should not be considered
all-inclusive.
From a
regulatory perspective, SCANA, SCE&G and GENCO continually monitor and
evaluate their current and projected emission levels and strive to comply with
all state and federal regulations regarding those
emissions. SCE&G and GENCO participate in the sulfur dioxide and
nitrogen oxide emissions allowance programs with respect to coal plant emissions
and also have undertaken to construct additional pollution control equipment at
several larger coal-fired electric generating plants. Further, SCE&G has
announced plans to construct two new nuclear generating plants which are
expected to significantly reduce greenhouse gas emission levels once they are
completed and dispatched, displacing some of the current coal-fired generation
sources.
See also
the discussion of the court action on the CAIR rules (Note 7B to the condensed
consolidated financial statements). Even while those rules have been
in flux, the Company has continued with its scrubber and selective catalytic
reactor (SCR) construction projects with the expectation that new rules will be
forthcoming and on the premise that, even in the absence of such rules, the
reduction of emissions to be realized upon completion of those projects is
desirable. The significant capital and other costs of these projects
are disclosed in the Environmental Matters section of Management’s Discussion
and Analysis of Financial Condition and Results of Operations in the Company’s
2008 Form 10-K.
Physical
effects associated with climate changes could include the impact of possible
changes in weather patterns, such as storm frequency and intensity, and the
resultant potential damage to the Company’s electric system in the event of such
storms, the impact of and the resultant property damage, changes in sea-level,
as well as impacts on employees and on the Company’s supply chain and many
others. SCANA and SCE&G serve certain of the coastal areas of
South Carolina, and much of their service territory is subject to the damaging
effects of Atlantic and Gulf coast hurricanes and also to the damaging impact of
winter ice storms. To help mitigate the financial risks arising from
these potential occurrences, SCE&G maintains insurance on certain properties
and also collects funds from customers for its storm damage reserve (see Note 1
to the condensed consolidated financial statements). As part of its
ongoing operations, SCANA and SCE&G maintain emergency response and storm
preparation plans and teams, and applicable personnel participate in ongoing
training and related simulations in advance of such storms, all in order to
allow the Company to protect its assets and to return its systems to normal
reliable operation in a timely fashion following any such event.
The EPA
also is committed to propose new federal regulations affecting the management
and disposal of coal combustion products (CCP), such as ash, by December 31,
2009. Such regulations could result in the treatment of some CCPs as
hazardous waste and could impose significant costs to utilities, such as
SCE&G. While the Company cannot predict how extensive the
regulations will be, the Company believes that any additional costs imposed by
such regulations would be recoverable through rates.
OTHER
MATTERS
Off-Balance
Sheet Transactions
Although
SCANA invests in securities and business ventures, it does not hold significant
investments in unconsolidated special purpose entities. SCANA also
does not engage in off-balance sheet financing or similar transactions, although
it is party to incidental operating leases in the normal course of business,
generally for office space, furniture, equipment and rail cars.
Environmental
Matters; Claims and Litigation
For
additional information related to environmental matters and claims and
litigation, see Notes 7B and 7C to the condensed consolidated financial
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Interest
Rate Risk - The Company’s market risk exposures relative to interest rate risk
have not changed materially compared with the Company’s Annual Report on Form
10-K for the year ended December 31, 2008. Interest rates on the
Company’s outstanding debt are fixed either through the issuance of fixed rate
debt or through the use of interest rate derivatives. The Company is
not aware of any facts or circumstances that would significantly affect
exposures on existing indebtedness in the near future. For further
discussion of changes in long-term debt, see ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –
LIQUIDITY AND CAPITAL RESOURCES and also Notes 3 and 5 of the condensed
consolidated financial statements.
Commodity
price risk - The Company uses derivative instruments to hedge forward purchases
and sales of natural gas, which create market risks of different types. See Note
5 to the condensed consolidated financial statements. The following tables
provide information about the Company’s financial instruments that are sensitive
to changes in natural gas prices. Weighted average settlement prices are per
10,000 dekatherms. Fair value represents quoted market prices for these or
similar instruments.
Expected
Maturity:
|
|
|||||||
Futures Contracts | Options | |||||||
Purchased
Call
|
Purchased
Put
|
Sold
Put
|
Sold
Call
|
|||||
2009
|
Long
|
2009
|
(Long)
|
(Short)
|
(Long)
|
(Short)
|
||
Settlement
Price (a)
|
5.29
|
Strike
Price (a)
|
7.54
|
4.84
|
4.84
|
10.16
|
||
Contract
Amount (b)
|
4.4
|
Contract
Amount (b)
|
27.7
|
1.6
|
1.6
|
1.5
|
||
Fair
Value (b)
|
3.9
|
Fair
Value (b)
|
0.5
|
0.1
|
(0.1)
|
-
|
||
2010
|
2010
|
|||||||
Settlement
Price (a)
|
6.02
|
Strike
Price (a)
|
4.45
|
5.40
|
5.40
|
9.59
|
||
Contract
Amount (b)
|
6.7
|
Contract
Amount (b)
|
54.1
|
1.7
|
1.7
|
4.3
|
||
Fair
Value (b)
|
6.9
|
Fair
Value (b)
|
2.6
|
0.2
|
(0.2)
|
(0.1)
|
||
2011
|
||||||||
Settlement
Price (a)
|
7.24
|
|||||||
Contract
Amount (b)
|
0.5
|
|||||||
Fair
Value (b)
|
0.5
|
|||||||
(a)
Weighted average, in dollars
|
||||||||
(b)
Millions of dollars
|
Swaps
|
2009
|
2010
|
2011
|
2012
|
2013
|
Commodity
Swaps:
|
|||||
Pay
fixed/receive variable (b)
|
41.3
|
83.4
|
15.0
|
4.8
|
3.7
|
Average
pay rate (a)
|
6.565
|
6.398
|
7.235
|
7.708
|
7.845
|
Average
received rate (a)
|
5.306
|
6.088
|
6.982
|
7.015
|
7.071
|
Fair
value (b)
|
33.4
|
79.4
|
14.4
|
4.4
|
3.3
|
Pay
variable/receive fixed (b)
|
8.8
|
30.4
|
6.5
|
0.7
|
-
|
Average
pay rate (a)
|
5.305
|
6.110
|
7.015
|
6.953
|
-
|
Average
received rate (a)
|
5.869
|
6.048
|
6.974
|
7.509
|
-
|
Fair
value (b)
|
9.7
|
30.1
|
6.5
|
0.8
|
-
|
Basis
Swaps:
|
|||||
Pay
fixed/receive variable (b)
|
27.4
|
41.2
|
5.4
|
3.3
|
3.4
|
Average
pay rate (a)
|
4.691
|
6.148
|
7.084
|
7.102
|
7.161
|
Average
received rate (a)
|
4.673
|
6.105
|
7.001
|
7.004
|
7.057
|
Fair
value (b)
|
27.3
|
40.9
|
5.3
|
3.3
|
3.3
|
(a)
Weighted average, in dollars
|
|||||
(b)
Millions of dollars
|
ITEM 4. CONTROLS AND PROCEDURES
As of
September 30, 2009, SCANA Corporation (SCANA) conducted an evaluation under the
supervision and with the participation of its management, including its Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), of (a) the
effectiveness of the design and operation of its disclosure controls and
procedures and (b) any change in its internal control over financial reporting.
Based on this evaluation, the CEO and CFO concluded that, as of September 30,
2009, SCANA’s disclosure controls and procedures were effective. There has
been no change in SCANA’s internal control over financial reporting during
the quarter ended September 30, 2009 that has materially affected or is
reasonably likely to materially affect SCANA’s internal control over financial
reporting.
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
ITEM
1. FINANCIAL STATEMENTS
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September
30,
|
December
31,
|
||||||
Millions
of dollars
|
2009
|
2008
|
|||||
Assets
|
|||||||
Utility
Plant In Service
|
$
|
9,157
|
$
|
8,918
|
|||
Accumulated
Depreciation and Amortization
|
(2,924
|
)
|
(2,794
|
)
|
|||
Construction
Work in Progress
|
1,080
|
704
|
|||||
Nuclear
Fuel, Net of Accumulated Amortization
|
99
|
77
|
|||||
Utility
Plant, Net
|
7,412
|
6,905
|
|||||
Nonutility
Property and Investments:
|
|||||||
Nonutility
property, net of accumulated depreciation
|
49
|
46
|
|||||
Assets
held in trust, net - nuclear decommissioning
|
65
|
54
|
|||||
Other
Investments
|
1
|
-
|
|||||
Nonutility Property and Investments, Net
|
115
|
100
|
|||||
Current
Assets:
|
|||||||
Cash and cash equivalents
|
83
|
119
|
|||||
Receivables, net of allowance for uncollectible accounts of $4 and
$3
|
369
|
483
|
|||||
Receivables - affiliated companies
|
-
|
23
|
|||||
Inventories (at average cost):
|
|||||||
Fuel and gas supply
|
240
|
172
|
|||||
Materials and supplies
|
102
|
100
|
|||||
Emission allowances
|
11
|
15
|
|||||
Prepayments
and other
|
95
|
155
|
|||||
Total Current Assets
|
900
|
1,067
|
|||||
Deferred
Debits and Other Assets:
|
|||||||
Regulatory assets
|
958
|
854
|
|||||
Other
|
137
|
126
|
|||||
Total Deferred Debits and Other Assets
|
1,095
|
980
|
|||||
Total
|
$
|
9,522
|
$
|
9,052
|
September
30,
|
December
31,
|
||||||
Millions
of dollars
|
2009
|
2008
|
|||||
Capitalization
and Liabilities
|
|||||||
Common
equity
|
$
|
3,006
|
$
|
2,704
|
|||
Noncontrolling
interest
|
98
|
95
|
|||||
Total
Equity
|
3,104
|
2,799
|
|||||
Preferred
Stock, net (Not subject to purchase or sinking
funds)
|
106
|
106
|
|||||
Preferred
Stock, net (Subject to purchase or sinking funds)
|
7
|
7
|
|||||
Long-Term
Debt, net
|
2,988
|
3,033
|
|||||
Total
Capitalization
|
6,205
|
5,945
|
|||||
Current
Liabilities:
|
|||||||
Short-term
borrowings
|
242
|
34
|
|||||
Current
portion of long-term debt
|
20
|
140
|
|||||
Accounts
Payable
|
200
|
187
|
|||||
Affiliated
Payables
|
92
|
80
|
|||||
Customer
deposits and customer prepayments
|
43
|
56
|
|||||
Taxes
accrued
|
146
|
120
|
|||||
Interest
accrued
|
45
|
50
|
|||||
Dividends
declared
|
47
|
44
|
|||||
Derivative
liabilities
|
11
|
55
|
|||||
Other
|
41
|
28
|
|||||
Total Current Liabilities
|
887
|
794
|
|||||
Deferred
Credits and Other Liabilities:
|
|||||||
Deferred income taxes, net
|
934
|
890
|
|||||
Deferred investment tax credits
|
111
|
102
|
|||||
Asset retirement obligations
|
454
|
437
|
|||||
Due to parent - postretirement and other benefits
|
243
|
236
|
|||||
Regulatory liabilities
|
651
|
608
|
|||||
Other
|
37
|
40
|
|||||
Total Deferred Credits and Other Liabilities
|
2,430
|
2,313
|
|||||
Commitments
and Contingencies (Note 7)
|
-
|
-
|
|||||
Total
|
$
|
9,522
|
$
|
9,052
|
See Notes
to Condensed Consolidated Financial Statements.
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three
Months Ended
|
Nine
Months Ended
|
||||||||||||
September
30,
|
September
30,
|
||||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
|||||||||
Operating
Revenues:
|
|||||||||||||
Electric
|
$
|
615
|
$
|
674
|
$
|
1,639
|
$
|
1,744
|
|||||
Gas
|
66
|
102
|
294
|
423
|
|||||||||
Total Operating Revenues
|
681
|
776
|
1,933
|
2,167
|
|||||||||
Operating
Expenses:
|
|||||||||||||
Fuel used in electric generation
|
221
|
268
|
599
|
673
|
|||||||||
Purchased power
|
3
|
7
|
11
|
28
|
|||||||||
Gas
purchased for resale
|
45
|
81
|
197
|
326
|
|||||||||
Other operation and maintenance
|
125
|
121
|
374
|
375
|
|||||||||
Depreciation and amortization
|
68
|
72
|
203
|
207
|
|||||||||
Other taxes
|
41
|
37
|
123
|
117
|
|||||||||
Total Operating Expenses
|
503
|
586
|
1,507
|
1,726
|
|||||||||
Operating
Income
|
178
|
190
|
426
|
441
|
|||||||||
Other
Income (Expense):
|
|||||||||||||
Other income
|
18
|
8
|
25
|
22
|
|||||||||
Other expenses
|
(3
|
)
|
(5
|
)
|
(9
|
)
|
(12
|
)
|
|||||
Interest charges, net of allowance for borrowed
funds
|
|||||||||||||
used during construction of $7, $4, $18 and
$10
|
(42
|
)
|
(38
|
)
|
(120
|
)
|
(108
|
)
|
|||||
Allowance
for equity funds used during construction
|
9
|
3
|
22
|
7
|
|||||||||
Total
Other Expense
|
(18
|
)
|
(32
|
)
|
(82
|
)
|
(91
|
)
|
|||||
Income
Before Income Tax Expense, Earnings from Equity
|
|||||||||||||
Method
Investments, and Preferred Stock Dividends
|
160
|
158
|
344
|
350
|
|||||||||
Income
Tax Expense
|
49
|
59
|
109
|
127
|
|||||||||
Income
Before Earnings from Equity Method Investments
|
111
|
99
|
235
|
223
|
|||||||||
Earnings
from Equity Method Investments
|
-
|
3
|
-
|
3
|
|||||||||
Net
Income
|
111
|
102
|
235
|
226
|
|||||||||
Less
Net Income Attributable to Noncontrolling Interest
|
4
|
2
|
7
|
7
|
|||||||||
Net
Income Attributable to SCE&G
|
107
|
100
|
228
|
219
|
|||||||||
Preferred
Stock Cash Dividends Declared
|
1
|
2
|
5
|
6
|
|||||||||
Earnings
Available for Common Shareholder
|
$
|
106
|
$
|
98
|
$
|
223
|
$
|
213
|
|||||
Dividends
Declared on Common Stock
|
$
|
46
|
$
|
41
|
$
|
129
|
$
|
123
|
|||||
See
Notes to Condensed Consolidated Financial
Statements.
|
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine
Months Ended
|
|||||||
September
30,
|
|||||||
Millions
of dollars
|
2009
|
2008
|
|||||
Cash
Flows From Operating Activities:
|
|||||||
Net income
|
$
|
235
|
$
|
223
|
|||
Adjustments to Reconcile Net Income to Net Cash Provided From Operating
Activities:
|
|||||||
Deferred
income taxes, net
|
42
|
46
|
|||||
Depreciation and amortization
|
211
|
207
|
|||||
Amortization of nuclear fuel
|
16
|
12
|
|||||
Allowance
for equity funds used during construction
|
(22
|
)
|
(7
|
)
|
|||
Carrying cost recovery
|
(4
|
)
|
(4
|
)
|
|||
Changes
in certain assets and liabilities:
|
|||||||
Receivables
|
93
|
(93
|
)
|
||||
Inventories
|
(111
|
)
|
(14
|
)
|
|||
Prepayments
|
41
|
(10
|
)
|
||||
Due
from parent-pension and other postretirement
benefits
|
-
|
|
(24
|
)
|
|||
Other regulatory assets
|
(108
|
)
|
32
|
||||
Regulatory liabilities
|
15
|
(4
|
)
|
||||
Accounts
payable
|
(1
|
)
|
(17
|
)
|
|||
Taxes accrued
|
26
|
(5
|
)
|
||||
Interest accrued
|
(5
|
)
|
2
|
||||
Changes in other assets
|
(33
|
)
|
6
|
||||
Changes in other liabilities
|
(17
|
)
|
3
|
||||
Net
Cash Provided From Operating Activities
|
378
|
353
|
|||||
Cash
Flows From Investing Activities:
|
|||||||
Utility
property additions and construction expenditures
|
(586
|
)
|
(558
|
)
|
|||
Non-utility
property additions
|
(3
|
)
|
(4
|
)
|
|||
Proceeds
from investments and sale of assets
|
22
|
4
|
|||||
Short-term
investments - affiliate
|
18
|
-
|
|||||
Investments | (5 | ) | - | ||||
Net
Cash Used For Investing Activities
|
(554
|
)
|
(558
|
)
|
|||
Cash
Flows From Financing Activities:
|
|||||||
Proceeds
from issuance of long-term debt
|
250
|
678
|
|||||
Repayment of debt
|
(415
|
)
|
(8
|
)
|
|||
Dividends
|
(133
|
)
|
(121
|
)
|
|||
Contributions from parent
|
204
|
14
|
|||||
Short-term borrowings - affiliate, net
|
26
|
93
|
|||||
Short-term borrowings, net
|
208
|
(437
|
)
|
||||
Net Cash Provided From Financing Activities
|
140
|
219
|
|||||
Net
Increase (Decrease) In Cash and Cash Equivalents
|
(36
|
)
|
14
|
||||
Cash
and Cash Equivalents, January 1
|
119
|
41
|
|||||
Cash
and Cash Equivalents, September 30
|
$
|
83
|
$
|
55
|
|||
Supplemental
Cash Flow Information:
|
|||||||
Cash paid for - Interest (net of capitalized interest of $18 and
$10)
|
$
|
116
|
$
|
95
|
|||
-
Income taxes
|
(2
|
)
|
35
|
||||
Noncash
Investing and Financing Activities:
|
|||||||
Accrued construction expenditures
|
99
|
36
|
|||||
See
Notes to Condensed Consolidated Financial
Statements.
|
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
|
||||||||||||||
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
|
||||||||||||||
(Unaudited)
|
||||||||||||||
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||
September
30,
|
September
30,
|
|||||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
||||||||||
Net
Income
|
$
|
111
|
$
|
99
|
$
|
235
|
$
|
223
|
||||||
Other
Comprehensive Income (Loss), net of tax:
|
||||||||||||||
Reclassification
to net income - amortization of deferred
|
||||||||||||||
employee
benefit plan costs, net of taxes
|
1
|
-
|
3
|
-
|
||||||||||
Total
Comprehensive Income
|
112
|
99
|
238
|
223
|
||||||||||
Less
Comprehensive Income Attributable to Noncontrolling
Interest
|
(5
|
)
|
(4
|
)
|
(12
|
)
|
(13
|
)
|
||||||
Comprehensive
Income Available to Common Shareholder (1)
|
$
|
107
|
$
|
95
|
$
|
226
|
$
|
210
|
||||||
(1)
Accumulated other comprehensive loss totaled $43.5 million as of
September 30, 2009 and $46.2 million as
|
||||||||||||||
of December
31, 2008.
|
||||||||||||||
|
||||||||||||||
See
Notes to Condensed Consolidated Financial
Statements.
|
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
September
30, 2009
(Unaudited)
The
following notes should be read in conjunction with the Notes to Consolidated
Financial Statements appearing in South Carolina Electric & Gas Company’s
(SCE&G, and together with its consolidated affiliates, the Company) Annual
Report on Form 10-K, as amended, for the year ended December 31, 2008.
These are interim financial statements, and due to the seasonality of the
Company’s business and matters that may occur during the rest of the year, the
amounts reported in the Condensed Consolidated Statements of Income are not
necessarily indicative of amounts expected for the full year. In the opinion of
management, the information furnished herein reflects all adjustments, all of a
normal recurring nature, which are necessary for a fair statement of the results
for the interim periods reported. The Company has evaluated
subsequent events through November 4, 2009, which is the date these financial
statements were issued.
On July
1, 2009 the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (the Codification or ASC) became the single source of authoritative
accounting principles generally accepted in the United States (GAAP). Throughout
these notes, references to previous GAAP have been replaced with reference to
the ASC.
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
A. Variable
Interest Entity
An
enterprise’s consolidated financial statements are required to include entities
in which the enterprise has a controlling financial interest. SCE&G has
determined that it has a controlling financial interest in South Carolina
Generating Company, Inc. (GENCO) and South Carolina Fuel Company, Inc. (Fuel
Company), and accordingly, the accompanying condensed consolidated financial
statements include the accounts of SCE&G, GENCO and Fuel Company. The equity
interests in GENCO and Fuel Company are held solely by SCANA Corporation
(SCANA), the Company’s parent. Accordingly, GENCO’s and Fuel Company’s equity
and results of operations are reflected as noncontrolling interest in the
Company’s condensed consolidated financial statements.
GENCO
owns a coal-fired electric generating station with a 615 megawatt net generating
capacity (summer rating). GENCO’s electricity is sold solely to SCE&G under
the terms of power purchase and related operating agreements. Fuel Company
acquires, owns and provides financing for SCE&G’s nuclear fuel,
fossil fuel and emission allowances. The effects of these transactions are
eliminated in consolidation. Substantially all of GENCO’s property (carrying
value of $485 million) serves as collateral for its long-term
borrowings.
B. Basis
of Accounting
The
Company has significant cost-based, rate-regulated operations and recognizes in
its financial statements certain revenues and expenses in different time periods
than do enterprises that are not rate-regulated. As a result, the Company has
recorded regulatory assets and regulatory liabilities, summarized as
follows.
September
30,
|
December
31,
|
|||||||
Millions
of dollars
|
2009
|
2008
|
||||||
Regulatory
Assets:
|
||||||||
Accumulated
deferred income taxes
|
$
|
166
|
$
|
166
|
||||
Under
collections – electric fuel adjustment clause
|
65
|
-
|
||||||
Environmental
remediation costs
|
19
|
19
|
||||||
Asset
retirement obligations and related funding
|
261
|
250
|
||||||
Franchise
agreements
|
47
|
50
|
||||||
Deferred
employee benefit plan costs
|
334
|
325
|
||||||
Other
|
66
|
44
|
||||||
Total
Regulatory Assets
|
$
|
958
|
$
|
854
|
Regulatory
Liabilities:
|
||||||||
Accumulated
deferred income taxes
|
$
|
29
|
$
|
30
|
||||
Other
asset removal costs
|
530
|
503
|
||||||
Storm
damage reserve
|
51
|
48
|
||||||
Planned
major maintenance
|
16
|
11
|
||||||
Other
|
25
|
16
|
||||||
Total
Regulatory Liabilities
|
$
|
651
|
$
|
608
|
Accumulated
deferred income tax liabilities arising from utility operations that have not
been included in customer rates are recorded as a regulatory asset.
Accumulated deferred income tax assets arising from deferred investment tax
credits are recorded as a regulatory liability.
Under-collections - electric
fuel adjustment clause represent amounts due from customers pursuant to the fuel
adjustment clause as approved by the Public Service Commission of South Carolina
(SCPSC) during annual hearings which are expected to be recovered in retail
electric rates during the period October 2010 through April 2012. As
a part of a settlement agreement approved by the SCPSC in April 2009, SCE&G
is allowed to collect interest on the deferred balance during the recovery
period.
Environmental
remediation costs represent costs associated with the assessment and clean-up of
manufactured gas plant (MGP) sites currently or formerly owned by SCE&G.
Costs incurred by SCE&G at such sites are being recovered through
rates. SCE&G is authorized to amortize $1.4 million of these
costs annually.
Asset
retirement obligations (ARO) and related funding represents the regulatory asset
associated with the legal obligation to decommission and dismantle V. C. Summer
Nuclear Station (Summer Station) and conditional AROs.
Franchise
agreements represent costs associated with electric and gas franchise agreements
with the cities of Charleston and Columbia, South Carolina. Based on
the SCPSC order, SCE&G began amortizing these amounts through cost of
service rates in February 2003 over approximately 20 years.
Deferred
employee benefit plan costs represent amounts of pension and other
postretirement benefit costs which were accrued as liabilities, and the costs deferred
pursuant to specific regulatory orders (Note 1D), but which are expected to
be recovered through utility rates.
Other
asset removal costs represent net collections through depreciation rates of
estimated costs to be incurred for the removal of assets in the
future.
The storm
damage reserve represents an SCPSC-approved collection through SCE&G
electric rates, capped at $100 million, which can be applied to offset
incremental storm damage costs in excess of $2.5 million in a calendar year,
certain transmission and distribution insurance premiums and certain tree
trimming expenditures in excess of amounts included in base
rates. During the nine months ended September 30, 2009 and 2008
SCE&G applied costs of $1.6 million and $3.7 million, respectively, to
the reserve.
Planned
major maintenance related to certain fossil hydro turbine/generation
equipment and nuclear refueling outages is accrued in advance of the time the
costs are incurred, as approved through specific SCPSC orders. SCE&G
collects $8.5 million annually, ending December 2013, through electric rates to
offset turbine maintenance expenditures. Nuclear refueling charges are
accrued during each 18-month refueling outage cycle as a component of cost
of service.
The SCPSC
or the United States Federal Energy Regulatory Commission (FERC) have reviewed
and approved through specific orders most of the items shown as regulatory
assets. Other regulatory assets include certain costs which have not been
approved for recovery by the SCPSC or by FERC. In recording these costs as
regulatory assets, management believes the costs will be allowable under
existing rate-making concepts that are embodied in rate orders received by the
Company. In addition, the Company has deferred in utility
plant in service approximately $74.2 million of unrecovered costs related to the
Lake Murray backup dam project and $70.1 million of costs related to the
installation of selective catalytic reactor (SCR) technology at its Cope
Station generating facility. See Note 7B. These costs are not currently being
recovered, but are expected to be recovered through rates in future
periods. In the future, as a result of deregulation or other changes in the
regulatory environment, the Company may no longer meet the criteria of
accounting for rate-regulated utilities, and could be required to write off its
regulatory assets and liabilities. Such an event could have a
material adverse effect on the Company’s results of operations, liquidity or
financial position in the period the write-off would be
recorded.
C. Affiliated
Transactions
Carolina
Gas Transmission Corporation (CGT), a wholly-owned subsidiary of SCANA,
transports natural gas to the Company to supply certain electric generation
requirements and to serve SCE&G’s retail gas customers. SCE&G
had approximately $2.4 million payable to CGT for transportation services at
September 30, 2009 and approximately $0.7 million in receivables, related to
certain transportation refunds, at December 31, 2008.
The
Company participates in a utility money pool. Money pool borrowings
and investments bear interest at short-term market rates. Total
interest expense on money pool borrowings was not significant for the three and
nine months ended September 30, 2009. Total interest expense was $1.4
million and $3.4 million for the three and nine months ended September 30, 2008,
respectively. At each of September 30, 2009 and December 31, 2008,
the Company owed an affiliate $34.5 million and had a net receivable of
$9.1 million, respectively.
Total
interest income from investments with affiliated companies for the three and
nine months ended September 30, 2009 and 2008 was not significant.
SCE&G
purchases natural gas and related pipeline capacity from SCANA Energy
Marketing, Inc. (SEMI) to supply its Jasper County Electric Generating
Station and to serve its retail gas customers. Such purchases totaled
approximately $38.4 million and $117.4 million for the three and nine
months ended September 30, 2009, respectively, and $86.7 million and $253.8
million for the corresponding periods in 2008. SCE&G’s payables to
SEMI for such purchases were $11.6 million at September 30, 2009 and
$11.1 million at December 31, 2008.
D. Pension
and Other Postretirement Benefit Plans
The
Company participates in SCANA’s noncontributory defined benefit pension plan,
which covers substantially all permanent employees, and also participates in
SCANA’s unfunded postretirement health care and life insurance programs, which
provide benefits to active and retired employees. The Company’s net
periodic benefit cost for the pension plan was $9.1 million and $25.9 million
for the three and nine months ended September 30, 2009, respectively, including
deferred amounts (see below), and the Company’s net periodic benefit income from
the pension plan was $4.7 million and $13.7 million for the three and nine
months ended September 30, 2008, respectively. Net periodic benefit
cost for the postretirement plan was $3.0 million and $9.7 million for the three
and nine months ended September 30, 2009, respectively, and was $3.0 million and
$9.7 million for the corresponding periods in 2008.
In
February 2009, SCE&G was granted accounting orders by the SCPSC to allow the
deferral until future rate filings of pension expense related to its utility
operations above that which is included in current rates. Costs
totaling $7.8 million and $23.4 million have been deferred during the three and
nine months ended September 30, 2009, respectively.
E. New
Accounting Matters
Statement
of Financial Accounting Standards (SFAS) 167, codified as ASC 810,
Consolidation was issued in June 2009 and requires an enterprise to
perform an analysis to determine whether it has a controlling financial interest
in a variable interest entity. ASC 810 is effective for fiscal
years beginning after November 15, 2009. The Company has not
determined what impact, if any, the adoption will have on the Company’s results
of operations, cash flows or financial position.
The
Company adopted SFAS 165, codified as ASC 855, Subsequent Events,
effective June 30, 2009. ASC 855 makes the Company’s
management responsible for subsequent-events accounting and
disclosure. The adoption of SFAS 165 did not impact the
Company’s results of operations, cash flows or financial
position.
The
Company adopted FASB Staff Position FAS 107-1 and APB 28-1, codified as ASC 825, Financial Instruments,
effective June 30, 2009. This Staff Position amended previous
guidance to require certain disclosures related to fair value in interim
financial statements. See Note 6 for the required
disclosure.
The
Company adopted SFAS 161, codified as ASC 815, Derivatives and
Hedging, in the first quarter of 2009. ASC 815 requires
enhanced disclosures about an entity’s derivative and hedging activities to
include how derivative instruments are accounted for and the effect of such
activities on the entity’s financial statements. The initial adoption
of SFAS 161 did not impact the Company’s results of operations, cash flows or
financial position. See Note 5 for the required
disclosure.
The
Company adopted SFAS 160, codified as ASC 810,
Consolidation, in the first quarter of 2009. ASC 810 requires entities to
report noncontrolling (minority) interests in subsidiaries as
equity. The initial adoption of SFAS 160 did not have a material
impact on the Company’s financial condition, results of operations or cash
flows. However, it did impact the presentation and disclosure of capitalization
and noncontrolling (minority) interests in the Company’s consolidated financial
statements.
The
principal effect on the prior year balance sheets related to the adoption of
SFAS 160 and correction of the presentation of the preferred stock not subject
to purchase or sinking funds (described in Note 1F) is summarized as
follows:
December
31,
|
||
Millions
of dollars
|
2008
|
2007
|
Total
Shareholders’ Investment, as previously reported
|
$2,810
|
$2,728
|
Increase
for reclassification of noncontrolling interest
|
95
|
89
|
Decrease
for presentation of preferred stock (not subject to purchase
or
sinking
funds) as temporary equity
|
(106)
|
(106)
|
Total
Equity, as adjusted
|
$2,799
|
$2,711
|
Additionally,
the adoption of SFAS 160 had the effect of reclassifying earnings attributable
to non-controlling interest in the consolidated statement of operations from
other income and expense to separate line items. ASC 810 also requires that net
income be adjusted to include the net income attributable to the non-controlling
interest, and a new separate caption for net income attributable to common
shareholders be presented in the consolidated statement of operations. Thus,
after adoption of SFAS 160 net income will increase by $9 million, $7 million
and $7 million for the years 2008, 2007 and 2006, respectively, and net income
attributable to SCE&G will be equal to net income as previously reported
prior to the adoption of SFAS 160.
The
Company adopted SFAS 141(R), codified as ASC 805, Business
Combinations, in the first quarter of 2009. ASC 805 requires the acquiring
entity in a business combination to recognize the assets acquired and the
liabilities assumed at their fair values at the acquisition date. ASC
805 also requires
the acquiring entity to disclose all of the information needed to evaluate and
understand the nature and financial effect of the business
combination. The initial adoption of SFAS 141(R) did not impact the
Company’s results of operations, cash flows or financial position.
F. Preferred
stock
SCE&G
has corrected the presentation of the preferred stock not subject to purchase or
sinking funds to present these preferred securities in a manner consistent with
temporary equity. Although the effects are not material to previously
issued balance sheets, the presentation of these amounts has been corrected as
of December 31, 2008 by presenting these $106 million of preferred securities
separately from common equity. This change had no impact on income or on cash
flows for any period presented.
G. Income
Taxes
In September 2009, an income tax
uncertainty was resolved in the Company’s favor upon the receipt of a favorable
ruling in litigation of a state tax issue, which resulted in a refund of $15
million in state income taxes, plus interest. While the total of this
tax benefit that will impact the effective tax rate will be $15 million, such
impact is not expected to be material in the current or future years because,
under regulatory accounting provisions, the tax benefit recorded is being
amortized into earnings over the remaining life of property additions that gave
rise to the tax benefit. No other material changes in the status of
the Company’s tax positions have occurred through September 30,
2009.
2. RATE
AND OTHER REGULATORY MATTERS
Electric
SCE&G’s
rates are established using a cost of fuel component approved by the SCPSC which
may be adjusted periodically to reflect changes in the price of fuel purchased
by SCE&G. In April 2009, the SCPSC approved a settlement agreement
between SCE&G, the South Carolina Office of Regulatory Staff (ORS) and
others authorizing SCE&G to increase the fuel cost portion of its electric
rates, effective with the first billing cycle of May 2009. As a part of
the settlement, SCE&G agreed to spread the recovery of undercollected fuel
costs over a three-year period ending April 2012, as further described in Note
1A. Due to the extended recovery period, SCE&G is allowed to
collect interest on the deferred balance.
In July
2009, SCE&G filed with the SCPSC requests for an order pursuant to the Base
Load Review Act (the BLRA) to approve an updated construction and capital cost
schedule for the construction of two new nuclear generating units at Summer
Station. The updated schedule provides details of the construction
and capital cost schedule beyond what was proposed and included in the original
BLRA filing described below. The revised schedule does not change the
previously announced completion date for the two nuclear units or the originally
announced cost. The SCPSC has scheduled a hearing on this matter for
November 4, 2009, and is expected to issue an order in January
2010.
In June
2009, SCE&G filed a request with the SCPSC for approval of certain demand
reduction and energy efficiency programs (DSM programs). SCE&G
has requested the establishment of an annual rider to allow recovery of the
costs and lost net margin revenue associated with DSM programs along with an
incentive for investing in such programs. The SCPSC is expected to
conduct a hearing on SCE&G’s request in January 2010.
In February 2009, the SCPSC approved
SCE&G’s combined application pursuant to the BLRA, seeking a certificate of
environmental compatibility and public convenience and necessity and for a base
load review order, relating to proposed construction by SCE&G and South
Carolina Public Service Authority (Santee Cooper) to build and operate two new
nuclear generating units at Summer Station. Under the BLRA, the SCPSC
conducted a full pre-construction prudency review of the proposed units and the
engineering, procurement and construction contract under which they will be
built. The SCPSC prudency finding is binding on all future related rate
proceedings so long as the construction proceeds in accordance with the
schedules, estimates and projections, including contingencies set forth in the
approved application. As part of its order, the SCPSC approved the
initial rate increase of $7.8 million, or 0.4%, related to recovery of the cost
of capital on project expenditures through June 30, 2008, and the revised rates
became effective for bills rendered on and after March 29, 2009. In
addition, SCE&G is allowed to file revised rates with the SCPSC each
year to incorporate any incremental construction work in progress incurred for
new nuclear generation. Requested rate adjustments would be based on
SCE&G’s updated cost of debt and capital structure and on an allowed
return on common equity of 11%. In May 2009, two intervenors filed
separate appeals of the order with the South Carolina Supreme
Court. The appeals are pending, and SCE&G cannot predict how or
when they will be resolved. In September 2009, the SCPSC approved
SCE&G’s first annual revised rate request under the BLRA. The $22.5 million
or 1.1% increase to the retail electric rates is effective for bills rendered on
or after October 30, 2009.
In March
2008, SCE&G and Santee Cooper filed an application with the Nuclear
Regulatory Commission (NRC) for a combined construction and operating license
(COL). This COL application for the two new units was reviewed for
completeness by the NRC and docketed on July 31, 2008. In September
2008 the NRC issued a 30-month review schedule from the docketing date to the
issuance of the safety evaluation report which would signify satisfactory
completion of its review. Both the environmental and safety reviews
by the NRC are in progress and should support a COL issuance in
late 2011. This date would support both the project schedule and
the substantial completion dates for the two new units in 2016 and 2019,
respectively.
Gas
In June
2009 SCE&G filed an application with the SCPSC requesting an increase in
retail natural gas base rates of 2.53% under the terms of the Natural Gas Rate
Stabilization Act (Stabilization Act). The Stabilization Act is
designed to reduce the volatility of costs charged to customers by allowing for
more timely recovery of the costs that regulated utilities incur related to
natural gas infrastructure. In October 2009, the SCPSC approved an
increase in retail natural gas base rates of $13 million. The rate
adjustment will be implemented with the first billing cycle of November
2009.
In
October 2008, the SCPSC approved an increase in SCE&G’s retail natural gas
base rates of $3.7 million under the terms of the Stabilization
Act. The rate adjustment was effective with the first billing cycle
of November 2008.
SCE&G’s
tariffs include a purchased gas adjustment (PGA) clause that provides for the
recovery of actual gas costs incurred including costs related to hedging natural
gas purchasing activities. SCE&G's rates are calculated using a
methodology which adjusts the cost of gas monthly based on a 12-month
rolling average. In August 2008, in connection with the annual
review of the PGA and the gas purchasing policies of SCE&G, the SCPSC
determined that SCE&G’s gas costs, including all hedging transactions, were
reasonable and prudently incurred during the 12 months ended February 29,
2008. The next annual review is scheduled for November
2009.
3. LONG-TERM
DEBT AND LIQUIDITY
Long-term
Debt
In March
2009, SCE&G issued $175 million of First Mortgage Bonds bearing an annual
interest rate of 6.05% and maturing on January 15, 2038. Proceeds
from the sale were used to repay short-term debt and for general corporate
purposes.
Substantially
all of SCE&G's and GENCO's electric utility plant is pledged as collateral
in connection with long-term debt. The Company is in compliance with all debt
covenants.
Liquidity
SCE&G
(including Fuel Company) had available the following committed lines of credit
(LOC), and had outstanding the following LOC advances, commercial paper, and
LOC-supported letter of credit obligations:
SCE&G (a)
(b)
|
||||||||||||
September
30,
|
December
31,
|
|||||||||||
Millions
of dollars
|
2009
|
2008
|
||||||||||
Lines
of credit:
|
||||||||||||
Committed
long-term (expire December 2011)
|
||||||||||||
Total
|
$
|
650
|
$
|
650
|
||||||||
LOC
advances
|
75
|
285
|
||||||||||
Weighted
average interest rate
|
.52
|
%
|
1.61
|
%
|
||||||||
Outstanding
commercial paper
(270
or fewer days)
|
242
|
34
|
||||||||||
Weighted
average interest rate
|
.36
|
%
|
5.69
|
%
|
||||||||
Letters
of credit supported by LOC
|
.3
|
-
|
||||||||||
Available
|
333
|
331
|
(a) Nuclear
and fossil fuel inventories and emission allowances are financed through the
issuance by Fuel Company of
LOC advances or short-term commercial paper.
(b) SCE&G
and Fuel Company may issue commercial paper in the amounts of up to $350 million
for SCE&G
and up to $250 million for Fuel Company.
The
committed long-term facilities are revolving lines of credit under credit
agreements with a syndicate of banks. Wachovia Bank, National
Association and Bank of America, N.A. each provide 14.3% of the aggregate $650
million credit facilities, Branch Banking and Trust Company, UBS Loan Finance
LLC, Morgan Stanley Bank, and Credit Suisse, each provide 10.9%, and The Bank of
New York and Mizuho Corporate Bank, Ltd each provide 9.1%. Four other
banks provide the remaining 9.6%. These bank credit facilities
support the issuance of commercial paper by SCE&G (including Fuel Company).
When the commercial paper markets are dislocated (due to either price or
availability constraints), the credit facilities are available to support the
borrowing needs of SCE&G (including Fuel Company).
4. COMMON
EQUITY
Changes
in common equity during the nine months ended September 30, 2009 and 2008 were
as follows:
In
Millions
|
Common
Equity
|
Noncontrolling
Interest
|
Total
Equity
|
|||||||
Balance
at January 1, 2009
|
$
|
2,704
|
$
|
95
|
$
|
2,799
|
||||
Capital
contribution from parent
|
204
|
-
|
204
|
|||||||
Dividends
declared
|
(130
|
)
|
(4
|
)
|
(134
|
)
|
||||
Net
income
|
228
|
7
|
235
|
|||||||
Balance
as of September 30, 2009
|
$
|
3,006
|
$
|
98
|
$
|
3,104
|
Balance
at January 1, 2008
|
$
|
2,622
|
$
|
89
|
$
|
2,711
|
||||
Capital
contribution from parent
|
13
|
1
|
14
|
|||||||
Dividends
declared
|
(125
|
)
|
(3
|
)
|
(128
|
)
|
||||
Net
income
|
219
|
7
|
226
|
|||||||
Balance
as of September 30, 2008
|
$
|
2,729
|
$
|
94
|
$
|
2,823
|
|
5. DERIVATIVE
FINANCIAL INSTRUMENTS
The
Company recognizes all derivative instruments as either assets or liabilities in
the statement of financial position and measures those instruments at fair
value. The Company recognizes changes in the fair value of derivative
instruments either in earnings or as a component of other comprehensive income
(loss), depending upon the intended use of the derivative and the resulting
designation. The fair value of derivative instruments is determined by reference
to quoted market prices of listed contracts, published quotations or, for
interest rate swaps, discounted cashflow models with independently sourced
data.
Policies
and procedures and risk limits are established to control the level of market,
credit, liquidity and operational and administrative risks assumed by the
Company. SCANA's Board of Directors has delegated to a Risk Management Committee
the authority to set risk limits, establish policies and procedures for risk
management and measurement, and oversee and review the risk management process
and infrastructure. The Risk Management Committee, which is comprised of certain
officers, including the Company's Risk Management Officer and senior officers,
apprises the Board of Directors with regard to the management of risk and brings
to the Board's attention any areas of concern. Written policies define the
physical and financial transactions that are approved, as well as the
authorization requirements and limits for transactions.
The
Company’s regulated gas operations hedge natural gas purchasing activities using
over-the-counter options and swaps and New York Mercantile Exchange (NYMEX)
futures and options. The Company’s tariffs include a PGA that provides for the
recovery of actual gas costs incurred. The SCPSC has ruled that the results of
these hedging activities are to be included in the PGA. As such, the cost of
derivatives and gains and losses on such derivatives utilized to hedge gas
purchasing activities are recoverable through the weighted average cost of gas
calculation. The offset to the change in fair value of these derivatives is
recorded as a regulatory asset or liability. These derivative
financial instruments are not designated as hedges.
The
Company uses interest swaps to manage interest rate risk on certain debt
issuances. In particular, the Company uses swaps to synthetically
convert variable rate debt to fixed rate debt. In addition, in
anticipation of the issuance of debt, the Company may use treasury rate lock or
swap agreements. These arrangements are designated as cash flow
hedges. The effective portions of changes in fair value and payments made or
received upon termination of such agreements are recorded in regulatory assets
or regulatory liabilities and amortized to interest expense over the term of the
underlying debt. Ineffective portions are recognized in
income.
The
effective portion of settlement payments made or received upon termination are
amortized to interest expense over the term of the underlying debt and are
classified as a financing activity in the consolidated statement of cash
flows. The Company does not have any financial instruments designated
as fair value hedges.
Quantitative
Disclosures Related to Derivatives
At
September 30, 2009, the Company was party to natural gas derivative contracts
for 3,514,000 dekatherms. Also at September 30, 2009, the Company was
a party to interest rate swaps designated as cash flow hedges with an aggregate
notional amount of $221.4 million.
Fair
Values of Derivative Instruments
|
||||||||||
Asset
Derivatives
|
Liability
Derivatives
|
|||||||||
As
of September 30, 2009
|
Balance
Sheet
|
Fair
|
Balance
Sheet
|
Fair
|
||||||
Millions
of dollars
|
Location (a)
|
Value
|
Location (a)
|
Value
|
||||||
Derivatives
designated as hedging instruments
|
||||||||||
Interest
rate contracts
|
Other
deferred debits
|
$
|
3
|
Derivative
liabilities
|
$
|
9
|
||||
Other
deferred credits
|
2
|
|||||||||
Total
|
$
|
3
|
$
|
11
|
||||||
Derivatives
not designated as hedging instruments
|
||||||||||
Commodity
contracts
|
Prepayments
and other
|
1
|
Accounts
receivable
|
1
|
||||||
Derivative
liabilities
|
2
|
|||||||||
Total
|
$
|
1
|
$
|
3
|
(a)
|
Asset
derivatives represent unrealized gains to the Company, and liability
derivatives represent unrealized losses. In the Company’s
condensed consolidated balance sheet, unrealized gain and loss positions
with the same counterparty are reported as either a net asset or
liability.
|
The
effect of derivative instruments on the statement of income for the three and
nine months ended September 30, 2009 is as follows:
Gain
or (Loss) Deferred
|
Gain
or (Loss) Reclassified from
|
||||||||
Derivatives in Cash Flow |
in
Regulatory Accounts
|
Deferred
Accounts into Income
|
|||||||
Hedging
Relationships
|
(Effective
Portion)
|
(Effective
Portion)
|
|||||||
Millions
of dollars
|
2009 | Location | Amount | ||||||
Third
Quarter
|
|||||||||
Interest
rate contracts
|
$
|
(11
|
)
|
Interest
expense
|
$
|
(1
|
)
|
||
Total
|
$
|
(11
|
)
|
$
|
(1
|
)
|
Year
to Date
|
|||||||||
Interest
rate contracts
|
$
|
39
|
Interest
expense
|
$
|
(2
|
)
|
|||
Total
|
$
|
39
|
$
|
(2
|
)
|
Derivatives
Not Designated
|
||||||
as
Hedging Instruments
|
Gain
or (Loss) Recognized in Income
|
|||||
Millions
of dollars
|
Location | Amount | ||||
Third
Quarter
|
||||||
Commodity
contracts
|
Gas
purchased for resale
|
$
|
(6
|
)
|
||
Total
|
$
|
(6
|
)
|
Year
to Date
|
||||||
Commodity
contracts
|
Gas
purchased for resale
|
$
|
(12
|
)
|
||
Total
|
$
|
(12
|
)
|
Hedge
Ineffectiveness
Other
gains (losses) recognized in income representing interest rate hedge
ineffectiveness were $(0.8) million and $1.2 million, net of tax, for the three
and nine months ended September 30, 2009, respectively. These amounts are
recorded within interest expense on the statement of income.
Credit
Risk Considerations
Certain
of the Company’s derivative instruments contain contingent provisions that
require the Company to provide collateral upon the occurrence of specific
events, primarily credit downgrades. As of September 30, 2009, the Company has
posted no collateral related to derivatives with contingent provisions that are
in a net liability position. If all of the contingent features underlying these
instruments were fully triggered as of September 30, 2009, the Company would be
required to post $7.6 million of collateral to its counterparties. The aggregate
fair value of all derivative instruments with contingent provisions that are in
a net liability position as of September 30, 2009, is $7.6 million.
6. FAIR
VALUE MEASUREMENTS, INCLUDING DERIVATIVES
The
Company values commodity derivative assets and liabilities using unadjusted
NYMEX prices, and considers such measure of fair value to be Level 1 for
exchange traded instruments and Level 2 for over-the-counter instruments. The
Company’s interest rate swap agreements are valued using discounted cashflow
models with independently sourced data. Fair value
measurements, and the level within the fair value hierarchy in which the
measurements fall, were as follows:
Fair
Value Measurements Using
|
|||||||
Quoted
Prices in Active
|
Significant
Other
|
||||||
Markets
for Identical Assets
|
Observable
Inputs
|
||||||
Millions
of dollars
|
(Level
1)
|
(Level
2)
|
|||||
As
of September 30, 2009
|
|||||||
Assets
- Derivative instruments
|
$
|
2
|
$
|
3
|
|||
Liabilities
- Derivative instruments
|
-
|
13
|
|||||
As
of December 31, 2008
|
|||||||
Assets
- Derivative instruments
|
6
|
14
|
|||||
Liabilities
- Derivative instruments
|
2
|
60
|
There
were no fair value measurements based on significant unobservable inputs (Level
3) for either date presented.
The
financial instruments for which the carrying amount may not equal estimated fair
value at September 30, 2009 and December 31, 2008 were as
follows:
September
30, 2009
|
December
31, 2008
|
|||||||||||||
Millions
of dollars
|
Carrying
Amount
|
Estimated
Fair
Value
|
Carrying
Amount
|
Estimated
Fair
Value
|
||||||||||
Long-term
debt
|
$
|
3,008.3
|
$
|
3,281.5
|
$
|
3,173.2
|
$
|
3,297.1
|
||||||
Preferred
stock (not subject to purchase or sinking funds)
|
106.3
|
103.6
|
106.3
|
89.3
|
||||||||||
Preferred
stock (subject to purchase or sinking funds)
|
7.1
|
6.6
|
7.5
|
7.5
|
Fair
values of long-term debt are based on quoted market prices of the instruments or
similar instruments. For debt instruments for which no quoted market prices are
available, fair values are based on net present value calculations. Carrying
values reflect the fair values of interest rate swaps based on settlement values
obtained from counterparties. Early settlement of long-term debt may not be
possible or may not be considered prudent.
The fair
value of preferred stock is estimated using market quotes.
Potential
taxes and other expenses that would be incurred in an actual sale or settlement
have not been considered.
7. COMMITMENTS
AND CONTINGENCIES
Commitments
and contingencies at September 30, 2009 include the following:
A. Nuclear
Insurance
The
Price-Anderson Indemnification Act deals with public liability for a nuclear
incident and establishes the liability limit for third-party claims
associated with any nuclear incident at $12.5 billion. Each
reactor licensee is currently liable for up to $117.5 million per reactor
owned by such licensee for each nuclear incident occurring at any reactor in the
United States, provided that not more than $17.5 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 $78.3 million per
incident, but not more than $11.7 million per year.
SCE&G
currently maintains policies (for itself and on behalf of Santee Cooper, a
one-third owner of Summer Station) with Nuclear Electric Insurance Limited. The
policies, covering the nuclear facility for property damage, excess property
damage and outage costs, permit retrospective assessments under certain
conditions to cover insurer’s losses. Based on the current annual premium,
SCE&G’s portion of the retrospective premium assessment would not exceed
$14.2 million.
To the
extent that insurable claims for property damage, decontamination, repair and
replacement and other costs and expenses, including replacement power, 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. However, if
such an incident were to occur, it would have a material adverse impact on the
Company’s results of operations, cash flows and financial position.
B. Environmental
The
United States Environmental Protection Agency (EPA) issued a final rule in 2005
known as the Clean Air Interstate Rule (CAIR). CAIR requires the District of
Columbia and 28 states, including South Carolina, to reduce nitrogen oxide and
sulfur dioxide emissions in order to attain mandated state
levels. CAIR set emission limits to be met in two phases beginning in
2009 and 2015, respectively, for nitrogen oxide and beginning in 2010 and 2015,
respectively, for sulfur dioxide. Numerous states, environmental
organizations, industry groups and individual companies challenged the rule,
seeking a change in the method CAIR used to allocate sulfur dioxide emission
allowances. On December 23, 2008, the United States Court of Appeals for
the District of Columbia Circuit remanded the rule but did not vacate
it. Prior to the Court of Appeals’ decision, SCE&G and GENCO had
determined that additional air quality controls would be needed to meet the CAIR
requirements. SCE&G has completed the installation of SCR technology at Cope
Station for nitrogen oxide reduction and SCE&G and GENCO are installing wet
limestone scrubbers at Wateree and Williams Stations for sulfur dioxide
reduction. The Company expects to incur capital expenditures
totaling approximately $559 million through 2010 for these scrubber
projects. The Company cannot predict when the EPA will issue a
revised rule or what impact the rule will have on SCE&G and
GENCO. Any costs incurred to comply with this rule or other rules
issued by the EPA in the future are expected to be recoverable through
rates.
On April
17, 2009 the EPA issued a proposed finding that atmospheric concentrations of
greenhouse gasses endanger public health and welfare within the meaning of
Section 202(a) of the Clean Air Act. The proposed finding, as finalized,
enables the EPA to regulate greenhouse gas emissions under the Clean Air
Act. On September 30, 2009, the EPA issued a proposed rule that would
require large facilities emitting over 25,000 tons of greenhouse gases (GHG) a
year (such as SCE&G) to obtain permits demonstrating that they are using the
best practices and technologies to minimize GHG emissions. The
Company expects that any costs incurred to comply with greenhouse gas emission
requirements will be recoverable through rates.
SCE&G
maintains an environmental assessment program to identify and evaluate its
current and former operations sites that could require environmental clean-up.
As site assessments are initiated, estimates are made of the amount of
expenditures, if any, deemed necessary to investigate and remediate each site.
These estimates are refined as additional information becomes available;
therefore, actual expenditures could differ significantly from the original
estimates. Amounts estimated and accrued to date for site assessments and
clean-up relate solely to regulated operations. SCE&G defers site
assessment and cleanup costs and recovers them through rates (see Note
1).
SCE&G
is responsible for four decommissioned MGP sites in South
Carolina which contain residues of by-product chemicals. These
sites are in various stages of investigation, remediation and monitoring under
work plans approved by the South Carolina Department of Health and Environmental
Control. SCE&G anticipates that major remediation activities at
these sites will continue until 2012 and will cost an additional $9.3
million. In addition, the National Park Service of the Department of
the Interior made an initial demand to SCE&G for payment of
$9.1 million for certain costs and damages relating to the MGP site in
Charleston, South Carolina. SCE&G expects to recover any cost arising from
the remediation of these four sites, net of insurance recovery, through
rates. At September 30, 2009, deferred amounts, net of amounts
previously recovered through rates and insurance settlements, totaled
$19.3 million.
The
Company is also engaged in various other environmental matters incidental to its
business operations which management anticipates will be resolved without a
material adverse impact on the Company’s results of operations, cash flows or
financial condition.
C. Claims
and Litigation
In
May 2004, a purported class action lawsuit styled as Douglas E. Gressette,
individually and on behalf of other persons similarly situated v. South Carolina
Electric & Gas Company and SCANA Corporation was filed in South
Carolina's Circuit Court of Common Pleas for the Ninth Judicial Circuit. The
plaintiff alleges that SCANA and SCE&G made improper use of certain
easements and rights-of-way by allowing fiber optic communication lines and/or
wireless communication equipment to transmit communications other than SCANA’s
and SCE&G’s electricity-related internal communications. The plaintiff
asserted causes of action for unjust enrichment, trespass, injunction and
declaratory judgment, but did not assert a specific dollar amount for the
claims. SCANA and SCE&G believe their actions are consistent with governing
law and the applicable documents granting easements and rights-of-way. In June
2007, the Circuit Court issued a ruling that limits the plaintiff’s purported
class to owners of easements situated in Charleston County, South
Carolina. In February 2008 the Circuit Court issued an order to
conditionally certify the class, which remains limited to easements in
Charleston County. In July 2008, the plaintiff’s motion to add SCANA
Communications, Inc. (SCI) to the lawsuit as an additional defendant was
granted. Trial is not anticipated before the summer of
2010. SCANA, SCI and SCE&G will continue to mount a vigorous
defense and believe that the resolution of these claims will not have a material
adverse impact on their results of operations, cash flows or financial
condition.
The
Company is also engaged in various other claims and litigation incidental to its
business operations which management anticipates will be resolved without a
material adverse impact on the Company’s results of operations, cash flows or
financial condition.
D. Nuclear
Generation
In May
2008, SCE&G and Santee Cooper announced that they had entered into a
contractual agreement for the design and construction of two 1,117-megawatt
nuclear electric generation units at the site of Summer
Station. SCE&G and Santee Cooper will be joint owners and share
operating costs and generation output of the two additional units, with
SCE&G responsible for 55 percent of the cost and receiving 55 percent
of the output, and Santee Cooper responsible for and receiving the remaining 45
percent. Assuming timely receipt of federal and state approvals and construction
proceeding as scheduled, the first unit is expected to completed and in service
in 2016, the second in 2019. SCE&G’s share of the estimated cash outlays
(future value) totals $6.5 billion for plant costs and related transmission
infrastructure costs, and is projected based on historical one-year and
five-year escalation rates as required by the SCPSC.
8. SEGMENT
OF BUSINESS INFORMATION
The
Company’s reportable segments are listed in the following table. The Company
uses operating income to measure profitability for its regulated operations.
Therefore, earnings available to the common shareholder are not allocated to the
Electric Operations and Gas Distribution segments. Intersegment revenues were
not significant.
Earnings
|
|||||||||||||
Operating
|
Available
to
|
||||||||||||
External
|
Income
|
Common
|
Segment
|
||||||||||
Millions
of Dollars
|
Revenue
|
(Loss)
|
Shareholder
|
Assets
|
|||||||||
Three
Months Ended September 30, 2009
|
|||||||||||||
Electric
Operations
|
$
|
615
|
$
|
182
|
n/a
|
||||||||
Gas
Distribution
|
66
|
(4
|
)
|
n/a
|
|||||||||
Adjustments/Eliminations
|
-
|
-
|
$
|
106
|
|||||||||
Consolidated
Total
|
$
|
681
|
$
|
178
|
$
|
106
|
Nine
Months Ended September 30, 2009
|
|||||||||||||
Electric
Operations
|
$
|
1,639
|
$
|
405
|
n/a
|
$
|
7,122
|
||||||
Gas
Distribution
|
294
|
22
|
n/a
|
550
|
|||||||||
Adjustments/Eliminations
|
-
|
(1
|
)
|
$
|
223
|
1,850
|
|||||||
Consolidated
Total
|
$
|
1,933
|
$
|
426
|
$
|
223
|
$
|
9,522
|
Three
Months Ended September 30, 2008
|
|||||||||||||
Electric
Operations
|
$
|
674
|
$
|
195
|
n/a
|
||||||||
Gas
Distribution
|
102
|
(4
|
)
|
n/a
|
|||||||||
All
Other
|
-
|
-
|
$
|
3
|
|||||||||
Adjustments/Eliminations
|
-
|
(1
|
)
|
95
|
|||||||||
Consolidated
Total
|
$
|
776
|
$
|
190
|
$
|
98
|
Nine
Months Ended September 30, 2008
|
|||||||||||||
Electric
Operations
|
$
|
1,744
|
$
|
421
|
n/a
|
$
|
6,223
|
||||||
Gas
Distribution
|
423
|
23
|
n/a
|
515
|
|||||||||
All
Other
|
-
|
-
|
$
|
3
|
-
|
||||||||
Adjustments/Eliminations
|
-
|
(3
|
)
|
210
|
1,719
|
||||||||
Consolidated
Total
|
$
|
2,167
|
$
|
441
|
$
|
213
|
$
|
8,457
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND
RESULTS OF OPERATIONS
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
The
following discussion should be read in conjunction with Management’s Discussion
and Analysis of Financial Condition and Results of Operations appearing in South
Carolina Electric & Gas Company’s (SCE&G, and together with its
consolidated affiliates, the Company) Annual Report on Form 10-K, as
amended, for the year ended December 31, 2008.
RESULTS
OF OPERATIONS
FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009
AS
COMPARED TO THE CORRESPONDING PERIODS IN 2008
Net
Income
Net
income was as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
|||||||||
Net
income
|
$
|
111.2
|
$
|
102.0
|
$
|
235.7
|
$
|
225.8
|
Third
Quarter
Net income increased $12.9 million due
to the tax benefit and related interest income arising from the resolution of an
income tax uncertainty in favor of SCANA and the Company and by $6.9 million due
to increased allowance for funds used during construction. This
increase was partially offset by lower electric margin of $4.6 million and
higher operating expenses which are explained in the following
pages.
Year
to Date
Net
income increased $12.9 million due to the tax benefit and related interest
income arising from the resolution of an income tax uncertainty in favor of
SCANA and the Company and by $19.7 million due to increased allowance for funds
used during construction. This increase is partially offset by lower
electric margin of $8.4 million and higher operating expenses which are
explained in the following pages.
Dividends
Declared
The
Company’s Board of Directors has declared the following dividends on common
stock held by SCANA Corporation (SCANA) during 2009:
Declaration
Date
|
Amount
|
Quarter
Ended
|
Payment
Date
|
|
February
19, 2009
|
$
|
40.7
million
|
March
31, 2009
|
April
1, 2009
|
April
23, 2009
|
43.0
million
|
June
30, 2009
|
July
1, 2009
|
|
July
30, 2009
|
45.5
million
|
September
30, 2009
|
October
1, 2009
|
|
October
28, 2009
|
49.6
million
|
December
31, 2009
|
January
1, 2010
|
Electric
Operations
Electric
Operations is comprised of the electric operations of SCE&G, South Carolina
Generating Company, Inc. (GENCO) and South Carolina Fuel Company, Inc. (Fuel
Company). Electric operations sales margin (including transactions
with affiliates) was as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
% Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Operating
revenues
|
$
|
615.2
|
(8.8
|
)%
|
$
|
674.4
|
$
|
1,639.1
|
(6.0
|
)%
|
$
|
1,744.3
|
|||||
Less:
Fuel used in electric generation
|
221.2
|
(17.6
|
)%
|
268.6
|
598.6
|
(11.0
|
)%
|
672.9
|
|||||||||
Purchased power
|
3.1
|
(58.1
|
)%
|
7.4
|
11.0
|
(61.1
|
)%
|
28.3
|
|||||||||
Margin
|
$
|
390.9
|
(1.9
|
)%
|
$ |
398.4
|
$
|
1,029.5
|
(1.3
|
)%
|
$
|
1,043.1
|
Third
Quarter
Margin
decreased due to lower residential and commercial customer usage (including the
effects of weather) of $3.3 million, lower industrial sales of $3.3 million and
lower margins on off-system sales of $4.9 million, partially offset by higher
residential and commercial customer growth of $2.1 million and an increase in
base rates by the Public Service Commission of South Carolina (SCPSC) under the
Base Load Review Act (BLRA) of $2.4 million which became effective for bills
rendered on or after March 29, 2009.
Year
to Date
Margin
decreased due to lower off-system sales of $13.0 million and lower industrial
sales of $9.8 million, partially offset by higher residential and commercial
customer usage (including the effects of weather) of $1.8 million, residential
and commercial customer growth of $5.4 million and an increase in base rates by
the SCPSC under the BLRA of $4.2 million which became effective for bills
rendered on or after March 29, 2009.
Gas Distribution
Gas
Distribution is comprised of the local distribution operations of SCE&G. Gas
distribution sales margin (including transactions with affiliates) was as
follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
% Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Operating
revenues
|
$
|
65.8
|
(35.1
|
)%
|
$
|
101.4
|
$
|
294.3
|
(30.4
|
)%
|
$
|
423.0
|
|||||
Less:
Gas purchase for resale
|
44.6
|
(44.9
|
)%
|
80.9
|
197.4
|
(39.5
|
)%
|
326.1
|
|||||||||
Margin
|
$
|
21.2
|
3.4
|
%
|
$ |
20.5
|
$
|
96.9
|
-
|
%
|
$
|
96.9
|
Third
Quarter
Operating
revenues and gas purchased for resale decreased primarily due to lower commodity
prices. Margin increased $0.5 million primarily due to the
SCPSC-approved increase in retail gas base rates which became effective with the
first billing cycle of November 2008.
Year
to Date
Operating
revenues and gas purchased for resale decreased primarily due to lower commodity
prices. Margin is flat with a decrease due to lower customer usage of
$3.0 million being partially offset by an increase of $2.5 million due to
the SCPSC-approved increase in retail gas base rates which became effective with
the first billing cycle of November 2008.
Other
Operating Expenses
Other
operating expenses were as follows:
Third
Quarter
|
Year
to Date
|
||||||||||||||||
Millions
of dollars
|
2009
|
%
Change
|
2008
|
2009
|
%
Change
|
2008
|
|||||||||||
Other
operation and maintenance
|
$
|
124.6
|
3.2
|
%
|
$
|
120.7
|
$
|
374.0
|
(0.2
|
)%
|
$
|
374.9
|
|||||
Depreciation
and amortization
|
67.6
|
(5.7
|
)%
|
71.7
|
203.0
|
(2.0
|
)%
|
207.2
|
|||||||||
Other
taxes
|
41.6
|
12.7
|
%
|
36.9
|
123.5
|
5.9
|
%
|
116.6
|
Third
Quarter
Other operation and maintenance
expenses increased primarily due to higher incentive compensation and other
benefits. Depreciation and amortization expense decreased $3.9
million due to a true up of depreciation expense related to SCE&G’s
synthetic fuel investments in the third quarter of 2008. Other taxes
increased primarily due to higher property taxes.
Year
to Date
Other
operation and maintenance expenses decreased primarily due to lower generation,
transmission and distribution expense. Depreciation and amortization
expense decreased $3.9 million due to a true up of depreciation expense related
to SCE&G’s synthetic fuel investments in the third quarter of
2008. Other taxes increased primarily due to higher property
taxes.
Other
Income (Expense)
Other
income (expense) increased in 2009 compared to 2008 due to increased interest
income, partially offset by lower pension income described below.
Resolution
of Economic Impact Zone (EIZ) Tax Credit Uncertainty
SCE&G
earned an Economic Income Zone state income tax credit (EIZ credit) in 1996
based on qualifying property additions. This EIZ credit exceeded
SCANA’s state tax liability for the 1996 tax year, leaving $15.3 million
unused. SCANA’s attempt to carry forward the unused credit to tax
years 1997 and 1998 was contested by the South Carolina Department of
Revenue. In September 2009, the South Carolina Supreme Court decided
the matter in SCANA’s favor. As a result of the favorable resolution
of this uncertainty, SCANA and SCE&G recorded the refund for the previously
contested EIZ credit of $15.3 million and an additional $14.3 million of
interest income.
Prior to
this favorable Supreme Court decision, and pursuant to accounting guidance
concerning income tax uncertainties, the value of the contested credit had not
been reflected in SCANA’s or SCE&G's statement of
income. SCE&G's practice is to amortize EIZ credits to income
over the lives of the properties that gave rise to the
credits. Accordingly, upon resolution of this prior uncertainty,
SCANA and SCE&G recorded a multi-year catch-up adjustment in the third
quarter 2009 of approximately $6.3 million ($4.0 million after federal tax
effect) as a reduction in income taxes. The remainder of these EIZ
credits (approximately $9.0 million) will be amortized to income over
approximately 12 years (the remaining life of the related properties) as a
reduction in income taxes. The interest income of $14.3 million ($8.8
million after tax effect) was recorded in the third quarter of 2009 within other
income.
Pension
Expense (Income)
Pension
expense (income) was recorded on the Company’s income statements and balance
sheets as follows:
Third
Quarter
|
Year
to Date
|
|||||||||||
Millions
of dollars
|
2009
|
2008
|
2009
|
2008
|
||||||||
Income
Statement Impact:
|
||||||||||||
Reduction
in employee benefit costs
|
$
|
(1.1
|
)
|
$
|
(0.7
|
)
|
$
|
(3.3
|
)
|
$
|
(1.8
|
)
|
Other
income
|
(1.0
|
)
|
(3.7
|
)
|
(3.0
|
)
|
(11.2
|
)
|
||||
Balance
Sheet Impact:
|
||||||||||||
Increase
(reduction) in capital expenditures
|
2.7
|
(0.2
|
)
|
6.8
|
(0.5
|
)
|
||||||
Component
of amount (due to) payable from Summer Station
co-owner
|
0.7
|
(0.1
|
)
|
2.0
|
(0.2
|
)
|
||||||
Regulatory
asset
|
7.8
|
-
|
23.4
|
-
|
||||||||
Total
Pension Expense (Income)
|
$
|
9.1
|
$
|
(4.7
|
)
|
$
|
25.9
|
$
|
(13.7
|
)
|
The
Company is recording pension expense in 2009, while it recorded pension
income in 2008. This unfavorable change is due to the
significant decline in plan asset values during the fourth quarter of 2008
stemming from turmoil in the financial markets. However, no contribution to the
pension trust will be necessary in or for 2009, nor will limitations on benefit
payments apply. Additionally, in February 2009, SCE&G was granted
accounting orders by the SCPSC under which it will mitigate a significant
portion of this increased pension expense by deferring as a regulatory asset the
amount of pension expense above that which is included in current rates for its
retail electric and gas distribution regulated operations. These
costs are being deferred until future rate filings, at which time the
accumulated deferred costs will be addressed
prospectively.
Allowance
for Funds Used During Construction (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. The Company includes an equity
portion of AFC in nonoperating income and a debt portion of AFC in interest
charges (credits) as noncash items, both of which have the effect of increasing
reported net income. AFC increased in 2009 due to the Company’s various
construction projects, including the new nuclear generating units and the
pollution abatement projects at coal-fired plants.
Interest
Expense
Interest
charges increased primarily due to additional borrowings.
Income
Taxes
Income
tax expense decreased primarily due to lower income before taxes, which excludes
the allowance for equity funds used during construction, a nontaxable item, and
due to the recognition in the third quarter of 2009 of the tax benefit arising
from the resolution of an income tax uncertainty (e.g., previously contested EIZ
tax credits (See Other Income (Expense) - Resolution of Economic Impact Zone (EIZ) Tax
Credit Uncertainty above)).
LIQUIDITY
AND CAPITAL RESOURCES
The
Company’s cash requirements arise primarily from its operational needs, funding
its construction programs, payment of dividends to SCANA and refinancing of
securities when deemed prudent. The ability of the Company to replace existing
plant investment, to expand to meet future demand for electricity and gas and to
install equipment necessary to comply with environmental regulations will depend
upon its ability to attract the necessary financial capital on reasonable terms.
SCE&G recovers the costs of providing services through rates charged to
customers. Rates for regulated services are generally based on historical costs.
As customer growth and inflation occur and SCE&G continues its ongoing
construction program, SCE&G expects to seek increases in rates. The
Company’s future financial position and results of operations will be affected
by SCE&G’s ability to obtain adequate and timely rate and other regulatory
relief, as requested.
The
Company's issuance of various securities, including short- and long-term debt,
is subject to customary approval or authorization by one or more state or
federal regulatory bodies including the SCPSC and FERC.
During
the period ended September 30, 2009, SCE&G has received from SCANA equity
contributions of $203.7 million. Proceeds were received from the sale
of SCANA common stock and from SCANA’s various compensation and dividend
reinvestment programs. The contributed funds were used to finance
capital expenditures, including the construction of new nuclear units, and for
general corporate purposes.
In March
2009, SCE&G issued $175 million of First Mortgage Bonds bearing an annual
interest rate of 6.05% and maturing on January 15, 2038. Proceeds
from the sale were used to repay short-term debt and for general corporate
purposes.
Each of
the rating agencies that rate SCE&G issued downgrades in
2009. The principal reasons stated by the rating agencies for these
downgrades were SCE&G’s increased debt to finance capital expenditures and
the overall business risk associated with nuclear generation
construction. The ratings as of November 4, 2009 of SCE&G are as
follows:
SECURITIES
RATINGS (As of November 4, 2009)
SCE&G
|
||||||
Rating
Agency
|
Senior
Secured
|
Senior
Unsecured
|
Preferred
Stock
|
Commercial
Paper
|
Outlook
|
|
Moody's
|
A3
|
Baa1
|
Baa3
|
P-2
|
Negative
|
|
Standard
& Poor’s (S&P)
|
A-
|
BBB+
|
BBB-
|
A-2
|
Stable
|
|
Fitch
|
A
|
A-
|
BBB+
|
F2
|
Stable
|
The
outlook applies to all ratings provided by the applicable rating agency for
SCE&G.
Securities
ratings used by Moody's, S&P and Fitch are as follows:
Long-term
(investment grade)
|
Short-term
|
|||||
Moody's
(1)
|
S&P
(2)
|
Fitch
(2)
|
Moody's
|
S&P
|
Fitch
|
|
Aaa
|
AAA
|
AAA
|
Prime-1
(P-1)
|
A-1
|
F1
|
|
Aa
|
AA
|
AA
|
Prime-2
(P-2)
|
A-2
|
F2
|
|
A
|
A
|
A
|
Prime-3
(P-3)
|
A-3
|
F3
|
|
Baa
|
BBB
|
BBB
|
Not
Prime
|
B
|
B
|
|
C
|
C
|
|||||
D
|
D
|
(1)
Additional Modifiers: 1, 2, 3 (Aa to Baa) (2)
Additional Modifiers: +, - (AA to BBB)
A
security rating should be evaluated independently of other ratings and is not a
recommendation to buy, sell or hold securities. The assigning rating
organization may revise or withdraw its security ratings at any
time.
SCE&G
and GENCO have obtained Federal Energy Regulatory Commission (FERC) authority to
issue short-term indebtedness (pursuant to Section 204 of the Federal Power
Act). SCE&G may issue up to $700 million of unsecured promissory
notes or commercial paper with maturity of one year or less, and GENCO may issue
up to $100 million of short-term indebtedness. FERC’s approval
expires in February 2010.
SCE&G
(including Fuel Company) had available the following committed lines of credit
(LOC), and had outstanding the following LOC advances, commercial paper, and
LOC-supported letter of credit obligations:
SCE&G (a)
(b)
|
||||||||||||
September
30,
|
December
31,
|
|||||||||||
Millions
of dollars
|
2009
|
2008
|
||||||||||
Lines
of credit:
|
||||||||||||
Committed
long-term (expire December 2011)
|
||||||||||||
Total
|
$
|
650
|
$
|
650
|
||||||||
LOC
advances
|
75
|
285
|
||||||||||
Weighted
average interest rate
|
.52
|
%
|
1.61
|
%
|
||||||||
Outstanding
commercial paper
(270
or fewer days)
|
242
|
34
|
||||||||||
Weighted
average interest rate
|
.36
|
%
|
5.69
|
%
|
||||||||
Letters
of credit supported by LOC
|
.3
|
-
|
||||||||||
Available
|
333
|
331
|
(a) Nuclear
and fossil fuel inventories and emission allowances are financed through the
issuance by Fuel Company of LOC
advances
or short-term commercial paper.
(b) SCE&G
and Fuel Company may issue commercial paper in the amounts of up to
$350 million for SCE&G and up to
$250 million for
Fuel Company.
The
committed long-term facilities are revolving lines of credit under credit
agreements with a syndicate of banks. Wachovia Bank, National
Association and Bank of America, N.A. each provide 14.3% of the aggregate $650
million credit facilities, Branch Banking and Trust Company, UBS Loan Finance
LLC, Morgan Stanley Bank, and Credit Suisse, each provide 10.9%, and The Bank of
New York and Mizuho Corporate Bank, Ltd each provide 9.1%. Four other banks
provide the remaining 9.6%. These bank credit facilities support the issuance of
commercial paper by SCE&G (including Fuel Company). When the commercial
paper markets are dislocated (due to either price or availability constraints),
the credit facilities are available to support the borrowing needs of SCE&G
(including Fuel Company).
Challenging
conditions during 2008 tested the Company’s liquidity and its ability to access
short-term funding sources. During this period, all of the banks in
the Company’s committed revolving credit facilities fully funded draws requested
of them. As of September 30, 2009, the Company had drawn
approximately $75 million from its $650 million facilities, had approximately
$242 million in commercial paper borrowings outstanding, was obligated under $.3
million in LOC-supported letters of credit and had approximately $83 million in
cash and temporary investments. The Company regularly monitors the
commercial paper and short-term credit markets to optimize the timing for
repayment of the outstanding balance on its draws, while maintaining appropriate
levels of liquidity.
At
September 30, 2009, the Company had net available liquidity of approximately
$416 million, and the Company’s committed revolving credit facilities have a
stated expiration of December 2011. The Company’s long-term debt
portfolio has weighted average maturity of approximately 17 years and bears
an average cost of 5.73%. All long-term debt, other than facility
draws, effectively bears fixed interest rates. To further preserve
liquidity, the Company rigorously reviewed its projected capital expenditures
and operating costs for 2009 and reduced them where possible without impacting
safety, reliability, and core customer service.
The
Company anticipates that its contractual cash obligations will be met through
internally generated funds, the incurrence of additional short- and long-term
indebtedness and sales of equity securities. The Company expects that, barring
further impairment of the capital markets, it has or can obtain adequate sources
of financing to meet its projected cash requirements for the foreseeable future,
including the cash requirements for nuclear construction. The Company’s ratios
of earnings to fixed charges for the 9 and 12 months ended September 30, 2009
were 3.42 and 3.23, respectively. The Company’s ratios of earnings to
combined fixed charges and preference dividends for the same period were
3.22 and 3.05, respectively.
ENVIRONMENTAL
AND REGULATORY MATTERS
On June
26, 2009, the United States House of Representatives narrowly passed energy
legislation that, if it becomes law, would mandate significant reduction in
greenhouse gas emissions and require electric utilities to generate an
increasing percentage of their power from renewable sources. The bill
would require, among other things, that greenhouse gas emissions be reduced to
17% below 2005 levels by 2020, and to 83% below 2005 levels by
2050. Companies could meet these standards either through emission
reductions or by obtaining emission allowances (“Cap and Trade”). The
bill also would impose a renewable electric standard (RES) on the total
generation of electric utilities beginning at 6% in 2012 and increasing to 20%
by 2020. New nuclear generation could be subtracted from the RES
total generation baseline calculation, and one quarter of the RES mandate could
be met through energy efficiency measures. The United States Senate
is also considering legislation that would address greenhouse gas emissions and
would establish an RES. The Company cannot predict if or when the
legislation described above will become law or what requirements would be
imposed on the Company by such legislation. The Company expects that
any costs incurred to comply with such legislation would be recoverable through
rates.
On April
17, 2009 the EPA issued a proposed finding that atmospheric concentrations of
greenhouse gasses endanger public health and welfare within the meaning of
Section 202(a) of the Clean Air Act. The proposed finding, as finalized,
enables the EPA to regulate greenhouse gas emissions under the Clean Air
Act. The EPA has commited to issue new rules regulating such
emissions by November 2011. On September 30, 2009, the EPA issued a
proposed rule that would require large facilities emitting over 25,000 tons of
greenhouse gases (GHG) a year (such as SCE&G’s generating facilities) to
obtain permits demonstrating that they are using the best practices and
technologies to minimize GHG emissions. The Company expects that any
costs incurred to comply with greenhouse gas emission requirements will be
recoverable through rates.
With
the pervasive emergence of concern over the issue of global warming as a
significant influence upon the economy, SCANA, SCE&G and GENCO are subject
to certain climate-related financial risks, including those involving regulatory
requirements responsive to greenhouse gas emissions as well as those involving
physical impacts which could arise from global
warming.
Certain other business and financial risks arising from such climate change
could also arise. The Company cannot predict all of the climate-related
regulatory and physical risks nor the related consequences which might impact
the Company, and the following discussion should not be considered
all-inclusive.
From a
regulatory perspective, SCE&G and GENCO continually monitor and evaluate
their current and projected emission levels and strive to comply with all state
and federal regulations regarding those emissions. SCE&G and
GENCO participate in the sulfur dioxide and nitrogen oxide emissions allowance
programs with respect to coal plant emissions, and also have undertaken to
construct additional pollution control equipment at several larger coal-fired
electric generating plants. Further, SCE&G has announced plans to
construct two new nuclear generating plants which are expected to significantly
reduce greenhouse gas emission levels once they are completed and dispatched,
displacing some of the current coal-fired generation sources.
See also
the discussion of the court action on the CAIR rules (Note 7B to the condensed
consolidated financial statements). Even while those rules have been
in flux, the Company has continued with its scrubber and SCR technology
construction projects with the expectation that new rules will be forthcoming
and on the premise that, even in the absence of such rules, the reduction of
emissions to be realized upon completion of these projects is
desirable. The significant capital and other costs of these projects
are disclosed in the Environmental Matters section of Management’s Discussion
and Analysis of Financial Condition and Results of Operations in the Company’s
2008 Form 10-K, as amended.
Physical
effects associated with climate changes could include the impact of possible
changes in weather patterns, such as storm frequency and intensity, and the
resultant potential damage to the Company’s electric system in the event of such
storms, the impact of and the resultant property damage, changes in sea-level,
as well as impacts on employees and on the Company’s supply chain and many
others. SCE&G serves certain of the coastal areas of South
Carolina, and much of its service territory is subject to the damaging effects
of Atlantic and Gulf coast hurricanes and also to the damaging impact of winter
ice storms. To help mitigate the financial risks arising from these
potential occurrences, SCE&G maintains insurance on certain properties and
also collects funds from customers for its storm damage reserve (see Note 1 to
the condensed consolidated financial statements). As part of its
ongoing operations, SCE&G maintains emergency response and storm preparation
plans and teams, and applicable personnel participate in ongoing training and
related simulations in advance of such storms, all in order to allow the Company
to protect its assets and to return its systems to normal reliable operation in
a timely fashion following any such event.
The EPA
also is committed to propose new federal regulations affecting the management
and disposal of coal combustion products (CCP), such as ash, by December 31,
2009. Such regulations could result in the treatment of some CCPs as
hazardous waste and could impose significant costs to utilities, such as
SCE&G. While the Company cannot predict how extensive the
regulations will be, the Company believes that any additional costs imposed by
such regulations would be recoverable through rates.
OTHER
MATTERS
Off-Balance
Sheet Transactions
SCE&G
does not hold significant investments in unconsolidated special purpose
entities. SCE&G also does not engage in off-balance sheet financing or
similar transactions, although it is party to incidental operating leases in the
normal course of business, generally for office space, furniture, equipment and
rail cars.
Environmental
Matters, Claims and Litigation
For
additional information related to environmental matters and claims and
litigation, see Notes 7B and 7C to the condensed consolidated financial
statements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Interest
Rate Risk - The Company’s market risk exposures relative to interest rate risk
have not changed materially compared with the Company’s Annual Report on Form
10-K, as amended, for the year ended December 31, 2008. Interest
rates on the Company’s outstanding debt are fixed either through the issuance of
fixed rate debt or through the use of interest rate derivatives. The
Company is not aware of any facts or circumstances that would significantly
affect exposures on existing indebtedness in the near future. For
further discussion of changes in long-term debt, see ITEM 2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –
LIQUIDITY AND CAPITAL RESOURCES and also Notes 3 and 5 to the condensed
consolidated financial statements.
Commodity
price risk - The Company uses derivative instruments to hedge forward purchases
and sales of natural gas, which create market risks of different types. See Note
5 to the condensed consolidated financial statements. The following table
provides information about the Company’s financial instruments that are
sensitive to changes in natural gas prices. Weighted average settlement prices
are per 10,000 dekatherms. Fair value represents quoted market prices for these
or similar instruments.
Expected
Maturity:
|
||||
Options
|
||||
Purchased
Call
|
||||
2009
|
Long
|
|||
Strike
Price (a)
|
6.52
|
|||
Contract
Amount (b)
|
8.1
|
|||
Fair
Value (b)
|
0.3
|
|||
2010
|
||||
Strike
Price (a)
|
6.7
|
|||
Contract
Amount (b)
|
13.3
|
|||
Fair
Value (b)
|
0.9
|
|||
(a)
Weighted average, in dollars
|
||||
(b)
Millions of dollars
|
Swaps
|
2009
|
2010
|
|
Commodity
Swaps:
|
|||
Pay
fixed/receive variable (b)
|
2.6
|
0.7
|
|
Average
pay rate (a)
|
11.409
|
11.554
|
|
Average
received rate (a)
|
5.254
|
5.969
|
|
Fair
value (b)
|
1.2
|
0.4
|
|
(a)
Weighted average, in dollars
|
|||
(b)
Millions of dollars
|
ITEM
4T. CONTROLS AND PROCEDURES
As of
September 30, 2009, South Carolina Electric & Gas Company (SCE&G)
conducted an evaluation under the supervision and with the participation of its
management, including its Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of (a) the effectiveness of the design and operation of its
disclosure controls and procedures and (b) any change in its internal control
over financial reporting. Based on this evaluation, the CEO and CFO concluded
that, as of September 30, 2009, SCE&G’s disclosure controls and
procedures were effective. There has been no change in SCE&G’s internal
control over financial reporting during the quarter ended September 30, 2009
that has materially affected or is reasonably likely to materially affect
SCE&G’s internal control over financial reporting.
PART
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SCANA
Corporation (SCANA, and, together with its consolidated subsidiaries, the
Company) and South Carolina Electric & Gas Company
(SCE&G):
SCE&G
earned an Economic Income Zone state income tax credit (EIZ credit) in 1996
based on qualifying property additions. This EIZ credit exceeded the
Company’s state tax liability for the 1996 tax year, leaving $15.3 million
unused. The Company’s attempt to carry forward the unused credit to
tax years 1997 and 1998 was contested by the South Carolina Department of
Revenue. In September 2009, the South Carolina Supreme Court decided
the matter in the Company’s favor. As a result of the favorable
resolution of this uncertainty, the Company recorded the refund for the
previously contested EIZ credit of $15.3 million and an additional $14.3 million
of interest income.
ITEM 6. EXHIBITS
SCANA
Corporation (SCANA) and South Carolina Electric & Gas Company
(SCE&G):
Exhibits
filed or furnished with this Quarterly Report on Form 10-Q are listed in the
following Exhibit Index.
As
permitted under Item 601(b) (4) (iii) of Regulation S-K, instruments defining
the rights of holders of long-term debt of less than 10 percent of the total
consolidated assets of SCANA, for itself and its subsidiaries, and of SCE&G,
for itself and its consolidated affiliates, have been omitted and SCANA and
SCE&G agree to furnish a copy of such instruments to the Commission upon
request.
Pursuant
to the requirements of the Securities Exchange Act of 1934, each of the
registrants has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of each registrant shall be
deemed to relate only to matters having reference to such registrant and any
subsidiaries thereof.
SCANA
CORPORATION
|
|
SOUTH
CAROLINA ELECTRIC & GAS COMPANY
|
|
(Registrants)
|
By:
|
/s/James
E. Swan, IV
|
November
4, 2009
|
James
E. Swan, IV
|
Controller
|
|
(Principal
accounting officer)
|
|
Applicable
to
Form 10-Q of
|
|
|||||
Exhibit
No.
|
SCANA
|
SCE&G
|
Description
|
||||
3.01
|
X
|
Restated
Articles of Incorporation of SCANA Corporation as adopted on
April 26, 1989 (Filed as Exhibit 3-A to
Registration
Statement No. 33-49145 and incorporated by reference
herein)
|
|||||
3.02
|
X
|
Articles
of Amendment dated April 27, 1995 (Filed as Exhibit 4-B to
Registration Statement No. 33-62421 and incorporated
by reference herein)
|
|||||
3.03
|
X
|
Restated
Articles of Incorporation of South Carolina Electric & Gas
Company, as adopted on May 3, 2001 (Filed
as Exhibit 3.01 to Registration Statement No. 333-65460 and
incorporated by reference herein)
|
|||||
3.04
|
X
|
Articles
of Amendment effective as of the dates indicated below and filed as
exhibits to the Registration Statements
set forth below and are incorporated by reference herein
|
|||||
May 22,
2001
|
Exhibit 3.02
|
to
Registration Statement No. 333-65460
|
|||||
June 14,
2001
|
Exhibit 3.04
|
to
Registration Statement No. 333-65460
|
|||||
August 30,
2001
|
Exhibit 3.05
|
to
Registration Statement No. 333-101449
|
|||||
March 13,
2002
|
Exhibit 3.06
|
to
Registration Statement No. 333-101449
|
|||||
May 9,
2002
|
Exhibit 3.07
|
to
Registration Statement No. 333-101449
|
|||||
June 4,
2002
|
Exhibit 3.08
|
to
Registration Statement No. 333-101449
|
|||||
August 12,
2002
|
Exhibit 3.09
|
to
Registration Statement No. 333-101449
|
|||||
March 13,
2003
|
Exhibit 3.03
|
to
Registration Statement No. 333-108760
|
|||||
May 22,
2003
|
Exhibit 3.04
|
to
Registration Statement No. 333-108760
|
|||||
June 18,
2003
|
Exhibit 3.05
|
to
Registration Statement No. 333-108760
|
|||||
August 7,
2003
|
Exhibit 3.06
|
to
Registration Statement No. 333-108760
|
|||||
February
26, 2004
|
Exhibit
3.05
|
to
Registration Statement No. 333-145208-01
|
|||||
May 18,
2004
|
Exhibit 3.06
|
to
Registration Statement No. 333-145208-01
|
|||||
June 18,
2004
|
Exhibit 3.07
|
to
Registration Statement No. 333-145208-01
|
|||||
August 12,
2004
|
Exhibit 3.08
|
to
Registration Statement No. 333-145208-01
|
|||||
March
9, 2005
|
Exhibit
3.09
|
to
Registration Statement No. 333-145208-01
|
|||||
May
16, 2005
|
Exhibit
3.10
|
to
Registration Statement No. 333-145208-01
|
|||||
June
15, 2005
|
Exhibit
3.11
|
to
Registration Statement No. 333-145208-01
|
|||||
August
16, 2005
|
Exhibit
3.12
|
to
Registration Statement No. 333-145208-01
|
|||||
March
14, 2006
|
Exhibit
3.13
|
to
Registration Statement No. 333-145208-01
|
|||||
May
11, 2006
|
Exhibit
3.14
|
to
Registration Statement No. 333-145208-01
|
|||||
June
28, 2006
|
Exhibit
3.15
|
to
Registration Statement No. 333-145208-01
|
|||||
August
16, 2006
|
Exhibit
3.16
|
to
Registration Statement No. 333-145208-01
|
|||||
March
13, 2007
|
Exhibit
3.17
|
to
Registration Statement No. 333-145208-01
|
|||||
May
22, 2007
|
Exhibit
3.18
|
to
Registration Statement No. 333-145208-01
|
|||||
June
22, 2007
|
Exhibit
3.19
|
to
Registration Statement No. 333-145208-01
|
|||||
August
21, 2007
|
Exhibit
3.05
|
on
Post-Effective Amendment No. 1 to Registration Statement No.
333-145208-01
|
|||||
May
15, 2008
|
Exhibit
3.06
|
on
Post-Effective Amendment No. 1 to Registration Statement No.
333-145208-01
|
|||||
July
9, 2008
|
Exhibit
3.07
|
on
Post-Effective Amendment No. 1 to Registration Statement No.
333-145208-01
|
|||||
August
28, 2008
|
Exhibit
3.08
|
on
Post-Effective Amendment No. 1 to Registration Statement No.
333-145208-01
|
|||||
3.05
|
X
|
Articles
of Amendment dated May 15, 2009 (Filed as Exhibit 3.01 to Form 8-K and
incorporated by reference
herein)
|
|||||
3.06
|
X
|
Articles
of Amendment dated June 29, 2009 (Filed as Exhibit 3.01 to Form 8-K and
incorporated by reference
herein)
|
|||||
3.07
|
X
|
Articles
of Amendment dated August 21, 2009 (Filed as Exhibit 3.01 to Form 8-K and
incorporated by reference
herein)
|
|||||
3.08
|
X
|
Articles
of Correction filed on June 1, 2001 correcting May 22, 2001
Articles of Amendment (Filed as Exhibit 3.03
to Registration
Statement No. 333-65460 and incorporated by
reference herein)
|
|||||
3.09
|
X
|
Articles
of Correction filed on February 17, 2004 correcting Articles of
Amendment for the dates indicated
below
and filed as
exhibits to Registration Statement No. 333-145208-01 set forth below and
are incorporated by reference herein
|
|||||
May 7,
2001
|
Exhibit 3.21(a)
|
||||||
May 22,
2001
|
Exhibit 3.21(b)
|
||||||
June 14,
2001
|
Exhibit 3.21(c)
|
||||||
August 30,
2001
|
Exhibit 3.21(d)
|
Applicable
to
Form 10-Q
of
|
||||||
Exhibit
No.
|
SCANA
|
SCE&G
|
Description
|
|||
March 13,
2002
|
Exhibit 3.21(e)
|
|||||
May 9,
2002
|
Exhibit 3.21(f)
|
|||||
June 4,
2002
|
Exhibit 3.21(g)
|
|||||
August 12,
2002
|
Exhibit 3.21(h)
|
|||||
March 13,
2003
|
Exhibit 3.21(i)
|
|||||
May 22,
2003
|
Exhibit 3.21(j)
|
|||||
June 18,
2003
|
Exhibit 3.21(k)
|
|||||
August 7,
2003
|
Exhibit 3.21(l)
|
|||||
3.10
|
X
|
Articles
of Correction dated March 17, 2006, correcting March 14, 2006 Articles of
Amendment (Filed
as
Exhibit 3.22 to Registration Statement No. 333-145208-01 and incorporated
by reference herein)
|
||||
3.11
|
X
|
Articles
of Correction dated September 6, 2006, correcting August 16, 2006 Articles
of Amendment (Filed
as
Exhibit 3.23 to Registration Statement No. 333-145208-01
and incorporated by reference herein)
|
||||
3.12
|
X
|
Articles
of Correction dated May 20, 2008, correcting May 15, 2008 Articles of
Amendment (Filed as
Exhibit
3.13 to Post-Effective Amendment No 1 to Registration Statement No.
333-145208-01 and
incorporated
by reference herein)
|
||||
3.13
|
X
|
By-Laws
of SCANA as revised and amended on February 19, 2009 (Filed as
Exhibit 3.14 on Post-Effective
Amendment
No. 1 to Registration Statement No. 333-145208 and incorporated by
reference herein)
|
||||
3.14
|
X
|
By-Laws
of SCE&G as revised and amended on February 22, 2001 (Filed as
Exhibit 3.05 to Registration
Statement
No. 333-65460 and incorporated by reference herein)
|
||||
10.01
|
X
|
X
|
Engineering,
Procurement and Construction Agreement, dated May 23, 2008,
between South Carolina Electric
& Gas Company, for itself and as Agent for the South
Carolina Public Service Authority, and a Consortium
consisting of Westinghouse Electric Company LLC and Stone
&Webster, Inc. (portions of the exhibit
have been omitted and filed separately with the Securities and Exchange
Commission pursuant to an order
granting confidential treatment pursuant to Rule 24b-2 under the
Securities Exchange Act of 1934, as amended)
(Filed as Exhibit 10.01 to Form 10-Q/A for the quarter ended June 30, 2008
and incorporated by reference
herein)
|
|||
31.01
|
X
|
Certification
of Principal Executive Officer Required by Rule 13a-14 (Filed
herewith)
|
||||
31.02
|
X
|
Certification
of Principal Financial Officer Required by Rule 13a-14 (Filed
herewith)
|
||||
31.03
|
X
|
Certification
of Principal Executive Officer Required by Rule 13a-14 (Filed
herewith)
|
||||
31.04
|
X
|
Certification
of Principal Financial Officer Required by Rule 13a-14 (Filed
herewith)
|
||||
32.01
|
X
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350
(Furnished
herewith)
|
||||
32.02
|
X
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350
(Furnished
herewith)
|
||||
32.03
|
X
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C.
Section 1350
(Furnished
herewith)
|
||||
32.04
|
X
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C.
Section 1350
(Furnished herewith)
|