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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Amendment No. 1
FORM 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
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Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
1-8809 SCANA Corporation 57-0784499
a South Carolina Corporation)
1426 Main Street,
Columbia, South Carolina 29201
(803) 217-9000
1-3375 South Carolina Electric & Gas Company 57-0248695
(a South Carolina Corporation)
1426 Main Street,
Columbia, South Carolina 29201
(803) 217-9000
1-11429 Public Service Company of
North Carolina, Incorporated 56-2128483
(a South Carolina Corporation)
1426 Main Street,
Columbia, South Carolina 29201
(803) 217-9000
Indicate by check mark whether the registrants: (1) have filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Description of Shares Outstanding
Registrant Common Stock at July 31,
---------- ------------ -------------
2001
SCANA Corporation Without Par Value 104,728,268
South Carolina Electric
& Gas Company Par Value $4.50 Per Share 40,296,1471
Public Service Company of
North Carolina, Incorporated Without Par Value 1,0001
1Held beneficially and of record by SCANA Corporation.
This combined Form 10-Q/A is separately filed by SCANA Corporation
(SCANA), South Carolina Electric & Gas Company (SCE&G) and Public Service
Company of North Carolina, Incorporated (PSNC). 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
companies.
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PSNC meets the conditions set forth in General Instruction H (1)(a) and
(b) of Form 10-Q and therefore is filing this form with the reduced disclosure
format allowed under General Instruction H(2).
SCANA, SCE&G and PSNC hereby amend the ratios of earnings to fixed
charges (SEC method) contained in their Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2001. These ratios were reported in SCANA and
SCE&G's Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations and in PSNC's Item 2 Management's Narrative Analysis of
Results of Operations. The revised ratios are set forth below:
SCANA's ratio of earnings to fixed charges for the 12 months ended June
30, 2001 was 4.52. SCE&G's ratio of earnings to fixed charges for the 12 months
ended June 30, 2001 was 4.07. PSNC's ratio of earnings to fixed charges for the
12 months ended June 30, 2001 was 3.26. The full text of Item 2, as amended, for
each of SANA, SCE&G and PSNC follows.
SCANA CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in SCANA Corporation's (the Company) Annual Report on Form 10-K for
the year ended December 31, 2000.
Statements included in this discussion and analysis (or elsewhere in
this quarterly report) which are not statements of historical fact are intended
to be, and are hereby identified as, "forward-looking statements" for purposes
of the safe harbor provided by Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties, and that actual results could differ materially from those
indicated by such forward-looking statements. Important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements include, but are not limited to, the following: (1) that the
information is of a preliminary nature and may be subject to further and/or
continuing review and adjustment, (2) changes in the utility regulatory
environment, (3) changes in the economy, especially in areas served by the
Company's subsidiaries, (4) the impact of competition from other energy
suppliers, (5) growth opportunities for the Company's regulated and diversified
subsidiaries, (6) the results of financing efforts, (7) changes in the Company's
accounting policies, (8) weather conditions, especially in areas served by the
Company's subsidiaries, (9) performance of and marketability of the Company's
investments in telecommunications companies, (10) inflation, (11) changes in
environmental regulations and (12) the other risks and uncertainties described
from time to time in the Company's periodic reports filed with the Securities
and Exchange Commission. The Company disclaims any obligation to update any
forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
SCANA Energy, the Company's non-regulated retail gas division in
Georgia, has maintained its position as the second largest marketer in Georgia,
with an approximate 27 percent market share. SCANA Energy lost approximately
$2.5 million or $.03 per share in the quarter ended June 30, 2001 which
approximated the loss for the corresponding period in 2000. See additional
discussion at Results of Operations. Due to record high wholesale natural gas
prices and cold winter temperatures, the Georgia Public Service Commission
(GPSC) adopted emergency rules which prohibited gas marketers from disconnecting
service to residential customers for non-payment from mid-January through March
2001. Customers also were permitted to switch marketers without first paying
outstanding balances owed to their previous provider. As a result of the GPSC
action, SCANA Energy increased its allowance for uncollectible accounts in the
first quarter 2001 and has implemented more stringent credit policies.
On October 15, 1999 the Federal Energy Regulatory Commission (FERC)
notified South Carolina Electric & Gas Company (SCE&G) of its agreement with
SCE&G's plan to reinforce Lake Murray Dam in order to maintain the lake in case
of an extreme earthquake. SCE&G and FERC have been discussing possible
reinforcement alternatives for the dam over the past several years as part of
SCE&G's ongoing hydroelectric operating license with FERC. The cost and
completion date of this project will depend on the reinforcement alternative
ultimately approved by FERC; however, it is possible that the costs could range
up to $300 million with completion dates ranging from 2004 to 2006. Although any
costs incurred by SCE&G are expected to be recoverable through electric rates,
SCE&G also is exploring alternative sources of funding.
On February 9, 2000 FERC issued FERC Order 2000. The Order requires
utilities which operate electric transmission systems to submit plans for the
possible formation of a regional transmission organization (RTO). In October
2000 the Company and two other southeastern electric utilities filed a joint
request with FERC to establish GridSouth Transco, LLC (GridSouth). FERC gave
provisional approval to GridSouth in March 2001. When operational, GridSouth
will function as an independent regional transmission company. In July 2001 FERC
ordered mediation talks to take place between the utilities forming GridSouth
and certain groups that have proposed other RTOs. These talks are being mediated
by an administrative law judge, with a stated goal of FERC being the formation
of a single RTO in the Southeast.
In March 2001 V. C. Summer Nuclear Station returned to service. It had
been taken out of service on October 7, 2000 for a planned maintenance and
refueling outage. During initial inspection activities, plant personnel
discovered a small leak coming from a hole in a weld in a primary coolant system
pipe. Repairs were completed and the integrity of the new welds was verified
through extensive testing. The PSC has approved recovery of the cost of
replacement power through SCE&G's electric fuel adjustment clause (see Note 4A
of Notes to Condensed Consolidated Financial Statements). The Nuclear Regulatory
Commission was closely involved throughout this process and approved SCE&G's
actions to repair the crack, as well as the restart schedule. SCE&G will
continue to monitor primary coolant system pipes during the next outage,
scheduled for Spring of 2002.
In March 2001 the Company completed the sale of its home security and
alarm monitoring division (SCANA Security). The sale, valued at approximately
$24.5 million, resulted in a one-time gain of approximately $.04 per share in
the first quarter 2001 (see Results of Operations).
In April 2001 SCE&G announced plans to construct a 620 megawatt combined
cycle natural gas-fueled power plant in Jasper County, South Carolina, to supply
electricity to its South Carolina customers. The proposed generation facility is
estimated to cost between $250 million and $300 million. Construction is
expected to begin in the Summer of 2002 and is expected to be completed in the
Summer of 2004.
In April 2001 SCE&G's 385 megawatt coal-fired Cope Generating Station
returned to service. It had been taken out of service in January 2001 due to an
electrical ground in the generator. The PSC has approved recovery of the cost of
replacement power through SCE&G's electric fuel adjustment clause (see Note 4A
of Notes to Condensed Consolidated Financial Statements).
In June 2001 SCANA Communications, Inc. (SCI) agreed to subcontract the
operation and maintenance of its 800 megahertz radio service network to Motorola
for the period July 1, 2001 through March 31, 2002. After March 31, 2002 SCI has
the option to sell the network to Motorola.
In June 2001 South Carolina Pipeline Corporation (SCPC) announced that
it will petition The Public Service Commission of South Carolina (PSC) to allow
SCPC to convert from a closed system to an open-access transportation-only
system. Under an open system customers would be required to secure their own gas
supplies and transportation services. SCPC plans to file the petition in the
fall of 2001 and seek implementation in 2002.
In July 2001 the Company announced the formation of SCG Pipeline, Inc.,
a wholly owned subsidiary that will engage in the transportation of natural gas
in Georgia and South Carolina. SCG Pipeline will transport natural gas from
interconnections with Southern Natural Gas and Southern LNG's Elba Island
liquefied natural gas import terminal near Savannah, Georgia. The Company is
currently evaluating potential pipeline routes for an end point in Jasper
County, South Carolina. SCG Pipeline plans to file for FERC certification in the
fall of 2001. The proposed service date for the pipeline is November 2003. In
addition SCPC announced plans to extend its existing facilities to interconnect
with the proposed pipeline to gain access to additional supplies of natural gas.
The following table summarizes how the Company generated and used funds for
property additions and construction expenditures during the six months ended
June 30, 2001 and 2000:
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Six Months Ended
June 30,
Millions of dollars 2001 2000
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Net cash provided from operating activities $92 $226
Net cash provided from financing activities 144 98
Cash provided from sale of subsidiary assets 24 -
Cash provided from sale of assets 2 1
Cash and temporary investments available at
the beginning of the period 159 116
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Net cash available for property
additions and construction expenditures $421 $441
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Funds used for purchase of subsidiary - $212
Funds used for utility property additions
and construction expenditures, net of noncash
allowance for funds used during construction $183 $132
Funds used for nonutility property additions $25 $5
================================================================= ==============
The Company's electric and natural gas businesses are seasonal in nature,
with the primary demand for electricity being experienced during summer and
winter and the primary demand for natural gas being experienced during winter.
As a result of the significant increase during early 2001 and the latter half of
2000 in the cost to the Company of natural gas and the colder than normal
weather experienced during winter 2000-2001, the Company experienced significant
increases in its working capital requirements, contributing to the need for the
financings by SCANA and PSNC in early 2001as described below.
On January 24, 2001 SCANA issued $202 million two-year floating rate
notes maturing on January 24, 2003. The interest rate is reset quarterly based
on three-month LIBOR plus 110 basis points. Also on January 24, 2001 SCE&G
issued $150 million First Mortgage Bonds having an annual interest rate of 6.70
percent and maturing on February 1, 2011. On February 16, 2001 PSNC issued $150
million of medium-term notes having an annual interest rate of 6.625 percent and
maturing on February 15, 2011. The proceeds from these borrowings were used to
reduce short-term debt and for general corporate purposes.
In addition, on May 9, 2001 SCANA issued $300 million medium-term notes
maturing May 15, 2011 and bearing a fixed interest rate of 6.875 percent. SCANA
also entered into an interest rate swap agreement to pay variable rate and
receive fixed rate interest payments. This swap is designated as a fair value
hedge on the medium-term notes. The proceeds from the issuance of the
medium-term notes were used to refinance $300 million of bank notes originally
issued to consummate SCANA's acquisition of PSNC.
The Company anticipates that the remainder of its 2001 cash requirements
will be met through internally generated funds and the incurrence of additional
short-term and long-term indebtedness. Sales of additional equity securities may
also occur. The Company expects that it has or can obtain adequate sources of
financing to meet its projected cash requirements for the next 12 months and for
the foreseeable future. The Company's ratio of earnings to fixed charges for the
12 months ended June 30, 2001 was 4.52.
Environmental Matters
For information on environmental matters see Note 9C "Contingencies -
Environmental" of Notes To Condensed Consolidated Financial Statements appearing
in this Quarterly Report on Form 10-Q.
Investments in Equity Securities
The Company and SCANA Communications Holdings, Inc. (SCH), a wholly
owned, indirect subsidiary of SCANA, hold investments in several
telecommunications companies (described in Note 8 "Investments in Equity
Securities" of Notes to Condensed Consolidated Financial Statements appearing in
this Quarterly Report on Form 10-Q). As a result of Deutsche Telekom AG's (DT)
acquisition of Powertel, Inc. (Powertel) on May 31, 2001, SCH's investment in
Powertel was exchanged for approximately 39.3 million ordinary shares of DT. SCH
may not sell or transfer these ordinary shares until August 31, 2001, at which
time 40% may be sold or transferred . After November 30, 2001 SCH may sell or
transfer all of its DT shares. The Company intends to monetize SCH's investment
in DT in an appropriate and timely manner and to use the proceeds to reduce
outstanding debt and for potential future investments.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001
AS COMPARED TO THE CORRESPONDING PERIODS IN 2000
Earnings and Dividends
Earnings per share of common stock for the three and six months ended
June 30, 2001 and 2000 were as follows:
--------------------------------------------------------------------------- --------------------
Three Months Ended Six Months Ended
2001 2000 2001 2000
----------------------------------------------------------------------- ------------- ----------
Earnings derived from:
Operations $.29 $.27 $1.00 $.99
Non-recurring events:
Sale of stock investment 3.38 - 3.38 -
Sale of subsidiary assets - - .04 -
Cumulative effect of change in accounting - - - $.28
----------------------------------------------- --------- ------------- ----------- -------
Earnings per weighted average share $3.67 $.27 $4.42 $1.27
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Earnings per share from operations for the three months ended June 30,
2001 increased $.02 as compared to 2000. The Company experienced an increase in
gas margin of $.02, improvements in the results of Energy Marketing of $.07 and
other improvements of $.01. These improvements were partially offset by a
decline in electric margin ($.02), and increases in operation and maintenance
expense ($.02), interest expense ($.02) and depreciation expense ($.02).
Earnings per share from operations for the six months ended June 30,
2001 increased $.01 as compared to 2000. The Company experienced improved
electric and gas margins of $.02 and $.11, respectively, improvements in the
results of Energy Marketing of $.07, and other improvements of $.04. These
improvements were partially offset by increased operation and maintenance
expense ($.14), interest expense ($.07) and depreciation expense ($.02) .
For the last several years, the market value of the Company's retirement
plan assets has exceeded the total actuarial present value of accumulated plan
benefits. Pension income for the three and six months ended June 30, 2001 was
$10.1 million and $20.2 million, respectively, compared to $9.8 million and
$19.6 million for the corresponding periods in 2000. As a result of pension
income, employee benefit expenses were reduced approximately $5.3 million and
$10.6 million for the three and six months ended June 30, 2001, compared to $5.0
million and $10.1 million for the corresponding periods in 2000. In addition,
other income increased $2.9 million and $5.9 million for the three and six
months ended June 30, 2001, respectively, compared to $3.0 million and $6.0
million for the corresponding periods in 2000.
The Company recognized a non-recurring gain of $3.38 per share in
connection with the sale of its investment in Powertel, Inc., which was acquired
by Deutsche Telekom AG in May 2001 (see Note 8 of Notes to Condensed
Consolidated Financial Statements). The Company also recognized a gain of $.04
per share in connection with the sale of the assets of SCANA Security in March
2001. In 2000, earnings from the cumulative effect of change in accounting
resulted from the recording of unbilled revenues by SCANA's regulated retail
utility subsidiaries (see Note 2 of Notes to Condensed Consolidated Financial
Statements).
Allowance for funds used during construction (AFC) is a utility
accounting practice whereby a portion of the cost of both equity and borrowed
funds used to finance construction (which is shown on the balance sheet as
construction work in progress) is capitalized. Both the equity and the debt
portions of AFC are noncash items of nonoperating income which have the effect
of increasing reported net income. AFC represented less than one percent and
approximately three percent of income before taxes for the three months ended
June 30, 2001 and 2000, respectively. AFC represented approximately one percent
and two percent of income before income taxes for the six months ended June 30,
2001 and 2000, respectively.
The Company's Board of Directors declared the following quarterly
dividends on common stock during 2001:
----------------------- -------------- --------------------- -------------------
Declaration Dividend Record Payment
Date Per Share Date Date
----------------------- -------------- --------------------- -------------------
February 22, 2001 $.30 March 9, 2001 April 1, 2001
-----------------------
May 3, 2001 $.30 June 8, 2001 July 1, 2001
-----------------------
August 2, 2001 $.30 September 10, 2001 October 1, 2001
----------------------- -------------- --------------------- -------------------
Electric Operations
Electric Operations is comprised of the electric portion of SCE&G, South
Carolina Generating Company (GENCO) and South Carolina Fuel Company (Fuel
Company). Changes in the electric operations sales margins, including
transactions with affiliates and excluding the cumulative effect of accounting
change, for the three and six months ended June 30, 2001, when compared to the
corresponding periods in 2000, were as follows:
----------------------------------------- --------- --------- ---------- --------- --------- ---------- ----------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
---------------------------------------- ---------- -------------------- --------- --------- ---------------------
Electric operating revenue $340.5 $319.8 $20.7 6.5% $680.7 $614.1 $66.6 10.8%
Less: Fuel used in generation 67.9 72.7 (4.8) (6.6%) 135.1 142.8 (7.7) (5.4%)
Purchased power 39.0 10.7 28.3 * 87.5 17.4 70.1 *
----------------------------------------- --------- --------- --------- --------- ----------
Margin $233.6 $236.4 $(2.8) (1.2%) $458.1 $453.9 $4.2 0.9%
========================================= ========= ========= ========== ========= ========= ========== ==========
*Greater than 100%
Changes in electric operations sales margins for the three months ended
June 30, 2001 reflect milder weather and an economic slowdown. Changes in
electric operations sales margins for the six months ended June 30, 2001 reflect
steady customer growth partially offset by weather and an economic slowdown.
Increases in purchased power costs for both periods, as compared to the
corresponding periods in 2000, were primarily attributable to plant outages
discussed at Liquidity and Capital Resources, which delayed scheduled
maintenance outages at other plants until April and May 2001.
Gas Distribution
Gas Distribution is comprised of the local distribution operations of
SCE&G and PSNC. Changes in the gas distribution sales margins, including
transactions with affiliates and excluding the cumulative effect of accounting
change, for the three and six months ended June 30, 2001, when compared to the
corresponding periods in 2000, were as follows:
-------------------------------------------- --------- ---------- --------- --------- --------- ---------- -----------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
--------------------------------------------- --------- ------------------- --------- --------- ----------------------
Gas distribution operating revenue $125.0 $106.3 $18.7 17.6% $510.5 $361.9 $148.6 41.1%
Less: Gas purchased for resale 88.1 66.2 21.9 33.1% 367.7 218.9 148.8 68.0% 66.2
--------------------------------------------- -------- ---------- --------- --------- -----------
Margin $36.9 $40.1 $(3.2) (8.0%) $142.8 $143.0 $(0.2) (0.1%)
============================================= ======== ========== ========= ========= ========= =========== ==========
Changes in gas distribution sales margins for the three and six months
ended June 30, 2001 reflect milder weather and an economic slowdown. For the six
months ended June 30, 2001, these factors were partially offset by customer
growth. Revenues and purchases were impacted by large increases in natural gas
prices in late 2000 and early 2001.
Gas Transmission
Gas Transmission is comprised of the operations of South Carolina
Pipeline Corporation. Changes in the gas transmission sales margins, including
transactions with affiliates, for the three and six months ended June 30, 2001,
when compared to the corresponding periods in 2000, were as follows:
---------------------------------------- -------- --------- -------- ----------- --------- ---------- --------- -----------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
---------------------------------------- -------- ---------- ------------------- --------- --------- ----------------------
Gas transmission operating revenue $97.1 $98.7 $(1.6) (1.6%) $298.4 $215.7 $82.7 38.3%
Less: Gas purchased for resale 86.5 84.5 2.0 2.4% 278.7 186.6 92.1 49.4%
---------------------------------------- -------- --------- -------- --------- ---------- ---------
Margin $10.6 $14.2 $(3.6) (25.4%) $19.7 $29.1 $(9.4) (32.3%)
======================================== ======== ========= ======== =========== ========= ========== ========= ===========
Gas transmission sales margins for the three and six months ended June
30, 2001 decreased primarily as a result of an economic slowdown and reduced
industrial margins due to the unfavorable competitive position of natural gas
relative to alternate fuels. Revenues and purchases were impacted by large
increases in natural gas prices in late 2000 and early 2001.
Retail Gas Marketing
Retail Gas Marketing is comprised of SCANA Energy, a division of SCANA
Energy Marketing, Inc., which operates in Georgia's deregulated natural gas
market. Retail gas marketing revenues and net income for the three and six
months ended June 30, 2001, when compared to the corresponding periods in 2000,
were as follows:
------------------------------------- -------- --------- --------- ----------- -------- --------- ---------- -----------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
------------------------------------- ---------- ------- --------------------- -------- --------- ----------------------
Operating revenues $121.0 $91.6 $29.4 32.1% $384.0 $226.9 $157.1 69.2%
Net income(loss) $(2.5) $(2.3) $(0.2) (8.7%) $6.8 $6.6 $0.2 3.0%
===================================== ========== ======== ========= ========== ========= ========= ========== ==========
Operating revenues for the three and six months ended June 30, 2001
increased primarily as a result of record high natural gas prices. Although
operating revenues increased, net loss for the three months ended June 30, 2001
increased as a result of higher operating expenses.
Energy Marketing
Energy Marketing is comprised of the Company's non-regulated marketing
operations, excluding SCANA Energy. Changes in energy marketing operating
revenues, including transactions with affiliates, and net income for the three
and six months ended June 30, 2001, when compared to the corresponding periods
in 2000, were as follows:
------------------------------------ --------- --------- --------- ---------- --------- --------- ---------- ---------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
------------------------------------ -------- ---------- -------------------- --------- --------- --------------------
Operating revenues $103.9 $86.2 $17.7 20.5% $351.6 $169.7 $181.9 *
Net income(loss) $1.6 $0.8 $0.8 100% $5.1 $(1.5) $6.6 *
==================================== ========= ========= ========= ========== ========= ========== ========= =========
*Greater than 100%
Operating revenues for the three and six months ended June 30, 2001
increased primarily as a result of record high natural gas prices. More
favorable weather in early 2001 also contributed to the increase in operating
revenues for the six months ended June 30, 2001. Net income improved primarily
due to the favorable changes in market value of certain transportation contracts
resulting from volatility in the natural gas market in early 2001.
Other Operating Expenses
Changes in other operating expenses for the three and six months ended
June 30, 2001, when compared to the corresponding periods in 2000, were as
follows:
--------------------------------------- --------- ---------- --------- ---------- ---------- --------- ---------- ---------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
--------------------------------------- ------------- ------------- ------------- ------------- ------------- -------------
Other operation and maintenance $122.0 $119.6 $2.4 2.0% $251.3 $228.6 $22.7 9.9%
Depreciation and amortization 56.2 52.8 3.4 6.4% 111.8 107.6 4.2 3.9%
Other taxes 28.8 28.9 (0.1) (0.3%) 58.7 58.2 0.5 0.9%
--------------------------------------- --------- ---------- --------- ---------- --------- ----------
Total $207.0 $201.3 $5.7 2.8% $421.8 $394.4 $27.4 6.9%
======================================= ========= ========== ========= ========== ========== ========= ========== =========
Other operation and maintenance expenses increased primarily as a result
of increased revenue-related expenses (e.g. provision for bad debts) for energy
sales and increased employee benefit costs. Depreciation and amortization
increased due to normal property additions. Other taxes for the six months ended
June 30, 2001 increased primarily due to increased property taxes.
Other Income
Other income for the three and six months ended June 30, 2001 increased
when compared to the corresponding periods in 2000, primarily due to the
non-recurring gain recognized in May 2001in connection with the Company's
investment in Powertel, Inc., which was acquired by Deutsche Telekom AG, and the
March 2001 gain on the sale of the assets of SCANA Security (see Note 8 of Notes
to Condensed Consolidated Financial Statements).
Interest Expense
Interest expense for the three and six months ended June 30, 2001
increased when compared to the corresponding periods in 2000, primarily due to
the issuance of debt in mid-2000 and early 2001. The proceeds of such debt
offerings were used to refinance debt related to the acquisition of PSNC in
February 2000 and for general corporate purposes, including providing working
capital for natural gas purchases.
Income Taxes
Income taxes for the three and six months ended June 30, 2001 increased
approximately $190.0 million when compared to the corresponding periods in 2000.
This change is primarily due to the non-recurring gain recorded in May 2001 in
connection with the sale of the Company's investment in Powertel, Inc., which
was acquired by Deutsche Telekom AG (see Note 8 of Notes to Condensed
Consolidated Financial Statements).
SOUTH CAROLINA ELECTRIC & GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
appearing in South Carolina Electric & Gas Company's (SCE&G) Annual Report on
Form 10-K for the year ended December 31, 2000.
Statements included in this discussion and analysis (or elsewhere in
this quarterly report) which are not statements of historical fact are intended
to be, and are hereby identified as, "forward looking statements" for purposes
of the safe harbor provided by Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve a number of risks and
uncertainties, and that actual results could differ materially from those
indicated by such forward-looking statements. Important factors that could cause
actual results to differ materially from those indicated by such forward-looking
statements include, but are not limited to, the following: (1) that the
information is of a preliminary nature and may be subject to further and/or
continuing review and adjustment, (2) changes in the utility regulatory
environment, (3) changes in the economy especially in SCE&G's service territory,
(4) the impact of competition from other energy suppliers, (5) growth
opportunities, (6) the results of financing efforts, (7) changes in SCE&G's
accounting policies, (8) weather conditions, especially in areas served by
SCE&G, (9) inflation, (10) changes in environmental regulations and (11) the
other risks and uncertainties described from time to time in SCE&G's periodic
reports filed with the Securities and Exchange Commission. SCE&G disclaims any
obligation to update any forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
On October 15, 1999 the Federal Energy Regulatory Commission (FERC)
notified SCE&G of its agreement with SCE&G's plan to reinforce Lake Murray Dam
in order to maintain the lake in case of an extreme earthquake. SCE&G and FERC
have been discussing possible reinforcement alternatives for the dam over the
past several years as part of SCE&G's ongoing hydroelectric operating license
with FERC. The cost and completion date of this project will depend on the
reinforcement alternative ultimately approved by FERC; however, it is possible
that the costs could range up to $300 million with completion dates ranging from
2004 to 2006. Although any costs incurred by SCE&G are expected to be
recoverable through electric rates, SCE&G also is exploring alternative sources
of funding.
On February 9, 2000 FERC issued FERC Order 2000. The Order requires
utilities which operate electric transmission systems to submit plans for the
possible formation of a regional transmission organization (RTO). On October 16,
2000 SCE&G and two other southeastern electric utilities filed a joint request
with FERC to establish GridSouth Transco, LLC (GridSouth). FERC gave provisional
approval to GridSouth in March 2001. When operational, GridSouth will function
as an independent regional transmission company. In July 2001 FERC ordered
mediation talks to take place between the utilities forming GridSouth and
certain groups that have proposed other RTOs. These talks are being mediated by
an administrative law judge, with a stated goal of FERC being the formation of a
single RTO in the Southeast.
In March 2001 V. C. Summer Nuclear Station returned to service. It had
been taken out of service on October 7, 2000 for a planned maintenance and
refueling outage. During initial inspection activities, plant personnel
discovered a small leak coming from a hole in a weld in a primary coolant system
pipe. Repairs were completed and the integrity of the new welds was verified
through extensive testing. The PSC has approved recovery of the cost of
replacement power through SCE&G's electric fuel adjustment clause (see Note 3A
of Notes to Condensed Consolidated Financial Statements). The Nuclear Regulatory
Commission was closely involved throughout this process and approved SCE&G's
actions to repair the crack, as well as the restart schedule. SCE&G will
continue to monitor primary coolant system pipes during the next outage,
scheduled for Spring of 2002.
In April 2001 SCE&G announced plans to construct a 620 megawatt
combined cycle natural gas-fueled power plant in Jasper County, South Carolina,
to supply electricity to its South Carolina customers. The proposed generation
facility is estimated to cost between $250 million and $300 million.
Construction is expected to begin in the Summer of 2002 and is expected to be
completed in the Summer of 2004.
In April 2001 SCE&G's 385 megawatt coal-fired Cope Generating Station
returned to service. It had been taken out of service in January 2001 due to an
electrical ground in the generator. The PSC has approved recovery of the cost of
replacement power through SCE&G's electric fuel adjustment clause (see Note 3A
of Notes to Condensed Consolidated Financial Statements).
The following table summarizes how SCE&G generated and used funds for
property additions and construction expenditures during the six months ended
June 30, 2001 and 2000:
--------------------------------------------------------------------------------
Six Months Ended
June 30,
Millions of dollars 2001 2000
-------------------------------------------------------------------- -----------
Net cash provided from operating activities $111 $173
Net cash provided from (used for)
financing activities 9 (92)
Cash and temporary cash investments
available at the beginning of the period 60 78
--------------------------------------------------------------------------------
Net cash available for utility property
additions and construction expenditures $180 $159
================================================================================
Funds used for utility property additions
and construction expenditures, net of
noncash allowance for funds used during construction $150 $113
Funds used for investments - $4
================================================================================
On January 24, 2001 SCE&G issued $150 million First Mortgage Bonds
having an annual interest rate of 6.70 percent and maturing on February 1, 2011.
The proceeds were used to reduce short-term debt and for general corporate
purposes.
SCE&G anticipates that the remainder of its 2001 cash requirements will
be met through internally generated funds and the incurrence of additional
short-term and long-term indebtedness. SCE&G expects that it has or can obtain
adequate sources of financing to meet its projected cash requirements for the
next 12 months and for the foreseeable future. SCE&G's ratio of earnings to
fixed charges for the 12 months ended June 30, 2001 was 4.07.
Environmental Matters
For information on environmental matters see Note 6C "Contingencies -
Environmental" of Notes To Condensed Consolidated Financial Statements appearing
in this Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001
AS COMPARED TO THE CORRESPONDING PERIODS IN 2000
Earnings and Dividends
Changes in net income for the three and six months ended June 30, 2001
and 2000 were as follows:
------------------------------------------------- --------------------------- ---------------------------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 2001 2000
------------------------------------------------- ------------- ------------- ------------- -------------
Net income derived from:
Operations $43.0 $44.3 $96.5 $98.5
Cumulative effect of change in accounting - - - 22.3
------------------------------------------------- ------------- ------------- ------------- -------------
Total net income $43.0 $44.3 $96.5 $120.8
================================================= ============= ============= ============= =============
Net income from operations for the three months ended June 30, 2001
decreased primarily due to milder weather and increases in interest expense and
other operation and maintenance expense, which were partially offset by customer
growth.
Net income from operations for the six months ended June 30, 2001
decreased primarily due to milder weather, increases in interest expense and
other operation and maintenance expense and an economic slowdown, which were
partially offset by customer growth.
For the last several years, the market value of the Company's retirement
plan assets has exceeded the total actuarial present value of accumulated plan
benefits. Pension income for the three and six months ended June 30, 2001 and
2000 was $7.8 million and $15.6 million, respectively. As a result of pension
income, employee benefit expenses were reduced approximately $4.8 million and
$9.6 million for the three and six months ended June 30, 2001. For the
corresponding periods in 2000, employee benefit costs were reduced approximately
$4.7 million and $9.5 million. Additionally, other income increased $3.0 million
and $6.0 million for the three and six months ended June 30, 2001 and 2000.
Earnings from the cumulative effect of change in accounting resulted
from recording of unbilled revenue (See Note 2 of Notes to Condensed
Consolidated Financial Statements).
Allowance for funds used during construction (AFC) is a utility
accounting practice whereby a portion of the cost of both equity and borrowed
funds used to finance construction (which is shown on the balance sheet as
construction work in progress) is capitalized. Both the equity and the debt
portions of AFC are noncash items of nonoperating income which have the effect
of increasing reported net income. AFC represented approximately six percent and
five percent of income before income taxes for the three and six months ended
June 30, 2001, respectively. For the three and six months ended June 30, 2000,
AFC represented approximately two percent of income before income taxes.
SCE&G's Board of Directors declared the following quarterly dividends
on common stock held by SCANA, during 2001:
--------------------- ------------------ -------------------- ------------------
Declaration Dividend Quarter Payment
Date Amount Ended Date
--------------------- ------------------ -------------------- ------------------
February 22, 2001 $35.0 million March 31, 2001 April 1, 2001
---------------------
May 3, 2001 $41.75 million June 30, 2001 July 1, 2001
---------------------
August 2, 2001 $38.5 million September 30, 2001 October 1, 2001
--------------------- ------------------ -------------------- ------------------
Electric Operations
Electric Operations is comprised of the electric portion of SCE&G and
South Carolina Fuel Company. Changes in the electric operations sales margins,
excluding the cumulative effect of accounting change, for the three and six
months ended June 30, 2001, when compared to the corresponding periods in 2000,
were as follows:
--------------------------------- ------------------------------------------ ----------------------------------------------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
--------------------------------- --------- --------- ---------------------- ----------- ----------- ----------------------
Electric operating revenue $341.8 $319.8 $22.0 6.9% $683.4 $614.1 $69.3 11.3%
Less: Fuel used in generation 54.7 55.2 (0.5) (0.9%) 104.7 112.2 (7.5) (6.7%)
Purchased power 61.3 37.6 23.7 63.0% 135.9 66.6 69.3 *
--------------------------------- -------------------------- --- -------------------- ---------
Margin $225.8 $227.0 $(1.2) (0.5%) $442.8 $435.3 $7.5 1.7%
================================= ========= ========= ========== =========== =========== =========== =========== ==========
*Greater than 100%
-
Changes in electric operations sales margins for the three months ended
June 30, 2001 reflect milder weather and an economic slowdown. Changes in
electric operations sales margin for the six months ended June 30, 2001 reflect
steady customer growth partially offset by weather and an economic slowdown.
Increases in purchased power costs for both periods, as compared to the
corresponding periods in 2000, were primarily attributable to plant outages
discussed at Liquidity and Capital Resources, which delayed scheduled
maintenance outages at other plants until April and May 2001.
Gas Distribution
Gas Distribution is comprised of the local distribution operations of
SCE&G. Changes in the gas distribution sales margins, excluding the cumulative
effect of accounting change, for the three and six months ended June 30, 2001,
when compared to the corresponding periods in 2000, were as follows:
------------------------------------ ----------------------------------------- ---------------------------------------------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
------------------------------------ --------- --------- --------------------- ----------- ---------- ----------------------
Gas operating revenue $57.8 $51.0 $6.8 13.3% $214.9 $151.5 $63.4 41.8%
Less: Gas purchased for resale 46.5 38.6 7.9 20.5% 165.4 100.3 65.1 64.9%
------------------------------------ ---------- ----------- ---------- -----------
--------- ---------
Margin $11.3 $12.4 $(1.1) (8.9%) $49.5 $51.2 $(1.7) (3.3%)
==================================== ========= ========= ========== ========== =========== ========== =========== ==========
Gas distribution sales margins for the three and six months ended June
30, 2001 decreased as a result of milder weather and an economic slowdown.
Revenues and purchases were impacted by large increases in natural gas prices in
late 2000 and early 2001. The increased cost of gas was passed on to customers
as discussed in Note 3B in Notes To Condensed Consolidated Financial Statements.
Other Operating Expenses
Changes in other operating expenses for the three and six months ended
June 30, 2001 when compared to the corresponding periods in 2000, were as
follows:
-------------------------------------- ---------------------------------------- --------------------------------------------
Three Months Ended Six Months Ended
Millions of dollars 2001 2000 Change 2001 2000 Change
-------------------------------------- --------- -------- --------------------- ---------- ---------- ----------------------
Other operation and maintenance $83.7 $80.8 $2.9 3.6% $162.6 $154.2 $8.4 5.4%
Depreciation and amortization 41.0 38.9 2.1 5.4% 81.6 79.2 2.4 3.0%
Other taxes 24.8 24.4 0.4 1.6% 50.4 49.6 0.8 1.6%
-------------------------------------- --------- ---------- ---------- -------------
--------- --------
Total $149.5 $144.1 $5.4 3.7% $294.6 $283.0 $11.6 4.1%
====================================== ========= ======== ========= =========== ========== ========== ============= ========
Other operation expenses for the three and six months ended June 30, 2001
increased primarily as a result of increases in employee benefit costs. The
increase in depreciation and amortization expenses for the three and six months
ended June 30, 2001 resulted from normal property additions. Other taxes
increased primarily due to increased property taxes.
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
Management's Narrative Analysis of Results of Operations appearing in Public
Service Company of North Carolina, Incorporated's (PSNC) Annual Report on Form
10-K for the year ended December 31, 2000.
Statements included in this narrative analysis (or elsewhere in this
quarterly report) which are not statements of historical fact are intended to
be, and are hereby identified as, forward-looking statements for purposes of the
safe harbor provided by Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are
cautioned that such forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties, and that actual
results could differ materially from those indicated by such forward-looking
statements. Important factors that could cause actual results to differ
materially from those indicated by such forward-looking statements include, but
are not limited to, the following: (1) that the information is of a preliminary
nature and may be subject to further and/or continuing review and adjustment,
(2) changes in the utility regulatory environment, (3) changes in the economy,
especially in PSNC's service territory, (4) the impact of competition from other
energy suppliers, (5) growth opportunities, (6) the results of financing
efforts, (7) changes in PSNC's accounting policies, (8) weather conditions,
especially in areas served by PSNC, (9) inflation, (10) changes in environmental
regulations and (11) the other risks and uncertainties described from time to
time in PSNC's periodic reports filed with the Securities and Exchange
Commission. PSNC disclaims any obligation to update any forward-looking
statements.
Capital Expansion Program
PSNC's capital expansion program, through the construction of lines,
services, systems and facilities, and the purchase of equipment, is designed to
help PSNC meet the growing demand for natural gas in its franchised service
areas. PSNC's 2001 construction budget is approximately $58.0 million, compared
to actual construction expenditures for 2000 of $39.1 million. The construction
program is reviewed regularly by management and is dependent upon PSNC's
continuing ability to generate adequate funds internally and to sell new issues
of debt on acceptable terms. Construction expenditures during the six months
ended June 30, 2001 were $28.9 million compared to $15.0 million for the same
period last year. PSNC's ratio of earnings to fixed charges for the 12 months
ended June 30, 2001 was 3.26.
Earnings and Dividends
Net income for the six months ended June 30, 2001 and 2000 was as
follows:
--------------------------------------------------------------------------------
Six Months Ended
June 30,
Millions of dollars 2001 2000
---------------------------------------------------------------- ---------------
Net income derived from:
Operations $15.6 $14.2
Cumulative effect of change in accounting - 6.6
---------------------------------------------------------------- ---------------
Total net income $15.6 $20.8
================================================================ ===============
Net income from operations for the six months ended June 30, 2001
increased $1.4 million over the corresponding period in 2000 primarily due to
customer growth and a decrease in operating and maintenance expenses. In 2000
net income reflects a change in accounting to record unbilled revenues (see Note
2 of Notes to Condensed Consolidated Financial Statements).
PSNC's Board of Directors declared the following quarterly dividends on common
stock held by SCANA during 2001:
-------------------- ------------------- --------------------- -----------------
Declaration Date Dividend Amount Quarter Ended Payment Date
-------------------- ------------------- --------------------- -----------------
February 22, 2001 $6.0 million March 31, 2001 April 1, 2001
May 3, 2001 $5.8 million June 30, 2001 July 1, 2001
August 2, 2001 $3.0 million September 30, 2001 October 1, 2001
-------------------- ------------------- --------------------- -----------------
Gas Distribution
Changes in gas distribution sales margins for the six months ended June
30, 2001, when compared to the corresponding period in 2000, were as follows:
-----------------------------------------------------------------------------
Six Months Ended June 30,
Millions of dollars 2001 2000 Change
----------------------------------- ---------- ------------------------------
Gas operating revenue $295.6 $249.8 $45.8 18.3%
Less: Cost of gas 202.3 155.9 46.4 29.8%
----------------------------------- ---------- --------------
Gross margin $93.3 $93.9 $(0.6) (0.6%)
=================================== ========== ============== ===============
The decrease in margin for six months ended June 30, 2001 is primarily
due to lower natural gas usage per degree day and the sale of PSNC Production
Corporation (see Note 4 of Notes to Condensed Consolidated Financial
Statements). This decrease was partially offset by a 2.8 percent increase in
customers. Customers as of June 30, 2001 and 2000 were approximately 362,000 and
352,000, respectively. Revenues and cost of gas were impacted by large increases
in natural gas prices in late 2000 and early 2001.
Operating Expenses
Operating and maintenance expenses for the six months ended June 30,
2001 decreased $2.7 million when compared to the corresponding period in 2000.
This decrease is primarily due to reduced costs related to employee benefits and
advertising. The decrease also reflects the sale of PSNC Production Corporation.
SCANA CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCANA CORPORATION
(Registrant)
October 1, 2001 By: s/M. R. Cannon
----------------------------------
M. R. Cannon
Controller
(Principal accounting officer)
SOUTH CAROLINA ELECTRIC & GAS COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
-------------------------------------
(Registrant)
October 1, 2001 By: s/Mark R. Cannon
---------------------------------
Mark R. Cannon
Controller
(Principal accounting officer)
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
(Registrant)
October 1, 2001 By: s/Mark R. Cannon
---------------------------------
Mark R. Cannon
Controller
(Principal accounting officer)