BEFORE
THEPUBLIC SERVICE COMMISSION
OF
SOUTH CAROLINA
Docket No. 2013-_-E2013- -E
ININRE:RE: ) ) APPLICATION BY SOUTH CAROLINA ELECTRIC & ) APPLICATION FOR GAS COMPANY FOR AUTHORITY TO ISSUE AND ) ISSUANCE OF SELL FROM TIME TO TIME NOT EXCEEDING ) SECURITIES $1$ 1,500,000,000 ,500,000,000 AGGREGATE PRINCIPAL AMOUNT ) OF FIRST MORTGAGE BONDS ) )
1. INTRODUCTION
South Carolina Electric & Gas Company ("SCE&G" or the "Company"),"Company"), a corporation organized under the laws of South Carolina, hereby makes application pursuant to S.CS.C.. Code
Ann. §$ 58-27-1710 eret seq. (1976, as amended), and 10 S.C. Code Ann. Regs. 103-823 and 823.1
(2012), to the Public Service Commission of South Carolina (the "Commission")"Commission") for power and authority to issue and sell from time to time not exceeding One Billion Five Hundred Million
Dollars ($1,500,000,000)($ 1,500,000,000) aggregate principal amount of its First Mortgage Bonds (the "New
Bonds")Bonds") pursuant to the Company's Indenture dated as of April 1,I, 1993, as supplemented (the
"Indenture"),"Indenture"), between the SCE&G and The Bank of New York Mellon Trust Company, N.A., successor to NationsBank of Georgia, National Association, as trustee (the "Trustee")."Trustee"). A copy of SCE&G's Registration Statement No. 333-184426-01 ("("RegistrationRegistration Statement"Statement")) filed with the United States Securities and Exchange Commission ("SEC") in October 2012 on Form S-3
1 under the Securities Act of 1933, as amended, with respect to the New Bonds, is furnished to the
Commission as Exhibit A hereto.
2. CORRESPONDENCE
Correspondence with respect to this Application should be addressed to the following person:
Mark R. Cannon * Ronald T. Lindsay * Treasurer S1'.Sr. VP & General Counsel SCANA Corporation SCANA Corporation 220 Operation Way —- C101 220 Operation Way -— D308 Cayce, South Carolina 29033 Cayce, South Carolina 29033 (803) 217-7838 (803) 217-6044 [email protected]@scana.corn [email protected]@scana.corn
K. Chad Burgess * Matthew W. Gissendanner * Associate General Counsel Assistant General Counsel SCANA Corporation SCANA Corporation 220 Operation Way -— C222 220 Operation Way -— C222 Cayce, South Carolina 29033 Cayce, South Carolina 29033 (803) 217-8141 (803) 217-5359 [email protected] [email protected] [email protected] scana.corn
* Persons for service
3. BUSINESS
SCE&G is a corporation duly organized and existing under the laws of the State of South
Carolina, having its principal office and place of business in Cayce, South Carolina. SCE&G is a wholly owned subsidiary of SCANA Corporation ("SCANA"), a South Carolina corporation.
Moreover, SCE&G is a combination electric and natural gas utility under the laws of South
Carolina and is subject to the jurisdiction of the Commission pursuant to Chapters 5 and 27 of
Title 58, S.C. Code of Laws (1976, as amended). The Company operates in the State of South
Carolina, serving the central, southern and southwestern portions of the State with electric
2 service and furnishing natural gas service throughout its service territory which encompasses all
or part of 35 ofthe 46 counties in South Carolina and covers more than 25,000 square miles.
4. AMOUNT AND CHARACTER OF SECURITIES TO BE ISSUED
A. Terms of New Bonds
SCE&GSCEAG requests authority to issue and sell not exceeding One Billion Five Hundred
Million Dollars ($1,500,000,000)($ 1,500,000,000) principal amount of New Bonds in one or more series and to negotiate (see Section 6 below) the terms for the New Bonds generally described as follows:
Principal Amount: $1,500,000,000$ 1,500,000,000 (maximum) in one or more series
Issue Date: From time to time
Basis: Unfunded property additions equal to ten-sevenths of the aggregate principal amount of such additional New Bonds, retirement credits or cash equal to the aggregate amounts of such New Bonds.
Interest Rate: Market
Maturity Date: Varying, with 55-year maximum
Call and Redemption Features: Market
Sinking Fund: Market, but none required
Initial Offering Price: Market, estimated to be approximately 92%92/0 to 112%112'/0 of principal amount (except for zero coupon securities)
Selling Discount: Underwritten sales or placementsplacetnents to institutional investors ("Institutional("Institutional Sales")Sales") 1.5%1.5'/0 (maximum) (expected range 0.6%0.6'/0 to 0.9/0)0.9%) and underwritten sales or placements to retail investors ("Retail("Retail Sales")Sales") 3.5%3.5'/0 (maximum) (expected range 3.0%3.0'/0 to 3.3%)3.3'/0)
Redemption Price: Market, estimated to be 100%100'/0 of principal amount plus a makemake- whole amount (yield maintenance payment) (except for zero coupon securities)
Current Credit Ratings: Moody's —- A3; S&PSAP -— A; Fitch —- A
3 Indenture Date: April 1, 1993
Number of Existing Supplemental Indentures: Two
Indenture Trustee: The Bank of New York Mellon Trust Company, N.A.
Outstanding Principal Amount: $3,381,425,000 — this amount includes First Mortgage Bonds that have been issued to secure tax-exempt Pollution Control Bonds (currently $88,770,000)$88,770,000)
The authority applied for, pursuant to this application, to issue and sell not exceeding One
Billion Five Hundred Million Dollars ($1,500,000,000)($ 1,500,000,000) principal amount of New Bonds is incremental to the authority,authority, granted by the Commission to SCE&G in previous ordersorders,, to issue and sell the the CompanyCompany's' s First Mortgage Bonds.
B. SecuritySecurit for the New Bonds
The New Bonds will be secured primarily by the lien of the Indenture upon substantially all of the electrical generation, transmission and distribution properties of SCE&G described in the granting clauses of the Indenture. Reference is made to "Description of the First M011gageMortgage
Bonds" in the form of Preliminary Prospectus in the Registration Statement. (Indenture Section
302) New Bonds may be issued on the basis of unfunded property additions equal to ten- sevenths of the aggregate principal amount of such additional New Bonds (Indenture Article IV), retirement credits (Indenture Article V), or cash equal to the aggregate principal amount of such
New Bonds (Indenture Article VI)VI)..
C. Net EarninEarningss Test
In general, the issuance of First Mortgage Bonds under the Indenture is subject to adjusted net earnings of the Company for 12 consecutive months within the preceding 18 months being at least twice the annual interest requirements on First Mortgage Bonds at the time outstanding and the First Mortgage Bonds then to be issued.
4 ~D.D dltR tl
SCE&G anticipates that the credit ratings of the New Bonds to be issued will be the same as the rating of outstanding First Mortgage Bonds. (Currently: Moody's —- A3; S&P -— A; Fitch-Fitch—
A.)
5. APPLICATION OF PROCEEDS AND COMPLIANCE WITH 10 S.C. CODE ANN. REG. 103-823.1
In compliance with the provisions of 10 S.C. Code Ann. Reg. 103-823.1, SCE&G submits the following required information.
A. Identify the effect of the proposed financing on the Company's income statement and
balance sheet and identify the impact of the proposed financing on the Company's capital
structure.
See Exhibit B to this Application with pro forma adjustments.
B. Identifyld dfy~ig specificallyll hhow theth fundsf d obtainedhtl dtl throughghth the pproposedp dy financinglg are tto beh
used by the Company.
(1)(I) The net proceeds from the sale of the New Bonds, together with other funds of
SCE&G, will be used for general corporate purposes, including the financing of
SCE&G's construction program (which includes the construction of new base
load generation as authorized by the Commission in Order No. 2009-104(A),
dated March 2, 2009), and nuclear fuel expenditures, the reduction of short-term
indebtedness and the refinancing of securities. Reference is made to "Use of
Proceeds" in the form of Preliminary Prospectus included as part of the
Registration Statement.
5 (2) The Company's cash requirements through 2015 for its construction program and
nuclear fuel expenditures are estimated at $1.7$ 1.7 billion and for refinancing
outstanding securities are estimated at $235$235 million. SCE&G may revise its cash
requirements to refinancing additional outstanding securities in light of changing
market conditions.
C. Provide information of the possible impact on the Company if the proposed financing is
not approved or if approval is delayed.
Substantially all of Company's electric plant, transmission and distribution assets
are subject to the lien of the Indenture, thereby limiting any further secured financing
other than through the method discussed herein. Without authorization to issue and sell
the New Bonds, the Company would be required to (a) seek additional short-term bank
loans on an unsecured basis; (b) sell additional commercial paper; (c) sell its accounts
receivable or attempt to obtain vendor financing of equipment; or (d) reduce its
construction program to the level that could be funded internally.
SCE&G is subject to the restriction under Section 204 of the Federal Power Act in
that the Company must file an application with the Federal Energy Regulatory
Commission ("FERC") for authority to issue short-term indebtedness in amounts
exceeding 5% of the par value (as defined) of its outstanding securities. The FERC
currentlycUlTently has authorized SCE&G to issue up to $1,600,000,000$ 1,600,000,000 of unsecured promissory
notes, commercial paper or direct loans with maturity dates of 12 months or less. The
authority to make such issuances will expire on October 15,2014.15, 2014.
6 D. Specify the expected effective rate of interest of any debt financing (a range for the rate is
appropriate). For common stock issues, provide information on the anticipated market
price and book value per share at the time of issue.
SCE&GSCE/kG cannot predict with any degree of certainty what may transpire in future credit
markets, for the New Bonds; however, in the near future, the Company does not
anticipate interest rates to exceed 8% on long-term utility bonds of like quality.
E. Provide information on the expected benefits (e.g., savings expected from early debt
retireinent)retirement) and costs (e.g., issuance expenses) of the proposed financing. Provide any
studies that were developed to identify these costs and benefits and the net result. (This
could incorporate present value analysis of the costs/benefits.) Identify the basic
assumptions of any analyses of costs/benefits.costs/benefits.
(1)(I) Issuance of New Bonds in proper proportion to other long-term capital is the
lowest cost source of long-term capital. SCE&G continually reviews potential
savings from refinancing of securities, but has not made a determination whether
it is economically feasible to refinace any specific series of securities with the
proceeds from the New Bonds,Bonds, because such a determination will depend upon
the receptivity of the market to new issues of the CompanyCompany's' s securities and upon
the spread between the embedded cost of the refinanced security and the expected
cost of the New Bonds immediately prior to the time that the New Bonds would
be priced, issued and sold. Issuance costs of any proposed bond issue will be
dependent upon the market prior to the time that such Bonds are priced, issued
and sold.
7 (2) SCE&G anticipates that selling discounts will range from 0.6% to 0.9%,
depending on the maturity of the New Bonds for Institutional Sales, and that the
selling discounts will range from 3.0% to 3.3% for Retail Sales. However, in
Section 6 below, the Company sets forth a wide variety of pricing provisions
because it is difficult to predict what market conditions might coincide with
SCE&G's demand for funding with the New Bonds.
6. TERMS OF ISSUANCE AND SALKSALE AT MARKET
SCE&G may offer and sell one or more series of the New Bonds from time to time when market conditions, in the judgment of the Company, are favorable, in either of three ways:
A. Underwriters or Dealers. If underwriters or dealers are utilized with respect to any series
of the New Bonds, SCE&G proposes to sell such series pursuant to an underwriting
agreement in such form as is reasonably necessary to consummate the transaction, to any
underwriter or dealer or to a group of underwriters or dealers to be selected at the time of
each such sale.
B. Private Placement. SCE&G may sell any series of New Bonds in a private placement to
a limited number of purchasers or to a single purchaser, which will require an appropriate
sales agreement with respect to such series.
C. T~hhAThrough Agents.t. tfthIf the CompanyC p y offersff anyy senest offth the NNew BBondsd tin a ptprivatet
placement or through agents to a limited number of purchasers or to a single purchaser,
an appropriate sales agreement will be utilized with respect to such series.
Negotiations at market with the purchaser or purchasers, to be concluded shortly before the offering of each series of the New Bonds, will determine the interest rate to be borne by, the maturity date of, the initial offering price of, the price to be paid to SCE&G for, the call
8 provisions of, any underwriting or purchase discount (i.e., the difference between the initial
offering price and the price paid by the purchaser or underwriter to SCE&G) with respect to, and
the redemption prices of, each series of the New Bonds. Based on CUlTentcuirent market conditions,
SCE&G anticipates that the initial offering price will not be less than 92% nor more than 112%
of the principal amount of such series of New Bonds (except in the case of original issue
discount bonds sometimes known as "zero coupon bonds"), that any underwriting or selling
discount will not exceed 1.5% of the principal amount of such series of the New Bonds issued
through Institutional Sales and 3.5% of the principal amount of such series of the New Bonds
issued through Retail Sales and that the initial regular redemption price, if any, will not exceed
100% of the principal amount of such series of the New Bonds plus a make-whole amount
(yield maintenance payment) (except in the case of original issue discount bonds sometimes
known as "zero coupon bonds"). SCE&G respectfully requests that it be authorized to negotiate,
in its judgment,judgment, the most favorable interest rate and terms obtainable on the date each series of the New Bonds is priced including, if appropriate, terms, prices and redemption provisions
appropriate for original issue discount securities sometimes known as "zero coupon bonds."
7. FINANCIAL CONDITION The financial condition of SCE&G as of December 31, 2012, is evidenced by the
Comapny's financial statements in Form 10-K, for the year ended December 31, 2012, furnished as Exhibit C, to this Application, which has been incorporated by reference in the Registration
Statement filed with the SEC.
WHEREFORE, SCE&G respectfully requests that the Commission make such investigation as it may deem necessary in accordance with law and:
9 (1) Grant SCE&G a Certificate of Authority stating that the issuance and sale from
time to time of not exceeding One Billion Five Hundred Million Dollars
($1,500,000,000)($ 1,500,000,000) principal amount New Bonds in one or more series due not later
than fifty-five (55) years is reasonably necessary to the financings described
herein;
(2) Authorize and approve the Company to negotiate the terms of and to execute and
deliver one or more supplemental indentures, if necessary for issuance and sale of
New Bonds;
(3) Authorize and approve SCE&GSCEEcG to negotiate the terms of and to enter into,
execute and deliver an underwriting agreement for issuance and sale of New
Bonds in such form as may be reasonably necessary to consummate the patiicularparticular
transaction;
(4) Authorize and approve SCE&GSCEkG to negotiate the terms of and to enter into,
execute and deliver an appropriate sales agreement with respect to the New Bonds
as may be reasonably necessary to consummate the particular transactiontransaction.. The
Company proposes to file with the Commission conformed copies of the
instruments in the final form in which they are executed;
10 (5) Grant such other and further relief as may be appropriate in the circumstances.
uua II llilaa
SOUTH CAROLINA ELECTRIC & GAS = W,' P~'.~ = P: cri =- COM ==:; SEAL::-:=- CO~ =-i-',O~ a 2 [SEAL] g g= ByBYifu~~ Risk Management Officer and Treasurer ~la IIII aa llllilo
ATTEST:
Gina Champion Secretary
Cayce, South Carolina April 12,201312, 2013
11 STATE OF SOUTH CAROLINA ) ) COUNTY OF LEXINGTON )
PERSONALLYPERSONALL Y APPEARED before me Mark R. Cannon, who on oath, said, that he is the Risk Management Officer and Treasurer of South Carolina Electric & Gas Company, the Company herein, and makes this verification on its behalf, that he has read the foregoing and attached Application, that the statements of fact therein are true of his own knowledge, and that as to the opinions expressed therein, he believes them to be true.
SWORN TO before me this 12th day of April, 2013
Patricia K. Haltiwanger Notary Public for South Carolina My Commission expires March 22,2016.22 2016.
12 EXHIBITS
Exhibit A - Registration Statement
Exhibit B - SCE&G's Pro Forma Financial Statements
Exhibit C - SCE&G's Annual Report on Form 10-K,IO-K, as amended, for the year ended December 31, 2012
13 Exhibit A Page 1 of 112 As filed with the Securities and Exchange Commission on October 15, 2012
Registration No. 333-184426 & 333-184426-01 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SCANA CORPORATION (Exact name of registrant as specified in its charter)
South Carolina 57-0784499 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) SOUTH CAROLINA ELECTRIC & GAS COMPANY (Exact name of registrant as specified in its charter)
South Carolina 57-0248695 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
100 SCANA Parkway Cayce, South Carolina 29033 (803) 217-9000 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) Ronald T. Lindsay, Esq. Senior Vice President and General Counsel 100 SCANA Parkway Cayce, South Carolina 29033 (803) 217-6044 (Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
John W. Currie, Esq. R. Mason Bayler, Jr., Esq. McNair Law Firm, P.A. Troutman Sanders LLP 1221 Main Street, 18th Floor 1001 Haxall Point Columbia, South Carolina 29201 Richmond, Virginia 23219 (803) 799-9800 (804) 697-1200 Approximate date of commencement of proposed sale to the public: After the effective date of this registration statement, as determined by market conditions and other factors. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
Exhibit A Page 2 of 112 If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. 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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated Accelerated Non-accelerated SCANA Corporation filer px filer filer Smaller reporting company Large accelerated Accelerated Non-accelerated South Carolina Electric & Gas Company filer filer filer px Smaller reporting company
CALCULATION OF REGISTRATION FEE
Proposed Proposed maximum maximum Title of each class of securities Amount to be offering price per aggregate offering Amount of to be registered registered(1)(2) unit(1)(2)(3) price(1)(2)(3) registration fee(4)
SCANA Corporation
Medium Term Notes
Junior Subordinated Notes
Common Stock
South Carolina Electric & Gas Company
First Mortgage Bonds
(1) Not applicable pursuant to Form S-3 General Instruction II.E.
(2) An unspecified amount of securities of each identified class is being registered by SCANA Corporation ("SCANA") and South Carolina Electric & Gas Company ("SCE&G") as may from time to time be offered at indeterminate or unspecified prices.
(3) Exclusive of accrued interest, distributions and dividends, if any.
(4) In reliance upon Rule 456(b) and 457(r) under the Securities Act, the registrants are electing to defer payment of all of the registration fee. Exhibit A Page 3 of 112 PROSPECTUS SCANA Corporation South Carolina Electric & Gas Company 100 SCANA Parkway Cayce, South Carolina 29033 (803) 217-9000 SCANA CORPORATION Medium Term Notes, Junior Subordinated Notes and Common Stock SOUTH CAROLINA ELECTRIC & GAS COMPANY First Mortgage Bonds This prospectus contains summaries of the general terms of Medium Term Notes (the "Notes"), Junior Subordinated Notes (the "Junior Subordinated Notes") and Common Stock (the "Common Stock") to be issued by SCANA Corporation ("SCANA") and First Mortgage Bonds (the "Bonds") to be issued by South Carolina Electric & Gas Company ("SCE&G"). You will find the specific terms of these securities, and the manner in which they are being offered, in supplements to this prospectus. You should read this prospectus and the prospectus supplement carefully before you invest. The Common Stock is listed on The New York Stock Exchange under the symbol "SCG." Unless otherwise indicated in a prospectus supplement, the other securities described in this prospectus will not be listed on a national securities exchange. Investing in these securities involves risks. See "RISK FACTORS" beginning on page 1 herein to read about certain factors you should consider before buying these securities. We urge you to carefully read this prospectus and the applicable prospectus supplement, which will describe the specific terms of the offering, before you make your investment decision. A prospectus supplement will name any agents or underwriters involved in the sale of these securities and will describe any compensation not described in this prospectus. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus or any prospectus supplement. Any representation to the contrary is a criminal offense.
The date of this prospectus is October 15, 2012. Exhibit A Page 4 of 112
TABLE OF CONTENTS
Page
About this Prospectus 1 Risk Factors 1 Cautionary Statement Regarding Forward-Looking Information 1 Where You Can Find More Information 3 The Registrants 3 Ratio of Earnings to Fixed Charges 5 Use of Proceeds 6 Description of the Medium Term Notes 6 Description of the Junior Subordinated Notes 12 Description of the Common Stock 18 Description of the First Mortgage Bonds 19 Book-Entry System 25 Plan of Distribution 25 Experts 26 Validity of the Securities 26 Exhibit A Page 5 of 112
ABOUT THIS PROSPECTUS This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission ("SEC") utilizing a "shelf" registration process. Under this shelf registration process, we may sell any or all of the securities described in this prospectus in one or more offerings. This prospectus provides you with a general description of these securities. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and the relevant prospectus supplement, together with the additional information described under the heading "Where You Can Find More Information." As used in this prospectus, "SCANA" refers to SCANA Corporation and "SCE&G" refers to South Carolina Electric & Gas Company. The terms "we," "us" and "our" refer to SCANA when discussing the securities to be issued by SCANA, SCE&G when discussing the securities to be issued by SCE&G, and collectively to SCANA and SCE&G where the context requires. The term "Company" refers to SCANA and its subsidiaries. RISK FACTORS Investing in our securities involves a significant degree of risk. In deciding whether to invest in our securities, you should carefully consider those risk factors included in Item 1A, Risk Factors, of our most recent annual reports on Form 10-K, as supplemented by our quarterly reports after such annual reports on Form 10-Q, each of which is incorporated herein by reference, and those risk factors that may be included in the applicable prospectus supplement, together with all of the other information presented in this prospectus, any prospectus supplement and the documents we have incorporated by reference. Each of these factors could materially adversely affect our operations, financial results and the market price of our securities. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION Statements included in this prospectus, any prospectus supplement and the documents incorporated by reference herein 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 (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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," “forecasts,” "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, regulations governing electric grid reliability, environmental regulations, and actions affecting the construction of new nuclear units;
(3) current and future litigation;
(4) changes in the economy, especially in areas served by subsidiaries of SCANA;
(5) the impact of competition from other energy suppliers, including competition from alternate fuels in industrial markets;
1 Exhibit A Page 6 of 112
(6) growth opportunities for SCANA's regulated and diversified subsidiaries;
(7) the results of short- and long-term financing efforts, including 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 Company’s generation and transmission facilities are located and in areas served by SCANA's subsidiaries;
(10) payment and performance by counterparties and customers as contracted and when due;
(11) the results of efforts to license, site, construct and finance facilities for electric generation and transmission;
(12) maintaining creditworthy joint owners for SCE&G’s new nuclear generation project;
(13) the ability of suppliers, both domestic and international, to timely provide the labor, components, parts, tools, equipment and other supplies needed, at agreed upon prices, for our construction program, operations and maintenance;
(14) the results of efforts to ensure the physical and cyber security of key assets and processes;
(15) 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;
(16) the availability of skilled and experienced human resources to properly manage, operate, and grow the Company’s businesses;
(17) labor disputes;
(18) performance of SCANA's pension plan assets;
(19) changes in taxes;
(20) inflation or deflation;
(21) compliance with regulations;
(22) natural disasters and man-made mishaps that directly affect our operations or the regulations governing them; and
(23) the other risks and uncertainties described from time to time in the periodic reports filed by SCANA or SCE&G with the SEC. We disclaim any obligation to update any forward-looking statements.
2 Exhibit A Page 7 of 112
WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC. SCANA's file number with the SEC is 001-08809 and SCE&G's file number with the SEC is 001-03375. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file with the SEC at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. You may also read and copy these documents at the offices of The New York Stock Exchange, 20 Broad Street, New York, New York 10005. This prospectus does not repeat important information that you can find elsewhere in the registration statement and in the reports and other documents which we file with the SEC under the Exchange Act. The SEC allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is an important part of this prospectus and information that we file later with the SEC will automatically update or supersede this information. We incorporate by reference the documents listed below and any future filings (other than any portions of those documents not deemed to be filed) made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act, until all of the securities to which this prospectus relates are sold or the offering is otherwise terminated: SCANA • Annual Report on Form 10-K for the year ended December 31, 2011; • Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012; • Current Reports on Form 8-K, filed January 19, 2012, May 4, 2012 and August 3, 2012; and • the description of the Common Stock contained in SCANA's Registration Statement under the Exchange Act on Form 8-B dated November 6, 1984, as amended May 26, 1995. SCE&G • Annual Report on Form 10-K for the year ended December 31, 2011; • Quarterly Reports on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012; and • Current Reports on Form 8-K, filed January 24, 2012 and July 11, 2012. You may request a copy of these filings, at no cost, by writing or telephoning us at: Iris Griffin Investor Relations Manager SCANA Corporation 220 Operation Way Cayce, South Carolina 29033 (803) 217-6642 You may obtain more information by contacting our Internet website, at http://www.scana.com (which is not intended to be an active hyperlink). The information on our Internet website (other than the documents expressly incorporated by reference as set forth above) is not incorporated by reference in this prospectus, and you should not consider it part of this prospectus. You should rely only on the information we incorporate by reference or provide in this prospectus or any prospectus supplement. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents. THE REGISTRANTS SCANA is an energy-based holding company which, through its subsidiaries, engages principally in electric and natural gas utility operations and other energy-related businesses. Through its subsidiaries, the Company serves more than 664,000 electric customers in South Carolina and more than 1.2 million natural gas customers in South Carolina, North Carolina and Georgia.
3 Exhibit A Page 8 of 112
SCANA is a South Carolina corporation with general business powers, and was incorporated on October 10, 1984. SCANA's principal executive office is located at 100 SCANA Parkway, Cayce, South Carolina 29033, telephone (803) 217-9000, and its mailing address is 220 Operation Way, Cayce, South Carolina 29033-3701. Regulated Utilities The Company operates its regulated utility businesses in North Carolina and South Carolina through wholly- owned subsidiaries. These regulated businesses continue to be the foundation of the Company's operations and are conducted in an environment supported by growing service territories and favorable regulatory treatment. The Company is allowed, subject to state commission approval during annual fuel and purchased gas cost hearings, full pass-through to retail customers of its electric fuel and natural gas costs. This approval has historically been granted. There is also a weather normalization clause in effect for our electric customers and for our natural gas customers in South Carolina. In North Carolina, Public Service Company of North Carolina, Incorporated ("PSNC Energy") utilizes a customer usage tracker ("CUT"), a rate decoupling mechanism that breaks the link between revenues and the amount of natural gas sold, which allows PSNC Energy to periodically adjust its base rates for residential and commercial customers based on average per customer consumption. These measures mitigate our commodity price risk and customer usage fluctuations and allow us to focus our efforts on serving our customers. The following is a discussion of the Company's principal regulated utility subsidiaries. SCE&G. SCE&G is a public utility engaged in the generation, transmission, distribution and sale of electricity and the purchase, sale and transportation of natural gas in South Carolina. SCE&G's electric service area extends into 24 counties covering more than 17,000 square miles of the central, southern and southwestern portions of South Carolina. SCE&G's service area for natural gas encompasses more than 22,600 square miles in all or part of 35 of South Carolina's 46 counties. The total population of the counties representing SCE&G's combined service area is more than 3.2 million. SCE&G's principal executive office is located at 100 SCANA Parkway, Cayce, South Carolina 29033, telephone (803) 217-9000, and its mailing address is 220 Operation Way, Cayce, South Carolina 29033-3701. SCE&G provides all of its electric generation capacity through its own facilities and through the purchase of all of the electric generation of Williams Station, which is owned by South Carolina Generating Company, Inc. ("GENCO"), a wholly owned subsidiary of SCANA. SCE&G also operates and has a two-thirds interest in V. C. Summer Nuclear Station in South Carolina. This station furnished approximately 19% of SCE&G's electric generating capacity in 2011. SCE&G is a party to construction and operating agreements in which it agreed to be joint owner, and share operating costs and generation output, of two 1,117-MW nuclear generation units to be constructed at the site of Summer Station, with SCE&G responsible for 55 percent of the cost and receiving 55 percent of the output. Under these agreements, SCE&G has the primary responsibility for oversight of the construction of the two new nuclear generation units and will be responsible for their operation as they come online. SCE&G’s share of the estimated cash outlays (future value, excluding allowance for funds used during construction) totals approximately $6 billion for plant costs and related transmission infrastructure costs, which costs are projected based on historical one-year and five-year escalating rates as required by the Public Service Commission of South Carolina. The first of the two new nuclear generation units is scheduled for substantial completion in 2017, and the second new unit is scheduled for substantial completion in 2018. PSNC Energy. PSNC Energy is a public utility engaged primarily in purchasing, selling and transporting natural gas to approximately 487,000 residential, commercial and industrial customers in North Carolina. PSNC Energy's franchised service area includes 28 counties covering approximately 12,000 square miles of North Carolina. PSNC Energy is regulated by the North Carolina Utilities Commission ("NCUC"). 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 and, through operation of the CUT, PSNC Energy's base rates for residential and commercial customers are also adjusted based on average per customer consumption. The NCUC reviews PSNC Energy's gas purchasing practices each year. Carolina Gas Transmission Corporation ("CGT"). CGT operates as an open access, transportation-only interstate pipeline company and is regulated by the Federal Energy Regulatory Commission. 4 Exhibit A Page 9 of 112
CGT transports natural gas in southeastern Georgia and in South Carolina and has interconnections with Southern Natural Gas Company ("Southern Natural") at Port Wentworth, Georgia and with Southern LNG, Inc. at Elba Island, near Savannah, Georgia. CGT also has interconnections with Southern Natural in Aiken County, South Carolina, and with Transcontinental Gas Pipeline Corporation in Cherokee and Spartanburg counties, South Carolina. CGT's customers include SCE&G (which uses natural gas for electricity generation and for gas distribution to retail customers), SCANA Energy Marketing, Inc. (which markets natural gas to industrial and sale for resale customers, primarily in the Southeast), municipalities, county gas authorities, federal and state agencies, marketers, power generators and industrial customers primarily engaged in the manufacturing or processing of ceramics, paper, metal, and textiles. Principal Nonregulated Business SCANA Energy Marketing, Inc. SCANA Energy Marketing, Inc. markets natural gas primarily in the southeastern United States, and provides energy-related risk management services to producers and customers. SCANA Energy, a division of SCANA Energy Marketing, Inc., markets natural gas in Georgia's deregulated natural gas market. At June 30, 2012, SCANA Energy had approximately 450,000 natural gas customers in the Georgia market and serves as Georgia's regulated provider under a contract with the Georgia Public Service Commission. SCANA Energy is the second-largest marketer in Georgia's non-regulated retail gas market. SCANA Energy faces significant competition in the Georgia natural gas market. The information above concerning us and our subsidiaries is only a summary and does not purport to be comprehensive. For additional information concerning us and our subsidiaries, you should refer to the information described in "WHERE YOU CAN FIND MORE INFORMATION." RATIO OF EARNINGS TO FIXED CHARGES Our historical ratios of earnings to fixed charges are as follows:
Six Months Twelve Months Ended June 30, Ended June 30, Year Ended December 31, 2012 2012 2011 2010 2009 2008 2007 SCANA 2.83 2.89 2.87 2.92 2.84 3.04 3.03 SCE&G 3.01 3.22 3.13 3.18 3.25 3.51 3.40
For purposes of these ratios, earnings represent pre-tax income from continuing operations plus fixed charges and distributed income from equity investees, less preferred stock dividend requirements. Fixed charges represent interest charges, preferred stock dividend requirements and the estimated interest portion of annual rentals.
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USE OF PROCEEDS Unless we state otherwise in a prospectus supplement, the net proceeds from the sale of the securities offered by this prospectus will be used for financing capital expenditures, for refunding, redeeming or retiring debt and for other general corporate purposes. Pending application of the net proceeds for specific purposes, we may invest the proceeds in short-term or marketable securities. DESCRIPTION OF THE MEDIUM TERM NOTES General SCANA will issue the Notes under an Indenture dated as of November 1, 1989, as amended by the First Supplemental Indenture dated as of November 1, 2009 (as so amended, the "Note Indenture"), between SCANA and The Bank of New York Mellon Trust Company, N. A. (successor to The Bank of New York), as trustee (the "Note Trustee"). A copy of the Note Indenture has been incorporated by reference as an exhibit to the registration statement of which this prospectus is a part. The information in this section "DESCRIPTION OF THE MEDIUM TERM NOTES" briefly outlines some of the provisions of the Note Indenture. Please review the Note Indenture that we filed with the SEC for a full statement of those provisions. See "WHERE YOU CAN FIND MORE INFORMATION" on how to obtain a copy of the Note Indenture. You may also review the Note Indenture at the Note Trustee's offices at 101 Barclay Street 8W, New York, New York 10286. Capitalized terms used and defined under this heading "DESCRIPTION OF THE MEDIUM TERM NOTES" have the meanings given such terms as defined herein. Capitalized terms used under this heading which are not otherwise defined in this prospectus have the meanings given those terms in the Note Indenture. The summaries under this heading "DESCRIPTION OF THE MEDIUM TERM NOTES" are not detailed. Whenever particular provisions of the Note Indenture or terms defined in the Note Indenture are referred to, those statements are qualified by reference to the Note Indenture. References to article and section numbers under this heading "DESCRIPTION OF THE MEDIUM TERM NOTES," unless otherwise indicated, are references to article and section numbers of the Note Indenture. The Notes and all other debentures, notes or other evidences of indebtedness issued under the Note Indenture (referenced in this section as "debt securities") will be unsecured and will in all respects be equally and ratably entitled to the benefits of the Note Indenture, without preference, priority or distinction, and will rank equally with all other unsecured and unsubordinated indebtedness of SCANA. The Note Indenture does not limit the amount of debt securities that can be issued thereunder, and provides that our Notes may be executed in one or more series, as established in or pursuant to a board resolution and set forth in an officers' certificate or established in one or more supplemental indentures, and authenticated and delivered upon the delivery to the Note Trustee of such company orders, opinions and officers' certificates as may be required under the Note Indenture. (Sections 301 and 302). The Note Indenture also allows us to "reopen" any series of debt securities (including any series of Notes) by issuing additional debt securities of that series, if permitted by the terms of that series. Each prospectus supplement which accompanies this prospectus in connection with an offering of Notes will set forth some or all of the following information to describe a particular series of Notes: • any limit upon the aggregate principal amount of the Notes;
• the date or dates on which the principal of the Notes will be payable;
• the rate or rates at which the Notes will bear interest, if any (or the method of calculating the rate); the date or dates from which the interest will accrue; the date or dates on which the interest will be payable ("Interest Payment Dates"); the record dates for the interest payable on the Interest Payment Dates; and the basis upon which interest will be calculated if other than of a 360-day year of twelve 30-day months;
• any option on the part of us or the holders thereof to redeem the Notes and redemption terms and conditions;
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• any obligation on our part to redeem or purchase the Notes in accordance with any sinking fund or analogous provisions or at the option of the holder and the relevant terms and conditions for that redemption or purchase;
• the denominations of the Notes;
• whether the Notes are subject to a book-entry system of transfers and payments; and
• any other particular terms of the Notes and of their offering. (Section 301) Payment of Notes; Transfers; Exchanges Unless otherwise provided in a prospectus supplement, we will pay any interest due on each Note to the person in whose name that Note is registered as of the close of business on the record date relating to each Interest Payment Date. However, we will pay interest when the Notes mature (whether the Notes mature on their stated date of maturity, the date the Notes are redeemed or otherwise) to the person to whom the principal payment on the Notes is paid. If there is a default in the payment of interest on the Notes, we may either (1) choose a special record date which special record date is between ten and fifteen days prior to a payment date and pay on that payment date the holders of the Notes as of the close of business on that special record date, or (2) pay the holders of the Notes in any other lawful manner, all as more fully described in the Note Indenture. (Section 307) We will pay principal of, and any premium and interest due on, the Notes at maturity or upon earlier redemption or repayment of a Note upon surrender of that Note at the office of the paying agent (currently, the Note Trustee in New York, New York). (Sections 307, 308, 1001 and 1105) The applicable prospectus supplement identifies any other place of payment and any other paying agent. We may change the place at which the Notes will be payable, may appoint one or more additional paying agents and may remove any paying agent, all at our discretion. (Section 1002) Further, if we provide money to a paying agent to be used to make payments of principal of, premium (if any) or interest on any Note and that money has not rightfully been claimed two years after the applicable principal, premium or interest payment is due, then we may instruct the paying agent to remit that money to us, and any holder of a Note seeking those payments may thereafter look only to us for that money. (Section 1003) Except as provided in the following sentence or in a prospectus supplement, if principal of or premium (if any) or interest on the Notes is payable on a day which is not a Business Day, payment thereof will be postponed to the next Business Day, and no additional interest will accrue as a result of the delayed payment. (Section 114) "Business Day" means any day other than a Saturday or Sunday that is not a day on which banking institutions in Washington, D.C., or in New York, New York, are authorized or obligated by law or executive order to be closed. The "record date" will be 15 calendar days prior to each Interest Payment Date, whether or not that day is a Business Day, unless otherwise indicated in this prospectus or in the applicable prospectus supplement. You may transfer or exchange the Notes for other Notes of the same series, in authorized denominations (which are, unless otherwise stated in the prospectus supplement, denominations of $1,000 and any integral multiple thereof), and of like aggregate principal amount, at our office or agency in New York, New York (currently, the Note Trustee). At our discretion, we may change the place for registration and transfer of the Notes, and we may appoint one or more additional security registrars and remove any security registrar. The prospectus supplement will identify any additional place for registration of transfer and any additional security registrar. You are not responsible for paying a service charge for any transfer or exchange of the Notes, but you may have to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of the Notes. (Sections 305, 307 and 1002).
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Redemptions The Notes are subject to redemption prior to their stated maturity, as set forth in the relevant prospectus supplement. (Section 1101) If we redeem some or all of the Notes, the Note Trustee must notify you between 30 and 60 (or such shorter period specified in the applicable prospectus supplement) days before the redemption date (by first-class mail, postage prepaid) that some or all of the Notes will be redeemed. (Sections 106 and 1104) Further, if only a part of a Note is redeemed, then the holder of the unredeemed part of that Note will receive one or more new Notes. (Section 1107) The Notes will not be subject to any sinking fund. (Section 1201) Notwithstanding the foregoing, at any time, we may purchase the Notes or beneficial ownership interests in the Notes (if they are held in book-entry form) at any price in the open market or otherwise. In our sole discretion, we may hold, resell or retire any Notes or beneficial ownership interests in those Notes that we purchase. Defaults The following are defaults under the Note Indenture with respect to debt securities issued under the Note Indenture: (1) We fail to make payment of principal and premium (if any) on the debt securities when due and payable at maturity, (2) We fail to make payment of any interest or any other amount when due and payable on the debt securities, and such default continues for a period of 30 days; (3) We fail to deposit any sinking fund payment when due and payable on the debt securities, and such default continues for a period of three Business Days; (4) We file for bankruptcy or certain other events involving insolvency, receivership or bankruptcy occur; (5) We fail to perform certain covenants or agreements contained in the Note Indenture or the occurrence of other events specified as defaults with respect to the debt securities; (6) Either we or our principal subsidiaries (notably SCE&G and GENCO) fail to make payment on certain indebtedness or otherwise fail to perform under such indebtedness or the mortgage, indenture or other instrument authorizing, relating to or securing such indebtedness. Certain of these events become defaults only after the lapse of prescribed periods of time and/or notice from the Note Trustee. (Section 501) Upon the occurrence of a default under the Note Indenture, either the Note Trustee or the holder of at least 25% in principal amount of outstanding debt securities of the affected series may declare the principal of all outstanding debt securities of that series immediately due and payable. However, if the default is cured, the holders of a majority in principal amount of outstanding debt securities of the affected series may rescind that declaration and annul the declaration and its consequences. (Section 502) The holders of a majority in principal amount of outstanding debt securities of the affected series may direct the time, method and place of conducting any proceeding for the enforcement of the Note Indenture. (Section 512) No holder of any debt security of any series has the right to institute any proceeding with respect to the Note Indenture unless: • the holder previously gave written notice of a continuing event of default relating to the debt securities of that series to the Note Trustee,
• the holders of more than 25% in principal amount of outstanding debt securities of the affected series offer to the Note Trustee reasonable indemnity against costs and liabilities and request the Note Trustee to take action, and the Note Trustee declines to take action for 60 days after receipt of such request, and
• the holders of a majority in principal amount of outstanding debt securities of the affected series give no inconsistent direction during such 60-day period; provided, however, that each holder of a Note shall have the right to enforce payment of that Note when due. (Sections 507 and 508)
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The Note Trustee must notify the holders of the debt securities of any series within 90 days after a default has occurred with respect to those debt securities, unless that default has been cured or waived, provided, however, except in the case of default in the payment of principal of, premium (if any), or interest or other amount payable on any debt security, the Note Trustee may withhold the notice if it determines that it is in the interest of those holders to do so. (Section 602) We are required under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), to furnish to the Note Trustee at least once every year a certificate as to our compliance with the conditions and covenants under the Note Indenture and to deliver reports, information and other documents to the Note Trustee and to file certain documents with the SEC. (Sections 704 and 1005) Covenants, Consolidation, Merger, Etc. The Note Indenture provides that we will keep the property that we use in our business, or in the business of our subsidiaries, in good working order, and will improve it as necessary to properly conduct our business and that of our subsidiaries, as the case may be. (Section 1007) Except as described in the next paragraph, the Note Indenture provides that we will also maintain our corporate existence, rights and franchises and those of SCE&G and GENCO (collectively, our "Principal Subsidiaries"). (Section 1006) However, we are not required to preserve (a) the corporate existence of any of our subsidiaries other than our Principal Subsidiaries or (b) any such right or franchise if we determine that its preservation is not desirable in the conduct of our business or the business of our subsidiaries, consolidated as a whole, or its loss is not disadvantageous in any material respect to the holders of the outstanding debt securities of any series. (Section 1006) The Note Indenture provides that we may, without the consent of the holders of the debt securities, consolidate with, or sell, lease or convey all or substantially all of our assets to, or merge into another corporation, provided that (1) we are the continuing corporation, or, if not, the successor corporation assumes by a supplemental indenture our obligations under the Note Indenture and (2) immediately after giving effect to such transaction there will be no default in the performance of any such obligations. (Section 801) The Note Indenture provides that neither we nor our subsidiaries may issue, assume or guarantee any notes, bonds, debentures or other similar evidences of indebtedness for money borrowed ("Debt") secured by a mortgage, lien, pledge or other encumbrance ("Mortgages") upon any property of ours or our subsidiaries without effectively providing that the debt securities of each series issued under the Note Indenture (together with, if we so determine, any other indebtedness or obligation then existing or thereafter created ranking equally with those debt securities) are secured equally and ratably with (or prior to) such Debt so long as such Debt is so secured, except that this restriction will not apply to: (1) Mortgages to secure Debt issued under • the Indenture, dated April 1, 1993, between SCE&G and The Bank of New York Mellon Trust Company, N.A. (successor to NationsBank of Georgia, National Association), • the Mortgage and Security Agreement, dated August 21, 1992, between GENCO and The Prudential Insurance Company of America, as amended and restated by the Second Amended and Restated Mortgage and Security Agreement dated May 30, 2008, between GENCO and The Bank of New York Mellon Trust Company, N.A., as Collateral Agent, and • the Indenture of Mortgage, dated December 1, 1977, between CGT and Citibank, N.A., each as amended and supplemented to date and as it may be hereafter amended and supplemented from time to time ("Existing Mortgages"), or any extension, renewal or replacement of any of them; (2) Mortgages affecting property of a corporation existing at the time it becomes our subsidiary or at the time it is merged into or consolidated with us or one of our subsidiaries; (3) Mortgages on property existing at the time of acquisition thereof or incurred to secure payment of all or part of the purchase price thereof or to secure Debt incurred prior to, at the time of, or within 12 months after the acquisition for the purpose of financing all or part of the purchase price thereof;
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(4) Mortgages on any property to secure all or part of the cost of construction or improvements thereon or Debt incurred to provide funds for such purpose in a principal amount not exceeding the cost of such construction or improvements; (5) Mortgages which secure only an indebtedness owing by one of our subsidiaries to us or to another of our subsidiaries; (6) certain Mortgages to government entities, including mortgages to secure debt incurred in pollution control or industrial revenue bond financings; (7) Mortgages required by any contract or statute in order to permit us or one of our subsidiaries to perform any contract or subcontract made with or at the request of the United States of America, any state or any department, agency or instrumentality or political subdivision of either; (8) Mortgages to secure loans to us or to our subsidiaries maturing within 12 months from the creation thereof and made in the ordinary course of business; (9) Mortgages on any property (including any natural gas, oil or other mineral property) to secure all or part of the cost of exploration, drilling or development thereof or to secure Debt incurred to provide funds for any such purpose; (10) Mortgages existing on the date of the Note Indenture; (11) "Excepted Encumbrances" and "Permitted Encumbrances" as such terms are defined in any of the Existing Mortgages; (12) certain Mortgages typically incurred in the ordinary course of business or arising from any litigation or any legal proceeding which is currently being contested in good faith; and (13) any extension, renewal or replacement of any Mortgage referred to in the foregoing clauses (2) through (12), which does not increase the amount of debt secured thereby at the time of the renewal, extension or modification. Notwithstanding the foregoing, the Note Indenture provides that we and any or all of our subsidiaries may, without securing the debt securities, issue, assume or guarantee Debt secured by Mortgages in an aggregate principal amount which (not including Debt permitted to be secured under clauses (1) to (13) inclusive above) does not at any one time exceed 10% of the Consolidated Net Tangible Assets (as hereinafter defined) of us and our subsidiaries. (Section 1009) "Consolidated Net Tangible Assets" is defined as the total amount of assets appearing on the consolidated balance sheet of us and our subsidiaries subtracting, without duplication, the following: • all reserves for depreciation and other asset valuation reserves but excluding reserves for deferred federal income taxes;
• all intangible assets such as goodwill, trademarks, trade names, patents and unamortized debt discount and expense; and
• all appropriate adjustments on account of minority interests of other persons holding voting stock in any of our subsidiaries. (Section 101)
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Modification, Waiver and Meetings We may, without the consent of any holders of outstanding debt securities, enter into supplemental indentures for, including but not limited to, the following purposes: • to add to our covenants for the benefit of the holders or to surrender a right or power conferred upon us in the Note Indenture,
• to secure the debt securities,
• to establish the form or terms of any series of debt securities, or
• to make certain other modifications, generally of a ministerial or immaterial nature. (Section 901) We may amend the Note Indenture for other purposes only with the consent of the holders of a majority in principal amount of each affected series of outstanding debt securities. However, we may not amend the Note Indenture without the consent of the holder of each affected outstanding debt security for the following purposes: • to change the stated maturity or redemption date of the principal of, or any installment of interest on, any debt security or to reduce the principal amount, the interest rate of, any other amount payable in respect of or any premium payable on the redemption of any debt security;
• to reduce the principal amount of any debt security which is an Original Issue Discount Security (as defined in the Note Indenture) that would be due upon a declaration of acceleration of that security's maturity;
• to change the place or currency of any payment of principal of or any premium or interest on any debt security;
• to impair the right to institute suit for the enforcement of any payment on or with respect to any debt security after the stated maturity or redemption date of that debt security;
• to reduce the percentage in principal amount of outstanding debt securities of any series for which the consent of the holders is required to modify or amend the Note Indenture or to waive compliance with certain provisions of the Note Indenture, or reduce certain quorum or voting requirements of the Note Indenture; or
• to modify the foregoing requirements or reduce the percentage of outstanding debt securities necessary to modify other provisions of the Note Indenture or waive any past default thereunder. (Section 902) Except with respect to certain fundamental provisions, the holders of a majority in principal amount of outstanding debt securities of any series may waive past defaults with respect to that series and may waive our compliance with certain provisions of the Note Indenture with respect to that series. (Sections 513 and 1010) We, the Note Trustee or the holders of at least 10% in principal amount of the outstanding debt securities of the applicable series, may at any time call a meeting of the holders of debt securities of a particular series, and notice of that meeting will be given in accordance with "Notices" below. (Section 1402) Any resolution passed or decision taken at any meeting of holders of debt securities of a particular series duly held in accordance with the Note Indenture will be binding on all holders of debt securities of that series. The quorum at any meeting called for the holders of debt securities of a particular series to adopt a resolution, and at any reconvened meeting, will be a majority in principal amount of the outstanding debt securities of that series. (Section 1404) Notices Notices to holders of the Notes will be given by mail to the addresses of such holders as they appear in the security register. (Section 106)
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Defeasance If we deposit with the Note Trustee, money or Federal Securities (as defined in the Note Indenture) sufficient to pay, when due, the principal, premium (if any) and interest due on the Notes, then we will be discharged from any and all obligations with respect to the Notes, except for certain continuing obligations to register the transfer or exchange of those debt securities, to maintain paying agencies and to hold moneys for payment in trust. (Section 401) Our Relationship with the Note Trustee The Note Trustee and/or one or more of its affiliates, may be lenders under our, or our subsidiaries', credit agreements and may provide other commercial banking, investment banking and other services to us and/or our subsidiaries. The Note Trustee will be permitted to engage in other transactions with us and/or our subsidiaries; however, if the Note Trustee acquires any conflicting interest, as defined in the Trust Indenture Act or provided under the Note Indenture, it must eliminate the conflict or resign. DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES SCANA will issue the Junior Subordinated Notes under a Junior Subordinated Indenture dated as of November 1, 2009 (the "Subordinated Indenture") between SCANA and U.S. Bank National Association, as trustee (the "Subordinated Note Trustee"). A copy of the Subordinated Indenture has been incorporated by reference as an exhibit to the registration statement of which this prospectus is a part. The information in this heading "DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES" briefly outlines some of the provisions of the Subordinated Indenture. Please review the Subordinated Indenture that we filed with the SEC for a full statement of those provisions. See "WHERE YOU CAN FIND MORE INFORMATION" on how to obtain a copy of the Subordinated Indenture. You may also review the Subordinated Indenture at the Subordinated Note Trustee's offices at 1441 Main Street, Suite 775, Columbia, South Carolina 29201. Capitalized terms used and defined under this heading "DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES" have the meanings given such terms as defined herein. Capitalized terms used under this heading that are not otherwise defined in this prospectus have the meanings given those terms in the Subordinated Indenture. The summaries under this heading "DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES" are not detailed. Whenever particular provisions of the Subordinated Indenture or terms defined in the Subordinated Indenture are referred to, those statements are qualified by reference to the Subordinated Indenture. References to article and section numbers under this heading "DESCRIPTION OF THE JUNIOR SUBORDINATED NOTES," unless otherwise indicated, are references to article and section numbers of the Subordinated Indenture. General The Junior Subordinated Notes will be our unsecured obligation and are junior in right of payment to our Priority Indebtedness, as described under the caption "Subordination" herein. Because we are a holding company that conducts all of our operations through our subsidiaries, our ability to meet our obligations under the Junior Subordinated Notes is dependent on the earnings and cash flows of those subsidiaries and the ability of those subsidiaries to pay dividends or to advance or repay funds to us. Holders of Junior Subordinated Notes will generally have a junior position to claims of creditors of our subsidiaries, including trade creditors, debt holders, secured creditors, taxing authorities, guarantee holders and any preferred stockholders. As of August 31, 2012 we had no outstanding shares of preferred stock. In addition, as of August 31, 2012, our subsidiaries had approximately $4.1 billion in aggregate principal amount of outstanding long-term debt (including securities due within one year). The Subordinated Indenture does not limit the amount of Junior Subordinated Notes that we may issue. We may issue Junior Subordinated Notes from time to time under the Subordinated Indenture in one or more series by entering into supplemental indentures or by resolutions of our board of directors or duly authorized officers authorizing the issuance, which Subordinated Indenture provides for the authentication and delivery of the Junior Subordinated Notes upon the delivery to the Subordinated Note Trustee of an opinion of counsel and officer's certificate as contemplated by the Subordinated Indenture. (Section 2.1) A form of supplemental indenture to the Subordinated Indenture is an exhibit to the registration statement.
12 Exhibit A Page 17 of 112
The Subordinated Indenture does not protect the holders of Junior Subordinated Notes if we engage in a highly leveraged transaction. Provisions of a Particular Series The Junior Subordinated Notes of a series need not be issued at the same time, bear interest at the same rate or mature on the same date. Unless otherwise provided in the terms of a series, a series may be reopened, without notice to or consent of any holder of outstanding Junior Subordinated Notes, for issuances of additional Junior Subordinated Notes of that series. The prospectus supplement for a particular series of Junior Subordinated Notes will describe the terms of that series, including, if applicable, some or all of the following: • the designation, title and type of the Junior Subordinated Notes; • the total principal amount of the Junior Subordinated Notes that may be issued or any limit thereon; • the date or dates on which principal is payable or the method for determining the date or dates, and any right that we have to change the date on which principal is payable; • the interest rate or rates, if any, or the method for determining the rate or rates, and the date or dates from which interest will accrue; • any interest payment dates, the record date for the interest payable on each interest payment date, if any, and any right to defer or extend an interest payment date; • the place where the Junior Subordinated Notes may be presented for payment; • any payments due if the maturity of the Junior Subordinated Notes is accelerated; • any price at which, any period within which, and any terms and conditions upon which the Junior Subordinated Notes may be redeemed or prepaid, in whole or in part, at our option; • any provisions that would obligate us to repurchase or otherwise redeem the Junior Subordinated Notes, or any sinking fund provisions; • the currency in which payments will be made if other than U.S. dollars, and the manner of determining the equivalent of those amounts in U.S. dollars; • if payments may be made, at our election or at the holder's election, in a currency other than that in which the Junior Subordinated Notes are stated to be payable, then the currency in which those payments may be made, the terms and conditions of the election and the manner of determining those amounts; • any index or formula used for determining principal, interest or premium, if any; • whether the Junior Subordinated Notes will be issued in fully registered certificated form or book-entry form, represented by certificates deposited with the Subordinated Note Trustee and registered in the name of a securities depositary or its nominee; • denominations, if other than $1,000 each or multiples of $1,000; • any provisions requiring payment of principal or interest in our capital stock or with proceeds from the sale of our capital stock or from any other specific source of funds in connection with any series of Junior Subordinated Notes; • any changes to events of defaults or covenants; and • any other terms of the Junior Subordinated Notes. (Sections 2.1 and 2.3) The prospectus supplement will also indicate any special tax implications of the Junior Subordinated Notes and any provisions granting special rights to holders when a specified event occurs. Conversion or Redemption No Junior Subordinated Note will be subject to conversion, amortization or redemption, unless otherwise provided in the applicable prospectus supplement. Any provisions relating to the conversion or redemption of Junior Subordinated Notes will be set forth in the applicable prospectus supplement, including whether conversion is mandatory or at our option. If no redemption date or redemption price is indicated with respect to a Junior Subordinated Note, we may not redeem the Junior Subordinated Note prior to its stated maturity. Junior Subordinated Notes subject to redemption by us will be subject to the following terms: • redeemable on and after the applicable redemption dates; • redemption dates and redemption prices fixed at the time of sale and set forth on the Junior Subordinated Note; and • redeemable in whole or in part (provided that any remaining principal amount of the Junior Subordinated Note will be equal to an authorized denomination) at our option at the applicable redemption price, 13 Exhibit A Page 18 of 112
together with interest, payable to the date of redemption, on notice given not more than 60 nor less than 20 days prior to the date of redemption. (Section 3.2) We will not be required to: • issue, register the transfer of, or exchange any Junior Subordinated Notes of a series during the period beginning 15 days before the date of the mailing of a notice of redemption for the Junior Subordinated Notes of that series and ending on the relevant business day; or • register the transfer of, or exchange any Junior Subordinated Note of that series selected for redemption except the unredeemed portion of a Junior Subordinated Note being partially redeemed. (Section 2.5) Payment and Transfer; Paying Agent The paying agent will pay the principal of any Junior Subordinated Notes only if those Junior Subordinated Notes are surrendered to it. Unless we state otherwise in the applicable prospectus supplement, the paying agent will pay principal, interest and premium, if any, on Junior Subordinated Notes, subject to such surrender, where applicable, at its office or by (1) check mailed to the address of the person entitled to that interest as that address appears in the security register for those Junior Subordinated Notes or (2) wire transfer to an account maintained for the person entitled to that interest as specified in the security register for those Junior Subordinated Notes, provided proper transfer instructions have been received by the record date. (Section 4.1) Unless we state otherwise in the applicable prospectus supplement, the Subordinated Note Trustee will act as paying agent for the Junior Subordinated Notes, and the principal corporate trust office of the Subordinated Note Trustee will be the office through which the paying agent acts. We may, however, change or add paying agents or approve a change in the office through which a paying agent acts. (Section 4.4) Any money that we have paid to a paying agent for principal or interest on any Junior Subordinated Notes that remains unclaimed at the end of two years after that principal or interest has become due will be repaid to us at our request. After repayment to the Company, holders should look only to us for those payments. (Section 12.4) Fully registered securities may be transferred or exchanged at the corporate trust office of the Subordinated Note Trustee or at any other office or agency we maintain for those purposes, without the payment of any service charge except for any tax or governmental charge and related expenses. (Section 2.5) Covenants Under the Subordinated Indenture we will: • pay the principal, interest and premium, if any, on the Junior Subordinated Notes when due; • maintain an office or agency for payment of the Junior Subordinated Notes; • deliver an officer's certificate to the Subordinated Note Trustee after the end of each fiscal year confirming our compliance with our obligations under the Subordinated Indenture and periodically deliver reports, information and other documents to the Subordinated Note Trustee and file certain documents with the SEC; and • deposit sufficient funds with any paying agent on or before the due date for any principal, interest or premium, if any. (Sections 4.1, 4.2, 4.4, 4.6 and 5.3) Consolidation, Merger or Sale The Subordinated Indenture provides that we may consolidate or merge with or into, or sell all or substantially all of our properties and assets to, another corporation or other entity, provided that any successor assumes our obligations under the Subordinated Indenture and the Junior Subordinated Notes issued under the Subordinated Indenture. We must also deliver an opinion of counsel to the Subordinated Note Trustee affirming our compliance with all conditions in the Subordinated Indenture relating to the transaction. When the conditions are satisfied, the successor will succeed to and be substituted for us under the Subordinated Indenture, and, in the case of a sale of all or substantially all of our assets, we will be relieved of our obligations under the Subordinated Indenture and the Junior Subordinated Notes issued under it. (Sections 11.1, 11.2 and 11.3)
14 Exhibit A Page 19 of 112
Events of Default Event of Default, when used in the Subordinated Indenture, will mean any of the following with respect to Junior Subordinated Notes of any series: • failure to pay the principal or any premium on any Junior Subordinated Note when due and payable; • failure to pay any interest on any Junior Subordinated Notes of that series, when due and payable, that continues for 30 days; provided that, if applicable, for this purpose, the date on which interest is due is the date on which we are required to make payment following any deferral of interest payments by us under the terms of the applicable series of Junior Subordinated Notes that permit such deferrals; • failure to perform any other covenant in the Subordinated Indenture which is for the benefit of the Junior Subordinated Notes of that series that continues for 90 days after the Subordinated Note Trustee or the holders of at least 25% in principal amount of the outstanding Junior Subordinated Notes of that series and all other series so benefitted (all series voting as one class) give written notice of the default; • certain events in bankruptcy, insolvency or reorganization of SCANA; or • any other Event of Default included in any supplemental indenture. (Section 6.1) In the case of a general covenant default described above, the Subordinated Note Trustee may extend the grace period. In addition, if holders of a particular series have given a notice of default, then holders of at least the same percentage of Junior Subordinated Notes of that series, together with the Subordinated Note Trustee, may also extend the grace period. The grace period will be automatically extended if we have initiated and are diligently pursuing corrective action. An Event of Default for a particular series of Junior Subordinated Notes does not necessarily constitute an Event of Default for any other series of Junior Subordinated Notes issued under the Subordinated Indenture. Additional events of default may be established for a particular series and, if established, will be described in the applicable prospectus supplement. If such an event of default under the Subordinated Indenture occurs due to our failure to pay principal or interest on the Junior Subordinated Notes, the Trustee or the holders of not less than 25% in principal amount of all the then outstanding Junior Subordinated Notes will have the right to declare the principal amount of the Junior Subordinated Notes and any accrued interest thereon, immediately due and payable. If such an event of default under the Subordinated Indenture occurs as a result of our failure to perform certain other covenants or as a result of certain events of bankruptcy, the Trustee or the holders of not less than 25% in principal amount of all of the then outstanding securities issued under the Subordinated Indenture (including the Junior Subordinated Notes then outstanding) as to which such event of default has occurred will have the right to declare, voting as one class, the principal amount of the Junior Subordinated Notes and any accrued interest thereon, immediately due and payable. If this happens, subject to certain conditions, the holders of a majority of the aggregate principal amount of the Junior Subordinated Notes of that series can void the declaration. (Section 6.1) The Subordinated Note Trustee must give the holders of Junior Subordinated Notes notice of any default known to it; however, the Subordinated Note Trustee may withhold notice to the holders of Junior Subordinated Notes of any default (except in the payment of principal or interest) if it in good faith considers the withholding of notice to be in the interests of the holders. Other than its duties in case of a default, a Trustee is not obligated to exercise any of its rights or powers under the Subordinated Indenture at the request, order or direction of any holders, unless the holders offer the Subordinated Note Trustee reasonable indemnity. If they provide this reasonable indemnification, the holders of a majority in principal amount of any series of Junior Subordinated Notes may direct the time, method and place of conducting any proceeding or any remedy available to the Subordinated Note Trustee, or exercising any power conferred upon the Subordinated Note Trustee, for any series of Junior Subordinated Notes. (Sections 6.6, 6.7, 7.1 and 7.2) The holder of any Junior Subordinated Note will have an absolute and unconditional right to receive payment of the principal, any premium and, within certain limitations, any interest on that Junior Subordinated Note on its maturity date or redemption date and to enforce those payments. (Section 14.2)
15 Exhibit A Page 20 of 112
Option to Extend Interest Payment Period If elected in the applicable supplemental indenture, we may defer interest payments by extending the interest payment period for the number of consecutive extension periods specified in the applicable prospectus supplement (each, an "Extension Period"). Other details regarding the Extension Period will also be specified in the applicable prospectus supplement. No Extension Period may end on a date other than an interest payment date or extend beyond the maturity of the applicable series of Junior Subordinated Notes. At the end of the Extension Period(s), we will pay all interest then accrued and unpaid, together with additional interest thereon at the interest rate specified for the applicable series of Junior Subordinated Notes, to the extent permitted by applicable law. (Section 2.10) Satisfaction and Discharge; Defeasance We may discharge all our obligations (except those described below) to holders of the Junior Subordinated Notes issued under the Subordinated Indenture, which Junior Subordinated Notes have not already been delivered to the Subordinated Note Trustee for cancellation and which either have become due and payable or are by their terms due and payable within one year, or are to be called for redemption within one year, by depositing with the Subordinated Note Trustee an amount certified to be sufficient to pay when due the principal, interest and premium, if any, on all outstanding Junior Subordinated Notes. However, certain of our obligations under the Subordinated Indenture will survive, including with respect to the following: • the remaining rights to register the transfer, to convert, to substitute, to exchange or to optionally redeem Junior Subordinated Notes of the applicable series; • the rights of holders to receive payments of principal of, and any interest on, the Junior Subordinated Notes of the applicable series, and other rights, duties and obligations of the holders of Junior Subordinated Notes with respect to any amounts deposited with the Subordinated Note Trustee; and • the rights, obligations and immunities of the Subordinated Note Trustee under the Subordinated Indenture. (Section 12.1) Unless we elect differently in the applicable supplemental indenture, we will be discharged from our obligations on the Junior Subordinated Notes of any series at any time if we deposit with the Subordinated Note Trustee sufficient cash or government securities to pay the principal, interest, any premium and any other sums due to the stated maturity date or a redemption date of the Junior Subordinated Notes of the series. If this happens, the holders of the Junior Subordinated Notes of the series will not be entitled to the benefits of the Subordinated Indenture, except for registration of transfer and exchange of Junior Subordinated Notes and replacement of lost, stolen or mutilated Junior Subordinated Notes. (Section 12.5) Modification of Subordinated Indenture; Waiver Under the Subordinated Indenture our rights and obligations and the rights of the holders of the Junior Subordinated Notes may be modified with the consent of the holders of a majority in aggregate principal amount of the outstanding Junior Subordinated Notes of all series affected by the modification (voting as one class). No modification of the principal or interest payment terms of the Junior Subordinated Notes or of the provisions of the Subordinated Indenture to (1) reduce the percentage of principal amount of holders of Junior Subordinated Notes required for modifications or (2) modify the subordination provisions thereof adverse to the holders of Junior Subordinated Notes, is effective against any holder without its consent. (Section 10.2) In addition, we may supplement the Subordinated Indenture to create one or more new series of Junior Subordinated Notes and for certain other purposes, without the consent of any holders of Junior Subordinated Notes. (Section 10.1) The holders of a majority of the outstanding Junior Subordinated Notes of all series with respect to which a default has occurred and is continuing may waive a default for all those series, except a default in the payment of principal or interest, or any premium, on any Junior Subordinated Notes or a default with respect to a covenant or provision which cannot be amended or modified without the consent of the holder of each outstanding Junior Subordinated Note of the series affected. (Section 6.6) In addition, under certain circumstances, the holders of a majority of the outstanding Junior Subordinated Notes of any series may waive in advance, for that series, our compliance with certain restrictive provisions of the Subordinated Indenture under which those Junior Subordinated Notes were issued. (Section 4.7)
16 Exhibit A Page 21 of 112
Concerning the Subordinated Note Trustee U.S. Bank National Association is the Subordinated Note Trustee under the Subordinated Indenture. U.S. Bank National Association may be a lender under our, or our subsidiaries or affiliates', credit agreements and may provide other commercial banking and other services to us and/or our subsidiaries or affiliates. The Subordinated Note Trustee will perform only those duties that are specifically described in the Subordinated Indenture unless an event of default thereunder occurs and is continuing. The Subordinated Note Trustee is under no obligation to exercise any of its powers under the Subordinated Indenture at the request of any holder of Junior Subordinated Notes unless that holder offers reasonable indemnity to the Subordinated Note Trustee against the costs, expenses and liabilities which it might incur as a result. (Sections 7.1 and 7.2) The Subordinated Note Trustee administers its corporate trust business at 1441 Main Street, Suite 775, Columbia, South Carolina 29201. Subordination Each series of Junior Subordinated Notes will be subordinate and junior in right of payment, to the extent set forth in the Subordinated Indenture, to all Priority Indebtedness as defined below. If: • we make a payment or distribution of any of our assets to creditors upon our dissolution, winding-up, liquidation or reorganization, whether in bankruptcy, insolvency or otherwise; • a default beyond any grace period has occurred and is continuing with respect to the payment of principal, interest or any other monetary amounts due and payable on any Priority Indebtedness; or • the maturity of any Priority Indebtedness has been accelerated because of a default on that Priority Indebtedness; then, unless otherwise specified in the prospectus supplement, the holders of Priority Indebtedness generally will have the right to receive payment, in the case of the first instance, of all amounts due or to become due upon that Priority Indebtedness, and, in the case of the second and third instances, of all amounts due on that Priority Indebtedness, or we will make provision for those payments, before the holders of any Junior Subordinated Notes have the right to receive any payments of principal or interest on their Junior Subordinated Notes. (Sections 14.1 and 14.9) Priority Indebtedness means, with respect to any series of Junior Subordinated Notes, the principal, premium, interest and any other payment in respect of any of the following: • all of our current and future indebtedness for borrowed or purchase money whether or not evidenced by notes, debentures, bonds or other similar written instruments; • our obligations under synthetic leases, finance leases and capitalized leases; • our obligations for reimbursement under letters of credit, banker's acceptances, security purchase facilities or similar facilities issued for our account; • any of our other indebtedness or obligations with respect to derivative contracts, including commodity contracts, interest rate, commodity and currency swap agreements, forward contracts and other similar agreements or arrangements designed to protect against fluctuations in commodity prices, currency exchange or interest rates; • obligations which by their terms rank on a parity with obligations of the kinds described in the preceding categories; and • any guarantees, endorsements, assumptions (other than by endorsement of negotiable instruments for collection in the ordinary course of business) or other similar contingent obligations in respect of obligations of others of the kinds described in the preceding categories, other than obligations ranking on a parity with or junior to the Junior Subordinated Notes. Priority Indebtedness will not include indebtedness to our subsidiaries. (Section 1.1) Priority Indebtedness will be entitled to the benefits of the subordination provisions in the Subordinated Indenture irrespective of the amendment, modification or waiver of any term of the Priority Indebtedness. (Section 14.7)
17 Exhibit A Page 22 of 112
As of August 31, 2012, SCANA had approximately $1.0 billion principal amount of outstanding long-term debt, on an unconsolidated basis (including securities due within one year) that would be senior to the Junior Subordinated Notes. Holders of Junior Subordinated Notes will generally have a junior position to claims of creditors of our subsidiaries, including trade creditors, debt holders, secured creditors, taxing authorities, guarantee holders and any preferred stockholders. In addition to trade debt, many of our operating subsidiaries have ongoing intercompany debt programs used to finance their business activities. All of this intercompany debt will be effectively senior to the Junior Subordinated Notes. Neither our Subordinated Indenture nor the Junior Subordinated Notes contain restrictions on the amount of additional indebtedness that we or our subsidiaries may incur. We and our subsidiaries expect to incur additional indebtedness from time to time that will be senior to the Junior Subordinated Notes. DESCRIPTION OF THE COMMON STOCK General The rights of holders of the Common Stock are currently governed by the South Carolina Business Corporation Act, and the restated articles of incorporation and bylaws of SCANA, copies of which restated articles of incorporation and bylaws have been incorporated by reference as exhibits to the registration statement of which this prospectus is a part. The following summary describes the material rights of SCANA's shareholders. The summaries under this heading are not detailed. Whenever particular provisions of the restated articles of incorporation or bylaws of SCANA are referred to, those statements are qualified by reference to those restated articles of incorporation or bylaws. Authorized Capital Stock: Under the South Carolina Business Corporation Act, a corporation may not issue a greater number of shares than have been authorized by its articles of incorporation. The authorized capital stock of SCANA consists of 200,000,000 shares of SCANA common stock, without par value, and no shares of preferred stock. At the close of business on August 31, 2012, approximately 131,386,624 shares of our common stock were issued and outstanding. At August 31, 2012, not more than 5.3 million shares of our common stock were reserved for issuance pursuant to our benefit plans and our Investor Plus Plan, and not more than 6.6 million shares of our common stock were reserved for issuance pursuant to certain forward sale contracts. Voting: Holders of the Common Stock are entitled to one vote, in person or by proxy, for each share held on the applicable record date with respect to each matter submitted to a vote at a meeting of stockholders, and may not cumulate their votes. Dividends: Holders of the Common Stock are entitled to receive dividends as and when declared by our board of directors out of funds legally available therefor. Liquidation Rights: In the event we liquidate, dissolve or wind up our affairs, the holders of the Common Stock would be entitled to share ratably in all of our assets available for distribution to shareholders of our common stock remaining after payment in full of liabilities. Preemptive Rights: Holders of the Common Stock do not have preemptive rights to subscribe for additional shares when we offer for sale additional shares of our common stock. Provisions Relating to Change in Control Our restated articles of incorporation and bylaws contain provisions which could have the effect of delaying, deferring or preventing a change in control of SCANA. These provisions are summarized below. Corporate Governance Provisions SCANA's restated articles of incorporation provide that its board of directors is subdivided into three classes, with each class as nearly equal in number of directors as possible. Each class of directors serves for three years and one class is elected each year. SCANA currently has 11 directors (in classes with terms expiring in 2013, 2014 and 2015). SCANA's restated articles of incorporation and bylaws provide that: • the authorized number of directors may range from a minimum of nine to a maximum of 20, as determined from time to time by the directors; • directors can be removed only (x) for cause or (y) otherwise by the affirmative vote of the holders of 80 percent of the shares of SCANA's stock who are entitled to vote; and 18 Exhibit A Page 23 of 112
• vacancies and newly created directorships on SCANA's board of directors can be filled by a majority vote of the remaining directors then in office, even though less than a quorum, and any new director elected to fill a vacancy will serve until the next shareholders' meeting at which directors of any class are elected. Anti-Takeover Provisions Certain provisions of our restated articles of incorporation and bylaws of may have the effect of discouraging unilateral tender offers or other attempts to take over and acquire our business. These provisions might discourage some potentially interested purchaser from attempting a unilateral takeover bid for us on terms which some shareholders might favor. SCANA's restated articles of incorporation require that certain corporate actions and fundamental transactions must be approved by the holders of 80 percent of the outstanding shares of its capital stock entitled to vote on the matter unless a majority of the members of its board of directors (other than members related to the potentially interested purchaser or other person attempting to take over our business) has approved the action or transaction, in which case the required shareholder approval will be the minimum approval required by applicable law. The corporate actions or fundamental transactions that are subject to these provisions of SCANA's restated articles of incorporation are those corporate actions or transactions that require approval by shareholders under applicable law or its restated articles of incorporation, including certain amendments of its restated articles of incorporation or bylaws, certain transactions involving its merger, consolidation, liquidation, dissolution or winding up, certain sales or other dispositions of our assets or the assets of any of our subsidiaries, certain issuances (or reclassifications) of our securities or the securities of any of its subsidiaries or certain recapitalizations of transactions that have the effect of increasing the voting power of the potentially interested purchaser or other person attempting to take over its business. Prevention of Greenmail SCANA's restated articles of incorporation provide that it cannot purchase any of its outstanding common stock at a price it knows to be more than the market price from a person who is known to it to be the beneficial owner of more than three percent of its outstanding common stock and who has purchased or agreed to purchase any shares of its common stock within the most recent two-year period, without the approval of the holders of a majority of the outstanding shares of its common stock other than such person, unless SCANA offers to purchase any and all of the outstanding shares of common stock. DESCRIPTION OF THE FIRST MORTGAGE BONDS General SCE&G will issue the Bonds in one or more series under an Indenture, dated as of April 1, 1993, as supplemented (the “Mortgage”), between SCE&G and The Bank of New York Mellon Trust Company, N.A. (successor to NationsBank of Georgia, National Association), as trustee (the "Bond Trustee"). The term "Bonds" in this prospectus also includes all other debt securities issued and outstanding under the Mortgage. A copy of the Mortgage has been incorporated by reference as an exhibit to the registration statement of which this prospectus is a part. The information under this heading "DESCRIPTION OF THE FIRST MORTGAGE BONDS" briefly outlines some of the provisions of the Mortgage. Please review the Mortgage that we filed with the SEC for a full statement of those provisions. See "WHERE YOU CAN FIND MORE INFORMATION" on how to obtain a copy of the Mortgage. You may also review the Mortgage at the Bond Trustee's offices at 900 Ashwood Parkway, Suite 425, Atlanta, Georgia 30338. Capitalized terms used and defined under this heading "DESCRIPTION OF THE FIRST MORTGAGE BONDS" have the meanings given such terms as defined herein. Capitalized terms used under this heading "DESCRIPTION OF THE FIRST MORTGAGE BONDS" which are not otherwise defined in this prospectus have the meanings given those terms in the Mortgage. The summaries under this heading "DESCRIPTION OF THE FIRST MORTGAGE BONDS" are not detailed. Whenever particular provisions of the Mortgage or terms defined in the Mortgage are referred to, those statements are qualified by reference to the Mortgage. References to article and section numbers under this heading "DESCRIPTION OF THE FIRST MORTGAGE BONDS," unless otherwise indicated, are references to article and section numbers of the Mortgage.
19 Exhibit A Page 24 of 112
Provisions of a Particular Series The Bonds of a series need not be issued at the same time, bear interest at the same rate or mature on the same date. Unless otherwise provided in the terms of a series, a series may be reopened, without notice to or consent of any holder of outstanding Bonds, for issuances of additional Bonds of that series. Each prospectus supplement relating to a series of Bonds which accompanies this prospectus will set forth the following information to describe the series of Bonds, unless the information is the same as the information included in this section: • the title of the series of Bonds; • the aggregate principal amount and any limit upon the aggregate principal amount of the series of Bonds; • the date or dates on which the principal of the series of Bonds will be payable, and any right that we have to change the date on which principal is payable; • the rate or rates at which the series of Bonds will bear interest, if any (or the method of calculating the rate); • the date or dates from which the interest will accrue; • the dates on which the interest will be payable ("Interest Payment Dates"); • the record dates for the interest payable on the Interest Payment Dates; • any option on our part to redeem the series of Bonds and redemption terms and conditions; • any obligation on our part to redeem or purchase the series of Bonds in accordance with any sinking fund or analogous provisions or at the option of the holder and the relevant terms and conditions for that redemption or purchase; • the denominations of the series of Bonds, if other than $1,000 and integral multiples thereof; • if the amount of the principal of or premium (if any) or interest on the series of Bonds is determined with reference to an index or other facts or events ascertainable outside of the Mortgage, the manner in which such amount may be determined; • any variation to the definition of "Business Day" as defined in the Mortgage; • the portion of the principal payable upon acceleration of maturity, if other than the entire principal amount; • whether the series of Bonds is subject to a book-entry system of transfers and payments; and • any other particular terms of the series of Bonds and of its offering. (Section 201) Payment of Bonds; Transfers; Exchanges We will pay any interest which is due on each New Bond to the person in whose name that New Bond is registered as of the close of business on the record date relating to the Interest Payment Date. (Section 207) However, we will pay interest which is payable when the Bonds mature (whether the Bonds mature on their stated date of maturity, the date the Bonds are redeemed or otherwise) to the person to whom the relevant principal payment on the Bonds is to be paid. We will pay principal of, and any premium and interest on, the Bonds at our office or agency in Atlanta, Georgia (currently, the Bond Trustee). The applicable prospectus supplement for any series of Bonds will specify any other place of payment and any other paying agent. We may change the place at which the Bonds will be payable, may appoint one or more additional paying agents (including us) and may remove any paying agent, all at our discretion. (Section 702) Except as provided in a prospectus supplement, if principal of or premium (if any) or interest on the Bonds is payable on a day which is not a Business Day, payment thereof may be postponed to the next succeeding Business Day, and no additional interest will accrue as a result of the delayed payment. (Section 116) "Business Day" means any day, other than a Saturday or Sunday, which is not a day on which banking institutions or trust companies in Atlanta, Georgia are generally authorized or required by law, regulation or executive order to remain closed. (Section 101) You may transfer or exchange the Bonds for other Bonds of the same series, in authorized denominations, and of like tenor and aggregate principal amount, at our office or agency in Atlanta, Georgia (currently, the Bond Trustee). At our discretion, we may change the place for registration and transfer of the Bonds, and we may appoint one or more additional security registrars (including us) and remove any security registrar. The prospectus supplement will identify any additional place for registration of transfer and any additional security registrar. You
20 Exhibit A Page 25 of 112
are not responsible for paying a service charge for any transfer or exchange of the Bonds, but you may have to pay a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of the Bonds. (Sections 202 and 205) Redemption The Bonds are subject to redemption, as set forth in the relevant prospectus supplement, only upon notice by mail (unless waived) not less than 30 days (or such other period set forth in the relevant prospectus supplement) prior to the redemption date. If less than all the Bonds of a series are to be redeemed, the particular Bonds to be redeemed will be selected by the method as shall be provided for any particular series, or in the absence of any such provision, by any method as the security registrar deems fair and appropriate. (Sections 109, 903 and 904) We may, in any notice of redemption, make any redemption conditional upon receipt by the Bond Trustee, on or prior to the date fixed for redemption, of money sufficient to pay the redemption price. If the Bond Trustee has not received that money, we will not be required to redeem those Bonds and we will then give notice to that effect. (Section 904) Security General The Bonds of each series will be equally and ratably secured under the Mortgage. The Bonds are secured by the lien of the Mortgage on substantially all of our properties used in the generation, purchase, transmission, distribution and sale of electricity which have not been released from, or transferred not subject to, the lien of the Mortgage, and any other property which we may elect to subject to the lien of the Mortgage. (Granting Clauses) If we merge or are consolidated with another corporation and certain conditions set forth in the Mortgage are satisfied, the existing mortgage or deed of trust or similar indenture entered into by such corporation may be designated as a "Class A Mortgage" and bonds issued thereunder would be "Class A Bonds" for purpose of the Mortgage. In that event, the Bonds will be secured, additionally, by such Class A Bonds as may be issued under the Class A Mortgage and deposited with the Bond Trustee and by the lien of the Mortgage, which lien would be junior to the lien of Class A Mortgage with respect to the property subject to such Class A Mortgage. (Section 1206) Presently, we have no Class A Bonds outstanding. Lien of the Mortgage The lien of the Mortgage is subject to the prior first mortgage lien of a Class A Mortgage, if any, liens on after- acquired property existing at the time of acquisition and various permitted liens, including: • tax liens, mechanics', materialmen's and similar liens and certain employees' liens, in each case, which are not delinquent and which are being contested, • certain judgment liens and easements, reservations and rights of others (including governmental entities) in, and defects of title to, the property subject to the lien of the Mortgage which do not materially impair its use by us, • certain leases, and • certain other liens (including but not limited to liens which are immaterial to our operations) and encumbrances. (Granting Clauses and Section 101) The following, among other things, are excepted from the lien of the Mortgage: • cash and securities not held under the Mortgage, • contracts, leases and other agreements, bills, notes and other instruments, receivables, claims, certain intellectual property rights and other general intangibles, • automotive and similar vehicles, movable equipment, and railroad, marine and flight equipment, • all goods, stock in trade, wares and merchandise held for sale in the ordinary course of business, • fuel (including nuclear fuel assemblies), materials, supplies and other personal property consumable in the operation of our business, • portable equipment, • furniture and furnishings, • computers, machinery and equipment used exclusively for corporate administrative or clerical purposes, • electric energy, gas, steam, water and other products generated, produced or purchased, 21 Exhibit A Page 26 of 112
• substances mined, extracted or otherwise separated from the land and all rights thereto, leasehold interests, and • with certain exceptions, all property which is located outside of the State of South Carolina or Columbia County, Georgia. (Granting Clauses) The Mortgage contains provisions subjecting (with certain exceptions and limitations and subject to the prior lien of a Class A Mortgage, if any, and the provisions of the U.S. Bankruptcy Code) after-acquired electric utility property to the lien of the Mortgage. (Granting Clauses) Notwithstanding the foregoing, it may be necessary to comply with applicable recording requirements to perfect such lien on after-acquired electric utility property. The Mortgage provides that the Bond Trustee has a lien upon the property subject to the lien of the Mortgage, for the payment of its compensation and expenses. This Bond Trustee's lien is prior to the lien on behalf of the holders of the Bonds. (Section 1607) Issuance of Bonds The maximum principal amount of Bonds which we may issue under the Mortgage is unlimited. Under the Mortgage, Bonds may be authenticated and delivered, upon receipt by the Bond Trustee of a supplemental indenture, a board resolution or an officer's certificate pursuant thereto, together with a company order to the Bond Trustee, an opinion of counsel and an officer's certificate, subject to the further requirements of the Mortgage described below. (Sections 201 and 301) We may issue Bonds of any series from time to time on the basis of, and in an aggregate principal amount not exceeding the sum of: • the aggregate principal amount of Class A Bonds issued and delivered to the Bond Trustee and designated by us as the basis for such issuance, • 70% of the amount of Unfunded Net Property Additions (generally defined as Property Additions (net of retirements) which have not been made or deemed to have been made the basis of the authentication and delivery of Bonds or used for other purposes under the Mortgage), • the aggregate principal amount of retired Bonds, and • cash deposited with the Bond Trustee. (Sections 101, 104 and 302 and Articles Four, Five and Six) Property Additions are generally defined to include any property subject to the lien of the Mortgage (the "Mortgaged Property") which we may elect to designate as such, except (with certain exceptions) goodwill, going concern value, intangible property or any property the cost of acquisition or construction of which is properly chargeable to an operating expense account. (Sections 101 and 104) Based upon Property Additions certified on January 30, 2012 to the Bond Trustee as of December 31, 2011 (the last date of certification of Property Additions under the Mortgage), we have Unfunded Net Property Additions of approximately $2.6 billion, sufficient to permit the issuance of approximately $1.8 billion of additional Bonds on the basis thereof. At August 31, 2012, we had $250 million of credits from the retirement of Bonds under the Mortgage, which may be used as the basis for the authentication of additional Bonds under the Mortgage. With certain exceptions in the case of Bonds issued on the basis of Class A Bonds and retired Bonds as described above, we can issue Bonds only if our Adjusted Net Earnings (as defined in the Mortgage) for 12 consecutive months within the preceding 18 months is at least twice the Annual Interest Requirements (as defined in the Mortgage) on: • all Bonds at the time outstanding, • the Bonds then applied for, and • all outstanding Class A Bonds, if any, other than Class A Bonds held by the Bond Trustee under the Mortgage. (Sections 103, 301, 302 and 501)
22 Exhibit A Page 27 of 112
Release of Property We may obtain the release of property from the lien of the Mortgage either upon the basis of an equal amount of Unfunded Net Property Additions or upon the basis of the deposit of cash or a credit for retired Bonds. We may also obtain the release of property upon the basis of the release of the property from the lien of a Class A Mortgage, if any. (Article Ten) Withdrawal of Cash We may withdraw cash deposited as the basis for the issuance of Bonds and cash representing certain payments in respect of Class A Bonds, if any, designated as the basis for the issuance of Bonds or the withdrawal of cash ("Designated Class A Bonds") upon the basis of (1) Unfunded Net Property Additions in an amount equal to ten- sevenths of such cash, (2) an equal amount of retired Bonds or (3) an equal amount of Class A Bonds which are not Designated Class A Bonds. (Sections 601 and 1202) In addition, we may withdraw cash upon the basis of (a) an equal amount of Unfunded Net Property Additions, or (b) ten-sevenths of the amount of retired Bonds, or may apply such cash to (y) the purchase of Bonds (at prices not exceeding ten-sevenths of the principal amount thereof) or (z) the redemption or payment at stated maturity of Bonds. (Sections 601 and 1005) Modification of Mortgage We may, without the consent of any holders of outstanding Bonds, enter into supplemental indentures for, including but not limited to, the following purposes: • to add to our covenants for the benefit of the holders or to surrender a right or power conferred upon us in the Mortgage, • to correct or amplify the description of any property at any time subject to the lien of the Mortgage, or to subject to the lien of the Mortgage additional property, • to establish the form or terms of any series of Bonds, • to make any other changes to or eliminate provision of the Mortgage required or contemplated by the Trust Indenture Act, or • to make certain other modifications, generally of a ministerial or immaterial nature. (Section 1701) We may amend the Mortgage for other purposes only with the consent of the holders of a majority in principal amount of the Bonds then outstanding, considered as one class, unless such amendment directly affects the rights of the holders of Bonds of one or more, but less than all, series, in which case only the consent of the holders of a majority in principal amount of the affected series of the Bonds then outstanding, considered as one class, need be obtained. However, without the consent of the holder of each affected outstanding Bond, we may not amend the Mortgage for the following purposes: • to change the stated maturity of the principal of, or any installment of principal of or interest on, any Bond or to reduce the principal amount, the interest rate of, any other amount payable in respect of or any premium payable on the redemption of any Bond; • to reduce the principal amount of any Bond which is a Discount Security (as defined in the Mortgage) that would be due upon a declaration of acceleration of that Bond's maturity; • to change the currency of any payment of principal of or any premium or interest on any Bond; • to impair the right to institute suit for the enforcement of any payment on or with respect to any Bond after the stated maturity or redemption date of that Bond; • to permit the creation of any lien ranking prior to the lien of the Mortgage with respect to all or substantially all of the Mortgage Property or terminate the lien of the Mortgage on all or substantially all of the Mortgaged Property, or otherwise deprive such holder of the benefit of the security of the lien of the Mortgage; • reduce the percentage in principal amount of outstanding Bonds of any series for which the consent of the holders is required to modify or amend the Mortgage or to waive compliance with certain provisions of the Indenture, or reduce certain quorum or voting requirements of the Mortgage; or • to modify the foregoing requirements or reduce the percentage of outstanding Bonds necessary to modify other provisions of the Mortgage or waive any past default thereunder. (Section 1702)
23 Exhibit A Page 28 of 112
Events of Default Each of the following events is an Event of Default under the Mortgage: • We fail to make payments of principal or premium within three Business Days, or interest within 60 days, after the due date, • We fail to perform or breach any other covenant or warranty for a period of 90 days after notice, • We file for bankruptcy or certain other events involving insolvency, receivership or bankruptcy occur, or • We default under any Class A Mortgage. (Section 1101) If an Event of Default occurs and is continuing, either the Bond Trustee or the Holders of 25% in principal amount of the Outstanding Bonds may declare the principal amount of all of the Outstanding Bonds to be immediately due and payable. After the declaration of acceleration has been made, but before the sale of any of the Mortgaged Property and before the Bond Trustee has obtained a judgment or decree for payment of money, the Event of Default giving rise to such declaration of acceleration will be deemed to be waived, and such declaration and its consequences will be rescinded and annulled, if we (a) pay to the Bond Trustee all overdue interest, principal and any premium on any Outstanding Bonds and (b) cure any other such Event of Default. (Sections 1102 and 1117) The Holders of a majority in principal amount of the Outstanding Bonds may direct the time, method and place of conducting any proceeding for the enforcement of the Mortgage available to the Bond Trustee or exercising any trust or power conferred on the Bond Trustee. No Holder of any Bond has the right to institute any proceeding with respect to the Mortgage, or for the appointment of a receiver or for any other remedy thereunder, unless: • that Holder previously gave written notice of a continuing Event of Default to the Bond Trustee, • the Holders of a majority in principal amount of Outstanding Bonds have offered to the Bond Trustee reasonable indemnity against costs and liabilities and requested that the Bond Trustee take action, • the Bond Trustee declined to take action for 60 days, and • the Holders of a majority in principal amount of Outstanding Bonds have given no inconsistent direction during such 60-day period; provided, however, that each Holder of a Bond has the right to enforce payment of that Bond when due. (Sections 1111, 1112 and 1116) In addition to the rights and remedies provided in the Mortgage, the Bond Trustee may exercise any right or remedy available to the Bond Trustee in its capacity as the owner and holder of Class A Bonds, if any, which arises as a result of a default under any Class A Mortgage. (Section 1119) Defeasance; Satisfaction and Discharge Upon receipt by the Bond Trustee of moneys or Eligible Obligations (as defined in the Mortgage), or both, sufficient to pay when due the principal of and premium, if any, and interest, if any, due and to become due on the Bonds together with a company order and opinion of counsel required by the Mortgage, the holders of the Bonds or portions thereof in respect of which such deposit was made will no longer be entitled to the benefit of certain of our covenants under the Mortgage, and the Bond Trustee will, upon receipt of a company order as required by the Mortgage, will acknowledge in writing that such Bonds or portions thereof are deemed to have been paid for purposes of the Mortgage and that our entire indebtedness in respect of the Mortgage has been deemed to have been satisfied and discharged. Notwithstanding the satisfaction and discharge of any Bonds as described above, certain of our obligations and the obligations of the Bond Trustee shall survive. (Section 1301) Restrictions on Payment of Dividends The Mortgage prohibits us from declaring and paying dividends on any shares of our common stock except from either (1) the excess (the "Surplus") of our net assets over our Capital (as defined herein) or (2) if there is no Surplus, our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year; provided, that no dividends may be declared if and while our Capital is significantly impaired as described in the Mortgage. "Capital" is defined in the Mortgage to mean the part of the consideration we received for any shares of our capital stock as determined by our board of directors to be capital or, if our board has not made such a determination, the aggregate par amount of shares having a par value plus the amount of consideration for such
24 Exhibit A Page 29 of 112
shares without par value. All of the outstanding shares of our common stock are held of record by SCANA. (Section 711) Evidence of Compliance and Indemnification of Bond Trustee The Trust Indenture Act requires that we give the Bond Trustee, at least annually, a brief statement as to our compliance with the conditions and covenants under the Mortgage and periodically deliver reports, information and other documents to the Bond Trustee and file certain documents with the SEC. (Article Eight) The Bond Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Mortgage at the request or direction of any Holder pursuant to the Mortgage, unless such Holder shall have offered to the Bond Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. (Section 1603) Our Relationship with the Bond Trustee The Bond Trustee and/or one or more of its affiliates, may be lenders under our, or our subsidiaries' or affiliates', credit agreements and may provide other commercial banking, investment banking and other services to us and/or our subsidiaries or affiliates. The Bond Trustee will be permitted to engage in other transactions with us and/or our subsidiaries or affiliates; however, if the Bond Trustee acquires any conflicting interest, as defined in the Trust Indenture Act, it must eliminate the conflict or resign. BOOK-ENTRY SYSTEM If provided in the applicable prospectus supplement, except under the circumstances described therein, we will issue each of the Notes, Junior Subordinated Notes or Bonds sold pursuant to this prospectus (the "Securities") as one or more global certificates (each a "Global Certificate"), each of which will represent beneficial interests in the Securities. We will deposit those Global Certificates with, or on behalf of The Depository Trust Company, New York, New York or another depository which we subsequently designate (the "Depository") relating to the Securities, and register them in the name of a nominee of the Depository. So long as the Depository, or its nominee, is the registered owner of a Global Certificate, the Depository or its nominee, as the case may be, will be considered the owner of that Global Certificate. We will make payments of principal of, any premium, and interest on the Global Certificate to the Depository or its nominee, as the case may be, as the registered owner of that Global Certificate. Except as set forth in the applicable prospectus supplement, owners of a beneficial interest in a Global Certificate will not be entitled to have any individual Securities registered in their names, will not receive or be entitled to receive physical delivery of any Securities and will not be considered the owners of Securities. Accordingly, to exercise any of the rights of the registered owners of the Securities, each person holding a beneficial interest in a Global Certificate must rely on the procedures of the Depository. If that person is not a DTC participant, then that person must also rely on procedures of the DTC participant through which that person holds its interest. PLAN OF DISTRIBUTION We may sell securities to one or more underwriters or dealers for public offering and sale by them, or we may sell the securities described in this prospectus to investors directly or through agents. The prospectus supplement relating to the securities being offered will set forth the terms of the offering and the method of distribution, and will identify any firms acting as underwriters, dealers or agents in connection with the offering, including: • the name or names of any agents or underwriters; • the purchase price of the securities and the proceeds to us from the sale; • any underwriting discounts, sales commissions and other items constituting underwriters' compensation; • any public offering price; • any commissions payable to agents; • any discounts or concessions allowed or reallowed or paid to dealers; and • any securities exchange or market on which the securities may be listed. Only those underwriters identified in the applicable prospectus supplement are deemed to be underwriters in connection with the securities offered in the applicable prospectus supplement.
25 Exhibit A Page 30 of 112
We may distribute the securities from time to time in one or more transactions at a fixed price or prices, which may be changed, or at prices determined as the applicable prospectus supplement specifies. We may sell securities through forward contracts or similar arrangements. In connection with the sale of securities, underwriters, dealers or agents may be deemed to have received compensation from us in the form of underwriting discounts or commissions and also may receive commissions from securities purchasers for whom they may act as agent. Underwriters may sell the securities to or through dealers, and such dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters or commissions from the purchasers for whom they may act as agent. We may sell the securities directly or through agents we designate from time to time. Any agent involved in the offer or sale of the securities covered by this prospectus, other than at the market offerings of Common Stock, will be named in a prospectus supplement relating to such securities. At the market offerings of Common Stock may be made by agents. Commissions payable by us to agents will be set forth in a prospectus supplement relating to the securities being offered. Unless otherwise indicated in a prospectus supplement, any such agents will be acting on a best-efforts basis for the period of their appointment. Some of the underwriters, dealers or agents and some of their affiliates who participate in the securities distribution may engage in other transactions with, and perform other services for, us and our subsidiaries or affiliates in the ordinary course of business. Any underwriting or other compensation which we pay to underwriters or agents in connection with the securities offering, and any discounts, concessions or commissions which underwriters allow to dealers, will be set forth in the applicable prospectus supplement. Underwriters, dealers and agents participating in the securities distribution may be deemed to be underwriters, and any discounts and commissions they receive and any profit they realize on the resale of the securities may be deemed to be underwriting discounts and commissions under the Securities Act. Underwriters, and their controlling persons, and agents may be entitled, under agreements entered into with us, to indemnification against certain civil liabilities, including liabilities under the Securities Act. EXPERTS The consolidated financial statements and the related financial statement schedule, incorporated in this prospectus by reference from SCANA's Annual Report on Form 10-K, and the effectiveness of SCANA's internal control over financial reporting, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference. Such consolidated financial statements and financial statement schedule have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements and the related financial statement schedule, incorporated in this prospectus by reference from SCE&G's Annual Report on Form 10-K, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference. Such consolidated financial statements and financial statement schedule have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. VALIDITY OF THE SECURITIES McNair Law Firm, P.A., of Columbia, South Carolina, and Ronald T. Lindsay, Esq., our Senior Vice President and General Counsel, will pass upon the validity of the securities for us. Troutman Sanders LLP, of Richmond, Virginia, may pass upon certain legal matters in connection with the securities for any underwriters, dealers or agents and, in passing upon such legal matters, Troutman Sanders LLP is entitled to rely as to all matters of South Carolina law upon the opinion of Ronald T. Lindsay, Esq. From time to time, Troutman Sanders LLP renders legal services to us and certain of our subsidiaries. Ronald T. Lindsay, Esq., will rely as to matters of New York law upon the opinion of Troutman Sanders LLP. At August 31, 2012, Ronald T. Lindsay, Esq., owned beneficially 1,613 shares of SCANA's Common Stock, including shares acquired by the trustee under SCANA's Stock Purchase-Savings Program by use of contributions made by Mr. Lindsay and earnings thereon and including shares purchased by that trustee by use of SCANA contributions and earnings thereon.
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SCANA CORPORATION Medium Term Notes Junior Subordinated Notes Common Stock SOUTH CAROLINA ELECTRIC & GAS COMPANY First Mortgage Bonds Prospectus October 15, 2012
27 Exhibit A Page 32 of 112
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The estimated expenses in connection with the issuance and distribution of the securities being registered, other than underwriting compensation, are:
Securities and Exchange Commission filing fee $*
Printing and Delivery Expense **
Blue Sky and Legal fees **
Rating Agency fees **
Trustee fees **
Accounting services **
Listing fees **
Transfer Agent fees **
Miscellaneous **
Total **
* To be deferred pursuant to Rule 456(b) and calculated in connection with the offering of securities under this registration statement pursuant to Rule 457(r). ** Estimated expenses not presently known. Each prospectus supplement will reflect estimated expenses based on the amount of the related offering.
Item 15. Indemnification of Directors and Officers
The South Carolina Business Corporation Act of 1988 permits indemnification of the registrants’ directors and officers in a variety of circumstances. Under Sections 33-8-510, 33-8-550 and 33-8-560 of the South Carolina Business Corporation Act of 1988, a South Carolina corporation is authorized generally to indemnify its directors and officers in civil or criminal actions if they acted in good faith and reasonably believed their conduct to be in the best interests of the corporation and, in the case of criminal actions, had no reasonable cause to believe that the conduct was unlawful. In addition, each of the registrants carries insurance on behalf of directors, officers, employees or agents. SCANA’s restated articles of incorporation provide that no SCANA director shall be liable to SCANA or its shareholders for monetary damages for breach of his or her fiduciary duty as a director occurring after April 26, 1989, except for (i) any breach of the director's duty of loyalty to SCANA or its shareholders, (ii) acts or omissions not in good faith or which involve gross negligence, intentional misconduct or a knowing violation of law, (iii) certain unlawful distributions or (iv) any transaction from which the director derived an improper personal benefit.
28 Exhibit A Page 33 of 112
SCANA has entered into an indemnification agreement with each of its directors and certain of its officers and its subsidiaries’ officers. The indemnification agreements generally provide that SCANA will indemnify each of the covered directors and officers for claims arising in such person’s capacity as a director, officer, employee or other agent of SCANA or its subsidiaries, provided that, among other things, such director and/or officer acted in good faith and with a view to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable grounds for believing that his or her conduct was unlawful. The indemnification agreements also provide for payment for or reimbursement of reasonable expenses incurred by an indemnitee who is a party to a proceeding in advance of final disposition of the proceeding under certain circumstances.
Item 16. Exhibits
Exhibits required to be filed with this registration statement are listed in the following Exhibit Index. Certain of such exhibits which have heretofore been filed with the SEC and which are designated by reference to their exhibit numbers in prior filings are hereby incorporated herein by reference and made a part hereof.
Item 17. Undertakings
(a) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, that paragraphs (1)(i), (1)(ii) and (1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the applicable registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. 29 Exhibit A Page 34 of 112
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i) Each prospectus filed by such registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x), for the purpose of providing the information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date it is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of such registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: Each of the undersigned registrants undertakes that in a primary offering of securities of the applicable undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the applicable undersigned registrant will be a seller to the purchaser and will be considered to offer to sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the applicable undersigned registrant relating to the offering required to be filed pursuant to Rule 424; (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the applicable undersigned registrant or used or referred to by such undersigned registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the applicable undersigned registrant or their securities provided by or on behalf of such undersigned registrant; and (iv) Any other communication that is an offer in the offering made by the applicable undersigned registrant to the purchaser.
(6) To file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of section 310 of the Trust Indenture Act in accordance with the rules and regulations prescribed by the Commission under section 305(b)(2) of the Trust Indenture Act. 30 Exhibit A Page 35 of 112
(b) The undersigned registrants hereby undertake that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrants’ annual reports pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
31 Exhibit A Page 36 of 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, SCANA Corporation, the registrant, certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3, and has duly caused this registration statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cayce, State of South Carolina, on October 15, 2012. (REGISTRANT) SCANA Corporation
(Name & Title): By: /s/Kevin B. Marsh Kevin B. Marsh Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this registration statement or amendment thereto has been signed by the following persons in the capacities and on the dates indicated.
(i) Principal executive officer and director: By: /s/Kevin B. Marsh (Name & Title): Kevin B. Marsh Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Director Date: October 15, 2012
(ii) Principal financial officer: By: /s/Jimmy E. Addison (Name & Title): Jimmy E. Addison Executive Vice President and Chief Financial Officer Date: October 15, 2012
(iii) Principal accounting officer: By: /s/James E. Swan IV (Name & Title): James E. Swan IV Controller Date: October 15, 2012
(iv) Other Directors*:
B. L. Amick J. M. Micali J. A. Bennett L. M. Miller S. A. Decker J. W. Roquemore D. M. Hagood M. K. Sloan J. W. Martin, III H. C. Stowe
*Signed on behalf of each of these persons by Ronald T. Lindsay, Attorney-in-Fact:
Date: October 15, 2012
32 Exhibit A Page 37 of 112
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, South Carolina Electric & Gas Company, the registrant, certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3, and has duly caused this registration statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cayce, State of South Carolina, on October 15, 2012. (REGISTRANT) South Carolina Electric & Gas Company
(Name & Title): By: /s/Kevin B. Marsh Kevin B. Marsh Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration statement or amendment thereto has been signed by the following persons in the capacities and on the dates indicated.
(i) Principal executive officer and director: By: /s/Kevin B. Marsh (Name & Title): Kevin B. Marsh Chairman of the Board, Chief Executive Officer and Director Date: October 15, 2012
(ii) Principal financial officer: By: /s/Jimmy E. Addison (Name & Title): Jimmy E. Addison Executive Vice President and Chief Financial Officer Date: October 15, 2012
(iii) Principal accounting officer: By: /s/James E. Swan IV (Name & Title): James E. Swan IV Controller Date: October 15, 2012
(iv) Other Directors*:
B. L. Amick L. M. Miller J. A. Bennett J. W. Roquemore S. A. Decker M. K. Sloan D. M. Hagood H. C. Stowe J. M. Micali
*Signed on behalf of each of these persons by Ronald T. Lindsay, Attorney-in-Fact:
Date: October 15, 2012
33 Exhibit A Page 38 of 112
EXHIBIT INDEX Applicable to Exhibit Form S-3 of No. SCANA SCE&G Description
1 .01 X Form of Underwriting Agreement relating to Medium Term Notes (To be filed as an exhibit to a subsequent Current Report on Form 8-K and incorporated herein by reference)
1.02 X Form of Underwriting Agreement relating to Junior Subordinated Notes (To be filed as an exhibit to a subsequent Current Report on Form 8-K and incorporated herein by reference)
1.03 X Form of Underwriting Agreement relating to Common Stock (To be filed as an exhibit to a subsequent Current Report on Form 8-K and incorporated herein by reference)
1.04 X Form of Underwriting Agreement relating to First Mortgage Bonds (To be filed as an exhibit to a subsequent Current Report on Form 8-K and incorporated herein by reference)
2.01 X Agreement and Plan of Merger, dated as of February 16, 1999 as amended and restated as of May 10, 1999, by and among Public Service Company of North Carolina, Incorporated, SCANA Corporation ("SCANA"), New Sub I, Inc. and New Sub II, Inc. (Filed as Exhibit 2.1 to SCANA Form S-4 on May 11, 1999)
3.01 X Restated Articles of Incorporation of SCANA, as adopted on April 26, 1989 (Filed as Exhibit 3-A to Registration Statement No. 33-49145)
3.02 X Articles of Amendment dated April 27, 1995 (Filed as Exhibit 4-B to Registration Statement No. 33-62421)
3.03 X Articles of Amendment effective April 25, 2011 (Filed as Exhibit 4.03 to Registration Statement No. 333-174796)
3.04 X Restated Articles of Incorporation of South Carolina Electric & Gas Company ("SCE&G"), as adopted on December 30, 2009 (Filed as Exhibit 1 to Form 8-A (File Number 000-53860))
3.05 X Bylaws of SCANA as amended and restated as of February 19, 2009 (Filed as Exhibit 4.04 to Registration Statement No. 333-174796)
3.06 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)
4.01 X Indenture dated as of November 1, 1989 between SCANA Corporation and The Bank of New York Mellon Trust Company, N.A. (successor to The Bank of New York), as Trustee (Filed as Exhibit 4-A to Registration Statement No. 33-32107)
4.02 X First Supplemental Indenture dated as of November 1, 2009 to Indenture dated as of November 1, 1989 between SCANA Corporation and The Bank of New York Mellon Trust Company, N.A. (successor to The Bank of New York), as Trustee (Filed as Exhibit 99.01 to Registration Statement No. 333-174796)
4.03 X Junior Subordinated Indenture dated as of November 1, 2009 between SCANA Corporation and U.S. Bank National Association, as Trustee (Filed as Exhibit 99.02 to Registration Statement No. 333-174796)
4.04 X First Supplemental Indenture to Junior Subordinated Indenture referred to in Exhibit 4.03 dated as of November 1, 2009 (Filed as Exhibit 99.03 to Registration Statement No. 333-174796)
34 Exhibit A Page 39 of 112
4.05 X Form of Supplemental Indenture to Junior Subordinated Indenture referred to in Exhibit 4.03, related to Junior Subordinated Notes (Filed herewith)
4.06 X Indenture dated as of April 1, 1993 from South Carolina Electric & Gas Company to The Bank of New York Mellon Trust Company, N.A. (as successor to NationsBank of Georgia, National Association), as Trustee (Filed as Exhibit 4-F to Registration Statement No. 33-49421)
4.07 X First Supplemental Indenture to Indenture referred to in Exhibit 4.06 dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421)
4.08 X Second Supplemental Indenture to Indenture referred to in Exhibit 4.06 dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955)
4.09 X Form of Medium Term Notes (Filed herewith)
4.10 X Form of Junior Subordinated Notes (Filed herewith as part of Form of Supplemental Indenture filed as Exhibit 4.05)
4.11 X Form of First Mortgage Bonds (Filed herewith)
5.01 X Opinion of Ronald T. Lindsay, Esq. Re legality of Medium Term Notes, Junior Subordinated Notes and Common Stock (Filed herewith)
5.02 X Opinion of Troutman Sanders LLP Re legality of Medium Term Notes and Junior Subordinated Notes (Filed herewith)
5.03 X Opinion of Ronald T. Lindsay, Esq. Re legality of First Mortgage Bonds (Filed herewith)
8.01 Opinion Re Tax Matters (Not applicable)
12.01 X X Statements Re Computation of Ratios (Filed herewith)
15.01 Letter Re Unaudited Interim Financial Information (Not applicable)
23.01 X Consent of Deloitte & Touche LLP (Filed herewith)
23.02 X Consent of Deloitte & Touche LLP (Filed herewith)
23.03 X Consent of Ronald T. Lindsay, Esq. (Filed herewith as part of opinion filed as Exhibit 5.01)
23.04 X Consent of Ronald T. Lindsay, Esq. (Filed herewith as part of opinion filed as Exhibit 5.03)
23.05 X Consent of Troutman Sanders LLP (Filed herewith as part of opinion filed as Exhibit 5.02)
24.01 X Power of Attorney (Filed herewith)
24.02 X Power of Attorney (Filed herewith)
25.01 X Statement of eligibility of The Bank of New York Mellon Trust Company, N.A., as Trustee of Medium Term Notes (Form T-1) (Filed herewith)
35 Exhibit A Page 40 of 112
25.02 X Statement of eligibility of U.S. Bank National Association, as Trustee of Junior Subordinated Notes (Form T-1) (Filed herewith)
25.03 X Statement of eligibility of The Bank of New York Mellon Trust Company, as Trustee of First Mortgage Bonds (Form T-1) (Filed herewith)
26.01 Invitations for Competitive Bids (Not applicable)
36 Exhibit A Page 41 of 112
Exhibit 4.05
______SUPPLEMENTAL INDENTURE
Between
SCANA CORPORATION, as Issuer
and
U.S. BANK NATIONAL ASSOCIATION, as Trustee
DATED AS OF ______
_____ Series ______% JUNIOR SUBORDINATED NOTES Exhibit A Page 42 of 112
______SUPPLEMENTAL INDENTURE
THIS ______SUPPLEMENTAL INDENTURE, dated as of ______(this “______Supplemental Indenture”), is between SCANA CORPORATION, a South Carolina corporation, having its principal office at 100 SCANA Parkway, Cayce, South Carolina 29033-3712 (the “Company”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as Trustee, having a corporate trust office at 1441 Main Street, Suite 775, Columbia, South Carolina 29201 (herein called the “Trustee”).
W I T N E S S E T H:
WHEREAS, the Company has heretofore entered into a Junior Subordinated Indenture, dated as of September 1, 2009, as supplemented (as so supplemented, the “Base Indenture”), with the Trustee;
WHEREAS, the Base Indenture is incorporated herein by this reference and the Base Indenture, as supplemented by this ______Supplemental Indenture, is herein called the “Indenture”;
WHEREAS, under the Base Indenture, a new series of Securities may at any time be established in accordance with the provisions of the Base Indenture and the terms of such series may be described by a supplemental indenture executed by the Company and the Trustee;
WHEREAS, the Company proposes to create under the Indenture a series of Securities;
WHEREAS, additional Securities of other series hereafter established, except as may be limited in the Base Indenture as at the time supplemented and modified, may be issued from time to time pursuant to the Indenture as at the time supplemented and modified;
WHEREAS, all requirements necessary to make this ______Supplemental Indenture a valid instrument in accordance with its terms, and to make the Junior Subordinated Notes (hereinafter defined), when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this ______Supplemental Indenture has been duly authorized in all respects;
NOW, THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I DEFINITIONS
1.1 Definition of Terms. For all purposes of this ______Supplemental Indenture, except as otherwise expressly provided or unless the context otherwise requires:
2 Exhibit A Page 43 of 112
(a) the terms not otherwise defined herein which are defined in the Base Indenture have the same meanings when used in this ______Supplemental Indenture;
(b) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
(a) all other terms used herein which are defined in the Trust Indenture Act, whether directly or by reference therein, have the meanings assigned to them therein;
(b) Except as otherwise herein expressly provided, all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with accounting principles as are generally accepted in the United States of America and, with respect to any computation required or permitted hereunder, the term “generally accepted accounting principles” shall mean such accounting principles as are generally accepted in the United States of America at the date of such computation; provided, that when two or more principles are so generally accepted, it shall mean that set of principles consistent with those in use by the Company;
(c) a reference to a Section or Article is to a Section or Article of this ______Supplemental Indenture unless otherwise stated;
(d) the words “herein,” “hereof” and “hereunder” and other words of similar import refer to this ______Supplemental Indenture as a whole and not to any particular Article, Section or other subdivision;
(e) headings are for convenience of reference only and do not affect interpretation;
“Corporate Trust Office of the Trustee” means the office of the Trustee at which at any particular time its corporate trust business with respect to the Junior Subordinated Notes shall be principally administered, which office at the date of original execution of this ______Supplemental Indenture is located at 1441 Main Street, Suite 775, Columbia, South Carolina 29201.
“Definitive Note Certificates” means Junior Subordinated Notes issued in definitive, fully registered form.
“Global Note” has the meaning specified in Section 2.4(a).
“Interest Payment Dates” means ______of each year, commencing on ______, _____.
“Optional Deferral Period” has the meaning specified in Section 4.1.
“Original Issue Date” means ______.
“Record Date” has the meaning specified in Section 2.5(a).
“Stated Maturity” has the meaning specified in Section 2.2.
3 Exhibit A Page 44 of 112
“Tax Event” means, for all purposes of the Junior Subordinated Notes issued pursuant to this ______Supplemental Indenture, the receipt by the Company of an Opinion of Counsel experienced in such tax matters to the effect that, as a result of (a) any amendment to, clarification of, or change (including any announced prospective change) in the laws or treaties of the United States or any political subdivisions or taxing authorities, or any regulations under such laws or treaties, (b) any judicial decision or any official administrative pronouncement, ruling, regulatory procedure, notice or announcement (including any notice or announcement of intent to issue or adopt any such administrative pronouncement, ruling, regulatory procedure or regulation), (c) any amendment to, clarification of, or change in the official position or the interpretation of any such administrative action or judicial decision or any interpretation or pronouncement that provides for a position with respect to such administrative action or judicial decision that differs from the theretofore generally accepted position, in each case by any legislative body, court, governmental authority or regulatory body, irrespective of the time or manner in which such amendment, clarification or change is introduced or made known, or (d) threatened challenge asserted in writing in connection with an audit of the Company or any of its subsidiaries, or a publicly-known threatened challenge asserted in writing against any other taxpayer that has raised capital through the issuance of securities that are substantially similar to the Junior Subordinated Notes, which amendment, clarification, or change is effective, or which administrative action is taken or which judicial decision, interpretation or pronouncement is issued or threatened challenge is asserted or becomes publicly-known, in each case after ______, there is more than an insubstantial risk that interest payable by the Company on the Junior Subordinated Notes is not deductible, or within 90 days would not be deductible, in whole or in part, by the Company for United States Federal income tax purposes.
The terms “Company,” “Trustee,” “Base Indenture,” and “Indenture” shall have the respective meanings set forth in the recitals to this ______Supplemental Indenture and the paragraph preceding such recitals.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE JUNIOR SUBORDINATED NOTES
2.1 Designation and Principal Amount. There is hereby established a series of Securities to be issued under the Indenture, to be designated as the Company’s _____ Series ______% Enhanced Junior Subordinated Notes (the “Junior Subordinated Notes”) in an aggregate principal amount of up to $______, which amount shall be set forth in any written orders of the Company for the authentication and delivery of Junior Subordinated Notes pursuant to Section 2.1 of the Base Indenture and Section 6.1 hereof. Additional Junior Subordinated Notes without limitation as to amount, and without the consent of the holders of the then Outstanding Junior Subordinated Notes, may also be authenticated and delivered in the manner provided in Section 2.1 of the Base Indenture. Any such additional Junior Subordinated Notes will have the same Stated Maturity and other terms (except, if applicable, the initial Interest Payment Date and initial interest accrual date) as those initially issued and shall be consolidated with and part of the same series of Junior Subordinated Notes as the Junior Subordinated Notes initially issued under this ______Supplemental Indenture.
4 Exhibit A Page 45 of 112
2.2 Maturity. The maturity date of the Junior Subordinated Notes initially will be ______, but will be automatically extended, except for any portion of the principal amount of the Junior Subordinated Notes that shall have been earlier redeemed or with respect to which notice of redemption shall have been given to the holders of such Junior Subordinated Notes, for additional quarterly periods on each of ______, ______, ______and ______, beginning on ______, through and including ______, without notice to, or consent of, the holders of the Junior Subordinated Notes. [Subject to the conditions described below, the maturity date will be further automatically extended for additional quarterly periods beginning on ______, through and including ______, except for any portion of the principal amount of the Junior Subordinated Notes that shall have been earlier redeemed or with respect to which notice of redemption shall have been given to the holders of such Junior Subordinated Notes.] The final maturity date of the Junior Subordinated Notes will be no later than ______, on which date the entire principal amount of the Junior Subordinated Notes will become due and payable, together with any accrued and unpaid interest. The “Stated Maturity” of the Junior Subordinated Notes shall mean the maturity date of the Junior Subordinated Notes as extended in accordance with this Section 2.2, which may not be otherwise shortened or extended.
[Conditions to Extensions]
2.3 Form and Payment; Minimum Transfer Restriction.
(a) The Junior Subordinated Notes shall be issued in fully registered definitive form without coupons in minimum denominations of $___ and integral multiples of $___ in excess thereof. Principal and interest on the Junior Subordinated Notes will be payable, the transfer of such Junior Subordinated Notes will be registrable and such Junior Subordinated Notes will be exchangeable for Junior Subordinated Notes bearing identical terms and provisions at the Corporate Trust Office of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the Person entitled thereto at such address as shall appear in the Register or by transfer to an account maintained by the Person entitled thereto as specified in the Register, provided that proper transfer instructions have been received by the Paying Agent by the Record Date. The Register for the Junior Subordinated Notes shall be kept at the Corporate Trust Office of the Trustee, and the Trustee is hereby appointed registrar and Paying Agent for the Junior Subordinated Notes.
(b) The Junior Subordinated Notes may be transferred or exchanged only in minimum denominations of $___ and integral multiples of $___ in excess thereof, and any attempted transfer, sale or other disposition of Junior Subordinated Notes in a denomination of less than $___ shall be deemed to be void and of no legal effect whatsoever. Any such transferee shall be deemed not to be the holder of such Junior Subordinated Notes for any purpose, including but not limited to the receipt of payments in respect of such Junior Subordinated Notes and such transferee shall be deemed to have no interest whatsoever in such Junior Subordinated Notes.
(c) Pursuant to the Base Indenture, the Company hereby appoints the Trustee as registrar and “Paying Agent” with respect to the Junior Subordinated Notes.
5 Exhibit A Page 46 of 112
2.4 Exchange and Registration of Transfer of Junior Subordinated Notes; Restrictions on Transfers; Depositary.
The Junior Subordinated Notes will be issued to the holders in accordance with the following procedures:
(a) So long as Junior Subordinated Notes are eligible for book-entry settlement with the Depositary, or unless required by law, all Junior Subordinated Notes that are so eligible will be represented by one or more Junior Subordinated Notes in global form (a “Global Note”) registered in the name of the Depositary or the nominee of the Depositary. Except as provided in Section 2.4 (c) below, beneficial owners of a Global Note shall not be entitled to have Definitive Note Certificates registered in their names, will not receive or be entitled to receive physical delivery of Definitive Note Certificates and will not be registered holders of such Global Notes.
(b) The transfer and exchange of beneficial interests in Global Notes shall be effected through the Depositary in accordance with the Indenture and the procedures and standing instructions of the Depositary and the Trustee shall make appropriate endorsements to reflect increases or decreases in principal amounts of such Global Notes. In addition, all payments of principal and purchase price of, redemption premium, if any, and interest on the Global Notes and all notices, communications and other documents required to be mailed to the holders with respect to the Global Notes or pursuant to the Indenture, shall be made and given at the times and in accordance with the procedures and standing instructions of the Depositary (which procedures and standing instructions shall govern in the event of any inconsistency between the provisions of the Indenture and such procedures and standing instructions).
(c) Notwithstanding any other provisions of the Indenture (other than the provisions set forth in this Section 2.4(c)), a Global Note may not be exchanged in whole or in part for Junior Subordinated Notes registered, and no transfer of a Global Note may be registered, in the name of any person other than the Depositary or a nominee thereof unless (i) such Depositary (A) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Note or (B) has ceased to be a clearing agency registered as such under the Exchange Act and no successor Depositary has been appointed by the Company within 90 days after its receipt of such notice or its becoming aware of such ineligibility, (ii) there shall have occurred and be continuing an Event of Default, or any event which after notice or lapse of time or both would be an Event of Default under the Indenture, with respect to such Junior Subordinated Note, or (iii) the Company, in its sole discretion and subject to the procedures of the Depositary, instructs the Trustee to exchange such Global Note for a Junior Subordinated Note that is not a Global Note (in which case such exchange (subject to such procedures) shall be effected by the Trustee).
The Depositary shall be a clearing agency registered under the Exchange Act. The Company initially appoints The Depository Trust Company to act as Depositary with respect to the Global Notes. Initially, the Global Notes shall be registered in the name of Cede & Co., as the nominee of the Depositary, and deposited with the Trustee as custodian for Cede & Co.
Definitive Note Certificates issued in exchange for all or a part of a Global Note pursuant to this Section 2.4(c) shall be registered in such names and in such authorized denominations as the 6 Exhibit A Page 47 of 112
Depositary, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. Upon execution and authentication, the Trustee shall deliver such Definitive Note Certificates to the person in whose names such Definitive Note Certificates are so registered.
So long as Junior Subordinated Notes are represented by one or more Global Notes, (i) the registrar for the Junior Subordinated Notes and the Trustee shall be entitled to deal with the Depository for all purposes of the Indenture relating to such Global Notes as the sole holder of the Junior Subordinated Notes evidenced by such Global Notes and shall have no obligations to the holders of beneficial interests in such Global Notes; and (ii) the rights of the holders of beneficial interests in such Global Notes shall be exercised only through the Depository and shall be limited to those established by law and agreements between such holders and the Depository and/or the participants in the Depository.
At such time as all interests in a Global Note have been paid, redeemed, exchanged, repurchased or canceled, such Global Note shall be, upon receipt thereof, canceled by the Trustee in accordance with standing procedures and instructions of the Depositary. At any time prior to such cancellation, if any interest in a Global Note is exchanged for Definitive Note Certificates, redeemed by the Company pursuant to Article II or canceled, or transferred for part of a Global Note, the principal amount of such Global Note shall, in accordance with the standing procedures and instructions of the Depositary be reduced or increased, as the case may be, and an endorsement shall be made on such Global Note by, or at the direction of, the Trustee to reflect such reduction or increase.
2.5 Interest.
(a) Each Junior Subordinated Note will bear interest at the rate of ______% per annum from the Original Issue Date. Subject to the Company’s right to defer interest payments described in Article IV below, interest is payable quarterly in arrears on each Interest Payment Date until the principal thereof is paid or made available for payment. If interest payments are deferred or otherwise not paid, they will accrue and compound until paid at the annual rate of _____% per annum, to the extent permitted by applicable law. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable will be paid to the Person in whose name such Junior Subordinated Note is registered, at the close of business on the Record Date next preceding such Interest Payment Date; provided that interest payable at Maturity will be paid to the Person to whom principal is payable. Any such interest that is not so punctually paid or duly provided for, and that is not deferred pursuant to Article IV hereof, will forthwith cease to be payable to the holders on such Record Date and may either be paid (i) to the Person in whose name such Junior Subordinated Note (or any Junior Subordinated Note issued upon registration of transfer or exchange thereof) is registered at the close of business on the record date for the payment of such defaulted interest established in accordance with Section 2.3 of the Base Indenture or (ii) at any time in any other lawful manner not inconsistent with the requirements of the securities exchange, if any, on which the Junior Subordinated Notes may be listed, and upon such notice as may be required by such exchange. The “Record Date” for payment of interest will be the close of business on the Business Day next preceding the Interest Payment Date, unless such Junior Subordinated Note is registered to a holder other than the Depositary or a nominee of the Depositary,
7 Exhibit A Page 48 of 112
in which case the Record Date for payment of interest will be the close of business on the fifteenth calendar day preceding the applicable Interest Payment Date, whether or not a Business Day.
(b) If an Interest Payment Date, redemption date or the Stated Maturity of the Junior Subordinated Notes falls on a day that is not a Business Day, the payment of interest and principal will be made on the next succeeding Business Day, and no interest on such payment will accrue for the period from and after the Interest Payment Date, redemption date or the Stated Maturity, as applicable.
2.6 Events of Default. An Event of Default as defined in the Indenture shall be an Event of Default with respect to the Junior Subordinated Notes provided that the nonpayment of interest for so long as and to the extent that interest is permitted to be deferred pursuant to Article IV herein shall not be deemed to be a default in the payment of interest for the purposes of Article VI of the Base Indenture and shall not otherwise be deemed an Event of Default with respect to the Junior Subordinated Notes. For the avoidance of doubt, and without prejudice to any other remedies that may be available to the Trustee or the holders of the Junior Subordinated Notes, no breach by the Company of any covenant or obligation under the Indenture or the terms of the Junior Subordinated Notes shall be an Event of Default except those that are specifically identified as an Event of Default under the Indenture.
ARTICLE III REDEMPTION OF THE JUNIOR SUBORDINATED NOTES
3.1 Optional Redemption by Company. The Company shall have the option to redeem the Junior Subordinated Notes:
[Redemption Provisions]
The applicable redemption price shall be paid prior to 2:30 p.m., New York City time, on the date of such redemption, provided that the Company shall deposit with the Trustee an amount sufficient to pay the applicable redemption price by 11:00 a.m., New York City time, on the date such redemption price is to be paid.
3.2 Notice of Redemption. Subject to Article III of the Base Indenture, notice of any redemption pursuant to this Article III will be mailed at least 20 days but not more than 60 days before the redemption date to each holder of Junior Subordinated Notes to be redeemed at such holder’s registered address. Unless the Company defaults in payment of the applicable redemption price, on and after the redemption date interest shall cease to accrue on such Junior Subordinated Notes called for redemption.
ARTICLE IV OPTION TO DEFER INTEREST PAYMENTS
4.1 Option to Defer Interest Payments. So long as there is no Event of Default with respect to the Junior Subordinated Notes under the Base Indenture, the Company, at its option, may, on one or more occasions, defer payment of all or part of the current and accrued interest otherwise due
8 Exhibit A Page 49 of 112
on the Junior Subordinated Notes for a period of up to ____ consecutive years (each period, commencing on the date that the first such interest payment would otherwise have been made, an “Optional Deferral Period”). A deferral of interest payments may not end on a date other than an Interest Payment Date and may not extend beyond the Stated Maturity of the Junior Subordinated Notes, and the Company may not begin a new Optional Deferral Period and may not pay current interest on the Junior Subordinated Notes until it has paid all accrued interest on the Junior Subordinated Notes from the previous Optional Deferral Period. Such accrued interest shall be payable to the persons in whose names the Junior Subordinated Notes are registered at the close of business on the Record Date next preceding such Interest Payment Date.
Any deferred interest on the Junior Subordinated Notes will accrue Additional Interest at a rate equal to _____% per annum, to the extent permitted by applicable law. Once the Company pays all deferred interest payments on the Junior Subordinated Notes, including any Additional Interest accrued on the deferred interest, it shall be entitled to again defer interest payments on the Junior Subordinated Notes as described above, but not beyond the Stated Maturity of the Junior Subordinated Notes.
[Unless the Company has paid all accrued and payable interest on the Junior Subordinated Notes and is not deferring any interest payments on the Junior Subordinated Notes at such time, it will not and its Subsidiaries shall not do any of the following:
(i) declare or pay any dividends or distributions, or redeem, purchase, acquire, or make a liquidation payment on any of the Company’s Capital Stock;
(i) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any of its debt securities that rank on a parity with or junior to the Junior Subordinated Notes (including debt securities of other series issued under the Base Indenture); or
(ii) make any guarantee payments on any guarantee of debt securities if the guarantee ranks on a parity with or junior to the Junior Subordinated Notes.
However, the foregoing provisions shall not prevent or restrict the Company from making:
(a) purchases, redemptions or other acquisitions of its Capital Stock in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors, agents or consultants or a stock purchase or dividend reinvestment plan, or the satisfaction of its obligations pursuant to any contract or security outstanding on the date that the payment of interest is deferred requiring it to purchase, redeem or acquire its Capital Stock;
(b) any payment, repayment, redemption, purchase, acquisition or declaration of dividend described in clause (i) above as a result of a reclassification of its Capital Stock, or the exchange or conversion of all or a portion of one class or series of its Capital Stock for another class or series of its Capital Stock;
9 Exhibit A Page 50 of 112
(c) the purchase of fractional interests in shares of its Capital Stock pursuant to the conversion or exchange provisions of its Capital Stock or the security being converted or exchanged, or in connection with the settlement of stock purchase contracts outstanding on the date that the payment of interest is deferred;
(d) dividends or distributions paid or made in its Capital Stock (or rights to acquire its Capital Stock), or repurchases, redemptions or acquisitions of Capital Stock in connection with the issuance or exchange of Capital Stock (or of securities convertible into or exchangeable for shares of its Capital Stock) and distributions in connection with the settlement of stock purchase contracts outstanding on the date that the payment of interest is deferred;
(e) redemptions, exchanges or repurchases of, or with respect to, any rights outstanding under a shareholder rights plan outstanding on the date that the payment of interest is deferred or the declaration or payment thereunder of a dividend or distribution of or with respect to rights in the future; or
(f) payments on the Junior Subordinated Notes, any trust preferred securities, subordinated debentures, junior subordinated debentures or junior subordinated notes, or any guarantees of any of the foregoing, in each case that rank equal in right of payment to the Junior Subordinated Notes, so long as the amount of payments made on account of such securities or guarantees is paid on all such securities and guarantees then outstanding on a pro rata basis in proportion to the full payment to which each series of such securities and guarantees is then entitled if paid in full.]
4.2 Notice of Deferral. The Company shall give the Trustee written notice of its election to begin an Optional Deferral Period at least one Business Day before the Record Date for the next Interest Payment Date. The Trustee will forward any written notice that the Company gives of its election to begin an Optional Deferral Period to the holders of the Junior Subordinated Notes. However, the Company’s failure to pay interest on any Interest Payment Date will itself constitute the commencement of an Optional Deferral Period unless the Company pays such interest payment within five Business Days after the Interest Payment Date, whether or not the Company provides a notice of deferral.
ARTICLE V FORM OF JUNIOR SUBORDINATED NOTE
5.1 Form of Junior Subordinated Note. The Junior Subordinated Notes and the Trustee’s Certificate of Authentication to be endorsed thereon are to be substantially in the form attached hereto as Exhibit A.
ARTICLE VI ORIGINAL ISSUE OF JUNIOR SUBORDINATED NOTES
6.1 Original Issue of Junior Subordinated Notes. Junior Subordinated Notes in the initial aggregate principal amount of up to $______may be executed by the Company and delivered to the Trustee for authentication by it, and the Trustee shall thereupon authenticate and deliver said 10 Exhibit A Page 51 of 112
Junior Subordinated Notes to or upon the written order of the Company, signed by any Officer of the Company, without any further corporate action by the Company.
ARTICLE VII MISCELLANEOUS
7.1 Ratification of Indenture; ______Supplemental Indenture Controls. The Base Indenture, as supplemented by this ______Supplemental Indenture, is in all respects ratified and confirmed, and this ______Supplemental Indenture shall be deemed part of the Base Indenture in the manner and to the extent herein and therein provided. The provisions of this ______Supplemental Indenture shall supersede the provisions of the Base Indenture to the extent the Base Indenture is inconsistent herewith.
7.2 Recitals. The recitals herein contained are made by the Company only and not by the Trustee, and the Trustee assumes no responsibility for the correctness thereof. The Trustee makes no representation as to the validity or sufficiency of this ______Supplemental Indenture.
7.3 Governing Law. This ______Supplemental Indenture and each Junior Subordinated Note shall be deemed to be a contract made under the internal laws of the State of New York, and for all purposes shall be governed by and construed in accordance with the laws of said State, without regard to the conflicts of law principles thereof.
7.4 Separability. In case any one or more of the provisions contained in this ______Supplemental Indenture or in the Junior Subordinated Notes shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this ______Supplemental Indenture or of the Junior Subordinated Notes, but this ______Supplemental Indenture and the Junior Subordinated Notes shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein.
7.5 Counterparts. This ______Supplemental Indenture may be executed in any number of counterparts each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.
11 Exhibit A Page 52 of 112
IN WITNESS WHEREOF, the parties hereto have caused this ______Supplemental Indenture to be duly executed as of the date first above written.
SCANA CORPORATION
By: Name: Title:
U.S. BANK NATIONAL ASSOCIATION, as Trustee
By: Name: Title:
12 Exhibit A Page 53 of 112
EXHIBIT A
(FORM OF FACE OF JUNIOR SUBORDINATED NOTE)
[THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE OF A DEPOSITARY. THIS NOTE IS EXCHANGEABLE FOR JUNIOR SUBORDINATED NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED CIRCUMSTANCES.]*
[UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF [CEDE & CO.] OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT HEREON IS MADE TO [CEDE & CO.], ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, [CEDE & CO.], HAS AN INTEREST HEREIN.]*
THE NOTES EVIDENCED HEREBY WILL BE ISSUED, AND MAY BE TRANSFERRED, ONLY IN MINIMUM DENOMINATIONS OF $___ AND INTEGRAL MULTIPLES OF $____ IN EXCESS THEREOF. ANY ATTEMPTED TRANSFER, SALE OR OTHER DISPOSITION OF NOTES IN A DENOMINATION OF LESS THAN $____ SHALL BE DEEMED TO BE VOID AND OF NO LEGAL EFFECT WHATSOEVER. ANY SUCH TRANSFEREE SHALL BE DEEMED NOT TO BE THE HOLDER OF SUCH NOTES FOR ANY PURPOSE, INCLUDING BUT NOT LIMITED TO THE RECEIPT OF PAYMENTS IN RESPECT OF SUCH NOTES, AND SUCH TRANSFEREE SHALL BE DEEMED TO HAVE NO INTEREST WHATSOEVER IN SUCH NOTES.
[*Insert in Global Notes. **Insert in Notes other than Global Notes. ***Insert in Global Notes.]
A-1 Exhibit A Page 54 of 112
SCANA CORPORATION
$______
_____ Series ______% JUNIOR SUBORDINATED NOTE
Dated:
NUMBER R- CUSIP NO: Registered Holder:
SCANA CORPORATION, a corporation duly organized and existing under the laws of the State of South Carolina (herein referred to as the “Company,” which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to the Registered Holder named above, the principal sum [of Dollars]** [specified in the Schedule annexed hereto]*** on the date of Stated Maturity, as hereafter defined, and to pay (subject to deferral as set forth herein) interest thereon at the rate of _____% per annum, such interest to accrue from ______. Subject to the Company’s right to defer interest payments described herein, interest is payable quarterly in arrears on each ______, ______, ______and ______, commencing on ______, _____ (the “Interest Payment Dates”), until the principal thereof is paid or made available for payment. If interest payments are deferred or otherwise not paid, they will accrue and compound until paid at the annual rate of _____% per annum, to the extent permitted by applicable law.
The maturity date of this note (this “Note”) initially will be ______, ___, but will be automatically extended, except for any portion of the principal amount of this Note that shall have been earlier redeemed or with respect to which notice of redemption shall have been given to the Holder (as defined herein) hereof, for additional quarterly periods on each of ______, ______, ______and ______, beginning on ______, ____, through and including ______, ____, without notice to, or consent of, the Holder of this Note. Subject to the conditions described below, the maturity date will be further automatically extended for additional quarterly periods beginning on ______, ___, through and including ______, ____, except for any portion of the principal amount of this Note that shall have been earlier redeemed or with respect to which notice of redemption shall have been given to the Holder hereof. The final maturity date of this Note will be no later than ______, ____, on which date the entire principal amount of this Note will become due and payable, together with any accrued and unpaid interest. The Stated Maturity of this Note shall mean the maturity date of this Note as extended in accordance with this paragraph, and may not be otherwise shortened or extended.
[Conditions to Extensions]
The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The interest so payable on an Interest Payment Date will be paid to the Person in whose name this Note is registered, at the close of business on the Record Date next preceding such Interest Payment Date; provided that interest payable at Maturity will be paid to the Person to whom principal is payable. Any such interest that is not so punctually paid or duly provided A-2 Exhibit A Page 55 of 112 for, and that is not deferred as described below, will forthwith cease to be payable to the Holder on such Record Date and may either be paid (i) to the Person in whose name this Note (or any Junior Subordinated Note issued upon registration of transfer or exchange thereof) is registered at the close of business on the record date for the payment of such defaulted interest established in accordance with Section 2.3 of the Base Indenture or (ii) at any time in any other lawful manner not inconsistent with the requirements of the securities exchange, if any, on which the Junior Subordinated Notes may be listed, and upon such notice as may be required by such exchange. The “Record Date” for payment of interest will be the close of business on the Business Day next preceding the Interest Payment Date, unless this Note is registered to a holder other than the Depositary or a nominee of the Depositary, in which case the Record Date for payment of interest will be the close of business on the fifteenth calendar day preceding the applicable Interest Payment Date, whether or not a Business Day.
If an Interest Payment Date, redemption date or the Stated Maturity of the Junior Subordinated Notes falls on a day that is not a Business Day, the payment of interest and principal will be made on the next succeeding Business Day, and no interest on such payment will accrue for the period from and after the Interest Payment Date, redemption date or the Stated Maturity, as applicable.
This Note may be presented for payment of principal and interest at the office of the Paying Agent, in the City of St. Paul, State of Minnesota; provided, however, that payment of interest may be made at the option of the Company (i) by check mailed to such address of the person entitled thereto as the address shall appear on the Register of the Notes or (ii) by transfer to an account maintained by the Person entitled thereto as specified in the Register, provided that proper transfer instructions have been received by the Record Date. Payment of the principal and interest on this Note shall be made in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.
So long as there is no Event of Default with respect to the Junior Subordinated Notes under the Base Indenture, the Company, at its option, may, on one or more occasions, defer payment of all or part of the current and accrued interest otherwise due on the Junior Subordinated Notes for a period of up to ______consecutive years (each period, commencing on the date that the first such interest payment would otherwise have been made, an “Optional Deferral Period”). A deferral of interest payments may not end on a date other than an Interest Payment Date and may not extend beyond the Stated Maturity of the Junior Subordinated Notes, and the Company may not begin a new Optional Deferral Period and may not pay current interest on the Junior Subordinated Notes until it has paid all accrued interest on the Junior Subordinated Notes from the previous Optional Deferral Period. Such accrued interest shall be payable to the persons in whose names the Junior Subordinated Notes are registered at the close of business on the Record Date next preceding such Interest Payment Date.
Any deferred interest on the Junior Subordinated Notes will accrue Additional Interest at a rate equal to _____% per annum, to the extent permitted by applicable law. Once the Company pays all deferred interest payments on the Junior Subordinated Notes, including any Additional Interest accrued on the deferred interest, it shall be entitled to again defer interest payments on the Junior
A-3 Exhibit A Page 56 of 112
Subordinated Notes as described above, but not beyond the Stated Maturity of the Junior Subordinated Notes.
[Unless the Company has paid all accrued and payable interest on the Junior Subordinated Notes and is not deferring any interest payments on the Junior Subordinated Notes at such time, it will not and its Subsidiaries shall not do any of the following:
(i) declare or pay any dividends or distributions, or redeem, purchase, acquire, or make a liquidation payment on any of SCANA Corporation’s Capital Stock;
(ii) make any payment of principal of or interest or premium, if any, on or repay, repurchase or redeem any of its debt securities that rank on a parity with or junior to the Junior Subordinated Notes (including debt securities of other series issued under the Base Indenture); or
(i) make any guarantee payments on any guarantee of debt securities if the guarantee ranks on a parity with or junior to the Junior Subordinated Notes.
However, the foregoing provisions shall not prevent or restrict the Company from making:
(a) purchases, redemptions or other acquisitions of its Capital Stock in connection with any employment contract, benefit plan or other similar arrangement with or for the benefit of employees, officers, directors, agents or consultants or a stock purchase or dividend reinvestment plan, or the satisfaction of its obligations pursuant to any contract or security outstanding on the date that the payment of interest is deferred requiring it to purchase, redeem or acquire its Capital Stock;
(b) any payment, repayment, redemption, purchase, acquisition or declaration of dividend described in clause (i) above as a result of a reclassification of its Capital Stock, or the exchange or conversion of all or a portion of one class or series of its Capital Stock for another class or series of its Capital Stock;
(c) the purchase of fractional interests in shares of its Capital Stock pursuant to the conversion or exchange provisions of its Capital Stock or the security being converted or exchanged, or in connection with the settlement of stock purchase contracts outstanding on the date that the payment of interest is deferred;
(d) dividends or distributions paid or made in its Capital Stock (or rights to acquire its Capital Stock), or repurchases, redemptions or acquisitions of Capital Stock in connection with the issuance or exchange of Capital Stock (or of securities convertible into or exchangeable for shares of its Capital Stock) and distributions in connection with the settlement of stock purchase contracts outstanding on the date that the payment of interest is deferred;
(e) redemptions, exchanges or repurchases of, or with respect to, any rights outstanding under a shareholder rights plan outstanding on the date that the payment of interest is deferred
A-4 Exhibit A Page 57 of 112
or the declaration or payment thereunder of a dividend or distribution of or with respect to rights in the future; or
(f) payments on the Junior Subordinated Notes, any trust preferred securities, subordinated debentures, junior subordinated debentures or junior subordinated notes, or any guarantees of any of the foregoing, in each case that rank equal in right of payment to the Junior Subordinated Notes, so long as the amount of payments made on account of such securities or guarantees is paid on all such securities and guarantees then outstanding on a pro rata basis in proportion to the full payment to which each series of such securities and guarantees is then entitled if paid in full.]
The Company shall give the Trustee written notice of its election to begin a deferral period at least one Business Day before the Record Date for the next Interest Payment Date. The Trustee will forward any written notice that the Company gives of its election to begin a deferral period to the holders of the Junior Subordinated Notes. However, the Company’s failure to pay interest on any Interest Payment Date will itself constitute the commencement of a deferral period unless the Company pays such interest payment within five Business Days after the Interest Payment Date, whether or not the Company provides a notice of deferral.
The Notes of this series shall have an initial aggregate principal amount of up to ______Million and no/100 Dollars ($______).
The Notes evidenced by this Certificate may be transferred or exchanged only in minimum denominations of $___ and integral multiples of $___ in excess thereof, and any attempted transfer, sale or other disposition of Notes in a denomination of less than $___ shall be deemed to be void and of no legal effect whatsoever.
The indebtedness of the Company evidenced by this Note, including the principal hereof and interest hereon is, to the extent and in the manner set forth in the Indenture, subordinate and junior in right of payment to the Company’s obligations to holders of Priority Indebtedness of the Company and each Holder of this Note, by acceptance hereof, agrees to and shall be bound by such provisions of the Indenture and all other provisions of the Indenture.
This Note shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by or on behalf of the Trustee under the Indenture.
A-5 Exhibit A Page 58 of 112
IN WITNESS WHEREOF, SCANA CORPORATION has caused this instrument to be duly executed.
Dated: SCANA CORPORATION
By: Name: Title:
TRUSTEE’ S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. U.S. BANK NATIONAL ASSOCIATION, as Trustee
By: Authorized Signatory
A-6 Exhibit A Page 59 of 112
REVERSE OF NOTE
This Security is one of a duly authorized issue of securities of the Company (herein called the “Securities”), issued and to be issued in one or more series pursuant to the Junior Subordinated Indenture, dated as of September 1, 2009, as supplemented (as so supplemented, the “Base Indenture”), between the Company and U.S. Bank National Association, as Trustee (herein called the “Trustee”), and as supplemented by a ______Supplemental Indenture dated as of ______, by and among the Company and the Trustee (collectively, as amended or supplemented through the date hereof and from time to time, herein called the “Indenture,” which term shall have the meaning assigned to it in such instrument), and reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders (the word “Holder” or “Holders” meaning the registered holder or registered holders) of the Notes. This Security is one of the series designated on the face hereof (the “Junior Subordinated Notes”) which is unlimited in aggregate principal amount.
Capitalized terms used herein but not defined herein shall have the respective meanings assigned thereto in the Indenture.
As provided in and subject to the provisions in the Indenture, the Company shall have the option to redeem the Junior Subordinated Notes:
[Redemption Provisions]
In the case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Junior Subordinated Notes may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture.
Any consent or waiver by the Holder of this Note given as provided in the Indenture (unless effectively revoked as provided in the Indenture) shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Junior Subordinated Note issued in exchange, registration of transfer, or otherwise in lieu hereof irrespective of whether any notation of such consent or waiver is made upon this Note or such other Junior Subordinated Notes. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note, at the places, at the respective times, at the rates and in the coin or currency herein prescribed.
As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note may be registered on the Register of the Junior Subordinated Notes upon surrender of this Note for registration of transfer at the offices maintained by the Company or its agent for such purpose, duly endorsed by the Holder hereof or his attorney duly authorized in writing, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Securities registrar duly executed by the Holder hereof or his attorney duly authorized in writing, but without payment of any charge other than a sum sufficient to reimburse the Company for any A-7 Exhibit A Page 60 of 112 tax or other governmental charge incident thereto. Upon any such registration of transfer, a new Junior Subordinated Note or Notes of authorized denomination or denominations for the same aggregate principal amount will be issued to the transferee in exchange herefor.
Prior to due presentment for registration of transfer of this Note, the Company, the Trustee, and any agent of the Company or the Trustee may deem and treat the person in whose name this Note shall be registered upon the Register of the Notes of this series as the absolute owner of this Note (whether or not this Note shall be overdue and notwithstanding any notation of ownership or other writing hereon) for the purpose of receiving payment of or on account of the principal hereof and, subject to the provisions on the face hereof, interest due hereon and for all other purposes; and neither the Company nor the Trustee nor any such agent shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or interest on this Note, or for any claim based hereon or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any stockholder, officer, director or employee, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as a part of the consideration for the issue hereof, expressly waived and released.
The Company and, by acceptance of this Note or a beneficial interest in this Note, each holder hereof and any person acquiring a beneficial interest herein, agree that for United States federal, state and local tax purposes it is intended that this Note constitute indebtedness.
This Note shall be deemed to be a contract made under the laws of the State of New York (without regard to conflicts of laws principles thereof) and for all purposes shall be governed by, and construed in accordance with, the laws of said State.
A-8 Exhibit A Page 61 of 112
FOR VALUE RECEIVED, the undersigned hereby sell(s) and transfer(s) unto
(please insert Social Security or other identifying number of assignee)
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE OF ASSIGNEE the within Note and all rights thereunder, hereby irrevocably constituting and appointing
agent to transfer said Note on the books of the Company, with full power of substitution in the premises.
Dated:
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within instrument in every particular without alteration or enlargement, or any change whatever.
A-9 Exhibit A Page 62 of 112
[FORM OF SCHEDULE FOR ENDORSEMENTS ON GLOBAL NOTES TO REFLECT CHANGES IN PRINCIPAL AMOUNT]
The initial principal amount of this Note is: $
Changes to Principal Amount of Global Note
Principal Amount by which this Signature of Note is to be Decreased or Remaining Authorized Increased and the Reason for Principal Amount Signatory of Date the Decrease or Increase of this Note Trustee
* Insert Schedule in Global Notes.
A-10 Exhibit A Page 63 of Exhibit112 4.09
Note Number Name(s) of Agent(s): Agent(s) Commission SCANA CORPORATION R- Principal Amount Trade Date Original Issue Interest Rate (Or Yield to Maturity For Original Issue Discount Notes) CUSIP $ Date
Maturity Date Account No. Ticket No. Issue Price Taxpayer's I.D. or Soc. Sec. No. Transferred N/A N/A * Name and Address of Registered Owner MEDIUM TERM NOTE CONFIRMATION TRUSTEE AND PAYING AGENT THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. 101 Barclay Street New York, New York 10286 CUSTOMER COPY Retain for Tax Purposes The Time of the Transaction Will Be Published Upon Written Request of the Customer Please Sign and Return Enclosed Receipt [UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
REGISTERED PRINCIPAL AMOUNT: $______No.: R- ___ CUSIP: ______SCANA CORPORATION MEDIUM TERM NOTE
ISSUE PRICE: __% ADDITIONAL PROVISIONS: ORIGINAL ISSUE DATE: INDEX MATURITY: MATURITY DATE: BASE RATE: REDEMPTION (check one): SPREAD (PLUS OR MINUS): %
No. This Note is not subject to redemption. SPREAD MULTIPLIER:
Yes. This Note is subject to redemption on or after the initial INTEREST RESET PERIOD: Redemption Date at the following Redemption Price. INTEREST RESET DATES: Redemption Price: MAXIMUM INTEREST RATE: Initial Redemption Date: MINIMUM INTEREST RATE: INTEREST PAYMENT DATES: INTEREST PAYMENT PERIOD: REGULAR RECORD DATES: ___ of each ______and ______INTEREST (check one): Commencing ______(subject to adjustment as provided herein). FIXED RATE NOTE DESIGNATED LIBOR CURRENCY; If this box is checked, the Interest Rate on this Note shall be ____%
FLOATING RATE NOTE DESIGNATED LIBOR PAGE: If this box is checked, the Initial Interest Rate on this Note shall be ______%
SCANA Corporation, a corporation duly organized and existing under the laws of the State of South Carolina (herein referred to as the "Company"), for value received, hereby promises to pay Cede & Co., or registered assigns, the principal sum of ______($______) on the "Maturity Date" shown above and to pay interest thereon as hereinafter described. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS NOTE SET FORTH ON THE SUBSEQUENT PAGES HEREOF, AND SUCH FURTHER PROVISIONS SHALL FOR ALL PURPOSES HAVE THE SAME EFFECT AS THOUGH FULLY SET FORTH IN THIS PLACE. This Note shall not become valid or obligatory for any purpose unless and until this Note has been authenticated by The Bank of New York Mellon Trust Company, N.A., or its successor, as Trustee.
IN WITNESS WHEREOF, the Company has caused this Note to be executed under its corporate seal. Dated:
SCANA CORPORATION CERTIFICATE OF AUTHENTICATION
By: This is one of the Securities of the series designated therein referred to in the within Authorized Officer mentioned Indenture. Attest: THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee Secretary [CORPORATE SEAL] By: Authorized Signatory
1 Exhibit A SCANA CORPORATION Page 64 of 112 MEDIUM TERM NOTES
1. This is one of a duly authorized issue of debentures, notes or other evidences of indebtedness of the Company (herein called the "Securities") of a series hereinafter specified as issued and to be issued under an indenture dated as of November 1, 1989, as supplemented on November 1, 2009 (herein called the "Indenture"), between the Company and The Bank of New York Mellon Trust Company, N.A. (successor to The Bank of New York), as trustee (herein called the "Trustee," which term includes any successor Trustee under the Indenture), to which Indenture and Resolutions of the Board of Directors of the Company adopted or indentures supplemental thereto reference is hereby made for a statement of the respective rights thereunder of the Company, the Trustee and the Holders of the Securities, and the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities may be issued in one or more series, which different series may be issued in various aggregate principal amounts, may mature at different times, may bear interest at different rates, may be subject to different redemption provisions (if any), may be subject to different sinking, purchase or analogous funds (if any), may be subject to different covenants and Events of Default, and may otherwise vary as in the Indenture provided. This Note is one of a series of Securities of the Company designated as its Medium Term Notes (herein called the "Notes"). The Notes of this series may be issued at various times with different maturity dates and different principal repayment provisions, may bear interest at different rates, may be payable in different currencies and may otherwise vary, all as provided in the Indenture.
2. A. Unless otherwise specified on the face hereof, the Regular Record Date with respect to any Interest Payment Date (as defined below) shall be the date 15 calendar days immediately preceding such Interest Payment Date, whether or not such date shall be a Business Day. Interest which is payable, and is punctually paid or duly provided for on each Interest Payment Date specified above will be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date next preceding such Interest Payment Date; provided, however, that interest payable at Maturity shall be paid to the Person to whom the principal hereof is payable. Notwithstanding the foregoing, if this Note is issued between a Regular Record Date and an Interest Payment Date or on an Interest Payment Date, the interest so payable for the period from the Original Issue Date to such Interest Payment Date shall be paid on the next succeeding Interest Payment Date to the Registered Holder hereof on the related Regular Record Date. Any payment of principal (and premium, if any) or interest required to be made on this Note on a day that is not a Business Day need not be made on such day, but will be made on the next succeeding Business Day with the same force and effect as if made on such day, and no additional interest shall accrue as a result of such delayed payment; provided, however, that with respect to any LIBOR Note, if the next Business Day is in the next calendar month, interest will be paid on the preceding Business Day; and provided, further, that with respect to any regularly scheduled Interest Payment Date for any LIBOR Note (other than the Maturity Date and in lieu of Section 114 of the Indenture), interest shall accrue through the date immediately preceding the date of payment. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Registered Holder hereof on such Regular Record Date and may be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than ten calendar days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully described in said Indenture. For purposes of this Note, "Business Day" means any day, other than a Saturday or Sunday, that is not a day on which banking institutions in Washington, D.C., or in New York, New York are authorized or obligated by law or executive order to be closed and with respect to LIBOR Notes, means any day on which dealings in deposits in United States dollars are transacted in the London interbank market. In connection with any calculations of the rate of interest on this Note, all percentages will be rounded, if necessary, to the nearest one hundred-thousandth of a percentage point, with five one-millionths of a percentage point being rounded upwards.
B. If this is a Fixed Rate Note, the Company promises to pay interest on the Principal Amount shown on the face hereof at the Interest Rate per annum shown on the face hereof until such Principal Amount is paid or made available for payment. Unless otherwise provided on the face hereof, the Company will pay interest semi-annually in arrears on each and (each an "Interest Payment Date"), commencing , and at Maturity. Interest will accrue from and including the most recent Interest Payment Date or, if no interest has been paid or duly provided for, from and including the Original Issue Date shown on the face hereof, to, but excluding, the next succeeding Interest Payment Date. The amount of such interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year comprised of twelve 30-day months.
C. If this is a Floating Rate Note, the Company promises to pay interest on the Principal Amount shown on the face hereof at the rate per annum equal to the Initial Interest Rate shown on the face hereof until the first Interest Reset Date shown on the face hereof following the Original Issue Date specified on the face hereof and thereafter at a rate determined in accordance with the provisions below under the headings "Determination of Commercial Paper Rate," "Determination of LIBOR" or "Determination of Treasury Rate" (depending upon whether the Base Rate specified on the face hereof is Commercial Paper Rate, LIBOR or Treasury Rate, respectively), until the Principal Amount hereof is paid or duly made available for payment. The Company will pay interest monthly, quarterly, semi-annually or annually as specified on the face hereof under the "Interest Payment Period," commencing with the first Interest Payment Date specified on the face hereof next succeeding the Original Issue Date, and at Maturity. Unless otherwise provided on the face hereof, the dates on which interest will be payable (each an "Interest Payment Date") will be, in the case of Floating Rate Notes with a monthly Interest Payment Period, the third Wednesday of each month; in the case of Floating Rate Notes with a quarterly Interest Payment Period, the third Wednesday of March, June, September and December; in the case of Floating Rate Notes with a semi-annual Interest Payment Period, the third Wednesday of the two months specified on the face hereof; and in the case of Floating Rate Notes with an annual Interest Payment Period, the third Wednesday of the month specified on the face hereof.
The interest payable on a Floating Rate Note on each Interest Payment Date and at Maturity will include accrued interest from and including the Original Issue Date or from but excluding the last date in respect of which interest has been paid, as the case may be, to but excluding such Interest Payment Date or Maturity Date; provided, however, that if the Interest Reset Period is daily or weekly, the interest payable on each Interest Payment Date, other than at Maturity, will include accrued interest from and including the Original Issue Date or from but excluding the last date in respect of which interest has been paid, as the case may be, to and including the day immediately preceding such Interest Payment Date, and the interest payable at Maturity will include accrued interest from and including the Original Issue Date or from but excluding the last date in respect of which interest has been paid, as the case may be, to but excluding the Maturity Date; provided further, that with respect to any regularly scheduled Interest Payment Date for any LIBOR Note (other than the Maturity Date and in lieu of Section 114 of the Indenture), interest shall accrue through the date immediately preceding the date of payment. Such accrued interest will be calculated by multiplying the Principal Amount hereof by an accrued interest factor. The accrued interest factor shall be computed by adding the interest factor calculated for each day in the period for which accrued interest is being calculated. The interest factor for each such day is computed by dividing the interest rate applicable to such day by 360, if the Base Rate specified on the face hereof is the Commercial Paper Rate or LIBOR, or by the actual number of days in the year, if the Base Rate specified on the face hereof is the Treasury Rate. The interest rate in effect on each day will be (a) if such day is an Interest Reset Date, the interest rate with respect to the Interest Determination Date with respect to such Interest Reset Date or (b) if such day is not an Interest Reset Date, the interest rate with respect to the Interest Determination Date pertaining to the next preceding Interest Reset Date; provided, however, that the interest rate in effect from the Original Issue Date to the first Interest Reset Date will be the Initial Interest Rate shown on the face hereof. Notwithstanding the foregoing, if this is a Floating Rate Note, the 2 Exhibit A interest rate hereon shall not be greater than the Maximum Interest Rate, if any, or less than the Minimum Interest Rate, if any, shown onPage the face65 of hereof. 112 In addition, the interest rate hereon in no event shall be higher than the maximum rate, if any, permitted by applicable law, including United States law of general application. The Maximum Interest Rate and Minimum Interest Rate, if any, specified on the face hereof are, in each case, expressed as a rate per annum on a simple interest basis.
If this is a Floating Rate Note, the interest rate on this Note will be reset daily, weekly, monthly, quarterly, semi-annually or annually (such period being the "Interest Reset Period" specified on the face hereof). Unless otherwise specified on the face hereof, the "Interest Reset Dates" will be, if the Interest Reset Period is daily, each Business Day; if the Interest Reset Period is weekly, Wednesday of each week, except that if the Base Rate specified on the face hereof is the Treasury Rate, Tuesday of each week; if the Interest Reset Period is monthly, the third Wednesday of each month; if the Interest Reset Period is quarterly, the third Wednesday of March, June, September and December of each year; if the Interest Reset Period is semi-annually, the third Wednesday of the two months specified on the face hereof; and if the Interest Reset Period is annually, the third Wednesday of the month of each year specified on the face hereof; provided, however, that if any Interest Reset Date otherwise would be a day that is not a Business Day, such Interest Reset Date shall be postponed to the next day that is a Business Day, except that (i) if the Base Rate specified on the face hereof is LIBOR and such Business Day is in the next succeeding calendar month, such Interest Reset Date shall be the immediately preceding Business Day, or (ii) if the Base Rate specified on the face hereof is Treasury Rate and the Interest Reset Date falls on a date which is an auction date (as described in the next succeeding paragraph), the Interest Reset Date shall be the following day that is a Business Day.
The Interest Determination Date pertaining to an Interest Reset Date will be, if the Base Rate specified on the face hereof is Commercial Paper Rate or LIBOR, the second Business Day next preceding such Interest Reset Date. The Interest Determination Date pertaining to an Interest Reset Date will be, if the Base Rate specified on the face hereof is the Treasury Rate, the day of the week in which such Interest Reset Date falls on which Treasury Bills (as defined below) of the Index Maturity specified on the face hereof are auctioned. Treasury Bills are normally sold at auction on Monday of each week, unless that day is a legal holiday in which case the auction is normally held on the following Tuesday, except that such auction may be held on the preceding Friday. If, as a result of a legal holiday, an auction is so held on the preceding Friday, such Friday will be the Interest Determination Date pertaining to the Interest Reset Date occurring in the next succeeding week.
Subject to applicable provisions of law and except as specified herein, on each Interest Reset Date the rate of interest hereon, if this is a Floating Rate Note, shall be the rate determined in accordance with the provisions of the applicable heading below.
The Company will calculate, or will appoint and enter into an agreement with an agent to calculate (the Company or such agent being the "Calculation Agent"), the interest rates on Floating Rate Notes (including this Note if it is a Floating Rate Note). Initially, The Bank of New York Mellon Trust Company, N.A. shall be the Calculation Agent. The Calculation Agent shall calculate the interest rate hereon in accordance with the foregoing and will confirm in writing such calculation to the Trustee and any Paying Agent promptly after each such determination. Neither the Trustee nor any Paying Agent shall be responsible for any such calculation. At the request of the Holder hereof (if this Note is a Floating Rate Note), the Calculation Agent will provide the interest rate then in effect and, if determined, the interest rate that will become effective on the next Interest Reset Date for this Note. All determinations of interest rates by the Calculation Agent, in the absence of manifest error, shall be conclusive for all purposes and binding on the Holder hereof. Unless otherwise specified on the face hereof, the Calculation Date pertaining to an Interest Determination Date shall be the tenth calendar day after such Interest Determination Date, or if not a Business Day, the next succeeding Business Day.
Determination of Commercial Paper Rate.
If the Base Rate specified on the face hereof is the Commercial Paper Rate, the interest rate for any Interest Determination Date shall equal (a) the Money Market Yield (as defined below) on such Interest Determination Date of the rate for commercial paper having the Index Maturity specified on the face hereof (1) as published by the Board of Governors of the Federal Reserve System in the weekly statistical release designated as "Statistical Release H.15(519), Selected Interest Rates", or in any successor publication (“H.15(519)”), under the heading "Commercial Paper - Nonfinancial," or (2) if such rate is not published in H.15(519) by 3:00 p.m., New York City time, on the Calculation Date pertaining to such Interest Determination Date, then as published in the daily update of H.15(519) (available through the Internet website of the Board of Governors of the Federal Reserve System at http://www.bog.frb.fed.us/releases/h15/update, or any successor site or publication) (“H.15 Daily Update”) under the heading "Commercial Paper - Non-Financial," or any successor heading or (b) if such rate is not published in either H.15(519) or H.15 Daily Update by 3:00 p.m., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the Money Market Yield of the average as calculated by the Calculation Agent (defined below) of the offered rates as of approximately 11:00 a.m., New York City time, on such Interest Determination Date, of three leading dealers of commercial paper in New York, New York, selected by the Calculation Agent (after consultation with the Company) for commercial paper placed for nonfinancial issuers whose bond rating is "AA" or the equivalent, from a nationally recognized rating agency, having the Index Maturity specified on the face hereof, in each of the above cases adjusted by the addition or subtraction of the Spread, if any, specified on the face hereof, or by multiplication by the Spread Multiplier, if any, specified on the face hereof; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting offered rates as mentioned in this sentence, the interest rate for such Interest Determination Date shall equal the interest rate then in effect on such Interest Determination Date.
"Money Market Yield" means a yield (expressed as a percentage) calculated in accordance with the following formula:
Money Market Yield = D x 360 x 100 360 - (D x M) where "D" refers to the applicable per annum rate for commercial paper quoted on a bank discount basis and expressed as a decimal, and "M" refers to the actual number of days in the Index Maturity specified on the face hereof.
Determination of LIBOR.
If the Base Rate specified on the face hereof is LIBOR, the interest rate for any Interest Determination Date shall equal the rate for deposits in the Designated LIBOR Currency having the Index Maturity specified on the face hereof, beginning on the second Business Day immediately following such Interest Determination Date, that appears on Reuters Page LIBOR01 (as defined herein) as of 11:00 a.m., London Time, on such Interest Determination Date, adjusted by the addition or subtraction of the Spread, if any, specified on the face hereof, or by multiplication by the Spread Multiplier, if any, specified on the face hereof.
3 Exhibit A With respect to an Interest Determination Date on which no rate appears on Reuters Page LIBOR01, LIBOR will be determined on Pagethe basis 66 of the112 rates at which deposits in the Designated LIBOR Currency having the Index Maturity specified on the face hereof, are offered at approximately 11:00 a.m., London time, on such Interest Determination Date by four major banks (“Reference Banks”) in the London interbank market to prime banks in the London interbank market selected by the Calculation Agent (after consultation with the Company) commencing on the second Business Day immediately following such Interest Determination Date and in a principal amount that is representative for a single transaction in such Designated LIBOR Currency in such market at such time. The Calculation Agent will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, LIBOR in respect of such Interest Determination Date will be the average of such quotations. If fewer than two quotations are provided, LIBOR in respect of such Interest Determination Date will be the average of the rates quoted as of 11:00 a.m., in the applicable Principal Financial Center (as defined below) on such Interest Determination Date by three major banks in such Principal Financial Center selected by the Calculation Agent (after consultation with the Company) for loans in the Designated LIBOR Currency to leading European banks having the Index Maturity specified on the face hereof commencing on the second Business Day immediately following such Interest Determination Date and in a principal amount that is representative for a single transaction in such Designated LIBOR Currency in such market at such time; provided, however, that if the banks selected as aforesaid by the Calculation Agent are not quoting as set forth in this sentence, LIBOR with respect to such Interest Determination Date will be the interest rate then in effect on the Interest Determination Date.
“Designated LIBOR Currency” means the currency (including composite currency units), if any, designated on the face hereof as the currency for which LIBOR will be calculated. If no such currency is designated on the face hereof, the Designated LIBOR Currency shall be U.S. dollars.
“Reuters Page LIBOR01” means page LIBOR01 (or any other page as may replace such page on the Reuters Monitor Money Rates Service ("Reuters") for the purpose of displaying the London interbank offered rates of major banks for the Designated LIBOR Currency).
“Principal Financial Center” means the capital city of the country that issues as its legal tender the Designated LIBOR Currency designated on the face hereof, except that with respect to U.S. dollars, the Principal Financial Center shall be The City of New York.
Determination of Treasury Rate.
If the Base Rate specified on the face hereof is Treasury Rate, the interest rate for any Interest Determination Date shall equal the rate applicable to the most recent auction of direct obligations of the United States ("Treasury Bills") having the Index Maturity specified on the face hereof, on the display of Reuters on page USAUCTION 10 or USAUCTION 11 (or any other page as may replace page USAUCTION 10 or USAUCTION 11) under the heading "INVEST RATE" or, if not so published by 3:00 p.m., New York City time, on the Calculation Date pertaining to such Interest Determination Date, the auction average rate (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) for such auction as otherwise announced by the United States Department of the Treasury. In the event that the results of the auction of Treasury Bills having the Index Maturity specified on the face hereof are not published or announced as provided above by 3:00 p.m., New York City time, on such Calculation Date, or if no such auction is held in a particular week, then the Treasury Rate shall be calculated by the Calculation Agent and shall be a yield to maturity (expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as applicable, and applied on a daily basis) of the average of the secondary market bid rates, as of approximately 3:30 p.m., New York City time, on such Interest Determination Date, of three leading primary United States government securities dealers selected by the Calculation Agent (after consultation with the Company) for the issue of Treasury Bills with a remaining maturity closest to the Index Maturity specified on the face hereof; provided, however, that if the dealers selected as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in this sentence, the interest rate for such Interest Determination Date shall equal the interest rate then in effect on such Interest Determination Date. In determining the Treasury Rate, the rate determined in any of the above cases shall be adjusted by the addition or subtraction of the Spread, if any, specified on the face hereof, or by multiplication by the Spread Multiplier, if any, specified on the face hereof.
3. The authorized denominations of Notes will be $1,000 and any larger amount that is an integral multiple of $1,000.
4. Each Note will be issued initially as either a Book-Entry Note or a Certificated Note. Only Registered Notes may be issued as Book-Entry Notes, and such Notes will not be exchangeable for Certificated Notes and, except as otherwise provided in the Indenture, will not otherwise be issuable as Certificated Notes.
5. Payments of interest (other than interest payable at Maturity) will be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Security Register on the applicable Record Date. The principal hereof and any premium and interest hereon payable at Maturity will be paid in immediately available funds upon surrender of this Note at the office or agency of the Company (currently the Trustee) located in the Borough of Manhattan in The City of New York.
6. If so specified on the face hereof, this Note may be redeemed at the option of the Company, in whole or in part, at any time and from time to time on or after the Initial Redemption Date shown on the face hereof and prior to the Maturity Date, upon not less than 30 calendar days prior notice given as provided in the Indenture, at the Redemption Price shown on the face hereof, together in each case with accrued interest, if any, to the relevant redemption date, but interest installments whose Stated Maturity is on or prior to such relevant redemption date will be payable to the holder of this Note, or one or more Predecessor Securities, of record at the close of business on the relevant Regular Record Dates, all as provided in the Indenture. As provided in the Indenture, if less than all of the Outstanding Notes are to be redeemed, the Company shall select the tenor and terms of the Notes to be redeemed. If less than all of the Outstanding Notes of like tenor and terms are to be redeemed, the particular Notes to be redeemed shall be selected by the Trustee not more than 60 calendar days prior to the relevant Redemption Date from the Outstanding Notes of like tenor and terms not previously called for redemption. Such selection shall be of principal amounts equal to the minimum authorized denominations for such Notes or any integral multiple thereof. Subject to the immediately preceding sentence, such selection shall be made by any method as the Trustee deems fair and appropriate. The notice of such redemption shall specify which Notes are to be redeemed. In the event of redemption of this Notes in part only, a new Note or Notes for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof.
7. The Company may, at any time, purchase Notes at any price in the open market or otherwise. Notes so purchased by the Company may, at its discretion, be held, resold or surrendered to the Trustee for cancellation.
8. This Note will not be subject to any sinking fund. 4 Exhibit A Page 67 of 112
9. As provided in the Indenture, and subject to certain limitations therein set forth, this Note is exchangeable for a like aggregate principal amount of different authorized denominations as requested by the Holder.
10. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registerable on the Security Register of the Company upon surrender of this Note for registration of transfer at the office or agency of the Company in the Borough of Manhattan in The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company, the Security Registrar and the Trustee duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes of this series, of authorized denominations and for the same aggregate principal amount, and containing identical terms and provisions, will be issued to the designated transferee or transferees.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith.
11. Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
12. If an Event of Default with respect to the Notes of this series shall have occurred and be continuing, the principal of all the Notes of this series may be declared due and payable in the manner and with the effect provided in the Indenture.
13. In case this Note shall at any time become mutilated, destroyed, stolen or lost and this Note or evidence of the loss, theft or destruction hereof (together with such indemnity and such other documents or proof as may be required by the Company or the Trustee) shall be delivered to the principal corporate trust office of the Trustee, a new registered Note of like tenor and principal amount will be issued by the Company in exchange for, or in lieu of, this Note. All expenses and reasonable charges associated with procuring such indemnity and with the preparation, authentication and delivery of a new Note shall be borne by the Holder of this Note.
14. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holder of the Securities of each series to be affected under the Indenture at any time by the Company and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities of each series to be affected. The Indenture also contains provisions permitting, with certain exceptions as therein provided, the Holders of a majority in aggregate principal amount of the Outstanding Securities of a series to waive compliance on behalf of the Holders of all the Securities of such series by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon the Note.
Holders of Securities may not enforce their rights pursuant to the Indenture or the Securities except as provided in the Indenture. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Note at the times, places and rate, and in the coin or currency herein prescribed.
15. No recourse shall be had for the payment of the principal of (or premium, if any) or interest on this Note, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or an indenture supplemental thereto, against any incorporator, stockholder, officer or director, as such, past, present or future of the Company or of any successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released.
16. All terms used in this Note not otherwise defined in this Note that are defined in the Indenture shall have the meanings assigned to them in the Indenture.
17. This Note shall be deemed to be a contract made and to be performed solely in the State of New York, and for all purposes be governed by, and construed in accordance with, the laws of said State without regard to the conflicts of law rules of said State.
5 Exhibit A ______Page 68 of 112
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Custodian TEN ENT -- as tenants by the entireties (Cust.) (Minor)
JT TEN -- as joint tenants with right of survivorship and not as tenants in common Under Uniform Gifts to Minors Act
(State)
Additional abbreviations also may be used though not in the above list.
FOR VALUE RECEIVED, the Undersigned hereby sell(s), assign(s) and transfer(s) unto
Please insert Social Security or Other Identifying Number of Assignee
(Please print or type name and address including Zip Code of Assignee)
the within Note and all rights thereunder, irrevocably constituting and appointing such person
attorney to transfer Note on the books of the Trustee, with full power of substitution in the premises.
Dated:
NOTICE: The signature to this assignment must correspond with the names as written upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever.
6 Exhibit A Page 69 of 112
Exhibit 4.11 [Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to South Carolina Electric & Gas Company or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.]
SOUTH CAROLINA ELECTRIC & GAS COMPANY FIRST MORTGAGE BOND ____% SERIES DUE ______
[Bond Number]
Original Interest Interest Accrual Date Rate Maturity Date CUSIP ______% ______
Registered Owner:
Principal Amount: [Written Amount] ($numeric amount)
SOUTH CAROLINA ELECTRIC & GAS COMPANY, a corporation organized under the laws of the State of South Carolina (hereinafter called the "Company," which term shall include any successor corporation as defined in the Indenture hereinafter referred to), for value received, hereby promises to pay to the Registered Owner, or to registered assigns, the Principal Amount on the Maturity Date specified above, or upon earlier redemption, or required repayment, as described below, and to pay interest thereon at the Interest Rate specified above (calculated on the basis of a 360-day year of twelve 30-day months), and semi-annually on the ______day of ______in each year and on the Maturity Date (each an interest payment date), from the Original Interest Accrual Date specified above or from the most recent interest payment date to which interest has been paid, commencing ______, in coin or currency of the United States of America which at the time of payment is legal tender for public and private debts, at the office or agency of the Company in Atlanta, Georgia, on the interest payment dates in each year, until the Company's obligation with respect to the payment of such principal shall have been discharged; provided, however, if the date of this Security is after a Record Date (as defined herein) with respect to any interest payment date and prior to such interest payment date, then interest shall be payable only from such interest payment date. If the Company shall default in the payment of interest due on 1 Exhibit A Page 70 of 112
any interest payment date, then interest shall be payable from the next preceding interest payment date to which interest has been paid, or, if no such interest has been paid on the Securities, from the Original Interest Accrual Date.
The interest so payable on any interest payment date will, subject to certain exceptions provided in the Indenture, be paid to the person in whose name this Security is registered at the close of business (whether or not a Business Day, as such term is defined in the Indenture), on ______or ______(each, a "Record Date"), as the case may be, next preceding such interest payment date, provided, that, interest payable on the Maturity Date will be payable to the person to whom the principal hereof shall be payable. At the option of the Company, interest may be payable by check mailed on or prior to such interest payment date to the address of the person entitled thereto as such address shall appear on the register of the Company.
This Security shall not become valid or obligatory for any purpose or be entitled to any benefit under the Indenture until the Trustee (as defined herein) shall have signed the form of certificate endorsed hereon.
This Security is one of a duly authorized series of Securities of the Company, issued under, pursuant to and all equally secured by an Indenture dated as of April 1, 1993, made by and between the Company and The Bank of New York Mellon Trust Company, N.A., successor to NationsBank of Georgia, National Association, as trustee (herein sometimes called the "Trustee") (said Indenture, as supplemented and amended including the Second Supplemental Indenture dated as of June 15, 1993 [and additional Supplemental Indentures], being hereinafter called the "Indenture"), to which Indenture reference is hereby made for a description of the property thereby mortgaged and pledged, the nature and extent of the security thereby created, the rights thereunder of the bearers or registered owners of the Securities and of the Trustee, the duties and immunities of the Trustee, the terms and conditions upon which the Securities are and are to be secured, the circumstances under which additional Securities may be issued and the definition of certain terms used herein. To the extent permitted by and as provided in the Indenture, modifications or alterations of the Indenture, and of the rights and obligations of the Company and of the holders of the Securities may be made by the Company with such affirmative vote or votes of the holders as provided in the Indenture; provided, however, that, among other things, no such modification or alteration shall be made which will affect the terms of payment of the principal at maturity of, or interest on, this Security, which are unconditional, or reduce the aforesaid percentages. The Securities may be issued in series, for various principal amounts, may mature at different times, may bear interest at different rates and may otherwise vary as in the Indenture provided.
The holder of this Security hereby consents that the Company may, but shall not be obligated to, fix a record date for the purpose of determining the holders of Securities of this series entitled to consent to any amendment, supplement or waiver. If a record date is fixed, those persons who are holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to consent to such amendment, supplement or waiver or to revoke any consent previously given, whether or not such persons continue to be holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date.
2 Exhibit A Page 71 of 112
[Include Redemption Provisions, if any]
In any case where the date of maturity of interest or premium on or principal of Securities or the date fixed for redemption of any Securities shall be a day which is not a Business Day, then payment of interest, premium or principal need not be made on such date but may be made on the next succeeding day that is a Business Day, with the same force and effect as if made on the date of maturity or the date fixed for redemption, and, in the case of such payment, no interest shall accrue for the period from and after such date of maturity or date fixed for redemption.
In case an event of default as defined in the Indenture shall occur, the principal of all Securities then outstanding under the Indenture may be declared or become due and payable upon the conditions and in the manner and with the effect provided in the Indenture.
This Security is transferable by the registered owner hereof, in person or by duly authorized attorney, on the books of the Company to be kept for that purpose at the principal office of the Trustee under the Indenture, upon surrender and cancellation of this Security and on presentation of a duly executed written instrument of transfer, and thereupon a new Security or Securities of the same series, of the same aggregate principal amount and in authorized denominations will be issued to the transferee or transferees in exchange therefor; and this Security with or without others of like form and series, may in like manner be exchanged for one or more new Securities of the same series of other authorized denominations, but in the same aggregate principal amount; all subject to the terms and conditions set forth in the Indenture.
No recourse shall be had for the payment of the principal of or premium, if any, or interest on this Security or for any claim based hereon or otherwise in respect hereof or of the Indenture, against any incorporator, stockholder, director or officer, as such, past, present or future, of the Company, or of any predecessor or successor corporation (either directly or through the Company, or any such predecessor or successor corporation) whether by virtue of any constitutional provision, statute or rule of law, or by the enforcement of any assessment or penalty, or otherwise, all such liability being waived and released by every registered owner hereof by the acceptance of this Security and as part of the consideration for the issue hereof, and being likewise waived and released by the terms of the Indenture.
[Remainder of Page Intentionally Blank]
3 Exhibit A Page 72 of 112
IN WITNESS WHEREOF, SOUTH CAROLINA ELECTRIC & GAS COMPANY has caused this Security to be duly executed in its corporate name by the manual or facsimile signature of its ______and its corporate seal to be impressed or imprinted hereon and attested by the manual or facsimile signature of its ______.
SOUTH CAROLINA ELECTRIC & GAS COMPANY
[SEAL] By:
ATTEST:
By:______
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within- mentioned Indenture.
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., as Trustee
By:______Authorized Signatory
Date of Authentication ______
4 Exhibit A Page 73 of 112 (Form of Abbreviations)
The following abbreviations, when used in the description on the face of the within Security, shall be construed as though they were written out in full according to applicable laws or regulations.
TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with the right of survivorship and not as tenants in common UTMA - Uniform Transfers to Minors Act
Custodian for (Cust) (Minor)
under Uniform Transfers to Minors Act of (State) Additional abbreviations may also be used though not in the above list. ______
NOTICE: The signature to this Assignment must correspond with the name as written upon the face of the within Security in every particular without alteration or enlargement or any change whatever.
FOR VALUE RECEIVED, ______hereby sell, assign and transfer unto Please insert Social Security or Other Identifying number of Assignee:
______the within Security of South Carolina Electric & Gas Company and do irrevocably constitute and appoint ______, Attorney to transfer the same on the books of the Company with full power of substitution in the premises.
Dated:
Witness:
______Signature of Assignor Signature(s) must be guaranteed by an institution which is a participant in the Securities Transfer Agents Medallion Program ("STAMP") or similar program Exhibit A Page 74 of 112
Exhibit 5.01
October 15, 2012
SCANA Corporation 100 SCANA Parkway Cayce, South Carolina 29033
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of SCANA Corporation (the “Company”). I have acted as counsel to the Company in connection with the Company’s proposed issuance and sale from time to time of its Medium Term Notes (the “Notes”), its Junior Subordinated Notes (the “Junior Subordinated Notes”) and its common stock (the “Common Stock”), as contemplated by the Registration Statement on Form S-3 (the “Registration Statement”) proposed to be filed by the Company with the Securities and Exchange Commission (the “Commission”) on or about the date hereof for the registration of the Notes, the Junior Subordinated Notes and the Common Stock under the Securities Act of 1933, as amended (the “Act”), with which Registration Statement this opinion is included as an Exhibit.
In connection with the delivery of this opinion, I have examined originals or copies of (a) the Restated Articles of Incorporation, as amended, and Bylaws of the Company; (b) the Registration Statement (including the prospectus forming a part thereof) and the exhibits thereto; (c) certain resolutions adopted by the Board of Directors of the Company (the “Board”); (d) the Indenture dated as of November 1, 1989, as supplemented (as so supplemented, the “Note Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York), as trustee, and as further supplemented, if needed, by one or more supplemental indentures (each, a “Supplemental Indenture”), which Note Indenture and forms of Supplemental Indentures, if needed, are or will be incorporated by reference in the Registration Statement, pursuant to which the Notes are issued; (e) the Junior Subordinated Indenture dated as of November 1, 2009, as supplemented (as so supplemented, the “Subordinated Indenture”), between the Company and U.S. Bank National Association, as trustee, and as further supplemented, if needed, by one or more supplemental indentures (each, a “Subordinated Supplemental Indenture”), which Subordinated Indenture and forms of Subordinated Supplemental Indentures, if needed, are or will be incorporated by reference in the Registration Statement, pursuant to which the Junior Subordinated Notes are issued and (f) such other records, agreements, instruments, certificates and other documents of public officials, the Company and its officers and representatives, as I have considered necessary.
In making such examination and rendering the opinions set forth below, I have assumed without verification (i) that all documents submitted to me as originals are authentic, complete and accurate, (ii) that all signatures on documents submitted to me are genuine, (iii) that all individuals executing such documents had the requisite legal capacity, (iv) that all documents submitted to me as copies conform to authentic original documents, and (v) that any documents Exhibit A Page 75 of 112
not yet executed will be duly executed in form(s) duly authorized and established in accordance with the action of the Board or a duly authorized committee of the Board.
To the extent that the obligations of the Company with respect to the Notes and the Junior Subordinated Notes may be dependent upon such matters, I assume for purposes of this opinion that:
(A) in the case of the Notes, the trustee under the Note Indenture and any Supplemental Indenture is duly qualified to engage in the activities contemplated by the Note Indenture or Supplemental Indenture; that the Note Indenture or any Supplemental Indenture has been duly authorized, executed and delivered by the trustee and constitutes the legal, valid and binding obligation of the trustee enforceable against the trustee in accordance with its terms; that the trustee is in compliance with respect to the performance of its obligations under the Note Indenture and all Supplemental Indentures and with all applicable laws and regulations; and that the trustee has the requisite organizational and legal power and authority to perform its obligations under the Note Indenture or all Supplemental Indentures; and
(B) in the case of the Junior Subordinated Notes, the trustee under the Subordinated Indenture and any Subordinated Supplemental Indenture is duly qualified to engage in the activities contemplated by the Subordinated Indenture or Subordinated Supplemental Indenture; that the Subordinated Indenture or any Subordinated Supplemental Indenture has been duly authorized, executed and delivered by the trustee and constitutes the legal, valid and binding obligation of the trustee enforceable against the trustee in accordance with its terms; that the trustee is in compliance with respect to the performance of its obligations under the Subordinated Indenture and all Subordinated Supplemental Indentures and with all applicable laws and regulations; and that the trustee has the requisite organizational and legal power and authority to perform its obligations under the Subordinated Indenture or all Subordinated Supplemental Indentures.
The opinions expressed below are subject to, and qualified and limited by the effects of: (i) bankruptcy, fraudulent conveyance or fraudulent transfer, insolvency, reorganization, moratorium, liquidation, conservatorship and similar laws, and limitations imposed under judicial decisions related to or affecting creditors’ rights and remedies generally, (ii) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law (regardless of whether arising prior to, or after, the date hereof), and principles limiting the availability of the remedy of specific performance or injunctive relief, (iii) concepts of good faith, fair dealing and reasonableness, and (iv) the possible unenforceability under certain circumstances of provisions providing for indemnification or contribution that are contrary to public policy. I also express no opinion concerning the enforceability of (a) the choice of New York law in any applicable Note Indenture, Supplemental Indenture, Subordinated Indenture or Subordinated Supplemental Indenture, under the laws of any jurisdiction other than New York or (b) the waiver of rights or defenses contained in the documents establishing the Notes or Junior Subordinated Notes. Exhibit A Page 76 of 112 Exhibit A Page 77 of 112
Based on the foregoing, I am of the opinion that:
1. With respect to the Notes of each series, when (a) the Registration Statement, and any subsequent amendments thereto, have become effective under the Act; (b) the Note Indenture has been qualified under the Trust Indenture Act of 1939, as amended; (c) the Board, or a duly authorized committee thereof, has taken such action as may be necessary to authorize the issuance and sale by the Company of the Notes of such series on the terms set forth in or contemplated by the Registration Statement, as it may be amended, and any prospectus supplement relating to the Notes of such series, and to authorize the proper officers of the Company to take such other action as may be necessary in connection with the consummation of the issuance and sale of the Notes from time to time; (d) the specific terms of each Note of such series have been determined within the authorizations referred to above, and a prospectus supplement relating to the Notes of such series has been filed with the Commission; (e) the Note Indenture and any Supplemental Indenture or other instrument thereunder to be entered into, or otherwise executed or adopted, in connection with the issuance of the Notes have been duly executed and delivered by the Company and the trustee named therein; (f) the Notes of such series have been duly executed, authenticated and delivered in accordance with the corporate authorizations aforesaid and the terms of the Note Indenture and any Supplemental Indenture; and (g) the Notes of each series have been validly issued and sold, and the purchase price has been paid to the Company, in the manner contemplated by the Registration Statement, as it may be amended, and any prospectus supplement related to the Notes of such series, and in accordance with the corporate authorizations aforesaid and the terms of the Note Indenture and any Supplemental Indenture, the Notes of each series will be duly authorized and will constitute legal, valid and binding obligations of the Company, and will be entitled to the benefits of the Note Indenture.
2. With respect to the Junior Subordinated Notes of each series, when (a) the Registration Statement, and any subsequent amendments thereto, have become effective under the Act; (b) the Subordinated Indenture has been qualified under the Trust Indenture Act of 1939, as amended; (c) the Board, or a duly authorized committee thereof, has taken such action as may be necessary to authorize the issuance and sale by the Company of the Junior Subordinated Notes of such series on the terms set forth in or contemplated by the Registration Statement, as it may be amended, and any prospectus supplement relating to the Junior Subordinated Notes of such series, and to authorize the proper officers of the Company to take such other action as may be necessary in connection with the consummation of the issuance and sale of the Junior Subordinated Notes from time to time; (d) the specific terms of each Junior Subordinated Note of such series have been determined within the authorizations referred to above, and a prospectus supplement relating to the Junior Subordinated Notes of such series has been filed with the Commission; (e) the Subordinated Indenture and any Subordinated Supplemental Indenture or other instrument thereunder to be entered into, or otherwise executed or adopted, in connection with the issuance of the Junior Subordinated Notes have been duly executed and delivered by the Company and the trustee named therein; and (f) the Junior Subordinated Notes of such series have been duly executed, authenticated and delivered in accordance with the corporate authorizations aforesaid and the terms of the Subordinated Indenture and any Subordinated Supplemental Indenture; and (g) the Junior Subordinated Notes of each series have been validly Exhibit A Page 78 of 112
issued and sold, and the purchase price has been paid to the Company, in the manner contemplated by the Registration Statement, as it may be amended, and any prospectus supplement related to the Junior Subordinated Notes of such series, and in accordance with the corporate authorizations aforesaid and the terms of the Subordinated Indenture and any Subordinated Supplemental Indenture, the Junior Subordinated Notes of each series will be duly authorized and will constitute legal, valid and binding obligations of the Company, and will be entitled to the benefits of the Subordinated Indenture.
3. With respect to the Common Stock, when (a) the Registration Statement, and any subsequent amendments thereto, have become effective under the Act; (b) the Board, or the particular officers authorized thereby, have taken such action as may be necessary to authorize the issuance and sale of the Common Stock on the terms set forth in or contemplated by the Registration Statement, as it may be amended, and any prospectus supplement relating to the Common Stock, and to authorize the proper officers of the Company to take such other action as may be necessary in connection with the consummation of the issuance and sale of the Common Stock from time to time; (c) the specific terms of each offering of the Common Stock have been determined within the authorizations referred to above, and a prospectus supplement relating to such offering has been filed with the Commission; and (d) the Common Stock has been duly executed, registered and delivered to the purchaser or the purchasers thereof against receipt of the purchase price therefor, the Common Stock will have been duly authorized and legally and validly issued and will be fully paid and non-assessable.
I express no opinion as to the laws of any jurisdiction other than the federal laws of the United States and the laws of the State of South Carolina and the State of New York , except that I express no opinion as to the effect of the securities or blue sky laws of any state (including, without limitation, the States of South Carolina and New York). Each of the Note Indenture, the Notes of each series, the Subordinated Indenture and the Junior Subordinated Notes of each series are governed by the laws of the State of New York, and in rendering my opinion as to the legality, validity and binding effect of the Notes and Junior Subordinated Notes of such series, I have relied upon the opinion of Troutman Sanders LLP with respect to matters of New York law. Except to the extent of such reliance, the opinion rendered herein is limited to the laws of the State of South Carolina and the federal laws of the United States.
I hereby consent to the filing of this opinion with the Registration Statement to be filed by the Company on the date hereof. In giving the foregoing consent, I do not thereby admit that I come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
Sincerely,
/s/Ronald T. Lindsay, Esq. Ronald T. Lindsay Senior Vice President and General Counsel Exhibit A Page 79 of 112
Exhibit 5.02
TROUTMAN SANDERS LLP ATTORNEYS AT LAW TROUTMAN SANDERS BUILDING 1001 HAXALL POINT RICHMOND, VIRGINIA 23219 www.troutmansanders.com TELEPHONE: 804-697-1200 FACSIMILE: 804-697-1339
MAILING ADDRESS P.O. BOX 1122 RICHMOND, VIRGINIA 23218-1122
October 15, 2012
SCANA Corporation 100 SCANA Parkway Cayce, South Carolina 29033
Ladies and Gentlemen: We are acting as special counsel for SCANA Corporation, a South Carolina corporation (the “Company”), in connection with the preparation and filing with the Securities and Exchange Commission (the “Commission”) on or about the date hereof, of a registration statement on Form S-3 (the “Registration Statement”). The Registration Statement relates to the proposed sale from time to time pursuant to Rule 415 of the Securities Act of 1933, as amended (the “Act”), of (i) Medium Term Notes (the “Notes”) to be issued pursuant to the provisions of an Indenture, dated as of November 1, 1989, as supplemented (as so supplemented, the “Notes Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York), as trustee, and as further supplemented, if needed, by one or more supplemental indentures (each, a “Supplemental Indenture”), the forms of which Supplemental Indentures will be filed, as necessary, as exhibits to a Form 8-K incorporated by reference into the Registration Statement, (ii) Junior Subordinated Notes (the “Junior Subordinated Notes”) to be issued pursuant to the provisions of an Indenture dated as of November 1, 2009, as supplemented (as so supplemented, the “Junior Subordinated Indenture”), between the Company and U.S. Bank National Association, as trustee, and as further supplemented, if needed, by one or more supplemental indentures (each, a “Junior Subordinated Supplemental Indenture”), the forms of which Junior Subordinated Supplemental Indentures will be filed, as necessary, as exhibits to a Form 8-K incorporated by reference into the Registration Statement, and (iii) shares of the Company’s Common Stock (“Common Stock”). The Notes and the Junior Subordinated Notes are to be sold from time to time as set forth in the Registration Statement, the Prospectus comprising a part thereof (the “Prospectus”) and any supplement to the Prospectus (the “Prospectus Supplement”). This opinion is delivered in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Securities Act.
ATLANTA CHICAGO HONG KONG LONDON NEW YORK NEWARK NORFOLK ORANGE COUNTY PORTLAND RALEIGH RICHMOND SAN DIEGO SHANGHAI TYSONS CORNER VIRGINIA BEACH WASHINGTON, DC Exhibit A SCANA Corporation Page 80 of 112 October 15, 2012 Page 2 In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such corporate records, agreements, and other instruments, certificates, orders, opinions, correspondence with public officials, certificates provided by the Company’s officers and representatives, and other documents as we have deemed necessary or advisable for the purposes of rendering the opinions set forth herein, including (i) the corporate and organizational documents of the Company, including the Restated Articles of Incorporation, as amended to date, and the Bylaws of the Company, as amended to date, (ii) certain resolutions adopted by the Board of Directors of the Company (the “Board”) with respect to the filing of the Registration Statement, the offering of the Notes and the Junior Subordinated Notes and certain related matters, (iii) the Registration Statement and exhibits thereto, including the prospectus comprising a part thereof, (iv) the Notes Indenture, and (v) the Junior Subordinated Indenture. In making such examination and rendering the opinions set forth below, we have assumed without verification (i) that all documents submitted to us as originals are authentic, complete and accurate, (ii) that all signatures on documents submitted to us are genuine, (iii) that all individuals executing such documents had the requisite legal capacity, (iv) that all documents submitted to us as copies conform to authentic original documents, and (v) that any documents not yet executed will be duly executed in form(s) duly authorized and established in accordance with the action of the Board or a duly authorized committee of the Board. To the extent that the obligations of the Company with respect to the Notes and the Junior Subordinated Notes may be dependent upon such matters, we assume for purposes of this opinion that: (A) in the case of the Notes, the trustee under the Notes Indenture and any Supplemental Indenture is duly qualified to engage in the activities contemplated by the Notes Indenture or Supplemental Indenture; that the Notes Indenture or any Supplemental Indenture has been duly authorized, executed and delivered by the trustee and constitutes the legal, valid and binding obligation of the trustee enforceable against the trustee in accordance with its terms; that the trustee is in compliance with respect to the performance of its obligations under the Notes Indenture and all Supplemental Indentures and with all applicable laws and regulations; and that the trustee has the requisite organizational and legal power and authority to perform its obligations under the Notes Indenture or all Supplemental Indentures; and (B) in the case of the Junior Subordinated Notes, the trustee under the Junior Subordinated Indenture and any Junior Subordinated Supplemental Indenture is duly qualified to engage in the activities contemplated by the Junior Subordinated Indenture or Junior Subordinated Supplemental Indenture; that the Junior Subordinated Indenture or any Junior Subordinated Supplemental Indenture has been duly authorized, executed and delivered by the trustee and constitutes the legal, valid and binding obligation of the trustee enforceable against the trustee in accordance with its terms; that the trustee is in compliance with respect to the performance of its obligations under the Junior Subordinated Indenture and all Junior Subordinated Supplemental Indentures and with all applicable laws and regulations; and that the trustee has the requisite organizational and legal power and authority to perform its obligations under the Junior Subordinated Indenture or all Junior Subordinated Supplemental Indentures.
ATLANTA CHICAGO HONG KONG LONDON NEW YORK NEWARK NORFOLK ORANGE COUNTY PORTLAND RALEIGH RICHMOND SAN DIEGO SHANGHAI TYSONS CORNER VIRGINIA BEACH WASHINGTON, DC Exhibit A SCANA Corporation Page 81 of 112 October 15, 2012 Page 3 The opinions expressed below are subject to, and qualified and limited by the effects of: (i) bankruptcy, fraudulent conveyance or fraudulent transfer, insolvency, reorganization, moratorium, liquidation, conservatorship and similar laws, and limitations imposed under judicial decisions related to or affecting creditors’ rights and remedies generally, (ii) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law (regardless of whether arising prior to, or after, the date hereof), and principles limiting the availability of the remedy of specific performance or injunctive relief, (iii) concepts of good faith, fair dealing and reasonableness, and (iv) the possible unenforceability under certain circumstances of provisions providing for indemnification or contribution that are contrary to public policy. We also express no opinion concerning the enforceability of (a) the choice of New York law in any applicable Notes Indenture, Supplemental Indenture, Junior Subordinated Indenture or Junior Subordinated Supplemental Indenture, under the laws of any jurisdiction other than New York or (b) the waiver of rights or defenses contained in the documents establishing the Notes or Junior Subordinated Notes. In rendering the opinions expressed below, we have assumed that: (i) the Company is, as of the date hereof, and will continue to be, validly existing and in good standing under the laws of the State of South Carolina, and has, and will continue to have, all requisite power and authority to enable it to execute, deliver and perform its obligations under the Notes and Junior Subordinated Notes and the related documents; (ii) the relevant Notes and Junior Subordinated Notes will be issued and sold after all applicable regulatory approvals have been obtained and in compliance with applicable law (including the Trust Indenture Act of 1939, if applicable, and state securities or “blue sky” laws) and pursuant to and in the manner stated in the Registration Statement and the applicable Prospectus Supplement, and the relevant Notes and Junior Subordinated Notes will be established so as not to, and the execution, delivery and performance of the applicable Notes Indenture, Supplemental Indenture, Junior Subordinated Indenture or Junior Subordinated Supplemental Indenture, will not, violate, conflict with or constitute a default under any applicable laws, rules or regulations to which the Company is subject; (iii) the Company will duly authorize the offering and issuance of the Notes and Junior Subordinated Notes and will duly authorize, approve and establish the final terms and conditions thereof and of any applicable Notes Indenture, Supplemental Indenture, Junior Subordinated Indenture or Junior Subordinated Supplemental Indenture and will take any other appropriate additional corporate action with respect thereto; (iv) the Registration Statement, and any amendments thereto (including post-effective amendments), will be, at the time of issuance and sale of the relevant Notes or Junior Subordinated Notes, effective under the Act; (v) at the time of issuance and sale of the relevant Notes or Junior Subordinated Notes, a Prospectus Supplement will have been filed with the Commission describing the Notes or Junior Subordinated Notes; (vi) the Notes Indenture, each Supplemental Indenture, the Junior Subordinated Indenture and each Junior Subordinated Supplemental Indenture will be governed by the laws of the State of New York; (viii) the choice of New York law in each of the Notes Indenture, each Supplemental Indenture, the Junior Subordinated Indenture and each Junior Subordinated Supplemental Indenture purporting to be governed by the laws of the State of New York is legal, valid, binding and enforceable under the laws of all applicable jurisdictions; (ix) the Notes and the Junior Subordinated Notes will not bear interest at a rate that is usurious under the laws of the jurisdiction governing the creation thereof; and (x) the execution, delivery and performance by the Company of the Notes Indenture, each Supplemental Indenture, the Junior Subordinated Indenture and each Junior Subordinated
ATLANTA CHICAGO HONG KONG LONDON NEW YORK NEWARK NORFOLK ORANGE COUNTY PORTLAND RALEIGH RICHMOND SAN DIEGO SHANGHAI TYSONS CORNER VIRGINIA BEACH WASHINGTON, DC Exhibit A SCANA Corporation Page 82 of 112 October 15, 2012 Page 4 Supplemental Indenture do not and will not constitute a breach, conflict, default or violation of (a) the Company’s Restated Articles of Incorporation, as amended, or Bylaws, or any agreement or other instrument to which the Company or its properties are subject, (b) any judicial or regulatory order or decree of any governmental authority or (c) any consent, approval, license, authorization or validation of, or filing, recording or registration with, any governmental authority. Based upon the foregoing, and subject to the assumptions, qualifications and limitations stated herein, we are of the opinion that: 1. With respect to the Notes, when, in accordance with action of the Board or a committee thereof, (i) the Notes Indenture and any Supplemental Indenture or other instrument thereunder to be entered into, or otherwise executed or adopted, in connection with the issuance of the Notes have been duly executed and delivered by the Company and the trustee named therein, (ii) the Notes have been duly executed, authenticated and delivered in accordance with the terms of the Notes Indenture and any Supplemental Indenture, and (iii) the Notes have been validly issued and sold, and the purchase price therefor has been paid to the Company, in the manner contemplated by the Registration Statement and in any relevant amendment thereto or in any Prospectus Supplement and in accordance with the Notes Indenture and the relevant Supplemental Indenture, the Notes will be valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms. 2. With respect to the Junior Subordinated Notes, when, in accordance with action of the Board or a committee thereof, (i) the Junior Subordinated Indenture and any Junior Subordinated Supplemental Indenture or other instrument thereunder to be entered into, or otherwise executed or adopted, in connection with the issuance of the Junior Subordinated Notes have been duly executed and delivered by the Company and the trustee named therein, (ii) the Junior Subordinated Notes have been duly executed, authenticated and delivered in accordance with the terms of the Junior Subordinated Indenture and any Junior Subordinated Supplemental Indenture, and (iii) the Junior Subordinated Notes have been validly issued and sold, and the purchase price therefor has been paid to the Company, in the manner contemplated by the Registration Statement and in any relevant amendment thereto or in any Prospectus Supplement and in accordance with the Junior Subordinated Indenture and the relevant Junior Subordinated Supplemental Indenture, the Junior Subordinated Notes will be valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms.
ATLANTA CHICAGO HONG KONG LONDON NEW YORK NEWARK NORFOLK ORANGE COUNTY PORTLAND RALEIGH RICHMOND SAN DIEGO SHANGHAI TYSONS CORNER VIRGINIA BEACH WASHINGTON, DC Exhibit A SCANA Corporation Page 83 of 112 October 15, 2012 Page 5 The foregoing opinions are limited solely to the federal law of the Unites States of America and the laws of the State of New York, except that we express no opinion as to the effect of the securities or blue sky laws of any state (including, without limitation, the State of New York), municipal law or the laws of any agencies within any state (including, without limitation, the State of New York). This opinion is limited to the matters stated herein, and no opinion is implied or may be inferred beyond the matters expressly stated herein. As to all matters of South Carolina law, we have relied, with your consent, upon the opinion of Ronald T. Lindsay, Esquire, Senior Vice President and General Counsel of the Company, addressed to you of even date herewith. Ronald T. Lindsay, Esquire, Senior Vice President and General Counsel of the Company, may rely upon this opinion in rendering his opinion as to the validity and binding effect of the Notes and the Junior Subordinated Notes. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder. This opinion is expressed as of the date hereof and we do not assume any obligation to update or supplement it to reflect any change in any fact or circumstance that hereafter comes to our attention, or any change in law that may occur hereafter. Very truly yours,
/s/ TROUTMAN SANDERS LLP
ATLANTA CHICAGO HONG KONG LONDON NEW YORK NEWARK NORFOLK ORANGE COUNTY PORTLAND RALEIGH RICHMOND SAN DIEGO SHANGHAI TYSONS CORNER VIRGINIA BEACH WASHINGTON, DC Exhibit A Page 84 of 112
Exhibit 5.03
October 15, 2012
South Carolina Electric & Gas Company 100 SCANA Parkway Cayce, South Carolina 29033
Ladies and Gentlemen:
I am Senior Vice President and General Counsel of South Carolina Electric & Gas Company (the “Company”). I have acted as counsel to the Company in connection with the Company’s proposed issuance and sale from time to time of its First Mortgage Bonds (the “Bonds”), as contemplated by the Registration Statement on Form S-3 (the “Registration Statement”) proposed to be filed by the Company with the Securities and Exchange Commission (the “Commission”) on or about the date hereof for the registration of the Bonds under the Securities Act of 1933, as amended (the “Act”), with which Registration Statement this opinion is included as an Exhibit.
In connection with the delivery of this opinion, I have examined originals or copies of (a) the Restated Articles of Incorporation and Bylaws of the Company; (b) the Registration Statement (including the prospectus forming a part thereof) and the exhibits thereto; (c) certain resolutions adopted by the Board of Directors of the Company (the “Board”); (d) the Indenture dated as of April 1, 1993, as supplemented (as so supplemented, the “Indenture”), between the Company and The Bank of New York Mellon Trust Company, N.A. (as successor to NationsBank of Georgia, National Association), as trustee, and as further supplemented, if needed, by one or more supplemental indentures (each, a “Supplemental Indenture”), which Indenture and forms of Supplemental Indentures, if needed, are or will be incorporated by reference in the Registration Statement, pursuant to which the Bonds are issued; and (e) such other records, agreements, instruments, certificates and other documents of public officials, the Company and its officers and representatives, as I have considered necessary.
In making such examination and rendering the opinions set forth below, I have assumed without verification (i) that all documents submitted to me as originals are authentic, complete and accurate, (ii) that all signatures on documents submitted to me are genuine, (iii) that all individuals executing such documents had the requisite legal capacity, (iv) that all documents submitted to me as copies conform to authentic original documents, and (v) that any documents not yet executed will be duly executed in form(s) duly authorized and established in accordance with the action of the Board.
To the extent that the obligations of the Company with respect to the Bonds may be dependent upon such matters, I assume for purposes of this opinion that the trustee under the Indenture and any Supplemental Indenture is duly qualified to engage in the activities contemplated by the Indenture or Supplemental Indenture; that the Indenture or any Supplemental Indenture has been duly authorized, executed and delivered by the trustee and Exhibit A Page 85 of 112
constitutes the legal, valid and binding obligation of the trustee enforceable against the trustee in accordance with its terms; that the trustee is in compliance with respect to the performance of its obligations under the Indenture and all Supplemental Indentures and with all applicable laws and regulations; and that the trustee has the requisite organizational and legal power and authority to perform its obligations under the Indenture or all Supplemental Indentures.
Based on the foregoing, I am of the opinion that, with respect to the Bonds of each series, when (a) the Registration Statement, and any subsequent amendments thereto, have become effective under the Act; (b) the Indenture has been qualified under the Trust Indenture Act of 1939, as amended; (c) an appropriate order relating to such Bonds has been obtained from The Public Service Commission of South Carolina; (d) the Board has taken such action as may be necessary to authorize the issuance and sale by the Company of the Bonds of such series on the terms set forth in or contemplated by the Registration Statement, as it may be amended, and any prospectus supplement relating to the Bonds of such series, and to authorize the proper officers of the Company to take such other action as may be necessary in connection with the consummation of the issuance and sale of the Bonds from time to time; (e) the specific terms of each Bond of such series have been determined within the authorizations referred to above, and a prospectus supplement relating to the Bonds of such series has been filed with the Commission; (f) the Indenture and any Supplemental Indenture or other instrument thereunder to be entered into, or otherwise executed or adopted, in connection with the issuance of the Bonds have been duly executed and delivered by the Company and the trustee named therein; (g) the Bonds of such series have been duly executed, authenticated and delivered in accordance with the corporate and governmental authorizations aforesaid and the terms of the Indenture and any Supplemental Indenture; and (h) the Bonds of each series have been validly issued and sold, and the purchase price has been paid to the Company, in the manner contemplated by the Registration Statement, as it may be amended, and any prospectus supplement related to the Bonds of such series, and in accordance with the corporate authorizations aforesaid and the terms of the Indenture and any Supplemental Indenture, the Bonds of each series will be duly authorized and will constitute legal, valid and binding obligations of the Company, subject as to enforceability to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws affecting the rights of creditors generally and general principles of equity, including, without limitation, concepts of materiality, reasonableness, fair dealing and good faith, and the availability of equitable remedies such as specific performance and injunctive relief, regardless of whether such matters are considered in a proceeding at law or in equity, and will be entitled to the benefits and security of the Indenture.
In rendering this opinion I am opining only to the federal laws of the United States and the laws of the State of South Carolina. I express no opinion as to the laws of any jurisdiction other than the federal laws of the United States and the laws of the State of South Carolina, except that I express no opinion as to the effect of the securities or blue sky laws of any state (including, without limitation, the State of South Carolina). I express no opinion as to whether, to the extent to which, the laws of any particular jurisdiction apply to the subject matter hereof, including, without limitation, the enforceability of the governing law provision contained in the Indenture.
Exhibit A Page 86 of 112
I hereby consent to the filing of this opinion as an exhibit to the Registration Statement to be filed by the Company on the date hereof. In giving the foregoing consent, I do not thereby admit that I come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission promulgated thereunder.
Sincerely,
/s/Ronald T. Lindsay, Esq. Ronald T. Lindsay Senior Vice President and General Counsel Exhibit A Page 87 of 112 Exhibit 12.01
SCANA CORPORATION CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Twelve Months Years Ended December 31, Ended Ended Dollars in Millions June 30, 2012 June 30, 2012 2011 2010 2009 2008 2007 Fixed Charges as defined: Interest on long-term debt $ 147.0 $ 292.2 $287.0 $270.4 $251.5 $238.2 $214.9 Amortization of debt premium, discount and expense (net) 2.5 4.9 4.8 5.1 4.8 4.6 4.6 Interest component on rentals 2.5 5.2 5.2 4.6 7.9 4.5 6.3 Preference security dividend requirement of consolidated subsidiary — — — — 14.2 11.7 11.7 Total Fixed Charges (A) $ 152.0 $ 302.3 $297.0 $280.1 $278.4 $259.0 $237.5 Earnings as defined: Pretax income from continuing operations $ 278.3 $ 569.5 $555.6 $535.4 $524.2 $542.1 $467.6 Total fixed charges above 152.0 302.3 297.0 280.1 278.4 259.0 237.5 Pretax equity in (earnings) losses of investees (1.3) (2.8) (2.9) (1.1) (2.2) (8.0) 18.1 Cash distributions from equity investees 1.2 4.0 3.6 4.8 3.3 6.2 7.8 Preference security dividend requirement from above — — — — (14.2) (11.7) (11.7) Total Earnings (B) $ 430.2 $ 873.0 $853.3 $819.2 $789.5 $787.6 $719.3 Ratio of Earnings to Fixed Charges (B/A) 2.83 2.89 2.87 2.92 2.84 3.04 3.03
SOUTH CAROLINA ELECTRIC & GAS COMPANY CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
Six Months Twelve Months Years Ended December 31, Ended Ended Dollars in Millions June 30, 2012 June 30, 2012 2011 2010 2009 2008 2007 Fixed Charges as defined: Interest on long-term debt $ 105.5 $ 210.9 $ 207.8 $192.4 $ 181.4 $ 166.6 $ 149.8 Amortization of debt premium, discount and expense (net) 2.0 4.0 3.9 4.0 3.8 3.6 3.6 Interest component on rentals 1.6 3.4 3.6 3.1 5.5 4.2 5.3 Total Fixed Charges(A) $ 109.1 $ 218.3 $ 215.3 $199.5 $ 190.7 $ 174.4 $ 158.7 Earnings as defined: Pretax income from continuing operations $ 217.8 $ 482.3 $ 456.5 $433.6 $ 427.8 $ 440.1 $ 361.4 Total fixed charges 109.1 218.3 215.3 199.5 190.7 174.4 158.7 Pre-tax equity in (earnings) losses of investees 1.7 2.9 2.3 2.1 0.5 (3.0) 19.5 Total Earnings (B) $ 328.6 $ 703.5 $ 674.1 $635.2 $ 619 $ 611.5 $ 539.6 Ratio of Earnings to Fixed Charges (B/A) 3.01 3.22 3.13 3.18 3.25 3.51 3.4 Exhibit A Page 88 of 112
Exhibit 23.01
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement on Form S-3 of our reports dated February 29, 2012, relating to the consolidated financial statements and financial statement schedule of SCANA Corporation and subsidiaries, and the effectiveness of SCANA Corporation’s internal control over financial reporting, appearing in the Annual Report on Form 10-K of SCANA Corporation for the year ended December 31, 2011, and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement.
/s/Deloitte & Touche LLP Charlotte, North Carolina October 15, 2012 Exhibit A Page 89 of 112
Exhibit 23.02
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated February 29, 2012, relating to the consolidated financial statements and financial statement schedule of South Carolina Electric & Gas Company and affiliates, appearing in the Annual Report on Form 10-K of South Carolina Electric & Gas Company for the year ended December 31, 2011, and to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement.
/s/Deloitte & Touch LLP Charlotte, North Carolina October 15, 2012 Exhibit A Page 90 of 112
Exhibit 24.01
POWER OF ATTORNEY
Each of the undersigned directors of SCANA Corporation (the "Company") hereby appoints K. B. Marsh, J. E. Addison and R. T. Lindsay, and each of them severally, his or her true and lawful attorney or attorneys, each with the power to act with or without the others, and with full power of substitution and re-substitution, to execute in his or her name, place and stead in his or her capacity as a director of the Company and to file with the Securities and Exchange Commission under the Securities Act of 1933, as amended, a registration statement on Form S-3 and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, with respect to an indeterminate amount of the Company's medium term notes, junior subordinated notes and common stock.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 3rd day of May, 2012.
/s/B. L. Amick /s/J. A. Bennett B. L. Amick J. A. Bennett Director Director
/s/S. A. Decker /s/D. M. Hagood S. A. Decker D. M. Hagood Director Director
/s/K. B. Marsh /s/J. W. Martin, III K. B. Marsh J. W. Martin, III Director Director
/s/J. M. Micali /s/L. M. Miller J. M. Micali L. M. Miller Director Director
/s/J. W. Roquemore /s/M. K. Sloan J. W. Roquemore M. K. Sloan Director Director
/s/H. C. Stowe H. C. Stowe Director
Exhibit A Page 91 of 112
Exhibit 24.02
POWER OF ATTORNEY
Each of the undersigned directors of South Carolina Electric & Gas Company (the "Company") hereby appoints K. B. Marsh, J. E. Addison and R. T. Lindsay, and each of them severally, his or her true and lawful attorney or attorneys, each with the power to act with or without the others, and with full power of substitution and re-substitution, to execute in his or her name, place and stead in his or her capacity as a director of the Company and to file with the Securities and Exchange Commission under the Securities Act of 1933, as amended, a registration statement on Form S-3 and any and all amendments thereto, and all instruments necessary or incidental in connection therewith, with respect to an indeterminate amount of the Company's first mortgage bonds.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 3rd day of May, 2012.
/s/B. L. Amick /s/J. A. Bennett B. L. Amick J. A. Bennett Director Director
/s/S. A. Decker /s/D. M. Hagood S. A. Decker D. M. Hagood Director Director
/s/K. B. Marsh /s/J. M. Micali K. B. Marsh J. M. Micali Director Director
/s/L. M. Miller /s/J. W. Roquemore L. M. Miller J. W. Roquemore Director Director
/s/M. K. Sloan /s/H. C. Stowe M. K. Sloan H. C. Stowe Director Director Exhibit A Page 92 of 112
Exhibit 25.01
======FORM T-1
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ______THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. (Exact name of trustee as specified in its charter) (State of incorporation 95-3571558 if not a U.S. national bank) (I.R.S. employer identification no.) 400 South Hope Street 90071 Suite 400 (Zip code) Los Angeles, California (Address of principal executive offices) ______
The Bank of New York Mellon Trust Company, N.A. 101 Barclay Street, Floor 8 West New York, New York 10286 Attn: Corporate Trust Administration (212) 495-1784 (Name, address and telephone number of agent for service) ______
SCANA Corporation (Exact name of obligor as specified in its charter)
South Carolina 57-0784499 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 100 SCANA Parkway 29033-3712 Cayce, South Carolina (Zip code) (Address of principal executive offices) ______
Medium Term Notes
(Title of Indenture Securities) - 1 - Exhibit A Page 93 of 112
1. General information. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it is subject.
Name Address Comptroller of the Currency United States Department of the Treasury Washington, D.C. 20219
Federal Reserve Bank San Francisco, California 94105
Federal Deposit Insurance Corporation Washington, D.C. 20429 (b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such affiliation.
None.
3-15 Not Applicable
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the “Act”) and 17 C.F.R. 229.10(d).
1. A copy of the articles of association of The Bank of New York Mellon Trust Company, N.A., formerly known as The Bank of New York Trust Company, N.A. (Exhibit 1 to Form T-1 filed with Registration Statement No. 333-121948 and Exhibit T-1 filed with Registration Statement No. 333-152875).
2. A copy of certificate of authority of the trustee to commence business. (Exhibit 2 to Form T-1 filed with Registration Statement No. 333-121948).
3. A copy of the authorization of the trustee to exercise corporate trust powers. (Exhibit 3 to Form T-1 filed with Registration Statement No. 333-152875).
4. A copy of the existing by-laws of the trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 333-152875).
5. Not applicable.
- 2 - Exhibit A Page 94 of 112
6. The consent of the trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 333-152875).
7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority.
- 3 - Exhibit A Page 95 of 112
SIGNATURE
Pursuant to the requirements of the Act, the trustee, The Bank of New York Mellon Trust Company, N.A., a banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of Chicago, and State of Illinois, on the 15th day of October, 2012
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
By: /s/ R. Tarnas Name: Richard Tarnas Title: Vice President
- 4 - Exhibit AEXHIBIT 7 Page 96 of 112 Consolidated Report of Condition of THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. of 400 South Hope Street, Suite 400, Los Angeles, CA 90071
At the close of business June 30, 2012, published in accordance with Federal regulatory authority instructions.
Dollar Amounts in Thousands ASSETS
Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin 825 Interest-bearing balances 395 Securities: Held-to-maturity securities 0 Available-for-sale securities 644,459 Federal funds sold and securities purchased under agreements to resell: Federal funds sold 66,300 Securities purchased under agreements to resell 0 Loans and lease financing receivables: Loans and leases held for sale 0 Loans and leases, net of unearned income………………………………………………………….……………. 0 LESS: Allowance for loan and lease losses…………………………………………………………………………………… 0 Loans and leases, net of unearned income and allowance 0 Trading assets 0 Premises and fixed assets (including capitalized leases) 6,696 Other real estate owned 0 Investments in unconsolidated subsidiaries and associated companies 0 Direct and indirect investments in real estate ventures ………………………………………………… 0 Intangible assets: Goodwill 856,313 Other intangible assets 173,416 Other assets 132,067
Total assets $1,880,471 LIABILITIES Exhibit A Page 97 of 112 Deposits: In domestic offices 500 Noninterest-bearing…………………………………………………………….……………… 500 Interest-bearing………………………………………………….………………………….… 0 Not applicable Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased 0 Securities sold under agreements to repurchase 0 Trading liabilities 0 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases) 0 Not applicable Not applicable Subordinated notes and debentures 0 Other liabilities 229,395 Total liabilities 229,895 Not applicable
EQUITY CAPITAL
Perpetual preferred stock and related surplus………………………………………………………… 0 Common stock 1,000 Surplus (exclude all surplus related to preferred stock) 1,121,520 Not available Retained earnings 523,267 Accumulated other comprehensive income …………………………………………………… 4,789 Other equity capital components 0 Not available Total bank equity capital …………………………………………………………………….. 1,650,576 Noncontrolling (minority) interests in consolidated subsidiaries 0 Total equity capital 1,650,576 Total liabilities and equity capital 1,880,471
I, Karen Bayz, CFO and Managing Director of the above-named bank do hereby declare that the Reports of Condition and Income (including the supporting schedules) for this report date have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief.
Karen Bayz ) CFO and Managing Director
We, the undersigned directors (trustees), attest to the correctness of the Report of Condition (including the supporting schedules) for this report date and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct.
Troy Kilpatrick, President ) Frank P. Sulzberger, MD ) Directors (Trustees) William D. Lindelof, MD ) Exhibit A Page 98 of 112 Exhibit 25.02 ______
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ______
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) ______
U.S. BANK NATIONAL ASSOCIATION (Exact name of Trustee as specified in its charter)
31-0841368 I.R.S. Employer Identification No.
800 Nicollet Mall Minneapolis, Minnesota 55402 (Address of principal executive offices) (Zip Code)
Tanya H. Cody U.S. Bank National Association 1441 Main Street, Suite 775 Columbia, South Carolina 29201 (803) 212-7901 (Name, address and telephone number of agent for service)
SCANA Corporation (Issuer with respect to the Securities) South Carolina 57-0784499 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
100 SCANA Parkway Cayce, South Carolina 29033-3712 (Address of Principal Executive Offices) (Zip Code)
JUNIOR SUBORDINATED NOTES (Title of the Indenture Securities)
1 Exhibit A Page 99 of 112
FORM T-1
Item 1. GENERAL INFORMATION. Furnish the following information as to the Trustee.
a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C.
b) Whether it is authorized to exercise corporate trust powers. Yes
Item 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. None
Items 3-15 Items 3-15 are not applicable because to the best of the Trustee's knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee.
Item 16. LIST OF EXHIBITS: List below all exhibits filed as a part of this statement of eligibility and qualification.
1. A copy of the Articles of Association of the Trustee.*
2. A copy of the certificate of authority of the Trustee to commence business, attached as Exhibit 2.
3. A copy of the certificate of authority of the Trustee to exercise corporate trust powers, attached as Exhibit 3.
4. A copy of the existing bylaws of the Trustee.**
5. A copy of each Indenture referred to in Item 4. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6.
7. Report of Condition of the Trustee as of June 30, 2012 published pursuant to law or the requirements of its supervising or examining authority, attached as Exhibit 7.
* Incorporated by reference to Exhibit 25.1 to Amendment No. 2 to registration statement on S-4, Registration Number 333-128217 filed on November 15, 2005. ** Incorporated by reference to Exhibit 25.1 to registration statement on S-4, Registration Number 333-166527 filed on May 5, 2010.
2 Exhibit A Page 100 of 112
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Columbia, and the State of South Carolina on the 15th of October, 2012.
By: /s/ Tanya H. Cody______Tanya H. Cody Assistant Vice President
3 Exhibit A Page 101 of 112 Exhibit 2
Comptroller of the Currency Administrator of National Banks
Washington, OC 20219
CKRTII'ICATE OF CORPORATE EXISTENCE
I, Thomas J. Curry, Comptroller of the Currency, do hereby certify that:
1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et seq, as amended, and 12 VSC I, et seq, as amended, has possession, custody, and control of all records pertaining to ihe chattering, regulation, and supervision of all national banking associations.
2, "U.S. Bank National Association," Cincinnati, Ohio (Charter No. 24), is a national banking association formed under the laws of the United States and is authorized thereunder to transact the business of banking on the date of this ceitificate.
IN TESTIMONY WHEREOF, today, May
9, 2012, I have hereunto subscribed my
name and caused my seal of office to be
affixed to these presents at the U.S.
Departnient of the Treasury, in the City of
Washington, District of Columbia.
4 Exhibit A Page 102 of 112
Exhibit 3
Comptroller of the Currency Administrator of National Banks
Washington, DC 20219
CERTIFICATION OF FIIyUCIARY POWERS
I, John Welsh, Acting Comptroller of the Currency, do hereby certify that:
1. The Office of the Comptroller of the Currency, pursuant to Revised Statutes 324, et seq, as amended, and 12 USC 1, et seq, as amended, has possession, custody, and control of all records pertaining to the chartering, regulation, and supervision of all national banking associations.
2. "U.S. Bank National Association," Cincinnati, Ohio (Charter No. 24), was granted, under the hand and seal of the Comptroller, the right to act in all fiduciary capacities authorized under the provisions of the Act of Congress approved September 28, 1962, 76 Stat. 668, 12 USC 92a, and that the authority so granted remains in full force and effect on the date of this certificate.
IN TESTIMONY WHEREOF, today,
September 14, 2011, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at the
U.S. Department of the Treasury, in the City
of Washington, District of Columbia.
Acting Comptroller of the Currency
5 Exhibit A Page 103 of 112
Exhibit 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor.
Dated: October 15, 2012
By: /s/ Tanya H. Cody______Tanya H. Cody Assistant Vice President
6 Exhibit A Page 104 of 112 Exhibit 7 U.S. Bank National Association Statement of Financial Condition As of 6/30/2012
($000’s)
6/30/2012 Assets
Cash and Balances Due From $15,399,893 Depository Institutions Securities 72,720,824 Federal Funds 75,584 Loans & Lease Financing Receivables 211,830,660 Fixed Assets 5,286,747 Intangible Assets 12,383,063 Other Assets 25,125,941 Total Assets $342,822,712
Liabilities Deposits $245,043,009 Fed Funds 6,587,299 Treasury Demand Notes 0 Trading Liabilities 937,898 Other Borrowed Money 35,563,317 Acceptances 0 Subordinated Notes and Debentures 5,829,815 Other Liabilities 11,359,611 Total Liabilities $305,320,949
Equity Minority Interest in Subsidiaries $2,015,054 Common and Preferred Stock 18,200 Surplus 14,133,323 Undivided Profits 21,335,186 Total Equity Capital $37,501,763
Total Liabilities and Equity Capital $342,822,712
7 Exhibit A Page 105 of 112
8 Exhibit A Page 106 of 112
Exhibit 25.03
======FORM T-1
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) |__| ______THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. (Exact name of trustee as specified in its charter) (State of incorporation 95-3571558 if not a U.S. national bank) (I.R.S. employer identification no.) 400 South Hope Street 90071 Suite 400 (Zip code) Los Angeles, California (Address of principal executive offices) ______
The Bank of New York Mellon Trust Company, N.A. 900 Ashwood Parkway, Suite 425 Atlanta, Georgia 30338 Attn: Corporate Trust Administration (770) 698-5100 (Name, address and telephone number of agent for service) ______
South Carolina Electric & Gas Company (Exact name of obligor as specified in its charter)
South Carolina 57-0248695 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 100 SCANA Parkway 29033-3712 Cayce, South Carolina (Address of principal executive offices) (Zip code) ______
First Mortgage Bonds
(Title of Indenture Securities) - 1 - Exhibit A Page 107 of 112
1. General information. Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it is subject.
Name Address Comptroller of the Currency United States Department of the Treasury Washington, D.C. 20219
Federal Reserve Bank San Francisco, California 94105
Federal Deposit Insurance Corporation Washington, D.C. 20429 (b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such affiliation.
None.
3-15 Not Applicable
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are incorporated herein by reference as an exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture Act of 1939 (the “Act”) and 17 C.F.R. 229.10(d).
1. A copy of the articles of association of The Bank of New York Mellon Trust Company, N.A., formerly known as The Bank of New York Trust Company, N.A. (Exhibit 1 to Form T-1 filed with Registration Statement No. 333-121948 and Exhibit 1 to Form T-1 filed with Registration Statement No. 333-152875).
2. A copy of certificate of authority of the trustee to commence business. (Exhibit 2 to Form T-1 filed with Registration Statement No. 333-121948).
3. A copy of the authorization of the trustee to exercise corporate trust powers. (Exhibit 3 to Form T-1 filed with Registration Statement No. 333-152875).
4. A copy of the existing by-laws of the trustee. (Exhibit 4 to Form T-1 filed with Registration Statement No. 333-152875).
5. Not applicable.
- 2 - Exhibit A Page 108 of 112
6. The consent of the trustee required by Section 321(b) of the Act. (Exhibit 6 to Form T-1 filed with Registration Statement No. 333-152875).
7. A copy of the latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority.
- 3 - Exhibit A Page 109 of 112
SIGNATURE
Pursuant to the requirements of the Act, the trustee, The Bank of New York Mellon Trust Company, N.A., a banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of Chicago, and State of Illinois, on the 15th day of October, 2012.
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
By: /s/ R. Tarnas Name: Richard Tarnas Title: Vice President
- 4 - Exhibit A Page 110 of 112
EXHIBIT 7
Consolidated Report of Condition of THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A. of 400 South Hope Street, Suite 400, Los Angeles, CA 90071
At the close of business June 30, 2012, published in accordance with Federal regulatory authority instructions.
Dollar Amounts in Thousands ASSETS
Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin 825 Interest-bearing balances 395 Securities: Held-to-maturity securities 0 Available-for-sale securities 644,459 Federal funds sold and securities purchased under agreements to resell: Federal funds sold 66,300 Securities purchased under agreements to resell 0 Loans and lease financing receivables: Loans and leases held for sale 0 Loans and leases, net of unearned income…………………………………………………………..……………. 0 LESS: Allowance for loan and lease losses………………………………………………………………………..…….……… 0 Loans and leases, net of unearned income and allowance 0 Trading assets 0 Premises and fixed assets (including capitalized leases) 6,696 Other real estate owned 0 Investments in unconsolidated subsidiaries and associated companies 0 Direct and indirect investments in real estate ventures …………………………………………………... 0 Intangible assets: Goodwill 856,313 Other intangible assets 173,416 Other assets 132,067
Total assets $1,880,471 Exhibit A Page 111 of 112 LIABILITIES
Deposits: In domestic offices 500 Noninterest-bearing…………………………………………………………………….……… 500 Interest-bearing……………………………………………………………….…………….…. 0 Not applicable Federal funds purchased and securities sold under agreements to repurchase: Federal funds purchased 0 Securities sold under agreements to repurchase 0 Trading liabilities 0 Other borrowed money: (includes mortgage indebtedness and obligations under capitalized leases) 0 Not applicable Not applicable Subordinated notes and debentures 0 Other liabilities 229,395 Total liabilities 229,895 Not applicable
EQUITY CAPITAL
Perpetual preferred stock and related surplus………………………………………………………… 0 Common stock 1,000 Surplus (exclude all surplus related to preferred stock) 1,121,520 Not available Retained earnings 523,267 Accumulated other comprehensive income …………………………………………………… 4,789 Other equity capital components 0 Not available Total bank equity capital ……………………………………………………………………… 1,650,576 Noncontrolling (minority) interests in consolidated subsidiaries 0 Total equity capital 1,650,576 Total liabilities and equity capital 1,880,471
I, Karen Bayz, CFO and Managing Director of the above-named bank do hereby declare that the Reports of Condition and Income (including the supporting schedules) for this report date have been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and are true to the best of my knowledge and belief.
Karen Bayz ) CFO and Managing Director
We, the undersigned directors (trustees), attest to the correctness of the Report of Condition (including the supporting schedules) for this report date and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the appropriate Federal regulatory authority and is true and correct.
Troy Kilpatrick, President ) Frank P. Sulzberger, MD ) Directors (Trustees) William D. Lindelof, MD ) Exhibit A Page 112 of 112 Exhibit B Page 1 of 4 South Carolina Electric Gas Company Pro Forma Consolidated Balance Sheet December 31, 2012 Adjustments For (Unaudited) First MortgageBonds Thousands of dollars Actual Application As Adjusted Assets: Utility Plant, Net $ 8,866,608 $ 8,866,608 Nontility Property, Net 57,099 57,099 Assets Held in Trust, Net - Nuclear Decommissioning 94,151 94,151 Other Investments 2,530 2,530 Total Property & Investments 9,020,388 - 9,020,388
Current Assets: Cash and Cash Equivalents 45,844 (a) $ 1,447,500 1,493,344 Receivables, Net of Allowance for Uncollectible Accounts 482,808 482,808 Affiliated Receivables 2,281 2,281 Inventories (at Average Cost) 288,602 288,602 Prepayments and Other 140,615 140,615 Total Current Assets 960,150 1,447,500 2,407,650
Deferred Debits and Other Assets: Regulatory Assets 1,329,365 1,329,365 Other 179,451 (a) 52,500 231,951 Total Deferred Debits and Other Assets 1,508,816 52,500 1,561,316
Total Assets $ 11,489,354 $ 1,500,000 $ 12,989,354
Capitalization and Liabilities: Capitalization: Preferred Stock $ 100 $ 100 Common Equity 3,929,228 3,929,228 Noncontrolling Interest 2,766 2,766 Long-Term Debt, Net 3,254,150 (a) $ 1,500,000 4,754,150 Total Capitalization 7,186,244 1,500,000 8,686,244
Current Liabilities:
Short-Term Borrowings 449,068 449,068 Current Portion of Long-Term Debt 158,734 158,734 Accounts Payable 266,484 266,484 Accounts Payable - Affiliated Companies 97,804 97,804 Customer Deposits 51,456 51,456 Taxes Accrued 147,512 147,512 Dividends Declared 60,944 60,944 Other 159,558 159,558 Total Current Liabilities 1,391,560 - 1,391,560
Deferred Credits: Deferred Income Taxes 1,398,763 1,398,763 Deferred Investment Tax Credits 33,087 33,087 Asset Retirement Obligations 516,200 516,200 Postretirement benefits 252,481 252,481 Regulatory Liabilities 629,607 629,607 Other 81,412 81,412 Total Deferred Credits 2,911,550 - 2,911,550
Total Capitalization and Liabilities $ 11,489,354 $ 1,500,000 $ 12,989,354 Exhibit B Page 2 of 4 South Carolina Electric Gas Company Pro Forma Consolidated Income Statement For the Twelve Months Ended December 31, 2012 (Unaudited) Adjustments For First Mortgage Bonds Thousands of dollars Actual Application As Adjusted Operating Revenues Electric $ 2,453,070 $ 2,453,070 Gas 355,574 355,574 Total Operating Revenues 2,808,644 2,808,644
Operating Expenses Fuel Used in Electric Generation 677,175 677,175 Purchased Power 268,295 268,295 Gas Purchased for Resale 196,598 196,598 Other Operation and Maintenance 528,252 528,252 Depreciation and Amortization 275,352 275,352 Other Taxes 182,311 182,311 Total Operating Expenses 2,127,983 2,127,983
Operating Income 680,661 680,661
Other Income (Expense) Other Income 21,499 21,499 Other Expenses (17,770) (17,770) Interest Charges, net of allowance for borrowed funds used during construction (192,540) (b) $ (120,000) (313,495) (c) (955) Total Other Expense (188,811) (120,955) (309,766)
Income Before Income Tax Expense 491,850 (120,955) 370,895
Income Tax Expense (Benefit) 150,870 (b) (45,900) (c) (365) 104,605 Net Income $ 340,980 $ (74,690) $ 266,290 Exhibit B Page 3 of 4 South Carolina Electric Gas Company Pro Forma Consolidated Statement of Capitalization December 31, 2012 (Unauditied)
Adjustments For First Mortgage Bonds Thousands of dollars Actual % Application As Adjusted % Short-Term Debt $ 449,068 $ - $ 449,068
Long-Term Debt, Net 3,254,150 (a) 1,500,000 4,754,150
Current Portion of Long-Term Debt 158,734 158,734
Total Debt 3,861,952 49.6% 1,500,000 5,361,952 57.7%
Preferred Stock 100 0.0% 100 0.0%
Common Stock Equity 3,929,228 50.4% 3,929,228 42.3%
Noncontrolling Interest 2,766 0.0% 2,766 0.0%
$ 7,794,046 100.0% $ 1,500,000 $ 9,294,046 100.0% Exhibit B Page 4 of 4 South Carolina Electric Gas Company Notes to Pro Forma Financial Statements December 31, 2012 (Unauditied)
Adjustments for First Mortgage Bonds Application: The Company assumes issuing an additional $1.5 billion in First Mortgage Bonds as outlined in the related application. The First Mortgage Bonds are assumed to have a maturity of up to 55 years. The interest rate on the bonds is assumed to be 8.0% and issuance costs are assumed to be $52.5 million.
(a) Represents the receipt of $1.5 billion as a result of the issuance of First Mortgage Bonds, net of debt issuance costs of $52,500,000.
(b) Represents the interest expense and the related income tax effects resulting from the issuance of the $1.5 billion First Mortgage Bonds described in (a) at 8.0% interest, outstanding for twelve months. The adjustment does not assume that the interest charges are reduced by any allowances for borrowed funds used during construction. While we cannot predict with any degree of certainty what may transpire in future credit markets for the First Mortgage Bonds, in the near future interest rates are not expected to exceed 8.0% on long-term utility bonds of like quality. Calculations are as follows:
Proposed borrowings under First Mortgage Bonds $ 1,500,000,000 Assumed interest rate 8.00% Interest expense on proposed borrowings $ 120,000,000
Income tax decrease: $120,000,000 * 38.25% (composite rate) $ 45,900,000
(c) Represents the amortization over fifty-five years of the estimated selling discount and related income tax effects. The selling discount is expected to range between 0.6% to 3.3%, with a maximum of 3.5%. The selling discount below reflects a maximum of 3.5%.
Selling discount $52,500,000 / 55 years $ 954,545
Income tax decrease $954,545 * 38.25% $ 365,114 Exhibit C Page 1 of 171 As filed with the Securities and Exchange Commission on February 28, 2013
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
POWER FOR LIVINGS
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
Securities registered pursuant to Section 12(b) of the Act:
Each of the following classes or series of securities is registered on The New York Stock Exchange.
Title of each class Registrant Common Stock, without par value SCANA Corporation 2009 Series A 7.70% Enhanced Junior Subordinated Notes SCANA Corporation
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Registrant Series A Nonvoting Preferred Shares South Carolina Electric & Gas Company
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. SCANA Corporation South Carolina Electric & Gas Company x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. SCANA Corporation South Carolina Electric & Gas Company 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 Qx No South Carolina Electric & Gas Company Yes Qx No P Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 Qx No P South Carolina Electric & Gas Company Yes Qx No Q Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. SCANA Corporation Qx South Carolina Electric & Gas Company Qx Exhibit C Page 2 of 171 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2).
SCANA Corporation Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company Q (Do not check if a smaller reporting company) South Carolina Electric & Gas Company Large accelerated filer Q Accelerated filer Non-accelerated filer Qx Smaller reporting company Q (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). SCANA Corporation Yes p No x South Carolina Electric & Gas Company Yes Q No x
The aggregate market value of voting stock held by non-affiliates of SCANA Corporation was $6.2 billion at June 30, 2012 based on the closing price of $47.84 per share. South Carolina Electric & Gas Company is a wholly-owned subsidiary of SCANA Corporation and has no voting stock other than its common stock. A description of registrants’ common stock follows:
Description of Shares Outstanding Registrant Common Stock at February 20, 2013 SCANA Corporation Without Par Value 132,415,898 South Carolina Electric & Gas Company Without Par Value 40,296,147 (a)
(a) Held beneficially and of record by SCANA Corporation.
Documents incorporated by reference: Specified sections of SCANA Corporation’s Proxy Statement, in connection with its 2013 Annual Meeting of Shareholders, are incorporated by reference in Part III hereof. This combined Form 10-K is separately filed by SCANA Corporation and South Carolina Electric & Gas Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. Each registrant makes no representation as to information relating to the other company. South Carolina Electric & Gas Company meets the conditions set forth in General Instruction I(1) (a) and (b) of Form 10-K and therefore is filing this Form with the reduced disclosure format allowed under General Instruction I (2). Exhibit C Page 3 of 171 TABLE OF CONTENTS
Page CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION 4
DEFINITIONS 5
PART I Item 1. Business 8 Item 1A. Risk Factors 16 Item 1B. Unresolved Staff Comments 23 Item 2. Properties 23 Item 3. Legal Proceedings 25 Item 4. Mine Safety Disclosures 26 Executive Officers of SCANA Corporation 27
PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 28 Item 6. Selected Financial Data 29
SCANA Corporation 30 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50
Item 8. Financial Statements and Supplementary Data 53 South Carolina Electric & Gas Company 92 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 93 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 108 Item 8. Financial Statements and Supplementary Data 110
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 146 Item 9A. Controls and Procedures 146 Item 9B. Other Information 148
PART III Item 10. Directors, Executive Officers and Corporate Governance 149 Item 11. Executive Compensation 151 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 149 Item 13. Certain Relationships and Related Transactions, and Director Independence 149 Item 14. Principal Accounting Fees and Services 149
PART IV
Item 15. Exhibits, Financial Statement Schedules 151
SIGNATURES 153
Exhibit Index 155
3 Exhibit C Page 4 of 171 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Statements included in this Annual Report on Form 10-K 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,” “forecasts,” “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, regulations governing electric grid reliability, environmental regulations, and actions affecting the construction of new nuclear units; (3) current and future litigation; (4) changes in the economy, especially in areas served by subsidiaries of SCANA; (5) the impact of competition from other energy suppliers, including competition from alternate fuels in industrial markets; (6) the impact of conservation and demand side management efforts and/or technological advances on customer usage; (7) growth opportunities for SCANA’s regulated and diversified subsidiaries; (8) the results of short- and long-term financing efforts, including prospects for obtaining access to capital markets and other sources of liquidity; (9) changes in SCANA’s or its subsidiaries’ accounting rules and accounting policies; (10) the effects of weather, including drought, especially in areas where the generation and transmission facilities of SCANA and its subsidiaries (the Company) are located and in areas served by SCANA’s subsidiaries; (11) payment and performance by counterparties and customers as contracted and when due; (12) the results of efforts to license, site, construct and finance facilities for electric generation and transmission; (13) maintaining creditworthy joint owners for SCE&G’s new nuclear generation project; (14) the ability of suppliers, both domestic and international, to timely provide the labor, components, parts, tools, equipment and other supplies needed, at agreed upon prices, for our construction program, operations and maintenance; (15) the results of efforts to ensure the physical and cyber security of key assets and processes; (16) 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; (17) the availability of skilled and experienced human resources to properly manage, operate, and grow the Company’s businesses; (18) labor disputes; (19) performance of SCANA’s pension plan assets; (20) changes in taxes; (21) inflation or deflation; (22) compliance with regulations; (23) natural disasters and man-made mishaps that directly affect our operations or the regulations governing them; and (24) the other risks and uncertainties described from time to time in the periodic reports filed by SCANA or SCE&G with the SEC. SCANA and SCE&G disclaim any obligation to update any forward-looking statements.
4 Exhibit C Page 5 of 171 DEFINITIONS
Abbreviations used in this Form 10-K have the meanings set forth below unless the context requires otherwise:
TERM MEANING AFC Allowance for Funds Used During Construction ANI American Nuclear Insurers ARO Asset Retirement Obligation BACT Best Available Control Technology BLRA Base Load Review Act CAA Clean Air Act, as amended CAIR Clean Air Interstate Rule CCR Coal Combustion Residuals CEO Chief Executive Officer CFO Chief Financial Officer CFTC Commodity Futures Trading Commission CERCLA Comprehensive Environmental Response, Compensation and Liability Act CGT Carolina Gas Transmission Corporation COL Combined Construction and Operating License Company SCANA, together with its consolidated subsidiaries Consolidated SCE&G SCE&G and its consolidated affiliates Consortium A consortium consisting of Westinghouse and Stone and Webster, Inc. CSAPR Cross-State Air Pollution Rule CUT Customer Usage Tracker CWA Clean Water Act DHEC South Carolina Department of Health and Environmental Control Dodd-Frank Dodd-Frank Wall Street Reform and Consumer Protection Act DOE United States Department of Energy DOJ United States Department of Justice Dominion Dominion Transmission, Inc. DOT United States Department of Transportation DSM Programs Demand Side Management Programs EIZ Credits South Carolina Capital Investment Tax Credits (formerly known as Economic Impact Zone Income Tax Credits) Energy Marketing The divisions of SEMI, excluding SCANA Energy EPA United States Environmental Protection Agency EPC Contract Engineering, Procurement and Construction Agreement dated May 23, 2008 eWNA Pilot Electric WNA FERC United States Federal Energy Regulatory Commission Fuel Company South Carolina Fuel Company, Inc. GENCO South Carolina Generating Company, Inc. GHG Greenhouse Gas GPSC Georgia Public Service Commission GWh Gigawatt hour IRP Integrated Resource Plan IRS Internal Revenue Service
5 Exhibit C Page 6 of 171
TERM MEANING JEDA South Carolina Jobs-Economic Development Authority KVA Kilovolt ampere kWh Kilowatt-hour LNG Liquefied Natural Gas LOC Lines of Credit LTECP SCANA Long-Term Equity Compensation Plan MATS Mercury and Air Toxics Standards MCF or MMCF Thousand Cubic Feet or Million Cubic Feet MGP Manufactured Gas Plant MMBTU Million British Thermal Units MW or MWh Megawatt or Megawatt-hour NASDAQ The NASDAQ Stock Market, Inc. NEIL Nuclear Electric Insurance Limited NERC North American Electric Reliability Corporation New Units Nuclear Units 2 and 3 under construction at Summer Station NCUC North Carolina Utilities Commission NRC United States Nuclear Regulatory Commission NSPS New Source Performance Standards NSR New Source Review Nuclear Waste Act Nuclear Waste Policy Act of 1982 NYMEX New York Mercantile Exchange NYSE The New York Stock Exchange OCI Other Comprehensive Income ORS South Carolina Office of Regulatory Staff PGA Purchased Gas Adjustment Pipeline Safety Act The Pipeline Safety Improvement Act of 2002 PHMSA Pipeline Hazardous Materials Safety Administration Price-Anderson Price-Anderson Indemnification Act PRP Potentially Responsible Party PSNC Energy Public Service Company of North Carolina, Incorporated RCC Replacement Capital Covenant RES Renewable Energy Standard RSA Natural Gas Rate Stabilization Act Santee Cooper South Carolina Public Service Authority SCANA SCANA Corporation, the parent company SCANA Energy A division of SEMI which markets natural gas in Georgia SCE&G South Carolina Electric & Gas Company SCEUC South Carolina Energy Users Committee SCI SCANA Communications, Inc. SCPSC Public Service Commission of South Carolina SEC United States Securities and Exchange Commission SEMI SCANA Energy Marketing, Inc. SERC SERC Reliability Corporation Southern Natural Southern Natural Gas Company Summer Station V. C. Summer Nuclear Station Transco Transcontinental Gas Pipeline Corporation
6 Exhibit C Page 7 of 171
TERM MEANING TSR Total Shareholder Return VACAR Virginia-Carolinas Reliability Group VIE Variable Interest Entity Westinghouse Westinghouse Electric Company LLC Williams Station A.M. Williams Generating Station, owned by GENCO WNA Weather Normalization Adjustment
7 Exhibit C Page 8 of 171 PART I
ITEM 1. BUSINESS
CORPORATE STRUCTURE
SCANA, a holding company, owns the following direct, wholly-owned subsidiaries:
SCE&G is engaged in the generation, transmission, distribution and sale of electricity to retail and wholesale customers and the purchase, sale and transportation of natural gas to retail customers.
GENCO owns Williams Station and sells electricity solely to SCE&G.
Fuel Company acquires, owns, provides financing for and sells at cost to SCE&G nuclear fuel, certain fossil fuels and emission and other environmental allowances.
PSNC Energy purchases, sells and transports natural gas to retail customers.
CGT transports natural gas in South Carolina and southeastern Georgia.
SCI provides fiber optic communications, ethernet services and data center facilities and builds, manages and leases communications towers in South Carolina, North Carolina and Georgia.
SEMI markets natural gas, primarily in the Southeast, and provides energy-related risk management services. SCANA Energy, a division of SEMI, markets natural gas in Georgia’s retail market.
ServiceCare, Inc. provides service contracts on home appliances and heating and air conditioning units.
SCANA Services, Inc. provides administrative, management and other services to SCANA’s subsidiaries and business units.
SCANA is incorporated in South Carolina, as is each of its direct, wholly-owned subsidiaries. In addition to the subsidiaries above, SCANA owns one other energy-related company that is insignificant.
ORGANIZATION
SCANA is a South Carolina corporation created in 1984 as a holding company. SCANA holds, directly or indirectly, all of the capital stock of each of its subsidiaries. SCANA and its subsidiaries had full-time, permanent employees as of February 20, 2013 and 2012 of 5,842 and 5,889, respectively. SCE&G is an operating public utility incorporated in 1924 as a South Carolina corporation. SCE&G had full-time, permanent employees as of February 20, 2013 and 2012 of 3,213 and 3,202, respectively.
INVESTOR INFORMATION
SCANA’s and SCE&G’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed with or furnished to the SEC are available free of charge through SCANA’s internet website at www.scana.com (which is not intended as an active hyperlink; the information on SCANA's website is not part of this or any other report filed with the SEC) as soon as reasonably practicable after these reports are filed or furnished. Information on SCANA’s website is not part of this or any other report filed with or furnished to the SEC.
SEGMENTS OF BUSINESS
For information with respect to major segments of business, see Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and the consolidated financial statements for SCANA and SCE&G (Note 12). All such information is incorporated herein by reference.
SCANA does not directly own or operate any significant physical properties. SCANA, through its subsidiaries, is engaged in the functionally distinct operations described below.
8 Exhibit C Page 9 of 171 Regulated Utilities
SCE&G is engaged in the generation, transmission, distribution and sale of electricity to approximately 670,000 customers and the purchase, sale and transportation of natural gas to approximately 323,000 customers (each as of December 31, 2012). SCE&G’s business experiences seasonal fluctuations, with generally higher sales of electricity during the summer and winter months because of air conditioning and heating requirements, and generally higher sales of natural gas during the winter months due to heating requirements. SCE&G’s electric service territory extends into 24 counties covering nearly 17,000 square miles in the central, southern and southwestern portions of South Carolina. The service area for natural gas encompasses all or part of 35 counties in South Carolina and covers approximately 22,600 square miles. More than 3.2 million persons live in the counties where SCE&G conducts its business. Resale customers include municipalities, electric cooperatives, other investor-owned utilities, registered marketers and federal and state electric agencies. Predominant industries served by SCE&G include chemicals, educational services, paper products, food products, lumber and wood products, health services, textile manufacturing, rubber and miscellaneous plastic products and fabricated metal products.
GENCO owns Williams Station and sells electricity solely to SCE&G.
Fuel Company acquires, owns, provides financing for and sells at cost to SCE&G nuclear fuel, certain fossil fuels and emission and other environmental allowances.
PSNC Energy purchases, sells and transports natural gas to approximately 497,000 residential, commercial and industrial customers (as of December 31, 2012). PSNC Energy serves 28 franchised counties covering 12,000 square miles in North Carolina. The predominant industries served by PSNC Energy include educational services, food products, health services, chemicals, non-woven textiles and construction-related materials.
CGT operates as an open access, transportation-only interstate pipeline company regulated by FERC. CGT operates in southeastern Georgia and in South Carolina and has interconnections with Southern Natural at Port Wentworth, Georgia and with Southern LNG, Inc. at Elba Island, near Savannah, Georgia. CGT also has interconnections with Southern Natural in Aiken County, South Carolina, and with Transco in Cherokee and Spartanburg counties, South Carolina. CGT’s customers include SCE&G (which uses natural gas for electricity generation and for gas distribution to retail customers), SEMI (which markets natural gas to industrial and sale for resale customers, primarily in the Southeast), municipalities, county gas authorities, federal and state agencies, marketers, power generators and industrial customers primarily engaged in the manufacturing or processing of ceramics, paper, metal, and textiles.
Nonregulated Businesses
SEMI markets natural gas primarily in the southeast and provides energy-related risk management services. SCANA Energy, a division of SEMI, sells natural gas to approximately 450,000 customers (as of December 31, 2012, and includes approximately 72,000 customers in its regulated division) in Georgia’s natural gas market. SCANA Energy’s contract to serve as Georgia’s regulated provider of natural gas has been renewed by the GPSC through August 31, 2014. SCANA Energy’s total customer base represents an approximately 30% share of the approximately 1.5 million customers in Georgia’s deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in Georgia.
SCI owns and operates a 500-mile fiber optic telecommunications network and ethernet network and data center facilities in South Carolina. Through a joint venture, SCI has an interest in an additional 2,280 miles of fiber in South Carolina, North Carolina and Georgia. SCI also provides tower site construction, management and rental services and sells towers in South Carolina and North Carolina. SCI leases fiber optic capacity, data center space and tower space to certain affiliates at market rates.
The preceding Corporate Structure section describes other businesses owned by SCANA.
COMPETITION
For a discussion of the impact of competition, see the Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
CAPITAL REQUIREMENTS
SCANA’s regulated subsidiaries, including SCE&G, require cash to fund operations, construction programs and dividend payments to SCANA. SCANA’s nonregulated subsidiaries require cash to fund operations and dividend payments to 9 Exhibit C Page 10 of 171 SCANA. To replace existing plant investment and to expand to meet future demand for electricity and gas, SCANA’s regulated subsidiaries must 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 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, when requested.
For a discussion of various rate matters and their impact on capital requirements, see the Regulatory Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G and Note 2 to the consolidated financial statements for SCANA and SCE&G.
During the period 2013-2015, SCANA and SCE&G expect to meet capital requirements through internally generated funds, issuance of equity and short-term and long-term borrowings. SCANA and SCE&G expect that they have or can obtain adequate sources of financing to meet their projected cash requirements for the next 12 months and for the foreseeable future.
For a discussion of cash requirements for construction and nuclear fuel expenditures, contractual cash obligations, financing limits, financing transactions and other related information, see the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
SCANA’s ratios of earnings to fixed charges were 2.93, 2.87, 2.92, 2.84 and 3.04 for the years ended December 31, 2012, 2011, 2010, 2009 and 2008, respectively. SCE&G’s ratios of earnings to fixed charges were 3.29, 3.13, 3.18, 3.25 and 3.51 for the same periods.
ELECTRIC OPERATIONS
Electric Sales
SCE&G’s sales of electricity and margins earned from the sale of electricity by customer classification as percentages of electric revenues for 2011 and 2012 were as follows:
Sales Margins Customer Classification 2011 2012 2011 2012 Residential 43% 43% 48% 50% Commercial 32% 32% 33% 33% Industrial 17% 17% 13% 13% Sales for resale 6% 6% 4% 2% Other 2% 2% 2% 2% Total Territorial 100% 100% 100% 100% Negotiated Market Sales Tariff — — — — Total 100% 100% 100% 100%
Sales for resale include sales to three municipalities and two electric cooperatives. Short-term system sales during 2012 include sales to three investor-owned utilities or registered marketers. During 2011, short-term system sales included sales to seven investor-owned utilities or registered marketers, as well as three federal/state electric agencies.
During 2012 SCE&G recorded a net increase of approximately 6,000 electric customers (growth rate of 0.9%), increasing its total electric customers to approximately 670,000 at year end.
For the period 2013-2015, SCE&G projects total territorial kWh sales of electricity to increase 0.7% annually (assuming normal weather), total retail sales growth of 0.7% annually (assuming normal weather), total electric customer base to increase 1.2% annually and territorial peak load (summer, in MW) to increase 1.4% annually. SCE&G projects retail kWh sales growth of 0.4% and customer growth of 0.7% from 2012 to 2013. SCE&G’s goal is to maintain a planning reserve margin of between 14% and 20%, however, weather and other factors affect territorial peak load and can cause actual generating capacity on any given day to fall below the reserve margin goal.
10 Exhibit C Page 11 of 171 Electric Interconnections
SCE&G purchases all of the electric generation of GENCO’s Williams Station under a Unit Power Sales Agreement which has been approved by FERC. Williams Station has a net generating capacity (summer rating) of 605 MW.
SCE&G’s transmission system, which extends over a large part of the central, southern and southwestern portions of South Carolina, interconnects with Duke Energy Carolinas, Progress Energy Carolinas, Santee Cooper, Southern Company and the Southeastern Power Administration’s Clarks Hill (Thurmond) Project. SCE&G is a member of VACAR, one of several geographic divisions within the SERC. SERC is one of eight regional entities with delegated authority from NERC for the purpose of proposing and enforcing reliability standards approved by FERC. SERC is divided geographically into five diverse sub-regions that are identified as Central, Delta, Gateway, Southeastern and VACAR. The regional entities and all members of NERC work to safeguard the reliability of the bulk power systems throughout North America. For a discussion of the impact certain legislative and regulatory initiatives may have on SCE&G’s transmission system, see Electric Operations within the Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
Fuel Costs and Fuel Supply
The average cost of various fuels and the weighted average cost of all fuels (including oil) for the years 2010-2012 follow:
Cost of Fuel Used
2010 2011 2012 Per MMBTU:
Nuclear $ 0.72 $ 0.88 $ 0.94 Coal 4.49 4.47 4.49 Natural Gas 5.48 4.86 3.71 All Fuels (weighted average) 3.80 3.80 3.56 Per Ton: Coal 110.63 109.91 111.72 Per MCF: Gas 5.64 5.01 3.80
The sources and percentages of total MWh generation by each category of fuel for the years 2010-2012 and the estimates for the years 2013-2015 follow:
% of Total MWh Generated
Actual Estimated
2010 2011 2012 2013 2014 2015 Coal 52% 50% 50% 39% 47% 44% Nuclear 21% 19% 19% 22% 20% 20% Hydro 4% 3% 3% 4% 3% 3% Natural Gas & Oil 23% 28% 28% 34% 29% 32% Biomass — — — 1% 1% 1% Total 100% 100% 100% 100% 100% 100%
In 2012, six of the seven fossil fuel-fired plants used coal. Unit trains and, in some cases, trucks and barges delivered coal to these plants. As further described in Note 2 to the consolidated financial statements, SCE&G retired one generating unit in 2012 and intends to retire certain other coal-fired generating units by 2018, subject to future developments in environmental regulations, among other matters. In addition, another unit which was fueled by coal in 2012 will be fueled exclusively with natural gas in 2013 and subsequent years until it is ultimately retired.
Coal is primarily obtained through long-term supply contracts. Long-term contracts exist with suppliers located in eastern Kentucky, Tennessee and West Virginia. These contracts provide for approximately 2.3 million tons annually. Sulfur restrictions on the contract coal range from 1% to 2%. These contracts expire at various times through 2015. Spot market purchases may occur when needed or when prices are believed to be favorable.
11 Exhibit C Page 12 of 171 SCANA and SCE&G believe that SCE&G’s operations comply with all applicable regulations relating to the discharge of sulfur dioxide and nitrogen oxide. See additional discussion at Environmental Matters in Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
SCE&G, for itself and as agent for Santee Cooper, and Westinghouse are parties to a fuel alliance agreement and contracts for fuel fabrication and related services. Under these contracts, Westinghouse will supply enriched nuclear fuel assemblies for Summer Station Unit 1 and the New Units. Westinghouse will be SCE&G’s exclusive provider of such fuel assemblies on a cost-plus basis. The fuel assemblies to be delivered under the contracts are expected to supply the nuclear fuel requirements of Summer Station Unit 1 and the New Units through 2033. SCE&G is dependent upon Westinghouse for providing fuel assemblies for the new AP1000 passive reactors in the New Units in the current and anticipated future absence of other commercially viable sources. The Consortium currently provides maintenance and engineering support to Summer Station Unit 1 under a services alliance arrangement, and SCE&G has also contracted for the Consortium to provide similar support services to the New Units upon their completion and commencement of commercial operation.
In addition, SCE&G has contracts covering its nuclear fuel needs for uranium, conversion services and enrichment services. These contracts have varying expiration dates through 2024. SCE&G believes that it will be able to renew contracts as they expire or enter into similar contractual arrangements with other suppliers of nuclear fuel materials and services and that sufficient capacity for nuclear fuel supplies and processing exists to preclude the impairment of normal operations of its nuclear generating units.
SCE&G can store spent nuclear fuel on-site until at least 2017 and has commenced construction of a dry cask storage facility to accommodate the spent fuel output for the life of Summer Station Unit 1. SCE&G may evaluate other technology as it becomes available. In addition, Summer Station Unit 1 has sufficient on-site storage capacity to permit storage of the entire reactor core in the event that complete unloading should become desirable or necessary. For information about the contract with the DOE regarding disposal of spent fuel, see Hazardous and Solid Wastes within the Environmental Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
GAS OPERATIONS
Gas Sales-Regulated
Regulated sales of natural gas by customer classification as a percent of total regulated gas revenues sold or transported for 2011 and 2012 were as follows:
SCANA SCE&G Customer Classification 2011 2012 2011 2012 Residential 54.5% 54.7% 43.4% 44.3% Commercial 27.2% 26.1% 28.6% 27.5% Industrial 12.5% 11.8% 23.9% 22.3% Transportation Gas 5.8% 7.4% 4.1% 5.9% Total 100.0% 100.0% 100.0% 100.0%
For the three-year period 2013-2015, SCANA projects total consolidated sales of regulated natural gas in MMBTUs to increase 1.2% annually (assuming normal weather). Annual projected increases over such period in MMBTU sales include residential of 1.7%, commercial of 0.9% and industrial of 1.0%.
For the three-year period 2013-2015, SCE&G projects total consolidated sales of regulated natural gas in MMBTUs to increase 0.7% annually (assuming normal weather). Annual projected increases over such period in MMBTU sales include residential of 1.0%, commercial of 0.3% and industrial of 1.5%.
For the three-year period 2013-2015, SCANA’s and SCE&G’s total consolidated regulated natural gas customer base is projected to increase annually 2.0% and 1.8%, respectively. During 2012 SCANA recorded a net increase of approximately 15,000 regulated gas customers (growth rate of 1.9%), increasing its regulated gas customers to approximately 819,000. Of this increase, SCE&G recorded a net increase of approximately 5,700 gas customers (growth rate of 1.8%), increasing its total gas customers to approximately 322,600 (as of December 31, 2012).
Demand for gas changes primarily due to weather and the price relationship between gas and alternate fuels. 12 Exhibit C Page 13 of 171
Gas Cost, Supply and Curtailment Plans
South Carolina
SCE&G purchases natural gas under contracts with producers and marketers in both the spot and long-term markets. The gas is delivered to South Carolina through firm transportation agreements with Southern Natural (expiring in 2014 and 2017), Transco (expiring in 2016 and 2017) and CGT (expiring in 2014, 2023 and 2026). The maximum daily volume of gas that SCE&G is entitled to transport under these contracts is 212,194 MMBTU from Southern Natural, 64,652 MMBTU from Transco and 424,429 MMBTU from CGT. Additional natural gas volumes may be delivered to SCE&G’s system as capacity is available through interruptible transportation.
The daily volume of gas that SEMI is entitled to transport under service agreements with CGT (expiring in 2013, 2016, 2017 and 2023) on a firm basis is 92,650 MMBTU (of which 10,035 MMBTU relates to an agreement expiring March 31, 2013).
SCE&G purchased natural gas, including fixed transportation, at an average cost of $4.73 per MCF during 2012 and $5.88 per MCF during 2011.
SCE&G was allocated 5,437 MMCF of natural gas storage capacity on Southern Natural and Transco. Approximately 3,877 MMCF of gas were in storage on December 31, 2012. To meet the requirements of its high priority natural gas customers during periods of maximum demand, SCE&G supplements its supplies of natural gas with two LNG liquefaction and storage facilities. The LNG plants are capable of storing the liquefied equivalent of 1,880 MMCF of natural gas. Approximately 1,655 MMCF (liquefied equivalent) of gas were in storage on December 31, 2012.
North Carolina
PSNC Energy purchases natural gas under contracts with producers and marketers on a short-term basis at current prices and on a long-term basis for reliability assurance at index prices plus a reservation charge. Transco and Dominion deliver the gas to North Carolina through transportation agreements with expiration dates ranging through 2023. On a peak day, PSNC Energy may transport daily volumes of gas under these contracts on a firm basis of 290,743 MMBTU from Transco and 7,331 MMBTU from Dominion.
PSNC Energy purchased natural gas, including fixed transportation, at an average cost of $4.65 per MMBTU during 2012 compared to $5.54 per MMBTU during 2011.
To meet the requirements of its high priority natural gas customers during periods of maximum demand, PSNC Energy supplements its supplies of natural gas with underground natural gas storage services and LNG peaking services. Underground natural gas storage service agreements with Dominion, Columbia Gas Transmission, Transco and Spectra Energy provide for storage capacity of approximately 13,000 MMCF. Approximately 11,000 MMCF of gas were in storage under these agreements at December 31, 2012. In addition, PSNC Energy’s LNG facility can store the liquefied equivalent of 1,000 MMCF of natural gas with regasification capability of approximately 100 MMCF per day. Approximately 1,000 MMCF (liquefied equivalent) of gas were in storage at December 31, 2012. LNG storage service agreements with Transco, Cove Point LNG and Pine Needle LNG provide for 1,300 MMCF (liquefied equivalent) of storage space. Approximately 1,200 MMCF (liquefied equivalent) were in storage under these agreements at December 31, 2012.
SCANA and SCE&G believe that supplies under long-term contracts and supplies available for spot market purchase are adequate to meet existing customer demands and to accommodate growth.
Gas Marketing-Nonregulated
SEMI markets natural gas and provides energy-related risk management services primarily in the Southeast. In addition, SCANA Energy, a division of SEMI, markets natural gas to approximately 450,000 customers (as of December 31, 2012) in Georgia’s natural gas market. SCANA Energy’s total customer base represents an approximate 30% share of the approximately 1.5 million customers in Georgia’s deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in the state.
13 Exhibit C Page 14 of 171 Risk Management
SCANA and SCE&G have established policies and procedures and risk limits to control the level of market, credit, liquidity and operational and administrative risks assumed by them. 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 to oversee and review the risk management process and infrastructure for SCANA and each of its subsidiaries. The Risk Management Committee, which is comprised of certain officers, including a Risk Management Officer and senior officers, apprises the Audit Committee of the Board of Directors with regard to the management of risk and brings to the Audit Committee's attention significant areas of concern. Written policies define the physical and financial transactions that are approved, as well as the authorization requirements and limits for transactions.
REGULATION
SCANA is subject to the jurisdiction of the SEC as to the issuance of certain securities and other matters and is subject to the jurisdiction of the FERC as to certain acquisitions and other matters.
SCE&G is subject to the jurisdiction of the SEC as to the issuance of certain securities and other matters; the SCPSC as to retail electric and gas rates, service, accounting, issuance of securities (other than short-term borrowings) and other matters; and FERC as to issuance of short-term borrowings and guarantees of short-term debt, certain acquisitions and other matters.
GENCO is subject to the jurisdiction of the SCPSC as to issuance of securities (other than short-term borrowings) and is subject to the jurisdiction of FERC as to issuance of short-term borrowings, accounting, certain acquisitions and other matters.
Fuel Company is subject to the jurisdiction of the SEC as to the issuance of certain securities.
PSNC Energy is subject to the jurisdiction of the NCUC as to gas rates, service, issuance of securities (other than notes with a maturity of two years or less or renewals of notes with a maturity of six years or less), accounting and other matters, and is subject to the jurisdiction of the SEC as to the issuance of certain securities.
CGT is subject to the jurisdiction of FERC as to transportation rates, service, accounting and other matters.
SCANA Energy is regulated by the GPSC through its certification as a natural gas marketer in Georgia and specifically is subject to the jurisdiction of the GPSC as to retail prices for customers served under its regulated provider contract.
SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by FERC and DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting. See the Regulatory Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
SCANA and its subsidiaries are subject to CFTC jurisdiction to the extent they transact swaps as defined in Dodd- Frank.
For a discussion of legislative and regulatory initiatives being implemented that will affect SCE&G’s transmission system, see Electric Operations within the Overview section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G.
SCE&G has obtained FERC authority to issue short-term indebtedness and to assume liabilities as a guarantor (pursuant to Section 204 of the Federal Power Act). SCE&G may issue unsecured promissory notes, commercial paper and direct loans in amounts not to exceed $1.6 billion outstanding with maturity dates of one year or less, and may enter into guaranty agreements in favor of lenders, bankers, and dealers in commercial paper in amounts not to exceed $600 million. GENCO has obtained FERC authority to issue short-term indebtedness not to exceed $150 million outstanding with maturity dates of one year or less. The authority described herein will expire in October 2014.
SCE&G is presently operating the Saluda hydroelectric project under an annual license (scheduled to expire in August) while its long-term re-licensing application is being reviewed by FERC.
14 Exhibit C Page 15 of 171 SCE&G holds licenses under the Federal Power Act for each of its hydroelectric projects. The licenses expire as follows:
License Project Expiration Saluda (Lake Murray) 2013 Fairfield Pumped Storage/Parr Shoals 2020 Stevens Creek 2025 Neal Shoals 2036
At the termination of a license under the Federal Power Act, FERC may extend or issue a new license to the previous licensee, or may issue a license to another applicant, or the federal government may take over the related project. If the federal government takes over a project or if FERC issues a license to another applicant, the federal government or the new licensee, as the case may be, must pay the previous licensee an amount equal to its net investment in the project, not to exceed fair value, plus severance damages.
SCE&G is subject to regulation by the NRC with respect to the ownership, construction, operation and decommissioning of its currently operating and planned nuclear generating facilities. The NRC’s jurisdiction encompasses broad supervisory and regulatory powers over the construction and operation of nuclear reactors, including matters of health and safety, antitrust considerations and environmental impact. In addition, the Federal Emergency Management Agency reviews, in conjunction with the NRC, certain aspects of emergency planning relating to the operation of nuclear plants.
The RSA allows natural gas distribution companies in South Carolina to request annual adjustments to rates to reflect changes in revenues and expenses and changes in investment. Such annual adjustments are subject to certain qualifying criteria and review by the SCPSC.
RATE MATTERS
For a discussion of the impact of various rate matters, see the Regulatory Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for SCANA and SCE&G, and Note 2 to the consolidated financial statements for SCANA and SCE&G.
SCE&G's retail electric rates for its residential and certain small commercial customers include an eWNA approved by the SCPSC, which is in effect year round and which largely mitigates the impact of weather on electric margins. In connection with a December 2012 rate order, SCE&G agreed to complete a study of alternative structures for eWNA by June 30, 2013, which study may be used to modify or terminate eWNA in the future.
SCE&G’s retail electric rates include certain costs associated with the Company’s DSM Programs as authorized by the SCPSC. More specifically, these rates include the costs and lost net margin revenue associated with DSM Programs, along with an incentive for investing in such programs.
Under the BLRA, SCE&G is allowed to file revised rates with the SCPSC each year to incorporate the financing cost of any incremental construction work in progress incurred for new nuclear generation. Requested rate adjustments are based on SCE&G’s updated cost of debt and capital structure and on an allowed return on common equity of 11%.
In May 2011 and in November 2012, the SCPSC approved updated capital cost schedules sought by SCE&G that, among other matters, incorporated then-identifiable additional capital costs and revised substantial completion dates for the New Units, and included amounts to resolve certain claims. Details of these SCPSC approvals are further described in Notes 2 and 10 to the consolidated financial statements for SCANA and SCE&G.
In December 2012, the SCPSC approved a 4.23% overall increase in SCE&G's retail electric base rates and authorized SCE&G an allowed return on common equity of 10.25% (related to non-BLRA expenditures). The SCPSC also approved a mid-period reduction to the cost of fuel component in rates, as well as a reduction in the DSM Programs component rider to retail rates, among other things. See Note 2 to the consolidated financial statements for SCANA and SCE&G for additional details.
SCE&G’s gas rate schedules for its residential, small commercial and small industrial customers include a WNA approved by the SCPSC, which is in effect for bills rendered for billing cycles in November through April. The WNA increases
15 Exhibit C Page 16 of 171 tariff rates if weather is warmer than normal and decreases rates if weather is colder than normal. The WNA does not change the seasonality of gas revenues, but reduces fluctuations in revenues and earnings caused by abnormal weather.
PSNC Energy is authorized by the NCUC to utilize a CUT which allows PSNC Energy to adjust its base rates semi- annually for residential and commercial customers based on average per customer consumption, whether impacted by weather or other factors.
Fuel Cost Recovery Procedures
The SCPSC’s fuel cost recovery procedure determines the fuel component in SCE&G’s retail electric base rates annually based on projected fuel costs for the ensuing 12-month period, adjusted for any over-collection or under-collection from the preceding 12-month period. The statutory definition of fuel costs includes certain variable environmental costs, such as ammonia, lime, limestone and catalysts consumed in reducing or treating emissions. The definition also includes the cost of emission allowances used for sulfur dioxide, nitrogen oxide, mercury and particulates. SCE&G may request a formal proceeding concerning its fuel costs at any time. SCPSC proceedings related to SCE&G's cost of fuel component are described in Note 2 to the consolidated financial statements for SCANA and SCE&G.
SCE&G’s natural gas tariffs include a PGA clause that provides for the recovery of actual gas costs incurred, including transportation costs and costs related to hedging natural gas purchasing activities. SCE&G’s gas rates are calculated using a methodology which may adjust the cost of gas monthly based on a 12-month rolling average. SCPSC proceedings related to SCE&G's natural gas tariffs are described in Note 2 to the consolidated financial statements for SCANA and SCE&G.
PSNC Energy is subject to a Rider D rate mechanism which allows it to recover from customers all prudently incurred gas costs and certain uncollectible expenses related to gas cost. The Rider D rate mechanism also allows it to recover, in any manner authorized by the NCUC, losses on negotiated gas and transportation sales.
PSNC Energy’s rates are established using a benchmark cost of gas approved by the NCUC, which may be adjusted 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 accounts for any over- or under-collections of the delivered cost of gas in its deferred accounts for subsequent rate consideration. The NCUC reviews PSNC Energy’s gas purchasing practices annually. In addition, PSNC Energy utilizes a CUT which allows it to adjust its base rates semi-annually for residential and commercial customers based on average per customer consumption. NCUC proceedings related to PSNC Energy's rates are described in Note 2 to the consolidated financial statements for SCANA.
ENVIRONMENTAL MATTERS
Federal and state authorities have imposed environmental regulations and standards relating primarily to air emissions, wastewater discharges and solid, toxic and hazardous waste management. Developments in these areas may require that equipment and facilities be modified, supplemented or replaced. The ultimate effect of these regulations and standards upon existing and proposed operations cannot be predicted. For a more complete discussion of how these regulations and standards impact SCANA and SCE&G, see the Environmental Matters section of Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 10 to the consolidated financial statements for SCANA and SCE&G.
OTHER MATTERS
For a discussion of SCE&G’s insurance coverage for Summer Station Unit 1 and the New Units, see Note 10 to the consolidated financial statements for SCANA and SCE&G.
ITEM 1A. RISK FACTORS
The risk factors that follow relate in each case to SCANA and its subsidiaries, and where indicated the risk factors also relate to SCE&G and its consolidated affiliates.
Commodity price changes, delays and other factors may affect the operating cost, capital expenditures and competitive positions of the Company’s and Consolidated SCE&G’s energy businesses, thereby adversely impacting results of operations, cash flows and financial condition.
Our energy businesses are sensitive to changes in coal, natural gas, oil and other commodity prices (as well as their transportation costs) and availability. Any such changes could affect the prices these businesses charge, their operating costs 16 Exhibit C Page 17 of 171 and the competitive position of their products and services. Consolidated SCE&G is permitted to recover the prudently incurred cost of fuel (including transportation) used in electric generation through retail customers’ bills, but fuel cost increases affect electric prices and therefore the competitive position of electricity against other energy sources. In addition, when natural gas prices are low enough relative to coal to require the dispatch of gas-fired electric generation ahead of coal-fired electric generation, higher inventories of coal, with related increased carrying costs, may result. This may adversely affect our results of operations, cash flows and financial position.
In the case of regulated natural gas operations, costs prudently incurred for purchased gas and pipeline capacity may be recovered through retail customers’ bills. However, in both our regulated and deregulated natural gas markets, increases in gas costs affect total retail prices and therefore the competitive position of gas relative to electricity and other forms of energy. Accordingly, customers able to do so may switch to alternative forms of energy and reduce their usage of gas from the Company. Customers unable to switch to alternative fuels or suppliers may reduce their usage our gas.
Certain construction-related commodities, such as copper and aluminum used in our transmission and distribution lines and in our electrical equipment, and steel, concrete and rare earth elements, have experienced significant price fluctuations due to changes in worldwide demand. To operate our air emissions control equipment, we use significant quantities of ammonia, limestone and lime. With EPA-mandated industry-wide compliance requirements for air emissions controls, increased demand for these reagents, combined with the increased demand for low sulfur coal, may result in higher costs for coal and reagents used for compliance purposes.
The costs of large capital projects, such as the Company’s and Consolidated SCE&G’s construction for environmental compliance and its construction of the New Units and associated transmission, are significant and are subject to a number of risks and uncertainties that may adversely affect the cost, timing and completion of the projects.
The Company’s and Consolidated SCE&G’s businesses are capital intensive and require significant investments in energy generation and in other internal infrastructure projects, including projects for environmental compliance. For example, SCE&G and Santee Cooper have agreed to jointly own, design, construct and operate the New Units, which will be two 1,117- megawatt nuclear units at SCE&G’s Summer Station, in pursuit of which they have committed and are continuing to commit significant resources. In addition, construction of significant new transmission infrastructure is necessary to support the New Units and is under way as an integral part of the project. Achieving the intended benefits of any large construction project is subject to many uncertainties. For instance, the ability to adhere to established budgets and timeframes may be affected by many variables, such as the regulatory and legal processes associated with securing permits and licenses and necessary amendments to them within projected timeframes, the availability of labor and materials at estimated costs, the availability and cost of financing, and weather. There also may be contractor or supplier performance issues or adverse changes in their creditworthiness, and unforeseen difficulties meeting critical regulatory requirements. There may be unforeseen engineering problems or unanticipated changes in project design or scope. Our ability to complete construction projects (including new baseload generation) as well as our ability to maintain current operations at reasonable cost could be affected by the availability of key components or commodities, increases in the price of or the unavailability of labor, commodities or other materials, increases in lead times for components, new or enhanced environmental requirements, supply chain failures (whether resulting from the foregoing or other factors), and disruptions in the transportation of components, commodities and fuels. Some of the foregoing issues have been experienced in the construction of the New Units. A discussion of certain of those matters can be found under New Nuclear Construction in Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for SCANA and SCE&G.
Should the construction of the New Units materially and adversely deviate from the schedules, estimates, and projections submitted to and approved by the SCPSC pursuant to the BLRA, the SCPSC could disallow the additional capital costs that result from the deviations to the extent that it is deemed that the Company's failure to anticipate or avoid the deviation, or to minimize the resulting expenses, was imprudent, considering the information available at the time. Depending upon the magnitude of any such disallowed capital costs, the Company could be moved to evaluate the prudency of continuation, adjustment to, or termination of the New Units project.
Furthermore, jointly owned projects, such as the current construction of the New Units, are subject to the risk that one or more of the joint owners becomes either unable or unwilling to continue to fund project financial commitments, new joint owners cannot be secured at equivalent financial terms, or changes in the joint ownership make-up will increase project costs and/or delay the completion.
To the extent that delays occur, costs become unrecoverable, or we otherwise become unable to effectively manage and complete our capital projects, our results of operations, cash flows and financial condition may be adversely affected.
17 Exhibit C Page 18 of 171 The use of derivative instruments could result in financial losses and liquidity constraints. The Company and Consolidated SCE&G do not fully hedge against financial market risks or price changes in commodities. This could result in increased costs, thereby resulting in lower margins and adversely affecting results of operations, cash flows and financial condition.
The Company and Consolidated SCE&G use derivative instruments, including futures, forwards, options and swaps, to manage our commodity and financial market risks. We could recognize financial losses on these contracts as a result of volatility in the market values of the underlying commodities and interest rate contracts or if a counterparty fails to perform under a contract.
The Company strives to manage commodity price exposure by establishing risk limits and entering into contracts to offset some of our positions (i.e., to hedge our exposure to demand, market effects of weather and other changes in commodity prices). We do not hedge the entire exposure of our operations from commodity price volatility. To the extent we do not hedge against commodity price volatility or our hedges are not effective, results of operations, cash flows and financial condition may be diminished.
Furthermore, recent federal legislation (Dodd-Frank) affects the use and reporting of derivative instruments. The regulations under this new legislation provide for substantial additional regulation of over-the-counter and security-based derivative instruments, among other things, and require numerous rule-makings by the CFTC and the SEC to implement. Although the Company and Consolidated SCE&G have determined that they meet the end-user exception of Dodd-Frank, with the lowest level of required regulatory reporting burden imposed by this law, we cannot predict when the final regulations will be issued or what requirements they will impose.
Changing and complex laws and regulations to which the Company and Consolidated SCE&G are subject could adversely affect revenues, increase costs, or curtail activities, thereby adversely impacting results of operations, cash flows and financial condition.
The Company and Consolidated SCE&G operate under the regulatory authority of the United States government and its various regulatory agencies, including the FERC, NRC, SEC, IRS, EPA, CFTC and PHMSA. In addition, the Company and Consolidated SCE&G are subject to regulation by the state governments of South Carolina, North Carolina and Georgia via regulatory agencies, state environmental commissions, and state employment commissions. Accordingly, the Company and Consolidated SCE&G must comply with extensive federal, state and local laws and regulations. Such governmental oversight and regulation broadly and materially affect the operation of our business. In addition to many other aspects of our business, these requirements impact the licensing, siting, construction and operation of facilities. They affect our management of safety, the reliability of our electric and natural gas transmission systems, the physical and cyber security of key assets, customer conservation through demand-side management programs, information security, the issuance of securities and borrowing of money, financial reporting, interactions among affiliates, the payment of dividends and employment programs and practices. Changes to governmental regulations are continual, and we cannot predict the future course of changes in this regulatory environment or the ultimate effect that this changing regulatory environment will have on the Company’s or Consolidated SCE&G’s businesses.
Furthermore, uncertainty in monetary, fiscal, or regulatory policies of the Federal government may adversely affect the debt and equity markets and the economic climate for the nation, region or particular industries, such as ours or those of our customers.
The Company and Consolidated SCE&G are subject to extensive rate regulation which could adversely affect operations. Large capital projects and/or increases in operating costs may lead to requests for regulatory relief, such as rate increases, which may be denied, in whole or part, by rate regulators. Rate increases may also result in reductions in customer usage of electricity or gas, legislative action and lawsuits.
SCE&G’s electric operations in South Carolina and the Company’s gas distribution operations in South Carolina and North Carolina are regulated by state utilities commissions. In addition, the construction of the New Units by SCE&G is subject to rate regulation by the SCPSC via the BLRA. The Company’s interstate gas pipeline, SCE&G’s electric transmission system and Consolidated SCE&G’s generating facilities are subject to extensive regulation and oversight from the FERC, NRC and SCPSC. Our gas marketing operations in Georgia are subject to state regulatory oversight and, for a portion of its operations, to rate regulation. There can be no assurance that Georgia’s gas delivery regulatory framework will remain unchanged as market conditions evolve. Although we believe that we have constructive relationships with the regulators, our ability to obtain rate treatment that will allow us to maintain reasonable rates of return is dependent upon regulatory determinations, and there can be no assurance that we will be able to implement rate adjustments when sought.
18 Exhibit C Page 19 of 171 The Company and Consolidated SCE&G are subject to numerous environmental laws and regulations that require significant capital expenditures, can increase our costs of operations and may impact our business plans or expose us to environmental liabilities.
The Company and Consolidated SCE&G are subject to extensive federal, state and local environmental laws and regulations, including those relating to water quality and air emissions (such as reducing nitrogen oxide, sulfur dioxide, mercury and particulate matter). Some form of regulation may be forthcoming at the federal, and possibly state, levels to impose regulatory requirements specifically directed at reducing GHG emissions from fossil fuel-fired electric generating units. A number of bills have been introduced in Congress that seek to require GHG emissions reductions from fossil fuel-fired electric generation facilities, natural gas facilities and other sectors of the economy, although none have yet been enacted. On February 16, 2012, the EPA issued the finalized MATS for power plants that requires reduced emissions from new and existing coal and oil-fired electric utility steam generating facilities. The EPA has proposed requirements for cooling water intake structures to meet BACT, and the EPA presently is drafting a final rule regarding the handling of coal ash and other combustion by-products produced by power plant operations. Furthermore, the EPA has announced that it expects to overhaul the CWA rules governing effluent limitation standards for coal-fired power plants.
Compliance with these environmental laws and regulations requires us to commit significant capital toward environmental monitoring, installation of pollution control equipment, emissions fees and permitting at our facilities. These expenditures have been significant in the past and are expected to continue or even increase in the future. Changes in compliance requirements or more restrictive interpretations by governmental authorities of existing requirements may impose additional costs on us (such as the clean-up of MGP sites or additional emission allowances) or require us to incur additional capital expenditures or curtail some of our cost savings activities (such as the recycling of fly ash and other coal combustion products for beneficial use). Compliance with any GHG emission reduction requirements, including any mandated renewable portfolio standards, also may impose significant costs on us, and the resulting price increases to our customers may lower customer consumption. Such costs of compliance with environmental regulations could negatively impact our industry, our business and our results of operations and financial position, especially if emissions or discharge limits are reduced or more onerous permitting requirements or additional regulatory requirements are imposed.
Renewable and/or alternative electric generation portfolio standards may be enacted at the federal or state level. Some states already have them, though currently South Carolina does not. Such standards could direct us to build or otherwise acquire generating capacity derived from renewable/alternative energy sources (generally, renewable energy such as biomass, solar, wind and tidal, and excluding fossil fuels, nuclear or hydro facilities). Such renewable/alternative energy may not be readily available in our service territories, if at all, and could be extremely costly to build, acquire, and operate. Resulting increases in the price of electricity to recover the cost of these types of generation, if approved by regulatory commissions, could result in lower usage of electricity by our customers. Although we cannot predict whether such standards will be adopted at the federal level or in South Carolina or their specifics if adopted, compliance with such potential portfolio standards could significantly impact our industry, our capital expenditures, and our results of operations and financial position.
The compliance costs of these environmental laws and regulations are important considerations in the Company's and Consolidated SE&G's strategic planning and, as a result, significantly affect the decisions to construct, operate, and retire facilities, including generating facilities.
The Company and Consolidated SCE&G are vulnerable to interest rate increases, which would increase our borrowing costs, and may not have access to capital at favorable rates, if at all. Additionally, potential disruptions in the capital and credit markets may further adversely affect the availability and cost of short-term funds for liquidity requirements and our ability to meet long-term commitments; each could in turn adversely affect our results of operations, cash flows and financial condition.
The Company and Consolidated SCE&G rely on the capital markets, particularly for publicly offered debt and equity, as well as the banking and commercial paper markets, to meet our financial commitments and short-term liquidity needs if internal funds are not available from operations. Changes in interest rates affect the cost of borrowing. The Company’s and Consolidated SCE&G’s business plans, which include significant investments in energy generation and other internal infrastructure projects, reflect the expectation that we will have access to the capital markets on satisfactory terms to fund commitments. Moreover, the ability to maintain short-term liquidity by utilizing commercial paper programs is dependent upon maintaining satisfactory short-term debt ratings and the existence of a market for our commercial paper generally.
The Company’s and Consolidated SCE&G’s ability to draw on our respective bank revolving credit facilities is dependent on the ability of the banks that are parties to the facilities to meet their funding commitments and on our ability to timely renew such facilities. Those banks may not be able to meet their funding commitments to the Company or Consolidated 19 Exhibit C Page 20 of 171 SCE&G if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from us and other borrowers within a short period of time. Longer-term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives or failures of significant financial institutions could adversely affect our access to liquidity needed for our business. Any disruption could require the Company and Consolidated SCE&G to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged. Such measures could include deferring capital expenditures or other discretionary uses of cash. Disruptions in capital and credit markets also could result in higher interest rates on debt securities, limited or no access to the commercial paper market, increased costs associated with commercial paper borrowing or limitations on the maturities of commercial paper that can be sold (if at all), increased costs under bank credit facilities and reduced availability thereof, and increased costs for certain variable interest rate debt securities of the Company and Consolidated SCE&G.
Disruptions in the capital markets and its actual or perceived effects on particular businesses and the greater economy also adversely affect the value of the investments held within SCANA’s pension trust. A significant long-term decline in the value of these investments may require us to make or increase contributions to the trust to meet future funding requirements. In addition, a significant decline in the market value of the investments may adversely impact the Company’s and Consolidated SCE&G’s results of operations, cash flows and financial position, including its shareholders’ equity.
A downgrade in the credit rating of SCANA or any of SCANA’s subsidiaries, including SCE&G, could negatively affect our ability to access capital and to operate our businesses, thereby adversely affecting results of operations, cash flows and financial condition.
Various rating agencies rate SCANA’s long-term senior unsecured debt, SCE&G’s long-term senior secured debt, and the long-term senior unsecured debt of PSNC Energy as investment grade. In addition, ratings agencies maintain ratings on the short-term debt of SCANA, SCE&G, Fuel Company (which ratings are based upon the guarantee of SCE&G) and PSNC Energy. If these rating agencies were to lower the outlook or downgrade any of these ratings, particularly to below investment grade, borrowing cost on new issuances would increase, which would diminish financial results, and the potential pool of investors and funding sources could decrease.
In 2011, one rating agency downgraded both the short-term and senior unsecured long-term debt of SCANA. These downgrades have increased SCANA’s short-term borrowing rate and, consequently, have decreased the average maturity of its short-term debt, and may have the effect of increasing SCANA’s long-term borrowing rate. Although access to the short-term market has not been adversely impacted, this could change under different market conditions.
SCANA’s leverage ratio of long- and short-term debt to capital was approximately 58% at December 31, 2012. SCANA has publicly announced its desire to return its leverage ratio to levels between 54% and 57%, but SCANA’s ability to achieve and maintain those levels depends on a number of factors. In the future, if SCANA is not able to maintain its leverage ratio within the desired range, the Company’s debt ratings may be affected, it may be required to pay higher interest rates on its long- and short-term indebtedness, and its access to the capital markets may be limited.
Operating results may be adversely affected by natural disasters, man-made mishaps and abnormal weather.
The Company has delivered less gas and received lower prices for natural gas in deregulated markets when weather conditions have been milder than normal, and as a consequence earned less income from those operations. During 2010, the SCPSC approved SCE&G’s implementation of an eWNA on a pilot basis. Mild weather in the future could diminish the revenues and results of operations and harm the financial condition of the Company and Consolidated SCE&G if the eWNA is not extended on a permanent basis. In addition, for the Company and Consolidated SCE&G, severe weather can be destructive, causing outages and property damage, adversely affecting operating expenses and revenues.
Natural disasters (such as electromagnetic events and the 2011 earthquake and tsunami in Japan) or man-made mishaps (such as the San Bruno, California natural gas transmission pipeline failure or the Kingston, Tennessee coal ash pond failure) could have direct significant impacts on the Company and Consolidated SCE&G and on our key contractors and suppliers or could indirectly impact us through changes to federal, state or local policies, laws and regulations, and have a significant impact on our financial position, operating expenses, and cash flows.
Potential competitive changes may adversely affect our gas and electricity businesses due to the loss of customers, reductions in revenues, or write-down of stranded assets.
The utility industry has been undergoing structural change for a number of years, resulting in increasing competitive pressures on electric and natural gas utility companies. Competition in wholesale power sales has been introduced on a national 20 Exhibit C Page 21 of 171 level. Some states have also mandated or encouraged competition at the retail level. Increased competition may create greater risks to the stability of utility earnings generally and may in the future reduce earnings from retail electric and natural gas sales. In a deregulated environment, formerly regulated utility companies that are not responsive to a competitive energy marketplace may suffer erosion in market share, revenues and profits as competitors gain access to their customers. In addition, the Company’s and Consolidated SCE&G’s generation assets would be exposed to considerable financial risk in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, a write-down in the value of the related assets would be required.
The Company and SCE&G are subject to risks associated with changes in business and economic climate which could adversely affect revenues, results of operations, cash flows and financial condition and could limit access to capital.
Sales, sales growth and customer usage patterns are dependent upon the economic climate in the service territories of the Company and SCE&G, which may be affected by regional, national or even international economic factors. Some economic sectors important to our customer base may be particularly affected. Adverse events, economic or otherwise, may also affect the operations of key customers. Such events may result in the loss of customers, in changes in customer usage patterns and in the failure of customers to make timely payments to us. With respect to the Company, such events also could adversely impact the results of operations through the recording of a goodwill impairment. The success of local and state governments in attracting new industry to our service territories is important to our sales and growth in sales, as are stable levels of taxation (including property, income or other taxes) which may be affected by local, state, or federal budget deficits, adverse economic climates generally or legislative or regulatory actions. Budget cutbacks also adversely affect funding levels of federal and state support agencies and non-profit organizations that assist low income customers with bill payments.
In addition, conservation and demand side management efforts and/or technological advances may cause or enable customers to significantly reduce their usage of the Company’s and SCE&G’s products and adversely affect sales, sales growth, and customer usage patterns.
Factors that generally could affect our ability to access capital include economic conditions and our capital structure. Much of our business is capital intensive, and achievement of our capital plan and long-term growth targets is dependent, at least in part, upon our ability to access capital at rates and on terms we determine to be attractive. If our ability to access capital becomes significantly constrained, our interest costs will likely increase and our financial condition and future results of operations could be significantly harmed.
Problems with operations could cause us to curtail or limit our ability to serve customers or cause us to incur substantial costs, thereby adversely impacting revenues, results of operations, cash flows and financial condition.
Critical processes or systems in the Company’s or Consolidated SCE&G’s operations could become impaired or fail from a variety of causes, such as equipment breakdown, transmission line failure, information systems failure or security breach, the effects of drought (including reduced water levels) on the operation of emission control or other generation equipment, and the effects of a pandemic or terrorist attack on our workforce or facilities or on the ability of vendors and suppliers to maintain services key to our operations.
In particular, as the operator of power generation facilities, many of which entered service prior to 1985 and may be difficult to maintain, Consolidated SCE&G could incur problems, such as the breakdown or failure of power generation or emission control equipment, transmission equipment, or other equipment or processes which would result in performance below assumed levels of output or efficiency. In addition, any such breakdown or failure may result in Consolidated SCE&G purchasing emission allowances or replacement power at market rates, if such allowances and replacement power are available at all. These purchases are subject to state regulatory prudency reviews for recovery through rates. If replacement power is not available, such problems could result in interruptions of service (blackout or brownout conditions) in all or part of SCE&G’s territory or elsewhere in the region. Similarly, a gas transmission or distribution line failure of the Company or Consolidated SCE&G could affect the safety of the public, destroy property, and interrupt our ability to serve customers.
Events such as these could entail substantial repair costs, litigation, fines and penalties, and damage to reputation, each of which could have an adverse effect on the Company’s revenues, results of operations, and financial condition.
A failure of the Company to maintain the physical and cyber security of its operations may result in the failure of operations, damage to equipment, or loss of information, and could result in a significant adverse impact to the Company's financial position, results of operations and cash flows.
21 Exhibit C Page 22 of 171 The Company depends on maintaining the physical and cyber security of its operations and assets. As much of our business is part of the nation's critical infrastructure, the loss or impairment of the assets associated with that portion of our business could have serious adverse impacts on the customers and communities that we serve. Virtually all of the Company's operations are dependent in some manner upon our cyber systems, which encompass electric and gas transmission and distribution operations, nuclear and fossil fuel generating plants, human resource and customer systems and databases, information system networks, and systems containing confidential corporate information. Such cyber systems are a target of malicious cyber attacks. A successful physical or cyber attack could lead to outages, failure of operations of all or portions of our businesses, damage to key components and equipment, and exposure of confidential customer, employee, or corporate information. The Company may not be readily able to recover from such events. In addition, the failure to secure our operations from such physical and cyber events may cause us reputational damage. Litigation, penalties and claims from a number of parties, including customers, regulators and shareholders, may ensue. Insurance may not be adequate to respond to these events. As a result, the Company's financial position, results of operations, and cash flows may be adversely affected.
SCANA’s ability to pay dividends and to make payments on SCANA’s debt securities may be limited by covenants in certain financial instruments and by the financial results and condition of its subsidiaries, thereby adversely impacting the valuation of our common stock and our access to capital .
We are a holding company that conducts substantially all of our operations through our subsidiaries. Our assets consist primarily of investments in subsidiaries. Therefore, our ability to meet our obligations for payment of interest and principal on outstanding debt and to pay dividends to shareholders and corporate expenses depends on the earnings, cash flows, financial condition and capital requirements of our subsidiaries, and the ability of our subsidiaries, principally Consolidated SCE&G, PSNC Energy and SEMI, to pay dividends or to repay funds to us. Our ability to pay dividends on our common stock may also be limited by existing or future covenants limiting the right of our subsidiaries to pay dividends on their common stock. Any significant reduction in our payment of dividends in the future may result in a decline in the value of our common stock. Such a decline in value could limit our ability to raise debt and equity capital.
A significant portion of Consolidated SCE&G’s generating capacity is derived from nuclear power, the use of which exposes us to regulatory, environmental and business risks. These risks could increase our costs or otherwise constrain our business, thereby adversely impacting our results of operations, cash flows and financial condition. These risks will increase as the New Units are developed.
In 2012, Summer Station Unit 1, operated by SCE&G, provided approximately 5 million MWh, or 19% of our generation. If the New Units are completed, our generating capacity and the percentage of total generating capacity represented by nuclear sources is expected to increase. Hence, SCE&G is subject to various risks of nuclear generation, which include the following:
• The potential harmful effects on the environment and human health resulting from a release of radioactive materials in connection with the operation of nuclear facilities and the storage, handling and disposal of radioactive materials;
• Limitations on the amounts and types of insurance commercially available to cover losses that might arise in connection with our nuclear operations or those of others in the United States;
• The possibility that new laws and regulations could be enacted that could adversely affect the liability structure that currently exists in the United States;
• Uncertainties with respect to procurement of nuclear fuel and the storage of spent nuclear fuel;
• Uncertainties with respect to contingencies if insurance coverage is inadequate; and
• Uncertainties with respect to the technological and financial aspects of decommissioning nuclear plants at the end of their operating lives.
The NRC has broad authority under federal law to impose licensing and safety-related requirements for the operation of nuclear generation facilities. In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved. Revised safety requirements promulgated by the NRC could necessitate capital expenditures at nuclear plants such as ours. In addition, although we have no reason to anticipate a serious nuclear incident, if a major incident should occur at a domestic nuclear facility, it could harm our results of operations, cash flows and financial condition. A major incident at a nuclear facility
22 Exhibit C Page 23 of 171 anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit. Finally, in today’s environment, there is a heightened risk of terrorist attack on the nation’s nuclear facilities, which has resulted in increased security costs at our nuclear plant.
Failure to retain and attract key personnel could adversely affect the Company’s and Consolidated SCE&G’s operations and financial performance.
We must attract, retain and develop executive officers and other professional, technical and craft employees with the skills and experience necessary to successfully manage, operate and grow our business. Competition for these employees is high, and in some cases we must compete for these employees on a regional or national basis. We may be unable to attract and retain these personnel. Further, the Company’s or Consolidated SCE&G’s ability to construct or maintain generation or other assets requires the availability of suitable skilled contractor personnel. We may be unable to obtain appropriate contractor personnel at the times and places needed. Labor disputes with employees or contractors covered by collective bargaining agreements also could adversely affect implementation of our strategic plan and our operational and financial performance.
The Company and Consolidated SCE&G are subject to the risk that strategic decisions made by us either do not result in a return of or on invested capital or might negatively impact our competitive position, which can adversely impact our results of operations, cash flows, financial position, and access to capital.
From time to time, the Company and Consolidated SCE&G make strategic decisions that may impact our direction with regard to business opportunities, the services and technologies offered to customers or that are used to serve customers, and the generating plant and other infrastructure that form the basis of much of our business. These strategic decisions may not result in a return of or on our invested capital, and the effects of these strategic decisions may have long-term implications that are not likely to be known to us in the short-term. Changing political climates and public attitudes may adversely affect the ongoing acceptability of strategic decisions that have been made (and, in some cases, previously approved by regulators), to the detriment of the Company or Consolidated SCE&G. Over time, these strategic decisions or changing attitudes toward such decisions, which could be adverse to the Company’s or Consolidated SCE&G’s interests, may have a negative effect on our results of operations, cash flows and financial position, as well as limit our ability to access capital.
The Company and Consolidated SCE&G are subject to the reputational risks that may result from a failure to adhere to high standards of compliance with laws and regulations, ethical conduct, operational effectiveness, and safety of employees, customers and the public. These risks could adversely affect the valuation of our common stock and the Company’s and Consolidated SCE&G’s access to capital.
The Company and Consolidated SCE&G are committed to comply with all laws and regulations, to focus on the safety of employees, customers and the public, to maintain the privacy of information related to our customers and employees and to maintain effective communications with the public and key stakeholder groups, particularly during emergencies and times of crisis. The Company and Consolidated SCE&G also are committed to operational excellence and, through our Code of Conduct and Ethics, to maintain high standards of ethical conduct in our business operations. A failure to meet these commitments may subject the Company and Consolidated SCE&G not only to fraud, litigation and financial loss, but also to reputational risk that could adversely affect the valuation of SCANA’s stock, adversely affect the Company’s and Consolidated SCE&G’s access to capital, and result in further regulatory oversight.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable
ITEM 2. PROPERTIES
SCANA owns no significant property other than the capital stock of each of its subsidiaries. It holds, directly or indirectly, all of the capital stock of each of its subsidiaries.
SCE&G's bond indenture, securing the First Mortgage Bonds issued thereunder, constitutes a direct mortgage lien on substantially all of its electric utility property. GENCO's Williams Station is also subject to a first mortgage lien which secures certain outstanding debt of GENCO.
For a brief description of the properties of SCANA's other subsidiaries, which are not significant as defined in Rule 1-02 of Regulation S-X, see Item 1. BUSINESS-SEGMENTS OF BUSINESS-Nonregulated Businesses.
23 Exhibit C Page 24 of 171 ELECTRIC PROPERTIES During 2012, SCE&G owned and operated the following units with the net generating capacity (summer rating) indicated: ten coal-fired fossil fuel units (2,434 MW), including Williams, which is owned by GENCO, eight combined cycle gas turbine/steam generator units (gas/oil fired, 1,310 MW), 16 peaking turbine units (352 MW), four hydroelectric generating plants (218 MW), and one pumped storage facility (576 MW). In addition, SCE&G receives an output of 85 MW (net generating capacity, summer rating) from a cogeneration facility. These ratings, which are updated at least on an annual basis, reflect the expectation for the coming summer season. SCE&G's nuclear capacity (648 MW, net generating capacity, summer rating) is comprised of its two-thirds ownership of Summer Station 1.
The following table shows the electric generating facilities and their net generating capacity as of December 31, 2012.
Net Generating Capacity In-Service Summer Date (MW) Coal-Fired Steam: McMeekin - Near Irmo, SC 1958 250* Canadys - Canadys, SC 1962 295* Wateree - Eastover, SC 1970 684 Williams - Goose Creek, SC 1973 605 Cope - Cope, SC 1996 415 Kapstone - Charleston, SC 1999 85
Gas-Fired Steam - Urquhart Unit 3 - Beech Island, SC 1953 95*
Nuclear - V. C. Summer - Parr, SC 1984 648
Internal Combustion Turbines: Peaking units - various locations in SC 1968-1999 352 Urquhart Combined Cycle - Beech Island, SC 2002 458 Jasper Combined Cycle - Jasper, SC 2004 852
Hydro: Saluda - Irmo, SC 1930 200 Other hydro units - various locations in SC 1905-1914 18 Fairfield Pumped Storage - Parr, SC 1978 576
* As described in Note 2 to the consolidated financial statements for SCANA and SCE&G, SCE&G intends to retire coal-fired units with an aggregate net generating capacity (summer rating) of 730 MW by 2018, subject to future developments in environmental regulations, among other matters. One unit was retired in December 2012 (located at Canadys with a net generating capacity, summer rating, of 90 MW) and is not included in the table above. Another unit, Urquhart Unit 3, was fueled by coal in 2012 and will be fueled exclusively with natural gas in 2013 and subsequent years until it is ultimately retired.
SCE&G owns 442 substations having an aggregate transformer capacity of 30 million KVA. The transmission system consists of 3,299 miles of lines, and the distribution system consists of 18,354 pole miles of overhead lines and 6,870 trench miles of underground lines.
NATURAL GAS DISTRIBUTION AND TRANSMISSION PROPERTIES
SCE&G's natural gas system includes 445 miles of transmission pipeline of up to 20 inches in diameter that connect its distribution system with Southern Natural, Transco and CGT. SCE&G’s distribution system consists of 16,022 miles of distribution mains and related service facilities. SCE&G also owns two LNG plants, one located near Charleston, South Carolina, and the other in Salley, South Carolina. The Charleston facility can liquefy up to 6 MMCF per day and store the
24 Exhibit C Page 25 of 171 liquefied equivalent of 980 MMCF of natural gas. The Salley facility can store the liquefied equivalent of 900 MMCF of natural gas and has no liquefying capabilities. The LNG facilities have the capacity to regasify approximately 60 MMCF per day at Charleston and 90 MMCF per day at Salley.
CGT’s natural gas system consists of 1,469 miles of transmission pipeline of up to 24 inches in diameter. CGT’s system transports gas to its customers from the transmission systems of Southern Natural and Transco and from Port Wentworth and Elba Island, Georgia.
PSNC Energy’s natural gas system consists of 593 miles of transmission pipeline of up to 24 inches in diameter that connect its distribution systems with Transco. PSNC Energy’s distribution system consists of 20,090 miles of distribution mains and related service facilities. PSNC Energy owns one LNG plant with storage capacity of 1,000 MMCF, the capacity to liquefy up to 4 MMCF per day and the capacity to regasify approximately 100 MMCF per day. PSNC Energy also owns, through a wholly-owned subsidiary, 33.21% of Cardinal Pipeline Company, LLC, which owns a 105-mile transmission pipeline in North Carolina. In addition, PSNC Energy owns, through a wholly-owned subsidiary, 17% of Pine Needle LNG Company, LLC. Pine Needle owns and operates a liquefaction, storage and regasification facility in North Carolina.
ITEM 3. LEGAL PROCEEDINGS
Certain material environmental and regulatory matters and uncertainties, some of which remain outstanding at December 31, 2012, are described below. These issues affect the Company and, to the extent indicated, also affect Consolidated SCE&G.
In December 2009, the EPA issued a final finding that atmospheric concentrations of GHG endanger public health and welfare within the meaning of Section 202(a) of the CAA. The finding, which became effective in January 2010, enabled the EPA to regulate GHG emissions under the CAA. On April 13, 2012, the EPA issued a proposed rule to establish an NSPS for GHG emissions from fossil fuel-fired electric generating units. If finalized as proposed, this rule would establish performance standards for new and modified generating units, along with emissions guidelines for existing generating units. This rule would amend the NSPS for electric generating units and establish the first NSPS for GHG emissions. Essentially, the rule would require all new fossil fuel-fired power plants to meet the carbon dioxide emissions profile of a combined cycle natural gas plant. While most new natural gas plants will not be required to include any new technologies, no new coal plants could be constructed without carbon capture and sequestration capabilities. The Company is evaluating the proposed rule, but cannot predict when the rule will become final, if at all, or what conditions it may impose on the Company, if any. The Company expects that any costs incurred to comply with GHG emission requirements will be recoverable through rates.
In 2005, the EPA issued the CAIR, which required 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. SCE&G and GENCO determined that additional air quality controls would be needed to meet the CAIR requirements. On July 6, 2011 the EPA issued the CSAPR. This rule replaced CAIR and the Clean Air Transport Rule proposed in July 2010 and is aimed at addressing power plant emissions that may contribute to air pollution in other states. CSAPR requires states in the eastern United States to reduce power plant emissions, specifically sulfur dioxide and nitrogen oxide. On December 30, 2011, the United States Court of Appeals for the District of Columbia issued an order staying CSAPR and reinstating CAIR pending resolution of an appeal of CSAPR. On August 21, 2012, the Court vacated CSAPR and left CAIR in place. The EPA's petition for rehearing of the Court's order has been denied. Air quality control installations that SCE&G and GENCO have already completed allowed the Company to comply with the reinstated CAIR. The Company will continue to pursue strategies to comply with all applicable environmental regulations. 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.
In June 2010, the EPA issued a final rule for a one-hour ambient air quality standard for sulfur dioxide. This standard may require some of SCE&G’s smaller coal-fired units to reduce their sulfur dioxide emissions to levels to be determined by EPA and/or DHEC. The costs incurred to comply with this standard are expected to be recovered through rates.
In January 2013, the EPA issued a final rule for an annual ambient air quality standard related to particulate matter smaller than or equal in size to 2.5 microns, significantly revising the existing standard from 15 ug/m3 (micrograms per cubic meter) to 12 ug/m3. The rule takes effect on March 18, 2013. SCE&G anticipates that DHEC monitors throughout South Carolina will indicate compliance with the new standard. While SCE&G does not anticipate a significant impact from this new standard, the costs incurred to comply with this new standard, if any, are expected to be recovered through rates.
25 Exhibit C Page 26 of 171 In April 2012, the EPA's rule containing new standards for mercury and other specified air pollutants became effective. The rule provides up to four years for facilities to meet the standards, and the Company's evaluation of the rule is ongoing. The Company's decision in 2012 to retire certain coal-fired units or convert them to burn natural gas and its project to build the New Units (see Note 1 to the consolidated financial statements) along with other actions are expected to result in the Company's compliance with the EPA's rule. 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.
The EPA is conducting an enforcement initiative against the utilities industry related to the NSR provisions and the NSPS of the CAA. As part of the initiative, many utilities have received requests for information under Section 114 of the CAA. In addition, the DOJ, on behalf of EPA, has taken civil enforcement action against several utilities. The primary basis for these actions is the assertion by EPA that maintenance activities undertaken by the utilities at their coal-fired power plants constituted “major modifications” which required the installation of costly BACT. Some of the utilities subject to the actions have reached settlement. To date, SCE&G and GENCO have received and responded to Section 114 requests for information related to Canadys, Wateree and Williams Stations. The current state of continued DOJ civil enforcement is the subject of industry-wide speculation, and it cannot be determined whether the Company will be affected by the initiative in the future. The Company believes that any enforcement action relative to its compliance with the CAA would be without merit. The Company further believes that installation of equipment responsive to CAIR previously discussed will mitigate many of the alleged concerns with NSR.
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 DHEC and the EPA. SCE&G anticipates that major remediation activities at these sites will continue until 2016 and will cost an additional $22.2 million. SCE&G expects to recover any cost arising from the remediation of MGP sites through rates.
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 PRPs. PSNC Energy has recorded a liability and associated regulatory asset of approximately $3.0 million, the estimated remaining liability at December 31, 2012. PSNC Energy expects to recover through rates any cost allocable to PSNC Energy arising from the remediation of these sites.
SCANA and SCE&G are also engaged in various claims and litigation incidental to their business operations which management anticipates will be resolved without a material impact on their respective results of operations, cash flows or financial condition.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable
26 Exhibit C Page 27 of 171 EXECUTIVE OFFICERS OF SCANA CORPORATION
The executive officers are elected at the annual meeting of the Board of Directors, held immediately after the annual meeting of shareholders, and hold office until the next such annual meeting, unless (1) a resignation is submitted, (2) the Board of Directors shall otherwise determine or (3) as provided in the By-laws of SCANA. Positions held are for SCANA and all subsidiaries unless otherwise indicated.
Name Age Positions Held During Past Five Years Dates Kevin B. Marsh 57 Chairman of the Board, Chief Executive Officer and Director 2011-present President and Chief Operating Officer-SCANA 2011-present President and Chief Operating Officer-SCE&G *-2011 Jimmy E. Addison 52 Executive Vice President 2012-present Chief Financial Officer *-present Senior Vice President *-2012 Jeffrey B. Archie 55 Senior Vice President-SCANA 2010-present Senior Vice President and Chief Nuclear Officer-SCE&G 2009-present Vice President of Nuclear Plant Operations-SCE&G *-2009 George J. Bullwinkel 64 President and Chief Operating Officer-SEMI, SCI and ServiceCare *-present Sarena D. Burch 55 Senior Vice President-Fuel Procurement and Asset Management-SCE&G and PSNC Energy *-present Stephen A. Byrne 53 President of Generation and Transmission and Chief Operating Officer- SCE&G 2011-present Executive Vice President-SCANA 2009-present Executive Vice President-Generation and Transmission-SCE&G 2011 Executive Vice President-Generation, Nuclear and Fossil Hydro-SCE&G 2009-2011 Senior Vice President-Generation, Nuclear and Fossil Hydro-SCE&G *-2009 Paul V. Fant 59 President and Chief Operating Officer-CGT *-present Senior Vice President-SCANA 2008-present D. Russell Harris 48 President of Gas Operations-SCE&G 2013-present President and Chief Operating Officer-PSNC Energy *-present Senior Vice President-Gas Distribution-SCANA 2013-present Senior Vice President-SCANA 2012-2013 W. Keller Kissam 46 President of Retail Operations-SCE&G 2011-present Senior Vice President-SCANA 2011-present Senior Vice President-Retail Electric-SCE&G 2011 Vice President-Electric Operations-SCE&G *-2011 Ronald T. Lindsay 62 Senior Vice President, General Counsel and Assistant Secretary 2009-present Executive Vice President, General Counsel and Secretary of Bowater Incorporated, Greenville, South Carolina 2006-2008 Charles B. McFadden 68 Senior Vice President-Governmental Affairs and Economic Development-SCANA Services *-present Martin K. Phalen 58 Senior Vice President-Administration-SCANA 2012-present Vice President-Gas Operations-SCE&G *-2012
* Indicates position held at least since March 1, 2008.
27 Exhibit C Page 28 of 171 PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
COMMON STOCK INFORMATION
SCANA Corporation:
Price Range (New York Stock Exchange Composite Listing):
2012 2011
4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. High $ 49.64 $ 50.34 $ 48.24 $ 46.12 $ 45.48 $ 41.58 $ 42.20 $ 42.83 Low $ 44.71 $ 47.18 $ 43.32 $ 43.56 $ 38.49 $ 34.64 $ 38.16 $ 37.86
SCANA common stock trades on The New York Stock Exchange, using the ticker symbol SCG. Newspaper stock listings use the name SCANA. At February 20, 2013 there were 132,415,898 shares of SCANA common stock outstanding which were held by approximately 28,174 shareholders of record. For a summary of equity securities issuable under SCANA’s compensation plans at December 31, 2012, see Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
SCANA declared quarterly dividends on its common stock of $.495 per share in 2012 and $.485 per share in 2011. On February 20, 2013, SCANA increased the quarterly cash dividend rate on SCANA common stock to $.5075 per share, an increase of 2.5%. The next quarterly dividend is payable April 1, 2013 to shareholders of record on March 11, 2013. For a discussion of provisions that could limit the payment of cash dividends, see Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS under Liquidity and Capital Resources- Financing Limits and Related Matters and Note 3 to the consolidated financial statements for SCANA.
SCE&G:
All of SCE&G’s common stock is owned by SCANA, and no established public trading market exists for SCE&G common stock. During 2012 and 2011, SCE&G declared quarterly dividends on its common stock in the following amounts:
Declaration Date Amount Declaration Date Amount February 11, 2011 $ 49.0 million February 15, 2012 $ 51.6 million April 21, 2011 47.5 million May 3, 2012 52.3 million August 11, 2011 49.0 million August 2, 2012 54.0 million October 26, 2011 38.0 million October 24, 2012 44.3 million
On February 20, 2013, SCE&G declared dividends on its common stock of $62.2 million.
For a discussion of provisions that could limit the payment of cash dividends, see Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS under Liquidity and Capital Resources-Financing Limits and Related Matters and Note 3 to the consolidated financial statements for SCE&G.
28 Exhibit C Page 29 of 171 ITEM 6. SELECTED FINANCIAL DATA
As of or for the Year Ended December 31, 2012 2011 2010 2009 2008
(Millions of dollars, except statistics and per share amounts) SCANA: Statement of Income Data Operating Revenues $ 4,176 $ 4,409 $ 4,601 $ 4,237 $ 5,319 Operating Income $ 859 $ 813 $ 768 $ 699 $ 710 Other Expense $ (257) $ (258) $ (233) $ (175) $ (176) Preferred Stock Dividends $ — $ — $ — $ (9) $ (7) Income Available to Common Shareholders $ 420 $ 387 $ 376 $ 348 $ 346 Common Stock Data Weighted Average Common Shares Outstanding (Millions) 131.1 128.8 125.7 122.1 117.0 Basic Earnings Per Share $ 3.20 $ 3.01 $ 2.99 $ 2.85 $ 2.95 Diluted Earnings Per Share $ 3.15 $ 2.97 $ 2.98 $ 2.85 $ 2.95 Dividends Declared Per Share of Common Stock $ 1.98 $ 1.94 $ 1.90 $ 1.88 $ 1.84 Balance Sheet Data Utility Plant, Net $ 10,896 $ 10,047 $ 9,662 $ 9,009 $ 8,305 Total Assets $ 14,616 $ 13,534 $ 12,968 $ 12,094 $ 11,502 Total Equity $ 4,154 $ 3,889 $ 3,702 $ 3,408 $ 3,045 Short-term and Long-term Debt $ 5,744 $ 5,306 $ 4,909 $ 4,846 $ 4,698 Other Statistics Electric: Customers (Year-End) 669,966 664,196 660,580 654,766 649,571 Total sales (Million KWh) 23,879 24,188 24,884 23,104 24,284 Generating capability-Net MW (Year-End) 5,533 5,642 5,645 5,611 5,695 Territorial peak demand-Net MW 4,761 4,885 4,735 4,557 4,789 Regulated Gas: Customers, excluding transportation (Year-End) 818,983 803,644 794,841 782,192 774,502 Sales, excluding transportation (Thousand Therms) 798,978 812,416 931,879 832,931 848,568 Transportation customers (Year-End) 499 492 491 482 474 Transportation volumes (Thousand Therms) 1,559,542 1,585,202 1,546,234 1,388,096 1,366,675 Retail Gas Marketing: Retail customers (Year-End) 449,144 455,258 464,123 455,198 459,250 Firm customer deliveries (Thousand Therms) 310,442 341,554 402,583 347,324 356,288 Nonregulated interruptible customer deliveries (Thousand Therms) 1,981,085 1,845,327 1,728,161 1,628,942 1,526,933 SCE&G: Statement of Income Data Operating Revenues $ 2,809 $ 2,819 $ 2,815 $ 2,569 $ 2,816 Operating Income $ 717 $ 654 $ 604 $ 547 $ 559 Other Expense $ (208) $ (198) $ (170) $ (119) $ (122) Preferred Stock Dividends $ — $ — $ — $ (9) $ (7) Earnings Available to Common Shareholders $ 341 $ 306 $ 290 $ 272 $ 273 Balance Sheet Data Utility Plant, Net $ 9,375 $ 8,588 $ 8,198 $ 7,595 $ 6,905 Total Assets $ 12,104 $ 11,037 $ 10,574 $ 9,813 $ 9,052 Total Equity $ 4,043 $ 3,773 $ 3,541 $ 3,259 $ 2,799 Short-term and Long-term Debt $ 4,171 $ 3,753 $ 3,440 $ 3,430 $ 3,320 Other Statistics Electric: Customers (Year-End) 670,030 664,273 660,642 654,830 649,636 Total sales (Million KWh) 23,899 24,200 24,887 23,107 24,287 Generating capability-Net MW (Year-End) 5,533 5,642 5,645 5,611 5,695 Territorial peak demand-Net MW 4,761 4,885 4,735 4,557 4,789 Regulated Gas: Customers, excluding transportation (Year-End) 322,419 316,683 313,346 309,687 307,074 Sales, excluding transportation (Thousand Therms) 412,163 407,073 447,057 399,752 416,075 Transportation customers (Year-End) 166 155 148 130 120 Transportation volumes (Thousand Therms) 260,215 192,492 190,931 217,750 64,034
29 Exhibit C Page 30 of 171 SCANA CORPORATION
Page Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 31
Overview 31 Results of Operations 35 Liquidity and Capital Resources 38 Environmental Matters 42 Regulatory Matters 45 Critical Accounting Policies and Estimates 46 New Nuclear Construction Matters 50 Other Matters 50
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50
Item 8. Financial Statements and Supplementary Data 53 Report of Independent Registered Public Accounting Firm 53 Consolidated Balance Sheets 54 Consolidated Statements of Income 56 Consolidated Statements of Comprehensive Income 57 Consolidated Statements of Cash Flows 58 Consolidated Statements of Changes in Common Equity 59 Notes to Consolidated Financial Statements 60
30 Exhibit C Page 31 of 171 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SCANA, through its wholly-owned regulated subsidiaries, is primarily engaged in the generation, transmission, distribution and sale of electricity in parts of South Carolina and in the purchase, transmission and sale of natural gas in portions of North Carolina and South Carolina. Through a wholly-owned nonregulated subsidiary, SCANA markets natural gas to retail customers in Georgia and to wholesale customers primarily in the southeast. Other wholly-owned nonregulated subsidiaries provide fiber optic and other telecommunications services and provide service contracts on certain home appliances and heating and air conditioning units. A service company subsidiary of SCANA provides administrative, management and other services to SCANA and its subsidiaries.
The following map indicates areas where the Company’s significant business segments conduct their activities, as further described in this overview section.
~ Raleigh
~ Charlotte
Myrtle Beach ~ Atlanta
Charleston
~ Eloctric & Natural Gas
— Intcrstato Natural Gas Transmission Pipclino
The following percentages reflect revenues and net income earned by the Company’s regulated and nonregulated businesses (including the holding company) and the percentage of total assets held by them.
2012 2011 2010 Revenues
Regulated 77% 74% 73% Nonregulated 23% 26% 27% Net Income
Regulated 99% 97% 96% Nonregulated 1% 3% 4% Assets
Regulated 95% 94% 95% Nonregulated 5% 6% 5%
31 Exhibit C Page 32 of 171 Key Earnings Drivers and Outlook
During 2012, economic growth showed signs of improvement in the southeast, though the Company cannot determine if such improvement will be sustainable. Significant industrial announcements were made in the Company’s South Carolina and North Carolina service territory during the year, and announcements made in previous years began to materialize. In addition, the Port of Charleston continues to see increased traffic, with container volume up 9.6% over 2011. Residential and commercial customer growth rates in the Company’s regulated businesses also were positive. Unemployment rates for the states in which the Company primarily provides service also showed some improvement in 2012, though unemployment remains high and continues to slow the pace of economic recovery in the Southeast.
Unemployment (seasonally adjusted) United States Georgia North Carolina South Carolina December 31, 2012 (preliminary) 7.8% 8.6% 9.2% 8.4% December 31, 2011 8.9% 9.4% 10.4% 9.6%
Over the next five years, key earnings drivers for the Company will be additions to rate base at its regulated subsidiaries, consisting primarily of capital expenditures for new generating capacity, environmental facilities and system expansion. Other factors that will impact future earnings growth include the regulatory environment, customer growth and usage in each of the regulated utility businesses, earnings in the natural gas marketing business in Georgia and the level of growth of operation and maintenance expenses and taxes.
Electric Operations
The electric operations segment is comprised of the electric operations of SCE&G, GENCO and Fuel Company, and is primarily engaged in the generation, transmission, distribution and sale of electricity in South Carolina. At December 31, 2012, SCE&G provided electricity to approximately 670,000 customers in an area covering nearly 17,000 square miles. GENCO owns a coal-fired generating station and sells electricity solely to SCE&G. Fuel Company acquires, owns, provides financing for and sells at cost to SCE&G nuclear fuel, certain fossil fuels and emission and other environmental allowances.
Operating results for electric operations are primarily driven by customer demand for electricity, rates allowed to be charged to customers and the ability to control growth in costs. The effect of weather on operating results is largely mitigated by the eWNA. Embedded in the rates charged to customers is an allowed regulatory return on equity. SCE&G’s allowed return on equity through 2012 was 10.7% for non-BLRA expenditures, and 11.0% for BLRA-related expenditures. As further described in Note 2 to the consolidated financial statements, SCE&G's allowed return on equity for non-BLRA expenditures became 10.25% effective January 1, 2013. Demand for electricity is primarily affected by weather, customer growth and the economy. SCE&G is able to recover the cost of fuel used in electric generation through retail customers’ bills, but increases in fuel costs affect electric prices and, therefore, the competitive position of electricity against other energy sources.
On May 30, 2012, SCE&G filed an IRP with the SCPSC. The IRP evaluates future electric generation needs based on a variety of factors, including customer energy demands, EPA regulations, reserve margins and fuel costs. The IRP identified a total of six coal-fired units that SCE&G intends to retire by 2018, subject to future developments in environmental regulations, among other matters. These units have an aggregate generating capacity (summer 2012) of 730 MW. One unit, with a net carrying value of $20 million at December 31, 2012, was retired and its value is recorded in regulatory assets. Under provisions of a December 2012 rate order, SCE&G will be allowed recovery of and a return on the net carrying value of this unit over its original remaining useful life of approximately 14 years. The net carrying value of the remaining units totaled $362 million at December 31, 2012, and is identified as Plant to be Retired, Net in the consolidated financial statements. SCE&G plans to request recovery of and a return on the net carrying value of these remaining units in future rate proceedings in connection with their retirement, and expects that such deferred amounts will be recovered through rates. In the meantime, these units remain in rate base, and SCE&G continues to depreciate them using composite straight-line rates approved by the SCPSC.
New Nuclear Construction
SCE&G is constructing two 1,117 MW nuclear generation units at the site of Summer Station. SCE&G will jointly own the New Units with one or more parties, and SCE&G will be responsible for 55% of the cost and receive 55% of the output, with other parties responsible for and receiving the remaining share. SCE&G's share of the estimated cash outlays (future value, excluding AFC) totals approximately $6 billion for plant costs and related transmission infrastructure costs,
32 Exhibit C Page 33 of 171 which costs are projected based on historical one-year and five-year escalation rates as required by the SCPSC. The first New Unit is scheduled for substantial completion in 2017, and the second in 2018.
Significant recent developments in new nuclear construction include the following:
• In March 2012, the NRC approved and issued COLs for the New Units.
• In April 2012, SCE&G issued a Full Notice to Proceed to the Consortium for construction of the New Units, allowing for the commencement of safety related aspects of the project.
• In July 2012, SCE&G and the Consortium finalized an agreement resolving specific issues that impacted the project's budget and schedule. These included claims specifically relating to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units, and unanticipated rock conditions at the site. SCE&G's portion of the costs for these specific claims was set at approximately $138 million (in 2007 dollars).
• The SCPSC approved a 2.3% increase, or approximately $52.1 million, in a rate adjustment under the BLRA designed to incorporate the financing cost of incremental construction work in progress incurred for the new nuclear generation. The adjustment was based on SCE&G's updated cost of debt and capital structure and on an allowed return on common equity of 11.0%. The increase was effective for bills rendered on and after October 30, 2012.
• In October 2012, the project received its last major environmental permit, which is the National Pollutant Discharge Elimination System permit for the wastewater system of the New Units.
• In November 2012, the SCPSC approved an updated construction schedule and additional updated capital costs of $278 million (SCE&G's portion in 2007 dollars), which included substantially all of the costs finalized in the July 2012 agreement with the Consortium.
• In February 2013, work began on the reinforcing bar reconfiguration in the Unit 2 nuclear island elevator pit and sump areas. The initial pouring of the Unit 2 nuclear island basemat could take place in the first quarter of 2013 following the completion of this work and based upon an expedited approval by the NRC staff. It is not anticipated that the resolution of this issue will cause a delay in the commercial operation of the New Units in 2017 and 2018.
• The components of the condenser for Unit 2 have arrived onsite and are being assembled. Shipment of the reactor vessel for Unit 2 is planned for the second quarter of 2013, and the steam generators for Unit 2 are scheduled to be delivered early in 2013.
• While progress has been made with production, quality assurance and quality control issues, the schedule for fabrication of sub-modules at the contractor facility remains a focus area for the project.
For additional information on these and other matters, see New Nuclear Construction Matters herein and Note 2 and Note 10 to the consolidated financial statements.
Environmental
The EPA proposed new rules in 2012 related to air quality that would establish a new source performance standard for GHG emission from fossil fuel-fired electric generating units. Also, in October 2012, the EPA filed a petition with the United States Court of Appeals for the District of Columbia for a rehearing of the court's decision that vacated CSAPR and left CAIR in place. In January 2013, the Court denied this petition. In 2013, additional significant regulatory initiatives by the EPA and other federal agencies will likely proceed. These initiatives may require the Company to build or otherwise acquire generating capacity from energy sources that exclude fossil fuels, nuclear or hydro facilities (for example, under an RES). It is also possible that new initiatives will be introduced to reduce further carbon dioxide and other greenhouse gas emissions. The Company cannot predict whether such initiatives will be enacted, and if they are, the conditions they would impose on utilities.
The EPA has stated its intention to propose, in 2013, new federal regulations affecting the management and disposal of CCR, such as ash. Such regulations could result in the treatment of some CCRs as hazardous waste and could impose significant costs to utilities, such as SCE&G and GENCO. The EPA is also expected to issue regulations during 2013 for cooling water intake structures to meet BACT at existing power generating stations. 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. 33 Exhibit C Page 34 of 171
Gas Distribution
The gas distribution segment, comprised of the local distribution operations of SCE&G and PSNC Energy, is primarily engaged in the purchase, transportation and sale of natural gas to retail customers in portions of North Carolina and South Carolina. At December 31, 2012 this segment provided natural gas to approximately 819,600 customers in areas covering 34,600 square miles.
Operating results for gas distribution are primarily influenced by customer demand for natural gas, rates allowed to be charged to customers and the ability to control growth in costs. Embedded in the rates charged to customers is an allowed regulatory return on equity of 10.25% for SCE&G and 10.60% for PSNC Energy.
Demand for natural gas is primarily affected by weather, customer growth, the economy and the availability and price of alternate fuels. Natural gas competes with electricity, propane and heating oil to serve the heating and, to a lesser extent, other household energy needs of residential and small commercial customers. This competition is generally based on price and convenience. Large commercial and industrial customers often have the ability to switch from natural gas to an alternate fuel, such as propane or fuel oil. Natural gas competes with these alternate fuels based on price. As a result, any significant disparity between supply and demand, either of natural gas or of alternate fuels, and due either to production or delivery disruptions or other factors, will affect price and will impact the Company’s ability to retain large commercial and industrial customers. In addition, the production of shale gas in the United States has resulted in significantly lower prices for this commodity in 2010 through 2012. Low natural gas commodity prices are expected to continue in 2013 and for the foreseeable future.
Retail Gas Marketing
SCANA Energy, a division of SEMI, comprises the retail gas marketing segment. This segment markets natural gas to approximately 450,000 customers throughout Georgia (as of December 31, 2012, and includes approximately 72,000 customers in its regulated division described below). SCANA Energy’s total customer base represents an approximate 30% share of the customers in Georgia’s deregulated natural gas market. SCANA Energy remains the second largest natural gas marketer in the state. SCANA Energy’s competitors include an affiliate of a large energy company with experience in Georgia’s energy market, as well as several electric membership cooperatives. SCANA Energy’s ability to maintain its market share depends on the prices it charges customers relative to the prices charged by its competitors, its ability to continue to provide high levels of customer service and other factors. In addition, SCANA Energy's operating results are highly sensitive to weather. This market has matured in the last decade, resulting in lower margins and enhanced competition for customers.
As Georgia’s regulated provider, SCANA Energy provides service to low-income customers and to customers unable to obtain or maintain natural gas service from other marketers at rates approved by the GPSC. SCANA Energy receives funding from the Universal Service Fund to offset some of the bad debt associated with the low-income group. SCANA Energy’s contract to serve as Georgia’s regulated provider of natural gas has been renewed by the GPSC through August 31, 2014. SCANA Energy files financial and other information periodically with the GPSC, and such information is available at www.psc.state.ga.us (which is not intended as an active hyperlink; the information on the GPSC website is not part of this or any other report filed with the SEC).
SCANA Energy and certain of SCANA’s other natural gas distribution and marketing segments maintain gas inventory and utilize forward contracts and other financial instruments, including commodity swaps and futures contracts, to manage their exposure to fluctuating commodity natural gas prices. See Note 6 to the consolidated financial statements. As a part of this risk management process, at any given time, a portion of SCANA’s projected natural gas needs has been purchased or otherwise placed under contract. Since SCANA Energy operates in a competitive market, it may be unable to sustain its current levels of customers and/or pricing, thereby reducing expected margins and profitability. Further, there can be no assurance that Georgia’s gas delivery regulatory framework will remain unchanged as dynamic market conditions evolve.
Energy Marketing
The divisions of SEMI excluding SCANA Energy comprise the energy marketing segment. This segment markets natural gas primarily in the southeast and provides energy-related risk management services to customers.
The operating results for energy marketing are primarily influenced by customer demand for natural gas and the ability to control growth of costs. Demand for natural gas is primarily affected by the price of alternate fuels and customer growth. In addition, certain pipeline capacity available for Energy Marketing to serve industrial and other customers is dependent upon the market share held by SCANA Energy in the retail market. 34 Exhibit C Page 35 of 171
RESULTS OF OPERATIONS
2012 2011 2010 Basic earnings per share $ 3.20 $ 3.01 $ 2.99 Diluted earnings per share $ 3.15 $ 2.97 $ 2.98 Cash dividends declared (per share) $ 1.98 $ 1.94 $ 1.90
2012 vs 2011 Basic earnings per share increased due to higher electric margin of $.49, higher gas margin of $.01 and gains on sales of communications towers of $.04. These increases were partially offset by higher operating expenses of $.17, higher depreciation expense of $.05, higher property taxes of $.03, dilution from additional shares outstanding of $.06, higher interest expense of $.02 and by $.02 due to other items. 2011 vs 2010 Basic earnings per share increased due to higher electric margin of $.42 and lower operating expenses of $.06. These increases were partially offset by lower gas margin of $.13, higher depreciation expense of $.06, higher property taxes of $.06, dilution from additional shares outstanding of $.07 and higher interest expense of $.14.
Diluted Earnings Per Share
In May 2010, SCANA entered into equity forward sales contracts for approximately 6.6 million common shares. During periods when the average market price of SCANA’s common stock is above the per share adjusted forward sales price, the Company computes diluted earnings per share giving effect to this dilutive potential common stock utilizing the treasury stock method. SCANA expects to settle the equity forward contracts in the first quarter of 2013.
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 represented approximately 5.4% of income before income taxes in 2012, 3.9% in 2011 and 5.6% in 2010.
Electric Operations
Electric Operations is comprised of the electric operations of SCE&G, GENCO and Fuel Company. Electric operations sales margin (including transactions with affiliates) was as follows:
Millions of dollars 2012 Change 2011 Change 2010 Operating revenues $ 2,453.1 0.9 % $ 2,432.2 2.5 % $ 2,373.9 Less: Fuel used in generation 844.2 (8.5)% 922.5 (2.6)% 946.7 Purchased power 28.1 46.4 % 19.2 12.9 % 17.0 Margin $ 1,580.8 6.1 % $ 1,490.5 5.7 % $ 1,410.2
2012 vs 2011 Margin increased primarily by $54.4 million due to an increase in retail electric base rates approved by the SCPSC under the BLRA, by $3.7 million due to customer growth and by $11.0 million due to the expiration of a decrement rider approved in the 2010 retail electric base rate case.
2011 vs 2010 Margin increased by $49.0 million due to an increase in retail electric base rates approved by the SCPSC under the BLRA and by $34.5 million due to an SCPSC-approved increase in retail electric base rates in July 2010. Also, margin in the first quarter of 2010 was adjusted downward by $17.4 million pursuant to an SCPSC regulatory order in connection with SCE&G’s annual fuel cost proceeding. These increases were partially offset by $12.0 million due to the effects of weather in 2010 before the implementation of the SCPSC-approved eWNA and by lower customer usage of $8.7 million.
35 Exhibit C Page 36 of 171
Sales volumes (in GWh) related to the electric margin above, by class, were as follows:
Classification 2012 Change 2011 Change 2010 Residential 7,571 (8.0)% 8,232 (6.4)% 8,791 Commercial 7,291 (1.4)% 7,397 (3.7)% 7,684 Industrial 5,836 (1.7)% 5,938 1.3 % 5,863 Other 586 2.4 % 572 (1.5)% 581 Total retail sales 21,284 (3.9)% 22,139 (3.4)% 22,919 Wholesale 2,595 26.6 % 2,049 4.3 % 1,965 Total Sales 23,879 (1.3)% 24,188 (2.8)% 24,884
2012 vs 2011 Retail sales volume decreased by 983 GWh primarily due to the effects of milder weather. The increase in wholesale sales is primarily due to higher contract utilization by a wholesale customer.
2011 vs 2010 Total retail sales volumes decreased by 775 GWh due to weather.
Gas Distribution
Gas Distribution is comprised of the local distribution operations of SCE&G and PSNC Energy. Gas Distribution sales margin (including transactions with affiliates) was as follows:
Millions of dollars 2012 Change 2011 Change 2010 Operating revenues $ 765.0 (9.0)% $ 840.4 (14.2)% $ 979.4 Less: Gas purchased for resale 374.6 (19.7)% 466.3 (22.5)% 601.7 Margin $ 390.4 4.4 % $ 374.1 (1.0)% $ 377.7
2012 vs 2011 Margin at SCE&G increased by $8.3 million due to the SCPSC-approved increases in retail gas base rates under the RSA which became effective with the first billing cycles of November 2011 and 2012. Margin at PSNC Energy increased by $5.1 million primarily due to residential and commercial customer growth and increased industrial sales due to the competitive price of gas versus alternate fuel sources.
2011 vs 2010 Margin at SCE&G decreased by $8.2 million due to the SCPSC-approved decrease in retail gas base rates under the RSA which became effective with the first billing cycle of November 2010. This decrease was partially offset by an increase of $1.8 million due to the SCPSC-approved increase in retail gas base rates which became effective with the first billing cycle of November 2011. Margin at PSNC Energy increased by $2.9 million primarily due to residential and commercial customer growth.
Sales volumes (in MMBTU) by class, including transportation gas, were as follows:
Classification (in thousands) 2012 Change 2011 Change 2010 Residential 33,161 (9.3)% 36,568 (19.2)% 45,251 Commercial 25,001 (3.0)% 25,772 (11.0)% 28,972 Industrial 21,340 13.6 % 18,782 (0.4)% 18,860 Transportation gas 38,736 13.4 % 34,152 3.2 % 33,089 Total 118,238 2.6 % 115,274 (8.6)% 126,172
2012 vs 2011 Residential and commercial sales volume decreased primarily due to milder weather. Industrial and transportation sales volumes increased due to the competitive price of gas versus alternate fuel sources.
2011 vs 2010 Residential, commercial and industrial sales volume decreased primarily due to milder weather. Transportation sales volume increased primarily as a result of improved economic conditions and the competitive price of gas versus alternate fuel sources.
36 Exhibit C Page 37 of 171 Retail Gas Marketing
Retail Gas Marketing is comprised of SCANA Energy which operates in Georgia’s natural gas market. Retail Gas Marketing revenues and net income were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Operating revenues $ 412.5 (13.8)% $ 478.8 (13.4)% $ 552.9 Net Income $ 10.5 (56.6)% $ 24.2 (20.7)% $ 30.5
2012 vs 2011 Reductions in operating revenues and net income were primarily due to milder weather and a decrease in the number of customers served under the regulated provider program in 2012.
2011 vs 2010 Operating revenues decreased as a result of milder weather and lower consumption. Net income decreased due to lower margins, partially offset by lower bad debt and operating expenses.
Energy Marketing
Energy Marketing is comprised of the Company’s nonregulated marketing operations, excluding SCANA Energy. Energy Marketing operating revenues and net income were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Operating revenues $ 669.0 (20.8)% $ 844.9 (3.3)% $ 874.1 Net Income $ 5.4 22.7 % $ 4.4 12.8 % $ 3.9
2012 vs 2011 Operating revenues decreased due to lower market prices. Net income increased due to higher consumption.
2011 vs 2010 Operating revenues decreased due to lower market prices. Net income increased due to lower operating expenses, including bad debt.
Other Operating Expenses
Other operating expenses were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Other operation and maintenance $ 689.3 4.8% $ 657.9 (1.8)% $ 669.9 Depreciation and amortization 356.1 2.8% 346.3 3.3 % 335.1 Other taxes 207.1 3.1% 200.8 5.5 % 190.4
2012 vs 2011 Other operation and maintenance expenses increased by $9.3 million due to higher generation, transmission and distribution expenses and by $25.0 million due to higher incentive compensation and other benefits. These increases were partially offset by $3.9 million due to lower customer service expenses, including bad debt expense, and by $1.6 million due to lower general expenses. Depreciation and amortization expense increased primarily due to net property additions. Other taxes increased primarily due to higher property taxes.
2011 vs 2010 Other operation and maintenance expenses decreased by $7.8 million due to lower customer service expenses, including bad debt expense, and by $4.1 million due to lower incentive compensation and other benefits. These decreases were partially offset by $0.8 million due to higher generation, transmission and distribution expenses. Depreciation and amortization expense increased primarily due to net property additions. Other taxes increased primarily due to higher property taxes.
37 Exhibit C Page 38 of 171 Other Income (Expense)
Other income (expense) includes the results of certain incidental (non-utility) activities and the activities of certain non-regulated subsidiaries. Components of other income (expense) were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Other income $ 58.6 12.3% $ 52.2 (0.9)% $ 52.7 Other expense (42.1) 5.3% (40.0) 1.3 % (39.5) Total $ 16.5 35.2% $ 12.2 (7.6)% $ 13.2
2012 vs 2011 Changes in other income were primarily due to the sales of communications towers in 2012 by a non- regulated subsidiary. Changes in other expense were not significant.
2011 vs 2010 Changes in other income (expense) were not significant.
Interest Expense
Components of interest expense, net of the debt component of AFC, were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Interest on long-term debt, net $ 290.2 4.9 % $ 276.6 5.9% $ 261.1 Other interest expense 5.2 (32.5)% 7.7 71.1% 4.5 Total $ 295.4 3.9 % $ 284.3 7.0% $ 265.6
Interest on long-term debt increased in each year primarily due to increased long-term borrowings. Other interest expense decreased in 2012 and increased in 2011, primarily due to corresponding changes in principal balances outstanding on short-term debt over the respective prior year and also due to the reversal in 2012 of interest which had been accrued in 2011 related to a tax uncertainty that was resolved (see Note 5 to the consolidated financial statements).
Income Taxes
Income tax expense increased in 2012 over 2011 and in 2011 over 2010 primarily due to increases in income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
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 a future 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 and refinancing maturing long-term debt. The Company’s ratio of earnings to fixed charges for the year ended December 31, 2012 was 2.93.
Cash requirements for SCANA’s regulated subsidiaries arise primarily from their operational needs, funding their construction programs and payment of dividends to SCANA. 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.
The Company obtains equity from SCANA’s stock plans. Shares of SCANA common stock are acquired on behalf of participants in SCANA’s Investor Plus Plan and Stock Purchase-Savings Plan through the original issuance of shares, rather than being purchased on the open market. This provided approximately $97 million of additional equity during 2012 and is expected to provide approximately $106 million of additional capital in 2013. Due primarily to new nuclear construction plans, the Company anticipates keeping this strategy in place for the foreseeable future. The Company also expects to issue 6.6 million common shares under forward sales contracts in the first quarter of 2013. 38 Exhibit C Page 39 of 171
SCANA’s leverage ratio of long- and short-term debt to capital was approximately 58% at December 31, 2012. SCANA has publicly announced its desire to return its leverage ratio to levels between 54% and 57%, but SCANA’s ability to achieve and maintain those levels depends on a number of factors. In the future, if SCANA is not able to achieve and maintain its leverage ratio within the desired range, the Company’s debt ratings may be affected, it may be required to pay higher interest rates on its long- and short-term indebtedness, and its access to the capital markets may be limited.
Capital Expenditures
Cash outlays for property additions and construction expenditures, including nuclear fuel, net of AFC, were $1.1 billion in 2012 and are estimated to be $1.6 billion in 2013.
The Company’s current estimates of its capital expenditures for construction and nuclear fuel for 2013-2015, which are subject to continuing review and adjustment, are as follows:
Estimated Capital Expenditures
Millions of dollars 2013 2014 2015 SCE&G - Normal
Generation $ 135 $ 127 $ 125 Transmission & Distribution 218 216 270 Other 9 11 18 Gas 51 50 52 Common 8 7 5 Total SCE&G - Normal 421 411 470 PSNC Energy 106 127 72 Other 47 58 49 Total Normal 574 596 591 New Nuclear (including transmission) 957 980 867 Cash Requirements for Construction 1,531 1,576 1,458 Nuclear Fuel 108 55 39 Total Estimated Capital Expenditures $ 1,639 $ 1,631 $ 1,497
The Company’s contractual cash obligations as of December 31, 2012 are summarized as follows:
Contractual Cash Obligations
Payments due by periods Less than More than Millions of dollars Total 1 year 1 - 3 years 4 - 5 years 5 years Long- and short-term debt, including interest $ 10,796 $ 1,071 $ 907 $ 1,275 $ 7,543 Capital leases 16 4 9 1 2 Operating leases 49 10 12 2 25 Purchase obligations 4,262 1,159 1,059 2,042 2 Other commercial commitments 4,235 951 1,533 922 829 Total $ 19,358 $ 3,195 $ 3,520 $ 4,242 $ 8,401
Included in the table above in purchase obligations is SCE&G’s portion of a contractual agreement for the design and construction of the New Units at the Summer Station site. SCE&G expects to be a joint owner and share operating costs and generation output of the New Units, with SCE&G responsible for 55 percent of the cost and receiving 55 percent of the output, and the other joint owner (or owners) the remaining 45 percent.
Also included in purchase obligations are customary purchase orders under which the Company has the option to utilize certain vendors without the obligation to do so. The Company may terminate such arrangements without penalty. 39 Exhibit C Page 40 of 171
Other commercial commitments includes estimated obligations under forward contracts for natural gas purchases. Forward contracts for natural gas purchases include customary “make-whole” or default provisions, but are not considered to be “take-or-pay” contracts. Certain of these contracts relate to regulated businesses; therefore, the effects of such contracts on fuel costs are reflected in electric or gas rates. Other commercial commitments also includes a “take-and-pay” contract for natural gas which expires in 2019 and estimated obligations for coal and nuclear fuel purchases.
In addition to the contractual cash obligations above, the Company sponsors a noncontributory defined benefit pension plan and an unfunded health care and life insurance benefit plan for retirees. The pension plan is adequately funded under current regulations, and no contributions are anticipated until after 2014. Cash payments under the health care and life insurance benefit plan were $10.9 million in 2012, and such annual payments are expected to be the same or increase up to $14.3 million in the future.
In addition, the Company is party to certain NYMEX natural gas futures contracts for which any unfavorable market movements are funded in cash. These derivatives are accounted for as cash flow hedges and their effects are reflected within other comprehensive income until the anticipated sales transactions occur. See further discussion at Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. At December 31, 2012, the Company had posted $10.8 million in cash collateral for such contracts. In addition, the Company had posted $67.5 million in cash collateral related to interest rate derivative contracts.
The Company also has a legal obligation associated with the decommissioning and dismantling of Summer Station Unit 1 and other conditional asset retirement obligations that are not listed in the contractual cash obligations table. See Notes 1 and 10 to the consolidated financial statements.
Financing Limits and Related Matters
The Company’s issuance of various securities, including long-term and short-term debt, is subject to customary approval or authorization by regulatory bodies including state public service commissions and FERC. Financing programs currently utilized by the Company follow.
SCE&G has obtained FERC authority to issue short-term indebtedness and to assume liabilities as a guarantor (pursuant to Section 204 of the Federal Power Act). SCE&G may issue unsecured promissory notes, commercial paper and direct loans in amounts not to exceed $1.6 billion outstanding with maturity dates of one year or less, and may enter into guaranty agreements in favor of lenders, bankers, and dealers in commercial paper in amounts not to exceed $600 million. GENCO has obtained FERC authority to issue short-term indebtedness not to exceed $150 million outstanding with maturity dates of one year or less. The authority described herein will expire in October 2014.
In October 2012, the Company's existing committed LOCs were amended and extended. As a result, at December 31, 2012 SCANA, SCE&G (including Fuel Company) and PSNC Energy were parties to five-year credit agreements in the amounts of $300 million, $1.2 billion, of which $500 million relates to Fuel Company, and $100 million, respectively, which expire in October 2017. In addition, at December 31, 2012 SCE&G was party to a three-year credit agreement in the amount of $200 million which expires in October 2015. These credit agreements are used for general corporate purposes, including liquidity support for each company's commercial paper program and working capital needs and, in the case of Fuel Company, to finance or refinance the purchase of nuclear fuel, certain fossil fuels, and emission and other environmental allowances. For a list of banks providing credit support and other information, see Note 4 to the consolidated financial statements.
As of December 31, 2012, the Company had no outstanding borrowings under its $1.8 billion credit facilities, had approximately $623 million in commercial paper borrowings outstanding, was obligated under $3.3 million in LOC supported letters of credit, and held approximately $72 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. Average short-term borrowings outstanding during 2012 were approximately $560 million. Short-term cash needs were met primarily through the issuance of commercial paper.
At December 31, 2012, the Company’s long-term debt portfolio has a weighted average maturity of approximately 17 years and bears an average cost of 5.88%. Substantially all of the Company's long-term debt bears fixed interest rates or is swapped to fixed. To further preserve liquidity, the Company rigorously reviews its projected capital expenditures and operating costs and adjusts them where possible without impacting safety, reliability, and core customer service.
40 Exhibit C Page 41 of 171 The Company’s articles of incorporation do not limit the dividends that may be paid on its common stock. However, SCANA’s junior subordinated indenture (relating to the hereinafter defined Hybrids), SCE&G’s bond indenture (relating to the hereinafter defined Bonds) and PSNC Energy’s note purchase and debenture purchase agreements each contain provisions that, under certain circumstances which the Company considers to be remote, could limit the payment of cash dividends on their respective common stock.
With respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At December 31, 2012, approximately $61.0 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G’s common stock.
SCANA Corporation
SCANA has in effect an indenture which permits the issuance of unsecured debt securities from time to time including its medium-term notes. This indenture contains no specific limit on the amount of unsecured debt securities which may be issued.
SCANA has outstanding $150 million of enhanced junior subordinated notes (Hybrids) bearing an interest rate of 7.70% and maturing on January 30, 2065, subject to extension to January 30, 2080. Because their structure and terms are characteristic of both debt instruments and equity securities, the credit rating agencies consider securities like the Hybrids to be hybrid debt instruments and give some “equity credit” to the issuers of such securities for purposes of computing leverage ratios of debt to capital. The Hybrids are only subject to redemption at SCANA’s option and may be redeemed at any time, although the redemption prices payable by SCANA differ depending on the timing of the redemption and the circumstances (if any) giving rise thereto.
In connection with the Hybrids, SCANA executed an RCC in favor of the holders of certain designated debt (referred to as “covered debt”). Under the terms of the RCC, SCANA agreed not to redeem or repurchase all or part of the Hybrids prior to the termination date of the RCC, unless it uses the proceeds of certain qualifying securities sold to non-affiliates within 180 days prior to the redemption or repurchase date. The proceeds SCANA receives from such qualifying securities, adjusted by a predetermined factor, must exceed the redemption or repurchase price of the Hybrids. Qualifying securities include common stock, and other securities that generally rank equal to or junior to the Hybrids and include distribution, deferral and long-dated maturity features similar to the Hybrids. For purposes of the RCC, non-affiliates include (but are not limited to) individuals enrolled in SCANA’s dividend reinvestment plan, direct stock purchase plan and employee benefit plans.
The RCC is scheduled to terminate on the earliest to occur of the following: (a) January 30, 2035 (or later, if the maturity date of the Hybrids is extended), (b) the date on which SCANA no longer has any eligible debt which ranks senior in right of payment to the Hybrids, (c) the date on which the holders of at least a majority in principal amount of “covered debt” agree to the termination thereof or (d) the date on which the Hybrids are accelerated following an event of default with respect thereto. SCANA’s $250 million in Medium Term Notes due April 1, 2020 were initially designated as “covered debt” under the RCC.
South Carolina Electric & Gas Company
SCE&G is subject to a bond indenture dated April 1, 1993 (Mortgage) covering substantially all of its electric properties under which all of its first mortgage bonds (Bonds) have been issued. Bonds may be issued under the Mortgage in an aggregate principal amount not exceeding the sum of (1) 70% of Unfunded Net Property Additions (as therein defined), (2) the aggregate principal amount of retired Bonds and (3) cash deposited with the trustee. Bonds, other than certain Bonds issued on the basis of retired Bonds, may be issued under the Mortgage only if Adjusted Net Earnings (as therein defined) for 12 consecutive months out of the 18 months immediately preceding the month of issuance are at least twice (2.0) the annual interest requirements on all outstanding Bonds and Bonds to be outstanding (Bond Ratio). For the year ended December 31, 2012, the Bond Ratio was 5.22.
Financing Activities
In January 2013, JEDA issued for the benefit of SCE&G $39.5 million of 4.0% tax-exempt industrial revenue bonds due February 1, 2028, and $14.7 million of 3.63% tax-exempt industrial revenue bonds due February 1, 2033. Proceeds from these sales were loaned by JEDA to SCE&G and, together with other available funds, were used to redeem prior to maturity $56.9 million of 5.2% industrial revenue bonds due November 1, 2027.
41 Exhibit C Page 42 of 171 In November 2012, SCE&G repaid at maturity $4.4 million of 4.2% tax-exempt industrial revenue bonds, and repaid prior to maturity $29.2 million of 5.45% tax-exempt industrial revenue bonds due November 1, 2032.
In July 2012, SCE&G issued $250 million of 4.35% first mortgage bonds due February 1, 2042 (issued at a premium with a yield of 3.86%), which constituted a reopening of the prior offering of $250 million of 4.35% first mortgage bonds which were issued in January 2012. Proceeds from these sales were used to repay short-term debt primarily incurred as a result of SCE&G's construction program, to finance capital expenditures and for general corporate purposes.
In January 2012, SCANA issued $250 million of 4.125% medium term notes due February 1, 2022. Proceeds from the sale were used by SCANA to retire $250 million of its 6.25% medium term notes due February 1, 2012.
In October 2011, SCE&G issued $30 million of 3.22% first mortgage bonds due October 18, 2021. Proceeds from the sale of these bonds were used to redeem prior to maturity $30 million of the 5.7% pollution control facilities revenue bonds due November 1, 2024 issued by Orangeburg County, South Carolina, on SCE&G’s behalf.
In May 2011, SCE&G issued $100 million of 5.45% first mortgage bonds due February 1, 2041, which constituted a reopening of the prior offering of $250 million of 5.45% first mortgage bonds issued in January 2011. Proceeds from these sales were used to retire $150 million of SCE&G first mortgage bonds due February 1, 2011, to repay short-term debt primarily incurred as a result of SCE&G’s construction program, to finance other capital expenditures and for general corporate purposes.
In May 2011 SCANA issued $300 million of 4.75% medium term notes due May 15, 2021. Proceeds from the sale of these notes were used by SCANA to retire $300 million of its 6.875% medium term notes.
In February 2011, PSNC Energy issued $150 million of 4.59% unsecured senior notes due February 14, 2021. Proceeds from these notes were used to retire PSNC Energy’s $150 million medium term notes due February 15, 2011.
SCANA issued common stock valued at $59.2 million (at time of issue) in a public offering on May 17, 2010 and entered into forward agreements for the sale of approximately 6.6 million shares. SCANA expects to settle the forward sale agreements in the first quarter of 2013.
In March 2010, PSNC Energy issued $100 million of 6.54% unsecured notes due March 30, 2020. Proceeds from the sale were used to pay down short-term debt and for general corporate purposes.
During 2012 there were net cash inflows related to financing activities of approximately $260 million primarily due to issuances of common stock and long-term debt, partially offset by repayment of short- and long-term debt and payment of dividends.
The Company paid approximately $37 million, net, in 2012 to settle interest rate contracts associated with the issuance of long-term debt.
For additional information, see Note 4 to the consolidated financial statements.
In February 2013, SCANA increased the quarterly cash dividend rate on SCANA common stock to $.5075 per share, an increase of 2.5% from the prior declared dividend. The next quarterly dividend is payable April 1, 2013 to shareholders of record on March 11, 2013.
In December 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act included 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 and 50% bonus depreciation for property placed in service for 2012. The American Taxpayer Relief Act of 2012 extended the 50% bonus depreciation for property placed in service in 2013. These incentives, along with certain other deductions, have had a positive impact on the cash flows of the Company and are expected to continue to do so through 2013.
ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive regulation by various federal and state authorities in the areas of air quality, water quality, control of toxic substances and hazardous and solid wastes. Applicable statutes and rules include the CAA, CWA, Nuclear Waste Act and CERCLA, among others. Compliance with these environmental requirements involves significant capital and operating costs, which the Company expects to recover through existing ratemaking provisions. 42 Exhibit C Page 43 of 171
For the three years ended December 31, 2012, the Company's capital expenditures for environmental control equipment at its fossil fuel generating stations totaled $79.6 million. In addition, the Company made expenditures to operate and maintain environmental control equipment at its fossil plants of $10.2 million in 2012, $7.9 million during 2011 and $6.5 million during 2010, which are included in “Other operation and maintenance” expense and made expenditures to handle waste ash of $7.9 million in 2012, $8.7 million in 2011 and $5.9 million in 2010, which are included in “Fuel used in electric generation.” In addition, included within “Other operation and maintenance” expense is an annual amortization of $1.4 million in each of 2012, 2011 and 2010 related to SCE&G's recovery of MGP remediation costs as approved by the SCPSC. It is not possible to estimate all future costs related to environmental matters, but forecasts for capitalized environmental expenditures for the Company are $15.3 million for 2013 and $96.0 million for the four-year period 2014-2017. These expenditures are included in the Company's Estimated Capital Expenditures table, are discussed in Liquidity and Capital Resources, and include known costs related to the matters discussed below.
At the state level, no significant environmental legislation that would affect the Company's operations advanced during 2012. The Company cannot predict whether such legislation will be introduced or enacted in 2013, or if new regulations or changes to existing regulations at the state level will be implemented in the coming year. Several regulatory initiatives at the federal level did advance in 2012 and more are expected to advance in 2013 as described below.
Air Quality
With the pervasive emergence of concern over the issue of global climate change as a significant influence upon the economy, SCANA, SCE&G and GENCO are subject to climate-related financial risks, including those involving regulatory requirements responsive to GHG emissions, as well as those involving physical impacts which could arise from global climate change. 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 emission allowance programs with respect to coal plant emissions and also have constructed additional pollution control equipment at several larger coal-fired electric generating plants. Further, SCE&G is engaged in pre-construction activities of the New Units which are expected to reduce GHG emission levels significantly once they are completed and dispatched by potentially displacing some of the current coal-fired generation sources. These actions are expected to address many of the rules and regulations discussed below.
In December 2009, the EPA issued a final finding that atmospheric concentrations of GHG endanger public health and welfare within the meaning of Section 202(a) of the CAA. The finding, which became effective in January 2010, enabled the EPA to regulate GHG emissions under the CAA. On April 13, 2012, the EPA issued a proposed rule to establish an NSPS for GHG emissions from fossil fuel-fired electric generating units. If finalized as proposed, this rule would establish performance standards for new and modified generating units, along with emissions guidelines for existing generating units. This rule would amend the NSPS for electric generating units and establish the first NSPS for GHG emissions. Essentially, the rule would require all new fossil fuel-fired power plants to meet the carbon dioxide emissions profile of a combined cycle natural gas plant. While most new natural gas plants will not be required to include any new technologies, no new coal plants could be constructed without carbon capture and sequestration capabilities. The Company is evaluating the proposed rule, but cannot predict when the rule will become final, if at all, or what conditions it may impose on the Company, if any. The Company expects that any costs incurred to comply with GHG emission requirements will be recoverable through rates.
In 2005, the EPA issued the CAIR, which required 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. SCE&G and GENCO determined that additional air quality controls would be needed to meet the CAIR requirements. On July 6, 2011 the EPA issued the CSAPR. This rule replaced CAIR and the Clean Air Transport Rule proposed in July 2010 and is aimed at addressing power plant emissions that may contribute to air pollution in other states. CSAPR requires states in the eastern United States to reduce power plant emissions, specifically sulfur dioxide and nitrogen oxide. On December 30, 2011, the United States Court of Appeals for the District of Columbia issued an order staying CSAPR and reinstating CAIR pending resolution of an appeal of CSAPR. On August 21, 2012, the Court vacated CSAPR and left CAIR in place. The EPA's petition for rehearing of the Court's order has been denied. Air quality control installations that SCE&G and GENCO have already completed allowed the Company to comply with the reinstated CAIR. The Company will
43 Exhibit C Page 44 of 171 continue to pursue strategies to comply with all applicable environmental regulations. 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.
In June 2010, the EPA issued a final rule for a one-hour ambient air quality standard for sulfur dioxide. This standard may require some of SCE&G's smaller coal-fired units to reduce their sulfur dioxide emissions to levels to be determined by the EPA and/or DHEC. The costs incurred to comply with this standard are expected to be recovered through rates.
In January 2013, the EPA issued a final rule for an annual ambient air quality standard related to particulate matter smaller than or equal in size to 2.5 microns, significantly revising the existing standard from 15 ug/m3 (micrograms per cubic meter) to 12 ug/m3. The rule takes effect on March 18, 2013. SCE&G anticipates that DHEC monitors throughout South Carolina will indicate compliance with the new standard. While SCE&G does not anticipate a significant impact from this new standard, the costs incurred to comply with this new standard, if any, are expected to be recovered through rates.
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, as well as impacts on employees and customers and on the Company's supply chain and many others. Much of the service territory of SCE&G 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. In addition, SCE&G has collected funds from customers for its storm damage reserve (see Note 2 to the consolidated financial statements). As part of its ongoing operations, SCE&G maintains emergency response and storm preparation plans and teams who receive 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.
In April 2012, the EPA's rule containing new standards for mercury and other specified air pollutants became effective. The rule provides up to four years for facilities to meet the standards, and the Company's evaluation of the rule is ongoing. The Company's decision in 2012 to retire certain coal-fired units or convert them to burn natural gas and its project to build the New Units (see Note 1 to the consolidated financial statements) along with other actions are expected to result in the Company's compliance with the EPA's rule. 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.
The EPA is conducting an enforcement initiative against the utilities industry related to the NSR provisions and the NSPS of the CAA. As part of the initiative, many utilities have received requests for information under Section 114 of the CAA. In addition, the DOJ, on behalf of EPA, has taken civil enforcement action against several utilities. The primary basis for these actions is the assertion by EPA that maintenance activities undertaken by the utilities at their coal-fired power plants constituted “major modifications” which required the installation of costly BACT. Some of the utilities subject to the actions have reached settlement. To date, SCE&G and GENCO have received and responded to Section 114 requests for information related to Canadys, Wateree and Williams Stations. The current state of continued DOJ civil enforcement is the subject of industry-wide speculation, and it cannot be determined whether the Company will be affected by the initiative in the future. The Company believes that any enforcement action relative to its compliance with the CAA would be without merit. The Company further believes that the previously discussed installation of equipment responsive to CAIR will mitigate many of the alleged concerns with NSR.
Water Quality
The CWA provides for the imposition of effluent limitations that require treatment for wastewater discharges. Under the CWA, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued and renewed for all of SCE&G's and GENCO's generating units. Concurrent with renewal of these permits, the permitting agency has implemented a more rigorous program of monitoring and controlling discharges, has modified the requirements for new cooling water intake structures, and has required strategies for toxicity reduction in wastewater streams. The EPA has said that it will issue a rule by mid-2013 that modifies requirements for existing cooling water intake structures. The Company is conducting studies and is developing or implementing compliance plans for these initiatives. Congress is expected to consider further amendments to the CWA. Such legislation may include toxicity-based standards as well as limitations to mixing zones. These provisions, if passed, could have a material impact on the financial condition, results of operations and cash flows of the Company, SCE&G and GENCO. The Company believes that any additional costs imposed by such regulations would be recoverable through rates.
44 Exhibit C Page 45 of 171 Hazardous and Solid Wastes
The EPA has stated its intention to propose, in 2013, new federal regulations affecting the management and disposal of CCRs, such as ash. Such regulations could result in the treatment of some CCRs as hazardous waste and could impose significant costs to utilities, such as SCE&G and GENCO. 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.
The Nuclear Waste Act required that the United States government accept and permanently dispose of high-level radioactive waste and spent nuclear fuel by January 31, 1998. The Nuclear Waste Act also imposed on utilities the primary responsibility for storage of their spent nuclear fuel until the repository is available. SCE&G entered into a Standard Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste with the DOE in 1983. As of December 31, 2012, the federal government has not accepted any spent fuel from Summer Station Unit 1, and it remains unclear when the repository may become available. SCE&G has on-site spent nuclear fuel storage capability in its existing fuel pool until at least 2017, and has commenced construction of a dry cask storage facility to accommodate the spent nuclear fuel output for the life of Summer Station Unit 1. SCE&G may evaluate other technology as it becomes available.
The provisions of CERCLA authorize the EPA to require the clean-up of hazardous waste sites. In addition, the states of South Carolina and North Carolina have similar laws. The Company maintains an environmental assessment program to identify and evaluate current and former operations sites that could require environmental clean-up. In addition, regulators from the EPA and other federal or state agencies periodically notify the Company that it may be required to perform or participate in the investigation and remediation of a hazardous waste site. 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 may differ significantly from the original estimates. Amounts estimated and accrued to date for site assessments and clean-up relate solely to regulated operations. Such amounts are recorded in regulatory assets and amortized, with recovery provided through rates. The Company has assessed the following matters:
Electric Operations
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. Amounts expected to be recovered through rates are recorded in regulatory assets and, if applicable, amortized over approved amortization periods. Other environmental costs are recorded to expense.
Gas Distribution
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 DHEC. SCE&G anticipates that major remediation activities at these sites will continue until 2016 and will cost an additional $22.2 million. SCE&G expects to recover any cost arising from the remediation of MGP sites through rates. At December 31, 2012, deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $38.5 million and are included in regulatory assets.
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 PRPs. PSNC Energy has recorded a liability and associated regulatory asset of approximately $3.0 million, the estimated remaining liability at December 31, 2012. PSNC Energy expects to recover through rates any cost allocable to PSNC Energy arising from the remediation of these sites.
REGULATORY MATTERS
Material retail rate proceedings are described in Note 2 to the consolidated financial statements.
SCANA is subject to the jurisdiction of the SEC as to the issuance of certain securities and other matters and is subject to the jurisdiction of the FERC as to certain acquisitions and other matters.
45 Exhibit C Page 46 of 171 SCANA and its subsidiaries are subject to CFTC jurisdiction to the extent they transact swaps as defined in Dodd- Frank.
South Carolina Electric & Gas Company
SCE&G is subject to the jurisdiction of the SEC as to the issuance of certain securities and other matters; the SCPSC as to retail electric and gas rates, service, accounting, issuance of securities (other than short-term borrowings) and other matters; and FERC as to issuance of short-term borrowings, guarantees of short-term indebtedness, certain acquisitions and other matters.
GENCO is subject to the jurisdiction of the SCPSC as to issuance of securities (other than short-term borrowings) and is subject to the jurisdiction of FERC as to issuance of short-term borrowings, accounting, certain acquisitions and other matters.
Fuel Company is subject to the jurisdiction of the SEC as to the issuance of certain securities.
SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by FERC and DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting.
Natural gas distribution companies may request annual adjustments to rates to reflect changes in revenues and expenses and changes in investment. Such annual adjustments are subject to certain qualifying criteria and review by the SCPSC.
Effective February 12, 2010, the PHMSA issued a final rule establishing integrity management requirements for gas distribution pipeline systems. SCE&G has developed a plan and procedures to ensure that it will be fully compliant with this rule. SCE&G believes that any additional costs incurred to comply with the rule will be recoverable through rates.
Public Service Company of North Carolina, Incorporated
PSNC Energy is subject to the jurisdiction of the NCUC as to gas rates, issuance of securities (other than notes with a maturity of two years or less or renewals of notes with a maturity of six years or less), accounting and other matters, and is subject to the jurisdiction of the SEC as to the issuance of certain securities.
The Pipeline Safety Act directed the DOT to establish the Integrity Management Rule for operations of natural gas systems with transmission pipelines located near moderate to high density populations. Of PSNC Energy’s approximately 607 miles of transmission pipeline subject to the Pipeline Safety Act, approximately 58 miles are located within these areas. In 2012, PSNC Energy completed its initial assessments and is required to reinspect these same miles of pipeline approximately every seven years. Through December 2012, PSNC Energy's Integrity Management Program has incurred costs of $8.4 million. Costs totaling $3.2 million have been recovered through rates. The NCUC has authorized continuation of deferral accounting for certain costs incurred to comply with DOT’s pipeline integrity management requirements until resolution of PSNC Energy’s next general rate proceeding. As a result, PSNC Energy has deferred an additional $5.2 million through December 2012 that will be considered for recovery through rates in PSNC Energy's next general rate proceeding.
Carolina Gas Transmission Corporation
CGT is subject to the jurisdiction of the FERC as to transportation rates, service, accounting and other matters.
CGT has approximately 73 miles of transmission line that are covered by the Integrity Management Rule of the Pipeline Safety Act. CGT currently estimates the total cost to be $14.4 million for the initial assessments, subsequent remediation and continuing costs relative to the rule through December 2013.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Following are descriptions of the Company’s accounting policies and estimates which are most critical in terms of reporting financial condition or results of operations.
46 Exhibit C Page 47 of 171 Utility Regulation
SCANA’s regulated utilities record certain assets and liabilities that defer the recognition of expenses and revenues to future periods in accordance with accounting guidance for rate-regulated utilities. In the future, in the event 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 effect on the results of operations, liquidity or financial position of the Company’s Electric Distribution and Gas Distribution segments in the period the write-off would be recorded. See Note 2 to the consolidated financial statements for a description of the Company’s regulatory assets and liabilities, including those associated with the Company’s environmental assessment program.
The Company’s generation assets would be exposed to considerable financial risks in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, the Company could be required to write down its investment in those assets. The Company cannot predict whether any write-downs would be necessary and, if they were, the extent to which they would affect the Company’s results of operations in the period in which they would be recorded. As of December 31, 2012, the Company’s net investments in fossil/hydro and nuclear generation assets were approximately $3.0 billion and $2.4 billion, respectively.
Revenue Recognition and Unbilled Revenues
Revenues related to the sale of energy are recorded when service is rendered or when energy is delivered to customers. Because customers of the Company’s utilities and retail gas operations are billed on cycles which vary based on the timing of the actual reading of their electric and gas meters, the Company records estimates for unbilled revenues at the end of each reporting period. Such unbilled revenue amounts reflect estimates of the amount of energy delivered to customers for which they have not yet been billed. Such unbilled revenues reflect consideration of estimated usage by customer class, the effects of different rate schedules, changes in weather and, where applicable, the impact of weather normalization or other regulatory provisions of rate structures. The accrual of unbilled revenues in this manner properly matches revenues and related costs. Accounts receivable included unbilled revenues of $189.8 million at December 31, 2012 and $169.1 million at December 31, 2011, compared to total revenues of $4.2 billion and $4.4 billion for the years 2012 and 2011, respectively.
Nuclear Decommissioning
Accounting for decommissioning costs for nuclear power plants involves significant estimates related to costs to be incurred many years into the future. Among the factors that could change SCE&G’s accounting estimates related to decommissioning costs are changes in technology, changes in regulatory and environmental remediation requirements, and changes in financial assumptions such as discount rates and timing of cash flows. Changes in any of these estimates could significantly impact the Company’s financial position and cash flows (although changes in such estimates should be earnings- neutral, because these costs are expected to be collected from ratepayers).
Based on a recently completed decommissioning cost study, SCE&G’s two-thirds share of estimated site-specific nuclear decommissioning costs for Summer Station Unit 1, including both the cost of decommissioning plant components that are and are not subject to radioactive contamination, totals $696.8 million, stated in 2012 dollars. Santee Cooper is responsible for decommissioning costs related to its one-third ownership interest in Summer Station Unit 1. The cost estimate assumes that the site would be maintained over a period of 60 years in such a manner as to allow for subsequent decontamination that would permit release for unrestricted use.
Under SCE&G’s method of funding decommissioning costs, amounts collected through rates are invested in insurance policies on the lives of certain Company personnel. SCE&G transfers to an external trust fund the amounts collected through electric rates, insurance proceeds and interest thereon, less expenses. The trusteed asset balance reflects the net cash surrender value of the insurance policies and cash held by the trust. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis.
Asset Retirement Obligations
The Company accrues for the legal obligation associated with the retirement of long-lived tangible assets that result from their acquisition, construction, development and normal operation in accordance with applicable accounting guidance. The obligations are recognized at present value in the period in which they are incurred, and associated asset retirement costs are capitalized as a part of the carrying amount of the related long-lived assets. Because such obligations relate primarily to the Company’s regulated utility operations, their recording has no significant impact on results of operations. As of December 31, 47 Exhibit C Page 48 of 171 2012, the Company has recorded AROs of $182 million for nuclear plant decommissioning (as discussed above) and AROs of $379 million for other conditional obligations related to generation, transmission and distribution properties, including gas pipelines. All of the amounts recorded in accordance with the relevant accounting guidance are based upon estimates which are subject to varying degrees of imprecision, particularly since such payments may be made many years in the future. Changes in these estimates will be recorded over time; however, these changes in estimates are not expected to materially impact results of operations so long as the regulatory framework for the utilities remains in place.
Accounting for Pensions and Other Postretirement Benefits
The Company recognizes the funded status of its defined benefit pension plan as an asset or liability and changes in funded status as a component of net periodic benefit cost or other comprehensive income, net of tax, or as a regulatory asset as required by accounting guidance. The Company’s plan is adequately funded under current regulations. Accounting guidance requires the use of several assumptions, the selection of which has an impact on the resulting pension cost recorded. Among the more sensitive assumptions are those surrounding discount rates and expected returns on assets. Net pension cost of $28.5 million recorded in 2012 reflects the use of a 5.25% discount rate, derived using a cash flow matching technique, and an assumed 8.25% long-term rate of return on plan assets. The Company believes that these assumptions were, and that the resulting pension cost amount was, reasonable. For purposes of comparison, using a discount rate of 5.00% in 2012 would have increased the Company’s pension cost by $1.5 million. Further, had the assumed long-term rate of return on assets been 8.00%, the Company’s pension cost for 2012 would have increased by $1.8 million.
The following information with respect to pension assets (and returns thereon) should also be noted.
The Company determines the fair value of a large majority of its pension assets utilizing market quotes or derives them from modeling techniques that incorporate market data. Only a small portion of assets are valued using less transparent (“Level 3”) methods.
In developing the expected long-term rate of return assumptions, the Company evaluates historical performance, targeted allocation amounts and expected payment terms. As of the beginning of 2012, the plan’s historical 10, 15, 20 and 25 year cumulative performance showed actual returns of 4.2%, 6.8%, 8.6% and 9.3%, respectively. The 2012 expected long- term rate of return of 8.25% was based on a target asset allocation of 65% with equity managers and 35% with fixed income managers. Management regularly reviews such allocations and periodically rebalances the portfolio when considered appropriate. As of the beginning of 2013, the plan’s historical 10, 15, 20 and 25 year cumulative performance showed actual returns of 7.5%, 6.3%, 8.8% and 9.7%, respectively. For 2013, the expected rate of return is 8.00%.
Due to turmoil in the financial markets and the resultant declines in plan asset values in the fourth quarter of 2008, the Company recorded significant amounts of pension cost in 2009, 2010, 2011 and 2012 compared to the pension income recorded previously. However, in February 2009, SCE&G was granted accounting orders by the SCPSC which allowed it to mitigate a significant portion of this pension cost by deferring as a regulatory asset the amount of pension expense above the level that was included in then current cost of service rates for its retail electric and gas distribution regulated operations. In July 2010, upon implementation of retail electric base rates, SCE&G began deferring as a regulatory asset all pension cost related to its regulated retail electric operations that otherwise would have been charged to expense. In November 2010, upon the updated gas rates becoming effective under the RSA, SCE&G began deferring as a regulatory asset all pension cost related to its regulated natural gas operations that otherwise would have been charged to expense.
As part of the December 2012 rate order, deferred pension costs related to electric operations of approximately $63 million will be amortized over approximately 30 years, and current pension expense for electric operations will be recovered through a pension cost rider starting in January 2013.
The pension trust is adequately funded under current regulations, and no contributions have been required since 1997. Management does not anticipate the need to make pension contributions until after 2014.
The Company accounts for the cost of its postretirement medical and life insurance benefit plans in a similar manner to that used for its defined benefit pension plan. This plan is unfunded, so no assumptions related to rate of return on assets impact the net expense recorded; however, the selection of discount rates can significantly impact the actuarial determination of net expense. The Company used a discount rate of 5.35%, derived using a cash flow matching technique, and recorded a net cost of $19.7 million for 2012. Had the selected discount rate been 5.10% (25 basis points lower than the discount rate referenced above), the expense for 2012 would have been $0.5 million higher. Because the plan provisions include “caps” on company per capita costs, healthcare cost inflation rate assumptions do not materially impact the net expense recorded.
48 Exhibit C Page 49 of 171 NEW NUCLEAR CONSTRUCTION MATTERS
SCE&G and Santee Cooper are parties to construction and operating agreements in which they agreed to be joint owners, and share operating costs and generation output, of two 1,117 MW nuclear generation units currently being constructed at the site of Summer Station, with SCE&G responsible for 55% of the cost and receiving 55% of the output, and Santee Cooper responsible for and receiving the remaining 45%. Under these agreements, SCE&G has the primary responsibility for oversight of the construction of the New Units and will be responsible for the operation of the New Units as they come online.
SCE&G, on behalf of itself and as agent for Santee Cooper, entered into the EPC Contract with the Consortium for the design, procurement and construction of the New Units. SCE&G's share of the estimated cash outlays (future value, excluding AFC) totals approximately $6 billion for plant costs and related transmission infrastructure costs, which costs are projected based on historical one-year and five-year escalation rates as required by the SCPSC.
On March 30, 2012, the NRC approved and issued COLs for the New Units. On April 19, 2012, SCE&G, on behalf of itself and as agent for Santee Cooper, issued a Full Notice to Proceed to the Consortium for construction of the New Units, allowing for the commencement of safety related aspects of the project. The first New Unit is scheduled for substantial completion in 2017, and the second New Unit is scheduled for substantial completion in 2018.
In May 2011, the SCPSC approved an updated capital cost schedule sought by SCE&G that, among other matters, incorporated then-identifiable additional capital costs of $173.9 million (SCE&G's portion in 2007 dollars).
The parties to the EPC Contract have established both informal and formal dispute resolution procedures in order to resolve issues that arise during the course of constructing a project of this magnitude. During the course of activities under the EPC Contract, issues have materialized that impact project budget and schedule. Claims specifically relating to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units and unanticipated rock conditions at the site resulted in assertions of contractual entitlement to recover additional costs to be incurred. On July 11, 2012, SCE&G and the Consortium finalized an agreement which set SCE&G's portion of the costs for these specific claims at approximately $138 million (in 2007 dollars). As described below, SCE&G anticipates that these additional costs, as well as other costs that may be identified from time to time, will be recoverable through rates.
In November 2012, the SCPSC approved an updated construction schedule and additional updated capital costs of $278 million (SCE&G's portion in 2007 dollars). The November 2012 order approved additional identifiable capital costs of approximately $1 million (SCE&G's portion in 2007 dollars) related to new federal healthcare laws, information security measures, and certain minor design modifications; approximately $8 million (SCE&G's portion in 2007 dollars) related to transmission infrastructure; and approximately $132 million (SCE&G's portion in 2007 dollars) related to additional labor for the oversight of the New Units during construction and for preparing to operate the New Units, and facilities and information technology systems required to support the New Units and their personnel. In addition, the order approved revised substantial completion dates for the New Units based on the March 30, 2012 issuance of the COL and the above amounts agreed upon by SCE&G and the Consortium in July 2012 to resolve claims for costs related to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units and unanticipated rock conditions at the site. Thereafter, two parties filed separate petitions requesting that the SCPSC reconsider its November 2012 order. On December 12, 2012, the SCPSC denied both petitions.
When the NRC issued the COLs for the New Units, two of the conditions that it imposed were requiring inspection and testing of certain components of the New Units' passive cooling system, and requiring the development of strategies to respond to extreme natural events resulting in the loss of power at the New Units. In addition, the NRC directed the Office of New Reactors to issue to SCE&G an order requiring enhanced, reliable spent fuel pool instrumentation, as well as a request for information related to emergency plant staffing. These conditions and requirements are responsive to the NRC's Near-Term Task Force report titled “Recommendations for Enhancing Reactor Safety in the 21st Century.” This report was prepared in the wake of the March 2011 earthquake-generated tsunami, which severely damaged several nuclear generating units and their back-up cooling systems in Japan. SCE&G is evaluating the impact these conditions and requirements impose on the construction and operation of the New Units. SCE&G cannot predict what additional regulatory or other outcomes may be implemented in the United States, or how such initiatives would impact SCE&G's existing Summer Station or the construction or operation of the New Units.
In February 2013, work began on the reinforcing bar reconfiguration in the Unit 2 nuclear island elevator pit and sump areas. The initial pouring of the Unit 2 nuclear island basemat could take place in the first quarter of 2013 following the
49 Exhibit C Page 50 of 171 completion of this work and based upon an expedited approval by the NRC staff. It is not anticipated that the resolution of this issue will cause a delay in the commercial operation of the New Units in 2017 and 2018.
As previously reported, SCE&G has been advised by Santee Cooper that it is reviewing certain aspects of its capital improvement program and long-term power supply plan, including the level of its participation in the New Units. Santee Cooper has been engaged in discussions with several parties that may result in one or more of them executing a power purchase agreement or acquiring a portion of Santee Cooper's ownership interest in the New Units. SCE&G is unable to predict whether any change in Santee Cooper's ownership interest or the addition of new joint owners will increase project costs or delay the commercial operation dates of the New Units. Any such project cost increase or delay could be material.
OTHER MATTERS
Financial Regulatory Reform
In July 2010, Dodd-Frank became law. This law provides for substantial additional regulation of over-the-counter and security-based derivative instruments, among other things, and requires numerous rule-makings by the CFTC and the SEC to implement. The Company has determined that it meets the end-user exception in Dodd-Frank, with the lowest level of required regulatory reporting burden imposed by this law. The Company is currently complying with these enacted regulations and intends to comply with regulations enacted in the future, but cannot predict when the final regulations will be issued or what requirements they will impose.
Off-Balance Sheet Transactions
Although SCANA invests in securities and business ventures, it does not hold significant investments in unconsolidated special purpose entities. SCANA 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, vehicles, equipment and rail cars.
Claims and Litigation
For a description of claims and litigation see Item 3. LEGAL PROCEEDINGS and Note 10 to the consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All financial instruments held by the Company described below are held for purposes other than trading.
Interest Rate Risk
The tables below provides information about long-term debt issued by the Company and other financial instruments that are sensitive to changes in interest rates. For debt obligations, the tables present principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the figures shown reflect notional amounts, weighted average interest rates and related maturities. Fair values for debt represent quoted market prices. Interest rate swap agreements are valued using discounted cash flow models with independently sourced data.
December 31, 2012 Expected Maturity Date Millions of dollars 2013 2014 2015 2016 2017 Thereafter Total Fair Value Long-Term Debt:
Fixed Rate ($) 162.0 46.1 9.8 8.6 7.7 4,706.0 4,940.2 5,941.4 Average Fixed Interest Rate (%) 6.96 4.86 4.92 5.03 5.12 5.59 5.63 — Variable Rate ($) 4.4 4.4 4.4 4.4 4.4 142.6 164.6 157.5 Average Variable Interest Rate (%) 1.01 1.01 1.01 1.01 1.01 0.61 0.66 — Interest Rate Swaps:
Pay Fixed/Receive Variable ($) 604.4 304.4 4.4 4.4 4.4 146.2 1,068.2 (33.6) Average Pay Interest Rate (%) 3.04 2.53 6.17 6.17 6.17 4.76 3.17 — Average Receive Interest Rate (%) 0.31 0.32 1.01 1.01 1.01 0.58 0.36 —
50 Exhibit C Page 51 of 171
December 31, 2011 Expected Maturity Date Millions of dollars 2012 2013 2014 2015 2016 Thereafter Total Fair Value Long-Term Debt:
Fixed Rate ($) 269.9 160.7 44.8 8.4 7.7 3,990.0 4,481.5 5,330.1 Average Fixed Interest Rate (%) 6.19 7.00 4.96 5.50 5.54 5.84 5.89 — Variable Rate ($) 4.4 4.4 4.4 4.4 4.4 147.5 169.5 147.1 Average Variable Interest Rate (%) 1.23 1.23 1.23 1.23 1.23 0.74 0.80 — Interest Rate Swaps:
Pay Variable/Receive Fixed ($) 253.2 — — — — — 253.2 0.3 Pay Interest Rate (%) 5.07 — — — — — 5.07 — Receive Interest Rate (%) 6.28 — — — — — 6.28 — Pay Fixed/Receive Variable ($) 504.4 154.4 4.4 4.4 4.4 150.6 822.6 (156.5) Average Pay Interest Rate (%) 3.41 4.92 6.17 6.17 6.17 4.80 3.99 — Average Receive Interest Rate (%) 0.59 0.60 1.23 1.23 1.23 0.70 0.62 —
While a decrease in interest rates would increase the fair value of debt, it is unlikely that events which would result in a realized loss will occur.
The above tables exclude long-term debt of $9 million at December 31, 2012 and $15 million at December 31, 2011, which amounts do not have a stated interest rate associated with them.
For further discussion of the Company’s long-term debt and interest rate derivatives, see Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources and Notes 4 and 6 to the condensed consolidated financial statements.
Commodity Price Risk
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 MMBTU. Fair value represents quoted market prices.
Expected Maturity: Futures Contracts Options
Purchased Call Purchased Put 2013 Long 2013 (Long) (Short) Settlement Price (a) 3.45 Strike Price (a) 3.88 3.50 Contract Amount (b) 15.0 Contract Amount (b) 20.0 0.2 Fair Value (b) 14.2 Fair Value (b) 0.7 —
2014 Settlement Price (a) 4.00 Contract Amount (b) 1.3 Fair Value (b) 1.3
(a) Weighted average, in dollars
(b) Millions of dollars
51 Exhibit C Page 52 of 171 Swaps 2013 2014 2015 2016 Commodity Swaps:
Pay fixed/receive variable (b) 56.0 16.4 13.1 7.7 Average pay rate (a) 4.1640 4.8830 5.2136 4.9323 Average received rate (a) 3.4649 4.0288 4.2288 4.4153 Fair Value (b) 46.6 13.6 10.7 6.9 Pay variable/receive fixed (b) 24.6 12.5 10.7 6.9 Average pay rate (a) 3.4992 4.0297 4.2288 4.4153 Average received rate (a) 4.4020 4.9667 5.2231 4.9388 Fair Value (b) 31.0 15.4 13.2 7.7 Basis Swaps:
Pay variable/receive variable (b) 12.2 — — — Average pay rate (a) 3.4980 — — — Average received rate (a) 3.4876 — — — Fair Value (b) 12.2 — — —
(a) Weighted average, in dollars
(b) Millions of dollars
The Company uses derivative instruments to hedge forward purchases and sales of natural gas, which create market risks of different types. See Note 6 to the consolidated financial statements. The information above includes those financial positions of Energy Marketing and PSNC Energy.
PSNC Energy utilizes futures, options and swaps to hedge gas purchasing activities. PSNC Energy’s tariffs include a provision for the recovery of actual gas costs incurred. PSNC Energy defers premiums, transaction fees, margin requirements and any realized gains or losses from its hedging program for subsequent recovery from customers. The SCPSC authorized suspension of SCE&G's natural gas hedging program in January 2012, and SCE&G was not a party to natural gas derivative instruments at December 31, 2012.
52 Exhibit C Page 53 of 171 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SCANA Corporation Cayce, South Carolina
We have audited the accompanying consolidated balance sheets of SCANA Corporation and subsidiaries (the "Company") as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, cash flows and changes in common equity for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in Part IV at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2013 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/DELOITTE & TOUCHE LLP Charlotte, North Carolina February 28, 2013
53 Exhibit C Page 54 of 171 SCANA Corporation CONSOLIDATED BALANCE SHEETS
December 31, (Millions of dollars) 2012 2011 Assets
Utility Plant In Service $ 11,865 $ 12,000 Accumulated Depreciation and Amortization (3,811) (3,836) Construction Work in Progress 2,084 1,482 Plant to be Retired, Net 362 — Nuclear Fuel, Net of Accumulated Amortization 166 171 Goodwill 230 230 Utility Plant, Net 10,896 10,047 Nonutility Property and Investments:
Nonutility property, net of accumulated depreciation of $139 and $118 306 305 Assets held in trust, net-nuclear decommissioning 94 84 Other investments 87 87 Nonutility Property and Investments, Net 487 476 Current Assets:
Cash and cash equivalents 72 29 Receivables, net of allowance for uncollectible accounts of $7 and $9 780 756 Inventories (at average cost):
Fuel 304 313 Materials and supplies 136 129 Emission allowances 1 2 Prepayments and other 223 236 Deferred income taxes 11 26 Total Current Assets 1,527 1,491 Deferred Debits and Other Assets:
Regulatory assets 1,464 1,279 Other 242 241 Total Deferred Debits and Other Assets 1,706 1,520 Total $ 14,616 $ 13,534
See Notes to Consolidated Financial Statements.
54 Exhibit C Page 55 of 171 SCANA Corporation CONSOLIDATED BALANCE SHEETS
December 31, (Millions of dollars) 2012 2011 Capitalization and Liabilities
Common equity $ 4,154 $ 3,889 Long-Term Debt, Net 4,949 4,622 Total Capitalization 9,103 8,511 Current Liabilities:
Short-term borrowings 623 653 Current portion of long-term debt 172 31 Accounts payable 428 374 Customer deposits and customer prepayments 86 103 Taxes accrued 164 154 Interest accrued 82 74 Dividends declared 66 63 Derivative financial instruments 80 77 Other 110 113 Total Current Liabilities 1,811 1,642 Deferred Credits and Other Liabilities:
Deferred income taxes, net 1,653 1,533 Deferred investment tax credits 36 40 Asset retirement obligations 561 474 Postretirement benefits 387 291 Regulatory liabilities 882 778 Other 183 265 Total Deferred Credits and Other Liabilities 3,702 3,381 Commitments and Contingencies (Note 10) — — Total $ 14,616 $ 13,534
See Notes to Consolidated Financial Statements.
55 Exhibit C Page 56 of 171 SCANA Corporation CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, (Millions of dollars, except per share amounts) 2012 2011 2010 Operating Revenues:
Electric $ 2,446 $ 2,424 $ 2,367 Gas-regulated 774 849 989 Gas-nonregulated 956 1,136 1,245 Total Operating Revenues 4,176 4,409 4,601
Operating Expenses:
Fuel used in electric generation 838 917 942 Purchased power 28 19 17 Gas purchased for resale 1,198 1,455 1,679 Other operation and maintenance 690 658 670 Depreciation and amortization 356 346 335 Other taxes 207 201 190 Total Operating Expenses 3,317 3,596 3,833
Operating Income 859 813 768
Other Income (Expense):
Other income 59 52 52 Other expenses (42) (40) (39) Interest charges, net of allowance for borrowed funds used during construction of $11, $7 and $10 (295) (284) (266) Allowance for equity funds used during construction 21 14 20 Total Other Expense (257) (258) (233)
Income Before Income Tax Expense 602 555 535 Income Tax Expense 182 168 159 Net Income $ 420 $ 387 $ 376
Per Common Share Data
Basic Earnings Per Share of Common Stock $ 3.20 $ 3.01 $ 2.99 Diluted Earnings Per Share of Common Stock 3.15 2.97 2.98 Weighted Average Common Shares Outstanding (millions)
Basic 131.1 128.8 125.7 Diluted 133.3 130.2 126.3 Dividends Declared Per Share of Common Stock $ 1.98 $ 1.94 $ 1.90
See Notes to Consolidated Financial Statements.
56 Exhibit C Page 57 of 171 SCANA Corporation CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, (Millions of dollars) 2012 2011 2010 Net Income $ 420 $ 387 $ 376 Other Comprehensive Income (Loss), net of tax: Unrealized losses on cash flow hedging activities arising during period, net of tax of $(5), $(36) and $(22) (8) (58) (36) Losses on cash flow hedging activities reclassified to net income, net of tax of $12, $8 and $10 19 13 17
Deferred cost on employee benefit plans, net of tax of $(2), $(2) and $16 (4) (3) 26 Amortization of deferred employee benefit plan costs reclassified to net income, net of tax of $-, $- and $- 1 1 1 Other Comprehensive Income (Loss) 8 (47) 8 Total Comprehensive Income $ 428 $ 340 $ 384
See Notes to Consolidated Financial Statements.
57 Exhibit C Page 58 of 171 SCANA Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (Millions of dollars) 2012 2011 2010
Cash Flows From Operating Activities: Net Income $ 420 $ 387 $ 376 Adjustments to reconcile net income to net cash provided from operating
activities: Earnings from equity method investments, net of distributions — 2 3 Deferred income taxes, net 130 164 240 Depreciation and amortization 368 354 341 Amortization of nuclear fuel 44 40 36 Allowance for equity funds used during construction (21) (14) (20) Carrying cost recovery — — (3)
Cash provided (used) by changes in assets and liabilities: Receivables 5 34 (143) Inventories (53) (44) 11 Prepayments and other 3 58 (109) Regulatory assets (172) (173) (71) Regulatory liabilities 62 (17) (13) Accounts payable 34 (99) 79 Taxes accrued 10 8 12 Interest accrued 8 2 1 Other assets (120) 34 (32) Other liabilities 121 75 103 Net Cash Provided From Operating Activities 839 811 811
Cash Flows From Investing Activities: Property additions and construction expenditures (1,077) (884) (876) Proceeds from investments (including derivative collateral posted) 472 36 104 Purchase of investments (including derivative collateral posted) (414) (168) (102) Payments upon interest rate contract settlement (51) (61) — Proceeds from interest rate contract settlement 14 — — Net Cash Used For Investing Activities (1,056) (1,077) (874)
Cash Flows From Financing Activities: Proceeds from issuance of common stock 97 97 149 Proceeds from issuance of long-term debt 759 826 259 Repayments of long-term debt (309) (668) (300) Dividends (257) (248) (237) Short-term borrowings, net (30) 233 85 Net Cash Provided From (Used For) Financing Activities 260 240 (44) Net Increase (Decrease) in Cash and Cash Equivalents 43 (26) (107) Cash and Cash Equivalents, January 1 29 55 162 Cash and Cash Equivalents, December 31 $ 72 $ 29 $ 55
Supplemental Cash Flow Information: Cash paid for—Interest (net of capitalized interest of $11, $7 and $9) $ 281 $ 276 $ 268 —Income taxes 107 6 61
Noncash Investing and Financing Activities: Accrued construction expenditures 124 85 179 Capital leases 8 6 6
See Notes to Consolidated Financial Statements.
58 Exhibit C Page 59 of 171 SCANA Corporation CONSOLIDATED STATEMENTS OF CHANGES IN COMMON EQUITY
Accumulated Other Common Stock Retained Comprehensive Millions Shares Amount Earnings Loss Total Balance as of January 1, 2010 123 $ 1,640 $ 1,823 $ (55) $ 3,408 Net Income 376 376 Other Comprehensive Income, net of taxes of $5 8 8 Total Comprehensive Income 376 8 384 Issuance of Common Stock 4 149 149 Dividends Declared on Common Stock (239) (239) Balance as of December 31, 2010 127 1,789 1,960 (47) 3,702 Net Income 387 387 Other Comprehensive Loss, net of taxes of $(29) (47) (47) Total Comprehensive Income (Loss) 387 (47) 340 Issuance of Common Stock 3 97 97 Dividends Declared on Common Stock (250) (250) Balance as of December 31, 2011 130 1,886 2,097 (94) 3,889 Net Income 420 420 Other Comprehensive Income, net of taxes of $5 8 8 Total Comprehensive Income 420 8 428 Issuance of Common Stock 2 97 97 Dividends Declared on Common Stock (260) (260) Balance as of December 31, 2012 132 $ 1,983 $ 2,257 $ (86) $ 4,154
Dividends declared per share of common stock were $1.98, $1.94 and $1.90 for 2012, 2011 and 2010, respectively.
See Notes to Consolidated Financial Statements.
59 Exhibit C Page 60 of 171
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
SCANA, a South Carolina corporation, is a holding company. The Company engages predominantly in the generation and sale of electricity to wholesale and retail customers in South Carolina and in the purchase, sale and transportation of natural gas to wholesale and retail customers in South Carolina, North Carolina and Georgia. The Company also conducts other energy-related business and provides fiber optic communications in South Carolina.
The accompanying Consolidated Financial Statements reflect the accounts of SCANA and the following wholly- owned subsidiaries.
Regulated businesses Nonregulated businesses South Carolina Electric & Gas Company SCANA Energy Marketing, Inc. South Carolina Fuel Company, Inc. SCANA Communications, Inc. South Carolina Generating Company, Inc. ServiceCare, Inc. Public Service Company of North Carolina, Incorporated SCANA Services, Inc. Carolina Gas Transmission Corporation SCANA Corporate Security Services, Inc.
The Company reports certain investments using the cost or equity method of accounting, as appropriate. Intercompany balances and transactions have been eliminated in consolidation, with the exception of profits on intercompany sales to regulated affiliates if the sales price is reasonable and the future recovery of the sales price through the rate-making process is probable, as permitted by accounting guidance.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Utility Plant
Utility plant is stated substantially at original cost. The costs of additions, replacements and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged to accumulated depreciation. The costs of repairs and replacements of items of property determined to be less than a unit of property or that do not increase the asset’s life or functionality are charged to expense.
AFC is a noncash item that reflects the period cost of capital devoted to plant under construction. This accounting practice results in the inclusion of, as a component of construction cost, the costs of debt and equity capital dedicated to construction investment. AFC is included in rate base investment and depreciated as a component of plant cost in establishing rates for utility services. The Company’s regulated subsidiaries calculated AFC using average composite rates of 6.3% for 2012, 4.7% for 2011 and 7.4% for 2010. These rates do not exceed the maximum allowable rate as calculated under FERC Order No. 561. SCE&G capitalizes interest on nuclear fuel in process at the actual interest cost incurred.
60 Exhibit C Page 61 of 171
The Company records provisions for depreciation and amortization using the straight-line method based on the estimated service lives of the various classes of property. The composite weighted average depreciation rates for utility plant assets were as follows:
2012 2011 2010 SCE&G 2.93% 2.92% 2.83% GENCO 2.66% 2.69% 2.66% CGT 2.09% 2.00% 1.94% PSNC Energy 3.01% 3.05% 3.11% Aggregate of Above 2.90% 2.90% 2.85%
SCE&G records nuclear fuel amortization using the units-of-production method. Nuclear fuel amortization is included in “Fuel used in electric generation” and recovered through the fuel cost component of retail electric rates. Provisions for amortization of nuclear fuel include amounts necessary to satisfy obligations to the DOE under a contract for disposal of spent nuclear fuel.
Jointly Owned Utility Plant
SCE&G jointly owns and is the operator of Summer Station Unit 1. In addition, SCE&G will jointly own and will be the operator of the New Units being designed and constructed at the site of Summer Station. Each joint owner provides its own financing and shares the direct expenses and generation output in proportion to its ownership of a unit. SCE&G’s share of the direct expenses is included in the corresponding operating expenses on its income statement.
Unit 1 New Units As of December 31, 2012
Percent owned 66.7% 55.0% Plant in service $ 1.1 billion — Accumulated depreciation $ 557.0 million — Construction work in progress $ 113.6 million $ 1.8 billion As of December 31, 2011
Percent owned 66.7% 55.0% Plant in service $ 1.0 billion — Accumulated depreciation $ 545.0 million — Construction work in progress $ 71.0 million $ 1.2 billion
SCE&G, on behalf of itself and as agent for Santee Cooper, has contracted the Consortium for the design and construction of the New Units at the site of Summer Station. SCE&G’s share of the estimated cash outlays (future value, excluding AFC) totals approximately $6.0 billion for plant costs and for related transmission infrastructure costs, and is projected based on historical one-year and five-year escalation rates as required by the SCPSC. The first New Unit is scheduled for substantial completion in 2017, and the second in 2018.
SCE&G’s latest IRP filed with the SCPSC continues to support SCE&G’s need for 55% of the output of the New Units. As previously reported, SCE&G has been advised by Santee Cooper that it is reviewing certain aspects of its capital improvement program and long-term power supply plan, including the level of its participation in the New Units. Santee Cooper has been engaged in discussions with several parties that may result in one or more of them executing a power purchase agreement or acquiring a portion of Santee Cooper’s ownership interest in the New Units. SCE&G is unable to predict whether any change in Santee Cooper’s ownership interest or the addition of new joint owners will increase project costs or delay the commercial operation dates of the New Units. Any such project cost increase or delay could be material.
Included within receivables on the balance sheet were amounts due to SCE&G from Santee Cooper for its share of direct expenses and construction costs for Summer Station Unit 1 and the New Units. These amounts totaled $92.9 million at December 31, 2012 and $63.6 million at December 31, 2011.
61 Exhibit C Page 62 of 171 Plant to be Retired
SCE&G has identified a total of six coal-fired units that it intends to retire by 2018, subject to future developments in environmental regulations, among other matters. These units have an aggregate generating capacity (summer 2012) of 730 MW. One unit, with a net carrying value of $20 million at December 31, 2012, was retired and its value is recorded in regulatory assets (see Note 2). The net carrying value of the remaining units totaled $362 million at December 31, 2012, and is identified as Plant to be Retired, Net in the consolidated financial statements. SCE&G plans to request recovery of and a return on the net carrying value of these remaining units in future rate proceedings in connection with their retirement, and expects that such deferred amounts will be recovered through rates. In the meantime, these units remain in rate base, and SCE&G continues to depreciate them using composite straight-line rates approved by the SCPSC.
Major Maintenance
Planned major maintenance costs related to certain fossil fuel turbine equipment and nuclear refueling outages are accrued in periods other than when incurred in accordance with approval by the SCPSC for such accounting treatment and rate recovery of expenses accrued thereunder. The difference between such cumulative major maintenance costs and cumulative collections are classified as a regulatory asset or regulatory liability on the consolidated balance sheet (see Note 2). Other planned major maintenance is expensed when incurred.
Through 2017, SCE&G is authorized to collect $18.4 million annually through electric rates to offset certain turbine maintenance expenditures. For the years ended December 31, 2012 and 2011, SCE&G incurred $11.1 million and $11.5 million, respectively, for turbine maintenance.
Nuclear refueling outages are scheduled 18 months apart, and SCE&G begins accruing for each successive scheduled outage upon completion of the preceding scheduled outage. SCE&G accrued $1.2 million per month from January 2010 through December 2012 for its portion of the outages in the spring of 2011 and the fall of 2012. Total costs for the 2011 outage were $34.1 million, of which SCE&G was responsible for $22.7 million. Total costs for the 2012 outage were $32.3 million, of which SCE&G was responsible for $21.5 million. In connection with the SCPSC's December 2012 approval of SCE&G's retail electric rates (see Note 2), effective January 1, 2013, SCE&G began to accrue $1.4 million per month for its portion of the nuclear refueling outages that are scheduled to occur through the spring of 2020.
Goodwill
The Company considers amounts categorized by FERC as “acquisition adjustments” with carrying values of $210 million (net of writedown of $230 million) for PSNC Energy (Gas Distribution segment) and $20 million for CGT (All Other segment) to be goodwill. The Company tests these goodwill amounts for impairment annually as of January 1, unless indicators, events or circumstances require interim testing to be performed. The goodwill impairment testing is generally a two-step quantitative process which in step one requires estimation of the fair value of the respective reporting unit and the comparison of that amount to the carrying value of the reporting unit. If this step indicates an impairment (a carrying value in excess of fair value), then step two, measurement of the amount of the goodwill impairment (if any), is required. In the first quarter of 2012, the Company adopted guidance under which it has the option to first perform a qualitative assessment of impairment. Based on this qualitative ("step zero") assessment, if the Company determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company is not required to proceed with the two-step quantitative assessment.
In evaluations of PSNC Energy, fair value is estimated using the assistance of an independent appraisal. In evaluations of CGT, prior to adoption of the new guidance, estimated fair value was obtained from internal analyses. In all evaluations for the periods presented, step one or step zero, as applicable, has indicated no impairment. The fair values of the reporting units are substantially in excess of their carrying values, and no impairment charges have been recorded; however, should a write-down be required in the future, such a charge would be treated as an operating expense.
Nuclear Decommissioning
SCE&G’s two-thirds share of estimated site-specific nuclear decommissioning costs for Summer Station Unit 1, including the cost of decommissioning plant components both subject to and not subject to radioactive contamination, totals $696.8 million, stated in 2012 dollars, pursuant to an updated decommissioning cost study performed in 2012. Santee Cooper is responsible for decommissioning costs related to its one-third ownership interest in Summer Station Unit 1. The cost estimate assumes that the site will be maintained over a period of approximately 60 years in such a manner as to allow for subsequent decontamination that would permit release for unrestricted use. 62 Exhibit C Page 63 of 171
Under SCE&G’s method of funding decommissioning costs, amounts collected through rates ($3.2 million pre-tax in each of 2012, 2011 and 2010) are invested in insurance policies on the lives of certain Company personnel. SCE&G transfers to an external trust fund the amounts collected through electric rates, insurance proceeds and interest thereon, less expenses. The trusteed asset balance reflects the net cash surrender value of the insurance policies and cash held by the trust. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures for Summer Station Unit 1 on an after-tax basis.
Cash and Cash Equivalents
The Company considers temporary cash investments having original maturities of three months or less at time of purchase to be cash equivalents. These cash equivalents are generally in the form of commercial paper, certificates of deposit, repurchase agreements, treasury bills and notes.
Accounts Receivable
Accounts receivable reflect amounts due from customers arising from the delivery of energy or related services and include revenues earned pursuant to revenue recognition practices described below. These receivables include both billed and unbilled amounts. Receivables are generally due within one month of receipt of invoices which are presented on a monthly cycle basis.
Asset Management and Supply Service Agreements
PSNC Energy utilizes asset management and supply service agreements with counterparties for certain natural gas storage facilities. Such counterparties held 44% and 45% of PSNC Energy’s natural gas inventory at December 31, 2012 and December 31, 2011, respectively, with a carrying value of $19.6 million and $28.7 million, respectively, through either capacity release or agency relationships. Under the terms of the asset management agreements, PSNC Energy receives storage asset management fees. No fees are received under supply service agreements. The agreements expire at various times through March 31, 2013. PSNC Energy expects to renew these agreements.
Income Taxes
The Company files a consolidated federal income tax return. Under a joint consolidated income tax allocation agreement, each subsidiary’s current and deferred tax expense is computed on a stand-alone basis. Deferred tax assets and liabilities are recorded for the tax effects of all significant temporary differences between the book basis and tax basis of assets and liabilities at currently enacted tax rates. Deferred tax assets and liabilities are adjusted for changes in such tax rates through charges or credits to regulatory assets or liabilities if they are expected to be recovered from, or passed through to, customers of the Company’s regulated subsidiaries; otherwise, they are charged or credited to income tax expense.
Regulatory Assets and Regulatory Liabilities
The Company’s rate-regulated utilities record costs that have been or are expected to be allowed in the ratemaking process in a period different from the period in which the costs would be charged to expense by a nonregulated enterprise. These regulatory assets and liabilities represent expenses deferred for future recovery from customers or obligations to be refunded to customers and are primarily classified in the balance sheet as regulatory assets and regulatory liabilities (see Note 2). The regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process.
Debt Premium, Discount and Expense, Unamortized Loss on Reacquired Debt
The Company records long-term debt premium and discount within long-term debt and amortizes them as components of interest charges over the terms of the respective debt issues. For regulated subsidiaries, other issuance expense and gains or losses on reacquired debt that is refinanced are recorded in other deferred debits or credits and are amortized over the term of the replacement debt, also as interest charges.
Environmental
The Company maintains an environmental assessment program to identify and evaluate current and former operations sites that could require environmental clean-up. As site assessments are initiated, estimates are made of the amount of 63 Exhibit C Page 64 of 171 expenditures, if any, deemed necessary to investigate and remediate each site. Environmental remediation liabilities are accrued when the criteria for loss contingencies are met. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from the original estimates. Probable and estimable costs are accrued related to environmental sites on an undiscounted basis. Amounts estimated and accrued to date for site assessments and clean- up relate solely to regulated operations. Amounts expected to be recovered through rates are recorded in regulatory assets and, if applicable, amortized over approved amortization periods. Other environmental costs are recorded to expense.
Income Statement Presentation
In its consolidated statements of income, the Company presents the activities of its regulated businesses (including those activities of segments described in Note 12) within operating income, and it presents all other activities within other income (expense).
Revenue Recognition
The Company records revenues during the accounting period in which it provides services to customers and includes estimated amounts for electricity and natural gas delivered but not billed. Unbilled revenues totaled $189.8 million at December 31, 2012 and $169.1 million at December 31, 2011.
Fuel costs, emission allowances and certain environmental reagent costs for electric generation are collected through the fuel cost component in retail electric rates. This component is established by the SCPSC during fuel cost hearings. Any difference between actual fuel costs and amounts contained in the fuel cost component is deferred and included when determining the fuel cost component during subsequent hearings.
SCE&G customers subject to a PGA are billed based on a cost of gas factor calculated in accordance with a gas cost recovery procedure approved by the SCPSC and subject to adjustment monthly. Any difference between actual gas costs, including the results of its hedging program, if any, and amounts contained in rates is deferred and included when making the next adjustment to the cost of gas factor. PSNC Energy’s PGA mechanism authorized by the NCUC allows the recovery of all prudently incurred gas costs, including the results of its hedging program, from customers. Any difference between actual gas costs and amounts contained in rates is deferred and included when establishing gas costs during subsequent PGA filings or in annual prudence reviews.
SCE&G’s gas rate schedules for residential, small commercial and small industrial customers include a WNA which minimizes fluctuations in gas revenues due to abnormal weather conditions. In August 2010, SCE&G implemented an eWNA on a pilot basis for its electric customers, and it will continue on a pilot basis unless modified or terminated by the SCPSC.
PSNC Energy is authorized by the NCUC to utilize a CUT which allows it to adjust base rates semi-annually for residential and commercial customers based on average per customer consumption, whether impacted by weather or other factors.
Taxes that are billed to and collected from customers are recorded as liabilities until they are remitted to the respective taxing authority. Such taxes are not included in revenues or expenses in the statements of income.
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 utilizing the treasury stock method. The Company has issued no securities that would have an antidilutive effect on earnings per share.
A reconciliation of the weighted average number of common shares for each of the three years ended December 31, 2012 for basic and diluted purposes is as follows:
In Millions 2012 2011 2010 Weighted Average Shares Outstanding—Basic 131.1 128.8 125.7 Net effect of equity forward contracts 2.2 1.4 0.6 Weighted Average Shares Outstanding—Diluted 133.3 130.2 126.3
64 Exhibit C Page 65 of 171
New Accounting Matters
In 2012, the Company adopted accounting guidance that revised how comprehensive income is presented in its financial statements and conformed the presentation for 2011 and 2010. In the first quarter of 2013, the Company will adopt recent additional guidance requiring the disclosure of the effects of items reclassified out of accumulated other comprehensive income. The adoption of this guidance has not impacted, and is not expected to impact, the Company's results of operations, cash flows or financial position.
In 2012, the Company adopted accounting guidance that permits it to make a qualitative assessment about the likelihood of goodwill impairment each year. Such a qualitative (step zero) assessment was performed with respect to certain goodwill, and that assessment led the Company to determine that performing a two-step quantitative impairment test was unnecessary. For other goodwill, the two-step quantitative test was performed. The adoption of this guidance did not impact the Company's results of operations, cash flows or financial position.
In 2012, the Company adopted accounting guidance that amended existing requirements for measuring fair value and for disclosing information about fair value measurements. The adoption of this guidance did not impact the Company's results of operations, cash flows or financial position.
2. RATE AND OTHER REGULATORY MATTERS
Rate Matters
Electric
SCE&G's retail electric rates include 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 2012, the SCPSC approved SCE&G's request to decrease the total fuel cost component of its retail electric rates, and approved a settlement agreement among SCE&G, the ORS and SCEUC in which SCE&G agreed to recover an amount equal to its actual under-collected balance of base fuel and variable environmental costs as of April 30, 2012, or $80.6 million, over a twelve month period beginning with the first billing cycle of May 2012. The SCPSC also ruled that SCE&G's fuel purchasing practices and policies were reasonable and prudent for the period January 1, 2011 through December 31, 2011.
On December 19, 2012, the SCPSC approved a 4.23% overall increase in SCE&G's retail electric base rates, effective January 1, 2013, and authorized an allowed return on common equity of 10.25%. The SCPSC also approved a mid- period reduction to the cost of fuel component in rates, a reduction in the DSM Programs component rider to retail rates, and the recovery of and a return on the net carrying value of certain retired generating plant assets described below. On January 16, 2013, the SCPSC denied an SCEUC petition for rehearing of this order.
The eWNA is designed to reduce volatility of costs charged to residential and commercial customers due to abnormal weather and is based on a 15 year historical average of temperatures. In connection with the December 2012 order, SCE&G agreed to perform a study of alternative structures for eWNA by June 30, 2013, which study may be used to modify or terminate eWNA in the future.
On May 30, 2012, SCE&G filed an IRP with the SCPSC. The IRP evaluates future electric generation needs based on a variety of factors, including customer energy demands, EPA regulations, reserve margins and fuel costs. The IRP identified a total of six coal-fired units that SCE&G intends to retire by 2018, subject to future developments in environmental regulations, among other matters. These units have an aggregate generating capacity (summer 2012) of 730 MW. One unit, with a net carrying value of $20 million at December 31, 2012, was retired, and its carrying value is recorded in regulatory assets. Under provisions of the December 2012 rate order, SCE&G will be allowed recovery of and a return on the net carrying value of this unit over its original remaining useful life of approximately 14 years. The net carrying value of the remaining units is identified as Plant to be Retired, Net in the consolidated financial statements (see Note 1). SCE&G plans to request recovery of and a return on the net carrying value of these remaining units in future rate proceedings in connection with their retirement, and expects that such deferred amounts will be recovered through rates. In the meantime, these units remain in rate base, and SCE&G continues to depreciate them using composite straight-line rates approved by the SCPSC.
65 Exhibit C Page 66 of 171 In July 2010, the SCPSC issued an order approving a 4.88% overall increase in SCE&G's retail electric base rates and authorized an allowed return on common equity of 10.7%. Among other matters, the SCPSC's order provided for a $48.7 million credit to SCE&G's customers over two years to be offset by accelerated recognition of previously deferred state income tax credits. These tax credits were fully amortized in 2012.
SCE&G's DSM Programs for electric customers provide for an annual rider, approved by the SCPSC, to allow recovery of the costs and lost net margin revenue associated with the DSM Programs, along with an incentive for investing in such programs. SCE&G submitted annual filings in January to the SCPSC regarding the DSM Programs, net lost revenues, program costs, incentives and net program benefits. The SCPSC has approved the following rate changes pursuant to annual DSM Programs filings, which went into effect as indicated below: Year Effective Amount 2012 First billing cycle of May $19.6 million 2011 First billing cycle of June $7.0 million
In January 2013, SCE&G submitted to the SCPSC its annual update on DSM Programs, requesting an increase of approximately $27.2 million. A decision by the SCPSC on SCE&G's annual update is expected in the second quarter of 2013.
Electric - BLRA
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 the proposed construction and operation of the New 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 are being built. The SCPSC prudency finding is binding on all future related rate proceedings so long as the construction proceeds in accordance with schedules, estimates and projections, as approved by the SCPSC.
In May 2011, the SCPSC approved an updated capital cost schedule sought by SCE&G that, among other matters, incorporated then-identifiable additional capital costs of $173.9 million (SCE&G's portion in 2007 dollars).
In November 2012, the SCPSC approved an updated construction schedule and additional updated capital costs of $278 million (SCE&G's portion in 2007 dollars). The November 2012 order approved additional identifiable capital costs of approximately $1 million (SCE&G's portion in 2007 dollars) related to new federal healthcare laws, information security measures, and certain minor design modifications; approximately $8 million (SCE&G's portion in 2007 dollars) related to transmission infrastructure; and approximately $132 million (SCE&G's portion in 2007 dollars) related to additional labor for the oversight of the New Units during construction and for preparing to operate the New Units, and facilities and information technology systems required to support the New Units and their personnel. In addition, the order approved revised substantial completion dates for the New Units based on the March 30, 2012 issuance of the COL and the amounts agreed upon by SCE&G and the Consortium in July 2012 to resolve claims for costs related to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units and unanticipated rock conditions at the site. Thereafter, two parties filed separate petitions requesting that the SCPSC reconsider its November 2012 order. On December 12, 2012, the SCPSC denied both petitions.
Under the BLRA, SCE&G is allowed to file revised rates with the SCPSC each year to incorporate the financing cost of any incremental construction work in progress incurred for new nuclear generation. Requested rate adjustments are based on SCE&G's updated cost of debt and capital structure and on an allowed return on common equity of 11.0%. The SCPSC has approved the following rate changes under the BLRA effective for bills rendered on and after October 30 in the following years:
Year Increase Amount 2012 2.3% $ 52.1 million 2011 2.4% $ 52.8 million 2010 2.3% $ 47.3 million
66 Exhibit C Page 67 of 171 Gas
SCE&G
The RSA 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. The SCPSC has approved the following rate changes pursuant to annual RSA filings effective with the first billing cycle of November in the following years:
Year Action Amount 2012 2.1% Increase $ 7.5 million 2011 2.1% Increase $ 8.6 million 2010 2.1% Decrease $ 10.4 million
SCE&G's natural gas tariffs include a PGA that provides for the recovery of actual gas costs incurred. SCE&G's gas rates are calculated using a methodology which may adjust the cost of gas monthly based on a 12-month rolling average. The annual PGA hearing to review SCE&G's gas purchasing policies and procedures was held in November 2012 before the SCPSC. The SCPSC issued an order in January 2013 finding that SCE&G's gas purchasing policies and practices during the review period of August 1, 2011 through July 31, 2012, were reasonable and prudent and authorized the suspension of SCE&G's natural gas hedging program.
PSNC Energy
PSNC Energy is subject to a Rider D rate mechanism which allows it to recover from customers all prudently incurred gas costs and certain uncollectible expenses related to gas cost. The Rider D rate mechanism also allows PSNC Energy to recover, in any manner authorized by the NCUC, losses on negotiated gas and transportation sales.
PSNC Energy's rates are established using a benchmark cost of gas approved by the NCUC, which may be periodically adjusted 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 accounts for any over- or under-collection of the delivered cost of gas in its deferred accounts for subsequent rate consideration. The NCUC reviews PSNC Energy's gas purchasing practices annually. In addition, PSNC Energy utilizes a CUT which allows it to adjust its base rates semi-annually for residential and commercial customers based on average per customer consumption.
In October 2012, in connection with PSNC Energy's 2012 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, 2012.
Regulatory Assets and Regulatory Liabilities
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 which are summarized in the following tables. Substantially all of our regulatory assets are either explicitly excluded from rate base or are effectively excluded from rate base due to their being offset by related liabilities.
67 Exhibit C Page 68 of 171
December 31, Millions of dollars 2012 2011 Regulatory Assets:
Accumulated deferred income taxes $ 254 $ 243 Under-collections—electric fuel adjustment clause 66 28 Environmental remediation costs 44 30 AROs and related funding 319 316 Franchise agreements 36 40 Deferred employee benefit plan costs 460 392 Planned major maintenance 6 6 Deferred losses on interest rate derivatives 151 154 Deferred pollution control costs 38 25 Unrecovered plant 20 — Other 70 45 Total Regulatory Assets $ 1,464 $ 1,279
Regulatory Liabilities:
Accumulated deferred income taxes $ 21 $ 23 Asset removal costs 692 662 Storm damage reserve 27 32 Monetization of bankruptcy claim 32 34 Deferred gains on interest rate derivatives 110 24 Other — 3 Total Regulatory Liabilities $ 882 $ 778
Accumulated deferred income tax liabilities that arose from utility operations that have not been included in customer rates are recorded as a regulatory asset. Substantially all of these regulatory assets relate to depreciation and are expected to be recovered over the remaining lives of the related property which may range up to approximately 70 years. Similarly, 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 SCPSC which are expected to be recovered in retail electric rates over periods exceeding 12 months.
Environmental remediation costs represent costs associated with the assessment and clean-up of sites currently or formerly owned by the Company. These regulatory assets are expected to be recovered over periods of up to approximately 28 years.
ARO and related funding represents the regulatory asset associated with the legal obligation to decommission and dismantle Summer Station and conditional AROs related to generation, transmission and distribution properties, including gas pipelines. These regulatory assets are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 95 years.
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.
Employee benefit plan costs of the regulated utilities have historically been recovered as they have been recorded under generally accepted accounting principles. Deferred employee benefit plan costs represent amounts of pension and other postretirement benefit costs which were accrued as liabilities and treated as regulatory assets pursuant to FERC guidance, and costs deferred pursuant to specific SCPSC regulatory orders. In connection with the December 2012 rate
68 Exhibit C Page 69 of 171 order, approximately $63 million of the balance at December 31, 2012, which relates to pension costs for electric operations, are to be recovered through utility rates over approximately 30 years. Most of the remainder is expected to be recovered through utility rates, primarily over average service periods of participating employees, or up to approximately 12 years.
Planned major maintenance related to certain fossil-fueled turbine/generation equipment and nuclear refueling outages is accrued in periods other than when incurred, as approved pursuant to specific SCPSC orders. SCE&G collects and accrues $18.4 million annually for such equipment maintenance. Through December 31, 2012, nuclear refueling charges were accrued during each 18-month refueling outage cycle as a component of cost of service. In connection with the December 2012 rate order, effective January 1, 2013, SCE&G will collect and accrue $17.2 million annually for nuclear-related refueling charges.
Deferred losses or gains on interest rate derivatives represent the effective portions of changes in fair value and payments made or received upon termination of certain interest rate derivatives designated as cash flow hedges. These amounts are expected to be amortized to interest expense over the lives of the underlying debt, up to approximately 30 years.
Deferred pollution control costs represent deferred depreciation and operating and maintenance costs associated with the installation of scrubbers at Wateree and Williams Stations pursuant to specific regulatory orders. Such costs will be recovered through utility rates over periods up to 30 years.
Unrecovered plant represents the net book value of a coal-fired generating unit retired from service prior to being fully depreciated. Pursuant to the December 2012 rate order, SCE&G will amortize these amounts through cost of service rates over its original remaining useful life of approximately 14 years. Unamortized amounts are included in rate base.
Various other regulatory assets are expected to be recovered in rates over periods of up to approximately 30 years.
Asset removal costs represent estimated net collections through depreciation rates of amounts to be incurred for the non-legal obligation to remove 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, and prior to December 31, 2012, certain transmission and distribution insurance premiums and certain tree trimming and vegetation management expenditures in excess of amounts included in base rates. Pursuant to specific regulatory orders, SCE&G has suspended storm damage reserve collection through rates indefinitely.
The monetization of bankruptcy claim represents proceeds from the sale of a bankruptcy claim which are expected to be amortized into operating revenue through February 2024.
The SCPSC, the NCUC or the FERC has reviewed and approved through specific orders most of the items shown as regulatory assets. Other regulatory assets include, but are not limited to, certain costs which have not been specifically approved for recovery by the SCPSC or by FERC. In recording such 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. The costs are currently not 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 or changes in accounting requirements, the Company could be required to write off its regulatory assets and liabilities. Such an event could have a material effect on the Company's results of operations, liquidity or financial position in the period the write-off would be recorded.
3. COMMON EQUITY
The Company’s articles of incorporation do not limit the dividends that may be paid on its common stock. However, SCANA’s junior subordinated indenture (relating to the Hybrids), SCE&G’s bond indenture (relating to the Bonds) and PSNC Energy’s note purchase and debenture purchase agreements each contain provisions that, under certain circumstances, which the Company considers to be remote, could limit the payment of cash dividends on their respective common stock.
With respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At December 31, 2012, approximately $61.0 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G’s common stock.
69 Exhibit C Page 70 of 171 Cash dividends on SCANA’s common stock were declared during 2012, 2011 and 2010 at an annual rate per share of $1.98, $1.94 and $1.90, respectively.
The accumulated balances related to each component of accumulated other comprehensive loss were as follows:
Millions of Dollars 2012 2011 Net unrealized losses on cash flow hedging activities, net of taxes of $43 and $50 $ (70) $ (81) Net unrealized deferred costs of employee benefit plans, net of taxes of $10 and $8 (16) (13) Total $ (86) $ (94)
The Company recognized losses of $19 million, $7 million and $12 million, net of tax, as a result of qualifying cash flow hedges whose hedged transactions occurred during the years ended December 31, 2012, 2011 and 2010, respectively.
Authorized shares of common stock were 200 million as of December 31, 2012 and 2011.
SCANA issued common stock valued at $97.7 million, $97.8 million and $91.1 million (when issued) during the years ended December 31, 2012, 2011 and 2010, respectively, which was satisfied using original issue shares, through various compensation and dividend reinvestment plans, including the Stock Purchase Savings Plan.
SCANA issued common stock valued at $59.2 million (at time of issue) in a public offering on May 17, 2010 and entered into forward agreements for the sale of approximately 6.6 million shares. The forward sales agreements are to be settled in the first quarter of 2013.
4. LONG-TERM AND SHORT-TERM DEBT
Long-term debt by type with related weighted average interest rates and maturities at December 31 is as follows:
2012 2011 Dollars in millions Maturity Balance Rate Balance Rate Medium Term Notes (unsecured) (a) 2020 - 2022 $ 800 5.02% $ 800 5.69% Senior Notes (unsecured) (b) 2034 96 6.47% 101 6.47% First Mortgage Bonds (secured) 2013 - 2042 3,290 5.66% 2,790 5.89% Junior Subordinated Notes (unsecured) (c) 2065 150 7.70% 150 7.70% GENCO Notes (secured) 2018 - 2024 240 5.87% 247 5.86% Industrial and Pollution Control Bonds (d) 2014 - 2038 161 4.32% 194 4.48% Senior Debentures 2020- 2026 350 5.90% 353 5.92% Other 2013 - 2027 27 31 Total debt 5,114 4,666 Current maturities of long-term debt (172) (31) Unamortized premium (discount) 7 (13) Total long-term debt, net $ 4,949 $ 4,622
(a) Includes fixed rate debt hedged by variable interest rate swaps of $250 million in 2011.
(b) Variable rate notes (rate of 1.01% at December 31, 2012) hedged by a fixed interest rate swap.
(c) May be extended through 2080. (d) Includes variable rate debt of $67.8 million (rate of 0.17%) at December 31, 2012 and $71.4 million (rate of 0.16%) at December 31, 2011, which are hedged by fixed swaps.
70 Exhibit C Page 71 of 171 The annual amounts of long-term debt maturities for the years 2013 through 2017 are summarized as follows:
Millions Year of dollars 2013 $ 172 2014 53 2015 14 2016 13 2017 12
In January 2013, JEDA issued for the benefit of SCE&G $39.5 million of 4.0% tax-exempt industrial revenue bonds due February 1, 2028, and $14.7 million of 3.63% tax-exempt industrial revenue bonds due February 1, 2033. Proceeds from these sales were loaned by JEDA to SCE&G and, together with other available funds, were used to redeem prior to maturity $56.9 million of 5.2% industrial revenue bonds due November 1, 2027. The borrowings refinanced by these 2013 issuances are classified within Long-term Debt, Net in the consolidated balance sheet.
In July 2012, SCE&G issued $250 million of 4.35% first mortgage bonds due February 1, 2042, which constituted a reopening of the prior offering of $250 million of 4.35% first mortgage bonds issued in January 2012. Proceeds from these sales were used to repay short-term debt primarily incurred as a result of SCE&G's construction program, to finance capital expenditures and for general corporate purposes.
In January 2012, SCANA issued $250 million of 4.125% medium term notes due February 1, 2022. Proceeds from the sale were used to retire SCANA's $250 million 6.25% medium term notes due February 1, 2012.
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.
SCE&G is subject to a bond indenture dated April 1, 1993 (Mortgage) covering substantially all of its electric properties under which all of its first mortgage bonds (Bonds) have been issued. Bonds may be issued under the Mortgage in an aggregate principal amount not exceeding the sum of (1) 70% of Unfunded Net Property Additions (as therein defined), (2) the aggregate principal amount of retired Bonds and (3) cash deposited with the trustee. Bonds, other than certain Bonds issued on the basis of retired Bonds, may be issued under the Mortgage only if Adjusted Net Earnings (as therein defined) for 12 consecutive months out of the 18 months immediately preceding the month of issuance are at least twice (2.0) the annual interest requirements on all outstanding Bonds and Bonds to be outstanding (Bond Ratio). For the year ended December 31, 2012, the Bond Ratio was 5.22.
Lines of Credit and Short-Term Borrowings
At December 31, 2012 and 2011, SCANA, SCE&G (including Fuel Company) and PSNC Energy had available the following committed LOC and had outstanding the following LOC advances, commercial paper, and LOC-supported letter of credit obligations:
SCANA SCE&G PSNC Energy
Millions of dollars 2012 2011 2012 2011 2012 2011 Lines of Credit:
Total committed long-term $ 300 $ 300 $ 1,400 $ 1,100 $ 100 $ 100 LOC advances — — — — — — Weighted average interest rate — — — — — — Outstanding commercial paper (270 or fewer days) $ 142 $ 131 $ 449 $ 512 $ 32 $ 10 Weighted average interest rate 0.58% 0.63% 0.42% 0.56% 0.44% 0.57% Letters of credit supported by LOC $ 3 $ 3 $ 0.3 $ 0.3 — — Available $ 155 $ 166 $ 951 $ 588 $ 68 $ 90
In October 2012, the Company's existing committed LOCs were amended and extended. As a result, at December 31, 2012 SCANA, SCE&G (including Fuel Company) and PSNC Energy were parties to five-year credit agreements in the 71 Exhibit C Page 72 of 171 amounts of $300 million, $1.2 billion of which $500 million relates to Fuel Company, and $100 million, respectively, which expire in October 2017. In addition, at December 31, 2012 SCE&G was party to a three-year credit agreement in the amount of $200 million which expires in October 2015. These credit agreements are used for general corporate purposes, including liquidity support for each company's commercial paper program and working capital needs and, in the case of Fuel Company, to finance or refinance the purchase of nuclear fuel, certain fossil fuels, and emission and other environmental allowances. These committed long-term facilities are revolving lines of credit under credit agreements with a syndicate of banks. Wells Fargo Bank, National Association, Bank of America, N.A. and Morgan Stanley Bank, N.A. each provide 10.7% of the aggregate $1.8 billion credit facilities, JPMorgan Chase Bank, N.A., Mizuho Corporate Bank, Ltd., TD Bank N.A. Credit Suisse AG, Cayman Island Branch and UBS Loan Finance LLC each provide 8.9%, and Branch Banking and Trust Company, Union Bank, N.A. and U.S. Bank National Association each provide 6.3%. Two other banks provide the remaining support.
The Company is obligated with respect to an aggregate of $67.8 million of industrial revenue bonds which are secured by letters of credit issued by Branch Banking and Trust Company. The letters of credit expire, subject to renewal, in the fourth quarter of 2014.
The Company pays fees to the banks as compensation for maintaining committed lines of credit. Such fees were not material in any period presented.
5. INCOME TAXES
Total income tax expense attributable to income for 2012, 2011 and 2010 is as follows:
Millions of dollars 2012 2011 2010 Current taxes: Federal $ 103 $ 52 $ (47) State 10 10 1 Total current taxes 113 62 (46) Deferred taxes, net:
Federal 72 122 223 State 14 12 13 Total deferred taxes 86 134 236 Investment tax credits:
Amortization of amounts deferred-state (14) (25) (28) Amortization of amounts deferred-federal (3) (3) (3) Total investment tax credits (17) (28) (31) Total income tax expense $ 182 $ 168 $ 159
72 Exhibit C Page 73 of 171 The difference between actual income tax expense and the amount calculated from the application of the statutory 35% federal income tax rate to pre-tax income is reconciled as follows:
Millions of dollars 2012 2011 2010 Net income $ 420 $ 387 $ 376 Income tax expense 182 168 159 Total pre-tax income $ 602 $ 555 $ 535 Income taxes on above at statutory federal income tax rate $ 211 $ 194 $ 187 Increases (decreases) attributed to:
State income taxes (less federal income tax effect) 19 15 9 State investment tax credits (less federal income tax effect) (13) (16) (18) Allowance for equity funds used during construction (8) (5) (8) Deductible dividends—Stock Purchase Savings Plan (9) (9) (9) Amortization of federal investment tax credits (3) (3) (3) Section 45 tax credits (5) (2) (2) Domestic production activities deduction (9) (6) — Other differences, net (1) — 3 Total income tax expense $ 182 $ 168 $ 159
The tax effects of significant temporary differences comprising the Company’s net deferred tax liability at December 31, 2012 and 2011 are as follows:
Millions of dollars 2012 2011 Deferred tax assets:
Nondeductible accruals $ 143 $ 115 Asset retirement obligation, including nuclear decommissioning 214 181 Financial instruments 43 50 Unamortized investment tax credits 22 29 Unbilled revenue 14 19 Monetization of bankruptcy claim 12 13 Other 15 21 Total deferred tax assets 463 428 Deferred tax liabilities:
Property, plant and equipment 1,718 1,589 Deferred employee benefit plan 148 128 Regulatory asset-asset retirement obligation 113 106 Deferred fuel costs 48 47 Other 78 65 Total deferred tax liabilities 2,105 1,935 Net deferred tax liability $ 1,642 $ 1,507
Certain prior year amounts for deferred tax assets and liabilities in the table above have been reclassified to conform to the current year presentation for the components of deferred tax assets and liabilities for types of temporary differences, which resulted in an increase in both total deferred tax assets and total deferred tax liabilities of $133 million as of December 31, 2011. Such reclassifications had no effect on the net current or net long-term deferred tax assets or liabilities presented in the consolidated balance sheet as of December 31, 2011.
The Company files a consolidated federal income tax return, and the Company and its subsidiaries file various applicable state and local income tax returns. The IRS has completed examinations of the Company’s federal returns through 2004, and the Company’s federal returns through 2007 are closed for additional assessment. With few exceptions, the Company is no longer subject to state and local income tax examinations by tax authorities for years before 2009. 73 Exhibit C Page 74 of 171
Changes to Unrecognized Tax Benefits
Millions of dollars 2012 2011 Unrecognized tax benefits, January 1 $ 38 $ 36 Gross increases—uncertain tax positions in prior period — 5 Gross decreases—uncertain tax positions in prior period (38) (8) Gross increases—current period uncertain tax positions — 5 Settlements — — Lapse of statute of limitations — — Unrecognized tax benefits, December 31 $ — $ 38
In connection with the change in method of tax accounting for certain repair costs in prior years, the Company had previously recorded the unrecognized tax benefit. During the first quarter of 2012, new administrative guidance from the Internal Revenue Service was published. Under this guidance, the Company recognized all of the previously unrecognized tax benefit in 2012. Since this change was primarily a temporary difference, the recognition of this benefit did not have a significant effect on the Company's effective tax rate. No other material changes in the status of the Company's tax positions have occurred through December 31, 2012.
The Company recognizes interest accrued related to unrecognized tax benefits within interest expense and recognizes tax penalties within other expenses. In connection with the resolution of the uncertainty and recognition of tax benefits described above, during 2012 the Company reversed $2 million of interest expense which had been accrued during 2011.
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Company recognizes all derivative instruments as either assets or liabilities in its statements of financial position and measures those instruments at fair value. The Company recognizes changes in the fair value of derivative instruments either in earnings, as a component of other comprehensive income (loss) or, for regulated subsidiaries, within regulatory assets or regulatory liabilities, depending upon the intended use of the derivative and the resulting designation.
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 for SCANA and each of its subsidiaries. The Risk Management Committee, which is comprised of certain officers, including the Company’s Risk Management Officer and senior officers, apprises the Audit Committee of the Board of Directors with regard to the management of risk and brings to the Audit Committee's attention significant 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 NYMEX futures contracts or options, and over-the-counter instruments such as options and swaps, which are typically offered by energy companies and financial institutions. Cash settlements of commodity derivatives are classified as operating activities in the consolidated statement of cash flows.
The SCPSC authorized the suspension of SCE&G's natural gas hedging program in January 2012. SCE&G was no longer a party to natural gas derivative instruments at December 31, 2012, and such instruments were not significant in any prior period presented.
PSNC Energy hedges natural gas purchasing activities using over-the-counter options and swaps and NYMEX futures and options. PSNC Energy’s tariffs also include a provision for the recovery of actual gas costs incurred, including any costs of 74 Exhibit C Page 75 of 171 hedging. 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 are not designated as hedges for accounting purposes.
The unrealized gains and losses on qualifying cash flow hedges of nonregulated operations are deferred in OCI. When the hedged transactions affect earnings, the previously recorded gains and losses are reclassified from OCI 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, 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. Neither the sales contracts nor the related supply futures and swaps are designated as hedges for accounting purposes.
Interest Rate Swaps
The Company may use interest rate swaps to manage interest rate risk and exposure to changes in fair value attributable to changes in interest rates on certain debt issuances. These swaps may be designated as either fair value hedges or cash flow hedges.
The Company synthetically converts variable rate debt to fixed rate debt using swaps that are designated as cash flow hedges. Periodic payments to or receipts from swap counterparties related to these derivatives are recorded within interest expense.
In anticipation of the issuance of debt, the Company may use treasury rate lock or forward starting swap agreements that 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 for the holding company or nonregulated subsidiaries, are recorded in OCI. Such amounts are amortized to interest expense over the term of the underlying debt. Ineffective portions are recognized in income. Cash payments made or received upon termination of these financial instruments are classified as investing activities for cash flow purposes.
Quantitative Disclosures Related to Derivatives
The Company was party to natural gas derivative contracts outstanding in the following quantities:
Commodity and Other Energy
Management Contracts (in MMBTU) Gas Retail Gas Energy Hedge designation Distribution Marketing Marketing Total As of December 31, 2012
Cash flow — 6,490,000 18,937,000 25,427,000 Not designated (a) 5,170,000 — 17,703,275 22,873,275 Total (a) 5,170,000 6,490,000 36,640,275 48,300,275 As of December 31, 2011
Cash flow — 6,566,000 29,861,763 36,427,763 Not designated (b) 9,080,000 — 31,943,563 41,023,563 Total (b) 9,080,000 6,566,000 61,805,326 77,451,326
(a) Includes an aggregate 3,500,000 MMBTU related to basis swap contracts in Energy Marketing.
(b) Includes an aggregate 9,626,000 MMBTU related to basis swap contracts in Energy Marketing.
The Company was not party to any interest rate swaps designated as fair value hedges at December 31, 2012. The Company was party to interest rate swaps designated as fair value hedges with aggregate notional amounts of $253.2 million at December 31, 2011, and was party to interest rate swaps designated as cash flow hedges with aggregate notional amounts of $1.1 billion at December 31, 2012 and $822.6 million at December 31, 2011.
75 Exhibit C Page 76 of 171 The fair value of energy-related derivatives and interest rate derivatives was reflected in the consolidated balance sheet as follows:
Fair Values of Derivative Instruments
Asset Derivatives Liability Derivatives Balance Sheet Fair Balance Sheet Fair Millions of dollars Location(c) Value Location(c) Value As of December 31, 2012
Derivatives designated as hedging
instruments Interest rate contracts Prepayments and other $ 42 Other current liabilities $ 70 Other deferred debits Other deferred credits and
and other assets 31 other liabilities 36 Commodity contracts Prepayments and other 1 Other current liabilities 4
Total $ 74 $ 110
Derivatives not designated as hedging
instruments Commodity contracts Prepayments and other $ 1 Energy management contracts Prepayments and other 7 Prepayments and other $ 1 Other deferred debits and other assets 6 Other current liabilities 6 Other deferred debits and
other assets 6
Total $ 14 $ 13
As of December 31, 2011
Derivatives designated as hedging
instruments Interest rate contracts Prepayments and other $ 2 Other current liabilities $ 55 Other deferred credits and
other liabilities 103 Commodity contracts Other current liabilities 1 Prepayments and other 1 Other current liabilities 10 Other deferred credits and
other liabilities 3 Total $ 3 $ 172
Derivatives not designated as hedging
instruments Energy management contracts Prepayments and other $ 17 Prepayments and other $ 3 Other deferred debits
and other assets 10 Other current liabilities 13 Other deferred credits and
other liabilities 9
Total $ 27 $ 25
(c) Asset derivatives represent unrealized gains to the Company, and liability derivatives represent unrealized losses. In the Company’s consolidated balance sheets, unrealized gain and loss positions on commodity contracts with the same counterparty are reported as either a net asset or liability, and for purposes of the above disclosure they are reported on a gross basis.
76 Exhibit C Page 77 of 171
The effect of derivative instruments on the consolidated statements of income is as follows:
Fair Value Hedges
With regard to the Company’s interest rate swaps designated as fair value hedges, the gains on those swaps and the losses on the hedged fixed rate debt are recognized in current earnings and included in interest expense. These gains and losses, combined with the amortization of deferred gains on previously terminated swaps, resulted in increases to interest expense that were insignificant for the year ended December 31, 2012 and were $5.8 million and $11.5 million for the years ended December 31, 2011 and 2010, respectively.
Cash Flow Hedges
Derivatives in Cash Flow Hedging Relationships
Gain or (Loss) Loss Reclassified from Deferred in Regulatory Deferred Accounts into Income Accounts (Effective Portion) Millions of dollars (Effective Portion) Location Amount Year Ended December 31, 2012
Interest rate contracts $ 84 Interest expense $ (3) Year Ended December 31, 2011
Interest rate contracts $ (76) Interest expense $ (3) Year Ended December 31, 2010
Interest rate contracts $ (36) Interest expense $ (2)
Loss Reclassified from Gain or (Loss) Accumulated OCI into Income, Recognized in OCI, net of tax net of tax (Effective Portion) Millions of dollars (Effective Portion) Location Amount Year Ended December 31, 2012
Interest rate contracts $ (4) Interest expense $ (6) Commodity contracts (4) Gas purchased for resale (13) Total (8 (19 $ ) $ ) Year Ended December 31, 2011
Interest rate contracts $ (42) Interest expense $ (4) Commodity contracts (16) Gas purchased for resale (9) Total (58 (13 $ ) $ ) Year Ended December 31, 2010
Interest rate contracts $ (24) Interest expense $ (4) Commodity contracts (12) Gas purchased for resale (13) Total (36 (17 $ ) $ )
As of December 31, 2012, 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 $2.3 million as an increase to gas cost and approximately $6.9 million as an increase to interest expense, assuming natural gas and financial markets remain at their current levels. As of December 31, 2012, all of the Company’s commodity cash flow hedges settle by their terms before the end of 2015.
Hedge Ineffectiveness
Other losses recognized in income representing ineffectiveness on interest rate hedges designated as cash flow hedges were insignificant in 2012 and 2010, respectively, and $(1.1) million, net of tax, in 2011. These amounts are recorded within interest expense on the consolidated statements of income.
77 Exhibit C Page 78 of 171 Derivatives Not Designated as Hedging Instruments
Loss Recognized in Income Millions of dollars Location Amount Year Ended December 31, 2012 Commodity contracts Gas purchased for resale $ (1) Year Ended December 31, 2011 Commodity contracts Gas purchased for resale (2) Year Ended December 31, 2010 Commodity contracts Gas purchased for resale (3)
Credit Risk Considerations
The Company limits credit risk in its commodity and interest rate derivatives activities by assessing the creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness on an ongoing basis. In this regard, the Company uses credit ratings provided by credit rating agencies and current market-based qualitative and quantitative data, as well as financial statements, to assess the financial health of counterparties on an ongoing basis. The Company uses standardized master agreements which generally include collateral requirements. These master agreements permit the netting of cash flows associated with a single counterparty. Cash, letters of credit and parental/affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements require a counterparty to post cash or letters of credit in the event an exposure exceeds the established threshold. The threshold represents an unsecured credit limit which may be supported by a parental/affiliate guaranty, as determined in accordance with the Company's credit policies and due diligence. In addition, collateral agreements allow for the termination and liquidation of all positions in the event of a failure or inability to post collateral.
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 rating downgrades. As of December 31, 2012 and 2011, the Company had posted $78.3 million and $140.3 million, respectively, of collateral related to derivatives with contingent provisions that were in a net liability position. Collateral related to the positions expected to close in the next 12 months is recorded in Prepayments and other on the consolidated balance sheets. Collateral related to the noncurrent positions is recorded in Other within Deferred Debits and Other Assets on the consolidated balance sheets. If all of the contingent features underlying these instruments had been fully triggered as of December 31, 2012 and 2011, the Company would have been required to post an additional $26.2 million and $50.7 million, respectively, 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 December 31, 2012 and 2011, are $104.5 million and $191.0 million, respectively.
In addition, as of December 31, 2012 and December 31, 2011, the Company has collected no cash collateral related to interest rate derivatives with contingent provisions that are in a net asset position. If all the contingent features underlying these instruments had been fully triggered as of December 31, 2012 and December 31, 2011, the Company could request $32.1 million and $1.1 million, respectively, of cash collateral from its counterparties. The aggregate fair value of all derivative instruments with contingent provisions that are in a net asset position as of December 31, 2012 and December 31, 2011 is $32.1 million and $1.1 million, respectively. In addition, at December 31, 2012, the Company could have called on letters of credit in the amount of $10 million related to $13 million in commodity derivatives that are in a net asset position, compared to letters of credit of $12 million related to derivatives of $27 million at December 31, 2011, if all the contingent features underlying these instruments had been fully triggered.
7. 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 and energy management 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 cash flow models with independently sourced data. Fair value measurements, and the level within the fair value hierarchy in which the measurements fall, were as follows:
78 Exhibit C Page 79 of 171
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 December 31, 2012
Assets-Available for sale securities $ 6 — Interest rate contracts — $ 73 Commodity contracts 1 1 Energy management contracts — 13 Liabilities-Interest rate contracts — 106 Commodity contracts — 4 Energy management contracts 1 15 As of December 31, 2011
Assets-Available for sale securities $ 3 — Interest rate contracts — $ 2 Commodity contracts — 1 Energy management contracts — 27 Liabilities-Interest rate contracts — 158 Commodity contracts 1 13 Energy management contracts — 26
There were no fair value measurements based on significant unobservable inputs (Level 3) for either period presented. In addition, there were no transfers of fair value amounts into or out of Levels 1, 2 or 3 during the periods presented.
Financial instruments for which the carrying amount may not equal estimated fair value at December 31, 2012 and December 31, 2011 were as follows:
December 31, 2012 December 31, 2011
Carrying Estimated Carrying Estimated Millions of dollars Amount Fair Value Amount Fair Value Long-term debt $ 5,121.0 $ 6,115.0 $ 4,653.0 $ 5,479.2 Fair values of long-term debt instruments are based on net present value calculations using independently sourced market data that incorporate a developed discount rate using similarly rated long-term debt, along with benchmark interest rates. As such, the aggregate fair values presented above are considered to be Level 2. Carrying values reflect the fair values of interest rate swaps designated as fair value hedges, based on discounted cash flow models with independently sourced market data. Early settlement of long-term debt may not be possible or may not be considered prudent.
Carrying values of short-term borrowings approximate their fair values, which are based on quoted prices from dealers in the commercial paper market. These fair values are considered to be Level 2.
8. EMPLOYEE BENEFIT PLANS
Pension and Other Postretirement Benefit Plans
The Company sponsors a noncontributory defined benefit pension plan covering substantially all regular, full-time employees. The Company’s policy has been to fund the plan as permitted by applicable federal income tax regulations, as determined by an independent actuary.
The Company’s pension plan provides benefits under a cash balance formula for employees hired before January 1, 2000 who elected that option and for all employees hired on or after January 1, 2000. Under the cash balance formula, benefits accumulate as a result of compensation credits and interest credits. Employees hired before January 1, 2000 who elected to remain under the final average pay formula earn benefits based on years of credited service and the employee’s average annual base earnings received during the last three years of employment.
79 Exhibit C Page 80 of 171
In addition to pension benefits, the Company provides certain unfunded postretirement health care and life insurance benefits to certain active and retired employees. Retirees share in a portion of their medical care cost. The Company provides life insurance benefits to retirees at no charge. The costs of postretirement benefits other than pensions are accrued during the years the employees render the services necessary to be eligible for these benefits.
Changes in Benefit Obligations
The measurement date used to determine pension and other postretirement benefit obligations is December 31. Data related to the changes in the projected benefit obligation for pension benefits and the accumulated benefit obligation for other postretirement benefits are presented below.
Pension Benefits Other Postretirement Benefits Millions of dollars 2012 2011 2012 2011 Benefit obligation, January 1 $ 830.1 $ 811.8 $ 226.1 $ 213.5 Service cost 19.6 18.3 4.8 4.3 Interest cost 43.0 43.5 11.9 12.2 Plan participants’ contributions — — 2.9 3.2 Actuarial loss 96.5 0.4 33.4 7.2 Benefits paid (57.6) (43.9) (13.8) (14.3) Benefit obligation, December 31 $ 931.6 $ 830.1 $ 265.3 $ 226.1
The accumulated benefit obligation for pension benefits was $874.6 million at the end of 2012 and $784.9 million at the end of 2011. The accumulated pension benefit obligation differs from the projected pension benefit obligation above in that it reflects no assumptions about future compensation levels.
Significant assumptions used to determine the above benefit obligations are as follows:
Pension Benefits Other Postretirement Benefits
2012 2011 2012 2011 Annual discount rate used to determine benefit obligation 4.10% 5.25% 4.19% 5.35% Assumed annual rate of future salary increases for projected benefit obligation 3.75% 4.00% 3.75% 4.00%
A 7.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2012. The rate was assumed to decrease gradually to 5.0% for 2020 and to remain at that level thereafter.
A one percent increase in the assumed health care cost trend rate would increase the postretirement benefit obligation at December 31, 2012 and 2011 by $1.7 million. A one percent decrease in the assumed health care cost trend rate would decrease the postretirement benefit obligation at December 31, 2012 and 2011 by $1.5 million.
Funded Status
Millions of Dollars Pension Benefits Other Postretirement Benefits December 31, 2012 2011 2012 2011 Fair value of plan assets $ 799.1 $ 755.0 — — Benefit obligation 931.6 830.1 $ 265.3 $ 226.1 Funded status $ (132.5) $ (75.1) $ (265.3) $ (226.1)
80 Exhibit C Page 81 of 171 Amounts recognized on the consolidated balance sheets consist of:
Millions of Dollars Pension Benefits Other Postretirement Benefits December 31, 2012 2011 2012 2011 Current liability — — $ (11.0) $ (10.5) Noncurrent liability $ (132.5) $ (75.1) (254.3) (215.6)
Amounts recognized in accumulated other comprehensive loss (a component of common equity) as of December 31, 2012 and 2011 were as follows:
Millions of Dollars Pension Benefits Other Postretirement Benefits December 31, 2012 2011 2012 2011 Net actuarial loss $ 10.7 $ 9.6 $ 3.7 $ 1.7 Prior service cost 1.0 1.2 0.1 0.1 Transition obligation — — 0.1 0.2 Total $ 11.7 $ 10.8 $ 3.9 $ 2.0
In connection with the joint ownership of Summer Station, as of December 31, 2012 and 2011, the Company recorded within deferred debits $26.8 million and $19.7 million, respectively, attributable to Santee Cooper’s portion of shared pension costs. As of December 31, 2012 and 2011, the Company also recorded within deferred debits $14.7 million and $11.4 million, respectively, from Santee Cooper, representing its portion of the unfunded postretirement benefit obligation.
Changes in Fair Value of Plan Assets
Pension Benefits Millions of dollars 2012 2011 Fair value of plan assets, January 1 $ 755.0 $ 817.2 Actual return on plan assets 101.7 (18.3) Benefits paid (57.6) (43.9) Fair value of plan assets, December 31 $ 799.1 $ 755.0
Investment Policies and Strategies
The assets of the pension plan are invested in accordance with the objectives of (1) fully funding the actuarial accrued liability for the pension plan, (2) maximizing return within reasonable and prudent levels of risk in order to minimize contributions, and (3) maintaining sufficient liquidity to meet benefit payment obligations on a timely basis. The pension plan operates with several risk and control procedures, including ongoing reviews of liabilities, investment objectives, levels of diversification, investment managers and performance expectations. The total portfolio is constructed and maintained to provide prudent diversification with regard to the concentration of holdings in individual issues, corporations, or industries.
Transactions involving certain types of investments are prohibited. These include, except where utilized by a hedge fund manager, any form of private equity; commodities or commodity contracts (except for unleveraged stock or bond index futures and currency futures and options); ownership of real estate in any form other than publicly traded securities; short sales, warrants or margin transactions, or any leveraged investments; and natural resource properties. Investments made for the purpose of engaging in speculative trading are also prohibited.
The Company’s pension plan asset allocation at December 31, 2012 and 2011 and the target allocation for 2013 are as follows:
Percentage of Plan Assets Target At
Allocation December 31, Asset Category 2013 2012 2011 Equity Securities 65% 66% 65% Debt Securities 35% 34% 35%
81 Exhibit C Page 82 of 171
For 2013, the expected long-term rate of return on assets will be 8.00%. In developing the expected long-term rate of return assumptions, management evaluates the pension plan’s historical cumulative actual returns over several periods, considers the expected active returns across various asset classes and assumes an asset allocation of 65% with equity managers and 35% with fixed income managers. Management regularly reviews such allocations and periodically rebalances the portfolio when considered appropriate.
Fair Value Measurements
Assets held by the pension plan are measured at fair value as described below. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. At December 31, 2012 and 2011, fair value measurements, and the level within the fair value hierarchy in which the measurements fall, were as follows:
Fair Value Measurements at Reporting Date Using Quoted Market Prices Significant Significant in Active Market for Other Other Identical Observable Unobservable Assets Inputs Inputs Millions of dollars Total (Level 1) (Level 2) (Level 3) December 31, 2012 Common stock $ 319 $ 319 Preferred stock 1 1 Mutual funds 246 12 $ 234 Short-term investment vehicles 20 20 US Treasury securities 42 42 Corporate debt securities 56 56 Loans secured by mortgages 11 11 Municipals 4 4 Limited partnerships 30 1 29 Multi-strategy hedge funds 70 $ 70 $ 799 $ 333 $ 396 $ 70
December 31, 2011 Common stock $ 324 $ 324 Preferred stock 1 1 Mutual funds 183 20 $ 163 Short-term investment vehicles 23 23 US Treasury securities 32 32 Corporate debt securities 51 51 Loans secured by mortgages 12 12 Municipals 4 4 Common collective trusts 37 37 Limited partnerships 23 23 Multi-strategy hedge funds 65 $ 65 $ 755 $ 345 $ 345 $ 65
There were no transfers of fair value amounts into or out of Level 1, 2 or 3 during 2012 or 2011.
The pension plan values common stock and certain mutual funds, where applicable, using unadjusted quoted prices from a national stock exchange, such as NYSE and NASDAQ, where the securities are actively traded. Other mutual funds, common collective trusts and limited partnerships are valued using the observable prices of the underlying fund assets based on trade data for identical or similar securities or from a national stock exchange for similar assets or broker quotes. Short-term investment vehicles are funds that invest in short-term fixed income instruments and are valued using observable prices of the underlying fund assets based on trade data for identical or similar securities. Government agency securities are valued using quoted market prices or based on models using observable inputs from market sources such as external prices or spreads or benchmarked thereto. Corporate debt securities and municipals are valued based on recently executed transactions, using 82 Exhibit C Page 83 of 171 quoted market prices, or based on models using observable inputs from market sources such as external prices or spreads or benchmarked thereto. Loans secured by mortgages are valued using observable prices based on trade data for identical or comparable instruments. Hedge funds represent investments in a hedge fund of funds partnership that invests directly in multiple hedge fund strategies that are not traded on exchanges and do not trade on a daily basis. The fair value of this multi- strategy hedge fund is estimated based on the net asset value of the underlying hedge fund strategies using consistent valuation guidelines that account for variations that may impact their fair value. The estimated fair value is the price at which redemptions and subscriptions occur.
Fair Value Measurements Using Significant Unobservable Inputs
(Level 3) Millions of dollars 2012 2011 Beginning Balance $ 65 $ 45 Unrealized gains (losses) included in changes in net assets 5 (1) Purchases, issuances, and settlements — 21 Ending Balance $ 70 $ 65
Expected Cash Flows
The total benefits expected to be paid from the pension plan or from the Company’s assets for the other postretirement benefits plan, respectively, are as follows:
Expected Benefit Payments
Millions of dollars Pension Benefits Other Postretirement Benefits * 2013 $ 63.1 $ 11.2 2014 61.0 12.1 2015 62.5 12.9 2016 64.0 13.6 2017 67.2 14.3 2018-2022 338.8 80.2
* Net of participant contributions
Pension Plan Contributions
The pension trust is adequately funded under current regulations. No contributions have been required since 1997, and the Company does not anticipate making contributions to the pension plan until after 2014.
Net Periodic Benefit Cost
The Company records net periodic benefit cost utilizing beginning of the year assumptions. Disclosures required for these plans are set forth in the following tables.
Components of Net Periodic Benefit Cost
Pension Benefits Other Postretirement Benefits Millions of dollars 2012 2011 2010 2012 2011 2010 Service cost $ 19.6 $ 18.3 $ 17.9 $ 4.8 $ 4.3 $ 4.2 Interest cost 43.0 43.5 44.0 11.9 12.2 11.9 Expected return on assets (59.5) (63.7) (61.4) n/a n/a n/a Prior service cost amortization 7.0 7.0 7.0 0.9 1.0 1.0 Amortization of actuarial losses 18.4 12.2 16.0 1.4 0.4 — Transition obligation amortization — — — 0.7 0.7 0.7 Net periodic benefit cost $ 28.5 $ 17.3 $ 23.5 $ 19.7 $ 18.6 $ 17.8
83 Exhibit C Page 84 of 171
Prior to July 15, 2010, the SCPSC allowed SCE&G to defer as a regulatory asset the amount of pension cost exceeding amounts included in rates for its retail electric and gas distribution regulated operations. In connection with the SCPSC's July 2010 electric rate order and November 2010 natural gas RSA order, SCE&G began deferring, as a regulatory asset, all pension cost related to retail electric and gas operations that otherwise would have been charged to expense. Effective in January 2013, in connection with the December 2012 rate order, SCE&G will amortize previously deferred pension costs related to retail electric operations totaling approximately $63 million over approximately 30 years (see Note 2) and will recover current pension costs related to retail electric operations through a rate rider that is adjusted annually.
Other changes in plan assets and benefit obligations recognized in other comprehensive income were as follows:
Pension Benefits Other Postretirement Benefits Millions of dollars 2012 2011 2010 2012 2011 2010 Current year actuarial (gain) loss $ 1.7 $ 2.9 $ (26.4) $ 2.0 $ 0.4 $ (0.1) Amortization of actuarial losses (0.6) (0.4) (2.0) — — — Amortization of prior service cost (0.2) (0.2) (0.1) — (0.1) — Prior service cost OCI adjustment — — 0.8 — — — Amortization of transition obligation — — — (0.1) (0.1) (0.1) Total recognized in other comprehensive income $ 0.9 $ 2.3 $ (27.7) $ 1.9 $ 0.2 $ (0.2)
Significant Assumptions Used in Determining Net Periodic Benefit Cost
Pension Benefits Other Postretirement Benefits
2012 2011 2010 2012 2011 2010 Discount rate 5.25% 5.56% 5.75% 5.35% 5.72% 5.90% Expected return on plan assets 8.25% 8.25% 8.50% n/a n/a n/a Rate of compensation increase 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Health care cost trend rate n/a n/a n/a 8.20% 8.00% 8.50% Ultimate health care cost trend rate n/a n/a n/a 5.00% 5.00% 5.00% Year achieved n/a n/a n/a 2020 2017 2017
The estimated amounts to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2013 are as follows:
Other Postretirement Millions of Dollars Pension Benefits Benefits Actuarial loss $ 0.6 $ 0.2 Prior service cost 0.2 — Total $ 0.8 $ 0.2
Other postretirement benefit costs are subject to annual per capita limits pursuant to the plan's design. As a result, the effect of a one-percent increase or decrease in the assumed health care cost trend rate on total service and interest cost is not significant.
Stock Purchase Savings Plan
The Company also sponsors a defined contribution plan in which eligible employees may participate. Eligible employees may defer up to 25% of eligible earnings subject to certain limits and may diversify their investments. Employee deferrals are fully vested and nonforfeitable at all times. The Company provides 100% matching contributions up to 6% of an employee’s eligible earnings. Total matching contributions made to the plan for 2012, 2011 and 2010 were $22.3 million, $21.8 million and $20.8 million, respectively, and were made in the form of SCANA common stock.
84 Exhibit C Page 85 of 171 9. SHARE-BASED COMPENSATION
The LTECP provides for grants of nonqualified and incentive stock options, stock appreciation rights, restricted stock, performance shares, performance units and restricted stock units to certain key employees and non-employee directors. The LTECP currently authorizes the issuance of up to five million shares of SCANA’s common stock, no more than one million of which may be granted in the form of restricted stock.
Compensation costs related to share-based payment transactions are required to be recognized in the financial statements. With limited exceptions, including those liability awards discussed below, compensation cost is measured based on the grant-date fair value of the instruments issued and is recognized over the period that an employee provides service in exchange for the award.
Liability Awards
The 2010-2012, 2011-2013, and 2012-2014 performance cycles provide for performance measurement and award determination on an annual basis, with payment of awards being deferred until after the end of the three-year performance cycle. In each of the performance cycles, 20% of the performance award was granted in the form of restricted share units, which are liability awards payable in cash and are subject to forfeiture in the event of retirement or termination of employment prior to the end of the cycle, subject to exceptions for death, disability or change in control. The remaining 80% of the award was granted in performance shares. Each performance share has a value that is equal to, and changes with, the value of a share of SCANA common stock. Dividend equivalents are accrued on the performance shares and the restricted share units. Payouts of performance share awards are determined by SCANA’s performance against pre-determined measures of TSR as compared to a peer group of utilities (weighted 50%) and growth in “GAAP-adjusted net earnings per share from operations” (weighted 50%).
Compensation cost of liability awards is recognized over their respective three-year performance periods based on the estimated fair value of the award, which is periodically updated based on expected ultimate cash payout, and is reduced by estimated forfeitures. Awards under the 2010-2012 performance cycle were paid in cash at SCANA’s discretion in February 2013. Cash-settled liabilities related to prior program cycles were paid totaling $11.8 million in 2012, $13.6 million in 2011, and $12.1 million in 2010.
Fair value adjustments for performance awards resulted in compensation expense recognized in the statements of income totaling $15.0 million in 2012, $6.1 million in 2011 and $14.2 million in 2010. Fair value adjustments resulted in capitalized compensation costs of $2.7 million in 2012, $0.9 million in 2011 and $2.4 million in 2010.
Equity Awards
In the 2008-2010 performance cycle, 20% of the performance award was granted in the form of restricted (nonvested) shares rather than restricted share units. The nonvested shares were granted at a price corresponding to the opening price of SCANA common stock on the date of the grant, and as of December 31, 2010, all compensation cost related to nonvested share-based compensation arrangements under the LTECP had been recognized. All remaining nonvested shares, which totaled 72,189 shares, vested at a weighted average grant-date fair value of $37.33 per share. In 2010, the Company expensed compensation costs for these nonvested shares of $0.7 million, and recognized related tax benefits of $0.3 million, and capitalized compensation costs of $0.1 million.
A summary of activity related to nonqualified stock options follows:
Number of Weighted Average Stock Options Options Exercise Price Outstanding-January 1, 2010 103,589 $ 27.44 Exercised (53,246) 27.40 Outstanding-December 31, 2010 50,343 27.49 Exercised (40,267) 27.48 Outstanding-December 31, 2011 10,076 27.52 Exercised (10,076) 27.52 Outstanding-December 31, 2012 — —
85 Exhibit C Page 86 of 171 No stock options were granted or forfeited and all options were fully vested during the periods presented. During the periods presented, the exercise of stock options was satisfied using original issue shares, and cash realized upon the exercise of options and the related tax benefits were not significant.
10. COMMITMENTS AND CONTINGENCIES
Nuclear Insurance
Under Price-Anderson, SCE&G (for itself and on behalf of Santee-Cooper, a one-third owner of Summer Station Unit 1) maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the company’s nuclear power plant. Price-Anderson provides funds up to $12.6 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $375 million by ANI with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of commercial nuclear reactors. Each reactor licensee is currently liable for up to $117.5 million per reactor owned 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 Unit 1, would be $78.3 million per incident, but not more than $11.7 million per year. Both the maximum assessment per reactor and the maximum yearly assessment are adjusted for inflation at least every five years.
SCE&G currently maintains policies (for itself and on behalf of Santee Cooper) with NEIL. The policies provide coverage to the nuclear facility for property damage and outage costs up to $2.75 billion. In addition, a builder’s risk insurance policy has been purchased from NEIL for the construction of the New Units. This policy provides the owners of the New Units up to $500 million in limits of accidental property damage occurring during construction. All of the NEIL policies permit retrospective assessments under certain conditions to cover insurer’s losses. Based on the current annual premiums, SCE&G’s portion of the retrospective premium assessment would not exceed $40.6 million.
To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station Unit 1 exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that SCE&G 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 likely would have a material impact on the Company’s results of operations, cash flows and financial position.
New Nuclear Construction
The parties to the EPC Contract have established both informal and formal dispute resolution procedures in order to resolve issues that arise during the course of constructing a project of this magnitude. During the course of activities under the EPC Contract, issues have materialized that impact project budget and schedule. Claims specifically relating to COL delays, design modifications of the shield building and certain pre-fabricated modules for the New Units and unanticipated rock conditions at the site resulted in assertions of contractual entitlement to recover additional costs to be incurred. The resolution of these specific claims is discussed in Note 2. SCE&G expects to resolve any disputes that arise in the future through both the informal and formal procedures and anticipates that any additional costs that arise through such dispute resolution processes, as well as other costs identified from time to time, will be recoverable through rates.
In February 2013, work began on the reinforcing bar reconfiguration in the Unit 2 nuclear island elevator pit and sump areas. The initial pouring of the Unit 2 nuclear island basemat could take place in the first quarter of 2013 following the completion of this work and based upon an expedited approval by the NRC staff. It is not anticipated that the resolution of this issue will cause a delay in the commercial operation of the New Units in 2017 and 2018.
Environmental
SCE&G
In December 2009, the EPA issued a final finding that atmospheric concentrations of GHG endanger public health and welfare within the meaning of Section 202(a) of the CAA. The finding, which became effective in January 2010, enabled the EPA to regulate GHG emissions under the CAA. On April 13, 2012, the EPA issued a proposed rule to establish an NSPS for GHG emissions from fossil fuel-fired electric generating units. If finalized as proposed, this rule would establish performance 86 Exhibit C Page 87 of 171 standards for new and modified generating units, along with emissions guidelines for existing generating units. This rule would amend the NSPS for electric generating units and establish the first NSPS for GHG emissions. Essentially, the rule would require all new fossil fuel-fired power plants to meet the carbon dioxide emissions profile of a combined cycle natural gas plant. While most new natural gas plants will not be required to include any new technologies, no new coal plants could be constructed without carbon capture and sequestration capabilities. The Company is evaluating the proposed rule, but cannot predict when the rule will become final, if at all, or what conditions it may impose on the Company, if any. The Company expects that any costs incurred to comply with GHG emission requirements will be recoverable through rates.
In 2005, the EPA issued the CAIR, which required 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. SCE&G and GENCO determined that additional air quality controls would be needed to meet the CAIR requirements. On July 6, 2011 the EPA issued the CSAPR. This rule replaced CAIR and the Clean Air Transport Rule proposed in July 2010 and is aimed at addressing power plant emissions that may contribute to air pollution in other states. CSAPR requires states in the eastern United States to reduce power plant emissions, specifically sulfur dioxide and nitrogen oxide. On December 30, 2011, the United States Court of Appeals for the District of Columbia issued an order staying CSAPR and reinstating CAIR pending resolution of an appeal of CSAPR. On August 21, 2012, the Court vacated CSAPR and left CAIR in place. The EPA's petition for rehearing of the Court's order has been denied. Air quality control installations that SCE&G and GENCO have already completed allowed the Company to comply with the reinstated CAIR. The Company will continue to pursue strategies to comply with all applicable environmental regulations. 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.
In June 2010, the EPA issued a final rule for a one-hour ambient air quality standard for sulfur dioxide. This standard may require some of SCE&G's smaller coal-fired units to reduce their sulfur dioxide emissions to levels to be determined by the EPA and/or DHEC. The costs incurred to comply with this standard are expected to be recovered through rates.
In April 2012, the EPA's rule containing new standards for mercury and other specified air pollutants became effective. The rule provides up to four years for facilities to meet the standards, and the Company's evaluation of the rule is ongoing. The Company's decision in 2012 to retire certain coal-fired units or convert them to burn natural gas and its project to build the New Units (see Note 1) along with other actions are expected to result in the Company's compliance with the EPA's rule. 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.
The EPA is conducting an enforcement initiative against the utilities industry related to the NSR provisions and the new source performance standards of the CAA. As part of the initiative, many utilities have received requests for information under Section 114 of the CAA. In addition, the DOJ, on behalf of EPA, has taken civil enforcement action against several utilities. The primary basis for these actions is the assertion by EPA that maintenance activities undertaken by the utilities at their coal-fired power plants constituted “major modifications” which required the installation of costly BACT. Some of the utilities subject to the actions have reached settlement. Though the Company cannot predict what action, if any, the EPA will initiate against it, any costs incurred are expected to be recoverable through rates.
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 DHEC and the EPA. SCE&G anticipates that major remediation activities at all these sites will continue until 2016 and will cost an additional $22.2 million, which is accrued in Other within Deferred Credits and Other Liabilities on the condensed consolidated balance sheet. SCE&G expects to recover any cost arising from the remediation of MGP sites through rates. At December 31, 2012, deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $38.5 million and are included in regulatory assets.
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 PRPs. PSNC Energy has recorded a liability and associated regulatory asset of approximately $3.0 million, the estimated remaining liability at December 31, 2012. PSNC Energy expects to recover through rates any cost allocable to PSNC Energy arising from the remediation of these sites.
87 Exhibit C Page 88 of 171 Claims and Litigation
The Company is engaged in various claims and litigation incidental to its business operations which management anticipates will be resolved without a material impact on the Company’s results of operations, cash flows or financial condition.
Operating Lease Commitments
The Company is obligated under various operating leases with respect to office space, furniture and equipment. Leases expire at various dates through 2057. Rent expense totaled approximately $14.8 million in 2012, $15.8 million in 2011 and $13.9 million in 2010. Future minimum rental payments under such leases are as follows:
Millions of dollars 2013 $ 10 2014 6 2015 4 2016 2 2017 1 Thereafter 26 Total $ 49
Purchase Commitments
The Company is obligated for purchase commitments that expire at various dates through 2034. Amounts expended under forward contracts for natural gas transportation and storage agreements, coal supply contracts, nuclear fuel contracts and other commitments totaled $1.5 billion in 2012, $1.7 billion in 2011 and $1.9 billion in 2010. Future payments under such purchase commitments are as follows:
Millions of dollars 2013 $ 1,030 2014 717 2015 530 2016 268 2017 1,111 Thereafter 1,142 Total $ 4,798
Forward contracts for natural gas purchases include customary “make-whole” or default provisions, but are not considered to be “take-or-pay” contracts.
Guarantees
SCANA issues guarantees on behalf of its consolidated subsidiaries to facilitate commercial transactions with third parties. These guarantees are in the form of performance guarantees, primarily for the purchase and transportation of natural gas, standby letters of credit issued by financial institutions and credit support for certain tax-exempt bond issues. SCANA is not required to recognize a liability for guarantees issued on behalf of its subsidiaries unless it becomes probable that performance under the guarantees will be required. SCANA believes the likelihood that it would be required to perform or otherwise incur any losses associated with these guarantees is remote; therefore, no liability for these guarantees has been recognized. To the extent that a liability subject to a guarantee has been incurred, the liability is included in the consolidated financial statements. At December 31, 2012, the maximum future payments (undiscounted) that SCANA could be required to make under guarantees totaled approximately $1.6 billion.
Asset Retirement Obligations
The Company recognizes a liability for the present value of an ARO when incurred if the liability can be reasonably estimated. Uncertainty about the timing or method of settlement of a conditional ARO is factored into the measurement of the liability when sufficient information exists, but such uncertainty is not a basis upon which to avoid liability recognition.
88 Exhibit C Page 89 of 171 The legal obligations associated with the retirement of long-lived tangible assets that results from their acquisition, construction, development and normal operation relate primarily to the Company’s regulated utility operations. As of December 31, 2012, the Company has recorded AROs of approximately $182 million for nuclear plant decommissioning (see Note 1) and AROs of approximately $379 million for other conditional obligations related to generation, transmission and distribution properties, including gas pipelines. All of the amounts recorded are based upon estimates which are subject to varying degrees of imprecision, particularly since such payments will be made many years in the future.
A reconciliation of the beginning and ending aggregate carrying amount of asset retirement obligations is as follows:
Millions of dollars 2012 2011 Beginning balance $ 473 $ 497 Liabilities incurred — 1 Liabilities settled (5) (4) Accretion expense 24 23 Revisions in estimated cash flows 69 (44) Ending Balance $ 561 $ 473
11. AFFILIATED TRANSACTIONS
The Company received cash distributions from equity-method investees of $12.5 million in 2012, $5.5 million in 2011 and $4.8 million in 2010. The Company made investments in equity-method investees of $10.6 million in 2012, $13.6 million in 2011 and $5.1 million in 2010.
SCE&G owns 40% of Canadys Refined Coal, LLC, which is involved in the manufacturing and selling of refined coal to reduce emissions. SCE&G owned 10% of Cope Refined Coal, LLC through December 31, 2011. SCE&G accounts for these investments using the equity method. SCE&G’s receivables from these affiliates were $1.8 million at December 31, 2012 and $8.5 million at December 31, 2011. SCE&G’s payables to these affiliates were $1.8 million at December 31, 2012 and $8.6 million at December 31, 2011. SCE&G’s total purchases were $111.6 million in 2012 and $123.8 million in 2011. SCE&G’s total sales were $111.1 million in 2012 and $123.3 million in 2011.
12. SEGMENT OF BUSINESS INFORMATION
The Company’s reportable segments are described below. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company records intersegment sales and transfers of electricity and gas based on rates established by the appropriate regulatory authority. Nonregulated sales and transfers are recorded at current market prices.
Electric Operations is primarily engaged in the generation, transmission and distribution of electricity, and is regulated by the SCPSC and FERC.
Gas Distribution, comprised of the local distribution operations of SCE&G and PSNC Energy, is engaged in the purchase and sale, primarily at retail, of natural gas. SCE&G and PSNC Energy are regulated by the SCPSC and the NCUC, respectively.
Retail Gas Marketing markets natural gas in Georgia and is regulated as a marketer by the GPSC. Energy Marketing markets natural gas to industrial and large commercial customers and municipalities, primarily in the Southeast.
All Other is comprised of other direct and indirect wholly-owned subsidiaries of the Company. One of these subsidiaries operates a FERC-regulated interstate pipeline company and the other subsidiaries conduct nonregulated operations in energy-related and telecommunications industries. None of these subsidiaries met the quantitative thresholds for determining reportable segments during any period reported.
The Company’s regulated reportable segments share a similar regulatory environment and, in some cases, overlapping service areas. However, Electric Operations’ product differs from the other segments, as does its generation process and method of distribution. The marketing segments differ from each other in their respective markets and customer type.
89 Exhibit C Page 90 of 171
Disclosure of Reportable Segments (Millions of dollars)
Electric Gas Retail Gas Energy All Adjustments/ Consolidated Operations Distribution Marketing Marketing Other Eliminations Total 2012 External Revenue $ 2,446 $ 764 $ 413 $ 543 $ 45 $ (35) $ 4,176 Intersegment Revenue 7 1 — 125 416 (549) — Operating Income 668 141 n/a n/a 22 28 859 Interest Expense 21 23 1 — 3 247 295 Depreciation and Amortization 278 67 3 — 25 (17) 356 Income Tax Expense 7 32 7 3 15 118 182 Net Income n/a n/a 11 5 1 403 420 Segment Assets 8,989 2,292 153 122 1,415 1,645 14,616 Expenditures for Assets 999 123 — 1 14 (60) 1,077 Deferred Tax Assets 9 26 10 4 17 (55) 11
2011 External Revenue $ 2,424 $ 840 $ 479 $ 657 $ 41 $ (32) $ 4,409 Intersegment Revenue 8 1 — 188 406 (603) — Operating Income 616 132 n/a n/a 18 47 813 Interest Expense 23 24 1 — 3 233 284 Depreciation and Amortization 271 65 3 — 25 (18) 346 Income Tax Expense 5 30 16 3 10 104 168 Net Income n/a n/a 24 4 (6) 365 387 Segment Assets 8,222 2,179 185 114 1,377 1,457 13,534 Expenditures for Assets 806 140 — 1 17 (18) 946 Deferred Tax Assets 9 12 9 9 17 (30) 26
2010 External Revenue $ 2,367 $ 979 $ 553 $ 692 $ 37 $ (27) $ 4,601 Intersegment Revenue 7 1 — 182 410 (600) — Operating Income 554 140 n/a n/a 19 55 768 Interest Expense 22 24 1 — 3 216 266 Depreciation and Amortization 263 63 4 — 29 (24) 335 Income Tax Expense (1) 28 19 2 10 101 159 Net Income n/a n/a 31 4 (6) 347 376 Segment Assets 7,882 2,161 196 116 1,322 1,291 12,968 Expenditures for Assets 752 107 — — 41 (24) 876 Deferred Tax Assets 5 11 9 5 18 (27) 21
Management uses operating income to measure segment profitability for SCE&G and other regulated operations and evaluates utility plant, net, for segments attributable to SCE&G. As a result, SCE&G does not allocate interest charges, income tax expense or assets other than utility plant to its segments. For nonregulated operations, management uses net income as the measure of segment profitability and evaluates total assets for financial position. Interest income is not reported by segment and is not material. The Company’s deferred tax assets are netted with deferred tax liabilities for reporting purposes.
The consolidated financial statements report operating revenues which are comprised of the energy-related and regulated segments. Revenues from non-reportable and nonregulated segments are included in Other Income. Therefore the
90 Exhibit C Page 91 of 171 adjustments to total operating revenues remove revenues from non-reportable segments. Adjustments to net income consist of the unallocated net income of the Company's regulated reportable segments.
Segment Assets include utility plant, net for SCE&G’s Electric Operations and Gas Distribution, and all assets for PSNC Energy and the remaining segments. As a result, adjustments to assets include non-utility plant and non-fixed assets for SCE&G.
Adjustments to Interest Expense, Income Tax Expense, Expenditures for Assets and Deferred Tax Assets include primarily the totals from SCANA or SCE&G that are not allocated to the segments. Interest Expense is also adjusted to eliminate charges between affiliates. Adjustments to Depreciation and Amortization consist of non-reportable segment expenses, which are not included in the depreciation and amortization reported on a consolidated basis. Expenditures for Assets are adjusted for AFC and revisions to estimated cash flows related to asset retirement obligations. Deferred Tax Assets are adjusted to net them against deferred tax liabilities on a consolidated basis.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Millions of dollars, except per share amounts Quarter Quarter Quarter Quarter Annual
2012 Total operating revenues $ 1,107 $ 908 $ 1,038 $ 1,123 $ 4,176 Operating income 238 171 238 212 859 Net income 121 72 122 105 420 Basic earnings per share .93 .55 .93 .79 3.20 Diluted earnings per share .91 .54 .91 .78 3.15
2011 Total operating revenues $ 1,281 $ 1,000 $ 1,092 $ 1,036 $ 4,409 Operating income 248 142 215 208 813 Net income 128 56 105 98 387 Basic earnings per share 1.00 .44 .81 .76 3.01 Diluted earnings per share 1.00 .43 .81 .75 2.97
91 Exhibit C Page 92 of 171 SOUTH CAROLINA ELECTRIC & GAS COMPANY
Page Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 93 Overview 93 Results of Operations 95 Liquidity and Capital Resources 98 Environmental Matters 101 Regulatory Matters 104 Critical Accounting Policies and Estimates 105 New Nuclear Construction Matters 105 Other Matters 108
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 108
Item 8. Financial Statements and Supplementary Data 110 Report of Independent Registered Public Accounting Firm 110 Consolidated Balance Sheets 111 Consolidated Statements of Income 113 Consolidated Statements of Comprehensive Income 114 Consolidated Statements of Cash Flows 115 Consolidated Statements of Changes in Equity 116 Notes to Consolidated Financial Statements 117
92 Exhibit C Page 93 of 171 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
SCE&G is a regulated public utility engaged in the generation, transmission, distribution and sale of electricity and in the purchase and sale, primarily at retail, and transportation of natural gas. SCE&G’s business is subject to seasonal fluctuations. Generally, sales of electricity are higher during the summer and winter months because of air-conditioning and heating requirements, and sales of natural gas are greater in the winter months due to heating requirements. SCE&G’s electric service territory extends into 24 counties covering nearly 17,000 square miles in the central, southern and southwestern portions of South Carolina. The service area for natural gas encompasses all or part of 35 counties in South Carolina and covers approximately 22,600 square miles.
Key Earnings Drivers and Outlook
During 2012, economic growth showed signs of improvement in the southeast, though SCE&G cannot determine if such improvement will be sustainable. Significant industrial announcements in SCE&G’s service territory were made during the year, and announcements made in previous years began to materialize. In addition, the Port of Charleston continues to see increased traffic, with container volume up 9.6% over 2011. SCE&G’s residential and commercial customer growth rates also were positive. At December 31, 2012, a preliminary estimate of seasonally adjusted unemployment for South Carolina was 8.4%. Though improved from the 9.6% unemployment rate at December 31, 2011, unemployment remains high and continues to slow the pace of economic recovery in South Carolina.
Over the next five years, key earnings drivers for SCE&G will be additions to utility rate base, consisting primarily of capital expenditures for new generating capacity, environmental facilities and system expansion. Other factors that will impact future earnings growth include the regulatory environment, customer growth and usage and the level of growth of operation and maintenance expenses and taxes.
Electric Operations
The electric operations segment is comprised of the electric operations of SCE&G, GENCO and Fuel Company, and is primarily engaged in the generation, transmission, distribution and sale of electricity in South Carolina. At December 31, 2012 SCE&G provided electricity to approximately 670,000 customers. GENCO owns a coal-fired generating station and sells electricity solely to SCE&G. Fuel Company acquires, owns, provides financing for and sells at cost to SCE&G nuclear fuel, certain fossil fuels and emission and other environmental allowances.
Operating results for electric operations are primarily driven by customer demand for electricity, rates allowed to be charged to customers and the ability to control growth in costs. The effect of weather on operating results is largely mitigated by the eWNA. Embedded in the rates charged to customers is an allowed regulatory return on equity. SCE&G’s allowed return on equity through 2012 was 10.7% for non-BLRA expenditures, and 11.0% for BLRA-related expenditures. As further described in Note 2 to the consolidated financial statements, SCE&G's allowed return on equity for non-BLRA expenditures became 10.25% effective January 1, 2013. Demand for electricity is primarily affected by weather, customer growth and the economy. SCE&G is able to recover the cost of fuel used in electric generation through retail customers’ bills, but increases in fuel costs affect electric prices and, therefore, the competitive position of electricity against other energy sources.
On May 30, 2012, SCE&G filed an IRP with the SCPSC. The IRP evaluates future electric generation needs based on a variety of factors, including customer energy demands, EPA regulations, reserve margins and fuel costs. The IRP identified a total of six coal-fired units that SCE&G intends to retire by 2018, subject to future developments in environmental regulations, among other matters. These units have an aggregate generating capacity (summer 2012) of 730 MW. One unit, with a net carrying value of $20 million at December 31, 2012, was retired and its value is recorded in regulatory assets. Under provisions of a December 2012 rate order, SCE&G will be allowed recovery of and a return on the net carrying value of this unit over its original remaining useful life of approximately 14 years. The net carrying value of the remaining units totaled $362 million at December 31, 2012, and is identified as Plant to be Retired, Net in the consolidated financial statements. SCE&G plans to request recovery of and a return on the net carrying value of these remaining units in future rate proceedings in connection with their retirement, and expects that such deferred amounts will be recovered through rates. In the meantime, these units remain in rate base, and SCE&G continues to depreciate them using composite straight-line rates approved by the SCPSC.
93 Exhibit C Page 94 of 171 New Nuclear Construction
SCE&G is constructing two 1,117 MW nuclear generation units at the site of Summer Station. SCE&G will jointly own the New Units with one or more parties, and SCE&G will be responsible for 55% of the cost and receive 55% of the output, with other parties responsible for and receiving the remaining share. SCE&G's share of the estimated cash outlays (future value, excluding AFC) totals approximately $6 billion for plant costs and related transmission infrastructure costs, which costs are projected based on historical one-year and five-year escalation rates as required by the SCPSC. The first New Unit is scheduled for substantial completion in 2017, and the second in 2018.
Significant recent developments in new nuclear construction include the following:
• In March 2012, the NRC approved and issued COLs for the New Units.
• In April 2012, SCE&G issued a Full Notice to Proceed to the Consortium for construction of the New Units, allowing for the commencement of safety related aspects of the project.
• In July 2012, SCE&G and the Consortium finalized an agreement resolving specific issues that impacted the project's budget and schedule. These included claims specifically relating to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units, and unanticipated rock conditions at the site. SCE&G's portion of the costs for these specific claims was set at approximately $138 million (in 2007 dollars).
• The SCPSC approved a 2.3% increase, or approximately $52.1 million, in a rate adjustment under the BLRA designed to incorporate the financing cost of incremental construction work in progress incurred for the new nuclear generation. The adjustment was based on SCE&G's updated cost of debt and capital structure and on an allowed return on common equity of 11.0%. The increase was effective for bills rendered on and after October 30, 2012.
• In October 2012, the project received its last major environmental permit, which is the National Pollutant Discharge Elimination System permit for the wastewater system of the New Units.
• In November 2012, the SCPSC approved an updated construction schedule and additional updated capital costs of $278 million (SCE&G's portion in 2007 dollars), which included substantially all of the costs finalized in the July 2012 agreement with the Consortium.
• In February 2013, work began on the reinforcing bar reconfiguration in the Unit 2 nuclear island elevator pit and sump areas. The initial pouring of the Unit 2 nuclear island basemat could take place in the first quarter of 2013 following the completion of this work and based upon an expedited approval by the NRC staff. It is not anticipated that the resolution of this issue will cause a delay in the commercial operation of the New Units in 2017 and 2018.
• The components of the condenser for Unit 2 have arrived on site and are being assembled. Shipment of the reactor vessel for Unit 2 is planned for the second quarter of 2013, and the steam generators for Unit 2 are scheduled to be delivered early in 2013.
• While progress has been made with production, quality assurance and quality control issues, the schedule for fabrication of sub-modules at the contractor facility remains a focus area for the project.
For additional information on these and other matters, see New Nuclear Construction Matters herein and Note 2 and Note 10 to the consolidated financial statements.
Environmental
The EPA proposed new rules in 2012 related to air quality that would establish a new source performance standard for GHG emissions from fossil fuel-fired electric generating units. Also, in October 2012, the EPA filed a petition with the United States Court of Appeals for the District of Columbia, for a rehearing of the Court's decision that vacated CSAPR and left CAIR in place. In January 2013, the Court denied this petition. In 2013, additional significant regulatory initiatives by the EPA and other federal agencies will likely proceed. These initiatives may require Consolidated SCE&G to build or otherwise acquire generating capacity from energy sources that exclude fossil fuels, nuclear or hydro facilities (for example, under an RES). It is also possible that new initiatives will be introduced to reduce further carbon dioxide and other greenhouse gas emissions. Consolidated SCE&G cannot predict whether such initiatives will be enacted, and if they are, the conditions they would impose on utilities. 94 Exhibit C Page 95 of 171
The EPA has stated its intention to propose, in 2013, new federal regulations affecting the management and disposal of CCR, such as ash. Such regulations could result in the treatment of some CCRs as hazardous waste and could impose significant costs to utilities, such as SCE&G and GENCO. The EPA is also expected to issue regulations during 2013 for cooling water intake structures to meet BACT at existing power generating stations. While Consolidated SCE&G cannot predict how extensive the regulations will be, Consolidated SCE&G believes that any additional costs imposed by such regulations would be recoverable through rates.
Gas Distribution
The Gas Distribution segment, comprised of the local distribution operations of SCE&G, is primarily engaged in the purchase, transportation and sale of natural gas to retail customers in portions of South Carolina. At December 31, 2012 this segment provided natural gas to approximately 322,600.
Operating results for gas distribution are primarily influenced by customer demand for natural gas, rates allowed to be charged to customers and the ability to control growth in costs. Embedded in the rates charged to customers is an allowed regulatory return on equity of 10.25%.
Demand for natural gas is primarily affected by weather, customer growth, the economy and the availability and price of alternate fuels. Natural gas competes with electricity, propane and heating oil to serve the heating and, to a lesser extent, other household energy needs of residential and small commercial customers. This competition is generally based on price and convenience. Large commercial and industrial customers often have the ability to switch from natural gas to an alternate fuel, such as propane or fuel oil. Natural gas competes with these alternate fuels based on price. As a result, any significant disparity between supply and demand, either of natural gas or of alternate fuels, and due either to production or delivery disruptions or other factors, will affect price and will impact SCE&G’s ability to retain large commercial and industrial customers. In addition, the production of shale gas in the United States has resulted in significantly lower prices for this commodity in 2010 through 2012. Low natural gas commodity prices are expected to continue in 2013 and for the foreseeable future.
RESULTS OF OPERATIONS
Net Income
Net income for Consolidated SCE&G was as follows:
Millions of dollars 2012 Change 2011 Change 2010 Net income $ 352.0 11.4% $ 316.1 4.0% $ 304.0 2012 vs 2011 Net income increased $62.3 million due to higher electric margin and by $7.8 million due to higher gas margin. This increase was partially offset by $18.0 million due to higher operation and maintenance expenses, higher depreciation expense of $5.4 million, higher property taxes of $4.0
million and higher interest expense of $4.2 million.
2011 vs 2010 Net income increased $46.7 million due to higher electric margin and by $1.0 million due to lower operation and maintenance expenses. This increase was partially offset by $4.1 million due to lower gas margin, higher depreciation expense of $9.1 million, higher property taxes of $6.2 million, higher interest expense of $11.0 million and lower AFC of $5.8 million.
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. Consolidated SCE&G 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 represented approximately 6.3% of income before income taxes in 2012, 4.5% in 2011 and 6.6% in 2010, respectively.
95 Exhibit C Page 96 of 171 Dividends Declared
Consolidated SCE&G’s Boards of Directors declared the following dividends on common stock (all of which was held by SCANA) during 2012 and 2011:
Declaration Date Dividend Amount Quarter Ended Payment Date February 15, 2012 $53.4 million March 31, 2012 April 1, 2012 May 3, 2012 $54.1 million June 30, 2012 July 1, 2012 August 2, 2012 $55.8 million September 30, 2012 October 1, 2012 October 24, 2012 $45.6 million December 31, 2012 January 1, 2013
February 11, 2011 $50.6 million March 31, 2011 April 1, 2011 April 21, 2011 $49.0 million June 30, 2011 July 1, 2011 August 11, 2011 $50.5 million September 30, 2011 October 1, 2011 October 26, 2011 $39.3 million December 31, 2011 January 1, 2012
When a dividend payment date falls on a weekend or holiday, the payment is made the following business day.
Electric Operations
Electric Operations is comprised of the electric operations of SCE&G, GENCO and Fuel Company. Electric operations sales margin (including transactions with affiliates) was as follows:
Millions of dollars 2012 Change 2011 Change 2010 Operating revenues $ 2,453.1 0.9 % $ 2,432.2 2.5 % $ 2,373.9 Less: Fuel used in generation 844.2 (8.5)% 922.5 (2.6)% 946.7 Purchased power 28.1 46.4 % 19.2 12.9 % 17.0 Margin $ 1,580.8 6.1 % $ 1,490.5 5.7 % $ 1,410.2 2012 vs 2011 Margin increased primarily by $54.4 million due to an increase in retail electric base rates approved by the SCPSC under the BLRA, by $3.7 million due to customer growth and by $11.0 million due to the expiration of a decrement rider approved in the 2010 retail electric base rate case.
2011 vs 2010 Margin increased by $49.0 million due to an increase in retail electric base rates approved by the SCPSC under the BLRA and by $34.5 million due to an SCPSC-approved increase in retail electric base rates in July 2010. Also, margin in the first quarter of 2010 was adjusted downward by $17.4 million pursuant to an SCPSC regulatory order in connection with SCE&G’s annual fuel cost proceeding. These increases were partially offset by $12.0 million due to the effects of weather in 2010 before the implementation of the SCPSC-approved eWNA and by lower customer usage of $8.7 million.
Sales volumes (in GWh) related to the electric margin above, by class, were as follows:
Classification 2012 Change 2011 Change 2010 Residential 7,571 (8.0)% 8,232 (6.4)% 8,791 Commercial 7,291 (1.4)% 7,397 (3.7)% 7,684 Industrial 5,836 (1.7)% 5,938 1.3 % 5,863 Other 586 2.4 % 572 (1.5)% 581 Total retail sales 21,284 (3.9)% 22,139 (3.4)% 22,919 Wholesale 2,595 26.6 % 2,049 4.3 % 1,965 Total 23,879 (1.3)% 24,188 (2.8)% 24,884
96 Exhibit C Page 97 of 171 2012 vs 2011 Retail sales volume decreased by 983 GWh primarily due to the effects of milder weather. The increase in wholesale sales is primarily due to higher contract utilization by a wholesale customer.
2011 vs 2010 Total retail sales volumes decreased by 775 GWh due to weather.
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:
Millions of dollars 2012 Change 2011 Change 2010 Operating revenues $ 355.6 (8.2)% $ 387.4 (12.3)% $ 441.6 Less: Gas purchased for resale 196.6 (18.0)% 239.7 (16.6)% 287.4 Margin $ 159.0 7.7 % $ 147.7 (4.2)% $ 154.2 2012 vs 2011 Margin increased $8.3 million due to the SCPSC-approved increases in retail gas base rates under the RSA which became effective with the first billing cycles of November 2011 and 2012.
2011 vs 2010 Margin decreased $8.2 million due to the SCPSC-approved decrease in retail gas base rates under the RSA which became effective with the first billing cycle of November 2010. This decrease was partially offset by an increase of $1.8 million due to the SCPSC-approved increase in retail gas base rates which became effective with the first billing cycle of November 2011.
Sales volumes (in MMBTU) by class, including transportation gas, were as follows:
Classification (in thousands) 2012 Change 2011 Change 2010 Residential 10,153 (13.0)% 11,674 (21.9)% 14,954 Commercial 11,723 (2.9)% 12,071 (8.9)% 13,255 Industrial 19,341 14.0 % 16,963 2.8 % 16,497 Transportation gas 4,707 7.6 % 4,376 16.7 % 3,749 Total 45,924 1.9 % 45,084 (7.0)% 48,455
2012 vs 2011 Residential and commercial sales volume decreased primarily due to milder weather. Industrial and transportation sales volumes increased due to the competitive price of gas versus alternate fuel sources.
2011 vs 2010 Residential and commercial sales decreased primarily due to milder weather. Industrial and transportation sales increased primarily as a result of improved economic conditions and the competitive price of gas versus alternate fuel sources.
Other Operating Expenses
Other operating expenses were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Other operation and maintenance $ 541.6 5.1% $ 515.1 0.1% $ 514.4 Depreciation and amortization 293.4 2.6% 286.1 5.5% 271.3 Other taxes 188.3 3.2% 182.5 4.5% 174.7
97 Exhibit C Page 98 of 171 2012 vs 2011 Other operation and maintenance expenses increased by $9.3 million due to higher generation, transmission and distribution expenses, by $1.7 million due to higher general expenses and by $14.2 million due to higher incentive compensation and other benefits. Depreciation and amortization expense increased primarily due to net property additions. Other taxes increased primarily due to higher property taxes.
2011 vs 2010 Other operation and maintenance expenses increased primarily due to higher generation, transmission and distribution expenses. Depreciation and amortization expense increased primarily due to net property additions. Other taxes increased primarily due to higher property taxes.
Other Income (Expense)
Other income (expense) includes the results of certain non-utility activities. Components of other income (expense), were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Other income $ 0.4 (91.8)% $ 4.9 (59.5)% $ 12.1 Other expense (17.9) 51.7 % (11.8) (21.9)% (15.1) Total $ (17.5) * $ (6.9) * $ (3.0)
* Greater than 100%
2012 vs 2011 Total other income (expense) decreased primarily due to higher non-utility related employee benefit costs in 2012.
2011 vs 2010 Total other income (expense) decreased primarily due to lower pension income in 2011.
Interest Expense
Components of interest expense, net of the debt component of AFC, were as follows:
Millions of dollars 2012 Change 2011 Change 2010 Interest on long-term debt, net $ 200.7 5.1 % $ 191.0 7.3% $ 178.0 Other interest expense 9.8 (27.4)% 13.5 55.2% 8.7 Total $ 210.5 2.9 % $ 204.5 9.5% $ 186.7
Interest on long-term debt increased in each year primarily due to increased long-term borrowings. Other interest expense decreased in 2012 and increased in 2011, primarily due to corresponding changes in principal balances outstanding on short-term debt over the respective prior year and also due to the reversal in 2012 of interest which had been accrued in 2011 related to a tax uncertainty that was resolved (see Note 5 to the consolidated financial statements).
Income Taxes
Income tax expense increased in 2012 over 2011 and in 2011 over 2010 primarily due to increases in income before taxes.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated SCE&G anticipates that its contractual cash obligations will be met through internally generated funds and the incurrence of additional short- and long-term indebtedness. Consolidated SCE&G expects that, barring a future 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 and refinancing maturing long-term debt. Consolidated SCE&G’s ratio of earnings to fixed charges for the year ended December 31, 2012 was 3.29.
98 Exhibit C Page 99 of 171 Consolidated SCE&G’s cash requirements arise primarily from its operational needs, funding its construction programs and payment of dividends to SCANA. The ability of Consolidated SCE&G 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. Consolidated 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 Consolidated SCE&G continues its ongoing construction program, Consolidated SCE&G expects to seek increases in rates. Consolidated SCE&G’s future financial position and results of operations will be affected by Consolidated SCE&G’s ability to obtain adequate and timely rate and other regulatory relief.
Cash outlays for property additions and construction expenditures, including nuclear fuel, net of AFC were $1.0 billion in 2012 and are estimated to be $1.5 billion in 2013.
Consolidated SCE&G’s current estimates of its capital expenditures for construction and nuclear fuel for 2013-2015, which are subject to continuing review and adjustment, are as follows:
Estimated Capital Expenditures
Millions of dollars 2013 2014 2015
Consolidated SCE&G - Normal Generation $ 135 $ 127 $ 125 Transmission & Distribution 218 216 270 Other 9 11 18 Gas 51 50 52 Common 8 7 5 Total Consolidated SCE&G - Normal 421 411 470 New Nuclear (including transmission) 957 980 867 Cash Requirements for Construction 1,378 1,391 1,337 Nuclear Fuel 108 55 39 Total Estimated Capital Expenditures $ 1,486 $ 1,446 $ 1,376
Consolidated SCE&G’s contractual cash obligations as of December 31, 2012 are summarized as follows:
Contractual Cash Obligations
Payments due by period Less than More than Millions of dollars Total 1 year 1 - 3 years 4 - 5 years 5 years Long-term and short-term debt including interest $ 7,974 $ 814 $ 642 $ 1,098 $ 5,420 Capital leases 12 3 6 1 2 Operating leases 33 6 6 1 20 Purchase obligations 4,008 908 1,058 2,042 — Other commercial commitments 1,967 549 519 250 649 Total $ 13,994 $ 2,280 $ 2,231 $ 3,392 $ 6,091
Included in the table above in purchase obligations is SCE&G’s portion of a contractual agreement for the design and construction of the New Units at the Summer Station site. SCE&G expects to be a joint owner and share operating costs and generation output of the New Units, with SCE&G responsible for 55 percent of the cost and receiving 55 percent of the output, and other joint owner (or owners) the remaining 45 percent.
Also included in purchase obligations are customary purchase orders under which SCE&G has the option to utilize certain vendors without the obligation to do so. SCE&G may terminate such arrangements without penalty.
Included in other commercial commitments are estimated obligations for coal and nuclear fuel purchases. SCE&G also has a legal obligation associated with the decommissioning and dismantling of Summer Station Unit 1 and other conditional asset retirement obligations that are not listed in the contractual cash obligations above. See Notes 1 and 10 to the consolidated financial statements.
99 Exhibit C Page 100 of 171
At December 31, 2012, Consolidated SCE&G had posted $26.2 million in cash collateral for interest rate derivative contracts.
Financing Limits and Related Matters
Consolidated SCE&G’s issuance of various securities, including long-term and short-term debt, is subject to customary approval or authorization by regulatory bodies including the SCPSC and FERC. Financing programs currently utilized by Consolidated SCE&G follow.
SCE&G has obtained FERC authority to issue short-term indebtedness and to assume liabilities as a guarantor (pursuant to Section 204 of the Federal Power Act). SCE&G may issue unsecured promissory notes, commercial paper and direct loans in amounts not to exceed $1.6 billion outstanding with maturity dates of one year or less, and may enter into guaranty agreements in favor of lenders, bankers, and dealers in commercial paper in amounts not to exceed $600 million. GENCO has obtained FERC authority to issue short-term indebtedness not to exceed $150 million outstanding with maturity dates of one year or less. The authority described herein will expire in October 2014.
In October 2012, the Consolidated SCE&G's existing committed LOCs were amended and extended. As a result, at December 31, 2012 SCE&G and Fuel Company were parties to five-year credit agreements in the amounts of $1.2 billion, (of which $500 million relates to Fuel Company) which expire in October 2017. In addition, at December 31, 2012 SCE&G was party to a three-year credit agreement in the amount of $200 million which expires in October 2015. These credit agreements are used for general corporate purposes, including liquidity support for each company's commercial paper program and working capital needs and, in the case of Fuel Company, to finance or refinance the purchase of nuclear fuel, certain fossil fuels, and emission and other environmental allowances. For a list of banks providing credit support and other information, see Note 4 to the consolidated financial statements.
As of December 31, 2012, Consolidated SCE&G had no outstanding borrowings under its $1.4 billion facilities, had approximately $449 million in commercial paper borrowings outstanding, was obligated under $0.3 million in LOC-supported letters of credit, and had approximately $51 million in cash and temporary investments. Consolidated SCE&G 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. Average short-term borrowings outstanding during 2012 were approximately $443 million. Short-term cash needs were met primarily through the issuance of commercial paper.
At December 31, 2012, Consolidated SCE&G’s long-term debt portfolio has a weighted average maturity of approximately 19 years and bears an average cost of 5.87%. Substantially all of Consolidated SCE&G's long-term debt bears fixed interest rates or is swapped to fixed. To further preserve liquidity, Consolidated SCE&G rigorously reviews its projected capital expenditures and operating costs and adjusts them where possible without impacting safety, reliability, and core customer service.
SCE&G’s Restated Articles of Incorporation do not limit the dividends that may be paid on its common stock. However, SCE&G’s bond indenture contains provisions that, under certain circumstances, which SCE&G considers to be remote, could limit the payment of cash dividends on its common stock, all of which is beneficially owned by SCANA.
With respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At December 31, 2012, approximately $61.0 million of retained earnings were restricted by this requirement as to payment of cash dividends on SCE&G’s common stock.
SCE&G is subject to a bond indenture dated April 1, 1993 (Mortgage) covering substantially all of its electric properties under which all of its first mortgage bonds (Bonds) have been issued. Bonds may be issued under the Mortgage in an aggregate principal amount not exceeding the sum of (1) 70% of Unfunded Net Property Additions (as therein defined), (2) the aggregate principal amount of retired Bonds and (3) cash deposited with the trustee. Bonds, other than certain Bonds issued on the basis of retired Bonds, may be issued under the Mortgage only if Adjusted Net Earnings (as therein defined) for 12 consecutive months out of the 18 months immediately preceding the month of issuance are at least twice (2.0) the annual interest requirements on all outstanding Bonds and Bonds to be outstanding (Bond Ratio). For the year ended December 31, 2012, the Bond Ratio was 5.22.
100 Exhibit C Page 101 of 171 Financing Activities
In January 2013, JEDA issued for the benefit of SCE&G $39.5 million of 4.0% tax-exempt industrial revenue bonds due February 1, 2028, and $14.7 million of 3.63% tax-exempt industrial revenue bonds due February 1, 2033. Proceeds from these sales were loaned by JEDA to SCE&G and, together with other available funds, were used to redeem prior to maturity $56.9 million of 5.2% industrial revenue bonds due November 1, 2027.
In November 2012, SCE&G repaid at maturity $4.4 million of 4.2% tax-exempt industrial revenue bonds, and repaid prior to maturity $29.2 million of 5.45% tax-exempt industrial revenue bonds due November 1, 2032.
In July 2012, SCE&G issued $250 million of 4.35% first mortgage bonds due February 1, 2042 (issued at a premium with a yield of 3.86%), which constituted a reopening of the prior offering of $250 million of 4.35% first mortgage bonds which were issued in January 2012. Proceeds from these sales were used to repay short-term debt primarily incurred as a result of SCE&G's construction program, to finance capital expenditures and for general corporate purposes.
In October 2011, SCE&G issued $30 million of 3.22% first mortgage bonds due October 18, 2021. Proceeds from the sale were used to redeem prior to maturity $30 million of 5.7% pollution control facilities revenue bonds due November 1, 2024 issued by Orangeburg County, South Carolina, on SCE&G’s behalf.
In May 2011, SCE&G issued $100 million of 5.45% first mortgage bonds due February 1, 2041, which constituted a reopening of the prior offering of $250 million of 5.45% first mortgage bonds issued in January 2011. Proceeds from these sales were used to retire $150 million of SCE&G first mortgage bonds due February 1, 2011, to repay short-term debt primarily incurred as a result of SCE&G’s construction program, to finance other capital expenditures and for general corporate purposes.
During 2012 there were net cash inflows related to financing activities of $318 million primarily due to the issuance long-term debt and contribution from parent, partially offset by repayment of short- and long-term debt and payment of dividends.
SCE&G received approximately $14 million in 2012 from the settlement of interest rate contracts associated with the issuance of long-term debt.
In February 2013, Consolidated SCE&G’s Boards of Directors declared to pay dividends on common stock of $64.0 million, payable on April 1, 2013.
For additional information, see Note 4 to the consolidated financial statements.
In December 2010, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (Tax Relief Act) was signed into law. Major tax incentives in the Tax Relief Act included 100% bonus depreciation for property placed in service after September 8, 2010 and through 2011 and 50% bonus depreciation for property placed in service for 2012. The American Taxpayer Relief Act of 2012 extended the 50% bonus depreciation for property placed in service in 2013. These incentives, along with certain other deductions, have had a positive impact on the cash flows of Consolidated SCE&G and are expected to continue to do so through 2013.
ENVIRONMENTAL MATTERS
Consolidated SCE&G’s operations are subject to extensive regulation by various federal and state authorities in the areas of air quality, water quality, control of toxic substances and hazardous and solid wastes. Applicable statutes and rules include the CAA, CWA, Nuclear Waste Act and CERCLA, among others. Compliance with these environmental requirements involves significant capital and operating costs, which Consolidated SCE&G expects to recover through existing ratemaking provisions.
For the three years ended December 31, 2012, Consolidated SCE&G’s capital expenditures for environmental control equipment at its fossil fuel generating stations totaled $79.6 million. In addition, Consolidated SCE&G made expenditures to operate and maintain environmental control equipment at its fossil plants of $10.2 million in 2012, $7.9 million during 2011 and $6.5 million during 2010, which are included in “Other operation and maintenance” expense and made expenditures to handle waste ash of $7.9 million in 2012, $8.7 million in 2011 and $5.9 million in 2010, which are included in “Fuel used in electric generation.” In addition, included within “Other operation and maintenance” expense is an annual amortization of $1.4 million in each of 2012, 2011 and 2010 related to SCE&G's recovery of MGP remediation costs as approved by the SCPSC. It is not possible to estimate all future costs related to environmental matters, but forecasts for capitalized 101 Exhibit C Page 102 of 171 environmental expenditures for Consolidated SCE&G are $15.3 million for 2013 and $96.0 million for the four-year period 2014-2017. These expenditures are included in Consolidated SCE&G's Estimated Capital Expenditures table, are discussed in Liquidity and Capital Resources, and include known costs related to the matters discussed below.
At the state level, no significant environmental legislation that would affect Consolidated SCE&G’s operations advanced during 2012. Consolidated SCE&G cannot predict whether such legislation will be introduced or enacted in 2013, or if new regulations or changes to existing regulations at the state level will be implemented in the coming year. Several regulatory initiatives at the federal level did advance in 2012 and more are expected to advance in 2013 as described below.
Air Quality
With the pervasive emergence of concern over the issue of global climate change as a significant influence upon the economy, Consolidated SCE&G is subject to climate-related financial risks, including those involving regulatory requirements responsive to GHG emissions, as well as those involving physical impacts which could arise from global climate change. Other business and financial risks arising from such climate change could also arise. Consolidated SCE&G cannot predict all of the climate-related regulatory and physical risks nor the related consequences which might impact Consolidated SCE&G, 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 emission allowance programs with respect to coal plant emissions and also have constructed additional pollution control equipment at several larger coal-fired electric generating plants. Further, SCE&G is engaged in pre-construction activities of the New Units which are expected to reduce GHG emission levels significantly once they are completed and dispatched by potentially displacing some of the current coal-fired generation sources. These actions are expected to address many of the rules and regulations discussed below.
In December 2009, the EPA issued a final finding that atmospheric concentrations of GHG endanger public health and welfare within the meaning of Section 202(a) of the CAA. The finding, which became effective in January 2010, enabled the EPA to regulate GHG emissions under the CAA. On April 13, 2012, the EPA issued a proposed rule to establish an NSPS for GHG emissions from fossil fuel-fired electric generating units. If finalized as proposed, this rule would establish performance standards for new and modified generating units, along with emissions guidelines for existing generating units. This rule would amend the NSPS for electric generating units and establish the first NSPS for GHG emissions. Essentially, the rule would require all new fossil fuel-fired power plants to meet the carbon dioxide emissions profile of a combined cycle natural gas plant. While most new natural gas plants will not be required to include any new technologies, no new coal plants could be constructed without carbon capture and sequestration capabilities. Consolidated SCE&G is evaluating the proposed rule, but cannot predict when the rule will become final, if at all, or what conditions it may impose, if any. Any costs incurred to comply with GHG emission requirements are expected to be recoverable through rates.
In 2005, the EPA issued the CAIR, which required 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. SCE&G and GENCO determined that additional air quality controls would be needed to meet the CAIR requirements. On July 6, 2011 the EPA issued the CSAPR. This rule replaced CAIR and the Clean Air Transport Rule proposed in July 2010 and is aimed at addressing power plant emissions that may contribute to air pollution in other states. CSAPR requires states in the eastern United States to reduce power plant emissions, specifically sulfur dioxide and nitrogen oxide. On December 30, 2011, the United States Court of Appeals for the District of Columbia issued an order staying CSAPR and reinstating CAIR pending resolution of an appeal of CSAPR. On August 21, 2012, the Court vacated CSAPR and left CAIR in place. The EPA's petition for rehearing of the Court's order has been denied. Air quality control installations that SCE&G and GENCO have already completed allowed Consolidated SCE&G to comply with the reinstated CAIR. Consolidated SCE&G will continue to pursue strategies to comply with all applicable environmental regulations. 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.
In June 2010, the EPA issued a final rule for a one-hour ambient air quality standard for sulfur dioxide. This standard may require some of SCE&G’s smaller coal-fired units to reduce their sulfur dioxide emissions to levels to be determined by the EPA and/or DHEC. The costs incurred to comply with this standard are expected to be recovered through rates.
In January 2013, the EPA issued a final rule for an annual ambient air quality standard related to particulate matter smaller than or equal in size to 2.5 microns, significantly revising the existing standard from 15 ug/m3 (micrograms per cubic meter) to 12 ug/m3. The rule takes effect on March 18, 2013. SCE&G anticipates that DHEC monitors throughout South 102 Exhibit C Page 103 of 171 Carolina will indicate compliance with the new standard. While SCE&G does not anticipate a significant impact from this new standard, the costs incurred to comply with this new standard, if any, are expected to be recovered through rates.
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 Consolidated SCE&G’s electric system, as well as impacts on employees and customers and on its supply chain and many others. Much of the service territory of SCE&G 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. In addition, SCE&G has collected funds from customers for its storm damage reserve (see Note 2 to the consolidated financial statements). As part of its ongoing operations, SCE&G maintains emergency response and storm preparation plans and teams who receive ongoing training and related simulations in advance of such storms, all in order to allow Consolidated SCE&G to protect its assets and to return its systems to normal reliable operation in a timely fashion following any such event.
In April 2012, the EPA's rule containing new standards for mercury and other specified air pollutants became effective. The rule provides up to four years for facilities to meet the standards, and Consolidated SCE&G's evaluation of the rule is ongoing. Consolidated SCE&G's decision in 2012 to retire certain coal-fired units or convert them to burn natural gas and its project to build the New Units (see Note 1 to the consolidated financial statements) along with other actions are expected to result in Consolidated SCE&G's compliance with the EPA's rule. 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.
The EPA is conducting an enforcement initiative against the utilities industry related to the NSR provisions and the NSPS of the CAA. As part of the initiative, many utilities have received requests for information under Section 114 of the CAA. In addition, the DOJ, on behalf of EPA, has taken civil enforcement action against several utilities. The primary basis for these actions is the assertion by EPA that maintenance activities undertaken by the utilities at their coal-fired power plants constituted “major modifications” which required the installation of costly BACT. Some of the utilities subject to the actions have reached settlement. To date, SCE&G and GENCO have received and responded to Section 114 requests for information related to Canadys, Wateree and Williams Stations. The current state of continued DOJ civil enforcement is the subject of industry-wide speculation, and it cannot be determined whether Consolidated SCE&G will be affected by the initiative in the future. Consolidated SCE&G believes that any enforcement action relative to its compliance with the CAA would be without merit. Consolidated SCE&G further believes that the previously discussed installation of equipment responsive to CAIR will mitigate many of the alleged concerns with NSR.
Water Quality
The CWA provides for the imposition of effluent limitations that require treatment for wastewater discharges. Under the CWA, compliance with applicable limitations is achieved under a national permit program. Discharge permits have been issued and renewed for all of SCE&G’s and GENCO’s generating units. Concurrent with renewal of these permits, the permitting agency has implemented a more rigorous program of monitoring and controlling discharges, has modified the requirements for new cooling water intake structures, and has required strategies for toxicity reduction in wastewater streams. The EPA has said that it will issue a rule by mid 2013 that modifies requirements for existing cooling water intake structures. Consolidated SCE&G is conducting studies and is developing or implementing compliance plans for these initiatives. Congress is expected to consider further amendments to the CWA. Such legislation may include toxicity-based standards as well as limitations to mixing zones. These provisions, if passed, could have a material impact on the financial condition, results of operations and cash flows of the Consolidated SCE&G. Consolidated SCE&G believes that any additional costs imposed by such regulations would be recoverable through rates.
Hazardous and Solid Wastes
The EPA has stated its intention to propose, in 2013, new federal regulations affecting the management and disposal of CCRs, such as ash. Such regulations could result in the treatment of some CCRs as hazardous waste and could impose significant costs to utilities, such as SCE&G and GENCO. While Consolidated SCE&G cannot predict how extensive the regulations will be, Consolidated SCE&G believes that any additional costs imposed by such regulations would be recoverable through rates.
The Nuclear Waste Act required that the United States government accept and permanently dispose of high-level radioactive waste and spent nuclear fuel by January 31, 1998. The Nuclear Waste Act also imposed on utilities the primary responsibility for storage of their spent nuclear fuel until the repository is available. SCE&G entered into a Standard Contract for Disposal of Spent Nuclear Fuel and/or High-Level Radioactive Waste with the DOE in 1983. As of December 31, 2012, the federal government has not accepted any spent fuel from Summer Station Unit 1, and it remains unclear when the repository 103 Exhibit C Page 104 of 171 may become available. SCE&G has on-site spent nuclear fuel storage capability in its existing fuel pool until at least 2017 and has commenced construction of a dry cask storage facility to accommodate the spent nuclear fuel output for the life of Summer Station Unit 1. SCE&G may evaluate other technology as it becomes available.
The provisions of CERCLA authorize the EPA to require the clean-up of hazardous waste sites. In addition, the state of South Carolina has a similar law. Consolidated SCE&G maintains an environmental assessment program to identify and evaluate current and former operations sites that could require environmental clean up. In addition, regulators from the EPA and other federal or state agencies periodically notify Consolidated SCE&G that it may be required to perform or participate in the investigation and remediation of a hazardous waste site. 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 may differ significantly from the original estimates. Amounts estimated and accrued to date for site assessments and clean-up relate solely to regulated operations. Such amounts are recorded in regulatory assets and amortized with recovery provided through rates. Consolidated SCE&G has assessed the following matters:
Electric Operations
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. Amounts expected to be recovered through rates are recorded in regulatory assets and, if applicable, amortized over approved amortization periods. Other environmental costs are recorded to expense.
Gas Distribution
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 DHEC. SCE&G anticipates that major remediation activities at these sites will continue until 2016 and will cost an additional $22.2 million. SCE&G expects to recover any cost arising from the remediation of MGP sites through rates. At December 31, 2012, deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $38.5 million and are included in regulatory assets.
REGULATORY MATTERS
Material retail rate proceedings are described in Note 2 to the consolidated financial statements.
SCE&G is subject to the jurisdiction of the SEC as to the issuance of certain securities and other matters; the SCPSC as to retail electric and gas rates, service, accounting, issuance of securities (other than short-term borrowings) and other matters; and FERC as to issuance of short-term borrowings, guarantees of short-term indebtedness, certain acquisitions and other matters.
GENCO is subject to the jurisdiction of the SCPSC as to issuance of securities (other than short-term borrowings) and is subject to the jurisdiction of FERC as to issuance of short-term borrowings, accounting, certain acquisitions and other matters.
Fuel Company is subject to the jurisdiction of the SEC as to the issuance of certain securities.
Consolidated SCE&G is subject to CFTC jurisdiction to the extent it transacts swaps as defined in Dodd-Frank.
SCE&G and GENCO are subject to regulation under the Federal Power Act, administered by FERC and DOE, in the transmission of electric energy in interstate commerce and in the sale of electric energy at wholesale for resale, as well as with respect to licensed hydroelectric projects and certain other matters, including accounting.
Natural gas distribution companies may request annual adjustments to rates to reflect changes in revenues and expenses and changes in investment. Such annual adjustments are subject to certain qualifying criteria and review by the SCPSC.
104 Exhibit C Page 105 of 171 Effective February 12, 2010, the PHMSA issued a final rule establishing integrity management requirements for gas distribution pipeline systems. SCE&G has developed a plan and procedures to ensure that it will be fully compliant with this rule. SCE&G believes that any additional costs incurred to comply with the rule will be recoverable through rates.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Following are descriptions of Consolidated SCE&G’s accounting policies and estimates which are most critical in terms of reporting financial condition or results of operations.
Utility Regulation
Consolidated SCE&G’s regulated operations record certain assets and liabilities that defer the recognition of expenses and revenues to future periods in accordance with accounting guidance for rate-regulated utilities. In the future, in the event of deregulation or other changes in the regulatory environment, Consolidated SCE&G 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 effect on the results of operations, liquidity or financial position of Consolidated SCE&G’s Electric Distribution and Gas Distribution segments in the period the write-off would be recorded. See Note 2 to the consolidated financial statements for a description of Consolidated SCE&G’s regulatory assets and liabilities, including those associated with Consolidated SCE&G’s environmental assessment program.
Consolidated SCE&G’s generation assets would be exposed to considerable financial risks in a deregulated electric market. If market prices for electric generation do not produce adequate revenue streams and the enabling legislation or regulatory actions do not provide for recovery of the resulting stranded costs, Consolidated SCE&G could be required to write down its investment in those assets. Consolidated SCE&G cannot predict whether any write-downs would be necessary and, if they were, the extent to which they would affect Consolidated SCE&G’s results of operations in the period in which they would be recorded. As of December 31, 2012, Consolidated SCE&G’s net investments in fossil/hydro and nuclear generation assets were $3.0 billion and $2.4 billion, respectively.
Revenue Recognition and Unbilled Revenues
Revenues related to the sale of energy are recorded when service is rendered or when energy is delivered to customers. Because customers are billed on cycles which vary based on the timing of the actual reading of their electric and gas meters, SCE&G records estimates for unbilled revenues at the end of each reporting period. Such unbilled revenue amounts reflect estimates of the amount of energy delivered to customers for which they have not yet been billed. Such unbilled revenues reflect consideration of estimated usage by customer class, the effects of different rate schedules, changes in weather and, where applicable, the impact of weather normalization provisions of rate structures. The accrual of unbilled revenues in this manner properly matches revenues and related costs. As of December 31, 2012 and 2011, accounts receivable included unbilled revenues of $129.0 million and $117.8 million, respectively, compared to total revenues of $2.8 billion for each of such years.
Nuclear Decommissioning
Accounting for decommissioning costs for nuclear power plants involves significant estimates related to costs to be incurred many years into the future. Among the factors that could change SCE&G’s accounting estimates related to decommissioning costs are changes in technology, changes in regulatory and environmental remediation requirements, and changes in financial assumptions such as discount rates and timing of cash flows. Changes in any of these estimates could significantly impact SCE&G’s financial position and cash flows (although changes in such estimates should be earnings- neutral, because these costs are expected to be collected from ratepayers).
Based on a recently completed decommissioning cost study, SCE&G’s two-thirds share of estimated site-specific nuclear decommissioning costs for Summer Station Unit 1, including both the cost of decommissioning plant components that are and are not subject to radioactive contamination, totals $696.8 million, stated in 2012 dollars. Santee Cooper is responsible for decommissioning costs related to its one-third ownership interest in Summer Station Unit 1. The cost estimate assumes that the site would be maintained over a period of 60 years in such a manner as to allow for subsequent decontamination that would permit release for unrestricted use.
Under SCE&G’s method of funding decommissioning costs, amounts collected through rates are invested in insurance policies on the lives of certain Company personnel. SCE&G transfers to an external trust fund the amounts collected through electric rates, insurance proceeds and interest thereon, less expenses. The trusteed asset balance reflects the net cash surrender
105 Exhibit C Page 106 of 171 value of the insurance policies and cash held by the trust. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures on an after-tax basis.
Asset Retirement Obligations
Consolidated SCE&G accrues for the legal obligation associated with the retirement of long-lived tangible assets that result from their acquisition, construction, development and normal operation in accordance with applicable accounting guidance. The obligations are recognized at present value in the period in which they are incurred and associated asset retirement costs are capitalized as a part of the carrying amount of the related long-lived assets. Because such obligations relate primarily to Consolidated SCE&G’s utility operations, their recording has no significant impact on results of operations. As of December 31, 2012, Consolidated SCE&G has recorded AROs of $182 million for nuclear plant decommissioning (as discussed above) and AROs of $353 million for other conditional obligations related to generation, transmission and distribution properties, including gas pipelines. All of the amounts recorded in accordance with the relevant accounting guidance are based upon estimates which are subject to varying degrees of imprecision, particularly since such payments may be made many years in the future. Changes in these estimates will be recorded over time; however, these changes in estimates are not expected to materially impact results of operations so long as the regulatory framework for utilities remains in place.
Accounting for Pensions and Other Postretirement Benefits
SCE&G participates in SCANA’s noncontributory defined benefit pension plan, which covers substantially all regular, full-time employees. SCANA recognizes the funded status of its defined benefit pension plan as an asset or liability and changes in funded status as a component of net periodic benefit cost or other comprehensive income, net of tax, or as a regulatory asset as required by accounting guidance. SCANA’s plan is adequately funded under current regulations. Accounting guidance requires the use of several assumptions, the selection of which has an impact on the resulting pension cost recorded. Among the more sensitive assumptions are those surrounding discount rates and expected returns on assets. SCANA's net pension cost of $28.5 million ($23.3 million attributable to SCE&G) recorded in 2012 reflects the use of a 5.25% discount rate, derived using a cash flow matching technique, and an assumed 8.25% long-term rate of return on plan assets. SCANA believes that these assumptions were, and that the resulting pension cost amount was, reasonable. For purposes of comparison, using a discount rate of 5.00% in 2012 would have increased SCANA’s pension cost by $1.5 million. Further, had the assumed long- term rate of return on assets been 8.00%, SCANA’s pension cost for 2012 would have increased by $1.8 million.
The following information with respect to pension assets (and returns thereon) should also be noted.
SCANA determines the fair value of a large majority of its pension assets utilizing market quotes or derives them from modeling techniques that incorporate market data. Only a small portion of assets are valued using less transparent (“Level 3”) methods.
In developing the expected long-term rate of return assumptions, SCANA evaluates historical performance, targeted allocation amounts and expected payment terms. As of the beginning of 2012, the plan’s historical 10, 15, 20 and 25 year cumulative performance showed actual returns of 4.2%, 6.8%, 8.6% and 9.3%, respectively. The 2012 expected long-term rate of return of 8.25% was based on a target asset allocation of 65% with equity managers and 35% with fixed income managers. SCANA regularly reviews such allocations and periodically rebalances the portfolio when considered appropriate. As of the beginning of 2013, the plan’s historical 10, 15, 20 and 25 year cumulative performance showed actual returns of 7.5%, 6.3%, 8.8% and 9.7%, respectively. For 2013, the expected rate of return is 8.00%.
Due to turmoil in the financial markets and the resultant declines in plan asset values in the fourth quarter of 2008, SCE&G recorded significant amounts of pension cost in 2009, 2010, 2011 and 2012 compared to the pension income recorded previously. However, in February 2009, SCE&G was granted accounting orders by the SCPSC which allowed it to mitigate a significant portion of this increased pension cost by deferring as a regulatory asset the amount of pension expense above the level that was included in then current cost of service rates for its retail electric and gas distribution regulated operations. In July 2010, upon implementation of retail electric base rates, SCE&G began deferring as a regulatory asset all pension cost related to its regulated retail electric operations that otherwise would have been charged to expense. In November 2010, upon the updated gas rates becoming effective under the RSA, SCE&G began deferring as a regulatory asset, all pension cost related to its regulated natural gas operations that otherwise would have been charged to expense.
As part of the December 2012 rate order, deferred pension costs related to electric operations of approximately $63 million will be amortized over approximately 30 years, and current pension expense for electric operations will be recovered through a pension cost rider starting in January 2013.
106 Exhibit C Page 107 of 171 The pension trust is adequately funded under current regulations, and no contributions have been required since 1997. Management does not anticipate the need to make pension contributions until after 2014.
In addition to pension benefits, SCE&G participates in SCANA’s unfunded postretirement health care and life insurance programs which provide benefits to certain active and retired employees. SCANA accounts for the cost of postretirement medical and life insurance benefit plans in a similar manner to that used for its defined benefit pension plan. This plan is unfunded, so no assumptions related to rate of return on assets impact the net expense recorded; however, the selection of discount rates can significantly impact the actuarial determination of net expense. SCANA used a discount rate of 5.35%, derived using a cash flow matching technique, and recorded a net cost to SCE&G of $14.9 million for 2012. Had the selected discount rate been 5.10% (25 basis points lower than the discount rate referenced above), the expense for 2012 would have been $0.5 million higher. Because the plan provisions include “caps” on company per capita costs, healthcare cost inflation rate assumptions do not materially impact the net expense recorded.
NEW NUCLEAR CONSTRUCTION MATTERS
SCE&G and Santee Cooper are parties to construction and operating agreements in which they agreed to be joint owners, and share operating costs and generation output, of two 1,117 MW nuclear generation units currently being constructed at the site of Summer Station, with SCE&G responsible for 55% of the cost and receiving 55% of the output, and Santee Cooper responsible for and receiving the remaining 45%. Under these agreements, SCE&G has the primary responsibility for oversight of the construction of the New Units and will be responsible for the operation of the New Units as they come online.
SCE&G, on behalf of itself and as agent for Santee Cooper, entered into the EPC Contract with the Consortium for the design, procurement and construction of the New Units. SCE&G's share of the estimated cash outlays (future value, excluding AFC) totals approximately $6 billion for plant costs and related transmission infrastructure costs, which costs are projected based on historical one-year and five-year escalation rates as required by the SCPSC.
On March 30, 2012, the NRC approved and issued COLs for the New Units. On April 19, 2012, SCE&G, on behalf of itself and as agent for Santee Cooper, issued a Full Notice to Proceed to the Consortium for construction of the New Units, allowing for the commencement of safety related aspects of the project. The first New Unit is scheduled for substantial completion in 2017, and the second New Unit is scheduled for substantial completion in 2018.
In May 2011, the SCPSC approved an updated capital cost schedule sought by SCE&G that, among other matters, incorporated then-identifiable additional capital costs of $173.9 million (SCE&G's portion in 2007 dollars).
The parties to the EPC Contract have established both informal and formal dispute resolution procedures in order to resolve issues that arise during the course of constructing a project of this magnitude. During the course of activities under the EPC Contract, issues have materialized that impact project budget and schedule. Claims specifically relating to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units and unanticipated rock conditions at the site resulted in assertions of contractual entitlement to recover additional costs to be incurred. On July 11, 2012, SCE&G and the Consortium finalized an agreement which set SCE&G's portion of the costs for these specific claims at approximately $138 million (in 2007 dollars). As described below, SCE&G anticipates that these additional costs, as well as other costs that may be identified from time to time, will be recoverable through rates.
In November 2012, the SCPSC approved an updated construction schedule and additional updated capital costs of $278 million (SCE&G's portion in 2007 dollars). The November 2012 order approved additional identifiable capital costs of approximately $1 million (SCE&G's portion in 2007 dollars) related to new federal healthcare laws, information security measures, and certain minor design modifications; approximately $8 million (SCE&G's portion in 2007 dollars) related to transmission infrastructure; and approximately $132 million (SCE&G's portion in 2007 dollars) related to additional labor for the oversight of the New Units during construction and for preparing to operate the New Units, and facilities and information technology systems required to support the New Units and their personnel. In addition, the order approved revised substantial completion dates for the New Units based on the March 30, 2012 issuance of the COL and the above amounts agreed upon by SCE&G and the Consortium in July 2012 to resolve claims for costs related to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units and unanticipated rock conditions at the site. Thereafter, two parties filed separate petitions requesting that the SCPSC reconsider its November 2012 order. On December 12, 2012, the SCPSC denied both petitions.
When the NRC issued the COLs for the New Units, two of the conditions that it imposed were requiring inspection and testing of certain components of the New Units' passive cooling system, and requiring the development of strategies to 107 Exhibit C Page 108 of 171 respond to extreme natural events resulting in the loss of power at the New Units. In addition, the NRC directed the Office of New Reactors to issue to SCE&G an order requiring enhanced, reliable spent fuel pool instrumentation, as well as a request for information related to emergency plant staffing. These conditions and requirements are responsive to the NRC's Near-Term Task Force report titled “Recommendations for Enhancing Reactor Safety in the 21st Century.” This report was prepared in the wake of the March 2011 earthquake-generated tsunami, which severely damaged several nuclear generating units and their back-up cooling systems in Japan. SCE&G is evaluating the impact these conditions and requirements impose on the construction and operation of the New Units. SCE&G cannot predict what additional regulatory or other outcomes may be implemented in the United States, or how such initiatives would impact SCE&G's existing Summer Station or the construction or operation of the New Units.
In February 2013, work began on the reinforcing bar reconfiguration in the Unit 2 nuclear island elevator pit and sump areas. The initial pouring of the Unit 2 nuclear island basemat could take place in the first quarter of 2013 following the completion of this work and based upon an expedited approval by the NRC staff. It is not anticipated that the resolution of this issue will cause a delay in the commercial operation of the New Units in 2017 and 2018.
As previously reported, SCE&G has been advised by Santee Cooper that it is reviewing certain aspects of its capital improvement program and long-term power supply plan, including the level of its participation in the New Units. Santee Cooper has been engaged in discussions with several parties that may result in one or more of them executing a power purchase agreement or acquiring a portion of Santee Cooper's ownership interest in the New Units. SCE&G is unable to predict whether any change in Santee Cooper's ownership interest or the addition of new joint owners will increase project costs or delay the commercial operation dates of the New Units. Any such project cost increase or delay could be material.
OTHER MATTERS
Financial Regulatory Reform
In July 2010, Dodd-Frank became law. This law provides for substantial additional regulation of over-the-counter and security-based derivative instruments, among other things, and requires numerous rule-makings by the CFTC and the SEC to implement. Consolidated SCE&G has determined that it meets the end-user exception in Dodd-Frank, with the lowest level of required regulatory reporting burden imposed by this law. Consolidated SCE&G is currently complying with these enacted regulations and intends to comply with regulations enacted in the future, but cannot predict when the final regulations will be issued or what requirements they will impose.
Off-Balance Sheet Transactions
Consolidated SCE&G does not hold significant investments in unconsolidated special purpose entities. Consolidated SCE&G 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, vehicles, equipment and rail cars, none of which are considered significant.
Claims and Litigation
For a description of claims and litigation see Item 3. LEGAL PROCEEDINGS and Note 10 to the consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
All financial instruments held by Consolidated SCE&G described below are held for purposes other than trading.
The tables below provide information about long-term debt issued by Consolidated SCE&G which is sensitive to changes in interest rates. For debt obligations, the tables present principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the figures shown reflect notional amounts, weighted average rates and related maturities. Fair values for debt represent quoted market prices. Interest rate swap agreements are valued using discounted cash flow models with independently sourced data.
108 Exhibit C Page 109 of 171
Expected Maturity Date December 31, 2012 Fair Millions of dollars 2013 2014 2015 2016 2017 Thereafter Total Value
Long-Term Debt: Fixed Rate ($) 159.5 45.1 8.6 8.1 7.7 3,405.9 3,634.9 4,458.0 Average Interest Rate (%) 6.98 4.84 4.85 5.01 5.12 5.60 5.65 — Variable Rate ($) — — — — — 67.8 67.8 65.8 Average Variable Interest Rate (%) — — — — — 0.17 0.17 —
Interest Rate Swaps: Pay Fixed/Receive Variable ($) 600.0 300.0 — — — 71.4 971.4 (2.5) Average Pay Interest Rate (%) 3.01 2.48 — — — 3.29 2.87 — Average Receive Interest Rate (%) 0.31 0.31 — — — 0.13 0.29 —
Expected Maturity Date December 31, 2011 Fair Millions of dollars 2012 2013 2014 2015 2016 Thereafter Total Value
Long-Term Debt: Fixed Rate ($) 13.3 158.2 43.7 7.3 7.2 2,940.0 3,169.7 3,857.9 Average Interest Rate (%) 4.82 7.02 4.95 5.51 5.55 5.81 5.86 — Variable Rate ($) — — — — — 68.3 68.3 68.3 Average Variable Interest Rate (%) — — — — — 0.16 0.16 —
Interest Rate Swaps: Pay Fixed/Receive Variable ($) 250.0 150.0 — — — 71.4 471.4 (75.6) Average Pay Interest Rate (%) 2.60 4.89 — — — 3.29 3.43 — Average Receive Interest Rate (%) 0.58 0.58 — — — 0.11 0.51 —
While a decrease in interest rates would increase the fair value of debt, it is unlikely that events which would result in a realized loss will occur.
The above tables exclude long-term debt of $9 million at December 31, 2012 and $15 million at December 31, 2011, which amounts do not have stated interest rates associated with them.
For further discussion of Consolidated SCE&G’s long-term debt and interest rate derivatives, see Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — Liquidity and Capital Resources and Notes 4 and 6 to the consolidated financial statements.
The SCPSC authorized suspension of SCE&G's natural gas hedging program in January 2012, and SCE&G was not a party to any natural gas derivative instruments at December 31, 2012.
109 Exhibit C Page 110 of 171 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of South Carolina Electric & Gas Company Cayce, South Carolina
We have audited the accompanying consolidated balance sheets of South Carolina Electric & Gas Company and affiliates (the "Company") as of December 31, 2012 and 2011, and the related consolidated statements of income, comprehensive income, cash flows and changes in equity for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule listed in Part IV at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP Charlotte, North Carolina February 28, 2013
110 Exhibit C Page 111 of 171 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED BALANCE SHEETS
December 31, (Millions of dollars) 2012 2011
Assets Utility Plant In Service $ 10,096 $ 10,312 Accumulated Depreciation and Amortization (3,322) (3,367) Construction Work in Progress 2,073 1,472 Plant to be Retired, Net 362 — Nuclear Fuel, Net of Accumulated Amortization 166 171 Utility Plant, Net ($640 and $662 related to VIEs) 9,375 8,588
Nonutility Property and Investments: Nonutility property, net of accumulated depreciation 57 52 Assets held in trust, net-nuclear decommissioning 94 84 Other investments 3 2 Nonutility Property and Investments, Net 154 138
Current Assets: Cash and cash equivalents 51 16 Receivables, net of allowance for uncollectible accounts of $3 and $3 483 482 Receivables-affiliated companies 2 9
Inventories (at average cost): Fuel 203 196 Materials and supplies 126 120 Emission allowances 1 2 Prepayments and other 143 82 Deferred income taxes — 8 Total Current Assets ($206 and $193 related to VIEs) 1,009 915
Deferred Debits and Other Assets: Regulatory assets 1,377 1,206 Other 189 190 Total Deferred Debits and Other Assets ($54 and $61 related to VIEs) 1,566 1,396 Total $ 12,104 $ 11,037
See Notes to Consolidated Financial Statements.
111 Exhibit C Page 112 of 171
December 31, (Millions of dollars) 2012 2011
Capitalization and Liabilities Common equity $ 3,929 $ 3,665 Noncontrolling interest 114 108 Total Equity 4,043 3,773 Long-Term Debt, net 3,557 3,222 Total Capitalization 7,600 6,995
Current Liabilities: Short-term borrowings 449 512 Current portion of long-term debt 165 19 Accounts payable 281 231 Affiliated payables 124 136 Customer deposits and customer prepayments 51 54 Taxes accrued 151 150 Interest accrued 63 54 Dividends declared 46 39 Derivative financial instruments 66 2 Other 50 61 Total Current Liabilities 1,446 1,258
Deferred Credits and Other Liabilities: Deferred income taxes, net 1,479 1,371 Deferred investment tax credits 36 40 Asset retirement obligations 535 449 Postretirement benefits 254 179 Regulatory liabilities 665 575 Other 89 170 Total Deferred Credits and Other Liabilities 3,058 2,784 Commitments and Contingencies (Note 10) — — Total $ 12,104 $ 11,037
See Notes to Consolidated Financial Statements.
112 Exhibit C Page 113 of 171 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, (Millions of dollars) 2012 2011 2010
Operating Revenues: Electric $ 2,453 $ 2,432 $ 2,374 Gas 356 387 441 Total Operating Revenues 2,809 2,819 2,815
Operating Expenses: Fuel used in electric generation 844 922 947 Purchased power 28 19 17 Gas purchased for resale 197 240 287 Other operation and maintenance 542 515 514 Depreciation and amortization 293 286 271 Other taxes 188 183 175 Total Operating Expenses 2,092 2,165 2,211 Operating Income 717 654 604
Other Income (Expense): Other income — 5 12 Other expenses (18) (12) (15) Interest charges, net of allowance for borrowed funds used during construction of $11, $7 and $10 (211) (204) (186) Allowance for equity funds used during construction 21 13 19 Total Other Expense (208) (198) (170) Income Before Income Tax Expense 509 456 434 Income Tax Expense 157 140 130 Net Income 352 316 304 Less Net Income Attributable to Noncontrolling Interest 11 10 14 Earnings Available to Common Shareholder $ 341 $ 306 $ 290 Dividends Declared on Common Stock $ 209 $ 189 $ 199
See Notes to Consolidated Financial Statements.
113 Exhibit C Page 114 of 171 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, (Millions of dollars) 2012 2011 2010
Net Income $ 352 $ 316 $ 304 Other Comprehensive Income (Loss), net of tax: Deferred cost of employee benefit plans, net of tax $-, $- and $18 (1) (1) 29 Amortization of deferred employee benefit plan costs reclassified to net income, net of tax $-, $- and $1 — — 2 Other Comprehensive Income (Loss) (1) (1) 31 Total Comprehensive Income 351 315 335 Less comprehensive income attributable to noncontrolling interest (11) (10) (14) Comprehensive income available to common shareholder $ 340 $ 305 $ 321
See Notes to Consolidated Financial Statement
114 Exhibit C Page 115 of 171
SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (Millions of dollars) 2012 2011 2010 Cash Flows From Operating Activities:
Net income $ 352 $ 316 $ 304 Adjustments to reconcile net income to net cash provided from operating
activities: Losses from equity method investments 4 2 2 Deferred income taxes, net 116 138 234 Depreciation and amortization 294 288 276 Amortization of nuclear fuel 44 40 36 Allowance for equity funds used during construction (21) (13) (19) Carrying cost recovery — — (3)
Cash provided (used) by changes in certain assets and liabilities: Receivables 35 (31) (110) Inventories (60) (25) (5) Prepayments (64) 82 (87) Regulatory assets (158) (165) (55) Other regulatory liabilities 64 (12) (11) Accounts payable 27 (48) 59 Taxes accrued 1 13 9 Interest accrued 9 4 (1) Other assets (84) 27 (78) Other liabilities 115 39 120 Net Cash Provided From Operating Activities 674 655 671 Cash Flows From Investing Activities:
Property additions and construction expenditures (978) (786) (771) Proceeds from investments and sales of assets (including derivative collateral posted) 275 11 49 Investment in affiliate — — 41 Purchase of investments (including derivative collateral posted) (268) (57) (43) Payments upon interest rate contract settlement — (31) — Proceeds from interest rate contract settlement 14 — — Net Cash Used For Investing Activities (957) (863) (724)
Cash Flows From Financing Activities: Proceeds from issuance of long-term debt 513 379 90 Contribution from parent 128 107 146 Repayment of long-term debt (49) (206) (219) Dividends (202) (205) (195) Short-term borrowings-affiliate, net (9) (13) 1 Short-term borrowings, net (63) 131 127 Net Cash Provided From (Used For) Financing Activities 318 193 (50) Net Increase (Decrease) in Cash and Cash Equivalents 35 (15) (103) Cash and Cash Equivalents, January 1 16 31 134 Cash and Cash Equivalents, December 31 $ 51 $ 16 $ 31
Supplemental Cash Flow Information: Cash paid for—Interest (net of capitalized interest of $11, $7 and $9) $ 186 $ 181 $ 175 —Income taxes 105 — 31
Noncash Investing and Financing Activities: Accrued construction expenditures 116 75 168 Capital lease 8 6 —
See Notes to Consolidated Financial Statements.
115 Exhibit C Page 116 of 171 SOUTH CAROLINA ELECTRIC & GAS COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Accumulated Other
Common Stock Retained Comprehensive Noncontrolling Total Millions Shares Amount Earnings Loss Interest Equity Balance at January 1, 2010 40 $ 1,788 $ 1,407 $ (33) $ 97 $ 3,259 Earnings available for common shareholder 290 14 304 Deferred cost of employee benefit plans, net of tax $19 31 31 Total Comprehensive Income 290 31 14 335 Capital contributions from parent 146 146 Cash dividends declared (192 (7 (199 ) ) ) Balance at December 31, 2010 40 1,934 1,505 (2) 104 3,541 Earnings Available for Common Shareholder 306 10 316 Deferred Cost of Employee Benefit Plans, net of tax $- (1 (1 ) ) Total Comprehensive Income (Loss) 306 (1) 10 315 Capital contributions from parent 107 107 Cash dividends declared (184 (6 (190 ) ) ) Balance at December 31, 2011 40 2,041 1,627 (3) 108 3,773 Earnings Available for Common Shareholder 341 11 352 Deferred Cost of Employee Benefit Plans, net of tax $- (1 (1 ) ) Total Comprehensive Income (Loss) 341 (1) 11 351 Capital contributions from parent 126 2 128 Cash dividends declared (202 (7 (209 ) ) ) Balance at December 31, 2012 40 $ 2,167 $ 1,766 $ (4) $ 114 $ 4,043
See Notes to Consolidated Financial Statements.
116 Exhibit C Page 117 of 171 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
SCE&G, a public utility, is a South Carolina corporation organized in 1924 and a wholly-owned subsidiary of SCANA, a South Carolina corporation. Consolidated SCE&G engages predominantly in the generation and sale of electricity to wholesale and retail customers in South Carolina and in the purchase, sale and transportation of natural gas to retail customers in South Carolina.
SCE&G has determined that it has a controlling financial interest in GENCO and Fuel Company (which are considered to be VIEs), and accordingly, the accompanying 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, SCE&G’s parent. Accordingly, GENCO’s and Fuel Company’s equity and results of operations are reflected as noncontrolling interest in Consolidated SCE&G’s consolidated financial statements. Intercompany balances and transactions between SCE&G, Fuel Company and GENCO have been eliminated in consolidation.
GENCO owns a coal-fired electric generating station with a 605 megawatt net generating capacity (summer rating). GENCO’s electricity is sold, pursuant to a FERC-approved tariff, solely to SCE&G under the terms of a power purchase agreement and related operating agreement. The effects of these transactions are eliminated in consolidation. Substantially all of GENCO’s property (carrying value of approximately $475 million) serves as collateral for its long-term borrowings. Fuel Company acquires, owns and provides financing for SCE&G’s nuclear fuel, certain fossil fuels and emission and other environmental allowances. See also Note 4.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Utility Plant
Utility plant is stated substantially at original cost. The costs of additions, replacements and betterments to utility plant, including direct labor, material and indirect charges for engineering, supervision and an allowance for funds used during construction, are added to utility plant accounts. The original cost of utility property retired or otherwise disposed of is removed from utility plant accounts and generally charged to accumulated depreciation. The costs of repairs and replacements of items of property determined to be less than a unit of property or that do not increase the asset’s life or functionality are charged to expense.
AFC is a noncash item that reflects the period cost of capital devoted to plant under construction. This accounting practice results in the inclusion of, as a component of construction cost, the costs of debt and equity capital dedicated to construction investment. AFC is included in rate base investment and depreciated as a component of plant cost in establishing rates for utility services. Consolidated SCE&G calculated AFC using average composite rates of 6.3% for 2012, 4.6% for 2011 and 7.3% for 2010. These rates do not exceed the maximum allowable rate as calculated under FERC Order No. 561. SCE&G capitalizes interest on nuclear fuel in process at the actual interest cost incurred.
Consolidated SCE&G records provisions for depreciation and amortization using the straight-line method based on the estimated service lives of the various classes of property. The composite weighted average depreciation rates for utility plant assets were 2.91% in 2012, 2.90% in 2011 and 2.84% in 2010.
SCE&G records nuclear fuel amortization using the units-of-production method. Nuclear fuel amortization is included in “Fuel used in electric generation” and recovered through the fuel cost component of retail electric rates. Provisions for amortization of nuclear fuel include amounts necessary to satisfy obligations to the DOE under a contract for disposal of spent nuclear fuel.
117 Exhibit C Page 118 of 171 Jointly Owned Utility Plant
SCE&G jointly owns and is the operator of Summer Station Unit 1. In addition, SCE&G will jointly own and will be the operator of the New Units being designed and constructed at the site of Summer Station. Each joint owner provides its own financing and shares the direct expenses and generation output in proportion to its ownership of a unit. SCE&G’s share of the direct expenses is included in the corresponding operating expenses on its income statement.
Unit 1 New Units
As of December 31, 2012 Percent owned 66.7% 55.0% Plant in service $ 1.1 billion — Accumulated depreciation $ 557.0 million — Construction work in progress $ 113.6 million $ 1.8 billion
As of December 31, 2011 Percent owned 66.7% 55.0% Plant in service $ 1.0 billion — Accumulated depreciation $ 545.0 million — Construction work in progress $ 71.0 million $ 1.2 billion
SCE&G, on behalf of itself and as agent for Santee Cooper, has contracted the Consortium for the design and construction of the New Units at the site of Summer Station. SCE&G’s share of the estimated cash outlays (future value, excluding AFC) totals approximately $6.0 billion for plant costs and for related transmission infrastructure costs, and is projected based on historical one-year and five-year escalation rates as required by the SCPSC. The first New Unit is scheduled for substantial completion in 2017, and the second in 2018.
SCE&G’s latest IRP filed with the SCPSC continues to support SCE&G’s need for 55% of the output of the New Units. As previously reported, SCE&G has been advised by Santee Cooper that it is reviewing certain aspects of its capital improvement program and long-term power supply plan, including the level of its participation in the New Units. Santee Cooper has been engaged in discussions with several parties that may result in one or more of them executing a power purchase agreement or acquiring a portion of Santee Cooper’s ownership interest in the New Units. SCE&G is unable to predict whether any change in Santee Cooper’s ownership interest or the addition of new joint owners will increase project costs or delay the commercial operation dates of the New Units. Any such project cost increase or delay could be material.
Included within receivables on the balance sheet were amounts due to SCE&G from Santee Cooper for its share of direct expenses and construction costs for Summer Station Unit 1 and the New Units. These amounts totaled $92.9 million at December 31, 2012 and $63.6 million at December 31, 2011.
Plant to be Retired
SCE&G has identified a total of six coal-fired units that it intends to retire by 2018, subject to future developments in environmental regulations, among other matters. These units have an aggregate generating capacity (summer 2012) of 730 MW. One unit, with a net carrying value of $20 million at December 31, 2012, was retired and its value is recorded in regulatory assets (see Note 2). The net carrying value of the remaining units totaled $362 million at December 31, 2012, and is identified as Plant to be Retired, Net in the consolidated financial statements. SCE&G plans to request recovery of and a return on the net carrying value of these remaining units in future rate proceedings in connection with their retirement, and expects that such deferred amounts will be recovered through rates. In the meantime, these units remain in rate base, and SCE&G continues to depreciate them using composite straight-line rates approved by the SCPSC.
Major Maintenance
Planned major maintenance costs related to certain fossil fuel turbine equipment and nuclear refueling outages are accrued in periods other than when incurred in accordance with approval by the SCPSC for such accounting treatment and rate recovery of expenses accrued thereunder. The difference between such cumulative major maintenance costs and cumulative collections are classified as a regulatory asset or regulatory liability on the balance sheet (see Note 2). Other planned major maintenance is expensed when incurred.
118 Exhibit C Page 119 of 171 Through 2017, SCE&G is authorized to collect $18.4 million annually through electric rates to offset certain turbine maintenance expenditures. For the years ended December 31, 2012 and 2011, SCE&G incurred $11.1 million and $11.5 million, respectively, for turbine maintenance.
Nuclear refueling outages are scheduled 18 months apart, and SCE&G begins accruing for each successive scheduled outage upon completion of the preceding scheduled outage. SCE&G accrued $1.2 million per month from January 2010 through December 2012 for its portion of the outages in the spring of 2011 and the fall of 2012. Total costs for the 2011 outage were $34.1 million, of which SCE&G was responsible for $22.7 million. Total costs for the 2012 outage were $32.3 million, of which SCE&G was responsible for $21.5 million. In connection with the SCPSC's December 2012 approval of SCE&G's retail electric rates (see Note 2), effective January 1, 2013, SCE&G began to accrue $1.4 million per month for its portion of the nuclear refueling outages that are scheduled to occur through the spring of 2020.
Nuclear Decommissioning
SCE&G’s two-thirds share of estimated site-specific nuclear decommissioning costs for Summer Station Unit 1, including the cost of decommissioning plant components both subject to and not subject to radioactive contamination, totals $696.8 million, stated in 2012 dollars, pursuant an updated decommissioning cost study performed in 2012. Santee Cooper is responsible for decommissioning costs related to its one-third ownership interest in Summer Station Unit 1. The cost estimate assumes that the site will be maintained over a period of approximately 60 years in such a manner as to allow for subsequent decontamination that would permit release for unrestricted use.
Under SCE&G’s method of funding decommissioning costs, amounts collected through rates ($3.2 million pre-tax in each of 2012, 2011 and 2010) are invested in insurance policies on the lives of certain SCE&G and affiliate personnel. SCE&G transfers to an external trust fund the amounts collected through electric rates, insurance proceeds and interest thereon, less expenses. The trusteed asset balance reflects the net cash surrender value of the insurance policies and cash held by the trust. Management intends for the fund, including earnings thereon, to provide for all eventual decommissioning expenditures for Summer Station Unit 1 on an after-tax basis.
Cash and Cash Equivalents
Consolidated SCE&G considers temporary cash investments having original maturities of three months or less at time of purchase to be cash equivalents. These cash equivalents are generally in the form of commercial paper, certificates of deposit, repurchase agreements, treasury bills and notes.
Accounts Receivable
Accounts receivable reflect amounts due from customers arising from the delivery of energy or related services and include revenues earned pursuant to revenue recognition practices described below. These receivables include both billed and unbilled amounts. Receivables are generally due within one month of receipt of invoices which are presented on a monthly cycle basis.
Income Taxes
Consolidated SCE&G is included in the consolidated federal income tax return of SCANA. Under a joint consolidated income tax allocation agreement, each SCANA subsidiary’s current and deferred tax expense is computed on a stand-alone basis. Deferred tax assets and liabilities are recorded for the tax effects of all significant temporary differences between the book basis and tax basis of assets and liabilities at currently enacted tax rates. Deferred tax assets and liabilities are adjusted for changes in such tax rates through charges or credits to regulatory assets or liabilities if they are expected to be recovered from, or passed through to, customers; otherwise, they are charged or credited to income tax expense. Also under provisions of the income tax allocation agreement, certain tax benefits of the parent holding company are distributed in cash to tax paying affiliates, including Consolidated SCE&G, in the form of capital contributions.
Regulatory Assets and Regulatory Liabilities
Consolidated SCE&G records costs that have been or are expected to be allowed in the ratemaking process in a period different from the period in which the costs would be charged to expense by a nonregulated enterprise. These regulatory assets and liabilities represent expenses deferred for future recovery from customers or obligations to be refunded to customers and are primarily classified in the balance sheet as regulatory assets and regulatory liabilities (see Note 2). The regulatory assets and liabilities are amortized consistent with the treatment of the related costs in the ratemaking process. 119 Exhibit C Page 120 of 171
Debt Premium, Discount and Expense, Unamortized Loss on Reacquired Debt
Consolidated SCE&G records long-term debt premium and discount within long-term debt and amortizes them as components of interest charges over the terms of the respective debt issues. Other issuance expense and gains or losses on reacquired debt that is refinanced are recorded in other deferred debits or credits and are amortized over the term of the replacement debt, also as interest charges.
Environmental
SCE&G maintains an environmental assessment program to identify and evaluate 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. Environmental remediation liabilities are accrued when the criteria for loss contingencies are met. These estimates are refined as additional information becomes available; therefore, actual expenditures could differ significantly from the original estimates. Probable and estimable costs are accrued related to environmental sites on an undiscounted basis. Amounts estimated and accrued to date for site assessments and clean-up relate solely to regulated operations. Amounts expected to be recovered through rates are recorded in regulatory assets and, if applicable, amortized over approved amortization periods. Other environmental costs are recorded to expense.
Income Statement Presentation
In its consolidated statements of income, Consolidated SCE&G presents the activities of its regulated businesses (including those activities of segments described in Note 12) within operating income, and it presents all other activities within other income (expense).
Revenue Recognition
Consolidated SCE&G records revenues during the accounting period in which it provides services to customers and includes estimated amounts for electricity and natural gas delivered but not billed. Unbilled revenues totaled $129.0 million at December 31, 2012 and $117.8 million at December 31, 2011.
Fuel costs, emission allowances and certain environmental reagent costs for electric generation are collected through the fuel cost component in retail electric rates. This component is established by the SCPSC during fuel cost hearings. Any difference between actual fuel costs and amounts contained in the fuel cost component is deferred and included when determining the fuel cost component during subsequent hearings.
Customers subject to the PGA are billed based on a cost of gas factor calculated in accordance with a gas cost recovery procedure approved by the SCPSC and subject to adjustment monthly. Any difference between actual gas costs and amounts contained in rates is deferred and included when making the next adjustment to the cost of gas factor. In addition, included in these deferred amounts are realized gains and losses incurred in SCE&G’s natural gas hedging program, if any.
SCE&G’s gas rate schedules for residential, small commercial and small industrial customers include a WNA which minimizes fluctuations in gas revenues due to abnormal weather conditions. In August 2010, SCE&G implemented an eWNA on a pilot basis for its electric customers, and it will continue on a pilot basis unless modified or terminated by the SCPSC.
Taxes that are billed to and collected from customers are recorded as liabilities until they are remitted to the respective taxing authority. Such taxes are not included in revenues or expenses in the statements of income.
New Accounting Matters
In 2012, Consolidated SCE&G adopted accounting guidance that revised how comprehensive income is presented in its financial statements and conformed the presentation for 2011 and 2010. In the first quarter of 2013, Consolidated SCE&G will adopt recent additional guidance requiring the disclosure of the effects of items reclassified out of accumulated other comprehensive income. The adoption of this guidance did not impact Consolidated SCE&G's results of operations, cash flows or financial position.
In 2012, Consolidated SCE&G adopted accounting guidance that amended existing requirements for measuring fair value and for disclosing information about fair value measurements. The adoption of this guidance did not impact Consolidated SCE&G's results of operations, cash flows or financial position. 120 Exhibit C Page 121 of 171
2. RATE AND OTHER REGULATORY MATTERS
Electric
SCE&G's retail electric rates include 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 2012, the SCPSC approved SCE&G's request to decrease the total fuel cost component of its retail electric rates, and approved a settlement agreement among SCE&G, the ORS and SCEUC in which SCE&G agreed to recover an amount equal to its actual under-collected balance of base fuel and variable environmental costs as of April 30, 2012, or $80.6 million, over a twelve month period beginning with the first billing cycle of May 2012. The SCPSC also ruled that SCE&G's fuel purchasing practices and policies were reasonable and prudent for the period January 1, 2011 through December 31, 2011.
On December 19, 2012, the SCPSC approved a 4.23% overall increase in SCE&G's retail electric base rates, effective January 1, 2013, and authorized an allowed return on common equity of 10.25%. The SCPSC also approved a mid- period reduction to the cost of fuel component in rates, a reduction in the DSM Programs component rider to retail rates, and the recovery of and a return on the net carrying value of certain retired generating plant assets described below. On January 16, 2013, the SCPSC denied an SCEUC petition for rehearing of this order.
The eWNA is designed to reduce volatility of costs charged to residential and commercial customers due to abnormal weather and is based on a 15 year historical average of temperatures. In connection with December 2012 rate order, SCE&G agreed to perform a study of alternative structures for eWNA by June 30, 2013, which study may be used to modify or terminate eWNA in the future.
On May 30, 2012, SCE&G filed an IRP with the SCPSC. The IRP evaluates future electric generation needs based on a variety of factors, including customer energy demands, EPA regulations, reserve margins and fuel costs. The IRP identified a total of six coal-fired units that SCE&G intends to retire by 2018, subject to future developments in environmental regulations, among other matters. These units have an aggregate generating capacity (summer 2012) of 730 MW. One unit, with a net carrying value of $20 million at December 31, 2012, was retired, and its carrying value is recorded in regulatory assets. Under provisions of the December 2012 rate order, SCE&G will be allowed recovery of and a return on the net carrying value of this unit over its original remaining useful life of approximately 14 years. The net carrying value of the remaining units is identified as Plant to be Retired, Net in the consolidated financial statements (see Note 1). SCE&G plans to request recovery of and a return on the net carrying value of these remaining units in future rate proceedings in connection with their retirement, and expects that such deferred amounts will be recovered through rates. In the meantime, these units remain in rate base, and SCE&G continues to depreciate them using composite straight-line rates approved by the SCPSC.
In July 2010, the SCPSC issued an order approving a 4.88% overall increase in SCE&G's retail electric base rates and authorized an allowed return on common equity of 10.7%. Among other matters, the SCPSC's order provided for a $48.7 million credit to SCE&G's customers over two years to be offset by accelerated recognition of previously deferred state income tax credits. These tax credits were fully amortized in 2012.
SCE&G's DSM Programs for electric customers provide for an annual rider, approved by the SCPSC, to allow recovery of the costs and lost net margin revenue associated with the DSM Programs, along with an incentive for investing in such programs. SCE&G submitted annual filings in January to the SCPSC regarding the DSM Programs, net lost revenues, program costs, incentives and net program benefits. The SCPSC has approved the following rate changes pursuant to annual DSM Programs filings, which went into effect as indicated below: Year Effective Amount 2012 First billing cycle of May $19.6 million 2011 First billing cycle of June $7.0 million
In January 2013, SCE&G submitted to the SCPSC its annual update on DSM Programs, requesting an increase of approximately $27.2 million. A decision by the SCPSC on SCE&G's annual update is expected in the second quarter of 2013.
121 Exhibit C Page 122 of 171 Electric - BLRA
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 the proposed construction and operation of the New 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 are being built. The SCPSC prudency finding is binding on all future related rate proceedings so long as the construction proceeds in accordance with schedules, estimates and projections, as approved by the SCPSC.
In May 2011, the SCPSC approved an updated capital cost schedule sought by SCE&G that, among other matters, incorporated then-identifiable additional capital costs of $173.9 million (SCE&G's portion in 2007 dollars).
In November 2012, the SCPSC approved an updated construction schedule and additional updated capital costs of $278 million (SCE&G's portion in 2007 dollars). The November 2012 order approved additional identifiable capital costs of approximately $1 million (SCE&G's portion in 2007 dollars) related to new federal healthcare laws, information security measures, and certain minor design modifications; approximately $8 million (SCE&G's portion in 2007 dollars) related to transmission infrastructure; and approximately $132 million (SCE&G's portion in 2007 dollars) related to additional labor for the oversight of the New Units during construction and for preparing to operate the New Units, and facilities and information technology systems required to support the New Units and their personnel. In addition, the order approved revised substantial completion dates for the New Units based on the March 30, 2012 issuance of the COL and the amounts agreed upon by SCE&G and the Consortium in July 2012 to resolve claims for costs related to COL delays, design modifications of the shield building and certain pre-fabricated structural modules for the New Units and unanticipated rock conditions at the site. Thereafter, two parties filed separate petitions requesting that the SCPSC reconsider its November 2012 order. On December 12, 2012, the SCPSC denied both petitions.
Under the BLRA, SCE&G is allowed to file revised rates with the SCPSC each year to incorporate the financing cost of any incremental construction work in progress incurred for new nuclear generation. Requested rate adjustments are based on SCE&G's updated cost of debt and capital structure and on an allowed return on common equity of 11.0%. The SCPSC has approved the following rate changes under the BLRA effective for bills rendered on and after October 30 in the following years:
Year Increase Amount 2012 2.3% $ 52.1 million 2011 2.4% $ 52.8 million 2010 2.3% $ 47.3 million
Gas
The RSA 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. The SCPSC has approved the following rate changes pursuant to annual RSA filings effective with the first billing cycle of November in the following years:
Year Action Amount 2012 2.1% Increase $ 7.5 million 2011 2.1% Increase $ 8.6 million 2010 2.1% Decrease $ 10.4 million
SCE&G's natural gas tariffs include a PGA that provides for the recovery of actual gas costs incurred. SCE&G's gas rates are calculated using a methodology which may adjust the cost of gas monthly based on a 12-month rolling average. The annual PGA hearing to review SCE&G's gas purchasing policies and procedures was held in November 2012 before the SCPSC. The SCPSC issued an order in January 2013 finding that SCE&G's gas purchasing policies and practices during the review period of August 1, 2011 through July 31, 2012, were reasonable and prudent and authorized the suspension of SCE&G's natural gas hedging program.
122 Exhibit C Page 123 of 171 Regulatory Assets and Regulatory Liabilities
Consolidated SCE&G 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, Consolidated SCE&G has recorded regulatory assets and regulatory liabilities, which are summarized in the following tables. Substantially all of our regulatory assets are either explicitly excluded from rate base or are effectively excluded from rate base due to their being offset by related liabilities.
December 31, Millions of dollars 2012 2011 Regulatory Assets:
Accumulated deferred income taxes $ 248 $ 238 Under-collections-electric fuel adjustment clause 66 28 Environmental remediation costs 39 25 AROs and related funding 304 301 Franchise agreements 36 40 Deferred employee benefit plan costs 405 348 Planned major maintenance 6 6 Deferred losses on interest rate derivatives 151 154 Deferred pollution control costs 38 25 Unrecovered Plant 20 — Other 64 41 Total Regulatory Assets $ 1,377 $ 1,206
Regulatory Liabilities:
Accumulated deferred income taxes $ 21 $ 23 Asset removal costs 507 493 Storm damage reserve 27 32 Deferred gains on interest rate derivatives 110 24 Other — 3 Total Regulatory Liabilities $ 665 $ 575
Accumulated deferred income tax liabilities that arose from utility operations that have not been included in customer rates are recorded as a regulatory asset. Substantially all of these regulatory assets relate to depreciation and are expected to be recovered over the remaining lives of the related property which may range up to approximately 70 years. Similarly, 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 SCPSC which are expected to be recovered in retail electric rates over periods exceeding 12 months.
Environmental remediation costs represent costs associated with the assessment and clean-up of sites currently or formerly owned by SCE&G. These regulatory assets are expected to be recovered over periods of up to approximately 28 years.
ARO and related funding represents the regulatory asset associated with the legal obligation to decommission and dismantle Summer Station and conditional AROs related to generation, transmission and distribution properties, including gas pipelines. These regulatory assets are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 95 years.
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.
123 Exhibit C Page 124 of 171
Employee benefit plan costs of the regulated utilities have historically been recovered as they have been recorded under generally accepted accounting principles. Deferred employee benefit plan costs represent amounts of pension and other postretirement benefit costs which were accrued as liabilities and treated as regulatory assets pursuant to FERC guidance, and costs deferred pursuant to specific SCPSC regulatory orders. In connection with the December 2012 rate order, approximately $63 million of the balance at December 31, 2012, which relates to pension costs for electric operations, are to be recovered through utility rates over approximately 30 years. Most of the remainder is expected to be recovered through utility rates primarily over average service periods of participating employees, or up to approximately 12 years.
Planned major maintenance related to certain fossil-fueled turbine/generation equipment and nuclear refueling outages is accrued in periods other than when incurred, as approved pursuant to specific SCPSC orders. SCE&G collects and accrues $18.4 million annually for such equipment maintenance. Through December 31, 2012, nuclear refueling charges were accrued during each 18-month refueling outage cycle as a component of cost of service. In connection with the December 2012 rate order, effective January 1, 2013, SCE&G will collect and accrue $17.2 million annually for nuclear-related refueling charges.
Deferred losses or gains on interest rate derivatives represent the effective portions of changes in fair value and payments made or received upon termination of certain interest rate derivatives designated as cash flow hedges. These amounts are expected to be amortized to interest expense over the lives of the underlying debt, up to approximately 30 years.
Deferred pollution control costs represent deferred depreciation and operating and maintenance costs associated with the installation of scrubbers at Wateree and Williams Stations pursuant to specific regulatory orders. Such costs will be recovered through utility rates over periods up to 30 years.
Unrecovered plant represents the net book value of a coal-fired generating unit retired from service prior to being fully depreciated. Pursuant to the December 2012 rate order, SCE&G will amortize these amounts through cost of service rates over its original remaining useful life of approximately 14 years. Unamortized amounts are included in rate base.
Various other regulatory assets are expected to be recovered in rates over periods of up to approximately 30 years.
Asset removal costs represent estimated net collections through depreciation rates of amounts to be incurred for the non-legal obligation to remove 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, and prior to December 31, 2012, certain transmission and distribution insurance premiums and certain tree trimming and vegetation management expenditures in excess of amounts included in base rates. Pursuant to specific regulatory orders, SCE&G has suspended storm damage reserve collection through rates indefinitely.
The SCPSC or the FERC has reviewed and approved through specific orders most of the items shown as regulatory assets. Other regulatory assets include, but are not limited to, certain costs which have not been specifically approved for recovery by the SCPSC or by FERC. In recording such costs as regulatory assets, management believes the costs will be allowable under existing rate-making concepts that are embodied in rate orders received by SCE&G. The costs are currently not 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 or changes in accounting requirements, Consolidated SCE&G could be required to write off its regulatory assets and liabilities. Such an event could have a material effect on Consolidated SCE&G's results of operations, liquidity or financial position in the period the write-off would be recorded.
3. EQUITY
Authorized shares of SCE&G common stock were 50 million as of December 31, 2012 and 2011. Authorized shares of SCE&G preferred stock were 20 million, of which 1,000 shares, no par value, were held by SCANA as of December 31, 2012 and 2011.
124 Exhibit C Page 125 of 171 SCE&G’s articles of incorporation do not limit the dividends that may be paid on its common stock. However, SCE&G’s bond indenture contains provisions that, under certain circumstances, which SCE&G considers to be remote, could limit the payment of cash dividends on its common stock.
With respect to hydroelectric projects, the Federal Power Act requires the appropriation of a portion of certain earnings therefrom. At December 31, 2012, $61.0 million of retained earnings were restricted by this requirement as to payment of cash dividends on common stock.
4. LONG-TERM AND SHORT-TERM DEBT
Long-term debt by type with related weighted average interest rates and maturities at December 31 is as follows:
2012 2011 Dollars in millions Maturity Balance Rate Balance Rate First Mortgage Bonds (secured) 2013 - 2042 $ 3,290 5.66% $ 2,790 5.89% GENCO Notes (secured) 2018 - 2024 240 5.87% 247 5.86% Industrial and Pollution Control Bonds (a) 2014 - 2038 161 4.32% 194 4.48% Other 2013 - 2027 21 22 Total debt 3,712 3,253 Current maturities of long-term debt (165 (19 ) ) Unamortized premium (discount) (12 10 ) Total long-term debt, net $ 3,557 $ 3,222
(a) Includes variable rate debt of $67.8 million (rate of 0.17%) at December 31, 2012 and $71.4 million (rate of 0.16%) at December 31, 2011, which are hedged by fixed swaps.
The annual amounts of long-term debt maturities for the years 2013 through 2017 are summarized as follows:
Year Millions of dollars 2013 $ 165 2014 48 2015 9 2016 8 2017 8
In January 2013, JEDA issued for the benefit of SCE&G $39.5 million of 4.0% tax-exempt industrial revenue bonds due February 1, 2028, and $14.7 million of 3.63% tax-exempt industrial revenue bonds due February 1, 2033. Proceeds from these sales were loaned by JEDA to SCE&G and, together with other available funds, were used to redeem prior to maturity $56.9 million of 5.2% industrial revenue bonds due November 1, 2027. The borrowings refinanced by these 2013 issuances are classified within Long-term Debt, Net in the consolidated balance sheet.
In July 2012, SCE&G issued $250 million of 4.35% first mortgage bonds due February 1, 2042, which constituted a reopening of the prior offering of $250 million of 4.35% first mortgage bonds issued in January 2012. Proceeds from these sales were used to repay short-term debt primarily incurred as a result of SCE&G's construction program, to finance capital expenditures 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. Consolidated SCE&G is in compliance with all debt covenants.
SCE&G is subject to a bond indenture dated April 1, 1993 (Mortgage) covering substantially all of its electric properties under which all of its first mortgage bonds (Bonds) have been issued. Bonds may be issued under the Mortgage in an aggregate principal amount not exceeding the sum of (1) 70% of Unfunded Net Property Additions (as therein defined), (2) the aggregate principal amount of retired Bonds and (3) cash deposited with the trustee. Bonds, other than certain Bonds issued on the basis of retired Bonds, may be issued under the Mortgage only if Adjusted Net Earnings (as therein defined) for 12
125 Exhibit C Page 126 of 171 consecutive months out of the 18 months immediately preceding the month of issuance are at least twice (2.0) the annual interest requirements on all outstanding Bonds and Bonds to be outstanding (Bond Ratio). For the year ended December 31, 2012, the Bond Ratio was 5.22.
Lines of Credit and Short-Term Borrowings
At December 31, 2012 and 2011, SCE&G (including Fuel Company) had available the following committed LOC and had outstanding the following LOC advances, commercial paper, and LOC-supported letter of credit obligations:
Millions of dollars 2012 2011 Lines of credit:
Total committed long-term $ 1,400 $ 1,100 LOC advances — — Weighted average interest rate — — Outstanding commercial paper (270 or fewer days) $ 449 $ 512 Weighted average interest rate 0.42% 0.56% Letters of credit supported by an LOC $ 0.3 $ 0.3 Available $ 951 $ 588
In October 2012, Consolidated SCE&G's existing committed LOCs were amended and extended. As a result, at December 31, 2012 SCE&G and Fuel Company were parties to five-year credit agreements in the amounts of $1.2 billion, of which $500 million relates to Fuel Company, which expire in October 2017. In addition, at December 31, 2012 SCE&G was party to a three-year credit agreement in the amount of $200 million which expires in October 2015. These credit agreements are used for general corporate purposes, including liquidity support for each company's commercial paper program and working capital needs and, in the case of Fuel Company, to finance or refinance the purchase of nuclear fuel, certain fossil fuels, and emission and other environmental allowances. These committed long-term facilities are revolving lines of credit under credit agreements with a syndicate of banks. Wells Fargo Bank, National Association, Bank of America, N.A. and Morgan Stanley Bank, N.A. each provide 10.7% of the aggregate $1.4 billion credit facilities, JPMorgan Chase Bank, N.A., Mizuho Corporate Bank, Ltd., TD Bank N.A. Credit Suisse AG, Cayman Island Branch and UBS Loan Finance LLC each provide 8.9%, and Branch Banking and Trust Company, Union Bank, N.A. and U.S. Bank National Association each provide 6.3%. Two other banks provide the remaining support.
Consolidated SCE&G is obligated with respect to an aggregate of $67.8 million of industrial revenue bonds which are secured by letters of credit issued by Branch Banking and Trust Company. These letters of credit expire, subject to renewal, in the fourth quarter of 2014.
Consolidated SCE&G pays fees to the banks as compensation for maintaining committed lines of credit. Such fees were not material in any period presented.
Consolidated SCE&G participates in a utility money pool. Money pool borrowings and investments bear interest at short-term market rates. Consolidated SCE&G’s interest income and expense from money pool transactions was not significant for any period presented. At December 31, 2012 and 2011, Consolidated SCE&G had outstanding money pool borrowings due to an affiliate of $49.4 million and $58.5 million, respectively.
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5. INCOME TAXES
Total income tax expense attributable to income for 2012, 2011 and 2010 is as follows:
Millions of dollars 2012 2011 2010
Current taxes: Federal $ 91 $ 52 $ (56) State 8 12 (5) Total current taxes 99 64 (61)
Deferred taxes, net: Federal 62 98 207 State 12 6 15 Total deferred taxes 74 104 222
Investment tax credits: Amortization of amounts deferred—state (13) (25) (28) Amortization of amounts deferred—federal (3) (3) (3) Total investment tax credits (16) (28) (31) Total income tax expense $ 157 $ 140 $ 130
The difference between actual income tax expense and the amount calculated from the application of the statutory 35% federal income tax rate to pre-tax income is reconciled as follows:
Millions of dollars 2012 2011 2010 Net income $ 341 $ 306 $ 290 Income tax expense 157 140 130 Noncontrolling interest 11 10 14 Total pre-tax income $ 509 $ 456 $ 434 Income taxes on above at statutory federal income tax rate $ 178 $ 159 $ 152 Increases (decreases) attributed to:
State income taxes (less federal income tax effect) 17 12 6 State investment tax credits (less federal income tax effect) (13) (16) (18) Allowance for equity funds used during construction (7) (5) (8) Amortization of federal investment tax credits (3) (3) (3) Section 45 tax credits (5) (2) (2) Domestic production activities deduction (9) (6) — Other differences, net (1) 1 3 Total income tax expense $ 157 $ 140 $ 130
127 Exhibit C Page 128 of 171 The tax effects of significant temporary differences comprising Consolidated SCE&G’s net deferred tax liability at December 31, 2012 and 2011 are as follows:
Millions of dollars 2012 2011 Deferred tax assets:
Nondeductible accruals $ 73 $ 55 Asset retirement obligation, including nuclear decommissioning 204 171 Unamortized investment tax credits 21 29 Unbilled revenue 14 19 Other 13 18 Total deferred tax assets $ 325 $ 292 Deferred tax liabilities:
Property, plant and equipment $ 1,461 $ 1,348 Regulatory asset-asset retirement obligation 107 100 Deferred employee benefit plan costs 127 110 Deferred fuel costs 49 48 Other 60 49 Total deferred tax liabilities 1,804 1,655 Net deferred tax liability $ 1,479 $ 1,363
Certain prior year amounts for deferred tax assets and liabilities in the table above have been reclassified to conform to the current year presentation for the components of deferred tax assets and liabilities for types of temporary differences, which resulted in an increase in both total deferred tax assets and total deferred tax liabilities of $96 million as of December 31, 2011. Such reclassifications had no effect on the net current or net long-term deferred tax assets or liabilities presented in the consolidated balance sheet as of December 31, 2011.
Consolidated SCE&G is included in the consolidated federal income tax return of SCANA and files various applicable state and local income tax returns. The IRS has completed examinations of SCANA’s federal returns through 2004, and SCANA’s federal returns through 2007 are closed for additional assessment. With few exceptions, Consolidated SCE&G is no longer subject to state and local income tax examinations by tax authorities for years before 2009.
Changes to Unrecognized Tax Benefits
Millions of dollars 2012 2011 Unrecognized tax benefits, January 1 $ 38 $ 36 Gross increases-uncertain tax positions in prior period — 5 Gross decreases-uncertain tax positions in prior period (38) (8) Gross increases-current period uncertain tax positions — 5 Settlements — — Lapse of statute of limitations — — Unrecognized tax benefits, December 31 $ — $ 38
In connection with a change in method of tax accounting for certain repair costs in 2011, Consolidated SCE&G had previously recorded the unrecognized tax benefit. During the first quarter of 2012, new administrative guidance from the Internal Revenue Service was published. Under this guidance, Consolidated SCE&G recognized all of the previously unrecognized tax benefit in 2012. Since this change was primarily a temporary difference, the recognition of this benefit did not have a significant effect on Consolidated SCE&G's effective tax rate. No other material changes in the status of Consolidated SCE&G's tax positions have occurred through December 31, 2012.
Consolidated SCE&G recognizes interest accrued related to unrecognized tax benefits within interest expense and recognizes tax penalties within other expenses. In connection with the resolution of the uncertainty and the recognition of tax benefits described above, during 2012, Consolidated SCE&G reversed $2 million of interest expense which had been accrued during 2011.
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6. DERIVATIVE FINANCIAL INSTRUMENTS
Consolidated SCE&G recognizes all derivative instruments as either assets or liabilities in its statements of financial position and measures those instruments at fair value. Consolidated SCE&G recognizes changes in the fair value of derivative instruments either in earnings or within regulatory assets or regulatory liabilities, depending upon the intended use of the derivative and the resulting designation.
Policies and procedures and risk limits are established to control the level of market, credit, liquidity and operational and administrative risks assumed by Consolidated SCE&G. 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 for SCANA and each of its subsidiaries, including Consolidated SCE&G. The Risk Management Committee, which is comprised of certain officers, including Consolidated SCE&G’s Risk Management Officer and senior officers, apprises the Audit Committee of the Board of Directors with regard to the management of risk and brings to the Audit Committee's attention significant 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 SCPSC authorized the suspension of SCE&G's natural gas hedging program in January 2012. SCE&G was no longer a party to natural gas derivative instruments at December 31, 2012, and such instruments were not significant in any prior period presented.
Interest Rate Swaps
Consolidated SCE&G synthetically converts variable rate debt to fixed rate debt using swaps that are designated as cash flow hedges. Periodic payments to or receipts from swap counterparties related to these derivatives are recorded within interest expense.
In anticipation of the issuance of debt, Consolidated SCE&G may use treasury rate lock or forward starting swap agreements that 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. Such amounts are amortized to interest expense over the term of the underlying debt. Ineffective portions are recognized in income. Cash payments made or received upon termination of these financial instruments are classified as investing activities for cash flow purposes.
Quantitative Disclosures Related to Derivatives
SCE&G was party to natural gas derivative contracts for 2,490,000 MMBTU at December 31, 2011. Consolidated SCE&G was a party to interest rate swaps designated as cash flow hedges with aggregate notional amounts of $971.4 million and $471.4 million at December 31, 2012 and 2011, respectively.
129 Exhibit C Page 130 of 171 The fair value of interest rate derivatives was reflected in the consolidated balance sheet as follows:
Fair Values of Derivative Instruments
Asset Derivatives Liability Derivatives Balance Sheet Fair Balance Sheet Fair Millions of dollars Location Value Location Value As of December 31, 2012
Derivatives designated as hedging instruments
Interest rate contracts Prepayments and other $ 42 Other current liabilities $ 66 Other deferred debits Other deferred credits
and other assets 31 and other liabilities 9 Total $ 73 $ 75 As of December 31, 2011
Derivatives designated as hedging instruments
Interest rate contracts Prepayments and other $ 1 Other current liabilities $ 2
Other deferred credits 75 Total $ 1 $ 77
The effect of derivative instruments on the consolidated statement of income is as follows:
Loss Reclassified from Gain or (Loss) Deferred Deferred Accounts into Income Derivatives in Cash Flow Hedging Relationships in Regulatory Accounts (Effective Portion) Millions of dollars (Effective Portion) Location Amount
Year Ended December 31, 2012 Interest rate contracts $ 84 Interest expense $ (3)
Year Ended December 31, 2011 Interest rate contracts $ (76) Interest expense $ (3)
Year Ended December 31, 2010 Interest rate contracts $ (36) Interest expense $ (2)
Hedge Ineffectiveness
Other gains (losses) recognized in income representing ineffectiveness on interest rate hedges designated as cash flow hedges were insignificant in 2012 and 2010, respectively, and $(1.1) million, net of tax, in 2011.
Derivatives Not Designated as Hedging Instruments Loss Recognized in Income Millions of dollars Location Amount
Year Ended December 31, 2012 Commodity contracts Gas purchased for resale $ (1)
Year Ended December 31, 2011 Commodity contracts Gas purchased for resale $ (2)
Year Ended December 31, 2010 Commodity contracts Gas purchased for resale $ (3)
Credit Risk Considerations
Consolidated SCE&G limits credit risk in its derivatives activities by assessing the creditworthiness of potential counterparties before entering into transactions with them and continuing to evaluate their creditworthiness on an ongoing basis. In this regard, Consolidated SCE&G uses credit ratings provided by credit rating agencies and current market-based qualitative and quantitative data, as well as financial statements, to assess the financial health of counterparties on an ongoing basis. Consolidated SCE&G uses standardized master agreements which generally include collateral requirements. These master agreements permit the netting of cash flows associated with a single counterparty. Cash, letters of credit and parental/ affiliate guarantees may be obtained as security from counterparties in order to mitigate credit risk. The collateral agreements
130 Exhibit C Page 131 of 171 require a counterparty to post cash or letters of credit in the event an exposure exceeds the established threshold. The threshold represents an unsecured credit limit which may be supported by a parental/affiliate guaranty, as determined in accordance with Consolidated SCE&G's credit policies and due diligence. In addition, collateral agreements allow for the termination and liquidation of all positions in the event of a failure or inability to post collateral.
Certain of Consolidated SCE&G’s derivative instruments contain contingent provisions that require Consolidated SCE&G to provide collateral upon the occurrence of specific events, primarily credit rating downgrades. As of December 31, 2012 and 2011, Consolidated SCE&G had posted $35.2 million and $45.0 million, respectively, of collateral related to derivatives with contingent provisions that were in a net liability position. Collateral related to the positions expected to close in the next 12 months are recorded in Prepayments and other on the consolidated balance sheets. Collateral related to the noncurrent positions are recorded in Other within Deferred Debits and Other Assets on the consolidated balance sheets. If all of the contingent features underlying these instruments had been fully triggered as of December 31, 2012 and 2011, Consolidated SCE&G would have been required to post an additional $22.7 million and $31.7 million, respectively, 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 December 31, 2012 and 2011, are $57.9 million and $76.7 million, respectively.
In addition, as of December 31, 2012 and December 31, 2011, Consolidated SCE&G has collected no cash collateral related to interest rate derivatives with contingent provisions that are in a net asset position. If all the contingent features underlying these instruments had been fully triggered as of December 31, 2012 and December 31, 2011, Consolidated SCE&G could request $32.1 million and $1.1 million, respectively, of cash collateral from its counterparties. The aggregate fair value of all derivative instruments with contingent provisions that are in a net asset position as of December 31, 2012 and December 31, 2011 is $32.1 million and $1.1 million, respectively.
7. FAIR VALUE MEASUREMENTS, INCLUDING DERIVATIVES
Consolidated SCE&G’s interest rate swap agreements are valued using discounted cash flow models with independently sourced data. Fair value measurements based on significant other observable inputs (level 2) were as follows:
Fair Value Measurements Using Significant Other Observable inputs (Level 2) Millions of dollars December 31, 2012 December 31, 2011 Assets-Interest rate contracts $ 73 $ 1 Liabilities-Interest rate contracts 75 77
There were no fair value measurements based on quoted prices in active markets for identical assets (Level 1) or significant unobservable inputs (Level 3) for either period presented. In addition, there were no transfers of fair value amounts into or out of Levels 1, 2 or 3 during the periods presented.
Financial instruments for which the carrying amount may not equal estimated fair value at December 31, 2012 and December 31, 2011 were as follows:
December 31, 2012 December 31, 2011 Estimated Estimated Carrying Fair Carrying Fair Millions of dollars Amount Value Amount Value Long-term debt $ 3,722.0 $ 4,543.1 $ 3,241.5 $ 3,920.3
Fair values of long-term debt instruments are based on net present value calculations using independently sourced market data that incorporate a developed discount rate using similarly rated long-term debt, along with benchmark interest rates. As such, the aggregate fair values presented above are considered to be Level 2. Carrying values reflect the fair values of interest rate swaps designated as fair value hedges, based on discounted cash flow models with independently sourced market data. Early settlement of long-term debt may not be possible or may not be considered prudent.
Carrying values of short-term borrowings approximate their fair values, which are based on quoted prices from dealers in the commercial paper market. These fair values are considered to be Level 2.
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8. EMPLOYEE BENEFIT PLANS AND EQUITY COMPENSATION PLAN
Pension and Other Postretirement Benefit Plans
SCE&G participates in SCANA’s noncontributory defined benefit pension plan, which covers substantially all regular, full-time employees. SCANA’s policy has been to fund the plan as permitted by applicable federal income tax regulations, as determined by an independent actuary.
SCANA’s pension plan provides benefits under a cash balance formula for employees hired before January 1, 2000 who elected that option and for all employees hired on or after January 1, 2000. Under the cash balance formula, benefits accumulate as a result of compensation credits and interest credits. Employees hired before January 1, 2000 who elected to remain under the final average pay formula earn benefits based on years of credited service and the employee’s average annual base earnings received during the last three years of employment.
In addition to pension benefits, SCE&G participates in SCANA’s unfunded postretirement health care and life insurance programs which provide benefits to certain active and retired employees. Retirees share in a portion of their medical care cost. SCANA provides life insurance benefits to retirees at no charge. The costs of postretirement benefits other than pensions are accrued during the years the employees render the services necessary to be eligible for these benefits.
The same benefit formula applies to all SCANA subsidiaries participating in the parent sponsored plans and, with regard to the pension plan, there are no legally separate asset pools. The postretirement benefit plans are accounted for as multiple employer plans. The information presented below reflects Consolidated SCE&G's portion of the obligations, assets, funded status, net periodic benefit costs, and other information reported for the parent sponsored plans as a whole. The tabular data presented reflects the use of various cost assignment methodologies and participation assumptions.
Changes in Benefit Obligations
The measurement date used to determine pension and other postretirement benefit obligations is December 31. Data related to the changes in the projected benefit obligation for pension benefits and the accumulated benefit obligation for other postretirement benefits are presented below.
Pension Benefits Other Postretirement Benefits Millions of dollars 2012 2011 2012 2011 Benefit obligation, January 1 $ 705.0 $ 687.8 $ 178.4 $ 171.5 Service cost 15.7 14.7 3.7 3.4 Interest cost 36.4 37.0 9.4 9.6 Plan participants’ contributions — — 2.3 2.5 Actuarial loss 80.3 2.6 26.2 5.6 Benefits paid (49.0) (37.1) (10.8) (11.2) Amounts funded to parent — — (3.2) (3.0) Benefit obligation, December 31 $ 788.4 $ 705.0 $ 206.0 $ 178.4
The accumulated benefit obligation for pension benefits was $740.2 million at the end of 2012 and $666.7 million at the end of 2011. The accumulated pension benefit obligation differs from the projected pension benefit obligation above in that it reflects no assumptions about future compensation levels.
Significant assumptions used to determine the above benefit obligations are as follows:
Pension Benefits Other Postretirement Benefits
2012 2011 2012 2011 Annual discount rate used to determine benefit obligation 4.10% 5.25% 4.19% 5.35% Assumed annual rate of future salary increases for projected benefit obligation 3.75% 4.00% 3.75% 4.00%
A 7.8% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2012. The rate was assumed to decrease gradually to 5.0% for 2020 and to remain at that level thereafter.
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A one percent increase in the assumed health care cost trend rate would increase the postretirement benefit obligation at December 31, 2012 by $1.3 million and at December 31, 2011 by $1.4 million. A one percent decrease in the assumed health care cost trend rate would decrease the postretirement benefit obligation at December 31, 2012 and 2011 by $1.2 million.
Funded Status
Millions of Dollars Pension Benefits Other Postretirement Benefits December 31, 2012 2011 2012 2011 Fair value of plan assets $ 732.0 $ 695.3 — — Benefit obligation 788.4 705.0 $ 206.0 $ 178.4 Funded status $ (56.4) $ (9.7) $ (206.0) $ (178.4)
Amounts recognized on the consolidated balance sheets consist of:
Millions of Dollars Pension Benefits Other Postretirement Benefits December 31, 2012 2011 2012 2011 Current liability — — $ (8.5) $ (8.3) Noncurrent liability $ (56.4) (9.7) (197.5) (170.1)
Amounts recognized in accumulated other comprehensive loss (a component of common equity) as of December 31, 2012 and 2011 were as follows:
Millions of Dollars Pension Benefits Other Postretirement Benefits December 31, 2012 2011 2012 2011 Net actuarial loss $ 2.7 $ 2.4 $ 1.1 $ 0.4 Prior service cost 0.2 0.3 — 0.1 Total $ 2.9 $ 2.7 $ 1.1 $ 0.5
In connection with the joint ownership of Summer Station, as of December 31, 2012 and 2011, SCE&G recorded within deferred debits $26.8 million and $19.7 million, respectively, attributable to Santee Cooper’s portion of shared pension costs. As of December 31, 2012 and 2011, SCE&G also recorded within deferred debits $14.7 million and $11.4 million, respectively, from Santee Cooper, representing its portion of the unfunded postretirement benefit obligation.
Changes in Fair Value of Plan Assets
Pension Benefits Millions of dollars 2012 2011 Fair value of plan assets, January 1 $ 695.3 $ 745.2 Actual return on plan assets 85.7 (12.8) Benefits paid (49.0) (37.1) Fair value of plan assets, December 31 $ 732.0 $ 695.3
Investment Policies and Strategies
The assets of the pension plan are invested in accordance with the objectives of (1) fully funding the actuarial accrued liability for the pension plan, (2) maximizing return within reasonable and prudent levels of risk in order to minimize contributions, and (3) maintaining sufficient liquidity to meet benefit payment obligations on a timely basis. The pension plan operates with several risk and control procedures, including ongoing reviews of liabilities, investment objectives, levels of diversification, investment managers and performance expectations. The total portfolio is constructed and maintained to provide prudent diversification with regard to the concentration of holdings in individual issues, corporations, or industries.
Transactions involving certain types of investments are prohibited. These include, except where utilized by a hedge fund manager, any form of private equity; commodities or commodity contracts (except for unleveraged stock or bond index futures and currency futures and options); ownership of real estate in any form other than publicly traded securities; short sales,
133 Exhibit C Page 134 of 171 warrants or margin transactions, or any leveraged investments; and natural resource properties. Investments made for the purpose of engaging in speculative trading are also prohibited.
The pension plan asset allocation at December 31, 2012 and 2011 and the target allocation for 2013 are as follows:
Percentage of Plan Assets Target At
Allocation December 31, Asset Category 2013 2012 2011 Equity Securities 65% 66% 65% Debt Securities 35% 34% 35%
For 2013, the expected long-term rate of return on assets will be 8.00%. In developing the expected long-term rate of return assumptions, management evaluates the pension plan’s historical cumulative actual returns over several periods, considers the expected active returns across various asset classes and assumes an asset allocation of 65% with equity managers and 35% with fixed income managers. Management regularly reviews such allocations and periodically rebalances the portfolio when considered appropriate.
Fair Value Measurements
Assets held by the pension plan are measured at fair value as described below. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. At December 31, 2012 and 2011, fair value measurements, and the level within the fair value hierarchy in which the measurements fall, were as follows:
134 Exhibit C Page 135 of 171
Fair Value Measurements at Reporting Date Using Quoted Market Prices Significant Significant in Active Market for Other Other Identical Observable Unobservable Assets Inputs Inputs Millions of dollars Total (Level 1) (Level 2) (Level 3) December 31, 2012
Common stock $ 292 $ 292 Preferred stock 1 1 Mutual funds 226 12 $ 214 Short-term investment vehicles 18 18 Government agency securities 38 38 Corporate debt securities 52 52 Loans secured by mortgages 10 10 Municipals 4 4 Limited partnerships 27 1 26 Multi-strategy hedge funds 64 $ 64
$ 732 $ 306 $ 362 $ 64
December 31, 2011 Common stock $ 298 $ 298 Preferred stock 1 1 Mutual funds 169 19 $ 150 Short-term investment vehicles 21 21 Government agency securities 29 29 Corporate debt securities 47 47 Loans secured by mortgages 11 11 Municipals 4 4 Common collective trusts 34 34 Limited partnerships 21 21 Multi-strategy hedge funds 60 $ 60 $ 695 $ 318 $ 317 $ 60
There were no transfers of fair value amounts into or out of Levels 1, 2 or 3 during 2012 or 2011.
The pension plan values common stock and certain mutual funds, where applicable, using unadjusted quoted prices from a national stock exchange, such as NYSE and NASDAQ, where the securities are actively traded. Other mutual funds, common collective trusts and limited partnerships are valued using the observable prices of the underlying fund assets based on trade data for identical or similar securities or from a national stock exchange for similar assets or broker quotes. Short-term investment vehicles are funds that invest in short-term fixed income instruments and are valued using observable prices of the underlying fund assets based on trade data for identical or similar securities. Government agency securities are valued using quoted market prices or based on models using observable inputs from market sources such as external prices or spreads or benchmarked thereto. Corporate debt securities and municipals are valued based on recently executed transactions, using quoted market prices, or based on models using observable inputs from market sources such as external prices or spreads or benchmarked thereto. Loans secured by mortgages are valued using observable prices based on trade data for identical or comparable instruments. Hedge funds represent investments in a hedge fund of funds partnership that invests directly in multiple hedge fund strategies that are not traded on exchanges and do not trade on a daily basis. The fair value of this multi- strategy hedge fund is estimated based on the net asset value of the underlying hedge fund strategies using consistent valuation guidelines that account for variations that may impact their fair value. The estimated fair value is the price at which redemptions and subscriptions occur.
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Fair Value Measurements Using Significant Unobservable Inputs
(Level 3) Millions of dollars 2012 2011 Beginning Balance $ 60 $ 41 Unrealized gains (losses) included in changes in net assets 4 (1) Purchases, issuances, and settlements — 20 Transfers in or out of Level 3 — — Ending Balance $ 64 $ 60
Expected Cash Flows
The total benefits expected to be paid from the pension plan or from SCE&G’s assets for the other postretirement benefits plan, respectively, are as follows:
Expected Benefit Payments
Other Postretirement Millions of dollars Pension Benefits Benefits * 2013 $ 63.1 $ 8.8 2014 61.0 9.5 2015 62.5 10.2 2016 64.0 10.7 2017 67.2 11.2 2018 - 2022 338.8 63.0
* Net of participant contributions
Pension Plan Contributions
The pension trust is adequately funded under current regulations. No contributions have been required since 1997, and SCE&G does not anticipate making contributions to the pension plan until after 2014.
Net Periodic Benefit Cost
SCE&G records net periodic benefit cost utilizing beginning of the year assumptions. Disclosures required for these plans are set forth in the following tables.
Components of Net Periodic Benefit Cost
Pension Benefits Other Postretirement Benefits Millions of dollars 2012 2011 2010 2012 2011 2010 Service cost $ 15.7 $ 14.7 $ 14.0 $ 3.7 $ 3.4 $ 3.2 Interest cost 36.4 37.0 41.2 9.4 9.6 9.3 Expected return on assets (50.4) (54.2) (58.0) n/a n/a n/a Prior service cost amortization 6.0 6.0 6.6 0.7 0.8 0.8 Amortization of actuarial losses 15.6 10.4 15.1 1.1 0.3 — Transition obligation amortization — — — — (0.1) (0.1) Net periodic benefit cost $ 23.3 $ 13.9 $ 18.9 $ 14.9 $ 14.0 $ 13.2
Prior to July 15, 2010, the SCPSC allowed SCE&G to defer as a regulatory asset the amount of pension cost exceeding amounts included in rates for its retail electric and gas distribution regulated operations. In connection with the SCPSC's July 2010 electric rate order and November 2010 natural gas RSA order, SCE&G began deferring, as a regulatory asset, all pension costs related to retail electric and gas operations that otherwise would have been charged to expense. 136 Exhibit C Page 137 of 171 Effective in January 2013, in connection with the December 2012 rate order, SCE&G will amortize previously deferred pension cost related to retail electric operations totaling approximately $63 million over approximately 30 years (see Note 2) and will recover current pension costs related to retail electric operations through a rate rider that is adjusted annually.
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss) were as follows:
Other Postretirement
Pension Benefits Benefits
Millions of dollars 2012 2011 2010 2012 2011 2010 Current year actuarial (gain) loss $ 0.4 $ 0.7 $ (28.9) $ 0.7 $ 0.1 $ — Amortization of actuarial losses (0.1) (0.1) (1.8) — — — Amortization of prior service cost (0.1) (0.1) — (0.1) — — Prior service cost OCI adjustment — — 0.4 — — — Amortization of transition obligation — — — — — (0.1) Total recognized in other comprehensive income (loss) $ 0.2 $ 0.5 $ (30.3) $ 0.6 $ 0.1 $ (0.1)
Significant Assumptions Used in Determining Net Periodic Benefit Cost
Other Postretirement
Pension Benefits Benefits
2012 2011 2010 2012 2011 2010 Discount rate 5.25% 5.56% 5.75% 5.35% 5.72% 5.90% Expected return on plan assets 8.25% 8.25% 8.50% n/a n/a n/a Rate of compensation increase 4.00% 4.00% 4.00% 4.00% 4.00% 4.00% Health care cost trend rate n/a n/a n/a 8.20% 8.00% 8.50% Ultimate health care cost trend rate n/a n/a n/a 5.00% 5.00% 5.00% Year achieved n/a n/a n/a 2020 2017 2017
The actuarial loss to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2013 is $0.2 million.
Other postretirement benefit costs are subject to annual per capita limits pursuant to the plan's design. As a result, the effect of a one-percent increase or decrease in the assumed health care cost trend rate on total service and interest cost is not significant.
Stock Purchase Savings Plan
SCE&G participates in a SCANA-sponsored defined contribution plan in which eligible employees may participate. Eligible employees may defer up to 25% of eligible earnings subject to certain limits and may diversify their investments. Employee deferrals are fully vested and nonforfeitable at all times. SCE&G provides 100% matching contributions up to 6% of an employee’s eligible earnings. Total matching contributions made to the plan for 2012, 2011 and 2010 were $17.7 million, $17.3 million and $16.6 million, respectively, and were made in the form of SCANA common stock.
9. SHARE-BASED COMPENSATION
SCE&G participates in the LTECP which provides for grants of nonqualified and incentive stock options, stock appreciation rights, restricted stock, performance shares, performance units and restricted stock units to certain key employees and non-employee directors. The LTECP currently authorizes the issuance of up to five million shares of SCANA’s common stock, no more than one million of which may be granted in the form of restricted stock.
Compensation costs related to share-based payment transactions are required to be recognized in the financial statements. With limited exceptions, including those liability awards discussed below, compensation cost is measured based on
137 Exhibit C Page 138 of 171 the grant-date fair value of the instruments issued and is recognized over the period that an employee provides service in exchange for the award.
Liability Awards
The 2010-2012, 2011-2013, and 2012-2014 performance cycles provide for performance measurement and award determination on an annual basis, with payment of awards being deferred until after the end of the three-year performance cycle. In each of the performance cycles, 20% of the performance award was granted in the form of restricted share units, which are liability awards payable in cash and are subject to forfeiture in the event of retirement or termination of employment prior to the end of the cycle, subject to exceptions for death, disability or change in control. The remaining 80% of the award was granted in performance shares. Each performance share has a value that is equal to, and changes with, the value of a share of SCANA common stock. Dividend equivalents are accrued on the performance shares and the restricted share units. Payouts of performance share awards are determined by SCANA’s performance against pre-determined measures of TSR as compared to a peer group of utilities (weighted 50%) and growth in “GAAP-adjusted net earnings per share from operations” (weighted 50%).
Compensation cost of liability awards is recognized over their respective three-year performance periods based on the estimated fair value of the award, which is periodically updated based on expected ultimate cash payout, and is reduced by estimated forfeitures. Awards under the 2010-2012 performance cycle were paid in cash at SCANA’s discretion in February 2013. Cash-settled liabilities related to prior program cycles were paid totaling approximately $8.7 million in 2012, $2.5 million in 2011 and $2.4 million in 2010.
Fair value adjustments for performance awards resulted in compensation expense recognized in the statements of income totaling $9.5 million in 2012, $4.0 million in 2011 and $9.0 million in 2010. Fair value adjustments resulted in capitalized compensation costs of $ 2.1 million in 2012, $0.2 million in 2011 and $2.2 million in 2010.
Equity Awards
In the 2008-2010 performance cycle, 20% of the performance award was granted in the form of restricted (nonvested) shares rather than restricted share units. The nonvested shares were granted at a price corresponding to the opening price of SCANA common stock on the date of the grant, and as of December 31, 2010, all compensation cost related to nonvested share-based compensation arrangements under the LTECP had been recognized. All remaining nonvested shares, which totaled 72,189 shares, vested at a weighted average grant-date fair value of $37.33 per share. In 2010, SCE&G expensed compensation costs for nonvested shares of $0.1 million. Tax benefits and capitalized compensation costs were not significant.
A summary of activity related to nonqualified stock options follows:
Number of Weighted Average Stock Options Options Exercise Price Outstanding-January 1, 2010 103,589 $ 27.44 Exercised (53,246) 27.40 Outstanding-December 31, 2010 50,343 27.49 Exercised (40,267) 27.48 Outstanding-December 31, 2011 10,076 27.52 Exercised (10,076) 27.52 Outstanding-December 31, 2012 — —
No stock options were granted or forfeited and all options were fully vested during the periods presented. During the periods presented, the exercise of stock options was satisfied using original issue shares, and cash realized upon the exercise of options and the related tax benefits were not significant.
138 Exhibit C Page 139 of 171
10. COMMITMENTS AND CONTINGENCIES
Nuclear Insurance
Under Price-Anderson, SCE&G (for itself and on behalf of Santee-Cooper, a one-third owner of Summer Station Unit 1) maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the company’s nuclear power plant. Price-Anderson provides funds up to $12.6 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $375 million by ANI with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of commercial nuclear reactors. Each reactor licensee is currently liable for up to $117.5 million per reactor owned 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 Unit 1, would be $78.3 million per incident, but not more than $11.7 million per year. Both the maximum assessment per reactor and the maximum yearly assessment are adjusted for inflation at least every five years.
SCE&G currently maintains policies (for itself and on behalf of Santee Cooper) with NEIL. The policies provide coverage to the nuclear facility for property damage and outage costs up to $2.75 billion. In addition, a builder’s risk insurance policy has been purchased from NEIL for the construction of the New Units. This policy provides the owners of the New Units up to $500 million in limits of accidental property damage occurring during construction. All of the NEIL policies permit retrospective assessments under certain conditions to cover insurer’s losses. Based on the current annual premiums, SCE&G’s portion of the retrospective premium assessment would not exceed $40.6 million.
To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from a nuclear incident at Summer Station Unit 1 exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that SCE&G 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 likely would have a material impact on the Consolidated SCE&G’s results of operations, cash flows and financial position.
New Nuclear Construction
The parties to the EPC Contract have established both informal and formal dispute resolution procedures in order to resolve issues that arise during the course of constructing a project of this magnitude. During the course of activities under the EPC Contract, issues have materialized that impact project budget and schedule. Claims specifically relating to COL delays, design modifications of the shield building and certain pre-fabricated modules for the New Units and unanticipated rock conditions at the site resulted in assertions of contractual entitlement to recover additional costs to be incurred. The resolution of these specific claims is discussed in Note 2. SCE&G expects to resolve any disputes that arise in the future through both the informal and formal procedures and anticipates that any additional costs that arise through such dispute resolution processes, as well as other costs identified from time to time, will be recoverable through rates.
In February 2013, work began on the reinforcing bar reconfiguration in the Unit 2 nuclear island elevator pit and sump areas. The initial pouring of the Unit 2 nuclear island basemat could take place in the first quarter of 2013 following the completion of this work and based upon an expedited approval by the NRC staff. It is not anticipated that the resolution of this issue will cause a delay in the commercial operation of the New Units in 2017 and 2018.
Environmental
In December 2009, the EPA issued a final finding that atmospheric concentrations of GHG endanger public health and welfare within the meaning of Section 202(a) of the CAA. The finding, which became effective in January 2010, enabled the EPA to regulate GHG emissions under the CAA. On April 13, 2012, the EPA issued a proposed rule to establish an NSPS for GHG emissions from fossil fuel-fired electric generating units. If finalized as proposed, this rule would establish performance standards for new and modified generating units, along with emissions guidelines for existing generating units. This rule would amend the NSPS for electric generating units and establish the first NSPS for GHG emissions. Essentially, the rule would require all new fossil fuel-fired power plants to meet the carbon dioxide emissions profile of a combined cycle natural gas plant. While most new natural gas plants will not be required to include any new technologies, no new coal plants could be constructed without carbon capture and sequestration capabilities. Consolidated SCE&G is evaluating the proposed rule, but cannot predict when the rule will become final, if at all, or what conditions it may impose, if any. Any costs incurred to comply with GHG emission requirements are expected to be recoverable through rates. 139 Exhibit C Page 140 of 171
In 2005, the EPA issued the CAIR, which required 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. SCE&G and GENCO determined that additional air quality controls would be needed to meet the CAIR requirements. On July 6, 2011 the EPA issued the CSAPR. This rule replaced CAIR and the Clean Air Transport Rule proposed in July 2010 and is aimed at addressing power plant emissions that may contribute to air pollution in other states. CSAPR requires states in the eastern United States to reduce power plant emissions, specifically sulfur dioxide and nitrogen oxide. On December 30, 2011, the United States Court of Appeals for the District of Columbia issued an order staying CSAPR and reinstating CAIR pending resolution of an appeal of CSAPR. On August 21, 2012, the Court vacated CSAPR and left CAIR in place. The EPA's petition for rehearing of the Court's order has been denied. Air quality control installations that SCE&G and GENCO have already completed allowed Consolidated SCE&G to comply with the reinstated CAIR. Consolidated SCE&G will continue to pursue strategies to comply with all applicable environmental regulations. 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.
In June 2010, the EPA issued a final rule for a one-hour ambient air quality standard for sulfur dioxide. This standard may require some of SCE&G's smaller coal-fired units to reduce their sulfur dioxide emissions to levels to be determined by the EPA and/or DHEC. The costs incurred to comply with this standard are expected to be recovered through rates.
In April 2012, the EPA's rule containing new standards for mercury and other specified air pollutants became effective. The rule provides up to four years for facilities to meet the standards, and Consolidated SCE&G's evaluation of the rule is ongoing. Consolidated SCE&G's decision in 2012 to retire certain coal-fired units or convert them to burn natural gas and its project to build the New Units (see Note 1) along with other actions are expected to result in Consolidated SCE&G's compliance with the EPA's rule. 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.
The EPA is conducting an enforcement initiative against the utilities industry related to the NSR provisions and the new source performance standards of the CAA. As part of the initiative, many utilities have received requests for information under Section 114 of the CAA. In addition, the DOJ, on behalf of EPA, has taken civil enforcement action against several utilities. The primary basis for these actions is the assertion by EPA that maintenance activities undertaken by the utilities at their coal-fired power plants constituted “major modifications” which required the installation of costly BACT. Some of the utilities subject to the actions have reached settlement. Though Consolidated SCE&G cannot predict what action, if any, the EPA will initiate against it, any costs incurred are expected to be recoverable through rates.
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 DHEC and the EPA. SCE&G anticipates that major remediation activities at all these sites will continue until 2016 and will cost an additional $22.2 million. SCE&G expects to recover any cost arising from the remediation of MGP sites through rates. At December 31, 2012, deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $38.5 million and are included in regulatory assets.
Claims and Litigation
Consolidated SCE&G is engaged in various claims and litigation incidental to its business operations which management anticipates will be resolved without a material impact on Consolidated SCE&G’s results of operations, cash flows or financial condition.
140 Exhibit C Page 141 of 171 Operating Lease Commitments
Consolidated SCE&G is obligated under various operating leases with respect to office space, furniture and equipment. Leases expire at various dates through 2057. Rent expense totaled approximately $9.6 million in 2012, $10.8 million in 2011 and $9.3 million in 2010. Future minimum rental payments under such leases are as follows:
Millions of dollars 2013 $ 6 2014 3 2015 2 2016 1 2017 1 Thereafter 20 Total $ 33
Purchase Commitments
Consolidated SCE&G is obligated for purchase commitments that expire at various dates through 2034. Amounts expended for coal supply, nuclear fuel contracts and other commitments totaled $672.5 million in 2012, $717.8 million in 2011 and $859.7 million in 2010. Future payments under such purchase commitments are as follows:
Millions of dollars 2013 $ 952 2014 645 2015 460 2016 227 2017 1,076 Thereafter 1,033 Total $ 4,393
Asset Retirement Obligations
Consolidated SCE&G recognizes a liability for the present value of an ARO when incurred if the liability can be reasonably estimated. Uncertainty about the timing or method of settlement of a conditional ARO is factored into the measurement of the liability when sufficient information exists, but such uncertainty is not a basis upon which to avoid liability recognition.
The legal obligations associated with the retirement of long-lived tangible assets that result from their acquisition, construction, development and normal operation relate primarily to Consolidated SCE&G’s regulated utility operations. As of December 31, 2012, Consolidated SCE&G has recorded AROs of approximately $182 million for nuclear plant decommissioning (see Note 1) and AROs of approximately $353 million for other conditional obligations related to generation, transmission and distribution properties, including gas pipelines. All of the amounts recorded are based upon estimates which are subject to varying degrees of imprecision, particularly since such payments will be made many years in the future.
A reconciliation of the beginning and ending aggregate carrying amount of asset retirement obligations is as follows:
Millions of dollars 2012 2011 Beginning balance $ 450 $ 478 Liabilities incurred — — Liabilities settled (5) (4) Accretion expense 23 23 Revisions in estimated cash flows 67 (47) Ending Balance $ 535 $ 450
141 Exhibit C Page 142 of 171
11. AFFILIATED TRANSACTIONS
CGT transports natural gas to SCE&G to serve retail gas customers and certain electric generation requirements. Such purchases totaled approximately $35.9 million in 2012, $30.8 million in 2011 and $32.0 million in 2010. SCE&G had approximately $3.4 million and $2.5 million payable to CGT for transportation services at December 31, 2012 and December 31, 2011, respectively.
SCE&G purchases natural gas and related pipeline capacity from SEMI to serve its retail gas customers and certain electric generation requirements. Such purchases totaled approximately $125.5 million in 2012, $187.4 million in 2011 and $182.5 million in 2010. SCE&G’s payables to SEMI for such purposes were $13.1 million and $13.2 million as of December 31, 2012 and 2011, respectively.
SCE&G owns 40% of Canadys Refined Coal, LLC which is involved in the manufacturing and selling of refined coal to reduce emissions. SCE&G owned 10% of Cope Refined Coal, LLC through December 31, 2011. SCE&G accounts for these investments using the equity method. SCE&G’s receivables from these affiliates were $1.8 million at December 31, 2012 and $8.5 million at December 31, 2011. SCE&G’s payables to these affiliates were $1.8 million at December 31, 2012 and $8.6 million at December 31, 2011. SCE&G’s total purchases were $111.6 million in 2012 and $123.8 million in 2011. SCE&G’s total sales were $111.1 million in 2012 and $123.3 million in 2011.
An affiliate processes and pays invoices for Consolidated SCE&G and is reimbursed. Consolidated SCE&G owed $39.4 million and $43.0 million to the affiliate at December 31, 2012 and 2011, respectively, for invoices paid by the affiliate on its behalf.
SCANA Services provides the following services to Consolidated SCE&G, which are rendered at direct or allocated cost: information systems services, customer services, marketing and sales, human resources, corporate compliance, purchasing, financial services, risk management, public affairs, legal services, investor relations, gas supply and capacity management, strategic planning, and general administrative services. Costs for these services totaled $305.6 million in 2012, $302.6 million in 2011, and $269.5 million in 2010.
12. SEGMENT OF BUSINESS INFORMATION
Consolidated SCE&G’s reportable segments are listed in the following table. Consolidated SCE&G uses operating income to measure profitability for its regulated operations. Therefore, earnings available to common shareholders are not allocated to the Electric Operations and gas segments. Intersegment revenues were not significant.
Electric Operations is primarily engaged in the generation, transmission, and distribution of electricity, and is regulated by the SCPSC and FERC. Gas Distribution is engaged in the purchase and sale, primarily at retail, of natural gas, and is regulated by the SCPSC.
142 Exhibit C Page 143 of 171 Disclosure of Reportable Segments (Millions of dollars)
Electric Gas Adjustments/ Consolidated
Operations Distribution Eliminations Total 2012
External Revenue $ 2,453 $ 356 $ — $ 2,809 Operating Income 668 49 — 717 Interest Expense 21 — 190 211 Depreciation and Amortization 278 25 (10) 293 Segment Assets 8,989 659 2,456 12,104 Expenditures for Assets 999 56 (77) 978 Deferred Tax Assets 9 n/a (9) —
2011
External Revenue $ 2,432 $ 387 $ — $ 2,819 Operating Income 616 40 (2) 654 Interest Expense 23 — 181 204 Depreciation and Amortization 271 25 (10) 286 Segment Assets 8,222 622 2,193 11,037 Expenditures for Assets 806 60 (18) 848 Deferred Tax Assets 9 n/a (1) 8
2010
External Revenue $ 2,374 $ 441 — $ 2,815 Operating Income 554 52 $ (2) 604 Interest Expense 22 — 164 186 Depreciation and Amortization 263 22 (14) 271 Segment Assets 7,882 590 2,102 10,574 Expenditures for Assets 752 39 (20) 771 Deferred Tax Assets 5 n/a 10 15
Management uses operating income to measure segment profitability for regulated operations and evaluates utility plant, net, for its segments. As a result, Consolidated SCE&G does not allocate interest charges, income tax expense or assets other than utility plant to its segments. Interest income is not reported by segment and is not material. Consolidated SCE&G’s deferred tax assets are netted with deferred tax liabilities for reporting purposes.
The consolidated financial statements report operating revenues which are comprised of the reportable segments. Revenues from non-reportable segments are included in Other Income. Therefore, the adjustments to total operating revenues remove revenues from non-reportable segments. Segment Assets include utility plant, net for all reportable segments. As a result, adjustments to assets include non-utility plant and non-fixed assets for the segments. Adjustments to Interest Expense and Deferred Tax Assets include amounts that are not allocated to the segments. Expenditures for Assets are adjusted for revisions to estimated cash flows related to asset retirement obligations, and totals not allocated to other segments.
143 Exhibit C Page 144 of 171
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth Millions of dollars Quarter Quarter Quarter Quarter Annual 2012
Total operating revenues $ 663 $ 661 $ 777 $ 708 $ 2,809 Operating income 156 165 241 155 717 Earnings Available to Common Shareholder 69 76 129 67 341
2011
Total operating revenues $ 704 $ 691 $ 797 $ 627 $ 2,819 Operating income 151 137 220 146 654 Earnings Available to Common Shareholder 68 59 117 62 306
144 Exhibit C Page 145 of 171 PART II,
ITEMS 9, 9A AND 9B
PART III
AND
PART IV
145 Exhibit C Page 146 of 171 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
ITEM 9A. CONTROLS AND PROCEDURES
SCANA:
Evaluation of Disclosure Controls and Procedures:
As of December 31, 2012, an evaluation was performed under the supervision and with the participation of SCANA’s management, including the CEO and CFO, of the effectiveness of the design and operation of SCANA’s disclosure controls and procedures. For purposes of this evaluation, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by SCANA in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to SCANA’s management, including the CEO and CFO, as appropriate to allow timely discussions regarding required disclosure. Based on that evaluation, SCANA’s management, including the CEO and CFO, concluded that SCANA’s disclosure controls and procedures were effective as of December 31, 2012. There has been no change in SCANA’s internal controls over financial reporting during the quarter ended December 31, 2012 that has materially affected or is reasonably likely to materially affect SCANA’s internal control over financial reporting.
Management’s Evaluation of Internal Control Over Financial Reporting:
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, management is required to include in this Form 10-K an internal control report wherein management states its responsibility for establishing and maintaining adequate internal control structure and procedures for financial reporting and that it has assessed, as of December 31, 2012, the effectiveness of such structure and procedures. This management report follows.
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of SCANA is responsible for establishing and maintaining adequate internal control over financial reporting. SCANA’s internal control system was designed by or under the supervision of SCANA’s management, including the CEO and CFO, to provide reasonable assurance to SCANA’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, the effectiveness of the internal control over financial reporting may deteriorate in future periods due to either changes in conditions or declining levels of compliance with policies or procedures.
SCANA’s management assessed the effectiveness of SCANA’s internal control over financial reporting as of December 31, 2012. In making this assessment, SCANA used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, SCANA’s management believes that, as of December 31, 2012, internal control over financial reporting is effective based on those criteria.
SCANA’s independent registered public accounting firm has issued an attestation report on SCANA’s internal control over financial reporting. This report follows.
146 Exhibit C Page 147 of 171 ATTESTATION REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SCANA Corporation Cayce, South Carolina
We have audited the internal control over financial reporting of SCANA Corporation and subsidiaries (the "Company") as of December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2012, of the Company and our report dated February 28, 2013, expressed an unqualified opinion on those financial statements and financial statement schedule.
/s/DELOITTE & TOUCHE LLP Charlotte, North Carolina February 28, 2013
147 Exhibit C Page 148 of 171 SCE&G:
Evaluation of Disclosure Controls and Procedures:
As of December 31, 2012, an evaluation was performed under the supervision and with the participation of SCE&G’s management, including the CEO and CFO, of the effectiveness of the design and operation of SCE&G’s disclosure controls and procedures. For purposes of this evaluation, disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by SCE&G in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to SCE&G’s management, including the CEO and CFO, as appropriate to allow timely discussions regarding required disclosure. Based on that evaluation, SCE&G’s management, including the CEO and CFO, concluded that SCE&G’s disclosure controls and procedures were effective as of December 31, 2012. There has been no change in SCE&G’s internal controls over financial reporting during the quarter ended December 31, 2012 that has materially affected or is reasonably likely to materially affect SCE&G’s internal control over financial reporting.
Management’s Evaluation of Internal Control Over Financial Reporting:
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, management is required to include in this Form 10-K an internal control report wherein management states its responsibility for establishing and maintaining adequate internal control structure and procedures for financial reporting and that it has assessed, as of December 31, 2012, the effectiveness of such structure and procedures. This management report follows.
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of SCE&G is responsible for establishing and maintaining adequate internal control over financial reporting. SCE&G’s internal control system was designed by or under the supervision of SCE&G’s management, including the CEO and CFO, to provide reasonable assurance to SCE&G’s management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, the effectiveness of the internal control over financial reporting may deteriorate in future periods due to either changes in conditions or declining levels of compliance with policies or procedures.
SCE&G’s management assessed the effectiveness of SCE&G’s internal control over financial reporting as of December 31, 2012. In making this assessment, SCE&G used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, SCE&G’s management believes that, as of December 31, 2012, internal control over financial reporting is effective based on those criteria.
ITEM 9B. OTHER INFORMATION
Not applicable.
148 Exhibit C Page 149 of 171 PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
SCANA: A list of SCANA’s executive officers is in Part I of this annual report at page 27. The other information required by Item 10 is incorporated herein by reference to the captions “NOMINEES FOR DIRECTORS,” “CONTINUING DIRECTORS,” “BOARD MEETINGS-COMMITTEES OF THE BOARD”, “GOVERNANCE INFORMATION-SCANA’s Code of Conduct & Ethics” and “OTHER INFORMATION-Section 16(a) Beneficial Ownership Reporting Compliance” in SCANA’s definitive proxy statement for the 2013 annual meeting of shareholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934 within 120 days after the end of SCANA’s fiscal year.
SCE&G: Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
SCANA: Information required by Item 12 is incorporated herein by reference to the caption “SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT” in SCANA’s definitive proxy statement for the 2013 annual meeting of shareholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934 within 120 days after the end of SCANA’s fiscal year.
Equity securities issuable under SCANA’s compensation plans at December 31, 2012 are summarized as follows:
Number of Number of securities securities remaining available to be issued Weighted-average for future issuance upon exercise exercise price under equity of outstanding of outstanding options, compensation plans options, warrants warrants (excluding securities Plan Category and rights and rights reflected in column (a))
(a) (b) (c) Equity compensation plans approved by security holders: - Long-Term Equity Compensation Plan n/a n/a 3,138,638 Non-Employee Director Compensation Plan n/a n/a 127,272 Equity compensation plans not approved by security holders n/a n/a n/a Total n/a n/a 3,265,910
SCE&G: Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
SCANA: The information required by Item 13 is incorporated herein by reference to the caption “RELATED PARTY TRANSACTIONS” in SCANA’s definitive proxy statement for the 2013 annual meeting of shareholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934 within 120 days after the end of SCANA’s fiscal year.
SCE&G: Not applicable.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
SCANA: The information required by Item 14 is incorporated herein by reference to “PROPOSAL 2-APPROVAL OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM” in SCANA’s definitive proxy statement for the 2013 annual meeting of shareholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities and Exchange Act of 1934 within 120 days after the end of SCANA’s fiscal year.
SCE&G: The Audit Committee Charter requires the Audit Committee to pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed by the independent registered accounting firm. Pursuant to a policy adopted by the Audit Committee, its Chairman may pre-approve the rendering of services on behalf
149 Exhibit C Page 150 of 171 of the Audit Committee. Decisions by the Chairman to pre-approve the rendering of services are presented to the Audit Committee at its next scheduled meeting.
Independent Registered Public Accounting Firm’s Fees
The following table sets forth the aggregate fees, all of which were approved by the Audit Committee, charged to SCE&G and its consolidated affiliates for the fiscal years ended December 31, 2012 and 2011 by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates.
2012 2011 Audit Fees (1) $ 1,772,129 $ 1,754,899 Audit-Related Fees (2) 258,357 66,957 Total Fees $ 2,030,486 $ 1,821,856
(1) Fees for audit services billed in 2012 and 2011 consisted of audits of annual financial statements, comfort letters, consents and other services related to SEC filings.
(2) For 2012 fees were primarily for employee benefit plan audits and other non-statutory audit services. For 2011 fees were primarily for employee benefit plan audits.
150 Exhibit C Page 151 of 171 ITEM 11. EXECUTIVE COMPENSATION
SCANA: The information required by Item 11 is incorporated herein by reference to the captions “COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION,” “COMPENSATION DISCUSSION AND ANALYSIS,” COMPENSATION COMMITTEE REPORT,” “SUMMARY COMPENSATION TABLE,” “2012 GRANTS OF PLAN- BASED AWARDS,” “OUTSTANDING EQUITY AWARDS AT 2012 FISCAL YEAR-END,” “2012 OPTION EXERCISES AND STOCK VESTED,” “PENSION BENEFITS,” “2012 NONQUALIFIED DEFERRED COMPENSATION,” and “POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL,” under the heading “EXECUTIVE COMPENSATION” and the heading “DIRECTOR COMPENSATION” in SCANA’s definitive proxy statement for the 2012 annual meeting of shareholders which will be filed with the SEC pursuant to Regulation 14A, promulgated under the Securities Exchange Act of 1934 within 120 days after the end of SCANA’s fiscal year.
SCE&G: Not applicable.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed or furnished as a part of this Form 10-K:
(1) Financial Statements and Schedules:
The Report of Independent Registered Public Accounting Firm on the financial statements for each of SCANA and SCE&G is listed under Item 8 herein.
The financial statements and supplementary financial data filed as part of this report for SCANA and SCE&G are listed under Item 8 herein.
The financial statement schedules "Schedule II - Valuation and Qualifying Accounts" filed as part of this report for SCANA and SCE&G are included below.
(2) Exhibits
Exhibits required to be filed or furnished with this Annual Report on Form 10-K are listed in the Exhibit Index following the signature page. Certain of such exhibits which have heretofore been filed with the SEC and which are designated by reference to their exhibit number in prior filings are incorporated herein by reference and made a part hereof.
Pursuant to Rule 15d-21 promulgated under the Securities Exchange Act of 1934, the annual report for SCANA’s employee stock purchase plan will be furnished under cover of Form 11-K to the SEC when the information becomes available.
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% 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 SEC upon request.
151 Exhibit C Page 152 of 171 Schedule II—Valuation and Qualifying Accounts (in millions)
Additions Charged to Deductions Beginning Charged to Other from Ending Description Balance Income Accounts Reserves Balance
SCANA:
Reserves deducted from related assets on the balance sheet:
Uncollectible accounts 2012 $ 6 $ 14 — $ 13 $ 7 2011 9 17 — 20 6 2010 9 28 — 28 9 Reserves other than those deducted from assets on the balance
sheet:
Reserve for injuries and damages 2012 $ 6 $ 4 — $ 4 $ 6 2011 5 4 — 3 6 2010 7 1 — 3 5
SCE&G:
Reserves deducted from related assets on the balance sheet:
Uncollectible accounts 2012 $ 3 $ 6 — $ 6 $ 3 2011 3 6 — 6 3 2010 3 6 — 6 3 Reserves other than those deducted from assets on the balance
sheet:
Reserve for injuries and damages 2012 $ 4 $ 3 — $ 2 $ 5 2011 4 2 — 2 4 2010 5 1 — 2 4
152 Exhibit C Page 153 of 171 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof.
SCANA CORPORATION
BY: /s/ K. B. Marsh K. B. Marsh, Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Director
DATE: February 28, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signatures of the undersigned shall be deemed to relate only to matters having reference to the registrant and any subsidiaries thereof.
/s/ K. B. Marsh K. B. Marsh, Chairman of the Board, President, Chief Executive Officer, Chief Operating Officer and Director (Principal Executive Officer)
/s/ J. E. Addison J. E. Addison Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ J. E. Swan, IV J. E. Swan, IV Controller (Principal Accounting Officer)
Other Directors*: B. L. Amick J. M. Micali J. A. Bennett L. M. Miller S. A. Decker J. W. Roquemore D. M. Hagood M. K. Sloan J. W. Martin, III H. C. Stowe
* Signed on behalf of each of these persons by Ronald T. Lindsay, Attorney-in-Fact
DATE: February 28, 2013
153 Exhibit C Page 154 of 171 SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries or consolidated affiliates thereof. SOUTH CAROLINA ELECTRIC & GAS COMPANY
BY: /s/ K. B. Marsh K. B. Marsh, Chairman of the Board, Chief Executive Officer and Director
DATE: February 28, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signatures of the undersigned shall be deemed to relate only to matters having reference to the registrant and any subsidiaries or consolidated affiliates thereof.
/s/ K. B. Marsh K. B. Marsh, Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer)
/s/ J. E. Addison J. E. Addison Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ J. E. Swan, IV J. E. Swan, IV Controller (Principal Accounting Officer)
Other Directors*: B. L. Amick L. M. Miller J. A. Bennett J. W. Roquemore S. A. Decker M. K. Sloan D. M. Hagood H. C. Stowe J. M. Micali
* Signed on behalf of each of these persons by Ronald T. Lindsay, Attorney-in-Fact
DATE: February 28, 2013
154 Exhibit C Page 155 of 171 EXHIBIT INDEX
Applicable to Exhibit Form 10-K of No. SCANA SCE&G Description 3.01 X Restated Articles of Incorporation of SCANA, as adopted on April 26, 1989 (Filed as Exhibit 3-A to Registration Statement No. 33-49145 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 Articles of Amendment effective April 25, 2011 (Filed as Exhibit 4.03 to Registration Statement No. 333-174796 and incorporated by reference herein) 3.04 X Restated Articles of Incorporation of SCE&G, as adopted on December 30, 2009 (Filed as Exhibit 1 to Form 8-A (File Number 000-53860) and incorporated by reference herein) 3.05 X By-Laws of SCANA as amended and restated as of February 19, 2009 (Filed as Exhibit 4.04 to Registration Statement No. 333-174796 and incorporated by reference herein) 3.06 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) 4.01 X X Articles of Exchange of SCE&G and SCANA (Filed as Exhibit 4-A to Post- Effective Amendment No. 1 to Registration Statement No. 2-90438 and incorporated by reference herein) 4.02 X Indenture dated as of November 1, 1989 between SCANA and The Bank of New York Mellon Trust Company, N. A. (successor to The Bank of New York), as Trustee (Filed as Exhibit 4-A to Registration No. 33-32107 and incorporated by reference herein) 4.03 X First Supplemental Indenture dated as of November 1, 2009 to Indenture dated as of November 1, 1989 between SCANA and The Bank of New York Mellon Trust Company, N.A. (successor to The Bank of New York), as Trustee (Filed as Exhibit 99.01 to Registration Statement No. 333-174796 and incorporated by reference herein) 4.04 X Junior Subordinated Indenture dated as of November 1, 2009 between SCANA and U.S. Bank National Association, as Trustee (Filed as Exhibit 99.02 to Registration Statement No. 333-174796 and incorporated by reference herein) 4.05 X First Supplemental Indenture to Junior Subordinated Indenture referred to in Exhibit 4.04 dated as of November 1, 2009 (Filed as Exhibit 99.03 to Registration Statement No. 333-174796 and incorporated by reference herein) 4.06 X Indenture dated as of April 1, 1993 from SCE&G to The Bank of New York Mellon Trust Company, N. A. (as successor to NationsBank of Georgia, National Association), as Trustee (Filed as Exhibit 4-F to Registration Statement No. 33-49421 and incorporated by reference herein) 4.07 X First Supplemental Indenture to Indenture referred to in Exhibit 4.06 dated as of June 1, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-49421 and incorporated by reference herein) 4.08 X Second Supplemental Indenture to Indenture referred to in Exhibit 4.06 dated as of June 15, 1993 (Filed as Exhibit 4-G to Registration Statement No. 33-57955 and incorporated by reference herein) 10.01 X X Engineering, Procurement and Construction Agreement, dated May 23, 2008, between SCE&G, 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 a request for 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)
155 Exhibit C Page 156 of 171 10.02 X X Contract for AP1000 Fuel Fabrication and Related Services between Westinghouse Electric Company LLC and SCE&G for V. C. Summer AP1000 Nuclear Plant Units 2 & 3 (portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for 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, 2011 and incorporated by reference herein) *10.03 X X SCANA Executive Deferred Compensation Plan (including amendments through December 31, 2009) (Filed as Exhibit 99.04 to Registration Statement No. 333-174796 and incorporated by reference herein) *10.04 X X SCANA Supplemental Executive Retirement Plan (including amendments through December 31, 2009) (Filed as Exhibit 99.05 to Registration Statement No. 333-174796 and incorporated by reference herein) *10.05 X X SCANA Director Compensation and Deferral Plan (including amendments through April 21, 2011) (Filed as Exhibit 4.05 to Registration Statement No. 333-174796 and incorporated by reference herein) *10.06 X X SCANA Long-Term Equity Compensation Plan as amended and restated (including amendments through December 31, 2009) (Filed as Exhibit 99.06 to Registration Statement No. 333-174796 and incorporated by reference herein) *10.07 X X SCANA Supplementary Executive Benefit Plan (including amendments through December 31, 2009) (Filed as Exhibit 99.07 to Registration Statement No. 333-174796 and incorporated by reference herein) *10.08 X X SCANA Short-Term Annual Incentive Plan (including amendments through December 31, 2009) (Filed as Exhibit 99.08 to Registration Statement No. 333-174796 and incorporated by reference herein) *10.09 X X SCANA Supplementary Key Executive Severance Benefits Plan (including amendments through December 31, 2009) (Filed as Exhibit 99.09 to Registration Statement No. 333-174796 and incorporated by reference herein) *10.10 X X Description of SCANA Whole Life Option (Filed as Exhibit 10-F for the year ended December 31, 1991, under cover of Form SE, Filed No. 1-8809 and incorporated by reference herein) 10.11 X Service Agreement between SCE&G and SCANA Services, Inc., effective January 1, 2004 (Filed as Exhibit 99.10 to Registration Statement No. 333-174796 and incorporated by reference herein) 10.12 X Form of Indemnification Agreement (Filed as Exhibit 10.01 to Form 10-Q dated June 30, 2012 and incorporated by reference herein) 10.13 X Amended and Restated Five-Year Credit Agreement dated as of October 25, 2012, by and among SCANA; the lenders identified therein; Wells Fargo Bank, National Association, as Issuing Bank, Swingline Lender and Agent; Bank of America, N.A. and Morgan Stanley Senior Funding, Inc., as Co- Syndication Agents and JPMorgan Chase Bank, N.A., Mizuho Corporation Bank, LTD. and TD Bank N.A., as Documentation Agents (Filed as Exhibit 99.1 to Form 8-K on October 30, 2012 and incorporated by reference herein) 10.14 X X Amended and Restated Five-Year Credit Agreement dated as of October 25, 2012, by and among SCE&G; the lenders identified therein; Wells Fargo Bank, National Association, as Issuing Bank, Swingline Lender and Agent; Bank of America, N.A. and Morgan Stanley Senior Funding, Inc., as Co- Syndication Agents; and Credit Suisse AG, Cayman Islands Branch and UBS Loan Finance LLC, as Documentation Agents (Filed as Exhibit 99.2 to Form 8-K on October 30, 2012 and incorporated by reference herein) 10.15 X X Three-Year Credit Agreement dated as of October 25, 2012, by and among SCE&G; the lenders identified therein; Wells Fargo Bank, National Association, as Issuing Bank, Swingline Lender and Agent; Bank of America, N.A. and Morgan Stanley Senior Funding, Inc., as Co-Syndication Agents; and Credit Suisse AG, Cayman Islands Branch and UBS Loan Finance LLC, as Documentation Agents (Filed as Exhibit 99.3 to Form 8-K on October 30, 2012 and incorporated by reference herein) 10.16 X X Amended and Restated Five-Year Credit Agreement dated as of October 25, 2012, by and among Fuel Company; the lenders identified therein; Wells Fargo Bank, National Association, as Swingline Lender and Agent; Bank of America, N.A. and Morgan Stanley Senior Funding, Inc., as Co-Syndication Agents; and JPMorgan Chase Bank, N.A., Mizuho Corporation Bank, LTD. and TD Bank N.A., as Documentation Agents (Filed as Exhibit 99.4 to Form 8-K on October 30, 2012 and incorporated by reference herein) 156 Exhibit C Page 157 of 171
10.17 X Amended and Restated Five-Year Credit Agreement dated as of October 25, 2012, by and among PSNC Energy; the lenders identified therein; Wells Fargo Bank, National Association, as issuing Bank, Swingline Lender and Agent; Bank of America, N.A. and Morgan Stanley Senior Funding, Inc., as Co-Syndication Agents; and JPMorgan Chase Bank, N.A., Mizuho Corporate Bank, LTD. and TD Bank N.A., as Documentation Agents (Filed as Exhibit 99.5 to Form 8-K on October 30, 2012 and incorporated by reference herein) 12.01 X Statement Re Computation of Ratios (Filed herewith) 12.02 X Statement Re Computation of Ratios (Filed herewith) 21.01 X Subsidiaries of the registrant (Filed herewith under the heading “Corporate Structure” in Part I, Item I of this Form 10-K and incorporated by reference herein) 23.01 X Consents of Experts and Counsel (Consent of Independent Registered Public Accounting Firm) (Filed herewith) 23.02 X Consents of Experts and Counsel (Consent of Independent Registered Public Accounting Firm) (Filed herewith) 24.01 X Power of Attorney (Filed herewith) 24.02 X Power of Attorney (Filed herewith) 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) 101. INS** X X XBRL Instance Document 101. SCH** X X XBRL Taxonomy Extension Schema 101. CAL** X X XBRL Taxonomy Extension Calculation Linkbase 101. DEF** X X XBRL Taxonomy Extension Definition Linkbase 101. LAB** X X XBRL Taxonomy Extension Label Linkbase 101. PRE** X X XBRL Taxonomy Extension Presentation Linkbase
* Management Contract or Compensatory Plan or Arrangement ** Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
157 Exhibit C Page 158 of 171
Exhibit 12.01
SCANA CORPORATION CALCULATION OF RATIOS FOR THE YEAR ENDED DECEMBER 31, 2012 (Dollars in Millions)
CALCULATION OF BOND RATIO:
Net earnings(1) $987.8 Divide by annualized interest charges on: Bonds outstanding under SCE&G’s bond indenture dated April 1, 1993 (Mortgage) $189.2 Total annualized interest charges 189.2 Bond Ratio 5.22
(1) As defined in the Mortgage.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES:
Years Ended December 31, Dollars in Millions 2012 2011 2010 2009 2008 Fixed Charges as defined: Interest on debt $301.3 $287.0 $270.4 $251.5 $238.2 Amortization of debt premium, discount and expense (net) 4.9 4.8 5.1 4.8 4.6 Interest component on rentals 4.9 5.2 4.6 7.9 4.5 Preference security dividend requirement of consolidated subsidiary - - - 14.2 11.7 Total Fixed Charges (A) $311.1 $297.0 $280.1 $278.4 $259.0 Earnings as defined: Pretax income from continuing operations $601.6 $555.6 $535.4 $524.2 $542.1 Total fixed charges above 311.1 297.0 280.1 278.4 259.0 Pretax equity in (earnings) losses of investees (3.3) (2.9) (1.1) (2.2) (8.0) Cash distributions from equity investees 3.3 3.6 4.8 3.3 6.2 Preference security dividend requirement from above - - - (14.2) (11.7) Total Earnings (B) $912.7 $853.3 $819.2 $789.5 $787.6 Ratio of Earnings to Fixed Charges (B/A) 2.93 2.87 2.92 2.84 3.04
159 Exhibit C Page 159 of 171
Exhibit 12.02
SOUTH CAROLINA ELECTRIC & GAS COMPANY CALCULATION OF RATIOS FOR THE YEAR ENDED DECEMBER 31, 2012 (Dollars in Millions)
CALCULATION OF BOND RATIO:
Net earnings(1) $987.8 Divide by annualized interest charges on: Bonds outstanding under SCE&G’s bond indenture dated April 1, 1993 (Mortgage) $189.2 Total annualized interest charges 189.2 Bond Ratio 5.22
(1) As defined in the Mortgage.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES:
Years Ended December 31, Dollars in Millions 2012 2011 2010 2009 2008 Fixed Charges as defined: Interest on debt $217.4 $207.8 $192.4 $181.4 $166.6 Amortization of debt premium, discount and expense (net) 3.9 3.9 4.0 3.8 3.6 Interest component on rentals 3.2 3.6 3.1 5.5 4.2 Total Fixed Charges(A) $224.5 $215.3 $199.5 $190.7 $174.4 Earnings as defined: Pretax income from continuing operations $509.5 $456.5 $433.6 $427.8 $440.1 Total fixed charges 224.5 215.3 199.5 190.7 174.4 Pre-tax equity in (earnings) losses of investees 3.8 2.3 2.1 0.5 (3.0) Total Earnings (B) $737.8 $674.1 $635.2 $619.0 $611.5 Ratio of Earnings to Fixed Charges (B/A) 3.29 3.13 3.18 3.25 3.51
160 Exhibit C Page 160 of 171
Exhibit 23.01
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-174796 and 333-183771 on Form S-8 and Post-Effective Amendment No. 1 to Registration Statement No. 333-37398 on Form S-8 and Registration Statement Nos. 333-177099 and 333-184426 on Form S-3 of our reports dated February 28, 2013, relating to the consolidated financial statements and financial statement schedule of SCANA Corporation and subsidiaries (the “Company”), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of SCANA Corporation for the year ended December 31, 2012.
/s/DELOITTE & TOUCHE LLP Charlotte, North Carolina February 28, 2013
161 Exhibit C Page 161 of 171
Exhibit 23.02
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-184426-01 on Form S-3 of our report dated February 28, 2013, relating to the consolidated financial statements and financial statement schedule of South Carolina Electric & Gas Company and affiliates appearing in this Annual Report on Form 10-K of South Carolina Electric & Gas Company for the year ended December 31, 2012.
/s/DELOITTE & TOUCHE LLP Charlotte, North Carolina February 28, 2013
162 Exhibit C Page 162 of 171
Exhibit 24.01
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer of SCANA Corporation (“SCANA”), hereby constitutes and appoints Kevin B. Marsh, Jimmy E. Addison and Ronald T. Lindsay, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities, to sign an Annual Report for SCANA’s fiscal year ended December 31, 2012, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as any such attorney-in-fact may deem necessary or desirable, and any amendments to the foregoing (collectively, the “Annual Report”), each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 20th day of February 2013. /s/B. L. Amick /s/J. A. Bennett B. L. Amick J. A. Bennett Director Director
/s/S. A. Decker /s/D. M. Hagood S. A. Decker D. M. Hagood Director Director
/s/K. B. Marsh /s/J. W. Martin, III K. B. Marsh J. W. Martin, III Director Director
/s/J. M. Micali /s/L. M. Miller J. M. Micali L. M. Miller Director Director
/s/J. W. Roquemore /s/M. K. Sloan J. W. Roquemore M. K. Sloan Director Director
/s/H. C. Stowe H. C. Stowe Director
163 Exhibit C Page 163 of 171
Exhibit 24.02
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, being a director or officer of South Carolina Electric & Gas Company (“SCE&G”), hereby constitutes and appoints Kevin B. Marsh, Jimmy E. Addison and Ronald T. Lindsay, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities, to sign an Annual Report for SCE&G’s fiscal year ended December 31, 2012, on Form 10-K under the Securities Exchange Act of 1934, as amended, or such other form as any such attorney-in-fact may deem necessary or desirable, and any amendments to the foregoing (collectively, the “Annual Report”), each in such form as they or any one of them may approve, and to file the same with all exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done so that such Annual Report shall comply with the Securities Exchange Act of 1934, as amended, and the applicable Rules and Regulations adopted or issued pursuant thereto, as fully and to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them or their substitute or resubstitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his or her hand this 20th day of February 2013.
/s/B. L. Amick /s/J. A. Bennett B. L. Amick J. A. Bennett Director Director
/s/S. A. Decker /s/D. M. Hagood S. A. Decker D. M. Hagood Director Director
/s/K. B. Marsh /s/J. M. Micali K. B. Marsh J. M. Micali Director Director
/s/L. M. Miller /s/J. W. Roquemore L. M. Miller J. W. Roquemore Director Director
/s/M. K. Sloan /s/H. C. Stowe M. K. Sloan H. C. Stowe Director Director
164 Exhibit C Page 164 of 171 Exhibit 31.01
CERTIFICATION
I, Kevin B. Marsh, certify that:
1. I have reviewed this annual report on Form 10-K of SCANA Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 28, 2013 /s/Kevin B. Marsh Kevin B. Marsh, Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer
165 Exhibit C Page 165 of 171 Exhibit 31.02
CERTIFICATION
I, Jimmy E. Addison, certify that:
1. I have reviewed this annual report on Form 10-K of SCANA Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 28, 2013 /s/Jimmy E. Addison Jimmy E. Addison Executive Vice President and Chief Financial Officer
166 Exhibit C Page 166 of 171 Exhibit 31.03
CERTIFICATION
I, Kevin B. Marsh, certify that:
1. I have reviewed this annual report on Form 10-K of South Carolina Electric & Gas Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 28, 2013 /s/Kevin B. Marsh Kevin B. Marsh, Chairman of the Board and Chief Executive Officer
167 Exhibit C Page 167 of 171 Exhibit 31.04
CERTIFICATION
I, Jimmy E. Addison, certify that:
1. I have reviewed this annual report on Form 10-K of South Carolina Electric & Gas Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
February 28, 2013 /s/Jimmy E. Addison Jimmy E. Addison Executive Vice President and Chief Financial Officer
168 Exhibit C Page 168 of 171 Exhibit 32.01
SCANA CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SCANA Corporation (the “Company”) on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes- Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 28, 2013
/s/Kevin B. Marsh Kevin B. Marsh, Chairman of the Board, President, Chief Executive Officer and Chief Operating Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
169 Exhibit C Page 169 of 171 Exhibit 32.02
SCANA CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of SCANA Corporation (the “Company”) on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes- Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
February 28, 2013
/s/Jimmy E. Addison Jimmy E. Addison Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
170 Exhibit C Page 170 of 171 Exhibit 32.03
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of South Carolina Electric & Gas Company (the “Company”) on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 28, 2013
/s/Kevin B. Marsh Kevin B. Marsh, Chairman of the Board and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
171 Exhibit C Page 171 of 171 Exhibit 32.04
SOUTH CAROLINA ELECTRIC & GAS COMPANY
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of South Carolina Electric & Gas Company (the “Company”) on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: February 28, 2013
/s/Jimmy E. Addison Jimmy E. Addison Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
172