**UNITED
STATES**





**SECURITIES
AND EXCHANGE COMMISSION**








**Washington,
DC 20549**








**Amendment
No. 1**







**FORM
10-Q/A**








******x**
    **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





**For
the quarterly period ended June 30, 2005**





**OR**





**o**
    **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**





****For
      the Transition Period
      from****to****




Commission
File Number **1-3375**





**SOUTH
CAROLINA ELECTRIC & GAS COMPANY**


(Exact
name of registrant as specified in its charter)





**SOUTH
      CAROLINA**
    
    **57-0248695**(State
      or other jurisdiction of
      incorporation
      or organization)
    
    (IRS
      employer
      identification
      no.)




**1426
MAIN STREET, COLUMBIA, SOUTH CAROLINA**  **29201**


(Address
of principal executive
offices)                                   
 (Zip code)





Registrant's
telephone number, including area code **(803)
217-9000**








Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes 
x No 
o





Indicate
by check mark whether the registrant is an accelerated filer (as defined in
Exchange Act Rule 12b-2).


Yes  o No  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange


Act). Yes o No x


Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date. Shares
of common stock outstanding, $4.50 par value, totaled 40,296,147 at July 31,
2005, all of which w ere owned
by SCANA Corporation, the issuer’s corporate parent.
























**EXPLANATORY
NOTE**








This
Amendment No. 1 to the quarterly report on Form 10-Q/A of South Carolina
Electric & Gas Company for the quarter ended June 30, 2005 has been filed to
amend the ratio of earnings to fixed charges (SEC Method) in Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations. Other than this change, the addition of the certifications listed
below, their inclusion in the exhibit index, and the new signature page, no
other changes have been made to the original filing. In order to preserve
the nature and character of the disclosures as originally filed, except as
specifically noted above, no attempt has been made to modify or update such
disclosures for events which occurred subsequent to the original filing.
Accordingly, this amendment and the quarterly report on Form 10-Q which it
amends should be read in conjunction with the registrant’s subsequent filings
with the Commission.





The
exhibit index has been amended to add the following (all of which are filed
herewith).




31.07
    Certification
      of Principal Executive Officer Required by Rule 13a-1431.08
    Certification
      of Principal Financial Officer Required by Rule 13a-1432.07
    Certification
      of Principal Executive Officer Pursuant to 18 U.S.C. Section
      135032.08
    Certification
      of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350








































2





Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations








**SOUTH
CAROLINA ELECTRIC & GAS COMPANY**


**MANAGEMENT’S
DISCUSSION AND ANALYSIS OF**


**FINANCIAL
CONDITION AND RESULTS OF OPERATIONS**





The
following discussion should be read in conjunction with Management’s Discussion
and Analysis of Financial Condition and Results of Operations appearing in South
Carolina Electric & Gas Company’s (SCE&G, and together with its
consolidated affiliates, the Company) Annual Report on Form 10-K for the year
ended December 31, 2004.





Statements
included in this discussion and analysis (or elsewhere in this quarterly report)
which are not statements of historical fact are intended to be, and are hereby
identified as, “forward-looking statements” for purposes of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve a number of
risks and uncertainties, and that actual results could differ materially from
those indicated by such forward-looking statements. Important factors that could
cause actual results to differ materially from those indicated by such
forward-looking statements include, but are not limited to, the following: (1)
that the information is of a preliminary nature and may be subject to further
and/or continuing review and adjustment, (2) regulatory actions or changes in
the utility regulatory environment, (3) current and future litigation, (4)
changes in the economy, especially in SCE&G’s service territory, (5) the
impact of competition from other energy suppliers, including competition from
alternate fuels in industrial interruptible markets, (6) growth opportunities,
(7) the results of financing efforts, (8) changes in the Company’s accounting
policies, (9) weather conditions, especially in areas served by SCE&G, (10)
performance of SCANA Corporation’s (SCANA) pension plan assets and the impact on
SCE&G’s results of operations, (11) inflation, (12) changes in environmental
regulations and (13) the other risks and uncertainties described from time to
time in SCE&G’s periodic reports filed with the United States Securities and
Exchange Commission. The Company disclaims any obligation to update any
forward-looking statements.





**Electric
Operations**





The Energy Policy Act of 2005 (the “energy bill”) passed both houses of Congress
in July 2005 and is expected to be signed by the President in August 2005. 
 Some key provisions of the energy bill include the establishment of an
electric reliability organization to enforce reliability standards for
transmission systems, the restriction of standard market design (SMD) rulemaking
by the Federal Energy Regulatory Commission (FERC) and the provision for
continued reservation of electric transmission capacity needed to serve native
load customers.  Also, the energy bill repeals the Public Utility Holding
Company Act of 1935, and provides for greater regulatory oversight by other
federal and state authorities.  The Company is reviewing the energy bill to
determine the impact it will have on the Company’s operations.  In a
separate development, in July 2005 FERC terminated its proposed rule for
SMD.  The Company cannot predict when or if FERC will advance other
regulatory initiatives related to the national energy market or what conditions
such initiatives would impose on utilities.





**Gas
Distribution**





On April
26, 2005, SCE&G filed an application with the Public Service Commission of
South Carolina (SCPSC) requesting a 7.09 percent increase in retail natural gas
base rates, or approximately $28 million based on an adjusted test year ended
December 31, 2004. A hearing on this request is expected to be held in September
2005. If approved, it is anticipated that the new rates would go into effect in
November 2005.





In
February 2005, the Natural Gas Stabilization Act of 2005 (Stabilization Act)
became law in South Carolina. The Stabilization Act allows natural gas
distribution companies 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.





3











**RESULTS
OF OPERATIONS**


**FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2005**


**AS
COMPARED TO THE CORRESPONDING PERIODS IN 2004**





Net
Income





Net
income was as follows:





Second
      Quarter
    Year
      to DateMillions
      of dollars
    2005
    2004
    2005
    2004Net
      income
    $39.9
    $56.9
    $92.0
    $110.7





*Second
Quarter*





Net
income decreased by approximately $3.8 million due to higher depreciation and
operating expenses related to the Jasper County Electric Generating Station,
$19.8 million due to milder weather, $1.4 million due to increased interest
expense, $2.2 million due to new depreciation rates and $1.5 million due to
other operating expenses. These decreases were partially offset by approximately
$9.7 million from increased retail electric rates that went into effect in
January 2005, off-system sales of $2.6 million and increased growth and
consumption of $2.0 million. Accelerated depreciation on the Lake Murray back-up
dam and recognition of synthetic fuel tax credits and related items had no
effect on net income, as discussed below.





*Year
to Date*





Net
income decreased by approximately $11.0 million due to higher depreciation and
operating expenses related to the Jasper County Electric Generating Station,
$25.2 million due to milder weather, $2.8 million due to increased interest
expense, $4.4 million due to new depreciation rates and $4.6 million due to
other operating expenses. These decreases were partially offset by approximately
$19.3 million from increased retail electric rates that went into effect in
January 2005, off-system sales of $2.6 million and increased growth and
consumption of $7.4 million. Accelerated
depreciation on the Lake Murray back-up dam and recognition of synthetic fuel
tax credits and related items had no effect on net income, as discussed
below.





*Recognition
of Synthetic Fuel Tax Credits*





SCE&G
holds equity-method investments in two partnerships involved in converting coal
to synthetic fuel, the use of which fuel qualifies for federal income tax
credits. These
synthetic fuel production facilities were placed in operation in 2000 and 2001.
Under an accounting plan approved by the SCPSC in June 2000, the synthetic fuel
tax credits generated by the partnerships and passed through to SCE&G, net
of partnership losses and other expenses, were to be deferred until the SCPSC
approved their application to offset capital costs of projects required to
comply with legislative or regulatory actions.





In a
January 2005 order, the SCPSC approved SCE&G’s request to apply these
synthetic fuel tax credits to offset the construction costs of the Lake Murray
Dam project. Under the accounting methodology approved by the SCPSC,
construction costs related to the project are recorded in utility plant in
service in a special dam remediation account outside of rate base, and
depreciation is recognized against the balance in this account on an accelerated
basis, subject to the availability of the synthetic fuel tax credits.





The level
of depreciation expense and related tax benefit recognized in the income
statement will be equal to the available synthetic fuel tax credits, less
partnership losses and other expenses, net of taxes. As a result, the balance of
unrecovered costs in the dam remediation account is declining as accelerated
depreciation is recorded.





4








Although
these entries collectively have no impact on consolidated net income, they can
have a significant impact on individual line items within the income statement.
In addition, SCE&G is allowed to record non-cash carrying costs on the
unrecovered investment, which is described further at *Allowance
For Funds Used During Construction.* The
accelerated depreciation, synthetic fuel tax credits, partnership losses and the
income tax benefit arising from such losses recognized by SCE&G during 2005
are as follows:






Factors
      Increasing (Decreasing)
      Net
      Income (millions)
    
    Recognized
      2nd
      Quarter 2005
    
    Year
      to Date
      2005Recognized
      in Statement of Income:Depreciation
      and amortization expense
    
    $
    (13.9
    )
    $
    (183.6
    )Income
      tax benefits:From
      synthetic fuel tax credits
    
    
    11.2
    
    
    155.2From
      accelerated depreciation
    
    
    5.3
    
    
    70.2From
      partnership losses
    
    
    1.6
    
    
    25.9Total
      income tax benefits
    
    
    18.1
    
    
    251.3Losses
      from Equity Method Investments
    
    
    (4.2
    )
    
    (67.7
    )Impact
      on Net Income
    
    
    -
    
    
    -




*Pension
Income*





Pension
income was recorded on the Company’s financial statements as
follows:





Second
      Quarter
    
    Year
      to DateMillions
      of dollars
    
    2005
    
    2004
    
    2005
    
    2004Income
      Statement Impact:Reduction
      in employee benefit costs
    
    $
    1.5
    
    $
    1.1
    
    $
    3.0
    
    $
    2.4Other
      income
    
    
    3.1
    
    
    2.6
    
    
    6.1
    
    
    5.1Balance
      Sheet Impact:Reduction
      in capital expenditures
    
    
    0.4
    
    
    0.3
    
    
    0.8
    
    
    0.7Component
      of amount due to Summer Station co-owner
    
    
    0.1
    
    
    0.1
    
    
    0.3
    
    
    0.3Total
      Pension Income
    
    $
    5.1
    
    $
    4.1
    
    $
    10.2
    
    $
    8.5





For the
last several years, the market value of SCANA’s retirement plan (pension) assets
has exceeded the total actuarial present value of accumulated plan benefits. The
Company’s portion of SCANA’s pension income for the second quarter and year to
date 2005 increased compared to the corresponding periods in 2004, primarily as
a result of positive investment returns.





*Allowance
for Funds Used During Construction (AFC)*





AFC is a
utility accounting practice whereby a portion of the cost of both equity and
borrowed funds used to finance construction (which is shown on the balance sheet
as construction work in progress) is capitalized. The Company includes an equity
portion of AFC in nonoperating income and a debt portion of AFC in interest
charges (credits) as noncash items, both of which have the effect of increasing
reported net income. AFC for the three months ended June 30, 2005 decreased
slightly primarily due to completion of the Jasper County Electric Generating
Station in May 2004. Included in the equity portion of AFC for the three and six
months ended June 30, 2005 is approximately $2.8 million and $5.6 million,
respectively, which was accrued as a result of the January 2005 SCPSC rate order
related to construction costs for the back-up dam at Lake Murray.








5





**Dividends
Declared**





SCE&G’s
Board of Directors has declared the following dividends on common stock held by
SCANA during 2005:





Declaration
      Date
    Amount
    Quarter
      Ended
    Payment
      DateFebruary
      17, 2005
    $38.0
      million
    March
      31, 2005
    April
      1, 2005May
      5, 2005
    $38.0
      million
    June
      30, 2005
    July
      1, 2005July
      27, 2005
    $38.0
      million
    September
      30, 2005
    October
      1, 2005





**Electric
Operations**





Electric
Operations is comprised of the electric operations of SCE&G, South Carolina
Generating Company, Inc. and South Carolina Fuel Company, Inc. Electric
operations sales margins were as follows:





Second
      Quarter
    
    Year
      to DateMillions
      of dollars
    
    2005
    
    %
      Change
    
    2004
    
    2005
    
    %
      Change
    
    2004Operating
      revenues
    
    $
    438.2
    
    
    0.6
    %
    $
    435.4
    
    $
    854.5
    
    
    4.6
    %
    $
    816.6Less:
      Fuel used in generation
    
    
    137.2
    
    
    14.2
    %
    
    120.1
    
    
    265.0
    
    
    23.0
    %
    
    215.5Purchased
      power
    
    
    11.0
    
    
    (44.4
    )%
    
    19.8
    
    
    17.6
    
    
    (45.8
    )%
    
    32.5Margin
    
    $
    290.0
    
    
    (1.9
    )%
    $
    295.5
    
    $
    571.9
    
    
    0.6
    %
    $
    568.6





*Second
Quarter*





Margin
decreased primarily due to unfavorable weather, which had an impact of $19.8
million. This decrease was offset by $9.7 million due to increased retail
electric rates that went into effect in January 2005, by $2.6 million related to
increased off-system sales and by customer growth and increased consumption of
$2.0 million.





Year to
Date





Margin
increased primarily due to increased retail electric rates that went into effect
in January 2005, which had an impact of $19.3 million, by $2.6 million related
to increased off-system sales and by customer growth and increased consumption
of $7.4 million. These factors were partially offset by $25.2 million due to
unfavorable weather.





**Gas
Distribution**





Gas
Distribution is comprised of the local distribution operations of SCE&G. Gas
distribution sales margins (including transactions with affiliates) were as
follows:





Second
      Quarter
    
    Year
      to DateMillions
      of dollars
    
    2005
    
    %
      Change
    
    2004
    
    2005
    
    %
      Change
    
    2004Operating
      revenues
    
    $
    84.8
    
    
    24.9
    %
    $
    67.9
    
    $
    241.7
    
    
    13.2
    %
    $
    213.5Less:
      Gas purchased for resale
    
    
    71.0
    
    
    28.4
    %
    
    55.3
    
    
    191.7
    
    
    15.4
    %
    
    166.1Margin
    
    $
    13.8
    
    
    9.5
    %
    $
    12.6
    
    $
    50.0
    
    
    5.5
    %
    $
    47.4





*Second
Quarter and Year to Date*





Margin
increased primarily due to customer growth.








6








**Other
Operating Expenses**





Other
operating expenses were as follows:





Second
      Quarter
    
    Year
      to DateMillions
      of dollars
    
    2005
    
    %
      Change
    
    2004
    
    2005
    
    %
      Change
    
    2004Other
      operation and maintenance
    
    $
    112.5
    
    
    8.7
    %
    $
    103.5
    
    $
    221.9
    
    
    4.6
    %
    $
    212.2Depreciation
      and amortization
    
    
    77.7
    
    
    *
    
    
    55.5
    
    
    311.2
    
    
    *
    
    
    107.4Other
      taxes
    
    
    36.0
    
    
    3.7
    %
    
    34.7
    
    
    70.9
    
    
    1.7
    %
    
    69.7Total
    
    $
    226.2
    
    
    *
    
    $
    193.7
    
    $
    604.0
    
    
    *
    
    $
    389.3


*Not
meaningful





*Second
Quarter*





Other
operation and maintenance expenses increased primarily due to increased nuclear
and fossil maintenance expenses of $6.8 million. Depreciation and amortization
increased approximately $13.9 million due to accelerated depreciation of the
back-up dam at Lake Murray (previously explained at *Recognition
of Synthetic Fuel Tax Credits* ) and
increased $2.7 million due to the completion of the Jasper County Electric
Generating Station in May 2004 and $1.4 million due to normal net property
changes. In addition, as a result of the January 2005 rate order, SCE&G
received approval to amortize previously deferred purchased power costs and to
implement new depreciation rates, resulting in $4.4 million of additional
depreciation expense in the period.





*Year
to Date*





Other
operation and maintenance expenses increased primarily due to increased nuclear
and fossil maintenance expenses of $11.4 million, partially offset by decreases
in storm expenses of $1.9 million and $1.9 million of employee benefit expenses.
Depreciation and amortization increased approximately $183.6 million due to
accelerated depreciation of the back-up dam at Lake Murray (previously explained
at *Recognition
of Synthetic Fuel Tax Credits* ) and
increased $8.7 million due to the completion of the Jasper County Electric
Generating Station in May 2004 and $2.9 million due to normal net property
changes. In addition, as a result of the January 2005 rate order, SCE&G
received approval to amortize previously deferred purchased power costs and to
implement new depreciation rates, resulting in $8.7 million of additional
depreciation expense in the period.





**Interest
Expense**





Interest
expense for the three and six months ended June 30, 2005 increased primarily due
to reduced AFC of $4.6 million which was partially offset by lower interest
rates and reduced long-term debt.





**Income
Taxes**





Income
tax expense for the three and six months ended June 30, 2005 decreased primarily
due to the application of synthetic fuel tax credits, as previously discussed at *Recognition
of Synthetic Fuel Tax Credits.*





**LIQUIDITY
AND CAPITAL RESOURCES**





The
Company anticipates that its contractual cash obligations will be met through internally
generated funds and the incurrence of additional short-term and long-term
indebtedness. The Company expects that it has or can obtain adequate sources of
financing to meet its projected cash requirements for the foreseeable future.
The Company’s ratio of earnings to fixed charges for the 12 months ended June
30, 2005 was 1.85.





The
Company ’s cash
requirements arise primarily from its operational needs, funding its
construction programs and payment of dividends to SCANA. The ability of the
Company to replace existing plant investment, as well as to expand to meet
future demand for electricity and gas, will depend upon its ability to attract
the necessary financial capital on reasonable terms. SCE&G recovers the
costs of providing services through rates charged to customers. Rates for
regulated services are generally based on historical costs. As customer growth
and inflation occur and SCE&G continues its ongoing construction program,
SCE&G expects to seek increases in rates. The Company’s future financial
position and results of operations will be affected by SCE&G’s ability to
obtain adequate and timely rate and other regulatory relief, if
requested.





7


In a
January 2005 order the SCPSC granted SCE&G a composite increase in
retail electric rates of approximately 2.89%, designed to produce additional
annual revenues of approximately $41.4 million based on a test year
calculation. The SCPSC lowered SCE&G's return on common equity from 12.45%
to an amount not to exceed 11.4%, with rates to be set at 10.7%. The new rates
became effective in January 2005. As part of its order, the SCPSC approved
SCE&G's recovery of construction and operating costs for SCE&G's new
Jasper County Electric Generating Station, recovery of costs of mandatory
environmental upgrades primarily related to Federal Clean Air Act regulations
and the application of current and anticipated net synthetic fuel tax credits to
offset the cost of constructing the back-up dam at Lake Murray (as previously
discussed in *Recognition
of Synthetic Fuel Tax Credits* ). The
SCPSC also approved recovery over a five-year period of SCE&G's
approximately $14 million of costs incurred in the formation of the
GridSouth Regional Transmission Organization and recovery through base rates
over three years of approximately $25.6 million of purchased power costs
that were previously deferred. As a part of its order, the SCPSC extended
through 2010 its approval of the accelerated capital recovery plan for
SCE&G's Cope Generating Station. Under the plan, in the event that SCE&G
would otherwise earn in excess of its maximum allowed return on common equity,
SCE&G may increase depreciation of its Cope Generating Station up to
$36 million annually without additional approval of the SCPSC. Any unused
portion of the $36 million in any given year may be carried forward for
possible use in the following year.





The
following table summarizes how SCE&G generated and used funds for property
additions and construction expenditures during the six months ended June 30,
2005 and 2004:





Six
      Months EndedJune
      30,Millions
      of dollars
    
    2005
    
    2004Net
      cash provided from operating activities
    
    $
    73
    
    $
    165Net
      cash provided from financing activities
    
    
    115
    
    
    37Cash
      provided from sale of assets
    
    
    1
    
    
    1Cash
      and cash equivalents available at the beginning of the period
    
    
    20
    
    
    56Funds
      used for utility property additions and construction
      expenditures
    
    $
    (183
    )
    $
    (232
    )Funds
      used for investments
    
    
    (9
    )
    
    (8
    )





The
Company's issuance of various securities, including long-term and short-term
debt, is subject to customary approval or authorization by state and federal
regulatory bodies including state public service commissions and the Securities
and Exchange Commission.





**CAPITAL
TRANSACTIONS**





In June
2005 $525 million in committed revolving five-year credit facilities for
SCE&G and Fuel Company were amended to extend the term of the existing
credit facilities by an additional year. The credit facilities now will expire
on June 30, 2010. None of these credit facilities require the borrower to make a
representation as to “no material adverse change” related to financial condition
or material litigation at the time of a borrowing, and none of the facilities
contains covenants based on credit ratings under which lenders could refuse to
advance funds.





On June
15, 2005 SCE&G retired at maturity $150 million in first mortgage bonds.
These bonds bore interest at 7.50%. SCE&G used available cash, together with
short-term borrowings, to effect the retirement.





In March
2005 SCE&G issued $100 million in first mortgage bonds having an annual
interest rate of 5.25% and maturing March 1, 2035. The proceeds from the sale of
these bonds were used for the redemption on April 1, 2005 of $100 million in
first mortgage bonds due April 1, 2025 which bore interest at
7.625%





**CAPITAL
PROJECTS**





In May
2005 SCE&G substantially completed construction of a back-up dam at Lake
Murray in order to comply with new federal safety standards mandated by FERC.
Construction of the project and related activities are estimated to cost
approximately $275 million, excluding AFC.





8







**ENVIRONMENTAL
MATTERS**





In March
2005 the Environmental Protection Agency (EPA) issued a final rule known as the
Clean Air Interstate Rule (CAIR). CAIR requires the District of Columbia and 28
states, including South Carolina, to reduce nitrogen oxides and sulfur dioxide
emissions in order to attain mandated state levels. SCE&G has petitioned the
United States Court of Appeals for the District of Columbia Circuit to review
CAIR. Several other electric utilities have filed separate petitions. The
petitioners seek a change in the method CAIR uses to allocate sulfur dioxide
emission allowances to a method the petitioners believe is more equitable. The
Company believes that installation of additional air quality controls will be
needed to meet the CAIR requirements. Compliance plans and cost to comply with
the rule will be determined once the Company completes its review. Such costs
will be material and are expected to be recoverable through rates.





In March
2005 the EPA issued a final rule establishing a mercury emissions cap and trade
program for coal-fired power plants that requires limits to be met in two
phases, in 2010 and 2018. The Company is reviewing the final rule. Installation
of additional air quality controls is likely to be required to comply with the
mercury rule’s emission caps. Compliance plans and costs to comply with the rule
will be determined once the Company completes its review. Such costs will be
material and are expected to be recoverable through rates.





For other
information on environmental matters, see Note 5B to condensed consolidated
financial statements.





**OTHER
MATTERS**





Synthetic
Fuel





SCE&G
holds equity-method investments in two partnerships involved in converting coal
to synthetic fuel, the use of which fuel qualifies for federal income tax
credits. These
synthetic fuel production facilities were placed in operation in 2000 and 2001.
Under an accounting plan approved by the SCPSC in June 2000, the synthetic fuel
tax credits generated by the partnerships and passed through to SCE&G, net
of partnership losses and other expenses, were to be deferred until the SCPSC
approved their application to offset capital costs of projects required to
comply with legislative or regulatory actions.





The
aggregate investment in these partnerships as of June 30, 2005 is approximately
$2.8 million, and through June 30, 2005, they have generated and passed through
to SCE&G approximately $155.2 million in such tax credits. As previously
described at Net Income, in a January 2005 order, the SCPSC approved SCE&G’s
request to apply these synthetic fuel tax credits to offset the construction
costs of the Lake Murray Dam project. Under the accounting methodology approved
by the SCPSC, construction costs related to the project are recorded in utility
plant in service in a special dam remediation account outside of rate base, and
depreciation is recognized against the balance in this account on an accelerated
basis, subject to the availability of the synthetic fuel tax credits.





The level
of depreciation expense and related income tax benefit recognized in the income
statement is equal to the available synthetic fuel tax credits, less partnership
losses and other expenses, net of taxes. As a result, the balance of unrecovered
costs in the dam remediation account is declining as accelerated depreciation is
recorded. Although these entries collectively have no impact on consolidated net
income, they can have a significant impact on individual line items within the
income statement.





Depreciation
on the Lake Murray Dam remediation account will be matched to available
synthetic fuel tax credits on a quarterly basis until the balance in the dam
remediation account is zero or until all of the available synfuel tax credits
have been utilized. The synthetic fuel tax credit program expires at the end of
2007.





The
ability to utilize the synthetic fuel tax credits is dependent on several
factors, one of which is the average annual domestic wellhead price per barrel
of crude oil as published by the U.S. Government. Under a phase-out provision
included in the program, if the domestic wellhead reference price of oil per
barrel for a given year is below an inflation-adjusted benchmark range for the
year, all of the synthetic fuel tax credits that have been generated in that
year are available for use. If that price is above the benchmark range, none of
the tax credits would be available. If that price falls within the benchmark
range, a certain percentage of the credits would be available.





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The lower
end of the inflation-adjusted benchmark range for 2004 was about $51 per barrel
while the upper end of that range was about $64. Since the reference price of
oil for 2004 was less than $37, all of the synthetic fuel tax credits the
Company had recorded and deferred through 2004 were available for use. While the
benchmark price range for 2005 has been estimated at between $52 and $65 per
barrel, the 2005 reference price will not be known until April 2006. During 2005
and subject to continuing review of the estimated benchmark range and reference
price of oil for 2005, the Company intends to continue to record synthetic fuel
tax credits as they are generated and to apply those credits quarterly to allow
the recording of accelerated depreciation related to the balance in the dam
remediation project account. The Company cannot predict what impact, if any, the
price of oil may have on the Company’s ability to earn synthetic fuel tax
credits in the future.





In order
to earn these tax credits, SCANA also must be subject to a regular federal
income tax liability in an amount at least equal to the credits generated in any
tax year. This tax liability could be insufficient if SCANA’s consolidated
taxable income were to be significantly reduced as the result of realizing lower
income or large deductions in any tax year. The availability of these synthetic
fuel tax credits is also subject to coal availability and other operational
risks related to the generating plants.





In March
2004, one of the partnerships, S. C. Coaltech No. 1 L.P. received a “No Change”
letter from the Internal Revenue Service (IRS) related to its synthetic fuel
operations for the tax year 2000. After review of testing procedures and
supporting documentation and conducting an independent investigation, the IRS
found that the partnership produces a qualifying fuel under section 29 of the
Internal Revenue Code (IRC) and found no reason to challenge the first
placed-in-service status of the facility. This letter supports the Company’s
position that the synthetic fuel tax credits have been properly
claimed.








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SIGNATURE





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this amendment to be signed on its behalf by the undersigned
hereunto duly authorized.








**SOUTH
      CAROLINA ELECTRIC & GAS COMPANY**(Registrant)

















By:
    /s/James
      E. Swan, IVSeptember
      19, 2005
    James
      E. Swan, IVController(Principal
      accounting officer)






































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EXHIBIT
INDEX














ExhibitNo.
    Description





3.11
    Articles
      of Amendment dated March 9, 2005amending
      the Restated Articles of Incorporation of South Carolina Electric &
      Gas Company(Filed as Exhibit 3.11 to Form 10-Q for the quarter ended March 31,
      2005)3.12
    Articles
      of Amendment dated May 16, 2005amending
      the Restated Articles of Incorporation of South Carolina Electric &
      Gas Company(Previously filed)3.13
    Articles
      of Amendment dated June 15, 2005amending
      the Restated Articles of Incorporation of South Carolina Electric &
      Gas Company(Previously filed)31.03
    Certification
      of Principal Executive Officer Required by Rule 13a-14 (Previously
      filed)31.04
    Certification
      of Principal Financial Officer Required by Rule 13a-14 (Previously
      filed)31.07
    Certification
      of Principal Executive Officer Required by Rule 13a-14 (Filed
      herewith)31.08
    Certification
      of Principal Financial Officer Required by Rule 13a-14 (Filed
      herewith)32.03
    Certification
      of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
      (Previously furnished)32.04
    Certification
      of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
      (Previously furnished)32.07
    Certification
      of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
      (Furnished herewith)32.08
    Certification
      of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
      (Furnished herewith)








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