**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

 

**FORM 10-Q**

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

 

**For the quarterly period ended March 31, 2010**

 

OR

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

 

For the TransitionPeriod from            to           

 

 
| Commission  |       | Registrant, State of Incorporation,                 |   | I.R.S. Employer    |
|-------------|------------|-----------------------------------------------------|--------|--------------------|
| File Number |       | Address and Telephone Number                        |   | Identification No. |
| 1-8809      | ** ** | **SCANA Corporation**                               |   | 57-0784499         |
|        |       | (a South Carolina corporation)                      |   |               |
|        |       | 100 SCANA Parkway, Cayce, South Carolina 29033 |   |               |
|        |       | (803) 217-9000                                      |   |               |
|        |       |                                                |   |               |
| 1-3375      | ** ** | **South Carolina Electric &  Gas Company** |   | 57-0248695         |
|        |       | (a South Carolina corporation)                      |   |               |
|        |       | 100 SCANA Parkway, Cayce, South Carolina 29033 |   |               |
|        |       | (803) 217-9000                                      |   |               |

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days.

SCANA Corporation Yes x No****o  South Carolina Electric &Gas Company Yes x No****o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T during the preceding 12 months (or for such shorter periodthat the registrant was required to submit and post such files).

SCANA Corporation Yes o No****o  South Carolina Electric & Gas Company Yes o No****o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company.  Seedefinitions of “large accelerated filer,” “accelerated filer” and “smallerreporting company” in Rule 12b-2 of the Exchange Act.
| SCANA Corporation                              |   | Large accelerated filer  x |   | Accelerated filer o |   | Non-accelerated filer o       |
|------------------------------------------------|--------|---------------------------------|--------|---------------------|--------|-------------------------------|
|                                           |   | Smaller reporting company o     |   |                |   |                          |
| South Carolina Electric & Gas Company |   | Large accelerated filer o       |   | Accelerated filer o |   | Non-accelerated filer  x |
|                                           |   | Smaller reporting company o     |   |                |   |                          |

 

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act).

SCANA Corporation Yes o No x  South Carolina Electric &Gas Company Yes** **o No x

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.

 
|                                           |   | Description of    |   | Shares  Outstanding     |
|------------------------------------------------|--------|-------------------|--------|-------------------------|
| Registrant                                     |   | Common Stock      |   | At April 30,  2010 |
| SCANA Corporation                              |   | Without Par Value |   | 124,404,959             |   |
| South Carolina Electric & Gas Company |   | Without Par Value |   | 40,296,147              |  (a) |

(a) Held beneficially and of record bySCANA Corporation.

 

This combined Form 10-Q is separately filed bySCANA Corporation and South Carolina Electric & Gas Company.  Information contained herein relating toany individual company is filed by such company on its own behalf.  Each company makes no representation as toinformation relating to the other company.

 

**South Carolina Electric & Gas Companymeets the conditions set forth in General Instruction H(1)(a) and (b) ofForm 10-Q and therefore is filing this Form with the reduceddisclosure format allowed under General Instruction H(2).**

 

 

 

----

 

**TABLEOF CONTENTS**

 

**MARCH 31,2010**

 
|                                                                  |     |                                                                                        | Page   |
|-----------------------------------------------------------------------|----------|---------------------------------------------------------------------------------------------|--------|
|                                                                  |     |                                                                                        |   |
| **Cautionary Statement  Regarding Forward-Looking Information**       | 3        |
|                                                                  |     |
| Definitions                                                           | 4        |
|                                                                  |     |
| **PART I. FINANCIAL  INFORMATION**                               |     |
|                                                                  |     |
| **SCANA Corporation  Financial Section**                              | 5        |
|                                                                  | Item 1.  | Financial Statements                                                                        | 6      |
|                                                                  |     | Condensed Consolidated Balance Sheets                                                       | 6      |
|                                                                  |     | Condensed Consolidated Statements of Income                                                 | 8      |
|                                                                  |     | Condensed Consolidated Statements of Cash Flows                                             | 9      |
|                                                                  |     | Condensed Consolidated Statements of Comprehensive  Income                                  | 10     |
|                                                                  |     | Notes to Condensed Consolidated Financial Statements                                        | 11     |
|                                                                  | Item 2.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 23     |
|                                                                  | Item 3.  | Quantitative  and Qualitative Disclosures About Market Risk                                 | 27     |
|                                                                  | Item 4.  | Controls and Procedures                                                                     | 28     |
|                                                                  |     |                                                                                        |   |
| **South Carolina Electric & Gas Company  Financial Section** | 29       |
|                                                                  | Item 1.  | Financial Statements                                                                        | 30     |
|                                                                  |     | Condensed Consolidated Balance Sheets                                                       | 30     |
|                                                                  |     | Condensed Consolidated Statements of Income                                                 | 32     |
|                                                                  |     | Condensed Consolidated Statements of Cash Flows                                             | 33     |
|                                                                  |     | Condensed Consolidated Statements of Comprehensive  Income                                  | 34     |
|                                                                  |     | Notes to  Condensed Consolidated Financial Statements                                       | 35     |
|                                                                  | Item 2.  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 45     |
|                                                                  | Item 3.  | Quantitative  and Qualitative Disclosures About Market Risk                                 | 49     |
|                                                                  | Item 4.  | Controls and Procedures                                                                     | 50     |
|                                                                  |     |                                                                                        |   |
| **PART II. OTHER INFORMATION**                                   | 51       |
|                                                                  |     |                                                                                        |   |
|                                                                  | Item  6. | Exhibits                                                                                    | 51     |
|                                                                  |     |                                                                                        |   |
| Signatures                                                            | 52       |
|                                                                  |     |
| Exhibit Index                                                    | 53       |

 

 

2

----

 

**CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION**

 

Statements included inthis Quarterly Report on Form 10-Q which are not statements of historicalfact are intended to be, and are hereby identified as, “forward-lookingstatements” for purposes of Section 27A of the Securities Act of 1933, asamended, and Section 21E of the Securities Exchange Act of 1934, asamended.  Forward-looking statements include, but are not limited to,statements concerning key earnings drivers, customer growth, environmentalregulations and expenditures, leverage ratio, projections for pension fundcontributions, financing activities, access to sources of capital, impacts ofthe adoption of new accounting rules and estimated construction andother expenditures.  In some cases, forward-looking statements can beidentified by terminology such as “may,” “will,” “could,” “should,” “expects,” “plans,”“anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” or “continue”or the negative of these terms or other similar terminology.  Readersare cautioned that any such forward-looking statements are not guarantees offuture performance and involve a number of risks and uncertainties, and thatactual results could differ materially from those indicated by suchforward-looking statements.  Important factors that could causeactual results to differ materially from those indicated by suchforward-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, and  environmental regulations;                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (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  interruptible markets;                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (6)    |   | growth opportunities for SCANA’s regulated and  diversified subsidiaries;                                                                                                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (7)    |   | the results of short- and long-term financing  efforts, including future prospects for obtaining access to capital markets  and other sources of liquidity;                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (8)    |   | changes in SCANA’s or its subsidiaries’ accounting  rules and accounting policies;                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (9)    |   | the effects of weather, including drought, especially  in areas where the generation and transmission facilities of SCANA and  its subsidiaries (the Company) are located and in areas served by SCANA’s  subsidiaries;                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (10)   |   | payment by counterparties as and when due;                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (11)   |   | the results of efforts to license, site, construct  and finance facilities for baseload electric generation;                                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (12)   |   | the availability of fuels such as coal, natural gas  and enriched uranium used to produce electricity; the availability of  purchased power and natural gas for distribution; the level and volatility of  future market prices for such fuels and purchased power; and the  ability to recover the costs for such fuels and purchased power; |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (13)   |   | the availability of skilled and experienced human  resources to properly manage, operate, and grow the Company’s businesses;                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (14)   |   | labor disputes;                                                                                                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (15)   |   | performance of SCANA’s pension plan assets;                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (16)   |   | higher taxes;                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (17)   |   | inflation;                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (18)   |   | compliance with regulations; and                                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                         |
| (19)   |   | the other risks and uncertainties described from time  to time in the periodic reports filed by SCANA or SCE&G with  the SEC.                                                                                                                                                                                                                       |

 

**SCANAand SCE&G disclaim any obligation to update any forward-looking statements.**

 

 

3

----

 

**DEFINITIONS**

 

The following abbreviations used in the text have themeanings set forth below unless the context requires otherwise:

 
| **TERM**               | ** ** | **MEANING**                                                    |
|------------------------|------------|----------------------------------------------------------------|
| AER                    |       | Alternate Energy Resources, Inc.                          |
| AFC                    |       | Allowance for Funds Used During Construction                   |
| ARO                    |       | Asset Retirement Obligation                                    |
| BLRA                   |       | Base Load Review Act                                           |
| CAA                    |       | Clean Air Act, as amended                                      |
| CAIR                   |       | Clean Air Interstate Rule                                      |
| CAMR                   |       | Clean Air Mercury Rule                                         |
| CCP                    |       | Coal Combustion Products                                       |
| CEO                    |       | Chief Executive Officer                                        |
| CFO                    |       | Chief Financial Officer                                        |
| CGT                    |       | Carolina Gas Transmission Corporation                          |
| Company                |       | SCANA, together with its consolidated subsidiaries             |
| CUT                    |       | Customer Usage Tracker                                         |
| CWA                    |       | Clean Water Act, as amended                                    |
| DHEC                   |       | South Carolina Department of Health and  Environmental Control |
| DT                     |       | Dekatherms                                                     |
| Energy Marketing       |       | The divisions of SEMI, excluding SCANA Energy                  |
| EPA                    |       | United States Environmental Protection Agency                  |
| FERC                   |       | United States Federal Energy Regulatory Commission             |
| Fuel Company           |       | South Carolina Fuel Company, Inc.                         |
| GENCO                  |       | South Carolina Generating Company, Inc.                   |
| GHG                    |       | Greenhouse Gas                                                 |
| kW or kWh              |       | Kilowatt or kilowatt-hour                                      |
| LOC                    |       | Lines of credit                                                |
| MGP                    |       | Manufactured Gas Plant                                         |
| NCUC                   |       | North Carolina Utilities Commission                            |
| NYMEX                  |       | New York Mercantile Exchange                                   |
| ORS                    |       | South Carolina Office of Regulatory Staff                      |
| PGA                    |       | Purchased Gas Adjustment                                       |
| PRP                    |       | Potentially Responsible Party                                  |
| PSNC Energy            |       | Public Service Company of North Carolina,  Incorporated        |
| RSA                    |       | Natural Gas Rate Stabilization Act                             |
| Santee Cooper          |       | South Carolina Public Service Authority                        |
| SCANA                  |       | SCANA Corporation, the parent company                          |
| SCE&G Consolidated |       | SCE&G and its consolidated affiliates                      |
| SCANA Energy           |       | A division of SEMI which markets natural gas in  Georgia       |
| SCE&G              |       | South Carolina Electric & Gas Company                 |
| SCI                    |       | SCANA Communications, Inc.                                |
| SCPSC                  |       | Public Service Commission of South Carolina                    |
| SCR                    |       | Selective Catalytic Reactor                                    |
| SEC                    |       | United States Securities  and Exchange Commission              |
| SEMI                   |       | SCANA Energy Marketing, Inc.                              |
| Summer Station         |       | V. C. Summer Nuclear Station                                   |

 

 

4

----

 

**SCANA CORPORATION**

**FINANCIALSECTION**

 

 

5

----

 

**PART I.  FINANCIALINFORMATION**

 

**ITEM1.  FINANCIAL STATEMENTS**

 

SCANA CORPORATION

CONDENSEDCONSOLIDATED BALANCE SHEETS

(Unaudited)

 
|                                                                    |   |   | March 31, |   |   |   | December 31, |   |
|-------------------------------------------------------------------------|--------|--------|----------------|--------|--------|--------|-------------------|--------|
| Millions of dollars                                                     |   |   | 2010           |   |   |   | 2009              |   |
| Assets                                                                  |   |   |           |   |   |   |              |   |
|                                                                    |   |   |           |   |   |   |              |   |
| Utility Plant In Service                                                |   | $      | 11,129         |   |   | $      | 10,835            |   |
| Accumulated  Depreciation and Amortization                              |   |   | (3,351         | )      |   |   | (3,302            | )      |
| Construction Work in  Progress                                          |   |   | 1,022          |   |   |   | 1,149             |   |
| Nuclear Fuel, Net of  Accumulated Amortization                          |   |   | 88             |   |   |   | 97                |   |
| Goodwill, net of  accumulated amortization and writedown of $276        |   |   | 230            |   |   |   | 230               |   |
| Utility Plant, Net                                                      |   |   | 9,118          |   |   |   | 9,009             |   |
|                                                                    |   |   |           |   |   |   |              |   |
| Nonutility Property and  Investments:                                   |   |   |           |   |   |   |              |   |
| Nonutility property, net of accumulated depreciation  of $112 and $107  |   |   | 293            |   |   |   | 291               |   |
| Assets held in trust, net-nuclear decommissioning                       |   |   | 70             |   |   |   | 67                |   |
| Other investments                                                       |   |   | 76             |   |   |   | 73                |   |
| Nonutility Property and Investments, Net                                |   |   | 439            |   |   |   | 431               |   |
|                                                                    |   |   |           |   |   |   |              |   |
| Current Assets:                                                         |   |   |           |   |   |   |              |   |
| Cash and cash equivalents                                               |   |   | 157            |   |   |   | 162               |   |
| Receivables, net of allowance for uncollectible  accounts of $15 and $9 |   |   | 697            |   |   |   | 694               |   |
| Inventories (at average cost):                                          |   |   |           |   |   |   |              |   |
| Fuel and gas supply                                                     |   |   | 307            |   |   |   | 376               |   |
| Materials and supplies                                                  |   |   | 118            |   |   |   | 115               |   |
| Emission allowances                                                     |   |   | 9              |   |   |   | 10                |   |
| Prepayments and other                                                   |   |   | 129            |   |   |   | 164               |   |
| Deferred income taxes                                                   |   |   | 4              |   |   |   | -                 |   |
| Total Current Assets                                                    |   |   | 1,421          |   |   |   | 1,521             |   |
|                                                                    |   |   |           |   |   |   |              |   |
| Deferred Debits and  Other Assets:                                      |   |   |           |   |   |   |              |   |
| Regulatory assets                                                       |   |   | 1,015          |   |   |   | 985               |   |
| Other                                                                   |   |   | 149            |   |   |   | 148               |   |
| Total Deferred Debits and Other Assets                                  |   |   | 1,164          |   |   |   | 1,133             |   |
| Total                                                                   |   | $      | 12,142         |   |   | $      | 12,094            |   |

 

 

6

----

 
|                                         |   |   | March 31, |   |   |   | December 31, |   |
|----------------------------------------------|--------|--------|----------------|--------|--------|--------|-------------------|--------|
| Millions of dollars                          |   |   | 2010           |   |   |   | 2009              |   |
| Capitalization and Liabilities               |   |   |           |   |   |   |              |   |
|                                         |   |   |           |   |   |   |              |   |
| Common Equity                                |   | $      | 3,494          |   |   | $      | 3,408             |   |
| Long-Term Debt, net                          |   |   | 4,375          |   |   |   | 4,483             |   |
| Total Capitalization                         |   |   | 7,869          |   |   |   | 7,891             |   |
|                                         |   |   |           |   |   |   |              |   |
| Current Liabilities:                         |   |   |           |   |   |   |              |   |
| Short-term borrowings                        |   |   | 220            |   |   |   | 335               |   |
| Current portion of long-term debt            |   |   | 328            |   |   |   | 28                |   |
| Accounts payable                             |   |   | 337            |   |   |   | 428               |   |
| Customer deposits and customer prepayments   |   |   | 109            |   |   |   | 103               |   |
| Taxes accrued                                |   |   | 61             |   |   |   | 134               |   |
| Interest accrued                             |   |   | 72             |   |   |   | 71                |   |
| Dividends declared                           |   |   | 60             |   |   |   | 59                |   |
| Other                                        |   |   | 126            |   |   |   | 98                |   |
| Total Current Liabilities                    |   |   | 1,313          |   |   |   | 1,256             |   |
|                                         |   |   |           |   |   |   |              |   |
| Deferred Credits and  Other Liabilities:     |   |   |           |   |   |   |              |   |
| Deferred income taxes, net                   |   |   | 1,133          |   |   |   | 1,122             |   |
| Deferred investment tax credits              |   |   | 94             |   |   |   | 111               |   |
| Asset retirement obligations                 |   |   | 483            |   |   |   | 477               |   |
| Pension and other postretirement benefits    |   |   | 231            |   |   |   | 229               |   |
| Regulatory liabilities                       |   |   | 892            |   |   |   | 879               |   |
| Other                                        |   |   | 127            |   |   |   | 129               |   |
| Total Deferred Credits and Other Liabilities |   |   | 2,960          |   |   |   | 2,947             |   |
|                                         |   |   |           |   |   |   |              |   |
| Commitments and  Contingencies (Note 7)      |   |   | -              |   |   |   | -                 |   |
| Total                                        |   | $      | 12,142         |   |   | $      | 12,094            |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

 

7

----

 

SCANA CORPORATION

CONDENSEDCONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
|                                                                                              |   | Three Months  Ended |   |
|---------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                              |   | March 31,      |   |
| Millions of  dollars, except per share amounts                                                    |   | 2010                |   | 2009 |   |
| Operating Revenues:                                                                               |   |                |   |   |   |   |   |
| Electric                                                                                          |   | $                   | 540    |   | $ | 497 |   |
| Gas - regulated                                                                                   |   |                | 430    |   |   | 422 |   |
| Gas - nonregulated                                                                                |   |                | 458    |   |   | 424 |   |
| Total Operating Revenues                                                                          |   |                | 1,428  |   |   | 1,343 |   |
|                                                                                              |   |                |   |   |   |   |   |
| Operating Expenses:                                                                               |   |                |   |   |   |   |   |
| Fuel used in electric generation                                                                  |   |                | 235    |   |   | 185 |   |
| Purchased power                                                                                   |   |                | 2      |   |   | 5 |   |
| Gas purchased for resale                                                                          |   |                | 658    |   |   | 644 |   |
| Other operation and maintenance                                                                   |   |                | 172    |   |   | 158 |   |
| Depreciation and amortization                                                                     |   |                | 83     |   |   | 83 |   |
| Other taxes                                                                                       |   |                | 48     |   |   | 45 |   |
| Total Operating Expenses                                                                          |   |                | 1,198  |   |   | 1,120 |   |
|                                                                                              |   |                |   |   |   |   |   |
| Operating Income                                                                                  |   |                | 230    |   |   | 223 |   |
|                                                                                              |   |                |   |   |   |   |   |
| Other Income (Expense):                                                                           |   |                |   |   |   |   |   |
| Other income                                                                                      |   |                | 13     |   |   | 12 |   |
| Other expenses                                                                                    |   |                | (10    | ) |   | (8 | ) |
| Interest charges, net of allowance for borrowed  funds used during construction of $2 and $6 |   |                | (65    | ) |   | (58 | ) |
| Allowance for equity funds used during construction                                               |   |                | 3      |   |   | 7 |   |
| Total Other Expense                                                                               |   |                | (59    | ) |   | (47 | ) |
|                                                                                              |   |                |   |   |   |   |   |
| Income Before Income Tax Expense and Earnings from  Equity Method Investments                     |   |                | 171    |   |   | 176 |   |
| Income Tax Expense                                                                                |   |                | 45     |   |   | 61 |   |
|                                                                                              |   |                |   |   |   |   |   |
| Income Before Earnings from Equity  Method Investments                                       |   |                | 126    |   |   | 115 |   |
| Earnings from Equity Method Investments                                                           |   |                | 1      |   |   | 1 |   |
|                                                                                              |   |                |   |   |   |   |   |
| Net Income                                                                                        |   |                | 127    |   |   | 116 |   |
| Less Preferred Stock Dividends of Subsidiary                                                      |   |                | -      |   |   | (2 | ) |
| Income Available to Common Shareholders of SCANA                                                  |   | $                   | 127    |   | $ | 114 |   |
|                                                                                              |   |                |   |   |   |   |   |
| Basic and Diluted Earnings Per Share of Common Stock                                              |   | $                   | 1.02   |   | $ | .94 |   |
| Weighted Average Common Shares Outstanding  (millions)                                            |   |                | 123.8  |   |   | 120.9 |   |
| Dividends Declared Per Share of Common Stock                                                      |   | $                   | .475   |   | $ | .47 |   |

 
| See Notes to Condensed Consolidated Financial  Statements. |   |   |   |   |   |   |   |
|------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|

 

 

8

----

 

SCANA CORPORATION

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
|                                                                                 |                                                   | Three Months  Ended |   |
|--------------------------------------------------------------------------------------|--------------------------------------------------------|---------------------|--------|
|                                                                                 |                                                   | March 31,      |   |
| Millions of dollars                                                                  |                                                   | 2010                |   | 2009 |   |
| Cash Flows From Operating Activities:                                                |                                                   |                |   |   |   |   |   |
| Net income                                                                           |                                                   | $                   | 127    |   | $ | 116 |   |
| Adjustments to reconcile net income to net cash  provided from operating activities: |                                                   |                |   |   |   |   |   |
| Earnings from equity method investments, net of  distributions                       |                                                   |                | -      |   |   | (1 | ) |
| Deferred income taxes, net                                                           |                                                   |                | 8      |   |   | 23 |   |
| Depreciation and amortization                                                        |                                                   |                | 88     |   |   | 86 |   |
| Amortization of nuclear fuel                                                         |                                                   |                | 9      |   |   | 5 |   |
| Allowance for equity funds used during construction                                  |                                                   |                | (3     | ) |   | (7 | ) |
| Carrying cost recovery                                                               |                                                   |                | (1     | ) |   | (1 | ) |
| Cash provided (used) by changes in certain assets  and liabilities:                  |                                                   |                |   |   |   |   |   |
| Receivables                                                                          |                                                   |                | (3     | ) |   | 225 |   |
| Inventories                                                                          |                                                   |                | 56     |   |   | 68 |   |
| Prepayments and other                                                                |                                                   |                | 26     |   |   | 61 |   |
| Regulatory liabilities                                                               |                                                   |                | 1      |   |   | 44 |   |
| Accounts payable                                                                     |                                                   |                | (33    | ) |   | (68 | ) |
| Taxes accrued                                                                        |                                                   |                | (73    | ) |   | (73 | ) |
| Interest accrued                                                                     |                                                   |                | 1      |   |   | 2 |   |
| Regulatory assets                                                                    |                                                   |                | (31    | ) |   | (173 | ) |
| Changes in other assets                                                              |                                                   |                | (15    | ) |   | (4 | ) |
| Changes in other liabilities                                                         |                                                   |                | 16     |   |   | (55 | ) |
| Net Cash Provided From  Operating Activities                                         |                                                   |                | 173    |   |   | 248 |   |
| Cash Flows From  Investing Activities:                                               |                                                   |                |   |   |   |   |   |
| Utility property additions and construction  expenditures                            |                                                   |                | (223   | ) |   | (214 | ) |
| Proceeds from investments and sale of assets                                         |                                                   |                | 8      |   |   | - |   |
| Nonutility property additions                                                        |                                                   |                | (7     | ) |   | (26 | ) |
| Investments                                                                          |                                                   |                | (2     | ) |   | - |   |
| Net Cash Used For  Investing Activities                                              |                                                   |                | (224   | ) |   | (240 | ) |
| Cash Flows From  Financing Activities:                                               |                                                   |                |   |   |   |   |   |
| Proceeds from issuance of common stock                                               |                                                   |                | 26     |   |   | 126 |   |
| Proceeds from issuance of long-term debt                                             |                                                   |                | 202    |   |   | 176 |   |
| Repayment of long-term debt                                                          |                                                   |                | (9     | ) |   | (104 | ) |
| Dividends                                                                            |                                                   |                | (58    | ) |   | (56 | ) |
| Short-term borrowings, net                                                           |                                                   |                | (115   | ) |   | 26 |   |
| Net Cash Provided From  Financing Activities                                         |                                                   |                | 46     |   |   | 168 |   |
| Net Increase (Decrease)  In Cash and Cash Equivalents                                |                                                   |                | (5     | ) |   | 176 |   |
| Cash and Cash  Equivalents, January 1                                           |                                                   |                | 162    |   |   | 272 |   |
| Cash and Cash  Equivalents, March 31                                            |                                                   | $                   | 157    |   | $ | 448 |   |
|  

Supplemental Cash Flow  Information:                                         |                                                   |                |   |   |   |   |   |
| Cash paid for                                                                        | - Interest (net of  capitalized interest of $2 and $6) |                | $      | 63 |   | $ | 53 |   |
|                                                                                 | - Income taxes                                         |                |   | - |   |   | - |   |
|                                                                                 |                                                   |                |   |   |   |   |   |
| Noncash Investing and  Financing Activities:                                         |                                                   |                |   |   |   |   |   |
| Accrued construction expenditures                                                    |                                                   |                | 101    |   |   | 77 |   |

 
| See Notes to Condensed Consolidated Financial  Statements. |
|------------------------------------------------------------|

 

 

9

----

 

SCANACORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVEINCOME

(Unaudited)

 
|                                                                | Three Months  Ended |   |
|---------------------------------------------------------------------|---------------------|--------|
|                                                                | March 31,      |   |
| Millions of  dollars                                                |                | 2010   |   | 2009 |   |   |
| Net Income                                                          |                | $      | 127 |   | $ | 116 |   |   |
| Other Comprehensive Loss, net of tax:                               |                |   |   |   |   |   |   |   |
| Unrealized holding losses arising during period, net                |                |   | (11 | ) |   | (26 | ) |   |
| Reclassified to net income:                                         |                |   |   |   |   |   |   |   |
| Losses on cash flow hedging activities                              |                |   | 5 |   |   | 30 |   |   |
| Amortization of deferred employee benefit plan  costs, net of taxes |                |   | 1 |   |   | 1 |   |   |
| Total Comprehensive  Income                                         |                |   | 122 |   |   | 121 |   |   |
| Less Comprehensive  income attributable to noncontrolling interest  |                |   | - |   |   | (2 | ) |   |
| Comprehensive income  attributable to SCANA Corporation (1)         |                | $      | 122 |   | $ | 119 |   |   |

 

(1)  Accumulated other comprehensive loss totaled $60.2 millionas of March 31, 2010 and $54.9 million as of December 31,2009.

 

See Notes to Condensed Consolidated FinancialStatements.

 

 

10

----

 

 

 

SCANA CORPORATION

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31,2010

(Unaudited)

 

The followingnotes should be read in conjunction with the Notes to Consolidated FinancialStatements appearing in SCANA’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2009. These are interim financialstatements, and due to the seasonality of the Company’s business and mattersthat may occur during the rest of the year, the amounts reported in theCondensed Consolidated Statements of Income are not necessarily indicative ofamounts expected for the full year.  In the opinion of management,the information furnished herein reflects all adjustments, all of a normalrecurring nature, which are necessary for a fair statement of the results forthe interim periods reported.

 

1.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A.          Basis of Accounting

 

The Company’scost-based, rate-regulated utilities recognize in their financial statementscertain revenues and expenses in different time periods than do enterprisesthat are not rate-regulated.  As aresult, the Company has recorded regulatory assets and liabilities which aresummarized in the following tables. Substantially all of our regulatory assets are either explicitlyexcluded from rate base or are effectively excluded from rate base due to theirbeing offset by related liabilities.

 
|                                                 |   | March 31, |   | December 31, |   |
|------------------------------------------------------|--------|----------------|--------|-------------------|--------|
| Millions of dollars                                  |   | 2010           |   | 2009              |   |
| Regulatory Assets:                                   |   |           |   |              |   |
| Accumulated deferred  income taxes                   |   | $              | 173    |              | $      | 173 |   |
| Under-collections -  electric fuel adjustment clause |   |           | 79     |              |   | 55 |   |
| Environmental  remediation costs                     |   |           | 27     |              |   | 26 |   |
| Asset retirement  obligations and related funding    |   |           | 283    |              |   | 279 |   |
| Franchise agreements                                 |   |           | 49     |              |   | 50 |   |
| Deferred employee  benefit plan costs                |   |           | 325    |              |   | 325 |   |
| Planned major  maintenance                           |   |           | 4      |              |   | 5 |   |
| Other                                                |   |           | 75     |              |   | 72 |   |
| Total Regulatory Assets                              |   | $              | 1,015  |              | $      | 985 |   |

 
|                               |   |   |   |   |   |
|------------------------------------|--------|--------|--------|--------|--------|
| Regulatory Liabilities:            |   |   |   |   |   |
| Accumulated deferred  income taxes |   | $      | 30     |   | $      | 30 |   |
| Other asset removal  costs         |   |   | 745    |   |   | 733 |   |
| Storm damage reserve               |   |   | 45     |   |   | 44 |   |
| Monetization of  bankruptcy claim  |   |   | 40     |   |   | 40 |   |
| Other                              |   |   | 32     |   |   | 32 |   |
| Total Regulatory  Liabilities      |   | $      | 892    |   | $      | 879 |   |

 

Accumulated deferredincome tax liabilities arising from utility operations that have not beenincluded in customer rates are recorded as a regulatory asset.  Substantially all of these regulatory assetsare expected to be recovered over the remaining lives of the related propertywhich may range up to approximately 70 years. Similarly, accumulated deferred income tax assets arising from deferredinvestment tax credits are recorded as a regulatory liability.

 

Under-collections - electricfuel adjustment clause represent amounts due from customers pursuant tothe fuel adjustment clause as approved by the SCPSC during annual hearingswhich are expected to be recovered in retail electric rates in futureperiods.  These amounts are expected to be recovered in retailelectric rates during the period May 2011 through April 2012.  SCE&G is allowed to collect interest onthe deferred balance through the recovery period.

 

Environmental remediationcosts represent costs associated with the assessment and clean-up of MGP sitescurrently or formerly owned by the Company.  These regulatory assetsare expected to be recovered over periods of up to approximately 14 years.

 

ARO and related fundingrepresents the regulatory asset associated with the legal obligation todecommission and dismantle Summer Station and conditional AROs.  These regulatory assets are expected to berecovered over the related property lives and periods of decommissioning whichmay range up to approximately 95 years.

 

 

11

----

 

Franchise agreementsrepresent costs associated with electric and gas franchise agreements with thecities of Charleston and Columbia, South Carolina.  Based onan SCPSC order, SCE&G began amortizing these amounts through cost ofservice rates in February 2003 over approximately 20 years.

 

Employee benefit plancosts of the regulated utilities have historically been recovered as they havebeen recorded under generally accepted accounting principles. Deferred employeebenefit plan costs represent amounts** **ofpension and other postretirement benefit costs which were accrued asliabilities and treated as regulatory assets pursuant to FERC guidance, andcosts deferred pursuant to specific SCPSC regulatory orders.  These deferred costs are expected to berecovered through utility rates over average service periods of participatingemployees, or up to approximately 14 years.

 

Various other regulatoryassets are expected to be recovered in rates over periods of up to 30 years.

 

Other asset removal costsrepresent estimated net collections through depreciation rates of amounts to beincurred for the removal of assets in the future.

 

The storm damage reserverepresents an SCPSC-approved collection through SCE&G electric rates,capped at $100 million, which can be applied to offset incremental stormdamage costs in excess of $2.5 million in a calendar year, certain transmissionand distribution insurance premiums and certain vegetation managementexpenditures in excess of amounts included in base rates.  During eachof the three months ended March 31, 2010 and 2009, SCE&G applied costsof $0.7 million to the reserve.

 

Planned major maintenancerelates to certain fossil hydro turbine/generation equipment and nuclearrefueling outages is accrued in periods other than when incurred, as approvedthrough specific SCPSC orders.  SCE&G is collecting $8.5 millionannually, ending December 2013, through electric rates to offset turbinemaintenance expenditures.  Nuclear refueling charges are accruedduring each 18-month refueling outage cycle as a component of cost of service.

 

The monetization ofbankruptcy claim represents proceeds from the sale of a bankruptcy claim whichwill be amortized into operating revenue through the year 2024.

 

The SCPSC or the NCUC(collectively, state public service commissions) or the FERC have reviewed andapproved through specific orders most of the items shown as regulatoryassets.  Other regulatory assets include certain costs whichhave not been approved for recovery by a state public service commission or bythe FERC.  In recording these costs as regulatory assets, managementbelieves the costs will be allowable under existing rate-making concepts thatare embodied in rate orders received by the Company.  In addition,the Company has* *deferred inutility plant in service approximately $76.9 million of unrecovered costsrelated to the Lake Murray backup dam project and $70.1 million of costsrelated to the installation of SCR technology at its Cope Stationgenerating facility.  See Note 7B.  These costs are notcurrently being recovered, but are expected to be recovered through rates infuture periods.  In the future, as a result of deregulation or otherchanges in the regulatory environment or changes in accounting requirements,the Company could be required to write off its regulatory assets andliabilities.  Such an event could have a material adverse effect onthe Company’s results of operations, liquidity or financial position in theperiod the write-off would be recorded.

 

B.            Earnings Per Share

 

The Company computesbasic earnings per share by dividing income available to common shareholders bythe weighted average number of common shares outstanding for theperiod.  The Company computes diluted earnings per share using thissame formula after giving effect to securities considered to be dilutivepotential common stock.  The Company usesthe treasury stock method in determining total dilutive potential commonstock.  The Company has issued no securities that would have anantidilutive effect on earnings per share.

 

 

12

----

 

C.            Pension and Other Postretirement BenefitPlans

 

Components of netperiodic benefit cost recorded by the Company were as follows:

 
|                                |   | Pension Benefits |   | Other  Postretirement Benefits |   |
|-------------------------------------|--------|------------------|--------|--------------------------------|--------|
| Millions of dollars                 |   | 2010             |   | 2009                           |   | 2010 |   | 2009 |   |
| *Three months ended March 31,* |   |             |   |                           |   |   |   |   |   |
| Service cost                        |   | $                | 4.7    |                           | $      | 3.8 |   | $ | 1.1 |   | $ | 1.1 |   |
| Interest cost                       |   |             | 11.8   |                           |   | 11.3 |   |   | 3.0 |   |   | 3.0 |   |
| Expected return on  assets          |   |             | (16.4  | )                              |   | (12.8 | ) |   | - |   |   | - |   |
| Prior service cost  amortization    |   |             | 1.9    |                           |   | 1.7 |   |   | 0.3 |   |   | 0.3 |   |
| Transition obligation  amortization |   |             | -      |                           |   | - |   |   | 0.2 |   |   | 0.2 |   |
| Amortization of actuarial  loss     |   |             | 4.3    |                           |   | 5.7 |   |   | 0.1 |   |   | - |   |
| Net periodic benefit  cost          |   | $                | 6.3    |                           | $      | 9.7 |   | $ | 4.7 |   | $ | 4.6 |   |

 

The SCPSC allowsSCE&G to mitigate a significant portion of its pension cost by deferring asa regulatory asset the amount of pension expense above that which is includedin current rates for SCE&G’s retail electric and gas distribution regulatedoperations.  Costs totaling $5.3 million and $7.8 million weredeferred for the three months ended March 31, 2010 and 2009, respectively.

 

D.              New Accounting Matters

 

Effective January 1,2010, the Company adopted accounting guidance that requires additionaldisclosures for assets and liabilities recorded at fair value.  This guidance requires disclosure of fairvalue for each class of assets and liabilities. In addition, when the basis for measuring the fair value of a previouslyrecorded asset or liability changes, this guidance requires disclosure ofvalues transferred between Levels 1 and 2 of the fair value hierarchy, ifsignificant.  The initial adoption ofthis guidance did not impact the Company’s results of operations, cash flows orfinancial position.

 

E.               Income Taxes

 

In the firstquarter of 2010, SCE&G accelerated the recognition of previously deferredstate income tax credits.  (See Note2).  No other material changes in thestatus of the Company’s tax positions have occurred through March 31,2010.

 

F.             Asset Management and Supply ServiceAgreements

 

PSNC Energy utilizesasset management and supply service agreements with counterparties for certainnatural gas storage facilities.  At March 31, 2010, suchcounterparties held 40% of PSNC Energy’s natural gas inventory, with acarrying value of $7.8 million, through either capacity release or agencyrelationships.  Under the terms of the asset management agreements,PSNC Energy receives storage asset management fees.  No fees arereceived under supply service agreements.  The agreements expire atvarious times through March 31, 2011.

 

2.             REGULATORY MATTERS

 

*SCE&G*

 

Electric

 

SCE&G’s electricrates are established using a cost of fuel component approved by the SCPSCwhich may be adjusted periodically to reflect changes in the price of fuelpurchased by SCE&G.  In April 2010,the SCPSC approved a settlement agreement between SCE&G, the ORS, and theSouth Carolina Energy Users Committee authorizing SCE&G to decrease thefuel cost portion of its electric rates, effective with the first billing cycleof May 2010.  The settlementagreement included a provision incorporating SCE&G’s proposal to acceleratethe recognition of previously deferred state income tax credits in the amountof $17.4 million, and record an offsetting reduction to the recovery of fuelcosts.  In addition, SCE&G agreed todefer recovery of its actual undercollected base fuel costs as of April 30,2010 for the period of May 1, 2010 through April 30, 2011.  SCE&G is allowed to charge and recovercarrying costs monthly on the actual base fuel costs undercollected balance asof the end of each month during this deferral period.  Beginning with the first billing cycle of May 2011,SCE&G will begin recovering the under-recovered balance of fuel costs plusinterest on the remaining balance over the subsequent 12 months.

 

 

13

----

 

In January 2010,SCE&G filed an application with the SCPSC requesting a 9.52% overallincrease to retail electric base rates.  If the request were to beapproved without modification, the increase in rates would be phased in overthree periods in July 2010, January 2011 and July 2011.  OnMay 2, 2010, SCE&G entered into a stipulation with the ORS related to certainaspects of this application.  Ifapproved, the stipulation lowers SCE&G’s proposed return on common equityfrom 11.6% to 10.7%, supports the implementation of a 12-month pilot weathernormalization mechanism for SCE&G’s electric customers, and provides forthe issuance of a credit of approximately $25 million to SCE&G’s electriccustomers.  The stipulation, withoutconsideration of any other proposed adjustments, effectively reducesSCE&G’s proposed overall increase to 6.55%. As a result of the stipulation, SCE&G has deferred within othercurrent liabilities $25 million of estimated weather-related revenues from thefirst quarter of 2010 for refund to customers.

 

In January 2010,the SCPSC approved SCE&G’s request for an order pursuant to the BLRA toapprove an updated construction and capital cost schedule for the constructionof two new nuclear generating units at Summer Station.  The updatedschedule provides details of the construction and capital cost schedule beyondwhat was proposed and included in the original BLRA filing describedbelow.  The revised schedule does not change the previously announcedcompletion date for the new units or the originally announced cost.

 

In December 2009, SCE&Gsubmitted to the FERC for filing revised tariff sheets to change the networkand point to point transmission rates under SCE&G’s Open AccessTransmission Tariff.  The request, if approved, would result in an annualrevenue increase of $5.6 million.  The requested rates utilize a cost ofservice formula, which departs from the traditional rate structure currently ineffect.  On March 1, 2010 pursuantto an order issued by the FERC, SCE&G implemented, subject to refund,proposed tariff sheets.

 

In June 2009,SCE&G filed a request with the SCPSC for approval of the implementation ofcertain demand reduction and energy efficiency programs (DSMprograms).  SCE&G has requested the establishment of an annualrider to allow recovery of the costs and lost net margin revenue associatedwith DSM programs, along with an incentive for investing in suchprograms.  On March 31, 2010, SCE&G along with ORS andcertain other parties filed settlement agreements resolving all issues on thismatter.  The SCPSC held a hearing onSCE&G’s request and the settlement agreements on April 1, 2010.  SCE&G cannot determine when the SCPSCwill issue an order on this matter.

 

In February 2009,the SCPSC approved SCE&G’s combined application pursuant to the BLRAseeking a certificate of environmental compatibility and public convenience andnecessity and for a base load review order relating to the proposedconstruction and operation by SCE&G and Santee Cooper of two new nucleargenerating units at Summer Station. Under the BLRA, the SCPSC conducted a full pre-construction prudencyreview of the proposed units and the engineering, procurement, and constructioncontract under which they are being built. The SCPSC prudency finding is binding on all future related rateproceedings so long as the construction proceeds in accordance with schedules,estimates and projections, including contingencies, as approved by theSCPSC.  As part of its order, the SCPSCapproved the initial rate increase of $7.8 million, or 0.4%, related torecovery of the cost of capital on project expenditures through June 30,2008, and the revised rates became effective for bills rendered on and after March 29,2009.  In May 2009, two intervenorsfiled separate appeals of the order (one of which challenged the SCPSC’s prudencyfinding) with the South Carolina Supreme Court. With regard to the first appeal, which challenged the SCPSC’s prudencyfinding, the South Carolina Supreme Court issued an opinion on April 26,2010, affirming the decision of the SCPSC. As for the second appeal, the South Carolina Supreme Court heard oralarguments on April 6, 2010. SCE&G cannot predict how the Court will rule or when the Courtwill issue its ruling.

 

Under the BLRA, SCE&Gis allowed to file revised rates with the SCPSC each year to incorporate thefinancing cost of any incremental construction work in progress incurred fornew nuclear generation.  Requested rateadjustments are based on SCE&G’s updated cost of debt and capital structureand on an allowed return on common equity of 11%.  In September 2009, the SCPSC approvedSCE&G’s first annual revised rate request under the BLRA which constituteda $22.5 million or 1.1% increase to retail electric rates.

 

Gas

 

*SCE&G*

 

The RSA is designed toreduce the volatility of costs charged to customers by allowing for more timelyrecovery of the costs that regulated utilities incur related to natural gasinfrastructure.  In October 2009, the SCPSC approved an increasein SCE&G’s retail natural gas base rates of $13.0 million under the termsof the RSA.  The rate adjustment was effective with the first billingcycle of November 2009.

 

SCE&G’s tariffsinclude a PGA clause that provides for the recovery of actual gas costsincurred including costs related to hedging natural gas purchasing activities.  SCE&G’srates are calculated using a methodology which adjusts the cost of gas monthlybased on a 12-month rolling average.  In December 2009, inconnection with the annual review of the PGA and the gas purchasing policies ofSCE&G, the SCPSC determined that SCE&G’s gas costs, including allhedging transactions, were reasonable and prudently incurred during the 17months ended July 31, 2009.

 

 

14

----

 

*PSNCEnergy*

 

PSNC Energy’s rates areestablished using a benchmark cost of gas approved by the NCUC, which may bemodified periodically to reflect changes in the market price of naturalgas.  PSNC Energy revises its tariffs with the NCUC as necessary totrack these changes and defers any over- or under-collections of the deliveredcost of gas for subsequent rate consideration.  The NCUC reviews PSNCEnergy’s gas purchasing practices annually. In addition, PSNC Energy utilizes a CUT which allows it to adjust itsbase rates for residential and commercial customers based on average percustomer consumption.

 

In February 2010,the NCUC approved a 10 cent increase in the cost of gas component of PSNCEnergy’s rates.  The rate adjustment waseffective with the first billing cycle in March 2010.

 

3.             LONG-TERM DEBT AND LIQUIDITY

 

Long-term Debt

 

In March 2010, PSNCEnergy issued $100 million of 6.54% unsecured notes due March 30,2020.   Proceeds from these notes were used to pay down short-termdebt and for general corporate purposes.

 

Substantially all ofSCE&G’s and GENCO’s electric utility plant is pledged as collateral inconnection with long-term debt. The Company is in compliance with all debtcovenants.

 

Liquidity

 

SCANA, SCE&G(including Fuel Company) and PSNC Energy had available the following committedLOC, and had outstanding the following LOC advances, commercial paper, andLOC-supported letter of credit obligations:

 
|                                                      |   | SCANA          | SCE&G (b) |              | PSNC Energy (b) |   |
|-----------------------------------------------------------|--------|----------------|--------------------|-------------------|---------------------------|--------|
|                                                      |   | March 31, |               | December 31, |                      |   | March 31, |   |   | December 31, |   | March 31, |   | December 31, |   |
| Millions of dollars                                       |   | 2010           |               | 2009              |                      |   | 2010 |   |   | 2009 |   | 2010 |   | 2009 |   |
| Lines of credit:                                          |   |           |               |              |                      |   |   |   |   |   |   |   |   |   |
| Committed long-term (expire

December 2011) (a) |   |           |               |              |                      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                     | $      | 200            |               | $                 | 200                       |   | $ | 650 |   | $ | 650 |   | $ | 250 |   | $ | 250 |   |
| LOC advances                                              |   | 49             |               |              | -                         |   |   | 150 |   |   | 100 |   |   | - |   |   | - |   |
| Weighted average  interest rate                           |   | .58            | %                  |              | -                         |   |   | .51 | % |   | .50 | % |   | - |   |   | - |   |
| Outstanding  commercial paper

(270 or fewer  days)       |   | -              |               |              | -                         |   |   | 216 |   |   | 254 |   |   | 4 |   |   | 81 |   |
| Weighted average  interest rate                           |   | -              |               |              | -                         |   |   | .32 | % |   | .33 | % |   | .30 | % |   | .32 | % |
| Letters of credit supported by LOC                        |   | 3              |               |              | 3                         |   |   | .3 |   |   | .3 |   |   | - |   |   | - |   |
| Available                                                 |   | 148            |               |              | 197                       |   |   | 284 |   |   | 296 |   |   | 246 |   |   | 169 |   |
|                                                           |        |                |                    |                   |                           |        |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| (a) | The Company’s committed long-term facilities serve  to back-up the issuance of commercial paper or to provide liquidity support.                                                                                                                                                                                                                  |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (b) | SCE&G, Fuel Company and PSNC Energy may  issue commercial paper in the amounts of up to $350  million, $250 million and $250 million, respectively. Nuclear and  fossil fuel inventories and emission allowances are financed through the  issuance by Fuel Company of short-term commercial paper or LOC  advances. |

 

The committed long-termfacilities are revolving lines of credit under credit agreements with asyndicate of banks.  Wells Fargo Bank, N. A. provides 18.9% of theaggregate $1.1 billion credit facilities, Bank of America, N. A. provides14.3%, Branch Banking and Trust Company, UBS Loan Finance LLC, Morgan StanleyBank, and Credit Suisse, each provide 10.9%, and The Bank of New York andMizuho Corporate Bank, Ltd each provide 9.1%.  Three other banksprovide the remaining 5.0%.  These bank credit facilities support theissuance of commercial paper by SCE&G (including Fuel Company) and PSNCEnergy.  In addition, a portion of the credit facilities supportsSCANA’s borrowing needs.  When thecommercial paper markets are dislocated (due to either price or availabilityconstraints), the credit facilities are available to support the borrowingneeds of SCE&G (including Fuel Company) and PSNC Energy.

 

4.             COMMON EQUITY

 

SCANA issued commonstock valued at $25.9 million (at time of issue) during the three months ended March 31,2010 through various compensation and dividend reinvestment plans, includingthe exercise of 9,091 stock options during the period.

 

 

15

----

 

5.             DERIVATIVE FINANCIAL INSTRUMENTS

 

The Company recognizesall derivative instruments as either assets or liabilities in the statement offinancial position and measures those instruments at fair value.  TheCompany recognizes changes in the fair value of derivative instruments eitherin earnings, as a component of other comprehensive income (loss) or, forregulated subsidiaries, within regulatory assets or regulatory liabilities,depending upon the intended use of the derivative and the resultingdesignation.  The fair value ofderivative instruments is determined by reference to quoted market prices oflisted contracts, published quotations or, for interest rate swaps, discountedcash flow models with independently sourced data.

 

Policiesand procedures and risk limits are established to control the level of market,credit, liquidity and operational and administrative risks assumed by theCompany.  SCANA’s Board of Directors hasdelegated to a Risk Management Committee the authority to set risk limits,establish policies and procedures for risk management and measurement, andoversee and review the risk management process and infrastructure for SCANA andeach of its subsidiaries.  The RiskManagement Committee, which is comprised of certain officers, including theCompany’s Risk Management Officer and senior officers, apprises the Board ofDirectors with regard to the management of risk and brings to the Board’sattention any areas of concern. Written policies define the physical andfinancial transactions that are approved, as well as the authorizationrequirements and limits for transactions.

 

Commodity Derivatives

 

The Company usesderivative 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 risksassociated with fixed price obligations in a volatile market and risksassociated with price differentials at different delivery locations. Instruments designated as fair value hedges are used to mitigate exposureto fluctuating market prices created by fixed prices of stored naturalgas.  The basic types of financialinstruments utilized are exchange-traded instruments, such as NYMEX futurescontracts or options, and over-the-counter instruments such as options andswaps, which are typically offered by energy and financial institutions.

 

The Company’s regulatedgas operations (SCE&G and PSNC Energy) hedge natural gas purchasingactivities using over-the-counter options and swaps and NYMEX futures andoptions.  SCE&G’s tariffs include aPGA that provides for the recovery of actual gas costs incurred.  The SCPSC has ruled that the results ofSCE&G’s hedging activities are to be included in the PGA.  As such, the cost of derivatives and gainsand losses on such derivatives utilized to hedge gas purchasing activitiesare recoverable through the weighted average cost of gas calculation.  The offset to the change in fair value ofthese derivatives is recorded as a regulatory asset or liability.  PSNC Energy’s tariffs also include aprovision for the recovery of actual gas costs incurred.  PSNC Energy records premiums, transactionfees, margin requirements and any realized gains or losses from itshedging program in deferred accounts as a regulatory asset or liability for theover- or under-recovery of gas costs.  These derivative financial instrumentsare not designated as hedges for accounting purposes.

 

The unrealized gains andlosses on qualifying cash flow hedges of nonregulated operations are deferredin other comprehensive income.  When the hedged transactions affectearnings, the previously deferred gains and losses are reclassified from othercomprehensive income to cost of gas.  The effects of gains or lossesresulting from these hedging activities are either offset by the recording ofthe related hedged transactions or are included in gas sales pricing decisionsmade by the business unit.

 

As an accommodation tocertain customers, SEMI, as part of its energy management services, offersfixed price supply contracts which are accounted for as derivatives.  These sales contracts are offset by thepurchase of supply futures and swaps which are also accounted for asderivatives.

 

Interest Rate Swaps

 

The Company uses interestrate swaps to manage interest rate risk on certain debt issuances.  Theseswaps are designated as either fair value hedges or cash flow hedges.

 

The Company uses swaps tosynthetically convert fixed rate debt to variable rate debt.  These swaps are designated as fair valuehedges.  Prior to 2006, some of these swaps were terminated prior tomaturity of the underlying debt instruments.  The gains on theseterminated swaps are being amortized over the life of the debt they hedged.

 

The Company also usesswaps to synthetically convert variable rate debt to fixed ratedebt.  In addition, in anticipation of the issuance of debt, theCompany may use treasury rate lock or forward starting swap agreements whichare designated as cash flow hedges.  The effective portions ofchanges in fair value and payments made or received upon termination of suchagreements for regulated subsidiaries are recorded in regulatory assets orregulatory liabilities, and for the holding company or nonregulatedsubsidiaries, are recorded in other comprehensiveincome.  Ineffective portions of changes in fair value are recognizedin income.

 

 

16

----

 

The effective portion ofsettlement payments made or received upon termination are amortized to interestexpense over the term of the underlying debt and are classified as a financingactivity in the condensed consolidated statements of cash flows.

 

Quantitative Disclosures Related to Derivatives

 

The Company was party tonatural gas derivative contracts outstanding in the following quantities:

 
|                        | Commodity and  Other Energy Management Contracts (in DT) |
|-----------------------------|----------------------------------------------------------|
| Hedge designation           | Gas Distribution                                         | Retail Gas  Marketing | Energy Marketing | Total |
| *As of March 31, 2010* |                                                     |   |   |   |
| Cash flow                   | -                                                        | 3,430,800 | 13,969,471 | 17,400,271 |
| Not designated  (a)    | 7,180,000                                                | - | 16,733,456 | 23,913,456 |
| Total (a)         | 7,180,000                                                | 3,430,800 | 30,702,927 | 41,313,727 |

 
| *As of December 31, 2009* |      |      |       |       |
|--------------------------------|-----------|-----------|------------|------------|
| Cash flow                      | -         | 5,390,350 | 13,915,971 | 19,306,321 |
| Not designated  (b)       | 6,291,000 | 160,000   | 19,007,840 | 25,458,840 |
| Total (b)            | 6,291,000 | 5,550,350 | 32,923,811 | 44,765,161 |

 

(a)  Includes an aggregate 7,419,000 DT related to basis swapcontracts in Energy Marketing.

 

(b)  Includes an aggregate9,961,000 DT related to basis swap contracts in Retail Gas Marketing and EnergyMarketing.

 

At March 31, 2010and December 31, 2009, the Company was party to interest rate swapsdesignated as fair value hedges with an aggregate notional amount of $559.6million and was party to interest rate swaps designated as cash flow hedgeswith an aggregate notional amount of $831.4 million and $181.4 million,respectively.

 

The fair value ofenergy-related derivatives and interest rate derivatives was reflected in thebalance 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 March 31, 2010*                   |                                   |   |   |   |   |   |   |   |   |   |
| Derivatives designated as hedging instruments |                                   |   |   |   |   |   |   |   |   |   |
|   Interest rate contracts           |                                   | Other deferred debits |   | $ | 10 |   | Other deferred credits |   | $ | 15 |
|                                          |                                   | Prepayments and other |   |   | 1 |   |   |   |   |   |
|                                          |                                   |   |   |   |   |   |   |   |   |   |
|   Commodity  contracts              |                                   |   |   |   |   |   | Prepayments and other |   |   | 1 |
|                                          |                                   |   |   |   |   |   | Other current  liabilities |   |   | 11 |
|                                          |                                   |   |   |   |   |   | Other deferred credits |   |   | 3 |
| Total                                         |                                   |   |   | $ | 11 |   |   |   | $ | 30 |

 
| Derivatives not designated as                 |   |                  |   |   |   |   |                       |   |   |   |
|-----------------------------------------------|--------|-----------------------|--------|--------|--------|--------|----------------------------|--------|--------|--------|
| hedging instruments                           |   |                  |   |   |   |   |                       |   |   |   |
|   Commodity  contracts              |   | Prepayments and other |   | $      | 1      |   |                       |   |   |   |
|                                          |   |                  |   |   |   |   |                       |   |   |   |
|   Energy management  contracts |   | Prepayments and other |   |   | 9      |   | Prepayments and other      |   | $      | 1      |
|                                          |   | Other deferred debits |   |   | 2      |   | Other current  liabilities |   |   | 8      |
|                                          |   |                  |   |   |   |   | Other deferred credits     |   |   | 2      |
| Total                                         |   |                  |   | $      | 12     |   |                       |   | $      | 11     |

 
| *As of December 31, 2009*                |   |                       |   |   |   |   |                       |   |   |   |
|-----------------------------------------------|--------|----------------------------|--------|--------|--------|--------|----------------------------|--------|--------|--------|
| Derivatives designated as hedging instruments |   |                       |   |   |   |   |                       |   |   |   |
|   Interest  rate contracts          |   | Other deferred debits      |   | $      | 5      |   | Other deferred credits     |   | $      | 14     |
|                                          |   |                       |   |   |   |   |                       |   |   |   |
|                                          |   |                       |   |   |   |   |                       |   |   |   |
| Commodity contracts                           |   | Other current  liabilities |   |   | 1      |   | Other current  liabilities |   |   | 7      |
|                                          |   |                       |   |   |   |   | Other deferred credits     |   |   | 2      |
| Total                                         |   |                       |   | $      | 6      |   |                       |   | $      | 23     |

 

 

17

----

 
| Derivatives not designated as hedging instruments |   |                       |   |   |   |   |                       |   |   |   |
|---------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|----------------------------|--------|--------|--------|
|   Commodity  contracts                  |   | Prepayments and other      |   | $      | 1      |   |                       |   |   |   |
|                                              |   |                       |   |   |   |   |                       |   |   |   |
|   Energy management  contracts     |   | Prepayments and other      |   |   | 2      |   |                       |   |   |   |
|                                              |   | Other current  liabilities |   |   | 2      |   | Other current  liabilities |   | $      | 3      |
|                                              |   | Other deferred debits      |   |   | 1      |   | Other deferred credits     |   |   | 1      |
| Total                                             |   |                       |   | $      | 6      |   |                       |   | $      | 4      |

 
| (c) |   | Asset derivatives represent unrealized gains to the  Company, and liability derivatives represent unrealized losses.  In  the Company’s condensed consolidated balance sheets, unrealized gain and loss  positions on commodity contracts with the same counterparty are reported as  either a net asset or liability. |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

The effect of derivativeinstruments on the statements of income is as follows:

 

Derivatives in Fair Value Hedging Relationships

 

With regard to theCompany’s interest rate swaps designated as fair value hedges, the gains onthose swaps and the losses on the hedged fixed rate debt are recognized incurrent earnings and included in interest expense.  These gains and losses, combined with theamortization of gains on those swaps that were terminated prior to 2006 asdiscussed above, resulted in reductions to interest expense of $3.0 million and$1.3 million for the three months ended March 31, 2010 and 2009,respectively.

 

Derivatives in Cash Flow Hedging Relationships

 
|                                      |   |   | Gain (Loss)  Deferred          |   | Gain (Loss)  Reclassified from       |   |
|-------------------------------------------|--------|--------|--------------------------------|--------|--------------------------------------|--------|
| Derivatives in Cash Flow                  |   |   | in Regulatory  Accounts        |   | Deferred  Accounts into Income       |   |
| Hedging Relationships                     |   |   | (Effective  Portion)           |   | (Effective  Portion)                 |   |
| Millions of dollars                       |   |   |                           |   | Location                             |   |   | Amount |   |
| *Three Months Ended March 31,  2010* |   |   |                           |   |                                 |   |   |   |   |
| Interest rate contracts                   |   | $      | 3                              |   | Interest expense                     |   | $ | (1 | ) |
| * *                                  |   |   |                           |   |                                 |   |   |   |   |
| *Three Months Ended March 31,  2009* |   |   |                           |   |                                 |   |   |   |   |
| Interest rate contracts                   |   | $      | 20                             |   | Interest expense                     |   | $ | (1 | ) |
|                                      |   |   |                           |   |                                 |   |
|                                      |   |   | Gain (Loss)                    |   | Gain (Loss)  Reclassified from       |   |
|  Derivatives in Cash Flow            |   |   | Recognized in  OCI, net of tax |   | Accumulated OCI  into Income,        |   |
|  Hedging Relationships               |   |   | (Effective  Portion)           |   | net of  tax (Effective Portion) |   |
| Millions of dollars                       |   |   |                           |   | Location                             |   |   | Amount |   |
| *Three Months Ended March 31,  2010* |   |   |                           |   |                                 |   |   |   |   |
| Interest rate contracts                   |   | $      | (2                             | )      | Interest expense                     |   | $ | (1 | ) |
| Commodity contracts                       |   |   | (9                             | )      | Gas purchased for  resale            |   |   | (4 | ) |
| Total                                     |   | $      | (11                            | )      |                                 |   | $ | (5 | ) |
| * *                                  |   |   |                           |   |                                 |   |   |   |   |
| *Three Months Ended March 31,  2009* |   |   |                           |   |                                 |   |   |   |   |
| Interest rate contracts                   |   | $      | 2                              |   | Interest expense                     |   | $ | - |   |
| Commodity contracts                       |   |   | (26                            | )      | Gas purchased for  resale            |   |   | (27 | ) |
| Total                                     |   | $      | (24                            | )      |                                 |   | $ | (27 | ) |
|                                           |        |        |                                |        |                                      |        |  |  |  |  |

 

 

18

----

 

 

 

As of March 31,2010, the Company expects that during the next 12 months reclassifications fromaccumulated other comprehensive loss to earnings arising from cash flow hedgeswill include approximately $6.9 million as an increase to gas cost andapproximately $2.1 million as an increase to interest expense, assumingnatural gas and financial markets remain at their current levels.  Asof March 31, 2010, all of the Company’s commodity cash flow hedges settleby their terms before the end of 2013.

 
|                               | Gain (Loss)  Recognized in Income |
|------------------------------------|-----------------------------------|
| Derivatives not designated as      |                              |   |   |   |   |   |
| Hedging Instruments                |                              |   | Three Months  Ended March 31, |   |
| Millions of dollars                |                              | Location |   |   | 2010 |   |   | 2009 |   |
| Commodity contracts                |                              | Gas purchased  for resale |   | $ | (1 | ) | $ | (3 | ) |
| Other energy management  contracts |                              | Gas purchased  for resale |   |   | - |   |   | (2 | ) |
| Total                              |                              |   |   | $ | (1 | ) | $ | (5 | ) |

 

Hedge Ineffectiveness

 

Other gains recognized inincome representing ineffectiveness on interest rate hedges designated as cashflow hedges were not significant for each of the three months ended March 31,2010 and 2009.

 

Credit Risk Considerations

 

Certain of the Company’sderivative instruments contain contingent provisions that require the Companyto provide collateral upon the occurrence of specific events, primarily creditdowngrades.  As of March 31, 2010,the Company has posted $14.0 million of collateral related to derivatives withcontingent provisions that are in a net liability position.  If all of the contingent features underlyingthese instruments were fully triggered as of March 31, 2010, the Companywould be required to post an additional $24.4 million of collateral to itscounterparties.  The aggregate fair valueof all derivative instruments with contingent provisions that are in a net liabilityposition as of March 31, 2010, is $38.4 million.

 

6.                                       FAIR VALUEMEASUREMENTS, INCLUDING DERIVATIVES

 

The Company valuesavailable for sale securities using quoted prices from a national stockexchange, such as the NASDAQ, where the securities are activelytraded.  For commodity derivative assets and liabilities, the Companyuses unadjusted NYMEX prices to determine fair value, and considers suchmeasures of fair value to be Level 1 for exchange traded instruments and Level2 for over-the-counter instruments.  The Company’s interest rate swapagreements are valued using discounted cash flow models with independentlysourced data.  Fair value measurements, and the level within the fairvalue hierarchy* *in which themeasurements fall, were as follows:

 
|                            |                           |   | Fair Value  Measurements Using |   |
|---------------------------------|--------------------------------|--------|--------------------------------|--------|
|                            |                           |   | Quoted Prices in  Active       |   |   | Significant  Other |   |
|                            |                           |   | Markets for  Identical Assets  |   |   | Observable  Inputs |   |
| Millions of dollars             |                           |   | (Level 1)                      |   |   | (Level 2) |   |
| *As of  March 31, 2010*    |                           |   |                           |   |   |   |   |
| Assets -                        | Available for sale  securities |   | $                              | 2      |   | $ |  - |   |
|                            | Interest rate contracts        |   |                           | -      |   |   | 11 |   |
|                            | Energy management  contracts   |   |                           | -      |   |   | 11 |   |
|                            | Commodity contracts            |   |                           | 1      |   |   |  - |   |
| Liabilities -                   | Interest rate contracts        |   |                           | -      |   |   | 15 |   |
|                            | Commodity contracts            |   |                           | 1      |   |   | 14 |   |
|                            | Energy management  contracts   |   |                           | 1      |   |   | 11 |   |
|                            |                           |   |                           |   |   |   |   |
| *As of  December 31, 2009* |                           |   |                           |   |   |   |   |
| Assets -                        | Available for sale  securities |   | $                              | 2      |   | $ |  - |   |
|                            | Commodity contracts            |   |                           | 1      |   |   |  1 |   |
|                            | Energy management  contracts   |   |                           | -      |   |   |  5 |   |
|                            | Interest rate contracts        |   |                           | -      |   |   |  5 |   |
| Liabilities -                   | Interest rate contracts        |   |                           | -      |   |   | 14 |   |
|                            | Commodity contracts            |   |                           | -      |   |   |  9 |   |
|                            | Energy management  contracts   |   |                           | -      |   |   |  7 |   |

 

 

19

----

 

There were no fair valuemeasurements based on significant unobservable inputs (Level 3) for eitherperiod presented.  In addition, therewere no transfers of fair value amounts into or out of Levels 1 and 2 duringany period presented.

 

Financial instruments forwhich the carrying amount may not equal estimated fair value at March 31,2010 and December 31, 2009 were as follows:

 
|                      |   | March 31,  2010     |    | December 31,  2009 |   |
|---------------------------|--------|--------------------------|---------|-------------------------|--------|
|  Millions of dollars |   |  

Carrying

Amount |    | Estimated

Fair

Value  |   |  

Carrying

Amount |   | Estimated

Fair

Value |   |
| Long-term debt            |   | $                        | 4,703.1 |                    | $      | 4,933.0 |   | $ | 4,510.9 |   | $ | 4,726.0 |   |
|                           |        |                          |         |                         |        |  |  |  |  |  |  |  |  |

 

Fair values of long-termdebt are based on quoted market prices of the instruments or similarinstruments.  For debt instruments for which no quoted market pricesare available, fair values are based on net present valuecalculations.  Carrying values reflect the fair values of interestrate swaps based on discounted cash flow models with independently sourceddata.  Early settlement of long-term debt may not be possible or maynot be considered prudent.

 

Potential taxes and otherexpenses that would be incurred in an actual sale or settlement have not beenconsidered.

 

7.                                       COMMITMENTS ANDCONTINGENCIES

 

A.                                   Nuclear Insurance

 

The Price-AndersonIndemnification Act deals with public liability for a nuclear incident andestablishes the liability limit for third-party claims associated with anynuclear incident at $12.6 billion.  Each reactor licensee is currentlyliable for up to $117.5 million per reactor owned for each nuclear incidentoccurring 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 SummerStation, would be $78.3 million per incident, but not more than $11.7 millionper year.

 

SCE&G currentlymaintains policies (for itself and on behalf of Santee Cooper, a one-thirdowner of Summer Station) with Nuclear Electric Insurance Limited.  Thepolicies, covering the nuclear facility for property damage, excess propertydamage and outage costs, permit retrospective assessments under certainconditions to cover insurer’s losses.  Based on the current annualpremium, SCE&G’s portion of the retrospective premium assessment would notexceed $14.2 million.

 

To the extent thatinsurable claims for property damage, decontamination, repair and replacementand other costs and expenses arising from a nuclear incident at Summer Station exceedthe policy limits of insurance, or to the extent such insurance becomesunavailable in the future, and to the extent that SCE&G rates would notrecover the cost of any purchased replacement power, SCE&G will retain therisk of loss as a self-insurer.  SCE&G has no reason to anticipate aserious nuclear incident.

However, if such an incident were to occur, it likelywould have a material adverse impact on the Company’s results of operations,cash flows and financial position.

 

B.                                     Environmental

 

*SCE&G*

 

In December 2009 theEPA issued a final finding that atmospheric concentrations of GHG endangerpublic health and welfare within the meaning of Section 202(a) of theCAA.  The rule, which became effective in January 2010, enablesthe EPA to regulate GHG emissions under the CAA.  The EPA hascommitted to issue new rules regulating such emissions by November 2011. On September 30, 2009, the EPA issued aproposed rule that would require facilities emitting over 25,000 tons of GHG ayear (such as SCE&G’s and GENCO’s generating facilities) to obtain permitsdemonstrating that they are using the best practices and technologies tominimize GHG emissions.  The Companyexpects that any costs incurred to comply with GHG emission requirements willbe recoverable through rates.

 

In 2005, the EPA issuedthe CAIR, which requires the District of Columbia and 28 states, includingSouth Carolina, to reduce nitrogen oxide and sulfur dioxide emissions in orderto attain mandated state levels.  CAIR set emission limits to be metin two phases beginning in 2009 and 2015, respectively, for nitrogen oxide andbeginning in 2010 and 2015, respectively, for sulfur dioxide.  Numerous states, environmental organizations,industry groups and individual companies challenged the rule, seeking a changein the method CAIR used to allocate sulfur dioxide emission allowances. On December 23, 2008, the United States Court of Appeals for the Districtof Columbia Circuit remanded the rule but did not vacateit.  Prior to the Court of Appeals’ decision, SCE&G and GENCO haddetermined that additional air quality controls would be needed to meet theCAIR requirements.  SCE&G has completed the installation of SCRtechnology at Cope Station for nitrogen oxide reduction, and GENCO hascompleted installation of a wet limestone scrubber at Williams Station forsulfur dioxide reduction.   SCE&G also is installing a wetlimestone scrubber at Wateree Station.  The Company expects to incurcapital expenditures totaling approximately $559 million through 2010 

 

 

20

----

 

for these projects, of which the majority has alreadybeen spent.   The Company cannot predict when the EPA will issuea revised rule or what impact the rule will have on SCE&G andGENCO.  Any costs incurred to comply with this rule or other rules issuedby the EPA in the future are expected to be recoverable through rates.

 

In 2005 the EPA issuedthe CAMR which established a mercury emissions cap and trade program forcoal-fired power plants.  Numerousparties challenged the rule.  On February 8, 2008, the UnitedStates Circuit Court for the District of Columbia vacated the rule for electricutility steam generating units.  The Company expects the EPA will issue anew rule on mercury emissions but cannot predict when such a rule willbe issued or what requirements it will impose.

 

SCE&G has been named,along with 53 others, by the EPA as a PRP at the AER Superfund site located inAugusta, Georgia.  The EPA placed thesite on the National Priorities List in April 2006.  AERconducted hazardous waste storage and treatment operations from 1975 to 2000,when the site was abandoned.  While operational, AER processed fuels fromwaste oils, treated industrial coolants and oil/water emulsions, recycled solventsand blended hazardous waste fuels.  During that time, SCE&Goccasionally used AER for the processing of waste solvents, oily rags and oilywastewater.  The EPA and the State of Georgia have documented that arelease or releases have occurred at the site leading to contamination ofgroundwater, surface water and soils.  The EPA and the State of Georgiahave conducted a preliminary assessment and site inspection.  The PRPs funded a Remedial Investigation andRisk Assessment which was completed and approved by the EPA and funded aFeasibility Study that is expected to be completed in 2010.  The site has not been remediated nor has aclean-up cost been estimated.  Although a basis for the allocation ofclean-up costs among the PRPs is unclear, SCE&G does not believe that itsinvolvement at this site would result in an allocation of costs that would havea material adverse impact on its results of operations, cash flows or financialcondition.  Any cost allocated to SCE&G arising from theremediation of this site is expected to be recoverable through rates.

 

SCE&G maintains anenvironmental assessment program to identify and evaluate its current andformer operations sites that could require environmentalclean-up.  As site assessments are initiated, estimates are made ofthe amount of expenditures, if any, deemed necessary to investigate andremediate each site.  These estimates are refined as additionalinformation becomes available; therefore, actual expenditures could differsignificantly from the original estimates.  Amounts estimated andaccrued to date for site assessments and clean-up relate solely to regulatedoperations.  SCE&G defers site assessment and cleanup costs andrecovers them through rates.

 

SCE&G is responsiblefor four decommissioned MGP sites in South Carolina which containresidues of by-product chemicals.  These sites are in various stagesof investigation, remediation and monitoring under work plans approved byDHEC.  SCE&G anticipates that majorremediation activities at these sites will continue until 2012 and will cost anadditional $7.1 million.  In addition,the National Park Service of the Department of the Interior has made an initialdemand to SCE&G for payment of $9.1 million for certain costs and damagesrelating to the MGP site in Charleston, South Carolina.  SCE&Gexpects to recover any cost arising from the remediation of these four sitesthrough rates.  At March 31, 2010, deferred amounts, net ofamounts previously recovered through rates and insurance settlements, totaled$20.2 million.

 

*PSNCEnergy*

 

PSNC Energy isresponsible for environmental clean-up at five sites in North Carolina on whichMGP residuals are present or suspected.  PSNC Energy’s actualremediation costs for these sites will depend on a number of factors, such as actualsite conditions, third-party claims and recoveries from otherPRPs.  PSNC Energy has recorded a liability and associated regulatoryasset of $4.4 million, which reflects its estimated remaining liability at March 31,2010.  PSNC Energy expects to recover through rates any costs allocable toPSNC Energy arising from the remediation of these sites.

 

C.                                     Claims andLitigation

 

In May 2004, apurported class action lawsuit currently styled as Douglas E. Gressette andMark Rudd, individually and on behalf of other persons similarly situated v.South Carolina Electric & Gas Company and SCANA Communications, Inc.was filed in South Carolina’s Circuit Court of Common Pleas for the NinthJudicial Circuit.  The plaintiffs allege that SCE&G made improperuse of certain electric transmission easements and rights-of-way by allowingfiber optic communication lines and/or wireless communication equipment totransmit communications other than SCE&G’s electricity-related internalcommunications.  The plaintiffs assertedcauses of action for unjust enrichment, trespass, injunction and declaratoryjudgment, but did not assert a specific dollar amount for theclaims.  SCE&G believes its actions are consistent with governinglaw and the applicable documents granting easements andrights-of-way.  In June 2007, the Circuit Court issued a rulingthat limits the plaintiffs’ purported class to easement grantors situated inCharleston County, South Carolina.  In February 2008, theCircuit Court issued an order to conditionally certify the class, which remainslimited to easements in Charleston County.  In July 2008, theplaintiffs’ motion to add SCI to the lawsuit as an additional defendant wasgranted.  Trial is not anticipated before the summer of2010.  SCE&G and SCI will continue to mount a vigorous defenseand believe that the resolution of these claims will not have a materialadverse impact on their results of operations, cash flows or financialcondition.

 

 

21

----

 

The Company is alsoengaged in various other claims and litigation incidental to its businessoperations which management anticipates will be resolved without a materialadverse impact on the Company’s results of operations, cash flows or financialcondition.

 

D.                                    Nuclear Generation

 

SCE&G and SanteeCooper have entered into a contractual agreement for the design andconstruction of two 1,117-megawatt nuclear electric generation units at thesite of Summer Station.  SCE&G and Santee Cooper will be jointowners and share operating costs and generation output of the units, withSCE&G responsible for 55 percent of the cost and receiving 55 percent ofthe output, and Santee Cooper responsible for and receiving the remaining 45percent.  Assuming timely receipt of federal approvals andconstruction proceeding as scheduled, the first unit is expected to becompleted and in service in 2016, and the second in 2019.  SCE&G’s share of the estimated cashoutlays (future value) totals $6.0 billion for plant costs and relatedtransmission infrastructure costs, which costs are projected based onhistorical one-year and five-year escalation rates as required by the SCPSC.

 

SCE&G’s latestIntegrated Resource Plan filed with the SCPSC on February 26, 2010continues to support SCE&G’s need for 55% of the output of the twounits.  SCE&G has been advised bySantee Cooper that in light of recent developments, it is reviewing certainaspects of its capital improvement program and long-term power supply plan,including the level of its participation in the two units.  If Santee Cooper’s ownership interest in oneor both of the units changes, SCE&G believes that one or more additionalparties will be available to participate as joint owners.

 

SCE&G is unable topredict whether any change in Santee Cooper’s ownership interest or theaddition of new joint owners will increase project costs or delay thecommercial operation dates of the new units. Any such project cost increase or delay could be material.

 

8.                                       SEGMENT OF BUSINESS INFORMATION

 

The Company’s reportablesegments are listed in the following table. The Company uses operating income to measure profitability for itsregulated operations; therefore, income available to common shareholders is notallocated to the Electric Operations, Gas Distribution and Gas Transmissionsegments.  The Company uses incomeavailable to common shareholders to measure profitability for its Retail GasMarketing and Energy Marketing segments. Gas Distribution is comprised of the local distribution operations ofSCE&G and PSNC Energy which meet the criteria for aggregation.  All Other includes equity method investmentsand other nonreportable segments.

 
|                                          | External | Intersegment | Operating | Income Available  to |   | Segment |
|-----------------------------------------------|----------|--------------|-----------|----------------------|--------|---------|
| Millions of dollars                           | Revenue  | Revenue      | Income    | Common Shareholders  |   | Assets  |
| *Three Months Ended March 31,  2010*     |     |         |      |                 |   |    |   |   |   |   |   |   |   |   |   |
| Electric Operations                           |     | $            | 540       |                 | $      | 2       |   | $ | 86 |   |   | n/a |   | $ | 7,423 |
| Gas Distribution                              |     |         | 428       |                 |   | -       |   |   | 90 |   |   | n/a |   |   | 2,093 |
| Gas Transmission                              |     |         | 2         |                 |   | 11      |   |   | 5 |   |   | n/a |   |   | 257 |
| Retail Gas Marketing                          |     |         | 262       |                 |   | -       |   |   | n/a |   | $ | 30 |   |   | 219 |
| Energy Marketing                              |     |         | 196       |                 |   | 47      |   |   | n/a |   |   | - |   |   | 99 |
| All Other                                     |     |         | 6         |                 |   | 86      |   |   | n/a |   |   | - |   |   | 1,005 |
| Adjustments/Eliminations                      |     |         | (6        | )                    |   | (146    | ) |   | 49 |   |   | 97 |   |   | 1,046 |
| Consolidated Total                            |     | $            | 1,428     |                 | $      | -       |   | $ | 230 |   | $ | 127 |   | $ | 12,142 |
|                                          |     |         |      |                 |   |    |   |   |   |   |   |   |   |   |   |
| *Three Months Ended March 31, 2009* |     |         |      |                 |   |    |   |   |   |   |   |   |   |   |   |
| Electric Operations                           |     | $            | 497       |                 | $      | 3       |   | $ | 102 |   |   | n/a |   | $ | 6,720 |
| Gas Distribution                              |     |         | 420       |                 |   | -       |   |   | 81 |   |   | n/a |   |   | 2,078 |
| Gas Transmission                              |     |         | 2         |                 |   | 11      |   |   | 5 |   |   | n/a |   |   | 265 |
| Retail Gas Marketing                          |     |         | 228       |                 |   | -       |   |   | n/a |   | $ | 22 |   |   | 192 |
| Energy Marketing                              |     |         | 196       |                 |   | 42      |   |   | n/a |   |   | - |   |   | 124 |
| All Other                                     |     |         | 7         |                 |   | 85      |   |   | n/a |   |   | (1 | ) |   | 901 |
| Adjustments/Eliminations                      |     |         | (7        | )                    |   | (141    | ) |   | 35 |   |   | 93 |   |   | 1,322 |
| Consolidated Total                            |     | $            | 1,343     |                 | $      | -       |   | $ | 223 |   | $ | 114 |   | $ | 11,602 |

 

For the three months ended March 31, 2010, operating income forElectric Operations reflects a reduction in recovery of fuel of $17.4 millionin connection with the settlement described in Note 2.  This reduction was fully offset byrecognition of tax benefits.

 

 

22

----

 

**ITEM 2.   MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**SCANACORPORATION**

 

The following discussionshould be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations appearing in SCANA’s Annual Reporton Form 10-K, as amended, for the year ended December 31, 2009.

 

**RESULTSOF OPERATIONS**

**FOR THE THREE MONTHS ENDED MARCH 31, 2010**

**ASCOMPARED TO THE CORRESPONDING PERIOD IN 2009**

 

**Earnings Per Share**

 

Earnings per share was asfollows:

 
| Millions of dollars |   |   |   |   |   |   | 2010 |   |   | 2009 |   |
|---------------------|--------|--------|--------|--------|--------|--------|------|--------|--------|------|--------|
| Earnings per share  |   |   |   |   |   |   | $    | 1.02   |   | $    | .94    |   |
|                     |        |        |        |        |        |        |      |        |        |      |        |  |

 

Earnings per shareincreased by $.06 due to higher electric margin (excluding the effect of the$17.4 million adjustment described at “Electric Operations”) and $.15 due tohigher gas margin.  These increases were partiallyoffset by dilution from additional shares outstanding of $.02, higher operatingexpenses of $.08 which are explained below and higher interest expense of $.04.

 

**Dividends Declared**

 

SCANA’s Board ofDirectors has declared the following dividends on common stock during 2010:

 
| Declaration Date       | Dividend Per  Share |        Record  Date                |   Payment  Date                                                                                    |
|------------------------|---------------------|-----------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| February 11, 2010 | $.475               |           March 10, 2010 |               April 1,  2010 |
| May 6, 2010       | $.475               |           June 10, 2010  |               July 1,  2010  |

 

**Electric Operations**

 

Electric Operations iscomprised 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                                                    |   |   |   |   |   |   |   |   |   |   | 2010  |   | % Change |   |   | 2009  |   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Operating revenues                                                     |   |   |   |   |   |   |   |   |   | $      | 541.6 |   | 8.3      | %      | $      | 500.1 |   |
| Less:  Fuel  used in generation                              |   |   |   |   |   |   |   |   |   |   | 236.1 |   | 26.9     | %      |   | 186.1 |   |
|          Purchased  power |   |   |   |   |   |   |   |   |   |   | 2.4   |   | (51.0    | )%     |   | 4.9   |   |
|      Margin                                   |   |   |   |   |   |   |   |   |   | $      | 303.1 |   | (1.9     | )%     | $      | 309.1 |   |

 

MWh sales volumes relatedto the electric margin above, by class, were as follows:

 
|   Classification (in thousands)                     |   |   |   |   |   |   |   | 2010  |   | % Change |   | 2009  |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|-------|--------|----------|--------|-------|--------|
|   Residential                                  |   |   |   |   |   |   |   | 2,299 |   | 18.6     | %      | 1,939 |   |
|   Commercial                                   |   |   |   |   |   |   |   | 1,744 |   | 3.4      | %      | 1,686 |   |
|   Industrial                                   |   |   |   |   |   |   |   | 1,353 |   | 6.9      | %      | 1,266 |   |
|  Sale for resale (excluding interchange)            |   |   |   |   |   | 427    |   | (1.2  | )%     | 432      |   |
|   Other                                        |   |   |   |   |   |   |   | 129   |   | (1.5     | )%     | 131   |   |
|    Total  territorial                     |   |   |   |   |   |   |   | 5,952 |   | 9.1      | %      | 5,454 |   |
|   Negotiated  Market Sales Tariff (NMST)  |   |   |   |   |   | 6      |   | (78.6 | )%     | 28       |   |
|    Total                                  |   |   |   |   |   |   |   | 5,958 |   | 8.7      | %      | 5,482 |   |

 

Territorial sales volumeincreased by 410 MWh due to increased average use and the effects of colderweather and 88 MWh due to higher industrial sales volumes.

 

 

23

----

 

Margin increased due tohigher residential and commercial customer usage of $25.7 million, higherindustrial sales of $1.1 million, customer growth of $2.0 million and anincrease in base rates approved by the SCPSC under the BLRA of $7.4million.  Although weather was abnormallycold in 2010 and significantly colder than in the same period in 2009,estimated incremental revenues of $25 million associated with this weather havebeen deferred within other current liabilities (for refund to customers) basedupon a stipulation related to SCE&G’s 2010 electric base rate caseproceeding (see Note 2).  Also, margin in2010 was adjusted downward by $17.4 million pursuant to an SCPSC regulatoryorder issued in connection with SCE&G’s annual fuel cost proceeding.  (See also discussion at “Income Taxes”).

 

**Gas Distribution**

 

Gas Distribution iscomprised 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                       |   |   |   |   |   |   |   |   |   |   | 2010  |   | % Change |   |   | 2009  |   |
|-------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Operating revenues                        |   |   |   |   |   |   |   |   |   | $      | 428.3 |   | 2.0      | %      | $      | 419.8 |   |
| Less:  Gas purchased for resale |   |   |   |   |   |   |   |   |   |   | 279.3 |   | (1.3     | )%     |   | 282.9 |   |
|      Margin      |   |   |   |   |   |   |   |   |   | $      | 149.0 |   | 8.8      | %      | $      | 136.9 |   |

 

DT sales volumes byclass, including transportation gas, were as follows:

 
| Classification (in thousands)       |   |   |   |   |   |   |   | 2010   |   | % Change |   | 2009   |   |
|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|----------|--------|--------|--------|
|   Residential             |   |   |   |   |   |   |   | 24,519 |   | 21.2     | %      | 20,224 |   |
|   Commercial              |   |   |   |   |   |   |   | 11,743 |   | 10.3     | %      | 10,650 |   |
|   Industrial              |   |   |   |   |   |   |   | 4,945  |   | 16.7     | %      | 4,236  |   |
|  Transportation gas            |   |   |   |   |   |   |   | 11,599 |   | 7.6      | %      | 10,784 |   |
|      Total |   |   |   |   |   |   |   | 52,806 |   | 15.1     | %      | 45,894 |   |

 

Margin atSCE&G increased $3.9 million due to increased customer usage and $5.6million due to the SCPSC-approved increase in retail gas base rates whichbecame effective with the first billing cycle of November 2009.  Marginat PSNC Energy increased by $1.7 million primarily due to residential customergrowth and improved industrial usage.

 

**Gas Transmission**

 

Gas Transmission iscomprised of the operations of CGT.  Gas transmission revenues andoperating income (including transactions with affiliates) was as follows:

 
| Millions of dollars     |   |   |   |   |   |   |   |   |   |   | 2010 |   | % Change |   |   | 2009 |   |
|-------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|------|--------|----------|--------|--------|------|--------|
| Transportation revenues |   |   |   |   |   |   |   |   |   | $      | 13.1 |   | -        |   | $      | 13.1 |   |
| Operating income        |   |   |   |   |   |   |   |   |   |   | 4.9  |   | (5.8     | )%     |   | 5.2  |   |

 

Operating incomedecreased as a result of higher operating expenses.

 

**Retail Gas Marketing**

 

Retail Gas Marketing iscomprised of SCANA Energy, which operates in Georgia’s natural gas market.  Retail Gas Marketing revenues and incomeavailable to common shareholders were as follows:

 
| Millions of dollars                      |   |   |   |   |   |   |   |   |   |   | 2010  |   | % Change |   |   | 2009  |   |
|------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Operating revenues                       |   |   |   |   |   |   |   |   |   | $      | 262.1 |   | 15.1     | %      | $      | 227.8 |   |
| Income available to  common shareholders |   |   |   |   |   |   |   |   |   |   | 29.7  |   | 35.6     | %      |   | 21.9  |   |

 

Operating revenuesincreased as a result of higher sales volume due to weather.  Income available to common shareholdersincreased primarily as a result of higher margin due to favorable weather,partially offset by higher bad debt expense on increased revenue.

 

 

24

----

 

**Energy Marketing**

 

Energy Marketing iscomprised of the Company’s non-regulated marketing operations, excluding SCANAEnergy.  Energy Marketing operatingrevenues and income (loss) available to common shareholders were as follows:

 
| Millions of dollars                             |   |   |   |   |   |   |   |   |   |   | 2010  |   | % Change |   |   | 2009  |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Operating revenues                              |   |   |   |   |   |   |   |   |   | $      | 243.4 |   | 2.3      | %      | $      | 238.0 |   |
| Income (loss) available  to common shareholders |   |   |   |   |   | 0.5    |   | *      |   |   | (0.2  | )      |

*Greater than100%.

 

Operating revenues and incomeavailable to common shareholders increased primarily due to higher sales marginon increased demand.

 

**Other Operating Expenses**

 

Other operating expenseswere as follows:

 
| Millions of dollars              |   |   |   |   |   |   |   |   |   |   | 2010  |   | % Change |   |   | 2009  |   |
|----------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Other operation and  maintenance |   |   |   |   |   |   |   |   |   | $      | 172.0 |   | 8.5      | %      | $      | 158.5 |   |
| Depreciation and  amortization   |   |   |   |   |   |   |   |   |   |   | 82.8  |   | 0.1      | %      |   | 82.7  |   |
| Other taxes                      |   |   |   |   |   |   |   |   |   |   | 47.7  |   | 5.5      | %      |   | 45.2  |   |

 

Other operation andmaintenance expenses increased by $3.9 million due to higher incentivecompensation and other benefits, by $4.5 million due to higher generation,transmission and distribution expenses and by $2.9 million due to highercustomer service expenses and general expenses, including bad debtexpense.  Depreciation and amortizationexpense increased in 2010 primarily due to net property additions, offset bythe adoption of new, lower depreciation rates at SCE&G in late2009.  Other taxes increased primarily due to higher property taxes.

 

**Other Income (Expense)**

 

Other income (expense)includes the results of certain incidental (non-utility) activities and theactivities of certain non-regulated subsidiaries.  Other income (expense),excluding interest expense, increased for the three months ended March 31,2010 compared to 2009 primarily due to increased interest income.

 

*Pension Cost*

 

Pension cost was recordedon the Company’s income statements and balance sheets as follows:

 
| Millions of dollars                                                   |   |   |   |   | 2010   |   |   | 2009   |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Income Statement  Impact:                                             |   |   |   |   |   |   |   |   |   |
|   Reduction  in employee benefit costs                      |   |   |   | $      | (0.1   | )      | $      | -      |   |
|   Other  income                                             |   |   |   |   | (0.9   | )      |   | (0.9   | )      |
| Balance Sheet Impact:                                                 |   |   |   |   |   |   |   |   |   |
|   Increase in  capital expenditures                         |   |   |   |   | 1.6    |   |   | 2.2    |   |
|   Component  of amount payable from Summer Station co-owner |   |   |   |   | 0.4    |   |   | 0.6    |   |
|   Regulatory  asset                                         |   |   |   |   | 5.3    |   |   | 7.8    |   |
| Total Pension Cost                                                    |   |   |   | $      | 6.3    |   | $      | 9.7    |   |

 

No contribution to thepension trust will be necessary in or for 2010, nor will limitations on benefitpayments apply.  Additionally, in February 2009,SCE&G was granted accounting orders by the SCPSC under which it willmitigate a significant portion of its pension cost by deferring as a regulatoryasset the amount of pension cost above that which is included in current ratesfor its retail electric and gas distribution regulatedoperations.  These costs are being deferred until such time as futurerate recovery is provided for by the SCPSC.

 

*AFC*

 

AFC is a utilityaccounting practice whereby a portion of the cost of both equity and borrowedfunds used to finance construction (which is shown on the balance sheet asconstruction work in progress) is capitalized. The Company includes an equity portion of AFC in nonoperating income anda debt portion of AFC in interest charges (credits) as noncash items, both ofwhich have the effect of increasing reported net income.  AFC decreased in 2010 due primarily to thecompletion of certain pollution abatement projects at coal-fired plants.

 

 

25

----

 

**Interest Expense**

 

Interest chargesincreased primarily due to increased borrowings.

 

**Income Taxes**

 

Income tax expensedecreased primarily due to the recognition of certain previously deferred stateinvestment tax credits pursuant to a SCPSC regulatory order issued in 2010 inconnection with SCE&G’s annual fuel cost proceeding (See also discussion at“Electric Operations”).

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company anticipatesthat its contractual cash obligations will be met through internally generatedfunds, the incurrence of additional short- and long-term indebtedness and salesof equity securities.  The Company expects that, barring furtherimpairment of the capital markets, it has or can obtain adequate sources offinancing to meet its projected cash requirements for the foreseeable future,including the cash requirements for nuclear construction.  TheCompany’s ratio of earnings to fixed charges for the three and 12 monthsended March 31, 2010 was 3.50 and 2.83.

 

Cash requirements forSCANA’s regulated subsidiaries arise primarily from their operational needs,funding their construction programs and payment of dividends toSCANA.  The ability of the regulated subsidiaries to replace existingplant investment, to expand to meet future demand for electricity and gas andto install equipment necessary to comply with environmental regulations, willdepend upon their ability to attract the necessary financial capital onreasonable terms.  Regulated subsidiariesrecover the costs of providing services through rates charged tocustomers.  Rates for regulated services are generally based onhistorical costs.  As customer growth andinflation occur and these subsidiaries continue their ongoing constructionprograms, rate increases will be sought.  The future financialposition and results of operations of the regulated subsidiaries will beaffected by their ability to obtain adequate and timely rate and otherregulatory relief.

 

The Company’s issuance ofvarious securities, including short- and long-term debt, is subject tocustomary approval or authorization by one or more state or federal regulatorybodies including the state public service commissions and FERC.

 

SCE&G and GENCO haveobtained FERC authority to issue short-term indebtedness (pursuant to Section 204of the Federal Power Act).  SCE&G may issue up to $700 million ofunsecured promissory notes or commercial paper with maturity of one year orless, and GENCO may issue up to $100 million of short-termindebtedness.  FERC’s approval expires in February 2012.

 

SCANA, SCE&G(including Fuel Company) and PSNC Energy had available the followingcommitted LOC, and had outstanding the following LOC advances, commercialpaper, and LOC-supported letter of credit obligations:

 
|                                                                                                      |   | SCANA          | SCE&G (b) |              | PSNC Energy  (b) |   |
|-----------------------------------------------------------------------------------------------------------|--------|----------------|--------------------|-------------------|-----------------------|--------|
|                                                                                                      |   | March 31, |               | December 31, |                  |   | March 31, |   |   | December 31, |   |  March 31, |   | December 31, |   |
| Millions of dollars                                                                                       |   | 2010           |               | 2009              |                  |   |  2010 |   |   | 2009 |   | 2010 |   | 2009 |   |
| Lines of credit:                                                                                          |   |           |               |              |                  |   |   |   |   |   |   |   |   |   |
| Committed long-term (expire

    December 2011) (a)                              |   |           |               |              |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |
|     Total                                                                             | $      | 200            |               | $                 | 200                   |   | $ | 650 |   | $ | 650 |   | $ | 250 |   | $ | 250 |   |
|     LOC  advances                                                                     |   | 49             |               |              | -                     |   |   | 150 |   |   | 100 |   |   | - |   |   | - |   |
|     Weighted  average interest rate                                                   |   | .58            | %                  |              | -                     |   |   | .51 | % |   | .50 | % |   | - |   |   | - |   |
|     Outstanding  commercial paper

    (270  or fewer days)  |   | -              |               |              | -                     |   |   | 216 |   |   | 254 |   |   | 4 |   |   | 81 |   |
|     Weighted  average interest rate                                                   |   | -              |               |              | -                     |   |   | .32 | % |   | .33 | % |   | .30 | % |   | .32 | % |
| Letters of credit  supported by LOC                                                                       |   | 3              |               |              | 3                     |   |   | .3 |   |   | .3 |   |   | - |   |   | - |   |
| Available                                                                                                 |   | 148            |               |              | 197                   |   |   | 284 |   |   | 296 |   |   | 246 |   |   | 169 |   |

 

(a)                                      The Company’s committed long-termfacilities serve to back-up the issuance of commercial paper or to provideliquidity support.

(b)                                     SCE&G, Fuel Company and PSNC Energymay issue commercial paper in the amounts of up to $350 million, $250million and $250 million, respectively. Nuclear and fossil fuel inventories and emission allowances are financedthrough the issuance by Fuel Company of short-term commercial paper or LOCadvances.

 

The committed long-termfacilities are revolving lines of credit under credit agreements with asyndicate of banks.  Wells Fargo Bank, N. A. provides 18.9% of theaggregate $1.1 billion credit facilities, Bank of America, N. A. provides14.3%, Branch Banking and Trust Company, UBS Loan Finance LLC, Morgan StanleyBank, and Credit Suisse, each provide 10.9%, and The Bank of New York andMizuho Corporate Bank, Ltd each provide 9.1%.  Three other banksprovide the remaining 5.0%.  These bank credit facilities support theissuance of commercial paper by SCE&G (including Fuel Company) and PSNCEnergy.  In addition, a 

 

 

26

----

 

portion of the credit facilities supports SCANA’sborrowing needs.  When the commercialpaper markets are dislocated (due to either price or availability constraints),the credit facilities are available to support the borrowing needs of SCE&G(including Fuel Company) and PSNC Energy.

 

As of March 31,2010, the Company had drawn approximately $199 million from its $1.1 billionfacilities, had approximately $220 million in commercial paper borrowingsoutstanding, was obligated under $3.3 million in LOC-supported letters ofcredit, and had approximately $157 million in cash and temporaryinvestments.  The Company regularly monitors the commercial paper andshort-term credit markets to optimize the timing for repayment of theoutstanding balance on its draws, while maintaining appropriate levels ofliquidity.

 

At March 31,2010, the Company had net available liquidity of approximately $835 million,and the Company’s revolving credit facilities are in place until December 2011.  TheCompany’s overall debt portfolio has a weighted average maturity of over 15years and bears an average cost of 5.7%.  A significant portion oflong-term debt, other than credit facility draws, effectively bears fixedinterest rates or is swapped to fixed.  To further preserve liquidity,the Company rigorously reviews its projected capital expenditures and operatingcosts and adjusts them where possible without impacting safety, reliability,and core customer service.

 

In March 2010, PSNCEnergy issued $100 million of 6.54% unsecured notes due March 30,2020.   Proceeds from these notes were used to pay down short-termdebt and for general corporate purposes.

 

SCANA issued stock valuedat $25.9 million during the three months ended March 31, 2010 throughvarious compensation and dividend reinvestment plans.

 

**OTHER MATTERS**

 

Off-Balance Sheet Transactions

 

Although SCANA invests insecurities and business ventures, it does not hold significant investments inunconsolidated special purpose entities.  SCANA does not engage inoff-balance sheet financing or similar transactions, although it is party toincidental operating leases in the normal course of business, generally foroffice space, furniture, equipment and rail cars.

 

Nuclear Generation

 

SCE&G and SanteeCooper have entered into a contractual agreement for the design andconstruction of two 1,117-megawatt nuclear electric generation units at thesite of Summer Station.  SCE&G and Santee Cooper will be jointowners and share operating costs and generation output of the units, withSCE&G responsible for 55 percent of the cost and receiving 55 percent ofthe output, and Santee Cooper responsible for and receiving the remaining 45percent.  Assuming timely receipt of federal approvals andconstruction proceeding as scheduled, the first unit is expected to becompleted and in service in 2016, and the second in 2019.  SCE&G’s share of the estimated cashoutlays (future value) totals $6.0 billion for plant costs and relatedtransmission infrastructure costs, which costs are projected based onhistorical one-year and five-year escalation rates as required by the SCPSC.

 

SCE&G’s latestIntegrated Resource Plan filed with the SCPSC on February 26, 2010continues to support SCE&G’s need for 55% of the output of the two newnuclear electric generating units to be constructed at Summer Station.  SCE&G has been advised by Santee Cooperthat in light of recent developments, it is reviewing certain aspects of itscapital improvement program and long-term power supply plan, including thelevel of its participation in the two units. If Santee Cooper’s ownership interest in one or both of the unitschanges, SCE&G believes that one or more additional parties will beavailable to participate as joint owners.

 

SCE&G is unable topredict whether any change in Santee Cooper’s ownership interest or theaddition of new joint owners will increase project costs or delay thecommercial operation dates of the new units. Any such project cost increase or delay could be material.

 

Environmental Matters; Claims and Litigation

 

The following discussionshould be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations appearing in SCANA’s AnnualReport on Form 10-K, as amended, for the year ended December 31, 2009.  Below are updates representing importantchanges to the Environmental Matters discussion in that Form 10-K, asamended.

 

*Hazardous and Solid Wastes*

 

TheCompany is evaluating the effect on groundwater quality from past and currentCCP operations, which may result in operational changes and additionalmeasures.

 

At the state level,recent changes in the waste characterization of coal ash have resulted in thereclassification of the waste from a Class II to Class III waste. Therefore, modifications to the Company’s Class II landfills anddisposal practices are necessary in order to comply with the more stringent Class IIIrequirements. Although the modifications will result in increased disposalcosts, the Company believes that any additional costs imposed by suchregulations would be recoverable through rates.

 

For additionalinformation related to environmental matters and claims and litigation, seeNotes 7B and 7C to the condensed consolidated financial statements.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Interest Rate Risk - TheCompany’s market risk exposures relative to interest rate risk have not changedmaterially compared with the Company’s Annual Report on Form 10-K, asamended, for the year ended December 31, 2009.  Interestrates on a significant portion of the Company’s outstanding long-term debt,other than credit facility draws, are fixed either through the issuance offixed rate debt or through the use of interest rate derivatives.  TheCompany is not aware of any facts or circumstances that would significantlyaffect exposures on existing indebtedness in the near future.  Forfurther discussion of changes in long-term debt and interest ratederivatives, see ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS – LIQUIDITY AND CAPITAL RESOURCES andalso Notes 3 and 5 of the condensed consolidated financial statements.

 

27

----

 

Commodity price risk -The Company uses derivative instruments to hedge forward purchases and sales ofnatural gas, which create market risks of different types.  See Note 5 of the condensed consolidatedfinancial statements.  The following tables provide information about theCompany’s financial instruments that are sensitive to changes in natural gasprices.  Weighted average settlementprices are per 10,000 dekatherms.  Fairvalue represents quoted market prices for these or similar instruments.

 
| Expected Maturity:                           |      |    |   |                |          |      |        |
|----------------------------------------------|-----------|---------|--------|---------------------|---------------|-----------|-------------|
| Futures Contracts                            |      | Options |
|                                         |      |    |   | Purchased Call      | Purchased Put | Sold Put  | Sold Call   |
| 2010                                         | Long      |    |   | 2010                | (Long)        | (Short)   | (Long)      | (Short) |
| Settlement Price (a)                         | 4.26      |    |   | Strike Price (a)    | 6.76          | 5.00      | 5.00        | 7.33 |
| Contract Amount (b)                          |  8.2 |    |   | Contract Amount (b) | 33.8          |  0.6 |  0.6   |  2.6 |
| Fair Value (b)                               |  6.7 |    |   | Fair Value (b)      |  0.4     |  0.1 |  (0.1) |    - |
|                                         |      |    |   |                |          |      |        |   |
| 2011                                         |      |    |   | 2011                |          |      |        |   |
| Settlement Price (a)                         | 5.35      |    |   | Strike Price (a)    | 7.30          |      |        | 7.00 |
| Contract Amount (b)                          |  2.0 |    |   | Contract Amount (b) | 19.2          |      |        |  0.6 |
| Fair Value (b)                               |  1.8 |    |   | Fair Value (b)      |  0.6     |      |        |    - |
|                                         |      |    |   |                |          |      |        |   |
| (a)Weighted average, in  dollars   |      |    |   |                |          |      |
| (b)Millions of dollars                       |      |    |   |                |          |      |

 
| Swaps                                        | 2010   | 2011   | 2012   | 2013   |
|----------------------------------------------|--------|--------|--------|--------|
| Commodity Swaps:                             |   |   |   |   |   |   |   |   |
| Pay fixed/receive  variable (b)              | 53.8   |   | 30.1   |   | 10.8 |   | 3.7 |   |
| Average pay rate (a)                         | 6.1341 |   | 6.4789 |   | 6.7931 |   | 7.8450 |   |
| Average received rate (a)                    | 4.3570 |   | 5.3527 |   | 5.7887 |   | 6.0787 |   |
| Fair value (b)                               | 38.2   |   | 24.9   |   | 9.2 |   | 2.9 |   |
|                                         |   |   |   |   |   |   |   |   |
| Pay variable/receive  fixed (b)              | 20.0   |   | 13.3   |   | 6.1 |   | - |   |
| Average pay rate (a)                         | 4.2978 |   | 5.3486 |   | 5.7813 |   | - |   |
| Average received rate (a)                    | 5.8377 |   | 6.4195 |   | 6.3252 |   | - |   |
| Fair value (b)                               | 27.1   |   | 15.9   |   | 6.7 |   | - |   |
|                                         |   |   |   |   |   |   |   |   |
| Basis Swaps:                                 |   |   |   |   |   |   |   |   |
| Pay fixed/receive  variable (b)              | 21.3   |   | 7.3    |   | 3.6 |   | 2.9 |   |
| Average pay rate (a)                         | 4.2707 |   | 5.3689 |   | 5.8549 |   | 6.1687 |   |
| Average received rate (a)                    | 4.2539 |   | 5.3354 |   | 5.7757 |   | 6.0766 |   |
| Fair value (b)                               | 21.2   |   | 7.2    |   | 3.5 |   | 2.9 |   |
|                                         |   |   |   |   |   |   |   |   |
| (a) Weighted average, in  dollars  |   |   |   |   |   |   |   |   |
| (b) Millions of dollars                 |   |   |   |   |   |   |   |   |

 

**ITEM4. CONTROLS AND PROCEDURES**

 

As of March 31,2010, SCANA conducted an evaluation under the supervision and with theparticipation of its management, including its CEO and CFO, of (a) theeffectiveness of the design and operation of its disclosure controls andprocedures and (b) any change in its internal control over financialreporting.  Based on this evaluation, theCEO and CFO concluded that, as of March 31, 2010, SCANA’s disclosurecontrols and procedures were effective. There has been no change in SCANA’s internal control over financialreporting during the quarter ended March 31, 2010 that has materiallyaffected or is reasonably likely to materially affect SCANA’s internal controlover financial reporting.

 

 

28

----

 

 

**SOUTH CAROLINA ELECTRIC & GAS COMPANY**

**FINANCIALSECTION**

 

 

29

----

 

**ITEM 1.FINANCIAL STATEMENTS**

 

SOUTH CAROLINAELECTRIC & GAS COMPANY

CONDENSEDCONSOLIDATED BALANCE SHEETS

(Unaudited)

 
|                                                                          |   | March 31, |   | December 31, |   |
|-------------------------------------------------------------------------------|--------|----------------|--------|-------------------|--------|
| Millions of dollars                                                           |   | 2010           |   | 2009              |   |
| Assets                                                                        |   |           |   |              |   |   |   |
|                                                                          |   |           |   |              |   |   |   |
| Utility Plant In  Service                                                     |   | $              | 9,572  |              | $      | 9,286 |   |
| Accumulated  Depreciation and Amortization                                    |   |           | (2,968 | )                 |   | (2,926 | ) |
| Construction Work in  Progress                                                |   |           | 1,007  |              |   | 1,138 |   |
| Nuclear Fuel, Net of  Accumulated Amortization                                |   |           | 88     |              |   | 97 |   |
| Utility Plant, Net                                                            |   |           | 7,699  |              |   | 7,595 |   |
|                                                                          |   |           |   |              |   |   |   |
| Nonutility Property and  Investments:                                         |   |           |   |              |   |   |   |
|   Nonutility  property, net of accumulated depreciation             |   |           | 43     |              |   | 42 |   |
|   Assets held  in trust, net - nuclear decommissioning              |   |           | 70     |              |   | 69 |   |
|   Other investments                                                 |   |           | 3      |              |   | - |   |
|   Nonutility  Property and Investments, Net                         |   |           | 116    |              |   | 111 |   |
|                                                                          |   |           |   |              |   |   |   |
| Current Assets:                                                               |   |           |   |              |   |   |   |
|   Cash and cash  equivalents                                             |   |           | 54     |              |   | 134 |   |
|   Receivables, net  of allowance for uncollectible accounts of $3 and $3 |   |           | 378    |              |   | 397 |   |
|   Receivables - affiliated  companies                                    |   |           | 6      |              |   | 41 |   |
|   Inventories (at  average cost):                                        |   |           |   |              |   |   |   |
|     Fuel  and gas supply                                       |   |           | 239    |              |   | 259 |   |
|      Materials and supplies                                    |   |           | 110    |              |   | 107 |   |
|      Emission allowances                                       |   |           | 9      |              |   | 10 |   |
|   Prepayments  and other                                            |   |           | 78     |              |   | 89 |   |
|    Total Current Assets                                             |   |           | 874    |              |   | 1,037 |   |
|                                                                          |   |           |   |              |   |   |   |
| Deferred Debits and  Other Assets:                                            |   |           |   |              |   |   |   |
|    Regulatory assets                                                |   |           | 966    |              |   | 936 |   |
|    Other                                                            |   |           | 132    |              |   | 134 |   |
|    Total Deferred Debits and Other Assets                           |   |           | 1,098  |              |   | 1,070 |   |
| Total                                                                         |   | $              | 9,787  |              | $      | 9,813 |   |

 

 

30

----

 
|                                                            |   | March 31, |   |  December 31, |   |
|-----------------------------------------------------------------|--------|----------------|--------|-------------------------|--------|
| Millions of dollars                                             |   | 2010           |   | 2009                    |   |
| Capitalization and Liabilities                                  |   |           |   |                    |   |   |   |
|                                                            |   |           |   |                    |   |   |   |
| Common equity                                                   |   | $              | 3,204  |                    | $      | 3,162 |   |
| Noncontrolling interest                                         |   |           | 97     |                    |   | 97 |   |
| Long-Term Debt, net                                             |   |           | 3,049  |                    |   | 3,158 |   |
| Total Capitalization                                            |   |           | 6,350  |                    |   | 6,417 |   |
|                                                            |   |           |   |                    |   |   |   |
| Current Liabilities:                                            |   |           |   |                    |   |   |   |
|   Short-term  borrowings                              |   |           | 216    |                    |   | 254 |   |
|   Current  portion of long-term debt                  |   |           | 168    |                    |   | 18 |   |
|   Accounts  Payable                                   |   |           | 195    |                    |   | 250 |   |
|   Affiliated  Payables                                |   |           | 157    |                    |   | 144 |   |
|   Customer  deposits and customer prepayments         |   |           | 70     |                    |   | 51 |   |
|   Taxes  accrued                                      |   |           | 55     |                    |   | 128 |   |
|   Interest  accrued                                   |   |           | 48     |                    |   | 51 |   |
|   Dividends  declared                                 |   |           | 47     |                    |   | 50 |   |
|   Other                                               |   |           | 67     |                    |   | 43 |   |
|    Total Current Liabilities                          |   |           | 1,023  |                    |   | 989 |   |
|                                                            |   |           |   |                    |   |   |   |
| Deferred Credits and  Other Liabilities:                        |   |           |   |                    |   |   |   |
|    Deferred income taxes, net                         |   |           | 982    |                    |   | 972 |   |
|    Deferred investment tax credits                    |   |           | 93     |                    |   | 111 |   |
|    Asset retirement obligations                       |   |           | 464    |                    |   | 458 |   |
|    Due to parent - postretirement and  other benefits |   |           | 195    |                    |   | 195 |   |
|    Regulatory liabilities                             |   |           | 650    |                    |   | 639 |   |
|    Other                                              |   |           | 30     |                    |   | 32 |   |
|    Total Deferred Credits and Other Liabilities       |   |           | 2,414  |                    |   | 2,407 |   |
|  

Commitments and  Contingencies (Note 7)                 |   |           | -      |                    |   | - |   |
|  Total                                                     |   | $              | 9,787  |                    | $      | 9,813 |   |

 

See Notes to Condensed Consolidated FinancialStatements.

 

 

31

----

 

SOUTH CAROLINAELECTRIC & GAS COMPANY

CONDENSEDCONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 
|                                                                 |   |   | Three Months  Ended |   |
|----------------------------------------------------------------------|--------|--------|---------------------|--------|
|                                                                 |   |   | March 31,      |   |
| Millions of  dollars                                                 |   |   | 2010                |   |   | 2009 |   |
| Operating  Revenues:                                                 |   |   |                |   |   |   |   |
|   Electric                                                      |   | $      | 542                 |   | $ | 500 |   |
|   Gas                                                           |   |   | 180                 |   |   | 157 |   |
|   Total Operating Revenues                                      |   |   | 722                 |   |   | 657 |   |
|                                                                 |   |   |                |   |   |   |   |
| Operating Expenses:                                                  |   |   |                |   |   |   |   |
|   Fuel used in electric generation                              |   |   | 236                 |   |   | 186 |   |
|   Purchased power                                               |   |   | 2                   |   |   | 5 |   |
|   Gas purchased for resale                                 |   |   | 119                 |   |   | 105 |   |
|   Other operation and maintenance                               |   |   | 132                 |   |   | 124 |   |
|   Depreciation and amortization                                 |   |   | 66                  |   |   | 68 |   |
|   Other taxes                                                   |   |   | 44                  |   |   | 41 |   |
|   Total Operating Expenses                                      |   |   | 599                 |   |   | 529 |   |
|                                                                 |   |   |                |   |   |   |   |
| Operating Income                                                     |   |   | 123                 |   |   | 128 |   |
|                                                                 |   |   |                |   |   |   |   |
| Other Income (Expense):                                              |   |   |                |   |   |   |   |
|   Other income                                                  |   |   | 4                   |   |   | 3 |   |
|   Other expenses                                                |   |   | (3                  | )      |   | (3 | ) |
|   Interest charges, net of allowance for  borrowed funds        |   |   |                |   |   |   |   |
|      used during construction of  $2 and $5      |   |   | (47                 | )      |   | (40 | ) |
|   Allowance for equity funds used during  construction     |   |   | 3                   |   |   | 7 |   |
| Total Other Expense                                                  |   |   | (43                 | )      |   | (33 | ) |
|                                                                 |   |   |                |   |   |   |   |
|                                                                 |   |   |                |   |   |   |   |
| Income Before Income Tax Expense and Preferred  Stock Dividends |   |   | 80                  |   |   | 95 |   |
| Income Tax Expense                                                   |   |   | 16                  |   |   | 31 |   |
|                                                                 |   |   |                |   |   |   |   |
| Net Income                                                           |   |   | 64                  |   |   | 64 |   |
| Less Net Income Attributable to Noncontrolling  Interest             |   |   | 2                   |   |   | 2 |   |
|                                                                 |   |   |                |   |   |   |   |
| Net Income Attributable to SCE&G                                 |   |   | 62                  |   |   | 62 |   |
| Preferred Stock Cash Dividends Declared                              |   |   | -                   |   |   | 2 |   |
|                                                                 |   |   |                |   |   |   |   |
| Earnings Available to Common Shareholder                             |   | $      | 62                  |   | $ | 60 |   |
|                                                                 |   |   |                |   |   |   |   |
| Dividends Declared on Common Stock                                   |   | $      | 47                  |   | $ | 41 |   |

 

See Notes to CondensedConsolidated Financial Statements.

 

 

32

----

 

SOUTH CAROLINAELECTRIC & GAS COMPANY

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 
|                                                                                                                                                             |   | Three Months  Ended |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|--------|
|                                                                                                                                                             |   | March 31,      |   |
| Millions of dollars                                                                                                                                              |   |                | 2010   |   |   | 2009 |   |
| Cash Flows From Operating Activities:                                                                                                                            |   |                |   |   |   |   |   |
|   Net income                                                                                                                                                |   | $                   | 64     |   | $ | 64 |   |
|   Adjustments to  reconcile net income to net cash provided from operating activities:                                                                      |   |                |   |   |   |   |   |
|      Deferred income taxes, net                                                                                                              |   |                | 10     |   |   | 17 |   |
|      Depreciation and amortization                                                                                                           |   |                | 70     |   |   | 68 |   |
|      Amortization of nuclear fuel                                                                                                            |   |                | 9      |   |   | 5 |   |
|      Allowance for equity funds used during  construction                                                                                    |   |                | (3     | ) |   | (7 | ) |
|      Carrying cost recovery                                                                                                                  |   |                | (1     | ) |   | (1 | ) |
|   Cash  provided (used) by changes in certain assets and liabilities:                                                                                  |   |                |   |   |   |   |   |
|      Receivables                                                                                                                             |   |                | 13     |   |   | 174 |   |
|      Inventories                                                                                                                             |   |                | 7      |   |   | (18 | ) |
|      Prepayments and other                                                                                                                   |   |                | 7      |   |   | 58 |   |
|      Regulatory assets                                                                                                                       |   |                | (31    | ) |   | (192 | ) |
|      Regulatory liabilities                                                                                                                  |   |                | 3      |   |   | 20 |   |
|      Accounts payable                                                                                                                        |   |                | (15    | ) |   | (12 | ) |
|      Taxes accrued                                                                                                                           |   |                | (73    | ) |   | (86 | ) |
|      Interest accrued                                                                                                                        |   |                | (3     | ) |   | (3 | ) |
|    Changes  in other assets                                                                                                                       |   |                | (9     | ) |   | (4 | ) |
|    Changes  in other liabilities                                                                                                                  |   |                | 29     |   |   | (1 | ) |
|  Net Cash Provided  From Operating Activities                                                                                                               |   |                | 77     |   |   | 82 |   |
| Cash Flows From  Investing Activities:                                                                                                                           |   |                |   |   |   |   |   |
|   Utility  property additions and construction expenditures                                                                                            |   |                | (197   | ) |   | (194 | ) |
|   Proceeds  from investments and sale of assets                                                                                                        |   |                | 4      |   |   | - |   |
|   Nonutility  property additions                                                                                                                       |   |                | (1     | ) |   | - |   |
|    Investment in affiliate                                                                                                                             |   |                | 41     |   |   | 17 |   |
|   Investments                                                                                                                                          |   |                | (1     | ) |   | - |   |
| Net Cash Used For  Investing Activities                                                                                                                          |   |                | (154   | ) |   | (177 | ) |
| Cash Flows From  Financing Activities:                                                                                                                           |   |                |   |   |   |   |   |
|   Proceeds from issuance of long-term debt                                                                                                                  |   |                | 50     |   |   | 185 |   |
|   Repayment of long-term debt                                                                                                                               |   |                | (9     | ) |   | (105 | ) |
|   Dividends                                                                                                                                                 |   |                | (50    | ) |   | (44 | ) |
|   Contributions from parent                                                                                                                                 |   |                | 25     |   |   | 100 |   |
|   Short-term borrowings –affiliate, net                                                                                                                |   |                | 19     |   |   | - |   |
|   Short-term borrowings, net                                                                                                                                |   |                | (38    | ) |   | 58  |   |
| Net Cash Provided From  (Used For) Financing Activities                                                                                                          |   |                | (3     | ) |   | 194 |   |
| Net Increase (Decrease)  In Cash and Cash Equivalents                                                                                                            |   |                | (80    | ) |   | 99 |   |
| Cash and Cash  Equivalents, January 1                                                                                                                       |   |                | 134    |   |   | 119 |   |
| Cash and Cash  Equivalents, March 31                                                                                                                   |   | $                   | 54     |   | $ | 218 |   |
|  Supplemental Cash  Flow Information:                                                                                                                       |   |                |   |   |   |   |   |
|   Cash paid  for - Interest (net of capitalized interest of $2 and $5)                                                                                 |   | $                   | 47     |   | $ | 39 |   |
|                           - Income taxes |   |                | -      |   |   | - |   |
|  

 Noncash Investing  and Financing Activities:                                                                                                       |   |                |   |   |   |   |   |
|   Accrued  construction expenditures                                                                                                                        |   |                | 95     |   |   | 68 |   |

 

See Notes to CondensedConsolidated Financial Statements.

 

 

33

----

 

SOUTHCAROLINA ELECTRIC & GAS COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVEINCOME

(Unaudited)

 
|                                                                     | Three Months  Ended |   |
|--------------------------------------------------------------------------|---------------------|--------|
|                                                                     | March 31,      |   |
| Millions of  dollars                                                     |                | 2010   |   | 2009 |   |   |
| Net Income                                                               |                | $      | 64 |   | $ | 64 |   |   |
| Other Comprehensive Income, net of tax:                                  |                |   |   |   |   |   |   |   |
|   Reclassification to net income -  amortization of deferred   |                |   |   |   |   |   |   |   |
|      employee benefit plan  costs, net of taxes |                |   | 1 |   |   | 1 |   |   |
| Total Comprehensive Income                                               |                |   | 65 |   |   | 65 |   |   |
| Less Comprehensive Income Attributable to  Noncontrolling Interest       |                |   | (2 | ) |   | (4 | ) |   |
| Comprehensive Income Available to Common Shareholder  (1)                |                | $      | 63 |   | $ | 61 |   |   |

 

(1)  Accumulated other comprehensiveloss totaled $32.3 million as of March 31, 2010 and $33.0million as of December 31, 2009.

 

See Notes to CondensedConsolidated Financial Statements. 

 

 

34

----

 

SOUTH CAROLINAELECTRIC & GAS COMPANY

NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31,2010

(Unaudited)

 

The following notesshould be read in conjunction with the Notes to Consolidated FinancialStatements appearing in SCE&G’s Annual Report on Form 10-K,as amended, for the year ended December 31, 2009.  These are interim financial statements, anddue to the seasonality of SCE&G Consolidated’s business and matters thatmay occur during the rest of the year, the amounts reported in the CondensedConsolidated Statements of Income are not necessarily indicative of amountsexpected for the full year.  In theopinion of management, the information furnished herein reflects alladjustments, all of a normal recurring nature, which are necessary for a fairstatement of the results for the interim periods reported.

 

1.             SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

A.            Variable Interest Entity

 

An enterprise’sconsolidated financial statements are required to include entities in which theenterprise has a controlling financial interest.  SCE&G has determined that it has acontrolling financial interest in GENCO and Fuel Company, and accordingly, theaccompanying condensed consolidated financial statements include the accountsof SCE&G, GENCO and Fuel Company. The equity interests in GENCO and Fuel Company are held solely bySCANA.  Accordingly, GENCO’s and FuelCompany’s equity and results of operations are reflected asnoncontrolling interest in SCE&G Consolidated’s condensed consolidatedfinancial statements.

 

GENCO owns a coal-firedelectric generating station with a 570 megawatt net generating capacity (summerrating). GENCO’s electricity is sold solely to SCE&G under the terms ofpower purchase and related operating agreements.  Fuel Company acquires, owns and providesfinancing for SCE&G’s nuclear fuel, fossil fuel and emissionallowances.  The effects of thesetransactions are eliminated in consolidation. Substantially all of GENCO’s property (carrying value of $499.4 million)serves as collateral for its long-term borrowings.

 

B.            Basis of Accounting

 

SCE&G Consolidatedhas significant cost-based, rate-regulated operations and recognizes in itsfinancial statements certain revenues and expenses in different time periodsthan do enterprises that are not rate-regulated.  As a result,SCE&G Consolidated has recorded regulatory assets and regulatoryliabilities, which are summarized in the following tables.  Substantially all of our regulatory assetsare either explicitly excluded from rate base or are effectively excluded fromrate base due to their being offset by related liabilities.

 
|                                                      |   | March 31, |   | December 31, |   |
|-----------------------------------------------------------|--------|----------------|--------|-------------------|--------|
| Millions of dollars                                       |   | 2010           |   | 2009              |   |
| Regulatory Assets:                                        |   |           |   |              |   |
| Accumulated deferred  income taxes                        |   | $              | 167    |              | $      | 167 |   |
| Under collections –  electric fuel adjustment clause |   |           | 79     |              |   | 55 |   |
| Environmental  remediation costs                          |   |           | 20     |              |   | 19 |   |
| Asset retirement  obligations and related funding         |   |           | 269    |              |   | 265 |   |
| Franchise agreements                                      |   |           | 49     |              |   | 50 |   |
| Deferred employee  benefit plan costs                     |   |           | 306    |              |   | 306 |   |
| Planned major  maintenance                                |   |           | 4      |              |   | 5 |   |
| Other                                                     |   |           | 72     |              |   | 69 |   |
| Total Regulatory Assets                                   |   | $              | 966    |              | $      | 936 |   |

 
| Regulatory Liabilities:            |   |   |   |   |   |   |   |
|------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Accumulated deferred  income taxes |   | $      | 28     |   | $      | 29     |   |
| Other asset removal  costs         |   |   | 543    |   |   | 535    |   |
| Storm damage reserve               |   |   | 45     |   |   | 44     |   |
| Other                              |   |   | 34     |   |   | 31     |   |
| Total Regulatory  Liabilities      |   | $      | 650    |   | $      | 639    |   |

 

 

35

----

 

Accumulated deferredincome tax liabilities arising from utility operations that have not beenincluded in customer rates are recorded as a regulatoryasset.  Substantially all of these regulatory assets are expected tobe recovered over the remaining lives of the related property which may rangeup to approximately 70 years.  Similarly,accumulated deferred income tax assets arising from deferred investment taxcredits are recorded as a regulatory liability.

 

Under-collections–electricfuel adjustment clause represent amounts due from customers pursuant tothe fuel adjustment clause as approved by the SCPSC during annual hearingswhich are expected to be recovered in retail electric rates during futureperiods.  These amounts are expected to be recovered in retailelectric rates during the period May 2011 through April 2012.  SCE&G is allowed to collect interest onthe deferred balance through the recovery period.

 

Environmental remediationcosts represent costs associated with the assessment and clean-up of MGP sitescurrently or formerly owned by SCE&G.  These regulatory assetsare expected to be recovered over approximately 14 years.

 

ARO and related fundingrepresents the regulatory asset associated with the legal obligation todecommission and dismantle Summer Station and conditional AROs.  These regulatory assets are expected to berecovered over the related property lives and periods of decommissioning whichmay range up to approximately 95 years.

 

Franchise agreementsrepresent costs associated with electric and gas franchise agreements with thecities of Charleston and Columbia, South Carolina.  Based on an SCPSCorder, SCE&G began amortizing these amounts through cost of service ratesin February 2003 over approximately 20 years.

 

Employee benefit plancosts of the regulated utilities have historically been recovered as they havebeen recorded under generally accepted accounting principles. Deferred employeebenefit plan costs represent amounts** **ofpension and other postretirement benefit costs which were accrued asliabilities and treated as regulatory assets pursuant to FERC guidance, andcosts deferred pursuant to specific SCPSC regulatory orders.  These deferred costs are expected to berecovered through utility rates over average service periods of participatingemployees, or up to approximately 14 years.

 

Various other regulatoryassets are expected to be recovered in rates over periods of up to 30 years.

 

Other asset removal costsrepresent estimated net collections through depreciation rates of amounts to beincurred for the removal of assets in the future.

 

The storm damage reserverepresents an SCPSC-approved collection through SCE&G electric rates,capped at $100 million, which can be applied to offset incremental stormdamage costs in excess of $2.5 million in a calendar year, certain transmissionand distribution insurance premiums and certain vegetation managementexpenditures in excess of amounts included in base rates.  During eachof the three months ended March 31, 2010 and 2009, SCE&G applied costsof $0.7 million to the reserve.

 

Planned major maintenancerelates to certain fossil hydro turbine/generation equipment and nuclearrefueling outages is accrued in periods other than when incurred, as approvedthrough specific SCPSC orders.  SCE&G is collecting $8.5 millionannually, ending December 2013, through electric rates to offset turbinemaintenance expenditures.  Nuclear refueling charges are accruedduring each 18-month refueling outage cycle as a component of cost of service.

 

The SCPSC or theFERC have reviewed and approved through specific orders most of the items shownas regulatory assets.  Other regulatory assets include certaincosts which have not been approved for recovery by the SCPSC or byFERC.  In recording these costs as regulatory assets, managementbelieves the costs will be allowable under existing rate-making concepts thatare embodied in rate orders received by SCE&G.  In addition,SCE&G has* *deferred inutility plant in service approximately $76.9 million of unrecovered costsrelated to the Lake Murray backup dam project and $70.1 million of costsrelated to the installation of SCR technology at its Cope Stationgenerating facility.  See Note 7B.  These costs are notcurrently being recovered, but are expected to be recovered through rates infuture periods.  In the future, as a result of deregulation or otherchanges in the regulatory environment or changes in accounting requirements,SCE&G Consolidated could be required to write off its regulatory assets andliabilities.  Such an event could have a material adverse effect onSCE&G Consolidated’s results of operations, liquidity or financial positionin the period the write-off would be recorded.

 

C.            Affiliated Transactions

 

CGT transports naturalgas to SCE&G to supply certain electric generation requirements and toserve SCE&G’s retail gas customers.  SCE&G had approximately$2.7 million and $2.8 million payable to CGT for transportation services at March 31,2010 and December 31, 2009, respectively.

 

 

36

----

 

SCE&G purchasesnatural gas and related pipeline capacity from SEMI to supply its Jasper CountyElectric Generating Station, Urquhart Electric Generation Station and to serveits retail gas customers.  Such purchases totaled approximately $48.5million and $42.0 million for the three months ended March 31, 2010 and2009, respectively.  SCE&G’s payables to SEMI for such purposeswere $9.3 million and $13.3 million as of March 31, 2010 and December 31,2009, respectively.

 

SCE&G owns 40% ofCanadys Refined Coal, LLC and 10% of Cope Refined Coal, LLC, both involved inthe manufacturing and selling of refined coal to reduce emissions. SCE&G’s receivables from these affiliates were $5.9 million at March 31,2010.  SCE&G’s payables to these affiliates were $5.9 million at March 31,2010.  SCE&G accounts for these investments using the equity method.

 

SCE&G Consolidatedparticipates in a utility money pool.  Money pool borrowings andinvestments bear interest at short-term market rates.  SCE&GConsolidated’s interest income and interest expense on money pool borrowingswas not significant for the three months ended March 31, 2010 and2009.  At March 31, 2010 and December 31, 2009,SCE&G Consolidated owed an affiliate $89.0 million and $29.2 million,respectively.

 

D.            Pension and Other Postretirement BenefitPlans

 

SCE&G Consolidatedparticipates in SCANA’s noncontributory defined benefit pension plan, which coverssubstantially all permanent employees, and also participates in SCANA’sunfunded postretirement health care and life insurance programs, which providebenefits to active and retired employees.   SCE&G Consolidated’snet periodic benefit cost for the pension plan was $5.0 million for the threemonths ended March 31, 2010 and $8.4 million for the three months ended March 31,2009 (which include deferred amounts, see below).  Net periodicbenefit cost for the postretirement plan was $3.5 million for the three monthsended March 31, 2010, and was $3.3 million for the corresponding period in2009.

 

The SCPSC allowsSCE&G to mitigate a significant portion of its pension cost by deferring asa regulatory asset the amount of pension expense above that which is includedin current rates for SCE&G’s retail electric and gas distribution regulatedoperations.  Costs totaling $5.3 million and $7.8 million weredeferred for the three months ended March 31, 2010 and 2009, respectively.

 

E.             New Accounting Matters

 

Effective January 1,2010, SCE&G Consolidated adopted accounting guidance that requiresadditional disclosures for assets and liabilities recorded at fair value.  This guidance requires disclosure of fairvalues for each class of assets and liabilities.  In addition, when the basis for measuring thefair value of a previously recorded asset or liability changes, this guidancerequires disclosure of values transferred between Levels 1 and 2 of the fairvalue hierarchy, if significant.  Theinitial adoption of this guidance did not impact SCE&G Consolidated’sresults of operations, cash flows or financial position.

 

Effective January 1,2010, SCE&G Consolidated adopted accounting guidance that replaces thequantitative based calculation for determining which reporting entity has acontrolling interest in a variable interest entity with a qualitativeapproach.  The guidance also requiresadditional disclosures about a reporting entity’s involvement with variableinterest entities and any significant changes in risk exposure.  The initial adoption of this guidance did notimpact SCE&G Consolidated’s results of operations, cash flows or financialposition.

 

F.             Income Taxes

 

In the firstquarter of 2010, SCE&G accelerated the recognition of previously deferredstate income tax credits.  (See Note2).  No other material changes in thestatus of SCE&G Consolidated’s tax positions have occurred through March 31,2010.

 

 

37

----

 

2.             REGULATORY MATTERS

 

Electric

 

SCE&G’s electric ratesare established using a cost of fuel component approved by the SCPSC which maybe adjusted periodically to reflect changes in the price of fuel purchased bySCE&G.  In April 2010, the SCPSC approved a settlementagreement between SCE&G, the ORS, and the South Carolina Energy UsersCommittee authorizing SCE&G to decrease the fuel cost portion of itselectric rates, effective with the first billing cycle of May 2010.  Thesettlement agreement included a provision incorporating SCE&G’s proposal toaccelerate the recognition of previously deferred state income tax credits inthe amount of $17.4 million, and record an offsetting reduction to the recoveryof fuel costs.  In addition, SCE&Gagreed to defer recovery of its actual undercollected base fuel costs as of April 30,2010 for the period of May 1, 2010 through April 30, 2011.  SCE&G is allowed to charge and recovercarrying costs monthly on the actual base fuel costs undercollected balance asof the end of each month during this deferral period.  Beginning with the first billing cycle of May 2011,SCE&G will begin recovering the under-recovered balance of fuel costs plusinterest on the remaining balance over the subsequent 12 months.

 

In January 2010,SCE&G filed an application with the SCPSC requesting a 9.52% overallincrease to retail electric base rates.  If the request were to beapproved without modification, the increase in rates would be phased in overthree periods in July 2010, January 2011 and July 2011.  OnMay 2, 2010, SCE&G entered into a stipulation with the ORS related to certainaspects of this application.  Ifapproved, the stipulation lowers SCE&G’s proposed return on common equityfrom 11.6% to 10.7%, supports the implementation of a 12-month pilot weathernormalization mechanism for SCE&G’s electric customers, and provides forthe issuance of a credit of approximately $25 million to SCE&G’s electriccustomers.  The stipulation, withoutconsideration of any other proposed adjustments, effectively reducesSCE&G’s proposed overall increase to 6.55%. As a result of the stipulation, SCE&G has deferred within othercurrent liabilities $25 million of estimated weather-related revenues from thefirst quarter of 2010 for refund to customers.

 

In January 2010, theSCPSC approved SCE&G’s request for an order pursuant to the BLRA to approvean updated construction and capital cost schedule for the construction of twonew nuclear generating units at Summer Station.  The updated scheduleprovides details of the construction and capital cost schedule beyond what wasproposed and included in the original BLRA filing describedbelow.  The revised schedule does not change the previously announcedcompletion date for the new units or the originally announced cost.

 

In December 2009,SCE&G submitted to the FERC for filing revised tariff sheets to change thenetwork and point to point transmission rates under SCE&G’s OpenAccess Transmission Tariff.  The request, if approved, would result in anannual revenue increase of $5.6 million.   The requested rates utilizea cost of service formula, which departs from the traditional rate structurecurrently in effect.  On March 1,2010 pursuant to an order issued by the FERC, SCE&G implemented, subject torefund, proposed tariff sheets.

 

In June 2009,SCE&G filed a request with the SCPSC for approval of the implementation ofcertain demand reduction and energy efficiency programs (DSMprograms).  SCE&G has requested the establishment of an annualrider to allow recovery of the costs and lost net margin revenue associatedwith DSM programs, along with an incentive for investing in suchprograms.  On March 31, 2010, SCE&G along with ORS andcertain other parties filed settlement agreements resolving all issues on thismatter.  The SCPSC held a hearing onSCE&G’s request and the settlement agreements on April 1, 2010.  SCE&G cannot determine when the SCPSCwill issue an order on this matter.

 

In February 2009,the SCPSC approved SCE&G’s combined application pursuant to the BLRAseeking a certificate of environmental compatibility and public convenience andnecessity and for a base load review order relating to the proposedconstruction and operation by SCE&G and Santee Cooper of two new nucleargenerating units at Summer Station.  Underthe BLRA, the SCPSC conducted a full pre-construction prudency review of theproposed units and the engineering, procurement, and construction contractunder which they are being built.  TheSCPSC prudency finding is binding on all future related rate proceedings solong as the construction proceeds in accordance with schedules, estimates andprojections, including contingencies, as approved by the SCPSC.  As part of its order, the SCPSC approved theinitial rate increase of $7.8 million, or 0.4%, related to recovery of the costof capital on project expenditures through June 30, 2008, and the revisedrates became effective for bills rendered on and after March 29,2009.  In May 2009, two intervenorsfiled separate appeals of the order (one of which challenged the SCPSC’sprudency finding) with the South Carolina Supreme Court.  With regard to the first appeal, whichchallenged the SCPSC’s prudency finding, the South Carolina Supreme Courtissued an opinion on April 26, 2010, affirming the decision of theSCPSC.  As for the second appeal, theSouth Carolina Supreme Court heard oral arguments on April 6, 2010.  SCE&G cannot predict how the Court will rule orwhen the Court will issue its ruling.

 

Under the BLRA, SCE&Gis allowed to file revised rates with the SCPSC each year to incorporate thefinancing cost of any incremental construction work in progress incurred fornew nuclear generation.  Requested rateadjustments are based on SCE&G’s updated cost of debt and capital structureand on an allowed return on common equity of 11%.  In September 2009, the SCPSC approvedSCE&G’s first annual revised rate request under the BLRA which constituteda $22.5 million or 1.1% increase to retail electric rates.

 

 

38

----

 

Gas

 

The RSA is designed toreduce the volatility of costs charged to customers by allowing for more timelyrecovery of the costs that regulated utilities incur related to natural gasinfrastructure.  In October 2009, the SCPSC approved an increasein SCE&G’s retail natural gas base rates of $13 million under the terms ofthe RSA.  The rate adjustment was effective with the first billingcycle of November 2009.

 

SCE&G’s tariffsinclude a PGA clause that provides for the recovery of actual gas costsincurred including costs related to hedging natural gas purchasingactivities.  SCE&G’s rates are calculated using a methodologywhich adjusts the cost of gas monthly based on a 12-month rollingaverage.  In December 2009, in connection with the annualreview of the PGA and the gas purchasing policies of SCE&G, the SCPSCdetermined that SCE&G’s gas costs, including all hedging transactions, werereasonable and prudently incurred during the 17 months ended July 31,2009.

 

3.             LONG-TERM DEBT AND LIQUIDITY

 

Long-term Debt

 

Substantially all ofSCE&G Consolidated’s electric utility plant is pledged as collateral inconnection with long-term debt. SCE&G Consolidated is in compliance withall debt covenants.

 

Liquidity

 

SCE&G (including FuelCompany) had available the following committed LOC, and had outstanding the followingLOC advances, commercial paper, and LOC-supported letter of credit obligations:

 
|                                                                                                                       | SCE&G  Consolidated (a)(b) |           |
|----------------------------------------------------------------------------------------------------------------------------|-------------------------------------|----------------|
|                                                                                                                       |                                | March 31, |   |   | December 31, |   |
| Millions of  dollars                                                                                                       |                                | 2010           |   |   | 2009 |   |
| Lines of credit:                                                                                                           |                                |           |   |   |   |   |
| Committed  long-term (expire December 2011)                                                                           |                                |           |   |   |   |   |
|     Total                                                                                              | $                                   | 650            |   | $ | 650 |   |
|     LOC advances                                                                                       |                                | 150            |   |   | 100 |   |
|     Weighted average interest  rate                                                                    |                                | .51            | % |   | .50 | % |
|     Outstanding commercial paper

       (270 or  fewer days)  |                                | 216            |   |   | 254 |   |
|     Weighted average interest  rate                                                                    |                                | .32            | % |   | .33 | % |
| Letters of credit supported by LOC                                                                                         |                                | .3             |   |   | .3 |   |
| Available                                                                                                                  |                                | 284            |   |   | 296 |   |

 

(a)              SCE&G Consolidated ’s committedlong-term facilities serve to back-up the issuance of commercial paper or toprovide liquidity support.

(b)             SCE&G and Fuel Company may issuecommercial paper in the amounts of up to $350 million for SCE&G and upto $250 million for Fuel Company. Nuclear and fossil fuel inventories and emission allowances are financedthrough the issuance by Fuel Company of short-term commercial paper or LOCadvances.

 

The committed long-termfacilities are revolving lines of credit under credit agreements with asyndicate of banks.  Wells Fargo Bank, N. A provides 18.9% of theaggregate $650 million credit facilities, Bank of America, N.A. provides 14.3%,Branch Banking and Trust Company, UBS Loan Finance LLC, Morgan Stanley Bank,and Credit Suisse, each provide 10.9%, and The Bank of New York and MizuhoCorporate Bank, Ltd each provide 9.1%.  Three other banks provide theremaining 5.0%.  These bank credit facilities support the issuance ofcommercial paper by SCE&G (including Fuel Company).  When the commercial paper markets aredislocated (due to either price or availability constraints), the creditfacilities are available to support the borrowing needs of SCE&G (includingFuel Company).

 

 

39

----

 

4.             COMMON EQUITY

 

Changes in common equityduring the three months ended March 31, 2010 and 2009 were as follows:

 
|  

Millions of dollars                                     |   |   | Common

Equity |   |   | Noncontrolling

Interest |   |   | Total

Equity |   |
|-----------------------------------------------------------------|--------|--------|----------------|--------|--------|--------------------------|--------|--------|---------------|--------|
| Balance at January 1,  2010                                |   | $      | 3,162          |   | $      | 97                       |   | $      | 3,259         |   |
|      Capital  contribution from parent |   |   | 25             |   |   | -                        |   |   | 25            |   |
|      Dividends  declared               |   |   | (45            | )      |   | (2                       | )      |   | (47           | )      |
|      Net  income                       |   |   | 62             |   |   | 2                        |   |   | 64            |   |
| Balance as of March 31,  2010                              |   | $      | 3,204          |   | $      | 97                       |   | $      | 3,301         |   |

 
| Balance at January 1,  2009                                |   | $      | 2,704 |   | $      | 95 |   | $      | 2,799 |   |
|-----------------------------------------------------------------|--------|--------|-------|--------|--------|----|--------|--------|-------|--------|
|      Capital  contribution from parent |   |   | 101   |   |   | -  |   |   | 101   |   |
|      Dividends  declared               |   |   | (41)  |   |   | (2 | )      |   | (43   | )      |
|      Net  income                       |   |   | 62    |   |   | 2  |   |   | 64    |   |
| Balance as of March 31,  2009                              |   | $      | 2,826 |   | $      | 95 |   | $      | 2,921 |   |

 

5.             DERIVATIVE FINANCIAL INSTRUMENTS

 

SCE&G Consolidatedrecognizes all derivative instruments as either assets or liabilities in thestatement of financial position and measures those instruments at fairvalue.  SCE&G Consolidated recognizes changes in the fair valueof derivative instruments either in earnings, within regulatory assets orregulatory liabilities, depending upon the intended use of the derivative andthe resulting designation.  The fairvalue of derivative instruments is determined by reference to quoted marketprices of listed contracts, published quotations or, for interest rate swaps,discounted cash flow models with independently sourced data.

 

Policies and proceduresand risk limits are established to control the level of market, credit,liquidity and operational and administrative risks assumed by SCE&GConsolidated.  SCANA’s Board of Directorshas delegated to a Risk Management Committee the authority to set risk limits,establish policies and procedures for risk management and measurement, andoversee and review the risk management process and infrastructure for SCANA andeach of its subsidiaries, including SCE&G Consolidated.  The Risk Management Committee, which iscomprised of certain officers, including SCE&G Consolidated’s RiskManagement Officer and senior officers, apprises the Board of Directors withregard to the management of risk and brings to the Board’s attention any areasof concern.  Written policies define thephysical and financial transactions that are approved, as well as theauthorization requirements and limits for transactions.

 

Commodity Derivatives

 

SCE&G uses derivativeinstruments to hedge forward purchases and sales of natural gas, which createmarket risks of different types.  Instruments designated as cash flowhedges are used to hedge risks associated with fixed price obligations in avolatile market and risks associated with price differentials at differentdelivery locations.  Instruments designated as fair value hedges are usedto mitigate exposure to fluctuating market prices created by fixed prices ofstored natural gas.  The basic types of financial instrumentsutilized are exchange-traded instruments, such as NYMEX futures contracts oroptions, and over-the-counter instruments such as options and swaps, which aretypically offered by energy and financial institutions.

 

SCE&G’s tariffsinclude a PGA clause that provides for the recovery of actual gas costsincurred.  The SCPSC has ruled that the results of these hedgingactivities are to be included in the PGA.  As such, the cost ofderivatives and gains and losses on such derivatives utilized to hedge gaspurchasing activities are recoverable through the weighted average cost ofgas calculation.

The offset to the change in fair value of thesederivatives is recorded as a regulatory asset or liability.  Thesederivative financial instruments are not designated as hedges for accountingpurposes.

 

Interest Rate Swaps

 

SCE&G Consolidateduses interest rate swaps to manage interest rate risk on certain debt issuancesand to synthetically convert variable rate debt to fixed ratedebt.  In addition, in anticipation of the issuance of debt,SCE&G Consolidated may use treasury rate lock or forward starting swapagreements which are designated as cash flow hedges.  The effectiveportions of changes in fair value and payments made or received upontermination of such agreements for regulated subsidiaries are recorded inregulatory assets or regulatory liabilities.  Ineffective portions ofchanges in fair value are recognized in income.

 

 

40

----

 

The effective portion ofsettlement payments made or received upon termination are amortized to interestexpense over the term of the underlying debt and are classified as a financingactivity in the consolidated statements of cash flows.

 

Quantitative Disclosures Related to Derivatives

 

The Company was party tonatural gas derivative contracts for 1,997,000 DT at March 31, 2010 and2,365,000 DT at December 31, 2009.  The Company was a party tointerest rate swaps designated as cash flow hedges with an aggregate notionalamount of $421.4 million at March 31, 2010 and $71.4 million at December 31,2009.

 
|                                           | Fair Values of  Derivative Instruments |
|------------------------------------------------|----------------------------------------|
|                                           | Asset  Derivatives                     |   | Liability  Derivatives |
|                                           |                                   | Balance Sheet |   |   | Fair |   | Balance Sheet |   |   | Fair |
| Millions of dollars                            |                                   | Location (a) |   |   | Value |   | Location (a) |   |   | Value |
| *As of March 31, 2010*                    |                                   |   |   |   |   |   |   |   |   |   |
| Derivatives designated  as hedging instruments |                                   |   |   |   |   |   |   |   |   |   |
|   Interest  rate contracts           |                                   | Other deferred debits |   | $ | 6 |   |   |   | $ |   |
|                                           |                                   | Prepayments and other |   |   | 1 |   |   |   |   |   |
|   Total                              |                                   |   |   | $ | 7 |   |   |   | $ | - |

 
| *As of December 31, 2009*                     |   |                  |   |   |   |   |                   |   |   |   |
|----------------------------------------------------|--------|-----------------------|--------|--------|--------|--------|------------------------|--------|--------|--------|
| Derivatives designated  as hedging instruments     |   |                  |   |   |   |   |                   |   |   |   |
|   Interest  rate contracts               |   | Other deferred debits |   | $      | 4      |   | Other deferred credits |   | $      | 1      |
|                                               |   |                  |   |   |   |   |                   |   |   |   |
| Derivatives not  designated as hedging instruments |   |                  |   |   |   |   |                   |   |   |   |
|   Commodity  contracts                   |   | Prepayments and other |   | $      | 1      |   |                   |   |   |   |

 

(a)     Asset derivatives represent unrealized gains toSCE&G Consolidated, and liability derivatives represent unrealizedlosses.  In SCE&G Consolidated’s condensed consolidated balancesheet, unrealized gain and loss positions with the same counterparty arereported as either a net asset or liability.

 

The effect of derivativeinstruments on the statements of income is as follows:

 
|                                      |   |   | Gain (Loss)  Deferred   |   | Gain (Loss)  Reclassified from |   |
|-------------------------------------------|--------|--------|-------------------------|--------|--------------------------------|--------|
| Derivatives in Cash Flow                  |   |   | in Regulatory  Accounts |   | Deferred  Accounts into Income |   |
| Hedging Relationships                     |   |   | (Effective  Portion)    |   | (Effective  Portion)           |   |
| Millions of dollars                       |   |   |                    |   |   Location                |   |   |   Amount |   |
| *Three Months Ended March 31,  2010* |   |   |                    |   |                           |   |   |   |   |
| Interest rate contracts                   |   | $      | 3                       |   | Interest expense               |   | $ | (1 | ) |

 
| *Three Months Ended March 31, 2009* |   |   |   |   |             |   |   |   |   |
|------------------------------------------|--------|--------|--------|--------|------------------|--------|--------|--------|--------|
| Interest rate contracts                  |   | $      | 20     |   | Interest expense |   | $      | (1     | )      |

 
|                          | Gain (Loss)  Recognized in Income |
|-------------------------------|-----------------------------------|
| Derivatives Not Designated as | * *                          | * * |   |   |   |   |
| Hedging Instruments           |                              |   | Three Months  Ended March 31, |   |
| Millions of dollars           |                              | Location |   |   | 2010 |   |   | 2009 |   |
| Commodity contracts           |                              | Gas purchased  for resale |   | $ | (1 | ) | $ | (3 | ) |

 

Hedge Ineffectiveness

 

Other gains recognized inincome representing ineffectiveness on interest rate hedges designated as cashflow hedges were not significant for each of the three months ended March 31,2010 and 2009.

 

 

41

----

 

Credit Risk Considerations

 

Certain of SCE&GConsolidated’s derivative instruments contain contingent provisions thatrequire SCE&G Consolidated to provide collateral upon the occurrence ofspecific events, primarily credit downgrades. As of March 31, 2010, SCE&G Consolidated has posted nocollateral related to derivatives with contingent provisions that are in a netliability position.  If all of thecontingent features underlying these instruments were fully triggered as of March 31,2010, SCE&G Consolidated would be required to post no collateral to itscounterparties.  SCE&G Consolidatedhas no derivative instruments with contingent provisions that are in a netliability position as of March 31, 2010.

 

6.             FAIR VALUE MEASUREMENTS, INCLUDINGDERIVATIVES

 

SCE&G Consolidatedvalues commodity derivative assets and liabilities using unadjusted NYMEXprices, and considers such measure of fair value to be Level 1 for exchangetraded instruments and Level 2 for over-the-counter instruments.  SCE&G Consolidated’s interest rate swapagreements are valued using discounted cashflow models with independentlysourced data.  Fair value measurements, and the level within the fairvalue hierarchy in which the measurements fall, were as follows:

 
|                                 |                    | Fair Value  Measurements Using |   |
|--------------------------------------|-------------------------|--------------------------------|--------|
|                                 |                    | Quoted Prices in  Active       |   |   | Significant  Other |   |
|                                 |                    | Markets for  Identical Assets  |   |   | Observable  Inputs |   |
| Millions of  dollars                 |                    | (Level 1)                      |   |   | (Level 2) |   |
| *As  of March 31, 2010*         |                    |                           |   |   |   |   |
| Assets -                             | Interest rate contracts | $                              | -      |   | $ | 7 |   |
|                                 |                    |                           |   |   |   |   |
| *As of December 31, 2009 * |                    |                           |   |   |   |   |
| Assets -                             | Commodity contracts     | $                              | 1      |   | $ |   - |   |
|                                 | Interest rate contracts |                           | -      |   |   | 4 |   |
| Liabilities -                        | Interest rate contracts |                           | -      |   |   | 1 |   |

 

There were no fair valuemeasurements based on significant unobservable inputs (Level 3) for eitherperiod presented.  In addition, therewere no transfers of fair value amounts into or out of Levels 1 and 2 during anyperiod presented.

 

The financial instrumentsfor which the carrying amount may not equal estimated fair value at March 31,2010 and December 31, 2009 were as follows:

 
|                      |   | March 31,  2010     |    | December 31,  2009 |   |
|---------------------------|--------|--------------------------|---------|-------------------------|--------|
|  Millions of dollars |   |  

Carrying

Amount |    | Estimated

Fair

Value  |   |  

Carrying

Amount |   | Estimated

Fair

Value |   |
| Long-term debt            |   | $                        | 3,217.2 |                    | $      | 3,364.2 |   | $ | 3,175.1 |   | $ | 3,330.4 |   |
|                           |        |                          |         |                         |        |  |  |  |  |  |  |  |  |  |

 

Fair values of long-termdebt are based on quoted market prices of the instruments or similarinstruments.  For debt instruments for which no quoted market pricesare available, fair values are based on net present valuecalculations.  Carrying values reflect the fair values of interestrate swaps based on discounted cash flow models with independently sourceddata.  Early settlement of long-term debt may not be possible or maynot be considered prudent.

 

Potential taxes and otherexpenses that would be incurred in an actual sale or settlement have not beenconsidered.

 

7.             COMMITMENTS AND CONTINGENCIES

 

A.             NuclearInsurance

 

The Price-AndersonIndemnification Act deals with public liability for a nuclear incident andestablishes the liability limit for third-party claims associated with anynuclear incident at $12.6 billion.  Each reactor licensee is currentlyliable for up to $117.5 million per reactor owned for each nuclear incidentoccurring 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 SummerStation, would be $78.3 million per incident, but not more than $11.7 millionper year.

 

SCE&G currentlymaintains policies (for itself and on behalf of Santee Cooper, a one-thirdowner of Summer Station) with Nuclear Electric Insurance Limited.  Thepolicies, covering the nuclear facility for property damage, excess propertydamage and outage costs, permit retrospective assessments under certainconditions to cover insurer’s losses.  Based on the current annualpremium, SCE&G’s portion of the retrospective premium assessment would notexceed $14.2 million.

 

 

42

----

 

To the extent thatinsurable claims for property damage, decontamination, repair and replacementand other costs and expenses arising from a nuclear incident at Summer Stationexceed the policy limits of insurance, or to the extent such insurance becomesunavailable in the future, and to the extent that SCE&G rates would notrecover the cost of any purchased replacement power, SCE&G will retain therisk of loss as a self-insurer.  SCE&G has no reason to anticipate aserious nuclear incident. However, if such an incident were to occur, it likelywould have a material adverse impact on the Company’s results of operations,cash flows and financial position.

 

B.            Environmental

 

In December 2009 theEPA issued a final finding that atmospheric concentrations of GHG endangerpublic health and welfare within the meaning of Section 202(a) of theCAA.  The rule, which became effective in January 2010, enablesthe EPA to regulate GHG emissions under the CAA.  The EPA hascommitted to issue new rules regulating such emissions by November 2011. On September 30, 2009, the EPA issued a proposed rule that wouldrequire facilities emitting over 25,000 tons of GHG a year (such as SCE&GConsolidated’s generating facilities) to obtain permits demonstrating that theyare using the best practices and technologies to minimize GHGemissions.  SCE&G Consolidated expects that any costs incurred tocomply with GHG emission requirements will be recoverable through rates.

 

In 2005, the EPAissued the CAIR, which requires the District of Columbia and 28 states,including South Carolina, to reduce nitrogen oxide and sulfur dioxide emissionsin order to attain mandated state levels.  CAIR set emission limitsto be met in two phases beginning in 2009 and 2015, respectively, for nitrogenoxide and beginning in 2010 and 2015, respectively, for sulfurdioxide.  Numerous states, environmental organizations, industrygroups and individual companies challenged the rule, seeking a change in themethod CAIR used to allocate sulfur dioxide emission allowances.  On December 23,2008, the United States Court of Appeals for the District of Columbia Circuitremanded the rule but did not vacate it.  Prior to the Court of Appeals’decision, SCE&G and GENCO had determined that additional air qualitycontrols would be needed to meet the CAIR requirements.  SCE&Ghas completed installation of a SCR technology at Cope Station for nitrogenoxide reduction, and GENCO has completed installation of a wet limestonescrubber at Williams Station for sulfur dioxide reduction.  SCE&Galso is installing a wet limestone scrubber at WatereeStation.  SCE&G Consolidated expects to incur capitalexpenditures totaling approximately $559 million through 2010 for theseprojects, of which the majority has already beenspent.   SCE&G Consolidated cannot predict when the EPA willissue a revised rule or what impact the rule will have on SCE&Gand GENCO.  Any costs incurred to comply with this rule or otherrules issued by the EPA in the future are expected to be recoverablethrough rates.

 

In 2005 the EPA issuedthe CAMR which established a mercury emissions cap and trade program forcoal-fired power plants.  Numerous parties challenged therule.  On February 8, 2008, the United States Circuit Court forthe District of Columbia vacated the rule for electric utility steamgenerating units.  SCE&G Consolidated expects the EPA will issue a newmercury emissions rule but cannot predict when such a rule will beissued or what requirements it will impose.

 

SCE&G has been named,along with 53 others, by the EPA as a PRP at the AER Superfund site located inAugusta, Georgia.  The EPA placed the site on the National Priorities Listin April 2006.  AER conducted hazardous waste storage andtreatment operations from 1975 to 2000, when the site was abandoned. While operational, AER processed fuels from waste oils, treated industrialcoolants and oil/water emulsions, recycled solvents and blended hazardous wastefuels.  During that time, SCE&G occasionally used AER for theprocessing of waste solvents, oily rags and oily wastewater.  The EPAand the State of Georgia have documented that a release or releases haveoccurred at the site leading to contamination of groundwater, surface water andsoils.  The EPA and the State of Georgia have conducted a preliminaryassessment and site inspection.  The PRPs funded a RemedialInvestigation and Risk Assessment which was completed and approved by the EPAand funded a Feasibility Study that is expected to be completed in2010.  The site has not been remediated nor has a clean-up cost beenestimated.  Although a basis for the allocation of clean-up costs amongthe PRPs is unclear, SCE&G does not believe that its involvement at thissite would result in an allocation of costs that would have a material adverseimpact on its results of operations, cash flows or financialcondition.  Any cost allocated to SCE&G arising from theremediation of this site is expected to be recoverable through rates.

 

SCE&G maintains anenvironmental assessment program to identify and evaluate its current andformer operations sites that could require environmentalclean-up.  As site assessments are initiated, estimates are made ofthe amount of expenditures, if any, deemed necessary to investigate andremediate each site.  These estimates are refined as additionalinformation becomes available; therefore, actual expenditures could differsignificantly from the original estimates.  Amounts estimated and accruedto date for site assessments and clean-up relate solely to regulatedoperations.  SCE&G defers site assessment and cleanup costs andrecovers them through rates.

 

SCE&G is responsiblefor four decommissioned MGP sites in South Carolina which containresidues of by-product chemicals.  These sites are in various stagesof investigation, remediation and monitoring under work plans approved by DHEC.SCE&G anticipates that major remediation activities at these sites willcontinue until 2012 and will cost an additional $7.1 million.  Inaddition, the National Park Service of the Department of the Interior has madean initial demand to SCE&G for payment

 

 

43

----

 

of $9.1 million for certain costs and damagesrelating to the MGP site in Charleston, South Carolina.  SCE&Gexpects to recover any cost arising from the remediation of these four sitesthrough rates.  At March 31, 2010, deferred amounts, net ofamounts previously recovered through rates and insurance settlements, totaled$20.2 million.

 

C.            Claims andLitigation

 

In May 2004, apurported class action lawsuit currently styled as Douglas E. Gressette andMark Rudd, individually and on behalf of other persons similarly situated v.South Carolina Electric & Gas Company and SCANA Communications, Inc.was filed in South Carolina’s Circuit Court of Common Pleas for the NinthJudicial Circuit.  The plaintiffs allege that SCE&G made improperuse of certain electric transmission easements and rights-of-way by allowing fiberoptic communication lines and/or wireless communication equipment to transmitcommunications other than SCE&G’s electricity-related internalcommunications.  The plaintiffs asserted causes of action for unjustenrichment, trespass, injunction and declaratory judgment, but did not assert aspecific dollar amount for the claims.  SCE&G believes itsactions are consistent with governing law and the applicable documents grantingeasements and rights-of-way.  In June 2007, the Circuit Courtissued a ruling that limits the plaintiffs’ purported class to easementgrantors situated in Charleston County, South Carolina.  In February 2008,the Circuit Court issued an order to conditionally certify the class, whichremains limited to easements in Charleston County.  In July 2008,the plaintiffs’ motion to add SCI to the lawsuit as an additional defendant wasgranted.  Trial is not anticipated before the summer of2010.   SCE&G and SCI will continue to mount a vigorous defenseand believe that the resolution of these claims will not have a materialadverse impact on their results of operations, cash flows or financialcondition.

 

SCE&G Consolidated isalso engaged in various other claims and litigation incidental to its businessoperations which management anticipates will be resolved without a materialadverse impact on the SCE&G Consolidated’s results of operations, cashflows or financial condition.

 

D.            NuclearGeneration

 

SCE&G and SanteeCooper have entered into a contractual agreement for the design and constructionof two 1,117-megawatt nuclear electric generation units at the site of SummerStation.  SCE&G and Santee Cooper will be joint owners and shareoperating costs and generation output of the units, with SCE&G responsiblefor 55 percent of the cost and receiving 55 percent of the output, and SanteeCooper responsible for and receiving the remaining 45percent.  Assuming timely receipt of federal approvals andconstruction proceeding as scheduled, the first unit is expected to becompleted and in service in 2016, and the second in 2019.  SCE&G’sshare of the estimated cash outlays (future value) totals $6.0 billion forplant costs and for related transmission infrastructure costs, which costs areprojected based on historical one-year and five year escalation rates asrequired by the SCPSC.

 

SCE&G’s latestIntegrated Resource Plan filed with the SCPSC on February 26, 2010continues to support SCE&G’s need for 55% of the output of the twounits.  SCE&G has been advised bySantee Cooper that in light of recent developments, it is reviewing certainaspects of its capital improvement program and long-term power supply plan,including the level of its participation in the two units.  If Santee Cooper’s ownership interest in oneor both of the units changes, SCE&G believes that one or more additionalparties will be available to participate as joint owners.

 

SCE&Gis unable to predict whether any change in Santee Cooper’s ownership interestor the addition of new joint owners will increase project costs or delay thecommercial operation dates of the new units. Any such project cost increase or delay could be material.

 

8.             SEGMENT OF BUSINESS INFORMATION

 

SCE&G Consolidated’sreportable segments are listed in the following table.  SCE&G Consolidated uses operating incometo measure profitability for its regulated operations.  Therefore, earnings available to commonshareholder are not allocated to the Electric Operations and Gas Distributionsegments.  Intersegment revenues were notsignificant.

 
|                                      |   |     |   |      |   | Earnings     |   |    |   |
|-------------------------------------------|--------|----------|--------|-----------|--------|--------------|--------|---------|--------|
|                                      |   |     |   | Operating |   | Available to |   |    |   |
|                                      |   | External |   | Income    |   | Common       |   | Segment |   |
| Millions of Dollars                       |   | Revenue  |   | (Loss)    |   | Shareholder  |   | Assets  |   |
| *Three  Months Ended March 31, 2010* |   |     |   |      |   |         |   |    |   |
| Electric Operations                       |   | $        | 542    |      | $      | 86           |   |    | n/a    |   | $ | 7,423 |   |
| Gas Distribution                          |   |     | 180    |      |   | 37           |   |    | n/a    |   |   | 564  |   |
| Adjustments/Eliminations                  |   |     | -      |      |   | -            |   | $       | 62     |   |   | 1,800  |   |
| Consolidated Total                        |   | $        | 722    |      | $      | 123          |   | $       | 62     |   | $ | 9,787  |   |

 
| *Three  Months Ended March 31, 2009* |   |   |   |   |   |   |   |   |   |
|-------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Electric Operations                       |   | $      | 500    |   | $      | 102    |   |   | n/a    |   | $ | 6,720 |   |
| Gas Distribution                          |   |   | 157    |   |   | 27     |   |   | n/a    |   |   | 537 |   |
| Adjustments/Eliminations                  |   |   | -      |   |   | (1     | )      | $      | 60     |   |   | 1,944 |   |
| Consolidated Total                        |   | $      | 657    |   | $      | 128    |   | $      | 60     |   | $ | 9,201 |   |

 

For the three months endedMarch 31, 2010, operating income for Electric Operations reflects a reductionin recovery of fuel of $17.4 million in connection with the settlementdescribed in Note 2.  This reduction wasfully offset by recognition of tax benefits.

 

 

44

----

 

**ITEM 2.****    ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**SOUTHCAROLINA ELECTRIC & GAS COMPANY**

 

The following discussionshould be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations appearing in SCE&G’s AnnualReport on Form 10-K, as amended, for the year ended December 31,2009.

 

**RESULTSOF OPERATIONS**

**FORTHE THREE MONTHS ENDED MARCH 31, 2010**

**ASCOMPARED TO THE CORRESPONDING PERIOD IN 2009**

 

**Net Income**

 

Net income was asfollows:

 
|  Millions  of dollars | 2010    |   | % Change |   |   | 2009 |   |
|----------------------------|---------|--------|----------|--------|--------|------|--------|
|  Net income           |  $ | 62.1   |     | 0.5    | %      | $    | 61.8   |   |
|                            |         |        |          |        |        |      |        |  |

 

Net incomeincreased by $7.0 million due to higher electric margin (excluding the effectof the $17.4 million adjustment described at “Electric Operations”) and $6.4million due to higher gas margin.  Theseincreases were partially offset by higher operating expenses of $5.9 millionwhich are explained below and higher interest expense of $4.4 million.   All amounts are net of tax.

 

**Dividends Declared**

 

SCE&G Consolidated’sBoard of Directors has declared the following dividends on common stock (all ofwhich was held by SCANA) during 2010:

 
| Declaration Date       |   |   Amount | Quarter Ended       | Payment Date       |
|------------------------|--------|--------------------|---------------------|--------------------|
| February 11, 2010 | $      | 46.6 million       | March 31, 2010 | April 1, 2010 |
| May 6, 2010       |   | 47.2 million       | June 30, 2010  | July 1, 2010  |

 

**Electric Operations**

 

Electric Operations iscomprised of the electric operations of SCE&G, GENCO and FuelCompany.  Electric operations sales margin (including transactionswith affiliates) was as follows:

 
| Millions of  dollars                                                   |   |   | 2010  |   | % Change |   |   | 2009  |   |
|------------------------------------------------------------------------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Operating revenues                                                     |   | $      | 541.6 |   | 8.3      | %      | $      | 500.1 |   |
| Less: Fuel used in electric generation                                 |   |   | 236.1 |   | 26.9     | %      |   | 186.1 |   |
|          Purchased  power |   |   | 2.4   |   | (51.0    | )%     |   | 4.9   |   |
| Margin                                                                 |   | $      | 303.1 |   | (1.9     | )%     | $      | 309.1 |   |

 

MWh sales volumes relatedto the electric margin above, by class, were as follows:

 
| Classification  (in thousands)              |   | 2010  |   | % Change |   | 2009  |   |
|---------------------------------------------|--------|-------|--------|----------|--------|-------|--------|
| Residential                                 |   | 2,299 |   | 18.6     | %      | 1,939 |   |
| Commercial                                  |   | 1,744 |   | 3.4      | %      | 1,686 |   |
| Industrial                                  |   | 1,353 |   | 6.9      | %      | 1,266 |   |
| Sale for resale (excluding interchange)     |   | 427   |   | (1.2     | )%     | 432   |   |
| Other                                       |   | 129   |   | (1.5     | )%     | 131   |   |
| Total territorial                           |   | 5,952 |   | 9.1      | %      | 5,454 |   |
| Negotiated Market Sales Tariff (NMST)  |   | 6     |   | (78.6    | )%     | 28    |   |
| Total                                       |   | 5,958 |   | 8.7      | %      | 5,482 |   |

 

 

45

----

 

Territorial sales volumeincreased by 410 MWh due to increased average use and the effects of colderweather and 88 MWh due to higher industrial sales volumes.

 

Margin increased due tohigher residential and commercial customer usage of $25.7 million, higherindustrial sales of $1.1 million, customer growth of $2.0 million and anincrease in base rates approved by the SCPSC under the BLRA of $7.4million.  Although weather was abnormallycold in 2010 and significantly colder than in the same period in 2009, estimatedincremental revenues of $25 million associated with this weather have beendeferred within other current liabilities (for refund to customers) based upona stipulation related to SCE&G’s 2010 electric base rate case proceeding (seeNote 2). Also, margin in 2010 was adjusted downward by $17.4 million pursuantto an SCPSC regulatory order issued in connection with SCE&G’s annual fuelcost proceeding.  (See also discussion at“Income Taxes”).

 

**GasDistribution**

 

Gas Distribution iscomprised of the local distribution operations of SCE&G.  Gas distribution sales margin (includingtransactions with affiliates) was as follows:

 
| Millions of  dollars           |   |   | 2010  |   | % Change |   |   | 2009  |   |
|--------------------------------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Operating revenues             |   | $      | 180.6 |   | 15.2     | %      | $      | 156.8 |   |
| Less: Gas purchased for resale |   |   | 118.8 |   | 12.8     | %      |   | 105.3 |   |
| Margin                         |   | $      | 61.8  |   | 20.0     | %      | $      | 51.5  |   |

 

DT sales volumes byclass, including transportation gas, were as follows:

 
| Classification  (in thousands) |   | 2010   |   | % Change |   | 2009   |   |
|--------------------------------|--------|--------|--------|----------|--------|--------|--------|
| Residential                    |   | 8,309  |   | 31.0     | %      | 6,341  |   |
| Commercial                     |   | 4,797  |   | 10.1     | %      | 4,359  |   |
| Industrial                     |   | 4,010  |   | 14.1     | %      | 3,516  |   |
| Transportation gas             |   | 3,422  |   | 7.0      | %      | 3,199  |   |
| Total                          |   | 20,538 |   | 17.9     | %      | 17,415 |   |

 

Operating revenues andgas purchased for resale increased primarily due to increased customerusage.  Margin increased $3.9 million due to increased customer usageand $5.6 million due to the SCPSC-approved increase in retail gas base rateswhich became effective with the first billing cycle of November 2009.

 

**OtherOperating Expenses**

 

Other operating expenseswere as follows:

 
| Millions of  dollars            |   |   | 2010  |   | % Change |   |   | 2009  |   |
|---------------------------------|--------|--------|-------|--------|----------|--------|--------|-------|--------|
| Other operation and maintenance |   | $      | 132.0 |   | 6.9      | %      | $      | 123.5 |   |
| Depreciation and amortization   |   |   | 66.4  |   | (2.1     | )%     |   | 67.8  |   |
| Other taxes                     |   |   | 43.6  |   | 6.1      | %      |   | 41.1  |   |

 

Other operation andmaintenance expenses increased by $2.0 million due to higher incentivecompensation and other benefits and by $4.5 million due to higher generation,transmission and distribution expenses.  Depreciation andamortization expense decreased due to the adoption of new, lower depreciationrates in late 2009, partially offset by net property additions.  Other taxes increased primarily due to higherproperty taxes.

 

 

46

----

 

**Other Income (Expense)**

 

Otherincome (expense) includes the results of certain incidental (non-utility)activities.

 

*Pension Cost*

 

Pension cost was recordedon SCE&G Consolidated’s income statements and balance sheets as follows:

 
| Millions of  dollars                                                  |   |   | 2010   |   |   | 2009   |   |
|-----------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                                  |   |   |   |   |   |   |   |
| Income Statement  Impact:                                             |   |   |   |   |   |   |   |
|   Reduction in employee benefit costs                       |   | $      | (1.1   | )      | $      | (1.1   | )      |
|   Other income                                              |   |   | (1.0   | )      |   | (1.0   | )      |
| Balance Sheet Impact:                                                 |   |   |   |   |   |   |   |
|   Increase in capital expenditures                          |   |   | 1.4    |   |   | 2.1    |   |
|   Component of amount payable from Summer  Station co-owner |   |   | 0.4    |   |   | 0.6    |   |
|   Regulatory asset                                          |   |   | 5.3    |   |   | 7.8    |   |
| Total Pension Cost                                                    |   | $      | 5.0    |   | $      | 8.4    |   |

 

No contribution to thepension trust will be necessary in or for 2010, nor will limitations on benefitpayments apply.  Additionally, in February 2009, SCE&G wasgranted accounting orders by the SCPSC under which it will mitigate asignificant portion of its pension cost by deferring as a regulatory asset theamount of pension cost above that which is included in current rates for itsretail electric and gas distribution regulated operations.  Thesecosts are being deferred until such time as future rate recovery is providedfor by the SCPSC.

 

*AFC*

 

AFC is a utilityaccounting practice whereby a portion of the cost of both equity and borrowedfunds used to finance construction (which is shown on the balance sheet asconstruction work in progress) is capitalized. SCE&G Consolidated includes an equity portion of AFC in nonoperatingincome and a debt portion of AFC in interest charges (credits) as noncashitems, both of which have the effect of increasing reported net income.  AFC decreased in 2010 due primarily to thecompletion of certain pollution abatement projects at coal-fired plants.

 

**Interest Expense**

 

Interest chargesincreased primarily due to increased borrowings.

 

**IncomeTaxes**

 

Income tax expensedecreased primarily due to the recognition of certain previously deferred stateinvestment tax credits pursuant to a SCPSC regulatory order issued in 2010 inconnection with SCE&G’s annual fuel cost proceeding (See also discussion at“Electric Operations”).

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

SCE&G Consolidatedanticipates that its contractual cash obligations will be met throughinternally generated funds, the incurrence of additional short- and long-termindebtedness and sales of equity securities. SCE&G Consolidated expects that, barring further impairment of thecapital markets, it has or can obtain adequate sources of financing to meet itsprojected cash requirements for the foreseeable future, including the cashrequirements for nuclear construction. SCE&G Consolidated’s ratio of earnings to fixed charges for thethree and 12 months ended March 31, 2010 was 2.60 and 3.13.

 

SCE&G Consolidated’scash requirements arise primarily from its operational needs, funding itsconstruction programs, payment of dividends to SCANA and refinancing ofsecurities when deemed prudent.  The abilityof SCE&G Consolidated to replace existing plant investment, to expand tomeet future demand for electricity and gas and to install equipment necessaryto comply with environmental regulations will depend upon its ability toattract the necessary financial capital on reasonable terms. SCE&G recoversthe costs of providing services through rates charged to customers.  Rates for regulated services are generallybased on historical costs.  As customergrowth and inflation occur and SCE&G continues its ongoing constructionprogram, SCE&G expects to seek increases in rates.  SCE&G Consolidated’s future financialposition and results of operations will be affected by SCE&G’s ability toobtain adequate and timely rate and other regulatory relief, as requested.

 

 

47

----

 

SCE&G Consolidated ‘sissuance of various securities, including short- and long-term debt, is subjectto customary approval or authorization by one or more state or federalregulatory bodies including the SCPSC and FERC.

 

During the period ended March 31,2010, SCE&G has received from SCANA equity contributions of $25 million. Proceedswere received from SCANA’s various compensation and dividend reinvestmentprograms.  The contributed funds were used to finance capitalexpenditures, including the construction of new nuclear units, and for generalcorporate purposes.

 

SCE&G and GENCO haveobtained FERC authority to issue short-term indebtedness (pursuant to Section 204of the Federal Power Act).  SCE&G may issue up to $700 million ofunsecured promissory notes or commercial paper with maturity of one year orless, and GENCO may issue up to $100 million of short-termindebtedness.  FERC’s approval expires in February 2012.

 

SCE&G (including FuelCompany) had available the following committed LOC, and had outstanding thefollowing LOC advances, commercial paper, and LOC-supported letter of creditobligations:

 
|                                                                                        | SCE&G  Consolidated (a)(b) |           |
|---------------------------------------------------------------------------------------------|-------------------------------------|----------------|
|                                                                                        |                                | March 31, |   |   | December 31, |   |
| Millions of  dollars                                                                        |                                | 2010           |   |   | 2009 |   |
| Lines of credit:                                                                            |                                |           |   |   |   |   |
| Committed long-term (expire December 2011)                                             |                                |           |   |   |   |   |
|     Total                                                               | $                                   | 650            |   | $ | 650 |   |
|     LOC advances                                                        |                                | 150            |   |   | 100 |   |
|     Weighted average interest  rate                                     |                                | .51            | % |   | .50 | % |
|     Outstanding commercial paper    (270 or fewer days)  |                                | 216            |   |   | 254 |   |
|     Weighted average interest  rate                                     |                                | .32            | % |   | .33 | % |
| Letters of credit supported by LOC                                                          |                                | .3             |   |   | .3 |   |
| Available                                                                                   |                                | 284            |   |   | 296 |   |

 

(a)                            SCE&G Consolidated’s committedlong-term facilities serve to back-up the issuance of commercial paper or toprovide liquidity support.

(b)                           SCE&G and Fuel Company mayissue commercial paper in the amounts of up to $350 million forSCE&G and up to $250 million for Fuel Company.  Nuclear and fossil fuel inventories andemission allowances are financed through the issuance by Fuel Companyof short-term commercial paper or LOC advances.

 

The committed long-termfacilities are revolving lines of credit under credit agreements with asyndicate of banks.  Wells Fargo Bank, N. A provides 18.9% of theaggregate $650 million credit facilities, Bank of America, N.A. provides 14.3%,Branch Banking and Trust Company, UBS Loan Finance LLC, Morgan Stanley Bank,and Credit Suisse, each provide 10.9%, and The Bank of New York and MizuhoCorporate Bank, Ltd each provide 9.1%.  Three other banks provide theremaining 5.0%.  These bank credit facilities support the issuance ofcommercial paper by SCE&G (including Fuel Company).  When the commercial paper markets aredislocated (due to either price or availability constraints), the creditfacilities are available to support the borrowing needs of SCE&G (includingFuel Company).

 

As of March 31,2010, SCE&G Consolidated had drawn approximately $150 million from its $650million facilities, had approximately $216 million in commercial paperborrowings outstanding, was obligated under $0.3 million in LOC-supportedletters of credit and had approximately $54 million in cash and temporaryinvestments.  SCE&G Consolidated regularly monitors thecommercial paper and short-term credit markets to optimize the timing forrepayment of the outstanding balance on its draws, while maintainingappropriate levels of liquidity.

 

At March 31, 2010,SCE&G Consolidated had net available liquidity of approximately $338million, and SCE&G Consolidated’s revolving credit facilities are in placeuntil December 2011.  SCE&G Consolidated’s overall debtportfolio has a weighted average maturity of approximately 17 years andbears an average cost of 5.6%.  A significant portion of long-termdebt, other than credit facility draws, effectively bears fixed interest ratesor is swapped to fixed.  To further preserve liquidity, SCE&GConsolidated rigorously reviews its projected capital expenditures andoperating costs and adjusts them where possible without impacting safety,reliability, and core customer service.

 

 

48

----

 

**OTHER MATTERS**

 

Off-Balance Sheet Transactions

 

SCE&G does not holdsignificant investments in unconsolidated special purpose entities.  SCE&G also does not engage in off-balancesheet financing or similar transactions, although it is party to incidentaloperating leases in the normal course of business, generally for office space,furniture, equipment and rail cars.

 

Nuclear Generation

 

SCE&Gand Santee Cooper have entered into a contractual agreement for the design andconstruction of two 1,117-megawatt nuclear electric generation units at thesite of Summer Station.  SCE&G andSantee Cooper will be joint owners and share operating costs and generation outputof the units, with SCE&G responsible for 55 percent of the cost andreceiving 55 percent of the output, and Santee Cooper responsible for andreceiving the remaining 45 percent. Assuming timely receipt of federal approvals and construction proceedingas scheduled, the first unit is expected to be completed and in service in2016, and the second in 2019. SCE&G’s share of the estimated cash outlays (future value) totals$6.0 billion for plant costs and for related transmission infrastructure costs,which costs are projected based on historical one-year and five year escalationrates as required by the SCPSC.

 

SCE&G’s latestIntegrated Resource Plan filed with the SCPSC on February 26, 2010continues to support SCE&G’s need for 55% of the output of the two newnuclear electric generating units to be constructed at Summer Station.  SCE&G has been advised by Santee Cooperthat in light of recent developments, it is reviewing certain aspects of itscapital improvement program and long-term power supply plan, including thelevel of its participation in the two units. If Santee Cooper’s ownership interest in one or both of the unitschanges, SCE&G believes that one or more additional parties will beavailable to participate as joint owners.

 

SCE&Gis unable to predict whether any change in Santee Cooper’s ownership interestor the addition of new joint owners will increase project costs or delay thecommercial operation dates of the new units. Any such project cost increase or delay could be material.

 

Environmental Matters; Claims and Litigation

 

The following discussionshould be read in conjunction with Management’s Discussion and Analysis ofFinancial Condition and Results of Operations appearing in SCE&G’s AnnualReport on Form 10-K, as amended, for the year ended December 31,2009.  Below are updates representingimportant changes to the Environmental Matters discussion in that Form 10-K,as amended.

 

*Hazardous and Solid Wastes*

 

SCE&GConsolidated is evaluating the effect on groundwater quality from past andcurrent CCP operations, which may result in operational changes and additionalmeasures.

 

At the state level,recent changes in the waste characterization of coal ash have resulted in thereclassification of the waste from a Class II to Class III waste. Therefore, modifications to the Company’s Class II landfills anddisposal practices are necessary in order to comply with the more stringent Class IIIrequirements. Although the modifications will result in increased disposalcosts, SCE&G Consolidated believes that any additional costs imposed by suchregulations would be recoverable through rates.

 

For additionalinformation related to environmental matters and claims and litigation, seeNotes 7B and 7C to the condensed consolidated financial statements.

 

**ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Interest Rate Risk -SCE&G Consolidated’s market risk exposures relative to interest rate riskhave not changed materially compared with SCE&G’s Annual Report on Form 10-K,as amended, for the year ended December 31, 2009.  Interestrates on a significant portion of SCE&G Consolidated’s outstandinglong-term debt, other than credit facility draws, are fixed either through theissuance of fixed rate debt or through the use of interest ratederivatives.  SCE&G Consolidated is not aware of any facts orcircumstances that would significantly affect exposures on existingindebtedness in the near future.  For further discussion of changesin long-term debt and interest rate derivatives, see ITEM 2. MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS —LIQUIDITY AND CAPITAL RESOURCES and also Notes 3 and 5 of the condensedconsolidated financial statements.

 

Commodity price risk -SCE&G uses derivative instruments to hedge forward purchases and sales ofnatural gas, which create market risks of different types.  See Note 5 of the condensed consolidatedfinancial statements.  The following table provides information aboutSCE&G’s financial instruments that are sensitive to changes in natural gasprices.  Weighted average settlementprices are per 10,000 dekatherms.  Fairvalue represents quoted market prices for these or similar instruments.

 
| Expected Maturity:                             |
|------------------------------------------------|
| Options                                        |   |
|                                           | Purchased Call |
|       2010       | (Long) |
| Strike Price (a)                               | 6.34 |
| Contract Amount (b)                            | 10.7 |
| Fair Value (b)                                 |  0.1 |
|                                           |   |
|        2011 |   |
| Strike Price (a)                               | 6.77 |
| Contract Amount (b)                            |  2.1 |
| Fair Value (b)                                 |  0.1 |

 

(a)Weighted average, in dollars

(b)Millions of dollars

 

 

49

----

 

**ITEM 4.  CONTROLS ANDPROCEDURES**

 

As of March 31,2010, SCE&G conducted an evaluation under the supervision and with theparticipation of its management, including its CEO and CFO, of (a) theeffectiveness of the design and operation of its disclosure controls andprocedures and (b) any change in its internal control over financialreporting.  Based on this evaluation, theCEO and CFO concluded that, as of March 31, 2010, SCE&G’sdisclosure controls and procedures were effective.  There has been no change in SCE&G’sinternal control over financial reporting during the quarter ended March 31,2010 that has materially affected or is reasonably likely to materially affectSCE&G’s internal control over financial reporting.

 

 

50

----

** **

**PART II.  OTHER INFORMATION**

 

**ITEM6.  EXHIBITS**

 

SCANA and SCE&G:

 

Exhibits filed orfurnished with this Quarterly Report on Form 10-Q are listed in thefollowing Exhibit Index.

 

As permitted under Item601(b) (4) (iii) of Regulation S-K, instruments defining therights of holders of long-term debt of less than 10 percent of the totalconsolidated assets of SCANA, for itself and its subsidiaries, and ofSCE&G, for itself and its consolidated affiliates, have been omitted andSCANA and SCE&G agree to furnish a copy of such instruments to theCommission upon request.

 

 

51

----

 

 SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, each of the registrantshas duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.  The signatureof each registrant shall be deemed to relate only to matters having referenceto such registrant and any subsidiaries thereof.

 

 
|   | **SCANA  CORPORATION**                              |
|--------|-----------------------------------------------------|
|   | **SOUTH  CAROLINA ELECTRIC & GAS COMPANY** |
|   | (Registrants)                                       |

 

 
| By:              |  /s/James E. Swan, IV     |
|------------------|--------------------------------|
| May 6, 2010 | James E. Swan, IV              |
|             | Controller                     |
|             | (Principal accounting officer) |

 

 

52

----

 

EXHIBITINDEX

 
|             | Applicable to

Form 10-Q of |            |
|------------------|---------------------------------------|-----------------|
| Exhibit 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               | 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) |
|             |                                  |            |   |
| 3.04             | X                                     |            | By-Laws of SCANA as amended and restated as of February 19,  2009 (Filed as Exhibit 3.01

to Form 8-K filed February 23, 2009 and  incorporated by reference herein) |
|             |                                  |            |   |
| 3.05             |                                  | 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) |
|             |                                  |            |   |
| 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) |

 

 

53

----