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              UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D. C. 20549
                           -----------------------

                                  FORM 10-K
(Mark One)

(X)     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999

( )     TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF  THE
        SECURITIES  EXCHANGE ACT OF 1934 - For the  transition  period from
        __________ to __________

                        Commission file number: 1-11429

        PUBLIC  SERVICE  COMPANY  OF NORTH  CAROLINA, INCORPORATED
          (Exact name of registrant as specified in its charter)

                 NORTH CAROLINA                                 56-0233140
        (State or other jurisdiction of                     (I. R. S. Employer
         incorporation or organization)                      Identification No.)


             400 COX ROAD, P. O. BOX 1398
               GASTONIA, NORTH CAROLINA                           28053-1398
        (Address of principal executive offices)                  (Zip Code)

       Registrant's telephone number, including area code: (704) 864-6731

     Securities registered pursuant to Section 12(b)of the Act:

COMMON STOCK, PAR VALUE $1 PER SHARE           NEW YORK STOCK EXCHANGE
        (Title of Class)             (Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:  NONE
                          ----------------------

        Indicate by check mark whether the  registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No____

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be  contained,
to the best of  registrant's  knowledge,  in definitive proxy or information
statements  incorporated  by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
                           ----------------------

Estimated aggregate market value of the voting stock held by nonaffiliates of
  the registrant at November 30, 1999. . . . . . .  . . . . . . . . $661,067,180
                            ----------------------

Number of shares of Common Stock, $1 par value, outstanding at November 30, 1999
 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,577,967

Documents incorporated by reference:

                  NONE

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<PAGE>



              PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED

                                     FORM 10-K

                                ANNUAL REPORT TO
                     THE SECURITIES AND EXCHANGE COMMISSION
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999

                                  -------------

                                TABLE OF CONTENTS

Item                                                                        Page

                                      PART I.

  1.     Business............................................................. 2
         Executive Officers of the Registrant................................ 13
  2.     Properties.........................................................  14
  3.     Legal Proceedings....................................................15
  4.     Submission of Matters to a Vote of Security Holders..................15

                                      PART II.

  5.     Market for the Registrant's Common Stock and
           Related Shareholder Matters....................................... 15
  6.     Selected Financial Data..............................................16
  7.     Management's Discussion and Analysis of Results
           of Operations and Financial Condition..............................17
  8.     Financial Statements and Supplementary Data..........................31
  9.     Changes in and Disagreements With Accountants on
           Accounting and Financial Disclosure................................57

                                      PART III.

10.      Directors and Executive Officers of the Registrant...................57
11.      Executive Compensation...............................................59
12.      Security Ownership of Certain Beneficial Owners
           and Management.....................................................63
13.      Certain Relationships and Related Transactions.......................64

                                                     PART IV.

14.      Exhibits, Financial Statement Schedules and
           Reports on Form 8-K................................................64
         Signatures...........................................................71
         Exhibit Index........................................................72



                                        1

<PAGE>



               PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED

                                     PART I

Item 1.  Business


General

         Public  Service  Company of North  Carolina,  Incorporated  (PSNC) is a
public  utility  engaged  primarily in  transporting,  distributing  and selling
natural gas to  approximately  351,000  residential,  commercial  and industrial
customers in North Carolina.  PSNC was organized as a North Carolina corporation
in 1938,  and its  corporate  office is located at 400 Cox Road, P. O. Box 1398,
Gastonia, North Carolina 28053-1398, telephone (704) 864-6731.

         In  connection  with  its  natural  gas  distribution  business,   PSNC
promotes,  sells and installs both new and replacement  cooking,  water heating,
laundry, space heating,  cooling and humidity control natural gas appliances and
equipment.  PSNC,  through a nonregulated  subsidiary,  provides  conversion and
maintenance  services for natural gas-fueled vehicles (NGVs) in selected cities
in and  beyond  its  franchised  territory.  PSNC,  through a  subsidiary,  PSNC
Production Corporation (PSNC Production),  and a multi-state joint venture, also
participates in nonregulated businesses such as natural gas brokering and supply
services. (See Item 1, Non-utility Businesses.)

         During  fiscal  1999,  1998  and  1997,  no  single  customer   account
contributed more than 2% of PSNC's total operating revenues.

         PSNC has no reportable  industry  segments.  Revenues  attributable  to
natural gas distribution,  merchandise and jobbing,  and gas marketing and other
activities for each of the fiscal years in the three-year period ended September
30, 1999 were as follows (in thousands):
                               1999       1998       1997
                             --------   --------   --------
Natural Gas Distribution(1)  $298,854   $330,672   $337,930
Merchandise and Jobbing(2)     10,354     10,096     10,053
Gas Marketing/Other
 Activities(1)                 38,169     35,604     19,938
                             --------   --------   --------
Total                        $347,377   $376,372   $367,921
                             ========   ========   ========


         (1) See "Results of Operations" on page 17 of this annual
             report.
         (2) Primarily the sale and installation of gas appliances.










                                   2

<PAGE>



Proposed Merger

         On February  16,  1999,  PSNC and SCANA  Corporation  (SCANA),  a South
Carolina  corporation,  entered into an Agreement and Plan of Merger,  which was
amended  and  restated  on May 10,  1999,  providing  for a  strategic  business
combination  of the  two  companies.  SCANA  is a  holding  company  principally
engaged,  through subsidiaries,  in electric and natural gas utility operations,
telecommunications  and  other  energy-related  businesses.  See  Note 11 to the
consolidated  financial  statements  for further  discussion  about the proposed
merger.

Service Territory

         PSNC's 31-county franchised service territory includes Raleigh,  Durham
and the Research  Triangle Park area in the north central  portion of the state;
this area  accounts for  approximately  61% of PSNC's  customers  and 53% of its
throughput (total gas sales and  transportation)  in fiscal 1999. PSNC's central
area includes the cities of Gastonia,  Concord and Statesville which are located
in the  greater  Charlotte  metropolitan  area;  this area  accounts  for 26% of
customers  and  31% of  throughput.  PSNC's  western  area  includes  Asheville,
Hendersonville and Brevard,  and accounts for the remaining 13% of customers and
16% of throughput.  PSNC's diversified  industrial base in its service territory
includes  manufacturers  of textiles,  chemicals,  ceramics  and clay  products,
glass,  automotive  products,  minerals,   pharmaceuticals,   plastics,  metals,
electronic  equipment,  furniture  and a variety of food and  tobacco  products.
PSNC's  utility  operations  are  regulated  by  the  North  Carolina  Utilities
Commission (NCUC).

         Over 2.5 million people reside in PSNC's franchised  territory.  During
the past three fiscal years, PSNC has added  approximately  49,800 new customers
to its natural gas transmission and  distribution  systems.  Of those customers,
46,300 were  residential,  3,450 were commercial,  and 50 were  industrial.  The
resulting  5.4% annual  growth rate is nearly three times the national  industry
average.  PSNC's  compounded  annual  customer growth rate since fiscal 1989 has
been 5%. PSNC attributes this growth rate to two primary factors:

         o  The population in PSNC's franchised territory has grown faster
            than the national  average in recent years, and PSNC estimates
            that it serves  approximately  one-third  of that  population.
            PSNC  continually  expands its  transmission  and distribution
            systems when  economically  feasible to enable it to reach new
            customers.

         o  The continued growth of the North Carolina economy,  including
            areas  within  PSNC's  service  territory.  Also,  the State's
            relatively low  unemployment  rate has been below the national
            average in recent years.

Business Strategy

         PSNC is expanding its transmission and distribution  systems to deliver
more natural gas throughout  its service  territory.  Of its total  construction
expenditures  of $43.6 million in fiscal 1999,  $65.3 million in fiscal 1998 and
$60.3 million in fiscal 1997,  approximately  $29.2  million,  $48.3 million and
$46.5 million,  respectively,  were expended on the construction of transmission
and distribution pipelines.


                                      3

<PAGE>



         PSNC is focusing on the following marketing priorities:

         o  Retaining existing customers by marketing the replacement of old
            appliances and equipment with new gas equipment.

         o  Increasing demand for natural gas by marketing additional gas
            equipment to PSNC's existing customers.

         o  Adding new customers either on its existing distribution system or
            by economical short distribution main extensions.

         In  addition,  PSNC is  evaluating  the  introduction  of emerging  gas
technologies  to  increase  the  long-term  demand  for  natural  gas.  PSNC has
identified the conversion of gasoline-fueled  vehicles to NGVs as an opportunity
to increase  the demand for natural gas in the future.  PSNC was the first local
distribution  company (LDC) in North  Carolina to offer NGV  conversions  to the
public  and  private  sectors.  PSNC also has  identified  natural  gas  cooling
technology  as an  opportunity  to  increase  the demand for natural gas and has
begun  marketing  such  technology.  The  implementation  in 1992 of the Federal
Energy Regulatory  Commission (FERC) Order Nos. 636, 636-A and 636-B (Order 636)
created  new  off-system  marketing  opportunities  for PSNC  and its  marketing
affiliate.

         PSNC's  internal  focus  has  been  to  streamline  its  organizational
structure and improve the performance of management and employees. PSNC has also
focused on increasing employee efficiency, improving its number of customers per
employee  ratio over the last three years from 252 at September  30, 1996 to 381
at  September  30,  1999.  At November  30,  1999,  PSNC had 400  customers  per
employee.

Gas Supply

         Effective   August  1,  1991,   PSNC's   primary   pipeline   supplier,
Transcontinental  Gas Pipe Line  Corporation  (Transco),  became the first major
pipeline to offer unbundled open-access  transportation  and storage  services.
The  primary  advantage  is that PSNC now  chooses  and  manages its gas supply,
transportation and storage service requirements separately rather than having to
rely upon a pipeline  supplier  whose service  options are bundled  together and
then  offered  as a single  city gate  sales  service.  Unbundled  open-access
transportation and storage services,  however,  do shift the risk of ensuring an
adequate supply of gas from the interstate pipelines to PSNC.

         As a result of Order 636, which restructured the interstate natural gas
transportation   industry,   PSNC's  gas   purchasing   practices  have  changed
significantly   during  the  past  few  years.   The  FERC  approved   Transco's
restructuring  settlement effective November 1, 1993, and essentially  preserved
Transco's existing firm service  settlement with its customers,  including PSNC.
PSNC has not experienced any material  adverse effect on its financial  position
or  results of  operations  as a result of the  order.  Furthermore,  management
believes that Order 636 and the Transco  settlement order will provide both PSNC
and its affiliates with marketing opportunities for gas services both on and off
PSNC's existing pipeline system,  which should provide an overall net benefit to
PSNC.

         PSNC purchases for resale a majority of the natural gas that it
delivers (throughput) to its customers. The balance of its throughput is natural
gas purchased by

                                     4

<PAGE>



certain  large-volume  commercial and industrial customers directly from various
producers and marketers. This gas is transported to these customers by PSNC at a
rate that enables PSNC to earn a margin  equivalent  to that which it would have
earned by selling the same  quantity of gas to these  customers.  Quantities  of
transported  gas  represented  42%, 37% and 36% of PSNC's total  throughput  for
fiscal 1999, 1998 and 1997, respectively.

         Management  believes that PSNC's gas supply portfolio will enable it to
continue to provide secure service on a cost-competitive  basis. This balance of
security  and  cost  control,  along  with  flexibility  to  adapt  to  changing
conditions,  is achieved  through a mix of  long-term  contractual  obligations,
coupled with short-term or spot market purchases.  PSNC's utility gas purchasing
practices are reviewed annually by the NCUC.

         The  following  table  summarizes  the natural  gas supply  sources and
transportation  arrangements  available to PSNC under  contract with Transco and
CNG Transmission Company (CNG). All amounts are shown in dekatherms (DT), a unit
of heating value equal to one million British  Thermal Units (BTU).  Natural gas
purchased by PSNC from other sources is transported by Transco and CNG.  Natural
gas  purchased  directly  from  Williams  Energy  Services  Company,  a  Transco
marketing affiliate,  accounted for 26% and 21%, respectively,  of PSNC's supply
in fiscal 1999 and 1998.

                                 Daily                                Contract
                                Deliver-           Annual            Expiration
  Type of Contract              ability           Quantity               Date
-------------------------       --------         ----------          ----------
Firm Sales Service (1)            33,542         12,242,830             3/31/02
Firm Sales Service (1)            41,928         15,303,720             3/31/02
Firm Transportation              164,151         59,915,115             1/31/12
Firm Transportation                5,175          1,888,875            10/31/07
Incremental Firm Transportation    2,264            826,360             3/16/03
Winter Firm Transportation
 (December 1 through
 February 28)                      4,347            391,230             7/31/11
Southern Expansion Firm
 Transportation:
  November and March              35,397
  December through February       39,330          5,698,917            10/31/05
Southeast Expansion Firm
 Transportation:
  Phase 1                          6,064          2,213,360            11/01/14
  Phase 2                         20,759          7,577,035            11/01/15
  Phase 3                         17,804          6,498,460            11/01/15
CNG Firm Transportation           30,331         11,070,815               (2)


        (1) These are separate and concurrent contracts.
        (2) These represent multiple contracts which expire on
            dates ranging from 10/31/00 to 10/31/16.

        As discussed further in Note 2 to the consolidated financial statements,
PSNC and a subsidiary of Piedmont Natural Gas Company,  Inc.  (Piedmont)  formed
Cardinal Pipeline Company,  LLC (Cardinal  Pipeline) to construct and operate an
intrastate  transmission  pipeline.  It was placed into service in December 1994
and provides  additional  daily capacity to PSNC's eastern service  territory in
and around the Durham and Raleigh areas. In 1995, PSNC,  Piedmont,  Transco, and
North Carolina Natural Gas Corporation (NCNG)

                                    5

<PAGE>



formed  Cardinal  Extension  Company,  LLC (Cardinal  Extension) to purchase and
extend the  Cardinal  pipeline.  On November  6, 1997,  the NCUC issued an order
approving  this  project  and the  merger  of  Cardinal  Pipeline  and  Cardinal
Extension, with the surviving entity being named Cardinal Pipeline Company, LLC.
The  pipeline was extended  67.5 miles from the  existing  termination  point of
Cardinal Pipeline at Haw River, North Carolina,  to a point southeast of Raleigh
and  provides  140 million  cubic feet per day  (mmcf/day)  of  additional  firm
transportation  service (100  mmcf/day  for PSNC and 40 mmcf/day for NCNG).  The
extension is estimated to cost  approximately  $76 million.  The facilities were
placed in service and  permanent  financing  was  completed on November 1, 1999.
Through their respective  subsidiaries,  PSNC owns 33.21%, Piedmont owns 16.46%,
Transco owns 45.30% and NCNG owns 5.03% of Cardinal Pipeline Company, LLC.

        To balance peak winter demands of residential  and commercial  customers
with their much-reduced  summer usage, PSNC uses underground natural gas storage
services and liquefied natural gas (LNG) peaking  facilities.  During periods of
reduced usage,  PSNC purchases  natural gas to replenish the supplies in the LNG
facilities  owned by PSNC and in contract  storage  services  from its  pipeline
suppliers.   The  ability  to  maintain  maximum  delivery  from  these  storage
facilities for an extended period of time is limited.  Information  about PSNC's
storage arrangements, in dekatherms, is shown in the following table.

                                  Daily                                Contract
                                 Deliver-                             Expiration
    Storage Facility             ability            Capacity             Date
------------------------         --------          ---------          ----------
CNG General Storage (1)           62,669           3,856,000            3/31/16
Transco General Storage           33,218           1,923,485            3/31/13
Transco Washington
  Storage (2)                     32,870           2,794,500            3/31/01
Transco LNG Storage                5,175              25,875           10/31/16
Transco Eminence Storage          47,221             475,111           10/31/13
Cove Point LNG Storage            25,000             250,000            4/15/06
PSNC LNG Storage (3)             100,000           1,040,000              N/A
Pine Needle LNG Storage          103,500           1,035,000            4/30/19
Columbia Gas Transmission (4)     35,335           3,180,150           10/31/14


  (1) 700,000 of this capacity  expires 3/31/08;  1,380,000  expires 3/31/09;
      696,000  expires  3/31/13;  and  1,080,000  expires 3/31/16.
  (2) No peak  day  delivery  assured  by  contract.
  (3) Amounts  shown represent  maximum peak day capacity.
  (4) 33% of this capacity expires 10/31/12; 33% expires 10/31/13; balance
      expires 10/31/14.

         As  discussed   further  in  Note  2  to  the  consolidated   financial
statements,   Pine  Needle  LNG  Company,   LLC  (Pine  Needle)  was  formed  by
subsidiaries  of  Transco,  Piedmont,  NCNG,  Amerada  Hess,  and PSNC,  and the
Municipal  Gas  Authority of Georgia to own and operate a liquefied  natural gas
storage facility.  The facility is located near Transco's  transmission pipeline
northwest  of  Greensboro,  North  Carolina,  and has  storage  capacity of four
billion cubic feet with vaporization capability of 400 mmcf/day.



                                      6

<PAGE>



PSNC's  subsidiary,  PSNC Blue Ridge Corporation (Blue Ridge),  owns 17% of Pine
Needle,  and  PSNC  has  contracted  to use 25% of the  facility's  gas  storage
capacity  and  withdrawal  capabilities.  The facility was built at an estimated
cost of $107 million and became operational in May 1999.

Competition

         Although  PSNC is the sole  distributor  of natural  gas in its service
area, it faces  competition from suppliers of alternate fuels and other types of
energy.  Competition  is  strongest  for sales to  large-volume  commercial  and
industrial  customers  having alternate fuel capability but exists for all other
customer classes as well.

         During  fiscal  1999,   approximately  36%  of  PSNC's  throughput  was
delivered to large-volume  commercial and industrial  customers having alternate
fuel  capability.  The primary  alternate fuels available to these customers are
fuel oil and  propane,  and,  to a lesser  extent,  coal  and  combustible  wood
products.  The NCUC has approved a rate  structure that allows PSNC to negotiate
reduced  rates  in order to match  the  cost of  alternate  fuels to  individual
customers  and recover the lost margin  from other  classes of  customers.  PSNC
anticipates  that the need to negotiate  reduced rates with these customers will
continue.

         Electricity   is  the  primary   competition  to  natural  gas  in  the
residential  and  commercial  markets where the  predominate  uses of energy are
space  heating,  water  heating  and  cooking.  Currently,  natural gas enjoys a
competitive  price advantage over electricity for these purposes,  enabling PSNC
in  recent  years  to  obtain  a  significant   share  of  the  new  residential
construction in its service area where natural gas is available.

Regulation and Rates

         PSNC's natural gas transmission and distribution business is subject to
regulation by the NCUC,  including  rates,  issuance of securities,  adequacy of
service, safety standards,  extension and abandonment of facilities,  accounting
and  depreciation  rates.  The NCUC has  seven  commissioners  appointed  by the
Governor of North Carolina for staggered eight-year terms. In an order issued on
October 30, 1998 in PSNC's last  general  rate case,  the NCUC  granted  PSNC an
increase in annual revenue of $12,400,000  effective as of November 1, 1998. The
order  allows  PSNC an  opportunity  to earn a 9.82%  overall  return on its net
utility  investment.  On December  18,  1998,  the  Carolina  Utility  Customers
Association, Inc. (CUCA), a party to PSNC's general rate case, formally appealed
the general  rate case order.  The Supreme  Court of North  Carolina  heard oral
arguments on CUCA's appeal on October 13, 1999.  While management is not able to
predict the ultimate  outcome of this appeal,  management  does not believe that
such outcome will have material  adverse  impact on PSNC's  financial  position,
results of operations or cash flows.

         PSNC's  rates  include a  weather  normalization  adjustment  mechanism
(WNA).  The WNA was  initially  approved  in 1991  and is in  effect  for  bills
rendered  during the period from November 1 through  April 30 of each year.  The
WNA applies only to residential and small general service rates and affects only
the non-gas  portion of PSNC's rates.  Sales to  large-volume  customers are not
normalized  because natural gas usage for such customers is  significantly  less
weather-sensitive.  The WNA  increases  tariff  rates if weather is warmer  than
normal and decreases rates if weather is colder than normal.

                                   7

<PAGE>



This  prevents the  undercollection  or  overcollection  of non-gas costs due to
variations in the quantity of natural gas delivered  when weather  deviates from
normal.  The WNA does not change the  seasonality  of PSNC's  earnings  and cash
flow; however, it does reduce fluctuations caused by abnormal weather.

         PSNC also operates under two other rate provisions that serve to reduce
fluctuations in PSNC's  earnings.  First, its Rider D rate mechanism allows PSNC
to recover,  in any manner  authorized by the NCUC,  margin losses on negotiated
gas sales to large  commercial  and  industrial  customers  with  alternate fuel
capability.  The  Rider  D rate  mechanism  also  allows  PSNC to  recover  from
customers all  prudently  incurred gas costs,  including  changes in natural gas
prices. Second, PSNC operates with full margin transportation rates. These rates
allow PSNC to earn the same margin on gas  delivered to customers  regardless of
whether the gas is sold or only transported by PSNC to the customer.

         PSNC's rates are  established  using a base cost of gas approved by the
NCUC which may be modified  periodically  to reflect changes in the market price
of natural gas and changes in the rates charged by PSNC's pipeline transporters.
PSNC may file revised  tariffs with the NCUC coincident with these changes or it
may  track  the  changes  in  its   deferred   accounts  for   subsequent   rate
consideration.  The rules of the NCUC allow  recovery of all prudently  incurred
gas costs. Also, the NCUC reviews PSNC's gas purchasing practices annually.

         On November 6, 1997,  the NCUC issued an order  permitting  PSNC,  on a
two-year  trial basis,  to establish  its  commodity  cost of gas each month for
large  commercial  and  industrial  customers on the basis of market  prices for
natural gas. This procedure allows PSNC to manage its deferred gas costs balance
better by ensuring that the amount paid for natural gas to serve these customers
approximates  the amount collected from them. PSNC has filed an application with
the NCUC for authority to make this procedure permanent.  CUCA has intervened in
opposition of its continuance.  The NCUC issued an order scheduling a hearing in
February 2000 on PSNC's application, and authorized PSNC to continue to use this
mechanism  pending  issuance of a final order sometime in 2000. While management
cannot  predict  the  outcome  of PSNC's  application,  it does not  expect  the
decision to have a material financial impact.  PSNC will continue to establish a
benchmark cost of gas each month for residential and small commercial  customers
pursuant to its existing procedures.

         In April 1992,  the NCUC adopted rules to implement the expansion  fund
program  established by the North Carolina  General  Assembly in July 1991. This
act  permitted  the  establishment  of expansion  funds to be used by each North
Carolina LDC to expand  natural gas service to areas that they are  certificated
to serve that would  otherwise not be economically  feasible to serve.  Separate
funds have been  established for use solely in each LDC's  certificated  service
territory.  Sources for expansion  funds may be each LDC's  respective  supplier
refunds,  special  surcharges or other sources permitted by the NCUC. Subject to
the NCUC's rules and  availability of funds, the LDCs are allowed to utilize the
expansion funds to the extent necessary to make such projects  feasible on a net
present value basis.  The balance of the funding for projects is supplied by the
LDC. Six counties in PSNC's franchised  territory are currently  unserved as are
certain  areas in other  counties.  On June 3, 1993,  the NCUC  entered an order
creating an expansion fund for PSNC in the Office of the State  Treasurer.  PSNC
began  providing  natural gas service in McDowell  County during  December 1996.
This was the first project

                                   8

<PAGE>



undertaken by PSNC using monies from its expansion  fund. On April 22, 1997, the
NCUC approved  PSNC's  application  to use expansion  funds to extend service to
western Haywood county,  including Waynesville,  Clyde and Lake Junaluska.  This
project was  completed in July 1998.  On February 22,  1999,  the NCUC  approved
PSNC's  application  to use expansion  funds to extend  natural gas service into
Alexander  County.  Most of  Alexander  County lies within  PSNC's  certificated
service  territory  and  does not  currently  have  natural  gas  service.  PSNC
estimates that the project will be completed prior to April 2000.

          On April 29, 1997, the NCUC issued an order  authorizing  the deferral
accounting for contract labor costs for a project to ensure that PSNC's computer
operating  systems  function  properly  in  year  2000.  The  order  required  a
three-year  amortization of these costs beginning in the year incurred. PSNC has
incurred approximately  $4,600,000 of these costs to date. PSNC began amortizing
these costs in September  1997.  The NCUC allowed  recovery of a majority of the
unamortized Year 2000 costs in the general rate case order issued on October 30,
1998.

         On May 17,  1999,  PSNC and SCANA  filed an  application  with the NCUC
requesting authorization to engage in a business combination transaction. Public
hearings  were held during July and  August,  and a hearing  before the NCUC was
completed on September 29, 1999.  On December 7, 1999,  the NCUC issued an order
approving the merger of the two companies.  As specified in the NCUC order, PSNC
will reduce its rates by  approximately  $2 million ($1  million  effective  six
months  after the  transaction  closing  date and  another $1 million  effective
eighteen months after the closing date) and has agreed to a five-year moratorium
on general  rate  cases.  The request for  approval  of the  transaction  by the
Securities and Exchange Commission is still pending.

Franchises

         Effective August 16, 1996, the NCUC granted PSNC certificates of public
convenience  and necessity to serve seven  additional  counties in western North
Carolina.  PSNC's certificated service territory now consists of all or parts of
31  counties  in North  Carolina.  Under  North  Carolina  law,  no company  may
construct  or operate  properties  for the sale or  distribution  of natural gas
without  having  obtained  such a  certificate,  except that no  certificate  is
required for construction in the ordinary course of business or for construction
into territory  contiguous to that already  occupied by an LDC and not receiving
similar service from another public utility.

         On December  8, 1998,  the NCUC  transferred  the  franchise  for Macon
County to the City of  Toccoa,  Georgia,  and the  Municipal  Gas  Authority  of
Georgia. On March 9, 1998, the NCUC approved a financing plan and authorized the
transfer of the  franchise  for Warren  County to  Frontier  Energy,  LLC.  PSNC
voluntarily  relinquished  these  franchises  and  supports  efforts  to provide
natural gas service to rural areas.

         PSNC has  nonexclusive  franchises from 64  municipalities  in which it
delivers  natural  gas; the other  communities  served by PSNC have not required
franchises.  The expiration dates of those franchises having specific expiration
provisions  range from 2000 to 2029.  The franchise for the City of Apex expired
on  October  7, 1999 and is in the  process  of being  renewed.  The  franchises
contain no restrictions of a materially


                                      9

<PAGE>



burdensome  nature and are adequate  for PSNC's  business as  presently,  and as
proposed to be,  conducted.  These franchises have been routinely renewed by the
municipalities when they expire.

Non-utility Businesses

         In December  1996,  PSNC  Production,  a subsidiary of PSNC,  and Sonat
Marketing Company L.P. (Sonat  Marketing),  a subsidiary of Sonat Inc.,  created
Sonat Public Service Company L.L.C.  (Sonat Public Service),  each owning 50% of
the new company.  PSNC Production  transferred  its gas brokering  activities to
Sonat Public Service,  which now serves  approximately  500 accounts both on and
off  PSNC's  system.  As  discussed  in  Note 13 to the  consolidated  financial
statements,  on November 29, 1999,  pursuant to the change in control provisions
of the "Amended and Restated Limited Liability Company Agreement of Sonat Public
Service  Company  L.L.C.," PSNC Production  submitted a "Buy-Sell  Notice" to El
Paso Energy  Corporation  (El Paso),  which  purchased Sonat Inc. on October 25,
1999,  and offered to purchase  the  membership  interest of Sonat  Marketing in
Sonat Public  Service.  On December 17, 1999,  El Paso  responded and elected to
sell its 50% interest in Sonat Public Service to PSNC  Production.  The proposed
effective date of the purchase is December 31, 1999.

         Clean Energy Enterprises, Inc. continued its activities in the
refueling of natural gas vehicles and the conversion of gasoline-fueled vehicles
to natural gas.

Environmental Matters

         PSNC is subject to regulation with regard to  environmental  matters by
various federal,  state and local  authorities.  PSNC owns, or has owned, all or
portions of six sites in North Carolina on which  manufactured gas plants (MGPs)
were formerly operated. Evaluations have revealed that MGP residuals are present
or  suspected at several of the sites.  PSNC has  recorded a total  liability of
$3,705,000,  which  represents  the minimum amount of the range of $3,705,000 to
$50,145,000   expected  for   investigating   and   monitoring   the  extent  of
environmental degradation and of implementing remedial procedures over a 30-year
period. See Note 7 to the consolidated  financial statements for further details
regarding this and other environmental matters related to PSNC.

Employees

         At November  30, 1999,  PSNC had 879  full-time  employees  compared to
1,047 at  November  30,  1998.  This 16%  decrease  is related  to Plan 2001,  a
three-year operating plan for translating PSNC's vision, mission, strategies and
corporate goals into specific actions. Plan 2001 is discussed further in Note 10
to the consolidated financial statements.

         PSNC considers its  relationship  with its employees to be good and has
never  experienced a strike or work  stoppage.  PSNC has  collective  bargaining
agreements with the  International  Chemical Workers Union Council of the United
Food and Commercial Workers locals  representing  approximately 300 construction
and service employees. Collective bargaining agreements that expired in December
1999 have been renegotiated. These renegotiated three-year collective bargaining
agreements will expire in December 2002.

                                     10

<PAGE>







Seasonality

         Due to the seasonal nature of PSNC's business,  the first six months of
its fiscal year are  generally  the most  profitable.  During  fiscal 1999,  the
quarters ended December 31 and March 31 together accounted for approximately 70%
of PSNC's  natural gas sales revenues and volumes.  The quarters  ending June 30
and September 30 are generally PSNC's least profitable quarters due to decreased
demand for natural gas related to lower space heating requirements.

                                     11

<PAGE>
<TABLE>
<CAPTION>

OPERATING STATISTICS


                                                       For the Fiscal Years Ended September 30,
                                       ------------------------------------------------------------------------
                                           1999           1998           1997           1996           1995
                                       ------------   ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>

OPERATING REVENUES - GAS:
  Residential Sales                    $173,611,126   $183,813,279   $183,391,700   $162,967,260   $135,846,213
  Commercial Sales                       69,924,498     78,956,618     84,120,824     74,444,770     57,783,940
  Industrial Sales                       25,900,724     39,737,329     46,147,690     52,460,676     31,483,864
  Gas Transported for Others             28,016,334     26,802,284     22,695,985     17,737,092     21,746,901
  Miscellaneous                           1,400,919      1,362,260      1,573,982      1,272,281      1,032,096
                                       ------------   ------------   ------------   ------------   ------------
          Total                        $298,853,601   $330,671,770   $337,930,181   $308,882,079   $247,893,014
                                       ============   ============   ============   ============   ============

GAS SUPPLY (DT):
  Natural Gas Purchased                  41,807,724     46,207,910     46,544,234     51,841,058     37,790,467
  Less Increase (Decrease) in Storage     1,908,903      1,686,462      2,055,564        471,720       (257,091)
  Less Unbilled, Unaccounted For,
   Company Use and Other                  2,302,625      2,192,820      2,519,194      2,518,774      1,979,901
                                         ----------     ----------     ----------     ----------     ----------
          Total Gas Sold                 37,596,196     42,328,628     41,969,476     48,850,564     36,067,657
                                         ==========     ==========     ==========     ==========     ==========

GAS DELIVERED (DT):
  Residential Sales                      19,529,630     20,795,108     19,760,537     22,398,288     17,566,948
  Commercial Sales                       11,367,102     12,324,159     12,769,424     13,925,422     10,827,444
  Industrial Sales                        6,699,464      9,209,361      9,439,515     12,526,854      7,673,265
  Gas Transported for Others             27,647,962     25,110,949     23,143,824     16,795,268     22,551,006
                                         ----------     ----------     ----------     ----------     ----------
          Total                          65,244,158     67,439,577     65,113,300     65,645,832     58,618,663
                                         ==========     ==========     ==========     ==========     ==========


NUMBER OF CUSTOMERS (AT YEAR END):
  Residential                               295,277        278,760        264,129        248,940        246,877
  Commercial/small industrial                41,668         40,538         39,349         38,624         29,497
  Large commercial/industrial                 2,118          2,433          2,419          1,677            389
                                            -------        -------        -------        -------        -------
          Total                             339,063 (4)    321,731        305,897 (3)    289,241 (2)    276,763
                                            =======        =======        =======        =======        =======

PER RESIDENTIAL CUSTOMER:
  Average Gas Used (DT)                       66.14          74.60          74.82          89.98          71.16
  Average Revenue                           $587.98        $659.42        $694.36        $654.67        $550.28
  Revenue per DT                              $8.89          $8.84          $9.28          $7.28          $7.73

SYSTEM AVERAGE DEGREE DAYS (1):
  Actual                                      3,049          3,366          3,253          3,856          3,030
  Normal                                      3,382          3,382          3,382          3,400          3,382
  Percent of Normal                              90%            99%            96%           113%            90%

PEAK DAY DELIVERY (DT)                      487,537        416,198        406,742        433,045        403,581

</TABLE>

----------------
    (1)   Fiscal 1996 reflects an additional day for leap year.

    (2)   Reflects the  reclassification  of approximately  8,000 customers
          from residential to commercial/small  industrial  classification,
          and   1,300   from    commercial/small    industrial   to   large
          commercial/industrial classification during fiscal 1996.

    (3)   Reflects the reclassification of approximately 700 customers from
          commercial/small industrial to large commercial/industrial during
          fiscal 1997.

    (4)   Reflects the reclassification of approximately 300 customers from
          large  commercial/  industrial  to  commercial/small   industrial
          during fiscal 1999.


                                          12

<PAGE>



                   EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
                                                                                   Date Elected
 Name and Age (1)                            Title (1)                               An Officer
<S>                                    <C>                                            <C>

Charles E. Zeigler, Jr.                Chairman, President and                        11/01/86
   Age - 53                              Chief Executive Officer
Jack G. Mason                          Vice President - Finance                       03/01/95
   Age - 42
Boyce C. Morrow, Jr.                   Vice President -                               03/01/90
   Age - 55                              External Affairs
Jerry W. Richardson                    Vice President - Engineering                   02/23/82
   Age - 54                              and System Logistics
Robert D. Voigt                        Vice President -                               09/01/81
   Age - 48                              Organizational Development
Franklin H. Yoho                       Vice President - Marketing                     02/01/91
   Age - 40                              and Gas Supply
Sharon D. Boone                        Controller and                                 03/01/95
   Age - 46                            Assistant Secretary
J. Paul Douglas                        Corporate Counsel and                          12/21/94
   Age - 52                              Secretary

</TABLE>
---------------
   (1) As of November 30, 1999.

         The present terms of all officers extend to April 28, 2000, the date of
the next annual meeting of  shareholders  and the annual meeting of the Board of
Directors, or until their successors are elected and qualified.

         All of the executive  officers have served in executive  positions with
PSNC for the past five  years with the  exception  of J. Paul  Douglas,  Jack G.
Mason and Sharon D. Boone.

         J. Paul Douglas was  employed by PSNC on December  21,  1994.  Prior to
joining  PSNC,  he was  employed by Conoco  Inc.  as counsel  from March 1991 to
December  1994.  Prior to Conoco,  he was a partner with the law firm of Katten,
Muchin,  Zavis and Dombroff  from February 1990 to March 1991 and a partner with
the law firm of Grove,  Jaskiewicz,  Gilliam  and Cobert from  February  1984 to
February 1990.

         Jack G. Mason was  employed  by PSNC on July 5,  1979.  During the past
five years,  prior to serving as Vice  President - Finance,  Mr.  Mason held the
positions of Vice  President-Treasurer  and Chief Financial Officer,  Director -
Financial Projects and Assistant Treasurer,  Assistant Treasurer,  and Assistant
Treasurer and Assistant Controller.

         Sharon D. Boone was employed by PSNC on November  15, 1982.  During the
past five years,  prior to serving as Controller  and Assistant  Secretary,  Ms.
Boone held the positions of Manager - Plant Accounting and Tax Services, Manager
- Corporate Accounting, and Director - Corporate Accounting.




                                    13

<PAGE>



Item 2.  Properties

         PSNC  owns 761  miles of  transmission  pipelines  of 2 to 24 inches in
diameter  that  connect  its  distribution  systems  with the  Texas to New York
pipeline transmission system of Transco. Transco delivers natural gas to PSNC at
various  points  on  Transco's  pipeline  in  North  Carolina.  Natural  gas  is
distributed  by PSNC  through  its  6,857  miles of  distribution  mains.  These
transmission   pipelines  and  distribution   mains  are  located  primarily  on
rights-of-ways held under easement,  license or permit on lands owned by others.
Through its subsidiary, PSNC Cardinal Pipeline Company, PSNC also owns 33.21% of
Cardinal Pipeline Company, LLC, which owns a 105-mile transmission  pipeline, as
discussed more fully in Note 2 to the consolidated financial statements.

         PSNC's Energy Center,  which consists of its LNG liquefaction,  storage
and vaporization  facility, is located on a 70-acre tract of land in Cary, North
Carolina. Through its subsidiary,  Blue Ridge, PSNC also owns 17% of Pine Needle
LNG  Company,  LLC,  which owns and  operates a  liquefied  natural  gas storage
facility with storage  capacity of four billion  cubic feet,  as discussed  more
fully in Note 2 to the consolidated financial statements.

         PSNC also owns 18 commercial office buildings, a measurement operations
building,  a building that houses  training and  engineering,  11 service center
buildings,  15 service  buildings,  and an energy control building;  PSNC leases
five commercial  office buildings for its own use. One of the service  buildings
also houses training facilities. Another service building is jointly occupied by
a NGV conversion facility.





                                       14

<PAGE>



Item 3.  Legal Proceedings

         As more fully disclosed in Part I under "Environmental  Matters" and in
Part II in Note 7 to the consolidated  financial  statements,  PSNC owns, or has
owned,  all or portions of sites at which  manufactured gas plants were formerly
operated and is cooperating  with the North  Carolina  Department of Environment
and Natural Resources to investigate these sites.

Item 4.  Submission of Matters to a Vote of Security Holders

         None. The Annual Meeting of Shareholders has been delayed until Friday,
April 28, 2000 due to the pending  merger with SCANA.  If required,  the meeting
will be held at PSNC's  corporate  office at 9:00 a.m. If necessary,  the formal
notice of the meeting,  proxy  statement  and form of proxy will be mailed on or
about April 1, 2000, to holders of record of common stock on March 31, 2000.

                                 PART II

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters

         PSNC's common stock is traded on the New York Stock  Exchange under the
ticker symbol "PGS." PSNC's stock  quotations  are listed in most  publications,
including  newspapers,  as "PubSvcNC" or "PubSNC."  Prior to March 1, 1995, PSNC
was  traded  in the  over-the-counter  market  and was  included  in the  NASDAQ
National Market System under the symbol "PSNC." At November 30, 1999, there were
approximately 12,000 holders of record of PSNC's common stock.

         The table below  presents the  reported  high and low common stock sale
prices along with cash  dividends  declared per share for each quarter of fiscal
1999 and 1998.

                                                                     Cash
         Quarter                                                   Dividends
          Ended                 High                Low            Declared
         -------             ----------           --------         ---------
          Fiscal
           1999
         -------
          Sep 30             $31  7/16           $29 1/16           $.2475
          Jun 30              30                  28 1/16            .2475
          Mar 31              29 15/16            22 5/16            .2400
          Dec 31              26  1/16            21 9/16            .2400

          Fiscal
           1998
         -------
          Sep 30              24 1/2              19 1/8             .2400
          Jun 30              22 3/16             19 7/8             .2400
          Mar 31              22 7/8              19 1/8             .2300
          Dec 31              24 3/8              19 7/16            .2300

         On  November  11,  1999,  the  Board of  Directors  declared  a regular
quarterly cash dividend on PSNC's common stock of 24.75(cent) per share, payable
on January 1, 2000 to shareholders of record on December 10, 1999. PSNC has paid
consecutive  quarterly  cash  dividends on its common stock since 1958, and has
increased cash dividends paid to shareholders each calendar year since 1970.

                                     15

<PAGE>


Item 6.  Selected Financial Data
<TABLE>
<CAPTION>

For the Fiscal Years Ended September 30,                1999        1998        1997        1996       1995
----------------------------------------              --------    --------    --------    --------   --------
<S>                                                   <C>         <C>         <C>         <C>        <C>

Operating revenues (000's)........................    $298,854    $330,672    $337,930    $308,882   $247,893
Net margin (000's)................................    $156,770    $145,782    $145,107    $130,859   $122,885
Net income (000's) (1)............................    $ 24,451    $ 24,837    $ 26,347    $ 23,898   $ 21,421
Basic earnings per average common share (2).......    $   1.19    $   1.24    $   1.35    $   1.26   $   1.16
Diluted earnings per average common share (2).....    $   1.18    $   1.23    $   1.34    $   1.25   $   1.15
Cash dividends declared per common share .........    $   .975    $    .94    $    .90    $   .865   $   .835
Average number of common shares
 outstanding (000's) .............................      20,515      20,103      19,550      18,995     18,509
Capital expenditures (000's)......................    $ 43,567    $ 65,329    $ 60,310    $ 60,428   $ 61,119
Total assets (000's)..............................    $648,571    $618,753    $585,142    $524,889   $456,995
Common equity (000's).............................    $233,164    $222,839    $207,368    $188,635   $173,372
Long-term debt (000's) (3)........................    $157,250    $171,550    $180,850    $140,150   $100,700

</TABLE>
---------------
(1) Fiscal 1999 includes $8,238,000 related to merger and restructuring charges.
(2) Fiscal 1999  includes  $0.28 per share  related to merger and  restructuring
    charges.
(3) Excludes current maturities.


                                          16

<PAGE>



Item 7.  Management's Discussion and Analysis of Results
            of Operations and Financial Condition


Results of Operations


Net Margin

For the Fiscal Years Ended September 30,             1999      1998      1997
----------------------------------------           --------  --------  --------

(Amounts in thousands except
 degree day and customer data)

Gross margin                                       $165,412  $156,371  $155,926
Less - franchise taxes                                8,642    10,589    10,819
                                                   --------  --------  --------
  Net margin                                       $156,770  $145,782  $145,107
                                                   ========  ========  ========


Total throughput (DT):
  Residential                                        19,530    20,795    19,760
  Commercial/small industrial                        12,117    12,618    12,373
  Large commercial/industrial                        33,597    34,027    32,980
                                                     ------    ------    ------
                                                     65,244    67,440    65,113
                                                     ======    ======    ======

System average degree days:
  Actual                                              3,049     3,366     3,253
  Normal                                              3,382     3,382     3,382
  Percent warmer than normal                             10%        1%        4%

Weather normalization adjustment
  income (refund), net of
  franchise taxes                                   $ 7,361   $  (113)  $ 5,960

Customers at end of period: (1)
  Residential                                       295,277   278,760   264,129
  Commercial/small industrial                        41,668    40,538    39,349
  Large commercial/industrial                         2,118     2,433     2,419
                                                    -------   -------   -------
                                                    339,063   321,731   305,897
                                                    =======   =======   =======



      (1)Reflected in customers at September 30, 1999 is the reclassification of
approximately 300 customers from large commercial/industrial to commercial/small
industrial. Reflected in customers at September 30, 1997 is the reclassification
of  approximately  700  customers  from  commercial/small  industrial  to  large
commercial/industrial.

         Total  throughput  and net margin,  defined as operating  revenues less
cost of gas and franchise taxes, are more meaningful comparative statistics than
gas sales volumes and operating  revenues when analyzing  Public Service Company
of North Carolina,  Incorporated's  (PSNC) utility  operating  results.  This is
because certain large-volume  customers purchase gas directly from gas producers
or other gas suppliers and transport

                                     17

<PAGE>



it through PSNC's pipeline system. PSNC's operating revenues and expenses do not
include the commodity cost of this transported gas; however, PSNC earns a margin
on the  transported gas that is equivalent to the margin that PSNC would earn if
it  purchased  and resold gas to these  large-volume  customers.  Also,  various
temporary  collection and refund mechanisms  affect both operating  revenues and
cost of gas equally.


Fiscal 1999

o Net margin increased by $10,988,000, or 8%, in fiscal 1999 as compared to
  fiscal 1998 primarily due to the general rate increase effective November 1,
  1998 and to an increased customer base.  This general rate increase accounted
  for approximately $7,380,000 of the increase from fiscal 1998.  The volumes of
  gas delivered to residential, commercial/small industrial and lower-margin
  large commercial/industrial customers decreased 6%, 4% and 1%, respectively,
  primarily due to weather that was 9% warmer than the prior fiscal year.
  Additionally, consumption per degree day, excluding the impact of weather,
  decreased 5% for both residential and  commercial/small industrial customers
  as compared to the same period in fiscal 1998.  Net throughput-related
  variances for all customer classes totaled approximately $2,840,000, including
  an increase of $7,424,000 related to the operation of the weather
  normalization adjustment(WNA) mechanism. The WNA accounts only for differences
  in consumption caused by temperature variations from normal.  It does not
  adjust PSNC's earnings for any non-temperature related changes in consumption.
  After adjusting for the customer reclassification as previously discussed,
  residential and commercial/small industrial customers increased 6% and 2%,
  respectively, while large commercial/industrial customers remained constant as
  compared to fiscal 1998.


Fiscal 1998

o Net margin increased by $675,000 in fiscal 1998 as compared to fiscal 1997.
  The volumes of gas delivered to residential and commercial/small industrial
  customers increased 5% and 2%, respectively, due primarily to an increased
  customer base and to weather that was 3% colder than the prior fiscal year.
  Offsetting these increases was a decrease in consumption per degree day by
  these customers.  Natural gas usage by residential and commercial/small
  industrial customers, excluding the impact of weather, decreased 5% and 3%,
  respectively, as compared to the same period in fiscal 1997.  Throughput for
  lower-margin large commercial/industrial customers increased 3% as compared to
  fiscal 1997.  This reflects decreased weather-related service curtailments to
  these customers during the year, along with an increase in the customer base.
  Net throughput-related increases for all customer classes totaled approxi-
  mately $407,000, including a reduction of $6,073,000 related to the operation
  of the WNA mechanism.  Also impacting margin growth was the effect of warmer
  weather, as compared to fiscal 1997, during the months of October and May
  which are not included in the WNA mechanism period.


                                       18

<PAGE>



Fiscal 1997

o Net margin increased by $14,248,000, or 11%, in fiscal 1997 as compared to
  fiscal 1996 primarily due to the general rate increase effective October 1,
  1996 and to an increased customer base.  This general rate increase accounted
  for approximately $6,200,000 of the variance from fiscal 1996.  The volumes of
  gas delivered to residential and commercial/small industrial customers
  decreased 12% and 14%, respectively, due to weather that was 16% warmer as
  compared to fiscal 1996.  Throughput for lower-margin large commercial/
  industrial customers increased 14% as compared to fiscal 1996.  This reflects
  decreased weather-related service curtailments to these customers during the
  year as compared to fiscal 1996, along with an increase in the customer base.
  Net throughput-related variances for all customer classes totaled approxi-
  mately $7,775,000, including a variance of $14,693,000 related to the
  operation of the WNA mechanism. After adjusting for the customer reclassi-
  fications as previously discussed, residential, commercial/small industrial
  and large commercial/industrial customers increased 6%, 4% and 2%,
  respectively, as compared to fiscal 1996.


Operating Expenses

         Other  operating  expenses  increased  20%  during  fiscal  1999.  This
increase  includes net  restructuring  charges of $4,343,000 in connection  with
Plan 2001 discussed further in Note 10 to the consolidated financial statements.
The increase also includes  $3,895,000 of costs incurred related to the proposed
business combination with SCANA Corporation (SCANA) discussed further in Note 11
to the consolidated financial statements. On a straight comparison basis without
these  restructuring and merger costs,  other operating  expenses  increased 5%.
Also,  employee cash compensation  awards, an increase in deferred  compensation
and retirement fees for the Board of Directors, and the amortization of deferred
Year 2000 costs  contributed to the increase.  These  increases more than offset
savings generated by Plan 2001 initiatives.

         Diluted  earnings per share of $1.18 for fiscal 1999 include  $0.15 per
share (partially tax deductible) of merger-related  expenses and $0.13 per share
net of tax of one-time net restructuring  costs related to the implementation of
Plan 2001.  Exclusive of these  charges,  diluted  earnings per share for fiscal
1999 were $1.46 as compared to $1.23 for fiscal 1998.

         Other operating expenses decreased 1% during fiscal 1998. This decrease
includes  a  reduction  in net  expenses  related  to the  nonrecurring  charges
associated with the voluntary early retirement program incurred during the first
quarter of fiscal 1997. On a straight  comparison  basis without this reduction,
other  operating  expenses  increased  1% as  compared  to fiscal  1997.  Health
insurance  costs,  outside  consulting  expenses  and  expenses  related  to the
adoption of a  retirement  plan for the Board of Directors  contributed  to this
increase.  The outside consulting  services are associated with PSNC's Year 2000
compliance program.  Partially offsetting the increases were lower uncollectible
provision  expenses,  lower liquefied natural gas (LNG) facility power usage and
no incentive compensation costs recognized in fiscal 1998.


                                   19

<PAGE>



         Other  operating  expenses  increased  10%  during  fiscal  1997.  This
increase  was  due  primarily  to net  expenses  of  $1,034,000  related  to the
voluntary early retirement  program offered in the first quarter of fiscal 1997.
On a straight  comparison basis without this expense,  other operating  expenses
increased 8% as compared to fiscal 1996. Salary and employee  benefits,  outside
consulting  expenses,  employee  training  programs and expenses  related to the
outsourcing  of  meter  reading  also  contributed  to the  increase.  Partially
offsetting the increases were reduced  expenses for health  insurance due to the
enrollment  of  all  PSNC  employees  with  a  health  maintenance  organization
provider.

         Maintenance  expenses  decreased  3% and 13% in  fiscal  1999 and 1998,
respectively.  The decrease in 1998 includes a decrease in net expenses  related
to the voluntary early  retirement  program incurred during the first quarter of
fiscal  1997.  On a  straight  comparison  basis  without  the  voluntary  early
retirement  program expense,  maintenance  expenses decreased 11%. This decrease
was due  primarily to lower  telecommunications  expenses,  lower LNG  equipment
replacement expenses and other general operational improvements.

         Maintenance  expenses  increased  17% in fiscal 1997 due  primarily  to
higher  telecommunications  expenses  and  salaries.  Also  contributing  to the
increase  were charges of $143,000  related to the  voluntary  early  retirement
program.  On a straight comparison basis without the voluntary early retirement,
maintenance expenses increased 14% as compared to fiscal 1996.

         Depreciation expense increased 3%, 12% and 13% in fiscal 1999, 1998 and
1997,  respectively,  due to plant additions.  The lower than normal increase in
depreciation  expense  in  fiscal  1999 is due to fewer  plant  additions  and a
revision to vintage year  accounting made in the third quarter for certain plant
accounts.

         General  taxes  decreased  during  fiscal 1999  primarily  due to lower
franchise tax expense  resulting from the  elimination of franchise taxes by the
North Carolina General  Assembly  effective on August 1, 1999. The franchise tax
was replaced by an excise tax.  Franchise  taxes were included in PSNC's billing
rates and were recorded as both revenue and expense. The new excise tax is added
to customer  bills based on the volume of natural gas consumed.  PSNC remits the
amounts  collected  to the state and does not  include  the excise tax in either
revenue or expense.  General taxes  increased  during fiscal 1998  reflecting an
increase  in PSNC's  property  taxes,  offset  somewhat by lower  franchise  tax
expense.  The increase in general  taxes during fiscal 1997 was due to increased
franchise tax expense, reflecting an increase in revenues.


Other Income (Deductions)

         Other income  (deductions)  increased $754,000 during fiscal 1999. This
is primarily due to an increase in income from subsidiary operations.  Under the
terms of the  performance  clauses in the joint venture  agreement  between PSNC
Production Corporation (PSNC Production) and Sonat Marketing Company L.P. (Sonat
Marketing),  PSNC  Production  recognized an  additional  $1,175,000 of deferred
revenue in fiscal  1999.  Offsetting  the increase in other income is a $204,000
pre-tax write off on PSNC

                                     20

<PAGE>



Production's  investment in American Gas Finance  Company,  a limited  liability
company  established by the American Gas  Association  to provide  financing for
residential energy- efficiency improvements.

         Other income  (deductions)  decreased $366,000 during fiscal 1998. This
was primarily the result of a $975,000  decrease in interest  income compared to
fiscal 1997 on amounts due from  customers  through the operation of the Rider D
rate  mechanism.  During  fiscal 1998,  through an increment in its rates,  PSNC
collected  previously  undercollected  gas  costs  and  was  able to  match  its
benchmark gas cost more closely to market prices. This resulted in a lower Rider
D receivable balance of $12,860,000 at September 30, 1998.  Partially offsetting
the  decrease in interest  income was a $673,000  increase  in  merchandise  and
jobbing  income.  This increase  reflects a decrease in expenses  related to the
voluntary early  retirement  program incurred during the first quarter of fiscal
1997. On a straight  comparison  basis without the  voluntary  early  retirement
program expense,  merchandise and jobbing operations  increased by approximately
$442,000.

         Other income (deductions)  increased $535,000 during fiscal 1997. Other
interest income  increased  $792,000 over fiscal 1996 due to interest on amounts
due  from  customers  through  the  operation  of the  Rider  D rate  mechanism.
Winter-period  increases  in the market  price of natural  gas  resulted in PSNC
recording  uncollected  gas costs,  along with  increased  demand  costs,  which
totaled  $18,385,000 at September 30, 1997. Prior to December 1996,  income from
secondary  market  transactions  was  recorded  as  other  income.  Income  from
secondary  market  transactions  is  now  recorded  in  subsidiary   operations.
Secondary market  transactions are any transactions that utilize capacity rights
on interstate  pipelines.  Upon creation of Sonat Public Service,  $4,845,000 of
cash received by PSNC Production  from Sonat Marketing was deferred,  and during
fiscal 1997,  $816,000 of this  deferred  revenue was  recognized  as subsidiary
income.  With the formation of Sonat Public  Service,  PSNC Production and Sonat
Marketing  split evenly  PSNC's 25% share of net income from the  earnings  from
secondary  market  transactions.  PSNC also realized a $205,000  improvement  in
merchandise and jobbing. This improvement was reduced by approximately  $231,000
related  to the  voluntary  early  retirement  program.  Without  this  expense,
merchandise and jobbing income would have increased by approximately $436,000.


Interest Deductions

         Interest  deductions for fiscal 1999 increased  approximately  $245,000
over fiscal 1998. This increase includes $200,000 of debt expense and prepayment
premium  recognized  due to the  prepayment  in February  1999 of the  remaining
$10,000,000  of 8.65% Senior  Debentures due 2002. The increase also reflects an
increase in interest  expense on short-term  debt  resulting from higher average
short-term bank loans outstanding during the period. Offsetting this increase is
lower interest on long-term debt due to the previously  mentioned prepayment and
scheduled sinking fund payments.

         Interest  deductions for fiscal 1998 increased  approximately  $524,000
over fiscal 1997. This increase resulted from an increase in interest expense on
short-term debt


                                       21

<PAGE>



resulting  from higher  average  short-term  bank loans  outstanding  during the
period and the December 1996 issuance of $50,000,000 of long-term debt.

         Interest  deductions for fiscal 1997 increased  $2,512,000  over fiscal
1996.  This increase was due mainly to increased  interest  expense on long-term
debt of $2,887,000  resulting from the December 17, 1996 issuance of $50,000,000
of 7.45%  Senior  Debentures  due 2026.  Interest  expense  on  short-term  debt
decreased $299,000 due to lower average short-term bank loans outstanding during
the period.


Liquidity and Capital Resources

         PSNC's  primary  capital  needs  are  the  funding  of  its  continuing
construction  program and the  seasonal  funding of its stored gas  inventories.
PSNC uses  short-term  bank loans,  together with  internally  generated  funds,
long-term debt and equity financing to fund its continuing construction program.
PSNC has committed lines of credit with five commercial banks which vary monthly
depending upon seasonal  requirements  and a five-year  revolving line of credit
with one bank. For the twelve-month  period beginning April 1, 1999, total lines
of  credit  with  these  banks  range  from  a  minimum  of   $55,000,000  to  a
winter-period  maximum of $75,000,000.  PSNC also has total uncommitted lines of
credit  ranging  from  $70,000,000  to  $100,000,000.  At  September  30,  1999,
committed lines of credit totaled  $60,000,000  and uncommitted  lines of credit
totaled $100,000,000.  Lines of credit are evaluated  periodically by management
and  renegotiated  to  accommodate   anticipated   short-term  financing  needs.
Management  believes  these lines are  currently  adequate  to finance  budgeted
construction expenditures,  stored gas inventories and other corporate needs. At
September 30, 1999 and 1998, PSNC's total short-term bank loans outstanding were
$104,000,000 and $70,500,000, respectively.

         In  December  1995,   PSNC  filed  with  the  Securities  and  Exchange
Commission (SEC) a registration  statement covering up to an aggregate amount of
$125,000,000 of senior unsecured debt. In January 1996, PSNC sold $50,000,000 of
6.99% Senior  Debentures due 2026 in a public  offering.  In December 1996, PSNC
sold $50,000,000 of 7.45% Senior  Debentures due 2026 in a public offering.  The
net proceeds of both issues were used to pay down a  significant  portion of the
then  outstanding  short-term  bank debt. PSNC has not issued any long-term debt
since  December  1996,  resulting  in  an  increase  in  short-term  bank  loans
outstanding.  On May 21, 1999, PSNC filed with the SEC a registration  statement
(amended on June 7, 1999) covering up to an aggregate of  $150,000,000 of senior
unsecured debt securities.  This amount includes $25,000,000 of senior unsecured
debt registered in December 1995 that has not been issued and sold. At September
30, 1999, $150,000,000 remained on the shelf registration.

         On February 26, 1999,  PSNC prepaid the remaining  $10,000,000 of 8.65%
Senior  Debentures due 2002 at a prepayment price of 101.85%.  PSNC financed the
prepayment through the use of short-term debt.




                                       22

<PAGE>



         PSNC also generates  equity capital  through its dividend  reinvestment
(DRP),  employee  stock  purchase and  nonqualified  stock option plans.  During
fiscal  1999,  1998 and  1997,  the DRP  generated  $3,272,000,  $6,799,000  and
$7,277,000,  respectively,  of additional equity capital. The decrease in equity
funds  generated  through the DRP from the prior year reflects a change in April
1999 to open market  purchases  to satisfy the  requirements  of the DRP and the
exercise of stock options.  This change was made because of the  requirements of
the proposed merger with SCANA discussed  further in Note 11 to the consolidated
financial  statements.  The employee stock  purchase plan generated  $1,295,000,
$1,359,000 and  $1,318,000,  respectively,  of additional  equity  capital.  The
employee  stock  purchase  plan  was  terminated  in June  1999  because  of the
requirements of the proposed merger with SCANA.  The  nonqualified  stock option
plans  generated net equity  capital of $1,700,000,  $1,639,000 and  $1,215,000,
respectively.

         The  ratio of  long-term  debt to  total  capitalization  was  40.3% at
September 30, 1999, 43.5% at September 30, 1998 and 46.6% at September 30, 1997.
PSNC's goal is to maintain a capital structure with a ratio of long-term debt to
total capitalization in the 45% range with periodic moderate fluctuations.

         For  fiscal  1999,  1998  and  1997,  construction   expenditures  were
$43,567,000,  $65,329,000 and $60,310,000,  respectively.  For fiscal 2000, PSNC
has budgeted $41,000,000 for its ongoing construction  program. PSNC anticipates
spending $40,000,000 to $45,000,000 annually on its construction program for the
next several years.

         As  discussed  more  fully  in  Note  4 to the  consolidated  financial
statements,  PSNC and its subsidiaries sponsor a noncontributory defined benefit
pension plan covering substantially all employees.  During fiscal 1999 and 1998,
cash contributions were $3,679,000 and $4,213,000, respectively.

         The  decrease  in  restricted   cash  and  temporary   investments  and
restricted supplier refunds from the prior year is due to depositing $19,808,000
in refunds received from PSNC's pipeline transporters into PSNC's expansion fund
in the Office of the State  Treasurer  during the fourth quarter of fiscal 1999.
This fund was  created by an order of the North  Carolina  Utilities  Commission
(NCUC),  dated June 3, 1993,  to finance the  construction  of natural gas lines
into unserved  areas of PSNC's service  territory  that  otherwise  would not be
economically  feasible to serve.  Offsetting the decrease in restricted cash and
temporary  investments  is  a  reclassification  of  $3,634,000  from  long-term
restricted  cash at  September  30,  1999.  This  reclassification  is discussed
further in Note 1 to the consolidated financial statements.

           On February 22, 1999,  the NCUC approved  PSNC's  application  to use
expansion  funds to  extend  natural  gas  service  into  Alexander  County  and
authorized  disbursements  from the fund of  approximately  $4,301,000.  Most of
Alexander County lies within PSNC's  franchised  service  territory and does not
currently  have natural gas  service.  PSNC  estimates  that the project will be
completed prior to April 2000 at a cost of approximately $6,188,000.




                                   23

<PAGE>



         Net accounts receivable  increased  $3,090,000 as compared to September
30, 1998.  This  increase  reflects an increase in sales due to a 5% increase in
customers and the impact of PSNC's general rate increase  effective  November 1,
1998.

         Stored gas  inventories  increased  $5,687,000 as compared to September
30,  1998.  This  increase is due to the  addition  of the Pine  Needle  storage
facility  on May 1, 1999 and to an  increase  in storage  capacity  in  existing
storage facilities.

         Net deferred gas costs fluctuate in response to the operation of PSNC's
Rider D rate  mechanism.  This  mechanism  allows PSNC to recover all  prudently
incurred gas costs from customers.  It also allows PSNC to recover margin losses
on negotiated sales to large commercial/industrial customers with alternate fuel
capability.  On a monthly basis, any difference in amounts paid and collected is
recorded for  subsequent  refund to or  collection  from PSNC's  customers.  The
$5,322,000 increase in deferred gas costs at September 30, 1999 resulted from an
increase in  undercollections  from  customers  due to higher gas costs.  PSNC's
deferred gas costs  balances are approved by the NCUC in annual gas cost reviews
and are refunded to or collected from  customers over a subsequent  twelve-month
period.  Amounts that have not been refunded to or collected from customers bear
interest at an annual rate of 10% as required by the NCUC. Deferred gas costs at
September  30,  1999  and  September  30,  1998  reflect  undercollections  from
customers.  PSNC's  strategy is to manage the balance of deferred gas costs to a
minimal level over a twelve-month  period.  On November 6, 1997, the NCUC issued
an order  permitting PSNC, on a two-year trial basis, to establish its commodity
cost of gas for large commercial and industrial customers on the basis of market
prices for natural gas.  This  procedure  allows PSNC to manage its deferred gas
costs  balance  better by ensuring that the amount paid for natural gas to serve
these customers  approximates  the amount collected from them. PSNC has filed an
application  with the NCUC for authority to make this procedure  permanent.  The
Carolina Utility Customers Association, Inc. (CUCA) has intervened in opposition
of its  continuance.  The NCUC issued an order  scheduling a hearing in February
2000 on  PSNC's  application,  and  authorized  PSNC  to  continue  to use  this
mechanism  pending  issuance of a final order sometime in 2000. While management
cannot  predict  the  outcome  of PSNC's  application,  it does not  expect  the
decision to have a material financial impact.  PSNC will continue to establish a
benchmark cost of gas for residential and commercial/small  industrial customers
pursuant to its existing procedures.

         The $9,943,000 increase in other assets is primarily due to the capital
contribution  of $9,095,000 by PSNC's  subsidiary,  PSNC Blue Ridge  Corporation
(Blue Ridge),  to Pine Needle LNG Company,  LLC (Pine Needle) on May 3, 1999. As
discussed more fully in Note 2 to the consolidated  financial  statements,  Pine
Needle was formed by subsidiaries of Transcontinental  Gas Pipe Line Corporation
(Transco), Piedmont Natural Gas Company, Inc. (Piedmont), North Carolina Natural
Gas Corporation (NCNG),  Amerada Hess, and PSNC, and the Municipal Gas Authority
of  Georgia.  Pine  Needle  owns and  operates a  liquefied  natural gas storage
facility in North Carolina, built at a cost of approximately  $107,000,000.  The
facility became operational on May 1, 1999. PSNC,  through its subsidiary,  Blue
Ridge,  owns 17% of the  facility,  and PSNC  has  contracted  to use 25% of the
facility's gas storage capacity and withdrawal capabilities.



                                     24

<PAGE>



         The decrease in long-term debt of $14,300,000, as compared to September
30,  1998,  is due to the  prepayment  on  February  26,  1999 of the  remaining
$10,000,000 of 8.65% Senior  Debentures  due 2002 and to scheduled  sinking fund
payments.

         Accounts  payable  increased  $4,632,000  as compared to September  30,
1998. This is primarily due to increased  secondary  market activity and natural
gas purchased at a higher cost.

         Deferred  credits  and other  liabilities  increased  primarily  due to
additional  deferred  income  taxes of  $7,897,000  and  increased  deferred and
retirement  compensation  for the  Board  of  Directors.  These  increases  were
partially  offset by a  decrease  in  accrued  pension  costs  which  includes a
curtailment gain of $881,507 and a settlement gain of $881,634 related to PSNC's
severance  activity  under  Plan  2001  discussed  further  in  Note  10 to  the
consolidated financial statements.

         As  discussed  more  fully  in  Note  7 to the  consolidated  financial
statements,  PSNC owns,  or has  owned,  all or  portions  of six sites in North
Carolina  on which  manufactured  gas  plants  (MGPs)  were  formerly  operated.
Evaluations of these sites have revealed that residuals from MGPs are present or
suspected at several of the sites. The North Carolina  Department of Environment
and Natural  Resources  (NCDENR) has recommended that no further action be taken
with respect to one site.  An  environmental  consulting  firm  retained by PSNC
estimated that the minimum aggregate costs to investigate and monitor the extent
of environmental  degradation and to implement remedial  procedures with respect
to the  remaining  five sites may range from  $3,705,000 to  $50,145,000  over a
30-year  period.  PSNC is unable  to  determine  the rate at which  costs may be
incurred  over  this  time  period.  In  October  1994,  PSNC  entered  into  an
administrative  order of consent with NCDENR to  investigate  the Durham,  North
Carolina,  site in accordance with standards and methods approved by NCDENR.  At
September  30, 1998,  PSNC had recorded a total  liability  and a  corresponding
regulatory  asset of the minimum  amount of the range,  or  $3,705,000.  Amounts
incurred to date are not  material.  Management  intends to request  recovery of
additional MGP clean-up costs not recovered from other  potentially  responsible
parties in future rate case  filings,  and believes that all costs deemed by the
NCUC to be prudently incurred will be recoverable in gas rates.

         As  discussed  more  fully  in  Note  2 to the  consolidated  financial
statements,  PSNC and a subsidiary of Piedmont formed Cardinal Pipeline Company,
LLC  (Cardinal   Pipeline)  in  March  1994  to  construct  an  intrastate   gas
transmission  pipeline. The pipeline was placed into service in December 1994 at
a cost of  approximately  $26,000,000.  PSNC owned 64.4% of the pipeline,  which
extends  37.5 miles to  provide  additional  daily  capacity  to PSNC's  eastern
service  territory in and around the Durham and Raleigh areas. In December 1995,
PSNC,  Piedmont,  Transco  and  NCNG  formed  Cardinal  Extension  Company,  LLC
(Cardinal  Extension) to purchase and extend the existing Cardinal pipeline.  On
November 6, 1997, the NCUC issued an order approving this project and the merger
of Cardinal  Pipeline and Cardinal  Extension,  with the surviving  entity being
named Cardinal Pipeline Company,  LLC. The pipeline was extended 67.5 miles from
the  existing  termination  point  of  Cardinal  Pipeline  at Haw  River,  North
Carolina,  to a point southeast of Raleigh.  This extension is estimated to cost
approximately  $76,000,000.  The facilities were placed in service and permanent
financing was completed on

                                     25

<PAGE>



November 1, 1999. PSNC,  through a subsidiary,  owns 33.21% of Cardinal Pipeline
Company,  LLC. PSNC contributed its net book investment in the existing pipeline
plus  additional  equity capital of  approximately  $1,500,000 for its ownership
share in the first quarter of fiscal 2000.


Year 2000 Readiness

         Pursuant to Section 7(b) of the "Year 2000  Information  and  Readiness
Disclosure Act," Pub. L. 105-271 (October 19, 1998) (hereinafter Year 2000 Act),
PSNC  hereby  designates  the  information  contained  herein  as a  "Year  2000
Readiness Disclosure" as defined in Section 3(9) of the Year 2000 Act.

         The  Year  2000  issue  exists   because  many  computer   systems  and
applications,  including  those with embedded  chips in equipment or facilities,
use two-digit  date fields rather than  four-digit  date fields to designate the
applicable year. As a result, these date-sensitive applications may not properly
recognize the year 2000 or years  thereafter,  or process data containing  them,
potentially causing critical systems including, but not limited to, business and
operational systems to function improperly or not at all.

          PSNC began its Year 2000 efforts in 1995 by  interviewing  vendors and
gaining  awareness of this issue.  An  assessment of PSNC's Year 2000 impact was
performed  in 1996,  and PSNC  began  addressing  its  major  business  computer
systems. PSNC decided to renovate its customer information system and to replace
its  financial  and  materials  management  systems.  The  renovation  of PSNC's
customer  information  system was completed in September  1998.  Year 2000 ready
financial and materials  management  systems were  implemented on April 1, 1999.
Upgrades to the  Supervisory  Control and Data  Acquisition  (SCADA) system that
monitors the flow of gas through PSNC's distribution system have been completed.
Remaining   activities   include  completion  of  scheduled  software  upgrades.
Additional  forward date testing of computer  systems will  continue  throughout
calendar 1999.

         During 1998, PSNC established a centrally  managed,  company-wide  Year
2000 project  office.  PSNC's Year 2000  project  scope was expanded to include:
business continuity planning; embedded systems containing microprocessors, i.e.,
automated  meter  reading  and process  control  equipment;  end-user  computing
hardware and software,  i.e.,  personal computers;  facility equipment,  such as
heating and cooling systems and facsimile  devices;  and business  relationships
with PSNC's  customers and key  suppliers.  The Year 2000 project office reports
daily to the chief information officer. Frequent formal and informal discussions
are held with the chief  financial  officer as the Year 2000 project  executive.
The Audit Committee of the Board of Directors is updated  quarterly by the chief
financial officer and the internal audit  department.  The full Board is updated
by the Audit  Committee.  Senior  officers  of PSNC are  updated  monthly on the
project  team's status,  and they  participate  in making  contingency  planning
decisions related to their functional areas.

         While PSNC believes  that it has  minimized  the risks of  encountering
serious  problems  associated  with the Year 2000 issue, it still faces the risk
that some systems and processes  that are not Year 2000 ready either will not be
identified or will not be

                                      26

<PAGE>



corrected  before 2000.  Additionally,  PSNC has no assurance that the Year 2000
issues of other  entities will not have a material  impact on PSNC's  systems or
results of operations.

Year 2000 Costs

         The estimated cost of completion,  including costs incurred to date, is
$17,500,000.  This  estimated  cost includes  external  contractors  and service
providers,  the  purchase of  computer  hardware  and  software,  and  dedicated
internal resources. The majority of these costs are currently being recovered in
rates  charged  to PSNC's  customers.  A portion  of  PSNC's  costs  will not be
incremental costs, but a redeployment of existing resources. PSNC does not track
the cost and time of internal  employees who are not fully dedicated to the Year
2000 effort.

         Approximately   $12,500,000  to  replace   existing  systems  is  being
capitalized as utility plant.  Approximately $12,000,000 of these costs has been
incurred.  Approximately $5,000,000 to modify existing computer systems is being
expensed over a three-year  period in accordance  with the NCUC order  discussed
more fully in Note 2 to the  consolidated  financial  statements.  Approximately
$4,600,000 of these costs has been incurred.  These costs are estimates based on
PSNC's analysis to date and are subject to change after the modifications of its
systems are completed.

         The project  completion dates and costs are estimates based on numerous
assumptions.  These assumptions include the continued  availability of personnel
resources and third-party vendor compliance.

Risk Assessment

         At this  time,  PSNC  believes  a  "worst  case  scenario"  is that its
customers could experience some temporary  disruptions in their gas service. The
natural  gas that PSNC  distributes  and sells to its sales  customers,  and the
natural gas that it  transports  and delivers to its  transportation  customers,
comes  principally from the producing areas along the Gulf of Mexico  (including
the states of Alabama,  Louisiana,  Mississippi and Texas, and adjacent offshore
areas).  Prior to PSNC's receipt of that gas, it must be extracted and processed
to be  useable.  It is then  delivered  to an  interstate  pipeline  company (or
companies) for transportation to PSNC or to storage for PSNC's account;  the gas
that is stored for PSNC's  account must then be withdrawn  and delivered to PSNC
by an  interstate  pipeline,  generally in the winter.  A  disruption  in PSNC's
service to its customers  could be caused by a disruption  in the  extraction or
processing of this gas, the  transmission  and/or storage of such gas or finally
the distribution of such gas by PSNC.

         Even if the flow of gas is not disrupted,  customers may not be able to
use the available gas if electrical service is disrupted and electronic controls
do not work.

         Although PSNC does not believe that these  disruptions  will occur,  it
has no assurance  that such  disruptions  will not occur.  PSNC has assessed the
impact of such a scenario and continues to evaluate this scenario. PSNC believes
that its contingency plans will lessen the impact of any disruption.

                                     27

<PAGE>



         If such disruption does occur,  PSNC does not believe that it will have
a material  adverse impact on its financial  position,  cash flows or results of
operations.

Contingency Plans

         Business  continuity  planning  is  underway.  Testing of the plan will
continue  throughout 1999. The plan addresses the mitigation of risks associated
with key business  processes and those processes critical to the delivery of gas
services.  Detailed  plans are being  developed for coverage  during the century
rollover.  PSNC's  continuity  planning also includes the  short-term  localized
impact  of  losing  one  or  more  of  the  following   services:   electricity,
telecommunications,  water/sewer,  gas pressure,  information technology systems
and  staffing  (order  does  not  imply  priority).  PSNC is not  implying  that
disruption will occur, but that the risk does exist.

         The assessment of critical  supplier and third-party  vendor  progress,
although external to PSNC, will continue  throughout  calendar 1999. PSNC cannot
quantify the impact of any failure by a critical supplier or third-party  vendor
at this time.  PSNC is presently  developing a  contingency  plan to address the
mitigation  of risks and  continuance  of  operations  if critical  suppliers or
third-party vendors have a failure. PSNC met with its major pipeline transporter
on August 25,  1999 and  discussed  the  transporter's  Year 2000 status and its
business continuity plans. Close communication  between PSNC and the transporter
is planned during the century rollover.

         The foregoing  information is based on PSNC's  current best  estimates,
which were derived using numerous  assumptions  of future events,  including the
availability  and future  costs of certain  technological  and other  resources,
third-party  modifications and remediation actions and other factors.  Given the
complexity of the issues and possible as yet unidentified  risks, actual results
may vary from those anticipated and discussed above. Specific factors that might
cause such  differences  include,  among others,  the  availability  and cost of
trained personnel, the ability to locate and correct all affected computer code,
the timing and success of remedial efforts of third-party  suppliers and similar
uncertainties.

         Each of the components of PSNC's Year 2000 program is progressing,  and
PSNC believes it is taking all reasonable  steps necessary to be able to operate
successfully through and beyond the turn of the century.

Year 2000 Communications

         PSNC meets  quarterly  with the other North  Carolina gas  utilities to
exchange  information and discuss the best practices that may be used to address
Year 2000 requirements.  Additionally,  PSNC frequently participates in industry
and  community   forums  attended  by   representatives   of  the  electric  and
telecommunications industries.

         SCANA  reviewed  PSNC's  Year  2000  program  strategy  during  its due
diligence efforts prior to the execution of the merger agreement  referred to in
Note 11 to the consolidated  financial  statements.  PSNC will continue to share
information with SCANA throughout the merger integration process.


                                      28

<PAGE>



         A bill  insert  and  additional  awareness  information  were  sent  to
customers in July 1999.


Effects of Inflation

         The margin charged to PSNC's gas customers may not be increased without
a general rate case.  Accordingly,  in the absence of authorized  rate increases
and  except  for  changes  in the cost of gas sold,  which are  passed  along to
customers on a timely basis through  various rate  adjustment  mechanisms,  PSNC
must  look  to  performance   improvements  and  higher   throughput  to  offset
inflationary increases in its cost of operations. Current rates only permit PSNC
to recover its  historical  cost of utility plant and give no recognition to the
replacement cost of these facilities.  Management continually reviews operations
and economic  conditions  to assess the need for filing for general rate relief.
PSNC's last general rate case was filed April 2, 1998, and new rates approved by
the NCUC became effective November 1, 1998. CUCA, a party to PSNC's general rate
case,  formally appealed the general rate case order. The Supreme Court of North
Carolina  heard oral  argument  on CUCA's  appeal on  October  13,  1999.  While
management  is not  able  to  predict  the  ultimate  outcome  of  this  appeal,
management  does not  believe  that such  outcome  will have a material  adverse
impact on PSNC's financial position, cash flows or results of operations.


Recently Issued but Not Yet Effective Accounting Statements

         In June 1998, the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards  (SFAS) No. 133,  "Accounting  for
Derivative  Instruments  and Hedging  Activities." In June 1999, the FASB issued
SFAS   No.   137,   "Accounting   for   Derivative   Instruments   and   Hedging
Activities--Deferral  of the Effective Date of FASB Statement No. 133," delaying
the effectiveness of SFAS No. 133 to fiscal years beginning after June 15, 2000.
SFAS No. 133 establishes accounting and reporting standards requiring that every
derivative  instrument  (including  certain derivative  instruments  embedded in
other  contracts)  be  recorded  in the  balance  sheet  as  either  an asset or
liability  measured at fair value.  The  statement  requires that changes in the
derivative's  fair value be  recognized  currently in earnings  unless  specific
hedge  accounting  criteria are met.  Special  accounting for qualifying  hedges
allows a derivative's  gains and losses to offset related  results on the hedged
item  in the  income  statement,  and  requires  that a  company  must  formally
document,  designate and assess the  effectiveness of transactions  that receive
hedge accounting.  This statement becomes effective for PSNC on October 1, 2000.
PSNC has not yet quantified the impact of adopting SFAS No. 133 on its financial
statements and has not determined the method of adoption.








                                     29

<PAGE>



Forward-looking Statements

         Statements contained in this document and the notes to the consolidated
financial  statements  which are not  historical  in nature are  forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are subject to risks and uncertainties that may
cause  future  results  to  differ  materially  from  those  set  forth  in such
forward-looking   statements.   PSNC   undertakes   no   obligation   to  update
forward-looking  statements to reflect  events or  circumstances  after the date
hereof.  Such risks and uncertainties with respect to PSNC include,  but are not
limited to, its ability to implement  successfully  internal  performance goals,
performance   issues  with  natural  gas   suppliers   and   transporters,   the
capital-intensive  nature of PSNC's business,  regulatory issues (including rate
relief to recover increased capital and operating  costs),  legislative  issues,
competition,   weather,   exposure  to  environmental  issues  and  liabilities,
variations in natural gas prices, the proposed business  combination with SCANA,
unanticipated  problems  related to internal  Year 2000  initiatives  as well as
potential adverse consequences related to third-party Year 2000 compliance,  and
general and specific economic conditions.  From time to time,  subsequent to the
date of the filing of this document, PSNC may include forward-looking statements
in oral statements or other written documents.































                                        30

<PAGE>



Item 8.  Financial Statements and Supplementary Data
<TABLE>

      Public Service Company of North Carolina, Incorporated and Subsidiaries

                          Consolidated Statements of Income

<CAPTION>

For the Fiscal Years Ended September 30,       1999           1998           1997
----------------------------------------   ------------   ------------   ------------

<S>                                        <C>            <C>            <C>

Operating revenues                         $298,853,601   $330,671,770   $337,930,181
Cost of gas                                 133,441,749    174,300,672    182,003,740
                                           ------------   ------------   ------------
Gross margin                                165,411,852    156,371,098    155,926,441
                                           ------------   ------------   ------------

Operating Expenses and Taxes:
  Other operating expenses                   65,545,120     54,686,569     55,180,279
  Maintenance                                 5,051,559      5,230,133      6,007,234
  Provision for depreciation                 25,900,452     25,049,337     22,387,370
  General taxes                              15,226,300     17,183,052     16,924,868
  Income taxes -
    Federal                                  12,607,526     12,209,518     12,535,400
    State                                     2,881,141      2,917,294      3,175,800
                                           ------------   ------------   ------------
     Total operating expenses and taxes     127,212,098    117,275,903    116,210,951
                                           ------------   ------------   ------------
Operating income                             38,199,754     39,095,195     39,715,490
                                           ------------   ------------   ------------

Other Income (Deductions):
  Merchandise and jobbing                       825,221        795,024        121,554
  Subsidiary operations, net of
   income taxes                               2,998,500      1,692,527      1,677,391
  Interest income and other                     450,382      1,032,563      2,086,826
                                           ------------   ------------   ------------
     Total other income (deductions)          4,274,103      3,520,114      3,885,771
                                           ------------   ------------   ------------
Gross income                                 42,473,857     42,615,309     43,601,261
                                           ------------   ------------   ------------

Interest Deductions:
  Interest on long-term debt                 13,657,084     15,039,896     15,139,409
  Amortization of debt expense                  352,710        162,068        163,173
  Other interest                              4,642,816      3,145,329      2,293,555
  Allowance for borrowed funds used
   during construction                         (629,703)      (568,986)      (341,429)
                                           ------------   ------------   ------------
     Total interest deductions               18,022,907     17,778,307     17,254,708
                                           ------------   ------------   ------------
Net income                                 $ 24,450,950   $ 24,837,002   $ 26,346,553
                                           ============   ============   ============

Average common shares outstanding            20,515,369     20,103,103     19,549,656
Basic earnings per share                          $1.19          $1.24          $1.35

Diluted common shares outstanding            20,734,028     20,220,580     19,649,925
Diluted earnings per share                        $1.18          $1.23          $1.34

Cash dividends declared per common share          $.975          $ .94          $ .90
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.

                                      31

<PAGE>



      Public Service Company of North Carolina, Incorporated and Subsidiaries

                           Consolidated Balance Sheets


September 30,                                          1999           1998
-------------------------------------------        ------------   ------------
Assets
------
Gas Utility Plant:
 In service                                        $767,862,164   $736,504,603
 Less - Accumulated depreciation                    241,086,700    224,204,295
                                                   ------------   ------------
   Net plant in service                             526,775,464    512,300,308
 Construction work in progress                        7,469,452      7,216,568
                                                   ------------   ------------
                                                    534,244,916    519,516,876
                                                   ------------   ------------
Non-utility Property, net of
 accumulated depreciation (1999 -
 $221,178 and 1998 - $178,066)                          551,538        594,650
                                                   ------------   ------------

Current Assets:
 Cash and temporary investments                       7,247,956      3,277,211
 Restricted cash and temporary investments            3,655,854     10,247,060
 Receivables, less allowance for
  doubtful accounts (1999 - $1,737,815
  and 1998 - $2,086,128)                             23,926,218     20,836,080
 Inventories, at average cost -
  Materials, supplies and merchandise                 6,411,857      6,992,053
  Stored gas                                         30,092,053     24,405,529
 Deferred gas costs, net                             18,897,959     13,576,225
 Prepayments                                          1,565,754      2,260,204
                                                   ------------   ------------
                                                     91,797,651     81,594,362

Deferred Charges and Other Assets:
 Long-term restricted cash                                 -         4,845,120
 Debt expense                                         1,509,037      1,676,747
 Other                                               20,467,374     10,524,858
                                                   ------------   ------------
                                                     21,976,411     17,046,725
                                                   ------------   ------------
                                                   $648,570,516   $618,752,613
                                                   ============   ============

Capitalization and Liabilities
Capitalization (see statements):
 Common equity                                     $233,163,933   $222,839,331
 Long-term debt                                     157,250,000    171,550,000
                                                   ------------   ------------
                                                    390,413,933    394,389,331

Current Liabilities:
 Current maturities of long-term debt                 6,800,000      9,300,000
 Accounts payable                                    24,647,294     20,015,220
 Accrued taxes                                        3,490,273      1,180,306
 Customer prepayments and deposits                    6,697,980      7,020,931
 Accrued interest                                     4,141,686      4,346,204
 Cash dividends declared                              5,093,047      4,864,161
 Restricted supplier refunds                             22,014     10,247,060
 Other                                                4,909,586      4,183,535
                                                   ------------   ------------
                                                     55,801,880     61,157,417
 Interim bank loans, due within one year            104,000,000     70,500,000
                                                   ------------   ------------
                                                    159,801,880    131,657,417

Deferred Credits and Other Liabilities:
 Income taxes, net                                   74,423,087     66,526,252
 Deferred revenue                                          -         2,120,976
 Investment tax credits                               3,060,728      3,410,949
 Accrued pension cost                                 5,012,547      7,984,530
 Other                                               15,858,341     12,663,158
                                                   ------------   ------------
                                                     98,354,703     92,705,865
                                                   $648,570,516   $618,752,613
                                                   ============   ============
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.

                                       32

<PAGE>



       Public Service Company of North Carolina, Incorporated and Subsidiaries

                    Consolidated Statements of Capitalization

September 30,                                         1999             1998
------------------------------------------        ------------     ------------

Common Equity:
  Common stock, $1 par, 30,000,000
   shares authorized; shares outstanding
   1999 - 20,577,967 and 1998 - 20,274,332        $ 20,577,967     $ 20,274,332
  Capital in excess of par value                   139,171,847      132,787,058
  Retained earnings                                 73,414,119       69,777,941
                                                  ------------     ------------
                                                   233,163,933      222,839,331
                                                  ------------     ------------

Long-term Debt:
  Senior debentures (unsecured) -
    8.65% due 2002                                        -          10,000,000
    10% due 2003                                     6,250,000        8,750,000
    10% due 2004                                    25,800,000       30,100,000
    8.75% due 2012                                  32,000,000       32,000,000
    6.99% due 2026                                  50,000,000       50,000,000
    7.45% due 2026                                  50,000,000       50,000,000
                                                  ------------     ------------
                                                   164,050,000      180,850,000
  Less - Current maturities                          6,800,000        9,300,000
                                                  ------------     ------------
                                                   157,250,000      171,550,000
                                                  ------------     ------------
                                                  $390,413,933     $394,389,331
                                                  ============     ============



                   Consolidated Statements of Retained Earnings

For the Fiscal Years Ended September 30,    1999          1998         1997
---------------------------------------- -----------   -----------  -----------

Balance, beginning of year               $69,777,941   $64,122,801  $55,423,161

Add - Net income                          24,450,950    24,837,002   26,346,553
                                         -----------   -----------  -----------
                                          94,228,891    88,959,803   81,769,714

Deduct - Cash dividends declared
          on common stock and other       20,814,772    19,181,862   17,646,913
                                         -----------   -----------  -----------

Balance, end of year                     $73,414,119   $69,777,941  $64,122,801
                                         ===========   ===========  ===========


The accompanying notes to consolidated financial statements are an integral part
of these statements.


                                        33

<PAGE>
<TABLE>



      Public Service Company of North Carolina, Incorporated and Subsidiaries

                        Consolidated Statements of Cash Flows

<CAPTION>

For the Fiscal Years Ended September 30,            1999          1998          1997
----------------------------------------         -----------   -----------   -----------
Cash Flows from Operating Activities:
<S>                                             <C>            <C>           <C>

  Net income                                     $24,450,950   $24,837,002   $26,346,553
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation charged to operating expenses   25,900,452    25,049,496    22,387,370
     Depreciation charged to other accounts        2,772,998     2,786,873     2,528,055
     Amortization of debt expense and other          167,710       162,068       175,592
     Provision for doubtful accounts                 725,094       866,786     1,396,636
     Amortization of investment tax credits, net    (350,221)     (369,632)     (429,688)
     Deferred income taxes, net                    7,896,835     7,088,341     3,205,066
                                                 -----------   -----------   -----------
                                                  61,563,818    60,420,934    55,609,584

     Change in assets and liabilities:
      Receivables, net                            (3,815,232)    4,913,801   (10,113,922)
      Inventories                                 (5,106,328)   (2,862,815)   (5,967,186)
      Deferred gas costs, net                     (5,321,734)    5,761,572    (1,812,450)
      Deferred revenues                           (2,120,976)     (978,912)    3,099,888
      Prepayments                                    694,450       143,426      (127,771)
      Accounts payable                             4,632,074    (7,783,968)    7,498,737
      Accrued taxes                                2,309,967    (3,123,216)    1,228,699
      Customer prepayments and deposits             (322,951)       42,366       964,679
      Accrued interest                              (204,518)     (101,456)    1,350,667
      Accrued pension cost                        (2,971,983)   (1,547,357)   (2,681,901)
      Other                                          944,533      (538,331)   (4,911,920)
                                                 -----------   -----------   -----------
Net cash provided by operating activities         50,281,120    54,346,044    44,137,104
                                                 -----------   -----------   -----------

Cash Flows from Investing Activities:
  Construction expenditures                      (43,566,624)  (65,328,731)  (60,310,383)
  Non-utility property and other                  (5,125,853)   (1,525,824)      875,413
                                                 -----------   -----------   -----------
Net cash used in investing activities            (48,692,477)  (66,854,555)  (59,434,970)
                                                 -----------   -----------   -----------

Cash Flows from Financing Activities:
  Issuance of common stock through dividend
   reinvestment, stock purchase and stock
   option plans                                    6,267,988     9,796,147     9,809,642
  Increase (decrease) in interim bank loans, net  33,500,000    32,500,000   (21,500,000)
  Sale of senior debentures, net                        -             -       49,404,056
  Retirement of long-term debt                   (16,800,000)   (9,300,000)   (6,800,000)
  Retirement of common stock and other              (802,741)     (269,299)      (33,670)
  Cash dividends                                 (19,783,145)  (18,582,497)  (17,301,431)
                                                 -----------   -----------   -----------
Net cash provided by financing activities          2,382,102    14,144,351    13,578,597
                                                 -----------   -----------   -----------

Net increase (decrease) in cash and
 temporary investments                             3,970,745     1,635,840    (1,719,269)
Cash and temporary investments at beginning
 of year                                           3,277,211     1,641,371     3,360,640
                                                 -----------   -----------   -----------
Cash and temporary investments at end of year    $ 7,247,956   $ 3,277,211   $ 1,641,371
                                                 ===========   ===========   ===========

Cash paid during the year for:
  Interest (net of amount capitalized)           $17,577,180   $17,900,642   $15,514,606
  Income taxes                                   $ 7,415,170   $12,102,000   $12,935,000

</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.





                                          34

<PAGE>

        Public Service Company of North Carolina, Incorporated and Subsidiaries

                        Notes to Consolidated Financial Statements

               For the Fiscal Years Ended September 30, 1999, 1998 and 1997


1.       SIGNIFICANT ACCOUNTING POLICIES

         Principles of Consolidation and Segment Data

                The accompanying  consolidated  financial statements include the
         accounts  of Public  Service  Company of North  Carolina,  Incorporated
         (PSNC) and its subsidiary  companies,  Clean Energy Enterprises,  Inc.,
         PSNC Blue Ridge  Corporation,  PSNC  Production  Corporation,  Cardinal
         Pipeline Company,  LLC, PSNC Propane  Corporation  (dissolved in fiscal
         1997) and PSNC Cardinal Pipeline Company (collectively, the "Company").
         Investments  in other  affiliates in which the Company has a 20% to 50%
         interest  and/or the ability to  exercise  significant  influence  over
         operating  and  financial  policies are  accounted for under the equity
         method.  Equity  investees  of the Company  include  Cardinal  Pipeline
         Company,  LLC,  Pine Needle LNG Company,  LLC and Sonat Public  Service
         Company  L.L.C.,   which  is  a  50%-50%  joint  venture  between  PSNC
         Production  Corporation and Sonat  Marketing  Company L.P. All material
         intercompany  transactions  and balances  among PSNC and its subsidiary
         companies  have  been  eliminated  in  the  accompanying   consolidated
         financial statements.

                PSNC  and its  subsidiaries  operate  in one  dominant  business
         segment,   distribution   of  natural  gas.   PSNC,   through   various
         subsidiaries and Sonat Public Service Company L.L.C., also participates
         in  nonregulated  businesses  such as natural gas  brokering and supply
         services and the conversion and fueling of natural gas vehicles.

         Utility Plant

                Utility plant is stated at the historical cost of  construction.
         Included in historical cost are certain construction-related costs such
         as taxes,  pensions and other fringe benefits, as well as the estimated
         cost of funds used during construction  (AFUDC). PSNC capitalizes AFUDC
         on a pre-tax basis for both the cost of short-term debt and the allowed
         overall cost rate.

         Depreciation

                PSNC provides for  depreciation on a straight-line  basis by the
         application  of specific  rates to the various  classes of  depreciable
         property.  These rates,  which have been approved by the North Carolina
         Utilities  Commission  (NCUC),  approximate  3.9%, 4.0% and 3.9% of the
         cost of  depreciable  property  for fiscal  years 1999,  1998 and 1997,
         respectively, on a composite basis.

         Revenues

                Certain  customers  (primarily  residential  and commercial) are
         billed on a cycle basis while other  customers are billed as of the end
         of each month.  Revenues are recorded at the time of billing.  The cost
         of gas delivered but unbilled is deferred and  recognized in the period
         in which the related revenue is billed.

                                          35

<PAGE>



         Income Taxes

                PSNC  accounts  for income  taxes  pursuant to the  Statement of
         Financial  Accounting  Standards  (SFAS)  No.  109,  which  requires  a
         liability method of accounting for income taxes. Under this method, the
         deferred  tax  liability   represents   the  tax  effect  of  temporary
         differences between the financial statement and tax bases of assets and
         liabilities and is measured using current tax rates.

                PSNC uses deferral accounting for investment tax credits,  which
         amortizes  the  credits  to income  over the  service  life of  related
         property.

         Cash and Temporary Investments

                For  purposes  of  reporting  cash  flows,  cash  and  temporary
         investments   include  cash  on  hand  and  investments  with  original
         maturities  of 45 days or  less.  Investments  may  include  repurchase
         agreements,   U.S.   Treasury   bills,   federal   agency   securities,
         certificates of deposit and high-grade commercial paper.

                Since fiscal 1992,  PSNC has received  refunds from its pipeline
         transporters  for which the investment and use have been  restricted by
         an order of the NCUC. Pursuant to an order of the NCUC, these funds are
         segregated  from PSNC's general funds and will be used for expansion of
         PSNC's facilities into unserved territories.  These refunds, along with
         interest earned thereon, are periodically  transferred to the Office of
         the State  Treasurer.  The  balance  not  transferred  is  reported  in
         restricted  cash and  temporary  investments  and  restricted  supplier
         refunds on the accompanying consolidated balance sheets.

         Long-term Restricted Cash and Deferred Revenue

                The balance in long-term  restricted  cash at September 30, 1998
         reflects the restricted cash  contribution from Sonat Marketing Company
         L.P. (Sonat Marketing).  PSNC Production  Corporation (PSNC Production)
         and Sonat Marketing created Sonat Public Service Company L.L.C.  (Sonat
         Public  Service)  in  December  1996.   Sonat   Marketing   contributed
         $4,944,000 for its 50% ownership,  of which  $4,845,000 was restricted,
         to be  released  annually  in equal  amounts  over a  four-year  period
         beginning in December 1998. PSNC Production  received its first payment
         of $1,211,000 in December  1998. The balance of $3,634,000 in long-term
         restricted  cash was  reclassified  as a current asset at September 30,
         1999 due to the imminent dissolution of Sonat Public Service within the
         next  twelve  months.  PSNC  plans to begin  settlement  procedures  to
         dissolve Sonat Public Service during the first quarter of fiscal 2000.

                Sonat Marketing's  contribution was recorded as deferred revenue
         and is being recognized by PSNC Production over a five-year period. The
         remaining  balance in deferred  revenue was  reclassified  as a current
         liability at  September  30, 1999 due to the  imminent  dissolution  of
         Sonat Public Service as previously mentioned.







                                        36

<PAGE>



         Debt Expense

                PSNC amortizes  issuance costs for its debentures  over the life
         of the related debt. PSNC is amortizing the redemption  premium and the
         unamortized  issuance costs on its previously  refunded  Series K First
         Mortgage  Bonds  over  15  years,  in  accordance  with  the  treatment
         authorized by the NCUC.

         Fair Value of Financial Instruments

                Financial instruments include cash and temporary investments and
         long-term debt. The amounts reported for cash and temporary investments
         are considered to be reasonable approximations of their fair values due
         to their  short-term  nature.  The carrying  amount of long-term  debt,
         including current  maturities,  at September 30, 1999 and September 30,
         1998, is $164,050,000 and $180,850,000,  respectively, as compared to a
         fair market value of $162,325,000 and $195,044,000,  respectively.  The
         fair  market  value of these  instruments  is based on  current  market
         prices and yields for similar issues.

         Stock-Based Compensation

                PSNC has elected to follow  Accounting  Principles Board Opinion
         No.  25,  "Accounting  for Stock  Issued to  Employees"  (APB 25),  and
         related  interpretations  in accounting for its employee stock options.
         PSNC has  adopted the  disclosure-  only  provisions  of  Statement  of
         Financial   Accounting   Standards  (SFAS)  No.  123,  "Accounting  for
         Stock-Based  Compensation."  This statement defines a fair value method
         of accounting for stock options or similar equity instruments. SFAS No.
         123  permits   companies   to  continue  to  account  for   stock-based
         compensation  awards under APB 25, but requires disclosure in a note to
         the  financial  statements of the pro forma net income and earnings per
         share as if PSNC had adopted the new method of accounting.

         Use of Estimates in the Preparation of Financial Statements

                The  preparation  of financial  statements  in  conformity  with
         generally accepted  accounting  principles  requires management to make
         certain estimates and assumptions. These affect the reported amounts of
         assets  and  liabilities  and  disclosure  of  contingent   assets  and
         liabilities at the date of the financial  statements,  and the reported
         amounts of revenues and expenses  during the reporting  period.  Actual
         results could differ from those estimates.


2.       REGULATORY MATTERS

                PSNC's  Rider D rate  mechanism  authorizes  the recovery of all
         prudently  incurred gas costs from  customers on a monthly  basis.  Any
         difference  in amounts paid and  collected  for these costs is deferred
         for subsequent  refund to or collection from  customers.  Additionally,
         PSNC can recover its margin losses on  negotiated  gas sales to certain
         large  commercial/industrial  customers in any manner authorized by the
         NCUC.  At  September  30,  1999,  the  balance  of net gas  costs to be
         collected  from  customers  pursuant  to  Rider  D was  $17,780,000  as
         compared to $12,860,000 at September 30, 1998. On November 6, 1997, the
         NCUC issued an order  permitting  PSNC, on a two-year  trial basis,  to
         establish its commodity cost of gas for large commercial and industrial
         customers on the basis of market prices for natural gas. This procedure
         allows PSNC to manage its

                                          37

<PAGE>



         deferred gas costs balance  better by ensuring that the amount paid for
         natural gas to serve these customers  approximates the amount collected
         from them. PSNC has filed an application with the NCUC for authority to
         make  this  procedure   permanent.   The  Carolina  Utility   Customers
         Association,   Inc.   (CUCA)  has   intervened  in  opposition  of  its
         continuance.  The NCUC issued an order scheduling a hearing in February
         2000 on PSNC's application, and authorized PSNC to continue to use this
         mechanism  pending  issuance of a final order  sometime in 2000.  While
         management  cannot predict the outcome of PSNC's  application,  it does
         not expect the decision to have a material financial impact.  PSNC will
         continue  to  establish  a benchmark  cost of gas for  residential  and
         commercial/small   industrial   customers   pursuant  to  its  existing
         procedures.

                In PSNC's 1991  general rate case order,  the NCUC  authorized a
         weather normalization adjustment (WNA) mechanism. This mechanism allows
         PSNC to adjust its  winter-period  gas sales rates to certain customers
         to avoid  undercollections  or overcollections of its non-gas costs due
         to weather fluctuations from normal.

                On October 30, 1998,  the NCUC issued an order in PSNC's general
         rate case filed in April 1998. The order,  effective  November 1, 1998,
         granted PSNC additional annual revenue of approximately $12,400,000 and
         allowed  a  9.82%   overall  rate  of  return  on  PSNC's  net  utility
         investment.  It  also  approved  the  continuation  of  the  previously
         mentioned  WNA and Rider D  mechanisms  and full margin  transportation
         rates. CUCA, a party to PSNC's general rate case, formally appealed the
         general  rate case order on December  18,  1998.  The Supreme  Court of
         North  Carolina  heard oral  arguments on CUCA's  appeal on October 13,
         1999.  While  management is not able to predict the ultimate outcome of
         this appeal,  management does not believe that such outcome will have a
         material  adverse  impact  on PSNC's  financial  position,  results  of
         operations or cash flows.

                On April 22, 1997, the NCUC approved  PSNC's  application to use
         expansion funds to extend service to western Haywood County,  including
         Waynesville,  Clyde and Lake  Junaluska.  This project was completed in
         July 1998. PSNC spent  $5,653,000 on the project,  of which  $4,127,000
         was reimbursed from the expansion fund.

                On February 22, 1999,  the NCUC approved  PSNC's  application to
         use  expansion  funds to extend  natural  gas  service  into  Alexander
         County,  and authorized  disbursements  from the fund of  approximately
         $4,301,000.  Most of Alexander  County lies within PSNC's  certificated
         service territory and does not currently have natural gas service. PSNC
         estimates  that the project will be completed  prior to April 2000 at a
         cost of approximately $6,188,000.

                PSNC and a  subsidiary  of Piedmont  Natural Gas  Company,  Inc.
         (Piedmont) formed Cardinal Pipeline Company, LLC (Cardinal Pipeline) in
         March 1994, to construct and operate a 24-inch,  37.5-mile  natural gas
         pipeline.  PSNC  owned  64.4%  of  the  pipeline,  which  extends  from
         Wentworth to near Haw River,  North  Carolina,  where it  interconnects
         with PSNC and  Piedmont.  It was placed into  service on  December  31,
         1994,  and  provides  130  million  cubic  feet per day  (mmcf/day)  of
         additional  firm  capacity  (70  mmcf/day  for PSNC and 60 mmcf/day for
         Piedmont).  In 1995,  PSNC,  Piedmont,  Transcontinental  Gas Pipe Line
         Corporation (Transco) and North Carolina Natural Gas Corporation (NCNG)
         formed Cardinal Extension Company, LLC (Cardinal Extension) to purchase
         and extend

                                          38

<PAGE>



         the Cardinal  pipeline.  On November 6, 1997,  the NCUC issued an order
         approving this project and the merger of Cardinal Pipeline and Cardinal
         Extension,  with the  surviving  entity being named  Cardinal  Pipeline
         Company,  LLC. The  pipeline was extended  67.5 miles from the existing
         termination  point  of  Cardinal  Pipeline  at  Haw  River  to a  point
         southeast of Raleigh and will provide 140 mmcf/day of  additional  firm
         capacity  (100  mmcf/day  for  PSNC  and 40  mmcf/day  for  NCNG).  The
         extension  is  estimated  to  cost   approximately   $76,000,000.   The
         facilities were placed in service and permanent financing was completed
         on November 1, 1999. Through their respective  subsidiaries,  PSNC owns
         33.21%,  Piedmont owns 16.46%,  Transco owns 45.30% and NCNG owns 5.03%
         of  Cardinal  Pipeline  Company,   LLC.  PSNC,  through  a  subsidiary,
         contributed  its net book  investment  in the  existing  pipeline  plus
         additional  equity  capital of  approximately  $1,500,000  in the first
         quarter of fiscal 2000 for its ownership share.

                Pine  Needle  LNG  Company,  LLC  (Pine  Needle)  was  formed by
         subsidiaries of Transco,  Piedmont,  NCNG,  Amerada Hess, and PSNC, and
         the Municipal Gas Authority of Georgia. Pine Needle owns and operates a
         liquefied   natural   gas  storage   facility,   built  at  a  cost  of
         approximately  $107,000,000.  The  facility  is  located on a site near
         Transco's pipeline northwest of Greensboro,  North Carolina,  and has a
         storage   capacity  of  four  billion  cubic  feet  with   vaporization
         capability of 400 mmcf/day.  The facility became  operational on May 1,
         1999. PSNC,  through its subsidiary,  PSNC Blue Ridge Corporation (Blue
         Ridge), owns 17% of the facility, and PSNC has contracted to use 25% of
         the facility's gas storage capacity and withdrawal  capabilities.  Blue
         Ridge made its required  capital  contribution  of $9,095,000 on May 3,
         1999.

                On March  24,  1999,  PSNC  filed an  application  with the NCUC
         requesting authorization to issue and sell up to $150,000,000 of senior
         unsecured debt securities.  This amount includes  $25,000,000 of senior
         unsecured  debt  previously  authorized  by the NCUC  that has not been
         issued and sold. On April 14, 1999, the NCUC issued an order permitting
         PSNC to issue and sell senior unsecured debt as described and requested
         in its application.  A registration  statement under Form S-3 was filed
         with the Securities and Exchange Commission on May 21, 1999 and amended
         under Form S-3/A on June 7, 1999. PSNC plans to use this debt primarily
         to repay  outstanding  short-term  bank loans  incurred  to finance the
         construction of facilities.

                On April 29, 1997, the NCUC issued an order authorizing deferral
         accounting for contract labor costs for a project to ensure that PSNC's
         computer  operating  systems function  properly in year 2000. The order
         required a three-year amortization of these costs beginning in the year
         incurred. PSNC has incurred approximately  $4,600,000 of these costs to
         date.  PSNC began  amortizing  these costs in September  1997. The NCUC
         allowed  recovery of a majority of the  unamortized  Year 2000 costs in
         the general rate case order issued on October 30, 1998.

                On May 17, 1999,  PSNC and SCANA  Corporation  (SCANA)  filed an
         application  with the NCUC  requesting  authorization  to  engage  in a
         business  combination  transaction (Note 11). Public hearings were held
         during July and August,  and a hearing before the NCUC was completed on
         September 29, 1999.  Briefs and proposed  orders were filed by November
         3, 1999.  An order is expected from the NCUC before the end of calendar
         1999.


                                          39

<PAGE>



3.       COMMON STOCK

                The  changes in common  stock and capital in excess of par value
         for the three years ended September 30, 1999 were as follows:

                                               Common Stock
                                           $1 Par, Authorized
                                            30,000,000 Shares
                                          ---------------------     Capital in
                                            Shares                   Excess of
                                          Outstanding    Amount      Par Value
                                          ----------- -----------  ------------
        September 30, 1996                19,204,385  $19,204,385  $114,007,859

          Issuance through dividend
           reinvestment plan (DRP)           406,388      406,388     6,870,434

          Issuance through employee
           stock purchase plan (ESPP)         81,349       81,349     1,236,505

          Issuance through nonqualified
           stock option plan (NSOP) - net     78,721       78,721     1,232,121

          Recognition of permanent tax
           differences related to stock
           options exercised                    -            -          127,200
                                          -----------  -----------  -----------

        September 30, 1997                19,770,843   19,770,843   123,474,119

          Issuance through DRP               330,808      330,808     6,468,023

          Issuance through ESPP               82,203       82,203     1,276,613

          Issuance through NSOP - net         90,478       90,478     1,359,703

          Recognition of permanent tax
           differences related to stock
           options exercised                    -            -          208,600
                                         -----------  -----------  ------------

        September 30, 1998                20,274,332   20,274,332   132,787,058

          Issuance through DRP               138,705      138,705     3,133,328

          Issuance through ESPP               62,355       62,355     1,233,624

          Issuance through NSOP - net        102,575      102,575     1,391,837

          Recognition of permanent tax
           differences related to stock
           options exercised                    -            -          626,000
                                         -----------  -----------  ------------

        September 30, 1999                20,577,967  $20,577,967  $139,171,847
                                         ===========  ===========  ============



                                         40

<PAGE>



Stock Compensation Plans

         In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, "Accounting for Awards of Stock-Based  Compensation to Employees."
This  statement  defines a fair value method of accounting  for stock options or
similar equity  instruments  and was adopted by PSNC effective  October 1, 1996.
SFAS  No.  123  permits   companies  to  continue  to  account  for  stock-based
compensation  awards under existing accounting rules, but requires disclosure in
a note to the financial  statements of the pro forma net income and earnings per
share as if PSNC had adopted the new method of accounting.

         At September 30, 1999, PSNC had three stock-based  compensation  plans.
PSNC applies APB 25 and related  interpretations  in  accounting  for its plans.
Accordingly,  no  compensation  cost has been  recognized for its Employee Stock
Purchase Plan or its 1997  Nonqualified  Stock Option Plan. For fiscal 1997, the
compensation cost that had been charged against income for the 1992 Nonqualified
Stock  Option  Plan  was  $187,000.  Had  compensation  cost  for  PSNC's  three
stock-based  plans been  determined  consistent  with the fair value  method for
compensation  expense  encouraged  under  SFAS No.  123,  PSNC's  net income and
earnings per share (EPS) would have been the pro forma amounts shown below.  For
purposes  of pro forma  disclosures,  the  estimated  fair  value of  options is
recorded in its entirety in the year granted.

                                    1999           1998            1997
                                -----------    -----------     -----------
Net income        As reported   $24,450,950    $24,837,002     $26,346,553
                  Pro forma     $23,723,285    $23,584,100     $25,971,801

Basic EPS         As reported         $1.19          $1.24           $1.35
                  Pro forma           $1.16          $1.17           $1.33

Diluted EPS       As reported         $1.18          $1.23           $1.34
                  Pro forma           $1.14          $1.17           $1.32



Nonqualified Stock Option Plans

         PSNC has two nonqualified stock option plans, a 1992 Nonqualified Stock
Option Plan (1992 Plan) and a 1997  Nonqualified  Stock Option Plan (1997 Plan).
In  accordance  with the 1992 Plan,  options to purchase an  aggregate  of up to
600,000  shares of  PSNC's  common  stock can be  granted  to  officers  and key
employees of PSNC.  Under the 1992 Plan,  options are granted at 90% of the fair
market value of PSNC's common stock  determined on the date of the grant.  Under
the 1997 Plan,  options to purchase an aggregate  of up to  1,560,000  shares of
PSNC's  common  stock can be  granted to  officers  and key  employees  of PSNC.
Options are granted at the fair market value of PSNC's  common stock  determined
on the date of the grant.  As a result of the options  being granted at the fair
market value,  no compensation  expense is recorded.  Options from the 1992 Plan
and the 1997 Plan are exercisable beginning two years from the date of the grant
and expire  five years from the date of the grant.  Exceptions  to the  two-year
exercise  date  are  allowed  upon  the  retirement,  disability  or  death of a
participant. An exception is also allowed upon a change in control as defined in
the  plans.  As a result  of the  shareholder  approval  on July 1,  1999 of the
pending  merger with SCANA (Note 11), which is considered a change in control as
defined in the plans, all outstanding options are exercisable.



                                    41

<PAGE>



         Options granted,  exercised and canceled under both plans for the three
years ended September 30, 1999 were as follows:

                                Options     Weighted-Average
                              Outstanding    Exercise Price

    September 30, 1996          427,239          $13.81
     Granted                    118,967          $16.59
     Exercised                  (81,532)         $13.72
     Canceled                      (736)         $14.29
                                -------
    September 30, 1997          463,938          $14.54
     Granted                    624,000          $20.64
     Exercised                 (111,375)         $14.60
     Canceled                   (20,879)         $16.88
                                -------
    September 30, 1998          955,684          $18.46
     Granted                       -                -
     Exercised                 (149,212)         $14.66
     Canceled                  (101,680)         $20.54
                                -------
    September 30, 1999          704,792          $18.97
                                =======


         For  purposes  of pro forma  disclosure,  the fair value of each option
grant was estimated on the date of grant using the Black-Scholes  option pricing
model with the following  assumptions used for nonqualified  stock option grants
in fiscal 1998 and 1997, respectively:

                                    1998           1997
                               -------------    ---------
Risk free interest rate(s)     5.5% and 5.8%       6.00%
Volatility factor                 15.30%          22.70%
Dividend yield                     4.53%           5.10%
Expected life                    4.5 years      4.5 years


         The weighted  average fair value of nonqualified  stock options granted
during  fiscal  1998 and 1997 was $2.54 and $3.66,  respectively.  The number of
shares and weighted average price of those shares exercisable at the end of each
fiscal year were 704,792 shares at $18.97 for 1999, 231,403 shares at $13.49 for
1998 and  231,612  shares at $13.61 for 1997.  As of  September  30,  1999,  the
704,792 outstanding options had a weighted average remaining contractual life of
2.9 years and exercise prices ranging from $12.86 to $21.25.


Employee Stock Purchase Plan

         Under the 1992 Employee  Stock  Purchase  Plan, as amended and restated
effective January 1, 1998, PSNC is authorized to issue up to 1,266,000 shares to
its full-time employees,  nearly all of whom are eligible to participate.  Under
the terms of the plan,  employees may choose each year to have from 2% to 10% of
their  after-tax base salary or wages withheld to purchase  PSNC's common stock.
The  purchase  price of stock is 90% of the  lower of its  beginning-of-year  or
end-of-year fair market value as defined in the plan. Due to the requirements of
the  proposed  merger with SCANA (Note 11), on March 23,  1999,  PSNC's Board of
Directors  terminated  the plan  effective  June 30, 1999 and  returned all plan
contributions to participants with interest. In fiscal 1999, 1998 and 1997, PSNC
issued to employees 62,355, 82,203 and 81,349 shares, respectively.


                                    42

<PAGE>



         For purposes of pro forma  disclosure,  the fair value of each employee
stock  purchase  plan  grant  was  estimated  on the  date of  grant  using  the
Black-Scholes  option  pricing  model with the  following  assumptions  used for
grants in fiscal 1999, 1998 and 1997, respectively:

                                    1999           1998           1997
                                 ----------     ----------     ----------
Risk free interest rate             4.58%          5.43%          5.55%
Volatility factor                  14.96%         15.30%         22.18%
Dividend yield                      3.85%          4.53%          5.10%
Expected life                      1 year         1 year         1 year

         The weighted  average fair value of each employee  stock  purchase plan
grant  during  fiscal  1999,   1998  and  1997  was  $6.52,   $6.10  and  $2.32,
respectively.

         At September 30, 1999,  there were 792,715  common shares  reserved for
issuance under PSNC's Stock Purchase and Automatic  Dividend  Reinvestment Plan,
1,833,045  common shares  reserved for granting  under the 1997 Plan and 143,311
common shares  reserved for issuance under the Employee Stock Purchase Plan. Due
to the  requirements  of the proposed merger with SCANA,  PSNC began  purchasing
shares on the open market in April 1999 to satisfy the requirements of the Stock
Purchase and Automatic  Dividend  Reinvestment and the Nonqualified Stock Option
Plans. PSNC does not anticipate issuing any shares from the plan reserves in the
future.


4.       PENSION AND POSTRETIREMENT PLANS

                PSNC and its  subsidiaries  sponsor  a  noncontributory  defined
         benefit pension plan covering substantially all employees. The benefits
         are based on years of service and the  employee's  compensation  during
         the five consecutive  years of employment that will produce the highest
         average  pay.  Contributions  to the plan are  determined  on an annual
         basis with the amount of such  contributions  being  within the minimum
         required  for  funding   standard  account  purposes  and  the  maximum
         deductible for federal income tax purposes.

                During fiscal 1999, PSNC recognized  pension gains of $1,763,000
         and a net curtailment  loss on  postretirement  benefit  obligations of
         $499,000  directly  related to its severance  activity  under Plan 2001
         discussed further in Note 10.


















                                         43

<PAGE>



                The following disclosure is in accordance with SFAS No. 87,
         "Employers' Accounting for Pensions," and SFAS No. 132, "Employers'
         Disclosures about Pensions and Other Postretirement Benefits"
         (amounts in thousands):


                                                   Pension Plan
                                                   ------------
                                             1999     1998     1997
                                            ------   ------   ------
         Change in benefit obligation
         Benefit obligation at beginning
          of year                          $46,609  $42,920  $44,458
           Service cost                      2,261    2,074    2,156
           Interest cost                     3,048    3,050    3,282
           Settlement payments              (7,200)    -      (9,441)
           Benefits paid                      (518)  (2,909)  (1,442)
           Curtailment (gain)/loss          (1,212)    -       2,360
           Actuarial loss                    1,098    1,474    1,547
                                           -------  -------  -------
         Benefit obligation at end of year $44,086  $46,609  $42,920
                                           =======  =======  =======


         Change in plan assets
         Fair value of plan assets at
          beginning of year                $43,712  $39,253  $38,503
           Actual return on plan assets      5,284    3,155    8,328
           Employer contributions            3,679    4,213    3,306
           Benefits paid                    (7,718)  (2,909) (10,884)
                                           -------  ------- --------
         Fair value of plan assets at
          end of year                      $44,957  $43,712  $39,253
                                           =======  =======  =======

         Reconciliation of funded status
           Funded status                   $   872  $(2,897) $(3,667)
           Unrecognized actuarial gain      (7,624)  (7,262)  (8,301)
           Unrecognized transition asset      (938)  (1,406)  (1,716)
           Unrecognized prior service cost   2,677    3,580    4,152
                                           -------  -------  -------
         Net amount recognized at year-end $(5,013) $(7,985) $(9,532)
                                           =======  =======  =======
         Amounts recognized in the statement
          of financial position
           Accrued benefit liability       $(5,013) $(7,985) $(9,532)
                                           -------  -------  -------
         Net amount recognized at year-end $(5,013) $(7,985) $(9,532)
                                           =======  =======  =======
         Components of net periodic
          benefit cost
           Service cost                    $ 2,261  $ 2,073  $ 2,156
           Interest cost                     3,048    3,050    3,282
           Expected return on plan assets   (3,100)  (2,715)  (3,052)
           Amortization of prior service
            cost                               572      572      572
           Amortization of transitional
            asset                             (311)    (310)    (310)
           Recognized actuarial gain          -          (4)    (285)
                                           -------  -------  -------
         Net periodic benefit cost         $ 2,470  $ 2,666  $ 2,363
                                           =======  =======  =======

         Weighted-average assumptions as of
          September 30
           Discount rate                      7.50%    6.75%    7.50%
           Expected long-term rate of return
            on plan assets                    8.00%    8.00%    8.00%
           Rate of compensation increase       Age-     Age-     Age-
                                            related  related  related

                                        44

<PAGE>



                The  majority of plan assets is invested in  equities,  with the
         balance primarily in fixed income investments. The fair value of PSNC's
         own  common  stock  held by the  plan at the  respective  1999 and 1998
         measurement dates was approximately $1,323,000 and $2,453,000.

                PSNC offers medical,  life and dental insurance  coverage to its
         qualified salaried and hourly retirees.  These benefits are not funded.
         Retirees are required to contribute to the cost of the coverage. PSNC's
         policy is to review the  contributions  required  from  retirees  on an
         annual  basis  and to  increase  retiree  contributions  as  necessary.
         Effective  October 1, 1993,  PSNC  adopted  SFAS No.  106,  "Employers'
         Accounting  for  Postretirement  Benefits  Other  Than  Pensions."  The
         standard provides for the accrual of the costs of retiree medical, life
         and  dental  insurance  benefits  over  the  working  lifetime  of  the
         employees.  The following disclosure is in accordance with SFAS No. 106
         and SFAS No. 132 (amounts in thousands):


                                               Postretirement Plan
                                               -------------------
                                             1999     1998     1997
                                            ------   ------   ------

         Change in benefit obligation
         Benefit obligation at
          beginning of year                $ 8,982  $ 7,603  $ 7,332
           Service cost                        297      247      255
           Interest cost                       590      554      554
           Benefits paid                      (550)    (392)    (293)
           Curtailment gain                   (317)    -        -
           Actuarial (gain)/loss               269      970     (245)
                                           -------  -------  -------
         Benefit obligation at end of year $ 9,271  $ 8,982  $ 7,603
                                           =======  =======  =======

         Change in plan assets
         Fair value of plan assets at
          beginning of year                $  -     $  -     $  -
           Employer contributions              550      392      293
           Benefits paid                      (550)    (392)    (293)
                                           -------  -------  -------
         Fair value of plan assets at
          end of year                      $  -     $  -     $  -
                                           =======  =======  =======

         Reconciliation of funded status
           Funded status                   $(9,271) $(8,982) $(7,603)
           Unrecognized actuarial
            (gain)/loss                        269      481     (498)
          Unrecognized transition
            obligation                       2,791    3,325    3,547
           Unrecognized prior service cost     402      488      531
                                           -------  -------  -------
         Net amount recognized at year-end $(5,809) $(4,688) $(4,023)
                                           =======  =======  =======
         Amounts recognized in the statement
          of financial position consist of:
           Accrued benefit liability       $(5,809) $(4,688) $(4,023)
                                           -------  -------  -------
         Net amount recognized at year-end $(5,809) $(4,688) $(4,023)
                                           =======  =======  =======







                                        45

<PAGE>



     Components of net periodic
      benefit cost
       Service cost                    $   297  $   247  $   255
       Interest cost                       590      554      554
       Amortization of prior service cost   43       43       43
       Amortization of transitional
        obligation                         222      222      222
       Recognized actuarial (gain)/loss     19       (9)      (5)
                                       -------  -------  -------
     Net periodic benefit cost         $ 1,171  $ 1,057  $ 1,069
                                       =======  =======  =======


         Weighted average assumptions as of
          September 30
           Discount rate                  7.50%    6.75%    7.50%
           Rate of compensation increase   Age-     Age-     Age-
                                        related  related  related

                As of the 1999 measurement  date, the assumed pre-65 health care
         cost  trend rate used in  determining  the  Accumulated  Postretirement
         Benefit  Obligation  (APBO) was 7.75% in 1999,  7.25% in 2000, 6.75% in
         2001, 6.50% in 2002, then decreasing annually to an ultimate trend rate
         of 4.25% in 2008. The assumed  post-65 health care cost trend rate used
         in determining  the APBO was 10.75% in  1999,10.25%  in 2000,  9.75% in
         2001, 9.25% in 2002, then decreasing annually to an ultimate trend rate
         of 4.25% in 2012. A one percentage point increase in the assumed health
         care cost trend rate would increase the APBO by  approximately  3%. The
         service  cost  and  interest  cost   components  of  the  net  periodic
         postretirement  benefit  cost would  increase  approximately  5%. A one
         percentage  point  decrease in the assumed  health care cost trend rate
         would  decrease  the APBO by  approximately  3%. The  service  cost and
         interest  cost  components of the net periodic  postretirement  benefit
         cost would decrease  approximately 4%. The net periodic  postretirement
         benefit cost was calculated using the weighted average discount rate of
         6.75%. The APBO at the measurement date was determined using a weighted
         average discount rate of 7.50%.


5.       SHORT-TERM BORROWING ARRANGEMENTS

                PSNC has committed lines of credit with five  commercial  banks,
         which  vary  monthly  depending  upon  seasonal  requirements,   and  a
         five-year  revolving line of credit with one bank. For the twelve-month
         period  beginning April 1, 1999, total lines of credit with these banks
         range  from a minimum  of  $55,000,000  to a  winter-period  maximum of
         $75,000,000.  PSNC also has total  uncommitted  annual  lines of credit
         ranging from $70,000,000 to $100,000,000.  There are no restrictions on
         the withdrawal of cash balances  maintained with these banks. The banks
         are  compensated  for the committed lines of credit through the payment
         of  commitment  fees.  At  September  30,  1999 and  1998,  there  were
         $104,000,000  and  $70,500,000  of short-term  bank loans  outstanding,
         respectively.

                PSNC  borrows  funds on a  short-term  basis  primarily  for its
         construction  program and for the seasonal financing of stored gas. The
         loans are  generally  arranged  for  periods  of up to 90 days at rates
         below the prime  rate.  Bankers'  acceptance  loans  are  arranged  for
         periods of up to 180 days at rates below the prime rate.  At  September
         30, 1999 and 1998, PSNC had no bankers' acceptance loans outstanding.


                                         46

<PAGE>



                Certain  information  related  to  short-term  borrowings  is as
         follows (dollars in thousands):

                                                  1999          1998
                                                --------       -------
         At year end -
           Amount outstanding                   $104,000       $70,500
           Weighted average rate                    6.40%         5.96%

         During the year -
           Maximum amount outstanding           $104,500       $73,500
           Average daily amount outstanding      $78,660       $49,914
           Weighted average rate                    5.56%         5.95%


                The weighted average rate is determined by dividing the total
         short-term  interest  expense for the fiscal year by the average
         daily amount outstanding during the fiscal year.


6.       INCOME TAXES

                Income tax expense is shown on the  consolidated  statements  of
         income within the captions listed below.  Immediately following are the
         components of income tax expense (amounts in thousands):

<TABLE>
<CAPTION>

                                   1999               1998              1997
                             ---------------    ---------------   ---------------
                             Federal   State    Federal   State   Federal   State
                             -------  ------    -------  ------   -------  ------
<S>                          <C>      <C>       <C>      <C>      <C>      <C>

Income Statement Captions:
  Operating expenses
   and taxes                 $12,607  $2,881    $12,210  $2,917   $12,535  $3,176
  Other income (deductions)    1,621     401        917     211       866     226
                             -------  ------    -------  ------   -------  ------
                             $14,228  $3,282    $13,127  $3,128   $13,401  $3,402
                             =======  ======    =======  ======   =======  ======

Income Tax Expense:
  Currently payable          $ 8,565  $1,939    $ 7,681  $1,781   $11,246  $2,782
  Deferred                     6,013   1,343      5,816   1,347     2,585     620
  Investment tax credits, net   (350)   -          (370)   -         (430)   -
                             -------  ------    -------  ------   -------  ------
                             $14,228  $3,282    $13,127  $3,128   $13,401  $3,402
                             =======  ======    =======  ======   =======  ======

</TABLE>


                A reconciliation of the statutory federal income tax rate to the
         effective tax rate is as follows (dollars in thousands):

                                              1999          1998        1997
                                            -------       -------     -------

Statutory federal income tax rate                35%           35%         35%
Expected federal income tax expense
 at federal statutory rate                  $13,979       $13,987     $14,720
Less: State income tax benefit                1,010         1,022       1,112
      Amortization of ITC                       350           370         430
      Nondeductible merger costs               (735)         -           -
      Tax on subsidiary income                1,049           592         587
      Other                                    (302)         (207)         56
                                            -------       -------     -------
      Federal income tax expense            $12,607       $12,210     $12,535
                                            =======       =======     =======





                                        47

<PAGE>



         The components of the net deferred tax  liabilities as of September 30,
1999 and 1998 are as follows (amounts in thousands):

                                                     1999          1998
                                                   -------       -------
Deferred tax assets:
  Regulatory liabilities - income tax amounts      $ 4,501       $ 4,510
  Pension expense                                    2,111         2,503
  Unamortized ITC                                    1,178         1,323
  Postretirement benefits                            1,992         1,545
  Deferred gain on Sonat joint venture                 376         1,243
  Directors' deferred compensation                   1,029          -
  Other                                              1,606         1,897
                                                   -------       -------
                                                   $12,793       $13,021
                                                   -------       -------
Deferred tax liabilities:
  Depreciation and property related items          $74,938       $67,280
  Excess deferred taxes due to a change
   in the statutory rate                            10,123         9,963
  Regulatory assets - income tax amounts               481           537
  Year 2000 costs                                    1,021         1,314
  Other                                                653           453
                                                   -------       -------
                                                   $87,216       $79,547
                                                   -------       -------
Net deferred tax liabilities                       $74,423       $66,526
                                                   =======       =======



7.       ENVIRONMENTAL MATTERS

                PSNC owns,  or has owned,  all or portions of six sites in North
         Carolina  on  which   manufactured  gas  plants  (MGPs)  were  formerly
         operated.  Intrusive  investigation  (including drilling,  sampling and
         analysis) has begun at only one site and the remaining  sites have been
         evaluated  using  historical  records and  observations of current site
         conditions  made during  visits to the sites.  These  evaluations  have
         revealed  that MGP residuals are present or suspected at several of the
         sites.  The  North  Carolina  Department  of  Environment  and  Natural
         Resources has recommended  that no further action be taken with respect
         to one site. In March and April 1994, an environmental  consulting firm
         retained by PSNC estimated that the aggregate cost of investigating and
         monitoring the extent of environmental  degradation and of implementing
         remedial  procedures with respect to the remaining five sites may range
         from $3,705,000 to $50,145,000 over a 30-year period. PSNC is unable to
         determine  the rate at which  costs  may be  incurred  over  this  time
         period.  The  estimated  cost range has not been  discounted to present
         value.  The range  includes costs of  investigating  and monitoring the
         sites at the low end of the range  and  investigating,  monitoring  and
         extensively  remediating the sites at the high end of the range. PSNC's
         associated  actual  costs for these  sites  will  depend on a number of
         factors,  such  as  actual  site  conditions,  third-party  claims  and
         recoveries from other potentially  responsible parties (PRPs).  Another
         North Carolina public utility or its predecessors also operated the MGP
         sites in Raleigh, Durham and Asheville,  and PSNC is in discussion with
         that  utility  regarding   potential  cost  sharing   arrangements  for
         investigation and potential  remediation costs of four of the sites. At
         this time, PSNC has not reached a definitive  agreement  regarding such
         arrangements.




                                           48

<PAGE>



                An order of the NCUC  dated  May 11,  1993  authorized  deferral
         accounting  for  all  costs  associated  with  the   investigation  and
         remediation of MGP sites. As of September 30, 1999, PSNC has recorded a
         liability and associated  regulatory asset of the minimum amount of the
         range, or $3,705,000.

                The NCUC concluded that it is proper and in the public  interest
         to allow  recovery of prudently  incurred  clean-up  costs from current
         customers as  reasonable  operating  expenses even though the MGP sites
         are not used and useful in providing gas service to current  customers.
         However, the NCUC will not allow recovery of carrying costs on deferred
         amounts. Amounts incurred to date are not material.  Management intends
         to request recovery of additional MGP clean-up costs not recovered from
         other PRPs in future rate case  filings,  and  believes  that all costs
         deemed by the NCUC to be prudently  incurred will be recoverable in gas
         rates.


8.       LONG-TERM DEBT

                  On  December  20,  1995,  PSNC filed with the  Securities  and
         Exchange  Commission (SEC) a registration  statement  covering up to an
         aggregate  amount of  $125,000,000  of unsecured  debt  securities.  On
         January 10, 1996, PSNC sold $50,000,000 of 6.99% Senior  Debentures due
         2026 under the registration statement.  The net proceeds of $49,314,000
         were used to pay down a  significant  portion  of the then  outstanding
         short-term bank debt.

                  On December 17, 1996,  PSNC sold  $50,000,000  of 7.45% Senior
         Debentures due 2026 under the December 20, 1995 registration statement.
         The net  proceeds of  $49,404,000  were used to pay down a  significant
         portion of the then outstanding short-term bank debt.

                  On May 21,  1999,  PSNC  filed  with  the  SEC a  registration
         statement  (amended  on June 7, 1999)  covering up to an  aggregate  of
         $150,000,000 of senior unsecured debt securities.  This amount includes
         $25,000,000 of senior  unsecured  debt  registered on December 20, 1995
         that has not been issued and sold. At September 30, 1999,  $150,000,000
         remained on the shelf registration.

                  On February 26, 1999,  PSNC prepaid the remaining  $10,000,000
         of 8.65% Senior  Debentures due 2002 at a prepayment  price of 101.85%.
         PSNC financed the prepayment through the use of short-term debt.

                  Scheduled maturities of long-term debt during each of the next
         five  fiscal  years are as  follows as of  September  30,  1999:  2000,
         $6,800,000;  2001, $6,800,000;  2002, $5,550,000; 2003, $7,500,000; and
         2004, $7,500,000.

                  Under  terms  of  the  debt  agreements,   there  are  various
         provisions  relating to the maintenance of certain financial ratios and
         conditions,  the most  significant of which could  restrict  payment of
         dividends. At September 30, 1999, PSNC is in compliance in all material
         respects with the requirements of its debt agreements.






                                          49

<PAGE>



9.       CONSTRUCTION PROGRAM

                  The  construction   program  for  fiscal  2000,  as  presently
         planned, provides for expenditures of approximately $41,000,000.


10.      RESTRUCTURING (Plan 2001)

                  During fiscal 1999, PSNC recorded net restructuring charges of
         $4,343,000 in connection  with Plan 2001, a three-year  operating  plan
         for translating PSNC's vision, mission,  strategies and corporate goals
         into specific actions. These charges consisted of severance benefits of
         $3,681,000,  a  one-time  payment to 152  employees  of  $1,094,000  in
         connection with an automobile  fleet  restructuring,  a net curtailment
         loss on  postretirement  benefit  obligations  of  $499,000  offset  by
         pension  gains  of  $1,763,000  and  $832,000  of  other  restructuring
         charges. The severance charges are the result of a plan approved by the
         Board of Directors which  eliminated  approximately  150 positions from
         PSNC's  workforce  through  the  involuntary  termination  of  selected
         employees or job classifications.  Severance benefit arrangements under
         the plan were  communicated  to employees  during the first  quarter of
         fiscal 1999.  The net  curtailment on  postretirement  benefits and the
         pension gains relate directly to the severance  activity.  The combined
         one-time impact on quarterly earnings from all of the above items was a
         decrease of $0.13 per share net of tax.


11.      PROPOSED MERGER WITH SCANA CORPORATION (SCANA)

                  On February 16, 1999, PSNC and SCANA  Corporation  (SCANA),  a
         South  Carolina  corporation,  entered  into an  Agreement  and Plan of
         Merger  (Agreement),  which was amended and  restated on May 10,  1999,
         providing for a strategic  business  combination  of the two companies.
         SCANA is a holding company principally engaged,  through  subsidiaries,
         in electric and natural gas utility operations,  telecommunications and
         other   energy-related    businesses.    SCANA's   subsidiaries   serve
         approximately  522,000  electric  customers in South  Carolina and more
         than 678,000 natural gas customers in South Carolina and Georgia. SCANA
         also has significant  investments in telecommunications  companies that
         serve more than 438,000 customers throughout the Southeast.

                  Pursuant to the Agreement, PSNC will be merged with and into a
         wholly owned subsidiary of SCANA. Under the terms of the Agreement, the
         holders  of  PSNC's   $1.00  par  value   common   stock  will  receive
         consideration  valued at $33.00  per share,  subject to a 17.5%  collar
         above and below the market  price of SCANA  common stock at the time of
         the Agreement. Each shareholder may elect to receive 100 percent of the
         consideration  in  SCANA  common  stock,  100  percent  in  cash,  or a
         combination  thereof,  subject  to the  total  cash  allocated  to PSNC
         shareholders being no higher than 50 percent of the total consideration
         received by PSNC  shareholders.  PSNC shareholders who elect to receive
         stock will  receive  between 1.02 and 1.45 shares of SCANA common stock
         depending upon the average market price of SCANA common stock over a 20
         trading-day  period preceding the election deadline date.  Accordingly,
         the value of SCANA common stock  delivered  to PSNC  shareholders  will
         equal  $33.00 if the  average  market  price of SCANA  common  stock is
         between $22.75 and $32.40.  If the average market price of SCANA common
         stock during such period is more or less than this range,  the value of
         the SCANA shares delivered to holders of PSNC

                                         50

<PAGE>



         common  stock  would  be more  than or less  than  $33.00.  SCANA  will
         allocate   $700   million  in  cash  for  payment  to  PSNC  and  SCANA
         shareholders  under the election  process.  A maximum of  approximately
         $350  million,  under a right of first  refusal,  will be  allocated to
         PSNC's  shareholders who elect to receive cash. The transaction will be
         accounted for as a purchase.

                  The  Agreement has been approved by the Boards of Directors of
         PSNC and  SCANA.  Consummation  of the  merger is  subject  to  certain
         closing  conditions,  including the approvals by both companies' common
         shareholders  and  of  certain   governmental  and  regulatory  bodies,
         including the NCUC and the SEC. In addition, the merger was conditioned
         upon  the   effectiveness  of  a  joint  proxy   statement/registration
         statement  filed on May 11, 1999 with respect to the SCANA common stock
         to be issued  pursuant to the merger and to solicit  shareholder  votes
         for  approval  of the merger.  The joint  proxy  statement/registration
         statement became effective May 12, 1999.

                  In  separate   meetings  held  on  Thursday,   July  1,  1999,
         shareholders  of PSNC and SCANA  approved  a merger  transaction  under
         which PSNC will become a wholly owned subsidiary of SCANA.

                  Operating and maintenance expenses for the twelve months ended
         September 30, 1999 include  merger-related  charges of  $3,895,000,  or
         $0.15 per share net of tax (partially tax deductible).

                  Currently,  ten key executives have severance  agreements with
         PSNC. Under these severance agreements, approximately $5,000,000 in the
         aggregate may be payable to them in connection with the merger.

                  PSNC  sponsors  a  deferred   compensation  plan  for  outside
         directors  and a retirement  plan for all  directors.  Upon a change in
         control,  such as consummation of the merger with SCANA,  approximately
         $2,850,000  will be  payable  in cash to  directors  pursuant  to these
         plans. Of this amount,  approximately  $87,000 will be expensed for the
         deferred compensation plan, and approximately $351,000 will be expensed
         for the retirement plan.

                  As   discussed   more  fully  in  Note  3,  PSNC  has  a  1992
         Nonqualified  Stock  Option Plan and a 1997  Nonqualified  Stock Option
         Plan. In accordance with the plans, outstanding options are exercisable
         upon a change in control. Approval by PSNC shareholders of the proposed
         merger  with  SCANA  constitutes  a change in control as defined in the
         plans.  At  September  30,  1999,  approximately  705,000  options  are
         outstanding and exercisable.  The Agreement  states, at the election of
         the optionee, participants in the plans can receive cash payments equal
         to the  differential  between each option exercise price and $33.00 per
         share for each option  outstanding at the date of the transaction.  All
         participants  have elected the cash payment  option.  These payments of
         approximately  $9,900,000  will be made  from  the  approximately  $350
         million  allocated  by  SCANA to  PSNC's  shareholders,  as  previously
         discussed.








                                          51

<PAGE>



12.      CONTINGENT LIABILITIES

                  PSNC is a party  to  certain  legal  actions.  Although  it is
         impossible to predict the outcomes with certainty,  after  consultation
         with legal  counsel,  management  does not expect the  dispositions  of
         these matters to have a materially  adverse effect on PSNC's  financial
         position, cash flows or results of operations.

                  PSNC  is also a  party  to  certain  legal  actions  involving
         potential environmental liability as more fully discussed in Note 7.



13.      EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC
         ACCOUNTANTS

                  On  November  29,  1999,  pursuant  to the  change in  control
         provisions  of the  "Amended  and Restated  Limited  Liability  Company
         Agreement of Sonat Public  Service  Company  L.L.C.,"  PSNC  Production
         submitted a "Buy-Sell Notice" to El Paso Energy  Corporation (El Paso),
         which purchased Sonat Inc. on October 25, 1999, and offered to purchase
         the membership  interest of Sonat Marketing in Sonat Public Service. On
         December  17,  1999,  El Paso  responded  and  elected  to sell its 50%
         interest  in Sonat  Public  Service to PSNC  Production.  The  proposed
         effective date of the purchase is December 31, 1999.

                  On December 7, 1999,  the NCUC issued an order  approving  the
         merger of PSNC and SCANA.  As  specified  in the NCUC order,  PSNC will
         reduce its rates by approximately $2 million ($1 million  effective six
         months  after the  transaction  closing  date and  another  $1  million
         effective  eighteen  months after the closing date) and has agreed to a
         five-year moratorium on general rate cases. The request for approval of
         the transaction by the SEC is still pending.



                                          52

<PAGE>




14.  EARNINGS PER SHARE

         The  following  tables  summarize  the effect on earnings  per share of
dilutive  securities  as  required  by SFAS No.  128.  Shares  needed to satisfy
exercised  stock  options  are  currently  being  acquired  through  open market
purchases.  Therefore,  the  number of shares  outstanding  is not  expected  to
increase as a result of stock options being exercised.



                                              Twelve Months Ended
                                               September 30, 1999

                                      Income           Shares         Per Share
                                   (Numerator)      (Denominator)       Amount

Basic EPS
Net income                         $24,450,950        20,515,369        $ 1.19

Effect of dilutive securities (Options)                  218,659
                                                      ----------
Diluted EPS
Net income                         $24,450,950        20,734,028        $ 1.18
                                                      ==========






                                              Twelve Months Ended
                                               September 30, 1998

                                       Income          Shares         Per Share
                                    (Numerator)     (Denominator)       Amount

Basic EPS
Net income                          $24,837,002      20,103,103          $1.24

Effect of dilutive securities (Options)                 117,477
                                                     ----------
Diluted EPS
Net income                          $24,837,002      20,220,580          $1.23
                                                     ==========






                                             Twelve Months Ended
                                              September 30, 1997

                                      Income          Shares          Per Share
                                   (Numerator)     (Denominator)        Amount

Basic EPS
Net income                         $26,346,553      19,549,656           $1.35

Effect of dilutive securities (Options)                100,269
                                                    ----------
Diluted EPS
Net income                         $23,346,553      19,649,925           $1.34
                                                    ==========













                                         53

<PAGE>



15.      SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

                  The following table presents certain financial information for
         each quarter during the fiscal years ended  September 30, 1999 and 1998
         (amounts in thousands, except per share data):
<TABLE>
<CAPTION>

                                                              1999
                                               --------------------------------------
                                               Fourth     Third      Second     First
                                               -------   -------    --------   -------
<S>                                            <C>       <C>        <C>        <C>

     Operating revenues                        $37,263   $54,063    $134,326   $73,201

     Net margin                                 22,549    30,521      66,261    37,439

     Operating income (loss)                      (352)    4,957      25,759     7,836

     Net income (loss)                          (3,075)    1,736      22,024     3,766

     Basic earnings (loss) per share (1)          (.15)      .08        1.07       .18

     Diluted earnings (loss) per share (1)        (.15)      .08        1.06       .18
</TABLE>
<TABLE>
<CAPTION>
                                                              1998
                                               ----------------------------------------
                                               Fourth     Third      Second     First
                                               -------   -------    --------   --------
<S>                                            <C>       <C>        <C>        <C>

     Operating revenues                        $32,151   $54,532    $140,205   $103,784

     Net margin                                 17,510    26,915      63,980     37,377

     Operating income (loss)                    (2,042)    4,123      26,226     10,790

     Net income (loss)                          (5,682)      802      22,524      7,193

     Basic earnings (loss) per share              (.28)      .04        1.12        .36

     Diluted earnings (loss) per share            (.28)      .04        1.11        .36
</TABLE>

     (1)     The sum of the quarterly  earnings (loss) per share amounts does
             not equal the annual earnings per share amount  reflected in the
             consolidated statement of income due to the effect of changes in
             average common shares outstanding during the fiscal year.



















                                      54

<PAGE>



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Shareholders and the Board of Directors of
 Public Service Company of North Carolina, Incorporated:

         We have  audited  the  accompanying  consolidated  balance  sheets  and
statements  of  capitalization  of Public  Service  Company  of North  Carolina,
Incorporated  (PSNC),  a North  Carolina  corporation,  and  subsidiaries  as of
September 30, 1999 and 1998, and the related consolidated  statements of income,
retained earnings and cash flows for each of the three years in the period ended
September 30, 1999. These financial  statements are the responsibility of PSNC's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the  financial  position of Public  Service
Company of North  Carolina,  Incorporated  and  subsidiaries as of September 30,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended  September 30, 1999,  in conformity  with
generally accepted accounting principles.





s/Arthur Andersen LLP

Charlotte, North Carolina,
November 4, 1999
(except with respect to the matters
 discussed in Note 13, as to which
 the date is December 17, 1999)



                                        55

<PAGE>



               MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS


         Management  is  responsible  for  the  preparation,   presentation  and
integrity of the financial  statements and other  financial  information in this
report. The accompanying  financial  statements have been prepared in accordance
with  generally  accepted  accounting  principles  applicable to  rate-regulated
public utilities, including estimates and judgments made by management that were
necessary  to  prepare  the  statements  in  accordance   with  such  accounting
principles,  and are not misstated due to material fraud or error. To assure the
integrity  of  the  underlying   financial  records   supporting  the  financial
statements,  management  maintains  a system  of  internal  accounting  controls
sufficient  to provide  reasonable  assurances  that PSNC  assets  are  properly
accounted for, safeguarded and are utilized only in accordance with management's
authorization.  The concept of reasonable assurance recognizes that the costs of
a system of internal  controls  should not exceed the related  benefits  derived
from it.

         The system of  internal  accounting  controls  is  augmented  by PSNC's
internal audit department,  which has unrestricted  access to all levels of PSNC
management.  The internal audit department meets periodically,  with and without
the presence of management,  with the Audit  Committee of the Board of Directors
to discuss,  among other things,  PSNC's system of internal  accounting controls
and the adequacy of the internal audit program. The Audit Committee is comprised
of four directors who are not officers or employees of PSNC.

         The Audit Committee also meets  periodically  with Arthur Andersen LLP,
PSNC's  independent  public  accountants,  with  and  without  the  presence  of
management,  to discuss  the  results of the  annual  audit of PSNC's  financial
statements  and related data. The Audit  Committee and Arthur  Andersen LLP also
discuss internal accounting control matters that come to the attention of Arthur
Andersen LLP during the course of the audit.



s/Charles E. Zeigler, Jr.                               s/Jack G. Mason
-------------------------------                         ------------------------
Charles E. Zeigler, Jr.                                 Jack G. Mason
Chairman, President and                                 Vice President - Finance
Chief Executive Officer


                                        56

<PAGE>



         Supplementary Data

                  The information for this item is contained in Note 15 entitled
         "SUMMARY OF QUARTERLY  FINANCIAL  INFORMATION  (UNAUDITED)"  on page 54
         this annual report.


         Item 9.  Changes in and Disagreements With Accountants
                       on Accounting and Financial Disclosure

         None.

                                     PART III


         Item 10.  Directors and Executive Officers of the Registrant

         Directors

                  Set forth  below is a table  showing the names and ages of the
         one nominee for  election  and of the eight  continuing  members of the
         Board,  together with biographical  information on each of them for the
         past five  years.  William  A.V.  Cecil,  whose  term is  expiring,  is
         retiring  from the Board of Directors  under its  mandatory  retirement
         policy and will not stand for reelection.

Name, Age and Year
First Became a Director                        Biographical Information
--------------------------------               -------------------------
Nominee for Election as Director Whose Term Expires in 2003

G. SMEDES YORK (58)            President and Treasurer, York Properties, Inc.,
 Director since 1984              Sam Bass Camera Shop, Inc., and York
                                  Construction Company; President, York Inns,
                                  Inc., Raleigh, North Carolina; and Director,
                                  Spectator Publications, Inc.

Nominees for Election as Directors Whose Terms Expire in 2002

BERT COLLINS (65)               President and Chief Executive Officer, North
 Director since 1993               Carolina Mutual Life Insurance Company, an
                                   insurance company located in Durham, North
                                   Carolina; and Director, Wachovia Bank.

JOHN W. COPELAND (64)           Retired President, Ruddick Corporation, the
 Director since 1996               holding company for American & Efird, Inc.
                                   and Harris-Teeter, Inc.; Director, Ruddick
                                   Corporation; President and Director,
                                   Copeland Business Service, Inc. and Copeland
                                   Foundation, Inc.

                               57

<PAGE>



D. WAYNE PETERSON (63)           Retired President, National Integrated
 Director since 1996                Services, Sprint, Kansas City, Missouri, a
                                    major domestic and international telecom-
                                    munications company.
CHARLES E. ZEIGLER, JR. (53)     Chairman, President and Chief Executive
 Director since 1988                Officer of the Company; Director, J.A.
                                    Jones, Incorporated.

Continuing Directors Whose Terms Expire in 2001

WILLIAM C. BURKHARDT (62)        President and Chief Executive Officer of Austin
 Director since 1989                Quality Foods, Inc., Cary, North Carolina, a
                                    baker and distributor of Austin Quality
                                    Snacks.
VAN E. EURE (44)                 Owner, General Manager and President, The
 Director since 1993                Angus Barn, Ltd., which owns a restaurant
                                    located in Raleigh, North Carolina.
WILLIAM L. O'BRIEN, JR. (60)     Senior Vice President, O'Brien/Atkins
 Director since 1986                Associates, P.A., an architectural and
                                    engineering firm located in Research
                                    Triangle Park, North Carolina.
BEN R. RUDISILL, II (56)         President and Treasurer, Rudisill Enterprises,
 Director since 1996                Inc., Gastonia, North Carolina, a beverage
                                    distributor    and   food    broker;
                                    Co-owner  and  Vice  President,  Tar
                                    Heel  Leasing  Company,  an auto and
                                    equipment   leasing   company;   and
                                    Director,  Gaston Federal  Savings &
                                    Loan.

         Executive Officers

                  The  information for this item is set forth on page 13 of this
annual report.

         Section 16(a) Beneficial Ownership Reporting Compliance

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's  directors and  executive  officers,  and persons who own
more than 10% of the Company's  Common Stock,  to file with the  Securities  and
Exchange  Commission  reports of  ownership  and changes in  ownership of Common
Stock.  Officers,  directors and greater than 10% beneficial owners are required
by  Securities  and Exchange  Commission  regulation to furnish the Company with
copies of all Section 16(a) forms they file.

         Based solely on review of the copies of such  reports  furnished to the
Company or written  representations  that no other  reports were  required,  the
Company believes that, during fiscal 1999, all filing requirements applicable to
its  officers,  directors and greater than 10%  beneficial  owners were complied
with.






                                   58

<PAGE>



         Item 11.  Executive Compensation

                  Compensation of Directors

         Directors  who are not  employees of the Company  receive  common stock
units  valued at  $21,275  for each  annual  retainer  fee,  $800 for each board
meeting attended and $700 for each committee meeting attended.  Reimbursement of
expenses  for  attending  each  meeting is paid in cash.  Prior to the  Deferred
Compensation  Plan for Outside  Directors as Amended and Restated,  which became
effective  July  1,  1998,   certain  directors  elected  to  defer  their  cash
compensation  or  receive  common  stock  units  under  the  Company's  Deferred
Compensation Plan for outside  directors.  Any associated common stock units for
those outside directors have been included in the following table.

         Prior to July 1,1998,  upon  retirement from the Board after age 65 and
after  serving as a director for eight years or more, a director was entitled to
lifetime retirement  compensation equal to the amount of the annual retainer fee
in effect on the date of  retirement.  Retired  directors at July 1, 1998 remain
under this annual cash annuity plan. For current directors, this previous annual
cash annuity plan was converted to  actuarially  equivalent  common stock units,
respectively,  for each director.  Those common stock units were granted on July
1, 1998,  the  effective  date of the  Deferred  Compensation  Plan for  Outside
Directors as Amended and Restated, and are included in the following table.
<TABLE>
<CAPTION>

                                Fiscal 1999                               Cumulative
                       ---------------------------------------------------------------------------
                     Stock    Value of    Value of Cash      Stock    Value of     Value of Cash
Name                 Units   Stock Units  Compensation (1)   Units   Stock Units   Compensation
----                 -----   -----------  ----------------   ------  -----------   -------------
<S>                  <C>      <C>          <C>               <C>      <C>            <C>

Mr. Burkhardt .....  1,945    $ 59,822     $   --            22,631   $695,905       $  --
Mr. Cecil .........  1,475      45,368         --             9,566    294,169          --
Mr. Collins .......  1,447      44,494         --             7,299    224,443          --
Mr. Copeland ......  1,467      45,108        2,868           6,998    215,177        66,101
Ms. Eure ..........  1,246      38,305         --             5,974    183,700          --
Mr. O'Brien, Jr. ..  1,401      43,072         --             5,866    180,382          --
Mr. Peterson ......  1,517      46,641         --             9,949    305,923          --
Mr. Rudisill,II ...  1,413      43,441         --             7,131    219,288          --
Mr. York ..........  1,469      45,185         --             8,483    260,858          --
Mr. Zeigler, Jr....     82       2,523         --             2,455     75,483          --
</TABLE>

(1) Reflects interest on prior cash balances.

         The Company's  By-laws  provide that no director  shall be eligible for
reelection who, on the date of his or her proposed election, shall have reached,
or who, within the twelve-month  period immediately after such date, would reach
70 years of age.













                                     59

<PAGE>



                          EXECUTIVE COMPENSATION

     The Summary  Compensation  Table below  includes  compensation  paid by the
Company for services  rendered for the fiscal  years ended  September  30, 1999,
1998 and 1997 for the Chief  Executive  Officer  and the four other most  highly
compensated executive officers (as of September 30, 1999) as determined by total
salary and bonus payments.

                           Summary Compensation Table

<TABLE>
<CAPTION>


                                                     Annual Compensation                   Long Term
                                         ----------------------------------------------   Compensation
                                                                         Other Annual        Awards         All Other
Name and Principal Position              Year   Salary (1)    Bonus    Compensation (2)   Options (#)   Compensation (3)
---------------------------              ----   ----------  -------    ----------------   -----------   ----------------
<S>                                      <C>    <C>        <C>            <C>              <C>              <C>

Charles E. Zeigler, Jr.                  1999   $339,540   $221,825       $158,556           -              $5,000
  Chairman, President and                1998    324,480       -            75,536         32,319            4,939
  Chief Executive Officer                1997    310,020     94,340         26,440          5,889            4,689

Franklin H. Yoho                         1999    175,020     81,673         95,628           -               5,000
  Vice President --                      1998    166,800       -            16,284         18,791            4,939
  Marketing and Gas Supply               1997    160,020     32,255         27,086          3,539            4,689

Robert D. Voigt                          1999    170,040     79,349         95,628           -               5,000
  Vice President --                      1998    162,300       -            37,480         17,683            4,838
  Organizational Development             1997    155,040     32,195         59,583          3,539            4,613

Jerry W. Richardson                      1999    170,040     79,349         77,975           -               5,000
  Vice President --                      1998    144,060       -            40,613         15,448            4,322
  Engineering and System Logistics       1997    138,660     22,190         58,292          2,949            4,160

Boyce C. Morrow, Jr.                     1999    165,000     76,997         79,686           -               1,650
  Vice President --                      1998    129,360       -            35,178         15,665            1,294
  External Affairs                       1997    124,260     20,595         10,350          2,949            1,243

</TABLE>



(1)  For the years indicated, includes amounts contributed on a pre-tax basis to
     the Special Savings and Retirement Plan (the Company's 401(k) plan) by each
     of the named executive officers.
(2)  For the years indicated, includes the difference between the price paid
     by the  named  executive  officers  for  Common  Stock  of the  Company
     purchased  from the Company upon the exercise of stock  options and the
     fair market  value of such Common  Stock.  Also  includes for the years
     indicated the amount paid to the named executive  officers for dividend
     equivalents   accrued   during  the  fiscal  year  under  the  Dividend
     Equivalents Rights Plan.
(3)  For the years indicated, consists of contributions by the Company to the
     Special Savings and Retirement Plan.


         The Company has severance agreements with ten key executives.  Under
these agreements, the following severance amounts would be paid to the following
individuals: Charles E. Zeigler, Jr., $1,381,224; Franklin H. Yoho, $547,940;
Robert D. Voigt, $533,053; Jerry W. Richardson, $524,715; and Boyce C. Morrow,
Jr. $508,225.

                         Option Grants in Last Fiscal Year

     No stock options were granted in the fiscal year ending  September 30, 1999
to the Chief  Executive  Officer  and the four  other  most  highly  compensated
executive officers.






                                        60

<PAGE>




                  Aggregated Option Exercises in Last Fiscal Year
                          and FY-End Option Values

     The  following  table shows the  aggregated  stock option  exercises in the
fiscal year ended  September  30, 1999 and the stock option values for the Chief
Executive Officer and the four other most highly compensated  executive officers
(as of September 30, 1999).  All stock options  outstanding  became  exercisable
effective  with the PSNC  shareholders'  approval on July 1, 1999 of the pending
merger with SCANA.

<TABLE>
<CAPTION>


                                                                        Number of Securities        Value of Unexercised
                                                                       Underlying Unexercised          In-the-Money
                                      Shares Acquired     Value        Options at FY-End (#)       Options at FY-End ($)
Name                                  on Exercise (#)  Realized ($)  Exercisable  Unexercisable  Exercisable   Unexercisable
----                                  ---------------  ------------  -----------  -------------  -----------   -------------
<S>                                         <C>        <C>            <C>              <C>       <C>                <C>
Charles E. Zeigler, Jr..........            7,298      $110,528       51,987           -         $162,067           -
Franklin H. Yoho................            4,407        66,744       30,606           -           96,008           -
Robert D. Voigt.................            4,407        66,744       29,498           -           93,257           -
Jerry W. Richardson.............            3,635        55,052       24,723           -           78,861           -
Boyce C. Morrow, Jr.............            3,672        55,612       25,513           -           80,027           -
</TABLE>



                                                EMPLOYEE RETIREMENT PLANS

     The table  below  illustrates  the  approximate  amounts  of annual  normal
retirement benefits payable under the Company's retirement plans.

<TABLE>
<CAPTION>
                                          Annual Benefits at Retirement with Years of Credited Service
                               -------------------------------------------------------------------------------------------
 Average
Compensation                      10             15                20               25               30              35
------------                   -------        --------          --------         --------         --------        --------
<S>                             <C>           <C>               <C>              <C>              <C>             <C>

   $120,000                     $24,851       $ 37,277          $ 49,702         $ 62,128         $ 74,553        $ 86,979
    140,000                      29,351         44,027            58,702           73,378           88,053         102,729
    160,000                      33,851         50,777            67,702           84,628          101,553         118,479
    180,000                      38,351         57,527            76,702           95,878          115,053         134,229
    200,000                      42,851         64,277            85,702          107,128          128,553         149,979
    220,000                      47,351         71,027            94,702          118,378          142,053         165,729
    240,000                      51,851         77,777           103,702          129,628          155,553         181,479
    260,000                      56,351         84,527           112,702          140,878          169,053         197,229
    280,000                      60,851         91,277           121,702          152,128          182,553         212,979
    300,000                      65,351         98,027           130,702          163,378          196,053         228,729
    320,000                      69,851        104,777           139,702          174,628          209,553         244,479
    340,000                      74,351        111,527           148,702          185,878          223,053         260,229
    360,000                      78,851        118,277           157,702          197,128          236,553         275,979
</TABLE>

     The Company has a  noncontributory,  defined  benefit  retirement plan (the
"Retirement  Plan")  and a benefit  restoration  plan (the  "Restoration  Plan")
(collectively,  the "Retirement  Plans"),  which cover all full-time  employees,
including  officers,  upon their  attaining  age 21 and  completing  one year of
service.  The purpose of the Restoration  Plan is to provide  certain  employees
with retirement benefits which they otherwise

                                      61

<PAGE>



would have received under the Retirement  Plan formula but which may not be paid
to them under the Retirement Plan due to limitations on benefits  imposed by the
Internal Revenue Code.

     A participant in the Retirement  Plans becomes fully vested prior to normal
retirement at age 65 upon the completion of five years of service.  Benefits are
also provided under the Retirement  Plans in the event of early retirement at or
after age 55 and the  completion  of at least ten  years of  service  and in the
event of retirement  for disability  after  completion of five years of service.
Benefits under the Retirement  Plans are based upon  application of a formula to
the  specified  average  compensation  and years of  credited  service  (up to a
maximum of 35 years) at normal retirement age. Benefit amounts are computed on a
straight  life  annuity  basis.  Compensation  covered by the  Retirement  Plans
consists of the amount shown as "Salary" in the Summary  Compensation Table. The
benefits  are  not  subject  to any  deduction  for  social  security  payments.
Estimated  credited  years  of  service  under  the  Retirement  Plans  for  the
individuals named in the Summary  Compensation Table are as follows:  Charles E.
Zeigler,  Jr., 12.8 years,  Franklin H. Yoho, 10.6 years,  Robert D. Voigt, 24.2
years, Jerry W. Richardson, 31.0 years, and Boyce C. Morrow, Jr., 9.4 years.

                                    62

<PAGE>



    Item 12.  Security Ownership of Certain Beneficial Owners and Management

            COMMON STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS

     Set forth  below is the  number of  shares of Common  Stock of the  Company
beneficially  owned by the directors,  the Chief  Executive  Officer,  the other
executive  officers named in the Summary  Compensation  Table, and the directors
and executive  officers as a group, on November 30, 1999. The directors also own
equivalent  value  Common  Stock  units  as set  forth  in the  Compensation  of
Directors section in Item 11.

                                                                         Percent
                                                                            of
Name                                       Shares (1)(2)                  Class

William A. V. Cecil ..........................8,496                         *
G. Smedes York ...............................7,019                         *
William L. O'Brien, Jr. ......................5,771                         *
Bert Collins ................................ 5,175                         *
John W. Copeland ............................ 3,771                         *
Ben R. Rudisill, II ........................  2,565                         *
William C. Burkhardt .........................2,333                         *
D. Wayne Peterson ............................2,000                         *
Van E. Eure .................................. --                           *
Charles E. Zeigler, Jr. .....................74,575(3)                      *
Franklin H. Yoho ........................... 35,619(4)                      *
Robert D. Voigt .............................49,405(5)                      *
Jerry W. Richardson .........................39,057(6)                      *
Boyce C. Morrow, Jr. ........................27,531(7)                      *
Directors and executive officers
  as a group (17 persons) ..................319,197(8)                      1.5%

---------------
*     Indicates  beneficial ownership of less than 1% of the shares of Common
      Stock of the Company outstanding on November 30, 1999.
(1)   Includes shares, if any, held by each person's immediate family members.
(2)   Includes each person's beneficial interest in full shares of the Company's
      Common Stock,  if any,  credited to his or her account in the Company's
      Stock Purchase and Automatic Dividend Reinvestment Plan.
(3)   Of this number,  18,837 shares are owned directly by Mr. Zeigler,  Jr.,
      1,278  shares are owned by Mr.  Zeigler,  Jr.'s spouse and 2,473 shares
      are  owned by a trust  over  which Mr.  Zeigler,  Jr.  as  trustee  has
      investment and voting power.  Also includes  options to purchase 51,987
      shares of Common Stock exercisable within 60 days of November 30, 1999.
(4)   Includes options to purchase 30,606 shares of Common Stock  exercisable
      within 60 days of November 30, 1999.
(5)   Includes options to purchase 29,498 shares of Common Stock  exercisable
      within 60 days of November 30, 1999.
(6)   Includes options to purchase 24,723 shares of Common Stock  exercisable
      within 60 days of November 30, 1999.

                                        63

<PAGE>



(7)   Includes options to purchase 25,513 shares of Common Stock  exercisable
      within 60 days of November 30, 1999.
(8)   Includes options to purchase 211,545 shares of Common Stock exercisable
      within 60 days of November 30, 1999.


      Item 13.  Certain Relationships and Related Transactions

      None.


                                       PART IV


      Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K


                                                                         Page

      (a)  1.  Financial statements -

               Consolidated Statements of Income for the
                  Fiscal Years Ended September 30, 1999,
                   1998 and 1997                                          31
               Consolidated Balance Sheets at
                  September 30, 1999 and 1998                             32
               Consolidated Statements of Capitalization
                  at September 30, 1999 and 1998                          33
               Consolidated Statements of Retained
                  Earnings for the Fiscal Years Ended
                  September 30, 1999, 1998 and 1997                       33
               Consolidated Statements of Cash Flows for
                  the Fiscal Years Ended September 30, 1999,
                  1998 and 1997                                           34
               Notes to Consolidated Financial Statements
                  for the Fiscal Years Ended September 30,
                  1999, 1998 and 1997                                   35-54
               Report of Independent Public Accountants                   55
               Management's Responsibility for Financial Statements       56











                                        64

<PAGE>



                                                                           Page


           2.     Financial statement schedules -

                  The  following  financial  statement  schedules  are
                  included herein:

                  Supplemental Schedules:
                  Report of Independent Public Accountants                67
                  Schedule II - Reserves for the Fiscal Years Ended
                   September 30, 1999, 1998 and 1997                    68-70


              All  other  financial  statement  schedules  are  omitted  as  not
       applicable,  not required, or the required information is included in the
       consolidated financial statements and notes thereto.

           3.  Exhibits -

               See Exhibit Index on page 72 of this annual report.

       (b)     Reports on Form 8-K -

             There were no reports  on Form 8-K filed  during the three  months
             ended September 30, 1999.


                                        65

<PAGE>



                      CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



       As independent public accountants, we hereby consent to the incorporation
of our  reports  included  in this  Form  10-K,  into  PSNC's  previously  filed
Registration Statements on Form S-3 (File Nos. 33-65205,  33-10637 and 33-79107)
and Form S-8 (File Nos. 33-49153, 33-48909 and 333-34845).



s/Arthur Andersen LLP

Charlotte, North Carolina,
December 23, 1999

                                          66

<PAGE>



                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


       We have audited in accordance with generally accepted auditing standards,
the  consolidated  financial  statements  of  Public  Service  Company  of North
Carolina,  Incorporated  included in this Form 10-K,  and have issued our report
thereon dated November 4, 1999 (except with respect to the matters  discussed in
Note 13, as to which the date is December 17, 1999).  Our audit was made for the
purpose  of  forming  an  opinion  on those  statements  taken  as a whole.  The
schedules  listed  in the  accompanying  index  are  the  responsibility  of the
Registrant's  management  and are presented  for purposes of complying  with the
Securities  and  Exchange  Commission's  rules  and  are not  part of the  basic
financial  statements.  These  schedules  have been  subjected  to the  auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth  therein in  relation  to the basic  financial  statements  taken as a
whole.

s/Arthur Andersen LLP
Charlotte, North Carolina,
November 4, 1999

                                          67

<PAGE>

<TABLE>

                PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES

                                    SCHEDULE II - RESERVES

                         FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999

<CAPTION>
           Column A                Column B           Column C          Column D      Column E
------------------------------    ----------    --------------------   ----------    ----------
                                                     Additions
                                                    Charged To
                                  Balance At    --------------------                  Balance
                                  Beginning     Operating    Other                     At End
          Description             Of Period      Expenses    Income    Deductions(1) Of Period
------------------------------    ----------    ----------  --------   ----------    ----------
<S>                              <C>            <C>         <C>        <C>           <C>

DEDUCTED IN BALANCE SHEET FROM
 ASSET TO WHICH IT APPLIES:

  Allowance for doubtful
   accounts                       $2,086,128    $637,865    $87,229    $1,073,407    $1,737,815
                                  ==========    ========    =======    ==========    ==========
</TABLE>

(1)  Deductions represent uncollectible accounts written off, net of recoveries,
     as follows -

      Write-off of accounts considered to be uncollectible            $1,697,378
      Less - Recoveries on accounts previously written off               623,971
                                                                      ----------
                                                                      $1,073,407
                                                                      ==========


                                          68

<PAGE>

<TABLE>


            PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES

                                    SCHEDULE II - RESERVES

                         FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
<CAPTION>

           Column A                Column B           Column C          Column D      Column E
------------------------------    ----------    --------------------   ----------    ----------
                                                     Additions
                                                    Charged To
                                  Balance At    --------------------                  Balance
                                  Beginning     Operating    Other                     At End
          Description              Of Period     Expenses    Income    Deductions(1)  Of Period
------------------------------    ----------    ---------   --------   ----------    ----------
<S>                               <C>            <C>         <C>       <C>           <C>

DEDUCTED IN BALANCE SHEET FROM
 ASSET TO WHICH IT APPLIES:

  Allowance for doubtful
   accounts                       $2,521,983     $786,480    $80,306   $1,302,641    $2,086,128
                                  ==========     ========    =======   ==========    ==========
</TABLE>

(1)  Deductions represent uncollectible accounts written off, net of recoveries,
     as follows -

      Write-off of accounts considered to be uncollectible            $2,039,104
      Less - Recoveries on accounts previously written off               736,463
                                                                      ----------
                                                                      $1,302,641
                                                                      ==========


                                            69

<PAGE>

<TABLE>

               PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES

                                    SCHEDULE II - RESERVES

                         FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997
<CAPTION>

           Column A                Column B           Column C          Column D      Column E
------------------------------    ----------    --------------------   ----------    ----------
                                                     Additions
                                                    Charged To
                                  Balance At    --------------------                  Balance
                                  Beginning     Operating    Other                     At End
          Description             Of Period      Expenses    Income    Deductions(1) Of Period
------------------------------    ----------    ----------  --------   ----------    ----------
<S>                               <C>           <C>         <C>        <C>          <C>

DEDUCTED IN BALANCE SHEET FROM
 ASSET TO WHICH IT APPLIES:

  Allowance for doubtful
   accounts                      $2,481,943     $1,320,162  $76,474    $1,356,596   $2,521,983
                                 ==========     ==========  =======    ==========   ==========
</TABLE>

(1)  Deductions represent uncollectible accounts written off, net of recoveries,
     as follows -

      Write-off of accounts considered to be uncollectible            $2,156,932
      Less - Recoveries on accounts previously written off               800,336
                                                                      ----------
                                                                      $1,356,596
                                                                      ==========

                                          70

<PAGE>




                                 SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                PUBLIC SERVICE COMPANY
                                                OF NORTH CAROLINA, INCORPORATED
                                                (Registrant)

                                                s/Charles E. Zeigler, Jr.
                                                Charles E. Zeigler, Jr.
                                                Chairman, President and
December 23, 1999                                Chief Executive Officer



       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities indicated on December 23, 1999.


s/Charles E. Zeigler, Jr.                   s/Jack G. Mason
Charles E. Zeigler, Jr.                     Jack G. Mason
Chairman, President and                     Vice President - Finance
Chief Executive Officer                     (Principal financial and
(Principal executive officer)               accounting officer)



s/William C. Burkhardt                      s/William L. O'Brien, Jr.
William C. Burkhardt - Director             William L. O'Brien, Jr. - Director

s/William A. V. Cecil                       s/D. Wayne Peterson
William A. V. Cecil - Director              D. Wayne Peterson - Director

s/Bert Collins                              s/Ben R. Rudisill, II
Bert Collins - Director                     Ben R. Rudisill, II - Director

s/John W. Copeland                          s/G. Smedes York
John W. Copeland - Director                 G. Smedes York - Director

s/Van E. Eure
Van E. Eure - Director





                                    71

<PAGE>




                              EXHIBIT INDEX

         The  following  documents  are filed as a part of this annual report on
Form  10-K  for the  fiscal  year  ended  September  30,  1999.  Those  exhibits
previously filed and incorporated  herein by reference are identified below with
an asterisk and with a reference to the previous filing.

Exhibit
Number

*3-A-4   -  Amended and Restated Charter, dated February 1, 1991. (File No.
            0-1218, 10-K--1992, Exhibit 3-A-4).

*3-A-4.1 -  Amendment to Amended and Restated Charter, dated April 10, 1997.
            (8-K/A--April 14, 1997, Exhibit A).

*3-I     -  By-laws, as amended to date.  (File No. 0-1218, 10-Q--March 31,
            1994, Exhibit 3-I).

*4-B     -  Debenture Purchase Agreement, dated as of September 15, 1988, for
            $25,000,000 of 10% Senior Debentures due October 1, 2003.
            (File No. 0-1218, 10-K--1988, Exhibit 4-B).

*4-C     -  Debenture Purchase Agreement, dated as of December 5, 1989, for
            $43,000,000 of 10% Senior Debentures due December 1, 2004.
            (File No. 0-1218, 10-K--1989, Exhibit 4-C).

*4-D     -  Debenture Purchase Agreement, dated as of June 25, 1992, for
            $32,000,000 of 8.75% Senior Debentures due June 30, 2012.
            (File No. 0-1218, 10-Q--June 30, 1992, Exhibit 4-D).

*4-E-1   -  Indenture dated as of January 1, 1996, as supplemented by a First
            Supplemental Indenture dated as of January 1, 1996, between
            PSNC and First Union National Bank of North Carolina, as trustee.
            (File No. 1-11429, 10-Q--December 31, 1995, Exhibit 4-E-1).

*4-E-2   -  Specimen of the certificate representing the $50,000,000
            aggregate principal amount of 6.99% Senior Debentures Due 2026
            issued by PSNC on January 16, 1996.  (File No. 1-11429,
            10-Q--December 31, 1995, Exhibit 4-E-2).







                                      72

<PAGE>



Exhibit
Number

*4-E-3    -  Second Supplemental Indenture dated as of December 15, 1996 to
             Indenture dated as of January 1, 1996, between PSNC and First
             Union National Bank of North Carolina, as trustee.
             (File No. 1-11429, 10-Q--December 31, 1996, Exhibit 4-E-3).

*4-E-4    -  Specimen of the certificate representing the $50,000,000
             aggregate principal amount of 7.45% Senior Debentures Due 2026
             issued by PSNC on December 15, 1996 is included in Exhibit 4-E-3.
             (File No. 1-11429, 10-Q--December 31, 1996, Exhibit 4-E-4).

*10-A-9   -  Firm Sales Service Agreement under Rate Schedule FS, dated
             August 1, 1991, between PSNC and Transcontinental Gas Pipe Line
             Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
             Exhibit 10-A-9).

*10-A-10  -  Firm Sales Service Agreement under Rate Schedule FS, dated
             August 1, 1991, between PSNC and Transcontinental Gas Pipe Line
             Corporation.  (File No. 0-1218, 10-Q--March 31, 1992,
             Exhibit 10-A-10).

*10-A-11  -  Firm Sales Service Agreement under Rate Schedule FS, dated
             August 1, 1991, between PSNC and Transcontinental Gas Pipe Line
             Corporation.  (File No. 0-1218, 10-Q--March 31, 1992,
             Exhibit 10-A-11).

*10-A-13  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated August 1, 1991, between PSNC and Transcontinental Gas Pipe
             Line Corporation.  (File No. 0-1218, 10-K--1992, Exhibit 10-A-13).

*10-A-15  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated February 1, 1992, between PSNC and Transcontinental Gas Pipe
             Line Corporation.  (File No. 0-1218, 10-K--1993, Exhibit 10-A-15).

*10-A-16  -  Firm Transportation Service Agreement under Rate Schedule FT-NN,
             dated October 8, 1993, between PSNC and CNG Transmission
             Corporation.  (File No. 0-1218, 10-K--1993, Exhibit 10-A-16).

*10-A-17  -  Firm Transportation Service Agreement under Rate Schedule FT-NN-
             GSS, dated October 8, 1993, between PSNC and CNG Transmission
             Corporation.  (File No. 0-1218, 10-K--1993, Exhibit 10-A-17).

*10-A-18  -  Firm Transportation Service Agreement under Rate Schedule FT-A,
             dated November 1, 1993, between PSNC and Tennessee Gas Pipeline
             Company.  (File No. 0-1218, 10-K--1993, Exhibit 10-A-18).

*10-A-19  -  Firm Transportation Service Agreement under Rate Schedule FT-1,
             dated November 1, 1993, between PSNC and Texas Eastern
             Transmission Corporation.  (File No. 0-1218, 10-K--1993,
             Exhibit 10-A-19).

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Exhibit
Number

*10-A-20  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated November 1, 1993, between PSNC and Texas Gas Transmission
             Corporation.  (File No. 0-1218, 10-K--1993, Exhibit 10-A-20).

*10-A-21  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated October 1, 1993, between PSNC and Transcontinental Gas Pipe
             Line Corporation.  (File No. 0-1218, 10-K--1993, Exhibit 10-A-21).

*10-A-22  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated June 6, 1994, between PSNC and Transcontinental Gas Pipe
             Line Corporation.  (File No. 1-11429, 10-K--September 30, 1995,
             Exhibit 10-A-22).

*10-A-23  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated April 30, 1995, between PSNC and Transcontinental Gas Pipe
             Line Corporation.  (File No. 1-11429, 10-K--September 30, 1995,
             Exhibit 10-A-23).

*10-A-24  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated January 24, 1996, between PSNC and Transcontinental Gas
             Pipe Line Corporation.  (File No. 1-11429, 10-Q--June 30, 1996,
             Exhibit 10-A-24).

*10-A-25  -  General Storage Service Agreement under Rate Schedule GSS,
             dated October 17, 1995, between PSNC and CNG Transmission
             Corporation.  (File No. 1-11429, 10-Q--June 30, 1996,
             Exhibit 10-A-25).

*10-A-26  -  Firm Transportation Service Agreement under Rate Schedule FT-
             NN-GSS, dated October 17, 1995, between PSNC and CNG
             Transmission Corporation.  (File No. 1-11429, 10-Q--June 30,
             1996, Exhibit 10-A-26).

*10-A-27  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated  January 24, 1996, between PSNC and CNG Transmission
             Corporation.  (File No. 1-11429, 10-Q--June 30, 1996,
             Exhibit 10-A-27).

*10-A-28  -  Firm Transportation Service Agreement under Rate Schedule FT-
             NN, dated  October 17, 1995, between PSNC and CNG
             Transmission Corporation.  (File No. 1-11429, 10-Q--June 30,
             1996, Exhibit 10-A-28).


                                         74

<PAGE>



Exhibit
Number

*10-A-29  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated January 19, 1996, between PSNC and Texas Gas
             Transmission Corporation.  (File No. 1-11429, 10-Q--June 30,
             1996, Exhibit 10-A-29).

*10-A-30  -  Firm Transportation Service Agreement under Rate Schedule FT-1,
             dated October 30, 1995, between PSNC and Texas Eastern
             Transmission Corporation.  (File No. 1-11429, 10-Q--June 30,
             1996, Exhibit 10-A-30).

*10-A-31  -  Interruptible Transportation Service Agreement under Rate
             Schedule IT, dated January 23, 1996, between PSNC and
             Transcontinental Gas Pipe Line Corporation.  (File No. 1-11429,
             10-Q--June 30, 1996, Exhibit 10-A-31).

*10-A-32  -  Firm Transportation Agreement dated November 1, 1995, between
             PSNC and Transcontinental Gas Pipe Line Corporation.  (File No.
             1-11429, 10-Q--December 31, 1996, Exhibit 10-A-32).

*10-A-33  -  Amended and Restated Natural Gas Sales Agreement between PSNC
             and Transco Energy Marketing Company dated November 1, 1990.
             (File No. 1-11429, 10-Q--June 30, 1997, Exhibit 10-A-33).

*10-A-33.1 - Amendment of Amended and Restated Natural Gas Sales Agreement
             between PSNC and Transco Energy Marketing Company dated
             November 1, 1990.  (File No. 1-11429, 10-Q--June 30, 1997,
             Exhibit 10-A-33.1).

*10-A-33.2 - Amendment of Amended and Restated Natural Gas Sales Agreement
             between PSNC and Transco Energy Marketing Company dated
             November 1, 1990.  (File No. 1-11429, 10-Q--March 31, 1999,
             Exhibit 10-A-33.2).

*10-A-34  -  Firm Transportation Service Agreement under Rate Schedule FT,
             dated August 1, 1991, between PSNC and Transcontinental Gas Pipe
             Line Corporation.  (File No. 1-11429, 10-Q--June 30, 1997,
             Exhibit 10-A-34).

*10-A-35  -  Firm Storage Service Agreement under Rate Schedule FSS, dated
             November 7, 1995, between PSNC and Columbia Gas Transmission
             Corporation.  (File No. 1-11429, 10-Q--June 30, 1997,
             Exhibit 10-A-35).

*10-A-36  -  Storage Service Transportation Agreement under Rate Schedule SST,
             dated November 7, 1995, between PSNC and Columbia Gas
             Transmission Corporation.  (File No. 1-11429, 10-Q--June 30, 1997,
             Exhibit 10-A-36).

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<PAGE>



Exhibit
Number

*10-A-37   -  Interruptible Transportation Service Agreement under Rate Sche-
              dule ITS, dated March 31, 1997, between PSNC and Columbia Trans-
              mission Corporation.  (File No. 1-11429, 10-Q--June 30, 1997,
              Exhibit 10-A-37).

*10-A-38   -  Gas Sales Agreement (Southern Expansion) dated November 1, 1990
              between PSNC and Transco Energy Marketing Company.
              (File No.1-11429, 10-Q--June 30, 1997, Exhibit 10-A-38).

*10-A-39   -  Firm Transportation Service Agreement under Rate Schedule FT
              Service, dated June 26, 1998, between PSNC and Cardinal
              Extension Company, LLC.  (File No. 1-11429, 10-Q--March 31,
              1999, Exhibit 10-A-39).

*10-A-40   -  Firm Transportation Service Agreement under Rate Schedule FT
              Service, dated June 26, 1998, between PSNC and Cardinal
              Extension Company, LLC.  (File No. 1-11429, 10-Q--March 31,
              1999, Exhibit 10-A-40).

*10-A-41   -  Amendment to Firm Service Agreements (Exhibits 10-A-9, 10-A-10
              and 10-A-11) under Rate Schedule FT, dated August 1, 1991,
              between PSNC and Transcontinental Gas Pipe Line Corporation,
              dated August 1, 1991.  (File No. 1-11429, 10-Q--March 31, 1999,
              Exhibit 10-A-41).

*10-A-42   -  Storage Service Transportation Agreement under Rate Schedule
              SST, dated November 7, 1995, between PSNC and Columbia Gas
              Transmission Corporation.  (File No. 1-11429, 10-Q--June 30,
              1999, Exhibit 10-A-42).

*10-A-43   -  Firm Storage Service Agreement under Rate Schedule FSS, dated
              November 7, 1995, between PSNC and Columbia Gas Transmission
              Corporation.  (File No. 1-11429, 10-Q--June 30, 1999,
              Exhibit 10-A-43).

*10-A-44   -  Firm Storage Service Agreement under Rate Schedule FSS dated
              November 7, 1995, between PSNC and Columbia Gas Transmission
              Corporation.  (File No. 1-11429, 10-Q--June 30, 1999,
              Exhibit 10-A-44).

*10-A-45   -  Storage Service Transportation Agreement under Rate Schedule SST,
              dated November 7, 1995, between PSNC and Columbia Gas
              Transmission Corporation.  (File No. 1-11429, 10-Q--June 30,
              1999, Exhibit 10-A-45).

*10-B-4    -  Liquefied Natural Gas Storage Service Agreement under Rate Sche-
              dule LG-A, dated August 5, 1974, between PSNC and Trans-
              continental Gas Pipe Line Corporation. (Registration No. 2-53708,
              Exhibit 5.6).




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<PAGE>



Exhibit
Number

*10-B-4.1  -   Amendment dated May 16, 1996 to the Liquefied Natural Gas
               Storage Service Agreement under Rate Schedule LG-A, between PSNC
               and Transcontinental Gas Pipe Line Corporation.  (File No.
               1-11429, 10-K--1997, Exhibit 10-B-4.1).

*10-B-5    -   Eminence Storage Service Agreement under Rate Schedule ESS, dated
               November 1, 1993, and Amendment, dated December 1, 1993,
               between PSNC and Transcontinental Gas Pipe Line Corporation.
               (File No. 0-1218, 10-K--1993, Exhibit 10-B-5).

*10-B-6    -   Washington Storage Service Agreement under Rate Schedule WSS,
               dated August 1, 1991, between PSNC and Transcontinental Gas Pipe
               Line Corporation.  (File No. 0-1218, 10-Q--March 31, 1994,
               Exhibit 10-B-6).

*10-B-7    -   Amendment dated December 1, 1994 to the Eminence Storage Service
               Agreement under Rate Schedule ESS, between PSNC and
               Transcontinental Gas Pipe Line Corporation.  (File No. 1-11429,
               10-Q--December 31, 1996, Exhibit 10-B-7).

*10-B-8    -   General Storage Service Agreement under Rate Schedule GSS, dated
               July 1, 1996, between PSNC and Transcontinental Gas Pipe Line
               Corporation.  (File No. 1-11429, 10-Q--December 31, 1996,
               Exhibit 10-B-8).

*10-C-2    -   1992 Nonqualified Stock Option Plan.  (Registration No. 33-48909,
               Exhibit 4).

*10-C-3    -   1997 Nonqualified Stock Option Plan.  (Registration No.
               333-34845).

*10-D-3    -   Construction, Operating and Management Agreement by and between
               Public Service Company of North Carolina, Inc. and Cardinal
               Pipeline Company, LLC, dated March 23, 1994.  (File No. 0-1218,
               10-Q--March 31, 1994, Exhibit 10-D-3).

*10-D-4    -   Construction, Operation and Maintenance Agreement by and between
               Pine Needle Operating Company and Pine Needle LNG Company, LLC
               dated August 8, 1995. (File No. 1-11429, 10-Q--December 31, 1996,
               Exhibit 10-D-4).

*10-D-5    -   Operating Agreement of Pine Needle LNG Company, LLC dated August
               8, 1995.  (File No. 1-11429, 10-Q--December 31, 1996,
               Exhibit 10-D-5).

*10-D-5.1  -   Amendment to Operating Agreement of Pine Needle LNG Company, LLC
               dated October 1, 1995.  (File No. 1-11429, 10-Q--December 31,
               1996, Exhibit 10-D-5.1).

                                             77

<PAGE>



Exhibit
Number

*10-D-6    -   Service Agreement under Rate Schedule LNG-1 between Pine Needle
               LNG Company, LLC and Public Service Company of North Carolina,
               Inc. dated January 29, 1997.  (File No. 1-11429, 10-K--1997,
               Exhibit 10-D-6).

*10-D-7    -   Amended Operating Agreement of Cardinal Extension Company,
               LLC, dated December 19, 1996.  (File No. 1-11429,
               10-Q--December 31, 1997, Exhibit 10-D-7).

*10-D-8    -   Amended Construction, Operation and Maintenance Agreement by
               and between Cardinal Operating Company and Cardinal Extension
               Company, LLC, dated December 19, 1996.  (File No. 1-11429,
               10-Q--December 31, 1997, Exhibit 10-D-8).

*10-E      -   Underwriting Agreement, dated January 10, 1996, between PSNC
               and Morgan Stanley & Co. Incorporated.  (File No. 1-11429,
               10-Q--December 31, 1995, Exhibit 10-E).

*10-F      -   Form of Severance Agreement between the Company and its
               Executive Officers.  (File No. 1-11429, 10-Q--June 1997,
               Exhibit 10-F).

*19        -   Letter regarding change in method of accounting for the commodity
               cost of gas purchased and delivered to customers but not billed
               and recorded as revenue during the current period.
               (File No. 0-1218, 10-Q--March 31, 1981, Exhibit 19).

  21       -   Subsidiaries of Registrant.

  23       -   Consent of Independent Public Accountants. (Set forth on page 66
               of this annual report).

  27       -   Financial Data Schedule.




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<PAGE>




                                                                     EXHIBIT 21

          PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
                         SUBSIDIARIES OF REGISTRANT (1)



                  Clean Energy Enterprises, Inc.
                  PSNC Blue Ridge Corporation
                  PSNC Cardinal Pipeline Company
                  PSNC Production Corporation
                  Pine Needle LNG Company, LLC (2)
                  Sonat Public Service Company L.L.C. (3)
                  Cardinal Pipeline Company, LLC (4)


                  (1) The above  subsidiaries are incorporated or organized
                      in the State of North Carolina, with the exception of
                      Sonat  Public  Service  Company  L.L.C.,  which  is a
                      Delaware LLC.

                  (2) 17% ownership by PSNC Blue Ridge Corporation.

                  (3) 50% ownership by PSNC Production Corporation.

                  (4) 33.21% ownership by PSNC Cardinal Pipeline Company.

                                          79