UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017
☐ | 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 001-3375
Dominion Energy South Carolina, Inc.
Exact Name of Registrant as Specified in its Charter
South Carolina | 57-0248695 | |||
State or Other Jurisdiction of Incorporation or Organization | I.R.S. Employer Identification No. | |||
400 Otarre Parkway, Cayce, South Carolina | 29033 | |||
Address of Principal Executive Offices | Zip Code |
(803) 217-9000
Registrant’s Telephone Number, Including Area Code
Securities registered pursuant to Section 12(b) 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. SCANA Corporation Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). SCANA Corporation Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | Emerging growth company | ☐ | ||
Non-accelerated filer | ☒ | Smaller reporting company | |||||
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Dominion Energy South Carolina, Electric & Gas Company. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. South Carolina Electric & Gas Company makes no representation as to information relating to SCANA Corporation or its subsidiaries (other than South Carolina Electric & Gas Company and its consolidated affiliates).
Page | ||||||
3 | ||||||
Item 1. | 5 | |||||
Management's Discussion and Analysis of Financial Condition and Results of Operations | 32 | |||||
35 | ||||||
36 | ||||||
36 | ||||||
6. | 37 | |||||
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text have the meanings set forth below unless the context requires otherwise:
Abbreviation or Acronym | Definition | |
2015 Task Order | Retail services agreement between DESC and the DOE, which includes a potential FERC jurisdictional charge for operating and maintaining DOE transmission facilities at the Savannah River Site | |
2017 Tax Reform Act | An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (previously known as The Tax Cuts and Jobs Act) enacted on December 22, 2017 | |
ACE Rule | Affordable Clean Energy Rule | |
AOCI | Accumulated other comprehensive income (loss) | |
ARO | Asset retirement obligation | |
BLRA | ||
South Carolina Base Load Review Act | ||
CCR | Coal combustion residual | |
CEO | ||
Chief Executive Officer | ||
CFO | Chief Financial Officer | |
Consortium | ||
A consortium consisting of | ||
CSAPR | ||
Cross-State Air Pollution Rule | ||
CWA | ||
Clean Water Act | ||
DESC | The legal entity, Dominion Energy South Carolina, Inc. (formerly known as South Carolina Electric & Gas | |
DESS | Dominion Energy | |
DOE | U.S. Department of | |
Dominion Energy | The legal entity, Dominion Energy, Inc., one or more of its consolidated subsidiaries (other than SCANA and DESC) or operating segments, or the entirety of Dominion Energy, Inc. and its consolidated subsidiaries | |
DSM | Demand-side management | |
Electric Operations | Electric Operations Group operating segment | |
ELG Rule | Effluent limitations guidelines for the | |
EMANI | ||
European Mutual Association for Nuclear Insurance | ||
EPA | U.S. Environmental Protection Agency | |
Exchange Act | Securities Exchange Act of 1934, as amended | |
FERC | ||
Federal Energy Regulatory Commission | ||
FILOT | Fee in lieu of taxes | |
Fuel Company | South Carolina Fuel Company, Inc. | |
GAAP | U.S. generally accepted | |
Gas Distribution | Gas Distribution Group operating segment | |
GENCO | South Carolina Generating Company, Inc. | |
IAA | ||
Interim Assessment Agreement dated March 28, 2017, as amended, among | ||
MATS | ||
Utility Mercury and Air Toxics | ||
MD&A | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
MGP | Manufactured gas plant | |
MW | Megawatt | |
NEIL | ||
Nuclear Electric Insurance Limited | ||
NOX | Nitrogen oxide | |
NPDES | ||
National Pollutant Discharge Elimination System | ||
NND Project | V. C. Summer Units 2 and 3 nuclear development project under which SCANA and Santee Cooper undertook to construct two Westinghouse AP1000 Advanced Passive Safety nuclear units in Jenkinsville, South Carolina | |
Price-Anderson | Price-Anderson Nuclear Industries Indemnity Act |
Abbreviation or Acronym | Definition | |
Reorganization Plan | Modified Second Amended Joint Chapter 11 Plan of Reorganization, filed by Westinghouse | |
RICO | Racketeer Influenced and Corrupt Organizations Act | |
Santee Cooper | South Carolina Public Service Authority | |
SCANA | The legal entity, SCANA Corporation, one or more of its consolidated subsidiaries (other than DESC) or the | |
SCANA | Dominion Energy's acquisition of SCANA | |
SCANA | Agreement and plan of merger entered on January 2, 2018 between Dominion Energy and SCANA | |
SCANA Merger Approval Order | Final order issued by the South Carolina | |
SCDHEC | South Carolina | |
SCDOR | South Carolina Department of Revenue | |
SEC | U.S. Securities and Exchange Commission | |
SO2 | Sulfur dioxide | |
South Carolina Commission | Public Service Commission of South Carolina | |
Summer | ||
V. C. Summer | ||
Toshiba | ||
Toshiba Corporation, parent company of | ||
Toshiba Settlement | Settlement Agreement dated as of July 27, 2017, by and among Toshiba, | |
VIE | Variable interest entity | |
WECTEC | ||
WECTEC Global Project Services, Inc. (formerly known as Stone & Webster, Inc.), a wholly-owned subsidiary of | ||
Westinghouse | Westinghouse Electric Company LLC | |
Westinghouse Subcontractors | Subcontractors and suppliers to the Consortium |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Dominion Energy South Carolina, Inc.
Consolidated Balance Sheets
(Unaudited)
(millions) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Utility plant in service |
| $ | 13,056 |
|
| $ | 12,803 |
|
Accumulated depreciation and amortization |
|
| (4,799 | ) |
|
| (4,581 | ) |
Construction work in progress |
|
| 309 |
|
|
| 350 |
|
Nuclear fuel, net of accumulated amortization |
|
| 185 |
|
|
| 211 |
|
Utility plant, net ($683 and $711 related to VIEs) |
|
| 8,751 |
|
|
| 8,783 |
|
Nonutility Property and Investments: |
|
|
|
|
|
|
|
|
Nonutility property, net of accumulated depreciation |
|
| 71 |
|
|
| 72 |
|
Assets held in trust, net-nuclear decommissioning |
|
| 210 |
|
|
| 190 |
|
Other investments |
|
| — |
|
|
| 1 |
|
Nonutility property and investments, net |
|
| 281 |
|
|
| 263 |
|
Current Assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 11 |
|
|
| 377 |
|
Receivables: |
|
|
|
|
|
|
|
|
Customer, net of allowance for uncollectible accounts of $8 and $4 |
|
| 335 |
|
|
| 331 |
|
Affiliated and related party |
|
| 30 |
|
|
| 359 |
|
Other |
|
| 77 |
|
|
| 68 |
|
Inventories (at average cost): |
|
|
|
|
|
|
|
|
Fuel |
|
| 110 |
|
|
| 89 |
|
Materials and supplies |
|
| 164 |
|
|
| 158 |
|
Prepayments |
|
| 91 |
|
|
| 82 |
|
Regulatory assets |
|
| 322 |
|
|
| 224 |
|
Other current assets |
|
| 23 |
|
|
| 1 |
|
Total current assets ($134 and $96 related to VIEs) |
|
| 1,163 |
|
|
| 1,689 |
|
Deferred Debits and Other Assets: |
|
|
|
|
|
|
|
|
Regulatory assets |
|
| 3,970 |
|
|
| 4,060 |
|
Other |
|
| 155 |
|
|
| 168 |
|
Total deferred debits and other assets ($34 and $34 related to VIEs) |
|
| 4,125 |
|
|
| 4,228 |
|
Total assets |
| $ | 14,320 |
|
| $ | 14,963 |
|
Millions of dollars | September 30, 2017 | December 31, 2016 | ||||||
Assets | ||||||||
Utility Plant In Service | $ | 13,767 | $ | 13,444 | ||||
Accumulated Depreciation and Amortization | (4,559 | ) | (4,446 | ) | ||||
Construction Work in Progress | 768 | 4,845 | ||||||
Nuclear Fuel, Net of Accumulated Amortization | 249 | 271 | ||||||
Goodwill, net of writedown of $230 | 210 | 210 | ||||||
Utility Plant, Net | 10,435 | 14,324 | ||||||
Nonutility Property and Investments: | ||||||||
Nonutility property, net of accumulated depreciation of $135 and $138 | 272 | 276 | ||||||
Assets held in trust, net-nuclear decommissioning | 132 | 123 | ||||||
Other investments | 77 | 76 | ||||||
Nonutility Property and Investments, Net | 481 | 475 | ||||||
Current Assets: | ||||||||
Cash and cash equivalents | 1,011 | 208 | ||||||
Receivables: | ||||||||
Customer, net of allowance for uncollectible accounts of $5 and $6 | 545 | 616 | ||||||
Income taxes | 6 | 142 | ||||||
Other | 189 | 127 | ||||||
Inventories (at average cost): | ||||||||
Fuel and gas supply | 129 | 136 | ||||||
Materials and supplies | 159 | 155 | ||||||
Prepayments | 111 | 105 | ||||||
Other current assets | 14 | 17 | ||||||
Total Current Assets | 2,164 | 1,506 | ||||||
Deferred Debits and Other Assets: | ||||||||
Regulatory assets | 6,690 | 2,130 | ||||||
Other | 249 | 272 | ||||||
Total Deferred Debits and Other Assets | 6,939 | 2,402 | ||||||
Total | $ | 20,019 | $ | 18,707 |
See Notes to Condensed Consolidated Financial Statements.
Dominion Energy South Carolina, Inc.
Consolidated Balance Sheets—(Continued)
(Unaudited)
(millions) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||
CAPITALIZATION AND LIABILITIES |
|
|
|
|
|
|
|
|
Common Stock - no par value, 40.3 million shares outstanding |
| $ | 3,685 |
|
| $ | 2,860 |
|
Retained earnings |
|
| 214 |
|
|
| 1,279 |
|
Accumulated other comprehensive loss |
|
| (3 | ) |
|
| (3 | ) |
Total common equity |
|
| 3,896 |
|
|
| 4,136 |
|
Noncontrolling interest |
|
| 173 |
|
|
| 179 |
|
Total equity |
|
| 4,069 |
|
|
| 4,315 |
|
Affiliated long-term debt |
|
| 230 |
|
|
| — |
|
Long-term debt, net |
|
| 3,378 |
|
|
| 5,132 |
|
Total long-term debt |
|
| 3,608 |
|
|
| 5,132 |
|
Total capitalization |
|
| 7,677 |
|
|
| 9,447 |
|
Current Liabilities: |
|
|
|
|
|
|
|
|
Short-term borrowings |
|
| — |
|
|
| 73 |
|
Current portion of long-term debt |
|
| 7 |
|
|
| 14 |
|
Accounts payable |
|
| 151 |
|
|
| 267 |
|
Affiliated and related party payables |
|
| 795 |
|
|
| 347 |
|
Customer deposits and customer prepayments |
|
| 71 |
|
|
| 73 |
|
Revenue subject to refund |
|
| 3 |
|
|
| 77 |
|
Taxes accrued |
|
| 206 |
|
|
| 228 |
|
Interest accrued |
|
| 78 |
|
|
| 72 |
|
Regulatory liabilities |
|
| 308 |
|
|
| 126 |
|
Reserves for litigation and regulatory proceedings |
|
| 181 |
|
|
| 11 |
|
Other |
|
| 66 |
|
|
| 42 |
|
Total current liabilities |
|
| 1,866 |
|
|
| 1,330 |
|
Deferred Credits and Other Liabilities: |
|
|
|
|
|
|
|
|
Deferred income taxes, net |
|
| 605 |
|
|
| 989 |
|
Asset retirement obligations |
|
| 493 |
|
|
| 542 |
|
Pension and other postretirement benefits |
|
| 205 |
|
|
| 232 |
|
Regulatory liabilities |
|
| 3,241 |
|
|
| 2,264 |
|
Other |
|
| 218 |
|
|
| 143 |
|
Other affiliate |
|
| 15 |
|
|
| 16 |
|
Total deferred credits and other liabilities |
|
| 4,777 |
|
|
| 4,186 |
|
Commitments and Contingencies (see Note 11) |
|
|
|
|
|
|
|
|
Total capitalization and liabilities |
| $ | 14,320 |
|
| $ | 14,963 |
|
Millions of dollars | September 30, 2017 | December 31, 2016 | ||||||
Capitalization and Liabilities | ||||||||
Common Stock - no par value, 143 million shares outstanding | $ | 2,389 | $ | 2,390 | ||||
Retained Earnings | 3,447 | 3,384 | ||||||
Accumulated Other Comprehensive Loss | (49 | ) | (49 | ) | ||||
Total Common Equity | 5,787 | 5,725 | ||||||
Long-Term Debt, net | 6,455 | 6,473 | ||||||
Total Capitalization | 12,242 | 12,198 | ||||||
Current Liabilities: | ||||||||
Short-term borrowings | 1,022 | 941 | ||||||
Current portion of long-term debt | 177 | 17 | ||||||
Accounts payable | 266 | 404 | ||||||
Customer deposits and customer prepayments | 116 | 168 | ||||||
Taxes accrued | 526 | 201 | ||||||
Interest accrued | 97 | 84 | ||||||
Dividends declared | 85 | 80 | ||||||
Derivative financial instruments | 45 | 35 | ||||||
Other | 117 | 135 | ||||||
Total Current Liabilities | 2,451 | 2,065 | ||||||
Deferred Credits and Other Liabilities: | ||||||||
Deferred income taxes, net | 1,767 | 2,159 | ||||||
Asset retirement obligations | 569 | 558 | ||||||
Pension and other postretirement benefits | 373 | 373 | ||||||
Unrecognized tax benefits | 402 | 219 | ||||||
Regulatory liabilities | 2,015 | 930 | ||||||
Other | 200 | 205 | ||||||
Total Deferred Credits and Other Liabilities | 5,326 | 4,444 | ||||||
Commitments and Contingencies (Note 9) | ||||||||
Total | $ | 20,019 | $ | 18,707 |
See Notes to Condensed Consolidated Financial Statements.
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Millions of dollars, except per share amounts | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating Revenues: | ||||||||||||||||
Electric | $ | 786 | $ | 817 | $ | 2,042 | $ | 2,035 | ||||||||
Gas - regulated | 123 | 111 | 584 | 538 | ||||||||||||
Gas - nonregulated | 167 | 165 | 623 | 598 | ||||||||||||
Total Operating Revenues | 1,076 | 1,093 | 3,249 | 3,171 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Fuel used in electric generation | 167 | 176 | 464 | 443 | ||||||||||||
Purchased power | 22 | 21 | 54 | 50 | ||||||||||||
Gas purchased for resale | 211 | 202 | 808 | 752 | ||||||||||||
Other operation and maintenance | 183 | 187 | 543 | 558 | ||||||||||||
Impairment loss | 210 | — | 210 | — | ||||||||||||
Depreciation and amortization | 96 | 93 | 285 | 276 | ||||||||||||
Other taxes | 67 | 66 | 200 | 192 | ||||||||||||
Total Operating Expenses | 956 | 745 | 2,564 | 2,271 | ||||||||||||
Operating Income | 120 | 348 | 685 | 900 | ||||||||||||
Other Income (Expense): | ||||||||||||||||
Other income | 28 | 15 | 61 | 46 | ||||||||||||
Other expense | (7 | ) | (7 | ) | (25 | ) | (31 | ) | ||||||||
Interest charges, net of allowance for borrowed funds used during construction of $2, $5, $16 and $14 | (95 | ) | (88 | ) | (270 | ) | (255 | ) | ||||||||
Allowance for equity funds used during construction | — | 7 | 17 | 22 | ||||||||||||
Total Other Expense | (74 | ) | (73 | ) | (217 | ) | (218 | ) | ||||||||
Income Before Income Tax Expense | 46 | 275 | 468 | 682 | ||||||||||||
Income Tax Expense | 12 | 86 | 142 | 211 | ||||||||||||
Net Income | $ | 34 | $ | 189 | $ | 326 | $ | 471 | ||||||||
Earnings Per Share of Common Stock | $ | 0.24 | $ | 1.32 | $ | 2.28 | $ | 3.29 | ||||||||
Weighted Average Common Shares Outstanding (millions) | 143 | 143 | 143 | 143 | ||||||||||||
Dividends Declared Per Share of Common Stock | $ | 0.6125 | $ | 0.5750 | $ | 1.8375 | $ | 1.7250 |
Dominion Energy South Carolina, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Operating Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric(1) |
| $ | 728 |
|
| $ | 670 |
|
| $ | 869 |
|
| $ | 1,770 |
|
Gas |
|
| 67 |
|
|
| 69 |
|
|
| 289 |
|
|
| 304 |
|
Total operating revenues |
|
| 795 |
|
|
| 739 |
|
|
| 1,158 |
|
|
| 2,074 |
|
Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel used in electric generation(1) |
|
| 167 |
|
|
| 188 |
|
|
| 447 |
|
|
| 503 |
|
Purchased power(1) |
|
| 15 |
|
|
| 10 |
|
|
| 35 |
|
|
| 77 |
|
Gas purchased for resale(1) |
|
| 37 |
|
|
| 41 |
|
|
| 158 |
|
|
| 161 |
|
Other operations and maintenance |
|
| 90 |
|
|
| 105 |
|
|
| 309 |
|
|
| 320 |
|
Other operations and maintenance - affiliated suppliers |
|
| 54 |
|
|
| 39 |
|
|
| 174 |
|
|
| 135 |
|
Impairment of assets and other charges |
|
| — |
|
|
| — |
|
|
| 371 |
|
|
| 4 |
|
Depreciation and amortization |
|
| 116 |
|
|
| 81 |
|
|
| 333 |
|
|
| 242 |
|
Other taxes(1) |
|
| 55 |
|
|
| 63 |
|
|
| 196 |
|
|
| 192 |
|
Total operating expenses |
|
| 534 |
|
|
| 527 |
|
|
| 2,023 |
|
|
| 1,634 |
|
Operating income (loss) |
|
| 261 |
|
|
| 212 |
|
|
| (865 | ) |
|
| 440 |
|
Other income (expense), net |
|
| (13 | ) |
|
| (1 | ) |
|
| (27 | ) |
|
| 124 |
|
Interest charges, net of allowance for borrowed funds used during construction of $2, $2, $4 and $7(1) |
|
| 66 |
|
|
| 79 |
|
|
| 202 |
|
|
| 232 |
|
Income (loss) before income tax expense (benefit) |
|
| 182 |
|
|
| 132 |
|
|
| (1,094 | ) |
|
| 332 |
|
Income tax expense (benefit) |
|
| 40 |
|
|
| 29 |
|
|
| (63 | ) |
|
| 70 |
|
Net Income (Loss) |
|
| 142 |
|
|
| 103 |
|
|
| (1,031 | ) |
|
| 262 |
|
Other Comprehensive Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred cost of employee benefit plans, net of tax of $-, $-, $-, $- |
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
Total Comprehensive Income (Loss) |
|
| 143 |
|
|
| 104 |
|
|
| (1,030 | ) |
|
| 263 |
|
Comprehensive Income Attributable to Noncontrolling Interest |
|
| — |
|
|
| 6 |
|
|
| 14 |
|
|
| 15 |
|
Comprehensive Income (Loss) Available (Attributable) to Common Shareholder |
| $ | 143 |
|
| $ | 98 |
|
| $ | (1,044 | ) |
| $ | 248 |
|
(1) | See Note 14 for amounts attributable to affiliates. |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Net Income | $ | 34 | $ | 189 | $ | 326 | $ | 471 | ||||||||
Other Comprehensive Income (Loss), net of tax: | ||||||||||||||||
Unrealized Gains (Losses) on Cash Flow Hedging Activities: | ||||||||||||||||
Arising during period, net of tax of $-, $-, $(3) and $(3) | — | (1 | ) | (5 | ) | (4 | ) | |||||||||
Reclassified as increases to interest expense, net of tax of $1, $1, $3 and $3 | 2 | 2 | 6 | 6 | ||||||||||||
Reclassified as increases (decreases) to gas purchased for resale, net of tax of $-, $ -, $(1) and $3 | — | — | (2 | ) | 6 | |||||||||||
Net unrealized gains (losses) on cash flow hedging activities | 2 | 1 | (1 | ) | 8 | |||||||||||
Deferred cost of employee benefit plans, net of tax of $-, $-, $- and $- | 1 | — | 1 | — | ||||||||||||
Other Comprehensive Income | 3 | 1 | — | 8 | ||||||||||||
Total Comprehensive Income | $ | 37 | $ | 190 | $ | 326 | $ | 479 |
See Notes to Condensed Consolidated Financial Statements.
Dominion Energy South Carolina, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
|
| Nine Months Ended September 30, |
| |||||
(millions) |
| 2019 |
|
| 2018 |
| ||
Operating Activities |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | (1,031 | ) |
| $ | 262 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Impairment of assets and other charges |
|
| 256 |
|
|
| 4 |
|
Provision for refunds to customers |
|
| 923 |
|
|
| — |
|
Gain on sale of assets |
|
| (7 | ) |
|
| — |
|
Deferred income taxes, net |
|
| (384 | ) |
|
| 93 |
|
Depreciation and amortization |
|
| 341 |
|
|
| 259 |
|
Amortization of nuclear fuel |
|
| 41 |
|
|
| 41 |
|
Other adjustments |
|
| (5 | ) |
|
| (11 | ) |
Changes in certain assets and liabilities: |
|
|
|
|
|
|
|
|
Receivables |
|
| (9 | ) |
|
| 49 |
|
Receivables - affiliated and related party |
|
| (7 | ) |
|
| (4 | ) |
Income tax receivable |
|
| — |
|
|
| 198 |
|
Inventories |
|
| (66 | ) |
|
| (15 | ) |
Prepayments |
|
| (9 | ) |
|
| (13 | ) |
Regulatory assets |
|
| (109 | ) |
|
| 2 |
|
Regulatory liabilities |
|
| 223 |
|
|
| (102 | ) |
Accounts payable |
|
| (68 | ) |
|
| (10 | ) |
Accounts payable - affiliated and related party |
|
| 7 |
|
|
| — |
|
Revenue subject to refund |
|
| (74 | ) |
|
| 61 |
|
Taxes accrued |
|
| (22 | ) |
|
| (39 | ) |
Other assets |
|
| 124 |
|
|
| (44 | ) |
Other liabilities |
|
| 40 |
|
|
| 38 |
|
Net cash provided by operating activities |
|
| 164 |
|
|
| 769 |
|
Investing Activities |
|
|
|
|
|
|
|
|
Property additions and construction expenditures |
|
| (340 | ) |
|
| (538 | ) |
Proceeds from investments and sales of assets |
|
| 33 |
|
|
| 35 |
|
Purchase of investments |
|
| (42 | ) |
|
| (21 | ) |
Purchase of investments - affiliate |
|
| — |
|
|
| (113 | ) |
Proceeds from interest rate derivative contract settlement |
|
| — |
|
|
| 115 |
|
Investment in affiliate, net |
|
| 336 |
|
|
| (108 | ) |
Net cash used in investing activities |
|
| (13 | ) |
|
| (630 | ) |
Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of debt |
|
| — |
|
|
| 795 |
|
Proceeds from issuance of affiliated debt |
|
| 230 |
|
|
| — |
|
Repayment of long-term debt, including redemption premiums |
|
| (1,890 | ) |
|
| (824 | ) |
Dividend to parent |
|
| (30 | ) |
|
| (164 | ) |
Contribution from parent |
|
| 825 |
|
|
| 20 |
|
Contribution returned to parent |
|
| (20 | ) |
|
| — |
|
Money pool borrowings, net |
|
| 441 |
|
|
| 157 |
|
Short-term borrowings, net |
|
| (73 | ) |
|
| (79 | ) |
Net cash used in financing activities |
|
| (517 | ) |
|
| (95 | ) |
Net increase (decrease) in cash, restricted cash and equivalents |
|
| (366 | ) |
|
| 44 |
|
Cash, restricted cash and equivalents at beginning of period(1) |
|
| 377 |
|
|
| 395 |
|
Cash, restricted cash and equivalents at end of period(1) |
| $ | 11 |
|
| $ | 439 |
|
Supplemental Cash Flow Information |
|
|
|
|
|
|
|
|
Noncash investing and financing activities:(2) |
|
|
|
|
|
|
|
|
Accrued construction expenditures |
| $ | 47 |
|
| $ | 25 |
|
Leases(3) |
|
| 7 |
|
|
| 7 |
|
(1) | At September 30, 2019, September 30, 2018, December 31, 2018 and December 31, 2017 there were 0 restricted cash and equivalent balances. |
(2) | See Note 1 for noncash investing and financing activities related to the adoption of a new accounting standard for leasing arrangements. |
Nine Months Ended September 30, | ||||||||
Millions of dollars | 2017 | 2016 | ||||||
Cash Flows From Operating Activities: | ||||||||
Net income | $ | 326 | $ | 471 | ||||
Adjustments to reconcile net income to net cash provided from operating activities: | ||||||||
Impairment loss | 210 | — | ||||||
Deferred income taxes, net | (395 | ) | 151 | |||||
Depreciation and amortization | 302 | 289 | ||||||
Amortization of nuclear fuel | 31 | 42 | ||||||
Allowance for equity funds used during construction | (17 | ) | (22 | ) | ||||
Carrying cost recovery | (27 | ) | (12 | ) | ||||
Changes in certain assets and liabilities: | ||||||||
Receivables | 79 | (8 | ) | |||||
Income taxes receivable | 136 | (306 | ) | |||||
Inventories | (58 | ) | (21 | ) | ||||
Prepayments | (6 | ) | (2 | ) | ||||
Regulatory assets | (48 | ) | (14 | ) | ||||
Regulatory liabilities | (3 | ) | 2 | |||||
Accounts payable | (22 | ) | (36 | ) | ||||
Unrecognized tax benefits | 183 | 210 | ||||||
Taxes accrued | 325 | (84 | ) | |||||
Derivative financial instruments | (3 | ) | (9 | ) | ||||
Other assets | (37 | ) | (58 | ) | ||||
Other liabilities | (49 | ) | 86 | |||||
Net Cash Provided From Operating Activities | 927 | 679 | ||||||
Cash Flows From Investing Activities: | ||||||||
Property additions and construction expenditures | (1,095 | ) | (1,178 | ) | ||||
Proceeds from monetization of guaranty settlement | 1,013 | — | ||||||
Proceeds from investments (including derivative collateral returned) | 116 | 629 | ||||||
Purchase of investments (including derivative collateral posted) | (115 | ) | (743 | ) | ||||
Payments upon interest rate derivative contract settlements | — | (88 | ) | |||||
Net Cash Used For Investing Activities | (81 | ) | (1,380 | ) | ||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from issuance of long-term debt | 150 | 592 | ||||||
Repayment of long-term debt | (16 | ) | (15 | ) | ||||
Dividends | (258 | ) | (243 | ) | ||||
Short-term borrowings, net | 81 | 247 | ||||||
Net Cash (Used For) Provided From Financing Activities | (43 | ) | 581 | |||||
Net Increase (Decrease) In Cash and Cash Equivalents | 803 | (120 | ) | |||||
Cash and Cash Equivalents, January 1 | 208 | 176 | ||||||
Cash and Cash Equivalents, September 30 | $ | 1,011 | $ | 56 | ||||
Supplemental Cash Flow Information: | ||||||||
Cash for–Interest paid (net of capitalized interest of $16 and $14) | $ | 247 | $ | 235 | ||||
–Income taxes paid | 1 | 229 | ||||||
–Income taxes received | 123 | — | ||||||
Noncash Investing and Financing Activities: | ||||||||
Accrued construction expenditures | 44 | 80 | ||||||
Capital leases | 6 | 12 | ||||||
Guaranty settlement receivable | 83 | — |
(3) Includes $3 million of financing leases and $4 million of operating leases for the nine months ended September 30, 2019 and $7 million of capital leases for the nine months ended September 30, 2018.
See Combined Notes to Condensed Consolidated Financial Statements.
Dominion Energy South Carolina, Inc.
Consolidated Statements of Changes in Common Equity
(Unaudited)
Quarter-To-Date
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(millions) |
| Shares |
|
| Amount |
|
| Retained Earnings |
|
| AOCI |
|
| Noncontrolling Interest |
|
| Total Equity |
| ||||||
June 30, 2018 |
|
| 40 |
|
| $ | 2,860 |
|
| $ | 2,060 |
|
| $ | (4 | ) |
| $ | 169 |
|
| $ | 5,085 |
|
Total comprehensive income available to common shareholder |
|
|
|
|
|
|
|
|
|
| 97 |
|
|
| 1 |
|
|
| 6 |
|
|
| 104 |
|
Dividend to parent |
|
|
|
|
|
|
|
|
|
| (11 | ) |
|
|
|
|
|
| (6 | ) |
|
| (17 | ) |
September 30, 2018 |
|
| 40 |
|
| $ | 2,860 |
|
| $ | 2,146 |
|
| $ | (3 | ) |
| $ | 169 |
|
| $ | 5,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019 |
|
| 40 |
|
| $ | 3,635 |
|
| $ | 72 |
|
| $ | (4 | ) |
| $ | 173 |
|
| $ | 3,876 |
|
Total comprehensive income available to common shareholder |
|
|
|
|
|
|
|
|
|
| 142 |
|
|
| 1 |
|
|
|
|
|
|
| 143 |
|
Capital contribution from parent |
|
|
|
|
|
| 50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 50 |
|
September 30, 2019 |
|
| 40 |
|
| $ | 3,685 |
|
| $ | 214 |
|
| $ | (3 | ) |
| $ | 173 |
|
| $ | 4,069 |
|
Year-To-Date
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(millions) |
| Shares |
|
| Amount |
|
| Retained Earnings |
|
| AOCI |
|
| Noncontrolling Interest |
|
| Total Equity |
| ||||||
December 31, 2017 |
|
| 40 |
|
| $ | 2,860 |
|
| $ | 1,982 |
|
| $ | (4 | ) |
| $ | 142 |
|
| $ | 4,980 |
|
Total comprehensive income available to common shareholder |
|
|
|
|
|
|
|
|
|
| 247 |
|
|
| 1 |
|
|
| 15 |
|
|
| 263 |
|
Capital contribution from parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 20 |
|
|
| 20 |
|
Dividend to parent |
|
|
|
|
|
|
|
|
|
| (83 | ) |
|
|
|
|
|
| (8 | ) |
|
| (91 | ) |
September 30, 2018 |
|
| 40 |
|
| $ | 2,860 |
|
| $ | 2,146 |
|
| $ | (3 | ) |
| $ | 169 |
|
| $ | 5,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018 |
|
| 40 |
|
| $ | 2,860 |
|
| $ | 1,279 |
|
| $ | (3 | ) |
| $ | 179 |
|
| $ | 4,315 |
|
Cumulative-effect of change in accounting principle |
|
|
|
|
|
|
|
|
|
| 1 |
|
|
| (1 | ) |
|
|
|
|
|
| — |
|
Total comprehensive income (loss) available (attributable) to common shareholder |
|
|
|
|
|
|
|
|
|
| (1,045 | ) |
|
| 1 |
|
|
| 14 |
|
|
| (1,030 | ) |
Capital contribution from parent |
|
|
|
|
|
| 825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 825 |
|
Capital contribution returned to parent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
| (20 | ) |
Dividend to parent |
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
|
|
|
|
| (20 | ) |
Other |
|
|
|
|
|
|
|
|
|
| (1 | ) |
|
|
|
|
|
|
|
|
|
| (1 | ) |
September 30, 2019 |
|
| 40 |
|
| $ | 3,685 |
|
| $ | 214 |
|
| $ | (3 | ) |
| $ | 173 |
|
| $ | 4,069 |
|
Common Stock | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||||||
Millions | Shares | Outstanding Amount | Treasury Amount | Retained Earnings | Gains (Losses) from Cash Flow Hedges | Deferred Employee Benefit Plans | Total AOCI | Total | ||||||||||||||||||||||
Balance as of January 1, 2017 | 143 | $ | 2,402 | $ | (12 | ) | $ | 3,384 | $ | (36 | ) | $ | (13 | ) | $ | (49 | ) | $ | 5,725 | |||||||||||
Net Income | 326 | 326 | ||||||||||||||||||||||||||||
Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||
Losses arising during the period | (5 | ) | — | (5 | ) | (5 | ) | |||||||||||||||||||||||
Losses/amortization reclassified from AOCI | 4 | 1 | 5 | 5 | ||||||||||||||||||||||||||
Total Comprehensive Income | 326 | (1 | ) | 1 | — | 326 | ||||||||||||||||||||||||
Purchase of Treasury Stock | — | — | (1 | ) | (1 | ) | ||||||||||||||||||||||||
Dividends Declared | (263 | ) | (263 | ) | ||||||||||||||||||||||||||
Balance as of September 30, 2017 | 143 | $ | 2,402 | $ | (13 | ) | $ | 3,447 | $ | (37 | ) | $ | (12 | ) | $ | (49 | ) | $ | 5,787 | |||||||||||
Balance as of January 1, 2016 | 143 | $ | 2,402 | $ | (12 | ) | $ | 3,118 | $ | (53 | ) | $ | (12 | ) | $ | (65 | ) | $ | 5,443 | |||||||||||
Net Income | 471 | 471 | ||||||||||||||||||||||||||||
Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||||
Losses arising during the period | (4 | ) | — | (4 | ) | (4 | ) | |||||||||||||||||||||||
Losses/amortization reclassified from AOCI | 12 | — | 12 | 12 | ||||||||||||||||||||||||||
Total Comprehensive Income | 471 | 8 | — | 8 | 479 | |||||||||||||||||||||||||
Dividends Declared | (247 | ) | (247 | ) | ||||||||||||||||||||||||||
Balance as of September 30, 2016 | 143 | $ | 2,402 | $ | (12 | ) | $ | 3,342 | $ | (45 | ) | $ | (12 | ) | $ | (57 | ) | $ | 5,675 |
See Notes to Condensed Consolidated Financial Statements.
Dominion Energy South Carolina, Electric & Gas Company and Affiliates
Millions of dollars | September 30, 2017 | December 31, 2016 | ||||||
Assets | ||||||||
Utility Plant In Service | $ | 11,783 | $ | 11,510 | ||||
Accumulated Depreciation and Amortization | (4,078 | ) | (3,991 | ) | ||||
Construction Work in Progress | 554 | 4,813 | ||||||
Nuclear Fuel, Net of Accumulated Amortization | 249 | 271 | ||||||
Utility Plant, Net ($740 and $756 related to VIEs) | 8,508 | 12,603 | ||||||
Nonutility Property and Investments: | ||||||||
Nonutility property, net of accumulated depreciation | 71 | 69 | ||||||
Assets held in trust, net-nuclear decommissioning | 132 | 123 | ||||||
Other investments | 2 | 3 | ||||||
Nonutility Property and Investments, Net | 205 | 195 | ||||||
Current Assets: | ||||||||
Cash and cash equivalents | 1,015 | 164 | ||||||
Receivables: | ||||||||
Customer, net of allowance for uncollectible accounts of $4 and $3 | 401 | 378 | ||||||
Affiliated companies | 8 | 16 | ||||||
Income taxes | — | 53 | ||||||
Other | 168 | 94 | ||||||
Inventories (at average cost): | ||||||||
Fuel | 78 | 83 | ||||||
Materials and supplies | 148 | 143 | ||||||
Prepayments | 98 | 88 | ||||||
Other current assets | 1 | 1 | ||||||
Total Current Assets ($57 and $85 related to VIEs) | 1,917 | 1,020 | ||||||
Deferred Debits and Other Assets: | ||||||||
Regulatory assets | 6,582 | 2,030 | ||||||
Other | 221 | 243 | ||||||
Total Deferred Debits and Other Assets ($49 and $52 related to VIEs) | 6,803 | 2,273 | ||||||
Total | $ | 17,433 | $ | 16,091 |
Notes to Condensed Consolidated Financial Statements.
Millions of dollars | September 30, 2017 | December 31, 2016 | ||||||
Capitalization and Liabilities | ||||||||
Common Stock - no par value, 40.3 million shares outstanding | $ | 2,860 | $ | 2,860 | ||||
Retained Earnings | 2,518 | 2,481 | ||||||
Accumulated Other Comprehensive Loss | (3 | ) | (3 | ) | ||||
Total Common Equity | 5,375 | 5,338 | ||||||
Noncontrolling Interest | 137 | 134 | ||||||
Total Equity | 5,512 | 5,472 | ||||||
Long-Term Debt, net | 4,990 | 5,154 | ||||||
Total Capitalization | 10,502 | 10,626 | ||||||
Current Liabilities: | ||||||||
Short-term borrowings | 945 | 804 | ||||||
Current portion of long-term debt | 173 | 12 | ||||||
Accounts payable | 154 | 247 | ||||||
Affiliated payables | 96 | 122 | ||||||
Customer deposits and customer prepayments | 74 | 126 | ||||||
Taxes accrued | 663 | 195 | ||||||
Interest accrued | 71 | 68 | ||||||
Dividends declared | 81 | 79 | ||||||
Derivative financial instruments | 41 | 28 | ||||||
Other | 69 | 55 | ||||||
Total Current Liabilities | 2,367 | 1,736 | ||||||
Deferred Credits and Other Liabilities: | ||||||||
Deferred income taxes, net | 1,505 | 1,939 | ||||||
Asset retirement obligations | 533 | 522 | ||||||
Pension and other postretirement benefits | 231 | 232 | ||||||
Unrecognized tax benefits | 402 | 236 | ||||||
Regulatory liabilities | 1,779 | 695 | ||||||
Other | 99 | 89 | ||||||
Other affiliate | 15 | 16 | ||||||
Total Deferred Credits and Other Liabilities | 4,564 | 3,729 | ||||||
Commitments and Contingencies (Note 9) | ||||||||
Total | $ | 17,433 | $ | 16,091 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating Revenues: | ||||||||||||||||
Electric | $ | 786 | $ | 817 | $ | 2,042 | $ | 2,035 | ||||||||
Electric - nonconsolidated affiliate | 1 | 1 | 4 | 4 | ||||||||||||
Gas | 69 | 64 | 284 | 252 | ||||||||||||
Gas - nonconsolidated affiliate | — | — | 1 | 1 | ||||||||||||
Total Operating Revenues | 856 | 882 | 2,331 | 2,292 | ||||||||||||
Operating Expenses: | ||||||||||||||||
Fuel used in electric generation | 132 | 141 | 370 | 368 | ||||||||||||
Fuel used in electric generation - nonconsolidated affiliate | 35 | 35 | 94 | 75 | ||||||||||||
Purchased power | 22 | 21 | 54 | 50 | ||||||||||||
Gas purchased for resale | 39 | 36 | 147 | 117 | ||||||||||||
Gas purchased for resale - nonconsolidated affiliate | — | — | — | 9 | ||||||||||||
Other operation and maintenance | 109 | 101 | 305 | 298 | ||||||||||||
Other operation and maintenance - nonconsolidated affiliate | 45 | 51 | 141 | 156 | ||||||||||||
Impairment loss | 210 | — | 210 | — | ||||||||||||
Depreciation and amortization | 78 | 76 | 232 | 225 | ||||||||||||
Other taxes | 62 | 61 | 183 | 173 | ||||||||||||
Other taxes - nonconsolidated affiliate | 1 | 1 | 4 | 5 | ||||||||||||
Total Operating Expenses | 733 | 523 | 1,740 | 1,476 | ||||||||||||
Operating Income | 123 | 359 | 591 | 816 | ||||||||||||
Other Income (Expense): | ||||||||||||||||
Other income | 21 | 7 | 36 | 20 | ||||||||||||
Other expense | (6 | ) | (4 | ) | (17 | ) | (19 | ) | ||||||||
Interest charges, net of allowance for borrowed funds used during construction of $2, $5, $15 and $13 | (76 | ) | (70 | ) | (214 | ) | (201 | ) | ||||||||
Allowance for equity funds used during construction | (3 | ) | 6 | 13 | 19 | |||||||||||
Total Other Income (Expense) | (64 | ) | (61 | ) | (182 | ) | (181 | ) | ||||||||
Income Before Income Tax Expense | 59 | 298 | 409 | 635 | ||||||||||||
Income Tax Expense | 17 | 94 | 129 | 202 | ||||||||||||
Net Income and Total Comprehensive Income | 42 | 204 | 280 | 433 | ||||||||||||
Less Net Income and Total Comprehensive Income Attributable to Noncontrolling Interest | (3 | ) | (3 | ) | (10 | ) | (10 | ) | ||||||||
Earnings and Comprehensive Income Available to Common Shareholder | $ | 39 | $ | 201 | $ | 270 | $ | 423 | ||||||||
Dividends Declared on Common Stock | $ | 81 | $ | 76 | $ | 240 | $ | 225 |
Nine Months Ended September 30, | ||||||||
Millions of dollars | 2017 | 2016 | ||||||
Cash Flows From Operating Activities: | ||||||||
Net income | $ | 280 | $ | 433 | ||||
Adjustments to reconcile net income to net cash provided from operating activities: | ||||||||
Impairment loss | 210 | — | ||||||
Deferred income taxes, net | (434 | ) | 127 | |||||
Depreciation and amortization | 238 | 229 | ||||||
Amortization of nuclear fuel | 31 | 42 | ||||||
Allowance for equity funds used during construction | (13 | ) | (19 | ) | ||||
Carrying cost recovery | (27 | ) | (12 | ) | ||||
Changes in certain assets and liabilities: | ||||||||
Receivables | (27 | ) | (70 | ) | ||||
Receivables - affiliate | 8 | 9 | ||||||
Income tax receivable | 53 | (206 | ) | |||||
Inventories | (34 | ) | (14 | ) | ||||
Prepayments | (10 | ) | (15 | ) | ||||
Regulatory assets | (40 | ) | (6 | ) | ||||
Regulatory liabilities | (1 | ) | (3 | ) | ||||
Accounts payable | 31 | (13 | ) | |||||
Accounts payable - affiliate | (28 | ) | (13 | ) | ||||
Taxes accrued | 468 | (151 | ) | |||||
Unrecognized tax benefit | 166 | 210 | ||||||
Other assets | (29 | ) | (117 | ) | ||||
Other liabilities | (14 | ) | 64 | |||||
Net Cash Provided From Operating Activities | 828 | 475 | ||||||
Cash Flows From Investing Activities: | ||||||||
Property additions and construction expenditures | (882 | ) | (1,024 | ) | ||||
Proceeds from monetization of guaranty settlement | 1,013 | — | ||||||
Proceeds from investments (including derivative collateral returned) | 96 | 577 | ||||||
Purchase of investments (including derivative collateral posted) | (98 | ) | (699 | ) | ||||
Payments upon interest rate derivative contract settlements | — | (88 | ) | |||||
Proceeds from money pool investments | — | 9 | ||||||
Net Cash Provided From (Used For) Investing Activities | 129 | (1,225 | ) | |||||
Cash Flows From Financing Activities: | ||||||||
Proceeds from issuance of debt | — | 494 | ||||||
Repayment of long-term debt | (11 | ) | (10 | ) | ||||
Dividends | (238 | ) | (224 | ) | ||||
Contributions from parent | — | 100 | ||||||
Money pool borrowings, net | 2 | (5 | ) | |||||
Short-term borrowings, net | 141 | 294 | ||||||
Net Cash Provided From (Used For) Financing Activities | (106 | ) | 649 | |||||
Net Decrease In Cash and Cash Equivalents | 851 | (101 | ) | |||||
Cash and Cash Equivalents, January 1 | 164 | 130 | ||||||
Cash and Cash Equivalents, September 30 | $ | 1,015 | $ | 29 | ||||
Supplemental Cash Flow Information: | ||||||||
Cash for–Interest (net of capitalized interest of $15 and $13) | $ | 195 | $ | 182 | ||||
– Income taxes paid | 3 | 286 | ||||||
– Income taxes received | 143 | 9 | ||||||
Noncash Investing and Financing Activities: | ||||||||
Accrued construction expenditures | 21 | 71 | ||||||
Capital leases | 6 | 12 | ||||||
Guaranty settlement receivable | 83 | — |
(Unaudited)
Common Stock | |||||||||||||||||||||||
Millions | Shares | Amount | Retained Earnings | AOCI | Noncontrolling Interest | Total Equity | |||||||||||||||||
Balance at January 1, 2017 | 40 | $ | 2,860 | $ | 2,481 | $ | (3 | ) | $ | 134 | $ | 5,472 | |||||||||||
Earnings available to common shareholder | 270 | 10 | 280 | ||||||||||||||||||||
Total Comprehensive Income | 270 | — | 10 | 280 | |||||||||||||||||||
Cash dividend declared | (233 | ) | (7 | ) | (240 | ) | |||||||||||||||||
Balance at September 30, 2017 | 40 | $ | 2,860 | $ | 2,518 | $ | (3 | ) | $ | 137 | $ | 5,512 | |||||||||||
Balance at January 1, 2016 | 40 | $ | 2,760 | $ | 2,265 | $ | (3 | ) | $ | 129 | $ | 5,151 | |||||||||||
Earnings available to common shareholder | 423 | 10 | 433 | ||||||||||||||||||||
Total Comprehensive Income | 423 | — | 10 | 433 | |||||||||||||||||||
Capital Contributions from parent | 100 | 100 | |||||||||||||||||||||
Cash dividend declared | (219 | ) | (6 | ) | (225 | ) | |||||||||||||||||
Balance at September 30, 2016 | 40 | $ | 2,860 | $ | 2,469 | $ | (3 | ) | $ | 133 | $ | 5,459 |
The following unaudited notes to the condensed consolidated financial statements are a combined presentation. Except as otherwise indicated herein, each note applies to the Company and Consolidated SCE&G; however, Consolidated SCE&G makes no representation as to information relating solely to SCANA Corporation or its subsidiaries (other than Consolidated SCE&G).
These are interim financial statements and, due to the seasonality of each company'sDESC's business and matters that may occur during the rest of the year, including the matters described in condensed consolidated Note 9 under
Certain amounts in DESC's 2018 Consolidated Financial Statements and Notes have been reclassified to conform to the 2019 presentation for comparative purposes; however, such reclassifications did not affect DESC's net income (loss) and other comprehensive income (loss), total assets, liabilities, equity or cash flows.
DESC is a wholly-owned subsidiary of SCANA which, effective January 2019, is a wholly-owned subsidiary of Dominion Energy.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation and Variable Interest Entities
DESC has determined that it has a controlling financial interest in each of GENCO and Fuel Company (which are considered to be VIEs) and, accordingly, DESC's Consolidated SCE&G's condensed consolidated financial statementsFinancial Statements include, after eliminating intercompany balances and transactions, the accounts of SCE&G,DESC, GENCO and Fuel Company. The equity interests in GENCO and Fuel Company are held solely by SCANA, SCE&G’sDESC’s parent. As a result, GENCO’sGENCO and Fuel Company’s equity and results of operations are reflected as noncontrolling interest in the Consolidated SCE&G’s condensed consolidated financial statements.
GENCO owns a coal-fired electric generating station with a 605 MW net generating capacity (summer rating). GENCO’s electricity is sold, pursuant to a FERC-approved tariff, solely to SCE&GDESC under the terms of a power purchase agreement and related operating agreement. The effects of these transactions are eliminated in consolidation. Substantially all of GENCO’s property (carrying value of approximately $491$501 million) servespreviously served as collateral for its long-term borrowings. In May 2019, GENCO redeemed its 5.49% senior secured notes and was able to release the first mortgage lien in June 2019 that had previously secured these notes. Fuel Company acquires, owns and provides financing for SCE&G’sDESC’s nuclear fuel, certain fossil fuels and emission and other environmental allowances. See also condensed consolidated Note 4.
Additionally, DESC purchases shared services from DESS, an affiliated VIE that provides accounting, legal, finance and expenses arisingcertain administrative and technical services to all SCANA subsidiaries, including DESC. DESC has determined that it is not the primary beneficiary of DESS as it does not have either the power to direct the activities that most significantly impact its economic performance or an obligation to absorb losses and benefits which could be significant to it. See Note 14 for amounts attributable to affiliates.
Significant Accounting Policies
There have been no significant changes from regulated businessesNote 1 to the Consolidated Financial Statements in DESC's Annual Report on Form 10-K for the year ended December 31, 2018, with the exception of the item described below.
Leases
DESC leases certain assets including vehicles, real estate, office equipment and other assets under both operating and finance leases. For operating leases, rent expense is recognized on a straight-line basis over the term of the lease agreement, subject to regulatory framework. Rent expense associated with operating leases, short-term leases and variable leases is primarily recorded in other operations and maintenance expense in the caseConsolidated Statements of Comprehensive Income (Loss). Rent expense associated with finance leases results in the separate presentation of interest expense on the lease liability and amortization expense of the Company,related right-of-use asset in the retail natural gas marketing business (including those activitiesConsolidated Statements of segments describedComprehensive Income (Loss). Amortization expense and interest charges associated with finance leases are recorded in condensed consolidated Note 10)depreciation and amortization and interest charges, respectively, in the Consolidated Statements of Comprehensive Income (Loss) or deferred within regulatory assets in the Consolidated Balance Sheets.
Certain leases include one or more options to renew, with renewal terms that can extend the lease from one to 70 years. The exercise of renewal options is solely at DESC's discretion and is included in the lease term if the option is reasonably certain to be exercised. A right-of-use asset and corresponding lease liability for leases with original lease terms of one year or less are presented within Operating Income, and all other activities are presented within Other Income (Expense).
The determination of the discount rate utilized has a subsidiarysignificant impact on the calculation of SCANA, utilizes an asset management and supply service agreement with a counterparty for certain natural gas storage facilities. Such counterparty held, through an agency relationship, 45% and 40% of PSNC Energy’s natural gas inventory at September 30, 2017 and December 31, 2016, respectively, with a carryingthe present value of $14.1 million and $9.8 million, respectively. Under the terms of this agreement, PSNC Energy receives storage asset management fees
Recently Adopted Accounting Matters
In May 2014,February 2016, the FASBFinancial Accounting Standards Board issued revised accounting guidance for revenue arising from contracts with customersthe recognition, measurement, presentation and disclosure of leasing arrangements. The update requires that supersedes most prior revenue recognition guidance, including industry-specific guidance. This new revenue recognition model calls for a five-step analysis in determining whenliability and how revenue is recognized, and will require revenue recognition to depict the transfer of promised goods or services to customers, basedcorresponding right-of-use asset are recorded on the transferbalance sheet for all leases, including those leases classified as operating leases, while also refining the definition of control, in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.lease. In addition, lessees will be required to disclose key information about the new guidance requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. leasing arrangements. Lessor accounting remains largely unchanged.
The analysis of contracts with customers to which the guidance might be applicable is continuing,became effective for DESC's interim and activities of the FASB's Transition Resource Group for Revenue Recognition are being monitored, particularly as they relate to the treatment of contributions in aid of construction, alternative revenue programs and the collectability of revenue of utilities subject to rate regulation. An evaluation of the enhanced disclosure requirements is also underway, including the preliminary drafting of the disclosures that are required under the new standard, identifying performance obligations, determining the appropriate disaggregation of revenue and assessing the availability of information necessary to comply with the requirements. The Company and Consolidated SCE&G will adopt this guidance using the modified retrospective method and will recognize a cumulative effect adjustment, if any, to retained earnings onannual reporting periods beginning January 1, 2018 upon adoption. Comparative periods will not be restated. The Company and Consolidated SCE&G do not anticipate that its adoption will have a material impact on recognition patterns in their respective financial statements, but its adoption is expected to result in additional disclosures and may result in income statement presentation changes, particularly with respect to alternate revenue programs of utility operations.
2.
RATE AND OTHER REGULATORY MATTERSRegulatory Matters
As a result of Fuel
FERC
In June 2019, DESC submitted the 2015 Task Order as a separate componentstand-alone rate schedule, which governs DESC’s provision of SCE&G's overall fuel factor. Under this order, SCE&G will, among other things, implement programsretail service to encourage the developmentDOE at the Savannah River Site. The 2015 Task Order also includes provisions that govern the operations and maintenance of renewable energycertain transmission facilities, with a total nameplate capacity of at least approximately 84.5 MW by the end of 2020, of which half isDESC had determined to be customer-scale solar capacityservices that are likely subject to FERC’s jurisdiction. DESC requested that FERC accept the 2015 Task Order for filing to become effective in August 2019 and half is to be utility-scale solar capacity.
Electric – BLRA
In July 2018, the South Carolina Commission issued orders implementing a legislatively-mandated temporary reduction in revenues that could be collected by DESC from customers under the BLRA. These orders reduced the portion of DESC’s retail electric rates associated with the NND Project from approximately 18% of the average residential electric customer's bill to approximately 3%,
which equates to a reduction in revenues of approximately $31 million per month, retroactive to April 1, 2018. As a result, in the second quarter of 2018 DESC recorded a charge of $109 million ($82 million after-tax) to operating revenues in DESC’s Consolidated Statements of Comprehensive Income (Loss). The temporary rate reduction remained in effect until February 2019 when rates pursuant to the SCANA Merger Approval Order became effective.
Other Regulatory Matters
Other than the following matter, there have been no significant developments regarding the pending regulatory matters disclosed in Note 2 to the Consolidated Financial Statements in DESC's Annual Report on July 19, 2017. On October 4, 2017, the SCPSC ordered proceedings under this complaint to be coordinated with proceedingsForm 10-K for the Request filedyear ended December 31, 2018 or Note 2 to the Consolidated Financial Statements in DESC’s Quarterly Report on September 26, 2017, described below,Form 10-Q for the quarters ended March 31, 2019 and allowed discovery to proceed. On October 13, 2017, SCE&GJune 30, 2019.
Gas
In June 2019, DESC filed with the SCPSC a petition for rehearing and reconsideration of the order as well as a response to the SCPSC's request for briefing concerning coordination of proceedings under this complaint with proceedings for the Request. On November 1, 2017, the SCPSC denied SCE&G's petition for rehearing and reconsideration.
Regulatory Assets and Regulatory Liabilities
Rate-regulated utilities recognize in their financial statements certain revenues and expenses in different periods than do other enterprises. As a result, the Company and Consolidated SCE&G haveDESC has recorded regulatory assets and regulatory liabilities which are summarized in the following tables.table. Except for certain unrecovered nuclear projectNND Project costs and certain other unrecovered plant costs, substantially all regulatory assets are either explicitly excluded from rate base or are effectively excluded from rate base due to their being offset by related liabilities.
|
| September 30, |
|
| December 31, |
| ||
(millions) |
| 2019 |
|
| 2018 |
| ||
Regulatory assets: |
|
|
|
|
|
|
|
|
NND Project costs |
| $ | 138 |
|
| $ | 127 |
|
Income taxes recoverable through future rates |
|
| 52 |
|
|
| — |
|
Deferred employee benefit plan costs |
|
| 13 |
|
|
| 16 |
|
Other unrecovered plant |
|
| 14 |
|
|
| 14 |
|
DSM programs |
|
| 16 |
|
|
| 14 |
|
Other |
|
| 89 |
|
|
| 53 |
|
Regulatory assets - current |
|
| 322 |
|
|
| 224 |
|
NND Project costs |
|
| 2,537 |
|
|
| 2,641 |
|
AROs |
|
| 315 |
|
|
| 380 |
|
Cost of reacquired debt |
|
| 271 |
|
|
| 14 |
|
Deferred employee benefit plan costs |
|
| 205 |
|
|
| 256 |
|
Deferred losses on interest rate derivatives |
|
| 310 |
|
|
| 442 |
|
Other unrecovered plant |
|
| 70 |
|
|
| 79 |
|
DSM programs |
|
| 53 |
|
|
| 51 |
|
Environmental remediation costs |
|
| 21 |
|
|
| 24 |
|
Deferred storm damage costs |
|
| 43 |
|
|
| 35 |
|
Deferred transmission operating costs |
|
| 32 |
|
|
| 15 |
|
Other |
|
| 113 |
|
|
| 123 |
|
Regulatory assets - noncurrent |
|
| 3,970 |
|
|
| 4,060 |
|
Total regulatory assets |
| $ | 4,292 |
|
| $ | 4,284 |
|
Regulatory liabilities: |
|
|
|
|
|
|
|
|
Monetization of guaranty settlement |
| $ | 67 |
|
| $ | 61 |
|
Income taxes refundable through future rates |
|
| — |
|
|
| 52 |
|
Reserve for refunds to electric utility customers |
|
| 215 |
|
|
| — |
|
Other |
|
| 26 |
|
|
| 13 |
|
Regulatory liabilities - current |
|
| 308 |
|
|
| 126 |
|
Monetization of guaranty settlement |
|
| 987 |
|
|
| 1,037 |
|
Income taxes refundable through future rates |
|
| 912 |
|
|
| 607 |
|
Asset removal costs |
|
| 554 |
|
|
| 541 |
|
Deferred gains on interest rate derivatives |
|
| 72 |
|
|
| 75 |
|
Reserve for refunds to electric utility customers |
|
| 707 |
|
|
| — |
|
Other |
|
| 9 |
|
|
| 4 |
|
Regulatory liabilities - noncurrent |
|
| 3,241 |
|
|
| 2,264 |
|
Total regulatory liabilities |
| $ | 3,549 |
|
| $ | 2,390 |
|
The Company | Consolidated SCE&G | |||||||||||||||
Millions of dollars | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||
Regulatory Assets: | ||||||||||||||||
Unrecovered nuclear project costs | $ | 4,520 | — | $ | 4,520 | — | ||||||||||
Accumulated deferred income taxes | 315 | $ | 316 | 307 | $ | 307 | ||||||||||
AROs and related funding | 424 | 425 | 401 | 403 | ||||||||||||
Deferred employee benefit plan costs | 321 | 342 | 290 | 309 | ||||||||||||
Deferred losses on interest rate derivatives | 632 | 620 | 632 | 620 | ||||||||||||
Other unrecovered plant | 108 | 117 | 108 | 117 | ||||||||||||
DSM Programs | 58 | 59 | 58 | 59 | ||||||||||||
Carrying costs on deferred tax assets related to nuclear construction | 46 | 32 | 46 | 32 | ||||||||||||
Pipeline integrity management costs | 47 | 33 | 7 | 6 | ||||||||||||
Environmental remediation costs | 30 | 32 | 25 | 26 | ||||||||||||
Deferred storm damage costs | 22 | 20 | 22 | 20 | ||||||||||||
Deferred costs related to uncertain tax position | 28 | 15 | 28 | 15 | ||||||||||||
Other | 139 | 119 | 138 | 116 | ||||||||||||
Total Regulatory Assets | $ | 6,690 | $ | 2,130 | $ | 6,582 | $ | 2,030 |
Regulatory Liabilities: | ||||||||||||||||
Monetization of guaranty settlement | $ | 1,095 | — | $ | 1,095 | — | ||||||||||
Asset removal costs | 764 | $ | 755 | 535 | $ | 529 | ||||||||||
Deferred gains on interest rate derivatives | 135 | 151 | 135 | 151 | ||||||||||||
Other | 21 | 24 | 14 | 15 | ||||||||||||
Total Regulatory Liabilities | $ | 2,015 | $ | 930 | $ | 1,779 | $ | 695 |
Regulatory assets for unrecovered nuclear project costs have been recorded based on such amounts not being probable of loss, whereas the other regulatory assets have been recorded based on the probability of their recovery. All regulatory assets represent incurred costs that may be deferred under applicable GAAP for regulated operations. The SCPSC, the NCUCSouth Carolina Commission or the FERC has reviewed and approved through specific orders certain of the items shown as regulatory assets. OtherIn addition, regulatory assets include, but are not limited to, certain costs which have not been specifically approved for recovery by one of these regulatory agencies, including unrecovered nuclear projectdeferred transmission operating costs that are the subject of future regulatory proceedings as further discussed in condensed consolidated Note 9. In recording11. While such costs as regulatory assets,are not currently being recovered, management believes the coststhey would be allowable under existing rate-making concepts that are embodied in rate orders or currentapplicable state law. Thelaw and expects to recover these costs are currently not being recovered, but are expected to be recovered through rates in future periods. In the future, as a result of deregulation, changes in state law, other changes in the regulatory environment or changes in accounting requirements the Company or Consolidated SCE&Gother adverse legislative or regulatory developments, DESC could be required to write off all or a portion of its regulatory assets and liabilities. Such an event could have a material effect on the Company's andDESC's Consolidated SCE&G's financial statementsFinancial Statements in the period the write-off would be recorded.
NND Project costs representsreflects expenditures by SCE&G that have been reclassified from construction work in progress as a result of the decision to stop construction of the New Units and to pursue recovery of costs under the abandonment provisions of the BLRA or through a general rate case or other regulatory means, net of an estimated impairment loss of $210 million. See additional discussion at condensed consolidated Note 9.
AROs represent deferred depreciation and dismantle Unit 1 and conditional AROsaccretion expense related to legal obligations associated with the future retirement of generation, transmission and distribution properties,properties. The AROs primarily relate to DESC’s electric generating facilities, including gas pipelines. These regulatory assetsSummer, and are expected to be recovered over the related property lives and periods of decommissioning which may range up to approximately 110106 years.
Employee benefit plan costs of the regulated utilities have historically been recovered as they have been recorded under GAAP. Deferred employee benefit plan costs represent amounts of pension and other postretirement benefit costs which were accrued as liabilities and treated as regulatory assets pursuant to FERC guidance, and costs deferred pursuant to specific SCPSCSouth Carolina Commission regulatory orders. In 2013, SCE&G began recoveringDESC expects to recover deferred pension costs through utility rates approximately $63 million of deferred pension costs for electric operations over approximately 30 years and approximately $14 million of deferred pension costs for gas operations over approximately 14 years. The remainder of theperiods through 2044. DESC expects to recover other deferred benefit costs are expected to be recovered through utility rates, primarily over average service periods of participating employees or up to approximately 11 years.
Deferred losses or gains on interest rate derivatives represent (i) the effective portions of changes in fair value and payments made or received upon settlement of certain interest rate derivatives designated as cash flow hedges and (ii) the changes in fair value and payments made or received upon settlement of certain other interest rate derivatives not so designated. The amounts recorded with respect to (i) are expected to be amortized to interest expense over the lives of the underlying debt through 2043. The amounts recorded with respect to (ii) are expected to be similarly amortized to interest expense through 2065 except when such amounts are applied otherwise at the direction of the SCPSC.
Other unrecovered plant represents the carrying value of coal-fired generating units, including related materials and supplies inventory, retired from service prior to being fully depreciated. Pursuant to SCPSC approval, SCE&GDESC is amortizing these amounts through cost of service rates over the units' previous estimated remaining useful lives through approximately 2025. Unamortized amounts are included in rate base and are earning a current return.
DSM Programsprograms represent SCE&G's deferred costs associated with electric demand reduction programs, and such deferred costs are currently being recovered over approximately five years through an approved rate rider.
Environmental remediation costs represent costsare associated with the assessment and clean-up of sites currently or formerly owned by SCE&G or PSNC Energy, andDESC. Such remediation costs are expected to be recovered over periods of up to approximately 1716 years.
Deferred storm damage costs represent costs incurred in excess of amounts previously collected through SCE&G’s SCPSC-approved storm damage reserve, andrestoration costs for which SCE&GDESC expects to receive future recovery through customer rates.
Deferred transmission operating costs related to uncertain tax position primarily represent the estimated amounts of domestic production activities deductions foregone as a resultincludes deferred depreciation and property taxes associated with certain transmission assets for which DESC expects recovery from customers through future rates. See also Note 11.
Costs of the deductionreacquisition of certain researchdebt are deferred and experimentation expenditures for income tax purposes, net of related tax credits,amortized as well as accrued interest expense and other costs arising from this uncertain tax position. SCE&G's current customer rates reflectover the availability of domestic production activities deductions. These net deferred costs are expected to be recovered through utility rates following ultimate resolutionwould-be remaining life of the claims. See also condensed consolidated Note 5.
Various other regulatory assets are expected to be recovered through rates over varying periods through 2047.
Monetization of guaranty settlement represents proceeds received under or arising fromrelated to the monetization of the Toshiba Settlement,Settlement. In accordance with the SCANA Merger Approval Order, this balance, net of amounts that may be required to satisfy certain expenses. SCE&G expectsliens, will be refunded to electric customers over a 20-year period ending in 2039. See also Note 11.
Income taxes recoverable/refundable through future rates includes (i) excess deferred income taxes arising from the SCPSCremeasurement of deferred income taxes in connection with the enactment of the 2017 Tax Reform Act (certain of which are protected under normalization rules and will be amortized over the remaining lives of related property, and certain of which will be amortized to approve the use of these net proceeds for the benefit of customers over prescribed periods as instructed by regulators) and (ii) deferred income taxes arising from investment tax credits, offset by (iii) deferred income taxes that arise from utility operations that have not been included in a future filing.customer rates (a portion of which relate to depreciation and are expected to be recovered over the remaining lives of the related property which may range up to 85 years). See additional discussion at condensed consolidatedalso Note 9.
Reserve for refunds to electric utility customers reflects amounts previously collected from retail electric customers of DESC for the NND Project to be credited to customers over an estimated 11-year period in connection with the SCANA Merger Approval Order. See also Note 11.
Asset removal costs represent estimated net collections through depreciation rates of amounts to be incurredexpended for the removal of assets in the future.
3. REVENUE RECOGNITION
DESC has disaggregated operating revenues by customer class as follows:
|
| Three Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
|
| September 30, 2019 |
|
| September 30, 2018 |
| ||||||||||||||||||||
(millions) |
| Electric |
|
| Gas |
|
| Electric |
|
| Gas |
|
| Electric |
|
| Gas |
|
| Electric |
|
| Gas |
| ||||||||
Customer class: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
| $ | 354 |
|
| $ | 24 |
|
| $ | 310 |
|
| $ | 25 |
|
| $ | 364 |
|
| $ | 133 |
|
| $ | 805 |
|
| $ | 145 |
|
Commercial |
|
| 229 |
|
|
| 19 |
|
|
| 231 |
|
|
| 19 |
|
|
| 296 |
|
|
| 80 |
|
|
| 571 |
|
|
| 80 |
|
Industrial |
|
| 101 |
|
|
| 18 |
|
|
| 95 |
|
|
| 19 |
|
|
| 119 |
|
|
| 63 |
|
|
| 286 |
|
|
| 64 |
|
Other |
|
| 37 |
|
|
| 6 |
|
|
| 31 |
|
|
| 6 |
|
|
| 82 |
|
|
| 13 |
|
|
| 99 |
|
|
| 13 |
|
Revenues from contracts with customers |
|
| 721 |
|
|
| 67 |
|
|
| 667 |
|
|
| 69 |
|
|
| 861 |
|
|
| 289 |
|
|
| 1,761 |
|
|
| 302 |
|
Other revenues |
|
| 7 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
|
| 9 |
|
|
| 1 |
|
Total Operating Revenues |
| $ | 728 |
|
| $ | 67 |
|
| $ | 670 |
|
| $ | 69 |
|
| $ | 869 |
|
| $ | 289 |
|
| $ | 1,770 |
|
| $ | 303 |
|
4. EQUITY
For all periods presented, DESC's authorized shares of common stock, authorized as of September 30, 2017 and December 31, 2016.
In February 2019, DESC received an equity contribution of $675 million from its parent that was funded by Dominion Energy. DESC used these funds to redeem long-term debt. See Note 5.
In June 2019, DESC received an equity contribution of $100 million from its parent that was funded by Dominion Energy. DESC used these funds to repay intercompany credit agreement borrowings from Dominion Energy.
In September 2019, DESC received an equity contribution of $50 million from its parent that was funded by Dominion Energy. DESC used these funds to redeem long-term debt. See Note 5.
DESC’s bond indenture under which it issues first mortgage bonds contains provisions that could limit the payment of cash dividends on its common stock. DESC's bond indenture permits the payment of dividends on DESC's common stock only either (1) out of its Surplus (as defined in the bond indenture) or (2) in case there is no Surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. In addition, the Federal Power Act requires the appropriation of a portion of certain earnings from hydroelectric projects. At both September 30, 2019 and December 31, 2018, retained earnings of $115 million were restricted by this requirement as to payment of cash dividends on DESC’s common stock. In addition, pursuant to the SCANA Merger Approval Order, the amount of any DESC dividends paid must be reasonable and consistent with the long-term payout ratio of the electric utility industry and gas distribution industry.
5. LONG-TERM AND SHORT-TERM DEBT AND LIQUIDITY
Long-term Debt
In June 2017, PSNCFebruary 2019, DESC launched tender offers for certain of its first mortgage bonds pursuant to which it purchased first mortgage bonds having an aggregate purchase price equal to $1.2 billion. DESC incurred a loss on reacquired debt of $187 million in connection with these tender offers, which is recorded in regulatory assets on the Consolidated Balance Sheets.
In August 2019, DESC launched a tender offer for certain of its first mortgage bonds pursuant to which it purchased first mortgage bonds having an outstanding principal balance equal to $552 million. DESC incurred a net loss on reacquired debt of $83 million in connection with this tender offer, which is recorded in regulatory assets on the Consolidated Balance Sheets.
Long-term Debt - Affiliate
In May 2019, GENCO issued a $230 million 3.05% promissory note due to Dominion Energy issued $150 million of 4.18% senior notes due June 30, 2047.that matures in May 2024. The issuance by GENCO was approved by the South Carolina Commission. Proceeds from this salethe issuance were used to redeem GENCO’s 5.49%
senior secured notes due in 2024 at the remaining principal outstanding of $33 million plus accrued interest, repay money pool borrowings and to return $20 million of contributed equity capital to SCANA.
Liquidity
In March 2019, DESC became a co-borrower under Dominion Energy's $6 billion joint revolving credit facility. DESC's short-term debt,financing is supported through its access to financethis joint revolving credit facility, which can be used for working capital, expenditures,as support for the combined commercial paper programs of DESC, Dominion Energy and certain other of its subsidiaries (co-borrowers), and for other general corporate purposes.
DESC's share of commercial paper and letters of credit outstanding under its joint credit facility with Dominion Energy, were as follows:
(millions) |
| Facility Limit |
|
| Outstanding Commercial Paper |
|
| Outstanding Letters of Credit |
| |||
At September 30, 2019 |
| $ | 1,000 |
|
| $ | — |
|
| $ | — |
|
A maximum of $1.0 billion of the facility is available to DESC, less any amounts outstanding to co-borrowers. A sub-limit for DESC is set within the facility limit but can be changed at maturity $100 million related to a nuclear fuel financing which had an imputed interest ratethe option of 0.78%.
Also in March 2019, DESC canceled its previous committed long-term facility which was a resultrevolving line of SCE&G’s construction program, to finance capital expenditures, and for general corporate purposes.
(millions) |
| Facility Limit(1) |
|
| Outstanding Commercial Paper |
|
| Outstanding Letters of Credit |
| |||
At December 31, 2018 |
| $ | 1,200 |
|
| $ | 73 |
|
| $ | — |
|
(1) | Included $500 million related to Fuel Company. In February 2019, Fuel Company's commercial paper program and its credit facility were terminated. |
The weighted-average interest rate of the caseoutstanding commercial paper supported by this credit facility was 3.82% at December 31, 2018.
In April 2019, DESC renewed its FERC authority to issue short-term indebtedness (pursuant to Section 204 of Fuel Company, to finance or refinance the purchase of nuclear fuel, certain fossil fuels, and emission and other environmental allowances. Committed long-term facilities are revolving lines of credit under credit agreements with a syndicate of banks. Committed LOC, outstanding LOC advances,Federal Power Act). DESC may issue unsecured promissory notes, commercial paper and LOC-supported letterdirect loans in amounts not to exceed $2.2 billion outstanding with maturity dates of credit obligations wereone year or less. In addition, in April 2019, GENCO renewed its FERC authority to issue short-term indebtedness not to exceed $200 million outstanding with maturity dates of one year or less. The authorities described herein will expire in April 2020, which reflects a one-year authorization period rather than the two-year period DESC and GENCO had requested. In granting the authorization for a shorter period, FERC cited certain regulatory and legislative proceedings at the state level, as follows:
September 30, 2017 (Millions of dollars) | Total | SCANA | Consolidated SCE&G | PSNC Energy | ||||||||||||
Lines of credit: | + | |||||||||||||||
Five-year, expiring December 2020 | $ | 1,300.0 | $ | 400.0 | $ | 700.0 | $ | 200.0 | ||||||||
Fuel Company five-year, expiring December 2020 | 500.0 | — | 500.0 | — | ||||||||||||
Three-year, expiring December 2018 | 200.0 | — | 200.0 | — | ||||||||||||
Total committed long-term | 2,000.0 | 400.0 | 1,400.0 | 200.0 | ||||||||||||
Outstanding commercial paper (270 or fewer days) | 1,022.1 | 33.0 | 944.8 | 44.3 | ||||||||||||
Weighted average interest rate | 1.78 | % | 1.49 | % | 1.49 | % | ||||||||||
Letters of credit supported by LOC | 3.3 | 3.0 | 0.3 | — | ||||||||||||
Available | $ | 974.6 | $ | 364.0 | $ | 454.9 | $ | 155.7 |
December 31, 2016 (Millions of dollars) | Total | SCANA | Consolidated SCE&G | PSNC Energy | ||||||||||||
Lines of credit: | ||||||||||||||||
Five-year, expiring December 2020 | $ | 1,300.0 | $ | 400.0 | $ | 700.0 | $ | 200.0 | ||||||||
Fuel Company five-year, expiring December 2020 | 500.0 | — | 500.0 | — | ||||||||||||
Three-year, expiring December 2018 | 200.0 | — | 200.0 | — | ||||||||||||
Total committed long-term | 2,000.0 | 400.0 | 1,400.0 | 200.0 | ||||||||||||
Outstanding commercial paper (270 or fewer days) | 940.5 | 64.4 | 804.3 | 71.8 | ||||||||||||
Weighted average interest rate | 1.43 | % | 1.04 | % | 1.07 | % | ||||||||||
Letters of credit supported by LOC | 3.3 | 3.0 | 0.3 | — | ||||||||||||
Available | $ | 1,056.2 | $ | 332.6 | $ | 595.4 | $ | 128.2 |
DESC is obligated with respect to an aggregate of $67.8$68 million of industrial revenue bonds which are secured by letters of credit issued by TD Bank N.A. These letters of credit expire, subject to renewal, in the fourth quarter of 2019.
DESC received FERC approval to enter into an inter-company credit agreement in April 2019 with Dominion Energy under which DESC may have short-term borrowings outstanding up to $900 million. At September 30, 2019, DESC had borrowings outstanding under this credit agreement totaling $501 million, which are recorded in affiliated and related party payables in DESC’s Consolidated SCE&G participatesBalance Sheets. For both the three and nine months ended September 30, 2019, DESC recorded interest charges of $1 million.
DESC participated in a utility money pool with SCANA and another regulated subsidiary of SCANA.SCANA through April 2019. Fuel Company and GENCO remain in the utility money pool. Money pool borrowings and investments bear interest at short-term market rates. Consolidated SCE&G’sFor the three and nine months ended September 30, 2019, DESC recorded interest income from money pool transactions of $1 million and $7 million, respectively, and for the same periods DESC recorded interest expense from money pool transactions were not significantof $1 million and $7 million, respectively. For the three and nine months ended September 30, 2018, DESC recorded interest income from money pool transactions of $1 million and $2 million, respectively, and for any period presented. Consolidated SCE&Gthe same periods DESC recorded interest expense from money pool transactions of $1 million and $2 million, respectively. DESC had outstanding money pool borrowings due to an affiliate of $31$222 million and investments due from an affiliate of $17 million at September 30, 2017, and $29 million at2019. At December 31, 2016.2018, DESC had outstanding money pool borrowings due to an affiliate of $282 million and investments due from an affiliate of $353 million. On its condensed consolidated balance sheet, Consolidated SCE&GBalance Sheets, DESC includes such amountsmoney pool borrowings within Affiliated payables.
6. INCOME TAXES
DESC’s effective tax rate for the nine months ended September 30, 2019 is 5.7% compared to 21.1% for the nine months ended September 30, 2018. Variances in the effective tax rate are primarily driven by charges resulting from the SCANA Combination. In connection with the SCANA Merger Approval Order, Dominion Energy committed to forgo, or limit, the recovery of certain income tax-related regulatory assets associated with the NND Project. DESC's effective tax rate reflects income tax expense of $198 million in satisfaction of this commitment.
In the first quarter, DESC’s unrecognized tax benefits increased by $51 million and income tax expense increased by $40 million related to a state income tax position taken in prior years. In the second quarter, DESC’s unrecognized tax benefits increased by $24 million and income tax expense increased by $23 million primarily related to a federal income tax returns which include Consolidated SCE&G,position taken in prior years. In the third quarter, DESC’s unrecognized tax benefits decreased by $5 million and the Company and its subsidiaries file various applicable state and local income tax returns.
As of September 30, 2017, the Company and Consolidated SCE&G2019, there have recorded an unrecognized tax benefit of $457 million ($402 million net of the impact of state deductions on federal returns and net of receivables related to the uncertain tax positions). If recognized, $17 million of the tax benefit would affect the Company’s and Consolidated SCE&G's effective tax rates (see discussion below regarding deferral of benefits related to 2015 forward). These unrecognized tax benefits are not expected to increase significantly within the next 12 months, although other uncertain tax positions may be identified or taken, particularly with respect to the abandonment of the construction of the New Units during 2017. It is reasonably possible that these known unrecognized tax benefits may decrease by $457 million within the next 12 months. Nobeen no other material changes in the status of the Company’s or Consolidated SCE&G'sDESC’s unrecognized tax positions have occurred through September 30, 2017.
DESC has significant federal and experimentation deductionsstate net operating loss carryforward-related deferred tax assets where the utilization of these tax benefits may be limited in future periods due to the SCANA Combination. For the period ended September 30, 2019, DESC has concluded a valuation allowance is not required on these deferred tax assets. If DESC concludes a valuation allowance is required in future periods, the impact could be material.
The 2017 Tax Reform Act limits the deductibility of interest expense to 30% of adjusted taxable income for certain businesses, with any disallowed interest carried forward indefinitely. Subject to additional guidance in yet to be finalized regulations, DESC expects its interest expense to be deductible in 2019.
7. DERIVATIVE FINANCIAL INSTRUMENTS
DESC’s accounting policies, objectives, and strategies for using derivative instruments are discussed in Note 7 in the 2015Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2018. Derivative assets and 2016 income tax returns has been deferred as a regulatory asset and is expected to be recoverable through customer rates in future years. See also condensed consolidated Note 2. Otherwise, the Company and Consolidated SCE&G recognize interest accrued related to unrecognized tax benefits within interest expense or interest income and recognize tax penalties within other expenses. Amounts recorded for such interest income, interest expense or tax penalties have not been material for any period presented.
Pursuant to regulatory orders, interest rate derivatives entered into by SCE&GDESC after October 2013 arehave not been designated for accounting purposes as cash flow hedges, and fair value changes and settlement amounts related to them arehave been recorded as regulatory assets and liabilities. Settlement losses or gains on swaps will begenerally have been amortized to interest expense over the lives of subsequent debt issuances,
and gains have been amortized to interest expense or may behave been applied as otherwise directed by the SCPSC.
Commodity and Other Energy Management Contracts (in MMBTU) | |||||||||
Hedge designation | Gas Distribution | Gas Marketing | Total | ||||||
As of September 30, 2017 | |||||||||
Commodity contracts | 8,330,000 | 16,723,000 | 25,053,000 | ||||||
Energy management contracts (a) | — | 46,346,530 | 46,346,530 | ||||||
Total (a) | 8,330,000 | 63,069,530 | 71,399,530 | ||||||
As of December 31, 2016 | |||||||||
Commodity contracts | 4,510,000 | 11,947,000 | 16,457,000 | ||||||
Energy management contracts (a) | — | 67,447,223 | 67,447,223 | ||||||
Total (a) | 4,510,000 | 79,394,223 | 83,904,223 |
The table below presents derivative balances by type of financial instrument, if the gross amounts related to basis swap contracts totaling 4,954,667 MMBTUrecognized in 2017the Consolidated Balance Sheets were netted with derivative instruments and 730,721 MMBTU in 2016.
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||||||||||
|
| Gross Amounts Not Offset in the Consolidated Balance Sheet |
|
| Gross Amounts Not Offset in the Consolidated Balance Sheet |
| ||||||||||||||||||||||||||
(millions) |
| Gross Liabilities Presented in the Consolidated Balance Sheet |
|
| Financial Instruments |
|
| Cash Collateral Paid |
|
| Net Amounts |
|
| Gross Liabilities Presented in the Consolidated Balance Sheet |
|
| Financial Instruments |
|
| Cash Collateral Paid |
|
| Net Amounts |
| ||||||||
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over-the-counter |
| $ | 23 |
|
| $ | — |
|
| $ | 23 |
|
| $ | — |
|
| $ | 11 |
|
| $ | — |
|
| $ | 11 |
|
| $ | — |
|
Total derivatives |
| $ | 23 |
|
| $ | — |
|
| $ | 23 |
|
| $ | — |
|
| $ | 11 |
|
| $ | — |
|
| $ | 11 |
|
| $ | — |
|
Interest Rate Swaps | ||||||||||||||||
The Company | Consolidated SCE&G | |||||||||||||||
Millions of dollars | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||
Designated as hedging instruments | $ | 111.2 | $ | 115.6 | $ | 36.4 | $ | 36.4 | ||||||||
Not designated as hedging instruments | 1,285.0 | 1,285.0 | 1,285.0 | 1,285.0 |
Volumes
The following table showspresents the fair value and balance sheet locationvolume of derivative instruments. Although derivatives subject to master netting arrangementsactivity at September 30, 2019. These volumes are nettedbased on open derivative positions and represent the balance sheet,combined absolute value of their long and short positions.
|
| Current |
|
| Noncurrent |
| ||
Interest rate(1) |
| $ | — |
|
| $ | 71,400,000 |
|
(1) | Maturity is determined based on final settlement period. |
Fair Value and Gains and Losses on Derivative Instruments
The following tables present the fair values of derivatives and where they are presented below are shown grossin the Consolidated Balance Sheets:
(millions) |
| Fair Value - Derivatives under Hedge Accounting |
|
| Fair Value - Derivatives not under Hedge Accounting |
|
| Total Fair Value |
| |||
At September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
| $ | 1 |
|
| $ | 1 |
|
| $ | 2 |
|
Total current derivative liabilities(1) |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
Noncurrent Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
| 13 |
|
|
| 8 |
|
|
| 21 |
|
Total noncurrent derivative liabilities(2) |
|
| 13 |
|
|
| 8 |
|
|
| 21 |
|
Total derivative liabilities |
| $ | 14 |
|
| $ | 9 |
|
| $ | 23 |
|
At December 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
Total current derivative liabilities(1) |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Noncurrent Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate |
|
| 7 |
|
|
| 3 |
|
|
| 10 |
|
Total noncurrent derivative liabilities(2) |
|
| 7 |
|
|
| 3 |
|
|
| 10 |
|
Total derivative liabilities |
| $ | 8 |
|
| $ | 3 |
|
| $ | 11 |
|
(1) | Current derivative liabilities are presented in other current liabilities in the Consolidated Balance Sheets. |
(2) | Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in the Consolidated Balance Sheets. |
The following tables present the gains and cash collaterallosses on derivatives, as well as where the derivatives has not been netted against the fair values shown.
Fair Values of Derivative Instruments | ||||||||||||||||||
The Company | Consolidated SCE&G | |||||||||||||||||
Millions of dollars | Balance Sheet Location | Asset | Liability | Asset | Liability | |||||||||||||
As of September 30, 2017 | ||||||||||||||||||
Designated as hedging instruments | ||||||||||||||||||
Interest rate contracts | ||||||||||||||||||
Derivative financial instruments | — | $ | 3 | — | $ | 1 | ||||||||||||
Other deferred credits and other liabilities | — | 25 | — | 9 | ||||||||||||||
Commodity contracts | ||||||||||||||||||
Prepayments | — | 1 | — | — | ||||||||||||||
Derivative financial instruments | $ | 1 | 1 | — | — | |||||||||||||
Total | $ | 1 | $ | 30 | — | $ | 10 | |||||||||||
Not designated as hedging instruments | ||||||||||||||||||
Interest rate contracts | ||||||||||||||||||
Other deferred debits and other assets | $ | 56 | — | $ | 56 | — | ||||||||||||
Derivative financial instruments | — | $ | 40 | — | $ | 40 | ||||||||||||
Other deferred credits and other liabilities | — | 4 | — | 4 | ||||||||||||||
Commodity contracts | ||||||||||||||||||
Prepayments | 1 | — | — | — | ||||||||||||||
Energy management contracts | ||||||||||||||||||
Prepayments | 2 | 1 | — | — | ||||||||||||||
Other current assets | 2 | — | — | — | ||||||||||||||
Other deferred debits and other assets | 1 | — | — | — | ||||||||||||||
Derivative financial instruments | — | 2 | — | — | ||||||||||||||
Other deferred credits and other liabilities | — | 1 | — | — | ||||||||||||||
Total | $ | 62 | $ | 48 | $ | 56 | $ | 44 | ||||||||||
As of December 31, 2016 | ||||||||||||||||||
Designated as hedging instruments | ||||||||||||||||||
Interest rate contracts | ||||||||||||||||||
Derivative financial instruments | — | $ | 4 | — | $ | 1 | ||||||||||||
Other deferred credits and other liabilities | — | 24 | — | 8 | ||||||||||||||
Commodity contracts | ||||||||||||||||||
Prepayments | $ | 5 | — | — | — | |||||||||||||
Other current assets | 1 | — | — | — | ||||||||||||||
Total | $ | 6 | $ | 28 | — | $ | 9 | |||||||||||
Not designated as hedging instruments | ||||||||||||||||||
Interest rate contracts | ||||||||||||||||||
Other deferred debits and other assets | $ | 71 | — | $ | 71 | — | ||||||||||||
Derivative financial instruments | — | $ | 27 | — | $ | 27 | ||||||||||||
Other deferred credits and other liabilities | — | 3 | — | 3 | ||||||||||||||
Commodity contracts | ||||||||||||||||||
Other current assets | 3 | — | — | — | ||||||||||||||
Energy management contracts | ||||||||||||||||||
Prepayments | 6 | 2 | — | — | ||||||||||||||
Other current assets | 2 | 1 | — | — | ||||||||||||||
Other deferred debits and other assets | 2 | — | — | — | ||||||||||||||
Derivative financial instruments | — | 4 | — | — | ||||||||||||||
Other deferred credits and other liabilities | — | 2 | — | — | ||||||||||||||
Total | $ | 84 | $ | 39 | $ | 71 | $ | 30 |
Derivatives in Cash Flow Hedging Relationships
(millions) |
| Gain (loss) Reclassified from Deferred Accounts into Income |
|
| Increase (Decrease) in Derivatives Subject to Regulatory Treatment(1) |
| ||
Three Months Ended September 30, 2019 |
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|
|
|
Derivative type and location of gains (losses): |
|
|
|
|
|
|
|
|
Interest rate(2) |
| $ | — |
|
| $ | (1 | ) |
Total |
| $ | — |
|
| $ | (1 | ) |
Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
Derivative type and location of gains (losses): |
|
|
|
|
|
|
|
|
Interest rate(2) |
| $ | — |
|
| $ | — |
|
Total |
| $ | — |
|
| $ | — |
|
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
Derivative type and location of gains (losses): |
|
|
|
|
|
|
|
|
Interest rate(2) |
| $ | — |
|
| $ | (3 | ) |
Total |
| $ | — |
|
| $ | (3 | ) |
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
Derivative type and location of gains (losses): |
|
|
|
|
|
|
|
|
Interest rate(2) |
| $ | (1 | ) |
| $ | 2 |
|
Total |
| $ | (1 | ) |
| $ | 2 |
|
(1) | Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/ liabilities have no associated effect in the Consolidated Statements of Comprehensive Income (Loss). |
(2) | Amounts recorded in DESC’s Consolidated Statements of Comprehensive Income (Loss) are classified in interest charges. |
Derivatives Not designated as Hedging Instruments
(millions) |
| Increase (Decrease) in Derivatives Subject to Regulatory Treatment(1) |
|
|
|
| Amount of Gain (Loss) Recognized in Income on Derivatives(2) |
| ||||||||||
Three Months Ended September 30, |
| 2019 |
|
| 2018 |
|
| Location |
| 2019 |
|
| 2018 |
| ||||
Derivative type and location of gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
| Interest charges |
| $ | (1 | ) |
| $ | (1 | ) |
Total interest rate contracts |
| $ | (2 | ) |
| $ | 1 |
|
|
|
| $ | (1 | ) |
| $ | (1 | ) |
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative type and location of gains (losses): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
| Interest charges |
| $ | (1 | ) |
| $ | (2 | ) |
|
|
|
|
|
|
|
|
|
| Other income |
|
| — |
|
|
| 115 |
|
Total interest rate contracts |
| $ | (5 | ) |
| $ | 66 |
|
|
|
| $ | (1 | ) |
| $ | 113 |
|
(1) | Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in the Consolidated Statements of Comprehensive Income (Loss). |
The Company and Consolidated SCE&G: | ||||||||||||||||||
Loss Deferred in Regulatory Accounts | Loss Reclassified from Deferred Accounts into Income | |||||||||||||||||
Millions of dollars | 2017 | 2016 | Location | 2017 | 2016 | |||||||||||||
Three Months Ended September 30, | ||||||||||||||||||
Interest rate contracts | — | $ | (1 | ) | Interest expense | — | $ | (1 | ) | |||||||||
Nine Months Ended September 30, | ||||||||||||||||||
Interest rate contracts | $ | (1 | ) | $ | (6 | ) | Interest expense | $ | (1 | ) | $ | (2 | ) |
The Company: | ||||||||||||||||||
Gain (Loss) Recognized in OCI, net of tax | Gain (Loss) Reclassified from AOCI into Income, net of tax | |||||||||||||||||
Millions of dollars | 2017 | 2016 | Location | 2017 | 2016 | |||||||||||||
Three Months Ended September 30, | ||||||||||||||||||
Interest rate contracts | — | $ | 1 | Interest expense | $ | (2 | ) | $ | (2 | ) | ||||||||
Commodity contracts | — | (2 | ) | Gas purchased for resale | — | — | ||||||||||||
Total | — | $ | (1 | ) | $ | (2 | ) | $ | (2 | ) | ||||||||
Nine Months Ended September 30, | ||||||||||||||||||
Interest rate contracts | $ | (1 | ) | $ | (4 | ) | Interest expense | $ | (6 | ) | $ | (6 | ) | |||||
Commodity contracts | (4 | ) | — | Gas purchased for resale | 2 | (6 | ) | |||||||||||
Total | $ | (5 | ) | $ | (4 | ) | $ | (4 | ) | $ | (12 | ) |
(2) | Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in the Consolidated Statements of Comprehensive Income (Loss). |
Derivatives Not designated as Hedging Instruments | |||||||||||
The Company and Consolidated SCE&G: | |||||||||||
Millions of dollars | Loss Deferred in Regulatory Accounts | Location | Loss Reclassified from Deferred Accounts into Income | ||||||||
Three Months Ended September 30, 2017 | |||||||||||
Interest rate contracts | $ | (6 | ) | Interest Expense | $ | (1 | ) | ||||
Nine Months Ended September 30, 2017 | |||||||||||
Interest rate contracts | $ | (30 | ) | Interest Expense | $ | (2 | ) | ||||
Three Months Ended September 30, 2016 | |||||||||||
Interest rate contracts | $ | (24 | ) | Other Income | $ | (1 | ) | ||||
Nine Months Ended September 30, 2016 | |||||||||||
Interest rate contracts | $ | (268 | ) | Other Income | $ | (1 | ) |
Credit Risk Considerations
Certain derivative contracts contain contingent credit contingent features. These features may include (i) material adverse change clauses or payment acceleration clauses that could result in immediate payments or (ii) the requirement for posting of letters of credit or termination of the derivative contract before maturity if specific events occur, such as a credit rating downgrade below investment grade or failure to post collateral. The Company’s
Derivative Contracts with Credit Contingent Features
(millions) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||
in Net Liability Position |
|
|
|
|
|
|
|
|
Aggregate fair value of derivatives in net liability position |
| $ | 23 |
|
| $ | 11 |
|
Fair value of collateral already posted |
|
| 23 |
|
|
| 11 |
|
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered |
| $ | — |
|
| $ | — |
|
8. FAIR VALUE MEASUREMENTS, INCLUDING DERIVATIVES
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (exit price) in an orderly transaction between market participants at the measurement date. Fair values are based on assumptions that market participants would use when pricing an asset or liability, including assumptions about risk and Consolidated SCE&G'sthe risks inherent in valuation techniques and the inputs to valuations. This includes not only the credit ratings have come under pressure duringstanding of counterparties involved and the third quarterimpact of 2017, through credit rating downgradesenhancements but also the impact of DESC’s own nonperformance risk on their liabilities. Fair value measurements assume that the transaction occurs in the principal market for the asset or liability (the market with the most volume and continued negative outlooks, followingactivity for the Company’s decision to terminate constructionasset or liability from the perspective of the New Units andreporting entity), or in the credit ratings agencies' assessmentabsence of a deterioration ofprincipal market, the regulatory support environment following that decision. The triggering of credit contingent features, through credit downgradesmost advantageous market for the asset or otherwise, could resultliability (the market in more stringent collateral requirements.
Derivative Contracts with Credit Contingent Features | ||||||||||||||||
The Company | Consolidated SCE&G | |||||||||||||||
Millions of dollars | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||
in Net Liability Position | ||||||||||||||||
Aggregate fair value of derivatives in net liability position | $ | 67.1 | $ | 50.3 | $ | 47.7 | $ | 30.3 | ||||||||
Fair value of collateral already posted | 31.0 | 29.2 | 10.3 | 9.2 | ||||||||||||
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | $ | 36.1 | $ | 21.1 | $ | 37.4 | $ | 21.1 | ||||||||
in Net Asset Position | ||||||||||||||||
Aggregate fair value of derivatives in net asset position | $ | 49.0 | $ | 62.9 | $ | 49.0 | $ | 62.0 | ||||||||
Fair value of collateral already posted | — | — | — | — | ||||||||||||
Additional cash collateral or letters of credit in the event credit-risk-related contingent features were triggered | $ | 49.0 | $ | 62.9 | $ | 49.0 | $ | 62.0 |
Derivative Assets | The Company | Consolidated SCE&G | ||||||||||||||||||
Millions of dollars | Interest Rate Contracts | Commodity Contracts | Energy Management Contracts | Total | Interest Rate Contracts | |||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||
Gross Amounts of Recognized Assets | $ | 56 | $ | 2 | $ | 5 | $ | 63 | $ | 56 | ||||||||||
Gross Amounts Offset in Statement of Financial Position | — | (1 | ) | (2 | ) | (3 | ) | — | ||||||||||||
Net Amounts Presented in Statement of Financial Position | 56 | 1 | 3 | 60 | 56 | |||||||||||||||
Gross Amounts Not Offset - Financial Instruments | (7 | ) | — | — | (7 | ) | (7 | ) | ||||||||||||
Gross Amounts Not Offset - Cash Collateral Received | — | — | — | — | — | |||||||||||||||
Net Amount | $ | 49 | $ | 1 | $ | 3 | $ | 53 | $ | 49 | ||||||||||
Balance sheet location | ||||||||||||||||||||
Prepayments | $ | 1 | — | |||||||||||||||||
Other current assets | 2 | — | ||||||||||||||||||
Other deferred debits and other assets | 57 | $ | 56 | |||||||||||||||||
Total | $ | 60 | $ | 56 | ||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||
Gross Amounts of Recognized Assets | $ | 71 | $ | 9 | $ | 10 | $ | 90 | $ | 71 | ||||||||||
Gross Amounts Offset in Statement of Financial Position | — | — | (4 | ) | (4 | ) | — | |||||||||||||
Net Amounts Presented in Statement of Financial Position | 71 | 9 | 6 | 86 | 71 | |||||||||||||||
Gross Amounts Not Offset - Financial Instruments | (9 | ) | — | — | (9 | ) | (9 | ) | ||||||||||||
Gross Amounts Not Offset - Cash Collateral Received | — | — | — | — | — | |||||||||||||||
Net Amount | $ | 62 | $ | 9 | $ | 6 | $ | 77 | $ | 62 | ||||||||||
Balance sheet location | ||||||||||||||||||||
Prepayments | $ | 9 | — | |||||||||||||||||
Other current assets | 5 | — | ||||||||||||||||||
Other deferred debits and other assets | 72 | $ | 71 | |||||||||||||||||
Total | $ | 86 | $ | 71 |
Derivative Liabilities | The Company | Consolidated SCE&G | ||||||||||||||||||
Millions of dollars | Interest Rate Contracts | Commodity Contracts | Energy Management Contracts | Total | Interest Rate Contracts | |||||||||||||||
As of September 30, 2017 | ||||||||||||||||||||
Gross Amounts of Recognized Liabilities | $ | 72 | $ | 2 | $ | 4 | $ | 78 | $ | 54 | ||||||||||
Gross Amounts Offset in Statement of Financial Position | — | (1 | ) | (2 | ) | (3 | ) | — | ||||||||||||
Net Amounts Presented in Statement of Financial Position | 72 | 1 | 2 | 75 | 54 | |||||||||||||||
Gross Amounts Not Offset - Financial Instruments | (7 | ) | — | — | (7 | ) | (7 | ) | ||||||||||||
Gross Amounts Not Offset - Cash Collateral Posted | (30 | ) | — | (1 | ) | (31 | ) | (10 | ) | |||||||||||
Net Amount | $ | 35 | $ | 1 | $ | 1 | $ | 37 | $ | 37 | ||||||||||
Balance sheet location | ||||||||||||||||||||
Prepayments | $ | 1 | — | |||||||||||||||||
Derivative financial instruments | 45 | $ | 41 | |||||||||||||||||
Other deferred credits and other liabilities | 29 | 13 | ||||||||||||||||||
Total | $ | 75 | $ | 54 | ||||||||||||||||
As of December 31, 2016 | ||||||||||||||||||||
Gross Amounts of Recognized Liabilities | $ | 58 | — | $ | 9 | $ | 67 | $ | 39 | |||||||||||
Gross Amounts Offset in Statement of Financial Position | — | — | (3 | ) | (3 | ) | — | |||||||||||||
Net Amounts Presented in Statement of Financial Position | 58 | — | 6 | 64 | 39 | |||||||||||||||
Gross Amounts Not Offset - Financial Instruments | (9 | ) | — | — | (9 | ) | (9 | ) | ||||||||||||
Gross Amounts Not Offset - Cash Collateral Posted | (29 | ) | — | — | (29 | ) | (9 | ) | ||||||||||||
Net Amount | $ | 20 | — | $ | 6 | $ | 26 | $ | 21 | |||||||||||
Balance sheet location | ||||||||||||||||||||
Derivative financial instruments | $ | 35 | $ | 28 | ||||||||||||||||
Other deferred credits and other liabilities | 29 | 11 | ||||||||||||||||||
Total | $ | 64 | $ | 39 |
Inputs and Assumptions
Fair value is based on actively-quoted market prices, if available. In the absence of actively-quoted market prices, price information is sought from external sources, including industry publications, and to a lesser extent, broker quotes. When evaluating pricing information, DESC considers the ability to transact at the quoted price. Periodically, inputs to valuation models are reviewed and revised as needed, based on historical information, updated market data, market liquidity and relationships, and changes in third-party sources.
The inputs and assumptions used in measuring fair value for interest rate derivative contracts include the following:
• | Interest rate curves |
• | Credit quality of counterparties and DESC |
• | Notional value |
• | Credit enhancements |
• | Time value |
Levels
DESC utilizes the following fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
• | Level 1-Quoted prices (unadjusted) in active markets for identical assets and liabilities that they have the ability to access at the measurement date. |
• | Level 2-Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived from observable market data by correlation or other means. Instruments categorized in Level 2 include interest rate swaps. |
• | Level 3-Unobservable inputs for the asset or liability, including situations where there is little, if any, market activity for the asset or liability. |
The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. In these cases, the lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
Recurring Fair Value Measurements
Fair value measurements and theare separately disclosed by level within the fair value hierarchy
All of DESC's interest rate swap agreements were in which the measurements fall, were as follows:
As of September 30, 2017 | As of December 31, 2016 | |||||||||||||||||||||||
The Company | Consolidated SCE&G | The Company | Consolidated SCE&G | |||||||||||||||||||||
Millions of dollars | Level 1 | Level 2 | Level 2 | Level 1 | Level 2 | Level 2 | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Available for sale securities | $ | 19 | — | — | $ | 14 | — | — | ||||||||||||||||
Held to maturity securities | — | $ | 7 | — | — | $ | 7 | — | ||||||||||||||||
Interest rate contracts | — | 56 | $ | 56 | — | 71 | $ | 71 | ||||||||||||||||
Commodity contracts | 1 | 1 | — | 8 | 1 | — | ||||||||||||||||||
Energy management contracts | 2 | 3 | — | 6 | 4 | — | ||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Interest rate contracts | — | 72 | 54 | — | 58 | 39 | ||||||||||||||||||
Commodity contracts | 1 | 1 | — | — | — | — | ||||||||||||||||||
Energy management contracts | 1 | 5 | — | 2 | 10 | — |
Long-Term Debt | September 30, 2017 | December 31, 2016 | ||||||||||||||
Millions of dollars | Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
The Company | $ | 6,632.4 | $ | 7,462.9 | $ | 6,489.8 | $ | 7,183.3 | ||||||||
Consolidated SCE&G | 5,162.5 | 5,836.9 | 5,166.0 | 5,752.3 |
Fair Value of Financial Instruments
Substantially all of DESC’s financial instruments are based on quoted prices from dealersrecorded at fair value, with the exception of the instruments described below, which are reported at historical cost. Estimated fair values have been determined using available market information and valuation methodologies considered appropriate by management. The carrying amount of financial instruments classified within current assets and current liabilities are representative of fair value because of the short-term nature of these instruments. For financial instruments that are not recorded at fair value, the carrying amounts and estimated fair values are as follows:
|
| September 30, 2019 |
|
| December 31, 2018 |
| ||||||||||
(millions) |
| Carrying Amount |
|
| Estimated Fair Value(1) |
|
| Carrying Amount |
|
| Estimated Fair Value(2) |
| ||||
Long-term debt(3) |
| $ | 3,615 |
|
| $ | 4,601 |
|
| $ | 5,146 |
|
| $ | 5,470 |
|
(1) | Fair value is estimated using market prices, where available, and interest rates currently available for issuance of debt with similar terms and remaining maturities. All fair value measurements are classified as Level 2. The carrying amount of debt issuances with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value. |
(2) | Fair value is estimated based on net present value calculations using independently sourced market data that incorporate a developed discount rate using similarly rated long-term debt, along with benchmark interest rates. All fair value measurements are classified as Level 2. The carrying amount of debt issuances with short-term maturities and variable rates refinanced at current market rates is a reasonable estimate of their fair value. |
(3) | Carrying amount includes amounts which represent the unamortized debt issuance costs and discount or premium. |
9. UTILITY PLANT AND NONUTILITY PROPERTY
Sale of Warranty Service Contract Assets
In May 2019, DESC entered into an agreement to sell certain warranty service contract assets for total consideration of $7 million. The transaction closed in August 2019, resulting in a $7 million ($5 million after-tax) gain recorded in other income (expense), net in DESC’s Consolidated Statements of Comprehensive Income (Loss). Pursuant to the agreement, upon closing DESC entered into a commission agreement with the buyer under which the buyer will compensate DESC in connection with the right to use DESC’s brand in marketing materials and other services over a ten-year term.
Jointly Owned Utility Plant
DESC jointly owns and is the operator of Summer. Each joint owner provides its own financing and shares the direct expenses and generation output in proportion to its ownership. DESC’s share of the direct expenses in Summer is 66.7%. In May 2019, DESC and Santee Cooper entered into an agreement in which DESC agreed to purchase 11.7% of Santee Cooper’s ownership interest in the commercial paper market. The resulting fair value is consideredNND Project nuclear fuel, which will be used at Summer, for $8 million to be Level 2.
10. EMPLOYEE BENEFIT PLANS
Components of net periodic benefit cost recorded by the Company and Consolidated SCE&GDESC were as follows:
(millions) |
| Pension Benefits |
|
| Other Postretirement Benefits |
| ||||||||||
Three Months Ended September 30, |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Service cost |
| $ | 4 |
|
| $ | 5 |
|
| $ | 1 |
|
| $ | 1 |
|
Interest cost |
|
| 6 |
|
|
| 7 |
|
|
| 2 |
|
|
| 2 |
|
Expected return on assets |
|
| (11 | ) |
|
| (12 | ) |
|
| — |
|
|
| — |
|
Amortization of actuarial losses (gains) |
|
| 2 |
|
|
| 3 |
|
|
| — |
|
|
| (1 | ) |
Settlement loss(1) |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net periodic benefit cost |
| $ | 12 |
|
| $ | 3 |
|
| $ | 3 |
|
| $ | 2 |
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 11 |
|
| $ | 13 |
|
| $ | 2 |
|
| $ | 3 |
|
Interest cost |
|
| 21 |
|
|
| 22 |
|
|
| 6 |
|
|
| 6 |
|
Expected return on assets |
|
| (31 | ) |
|
| (36 | ) |
|
| — |
|
|
| — |
|
Amortization of actuarial losses |
|
| 9 |
|
|
| 8 |
|
|
| — |
|
|
| — |
|
Curtailment(1) |
|
| 6 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Settlement loss(1) |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net periodic benefit cost |
| $ | 27 |
|
| $ | 7 |
|
| $ | 11 |
|
| $ | 9 |
|
The Company | Pension Benefits | Other Postretirement Benefits | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Three months ended September 30, | ||||||||||||||||
Service cost | $ | 5.7 | $ | 4.4 | $ | 1.0 | $ | 0.8 | ||||||||
Interest cost | 9.2 | 9.8 | 2.8 | 3.0 | ||||||||||||
Expected return on assets | (13.4 | ) | (13.8 | ) | — | — | ||||||||||
Prior service cost amortization | 0.4 | 1.0 | — | 0.1 | ||||||||||||
Amortization of actuarial losses | 4.4 | 3.7 | — | 0.2 | ||||||||||||
Net periodic benefit cost | $ | 6.3 | $ | 5.1 | $ | 3.8 | $ | 4.1 |
Nine months ended September 30, | ||||||||||||||||
Service cost | $ | 16.3 | $ | 15.5 | $ | 3.4 | $ | 3.3 | ||||||||
Interest cost | 28.0 | 29.5 | 8.6 | 9.1 | ||||||||||||
Expected return on assets | (41.0 | ) | (41.9 | ) | — | — | ||||||||||
Prior service cost amortization | 1.2 | 3.0 | — | 0.2 | ||||||||||||
Amortization of actuarial losses | 12.2 | 11.1 | 0.8 | 0.4 | ||||||||||||
Net periodic benefit cost | $ | 16.7 | $ | 17.2 | $ | 12.8 | $ | 13.0 |
Consolidated SCE&G | Pension Benefits | Other Postretirement Benefits | ||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Three months ended September 30, | ||||||||||||||||
Service cost | $ | 4.8 | $ | 3.6 | $ | 0.8 | $ | 0.7 | ||||||||
Interest cost | 7.8 | 8.3 | 2.3 | 2.5 | ||||||||||||
Expected return on assets | (11.4 | ) | (11.7 | ) | — | — | ||||||||||
Prior service cost amortization | 0.3 | 0.8 | — | 0.1 | ||||||||||||
Amortization of actuarial losses | 3.7 | 3.2 | — | 0.1 | ||||||||||||
Net periodic benefit cost | $ | 5.2 | $ | 4.2 | $ | 3.1 | $ | 3.4 |
Nine months ended September 30, | ||||||||||||||||
Service cost | $ | 13.6 | $ | 12.7 | $ | 2.8 | $ | 2.7 | ||||||||
Interest cost | 24.0 | 25.0 | 7.1 | 7.5 | ||||||||||||
Expected return on assets | (35.0 | ) | (35.5 | ) | — | — | ||||||||||
Prior service cost amortization | 1.0 | 2.5 | — | 0.2 | ||||||||||||
Amortization of actuarial losses | 10.4 | 9.4 | 0.6 | 0.3 | ||||||||||||
Net periodic benefit cost | $ | 14.0 | $ | 14.1 | $ | 10.5 | $ | 10.7 |
(1) Related to a voluntary retirement program.
No significant contribution to the pension trust is expected for the foreseeable futureremainder of 2019 based on current market conditions and assumptions, nor is a limitation on benefit payments expected to apply. SCE&GDESC recovers current pension costs through either a rate rider that may be adjusted annually for retail electric operations or through cost of service rates for gas operations. PSNC
Voluntary Retirement Program
In March 2019, Dominion Energy recovers pension costs through costannounced a voluntary retirement program to employees, including employees of DESC, that meet certain age and service rates.
In November 2012, and again in September 2015 and November 2016 (see discussion below), the SCPSC approved SCE&G's requested updates to the milestone schedule, revised contractual substantial completion dates, and increases in capitalsecond quarter of 2019, DESC remeasured its pension and other costs. As further discussed below, approval by the SCPSC of cost recovery under the abandonment provisions of the BLRA or through a general rate case or other regulatory means will be required as a consequence of the Company’s determination on July 31, 2017 to cease construction of the New Units.
In the third quarter of 2019, DESC remeasured a pension plan as a result of a settlement from Toshiba under its payment guaranty or the voluntary retirement program. The settlement and related Toshiba Settlement Agreement, discussed below, and such costs would likely substantially exceed the amount of the Consortium's payment obligations guaranteed by Toshiba. SCE&G also considered that even the newly revised substantial completion dates identified by WEC of April and December 2020 for Unit 2 and Unit 3, respectively, would not be met, which would resultremeasurement resulted in an increase in the nuclear production tax credits discussed below not being earned under current law.
for 2019 by $4 million. The discount rate used for the remeasurement was 3.57%. All other assumptions used for the remeasurement were consistent with the measurement as of December 31, 2018.
11. COMMITMENTS AND CONTINGENCIES
As a result of issues generated in the ordinary course of business, DESC is involved in legal proceedings before various courts and is periodically subject to governmental examinations (including by regulatory authorities), inquiries and investigations. Certain legal proceedings and governmental examinations involve demands for unspecified amounts of damages, are in an initial procedural phase, involve uncertainty as to the outcome of pending appeals or motions, or involve significant factual issues that need to be resolved, such that it is not possible for DESC to estimate a range of possible loss. For such matters that DESC cannot estimate, a statement to this effect is made in the description of the matter. Other matters may have progressed sufficiently through the litigation or investigative processes such that DESC is able to estimate a range of possible loss. For legal proceedings and governmental examinations that DESC is able to reasonably estimate a range of possible losses, an estimated range of possible loss is provided, in excess of the accrued liability (if any) for such matters. Any accrued liability is recorded on a gross basis with a receivable also recorded for any probable insurance recoveries. Estimated ranges of loss are inclusive of legal fees and net of any anticipated insurance recoveries. Any estimated range is based on currently available information and involves elements of judgment and significant uncertainties. Any estimated range of possible loss may not represent DESC’s maximum possible loss exposure. The circumstances of such legal proceedings and governmental examinations will be utilizedchange from time to benefit SCE&G's customerstime and actual results may vary significantly from the current estimate. For current proceedings not specifically reported below, management does not anticipate that the liabilities, if any, arising from such proceedings would have a material effect on DESC’s financial position, liquidity or results of operations.
Environmental
In July 2019, the EPA published the ACE Rule, which repeals and replaces the Clean Power Plan. The ACE Rule became effective in a mannerSeptember 2019. The final ACE Rule applies to coal-fired steam electric generating units greater than or equal to 25 MW. The rule includes unit-specific performance standards based on the degree of emission reduction levels achievable from unit efficiency improvements to be determined by the SCPSC. See further discussion in condensed consolidated Note 4.
In July 2011, the EPA issued the CSAPR to reduce emissions of SO
2 and NOX from power plants in the eastern half of theIn April 2012,February 2019, the EPA'sEPA published a proposed rule to reverse its previous finding that it is appropriate and necessary to regulate toxic emissions from power plants. However, the emissions standards and other requirements of the MATS rule containing new standards for mercurywould remain in place as the EPA is not proposing to remove coal and other specified air pollutants became effective. Theoil fired power plants from the list of sources that are regulated under MATS. Although litigation of the MATS rule has beenand the subjectoutcome of ongoing litigation even while itthe EPA’s rulemaking are still pending, the regulation remains in effect. Rulings oneffect and DESC is complying with the applicable requirements of the rule and does not expect any adverse impacts to its operations at this litigation are not expected to have an impact on SCE&G or GENCOtime due to plant retirements, conversions and enhancements. SCE&G and GENCO are in compliance with the MATS rule and expect to remain in compliance.
The CWA provides for the imposition of effluent limitations that require treatment for wastewater discharges. Under the CWA, compliance with applicable limitations is achieved under state-issued NPDES permits such that, as a facility’s NPDES permit is renewed, any new effluent limitations would be incorporated. The ELG Rule had become effective on January 4, 2016,was final in September 2015, after which state regulators couldare required to modify facility NPDES permits to match more restrictive standards, which would require facilities to retrofit with new wastewater treatment technologies. Compliance dates varied by type of wastewater, and some were based on a facility's five-year permit cycle and thus could range from 2018 to 2023. However, the ELG Rule is under reconsideration by the EPA and has been stayed administratively. The EPA has decided to conduct a new rulemaking that could result in revisions to certain flue gas desulfurization wastewater and bottom ash transport water requirements in the ELG Rule. Accordingly, in September 2017 the EPA finalized a rule that resetspostpones compliance dates under the ELG Rule to a range from November 1, 2020 to December 31, 2023. The EPA indicates that the new rulemaking process may take up to three years to complete, such that any revisions to the ELG Rule likely would not be final until the summer of 2020. While the Company and Consolidated SCE&G expectDESC expects that wastewater treatment technology retrofits will be required at Williams and Wateree Stations,generating stations, any costs incurred to comply with the ELG Rule are expected to be recoverable through rates.
The CWA Section 316(b) Existing Facilities Rule became effective in October 2014. This rule establishes national requirements for the location, design, construction and capacity of cooling water intake structures at existing facilities that reflect the best technology available for minimizing the adverse environmental impacts of impingement and entrainment. SCE&G and GENCO areDESC is conducting studies and implementing plans as required by the rule to determine appropriate intake structure modifications at certain facilities to ensure compliance with this rule. Any costs incurred to comply with this rule are expected to be recoverable through rates.
The EPA's final rule for CCR became effective in the fourth quarter of 2015. This rule regulates CCR as a non-hazardous waste under Subtitle D of the Resource Conservation and Recovery Act and imposes certain requirements on ash storage ponds and other CCR management facilities at SCE&G's and GENCO'scertain of DESC's coal-fired generating facilities. SCE&G and GENCO haveDESC has already closed or havehas begun the process of closure of all of theirits ash storage ponds and havehas previously recognized AROs for such ash storage ponds under existing requirements. The Company and Consolidated SCE&G doDESC does not expect the incremental compliance costs associated with this rule to be significant and expect to recover such costs in future rates.
DESC is responsible for four4 decommissioned MGP sites in South Carolina which contain residues of by-product chemicals. These sites are in various stages of investigation, remediation and monitoring under work plans approved by DHECor under review by SCDHEC and the EPA. SCE&GDESC anticipates that major remediation activities at all of these sites will continue at least through 20182022 and will cost an additional $9.9 million,$10 million. In February 2019, SCDHEC directed DESC to pursue a stakeholder-developed modified removal action plan for one site (Congaree River). DESC is developing an engineering design for this plan, which iswould require permits from the U.S. Army Corps of Engineers and others and further approvals before it could be implemented. If DESC receives the necessary permits and approvals for this plan, remediation cost for the Congaree River site would increase by $8 million. DESC cannot predict if or when such permits or approvals will be received. Major remediation activities are accrued in Otherother within Deferred Creditsdeferred credits and Other Liabilitiesother liabilities on the condensed consolidated balance sheet. SCE&GConsolidated Balance Sheets. DESC expects to recover any cost arising from the remediation of MGP sites through rates. At September 30, 2017,2019, deferred amounts, net of amounts previously recovered through rates and insurance settlements, totaled $24.7$23 million and are included in regulatory assets.
Abandoned NND Project
A description of events and circumstances leading up to DESC's abandonment of the NND Project and subsequent regulatory, legislative, legal and investigative proceedings, as well as related impairments of NND Project and other costs are described in Note 11 in DESC's Annual Report on Form 10-K for the year ended December 31, 2018.
SCANA Merger Approval Order
In accordance with the terms of the South Carolina Commission's SCANA Merger Approval Order, DESC adopted the Plan-B Levelized Customer Benefits Plan, effective February 2019, whereby the average bill for a DESC residential electric customer approximates that which resulted from the legislatively-mandated temporary reduction that had been put into effect by the South Carolina Commission in August 2018. DESC also recorded a significant impairment charge in the fourth quarter of 2018, which charge resulted from its conclusion that NND Project capital costs exceeding the amount established in the SCANA Merger Approval Order were probable of loss, regardless of whether the SCANA Combination was completed. In addition, in the first quarter of 2019, DESC recorded the following charges and liabilities which arose from or are related to provisions in the SCANA Merger Approval Order.
• | A charge of $105 million ($79 million after-tax) related to certain assets that had been constructed in connection with the NND Project for which DESC committed to forgo recovery. |
• | A regulatory liability for refunds and restitution of amounts previously collected from retail electric customers of $1.0 billion ($756 million after-tax), recorded as a reduction in operating revenue, which will be credited to customers over an estimated 11 years. In addition, a previously existing regulatory liability of $1.0 billion will be credited to customers over 20 years, which reflects amounts to be refunded to customers related to the monetization of guaranty settlement described in Note 2. |
• | A regulatory liability for refunds to natural gas customers totaling $2 million ($2 million after-tax). |
• | A tax charge of $198 million related to $264 million of regulatory assets for which DESC committed to forgo recovery. |
Further, except for rate adjustments for fuel and environmental costs, DSM costs, and other rates routinely adjusted on an annual or biannual basis, DESC will freeze retail electric base rates at current levels until January 1, 2021.
The South Carolina Commission order also approved the removal of DESC's investment in certain transmission assets that have not been abandoned from BLRA capital costs. As of September 30, 2019, such investment in these assets included $345 million within utility plant, net and $32 million within regulatory assets, which amount represents certain deferred operating costs. The South Carolina Commission approved deferral of these operating costs related to the investment until recovery of the transmission capital costs and associated deferred operating costs is addressed in a future rate proceeding. DESC believes these transmission capital and deferred operating costs are probable of recovery; however, if the South Carolina Commission were to disallow recovery of or a reasonable return on all or a portion of them, an impairment charge equal to the disallowed costs may be required.
Various parties filed petitions for rehearing or reconsideration of the SCANA Merger Approval Order. In January 2019, the South Carolina Commission issued an order (1) granting the request of various parties and finding that DESC was imprudent in its actions by not disclosing material information to the South Carolina Office of Regulatory Staff and the South Carolina Commission with regard to costs incurred subsequent to March 2015 and (2) denying the petitions for rehearing or consideration as to other issues raised in the various petitions. The deadline to appeal the SCANA Merger Approval Order and the order on rehearing expired in April 2019, and no party has sought appeal.
Claims and Litigation
The following describes certain legal proceedings involving DESC relating to events occurring before closing of the SCANA Combination. Dominion Energy intends to vigorously contest the lawsuits, claims and assessments which have been filed or initiated against DESC. No reference to, or disclosure of, any proceeding, item or matter described below shall be construed as an admission or indication that such proceeding, item or matter is material. For certain of these matters, and unless otherwise noted therein, DESC is unable to estimate a reasonable range of possible loss and the related financial statement impacts, but for any such matter there could be a material impact to its results of operations, financial condition and/or cash flows. For the matters for which DESC is able to reasonably estimate a probable loss, the Consolidated Balance Sheets include reserves of $181 million included within reserves for litigation and regulatory proceedings and insurance receivables of $18 million included within other receivables at September 30, 2019. During the nine months ended September 30, 2019, the Consolidated Statements of Comprehensive Income (Loss) includes charges of $266 million ($200 million after-tax), included within impairment of assets and other charges.
Ratepayer Class Actions
In May 2018, a consolidated complaint against DESC, SCANA and the State of South Carolina was filed in the State Court of Common Pleas in Hampton County, South Carolina (the DESC Ratepayer Case). In September 2018, the court certified this case as a class action. The plaintiffs allege, among other things, that DESC was negligent and unjustly enriched, breached alleged fiduciary and contractual duties and committed fraud and misrepresentation in failing to properly manage the NND Project, and that DESC committed unfair trade practices and violated state anti-trust laws. The plaintiffs sought a declaratory judgment that DESC may not charge its customers for any past or continuing costs of the NND Project, sought to have SCANA and DESC’s assets frozen and all monies recovered from Toshiba and other sources be placed in a constructive trust for the benefit of ratepayers and sought specific performance of the alleged implied contract to construct the NND Project.
In December 2018, the State Court of Common Pleas in Hampton County entered an order granting preliminary approval of a class action settlement and a stay of pre-trial proceedings in the DESC Ratepayer Case. The settlement agreement, contingent upon the closing of the SCANA Combination, provided that SCANA and DESC would establish an escrow account and proceeds from the escrow account would be distributed to the class members, after payment of certain taxes, attorneys' fees and other expenses and administrative costs. The escrow account would include (1) up to $2.0 billion, net of a credit of up to $2.0 billion in future electric bill relief, which would inure to the benefit of the escrow account in favor of class members over a period of time established by the South Carolina Commission in its order related to matters before the South Carolina Commission related to the NND Project, (2) a cash payment of $115 million and (3) the transfer of certain DESC-owned real estate or sales proceeds from the sale of such properties, which counsel for the DESC Ratepayer Class estimate to have an aggregate value between $60 million and $85 million. At the closing of the SCANA Combination, SCANA and DESC funded the cash payment portion of the escrow account. The court held a fairness hearing on the settlement in May 2019. In June 2019, the court entered an order granting final approval of the settlement, which order became effective July 2019. In July 2019, DESC transferred $117 million representing the cash payment, plus accrued interest, to the plaintiffs. In addition, property with a net recorded value of $42 million is in the process of being transferred to the plaintiffs in coordination with the court-appointed real estate trustee to satisfy the settlement agreement.
In September 2017, a purported class action was filed by Santee Cooper ratepayers against Santee Cooper, DESC, Palmetto Electric Cooperative, Inc. and Central Electric Power Cooperative, Inc. in the State Court of Common Pleas in Hampton County, South Carolina (the Santee Cooper Ratepayer Case). The allegations are substantially similar to those in the DESC Ratepayer Case. The plaintiffs seek a declaratory judgment that the defendants may not charge the purported class for reimbursement for past or future costs of the NND Project. In March 2018, the plaintiffs filed an amended complaint including as additional named defendants certain then current and former directors of Santee Cooper and SCANA. In June 2018, Santee Cooper filed a Notice of Petition for Original Jurisdiction with the Supreme Court of South Carolina which was denied. In December 2018, Santee Cooper filed its answer to the plaintiffs' fourth amended complaint and filed cross claims against DESC. In October 2019, Santee Cooper voluntarily consented to stay its cross claims against DESC pending the outcome of the trial of the underlying case. This case is pending.
In July 2019, a similar purported class action was filed by certain Santee Cooper ratepayers against DESC, SCANA, Dominion Energy and former directors and officers of SCANA in the State Court of Common Pleas in Orangeburg, South Carolina. In August 2019, DESC, SCANA and Dominion Energy were voluntarily dismissed from the case. The claims are similar to the Santee Cooper Ratepayer Case. This case is pending.
RICO Class Action
In January 2018, a purported class action was filed, and subsequently amended, against SCANA, DESC and certain former executive officers in the U.S. District Court for the District of South Carolina. The plaintiff alleges, among other things, that SCANA, DESC and the individual defendants participated in an unlawful racketeering enterprise in violation of RICO and conspired to violate RICO by fraudulently inflating utility bills to generate unlawful proceeds. The DESC Ratepayer Class Action settlement described previously contemplates dismissal of claims by DESC ratepayers in this case against DESC, SCANA and their officers. In August 2019, the individual defendants filed motions to dismiss. This case is pending.
SCANA Shareholder Litigation
In February 2018, a purported class action was filed against Dominion Energy and certain former directors of SCANA and DESC in the State Court of Common Pleas in Richland County, South Carolina (the Metzler Lawsuit). The plaintiff alleges, among other things, that defendants violated their fiduciary duties to shareholders by executing a merger agreement that would unfairly deprive plaintiffs of the true value of their SCANA stock, and that Dominion Energy aided and abetted these actions. Among other remedies, the plaintiff seeks to enjoin and/or rescind the merger. In February 2018, Dominion Energy removed the case to the U.S. District Court for the District of South Carolina and filed a Motion to Dismiss in March 2018. In August 2018, the case was remanded back to the State Court of Common Pleas in Richland County. Dominion Energy appealed the decision to remand to the U.S. Court of Appeals for the Fourth Circuit, where the appeal was consolidated with another lawsuit regarding the SCANA Merger Agreement to which DESC is not a party. In June 2019, the U.S. Court of Appeals for the Fourth Circuit reversed the order remanding the case to state court. The case is pending in the U.S. District Court for the District of South Carolina.
Employment Class Actions and Indemnification
In August 2017, a case was filed in the U.S. District Court for the District of South Carolina on behalf of persons who were formerly employed at the NND Project. In July 2018, the court certified this case as a class action. In February 2019, certain of these plaintiffs filed an additional case, which case has been dismissed and the plaintiffs have joined the case filed in August 2017. The plaintiffs allege, among other things, that SCANA, DESC, Fluor Corporation and Fluor Enterprises, Inc. violated the Worker Adjustment and Retraining Notification Act in connection with the decision to stop construction at the NND Project. The plaintiffs allege that the defendants failed to provide adequate advance written notice of their terminations of employment and are seeking damages, which could be as much as $100 million for 100% of the NND Project.
In September 2018, a case was filed in the State Court of Common Pleas in Fairfield County, South Carolina by Fluor Enterprises, Inc. and Fluor Daniel Maintenance Services, Inc. against DESC and Santee Cooper. The plaintiffs make claims for indemnification, breach of contract and promissory estoppel arising from, among other things, the defendants' alleged failure and refusal to defend and indemnify the Fluor defendants in the aforementioned case. These cases are pending.
FILOT Litigation and Related Matters
In November 2017, Fairfield County filed a complaint and a motion for temporary injunction against DESC in the State Court of Common Pleas in Fairfield County, South Carolina, making allegations of breach of contract, fraud, negligent misrepresentation, breach of fiduciary duty, breach of implied duty of good faith and fair dealing and unfair trade practices related to DESC’s termination of the FILOT agreement between DESC and Fairfield County related to the NND Project. The plaintiff sought a temporary and permanent injunction to prevent DESC from terminating the FILOT agreement. The plaintiff withdrew the motion for temporary injunction in December 2017. This case is pending.
Governmental Proceedings and Investigations
In June 2018, DESC received a notice of proposed assessment of approximately $410 million, excluding interest, from the SCDOR following its audit of DESC’s sales and use tax returns for the periods September 1, 2008 through December 31, 2017. The proposed assessment, which includes 100% of the NND Project, is based on the SCDOR’s position that DESC’s sales and use tax exemption for the NND Project does not apply because the facility will not become operational. DESC has protested the proposed assessment, which remains pending.
In September and October 2017, SCANA was served with subpoenas issued by the U.S. Attorney’s Office for the District of South Carolina and the Staff of the SEC’s Division of Enforcement seeking documents related to the NND Project. In addition, the South Carolina Law Enforcement Division is conducting a criminal investigation into the handling of the NND Project by SCANA and DESC. These matters are pending. SCANA and DESC are cooperating fully with the investigations, including responding to additional subpoenas and document requests.
Other Litigation
In December 2018, arbitration proceedings commenced between DESC and Cameco Corporation related to a supply agreement signed in May 2008. This agreement provides the terms and conditions under which DESC agreed to purchase uranium hexafluoride from Cameco Corporation over a period from 2010 to 2020. Cameco Corporation alleges that DESC violated this agreement by failing to purchase the stated quantities of uranium hexafluoride for the 2017 and 2018 delivery years. DESC denies that it is in breach of the agreement and believes that it has reduced its purchase quantity within the terms of the agreement. This matter is pending.
In September 2019, a South Carolina state court jury awarded a judgment to the estate of Jose Larios in a wrongful death suit filed in June 2017 against DESC, of which DESC was apportioned $19 million. DESC holds general liability insurance coverage which is expected to provide payment for substantially all DESC’s liability in this matter. In October 2019, DESC filed a motion requesting a reduction in the judgment or, in the alternative, a new trial. In November 2019,DESC’s motion for a new trial was granted, setting aside the entire verdict amount. This matter is pending.
Contractor Bankruptcy Proceedings
Westinghouse’s Reorganization Plan became effective August 1, 2018. Initially, Westinghouse had projected that its Reorganization Plan would pay in full or nearly in full its pre-petition trade creditors, including several of the Westinghouse Subcontractors which have alleged non-payment by the Consortium for amounts owed for work performed on the NND Project and have filed liens on related property in Fairfield County, South Carolina. DESC is contesting approximately $285 million of such filed liens. Most of these asserted liens are “pre-petition” claims that relate to work performed by Westinghouse Subcontractors before the Westinghouse bankruptcy, although some of them are “post-petition” claims arising from work performed after the Westinghouse bankruptcy. It is possible that the Reorganization Plan will not provide for payment in full or nearly in full to its pre-petition trade creditors. The shortfall could be significant. In addition, payments under the Toshiba Settlement are subject to reduction if Westinghouse pays Westinghouse Subcontractors holding pre-petition liens directly. Under these circumstances, DESC and Santee Cooper, each in its pro rata share, would be required to make Citibank, N.A., which purchased the scheduled payments under the Toshiba Settlement, whole for reductions related to valid subcontractor and vendor pre-petition liens up to $60 million ($33 million for DESC's 55% share).
DESC and Santee Cooper are responsible for amounts owed to Westinghouse for valid work performed by Westinghouse Subcontractors on the NND Project after the Westinghouse bankruptcy filing (i.e., post-petition) until termination of the IAA (the IAA Period). In the Westinghouse bankruptcy proceeding, deadlines were established for creditors of Westinghouse to assert the amounts owed to such creditors prior to the Westinghouse bankruptcy filing and during the IAA Period. Many of the Westinghouse Subcontractors have filed such claims. DESC does not believe that the claims asserted related to the IAA Period will exceed the amounts previously funded for the currently asserted IAA-related claims, whether relating to claims already paid or those remaining to be paid. DESC intends to oppose any previously unasserted claim that is asserted against it, whether directly or indirectly by a claim through the IAA.
Further, some Westinghouse Subcontractors who have made claims against Westinghouse in the bankruptcy proceeding also filed against DESC and Santee Cooper in South Carolina state court for damages. The Westinghouse Subcontractor claims in South Carolina state court include common law claims for pre-petition work, IAA Period work, and work after the termination of the IAA. Many of these claimants have also asserted construction liens against the NND Project site. While DESC cannot be assured that it will not have any exposure on account of unpaid Westinghouse Subcontractor claims, which claims DESC is presently disputing, DESC believes it is unlikely that it will be required to make payments on account of such claims.
Nuclear Insurance
Under Price-Anderson, DESC (for itself and on behalf of Santee-Cooper) maintains agreements of indemnity with the U.S. Nuclear Regulatory Commission that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at Summer. Price-Anderson provides funds up to $14.0 billion for public liability claims that could arise from a single nuclear incident. Each nuclear plant is insured against this liability to a maximum of $450 million by American Nuclear Insurers with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of commercial nuclear reactors. Each reactor licensee is liable for up to $138 million per reactor owned for each nuclear incident occurring at any reactor in the U.S., provided that not more than $21 million of the liability per reactor would be assessed per year. DESC’s maximum assessment, based on its two-thirds ownership of Summer, would be $92 million per incident, but not more than $14 million per year. Both the maximum assessment per reactor and the maximum yearly assessment are adjusted for inflation at least every five years.
DESC currently maintains insurance policies (for itself and on behalf of Santee Cooper) with NEIL. The policies provide coverage to Summer for property damage and outage costs up to $2.75 billion resulting from an event of nuclear origin and up to $2.33 billion resulting from an event of a non-nuclear origin. The NEIL policies in aggregate, are subject to a maximum loss of $2.75 billion for any single loss occurrence. The NEIL policies permit retrospective assessments under certain conditions to cover insurer’s losses. Based on the current annual premium, DESC’s portion of the retrospective premium assessment would not exceed $24 million. DESC currently maintains an excess property insurance policy (for itself and on behalf of Santee Cooper) with EMANI. The policy provides coverage to Summer for property damage and outage costs up to $415 million resulting from an event of a non-nuclear origin. The EMANI policy permits retrospective assessments under certain conditions to cover insurer's losses. Based on the current annual premium, DESC's portion of the retrospective premium assessment would not exceed $2 million.
To the extent that insurable claims for property damage, decontamination, repair and replacement and other costs and expenses arising from an incident at Summer exceed the policy limits of insurance, or to the extent such insurance becomes unavailable in the future, and to the extent that DESC's rates would not recover the cost of any purchased replacement power, DESC will retain the risk of loss as a self-insurer. DESC has no reason to anticipate a serious nuclear or other incident. However, if such an incident were to occur, it likely would have a material impact on DESC's results of operations, cash flows and financial position.
12. LEASES
At September 30, 2019, DESC had the following lease assets and liabilities recorded in the Consolidated Balance Sheets:
(millions) |
| September 30, 2019 |
| |
Lease assets: |
|
|
|
|
Operating lease assets(1) |
| $ | 24 |
|
Finance lease assets(2) |
|
| 27 |
|
Total lease assets |
| $ | 51 |
|
Lease liabilities: |
|
|
|
|
Operating lease - current(3) |
| $ | 3 |
|
Operating lease - noncurrent(4) |
|
| 19 |
|
Finance lease - current(5) |
|
| 7 |
|
Finance lease - noncurrent(6) |
|
| 21 |
|
Total lease liabilities |
| $ | 50 |
|
(2) | Included in utility plant, net, in the Consolidated Balance Sheets, net of $22 million of accumulated amortization at September 30, 2019. |
(3) | Included in other current liabilities in the Consolidated Balance Sheets. |
(4) | Included in other deferred credits and other liabilities in the Consolidated Balance Sheets. |
(5) | Included in current portion of long-term debt in the Consolidated Balance Sheets. |
(6) | Included in long-term debt in the Consolidated Balance Sheets. |
For the three and nine months ended September 30, 2019, total lease cost consisted of Contentsthe following:
|
| Three Months Ended |
|
| Nine Months Ended |
| ||
(millions) |
| September 30, 2019 |
|
| September 30, 2019 |
| ||
Finance lease cost: |
|
|
|
|
|
|
|
|
Amortization |
| $ | 2 |
|
| $ | 6 |
|
Interest |
|
| — |
|
|
| — |
|
Operating lease cost |
|
| 1 |
|
|
| 2 |
|
Short-term lease cost |
|
| — |
|
|
| 1 |
|
Variable lease cost |
|
| — |
|
|
| — |
|
Total lease cost |
| $ | 3 |
|
| $ | 9 |
|
For the nine months ended September 30, 2019, cash paid for amounts included in the measurement of lease liabilities consisted of the following amounts, included in the Consolidated Statements of Cash Flows:
|
| Nine Months Ended |
| |
(millions) |
| September 30, 2019 |
| |
Operating cash flows from finance leases |
| $ | 1 |
|
Operating cash flows from operating leases |
|
| 3 |
|
Financing cash flows from finance leases |
|
| 5 |
|
At September 30, 2019, the weighted average remaining lease term and weighted average discount rate for finance and operating leases were as follows:
September 30, 2019 | ||||
Weighted average remaining lease term - finance leases | 5 years | |||
Weighted average remaining lease term - operating leases | 18 years | |||
Weighted average discount rate - finance leases | 2.96 | % | ||
Weighted average discount rate - operating leases | 3.95 | % |
Lease liabilities have the following scheduled maturities:
(millions) |
| Operating |
|
| Finance |
| ||
2019 |
| $ | 1 |
|
| $ | 2 |
|
2020 |
|
| 4 |
|
|
| 8 |
|
2021 |
|
| 3 |
|
|
| 6 |
|
2022 |
|
| 2 |
|
|
| 5 |
|
2023 |
|
| 1 |
|
|
| 3 |
|
After 2023 |
|
| 23 |
|
|
| 6 |
|
Total undiscounted lease payments |
|
| 34 |
|
|
| 30 |
|
Present value adjustment |
|
| (12 | ) |
|
| (2 | ) |
Present value of lease liabilities |
| $ | 22 |
|
| $ | 28 |
|
13. OPERATING SEGMENTS
Operating segments include Electric Operations and Gas Distribution segments.and are organized primarily on the basis of products and services sold.
In connection with the SCANA Combination, effective January 2019, reportable segments were changed to include a Corporate and Other segment and to utilize comprehensive income (loss) as the measure of segment profitability. The Gas MarketingCorporate and Other segment includes specific items attributable to DESC's operating segments that are not included in profit measures profitability usingevaluated by executive management in assessing the segments' performance or in allocating resources. Corresponding amounts in prior periods have been recast to conform to the current presentation.
In the nine months ended September 30, 2019, DESC reported after-tax net income.expenses of $1.4 billion for specific items in the Corporate and Other segment, with $1.4 billion attributable to its operating segments.
The net expense for specific items attributable to DESC’s operating segments in 2019 primarily related to the impact of the following items:
• | A $1.0 billion ($756 million after-tax) charge for refunds of amounts previously collected from retail electric customers for the NND Project, attributable to Electric Operations; |
• | $266 million ($200 million after-tax) of charges associated with litigation, attributable to Electric Operations; |
• | A $198 million tax charge for $264 million of income tax-related regulatory assets for which DESC committed to forgo recovery, attributable to Electric Operations; |
• | A $114 million ($86 million after-tax) charge for utility plant primarily for which DESC committed to forgo recovery, attributable to Electric Operations; |
• | $90 million ($68 million after-tax) of merger and integration-related costs associated with the SCANA Combination, including a $75 million ($56 million after-tax) charge related to a voluntary retirement program, attributable to: |
• | Electric Operations ($61 million after-tax); and |
• | Gas Distribution ($7 million after-tax); and |
• | $59 million tax charges for changes in unrecognized tax benefits, attributable to Electric Operations. |
(millions) |
| External Revenue |
|
| Comprehensive Income (Loss) Available (Attributable) to Common Shareholder |
| ||
Three Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
Electric Operations |
| $ | 728 |
|
| $ | 169 |
|
Gas Distribution |
|
| 67 |
|
|
| (1 | ) |
Corporate and Other |
|
| — |
|
|
| (25 | ) |
Adjustments/Eliminations |
|
| — |
|
|
| — |
|
Consolidated Total |
| $ | 795 |
|
| $ | 143 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
Electric Operations |
| $ | 670 |
|
| $ | 112 |
|
Gas Distribution |
|
| 69 |
|
|
| (7 | ) |
Corporate and Other |
|
| — |
|
|
| (1 | ) |
Adjustments/Eliminations |
|
| — |
|
|
| (6 | ) |
Consolidated Total |
| $ | 739 |
|
| $ | 98 |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|
|
|
|
|
|
|
Electric Operations |
| $ | 1,875 |
|
| $ | 321 |
|
Gas Distribution |
|
| 292 |
|
|
| 13 |
|
Corporate and Other |
|
| (1,009 | ) |
|
| (1,364 | ) |
Adjustments/Eliminations |
|
| — |
|
|
| (14 | ) |
Consolidated Total |
| $ | 1,158 |
|
| $ | (1,044 | ) |
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2018 |
|
|
|
|
|
|
|
|
Electric Operations |
| $ | 1,770 |
|
| $ | 242 |
|
Gas Distribution |
|
| 304 |
|
|
| 22 |
|
Corporate and Other |
|
| — |
|
|
| (1 | ) |
Adjustments/Eliminations |
|
| — |
|
|
| (15 | ) |
Consolidated Total |
| $ | 2,074 |
|
| $ | 248 |
|
The Company | ||||||||||||||||
Millions of dollars | External Revenue | Intersegment Revenue | Operating Income | Net Income | ||||||||||||
Three Months Ended September 30, 2017 | ||||||||||||||||
Electric Operations | $ | 786 | $ | 1 | $ | 126 | n/a | |||||||||
Gas Distribution | 123 | — | (7 | ) | n/a | |||||||||||
Gas Marketing | 167 | 35 | n/a | $ | 1 | |||||||||||
All Other | — | 90 | — | (7 | ) | |||||||||||
Adjustments/Eliminations | — | (126 | ) | 1 | 40 | |||||||||||
Consolidated Total | $ | 1,076 | $ | — | $ | 120 | $ | 34 |
Nine Months Ended September 30, 2017 | ||||||||||||||||
Electric Operations | $ | 2,042 | $ | 4 | $ | 549 | n/a | |||||||||
Gas Distribution | 584 | 1 | 109 | n/a | ||||||||||||
Gas Marketing | 623 | 93 | n/a | $ | 17 | |||||||||||
All Other | — | 286 | — | (14 | ) | |||||||||||
Adjustments/Eliminations | — | (384 | ) | 27 | 323 | |||||||||||
Consolidated Total | $ | 3,249 | $ | — | $ | 685 | $ | 326 |
Three Months Ended September 30, 2016 | ||||||||||||||||
Electric Operations | $ | 817 | $ | 1 | $ | 364 | n/a | |||||||||
Gas Distribution | 111 | — | (14 | ) | n/a | |||||||||||
Gas Marketing | 165 | 35 | n/a | $ | (1 | ) | ||||||||||
All Other | — | 100 | — | (7 | ) | |||||||||||
Adjustments/Eliminations | — | (136 | ) | (2 | ) | 197 | ||||||||||
Consolidated Total | $ | 1,093 | $ | — | $ | 348 | $ | 189 |
Nine Months Ended September 30, 2016 | ||||||||||||||||
Electric Operations | $ | 2,035 | $ | 4 | $ | 784 | n/a | |||||||||
Gas Distribution | 538 | 1 | 79 | n/a | ||||||||||||
Gas Marketing | 598 | 83 | n/a | $ | 23 | |||||||||||
All Other | — | 302 | — | (14 | ) | |||||||||||
Adjustments/Eliminations | — | (390 | ) | 37 | 462 | |||||||||||
Consolidated Total | $ | 3,171 | $ | — | $ | 900 | $ | 471 |
Consolidated SCE&G | ||||||||||||
Millions of dollars | External Revenue | Operating Income | Earnings Available to Common Shareholder | |||||||||
Three Months Ended September 30, 2017 | ||||||||||||
Electric Operations | $ | 787 | $ | 125 | n/a | |||||||
Gas Distribution | 69 | (2 | ) | n/a | ||||||||
Adjustments/Eliminations | — | — | $ | 39 | ||||||||
Consolidated Total | $ | 856 | $ | 123 | $ | 39 |
Nine Months Ended September 30, 2017 | ||||||||||||
Electric Operations | $ | 2,046 | $ | 549 | n/a | |||||||
Gas Distribution | 285 | 42 | n/a | |||||||||
Adjustments/Eliminations | — | — | $ | 270 | ||||||||
Consolidated Total | $ | 2,331 | $ | 591 | $ | 270 |
Three Months Ended September 30, 2016 | ||||||||||||
Electric Operations | $ | 818 | $ | 364 | n/a | |||||||
Gas Distribution | 64 | (5 | ) | n/a | ||||||||
Adjustments/Eliminations | — | — | $ | 201 | ||||||||
Consolidated Total | $ | 882 | $ | 359 | $ | 201 |
Nine Months Ended September 30, 2016 | ||||||||||||
Electric Operations | $ | 2,039 | $ | 784 | n/a | |||||||
Gas Distribution | 253 | 32 | n/a | |||||||||
Adjustments/Eliminations | — | — | $ | 423 | ||||||||
Consolidated Total | $ | 2,292 | $ | 816 | $ | 423 |
Segment Assets | The Company | Consolidated SCE&G | ||||||||||||||
September 30, | December 31, | September 30, | December 31, | |||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Electric Operations | $ | 12,294 | $ | 11,929 | $ | 12,294 | $ | 11,929 | ||||||||
Gas Distribution | 3,080 | 2,892 | 856 | 825 | ||||||||||||
Gas Marketing | 187 | 230 | n/a | n/a | ||||||||||||
All Other | 970 | 1,124 | n/a | n/a | ||||||||||||
Adjustments/Eliminations | 3,488 | 2,532 | 4,283 | 3,337 | ||||||||||||
Consolidated Total | $ | 20,019 | $ | 18,707 | $ | 17,433 | $ | 16,091 |
14. AFFILIATED AND RELATED PARTY TRANSACTIONS
DESC owns 40% of Canadys Refined Coal, LLC, which is involved in the manufacturing and sale of refined coal to reduce emissions. SCE&Gemissions at certain of DESC's generating facilities. DESC accounts for this investment using the equity method. The netPurchases and sales of the total purchases and total salesrelated coal are recorded as other income (expense), net in Other expenses on the consolidated statementsConsolidated Statements of income (for the Company) and of comprehensive income (for Consolidated SCE&G)Comprehensive Income (Loss).
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Millions of Dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Purchases from Canadys Refined Coal, LLC | $ | 47.5 | $ | 41.8 | $ | 144.9 | $ | 138.6 | ||||||||
Sales to Canadys Refined Coal, LLC | 47.2 | 41.6 | 144.0 | 137.8 |
Millions of Dollars | September 30, 2017 | December 31, 2016 | ||||||
Receivable from Canadys Refined Coal, LLC | $ | 7.6 | $ | 16.0 | ||||
Payable to Canadys Refined Coal, LLC | 7.7 | 16.1 |
DESC purchases natural gas and related pipeline capacity from SCANA Energy Marketing, Inc. to serve its retail gas customers and to satisfy certain electric generation requirements.
DESS, on behalf of itself and its parent company, provides the following services to Consolidated SCE&G,DESC, which are rendered at direct or allocated cost: information systems, telecommunications, customer support, marketing and sales, human resources, corporate compliance, purchasing, financial, risk management, public affairs, legal, investor relations, gas supply and capacity management, strategic planning, general administrative, and retirement benefits. In addition, SCANA ServicesDESS processes and pays invoices for Consolidated SCE&GDESC and is reimbursed. Costs for these services include amounts capitalized. Amounts expensed are primarily recorded in Other operationother operations and maintenance - nonconsolidatedaffiliated suppliers and other income (expense), net in the Consolidated Statements of Comprehensive Income (Loss).
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Purchases of coal from affiliate |
| $ | 38 |
|
| $ | 45 |
|
| $ | 100 |
|
| $ | 123 |
|
Sales of coal to affiliate |
|
| 37 |
|
|
| 45 |
|
|
| 99 |
|
|
| 122 |
|
Purchases of fuel used in electric generation from affiliate |
|
| — |
|
|
| 35 |
|
|
| 43 |
|
|
| 95 |
|
Direct and allocated costs from services company affiliate(1) |
|
| 67 |
|
|
| 73 |
|
|
| 207 |
|
|
| 208 |
|
Operating Revenues - Electric from sales to affiliate |
|
| 1 |
|
|
| 1 |
|
|
| 3 |
|
|
| 3 |
|
Operating Expenses - Other taxes from affiliate |
|
| 2 |
|
|
| 2 |
|
|
| 5 |
|
|
| 4 |
|
(1) | Includes capitalized expenditures of $13 million and $10 million for the three months ended September 30, 2019 and 2018, and $33 million and $29 million for the nine months ended September 30, 2019 and 2018, respectively. |
(millions) |
| September 30, 2019 |
|
| December 31, 2018 |
| ||
Receivable from Canadys Refined Coal, LLC |
| $ | 13 |
|
| $ | 7 |
|
Payable to Canadys Refined Coal, LLC |
|
| 13 |
|
|
| 7 |
|
Payable to SCANA Energy Marketing, Inc. |
|
| — |
|
|
| 14 |
|
Payable to DESS |
|
| 47 |
|
|
| 38 |
|
In connection with the SCANA Combination, purchases from certain entities owned by Dominion Energy became affiliated transactions. During the three and nine months ended September 30, 2019, DESC purchased electricity generated by three such affiliates, totaling $3 million and $7 million, respectively, which is recorded as purchased power in the Consolidated Statements of Comprehensive Income (Loss). At September 30, 2019, DESC had accounts payable balances to these affiliates totaling less than $1 million. In addition, during the three and nine months ended September 30, 2019, DESC incurred demand and transportation charges from Dominion Energy Carolina Gas Transmission, LLC totaling $16 million and $48 million, respectively, of which $6 million and $15 million, respectively, is recorded as fuel used in electric generation and $10 million and $33 million, respectively, is recorded as gas purchased for resale in the Consolidated Statements of Comprehensive Income (Loss). At September 30, 2019, DESC had an accounts payable balance due to this affiliate and Other expenses on the consolidated statements of comprehensive income.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
Millions of Dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Purchases from SCANA Energy | $ | 35.3 | $ | 34.8 | $ | 93.4 | $ | 83.1 | ||||||||
Direct and Allocated Costs from SCANA Services | 78.1 | 80.4 | 233.6 | 236.4 |
Millions of Dollars | September 30, 2017 | December 31, 2016 | ||||||
Payable to SCANA Energy | $ | 10.7 | $ | 8.8 | ||||
Payable to SCANA Services | 45.3 | 63.5 |
Borrowings from an affiliate are described in condensed consolidated Note 4. SCE&G's participation5.
15. OTHER INCOME (EXPENSE), NET
Components of other income (expense), net are as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
(millions) |
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Revenues from contracts with customers |
| $ | 1 |
|
| $ | 1 |
|
| $ | 4 |
|
| $ | 4 |
|
Other income |
|
| 11 |
|
|
| 5 |
|
|
| 17 |
|
|
| 135 |
|
Other expense |
|
| (23 | ) |
|
| (10 | ) |
|
| (48 | ) |
|
| (22 | ) |
Allowance for equity funds used during construction |
|
| (2 | ) |
|
| 3 |
|
|
| — |
|
|
| 7 |
|
Other income (expense), net |
| $ | (13 | ) |
| $ | (1 | ) |
| $ | (27 | ) |
| $ | 124 |
|
Other income in SCANA's noncontributory defined benefit2018 includes gains from the settlement of interest rate derivatives of $115 million (see Note 7). Non-service cost components of pension plan and unfundedother postretirement health care and life insurance programs is describedbenefits are included in condensed consolidated Note 8.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
MD&A provides management’s narrative analysis of its consolidated results of operationoperation. MD&A should be read in conjunction with DESC's Consolidated Financial Statements. DESC meets the conditions to file under the reduced disclosure format, and therefore has omitted certain sections of MD&A.
Forward-Looking Statements
This report contains statements concerning DESC’s expectations, plans, objectives, future financial performance and other information described therein. Such information isstatements that are not historical facts. These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In most cases, the reader can identify these forward-looking statements by such words as “anticipate,” “estimate,” “forecast,” “expect,” “believe,” “should,” “could,” “plan,” “may,” “continue,” “target” or other similar words.
DESC makes forward-looking statements with full knowledge that risks and uncertainties exist that may cause actual results to differ materially from predicted results. Factors that may cause actual results to differ are often presented hereunder specifically for Consolidated SCE&G,with the forward-looking statements themselves. Additionally, other factors may cause actual results to differ materially from those indicated in any forward-looking statement. These factors include but may be presented alongside information presented for the Company generally. Consolidated SCE&G makes no representation as to information relating solely to SCANA and its subsidiaries (other than Consolidated SCE&G).are not limited to:
• | the ability of DESC to recover through rates certain costs expended on the NND Project, and a reasonable return on those costs, under the SCANA Merger Approval Order and the abandonment provisions of the BLRA or through other means; |
• | uncertainties relating to the bankruptcy filing by Westinghouse and WECTEC; |
• | further changes in tax laws and realization of tax benefits and credits, and the ability to realize or maintain tax credits and deductions, particularly in light of the abandonment of the NND Project; |
• | legislative and regulatory actions, particularly changes related to electric and gas services, rate regulation, regulations governing electric grid reliability and pipeline integrity, environmental regulations including any imposition of fees or taxes on carbon emitting generating facilities, and any actions involving or arising from the abandonment of the NND Project; |
• | current and future litigation, including particularly litigation or government investigations or any actions involving or arising from the construction or abandonment of the NND Project, including the possible impacts on liquidity and other financial impacts therefrom; |
• | the results of short- and long-term financing efforts, including prospects for obtaining access to capital markets and other sources of liquidity and the effect of rating agency actions on the cost of and access to capital and sources of liquidity of DESC and Dominion Energy; |
• | the ability of suppliers, both domestic and international, to timely provide the labor, secure processes, components, parts, tools, equipment and other supplies needed which may be highly specialized or in short supply, at agreed upon quality and prices, for our construction program, operations and maintenance; |
• | the results of efforts to ensure the physical and cyber security of key assets and processes; |
• | changes in the economy, especially in areas served by DESC; |
• | the impact of competition from other energy suppliers, including competition from alternate fuels in industrial markets; |
• | the impact of conservation and demand side management efforts and/or technological advances on customer usage; |
• | the loss of electricity sales to distributed generation, such as solar photovoltaic systems or energy storage systems; |
• | growth opportunities; |
• | the effects of weather, especially in areas where the generation and transmission facilities of DESC are located and in areas served by DESC; |
• | changes in accounting rules and accounting policies; |
• | payment and performance by counterparties and customers as contracted and when due; |
• | the results of efforts to license, site, construct and finance facilities, and to receive related rate recovery, for generation and transmission; |
• | the results of efforts to operate DESC's electric and gas systems and assets in accordance with acceptable performance standards, including the impact of additional distributed generation; |
• | the availability of fuels such as coal, natural gas and enriched uranium used to produce electricity; the availability of purchased power and natural gas for distribution; the level and volatility of future market prices for such fuels and purchased power; and the ability to recover the costs for such fuels and purchased power; |
• | the availability and retention of skilled, licensed and experienced human resources to properly manage, operate, and grow DESC's businesses, particularly in light of uncertainties with respect to integration within the combined companies of Dominion Energy; |
• | labor disputes; |
• | performance of DESC’s pension plan assets and the effect(s) of associated discount rates; |
• | inflation or deflation; |
• | changes in interest rates; |
• | compliance with regulations; and |
• | natural disasters, man-made mishaps and acts of terrorism that directly affect our operations or the regulations governing them. |
Additionally, other risks that could cause actual results to differ from predicted results are set forth in Part II, Item 1A. Risk Factors in this report.
DESC’s forward-looking statements are based on beliefs and assumptions using information available at the time the statements are made. DESC cautions the reader not to place undue reliance on its forward-looking statements because the assumptions, beliefs, expectations and projections about future events may, and often do, differ materially from actual results. DESC undertakes no obligation to update any forward-looking statement to reflect developments occurring after the statement is made.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2017
AS COMPARED TO THE CORRESPONDING PERIODS IN 2016
Results of Operations appearing in SCANA’s and SCE&G’s Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations of the Company include those of the parent holding company and each of its subsidiaries, including Consolidated SCE&G. Accordingly, discussions regarding the Company's results of operations necessarily include those of Consolidated SCE&G.
|
| Third Quarter |
|
| Year-To-Date |
| ||||||||||||||||||
(millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
| ||||||
Net income (loss) |
| $ | 142 |
|
| $ | 103 |
|
| $ | 39 |
|
| $ | (1,031 | ) |
| $ | 262 |
|
| $ | (1,293 | ) |
Third Quarter | Year to Date | |||||||||||||||
The Company | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Earnings per share | $ | 0.24 | $ | 1.32 | $ | 2.28 | $ | 3.29 | ||||||||
Consolidated SCE&G | ||||||||||||||||
Net income (millions of dollars) | $ | 41.8 | $ | 204.0 | $ | 279.7 | $ | 432.9 |
The Company | Consolidated SCE&G | |||||||||||||||||||||||||||||||
Third Quarter | Year to Date | Third Quarter | Year to Date | |||||||||||||||||||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Operating revenues | $ | 787.3 | $ | 818.4 | $ | 2,045.9 | $ | 2,038.5 | $ | 787.3 | $ | 818.4 | $ | 2,045.9 | $ | 2,038.5 | ||||||||||||||||
Fuel used in electric generation | 166.5 | 176.4 | 464.1 | 442.9 | 166.5 | 176.4 | 464.1 | 442.9 | ||||||||||||||||||||||||
Purchased power | 22.3 | 21.0 | 54.1 | 49.6 | 22.3 | 21.0 | 54.1 | 49.6 | ||||||||||||||||||||||||
Other operation and maintenance | 133.1 | 130.0 | 382.5 | 389.9 | 136.6 | 133.6 | 393.2 | 400.1 | ||||||||||||||||||||||||
Impairment loss | 210.0 | — | 210.0 | — | 210.0 | — | 210.0 | — | ||||||||||||||||||||||||
Depreciation and amortization | 73.8 | 71.9 | 219.9 | 213.4 | 70.8 | 68.8 | 211.0 | 204.7 | ||||||||||||||||||||||||
Other taxes | 56.4 | 55.4 | 166.8 | 159.0 | 55.9 | 54.9 | 165.0 | 157.5 | ||||||||||||||||||||||||
Operating Income | $ | 125.2 | $ | 363.7 | $ | 548.5 | $ | 783.7 | $ | 125.2 | $ | 363.7 | $ | 548.5 | $ | 783.7 |
Third Quarter | Year to Date | |||||||||||
Classification | 2017 | 2016 | 2017 | 2016 | ||||||||
Residential | 2,384 | 2,648 | 5,936 | 6,450 | ||||||||
Commercial | 2,159 | 2,259 | 5,663 | 5,861 | ||||||||
Industrial | 1,652 | 1,676 | 4,676 | 4,760 | ||||||||
Other | 163 | 171 | 444 | 462 | ||||||||
Total Retail Sales | 6,358 | 6,754 | 16,719 | 17,533 | ||||||||
Wholesale | 257 | 276 | 699 | 725 | ||||||||
Total Sales | 6,615 | 7,030 | 17,418 | 18,258 |
Third Quarter and Year to Date
Net income (including transactions with affiliates) was as follows:
The Company | Consolidated SCE&G | |||||||||||||||||||||||||||||||
Third Quarter | Year to Date | Third Quarter | Year to Date | |||||||||||||||||||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Operating revenues | $ | 123.4 | $ | 111.9 | $ | 585.7 | $ | 539.3 | $ | 68.3 | $ | 64.0 | $ | 285.1 | $ | 253.2 | ||||||||||||||||
Gas purchased for resale | 57.8 | 51.2 | 254.1 | 238.2 | 38.5 | 36.5 | 146.5 | 126.0 | ||||||||||||||||||||||||
Other operation and maintenance | 39.8 | 42.9 | 126.2 | 129.7 | 16.9 | 18.4 | 52.9 | 54.1 | ||||||||||||||||||||||||
Depreciation and amortization | 21.4 | 20.8 | 63.3 | 60.9 | 7.4 | 6.8 | 21.6 | 20.3 | ||||||||||||||||||||||||
Other taxes | 10.5 | 10.4 | 32.4 | 31.3 | 7.2 | 7.0 | 21.6 | 20.3 | ||||||||||||||||||||||||
Operating Income (Loss) | $ | (6.1 | ) | $ | (13.4 | ) | $ | 109.7 | $ | 79.2 | $ | (1.7 | ) | $ | (4.7 | ) | $ | 42.5 | $ | 32.5 |
Year-To-Date 2019 vs. 2018
Net income decreased $1.3 million and customer growth of $1.0 million.
Analysis of Consolidated Operations
|
| Third Quarter |
|
| Year-To-Date |
| ||||||||||||||||||
(millions) |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| 2019 |
|
| 2018 |
|
| $ Change |
| ||||||
Operating revenues |
| $ | 795 |
|
| $ | 739 |
|
| $ | 56 |
|
| $ | 1,158 |
|
| $ | 2,074 |
|
| $ | (916 | ) |
Fuel used in electric generation |
|
| 167 |
|
|
| 188 |
|
|
| (21 | ) |
|
| 447 |
|
|
| 503 |
|
|
| (56 | ) |
Purchased power |
|
| 15 |
|
|
| 10 |
|
|
| 5 |
|
|
| 35 |
|
|
| 77 |
|
|
| (42 | ) |
Gas purchased for resale |
|
| 37 |
|
|
| 41 |
|
|
| (4 | ) |
|
| 158 |
|
|
| 161 |
|
|
| (3 | ) |
Net revenue |
|
| 576 |
|
|
| 500 |
|
|
| 76 |
|
|
| 518 |
|
|
| 1,333 |
|
|
| (815 | ) |
Other operations and maintenance |
|
| 144 |
|
|
| 144 |
|
|
| — |
|
|
| 483 |
|
|
| 455 |
|
|
| 28 |
|
Impairment of assets and other charges |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 371 |
|
|
| 4 |
|
|
| 367 |
|
Depreciation and amortization |
|
| 116 |
|
|
| 81 |
|
|
| 35 |
|
|
| 333 |
|
|
| 242 |
|
|
| 91 |
|
Other taxes |
|
| 55 |
|
|
| 63 |
|
|
| (8 | ) |
|
| 196 |
|
|
| 192 |
|
|
| 4 |
|
Other income (expense), net |
|
| (13 | ) |
|
| (1 | ) |
|
| (12 | ) |
|
| (27 | ) |
|
| 124 |
|
|
| (151 | ) |
Interest charges |
|
| 66 |
|
|
| 79 |
|
|
| (13 | ) |
|
| 202 |
|
|
| 232 |
|
|
| (30 | ) |
Income tax expense (benefit) |
|
| 40 |
|
|
| 29 |
|
|
| 11 |
|
|
| (63 | ) |
|
| 70 |
|
|
| (133 | ) |
Third Quarter 2019 vs. 2018
Net revenue increased 15%, primarily due to increased revenue recognized under the SCANA Merger Approval Order issued by the South Carolina Commission in 2019 compared to revenue recognized under South Carolina legislation enacted in the second quarter of 2018 to temporarily reduce the amount collected from customers under the BLRA.
Depreciation and amortization increased 43%, primarily reflecting the amortization of NND Project costs.
Other taxes decreased 13%, primarily due to adjustments to estimated annual property tax accruals.
Other income (expense), net plant additions.
Interest charges decreased 16%, primarily due to lower long-term debt principal balances primarily as a result of the debt tender offers completed in 2019 ($18 million) and the reversal of accrued interest related to a refund reserve ($7 million). These decreases were partially offset by interest charges on unrecognized tax benefits in the current year ($13 million).
Income tax expense increased 38%, primarily due to higher property taxes associated with net plant additions.
The Company | Consolidated SCE&G | |||||||||||||||||||||||
Third Quarter | Year to Date | Third Quarter | Year to Date | |||||||||||||||||||||
Classification (in thousands) | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Residential | 2,196 | 2,073 | 21,958 | 27,055 | 742 | 696 | 6,690 | 8,473 | ||||||||||||||||
Commercial | 4,537 | 4,363 | 19,113 | 20,748 | 2,381 | 2,295 | 8,783 | 9,361 | ||||||||||||||||
Industrial | 4,644 | 4,493 | 14,723 | 14,380 | 4,289 | 4,141 | 13,289 | 12,762 | ||||||||||||||||
Transportation | 14,865 | 15,171 | 38,313 | 37,089 | 1,516 | 1,252 | 4,602 | 3,747 | ||||||||||||||||
Total | 26,242 | 26,100 | 94,107 | 99,272 | 8,928 | 8,384 | 33,364 | 34,343 |
Year-To-Date 2019 vs. 2018
Net revenue decreased 61%, primarily due to customer growth. Industrial sales volumes to:
• | A $1.0 billion charge to electric revenue for refunds of amounts previously collected from retail electric customers for the NND Project; |
• | A $12 million decrease in gas revenues due to lower South Carolina Commission approved rates and refunds of amounts previously collected from gas customers; partially offset by |
• | A $114 million increase in electric revenue pursuant to a South Carolina Commission order whereby fuel cost recovery was substantially offset with gains realized upon the settlement of certain interest rate derivative contracts in 2018, as further described in other income (expense) below; and |
• | Increased revenue recognized under the SCANA Merger Approval Order issued by the South Carolina Commission in 2019 compared to revenue recognized under South Carolina legislation enacted in the second quarter of 2018 to temporarily reduce the amount collected from customers under the BLRA ($97 million). |
Other operations and maintenance increased primarily due to customer growth and average use at SCE&G. Transportation volumes at PSNC Energy decreased6%, primarily due to a declinecharge related to a voluntary retirement program ($51 million), partially offset by lower non-labor electric generation expenses ($11 million) and lower legal and merger-related costs ($11 million).
Impairment of assets and other charges increased $367 million, primarily due to $266 million of charges related to litigation and a $105 million charge for utility plant for which DESC committed to forgo recovery.
Depreciation and amortization increased 38%, primarily reflecting the amortization of NND Project costs.
Other income (expense), net decreased $151 million, primarily due to the absence of gains realized upon the settlement of interest rate derivative contracts in natural gas fired2018 ($115 million) that were mostly offset by downward adjustments to electric generation,revenues pursuant to a previously received South Carolina Commission order related to fuel cost recovery, a charge related to a voluntary retirement program ($20 million), lower equity allowance for funds used during construction ($7 million) and accrued penalties related to unrecognized tax benefits in the current year ($7 million), partially offset by a significant customer expansion, and increased at SCE&G due to higher transport volumes for industrial interruptible customers.
Interest charges decreased primarily due to the effects of weather and lower average use, partially offset by customer growth. Industrial sales volumes increased at SCE&G primarily due to customer growth, higher average use and fewer curtailments in 2017 and decreased at PSNC Energy primarily due to the effects of weather. Transportation volumes increased at SCE&G primarily due to higher transport volumes for industrial interruptible customers and firm customers shifting from system supply to transportation only service and increased at PSNC Energy primarily due to a significant customer expansion mostly offset by a decline in natural gas fired electric generation as well as the effects of milder weather.
Third Quarter | Year to Date | |||||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating revenues | $ | 202.1 | $ | 199.8 | $ | 716.4 | $ | 681.5 | ||||||||
Net income (Loss) | 0.7 | (1.0 | ) | 16.9 | 22.9 |
The Company | Consolidated SCE&G | |||||||||||||||||||||||||||||||
Third Quarter | Year to Date | Third Quarter | Year to Date | |||||||||||||||||||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Other operation and maintenance | $ | 183.1 | $ | 186.6 | $ | 543.1 | $ | 557.9 | $ | 153.5 | $ | 152.0 | $ | 446.1 | $ | 454.2 | ||||||||||||||||
Impairment loss | 210.0 | — | 210.0 | — | 210.0 | — | 210.0 | — | ||||||||||||||||||||||||
Depreciation and amortization | 95.7 | 93.2 | 284.7 | 276.1 | 78.2 | 75.6 | 232.6 | 225.0 | ||||||||||||||||||||||||
Other taxes | 67.2 | 66.3 | 200.2 | 191.8 | 63.1 | 62.0 | 186.6 | 177.8 |
The Company | Consolidated SCE&G | |||||||||||||||||||||||||||||||
Third Quarter | Year to Date | Third Quarter | Year to Date | |||||||||||||||||||||||||||||
Millions of dollars | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||
Other income | $ | 28.4 | $ | 15.8 | $ | 61.0 | $ | 46.4 | $ | 20.8 | $ | 7.3 | $ | 36.1 | $ | 19.6 | ||||||||||||||||
Other expense | (7.0 | ) | (7.1 | ) | (25.4 | ) | (31.5 | ) | (6.2 | ) | (4.6 | ) | (17.3 | ) | (18.8 | ) | ||||||||||||||||
AFC - equity funds | (0.6 | ) | 6.9 | 17.6 | 21.6 | (3.5 | ) | 6.4 | 12.7 | 18.7 |
Income tax expense was lower decreased $133 million, primarily due to lower pre-tax income before income taxes primarily attributable to the impairment loss.
Millions of dollars | 2017 | 2018 | 2019 | |||||||||
SCE&G - Gas | $ | 74 | $ | 100 | $ | 106 | ||||||
PSNC Energy | 332 | 244 | 192 | |||||||||
Total | $ | 406 | $ | 344 | $ | 298 |
Expected Maturity | 2017 | 2018 | 2019 | 2020 | ||||||||||
Futures - Long | ||||||||||||||
Settlement Price (a) | 3.10 | 3.15 | 3.07 | — | ||||||||||
Contract Amount (b) | 21.4 | 45.9 | 6.9 | — | ||||||||||
Fair Value (b) | 20.1 | 45.4 | 7.1 | — | ||||||||||
Futures - Short | ||||||||||||||
Settlement Price (a) | 3.09 | 3.16 | — | — | ||||||||||
Contract Amount (b) | 6.7 | 8.0 | — | — | ||||||||||
Fair Value (b) | 6.0 | 7.7 | — | — | ||||||||||
Options - Purchased Call (Long) | ||||||||||||||
Strike Price (a) | — | 2.54 | — | — | ||||||||||
Contract Amount (b) | — | 19.1 | — | — | ||||||||||
Fair Value (b) | — | 1.0 | — | — | ||||||||||
Swaps - Commodity | ||||||||||||||
Pay fixed/receive variable (b) | 6.3 | 20.4 | 5.3 | 1.0 | ||||||||||
Average pay rate (a) | 3.3022 | 3.2285 | 2.9381 | 2.8950 | ||||||||||
Average received rate (a) | 3.1043 | 3.1288 | 2.9703 | 2.8219 | ||||||||||
Fair value (b) | 5.9 | 19.8 | 5.4 | 0.9 | ||||||||||
Pay variable/receive fixed (b) | 6.3 | 25.5 | 8.0 | 0.9 | ||||||||||
Average pay rate (a) | 3.0973 | 3.0822 | 2.9796 | 2.8397 | ||||||||||
Average received rate (a) | 3.1848 | 3.1643 | 2.9499 | 2.9499 | 2.8973 | |||||||||
Fair value (b) | 6.5 | 26.1 | 8.0 | 0.9 | ||||||||||
Swaps - Basis | ||||||||||||||
Pay variable/receive variable (b) | 7.1 | 8.0 | 0.3 | — | ||||||||||
Average pay rate (a) | 3.0073 | 3.2222 | 3.2311 | — | ||||||||||
Average received rate (a) | 2.9666 | 3.1828 | 3.1441 | — | ||||||||||
Fair value (b) | 7.0 | 7.9 | 0.3 | — | ||||||||||
(a) Weighted average, in dollars | ||||||||||||||
(b) Millions of dollars |
ITEM 4. CONTROLS AND PROCEDURES
As of
September 30,PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to vigorously contest the lawsuits which have been filed against them. For developments related to these or other proceedings subsequent to September 30, 2017, if any, see Note 2 and Note 9 to the condensed consolidated financial statements. No reference to, or disclosure of, any proceeding, item or matter described below shall be construed as an admission or indication that such proceeding, item or mattertime, DESC is material or that such proceeding, items or matter is requiredalleged to be referred toin violation or disclosed in this Form 10-Q.
See the following for discussions on various legal, environmental and of the available least cost efficiency and renewable energy alternatives; andother regulatory proceedings to remedy, abate and make due reparations for the rates charged to ratepayers related to the construction of the New Units. SCE&G filed its answer to the complaint on July 19, 2017.which DESC is a party, which information is incorporated herein by reference:
• | Notes 2 and 11 to the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2018. |
• | Note 10 to the Consolidated Financial Statements in DESC’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019. |
• | Note 11 to the Consolidated Financial Statements in DESC’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. |
• | Note 11 to the Consolidated Financial Statements in this report. |
ITEM 1A. RISK FACTORS
DESC’s business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond its control. A number of these risk factors from the Registrants' combinedhave been identified in DESC’s Annual Report on Form 10-K for the year ended December 31, 2016,2018, which should be taken into consideration when reviewing the information contained in this report. DESC filed such annual report on a combined basis with SCANA. Accordingly, the information presented in such risk factors is presented on a combined basis and combined Quarterly Report on Form 10-Q fortherefore some of the quarter ended June 30, 2017,information may apply only to SCANA and not DESC. DESC makes no representation as to any such information. There have been updated and are restated below in their entirety.
Issuer Purchases of Equity Securities | ||||||||||||
(a) | (b) | (c) | (d) | |||||||||
Period | Total number of shares (or units) purchased | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | ||||||||
July 1 - 31 | 5,935 | $ | 65.16 | 5,935 | ||||||||
August 1 - 31 | — | — | — | |||||||||
September 1 - 30 | — | — | — | |||||||||
Total | 5,935 | 5,935 | * |
ITEM 6. EXHIBITS
Exhibits filed or furnished with this Quarterly Report on Form 10-Q are listed in the following Exhibit Index.
As permitted under Item 601(b) (4) (iii) of Regulation S-K, instruments defining the rights of holders of long-term debt of less than 10 percent10% of the total consolidated assets of SCANA, for itself and its subsidiaries, and of SCE&G,DESC, for itself and its consolidated affiliates, have been omitted and SCANA and SCE&G agreeDESC agrees to furnish a copy of such instruments to the SEC upon request.
EXHIBIT INDEX
Exhibit No. | Description | |
3.1 | ||
3.2 | ||
31.1 | ||
31.2 | ||
32.1 | ||
101 | The following financial statements from Dominion Energy South Carolina, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed on November 4, 2019, formatted in iXBRL (Inline eXtensible Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Comprehensive Income (Loss), (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Changes in Common Equity, and (v) the Notes to Consolidated Financial Statements. | |
104 | Cover Page Interactive Data File (formatted in iXBRL (Inline eXtensible Reporting Language) and contained in Exhibit 101). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrantsregistrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The signature of each registrant shall be deemed to relate only to matters having reference to such registrant and any subsidiaries thereof.
DOMINION ENERGY SOUTH CAROLINA, INC. | ||
(Registrant) | ||
By: | /s/ Michele L. Cardiff | |
Date: November 4, 2019 | Michele L. Cardiff | |
Vice President, Controller and Chief Accounting Officer |
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