<TABLE> <CAPTION> ====================================================================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to ---------------------------------------------- <S> <C> <C> Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. 1-3526 The Southern Company 58-0690070 (A Delaware Corporation) 270 Peachtree Street, N.W. Atlanta, Georgia 30303 (770) 393-0650 1-3164 Alabama Power Company 63-0004250 (An Alabama Corporation) 600 North 18th Street Birmingham, Alabama 35291 (205) 250-1000 1-6468 Georgia Power Company 58-0257110 (A Georgia Corporation) 333 Piedmont Avenue, N.E. Atlanta, Georgia 30308 (404) 526-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) 500 Bayfront Parkway Pensacola, Florida 32520 (904) 444-6111 0-6849 Mississippi Power Company 64-0205820 (A Mississippi Corporation) 2992 West Beach Gulfport, Mississippi 39501 (601) 864-1211 1-5072 Savannah Electric and Power Company 58-0418070 (A Georgia Corporation) 600 East Bay Street Savannah, Georgia 31401 (912) 644-7171 ====================================================================================================================== </TABLE>
<TABLE> <CAPTION> Securities registered pursuant to Section 12(b) of the Act:* Each of the following classes or series of securities registered pursuant to Section 12(b) of the Act is registered on the New York Stock Exchange. <S> <C> Title of each class Registrant Common Stock, $5 par value The Southern Company ------------------------------------------------- Class A preferred, cumulative, $25 stated capital Alabama Power Company 7.60% (First 1992 Series)6.80% Series 7.60% (Second 1992 Series)6.40% Series Adjustable Rate (1993 Series) First mortgage bonds 9 1/4% Series due 2021 Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.375% Trust Preferred Securities** ------------------------------------------------- Preferred stock, cumulative, $100 stated value Georgia Power Company $7.72 Series Class A preferred, cumulative, $25 stated value $1.90 Series $1.9375 Series $1.9875 Series Adjustable Rate (First 1993 Series) $1.925 Series Adjustable Rate (Second 1993 Series) Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 9% Monthly Income Preferred Securities, Series A*** 7.75% Trust Preferred Securities**** First mortgage bonds 6 1/8% Series due 1999 6 7/8% Series due 2002 ---------------------------------------------------- * As of December 31, 1996. ** Issued by Alabama Power Capital Trust I and guaranteed by Alabama Power Company. *** Issued by Georgia Power Capital, L.P. and guaranteed by Georgia Power Company. **** Issued by Georgia Power Capital Trust I and guaranteed by Georgia Power Company. ========================================================================================================== </TABLE>
<TABLE> <CAPTION> <S> <C> Depositary preferred shares, each representing one-fourth Mississippi Power Company of a share of preferred stock, cumulative, $100 par value 7.25% Series 6.32% Series 6.65% Series ----------------------------------------------------- Preferred stock, cumulative, $25 par value Savannah Electric and Power Company 6.64% Series Securities registered pursuant to Section 12(g) of the Act:* Title of each class Registrant Preferred stock, cumulative, $100 par value Alabama Power Company 4.20% Series 4.64% Series 5.96% Series 4.52% Series 4.72% Series 6.88% Series 4.60% Series 4.92% Series Class A preferred, cumulative, $100,000 stated capital Auction (1993 Series) Class A preferred, cumulative, $100 stated capital Auction (1988 Series) -------------------------------------------------------- Preferred stock, cumulative, $100 stated value Georgia Power Company $4.60 Series $4.72 Series $5.64 Series $4.60 Series (1962) $4.92 Series $6.48 Series $4.60 Series (1963) $4.96 Series $6.60 Series $4.60 Series (1964) $5.00 Series -------------------------------------------------------- Preferred stock, cumulative, $100 par value Gulf Power Company 4.64% Series 5.44% Series 7.88% Series 5.16% Series 7.52% Series Class A preferred, cumulative, $10 par value, $25 stated capital 6.72% Series 7.00% Series 7.30% Series Adjustable Rate (1993 Series) -------------------------------------------------------- Preferred stock, cumulative, $100 par value Mississippi Power Company 4.40% Series 4.60% Series 4.72% Series 7.00% Series * As of December 31, 1996. ========================================================================================================== </TABLE>
Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Aggregate market value of voting stock held by non-affiliates of The Southern Company at February 28, 1997: $14.7 billion. Each of such other registrants is a wholly-owned subsidiary of The Southern Company and has no voting stock other than its common stock. A description of registrants' common stock follows: <TABLE> <CAPTION> Description of Shares Outstanding Registrant Common Stock at February 28, 1997 <S> <C> <C> The Southern Company Par Value $5 Per Share 677,838,862 Alabama Power Company Par Value $40 Per Share 5,608,955 Georgia Power Company No Par Value 7,761,500 Gulf Power Company No Par Value 992,717 Mississippi Power Company Without Par Value 1,121,000 Savannah Electric and Power Company Par Value $5 Per Share 10,844,635 Documents incorporated by reference: specified portions of The Southern Company's Proxy Statement relating to the 1997 Annual Meeting of Stockholders are incorporated by reference into PART III. This combined Form 10-K is separately filed by The Southern Company, Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company and Savannah Electric and Power Company. Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other companies. =============================================================================================================== </TABLE>
<TABLE> <CAPTION> Table of Contents Page PART I <S> <C> <C> Item 1 Business The SOUTHERN System.................................................................. I-1 New Business Development............................................................. I-2 Certain Factors Affecting the Industry............................................... I-3 Construction Programs................................................................ I-3 Financing Programs................................................................... I-5 Fuel Supply.......................................................................... I-7 Territory Served..................................................................... I-8 Competition.......................................................................... I-12 Regulation........................................................................... I-13 Rate Matters......................................................................... I-16 Employee Relations................................................................... I-17 Item 2 Properties............................................................................. I-19 Item 3 Legal Proceedings...................................................................... I-24 Item 4 Submission of Matters to a Vote of Security Holders.................................... I-24 Executive Officers of SOUTHERN......................................................... I-25 PART II Item 5 Market for Registrants' Common Equity and Related Stockholder Matters.................. II-1 Item 6 Selected Financial Data................................................................ II-2 Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition.............................................................. II-2 Item 8 Financial Statements and Supplementary Data............................................ II-3 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................................. II-4 PART III Item 10 Directors and Executive Officers of the Registrants................................... III-1 Item 11 Executive Compensation................................................................ III-13 Item 12 Security Ownership of Certain Beneficial Owners and Management.......................................................................... III-30 Item 13 Certain Relationships and Related Transactions........................................ III-36 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................................... IV-1 i </TABLE>
<TABLE> <CAPTION> DEFINITIONS When used in Items 1 through 5 and Items 10 through 14, the following terms will have the meanings indicated. Other defined terms specific only to Item 11 are found on page III-13. Term Meaning <S> <C> AEC................................. Alabama Electric Cooperative, Inc. AFUDC............................... Allowance for Funds Used During Construction ALABAMA............................. Alabama Power Company Alicura............................. Hidroelectrica Alicura, S.A. (Argentina) AMEA................................ Alabama Municipal Electric Authority CEPA................................ Consolidated Electric Power Asia Clean Air Act....................... Clean Air Act Amendments of 1990 Dalton.............................. City of Dalton, Georgia DOE................................. United States Department of Energy Edelnor............................. Empresa Electrica del Norte Grande, S.A. (Chile) Energy Act.......................... Energy Policy Act of 1992 EMF................................. Electromagnetic field EWG................................. Exempt wholesale generator EPA................................. United States Environmental Protection Agency FERC................................ Federal Energy Regulatory Commission FPC................................. Florida Power Corporation FP&L................................ Florida Power & Light Company Freeport............................ Freeport Power Company (Bahamas) FUCO................................ Foreign utility company GEORGIA............................. Georgia Power Company GULF................................ Gulf Power Company Gulf States......................... Gulf States Utilities Company Holding Company Act................. Public Utility Holding Company Act of 1935, as amended IBEW................................ International Brotherhood of Electrical Workers IRS................................. Internal Revenue Service JEA................................. Jacksonville Electric Authority MEAG................................ Municipal Electric Authority of Georgia MISSISSIPPI......................... Mississippi Power Company Mobile Energy....................... Mobile Energy Services Company, L.L.C. NRC................................. Nuclear Regulatory Commission OPC................................. Oglethorpe Power Corporation operating affiliates................ ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH PSC................................. Public Service Commission RUS................................. Rural Utility Service (formerly Rural Electrification Administration) SAVANNAH............................ Savannah Electric and Power Company SCS................................. Southern Company Services, Inc. SEC................................. Securities and Exchange Commission SEGCO............................... Southern Electric Generating Company SEPA................................ Southeastern Power Administration SERC................................ Southeastern Electric Reliability Council SMEPA............................... South Mississippi Electric Power Association SOUTHERN............................ The Southern Company Southern Communications............. Southern Communications Services, Inc. Southern Development................ The Southern Development and Investment Group, Inc. Southern Energy..................... Southern Energy, Inc. (formerly Southern Electric International, Inc.) Southern Nuclear.................... Southern Nuclear Operating Company, Inc. SOUTHERN system..................... SOUTHERN, the operating affiliates, SEGCO, Southern Energy, Southern Nuclear, SCS, Southern Communications, Southern Development and other subsidiaries SWEB................................ South Western Electricity plc (United Kingdom) TVA................................. Tennessee Valley Authority ii </TABLE>
PART I Item 1. BUSINESS SOUTHERN was incorporated under the laws of Delaware on November 9, 1945. SOUTHERN is domesticated under the laws of Georgia and is qualified to do business as a foreign corporation under the laws of Alabama. SOUTHERN owns all the outstanding common stock of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH, each of which is an operating public utility company. ALABAMA and GEORGIA each own 50% of the outstanding common stock of SEGCO. The operating affiliates supply electric service in the states of Alabama, Georgia, Florida, Mississippi and Georgia, respectively, and SEGCO owns generating units at a large electric generating station which supplies power to ALABAMA and GEORGIA. More particular information relating to each of the operating affiliates is as follows: ALABAMA is a corporation organized under the laws of the State of Alabama on November 10, 1927, by the consolidation of a predecessor Alabama Power Company, Gulf Electric Company and Houston Power Company. The predecessor Alabama Power Company had had a continuous existence since its incorporation in 1906. GEORGIA was incorporated under the laws of the State of Georgia on June 26, 1930, and admitted to do business in Alabama on September 15, 1948. GULF is a corporation which was organized under the laws of the State of Maine on November 2, 1925, and admitted to do business in Florida on January 15, 1926, in Mississippi on October 25, 1976 and in Georgia on November 20, 1984. MISSISSIPPI was incorporated under the laws of the State of Mississippi on July 12, 1972, was admitted to do business in Alabama on November 28, 1972, and effective December 21, 1972, by the merger into it of the predecessor Mississippi Power Company, succeeded to the business and properties of the latter company. The predecessor Mississippi Power Company was incorporated under the laws of the State of Maine on November 24, 1924, and was admitted to do business in Mississippi on December 23, 1924, and in Alabama on December 7, 1962. SAVANNAH is a corporation existing under the laws of the State of Georgia; its charter was granted by the Secretary of State on August 5, 1921. SOUTHERN also owns all the outstanding common stock of Southern Energy, Southern Communications, Southern Nuclear, SCS (the system service company), Southern Development and other direct and indirect subsidiaries. Southern Energy designs, builds, owns and operates power production and delivery facilities and provides a broad range of energy-related services in the United States and international markets. A further description of Southern Energy's business and organization follows later in this section under "New Business Development." Southern Communications provides digital wireless communications services to SOUTHERN's operating affiliates and also markets these services to the public within the Southeast. Southern Nuclear provides services to the Southern electric system's nuclear plants. Southern Development develops new business opportunities related to energy products and services. SEGCO owns electric generating units with an aggregate capacity of 1,019,680 kilowatts at Plant Gaston on the Coosa River near Wilsonville, Alabama, and ALABAMA and GEORGIA are each entitled to one-half of SEGCO's capacity and energy. ALABAMA acts as SEGCO's agent in the operation of SEGCO's units and furnishes coal to SEGCO as fuel for its units. SEGCO also owns three 230,000 volt transmission lines extending from Plant Gaston to the Georgia state line at which point connection is made with the GEORGIA transmission line system. The SOUTHERN System The transmission facilities of each of the operating affiliates and SEGCO are connected to the respective company's own generating plants and other sources of power and are interconnected with the transmission facilities of the other operating affiliates and SEGCO by means of heavy-duty high voltage lines. (In the case of GEORGIA's integrated transmission system, see Item 1 - BUSINESS - "Territory Served" herein.) Operating contracts covering arrangements in effect with principal neighboring utility systems provide for capacity exchanges, capacity purchases and sales, transfers of economy energy and other similar transactions. I-1
Additionally, the operating affiliates have entered into voluntary reliability agreements with the subsidiaries of Entergy Corporation, Florida Electric Power Coordinating Group and TVA and with Carolina Power & Light Company, Duke Power Company, South Carolina Electric & Gas Company and Virginia Electric and Power Company, each of which provides for the establishment and periodic review of principles and procedures for planning and operation of generation and transmission facilities, maintenance schedules, load retention programs, emergency operations, and other matters affecting the reliability of bulk power supply. The operating affiliates have joined with other utilities in the Southeast (including those referred to above) to form the SERC to augment further the reliability and adequacy of bulk power supply. Through the SERC, the operating affiliates are represented on the National Electric Reliability Council. An intra-system interchange agreement provides for coordinating operations of the power producing facilities of the operating affiliates and SEGCO and the capacities available to such companies from non-affiliated sources and for the pooling of surplus energy available for interchange. Coordinated operation of the entire interconnected system is conducted through a central power supply coordination office maintained by SCS. The available sources of energy are allocated to the operating affiliates to provide the most economical sources of power consistent with good operation. The resulting benefits and savings are apportioned among the operating affiliates. SCS has contracted with SOUTHERN, each operating affiliate, Southern Energy, various of the other subsidiaries, Southern Nuclear and SEGCO to furnish, at cost and upon request, the following services: general executive and advisory services, power pool operations, general engineering, design engineering, purchasing, accounting, finance and treasury, taxes, insurance and pensions, corporate, rates, budgeting, public relations, employee relations, systems and procedures and other services with respect to business and operations. Southern Energy, Southern Development and Southern Communications have also secured from the operating affiliates certain services which are furnished at cost. Southern Nuclear has contracted with ALABAMA to operate its Farley Nuclear Plant, as authorized by amendments to the plant operating licenses. Effective March 22, 1997, Southern Nuclear, pursuant to a contract with GEORGIA, assumed responsibility for the operation of plants Hatch and Vogtle, as authorized by amendments to the operating licenses for both plants. See Item 1 BUSINESS - "Regulation - Atomic Energy Act of 1954" herein. New Business Development SOUTHERN continues to consider new business opportunities, particularly those which allow use of the expertise and resources developed through its regulated utility experience. These endeavors began in 1981 and are conducted through Southern Energy and other subsidiaries. SOUTHERN presently has authorization from the SEC (the "SEC Order") which in effect will allow it to use the proceeds from financings to increase its aggregate investment in EWGs and FUCOs up to an amount not exceeding 100% of SOUTHERN's consolidated retained earnings. A consumer group that had sought to intervene in the SEC proceeding has filed an appeal with U.S. Court of Appeals for the 11th Circuit seeking judicial review of the SEC Order. At December 31, 1996, SOUTHERN's consolidated retained earnings amounted to $3,764 million, and its aggregate investment in EWGs and FUCOs, after giving effect to the CEPA acquisition discussed below, amounted to $2,524 million. Southern Energy develops, builds, owns and operates both cogeneration and independent power production and delivery facilities in the North American and international market. Southern Energy's trading and marketing subsidiary provides power marketing and energy trading services to wholesale and retail customers in North America. Reference is made to Note 15 to the financial statements of SOUTHERN in Item 8 herein for additional information regarding SOUTHERN's business segments and geographic areas. In 1995, SOUTHERN acquired SWEB, one of the United Kingdom's 12 regional electric distribution companies, for approximately $1.8 billion. SWEB is, to some extent, involved in power generation and certain non-regulated activities which include gas supply and telecommunications. In early 1997, SOUTHERN acquired an 80% interest in CEPA for a total net investment of $2.1 billion. I-2
CEPA is engaged in the business of developing, constructing, owning and operating electric power generation facilities. Its current operations include installed operating capacity of approximately 3,995 megawatts, with projects either completed or under development in the Philippines, the People's Republic of China, Indonesia and Pakistan. For additional information regarding the acquisitions of SWEB and CEPA, reference is made to Note 14 to SOUTHERN's financial statements in Item 8 herein. See Item 2 - PROPERTIES - "Other Electric Generation Facilities" herein for additional information regarding Southern Energy projects. Southern Energy and Southern Development render consulting services and market SOUTHERN system expertise in the United States and throughout the world. They contract with other public utilities, commercial concerns and government agencies for the rendition of services and the licensing of intellectual property. More specifically, Southern Development is focusing on new and existing programs to enhance customer satisfaction and efficiency and stockholder value, such as: Good Cents, an energy efficiency program for electric utility customers; EnerLink, a group of energy management products and services for large commercial and industrial electricity users; Flywheel, an energy storage device; PowerCall Security, a home security system; other energy management programs under development; and telecommunications operations related to energy management programs. In 1995, Southern Communications began serving SOUTHERN's operating affiliates and marketing its services to non-affiliates within the Southeast. The system covers 122,000 square miles and combines the functions of two-way radio dispatch, cellular phone, short text and numeric messaging and wireless data transfer. These continuing efforts to invest in and develop new business opportunities offer the potential of earning returns which may exceed those of rate-regulated operations. However, these activities also involve a higher degree of risk. SOUTHERN expects to make substantial investments over the period 1997-1999 in these and other new businesses. Certain Factors Affecting the Industry Various factors are currently affecting the electric utility industry in general, including increasing competition and the regulatory changes related thereto, costs required to comply with environmental regulations, and the potential for new business opportunities (with their associated risks) outside of traditional rate-regulated operations. The effects of these and other factors on the SOUTHERN system are described herein; particular reference is made to Item 1 - BUSINESS - "New Business Development," "Competition" and "Environmental Regulation." Construction Programs The subsidiary companies of SOUTHERN are engaged in continuous construction programs to accommodate existing and estimated future loads on their respective systems. Construction additions or acquisitions of property during 1997 through 1999 by the operating affiliates, SEGCO, SCS, Southern Nuclear, Southern Communications and Southern Energy are estimated as follows: (in millions) ---------------------------- -------- --------- --------- 1997 1998 1999 -------- --------- --------- ALABAMA $ 425 $ 519 $ 622 GEORGIA 490 479 464 GULF 47 49 46 MISSISSIPPI 57 58 116 SAVANNAH 26 22 24 SEGCO 6 3 - SCS 9 6 9 Southern Nuclear 1 1 1 Southern Communications 78 31 12 Southern Energy* 250 132 120 ========================= =========== ========= ========= SOUTHERN system $1,389 $1,300 $1,414 ========================= =========== ========= ========= *These construction estimates do not include amounts which may be expended by Southern Energy on future power production projects or by any subsidiaries created to effect such future projects. (See Item 1 - BUSINESS - "New Business Development" herein.) I-3
<TABLE> <CAPTION> Estimated construction costs in 1997 are expected to be apportioned approximately as follows: (in millions) - ---------------------------------------------------------------------------------------------------------------------------------- SOUTHERN system* ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH --------------- --------------- ---------------- ----------- ---------------- ----------------- <S> <C> <C> <C> <C> <C> <C> Combustion turbines $ 10 $ 6 $ 15 $ - $ 3 $ - Other generating facilities including associated plant 333 85 66 7 12 6 substations New business 319 122 154 19 12 12 Transmission 134 63 54 4 12 1 Joint line and substation 22 - 21 1 - - Distribution 233 60 36 9 12 4 Nuclear fuel 110 39 71 - - - General plant 228 50 73 7 6 3 --------------- --------------- ---------------- ----------- ---------------- ----------------- $1,389 $425 $490 $47 $57 $26 =============== =============== ================ =========== ================ ================= </TABLE> *Southern Communications, SCS and Southern Nuclear plan capital additions to general plant in 1997 of $78 million, $9 million and $1 million, respectively, while SEGCO plans capital additions of $6 million to generating facilities. Southern Energy plans capital additions of $137 million to generating facilities, $112 million to distribution facilities, and $1 million to general plant. These estimates do not reflect the possibility of Southern Energy's securing a contract(s) to buy or build additional generating facilities. (See Item 1 - BUSINESS - "New Business Development" herein.) The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load projections; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment and materials; and cost of capital. The operating affiliates do not have any new traditional baseload generating plants under construction. However, within the service area, the construction of combustion turbine peaking units with an aggregate capacity of approximately 600 megawatts is planned to be completed by 1998. In addition, significant construction related to transmission and distribution facilities and the upgrading and extension of the useful lives of generating plants will continue. (See Item 2 - PROPERTIES - "Other Electric Generation Facilities" herein for additional information relating to facilities under development.) In 1991, the Georgia legislature passed legislation which requires GEORGIA and SAVANNAH each to file an Integrated Resource Plan for approval by the Georgia PSC. Under the plan rules, the Georgia PSC must pre-certify the construction of new power plants and new purchase power contracts. (See Item 1 - BUSINESS - "Rate Matters - Integrated Resource Planning" herein.) See Item 1 - BUSINESS - "Regulation - Environmental Regulation" herein for information with respect to certain existing and proposed environmental requirements and Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for additional information concerning ALABAMA's and GEORGIA's joint ownership of certain generating units and related facilities with certain non-affiliated utilities. I-4
Financing Programs SOUTHERN plans to issue additional equity capital in 1997. The amount and timing of additional equity capital to be raised in 1997, as well as subsequent years, will be contingent on SOUTHERN's investment opportunities, primarily through Southern Energy. Equity capital can be provided from any combination of public offerings, private placements, or SOUTHERN's stock plans. The operating affiliates' construction programs are expected to be financed primarily from internal sources. Short-term debt will be utilized as appropriate at SOUTHERN and the operating affiliates. The operating affiliates may issue additional long-term debt and preferred securities primarily for the purposes of debt maturities and for redeeming higher-cost securities if market conditions permit. In order to issue first mortgage bonds and preferred stock, each of the operating affiliates must comply with earnings coverage requirements contained in its respective mortgage and charter. These provisions require, for the issuance of additional first mortgage bonds, a minimum, before income tax, earnings coverage of twice the pro forma annual interest charges on first mortgage bonds and indebtedness secured by prior or equal ranking lien and, for the issuance of additional preferred stock, a minimum, after income tax, earnings coverage of one and one-half times pro forma annual interest charges and preferred stock dividends, in each case for a period of twelve consecutive calendar months within the fifteen calendar months immediately preceding the proposed new issue. The ability to issue securities in the future will depend on coverages at that time. Currently each of the operating affiliates expects to have adequate coverage ratios for anticipated requirements through at least 1999. The amounts of securities representing short-term unsecured indebtedness allowable under the respective charters, and the maximum amounts of short-term or term-loan indebtedness authorized by the appropriate regulatory authorities, are shown in the following table: ------------------------------------------------------ Short-Term Unsecured Indebtedness ------------------------------------------------------ Allowable Under Charter at December 31, 1996 Percent of Secured Indebtedness and Other Amount Capital (2) ------------- ------------------- (Millions) ALABAMA $ 1,111 20% GEORGIA 1,549 20 GULF 90 10 MISSISSIPPI 141 20 SAVANNAH 70 20 SOUTHERN (1) (1) ----------------- ------------- -- ------------------- ------------------------------------------------------ Short-Term or Term-Loan Indebtedness ------------------------------------------------------ Maximum Regulatory Authorization Outstanding at Amount December 31, 1996 ------------ --------------------- (Millions) ALABAMA $ 750 (3) $365 GEORGIA 1,700 (4) 430 GULF 300 (3) 76 MISSISSIPPI 350 (3) 80 SAVANNAH 90 (4) 35 SOUTHERN 2,000 (3) 67 ------------------------------------------------------ Notes: (1) No limitation. (2) Under the provisions of the respective charters, GEORGIA's, MISSISSIPPI's and SAVANNAH's preferred stockholders have approved increases in the amounts of securities representing short-term unsecured indebtedness which the companies may have outstanding until July 1 in 2003, 1999 and 1999, respectively. Such limitations were increased from 10% of secured indebtedness and other capital to 20% thereof. These approved increases are reflected in the above table. I-5
(3) ALABAMA's authority is based on authorization received from the Alabama PSC, which expires December 31, 1998. No SEC authorization is required for ALABAMA. GULF, MISSISSIPPI and SOUTHERN have received SEC authorization to issue from time to time short-term and/or term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2003, December 31, 2002 and March 31, 2001, respectively. (4) GEORGIA and SAVANNAH have received SEC authorization to issue from time to time short-term and term-loan notes to banks and commercial paper to dealers in the amounts shown through December 31, 2002. Authorization for term-loan indebtedness is also required by and has been received from the Georgia PSC. Currently, GEORGIA and SAVANNAH have remaining authority from the Georgia PSC of $471 million and $110 million expiring December 31, 1997 and December 31, 1998, respectively. Reference is made to Note 5 to the financial statements for SOUTHERN, ALABAMA, GULF, MISSISSIPPI and SAVANNAH and Note 9 to the financial statements for GEORGIA in Item 8 herein for information regarding the registrants' credit arrangements. I-6
Fuel Supply The operating affiliates' and SEGCO's supply of electricity is derived predominantly from coal. The sources of generation for the years 1994 through 1996 and the estimates for 1997 are shown below: Oil and ALABAMA Coal Nuclear Hydro Gas --------- ---------- --------- --------- 1994 68% 23% 9% * 1995 73 19 8 * 1996 72 20 8 * 1997 74 19 7 * GEORGIA 1994 75 22 3 * 1995 74 22 3 1 1996 74 22 3 1 1997 77 21 2 * GULF 1994 100 ** ** * 1995 99 ** ** 1 1996 99 ** ** 1 1997 99 ** ** 1 MISSISSIPPI 1994 85 ** ** 15 1995 79 ** ** 21 1996 85 ** ** 15 1997 83 ** ** 17 SAVANNAH 1994 91 ** ** 9 1995 80 ** ** 20 1996 90 ** ** 10 1997 92 ** ** 8 SEGCO 1994 100 ** ** * 1995 100 ** ** * 1996 100 ** ** * 1997 100 ** ** * SOUTHERN system*** 1994 75 19 5 1 1995 77 17 4 2 1996 77 17 4 2 1997 78 17 4 1 -------- ------- --------- ---------- --------- --------- *Less than 0.5%. **Not applicable. ***Amounts shown for the SOUTHERN system are weighted averages of the operating affiliates and SEGCO. The average costs of fuel in cents per net kilowatt-hour generated for 1994 through 1996 are shown below: Oil and Weighted ALABAMA Coal Nuclear Gas Average --------- ---------- ----------- ----------- 1994 1.92 0.49 * 1.56 1995 1.71 0.50 * 1.48 1996 1.71 0.50 * 1.46 GEORGIA 1994 1.67 0.63 * 1.44 1995 1.67 0.60 4.68 1.44 1996 1.55 0.55 5.50 1.35 GULF 1994 2.00 ** * 2.01 1995 2.08 ** 3.56 2.09 1996 1.99 ** 6.41 2.02 MISSISSIPPI 1994 1.67 ** 2.60 1.71 1995 1.58 ** 2.33 1.64 1996 1.43 ** 4.32 1.57 SAVANNAH 1994 2.19 ** 4.72 2.42 1995 1.77 ** 3.80 2.18 1996 1.76 ** 8.41 2.42 SEGCO 1994 1.83 ** * 1.83 1995 1.87 ** * 1.87 1996 1.72 ** * 1.72 SOUTHERN system*** 1994 1.80 0.56 3.99 1.56 1995 1.73 0.56 3.37 1.53 1996 1.65 0.52 5.20 1.48 -------- -------- ------------ ---------- ---------- ----------- *Not meaningful because of minimal generation from fuel source. **Not applicable. ***Amounts shown for the SOUTHERN system are weighted averages of the operating affiliates and SEGCO. See SELECTED FINANCIAL DATA in Item 6 herein for each registrant's source of energy supply. I-7
As of February 14, 1997, the operating affiliates and SEGCO had stockpiles of coal on hand at their respective coal-fired plants which represented an estimated 23 days of recoverable supply for bituminous coal and 30 days for sub-bituminous coal. It is estimated that approximately 61.3 million tons of coal will be consumed in 1997 by the operating affiliates and SEGCO (including those units GEORGIA owns jointly with OPC, MEAG and Dalton and operates for FP&L and JEA and the units ALABAMA owns jointly with AEC). The operating affiliates and SEGCO currently have 39 coal contracts. These contracts cover remaining terms of up to 15 years. Approximately 22% of 1997 estimated coal requirements will be purchased in the spot market. Management has set a goal whereby the spot market should be utilized, absent the transition from coal contract expirations, for 20 to 30% of the SOUTHERN system's coal supply. Additionally, it has been determined that approximately 30 days of recoverable supply is the appropriate level for coal stockpiles. During 1996, the operating affiliates' and SEGCO's average price of coal delivered was approximately $38 per ton. The typical sulfur content of coal purchased under contracts ranges from approximately 0.49% to 2.76% sulfur by weight. Fuel sulfur restrictions and other environmental limitations have increased significantly and may increase further the difficulty and cost of obtaining an adequate coal supply. See Item 1 - - BUSINESS - "Regulation - Environmental Regulation" herein. Changes in fuel prices are generally reflected in fuel adjustment clauses contained in rate schedules. See Item 1 - BUSINESS - "Rate Matters - Rate Structure" herein. ALABAMA owns coal lands and mineral rights in the Warrior Coal Field, located northwest of Birmingham in the vicinity of its Gorgas Steam Plant. SEGCO also owns coal reserves in the Warrior Coal Field and in the Cahaba Coal Field, which is located southwest of Birmingham. ALABAMA has agreements with non-affiliated industrial and mining firms to mine coal from ALABAMA's reserves, as well as their own reserves, for supply to ALABAMA's generating units. The operating affiliates have renegotiated, bought out or otherwise terminated various coal supply contracts. For more information on certain of these transactions, see Note 5 to the financial statements of GULF in Item 8 herein. ALABAMA and GEORGIA have numerous contracts covering a portion of their nuclear fuel needs for uranium, conversion services, enrichment services and fuel fabrication. These contracts have varying expiration dates and most are short to medium term (less than 10 years). Management believes that sufficient capacity for nuclear fuel supplies and processing exists to preclude the impairment of normal operations of the SOUTHERN system's nuclear generating units. ALABAMA and GEORGIA have contracts with the DOE that provide for the permanent disposal of spent nuclear fuel. Although disposal was scheduled to begin in 1998, the actual year this service will begin is uncertain. Sufficient storage capacity currently is available to permit operation into 2003 at Plant Hatch, into 2008 at Plant Vogtle, and into 2010 and 2013 at Plant Farley units 1 and 2, respectively. Activities for adding dry cask storage capacity at Plant Hatch by as early as 1999 are in progress. The Energy Act imposed upon utilities with nuclear plants, including ALABAMA and GEORGIA, obligations for the decontamination and decommissioning of federal nuclear fuel enrichment facilities. See Note 1 to SOUTHERN's, ALABAMA's and GEORGIA's financial statements in Item 8 herein. Territory Served The territory in which the operating affiliates provide electric service comprises most of the states of Alabama and Georgia together with the northwestern portion of Florida and southeastern Mississippi. In this territory there are non-affiliated electric distribution systems which obtain some or all of their power requirements either directly or indirectly from the operating affiliates. The territory has an area of approximately 120,000 square miles and an estimated population of approximately 11 million. I-8
ALABAMA is engaged, within the State of Alabama, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in over 1,000 communities (including Anniston, Birmingham, Gadsden, Mobile, Montgomery and Tuscaloosa) and at wholesale to 15 municipally-owned electric distribution systems, 11 of which are served indirectly through sales to AMEA, and two rural distributing cooperative associations. ALABAMA also supplies steam service in downtown Birmingham. ALABAMA owns coal reserves near its steam-electric generating plant at Gorgas and uses the output of coal from these reserves in some of its generating plants. ALABAMA also sells, and cooperates with dealers in promoting the sale of, electric appliances. GEORGIA is engaged in the generation and purchase of electricity and the distribution and sale of such electricity within the State of Georgia at retail in over 600 communities (including Athens, Atlanta, Augusta, Columbus, Macon, Rome and Valdosta), as well as in rural areas, and at wholesale currently to 39 electric cooperative associations through OPC, a corporate cooperative of electric membership cooperatives in Georgia, and to 50 municipalities, 48 of which are served through MEAG, a public corporation and an instrumentality of the State of Georgia. GULF is engaged, within the northwestern portion of Florida, in the generation and purchase of electricity and the distribution and sale of such electricity at retail in 71 communities (including Pensacola, Panama City and Fort Walton Beach), as well as in rural areas, and at wholesale to a non-affiliated utility and a municipality. GULF also sells electric appliances. MISSISSIPPI is engaged in the generation and purchase of electricity and the distribution and sale of such energy within the 23 counties of southeastern Mississippi, at retail in 123 communities (including Biloxi, Gulfport, Hattiesburg, Laurel, Meridian and Pascagoula), as well as in rural areas, and at wholesale to one municipality, six rural electric distribution cooperative associations and one generating and transmitting cooperative. SAVANNAH is engaged, within a five-county area in eastern Georgia, in the generation and purchase of electricity and the distribution and sale of such electricity at retail and, as a member of the SOUTHERN system power pool, the transmission and sale of wholesale energy. The sources of revenues for the SOUTHERN system and each of SOUTHERN's operating affiliates are shown in Item 6 herein. For the year ended December 31, 1996, the registrants derived their respective industrial revenues as shown in the following table. <TABLE> <CAPTION> --------------------------------------------------------------------------------------------------------------------------- SOUTHERN system ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH --------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> Textiles 13% 10% 18% *% 4% -% Chemical 11 16 6 19 14 32 Paper 10 10 11 10 5 31 Primary metal 8 14 5 1 2 - Stone, clay, glass and concrete 7 7 8 2 1 4 Utility services 9 9 9 3 10 5 Food 5 4 6 1 5 9 Government 5 2 4 41 10 - 2 Transportation equipment 3 2 4 1 6 10 21 Lumber and wood products 4 5 3 2 9 2 Other** 25 21 26 20 34 7 ======================================================================================================== ================== 100% 100% 100% 100% 100% 100% ======================================================================================================== ================== *Less than 0.5%. **Other major sources (5% or more) of industrial revenues were: ALABAMA, coal mining (5%); GULF, oil and gas extraction (9%); and MISSISSIPPI, petroleum refining (20%) and electric machinery (5%). </TABLE> I-9
A portion of the area served by SOUTHERN's operating affiliates adjoins the area served by TVA and its municipal and cooperative distributors. An Act of Congress limits the distribution of TVA power, unless otherwise authorized by Congress, to specified areas or customers which generally were those served on July 1, 1957. The RUS has authority to make loans to cooperative associations or corporations to enable them to provide electric service to customers in rural sections of the country. There are 71 electric cooperative organizations operating in the territory in which the operating affiliates provide electric service at retail or wholesale. One of these, AEC, is a generating and transmitting cooperative selling power to several distributing cooperatives, municipal systems and other customers in south Alabama and northwest Florida. AEC owns generating units with approximately 840 megawatts of nameplate capacity, including an undivided ownership interest in ALABAMA's Plant Miller Units 1 and 2. AEC's facilities were financed with RUS loans secured by long-term contracts requiring distributing cooperatives to take their requirements from AEC to the extent such energy is available. Two of the 14 distributing cooperatives operating in ALABAMA's service territory obtain a portion of their power requirements directly from ALABAMA. Four electric cooperative associations, financed by the RUS, operate within GULF's service area. These cooperatives purchase their full requirements from AEC and SEPA. A non-affiliated utility also operates within GULF's service area and purchases a portion of its requirements from GULF. ALABAMA and GULF have entered into separate agreements with AEC involving interconnection between the respective systems and, in the case of ALABAMA, the delivery of capacity and energy from AEC to certain distributing cooperatives. The rates for the various services provided by ALABAMA and GULF to AEC are based on formulary approaches which result in the charges by each company being updated annually, subject to FERC approval. See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein for details of ALABAMA's joint-ownership with AEC of a portion of Plant Miller. Another of the 71 electric cooperatives is SMEPA, also a generating and transmitting cooperative. SMEPA has a generating capacity of 739,000 kilowatts and a transmission system estimated to be 1,357 miles in length. MISSISSIPPI has an interchange agreement with SMEPA pursuant to which various services are provided, including the furnishing of protective capacity by MISSISSIPPI to SMEPA. There are 43 electric cooperative organizations operating in, or in areas adjoining, territory in the State of Georgia in which GEORGIA provides electric service at retail or wholesale. Three of these organizations obtain their power from TVA and one from other sources. Since July 1, 1975, OPC has supplied the requirements of the remaining 39 of these cooperative organizations from self-owned generation acquired from GEORGIA and, until September 1991, through partial requirements purchases from GEORGIA. GEORGIA entered into an agreement with OPC pursuant to which, effective in September 1991, OPC ceased to be a partial requirements wholesale customer of GEORGIA. Instead, OPC began the purchase of 1,250 megawatts of capacity from GEORGIA through 1999, subject to reduction or extension by OPC, and may satisfy the balance of its needs through purchases from others. Beginning in September 1996, OPC decreased its purchases of capacity by 250 megawatts and has notified GEORGIA of its intent to decrease purchases of capacity by an additional 250 megawatts in September 1997, and an additional 250 megawatts in September 1998. Under the amended 1995 Integrated Resource Plan approved by the Georgia PSC on March 4, 1997, these resources will be used to meet the needs of GEORGIA's retail customers through 2004. There are 65 municipally-owned electric distribution systems operating in the territory in which SOUTHERN's operating affiliates provide electric service at retail or wholesale. AMEA was organized under an act of the Alabama legislature and is comprised of 11 municipalities. In 1986, ALABAMA entered into a firm power purchase contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum of 100 megawatts) for a period of 15 years commencing September 1, 1986. In October 1991, ALABAMA entered into a second firm power purchase contract with I-10
AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years commencing October 1, 1991. In both contracts the power will be sold to AMEA for its member municipalities that previously were served directly by ALABAMA as wholesale customers. Under the terms of the contracts, ALABAMA received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements. See Note 7 to ALABAMA's financial statements in Item 8 herein for further information on these contracts. Forty-seven municipally-owned electric distribution systems formerly served on a full requirements wholesale basis by GEORGIA and one county-owned system now receive their requirements through MEAG, which was established by a state statute in 1975. MEAG serves these requirements from self-owned generation facilities acquired from GEORGIA and through purchases of capacity and energy from GEORGIA under partial requirements rates. On January 10, 1997, GEORGIA and MEAG reached an agreement to enter into a new power supply relationship which would replace in their entirety the partial requirements tariff and the scheduling services agreement between GEORGIA and MEAG. The agreement required the parties to formalize a new contractual relationship and file the new contract with the FERC for approval. Similarly, since 1977 Dalton has filled its requirements from generation facilities acquired from GEORGIA and through partial requirements purchases. One municipally-owned electric distribution system's full requirements are served under a market-based contract by GEORGIA. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) GULF and MISSISSIPPI provide wholesale requirements for one municipal system each. GEORGIA has entered into substantially similar agreements with OPC, MEAG and Dalton providing for the establishment of an integrated transmission system to carry the power and energy of each. The agreements require an investment by each party in the integrated transmission system in proportion to its respective share of the aggregate system load. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) SCS, acting on behalf of ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH also has a contract with SEPA (a federal power marketing agency) providing for the use of those companies' facilities at government expense to deliver to certain cooperatives and municipalities, entitled by federal statute to preference in the purchase of power from SEPA, quantities of power equivalent to the amounts of power allocated to them by SEPA from certain United States Government hydroelectric projects. The retail service rights of all electric suppliers in the State of Georgia are regulated by the 1973 State Territorial Electric Service Act. Pursuant to the provisions of this Act, all areas within existing municipal limits were assigned to the primary electric supplier therein on March 29, 1973 (451 municipalities, including Atlanta, Columbus, Macon, Augusta, Athens, Rome and Valdosta, to GEORGIA; 115 to electric cooperatives; and 50 to publicly-owned systems). Areas outside of such municipal limits were either to be assigned or to be declared open for customer choice of supplier by action of the Georgia PSC pursuant to standards set forth in the Act. Consistent with such standards, the Georgia PSC has assigned substantially all of the land area in the state to a supplier. Notwithstanding such assignments, the Act provides that any new customer locating outside of 1973 municipal limits and having a connected load of at least 900 kilowatts may receive electric service from the supplier of its choice. (See also Item 1 - BUSINESS - "Competition" herein.) Under and subject to the provisions of its franchises and concessions and the 1973 State Territorial Electric Service Act, SAVANNAH has the full but nonexclusive right to serve the City of Savannah, the Towns of Bloomingdale, Pooler, Garden City, Guyton, Newington, Oliver, Port Wentworth, Rincon, Tybee Island, Springfield, Thunderbolt, Vernonburg, and in conjunction with a secondary supplier, the Town of Richmond Hill. In addition, SAVANNAH has been assigned certain unincorporated areas in Chatham, Effingham, Bryan, Bulloch and Screven Counties by the Georgia PSC. (See also Item 1 - BUSINESS - "Competition" herein.) I-11
Pursuant to the 1956 Utility Act, the Mississippi PSC issued "Grandfather Certificates" of convenience and necessity to MISSISSIPPI and to six distribution rural cooperatives operating in southeastern Mississippi, then served in whole or in part by MISSISSIPPI, authorizing them to distribute electricity in certain specified geographically described areas of the state. The six cooperatives serve approximately 300,000 retail customers in a certificated area of approximately 10,300 square miles. In areas included in a "Grandfather Certificate," the utility holding such certificate may, without further certification, extend its lines up to five miles; other extensions within that area by such utility, or by other utilities, may not be made except upon a showing of, and a grant of a certificate of, public convenience and necessity. Areas included in such a certificate which are subsequently annexed to municipalities may continue to be served by the holder of the certificate, irrespective of whether it has a franchise in the annexing municipality. On the other hand, the holder of the municipal franchise may not extend service into such newly annexed area without authorization by the Mississippi PSC. Long-Term Power Sales Agreements Reference is made to Note 7 to the financial statements for SOUTHERN, ALABAMA, GEORGIA, GULF and MISSISSIPPI in Item 8 herein for information regarding contracts for the sales of capacity and energy to non-territorial customers. Competition The electric utility industry in general has become, and is expected to continue to be, increasingly competitive as the result of factors including regulatory and technological developments. The Energy Act, enacted in 1992, was intended to foster competition in the wholesale market by, among other things, facilitating participation by independent power producers. The Energy Act includes provisions authorizing the FERC under certain conditions to order utilities owning transmission facilities to provide wholesale transmission services for other utilities or entities that generate energy. Various federal and state initiatives designed to promote wholesale and retail competition include, among other things, proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless SOUTHERN remains a low-cost producer and provides quality service, SOUTHERN's retail energy sales could be limited, and this could significantly erode earnings. Reference is made to each registrant's "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein for further discussion of competition. In order to adapt to the increasingly competitive environment in which they operate, SOUTHERN and the operating affiliates will evaluate and consider a wide array of potential business strategies. These may include business combinations or acquisitions involving other utility or non-utility businesses or properties, internal restructurings or reorganizations involving SOUTHERN, the operating affiliates or some combination thereof or dispositions of currently owned properties or currently operated business units. In addition to power marketing activities, SOUTHERN and the operating affiliates may engage in other new business ventures which arise from competitive and regulatory changes in the utility industry. Pursuit of any of the above strategies, or any combination thereof, may significantly affect the business operations and financial condition of SOUTHERN and the operating affiliates. (See Item 1 - BUSINESS - "New Business Development" herein.) As a result of the foregoing factors, SOUTHERN has experienced increasing competition for available off-system sales of capacity and energy from I-12
neighboring utilities and alternative sources of energy. Additionally, the future effect of cogeneration and small-power production facilities on the SOUTHERN system cannot currently be determined but may be adverse. ALABAMA currently has cogeneration contracts in effect with nine industrial customers. Under the terms of these contracts, ALABAMA purchases excess generation of such companies. During 1996, ALABAMA purchased approximately 77 million kilowatt-hours from such companies at a cost of $1.2 million. ALABAMA has entered into agreements with two of its industrial customers to construct cogeneration facilities at their premises. For additional information, reference is made to ALABAMA's "Management's Discussion and Analysis - Capital Requirements" in Item 7 herein. GEORGIA currently has cogeneration contracts in effect with seven industrial customers. Under the terms of these contracts, GEORGIA purchases excess generation of such companies. During 1996, GEORGIA purchased 5 million kilowatt-hours from such companies at a cost of $119,000. GEORGIA has entered into a 30-year purchase power agreement, scheduled to begin in June 1998, for electricity during peaking periods from a planned 300-megawatt cogeneration facility. Payments are subject to reductions for failure to meet minimum capacity output. Reference is made to Note 4 to the financial statements for GEORGIA in Item 8 herein for information regarding purchase power commitments. GULF currently has cogeneration agreements for "as available" energy in effect with two industrial customers. During 1996, GULF purchased 82 million kilowatt-hours from such companies for $1.8 million. MISSISSIPPI entered into agreements to purchase summer peaking power and options for power for the years 1996 through 2000. Also, the Company has purchased options from power marketers. Reference is made to Note 5 to the financial statements for MISSISSIPPI in Item 8 herein for information regarding fuel and purchased power commitments. SAVANNAH currently has cogeneration contracts in effect with four industrial customers. Under the terms of these contracts, SAVANNAH purchases excess generation of such companies. During 1996, SAVANNAH purchased 2 million kilowatt-hours from such companies at a cost of $56,000. The competition for retail energy sales among competing suppliers of energy is influenced by various factors, including price, availability, technological advancements and reliability. These factors are, in turn, affected by, among other influences, regulatory, political and environmental considerations, taxation and supply. The operating affiliates have experienced, and expect to continue to experience, competition in their respective retail service territories in varying degrees as the result of self-generation (as described above) and fuel switching by customers and other factors. (See also Item 1 - BUSINESS - "Territory Served" herein for information concerning suppliers of electricity operating within or near the areas served at retail by the operating affiliates.) Regulation State Commissions The operating affiliates and SEGCO are subject to the jurisdiction of their respective state regulatory commissions, which have broad powers of supervision and regulation over public utilities operating in the respective states, including their rates, service regulations, sales of securities (except for the Mississippi PSC) and, in the cases of the Georgia PSC and Mississippi PSC, in part, retail service territories. (See Item 1 - BUSINESS - "Rate Matters" and "Territory Served" herein.) Holding Company Act SOUTHERN is registered as a holding company under the Holding Company Act, and it and its subsidiary companies are subject to the regulatory provisions of said Act, including provisions relating to the issuance of securities, sales and acquisitions of securities and utility assets, services performed by SCS and Southern Nuclear, and the activities of certain of SOUTHERN's special purpose subsidiaries. I-13
In June 1995, the Division of Investment Management of the SEC issued a report on its study of the regulation of public-utility holding companies. Concluding that significant changes in the current regulatory system are needed, the report offers various legislative and administrative recommendations for reform. The legislative option preferred by the Division in the report is repeal of the Holding Company Act coupled with new provisions for state access to books and records of holding company system companies and for federal audit authority and oversight of intrasystem transactions. However, the prospects for legislative reform of the Holding Company Act are uncertain at this time. Federal Power Act The Federal Power Act subjects the operating affiliates and SEGCO to regulation by the FERC as companies engaged in the transmission or sale at wholesale of electric energy in interstate commerce, including regulation of accounting policies and practices. ALABAMA and GEORGIA are also subject to the provisions of the Federal Power Act or the earlier Federal Water Power Act applicable to licensees with respect to their hydroelectric developments. Among the hydroelectric projects subject to licensing by the FERC are 14 existing ALABAMA generating stations having an aggregate installed capacity of 1,582,725 kilowatts and 18 existing GEORGIA generating stations having an aggregate installed capacity of 1,074,696 kilowatts. The FERC granted three of GEORGIA's hydroelectric projects, the Lloyd Shoals, Langdale and Riverview new 30-year licenses that expire on January 1, 2024. The North Georgia Project was issued a new 40-year license effective October 1, 1996. There are numerous articles in this new license which require releases from some of the dams. These releases include those for minimum flows, aesthetics, and whitewater recreation. Reservoir level fluctuation limitations are also present. Additionally, the FERC has issued an order granting a combined, 40-year license for ALABAMA's Yates and Thurlow projects. As a part of the application for the combined, 40-year license for the Yates and Thurlow projects, ALABAMA agreed to expand the capacity of these units by a total of approximately 10 megawatts. The FERC granted GEORGIA a new license, effective May 1, 1996, for Sinclair Dam. The license articles contain requirements to modify operational and minimum flows to enhance the environment for the robust redhorse (a threatened or endangered candidate species). License articles also cover issues such as: operation of spillway gates, establishment of flow monitoring committees, and recreational enhancements. GEORGIA filed, in September, 1996, with the FERC, a notice of its intent to seek a new license for the Flint River Project. Currently GEORGIA is awaiting a decision from the FERC as to whether or not the FERC has jurisdiction over this station. If the FERC determines it does not, then dam safety responsibilities shift to the State of Georgia and GEORGIA would not incur relicensing costs other than those incurred to date. GEORGIA and OPC also have a license, expiring in 2027, for the Rocky Mountain Plant, a pure pumped storage facility of 847,800 kilowatt capacity which began commercial operation in 1995. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein and Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for additional information.) Licenses for all projects, excluding those discussed above, expire in the period 2007-2023 in the case of ALABAMA's projects and in the period 2005-2020 in the case of GEORGIA's projects. Upon or after the expiration of each license, the United States Government, by act of Congress, may take over the project, or the FERC may relicense the project either to the original licensee or to a new licensee. In the event of takeover or relicensing to another, the original licensee is to be compensated in accordance with the provisions of the Federal Power Act, such compensation to reflect the net investment of the licensee in the project, not in excess of the fair value of the property taken, plus reasonable damages to other property of the licensee resulting from the severance therefrom of the property taken. Atomic Energy Act of 1954 ALABAMA, GEORGIA and Southern Nuclear are subject to the provisions of the Atomic Energy Act of 1954, as amended, which vests jurisdiction in the NRC over I-14
the construction and operation of nuclear reactors, particularly with regard to certain public health and safety and antitrust matters. The National Environmental Policy Act has been construed to expand the jurisdiction of the NRC to consider the environmental impact of a facility licensed under the Atomic Energy Act of 1954, as amended. Reference is made to Notes 1 and 13 to SOUTHERN's, Notes 1 and 12 to ALABAMA's and Notes 1 and 5 to GEORGIA's financial statements in Item 8 herein for information on nuclear decommissioning costs and nuclear insurance. Additionally, Note 3 to GEORGIA's financial statements contains information regarding nuclear performance standards imposed by the Georgia PSC that may impact retail rates. Environmental Regulation The operating affiliates and SEGCO are subject to federal, state and local environmental requirements which, among other things, control emissions of particulates, sulfur dioxide and nitrogen oxides into the air; the use, transportation, storage and disposal of hazardous and toxic waste; and discharges of pollutants, including thermal discharges, into waters of the United States. The operating affiliates and SEGCO expect to comply with such requirements, which generally are becoming increasingly stringent, through technical improvements, the use of appropriate combinations of low-sulfur fuel and chemicals, addition of environmental control facilities, changes in control techniques and reduction of the operating levels of generating facilities. Failure to comply with such requirements could result in the complete shutdown of individual facilities not in compliance as well as the imposition of civil and criminal penalties. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for a discussion of the Clean Air Act and other environmental legislation and proceedings. Possible adverse health effects of EMFs from various sources, including transmission and distribution lines, have been the subject of a number of studies and increasing public discussion. The scientific research currently is inconclusive as to whether EMFs may cause adverse health effects. However, there is the possibility of passage of legislation and promulgation of rulemaking that would require measures to mitigate EMFs, with resulting increases in capital and operating costs. In addition, the potential exists for public liability with respect to lawsuits brought by plaintiffs alleging damages caused by EMFs. The operating affiliates' and SEGCO's estimated capital expenditures for environmental quality control facilities for the years 1997, 1998 and 1999 are as follows: (in millions) --------------------------------------------------------- 1997 1998 1999 ------------------------------------- ALABAMA $16.7 $31.0 $52.1 GEORGIA 9.0 10.0 12.0 GULF 3.1 0.9 - MISSISSIPPI 2.0 0.2 1.9 SAVANNAH 2.6 0.8 3.3 SEGCO 1.7 - - ------------------------------------- SOUTHERN system $35.1 $42.9 $69.3 ========================================================= *The foregoing estimates are included in the current construction programs. (See Item 1 - BUSINESS - "Construction Programs" herein.) Additionally, each operating affiliate and SEGCO have incurred costs for environmental remediation of various sites. Reference is made to each registrant's "Management's Discussion and Analysis" in Item 7 herein for information regarding the registrants' environmental remediation efforts. Also, see Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for information regarding the identification of sites that may require environmental remediation by GEORGIA and Note 3 to MISSISSIPPI's financial statements in Item 8 herein for information regarding a site that may require environmental remediation by MISSISSIPPI. The operating affiliates and SEGCO are unable to predict at this time what additional steps they may be required to take as a result of the implementation of existing or future quality control requirements for air, water and hazardous or toxic materials, but such steps could adversely affect system operations and result in substantial additional costs. I-15
The outcome of the matters mentioned above under "Regulation" cannot now be determined, except that these developments may result in delays in obtaining appropriate licenses for generating facilities, increased construction and operating costs, or reduced generation, the nature and extent of which, while not determinable at this time, could be substantial. Rate Matters Rate Structure The rates and service regulations of the operating affiliates are uniform for each class of service throughout their respective service areas. Rates for residential electric service are generally of the block type based upon kilowatt-hours used and include minimum charges. Residential and other rates contain separate customer charges. Rates for commercial service are presently of the block type and, for large customers, the billing demand is generally used to determine capacity and minimum bill charges. These large customers' rates are generally based upon usage by the customer including those with special features to encourage off-peak usage. Additionally, the operating affiliates are allowed by their respective PSCs to negotiate the terms and compensation of service to large customers. Such terms and compensation of service, however, are subject to final PSC approval. With respect to MISSISSIPPI's retail rates, fuel and purchased power costs above base levels included in the various rate schedules are billed to such customers under the fuel and energy adjustment clause. GULF and SAVANNAH recover from retail customers fuel and net purchased power costs through provisions which are adjusted to reflect increases or decreases in such costs. ALABAMA and GEORGIA are allowed by state law to recover fuel and net purchased energy costs through fuel cost recovery provisions which are adjusted to reflect increases or decreases in such costs. GULF's recovery of fuel costs is based upon a projection for six-months - any over/under recovery during such period is reflected in a subsequent six-month period with interest. GULF's recovery of purchased power capacity costs is based upon an annual projection - any over/under recovery during such period is reflected in a subsequent annual period with interest. The adjustment factors for MISSISSIPPI's retail and wholesale rates are levelized based on the estimated energy cost for the year, adjusted for any actual over/under collection from the previous year. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. Rate Proceedings Reference is made to Note 3 to each registrant's financial statements in Item 8 herein for a discussion of rate matters. For each registrant (except SAVANNAH), such Note 3 includes a discussion of proceedings initiated by the FERC concerning the reasonableness of the Southern electric system's wholesale rate schedules and contracts that have a return on equity of 13.75% or greater. For information regarding GEORGIA's Rocky Mountain Plant, including a joint ownership agreement with OPC and the uncertain recovery of GEORGIA's costs in this plant, reference is made to Note 3 to SOUTHERN's and to GEORGIA's financial statements in Item 8 herein. In September 1996, the Florida PSC approved GULF's new optional Commercial/Industrial Service Rider, which is applicable to the rate schedules for GULF's largest existing and potential customers who are able to show they have viable alternatives to purchasing GULF's energy services. For additional information, reference is made to GULF's "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein. Integrated Resource Planning In 1991, the Georgia legislature passed certain legislation under which both GEORGIA and SAVANNAH must file Integrated Resource Plans for approval by the Georgia PSC. The plans must specify how GEORGIA and SAVANNAH each intends to meet the future electrical needs of their customers through a combination of demand-side and supply-side resources. The Georgia PSC must pre-certify these new resources. Once certified, all prudently incurred construction costs and purchased power costs will be recoverable through rates. I-16
By orders issued in 1992 and by amended orders issued in 1995, the Georgia PSC approved Integrated Resource Plans for both GEORGIA and SAVANNAH. (See Note 3 to GEORGIA's and SAVANNAH's financial statements in Item 8 herein for information regarding demand-side option programs.) On March 4, 1997, the Georgia PSC approved amendments to GEORGIA's 1995 Integrated Resource Plan. Pursuant to the amended plan, the Georgia PSC certified a five-year purchase power agreement scheduled to begin in June 2000 for approximately 215 megawatts. Capacity and fixed operation and maintenance payments over the five-year period are estimated to be approximately $39 million. The Florida PSC set energy conservation goals for GULF, beginning in 1995, that require programs to reduce 154 megawatts of summer peak demand and 65,000 kilowatt-hours of sales by the year 2004. For additional information, reference is made to GULF's "Management's Discussion and Analysis - Future Earnings Potential" in Item 7 herein. Environmental Cost Recovery Plans GULF and MISSISSIPPI both have retail rate mechanisms that provide for recovery of environmental compliance costs. For a description of these plans, see Note 3 to GULF's and MISSISSIPPI's financial statements in Item 8 herein. Employee Relations The companies of the SOUTHERN system had a total of 29,246 employees on their payrolls at December 31, 1996. ------------------------------------------------------------ Employees at December 31, 1996 ------------------------- ALABAMA 6,865 GEORGIA 10,346 GULF 1,384 MISSISSIPPI 1,363 SAVANNAH 571 SCS 3,021 Southern Communications 129 Southern Development 72 Southern Energy* 4,212 Southern Nuclear 1,283 ------------------------------------------------------------ Total 29,246 ============================================================ *Includes 3,710 employees on international payrolls. The operating affiliates have separate agreements with local unions of the IBEW generally covering wages, working conditions and procedures for handling grievances and arbitration. These agreements apply with certain exceptions to operating, maintenance and construction employees. ALABAMA has agreements with the IBEW on a three-year contract extending to August 15, 1998. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date. GEORGIA has an agreement with the IBEW covering wages and working conditions, which is in effect through June 30, 1999. GEORGIA also has a contract with the United Plant Guard Workers of America with respect to Plant Hatch which extends through September 30, 1998. GULF has an agreement with the IBEW on a three-year contract extending to August 15, 1998. MISSISSIPPI has an agreement with the IBEW on a three-year contract extending to August 16, 1998. I-17
SAVANNAH has three-year labor agreements with the IBEW and the Office and Professional Employees International Union that expire April 16, 1999 and December 1, 1999, respectively. Southern Energy has agreements with local unions of the IBEW and the United Paperworkers International Union which covers employees of Mobile Energy. These agreements extend to May 31, 1997. Southern Energy is currently in negotiations with the IBEW and the United Paperworkers International Union. Southern Nuclear has an agreement with the IBEW on a three-year contract extending to August 15, 1998. Upon notice given at least 60 days prior to that date, negotiations may be initiated with respect to agreement terms to be effective after such date. The agreements also subject the terms of the pension plans for the companies discussed above to collective bargaining with the unions at five-year intervals. I-18
Item 2. PROPERTIES Electric Properties The operating affiliates and SEGCO, at December 31, 1996, operated 33 hydroelectric generating stations, 32 fossil fuel generating stations and three nuclear generating stations. The amounts of capacity owned by each company are shown in the table below. ----------------------- ------------------------------------- Nameplate Generating Station Location Capacity (1) ----------------------- ------------------- ----------------- (Kilowatts) Fossil Steam Gadsden Gadsden, AL 120,000 Gorgas Jasper, AL 1,221,250 Barry Mobile, AL 1,525,000 Chickasaw Chickasaw, AL 40,000 Greene County Demopolis, AL 300,000 (2) Gaston Unit 5 Wilsonville, AL 880,000 Miller Birmingham, AL 2,532,288 (3) --------- ALABAMA Total 6,618,538 --------- Arkwright Macon, GA 160,000 Atkinson Atlanta, GA 180,000 Bowen Cartersville, GA 3,160,000 Branch Milledgeville, GA 1,539,700 Hammond Rome, GA 800,000 McDonough Atlanta, GA 490,000 McManus Brunswick, GA 115,000 Mitchell Albany, GA 170,000 Scherer Macon, GA 750,924 (4) Wansley Carrollton, GA 925,550 (5) Yates Newnan, GA 1,250,000 --------- GEORGIA Total 9,541,174 --------- Crist Pensacola, FL 1,045,000 Lansing Smith Panama City, FL 305,000 Scholz Chattahoochee, FL 80,000 Daniel Pascagoula, MS 500,000 (6) Scherer Unit 3 Macon, GA 204,500 (4) ----------- GULF Total 2,134,500 --------- Eaton Hattiesburg, MS 67,500 Sweatt Meridian, MS 80,000 Watson Gulfport, MS 1,012,000 Daniel Pascagoula, MS 500,000 (6) Greene County Demopolis, AL 200,000 (2) ----------- MISSISSIPPI Total 1,859,500 ----------- -------------------------------------------------------------- Nameplate Generating Station Location Capacity ----------------------------------------------------------------- (Kilowatts) McIntosh Effingham County, GA 163,117 Kraft Port Wentworth, GA 281,136 Riverside Savannah, GA 102,278 ----------- SAVANNAH Total 546,531 ----------- Gaston Units 1-4 Wilsonville, AL (SEGCO) 1,000,000 (7) ----------- Total Fossil Steam 21,700,243 ----------- Nuclear Steam Farley Dothan, AL (ALABAMA) 1,720,000 ----------- Hatch Baxley, GA 840,250 (8) Vogtle Augusta, GA 1,060,240 (9) ----------- GEORGIA Total 1,900,490 ---------- Total Nuclear Steam 3,620,490 ----------- Combustion Turbines Greene County Demopolis, AL (ALABAMA) 720,000 ----------- Arkwright Macon, GA 30,580 Atkinson Atlanta, GA 78,720 Bowen Cartersville, GA 39,400 McDonough Atlanta, GA 78,800 McIntosh Units 1,2,3,4,7,8 Effingham County, GA 480,000 McManus Brunswick, GA 481,700 Mitchell Albany, GA 118,200 Robins Warner Robins, GA 160,000 Wilson Augusta, GA 354,100 Wansley Carrollton, GA 26,322 (5) ----------- GEORGIA Total 1,847,822 --------- Lansing Smith Unit A (GULF) Panama City, FL 39,400 Chevron Cogenerating Station Pascagoula, MS 147,292 (10) Sweatt Meridian, MS 39,400 Watson Gulfport, MS 39,360 --------- MISSISSIPPI Total 226,052 ---------- Boulevard Savannah, GA 59,100 Kraft Port Wentworth, GA 22,000 McIntosh Units 5&6 Effingham County, GA 160,000 SAVANNAH Total 241,100 ----------------------------------------------- ----------------- I-19
------------------------- -------------------- ----------------- Nameplate Generating Station Location Capacity ------------------------- -------------------- ----------------- (Kilowatts) Gaston (SEGCO) Wilsonville, AL 19,680 (7) --------- Total Combustion Turbines 3,094,054 --------- Hydroelectric Facilities Weiss Leesburg, AL 87,750 Henry Ohatchee, AL 72,900 Logan Martin Vincent, AL 128,250 Lay Clanton, AL 177,000 Mitchell Verbena, AL 170,000 Jordan Wetumpka, AL 100,000 Bouldin Wetumpka, AL 225,000 Harris Wedowee, AL 135,000 Martin Dadeville, AL 154,200 Yates Tallassee, AL 32,000 Thurlow Tallassee, AL 58,000 Lewis Smith Jasper, AL 157,500 Bankhead Holt, AL 45,125 Holt Holt, AL 40,000 ----------- ALABAMA Total 1,582,725 ---------- Barnett Shoals (Leased) Athens, GA 2,800 Bartletts Ferry Columbus, GA 173,000 Goat Rock Columbus, GA 26,000 Lloyd Shoals Jackson, GA 14,400 Morgan Falls Atlanta, GA 16,800 North Highlands Columbus, GA 29,600 Oliver Dam Columbus, GA 60,000 Rocky Mountain Rome, GA 215,256 (11) Sinclair Dam Milledgeville, GA 45,000 Tallulah Falls Clayton, GA 72,000 Terrora Clayton, GA 16,000 Tugalo Clayton, GA 45,000 Wallace Dam Eatonton, GA 321,300 Yonah Toccoa, GA 22,500 6 Other Plants 18,080 ----------- GEORGIA Total 1,077,736 ---------- Total Hydroelectric Facilities 2,660,461 ----------- Total Generating Capacity 31,075,248 ---------------------------------------------- ----------------- Notes: (1) For additional information regarding facilities jointly-owned with non-affiliated parties, see Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein. (2) Owned by ALABAMA and MISSISSIPPI as tenants in common in the proportions of 60% and 40%, respectively. (3) Excludes the capacity owned by AEC. (4) Capacity shown for GEORGIA is 8.4% of Units 1 and 2 and 75% of Unit 3. Capacity shown for GULF is 25% of Unit 3. (5) Capacity shown is GEORGIA's portion (53.5%) of total plant capacity. (6) Represents 50% of the plant which is owned as tenants in common by GULF and MISSISSIPPI. (7) SEGCO is jointly-owned by ALABAMA and GEORGIA. (See Item 1 - BUSINESS herein.) (8) Capacity shown is GEORGIA's portion (50.1%) of total plant capacity. (9) Capacity shown is GEORGIA's portion (45.7%) of total plant capacity. (10) Generation is dedicated to a single industrial customer. (11) Capacity shown is GEORGIA's portion (25.4%) of total plant capacity. OPC operates the plant. Except as discussed below under "Titles to Property," the principal plants and other important units of the operating affiliates and SEGCO are owned in fee by the respective companies. It is the opinion of management of each such company that its operating properties are adequately maintained and are substantially in good operating condition. MISSISSIPPI owns a 79-mile length of 500-kilovolt transmission line which is leased to Gulf States. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Gulf States is paying a use fee over a forty-year period covering all expenses and the amortization of the original $57 million cost of the line. At December 31, 1996, the unamortized portion of this cost was $39 million. The all-time maximum demand on the operating affiliates and SEGCO was 27,419,700 kilowatts and occurred in August 1995. This amount excludes demand served by capacity retained by MEAG and Dalton and excludes demand associated with power purchased from OPC and SEPA by its preference customers. At that time, 29,596,100 kilowatts were supplied by SOUTHERN system generation and 2,176,400 kilowatts (net) were sold to other parties through net purchased and interchanged power. The reserve margin for the operating affiliates and SEGCO at that time was 9.4%. For additional information on peak demands, reference is made to Item 6 SELECTED FINANCIAL DATA herein. I-20
ALABAMA and GEORGIA will incur significant costs in decommissioning their nuclear units at the end of their useful lives. (See Item 1 - BUSINESS "Regulation - Atomic Energy Act of 1954" and Note 1 to SOUTHERN's, ALABAMA's and GEORGIA's financial statements in Item 8 herein.) Other Electric Generation Facilities Through special purpose subsidiaries, SOUTHERN owns interests in or operates independent power production facilities and foreign utility companies. The generating capacity of these utilities (or facilities) at December 31, 1996, was as follows: <TABLE> <CAPTION> Facilities in Operation ------------------------------------------------------------------------------------------------------------------------------- Megawatts of Capacity Percent Facility Location Units Owned Operated Ownership Type ------------------- --------------------------- --------- ------------ ------------- ------------------ -------------------- <S> <C> <C> <C> <C> <C> <C> Alicura' Argentina 4 551 (1) 1,000 55.14 (1) Hydro Birchwood Virginia 1 111 222 50.00 Coal (2) Edelnor Chile 1 104 160 65.00 Coal Edelnor Chile 27 55 86 65.00 Oil Edelnor Chile 2 7 10 65.00 Hydro Freeport Grand Bahamas 5 71 113 62.50 Oil & Gas UDG-Niagara New York 1 - 50 - Coal (2) Mobile Energy Alabama 3 111 111 100.00 Waste/Biomass (2) Penal Trinidad and Tobago 5 92 236 39.00 Gas Port of Spain Trinidad and Tobago 6 120 308 39.00 Gas Pt. Lisas Trinidad and Tobago 10 247 634 39.00 Gas SWEB United Kingdom 8 108 - 5.78 Gas SWEB United Kingdom 21 19 21 75.00 Oil & Gas SWEB United Kingdom 3 6 - 28.70 Wind =============================================================================================================================== Total Capacity 1,602 2,951 =============================================================================================================================== </TABLE> <TABLE> <CAPTION> Facilities Under Development ------------------------------------------------------------------------------------------------------------------------------ Megawatts of Capacity Percent Facility Location Own Operate Ownership Type ------------------- --------------------------- ------------ ------------- -------------- ---------------- <S> <C> <C> <C> <C> <C> Edelnor Chile 104 160 65.00 Coal State Line (3) Indiana 490 490 100.00 Coal =============================================================================================================================== Total Capacity 594 650 =============================================================================================================================== Notes: (1) Represents megawatts of capacity under a concession agreement expiring in the year 2023. (2) Cogeneration facility. (3) The proposed purchase of this facility is subject to regulatory approval. </TABLE> I-21
Jointly-Owned Facilities ALABAMA and GEORGIA have sold and GEORGIA has purchased undivided interests in certain generating plants and other related facilities to or from non-affiliated parties. The percentages of ownership resulting from these transactions are as follows: <TABLE> <CAPTION> Percentage Ownership Total ---------------- -------- ------------ -------- --------- ------------ -------- Capacity ALABAMA AEGEORGIA OPC MEAG DALTON FPC -------------- ---------------- -------- ------------ -------- --------- ------------ -------- (Megawatts) <S> <C> <C> <C> <C> <C> <C> <C> <C> Plant Miller Units 1 and 2 1,320 91.8% 8.2% -% -% -% -% -% Plant Hatch 1,677 - - 50.1 30.0 17.7 2.2 - Plant Vogtle 2,320 - - 45.7 30.0 22.7 1.6 - Plant Scherer Units 1 and 2 1,636 - - 8.4 60.0 30.2 1.4 - Plant Wansley 1,779 - - 53.5 30.0 15.1 1.4 - Rocky Mountain 848 - - 25.4 74.6 - - - Intercession City, FL 150 - - 33.3 - - - 66.7 --------------------------- -------------- -- ---------------- -------- ------------ -------- --------- ------------ -------- </TABLE> ALABAMA and GEORGIA have contracted to operate and maintain the respective units in which each has an interest (other than Rocky Mountain and Intercession City, as described below) as agent for the joint owners. In connection with the joint ownership arrangements for Plant Vogtle, GEORGIA made commitments to purchase declining fractions of OPC's and MEAG's capacity and energy from this plant. The declining commitments were in effect during periods of up to seven years following commercial operation and ended in 1996. The commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG are in effect until the later of retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether any capacity is available. The energy cost is a function of each unit's variable operating costs. Except for the portion of the capacity payments related to the 1987 and 1990 write-offs of Plant Vogtle costs, the cost of such capacity and energy is included in purchased power from non-affiliates in GEORGIA's Statements of Income in Item 8 herein. In December 1988, GEORGIA and OPC entered into a joint ownership agreement for the Rocky Mountain plant under which GEORGIA agreed to retain its present investment in the project and OPC agreed to finance, complete and operate the facility. In 1995, the plant went into commercial operation. GEORGIA's net investment in the plant is approximately $175 million, and GEORGIA's ownership is 25.4 percent. Reference is made to Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein for additional information regarding the Rocky Mountain plant. In 1994, GEORGIA and FPC entered into a joint ownership agreement regarding the Intercession City combustion turbine unit. The unit began commercial operation in January 1997, and is operated by FPC. GEORGIA owns a one-third interest in the 150-megawatt unit, with use of 100% of the capacity from June through September. FPC has the capacity the remainder of the year. GEORGIA's investment in the unit is approximately $13 million. Sale of Property Reference is made to Note 6 to GEORGIA's financial statements in Item 8 herein for information regarding the sale completed in 1995 of GEORGIA's remaining ownership interest in Plant Scherer Unit 4. I-22
Titles to Property The operating affiliates' and SEGCO's interests in the principal plants (other than certain pollution control facilities, one small hydroelectric generating station leased by GEORGIA and the land on which five combustion turbine generators of MISSISSIPPI are located, which is held by easement) and other important units of the respective companies are owned in fee by such companies, subject only to the liens of applicable mortgage indentures (except for SEGCO) and to excepted encumbrances as defined therein. The operating affiliates own the fee interests in certain of their principal plants as tenants in common. (See Item 2 - PROPERTIES - "Jointly-Owned Facilities" herein.) Properties such as electric transmission and distribution lines and steam heating mains are constructed principally on rights-of-way which are maintained under franchise or are held by easement only. A substantial portion of lands submerged by reservoirs is held under flood right easements. In substantially all of its coal reserve lands, SEGCO owns or will own the coal only, with adequate rights for the mining and removal thereof. Property Additions and Retirements During the period from January 1, 1992 to December 31, 1996, the operating affiliates, SEGCO, SCS, Southern Nuclear, Southern Communications and Southern Energy recorded gross property additions and retirements as follows: ---------------------------------------------------------- Gross Property Additions Retirements --------------- ------------- (in millions) ALABAMA (1) $2,318 $ 383 GEORGIA (2) 2,730 1,633 GULF 347 130 MISSISSIPPI 441 86 SAVANNAH 189 16 SEGCO 60 9 SCS 108 122 Southern Nuclear 7 5 Southern Communications 194 - Southern Energy 318 22 ---------------------------------------------------------- SOUTHERN system $6,712 $2,406 ========================================================== Notes: (1) Includes approximately $62 million attributable to sale of 8.2% interest in Plant Miller Units 1 and 2 to AEC in 1992. (2) Includes approximately $446 million attributable to 1992 through 1996 sales of Plant Scherer Unit 4 to FP&L and JEA. I-23
Item 3. LEGAL PROCEEDINGS (1) Stepak v. certain SOUTHERN officials (U.S. District Court for the Southern District of Georgia) Reference is made to Note 3 to SOUTHERN's financial statements in Item 8 herein under the caption "Stockholder Suit Concluded." (2) SOUTHERN and Subsidiaries v. Commissioner of the IRS (U.S. Tax Court) In June 1994, a tax deficiency notice was received from the IRS for the years 1984 through 1987 with regard to the tax accounting by GEORGIA for the sale in 1984 of an interest in Plant Vogtle and related capacity and energy buyback commitments. The potential tax deficiency and interest arising from this issue currently amount to approximately $25 million and $32 million, respectively. The tax deficiency relates to a timing issue as to when taxes are paid; therefore, only the interest portion could affect future income. Management believes that the IRS position is incorrect, and GEORGIA has filed a petition with the U.S. Tax Court challenging the IRS's position. In order to minimize additional interest charges should the IRS's position prevail, GEORGIA made a payment to the IRS related to the potential tax deficiency in September 1994. In conjunction with this matter, SOUTHERN has filed certain refund claims related to the years 1984 through 1987. SOUTHERN and the IRS have entered into negotiations on all issues, the outcome of which is currently uncertain. (3) Frost v. ALABAMA (Circuit Court of Jefferson County, Alabama) Reference is made to Note 3 to SOUTHERN's and ALABAMA's financial statements in Item 8 herein under the captions "Alabama Power Appliance Warranty Litigation" and "Appliance Warranty Litigation", respectively. (4) GEORGIA has been designated as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act with respect to a site in Brunswick, Georgia. Reference is made to Note 3 to SOUTHERN's and GEORGIA's financial statements in Item 8 herein under the captions "Georgia Power Potentially Responsible Party Status" and "Certain Environmental Contingencies," respectively. See Item 1 - BUSINESS - "Construction Programs," "Fuel Supply," "Regulation - - Federal Power Act" and "Rate Matters" as well as Note 3 to each registrant's financial statements in Item 8 herein for a description of certain other administrative and legal proceedings discussed therein. Additionally, each of the operating affiliates, Southern Energy, SCS, Southern Nuclear, Southern Development and Southern Communications are, in the normal course of business, engaged in litigation or administrative proceedings that include, but are not limited to, acquisition of property, injuries and damages claims, and complaints by present and former employees. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. I-24
EXECUTIVE OFFICERS OF SOUTHERN (Identification of executive officers of SOUTHERN is inserted in Part I in accordance with Regulation S-K, Item 401(b), Instruction 3.) The ages of the officers set forth below are as of December 31, 1996. A. W. Dahlberg Chairman, President and Chief Executive Officer Age 56 Elected in 1985; President and Chief Executive Officer of GEORGIA from 1988 through 1993. He was elected President of SOUTHERN effective January 1994. He was elected Chairman and Chief Executive Officer effective March 1995. Paul J. DeNicola Executive Vice President and Director Age 48 Elected in 1989; Executive Vice President of SOUTHERN since 1991. Elected President and Chief Executive Officer of SCS effective January 1994. He previously served as Executive Vice President of SCS from 1991 to 1993. H. Allen Franklin Executive Vice President and Director Age 52 Elected in 1988; President and Chief Executive Officer of SCS from 1988 through 1993 and, beginning 1991, Executive Vice President of SOUTHERN. He was elected President and Chief Executive Officer of GEORGIA effective January 1994. Elmer B. Harris Executive Vice President and Director Age 57 Elected in 1989; President and Chief Executive Officer of ALABAMA since 1989 and, beginning 1991, Executive Vice President of SOUTHERN. David M. Ratcliffe Senior Vice President Age 48 Elected in 1995; President and Chief Executive Officer of MISSISSIPPI from 1991 to 1995. He also serves as Executive Vice President of SCS beginning in 1995. W. L. Westbrook Financial Vice President, Chief Financial Officer and Treasurer Age 57 Elected in 1986; responsible primarily for all aspects of financing for SOUTHERN. He has served as Executive Vice President of SCS since 1986. Thomas G. Boren Vice President Age 47 Elected in 1995; President and Chief Executive Officer of Southern Energy since 1992. He previously served as Senior Vice President of GEORGIA from 1989 to 1992. Bill M. Guthrie Vice President Age 63 Elected in 1991; serves as Chief Production Officer for the SOUTHERN system. Senior Executive Vice President of SCS effective January 1994 and Executive Vice President of ALABAMA since 1988. He also serves as Executive Vice President of GEORGIA and Vice President of GULF, MISSISSIPPI and SAVANNAH. W. G. Hairston, III Age 52 President and Chief Executive Officer of Southern Nuclear since 1993. He has also served as Executive Vice President of GEORGIA since 1989. Each of the above is currently an officer of SOUTHERN, serving a term running from the last annual meeting of the directors (May 22, 1996) for one year until the next annual meeting or until his successor is elected and qualified. I-25
PART II Item 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) The common stock of SOUTHERN is listed and traded on the New York Stock Exchange. The stock is also traded on regional exchanges across the United States. High and low stock prices, per the New York Stock Exchange Composite Tape during each quarter for the past two years were as follows: ----------------------------------------------------- High Low ----------- -------- 1996 First Quarter $25-7/8 $22-3/8 Second Quarter 24-5/8 21-1/4 Third Quarter 24-5/8 21-3/4 Fourth Quarter 23-1/8 21-1/8 1995 First Quarter $21-1/2 $19-3/8 Second Quarter 22-7/8 20-1/8 Third Quarter 24 21-1/8 Fourth Quarter 25 22-3/4 ----------------------------------------------------- There is no market for the other registrants' common stock, all of which is owned by SOUTHERN. On February 28, 1997, the closing price of SOUTHERN's common stock was $21-3/4. (b) Number of SOUTHERN's common stockholders at December 31, 1996: 215,246 Each of the other registrants have one common stockholder, SOUTHERN. (c) Dividends on each registrant's common stock are payable at the discretion of their respective board of directors. The dividends on common stock paid and/or declared by SOUTHERN and the operating affiliates to their stockholder(s) for the past two years were as follows: (in thousands) ---------------------------------------------------- Registrant Quarter 1996 1995 ---------------------------------------------------- SOUTHERN First $211,081 $201,866 Second 211,272 203,060 Third 212,200 203,061 Fourth 212,201 203,178 ALABAMA First 76,000 71,900 Second 76,400 69,500 Third 76,400 69,300 Fourth 118,700 74,300 GEORGIA First 121,500 113,900 Second 122,100 110,200 Third 122,100 109,700 Fourth 109,800 117,700 GULF First 12,300 11,700 Second 12,400 11,300 Third 12,400 11,300 Fourth 21,200 12,100 MISSISSIPPI First 10,600 9,900 Second 10,700 9,600 Third 10,600 9,600 Fourth 12,000 10,300 SAVANNAH First 4,800 4,400 Second 4,800 4,300 Third 4,800 4,300 Fourth 5,200 4,600 ---------------------------------------------------- The dividend paid per share by SOUTHERN was 30.5(cent) for each quarter of 1995 and 31.5(cent) for each quarter of 1996. The dividend paid on SOUTHERN's common stock for the first quarter of 1997 was raised to 32.5(cent) per share. II-1
The amount of dividends on their common stock that may be paid by the subsidiary registrants is restricted in accordance with their respective first mortgage bond indenture and charter. The amounts of earnings retained in the business and the amounts restricted against the payment of cash dividends on common stock at December 31, 1996, were as follows: ---------------------------------------------------------- Retained Restricted Earnings Amount ------------------ -------------- (in millions) ALABAMA $1,185 $ 796 GEORGIA 1,675 897 GULF 179 127 MISSISSIPPI 166 118 SAVANNAH 109 68 Consolidated 3,764 2,008 - -------------------------------------------------------- Item 6. SELECTED FINANCIAL DATA SOUTHERN. Reference is made to information under the heading "Selected Consolidated Financial and Operating Data," contained herein at pages II-37 through II-52. ALABAMA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-80 through II-93. GEORGIA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-126 through II-140. GULF. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-168 through II-181. MISSISSIPPI. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-208 through II-221. SAVANNAH. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-243 through II-255. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SOUTHERN. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-8 through II-14. ALABAMA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-56 through II-61. GEORGIA. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-97 through II-103. GULF. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-144 through II-150. MISSISSIPPI. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-185 through II-191. SAVANNAH. Reference is made to information under the heading "Management's Discussion and Analysis of Results of Operations and Financial Condition," contained herein at pages II-225 through II-229. II-2
<TABLE> <CAPTION> Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO 1996 FINANCIAL STATEMENTS Page The Southern Company and Subsidiary Companies: <S> <C> Report of Independent Public Accountants....................................................................... II-7 Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994......................... II-15 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994.......................................................................... II-15 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994..................... II-16 Consolidated Balance Sheets at December 31, 1996 and 1995...................................................... II-17 Consolidated Statements of Capitalization at December 31, 1996 and 1995........................................ II-19 Consolidated Statements of Paid-In Capital for the Years Ended December 31, 1996, 1995 and 1994................ II-20 Notes to Financial Statements.................................................................................. II-21 ALABAMA: Report of Independent Public Accountants ..................................................................... II-55 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994...................................... II-62 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................. II-63 Balance Sheets at December 31, 1996 and 1995 .................................................................. II-64 Statements of Capitalization at December 31, 1996 and 1995 .................................................... II-66 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994........................... II-67 Notes to Financial Statements.................................................................................. II-68 GEORGIA: Report of Independent Public Accountants....................................................................... II-96 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994...................................... II-104 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................. II-105 Balance Sheets at December 31, 1996 and 1995 .................................................................. II-106 Statements of Capitalization at December 31, 1996 and 1995 .................................................... II-108 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994........................... II-109 Statements of Paid-In Capital for the Years Ended December 31, 1996, 1995 and 1994............................. II-109 Notes to Financial Statements.................................................................................. II-110 GULF: Report of Independent Public Accountants....................................................................... II-143 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994...................................... II-151 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................. II-152 Balance Sheets at December 31, 1996 and 1995 .................................................................. II-153 Statements of Capitalization at December 31, 1996 and 1995 .................................................... II-155 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994........................... II-157 Statements of Paid-In Capital for the Years Ended December 31, 1996, 1995 and 1994............................. II-157 Notes to Financial Statements.................................................................................. II-158 II-3
Page MISSISSIPPI: Report of Independent Public Accountants....................................................................... II-184 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994...................................... II-192 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................. II-193 Balance Sheets at December 31, 1996 and 1995 .................................................................. II-194 Statements of Capitalization at December 31, 1996 and 1995 .................................................... II-196 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994........................... II-197 Statements of Paid-In Capital for the Years Ended December 31, 1996, 1995 and 1994............................. II-197 Notes to Financial Statements.................................................................................. II-198 SAVANNAH: Report of Independent Public Accountants....................................................................... II-224 Statements of Income for the Years Ended December 31, 1996, 1995 and 1994...................................... II-230 Statements of Retained Earnings for the Years Ended December 31, 1996, 1995 and 1994........................... II-230 Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................. II-231 Balance Sheets at December 31, 1996 and 1995 .................................................................. II-232 Statements of Capitalization at December 31, 1996 and 1995 .................................................... II-234 Notes to Financial Statements.................................................................................. II-235 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. </TABLE> II-4 THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES FINANCIAL SECTION II-5
MANAGEMENT'S REPORT Southern Company and Subsidiary Companies 1996 Annual Report The management of Southern Company has prepared -- and is responsible for -- the consolidated financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The company's system of internal accounting controls is evaluated on an ongoing basis by the company's internal audit staff. The company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of five directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the company's operations are conducted according to a high standard of business ethics. In management's opinion, the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Southern Company and its subsidiary companies in conformity with generally accepted accounting principles. /s/ A. W. Dahlberg A. W. Dahlberg Chairman, President, and Chief Executive Officer /s/ W. L. Westbrook W. L. Westbrook Financial Vice President, Chief Financial Officer, and Treasurer February 12, 1997 II-6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and to the Stockholders of Southern Company: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of Southern Company (a Delaware corporation) and subsidiary companies as of December 31, 1996 and 1995, and the related consolidated statements of income, retained earnings, paid-in capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements (pages II-15 through II-36) referred to above present fairly, in all material respects, the financial position of Southern Company and subsidiary companies as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia February 12, 1997 II-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Southern Company and Subsidiary Companies 1996 Annual Report RESULTS OF OPERATIONS Earnings and Dividends Southern Company's 1996 financial results exceeded the strong performance recorded in 1995. The traditional core business of selling electricity in the Southeast remained strong, while non-traditional business results reflected a full year of South Western Electricity's (SWEB) operations. The acquisition of SWEB in late 1995 by Southern Energy, Inc. (Southern Energy) made a significant positive impact on non-traditional earnings. Net income of over $1.1 billion and earnings per share of $1.68 for 1996 both established record highs. Net income increased $24 million compared with the amount reported for 1995. Continued cost controls, steady demand for electricity, and growth in the non-traditional business were the dominant forces that favorably affected 1996 earnings. Costs related to work force reduction programs decreased earnings by $53 million or 8 cents per share and $17 million or 2 cents per share in 1996 and 1995, respectively. These costs are expected to be recovered through future savings in approximately two years following each program's implementation. In 1995, earnings were $1.1 billion or $1.66 per share -- up 14 cents from the per share amount reported in 1994. Earnings in 1995 were affected by a reduction in costs related to work force reduction programs, and much hotter temperatures when compared with 1994 results. Dividends paid on common stock during 1996 were $1.26 per share or 31 1/2 cents per quarter. During 1995 and 1994, dividends paid per share were $1.22 and $1.18, respectively. In January 1997, the Southern Company board of directors raised the quarterly dividend to 32 1/2 cents per share or an annual rate of $1.30 per share. Acquisitions Southern Energy owns and manages international and domestic non-traditional electric power production and delivery facilities for Southern Company. Southern Energy's acquisition of Consolidated Electric Power Asia (CEPA) closed in January 1997, and is not included in Southern Company's 1996 results. Southern Energy did acquire several businesses in late 1995 and 1994. These businesses have been included in the consolidated financial statements since the date of acquisition and are not reflected in prior periods. Therefore, changes in revenues and expenses for 1996 and for 1995 reflect significant amounts related to acquisitions, which were not fully reflected in each year being compared. To facilitate discussing the results of operations, Southern Energy's variances are shown separately and are predominantly acquisition related. Revenues Operating revenues increased in 1996 and 1995 as a result of the following factors: Increase (Decrease) From Prior Year --------------------------------- 1996 1995 1994 ---------------------------------- Retail -- (in millions) Change in base rates $ (18) $ - $ 3 Sales growth 142 177 153 Weather (64) 143 (177) Fuel cost recovery and other 2 134 (107) --------------------------------------------------------------- Total retail 62 454 (128) --------------------------------------------------------------- Sales for resale -- Within service area 10 39 (87) Outside service area 14 (90) (108) --------------------------------------------------------------- Total sales for resale 24 (51) (195) Southern Energy 1,040 458 131 Other operating revenues 52 22 - --------------------------------------------------------------- Total operating revenues $1,178 $883 $192) =============================================================== Percent change 12.8% 10.6% (2.3)% --------------------------------------------------------------- Retail revenues of $7.7 billion in 1996 increased 0.8 percent from last year, compared with an increase of 6.4 percent in 1995. Under fuel cost recovery provisions, fuel revenues generally equal fuel expense -- including the fuel component of purchased energy -- and do not affect net income. Sales for resale revenues within the service area were $409 million in 1996, up 2.5 percent from the prior year. Revenues from sales for resale within the service area were $399 million in 1995, up 11 percent from the prior year. This increase in 1995 resulted primarily from the prolonged hot summer weather, which increased the demand for electricity. II-8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1996 Annual Report Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. 1996 1995 1994 ---------------------------------- (in millions) Capacity $217 $237 $276 Energy 176 151 176 ------------------------------------------------------- Total $393 $388 $452 ======================================================= Capacity revenues decreased in 1996 because the amount of capacity under contract declined slightly in 1996 and by 100 megawatts in 1995. Additional declines in capacity are not scheduled until after 1999. Changes in traditional core business revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour sales for 1996 and the percent change by year were as follows: (billions of kilowatt-hours) Amount Percent Change ------------- ---------------------------- 1996 1996 1995 1994 ------------- ---------------------------- Residential 40.1 2.5% 9.2% (2.6)% Commercial 38.0 5.7 5.5 3.8 Industrial 52.8 2.2 2.7 3.2 Other 0.9 5.7 2.1 3.8 ------------- Total retail 131.8 3.3 5.4 1.6 Sales for resale -- Within service area 10.9 15.4 16.2 (38.5) Outside service area 10.8 17.9 (15.1) (13.5) ------------- Total 153.5 5.0 4.4 (3.4) =================================================================== The rate of increase in 1996 retail energy sales continued to be strong. The number of customers served increased by nearly 71,000 during the year. Residential energy sales experienced only moderate gains as a result of milder summer weather in 1996, compared with the extremely hot summer of 1995. Commercial and industrial sales continue to show slight gains in excess of the national average. This reflects the strength of business and economic conditions in Southern Company's traditional service area. Energy sales to retail customers are projected to increase at an average annual rate of 2.1 percent during the period 1997 through 2007. Energy sales for resale outside the service area are predominantly unit power sales under long-term contracts to Florida utilities. Economy sales and amounts sold under short-term contracts are also sold for resale outside the service area. Sales to customers outside the service area increased in 1996 and declined in 1995 when compared with the prior year. However, these fluctuations in energy sales have minimal effect on earnings because Southern Company is paid for dedicating specific amounts of its generating capacity to these utilities outside the service area. Expenses Total operating expenses of $8.5 billion for 1996 increased $1.2 billion compared with the prior year. Traditional core business expenses increased $240 million. Southern Energy's expenses increased $970 million. The large increase for Southern Energy resulted primarily from SWEB, which was acquired in late 1995. The costs to produce and deliver electricity for the traditional core business in 1996 increased by $79 million to meet higher energy demands. Also, costs related to work force reduction programs increased expenses by $58 million. Depreciation expenses and property taxes increased by $50 million as a result of additional utility plant being placed into service. The amortization of deferred expenses related to Plant Vogtle increased by $13 million in 1996 when compared with the prior year. In 1995, operating expenses of $7.3 billion increased 11 percent compared with 1994. Traditional core business expenses increased $322 million. Southern Energy's expenses increased $390 million. Total production costs for the core business were up $120 million. Depreciation expense and taxes other than income taxes increased $78 million. Also, the amortization of deferred Plant Vogtle expenses increased $49 million compared with the amount in 1994. Fuel costs constitute the single largest expense for Southern Company. The mix of fuel sources for generation of electricity is determined primarily by II-9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1996 Annual Report system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated -- within the core business service area -- were as follows: 1996 1995 1994 ---------------------------- Total generation (billions of kilowatt-hours) 156 147 142 Sources of generation (percent) -- Coal 77 77 75 Nuclear 17 17 19 Hydro 4 4 5 Oil and gas 2 2 1 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.65 1.73 1.80 Nuclear 0.52 0.56 0.56 Oil and gas 5.20 3.37 3.99 Total 1.48 1.53 1.56 - --------------------------------------------------------------- Fuel and purchased power costs of $3.3 billion in 1996 increased $731 million compared with 1995. Traditional core business increased $49 million and Southern Energy increased $682 million because of the acquisition of SWEB in late 1995. The traditional core business's customer demand for electricity rose by 7.9 billion kilowatt-hours more than in 1995. The additional cost to meet the demand was offset slightly by a lower average cost of fuel per net kilowatt-hour generated. Fuel and purchased power expenses of $2.6 billion in 1995 increased $282 million compared with the prior year. Traditional core business accounted for $73 million of the increase because of higher energy sales. For 1996, total income taxes decreased $12 million compared with the prior year. Traditional core business income taxes decreased $47 million, and Southern Energy increased $35 million. The decrease was attributable to less taxable income from core business operations. For 1995, income taxes rose $84 million above the amount reported for 1994. Traditional core business increased $65 million and Southern Energy accounted for the remainder. Total gross interest charges and preferred stock dividends increased $19 million from amounts reported in the previous year. These costs for core business continued to decline by $71 million, but Southern Energy's interest charges increased. The decline in costs for core business was attributable to lower interest rates and continued refinancing activities in 1996. In 1995, these costs for core business decreased $12 million. As a result of favorable market conditions, $574 million in 1996, $1.1 billion in 1995, and $1.0 billion in 1994 of senior securities were issued for the primary purpose of retiring higher-cost securities. Effects of Inflation Southern Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on Southern Company because of the large investment in long-lived utility plant. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated more competitive environment, with non-traditional business becoming more significant. Work force reduction programs have reduced earnings by $53 million, $17 million, and $61 million for the years 1996, 1995, and 1994, respectively. These actions will assist in efforts to control growth in future operating expenses. Future earnings in the near term will depend upon growth in energy sales, which are subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the company's service area. However, the Energy Policy Act of 1992 (Energy Act) is having a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased competition for electric utilities. Southern Company is positioning its business to meet the challenge of this major change II-10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1996 Annual Report in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. Southern Company is aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. Various federal and state initiatives designed to promote wholesale and retail competition, among other things, include proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless Southern Company remains a low-cost producer and provides quality service, the company's retail energy sales growth could be limited, and this could significantly erode earnings. The Energy Act amended the Public Utility Holding Company Act of 1935 (PUHCA). The amendment allows holding companies to form exempt wholesale generators and foreign utility companies to sell power largely free of regulation under PUHCA. These entities are able to sell power to affiliates -- under certain restrictions -- and to own and operate power generating facilities in other domestic and international markets. To take advantage of existing and evolving opportunities, Southern Energy-- founded in 1981 -- is focusing on international and domestic cogeneration, the independent power market, and the privatization of generating and distribution facilities in the international market. As the marketplace evolves, Southern Energy is positioning the company to become a major competitor for providing energy-related services, including energy trading and marketing. Also, Southern Energy is expanding the business through acquisitions. In late 1995, SWEB was acquired for approximately $1.8 billion. In July 1996, a 25 percent interest in SWEB was sold. The acquisition of an 80 percent interest in CEPA for a total net investment of some $2.1 billion was completed in early 1997. For additional information on these acquisitions, see Note 14 to the financial statements. The CEPA acquisition is expected to be slightly dilutive in the near term. However, Southern Energy's investments should increase the opportunities for long-term future earnings growth. At December 31, 1996, Southern Energy's total assets amounted to $4.9 billion, and with the inclusion of CEPA assets will be nearly $10 billion. Rates to retail customers served by the system operating companies are regulated by the respective state public service commissions in Alabama, Florida, Georgia, and Mississippi. Rates for Alabama Power and Mississippi Power are adjusted periodically within certain limitations based on earned retail rate of return compared with an allowed return. See Note 3 to the financial statements for information about other retail and wholesale regulatory matters. The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry -- including Southern Company's -- regarding the recognition, measurement, and classification of decommissioning costs for nuclear generating facilities in the financial statements. In response to these questions, the Financial Accounting Standards Board (FASB) has decided to review the accounting for liabilities related to closure and removal of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of closing and removing Southern Company's nuclear and other facilities may be required to be recorded as liabilities in the Consolidated Balance Sheets. Also, the annual provisions for such costs could change. Because of the company's current ability to recover closure and removal costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. Southern Company is involved in various matters being litigated. See Note 3 to the financial statements for information regarding material issues that could possibly affect future earnings. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." II-11
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1996 Annual Report The operating companies are subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of a company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. FINANCIAL CONDITION Overview Southern Company's financial condition continues to remain strong. Earnings per share set a record high in 1996. Net income continued to increase in 1996 and exceeded $1.1 billion. Based on this performance, in January 1997, the Southern Company board of directors increased the common stock dividend for the sixth consecutive year. Gross property additions to utility plant were $1.2 billion. The majority of funds needed for gross property additions since 1993 have been provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes. The Consolidated Statements of Cash Flows provide additional details. Southern Company uses financial derivatives on a limited basis to mitigate business risks. At December 31, 1996, the credit and price risks for derivatives outstanding were not material to the financial statements. See Note 1 to the financial statements under "Financial Instruments" for additional information. Capital Structure Southern Company achieved a ratio of common equity to total capitalization -- including short-term debt -- of 45.1 percent in 1996, compared with 42.4 percent in 1995, and 44.4 percent in 1994. The company's goal is to maintain the common equity ratio generally within a range of 40 percent to 45 percent. During 1996, the subsidiary companies sold $85 million of first mortgage bonds and, through public authorities, $167 million of pollution control revenue bonds. Preferred securities of $322 million were issued in 1996. The companies continued to reduce financing costs by retiring higher-cost bonds and preferred stock. Retirements, including maturities, of bonds totaled $600 million during 1996, $1.3 billion during 1995, and $973 million during 1994. Retirements of preferred stock totaled $179 million during 1996, and $1 million a year during 1995 and 1994. As a result, the composite interest rate on long-term debt decreased from 7.6 percent at December 31, 1993, to 6.9 percent at December 31, 1996. During this same period, the composite dividend rate on preferred stock declined from 6.4 percent to 6.2 percent. In 1996, Southern Company raised $171 million from the issuance of new common stock under the company's various stock plans. At the close of 1996, the company's common stock had a market value of 22 5/8 per share, compared with a book value of $13.61 per share. The market-to-book value ratio was 166 percent at the end of 1996, compared with 188 percent at year-end 1995, and 160 percent at year-end 1994. Capital Requirements for Construction The construction program of Southern Company is budgeted at $1.4 billion for 1997, $1.3 billion for 1998, and $1.4 billion for 1999. The total is $4.1 billion for the three years. Actual construction costs may vary from this estimate because of changes in such factors as: business conditions; environmental regulations; nuclear plant regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures for the operating companies will be fully recovered. The operating companies do not have any traditional baseload generating plants under construction, and current energy demand forecasts do not require any traditional baseload facilities until well into the future. Significant construction of transmission and distribution facilities and upgrading of generating plants will be continuing. Other Capital Requirements In addition to the funds needed for the construction program, approximately $1.2 billion will be required by the end of 1999 for present sinking fund requirements and maturities of long-term debt. Also, the subsidiaries will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. II-12
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1996 Annual Report Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- impacts Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units of Southern Company. As a result of the company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a calendar year. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. Southern Company's sulfur dioxide compliance strategy is designed to use allowances as a compliance option. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Construction expenditures for Phase I compliance totaled approximately $310 million. For Phase II sulfur dioxide compliance, Southern Company could use emission allowances, increase fuel switching, and/or install flue gas desulfurization equipment at selected plants. Also, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired units as required to meet Phase II limits. Therefore, current compliance strategy could require total Phase II estimated construction expenditures of approximately $80 million, of which $60 million remains to be spent. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. An average increase of up to 1 percent in revenue requirements from customers could be necessary to fully recover the cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: revisions to the ambient air quality standards for ozone and particulate matter; emission control strategies for ozone non-attainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. Southern Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the subsidiaries could incur substantial costs to clean up properties. The subsidiaries conduct studies to determine the extent of any required cleanup costs and have recognized in their respective financial statements costs to clean up known sites. These costs for Southern Company amounted to $8 million a year for 1995 and 1994. In 1996, the company was reimbursed $6 million for amounts previously expensed. Additional sites may require environmental remediation for which the subsidiaries may be liable for a portion or all required cleanup costs. See Note 3 to the financial statements for information regarding Georgia Power's potentially responsible party status at a site in Brunswick, Georgia. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of Southern Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation -- if II-13
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1996 Annual Report any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital Southern Company plans to issue additional equity capital in 1997. The amount and timing of additional equity capital to be raised in 1997 -- as well as in subsequent years -- will be contingent on Southern Company's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or the company's stock plans. Any portion of the common stock required during 1997 for the company's stock plans that is not provided from the issuance of new stock will be acquired on the open market in accordance with the terms of such plans. The operating companies plan to obtain the funds required for construction and other purposes from sources similar to those used in the past, which was primarily from internal sources. However, the type and timing of any financings - -- if needed -- will depend on market conditions and regulatory approval. To meet short-term cash needs and contingencies, Southern Company had approximately $445 million of cash and cash equivalents and $4.1 billion of unused credit arrangements with banks at the beginning of 1997. To issue additional first mortgage bonds and preferred stock, the operating companies must comply with certain earnings coverage requirements designated in their mortgage indentures and corporate charters. The ability to issue securities in the future will depend on coverages at that time. Currently, each of the operating companies expects to have adequate coverage ratios for anticipated requirements through at least 1999. II-14
CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995, and 1994 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Revenues $10,358 $9,180 $8,297 - ------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,245 2,126 2,058 Purchased power 1,103 491 277 Other 1,860 1,626 1,505 Maintenance 782 683 660 Depreciation and amortization 996 904 821 Amortization of deferred Plant Vogtle costs, net 137 124 75 Taxes other than income taxes 634 535 475 Income taxes 747 805 711 - ------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 8,504 7,294 6,582 - ------------------------------------------------------------------------------------------------------------------------------- Operating Income 1,854 1,886 1,715 Other Income: Allowance for equity funds used during construction 4 5 11 Interest income 54 38 32 Other, net 42 (65) (28) Income taxes applicable to other income (10) 36 26 - ------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,944 1,900 1,756 - ------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 530 557 568 Allowance for debt funds used during construction (19) (20) (18) Interest on notes payable 107 63 33 Amortization of debt discount, premium, and expense, net 33 44 30 Other interest charges 46 43 47 Minority interest in subsidiaries 13 13 20 Distributions on preferred securities of subsidiary companies 22 9 - Preferred dividends of subsidiary companies 85 88 87 - ------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 817 797 767 - ------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 1,127 $1,103 $ 989 =============================================================================================================================== Common Stock Data: Average number of shares of common stock outstanding (in millions) 673 665 650 Earnings per share of common stock $1.68 $1.66 $1.52 Cash dividends paid per share of common stock $1.26 $1.22 $1.18 - ------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1996, 1995, and 1994 - ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- (in millions) Balance at Beginning of Year $3,483 $3,191 $2,968 Consolidated net income 1,127 1,103 989 - ------------------------------------------------------------------------------------------------------------------------------- 4,610 4,294 3,957 Cash dividends on common stock 846 811 766 Balance at End of Year (Note 9) $3,764 $3,483 $3,191 =============================================================================================================================== </TABLE> The accompanying notes are an integral part of these statements. II-15
CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995, and 1994 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Activities: Consolidated net income $ 1,127 $ 1,103 $ 989 Adjustments to reconcile consolidated net income to net cash provided by operating activities -- Depreciation and amortization 1,201 1,134 1,050 Deferred income taxes and investment tax credits 57 117 (4) Allowance for equity funds used during construction (4) (5) (11) Amortization of deferred Plant Vogtle costs, net 137 124 75 Gain on asset sales (59) (33) (52) Other, net 79 (52) 45 Changes in certain current assets and liabilities -- Receivables, net (92) (109) 114 Fossil fuel stock 57 28 (110) Materials and supplies 47 11 (18) Accounts payable 19 (138) 81 Other (168) 135 (48) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 2,401 2,315 2,111 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,229) (1,401) (1,536) Southern Energy business acquisitions - (1,416) (405) Sales of property 211 287 171 Other (275) 153 (87) - --------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,293) (2,377) (1,857) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds -- Common stock 171 277 279 Preferred securities 322 - 100 First mortgage bonds 85 375 185 Other long-term debt 1,570 1,805 1,188 Retirements -- Preferred stock (179) (1) (1) First mortgage bonds (426) (538) (241) Other long-term debt (1,754) (902) (1,039) Increase (decrease) in notes payable, net (268) 727 37 Payment of common stock dividends (846) (811) (766) Miscellaneous (110) (237) (35) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (1,435) 695 (293) - --------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (327) 633 (39) Cash and Cash Equivalents at Beginning of Year 772 139 178 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 445 $ 772 $ 139 =========================================================================================================================== Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $677 $622 $618 Income taxes $652 $645 $716 Southern Energy business acquisitions -- Fair value of assets acquired $- $2,745 $604 Less cash paid for common stock - 1,416 405 - --------------------------------------------------------------------------------------------------------------------------- Liabilities assumed $- $1,329 $199 =========================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-16
CONSOLIDATED BALANCE SHEETS At December 31, 1996 and 1995 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> - ------------------------------------------------------------------------------------------------------------------ Assets 1996 1995 - ------------------------------------------------------------------------------------------------------------------ (in millions) Utility Plant: Plant in service (Note 1) $33,260 $31,878 Less accumulated provision for depreciation 10,921 10,067 - ------------------------------------------------------------------------------------------------------------------ 22,339 21,811 Nuclear fuel, at amortized cost 246 225 Construction work in progress (Note 4) 684 990 - ------------------------------------------------------------------------------------------------------------------ Total 23,269 23,026 - ------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Argentine operating concession, being amortized 416 431 Goodwill (Note 14) 318 344 Nuclear decommissioning trusts 279 201 Miscellaneous 488 317 - ------------------------------------------------------------------------------------------------------------------ Total 1,501 1,293 - ------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 445 772 Special deposits 44 156 Receivables, less accumulated provisions for uncollectible accounts of $32 million in 1996 and $37 million in 1995 1,458 1,366 Fossil fuel stock, at average cost 270 327 Materials and supplies, at average cost 510 552 Prepayments 253 266 Vacation pay deferred 77 74 - ------------------------------------------------------------------------------------------------------------------ Total 3,057 3,513 - ------------------------------------------------------------------------------------------------------------------ Deferred Charges: Deferred charges related to income taxes (Note 8) 1,302 1,386 Deferred Plant Vogtle costs 171 308 Debt expense, being amortized 78 68 Premium on reacquired debt, being amortized 289 295 Miscellaneous 625 633 - ------------------------------------------------------------------------------------------------------------------ Total 2,465 2,690 - ------------------------------------------------------------------------------------------------------------------ Total Assets $30,292 $30,522 ================================================================================================================== The accompanying notes are an integral part of these balance sheets. </TABLE> II-17
CONSOLIDATED BALANCE SHEETS At December 31, 1996 and 1995 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> - ---------------------------------------------------------------------------------------------------------------------- Capitalization and Liabilities 1996 1995 - ---------------------------------------------------------------------------------------------------------------------- (in millions) Capitalization (See accompanying statements): Common stock equity $ 9,216 $ 8,772 Preferred stock of subsidiaries 980 1,332 Subsidiary obligated mandatorily redeemable preferred securities 422 100 Long-term debt 7,935 8,274 - ---------------------------------------------------------------------------------------------------------------------- Total 18,553 18,478 - ---------------------------------------------------------------------------------------------------------------------- Current Liabilities: Amount of securities due within one year 364 509 Notes payable 1,483 1,670 Accounts payable 788 785 Customer deposits 132 216 Taxes accrued- Federal and state income 12 93 Other 193 179 Interest accrued 187 199 Vacation pay accrued 104 100 Miscellaneous 535 530 - ---------------------------------------------------------------------------------------------------------------------- Total 3,798 4,281 - ---------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 4,738 4,611 Deferred credits related to income taxes (Note 8) 879 936 Accumulated deferred investment tax credits 788 820 Employee benefits provisions 439 431 Minority interest 375 231 Prepaid capacity revenues 122 131 Department of Energy assessments 81 86 Disallowed Plant Vogtle capacity buyback costs 57 59 Storm damage reserves 35 31 Miscellaneous 427 427 - ---------------------------------------------------------------------------------------------------------------------- Total 7,941 7,763 - ---------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, 7, 13, and 14) Total Capitalization and Liabilities $30,292 $30,522 ====================================================================================================================== The accompanying notes are an integral part of these balance sheets. </TABLE> II-18
CONSOLIDATED STATEMENTS OF CAPITALIZATION At December 31, 1996 and 1995 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------ 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ (in millions) (percent of total) Common Stock Equity: Common stock, par value $5 per share -- Authorized -- 1 billion shares Outstanding -- 1996: 677 million shares 1995: 670 million shares $3,385 $3,348 Paid-in capital 2,067 1,941 Retained earnings (Note 9) 3,483 - ------------------------------------------------------------------------------------------------------------------------ Total common stock equity 9,216 8,772 49.7% 47.5% - ------------------------------------------------------------------------------------------------------------------------ Cumulative Preferred Stock of Subsidiaries: $100 par or stated value -- 4.20% to 5.96% 199 199 6.32% to 7.88% 130 205 $25 par or stated value -- $1.90 to $2.125 191 295 6.40% to 7.60% 323 323 Auction rates -- at January 1, 1997: 4.01% to 4.09% 70 70 Adjustable rates -- at January 1, 1997: 5.01% to 5.66% 240 240 - ------------------------------------------------------------------------------------------------------------------------ Total (annual dividend requirement -- $72 million) 1,153 1,332 Less amount due within one year 173 - - ------------------------------------------------------------------------------------------------------------------------ Total excluding amount due within one year 980 1,332 5.3 7.2 - ------------------------------------------------------------------------------------------------------------------------ Subsidiary Obligated Mandatorily Redeemable Preferred Securities (Note 10): $25 liquidation value 7.375% 97 - 7.75% 225 - 9% 100 100 - ------------------------------------------------------------------------------------------------------------------------ Total (annual distribution requirement -- $34 million) 422 100 2.3 0.5 - ------------------------------------------------------------------------------------------------------------------------ </TABLE> II-19
CONSOLIDATED STATEMENTS OF CAPITALIZATION (continued) At December 31, 1996 and 1995 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Long-Term Debt of Subsidiaries: First mortgage bonds -- Maturity Interest Rates 1996 4 1/2 % - 60 1996 4 3/4 % - 150 1996 8.665% - 6 1997 5 7/8 % 25 25 1997 8.665% 7 7 1998 5% to 8.665% 238 238 1999 6 1/8% to 8.665% 373 373 2000 6% to 8.665% 349 349 2001 8.665% 9 9 2002 through 2006 6.07% to 8.665% 1,017 962 2007 through 2011 6 7/8% to 9% 292 293 2012 through 2016 8.665% 85 85 2017 through 2021 8.665% to 9 1/4% 228 376 2022 through 2026 6 7/8% to 9% 1,497 1,528 - ----------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 4,120 4,461 Other long-term debt (Note 11) 4,084 4,403 Unamortized debt premium (discount), net (78) (81) - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $564 million) 8,126 8,783 Less amount due within one year (Note 12) 191 509 - ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 7,935 8,274 42.7 44.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $18,553 $18,478 100.0% 100.0% =================================================================================================================================== CONSOLIDATED STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1996, 1995, and 1994 - ----------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- (in millions) Balance at Beginning of Year $1,941 $1,712 $1,503 Proceeds from sales of common stock over the par value -- 7.5 million, 13.0 million, and 13.9 million shares in 1996, 1995, and 1994, respectively 133 212 209 Miscellaneous (7) 17 - - ----------------------------------------------------------------------------------------------------------------------------------- Balance at End of Year $2,067 $1,941 $1,712 =================================================================================================================================== </TABLE> II-20
NOTES TO FINANCIAL STATEMENTS Southern Company and Subsidiary Companies 1996 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Southern Company is the parent company of five operating companies, a system service company, Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), The Southern Development and Investment Group (Southern Development), and other direct and indirect subsidiaries. The operating companies -- Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric -- provide electric service in four southeastern states. Contracts among the operating companies -- dealing with jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, builds, owns, and operates power production and delivery facilities and provides a broad range of energy related services in the United States and international markets. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Development develops new business opportunities related to energy products and services. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both the company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The operating companies also are subject to regulation by the FERC and their respective state regulatory commissions. The companies follow generally accepted accounting principles and comply with the accounting policies and practices prescribed by their respective commissions. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. All material intercompany items have been eliminated in consolidation. The consolidated financial statements reflect investments in majority-owned or controlled subsidiaries on a consolidated basis and other investments on an equity basis. Certain prior years' data presented in the consolidated financial statements have been reclassified to conform with current year presentation. Regulatory Assets and Liabilities The operating companies are subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the operating companies associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Consolidated Balance Sheets at December 31 relate to the following: 1996 1995 ------------------------ (in millions) Deferred income taxes $1,302 $1,386 Deferred Plant Vogtle costs 171 308 Premium on reacquired debt 289 295 Demand-side programs 44 79 Department of Energy assessments 69 73 Vacation pay 77 74 Deferred fuel charges 29 49 Postretirement benefits 38 53 Work force reduction costs 48 56 Deferred income tax credits (879) (936) Storm damage reserves (32) (23) Other, net 114 98 - ----------------------------------------------------------------- Total $1,270 $1,512 ================================================================= In the event that a portion of the operating companies' operations is no longer subject to the provisions of Statement No. 71, the companies would be required to write off related regulatory assets and liabilities. In addition, the operating companies would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The operating companies accrue revenues for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The operating companies' electric rates include provisions to adjust billings for fluctuations in fuel and the energy component of purchased power costs. Revenues II-21
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The operating companies have a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1996, uncollectible accounts continued to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $142 million in 1996, $140 million in 1995, and $152 million in 1994. Alabama Power and Georgia Power have contracts with the U.S. Department of Energy (DOE) that provide for the permanent disposal of spent nuclear fuel. Although disposal was scheduled to begin in 1998, the actual year this service will begin is uncertain. Sufficient storage capacity currently is available to permit operation into 2003 at Plant Hatch, into 2008 at Plant Vogtle, and into 2010 and 2013 at Plant Farley units 1 and 2, respectively. Activities for adding dry cast storage capacity at Plant Hatch by as early as 1999 are in progress. Also, the Energy Policy Act of 1992 required the establishment in 1993 of a Uranium Enrichment Decontamination and Decommissioning Fund, which is to be funded in part by a special assessment on utilities with nuclear plants. This assessment is being paid over a 15-year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. Alabama Power and Georgia Power -- based on its ownership interests -- estimate their respective remaining liability at December 31, 1996, under this law to be approximately $37 million and $30 million, respectively. These obligations are recorded in the Consolidated Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.3 percent in 1996, 3.3 percent in 1995, and 3.2 percent in 1994. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. Georgia Power recorded additional depreciation of electric plant amounting to $24 million in 1996 and $6 million in 1995. See Note 3 under "Georgia Power Retail Accounting Order" for additional information. In 1988, the Nuclear Regulatory Commission (NRC) adopted regulations requiring all licensees operating commercial power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. Alabama Power and Georgia Power have external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the respective state public service commissions. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. Alabama Power and Georgia Power have filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission a specific facility as of the site study year, and ultimate cost is the estimate to decommission a specific facility as of retirement date. The estimated costs of decommissioning II-22
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report - -- both site study costs and ultimate costs -- at December 31, 1996, for Alabama Power's Plant Farley and Georgia Power's ownership interests in plants Hatch and Vogtle were as follows: Plant Plant Plant Farley Hatch Vogtle -------------------------------- Site study basis (year) 1993 1994 1994 Decommissioning periods: Beginning year 2017 2014 2027 Completion year 2029 2027 2038 - ----------------------------------------------------------------- (in millions) Site study costs: Radiated structures $489 $294 $233 Non-radiated structures 89 41 52 - ----------------------------------------------------------------- Total $578 $335 $285 ================================================================= Ultimate costs: Radiated structures $1,504 $781 $1,018 Non-radiated structures 274 111 230 - ----------------------------------------------------------------- Total $1,778 $892 $1,248 ================================================================= Plant Plant Plant Farley Hatch Vogtle --------------------------- (in millions) Amount expensed in 1996 $18 $11 $9 Accumulated provisions: Balance in external trust funds $149 $ 79 $51 Balance in internal reserves 47 27 13 - ---------------------------------------------------------------- Total $196 $106 $64 ================================================================ Significant assumptions: Inflation rate 4.5% 4.4% 4.4% Trust earning rate 7.0 6.0 6.0 - ---------------------------------------------------------------- Annual provisions for nuclear decommissioning are based on an annuity method as approved by the respective state public service commissions. All of Alabama Power's decommissioning costs are approved for ratemaking. For Georgia Power, only the costs to decommission the radioactive portion of the plants are included in cost of service. Alabama Power and Georgia Power expect their respective state public service commissions to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making estimates. Income Taxes Southern Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Plant Vogtle Phase-In Plans In 1987, 1989, and 1991, the Georgia Public Service Commission (GPSC) ordered that the allowed costs of Plant Vogtle, a two-unit nuclear facility of which Georgia Power owns 45.7 percent, be phased into rates. Each GPSC order called for recovery of deferred costs within 10 years. Under these plans, all allowed costs will be recovered by 1999. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rates used by the operating companies to calculate AFUDC during the years 1994 through 1996 ranged from a before-income-tax rate of 5.1 percent to 9.8 percent. AFUDC, net of income tax, as a percent of consolidated net income was 1.4 percent in 1996, 1.6 percent in 1995, and 2.3 percent in 1994. Utility Plant Utility plant is stated at original cost less regulatory disallowances. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is II-23
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report charged to maintenance expense. The cost of replacements of property -- exclusive of minor items of property -- is charged to utility plant. Cash and Cash Equivalents For purposes of the Consolidated Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments Southern Company engages in price risk management activities for trading and non-trading purposes. Activities for non-trading purposes consist of transactions that are employed to mitigate Southern Company's risk related to interest rate and foreign currency fluctuations. Gains and losses arising from effective hedges of existing assets, liabilities, or firm commitments are deferred and recognized when the offsetting gains and losses are recognized on the related hedged items. At December 31, 1996, the credit risk for derivatives outstanding was not material to the financial statements. Southern Company regularly monitors its foreign currency exposure and ensures that hedge contract amounts do not exceed the amount of underlying exposures. At December 31, 1996, the status of outstanding non-trading related derivative contracts was as follows: Year Of Maturity or Notional Unrealized Type Termination Amount Gain (Loss) - ---------------------------------- --------------------------- (in millions) Interest rate swaps: 1999-2011 $158 $(7) 2001-2012 (pound)500 $(13) Cross currency swaps 2001-2006 (pound)405 $(38) - ----------------------------------------------------------------- (pound) - Denotes British pound sterling. During 1996, Southern Energy began trading activities by offering price risk management services related to commodities associated with the domestic energy industry -- electricity and natural gas. Southern Energy provides these services through a variety of financial instruments. These transactions are accounted for using the mark-to-market method of accounting. Under this method, unrealized gains or losses resulting from the impact of price movements are recognized as net gains or losses in the consolidated statements of income. The market prices used to value these transactions reflect management's best estimates considering various factors including: closing exchange quotations, over-the-counter quotations, liquidity of the position, time value, and volatility factors underlying the commitments. Net trading gains and losses were insignificant to the financial statements for the year ended December 31, 1996. Also, outstanding contracts at December 31, 1996, were not material to the financial statements. South Western Electricity (SWEB)--a British distribution company owned by Southern Energy--has contracts to mitigate its exposure to volatility in the prices of electricity purchased through the wholesale electricity market. These contracts are in place to hedge a portion of electricity purchases of approximately 28 billion kilowatt-hours through the year 2008. This represents approximately two years of electricity purchases for SWEB based on current volumes. Accordingly, the gains or losses realized on such contracts are deferred and recognized as electricity is purchased. It is not possible to estimate the fair value of these contracts due to the absence of a trading market. Other Southern Company financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value -------------------------- (in millions) Long-term debt: At December 31, 1996 $7,975 $8,122 At December 31, 1995 8,636 8,935 Preferred securities: At December 31, 1996 422 427 At December 31, 1995 100 114 - ----------------------------------------------------------------- The fair values for long-term debt and preferred securities were based on either closing market price or closing price of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. II-24
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report 2. RETIREMENT BENEFITS Pension Plan The system companies have defined benefit, trusteed, pension plans that cover substantially all regular employees. Benefits are based on one of the following formulas: years of service and final average pay or years of service and a flat-dollar benefit. Primarily, the companies use the "entry age normal method with a frozen initial liability" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trusts are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. Postretirement Benefits In the United States, Southern Company provides certain medical care and life insurance benefits for retired employees. Substantially all these employees may become eligible for such benefits when they retire. Trusts are funded to the extent deductible under federal income tax regulations or to the extent required by the operating companies' respective regulatory commissions. Amounts funded are primarily invested in debt and equity securities. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." In October 1993, the GPSC ordered Georgia Power to phase in the adoption of Statement No. 106 to cost of service over a five-year period, whereby one-fifth of the additional costs was expensed in 1993 and the remaining costs were deferred. An additional one-fifth of the costs is being expensed each succeeding year until the costs are fully reflected in cost of service in 1997. The costs deferred during the five-year period will be amortized to expense over a 15-year period beginning in 1998. For the other operating companies, the cost of postretirement benefits is reflected in rates on a current basis. Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement insurance benefits as computed under the requirements of FASB Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension ----------------------- 1996 1995 ----------------------- (in millions) Actuarial present value of benefit obligation: Vested benefits $2,730 $2,643 Non-vested benefits 119 97 - ------------------------------------------------------------------ Accumulated benefit obligation 2,849 2,740 Additional amounts related to projected salary increases 775 705 - ------------------------------------------------------------------ Projected benefit obligation 3,624 3,445 Less: Fair value of plan assets 5,212 4,725 Unrecognized net gain (1,314) (1,025) Unrecognized prior service cost 135 60 Unrecognized transition asset (114) (126) - ------------------------------------------------------------------ Prepaid asset recognized in the Consolidated Balance Sheets $ 295 $ 189 ================================================================== Postretirement Benefits ---------------------------- 1996 1995 --------------- ------------ (in millions) Actuarial present value of benefit obligation: Retirees and dependents $409 $394 Employees eligible to retire 78 63 Other employees 383 392 - ------------------------------------------------------------------ Accumulated benefit obligation 870 849 Less: Fair value of plan assets 260 205 Unrecognized net loss (gain) 79 85 Unrecognized prior service cost (5) (4) Unrecognized transition obligation 249 292 - ------------------------------------------------------------------- Accrued liability recognized in the Consolidated Balance Sheets $287 $271 =================================================================== In 1995, the system companies announced a cost sharing program for postretirement benefits. The program established limits on amounts the companies will pay to provide future retiree postretirement benefits. This change reduced the 1995 accumulated postretirement benefit obligation by approximately $186 million. II-25
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report The weighted average rates assumed in the actuarial calculations were: 1996 1995 1994 --------------------------------- Discount 7.8% 7.3% 8.0% Annual salary increase 5.3 4.8 5.5 Long-term return on plan assets 8.5 8.5 8.5 - ---------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.3 percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation at December 31, 1996, by $77 million and the aggregate of the service and interest cost components of the net retiree cost by $8 million. Components of the plans' net costs are shown below: Pension --------------------------- 1996 1995 1994 --------------------------- (in millions) Benefits earned during the year $ 99 $ 79 $ 77 Interest cost on projected benefit obligation 267 193 160 Actual (return) loss on plan assets (564) (730) 75 Net amortization and deferral 152 412 (351) - ------------------------------------------------------------------ Net pension cost (income) $ (46) $ (46) $ (39) ================================================================== Of the above net pension income, $37 million in 1996, $30 million in 1995, and $29 million in 1994 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits --------------------------- 1996 1995 1994 --------------------------- (in millions) Benefits earned during the year $ 20 $ 28 $ 31 Interest cost on accumulated benefit obligation 60 67 64 Amortization of transition obligation 15 27 27 Actual (return) loss on plan assets (17) (23) 2 Net amortization and deferral 6 12 (10) - ------------------------------------------------------------------ Net postretirement costs $ 84 $111 $114 ================================================================== Of the above net postretirement costs, $64 million in 1996, $78 million in 1995, and $77 million in 1994 were charged to operating expenses. In addition, $3 million in 1996, $11 million in 1995, and $18 million in 1994 were deferred, and the remainder was charged to construction and other accounts. Work Force Reduction Programs The system companies have incurred additional costs for work force reduction programs. The costs related to these programs were $85 million, $42 million, and $112 million for the years 1996, 1995, and 1994, respectively. In addition, certain costs of these programs were deferred and are being amortized in accordance with regulatory treatment. The unamortized balance of these costs was $48 million at December 31, 1996. 3. LITIGATION AND REGULATORY MATTERS Stockholder Suit Concluded In April 1991, two Southern Company stockholders filed a derivative action suit in the U.S. District Court for the Southern District of Georgia against certain current and former directors and officers of Southern Company. The suit alleges violations of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO) by officers and breaches of fiduciary duty and gross negligence by all defendants resulting from alleged fraudulent accounting for spare parts, illegal political campaign contributions, violations of federal securities laws involving misrepresentations and omissions in SEC filings, and concealment of the foregoing acts. The complaint sought damages -- including treble damages pursuant to RICO -- in an unspecified amount, which if awarded, would have been payable to Southern Company. The court ruled the plaintiffs had failed to present adequately their allegation that Southern Company board of directors' refusal of an earlier demand by the plaintiffs was wrongful. In April 1994, the U.S. Court of Appeals for the 11th Circuit reversed the dismissal and remanded the case to the trial court, finding that allegations by the plaintiffs created a reasonable doubt that the board validly exercised its business judgment in refusing the earlier demand. In June 1995, for the second time, the trial court dismissed the suit, and the plaintiffs appealed. A panel of the court of appeals in May 1996 affirmed the trial court's dismissal. The plaintiffs' request for a rehearing was denied. This matter is now concluded. II-26
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report Alabama Power Appliance Warranty Litigation In 1996, legal actions against Alabama Power were filed in several counties in Alabama charging Alabama Power with fraud and non-compliance with regulatory statutes relating to the offer, sale, and financing of "extended service contracts" in connection with the sale of electric appliances. Some of these suits were filed as class actions, while others were filed on behalf of multiple individual plaintiffs. The plaintiffs seek damages for an unspecified amount. Alabama Power has offered extended service agreements to its customers since January 1984, and approximately 175,000 extended service agreements could be involved in these proceedings. The final outcome of these cases cannot now be determined. Georgia Power Potentially Responsible Party Status In January 1995, Georgia Power and four other unrelated entities were notified by the Environmental Protection Agency (EPA) that they have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation, and Liability Act with respect to a site in Brunswick, Georgia. As of December 31, 1996, Georgia Power had recorded approximately $5 million in expenses associated with the site. This represents Georgia Power's agreed upon share of removal and remedial investigation and feasibility study costs. The final outcome of this matter cannot now be determined. However, based on the nature and extent of Georgia Power's activities relating to the site, management believes that the company's portion of any remaining remediation costs should not be material to the financial statements. Georgia Power Investment in Rocky Mountain In its 1985 financing order, the GPSC concluded that completion of the Rocky Mountain pumped storage hydroelectric plant in 1991 as then planned was not economically justifiable and reasonable and withheld authorization for Georgia Power to spend funds from approved securities issuances on that plant. In 1988, Georgia Power and Oglethorpe Power Corporation (OPC) entered into a joint ownership agreement for OPC to assume responsibility for the construction and operation of the plant. However, full recovery of Georgia Power's costs depends on the GPSC's treatment of the plant's costs and the disposition of the plant's capacity output. In June 1996, the GPSC initiated a review of this plant. In the event the GPSC does not allow full recovery of the plant costs, then the portion not allowed may have to be written off. In 1995, the plant went into commercial operation. At December 31, 1996, Georgia Power's net investment in the plant was approximately $175 million. The final outcome of this matter cannot now be determined. Accordingly, no provision for any write-down of the investment in the plant has been made. FERC Reviews Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the operating companies' wholesale rate schedules and contracts that have a return on common equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power, and other similar contracts. In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and contracts were not necessary and that the FERC staff failed to show how any changes were in the public interest. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. In August 1994, the FERC instituted another proceeding based on substantially the same issues as in the 1991 proceeding. In November 1995, a FERC administrative law judge issued an opinion that the FERC staff failed to meet its burden of proof, and therefore, no change in the equity return was necessary. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter is pending before the FERC. If the rates of return on common equity recommended by the FERC staff were applied to all of the schedules and contracts involved in both proceedings--as well as to certain other contracts that reference these proceedings in determining return on common equity--and if refunds were ordered, the amount of refunds could range up to approximately $160 million at December 31, 1996. However, management believes that rates are not excessive and that refunds are not justified. II-27
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report Alabama Power Rate Adjustment Procedures In November 1982, the Alabama Public Service Commission (APSC) adopted rates that provide for periodic adjustments based upon Alabama Power's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities in retail service. Both increases and decreases have been placed into effect since the adoption of these rates. The rate adjustment procedures allow a return on common equity range of 13.0 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year. In June 1995, the APSC issued a rate order granting Alabama Power's request for gradual adjustments to move toward parity among customer classes. This order also calls for a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the APSC issued an order authorizing Alabama Power to reduce balance sheet items -- such as plant and deferred charges -- at any time the company's actual base rate revenues exceed the budgeted revenues. The ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. Georgia Power Retail Accounting Order In February 1996, the GPSC approved an accounting order, which will be in effect for three years beginning January 1, 1996. Under the accounting order, Georgia Power's earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Earnings in excess of 12.5 percent will be used to accelerate the amortization of regulatory assets or to accelerate the depreciation of electric plant. At its option, Georgia Power may also accelerate amortization or depreciation of assets while within the range allowed on common equity. Georgia Power is required to absorb cost increases of approximately $29 million annually during the three-year period, including $14 million annually of accelerated depreciation of electric plant. Under the accounting order, Georgia Power will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. On July 1, 1998, Georgia Power is required to file a general rate case. In response, the GPSC would be expected to either continue the provisions of the accounting order or adopt new ones. A consumer group appealed the GPSC's decision to the Superior Court of Fulton County, Georgia. In 1996, the court ruled that statutory requirements applicable to rates cases were not followed and remanded the matter to the GPSC. Both the GPSC and Georgia Power appealed the court's decision to the Georgia Court of Appeals. Georgia Power is continuing to record expenses in accordance with the accounting order pending the outcome of this matter. 4. CONSTRUCTION PROGRAM The system companies are engaged in continuous construction programs, currently estimated to total some $1.4 billion in 1997, $1.3 billion in 1998, and $1.4 billion in 1999. The construction programs are subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; revised load growth estimates; changes in environmental regulations; changes in existing nuclear plants to meet new regulatory requirements; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 1996, significant purchase commitments were outstanding in connection with the construction program. The operating companies do not have any traditional baseload generating plants under construction. However, significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants. See Management's Discussion and Analysis under "Environmental Matters" for information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. 5. FINANCING, INVESTMENTS, AND COMMITMENTS General Southern Company plans to issue equity capital in 1997. The amount and timing of additional equity capital to be raised in 1997 -- as well as in subsequent years - -- will be contingent on Southern Company's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or the company's stock plans. The operating companies' construction programs are expected to be financed primarily from internal sources. Short-term debt is often utilized and the amounts available are discussed below. The companies may issue additional II-28
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report long-term debt and preferred securities primarily for the purposes of debt maturities and for redeeming higher-cost securities if market conditions permit. Bank Credit Arrangements At the beginning of 1997, unused credit arrangements with banks totaled $4.1 billion, of which approximately $1.7 billion expires at various times during 1997 and 1998; $1.0 billion in syndicated credit arrangements expires April 19, 2001; and the remaining $1.4 billion is under revolving credit agreements. The revolving credit agreements are as follows: Amount of Credit ------------------------------------- Company Total Unused Expires - ------------ -------------------- ------------- (in millions) Georgia Power $ 60 $ 49 5-01-99 Mississippi Power 40 20 12-01-99 Savannah Electric 20 15 12-31-98 Southern Company 300 300 7-01-99 Southern Company 300 300 11-30-99 Southern Energy 520 215 11-05-99 Southern Energy 283 64 Various Combined 400 400 6-30-99 - ---------------------------------------------- Total $1,923 $1,363 ============================================== Combined unused revolving credit agreements of $400 million expiring in 1999 are with several banks that provide Southern Company, Alabama Power, and Georgia Power up to $100 million, $135 million, and $165 million, respectively, for available credit to provide liquidity support for commercial paper programs. Most of the revolving credit agreements allow short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the companies' option. In addition, these agreements require payment of commitment fees based on the unused portions of the commitments or the maintenance of compensating balances with the banks. Southern Company's $1.0 billion syndicated credit arrangement allows for revolving loans and competitive bid loans, provided that the sum of the aggregate amount of revolving loans outstanding plus the aggregate amount of competitive bid loans outstanding shall not exceed the revolving loan commitment of $1.0 billion. This agreement requires payment of commitment fees based on the unused portion of the commitments. Southern Company also pays an agent fee in connection with this arrangement. In connection with all other lines of credit, the companies have the option of paying fees or maintaining compensating balances, which are substantially all the cash of the companies except for daily working funds and similar items. These balances are not legally restricted from withdrawal. A portion of the $4.1 billion unused credit arrangements with banks -- discussed earlier -- is allocated to provide liquidity support to the companies' variable rate pollution control bonds. At December 31, 1996, the amount of credit lines allocated was $829 million. In addition, the companies from time to time borrow under uncommitted lines of credit with banks and in the case of Southern Company, Alabama Power, and Georgia Power, through commercial paper programs that have the liquidity support of committed bank credit arrangements. Assets Subject to Lien Each of Southern Company's subsidiaries is organized as a legal entity, separate, and apart from Southern Company and its other subsidiaries. The subsidiary companies' mortgages, which secure the first mortgage bonds issued by the companies, constitute a direct first lien on substantially all of the companies' respective fixed property and franchises. There are no agreements or other arrangements among the subsidiary companies under which the assets of one company have been pledged or otherwise made available to satisfy obligations of Southern Company or any of its subsidiaries. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of the generating plants, Southern Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. II-29
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report Also, Southern Company has entered into various long-term commitments for the purchase of electricity. Total estimated long-term obligations at December 31, 1996, were as follows: Purchased Year Fuel Power - -------- --------------------------------- (in millions) 1997 $ 1,908 $ 553 1998 1,674 249 1999 1,251 162 2000 794 167 2001 748 169 2002 and thereafter 4,797 1,845 - ------------------------------------------------------------- Total commitments $11,172 $3,145 ============================================================= Operating Leases Southern Company has operating lease agreements with various terms and expiration dates. These expenses totaled $23 million, $17 million, and $15 million, for 1996, 1995, and 1994, respectively. At December 31, 1996, estimated minimum rental commitments for noncancelable operating leases were as follows: Year Amounts - -------- --------------- (in millions) 1997 $ 25 1998 24 1999 25 2000 24 2001 23 2002 and thereafter 333 - ----------------------------------------------------------- Total minimum payments $454 =========================================================== 6. FACILITY SALES AND JOINT OWNERSHIP AGREEMENTS In 1992, Alabama Power sold an undivided interest in units 1 and 2 of Plant Miller and related facilities to Alabama Electric Cooperative, Inc. Since 1975, Georgia Power has sold undivided interests in plants Vogtle, Hatch, Scherer, and Wansley in varying amounts, together with transmission facilities, to OPC, the Municipal Electric Authority of Georgia, and the city of Dalton, Georgia. In addition, Georgia Power has joint ownership agreements with OPC for the Rocky Mountain project and with Florida Power Corporation (FPC) for a combustion turbine unit at Intercession City, Florida. At December 31, 1996, Alabama Power's and Georgia Power's ownership and investment (exclusive of nuclear fuel) in jointly owned facilities with the above entities were as follows: Jointly Owned Facilities ------------------------------------------------- Percent Amount of Accumulated Ownership Investment Depreciation ---------------- ------------------------------- Plant Vogtle (in millions) (nuclear) 45.7% $3,299 $843 Plant Hatch (nuclear) 50.1 854 436 Plant Miller (coal) Units 1 and 2 91.8 714 296 Plant Scherer (coal) Units 1and 2 8.4 112 42 Plant Wansley (coal) 53.5 301 134 Rocky Mountain (pumped storage) 25.4 202 27 - ------------------------------------------------------------------- In 1994, Georgia Power and FPC entered into a joint ownership agreement regarding the Intercession City combustion turbine unit. The unit went into commercial operation in early 1997 and will be operated and maintained by FPC. Georgia Power has an approximate interest of 33 percent in the 150-megawatt unit, with retention of 100 percent of the capacity from June through September. FPC has the capacity the remainder of the year. Georgia Power's investment in the unit is $13 million. Alabama Power and Georgia Power have contracted to operate and maintain the jointly owned facilities -- except for the Rocky Mountain project and Intercession City -- as agents for their respective co-owners. The companies' proportionate share of their plant operating expenses is included in the corresponding operating expenses in the Consolidated Statements of Income. II-30
7. LONG-TERM POWER SALES AGREEMENTS NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report The operating companies have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. These agreements -- expiring at various dates discussed below -- are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The capacity revenues have been as follows: Unit Other Year Power Long-Term Total ----- --------------------------------------- (in millions) 1996 $217 $ - $217 1995 237 - 237 1994 257 19 276 Unit power from specific generating plants is currently being sold to Florida Power & Light Company (FP&L), FPC, Jacksonville Electric Authority (JEA), and the city of Tallahassee, Florida. Under these agreements, approximately 1,600 megawatts of capacity is scheduled to be sold annually through 1999. Thereafter, these sales will decline to some 1,500 megawatts and remain at that approximate level -- unless reduced by FP&L, FPC, and JEA for the periods after 1999 with a minimum of three years notice -- until the expiration of the contracts in 2010. 8. INCOME TAXES At December 31, 1996, the tax- related regulatory assets and liabilities were $1.3 billion and $879 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 1996 1995 1994 ----------------------------- (in millions) Total provision for income taxes: Federal -- Currently payable $569 $567 $598 Deferred -- current year 116 184 67 -- reversal of prior years (74) (111) (75) Deferred investment tax credits - 1 - - ------------------------------------------------------------------- 611 641 590 - ------------------------------------------------------------------- State -- Currently payable 82 90 86 Deferred -- current year 23 26 15 -- reversal of prior years (9) (12) (11) - ------------------------------------------------------------------- 96 104 90 - ------------------------------------------------------------------- International 50 24 5 - ------------------------------------------------------------------- Total 757 769 685 Less income taxes charged (credited) to other income 10 (36) (26) - ------------------------------------------------------------------- Total income taxes charged to operations $747 $805 $711 =================================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1996 1995 ---------- ------------ (in millions) Deferred tax liabilities: Accelerated depreciation $2,981 $2,795 Property basis differences 2,154 2,175 Deferred plant costs 54 100 Other 308 247 - ------------------------------------------------------------------- Total 5,497 5,317 - ------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 110 107 Other property basis differences 253 273 Deferred costs 139 118 Pension and other benefits 68 66 Other 214 192 - ------------------------------------------------------------------- Total 784 756 - ------------------------------------------------------------------- Net deferred tax liabilities 4,713 4,561 Portion included in current assets, net 25 50 - ------------------------------------------------------------------- Accumulated deferred income taxes in the Consolidated Balance Sheet $4,738 $4,611 =================================================================== II-31
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Consolidated Statements of Income. Credits amortized in this manner amounted to $33 million in 1996, $38 million in 1995, and $42 million in 1994. At December 31, 1996, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1996 1995 1994 --------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.2 3.4 3.3 Non-deductible book depreciation 1.8 1.6 1.8 Difference in prior years' deferred and current tax rate (1.0) (1.1) (1.5) Other (0.5) 0.3 0.3 - ------------------------------------------------------------------ Effective income tax rate 38.5% 39.2% 38.9% ================================================================== Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 9. COMMON STOCK Shares Reserved At December 31, 1996, a total of 59 million shares was reserved for issuance pursuant to the Southern Investment Plan, the Employee Savings Plan, the Outside Directors Stock Plan, and the Executive Stock Option Plan. Executive Stock Option Plan Southern Company's Executive Stock Option Plan authorizes the granting of non-qualified stock options to key employees of Southern Company, including officers. As of December 31, 1996, 249 current and former employees participated in the plan. The maximum number of shares of common stock that may be issued under the Executive Stock Option Plan may not exceed 6 million. The prices of options granted to date have been at the fair market value of the shares on the dates of grant. Options granted to date become exercisable pro rata over a maximum period of four years from the date of grant. Options outstanding will expire no later than 10 years after the date of grant, unless terminated earlier by the board of directors in accordance with the plan. Stock option activity in 1995 and 1996 is summarized below: Shares Average Subject Option Price To Option Per Share ---------------------------------- Balance at December 31, 1994 1,736,604 $17.39 Options granted 1,161,174 21.63 Options canceled (8,088) 21.63 Options exercised (413,391) 14.34 - -------------------------------------------------------------------- Balance at December 31, 1995 2,476,299 19.87 Options granted 1,460,731 23.00 Options canceled (16,862) 22.23 Options exercised (97,988) 17.94 - -------------------------------------------------------------------- Balance at December 31, 1996 3,822,180 $21.11 ==================================================================== Shares reserved for future grants: At December 31, 1994 3,268,001 At December 31, 1995 2,114,915 At December 31, 1996 671,046 - -------------------------------------------------------------------- Options exercisable: At December 31, 1995 831,227 At December 31, 1996 1,276,846 - -------------------------------------------------------------------- The pro forma impact on net income of fair-value accounting for options granted -- as required by FASB Statement No. 123, Accounting for Stock-Based Compensation -- is not significant to the financial statements. Common Stock Dividend Restrictions The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 1996, consolidated retained earnings included $3.3 billion of undistributed retained earnings of the subsidiaries. Of this amount, $2.0 billion was restricted against the payment by the subsidiary companies of cash dividends on common stock under terms of bond indentures or charters. 10. PREFERRED SECURITIES The subsidiary obligated mandatorily redeemable preferred securities were issued by special purpose financing entities. Substantially all the assets of these entities are $100 million and $335 million aggregate principal amount of Alabama Power or Georgia Power junior subordinated debt, respectively. Alabama Power and Georgia Power each considers that the mechanisms and obligations relating to the preferred securities issued for its benefit, taken together, constitute a full II-32
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report and unconditional guarantee, by the respective companies of the issuing entities' payment obligations with respect to such preferred securities. 11. OTHER LONG-TERM DEBT Details of other long-term debt at December 31 are as follows: 1996 1995 -------------------- (in millions) Obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds: Collateralized -- 4.375% to 9.375% due 2000-2026 $1,403 $1,466 Variable rates (3.2% to 5.25% at 1/1/97) due 2011-2025 639 639 Non-collateralized -- 7.25% due 2003 1 1 6.75% to 8.375% due 2015-2020 200 277 5.8% due 2022 10 10 Variable rates (4.65% to 5.25% at 1/1/97) due 2021-2026 265 132 - ---------------------------------------------------------------- 2,518 2,525 - ---------------------------------------------------------------- Capitalized lease obligations 151 147 - ---------------------------------------------------------------- Notes payable: 4.62% to 10% due 1996-1999 230 252 6.375% to 11% due 2000-2008 864 240 Adjustable rates (4% to 13% at 1/1/97) due 1996-1999 210 190 Adjustable rates (5.775% to 7.5625% at 1/1/97) due 2000-2002 96 938 Adjustable rate (7.38% at 1/1/97) due 2004-2006 15 111 - ---------------------------------------------------------------- 1,415 1,731 - ---------------------------------------------------------------- Total $4,084 $4,403 ================================================================ With respect to the collateralized pollution control revenue bonds, the operating companies have authenticated and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under installment sale or loan agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under the agreements. Sinking fund requirements and/or serial maturities through 2001 applicable to other long-term debt are as follows: $79 million in 1997; $96 million in 1998; $279 million in 1999; $160 million in 2000; and $205 million in 2001. 12. LONG-TERM DEBT DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 1996 1995 ---------------- (in millions) Bond improvement fund requirements $ 40 $ 43 Less: Portion to be satisfied by certifying property additions 4 18 - ----------------------------------------------------------------- Cash sinking fund requirements 36 25 First mortgage bond maturities and redemptions 76 220 Other long-term debt maturities (Note 11) 79 264 - ----------------------------------------------------------------- Total $191 $509 ================================================================= The first mortgage bond improvement (sinking) fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the indentures prior to January 1 of each year, other than those issued to collateralize pollution control and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 166 2/3 percent of such requirements. 13. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, Alabama Power and Georgia Power maintain agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the companies' nuclear power plants. The act provides funds up to $8.9 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 $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. A company could be assessed up to $79 million per incident for each licensed reactor it operates, but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for Alabama Power and Georgia Power -- based on its ownership and buyback II-33
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report interests -- is $159 million and $162 million, respectively, per incident, but not more than an aggregate of $20 million per company to be paid for each incident in any one year. Alabama Power and Georgia Power are members of Nuclear Mutual Limited (NML), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. The members are subject to a retrospective premium assessment in the event that losses exceed accumulated reserve funds. Alabama Power's and Georgia Power's maximum annual assessments are limited to $9 million and $11 million, respectively, under current policies. Additionally, both companies have policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million NML coverage. This excess insurance is provided by Nuclear Electric Insurance Limited (NEIL), a mutual insurance company. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week -- starting 21 weeks after the outage -- for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The maximum annual assessments under current policies for Alabama Power and Georgia Power for excess property damage would be $15 million and $16 million, respectively. The maximum replacement power assessments are $8 million for Alabama Power and $12 million for Georgia Power. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies issued or renewed on or after April 2, 1991, shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. Alabama Power and Georgia Power participate in an insurance program for nuclear workers that provides coverage for worker tort claims filed for bodily injury caused at commercial nuclear power plants. In the event that claims for this insurance exceed the accumulated reserve funds, Alabama Power and Georgia Power could be subject to a maximum total assessment of approximately $6 million each. All retrospective assessments -- whether generated for liability, property, or replacement power -- may be subject to applicable state premium taxes. II-34
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report 14. ACQUISITIONS In 1995, Southern Energy acquired SWEB for approximately $1.8 billion. This British utility distributes electricity to some 1.3 million customers. The acquisition has been accounted for under the purchase method of accounting. The acquisition cost exceeded the fair market value of net assets by $287 million. This amount is considered goodwill and is being amortized on a straight-line basis over 40 years. A preliminary estimate of $333 million of goodwill was originally reported and later revised in 1996. SWEB has been included in the consolidated financial statements since September 1995. The following unaudited pro forma results of operations for the years 1995 and 1994 have been prepared assuming the acquisition of SWEB, effective January 1, 1994, and assuming 100 percent short-term debt financing. The proforma results are not necessarily indicative of the actual results that would have been realized had the acquisition occurred on the assumed date, nor are they necessarily indicative of future results. Pro forma operating results are for information purposes only and are as follows: <TABLE> <CAPTION> <S> <C> <C> <C> <C> 1995 1994 -------------------------------------------------------------------------- As Pro As Pro Reported Forma Reported Forma ------------- ----------- -------------- --------------- Operating revenues (in millions) $9,180 $10,013 $8,297 $9,493 Consolidated net income (in millions) $1,103 $1,144 $989 $1,053 Earnings per share $1.66 $1.72 $1.52 $1.62 On January 29, 1997, Southern Energy completed the acquisition of an 80 percent interest in Consolidated Electric Power Asia (CEPA) for a total net investment of some $2.1 billion. CEPA is the largest independent power producer in Asia. CEPA is not included in Southern Company's 1996 consolidated financial statements. </TABLE> 15. SEGMENT INFORMATION <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> Southern Company's principal business segment -- or its traditional core business -- is the five electric utility operating companies, which provide electric service in four southeastern states. The other reportable business segment is Southern Energy, which owns and operates power production and delivery facilities in the United States and various international markets. Financial data for business segments and geographic areas are as follows: Business Segments Gross Depreciation Operating Operating Total Property and Year Revenues Income Assets Additions Amortization - --------------------- ------------------------------------------------------------------------------------- (in millions) 1996 Traditional core business $ 8,675 $1,678 $25,368 $1,064 $1,081 Southern Energy 1,683 176 4,924 165 120 - -------------------------------------------------------------------------------------------------------------------------------- Consolidated $10,358 $1,854 $30,292 $1,229 $1,201 ================================================================================================================================ 1995 Traditional core business $8,537 $1,781 $25,500 $1,265 $1,075 Southern Energy 643 105 5,022 136 59 - -------------------------------------------------------------------------------------------------------------------------------- Consolidated $9,180 $1,886 $30,522 $1,401 $1,134 ================================================================================================================================ 1994 Traditional core business $8,112 $1,678 $25,466 $1,529 $1,026 Southern Energy 185 37 1,576 7 24 - -------------------------------------------------------------------------------------------------------------------------------- Consolidated $8,297 $1,715 $27,042 $1,536 $1,050 ================================================================================================================================ </TABLE> II-35
NOTES (continued) Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> Geographic Areas <S> <C> <C> <C> <C> <C> Gross Depreciation Operating Operating Total Property and Year Revenues Income Assets Additions Amortization - ------------------ ----------------------------------------------------------------------- (in millions) 1996 Domestic $ 8,836 $1,713 $25,869 $1,072 $1,094 International: Europe 1,311 141 2,966 105 68 Other 211 - 1,457 52 39 - --------------------------------------------------------------------------------------------------- Total $10,358 $1,854 $30,292 $1,229 $1,201 =================================================================================================== 1995 Domestic $8,619 $1,813 $25,995 $1,278 $1,087 International: Europe 372 38 3,385 33 16 Other 189 35 1,142 90 31 - --------------------------------------------------------------------------------------------------- Total $9,180 $1,886 $30,522 $1,401 $1,134 =================================================================================================== 1994 Domestic $8,116 $1,679 $25,875 $1,531 $1,028 International: Europe - - - - - Other 181 36 1,167 5 22 - --------------------------------------------------------------------------------------------------- Total $8,297 $1,715 $27,042 $1,536 $1,050 =================================================================================================== </TABLE> 16. QUARTERLY FINANCIAL INFORMATION (Unaudited) <TABLE> <CAPTION> Summarized quarterly financial data for 1996 and 1995 are as follows: <S> <C> <C> <C> <C> <C> <C> <C> Per Common Share --------------------------------------------------- Operating Operating Consolidated Price Range Quarter Ended Revenues Income Net Income Earnings Dividends High Low - --------------- ------------------------------------------- --------------------------------------------------- (in millions) March 1996 $2,416 $418 $233 $0.35 $0.315 25 7/8 22 3/8 June 1996 2,538 468 287 0.43 0.315 24 5/8 21 1/4 September 1996 2,917 684 468 0.69 0.315 24 5/8 21 3/4 December 1996 2,487 284 139 0.21 0.315 23 1/8 21 1/8 March 1995 $1,929 $385 $206 $0.31 $0.305 21 1/2 19 3/8 June 1995 2,184 454 268 0.40 0.305 22 7/8 20 1/8 September 1995 2,759 673 469 0.71 0.305 24 21 1/8 December 1995 2,308 374 160 0.24 0.305 25 22 3/4 - ---------------------------------------------------------------------------------------------------------------------------------- The company's business is influenced by seasonal weather conditions. </TABLE> II-36
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1986 - 1996 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $10,358 $9,180 $8,297 Consolidated Net Income (in millions) $1,127 $1,103 $989 Earnings Per Share of Common Stock $1.68 $1.66 $1.52 Cash Dividends Paid Per Share of Common Stock $1.26 $1.22 $1.18 Return on Average Common Equity (percent) 12.53 13.01 12.47 Total Assets (in millions) $30,292 $30,522 $27,042 Gross Property Additions (in millions) $1,229 $1,401 $1,536 - ----------------------------------------------------------------------------------------------------------------------- Capitalization (in millions): Common stock equity $9,216 $8,772 $8,186 Preferred stock and securities 1,402 1,432 1,432 Long-term debt 7,935 8,274 7,593 - ----------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $18,553 $18,478 $17,211 ======================================================================================================================= Capitalization Ratios (percent): Common stock equity 49.7 47.5 47.6 Preferred stock and securities 7.6 7.7 8.3 Long-term debt 42.7 44.8 44.1 - ----------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 100.0 ======================================================================================================================= Other Common Stock Data: Book value per share (year-end) $13.61 $13.10 $12.47 Market price per share: High 25 7/8 25 22 Low 21 1/8 19 3/8 17 Close 22 5/8 24 5/8 20 Market-to-book ratio (year-end) (percent) 166.2 188.0 160.4 Price-earnings ratio (year-end) (times) 13.5 14.8 13.2 Dividends paid (in millions) $846 $811 $766 Dividend yield (year-end) (percent) 5.6 5.0 5.9 Dividend payout ratio (percent) 75.1 73.5 77.5 Cash coverage of dividends (year-end) (times) 2.9 2.9 2.7 Proceeds from sales of stock (in millions) $171 $277 $279 Shares outstanding (in thousands): Average 672,590 665,064 649,927 Year-end 677,036 669,543 656,528 Stockholders of record (year-end) 215,246 225,739 234,927 - ----------------------------------------------------------------------------------------------------------------------- First Mortgage Bonds (in millions): Issued $85 $375 $185 Retired 426 538 241 Preferred Stock and Securities (in millions): Issued $322 $-- $100 Retired 179 1 1 - ----------------------------------------------------------------------------------------------------------------------- Traditional Core Business Customers (year-end) (in thousands): Residential 3,157 3,100 3,046 Commercial 464 450 439 Industrial 17 17 17 Other 5 5 5 - ----------------------------------------------------------------------------------------------------------------------- Total 3,643 3,572 3,507 ======================================================================================================================= Employees (year-end): Traditional core business 25,034 26,452 27,480 Southern Energy 4,212 5,430 1,400 - ----------------------------------------------------------------------------------------------------------------------- Total 29,246 31,882 28,880 ======================================================================================================================= </TABLE> II-37
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1986 - 1996 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in millions) $8,489 $8,073 $8,050 $8,053 Consolidated Net Income (in millions) $1,002 $953 $876 $604 Earnings Per Share of Common Stock $1.57 $1.51 $1.39 $0.96 Cash Dividends Paid Per Share of Common Stock $1.14 $1.10 $1.07 $1.07 Return on Average Common Equity (percent) 13.43 13.42 12.74 8.85 Total Assets (in millions) $25,911 $20,038 $19,863 $19,955 Gross Property Additions (in millions) $1,441 $1,105 $1,123 $1,185 - ------------------------------------------------------------------------------------------------------------------------------ Capitalization (in millions): Common stock equity $7,684 $7,234 $6,976 $6,783 Preferred stock and securities 1,333 1,359 1,333 1,358 Long-term debt 7,412 7,241 7,992 8,458 - ------------------------------------------------------------------------------------------------------------------------------ Total excluding amounts due within one year $16,429 $15,834 $16,301 $16,599 ============================================================================================================================== Capitalization Ratios (percent): Common stock equity 46.8 45.7 42.8 40.9 Preferred stock and securities 8.1 8.6 8.2 8.2 Long-term debt 45.1 45.7 49.0 50.9 - ------------------------------------------------------------------------------------------------------------------------------ Total excluding amounts due within one year 100.0 100.0 100.0 100.0 ============================================================================================================================== Other Common Stock Data: Book value per share (year-end) $11.96 $11.43 $11.05 $10.74 Market price per share: High 23 5/8 19 1/2 17 3/8 14 5/8 Low 18 3/8 15 1/8 12 7/8 11 1/2 Close 22 19 1/4 17 1/8 13 7/8 Market-to-book ratio (year-end) (percent) 183.9 168.4 155.5 129.7 Price-earnings ratio (year-end) (times) 14.0 12.7 12.4 14.6 Dividends paid (in millions) $726 $695 $676 $676 Dividend yield (year-end) (percent) 5.2 5.7 6.2 7.7 Dividend payout ratio (percent) 72.4 72.9 77.1 111.8 Cash coverage of dividends (year-end) (times) 2.9 2.8 2.5 2.8 Proceeds from sales of stock (in millions) $204 $30 $-- $-- Shares outstanding (in thousands): Average 637,319 631,844 631,307 631,307 Year-end 642,662 632,917 631,307 631,307 Stockholders of record (year-end) 237,105 247,378 254,568 263,046 - ------------------------------------------------------------------------------------------------------------------------------ First Mortgage Bonds (in millions): Issued $2,185 $1,815 $380 $300 Retired 2,178 2,575 881 146 Preferred Stock and Securities (in millions): Issued $426 $410 $100 $-- Retired 516 326 125 96 - ------------------------------------------------------------------------------------------------------------------------------ Traditional Core Business Customers (year-end) (in thousands): Residential 2,996 2,950 2,903 2,865 Commercial 427 414 403 396 Industrial 18 18 18 18 Other 4 4 4 4 - ------------------------------------------------------------------------------------------------------------------------------ Total 3,445 3,386 3,328 3,283 ============================================================================================================================== Employees (year-end): Traditional core business 28,516 28,872 30,144 30,087 Southern Energy 745 213 258 176 - ------------------------------------------------------------------------------------------------------------------------------ Total 29,261 29,085 30,402 30,263 ============================================================================================================================== </TABLE> II-38A
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1986 - 1996 Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------ 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in millions) $7,620 $7,287 $7,204 $7,033 Consolidated Net Income (in millions) $846 $846 $577 $903 Earnings Per Share of Common Stock $1.34 $1.36 $0.96 $1.56 Cash Dividends Paid Per Share of Common Stock $1.07 $1.07 $1.07 $1.0325 Return on Average Common Equity (percent) 12.49 13.03 9.27 15.61 Total Assets (in millions) $20,092 $19,731 $19,518 $18,483 Gross Property Additions (in millions) $1,346 $1,754 $1,853 $2,367 - ------------------------------------------------------------------------------------------------------------------------ Capitalization (in millions): Common stock equity $6,861 $6,686 $6,307 $6,133 Preferred stock and securities 1,400 1,465 1,363 1,392 Long-term debt 8,575 8,433 8,333 7,812 - ------------------------------------------------------------------------------------------------------------------------ Total excluding amounts due within one year $16,836 $16,584 $16,003 $15,337 ======================================================================================================================== Capitalization Ratios (percent): Common stock equity 40.8 40.3 39.4 40.0 Preferred stock and securities 8.3 8.8 8.5 9.1 Long-term debt 50.9 50.9 52.1 50.9 - ------------------------------------------------------------------------------------------------------------------------ Total excluding amounts due within one year 100.0 100.0 100.0 100.0 ======================================================================================================================== Other Common Stock Data: Book value per share (year-end) $10.87 $10.60 $10.28 $10.35 Market price per share: High 14 7/8 12 1/8 14 1/2 13 5/8 Low 11 10 1/8 8 7/8 10 1/8 Close 14 1/2 11 1/8 11 1/8 12 5/8 Market-to-book ratio (year-end) (percent) 134.0 105.5 108.8 122.5 Price-earnings ratio (year-end) (times) 10.9 8.2 11.7 8.2 Dividends paid (in millions) $675 $661 $628 $583 Dividend yield (year-end) (percent) 7.3 9.6 9.6 8.4 Dividend payout ratio (percent) 79.8 78.1 108.9 64.6 Cash coverage of dividends (year-end) (times) 2.6 2.3 2.0 2.7 Proceeds from sales of stock (in millions) $4 $194 $247 $379 Shares outstanding (in thousands): Average 631,303 622,292 601,390 580,252 Year-end 631,307 630,898 613,565 592,364 Stockholders of record (year-end) 273,751 290,725 296,079 297,302 - ------------------------------------------------------------------------------------------------------------------------ First Mortgage Bonds (in millions): Issued $280 $335 $700 $735 Retired 201 273 369 875 Preferred Stock and Securities (in millions): Issued $-- $120 $125 $100 Retired 21 10 160 53 - ------------------------------------------------------------------------------------------------------------------------ Traditional Core Business Customers (year-end) (in thousands): Residential 2,824 2,781 2,733 2,675 Commercial 392 384 374 362 Industrial 18 18 18 17 Other 4 4 4 4 - ------------------------------------------------------------------------------------------------------------------------ Total 3,238 3,187 3,129 3,058 ======================================================================================================================== Employees (year-end): Traditional core business 30,368 32,366 32,557 32,321 Southern Energy 162 157 55 37 - ------------------------------------------------------------------------------------------------------------------------ Total 30,530 32,523 32,612 32,358 ======================================================================================================================== </TABLE> II-38B
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1986 - 1996 (continued) Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in millions): Residential $2,894 $2,840 $2,560 Commercial 2,559 2,485 2,357 Industrial 2,136 2,206 2,162 Other 76 72 70 - ------------------------------------------------------------------------------------------------------------------------ Total retail 7,665 7,603 7,149 Sales for resale within service area 409 399 360 Sales for resale outside service area 429 415 505 - ------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 8,503 8,417 8,014 Other revenues 1,855 763 283 - ------------------------------------------------------------------------------------------------------------------------ Total $10,358 $9,180 $8,297 ======================================================================================================================== Kilowatt-Hour Sales (in millions): Residential 40,117 39,147 35,836 Commercial 37,993 35,938 34,080 Industrial 52,798 51,644 50,311 Other 911 863 844 - ------------------------------------------------------------------------------------------------------------------------ Total retail 131,819 127,592 121,071 Sales for resale within service area 10,935 9,472 8,151 Sales for resale outside service area 10,777 9,143 10,769 - ------------------------------------------------------------------------------------------------------------------------ Total 153,531 146,207 139,991 ======================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.21 7.25 7.14 Commercial 6.74 6.91 6.92 Industrial 4.04 4.27 4.30 Total retail 5.81 5.96 5.90 Sales for resale 3.86 4.38 4.57 Total sales 5.54 5.76 5.72 Average Annual Kilowatt-Hour Use Per Residential Customer 12,824 12,722 11,851 Average Annual Revenue Per Residential Customer $925.12 $922.83 $846.48 Plant Nameplate Capacity Ratings (year-end) (megawatts) 31,076 30,733 29,932 Maximum Peak-Hour Demand (megawatts): Winter 22,631 21,422 22,254 Summer 27,190 27,420 24,546 System Reserve Margin (at peak)(percent) 14.0 9.4 19.3 Annual Load Factor (percent) 62.3 59.5 63.5 Plant Availability (percent): Fossil-steam 86.4 86.7 85.2 Nuclear 89.7 88.3 89.8 - ------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 73.3 72.5 70.8 Nuclear 16.7 16.4 17.9 Hydro 4.1 4.1 4.7 Oil and gas 1.5 1.7 0.9 Purchased power 4.4 5.3 5.7 - ------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ======================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,257 10,099 10,010 Cost of fuel per million BTU (cents) 144.02 151.70 155.81 Average cost of fuel per net kilowatt-hour generated (cents) 1.48 1.53 1.56 - ------------------------------------------------------------------------------------------------------------------------ </TABLE> II-39
SELECTED CONSOLIDARED FINANCIAL AND OPERATING DATA 1986-1996 (continued) Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in millions): Residential $2,696 $2,402 $2,391 $2,342 Commercial 2,313 2,181 2,122 2,062 Industrial 2,200 2,126 2,088 2,085 Other 68 64 65 64 - ------------------------------------------------------------------------------------------------------------------------ Total retail 7,277 6,773 6,666 6,553 Sales for resale within service area 447 409 417 412 Sales for resale outside service area 613 797 884 977 - ------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 8,337 7,979 7,967 7,942 Other revenues 152 94 83 111 - ------------------------------------------------------------------------------------------------------------------------ Total $8,489 $8,073 $8,050 $8,053 ======================================================================================================================== Kilowatt-Hour Sales (in millions): Residential 36,807 33,627 33,622 33,118 Commercial 32,847 31,025 30,379 29,658 Industrial 48,738 47,816 46,050 45,974 Other 814 777 817 806 - ------------------------------------------------------------------------------------------------------------------------ Total retail 119,206 113,245 110,868 109,556 Sales for resale within service area 13,258 12,107 12,320 11,134 Sales for resale outside service area 12,445 16,632 19,839 24,402 - ------------------------------------------------------------------------------------------------------------------------ Total 144,909 141,984 143,027 145,092 ======================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.32 7.14 7.11 7.07 Commercial 7.04 7.03 6.99 6.96 Industrial 4.51 4.45 4.53 4.53 Total retail 6.10 5.98 6.01 5.98 Sales for resale 4.12 4.20 4.05 3.91 Total sales 5.75 5.62 5.57 5.47 Average Annual Kilowatt-Hour Use Per Residential Customer 12,378 11,490 11,659 11,637 Average Annual Revenue Per Residential Customer $906.60 $820.67 $829.18 $822.93 Plant Nameplate Capacity Ratings (year-end) (megawatts) 29,513 29,830 29,915 29,532 Maximum Peak-Hour Demand (megawatts): Winter 19,432 19,121 19,166 17,629 Summer 25,937 24,146 25,261 25,981 System Reserve Margin (at peak)(percent) 13.2 14.3 16.5 14.0 Annual Load Factor (percent) 59.4 60.3 58.3 56.6 Plant Availability (percent): Fossil-steam 87.9 88.6 91.3 91.9 Nuclear 85.9 85.2 83.4 83.0 - ------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 73.0 71.7 72.6 72.1 Nuclear 16.3 16.2 16.2 15.6 Hydro 3.9 4.6 4.4 4.4 Oil and gas 0.9 0.5 0.6 1.3 Purchased power 5.9 7.0 6.2 6.6 - ------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 ======================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,994 9,976 10,022 10,065 Cost of fuel per million BTU (cents) 166.85 162.58 168.28 172.81 Average cost of fuel per net kilowatt-hour generated (cents) 1.67 1.62 1.69 1.74 - ------------------------------------------------------------------------------------------------------------------------ </TABLE> II-40A
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATE 1986 - 1996 (continued) Southern Company and Subsidiary Companies 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------- 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions): Residential $2,194 $2,103 $2,042 $1,996 Commercial 1,965 1,835 1,692 1,613 Industrial 2,011 1,945 1,870 1,845 Other 60 56 54 52 - --------------------------------------------------------------------------------------------------------------------------- Total retail 6,230 5,939 5,658 5,506 Sales for resale within service area 401 480 461 511 Sales for resale outside service area 928 777 1,028 957 - --------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 7,559 7,196 7,147 6,974 Other revenues 61 91 57 59 - --------------------------------------------------------------------------------------------------------------------------- Total $7,620 $7,287 $7,204 $7,033 =========================================================================================================================== Kilowatt-Hour Sales (in millions): Residential 31,627 31,041 30,583 29,501 Commercial 28,454 27,005 25,593 24,166 Industrial 45,022 43,675 42,113 40,503 Other 787 763 737 723 - --------------------------------------------------------------------------------------------------------------------------- Total retail 105,890 102,484 99,026 94,893 Sales for resale within service area 11,419 14,806 13,282 14,347 Sales for resale outside service area 24,228 15,860 22,905 16,909 - --------------------------------------------------------------------------------------------------------------------------- Total 141,537 133,150 135,213 126,149 =========================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.94 6.77 6.68 6.77 Commercial 6.91 6.79 6.61 6.67 Industrial 4.47 4.45 4.44 4.56 Total retail 5.88 5.80 5.71 5.80 Sales for resale 3.73 4.10 4.11 4.69 Total sales 5.34 5.40 5.29 5.53 Average Annual Kilowatt-Hour Use Per Residential Customer 11,287 11,255 11,307 11,157 Average Annual Revenue Per Residential Customer $782.90 $762.42 $754.96 $754.93 Plant Nameplate Capacity Ratings (year-end) (megawatts) 29,532 27,552 27,610 26,262 Maximum Peak-Hour Demand (megawatts): Winter 20,772 18,685 18,185 19,665 Summer 24,399 23,641 23,194 23,255 System Reserve Margin (at peak) (percent) 21.0 15.0 16.2 11.4 Annual Load Factor (percent) 58.6 59.8 58.7 57.2 Plant Availability (percent): Fossil-steam 92.2 91.3 91.2 90.3 Nuclear 87.0 78.4 84.5 74.2 - --------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 71.5 77.7 77.8 79.4 Nuclear 15.7 14.5 13.1 11.5 Hydro 5.2 2.3 3.3 2.2 Oil and gas 1.1 0.7 0.6 0.9 Purchased power 6.5 4.8 5.2 6.0 - --------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 =========================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,086 10,094 10,122 10,171 Cost of fuel per million BTU (cents) 171.00 170.36 176.64 185.89 Average cost of fuel per net kilowatt-hour generated (cents) 1.72 1.72 1.78 1.89 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> II-40B
<TABLE> <CAPTION> CONSOLIDATED OPERATING AREA CAPABILITY, POWER SUPPLY AND FUEL ECONOMY DATA Southern Company and Subsidiary Companies <S> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------- At Time of Peak 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Operating Area Capability (Megawatts) Plants: Fossil - Coal 22,512 22,514 22,668 - Gas & Oil 4,074 3,744 3,004 - ----------------------------------------------------------------------------------------------------------------------- Total 26,586 26,258 25,672 Nuclear 4,404 4,328 4,338 Hydro 2,744 2,780 2,567 - ----------------------------------------------------------------------------------------------------------------------- Plant Capability 33,734 33,366 32,577 Firm Capacity Purchases 791 196 391 - ----------------------------------------------------------------------------------------------------------------------- Total Operating Area Capability 34,525 33,562 32,968 ======================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Power Supply Data (Millions of Kilowatt-hour) Generated: Fossil - Coal 119,382 112,157 106,263 - Nuclear 27,119 25,351 26,902 - Gas 1,991 2,315 1,224 - Oil 364 385 106 - ----------------------------------------------------------------------------------------------------------------------- Total 148,856 140,208 134,495 Hydro 6,665 6,377 7,043 - ----------------------------------------------------------------------------------------------------------------------- Total Energy Generated 155,521 146,585 141,538 Purchased Power 7,227 8,259 8,612 - ----------------------------------------------------------------------------------------------------------------------- Total Energy Generated and Received 162,748 154,844 150,150 ======================================================================================================================= - ----------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Fossil Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,139 9,915 9,807 Cost of Fuel per Million BTU (Cents) 166.84 176.46 184.60 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.69 1.75 1.81 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Nuclear Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,782 10,924 10,814 Cost of Fuel per Million BTU (Cents) 48.51 50.82 52.22 Fuel Cost per Net Kilowatt-hour Generated (Cents) 0.52 0.56 0.56 - ----------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------- Total Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,257 10,099 10,010 Cost of Fuel per Million BTU (Cents) 144.02 151.70 155.81 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.48 1.53 1.56 - ----------------------------------------------------------------------------------------------------------------------- </TABLE> II-41
<TABLE> <CAPTION> CONSOLIDATED OPERATING AREA CAPABILITY, POWER SUPPLY AND FUEL ECONOMY DATA Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------- At Time of Peak 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------- Operating Area Capability (Megawatts) Plants: Fossil - Coal 22,770 22,708 24,191 23,807 - Gas & Oil 2,519 2,483 2,338 2,327 - ---------------------------------------------------------------------------------------------------------------------------- Total 25,289 25,191 26,529 26,134 Nuclear 4,317 4,260 5,356 5,385 Hydro 2,567 2,592 2,592 2,592 - ---------------------------------------------------------------------------------------------------------------------------- Plant Capability 32,173 32,043 34,477 34,111 Firm Capacity Purchases (1) (1,366) (1,041) (949) - ---------------------------------------------------------------------------------------------------------------------------- Total Operating Area Capability 32,172 30,677 33,436 33,162 ============================================================================================================================ - ---------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------- Power Supply Data (Millions of Kilowatt-hour) Generated: Fossil - Coal 111,912 107,537 109,674 110,442 - Nuclear 24,993 24,328 24,464 23,958 - Gas 1,106 727 962 1,776 - Oil 204 74 30 96 - ---------------------------------------------------------------------------------------------------------------------------- Total 138,215 132,666 135,130 136,272 Hydro 5,971 6,919 6,666 6,773 - ---------------------------------------------------------------------------------------------------------------------------- Total Energy Generated 144,186 139,585 141,796 143,045 Purchased Power 9,076 10,453 9,347 10,168 - ---------------------------------------------------------------------------------------------------------------------------- Total Energy Generated and Received 153,262 150,038 151,143 153,213 ============================================================================================================================ - ---------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------- Fossil Fuel Economy Data: BTU per Net Kilowatt-hour Generated 9,790 9,755 9,811 9,869 Cost of Fuel per Million BTU (Cents) 195.75 191.22 195.09 197.53 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.92 1.87 1.91 1.95 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Nuclear Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,912 10,958 10,972 10,980 Cost of Fuel per Million BTU (Cents) 49.94 49.66 60.37 69.10 Fuel Cost per Net Kilowatt-hour Generated (Cents) 0.54 0.54 0.66 0.76 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Total Fuel Economy Data: BTU per Net Kilowatt-hour Generated 9,994 9,976 10,022 10,065 Cost of Fuel per Million BTU (Cents) 166.85 162.58 168.28 172.81 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.67 1.62 1.69 1.74 - ---------------------------------------------------------------------------------------------------------------------------- </TABLE> II-42A
<TABLE> <CAPTION> CONSOLIDATED OPERATING AREA CAPABILITY, POWER SUPPLY AND FUEL ECONOMY DATA Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------- At Time of Peak 1989 1988 1987 1986 - --------------------------------------------------------------------------------------------------------------------------- Operating Area Capability (Megawatts) Plants: Fossil - Coal 23,824 22,255 22,274 21,432 - Gas & Oil 2,324 2,295 2,338 2,335 - --------------------------------------------------------------------------------------------------------------------------- Total 26,148 24,550 24,612 23,767 Nuclear 5,361 4,258 4,277 3,212 Hydro 2,592 2,592 2,591 2,591 - --------------------------------------------------------------------------------------------------------------------------- Plant Capability 34,101 31,400 31,480 29,570 Firm Capacity Purchases (947) (923) (1,626) (1,004) - --------------------------------------------------------------------------------------------------------------------------- Total Operating Area Capability 33,154 30,477 29,854 28,566 =========================================================================================================================== - --------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1989 1988 1987 1986 - --------------------------------------------------------------------------------------------------------------------------- Power Supply Data (Millions of Kilowatt-hour) Generated: Fossil - Coal 106,878 108,936 110,591 105,993 - Nuclear 23,471 20,368 18,572 15,313 - Gas 1,501 644 673 953 - Oil 91 200 134 250 - --------------------------------------------------------------------------------------------------------------------------- Total 131,941 130,148 129,970 122,509 Hydro 7,851 3,285 4,697 2,888 - --------------------------------------------------------------------------------------------------------------------------- Total Energy Generated 139,792 133,433 134,667 125,397 Purchased Power 9,670 6,694 7,436 8,047 - --------------------------------------------------------------------------------------------------------------------------- Total Energy Generated and Received 149,462 140,127 142,103 133,444 =========================================================================================================================== - --------------------------------------------------------------------------------------------------------------------------- Years Ended December 31, 1989 1988 1987 1986 - --------------------------------------------------------------------------------------------------------------------------- Fossil Fuel Economy Data: BTU per Net Kilowatt-hour Generated 9,898 9,921 9,961 10,049 Cost of Fuel per Million BTU (Cents) 193.16 189.88 195.27 203.73 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.91 1.88 1.95 2.05 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Nuclear Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,951 11,027 11,086 11,019 Cost of Fuel per Million BTU (Cents) 78.61 75.67 76.28 71.99 Fuel Cost per Net Kilowatt-hour Generated (Cents) 0.86 0.83 0.85 0.79 - --------------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------------- Total Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,086 10,094 10,122 10,171 Cost of Fuel per Million BTU (Cents) 171.00 170.36 176.64 185.89 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.72 1.72 1.78 1.89 - --------------------------------------------------------------------------------------------------------------------------- </TABLE> II-42B
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME The Southern Company and Subsidiary Companies <S> <C> <C> - ---------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - ---------------------------------------------------------------------------------------------------------------- Operating Revenues $ 10,358 $ 9,180 $ 8,297 - ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,245 2,126 2,058 Purchased power 1,103 491 277 Proceeds from settlement of disputed contracts - - - Other 1,860 1,626 1,505 Maintenance 782 683 660 Depreciation and amortization 996 904 821 Amortization of deferred Plant Vogtle costs, net 137 124 75 Taxes other than income taxes 634 535 475 Income taxes 747 805 711 - ---------------------------------------------------------------------------------------------------------------- Total operating expenses 8,504 7,294 6,582 - ---------------------------------------------------------------------------------------------------------------- Operating Income 1,854 1,886 1,715 Other Income: Allowance for equity funds used during construction 4 5 11 Deferred return on Plant Vogtle - - - Write-off of Plant Vogtle costs - - - Income tax reduction for write-off of Plant Vogtle costs - - - Interest income 54 38 32 Other, net 42 (65) (28) Income taxes applicable to other income (10) 36 26 - ---------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,944 1,900 1,756 - ---------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 530 557 568 Allowance for debt funds used during construction (19) (20) (18) Interest on notes payable 107 63 33 Amortization of debt discount, premium, and expense, net 33 44 30 Other interest charges 46 43 47 Minority interest in subsidiaries 13 13 20 Distributions on preferred securities of subsidiary companies 22 9 - Preferred dividends of subsidiary companies 85 88 87 - ---------------------------------------------------------------------------------------------------------------- Interest charges and other, net 817 797 767 - ---------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 1,127 $ 1,103 $ 989 ================================================================================================================ Earnings Per Share of Common Stock $1.68 $1.66 $1.52 Average Number of Shares of Common Stock Outstanding (Thousands) 672,590 665,064 649,927 ================================================================================================================ </TABLE> II-43
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues $ 8,489 $ 8,073 $ 8,050 $ 8,053 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,265 2,114 2,237 2,327 Purchased power 336 454 468 642 Proceeds from settlement of disputed contracts (3) (7) (181) - Other 1,448 1,317 1,321 1,161 Maintenance 653 613 637 602 Depreciation and amortization 793 768 763 749 Amortization of deferred Plant Vogtle costs, net 36 (31) 16 31 Taxes other than income taxes 462 436 432 397 Income taxes 734 647 618 520 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 6,724 6,311 6,311 6,429 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 1,765 1,762 1,739 1,624 Other Income: Allowance for equity funds used during construction 9 10 13 33 Deferred return on Plant Vogtle - - 35 83 Write-off of Plant Vogtle costs - - - (281) Income tax reduction for write-off of Plant Vogtle costs - - - 63 Interest income 30 32 30 28 Other, net (34) (50) (57) (55) Income taxes applicable to other income 57 39 21 36 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,827 1,793 1,781 1,531 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 595 684 757 788 Allowance for debt funds used during construction (13) (12) (18) (34) Interest on notes payable 30 16 20 22 Amortization of debt discount, premium, and expense, net 26 14 9 10 Other interest charges 87 34 29 26 Minority interest in subsidiaries 7 - - - Distributions on preferred securities of subsidiary companies - - - - Preferred dividends of subsidiary companies 93 104 108 115 - -------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 825 840 905 927 - -------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 1,002 $ 953 $ 876 $ 604 ================================================================================================================================ Earnings Per Share of Common Stock $1.57 $1.51 $1.39 $0.96 Average Number of Shares of Common Stock Outstanding (Thousands) 637,319 631,844 631,307 631,307 ================================================================================================================================ </TABLE> II-44A
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues $ 7,620 $ 7,287 $ 7,204 $ 7,033 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,241 2,213 2,303 2,316 Purchased power 575 562 552 386 Proceeds from settlement of disputed contracts - - - - Other 1,103 1,167 1,219 1,045 Maintenance 542 547 574 576 Depreciation and amortization 698 632 563 510 Amortization of deferred Plant Vogtle costs, net (39) (8) (142) - Taxes other than income taxes 356 362 349 315 Income taxes 525 412 517 672 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 6,001 5,887 5,935 5,820 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Income 1,619 1,400 1,269 1,213 Other Income: Allowance for equity funds used during construction 71 138 190 312 Deferred return on Plant Vogtle 48 107 115 - Write-off of Plant Vogtle costs - - (358) - Income tax reduction for write-off of Plant Vogtle costs - - 129 - Interest income 28 46 77 66 Other, net (50) (30) (59) (20) Income taxes applicable to other income 30 23 19 - - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,746 1,684 1,382 1,571 - ---------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 791 784 776 782 Allowance for debt funds used during construction (63) (130) (157) (260) Interest on notes payable 12 22 24 4 Amortization of debt discount, premium, and expense, net 11 10 8 6 Other interest charges 26 32 29 15 Minority interest in subsidiaries - - - - Distributions on preferred securities of subsidiary companies - - - - Preferred dividends of subsidiary companies 123 120 125 121 - ---------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 900 838 805 668 - ---------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 846 $ 846 $ 577 $ 903 ================================================================================================================================== Earnings Per Share of Common Stock $1.34 $1.36 $0.96 $1.56 Average Number of Shares of Common Stock Outstanding (Thousands) 631,303 622,292 601,390 580,252 ================================================================================================================================== </TABLE> II-44B
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS The Southern Company and Subsidiary Companies <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) Operating Activities: Consolidated net income $ 1,127 $ 1,103 $ 989 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 1,201 1,134 1,050 Deferred income taxes 57 116 (3) Deferred investment tax credits - 1 (1) Allowance for equity funds used during construction (4) (5) (11) Amortization of deferred Plant Vogtle costs, net 137 124 75 Write-off of Plant Vogtle costs - - - Non-cash proceeds from settlement of disputed contracts - - - Other, net 20 (85) (7) Changes in certain current assets and liabilities -- Receivables (92) (109) 114 Inventories 104 39 (128) Payables 19 (138) 81 Taxes accrued (69) - - Other (99) 135 (48) - --------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 2,401 2,315 2,111 - --------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,229) (1,401) (1,536) Southern Energy business acquisitions - (1,416) (405) Sales of property 211 287 171 Other (275) 153 (87) - --------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,293) (2,377) (1,857) - --------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Common stock 171 277 279 Preferred securities 322 - 100 Preferred stock - - - First mortgage bonds 85 375 185 Pollution control bonds 167 731 749 Other long-term debt 1,403 1,074 439 Prepaid capacity revenues - - - Retirements: Preferred stock (179) (1) (1) First mortgage bonds (426) (538) (241) Pollution control bonds (174) (721) (732) Other long-term debt (1,580) (181) (307) Increase (decrease) in notes payable, net (268) 727 37 Payment of common stock dividends (846) (811) (766) Miscellaneous (110) (237) (35) - --------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (1,435) 695 (293) - --------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (327) 633 (39) Cash and Cash Equivalents at Beginning of Year 772 139 178 - --------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 445 $ 772 $ 139 ===================================================================================================================== </TABLE> ( ) Denotes use of cash. II-45
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ For the Years Ended December 31, 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------ (Millions of Dollars) Operating Activities: Consolidated net income $ 1,002 $ 953 $ 876 $ 604 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 1,011 969 968 982 Deferred income taxes 209 221 26 158 Deferred investment tax credits (20) (6) (11) - Allowance for equity funds used during construction (9) (10) (13) (33) Amortization of deferred Plant Vogtle costs, net 36 (31) (19) (52) Write-off of Plant Vogtle costs - - - 281 Non-cash proceeds from settlement of disputed contracts - (7) (141) - Other, net (45) (25) 45 (10) Changes in certain current assets and liabilities -- Receivables (55) (10) 68 8 Inventories 136 (23) 20 (82) Payables 43 35 (13) (41) Taxes accrued 3 (62) 107 (5) Other (64) (9) (46) (34) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 2,247 1,995 1,867 1,776 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (1,441) (1,105) (1,123) (1,185) Southern Energy business acquisitions (465) - - - Sales of property 262 44 291 35 Other (37) 61 (45) 14 - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (1,681) (1,000) (877) (1,136) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities: Proceeds: Common stock 205 30 - - Preferred securities - - - - Preferred stock 426 410 100 - First mortgage bonds 2,185 1,815 380 300 Pollution control bonds 386 208 126 - Other long-term debt 206 48 14 74 Prepaid capacity revenues - - 53 - Retirements: Preferred stock (516) (326) (125) (96) First mortgage bonds (2,178) (2,575) (881) (146) Pollution control bonds (351) (208) (130) (3) Other long-term debt (99) (88) (70) (207) Increase (decrease) in notes payable, net 114 525 180 78 Payment of common stock dividends (726) (695) (676) (676) Miscellaneous (137) (148) (41) (8) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from (used for) financing activities (485) (1,004) (1,070) (684) - ------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents 81 (9) (80) (44) Cash and Cash Equivalents at Beginning of Year 97 106 186 230 - ------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year $ 178 $ 97 $ 106 $ 186 ============================================================================================================================== </TABLE> ( ) Denotes use of cash. II-46A
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) Operating Activities: Consolidated net income $ 846 $ 846 $ 577 $ 903 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 951 837 742 674 Deferred income taxes 225 206 198 465 Deferred investment tax credits (1) 27 20 132 Allowance for equity funds used during construction (71) (138) (190) (312) Amortization of deferred Plant Vogtle costs, net (87) (115) (257) - Write-off of Plant Vogtle costs - - 358 - Non-cash proceeds from settlement of disputed contracts - - - - Other, net (28) 46 87 15 Changes in certain current assets and liabilities -- Receivables (123) (21) (113) 38 Inventories 6 (47) (62) (37) Payables (23) (6) 125 48 Taxes accrued (15) 29 (34) 24 Other 156 (40) 42 (56) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,836 1,624 1,493 1,894 - ------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,346) (1,754) (1,853) (2,367) Southern Energy business acquisitions - - - - Sales of property - - 12 - Other 54 (2) 64 46 - ------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,292) (1,756) (1,777) (2,321) - ------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Common stock 4 194 247 379 Preferred securities - - - - Preferred stock - 120 125 100 First mortgage bonds 280 335 700 735 Pollution control bonds 104 73 228 386 Other long-term debt 74 68 81 367 Prepaid capacity revenues - - - 100 Retirements: Preferred stock (21) (10) (160) (53) First mortgage bonds (201) (273) (369) (875) Pollution control bonds (55) (1) (122) (21) Other long-term debt (83) (108) (56) (55) Increase (decrease) in notes payable, net 27 (300) 313 (37) Payment of common stock dividends (675) (661) (628) (583) Miscellaneous (10) (20) (58) (82) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (556) (583) 301 361 - ------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (12) (715) 17 (66) Cash and Cash Equivalents at Beginning of Year 242 957 940 1,006 - ------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 230 $ 242 $ 957 $ 940 =========================================================================================================================== </TABLE> ( ) Denotes use of cash. II-46B
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS The Southern Company and Subsidiary Companies <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------ At December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------ (Millions of Dollars) ASSETS Electric Plant: Production- Fossil $ 8,706 $ 8,533 $ 8,778 Nuclear 5,982 5,956 5,942 Hydro 1,489 1,477 1,341 - ------------------------------------------------------------------------------------------------------------------ Total production 16,177 15,966 16,061 Transmission 3,596 3,452 3,504 Distribution 7,910 7,583 7,243 General 2,548 2,436 2,380 SEI utility plant 3,008 2,420 - Construction work in progress 684 990 1,247 Nuclear fuel, at amortized cost 246 225 238 - ------------------------------------------------------------------------------------------------------------------ Total electric plant 34,169 33,072 30,673 - ------------------------------------------------------------------------------------------------------------------ Steam Heat Plant 21 21 21 - ------------------------------------------------------------------------------------------------------------------ Total utility plant 34,190 33,093 30,694 - ------------------------------------------------------------------------------------------------------------------ Accumulated Provision for Depreciation: Electric 10,909 10,056 9,567 Steam heat 12 11 10 - ------------------------------------------------------------------------------------------------------------------ Total accumulated provision for depreciation 10,921 10,067 9,577 - ------------------------------------------------------------------------------------------------------------------ Total 23,269 23,026 21,117 - ------------------------------------------------------------------------------------------------------------------ Less property-related accumulated deferred income taxes - - - - ------------------------------------------------------------------------------------------------------------------ Total 23,269 23,026 21,117 - ------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts - - - Argentine operating concession, being amortized 416 431 446 Goodwill 318 344 12 Nuclear decommissioning trusts 279 201 125 Miscellaneous 488 317 224 - ------------------------------------------------------------------------------------------------------------------ Total 1,501 1,293 807 - ------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 445 772 139 Investment securities - - - Receivables, net 1,157 1,175 840 Accrued utility revenues 345 347 218 Fossil fuel stock, at average cost 270 327 354 Materials and supplies, at average cost 510 552 553 Prepayments 253 266 194 Vacation pay deferred 77 74 70 - ------------------------------------------------------------------------------------------------------------------ Total 3,057 3,513 2,368 - ------------------------------------------------------------------------------------------------------------------ Deferred Charges: Deferred charges related to income taxes 1,302 1,386 1,454 Deferred Plant Vogtle costs 171 308 432 Deferred fuel charges 13 34 47 Debt expense, being amortized 78 68 48 Premium on reacquired debt, being amortized 289 295 298 Miscellaneous 612 599 471 - ------------------------------------------------------------------------------------------------------------------ Total 2,465 2,690 2,750 - ------------------------------------------------------------------------------------------------------------------ Total Assets $30,292 $30,522 $27,042 ================================================================================================================== </TABLE> II-47
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) ASSETS Electric Plant: Production- Fossil $ 8,006 $ 8,033 $ 7,997 $ 7,661 Nuclear 5,930 5,912 5,902 5,820 Hydro 1,263 1,253 1,247 1,222 - --------------------------------------------------------------------------------------------------------------------------------- Total production 15,199 15,198 15,146 14,703 Transmission 3,224 3,093 2,955 2,824 Distribution 6,848 6,430 6,092 5,738 General 2,395 2,291 2,196 2,078 SEI utility plant - - - - Construction work in progress 1,031 665 603 1,092 Nuclear fuel, at amortized cost 229 257 301 354 - --------------------------------------------------------------------------------------------------------------------------------- Total electric plant 28,926 27,934 27,293 26,789 - --------------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant 21 21 20 20 - --------------------------------------------------------------------------------------------------------------------------------- Total utility plant 28,947 27,955 27,313 26,809 - --------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 8,924 8,271 7,676 7,079 Steam heat 10 9 8 8 - --------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 8,934 8,280 7,684 7,087 - --------------------------------------------------------------------------------------------------------------------------------- Total 20,013 19,675 19,629 19,722 - --------------------------------------------------------------------------------------------------------------------------------- Less property-related accumulated deferred income taxes - 3,186 3,020 2,911 - --------------------------------------------------------------------------------------------------------------------------------- Total 20,013 16,489 16,609 16,811 - --------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - 202 - Argentine operating concession, being amortized 469 - - - Goodwill 7 - - - Nuclear decommissioning trusts 88 52 26 2 Miscellaneous 172 75 83 83 - --------------------------------------------------------------------------------------------------------------------------------- Total 736 127 311 85 - --------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 178 97 106 186 Investment securities - 199 - - Receivables, net 962 742 723 793 Accrued utility revenues 185 177 160 151 Fossil fuel stock, at average cost 254 392 445 467 Materials and supplies, at average cost 535 533 457 456 Prepayments 148 220 222 193 Vacation pay deferred 73 70 70 64 - --------------------------------------------------------------------------------------------------------------------------------- Total 2,335 2,430 2,183 2,310 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 1,546 - - - Deferred Plant Vogtle costs 507 383 375 364 Deferred fuel charges 70 89 106 126 Debt expense, being amortized 33 28 23 23 Premium on reacquired debt, being amortized 288 222 126 99 Miscellaneous 383 270 130 137 - --------------------------------------------------------------------------------------------------------------------------------- Total 2,827 992 760 749 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $25,911 $20,038 $19,863 $19,955 ================================================================================================================================= </TABLE> II-48A
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - --------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) ASSETS Electric Plant: Production- Fossil $ 7,565 $ 6,226 $ 6,157 $ 5,415 Nuclear 5,976 4,995 4,987 2,490 Hydro 1,215 1,197 1,192 1,184 - --------------------------------------------------------------------------------------------------------------------------------- Total production 14,756 12,418 12,336 9,089 Transmission 2,683 2,500 2,388 2,254 Distribution 5,365 4,944 4,510 4,131 General 2,026 1,865 1,674 1,504 SEI utility plant - - - - Construction work in progress 1,006 3,071 2,519 5,162 Nuclear fuel, at amortized cost 402 481 479 520 - --------------------------------------------------------------------------------------------------------------------------------- Total electric plant 26,238 25,279 23,906 22,660 - --------------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant 20 20 20 35 - -------------------------------------------------------------------------------------------------------------------------------- Total utility plant 26,258 25,299 23,926 22,695 - --------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 6,492 5,885 5,355 4,879 Steam heat 7 6 6 13 - --------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 6,499 5,891 5,361 4,892 - --------------------------------------------------------------------------------------------------------------------------------- Total 19,759 19,408 18,565 17,803 - --------------------------------------------------------------------------------------------------------------------------------- Less property-related accumulated deferred income taxes 2,759 2,559 2,371 2,212 - --------------------------------------------------------------------------------------------------------------------------------- Total 17,000 16,849 16,194 15,591 - --------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - - Argentine operating concession, being amortized - - - - Goodwill - - - - Nuclear decommissioning trusts - - - - Miscellaneous 85 88 70 69 - --------------------------------------------------------------------------------------------------------------------------------- Total 85 88 70 69 - --------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 230 242 957 940 Investment securities - - - - Receivables, net 765 687 687 657 Accrued utility revenues 189 148 139 83 Fossil fuel stock, at average cost 427 490 513 501 Materials and supplies, at average cost 413 348 278 228 Prepayments 192 174 136 70 Vacation pay deferred 65 63 59 56 - --------------------------------------------------------------------------------------------------------------------------------- Total 2,281 2,152 2,769 2,535 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - - Deferred Plant Vogtle costs 322 270 173 - Deferred fuel charges 143 157 112 121 Debt expense, being amortized 24 24 25 24 Premium on reacquired debt, being amortized 103 102 95 70 Miscellaneous 134 89 80 73 - --------------------------------------------------------------------------------------------------------------------------------- Total 726 642 485 288 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $20,092 $19,731 $19,518 $18,483 ================================================================================================================================= </TABLE> II-48B
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS The Southern Company and Subsidiary Companies <S> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 3,385 $ 3,348 $ 3,283 Paid-in capital 2,067 1,941 1,712 Retained Earnings 3,764 3,483 3,191 - ---------------------------------------------------------------------------------------------------------------------------- Total common stock equity 9,216 8,772 8,186 Preferred stock 980 1,332 1,332 Preferred stock subject to mandatory redemption - - - Subsidiary obligated mandatorily redeemable preferred securities 422 100 100 Long-term debt 7,935 8,274 7,593 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 18,553 18,478 17,211 - ---------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable 828 445 575 Commercial paper 655 1,225 403 Preferred stock due within one year 173 - 1 Long-term debt due within one year 191 509 228 Accounts payable 788 785 806 Customer deposits 132 216 102 Taxes accrued 205 272 153 Interest accrued 187 199 190 Vacation pay accrued 104 100 87 Miscellaneous 535 530 233 - ---------------------------------------------------------------------------------------------------------------------------- Total 3,798 4,281 2,778 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,738 4,611 4,007 Deferred credits related to income taxes 879 936 987 Accumulated deferred investment tax credits 788 820 858 Minority interest 375 231 267 Prepaid capacity revenues 122 131 138 Disallowed Plant Vogtle capacity buyback costs 57 59 60 Miscellaneous 982 975 736 - ---------------------------------------------------------------------------------------------------------------------------- Total 7,941 7,763 7,053 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $30,292 $30,522 $27,042 ============================================================================================================================ </TABLE> II-49
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 3,213 $ 1,582 $ 1,578 $ 1,578 Paid-in capital 1,503 2,931 2,908 2,909 Retained Earnings 2,968 2,721 2,490 2,296 - ---------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 7,684 7,234 6,976 6,783 Preferred stock 1,332 1,351 1,207 1,207 Preferred stock subject to mandatory redemption 1 8 126 151 Subsidiary obligated mandatorily redeemable preferred securities - - - - Long-term debt 7,412 7,241 7,992 8,458 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 16,429 15,834 16,301 16,599 - ---------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable 865 567 302 122 Commercial paper 76 260 - - Preferred stock due within one year 1 65 7 7 Long-term debt due within one year 156 188 217 308 Accounts payable 698 646 585 616 Customer deposits 103 99 95 91 Taxes accrued 206 172 215 144 Interest accrued 186 191 221 246 Vacation pay accrued 90 86 84 75 Miscellaneous 190 242 229 233 - ---------------------------------------------------------------------------------------------------------------------------------- Total 2,571 2,516 1,955 1,842 - ---------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 3,979 - - - Deferred credits related to income taxes 1,051 - - - Accumulated deferred investment tax credits 900 957 1,004 1,063 Minority interest - - - - Prepaid capacity revenues 144 148 149 100 Disallowed Plant Vogtle capacity buyback costs 63 72 110 136 Miscellaneous 774 511 344 215 - ---------------------------------------------------------------------------------------------------------------------------------- Total 6,911 1,688 1,607 1,514 - ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $25,911 $20,038 $19,863 $19,955 ================================================================================================================================== </TABLE> II-50A
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS The Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 1,578 $ 1,577 $ 1,534 $1,481 Paid-in capital 2,909 2,906 2,755 2,563 Retained Earnings 2,374 2,203 2,018 2,089 - ----------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 6,861 6,686 6,307 6,133 Preferred stock 1,209 1,259 1,139 1,214 Preferred stock subject to mandatory redemption 191 206 224 177 Subsidiary obligated mandatorily redeemable preferred securities - - - - Long-term debt 8,575 8,433 8,333 7,813 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 16,836 16,584 16,003 15,337 - ----------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable 44 17 317 4 Commercial paper - - - - Preferred stock due within one year 61 17 9 15 Long-term debt due within one year 169 190 192 251 Accounts payable 676 728 747 737 Customer deposits 89 83 86 82 Taxes accrued 181 203 221 259 Interest accrued 233 240 233 221 Vacation pay accrued 75 74 68 66 Miscellaneous 252 104 110 111 - ----------------------------------------------------------------------------------------------------------------------------------- Total 1,780 1,656 1,983 1,746 Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - - Deferred credits related to income taxes - - - - Accumulated deferred investment tax credits 1,111 1,161 1,180 1,208 Minority interest - - - - Prepaid capacity revenues 102 81 104 101 Disallowed Plant Vogtle capacity buyback costs 73 104 79 - Miscellaneous 190 145 169 91 - ----------------------------------------------------------------------------------------------------------------------------------- Total 1,476 1,491 1,532 1,400 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $20,092 $19,731 $19,518 $18,483 =================================================================================================================================== </TABLE> II-50B
<TABLE> <CAPTION> CONSOLIDATED INCOME TAXES Southern Company and Subsidiary Companies <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - --------------------------------------------------------------------------------------------------------------------- Total Provision for Income Taxes: Federal $569 $567 $598 State 82 90 86 Deferred - Current Year - Federal 116 184 67 - State 23 26 15 Deferred - Reversal of Prior Years - Federal (74) (111) (75) - State (9) (12) (11) Investment Tax Credits: Deferred - 1 - Amortization - Plant Costs Written Off - - - Foreign Taxes 50 24 5 - --------------------------------------------------------------------------------------------------------------------- Total Income Taxes 757 769 685 Less Income Taxes Charged (Credited) to - Other Income 10 (36) (26) Disallowed Plant Costs - - - - --------------------------------------------------------------------------------------------------------------------- Income Taxes Charged to Electric Operations $747 $805 $711 ===================================================================================================================== Statutory Federal Income Tax Rate 35.0% 35.0% 35.0% Effective Federal Income Tax Rate Before Effect of Timing Differences 34.3% 34.6% 34.2% ===================================================================================================================== RECONCILIATION OF FEDERAL INCOME TAXES Southern Company and Subsidiary Companies ===================================================================================================================== For the Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------------------------------------------- Total Provision for Federal and Foreign Income Taxes: Permanent Reductions in Tax Expense Resulting from Statutory $661 $665 $595 Exclusions from Taxable Income- Effect of Foreign Operations, Including Foreign Tax Credit (1) (1) - Equity Component of Allowance for Funds Used During Construction and Deferred Return on Plant Vogtle 2 2 4 Amortization of Investment Tax Credits: Deferred 12 14 15 Plant Costs Written Off - - - Deductible Portion of Preferred Stock Dividends 1 1 1 Difference in Depreciation Basis (35) (33) (32) Plant Costs Written Off - - - Depletion of Coal Reserves Minded - - - Other 2 (6) (11) - --------------------------------------------------------------------------------------------------------------------- Effective Federal Income Taxes Before Effect of Timing Differences 642 642 572 Reversal of Prior Year Timing Differences - Not Normalized: Excess of Tax Gain over Book Profit on Sales of Utility Properties (1) (7) (7) Difference in Depreciation Basis and Rates (5) (6) (7) Other - - - Reversal of Prior Year Timing Differences - Normalized 20 21 27 Miscellaneous - - - - --------------------------------------------------------------------------------------------------------------------- Statutory Federal Income Taxes $656 $650 $585 ===================================================================================================================== </TABLE> II-51
<TABLE> <CAPTION> CONSOLIDATED INCOME TAXES Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - ---------------------------------------------------------------------------------------------------------------------------------- Total Provision for Income Taxes: Federal $421 $343 $506 $231 State 64 50 76 32 Deferred - Current Year - Federal 224 225 139 142 - State 39 46 23 24 Deferred - Reversal of Prior Years - Federal (51) (41) (121) (11) - State (3) (9) (15) 3 Investment Tax Credits: Deferred (20) (6) (11) 4 Amortization - Plant Costs Written Off - - - (4) Foreign Taxes 3 - - - - -------------------------------------------------------------------------------------------------------------------------------- Total Income Taxes 677 608 597 421 Less Income Taxes Charged (Credited) to - Other Income (57) (39) (21) (36) Disallowed Plant Costs - - - (63) - -------------------------------------------------------------------------------------------------------------------------------- Income Taxes Charged to Electric Operations $734 $647 $618 $520 ================================================================================================================================ Statutory Federal Income Tax Rate 35.0% 34.0% 34.0% 34.0% Effective Federal Income Tax Rate Before Effect of Timing Differences 34.8% 32.9% 33.4% 30.8% ================================================================================================================================ RECONCILIATION OF FEDERAL INCOME TAXES Southern Company and Subsidiary Companies ================================================================================================================================ For the Years Ended December 31, 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------------------------------------------------------- Total Provision for Federal and Foreign Income Taxes: Permanent Reductions in Tax Expense Resulting from Statutory $577 $521 $513 $362 Exclusions from Taxable Income- Effect of Foreign Operations, Including Foreign Tax Credit - - - - Equity Component of Allowance for Funds Used During Construction and Deferred Return on Plant Vogtle 3 3 11 26 Amortization of Investment Tax Credits: Deferred 13 14 16 16 Plant Costs Written Off - - - 4 Deductible Portion of Preferred Stock Dividends 1 1 1 1 Difference in Depreciation Basis (33) (36) (46) (40) Plant Costs Written Off - - - (42) Depletion of Coal Reserves Minded - - - - Other 20 16 6 6 - -------------------------------------------------------------------------------------------------------------------------------- Effective Federal Income Taxes Before Effect of Timing Differences 581 519 501 333 Reversal of Prior Year Timing Differences - Not Normalized: Excess of Tax Gain over Book Profit on Sales of Utility Properties (12) - (12) 1 Difference in Depreciation Basis and Rates (7) (7) (3) (3) Other - - - - Reversal of Prior Year Timing Differences - Normalized 23 25 23 37 Miscellaneous - - - - - -------------------------------------------------------------------------------------------------------------------------------- Statutory Federal Income Taxes $585 $537 $509 $368 ================================================================================================================================ </TABLE> II-52A
<TABLE> <CAPTION> CONSOLIDATED INCOME TAXES Southern Company and Subsidiary Companies <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------------------------------------------------------- Total Provision for Income Taxes: Federal $237 $138 $133 $58 State 34 18 18 17 Deferred - Current Year - Federal 221 328 294 498 - State 35 53 25 54 Deferred - Reversal of Prior Years - Federal (32) (159) (118) (82) - State 1 (16) (3) (5) Investment Tax Credits: Deferred (1) 27 40 132 Amortization - Plant Costs Written Off - - (20) - Foreign Taxes - - - - - -------------------------------------------------------------------------------------------------------------------------------- Total Income Taxes 495 389 369 672 Less Income Taxes Charged (Credited) to - Other Income (30) (23) (19) - Disallowed Plant Costs - - (129) - - -------------------------------------------------------------------------------------------------------------------------------- Income Taxes Charged to Electric Operations $525 $412 $517 $672 ================================================================================================================================ Statutory Federal Income Tax Rate 34.0% 34.0% 40.0% 46.0% Effective Federal Income Tax Rate Before Effect of Timing Differences 31.5% 31.5% 40.6% 46.6% ================================================================================================================================ RECONCILIATION OF FEDERAL INCOME TAXES Southern Company and Subsidiary Companies ================================================================================================================================ For the Years Ended December 31, 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------------------------------------------------------- Total Provision for Federal and Foreign Income Taxes: Permanent Reductions in Tax Expense Resulting from Statutory $425 $334 $329 $606 Exclusions from Taxable Income- Effect of Foreign Operations, Including Foreign Tax Credit - - - - Equity Component of Allowance for Funds Used During Construction and Deferred Return on Plant Vogtle 29 67 100 145 Amortization of Investment Tax Credits: Deferred 16 16 19 18 Plant Costs Written Off - - 20 - Deductible Portion of Preferred Stock Dividends 1 1 1 1 Difference in Depreciation Basis (39) (28) (30) (19) Plant Costs Written Off - - (24) - Depletion of Coal Reserves Minded - - - 2 Other 7 20 4 7 - -------------------------------------------------------------------------------------------------------------------------------- Effective Federal Income Taxes Before Effect of Timing Differences 439 410 419 760 Reversal of Prior Year Timing Differences - Not Normalized: Excess of Tax Gain over Book Profit on Sales of Utility Properties - - - 1 Difference in Depreciation Basis and Rates (3) (4) (4) (13) Other - - (2) 1 Reversal of Prior Year Timing Differences - Normalized 38 36 (1) 2 Miscellaneous - - (1) (1) - -------------------------------------------------------------------------------------------------------------------------------- Statutory Federal Income Taxes $474 $442 $411 $750 ================================================================================================================================ </TABLE> II-52B
ALABAMA POWER COMPANY FINANCIAL SECTION II-53
MANAGEMENT'S REPORT Alabama Power Company 1996 Annual Report The management of Alabama Power Company has prepared -- and is responsible for - -- the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the books and records reflect only authorized transactions of the company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The company's system of internal accounting controls is evaluated on an ongoing basis by the company's internal audit staff. The company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Alabama Power Company in conformity with generally accepted accounting principles. /s/ Elmer B. Harris Elmer B. Harris President and Chief Executive Officer /s/ William B. Hutchins, III William B. Hutchins, III Executive Vice President and Chief Financial Officer February 12, 1997 II-54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Alabama Power Company: We have audited the accompanying balance sheets and statements of capitalization of Alabama Power Company (an Alabama corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1996 and 1995, and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-62 through II-79) referred to above present fairly, in all material respects, the financial position of Alabama Power Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Birmingham, Alabama February 12, 1997 II-55
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Alabama Power Company 1996 Annual Report RESULTS OF OPERATIONS Earnings Alabama Power Company's 1996 net income after dividends on preferred stock was $371 million, representing a $10.6 million (2.9 percent) increase from the prior year. This improvement can be attributed to an increase in retail energy sales of 2.7 percent from 1995 levels and lower net interest charges compared to the prior year. This improvement was partially offset by a 4.4 percent increase in operating costs. In 1995, earnings were $361 million, representing a 1.3 percent increase from the prior year. This increase was due to an increase in retail energy sales of 4.7 percent, brought about by extreme summer weather. This improvement was partially offset by a 2.6 percent increase in operating costs. The return on average common equity for 1996 was 13.75 percent compared to 13.61 percent in 1995, and 13.86 percent in 1994. Revenues Total revenues for 1996 were $3.1 billion, reflecting a 3.2 percent increase from 1995. The following table summarizes the principal factors that affected operating revenues for the past three years: Increase (Decrease) From Prior Year ---------------------------------------- 1996 1995 1994 ---------------------------------------- (in thousands) Retail -- Change in base rates $(19,380) $ 990 $ -- Unbilled adjustment -- -- 28,000 Sales growth 61,765 18,174 45,304 Weather (29,660) 54,888 (39,964) Fuel cost recovery and other (30,846) 35,235 (84,344) --------------------------------------------------------------- Total retail (18,121) 109,287 (51,004) --------------------------------------------------------------- Sales for resale -- Non-affiliates 21,529 15,380 (9,345) Affiliates 88,890 (37,032) (17,213) --------------------------------------------------------------- Total sales for resale 110,419 (21,652) (26,558) Other operating revenues 3,703 1,997 5,095 --------------------------------------------------------------- Total operating revenues $ 96,001 $ 89,632 $(72,467) --------------------------------------------------------------- Percent change 3.2% 3.1% (2.4)% --------------------------------------------------------------- Retail revenues of $2.5 billion in 1996 decreased $18 million (0.7 percent) from the prior year, compared with an increase of $109 million (4.6 percent) in 1995. Lower fuel cost recovery was the primary reason for the decrease in 1996 retail revenues as compared to 1995. The hot weather during the summer of 1995 and higher fuel cost recovery were the primary reasons for the increase in retail revenues over 1994. Fuel revenues generally represent the direct recovery of fuel expense, including the fuel component of purchased energy, and therefore have no effect on net income. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. These capacity and energy II-56
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1996 Annual Report components, as well as the components of the sales to affiliated companies, were: 1996 1995 1994 ------------------------------------------- (in thousands) Capacity $159,488 $158,825 $165,063 Energy 315,925 209,376 222,579 ---------------------------------------------------------- Total $475,413 $368,201 $387,642 ---------------------------------------------------------- Capacity revenues from non-affiliates remained relatively constant over the past three years. Sales to affiliated companies within the Southern electric system will vary from year to year depending on demand, the availability, and the variable production cost of generating resources at each company. Kilowatt-hour (KWH) sales for 1996 and the percent change by year were as follows: KWH Percent Change ------------------------------------------- 1996 1996 1995 1994 ------------------------------------------- (millions) Residential 14,594 1.5% 9.1% (1.7)% Commercial* 10,904 8.6 4.1 3.4 Industrial* 19,999 0.7 2.0 3.2 Other 193 3.1 0.5 1.1 ---------- Total retail 45,690 2.7 4.7 3.3 Sales for resale - Non-affiliates 9,491 18.0 18.8 (5.2) Affiliates 10,292 53.5 (20.5) 4.3 ---------- Total 65,473 10.5% 2.6% 2.4% - ----------------------------------------------------------------- *The KWH sales for 1996 reflect a reclassification of approximately 200 customers from industrial to commercial, which resulted in a shift of 473 million KWH. Absent the reclassification, the percentage change in KWH sales for commercial and industrial would have been 3.9% and 3.1%, respectively. The increase in 1996 retail energy sales was primarily due to the strength of business and economic conditions in the company's service area. The 1995 retail sales growth was the result of hotter-than-normal summer weather and a strong economy in the company's service territory. Assuming normal weather, sales to retail customers are projected to grow approximately 2.7 percent annually on average during 1997 through 2002. Expenses Total operating expenses of $2.5 billion for 1996 were up $105 million or 4.4 percent compared with 1995. The major components of this increase include $85 million in fuel costs, $15 million in maintenance expense, and $17 million in depreciation and amortization offset by a decrease in purchased power of $15 million. Total operating expenses of $2.4 billion for 1995 were up 2.6 percent compared with the prior year. This increase was primarily due to higher other operation expenses and increased purchased power. This was somewhat offset by decreases in fuel costs and maintenance expenses. Fuel costs constitute the single largest expense for the company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net KWH generated were as follows: ---------------------------- 1996 1995 1994 ---------------------------- Total generation (billions of KWHs) 65 58 57 Sources of generation (percent) -- Coal 72 73 68 Nuclear 20 19 23 Hydro 8 8 9 Average cost of fuel per net KWH generated (cents) -- Coal 1.71 1.71 1.92 Nuclear 0.50 0.50 0.49 Total 1.46 1.48 1.56 - -------------------------------------------------------------- Note: Oil & Gas comprise less than 0.5% of generation. Fuel expense increased in 1996 by $85 million or 10.8 percent. This increase can be attributed to higher generation. Fuel expense decreased in 1995 by $10 million or 1.3 percent. This decrease resulted from lower average cost of fuel consumed. Purchased power consists primarily of purchases from the affiliates of the Southern electric system. Purchased power transactions among the company and its affiliates will vary from period to period depending on demand, the II-57
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1996 Annual Report availability, and the variable production cost of generating resources at each company. Total KWH purchases declined 9.3 percent from the prior year. The increase in maintenance expenses for 1996 is due to increased nuclear expenses, primarily outage related accruals. The decrease in 1995 over 1994 reflects the establishment in 1994 of the Natural Disaster Reserve. See Note 1 to the financial statements under "Natural Disaster Reserve" for additional information. Depreciation and amortization expense increased 5.6 percent in 1996 and 3.6 percent in 1995. These increases reflect additions to utility plant. The company contributed $6.8 million to the Alabama Power Foundation, Inc. in 1996, which represents a decrease of $4.7 million from the previous year. The Foundation makes distributions to qualified entities which are organized exclusively for charitable, educational, literary, and scientific purposes. The decline in net interest charges in 1996 by $11 million (4.5 percent) was due primarily to a charge of $10 million in 1995 to the amortization of debt discount, premium, and expense net, pursuant to an Alabama Public Service Commission (APSC) order. See Note 3 to the financial statements under "Retail Rate Adjustment Procedures" for additional details. Total net interest charges and preferred stock dividends increased 12.2 percent in 1995. This increase results from (i) interest on interim obligations which rose due to higher average interest rates on an increased average amount of short-term debt outstanding and (ii) amortization of debt discount, premium, and expense net, pursuant to such order. Effects of Inflation The company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the company because of the large investment in long-lived utility plant. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated more competitive environment. Future earnings in the near term will depend upon growth in electric sales, which are subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the company's service area. However, the Energy Policy Act of 1992 (Energy Act) is having a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased competition for electric utilities. The company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell excess energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The company is aggressively working to maintain and expand its share of wholesale business in the Southeastern power markets. Various federal and state initiatives designed to promote wholesale and retail competition, among other things, include proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless the company remains a low-cost producer and provides quality service, the company's retail energy sales growth could be limited, and this could significantly erode earnings. II-58
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1996 Annual Report new markets that evolve with the changing regulation. Conversely, unless the company remains a low-cost producer and provides quality service, the company's retail energy sales growth could be limited, and this could significantly erode earnings. The addition of four combustion turbine generating units in May 1996 increased related operation and maintenance expenses and depreciation expenses. These additions are to ensure reliable service to customers during critical peak times. Rates to retail customers served by the company are regulated by the APSC. Rates for the company can be adjusted periodically within certain limitations based on earned retail rate of return compared with an allowed return. In June 1995, the APSC issued an order granting the company's request for gradual adjustments to move toward parity among customer classes. This order also calls for a moratorium on any periodic retail rate increases (but not decreases) until 2001. In December 1995, the APSC issued an order authorizing the company to reduce balance sheet items -- such as plant and deferred charges -- at any time the company's actual base rate revenues exceed the budgeted revenues. See Note 3 to the financial statements for information about this and other matters. The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry -- including the company -- regarding the recognition, measurement, and classification of decommissioning costs for nuclear generating facilities in the financial statements. In response to these questions, the Financial Accounting Standards Board (FASB) has decided to review the accounting for liabilities related to closure and removal of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of closing and removing the company's nuclear and other facilities may be required to be recorded as liabilities in the Balance Sheets. Also, the annual provisions for such costs could change. Because of the company's current ability to recover closure and removal costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." The company is subject to the provisions of FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the company's operations is no longer subject to these provisions, the company would be required to write off related regulatory assets and liabilities, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. FINANCIAL CONDITION Overview The company's financial condition remained stable in 1996. This stability is the continuation over recent years of growth in energy sales and cost control measures combined with a significant lowering of the cost of capital, achieved through the refinancing and/or redemption of higher-cost long-term debt and preferred stock. The company had gross property additions of $425 million in 1996. The majority of funds needed for gross property additions for the last several years have been provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes. The Statements of Cash Flows provide additional details. Capital Structure The company's ratio of common equity to total capitalization -- including short-term debt -- was 45.3 percent in 1996, compared with 45.0 percent in 1995, and 45.9 percent in 1994. In January 1996, Alabama Power Capital Trust I (Trust I), of which the company owns all of the common securities, issued $97 million of 7.375 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $100 million aggregate principal amount of the company's 7.375 percent junior subordinated notes due March 31, 2026. Additionally, in November II-59
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1996 Annual Report 1996, the company issued through public authorities $21 million of pollution control revenue refunding bonds. In January 1997, Alabama Power Capital Trust II (Trust II), of which the company owns all of the common securities, issued $200 million of 7.60 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $206 million aggregate principal amount of the company's 7.60 percent junior subordinated notes due December 31, 2036. A portion of the proceeds of the January 1997 issuance will be used for the redemption of $100 million of preferred stock in February 1997. The company's current securities ratings are as follows: Duff & Standard Phelps Moody's & Poor's ---------------------------------- First Mortgage Bonds AA- A1 A+ Company Obligated Mandatorily Redeemable Preferred Securities A+ a2 A Preferred Stock A+ a2 A ------------------------------------------------------------ Capital Requirements Capital expenditures are estimated to be $425 million for 1997, $519 million for 1998, and $622 million for 1999. The total is $1.6 billion for the three years. Actual capital costs may vary from this estimate because of factors such as changes in business conditions; revised load growth projections; changes in environmental regulations; changes in the existing nuclear plant to meet new regulatory requirements; increasing cost of labor, equipment, and materials; and cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. The company has entered into agreements with two of its industrial customers to locate cogeneration facilities at their premises. These facilities will provide process steam to the respective customers concurrent with the production of electricity for use on the company's electric system. Each facility, which is primarily composed of a combustion turbine, will have approximately 100 megawatts of electric capacity and will serve as a base load resource for the company. These facilities are expected to be placed in service in 1999 at a total cost of approximately $90 million. In addition, significant construction of transmission and distribution facilities and upgrading of generating plants will continue. Other Capital Requirements In addition to the funds needed for the capital budget, approximately $220 million will be required by the end of 1999 for maturities of first mortgage bonds. Also, the company will continue to retire higher-cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- impacts Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and affected 28 generating units of Southern Company. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a calendar year. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. Southern Company's sulfur dioxide compliance strategy is designed to use allowances as a compliance option. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Construction expenditures for Phase I compliance totaled approximately $25 million for the company. For Phase II sulfur dioxide compliance, the company could use emission allowances, increase fuel switching, and/or install flue gas desulfurization II-60
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1996 Annual Report equipment at selected plants. Also equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired units as required to meet Phase II limits. Therefore, the current compliance strategy could require total Phase II estimated construction expenditures of approximately $40 million, of which $30 million remains to be spent. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. An average increase of up to 1 percent in annual revenue requirements from customers could be necessary to fully recover the company's cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: revisions to the ambient air standards for ozone and particulate matter; emission control strategies for ozone nonattainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. The company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the company could incur costs to clean up properties. The company conducts studies to determine the extent of any required cleanup costs and has recognized in the financial statements costs to clean up known sites. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of Southern Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital It is anticipated that the funds required will be derived from sources in form and quantity similar to those used in the past. To issue additional first mortgage bonds and preferred stock, the company must comply with certain earnings coverage requirements designated in its mortgage indenture and corporate charter. The company's coverages are at a level that would permit any necessary amount of security sales at current interest and dividend rates. As required by the Nuclear Regulatory Commission and as ordered by the APSC, the company has established external trust funds for nuclear decommissioning costs. In 1994, the company also established an external trust fund for postretirement benefits as ordered by the APSC. The cumulative effect of funding these items over a long period will diminish internally funded capital and may require capital from other sources. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." II-61
STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995, and 1994 Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ======================================================================================================================= 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues (Notes 1, 3 and 7): Revenues $2,904,155 $2,897,044 $2,770,380 Revenues from affiliates 216,620 127,730 164,762 - ----------------------------------------------------------------------------------------------------------------------- Total operating revenues 3,120,775 3,024,774 2,935,142 - ----------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 877,076 791,819 801,948 Purchased power from non-affiliates 36,813 30,065 15,158 Purchased power from affiliates 91,500 112,826 100,888 Other 505,884 501,876 458,917 Maintenance 258,482 243,218 262,102 Depreciation and amortization 320,102 303,050 292,420 Taxes other than income taxes 186,172 185,620 183,425 Federal and state income taxes (Note 8) 228,108 230,982 224,280 - ----------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,504,137 2,399,456 2,339,138 - ----------------------------------------------------------------------------------------------------------------------- Operating Income 616,638 625,318 596,004 Other Income (Expense): Allowance for equity funds used during construction (Note 1) - 1,649 3,239 Income from subsidiary (Note 6) 3,851 4,051 3,588 Charitable foundation (6,800) (11,542) (13,500) Interest income 28,318 13,768 16,944 Other, net (39,053) (21,536) (30,569) Income taxes applicable to other income 22,400 14,142 16,834 - ---------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges and Other 625,354 625,850 592,540 - ----------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 169,390 180,714 178,045 Allowance for debt funds used during construction (Note 1) (6,480) (7,067) (3,548) Interest on interim obligations 20,617 16,917 5,939 Amortization of debt discount, premium, and expense, net 9,508 20,259 9,623 Other interest charges 27,510 27,064 19,908 Distributions on preferred securities of Alabama Power Capital Trust I (Note 9) 6,717 - - - ----------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 227,262 237,887 209,967 - ----------------------------------------------------------------------------------------------------------------------- Net Income 398,092 387,963 382,573 Dividends on Preferred Stock 26,602 27,069 26,235 - ----------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 371,490 $ 360,894 $ 356,338 ======================================================================================================================= The accompanying notes are an integral part of these statements. </TABLE> II-62
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995, and 1994 Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ================================================================================================================================ 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 398,092 $ 387,963 $ 382,573 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 383,438 371,382 359,791 Deferred income taxes and investment tax credits 16,585 32,627 (32,613) Allowance for equity funds used during construction - (1,649) (3,239) Other, net 21,563 33,244 28,656 Changes in certain current assets and liabilities -- Receivables, net 3,958 (54,209) 19,390 Inventories 36,234 18,425 (38,946) Payables 1,006 (63,656) (21,240) Taxes accrued (5,756) 551 6,856 Energy cost recovery, retail 25,771 1,177 16,907 Other (7,111) (15,895) (14,235) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 873,780 709,960 703,900 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (425,024) (551,781) (536,785) Other (61,119) (53,321) (26,632) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (486,143) (605,102) (563,417) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Company obligated mandatorily redeemable preferred securities 97,000 - - First mortgage bonds - - 150,000 Other long-term debt 21,000 131,500 208,720 Retirements: First mortgage bonds (83,797) - (20,387) Other long-term debt (21,907) (132,291) (305,380) Interim obligations, net (25,163) 210,134 139,882 Payment of preferred stock dividends (26,665) (27,118) (25,431) Payment of common stock dividends (347,500) (285,000) (268,000) Miscellaneous (3,634) (4,143) (8,444) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (390,666) (106,918) (129,040) - -------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash (3,029) (2,060) 11,443 Cash at Beginning of Year 12,616 14,676 3,233 - -------------------------------------------------------------------------------------------------------------------------------- Cash at End of Year $ 9,587 $ 12,616 $ 183,445 ================================================================================================================================ Supplemental Cash Flow Information: Cash paid during the year for -- Interest and other (net of amount capitalized) $ 193,871 $ 189,268 $ 183,445 Income taxes 195,214 172,777 231,831 - -------------------------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-63
BALANCE SHEETS At December 31, 1996 and 1995 Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> ========================================================================================== ASSETS 1996 1995 - ------------------------------------------------------------------------------------------ (in thousands) Utility Plant: Plant in service, at original cost (Note 1) $10,806,921 $10,430,792 Less accumulated provision for depreciation 4,113,622 3,838,093 ------------------------------------------------------------------------------------------ 6,693,299 6,592,699 Nuclear fuel, at amortized cost 123,862 100,537 Construction work in progress 256,802 362,768 ------------------------------------------------------------------------------------------ Total 7,073,963 7,056,004 - ------------------------------------------------------------------------------------------ Other Property and Investments: Southern Electric Generating Company, at equity (Note 6) 26,032 27,232 Nuclear decommissioning trusts (Note 1) 148,760 108,368 Miscellaneous 20,243 19,156 - ------------------------------------------------------------------------------------------ Total 195,035 154,756 - ------------------------------------------------------------------------------------------ Current Assets: Cash 9,587 12,616 Receivables- Customer accounts receivable 334,150 355,833 Other accounts and notes receivable 28,524 28,082 Affiliated companies 47,630 41,819 Accumulated provision for uncollectible accounts (1,171) (1,212) Refundable income taxes 5,856 2,635 Fossil fuel stock, at average cost 81,704 106,627 Materials and supplies, at average cost 167,792 179,103 Prepayments 131,870 116,331 Vacation pay deferred 28,369 29,458 - ------------------------------------------------------------------------------------------ Total 834,311 871,292 - ------------------------------------------------------------------------------------------ Deferred Charges: Deferred charges related to income taxes (Note 8) 410,010 436,837 Debt expense, being amortized 7,398 7,648 Premium on reacquired debt, being amortized 84,149 89,967 Uranium enrichment decontamination and decommissioning fund (Note 1) 37,490 40,282 Miscellaneous 91,490 87,574 - ------------------------------------------------------------------------------------------ Total 630,537 662,308 - ------------------------------------------------------------------------------------------ Total Assets $ 8,733,846 $ 8,744,360 ========================================================================================== The accompanying notes are an integral part of these balance sheets. </TABLE> II-64
BALANCE SHEETS At December 31, 1996 and 1995 Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> ============================================================================================ CAPITALIZATION AND LIABILITIES 1996 1995 - -------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity $2,714,277 $2,690,374 Preferred stock 340,400 440,400 Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes (Note 9) 97,000 - Long-term debt 2,354,006 2,374,948 - -------------------------------------------------------------------------------------------- Total 5,505,683 5,505,722 - -------------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year (Note 11) 100,000 - Long-term debt due within one year (Note 11) 20,753 84,682 Commercial paper 364,853 390,016 Accounts payable- Affiliated companies 64,307 76,326 Other 182,563 182,401 Customer deposits 32,003 30,353 Taxes accrued- Federal and state income 35,638 13,599 Other 15,271 18,158 Interest accrued 51,941 53,527 Vacation pay accrued 28,369 29,458 Miscellaneous 96,485 70,543 - -------------------------------------------------------------------------------------------- Total 992,183 949,063 - -------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 1,177,687 1,191,591 Accumulated deferred investment tax credits 294,071 305,372 Prepaid capacity revenues, net (Note 7) 122,496 131,186 Uranium enrichment decontamination and decommissioning fund (Note 1) 33,741 36,620 Deferred credits related to income taxes (Note 8) 364,792 386,038 Natural disaster reserve (Note 1) 20,757 17,959 Miscellaneous 222,436 220,809 - -------------------------------------------------------------------------------------------- Total 2,235,980 2,289,575 - -------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 3, 4, 5, 6, 7, and 12) Total Capitalization and Liabilities $8,733,846 $8,744,360 ============================================================================================ The accompanying notes are an integral part of these balance sheets. </TABLE> II-65
STATEMENTS OF CAPITALIZATION At December 31, 1996 and 1995 Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> =================================================================================================================================== 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, par value $40 per share -- Authorized -- 6,000,000 shares Outstanding -- 5,608,955 shares in 1996 and 1995 $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,304,645 Premium on preferred stock 146 146 Retained earnings (Note 13) 1,185,128 1,161,225 - ----------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 2,714,277 2,690,374 49.3% 48.9% - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $1 par value -- Authorized -- 27,500,000 shares Outstanding -- 12,020,200 shares $25 stated capital -- 6.40% 50,000 50,000 6.80% 38,000 38,000 7.60% 150,000 150,000 Adjustable rate 5.17% - at January 1, 1997 50,000 50,000 $100 stated capital -- Auction rate - 4.09% at January 1, 1997 50,000 50,000 $100,000 stated capital -- Auction rate - 4.01% at January 1, 1997 20,000 20,000 $100 par value -- Authorized -- 3,850,000 shares Outstanding -- 824,000 shares 4.20% to 4.52% 41,400 41,400 4.60% to 4.92% 29,000 29,000 5.96% to 6.88% 12,000 12,000 - ----------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $26,500,000) 440,400 440,400 Less amount due within one year (Note 11) 100,000 - - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock excluding amount due within one year 340,400 440,400 6.2 8.0 - ----------------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 7.375% 97,000 - - ----------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $7,154,000) 97,000 - 1.7 - - ----------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt: First mortgage bonds -- Maturity Interest Rates March 1, 1996 4 1/2% - 60,000 February 1, 1998 5 1/2% 50,000 50,000 August 1, 1999 6 3/8% 170,000 170,000 March 1, 2000 6% 100,000 100,000 2002 through 2007 6 3/4% to 7 1/4% 575,000 575,000 2021 through 2024 7.30% to 9 1/4% 1,021,059 1,044,856 - ----------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,916,059 1,999,856 Pollution control obligations 476,140 476,140 Other long-term debt 8,056 8,963 Unamortized debt premium (discount), net (25,496) (25,329) - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $171,420,000) 2,374,759 2,459,630 Less amount due within one year (Note 11) 20,753 84,682 - ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 2,354,006 2,374,948 42.8 43.1 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $5,505,683 $5,505,722 100.0% 100.0% =================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-66
STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1996, 1995, and 1994 Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ======================================================================================================== 1996 1995 1994 - -------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $1,161,225 $1,085,256 $ 997,199 Net income after dividends on preferred stock 371,490 360,894 356,338 Cash dividends on common stock (347,500) (285,000) (268,000) Preferred stock transactions, net (7) - (118) Other adjustments to retained earnings (80) 75 (163) - -------------------------------------------------------------------------------------------------------- Balance at End of Year (Note 13) $1,185,128 $1,161,225 $1,085,256 ======================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-67
NOTES TO FINANCIAL STATEMENTS Alabama Power Company 1996 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Alabama Power Company (the company) is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), The Southern Development and Investment Group (Southern Development), and other direct and indirect subsidiaries. The operating companies (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four southeastern states. Contracts among the companies -- dealing with jointly-owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission (SEC). The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, builds, owns and operates power production and delivery facilities and provides a broad range of energy related services in the United States and international markets. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Development develops new business opportunities related to energy products and services. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The company is also subject to regulation by the FERC and the Alabama Public Service Commission (APSC). The company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the respective regulatory commissions. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. Regulatory Assets and Liabilities The company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 1996 1995 ------------------------- (in thousands) Deferred income taxes $ 410,010 $ 436,837 Premium on reacquired debt 84,149 89,967 Department of Energy assessments 37,490 40,282 Vacation pay 28,369 29,458 Work force reduction costs 45,969 48,402 Deferred income tax credits (364,792) (386,038) Natural disaster reserve (20,757) (17,959) Other, net 45,521 39,172 - ---------------------------------------------------------------- Total $ 265,959 $ 280,121 ================================================================ In the event that a portion of the company's operations is no longer subject to the provisions of Statement No. 71, the company would be required to write off related regulatory assets and liabilities. In addition, the company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The company accrues revenues for services rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The company's electric rates include provisions to adjust billings for fluctuations in fuel and the energy component of purchased power costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1996, uncollectible accounts continued to average less than 1 percent of revenues. II-68
NOTES (continued) Alabama Power Company 1996 Annual Report Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $64 million in 1996, $54 million in 1995, and $65 million in 1994. The company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel. Although disposal was scheduled to begin in 1998, the actual year this service will begin is uncertain. Sufficient storage capacity currently is available to permit operation into 2010 and 2013 at Plant Farley units 1 and 2, respectively. Also, the Energy Policy Act of 1992 required the establishment in 1993 of a Uranium Enrichment Decontamination and Decommissioning Fund, which is to be funded in part by a special assessment on utilities with nuclear plants. This assessment will be paid over a 15- year period, which began in 1993. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The company estimates its remaining liability at December 31, 1996, under this law to be approximately $37 million. This obligation is recognized in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.3 percent in 1996 and 3.2 percent in 1995 and 1994. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of decommissioning nuclear facilities and removal of other facilities. In 1988, the Nuclear Regulatory Commission (NRC) adopted regulations requiring all licensees operating commercial power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. The company has established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over periods approved by the APSC. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs -- at December 31, 1996, for Plant Farley were as follows: Site study basis (year) 1993 Decommissioning periods: Beginning year 2017 Completion year 2029 ----------------------------------------------------------- (in millions) Site study costs: Radiated structures $ 489 Non-radiated structures 89 ----------------------------------------------------------- Total $ 578 =========================================================== (in millions) Ultimate costs: Radiated structures $1,504 Non-radiated structures 274 ----------------------------------------------------------- Total $1,778 =========================================================== (in millions) Amount expensed in 1996 $ 18 ----------------------------------------------------------- Accumulated provisions: Balance in external trust funds $ 149 Balance in internal reserves 47 ----------------------------------------------------------- Total $ 196 =========================================================== Significant assumptions: Inflation rate 4.5% Trust earning rate 7.0 ----------------------------------------------------------- Annual provisions for nuclear decommissioning are based on an annuity method as approved by the APSC. All of the company's decommissioning costs are approved for ratemaking. The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary II-69
NOTES (continued) Alabama Power Company 1996 Annual Report from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, or changes in the assumptions used in making estimates. Income Taxes The company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance For Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rate used to determine the amount of allowance was 5.8 percent in 1996, 7.1 percent in 1995, and 7.9 percent in 1994. AFUDC, net of income tax, as a percent of net income after dividends on preferred stock was 1.1 percent in 1996, 1.7 percent in 1995 and 1.5 percent in 1994. Utility Plant Utility plant is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Financial Instruments The company's only financial instruments for which the carrying amount did not approximate fair value at December 31 are as follows: Carrying Fair Amount Value ------------------------- (in millions) Long-term debt: At December 31, 1996 $2,367 $2,420 At December 31, 1995 $2,451 $2,577 Preferred Securities: At December 31, 1996 97 94 At December 31, 1995 - - ------------------------------------------------------------ The fair value for long-term debt and preferred securities was based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Natural Disaster Reserve In September 1994, in response to a request by the company, the APSC issued an order allowing the company to establish a Natural Disaster Reserve. Regulatory treatment allows the company to accrue $250 thousand per month, until the maximum accumulated provision of $32 million is attained. However, in December 1995, the APSC approved higher accruals to restore the reserve to its authorized level whenever the balance in the reserve declines below $22.4 million. II-70
NOTES (continued) Alabama Power Company 1996 Annual Report 2. RETIREMENT BENEFITS Pension Plan The company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. Benefits are based on one of the following formulas: years of service and final average pay or years of service and a flat-dollar benefit. The company uses the "entry age normal method with a frozen initial liability" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trusts are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. Postretirement Benefits The company also provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Amounts funded are primarily invested in debt and equity securities. In December 1993, the APSC issued an accounting policy statement which requires the company to externally fund net annual postretirement benefits. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement insurance benefits as computed under the requirements of Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension ------------------- 1996 1995 -------------------- (in millions) Actuarial present value of benefit obligations: Vested benefits $ 603 $ 604 Non-vested benefits 30 25 - --------------------------------------------------------------- Accumulated benefit obligation 633 629 Additional amounts related to projected salary increases 180 173 - --------------------------------------------------------------- Projected benefit obligation 813 802 Less: Fair value of plan assets 1,334 1,256 Unrecognized net gain (413) (331) Unrecognized prior service cost 46 21 Unrecognized transition asset (40) (45) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 114 $ 99 =============================================================== Postretirement Benefits ---------------------- 1996 1995 ---------------------- (in millions) Actuarial present value of benefit obligation: Retirees and dependents $116 $103 Employees eligible to retire 28 31 Other employees 98 104 ----------------------------------------------------------- Accumulated benefit obligation 242 238 Less: Fair value of plan assets 108 89 Unrecognized net loss 15 23 Unrecognized transition obligation 65 72 ----------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ 54 $ 54 =========================================================== In 1995, the system companies announced a cost sharing program for postretirement benefits. The program establishes limits on amounts the company will pay to provide future retiree postretirement benefits. This change reduced the 1995 accumulated postretirement benefit obligation by approximately $41 million. II-71
NOTES (continued) Alabama Power Company 1996 Annual Report The weighted average rates assumed in the actuarial calculations were: 1996 1995 1994 ------------------------------- Discount 7.8% 7.3% 8.0% Annual salary increase 5.3 4.8 5.5 Long-term return on plan assets 8.5 8.5 8.5 ---------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.3 percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation as of December 31, 1996, by $20 million and the aggregate of the service and interest cost components of the net retiree cost by $2 million. Components of the plans' net cost are shown below: Pension ---------------------------------------------------------------- 1996 1995 1994 ------------------------------- (in millions) Benefits earned during the year $ 21.5 $ 21.2 $ 20.8 Interest cost on projected benefit obligation 59.5 54.3 51.2 Actual (return) loss on plan assets (148.9) (236.3) 23.5 Net amortization and deferral 43.8 136.9 (116.2) ---------------------------------------------------------------- Net pension cost (income) $ (24.1) $ (23.9) $ (20.7) ================================================================ Of the above net pension income, $20.3 million in 1996, $17.1 million in 1995, and $15.7 million in 1994 were recorded as credits to operating expenses, and the remainder was recorded as credits to construction and other accounts. Postretirement Benefits -------------------- 1996 1995 1994 -------------------- (in millions) Benefits earned during the year $ 5 $ 7 $ 8 Interest cost on accumulated benefit obligation 17 18 18 Amortization of transition obligation 4 7 6 Actual (return) loss on plan assets (7) (10) 1 Net amortization and deferral 2 5 (4) - ------------------------------------------------------------- Net postretirement costs $21 $27 $29 ============================================================= Of the above net postretirement costs recorded, $17.8 million in 1996, $22.7 million in 1995, and $23 million in 1994 were charged to operating expenses and the remainder was charged to construction and other accounts. Work Force Reduction Programs The company has incurred costs for work force reduction programs. The costs related to these programs were $26.7 million, $14.3 million and $8.2 million for the years 1996, 1995 and 1994, respectively. In addition, certain costs of these programs were deferred and are being amortized in accordance with regulatory treatment. The unamortized balance of these costs was $46.0 million at December 31, 1996. 3. LITIGATION AND REGULATORY MATTERS Retail Rate Adjustment Procedures In November 1982, the APSC adopted rates that provide for periodic adjustments based upon the company's earned return on end-of-period retail common equity. The rates also provide for adjustments to recognize the placing of new generating facilities in retail service. Both increases and decreases have been placed into effect since the adoption of these rates. The rate adjustment procedures allow a return on common equity range of 13.0 percent to 14.5 percent and limit increases or decreases in rates to 4 percent in any calendar year. In June 1995, the APSC issued a rate order granting the company's request for gradual adjustments to move toward parity among customer classes. This order II-72
NOTES (continued) Alabama Power Company 1996 Annual Report also calls for a moratorium on any periodic retail rate increases (but not decreases) until July 2001. In December 1995, the APSC issued an order authorizing the company to reduce balance sheet items -- such as plant and deferred charges -- at any time the company's actual base rate revenues exceed the budgeted revenues. The ratemaking procedures will remain in effect until the APSC votes to modify or discontinue them. Appliance Warranty Litigation In 1996, legal actions against the company were filed in several counties in Alabama charging the company with fraud and non-compliance with regulatory statutes relating to the offer, sale, and financing of "extended service contracts" in connection with the sale of electric appliances. Some of these suits were filed as class actions, while others were filed on behalf of multiple individual plaintiffs. The plaintiffs seek damages for an unspecified amount. The company has offered extended service agreements to its customers since January 1984, and approximately 175,000 extended service agreements could be involved in these proceedings. The final outcome of these cases cannot now be determined. FERC Reviews Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the operating companies' wholesale rate schedules and contracts that have a return on common equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power and other similar contracts. In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and contracts were not necessary and that the FERC staff failed to show how any changes were in the public interest. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. In August 1994, the FERC instituted another proceeding based on substantially the same issues as in the 1991 proceeding. In November 1995, a FERC administrative law judge issued an opinion that the FERC staff failed to meet its burden of proof, and therefore, no change in the equity return was necessary. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter is pending before the FERC. If the rates of return on common equity recommended by the FERC staff were applied to all of the schedules and contracts involved in both proceedings, as well as certain other contracts that reference these proceedings in determining return on common equity, and if refunds were ordered, the amount of refunds could range up to approximately $160 million at December 31, 1996 for Southern Company, of which the company's portion would be approximately $76 million. However, management believes that rates are not excessive, and that refunds are not justified. 4. CAPITAL BUDGET The company's capital expenditures are currently estimated to total $425 million in 1997, $519 million in 1998, and $622 million in 1999. The capital budget is subject to periodic review and revision, and actual capital cost incurred may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; revised load growth projections; changes in environmental regulations; changes in the existing nuclear plant to meet new regulatory requirements; increasing costs of labor, equipment, and materials; and cost of capital. At December 31, 1996, significant purchase commitments were outstanding in connection with the construction program. The company has entered into agreements with two of its industrial customers to locate cogeneration facilities at their premises. These facilities will provide process steam to the respective customers concurrent with the production of electricity for use on the company's electric system. Each facility, which is primarily composed of a combustion turbine, will have approximately 100 megawatts of electric capacity and will serve as a base load resource for the company. These facilities are expected to be placed in service in 1999 at a total cost of approximately $90 million. In addition, significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants. II-73
NOTES (continued) Alabama Power Company 1996 Annual Report 5. FINANCING, INVESTMENT, AND COMMITMENTS General To the extent possible, the company's construction program is expected to be financed primarily from internal sources. Short-term debt is often utilized and the amounts available are discussed below. The company may issue additional long-term debt and preferred securities for the purposes of debt maturities, redeeming higher-cost securities, and meeting additional capital requirements. Financing The ability of the company to finance its capital budget depends on the amount of funds generated internally and the funds it can raise by external financing. The company's primary sources of external financing are sales of first mortgage bonds and preferred stock to the public and receipt of additional paid-in capital from Southern Company. In order to issue additional first mortgage bonds and preferred stock, the company must comply with certain earnings coverage requirements contained in its mortgage indenture and corporate charter. The most restrictive of these provisions requires, for the issuance of additional first mortgage bonds, that before-income-tax earnings, as defined, cover pro forma annual interest charges on outstanding first mortgage bonds at least twice; and for the issuance of additional preferred stock, that gross income available for interest cover pro forma annual interest charges and preferred stock dividends at least one and one-half times. The company's coverages are currently at a level that would permit any necessary amount of security sales at current interest and dividend rates. Bank Credit Arrangements The company, along with Southern Company and Georgia Power Company, has entered into agreements with several banks outside the service area to provide $400 million of revolving credit to the companies through June 30, 1999. To provide liquidity support for commercial paper programs, the company and Georgia Power Company have exclusive right to $135 million and $165 million, respectively, of the available credit. However, the allocations can be changed among the borrowers by notifying the respective banks. The companies have the option of converting the short-term borrowings into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the companies' option. In addition, these agreements require payment of commitment fees based on the unused portions of the commitments or the maintenance of compensating balances with the banks. Additionally, the company maintains committed lines of credit in the amount of $680 million (including $208 million of such lines under which borrowings may be made only to fund purchase obligations relating to variable rate pollution control bonds) which expire at various times during 1997 and, in certain cases, provide for average annual compensating balances. Because the arrangements are based on an average balance, the company does not consider any of its cash balances to be restricted as of any specific date. Moreover, the company borrows from time to time pursuant to arrangements with banks for uncommitted lines of credit. At December 31, 1996, the company had regulatory approval to have outstanding up to $750 million of short-term borrowings. Assets Subject to Lien The company's mortgage, as amended and supplemented, securing the first mortgage bonds issued by the company, constitutes a direct lien on substantially all of the company's fixed property and franchises. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels and other financial commitments. Total estimated long-term obligations at December 31, 1996, were as follows: Year Amounts - ---- ------------------- (in millions) 1997 $ 808 1998 770 1999 569 2000 300 2001 317 2002 - 2013 2,594 - ------------------------------------------------ Total commitments $5,358 ================================================ II-74
NOTES (continued) Alabama Power Company 1996 Annual Report Operating Leases The company has entered into coal rail car rental agreements with various terms and expiration dates. At December 31, 1996, estimated minimum rental commitments for noncancellable operating leases were as follows: Amounts Year ---------------- (in millions) 1997 $ 3 1998 3 1999 3 2000 3 2001 3 2002- 2017 53 - --------------------------------------------------------- Total minimum payments $68 ========================================================== 6. JOINT OWNERSHIP AGREEMENTS The company and Georgia Power Company own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, together with associated transmission facilities. The capacity of these units is sold equally to the company and Georgia Power Company under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, interest expense and a return on equity, whether or not SEGCO has any capacity and energy available. The company's share of expenses totaled $75 million in 1996, $71 million in 1995 and $74 million in 1994, and is included in "Purchased power from affiliates" in the Statements of Income. In addition, the company has guaranteed unconditionally the obligation of SEGCO under an installment sale agreement for the purchase of certain pollution control facilities at SEGCO's generating units, pursuant to which $24.5 million principal amount of pollution control revenue bonds are outstanding. Georgia Power Company has agreed to reimburse the company for the pro rata portion of such obligation corresponding to its then proportionate ownership of stock of SEGCO if the company is called upon to make such payment under its guaranty. At December 31, 1996, the capitalization of SEGCO consisted of $52 million of equity and $76 million of long-term debt on which the annual interest requirement is $4.7 million. SEGCO paid dividends totaling $10.1 million in 1996, $7.6 million in 1995, and $11.6 million in 1994, of which one-half of each was paid to the company. SEGCO's net income was $7.7 million, $8.1 million, and $7.2 million for 1996, 1995 and 1994, respectively. The company's percentage ownership and investment in jointly-owned generating plants at December 31, 1996, follows: Total Megawatt Company Facility (Type) Capacity Ownership ------------------- ------------ ----------------- Greene County 500 60.00% (1) (coal) Plant Miller Units 1 and 2 1,320 91.84% (2) (coal) -------------------------------------------------------- (1) Jointly owned with an affiliate, Mississippi Power Company. (2) Jointly owned with Alabama Electric Cooperative, Inc. Company Accumulated Facility Investment Depreciation ------------------- -------------- --------------- (in millions) Greene County $ 90 $ 40 Plant Miller Units 1 and 2 714 296 -------------------------------------------------------- 7. LONG-TERM POWER SALES AGREEMENTS General The company and the operating affiliates of Southern Company have entered into long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. The agreements for non-firm capacity expired in 1994. Other agreements -- expiring at various dates discussed below -- are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The company's capacity revenues have been as follows: Unit Other Year Power Long-Term Total ---------------------------------------------------------- (in millions) 1996 $151 $ - $151 1995 157 - 157 1994 152 7 159 ---------------------------------------------------------- II-75
NOTES (continued) Alabama Power Company 1996 Annual Report Unit power from Plant Miller is being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), Jacksonville Electric Authority (JEA) and the City of Tallahassee, Florida. Under these agreements, approximately 1,200 megawatts of capacity is scheduled to be sold through 1999. Thereafter, these sales will remain at that approximate level -- unless reduced by FP&L, FPC, and JEA for the periods after 1999 with a minimum of three years notice -- until the expiration of the contracts in 2010. Alabama Municipal Electric Authority (AMEA) Capacity Contracts In August 1986, the company entered into a firm power purchase contract with AMEA entitling AMEA to scheduled amounts of capacity (to a maximum 100 megawatts) for a period of 15 years commencing September 1, 1986 (1986 Contract). In October 1991, the company entered into a second firm power purchase contract with AMEA entitling AMEA to scheduled amounts of additional capacity (to a maximum 80 megawatts) for a period of 15 years commencing October 1, 1991 (1991 Contract). In both contracts the power will be sold to AMEA for its member municipalities that previously were served directly by the company as wholesale customers. Under the terms of the contracts, the company received payments from AMEA representing the net present value of the revenues associated with the respective capacity entitlements, discounted at effective annual rates of 9.96 percent and 11.19 percent for the 1986 and 1991 contracts, respectively. These payments are being recognized as operating revenues and the discounts are being amortized to other interest expense as scheduled capacity is made available over the terms of the contracts. In order to secure AMEA's advance payments and the company's performance obligation under the contracts, the company issued and delivered to an escrow agent first mortgage bonds representing the maximum amount of liquidated damages payable by the company in the event of a default under the contracts. No principal or interest is payable on such bonds unless and until a default by the company occurs. As the liquidated damages decline under the contracts, a portion of the bonds equal to the decreases are returned to the company. At December 31, 1996, $128.2 million of such bonds was held by the escrow agent under the contracts. 8. INCOME TAXES At December 31, 1996, the tax-related regulatory assets and liabilities were $410 million and $365 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 1996 1995 1994 ------------------------------------------- (in thousands) Total provision for income taxes: Federal -- Currently payable $172,911 $166,105 $219,494 Deferred-- current year (6,309) 43,493 (48,153) reversal of prior years 18,948 (15,817) 15,932 Deferred investment tax credits - (75) (1) - ---------------------------------------------------------------------------- 185,550 193,706 187,272 - ---------------------------------------------------------------------------- State-- Currently payable 16,212 18,108 20,565 Deferred-- current year 697 5,117 (4,067) reversal of prior years 3,249 (91) 3,676 - ---------------------------------------------------------------------------- 20,158 23,134 20,174 - ---------------------------------------------------------------------------- Total 205,708 216,840 207,446 Less income taxes credited to other income (22,400) (14,142) (16,834) - ---------------------------------------------------------------------------- Total income taxes charged to operations $228,108 $230,982 $224,280 ============================================================================ The tax effects of temporary differences between the carrying amounts of II-76
NOTES (continued) Alabama Power Company 1996 Annual Report assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1996 1995 ------------------------------ (in millions) Deferred tax liabilities: Accelerated depreciation $ 816 $ 780 Property basis differences 466 491 Premimum on reacquired debt 31 31 Other 51 42 - ---------------------------------------------------------------------- Total 1,364 1,344 - ---------------------------------------------------------------------- Deferred tax assets: Capacity prepayments 34 35 Other deferred costs 27 26 Postretirement benefits 21 25 Unbilled revenue 15 13 Other 54 43 - ---------------------------------------------------------------------- Total 151 142 - ---------------------------------------------------------------------- Net deferred tax liabilities 1,213 1,202 Portion included in current assets (liabilities), net (35) (10) - ---------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $1,178 $1,192 ====================================================================== Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $11 million in 1996, $12 million in 1995, and $13 million in 1994. At December 31, 1996, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1996 1995 1994 -------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 2.2 2.5 2.2 Non-deductible book depreciation 1.5 1.6 1.6 Differences in prior years' deferred and current tax rates (1.6) (1.8) (2.9) Other (3.0) (1.4) (0.7) -------------------------------------------------------------- Effective income tax rate 34.1% 35.9% 35.2% ============================================================== Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 9. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES In January 1996, Alabama Power Capital Trust I (Trust I), of which the company owns all of the common securities, issued $97 million of 7.375 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $100 million aggregate principal amount of the company's 7.375 percent junior subordinated notes due March 31, 2026. In January 1997, Alabama Power Capital Trust II (Trust II), of which the company also owns all of the common securities, issued $200 million of 7.60 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $206 million aggregate principal amount of the company's 7.60 percent junior subordinated notes due December 31, 2036. A portion of the proceeds of the January 1997 issuance will be used for the redemption of $100 million of preferred stock in February 1997. II-77
NOTES (continued) Alabama Power Company 1996 Annual Report 10. OTHER LONG-TERM DEBT Details of other long-term debt at December 31 are as follows: 1996 1995 -------------------------- (in thousands) Obligations incurred in connection with the sale of tax-exempt pollution control revenue bonds by public authorities- Collateralized - 5.5% to 6.5 % due 2023-2024 $223,040 $223,040 Variable rates (4.15% to 5.0% at 1/1/97) due 2015-2017 89,800 89,800 Non-collateralized - 7.25% due 2003 1,000 1,000 7.4% due 2016 - 21,000 5.8% due 2022 9,800 9,800 Variable rates (4.65% to 5.1% at 1/1/97) due 2021 - 2022 152,500 131,500 - -------------------------------------------------------------- 476,140 476,140 Capitalized lease obligations 8,056 8,963 - -------------------------------------------------------------- Total $484,196 $485,103 ============================================================== Pollution control obligations represent installment purchases of pollution control facilities financed by funds derived from sales by public authorities of revenue bonds. The company is required to make payments sufficient for the authorities to meet principal and interest requirements of such bonds. With respect to $312.8 million of such pollution control obligations, the company has authenticated and delivered to the trustees a like principal amount of first mortgage bonds as security for its obligations under the installment purchase agreements. No principal or interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase agreements. The estimated aggregate annual maturities of other long-term debt through 2001 are as follows: $1.0 million in 1997, $1.0 million in 1998, $1.2 million in 1999, $1.1 million in 2000 and $1.0 million in 2001. 11. SECURITIES DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt and preferred stock due within one year at December 31 is as follows: 1996 1995 --------------------------- (in thousands) Bond improvement fund requirements $ 19,410 $20,047 First mortgage bond maturities and redemptions 391 63,750 Other long-term debt maturities (Note 10) 952 885 --------------------------------------------------------------- Total long-term debt due within one year 20,753 84,682 --------------------------------------------------------------- Preferred stock to be reacquired 100,000 - --------------------------------------------------------------- Total $120,753 $84,682 =============================================================== The annual first mortgage bond improvement fund requirement is 1 percent of the aggregate principal amount of bonds of each series authenticated, so long as a portion of that series is outstanding, and may be satisfied by the deposit of cash and/or reacquired bonds, the certification of unfunded property additions or a combination thereof. The 1997 requirement of $19.4 million was satisfied by the deposit of cash in 1997, all of which was used for the redemption of outstanding first mortgage bonds. Also in early 1997, the company redeemed $391 thousand first mortgage bonds and announced the February 1997 redemption of $100 million preferred stock. The preferred stock will be redeemed with a portion of the proceeds from the January 1997 Trust II security issuance. Scheduled maturities amount to $952 thousand in connection with capitalized office building leases and a street light lease. 12. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988 (Act), the company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at Plant Farley. The Act provides funds up to $8.9 billion for public liability claims that could arise from a single nuclear incident. Plant Farley is insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums which could be assessed, after a nuclear incident, against all owners of nuclear II-78
NOTES (continued) Alabama Power Company 1996 Annual Report reactors. The company could be assessed up to $79 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any applicable state premium taxes, for the company is $159 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The company is a member of Nuclear Mutual Limited (NML), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. The members are subject to a retrospective premium assessment in the event that losses exceed accumulated reserve funds. The company's maximum annual assessment per incident is limited to $9 million under the current policy. Additionally, the company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million NML coverage. This excess insurance is provided by Nuclear Electric Insurance Limited (NEIL), a mutual insurance company. NEIL also covers the additional cost that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased cost of replacement power in an amount up to $3.5 million per week (starting 21 weeks after the outage) for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The maximum annual assessments per incident under current policies for the company would be $15 million for excess property damage and $8 million for replacement power. For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies issued or renewed on or after April 2, 1991, shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. The company participates in an insurance program for nuclear workers that provides coverage for worker tort claims filed for bodily injury caused at commercial nuclear power plants. In the event that claims for this insurance exceed the accumulated reserve funds, the company could be subject to a maximum total assessment of $6 million. All retrospective assessments, whether generated for liability, property or replacement power may be subject to applicable state premium taxes. 13. COMMON STOCK DIVIDEND RESTRICTIONS The company's first mortgage bond indenture contains various common stock dividend restrictions that remain in effect as long as the bonds are outstanding. At December 31, 1996, retained earnings of $796 million was restricted against the payment of cash dividends on common stock under terms of the mortgage indenture. Supplemental indentures in connection with future first mortgage bond issues may contain more stringent common stock dividend restrictions than those currently in effect. 14. QUARTERLY FINANCIAL INFORMATION (Unaudited) Summarized quarterly financial data for 1996 and 1995 are as follows: Net Income After Dividends Quarter Operating Operating on Preferred Ended Revenues Income Stock ------------------- ----------------------------------------- (in thousands) March 1996 $732,809 $142,052 $ 73,159 June 1996 779,587 151,673 95,778 September 1996 913,308 222,523 152,589 December 1996 695,071 100,390 49,964 March 1995 $646,771 $122,949 $ 65,328 June 1995 753,053 157,685 88,926 September 1995 938,284 233,322 167,938 December 1995 686,666 111,362 38,702 ---------------------------------------------------------------- The company's business is influenced by seasonal weather conditions. II-79
SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> =========================================================================================================================== 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $3,120,775 $3,024,774 $2,935,142 Net Income after Dividends on Preferred Stock (in thousands) $371,490 $360,894 $356,338 Cash Dividends on Common Stock (in thousands) $347,500 $285,000 $268,000 Return on Average Common Equity (percent) 13.75 13.61 13.86 Total Assets (in thousands) $8,733,846 $8,744,360 $8,459,217 Gross Property Additions (in thousands) $425,024 $551,781 $536,785 - --------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,714,277 $2,690,374 $2,614,405 Preferred stock 340,400 440,400 440,400 Preferred stock subject to mandatory redemption - - - Subsidiary obligated mandatorily redeemable preferred securities 97,000 - - Long-term debt 2,354,006 2,374,948 2,455,013 - --------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $5,505,683 $5,505,722 $5,509,818 =========================================================================================================================== Capitalization Ratios (percent): Common stock equity 49.3 48.9 47.4 Preferred stock 6.2 8.0 8.0 Company obligated mandatorily redeemable preferred securities 1.7 - - Long-term debt 42.8 43.1 44.6 - --------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 =========================================================================================================================== First Mortgage Bonds (in thousands): Issued - - 150,000 Retired 83,797 - 20,387 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 97,000 - - Preferred Stock (in thousands): Issued - - - Retired - - - - --------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A+ A+ A Duff & Phelps AA- A+ A+ Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A A- Duff & Phelps A+ A A- - --------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,073,559 1,058,197 1,042,974 Commercial 171,827 166,480 162,239 Industrial 5,100 5,338 5,341 Other 732 725 716 - --------------------------------------------------------------------------------------------------------------------------- Total 1,251,218 1,230,740 1,211,270 =========================================================================================================================== Employees (year-end) 6,865 7,261 7,996 </TABLE> II-80
SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ============================================================================================================================ 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $3,007,609 $2,846,840 $2,846,794 Net Income after Dividends on Preferred Stock (in thousands) $346,494 $338,555 $339,666 Cash Dividends on Common Stock (in thousands) $252,900 $273,300 $232,900 Return on Average Common Equity (percent) 13.94 14.02 14.55 Total Assets (in thousands) $8,248,683 $6,593,618 $6,549,462 Gross Property Additions (in thousands) $435,843 $367,463 $397,011 - ---------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,526,348 $2,443,493 $2,387,198 Preferred stock 440,400 489,400 484,400 Preferred stock subject to mandatory redemption - - - Subsidiary obligated mandatorily redeemable preferred securities - - - Long-term debt 2,362,852 2,202,473 2,382,635 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $5,329,600 $5,135,366 $5,254,233 ============================================================================================================================ Capitalization Ratios (percent): Common stock equity 47.4 47.6 45.4 Preferred stock 8.3 9.5 9.2 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 44.3 42.9 45.4 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ============================================================================================================================ First Mortgage Bonds (in thousands): Issued 860,000 745,000 250,000 Retired 699,788 931,797 227,695 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - Preferred Stock (in thousands): Issued 158,000 150,000 - Retired 207,000 145,000 17,500 - ---------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A A A Duff & Phelps A+ A A Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A- A- A- Duff & Phelps A- A- A- - ---------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,027,130 1,012,294 997,585 Commercial 157,337 152,530 148,228 Industrial 5,391 5,434 5,496 Other 713 704 697 - ---------------------------------------------------------------------------------------------------------------------------- Total 1,190,571 1,170,962 1,152,006 ============================================================================================================================ Employees (year-end) 8,009 8,116 8,513 </TABLE> II-81A
SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ============================================================================================================================= 1990 1989 1988 - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $2,722,424 $2,629,354 $2,476,626 Net Income after Dividends on Preferred Stock (in thousands) $312,803 $311,146 $283,475 Cash Dividends on Common Stock (in thousands) $220,800 $217,300 $212,700 Return on Average Common Equity (percent) 14.00 14.53 14.03 Total Assets (in thousands) $6,362,293 $6,279,431 $6,180,945 Gross Property Additions (in thousands) $444,680 $459,199 $643,892 - ----------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,280,590 $2,188,811 $2,094,815 Preferred stock 484,400 484,400 484,400 Preferred stock subject to mandatory redemption 12,500 17,500 22,500 Subsidiary obligated mandatorily redeemable preferred securities - - - Long-term debt 2,397,931 2,435,129 2,496,492 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $5,175,421 $5,125,840 $5,098,207 ============================================================================================================================= Capitalization Ratios (percent): Common stock equity 44.1 42.7 41.1 Preferred stock 9.6 9.8 9.9 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 46.3 47.5 49.0 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ============================================================================================================================= First Mortgage Bonds (in thousands): Issued - - 150,000 Retired 33,122 75,650 42,445 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - Preferred Stock (in thousands): Issued - - 100,000 Retired 5,000 5,000 2,500 - ----------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A A A Duff & Phelps A A 6 Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A- A- A- Duff & Phelps A- A- 7 - ----------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 985,566 974,622 964,581 Commercial 144,340 141,265 137,955 Industrial 5,322 5,200 5,120 Other 690 684 678 - ----------------------------------------------------------------------------------------------------------------------------- Total 1,135,918 1,121,771 1,108,334 ============================================================================================================================= Employees (year-end) 9,473 9,698 10,302 </TABLE> II-81B
SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> ========================================================================================================= 1987 1986 - --------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $2,574,634 $2,549,574 Net Income after Dividends on Preferred Stock (in thousands) $257,239 $273,456 Cash Dividends on Common Stock (in thousands) $201,100 $191,300 Return on Average Common Equity (percent) 13.56 15.12 Total Assets (in thousands) $5,912,000 $5,570,653 Gross Property Additions (in thousands) $600,589 $553,767 - --------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $1,946,747 $1,847,608 Preferred stock 384,400 384,400 Preferred stock subject to mandatory redemption 27,500 30,000 Subsidiary obligated mandatorily redeemable preferred securities - - Long-term debt 2,386,258 2,210,108 - --------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $4,744,905 $4,472,116 ========================================================================================================= Capitalization Ratios (percent): Common stock equity 41.0 41.3 Preferred stock 8.7 9.3 Company obligated mandatorily redeemable preferred securities - - Long-term debt 50.3 49.4 - --------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 ========================================================================================================= First Mortgage Bonds (in thousands): Issued 200,000 125,000 Retired 108,082 405,765 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - Preferred Stock (in thousands): Issued - - Retired 5,000 42,224 - --------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 Standard and Poor's A A Duff & Phelps 6 6 Preferred Stock - Moody's a2 a2 Standard and Poor's A- A- Duff & Phelps 7 7 - --------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 950,101 934,798 Commercial 134,533 130,540 Industrial 4,955 4,725 Other 713 697 - --------------------------------------------------------------------------------------------------------- Total 1,090,302 1,070,760 ========================================================================================================= Employees (year-end) 10,457 10,367 </TABLE> II-81C
SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ============================================================================================================== 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $998,806 $997,069 $913,146 Commercial 696,453 670,453 647,202 Industrial 759,628 805,596 803,587 Other 13,729 13,619 13,515 - -------------------------------------------------------------------------------------------------------------- Total retail 2,468,616 2,486,737 2,377,450 Sales for resale - non-affiliates 391,669 370,140 354,760 Sales for resale - affiliates 216,620 127,730 164,762 - -------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 3,076,905 2,984,607 2,896,972 Other revenues 43,870 40,167 38,170 - -------------------------------------------------------------------------------------------------------------- Total $3,120,775 $3,024,774 $2,935,142 ============================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 14,593,761 14,383,231 13,183,147 Commercial 10,904,476 10,043,220 9,645,798 Industrial 19,999,258 19,862,577 19,479,364 Other 192,573 186,848 185,876 - -------------------------------------------------------------------------------------------------------------- Total retail 45,690,068 44,475,876 42,494,185 Sales for resale - non-affiliates 9,491,237 8,046,189 6,775,176 Sales for resale - affiliates 10,292,066 6,705,174 8,432,533 - -------------------------------------------------------------------------------------------------------------- Total 65,473,371 59,227,239 57,701,894 ============================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.84 6.93 6.93 Commercial 6.39 6.68 6.71 Industrial 3.80 4.06 4.13 Total retail 5.40 5.59 5.59 Sales for resale 3.07 3.38 3.42 Total sales 4.70 5.04 5.02 Residential Average Annual Kilowatt-Hour Use Per Customer 13,705 13,686 12,746 Residential Average Annual Revenue Per Customer $937.95 $948.71 $882.88 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 11,151 10,831 10,431 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 8,413 7,958 8,217 Summer 9,912 10,090 9,028 Annual Load Factor (percent) (Note 2) 61.3 59.2 62.2 Plant Availability (percent): Fossil-steam 86.6 88.3 86.9 Nuclear 90.5 81.1 92.5 - -------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 67.0 67.1 62.9 Nuclear 18.5 17.1 21.7 Hydro 7.1 7.0 8.4 Oil and gas 0.4 0.4 * Purchased power - From non-affiliates 2.4 2.7 1.3 From affiliates 4.6 5.7 5.7 - -------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================== Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 10,035 10,025 9,961 Cost of fuel per million BTU (cents) 147.09 148.68 157.62 Average cost of fuel per net kilowatt-hour generated (cents) 1.48 1.49 1.57 ============================================================================================================== Notes: (1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO. (2) Includes Southeastern Power Administration allotment. * Less than one-tenth of one percent. </TABLE> II-82
SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> =================================================================================================================================== 1993 1992 1991 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $947,277 $845,660 $864,347 Commercial 634,895 589,816 582,730 Industrial 832,938 800,311 790,224 Other 13,344 12,734 12,662 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 2,428,454 2,248,521 2,249,963 Sales for resale - non-affiliates 364,105 407,791 407,912 Sales for resale - affiliates 181,975 158,088 159,375 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 2,974,534 2,814,400 2,817,250 Other revenues 33,075 32,440 29,544 - ----------------------------------------------------------------------------------------------------------------------------------- Total $3,007,609 $2,846,840 $2,846,794 =================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 13,185,062 12,069,268 12,324,898 Commercial 9,185,462 8,629,869 8,526,131 Industrial 18,595,237 18,260,274 17,511,579 Other 181,673 176,798 174,760 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 41,147,434 39,136,209 38,537,368 Sales for resale - non-affiliates 7,143,672 8,382,571 8,810,442 Sales for resale - affiliates 8,081,324 7,210,697 7,784,285 - ----------------------------------------------------------------------------------------------------------------------------------- Total 56,372,430 54,729,477 55,132,095 =================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.18 7.01 7.01 Commercial 6.91 6.83 6.83 Industrial 4.48 4.38 4.51 Total retail 5.90 5.75 5.84 Sales for resale 3.59 3.63 3.42 Total sales 5.28 5.14 5.11 Residential Average Annual Kilowatt-Hour Use Per Customer 12,936 12,017 12,435 Residential Average Annual Revenue Per Customer $929.36 $842.00 $872.04 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 10,431 10,431 10,539 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 7,152 7,077 6,586 Summer 9,457 8,801 8,627 Annual Load Factor (percent) (Note 2) 58.6 59.6 59.9 Plant Availability (percent): Fossil-steam 89.7 88.9 93.1 Nuclear 86.6 80.2 87.0 - ----------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.9 64.3 61.5 Nuclear 20.1 19.0 20.8 Hydro 6.9 8.5 8.2 Oil and gas * * * Purchased power - From non-affiliates 1.1 1.2 1.6 From affiliates 8.0 7.0 7.9 - ----------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 =================================================================================================================================== Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 10,003 10,000 9,985 Cost of fuel per million BTU (cents) 173.66 164.57 170.49 Average cost of fuel per net kilowatt-hour generated (cents) 1.74 1.65 1.70 =================================================================================================================================== Notes: (1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO. (2) Includes Southeastern Power Administration allotment. * Less than one-tenth of one percent. </TABLE> II-83A
SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ============================================================================================================= 1990 1989 1988 - ------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $825,645 $781,982 $761,805 Commercial 551,634 533,487 510,910 Industrial 777,580 762,274 738,755 Other 12,103 11,743 11,255 - ------------------------------------------------------------------------------------------------------------- Total retail 2,166,962 2,089,486 2,022,725 Sales for resale - non-affiliates 434,996 409,202 355,362 Sales for resale - affiliates 93,473 104,488 76,691 - ------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 2,695,431 2,603,176 2,454,778 Other revenues 26,993 26,178 21,848 - ------------------------------------------------------------------------------------------------------------- Total $2,722,424 $2,629,354 $2,476,626 ============================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 11,996,794 11,346,736 11,332,285 Commercial 8,201,534 7,915,685 7,711,092 Industrial 17,713,153 17,360,791 16,881,342 Other 170,420 166,485 165,122 - ------------------------------------------------------------------------------------------------------------- Total retail 38,081,901 36,789,697 36,089,841 Sales for resale - non-affiliates 10,277,060 10,292,329 7,905,750 Sales for resale - affiliates 4,519,275 5,048,743 3,551,142 - ------------------------------------------------------------------------------------------------------------- Total 52,878,236 52,130,769 47,546,733 ============================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 6.88 6.89 6.72 Commercial 6.73 6.74 6.63 Industrial 4.39 4.39 4.38 Total retail 5.69 5.68 5.60 Sales for resale 3.57 3.35 3.77 Total sales 5.10 4.99 5.16 Residential Average Annual Kilowatt-Hour Use Per Customer 12,256 11,717 11,839 Residential Average Annual Revenue Per Customer $843.50 $807.50 $795.84 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 9,879 9,879 9,279 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 6,293 7,264 6,377 Summer 8,878 8,256 7,991 Annual Load Factor (percent) (Note 2) 57.4 59.5 59.6 Plant Availability (percent): Fossil-steam 92.2 90.7 91.3 Nuclear 86.5 83.1 91.9 - ------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 57.0 54.1 53.9 Nuclear 21.6 21.0 26.1 Hydro 8.7 11.0 4.8 Oil and gas 0.1 0.1 0.1 Purchased power - From non-affiliates 0.9 1.8 0.5 From affiliates 11.7 12.0 14.6 - ------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================= Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 10,072 10,061 10,137 Cost of fuel per million BTU (cents) 171.55 172.20 168.21 Average cost of fuel per net kilowatt-hour generated (cents) 1.73 1.73 1.71 ============================================================================================================= Notes: (1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO. (2) Includes Southeastern Power Administration allotment. * Less than one-tenth of one percent. </TABLE> II-83B
SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> ==================================================================================================================== 1987 1986 - -------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $759,957 $738,864 Commercial 501,088 481,676 Industrial 721,298 705,395 Other 10,968 10,811 - -------------------------------------------------------------------------------------------------------------------- Total retail 1,993,311 1,936,746 Sales for resale - non-affiliates 443,880 472,938 Sales for resale - affiliates 118,746 120,911 - -------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 2,555,937 2,530,595 Other revenues 18,697 18,979 - -------------------------------------------------------------------------------------------------------------------- Total $2,574,634 $2,549,574 ==================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 11,149,225 10,606,698 Commercial 7,476,924 7,015,589 Industrial 15,969,075 15,025,806 Other 159,422 153,282 - -------------------------------------------------------------------------------------------------------------------- Total retail 34,754,646 32,801,375 Sales for resale - non-affiliates 10,523,554 9,064,049 Sales for resale - affiliates 4,963,997 4,456,360 - -------------------------------------------------------------------------------------------------------------------- Total 50,242,197 46,321,784 ==================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.82 6.97 Commercial 6.70 6.87 Industrial 4.52 4.69 Total retail 5.74 5.90 Sales for resale 3.63 4.39 Total sales 5.09 5.46 Residential Average Annual Kilowatt-Hour Use Per Customer 11,848 11,457 Residential Average Annual Revenue Per Customer $807.61 $798.09 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 9,337 9,337 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 6,138 6,257 Summer 7,886 7,892 Annual Load Factor (percent) (Note 2) 58.3 56.2 Plant Availability (percent): Fossil-steam 90.2 88.5 Nuclear 83.3 83.8 - -------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 52.5 58.8 Nuclear 21.7 23.8 Hydro 6.3 4.2 Oil and gas 0.2 0.1 Purchased power - From non-affiliates 0.2 2.0 From affiliates 19.1 11.1 - -------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 ==================================================================================================================== Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 10,214 10,209 Cost of fuel per million BTU (cents) 176.72 179.65 Average cost of fuel per net kilowatt-hour generated (cents) 1.80 1.83 ==================================================================================================================== Notes: (1) Generating capacity and fuel data includes Alabama Power Company's 50% portion of SEGCO. (2) Includes Southeastern Power Administration allotment. * Less than one-tenth of one percent. </TABLE> II-83C
<TABLE> <CAPTION> STATEMENTS OF INCOME Alabama Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1996* 1995* 1994* - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $2,904,155 $2,897,044 $2,770,380 Revenues from affiliates 216,620 127,730 164,762 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 3,120,775 3,024,774 2,935,142 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 877,076 791,819 801,948 Purchased power from non-affiliates 36,813 30,065 15,158 Purchased power from affiliates 91,500 112,826 100,888 Proceeds from settlement of disputed contracts - - - Other 505,884 501,876 458,917 Maintenance 258,482 243,218 262,102 Depreciation and amortization 320,102 303,050 292,420 Taxes other than income taxes 186,172 185,620 183,425 Federal and state income taxes 228,108 230,982 224,280 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,504,137 2,399,456 2,339,138 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 616,638 625,318 596,004 Other Income (Expense): Allowance for equity funds used during construction - 1,649 3,239 Income from subsidiary 3,851 4,051 3,588 Charitable foundation (6,800) (11,542) (13,500) Interest income 28,318 13,768 16,944 Other, net (39,053) (21,536) (30,569) Income taxes applicable to other income 22,400 14,142 16,834 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 625,354 625,850 592,540 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 169,390 180,714 178,045 Allowance for debt funds used during construction (6,480) (7,067) (3,548) Interest on interim obligations 20,617 16,917 5,939 Amortization of debt discount, premium, and expense, net 9,508 20,259 9,623 Other interest charges 27,510 27,064 19,908 Distributions on preferred securities of Alabama Power Capital Trust I 6,717 - - - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 227,262 237,887 209,967 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 398,092 387,963 382,573 Dividends on Preferred Stock 26,602 27,069 26,235 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 371,490 $ 360,894 $ 356,338 ================================================================================================================================ * Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-84
<TABLE> <CAPTION> STATEMENTS OF INCOME Alabama Power Company <S> <C> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1993* 1992* 1991* 1990* - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $2,825,634 $2,688,752 $2,687,419 $2,628,951 Revenues from affiliates 181,975 158,088 159,375 93,473 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 3,007,609 2,846,840 2,846,794 2,722,424 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 877,099 794,438 812,667 756,501 Purchased power from non-affiliates 15,230 14,242 21,080 11,185 Purchased power from affiliates 120,330 107,230 119,602 165,982 Proceeds from settlement of disputed contracts (2,568) (641) (14,819) - Other 473,383 446,477 435,908 411,559 Maintenance 252,506 237,071 229,114 215,304 Depreciation and amortization 290,310 280,881 271,433 262,817 Taxes other than income taxes 178,997 172,095 169,639 163,567 Federal and state income taxes 207,210 201,925 200,612 185,954 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,412,497 2,253,718 2,245,236 2,172,869 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 595,112 593,122 601,558 549,555 Other Income (Expense): Allowance for equity funds used during construction 3,260 2,071 2,368 25,487 Income from subsidiary 4,127 4,635 4,576 4,182 Charitable foundation (3,000) (6,887) (6,500) (17,500) Interest income 20,775 14,804 14,356 12,006 Other, net (24,420) (11,019) (9,926) (8,235) Income taxes applicable to other income 10,239 8,947 7,523 11,081 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 606,093 605,673 613,955 576,576 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 184,861 206,871 214,107 221,527 Allowance for debt funds used during construction (2,992) (2,416) (6,903) (23,339) Interest on interim obligations 3,760 3,704 13,385 10,252 Amortization of debt discount, premium, and expense, net 8,937 4,392 2,634 3,706 Other interest charges 35,474 19,381 14,927 13,115 Distributions on preferred securities of Alabama Power Capital Trust I - - - - - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 230,040 231,932 238,150 225,261 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 376,053 373,741 375,805 351,315 Dividends on Preferred Stock 29,559 35,186 36,139 38,512 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 346,494 $ 338,555 $ 339,666 $ 312,803 ================================================================================================================================ * Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-85A
<TABLE> <CAPTION> STATEMENTS OF INCOME Alabama Power Company <S> <C> <C> <C> <C> ================================================================================================================================== For the Years Ended December 31, 1989* 1988* 1987* 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $2,524,866 $2,399,935 $2,455,888 $2,428,663 Revenues from affiliates 104,488 76,691 118,746 120,911 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 2,629,354 2,476,626 2,574,634 2,549,574 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 712,453 676,423 696,763 738,367 Purchased power from non-affiliates 28,272 8,407 6,703 23,889 Purchased power from affiliates 163,267 185,390 257,052 156,091 Proceeds from settlement of disputed contracts - - - - Other 380,536 400,879 410,575 350,671 Maintenance 202,633 197,225 199,617 203,972 Depreciation and amortization 247,973 225,123 212,072 201,803 Taxes other than income taxes 154,398 148,681 141,422 135,248 Federal and state income taxes 188,507 143,614 190,575 255,400 --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,078,039 1,985,742 2,114,779 2,065,441 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Income 551,315 490,884 459,855 484,133 Other Income (Expense): Allowance for equity funds used during construction 29,515 39,047 27,663 27,455 Income from subsidiary 3,750 3,302 3,440 2,967 Charitable foundation (25,000) - - - Interest income 10,871 9,914 7,044 11,422 Other, net (4,313) (13,694) (816) (3,738) Income taxes applicable to other income 13,629 8,034 849 185 - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 579,767 537,487 498,035 522,424 - ---------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 230,046 225,522 205,824 226,110 Allowance for debt funds used during construction (27,627) (31,830) (24,235) (24,334) Interest on interim obligations 9,098 5,714 7,221 1,159 Amortization of debt discount, premium, and expense, net 4,469 4,411 4,405 3,313 Other interest charges 13,112 13,715 14,662 8,695 Distributions on preferred securities of Alabama Power Capital Trust I - - - - - ---------------------------------------------------------------------------------------------------------------------------------- Net interest charges 229,098 217,532 207,877 214,943 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income 350,669 319,955 290,158 307,481 Dividends on Preferred Stock 39,523 36,480 32,919 34,025 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 311,146 $ 283,475 $ 257,239 $ 273,456 ================================================================================================================================== * Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-85B
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Alabama Power Company <S> <C> <C> <C> ===================================================================================================================== For the Years Ended December 31, 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 398,092 $ 387,963 $ 382,573 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 383,438 371,382 359,791 Deferred income taxes, net 16,585 32,702 (32,612) Deferred investment tax credits, net - (75) (1) Allowance for equity funds used during construction - (1,649) (3,239) Non-cash proceeds from settlement of disputed contracts - - - Other, net 21,563 33,244 28,656 Changes in certain current assets and liabilities -- Receivables, net 3,958 (54,209) 19,390 Inventories 36,234 18,425 (38,946) Payables 1,006 (63,656) (21,240) Taxes accrued (5,756) 551 6,856 Energy cost recovery, retail 25,771 1,177 16,907 Other (7,111) (15,895) (14,235) - --------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 873,780 709,960 703,900 - --------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (425,024) (551,781) (536,785) Sales of property - - - Other (61,119) (53,321) (26,632) - --------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (486,143) (605,102) (563,417) - --------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Company obligated mandatorily redeemable preferred securities 97,000 - - Preferred stock - - - First mortgage bonds - - 150,000 Pollution control bonds 21,000 131,500 179,750 Other long-term debt - - 28,970 Capital contributions from parent company - - - Prepaid capacity revenues - - - Retirements: Preferred stock - - - First mortgage bonds (83,797) - (20,387) Pollution control bonds (21,000) (131,500) (179,750) Other long-term debt (907) (791) (125,630) Interim obligations, net (25,163) 210,134 139,882 Payment of preferred stock dividends (26,665) (27,118) (25,431) Payment of common stock dividends (347,500) (285,000) (268,000) Miscellaneous (3,634) (4,143) (8,444) - --------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (390,666) (106,918) (129,040) - --------------------------------------------------------------------------------------------------------------------- Net Change in Cash (3,029) (2,060) 11,443 Cash at Beginning of Year 12,616 14,676 3,233 - --------------------------------------------------------------------------------------------------------------------- Cash at End of Year $ 9,587 $ 12,616 $ 14,676 ===================================================================================================================== ( ) Denotes use of cash. </TABLE> II-86
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Alabama Power Company <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 376,053 $ 373,741 $ 375,805 $ 351,315 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 356,499 338,421 337,978 331,858 Deferred income taxes, net 35,100 23,514 (5,779) 64,480 Deferred investment tax credits, net (2,106) - (1,089) 132 Allowance for equity funds used during construction (3,260) (2,071) (2,368) (25,487) Non-cash proceeds from settlement of disputed contracts - (641) (13,750) - Other, net 36,493 (2,657) 26,614 19,899 Changes in certain current assets and liabilities -- Receivables, net 19,215 (11,010) 9,178 12,005 Inventories 51,630 12,704 (17,374) (40,901) Payables 31,544 2,158 28,889 6,597 Taxes accrued (9,959) (21,120) 24,828 (6,167) Energy cost recovery, retail (56,128) 45,509 (12,304) (42,535) Other (21,110) 10,629 (37,906) 14,144 ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 813,971 769,177 712,722 685,340 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (435,843) (367,463) (397,011) (444,680) Sales of property - 43,556 - - Other (741) (13,379) (36,083) 6,935 ----------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (436,584) (337,286) (433,094) (437,745) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Company obligated mandatorily redeemable preferred securities - - - - Preferred stock 158,000 150,000 - - First mortgage bonds 860,000 745,000 250,000 - Pollution control bonds 144,436 - - - Other long-term debt 35,878 48,382 12,906 54,831 Capital contributions from parent company - - - - Prepaid capacity revenues - - 52,900 - Retirements: Preferred stock (207,000) (145,000) (17,500) (5,000) First mortgage bonds (699,788) (931,797) (227,695) (33,122) Pollution control bonds (135,315) (335) (250) (250) Other long-term debt (46,014) (53,888) (48,428) (56,895) Interim obligations, net (156,917) 120,917 (13,500) 59,500 Payment of preferred stock dividends (32,099) (35,704) (36,829) (38,245) Payment of common stock dividends (252,900) (273,300) (232,900) (220,800) Miscellaneous (56,064) (53,697) (17,732) (293) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (387,783) (429,422) (279,028) (240,274) - ----------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash (10,396) 2,469 600 7,321 Cash at Beginning of Year 13,629 11,160 10,560 3,239 - ----------------------------------------------------------------------------------------------------------------------------------- Cash at End of Year $ 3,233 $ 13,629 $ 11,160 $ 10,560 =================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-87A
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Alabama Power Company <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 350,669 $ 319,955 $ 290,158 $ 307,481 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 322,042 296,234 270,492 292,569 Deferred income taxes, net 31,715 37,952 107,824 135,364 Deferred investment tax credits, net 6,917 15,019 23,477 19,736 Allowance for equity funds used during construction (29,515) (39,047) (27,663) (27,455) Non-cash proceeds from settlement of disputed contracts - - - - Other, net (5,297) 16,106 67,445 4,251 Changes in certain current assets and liabilities -- Receivables, net (10,436) 8,822 (133,468) 15,238 Inventories 20,408 (23,182) (26,255) (2,040) Payables 16,259 (12,957) 39,645 (56,720) Taxes accrued 1,547 (7,754) 516 (1,487) Energy cost recovery, retail 39,164 - - - Other 28,701 (18,658) 4,464 (35,293) --------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 772,174 592,490 616,635 651,644 - ---------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (459,199) (643,892) (600,589) (553,767) Sales of property - - - - Other 3,768 23,161 17,010 10,115 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (455,431) (620,731) (583,579) (543,652) - ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Company obligated mandatorily redeemable preferred securities - - - - Preferred stock - 100,000 - - First mortgage bonds - 150,000 200,000 125,000 Pollution control bonds 53,700 - 432 26,232 Other long-term debt 55,176 62,515 69,786 95,017 Capital contributions from parent company - 79,500 43,000 - Prepaid capacity revenues - - - 100,000 Retirements: Preferred stock (5,000) (2,500) (5,000) (42,224) First mortgage bonds (75,650) (42,445) (108,082) (405,765) Pollution control bonds (53,950) - - (21,000) Other long-term debt (57,316) (56,748) (32,500) (43,561) Interim obligations, net 30,000 (15,000) 15,000 - Payment of preferred stock dividends (40,105) (35,362) (32,837) (36,014) Payment of common stock dividends (217,300) (212,700) (201,100) (191,300) Miscellaneous (4,576) (5,581) (2,581) (38,052) --------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (315,021) 21,679 (53,882) (431,667) - ---------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash 1,722 (6,562) (20,826) (323,675) Cash at Beginning of Year 1,517 8,079 28,905 352,580 - ---------------------------------------------------------------------------------------------------------------------------------- Cash at End of Year $ 3,239 $ 1,517 $ 8,079 $ 28,905 ================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-87B
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------- At December 31, 1996* 1995* 1994* - -------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,326,628 $ 3,221,250 $ 3,027,956 Nuclear 1,884,567 1,874,111 1,866,750 Hydro 844,609 834,790 836,256 - -------------------------------------------------------------------------------------------------------------------------- Total production 6,055,804 5,930,151 5,730,962 Transmission 1,208,636 1,132,336 1,087,452 Distribution 2,657,327 2,522,051 2,366,477 General 864,321 825,417 847,111 Construction work in progress 256,758 362,722 317,745 Nuclear fuel, at amortized cost 123,862 100,537 101,630 - -------------------------------------------------------------------------------------------------------------------------- Total electric plant 11,166,708 10,873,214 10,451,377 - -------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant: Plant in service 20,833 20,837 20,770 Construction work in progress 44 46 34 - -------------------------------------------------------------------------------------------------------------------------- Total steam heat plant 20,877 20,883 20,804 - -------------------------------------------------------------------------------------------------------------------------- Total utility plant 11,187,585 10,894,097 10,472,181 - -------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 4,102,070 3,827,123 3,588,363 Steam heat 11,552 10,970 10,241 - -------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 4,113,622 3,838,093 3,598,604 - -------------------------------------------------------------------------------------------------------------------------- Total 7,073,963 7,056,004 6,873,577 Less property-related accumulated deferred income taxes - - - - -------------------------------------------------------------------------------------------------------------------------- Total 7,073,963 7,056,004 6,873,577 - -------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Nuclear decommissioning trusts 148,760 108,368 71,014 Miscellaneous 46,275 46,388 43,955 - -------------------------------------------------------------------------------------------------------------------------- Total 195,035 154,756 114,969 - -------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 9,587 12,616 14,676 Investment securities - - - Receivables, net 414,989 427,157 374,125 Fossil fuel stock, at average cost 81,704 106,627 119,555 Materials and supplies, at average cost 167,792 179,103 184,600 Prepayments 131,870 116,331 103,550 Vacation pay deferred 28,369 29,458 20,442 - -------------------------------------------------------------------------------------------------------------------------- Total 834,311 871,292 816,948 - -------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 410,010 436,837 451,886 Debt expense, being amortized 7,398 7,648 7,370 Premium on reacquired debt, being amortized 84,149 89,967 101,851 Uranium enrichment decontamination and decommissioning fund 37,490 40,282 42,996 Miscellaneous 91,490 87,574 49,620 - -------------------------------------------------------------------------------------------------------------------------- Total 630,537 662,308 653,723 - -------------------------------------------------------------------------------------------------------------------------- Total Assets $ 8,733,846 $ 8,744,360 $ 8,459,217 ========================================================================================================================== *Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-88
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993* 1992* 1991* 1990* - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 2,987,010 $ 2,953,683 $ 2,991,876 $ 2,462,100 Nuclear 1,860,842 1,860,832 1,851,317 1,794,540 Hydro 819,848 818,363 814,301 809,578 - ---------------------------------------------------------------------------------------------------------------------------------- Total production 5,667,700 5,632,878 5,657,494 5,066,218 Transmission 1,051,130 1,013,464 977,239 925,368 Distribution 2,206,834 2,072,165 1,947,972 1,815,265 General 810,551 751,652 713,948 660,217 Construction work in progress 225,743 164,555 148,564 654,055 Nuclear fuel, at amortized cost 93,551 101,128 109,259 143,711 - ---------------------------------------------------------------------------------------------------------------------------------- Total electric plant 10,055,509 9,735,842 9,554,476 9,264,834 - ---------------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant: Plant in service 20,926 20,924 20,214 20,091 Construction work in progress 43 33 181 74 - ---------------------------------------------------------------------------------------------------------------------------------- Total steam heat plant 20,969 20,957 20,395 20,165 - ---------------------------------------------------------------------------------------------------------------------------------- Total utility plant 10,076,478 9,756,799 9,574,871 9,284,999 - ---------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 3,374,310 3,122,332 2,913,385 2,676,957 Steam heat 9,846 9,211 8,492 7,861 - ---------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 3,384,156 3,131,543 2,921,877 2,684,818 - ---------------------------------------------------------------------------------------------------------------------------------- Total 6,692,322 6,625,256 6,652,994 6,600,181 Less property-related accumulated deferred income taxes - 1,170,982 1,140,303 1,106,664 - ---------------------------------------------------------------------------------------------------------------------------------- Total 6,692,322 5,454,274 5,512,691 5,493,517 - ---------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - 69,550 - Nuclear decommissioning trusts 49,550 32,390 15,864 - Miscellaneous 49,635 49,892 48,254 40,604 - ---------------------------------------------------------------------------------------------------------------------------------- Total 99,185 82,282 133,668 40,604 - ---------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 3,233 13,629 11,160 10,560 Investment securities - 64,832 - - Receivables, net 410,422 344,934 349,599 346,473 Fossil fuel stock, at average cost 88,481 134,328 154,798 144,960 Materials and supplies, at average cost 176,728 182,511 174,745 167,209 Prepayments 79,207 108,254 95,832 50,364 Vacation pay deferred 22,680 21,879 21,691 22,845 - ---------------------------------------------------------------------------------------------------------------------------------- Total 780,751 870,367 807,825 742,411 - ---------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 469,010 - - - Debt expense, being amortized 7,064 6,118 5,957 6,083 Premium on reacquired debt, being amortized 102,634 74,835 40,174 26,504 Uranium enrichment decontamination and decommissioning fund 45,554 47,730 - - Miscellaneous 52,163 58,012 49,147 53,174 - ---------------------------------------------------------------------------------------------------------------------------------- Total 676,425 186,695 95,278 85,761 - ---------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 8,248,683 $ 6,593,618 $ 6,549,462 $ 6,362,293 ================================================================================================================================== *Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-89A
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989* 1988* 1987* 1986 - --------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 2,428,146 $ 1,820,966 $ 1,787,979 $ 1,748,226 Nuclear 1,786,877 1,769,093 1,765,854 1,749,981 Hydro 803,901 789,617 788,046 784,445 - --------------------------------------------------------------------------------------------------------------------------------- Total production 5,018,924 4,379,676 4,341,879 4,282,652 Transmission 882,933 844,003 817,065 773,142 Distribution 1,692,426 1,587,690 1,481,845 1,384,576 General 646,523 613,498 535,148 506,228 Construction work in progress 557,150 1,023,019 750,907 497,491 Nuclear fuel, at amortized cost 147,997 174,130 191,493 205,768 - --------------------------------------------------------------------------------------------------------------------------------- Total electric plant 8,945,953 8,622,016 8,118,337 7,649,857 - --------------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant: Plant in service 20,083 20,076 20,217 19,508 Construction work in progress 71 58 89 123 - --------------------------------------------------------------------------------------------------------------------------------- Total steam heat plant 20,154 20,134 20,306 19,631 - --------------------------------------------------------------------------------------------------------------------------------- Total utility plant 8,966,107 8,642,150 8,138,643 7,669,488 - --------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 2,458,747 2,257,696 2,068,176 1,877,124 Steam heat 7,154 6,456 5,938 5,261 - --------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 2,465,901 2,264,152 2,074,114 1,882,385 - --------------------------------------------------------------------------------------------------------------------------------- Total 6,500,206 6,377,998 6,064,529 5,787,103 Less property-related accumulated deferred income taxes 1,051,877 1,001,173 933,932 857,081 - --------------------------------------------------------------------------------------------------------------------------------- Total 5,448,329 5,376,825 5,130,597 4,930,022 - --------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - - Nuclear decommissioning trusts - - - - Miscellaneous 34,710 29,677 31,402 30,735 - --------------------------------------------------------------------------------------------------------------------------------- Total 34,710 29,677 31,402 30,735 - --------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 3,239 1,517 8,079 28,905 Investment securities - - - - Receivables, net 355,107 344,671 353,493 220,025 Fossil fuel stock, at average cost 131,942 173,858 164,671 152,640 Materials and supplies, at average cost 139,326 117,818 103,823 89,599 Prepayments 54,613 28,412 10,595 12,320 Vacation pay deferred 22,021 21,871 21,317 20,002 - --------------------------------------------------------------------------------------------------------------------------------- Total 706,248 688,147 661,978 523,491 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - - Debt expense, being amortized 6,491 6,831 6,695 6,308 Premium on reacquired debt, being amortized 28,778 27,329 30,767 34,170 Uranium enrichment decontamination and decommissioning fund - - - - Miscellaneous 54,875 52,136 50,561 45,927 - --------------------------------------------------------------------------------------------------------------------------------- Total 90,144 86,296 88,023 86,405 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 6,279,431 $ 6,180,945 $ 5,912,000 $ 5,570,653 ================================================================================================================================= *Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-89B
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ At December 31, 1996* 1995* 1994* - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 224,358 $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,304,645 1,304,645 Premium on preferred stock 146 146 146 Earnings retained in the business 1,185,128 1,161,225 1,085,256 - ------------------------------------------------------------------------------------------------------------------------------ Total common equity 2,714,277 2,690,374 2,614,405 Preferred stock 340,400 440,400 440,400 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes 97,000 - - Long-term debt 2,354,006 2,374,948 2,455,013 - ------------------------------------------------------------------------------------------------------------------------------ Total (excluding amount due within one year) 5,505,683 5,505,722 5,509,818 - ------------------------------------------------------------------------------------------------------------------------------ Current Liabilities: Notes payable to banks - - - Commercial paper 364,853 390,016 179,882 Preferred stock due within one year 100,000 - - Long-term debt due within one year 20,753 84,682 796 Accounts payable 246,870 258,727 318,991 Customer deposits 32,003 30,353 30,245 Taxes accrued 50,909 31,757 22,437 Interest accrued 51,941 53,527 52,516 Vacation pay accrued 28,369 29,458 20,442 Miscellaneous 96,485 70,543 57,047 - ------------------------------------------------------------------------------------------------------------------------------ Total 992,183 949,063 682,356 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,177,687 1,191,591 1,181,342 Accumulated deferred investment tax credits 294,071 305,372 317,018 Prepaid capacity revenues, net 122,496 131,186 138,421 Deferred revenues from settlement of disputed contracts - - - Uranium enrichment decontamination and decommissioning fund 33,741 36,620 39,413 Deferred credits related to income taxes 364,792 386,038 405,256 Natural disaster reserve 20,757 17,959 28,750 Miscellaneous 222,436 220,809 156,843 - ------------------------------------------------------------------------------------------------------------------------------ Total 2,235,980 2,289,575 2,267,043 - ------------------------------------------------------------------------------------------------------------------------------ Total Capitalization and Liabilities $8,733,846 $8,744,360 $8,459,217 ============================================================================================================================== *Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-90
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993* 1992* 1991* 1990* - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 224,358 $ 224,358 $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,304,645 1,304,645 1,304,645 Premium on preferred stock 146 342 461 461 Earnings retained in the business 997,199 914,148 857,734 751,126 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 2,526,348 2,443,493 2,387,198 2,280,590 Preferred stock 440,400 489,400 484,400 484,400 Preferred stock subject to mandatory redemption - - - 12,500 Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes - - - - Long-term debt 2,362,852 2,202,473 2,382,635 2,397,931 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 5,329,600 5,135,366 5,254,233 5,175,421 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 40,000 71,000 76,000 89,500 Commercial paper - 125,917 - - Preferred stock due within one year - - - 5,000 Long-term debt due within one year 58,998 67,379 85,077 83,989 Accounts payable 334,998 296,731 295,333 271,776 Customer deposits 31,198 31,286 30,165 29,571 Taxes accrued 40,144 24,373 45,493 20,665 Interest accrued 52,809 41,675 49,288 49,820 Vacation pay accrued 22,680 21,879 21,691 22,845 Miscellaneous 50,426 93,836 37,699 64,547 - -------------------------------------------------------------------------------------------------------------------------------- Total 631,253 774,076 640,746 637,713 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,165,127 - - - Accumulated deferred investment tax credits 329,909 344,707 362,672 379,990 Prepaid capacity revenues, net 143,762 147,658 149,534 99,835 Deferred revenues from settlement of disputed contracts 19,871 46,721 59,937 - Uranium enrichment decontamination and decommissioning fund 39,644 44,548 - - Deferred credits related to income taxes 440,945 - - - Natural disaster reserve - - - - Miscellaneous 148,572 100,542 82,340 69,334 - -------------------------------------------------------------------------------------------------------------------------------- Total 2,287,830 684,176 654,483 549,159 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $8,248,683 $6,593,618 $6,549,462 $6,362,293 ================================================================================================================================ *Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-91A
<TABLE> <CAPTION> Balance Sheet Alabama Power Company <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989* 1988* 1987* 1986 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 224,358 $ 224,358 $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,304,645 1,225,145 1,182,145 Premium on preferred stock 461 461 461 461 Earnings retained in the business 659,347 565,351 496,783 440,644 - ----------------------------------------------------------------------------------------------------------------------------------- Total common equity 2,188,811 2,094,815 1,946,747 1,847,608 Preferred stock 484,400 484,400 384,400 384,400 Preferred stock subject to mandatory redemption 17,500 22,500 27,500 30,000 Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes - - - - Long-term debt 2,435,129 2,496,492 2,386,258 2,210,108 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 5,125,840 5,098,207 4,744,905 4,472,116 - ----------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 30,000 - 15,000 - Commercial paper - - - - Preferred stock due within one year 5,000 5,000 2,500 5,000 Long-term debt due within one year 81,031 96,242 95,140 142,394 Accounts payable 267,645 259,443 273,613 238,606 Customer deposits 28,450 25,964 32,220 30,333 Taxes accrued 26,832 25,285 72,118 50,757 Interest accrued 49,926 50,174 49,489 47,648 Vacation pay accrued 22,021 21,871 21,317 20,002 Miscellaneous 91,022 28,944 24,660 25,567 - ----------------------------------------------------------------------------------------------------------------------------------- Total 601,927 512,923 586,057 560,307 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - - Accumulated deferred investment tax credits 399,097 412,771 418,370 418,275 Prepaid capacity revenues, net 102,346 104,211 103,947 101,143 Deferred revenues from settlement of disputed contracts - - - - Uranium enrichment decontamination and decommissioning fund - - - - Deferred credits related to income taxes - - - - Natural disaster reserve - - - - Miscellaneous 50,221 52,833 58,721 18,812 - ----------------------------------------------------------------------------------------------------------------------------------- Total 551,664 569,815 581,038 538,230 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $6,279,431 $6,180,945 $5,912,000 $5,570,653 =================================================================================================================================== *Includes the effect of recognizing, beginning in 1987, retail service rendered but not yet billed to customers. </TABLE> II-91B
ALABAMA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1996 <TABLE> <CAPTION> <S> <C> <C> <C> <C> First Mortgage Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ------------------------------------------------------------------------------------------------ (Thousands) (Thousands) 1993 $ 50,000 5-1/2% $ 50,000 2/1/98 1992 170,000 6-3/8% 170,000 8/1/99 1993 100,000 6% 100,000 3/1/00 1992 100,000 6.85% 100,000 8/1/02 1993 125,000 7% 125,000 1/1/03 1993 175,000 6-3/4% 175,000 2/1/03 1992 175,000 7-1/4% 175,000 8/1/07 1991 100,000 9-1/4% 74,951 5/1/21 1991 150,000 8-3/4% 148,500 12/1/21 1992 200,000 8-1/2% 198,000 5/1/22 1992 100,000 8.30% 99,608 7/1/22 1993 100,000 7-3/4% 100,000 2/1/23 1993 150,000 7.45% 150,000 7/1/23 1993 100,000 7.30% 100,000 11/1/23 1994 150,000 9% 150,000 12/1/24 ========== ========== $1,945,000 $1,916,059 ========== ========== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ------------------------------------------------------------------------------------------------ (Thousands) (Thousands) 1978 5,600 7-1/4% $ 1,000 5/1/03 1993 12,100 Variable 12,100 8/1/17 1993 12,000 Variable 12,000 8/1/17 1993 12,000 Variable 12,000 8/1/17 1993 96,990 6.05% 96,990 5/1/23 1993 9,800 5.80% 9,800 6/1/22 1994 24,400 5-1/2% 24,400 1/1/24 1994 53,700 Variable 53,700 6/1/15 1994 101,650 6-1/2% 101,650 9/1/23 1995 50,000 Variable 50,000 5/1/22 1995 81,500 Variable 81,500 10/1/22 1996 21,000 Variable 21,000 11/1/21 ========== ========== $ 480,740 $ 476,140 ========== ========== Company Obligated Mandatorily Redeemable Preferred Securities of Alabama Power Capital Trust I Holding Junior Subordinated Notes Preferred Securities Interest Amount Series Outstanding Rate Outstanding - ------------------------------------------------------------------------------------------------ (Thousands) 1996 3,880,000(1) 7.375% $ 97,000(1) (1) Issued by Alabama Power Capital Trust I and guaranteed to the extent Alabama Power Capital Trust I has funds by ALABAMA. II-92 </TABLE>
ALABAMA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1996 (Continued) Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding ---------------------------------------------------------------------- (Thousands) 1946-1952 364,000 4.20% $ 36,400 1950 100,000 4.60% 10,000 1961 80,000 4.92% 8,000 1963 50,000 4.52% 5,000 1964 60,000 4.64% 6,000 1965 50,000 4.72% 5,000 1966 70,000 5.96% 7,000 1968 50,000 6.88% 5,000 1988 500,000 Auction 50,000 1992 4,000,000 7.60% 100,000 1992 2,000,000 7.60% 50,000 1993 1,520,000 6.80% 38,000 1993 2,000,000 6.40% 50,000 1993 200 Auction 20,000 1993 2,000,000 Adjustable 50,000 ========== ======== 12,844,200 $440,400 ========== ======== SECURITIES RETIRED DURING 1996 First Mortgage Bonds Principal Interest Series Amount Rate ---------------------------------------------------------------------- (Thousands) 1991 $ 23,797 9-1/4% 1993 60,000 4-1/2% =========== $ 83,797 =========== Pollution Control Bonds Principal Interest Series Amount Rate ---------------------------------------------------------------------- (Thousands) 1986 $ 21,000 7.40% =========== $ 21,000 =========== II-93 GEORGIA POWER COMPANY FINANCIAL SECTION II-94
MANAGEMENT'S REPORT Georgia Power Company 1996 Annual Report The management of Georgia Power Company has prepared this annual report and is responsible for the financial statements and related information. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances, and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that the books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls based upon the recognition that the cost of the system should not exceed its benefits. The Company believes that its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, which is composed of six directors who are not employees, provides a broad overview of management's financial reporting and control functions. At least three times a year this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal control and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted with a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows of Georgia Power Company in conformity with generally accepted accounting principles. /s/ Allen Franklin H. Allen Franklin President and Chief Executive Officer /s/ Warren Y. Jobe Warren Y. Jobe Executive Vice President, Treasurer and Chief Financial Officer February 12, 1997 II-95
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Georgia Power Company: We have audited the accompanying balance sheets and statements of capitalization of Georgia Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1996 and 1995, and the related statements of income, retained earnings, paid-in capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-104 through II-125) referred to above present fairly, in all material respects, the financial position of Georgia Power Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia February 12, 1997 II-96
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Georgia Power Company 1996 Annual Report RESULTS OF OPERATIONS Earnings Georgia Power Company's 1996 earnings totaled $580 million, representing a $29 million (4.7 percent) decrease from 1995. Earnings for 1995 included an after-tax gain of approximately $12 million from the completion of the sale of Plant Scherer Unit 4. The remaining decrease in 1996 earnings was primarily due to increased operating and maintenance expenses, partially offset by lower interest charges compared to the prior year. The Company's 1995 earnings increased 15.9 percent over 1994. Earnings for 1994 were reduced by a $55 million after-tax charge related to work force reduction programs. Excluding the charge related to 1994 work force reduction programs, earnings for 1995 increased 4.8 percent over 1994 primarily due to higher retail energy sales and lower interest charges, partially offset by higher operating expenses. Revenues The following table summarizes the factors impacting operating revenues for the 1994-1996 period: Increase (Decrease) From Prior Year ----------------------------------- 1996 1995 1994 ----------------------------------- Retail - (in millions) Sales growth $ 58 $110 $ 67 Weather (25) 69 (128) Fuel cost recovery 28 66 (35) Demand-side programs (10) 36 (12) ------------------------------------------------------------------ Total retail 51 281 (108) - ------------------------------------------------------------------ Sales for resale - Non-affiliates (9) (61) (183) Affiliates (41) 16 (1) - ------------------------------------------------------------------ Total sales for resale (50) (45) (184) - ------------------------------------------------------------------ Other operating revenues 10 7 3 - ------------------------------------------------------------------ Total operating revenues $ 11 $243 ($289) - ------------------------------------------------------------------ Percent change 0.3% 5.8% (6.5)% - ------------------------------------------------------------------ Retail revenues of $4.0 billion in 1996 increased $51 million (1.3 percent) over the prior year primarily due to strong economic growth and an increase in sales to existing customers. Retail revenues increased in 1995 over the prior year primarily due to the continued expansion of Georgia's economy and the hot summer of 1995. Milder-than-normal weather occurred during the summer of 1994. Fuel revenues generally represent the direct recovery of fuel expense, including the fuel component of purchased energy, and do not affect net income. Revenues from demand-side option programs generally represent the direct recovery of program costs. See Note 3 to the financial statements under "Demand-Side Conservation Programs" for further information on these programs. Revenues from sales to non-affiliated utilities decreased in both 1996 and 1995. Revenues from sales to non-affiliated utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components were as follows: 1996 1995 1994 ------------------------------- (in millions) Capacity $41 $53 $ 84 Energy 43 45 82 - -------------------------------------------------------------- Total $84 $98 $166 ============================================================== Contractual unit power sales to Florida utilities for 1996 and 1995 are down primarily due to scheduled reductions that corresponded with the sales to these utilities of portions of Plant Scherer Unit 4 in June 1995 and June 1994. The amount of capacity under these contracts declined by 75 megawatts and 155 megawatts in 1996 and 1995, respectively. In 1997, the contracted capacity will decline another 14 megawatts. Revenues from other sales to non-affiliated utilities outside the service area in 1996 increased $14 million over the prior year due to a 74.5 percent increase in sales. Revenues for 1995 decreased by $27 million due to a 51.9 percent decrease in sales. These sales are primarily energy sales generally sold at variable cost. Revenues from municipalities and cooperatives in Georgia decreased in 1996 primarily due to the recognition of an agreement to refund $14 million to these customers and a decrease of approximately $8 million in capacity revenues under II-97
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1996 Annual Report a power supply agreement with Oglethorpe Power Corporation (OPC). See Note 3 to the financial statements under "Wholesale Litigation" for additional information on the refund agreement. Beginning in September 1996, OPC decreased its purchases of capacity by 250 megawatts and has notified the Company of its intent to decrease purchases of capacity by an additional 250 megawatts in September 1997, and an additional 250 megawatts in September 1998. This decrease in revenues discussed above was partially offset by revenues from increased sales compared to the prior year due to higher demand. Sales increased in 1995 primarily due to higher summer demand resulting from the hot weather. Revenues from sales to affiliated companies within the Southern electric system will vary from year to year depending on demand and the availability and cost of generating resources at each company. Sales to affiliated companies do not have a significant impact on earnings. Kilowatt-hour (KWH) sales for 1996 and the percent change by year were as follows: Percent Change ---------------------------- 1996 KWH 1996 1995 1994 --------- ------------------------------ (in billions) Residential 17.8 3.0% 10.4% (5.8)% Commercial 20.8 4.9 5.9 2.5 Industrial 26.2 3.6 3.9 3.0 Other 0.5 8.6 2.0 5.0 ------- Total retail 65.3 3.9 6.2 0.4 ------- Sales for resale - Non-affiliates 7.9 19.4 (17.3) (44.3) Affiliates 1.2 (56.9) (10.4) 0.9 ------- Total sales for resale 9.1 (3.0) (15.4) (36.4) ------- Total sales 74.4 3.0 2.8 (8.0) ======= Residential, commercial and industrial energy sales growth in 1996 reflected strong economic growth and an increase in sales to existing customers. The 1995 sales growth was the result of favorable weather conditions in addition to increased customers and economic growth. Expenses Fuel costs constitute the single largest expense for the Company. The mix of fuel sources for generation of electricity is determined primarily by system load, the unit cost of fuel consumed, and the availability of hydro and nuclear generating units. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1996 1995 1994 -------------------------- Total generation (billions of kilowatt-hours) 63.7 64.3 62.4 Sources of generation (percent) -- Coal 74.3 73.7 74.8 Nuclear 22.4 22.6 21.9 Hydro 2.7 3.0 3.1 Oil and gas 0.6 0.7 0.2 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.55 1.67 1.67 Nuclear 0.55 0.60 0.63 Oil and gas * * * Total 1.35 1.44 1.44 - -------------------------------------------------------------- * Not meaningful because of minimal generation from fuel source. Fuel expense decreased 7.3 percent in 1996 because of a decrease in generation resulting from the timing of maintenance at nuclear plants and a lower average cost of fuel. Fuel expense increased 3.5 percent in 1995 because of higher generation which stemmed from greater demand. Purchased power expense increased $72 million (22.8 percent) in 1996 primarily due to increased purchases from affiliated companies as a result of the timing of maintenance at nuclear plants discussed above. The increase in 1996 was partially offset by a decrease in energy purchases from wholesale customers within the service areas and a decline in contractual capacity purchases from the co-owners of Plant Vogtle. Purchased power expense decreased $36 million in 1995, reflecting the declining Plant Vogtle contractual capacity purchases and decreased purchases from affiliated companies. The declines in II-98
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1996 Annual Report Plant Vogtle contractual capacity purchases did not have a significant impact on earnings in 1996 and 1995 since these costs are being levelized over six years under the terms of the 1991 Georgia Public Service Commission (GPSC) retail rate order. The levelization is reflected in the amortization of deferred Plant Vogtle costs in the Statements of Income. See Note 1 to the financial statements under "Plant Vogtle Phase-In Plans" for additional information. The Company has incurred expenses for separation benefits associated with its work force reduction programs. These expenses were $39 million in 1996, $11 million in 1995, and $82 million in 1994. Other operation and maintenance (O&M) expenses, excluding the provision for separation benefits, increased 2.9 percent in 1996 primarily as a result of initiatives to reduce fossil generation materials inventory levels, an adjustment to deferred postretirement benefits to reflect changes in the retiree benefits plan, and increased costs under a three-year retail accounting order effective January 1, 1996. See Note 3 to the financial statements under "Retail Accounting Order" for additional information. Other O&M expenses increased 12.2 percent in 1995 primarily as a result of the recognition of costs associated with demand-side option programs and increased maintenance expenses. The demand-side option program costs were offset in part by increases in retail revenues. During 1995, the Company expensed an additional $58 million of demand-side option program and other related costs, as compared to 1994, of which approximately $29 million was not collected through rate riders. See Note 3 to the financial statements under "Demand-Side Conservation Programs" for additional information on the recovery of these program costs. Depreciation and amortization increased $11 million in 1996 primarily due to accelerated depreciation of generating plant pursuant to the retail accounting order effective January 1996 discussed above, and an increase in plant-in-service. Depreciation and amortization increased $43 million in 1995 primarily due to additional plant investment, accelerated amortization of software costs, and an increase in nuclear decommissioning expenses. Taxes other than income taxes increased 1.2 percent in 1996 and 5.2 percent in 1995, primarily reflecting higher franchise taxes paid to municipalities as a result of increased sales. Other, net decreased $35 million in 1996 primarily due to expenses in connection with activities related to the 1996 Summer Olympic games and the completion of the sale, in June 1995, of Plant Scherer Unit 4, which resulted in an after-tax gain of approximately $12 million. An increase in charitable contributions resulted in the decrease in other income (expense), net in 1995. Interest expense decreased $52 million (17.4 percent) and $51 million (14.6 percent) in 1996 and 1995, respectively. Dividends on preferred stock also decreased $3 million in 1996. These reductions are primarily due to the refinancing of securities. The Company refinanced or retired $510 million and $1.0 billion of securities in 1996 and 1995, respectively. The retirements included the redemption of $264 million of long-term debt with the proceeds from the 1995 and 1994 Plant Scherer Unit 4 sales. The Company has deferred certain expenses and recorded a deferred return related to Plant Vogtle under phase-in plans. See Note 1 to the financial statements under "Plant Vogtle Phase-In Plans" for information regarding the deferral and subsequent amortization of costs related to Plant Vogtle. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in long-lived utility plant. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings. The level of future earnings depends on numerous factors including regulatory matters and energy sales. II-99
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1996 Annual Report On January 1, 1996, the Company began operating under a three-year retail accounting order. Under the order, which was approved by the GPSC on February 16, 1996, the Company's earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Earnings in excess of 12.5 percent will be used to accelerate the amortization of regulatory assets or depreciation of electric plant. At its option, the Company may also recognize accelerated amortization or depreciation of assets within the allowed return on common equity range. The Company is required to absorb cost increases of approximately $29 million annually during the order's three-year operation, including $14 million annually of accelerated depreciation of electric plant. During the order's operation, the Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Under the order, on July 1, 1998 the Company will make a general rate case filing in response to which the GPSC would be expected either to continue provisions of the accounting order or adopt different ones. The Company's 1996 retail return on common equity was within the 10 percent to 12.5 percent range. In November 1996, on appeal by a consumer group, the Superior Court of Fulton County (Georgia) reversed the GPSC's order and remanded the matter to the GPSC. The court found that statutory requirements applicable to rate cases should have been, but were not, followed. The Company and the GPSC have appealed the court's decision. The Company is continuing to recognize expenses in accordance with the accounting order while it is under appeal. Growth in energy sales is subject to a number of factors which traditionally have included changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, weather, competition, initiatives to increase sales to existing customers, and the rate of economic growth in the Company's service area. Assuming normal weather, retail sales growth is projected to be approximately 2 percent annually on average during 1997 through 1999. The Company has entered into a four-year purchase power agreement to meet peaking needs. Beginning in 1996, the Company purchased 400 megawatts of capacity. In 1997, this amount will decline to 300 megawatts and in 1998 and 1999 to 200 megawatts. Capacity payments are projected to be $5 million in 1997 and $3 million in 1998 and 1999. The Company has also entered into a 30-year purchase power agreement whereby the Company will buy electricity during peak periods from a planned 300 megawatt cogeneration facility starting in June 1998. Capacity and fixed O&M payments are projected to be $13 million in 1998 and $15 million in 1999. The amortization of Plant Vogtle costs deferred under phase-in plans will decline by $16 million in 1997, $89 million in 1998, $12 million in 1999, and $19 million in 2000. These costs will be fully amortized by September 1999. See Note 1 to the financial statements under "Plant Vogtle Phase-In Plans" for additional information. Additionally, work force reduction programs implemented in the past three years will assist in efforts to control growth in future operating expenses. As discussed in Note 3 to the financial statements, regulatory uncertainties exist related to the Rocky Mountain pumped storage hydroelectric plant. In the event the GPSC does not allow full recovery of the plant's costs, then the portion not allowed may have to be written off. The Company's net investment in the plant as of December 1996 is approximately $175 million. Beginning in September 1996, OPC decreased its purchases of capacity under a power supply agreement by 250 megawatts and has notified the Company of its intent to decrease purchases of capacity by an additional 250 megawatts in September 1997, and an additional 250 megawatts in September 1998. As a result, the Company's capacity revenues declined approximately $8 million in 1996, and will decline an additional $24 million in 1997, an additional $26 million in 1998, and an additional $19 million in 1999. The Federal Energy Regulatory Commission (FERC) regulates wholesale rate schedules and power sales contracts that the Company has with its sales for resale customers. The FERC currently is reviewing the rate of return on common equity included in these schedules and contracts and may require such returns to be lowered, possibly retroactively. See Note 3 to the financial statements under "FERC Review of Equity Returns" for additional information. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could affect earnings if such costs are not fully recovered. The Clean Air Act and other environmental issues are discussed later under "Environmental Issues." II-100
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1996 Annual Report The Energy Policy Act of 1992 (Energy Act) is having a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased competition for electric utilities. The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell excess energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. The Company continues to compete with other electric suppliers within the state. In Georgia, most new retail customers with at least 900 kilowatts of connected load may choose their electricity supplier. Various federal and state initiatives designed to promote wholesale and additional retail competition, among other things, include proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless the Company remains a low-cost producer and provides quialty service, the Company's retail energy sales growth could be limited, and this could significantly erode earnings. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. The staff of the Securities and Exchange Commission has questioned certain of the current accounting practices of the electric utility industry -- including the Company's -- regarding the recognition, measurement, and classification of decommissioning costs for nuclear generating facilities in the financial statements. In response to these questions, the FASB has decided to review the accounting for liabilities related to closure and removal of long-lived assets, including nuclear decommissioning. If the FASB issues new accounting rules, the estimated costs of closing and removing the Company's nuclear and other facilities may be required to be recorded as liabilities in the Balance Sheets. Also, the annual provisions for such costs could change. Because of the Company's current ability to recover closure and removal costs through rates, these changes would not have a significant adverse effect on results of operations. See Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning" for additional information. FINANCIAL CONDITION Plant Additions In 1996 gross utility plant additions were $428 million. These additions were primarily related to transmission and distribution facilities and to the purchase of nuclear fuel. The funds needed for gross property additions are currently provided from operations. The Statements of Cash Flows provide additional details. Financing Activities In 1996, the Company continued to lower its financing costs by refinancing higher-cost issues. New issues during 1994 through 1996 totaled $1.6 billion and retirement or repayment of securities totaled $2.2 billion. The retirements included the redemption of $131 million and $133 million in 1995 and 1994, respectively, of first mortgage bonds with the proceeds from the Plant Scherer Unit 4 sales. Composite financing rates for long-term debt II-101
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1996 Annual Report and preferred stock for the years 1994 through 1996, as of year-end, were as follows: 1996 1995 1994 --------------------------------- Composite interest rate on long-term debt 6.39% 6.57% 7.14% Composite preferred stock dividend rate 6.34 6.73 7.11 - ---------------------------------------------------------------- The Company's current securities ratings are as follows: Duff & Standard & Phelps Moody's Poor's ------------------------------------ First Mortgage Bonds AA- A1 A+ Preferred Stock A+ a2 A Unsecured Bonds A+ A2 A Commercial Paper D1+ P1 A1 - ----------------------------------------------------------------- In August 1996, Georgia Power Capital Trust I (Trust I), of which the Company owns all the common securities, issued $225 million of 7.75 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $232 million aggregate principal amount of the Company's 7.75 percent Junior Subordinated Notes due June 30, 2036. In January 1997, Georgia Power Capital Trust II (Trust II), of which the Company owns all the common securities, issued $175 million of 7.60 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $180 million aggregate principal amount of the Company's 7.60 percent Junior Subordinated Notes due December 31, 2036. Liquidity and Capital Requirements Cash provided from operations decreased by $31 million in 1996, primarily due to higher operating and maintenance expenses. The Company estimates that construction expenditures for the years 1997 through 1999 will total $490 million, $479 million and $464 million, respectively. Investments in transmission and distribution facilities, enhancements to existing generating plants, additions of a co-owned combustion turbine generating plant, and equipment to comply with the provisions of the Clean Air Act are planned. Cash requirements for improvement fund requirements, redemptions announced, and maturities of long-term debt and preferred stock are expected to total $436 million during 1997 through 1999. As a result of requirements by the Nuclear Regulatory Commission, the Company has established external trust funds for the purpose of funding nuclear decommissioning costs. For 1997 through 1999, the amount to be funded totals $24 million annually. For additional information concerning nuclear decommissioning costs, see Note 1 to the financial statements under "Depreciation and Nuclear Decommissioning." Sources of Capital The Company expects to meet future capital requirements primarily using funds generated from operations and, if needed, by the issuance of new debt and equity securities, term loans, and short-term borrowings. To meet short-term cash needs and contingencies, the Company had approximately $1.1 billion of unused credit arrangements with banks at the beginning of 1997. See Note 9 to the financial statements under "Bank Credit Arrangements" for additional information. The Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's ability to satisfy all coverage requirements is such that it could issue new first mortgage bonds and preferred stock to provide sufficient funds for all anticipated requirements. Environmental Issues In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- is having a significant impact on the operating companies of Southern Company, including Georgia Power. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units in the Southern electric system. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants in the Southern electric system will be affected. II-102
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1996 Annual Report In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a calendar year. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. Southern Company's sulfur dioxide compliance strategy is designed to use allowances as a compliance option. Southern Company achieved Phase I sulfur dioxide compliance at the affected units by switching to low-sulfur coal, which has required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Construction expenditures for Georgia Power's Phase I compliance totaled approximately $163 million. For Phase II sulfur dioxide compliance, Southern Company could use emission allowances, increase fuel switching, and/or install flue gas desulfurization equipment at selected plants. Also, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired units as required to meet Phase II limits. Therefore, current compliance strategy could require total Phase II estimated construction expenditures, for the Company, of approximately $29 million of which $21 million remains to be spent. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. An increase of up to 1 percent in Georgia Power's annual revenue requirements from customers could be necessary to fully recover the cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: revisions to the ambient air quality standards for ozone and particulate matter; emission control strategies for ozone nonattainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required clean-up costs and has recognized in the financial statements costs to clean up known sites. These costs for the Company amounted to $2 million, $8 million and $8 million, in 1996, 1995, and 1994, respectively. Additional sites may require environmental remediation for which the Company may be liable for a portion of or all required clean-up costs. See Note 3 to the financial statements under "Certain Environmental Contingencies" for information regarding the Company's potentially responsible party status at a site in Brunswick, Georgia and the status of sites listed on the State of Georgia's hazardous site inventory. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. II-103
<TABLE> <CAPTION> STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995, and 1994 Georgia Power Company 1996 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: <S> <C> <C> <C> Revenues $ 4,380,893 $ 4,328,432 $ 4,101,504 Revenues from affiliates 35,886 76,906 60,899 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,416,779 4,405,338 4,162,403 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 835,194 900,973 870,653 Purchased power from non-affiliates 157,308 183,009 193,130 Purchased power from affiliates 229,324 131,740 158,063 Provision for separation benefits 39,099 10,607 82,238 Other 741,383 735,918 643,375 Maintenance 315,934 292,029 272,818 Depreciation and amortization 432,940 421,850 379,158 Amortization of deferred Plant Vogtle costs, net (Note 1) 136,650 124,454 74,888 Taxes other than income taxes 207,098 204,675 194,566 Federal and state income taxes 435,904 449,204 399,413 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 3,530,834 3,454,459 3,268,302 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Income 885,945 950,879 894,101 Other Income (Expense): Allowance for equity funds used during construction 3,144 2,734 5,663 Equity in earnings of unconsolidated subsidiary (Note 4) 3,851 4,051 3,588 Interest income 5,333 5,524 3,254 Other, net (43,502) (8,973) 10,626 Income taxes applicable to other income 18,581 3,022 7,975 - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 873,352 957,237 925,207 - ---------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 207,851 254,607 306,473 Allowance for debt funds used during construction (11,416) (12,081) (11,571) Interest on interim obligations 15,478 21,463 17,529 Amortization of debt discount, premium, and expense, net 14,790 15,835 15,743 Other interest charges 6,338 11,399 23,183 Distributions on preferred securities of subsidiary companies 14,958 9,000 300 - ---------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 247,999 300,223 351,657 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income 625,353 657,014 573,550 Dividends on Preferred Stock 45,026 48,152 48,006 ================================================================================================================================== Net Income After Dividends on Preferred Stock $ 580,327 $ 608,862 $ 525,544 ================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-104
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995, and 1994 Georgia Power Company 1996 Annual Report - ---------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: <S> <C> <C> <C> Net income $ 625,353 $ 657,014 $ 573,550 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 521,086 527,310 484,032 Deferred income taxes and investment tax credits, net 35,700 37,150 33,567 Allowance for equity funds used during construction (3,144) (2,734) (5,663) Amortization of deferred Plant Vogtle costs, net 136,650 124,454 74,888 Non-cash portion of separation benefits - - 68,599 Loss (gain) on asset sales 3,766 (23,588) (22,717) Other, net 49,649 23,722 (72,597) Changes in certain current assets and liabilities -- Receivables, net 9,421 (59,370) 67,218 Inventories 55,753 30,761 (63,545) Payables (35,651) 45,882 5,409 Taxes accrued 11,766 11,373 (60,474) Energy cost recovery, retail 679 42,576 55,505 Other (24,040) 3,473 (706) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,386,988 1,418,023 1,137,066 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (428,220) (480,449) (638,426) Sales of property 3,319 131,099 132,644 Other (16,468) (42,579) (41,273) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (441,369) (391,929) (547,055) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds -- Preferred securities 225,000 - 100,000 First mortgage bonds 10,000 75,000 - Pollution control bonds 112,825 504,700 527,210 Retirements -- Preferred stock (179,148) - - First mortgage bonds (210,860) (505,789) (133,559) Pollution control bonds (119,665) (504,810) (510,320) Other long-term debt - (37,000) (10,187) Interim obligations, net 30,166 (24,472) (57,425) Special deposits -- redemption funds (44,454) - - Capital distribution to parent company (250,000) - - Payment of preferred stock dividends (46,911) (48,419) (47,147) Payment of common stock dividends (475,500) (451,500) (429,300) Miscellaneous (10,646) (17,413) (22,640) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (959,193) (1,009,703) (583,368) - ---------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (13,574) 16,391 6,643 Cash and Cash Equivalents at Beginning of Year 28,930 12,539 5,896 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 15,356 $ 28,930 $ 12,539 ============================================================================================================================ Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) 249,434 $ 298,482 336,155 Income taxes (net of refunds) 373,886 404,129 386,653 - ---------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. </TABLE> II-105
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1996 and 1995 Georgia Power Company 1996 Annual Report - --------------------------------------------------------------------------------------------------------------- ASSETS 1996 1995 - --------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: <S> <C> <C> Plant in service $ 14,769,573 $ 14,538,595 Less accumulated provision for depreciation 4,793,638 4,417,120 - --------------------------------------------------------------------------------------------------------------- 9,975,935 10,121,475 Nuclear fuel, at amortized cost 121,840 124,849 Construction work in progress (Note 4) 256,141 236,715 - --------------------------------------------------------------------------------------------------------------- Total 10,353,916 10,483,039 - --------------------------------------------------------------------------------------------------------------- Other Property and Investments: Southern Electric Generating Company, at equity (Note 4) 26,032 27,232 Nuclear decommissioning trusts, at market 130,178 92,273 Miscellaneous 103,787 120,383 - --------------------------------------------------------------------------------------------------------------- Total 259,997 239,888 - --------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 15,356 28,930 Receivables- Customer accounts receivable 392,328 418,749 Other accounts receivable 159,499 102,953 Affiliated companies 20,095 15,482 Accumulated provision for uncollectible accounts (4,000) (5,000) Fossil fuel stock, at average cost 117,382 145,151 Materials and supplies, at average cost 258,820 286,804 Prepayments 109,771 107,764 Vacation pay deferred 39,965 35,543 - --------------------------------------------------------------------------------------------------------------- Total 1,109,216 1,136,376 - --------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes (Note 8) 818,418 871,783 Deferred Plant Vogtle costs (Note 1) 170,988 307,638 Premium on reacquired debt, being amortized 166,670 174,018 Debt expense, being amortized 32,693 27,227 Miscellaneous 159,153 230,306 - --------------------------------------------------------------------------------------------------------------- Total 1,347,922 1,610,972 - --------------------------------------------------------------------------------------------------------------- Total Assets $ 13,071,051 $ 13,470,275 =============================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-106
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1996 and 1995 Georgia Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES 1996 1995 - ------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): <S> <C> <C> Common stock equity $ 4,154,281 $ 4,299,012 Preferred stock 464,611 692,787 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes (Note 9) 325,000 100,000 Long-term debt 3,200,419 3,315,460 - ------------------------------------------------------------------------------------------------------------------- Total 8,144,311 8,407,259 - ------------------------------------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year (Note 9) 49,028 - Long-term debt due within one year (Note 9) 60,622 150,446 Notes payable to banks (Note 9) 207,300 178,000 Commercial paper (Note 9) 223,196 222,330 Accounts payable- Affiliated companies 66,821 72,878 Other 263,093 316,278 Customer deposits 64,901 53,145 Taxes accrued- Federal and state income 15,497 7,759 Other 100,661 96,633 Interest accrued 79,936 96,162 Vacation pay accrued 38,597 34,233 Miscellaneous 114,530 137,184 - ------------------------------------------------------------------------------------------------------------------- Total 1,284,182 1,365,048 - ------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 2,522,945 2,510,458 Accumulated deferred investment tax credits 415,477 432,184 Deferred credits related to income taxes (Note 8) 382,381 410,016 Employee benefits provisions 186,319 182,082 Disallowed Plant Vogtle capacity buyback costs (Note 4) 57,250 58,514 Miscellaneous 78,186 104,714 - ------------------------------------------------------------------------------------------------------------------- Total 3,642,558 3,697,968 - ------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1 through 7) Total Capitalization and Liabilities $ 13,071,051 $ 13,470,275 =================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-107
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION At December 31, 1996 and 1995 Georgia Power Company 1996 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, without par value -- Authorized -- 15,000,000 shares <S> <C> <C> <C> Outstanding -- 7,761,500 shares $ 344,250 $ 344,250 Paid-in capital 2,134,886 2,384,444 Premium on preferred stock 371 413 Retained earnings (Note 9) 1,674,774 1,569,905 - ---------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 4,154,281 4,299,012 51.0% 51.1% - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock, without par value: Authorized -- 55,000,000 shares Outstanding -- 16,111,964 shares $100 stated value -- 4.60% to 6.60% 117,787 117,787 7.72% to 7.80% 30,000 105,000 $25 stated value -- $1.90 to $2.125 190,852 295,000 Adjustable rate -- at January 1, 1997: 5.20% 100,000 100,000 5.66% 75,000 75,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $32,580,000) 513,639 692,787 Less amount due within one year (Note 9) 49,028 - - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock excluding amount due within one year 464,611 692,787 5.7 8.2 - ---------------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 9% 100,000 100,000 $25 liquidation value -- 7.75% 225,000 - - ---------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $26,438,000) 325,000 100,000 4.0 1.2 - ---------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt: First mortgage bonds -- Maturity Interest Rates March 1, 1996 4 3/4% - 150,000 April 1, 1998 5 1/2% 100,000 100,000 September 1, 1999 6 1/8% 195,000 195,000 March 1, 2000 6% 100,000 100,000 October 1, 2000 7% 100,000 100,000 2002 through 2005 6.07% to 6 7/8% 435,000 425,000 2008 6 7/8% 50,000 50,000 2022 through 2025 7.55% to 8 5/8% 534,508 595,368 - ---------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,514,508 1,715,368 Pollution control obligations (Note 9) 1,671,190 1,678,030 Other long-term debt (Note 9) 87,114 87,400 Unamortized debt discount, net (11,771) (14,892) - ---------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $209,047,000) 3,261,041 3,465,906 Less amount due within one year (Note 9) 60,622 150,446 - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 3,200,419 3,315,460 39.3 39.5 - ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 8,144,311 $ 8,407,259 100.0% 100.0% ================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-108
<TABLE> <CAPTION> STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1996, 1995, and 1994 Georgia Power Company 1996 Annual Report - ---------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Balance at Beginning of Period $ 1,569,905 $ 1,412,543 $ 1,316,447 Net income after dividends on preferred stock 580,327 608,862 525,544 Cash dividends on common stock (475,500) (451,500) (429,300) Preferred stock transactions, net 42 - (148) - ---------------------------------------------------------------------------------------------------------------- Balance at End of Period (Note 9) $ 1,674,774 $ 1,569,905 $ 1,412,543 ================================================================================================================ </TABLE> <TABLE> <CAPTION> STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1996, 1995, and 1994 Georgia Power Company 1996 Annual Report - ---------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Balance at Beginning of Period $ 2,384,444 $ 2,384,348 $ 2,384,348 Capital distribution to parent company (250,000) - - Contributions to capital by parent company 442 96 - - ---------------------------------------------------------------------------------------------------------------------- Balance at End of Period $ 2,134,886 $ 2,384,444 $ 2,384,348 ====================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-109
NOTES TO FINANCIAL STATEMENTS Georgia Power Company 1996 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General The Company is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, Southern Company Services (SCS), a system service company, Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), The Southern Development and Investment Group (Southern Development), and other direct and indirect subsidiaries. The operating companies (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four Southeastern states. Contracts among the operating companies -- dealing with jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission (SEC). SCS provides, at cost, specialized services to Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, builds, owns, and operates power production and delivery facilities and provides a broad range of energy related services in the United States and international markets. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Development develops new business opportunities related to energy products and services. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of this act. The Company is also subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows generally accepted accounting principles (GAAP) and complies with the accounting policies and practices prescribed by the respective regulatory commissions. The preparation of financial statements in conformity with GAAP requires the use of estimates, and the actual results may differ from these estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Company's Balance Sheets at December 31 relate to the following: 1996 1995 -------------------- (in millions) -------------------- Deferred income taxes $ 818 $ 872 Deferred income tax credits (382) (410) Deferred Plant Vogtle costs 171 308 Premium on reacquired debt 167 174 Corporate building lease 51 49 Demand-side program costs 44 79 Vacation pay 40 36 Postretirement benefits 38 53 Department of Energy assessments 32 33 Inventory conversions (18) (31) Other, net 27 36 ============================================================== Total $ 988 $1,199 ============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related regulatory assets and liabilities. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. II-110
NOTES (continued) Georgia Power Company 1996 Annual Report Revenues and Fuel Costs The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to adjust billings for fluctuations in fuel and the energy component of purchased power costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1996, uncollectible accounts continued to average less than 1 percent of revenues. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent disposal of spent nuclear fuel. Total charges for nuclear fuel included in fuel expense amounted to $78 million in 1996, $86 million in 1995, and $87 million in 1994. The Company has a contract with the U.S. Department of Energy (DOE) that provides for the permanent disposal of spent nuclear fuel, which was scheduled to begin in 1998. However, the actual year this service will begin is uncertain. Sufficient storage capacity currently is available to permit operation into 2003 at Plant Hatch and into 2008 at Plant Vogtle. Activities for adding dry cast storage capacity at Plant Hatch by as early as 1999 are in progress. Also, the Energy Policy Act of 1992 required the establishment in 1993 of a Uranium Enrichment Decontamination and Decommissioning Fund, which is to be funded in part by a special assessment on utilities with nuclear plants. This fund will be used by the DOE for the decontamination and decommissioning of its nuclear fuel enrichment facilities. The assessment will be paid over a 15-year period, which began in 1993. The law provides that utilities will recover these payments in the same manner as any other fuel expense. The Company -- based on its ownership interests -- estimates its remaining liability under this law at December 31, 1996, to be approximately $30 million. This obligation is recorded in the accompanying Balance Sheets. Depreciation and Nuclear Decommissioning Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.1 percent in 1996, 3.2 percent in 1995 and 3.1 percent in 1994. In addition, the Company recorded accelerated depreciation of electric plant of $24 million in 1996 and $6 million in 1995. The amount of such charges in the accumulated provision for depreciation is $30 million at December 31, 1996. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected costs of decommissioning nuclear facilities and removal of other facilities. In 1988, the Nuclear Regulatory Commission (NRC) adopted regulations requiring all licensees operating commercial nuclear power reactors to establish a plan for providing, with reasonable assurance, funds for decommissioning. The Company has established external trust funds to comply with the NRC's regulations. Amounts previously recorded in internal reserves are being transferred into the external trust funds over a set period of time as ordered by the GPSC. Earnings on the trust funds are considered in determining decommissioning expense. The NRC's minimum external funding requirements are based on a generic estimate of the cost to decommission the radioactive portions of a nuclear unit based on the size and type of reactor. The Company has filed plans with the NRC to ensure that -- over time -- the deposits and earnings of the external trust funds will provide the minimum funding amounts prescribed by the NRC. Site study cost is the estimate to decommission the facility as of the site study year, and ultimate cost is the estimate to decommission the facility as of the retirement II-111
NOTES (continued) Georgia Power Company 1996 Annual Report date. The estimated costs of decommissioning -- both site study costs and ultimate costs at December 31, 1996 -- based on the Company's ownership interests -- were as follows: Plant Plant Hatch Vogtle -------------------- Site study basis (year) 1994 1994 Decommissioning periods: Beginning year 2014 2027 Completion year 2027 2038 - ------------------------------------------------------------ (in millions) Site study costs: Radiated structures $294 $233 Non-radiated structures 41 52 ============================================================ Total $335 $285 ============================================================ (in millions) Ultimate costs: Radiated structures $781 $1,018 Non-radiated structures 111 230 - ------------------------------------------------------------ Total $892 $1,248 ============================================================ (in millions) Amount expensed in 1996 $ 11 $ 9 Accumulated provisions: Balance in external trust funds $ 79 $ 51 Balance in internal reserves 27 13 ============================================================ Total $106 $ 64 ============================================================ Significant assumptions: Inflation rate 4.4% 4.4% Trust earnings rate 6.0 6.0 - ------------------------------------------------------------ Annual provisions for nuclear decommissioning are based on an annuity method as approved by the GPSC. The decommissioning costs included in cost of service are based on the higher of the costs to decommission the radioactive portions of the plants based on 1994 site studies or the NRC minimum funding requirements. The Company expects the GPSC to periodically review and adjust, if necessary, the amounts collected in rates for the anticipated cost of decommissioning. The decommissioning cost estimates are based on prompt dismantlement and removal of the plant from service. The actual decommissioning costs may vary from the above estimates because of changes in the assumed date of decommissioning, changes in NRC requirements, changes in the assumptions used in making estimates, changes in regulatory requirements, changes in technology, and changes in costs of labor, materials, and equipment. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Plant Vogtle Phase-In Plans In 1987 and 1989, the GPSC ordered that the allowed costs of Plant Vogtle, a two-unit nuclear facility of which Georgia Power owns 45.7 percent, be phased into rates. Pursuant to the orders, the Company recorded a deferred return under phase-in plans until October 1991 when the allowed investment was fully reflected in rates. In 1991, the GPSC levelized the remaining Plant Vogtle declining capacity buyback expenses over a six-year period. In addition, the Company deferred certain Plant Vogtle operating expenses and financing costs under accounting orders issued by the GPSC. These GPSC orders provide for the recovery of deferred costs within 10 years. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. For the years 1996, 1995 and 1994, the average AFUDC rates were 6.59 percent, 6.53 percent and 6.18 percent, respectively. AFUDC, net of taxes, as a percentage of net income after dividends on preferred stock, was less than 2.5 percent for 1996, 1995, and 1994. II-112
NOTES (continued) Georgia Power Company 1996 Annual Report Utility Plant Utility plant is stated at original cost with the exception of Plant Vogtle, which is stated at cost less regulatory disallowances. Original cost includes: materials; labor; payroll-related costs such as taxes, pensions, and other benefits; and the cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company's financial instruments for which the carrying amounts did not approximate fair value at December 31 were as follows: Carrying Fair Amount Value -------------------------- Long-term debt: (in millions) At December 31, 1996 $3,174 $3,206 At December 31, 1995 3,378 3,487 Preferred Securities: At December 31, 1996 325 333 At December 31, 1995 100 114 - --------------------------------------------------------------- The fair values for securities were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. 2. RETIREMENT BENEFITS Pension Plan The Company has a defined benefit, trusteed, non-contributory pension plan covering substantially all regular employees. Benefits are based on one of the following formulas: years of service and final average pay or years of service and a flat-dollar benefit. The Company uses the "entry age normal method with a frozen initial liability" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trusts are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. Postretirement Benefits The Company also provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Qualified trusts are funded to the extent deductible under federal income tax regulations and to the extent required by the GPSC and the FERC. During 1996 and 1995, the Company funded $25 million and $21 million, respectively, to the qualified trusts. Amounts funded are primarily invested in debt and equity securities. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." In October 1993, the GPSC ordered the Company to phase in the adoption of Statement No. 106 to cost of service over a five-year period, whereby one-fifth of the additional cost was expensed in 1993, and the remaining additional costs were deferred. An additional one-fifth of the costs will be expensed each succeeding year until the costs are fully reflected in cost of service in 1997. The cost deferred during the five-year period will be amortized to expense over a 15-year period beginning in 1998. II-113
NOTES (continued) Georgia Power Company 1996 Annual Report Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement benefits as computed under the requirements of FASB Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension --------------------- 1996 1995 --------------------- (in millions) --------------------- Actuarial present value of benefit obligations: Vested benefits $ 806 $ 830 Non-vested benefits 52 43 - -------------------------------------------------------------- Accumulated benefit obligation 858 873 Additional amounts related to projected salary increases 314 290 - --------------------------------------------------------------- Projected benefit obligation 1,172 1,163 Less: Fair value of plan assets 1,797 1,688 Unrecognized net gain (591) (465) Unrecognized prior service cost 56 26 Unrecognized transition asset (47) (52) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 43 $ 34 =============================================================== Postretirement Benefits --------------------- 1996 1995 --------------------- (in millions) Actuarial present value of benefit obligation: Retirees and dependents $217 $214 Employees eligible to retire 29 16 Other employees 184 188 - --------------------------------------------------------------- Accumulated benefit obligation 430 418 Less: Fair value of plan assets 112 81 Unrecognized net loss 50 44 Unrecognized transition obligation 157 186 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $111 $ 107 =============================================================== In 1995, the Company announced a cost sharing program for postretirement benefits. The program establishes limits on amounts the Company will pay to provide future retiree postretirement benefits. This change reduced the 1995 accumulated postretirement benefit obligation by approximately $97 million. The weighted average rates used in actuarial calculations were: 1996 1995 1994 - ---------------------------------------------------------------- Discount 7.8% 7.3% 8.0% Annual salary increase 5.3 4.8 5.5 Long-term return on plan assets 8.5 8.5 8.5 - ---------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement medical benefit obligation was a weighted average medical care cost trend rate of 9.3 percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation as of December 31, 1996, by $42 million and the aggregate of the service and interest cost components of the net postretirement cost by $4 million. The components of the plans' net costs are shown below: Pension ---------------------------- 1996 1995 1994 ---------------------------- (in millions) Benefits earned during the year $ 35 $ 33 $ 34 Interest cost on projected benefit obligation 86 78 71 Actual (return) loss on plan assets (202) (317) 35 Net amortization (deferral) 62 185 (160) - ----------------------------------------------------------------- Net pension cost $ (19) $ (21) $ (20) ================================================================= Net pension costs were negative in 1996, 1995 and 1994. Of net pension amounts recorded, $14 million in 1996 and $15 million in 1995 and 1994 were recorded as a reduction to operating expense, and the remainder was recorded as a reduction to construction and other accounts. II-114
NOTES (continued) Georgia Power Company 1996 Annual Report Postretirement Benefits 1996 1995 1994 ------------------------- (in millions) Benefits earned during the year $ 9 $13 $15 Interest cost on accumulated benefit obligation 30 34 33 Amortization of transition obligation 9 16 15 Actual (return) loss on plan assets (6) (8) 1 Net amortization (deferral) 3 4 (3) - --------------------------------------------------------------- Net postretirement cost $45 $59 $61 =============================================================== Of the above net postretirement benefit costs recorded, $29 million in 1996, $33 million in 1995, and $28 million in 1994 were charged to operating expenses. In addition, $3 million in 1996, $11 million in 1995, and $18 million in 1994 were deferred, and the remainder was charged to construction and other accounts. During 1996, the Company expensed an additional $19 million due to an adjustment to amounts previously deferred under the GPSC order as a result of changes in the postretirement benefit plan. Work Force Reduction Programs The Company has incurred costs for work force reduction programs. The costs related to these programs were $39 million in 1996, $11 million in 1995 and $82 million in 1994. Additionally, the Company recognized $9 million in 1996, $3 million in 1995, and $8 million in 1994 for its share of costs associated with SCS's work force reduction programs. 3. REGULATORY AND LITIGATION MATTERS Retail Accounting Order On February 16, 1996, the GPSC approved a three-year accounting order for the Company. Under the order, effective January 1, 1996, the Company's earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Earnings in excess of 12.5 percent will be used to accelerate the amortization of regulatory assets or depreciation of electric plant. At its option, the Company may also recognize accelerated amortization or depreciation of assets within the allowed return on common equity range. The Company is required to absorb cost increases of approximately $29 million annually during the order's three-year operation, including $14 million annually of accelerated depreciation of electric plant. During the order's operation, the Company will not file for a general base rate increase unless its projected retail return on common equity falls below 10 percent. Under the approved order, on July 1, 1998 the Company will make a general rate case filing in response to which the GPSC would be expected either to continue the provisions of the accounting order or adopt different ones. The Company's 1996 retail return on common equity was within the 10 percent to 12.5 percent range. In November 1996, on appeal by a consumer group, the Superior Court of Fulton County, Georgia, reversed the GPSC's accounting order and remanded the matter to the GPSC. The Court found that statutory requirements applicable to rate cases should have been, but were not, followed. The GPSC subsequently appealed the Superior Court's decision. In December 1996, the Company also filed for an appeal. The Company is continuing to recognize expenses in accordance with the accounting order while it is under appeal. Rocky Mountain Plant Status In its 1985 financing order, the GPSC concluded that completion of the Rocky Mountain pumped storage hydroelectric plant in 1991, as then planned, was not economically justifiable and reasonable and withheld authorization for the Company to spend funds from approved securities issuances on that plant. AFUDC accrued on the Rocky Mountain plant was not credited to income or included in the plant's cost since December 1985. In 1988, the Company and OPC entered into a joint ownership agreement for OPC to assume responsibility for the construction and operation of the plant, as discussed in Note 6. In 1995, the plant went into commercial operation. However, full recovery of the Company's 25.4 percent ownership interest depends on the GPSC's treatment of the plant's costs and disposition of the plant's capacity output. In June 1996, the GPSC initiated a review of the Rocky Mountain pumped storage hydroelectric plant. In the event the GPSC does not allow full recovery of the plant's costs, then the portion not allowed may have to be written off. At December 31, 1996, the Company's net investment in the plant was approximately $175 million. The final outcome of this matter cannot now be determined. Accordingly, no provision for any write-down of the investment in the plant has been made. II-115
NOTES (continued) Georgia Power Company 1996 Annual Report Demand-Side Conservation Programs In October 1993, a Superior Court of Fulton County, Georgia, judge ruled that rate riders previously approved by the GPSC for recovery of the Company's costs incurred in connection with demand-side conservation programs were unlawful. The Company suspended collection of the demand-side conservation costs and appealed the court's decision to the Georgia Court of Appeals. The Company deferred costs related to these programs under an accounting order approved by the GPSC until December 1994, when the Company resumed collection under the rate riders after the Georgia Court of Appeals upheld their legality. In August 1995, the GPSC ordered the Company to discontinue its current demand-side conservation programs by the end of 1995. The rate riders will remain in effect until costs deferred are collected, which is expected to be by the end of 1997. Under the Retail Accounting Order approved February 16, 1996, the Company will recognize approximately $29 million of deferred program costs over a three-year period which will not be recovered through the riders. FERC Review of Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the Southern electric system's wholesale rate schedules and contracts that have a return on common equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power, and other similar contracts. In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and contracts were not necessary and that the FERC staff failed to show how any changes were in the public interest. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. In August 1994, the FERC instituted another proceeding based on substantially the same issues as in the 1991 proceeding. In November 1995, a FERC administrative law judge issued an opinion that the FERC staff failed to meet its burden of proof, and therefore no change in the equity return was necessary. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. If the rates of return on common equity recommended by the FERC staff were applied to all the schedules and contracts involved in both proceedings, as well as certain other contracts that reference these proceedings in determining return on common equity and if refunds were ordered, the amount of refunds could range up to approximately $61 million at December 31, 1996. However, management believes that rates are not excessive, and that refunds are not justified. Certain Environmental Contingencies In January 1995, the Company and four other unrelated entities were notified by the EPA that they have been designated as potentially responsible parties under the Comprehensive Environmental Response, Compensation and Liability Act with respect to a site in Brunswick, Georgia. As of December 31, 1996, the Company has recognized approximately $5 million in expenses associated with this site. This represents the Company's agreed upon share of removal and remedial investigation and feasibility study costs. The final outcome of this matter cannot now be determined. However, based on the nature and extent of the Company's activities relating to the site, management believes that the Company's portion of any remaining remediation costs should not be material. In compliance with the Georgia Hazardous Site Response Act of 1993, the State of Georgia was required to compile an inventory of all known or suspected sites where hazardous wastes, constituents or substances have been disposed of or released in quantities deemed reportable by the State. In developing this list, the State identified several hundred properties throughout the State, including 25 sites which may require environmental remediation that were either previously or are currently owned by the Company. The majority of these sites are electrical power substations and power generation facilities. The Company has remediated seven electrical substations on the list at a cost of approximately $1 million. In addition, the Company has recognized approximately $16 million in expenses through December 31, 1996 for the assessment of the remaining sites on the list and the anticipated clean-up cost for 13 sites that the Company plans to remediate. The accrued costs for environmental remediation obligations are not discounted to their present value. Any cost of remediating II-116
NOTES (continued) Georgia Power Company 1996 Annual Report the remaining sites cannot presently be determined until such studies are completed for each site and the State of Georgia determines whether remediation is required. If all listed sites were required to be remediated, the Company could incur expenses of up to approximately $15 million in additional clean-up costs and construction expenditures of up to approximately $65 million to develop new waste management facilities or install additional pollution control devices. Wholesale Litigation In July 1994, Oglethorpe Power Corporation (OPC) and the Municipal Electric Authority of Georgia (MEAG) filed a joint complaint with the FERC seeking to recover from the Company an aggregate of approximately $16.5 million in alleged partial requirements rates overcharges, plus approximately $6.3 million in interest. OPC and MEAG claimed that the Company improperly reflected in such rates costs associated with capacity that had previously been sold to Gulf States pursuant to a unit power sales contract or, alternatively, that they should be allocated a portion of the proceeds received by the Company as a result of a settlement with Gulf States of litigation arising out of such contract. In November 1996, the Company reached a settlement with OPC, MEAG and the City of Dalton to pay the parties an aggregate of $14 million. The settlement has been approved by the FERC. In May 1996, MEAG filed a complaint with the FERC seeking termination as of December 31, 1996 of the partial requirements tariff pursuant to which the Company currently sells wholesale energy to MEAG. The complaint also sought refunds in an unspecified amount as a result of alleged overcharges by the Company under the tariff for the years 1993 through 1996. In June 1996, the Company filed a response with the FERC requesting that its partial requirements service obligation to MEAG be terminated as of the date sought by MEAG. On January 10, 1997, the Company and MEAG reached an agreement to enter into a new power supply relationship which would replace in their entirety the partial requirements tariff and the scheduling services agreement between the Company and MEAG. The agreement required the parties to formalize a new contractual relationship and within approximately 45 days file the new contract with the FERC for approval. Under the agreement, the Company does not owe MEAG any refunds for alleged overcharges for the years specified. Nuclear Performance Standards In October 1989, the GPSC adopted a nuclear performance standard for the Company's nuclear generating units under which the performance of plants Hatch and Vogtle will be evaluated every three years. The performance standard is based on each unit's capacity factor as compared to the average of all comparable U.S. nuclear units operating at a capacity factor of 50 percent or higher during the three-year period of evaluation. Depending on the performance of the units, the Company could receive a monetary reward or penalty under the performance standards criteria. The first evaluation was conducted in 1993 for performance during the 1990-92 period. The GPSC approved a performance reward of approximately $8.5 million for the Company. This reward was collected through the retail fuel cost recovery provision and recognized in income over a 36-month period which ended in October 1996. In January 1997, the GPSC approved a performance award of approximately $11.7 million for performance during the 1993-95 period. This reward will be collected through the retail fuel cost recovery provision and recognized in income over a 36-month period beginning January 1997. 4. COMMITMENTS Construction Program While the Company has no traditional baseload generating plants under construction, the construction of one jointly owned combustion turbine peaking unit was completed in January 1997. In addition, significant construction of transmission and distribution facilities, and projects to upgrade and extend the useful life of generating plants will continue. The Company currently estimates property additions to be approximately $490 million in 1997, $479 million in 1998, and $464 million in 1999. The estimates for property additions for the three-year period include $31 million committed to meeting the requirements of the Clean Air Act. The construction program is subject to periodic review and revision, and actual construction costs may vary from estimates because of numerous factors, including, but not limited to, changes in business conditions, load growth estimates, environmental regulations, and regulatory requirements. II-117
NOTES (continued) Georgia Power Company 1996 Annual Report Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into various long-term commitments for the procurement of fossil and nuclear fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels and other financial commitments. Total estimated long-term fossil and nuclear fuel commitments at December 31, 1996 were as follows: Minimum Year Obligations ---------------------- (in millions) 1997 $ 833 1998 679 1999 512 2000 423 2001 358 2002 and beyond 1,722 - --------------------------------------------------------------- Total minimum obligations $ 4,527 =============================================================== Additional commitments for coal and for nuclear fuel will be required in the future to supply the Company's fuel needs. Purchase Power Commitments In connection with the joint ownership arrangement for Plant Vogtle, discussed in Note 6, the Company has made commitments to purchase declining fractions of OPC's and MEAG's capacity and energy from this plant. The declining commitments were in effect during periods of up to seven years following commercial operation and ended in 1996. The commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG are in effect until the latter of the retirement of the plant or the latest stated maturity date of MEAG's bonds issued to finance such ownership interest. The payments for capacity are required whether or not any capacity is available. The energy cost is a function of each unit's variable operating costs. Except as noted below, the cost of such capacity and energy is included in purchased power from non-affiliates in the Company's Statements of Income. Capacity payments totaled $68 million, $76 million, and $129 million in 1996, 1995, and 1994, respectively. The current projected Plant Vogtle capacity payments are: Year Amounts ---------------------- (in millions) 1997 $ 58 1998 60 1999 62 2000 63 2001 62 2002 and beyond 858 - --------------------------------------------------------------- Total $ 1,163 ============================================================== Portions of the payments noted above relate to costs in excess of Plant Vogtle's allowed investment for ratemaking purposes. The present value of these portions was written off in 1987 and 1990. As discussed in Note 1, the Plant Vogtle declining capacity buyback expense is being levelized over a six-year period which began in October 1991. The Company and an affiliate, Alabama Power Company, own equally all of the outstanding capital stock of Southern Electric Generating Company (SEGCO), which owns electric generating units with a total rated capacity of 1,020 megawatts, as well as associated transmission facilities. The capacity of the units has been sold equally to the Company and Alabama Power under a contract which, in substance, requires payments sufficient to provide for the operating expenses, taxes, debt service and return on investment, whether or not SEGCO has any capacity and energy available. The term of the contract extends automatically for two-year periods, subject to either party's right to cancel upon two year's notice. The Company's share of expenses included in purchased power from affiliates in the Statements of Income, is as follows: 1996 1995 1994 --------------------------------- (in millions) Energy $47 $44 $43 Capacity 30 29 33 - -------------------------------------------------------------- Total $77 $73 $76 ============================================================== Kilowatt-hours 2,780 2,391 2,429 - -------------------------------------------------------------- II-118
NOTES (continued) Georgia Power Company 1996 Annual Report At December 31, 1996, the capitalization of SEGCO consisted of $52 million of equity and $76 million of long-term debt on which the annual interest requirement is $5 million. The Company has entered into a 30-year purchase power agreement, scheduled to begin in June 1998, for electricity during peaking periods from a planned 300 megawatt cogeneration facility. Capacity and fixed operation and maintenance (O&M) payments are subject to reductions for failure to meet minimum capacity output. Estimated capacity and fixed O&M payments are as follows: Year Amounts ---------------------- (in millions) 1998 $ 13 1999 15 2000 15 2001 15 2002 and beyond 320 - --------------------------------------------------------------- Total $ 378 =============================================================== Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $11 million, $12 million, and $13 million for 1996, 1995, and 1994, respectively. At December 31, 1996, estimated minimum rental commitments for these noncancelable operating leases were as follows: Year Amounts ---------------------- (in millions) 1997 $ 11 1998 10 1999 10 2000 10 2001 10 2002 and beyond 121 - --------------------------------------------------------------- Total $ 172 =============================================================== 5. NUCLEAR INSURANCE Under the Price-Anderson Amendments Act of 1988, the Company maintains agreements of indemnity with the NRC that, together with private insurance, cover third-party liability arising from any nuclear incident occurring at the Company's nuclear power plants. The act provides funds up to $8.9 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 $200 million by private insurance, with the remaining coverage provided by a mandatory program of deferred premiums that could be assessed, after a nuclear incident, against all owners of nuclear reactors. The Company could be assessed up to $79 million per incident for each licensed reactor it operates but not more than an aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment for the Company, excluding any applicable state premium taxes, -- based on its ownership and buyback interests -- is $162 million per incident but not more than an aggregate of $20 million to be paid for each incident in any one year. The Company is a member of Nuclear Mutual Limited (NML), a mutual insurer established to provide property damage insurance in an amount up to $500 million for members' nuclear generating facilities. The members are subject to a retrospective premium assessment in the event that losses exceed accumulated reserve funds. The Company's maximum annual assessment is limited to $11 million under current policies. Additionally, the Company has policies that currently provide decontamination, excess property insurance, and premature decommissioning coverage up to $2.25 billion for losses in excess of the $500 million NML coverage. This excess insurance is provided by Nuclear Electric Insurance Limited (NEIL), a mutual insurance company. NEIL also covers the additional costs that would be incurred in obtaining replacement power during a prolonged accidental outage at a member's nuclear plant. Members can be insured against increased costs of replacement power in an amount up to $3.5 million per week -- starting 21 weeks after the outage -- for one year and up to $2.8 million per week for the second and third years. Under each of the NEIL policies, members are subject to assessments if losses each year exceed the accumulated funds available to the insurer under that policy. The maximum annual assessments under the current policies for the Company would be $16 million for excess property damage and $12 million for replacement power. II-119
NOTES (continued) Georgia Power Company 1996 Annual Report For all on-site property damage insurance policies for commercial nuclear power plants, the NRC requires that the proceeds of such policies issued or renewed on or after April 2, 1991, shall be dedicated first for the sole purpose of placing the reactor in a safe and stable condition after an accident. Any remaining proceeds are to be applied next toward the costs of decontamination and debris removal operations ordered by the NRC, and any further remaining proceeds are to be paid either to the Company or to its bond trustees as may be appropriate under the policies and applicable trust indentures. The Company participates in an insurance program for nuclear workers that provides coverage for worker tort claims filed for bodily injury caused at commercial nuclear power plants. In the event that claims for this insurance exceed the accumulated reserve funds, the Company could be subject to a maximum total assessment of $6 million. All retrospective assessments, whether generated for liability, property or replacement power, may be subject to applicable state premium taxes. 6. FACILITY SALES AND JOINT OWNERSHIP AGREEMENTS The Company has sold undivided interests in plants Hatch, Wansley, Vogtle, and Scherer Units 1 and 2, together with transmission facilities, to OPC, an electric membership generation and transmission corporation; MEAG, a public corporation and an instrumentality of the state of Georgia; and the City of Dalton, Georgia. The Company has sold an interest in Plant Scherer Unit 3 to Gulf Power Company, an affiliate. Additionally, in 1995 the Company completed the last of four separate transactions to sell Unit 4 of Plant Scherer to Florida Power & Light Company (FP&L) and Jacksonville Electric Authority (JEA) for a total price of approximately $808 million. FP&L now owns approximately 76.4 percent of the unit, with JEA owning the remainder. The Scherer Unit 4 transactions were as follows: Closing Percent After-Tax Date Capacity Ownership Amount Gain - --------------------------------------------------------------- (in megawatts) (in millions) July 1991 290 35.46% $ 291 $ 14 June 1993 258 31.44 253 18 June 1994 135 16.55 133 11 June 1995 135 16.55 131 12 - --------------------------------------------------------------- Total 818 100.00% $ 808 $ 55 =============================================================== Except as otherwise noted, the Company has contracted to operate and maintain all jointly owned facilities. The Company includes its proportionate share of plant operating expenses in the corresponding operating expenses in the Statements of Income. As discussed in Note 3, the Company owns 25.4 percent of the Rocky Mountain pumped storage hydroelectric plant, which began commercial operation in 1995. OPC owns the remainder, and is the operator of the plant. The Company owns six of eight 80 megawatt combustion turbine generating units and 75 percent of the related common facilities at Plant McIntosh. Savannah Electric and Power Company, an affiliate, owns the remainder and operates the plant. Four of the Company's six units began commercial operation during 1994, and the remaining two units began commercial operation in 1995. The Company and Florida Power Corporation (FPC) jointly own a 150 megawatt combustion turbine unit at Intercession City, Florida, near Orlando. The unit began commercial operation in January 1997, and is operated by FPC. The Company owns a one-third interest in the unit, with use of 100 percent of the unit's capacity from June through September. FPC has the capacity the remainder of the year. The Company's investment in the unit is approximately $13 million. At December 31, 1996, the Company's percentage ownership and investment (exclusive of nuclear fuel) in II-120
NOTES (continued) Georgia Power Company 1996 Annual Report jointly owned facilities in commercial operation, were as follows: Total Nameplate Company Facility (Type) Capacity Ownership - ----------------------------------------------------------------- (megawatts) Plant Vogtle (nuclear) 2,320 45.7% Plant Hatch (nuclear) 1,630 50.1 Plant Wansley (coal) 1,779 53.5 Plant Scherer (coal) Units 1 and 2 1,636 8.4 Unit 3 818 75.0 Plant McIntosh Common Facilities N/A 75.0 (combustion-turbine) Rocky Mountain 848 25.4 (pumped storage) - ----------------------------------------------------------------- Accumulated Facility (Type) Investment Depreciation - ---------------------------------------------------------------- (in millions) Plant Vogtle (nuclear) $3,299* $843 Plant Hatch (nuclear) 854 436 Plant Wansley (coal) 301 134 Plant Scherer (coal) Units 1 and 2 112 42 Unit 3 542 150 Plant McIntosh Common Facilities (combustion-turbine) 19 1 Rocky Mountain (pumped storage) 202 27 - ---------------------------------------------------------------- * Investment net of write-offs. 7. LONG-TERM POWER SALES AGREEMENTS The Company and the operating subsidiaries of Southern Company have long-term contractual agreements for the sale of capacity and energy to non-affiliated utilities located outside the system's service area. These agreements consist of firm unit power sales pertaining to capacity from specific generating units. The Company also had agreements for non-firm sales, which expired in 1994, based on the capacity of the Southern system. Because energy is generally sold at cost under these agreements, it is primarily the capacity revenues that affect the Company's profitability. The Company's capacity revenues were as follows: Year Unit Power Sales Non-firm Sales - ----------------------------------------------------------------- (in millions) (megawatts) (in millions) (megawatts) 1996 $ 41 173 $ - - 1995 53 248 - - 1994 75 403 9 101 - ----------------------------------------------------------------- Unit power from specific generating plants is being sold to FP&L, FPC, JEA, and the City of Tallahassee, Florida. Under these agreements, the Company sold approximately 173 megawatts of capacity in 1996 and is scheduled to sell approximately 159 megawatts of capacity in 1997 through 1999, and in 2000, 126 megawatts will be sold. After 2000, capacity sales will decline to approximately 103 megawatts -- unless reduced by FP&L, FPC, and JEA -- until the expiration of the contracts in 2010. Long-term non-firm power of 200 megawatts was sold by the Southern system in 1994 to FPC, of which the Company's share was 101 megawatts, under a contract that expired at the end of 1994. Sales under these long-term non-firm power sales agreements were made from available power pool energy, and the revenues from the sales were shared by the operating affiliates. 8. INCOME TAXES At December 31, 1996, tax-related regulatory assets were $818 million and tax-related regulatory liabilities were $382 million. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. II-121
NOTES (continued) Georgia Power Company 1996 Annual Report Details of the federal and state income tax provisions are as follows: 1996 1995 1994 ------------------------------- Total provision for income taxes: (in millions) Federal: Currently payable $ 325 $349 $306 Deferred - Current year 70 84 86 Reversal of prior years (41) (55) (57) Deferred investment tax credits - 1 (1) - ----------------------------------------------------------------- 354 379 334 - ----------------------------------------------------------------- State: Currently payable 56 60 52 Deferred - Current year 12 15 15 Reversal of prior years (5) (8) (10) - ----------------------------------------------------------------- 63 67 57 - ----------------------------------------------------------------- Total 417 446 391 - ----------------------------------------------------------------- Less: Income taxes credited to other income (19) (3) (8) ================================================================= Total income taxes charged to operations $ 436 $449 $399 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1996 1995 ------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $ 1,736 $1,630 Property basis differences 1,038 1,074 Deferred Plant Vogtle costs 54 100 Premium on reacquired debt 67 70 Deferred regulatory costs 21 38 Other 32 29 - ---------------------------------------------------------------- Total 2,948 2,941 - ---------------------------------------------------------------- Deferred tax assets: Other property basis differences 225 239 Federal effect of state deferred taxes 100 97 Other deferred costs 93 83 Disallowed Plant Vogtle buybacks 24 25 Accrued interest 10 13 Fuel clause overrecovered 8 6 Other 18 18 - ---------------------------------------------------------------- Total 478 481 - ---------------------------------------------------------------- Net deferred tax liabilities 2,470 2,460 Portion included in current assets 53 51 - ---------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $ 2,523 $2,511 ================================================================ Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $17 million in 1996, $22 million in 1995, and $25 million in 1994. At December 31, 1996, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory tax rate to the effective income tax rate is as follows: 1996 1995 1994 ------------------------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 3 2 3 Difference in prior years' deferred and current tax rate (1) (1) (1) Other (1) - - - ------------------------------------------------------------- Effective income tax rate 40% 40% 41% ============================================================= II-122
NOTES (continued) Georgia Power Company 1996 Annual Report Southern Company and its subsidiaries file a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 9. CAPITALIZATION First Mortgage Bond Indenture & Charter Restrictions The Company's first mortgage bond indenture contains various restrictions that remain in effect as long as the bonds are outstanding. At December 31, 1996, $778 million of retained earnings and paid-in capital was unrestricted for the payment of cash dividends or any other distributions under terms of the mortgage indenture. Supplemental indentures in connection with future first mortgage bond issues may contain more stringent restrictions than those currently in effect. The Company's charter limits cash dividends on common stock to the lesser of the retained earnings balance or 75 percent of net income available for such stock during a prior period of 12 months if the ratio of common stock equity to total capitalization, including retained earnings, adjusted to reflect the payment of the proposed dividend, is below 25 percent, and to 50 percent of such net income if such ratio is less than 20 percent. At December 31, 1996, the ratio as defined was 50.3 percent. Preferred Securities In December 1994, Georgia Power Capital, L.P., of which the Company is the sole general partner, issued $100 million of 9 percent mandatorily redeemable preferred securities. Substantially all of the assets of Georgia Power Capital are $103 million aggregate principal amount of Georgia Power's 9 percent Junior Subordinated Deferrable Interest Debentures due December 19, 2024. In August 1996, Georgia Power Capital Trust I (Trust I), of which the Company owns all the common securities, issued $225 million of 7.75 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $232 million aggregate principal amount of the Company's 7.75 percent Junior Subordinated Notes due June 30, 2036. In January 1997, Georgia Power Capital Trust II (Trust II), of which the Company owns all the common securities, issued $175 million of 7.60 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $180 million aggregate principal amount of the Company's 7.60 percent Junior Subordinated Notes due December 31, 2036. The Company considers that the mechanisms and obligations relating to the preferred securities, taken together, constitute a full and unconditional guarantee by the Company of Georgia Power Capital's and Georgia Power Capital Trusts' payment obligations with respect to the preferred securities. Georgia Power Capital, L.P., Georgia Power Capital Trust I, and Georgia Power Capital Trust II are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. Pollution Control Bonds The Company has incurred obligations in connection with the sale by public authorities of tax-exempt pollution control revenue bonds. The Company has authenticated and delivered to trustees an aggregate of $1.5 billion of its first mortgage bonds, which are pledged as security for its obligations under pollution control revenue contracts. No interest on these first mortgage bonds is payable unless and until a default occurs on the installment purchase or loan agreements. An aggregate of approximately $90 million of the pollution control revenue bonds is secured by a subordinated interest in specific property of the Company. Details of pollution control bonds are as follows: Interest Rates 1996 1995 Maturity - -------------------------------------------------------------- (in millions) 2000 4.375% $ 50 $ 50 2004-2006 5% to 6.75% 143 145 2007-2011 6.375% to 6.40% 10 20 & Variable 2016 8% - 56 2017-2021 6% to 9.375% 235 287 2022-2026 5.40% to 6.75% & Variable 1,233 1,120 - ------------------------------------------------------------- Total pollution control bonds $ 1,671 $1,678 ============================================================= II-123
NOTES (continued) Georgia Power Company 1996 Annual Report Bank Credit Arrangements At the beginning of 1997, the Company had unused credit arrangements with banks totaling $1.1 billion, of which $629.4 million expires at various times during 1997, $48.7 million expires at May 1, 1999, and $400 million expires at June 30, 1999. The $400 million expiring June 30, 1999, is under revolving credit arrangements with several banks providing the Company, Alabama Power Company, and Southern Company up to a total credit amount of $400 million. To provide liquidity support for commercial paper programs, $165 million, $135 million, and $100 million are currently dedicated to the Company, Alabama Power Company, and Southern Company, respectively. However, the allocations can be changed among the borrowers by notifying the respective banks. During the term of the agreements expiring in 1999, short-term borrowings may be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the companies' option. In addition, these agreements require payment of commitment fees based on the unused portions of the commitments or the maintenance of compensating balances with the banks. Of the Company's total $1.1 billion in unused credit arrangements, a portion of the lines is dedicated to provide liquidity support to variable rate pollution control bonds. The credit lines dedicated as of December 31, 1996, were $589.7 million. In connection with all other lines of credit, the Company has the option of paying fees or maintaining compensating balances. These balances are not legally restricted from withdrawal. In addition, the Company borrows under uncommitted lines of credit with banks and through a $225 million commercial paper program that has the liquidity support of committed bank credit arrangements. Average compensating balances held under these committed facilities were not material in 1996. Other Long-Term Debt Assets acquired under capital leases are recorded in the Balance Sheets as utility plant in service, and the related obligations are classified as long-term debt. At December 31, 1996 and 1995, the Company had a capitalized lease obligation for its corporate headquarters building of $87 million with an interest rate of 8.1 percent. The lease agreement provides for payments that are minimal in early years and escalate through the first 21 years of the lease. For ratemaking purposes, the GPSC has treated the lease as an operating lease and has allowed only the lease payments in cost of service. The difference between the accrued expense and the lease payments allowed for ratemaking purposes is being deferred as a cost to be recovered in the future as ordered by the GPSC. At December 31, 1996, and 1995, the interest and lease amortization deferred on the Balance Sheets are $51 million and $49 million, respectively. Assets Subject to Lien The Company's mortgage dated as of March 1, 1941, as amended and supplemented, securing the first mortgage bonds issued by the Company, constitutes a direct lien on substantially all of the Company's fixed property and franchises. Securities Due Within One Year The current portion of the Company's long-term debt and preferred stock is as follows: 1996 1995 ------------------- (in millions) First mortgage bonds $ 61 $150 Preferred stock 49 - - ---------------------------------------------------------------- Total $ 110 $150 ================================================================ The Company's first mortgage bond indenture includes an improvement fund requirement that amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control obligations. The requirement may be satisfied by June 1 of each year by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirement. The 1997 requirement was met in the first quarter of the year by depositing cash with the trustee. These funds, along with cash deposited previously with the trustee to satisfy the 1995 and 1996 improvement fund requirements, were used to redeem bonds. II-124
NOTES (continued) Georgia Power Company 1996 Annual Report Redemption of Securities The Company plans to continue a program of redeeming or replacing debt and preferred stock in cases where opportunities exist to reduce financing costs. Issues may be repurchased in the open market or called at premiums as specified under terms of the issue. They may also be redeemed at face value to meet improvement fund and sinking fund requirements, to meet replacement provisions of the mortgage, or through use of proceeds from the sale of property pledged under the mortgage. In general, for the first five years a series is outstanding, the Company is prohibited from redeeming for improvement fund purposes more than 1 percent annually of the original issue amount. 10. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial information for 1996 and 1995 is as follows: Net Income After Dividends on Operating Operating Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------- (in millions) -------------------------------------------- March 1996 $ 1,029 $192 $ 114 June 1996 1,134 233 154 September 1996 1,311 339 256 December 1996 943 122 56 March 1995 $ 974 $207 $ 116 June 1995 1,075 230 149 September 1995 1,374 337 245 December 1995 982 177 99 - ------------------------------------------------------------------- Earnings in the fourth quarter of 1996, compared to the fourth quarter of 1995, declined primarily as a result of lower retail and wholesale revenues and initiatives to reduce fossil generation materials inventory levels. The Company's business is influenced by seasonal weather conditions. II-125
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Revenues (in thousands) $4,416,779 $4,405,338 $4,162,403 Net Income after Dividends on Preferred Stock (in thousands) $580,327 $608,862 $525,544 Cash Dividends on Common Stock (in thousands) $475,500 $451,500 $429,300 Return on Average Common Equity (percent) 13.73 14.43 12.84 Total Assets (in thousands) $13,071,051 $13,470,275 $13,712,658 Gross Property Additions (in thousands) $428,220 $480,449 $638,426 - ------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $4,154,281 $4,299,012 $4,141,554 Preferred stock 464,611 692,787 692,787 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities 325,000 100,000 100,000 Long-term debt 3,200,419 3,315,460 3,757,823 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $8,144,311 $8,407,259 $8,692,164 =============================================================================================================================== Capitalization Ratios (percent): Common stock equity 51.0 51.1 47.6 Preferred stock 5.7 8.2 8.0 Company obligated mandatorily redeemable preferred securities 4.0 1.2 1.2 Long-term debt 39.3 39.5 43.2 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 =============================================================================================================================== First Mortgage Bonds (in thousands): Issued 10,000 75,000 - Retired 210,860 505,789 133,559 Preferred Stock (in thousands): Issued - - - Retired 179,148 - - Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 225,000 - 100,000 - ------------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A2 Standard and Poor's A+ A+ A Duff & Phelps AA- AA- A+ Preferred Stock - Moody's a2 a2 a3 Standard and Poor's A A A- Duff & Phelps A+ A A- - ------------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,531,453 1,500,024 1,466,382 Commercial 205,087 198,624 193,648 Industrial 10,424 10,796 10,976 Other 2,645 2,568 2,426 - ------------------------------------------------------------------------------------------------------------------------------- Total 1,749,609 1,712,012 1,673,432 =============================================================================================================================== Employees (year-end) 10,346 11,061 11,765 </TABLE> II-126
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> Operating Revenues (in thousands) $4,451,181 $4,297,436 $4,301,428 Net Income after Dividends on Preferred Stock (in thousands) $569,853 $520,538 $474,855 Cash Dividends on Common Stock (in thousands) $402,400 $384,000 $375,200 Return on Average Common Equity (percent) 14.37 13.60 12.76 Total Assets (in thousands) $13,736,110 $10,964,442 $10,842,538 Gross Property Additions (in thousands) $674,432 $508,444 $548,051 - ------------------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $4,045,458 $3,888,237 $3,766,551 Preferred stock 692,787 692,792 607,796 Preferred stock subject to mandatory redemption - 6,250 118,750 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 4,031,387 4,131,016 4,553,189 - ------------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $8,769,632 $8,718,295 $9,046,286 ======================================================================================================================== Capitalization Ratios (percent): Common stock equity 46.1 44.6 41.7 Preferred stock 7.9 8.0 8.0 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 46.0 47.4 50.3 - ------------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) 100.0 100.0 100.0 ======================================================================================================================== First Mortgage Bonds (in thousands): Issued 1,135,000 975,000 - Retired 1,337,822 1,381,300 598,384 Preferred Stock (in thousands): Issued 175,000 195,000 100,000 Retired 245,005 165,004 100,000 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - - ------------------------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's A3 A3 Baa1 Standard and Poor's A- A- BBB+ Duff & Phelps A+ A- BBB+ Preferred Stock - Moody's baa1 baa1 baa1 Standard and Poor's BBB+ BBB+ BBB Duff & Phelps A- BBB BBB- - ------------------------------------------------------------------------------------------------------------------------ Customers (year-end): Residential 1,441,972 1,421,175 1,397,682 Commercial 188,820 183,784 179,933 Industrial 11,217 11,479 11,946 Other 2,322 2,269 2,190 - ------------------------------------------------------------------------------------------------------------------------ Total 1,644,331 1,618,707 1,591,751 ======================================================================================================================== Employees (year-end) 12,528 12,600 13,700 </TABLE> II-127A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1996 Annual Report - ----------------------------------------------------------------------------------------------------------------------------- 1990 1989 1988 - ----------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Revenues (in thousands) $4,445,809 $4,145,240 $3,897,479 Net Income after Dividends on Preferred Stock (in thousands) $208,066 $449,099 $479,532 Cash Dividends on Common Stock (in thousands) $389,600 $394,500 $386,600 Return on Average Common Equity (percent) 5.52 11.72 13.06 Total Assets (in thousands) $11,176,619 $11,372,346 $11,130,539 Gross Property Additions (in thousands) $558,727 $727,631 $929,019 - ----------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $3,673,913 $3,860,657 $3,806,070 Preferred stock 607,796 607,844 657,844 Preferred stock subject to mandatory redemption 125,000 155,000 162,500 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 5,000,225 5,054,001 4,861,378 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $9,406,934 $9,677,502 $9,487,792 ============================================================================================================================= Capitalization Ratios (percent): Common stock equity 39.1 39.9 40.1 Preferred stock 7.8 7.9 8.6 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 53.1 52.2 51.3 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ============================================================================================================================= First Mortgage Bonds (in thousands): Issued 300,000 250,000 150,000 Retired 91,117 91,516 206,677 Preferred Stock (in thousands): Issued - - - Retired 83,750 7,500 3,750 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - - ----------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's Baa1 Baa2 Baa2 Standard and Poor's BBB+ BBB+ BBB Duff & Phelps BBB BBB 9 Preferred Stock - Moody's baa1 baa2 baa2 Standard and Poor's BBB BBB BBB- Duff & Phelps BBB- BBB- 10 - ----------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,378,888 1,355,211 1,329,173 Commercial 178,391 177,814 174,147 Industrial 12,115 12,311 12,353 Other 2,114 2,050 1,993 - ----------------------------------------------------------------------------------------------------------------------------- Total 1,571,508 1,547,386 1,517,666 ============================================================================================================================= Employees (year-end) 13,746 13,900 15,110 </TABLE> II-127B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------ 1987 1986 - ------------------------------------------------------------------------------------------------------ <S> <C> <C> Operating Revenues (in thousands) $3,786,485 $3,561,603 Net Income after Dividends on Preferred Stock (in thousands) $240,057 $535,003 Cash Dividends on Common Stock (in thousands) $377,800 $325,500 Return on Average Common Equity (percent) 6.85 16.51 Total Assets (in thousands) $11,197,494 $10,465,063 Gross Property Additions (in thousands) $1,034,059 $1,598,309 - ------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $3,538,182 $3,469,201 Preferred stock 657,844 732,844 Preferred stock subject to mandatory redemption 166,250 112,500 Company obligated mandatorily redeemable preferred securities - - Long-term debt 4,825,760 4,464,857 - ------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $9,188,036 $8,779,402 ====================================================================================================== Capitalization Ratios (percent): Common stock equity 38.5 39.5 Preferred stock 9.0 9.6 Company obligated mandatorily redeemable preferred securities - - Long-term debt 52.5 50.9 - ------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) 100.0 100.0 ====================================================================================================== First Mortgage Bonds (in thousands): Issued 500,000 500,000 Retired 217,949 377,538 Preferred Stock (in thousands): Issued 125,000 100,000 Retired 150,000 7,500 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - ------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's Baa2 Baa1 Standard and Poor's BBB BBB+ Duff & Phelps 9 9 Preferred Stock - Moody's baa2 baa1 Standard and Poor's BBB- BBB Duff & Phelps 10 10 - ------------------------------------------------------------------------------------------------------ Customers (year-end): Residential 1,303,721 1,268,983 Commercial 169,014 162,258 Industrial 12,307 12,315 Other 1,858 1,816 - ------------------------------------------------------------------------------------------------------ Total 1,486,900 1,445,372 ====================================================================================================== Employees (year-end) 14,924 14,773 </TABLE> II-127C
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1996 Annual Report - ----------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): <S> <C> <C> <C> Residential $1,371,033 $1,337,060 $1,180,358 Commercial 1,486,586 1,449,108 1,367,315 Industrial 1,118,633 1,141,766 1,100,995 Other 47,060 44,255 42,983 - ----------------------------------------------------------------------------------------------------------------------- Total retail 4,023,312 3,972,189 3,691,651 Sales for resale - non-affiliates 281,580 290,302 351,591 Sales for resale - affiliates 35,886 76,906 60,899 - ----------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,340,778 4,339,397 4,104,141 Other revenues 76,001 65,941 58,262 - ----------------------------------------------------------------------------------------------------------------------- Total $4,416,779 $4,405,338 $4,162,403 ======================================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 17,826,451 17,307,399 15,680,709 Commercial 20,823,073 19,844,999 18,738,461 Industrial 26,191,831 25,286,340 24,337,632 Other 536,057 493,720 484,009 - ----------------------------------------------------------------------------------------------------------------------- Total retail 65,377,412 62,932,458 59,240,811 Sales for resale - non-affiliates 7,868,342 6,591,841 7,968,475 Sales for resale - affiliates 1,180,207 2,738,947 3,056,050 - ----------------------------------------------------------------------------------------------------------------------- Total 74,425,961 72,263,246 70,265,336 ======================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 7.69 7.73 7.53 Commercial 7.14 7.30 7.30 Industrial 4.27 4.52 4.52 Total retail 6.15 6.31 6.23 Sales for resale 3.51 3.94 3.74 Total sales 5.83 6.00 5.84 Residential Average Annual Kilowatt-Hour Use Per Customer 11,763 11,654 10,766 Residential Average Annual Revenue Per Customer $904.70 $900.28 $810.39 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,367 14,344 13,943 Maximum Peak-Hour Demand (megawatts) (Note A): Winter 10,410 9,819 10,509 Summer 12,914 12,828 11,758 Annual Load Factor (percent) 62.2 59.6 63.0 Plant Availability (percent): Fossil-steam 85.2 85.8 83.1 Nuclear 89.3 91.8 88.4 - ----------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 60.4 63.0 61.3 Nuclear 18.2 19.3 18.0 Hydro 2.2 2.5 2.6 Oil and gas 0.5 0.6 0.1 Purchased power - From non-affiliates 5.6 7.7 9.7 From affiliates 13.1 6.9 8.3 - ----------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ======================================================================================================================= Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,468 10,039 9,915 Cost of fuel per million BTU (cents) 128.72 143.85 145.33 Average cost of fuel per net kilowatt-hour generated (cents) 1.35 1.44 1.44 ======================================================================================================================= Note A: As of 9/1/91, Georgia Power Company's sales to Oglethorpe Power Company are not included in Peak-Hour Demand. * Less than one-tenth of one percent. </TABLE> II-128
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): <S> <C> <C> <C> Residential $1,291,035 $1,128,396 $1,111,358 Commercial 1,354,130 1,285,681 1,243,067 Industrial 1,113,067 1,083,856 1,057,702 Other 41,399 39,504 37,861 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 3,799,631 3,537,437 3,449,988 Sales for resale - non-affiliates 534,370 640,308 736,643 Sales for resale - affiliates 61,668 67,835 65,586 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 4,395,669 4,245,580 4,252,217 Other revenues 55,512 51,856 49,211 - ------------------------------------------------------------------------------------------------------------------------------ Total $4,451,181 $4,297,436 $4,301,428 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 16,649,859 14,939,172 14,815,089 Commercial 18,278,508 17,260,614 16,885,833 Industrial 23,635,363 22,978,312 22,298,062 Other 460,801 436,144 429,016 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 59,024,531 55,614,242 54,428,000 Sales for resale - non-affiliates 14,307,030 15,870,222 18,719,924 Sales for resale - affiliates 3,027,733 3,320,060 3,885,892 - ------------------------------------------------------------------------------------------------------------------------------ Total 76,359,294 74,804,524 77,033,816 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.75 7.55 7.50 Commercial 7.41 7.45 7.36 Industrial 4.71 4.72 4.74 Total retail 6.44 6.36 6.34 Sales for resale 3.44 3.69 3.55 Total sales 5.76 5.68 5.52 Residential Average Annual Kilowatt-Hour Use Per Customer 11,630 10,603 10,675 Residential Average Annual Revenue Per Customer $901.79 $800.88 $800.78 Plant Nameplate Capacity Ratings (year-end) (megawatts) 13,759 14,076 14,076 Maximum Peak-Hour Demand (megawatts) (Note A): Winter 9,067 8,938 10,001 Summer 12,573 11,448 13,090 Annual Load Factor (percent) 58.5 60.5 55.2 Plant Availability (percent): Fossil-steam 85.9 86.6 93.3 Nuclear 85.5 87.7 81.6 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 62.1 61.4 63.6 Nuclear 16.2 17.0 15.3 Hydro 2.3 2.5 2.3 Oil and gas 0.2 * * Purchased power - From non-affiliates 10.2 12.2 10.3 From affiliates 9.0 6.9 8.5 - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ============================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,912 9,900 9,960 Cost of fuel per million BTU (cents) 153.62 153.08 157.97 Average cost of fuel per net kilowatt-hour generated (cents) 1.52 1.52 1.57 ============================================================================================================================== Note A: As of 9/1/91, Georgia Power Company's sales to Oglethorpe Power Company are not included in Peak-Hour Demand. * Less than one-tenth of one percent. </TABLE> II-129A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------------------------------ 1990 1989 1988 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): <S> <C> <C> <C> Residential $1,109,165 $1,022,781 $979,047 Commercial 1,218,441 1,143,727 1,054,995 Industrial 1,061,830 1,006,416 983,822 Other 36,773 34,775 31,743 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 3,426,209 3,207,699 3,049,607 Sales for resale - non-affiliates 784,086 760,809 707,076 Sales for resale - affiliates 168,251 150,394 86,751 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 4,378,546 4,118,902 3,843,434 Other revenues 67,263 26,338 54,045 - ------------------------------------------------------------------------------------------------------------------------------ Total $4,445,809 $4,145,240 $3,897,479 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 14,771,648 14,134,195 13,800,038 Commercial 16,627,128 15,843,181 14,790,561 Industrial 22,126,604 21,801,404 21,412,845 Other 428,459 414,107 397,669 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 53,953,839 52,192,887 50,401,113 Sales for resale - non-affiliates 20,158,681 20,479,412 18,544,705 Sales for resale - affiliates 8,272,528 7,489,948 3,327,814 - ------------------------------------------------------------------------------------------------------------------------------ Total 82,385,048 80,162,247 72,273,632 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.51 7.24 7.09 Commercial 7.33 7.22 7.13 Industrial 4.80 4.62 4.59 Total retail 6.35 6.15 6.05 Sales for resale 3.35 3.26 3.63 Total sales 5.31 5.14 5.32 Residential Average Annual Kilowatt-Hour Use Per Customer 10,795 10,530 10,484 Residential Average Annual Revenue Per Customer $810.56 $761.96 $743.82 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,366 14,366 13,018 Maximum Peak-Hour Demand (megawatts) (Note A): Winter 8,977 10,101 9,866 Summer 13,196 12,735 12,295 Annual Load Factor (percent) 55.5 56.3 59.1 Plant Availability (percent): Fossil-steam 92.5 93.0 94.5 Nuclear 81.3 89.2 69.4 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 65.1 64.0 72.0 Nuclear 13.7 14.1 9.6 Hydro 2.2 2.1 1.2 Oil and gas 0.1 0.1 0.1 Purchased power - From non-affiliates 11.0 10.2 8.2 From affiliates 7.9 9.5 8.9 - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ============================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,939 10,020 9,969 Cost of fuel per million BTU (cents) 166.22 164.27 166.28 Average cost of fuel per net kilowatt-hour generated (cents) 1.65 1.65 1.66 ============================================================================================================================== Note A: As of 9/1/91, Georgia Power Company's sales to Oglethorpe Power Company are not included in Peak-Hour Demand. * Less than one-tenth of one percent. </TABLE> II-129B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------------- 1987 1986 - ------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): <S> <C> <C> Residential $904,218 $874,231 Commercial 915,540 854,755 Industrial 911,933 897,646 Other 29,350 27,948 - ------------------------------------------------------------------------------------------------------------- Total retail 2,761,041 2,654,580 Sales for resale - non-affiliates 822,696 780,049 Sales for resale - affiliates 159,998 91,753 - ------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 3,743,735 3,526,382 Other revenues 42,750 35,221 - ------------------------------------------------------------------------------------------------------------- Total $3,786,485 $3,561,603 ============================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 13,675,730 13,234,248 Commercial 13,799,379 12,945,926 Industrial 20,884,454 20,339,235 Other 385,514 381,917 - ------------------------------------------------------------------------------------------------------------- Total retail 48,745,077 46,901,326 Sales for resale - non-affiliates 20,910,185 18,198,186 Sales for resale - affiliates 6,032,889 3,160,242 - ------------------------------------------------------------------------------------------------------------- Total 75,688,151 68,259,754 ============================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 6.61 6.61 Commercial 6.63 6.60 Industrial 4.37 4.41 Total retail 5.66 5.66 Sales for resale 3.65 4.08 Total sales 4.95 5.17 Residential Average Annual Kilowatt-Hour Use Per Customer 10,623 10,577 Residential Average Annual Revenue Per Customer $702.36 $698.72 Plant Nameplate Capacity Ratings (year-end) (megawatts) 13,018 11,875 Maximum Peak-Hour Demand (megawatts) (Note A): Winter 9,446 10,551 Summer 12,390 11,910 Annual Load Factor (percent) 56.1 57.5 Plant Availability (percent): Fossil-steam 92.7 91.2 Nuclear 85.4 64.7 - --------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 70.9 74.6 Nuclear 9.1 5.0 Hydro 1.7 1.2 Oil and gas 0.1 0.6 Purchased power - From non-affiliates 8.5 8.9 From affiliates 9.7 9.7 - -------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 ============================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,932 10,016 Cost of fuel per million BTU (cents) 168.81 175.81 Average cost of fuel per net kilowatt-hour generated (cents) 1.68 1.76 ============================================================================================================== Note A: As of 9/1/91, Georgia Power Company's sales to Oglethorpe Power Company are not included in Peak-Hour Demand. * Less than one-tenth of one percent. </TABLE> II-129C
<TABLE> <CAPTION> STATEMENTS OF INCOME Georgia Power Company <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $4,380,893 $4,328,432 $4,101,504 Revenues from affiliates 35,886 76,906 60,899 - ------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,416,779 4,405,338 4,162,403 - ------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 835,194 900,973 870,653 Purchased power from non-affiliates 157,308 183,009 193,130 Purchased power from affiliates 229,324 131,740 158,063 Provision for separation benefits 39,099 10,607 82,238 Proceeds from settlement of disputed contracts - - - Other 741,383 735,918 643,375 Maintenance 315,934 292,029 272,818 Depreciation and amortization 432,940 421,850 379,158 Deferred Plant Vogtle expenses, net 136,650 124,454 74,888 Taxes other than income taxes 207,098 204,675 194,566 Federal and state income taxes 435,904 449,204 399,413 - ------------------------------------------------------------------------------------------------------------------- Total operating expenses 3,530,834 3,454,459 3,268,302 - ------------------------------------------------------------------------------------------------------------------- Operating Income 885,945 950,879 894,101 Other Income (Expense): Allowance for equity funds used during construction 3,144 2,734 5,663 Equity in earnings of unconsolidated subsidiary 3,851 4,051 3,588 Deferred return on Plant Vogtle - - - Write-off of Plant Vogtle costs - - - Income tax reduction for write-off of Plant Vogtle costs - - - Interest income 5,333 5,524 3,254 Other, net (See note) (43,502) (8,973) 10,626 Income taxes applicable to other income 18,581 3,022 7,975 - ------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 873,352 957,237 925,207 - ------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 207,851 254,607 306,473 Allowance for debt funds used during construction (11,416) (12,081) (11,571) Interest on interim obligations 15,478 21,463 17,529 Amortization of debt discount, premium, and expense, net 14,790 15,835 15,743 Other interest charges 6,338 11,399 23,183 Distributions on preferred securities of subsidiary companies 14,958 9,000 300 - ------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 247,999 300,223 351,657 - ------------------------------------------------------------------------------------------------------------------- Net Income 625,353 657,014 573,550 Dividends on Preferred Stock 45,026 48,152 48,006 - ------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 580,327 $ 608,862 $ 525,544 =================================================================================================================== Note: Reflects major sales of facilities to JEA, FP& L, OPC, MEAG, and Dalton. Increases in net income, after total taxes, from these sales were $12,312,000 in 1995, $11,275,000 in 1994, $23,191,000 in 1993, $14,542,000 in 1991, $6,336,000 in 1990, and $3,851,000 in 1987. </TABLE> II-130
STATEMENTS OF INCOME Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $4,389,513 $4,229,601 $4,235,842 $4,277,558 Revenues from affiliates 61,668 67,835 65,586 168,251 - --------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,451,181 4,297,436 4,301,428 4,445,809 - --------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 951,507 929,780 998,701 1,120,933 Purchased power from non-affiliates 313,170 436,761 444,920 626,989 Purchased power from affiliates 194,024 158,306 193,114 173,716 Provision for separation benefits - 9,778 52,952 - Proceeds from settlement of disputed contracts - (4,982) (142,183) - Other 675,284 616,116 596,565 524,665 Maintenance 284,521 264,757 295,012 280,304 Depreciation and amortization 379,425 375,460 382,549 380,394 Deferred Plant Vogtle expenses, net 36,284 (30,804) 16,008 31,146 Taxes other than income taxes 192,671 179,460 172,893 151,124 Federal and state income taxes 452,122 377,542 349,284 270,561 - --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 3,479,008 3,312,174 3,359,815 3,559,832 - --------------------------------------------------------------------------------------------------------------------------------- Operating Income 972,173 985,262 941,613 885,977 Other Income (Expense): Allowance for equity funds used during construction 3,168 5,855 9,083 6,985 Equity in earnings of unconsolidated subsidiary 4,127 4,635 4,576 4,182 Deferred return on Plant Vogtle - - 34,549 82,721 Write-off of Plant Vogtle costs - - - (281,254) Income tax reduction for write-off of Plant Vogtle costs - - - 63,231 Interest income 3,806 12,475 10,563 7,552 Other, net (See note) 11,902 (30,527) 13,551 (21,199) Income taxes applicable to other income 37,661 25,163 (7,522) 20,859 - --------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,032,837 1,002,863 1,006,413 769,054 - --------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 343,634 402,541 459,184 480,174 Allowance for debt funds used during construction (8,271) (8,310) (10,385) (9,325) Interest on interim obligations 15,530 9,694 4,906 8,512 Amortization of debt discount, premium, and expense, net 14,024 8,033 6,214 6,100 Other interest charges 47,393 12,425 9,938 9,404 Distributions on preferred securities of subsidiary companies - - - - - --------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 412,310 424,383 469,857 494,865 - --------------------------------------------------------------------------------------------------------------------------------- Net Income 620,527 578,480 536,556 274,189 Dividends on Preferred Stock 50,674 57,942 61,701 66,123 - --------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 569,853 $ 520,538 $ 474,855 $ 208,066 ================================================================================================================================= Note: Reflects major sales of facilities to JEA, FP& L, OPC, MEAG, and Dalton. Increases in net income, after total taxes, from these sales were $12,312,000 in 1995, $11,275,000 in 1994, $23,191,000 in 1993, $14,542,000 in 1991, $6,336,000 in 1990, and $3,851,000 in 1987. </TABLE> II-131A
STATEMENTS OF INCOME Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - --------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $3,994,846 $3,810,728 $3,626,487 $3,469,850 Revenues from affiliates 150,394 86,751 159,998 91,753 - --------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,145,240 3,897,479 3,786,485 3,561,603 - --------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 1,078,586 1,023,173 1,064,552 1,012,949 Purchased power from non-affiliates 543,448 546,511 530,051 344,708 Purchased power from affiliates 195,355 164,873 199,831 192,297 Provision for separation benefits - - - - Proceeds from settlement of disputed contracts - - - - Other 504,743 541,975 575,182 513,974 Maintenance 233,680 246,877 274,672 275,533 Depreciation and amortization 346,091 306,492 254,929 215,763 Deferred Plant Vogtle expenses, net (39,211) (8,333) (141,977) - Taxes other than income taxes 128,518 146,759 143,289 119,768 Federal and state income taxes 273,287 204,222 250,093 319,374 - --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 3,264,497 3,172,549 3,150,622 2,994,366 - --------------------------------------------------------------------------------------------------------------------------------- Operating Income 880,743 724,930 635,863 567,237 Other Income (Expense): Allowance for equity funds used during construction 40,525 96,530 159,414 275,183 Equity in earnings of unconsolidated subsidiary 3,750 3,302 3,440 2,967 Deferred return on Plant Vogtle 48,096 107,310 115,028 - Write-off of Plant Vogtle costs - - (357,821) - Income tax reduction for write-off of Plant Vogtle costs - - 128,923 - Interest income 10,333 28,445 55,388 44,615 Other, net (See note) (20,603) (3,746) (55,081) (28,464) Income taxes applicable to other income 15,573 6,583 17,344 5,154 - --------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 978,417 963,354 702,498 866,692 - --------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 475,991 471,897 480,519 472,744 Allowance for debt funds used during construction (34,244) (95,818) (130,756) (225,897) Interest on interim obligations 1,059 15,084 16,362 1,954 Amortization of debt discount, premium, and expense, net 5,865 5,466 3,573 2,681 Other interest charges 8,868 14,556 12,239 4,610 Distributions on preferred securities of subsidiary companies - - - - - --------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 457,539 411,185 381,937 256,092 - --------------------------------------------------------------------------------------------------------------------------------- Net Income 520,878 552,169 320,561 610,600 Dividends on Preferred Stock 71,779 72,637 80,504 75,597 - --------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 449,099 $ 479,532 $ 240,057 $ 535,003 ================================================================================================================================= Note: Reflects major sales of facilities to JEA, FP& L, OPC, MEAG, and Dalton. Increases in net income, after total taxes, from these sales were $12,312,000 in 1995, $11,275,000 in 1994, $23,191,000 in 1993, $14,542,000 in 1991, $6,336,000 in 1990, and $3,851,000 in 1987. </TABLE> II-131B
STATEMENTS OF CASH FLOWS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 625,353 $ 657,014 $ 573,550 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 521,086 527,310 484,032 Deferred income taxes, net 35,700 37,150 33,567 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (3,144) (2,734) (5,663) Amortization of deferred Plant Vogtle costs, net 136,650 124,454 74,888 Write-off of Plant Vogtle costs - - - Non-cash portion of separation benefits - - 68,599 Non-cash proceeds from settlement of disputed contracts - - - Other, net 53,415 134 (95,314) Changes in certain current assets and liabilities: Receivables, net 9,421 (59,370) 67,218 Inventories 55,753 30,761 (63,545) Payables (35,651) 45,882 5,409 Other (11,595) 57,422 (5,675) - -------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,386,988 1,418,023 1,137,066 - -------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (428,220) (480,449) (638,426) Sales of property 3,319 131,099 132,644 Other (16,468) (42,579) (41,273) - -------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (441,369) (391,929) (547,055) - -------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities 225,000 - 100,000 Preferred stock - - - First mortgage bonds 10,000 75,000 - Pollution control bonds 112,825 504,700 527,210 Other long-term debt - - - Capital contributions from parent company - - - Retirements: Preferred stock (179,148) - - First mortgage bonds (210,860) (505,789) (133,559) Pollution control bonds (119,665) (504,810) (510,320) Other long-term debt - (37,000) (10,187) Interim obligations, net 30,166 (24,472) (57,425) Special deposits -- redemption funds (44,454) - - Capital distribution to parent company (250,000) - - Payment of preferred stock dividends (46,911) (48,419) (47,147) Payment of common stock dividends (475,500) (451,500) (429,300) Miscellaneous (10,646) (17,413) (22,640) - -------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (959,193) (1,009,703) (583,368) - -------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (13,574) 16,391 6,643 Cash and Cash Equivalents at Beginning of Year 28,930 12,539 5,896 ==================================================================================================================== Cash and Cash Equivalents at End of Year $ 15,356 $ 28,930 $ 12,539 ==================================================================================================================== </TABLE> ( ) Denotes use of cash. II-132
STATEMENTS OF CASH FLOWS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 620,527 $ 578,480 $ 536,556 $ 274,189 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 475,152 471,014 480,318 502,098 Deferred income taxes, net 169,009 194,955 53,219 88,667 Deferred investment tax credits, net (18,274) (5,704) (9,524) (52) Allowance for equity funds used during construction (3,168) (5,855) (9,083) (6,985) Amortization of deferred Plant Vogtle costs, net 36,284 (30,804) (18,541) (51,575) Write-off of Plant Vogtle costs - - - 281,254 Non-cash portion of separation benefits - - - - Non-cash proceeds from settlement of disputed contracts - (4,982) (103,846) - Other, net (46,227) (9,768) (26,024) (50,804) Changes in certain current assets and liabilities: Receivables, net 27,088 (31,348) 23,920 1,444 Inventories 82,433 (65,621) 24,130 (23,498) Payables 17,364 25,303 (23,075) (43,470) Other (94,574) (85,961) 54,777 (9,991) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,265,614 1,029,709 982,827 961,277 - ---------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (674,432) (508,444) (548,051) (558,727) Sales of property 261,687 46 291,075 34,573 Other (43,154) 42,892 931 1,937 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (455,899) (465,506) (256,045) (522,217) - ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities - - - - Preferred stock 175,000 195,000 100,000 - First mortgage bonds 1,135,000 975,000 - 300,000 Pollution control bonds 145,425 161,955 80,420 - Other long-term debt 37,000 - - - Capital contributions from parent company - - - - Retirements: Preferred stock (245,005) (165,004) (100,000) (83,750) First mortgage bonds (1,337,822) (1,381,300) (598,384) (91,117) Pollution control bonds (145,465) (160,205) (83,265) (535) Other long-term debt (19,451) (567) (1,130) (114,452) Interim obligations, net (51,444) 334,671 199,000 - Special deposits -- redemption funds - - - - Capital distribution to parent company - - - - Payment of preferred stock dividends (53,123) (60,475) (60,766) (67,757) Payment of common stock dividends (402,400) (384,000) (375,200) (389,600) Miscellaneous (63,648) (70,986) (17,613) (7,663) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (825,933) (555,911) (856,938) (454,874) - ---------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (16,218) 8,292 (130,156) (15,814) Cash and Cash Equivalents at Beginning of Year 22,114 13,822 143,978 159,792 ================================================================================================================================== Cash and Cash Equivalents at End of Year $ 5,896 $ 22,114 $ 13,822 $ 143,978 ================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-133A
STATEMENTS OF CASH FLOWS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 520,878 $ 552,169 $ 320,561 $ 610,600 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 484,870 400,665 336,647 260,945 Deferred income taxes, net 184,490 160,774 76,445 236,822 Deferred investment tax credits, net (8,017) 11,605 (5,075) 106,407 Allowance for equity funds used during construction (40,525) (96,530) (159,414) (275,183) Amortization of deferred Plant Vogtle costs, net (87,307) (115,643) (257,005) - Write-off of Plant Vogtle costs - - 357,821 - Non-cash portion of separation benefits - - - - Non-cash proceeds from settlement of disputed contracts - - - - Other, net (38,046) 6,983 (759) 5,554 Changes in certain current assets and liabilities: Receivables, net (59,035) 11,225 (6,880) (7,474) Inventories (33,123) (10,044) (72,540) (26,863) Payables (38,976) (2,065) 74,341 133,044 Other 36,015 1,161 2,751 19,682 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 921,224 920,300 666,893 1,063,534 - ---------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (727,631) (929,019) (1,034,059) (1,598,309) Sales of property - - 12,276 - Other 47,260 35,328 45,801 168,518 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (680,371) (893,691) (975,982) (1,429,791) - ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities - - - - Preferred stock - - 125,000 100,000 First mortgage bonds 250,000 150,000 500,000 500,000 Pollution control bonds 50,000 69,526 191,736 350,001 Other long-term debt - - - 113,000 Capital contributions from parent company - 175,000 228,000 250,000 Retirements: Preferred stock (7,500) (3,750) (150,000) (7,500) First mortgage bonds (91,516) (206,677) (217,949) (377,538) Pollution control bonds (505) (475) (90,000) - Other long-term debt (3,806) (2,878) (2,824) (108) Interim obligations, net - (302,261) 302,261 (36,715) Special deposits -- redemption funds - - - - Capital distribution to parent company - - - - Payment of preferred stock dividends (72,259) (72,931) (80,420) (73,665) Payment of common stock dividends (394,500) (386,600) (377,800) (325,500) Miscellaneous (4,742) (13,440) (51,745) (33,773) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (274,828) (594,486) 376,259 458,202 - ---------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (33,975) (567,877) 67,170 91,945 Cash and Cash Equivalents at Beginning of Year 193,767 761,644 694,474 602,529 ================================================================================================================================== Cash and Cash Equivalents at End of Year $ 159,792 $ 193,767 $ 761,644 $ 694,474 ================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-133B
BALANCE SHEETS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------ At December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,140,069 $ 3,105,165 $ 3,077,470 Nuclear 4,097,192 4,082,098 4,075,339 Hydro 644,826 642,237 443,466 - ------------------------------------------------------------------------------------------------------------------------ Total production 7,882,087 7,829,500 7,596,275 Transmission 1,862,384 1,822,778 1,754,945 Distribution 4,090,262 3,949,238 3,777,279 General 934,840 937,079 926,418 Construction work in progress 256,141 236,715 541,889 Nuclear fuel, at amortized cost 121,840 124,849 136,425 - ------------------------------------------------------------------------------------------------------------------------ Total electric plant 15,147,554 14,900,159 14,733,231 Steam Heat Plant - - - - ------------------------------------------------------------------------------------------------------------------------ Total utility plant 15,147,554 14,900,159 14,733,231 - ------------------------------------------------------------------------------------------------------------------------ Accumulated Provision for Depreciation: Electric 4,793,638 4,417,120 4,054,986 Steam heat - - - - ------------------------------------------------------------------------------------------------------------------------ Total accumulated provision for depreciation 4,793,638 4,417,120 4,054,986 - ------------------------------------------------------------------------------------------------------------------------ Total 10,353,916 10,483,039 10,678,245 Less property-related accumulated deferred income taxes - - - - ------------------------------------------------------------------------------------------------------------------------ Total 10,353,916 10,483,039 10,678,245 - ------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts - - - Nuclear decommissioning trusts 130,178 92,273 54,297 Miscellaneous 129,819 147,615 116,527 - ------------------------------------------------------------------------------------------------------------------------ Total 259,997 239,888 170,824 - ------------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 15,356 28,930 12,539 Investment securities - - - Receivables, net 463,502 411,038 389,279 Accrued utility revenues 104,420 121,146 103,223 Fossil fuel stock, at average cost 117,382 145,151 169,252 Materials and supplies, at average cost 258,820 286,804 293,464 Prepayments 109,771 107,764 55,383 Vacation pay deferred 39,965 35,543 40,823 - ------------------------------------------------------------------------------------------------------------------------ Total 1,109,216 1,136,376 1,063,963 - ------------------------------------------------------------------------------------------------------------------------ Deferred Charges: Deferred charges related to income taxes 818,418 871,783 919,750 Deferred Plant Vogtle costs 170,988 307,638 432,092 Debt expense, being amortized 32,693 27,227 26,223 Premium on reacquired debt, being amortized 166,670 174,018 164,676 Miscellaneous 159,153 230,306 256,885 - ------------------------------------------------------------------------------------------------------------------------ Total 1,347,922 1,610,972 1,799,626 - ------------------------------------------------------------------------------------------------------------------------ Total Assets $13,071,051 $13,470,275 $13,712,658 ======================================================================================================================== </TABLE> II-134
BALANCE SHEETS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 2,976,806 $ 3,144,405 $ 3,128,594 $ 3,350,018 Nuclear 4,069,299 4,051,020 4,051,043 4,025,862 Hydro 442,888 434,341 432,674 412,157 - --------------------------------------------------------------------------------------------------------------------------------- Total production 7,488,993 7,629,766 7,612,311 7,788,037 Transmission 1,713,122 1,646,904 1,566,173 1,522,157 Distribution 3,600,115 3,413,681 3,252,111 3,056,825 General 941,291 923,010 896,477 876,989 Construction work in progress 584,013 405,606 390,437 370,243 Nuclear fuel, at amortized cost 135,742 155,194 191,726 210,320 - --------------------------------------------------------------------------------------------------------------------------------- Total electric plant 14,463,276 14,174,161 13,909,235 13,824,571 Steam Heat Plant - - - - - --------------------------------------------------------------------------------------------------------------------------------- Total utility plant 14,463,276 14,174,161 13,909,235 13,824,571 - --------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 3,822,344 3,569,717 3,315,247 3,040,298 Steam heat - - - - - --------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 3,822,344 3,569,717 3,315,247 3,040,298 - --------------------------------------------------------------------------------------------------------------------------------- Total 10,640,932 10,604,444 10,593,988 10,784,273 Less property-related accumulated deferred income taxes - 1,589,743 1,465,408 1,397,647 - --------------------------------------------------------------------------------------------------------------------------------- Total 10,640,932 9,014,701 9,128,580 9,386,626 - --------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - 107,993 - Nuclear decommissioning trusts 37,937 20,311 10,007 - Miscellaneous 61,142 55,463 71,880 78,895 - --------------------------------------------------------------------------------------------------------------------------------- Total 99,079 75,774 189,880 78,895 - --------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 5,896 22,114 13,822 143,978 Investment securities - 108,206 - - Receivables, net 515,178 385,227 330,411 356,236 Accrued utility revenues 99,550 88,164 79,099 78,067 Fossil fuel stock, at average cost 111,620 197,332 200,248 225,966 Materials and supplies, at average cost 287,551 284,272 215,735 220,103 Prepayments 65,269 91,447 96,750 121,646 Vacation pay deferred 41,575 40,169 39,769 33,677 - --------------------------------------------------------------------------------------------------------------------------------- Total 1,126,639 1,216,931 975,834 1,179,673 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 992,510 - - - Deferred Plant Vogtle costs 506,980 383,025 375,028 364,446 Debt expense, being amortized 20,730 17,719 12,368 12,708 Premium on reacquired debt, being amortized 153,146 116,940 70,855 60,653 Miscellaneous 196,094 139,352 89,993 93,618 - --------------------------------------------------------------------------------------------------------------------------------- Total 1,869,460 657,036 548,244 531,425 - --------------------------------------------------------------------------------------------------------------------------------- Total Assets $13,736,110 $10,964,442 $10,842,538 $11,176,619 ================================================================================================================================= </TABLE> II-135A
BALANCE SHEETS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,319,876 $ 2,638,725 $ 2,616,741 $ 2,138,511 Nuclear 4,189,723 3,225,945 3,220,632 739,835 Hydro 411,235 407,771 404,291 399,120 - ---------------------------------------------------------------------------------------------------------------------------------- Total production 7,920,834 6,272,441 6,241,664 3,277,466 Transmission 1,431,485 1,322,034 1,248,976 1,176,479 Distribution 2,863,011 2,598,714 2,318,185 2,096,498 General 859,013 737,621 657,258 578,236 Construction work in progress 403,365 1,963,283 1,710,769 4,430,152 Nuclear fuel, at amortized cost 254,101 307,109 287,492 314,225 - ---------------------------------------------------------------------------------------------------------------------------------- Total electric plant 13,731,809 13,201,202 12,464,344 11,873,056 Steam Heat Plant - - 7 15,266 - ---------------------------------------------------------------------------------------------------------------------------------- Total utility plant 13,731,809 13,201,202 12,464,351 11,888,322 - ---------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 2,762,937 2,445,404 2,193,395 2,001,605 Steam heat - - (5) 7,841 - ---------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 2,762,937 2,445,404 2,193,390 2,009,446 - ---------------------------------------------------------------------------------------------------------------------------------- Total 10,968,872 10,755,798 10,270,961 9,878,876 Less property-related accumulated deferred income taxes 1,313,626 1,178,291 1,077,747 1,020,271 - ---------------------------------------------------------------------------------------------------------------------------------- Total 9,655,246 9,577,507 9,193,214 8,858,605 - ---------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - - Nuclear decommissioning trusts - - - - Miscellaneous 69,839 66,677 54,148 50,749 - ---------------------------------------------------------------------------------------------------------------------------------- Total 69,839 66,677 54,148 50,749 - ---------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 159,792 193,767 761,644 694,474 Investment securities - - - - Receivables, net 347,899 320,018 342,315 374,590 Accrued utility revenues 93,786 66,265 68,370 55,513 Fossil fuel stock, at average cost 214,487 225,274 262,752 220,206 Materials and supplies, at average cost 208,084 164,174 116,652 86,658 Prepayments 116,342 121,840 113,381 44,800 Vacation pay deferred 35,238 34,418 30,100 29,800 - ---------------------------------------------------------------------------------------------------------------------------------- Total 1,175,628 1,125,756 1,695,214 1,506,041 - ---------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - - Deferred Plant Vogtle costs 322,116 269,958 172,990 - Debt expense, being amortized 13,032 12,476 12,985 12,860 Premium on reacquired debt, being amortized 61,889 62,352 51,509 26,914 Miscellaneous 74,596 15,813 17,434 9,894 - ---------------------------------------------------------------------------------------------------------------------------------- Total 471,633 360,599 254,918 49,668 - ---------------------------------------------------------------------------------------------------------------------------------- Total Assets $11,372,346 $11,130,539 $11,197,494 $10,465,063 ================================================================================================================================== </TABLE> II-135B
BALANCE SHEETS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 344,250 $ 344,250 $ 344,250 Paid-in capital 2,134,886 2,384,444 2,384,348 Premium on preferred stock 371 413 413 Earnings retained in the business 1,674,774 1,569,905 1,412,543 - ----------------------------------------------------------------------------------------------------------------------------- Total common equity 4,154,281 4,299,012 4,141,554 Preferred stock 464,611 692,787 692,787 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes 325,000 100,000 100,000 Long-term debt 3,200,419 3,315,460 3,757,823 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 8,144,311 8,407,259 8,692,164 - ----------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 207,300 178,000 202,200 Commercial paper 223,196 222,330 222,602 Preferred stock due within one year 49,028 - - Long-term debt due within one year 60,622 150,446 167,420 Accounts payable 329,914 389,156 355,067 Customer deposits 64,901 53,145 47,017 Taxes accrued 116,158 104,392 93,019 Interest accrued 79,936 96,162 110,256 Vacation pay accrued 38,597 34,233 39,720 Miscellaneous 114,530 137,184 70,006 - ----------------------------------------------------------------------------------------------------------------------------- Total 1,284,182 1,365,048 1,307,307 - ----------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 2,522,945 2,510,458 2,477,661 Accumulated deferred investment tax credits 415,477 432,184 453,121 Disallowed Plant Vogtle capacity buyback costs 57,250 58,514 60,490 Deferred credits related to income taxes 382,381 410,016 433,334 Miscellaneous 264,505 286,796 288,581 - ----------------------------------------------------------------------------------------------------------------------------- Total 3,642,558 3,697,968 3,713,187 - ----------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $13,071,051 $13,470,275 $13,712,658 ============================================================================================================================= </TABLE>
II-136 BALANCE SHEETS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 344,250 $ 344,250 $ 344,250 $ 344,250 Paid-in capital 2,384,348 2,384,140 2,383,800 2,383,800 Premium on preferred stock 413 467 489 1,089 Earnings retained in the business 1,316,447 1,159,380 1,038,012 944,774 - ---------------------------------------------------------------------------------------------------------------------------------- Total common equity 4,045,458 3,888,237 3,766,551 3,673,913 Preferred stock 692,787 692,792 607,796 607,796 Preferred stock subject to mandatory redemption - 6,250 118,750 125,000 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes - - - - Long-term debt 4,031,387 4,131,016 4,553,189 5,000,225 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 8,769,632 8,718,295 9,046,286 9,406,934 - ---------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 406,700 400,200 199,000 - Commercial paper 75,527 133,471 - - Preferred stock due within one year - 63,750 6,250 - Long-term debt due within one year 10,543 95,823 54,976 204,906 Accounts payable 324,044 317,351 275,932 310,676 Customer deposits 45,922 45,145 41,623 38,144 Taxes accrued 153,493 138,289 161,117 84,185 Interest accrued 110,497 132,319 151,171 175,959 Vacation pay accrued 40,060 38,694 38,531 33,677 Miscellaneous 64,527 89,355 106,810 135,392 - ---------------------------------------------------------------------------------------------------------------------------------- Total 1,231,313 1,454,397 1,035,410 982,939 - ---------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 2,479,720 - - - Accumulated deferred investment tax credits 478,334 515,539 540,134 576,837 Disallowed Plant Vogtle capacity buyback costs 63,067 72,201 109,537 135,926 Deferred credits related to income taxes 452,819 - - - Miscellaneous 261,225 204,010 111,171 73,983 - ---------------------------------------------------------------------------------------------------------------------------------- Total 3,735,165 791,750 760,842 786,746 - ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $13,736,110 $10,964,442 $10,842,538 $11,176,619 ================================================================================================================================== </TABLE>
BALANCE SHEETS Georgia Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 344,250 $ 344,250 $ 344,250 $ 344,250 Paid-in capital 2,383,800 2,383,800 2,208,800 1,980,800 Premium on preferred stock 1,089 1,089 1,089 3,074 Earnings retained in the business 1,131,518 1,076,931 984,043 1,141,077 - ---------------------------------------------------------------------------------------------------------------------------------- Total common equity 3,860,657 3,806,070 3,538,182 3,469,201 Preferred stock 607,844 657,844 657,844 732,844 Preferred stock subject to mandatory redemption 155,000 162,500 166,250 112,500 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes - - - - Long-term debt 5,054,001 4,861,378 4,825,760 4,464,857 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 9,677,502 9,487,792 9,188,036 8,779,402 - ---------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - - 302,261 - Commercial paper - - - - Preferred stock due within one year 53,750 3,750 3,750 7,500 Long-term debt due within one year 54,712 42,001 65,774 47,683 Accounts payable 372,968 429,807 446,004 488,910 Customer deposits 36,255 34,221 31,106 29,520 Taxes accrued 91,424 130,686 114,947 140,968 Interest accrued 162,513 170,090 162,439 150,145 Vacation pay accrued 35,238 34,418 30,100 29,800 Miscellaneous 130,546 51,289 62,364 70,595 - ---------------------------------------------------------------------------------------------------------------------------------- Total 937,406 896,262 1,218,745 965,121 - ---------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - - Accumulated deferred investment tax credits 601,248 632,111 640,694 665,447 Disallowed Plant Vogtle capacity buyback costs 73,111 80,585 79,376 - Deferred credits related to income taxes - - - - Miscellaneous 83,079 33,789 70,643 55,093 - ---------------------------------------------------------------------------------------------------------------------------------- Total 757,438 746,485 790,713 720,540 - ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $11,372,346 $11,130,539 $11,197,494 $10,465,063 ================================================================================================================================== </TABLE> II-137B
GEORGIA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1996 <TABLE> <CAPTION> <S> <C> <C> <C> <C> First Mortgage Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ------------------------------------------------------------------------------------------------------ (Thousands) (Thousands) 1993 $ 100,000 5-1/2% $ 100,000 4/1/98 1992 195,000 6-1/8% 195,000 9/1/99 1993 100,000 6% 100,000 3/1/00 1992 100,000 7% 100,000 10/1/00 1992 150,000 6-7/8% 150,000 9/1/02 1993 200,000 6-5/8% 200,000 4/1/03 1993 75,000 6.35% 75,000 8/1/03 1993 50,000 6-7/8% 50,000 4/1/08 1992 100,000 8-5/8% 60,258 6/1/22 1993 160,000 7.95% 138,250 2/1/23 1993 100,000 7-5/8% 84,000 3/1/23 1993 75,000 7-3/4% 70,000 4/1/23 1993 125,000 7.55% 120,000 8/1/23 1995 75,000 7.70% 62,000 5/1/25 1996 10,000 6.07% 10,000 12/1/05 ========== ========== $1,615,000 $1,514,508 ========== ========== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ------------------------------------------------------------------------------------------------------ (Thousands) (Thousands) 1995 $ 50,000 4-3/8% $ 50,000 11/1/00 1992 38,800 5.70% 38,800 9/1/04 1993 46,790 5-3/8% 46,790 3/1/05 1995 57,000 5% 57,000 9/1/05 1991 10,450 Variable 10,450 7/1/11 1987 90,000 8-3/8% 90,000 7/1/17 1987 50,000 9-3/8% 50,000 12/1/17 1993 26,700 6% 26,700 3/1/18 1989 50,000 6.35% 50,000 5/1/19 1991 8,500 6.25% 8,500 7/1/19 1991 10,125 6.25% 10,125 7/1/21 1992 13,155 Variable 13,155 5/1/22 1992 75,000 6.20% 75,000 8/1/22 1992 35,000 6.20% 35,000 9/1/22 1993 11,935 5-3/4% 11,935 9/1/23 1993 60,000 5-3/4% 60,000 9/1/23 1994 28,065 5.40% 28,065 1/1/24 1994 175,000 Variable 175,000 7/1/24 1994 125,000 6.60% 125,000 7/1/24 1994 60,000 6-3/8% 60,000 8/1/24 1994 43,420 6-3/4% 43,420 10/1/24 1994 20,000 Variable 20,000 10/1/24 1994 20,000 Variable 20,000 10/1/24 1994 38,725 6-5/8% 38,725 10/1/24 1994 10,000 5.90% 10,000 12/1/24 1994 7,000 5.90% 7,000 12/1/24 1995 73,535 6.10% 73,535 4/1/25 1995 75,000 Variable 75,000 4/1/25 1995 45,000 Variable 45,000 7/1/25 1995 40,000 Variable 40,000 7/1/25 1995 71,580 6% 71,580 7/1/25 1995 35,585 Variable 35,585 9/1/25 1995 30,000 Variable 30,000 9/1/25 1995 27,000 Variable 27,000 9/1/25 1996 51,345 Variable 51,345 6/1/23 1996 15,480 Variable 15,480 9/1/26 1996 46,000 Variable 46,000 9/1/26 ========== ========== $1,671,190 $1,671,190 ========== ========== </TABLE> II-138
GEORGIA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1996 (Continued) Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Substantially All of Whose Assets Are Junior Subordinated Debentures or Notes <TABLE> <CAPTION> <S> <C> <C> <C> Preferred Securities Interest Amount Series Outstanding Rate Outstanding ----------------------------------------------------------------------------- (Thousands) 1994 4,000,000(1) 9% $100,000(1) 1996 9,000,000(2) 7.75% 225,000(2) ---------- -------- 13,000,000 $325,000 ========== ======== Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding ----------------------------------------------------------------------------- (Thousands) (3) 14,090 $5.00 $ 1,409 1953 100,000 $4.92 10,000 1954 433,774 $4.60 43,378 1961 70,000 $4.96 7,000 1962 70,000 $4.60 7,000 1963 70,000 $4.60 7,000 1964 50,000 $4.60 5,000 1965 60,000 $4.72 6,000 1966 90,000 $5.64 9,000 1967 120,000 $6.48 12,000 1968 100,000 $6.60 10,000 1971 300,000 $7.72 30,000 1992 1,961,100 $1.90 49,028 1992 2,166,200 $1.9875 54,155 1992 2,350,300 $1.9375 58,757 1992 1,156,500 $1.925 28,912 1993 3,000,000 Adjustable 75,000 1993 4,000,000 Adjustable 100,000 ----------- -------- 16,111,964 $513,639 =========== ======== </TABLE> (1) Issued by Georgia Power Capital, L.P., and guaranteed to the extent Georgia Power Capital has funds by GEORGIA. (2) Issued by Georgia Power Capital Trust I and guaranteed to the extent Georgia Power Capital Trust I has funds by GEORGIA. (3) Issued in exchange for $5.00 preferred outstanding at the time of company formation. II-139
GEORGIA POWER COMPANY SECURITIES RETIRED DURING 1996 First Mortgage Bonds Principal Interest Series Amount Rate - -------------------------------------------------------------------------------- (Thousands) 1992 $ 110 8-5/8% 1993 150,000 4-3/4% 1993 21,750 7.95% 1993 16,000 7-5/8% 1993 5,000 7-3/4% 1993 5,000 7.55% 1995 13,000 7.70% ======== $210,860 ======== Pollution Control Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------- (Thousands) 1976 $ 1,920 6-3/4% 1977 1,940 6.40% 1978 8,060 6-3/8% 1986 56,400 8% 1991 51,345 7.25% -------- $119,665 ======== Preferred Stock Principal Dividend Series Amount Rate - -------------------------------------------------------------------------------- (Thousands) 1972 $ 75,000 $7.80 1992 972 $1.90 1992 845 $1.9875 1992 1,243 $1.9375 1992 1,088 $1.925 1991 100,000 $2.125 -------- $179,148 ======== II-140 GULF POWER COMPANY FINANCIAL SECTION II-141
MANAGEMENT'S REPORT Gulf Power Company 1996 Annual Report The management of Gulf Power Company has prepared -- and is responsible for -- the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Gulf Power Company in conformity with generally accepted accounting principles. /s/ Travis J. Bowden Travis J. Bowden President and Chief Executive Officer /s/ Arlan E. Scarbrough Arlan E. Scarbrough Chief Financial Officer February 12, 1997 II-142
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Gulf Power Company: We have audited the accompanying balance sheets and statements of capitalization of Gulf Power Company (a Maine corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1996 and 1995, and the related statements of income, retained earnings, paid-in capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-151 through II-167) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia February 12, 1997 II-143
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 1996 Annual Report RESULTS OF OPERATIONS Earnings Gulf Power Company's 1996 net income after dividends on preferred stock was $57.8 million, an increase of $0.6 million over the prior year. This improvement is primarily attributable to higher retail revenues and lower costs related to the work force reduction program implemented last year, offset somewhat by an increase in other operating expenses. In 1995, earnings were $57.2 million, representing an increase of $2 million compared to the prior year. Earnings in 1995 were significantly affected by higher retail revenues due to exceptionally hot summer weather and lower interest charges on long-term debt. The return on average common equity for 1996 and 1995 was 13.27 percent. Revenues Operating revenues increased in 1996 and 1995 as a result of the following factors: Increase (Decrease) From Prior Year ------------------------------------- 1996 1995 1994 ------------------------------------- (in thousands) Retail -- Sales growth $ 7,123 $ 3,647 $ 7,126 Weather (1,057) 9,749 (4,631) Regulatory cost recovery and other 5,649 22,502 8,938 - ----------------------------------------------------------------- Total retail 11,715 35,898 11,433 - ----------------------------------------------------------------- Sales for resale-- Non-affiliates 2,788 (5,698) (6,098) Affiliates (857) 1,266 (5,813) - ----------------------------------------------------------------- Total sales for resale 1,931 (4,432) (11,911) Other operating revenues 1,642 8,798 (3,851) - ----------------------------------------------------------------- Total operating revenues $15,288 $40,264 $(4,329) ================================================================= Percent change 2.5% 7.0% (0.7)% - ----------------------------------------------------------------- Retail revenues of $531 million in 1996 increased $11.7 million or 2.3 percent from last year, compared with an increase of 7.4 percent in 1995 and 2.4 percent in 1994. Residential and commercial revenues increased as a result of customer growth in 1996. This increase was partially offset by milder summer weather in 1996 compared to the hotter-than-normal summer weather of 1995. The increase in regulatory cost recovery and other retail revenues is primarily attributable to the recovery of increased purchased power capacity costs from affiliated companies. Regulatory cost recovery and other includes recovery provisions for fuel expense and the energy component of purchased power costs; energy conservation costs; purchased power capacity costs; and environmental compliance costs. The recovery provisions equal the related expenses and have no material effect on net income. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further information. Sales for resale were $81 million in 1996, increasing $1.9 million or 2.4 percent from 1995. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. The capacity and energy components under these long-term contracts were as follows: 1996 1995 1994 ----------------------------------------- (in thousands) Capacity $25,400 $25,870 $30,926 Energy 19,804 18,598 18,456 - ------------------------------------------------------------- Total $45,204 $44,468 $49,382 ============================================================= Capacity revenues decreased in 1996 and 1995, primarily reflecting the decline in net plant investment. Sales to affiliated companies vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have little impact on earnings. II-144
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report The increase in other operating revenues for 1996 and 1995 is primarily due to increased amounts collected to recover newly-imposed county franchise fees. These fees are included in taxes other than income taxes and thus, there is no impact on earnings. Other changes for 1996 and 1995 are primarily attributable to adjustments in the regulatory cost recovery clauses for differences between recoverable costs and the amounts actually reflected in revenues. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and "Environmental Cost Recovery," respectively, for further discussion. Kilowatt-hour sales for 1996 and percent changes in sales since 1994 are reported below. KWH Percent Change ------------ --------------------------- 1996 1996 1995 1994 ------------ --------------------------- (millions) Residential 4,160 3.6% 7.0% 1.1% Commercial 2,809 3.7 6.3 4.8 Industrial 1,808 0.7 (2.8) (9.0) Other 17 2.7 (0.1) - ------------ Total retail 8,794 3.0 4.5 (0.3) Sales for resale Non-affiliates 1,534 9.9 (1.6) (2.8) Affiliates 710 (6.5) (13.1) (15.2) ------------ Total 11,038 3.3 2.2 (2.1) ================================================================== Retail sales increased in 1996 due to customer growth of 2.7 percent in the residential class and 4.6 percent in the commercial class. The increase in energy sales to the industrial class is a result of the Real-Time-Pricing program. The price structure of this program has successfully encouraged participating industrial customers to lower their peak demand requirements and increase their purchases of energy during off-peak periods. See "Future Earnings Potential" for information on the Company's initiatives to remain competitive and to meet conservation goals set by the Florida Public Service Commission (FPSC). In 1995, retail sales increased from the prior year due to hot summer weather and an increase in residential and commercial customers. Industrial sales were lower due to the reclassification of a major customer from the industrial to commercial class and temporary production delays of other industrial customers. In 1996, energy sales for resale to non-affiliates increased 9.9 percent and are predominantly related to unit power sales under long-term contracts to other Florida utilities and bulk power sales under short-term contracts to other non-affiliated utilities. Energy sales to affiliated companies vary from year to year as mentioned previously. Expenses Total operating expenses for 1996 increased $12.7 million or 2.4 percent from 1995. The increase is due to higher purchased power expenses, other operation expenses, depreciation expenses, and taxes. In 1995, total operating expenses increased $41.3 million or 8.5 percent from 1994 primarily due to higher fuel and purchased power expenses, maintenance expenses, and taxes other than income taxes, offset by lower depreciation and amortization expenses. Fuel and purchased power expenses for 1996 increased $4 million or 1.8 percent from 1995. The change reflects the increase in purchased power from affiliated companies due to scheduled maintenance outages at Plant Crist and Plant Daniel during the first half of 1996. This increase was partially offset by a slight decrease in fuel expense reflecting a lower cost of fuel. In 1995, fuel and purchased power expenses increased $30.1 million or 15.5 percent from 1994 reflecting the increase in generation due to the extreme weather conditions during the summer of 1995 and slightly higher fuel costs. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1996 1995 1994 ----------------------------- Total generation (millions of kilowatt-hours) 10,214 9,828 9,559 Sources of generation (percent) Coal 99.4 99.5 99.8 Oil and gas 0.6 0.5 0.2 Average cost of fuel per net kilowatt-hour generated (cents) Coal 1.99 2.08 2.00 Oil and gas 6.41 3.56 6.93 Total 2.02 2.09 2.01 - ------------------------------------------------------------------ II-145
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report In 1996, other operation expenses increased $1.8 million or 1.5 percent from the 1995 level. The increase is primarily attributable to an increase in administrative and general expenses including costs associated with the approved increase of the Company's annual accrual to the accumulated provision for property damage to amortize deferred storm charges and restore the account balance to a reasonable level. Higher costs related to the buyouts and renegotiation of coal supply contracts and costs associated with the Company's pro rata share of affiliated companies' workforce reduction costs were offset by a decrease in costs related to the Company's work force reduction program implemented in the prior year. In 1995, other operation expenses decreased $0.5 million due to a $9.4 million reduction in the amortization costs of coal buyouts and renegotiation of coal supply contracts. This was offset by the $7 million accrual for benefits to be provided by the Company under the work force reduction program implemented during the fourth quarter of 1995. These costs are further discussed in Notes 2 and 5 to the financial statements under "Work Force Reduction Programs" and "Fuel Commitments." Maintenance expense in 1996 decreased $0.9 million or 1.7 percent from the prior year. This is attributable to a decrease in scheduled maintenance of production facilities. In 1995, maintenance expense increased $5.2 million or 11.2 percent from the prior year due to higher power production maintenance related to non-recurring items and higher distribution maintenance. Depreciation and amortization expenses increased $1.5 million or 2.8 percent from 1995. This change is primarily due to an increase in depreciation expense reflecting an increase in the average investment in distribution property as a result of favorable growth in the Company's service area. In 1995, the decrease in depreciation and amortization expenses of $1.5 million was attributable to property which was fully amortized by December 1994. Federal and state income taxes increased $3.8 million or 11 percent in 1996 primarily due to an increase in taxable income. Taxes other than income taxes increased $2.4 million or 4.9 percent primarily due to an increase in county franchise fees as mentioned previously. In 1995, other taxes increased $7.9 million or 18.9 percent primarily due to an increase in county franchise fees. Franchise fees are billed and collected from customers and have no impact on earnings. In 1996, interest expense increased $0.9 million or 3.2 percent over the prior year. The increase is attributable to the issuance of $30 million of new first mortgage bonds in January 1996. The increase in interest on long-term debt was partially offset by a decrease in interest on notes payable as a result of a lower average amount of short-term notes outstanding. Interest expense in 1995 decreased $2.5 million or 7.8 percent under the prior year. The decrease was attributable to lower interest on long-term debt reflecting a lower average principal balance outstanding and the refinancing of $42 million of pollution control bonds in December 1994. Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its cost of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in long-lived utility plant. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a potentially less regulated more competitive environment. A work force reduction program was implemented in the fourth quarter of 1995. The cost of the program reduced earnings by $0.7 million in 1996 and $4.3 million in 1995. The estimated savings from this program in 1996 were $2.7 million and will be approximately $3.9 million annually beginning in 1997. II-146
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report In December 1995, the FPSC approved the Company's request to increase the amount of its annual accrual to the accumulated provision for property damage account from $1.2 million to $3.5 million due to significant hurricane-related charges to the account during 1995. Refer to Note 1 to the financial statements under "Provision for Property Damage" for further discussion. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. However, the Energy Policy Act of 1992 (Energy Act) is having a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased wholesale competition for electric utilities. The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access the Company's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for industrial and commercial customers and sell energy generation to utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale sales in the southeastern power markets. Various federal and state initiatives designed to promote wholesale and retail competition, among other things, include proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited, and this could significantly erode earnings. The FPSC set conservation goals for the Company, beginning in 1995, which require programs to reduce 154 megawatts of summer peak demand and 65,000 KWH of sales by the year 2004. In 1995, the FPSC approved the Company's programs to accomplish these goals. The Company can experience net growth as long as the filed programs achieve the intended reductions in peak demand and KWH sales. In response to these goals and seeking to remain competitive with other electric utilities, the Company has developed initiatives which emphasize price flexibility and competitive offering of energy efficiency products and services. These initiatives will enable customers to lower or alter their peak energy requirements. Besides promoting energy efficiency, another benefit of these initiatives could be the ability to defer the need to construct additional generating capacity. On September 3, 1996, the FPSC approved a new optional Commercial/Industrial Service Rider (CISR), which is applicable to the rate schedules for the Company's largest existing and potential customers who are able to show they have viable alternatives to purchasing the Company's energy services. The CISR, approved as a pilot program, provides the flexibility needed to enable the Company to offer its services in a more competitive manner to these customers. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." Also, state of Florida legislation adopted in 1993 that provides for recovery of prudent environmental compliance costs is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." The Company is subject to the provisions of Financial Accounting Standards Board Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related II-147
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report regulatory assets and liabilities and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. FINANCIAL CONDITION Overview The principal changes in the Company's financial condition during 1996 were gross property additions of $61.4 million and a decrease of $55.5 million in notes payable. Funds for the property additions and the net decrease in short-term notes were provided by internal sources. See the Statements of Cash Flows for further details. Financing Activities The Company continued to lower its financing costs by issuing new bonds and other debt and retiring higher-cost issues in 1996. The Company sold $55 million of first mortgage bonds, $33.3 million of pollution control bonds, and obtained $49.1 million of long-term bank notes. Retirements, including maturities during 1996, totaled $50.9 million of first mortgage bonds, $33.3 million of pollution control bonds, and $34.9 million of long-term bank notes. The refinancing of $33.3 million in pollution control bonds and $49.2 million in first mortgage bonds will result in savings of over $1 million annually. See the Statements of Cash Flows for further details. Composite financing rates for the years 1994 through 1996 as of year end were as follows: 1996 1995 1994 ------------------------------ Composite interest rate on long-term debt 6.1% 6.5% 6.5% Composite preferred stock dividend rate 6.4% 6.4% 6.6% - ---------------------------------------------------------------- The decrease in the composite interest rate on long-term debt from 1995 to 1996 reflects the Company's efforts to refinance higher-cost debt. The decrease in the composite preferred stock dividend rate in 1995 was primarily due to a decrease in dividends on the Company's adjustable rate preferred stock, reflecting lower interest rates. Capital Requirements for Construction The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $142 million for the three years beginning in 1997 ($47 million in 1997, $49 million in 1998, and $46 million in 1999). Actual construction costs may vary from this estimate because of changes in such factors as: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment, and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. The Company does not have any such generating plants under construction, and current energy demand forecasts do not indicate a need for any such facilities until well into the future. However, significant construction related to maintaining and upgrading transmission and distribution facilities and generating plants will continue. Other Capital Requirements In addition to the funds needed for the construction program, approximately $121 million will be required by the end of 1999 in connection with maturities of long-term debt. Also, the Company will continue to retire higher-cost debt and preferred stock and replace these securities with lower-cost capital as market conditions and terms of the instruments permit. Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- impacts the Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units of Southern Company. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a II-148
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report calendar year. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. Southern Company's sulfur dioxide compliance strategy is designed to use allowances as a compliance option. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Construction expenditures for Phase I compliance totaled approximately $310 million for Southern Company, including approximately $50 million for Gulf Power. For Phase II sulfur dioxide compliance, Southern Company could use emission allowances, increase fuel switching, and/or install flue gas desulfurization equipment at selected plants. Also, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired units as required to meet Phase II limits. Therefore, current compliance strategy could require total Phase II estimated construction expenditures for Southern Company of approximately $80 million, of which $60 million remains to be spent. Phase II compliance is not expected to have a material impact on Gulf Power. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. Following adoption of legislation in April of 1992 allowing electric utilities in Florida to seek FPSC approval of their Clean Air Act Compliance Plans, Gulf Power filed its petition for approval. The FPSC approved the Company's plan for Phase I compliance, deferring until a later date approval of its Phase II Plan. An average increase of up to 2 percent in revenue requirements from the Company's customers could be necessary to fully recover the cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. In 1993, the Florida Legislature adopted legislation that allows a utility to petition the FPSC for recovery of prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. The legislation is discussed in Note 3 to the financial statements under "Environmental Cost Recovery." Substantially all of the costs for the Clean Air Act and other new environmental legislation discussed below are expected to be recovered through the Environmental Cost Recovery Clause. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: revisions to the ambient air quality standards for ozone and particulate matter; emission control strategies for ozone nonattainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. Gulf Power must comply with other environmental laws and regulations, under which the Company could incur costs to clean up contaminated properties currently or previously owned. The Company conducts studies to determine the extent of any required cleanup costs and has recognized in the financial statements costs to clean up known sites. For additional information, see Note 3 to the financial statements under "Environmental Cost Recovery." Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electric and magnetic fields, and other environmental health concerns could significantly affect the Company. The impact of new legislation -- if any - -- will depend on the subsequent development and implementation of applicable II-149
MANAGEMENTS'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1996 Annual Report regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electric and magnetic fields. Sources of Capital At December 31, 1996, the Company had $0.8 million of cash and cash equivalents and $34.5 million of unused committed lines of credit with banks to meet its short-term cash needs. See Note 5 to the financial statements under "Bank Credit Arrangements" for additional information. In January 1997, Gulf Power Capital Trust I, of which the Company owns all the common securities, issued $40 million of 7.625 percent mandatorily redeemable preferred securities. Substantially all of the assets of the Trust are $41 million aggregate principal amount of the Company's 7.625 percent Junior Subordinated Notes due December 31, 2036. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations; the sale of additional first mortgage bonds, pollution control bonds, and preferred stock; bank notes; and capital contributions from Southern Company. If the attractiveness of current short-term interest rates continues, the Company may maintain a higher level of short-term indebtedness than has historically been true. The Company is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficient to permit, at present interest and preferred dividend levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. II-150
STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Revenues $616,603 $600,458 $561,460 Revenues from affiliates 17,762 18,619 17,353 -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 634,365 619,077 578,813 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation- Fuel 184,500 185,274 161,168 Purchased power from non-affiliates 8,300 8,594 6,761 Purchased power from affiliates 35,076 29,966 25,819 Other 115,154 113,397 113,879 Maintenance 51,050 51,917 46,700 Depreciation and amortization 56,645 55,104 56,615 Taxes other than income taxes 52,027 49,598 41,701 Federal and state income taxes (Note 8) 37,821 34,065 33,957 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 540,573 527,915 486,600 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 93,792 91,162 92,213 Other Income (Expense): Allowance for equity funds used during construction (Note 1) 17 36 450 Interest income 1,921 2,877 1,429 Other, net (1,695) (1,261) (780) Income taxes applicable to other income 248 (121) 95 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 94,283 92,693 93,407 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 24,691 23,294 27,124 Other interest charges 1,882 1,674 2,442 Interest on notes payable 2,071 2,931 1,509 Amortization of debt discount, premium, and expense, net 2,087 2,014 1,834 Allowance for debt funds used during construction (Note 1) (58) (187) (656) - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 30,673 29,726 32,253 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 63,610 62,967 61,154 Dividends on Preferred Stock 5,765 5,813 5,925 =============================================================================================================================== Net Income After Dividends on Preferred Stock $ 57,845 $ 57,154 $ 55,229 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-151
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 63,610 $ 62,967 $ 61,154 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 71,825 75,293 86,098 Deferred income taxes 2,157 390 (6,986) Allowance for equity funds used during construction (17) (36) (450) Accumulated provision for property damage 4,227 (19,024) 1,013 Deferred costs of 1995 coal contract renegotiation 10,931 (12,177) - Other, net 2,134 4,664 3,885 Changes in certain current assets and liabilities -- Receivables, net 736 (12,210) 3,540 Inventories 12,957 (618) (13,901) Payables (7,078) 18,258 (10,159) Taxes accrued (441) (2,803) 2,548 Current costs of 1995 coal contract renegotiation (5,099) (9,859) - Other 4,943 (4,894) (1,938) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 160,885 99,951 124,804 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (61,386) (63,113) (78,869) Other (2,786) 4,401 (3,493) - --------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (64,172) (58,712) (82,362) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: First mortgage bonds 55,000 - - Pollution control bonds 33,275 - 42,000 Other long-term debt 49,148 - 32,108 Retirements: Preferred stock - (1,000) (1,000) First mortgage bonds (50,930) (1,750) (48,856) Pollution control bonds (33,275) (125) (42,100) Other long-term debt (34,923) (13,314) (24,240) Notes payable, net (55,500) 27,000 47,447 Payment of preferred stock dividends (5,749) (5,813) (5,925) Payment of common stock dividends (48,300) (46,400) (44,000) Miscellaneous (5,332) (59) (2,550) - --------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (96,586) (41,461) (47,116) - --------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 127 (222) (4,674) Cash and Cash Equivalents at Beginning of Year 680 902 5,576 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 807 $ 680 $ 902 =========================================================================================================================== Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $26,050 $26,161 $30,139 Income taxes $25,858 $38,537 $43,089 - --------------------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-152
BALANCE SHEETS At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- ASSETS 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: Plant in service (Notes 1 and 6) $1,734,510 $1,695,814 Less accumulated provision for depreciation 694,245 658,806 -------------------------------------------------------------------------------------------------------------------------------- 1,040,265 1,037,008 Construction work in progress 23,465 26,301 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,063,730 1,063,309 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 652 740 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 807 680 Receivables- Customer accounts receivable 67,727 69,166 Other accounts and notes receivable 3,098 3,393 Affiliated companies 1,821 802 Accumulated provision for uncollectible accounts (789) (768) Fossil fuel stock, at average cost 28,352 37,875 Materials and supplies, at average cost (Note 1) 30,252 33,686 Current portion of deferred coal contract costs (Note 5) 16,389 12,767 Regulatory clauses under recovery (Note 1) 4,144 3,432 Prepaid income taxes 353 4,232 Other prepayments 8,833 8,000 Vacation pay deferred 4,055 4,419 - -------------------------------------------------------------------------------------------------------------------------------- Total 165,042 177,684 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes (Note 8) 28,313 29,093 Debt expense and loss, being amortized 23,308 20,459 Deferred coal contract costs (Note 5) 13,126 33,768 Deferred storm charges (Note 1) 3,275 7,502 Miscellaneous 10,920 9,304 - -------------------------------------------------------------------------------------------------------------------------------- Total 78,942 100,126 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $1,308,366 $1,341,859 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-153
BALANCE SHEETS (continued) At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity (Note 11) $ 435,758 $ 436,242 Preferred stock 65,102 89,602 Long-term debt 331,880 323,376 - -------------------------------------------------------------------------------------------------------------------------------- Total 832,740 849,220 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year (Note 10) 24,500 - Long-term debt due within one year (Note 10) 40,972 31,548 Notes payable 25,000 80,500 Accounts payable- Affiliated companies 10,274 14,447 Other 22,496 27,196 Customer deposits 13,464 13,195 Taxes accrued 8,342 9,547 Interest accrued 7,629 5,719 Regulatory clauses over recovery (Note 1) 5,884 2,800 Vacation pay accrued 4,055 4,419 Dividends declared 11,453 1,437 Miscellaneous 5,668 5,919 - -------------------------------------------------------------------------------------------------------------------------------- Total 179,737 196,727 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 163,857 162,345 Deferred credits related to income taxes (Note 8) 64,354 67,481 Accumulated deferred investment tax credits 33,760 36,052 Accumulated provision for postretirement benefits (Note 2) 18,339 16,301 Miscellaneous 15,579 13,733 - -------------------------------------------------------------------------------------------------------------------------------- Total 295,889 295,912 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, and 7) Total Capitalization and Liabilities $1,308,366 $1,341,859 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-154
STATEMENTS OF CAPITALIZATION At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> -------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, without par value -- Authorized and outstanding -- 992,717 shares in 1996 and 1995 $ 38,060 $ 38,060 Paid-in capital 218,438 218,438 Premium on preferred stock 81 81 Retained earnings (Note 11) 179,179 179,663 - --------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 435,758 436,242 52.3% 51.4% - --------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $10 par value -- Authorized -- 10,000,000 shares, Outstanding -- 2,580,000 shares at December 31, 1996 $25 stated capital -- 6.72% 20,000 20,000 7.00% 14,500 14,500 7.30% 15,000 15,000 Adjustable Rate -- at January 1, 1997: 5.01% 15,000 15,000 $100 par value -- Authorized -- 801,626 shares Outstanding -- 251,026 shares at December 31, 1996 4.64% 5,102 5,102 5.16% 5,000 5,000 5.44% 5,000 5,000 7.52% 5,000 5,000 7.88% 5,000 5,000 - --------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $5,742,000) 89,602 89,602 - --------------------------------------------------------------------------------------------------------------------------------- Less amount due within one year (Note 10) 24,500 - - --------------------------------------------------------------------------------------------------------------------------------- Total excluding amount due within one year 65,102 89,602 7.8 10.5 - --------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-155
STATEMENTS OF CAPITALIZATION (continued) At December 31, 1996 and 1995 Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Long-term Debt: First mortgage bonds -- Maturity Interest Rates August 1, 1997 5.875% 25,000 25,000 April 1, 1998 5.55% 15,000 15,000 July 1, 1998 5.00% 30,000 30,000 July 1, 2003 6.125% 30,000 30,000 November 1, 2006 6.50% 25,000 - September 1, 2008 9.00% - 930 December 1, 2021 8.75% - 50,000 January 1, 2026 6.875% 30,000 - - --------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 155,000 150,930 Pollution control obligations (Note 9) 169,630 169,630 Other long-term debt (Note 9) 51,299 37,074 Unamortized debt premium (discount), net (3,077) (2,710) - --------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $22,751,000) 372,852 354,924 Less amount due within one year (Note 10) 40,972 31,548 - --------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 331,880 323,376 39.9 38.1 - --------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $832,740 $849,220 100.0% 100.0% ================================================================================================================================= The accompanying notes are an integral part of these statements. </TABLE> II-156
STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $179,663 $168,951 $157,773 Net income after dividends on preferred stock 57,845 57,154 55,229 Dividends on common stock (58,300) (46,400) (44,000) Preferred stock transactions, net (29) (42) (51) =========================================================================================================================== Balance at End of Year (Note 11) $179,179 $179,663 $168,951 =========================================================================================================================== STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1996, 1995, and 1994 Gulf Power Company 1996 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $218,438 $218,380 $218,282 Contributions to capital by parent company - 58 98 =========================================================================================================================== Balance at End of Year $218,438 $218,438 $218,380 =========================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-157
NOTES TO FINANCIAL STATEMENTS Gulf Power Company 1996 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Gulf Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), The Southern Development and Investment Group (Southern Development), and other direct and indirect subsidiaries. The operating companies (Alabama Power, Georgia Power, Gulf Power, Mississippi Power, and Savannah Electric) provide electric service in four southeastern states. Gulf Power Company provides electric service to the northwest panhandle of Florida. Contracts among the operating companies -- dealing with jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power -- are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission. The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, builds, owns and operates power production and delivery facilities and provides a broad range of energy related services in the United States and international markets. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Development develops new business opportunities related to energy products and services. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company is also subject to regulation by the FERC and the Florida Public Service Commission (FPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the FPSC. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to the following: 1996 1995 ------------------------- (in thousands) Current & deferred coal contract costs $ 29,515 $ 46,535 Deferred income taxes 28,313 29,093 Deferred loss on reacquired debt 20,386 17,015 Environmental remediation 7,577 5,789 Vacation pay 4,055 4,419 Regulatory clauses (over) under recovery, net (1,740) 632 Deferred income tax credits (64,354) (67,481) Deferred storm charges 3,275 7,502 Other, net (1,202) (1,510) - ----------------------------------------------------------------- Total $ 25,825 $ 41,994 ================================================================= In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related regulatory assets and liabilities. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. II-158
NOTES (continued) Gulf Power Company 1996 Annual Report Revenues and Regulatory Cost Recovery Clauses The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. The Company has a diversified base of customers and no single customer or industry comprises 10 percent or more of revenues. In 1996, uncollectible accounts continued to average significantly less than 1 percent of revenues. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to periodically adjust billings for fluctuations in fuel and the energy component of purchased power costs. The Company also has similar cost recovery clauses for energy conservation costs, purchased power capacity costs, and environmental compliance costs. Revenues are adjusted monthly for differences between recoverable costs and amounts actually reflected in current rates. Depreciation and Amortization Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 3.6 percent in 1996 and 1995 and 3.8 percent in 1994. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Also, the provision for depreciation expense includes an amount for the expected cost of removal of facilities. Income Taxes The Company uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. The Company is included in the consolidated federal income tax return of Southern Company. See Note 8 for further information related to income taxes. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The FPSC-approved composite rate used to calculate AFUDC was 7.27 percent for 1996, 1995, and 1994. AFUDC amounts for 1996, 1995, and 1994 were $75 thousand, $223 thousand, and $1.1 million, respectively. The decrease in 1996 and 1995 is primarily due to no long-term construction projects being implemented in 1996 and due to the completion of major construction projects at Plant Daniel at the end of 1994, respectively. Utility Plant Utility plant is stated at original cost. Original cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. II-159
NOTES (continued) Gulf Power Company 1996 Annual Report Financial Instruments The carrying amounts and fair values of the Company's long-term debt are shown in the table below: Carrying Fair Amount Value ---------------------------- (in thousands) Long-term debt At December 31, 1996 $372,852 $373,394 At December 31, 1995 $354,924 $365,305 - ------------------------------------------------------------- The fair values for long-term debt were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Provision for Injuries and Damages The Company is subject to claims and suits arising in the ordinary course of business. As permitted by regulatory authorities, the Company provides for the uninsured costs of injuries and damages by charges to income amounting to $1.2 million annually. The expense of settling claims is charged to the provision to the extent available. The accumulated provision of $1.8 million and $1.7 million at December 31, 1996 and 1995, respectively, is included in miscellaneous current liabilities in the accompanying Balance Sheets. Provision for Property Damage The Company is self-insured for the full cost of storm and other damages to its transmission and distribution property. At December 31, 1996, the accumulated provision for property damage had a negative balance of $3.3 million, reflecting the remaining deferred charges for expenses relating to Hurricanes Erin and Opal during 1995. The negative balance was reclassified to deferred storm charges in the accompanying Balance Sheets. In December 1995, the FPSC approved the Company's request to increase the amount of its annual accrual to the accumulated provision for property damage account from $1.2 million to $3.5 million. The FPSC approved this amount pending the results of a study it ordered the Company to file addressing the appropriate reserve level and annual accrual amount. The required study was filed with the FPSC, and in November 1996, the FPSC reaffirmed an annual accrual of $3.5 million and approved a target level for the accumulated provision account between $25.1 and $36 million. The FPSC has also given the Company the flexibility to increase its annual accrual amount above $3.5 million, when the Company believes it is in a position to do so, until the account balance reaches $12 million. Therefore, during 1996, the Company accrued $4.5 million to the accumulated provision for property damage. The expense of repairing damages from major storms and other uninsured property damages is charged to the provision account. 2. RETIREMENT BENEFITS Pension Plan The Company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. Benefits are based on one of the following formulas: years of service and final average pay or years of service and a flat-dollar benefit. The Company uses the "entry age normal method with a frozen initial liability" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trust fund are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. II-160
NOTES (continued) Gulf Power Company 1996 Annual Report Postretirement Benefits The Company provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are funded to the extent deductible under federal income tax regulations or to the extent required by the Company's regulatory commissions. Amounts funded are primarily invested in equity and fixed-income securities. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement insurance benefits as computed under the requirements of FASB Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension -------------------------- 1996 1995 --------------------------- (in thousands) Actuarial present value of benefit obligation: Vested benefits $ 87,245 $ 87,652 Non-vested benefits 5,101 4,284 - -------------------------------------------------------------------- Accumulated benefit obligation 92,346 91,936 Additional amounts related to projected salary increases 31,121 29,073 - -------------------------------------------------------------------- Projected benefit obligation 123,467 121,009 Less: Fair value of plan assets 191,152 180,980 Unrecognized net gain (58,900) (48,438) Unrecognized prior service cost 5,618 2,578 Unrecognized transition asset (6,485) (7,187) - -------------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 7,918 $ 6,924 ==================================================================== Postretirement Benefits --------------------------- 1996 1995 --------------------------- (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $10,478 $ 9,759 Employees eligible to retire 5,484 4,921 Other employees 17,694 17,646 - ---------------------------------------------------------------- Accumulated benefit obligation 33,656 32,326 Less: Fair value of plan assets 7,996 7,050 Unrecognized net loss 1,531 1,538 Unrecognized transition obligation 5,790 7,437 - ----------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $18,339 $16,301 ================================================================ In 1995, the Company announced a cost sharing program for postretirement benefits. The program establishes limits on amounts the Company will pay to provide future retiree postretirement benefits. This change reduced the 1995 accumulated postretirement benefit obligation by approximately $7.1 million. The weighted average rates assumed in the actuarial calculations were: 1996 1995 1994 -------------------------------- Discount 7.8% 7.3% 8.0% Annual salary increase 5.3% 4.8% 5.5% Long-term return on plan assets 8.5% 8.5% 8.5% - ---------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.3 percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation at December 31, 1996, by $2.6 million and the aggregate of the service and interest cost components of the net retiree cost by $254 thousand. II-161
NOTES (continued) Gulf Power Company 1996 Annual Report Components of the plans' net costs are shown below: Pension ------------------------------------- 1996 1995 1994 ------------------------------------- (in thousands) Benefits earned during the year $ 3,880 $ 3,867 $ 3,775 Interest cost on projected benefit obligation 9,129 8,042 7,484 Actual (return) loss on plan assets (21,021) (33,853) 3,721 Net amortization and deferral 5,920 19,619 (17,054) - ------------------------------------------------------------------- Net pension income $ (2,092) $ (2,325) $ (2,074) =================================================================== Of the above net pension amounts, pension income of $1.5 million in 1996, $1.8 million in 1995, and $1.5 million in 1994 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits ---------------------------------- 1996 1995 1994 --------------------------------- (in thousands) Benefits earned during the year $ 939 $1,259 $1,362 Interest cost on accumulated benefit obligation 2,330 2,520 2,535 Amortization of transition obligation 356 853 854 Actual (return) loss on plan assets (797) (1,268) 129 Net amortization and deferral 318 742 (591) - --------------------------------------------------------------------- Net postretirement cost $3,146 $4,106 $4,289 ===================================================================== Of the above net postretirement costs recorded, $2.3 million in 1996 and $3.1 million in 1995 and 1994 were charged to operating expenses, and the remainder was recorded in construction and other accounts. Work Force Reduction Programs The Company implemented a voluntary work force reduction program in the fourth quarter of 1995 and recorded $1.2 million in 1996 and $7 million in 1995 for the total pre-tax cost related to the program. The Company has also incurred its pro rata share for the costs of affiliated companies' programs. The costs related to these programs were $2.1 million for 1996, $1 million for 1995, and $1.3 million for 1994. 3. LITIGATION AND REGULATORY MATTERS FERC Reviews Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the operating companies' wholesale rate schedules and contracts that have a return on common equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power and other similar contracts. In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and contracts were not necessary and that the FERC staff failed to show how any changes were in the public interest. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. In August 1994, the FERC instituted another proceeding based on substantially the same issues as in the 1991 proceeding. In November 1995, a FERC administrative law judge issued an opinion that the FERC staff failed to meet its burden of proof, and therefore, no change in the equity return was necessary. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. If the rates of return on common equity recommended by the FERC staff were applied to all of the schedules and contracts involved in both proceedings, as well as certain other contracts that reference these proceedings in determining return on common equity, and if refunds were ordered, the amount of refunds could range up to approximately $160 million for Southern Company, including approximately $10 million for the Company at December 31, 1996. However, management believes that rates are not excessive and that refunds are not justified. II-162
NOTES (continued) Gulf Power Company 1996 Annual Report Environmental Cost Recovery In April 1993, the Florida Legislature adopted legislation for an Environmental Cost Recovery Clause (ECRC), which allows a utility to petition the FPSC for recovery of all prudent environmental compliance costs that are not being recovered through base rates or any other recovery mechanism. Such environmental costs include operation and maintenance expense, emission allowance expense, depreciation, and a return on invested capital. In January 1994, the FPSC approved the Company's initial petition under the ECRC for recovery of environmental costs. Beginning with this initial period through September 1996, recovery under the ECRC was determined semi-annually. In August 1996, the FPSC approved annual recovery periods beginning with the October 1996 through September 1997 period. Recovery includes a true-up of the prior period and a projection of the ensuing period. During 1996 and 1995, the Company recorded ECRC revenues of $11.0 million and $11.8 million, respectively. At December 31, 1996, the Company's liability for the estimated costs of environmental remediation projects for known sites was $7.6 million. These estimated costs are expected to be expended during the period 1997 to 2001. These projects have been approved by the FPSC for recovery through the ECRC discussed above. Therefore, the Company recorded $1.9 million in current assets and $5.7 million in deferred charges representing the future recoverability of these costs. 4. CONSTRUCTION PROGRAM The Company is engaged in a continuous construction program, the cost of which is currently estimated to total $47 million in 1997, $49 million in 1998, and $46 million in 1999. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment and materials; and cost of capital. At December 31, 1996, significant purchase commitments were outstanding in connection with the construction program. The Company does not have any generating plants under construction. However, significant construction will continue related to transmission and distribution facilities and the upgrading and extension of the useful lives of generating plants. See Management's Discussion and Analysis under "Environmental Matters" for information on the impact of the Clean Air Act Amendments of 1990 and other environmental matters. 5. FINANCING AND COMMITMENTS General Current projections indicate that funds required for construction and other purposes, including compliance with environmental regulations, will be derived primarily from internal sources. Requirements not met from internal sources will be derived from the sale of additional first mortgage bonds, pollution control bonds, and preferred stock; bank notes; and capital contributions from Southern Company. In addition, the Company may issue additional long-term debt and preferred stock primarily for the purposes of debt maturities and redemptions of higher-cost securities. Bank Credit Arrangements At December 31, 1996, the Company had $5 million in revolving credit lines that expire May 31, 1997, and $41.5 million of lines of credit with banks subject to renewal June 1 of each year, of which $34.5 million remained unused. In addition, the Company has a $20.3 million unused committed line of credit established for liquidity support of its variable rate pollution control bonds. In connection with these credit lines, the Company has agreed to pay commitment fees and/or to maintain compensating balances with the banks. The compensating balances, which represent substantially all of the cash of the Company except for daily working funds and like items, are not legally restricted from withdrawal. In addition, the Company has bid-loan facilities with twelve major money center banks that total $230 million, of which $13 million was committed at December 31, 1996. II-163
NOTES (continued) Gulf Power Company 1996 Annual Report Assets Subject to Lien The Company's mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. Fuel Commitments To supply a portion of the fuel requirements of its generating plants, the Company has entered into long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum purchase levels, and other financial commitments. Total estimated long-term obligations at December 31, 1996, were as follows: Year Fuel ------- ---------------- (in millions) 1997 $125 1998 98 1999 79 2000 71 2001 73 2002 - 2007 481 -------------------------------------------------------- Total commitments $927 ======================================================== In 1988, the Company made an advance payment of $60 million to a coal supplier under an arrangement to lower the cost of future coal purchased under an existing contract. This amount is being amortized to expense on a per ton basis over a ten-year period. The remaining unamortized amount was $13.3 million at December 31, 1996. In December 1995, the Company made another payment of $22 million to the same coal supplier under an arrangement to lower the cost of future coal and/or to suspend the purchase of coal under an existing contract for 25 months. This amount is being amortized to expense on a per ton basis through the first quarter of 1998. The remaining unamortized amount was $16.2 million at December 31, 1996. The amortization expense of these contract buyouts and renegotiations is being recovered through the fuel cost recovery clause discussed under "Revenues and Regulatory Cost Recovery Clauses" in Note 1. Lease Agreements In 1989, the Company and Mississippi Power jointly entered into a twenty-two year operating lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was entered into for twenty-two years. Both of these leases are for the transportation of coal to Plant Daniel. The Company, as a joint owner of Plant Daniel, is responsible for one half of the lease costs. The lease costs are charged to fuel inventory and are allocated to fuel expense as the fuel is used. The Company's share of the lease costs charged to fuel inventory was $1.7 million in 1996 and 1995 and $1.2 million in 1994. The Company's annual lease payments for 1997 through 2001 will be approximately $1.7 million and after 2001, lease payments total approximately $20.7 million. The Company has the option after three years from the date of the original contract on the second lease agreement to purchase the railcars at the greater of the termination value or the fair market value. Additionally, at the end of each lease term, the Company has the option to renew the lease. 6. JOINT OWNERSHIP AGREEMENTS The Company and Mississippi Power jointly own Plant Daniel, a steam-electric generating plant located in Jackson County, Mississippi. In accordance with an operating agreement, Mississippi Power acts as the Company's agent with respect to the construction, operation, and maintenance of the plant. The Company and Georgia Power jointly own Plant Scherer Unit No. 3. Plant Scherer is a steam-electric generating plant located near Forsyth, Georgia. In accordance with an operating agreement, Georgia Power acts as the Company's agent with respect to the construction, operation, and maintenance of the unit. The Company's pro rata share of expenses related to both plants is included in the corresponding operating expense accounts in the Statements of Income. II-164
NOTES (continued) Gulf Power Company 1996 Annual Report At December 31, 1996, the Company's percentage ownership and its investment in these jointly owned facilities were as follows: Plant Scherer Plant Unit No. 3 Daniel (coal-fired) (coal-fired) -------------------------------- (in thousands) Plant In Service $185,742(1) $222,463 Accumulated Depreciation $54,079 $102,027 Construction Work in Progress $314 $33 Nameplate Capacity (2) (megawatts) 205 500 Ownership 25% 50% - ------------------------------------------------------------------- (1) Includes net plant acquisition adjustment. (2) Total megawatt nameplate capacity: Plant Scherer Unit No. 3: 818 Plant Daniel: 1,000 7. LONG-TERM POWER SALES AGREEMENTS The Company and the other operating affiliates have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. The agreements for non-firm capacity expired in 1994. The unit power sales agreements, expiring at various dates discussed below, are firm and pertain to capacity related to specific generating units. Because the energy is generally sold at cost under these agreements, revenues from capacity sales primarily affect profitability. The Company's capacity revenues have been as follows: Other Unit Long- Year Power Term Total - ---------- ------------------------------------- (in thousands) 1996 $25,400 $ - $25,400 1995 25,870 - 25,870 1994 29,653 1,273 30,926 - ----------------------------------------------------------- Unit power from specific generating plants of Southern Company is currently being sold to Florida Power Corporation (FPC), Florida Power & Light Company (FP&L), Jacksonville Electric Authority (JEA), and the city of Tallahassee, Florida. Under these agreements, 211 megawatts of net dependable capacity were sold by the Company during 1996, and sales will remain at that level until the expiration of the contracts in 2010, unless reduced by FPC, FP&L and JEA after 1999. Capacity and energy sales to FP&L, the Company's largest single customer, provided revenues of $27.2 million in 1996, $25.4 million in 1995, and $29.3 million in 1994, or 4.3 percent, 4.1 percent, and 5.1 percent of operating revenues, respectively. 8. INCOME TAXES At December 31, 1996, the tax-related regulatory assets to be recovered from customers were $28.3 million. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. At December 31, 1996, the tax-related regulatory liabilities to be credited to customers were $64.4 million. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 1996 1995 1994 ---------------------------------- (in thousands) Total provision for income taxes: Federal-- Currently payable $31,022 $29,018 $34,941 Deferred--current year 26,072 23,172 18,556 --reversal of prior years (24,780) (23,116) (24,787) - ------------------------------------------------------------------ 32,314 29,074 28,710 - ------------------------------------------------------------------ State-- Currently payable 4,394 4,778 5,907 Deferred--current year 3,904 3,313 2,549 --reversal of prior years (3,039) (2,979) (3,304) - ------------------------------------------------------------------ 5,259 5,112 5,152 - ------------------------------------------------------------------ Total 37,573 34,186 33,862 Less income taxes charged (credited) to other income (248) 121 (95) - ------------------------------------------------------------------ Total income taxes charged to operations $37,821 $34,065 $33,957 ================================================================== II-165
NOTES (continued) Gulf Power Company 1996 Annual Report The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1996 1995 ----------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $151,664 $146,926 Property basis differences 21,028 19,976 Coal contract buyouts 3,700 3,838 Property insurance 1,248 3,039 Other 12,674 10,573 - ------------------------------------------------------------------- Total 190,314 184,352 - ------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 9,773 10,212 Postretirement benefits 5,767 5,494 Other 7,814 6,313 - ------------------------------------------------------------------- Total 23,354 22,019 - ------------------------------------------------------------------- Net deferred tax liabilities 166,960 162,333 Less current portion, net 3,103 (12) - ------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $163,857 $162,345 =================================================================== Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $2.3 million in 1996, 1995 and 1994. At December 31, 1996, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1996 1995 1994 ------------------- --------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 1 1 1 Difference in prior years' deferred and current tax rate (1) (3) (2) Other (2) (2) (2) - --------------------------------------------------------------- Effective income tax rate 37% 35% 36% =============================================================== The Company and the other subsidiaries of Southern Company file a consolidated federal tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 9. POLLUTION CONTROL OBLIGATIONS AND OTHER LONG-TERM DEBT Details of pollution control obligations and other long-term debt at December 31 are as follows: 1996 1995 -------------------------- (in thousands) Obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds: Collateralized 5.25% due 2006 $12,075 $ - 6% due 2006 - 12,075 8.25% due 2017 32,000 32,000 7.125% due 2021 - 21,200 6.75% due 2022 8,930 8,930 5.70% due 2023 7,875 7,875 5.80% due 2023 32,550 32,550 6.20% due 2023 13,000 13,000 6.30% due 2024 22,000 22,000 Variable Rate due 2024 Remarketable daily 20,000 20,000 5.50% due 2026 21,200 - - --------------------------------------------------------------- $169,630 $169,630 - --------------------------------------------------------------- Other long-term debt: 4.69% due 1996 - 25,000 5.2125% due 1996-1998 16,823 - 6.44% due 1994-1998 7,476 12,074 Variable Rate due 1999 13,500 - Variable Rate due 1999 13,500 - - --------------------------------------------------------------- 51,299 37,074 - --------------------------------------------------------------- Total $220,929 $206,704 =============================================================== Pollution control obligations represent installment purchases of pollution control facilities financed by funds derived from sales by public authorities of revenue bonds. With respect to the collateralized pollution control revenue bonds, the Company has authenticated and delivered to trustees a like principal amount of first mortgage bonds as security for obligations under collateralized installment agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under the agreements. II-166
NOTES (continued) Gulf Power Company 1996 Annual Report The estimated annual maturities of other long-term debt are as follows: $16 million in 1997, $8.3 million in 1998, and $27 million in 1999. 10. CAPITALIZATION DUE WITHIN ONE YEAR A summary of the improvement fund requirement and scheduled maturities and redemptions of long-term debt and preferred stock due within one year at December 31 is as follows: 1996 1995 ---------------------- (in thousands) Bond improvement fund requirement $ 1,550 $ 1,750 Less: Portion to be satisfied by certifying property additions 1,550 - - --------------------------------------------------------------- Cash sinking fund requirement - 1,750 Maturities of first mortgage bonds 25,000 - Current portion of other long-term debt (Note 9) 15,972 29,598 Pollution control bond maturity - 200 Redemption of preferred stock 24,500 - - --------------------------------------------------------------- Total $65,472 $31,548 =============================================================== The first mortgage bond improvement (sinking) fund requirement amounts to 1 percent of each outstanding series of bonds authenticated under the indenture prior to January 1 of each year, other than those issued to collateralize pollution control obligations. The requirement may be satisfied by depositing cash, reacquiring bonds, or by pledging additional property equal to 1 and 2/3 times the requirement. 11. COMMON STOCK DIVIDEND RESTRICTIONS The Company's first mortgage bond indenture contains various common stock dividend restrictions which remain in effect as long as the bonds are outstanding. At December 31, 1996, retained earnings of $127 million were restricted against the payment of cash dividends on common stock under the terms of the mortgage indenture. The Company's charter limits cash dividends on common stock to 50 percent of net income available for such stock during a prior period of 12 months if the capitalization ratio is below 20 percent and to 75 percent of such net income if such ratio is 20 percent or more but less than 25 percent. The capitalization ratio is defined as the ratio of common stock equity to total capitalization, including retained earnings, adjusted to reflect the payment of the proposed dividend. At December 31, 1996, the ratio was 47.6 percent. 12. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 1996 and 1995 are as follows: Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------ (in thousands) March 31, 1996 $154,921 $20,201 $11,258 June 30, 1996 153,821 21,565 12,581 Sept. 30, 1996 179,619 32,568 23,721 Dec. 31, 1996 146,004 19,458 10,285 March 31, 1995 $140,918 $19,503 $10,880 June 30, 1995 153,057 23,390 14,096 Sept. 30, 1995 184,251 35,187 26,588 Dec. 31, 1995 140,851 13,082 5,590 - ------------------------------------------------------------------ The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. II-167
SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $634,365 $619,077 $578,813 Net Income after Dividends on Preferred Stock (in thousands) $57,845 $57,154 $55,229 Dividends on Common Stock (in thousands) $58,300 $46,400 $44,000 Return on Average Common Equity (percent) 13.27 13.27 13.15 Total Assets (in thousands) $1,308,366 $1,341,859 $1,315,542 Gross Property Additions (in thousands) $61,386 $63,113 $78,869 - --------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $435,758 $436,242 $425,472 Preferred stock 65,102 89,602 89,602 Preferred stock subject to mandatory redemption - - - Long-term debt 331,880 323,376 356,393 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $832,740 $849,220 $871,467 - --------------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 52.3 51.4 48.8 Preferred stock 7.8 10.5 10.3 Long-term debt 39.9 38.1 40.9 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ===================================================================================================================== First Mortgage Bonds (in thousands): Issued 55,000 - - Retired 50,930 1,750 48,856 Preferred Stock (in thousands): Issued - - - Retired - 1,000 1,000 - --------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A2 Standard and Poor's A+ A+ A Duff & Phelps AA- A+ A+ Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A A- Duff & Phelps A+ A A - --------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 291,196 283,421 280,859 Commercial 43,196 41,281 40,398 Industrial 278 278 283 Other 162 134 106 - --------------------------------------------------------------------------------------------------------------------- Total 334,832 325,114 321,646 ===================================================================================================================== Employees (year-end) 1,384 1,501 1,540 </TABLE> II-168
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $583,142 $570,902 $565,207 $567,825 Net Income after Dividends on Preferred Stock (in thousands) $54,311 $54,090 $57,796 $38,714 Dividends on Common Stock (in thousands) $41,800 $39,900 $38,000 $37,000 Return on Average Common Equity (percent) 13.29 13.62 15.17 10.51 Total Assets (in thousands) $1,307,809 $1,062,699 $1,095,736 $1,084,579 Gross Property Additions (in thousands) $78,562 $64,671 $64,323 $62,462 - -------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $414,196 $403,190 $390,981 $371,185 Preferred stock 89,602 74,662 55,162 55,162 Preferred stock subject to mandatory redemption 1,000 2,000 7,500 9,250 Long-term debt 369,259 382,047 434,648 475,284 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $874,057 $861,899 $888,291 $910,881 - -------------------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 47.4 46.8 44.0 40.8 Preferred stock 10.4 8.9 7.1 7.1 Long-term debt 42.2 44.3 48.9 52.1 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ========================================================================================================================== First Mortgage Bonds (in thousands): Issued 75,000 25,000 50,000 - Retired 88,809 117,693 32,807 6,455 Preferred Stock (in thousands): Issued 35,000 29,500 - - Retired 21,060 15,500 2,500 1,750 - -------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A2 A2 A2 A2 Standard and Poor's A A A A Duff & Phelps A+ A A A Preferred Stock - Moody's a2 a2 a2 a2 Standard and Poor's A- A- A- A- Duff & Phelps A A- A- A- - -------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 274,194 267,591 261,210 256,111 Commercial 39,253 37,105 34,685 34,019 Industrial 274 270 264 252 Other 86 74 72 67 - -------------------------------------------------------------------------------------------------------------------------- Total 313,807 305,040 296,231 290,449 ========================================================================================================================== Employees (year-end) 1,565 1,613 1,598 1,615 </TABLE> II-169A
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------- 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $527,821 $550,827 $587,860 $542,919 Net Income after Dividends on Preferred Stock (in thousands) $37,361 $45,698 $42,217 $46,421 Dividends on Common Stock (in thousands) $37,200 $35,400 $34,200 $33,100 Return on Average Common Equity (percent) 10.32 13.41 13.23 15.06 Total Assets (in thousands) $1,093,430 $1,097,225 $1,051,182 $1,028,864 Gross Property Additions (in thousands) $70,726 $67,042 $97,511 $90,160 - ------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $365,471 $358,310 $323,012 $314,995 Preferred stock 55,162 55,162 55,162 55,162 Preferred stock subject to mandatory redemption 11,000 12,750 14,000 16,500 Long-term debt 484,608 497,069 474,640 482,869 - ------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $916,241 $923,291 $866,814 $869,526 - ------------------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 39.9 38.8 37.2 36.2 Preferred stock 7.2 7.4 8.0 8.3 Long-term debt 52.9 53.8 54.8 55.5 - ------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ========================================================================================================================= First Mortgage Bonds (in thousands): Issued - 35,000 - 50,000 Retired 9,344 9,369 - 46,640 Preferred Stock (in thousands): Issued - - - - Retired 1,250 1,750 2,500 750 - ------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 Standard and Poor's A A A A+ Duff & Phelps AA- 4 4 4 Preferred Stock - Moody's a1 a1 a1 a1 Standard and Poor's A- A- A- A Duff & Phelps A+ 5 5 5 - ------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 251,341 246,450 241,138 235,329 Commercial 33,678 33,030 32,139 31,142 Industrial 240 206 206 197 Other 67 61 61 62 - ------------------------------------------------------------------------------------------------------------------------- Total 285,326 279,747 273,544 266,730 ========================================================================================================================= Employees (year-end) 1,614 1,601 1,603 1,544 </TABLE> II-169B
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $285,498 $276,155 $252,598 Commercial 164,181 159,260 146,394 Industrial 78,994 81,606 82,169 Other 2,056 1,993 1,955 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 530,729 519,014 483,116 Sales for resale - non-affiliates 63,201 60,413 66,111 Sales for resale - affiliates 17,762 18,619 17,353 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 611,692 598,046 566,580 Other revenues 22,673 21,031 12,233 - ---------------------------------------------------------------------------------------------------------------------------- Total $634,365 $619,077 $578,813 ============================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 4,159,924 4,014,142 3,751,932 Commercial 2,808,634 2,708,243 2,548,846 Industrial 1,808,086 1,794,754 1,847,114 Other 17,815 17,345 17,354 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 8,794,459 8,534,484 8,165,246 Sales for resale - non-affiliates 1,534,097 1,396,474 1,418,977 Sales for resale - affiliates 709,647 759,341 874,050 - ---------------------------------------------------------------------------------------------------------------------------- Total 11,038,203 10,690,299 10,458,273 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 6.86 6.88 6.73 Commercial 5.85 5.88 5.74 Industrial 4.37 4.55 4.45 Total retail 6.03 6.08 5.92 Sales for resale 3.61 3.67 3.64 Total sales 5.54 5.59 5.42 Average Annual Kilowatt-Hour Use Per Residential Customer 14,457 14,148 13,486 Average Annual Revenue Per Residential Customer $992.17 $973.35 $907.92 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 2,136 1,732 1,801 Summer 1,961 2,040 1,795 Annual Load Factor (percent) 51.4 53.0 56.7 Plant Availability - Fossil-Steam (percent) 91.8 84.0 92.2 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 87.8 86.8 87.2 Oil and gas 0.5 0.4 0.2 Purchased power - From non-affiliates 2.7 4.0 2.8 From affiliates 9.0 8.8 9.8 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,484 10,609 10,614 Cost of fuel per million BTU (cents) 192.22 196.62 189.55 Average cost of fuel per net kilowatt-hour generated (cents) 2.02 2.09 2.01 ============================================================================================================================ </TABLE> II-170
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $244,967 $235,296 $231,220 $217,843 Commercial 137,308 133,071 130,691 124,066 Industrial 87,526 91,320 92,300 91,041 Other 1,882 1,784 1,860 1,805 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 471,683 461,471 456,071 434,755 Sales for resale - non-affiliates 72,209 70,078 69,636 73,855 Sales for resale - affiliates 23,166 24,075 29,343 38,563 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 567,058 555,624 555,050 547,173 Other revenues 16,084 15,278 10,157 20,652 - ---------------------------------------------------------------------------------------------------------------------------- Total $583,142 $570,902 $565,207 $567,825 ============================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 3,712,980 3,596,515 3,455,100 3,360,838 Commercial 2,433,382 2,369,236 2,272,690 2,217,568 Industrial 2,029,936 2,179,435 2,117,408 2,177,872 Other 16,944 16,649 17,118 18,866 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 8,193,242 8,161,835 7,862,316 7,775,144 Sales for resale - non-affiliates 1,460,105 1,430,908 1,550,018 1,775,703 Sales for resale - affiliates 1,029,787 1,208,771 1,236,223 1,435,558 - ---------------------------------------------------------------------------------------------------------------------------- Total 10,683,134 10,801,514 10,648,557 10,986,405 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 6.60 6.54 6.69 6.48 Commercial 5.64 5.62 5.75 5.59 Industrial 4.31 4.19 4.36 4.18 Total retail 5.76 5.65 5.80 5.59 Sales for resale 3.83 3.57 3.55 3.50 Total sales 5.31 5.14 5.21 4.98 Average Annual Kilowatt-Hour Use Per Residential Customer 13,671 13,553 13,320 13,173 Average Annual Revenue Per Residential Customer $901.96 $886.66 $891.38 $853.86 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,571 1,533 1,418 1,310 Summer 1,898 1,828 1,740 1,778 Annual Load Factor (percent) 54.5 55.0 57.0 55.2 Plant Availability - Fossil-Steam (percent) 88.9 91.2 92.2 89.2 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 84.5 87.7 82.0 69.8 Oil and gas 0.5 0.1 0.1 0.5 Purchased power - From non-affiliates 1.5 0.8 0.5 0.6 From affiliates 13.5 11.4 17.4 29.1 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ============================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,390 10,347 10,636 10,765 Cost of fuel per million BTU (cents) 197.37 200.30 203.60 206.06 Average cost of fuel per net kilowatt-hour generated (cents) 2.05 2.07 2.17 2.22 ============================================================================================================================ </TABLE> II-171A
SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1996 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $203,781 $184,036 $199,701 $200,725 Commercial 118,897 107,615 116,057 116,253 Industrial 84,671 72,634 80,295 79,873 Other 1,586 1,402 1,357 1,343 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 408,935 365,687 397,410 398,194 Sales for resale - non-affiliates 67,554 117,466 134,456 106,892 Sales for resale - affiliates 39,244 48,277 55,955 27,113 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 515,733 531,430 587,821 532,199 Other revenues 12,088 19,397 39 10,720 - ----------------------------------------------------------------------------------------------------------------------------------- Total $527,821 $550,827 $587,860 $542,919 =================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 3,293,750 3,154,541 3,055,041 2,963,502 Commercial 2,169,497 2,088,598 1,986,332 1,913,139 Industrial 2,094,670 1,968,091 1,839,931 1,745,074 Other 17,209 16,257 15,241 14,903 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 7,575,126 7,227,487 6,896,545 6,636,618 Sales for resale - non-affiliates 1,640,355 1,911,759 2,138,390 1,609,146 Sales for resale - affiliates 1,461,036 2,326,238 2,689,487 1,078,500 - ----------------------------------------------------------------------------------------------------------------------------------- Total 10,676,517 11,465,484 11,724,422 9,324,264 =================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.19 5.83 6.54 6.77 Commercial 5.48 5.15 5.84 6.08 Industrial 4.04 3.69 4.36 4.58 Total retail 5.40 5.06 5.76 6.00 Sales for resale 3.44 3.91 3.94 4.99 Total sales 4.83 4.64 5.01 5.71 Average Annual Kilowatt-Hour Use Per Residential Customer 13,173 12,883 12,763 12,729 Average Annual Revenue Per Residential Customer $815.00 $751.60 $834.31 $862.16 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 1,969 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,814 1,395 1,354 1,406 Summer 1,691 1,613 1,617 1,678 Annual Load Factor (percent) 52.6 56.5 54.4 50.5 Plant Availability - Fossil-Steam (percent) 89.1 88.2 92.8 90.5 - ----------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 78.3 93.2 93.5 85.8 Oil and gas 0.2 0.4 0.4 0.5 Purchased power - From non-affiliates 0.4 0.4 0.4 1.9 From affiliates 21.1 6.0 5.7 11.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 =================================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,621 10,461 10,512 10,639 Cost of fuel per million BTU (cents) 193.70 178.00 197.53 239.26 Average cost of fuel per net kilowatt-hour generated (cents) 2.06 1.86 2.08 2.55 =================================================================================================================================== </TABLE> II-171B
STATEMENTS OF INCOME Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ For the Years Ended December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Revenues: Revenues $616,603 $600,458 $561,460 Revenues from affiliates 17,762 18,619 17,353 - ------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 634,365 619,077 578,813 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 184,500 185,274 161,168 Purchased power from non-affiliates 8,300 8,594 6,761 Purchased power from affiliates 35,076 29,966 25,819 Proceeds from settlement of disputed contracts - - - Other 115,154 113,397 113,879 Maintenance 51,050 51,917 46,700 Depreciation and amortization 56,645 55,104 56,615 Taxes other than income taxes 52,027 49,598 41,701 Federal and state income taxes 37,821 34,065 33,957 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 540,573 527,915 486,600 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 93,792 91,162 92,213 Other Income (Expense): Allowance for equity funds used during construction 17 36 450 Interest income 1,921 2,877 1,429 Other, net (1,695) (1,261) (780) Gain on sale of investment securities - - - Income taxes applicable to other income 248 (121) 95 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 94,283 92,693 93,407 - ------------------------------------------------------------------------------------------------------------------------------ Interest Charges: Interest on long-term debt 24,691 23,294 27,124 Allowance for debt funds used during construction (58) (187) (656) Interest on notes payable 2,071 2,931 1,509 Amortization of debt discount, premium, and expense, net 2,087 2,014 1,834 Other interest charges 1,882 1,674 2,442 - ------------------------------------------------------------------------------------------------------------------------------ Net interest charges 30,673 29,726 32,253 - ------------------------------------------------------------------------------------------------------------------------------ Net Income 63,610 62,967 61,154 Dividends on Preferred Stock 5,765 5,813 5,925 - ------------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 57,845 $ 57,154 $ 55,229 ============================================================================================================================== </TABLE> II-172
STATEMENTS OF INCOME Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $559,976 $546,827 $535,864 $529,262 Revenues from affiliates 23,166 24,075 29,343 38,563 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 583,142 570,902 565,207 567,825 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 170,485 182,754 176,038 156,712 Purchased power from non-affiliates 4,386 1,394 896 1,427 Purchased power from affiliates 32,273 26,788 32,579 67,729 Proceeds from settlement of disputed contracts - (920) (20,385) - Other 109,164 98,230 94,411 90,045 Maintenance 46,004 41,947 45,468 45,491 Depreciation and amortization 55,309 53,758 52,195 50,899 Taxes other than income taxes 40,204 37,898 42,359 39,110 Federal and state income taxes 32,730 32,078 33,893 24,780 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 490,555 473,927 457,454 476,193 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Income 92,587 96,975 107,753 91,632 Other Income (Expense): Allowance for equity funds used during construction 512 14 54 - Interest income 1,328 2,733 2,427 4,508 Other, net (1,238) (1,487) (3,484) (6,360) Gain on sale of investment securities 3,820 - - - Income taxes applicable to other income (921) 187 1,104 1,303 - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 96,088 98,422 107,854 91,083 - ---------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 31,344 35,792 41,665 43,215 Allowance for debt funds used during construction (454) (46) (95) 1 Interest on notes payable 870 1,041 280 693 Amortization of debt discount, premium, and expense, net 1,412 1,032 699 603 Other interest charges 2,877 1,410 2,272 2,422 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest charges 36,049 39,229 44,821 46,934 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income 60,039 59,193 63,033 44,149 Dividends on Preferred Stock 5,728 5,103 5,237 5,435 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 54,311 $ 54,090 $ 57,796 $ 38,714 ================================================================================================================================== </TABLE> II-173A
STATEMENTS OF INCOME Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $488,577 $502,550 $531,905 $515,806 Revenues from affiliates 39,244 48,277 55,955 27,113 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 527,821 550,827 587,860 542,919 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 158,858 191,687 227,233 215,262 Purchased power from non-affiliates 1,251 1,468 1,792 4,533 Purchased power from affiliates 48,972 27,267 28,326 37,172 Proceeds from settlement of disputed contracts - - - - Other 82,231 93,028 100,032 70,117 Maintenance 44,295 41,919 38,748 35,251 Depreciation and amortization 48,760 47,530 44,619 39,386 Taxes other than income taxes 30,718 27,087 26,246 24,854 Federal and state income taxes 23,621 26,239 31,703 39,948 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 438,706 456,225 498,699 466,523 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Income 89,115 94,602 89,161 76,396 Other Income (Expense): Allowance for equity funds used during construction (446) 457 1,013 7,809 Interest income 3,271 2,858 4,507 2,445 Other, net (3,800) (3,491) (1,207) (1,077) Gain on sale of investment securities - - - - Income taxes applicable to other income 779 1,001 (642) (648) - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 88,919 95,427 92,832 84,925 - ---------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 43,265 42,538 43,689 39,479 Allowance for debt funds used during construction 242 (808) (1,004) (8,651) Interest on notes payable 180 182 - 106 Amortization of debt discount, premium, and expense, net 613 600 555 488 Other interest charges 1,636 1,456 1,350 869 - ---------------------------------------------------------------------------------------------------------------------------------- Net interest charges 45,936 43,968 44,590 32,291 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income 42,983 51,459 48,242 52,634 Dividends on Preferred Stock 5,622 5,761 6,025 6,213 - ---------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 37,361 $ 45,698 $ 42,217 $ 46,421 ================================================================================================================================== </TABLE> II-173B
STATEMENTS OF CASH FLOWS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 63,610 $ 62,967 $ 61,154 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 71,825 75,293 86,098 Deferred income taxes, net 2,157 390 (6,986) Deferred investment tax credits, net - - - Allowance for equity funds used during construction (17) (36) (450) Non-cash proceeds from settlement of disputed contracts - - - Other, net 17,292 (26,537) 4,898 Changes in certain current assets and liabilities -- Receivables, net 736 (12,210) 3,540 Inventories 12,957 (618) (13,901) Payables (7,078) 18,258 (10,159) Other (597) (17,556) 610 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 160,885 99,951 124,804 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (61,386) (63,113) (78,869) Other (2,786) 4,401 (3,493) - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (64,172) (58,712) (82,362) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - - First mortgage bonds 55,000 - - Pollution control bonds 33,275 - 42,000 Capital contributions from parent company - 58 98 Other long-term debt 49,148 - 32,108 Retirements: Preferred stock - (1,000) (1,000) First mortgage bonds (50,930) (1,750) (48,856) Pollution control bonds (33,275) (125) (42,100) Other long-term debt (34,923) (13,314) (24,240) Notes payable, net (55,500) 27,000 47,447 Payment of preferred stock dividends (5,749) (5,813) (5,925) Payment of common stock dividends (48,300) (46,400) (44,000) Miscellaneous (5,332) (117) (2,648) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (96,586) (41,461) (47,116) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 127 (222) (4,674) Cash and Cash Equivalents at Beginning of Year 680 902 5,576 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 807 $ 680 $ 902 ============================================================================================================================ ( ) Denotes use of cash. </TABLE> II-174
STATEMENTS OF CASH FLOWS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 60,039 $ 59,193 $ 63,033 $ 44,149 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 72,111 68,021 65,584 63,650 Deferred income taxes, net 5,347 3,322 (3,392) 1,837 Deferred investment tax credits, net - - - - Allowance for equity funds used during construction (512) (14) (54) - Non-cash proceeds from settlement of disputed contracts - (920) (19,734) - Other, net (864) 185 3,079 1,544 Changes in certain current assets and liabilities -- Receivables, net 12,867 (11,041) 12,421 (2,468) Inventories 5,574 23,560 (2,397) (11,807) Payables 5,386 1,580 (2,003) (3,440) Other (9,504) (13,637) 8,012 5,781 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 150,444 130,249 124,549 99,246 - --------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (78,562) (64,671) (64,323) (62,462) Other (5,328) 3,970 (8,097) (1,597) - --------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (83,890) (60,701) (72,420) (64,059) - --------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock 35,000 29,500 - - First mortgage bonds 75,000 25,000 50,000 - Pollution control bonds 53,425 8,930 21,200 - Capital contributions from parent company 11 121 - 4,000 Other long-term debt 25,000 - - - Retirements: Preferred stock (21,060) (15,500) (2,500) (1,750) First mortgage bonds (88,809) (117,693) (32,807) (6,455) Pollution control bonds (40,650) (9,205) (21,250) (50) Other long-term debt (7,736) (5,783) (7,981) (6,083) Notes payable, net (37,947) 44,000 - - Payment of preferred stock dividends (5,728) (5,103) (5,237) (5,435) Payment of common stock dividends (41,800) (39,900) (38,000) (37,000) Miscellaneous (6,888) (8,760) (3,715) 5 - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (62,182) (94,393) (40,290) (52,768) - --------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 4,372 (24,845) 11,839 (17,581) Cash and Cash Equivalents at Beginning of Year 1,204 26,049 14,210 31,791 - --------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 5,576 $ 1,204 $ 26,049 $ 14,210 ================================================================================================================================= ( ) Denotes use of cash. </TABLE> II-175A
STATEMENTS OF CASH FLOWS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 42,983 $ 51,459 $ 48,242 $ 52,634 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 59,955 56,260 51,672 41,619 Deferred income taxes, net 5,319 10,138 2,377 45,213 Deferred investment tax credits, net - - 868 1,634 Allowance for equity funds used during construction 446 (457) (1,013) (7,809) Non-cash proceeds from settlement of disputed contracts - - - - Other, net 3,827 11,449 12,913 5,860 Changes in certain current assets and liabilities -- Receivables, net 492 8,984 (8,849) (6,012) Inventories 16,306 (16,160) 23,691 (1,342) Payables 6,142 (5,340) 10,173 449 Other 4,466 (18,432) 6,208 (113) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 139,936 97,901 146,282 132,133 - ------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (70,726) (67,042) (97,511) (90,160) Other 419 (62,782) (692) (55,652) - ------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (70,307) (129,824) (98,203) (145,812) - ------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - - - First mortgage bonds - 35,000 - 50,000 Pollution control bonds - 3,677 35,996 9,900 Capital contributions from parent company 7,000 25,000 - - Other long-term debt - - - 60,663 Retirements: Preferred stock (1,250) (1,750) (2,500) (750) First mortgage bonds (9,344) (9,369) - (46,640) Pollution control bonds (50) (50) (32,050) (50) Other long-term debt (5,611) (5,175) (4,774) - Notes payable, net - - - - Payment of preferred stock dividends (5,622) (5,761) (6,025) (6,213) Payment of common stock dividends (37,200) (35,400) (34,200) (33,100) Miscellaneous (3) (233) (1,632) (6,064) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (52,080) 5,939 (45,185) 27,746 - ------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 17,549 (25,984) 2,894 14,067 Cash and Cash Equivalents at Beginning of Year 14,242 40,226 37,332 23,265 - ------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 31,791 $ 14,242 $ 40,226 $ 37,332 =============================================================================================================================== ( ) Denotes use of cash. </TABLE> II-175B
BALANCE SHEETS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 921,295 $ 905,784 $ 896,236 Transmission 161,634 156,786 155,967 Distribution 530,467 512,184 487,986 General 121,114 121,060 116,178 Construction work in progress 23,465 26,301 24,288 - ---------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,757,975 1,722,115 1,680,655 Accumulated provision for depreciation 694,245 658,806 622,911 - ---------------------------------------------------------------------------------------------------------------------------- Total 1,063,730 1,063,309 1,057,744 Less property-related accumulated deferred income taxes - - - - ---------------------------------------------------------------------------------------------------------------------------- Total 1,063,730 1,063,309 1,057,744 - ---------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Miscellaneous 652 740 7,997 - ---------------------------------------------------------------------------------------------------------------------------- Total 652 740 7,997 - ---------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 807 680 902 Investment securities - - - Receivables, net 71,857 72,593 60,384 Fossil fuel stock, at average cost 28,352 37,875 35,686 Materials and supplies, at average cost 30,252 33,686 35,257 Current portion of deferred coal contract costs 16,389 12,767 2,521 Regulatory clauses under recovery 4,144 3,432 5,002 Prepayments 9,186 12,232 4,354 Vacation pay deferred 4,055 4,419 4,172 - ---------------------------------------------------------------------------------------------------------------------------- Total 165,042 177,684 148,278 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 28,313 29,093 30,433 Debt expense, being amortized 2,922 3,444 3,625 Premium on reacquired debt, being amortized 20,386 17,015 18,494 Deferred coal contract costs 13,126 33,768 38,169 Miscellaneous 14,195 16,806 10,802 - ---------------------------------------------------------------------------------------------------------------------------- Total 78,942 100,126 101,523 - ---------------------------------------------------------------------------------------------------------------------------- Total Assets $1,308,366 $1,341,859 $1,315,542 ============================================================================================================================ </TABLE> II-176
BALANCE SHEETS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 863,223 $ 841,489 $ 837,712 $ 817,490 Transmission 154,304 148,824 143,275 136,813 Distribution 464,182 443,352 419,228 400,016 General 129,995 127,826 125,330 123,059 Construction work in progress 34,591 29,564 13,684 16,868 - ----------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,646,295 1,591,055 1,539,229 1,494,246 Accumulated provision for depreciation 610,542 578,851 535,408 501,739 - ----------------------------------------------------------------------------------------------------------------------------- Total 1,035,753 1,012,204 1,003,821 992,507 Less property-related accumulated deferred income taxes - 200,904 197,138 192,749 - ----------------------------------------------------------------------------------------------------------------------------- Total 1,035,753 811,300 806,683 799,758 - ----------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - 19,938 - Miscellaneous 13,242 7,074 6,410 5,439 - ----------------------------------------------------------------------------------------------------------------------------- Total 13,242 7,074 26,348 5,439 - ----------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 5,576 1,204 26,049 14,210 Investment securities - 22,322 - - Receivables, net 63,924 60,047 49,006 61,427 Fossil fuel stock, at average cost 20,652 29,492 52,106 50,469 Materials and supplies, at average cost 36,390 33,124 34,070 33,310 Current portion of deferred coal contract costs 12,535 3,071 4,626 6,212 Regulatory clauses under recovery 3,244 1,680 - 7,008 Prepayments 2,160 1,395 1,410 2,168 Vacation pay deferred 4,022 3,779 3,776 3,631 - ----------------------------------------------------------------------------------------------------------------------------- Total 148,503 156,114 171,043 178,435 - ----------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 31,334 - - - Debt expense, being amortized 3,693 3,253 3,232 2,954 Premium on reacquired debt, being amortized 17,554 15,319 8,855 6,256 Deferred coal contract costs 52,884 63,723 74,502 87,102 Miscellaneous 4,846 5,916 5,073 4,635 - ----------------------------------------------------------------------------------------------------------------------------- Total 110,311 88,211 91,662 100,947 - ----------------------------------------------------------------------------------------------------------------------------- Total Assets $1,307,809 $1,062,699 $1,095,736 $1,084,579 ============================================================================================================================= </TABLE> II-177A
BALANCE SHEETS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 807,546 $ 796,052 $ 801,600 $ 608,340 Transmission 133,926 113,177 106,352 99,507 Distribution 375,521 343,421 325,037 295,052 General 119,779 115,273 102,664 66,092 Construction work in progress 10,166 29,572 10,113 188,966 - ----------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,446,938 1,397,495 1,345,766 1,257,957 Accumulated provision for depreciation 464,944 425,520 388,248 350,117 - ----------------------------------------------------------------------------------------------------------------------------- Total 981,994 971,975 957,518 907,840 Less property-related accumulated deferred income taxes 186,084 178,657 166,707 152,589 - ----------------------------------------------------------------------------------------------------------------------------- Total 795,910 793,318 790,811 755,251 - ----------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - - Miscellaneous 6,933 6,756 2,932 2,619 - ----------------------------------------------------------------------------------------------------------------------------- Total 6,933 6,756 2,932 2,619 - ----------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 31,791 14,242 40,226 37,332 Investment securities - - - - Receivables, net 58,959 59,451 68,435 59,586 Fossil fuel stock, at average cost 37,526 55,286 43,290 69,785 Materials and supplies, at average cost 34,446 32,992 28,828 26,024 Current portion of deferred coal contract costs 5,534 6,194 2,642 - Regulatory clauses under recovery 4,503 1,218 - - Prepayments 2,490 3,577 677 788 Vacation pay deferred 3,425 3,340 3,200 3,000 - ----------------------------------------------------------------------------------------------------------------------------- Total 178,674 176,300 187,298 196,515 - ----------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - - Debt expense, being amortized 3,117 3,281 3,203 2,736 Premium on reacquired debt, being amortized 6,574 6,892 7,210 - Deferred coal contract costs 97,833 106,263 55,889 60,663 Miscellaneous 4,389 4,415 3,839 11,080 - ----------------------------------------------------------------------------------------------------------------------------- Total 111,913 120,851 70,141 74,479 - ----------------------------------------------------------------------------------------------------------------------------- Total Assets $1,093,430 $1,097,225 $1,051,182 $1,028,864 ============================================================================================================================= </TABLE> II-177B
BALANCE SHEETS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 38,060 $ 38,060 $ 38,060 Paid-in capital 218,438 218,438 218,380 Premium on preferred stock 81 81 81 Earnings retained in the business 179,179 179,663 168,951 - ---------------------------------------------------------------------------------------------------------------------------- Total common equity 435,758 436,242 425,472 Preferred stock 65,102 89,602 89,602 Preferred stock subject to mandatory redemption - - - Long-term debt 331,880 323,376 356,393 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 832,740 849,220 871,467 - ---------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 25,000 80,500 53,500 Preferred stock due within one year 24,500 - 1,000 Long-term debt due within one year 40,972 31,548 13,439 Accounts payable 32,770 41,643 23,656 Customer deposits 13,464 13,195 13,609 Taxes accrued 8,342 9,547 13,465 Interest accrued 7,629 5,719 6,106 Regulatory clauses over recovery 5,884 2,800 3,960 Vacation pay accrued 4,055 4,419 4,172 Miscellaneous 17,121 7,356 7,828 - ---------------------------------------------------------------------------------------------------------------------------- Total 179,737 196,727 140,735 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 163,857 162,345 151,681 Deferred credits related to income taxes 64,354 67,481 71,964 Accumulated deferred investment tax credits 33,760 36,052 38,391 Miscellaneous 33,918 30,034 41,304 - ---------------------------------------------------------------------------------------------------------------------------- Total 295,889 295,912 303,340 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $1,308,366 $1,341,859 $1,315,542 ============================================================================================================================ </TABLE> II-178
BALANCE SHEETS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 38,060 $ 38,060 $ 38,060 $ 38,060 Paid-in capital 218,282 218,271 218,150 218,150 Premium on preferred stock 81 88 399 399 Earnings retained in the business 157,773 146,771 134,372 114,576 - ------------------------------------------------------------------------------------------------------------------------------- Total common equity 414,196 403,190 390,981 371,185 Preferred stock 89,602 74,662 55,162 55,162 Preferred stock subject to mandatory redemption 1,000 2,000 7,500 9,250 Long-term debt 369,259 382,047 434,648 475,284 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 874,057 861,899 888,291 910,881 - ------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 6,053 44,000 - - Preferred stock due within one year 1,000 1,000 1,000 1,750 Long-term debt due within one year 41,552 13,820 59,111 9,452 Accounts payable 38,699 33,461 25,315 27,447 Customer deposits 15,082 15,532 15,513 15,551 Taxes accrued 13,015 11,419 19,274 19,610 Interest accrued 5,420 6,370 9,720 10,820 Regulatory clauses over recovery 840 - 1,114 - Vacation pay accrued 4,022 3,779 3,776 3,631 Miscellaneous 8,527 3,950 3,545 12,177 - ------------------------------------------------------------------------------------------------------------------------------- Total 134,210 133,331 138,368 100,438 - ------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 151,743 - 1,775 6,736 Deferred credits related to income taxes 76,876 - - - Accumulated deferred investment tax credits 40,770 43,117 45,446 47,776 Miscellaneous 30,153 24,352 21,856 18,748 - ------------------------------------------------------------------------------------------------------------------------------- Total 299,542 67,469 69,077 73,260 - ------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $1,307,809 $1,062,699 $1,095,736 $1,084,579 =============================================================================================================================== </TABLE> II-179A
BALANCE SHEETS Gulf Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 38,060 $ 38,060 $ 38,060 $ 38,060 Paid-in capital 214,150 207,150 182,150 182,150 Premium on preferred stock 399 399 399 399 Earnings retained in the business 112,862 112,701 102,403 94,386 - ------------------------------------------------------------------------------------------------------------------------------- Total common equity 365,471 358,310 323,012 314,995 Preferred stock 55,162 55,162 55,162 55,162 Preferred stock subject to mandatory redemption 11,000 12,750 14,000 16,500 Long-term debt 484,608 497,069 474,640 482,869 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 916,241 923,291 866,814 869,526 - ------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - - - - Preferred stock due within one year 1,750 1,250 1,750 1,750 Long-term debt due within one year 12,588 15,005 13,225 4,823 Accounts payable 34,764 29,595 34,500 24,014 Customer deposits 15,752 15,316 15,565 14,715 Taxes accrued 12,388 10,683 7,850 10,986 Interest accrued 10,105 10,247 9,584 11,024 Regulatory clauses over recovery - - 9,330 - Vacation pay accrued 3,425 3,340 3,200 3,000 Miscellaneous 7,759 2,748 2,144 3,869 - ------------------------------------------------------------------------------------------------------------------------------- Total 98,531 88,184 97,148 74,181 - ------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 13,381 17,678 22,992 23,550 Deferred credits related to income taxes - - - - Accumulated deferred investment tax credits 50,109 52,451 54,597 55,843 Miscellaneous 15,168 15,621 9,631 5,764 - ------------------------------------------------------------------------------------------------------------------------------- Total 78,658 85,750 87,220 85,157 - ------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $1,093,430 $1,097,225 $1,051,182 $1,028,864 =============================================================================================================================== </TABLE> II-179B
<TABLE> <CAPTION> <S> <C> <C> <C> <C> GULF POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1996 First Mortgage Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - -------------------------------------------------------------------------------------------------- (Thousands) (Thousands) 1992 $ 25,000 5-7/8% $ 25,000 8/1/97 1993 15,000 5.55% 15,000 4/1/98 1993 30,000 5% 30,000 7/1/98 1993 30,000 6-1/8% 30,000 7/1/03 1996 30,000 6-7/8% 30,000 1/1/26 1996 25,000 6-1/2% 25,000 11/1/06 --------- -------- $155,000 $155,000 ======== ======== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - -------------------------------------------------------------------------------------------------- (Thousands) (Thousands) 1987 $ 32,000 8-1/4% $ 32,000 6/1/17 1992 8,930 6-3/4% 8,930 3/1/22 1993 13,000 6.20% 13,000 4/1/23 1993 32,550 5.80% 32,550 6/1/23 1993 7,875 5.70% 7,875 11/1/23 1994 22,000 6.30% 22,000 9/1/24 1994 20,000 Variable 20,000 9/1/24 1996 21,200 5-1/2% 21,200 2/1/26 1996 12,075 5.25% 12,075 4/1/06 ====== ======== $169,630 $169,630 ======== ======== Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding - -------------------------------------------------------------------------------------------------- (Thousands) 1950 51,026 4.64% $ 5,102 1960 50,000 5.16% 5,000 1966 50,000 5.44% 5,000 1969 50,000 7.52% 5,000 1972 50,000 7.88% 5,000 1992 580,000 7% 14,500 1992 600,000 7.30% 15,000 1993 800,000 6.72% 20,000 1993 600,000 Adjustable 15,000 ========= ======= 2,831,026 $89,602 ========= ======= </TABLE> II-180
GULF POWER COMPANY SECURITIES RETIRED DURING 1996 First Mortgage Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------ (Thousands) 1978 $ 930 9% 1991 50,000 8-3/4% ======= $50,930 ======= Pollution Control Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------ (Thousands) 1976 $12,075 6% 1991 21,200 7-1/8% ======= $33,275 ======= II-181 MISSISSIPPI POWER COMPANY FINANCIAL SECTION II-182
MANAGEMENT'S REPORT Mississippi Power Company 1996 Annual Report The management of Mississippi Power Company has prepared--and is responsible for--the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based upon a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting control maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of four directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors, and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial reporting matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Mississippi Power Company in conformity with generally accepted accounting principles. Dwight H. Evans President and Chief Executive Officer Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer February 12, 1997 II-183
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Mississippi Power Company: We have audited the accompanying balance sheets and statements of capitalization of Mississippi Power Company (a Mississippi corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1996 and 1995, and the related statements of income, retained earnings, paid-in capital, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-192 through 207) referred to above present fairly, in all material respects, the financial position of Mississippi Power Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Atlanta, Georgia February 12, 1997 II-184
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power Company 1996 Annual Report RESULTS OF OPERATIONS Earnings Mississippi Power Company's net income after dividends on preferred stock for 1996 was $52.7 million, an increase of 0.4 percent or $0.2 million over the corresponding amount in 1995. Earnings reflect a modest increase in energy sales, an annual retail rate decrease of $3.0 million under the Environmental Compliance Overview Plan (ECO Plan), effective in April 1996, and an annual retail rate increase of $4.5 million under the Performance Evaluation Plan (PEP), effective October 1996. A comparison of 1995 earnings to 1994 shows an increase of $3.4 million. The increase was due to increased energy sales and an annual retail rate increase of $3.7 million under the ECO Plan, effective in May 1995. In April 1994, retail rates increased by $7.6 million annually under the ECO Plan and wholesale rates increased by $3.6 million. Revenues The following table summarizes the factors impacting operating revenues for the past three years: Increase (Decrease) from Prior Year ----------------------------------- 1996 1995 1994 ----------------------------------- (in thousands) Retail -- Change in base rates (PEP and ECO Plan) $ (402) $ 2,694 $9,314 Sales growth 11,187 4,045 9,560 Weather (5,585) 4,513 1,752 Fuel cost recovery and other (1,255) 3,806 6,594 ------------------------------------------------------------- Total retail 3,945 15,058 27,220 ------------------------------------------------------------- Sales for resale -- Non-affiliates 7,776 3,698 4,611 Affiliates 14,139 (1,847) (5,981) ------------------------------------------------------------- Total sales for resale 21,915 1,851 (1,370) Other operating revenues 1,616 482 (1,571) -------------------------------------------------------------- Total operating revenues $27,476 $17,391 $24,279 ============================================================== Percent change 5.3% 3.5% 5.1% ------------------------------------------------------------- In 1996, retail revenues were $414 million, a 1.0 percent increase above the $410 million recorded in the prior year. This change in retail revenues was due to a number of factors. These factors included modest growth in energy sales of 3.8 percent, 3.3 percent and 1.9 percent to industrial, commercial and residential customers, respectively, and changes in retail revenues due to the ECO Plan and PEP, as discussed earlier. Retail revenues in 1995 when compared to 1994 showed an increase of 3.8 percent resulting from an increase in energy sales to commercial and residential customers, an increase in the number of customers and a retail rate increase under the ECO Plan. Changes in base rates reflect rate changes made under the PEP and ECO Plan. Under the fuel cost recovery provision, recorded fuel revenues are equal to recorded fuel expenses, including the fuel component and the operation and maintenance component of purchased energy. Therefore, changes in recoverable fuel expenses are offset with corresponding changes in fuel revenues and have no effect on net income. II-185
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1996 Annual Report Energy sales to non-affiliates include economy sales and amounts sold under short-term contracts. Sales for resale to non-affiliates are influenced by those utilities' own customer demand, plant availability, and the cost of their predominant fuels -- oil and natural gas. Included in sales for resale to non-affiliates are revenues from rural electric cooperative associations and municipalities located in southeastern Mississippi. Energy sales to these customers increased 6.4 percent in 1996 and 13.1 percent in 1995 with the related revenues rising 7.1 percent and 16.7 percent, respectively. The customer demand experienced by these utilities is determined by factors very similar to Mississippi Power's. Sales for resale to non-territorial utilities are primarily under long-term contracts consisting of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. Under these long-term contracts, the capacity and energy components were: 1996 1995 1994 ------------------------------------- (in thousands) Capacity $ - $ 268 $ 1,965 Energy 3,761 3,627 8,473 ========================================================== Total $3,761 $3,895 $10,438 ========================================================== Capacity revenues for Mississippi Power varied due to changes in the contracts and in the allocation of transmission capacity revenues throughout the Southern electric system. Most of the Company's capacity revenues are derived from transmission charges. Sales to affiliated companies within the Southern electric system will vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have no material impact on earnings. Below is a breakdown of kilowatt-hour sales for 1996 and the percent change for the last three years: Amount Percent Change (millions of ----------- ------------------------------ kilowatt-hours) 1996 1996 1995 1994 ---------- ------------------------------ Residential 2,080 1.9% 6.2% (0.4)% Commercial 2,316 3.3 6.7 8.6 Industrial 3,960 3.8 (0.9) 6.2 Other 39 1.9 1.1 (0.5) ---------- Total retail 8,395 3.2 2.9 5.1 Sales for resale -- Non-affiliates 2,727 9.4 (2.4) 0.4 Affiliates 694 184.7 39.7 (59.2) ---------- Total 11,816 8.7% 2.2% 1.3% ================================================================ Total retail energy sales in 1996 increased over 1995 primarily due to growth in the number of customers served by the Company. Total retail energy sales in 1995, when compared to the previous year, increased due to weather influences and the improving economy within the Company's service area. The Company anticipates continued growth in energy sales as the economy improves within its service area. The casino industry and ancillary services, such as lodging, food, transportation, etc., are some of the factors which may influence the economy of the Company's service area. Also, energy demand is expected to grow as a result of a larger and more fully employed population. Expenses Total operating expenses for 1996 when compared to 1995 increased 6.6 percent due to higher fuel expenses, higher maintenance expenses and higher depreciation and amortization. A comparison of 1995 to 1994 operating expenses reflects an increase that resulted from higher fuel expenses, increased other operation expenses and increased depreciation and amortization. Fuel costs are the single largest expense for the Company. In 1996, fuel costs increased above those recorded in 1995 due to a 21.7 percent increase in generation. The increase in generation can be attributed to the higher demand for energy within the Company's service area and across the Southern electric system. Further, this increased demand for energy resulted in higher purchased power costs from non-affiliates and lower purchased power costs from the II-186
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1996 Annual Report affiliates of the Southern electric system. A comparison of 1995 fuel expenses to 1994 fuel expenses reflects an increase in generation due to higher demand for energy. Purchased power consists mainly of energy purchases from the affiliates of the Southern electric system. Purchased power transactions (both sales and purchases) among Mississippi Power and its affiliates will vary from period to period depending on demand and the availability and variable production cost at each generating unit in the Southern electric system. The amount and sources of energy supply, the average cost of fuel per net kilowatt-hour generated, and the total average cost of energy supply (including purchased power) were as follows: 1996 1995 1994 ------------------------------ Total generation (millions of kilowatt-hours) 10,180 8,368 7,408 Sources of energy supply (percent) -- Coal 70 58 56 Gas 12 15 10 Oil * * * Purchased Power 18 27 34 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.43 1.58 1.67 Gas 4.24 2.32 2.56 Oil 5.71 6.21 4.15 Total average cost of energy supply 1.56 1.53 1.55 - -------------------------------------------------------------- * Not meaningful because of minimal generation from the fuel source. Other operation expenses in 1995 when compared to 1994, increased due to higher generation, a $2.6 million charge for emission allowance expenditures and work force reduction program costs. (See Note 2 to the financial statements under "Work Force Reduction Programs" for additional information.) In 1996, maintenance expenses rose above the amount recorded for 1995 due to the timing of maintenance performed at Plants Daniel and Watson, as well as other projects. A comparison of 1995 maintenance expenses to 1994 reflects a decrease due to the timing of scheduled maintenance. Depreciation and amortization in 1996, as compared to 1995, increased primarily due to additional plant investment, higher depreciation rates beginning in 1996, and increased amortization of regulatory assets. In 1995, as compared to 1994, depreciation and amortization increased primarily due to additional plant investments. Taxes other than income taxes for 1996 increased from 1995 much like 1995 when compared to 1994, due to higher municipal franchise taxes resulting from higher retail revenues. The decrease in 1996 income taxes when compared to 1995, is a result of lower operating income. The change in income taxes between 1995 and 1994 also reflects the change in operating income. Effects of Inflation Mississippi Power is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in long-lived utility plant. Conventional accounting for historical costs does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations, such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from regulatory matters to energy sales growth to a less regulated more competitive environment. Expenses are subject to constant review and cost control programs. Mississippi Power is also maximizing the utility of invested capital and minimizing the need for capital by refinancing, decreasing the average fuel stockpile, raising generating plant availability and efficiency, and aggressively controlling the construction budget. Operating II-187
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1996 Annual Report revenues will be affected by any changes in rates under the PEP, the Company's performance based ratemaking plan, and the ECO Plan. PEP has proven to be a stabilizing force on electric rates, with only moderate changes in rates taking place. The ECO Plan provides for recovery of costs (including costs of capital) associated with environmental projects approved by the Mississippi Public Service Commission (MPSC), most of which are required to comply with Clean Air Act Amendments of 1990 (Clean Air Act) regulations. The ECO Plan is operated independently of PEP. The Clean Air Act and other important environmental items are discussed later under "Environmental Matters." The Federal Energy Regulatory Commission (FERC) regulates wholesale rate schedules and power sales contracts that Mississippi Power has with its sales for resale customers. The FERC is currently reviewing the rate of return on common equity included in these schedules and contracts and may require such returns to be lowered, possibly retroactively. Further discussion of PEP, the ECO Plan, and proceedings before the FERC is made in Note 3 to the financial statements herein. Future earnings in the near term will depend upon growth in energy sales, which are subject to a number of factors. Traditionally, these factors have included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in Mississippi Power's service area. However, the Energy Policy Act of 1992 (Energy Act) is beginning to have a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased competition for electric utilities. The Company is positioning its business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows Independent Power Producers (IPPs) to access a utility's transmission network in order to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Also, electricity sales for resale rates are being driven down by wholesale transmission access and numerous potential new energy suppliers, including power marketers and brokers. The Company is aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. Various federal and state initiatives designed to promote wholesale and retail competition, among other things, include proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited, and this could significantly erode earnings. Mississippi Power is subject to the provisions of Financial Accounting Standards Board Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. II-188
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1996 Annual Report FINANCIAL CONDITION Overview The principal changes in Mississippi Power's financial condition during 1996 were gross property additions to utility plant of $61 million. Funding for gross property additions and other capital requirements have been provided from operating activities, principally earnings and the non-cash charges to income of depreciation and amortization, and other long-term debt. The Statements of Cash Flows provide additional details. Financing Activity Retirements, including maturities during 1996, primarily related to other long-term debt and first mortgage bonds, totaled some $100 million. In 1996, the Company obtained $80 million of long-term bank notes. (See the Statements of Cash Flows for further details.) Composite financing rates for the years 1994 through 1996 as of year-end were as follows: 1996 1995 1994 ----------------------------- Composite interest rate on long-term debt 6.03% 6.63% 6.44% Composite preferred stock dividend rate 6.58% 6.58% 6.58% ----------------------------------------------------------- The decrease in composite interest rate on long-term debt in 1996 is primarily the result of the retirement of higher cost first mortgage bonds. Capital Structure At year-end 1996, the Company's ratio of common equity to total capitalization, excluding long-term debt due within one year, was 48.9 percent, compared to 50.8 percent in 1995. The decrease in equity ratio in 1996 is attributed primarily to a 13.0 percent increase in long-term debt, excluding amounts due in one year. Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $231 million ($57 million in 1997, $58 million in 1998, and $116 million in 1999). The major emphasis within the construction program will be on upgrading existing facilities and the possible addition of a combined cycle unit. Revisions may be necessary because of factors such as changes in business conditions, revised load projections, the availability and cost of capital, and changes in environmental regulations. Other Capital Requirements In addition to the funds required for the Company's construction program, approximately $85.1 million will be required by the end of 1999 for present sinking fund requirements and maturities of long-term debt. Mississippi Power plans to continue, when economically feasible, to retire higher cost debt and preferred stock and replace these obligations with lower-cost capital if market conditions permit. Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act -- the acid rain compliance provision of the law -- has significantly impacted Mississippi Power and the other operating companies of Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating plants in the Southern electric system. As a result of Southern Company's compliance strategy, an additional 22 generating units were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a calendar year. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. Southern Company's sulfur dioxide compliance strategy is designed to take advantage of allowances as a compliance option. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which has required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Construction expenditures for Phase I compliance totaled approximately $65 million for Mississippi Power. II-189
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1996 Annual Report For Phase II sulfur dioxide compliance, Southern Company could use emission allowances, increase fuel switching, and/or install flue gas desulfurization equipment at selected plants. Also, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired plants as required to meet Phase II limits. Therefore, current compliance strategy for Mississippi Power could require total Phase II estimated construction expenditures of approximately $4 million, all of which remains to be spent. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. An average increase of up to 2 percent in revenue requirements from customers could be necessary to fully recover the Company's cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. Mississippi Power's ECO Plan is designed to allow recovery of costs of compliance with the Clean Air Act, as well as other environmental statutes and regulations. The MPSC reviews environmental projects and the Company's environmental policy through the ECO Plan. Under the ECO Plan, any increase in the annual revenue requirement is limited to 2 percent of retail revenues. Mississippi Power's management believes that the ECO Plan provides for recovery of the Clean Air Act costs. See Note 3 to the financial statements under "Environmental Compliance Overview Plan" for additional information. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: revisions to the ambient air quality standards for ozone and particulate matter; emission control strategies for ozone nonattainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur costs to clean up properties currently or previously owned. Upon identifying potential sites, the Company conducts studies, when possible, to determine the extent of any required cleanup costs. Should remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. A currently owned site where manufactured gas plant operations were located prior to the Company's ownership is being investigated for potential remediation. See Note 3 to the financial statements under "Environmental Compliance Overview Plan" for additional information. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; and the Endangered Species Act. Changes to these laws could affect many areas of the Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible new legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect the Company. The impact of new legislation -- if any -- will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. II-190
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1996 Annual Report Sources of Capital At December 31, 1996, the Company had $76.3 million of unused committed credit agreements. The Company had no short-term notes payable outstanding at year end 1996. In February 1997, Mississippi Power Capital Trust I (Trust I), of which the Company owns all the common securities, issued $35 million of 7.75 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $36 million aggregate principal amount of the Company's 7.75 percent junior subordinated notes due February 15, 2037. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations, the sale of additional first mortgage bonds, pollution control obligations, and preferred stock, and the receipt of additional capital contributions from Southern Company. Mississippi Power is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficiently high enough to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. II-191
<TABLE> <CAPTION> STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995, and 1994 Mississippi Power Company 1996 Annual Report ===================================================================================================================== 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues (Notes 1 and 3): <S> <C> <C> <C> Revenues $ 522,199 $ 508,862 $ 489,624 Revenues from affiliates 21,830 7,691 9,538 - --------------------------------------------------------------------------------------------------------------------- Total operating revenues 544,029 516,553 499,162 - --------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 141,532 111,071 102,216 Purchased power from non-affiliates 17,960 6,019 2,711 Purchased power from affiliates 33,245 57,777 68,543 Other 106,061 107,296 97,988 Maintenance 47,091 39,627 45,785 Depreciation and amortization 44,906 39,224 35,716 Taxes other than income taxes 43,545 42,443 41,742 Federal and state income taxes (Note 8) 32,618 34,486 31,386 - --------------------------------------------------------------------------------------------------------------------- Total operating expenses 466,958 437,943 426,087 - --------------------------------------------------------------------------------------------------------------------- Operating Income 77,071 78,610 73,075 Other Income (Expense): Allowance for equity funds used during construction 344 366 1,099 Interest income 239 199 87 Other, net 3,801 4,596 2,033 Income taxes applicable to other income (932) (1,006) (227) - --------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 80,523 82,765 76,067 - --------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 19,898 21,898 19,725 Allowance for debt funds used during construction (713) (399) (1,039) Interest on notes payable 1,416 1,141 1,442 Amortization of debt discount, premium, and expense, net 1,547 1,510 1,479 Other interest charges 753 1,185 404 - --------------------------------------------------------------------------------------------------------------------- Net interest charges 22,901 25,335 22,011 - --------------------------------------------------------------------------------------------------------------------- Net Income 57,622 57,430 54,056 Dividends on Preferred Stock 4,899 4,899 4,899 - --------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 52,723 $ 52,531 $ 49,157 ===================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-192
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS For the Years ended December 31, 1996, 1995, and 1994 Mississippi Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Activities: <S> <C> <C> <C> Net income $ 57,622 $ 57,430 $ 54,056 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 50,551 51,588 47,827 Deferred income taxes 74 (480) 1,563 Allowance for equity funds used during construction (344) (366) (1,099) Other, net 9,787 5,704 5,230 Changes in certain current assets and liabilities -- Receivables, net 5,118 (8,758) 3,066 Inventories 4,973 3,962 (9,856) Payables 2,077 17,421 (8,754) Other 292 681 3,334 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 130,150 127,182 95,367 - ------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (61,314) (67,570) (104,014) Other (2,258) (1,697) (14,087) - ------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (63,572) (69,267) (118,101) - ------------------------------------------------------------------------------------------------------------------------ Financing Activities: Proceeds: Capital contributions 27 - 25,000 First mortgage bonds - 30,000 35,000 Pollution control bonds - 10,600 - Other long-term debt 80,000 - 85,310 Retirements: First mortgage bonds (45,447) (1,625) (32,628) Pollution control bonds (10) (10) (10) Other long-term debt (55,000) (40,689) (9,299) Notes payable, net - - (40,000) Payment of preferred stock dividends (4,899) (4,899) (4,899) Payment of common stock dividends (43,900) (39,400) (34,100) Miscellaneous (2,932) (568) (1,201) - ------------------------------------------------------------------------------------------------------------------------ Net cash provided from (used for) financing activities (72,161) (46,591) 23,173 - ------------------------------------------------------------------------------------------------------------------------ Net Change in Cash and Cash Equivalents (5,583) 11,324 439 Cash and Cash Equivalents at Beginning of Year 12,641 1,317 878 - ------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year $ 7,058 $ 12,641 $ 1,317 ======================================================================================================================== Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $21,467 $23,308 $19,196 Income taxes 34,072 36,908 31,115 - ------------------------------------------------------------------------------------------------------------------------ ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-193
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1996 and 1995 Mississippi Power Company 1996 Annual Report - ------------------------------------------------------------------------------------------------------ ASSETS 1996 1995 - ------------------------------------------------------------------------------------------------------ (in thousands) <S> <C> <C> Utility Plant: Plant in service, at original cost (Notes 1 and 6) $ 1,483,875 $ 1,434,327 Less accumulated provision for depreciation 526,776 499,308 - ------------------------------------------------------------------------------------------------------ 957,099 935,019 Construction work in progress 35,100 41,210 - ------------------------------------------------------------------------------------------------------ Total 992,199 976,229 - ------------------------------------------------------------------------------------------------------ Other Property and Investments 3,054 4,160 - ------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 7,058 12,641 Receivables- Customer accounts receivable 26,364 29,738 Regulatory clauses under recovery 7,300 7,975 Other accounts and notes receivable 7,468 5,616 Affiliated companies 6,329 9,213 Accumulated provision for uncollectible accounts (839) (802) Fossil fuel stock, at average cost 12,168 15,666 Materials and supplies, at average cost 21,083 22,558 Current portion of deferred fuel charges (Note 5) - 1,546 Current portion of accumulated deferred income taxes (Note 8) 7,227 5,180 Prepayments 4,744 2,404 Vacation pay deferred 4,806 4,715 - ------------------------------------------------------------------------------------------------------ Total 103,708 116,450 - ------------------------------------------------------------------------------------------------------ Deferred Charges: Debt expense and loss, being amortized 12,220 10,039 Deferred charges related to income taxes (Note 8) 22,274 23,384 Deferred early retirement program costs (Note 2) - 7,286 Long-term notes receivable 3,737 3,821 Miscellaneous 5,135 7,584 - ------------------------------------------------------------------------------------------------------ Total 43,366 52,114 - ------------------------------------------------------------------------------------------------------ Total Assets $ 1,142,327 $ 1,148,953 ====================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-194
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1996 and 1995 Mississippi Power Company 1996 Annual Report - ---------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES 1996 1995 - ---------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Capitalization (See accompanying statements): Common stock equity $ 383,734 $ 374,884 Preferred stock 74,414 74,414 Long-term debt 326,379 288,820 - ---------------------------------------------------------------------------------------------- Total 784,527 738,118 - ---------------------------------------------------------------------------------------------- Current Liabilities: Long-term debt due within one year (Note 10) 10 57,229 Accounts payable- Affiliated companies 4,136 13,646 Regulatory clauses over recovery 8,788 5,381 Other 38,720 31,748 Customer deposits 3,154 2,716 Taxes accrued- Federal and state income - 97 Other 32,445 31,816 Interest accrued 4,384 4,701 Miscellaneous 13,942 13,453 - ---------------------------------------------------------------------------------------------- Total 105,579 160,787 - ---------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 133,437 129,711 Accumulated deferred investment tax credits 28,333 29,773 Deferred credits related to income taxes (Note 8) 40,568 43,266 Postretirement benefits 21,850 20,800 Accumulated provision for property damage (Note 1) 12,955 12,018 Miscellaneous 15,078 14,480 - ---------------------------------------------------------------------------------------------- Total 252,221 250,048 - ---------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 2, 3, 4, and 5) Total Capitalization and Liabilities $ 1,142,327 $ 1,148,953 ============================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-195
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION At December 31, 1996 and 1995 Mississippi Power Company 1996 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) <S> <C> <C> <C> <C> Common Stock Equity: Common stock, without par value -- Authorized -- 1,130,000 shares Outstanding -- 1,121,000 shares in 1996 and 1995 $ 37,691 $ 37,691 Paid-in capital 179,389 179,362 Premium on preferred stock 372 372 Retained earnings (Note 11) 166,282 157,459 - --------------------------------------------------------------------------------------------------------------------------- Total common stock equity 383,734 374,884 48.9% 50.8% - --------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par value -- Authorized -- 1,244,139 shares Outstanding -- 744,139 shares in 1996 and 1995 4.40% 4,000 4,000 4.60% 2,010 2,010 4.72% 5,000 5,000 6.32% 15,000 15,000 6.65% 8,404 8,404 7.00% 5,000 5,000 7.25% 35,000 35,000 - --------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $4,899,000) 74,414 74,414 9.5 10.1 - --------------------------------------------------------------------------------------------------------------------------- Long-Term Debt: First mortgage bonds -- Maturity Interest Rates March 1, 1998 5 3/8% 35,000 35,000 August 1, 2000 6 5/8% 40,000 40,000 March 1, 2004 6.60% 35,000 35,000 May 1, 2021 9 1/4% - 45,447 June 1, 2023 7.45% 35,000 35,000 December 1, 2025 6 7/8% 30,000 30,000 - --------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 175,000 220,447 Pollution control obligations (Note 9) 73,735 73,745 Other long-term debt (Note 9) 80,000 55,000 Unamortized debt premium (discount), net (2,346) (3,143) - --------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement--$19,837,000) 326,389 346,049 Less amount due within one year (Note 10) 10 57,229 - --------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 326,379 288,820 41.6 39.1 - --------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 784,527 $ 738,118 100.0% 100.0% =========================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-196
<TABLE> <CAPTION> STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1996, 1995, and 1994 Mississippi Power Company 1996 Annual Report - -------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Balance at Beginning of Period $ 157,459 $ 144,328 $ 129,343 Net income after dividends on preferred stock 52,723 52,531 49,157 Cash dividends on common stock (43,900) (39,400) (34,100) Preferred stock transactions and other, net - - (72) ========================================================================================================================== Balance at End of Period (Note 11) $ 166,282 $ 157,459 $ 144,328 ========================================================================================================================== </TABLE> <TABLE> <CAPTION> STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1996, 1995, and 1994 - -------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Balance at Beginning of Period $ 179,362 $ 179,362 $ 154,362 Contributions to capital by parent company 27 - 25,000 ========================================================================================================================== Balance at End of Period $ 179,389 $ 179,362 $ 179,362 ========================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-197
NOTES TO FINANCIAL STATEMENTS Mississippi Power Company 1996 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Mississippi Power Company is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, Southern Company Services (SCS), Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), and The Southern Development and Investment Group (Southern Development), and other direct and indirect subsidiaries. The operating companies (Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power Company, and Savannah Electric and Power Company) provide electric service in four southeastern states. Contracts among the companies--dealing with jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power--are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission. SCS provides, at cost, specialized services to Southern Company and to the subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, builds, owns, and operates power production and delivery facilities and provides a broad range of energy related services in the United States and international markets. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Development develops new business opportunities related to energy products and services. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. Mississippi Power is also subject to regulation by the FERC and the Mississippi Public Service Commission (MPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the respective commissions. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Regulatory Assets and Liabilities Mississippi Power is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets as of December 31 relate to: 1996 1995 ------------------------- (in thousands) Deferred income taxes $22,274 $23,384 Vacation pay 4,806 4,715 Work force reduction costs 1,991 7,286 Deferred fuel charges - 1,546 Premium on reacquired debt 10,672 8,509 Deferred environmental costs 1,679 1,713 Property damage reserve (12,955) (12,018) Deferred income tax credits (40,568) (43,266) Other, net (2,882) (2,658) - ---------------------------------------------------------------- Total $(14,983) $ (10,789) ================================================================ In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off the related regulatory assets and liabilities. In addition, the Company would be required to determine any impairment to other assets, including plant, and, if impaired, to write down the assets to their fair value. Revenues Mississippi Power accrues revenues for service rendered but unbilled at the end of each fiscal period. The Company's retail and wholesale rates include provisions to adjust billings for fluctuations in fuel and the energy component of purchased power. Retail rates also include provisions to adjust billings for fluctuations in costs for ad valorem taxes and certain qualifying environmental costs. II-198
NOTES (continued) Mississippi Power Company 1996 Annual Report Revenues are adjusted for differences between actual allowable amounts and the amounts included in rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1996, uncollectible accounts continued to average less than 1 percent of revenues. Depreciation Depreciation of the original cost of depreciable utility plant in service is provided by using composite straight-line rates which approximated 3.3 percent in 1996, and 3.2 percent in both 1995 and 1994. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost -- together with the cost of removal, less salvage -- is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of facilities. Income Taxes Mississippi Power uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rates used to capitalize the cost of funds devoted to construction were 7.5 percent in 1996, 8.0 percent in 1995, and 6.9 percent in 1994. AFUDC (net of income taxes), as a percent of net income after dividends on preferred stock, was 1.5 percent in 1996, 1.2 percent in 1995, and 3.5 percent in 1994. Utility Plant Utility plant is stated at original cost. This cost includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost of funds used during construction. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense except for the maintenance of coal cars and a portion of the railway track maintenance, which are charged to fuel stock. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments In accordance with FASB Statement No. 107, Disclosure About Fair Value of Financial Instruments, all financial instruments of the Company for which the carrying amount does not approximate fair value, must be disclosed. At December 31, 1996, the fair value of long-term debt was $324 million and the carrying amount was $326 million. At December 31, 1995, the fair value of long-term debt was $355 million and the carrying amount was $346 million. The fair value for long-term debt was based on either closing market price or closing price of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when used or installed. II-199
NOTES (continued) Mississippi Power Company 1996 Annual Report Provision for Property Damage Mississippi Power is self-insured for the cost of storm, fire and other uninsured casualty damage to its property, including transmission and distribution facilities. As permitted by regulatory authorities, the Company provided for such costs by charges to income of $1.5 million in both 1996 and 1995 and $1.1 million in 1994. The cost of repairing damage resulting from such events that individually exceed $50 thousand is charged to the accumulated provision to the extent it is available. Effective January 1995, regulatory treatment by the MPSC allowed a maximum accumulated provision of $18 million. As of December 31, 1996, the accumulated provision amounted to $13.0 million. 2. RETIREMENT BENEFITS Pension Plan Mississippi Power has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. Benefits are based on one of the following formulas: years of service and final average pay or years of service and a flat-dollar benefit. The Company uses the "entry age normal method with a frozen initial liability" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trust are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. Postretirement Benefits Mississippi Power also provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are funded to the extent required by the Company's regulatory commissions. Amounts funded are primarily invested in debt and equity securities. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." The cost of postretirement benefits is reflected in rates on a current basis. Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement benefits as computed under the requirements of FASB Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension ------------------------ 1996 1995 ------------------------ (in thousands) Actuarial present value of benefit obligation: Vested benefits $92,091 $91,322 Non-vested benefits 5,191 4,264 -------------------------------------------------------------- Accumulated benefit obligation 97,282 95,586 Additional amounts related to projected salary increases 30,552 28,545 -------------------------------------------------------------- Projected benefit obligation 127,834 124,131 Less: Fair value of plan assets 179,658 170,481 Unrecognized net gain (56,674) (47,034) Unrecognized prior service cost 6,422 2,868 Unrecognized transition asset (5,449) (6,001) -------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $3,877 $3,817 ============================================================== Postretirement Benefits ------------------------ 1996 1995 ------------------------ (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $20,841 $22,575 Employees eligible to retire 2,703 1,709 Other employees 17,564 17,908 ------------------------------------------------------------ Accumulated benefit obligation 41,108 42,192 Less: Fair value of plan assets 10,210 8,700 Unrecognized net loss 1,136 4,160 Unrecognized transition obligation 5,911 7,044 -------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $23,851 $22,288 ============================================================== II-200
NOTES (continued) Mississippi Power Company 1996 Annual Report In 1995, Southern Company's subsidiaries announced a cost sharing program for postretirement benefits. The program established limits on amounts the companies will pay to provide future retiree postretirement benefits. This change reduced the Company's 1995 accumulated postretirement benefit obligation by approximately $10.5 million. The weighted average rates assumed in the above actuarial calculations were: 1996 1995 1994 --------------------------------- Discount 7.8% 7.3% 8.0% Annual salary increase 5.3 4.8 5.5 Long-term return on plan assets 8.5 8.5 8.5 ------------------------------------------------------------ An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.3 percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation as of December 31, 1996, by $3.2 million and the aggregate of the service and interest cost components of the net retiree cost by $0.3 million. Components of the plans' net cost are shown below: Pension -------------------------------- 1996 1995 1994 -------------------------------- (in thousands) Benefits earned during the year $ 3,842 $ 3,636 $ 3,780 Interest cost on projected benefit obligation 9,310 8,434 7,503 Actual (return) loss on plan assets (20,438) (32,232) 3,244 Net amortization and deferral 6,442 18,650 (16,048) ============================================================== Net pension income $ (844) $ (1,512) $ (1,521) ============================================================== Of the above net pension income, $(0.6) million in 1996, and $(1.1) million in both 1995 and 1994 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits ------------------------------ 1996 1995 1994 ------------------------------ (in thousands) Benefits earned during the year $ 958 $1,525 $1,760 Interest cost on accumulated benefit obligation 2,830 3,442 3,251 Amortization of transition obligation over 20 years 362 1,027 1,043 Actual (return) loss on plan assets (990) (1,436) 132 Net amortization and deferral 312 851 (575) ================================================================ Net postretirement costs $3,472 $5,409 $5,611 ================================================================ Of the above net postretirement costs recorded, $2.8 million in 1996, $3.9 million in 1995, and $4.4 million in 1994 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Work Force Reduction Programs During 1994, Mississippi Power and SCS instituted work force reduction programs. The costs of the SCS work force reduction program were apportioned among the various entities that form the Southern electric system, with the Company's portion amounting to $1.4 million. The Company instituted an early retirement incentive program in April 1994 and deferred the related costs of approximately $12.9 million. The Company received authority from the MPSC to defer these costs, as well as its portion of the costs of the SCS program, and to amortize over a period not to exceed 60 months, beginning no later than January 1995. The Company expensed $5.3 million, $4.0 million and $3.0 million of the cost of these programs in 1996, 1995 and 1994, respectively. In 1996, Mississippi Power expensed its pro-rata share of the costs for affiliated companies' programs of $1.9 million. 3. LITIGATION AND REGULATORY MATTERS Retail Rate Adjustment Plans Mississippi Power's retail base rates are set under a Performance Evaluation Plan (PEP). In January 1994, the MPSC approved PEP-2. PEP-2 was designed with the MPSC objectives that the plan would reduce the impact of rate changes on the customer and provide incentives for Mississippi Power to keep customer prices low. PEP-2 includes a mechanism for sharing rate adjustments based on the Company's ability to maintain low rates for customers and on the Company's II-201
NOTES (continued) Mississippi Power Company 1996 Annual Report performance as measured by three indicators that emphasize price and service to the customer. PEP-2 provides for semiannual evaluations of Mississippi's performance-based return on investment. Any change in rates is limited to 2 percent of retail revenues per evaluation period. PEP-2 will remain in effect until the MPSC modifies or terminates the plan. During 1995 and 1994, there were no changes under PEP-2. In September 1996, the MPSC under PEP-2 approved a retail revenue increase of $4.5 million (1.06 percent of annual retail revenue) which became effective in October 1996. FERC Reviews Equity Returns In May 1991, the FERC ordered that hearings be conducted concerning the reasonableness of the operating companies' wholesale rate schedules and contracts that have a return on equity of 13.75 percent or greater. The contracts that could be affected by the hearings include substantially all of the transmission, unit power, long-term power and other similar contracts, including the Company's transmission facilities agreement discussed in Note 5 under "Lease Agreements." In August 1992, a FERC administrative law judge issued an opinion that changes in rate schedules and contracts were not necessary and that the FERC staff failed to show how any changes were in the public interest. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter remains pending before the FERC. In August 1994, the FERC instituted another proceeding based on substantially the same issues as in the 1991 proceeding. In November 1995, a FERC administrative law judge issued an opinion that the FERC staff failed to meet its burden of proof, and therefore, no change in the equity return was necessary. The FERC staff has filed exceptions to the administrative law judge's opinion, and the matter is pending before the FERC. If the rates of return on common equity recommended by the FERC staff were applied to all of the schedules and contracts involved in both proceedings -- as well as certain other contracts that reference these proceedings in determining return on common equity -- and if refunds were ordered, the amount of refunds could range up to approximately $3.4 million for Mississippi Power at December 31, 1996. However, management believes that rates are not excessive, and that refunds are not justified. Environmental Compliance Overview Plan The MPSC approved Mississippi Power's ECO Plan in 1992. The plan establishes procedures to facilitate the MPSC's overview of the Company's environmental strategy and provides for recovery of costs (including costs of capital) associated with environmental projects approved by the MPSC. In November 1995, the MPSC ordered a change in accounting treatment allowing emission allowance expenses to be recovered through the Company's fuel adjustment clause, and emission allowance inventory costs to be recovered through PEP-2 rather than through the ECO Plan. Under the ECO Plan any increase in the annual revenue requirement is limited to 2 percent of retail revenues. However, the plan also provides for carryover of any amount over the 2 percent limit into the next year's revenue requirement. The ECO Plan had previously resulted in an annual retail rate increase of $3.7 million, effective in May 1995 which included $1.6 million of 1994 carryover and an annual retail rate increase of $7.6 million, effective in April 1994. The Company's 1996 annual filing under the ECO Plan resulted in a $3.0 million decrease in retail rates, effective in April 1996. On January 31, 1997, the Company filed with the MPSC under the ECO Plan a request for an annual retail rate increase of $0.9 million. Mississippi Power conducts studies, when possible, to determine the extent of any required clean-up costs. Should remediation be determined to be probable, reasonable estimates of costs to clean up such sites are developed and recognized in the financial statements. A currently owned site where manufactured gas plant operations were located prior to the Company's ownership is being investigated for potential remediation. The remedial investigation is near completion and is being conducted in conjunction with the Mississippi Department of Environmental Quality. In recognition of probable further study and remediation, the Company in 1995 recorded a liability and a deferred debit (regulatory asset) of $1.8 million, including feasibility study costs. The Company recognizes such costs as they are incurred and recovers them under the ECO Plan as provided in the Company's 1995 ECO order. As of December 31, 1996, the balance in the liability and regulatory asset accounts was $1.7 million, including additional feasibility study costs. If this site were required to be remediated, industry studies show the Company could incur cleanup costs ranging from $1.5 million to $10 million before giving consideration to possible recovery of clean-up costs from other parties. II-202
NOTES (continued) Mississippi Power Company 1996 Annual Report 4. CONSTRUCTION PROGRAM Mississippi Power is engaged in continuous construction programs, the costs of which are currently estimated to total $57 million in 1997, $58 million in 1998, and $116 million in 1999. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing costs of labor, equipment and materials; and cost of capital. The Company does not currently have any new generating plants under construction. However, significant construction will continue related to transmission and distribution facilities, the upgrading of generating plants, and the possible addition of a combined cycle unit. 5. FINANCING AND COMMITMENTS Financing Mississippi Power's construction program is expected to be financed from internal and other sources, such as the issuance of additional long-term debt and preferred stock and the receipt of capital contributions from Southern Company. The amounts of first mortgage bonds and preferred stock which can be issued in the future will be contingent upon market conditions, adequate earnings levels, regulatory authorizations and other factors. At December 31, 1996, Mississippi Power had total committed credit agreements with banks for $96.3 million. At year-end 1996, the unused portion of these committed credit agreements was $76.3 million. These credit agreements expire at various dates in 1997 and in 1999. Some of these agreements allow short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company agrees to pay commitment fees based on the unused portions of the commitments or to maintain compensating balances with the banks. At December 31, 1996, the Company had no short-term borrowings outstanding. Assets Subject to Lien Mississippi Power's mortgage indenture dated as of September 1, 1941, as amended and supplemented, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all the Company's fixed property and franchises. Lease Agreements In 1984, Mississippi Power and Gulf States Utilities Company (Gulf States) entered into a forty-year transmission facilities agreement whereby Gulf States began paying a use fee to the Company covering all expenses relative to ownership and operation and maintenance of a 500 kV line, including amortization of its original $57 million cost. For the three years ended 1996 use fees collected under this agreement, net of related expenses, amounted to $3.7 million each year, and are included within Other Income, in the Statements of Income. In 1989, Mississippi Power entered into a twenty-two year lease agreement for the use of 495 aluminum railcars. In 1994, a second lease agreement for the use of 250 additional aluminum railcars was also entered into for twenty-two years. Both of these leases, totaling 745 railcars, were for the transport of coal at Plant Daniel. Gulf Power, as joint owner of Plant Daniel, is responsible for one half of the lease cost. The Company's share (50%) of the leases is charged to fuel inventory and allocated to fuel expense as the fuel is consumed. The lease cost charged to inventory was $1.7 million in both 1996 and 1995, and $1.2 million in 1994. The Company's annual lease payments for 1997 through 2001 will be approximately $1.7 million and after 2001, lease payments total in aggregate approximately $20.7 million. The Company has the option to purchase the 745 railcars at the greater of the termination value or the fair market value, or to renew the leases at the end of the lease term. Fuel and Purchased Power Commitments To supply a portion of the fuel requirements of its generating plants, Mississippi Power has entered into various long-term commitments for the procurement of fuel. In most cases, these contracts contain provisions for price escalations, minimum production levels, and other financial commitments. II-203
NOTES (continued) Mississippi Power Company 1996 Annual Report Total estimated obligations at December 31, 1996 were as follows: Year Fuel - -------------- -------------- (in millions) 1997 $129 1998 127 1999 91 - ------------------------------------------------------ Total commitments $347 - ------------------------------------------------------ Additional commitments for fuel will be required in the future to supply the Company's fuel needs. Mississippi Power entered into agreements to purchase summer peaking power and options for power for the years 1996 through 2000. For June through September of 1996, the Company entered into an agreement to buy 242 megawatts of capacity and energy from another electric utility. For each June through September period of 1997 through 2000, the Company has purchased options from power marketers for up to 250 megawatts of peaking power in 1997; 300 megawatts in 1998; 350 megawatts in 1999; and 400 megawatts in 2000. In June 1996, the MPSC approved Mississippi Power's request that it be allowed to earn a return on the capacity portion of these agreements. 6. JOINT OWNERSHIP AGREEMENTS Mississippi Power and Alabama Power own as tenants in common Greene County Electric Generating Plant (coal) located in Alabama; and Mississippi Power and Gulf Power own as tenants in common Daniel Electric Generating Plant (coal) located in Mississippi. At December 31, 1996, Mississippi Power's percentage ownership and investment in these jointly owned facilities were as follows: Company's Generating Total Percent Gross Accumulated Plant Capacity Ownership Investment Depreciation ---------- -------- ----------- ---------- ------------ (Megawatts) (in thousands) Greene County 500 40% $ 59,102 $ 33,010 Daniel 1,000 50% 221,211 97,910 ---------------------------------------------------------------- Mississippi Power's share of plant operating expenses is included in the corresponding operating expenses in the Statements of Income. 7. LONG-TERM POWER SALES AGREEMENTS General Mississippi Power and the other operating affiliates of Southern Company have long-term contractual agreements for the sale of capacity and energy to certain non-affiliated utilities located outside the system's service area. Some of these agreements (unit power sales) are firm commitments and pertain to capacity related to specific generating units. Mississippi Power's participation in firm production capacity unit power sales ended in 1989. Because the energy is generally sold at cost under these agreements, profitability is primarily affected by revenues from capacity sales. The capacity revenues have been as follows: Other Year Unit Power Long-Term Total ------------------------------------------------------------ (in thousands) 1996 $ - $ - $ - 1995 268 - 268 1994 660 1,305 1,965 8. INCOME TAXES At December 31, 1996, the tax-related regulatory assets and liabilities were $22 million and $41 million, respectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. These liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. II-204
NOTES (continued) Mississippi Power Company 1996 Annual Report Details of the federal and state income tax provisions are shown below: 1996 1995 1994 --------------------------------- (in thousands) Total provision for income taxes Federal -- Currently payable $29,888 $32,546 $26,072 Deferred --current year 13,816 5,122 6,313 --reversal of prior years (14,913) (7,039) (5,161) --------------------------------------------------------------- 28,791 30,629 27,224 --------------------------------------------------------------- State -- Currently payable 3,588 3,426 3,978 Deferred --current 4,727 2,270 1,669 --reversal of prior years (3,556) (833) (1,258) --------------------------------------------------------------- 4,759 4,863 4,389 --------------------------------------------------------------- Total 33,550 35,492 31,613 Less income taxes charged to other income 932 1,006 227 --------------------------------------------------------------- Federal and state income taxes charged to operations $32,618 $34,486 $31,386 =============================================================== The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities are as follows: 1996 1995 ----------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $148,667 $145,093 Basis differences 10,507 10,815 Coal contract buyouts - 145 Other 19,285 16,478 ------------------------------------------------------------- Total 178,459 172,531 ------------------------------------------------------------- Deferred tax assets: Other property basis differences 24,434 25,951 Pension and other benefits 8,750 7,356 Property insurance 4,955 4,551 Unbilled fuel 2,808 3,039 Other 11,302 7,103 ------------------------------------------------------------- Total 52,249 48,000 ------------------------------------------------------------- Net deferred tax liabilities 126,210 124,531 Portion included in current assets, net 7,227 5,180 ------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $133,437 $129,711 ============================================================= Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $1.4 million in 1996, and $1.5 million in 1995 and 1994. At December 31, 1996, all investment tax credits available to reduce federal income taxes payable had been utilized. A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1996 1995 1994 ----------------------------- Total effective tax rate 37% 38% 37% State income tax, net of federal income tax benefit (3) (3) (3)% Tax rate differential 1 - 1 ------------------------------------------------------------- Statutory federal tax rate 35% 35% 35% ============================================================= Mississippi Power and the subsidiaries of Southern Company file a consolidated federal income tax return. Under a joint consolidated income tax II-205
NOTES (continued) Mississippi Power Company 1996 Annual Report agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 9. OTHER LONG-TERM DEBT Details of pollution control obligations and other long-term debt are as follows: December 31, 1996 1995 --------------------- (in thousands) Obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds: 5.80% due 2007 $ 960 $ 970 Variable rate due 2020 6,550 6,550 Variable rate due 2022 16,750 16,750 6.20% due 2023 13,000 13,000 5.65% due 2023 25,875 25,875 Variable due 2025 10,600 10,600 - --------------------------------------------------------------- 73,735 73,745 - --------------------------------------------------------------- Other long-term debt: Variable rates due 1996 - 55,000 Variable rates (5.80797% to 5.88906% at 1/1/97) due 1999 50,000 - Variable rate due 2000 30,000 - - --------------------------------------------------------------- 80,000 55,000 - --------------------------------------------------------------- Total $153,735 $128,745 =============================================================== Pollution control obligations represent installment or lease purchases of pollution control facilities financed by application of funds derived from sales by public authorities of tax-exempt revenue bonds. Mississippi Power has authenticated and delivered to the Trustee a like principal amount of first mortgage bonds as security for obligations under collateralized installment agreements. The principal and interest on the first mortgage bonds will be payable only in the event of default under these agreements. The 5.80% series of pollution control obligations has a cash sinking fund requirement of $10 thousand for 1997 and $20 thousand annually in 1998, 1999, 2000 and 2001. 10. LONG-TERM DEBT DUE WITHIN ONE YEAR A summary of the improvement fund requirements and scheduled maturities and redemptions of long-term debt due within one year is as follows: 1996 1995 -------------------- (in thousands) Bond improvement fund requirements $1,750 $ 2,219 Less: Portion to be satisfied by certifying property additions 1,750 - ------------------------------------------------------------- Cash improvement fund requirements - 2,219 Pollution control bond cash sinking fund requirements (Note 9) 10 10 Current portion of notes payable (Note 9) - 55,000 ============================================================= Total $ 10 $57,229 ============================================================= The first mortgage bond improvement fund requirement is one percent of each outstanding series authenticated under the indenture of Mississippi Power prior to January 1 of each year, other than first mortgage bonds issued as collateral security for certain pollution control obligations. The requirement must be satisfied by June 1 of each year by depositing cash or reacquiring bonds, or by pledging additional property equal to 166-2/3 percent of such requirement. 11. COMMON STOCK DIVIDEND RESTRICTIONS Mississippi Power's first mortgage bond indenture and the corporate charter contain various common stock dividend restrictions. At December 31, 1996, approximately $118 million of retained earnings was restricted against the payment of cash dividends on common stock under the most restrictive terms of the mortgage indenture or corporate charter. II-206
NOTES (continued) Mississippi Power Company 1996 Annual Report 12. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1996 and 1995 are as follows: Net Income After Dividends Quarter Operating Operating On Ended Revenues Income Preferred Stock ------------------------------------------------------------------- March 1996 $126,954 $18,074 $11,695 June 1996 136,749 17,691 11,400 September 1996 156,603 27,670 21,784 December 1996 123,723 13,636 7,844 March 1995 $109,572 $15,729 $ 9,269 June 1995 128,504 22,193 14,737 September 1995 157,119 28,517 22,161 December 1995 121,358 12,171 6,364 Mississippi Power's business is influenced by seasonal weather conditions and the timing of rate changes. II-207
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Mississippi Power Company 1996 Annual Report ================================================================================================= <S> <C> <C> <C> 1996 1995 1994 - ------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $544,029 $516,553 $499,162 Net Income after Dividends on Preferred Stock (in thousands) $52,723 $52,531 $49,157 Cash Dividends on Common Stock (in thousands) $43,900 $39,400 $34,100 Return on Average Common Equity (percent) 13.9 14.26 14.38 Total Assets (in thousands) $1,142,327 $1,148,953 $1,123,711 Gross Property Additions (in thousands) $61,314 $67,570 $104,014 - ------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $383,734 $374,884 $361,753 Preferred stock 74,414 74,414 74,414 Preferred stock subject to mandatory redemption - - - Long-term debt 326,379 288,820 306,522 - ------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $784,527 $738,118 $742,689 ================================================================================================= Capitalization Ratios (percent): Common stock equity 48.9 50.8 48.7 Preferred stock 9.5 10.1 10.0 Long-term debt 41.6 39.1 41.3 - ------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ================================================================================================= First Mortgage Bonds (in thousands): Issued - 30,000 35,000 Retired 45,447 1,625 32,628 Preferred Stock (in thousands): Issued - - - Retired - - - - ------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's Aa3 Aa3 Aa3 Standard and Poor's A+ A+ A+ Duff & Phelps AA- AA- A+ Preferred Stock - Moody's a1 a1 a1 Standard and Poor's A A A Duff & Phelps A+ A+ A - ------------------------------------------------------------------------------------------------- Customers (year-end): Residential 154,630 154,014 152,891 Commercial 30,366 29,903 29,276 Industrial 639 642 650 Other 200 194 189 - ------------------------------------------------------------------------------------------------- Total 185,835 184,753 183,006 ================================================================================================= Employees (year-end) 1,363 1,421 1,535 - ------------------------------------------------------------------------------------------------- </TABLE> II-208
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Mississippi Power Company 1996 Annual Report ============================================================================================================== <S> <C> <C> <C> <C> 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $474,883 $434,447 $432,386 $446,871 Net Income after Dividends on Preferred Stock (in thousands) $42,436 $36,790 $22,627 $34,176 Cash Dividends on Common Stock (in thousands) $29,000 $28,000 $28,500 $27,500 Return on Average Common Equity (percent) 14.09 13.27 8.17 12.36 Total Assets (in thousands) $1,050,334 $791,283 $790,641 $800,026 Gross Property Additions (in thousands) $139,976 $68,189 $53,675 $49,009 - -------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $321,768 $280,640 $273,855 $279,833 Preferred stock 74,414 74,414 39,414 39,414 Preferred stock subject to mandatory redemption - - - 3,750 Long-term debt 250,391 238,650 304,150 270,724 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $646,573 $593,704 $617,419 $593,721 ============================================================================================================== Capitalization Ratios (percent): Common stock equity 49.8 47.3 44.4 47.1 Preferred stock 11.5 12.5 6.4 7.3 Long-term debt 38.7 40.2 49.2 45.6 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ============================================================================================================== First Mortgage Bonds (in thousands): Issued 70,000 40,000 50,000 - Retired 51,300 104,703 - 4,000 Preferred Stock (in thousands): Issued 23,404 35,000 - - Retired 23,404 - 4,118 750 - -------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 Standard and Poor's A+ A+ A+ A+ Duff & Phelps A+ A+ A+ A+ Preferred Stock - Moody's a1 a1 a1 a1 Standard and Poor's A A A A Duff & Phelps A A A A - -------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 151,692 150,248 148,978 147,738 Commercial 28,648 28,056 27,441 27,134 Industrial 570 573 562 574 Other 190 189 400 411 - -------------------------------------------------------------------------------------------------------------- Total 181,100 179,066 177,381 175,857 ============================================================================================================== Employees (year-end) 1,586 1,619 1,630 1,842 - -------------------------------------------------------------------------------------------------------------- </TABLE> II-209A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Mississippi Power Company 1996 Annual Report ============================================================================================================== <S> <C> <C> <C> <C> 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $442,650 $437,939 $455,843 $476,265 Net Income after Dividends on Preferred Stock (in thousands) $38,576 $36,081 $35,200 $33,814 Cash Dividends on Common Stock (in thousands) $27,000 $27,600 $24,700 $23,700 Return on Average Common Equity (percent) 14.43 14.03 14.68 15.28 Total Assets (in thousands) $786,570 $779,319 $764,068 $767,110 Gross Property Additions (in thousands) $43,916 $54,550 $53,288 $62,488 - -------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $273,157 $261,473 $252,992 $226,601 Preferred stock 39,414 39,414 39,414 39,414 Preferred stock subject to mandatory redemption 4,500 5,250 6,750 8,250 Long-term debt 277,693 287,525 294,811 299,684 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $594,764 $593,662 $593,967 $573,949 ============================================================================================================== Capitalization Ratios (percent): Common stock equity 45.9 44.1 42.6 39.5 Preferred stock 7.4 7.5 7.8 8.3 Long-term debt 46.7 48.4 49.6 52.2 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ============================================================================================================== First Mortgage Bonds (in thousands): Issued - - - 35,000 Retired 3,823 - 29,701 29,250 Preferred Stock (in thousands): Issued - - - - Retired 750 1,500 1,500 1,500 - -------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 Standard and Poor's A+ A+ A+ A+ Duff & Phelps A+ 5 5 5 Preferred Stock - Moody's a1 a1 a1 a1 Standard and Poor's A A A A Duff & Phelps A 6 6 6 - -------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 147,308 146,750 146,273 145,809 Commercial 26,867 26,751 26,342 26,217 Industrial 525 478 438 393 Other 404 399 389 363 - -------------------------------------------------------------------------------------------------------------- Total 175,104 174,378 173,442 172,782 ============================================================================================================== Employees (year-end) 1,750 1,831 1,898 1,882 - -------------------------------------------------------------------------------------------------------------- </TABLE> II-209B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Mississippi Power Company 1996 Annual Report ================================================================================================= <S> <C> <C> <C> 1996 1995 1994 - ------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $137,055 $134,286 $124,257 Commercial 131,734 131,034 124,716 Industrial 141,324 140,947 142,268 Other 4,013 3,914 3,882 - ------------------------------------------------------------------------------------------------- Total retail 414,126 410,181 395,123 Sales for resale - non-affiliates 99,596 91,820 88,122 Sales for resale - affiliates 21,830 7,691 9,538 - ------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 535,552 509,692 492,783 Other revenues 8,477 6,861 6,379 - ------------------------------------------------------------------------------------------------- Total $544,029 $516,553 $499,162 ================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 2,079,611 2,040,608 1,922,217 Commercial 2,315,860 2,242,163 2,100,625 Industrial 3,960,243 3,813,456 3,847,011 Other 39,297 38,559 38,147 - ------------------------------------------------------------------------------------------------- Total retail 8,395,011 8,134,786 7,908,000 Sales for resale - non-affiliates 2,726,993 2,493,519 2,555,914 Sales for resale - affiliates 693,510 243,554 174,342 - ------------------------------------------------------------------------------------------------- Total 11,815,514 10,871,859 10,638,256 ================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 6.59 6.58 6.46 Commercial 5.69 5.84 5.94 Industrial 3.57 3.70 3.70 Total retail 4.93 5.04 5.00 Total sales 4.53 4.69 4.63 Residential Average Annual Kilowatt-Hour Use Per Customer 13,469 13,307 12,611 Residential Average Annual Revenue Per Customer $887.66 $875.69 $815.21 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,086 2,086 Maximum Peak-Hour Demand (megawatts): Winter 2,030 1,637 1,636 Summer 2,117 2,095 1,874 Annual Load Factor (percent) 80.3 60.0 63.4 Plant Availability - Fossil-Steam (percent) 91.8 92.1 85.4 - ------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 70.4 58.0 56.0 Oil and gas 12.0 15.2 10.2 Purchased power - From non-affiliates 6.5 2.4 1.2 From affiliates 11.1 24.4 32.6 - ------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================= Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,038 10,249 10,295 Cost of fuel per million BTU (cents) 156.08 160.48 165.96 Average cost of fuel per net kilowatt-hour generated (cents) 1.57 1.64 1.71 - ------------------------------------------------------------------------------------------------- </TABLE> II-210
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Mississippi Power Company 1996 Annual Report ============================================================================================================== <S> <C> <C> <C> <C> 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $118,793 $109,781 $103,820 $102,243 Commercial 115,152 107,131 103,666 103,352 Industrial 130,198 117,010 116,972 123,754 Other 3,760 3,533 5,869 6,078 - -------------------------------------------------------------------------------------------------------------- Total retail 367,903 337,455 330,327 335,427 Sales for resale - non-affiliates 83,511 80,213 78,826 86,194 Sales for resale - affiliates 15,519 10,055 18,044 20,157 - -------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 466,933 427,723 427,197 441,778 Other revenues 7,950 6,724 5,189 5,093 - -------------------------------------------------------------------------------------------------------------- Total $474,883 $434,447 $432,386 $446,871 ============================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,929,835 1,804,858 1,832,266 1,804,838 Commercial 1,933,685 1,811,042 1,768,441 1,718,074 Industrial 3,623,543 3,536,634 3,297,247 3,311,460 Other 38,357 38,261 89,375 85,938 - -------------------------------------------------------------------------------------------------------------- Total retail 7,525,420 7,190,795 6,987,329 6,920,310 Sales for resale - non-affiliates 2,544,982 2,687,917 2,706,320 2,883,581 Sales for resale - affiliates 426,919 280,443 617,696 714,365 - -------------------------------------------------------------------------------------------------------------- Total 10,497,321 10,159,155 10,311,345 10,518,256 ============================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.16 6.08 5.67 5.66 Commercial 5.96 5.92 5.86 6.02 Industrial 3.59 3.31 3.55 3.74 Total retail 4.89 4.69 4.73 4.85 Total sales 4.45 4.21 4.14 4.20 Residential Average Annual Kilowatt-Hour Use Per Customer 12,780 12,066 12,338 12,228 Residential Average Annual Revenue Per Customer $786.71 $733.90 $699.11 $692.70 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,011 2,011 2,011 1,998 Maximum Peak-Hour Demand (megawatts): Winter 1,401 1,386 1,267 1,201 Summer 1,872 1,755 1,682 1,724 Annual Load Factor (percent) 60.0 60.8 61.5 59.0 Plant Availability - Fossil-Steam (percent) 88.0 92.0 89.8 93.3 - -------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.5 60.4 64.1 62.6 Oil and gas 7.6 5.8 8.1 14.0 Purchased power - From non-affiliates 1.3 1.2 0.7 0.8 From affiliates 27.6 32.6 27.1 22.6 - -------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ============================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,075 9,888 10,142 10,319 Cost of fuel per million BTU (cents) 170.13 162.27 177.52 183.27 Average cost of fuel per net kilowatt-hour generated (cents) 1.71 1.60 1.80 1.89 - -------------------------------------------------------------------------------------------------------------- </TABLE> II-211A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Mississippi Power Company 1996 Annual Report ============================================================================================================== <S> <C> <C> <C> <C> 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $100,068 $96,711 $98,338 $101,984 Commercial 103,403 98,772 98,669 100,521 Industrial 128,983 123,038 129,004 134,501 Other 5,992 5,874 5,723 5,882 - -------------------------------------------------------------------------------------------------------------- Total retail 338,446 324,395 331,734 342,888 Sales for resale - non-affiliates 82,111 75,525 88,060 107,270 Sales for resale - affiliates 16,938 33,747 31,278 21,669 - -------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 437,495 433,667 451,072 471,827 Other revenues 5,155 4,272 4,771 4,438 - -------------------------------------------------------------------------------------------------------------- Total $442,650 $437,939 $455,843 $476,265 ============================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,741,855 1,686,722 1,658,327 1,674,407 Commercial 1,686,302 1,607,988 1,555,044 1,544,899 Industrial 3,204,208 2,879,457 2,862,632 2,877,026 Other 87,611 86,049 81,153 81,352 - -------------------------------------------------------------------------------------------------------------- Total retail 6,719,976 6,260,216 6,157,156 6,177,684 Sales for resale - non-affiliates 2,798,086 2,280,341 2,615,058 2,382,443 Sales for resale - affiliates 527,970 1,100,808 955,303 704,461 - -------------------------------------------------------------------------------------------------------------- Total 10,046,032 9,641,365 9,727,517 9,264,588 ============================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 5.74 5.73 5.93 6.09 Commercial 6.13 6.14 6.35 6.51 Industrial 4.03 4.27 4.51 4.68 Total retail 5.04 5.18 5.39 5.55 Total sales 4.35 4.50 4.64 5.09 Residential Average Annual Kilowatt-Hour Use Per Customer 11,842 11,499 11,356 11,498 Residential Average Annual Revenue Per Customer $680.32 $659.30 $673.41 $700.32 Plant Nameplate Capacity Ratings (year-end) (megawatts) 1,998 1,966 1,966 1,966 Maximum Peak-Hour Demand (megawatts): Winter 1,556 1,284 1,224 1,208 Summer 1,682 1,621 1,548 1,612 Annual Load Factor (percent) 58.8 57.6 59.0 56.8 Plant Availability - Fossil-Steam (percent) 94.0 93.0 93.5 93.2 - -------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.4 86.3 79.4 74.1 Oil and gas 13.5 4.8 5.3 5.1 Purchased power - From non-affiliates 0.5 0.4 0.3 2.0 From affiliates 22.6 8.5 15.0 18.8 - -------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ============================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,159 10,220 10,525 10,569 Cost of fuel per million BTU (cents) 178.38 185.13 194.46 224.63 Average cost of fuel per net kilowatt-hour generated (cents) 1.81 1.89 2.05 2.37 - -------------------------------------------------------------------------------------------------------------- </TABLE> II-211B
STATEMENTS OF INCOME Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $522,199 $508,862 $489,624 Revenues from affiliates 21,830 7,691 9,538 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 544,029 516,553 499,162 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 141,532 111,071 102,216 Purchased power from non-affiliates 17,960 6,019 2,711 Purchased power from affiliates 33,245 57,777 68,543 Proceeds from settlement of disputed contracts - - - Other 106,061 107,296 97,988 Maintenance 47,091 39,627 45,785 Depreciation and amortization 44,906 39,224 35,716 Taxes other than income taxes 43,545 42,443 41,742 Federal and state income taxes 32,618 34,486 31,386 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 466,958 437,943 426,087 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income 77,071 78,610 73,075 Other Income (Expense): Allowance for equity funds used during construction 344 366 1,099 Interest income 239 199 87 Other, net 3,801 4,596 2,033 Income taxes applicable to other income (932) (1,006) (227) - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 80,523 82,765 76,067 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 19,898 21,898 19,725 Allowance for debt funds used during construction (713) (399) (1,039) Interest on notes payable 1,416 1,141 1,442 Amortization of debt discount, premium, and expense, net 1,547 1,510 1,479 Other interest charges 753 1,185 404 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest charges 22,901 25,335 22,011 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income From Continuing Operations 57,622 57,430 54,056 - ----------------------------------------------------------------------------------------------------------------------------------- Discontinued Operations: Loss from operations of discontinued subsidiary, net of taxes - - - Loss on disposal of discontinued subsidiary, net of taxes - - - - ----------------------------------------------------------------------------------------------------------------------------------- Net Loss From Discontinued Operations - - - - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 57,622 57,430 54,056 Dividends on Preferred Stock 4,899 4,899 4,899 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 52,723 $ 52,531 $ 49,157 =================================================================================================================================== </TABLE> II-212
STATEMENTS OF INCOME Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $459,364 $424,392 $414,342 $426,714 Revenues from affiliates 15,519 10,055 18,044 20,157 - ----------------------------------------------------------------------------------------------------------------------------- Total operating revenues 474,883 434,447 432,386 446,871 - ----------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 113,986 96,743 120,485 138,303 Purchased power from non-affiliates 2,198 1,337 851 1,406 Purchased power from affiliates 58,019 60,689 45,506 49,547 Proceeds from settlement of disputed contracts - (189) (4,205) - Other 100,381 90,581 86,932 83,730 Maintenance 44,001 43,165 44,166 33,368 Depreciation and amortization 33,099 32,789 32,147 30,770 Taxes other than income taxes 37,145 34,664 35,414 32,709 Federal and state income taxes 22,668 16,378 13,976 17,144 - ----------------------------------------------------------------------------------------------------------------------------- Total operating expenses 411,497 376,157 375,272 386,977 - ----------------------------------------------------------------------------------------------------------------------------- Operating Income 63,386 58,290 57,114 59,894 Other Income (Expense): Allowance for equity funds used during construction 1,010 642 728 307 Interest income 517 766 1,093 829 Other, net 3,971 5,501 3,845 6,297 Income taxes applicable to other income (1,158) (1,427) (863) (1,666) - ----------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 67,726 63,772 61,917 65,661 - ----------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 17,688 22,357 23,656 22,221 Allowance for debt funds used during construction (788) (563) (584) (600) Interest on notes payable 1,000 362 603 1,142 Amortization of debt discount, premium, and expense, net 1,262 630 377 359 Other interest charges 728 339 285 333 - ----------------------------------------------------------------------------------------------------------------------------- Net interest charges 19,890 23,125 24,337 23,455 - ----------------------------------------------------------------------------------------------------------------------------- Net Income From Continuing Operations 47,836 40,647 37,580 42,206 - ----------------------------------------------------------------------------------------------------------------------------- Discontinued Operations: Loss from operations of discontinued subsidiary, net of taxes - - (6,404) (4,669) Loss on disposal of discontinued subsidiary, net of taxes - - (5,455) - - ----------------------------------------------------------------------------------------------------------------------------- Net Loss From Discontinued Operations - - (11,859) (4,669) - ----------------------------------------------------------------------------------------------------------------------------- Net Income 47,836 40,647 25,721 37,537 Dividends on Preferred Stock 5,400 3,857 3,094 3,361 - ----------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 42,436 $ 36,790 $ 22,627 $ 34,176 ============================================================================================================================= </TABLE> II-213A
STATEMENTS OF INCOME Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $425,712 $404,192 $424,565 $454,596 Revenues from affiliates 16,938 33,747 31,278 21,669 - ------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 442,650 437,939 455,843 476,265 - ------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 133,671 165,912 167,165 183,515 Purchased power from non-affiliates 1,266 1,257 1,108 4,671 Purchased power from affiliates 47,066 19,270 36,114 46,322 Proceeds from settlement of disputed contracts - - - - Other 84,820 83,542 81,331 70,009 Maintenance 35,658 33,412 33,974 31,368 Depreciation and amortization 28,001 26,610 26,210 30,293 Taxes other than income taxes 32,435 29,638 27,882 26,145 Federal and state income taxes 18,387 20,313 23,888 30,881 - ------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 381,304 379,954 397,672 423,204 - ------------------------------------------------------------------------------------------------------------------------------- Operating Income 61,346 57,985 58,171 53,061 Other Income (Expense): Allowance for equity funds used during construction 903 850 608 1,030 Interest income 1,096 1,030 1,121 864 Other, net 6,013 6,399 7,065 8,983 Income taxes applicable to other income (1,392) (1,148) (2,507) (3,517) - ------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 67,966 65,116 64,458 60,421 - ------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 21,685 22,271 24,139 22,707 Allowance for debt funds used during construction (821) (595) (652) (770) Interest on notes payable 689 341 558 252 Amortization of debt discount, premium, and expense, net 362 363 388 245 Other interest charges 566 522 601 283 - ------------------------------------------------------------------------------------------------------------------------------- Net interest charges 22,481 22,902 25,034 22,717 - ------------------------------------------------------------------------------------------------------------------------------- Net Income From Continuing Operations 45,485 42,214 39,424 37,704 - ------------------------------------------------------------------------------------------------------------------------------- Discontinued Operations: Loss from operations of discontinued subsidiary, net of taxes (3,459) (2,549) (487) - Loss on disposal of discontinued subsidiary, net of taxes - - - - - ------------------------------------------------------------------------------------------------------------------------------- Net Loss From Discontinued Operations (3,459) (2,549) (487) - - ------------------------------------------------------------------------------------------------------------------------------- Net Income 42,026 39,665 38,937 37,704 Dividends on Preferred Stock 3,450 3,584 3,737 3,890 - ------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 38,576 $ 36,081 $ 35,200 $ 33,814 =============================================================================================================================== </TABLE> II-213B
STATEMENTS OF CASH FLOWS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 57,622 $ 57,430 $ 54,056 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 50,551 51,588 47,827 Deferred income taxes, net 74 (480) 1,563 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (344) (366) (1,099) Non-cash proceeds from settlement of disputed contracts - - - Other, net 9,787 5,704 5,230 Changes in certain current assets and liabilities -- Receivables, net 5,118 (8,758) 3,066 Inventories 4,973 3,962 (9,856) Payables 2,077 17,421 (8,754) Other 292 681 3,334 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 130,150 127,182 95,367 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (61,314) (67,570) (104,014) Other (2,258) (1,697) (14,087) - ----------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (63,572) (69,267) (118,101) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - - First mortgage bonds - 30,000 35,000 Pollution control bonds - 10,600 - Other long-term debt 80,000 - 85,310 Capital contributions 27 - 25,000 Redemptions: Preferred stock - - - First mortgage bonds (45,447) (1,625) (32,628) Pollution control bonds (10) (10) (10) Other long-term debt (55,000) (40,689) (9,299) Notes payable, net - - (40,000) Payment of preferred stock dividends (4,899) (4,899) (4,899) Payment of common stock dividends (43,900) (39,400) (34,100) Miscellaneous (2,932) (568) (1,201) - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (72,161) (46,591) 23,173 - ----------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (5,583) 11,324 439 Cash and Cash Equivalents at Beginning of Year 12,641 1,317 878 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 7,058 $ 12,641 $ 1,317 ======================================================================================================================= ( ) Denotes use of cash. </TABLE> II-214
STATEMENTS OF CASH FLOWS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 47,836 $ 40,647 $ 25,721 $ 37,537 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 45,660 41,472 41,773 41,079 Deferred income taxes, net 5,039 (5,473) (11,869) 2,756 Deferred investment tax credits, net - - (2) (26) Allowance for equity funds used during construction (1,010) (642) (728) (307) Non-cash proceeds from settlement of disputed contracts - (189) (4,071) - Other, net 3,005 8,093 (4,982) 7,257 Changes in certain current assets and liabilities -- Receivables, net (4,347) 1,002 35,343 (6,252) Inventories 11,119 975 10,518 (8,922) Payables 4,133 460 (4,949) (5,552) Other (8,033) 6,095 11,433 (1,461) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 103,402 92,440 98,187 66,109 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (139,976) (68,189) (53,675) (49,009) Other 7,562 4,235 2,148 4,481 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (132,414) (63,954) (51,527) (44,528) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock 23,404 35,000 - - First mortgage bonds 70,000 40,000 50,000 - Pollution control bonds 38,875 23,300 - - Other long-term debt - - 844 - Capital contributions 30,036 26 - - Redemptions: Preferred stock (23,404) - (4,118) (750) First mortgage bonds (51,300) (104,703) - (4,000) Pollution control bonds (25,885) (23,650) (300) (288) Other long-term debt (8,170) (6,212) (8,958) (6,416) Notes payable, net 9,000 26,500 (25,603) 17,146 Payment of preferred stock dividends (5,400) (3,857) (3,094) (3,361) Payment of common stock dividends (29,000) (28,000) (28,500) (27,500) Miscellaneous (5,683) (7,821) (839) 2 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 22,473 (49,417) (20,568) (25,167) - ----------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (6,539) (20,931) 26,092 (3,586) Cash and Cash Equivalents at Beginning of Year 7,417 28,348 2,256 5,842 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 878 $ 7,417 $ 28,348 $ 2,256 =================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-215A
STATEMENTS OF CASH FLOWS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 42,026 $ 39,665 $ 38,937 $ 37,704 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 35,878 34,440 33,971 33,432 Deferred income taxes, net (294) (3,053) 10,035 41,059 Deferred investment tax credits, net (38) 571 896 2,442 Allowance for equity funds used during construction (903) (850) (608) (1,030) Non-cash proceeds from settlement of disputed contracts - - - - Other, net 4,306 3,503 1,965 (14,162) Changes in certain current assets and liabilities -- Receivables, net (18,506) 816 12,000 (1,708) Inventories 3,687 283 13,708 (8,499) Payables 1,307 (5,241) 7,487 (14,502) Other 2,172 (2,294) (9,342) 11,546 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 69,635 67,840 109,049 86,282 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (43,916) (54,550) (53,288) (62,488) Other 1,860 8,368 (1,461) (61,162) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (42,056) (46,182) (54,749) (123,650) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - - - First mortgage bonds - - - 35,000 Pollution control bonds - - - - Other long-term debt 844 - 130 60,663 Capital contributions - - 16,000 400 Redemptions: Preferred stock (750) (1,500) (1,500) (1,500) First mortgage bonds (3,823) - (29,701) (29,250) Pollution control bonds (62) (50) (50) (50) Other long-term debt (5,919) (5,401) (4,974) (200) Notes payable, net 6,457 6,500 - - Payment of preferred stock dividends (3,450) (3,584) (3,737) (3,890) Payment of common stock dividends (27,000) (27,600) (24,700) (23,700) Miscellaneous - - (2,696) (2,929) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (33,703) (31,635) (51,228) 34,544 - ----------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (6,124) (9,977) 3,072 (2,824) Cash and Cash Equivalents at Beginning of Year 11,966 21,943 18,871 21,695 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 5,842 $ 11,966 $ 21,943 $ 18,871 =================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-215B
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ At December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 722,183 $ 717,055 $ 705,043 Transmission 241,509 220,038 202,503 Distribution 356,305 335,163 313,345 General 163,878 162,071 164,141 Construction work in progress 35,100 41,210 44,838 - ------------------------------------------------------------------------------------------------------------------------------ Total utility plant 1,518,975 1,475,537 1,429,870 Accumulated provision for depreciation 526,776 499,308 477,098 - ------------------------------------------------------------------------------------------------------------------------------ Total 992,199 976,229 952,772 Less property-related accumulated deferred income taxes - - - - ------------------------------------------------------------------------------------------------------------------------------ Total 992,199 976,229 952,772 - ------------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts - - - Miscellaneous 3,054 4,160 3,353 - ------------------------------------------------------------------------------------------------------------------------------ Total 3,054 4,160 3,353 - ------------------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 7,058 12,641 1,317 Investment securities - - - Receivables, net 34,288 39,358 25,424 Accrued utility revenues 12,334 12,382 14,428 Fossil fuel stock, at average cost 12,168 15,666 16,885 Materials and supplies, at average cost 21,083 22,558 25,301 Current portion of deferred fuel commitments - 1,546 1,068 Prepayments 11,971 7,584 11,189 Vacation pay deferred 4,806 4,715 4,588 - ------------------------------------------------------------------------------------------------------------------------------ Total 103,708 116,450 100,200 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Charges: Debt expense, being amortized 1,548 1,530 1,358 Premium on reacquired debt, being amortized 10,672 8,509 9,571 Deferred fuel commitments - - 9,000 Deferred charges related to income taxes 22,274 23,384 25,036 Miscellaneous 8,872 18,691 22,421 - ------------------------------------------------------------------------------------------------------------------------------ Total 43,366 52,114 67,386 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $1,142,327 $1,148,953 $1,123,711 ============================================================================================================================== II-216 </TABLE>
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 597,425 $ 576,848 $ 567,588 $ 560,537 Transmission 188,375 173,278 162,379 151,949 Distribution 295,799 279,335 259,929 247,705 General 157,248 151,044 141,564 136,815 Construction work in progress 108,063 41,692 33,078 26,816 - -------------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,346,910 1,222,197 1,164,538 1,123,822 Accumulated provision for depreciation 462,725 440,777 415,135 392,440 - -------------------------------------------------------------------------------------------------------------------------------- Total 884,185 781,420 749,403 731,382 Less property-related accumulated deferred income taxes - 142,338 138,616 139,970 - -------------------------------------------------------------------------------------------------------------------------------- Total 884,185 639,082 610,787 591,412 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - 4,113 - Miscellaneous 11,289 4,539 3,954 8,631 - -------------------------------------------------------------------------------------------------------------------------------- Total 11,289 4,539 8,067 8,631 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 878 7,417 28,348 2,256 Investment securities - 3,622 - - Receivables, net 28,021 20,219 27,152 67,734 Accrued utility revenues 14,897 14,898 12,420 10,797 Fossil fuel stock, at average cost 11,185 21,341 22,373 29,812 Materials and supplies, at average cost 21,145 22,108 22,051 25,130 Current portion of deferred fuel commitments 440 1,861 933 1,430 Prepayments 8,971 5,869 6,137 11,392 Vacation pay deferred 4,797 4,651 4,406 3,955 - -------------------------------------------------------------------------------------------------------------------------------- Total 90,334 101,986 123,820 152,506 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Debt expense, being amortized 1,103 804 981 824 Premium on reacquired debt, being amortized 10,563 10,102 4,676 4,919 Deferred fuel commitments 17,520 25,255 31,039 39,020 Deferred charges related to income taxes 25,267 - - - Miscellaneous 10,073 9,515 11,271 2,714 - -------------------------------------------------------------------------------------------------------------------------------- Total 64,526 45,676 47,967 47,477 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,050,334 $ 791,283 $ 790,641 $ 800,026 ================================================================================================================================ </TABLE> II-217A
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 547,946 $ 529,742 $ 524,198 $ 509,128 Transmission 147,288 134,674 130,963 125,304 Distribution 229,238 221,327 207,810 195,042 General 133,361 137,333 127,690 114,042 Construction work in progress 27,057 35,204 27,755 33,544 - -------------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,084,890 1,058,280 1,018,416 977,060 Accumulated provision for depreciation 366,193 348,085 328,761 312,571 - -------------------------------------------------------------------------------------------------------------------------------- Total 718,697 710,195 689,655 664,489 Less property-related accumulated deferred income taxes 138,071 134,220 127,912 120,990 - -------------------------------------------------------------------------------------------------------------------------------- Total 580,626 575,975 561,743 543,499 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - - Miscellaneous 7,792 8,153 4,122 1,738 - -------------------------------------------------------------------------------------------------------------------------------- Total 7,792 8,153 4,122 1,738 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 5,842 11,966 21,943 18,871 Investment securities - - - - Receivables, net 58,425 43,246 42,218 48,158 Accrued utility revenues 13,854 10,527 12,371 18,431 Fossil fuel stock, at average cost 24,788 26,587 29,989 46,067 Materials and supplies, at average cost 21,232 23,120 20,001 17,631 Current portion of deferred fuel commitments 3,017 - - - Prepayments 12,512 12,341 830 973 Vacation pay deferred 3,910 3,815 3,956 3,559 - -------------------------------------------------------------------------------------------------------------------------------- Total 143,580 131,602 131,308 153,690 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Debt expense, being amortized 886 949 1,012 1,212 Premium on reacquired debt, being amortized 5,161 5,404 5,647 2,800 Deferred fuel commitments 45,103 50,714 55,889 60,663 Deferred charges related to income taxes - - - - Miscellaneous 3,422 6,522 4,347 3,508 - -------------------------------------------------------------------------------------------------------------------------------- Total 54,572 63,589 66,895 68,183 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 786,570 $ 779,319 $ 764,068 $ 767,110 ================================================================================================================================ </TABLE> II-217B
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ At December 31, 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 37,691 $ 37,691 $ 37,691 Paid-in capital 179,389 179,362 179,362 Premium on preferred stock 372 372 372 Earnings retained in the business 166,282 157,459 144,328 - ------------------------------------------------------------------------------------------------------------------------------ Total common equity 383,734 374,884 361,753 Preferred stock 74,414 74,414 74,414 Preferred stock subject to mandatory redemption - - - Long-term debt 326,379 288,820 306,522 - ------------------------------------------------------------------------------------------------------------------------------ Total (excluding amount due within one year) 784,527 738,118 742,689 - ------------------------------------------------------------------------------------------------------------------------------ Current Liabilities: Notes payable to banks - - - Preferred stock due within one year - - - Long-term debt due within one year 10 57,229 41,199 Accounts payable 51,644 50,775 34,481 Customer deposits 3,154 2,716 2,712 Taxes accrued 32,445 31,913 31,657 Interest accrued 4,384 4,701 4,427 Vacation pay accrued 4,793 4,563 4,588 Miscellaneous 9,149 8,890 10,025 - ------------------------------------------------------------------------------------------------------------------------------ Total 105,579 160,787 129,089 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 133,437 129,711 129,505 Accumulated deferred investment tax credits 28,333 29,773 31,228 Deferred credits related to income taxes 40,568 43,266 45,832 Miscellaneous 49,883 47,298 45,368 - ------------------------------------------------------------------------------------------------------------------------------ Total 252,221 250,048 251,933 - ------------------------------------------------------------------------------------------------------------------------------ Total Capitalization and Liabilities $1,142,327 $1,148,953 $1,123,711 ============================================================================================================================== </TABLE> II-218
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 37,691 $ 37,691 $ 37,691 $ 37,691 Paid-in capital 154,362 124,326 124,300 124,300 Premium on preferred stock 372 194 194 299 Earnings retained in the business 129,343 118,429 111,670 117,543 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 321,768 280,640 273,855 279,833 Preferred stock 74,414 74,414 39,414 39,414 Preferred stock subject to mandatory redemption - - - 3,750 Long-term debt 250,391 238,650 304,150 270,724 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 646,573 593,704 617,419 593,721 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 40,000 31,000 4,500 30,103 Preferred stock due within one year - - - 368 Long-term debt due within one year 19,345 8,878 14,650 7,039 Accounts payable 60,928 43,550 38,213 45,763 Customer deposits 2,786 2,976 3,109 3,430 Taxes accrued 27,138 32,035 29,609 24,935 Interest accrued 4,237 3,961 4,602 4,315 Vacation pay accrued 4,797 4,651 4,406 3,955 Miscellaneous 9,323 10,963 10,236 6,833 - -------------------------------------------------------------------------------------------------------------------------------- Total 168,554 138,014 109,325 126,741 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 124,334 169 4,117 18,992 Accumulated deferred investment tax credits 32,710 34,242 35,657 37,187 Deferred credits related to income taxes 48,228 - - - Miscellaneous 29,935 25,154 24,123 23,385 - -------------------------------------------------------------------------------------------------------------------------------- Total 235,207 59,565 63,897 79,564 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 1,050,334 $ 791,283 $ 790,641 $ 800,026 ================================================================================================================================ </TABLE> II-219A
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 37,691 $ 37,691 $ 37,691 $ 37,691 Paid-in capital 124,300 124,300 124,300 108,300 Premium on preferred stock 299 299 299 299 Earnings retained in the business 110,867 99,183 90,702 80,311 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 273,157 261,473 252,992 226,601 Preferred stock 39,414 39,414 39,414 39,414 Preferred stock subject to mandatory redemption 4,500 5,250 6,750 8,250 Long-term debt 277,693 287,525 294,811 299,684 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 594,764 593,662 593,967 573,949 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 12,957 6,500 - - Preferred stock due within one year 368 368 368 368 Long-term debt due within one year 10,717 9,789 5,451 34,724 Accounts payable 47,019 46,937 45,659 36,490 Customer deposits 3,906 3,904 3,857 3,720 Taxes accrued 23,843 21,130 21,351 29,029 Interest accrued 4,280 4,016 4,474 5,064 Vacation pay accrued 3,910 3,815 3,956 3,559 Miscellaneous 7,746 9,347 6,005 5,746 - -------------------------------------------------------------------------------------------------------------------------------- Total 114,746 105,806 91,121 118,700 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 22,085 24,556 27,411 25,922 Accumulated deferred investment tax credits 38,752 40,435 41,427 42,183 Deferred credits related to income taxes - - - - Miscellaneous 16,223 14,860 10,142 6,356 - -------------------------------------------------------------------------------------------------------------------------------- Total 77,060 79,851 78,980 74,461 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 786,570 $ 779,319 $ 764,068 $ 767,110 ================================================================================================================================ </TABLE> II-219B
MISSISSIPPI POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1996 <TABLE> <CAPTION> <S> <C> <C> <C> <C> First Mortgage Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - -------------------------------------------------------------------------------------------------- (Thousands) (Thousands) 1993 $ 35,000 5-3/8% 35,000 3/1/98 1992 40,000 6-5/8% 40,000 8/1/00 1994 35,000 6.60% 35,000 3/1/04 1993 35,000 7.45% 35,000 6/1/23 1995 30,000 6-7/8% 30,000 12/1/25 ======== ======== $175,000 $175,000 ======== ======== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - -------------------------------------------------------------------------------------------------- (Thousands) (Thousands) 1977 $ 1,000 5.80% 960 10/1/07 1992 6,550 Variable 6,550 12/1/20 1992 16,750 Variable 16,750 12/1/22 1993 13,000 6.20% 13,000 4/1/23 1993 25,875 5.65% 25,875 11/1/23 1995 10,600 Variable 10,600 7/1/25 ======= ======= $73,775 $73,735 ======= ======= Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding - -------------------------------------------------------------------------------------------------- (Thousands) 1947 20,099 4.60% 2,010 1956 40,000 4.40% 4,000 1965 50,000 4.72% 5,000 1968 50,000 7.00% 5,000 1992 350,000 7.25% 35,000 1993 150,000 6.32% 15,000 1993 84,040 6.65% 8,404 ======== ======= $744,139 $74,414 ======== ======= </TABLE> II-220
MISSISSIPPI POWER COMPANY SECURITIES RETIRED DURING 1996 First Mortgage Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------ (Thousands) 1991 45,447 9-1/4% Pollution Control Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------ (Thousands) 1977 10 5.80% II-221 SAVANNAH ELECTRIC AND POWER COMPANY FINANCIAL SECTION II-5
MANAGEMENT'S REPORT Savannah Electric and Power Company 1996 Annual Report The management of Savannah Electric and Power Company has prepared--and is responsible for--the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements. The Company maintains a system of internal accounting controls to provide reasonable assurance that assets are safeguarded and that books and records reflect only authorized transactions of the Company. Limitations exist in any system of internal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The Company believes its system of internal accounting controls maintains an appropriate cost/benefit relationship. The Company's system of internal accounting controls is evaluated on an ongoing basis by the Company's internal audit staff. The Company's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements. The audit committee of the board of directors, composed of three directors who are not employees, provides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls and financial reporting matters. The internal auditors and the independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the Company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of Savannah Electric and Power Company in conformity with generally accepted accounting principles. /s/ Arthur M. Gignilliat, Jr. Arthur M. Gignilliat, Jr. President and Chief Executive Officer /s/ K. R. Willis K. R. Willis Vice-President Treasurer and Chief Financial Officer February 12, 1997 II-223
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Savannah Electric and Power Company: We have audited the accompanying balance sheets and statements of capitalization of Savannah Electric and Power Company (a Georgia corporation and a wholly owned subsidiary of Southern Company) as of December 31, 1996 and 1995, and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements (pages II-230 through II-242) referred to above present fairly, in all material respects, the financial position of Savannah Electric and Power Company as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia February 12, 1997 II-224
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Savannah Electric and Power Company 1996 Annual Report RESULTS OF OPERATIONS Earnings Savannah Electric and Power Company's net income after dividends on preferred stock for 1996 totaled $23.9 million, representing a $0.5 million increase over the prior year. This 2.3 percent improvement in earnings over 1995 is principally the result of increased retail energy sales primarily attributable to an increase in the number of customers served. In 1995, earnings were $23.4 million, representing a $1.3 million (5.8 percent) increase from the prior year. This was primarily due to higher retail energy sales as a result of exceptionally hot summer weather. Revenues Total revenues for 1996 were $234.1 million, reflecting a 3.7 percent increase compared to 1995. The following table summarizes revenue increases and decreases compared to prior years: Increase (Decrease) From Prior Year -------------------------------------- 1996 1995 1994 -------------------------------------- Retail -- (in thousands) Sales growth $ 3,679 $ 1,068 $ 7,884 Weather (2,813) 6,232 (6,589) Fuel cost recovery and other 12,365 6,177 (9,214) ------------------------------------------------------------------- Total retail 13,231 13,477 (7,919) ------------------------------------------------------------------- Sales for resale-- Non-affiliates 147 (2,935) (1,235) Affiliates (4,070) 754 4,013 ------------------------------------------------------------------- Total sales for resale (3,923) (2,181) 2,778 ------------------------------------------------------------------- Other operating revenues (963) 2,648 (1,516) ------------------------------------------------------------------- Total operating revenues $ 8,345 $13,944 $(6,657) =================================================================== Percent change 3.7% 6.6% (3.0)% ------------------------------------------------------------------- Retail revenues increased 6.2 percent in 1996, compared to an increase of 6.7 percent in 1995. The increase in 1996 retail revenues is attributable to an increase in the number of customers served and an increase in fuel cost recovery revenues. Industrial energy sales were lower primarily due to a decrease in the demand of a major customer. Under the Company's fuel cost recovery provisions, fuel revenues--including purchased energy--generally equal fuel expense and have no effect on earnings. The $1.0 million decrease in other operating revenues reflects the elimination of the demand-side management rider in 1995. Revenues from demand-side management riders (included in retail revenues) recovered demand-side management program costs and had little impact on earnings. See Note 3 to the financial statements for further information on the Company's demand-side management programs. The increase in 1995 retail revenues was attributable to hot summer weather, an increase in the number of customers served, higher demand in the industrial sector, and an increase in fuel cost recovery revenues. Revenues from sales to utilities outside the service area under long-term contracts consist of capacity and energy components. Capacity revenues reflect the recovery of fixed costs and a return on investment under the contracts. Energy is generally sold at variable cost. Capacity revenues continued to decrease in 1996 primarily as a result of the scheduled decline in megawatts of capacity under contract. The capacity and energy components were as follows: 1996 1995 1994 --------------------------------- (in thousands) Capacity $ 2 $ 3 $ 448 Energy 1,329 1,250 3,052 - ------------------------------------------------------ Total $1,331 $1,253 $3,500 ====================================================== Sales to affiliated companies within the Southern electric system vary from year to year depending on demand and the availability and cost of generating resources at each company. These sales have little impact on earnings. II-225
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1996 Annual Report Changes in revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour sales for 1996 and the percent change by year were as follows: KWH Percent Change ------------ --------------------------- 1996 1996 1995 1994 ------------ --------------------------- (millions) Residential 1,457 3.9% 8.0% (2.3)% Commercial 1,141 3.8 5.1 2.9 Industrial 839 (5.5) 11.0 (6.4) Other 126 0.1 5.4 3.1 ------------ Total retail 3,563 1.4 7.7 (1.6) Sales for resale Non-affiliates 91 4.4 (56.5) (18.4) Affiliates 42 (34.4) (31.5) 23.4 ------------ Total 3,696 0.8% 3.1% (2.2)% ================================================================== Expenses Total operating expenses for 1996 were $195.2 million, reflecting an $7.7 million increase over 1995. Major components of this increase include $5.3 million in purchased power from affiliates and $3.8 million in fuel, partially offset by a $1.2 million reduction in other operation expenses. The increase in purchased power from affiliates was due to an increase in the unit cost of purchased power. The increase in fuel expense was primarily attributable to higher generation and an increase in the unit cost of gas. The reduction in other operation expense primarily resulted from the demand-side management program being discontinued in December 1995. In 1995, total operating expenses were $187.5 million, reflecting an $11.8 million increase from 1994. This increase includes $6.8 million in fuel, $3.6 million in other operation, $1.1 million in maintenance, and $1.1 million in depreciation and amortization, partially offset by a $2.6 million reduction in purchased power from affiliates. The increase in fuel expense was primarily attributable to the exceptionally hot summer weather, which not only increased generation but also necessitated greater use of more costly gas-fired sources of generation. The increase in other operation expense was due to increased expenses related to demand-side management programs and employee incentive compensation programs. The increase in maintenance expense reflects maintenance performed at Plants Kraft and McIntosh during 1995, and the increase in depreciation and amortization reflects the completion in 1994 of two combustion turbine units. Fuel and purchased power costs constitute the single largest expense for the Company. The mix of energy supply is determined primarily by system load, the unit cost of fuel consumed and the availability of units. The amount and sources of energy supply, the average cost of fuel per net kilowatt-hour generated, the average cost of purchased power per net kilowatt-hour, and the total average cost of energy supply were as follows: 1996 1995 1994 -------------------------- Total energy supply (millions of kilowatt-hours) 3,917 3,908 3,768 Sources of energy supply (percent) -- Coal 28 24 18 Oil - - 1 Gas 3 6 1 Purchased Power 69 70 80 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.76 1.77 2.19 Oil 5.79 5.14 3.89 Gas 8.89 3.76 5.19 Average cost of purchased power per net kilowatt- hour (cents) 2.25 2.02 1.92 Total average cost of energy supply 2.30 2.07 2.02 --------------------------------------------------------------- Effects of Inflation The Company is subject to rate regulation and income tax laws that are based on the recovery of historical costs. Therefore, inflation creates an economic loss because the Company is recovering its costs of investments in dollars that have less purchasing power. While the inflation rate has been relatively low in recent years, it continues to have an adverse effect on the Company because of the large investment in long-lived utility plant. Conventional accounting for historical cost does not recognize this economic loss nor the partially offsetting gain that arises through financing facilities with fixed-money obligations such as long-term debt and preferred stock. Any recognition of inflation by regulatory authorities is reflected in the rate of return allowed. II-226
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1996 Annual Report Future Earnings Potential The results of operations for the past three years are not necessarily indicative of future earnings potential. The level of future earnings depends on numerous factors ranging from energy sales growth to a less regulated, more competitive environment. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. Traditionally, these factors included weather, competition, changes in contracts with neighboring utilities, energy conservation practiced by customers, the elasticity of demand, and the rate of economic growth in the Company's service area. However, the Energy Policy Act of 1992 (Energy Act) is having a dramatic effect on the future of the electric utility industry. The Energy Act promotes energy efficiency, alternative fuel use, and increased competition for electric utilities. The Company is positioning the business to meet the challenge of this major change in the traditional practice of selling electricity. The Energy Act allows independent power producers (IPPs) to access a utility's transmission network to sell electricity to other utilities. This enhances the incentive for IPPs to build cogeneration plants for a utility's large industrial and commercial customers and sell energy generation to other utilities. Various federal and state initiatives designed to promote wholesale and retail competition, among other things, include proposals that would allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Certain initiatives could result in a change in the ownership and/or operation of generation and transmission facilities. Numerous issues must be resolved, including significant ones relating to transmission pricing and recovery of stranded investments. Being a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited, and this could significantly erode earnings. The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. In the event that a portion of the Company's operations is no longer subject to these provisions, the Company would be required to write off related regulatory assets and liabilities and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Compliance costs related to the Clean Air Act Amendments of 1990 (Clean Air Act) could affect earnings if such costs are not fully recovered. The Clean Air Act is discussed later under "Environmental Matters." Rates to retail customers served by the Company are regulated by the Georgia Public Service Commission (GPSC). As part of the Company's most recent rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. The Company is currently undergoing an earnings review by the GPSC, and to date, the GPSC has made no determination. In August 1995, the GPSC ordered the phase out of the Company's demand-side management programs effective December 31, 1995 and the elimination of demand-side management rate riders effective October 1, 1995. In June 1996, the Company refunded to customers approximately $0.3 million which had been overcollected from the rate riders. FINANCIAL CONDITION Overview The principal change in the Company's financial condition in 1996 was the addition of $29 million to utility plant. The funds needed for gross property additions are currently provided from operating activities, principally from earnings and non-cash charges to income such as depreciation and deferred income taxes and from financing activities. See Statements of Cash Flows for additional information. II-227
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1996 Annual Report Capital Structure As of December 31, 1996, the Company's capital structure consisted of 46.7 percent common equity, 9.5 percent preferred stock and 43.8 percent long-term debt, excluding amounts due within one year. The Company's long-term financial objective for capitalization ratios is to maintain a capital structure of common equity at 48 percent, preferred stock at 10 percent and debt at 42 percent. In May 1996, the Company issued $20 million of 6.90% first mortgage bonds maturing in 2006 and $10 million of 6.88% term notes maturing in 2001. Maturities and retirements of long-term debt were $29 million in 1996, $29 million in 1995 and $5 million in 1994. In March 1996, the Company entered into a fifteen year variable rate capital lease agreement with the Savannah Economic Development Authority for a coal ship docking and unloading facility at Plant Kraft. The composite interest rates and dividend rate for the years 1994 through 1996 as of year-end were as follows: 1996 1995 1994 ------------------------------- Composite interest rates on long-term debt 7.0% 7.5% 8.0% Preferred stock dividend rate 6.6% 6.6% 6.6% - --------------------------------------------------------------- The Company's current securities ratings are as follows: Standard Moody's & Poor's -------------------------- First Mortgage Bonds A1 A+ Preferred Stock "a2" A - ----------------------------------------------------------------- Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $72 million ($26 million in 1997, $22 million in 1998, and $24 million in 1999). Actual construction costs may vary from this estimate because of factors such as changes in: business conditions; environmental regulations; load projections; the cost and efficiency of construction labor, equipment and materials; and the cost of capital. In addition, there can be no assurance that costs related to capital expenditures will be fully recovered. The Company does not have any traditional baseload generating plants under construction, and current energy demand forecasts do not require any additional traditional baseload facilities until well into the future. Construction of transmission and distribution facilities and upgrading of generating plants will be continuing. Other Capital Requirements In addition to the funds needed for the construction program, approximately $21.6 million will be needed by the end of 1999 for maturities of long-term debt and present sinking fund requirements. Environmental Matters In November 1990, the Clean Air Act was signed into law. Title IV of the Clean Air Act--the acid rain compliance provision of the law--impacts the Company and other subsidiaries of Southern Company. Specific reductions in sulfur dioxide and nitrogen oxide emissions from fossil-fired generating plants are required in two phases. Phase I compliance began in 1995 and initially affected 28 generating units of Southern Company. As a result of Southern Company's compliance strategy, an additional 22 generating units, which included four of the Company's units, were brought into compliance with Phase I requirements. Phase II compliance is required in 2000, and all fossil-fired generating plants will be affected. In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the authority to emit one ton of sulfur dioxide during a calendar year. The sulfur dioxide emission allowance program is expected to minimize the cost of compliance. Southern Company's sulfur dioxide compliance strategy is designed to use allowances as a compliance option. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. This compliance strategy resulted in unused emission allowances being banked for later use. Construction expenditures for Phase I compliance totaled approximately $2 million for Savannah Electric. II-228
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1996 Annual Report For Phase II sulfur dioxide compliance, Southern Company could use emission allowances, increase fuel switching, and/or install flue gas desulfurization equipment at selected plants. Also, equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired plants as required to meet Phase II limits. Therefore, current compliance strategy could require total Phase II estimated construction expenditures of approximately $4 million for the Company. However, the full impact of Phase II compliance cannot now be determined with certainty, pending the continuing development of a market for emission allowances, the completion of EPA regulations, and the possibility of new emission reduction technologies. An increase of up to 1 percent in annual revenue requirements from customers could be necessary to fully recover the Company's cost of compliance for both Phase I and Phase II of Title IV of the Clean Air Act. Compliance costs include construction expenditures, increased costs for switching to low-sulfur coal, and costs related to emission allowances. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: revisions to the ambient air quality standards for ozone and particulate matter; emission control strategies for ozone nonattainment areas; additional controls for hazardous air pollutant emissions; and hazardous waste disposal requirements. The impact of new standards will depend on the development and implementation of applicable regulations. The Company must comply with other environmental laws and regulations that cover the handling and disposal of hazardous waste. Under these various laws and regulations, the Company could incur substantial costs to clean up properties currently or previously owned. The Company conducts studies to determine the extent of any required cleanup costs and will recognize in the financial statements any costs to clean up known sites. Several major pieces of environmental legislation are being considered for reauthorization or amendment by Congress. These include: the Clean Air Act; the Clean Water Act; the Comprehensive Environmental Response, Compensation, and Liability Act; the Resource Conservation and Recovery Act; the Toxic Substances Control Act; and the Endangered Species Act. Changes to these laws could affect many areas of Southern Company's operations. The full impact of any such changes cannot be determined at this time. Compliance with possible additional legislation related to global climate change, electromagnetic fields, and other environmental and health concerns could significantly affect Southern Company. The impact of new legislation--if any--will depend on the subsequent development and implementation of applicable regulations. In addition, the potential exists for liability as the result of lawsuits alleging damages caused by electromagnetic fields. Sources of Capital At December 31, 1996, the Company had $5.2 million of cash and $20.5 million of unused short-term credit arrangements with banks to meet its short-term cash needs. Revolving credit arrangements of $20 million, which expire December 31, 1998, are also used to meet short-term cash needs and to provide additional interim funding for the Company's construction program. Of the revolving credit arrangements, $15 million remained unused at December 31, 1996. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from operations and the sale of additional first mortgage bonds and preferred stock and capital contributions from Southern Company. The Company is required to meet certain earnings coverage requirements specified in its mortgage indenture and corporate charter to issue new first mortgage bonds and preferred stock. The Company's coverage ratios are sufficiently high to permit, at present interest rate levels, any foreseeable security sales. The amount of securities which the Company will be permitted to issue in the future will depend upon market conditions and other factors prevailing at that time. II-229
<TABLE> STATEMENTS OF INCOME For the Years Ended December 31, 1996, 1995, and 1994 Savannah Electric and Power Company 1996 Annual Report <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Operating Revenues (Notes 1 and 3): Revenues $230,944 $218,529 $205,339 Revenues from affiliates 3,130 7,200 6,446 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 234,074 225,729 211,785 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 29,139 25,386 18,555 Purchased power from non-affiliates 2,350 2,139 1,839 Purchased power from affiliates 58,591 53,252 55,822 Other 44,007 45,214 41,623 Maintenance 14,140 13,668 12,560 Depreciation and amortization (Note 1) 19,113 18,949 17,854 Taxes other than income taxes 11,675 11,465 11,074 Federal and state income taxes (Notes 1 and 6) 16,175 17,378 16,289 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 195,190 187,451 175,616 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 38,884 38,278 36,169 Other Income (Expense): Allowance for equity funds used during construction (Note 1) 317 163 831 Interest income 201 164 54 Other, net (1,756) (618) (1,032) Income taxes applicable to other income (Notes 1 and 6) 1,034 651 864 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 38,680 38,638 36,886 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 11,563 12,380 12,585 Allowance for debt funds used during construction (Note 1) (333) (450) (1,225) Interest on notes payable 229 135 205 Amortization of debt discount, premium, and expense, net 579 448 550 Other interest charges 378 406 337 - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 12,416 12,919 12,452 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 26,264 25,719 24,434 Dividends on Preferred Stock 2,324 2,324 2,324 ================================================================================================================================ Net Income After Dividends on Preferred Stock $ 23,940 $ 23,395 $ 22,110 ================================================================================================================================ </TABLE> <TABLE> <CAPTION> STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1996, 1995, and 1994 - -------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Balance at Beginning of Period $105,033 $ 99,216 $ 93,479 Net income after dividends on preferred stock 23,940 23,395 22,110 Cash dividends on common stock (19,600) (17,600) (16,300) Preferred stock transactions, net - 22 (73) - -------------------------------------------------------------------------------------------------------------------------------- Balance at End of Period (Note 10) $109,373 $105,033 $ 99,216 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-230
STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1996, 1995, and 1994 Savannah Electric and Power Company 1996 Annual Report <TABLE> <CAPTION> - ----------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Operating Activities: Net income $ 26,264 $ 25,719 $ 24,434 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 20,246 20,535 19,353 Deferred income taxes and investment tax credits 7,482 4,359 1,625 Allowance for equity funds used during construction (317) (163) (831) Other, net 705 35 826 Changes in certain current assets and liabilities -- Receivables, net (641) (6,241) 18,481 Inventories 410 2,318 1,144 Payables 4,242 2,213 (19,957) Other (5,953) (1,848) (117) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 52,438 46,927 44,958 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (28,950) (26,503) (30,078) Other (3,173) 3,198 (841) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (32,123) (23,305) (30,919) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: First mortgage bonds 20,000 15,000 - Other long-term debt 17,000 33,500 8,500 Retirements: First mortgage bonds (29,400) (29,250) (5,065) Other long-term debt (397) (23,003) (823) Notes payable, net 1,000 1,500 (500) Payment of preferred stock dividends (2,324) (2,324) (2,129) Payment of common stock dividends (19,600) (17,600) (16,300) Miscellaneous (2,257) (2,131) (74) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (15,978) (24,308) (16,391) - ----------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 4,337 (686) (2,352) Cash and Cash Equivalents at Beginning of Year 877 1,563 3,915 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 5,214 $ 877 $ 1,563 =================================================================================================================================== Supplemental Cash Flow Information: Cash paid during the year for- Interest (net of amount capitalized) $ 12,960 $ 12,775 $ 11,579 Income taxes 10,926 11,316 14,441 - ----------------------------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-231
BALANCE SHEETS At December 31, 1996 and 1995 Savannah Electric and Power Company 1996 Annual Report <TABLE> <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- Assets 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Utility Plant: Plant in service, at original cost (Notes 1, 4, 5, and 8) $739,461 $715,146 Less accumulated provision for depreciation 304,760 287,004 - -------------------------------------------------------------------------------------------------------------------------------- 434,701 428,142 Construction work in progress 13,463 6,707 - -------------------------------------------------------------------------------------------------------------------------------- Total 448,164 434,849 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,785 1,788 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 5,214 877 Special deposits 1,395 - Receivables- Customer accounts receivable 18,827 19,574 Other accounts and notes receivable 769 7,251 Affiliated companies 844 614 Accumulated provision for uncollectible accounts (632) (983) Fuel cost under recovery 7,289 - Fossil fuel stock, at average cost 5,892 6,076 Materials and supplies, at average cost (Note 1) 8,013 8,239 Prepayments 6,135 6,467 - -------------------------------------------------------------------------------------------------------------------------------- Total 53,746 48,115 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes (Note 6) 19,167 21,557 Premium on reacquired debt, being amortized 7,142 5,316 Cash surrender value of life insurance for deferred compensation plans 10,288 8,560 Miscellaneous 2,003 4,477 - -------------------------------------------------------------------------------------------------------------------------------- Total 38,600 39,910 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $542,295 $524,662 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-232
<TABLE> BALANCE SHEETS At December 31, 1996 and 1995 Savannah Electric and Power Company 1996 Annual Report <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- Capitalization and Liabilities 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> Capitalization (See accompanying statements): Common stock equity $172,284 $167,812 Preferred stock 35,000 35,000 Long-term debt 161,801 153,679 - -------------------------------------------------------------------------------------------------------------------------------- Total 369,085 356,491 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Amount of securities due within one year (Note 9) 637 1,407 Notes payable (Note 5) 5,000 4,000 Accounts payable- Affiliated companies 6,374 5,742 Other 10,201 5,620 Fuel cost over recovery - 865 Customer deposits 5,232 5,054 Taxes accrued- Federal and state income - 570 Other 1,015 1,014 Interest accrued 5,275 6,331 Vacation pay accrued 2,038 1,916 Miscellaneous 7,470 5,870 - -------------------------------------------------------------------------------------------------------------------------------- Total 43,242 38,389 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 6) 76,654 74,152 Accumulated deferred investment tax credits (Note 6) 13,271 13,934 Deferred credits related to income taxes (Note 6) 22,792 24,419 Deferred compensation plans 8,602 7,690 Deferred under-funded accrued benefit obligation (Note 2) - 2,123 Postretirement benefits 5,472 4,728 Miscellaneous 3,177 2,736 - -------------------------------------------------------------------------------------------------------------------------------- Total 129,968 129,782 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 4, 5, and 8) Total Capitalization and Liabilities $542,295 $524,662 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-233
<TABLE> STATEMENTS OF CAPITALIZATION At December 31, 1996 and 1995 Savannah Electric and Power Company 1996 Annual Report <CAPTION> - -------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) <S> <C> <C> <C> <C> Common Stock Equity (Notes 2 and 10): Common stock, par value $5 per share -- Authorized -- 16,000,000 shares Outstanding -- 10,844,635 shares in 1996 and 1995 $ 54,223 $ 54,223 Paid-in capital 8,688 8,688 Additional minimum liability for under-funded pension obligations - (132) Retained earnings 109,373 105,033 - -------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 172,284 167,812 46.7% 47.1% - -------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock (Note 7): $25 par value -- Authorized -- 2,200,000 shares 6.64% Series -- Outstanding -- 1,400,000 shares 35,000 35,000 - -------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $2,324,000) 35,000 35,000 9.5 9.8 - -------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt (Note 8): First mortgage bonds -- Maturity Interest Rates July 1, 2003 6 3/8% 20,000 20,000 May 1, 2006 6.90% 20,000 - July 1, 2021 9 3/8% - 29,400 July 1, 2022 8.30% 30,000 30,000 July 1, 2023 7.40% 25,000 25,000 May 1, 2025 7 7/8% 15,000 15,000 - -------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 110,000 119,400 Pollution control obligations (Note 8) 17,955 17,955 Other long-term debt (Note 8) 37,088 20,485 Unamortized debt premium (discount), net (2,605) (2,754) - -------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $11,526,000) 162,438 155,086 Less amount due within one year (Note 9) 637 1,407 - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 161,801 153,679 43.8 43.1 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $369,085 $356,491 100.0% 100.0% ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-234
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Savannah Electric and Power Company (the Company), is a wholly owned subsidiary of Southern Company, which is the parent company of five operating companies, a system service company, Southern Communications Services (Southern Communications), Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), The Southern Development and Investment Group (Southern Development) and other direct and indirect subsidiaries. The operating companies provide electric service in four southeastern states. Contracts among the companies--dealing with jointly owned generating facilities, interconnecting transmission lines, and the exchange of electric power--are regulated by the Federal Energy Regulatory Commission (FERC) or the Securities and Exchange Commission. The system service company provides, at cost, specialized services to Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operating companies and also markets these services to the public within the Southeast. Southern Energy designs, builds, owns, and operates power production and delivery facilities and provides a broad range of technical services to industrial companies and utilities in the United States and a number of international markets. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Development develops new business opportunities related to energy products and services. Southern Company is registered as a holding company under the Public Utility Holding Company Act of 1935 (PUHCA). Both Southern Company and its subsidiaries are subject to the regulatory provisions of the PUHCA. The Company also is subject to regulation by the FERC and the Georgia Public Service Commission (GPSC). The Company follows generally accepted accounting principles and complies with the accounting policies and practices prescribed by the GPSC. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates, and the actual results may differ from those estimates. Certain prior years' data presented in the financial statements have been reclassified to conform with current year presentation. Regulatory Assets and Liabilities The Company is subject to the provisions of Financial Accounting Standards Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of Regulation. Regulatory assets represent probable future revenues to the Company associated with certain costs that are expected to be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 1996 1995 --------------------------- (in thousands) Deferred income taxes $ 19,167 $ 21,557 Premium on reacquired debt 7,142 5,316 Deferred income tax credits (22,792) (24,419) - --------------------------------------------------------------- Total $ 3,517 $ 2,454 =============================================================== In the event that a portion of the Company's operations is no longer subject to the provisions of Statement No. 71, the Company would be required to write off related regulatory assets and liabilities. In addition, the Company would be required to determine any impairment to other assets, including plant, and write down the assets, if impaired, to their fair value. Revenues and Fuel Costs The Company accrues revenues for service rendered but unbilled at the end of each fiscal period. Fuel costs are expensed as the fuel is used. The Company's electric rates include provisions to adjust billings for fluctuations in fuel and the energy component of purchased power costs and purchased power capacity costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. The Company has a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1996, uncollectible accounts continued to average less than 1 percent of revenues. II-235
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report Depreciation and Amortization Depreciation of the original cost of depreciable utility plant in service is provided primarily by using composite straight-line rates, which approximated 2.8 percent in 1996 and 2.9 percent in 1995 and 1994. When property subject to depreciation is retired or otherwise disposed of in the normal course of business, its cost--together with the cost of removal, less salvage--is charged to the accumulated provision for depreciation. Minor items of property included in the original cost of the plant are retired when the related property unit is retired. Depreciation expense includes an amount for the expected cost of removal of certain facilities. Income Taxes The Company, which is included in the consolidated federal income tax return filed by Southern Company, uses the liability method of accounting for deferred income taxes and provides deferred income taxes for all significant income tax temporary differences. Investment tax credits utilized are deferred and amortized to income over the average lives of the related property. Allowance for Funds Used During Construction (AFUDC) AFUDC represents the estimated debt and equity costs of capital funds that are necessary to finance the construction of new facilities. While cash is not realized currently from such allowance, it increases the revenue requirement over the service life of the plant through a higher rate base and higher depreciation expense. The composite rates used by the Company to calculate AFUDC were 8.69 percent in 1996, 7.42 percent in 1995 and 8.04 percent in 1994. Utility Plant Utility plant is stated at original cost, which includes: materials; labor; minor items of property; appropriate administrative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and AFUDC. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense. The cost of replacements of property (exclusive of minor items of property) is charged to utility plant. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, temporary cash investments are considered cash equivalents. Temporary cash investments are securities with original maturities of 90 days or less. Financial Instruments The Company's financial instruments for which the carrying amounts did not equal fair value at December 31 were as follows: Long-Term Debt -------------------------- Carrying Fair Year Amount Value -------------------------- (in millions) 1996 $155 $161 1995 154 165 - -------------------------------------------------------------- The fair values for long-term debt were based on either closing market prices or closing prices of comparable instruments. Materials and Supplies Generally, materials and supplies include the cost of transmission, distribution, and generating plant materials. Materials are charged to inventory when purchased and then expensed or capitalized to plant, as appropriate, when installed. Storm Damage Reserve In December 1995, in response to a request by the Company, the GPSC issued an order allowing the Company to establish a Storm Damage Reserve. As of December 31, 1996, the accumulated provision amounted to $0.9 million. Regulatory treatment by the GPSC allows the Company to accrue up to an additional $0.6 million per year. II-236
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report 2. RETIREMENT BENEFITS Pension Plan The Company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. Benefits are based on the greater of amounts resulting from two different formulas: years of service and final average pay or years of service and a flat-dollar benefit. The Company uses the "projected unit credit" actuarial method for funding purposes, subject to limitations under federal income tax regulations. Amounts funded to the pension trust are primarily invested in equity and fixed-income securities. FASB Statement No. 87, Employers' Accounting for Pensions, requires use of the "projected unit credit" actuarial method for financial reporting purposes. Postretirement Benefits The Company also provides certain medical care and life insurance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Trusts are funded to the extent deductible under federal income tax regulations and to the extent required by the GPSC and the FERC. Amounts funded are primarily invested in debt and equity securities and money market funds. FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, requires that medical care and life insurance benefits for retired employees be accounted for on an accrual basis using a specified actuarial method, "benefit/years-of-service." The cost of postretirement benefits is reflected in rates on a current basis. Funded Status and Cost of Benefits The following tables show actuarial results and assumptions for pension and postretirement benefits as computed under the requirements of FASB Statement Nos. 87 and 106, respectively. The funded status of the plans at December 31 was as follows: Pension ------------------------ 1996 1995 ------------------------ (in thousands) Actuarial present value of benefit obligation: Vested benefits $39,270 $38,169 Non-vested benefits 2,939 2,585 - ---------------------------------------------------------------- Accumulated benefit obligation 42,209 40,754 Additional amounts related to projected salary increases 7,705 7,786 - ---------------------------------------------------------------- Projected benefit obligation 49,914 48,540 Less: Fair value of plan assets 42,430 36,836 Unrecognized net loss 7,252 9,606 Unrecognized prior service cost 1,240 1,375 Unrecognized net transition obligation 444 532 Adjustment required to recognize additional minimum liability - 3,727 - ---------------------------------------------------------------- (Prepaid asset) accrued liability recognized in the Balance Sheets $(1,452) $ 3,918 ================================================================ The weighted average rates assumed in the actuarial calculations for the pension plan were: 1996 1995 1994 ------------------------ Discount 7.25% 7.25% 8.00% Annual salary increase 4.75 4.75 5.25 Long-term return on plan assets 8.75 8.75 9.00 --------------------------------------------------------------- II-237
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report In accordance with Statement No. 87, an additional liability related to an under-funded accumulated benefit obligations was reflected at December 31, 1995. A corresponding net-of-tax balance of $0.1 million was recognized as a separate component of Common Stock Equity in the 1995 Statement of Capitalization. Postretirement Benefits ------------------------ 1996 1995 ------------------------ (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $12,442 $13,560 Employees eligible to retire 1,614 1,471 Other employees 6,464 5,966 - ------------------------------------------------------------- Accumulated benefit obligation 20,520 20,997 Less: Fair value of plan assets 2,473 1,443 Unrecognized net loss 4,835 5,719 Unrecognized transition obligation 7,900 9,135 - ------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ 5,312 $ 4,700 ============================================================= In 1995, the Company announced a cost sharing program for postretirement benefits. The program establishes limits on amounts the Company will pay to provide future retiree postretirement benefits. This change reduced the 1995 accumulated postretirement benefit obligation by approximately $3.1 million. The weighted average rates assumed in the actuarial calculations for the postretirement benefit plans were: 1996 1995 ------------------- Discount 7.75% 7.25% Long-term return on plan assets 8.50 8.50 - ------------------------------------------------------------ An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 9.3 percent for 1996, decreasing gradually to 5.8 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost trend rate of 1 percent would increase the accumulated benefit obligation at December 31, 1996, by $1.2 million and the aggregate of the service and interest cost components of the net postretirement cost by $0.1 million. Components of the plans' net costs are shown below: Pension ------------------------------ 1996 1995 1994 ------------------------------ (in thousands) Benefits earned during the year $1,352 $1,188 $1,192 Interest cost on projected benefit obligation 3,389 3,395 3,279 Actual (return) loss on plan assets (4,852) (5,791) 27 Net amortization and deferral 2,439 4,125 (1,474) - -------------------------------------------------------------------- Net pension cost $2,328 $2,917 $3,024 ==================================================================== Of the above net pension costs, $2.0 million in 1996, $2.4 million in 1995 and $2.6 million in 1994 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits ------------------------------ 1996 1995 1994 ------------------------------ (in thousands) Benefits earned during the year $ 360 $ 504 $ 632 Interest cost on accumulated benefit obligation 1,422 1,638 1,492 Amortization of transition obligation 494 723 723 Actual (return) loss on plan assets (145) (34) 6 Net amortization and deferral 187 93 111 - -------------------------------------------------------------------- Net postretirement costs $2,318 $2,924 $2,964 - -------------------------------------------------------------------- Of the above net postretirement costs, $2.0 million in 1996, $2.4 million in 1995 and $2.4 million in 1994 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. II-238
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report The Company has a supplemental retirement plan for certain executive employees. The plan is unfunded and payable from the general funds of the Company. The Company has purchased life insurance on participating executives, and plans to use these policies to satisfy this obligation. Benefit costs associated with this plan were $0.4 million for 1996, 1995 and 1994. 3. REGULATORY MATTERS Rates to retail customers served by the Company are regulated by the GPSC. As part of the Company's most recent rate settlement in 1992, it was informally agreed that the Company's earned rate of return on common equity should be 12.95 percent. The Company is currently undergoing an earnings review by the GPSC, and to date, the GPSC has made no determination. In August 1995, the GPSC ordered the phase out of the Company's demand-side management programs effective December 31, 1995 and the elimination of demand-side management rate riders effective October 1, 1995. In June 1996, the Company refunded to customers approximately $0.3 million which had been overcollected from the rate rider. 4. CONSTRUCTION PROGRAM The Company is engaged in a continuous construction program, currently estimated to total $26 million in 1997, $22 million in 1998 and $24 million in 1999. The construction program is subject to periodic review and revision, and actual construction costs may vary from the above estimates because of numerous factors. These factors include: changes in business conditions; revised load growth estimates; changes in environmental regulations; increasing cost of labor, equipment and materials; and changes in cost of capital. The Company does not have any traditional baseload generating plants under construction. However, construction related to transmission and distribution facilities and the upgrading and extension of the useful lives of generating plants will continue. 5. FINANCING AND COMMITMENTS General To the extent possible, the Company's construction program is expected to be financed from internal sources and from the issuance of additional long-term debt, preferred stock and capital contributions from Southern Company. The amounts of long-term debt and preferred stock that can be issued in the future will be contingent on market conditions, the maintenance of adequate earnings levels, regulatory authorizations and other factors. Bank Credit Arrangements At the end of 1996, unused credit arrangements with five banks totaled $20.5 million and expire at various times during 1997. The Company's revolving credit arrangements of $20 million, of which $15 million remained unused as of December 31, 1996, expire December 31, 1998. These agreements allow short-term borrowings to be converted into term loans, payable in 12 equal quarterly installments, with the first installment due at the end of the first calendar quarter after the applicable termination date or at an earlier date at the Company's option. In connection with these credit arrangements, the Company agrees to pay commitment fees based on the unused portions of the commitments. Assets Subject to Lien As amended and supplemented, the Company's Indenture of Mortgage, which secures the first mortgage bonds issued by the Company, constitutes a direct first lien on substantially all of the Company's fixed property and franchises. A second lien for $10 million of bank debt is secured by a portion of the Plant Kraft property. II-239
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report Operating Leases The Company has rental agreements with various terms and expiration dates. Rental expenses totaled $1.6 million for 1996, $1.3 million for 1995, and $1.5 million for 1994. The Company entered into a 22.5 year lease agreement effective December 1, 1995 for 100 new aluminum rail cars at an annual cost of approximately $0.5 million. The rail cars are used to transport coal to one of the Company's generating plants. At December 31, 1996, estimated future minimum lease payments for non-cancelable operating leases were as follows: Amounts -------------------- (in thousands) 1997 $1,413 1998 1,135 1999 497 2000 485 2001 483 2002 and thereafter 7,935 - ------------------------------------------------------------- 6. INCOME TAXES At December 31, 1996, tax-related regulatory assets and liabilities were $19 million and $23 million, respectively. The assets are attributable to tax benefits flowed through to customers in prior years and to taxes applicable to capitalized AFUDC. The liabilities are attributable to deferred taxes previously recognized at rates higher than current enacted tax law and to unamortized investment tax credits. Details of the federal and state income tax provisions are as follows: 1996 1995 1994 -------------------------------- (in thousands) Total provision for income taxes Federal -- Currently payable $ 7,084 $10,427 $11,736 Deferred -- current year 8,216 5,290 2,106 -- reversal of prior years (1,989) (1,661) (755) - ----------------------------------------------------------------- 13,311 14,056 13,087 - ----------------------------------------------------------------- State -- Currently payable 575 1,941 2,064 Deferred -- current year 1,216 695 188 -- reversal of prior years 39 35 86 - ----------------------------------------------------------------- 1,830 2,671 2,338 - ----------------------------------------------------------------- Total 15,141 16,727 15,425 Less income taxes credited to other income (1,034) (651) (864) - ----------------------------------------------------------------- Total income taxes charged to operations $16,175 $17,378 $16,289 ================================================================= The tax effects of temporary differences between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases, which give rise to deferred tax assets and liabilities, are as follows: 1996 1995 -------------------- Deferred tax liabilities: (in thousands) Accelerated depreciation $67,104 $62,822 Property basis differences 9,550 11,330 Other 5,703 1,511 - ---------------------------------------------------------------- Total 82,357 75,663 - ---------------------------------------------------------------- Deferred tax assets: Pension and other benefits 5,183 3,660 Other 2,186 3,818 - ---------------------------------------------------------------- Total 7,369 7,478 - ---------------------------------------------------------------- Net deferred tax liabilities 74,988 68,185 Portions included in current assets, net 1,666 5,967 - ---------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $76,654 $74,152 ================================================================ Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation in the Statements of Income. Credits amortized in this manner amounted to $0.7 million in 1996, 1995 and 1994. At December 31, 1996, all investment tax credits available to reduce federal income taxes payable had been utilized. II-240
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1996 1995 1994 ----------------------------- Federal statutory tax rate 35% 35% 35% State income tax, net of federal income tax benefit 3 4 4 Other (1) - - -------------------------------------------------------------- Effective income tax rate 37% 39% 39% ============================================================== Southern Company files a consolidated federal income tax return. Under a joint consolidated income tax agreement, each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent company are allocated to each subsidiary based on the ratio of taxable income to total consolidated taxable income. 7. CUMULATIVE PREFERRED STOCK The Company has outstanding 1,400,000 shares of 6.64% Series Preferred Stock which has redemption provisions of $26.66 per share plus accrued dividends if redeemed on or prior to November 1, 1998, and redemption provisions of $25 per share plus accrued dividends thereafter. Cumulative preferred stock dividends are preferential to the payment of dividends on common stock. 8. LONG-TERM DEBT The Company's Indenture related to its First Mortgage Bonds is unlimited as to the authorized amount of bonds which may be issued, provided that required property additions, earnings and other provisions of such Indenture are met. In May 1996, the Company issued $20 million in 6.90% Series First Mortgage Bonds maturing in 2006 and $10 million of 6.88% term notes maturing in 2001. Using the proceeds from such sales, the Company redeemed in July 1996 all of its remaining outstanding 9 3/8% Series First Mortgage Bonds due July 2021. The sinking fund requirements of first mortgage bonds were satisfied by cash redemption in 1996 and 1995. The 1997 requirement will be satisfied by certifying property additions. Sinking fund requirements and/or maturities through 2001 applicable to long-term debt are as follows: $0.6 million in 1997; $20.5 million in 1998; $0.5 million in 1999; $0.4 million in 2000; and $10.4 million in 2001. Details of pollution control obligations and other long-term debt at December 31 are as follows: 1996 1995 ----------------------- (in thousands) Collateralized obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds -- Variable rate (3.20% at 1/1/97) due 2016 $ 4,085 $ 4,085 6 3/4% due 2022 13,870 13,870 Capital lease obligations -- Coal unloading facility Variable rate (5.60% at 1/1/97) 6,667 - Transportation fleet 421 485 Notes Payable -- 6.88% due 2001 10,000 - Variable rate (5.75% at 1/1/97) due 1998 15,000 15,000 Variable rate (5.73% at 1/1/97) due 1998 5,000 5,000 - ---------------------------------------------------------------- Total $55,043 $38,440 ================================================================ Assets acquired under capital leases are recorded as utility plant in service, and the related obligation is classified as other long-term debt. Leases are capitalized at the net present value of the future lease payments. However, for ratemaking purposes, these obligations are treated as operating leases, and as such, lease payments are charged to expense as incurred. In March 1996, the Company entered into a fifteen year variable rate capital lease agreement with the Savannah Economic Development Authority for a coal ship docking and unloading facility at Plant Kraft. II-241
NOTES (continued) Savannah Electric and Power Company 1996 Annual Report The Company leased combustion turbine generating equipment under a non-cancelable lease that expired in 1995. In December 1995, the Company exercised its option to purchase this equipment. The Company currently leases a portion of its transportation fleet. Under the terms of these leases, the Company is responsible for taxes, insurance and other expenses. 9. LONG-TERM DEBT DUE WITHIN ONE YEAR A summary of the sinking fund requirements and scheduled maturities and redemptions of long-term debt due within one year at December 31 is as follows: 1996 1995 ---------------------- (in thousands) Bond sinking fund requirement $1,100 $1,200 Less: Portion to be satisfied by certifying property additions 1,100 - - -------------------------------------------------------------------- Cash sinking fund requirement - 1,200 Other long-term debt maturities (Note 9) 637 207 - -------------------------------------------------------------------- Total $ 637 $1,407 ==================================================================== The first mortgage bond improvement (sinking) fund requirements amount to 1 percent of each outstanding series of bonds authenticated under the Indenture prior to January 1 of each year, other than those issued to collateralize pollution control and other obligations. The requirements may be satisfied by depositing cash or reacquiring bonds, or by pledging additional property equal to 1 2/3 times the requirements. 10. COMMON STOCK DIVIDEND RESTRICTIONS The Company's Charter and Indenture contain certain limitations on the payment of cash dividends on preferred and common stocks. At December 31, 1996, approximately $68 million of retained earnings was restricted against the payment of cash dividends on common stock under the terms of the Indenture. 11. QUARTERLY FINANCIAL INFORMATION (Unaudited) Summarized quarterly financial data for 1996 and 1995 are as follows (in thousands): Net Income After Operating Operating Dividends on Quarter Ended Revenue Income Preferred Stock - ----------------------------------------------------------------- March 1996 $50,575 $ 6,562 $ 2,740 June 1996 61,906 9,786 5,859 September 1996 73,359 16,542 12,815 December 1996 48,234 5,994 2,526 March 1995 $46,743 $ 6,468 $ 2,420 June 1995 57,673 9,920 6,041 September 1995 73,449 16,438 12,693 December 1995 47,864 5,452 2,241 - ----------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and a seasonal rate structure, among other factors. II-242
<TABLE> SELECTED FINANCIAL AND OPERATING DATA Savannah Electric and Power Company 1996 Annual Report <CAPTION> - --------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Revenues (in thousands) $234,074 $225,729 $211,785 Net Income after Dividends on Preferred and Preference Stocks (in thousands) $23,940 $23,395 $22,110 Cash Dividends on Common Stock (in thousands) $19,600 $17,600 $16,300 Return on Average Common Equity (percent) 14.08 14.20 14.00 Total Assets (in thousands) $542,295 $524,662 $518,305 Gross Property Additions (in thousands) $28,950 $26,503 $30,078 - --------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $172,284 $167,812 $161,581 Preferred stock 35,000 35,000 35,000 Preferred and preference stock subject to mandatory redemption - - - Long-term debt 161,801 153,679 155,922 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $369,085 $356,491 $352,503 ===================================================================================================================== Capitalization Ratios (percent): Common stock equity 46.7 47.1 45.8 Preferred and preference stock 9.5 9.8 9.9 Long-term debt 43.8 43.1 44.3 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ===================================================================================================================== First Mortgage Bonds (in thousands): Issued 20,000 15,000 - Retired 29,400 29,250 5,065 Preferred and Preference Stock (in thousands): Issued - - - Retired - - - - --------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A+ A+ A Preferred Stock - Moody's "a2" "a2" "a2" Standard and Poor's A A A- - --------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 106,657 104,624 103,199 Commercial 13,877 13,339 13,015 Industrial 65 65 65 Other 1,097 1,048 1,007 - --------------------------------------------------------------------------------------------------------------------- Total 121,696 119,076 117,286 ===================================================================================================================== Employees (year-end) 571 584 616 </TABLE> Note: NR = Not Rated II-243
<TABLE> SELECTED FINANCIAL AND OPERATING DATA Savannah Electric and Power Company 1996 Annual Report <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Revenues (in thousands) $218,442 $197,761 $189,646 $205,635 Net Income after Dividends on Preferred and Preference Stocks (in thousands) $21,459 $20,512 $24,030 $26,254 Cash Dividends on Common Stock (in thousands) $21,000 $22,000 $22,000 $22,000 Return on Average Common Equity (percent) 13.73 12.89 15.13 16.85 Total Assets (in thousands) $527,187 $352,175 $352,505 $340,050 Gross Property Additions (in thousands) $72,858 $30,132 $19,478 $20,086 - ------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $154,269 $158,376 $159,841 $157,811 Preferred stock 35,000 20,000 20,000 20,000 Preferred and preference stock subject to mandatory redemption - - - - Long-term debt 151,338 110,767 119,280 112,377 - ------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $340,607 $289,143 $299,121 $290,188 ========================================================================================================================= Capitalization Ratios (percent): Common stock equity 45.3 54.8 53.4 54.4 Preferred and preference stock 10.3 6.9 6.7 6.9 Long-term debt 44.4 38.3 39.9 38.7 - ------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ========================================================================================================================= First Mortgage Bonds (in thousands): Issued 45,000 30,000 30,000 - Retired - 38,750 22,500 9,135 Preferred and Preference Stock (in thousands): Issued 35,000 - - - Retired 20,000 - - 5,374 - ------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 Standard and Poor's A A A A Preferred Stock - Moody's "a2" "a2" "a2" "a2" Standard and Poor's A- A- A- A- - ------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 101,032 99,164 97,446 96,452 Commercial 12,702 12,416 12,153 12,045 Industrial 69 73 73 76 Other 957 940 897 867 - ------------------------------------------------------------------------------------------------------------------------- Total 114,760 112,593 110,569 109,440 ========================================================================================================================= Employees (year-end) 665 688 672 648 </TABLE> Note: NR = Not Rated II-244A
<TABLE> SELECTED FINANCIAL AND OPERATING DATA Savannah Electric and Power Company 1996 Annual Report <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Revenues (in thousands) $201,799 $182,440 $174,707 $174,847 Net Income after Dividends on Preferred and Preference Stocks (in thousands) $25,535 $24,272 $22,086 $20,452 Cash Dividends on Common Stock (in thousands) $20,000 $11,700 $10,741 $9,353 Return on Average Common Equity (percent) 16.88 17.03 17.03 17.52 Total Assets (in thousands) $349,887 $347,051 $340,109 $341,826 Gross Property Additions (in thousands) $18,831 $23,254 $32,276 $26,800 - ---------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $153,737 $148,883 $136,207 $123,133 Preferred stock 22,300 22,300 2,300 2,300 Preferred and preference stock subject to mandatory redemption 2,884 3,075 9,665 10,256 Long-term debt 117,522 98,285 129,329 137,821 - ---------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $296,443 $272,543 $277,501 $273,510 ====================================================================================================================== Capitalization Ratios (percent): Common stock equity 51.9 54.6 49.1 45.0 Preferred and preference stock 8.5 9.3 4.3 4.6 Long-term debt 39.6 36.1 46.6 50.4 - ---------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ====================================================================================================================== First Mortgage Bonds (in thousands): Issued 30,000 - - 25,000 Retired 18,275 12,231 10,239 10,160 Preferred and Preference Stock (in thousands): Issued - 20,000 - - Retired 6,591 553 588 610 - ---------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A3 A3 Standard and Poor's A A- A- A- Preferred Stock - Moody's "a2" "a2" NR NR Standard and Poor's A- BBB+ BBB+ BBB+ - ---------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 94,766 93,486 92,094 89,951 Commercial 12,298 12,135 11,812 11,405 Industrial 69 69 67 67 Other 856 828 762 731 - ---------------------------------------------------------------------------------------------------------------------- Total 107,989 106,518 104,735 102,154 ====================================================================================================================== Employees (year-end) 643 655 655 658 </TABLE> Note: NR = Not Rated II-244B
<TABLE> SELECTED FINANCIAL AND OPERATING DATA (continued) Savannah Electric and Power Company 1996 Annual Report <CAPTION> - --------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 - --------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Revenues (in thousands): Residential $101,607 $95,208 $89,195 Commercial 80,494 75,117 71,227 Industrial 37,077 36,040 32,906 Other 8,804 8,386 7,946 - --------------------------------------------------------------------------------------------------------------------- Total retail 227,982 214,751 201,274 Sales for resale - non-affiliates 1,998 1,851 4,786 Sales for resale - affiliates 3,130 7,200 6,446 - --------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 233,110 223,802 212,506 Other revenues 964 1,927 (721) - --------------------------------------------------------------------------------------------------------------------- Total $234,074 $225,729 $211,785 ===================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,456,651 1,402,148 1,298,122 Commercial 1,141,218 1,099,570 1,045,831 Industrial 838,753 887,141 799,543 Other 126,215 126,057 119,593 - --------------------------------------------------------------------------------------------------------------------- Total retail 3,562,837 3,514,916 3,263,089 Sales for resale - non-affiliates 91,610 87,747 201,716 Sales for resale - affiliates 41,808 63,731 93,001 - --------------------------------------------------------------------------------------------------------------------- Total 3,696,255 3,666,394 3,557,806 ===================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.98 6.79 6.87 Commercial 7.05 6.83 6.81 Industrial 4.42 4.06 4.12 Total retail 6.40 6.11 6.17 Sale for resale 3.84 5.98 3.81 Total sales 6.31 6.10 5.97 Residential Average Annual Kilowatt-Hour Use Per Customer 13,771 13,478 12,686 Residential Average Annual Revenue Per Customer $960.58 $915.15 $871.68 Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 788 788 Maximum Peak-Hour Demand (megawatts): Winter 666 630 617 Summer 811 811 729 Annual Load Factor (percent) 53.1 52.9 54.3 Plant Availability - Fossil-Steam (percent) 77.6 83.3 81.0 - --------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 27.7 23.9 18.6 Oil and gas 3.1 5.9 1.8 Purchased power - From non-affiliates 2.1 2.3 1.5 From affiliates 67.1 67.9 78.1 - --------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ===================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 11,888 12,146 11,786 Cost of fuel per million BTU (cents) 203.36 179.25 205.03 Average cost of fuel per net kilowatt-hour generated (cents) 2.42 2.18 2.42 ===================================================================================================================== </TABLE> II-245
<TABLE> SELECTED FINANCIAL AND OPERATING DATA (continued) Savannah Electric and Power Company 1996 Annual Report <CAPTION> - ------------------------------------------------------------------------------------------------------------------------- 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Revenues (in thousands): Residential $93,883 $82,670 $80,541 $87,063 Commercial 71,320 64,756 61,827 65,462 Industrial 36,180 33,171 30,492 30,237 Other 7,810 7,095 6,561 6,782 - ------------------------------------------------------------------------------------------------------------------------- Total retail 209,193 187,692 179,421 189,544 Sales for resale - non-affiliates 6,021 7,821 7,813 9,482 Sales for resale - affiliates 2,433 1,505 1,430 5,566 - ------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 217,647 197,018 188,664 204,592 Other revenues 795 743 982 1,043 - ------------------------------------------------------------------------------------------------------------------------- Total $218,442 $197,761 $189,646 $205,635 ========================================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 1,329,362 1,216,993 1,195,005 1,183,486 Commercial 1,015,935 953,840 925,757 892,931 Industrial 854,324 861,121 825,862 644,704 Other 115,969 110,270 106,683 103,539 - ------------------------------------------------------------------------------------------------------------------------- Total retail 3,315,590 3,142,224 3,053,307 2,824,660 Sales for resale - non-affiliates 247,203 367,066 372,085 441,090 Sales for resale - affiliates 75,384 37,632 32,581 294,042 - ------------------------------------------------------------------------------------------------------------------------- Total 3,638,177 3,546,922 3,457,973 3,559,792 ========================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 7.06 6.79 6.74 7.36 Commercial 7.02 6.79 6.68 7.33 Industrial 4.23 3.85 3.69 4.69 Total retail 6.31 5.97 5.88 6.71 Sale for resale 2.62 2.30 2.28 2.05 Total sales 5.98 5.55 5.46 5.75 Residential Average Annual Kilowatt-Hour Use Per Customer 13,269 12,369 12,323 12,339 Residential Average Annual Revenue Per Customer $937.07 $840.23 $830.54 $907.68 Plant Nameplate Capacity Ratings (year-end) (megawatts) 628 628 605 605 Maximum Peak-Hour Demand (megawatts): Winter 524 533 526 428 Summer 747 695 691 648 Annual Load Factor (percent) 54.1 55.0 54.1 53.2 Plant Availability - Fossil-Steam (percent) 90.2 89.1 76.9 89.6 - ------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 21.5 12.0 16.3 52.8 Oil and gas 4.5 2.9 1.7 3.4 Purchased power - From non-affiliates 0.9 1.0 0.4 0.8 From affiliates 73.1 84.1 81.6 43.0 - ------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ========================================================================================================================= Total Fuel Economy Data: BTU per net kilowatt-hour generated 11,515 12,547 10,917 10,741 Cost of fuel per million BTU (cents) 215.97 201.50 199.42 188.18 Average cost of fuel per net kilowatt-hour generated (cents) 2.49 2.53 2.18 2.02 ========================================================================================================================= </TABLE> II-246A
<TABLE> SELECTED FINANCIAL AND OPERATING DATA (continued) Savannah Electric and Power Company 1996 Annual Report <CAPTION> - ---------------------------------------------------------------------------------------------------------------------- 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Revenues (in thousands): Residential $85,113 $81,098 $79,785 $80,348 Commercial 65,474 62,640 60,285 59,547 Industrial 28,304 26,865 27,422 27,694 Other 6,892 6,557 6,315 6,300 - ---------------------------------------------------------------------------------------------------------------------- Total retail 185,783 177,160 173,807 173,889 Sales for resale - non-affiliates 8,814 808 - - Sales for resale - affiliates 6,025 3,567 - - - ---------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 200,622 181,535 173,807 173,889 Other revenues 1,177 905 900 958 - ---------------------------------------------------------------------------------------------------------------------- Total $201,799 $182,440 $174,707 $174,847 ====================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,109,976 1,067,411 1,044,554 1,021,905 Commercial 839,756 806,687 775,643 746,133 Industrial 561,063 533,604 557,281 515,544 Other 101,164 97,072 94,949 92,471 - ---------------------------------------------------------------------------------------------------------------------- Total retail 2,611,959 2,504,774 2,472,427 2,376,053 Sales for resale - non-affiliates 437,943 24,168 - - Sales for resale - affiliates 303,142 156,106 - - - ---------------------------------------------------------------------------------------------------------------------- Total 3,353,044 2,685,048 2,472,427 2,376,053 ====================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.67 7.60 7.64 7.86 Commercial 7.80 7.77 7.77 7.98 Industrial 5.04 5.03 4.92 5.37 Total retail 7.11 7.07 7.03 7.32 Sale for resale 2.00 2.43 - - Total sales 5.98 6.76 7.03 7.32 Residential Average Annual Kilowatt-Hour Use Per Customer 11,781 11,489 11,481 11,514 Residential Average Annual Revenue Per Customer $903.37 $872.87 $876.95 $905.27 Plant Nameplate Capacity Ratings (year-end) (megawatts) 605 605 605 605 Maximum Peak-Hour Demand (megawatts): Winter 548 471 414 464 Summer 613 574 562 565 Annual Load Factor (percent) 52.4 53.4 53.6 51.1 Plant Availability - Fossil-Steam (percent) 94.7 77.1 81.2 86.9 - ---------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.5 79.8 74.3 81.9 Oil and gas 1.4 5.4 4.4 6.8 Purchased power - From non-affiliates 1.5 5.9 19.9 11.3 From affiliates 33.6 8.9 1.4 - - ---------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ====================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,611 10,683 10,551 10,607 Cost of fuel per million BTU (cents) 180.48 178.31 176.10 186.30 Average cost of fuel per net kilowatt-hour generated (cents) 1.92 1.90 1.86 1.98 ====================================================================================================================== </TABLE> II-246B
STATEMENTS OF INCOME Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $ 230,944 $ 218,529 $ 205,339 Revenues from affiliates 3,130 7,200 6,446 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 234,074 225,729 211,785 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 29,139 25,386 18,555 Purchased power from non-affiliates 2,350 2,139 1,839 Purchased power from affiliates 58,591 53,252 55,822 Other 44,007 45,214 41,623 Maintenance 14,140 13,668 12,560 Depreciation and amortization 19,113 18,949 17,854 Taxes other than income taxes 11,675 11,465 11,074 Federal and state income taxes 16,175 17,378 16,289 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 195,190 187,451 175,616 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 38,884 38,278 36,169 Other Income (Expense): Allowance for equity funds used during construction 317 163 831 Interest income 201 164 54 Other, net (1,756) (618) (1,032) Income taxes applicable to other income 1,034 651 864 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 38,680 38,638 36,886 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 11,563 12,380 12,585 Allowance for debt funds used during construction (333) (450) (1,225) Interest on notes payable 229 135 205 Amortization of debt discount, premium, and expense, net 579 448 550 Other interest charges 378 406 337 - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 12,416 12,919 12,452 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of a Change in Method of Recording Revenues 26,264 25,719 24,434 Cumulative effect as of January 1, 1988, of accruing unbilled revenues--less income taxes of $1,164(000) - - - - -------------------------------------------------------------------------------------------------------------------------------- Net Income 26,264 25,719 24,434 Dividends on Preferred and Preference Stock 2,324 2,324 2,324 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred and Preference Stock $ 23,940 $ 23,395 $ 22,110 ================================================================================================================================ Pro Forma Net Income After Dividends on Preferred Stock Assuming Change in Method of Recording Revenues Was Applied Retroactively $ 23,940 $ 23,395 $ 22,110 </TABLE> II-247
STATEMENTS OF INCOME Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1993 1992 1991 1990 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $ 216,009 $ 196,256 $ 188,216 $ 200,069 Revenues from affiliates 2,433 1,505 1,430 5,566 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 218,442 197,761 189,646 205,635 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 24,976 14,162 14,415 42,630 Purchased power from non-affiliates 793 494 297 611 Purchased power from affiliates 56,274 56,492 49,007 34,648 Other 45,610 36,884 32,945 30,630 Maintenance 13,516 14,232 12,475 12,754 Depreciation and amortization 16,467 16,829 16,549 16,118 Taxes other than income taxes 11,136 10,231 10,122 9,798 Federal and state income taxes 15,436 14,566 16,195 17,611 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 184,208 163,890 152,005 164,800 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 34,234 33,871 37,641 40,835 Other Income (Expense): Allowance for equity funds used during construction 958 446 170 193 Interest income 209 276 589 741 Other, net (1,841) (1,450) (879) (803) Income taxes applicable to other income 1,117 758 722 187 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 34,677 33,901 38,243 41,153 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 10,696 10,870 11,486 12,052 Allowance for debt funds used during construction (699) (289) (103) (194) Interest on notes payable 240 15 25 116 Amortization of debt discount, premium, and expense, net 535 427 380 241 Other interest charges 340 466 525 665 - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 11,112 11,489 12,313 12,880 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of a Change in Method of Recording Revenues 23,565 22,412 25,930 28,273 Cumulative effect as of January 1, 1988, of accruing unbilled revenues--less income taxes of $1,164(000) - - - - - -------------------------------------------------------------------------------------------------------------------------------- Net Income 23,565 22,412 25,930 28,273 Dividends on Preferred and Preference Stock 2,106 1,900 1,900 2,019 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred and Preference Stock $ 21,459 $ 20,512 $ 24,030 $ 26,254 ================================================================================================================================ Pro Forma Net Income After Dividends on Preferred Stock Assuming Change in Method of Recording Revenues Was Applied Retroactively $ 21,459 $ 20,512 $ 24,030 $ 26,254 </TABLE> II-248A
STATEMENTS OF INCOME Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $ 195,774 $ 178,873 $ 174,707 $ 174,847 Revenues from affiliates 6,025 3,567 - - - ------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 201,799 182,440 174,707 174,847 - ------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 44,224 46,578 38,597 44,393 Purchased power from non-affiliates 616 3,593 11,453 6,069 Purchased power from affiliates 26,361 6,586 1,186 2,071 Other 29,371 28,271 25,642 24,114 Maintenance 12,281 14,261 13,629 12,591 Depreciation and amortization 20,343 19,771 18,152 16,443 Taxes other than income taxes 9,152 9,209 9,088 7,863 Federal and state income taxes 17,571 14,017 16,969 21,405 - ------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 159,919 142,286 134,716 134,949 - ------------------------------------------------------------------------------------------------------------------------------- Operating Income 41,880 40,154 39,991 39,898 Other Income (Expense): Allowance for equity funds used during construction - 273 512 27 Interest income 719 355 925 924 Other, net (672) (1,423) (464) (553) Income taxes applicable to other income 192 459 (317) (217) - ------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 42,119 39,818 40,647 40,079 - ------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 12,287 15,603 17,127 17,415 Allowance for debt funds used during construction (112) (330) (459) (73) Interest on notes payable 402 230 70 315 Amortization of debt discount, premium, and expense, net 274 196 237 234 Other interest charges 1,313 336 251 335 - ------------------------------------------------------------------------------------------------------------------------------- Net interest charges 14,164 16,035 17,226 18,226 - ------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of a Change in Method of Recording Revenues 27,955 23,783 23,421 21,853 Cumulative effect as of January 1, 1988, of accruing unbilled revenues--less income taxes of $1,164(000) - 1,920 - - - ------------------------------------------------------------------------------------------------------------------------------- Net Income 27,955 25,703 23,421 21,853 Dividends on Preferred and Preference Stock 2,420 1,431 1,335 1,401 - ------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred and Preference Stock $ 25,535 $ 24,272 $ 22,086 $ 20,452 =============================================================================================================================== Pro Forma Net Income After Dividends on Preferred Stock Assuming Change in Method of Recording Revenues Was Applied Retroactively $ 25,535 $ 22,352 $ 21,865 $ 20,606 </TABLE> II-248B
STATEMENTS OF CASH FLOWS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 26,264 $ 25,719 $ 24,434 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 20,246 20,535 19,353 Deferred income taxes, net 7,482 4,359 1,625 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (317) (163) (831) Other, net 705 35 826 Changes in certain current assets and liabilities -- Receivables, net (641) (6,241) 18,481 Special deposits (1,395) - - Inventories 410 2,318 1,144 Payables 4,242 2,213 (19,957) Other (4,558) (1,848) (117) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 52,438 46,927 44,958 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (28,950) (26,503) (30,078) Sales of property - - - Other (3,173) 3,198 (841) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (32,123) (23,305) (30,919) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Preferred stock - - - First mortgage bonds 20,000 15,000 - Pollution control bonds - - - Other long-term debt 17,000 33,500 8,500 Common stock - - - Retirements: Preferred and preference stock - - - First mortgage bonds (29,400) (29,250) (5,065) Pollution control bonds - - - Other long-term debt (397) (23,003) (823) Notes payable, net 1,000 1,500 (500) Payment of preferred and preference stock dividends (2,324) (2,324) (2,129) Payment of common and class A stock dividends (19,600) (17,600) (16,300) Miscellaneous (2,257) (2,131) (74) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (15,978) (24,308) (16,391) - -------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 4,337 (686) (2,352) Cash and Cash Equivalents at Beginning of Year 877 1,563 3,915 - -------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 5,214 $ 877 $ 1,563 ================================================================================================================================ ( ) Denotes use of cash. </TABLE> II-249
STATEMENTS OF CASH FLOWS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ For the Years Ended December 31, 1993 1992 1991 1990 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Activities: Net income $ 23,565 $ 22,412 $ 25,930 $ 28,273 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 17,482 17,757 17,501 16,995 Deferred income taxes, net 607 5,947 1,601 2,782 Deferred investment tax credits, net - - - - Allowance for equity funds used during construction (958) (446) (170) (193) Other, net 2,853 (1,312) (1,876) 511 Changes in certain current assets and liabilities -- Receivables, net (16,839) (4,107) 5,291 1,541 Special deposits - 350 1,348 185 Inventories (3,947) 4,435 (1,082) 1,246 Payables 18,742 351 568 (228) Other 3,282 2,083 3,710 (319) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 44,787 47,470 52,821 50,793 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (72,858) (30,132) (19,478) (20,086) Sales of property - - - - Other 1,676 (1,073) 407 (120) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (71,182) (31,205) (19,071) (20,206) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities: Proceeds: Preferred stock 35,000 - - - First mortgage bonds 45,000 30,000 30,000 - Pollution control bonds 4,085 13,870 - - Other long-term debt 10,000 - - - Common stock - - - - Retirements: Preferred and preference stock (20,000) - - (5,374) First mortgage bonds - (38,750) (22,500) (9,135) Pollution control bonds (4,085) (14,550) (515) (485) Other long-term debt (10,356) (217) (275) (364) Notes payable, net (4,500) 7,500 (1,500) 1,500 Payment of preferred and preference stock dividends (2,222) (1,900) (1,900) (2,113) Payment of common and class A stock dividends (21,000) (22,000) (22,000) (22,000) Miscellaneous (3,400) (3,985) (477) 47 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from (used for) financing activities 28,522 (30,032) (19,167) (37,924) - ------------------------------------------------------------------------------------------------------------------------------ Net Increase (Decrease) in Cash and Cash Equivalents 2,127 (13,767) 14,583 (7,337) Cash and Cash Equivalents at Beginning of Year 1,788 15,555 972 8,309 - ------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year $ 3,915 $ 1,788 $ 15,555 $ 972 ============================================================================================================================== ( ) Denotes use of cash. </TABLE> II-250A
STATEMENTS OF CASH FLOWS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- For the Years Ended December 31, 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 27,955 $ 25,703 $ 23,421 $ 21,853 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 21,310 20,592 19,126 16,855 Deferred income taxes, net 3,476 3,568 925 4,443 Deferred investment tax credits, net - - (5) 489 Allowance for equity funds used during construction - (273) (512) (27) Other, net (775) 718 (1,016) 474 Changes in certain current assets and liabilities -- Receivables, net (6,949) (7,062) 1,360 1,456 Special deposits 2,708 (558) (587) (53) Inventories (1,503) 3,063 (503) 663 Payables 1,086 (1,151) (78) (1,750) Other 1,544 (1,684) (757) 1,916 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 48,852 42,916 41,374 46,319 - ---------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (18,831) (23,254) (32,276) (26,800) Sales of property - - - - Other 381 (4,042) 1,296 (824) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (18,450) (27,296) (30,980) (27,624) - ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Preferred stock - 20,000 - - First mortgage bonds 30,000 - - 25,000 Pollution control bonds - - - - Other long-term debt - - - - Common stock - 403 1,693 1,691 Retirements: Preferred and preference stock (6,591) (553) (588) (610) First mortgage bonds (18,275) (12,231) (10,239) (10,160) Pollution control bonds (455) (430) (405) (380) Other long-term debt (7,656) (4,401) (3,954) (3,075) Notes payable, net - - - (4,500) Payment of preferred and preference stock dividends (2,318) (1,284) (1,351) (1,418) Payment of common and class A stock dividends (20,000) (14,407) (10,383) (9,114) Miscellaneous (1,071) (269) - (436) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (26,366) (13,172) (25,227) (3,002) - ---------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 4,036 2,448 (14,833) 15,693 Cash and Cash Equivalents at Beginning of Year 4,273 1,825 16,658 965 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 8,309 $ 4,273 $ 1,825 $ 16,658 ================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-250B
BALANCE SHEETS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 327,549 $ 317,026 $ 312,215 Transmission 103,160 102,129 100,956 Distribution 275,877 264,115 251,323 General 32,875 31,876 28,938 Construction work in progress 13,463 6,707 5,930 - -------------------------------------------------------------------------------------------------------------------------------- Total utility plant 752,924 721,853 699,362 Accumulated provision for depreciation 304,760 287,004 267,590 - -------------------------------------------------------------------------------------------------------------------------------- Total 448,164 434,849 431,772 Less property-related accumulated deferred income taxes - - - - -------------------------------------------------------------------------------------------------------------------------------- Total 448,164 434,849 431,772 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,785 1,788 1,790 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 5,214 877 1,563 Receivables, net 16,606 21,346 12,328 Accrued unbilled revenues 4,597 5,110 4,780 Fuel cost under recovery 7,289 - 3,113 Fossil fuel stock, at average cost 5,892 6,076 7,557 Materials and supplies, at average cost 8,013 8,239 9,076 Prepayments 6,135 6,467 7,446 - -------------------------------------------------------------------------------------------------------------------------------- Total 53,746 48,115 45,863 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 19,167 21,557 23,521 Miscellaneous 19,433 18,353 15,359 - -------------------------------------------------------------------------------------------------------------------------------- Total 38,600 39,910 38,880 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 542,295 $ 524,662 $ 518,305 ================================================================================================================================ </TABLE> II-251
BALANCE SHEETS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 257,708 $ 258,539 $ 247,017 $ 246,278 Transmission 99,791 93,182 90,198 73,358 Distribution 237,012 222,024 212,576 217,913 General 28,010 25,851 24,283 22,990 Construction work in progress 49,797 5,966 4,211 1,354 - ---------------------------------------------------------------------------------------------------------------------------------- Total utility plant 672,318 605,562 578,285 561,893 Accumulated provision for depreciation 251,565 240,094 225,605 211,725 - ---------------------------------------------------------------------------------------------------------------------------------- Total 420,753 365,468 352,680 350,168 Less property-related accumulated deferred income taxes - 65,725 62,737 58,106 - ---------------------------------------------------------------------------------------------------------------------------------- Total 420,753 299,743 289,943 292,062 - ---------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,793 1,795 39 39 - ---------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 3,915 1,788 15,555 972 Receivables, net 27,714 14,480 14,549 14,450 Accrued unbilled revenues 3,789 3,401 3,252 3,831 Fuel cost under recovery 7,112 3,895 - 5,662 Fossil fuel stock, at average cost 8,419 4,895 9,196 8,071 Materials and supplies, at average cost 9,358 8,935 9,069 9,112 Prepayments 4,849 1,599 4,544 1,492 - ---------------------------------------------------------------------------------------------------------------------------------- Total 65,156 38,993 56,165 43,590 - ---------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 24,890 - - - Miscellaneous 14,595 11,644 6,358 4,359 - ---------------------------------------------------------------------------------------------------------------------------------- Total 39,485 11,644 6,358 4,359 - ---------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 527,187 $ 352,175 $ 352,505 $ 340,050 ================================================================================================================================== </TABLE> II-252A
BALANCE SHEETS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - ---------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 242,988 $ 241,833 236,587 $ 232,316 Transmission 72,299 71,601 69,822 65,215 Distribution 204,611 192,335 177,163 160,346 General 22,482 21,686 17,513 14,838 Construction work in progress 2,880 1,684 7,214 5,270 - ---------------------------------------------------------------------------------------------------------------------------------- Total utility plant 545,260 529,139 508,299 477,985 Accumulated provision for depreciation 198,228 178,888 161,531 144,232 - ---------------------------------------------------------------------------------------------------------------------------------- Total 347,032 350,251 346,768 333,753 Less property-related accumulated deferred income taxes 54,418 51,487 49,255 46,496 - ---------------------------------------------------------------------------------------------------------------------------------- Total 292,614 298,764 297,513 287,257 - ---------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 49 49 49 39 - ---------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 8,309 4,273 1,825 16,658 Receivables, net 14,300 15,714 14,419 13,806 Accrued unbilled revenues 4,501 3,889 - - Fuel cost under recovery 6,881 1,838 - 787 Fossil fuel stock, at average cost 9,706 8,455 12,359 12,642 Materials and supplies, at average cost 8,723 8,471 7,630 6,844 Prepayments 585 1,240 2,786 978 - ---------------------------------------------------------------------------------------------------------------------------------- Total 53,005 43,880 39,019 51,715 - ---------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - - Miscellaneous 4,219 4,358 4,127 2,815 - ---------------------------------------------------------------------------------------------------------------------------------- Total 4,219 4,358 4,127 2,815 - ---------------------------------------------------------------------------------------------------------------------------------- Total Assets $349,887 $347,051 $340,708 $341,826 ================================================================================================================================== </TABLE> II-252B
BALANCE SHEETS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> - -------------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 54,223 $ 54,223 $ 54,223 Paid-in capital 8,688 8,688 8,688 Additional minimum liability for under-funded pension obligations - (132) (546) Retained Earnings 109,373 105,033 99,216 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 172,284 167,812 161,581 Preferred stock 35,000 35,000 35,000 Preferred and preference stock subject to mandatory redemption - - - Long-term debt 161,801 153,679 155,922 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 369,085 356,491 352,503 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 5,000 4,000 2,500 Preferred and preference stock due within one year - - - Long-term debt due within one year 637 1,407 2,579 Accounts payable 16,575 11,362 8,991 Customer deposits 5,232 5,054 4,698 Fuel cost over recovery - 865 - Taxes accrued 1,015 1,584 1,133 Interest accrued 5,275 6,331 6,830 Vacation pay accrued 2,038 1,916 1,823 Miscellaneous 7,470 5,870 8,282 - -------------------------------------------------------------------------------------------------------------------------------- Total 43,242 38,389 36,836 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 76,654 74,152 70,786 Accumulated deferred investment tax credits 13,271 13,934 14,637 Deferred credits related to income taxes 22,792 24,419 25,487 Deferred under-funded accrued benefit obligation - 2,123 3,022 Miscellaneous 17,251 15,154 15,034 - -------------------------------------------------------------------------------------------------------------------------------- Total 129,968 129,782 128,966 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 542,295 $ 524,662 $ 518,305 ================================================================================================================================ </TABLE> II-253
BALANCE SHEETS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 54,223 $ 54,223 $ 54,223 $ 54,223 Paid-in capital 8,688 8,688 8,665 8,665 Additional minimum liability for under-funded pension obligations (2,121) - - - Retained Earnings 93,479 95,465 96,953 94,923 - --------------------------------------------------------------------------------------------------------------------------------- Total common equity 154,269 158,376 159,841 157,811 Preferred stock 35,000 20,000 20,000 20,000 Preferred and preference stock subject to mandatory redemption - - - - Long-term debt 151,338 110,767 119,280 112,377 - --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 340,607 289,143 299,121 290,188 - --------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 3,000 7,500 - 1,500 Preferred and preference stock due within one year - - - - Long-term debt due within one year 4,499 1,319 2,442 2,358 Accounts payable 30,442 11,179 10,176 8,786 Customer deposits 4,714 4,541 4,528 4,472 Fuel cost over recovery - - 1,603 - Taxes accrued 1,529 3,016 724 1,387 Interest accrued 6,730 5,733 4,657 3,415 Vacation pay accrued 1,638 1,790 1,672 1,604 Miscellaneous 8,703 5,025 4,823 3,398 - --------------------------------------------------------------------------------------------------------------------------------- Total 61,255 40,103 30,625 26,920 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 66,947 - - - Accumulated deferred investment tax credits 15,301 15,964 16,628 17,292 Deferred credits related to income taxes 26,173 - - - Deferred under-funded accrued benefit obligation 5,855 - - - Miscellaneous 11,049 6,965 6,131 5,650 - --------------------------------------------------------------------------------------------------------------------------------- Total 125,325 22,929 22,759 22,942 - --------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $527,187 $352,175 $352,505 $340,050 ================================================================================================================================= </TABLE> II-254A
BALANCE SHEETS Savannah Electric and Power Company <TABLE> <CAPTION> <S> <C> <C> <C> <C> - --------------------------------------------------------------------------------------------------------------------------------- At December 31, 1989 1988 1987 1986 - --------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 54,223 $ 54,223 $ 54,131 $ 53,174 Paid-in capital 8,665 8,665 8,353 7,623 Additional minimum liability for under-funded pension obligations - - - - Retained Earnings 90,849 85,995 73,723 62,336 - --------------------------------------------------------------------------------------------------------------------------------- Total common equity 153,737 148,883 136,207 123,133 Preferred stock 22,300 22,300 2,300 2,300 Preferred and preference stock subject to mandatory redemption 2,884 3,075 9,665 10,256 Long-term debt 117,522 98,285 129,329 137,821 - --------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 296,443 272,543 277,501 273,510 - --------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - - - - Preferred and preference stock due within one year 190 6,590 553 550 Long-term debt due within one year 7,091 23,217 8,956 14,836 Accounts payable 9,078 7,950 9,427 10,329 Customer deposits 4,296 3,983 3,729 3,403 Fuel cost over recovery - - 599 - Taxes accrued 1,749 1,899 3,713 4,834 Interest accrued 4,287 4,154 4,599 4,906 Vacation pay accrued 1,477 1,412 1,306 1,255 Miscellaneous 2,880 1,705 6,257 3,650 - --------------------------------------------------------------------------------------------------------------------------------- Total 31,048 50,910 39,139 43,763 - --------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - - Accumulated deferred investment tax credits 17,971 19,106 20,264 21,663 Deferred credits related to income taxes - - - - Deferred under-funded accrued benefit obligation - - - - Miscellaneous 4,425 4,492 3,804 2,890 - --------------------------------------------------------------------------------------------------------------------------------- Total 22,396 23,598 24,068 24,553 - --------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $349,887 $347,051 $340,708 $341,826 ================================================================================================================================= </TABLE> II-254B
SAVANNAH ELECTRIC AND POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1996 <TABLE> <CAPTION> <S> <C> <C> <C> <C> First Mortgage Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ------------------------------------------------------------------------------------------------ (Thousands) (Thousands) 1993 $ 20,000 6-3/8% $ 20,000 7/1/03 1992 30,000 8.30% 30,000 7/1/22 1993 25,000 7.40% 25,000 7/1/23 1995 15,000 7-7/8% 15,000 5/1/25 1996 20,000 6.90% 20,000 5/1/06 ======== ======== $110,000 $110,000 ======== ======== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ------------------------------------------------------------------------------------------------ (Thousands) (Thousands) 1993 $ 4,085 Variable $ 4,085 1/1/16 1992 13,870 6-3/4% 13,870 2/1/22 ======= ======= $17,955 $17,955 ======= ======= Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding - ------------------------------------------------------------------------------------------------ (Thousands) 1993 1,400,000 6.64% $35,000 </TABLE> <TABLE> <CAPTION> <S> <C> <C> SECURITIES RETIRED DURING 1996 First Mortgage Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------------------------ (Thousands) 1991 $29,400 9-3/8% </TABLE> II-255
PART III Items 10, 11, 12 and 13 for SOUTHERN are incorporated by reference to ELECTION OF DIRECTORS in SOUTHERN's definitive Proxy Statement relating to the 1997 annual meeting of stockholders. The ages of directors and executive officers in Item 10 set forth below are as of December 31, 1996. Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS ALABAMA Identification of directors of ALABAMA. Elmer B. Harris (1) President and Chief Executive Officer Age 57 Served as Director since 3-1-89 Bill M. Guthrie Executive Vice President Age 63 Served as Director since 12-16-88 Whit Armstrong (2) Age 49 Served as Director since 9-24-82 A. W. Dahlberg (2) Age 56 Served as Director since 4-22-94 Peter V. Gregerson, Sr. (2) Age 68 Served as Director since 10-22-93 Carl E. Jones, Jr. (2) Age 56 Served as Director since 4-22-88 Wallace D. Malone, Jr. (2) Age 60 Served as Director since 6-22-90 William V. Muse (2) Age 57 Served as Director since 2-26-93 John T. Porter (2) Age 65 Served as Director since 10-22-93 Gerald H. Powell (2) Age 70 Served as Director since 2-28-86 Robert D. Powers (2) Age 46 Served as Director since 1-24-92 John W. Rouse (2) Age 59 Served as Director since 4-22-88 William J. Rushton, III (2) Age 67 Served as Director since 9-18-70 James H. Sanford (2) Age 52 Served as Director since 8-1-83 John C. Webb, IV (2) Age 54 Served as Director since 4-22-77 John W. Woods (2) Age 65 Served as Director since 4-20-73 (1) Previously served as Director of ALABAMA from 1980 to 1985. (2) No position other than Director. Each of the above is currently a director of ALABAMA, serving a term running from the last annual meeting of ALABAMA's stockholder (April 26, 1996) for one year until the next annual meeting or until a successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of ALABAMA acting solely in their capacities as such. III-1
Identification of executive officers of ALABAMA. Elmer B. Harris (1) President, Chief Executive Officer and Director Age 57 Served as Executive Officer since 3-1-89 Banks H. Farris Executive Vice President Age 61 Served as Executive Officer since 12-3-91 William B. Hutchins, III Executive Vice President and Chief Financial Officer Age 53 Served as Executive Officer since 12-3-91 Charles D. McCrary Executive Vice President Age 45 Served as Executive Officer since 1-1-91 (1) Previously served as executive officer of ALABAMA from 1979 to 1985. Each of the above is currently an executive officer of ALABAMA, serving a term running from the last annual meeting of the directors (April 26, 1996) for one year until the next annual meeting or until his successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of ALABAMA acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships. None. Business experience. Elmer B. Harris - Elected in 1989; Chief Executive Officer. Director of SOUTHERN and AmSouth Bancorporation. Bill M. Guthrie - Elected in 1988; also served since 1991 as Chief Production Officer of the SOUTHERN system and from 1991 to 1994 as Executive Vice President and Chief Production Officer of SCS. Elected Senior Executive Vice President and Chief Production Officer of SCS effective 1994. Also serves as Vice President of SOUTHERN, GULF, MISSISSIPPI and SAVANNAH and Executive Vice President of GEORGIA. Responsible primarily for providing overall management of materials management, fuel services, operating and planning services, fossil, hydro and bulk power operations of the Southern electric system. Whit Armstrong - President, Chairman and Chief Executive Officer of The Citizens Bank, Enterprise, Alabama. Also, President and Chairman of the Board of Enterprise Capital Corporation, Inc. Director of Enstar Group, Inc. A. W. Dahlberg - Chairman, President and Chief Executive Officer of SOUTHERN since 1995. He previously served as President of SOUTHERN from 1994 to 1995 and President and Chief Executive Officer of GEORGIA from 1988 through 1993. Director of SOUTHERN, GEORGIA, Equifax, Inc., Protective Life Corporation and SunTrust Banks, Inc. Peter V. Gregerson, Sr. - Chairman Emeritus of Gregerson's Foods, Inc. (retail groceries), Gadsden, Alabama. Carl E. Jones, Jr. - President and Chief Operating Officer of Regions Bank, Birmingham, Alabama. President of the Southern Region, Regions Financial Corporation. He previously served as Chairman and Chief Executive Officer of Regions Bank (formerly First Alabama Bank), Mobile, Alabama. Wallace D. Malone, Jr. - Chairman and Chief Executive Officer of SouthTrust Corporation, bank holding company, Birmingham, Alabama. Director of American Cast Iron Pipe Company. III-2
William V. Muse - President of Auburn University. Director of SouthTrust Corporation and American Cast Iron Pipe Company. John T. Porter - Pastor of Sixth Avenue Baptist Church, Birmingham, Alabama. Director of Citizen Federal Bank. Gerald H. Powell - President, Dixie Clay Company of Alabama, Inc. (refractory clay producer), Jacksonville, Alabama. Robert D. Powers - President and Director, The Eufaula Agency, Inc. (real estate and insurance), Eufaula, Alabama. John W. Rouse - President and Chief Executive Officer of Southern Research Institute (non-profit research institute), Birmingham, Alabama. Director of Protective Life Corporation. William J. Rushton, III - Chairman Emeritus of the Board, Protective Life Corporation (insurance holding company), Birmingham, Alabama. Director of SOUTHERN. James H. Sanford - Chairman, HOME Place Farms Inc. (diversified farmers and ginners), Prattville, Alabama. Chairman of the Board, Sylvest Farms of Georgia, Inc., College Park, Georgia. Chairman of the Board, Sylvest Poultry Inc., Montgomery, Alabama. John C. Webb, IV - President, Webb Lumber Company, Inc. (wholesale lumber and wood products sales), Demopolis, Alabama. Director, J. F. Suttle, Co. John W. Woods - Director of Protective Life Corporation and McWane, Inc. During 1996, he served as Chairman of AmSouth Bancorporation and Chairman of AmSouth Bank of Alabama. Banks H. Farris - Elected in 1991; responsible primarily for providing the overall management of human resources, information resources, power delivery and marketing departments, customer service centers and the six geographic divisions. He previously served as Senior Vice President from 1991 to 1994. William B. Hutchins, III - Elected in 1991; Chief Financial Officer, responsible primarily for providing the overall management of accounting and financial planning activities. He previously served as Senior Vice President and Chief Financial Officer from 1991 to 1994. Charles D. McCrary - Elected in 1991; responsible for the external relations department, public relations and corporate services. He previously served as Senior Vice President from 1991 to 1994. Involvement in certain legal proceedings. None. III-3
GEORGIA Identification of directors of GEORGIA. H. Allen Franklin President and Chief Executive Officer Age 52 Served as Director since 1-1-94 Warren Y. Jobe Executive Vice President, Treasurer and Chief Financial Officer Age 56 Served as Director since 8-1-82 Bennett A. Brown (1) Age 67 Served as Director since 5-15-80 A. W. Dahlberg (1) Age 56 Served as Director since 6-1-88 William A. Fickling, Jr. (1) Age 64 Served as Director since 4-18-73 L. G. Hardman III (1) Age 57 Served as Director since 6-25-79 James R. Lientz, Jr. (1) Age 53 Served as Director since 7-21-93 William A. Parker, Jr. (1) Age 69 Served as Director since 5-19-65 G. Joseph Prendergast (1) Age 51 Served as Director since 1-20-93 Herman J. Russell (1) Age 66 Served as Director since 5-18-88 Gloria M. Shatto (1) Age 65 Served as Director since 2-20-80 William Jerry Vereen (1) Age 56 Served as Director since 5-18-88 Carl Ware (1) (2) Age 53 Served as Director since 2-15-95 Thomas R. Williams (1) Age 68 Served as Director since 3-17-82 (1) No position other than Director. (2) Previously served as Director of GEORGIA from 1980 to 1991. Each of the above is currently a director of GEORGIA, serving a term running from the last annual meeting of GEORGIA's stockholder (May 15, 1996) for one year until the next annual meeting or until a successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he/she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of GEORGIA acting solely in their capacities as such. Identification of executive officers of GEORGIA. H. Allen Franklin President, Chief Executive Officer and Director Age 52 Served as Executive Officer since 1-1-94 Warren Y. Jobe Executive Vice President, Treasurer, Chief Financial Officer and Director Age 56 Served as Executive Officer since 5-19-82 William C. Archer, III Executive Vice President - External Affairs Age 48 Served as Executive Officer since 4-6-95 III-4
W. G. Hairston, III Executive Vice President - Nuclear Age 52 Served as Executive Officer since 6-1-93 Gene R. Hodges Executive Vice President - Customer Operations Age 58 Served as Executive Officer since 11-19-86 William P. Bowers Senior Vice President - Marketing Age 40 Served as Executive Officer since 9-22-95 Wayne T. Dahlke Senior Vice President - Power Delivery Age 55 Served as Executive Officer since 4-19-89 James K. Davis Senior Vice President - Corporate Relations Age 56 Served as Executive Officer since 10-1-93 Robert H. Haubein Senior Vice President - Fossil/Hydro Power Age 56 Served as Executive Officer since 2-19-92 Fred D. Williams Senior Vice President - Wholesale Power Marketing Age 52 Served as Executive Officer since 11-18-92 Each of the above is currently an executive officer of GEORGIA, serving a term running from the last annual meeting of the directors (May 15, 1996) for one year until the next annual meeting or until his successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of GEORGIA acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships. None. Business experience. H. Allen Franklin - President and Chief Executive Officer since 1994. He previously served as President and Chief Executive Officer of SCS from 1988 through 1993. Director of SOUTHERN and SouthTrust Corporation. Warren Y. Jobe - Executive Vice President and Chief Financial Officer since 1982 and Treasurer since 1992. Responsible for financial and accounting operations and planning, internal auditing, procurement, corporate services, corporate secretary and treasury operations. Bennett A. Brown - Retired as Chairman of the Board of NationsBank on December 31, 1992. Previously Chairman of the Board and Chief Executive Officer of C&S/Sovran Corporation. Director of Cousins Properties. A. W. Dahlberg - Chairman, President and Chief Executive Officer of SOUTHERN since 1995. He previously served as President of SOUTHERN from 1994 to 1995 and President and Chief Executive Officer of GEORGIA from 1988 through 1993. Director of SOUTHERN, ALABAMA, Equifax, Inc., Protective Life Corporation and SunTrust Banks, Inc. William A. Fickling, Jr. - Chairman of the Board, Chief Executive Officer and President of Beech Street Corporation (provider of managed care services). L. G. Hardman III - Chairman of the Board of The First National Bank of Commerce, Georgia and Chairman of the Board and Chief Executive Officer of First Commerce Bancorp, Inc. Chairman of the Board, President and Treasurer of Harmony Grove Mills, Inc. (real estate investments). Director of SOUTHERN. James R. Lientz, Jr. - President of NationsBank of Georgia since 1993. He previously served as President and Chief Executive Officer of former Citizens & Southern Bank of South Carolina (now NationsBank) from 1990 to 1993. III-5
William A. Parker, Jr. - Chairman of the Board, Seminole Investment Co., L.L.C. (private investments), Atlanta, Georgia. Director of SOUTHERN, Genuine Parts Company, Atlantic Investment Company, Post Properties, Inc. and Haverty Furniture Companies, Inc. G. Joseph Prendergast - Chairman, Wachovia Bank of Georgia, N.A. since 1994. Chairman, Wachovia Bank of South Carolina, and Director, Wachovia Bank of North Carolina. He previously served as President and Chief Executive Officer, Wachovia Corporation of Georgia and Wachovia Bank of Georgia, N.A. from 1993 to 1994 and from 1988 to 1993 as Executive Vice President of Wachovia Corporation of Georgia and President of Wachovia Corporate Services, Inc. Herman J. Russell - Chairman of the Board, H. J. Russell & Company (construction), Atlanta, Georgia. Chairman of the Board, Citizens Trust Bank, and Citizens Bancshares Corporation Atlanta, Georgia. Director of Wachovia Corporation and National Service Industries. Member of Board of Trustees, First Union Real Estate Equity and Mortgage Investments. Gloria M. Shatto - President, Berry College, Mount Berry, Georgia. Director of SOUTHERN, Becton Dickinson & Company and Texas Instruments, Inc. William Jerry Vereen - President, Treasurer and Chief Executive Officer of Riverside Manufacturing Company (manufacture and sale of uniforms), Moultrie, Georgia. Director of Gerber Scientific, Inc., Textile Clothing Technology Group and Blue Cross/Blue Shield of Georgia. Carl Ware - President, Africa Group, Coca-Cola International since 1991. Thomas R. Williams - President of The Wales Group, Inc. (investments), Atlanta, Georgia. Director of ConAgra, Inc., BellSouth Corporation, National Life Insurance Company of Vermont, AppleSouth, Inc., American Software, Inc. and The Fidelity Group of Funds. William C. Archer, III - Executive Vice President - External Affairs since September 1995. Senior Vice President - External Affairs from April 1995 to September 1995. Vice President - Human Resources for SCS from 1992 to 1995. Vice President - Northern Region from March 1992 to August 1992 and Vice President - Metro Region from 1990 to March 1992. W. G. Hairston, III - Executive Vice President - Nuclear since 1993. Also, he has served as President and Chief Operating Officer of Southern Nuclear since May 1993 and Chief Executive Officer since December 1993. Executive Vice President of Southern Nuclear from 1992 to 1993 and Senior Vice President of Southern Nuclear from 1990 to 1992. Gene R. Hodges - Executive Vice President - Customer Operations, Power Delivery and Safety. Senior Vice President - Region/Land Operations from 1990 to 1992. William P. Bowers - Senior Vice President - Marketing since 1995. Vice President - Retail Sales and Service from 1992 to 1995 and Vice President - Marketing from 1990 to 1992. Wayne T. Dahlke - Senior Vice President - Power Delivery since 1992. Senior Vice President - Marketing from 1989 to 1992. James K. Davis - Senior Vice President - Corporate Relations since 1993. Vice President of Corporate Relations from 1988 to 1993. Robert H. Haubein - Senior Vice President - Fossil/ Hydro Power since 1994. Senior Vice President - Administrative Services from 1992 to 1994 and Vice President - Northern Region from 1990 to 1992. Fred D. Williams - Senior Vice President - Wholesale Power Marketing since August 1995. Senior Vice President - Bulk Power Markets from 1992 to August 1995. Vice President - Bulk Power Markets from 1984 to 1992. In addition, he was elected Senior Vice President - Wholesale Power Marketing of SCS in 1995 and Senior Vice President of ALABAMA in February 1996 Involvement in certain legal proceedings. None. III-6
GULF Identification of directors of GULF. Travis J. Bowden President and Chief Executive Officer Age 58 Served as Director since 2-1-94 Paul J. DeNicola (1) Age 48 Served as Director since 4-19-91 Fred C. Donovan (1) Age 56 Served as Director since 1-18-91 W. Deck Hull, Jr. (1) Age 64 Served as Director since 10-14-83 Joseph K. Tannehill (1) Age 63 Served as Director since 7-19-85 Barbara H. Thames (1) Age 56 Served as Director since 2-28-97 (1) No position other than Director. Each of the above is currently a director of GULF, serving a term running from the last annual meeting of GULF's stockholder (June 25, 1996) for one year until the next annual meeting or until a successor is elected and qualified, except for Ms. Thames whose election was effective on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of GULF acting solely in their capacities as such. Identification of executive officers of GULF. Travis J. Bowden President, Chief Executive Officer and Director Age 58 Served as Executive Officer since 2-1-94 Francis M. Fisher, Jr. Vice President - Power Delivery and Customer Operations Age 48 Served as Executive Officer since 5-19-89 John E. Hodges, Jr. Vice President - Marketing and Employee/External Affairs Age 53 Served as Executive Officer since 5-19-89 G. Edison Holland, Jr. Vice President - Power Generation/Transmission and Corporate Counsel Age 44 Served as Executive Officer since 4-25-92 Arlan E. Scarbrough Vice President - Finance Age 60 Served as Executive Officer since 9-21-77 Each of the above is currently an executive officer of GULF, serving a term running from the last annual meeting of the directors (July 26, 1996) for one year until the next annual meeting or until his successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of GULF acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships. None. III-7
Business experience. Travis J. Bowden - Elected President effective February 1994 and, effective May 1994, Chief Executive Officer. He previously served as Executive Vice President of ALABAMA from 1985 to 1994. Paul J. DeNicola - President and Chief Executive Officer of SCS since 1994. He previously served as Executive Vice President of SCS from 1991 through 1993. Director of SOUTHERN, MISSISSIPPI and SAVANNAH. Fred C. Donovan - President of Baskerville - Donovan, Inc., Pensacola, Florida, an architectural and engineering firm. Director of Baptist Health Care, Inc. W. Deck Hull, Jr. - Vice Chairman of the SunTrust Bank, West Florida, Panama City, Florida. He previously served as President and Chief Executive Officer and Director of the Sun Commercial Bank, Panama City, Florida from 1989 to 1992. Joseph K. Tannehill - President and Chief Executive Officer of Merrick International Industries, Lynn Haven, Florida. Director of Florida First Bank, Panama City, Florida. Barbara H. Thames - Chief Executive Officer of Santa Rosa Medical Center, Milton, Florida since 1991. Francis M. Fisher, Jr. - Elected Vice President - Employee and External Relations in 1989 and, effective August 1996, Vice President - Power Delivery and Customer Operations. John E. Hodges, Jr. - Elected Vice President - Customer Operations in 1989 and, effective August 1996, Vice President - Marketing and Employee/External Affairs. Director of Barnett Bank of West Florida, Pensacola, Florida. G. Edison Holland, Jr. - Elected Vice President and Corporate Counsel in 1992 and Vice President - Power Generation/Transmission and Corporate Counsel in 1995; responsible for generation and transmission of electric energy, all legal matters associated with GULF and serves as compliance officer. Also serves, since 1982, as a partner in the law firm, Beggs & Lane. Arlan E. Scarbrough - Elected Vice President - Finance in 1980; responsible for all accounting and financial services of GULF. Involvement in certain legal proceedings. None. III-8
MISSISSIPPI Identification of directors of MISSISSIPPI. Dwight H. Evans President and Chief Executive Officer Age 48 Served as Director since 3-27-95 Paul J. DeNicola (1) Age 48 Served as Director since 5-1-89 Edwin E. Downer (1) Age 65 Served as Director since 4-24-84 Robert S. Gaddis (1) Age 65 Served as Director since 1-21-86 Walter H. Hurt, III (1) Age 61 Served as Director since 4-6-82 Aubrey K. Lucas (1) Age 62 Served as Director since 4-24-84 George A. Schloegel (1) Age 56 Served as Director since 7-26-95 Philip J. Terrell (1) Age 43 Served as Director since 2-22-95 N. Eugene Warr (1) Age 61 Served as Director since 1-21-86 (1) No position other than Director. Each of the above is currently a director of MISSISSIPPI, serving a term running from the last annual meeting of MISSISSIPPI's stockholder (April 2, 1996) for one year until the next annual meeting or until his successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he or she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of MISSISSIPPI acting solely in their capacities as such. Identification of executive officers of MISSISSIPPI. Dwight H. Evans President, Chief Executive Officer and Director Age 48 Served as Executive Officer since 3-27-95 H. E. Blakeslee Vice President - Customer Services and Marketing Age 56 Served as Executive Officer since 1-25-84 F. D. Kuester (1) Vice President - Power Generation and Delivery Age 46 Served as Executive Officer since 3-28-94 Don E. Mason Vice President - External Affairs and Corporate Services Age 55 Served as Executive Officer since 7-27-83 Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer Age 44 Served as Executive Officer since 1-1-95 (1) Resigned effective March 1, 1997, to assume the position of Director - Commercial of SOUTHERN's Hong Kong-based affiliate, Consolidated Electric Power Asia. Each of the above, except for Mr. Kuester, is currently an executive officer of MISSISSIPPI, serving a term running from the last annual meeting of the directors (April 24, 1996) for one year until the next annual meeting or until his successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of MISSISSIPPI acting solely in their capacities as such. Identification of certain significant employees. None. III-9
Family relationships. None. Business experience. Dwight H. Evans - President and Chief Executive Officer since 1995. He previously served as Executive Vice President of GEORGIA from 1989 to 1995. Paul J. DeNicola - President and Chief Executive Officer of SCS effective 1994. Executive Vice President of SCS from 1991 through 1993. Director of SOUTHERN, SAVANNAH and GULF. Edwin E. Downer - Business consultant specializing in economic analysis, management controls and procedural studies. Robert S. Gaddis - Chairman of the Advisory Board of Trustmark National Bank, Laurel, Mississippi. Walter H. Hurt, III - President and Director of NPC Inc. (Investments). Vicar, All Saints Church, Inverness, Mississippi, and St. Thomas Church, Belzoni, Mississippi. Retired newspaper editor and publisher. Aubrey K. Lucas - President Emeritus and Distinguished Professor of Higher Education at the University of Southern Mississippi, Hattiesburg, Mississippi. George A. Schloegel - President of Hancock Bank and Hancock Bank Securities Corporation. Vice Chairman of Hancock Holding Company. Director of Hancock Bank - Mississippi and Hancock Bank - Louisiana. Philip J. Terrell - Superintendent of Pass Christian Public School District and adjunct professor at William Carey College. N. Eugene Warr - Retailer (Biloxi and Gulfport, Mississippi). Director of Coast Community Bank, formerly SouthTrust Bank of Mississippi, Biloxi, Mississippi. H. E. Blakeslee - Elected Vice President in 1984. Primarily responsible for retail marketing, rates and wholesale marketing, division operations, the customer service center and distribution services. F. D. Kuester - Elected Vice President in 1994. Primarily responsible for generating plants, environmental quality, fuel services, power generation technical services, transmission, system planning, bulk power contracts, system operations and control, system protection and real estate. He previously served as Manager of Business and New Project Design/Development of SCS from 1993 to 1994 and Vice President of SCS from 1990 to 1993. Don E. Mason - Elected Vice President in 1983. Primarily responsible for external affairs, corporate communications, security, risk management, economic development and general services, as well as the human resources function. Michael W. Southern - Elected Vice President, Secretary, Treasurer and Chief Financial Officer in 1995. Primarily responsible for accounting, secretary/treasury, corporate planning, procurement and information resources. He previously served as Director of Corporate Finance of SCS from 1994 to 1995 and Director of Financial Planning of SCS from 1990 to 1994. Involvement in certain legal proceedings. None. III-10
SAVANNAH Identification of directors of SAVANNAH. Arthur M. Gignilliat, Jr. President and Chief Executive Officer Age 64 Served as Director since 9-1-82 Helen Quattlebaum Artley (1) Age 69 Served as Director since 5-17-77 Archie H. Davis (1) Age 55 Served as Director since 2-18-97 Paul J. DeNicola (1) Age 48 Served as Director since 3-14-91 Walter D. Gnann (1) Age 61 Served as Director since 5-17-83 Robert B. Miller, III (1) Age 51 Served as Director since 5-17-83 Arnold M. Tenenbaum (1) Age 60 Served as Director since 5-17-77 Frederick F. Williams, Jr. (1) Age 69 Served as Director since 7-2-75 (1) No Position other than Director. Each of the above is currently a director of SAVANNAH, serving a term running from the last annual meeting of SAVANNAH's stockholder (May 21, 1996) for one year until the next annual meeting or until a successor is elected and qualified, except for Mr. Davis whose election was effective on the date indicated. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he/she was or is to be selected as a director or nominee, other than any arrangements or understandings with directors or officers of SAVANNAH acting solely in their capacities as such. Identification of executive officers of SAVANNAH. Arthur M. Gignilliat, Jr. President, Chief Executive Officer and Director Age 64 Served as Executive Officer since 2-15-72 W. Miles Greer Vice President - Marketing and Customer Services Age 53 Served as Executive Officer since 11-20-85 Larry M. Porter Vice President - Operations Age 51 Served as Executive Officer since 7-1-91 Kirby R. Willis Vice President, Treasurer and Chief Financial Officer Age 45 Served as Executive Officer since 1-1-94 Each of the above is currently an executive officer of SAVANNAH, serving a term running from the last annual meeting of the directors (July 16, 1996) for one year until the next annual meeting or until his successor is elected and qualified. There are no arrangements or understandings between any of the individuals listed above and any other person pursuant to which he was or is to be selected as an officer, other than any arrangements or understandings with officers of SAVANNAH acting solely in their capacities as such. Identification of certain significant employees. None. Family relationships. None. Business experience. Arthur M. Gignilliat, Jr. - Elected President and Chief Executive Officer in 1984. Director of Savannah Foods and Industries, Inc. Helen Quattlebaum Artley - Homemaker and Civic Worker. III-11
Archie H. Davis - President and Chief Executive Officer of The Savannah Bank, Savannah, Georgia. Previously served as President of C&S in Savannah, Georgia. Chairman of the Board of Candler Health Services. Member of the Board of Directors of Thomaston Mills, Thomaston, Georgia. Paul J. DeNicola - President and Chief Executive Officer of SCS since 1994. Executive Vice President of SCS from 1991 through 1993. Director of SOUTHERN, GULF and MISSISSIPPI. Walter D. Gnann - President of Walt's TV, Appliance and Furniture Co., Inc., Springfield, Georgia. Past Chairman of the Development Authority of Effingham County, Georgia. Robert B. Miller, III - President of American Building Systems, Inc. Arnold M. Tenenbaum - President and Director of Chatham Steel Corporation. Director of First Union National Bank of Georgia and Savannah Foods and Industries, Inc. Frederick F. Williams, Jr. - Retired Partner and Consultant, Hilb, Rogal and Hamilton Employee Benefits, Incorporated (Insurance Brokers), formerly Jones, Hill & Mercer. W. Miles Greer - Vice President - Marketing and Customer Services effective 1994. Formerly served as Vice President - Economic Development and Corporate Services from 1989 through 1993. Larry M. Porter - Vice President - Operations since 1991. Responsible for managing the areas of fuel procurement, power production, transmission and distribution, engineering and system operation. Kirby R. Willis - Vice President, Treasurer and Chief Financial Officer since 1994. Responsible primarily for all accounting, financial, information resources, labor relations, corporate services, environmental and safety activities. He previously served as Treasurer, Controller and Assistant Secretary from 1991 to 1993. Involvement in certain legal proceedings. None. III-12
ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Tables. The following tables set forth information concerning any Chief Executive Officer and the four most highly compensated executive officers whose total annual salary and bonus exceeded $100,000 during 1996 for each of the operating affiliates (ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH). Key terms used in this Item will have the following meanings:- <TABLE> <CAPTION> <S> <C> AME.........................................Above-market earnings on deferred compensation ESP.........................................Employee Savings Plan ESOP........................................Employee Stock Ownership Plan SBP.........................................Supplemental Benefit Plan ERISA.......................................Employee Retirement Income Security Act </TABLE> <TABLE> <CAPTION> ALABAMA SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ---------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Elmer B. Harris President, Chief Executive 1996 480,310 72,697 7,112 31,608 439,508 25,068 Officer, 1995 458,940 74,204 5,956 32,170 494,447 26,058 Director 1994 436,280 96,711 13,882 31,441 236,642 24,467 Banks H. Farris 1996 235,255 32,390 7,829 9,730 155,313 12,161 Executive Vice 1995 221,405 76,182 4,239 9,856 174,727 11,889 President 1994 203,508 38,828 52,567 8,331 41,134 9,864 Charles D. McCrary 1996 215,762 29,906 3,198 8,984 126,075 11,530 Executive Vice 1995 206,400 69,380 2,549 9,188 141,834 11,071 President 1994 189,718 35,459 4,254 7,767 38,195 10,260 </TABLE> See next page for footnotes. III-13
<TABLE> <CAPTION> ALABAMA SUMMARY COMPENSATION TABLE (Continued) ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> William B. Hutchins, III Executive Vice President, 1996 209,213 28,806 3,029 8,654 115,169 10,853 Chief Financial 1995 199,164 69,841 1,180 8,850 129,565 11,088 Officer 1994 184,995 26,993 1,289 7,551 35,138 9,650 1 Tax reimbursement by ALABAMA and certain personal benefits, including membership fee of $44,014 for Mr. Farris in 1994. 2 Payouts made in 1995, 1996 and 1997 for the four-year performance periods ending December 31, 1994, 1995 and 1996, respectively. 3 ALABAMA contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP Elmer B. Harris $6,750 $1,127 $17,191 Banks H. Farris 6,750 1,127 4,284 Charles D. McCrary 6,750 1,127 3,653 William B. Hutchins, III 6,750 1,127 2,976 </TABLE> III-14
<TABLE> <CAPTION> GEORGIA SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> <C> <C> H. Allen Franklin President, 1996 482,658 73,260 10,992 31,853 498,688 27,334 Chief Executive 1995 456,366 82,935 3,936 31,960 561,024 25,493 Officer, Director 1994 415,954 87,763 30,078 31,386 203,201 100,201 William G. Hairston, III 1996 308,789 46,748 3,555 15,583 257,040 17,070 Executive 1995 296,988 47,489 6,020 15,785 289,170 16,442 Vice President 1994 287,831 44,521 3,225 15,725 81,662 14,593 Warren Y. Jobe Executive Vice President, Treasurer, 1996 227,496 26,749 4,308 9,404 126,075 12,476 Chief Financial 1995 220,152 31,000 1,994 9,710 141,834 12,248 Officer, Director 1994 215,809 27,579 2,744 8,610 56,635 11,736 Gene R. Hodges 1996 221,708 26,209 1,783 9,214 126,075 12,193 Executive 1995 214,502 32,000 1,978 9,514 141,834 11,160 Vice President 1994 204,190 27,579 4,601 8,196 52,188 11,093 Robert H. Haubein, Jr. 1996 211,010 29,681 2,081 8,757 115,169 11,740 Senior Vice 1995 199,759 34,000 1,623 8,871 129,565 10,825 President 1994 184,470 32,391 3,115 7,165 34,836 9,924 1 Tax reimbursement by GEORGIA on certain personal benefits. 2 Payouts made in 1995, 1996 and 1997 for the four-year performance periods ending December 31, 1994, 1995 and 1996, respectively. 3 GEORGIA contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP H. Allen Franklin $6,750 $1,127 $19,457 William G. Hairston, III 6,750 1,127 9,193 Warren Y. Jobe 6,750 1,127 4,599 Gene R. Hodges 6,750 1,127 4,316 Robert H. Haubein, Jr. 7,031 1,127 3,582 </TABLE> III-15
<TABLE> <CAPTION> GULF SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Travis J. Bowden President, 1996 297,685 29,950 1,560 14,975 207,322 14,950 Chief Executive 1995 289,749 29,077 4,663 15,464 233,237 16,679 Officer, Director 1994 282,513 42,849 42,015 15,134 86,730 115,241 G. Edison Holland, Jr. 1996 184,359 18,584 2,969 7,677 91,977 9,940 Vice President, 1995 177,682 16,718 2,463 7,851 103,474 9,491 Corporate Counsel 1994 172,092 21,352 1,512 6,893 18,888 9,307 Arlan E. Scarbrough 1996 173,719 17,512 1,514 7,234 84,047 9,420 Vice President 1995 167,568 16,718 722 7,398 94,553 8,556 1994 163,548 19,511 1,185 - 25,889 8,612 John E. Hodges, Jr. 1996 171,688 17,297 1,415 7,145 91,977 9,405 Vice President 1995 164,738 16,718 2,272 7,307 103,474 9,040 1994 156,831 21,352 1,999 5,455 37,776 8,733 Francis M. Fisher, Jr. 1996 151,236 15,352 459 5,674 84,047 8,177 Vice President 1995 141,389 16,718 510 5,603 94,553 7,694 1994 135,307 17,812 586 - 23,635 5,576 1 Tax reimbursement by GULF on certain personal benefits. 2 Payouts made in 1995, 1996 and 1997 for the four-year performance periods ending December 31, 1994, 1995 and 1996, respectively. 3 GULF contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP Travis J. Bowden $6,750 $1,127 $7,073 G. Edison Holland, Jr. 6,750 1,127 2,063 Arlan E. Scarbrough 6,703 1,127 1,590 John E. Hodges, Jr. 6,750 1,127 1,528 Francis M. Fisher, Jr. 6,681 1,127 369 </TABLE> III-16
<TABLE> <CAPTION> MISSISSIPPI SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Dwight H. Evans President, Chief 1996 253,006 35,923 3,519 12,830 126,075 13,824 Executive 1995 233,069 42,965 2,746 10,486 141,834 34,139 Officer, Director 1994 215,887 35,459 2,318 8,610 56,635 11,812 H. E. Blakeslee 1996 190,429 25,664 224 7,572 91,977 9,885 Vice President 1995 168,651 29,358 952 7,598 103,474 9,161 1994 156,204 23,808 1,055 5,509 37,776 8,494 Don E. Mason 1996 186,670 25,148 125 7,420 84,047 9,587 Vice President 1995 163,901 29,358 794 7,445 94,553 8,830 1994 150,162 22,069 686 - 25,889 8,080 Michael W. Southern4 Vice President, Chief Financial 1996 155,027 20,740 2,841 5,475 65,768 7,865 Officer, Secretary, 1995 133,505 24,467 344 4,847 73,989 19,806 Treasurer 1994 - - - - - - Frederick D. 1996 152,134 20,447 505 5,398 65,768 7,776 Kuester 1995 136,723 24,467 714 4,779 73,989 7,300 Vice President 1994 127,590 16,481 1,781 - 16,588 19,121 1 Tax reimbursement by MISSISSIPPI on certain personal benefits. 2 Payouts made in 1995, 1996 and 1997 for the four-year performance periods ending December 31, 1994, 1995 and 1996, respectively. 3 MISSISSIPPI contributions to the ESP, ESOP, and non-pension related accruals under the SBP (ERISA excess plan under which accruals are made to offset Internal Revenue Code imposed limitations under the ESP and ESOP) for the following:- Name ESP ESOP SBP Dwight H. Evans $6,750 $1,127 $5,947 H. E. Blakeslee 6,750 1,127 2,008 Don E. Mason 6,750 1,127 1,710 Michael W. Southern 6,590 1,127 148 Frederick D. Kuester 6,500 1,127 149 In 1994, Mr. Evans and Mr. Southern received a one-time lump-sum payment of $22,102 and $12,440, respectively, given in connection with their appointment to their current positions. 4 Mr. Southern was named an executive officer effective January 1, 1995. </TABLE> III-17
<TABLE> <CAPTION> SAVANNAH SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Arthur M. Gignilliat, Jr. President, 1996 218,208 26,371 1,104 9,077 151,382 25,705 Chief Executive 1995 211,385 31,847 492 9,327 170,305 21,323 Officer, Director 1994 206,964 37,384 194 8,253 76,164 18,617 Larry M. Porter 1996 138,931 16,740 421 4,560 65,768 9,814 Vice President 1995 134,687 18,100 256 4,701 73,989 8,718 1994 130,619 15,249 198 - 15,070 7,561 W. Miles Greer 1996 131,203 16,225 322 4,261 60,636 9,631 Vice President 1995 125,891 18,225 355 4,393 68,215 8,376 1994 122,153 14,050 198 - 14,527 7,642 Kirby R. Willis Vice President, 1996 122,110 15,505 674 3,924 60,636 8,765 Chief Financial 1995 115,632 18,225 256 4,038 68,215 7,444 Officer, Treasurer 1994 111,653 14,207 46 - 8,257 6,840 1 Tax reimbursement by SAVANNAH on certain personal benefits. 2 Payouts made in 1995, 1996 and 1997 for the four-year performance periods ending December 31, 1994, 1995 and 1996, respectively. 3 SAVANNAH contributions to the ESP, under Section 401(k) of the Internal Revenue Code, ESOP, and AME for the following:- Name ESP ESOP AME Arthur M. Gignilliat $6,750 $1,127 $17,828 Larry M. Porter 5,359 1,127 3,328 W. Miles Greer 5,039 1,127 3,465 Kirby R. Willis 5,292 1,038 2,435 </TABLE> III-18
<TABLE> <CAPTION> STOCK OPTION GRANTS IN 1996 Stock Option Grants. The following table sets forth all stock option grants to the named executive officers of each operating subsidiary during the year ending December 31, 1996. Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted1 Fiscal Year2 ($/Sh)1 Date1 Present Value($)3 ------------------------------------------------------------------------------------------------------------------ ALABAMA <S> <C> <C> <C> <C> <C> Elmer B. Harris 31,608 2.2 23.00 04/15/2006 115,369 Banks H. Farris 9,730 0.7 23.00 06/01/2003 34,444 Charles D. McCrary 8,984 0.6 23.00 04/15/2006 32,792 William B. Hutchins, III 8,654 0.6 23.00 04/15/2006 31,587 GEORGIA H. Allen Franklin 31,853 2.2 23.00 04/15/2006 116,263 William G. Hairston, III 15,583 1.1 23.00 04/15/2006 56,878 Warren Y. Jobe 9,404 0.6 23.00 04/15/2006 34,325 Gene R. Hodges 9,214 0.6 23.00 04/15/2006 33,631 Robert H. Haubein, Jr. 8,757 0.6 23.00 04/15/2006 31,963 GULF Travis J. Bowden 14,975 1.0 23.00 04/15/2006 54,659 G. Edison Holland, Jr. 7,677 0.5 23.00 04/15/2006 28,021 Arlan E. Scarbrough 7,234 0.5 23.00 11/01/2004 26,115 John E. Hodges, Jr. 7,145 0.5 23.00 04/15/2006 26,079 Francis M. Fisher, Jr. 5,674 0.4 23.00 04/15/2006 20,710 See next page for footnotes. </TABLE> III-19
<TABLE> <CAPTION> STOCK OPTION GRANTS IN 1996 Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted1 Fiscal Year2 ($/Sh)1 Date1 Present Value($)3 -------------------------------------------------------------------------------------------------------------- MISSISSIPPI <S> <C> <C> <C> <C> <C> Dwight H. Evans 12,830 0.9 23.00 04/15/2006 46,830 H. E. Blakeslee 7,572 0.5 23.00 04/15/2006 27,638 Don E. Mason 7,420 0.5 23.00 04/15/2006 27,083 Michael W. Southern 5,475 0.4 23.00 04/15/2006 19,984 Frederick D. Kuester 5,398 0.4 23.00 04/15/2006 19,703 SAVANNAH Arthur M. Gignilliat, Jr. 9,077 0.6 23.00 09/03/2000 28,683 Larry M. Porter 4,560 0.3 23.00 04/15/2006 16,644 W. Miles Greer 4,261 0.3 23.00 04/15/2006 15,553 Kirby R. Willis 3,924 0.3 23.00 04/15/2006 14,323 1 Grants were made on April 15, 1996, and vest 25% per year on the anniversary date of the grant. Grants fully vest upon termination incident to death, disability, or retirement. The exercise price is the average of the high and low fair market value of SOUTHERN's common stock on the date granted. In accordance with the terms of the Executive Stock Plan, Mr. Farris' unexercised options expire on June 1, 2003, three years after his normal retirement date; Mr. Scarbrough's unexercised options expire on November 1, 2004, three years after his normal retirement date; and Mr. Gignilliat's unexercised options expire on September 3, 2000, three years after his normal retirement date. 2 A total of 1,460,731 stock options were granted in 1996 to key executives participating in SOUTHERN's Executive Stock Plan. 3 Based on the Black-Scholes option valuation model. The actual value, if any, an executive officer may realize ultimately depends on the market value of SOUTHERN's common stock at a future date. This valuation is provided pursuant to SEC disclosure rules. There is no assurance that the value realized will be at or near the value estimated by the Black-Scholes model. Assumptions used to calculate this value: price volatility - 18.627%; risk-free rate of return - 6.51%; dividend yield - 5.48%; and time to exercise - 10 years. </TABLE> III-20
<TABLE> <CAPTION> AGGREGATED STOCK OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES Aggregated Stock Option Exercises. The following table sets forth information concerning options exercised during the year ending December 31, 1996, by the named executive officers and the value of unexercised options held by them as of December 31, 1996. Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End (#) Year-End($)1 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)2 Unexercisable Unexercisable - --------------------------------------------------------------------------------------------------------------- ALABAMA <S> <C> <C> <C> <C> Elmer B. Harris - - 120,265/78,180 657,199/92,536 Banks H. Farris - - 18,261/22,864 56,021/25,231 Charles D. McCrary - - 16,113/21,228 48,101/23,522 William B. Hutchins, III - - 16,061/20,542 48,197/22,871 GEORGIA H. Allen Franklin - - 90,733/77,368 458,476/91,048 William G. Hairston, III - - 18,817/38,231 40,646/45,468 Warren Y. Jobe - - 21,293/22,862 78,175/26,056 Gene R. Hodges - - 17,422/22,168 60,499/24,922 Robert H. Haubein, Jr. - - 16,992/20,497 52,277/22,204 GULF Travis J. Bowden - - 51,315/37,200 265,382/44,277 G. Edison Holland, Jr. - - 15,378/18,473 46,373/20,868 Arlan E. Scarbrough - - 1,849/12,783 1,849/5,549 John E. Hodges, Jr. - - 13,050/16,499 39,826/17,321 Francis M. Fisher, Jr. - - 1,400/9,877 1,400/4,203 </TABLE> See next page for footnotes. III-21
<TABLE> <CAPTION> AGGREGATED STOCK OPTION EXERCISES IN 1996 AND YEAR-END OPTION VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End (#) Year-End($)1 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)2 Unexercisable Unexercisable - --------------------------------------------------------------------------------------------------------------- MISSISSIPPI <S> <C> <C> <C> <C> Dwight H. Evans - - 21,316/26,875 76,831/26,645 H. E. Blakeslee - - 13,513/17,218 41,198/17,706 Don E. Mason - - 1,861/13,004 1,861/5,584 Michael W. Southern - - 1,211/9,111 1,211/3,636 Frederick D. Kuester - - 1,194/8,983 1,194/3,585 SAVANNAH Arthur M. Gignilliat, Jr. - - 42,773/22,000 270,024/25,003 Larry M. Porter - - 1,175/8,086 1,175/3,526 W. Miles Greer - - 1,098/7,556 1,098/3,295 Kirby R. Willis - - 1,009/6,953 1,009/3,029 1 This represents the excess of the fair market value of SOUTHERN's common stock of $22.625 per share, as of December 31, 1996, above the exercise price of the options. One column reports the "value" of options that are vested and therefore could be exercised; the other the "value" of options that are not vested and therefore could not be exercised as of December 31, 1996. 2 The "Value Realized" is ordinary income, before taxes, and represents the amount equal to the excess of the fair market value of the shares at the time of exercise over the exercise price. </TABLE> III-22
<TABLE> <CAPTION> LONG-TERM INCENTIVE PLANS - AWARDS IN 1996 Long-Term Incentive Plans. The following table sets forth the long-term incentive plan awards made to the named executive officers for the performance period January 1, 1996 through December 31, 1999. Estimated Future Payouts under Non-Stock Price-Based Plans Performance or Other Period Number of Until Maturation Threshold Target Maximum Name Units (#)1 or Payout ($)2 ($)2 ($)2 - ----------------------------------------------------------------------------------------------------------------- ALABAMA <S> <C> <C> <C> <C> <C> Elmer B. Harris 280,184 4 years 140,092 280,184 560,368 Banks H. Farris 108,335 4 years 54,168 108,335 216,670 Charles D. McCrary 80,251 4 years 40,126 80,251 160,502 William B. Hutchins, III 80,251 4 years 40,126 80,251 160,502 GEORGIA H. Allen Franklin 317,913 4 years 158,957 317,913 635,826 William G. Hairston, III 163,866 4 years 81,933 163,866 327,732 Warren Y. Jobe 80,251 4 years 40,126 80,251 160,502 Gene R. Hodges 80,251 4 years 40,126 80,251 160,502 Robert H. Haubein, Jr. 80,251 4 years 40,126 80,251 160,502 GULF Travis J. Bowden 132,168 4 years 66,084 132,168 264,336 G. Edison Holland, Jr. 58,514 4 years 29,257 58,514 117,028 Arlan E. Scarbrough 58,514 4 years 29,257 58,514 117,028 John E. Hodges, Jr. 58,514 4 years 29,257 58,514 117,028 Francis M. Fisher, Jr. 58,514 4 years 29,257 58,514 117,028 </TABLE> See next page for footnotes. III-23
<TABLE> <CAPTION> LONG-TERM INCENTIVE PLANS - AWARDS IN 1996 Estimated Future Payouts under Non-Stock Price-Based Plans Performance or Other Period Number of Until Maturation Threshold Target Maximum Name Units (#)1 or Payout ($)2 ($)2 ($)2 - ----------------------------------------------------------------------------------------------------------------- MISSISSIPPI <S> <C> <C> <C> <C> <C> Dwight H. Evans 132,168 4 years 66,084 132,168 264,336 H. E. Blakeslee 58,514 4 years 29,257 58,514 117,028 Don E. Mason 58,514 4 years 29,257 58,514 117,028 Michael W. Southern 41,800 4 years 20,900 41,800 83,600 Frederick D. Kuester 41,800 4 years 20,900 41,800 83,600 SAVANNAH Arthur M. Gignilliat, Jr. 96,504 4 years 48,252 96,504 193,008 Larry M. Porter 41,800 4 years 20,900 41,800 83,600 W. Miles Greer 41,800 4 years 20,900 41,800 83,600 Kirby R. Willis 41,800 4 years 20,900 41,800 83,600 1 A performance unit is a method of assigning a dollar value to a performance award opportunity. The actual number of units granted to a participant will be based on an award percentage of an individual's base salary range control mid-point at the beginning of the performance period. 2 The threshold, target and maximum value of a unit is $0.50, $1.00, and $2.00, respectively, and can vary based on SOUTHERN's return on common equity relative to a selected group of electric and gas utilities in the Southeastern United States. If certain minimum performance relative to the selected group is not achieved, there will be no payout; nor is there a payout if the current earnings of SOUTHERN are not sufficient to fund the dividend rate paid in the last calendar year. All awards are payable in cash at the end of the performance period. </TABLE> III-24
DEFINED BENEFIT OR ACTUARIAL PLAN DISCLOSURE Pension Plan Table. The following table sets forth the estimated combined annual pension benefits under the pension and supplemental defined benefit plans in effect during 1996 for ALABAMA, GEORGIA, GULF and MISSISSIPPI. Employee compensation covered by the pension and supplemental benefit plans for pension purposes is limited to the average of the highest three of the final 10 years' base salary and wages (reported under column titled "Salary" in the Summary Compensation Tables on pages III-13 through III-18). The amounts shown in the table were calculated according to the final average pay formula and are based on a single life annuity without reduction for joint and survivor annuities (although married employees are required to have their pension benefits paid in one of various joint and survivor annuity forms, unless the employee elects otherwise with the spouse's consent) or computation of the Social Security offset which would apply in most cases. This offset amounts to one-half of the estimated Social Security benefit (primary insurance amount) in excess of $3,000 per year times the number of years of accredited service, divided by the total possible years of accredited service to normal retirement age. <TABLE> <CAPTION> Years of Accredited Service Remuneration 15 20 25 30 35 40 - ------------ ----------------------------------------------------------------- <C> <C> <C> <C> <C> <C> <C> $ 50,000 $ 12,750 $ 17,000 $ 21,250 $ 25,500 $ 29,750 $ 34,000 $100,000 25,500 34,000 42,500 51,000 59,500 68,000 $300,000 76,500 102,000 127,500 153,000 178,500 204,000 $500,000 127,500 170,000 212,500 255,000 297,500 340,000 $700,000 178,500 238,000 297,500 357,000 416,500 476,000 $800,000 204,000 272,000 340,000 408,000 476,000 544,000 </TABLE> As of December 31, 1996, the applicable compensation levels and years of accredited service are presented in the following tables: <TABLE> <CAPTION> ALABAMA Compensation Accredited Name Level Years of Service <S> <C> <C> Elmer B. Harris $462,672 38 Banks H. Farris 223,188 37 Charles D. McCrary 207,360 22 William B. Hutchins, III 200,328 30 </TABLE> III-25
<TABLE> <CAPTION> GEORGIA Compensation Accredited Name Level Years of Service <S> <C> <C> H. Allen Franklin $462,660 25 William G. Hairston, III 301,752 28 Warren Y. Jobe 221,784 25 Gene R. Hodges 215,292 32 Robert H. Haubein, Jr. 201,684 29 </TABLE> <TABLE> <CAPTION> GULF Compensation Accredited Name Level Years of Service <S> <C> <C> Travis J. Bowden $291,972 30 (1) G. Edison Holland, Jr. 179,340 14 (1) Arlan E. Scarbrough 169,272 33 John E. Hodges, Jr. 165,900 30 Francis M. Fisher, Jr. 144,288 25 </TABLE> <TABLE> <CAPTION> MISSISSIPPI Compensation Accredited Name Level Years of Service <S> <C> <C> Dwight H. Evans $237,324 25 H. E. Blakeslee 172,068 31 Don E. Mason 167,640 30 Michael W. Southern 137,436 21 Frederick D. Kuester 138,768 24 </TABLE> SAVANNAH has in effect a qualified, trusteed, noncontributory, defined benefit pension plan which provides pension benefits to employees upon retirement at the normal retirement age after designated periods of accredited service and at a specified compensation level. The plan provides pension benefits under a formula which includes each participant's years of service with the Southern system and average annual earnings of the highest three of the final 10 years of service with the Southern system preceding retirement. Plan benefits are reduced by a portion of the benefits participants are entitled to receive under Social Security. The plan provides for reduced early retirement benefits at age 55 and a pension for the surviving spouse equal to one-half of the deceased retiree's pension. 1 The number of accredited years of service includes 10 years credited to both Mr. Bowden and Mr. Holland pursuant to individual supplemental pension agreements. III-26
As of December 31, 1996, the applicable compensation levels and years of accredited service are presented in the following table:- <TABLE> <CAPTION> SAVANNAH Compensation Accredited Name Level Years of Service <S> <C> <C> Arthur M. Gignilliat $212,953 36 Larry M. Porter 135,254 19 W. Miles Greer 126,998 12 Kirby R. Willis 116,929 22 </TABLE> SAVANNAH has in effect a voluntary deferred compensation plan for certain executive employees pursuant to which such employees may defer a portion of their respective annual salaries. In addition, SAVANNAH has a supplemental executive retirement plan for certain of its executive employees. The deferred compensation plan is designed to provide supplemental retirement or survivor benefit payments. The supplemental executive retirement plan is also designed to provide retiring executives of SAVANNAH with a supplemental retirement benefit, which, in conjunction with social security and benefits under SAVANNAH's qualified pension plan, will equal 70 percent of the highest three of the final 10 years' average annual compensation (including deferrals under the deferred compensation plan). Both of these plans are unfunded and the liability is payable from general funds of SAVANNAH. The deferred compensation plan became effective December 1, 1983, and all of SAVANNAH's executive officers are participating in the plan. In addition, all executives are participating in the supplemental executive retirement plan. In order to provide for its liabilities under the deferred compensation plan and the supplemental executive retirement plan, SAVANNAH has purchased life insurance on participating executive employees in actuarially determined amounts which, based upon assumptions as to mortality experience, policy dividends, tax effects, and other factors which, if realized, along with compensation deferred by employees and the death benefits payable to SAVANNAH, are expected to cover all such insurance premium payments, and all benefit payments to participants, plus a factor for the cost of funds of SAVANNAH. The following table sets forth the estimated combined annual pension benefits under the pension plan and supplemental executive retirement plan in effect during 1996 which are payable by SAVANNAH to executives upon retirement at the normal retirement age after designated periods of accredited service and at a specified compensation level. <TABLE> <CAPTION> Years of Accredited Service Remuneration 15 25 35 - -------------------------- -- -- -- <S> <C> <C> <C> $ 90,000 $ 63,000 $ 63,000 $ 63,000 $120,000 84,000 84,000 84,000 $150,000 105,000 105,000 105,000 $180,000 126,000 126,000 126,000 $210,000 147,000 147,000 147,000 $260,000 182,000 182,000 182,000 </TABLE> III-27
Compensation of Directors. Standard Arrangements. The following table presents compensation paid to the directors, during 1996 for service as a member of the board of directors and any board committee(s), except that employee directors received no fees or compensation for service as a member of the board of directors or any board committee. All or a portion of these fees may be deferred until membership on the board is terminated. <TABLE> <CAPTION> ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH <S> <C> <C> <C> <C> <C> Retainer Fee $20,000 $23,000 $12,000 $12,000 $12,000 Meeting Fee 900 900 750 750 750 Committees: Audit 900 900 750 750 750 Compensation 900 900 750 750 750 Executive 900 900 - - 750 Finance - 900 - 750 - Nominating 900 - - - - Nuclear Safety 900 - - - - Nuclear Operations Overview - 1,800 - - - </TABLE> Effective January 1, 1997, the Outside Directors Pension Plan (the "Plan") was terminated and benefits payable under the Plan were frozen. Non-employee directors serving as of January 1, 1997, have a one-time election to receive a Plan benefit buy-out equal to the actuarial present value of future Plan benefits or receive benefits under the terms of the Plan at the annual retainer rate in effect on December 31, 1996. Directors who elect to receive the benefit buy-out must defer receipt until membership on the board is terminated. Directors who elect to continue to participate under the terms of the Plan are entitled to benefits upon retirement from the board on the retirement date designated in the respective companies' by-laws. The annual benefit payable is based upon length of service and varies from 75 percent of the annual retainer in effect on December 31, 1996, if the participant has at least 60 months of service on the board of one or more system companies, to 100 percent if the participant has at least 120 months of such service. Payments continue for the greater of the lifetime of the participant or 10 years. Other Arrangements. No director received other compensation for services as a director during the year ending December 31, 1996 in addition to or in lieu of that specified by the standard arrangements specified above. Employment Contracts and Termination of Employment and Change in Control Arrangements. None. Report on Repricing of Options. None. III-28
Additional Information with Respect to Compensation Committee Interlocks and Insider Participation in Compensation Decisions. ALABAMA Elmer B. Harris serves on the Compensation Committee of AmSouth Bancorporation. John W. Woods, a director of ALABAMA, served as Chairman of AmSouth Bancorporation during 1996. III-29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security ownership of certain beneficial owners. SOUTHERN is the beneficial owner of 100% of the outstanding common stock of registrants: ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH. <TABLE> <CAPTION> Amount and Name and Address Nature of Percent of Beneficial Beneficial of Title of Class Owner Ownership Class - --------------------------------------------------------------------------------------------- <S> <C> <C> <C> Common Stock The Southern Company 100% 270 Peachtree Street, N.W. Atlanta, Georgia 30303 Registrants: ALABAMA 5,608,955 GEORGIA 7,761,500 GULF 992,717 MISSISSIPPI 1,121,000 SAVANNAH 10,844,635 </TABLE> Security ownership of management. The following table shows the number of shares of SOUTHERN common stock and operating subsidiary preferred stock owned by the directors, nominees and executive officers as of December 31, 1996. It is based on information furnished by the directors, nominees and executive officers. The shares owned by all directors, nominees and executive officers as a group constitute less than one percent of the total number of shares of the respective classes outstanding on December 31, 1996. <TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned 1,2 - --------------------------------------------------------------------------------------------------- ALABAMA <S> <C> <C> Whit Armstrong SOUTHERN Common 14,974 A. William Dahlberg SOUTHERN Common 182,190 Peter V. Gregerson, Sr. SOUTHERN Common 279 Bill M. Guthrie SOUTHERN Common 128,855 Elmer B. Harris SOUTHERN Common 170,780 Carl E. Jones, Jr. SOUTHERN Common 9,764 </TABLE> III-30
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned 1,2 - ---------------------------------------------------------------------------------------------------- <S> <C> <C> William V. Muse SOUTHERN Common 279 John T. Porter SOUTHERN Common 667 Gerald H. Powell SOUTHERN Common 5,883 Robert Davis Powers SOUTHERN Common 279 John W. Rouse, Jr. SOUTHERN Common 4,011 William J. Rushton, III SOUTHERN Common 6,927 ALABAMA Preferred 20 James H. Sanford SOUTHERN Common 262 John C. Webb, IV SOUTHERN Common 18,799 ALABAMA Preferred 136 John W. Woods SOUTHERN Common 34 Banks H. Farris SOUTHERN Common 27,521 William B. Hutchins, III SOUTHERN Common 37,299 Charles D. McCrary SOUTHERN Common 22,606 The directors, nominees, and executive officers as a group SOUTHERN Common 631,409 ALABAMA Preferred 156 GEORGIA Bennett A. Brown SOUTHERN Common 398 A. William Dahlberg SOUTHERN Common 182,190 </TABLE> III-31
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned 1,2 - ---------------------------------------------------------------------------------------------------- <S> <C> <C> W. A. Fickling, Jr. SOUTHERN Common 699 GEORGIA Preferred 50 H. Allen Franklin SOUTHERN Common 114,757 L. G. Hardman III SOUTHERN Common 8,250 Warren Y. Jobe SOUTHERN Common 50,212 GEORGIA Preferred 403 James R. Lientz, Jr. SOUTHERN Common 282 W. A. Parker, Jr. SOUTHERN Common 27,000 GEORGIA Preferred 2 G. Joseph Prendergast SOUTHERN Common 398 Herman J. Russell SOUTHERN Common 8,414 Gloria M. Shatto SOUTHERN Common 15,832 GEORGIA Preferred 1,200 W. J. Vereen SOUTHERN Common 5,493 GEORGIA Preferred 3,301 Carl Ware SOUTHERN Common 342 Thomas R. Williams SOUTHERN Common 240 GEORGIA Preferred 1,000 William G. Hairston, III SOUTHERN Common 36,912 Robert H. Haubein, Jr. SOUTHERN Common 23,678 Gene R. Hodges SOUTHERN Common 47,700 GEORGIA Preferred 800 The directors, nominees and executive officers as a group SOUTHERN Common 620,124 GEORGIA Preferred 6,756 </TABLE> III-32
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned 1,2 - ---------------------------------------------------------------------------------------------------- GULF <S> <C> <C> Travis J. Bowden SOUTHERN Common 81,563 Paul J. DeNicola SOUTHERN Common 85,643 Fred C. Donovan SOUTHERN Common 239 W. Deck Hull, Jr. SOUTHERN Common 2,529 Joseph K. Tannehill SOUTHERN Common 4,239 Francis M Fisher, Jr. SOUTHERN Common 6,663 GULF Preferred 2 John E. Hodges, Jr. SOUTHERN Common 35,179 GULF Preferred 3 G. Edison Holland, Jr. SOUTHERN Common 16,874 Arlan E. Scarbrough SOUTHERN Common 23,344 The directors, nominees and executive officers as a group SOUTHERN Common 256,273 GULF Preferred 5 MISSISSIPPI Paul J. DeNicola SOUTHERN Common 85,643 Edwin E. Downer SOUTHERN Common 2,156 Dwight H. Evans SOUTHERN Common 40,340 GEORGIA Preferred 200 MISSISSIPPI Preferred 100 Robert S. Gaddis SOUTHERN Common 2,632 </TABLE> III-33
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned 1,2 - ---------------------------------------------------------------------------------------------------- <S> <C> <C> Walter H. Hurt, III SOUTHERN Common 1,130 MISSISSIPPI Preferred 33 Aubrey K. Lucas SOUTHERN Common 1,675 George A. Schloegel SOUTHERN Common 127 Philip J. Terrell SOUTHERN Common 689 N. Eugene Warr SOUTHERN Common 472 H. E. Blakeslee SOUTHERN Common 24,097 Frederick D. Kuester SOUTHERN Common 6,236 Don E. Mason SOUTHERN Common 22,286 Michael W. Southern SOUTHERN Common 6,047 The directors, nominees and executive officers as a group SOUTHERN Common 193,530 GEORGIA Preferred 200 MISSISSIPPI Preferred 133 SAVANNAH Helen Quattlebaum Artley SOUTHERN Common 2,654 Paul J. DeNicola SOUTHERN Common 85,643 Arthur M. Gignilliat, Jr. SOUTHERN Common 66,722 Walter D. Gnann SOUTHERN Common 1,596 Robert B. Miller, III SOUTHERN Common 2,316 Arnold M. Tenenbaum SOUTHERN Common 590 Fred F. Williams SOUTHERN Common 2,244 </TABLE> III-34
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned 1,2 - --------------------------------------------------------------------------------------------------- <S> <C> <C> W. Miles Greer SOUTHERN Common 3,240 Larry M. Porter SOUTHERN Common 15,678 Kirby R. Willis SOUTHERN Common 5,538 The directors, nominees and executive officers as a group SOUTHERN Common 186,221 Changes in control. SOUTHERN and the operating affiliates know of no arrangements which may at a subsequent date result in any change in control. - -------- 1 As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security and/or investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). 2 The shares shown include shares of SOUTHERN common stock of which certain directors and executive officers have the right to acquire beneficial ownership within 60 days pursuant to the Executive Stock Plan, as follows: Mr. Blakeslee, 13,513 shares; Mr. Bowden, 51,315 shares; Mr. Dahlberg, 123,218 shares; Mr. DeNicola, 52,086 shares; Mr. Evans, 21,316 shares; Mr. Farris, 18,261 shares; Mr. Franklin, 90,733 shares; Mr. Gignilliat, 42,773 shares; Mr. Greer, 1,098 shares; Mr. Guthrie, 74,833 shares; Mr. Hairston, 18,817 shares; Mr. Harris, 120,265 shares; Mr. Haubein, 16,992 shares; Mr. G. R. Hodges, 17,422 shares; Mr. J. E. Hodges, 13,050 shares; Mr. Holland, 15,378 shares; Mr. Hutchins, 16,061 shares; Mr. Jobe, 21,293 shares; Mr. Kuester, 1,194 shares; Mr. Mason, 1,861 shares; Mr. McCrary, 16,113 shares; Mr. Porter, 1,175 shares; Mr. Scarbrough, 1,849 shares; Mr. Southern, 1,211 shares; and Mr. Willis, 1,009 shares. Also included are shares of SOUTHERN common stock held by the spouses of the following directors: Mr. Hardman, 100 shares; Mr. Harris, 310 shares; Mr. Parker, 53 shares; Mr. Powers, 50 shares; and Dr. Shatto, 12,667 shares. Also included are 1,200 shares of GEORGIA preferred stock held by Dr. Shatto's spouse. </TABLE> III-35
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ALABAMA Transactions with management and others. Mr. Whit Armstrong is President, Chairman and Chief Executive Officer of The Citizens Bank, Enterprise, Alabama; Mr. Carl E.Jones, Jr. is President and Chief Operating Officer of Regions Bank, Birmingham, Alabama; Mr. Wallace D. Malone is Chairman and Chief Executive Officer of SouthTrust Corporation, Birmingham, Alabama. During 1996, these banks furnished a number of regular banking services in the ordinary course of business to ALABAMA. ALABAMA intends to maintain normal banking relations with all the aforesaid banks in the future. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. GEORGIA Transactions with management and others. Mr. L. G. Hardman III is Chairman of the Board of The First National Bank of Commerce, Georgia; Mr. James R. Lientz, Jr. is President of NationsBank of Georgia, Atlanta, Georgia; Mr. G. Joseph Prendergast is Chairman of Wachovia Bank of Georgia, N.A., Atlanta, Georgia; and Mr. Herman J. Russell is Chairman of the Board of Citizens Trust Bank, Atlanta, Georgia. During 1996, these banks furnished a number of regular banking services in the ordinary course of business to GEORGIA. GEORGIA intends to maintain normal banking relations with all the aforesaid banks in the future. In 1996, GEORGIA leased a building from Riverside Manufacturing Co. for approximately $77,000. Mr. William J. Vereen is Chief Executive Officer, President, Treasurer and Director of Riverside Manufacturing Co. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. GULF Transactions with management and others. Mr. W. Deck Hull, Jr. is Vice Chairman of SunTrust Bank, West Florida, Panama City, Florida. During 1996, this bank furnished a number of regular banking services in the ordinary course of business to GULF. GULF intends to maintain normal banking relations with the aforesaid bank in the future. The firm of Beggs & Lane, P.A. serves as local counsel for GULF and received from GULF approximately $960,994 for services rendered. Mr. G. Edison Holland, Jr. is a partner in the firm and also serves as Vice President - Power Generation/Transmission and Corporate Counsel of GULF. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. MISSISSIPPI Transactions with management and others. Mr. Robert S. Gaddis is Chairman of the Advisory Board of Trustmark National Bank, Laurel, Mississippi; Mr. George A. Schloegel is President of Hancock Bank, Gulfport, Mississippi and Mr. N. Eugene Warr is a director of Coast Community Bank. During 1996, these banks furnished a number of regular banking services in the ordinary course of business to MISSISSIPPI. MISSISSIPPI intends to maintain normal banking relations with the aforesaid banks in the future. Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. III-36
SAVANNAH Transactions with management and others. None Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. III-37
PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report on this Form 10-K: (1) Financial Statements: Reports of Independent Public Accountants on the financial statements for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. The financial statements filed as a part of this report for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed under Item 8 herein. (2) Financial Statement Schedules: Reports of Independent Public Accountants as to Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are included herein on pages IV-12 through IV-17. Financial Statement Schedules for SOUTHERN and Subsidiary Companies, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Index to the Financial Statement Schedules at page S-1. (3) Exhibits: Exhibits for SOUTHERN, ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH are listed in the Exhibit Index at page E-1. (b) Reports on Form 8-K during the fourth quarter of 1996 were as follows: SOUTHERN filed a Current Report on Form 8-K: Date of event: October 9, 1996 Items reported: Items 5 and 7 GULF filed a Current Report on Form 8-K: Date of event: November 6, 1996 Items reported: Items 5 and 7 IV-1
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. THE SOUTHERN COMPANY By: A. W. Dahlberg, Chairman, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. A. W. Dahlberg Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) W. L. Westbrook Financial Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Directors: John C. Adams Elmer B. Harris A. D. Correll William A. Parker, Jr. Paul J. DeNicola William J. Rushton, III Jack Edwards Gloria M. Shatto H. Allen Franklin Gerald J. St. Pe' Bruce S. Gordon Herbert Stockham L. G. Hardman III By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. ALABAMA POWER COMPANY By: Elmer B. Harris, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Elmer B. Harris President, Chief Executive Officer and Director (Principal Executive Officer) William B. Hutchins, III Executive Vice President and Chief Financial Officer (Principal Financial Officer) David L. Whitson Vice President and Comptroller (Principal Accounting Officer) Directors: Whit Armstrong Gerald H. Powell Peter V. Gregerson, Sr. Robert D. Powers Bill M. Guthrie John W. Rouse Wallace D. Malone, Jr. James H. Sanford William V. Muse John Cox Webb, IV John T. Porter By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 IV-2
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GEORGIA POWER COMPANY By: H. Allen Franklin, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. H. Allen Franklin President, Chief Executive Officer and Director (Principal Executive Officer) Warren Y. Jobe Executive Vice President, Treasurer, Chief Financial Officer and Director (Principal Financial Officer) Cliff S. Thrasher Vice President, Comptroller and Chief Accounting Officer (Principal Accounting Officer) Directors: Bennett A. Brown Herman J. Russell William A. Fickling, Jr. Gloria M. Shatto L. G. Hardman III William Jerry Vereen James R. Lientz, Jr. Carl Ware G. Joseph Prendergast Thomas R. Williams By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. GULF POWER COMPANY By: Travis J. Bowden, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Travis J. Bowden President, Chief Executive Officer and Director (Principal Executive Officer) Arlan E. Scarbrough Vice President - Finance (Principal Financial and Accounting Officer) Directors: Paul J. DeNicola Joseph K. Tannehill Fred C. Donovan Barbara H. Thames W. Deck Hull, Jr. By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 IV-3
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. MISSISSIPPI POWER COMPANY By: Dwight H. Evans, President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Dwight H. Evans President, Chief Executive Officer and Director (Principal Executive Officer) Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Paul J. DeNicola Aubrey K. Lucas Edwin E. Downer George A. Schloegel Robert S. Gaddis Philip J. Terrell Walter H. Hurt, III Gene Warr By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. The signature of the undersigned company shall be deemed to relate only to matters having reference to such company and any subsidiaries thereof. SAVANNAH ELECTRIC AND POWER COMPANY By: Arthur M. Gignilliat, Jr., President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. The signature of each of the undersigned shall be deemed to relate only to matters having reference to the above-named company and any subsidiaries thereof. Arthur M. Gignilliat, Jr. President, Chief Executive Officer and Director (Principal Executive Officer) Kirby R. Willis Vice President, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) Directors: Helen Q. Artley Robert B. Miller, III Archie H. Davis Arnold M. Tenenbaum Paul J. DeNicola Frederick F. Williams, Jr. Walter D. Gnann By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 21, 1997 IV-4
Exhibit 21. Subsidiaries of the Registrants.* Jurisdiction of Name of Company Organization ----------------------------------------------------------------------------- Alabama Power Company Alabama Alabama Power Capital Trust I Delaware Alabama Power Capital Trust II Delaware Alabama Power Capital Trust III Delaware Alabama Power Capital Trust IV Delaware Alabama Property Company Alabama Southern Electric Generating Company Alabama Georgia Power Company Georgia Georgia Power Capital Trust I Delaware Georgia Power Capital Trust II Delaware Georgia Power Capital Trust III Delaware Georgia Power L.P. Holdings Corp. Georgia Georgia Power Capital, L.P. Delaware Piedmont-Forrest Corporation Georgia Southern Electric Generating Company Alabama Gulf Power Company Maine Gulf Power Capital Trust I Delaware Gulf Power Capital Trust II Delaware Mississippi Power Company Mississippi Savannah Electric and Power Company Georgia SEI Holdings, Inc. Delaware ----------------------------------------------------------------------------- *This information is as of December 31, 1996. In addition, the list omits certain subsidiaries pursuant to paragraph (b)(21)(ii) of Regulation S-K Item 601. IV-5
Arthur Andersen LLP Exhibit 23(a) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 12, 1997 on the financial statements of The Southern Company and its subsidiaries and the related financial statement schedule, included in this Form 10-K, into The Southern Company's previously filed Registration Statement File Nos. 2-78617, 33-3546, 33-30171, 33-51433, 33-54415, 33-57951, 33-58371, 33-60427, 333-07539 and 333-09077. /s/Arthur Andersen LLP Atlanta, Georgia March 20, 1997 IV-6
Arthur Andersen LLP Exhibit 23(b) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 12, 1997 on the financial statements of Alabama Power Company and the related financial statement schedule, included in this Form 10-K, into Alabama Power Company's previously filed Registration Statement File Nos. 33-49653, 33-61845 and 333-17333. /s/Arthur Andersen LLP Birmingham, Alabama March 20, 1997 IV-7
Arthur Andersen LLP Exhibit 23(c) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 12, 1997 on the financial statements of Georgia Power Company and the related financial statement schedule, included in this Form 10-K, into Georgia Power Company's previously filed Registration Statement File Nos. 33-49661 and 33-60345. /s/Arthur Andersen LLP Atlanta, Georgia March 20, 1997 IV-8
Arthur Andersen LLP Exhibit 23(d) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 12, 1997 on the financial statements of Gulf Power Company and the related financial statement schedule, included in this Form 10-K, into Gulf Power Company's previously filed Registration Statement File Nos. 33-50165 and 333-19271. /s/Arthur Andersen LLP Atlanta, Georgia March 20, 1997 IV-9
Arthur Andersen LLP Exhibit 23(e) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 12, 1997 on the financial statements of Mississippi Power Company and the related financial statement schedule, included in this Form 10-K, into Mississippi Power Company's previously filed Registration Statement File Nos. 33-49320, 33-49649 and 333-20469. /s/Arthur Andersen LLP Atlanta, Georgia March 20, 1997 IV-10
Arthur Andersen LLP Exhibit 23(f) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 12, 1997 on the financial statements of Savannah Electric and Power Company and the related financial statement schedule, included in this Form 10-K, into Savannah Electric and Power Company's previously filed Registration Statement File No. 33-52509. /s/Arthur Andersen LLP Atlanta, Georgia March 20, 1997 IV-11
Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES To The Southern Company: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of The Southern Company and its subsidiaries included in this Form 10-K, and have issued our report thereon dated February 12, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to The Southern Company and its subsidiaries (page S-2) is the responsibility of The Southern Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 12, 1997 IV-12
Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES To Alabama Power Company: We have audited in accordance with generally accepted auditing standards, the financial statements of Alabama Power Company included in this Form 10-K, and have issued our report thereon dated February 12, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Alabama Power Company (page S-3) is the responsibility of Alabama Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Birmingham, Alabama February 12, 1997 IV-13
Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES To Georgia Power Company: We have audited in accordance with generally accepted auditing standards, the financial statements of Georgia Power Company included in this Form 10-K, and have issued our report thereon dated February 12, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Georgia Power Company (page S-4) is the responsibility of Georgia Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 12, 1997 IV-14
Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES To Gulf Power Company: We have audited in accordance with generally accepted auditing standards, the financial statements of Gulf Power Company included in this Form 10-K, and have issued our report thereon dated February 12, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Gulf Power Company (page S-5) is the responsibility of Gulf Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 12, 1997 IV-15
Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES To Mississippi Power Company: We have audited in accordance with generally accepted auditing standards, the financial statements of Mississippi Power Company included in this Form 10-K, and have issued our report thereon dated February 12, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Mississippi Power Company (page S-6) is the responsibility of Mississippi Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 12, 1997 IV-16
Arthur Andersen LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES To Savannah Electric and Power Company: We have audited in accordance with generally accepted auditing standards, the financial statements of Savannah Electric and Power Company included in this Form 10-K, and have issued our report thereon dated February 12, 1997. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed under Item 14(a)(2) herein as it relates to Savannah Electric and Power Company (page S-7) is the responsibility of Savannah Electric and Power Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/Arthur Andersen LLP Atlanta, Georgia February 12, 1997 IV-17
<TABLE> <CAPTION> INDEX TO FINANCIAL STATEMENT SCHEDULES Schedule Page <S> <C> <C> II Valuation and Qualifying Accounts and Reserves 1996, 1995 and 1994 The Southern Company and Subsidiary Companies.......................................................... S-2 Alabama Power Company.................................................................................. S-3 Georgia Power Company.................................................................................. S-4 Gulf Power Company..................................................................................... S-5 Mississippi Power Company.............................................................................. S-6 Savannah Electric and Power Company.................................................................... S-7 Schedules I through V not listed above are omitted as not applicable or not required. Columns omitted from schedules filed have been omitted because the information is not applicable or not required. </TABLE> S-1
<TABLE> <CAPTION> THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Stated in Thousands of Dollars) Additions ---------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ----------------------------------- ------------------------ -------------- ------------------- --------------- ---------------- Provision for uncollectible accounts <S> <C> <C> <C> <C> <C> 1996.......................... $37,119 $24,768 $ 48 $30,348 (2) $31,587 1995.......................... 9,129 30,445 23,053 (1) 25,508 (2) 37,119 1994.......................... 9,067 23,322 8 23,268 (2) 9,129 - ------------------- Notes: (1) Includes the addition of a Purchased Reserve in the amount of $23,027 related to the acquisition of SWEB. (2) Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off. </TABLE> S-2
<TABLE> <CAPTION> ALABAMA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ---------------------------------- ----------------------- --------------- ------------------ -------------- --------------- Provision for uncollectible accounts <S> <C> <C> <C> <C> <C> 1996.......................... $1,212 $8,214 $- $8,255 (Note) $1,171 1995.......................... 2,297 5,823 - 6,908 (Note) 1,212 1994.......................... 2,632 4,967 - 5,302 (Note) 2,297 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off. </TABLE> S-3
<TABLE> <CAPTION> GEORGIA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Stated in Thousands of Dollars) Additions --------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period --------------------------------- ----------------------- -------------- ------------------ ----------------- ---------------- Provision for uncollectible accounts <S> <C> <C> <C> <C> <C> 1996.......................... $5,000 $11,815 $- $12,815 (Note) $4,000 1995.......................... 4,500 15,875 - 15,375 (Note) 5,000 1994.......................... 4,300 15,424 - 15,224 (Note) 4,500 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off. </TABLE> S-4
<TABLE> <CAPTION> GULF POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ---------------------------------- ------------------------ --------------- ------------------ ---------------- --------------- Provision for uncollectible accounts <S> <C> <C> <C> <C> <C> 1996.......................... $768 $1,850 $7 $1,836 (Note) $789 1995.......................... 600 1,612 3 1,447 (Note) 768 1994.......................... 447 1,195 9 1,051 (Note) 600 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off. </TABLE> S-5
<TABLE> <CAPTION> MISSISSIPPI POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Stated in Thousands of Dollars) Additions -------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ---------------------------------- ------------------------- -------------- ------------------ ---------------- --------------- Provision for uncollectible accounts <S> <C> <C> <C> <C> <C> 1996.......................... $802 $1,726 $41 $1,730 (Note) $839 1995.......................... 670 1,602 23 1,493 (Note) 802 1994.......................... 737 1,234 (1) 1,300 (Note) 670 - ------------------- Note: Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off. </TABLE> S-6
<TABLE> <CAPTION> SAVANNAH ELECTRIC AND POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Stated in Thousands of Dollars) Additions ------------------------------------- Balance at Beginning Charged to Charged to Other Balance at End Description of Period Income Accounts Deductions of Period ------------------------------------ ---------------------- ------------ ------------------ --------------- ----------------- Provision for uncollectible accounts <S> <C> <C> <C> <C> <C> 1996.......................... $983 $126 $- $477 (Note) $632 1995.......................... 866 439 - 322 (Note) 983 1994.......................... 762 419 - 315 (Note) 866 - ------------------- Note: Represents write-off of accounts receivable considered to be uncollectible, less recoveries of amounts previously written off. </TABLE> S-7
EXHIBIT INDEX The following exhibits indicated by an asterisk preceding the exhibit number are filed herewith. The balance of the exhibits have heretofore been filed with the SEC, respectively, as the exhibits and in the file numbers indicated and are incorporated herein by reference. Reference is made to a duplicate list of exhibits being filed as a part of this Form 10-K, which list, prepared in accordance with Item 601 of Regulation S-K of the SEC, immediately precedes the exhibits being physically filed with this Form 10-K. (1) Underwriting Agreements GEORGIA (c) -Distribution Agreement dated November 29, 1995 between GEORGIA and Lehman Brothers Inc.; Donaldson, Lufkin & Jenrette Securities Corporation; J. P. Morgan Securities Inc.; Salomon Brothers Inc and Smith Barney Inc. relating to $300,000,000 First Mortgage Bonds Secured Medium-Term Notes. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1995, as Exhibit 1(c).) (3) Articles of Incorporation and By-Laws SOUTHERN (a)1 -Composite Certificate of Incorporation of SOUTHERN, reflecting all amendments thereto through January 5, 1994. (Designated in Registration No. 33-3546 as Exhibit 4(a), in Certificate of Notification, File No. 70-7341, as Exhibit A and in Certificate of Notification, File No. 70-8181, as Exhibit A.) (a)2 -By-laws of SOUTHERN as amended effective October 21, 1991, and as presently in effect. (Designated in Form U-1, File No. 70-8181, as Exhibit A-2.) ALABAMA (b)1 -Charter of ALABAMA and amendments thereto through October 14, 1994. (Designated in Registration Nos. 2-59634 as Exhibit 2(b), 2-60209 as Exhibit 2(c), 2-60484 as Exhibit 2(b), 2-70838 as Exhibit 4(a)-2, 2-85987 as Exhibit 4(a)-2, 33-25539 as Exhibit 4(a)-2, 33-43917 as Exhibit 4(a)-2, in Form 8-K dated February 5, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated July 8, 1992, File No. 1-3164, as Exhibit 4(b)-3, in Form 8-K dated October 27, 1993, File No. 1-3164, as Exhibits 4(a) and 4(b), in Form 8-K dated November 16, 1993, File No. 1-3164, as Exhibit 4(a) and in Certificate of Notification, File No. 70-8191, as Exhibit A.) (b)2 -By-laws of ALABAMA as amended effective July 23, 1993, and as presently in effect. (Designated in Form U-1, File No. 70-8191, as Exhibit A-2.) E-1
GEORGIA (c)1 -Charter of GEORGIA and amendments thereto through October 25, 1993. (Designated in Registration Nos. 2-63392 as Exhibit 2(a)-2, 2-78913 as Exhibits 4(a)-(2) and 4(a)-(3), 2-93039 as Exhibit 4(a)-(2), 2-96810 as Exhibit 4(a)-2, 33-141 as Exhibit 4(a)-(2), 33-1359 as Exhibit 4(a)(2), 33-5405 as Exhibit 4(b)(2), 33-14367 as Exhibits 4(b)-(2) and 4(b)-(3), 33-22504 as Exhibits 4(b)-(2), 4(b)-(3) and 4(b)-(4), in GEORGIA's Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibits 4(a)(2) and 4(a)(3), in Registration No. 33-48895 as Exhibits 4(b)-(2) and 4(b)-(3), in Form 8-K dated December 10, 1992, File No. 1-6468 as Exhibit 4(b), in Form 8-K dated June 17, 1993, File No. 1-6468, as Exhibit 4(b) and in Form 8-K dated October 20, 1993, File No. 1-6468, as Exhibit 4(b).) (c)2 -By-laws of GEORGIA as amended effective July 18, 1990, and as presently in effect. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 3.) GULF (d)1 -Restated Articles of Incorporation of GULF and amendments thereto through November 8, 1993. (Designated in Registration No. 33-43739 as Exhibit 4(b)-1, in Form 8-K dated January 15, 1992, File No. 0-2429, as Exhibit 1(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(b)-2, in Form 8-K dated September 22, 1993, File No. 0-2429, as Exhibit 4 and in Form 8-K dated November 3, 1993, File No. 0-2429, as Exhibit 4.) (d)2 -By-laws of GULF as amended effective July 26, 1996, and as presently in effect. (Designated in Form U-1, File No. 70-8949, as Exhibit A-2(c).) MISSISSIPPI (e)1 -Articles of incorporation of MISSISSIPPI, articles of merger of Mississippi Power Company (a Maine corporation) into MISSISSIPPI and articles of amendment to the articles of incorporation of MISSISSIPPI through August 19, 1993. (Designated in Registration No. 2-71540 as Exhibit 4(a)-1, in Form U5S for 1987, File No. 30-222-2, as Exhibit B-10, in Registration No. 33-49320 as Exhibit 4(b)-(1), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibits 4(b)-2 and 4(b)-3, in Form 8-K dated August 4, 1993, File No. 0-6849, as Exhibit 4(b)-3 and in Form 8-K dated August 18, 1993, File No. 0-6849, as Exhibit 4(b)-3.) (e)2 -By-laws of MISSISSIPPI as amended effective April 2, 1996, and as presently in effect. (Designated in Form U5S for 1995, File No. 30-222-2, as Exhibit B-10.) SAVANNAH (f)1 -Charter of SAVANNAH and amendments thereto through November 10, 1993. (Designated in Registration Nos. 33-25183 as Exhibit 4(b)-(1), 33-45757 as Exhibit 4(b)-(2) and in Form 8-K dated November 9, 1993, File No. 1-5072, as Exhibit 4(b).) E-2
(f)2 -By-laws of SAVANNAH as amended effective February 16, 1994, and as presently in effect. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1993, as Exhibit 3(f)2.) (4) Instruments Describing Rights of Security Holders, Including Indentures ALABAMA (b)1 -Indenture dated as of January 1, 1942, between ALABAMA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indentures supplemental thereto through that dated as of December 1, 1994. (Designated in Registration Nos. 2-59843 as Exhibit 2(a)-2, 2-60484 as Exhibits 2(a)-3 and 2(a)-4, 2-60716 as Exhibit 2(c), 2-67574 as Exhibit 2(c), 2-68687 as Exhibit 2(c), 2-69599 as Exhibit 4(a)-2, 2-71364 as Exhibit 4(a)-2, 2-73727 as Exhibit 4(a)-2, 33-5079 as Exhibit 4(a)-2, 33-17083 as Exhibit 4(a)-2, 33-22090 as Exhibit 4(a)-2, in ALABAMA's Form 10-K for the year ended December 31, 1990, File No. 1-3164, as Exhibit 4(c), in Registration Nos. 33-43917 as Exhibit 4(a)-2, 33-45492 as Exhibit 4(a)-2, 33-48885 as Exhibit 4(a)-2, 33-48917 as Exhibit 4(a)-2, in Form 8-K dated January 20, 1993, File No. 1-3436, as Exhibit 4(a)-3, in Form 8-K dated February 17, 1993, File No. 1-3436, as Exhibit 4(a)-3, in Form 8-K dated March 10, 1993, File No. 1-3436, as Exhibit 4(a)-3, in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Form 8-K dated June 24, 1993, File No. 1-3436, as Exhibit 4, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Form 8-K dated November 16, 1993, File No. 1-3436, as Exhibit 4(b), in Certificate of Notification, File No. 70-8069, as Exhibits A and B, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Certificate of Notification, File No. 70-8069, as Exhibit A and in Form 8-K dated November 30, 1994, File No. 1-3436, as Exhibit 4.) (b)2 -Subordinated Note Indenture dated as of January 1, 1996, between ALABAMA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indenture supplemental thereto dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits E and F.) (b)3 -Subordinated Note Indenture dated as of January 1, 1997, between ALABAMA and The Chase Manhattan Bank, as Trustee, and indenture supplemental thereto dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3436, as Exhibits 4.1 and 4.2.) (b)4 -Amended and Restated Trust Agreement of Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit D.) (b)5 -Amended and Restated Trust Agreement of Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3436, as Exhibit 4.5.) (b)6 -Guarantee Agreement relating to Alabama Power Capital Trust I dated as of January 1, 1996. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit G.) E-3
(b)7 -Guarantee Agreement relating to Alabama Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-3436, as Exhibit 4.8.) GEORGIA (c)1 -Indenture dated as of March 1, 1941, between GEORGIA and The Chase Manhattan Bank (formerly Chemical Bank), as Trustee, and indentures supplemental thereto dated as of March 1, 1941, March 3, 1941 (3 indentures), March 6, 1941 (139 indentures), March 1, 1946 (88 indentures) and December 1, 1947, through October 15, 1995. (Designated in Registration Nos. 2-4663 as Exhibits B-3 and B-3(a), 2-7299 as Exhibit 7(a)-2, 2-61116 as Exhibit 2(a)-3 and 2(a)-4, 2-62488 as Exhibit 2(a)-3, 2-63393 as Exhibit 2(a)-4, 2-63705 as Exhibit 2(a)-3, 2-68973 as Exhibit 2(a)-3, 2-70679 as Exhibit 4(a)-(2), 2-72324 as Exhibit 4(a)-2, 2-73987 as Exhibit 4(a)-(2), 2-77941 as Exhibits 4(a)-(2) and 4(a)-(3), 2-79336 as Exhibit 4(a)-(2), 2-81303 as Exhibit 4(a)-(2), 2-90105 as Exhibit 4(a)-(2), 33-5405 as Exhibit 4(a)-(2), 33-14367 as Exhibits 4(a)-(2) and 4(a)-(3), 33-22504 as Exhibits 4(a)-(2), 4(a)-(3) and 4(a)-(4), 33-32420 as Exhibit 4(a)-(2), 33-35683 as Exhibit 4(a)-(2), in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 4(a)(3), in Form 10-K for the year ended December 31, 1991, File No. 1-6468, as Exhibit 4(a)(5), in Registration No. 33-48895 as Exhibit 4(a)-(2), in Form 8-K dated August 26, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-K dated September 9, 1992, File No. 1-6468, as Exhibits 4(a)-(3) and 4(a)-(4), in Form 8-K dated September 23, 1992, File No. 1-6468, as Exhibit 4(a)-(3), in Form 8-A dated October 12, 1992, as Exhibit 2(b), in Form 8-K dated January 27, 1993, File No. 1-6468, as Exhibit 4(a)-(3), in Registration No. 33-49661 as Exhibit 4(a)-(2), in Form 8-K dated July 26, 1993, File No. 1-6468, as Exhibit 4, in Certificate of Notification, File No. 70-7832, as Exhibit M, in Certificate of Notification, File No. 70-7832, as Exhibit C, in Certificate of Notification, File No. 70-7832, as Exhibits K and L, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in Certificate of Notification, File No. 70-8443, as Exhibit E, in GEORGIA's Form 10-K for the year ended December 31, 1994, File No. 1-6468, as Exhibits 4(c)2 and 4(c)3, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Certificate of Notification, File No. 70-8443, as Exhibit C, in Form 8-K dated May 17, 1995, File No. 1-6468, as Exhibit 4 and in GEORGIA's Form 10-K for the year ended December 31, 1995, File No. 1-6468, as Exhibits 4(c)2, 4(c)3, 4(c)4, 4(c)5 and 4(c)6.) (c)2 -Indenture dated as of December 1, 1994, between GEORGIA and Trust Company Bank, as Trustee and indentures supplemental thereto through that dated as of December 15, 1994. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits E and F.) E-4
(c)3 -Subordinated Note Indenture dated as of August 1, 1996, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through January 1, 1997. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibits 4.1 and 4.2 and in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.2.) (c)4 -Amended and Restated Trust Agreement of Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.5.) (c)5 -Amended and Restated Trust Agreement of Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.5.) (c)6 -Guarantee Agreement relating to Georgia Power Capital Trust I dated as of August 1, 1996. (Designated in Form 8-K dated August 21, 1996, File No. 1-6468, as Exhibit 4.8.) (c)7 -Guarantee Agreement relating to Georgia Power Capital Trust II dated as of January 1, 1997. (Designated in Form 8-K dated January 9, 1997, File No. 1-6468, as Exhibit 4.8.) GULF (d)1 -Indenture dated as of September 1, 1941, between GULF and The Chase Manhattan Bank (formerly The Chase Manhattan Bank (National Association)), as Trustee, and indentures supplemental thereto through November 1, 1996. (Designated in Registration Nos. 2-4833 as Exhibit B-3, 2-62319 as Exhibit 2(a)-3, 2-63765 as Exhibit 2(a)-3, 2-66260 as Exhibit 2(a)-3, 33-2809 as Exhibit 4(a)-2, 33-43739 as Exhibit 4(a)-2, in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 4(b), in Form 8-K dated August 18, 1992, File No. 0-2429, as Exhibit 4(a)-3, in Registration No. 33-50165 as Exhibit 4(a)-2, in Form 8-K dated July 12, 1993, File No. 0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibits E and F, in Form 8-K dated January 17, 1996, File No. 0-2429, as Exhibit 4, in Certificate of Notification, File No. 70-8229, as Exhibit A, in Certificate of Notification, File No. 70-8229, as Exhibit A and in Form 8-K dated November 6, 1996, File No. 0-2429, as Exhibit 4.) (d)2 -Subordinated Note Indenture dated as of January 1, 1997, between GULF and The Chase Manhattan Bank, as Trustee, and indenture supplemental thereto dated as of January 1, 1997. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibits 4.1 and 4.2.) (d)3 -Amended and Restated Trust Agreement of Gulf Power Capital Trust I dated as of January 1, 1997. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.5.) E-5
(d)4 -Guarantee Agreement relating to Gulf Power Capital Trust I dated as of January 1, 1997. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibit 4.8.) MISSISSIPPI (e)1 -Indenture dated as of September 1, 1941, between MISSISSIPPI and Bankers Trust Company, as Successor Trustee, and indentures supplemental thereto through December 1, 1995. (Designated in Registration Nos. 2-4834 as Exhibit B-3, 2-62965 as Exhibit 2(b)-2, 2-66845 as Exhibit 2(b)-2, 2-71537 as Exhibit 4(a)-(2), 33-5414 as Exhibit 4(a)-(2), 33-39833 as Exhibit 4(a)-2, in MISSISSIPPI's Form 10-K for the year ended December 31, 1991, File No. 0-6849, as Exhibit 4(b), in Form 8-K dated August 5, 1992, File No. 0-6849, as Exhibit 4(a)-2, in Second Certificate of Notification, File No. 70-7941, as Exhibit I, in MISSISSIPPI's Form 8-K dated February 26, 1993, File No. 0-6849, as Exhibit 4(a)-2, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated June 22, 1993, File No. 0-6849, as Exhibit 1, in Certificate of Notification, File No. 70-8127, as Exhibit A, in Form 8-K dated March 8, 1994, File No. 0-6849, as Exhibit 4, in Certificate of Notification, File No. 70-8127, as Exhibit C and in Form 8-K dated December 5, 1995, File No. 0-6849, as Exhibit 4.) SAVANNAH (f) -Indenture dated as of March 1, 1945, between SAVANNAH and Bank of New York, New York, as Trustee, and indentures supplemental thereto through May 1, 1996. (Designated in Registration Nos. 33-25183 as Exhibit 4(a)-(1), 33-41496 as Exhibit 4(a)-(2), 33-45757 as Exhibit 4(a)-(2), in SAVANNAH's Form 10-K for the year ended December 31, 1991, File No. 1-5072, as Exhibit 4(b), in Form 8-K dated July 8, 1992, File No. 1-5072, as Exhibit 4(a)-3, in Registration No. 33-50587 as Exhibit 4(a)-(2), in Form 8-K dated July 22, 1993, File No. 1-5072, as Exhibit 4, in Form 8-K dated May 18, 1995, File No. 1-5072, as Exhibit 4 and in Form 8-K dated May 23, 1996, File No. 1-5072, as Exhibit 4.) (10) Material Contracts SOUTHERN (a)1 -Service contracts dated as of January 1, 1984 and Amendment No. 1 dated as of September 6, 1985, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1984, File No. 1-3526, as Exhibit 10(a) and in SOUTHERN's Form 10-K for the year ended December 31, 1985, File No. 1-3526, as Exhibit 10(a)(3).) (a)2 -Service contract dated as of July 17, 1981, between SCS and SEI. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1985, File No. 1-3526, as Exhibit 10(a)(2).) E-6
(a)3 -Service contract dated as of March 3, 1988, between SCS and SAVANNAH. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1987, File No. 1-5072, as Exhibit 10-p.) (a)4 -Service contract dated as of January 15, 1991, between SCS and Southern Nuclear. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1991, File No. 1-3526, as Exhibit 10(a)(4).) (a)5 -Service Contract dated as of December 12, 1994, between SCS and Mobile Energy Services Company, Inc. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)58.) (a)6 -Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(b).) (a)7 -Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. (Designated in Registration No. 2-59634 as Exhibit 5(c), in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(d)(2) and in ALABAMA's Form 10-K for the year ended December 31, 1994, File No. 1-3164, as Exhibit 10(b)18.) (a)8 -Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Registration No. 2-61116 as Exhibit 5(d).) (a)9 -Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(1).) (a)10 -Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. (Designated in Form 8-K for January, 1975, File No. 1-6468, as Exhibit (b)(3).) (a)11 -Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(g).) (a)12 -Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit A.) (a)13 -Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. (Designated in Certificate of Notification, File No. 70-5592, as Exhibit B.) E-7
(a)14 -Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(1).) (a)15 -Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. (Designated in Form 8-K for February 1977, File No. 1-6468, as Exhibit (b)(2).) (a)16 -Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-1 and in Form 8-K for January 1977, File No. 1-6468, as Exhibit (B)(3).) (a)17 -Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-5792, as Exhibit B-2.) (a)18 -Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1983, File No. 1-6468, as Exhibit 10(k)(4).) (a)19 -Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(2).) (a)20 -Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(4).) (a)21 -Integrated Transmission System Agreement dated as of August 27, 1976, between GEORGIA and Dalton. (Designated in Form 8-K dated as of July 5, 1977, File No. 1-6468, as Exhibit (b)(8).) (a)22 -Integrated Transmission System Agreement dated as of August 27, 1976, between GEORGIA and MEAG. (Designated in Form 8-K for February 1977, File No. 1-6468, as Exhibit (b)(4).) (a)23 -Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(3).) (a)24 -Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. (Designated in Form 8-K dated as of June 13, 1977, File No. 1-6468, as Exhibit (b)(7).) E-8
(a)25 -Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-3, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(2), in SOUTHERN's Form 10-K for the year ended December 31, 1989, File No. 1-3526, as Exhibit 10(n)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)54.) (a)26 -Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, File No. 1-3526, as Exhibit 10(o)(4) and in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)55.) (a)27 -Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. (Designated in Form U-1, File No. 70-6481, as Exhibit B-1.) (a)28 -Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. (Designated in Form U-1, File No. 70-6481, as Exhibit B-2.) (a)29 -Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-4, in SOUTHERN's Form 10-K for the year ended December 31, 1987, as Exhibit 10(o)(2) and in SOUTHERN's Form 10-K for the year ended December 31, 1989, as Exhibit 10(n)(2).) (a)30 -Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. (Designated in Form U-1, File No. 70-6573, as Exhibit B-5.) (a)31 -Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-1 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)60.) E-9
(a)32 -Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA, dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. (Designated in Form U-1, File No. 70-7843, as Exhibit B-2 and in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)61.) (a)33 -Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1981, File No. 0-6849, as Exhibit 10(c)(2) and in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(r)(3).) (a)34 -Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1 dated August 30, 1984 and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1982, File No. 1-6468, as Exhibit 10(s)(2), in SOUTHERN's Form 10-K for the year ended December 31, 1984, File No. 1-3526, as Exhibit 10(r)(2) and in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(s)(2).) (a)35 -Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(d).) (a)36 -Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(e).) (a)37 -Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1988, File No. 1-5072, as Exhibit 10(f).) (a)38 -Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(x).) (a)39 -Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. (Designated in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 10(1).) (a)40 -Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. E-10
(Designated in GULF's Form 10-K for the year ended December 31, 1991, File No. 0-2429, as Exhibit 10(m).) (a)41 -Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(x).) (a)42 -Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1988, File No. 1-6468, as Exhibit 10(y).) (a)43 -Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-1.) (a)44 -Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. (Designated in Form U-1, File No. 70-7609, as Exhibit B-2.) (a)45 -Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1981, File No. 0-6849, as Exhibit 10(f), in MISSISSIPPI's Form 10-K for the year ended December 31, 1982, File No. 0-6849, as Exhibit 10(f)(2) and in MISSISSIPPI's Form 10-K for the year ended December 31, 1983, File No. 0-6849, as Exhibit 10(f)(3).) (a)46 -Form of commitment agreement, Amendment No. 1 and Amendment No. 2 with respect to SOUTHERN, ALABAMA, GEORGIA and MISSISSIPPI revolving credits. (Designated in Form U-1, File No. 70-7738, as Exhibit A-5 and in Form U-1, File No. 70-7937, as A-5(b).) (a)47 -Block Power Sale Agreement between GEORGIA and OPC dated as of November 12, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(cc).) (a)48 -Coordination Services Agreement between GEORGIA and OPC dated as of November 12, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(dd).) (a)49 -Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)49.) E-11
(a)50 -Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(ff).) (a)51 -Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(gg).) (a)52 -Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(hh).) (a)53 -Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1992, File No. 1-3526, as Exhibit 10(a)53.) (a)54 -Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)56.) (a)55 -Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)57.) (a)56 -Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)58.) (a)57 -Power Purchase Agreement dated as of December 3, 1993 between GEORGIA and FPC. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1993, File No. 1-3526, as Exhibit 10(a)59.) (a)58 -Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. (Designated in Form U-1, File No. 70-7530, as Exhibit B-7.) (a)59 -Nuclear Services Agreement between Southern Nuclear and GEORGIA dated as of October 31, 1991. (Designated in Form U-1, File No. 70-7530, as Exhibit B-6.) (a)60 -Nuclear Managing Board Agreement among GEORGIA, OPC, MEAG and Dalton dated as of November 12, 1990. (Designated in GEORGIA's Form 10-K for the year ended December 31, 1990, File No. 1-6468, as Exhibit 10(ee).) E-12
(a)61 -The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1995. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)61.) (a)62 -The Southern Company Executive Productivity Improvement Plan, effective January 1, 1995. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)62.) (a)63 -The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and First Amendment and Second Amendment thereto. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)63.) *(a)64 -Third Amendment and Fourth Amendment to The Southern Company Employee Savings Plan. (a)65 -The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and First Amendment thereto. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)64.) *(a)66 -Second Amendment to The Southern Company Employee Stock Ownership Plan. (a)67 -Pension Plan For Employees of ALABAMA, Amended and Restated effective as of January 1, 1989. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)69.) *(a)68 -First Amendment, Second Amendment and Third Amendment to the Pension Plan For Employees of ALABAMA. (a)69 -Pension Plan For Employees of GEORGIA, Amended and Restated effective as of January 1, 1989. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)70.) *(a)70 -First Amendment, Second Amendment and Third Amendment to the Pension Plan For Employees of GEORGIA. (a)71 -Pension Plan For Employees of SCS, Amended and Restated effective as of January 1, 1989 and First Amendment thereto. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)71 and in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)68.) *(a)72 -Second Amendment, Third Amendment and Fourth Amendment to the Pension Plan For Employees of SCS. *(a)73 -The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. E-13
(a)74 -Supplemental Benefit Plan for ALABAMA. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)71.) (a)75 -Supplemental Benefit Plan for GEORGIA. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)72.) *(a)76 -Supplemental Benefit Plan for SCS and SEI, Amended and Restated effective as of January 1, 1996. (a)77 -The Deferred Compensation Plan for the Directors of The Southern Company and First Amendment and Second Amendment thereto. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)76 and in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)75.) (a)78 -The Southern Company Outside Directors Pension Plan. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)77.) (a)79 -The Southern Company Deferred Compensation Plan. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)77.) (a)80 -The Southern Company Outside Directors Stock Plan and First Amendment thereto. (Designated in Registration No. 33-54415 as Exhibit 4(c) and in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)79.) (a)81 -Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)80.) (a)82 -The Southern Company Executive Stock Plan for the Southern Electric System and First Amendment and Second Amendment thereto. (Designated in Registration No. 33-30171 as Exhibit 4(c) and in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)82.) *(a)83 -The Southern Company Pension Plan, effective as of January 1, 1997. ALABAMA (b)1 -Service contracts dated as of January 1, 1984 and Amendment No. 1 dated as of September 6, 1985, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN. See Exhibit 10(a)1 herein. (b)2 -Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. E-14
(b)3 -Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (b)4 -Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (b)5 -Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1, dated August 30, 1984 and Amendment No. 2, dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (b)6 -Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (b)7 -Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (b)8 -Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (b)9 -Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (b)10 -Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (b)11 -Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. (b)12 -Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Certificate of Notification, File No. 70-7212, as Exhibit B.) (b)13 -1991 Firm Power Purchase Contract between ALABAMA and AMEA. (Designated in Form U-1, File No. 70-7873, as Exhibit B-1.) (b)14 -Purchase and Ownership Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)43 herein. E-15
(b)15 -Operating Agreement for Joint Ownership Interest in the James H. Miller, Jr. Steam Electric Generating Plant Units One and Two dated November 18, 1988, between ALABAMA and AEC. See Exhibit 10(a)44 herein. (b)16 -Form of commitment agreement, Amendment No. 1 and Amendment No. 2 with respect to SOUTHERN, ALABAMA, GEORGIA and MISSISSIPPI revolving credits. See Exhibit 10(a)46 herein. (b)17 -Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA, MISSISSIPPI and SCS. See Exhibit 10(a)53 herein. (b)18 -Operating Agreement for the Joseph M. Farley Nuclear Plant between ALABAMA and Southern Nuclear dated as of December 23, 1991. See Exhibit 10(a)58 herein. (b)19 -The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1995. See Exhibit 10(a)61 herein. (b)20 -The Southern Company Executive Productivity Improvement Plan, effective January 1, 1995. See Exhibit 10(a)62 herein. (b)21 -The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and First Amendment and Second Amendment thereto. See Exhibit 10(a)63 herein. *(b)22 -Third Amendment and Fourth Amendment to The Southern Company Employee Savings Plan. See Exhibit 10(a)64 herein. (b)23 -The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and First Amendment thereto. See Exhibit 10(a)65 herein. *(b)24 -Second Amendment to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)66 herein. (b)25 -Pension Plan For Employees of ALABAMA, Amended and Restated effective as of January 1, 1989. See Exhibit 10(a)67 herein. *(b)26 -First Amendment, Second Amendment and Third Amendment to the Pension Plan For Employees of ALABAMA. See Exhibit 10(a)68 herein. *(b)27 -The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)73 herein. (b)28 -Supplemental Benefit Plan for ALABAMA. See Exhibit 10(a)74 herein. (b)29 -The Southern Company Deferred Compensation Plan. See Exhibit 10(a)79 herein. (b)30 -The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)78 herein. (b)31 -Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)81 herein. E-16
*(b)32 -The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)83 herein. GEORGIA (c)1 -Service contracts dated as of January 1, 1984 and Amendment No. 1 dated as of September 6, 1985, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN. See Exhibit 10(a)1 herein. (c)2 -Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (c)3 -Agreement dated as of January 27, 1959, Amendment No. 1 dated as of October 27, 1982 and Amendment No. 2 dated November 4, 1993 and effective June 1, 1994, among SEGCO, ALABAMA and GEORGIA. See Exhibit 10(a)7 herein. (c)4 -Joint Committee Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)8 herein. (c)5 -Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)9 herein. (c)6 -Edwin I. Hatch Nuclear Plant Operating Agreement dated as of January 6, 1975, between GEORGIA and OPC. See Exhibit 10(a)10 herein. (c)7 -Revised and Restated Integrated Transmission System Agreement dated as of November 12, 1990, between GEORGIA and OPC. See Exhibit 10(a)11 herein. (c)8 -Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)12 herein. (c)9 -Plant Hal Wansley Operating Agreement dated as of March 26, 1976, between GEORGIA and OPC. See Exhibit 10(a)13 herein. (c)10 -Edwin I. Hatch Nuclear Plant Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)14 herein. (c)11 -Edwin I. Hatch Nuclear Plant Operating Agreement dated as of August 27, 1976, between GEORGIA, MEAG and Dalton. See Exhibit 10(a)15 herein. (c)12 -Alvin W. Vogtle Nuclear Units Number One and Two Purchase and Ownership Participation Agreement dated as of August 27, 1976 and Amendment No. 1 dated as of January 18, 1977, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)16 herein. E-17
(c)13 -Alvin W. Vogtle Nuclear Units Number One and Two Operating Agreement dated as of August 27, 1976, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)17 herein. (c)14 -Alvin W. Vogtle Nuclear Units Number One and Two Purchase, Amendment, Assignment and Assumption Agreement dated as of November 16, 1983, between GEORGIA and MEAG. See Exhibit 10(a)18 herein. (c)15 -Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)19 herein. (c)16 -Plant Hal Wansley Operating Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)20 herein. (c)17 -Integrated Transmission System Agreement dated as of August 27, 1976, between GEORGIA and Dalton. See Exhibit 10(a)21 herein. (c)18 -Integrated Transmission System Agreement dated as of August 27, 1976, between GEORGIA and MEAG. See Exhibit 10(a)22 herein. (c)19 -Plant Hal Wansley Purchase and Ownership Participation Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)23 herein. (c)20 -Plant Hal Wansley Operating Agreement dated as of April 19, 1977, between GEORGIA and Dalton. See Exhibit 10(a)24 herein. (c)21 -Plant Robert W. Scherer Units Number One and Two Purchase and Ownership Participation Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 30, 1985, Amendment No. 2 dated as of July 1, 1986, Amendment No. 3 dated as of August 1, 1988 and Amendment No. 4 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)25 herein. (c)22 -Plant Robert W. Scherer Units Number One and Two Operating Agreement dated as of May 15, 1980, Amendment No. 1 dated as of December 3, 1985 and Amendment No. 2 dated as of December 31, 1990, among GEORGIA, OPC, MEAG and Dalton. See Exhibit 10(a)26 herein. (c)23 -Plant Robert W. Scherer Purchase, Sale and Option Agreement dated as of May 15, 1980, between GEORGIA and MEAG. See Exhibit 10(a)27 herein. (c)24 -Plant Robert W. Scherer Purchase and Sale Agreement dated as of May 16, 1980, between GEORGIA and Dalton. See Exhibit 10(a)28 herein. (c)25 -Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (c)26 -Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. E-18
(c)27 -Plant Robert W. Scherer Unit No. Four Amended and Restated Purchase and Ownership Participation Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)31 herein. (c)28 -Plant Robert W. Scherer Unit No. Four Operating Agreement by and among GEORGIA, FP&L and JEA dated as of December 31, 1990 and Amendment No. 1 dated as of June 15, 1994. See Exhibit 10(a)32 herein. (c)29 -Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (c)30 -Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1, dated August 30, 1984 and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (c)31 -Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (c)32 -Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (c)33 -Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (c)34 -Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (c)35 -Power Purchase Agreement dated as of December 3, 1993 between GEORGIA and FPC. See Exhibit 10(a)57 herein. (c)36 -Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (c)37 -Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. (c)38 -Rocky Mountain Pumped Storage Hydroelectric Project Ownership Participation Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)41 herein. E-19
(c)39 -Rocky Mountain Pumped Storage Hydroelectric Project Operating Agreement dated November 18, 1988, between OPC and GEORGIA. See Exhibit 10(a)42 herein. (c)40 -Form of commitment agreement, Amendment No. 1 and Amendment No. 2 with respect to SOUTHERN, ALABAMA, GEORGIA and MISSISSIPPI revolving credits. See Exhibit 10(a)46 herein. (c)41 -Block Power Sale Agreement between GEORGIA and OPC dated as of November 12, 1990. See Exhibit 10(a)47 herein. (c)42 -Coordination Services Agreement between GEORGIA and OPC dated as of November 12, 1990. See Exhibit 10(a)48 herein. (c)43 -Amended and Restated Nuclear Managing Board Agreement for Plant Hatch and Plant Vogtle among GEORGIA, OPC, MEAG and Dalton dated as of July 1, 1993. See Exhibit 10(a)49 herein. (c)44 -Integrated Transmission System Agreement, Power Sale and Coordination Umbrella Agreement between GEORGIA and OPC dated as of November 12, 1990. See Exhibit 10(a)50 herein. (c)45 -Revised and Restated Integrated Transmission System Agreement between GEORGIA and Dalton dated as of December 7, 1990. See Exhibit 10(a)51 herein. (c)46 -Revised and Restated Integrated Transmission System Agreement between GEORGIA and MEAG dated as of December 7, 1990. See Exhibit 10(a)52 herein. (c)47 -Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)54 herein. (c)48 -Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)55 herein. (c)49 -Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)56 herein. (c)50 -Certificate of Limited Partnership of Georgia Power Capital. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit B.) (c)51 -Amended and Restated Agreement of Limited Partnership of Georgia Power Capital, dated as of December 1, 1994. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit C.) (c)52 -Action of General Partner of Georgia Power Capital creating the Series A Preferred Securities. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit D.) E-20
(c)53 -Guarantee Agreement of GEORGIA dated as of December 1, 1994, for the benefit of the holders from time to time of the Series A Preferred Securities. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit G.) (c)54 -Nuclear Services Agreement between Southern Nuclear and GEORGIA dated as of October 31, 1991. See Exhibit 10(a)59 herein. (c)55 -Nuclear Managing Board Agreement among GEORGIA, OPC, MEAG and Dalton dated as of November 12, 1990. See Exhibit 10(a)60 herein. (c)56 -The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1995. See Exhibit 10(a)61 herein. (c)57 -The Southern Company Executive Productivity Improvement Plan, effective January 1, 1995. See Exhibit 10(a)62 herein. (c)58 -The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and First Amendment and Second Amendment thereto. See Exhibit 10(a)63 herein. *(c)59 -Third Amendment and Fourth Amendment to The Southern Company Employee Savings Plan. See Exhibit 10(a)64 herein. (c)60 -The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and First Amendment thereto. See Exhibit 10(a)65 herein. *(c)61 -Second Amendment to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)66 herein. (c)62 -Pension Plan For Employees of GEORGIA, Amended and Restated effective as of January 1, 1989. See Exhibit 10(a)69 herein. *(c)63 -First Amendment, Second Amendment and Third Amendment to the Pension Plan For Employees of GEORGIA. See Exhibit 10(a)70 herein. *(c)64 -The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)73 herein. (c)65 -Supplemental Benefit Plan for GEORGIA. See Exhibit 10(a)75 herein. (c)66 -The Southern Company Deferred Compensation Plan. See Exhibit 10(a)79 herein. (c)67 -The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)78 herein. (c)68 -Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)81 herein. *(c)69 -The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)83 herein. E-21
GULF (d)1 -Service contracts dated as of January 1, 1984 and Amendment No. 1 dated as of September 6, 1985, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN. See Exhibit 10(a)1 herein. (d)2 -Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (d)3 -Plant Robert W. Scherer Unit Number Three Purchase and Ownership Participation Agreement dated as of March 1, 1984, Amendment No. 1 dated as of July 1, 1986 and Amendment No. 2 dated as of August 1, 1988, between GEORGIA and GULF. See Exhibit 10(a)29 herein. (d)4 -Plant Robert W. Scherer Unit Number Three Operating Agreement dated as of March 1, 1984, between GEORGIA and GULF. See Exhibit 10(a)30 herein. (d)5 -Plant Scherer Managing Board Agreement dated as of December 31, 1990 among GEORGIA, OPC, MEAG, Dalton, GULF, FP&L and JEA. See Exhibit 10(a)54 herein. (d)6 -Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (d)7 -Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1 dated August 30, 1984 and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (d)8 -Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (d)9 -Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (d)10 -Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (d)11 -Agreement between GULF and AEC, effective August 1, 1985. (Designated in GULF's Form 10-K for the year ended December 31, 1985, File No. 0-2429, as Exhibit 10(g).) E-22
(d)12 -Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (d)13 -Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (d)14 -Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. (d)15 -The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1995. See Exhibit 10(a)61 herein. (d)16 -The Southern Company Executive Productivity Improvement Plan, effective January 1, 1995. See Exhibit 10(a)62 herein. (d)17 -The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and First Amendment and Second Amendment thereto. See Exhibit 10(a)63 herein. *(d)18 -Third Amendment and Fourth Amendment to The Southern Company Employee Savings Plan. See Exhibit 10(a)64 herein. (d)19 -The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and First Amendment thereto. See Exhibit 10(a)65 herein. *(d)20 -Second Amendment to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)66 herein. (d)21 -Pension Plan For Employees of GULF, Amended and Restated effective as of January 1, 1989. (Designated in GULF's Form 10-K for the year ended December 31, 1994, File No. 0-2429, as Exhibit 10(d)18.) *(d)22 -First Amendment, Second Amendment and Third Amendment to the Pension Plan For Employees of GULF. *(d)23 -The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)73 herein. (d)24 -Supplemental Benefit Plan for GULF. (Designated in GULF's Form 10-K for the year ended December 31, 1995, File No. 0-2429, as Exhibit 10(d)22.) (d)25 -The Southern Company Deferred Compensation Plan. See Exhibit 10(a)79 herein. (d)26 -The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)78 herein. E-23
(d)27 -Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)81 herein. *(d)28 -The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)83 herein. MISSISSIPPI (e)1 -Service contracts dated as of January 1, 1984 and Amendment No. 1 dated September 6, 1985, between SCS and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SEGCO and SOUTHERN. See Exhibit 10(a)1 herein. (e)2 -Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (e)3 -Amended and Restated Unit Power Sales Agreement dated February 18, 1982 and Amendment No. 1 dated May 18, 1982, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)33 herein. (e)4 -Amended and Restated Unit Power Sales Agreement dated May 19, 1982, Amendment No. 1 dated August 30, 1984, and Amendment No. 2 dated October 30, 1987, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI and SCS. See Exhibit 10(a)34 herein. (e)5 -Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (e)6 -Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (e)7 -Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (e)8 -Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (e)9 -Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (e)10 -Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. E-24
(e)11 -Transmission Facilities Agreement dated February 25, 1982, Amendment No. 1 dated May 12, 1982 and Amendment No. 2 dated December 6, 1983, between Gulf States and MISSISSIPPI. See Exhibit 10(a)45 herein. (e)12 -Form of commitment agreement, Amendment No. 1 and Amendment No. 2 with respect to SOUTHERN, ALABAMA, GEORGIA and MISSISSIPPI revolving credits. See Exhibit 10(a)46 herein. (e)13 -Long Term Transmission Service Agreement between Entergy Power, Inc. and ALABAMA MISSISSIPPI and SCS. See Exhibit 10(a)53 herein. (e)14 -The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1995. See Exhibit 10(a)61 herein. (e)15 -The Southern Company Executive Productivity Improvement Plan, effective January 1, 1995. See Exhibit 10(a)62 herein. (e)16 -The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and First Amendment and Second Amendment thereto. See Exhibit 10(a)63 herein. *(e)17 -Third Amendment and Fourth Amendment to The Southern Company Employee Savings Plan. See Exhibit 10(a)64 herein. (e)18 -The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and First Amendment thereto. See Exhibit 10(a)65 herein. *(e)19 -Second Amendment to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)66 herein. (e)20 -Pension Plan For Employees of MISSISSIPPI, Amended and Restated effective as of January 1, 1989. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1994, File No. 0-6849, as Exhibit 10(e)18.) *(e)21 -First Amendment, Second Amendment and Third Amendment to the Pension Plan For Employees of MISSISSIPPI. *(e)22 -The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)73 herein. *(e)23 -Supplemental Benefit Plan for MISSISSIPPI, Amended and Restated effective as of January 1, 1996. (e)24 -The Southern Company Deferred Compensation Plan. See Exhibit 10(a)79 herein. (e)25 -The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)78 herein. (e)26 -Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)81 herein. E-25
*(e)27 -The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)83 herein. SAVANNAH (f)1 -Service contract dated as of March 3, 1988, between SCS and SAVANNAH. See Exhibit 10(a)3 herein. (f)2 -Interchange contract dated October 28, 1988, effective January 1, 1989, between ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)6 herein. (f)3 -Unit Power Sales Agreement dated July 19, 1988, between FPC and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)35 herein. (f)4 -Amended Unit Power Sales Agreement dated July 20, 1988, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)36 herein. (f)5 -Amended Unit Power Sales Agreement dated August 17, 1988, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)37 herein. (f)6 -Unit Power Sales Agreement dated December 8, 1990, between Tallahassee and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)38 herein. (f)7 -Transition Energy Agreement dated December 31, 1990, between JEA and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)39 herein. (f)8 -Transition Energy Agreement dated December 31, 1990, between FP&L and ALABAMA, GEORGIA, GULF, MISSISSIPPI, SAVANNAH and SCS. See Exhibit 10(a)40 herein. (f)9 -Plant McIntosh Combustion Turbine Purchase and Ownership Participation Agreement between GEORGIA and SAVANNAH dated as of December 15, 1992. See Exhibit 10(a)55 herein. (f)10 -Plant McIntosh Combustion Turbine Operating Agreement between GEORGIA and SAVANNAH dated December 15, 1992. See Exhibit 10(a)56 herein. (f)11 -The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1995. See Exhibit 10(a)61 herein. E-26
(f)12 -The Southern Company Executive Productivity Improvement Plan, effective January 1, 1995. See Exhibit 10(a)62 herein. (f)13 -The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and First Amendment and Second Amendment thereto. See Exhibit 10(a)63 herein. *(f)14 -Third Amendment and Fourth Amendment to The Southern Company Employee Savings Plan. See Exhibit 10(a)64 herein. (f)15 -The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and First Amendment thereto. See Exhibit 10(a)65 herein. *(f)16 -Second Amendment to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)66 herein. (f)17 -Employees' Retirement Plan of SAVANNAH, Amended and Restated effective January 1, 1989 and First Amendment thereto. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1994, File No. 1-5072, as Exhibit 10(f)15 and in SAVANNAH's Form 10-K for the year ended December 31, 1995, File No. 1-5072, as Exhibit 10(f)16.) *(f)18 -Second Amendment and Third Amendment to the Employees' Retirement Plan of SAVANNAH. (f)19 -Supplemental Executive Retirement Plan of SAVANNAH, Amended and Restated effective January 1, 1996. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1995, File No. 1-5072, as Exhibit 10(f)17.) *(f)20 -First Amendment to the Supplemental Executive Retirement Plan of SAVANNAH. (f)21 -Deferred Compensation Plan for Key Employees of SAVANNAH and First Amendment thereto. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1994, File No. 1-5072, as Exhibit 10(f)17 and in SAVANNAH's Form 10-K for the year ended December 31, 1995, File No. 1-5072, as Exhibit 10(f)19.) *(f)22 -Second Amendment to the Deferred Compensation Plan for Key Employees of SAVANNAH. *(f)23 -The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)73 herein. (f)24 -The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)78 herein. (f)25 -Deferred Compensation Plan for Directors of SAVANNAH and First Amendment, Second Amendment and Third Amendment thereto. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1994, File No. 1-5072, as Exhibit 10(f)20.) E-27
*(f)26 -Fourth Amendment to the Deferred Compensation Plan for Directors of SAVANNAH. (f)27 -Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)81 herein. (21) *Subsidiaries of Registrants - Contained herein at page IV-5. (23) Consents of Experts and Counsel SOUTHERN *(a) -The consent of Arthur Andersen LLP is contained herein at page IV-6. ALABAMA *(b) -The consent of Arthur Andersen LLP is contained herein at page IV-7. GEORGIA *(c) -The consent of Arthur Andersen LLP is contained herein at page IV-8. GULF *(d) -The consent of Arthur Andersen LLP is contained herein at page IV-9. MISSISSIPPI *(e) -The consent of Arthur Andersen LLP is contained herein at page IV-10. SAVANNAH *(f) -The consent of Arthur Andersen LLP is contained herein at page IV-11. (24) Powers of Attorney and Resolutions SOUTHERN *(a) -Power of Attorney and resolution. ALABAMA *(b) -Power of Attorney and resolution. GEORGIA *(c) -Power of Attorney and resolution. E-28
GULF *(d) -Power of Attorney and resolution. MISSISSIPPI *(e) -Power of Attorney and resolution. SAVANNAH *(f) -Power of Attorney and resolution. (27) Financial Data Schedule SOUTHERN (a) -Financial Data Schedule. (Designated in Form 8-K dated February 12, 1997, File No. 1-3526, as Exhibit 27.) ALABAMA (b) -Financial Data Schedule. (Designated in Form 8-K dated February 12, 1997, File No. 1-3164, as Exhibit 27.) GEORGIA (c) -Financial Data Schedule. (Designated in Form 8-K dated February 12, 1997, File No. 1-6468, as Exhibit 27.) GULF (d) -Financial Data Schedule. (Designated in Form 8-K dated February 12, 1997, File No. 0-2429, as Exhibit 27.) MISSISSIPPI (e) -Financial Data Schedule. (Designated in Form 8-K dated February 12, 1997, File No. 0-6849, as Exhibit 27.) SAVANNAH (f) -Financial Data Schedule. (Designated in Form 8-K dated February 12, 1997, File No. 1-5072, as Exhibit 27.) E-29