<TABLE> <CAPTION> ====================================================================================================================== UNITED STATES 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, 1997 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission Registrant, State of Incorporation, I.R.S. Employer File Number Address and Telephone Number Identification No. <S> <C> <C> 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) 257-1000 1-6468 Georgia Power Company 58-0257110 (A Georgia Corporation) 241 Ralph McGill Boulevard, N.E. Atlanta, Georgia 30308-3374 (404) 526-6526 0-2429 Gulf Power Company 59-0276810 (A Maine Corporation) 500 Bayfront Parkway Pensacola, Florida 32501 (850) 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>
Securities registered pursuant to Section 12(b) of the Act:1 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. <TABLE> <CAPTION> Title of each class Registrant <S> <C> Common Stock, $5 par value The Southern Company Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Cumulative Quarterly Income Preferred Securities 2 ------------------------------------------------- Class A preferred, cumulative, $25 stated capital Alabama Power Company 6.80% Series Adjustable Rate (1993 Series) 6.40% Series Senior Notes 7 1/8% Series A Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.375% Trust Preferred Securities3 7.60% Trust Originated Preferred Securities4 ------------------------------------------------- Class A preferred stock, cumulative, $25 stated value Georgia Power Company Adjustable Rate (First 1993 Series) Adjustable Rate (Second 1993 Series) Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 9% Monthly Income Preferred Securities, Series A5 7.75% Trust Preferred Securities6 7.60% Trust Preferred Securities7 7.75% Quarterly Income Preferred Securities8 First mortgage bonds 6 1/8% Series due 1999 6 7/8% Series due 2002 ---------------------------------------------------- 1 As of December 31, 1997. 2 Issued by Southern Company Capital Trust III and guaranteed by The Southern Company. 3 Issued by Alabama Power Capital Trust I and guaranteed by Alabama Power Company. 4 Issued by Alabama Power Capital Trust II and guaranteed by Alabama Power Company. 5 Issued by Georgia Power Capital, L.P. and guaranteed by Georgia Power Company. 6 Issued by Georgia Power Capital Trust I and guaranteed by Georgia Power Company. 7 Issued by Georgia Power Capital Trust II and guaranteed by Georgia Power Company. 8 Issued by Georgia Power Capital Trust III and guaranteed by Georgia Power Company. </TABLE>
<TABLE> <CAPTION> <S> <C> Company obligated mandatorily redeemable Gulf Power Company preferred securities, $25 liquidation amount 7.625% Quarterly Income Preferred Securities9 ---------------------------------------------------- Depositary preferred shares, each representing one-fourth Mississippi Power Company of a share of preferred stock, cumulative, $100 par value 6.32% Series 6.65% Series Company obligated mandatorily redeemable preferred securities, $25 liquidation amount 7.75% Trust Originated Preferred Securities10 ------------------------------------------------- Preferred stock, cumulative, $25 par value Savannah Electric and Power Company 6.64% Series Securities registered pursuant to Section 12(g) of the Act:11 Title of each class Registrant Preferred stock, cumulative, $100 par value Alabama Power Company 4.20% Series 4.60% Series 4.72% Series 4.52% Series 4.64% 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 -------------------------------------------------------- 9 Issued by Gulf Power Capital Trust I and guaranteed by Gulf Power Company. 10 Issued by Mississippi Power Capital Trust I and guaranteed by Misissippi Power Company. 11 As of December 31, 1997. </TABLE>
<TABLE> <CAPTION> ========================================================================================================== <S> <C> Preferred stock, cumulative, $100 par value Gulf Power Company 4.64% Series 5.44% Series 5.16% Series Class A preferred, cumulative, $10 par value, $25 stated capital 6.72% 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 -------------------------------------------------------- </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. ( ) Aggregate market value of voting stock held by non-affiliates of The Southern Company at February 28, 1998: $17.1 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, 1998 <S> <C> <C> The Southern Company Par Value $5 Per Share 694,327,636 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 portionsof The Southern Company's Proxy Statement relating to the 1998 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 Traditional Business................................................................................. I-1 Non-Traditional Business............................................................................. I-2 Certain Factors Affecting the Industry............................................................... I-3 Construction Programs................................................................................ I-4 Financing Programs................................................................................... I-6 Fuel Supply.......................................................................................... I-7 Territory Served By Operating Affiliates............................................................. I-8 Competition.......................................................................................... I-11 Regulation........................................................................................... I-13 Rate Matters......................................................................................... I-15 Employee Relations................................................................................... I-16 Item 2 Properties............................................................................................. I-18 Item 3 Legal Proceedings...................................................................................... I-23 Item 4 Submission of Matters to a Vote of Security Holders.................................................... I-23 Executive Officers of SOUTHERN......................................................................... I-24 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 7A Quantitative and Qualitative Disclosures about Market Risk............................................. 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 </TABLE> i
<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) EMF........................................... Electromagnetic field Energy Act.................................... Energy Policy Act of 1992 Energy Solutions.............................. Southern Company Energy Solutions, Inc. (formerly The Southern Development and Investment Group, Inc.) Entergy Gulf States........................... Entergy Gulf States Utilities Company EPA........................................... United States Environmental Protection Agency EWG........................................... Exempt wholesale generator 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 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 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, Energy Solutions and other subsidiaries SWEB.......................................... South Western Electricity plc (United Kingdom) TVA........................................... Tennessee Valley Authority ii </TABLE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K includes forward-looking statements in addition to historical information. The registrants caution that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the markets of SOUTHERN's subsidiaries; potential business strategies, including acquisitions or dispositions of assets or internal restructuring, that may be pursued by the registrants; state and federal rate regulation in the United States; changes in or application of environmental and other laws and regulations to which SOUTHERN and its subsidiaries are subject; political, legal and economic conditions and developments in the United States and in foreign countries in which the subsidiaries operate; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; and other factors discussed elsewhere herein and in other reports filed from time to time by the registrants with the SEC. iii
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), Energy Solutions and other direct and indirect subsidiaries. Southern Energy is focused on several key international and domestic business lines, including energy distribution, integrated utilities, stand-alone generation, and other energy-related products and services. A further description of Southern Energy's business and organization follows later in this section under "Non-Traditional Business." 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. Energy Solutions 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 Traditional Business 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 By Operating Affiliates" herein.) I-1
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. 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 Energy Corporation, 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, Energy Solutions 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. Non-Traditional Business 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 for 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, which remains pending, with U.S. Court of Appeals for the 11th Circuit seeking judicial review of the SEC Order. At December 31, 1997, SOUTHERN's consolidated retained earnings amounted to $3,842 million and its aggregate investment in EWGs and FUCOs amounted to $2,795 million. Worldwide, Southern Energy develops and manages electricity and other energy related projects, including domestic energy trading and marketing. Reference is made to Note 15 to the financial statements of SOUTHERN in Item 8 herein for additional information regarding SOUTHERN's segment and related information. In 1995, SOUTHERN acquired SWEB, one of the United Kingdom's 12 regional electric distribution companies, for approximately $1.8 billion. In July 1996, a 25 percent interest in SWEB was sold. SWEB is, to some extent, involved in power generation and certain non-regulated activities which include gas marketing and telecommunications. In mid-1997, the acquisition of all interest in CEPA was completed for a total net investment of $2.1 billion. CEPA is engaged in the business of developing, constructing, owning and operating electric power I-2
generation facilities. Its current operations include installed operating capacity of approximately 3,306 megawatts, with projects either completed or under development in the Philippines, the People's Republic of China, and Pakistan. In September 1997, Southern Energy acquired a 26% interest in a German utility for approximately $820 million. 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. As the energy marketplace evolves, Southern Energy is positioning SOUTHERN to become a major competitor in energy trading and marketing activities. As part of this strategy, Southern Energy entered into a joint venture with Vastar Resources effective in January 1998. The two companies combined their energy trading and marketing operations to form a new full-service energy provider, Southern Company Energy Marketing. Southern Company Energy Marketing holds a top 10 position in the United States in both natural gas and power marketing. Southern Energy and Energy Solutions 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, Energy Solutions 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; Energy Services, providing total energy solutions to industrial and commercial customers; 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 1998-2000 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 - "Non-Traditional Business," "Competition" and "Environmental Regulation." I-3
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 1998 through 2000 by the operating affiliates, SEGCO, SCS, Southern Communications and Southern Energy are estimated as follows: (in millions) --------------------------------------------------------- 1998 1999 2000 ---------------------------- ALABAMA $ 615 $ 723 $ 524 GEORGIA 506 561 549 GULF 68 62 62 MISSISSIPPI 67 92 291 SAVANNAH 22 23 21 SEGCO 3 8 1 SCS 7 15 6 Southern Communications 67 20 18 Southern Energy* 629 493 78 Other 19 13 18 ========================================================= SOUTHERN system $2,003 $2,010 $1,568 ========================================================= *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 - "Non-Traditional Business" herein.) I-4
<TABLE> <CAPTION> Estimated construction costs in 1998 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 $109 $ 99 $ 1 $ 1 $ 8 $ - Other generating facilities including associated plant 850 169 78 23 20 2 substations New business 326 129 151 21 14 11 Transmission 147 64 69 3 9 2 Joint line and substation 31 - 28 3 - - Distribution 225 70 54 11 12 5 Nuclear fuel 97 40 57 - - - General plant 218 44 68 6 4 2 ----------------------------------------------------------------------------------------------- $2,003 $615 $506 $68 $67 $22 =============================================================================================== </TABLE> *Southern Communications, SCS and Southern Nuclear plan capital additions to general plant in 1998 of $67 million, $7 million and $400 thousand, respectively, while SEGCO plans capital additions of $3 million to generating facilities. Southern Energy plans capital additions of $555 million to generating facilities, $73 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. Other non-traditional capital additions planned for 1998 are approximately $19 million. (See Item 1 - BUSINESS - "Non-Traditional Business" 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 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. The operating affiliates have approximately 1,600 megawatts of combined cycle generation scheduled to be placed in service by 2001. In addition, significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants . (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-5
Financing Programs In 1997, SOUTHERN raised $360 million from the issuance of new common stock under SOUTHERN's various stock plans. Also in 1997, SOUTHERN issued a total of $600 million in trust and capital preferred securities for the direct benefit of SOUTHERN. SOUTHERN plans to issue additional equity capital in 1998. The amount and timing of additional equity capital to be raised in 1998, as well as subsequent years, will be contingent on SOUTHERN's investment opportunities. Equity capital can be provided from any combination of public offerings, private placements, or SOUTHERN's stock plans. Any portion of the common stock required during 1998 for SOUTHERN'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 affiliates 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. Historically the operating affiliates have relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for their benefit by public authorities, to meet their long-term external financing requirements. Recently, financings have consisted of unsecured debt and trust preferred securities. In this regard, the operating affiliates -- except SAVANNAH -- sought and obtained stockholder approval in 1997 to amend their respective corporate charters eliminating restrictions on the amount of unsecured indebtedness they may incur. Short-term debt is often utilized as appropriate at SOUTHERN and the operating affiliates. The amount of securities representing short-term unsecured indebtedness allowable under SAVANNAH's charter at December 31, 1997 was $71 million (20% of secured indebtedness and other capital). Under the provisions of SAVANNAH's charter, this percentage will be reduced to 10% on July 1, 1999. In the case of ALABAMA, GEORGIA, GULF and MISSISSIPPI, preferred shareholders approved the removal of restrictions on unsecured indebtedness under the respective charters. SOUTHERN does not have a charter limitation on short-term unsecured indebtedness. The maximum amounts of short-term or term-loan indebtedness authorized by the appropriate regulatory authorities are shown on the following table: Outstanding at Amount December 31, 1997 ------------ --------------------- (in millions) ALABAMA $ 750 (1) $306.9 GEORGIA 1,700 (2) 366.2 GULF 300(1) 82.3 MISSISSIPPI 350(1) 80.0 SAVANNAH 90(2) 30.0 SOUTHERN 2,000(1) 768.7 ------------------------------------------------------ Notes: (1) 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. (2) 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 $1.4 billion and $96.1 million, respectively, expiring December 31, 1998. 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. New projects undertaken by subsidiaries of Southern Energy are generally financed through a combination of equity funds provided by SOUTHERN and non-recourse debt incurred on a project-specific basis. 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 1995 through 1997 and the estimates for 1998 are shown below: Oil and ALABAMA Coal Nuclear Hydro Gas --------- ---------- --------- --------- 1995 73% 19% 8% * 1996 72 20 8 * 1997 72 19 8 1 1998 74 18 7 1 GEORGIA 1995 74 22 3 1 1996 74 22 3 1 1997 75 22 2 1 1998 75 21 3 1 GULF 1995 99 ** ** 1 1996 99 ** ** 1 1997 100 ** ** * 1998 99 ** ** 1 MISSISSIPPI 1995 79 ** ** 21 1996 85 ** ** 15 1997 85 ** ** 15 1998 85 ** ** 15 SAVANNAH 1995 80 ** ** 20 1996 90 ** ** 10 1997 87 ** ** 13 1998 88 ** ** 12 SEGCO 1995 100 ** ** * 1996 100 ** ** * 1997 100 ** ** * 1998 100 ** ** * SOUTHERN system*** 1995 77 17 4 2 1996 77 17 4 2 1997 77 17 4 2 1998 79 16 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 1995 through 1997 are shown below: Oil and Weighted ALABAMA Coal Nuclear Gas Average --------- ---------- ----------- ----------- 1995 1.71 0.50 * 1.48 1996 1.71 0.50 * 1.46 1997 1.73 0.54 * 1.49 GEORGIA 1995 1.67 0.60 4.68 1.44 1996 1.55 0.55 5.50 1.35 1997 1.53 0.52 5.19 1.32 GULF 1995 2.08 ** 3.56 2.09 1996 1.99 ** 6.41 2.02 1997 1.97 ** 5.59 1.99 MISSISSIPPI 1995 1.58 ** 2.33 1.64 1996 1.43 ** 4.32 1.57 1997 1.44 ** 3.54 1.57 SAVANNAH 1995 1.77 ** 3.80 2.18 1996 1.76 ** 8.41 2.42 1997 1.91 ** 4.63 2.27 SEGCO 1995 1.87 ** * 1.87 1996 1.72 ** * 1.72 1997 1.51 ** * 1.51 SOUTHERN system*** 1995 1.73 0.56 3.37 1.53 1996 1.65 0.52 5.20 1.48 1997 1.63 0.53 4.38 1.46 ---------------------------------------------------------------- * 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 13, 1998, 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 27 days for sub-bituminous coal. It is estimated that approximately 66.6 million tons of coal will be consumed in 1998 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 31 coal contracts. These contracts cover remaining terms of up to 14 years. Approximately 16% of 1998 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 1997, the operating affiliates' and SEGCO's average price of coal delivered was approximately $36.8 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 By Operating Affiliates 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. 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, I-8
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 a power supply arrangement with OPC, a corporate cooperative of electric membership cooperatives in Georgia, and to 50 municipalities, 48 of which are served through a power supply arrangement with 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. For information relating to kilowatt-hour sales by classification for each registrant, reference is made to "Management's Discussion and Analysis-Revenues" in Item 7 herein. Also, for information relating to the sources of revenues for the Southern system and each of the operating affiliates, reference is made to Item 6 herein. 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. I-9
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. OPC decreased its purchases of capacity by 250 megawatts each in September 1996 and 1997 and has notified GEORGIA of its intent to decrease purchases of capacity by an additional 250 megawatts in September 1998 and 1999. Under the amended 1995 Integrated Resource Plan approved by the Georgia PSC in March 1997, the resources associated with the decreased purchases in 1996, 1997 and 1998 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 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 and one county-owned system 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 purchases from others. In August 1997, a new power supply contract was implemented between GEORGIA and MEAG that replaced the partial requirements tariff pursuant to which GEORGIA previously sold wholesale energy to MEAG. 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 Georgia Transmission Corporation (formerly OPC's transmission division), 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.) I-10
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.) Pursuant to the 1956 Utility Act, the Mississippi PSC issued "Grandfather Certificates" of public 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 the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). 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 is I-11
aggressively working to maintain and expand its share of wholesale sales in the Southeastern power markets. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of an operating company to recover its investments, including the regulatory assets described in Note 1 to each registrant's respective financial statements, could have a material adverse effect on the financial condition of that operating company. The operating companies are attempting to minimize or reduce their cost exposure. Reference is made to Note 3 to the financial statements for SOUTHERN for information regarding these efforts. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, unless SOUTHERN 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. 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 a less regulated, more competitive environment, SOUTHERN continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring, disposition of certain assets, or some combination thereof. Furthermore, SOUTHERN may engage in other new business ventures that 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. (See Item 1 - BUSINESS - - "Non-Traditional Business" herein.) As a result of the foregoing factors, SOUTHERN has experienced increasing competition for available off-system sales of capacity and energy from 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 1997, ALABAMA purchased approximately 57 million kilowatt-hours from such companies at a cost of $1.0 million. GEORGIA currently has cogeneration contracts in effect with six industrial customers. Under the terms of these contracts, GEORGIA purchases excess generation of such companies. During 1997, GEORGIA purchased 5.3 million kilowatt-hours from such companies at a cost of $117,304. GEORGIA has entered into a 30-year purchase power agreement, scheduled to begin in June 1998, for electricity from a 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 1997, GULF purchased 98 million kilowatt-hours from such companies for $2 million. MISSISSIPPI entered into agreements to purchase options for summer peaking power for the years 1997 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. I-12
SAVANNAH currently has cogeneration contracts in effect with five industrial customers. Under the terms of these contracts, SAVANNAH purchases excess generation of such companies. During 1997, SAVANNAH purchased 1 million kilowatt-hours from such companies at a cost of $19,000. 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 By Operating Affiliates" 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 By Operating Affiliates" 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. While various proposals have been introduced in Congress regarding the Holding Company Act, the prospects for legislative reform or repeal 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. Reference is made to Note 3 to each registrant's financial statements (except SAVANNAH) in Item 8 herein for further information regarding FERC reviews of equity returns. 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. GEORGIA filed, in September, 1996, with the FERC, a notice of its intent to seek a new license for the Flint River Project. GEORGIA must file a new license by September 1999. 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 2005-2036 in the case of GEORGIA's projects. I-13
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 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 1998, 1999 and 2000 are as follows: (in millions) ---------------- -- ------------ ------------ ----------- 1998 1999 2000 ------------ ------------ ----------- ALABAMA $18.3 $63.8 $19.6 GEORGIA 13.0 14.0 1.0 GULF 9.3 1.9 0.1 MISSISSIPPI 15.0 6.0 - SAVANNAH - - - SEGCO 0.7 7.6 0.5 ------------ ------------ ----------- SOUTHERN system $56.3 $93.3 $21.2 ================ == ============ ============ =========== *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 I-14
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. 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. 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 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. 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. 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. The adjustment factors for MISSISSIPPI's retail and wholesale rates are generally levelized based on the estimated energy cost for the year, adjusted for any actual over/under collection from the previous year. However, in January 1998, MISSISSIPPI received approval from the MPSC to change its Fuel Adjustment Clause and to levelize and fix its Fuel Adjustment Factors for January 1998 through December 2000. 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 a January 14, 1998, GPSC order relating to the 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. 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 I-15
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. By orders issued in 1992 and by amended orders issued in 1995, the Georgia PSC approved Integrated Resource Plans for both GEORGIA and SAVANNAH. In March 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 conservation goals and approved programs to accomplish the goals beginning in 1995. The goals require conservation programs which reduce 154 megawatts of summer peak demand and 65 million 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 30,756 employees on their payrolls at December 31, 1997. ------------------------------ --- ------------------------- Employees at December 31, 1997 ------------------------- ALABAMA 6,531 GEORGIA 8,354 GULF 1,328 MISSISSIPPI 1,245 SAVANNAH 535 SCS 3,222 Southern Energy* 6,089 Southern Nuclear 3,070 Other 382 ------------------------------ --- ------------------------- Total 30,756 ============================== === ========================= *Includes 5,709 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. GULF 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. MISSISSIPPI has an agreement with the IBEW on a three-year contract extending to August 16, 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. I-16
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 a 5-year labor agreement with the IBEW extending to October 31, 2002, and the United Paperworkers International Union extending to June 1, 2002, covering employees of Mobile Energy. At its State Line facility in Hammond, Indiana, Southern Energy has a labor contract with the United Steel Workers that extends to January 1, 2004. Southern Nuclear has agreements with the IBEW on separate three-year contracts extending to August 15, 1998 for Plant Farley and to July 1, 1999 for Plants Hatch and Vogtle. Upon notice given at least 60 days prior to these dates, negotiations may be initiated with respect to agreement terms to be effective after such dates. Southern Nuclear also has an agreement with the United Plant Guard Workers of America for security officers at Plant Hatch extending to September 3, 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-17
Item 2. PROPERTIES Electric Properties The operating affiliates and SEGCO, at December 31, 1997, 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 Total 1,000,000 (7) ----------- Total Fossil Steam 21,700,243 ----------- Nuclear Steam Farley Dothan, AL ALABAMA Total 1,720,000 ----------- Hatch Baxley, GA 862,669 (8) Vogtle Augusta, GA 1,060,240 (9) ----------- GEORGIA Total 1,922,909 ---------- Total Nuclear Steam 3,642,909 ----------- Combustion Turbines Greene County Demopolis, AL ALABAMA Total 720,000 ----------- Arkwright Macon, GA 30,580 Atkinson Atlanta, GA 78,720 Bowen Cartersville, GA 39,400 Intercession City Intercession City, FL 47,333 (10) 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 1,895,155 --------- Lansing Smith Unit A (GULF) Panama City, FL 39,400 Chevron Cogenerating Station Pascagoula, MS 147,292 (11) 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-18
------------------------- -------------------- ----------------- Nameplate Generating Station Location Capacity ------------------------- -------------------- ----------------- (Kilowatts) Gaston (SEGCO) Wilsonville, AL 19,680 (7) Total Combustion Turbines 3,141,387 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 (12) 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 31,145,000 ---------------------------------------------- ----------------- 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) Capacity shown represents 33-1/3% of total plant capacity. GEORGIA owns a 1/3 interest in the unit with 100% use of the unit from June through September. FPC operates the unit. (11) Generation is dedicated to a single industrial customer. (12) 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 Entergy Gulf States. The line, completed in 1984, extends from Plant Daniel to the Louisiana state line. Entergy 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, 1997, the unamortized portion of this cost was $38 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 I-19
that time was 9.4%. For additional information on peak demands, reference is made to Item 6 - SELECTED FINANCIAL DATA herein. 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, 1997, 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 BEWAG Germany 18 443 1,702 26.00 Coal BEWAG Germany 17 375 1,444 26.00 Oil & Gas Birchwood Virginia 1 111 222 50.00 Coal (2) CEPA China 3 634 - (3) 32.00 Coal CEPA Philippines 2 641 735 87.22 Coal CEPA Philippines 3 126 210 60.10 Oil CEPA Philippines 13 381 381 100.00 Oil Edelnor Chile 1 111 166 67.00 Coal Edelnor Chile 37 77 115 67.00 Oil Edelnor Chile 2 7 10 67.00 Hydro Freeport Grand Bahamas 8 80 127 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 State Line Indiana 2 490 490 100.00 Coal SWEB United Kingdom 8 144 - (3) 7.69 Gas SWEB United Kingdom 12 15 15 100.00 Oil & Gas SWEB United Kingdom 3 7 - (3) 38.00 Wind SWEB United Kingdom 3 1 - 25.00 Landfill Gas ========================================================================================================================== Total Capacity 4,764 7,942 (3) =========================================================================================================================== Notes: (1) Represents megawatts of capacity under a concession agreement expiring in the year 2023. (2) Cogeneration facility. (3) Does not include Shajiao C (1,980 MW) or UK power plants (150 MW) that are partially owned but not operated by CEPA and SWEB, respectively. </TABLE> I-20
<TABLE> <CAPTION> Facilities Under Development ------------------------------------------------------------------------------------------------------------------------------- Megawatts of Capacity Percent Facility Location Own Operate Ownership Type ------------------- --------------------------- ------------ ------------------------------ ----------------------- <S> <C> <C> <C> <C> <C> CEPA Philippines 1,200* 1,200 92.00 Coal Edelnor Chile 104 160 67.00 Coal ------------------------------------------------------------------------------------------------------------------------------- Total Capacity 1,304 1,360 =============================================================================================================================== * Percentage owned will ultimately be 91.91% upon completion, with the owned capacity reduced to 1,103 MW. </TABLE> 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 AEC GEORGIA 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 1,722 - - 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 142 - - 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 portions of OPC's and MEAG's capacity and energy from this plant. Declining commitments were in effect during periods of up to seven years following commercial operation and ended in 1996. In addition, the Company has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG that 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 ownership is 25.4 percent. On January 14, 1998, the GPSC ordered that the Company be allowed approximately $108 million of its $143 million investment in the plant in rate base as of December 31, 1998. GEORGIA has appealed the GPSC's order. If I-21
such order is ultimately upheld, GEORGIA will be required to record a charge to earnings currently estimated at approximately $29 million, after taxes. 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 unit, with use of 100% of the capacity from June through September. FPC has the capacity the remainder of the year. 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. 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, 1993 to December 31, 1997, 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 $2,402 $ 415 GEORGIA (1) 2,697 1,534 GULF 336 138 MISSISSIPPI 428 91 SAVANNAH 178 17 SEGCO 29 8 SCS 99 131 Southern Nuclear 6 7 Southern Communications 246 - Southern Energy 1,039 38 Other 6 - ========================================================== SOUTHERN system $7,466 $2,379 ========================================================== Notes: (1) Includes approximately $446 million attributable to 1993 through 1997 sales of Plant Scherer Unit 4 to FP&L and JEA. I-22
Item 3. LEGAL PROCEEDINGS (1) SOUTHERN and Subsidiaries v. Commissioner of the IRS (U.S. Tax Court) Reference is made to Note 3 to SOUTHERN's, ALABAMA's, and GEORGIA's financial statements in Item 8 herein under the captions "Southern Company Tax Litigation", "Tax Litigation", and "Tax Litigation", respectively. (2) 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. (3) 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, Energy Solutions 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 ALABAMA, GEORGIA, GULF AND MISSISSIPPI each held special meetings of their shareholders on December 10, 1997, for the purpose of amending their respective charters. The amendments eliminate restrictions on each of these registrant's ability to (1) issue unsecured indebtedness, (2) sell assets, merge or consolidate without preferred shareholder approval under certain circumstances, and (3) pay dividends on common stock. The vote in connection with such matters was as follows: FOR ABSTAINED from or AGAINST ALABAMA 2,373,283 85,507 GEORGIA 2,601,807 52,487 GULF 437,296 5,394 MISSISSIPPI 328,961 16,340 I-23
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, 1997. A. W. Dahlberg Chairman, President and Chief Executive Officer Age 57 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 49 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 53 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 58 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 49 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. Effective March 1, 1998, elected Executive Vice President and Treasurer of GEORGIA. W. L. Westbrook Financial Vice President, Chief Financial Officer and Treasurer Age 58 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 48 Elected in 1995; President and Chief Executive Officer of Southern Energy since 1992. Bill M. Guthrie Vice President Age 64 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 53 President and Chief Executive Officer of Southern Nuclear since 1993. He previously served as Executive Vice President of GEORGIA from 1989 to March 1997. Stephen A. Wakefield Senior Vice President and General Counsel Age 57 Elected in 1997. Previously, he was a partner at the firm of Akin, Gump, Strauss, Hauer & Feld, LLP from July 1991 through August 10, 1997. Each of the above is currently an officer of SOUTHERN, serving a term running from the last annual meeting of the directors (May 28, 1997) for one year until the next annual meeting or until his successor is elected and qualified, except for Mr.Wakefield who was elected on August 11, 1997. I-24
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 ----------- -------- 1997 First Quarter $23-3/8 $20-3/4 Second Quarter 22-1/4 19-7/8 Third Quarter 23 20-13/16 Fourth Quarter 26-1/4 22 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 ------------------ --------------- --- -------------- There is no market for the other registrants' common stock, all of which is owned by SOUTHERN. On February 28, 1998, the closing price of SOUTHERN's common stock was $24.6875. (b) Number of SOUTHERN's common stockholders at December 31, 1997: 200,508 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 1997 1996 ----------------- --------- ------------- ---------- SOUTHERN First $220,194 $211,081 Second 221,544 211,272 Third 222,980 212,200 Fourth 224,287 212,201 ALABAMA First 80,100 76,000 Second 85,600 76,400 Third 86,100 76,400 Fourth 87,800 118,700 GEORGIA First 122,700 121,500 Second 131,000 122,100 Third 131,800 122,100 Fourth 134,500 109,800 GULF First 12,900 12,300 Second 13,800 12,400 Third 13,800 12,400 Fourth 24,100 21,200 MISSISSIPPI First 11,300 10,600 Second 12,100 10,700 Third 12,200 10,600 Fourth 13,800 12,000 SAVANNAH First 5,100 4,800 Second 5,400 4,800 Third 5,500 4,800 Fourth 4,500 5,200 ----------------- --------- ------------- ---------- The dividend paid per share by SOUTHERN was 31.5(cent) for each quarter of 1996 and 32.5(cent) for each quarter of 1997. The dividend paid on SOUTHERN's common stock for the first quarter of 1998 was raised to 33.5(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 first mortgage bond indenture and, in the case of SAVANNAH, its 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, 1997, were as follows: ------------------ ------------------ --- -------------- Retained Restricted Earnings Amount ------------------ -------------- (in millions) ALABAMA $1,221 $ 796 GEORGIA 1,745 897 GULF 172 127 MISSISSIPPI 170 118 SAVANNAH 113 68 Consolidated 3,842 2,024 ------------------ ------------------ --- -------------- 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-41 through II-54. ALABAMA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-83 through II-96. GEORGIA. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-129 through II-143. GULF. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-172 through II-185. MISSISSIPPI. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-212 through II-225. SAVANNAH. Reference is made to information under the heading "Selected Financial and Operating Data," contained herein at pages II-247 through II-259. 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-16. 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-58 through II-64. 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-100 through II-107. 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-147 through II-154. 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-189 through II-195. 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-229 through II-234. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Reference is made to information in SOUTHERN's "Management's Discussion and Analysis - Derivative Financial Instruments" and to Note 1 to SOUTHERN's financial statements under the headings "Financial Instruments for Non-Trading" and "Financial Instruments for Trading" contained herein on pages II-13 through II-14; and pages II-26 through II-28, respectively. II-2
<TABLE> <CAPTION> Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO 1997 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, 1997, 1996 and 1995.................................. II-17 Consolidated Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995.................................................................................... II-17 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995.............................. II-18 Consolidated Balance Sheets at December 31, 1997 and 1996............................................................... II-19 Consolidated Statements of Capitalization at December 31, 1997 and 1996................................................. II-21 Consolidated Statements of Paid-In Capital for the Years Ended December 31, 1997, 1996 and 1995......................... II-22 Notes to Financial Statements........................................................................................... II-23 ALABAMA: Report of Independent Public Accountants .............................................................................. II-57 Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............................................... II-65 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995........................................... II-66 Balance Sheets at December 31, 1997 and 1996 ........................................................................... II-67 Statements of Capitalization at December 31, 1997 and 1996 ............................................................. II-69 Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995.................................... II-70 Notes to Financial Statements........................................................................................... II-71 GEORGIA: Report of Independent Public Accountants................................................................................ II-99 Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............................................... II-108 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995........................................... II-109 Balance Sheets at December 31, 1997 and 1996 ........................................................................... II-110 Statements of Capitalization at December 31, 1997 and 1996 ............................................................. II-112 Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995.................................... II-113 Statements of Paid-In Capital for the Years Ended December 31, 1997, 1996 and 1995...................................... II-113 Notes to Financial Statements........................................................................................... II-114 GULF: Report of Independent Public Accountants................................................................................ II-146 Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............................................... II-155 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995........................................... II-156 Balance Sheets at December 31, 1997 and 1996 ........................................................................... II-157 Statements of Capitalization at December 31, 1997 and 1996 ............................................................. II-159 Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995.................................... II-161 Statements of Paid-In Capital for the Years Ended December 31, 1997, 1996 and 1995...................................... II-161 Notes to Financial Statements........................................................................................... II-162 II-3 </TABLE>
<TABLE> <CAPTION> Page MISSISSIPPI: <S> <C> Report of Independent Public Accountants................................................................................ II-188 Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............................................... II-196 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995........................................... II-197 Balance Sheets at December 31, 1997 and 1996 ........................................................................... II-198 Statements of Capitalization at December 31, 1997 and 1996 ............................................................. II-200 Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995.................................... II-201 Statements of Paid-In Capital for the Years Ended December 31, 1997, 1996 and 1995...................................... II-201 Notes to Financial Statements........................................................................................... II-202 SAVANNAH: Report of Independent Public Accountants................................................................................ II-228 Statements of Income for the Years Ended December 31, 1997, 1996 and 1995............................................... II-235 Statements of Retained Earnings for the Years Ended December 31, 1997, 1996 and 1995.................................... II-235 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995........................................... II-236 Balance Sheets at December 31, 1997 and 1996 ........................................................................... II-237 Statements of Capitalization at December 31, 1997 and 1996 ............................................................. II-239 Notes to Financial Statements........................................................................................... II-240 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 1997 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 11, 1998 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, 1997 and 1996, 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, 1997. 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 11-17 through 11-40) referred to above present fairly, in all material respects, the financial position of Southern Company and subsidiary companies as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP Atlanta, Georgia February 11, 1998 II-7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Southern Company and Subsidiary Companies 1997 Annual Report RESULTS OF OPERATIONS Earnings and Dividends Southern Company reported 1997 earnings of $972 million or $1.42 for both basic and diluted earnings per share. The traditional core business of selling electricity in the southeastern United States remained strong, while non-traditional business results were adversely affected by a $111 million, after taxes, windfall profits tax assessed against South Western Electricity (SWEB) in the United Kingdom. SWEB is a subsidiary of Southern Energy, Inc. (Southern Energy). Excluding the windfall profits tax, Southern Energy's earnings account for 10 percent of consolidated net income in 1997. Consolidated net income decreased by $155 million compared with the amount reported for 1996. Continued cost controls and steady demand for electricity were offset by increased financing costs for the non-traditional business and the windfall profits tax. Costs related to work force reduction programs decreased earnings by $31 million or 5 cents per share and $53 million or 8 cents per share in 1997 and 1996, respectively. These costs are expected to be recovered through future savings in approximately two years following each program's implementation. In 1996, earnings were $1.1 billion or $1.68 for both basic and diluted earnings per share -- up 2 cents from the per share amount reported in 1995. Earnings in 1996, when compared with 1995 results, were affected by increased energy sales and growth in the non-traditional business. Dividends paid on common stock during 1997 were $1.30 per share or 321/2 cents per quarter. During 1996 and 1995, dividends paid per share were $1.26 and $1.22, respectively. In January 1998, the Southern Company raised the quarterly dividend to 331/2 cents per share or an annual rate of $1.34 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 acquisitions of 100 percent of Consolidated Electric Power Asia (CEPA) and a 26 percent interest in a German utility were completed in 1997. Also, Southern Energy acquired SWEB in late 1995. These businesses have been included in the consolidated financial statements since the dates of acquisition and are not reflected in prior periods. As a result, changes in revenues and expenses for Southern Energy in 1997 and 1996 reflect significant amounts related to acquisitions, which were not fully reflected in each year being compared. Therefore, to facilitate discussing the results of operations for business segments, Southern Energy's variances are primarily driven by the above reason unless otherwise noted. Revenues Operating revenues increased in 1997 and 1996 as a result of the following factors: Increase (Decrease) From Prior Year --------------------------------- 1997 1996 1995 --------------------------------- Retail -- (in millions) Growth and price change $ 105 $ 124 $ 177 Weather (110) (64) 143 Fuel cost recovery and other (13) 2 134 --------------------------------------------------------------- Total retail (18) 62 454 --------------------------------------------------------------- Sales for resale -- Within service area (28) 10 39 Outside service area 76 14 (90) --------------------------------------------------------------- Total sales for resale 48 24 (51) Southern Energy 2,154 1,040 458 Other operating revenues 69 52 22 --------------------------------------------------------------- Total operating revenues $2,253 $1,178 $ 883 =============================================================== Percent change 21.8% 12.8% 10.6% --------------------------------------------------------------- Retail revenues of $7.6 billion declined slightly compared with last year. Continued growth in the traditional service area was offset by the negative impact of weather on energy sales and by industrial and commercial customers taking advantage of lower load management rates. This trend will probably continue as the utility industry becomes much more competitive. In 1996, retail revenues barely increased by 0.8 percent compared with the year 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 $381 million in 1997, down 7.1 percent from the prior year. This decrease resulted primarily from supplying less electricity under contractual agreements with certain wholesale customers in 1997. Revenues from sales for resale within the service area were II-8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report $409 million in 1996, up 2.5 percent from the prior year. 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 were as follows: 1997 1996 1995 ------------------------------------ (in millions) Capacity $203 $217 $237 Energy 183 176 151 --------------------------------------------------------- Total $386 $393 $388 ========================================================= Capacity revenues decreased in 1997 and 1996 because the amount of capacity under contract declined slightly during 1996. Additional declines in capacity are not scheduled until after 1999. Southern Energy's revenues have escalated to $3.8 billion and $1.7 billion in 1997 and 1996, respectively. These rapid increases are primarily attributable to the development and growth of energy trading and marketing activities, primarily in 1997. Also, revenues have increased as a result of international acquisitions. In 1997, energy trading and marketing revenues increased $1.9 billion compared with amounts recorded in 1996. However, these revenues were substantially offset by purchased power expenses incurred in completing these trading and marketing transactions. Energy trading and marketing -- similar to other low margin sales activities -- is dependent on huge volumes for profitability. Changes in traditional core business revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour sales for 1997 and the percent change by year were as follows: (billions of kilowatt-hours) Amount Percent Change ---------- ---------------------------- 1997 1997 1996 1995 ---------- ---------------------------- Residential 39.2 (2.2)% 2.5% 9.2% Commercial 38.9 2.5 5.7 5.5 Industrial 54.2 2.6 2.2 2.7 Other 0.9 (1.1) 5.7 2.1 ---------- Total retail 133.2 1.1 3.3 5.4 Sales for resale -- Within service area 9.9 (9.6) 15.4 16.2 Outside service area 13.3 23.6 17.9 (15.1) ---------- Total 156.4 1.9 5.0 4.4 =================================================================== The rate of increase in 1997 retail energy sales was significantly lower than the past two years. Although the total number of residential customers served increased by 63,000 during the year, residential energy sales experienced a decline as a result of milder weather in 1997, compared with closer to normal weather in 1996. Commercial and industrial sales both in 1997 and 1996 continued to show slight gains in excess of the national averages. 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 1998 through 2008. 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 both 1997 and 1996 and declined in 1995 when compared with the respective prior year. However, these fluctuations in energy sales under long-term contracts 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 $10.7 billion for 1997 increased $2.2 billion compared with the prior year. Traditional core business expenses increased $69 million. Southern Energy's expenses increased almost $2.1 billion. The sharp increase for Southern Energy resulted primarily from two factors. First, the acquisition of CEPA is reflected only in 1997 expenses. Second, nearly $1.9 billion relates to energy trading and marketing activities, which is included in purchased power expenses. The costs to produce and deliver electricity for the traditional core business in 1997 increased by $37 million to meet higher energy demands. Also, costs related to work force reduction programs decreased in 1997 by $35 million. Traditional core business depreciation expenses and taxes other than income taxes increased by $158 million as a result of additional utility plant being placed into service and increased accelerated depreciation of certain assets. In 1996, operating expenses of $8.5 billion increased 16.6 percent compared with 1995. Traditional core business expenses increased $173 million. Southern Energy's expenses increased $976 million. The large increase for Southern Energy resulted primarily from SWEB, which was acquired in late 1995. The costs to II-9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report 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 compared with such expenses in 1995. Depreciation expense and taxes other than income taxes increased $39 million. Fuel costs constitute the single largest expense for Southern Company's traditional core business. 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 -- within the core business service area -- were as follows: 1997 1996 1995 -------------------------- Total generation (billions of kilowatt-hours) 160 156 147 Sources of generation (percent) -- Coal 77 77 77 Nuclear 17 17 17 Hydro 4 4 4 Oil and gas 2 2 2 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.63 1.65 1.73 Nuclear 0.53 0.52 0.56 Total 1.46 1.48 1.53 - -------------------------------------------------------------- Total fuel and purchased power expenses of $5.3 billion in 1997 increased $2.0 billion compared with the prior year. These expenses for traditional core business increased $32 million and, Southern Energy's portion increased $1.9 billion. The traditional core business's customer demand for electricity rose by 1.6 billion kilowatt-hours more than in 1996. The additional cost to meet the demand was offset slightly by a lower average cost of fuel per net kilowatt-hour generated. Southern Energy's increase in expenses escalated as a result of energy trading and marketing activities discussed earlier. 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. Excluding the windfall profits tax in the United Kingdom, total income taxes in 1997 declined by $66 million compared with the amount in 1996. Southern Energy's portion was a reduction of $37 million. For 1996, traditional core business income taxes decreased $40 million, and Southern Energy increased $41 million. Total net interest charges and capital and preferred stock expenses increased $248 million from amounts reported in the previous year. These costs for traditional core business overall netted out to be nearly flat compared with the reported amounts in 1996. Southern Energy's costs increased $221 million related primarily to financing acquisitions. In 1996, these same costs for traditional core business declined by $69 million, but Southern Energy's interest charges increased $85 million. The decline in costs for core business was attributable to lower interest rates and continued refinancing activities in 1996. As a result of favorable market conditions, $1.7 billion in 1997, $574 million in 1996, and $1.1 billion in 1995 of traditional senior securities were issued for the primary purpose of retiring higher-cost securities. Effects of Inflation Southern Company's traditional core business 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 Southern Company's future earnings depends on numerous factors. Two major factors are: achieving energy sales growth in a less regulated, more competitive environment; and operating non-traditional business activities successfully. II-10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report Southern Company continues to position its business to meet the challenges of a new competitive environment. Work force reduction programs have reduced earnings by $31 million, $53 million, and $17 million for the years 1997, 1996, and 1995, respectively. These actions -- in conjunction with other cost containment programs -- will assist efforts to continue being a low-cost provider of electricity. The operating companies currently operate as vertically integrated companies providing electricity to customers within the traditional service area of the southeastern United States. Prices for electricity provided by the operating companies to retail customers are set by state public service commissions under cost-based regulatory principles. 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. Georgia Power is required to file a general rate case by July 1, 1998. See Note 3 to the financial statements for information about other retail and wholesale regulatory matters. Future earnings for the operating companies in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include 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. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). 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. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of an operating company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on the financial condition of that operating company. The operating companies are attempting to minimize or reduce their cost exposure. See Note 3 to the financial statements for information regarding these efforts. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, 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. To adapt to a less regulated, more competitive environment, Southern Company continues to evaluate and consider a wide array of potential business strategies. These strategies may include business combinations, acquisitions involving other utility or non-utility businesses or properties, internal restructuring, disposition of certain assets, or some combination thereof. Furthermore, Southern Company may engage in other new business ventures that 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 Company. 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 II-11
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report evolving opportunities, Southern Energy -- founded in 1981 -- is focused on several key international and domestic business lines, including energy distribution, integrated utilities, stand-alone generation, and other energy-related products and services. As the energy marketplace evolves, Southern Energy is positioning the company to become a major competitor in energy trading and marketing activities. As part of this strategy, Southern Energy entered into a joint venture with Vastar Resources effective in January 1998. The two companies combined their energy trading and marketing operations to form a new full-service energy provider, Southern Company Energy Marketing. Also, Southern Energy is expanding its international business through acquisitions. In September 1997, Southern Energy acquired a 26 percent interest in a German utility for approximately $820 million. Also, the acquisition of CEPA for a total net investment of some $2.1 billion was completed in mid-1997. In late 1995, SWEB was acquired for approximately $1.8 billion. In July 1996, a 25 percent interest in SWEB was sold. For additional information on acquisitions, see Note 14 to the financial statements. The CEPA acquisition has a slightly dilutive impact on earnings in the near term. However, Southern Energy's investments should strengthen the opportunities for Southern Company's long-term future earnings growth. At December 31, 1997, Southern Energy's total assets amounted to $11 billion. The depreciation of southeast Asian currencies is likely to increase the cost of electricity that nationally owned utilities purchase from independent power projects relative to the prices received by those utilities from their customers. This could cause a deterioration in the financial condition of nationally owned utilities, which could potentially impact these utilities' ability to meet their obligations under existing contracts and could reduce the near-term opportunities for greenfield independent power projects in the region. However, fewer greenfield opportunities may, to some extent, be offset by increased opportunities for CEPA to acquire projects from regional developers who have been adversely affected by the financial crisis, and also by a possible increase in the pace of privatizations by regional governments needing to raise capital. Also during 1997, there was a substantial depreciation of the Philippine peso relative to the U.S. dollar. However, the long-term power sales contracts that govern CEPA's revenues from existing projects in the Philippines provide for U.S. dollar payments, or indexing to the U.S. dollar. This should sufficiently cover foreign currency costs of operation, including debt service and return on and of capital. The National Power Corporation, whose obligations are guaranteed by the Republic of the Philippines, is the counterparty to these contracts. The staff of the Securities and Exchange Commission (SEC) 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 heavily dependent upon complex computer systems for all phases of its operations. The year 2000 issue --common to most corporations -- concerns the inability of certain software and databases to properly recognize date-sensitive information related to the year 2000 and thereafter. This problem could result in a material disruption to the company's operations, if not corrected. Southern Company has assessed and developed a detailed strategy to prevent or at least minimize problems related to the year 2000 issue. In 1997, resources were committed and implementation began to modify the affected information systems. Total costs related to the project are estimated to be approximately $85 million, of which $8 million was spent in 1997. Most all remaining costs will be expensed in 1998. Implementation is currently on schedule. Although the degree of success of this project cannot be determined at this time, management believes there will be no significant effect on the company's operations. II-12
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report 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 current and future environmental laws and regulations 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 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 that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. New Accounting Standard The FASB has issued Statement No. 130, Reporting Comprehensive Income, which will be effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners (comprehensive income). Comprehensive income is the total of net income and all other non-owner changes in equity. Southern Company will adopt this statement in 1998. FINANCIAL CONDITION Overview Southern Company's financial condition continues to remain strong. The company's common stock closed 1997 with the highest year-end closing price in history. Earnings, excluding the windfall profits tax, were some $1.1 billion. Based on this performance, in January 1998, the Southern Company board of directors increased the common stock dividend for the seventh consecutive year. Gross property additions to utility plant were $1.9 billion in 1997. The majority of funds needed for gross property additions since 1994 has been provided from operating activities, principally from earnings and non-cash charges to income. Southern Energy's business acquisitions in 1997 amounted to approximately $2.9 billion. The Consolidated Statements of Cash Flows provide additional details. Derivative Financial Instruments Southern Company is exposed to market risks in both its trading and non-trading operations. The non-trading operations are exposed to market risks, including changes in interest rates, currency exchange rates, and certain commodity prices. To mitigate changes in cash flows attributable to these exposures, the company has entered into various derivative financial instruments. Company policy for non-trading activities stipulates that derivatives are to be used only for hedging purposes. Derivative positions are monitored using techniques that include market value and sensitivity analysis. Interest rate swaps are used to hedge underlying debt obligations. These swaps hedge specific debt issuances and therefore qualify for hedge accounting. The company has interest rate swaps in various currencies. These match debt issued in the same currency. In cases where debt is issued in currencies other than the functional currency, currency swaps convert the exposure to that of the functional currency. For qualifying hedges, the interest rate differential is reflected as an adjustment to interest expense over the life of the instruments. If the company sustained a 100 basis point change in interest rates for all variable rate debt in all currencies, the change would affect annualized interest expense by approximately $35 million at December 31, 1997. Based on the company's overall interest rate exposure at December 31, 1997, including derivative and other interest rate sensitive instruments, a near-term 100 basis point change in interest rates would not materially affect the consolidated financial statements. The company has investments in various emerging market countries where the net investments are not hedged, including Argentina, Chile, Trinidad, Bahamas, Philippines, and China. The company relies on either currency pegs or contractual or regulatory links to the U.S. dollar to mitigate currency risk attributable to these investments. The company does not believe it has a material exposure to changes in exchange rates between the U.S. dollar and the currencies of these countries. The company also has investments in the United Kingdom and Germany, and for these investments the company uses long-term cross-currency agreements to reduce a substantial portion of its exposure to fluctuations in the British pound sterling and German Deutschemark. These instruments are used to hedge its net investments in these countries. As a II-13
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report result of these swaps, a 10 percent sustained decline of the British pound sterling and German Deutschemark versus the U.S. dollar would not materially affect the consolidated financial statements. The company also uses currency swaps and forward agreements to hedge dollar denominated debt issued by subsidiaries with different functional currency. These swaps offset the dollar flows, thereby effectively converting debt to the appropriate currency. Gains and losses related to qualified hedges of foreign currency firm commitments are deferred and included in the basis of the underlying transactions. In addition to the non-trading activities, the company is exposed to market risks through its electricity and natural gas commodity trading business. To estimate and manage the market risk of its trading and marketing portfolio, Southern Energy employs a daily Value at Risk (VAR) methodology. VAR is used to describe a probabilistic approach to measuring the exposure to market risk. VAR models are relatively sophisticated. However, the quantitative risk information is limited by the parameters established in creating the model. The instruments being evaluated may have features that may trigger a potential loss in excess of calculated amounts if the changes in commodity prices exceed the confidence level of the model used. The calculation utilizes the standard deviation of seasonally adjusted historical changes in the value of the market risk sensitive commodity-based financial instruments to estimate the amount of change (i.e., volatility) in the current value of these instruments that could occur at a specified confidence level over a specified holding interval. The parameters used in the calculation include holding intervals ranging from five to 20 days, depending upon the type of instrument, the term of the instrument, the liquidity of the underlying market, and other factors. The models employed a 95 percent confidence level based on historical price movement. Based on the company's VAR analysis of its overall commodity price risk exposure at December 31, 1997, management does not anticipate a materially adverse effect on the company's consolidated financial statements as a result of market fluctuations. In the United Kingdom, the company utilizes 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 electricity purchases on approximately 20 billion kilowatt-hours through the year 2008. The gains or losses realized on such contracts are deferred and recognized as electricity is purchased. Because of the absence of a trading market, it is not practicable to estimate the fair value of these contracts. Due to cost-based rate regulations, the operating companies have limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the operating companies enter into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1997, exposure from these activities was not material to the consolidated financial statements. For additional information, see Note 1 to the financial statements under "Financial Instruments for Non-Trading and Trading." Capital Structure Southern Company achieved a ratio of common equity to total capitalization -- including short-term debt -- of 38.6 percent in 1997, compared with 45.1 percent in 1996, and 42.4 percent in 1995. During 1997, the subsidiary companies sold, through public authorities, $404 million of pollution control revenue bonds. Preferred securities of $1.3 billion were issued in 1997. The companies continued to reduce financing costs by retiring higher-cost bonds and preferred stock. Retirements, including maturities, of bonds totaled $507 million during 1997, $600 million during 1996, and $1.3 billion during 1995. As a result, the composite interest rate on long-term debt decreased from 7.2 percent at December 31, 1994 to 6.6 percent at December 31, 1997. Retirements of preferred stock totaled $660 million during 1997, $179 million during 1996, and $1 million during 1995. In 1997, Southern Company raised $360 million from the issuance of new common stock under the company's various stock plans. At the close of 1997, the company's common stock had a market value of 257/8 per share, compared with a book value of $13.91 per share. The market-to-book value ratio was 186 percent at the end of 1997, compared with 166 percent at year-end 1996, and 188 percent at year-end 1995. II-14
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report Capital Requirements for Construction The construction program of Southern Company is budgeted at $2.0 billion for 1998, $2.0 billion for 1999, and $1.6 billion for 2000. 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 will be fully recovered. The operating companies have approximately 1,600 megawatts of combined cycle generation scheduled to be placed in service by 2001. Southern Energy has under construction some 1,400 megawatts of owned capacity. Significant construction of transmission and distribution facilities and upgrading of generating plants will be continuing for the core business in the Southeast. Other Capital Requirements In addition to the funds needed for the construction program, approximately $2.5 billion will be required by the end of 2000 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. 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 -- significantly affected 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. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I compliance totaled approximately $300 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 necessary to meet Phase II limits and ozone non-attainment requirements for metropolitan Atlanta through 2000. Current compliance strategy for Phase II and ozone non-attainment could require total estimated construction expenditures of approximately $70 million, of which $55 million remains to be spent. 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. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. Also, in October 1997, the EPA issued a proposed regional ozone rule -- if implemented -- that could make substantial further reductions in NOx emissions from fossil-fueled generating facilities. Implementation of the standards and the proposed rule could result in significant additional compliance costs and capital expenditures that cannot be determined at this time. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: 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 $4 million in 1997 and $8 million in 1995. In 1996, the company was reimbursed $6 million for amounts previously expensed. Additional sites may II-15
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Southern Company and Subsidiary Companies 1997 Annual Report 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 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 The amount and timing of additional equity capital to be raised in 1998 -- 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 1998 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 were primarily from internal sources. However, the type and timing of any financings - -- if needed -- will depend on market conditions and regulatory approval. The operating companies historically have relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for their benefit by public authorities, to meet their long-term external financing requirements. Recently, the operating companies' financings have consisted of unsecured debt and trust preferred securities. In this regard, the operating companies -- except Savannah Electric -- sought and obtained stockholder approval in 1997 to amend their respective corporate charters eliminating restrictions on the amounts of unsecured indebtedness they may incur. To meet short-term cash needs and contingencies, Southern Company had approximately $601 million of cash and cash equivalents and $4.9 billion of unused credit arrangements with banks at the beginning of 1998. Cautionary Statement Regarding Forward-Looking Information Southern Company's 1997 Annual Report contains forward-looking statements in addition to historical information. The company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the markets of the subsidiary companies; potential business strategies -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by the company; state and federal rate regulation in the United States; changes in or application of environmental and other laws and regulations to which the company and its subsidiaries are subject; political, legal and economic conditions and developments in the United States and in foreign countries in which the subsidiaries operate; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; the performance of projects undertaken by the non-traditional business and the success of efforts to invest in and develop new opportunities; and other factors discussed in the reports -- including Form 10-K -- filed from time to time by the company with the SEC. II-16
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996, and 1995 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Revenues $ 12,611 $ 10,358 $9,180 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,281 2,245 2,126 Purchased power 3,033 1,103 491 Other 1,930 1,860 1,626 Maintenance 763 782 683 Depreciation and amortization 1,246 996 904 Amortization of deferred Plant Vogtle costs, net 121 137 124 Taxes other than income taxes 572 634 535 Income taxes 725 747 805 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 10,671 8,504 7,294 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 1,940 1,854 1,886 Other Income: Allowance for equity funds used during construction 6 4 5 Interest income 152 54 38 Other, net 53 42 (65) Income taxes applicable to other income 34 (10) 36 Windfall profits tax assessed in United Kingdom (Note 8) (148) - - ------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 2,037 1,944 1,900 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 678 530 557 Allowance for debt funds used during construction (14) (19) (20) Interest on notes payable 112 107 63 Amortization of debt discount, premium, and expense, net 34 33 44 Other interest charges 63 46 43 Minority interest in subsidiaries 29 13 13 Distributions on capital and preferred securities of subsidiary companies 120 22 9 Preferred dividends of subsidiary companies 43 85 88 - -------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 1,065 817 797 - -------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 972 $ 1,127 $1,103 ================================================================================================================================ Common Stock Data: (Note 9) Average number of shares of common stock outstanding (in millions) 685 673 665 Basic and diluted earnings per share of common stock $1.42 $1.68 $1.66 Cash dividends paid per share of common stock $1.30 $1.26 $1.22 - -------------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1997, 1996, and 1995 ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in millions) Balance at Beginning of Year $ 3,764 $ 3,483 $3,191 Consolidated net income 972 1,127 1,103 - -------------------------------------------------------------------------------------------------------------------------------- 4,736 4,610 4,294 Cash dividends on common stock 889 846 811 Capital and preferred stock transactions, net 5 - - - -------------------------------------------------------------------------------------------------------------------------------- Balance at End of Year (Note 9) $ 3,842 $ 3,764 $3,483 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-17
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996, and 1995 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in millions) Operating Activities: Consolidated net income $ 972 $ 1,127 $ 1,103 Adjustments to reconcile consolidated net income to net cash provided by operating activities -- Depreciation and amortization 1,471 1,201 1,134 Deferred income taxes and investment tax credits (5) 57 117 Allowance for equity funds used during construction (6) (4) (5) Amortization of deferred Plant Vogtle costs, net 121 137 124 Gain on asset sales (25) (59) (33) Other, net (61) 54 (121) Changes in certain current assets and liabilities excluding effects from acquisitions -- Receivables, net (238) (92) (109) Fossil fuel stock 56 57 28 Materials and supplies 21 47 11 Accounts payable 138 19 (138) Other 181 (143) 204 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 2,625 2,401 2,315 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,859) (1,229) (1,401) Southern Energy business acquisitions, net of cash acquired (2,925) - (1,416) Sales of property 32 211 287 Other (13) (275) 153 - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (4,765) (1,293) (2,377) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds -- Common stock 360 171 277 Capital and preferred securities 1,321 322 - First mortgage bonds - 85 375 Other long-term debt 2,499 1,570 1,805 Retirements -- Preferred stock (660) (179) (1) First mortgage bonds (168) (426) (538) Other long-term debt (802) (1,754) (902) Increase (decrease) in notes payable, net 509 (268) 727 Payment of common stock dividends (889) (846) (811) Miscellaneous 126 (110) (237) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 2,296 (1,435) 695 - -------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 156 (327) 633 Cash and Cash Equivalents at Beginning of Year 445 772 139 - -------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 601 $ 445 $ 772 ================================================================================================================================ Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $876 $677 $622 Income taxes $823 $706 $645 Southern Energy business acquisitions -- Fair value of assets acquired $4,768 $- $2,745 Less cash paid for common stock 2,925 - 1,416 - ------------------------------------------------------------------------------------------------------------------------------- Liabilities assumed $1,843 $- $1,329 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-18
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS At December 31, 1997 and 1996 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> ======================================================================================================================= Assets 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- (in millions) Utility Plant: Plant in service (Note 1) $34,044 $33,260 Less accumulated provision for depreciation 11,934 10,921 - ----------------------------------------------------------------------------------------------------------------------- 22,110 22,339 Nuclear fuel, at amortized cost 230 246 Construction work in progress (Note 4) 1,312 684 - ----------------------------------------------------------------------------------------------------------------------- Total 23,652 23,269 - ----------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Goodwill, being amortized (Note 14) 1,888 318 Leasehold interests, being amortized 1,389 416 Equity investments in subsidiaries 1,168 227 Nuclear decommissioning trusts 387 279 Miscellaneous 742 261 - ----------------------------------------------------------------------------------------------------------------------- Total 5,574 1,501 - ----------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 601 445 Special deposits 17 62 Receivables, less accumulated provisions for uncollectible accounts of $77 million in 1997 and $32 million in 1996 2,100 1,440 Fossil fuel stock, at average cost 214 270 Materials and supplies, at average cost 493 510 Prepayments 99 87 Vacation pay deferred 79 77 - ----------------------------------------------------------------------------------------------------------------------- Total 3,603 2,891 - ----------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 1,142 1,238 Prepaid pension costs 399 341 Deferred Plant Vogtle costs 50 171 Debt expense, being amortized 101 81 Premium on reacquired debt, being amortized 285 289 Miscellaneous 465 449 - ----------------------------------------------------------------------------------------------------------------------- Total 2,442 2,569 - ----------------------------------------------------------------------------------------------------------------------- Total Assets $35,271 $30,230 ======================================================================================================================= The accompanying notes are an integral part of these balance sheets. </TABLE> II-19
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS At December 31, 1997 and 1996 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> =============================================================================================================================== Capitalization and Liabilities 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- (in millions) Capitalization (See(Seeoaccompanyingtstatements): Common stock equity $ 9,647 $ 9,216 Preferred stock of subsidiaries 493 980 Company or subsidiary obligated mandatorily redeemable capital and preferred securities 1,744 422 Long-term debt 10,274 7,938 - ------------------------------------------------------------------------------------------------------------------------------- Total 22,158 18,556 - ------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Amount of securities due within one year 784 364 Notes payable 2,064 1,483 Accounts payable 1,049 788 Customer deposits 133 132 Taxes accrued- Federal and state income 120 12 Other 259 193 Interest accrued 262 187 Vacation pay accrued 108 104 Miscellaneous 608 535 - ------------------------------------------------------------------------------------------------------------------------------- Total 5,387 3,798 - ------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 4,650 4,738 Deferred credits related to income taxes (Note 8) 746 814 Accumulated deferred investment tax credits 754 788 Employee benefits provisions 447 439 Minority interests in subsidiaries 435 375 Prepaid capacity revenues 110 122 Department of Energy assessments 72 81 Disallowed Plant Vogtle capacity buyback costs 56 57 Storm damage reserves 38 35 Miscellaneous 418 427 - ------------------------------------------------------------------------------------------------------------------------------- Total 7,726 7,876 - ------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, 7, 13, and 14) Total Capitalization and Liabilities $ 35,271 $ 30,230 =============================================================================================================================== The accompanying notes are an integral part of these balance sheets. </TABLE> II-20
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CAPITALIZATION At December 31, 1997 and 1996 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> <C> ============================================================================================================================== 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Common Stock Equity: Common stock, par value $5 per share -- Authorized -- 1 billion shares Outstanding -- 1997: 693 million shares 1996: 677 million shares $ 3,467 $ 3,385 Paid-in capital 2,338 2,067 Retained earnings (Note 9) 3,842 3,764 - ------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 9,647 9,216 43.5% 49.7% - ------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock of Subsidiaries: $100 par or stated value -- 4.20% to 5.96% 89 199 6.32% to 7.88% 47 130 $25 par or stated value -- $1.90 to $1.9875 - 191 6.40% to 7.60% 131 323 Auction rates -- at January 1, 1998: 4.20% to 4.235% 70 70 Adjustable rates -- at January 1, 1998: 4.67% to 5.27% 156 240 - ------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $27 million) 493 1,153 Less amount due within one year - 173 - ------------------------------------------------------------------------------------------------------------------------------- Total excluding amount due within one year 493 980 2.2 5.3 - ------------------------------------------------------------------------------------------------------------------------------- Company or Subsidiary Obligated Mandatorily Redeemable Capital and Preferred Securities (Note 10): $25 liquidation value -- 7.375% 97 97 7.60% to 7.625 % 415 - 7.75% 649 225 8.14% to 9% 583 100 - ------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $138 million) 1,744 422 7.9 2.3 - ------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-21
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CAPITALIZATION (continued) At December 31, 1997 and 1996 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> <C> =================================================================================================================================== 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- (in millions) (percent of total) Long-Term Debt of Subsidiaries: First mortgage bonds -- Maturity Interest Rates 1997 5 7/8 % - 25 1997 8.665% - 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 6.85% to 8.665% 260 260 2003 through 2007 6.07% to 8.665% 944 944 2008 through 2012 6 7/8% to 8.665% 121 121 2013 through 2017 8.665% 73 73 2018 through 2022 8.30% to 9 1/4% 476 612 2023 through 2026 6 7/8% to 9% 1,109 1,109 - ----------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 3,952 4,120 Other long-term debt (Note 11) 7,191 4,084 Unamortized debt premium (discount), net (85) (75) - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $738 million) 11,058 8,129 Less amount due within one year (Note 12) 784 191 - ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 10,274 7,938 46.4 42.7 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 22,158 $ 18,556 100.0% 100.0% =================================================================================================================================== CONSOLIDATED STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1997, 1996, and 1995 =================================================================================================================================== 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- (in millions) Balance at Beginning of Year $2,067 $1,941 $1,712 Proceeds from sales of common stock over the par value -- 16.4 million, 7.5 million, and 13.0 million shares in 1997, 1996, and 1995, respectively 278 133 212 Miscellaneous (7) (7) 17 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at End of Year $2,338 $2,067 $1,941 =================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-22
NOTES TO FINANCIAL STATEMENTS Southern Company and Subsidiary Companies 1997 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 Company Energy Solutions, Southern Energy, Inc. (Southern Energy), Southern Nuclear Operating Company (Southern Nuclear), 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) and/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 Company Energy Solutions develops new business opportunities related to energy products and services. Worldwide, Southern Energy develops and manages electricity and other energy related projects, including domestic energy trading and marketing. Southern Nuclear provides services to Southern Company's nuclear power plants. 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 controlled subsidiaries on a consolidated basis and other investments on an equity basis. Effective in January 1998, Southern Energy and Vastar Resources combined their energy trading and marketing activities to form a joint venture. Southern Energy's investment in the joint venture will be accounted for under the equity method of accounting. Certain prior years' data presented in the consolidated financial statements have been reclassified to conform with the 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 expected 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: 1997 1996 ------------------------ (in millions) Deferred income taxes $1,142 $1,238 Deferred Plant Vogtle costs 50 171 Premium on reacquired debt 285 289 Demand-side programs 11 44 Department of Energy assessments 63 69 Vacation pay 79 77 Deferred fuel charges 4 29 Postretirement benefits 38 38 Work force reduction costs 37 48 Deferred income tax credits (746) (814) Storm damage reserves (36) (32) Other, net 152 114 - ----------------------------------------------------------------- Total $1,079 $1,271 ================================================================= In the event that a portion of an operating company's operations is no longer subject to the provisions of FASB Statement No. 71, the company would be required to write off related net regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. II-23
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report 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, the energy component of purchased power costs, and certain other costs. Revenues are adjusted for differences between recoverable fuel costs and amounts actually recovered in current rates. Southern Energy's revenues for product sales and marketing services are recognized when title passes to the customer or when service is performed. The operating companies have a diversified base of customers. No single customer or industry comprises 10 percent or more of revenues. In 1997, 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 $144 million in 1997, $142 million in 1996, and $140 million in 1995. 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 cask 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 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, 1997, under this law to be approximately $34 million and $27 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 3.4 percent in 1997 and 3.3 percent in 1996 and 1995. 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 $159 million in 1997, $24 million in 1996, and $6 million in 1995. See Note 3 under "Georgia Power Retail Accounting Order" for additional information. The Nuclear Regulatory Commission (NRC) requires 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 II-24
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report specific facility as of retirement date. The estimated costs of decommissioning - -- both site study costs and ultimate costs -- at December 31, 1997, 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 1997 1997 Decommissioning periods: Beginning year 2017 2014 2027 Completion year 2029 2027 2038 - ----------------------------------------------------------------- (in millions) Site study costs: Radiated structures $489 $372 $317 Non-radiated structures 89 33 44 - ----------------------------------------------------------------- Total $578 $405 $361 ================================================================= Ultimate costs: Radiated structures $1,504 $722 $922 Non-radiated structures 274 65 129 - ----------------------------------------------------------------- Total $1,778 $787 $1,051 ================================================================= Plant Plant Plant Farley Hatch Vogtle ----------------------------- (in millions) Amount expensed in 1997 $ 18 $ 11 $ 9 Accumulated provisions: Balance in external trust funds $193 $118 $76 Balance in internal reserves 44 23 13 - ------------------------------------------------------------------ Total $237 $141 $89 ================================================================== Significant assumptions: Inflation rate 4.5% 3.6% 3.6% Trust earning rate 7.0 6.5 6.5 - ------------------------------------------------------------------ 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 currently included in cost of service. Georgia Power's decommissioning costs currently included in cost of service are $320 million and $267 million for plants Hatch and Vogtle, respectively. The estimated ultimate costs associated with the amounts currently included in cost of service are $781 million and $1.1 billion for plants Hatch and Vogtle, respectively. 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 these 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 1995 through 1997 ranged from a before-income-tax rate of 5.8 percent to 9.8 percent. AFUDC, net of income tax, as a percent of consolidated net income was 1.6 percent in 1997, 1.4 percent in 1996, and 1.6 percent in 1995. 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 charged to maintenance expense. The cost of replacements of property -- exclusive of minor items of property -- is charged to utility plant. II-25
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report Leasehold Interests Leasehold interests include Southern Energy's power generation facilities that are developed under build, operate, and transfer agreements with foreign governments. Southern Energy's construction costs are initially recorded as construction work in progress, and -- after completion -- these costs are recorded as leasehold interests. These costs are amortized over the length of time the facility is operated before transferring ownership to the local government. 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. Foreign Currency Translation Assets and liabilities of Southern Company's international operations, where the local currency is the functional currency, have been translated at year-end exchange rates, and revenues and expenses have been translated using average exchange rates prevailing during the year. Adjustments resulting from translation have been recorded in stockholders' equity. The financial statements of international operations, where the U.S. dollar is the functional currency and when certain transactions are denominated in a local currency, are remeasured in U.S. dollars. The remeasurement of local currencies into U.S. dollars creates adjustments. These adjustments and all gains and losses from foreign currency transactions are included in consolidated net income. Foreign exchange gains and losses are not material for all periods presented. Financial Instruments for Non-Trading Non-trading derivative financial instruments are used to hedge exposures to fluctuations in interest rates, foreign currency exchange rates, and certain commodity prices. Gains and losses on qualifying hedges are deferred and recognized either in income or as an adjustment to the carrying amount when the hedged transaction occurs. The company utilizes interest rate swaps and cross currency interest rate swaps to minimize borrowing costs by changing the interest rate and currency of the original borrowing. For qualifying hedges, the interest rate differential is reflected as an adjustment to interest expense over the life of the swaps. Southern Company's international operations are exposed to the effects of foreign exchange rate fluctuations. To protect against this exposure, the company utilizes currency swaps to hedge its net investment in certain foreign subsidiaries, which has the effect of converting foreign currency cash inflows into U.S. dollars at fixed exchange rates. Gains or losses on these currency swaps, designated as hedges of net investment, are offset against the translation effects reflected in stockholders' equity, net of tax. Non-trading financial derivative instruments held at December 31, 1997, were as follows: Year of Unrecognized Maturity or Notional Gain Type Termination Amount (Loss) - ------------------------------------ --------------------------- (in millions) Interest rate swaps: 2002-2012 $710 $(33) 2001-2012 (pound)500 $(52) 2002-2007 DM691 $(3) Cross currency swaps 2001-2007 (pound)439 $6 Cross currency swaption 2003 DM570 $1 - --------------------------------------------------------------- (pound) - Denotes British pound sterling. DM - Denotes Deutschemark. The company is exposed to losses related to financial instruments in the event of counterparties' nonperformance. The company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the company's exposure to counterparty credit risk. The company does not expect any of the counterparties to fail to meet their obligations. In the United Kingdom, the company utilizes 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 electricity purchases of approximately 20 billion kilowatt-hours through the year 2008. The gains or losses realized on such contracts are deferred and recognized as electricity is purchased. Because of the absence of a trading market, it is not practicable to estimate the fair value of these contracts . II-26
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report 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, 1997 $10,916 $11,160 At December 31, 1996 7,975 8,122 Capital and preferred securities: At December 31, 1997 1,744 1,826 At December 31, 1996 422 427 - ----------------------------------------------------------------- The fair values for long-term debt and capital and preferred securities were based on either closing market price or closing price of comparable instruments. Financial Instruments for Trading Derivative financial instruments used for trading purposes primarily relate to commodities associated with the energy sector, such as electricity, natural gas, and crude oil. These instruments are recorded at fair value for balance sheet purposes. The determination of fair value considers various factors, such as closing exchange prices, broker price quotations, and model pricing. Model pricing considers time value and volatility factors underlying any options and contractual commitments. These transactions are accounted for using the mark-to-market method of accounting in which the unrealized gains or losses resulting from the impact of price movements are recognized as net gains or losses in the consolidated statements of income. If the company has a master netting agreement with counterparties, net positions are recognized for consolidated balance sheet and income statement purposes. The company provides price risk management services by entering into a variety of contractual commitments such as price cap and floor agreements, futures contracts, forward purchase and sale agreements, and option contracts. These contracts generally require future settlement, and are either executed on an exchange or traded as over-the-counter (OTC) instruments. Contractual commitments have widely varying terms and durations that range from a few hours to a number of years depending on the instrument. The majority of the company's transactions are short-term in duration, with a weighted average maturity of approximately 1.3 years and 0.6 years at December 31, 1997 and 1996, respectively. All contractual commitments used for trading purposes are recorded at fair value. Contracts in a net receivable position, as well as options held, are reported as assets. Similarly, contractual commitments in a net payable position, as well as options written, are reported as liabilities. The net unrealized gain from risk management services amounted to $8 million at December 31, 1997. Southern Company has made guarantees to certain counterparties regarding performance of contractual commitments by its affiliates related to trading and marketing activities. Contractual commitments reflected in the Consolidated Balance Sheets at December 31 were as follows: Net Fair Value Notional ------------------------- Amounts 1997 (Kilowatt-Hours) Assets Liabilities - ---------- --------------------------------------------- (in millions) Exchange-issued products: Futures contracts 904 $14 $15 Other 958 1 1 - ------------------------------------------------------------------- Total 1,862 15 16 - ------------------------------------------------------------------- OTC products: Forward contracts 2,643 69 62 Swaps (473) 1 - Other 639 9 8 - ------------------------------------------------------------------- Total 2,809 79 70 - ------------------------------------------------------------------- Total 4,671 $94 $86 =================================================================== Net Fair Value Notional ----------------------- Amounts 1996 (Kilowatt-Hours) Assets Liabilities - ------------ --------------------------------------------- (in millions) Exchange-issued products: Futures contracts 42 $ 3 $ 3 Other 105 - - - ------------------------------------------------------------------- Total 147 3 3 - ------------------------------------------------------------------- OTC products: Forward contracts 56 15 15 Swaps - - - Other 51 - - - ------------------------------------------------------------------- Total 107 15 15 - ------------------------------------------------------------------- Total 254 $18 $18 =================================================================== II-27
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report Notional amounts -- stated in equivalent millions of kilowatt-hours -- are indicative only of the volume of activity and are not a measure of market risk. Notional amounts of natural gas and crude oil positions are reflected in equivalent kilowatt-hours based on standard conversion rates. The company has established controls to determine and monitor the creditworthiness of counterparties in order to mitigate the company's exposure to counterparty credit risk. A concentration of counterparties may impact the company's overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory, or other conditions. The annual average gross balances of the company's options and contractual commitments used for trading purposes, based on month-end balances were as follows: Average Fair Value ------------------------- 1997 Assets Liabilities - ----------- ------------------------- (in millions) Commodity instruments: Electricity $97 $94 Gas 6 6 Other 7 6 Average Fair Value ------------------------- 1996 Assets Liabilities - ----------- ------------------------- (in millions) Commodity instruments: Electricity $19 $18 Gas 1 1 Other - - - ---------------------------------------------------------------- Materials and Supplies Generally, materials and supplies include the costs 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 Plans 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. The operating companies fund trusts to the extent deductible under federal income tax regulations or to the extent required by their 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 was expensed each succeeding year until the costs were 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. II-28
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report Funded Status and Cost of Benefits The funded status of the plans and reconciliation to amounts reflected in the Consolidated Balance Sheets at December 31 were as follows: Pension ----------------------- 1997 1996 ----------------------- (in millions) Actuarial present value of benefit obligation: Vested benefits $ 2,891 $ 2,730 Non-vested benefits 83 119 - ------------------------------------------------------------------ Accumulated benefit obligation 2,974 2,849 Additional amounts related to projected salary increases 728 775 - ------------------------------------------------------------------ Projected benefit obligation 3,702 3,624 Less: Fair value of plan assets 5,953 5,258 Unrecognized net gain (1,877) (1,314) Unrecognized prior service cost 126 135 Unrecognized transition asset (101) (114) - ------------------------------------------------------------------ Prepaid asset recognized in the Consolidated Balance Sheets $ 399 $ 341 ================================================================== Postretirement Benefits ---------------------------- 1997 1996 --------------- ------------ (in millions) Actuarial present value of benefit obligation: Retirees and dependents $477 $409 Employees eligible to retire 85 78 Other employees 373 383 - ------------------------------------------------------------------- Accumulated benefit obligation 935 870 Less: Fair value of plan assets 335 260 Unrecognized net loss (gain) 68 79 Unrecognized prior service cost (4) (5) Unrecognized transition obligation 233 249 - ------------------------------------------------------------------- Accrued liability recognized in the Consolidated Balance Sheets $303 $287 =================================================================== The weighted average rates assumed in the actuarial calculations were: 1997 1996 1995 --------------------------------- Discount 7.5% 7.8% 7.3% Annual salary increase 5.0 5.3 4.8 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 8.8 percent for 1997, decreasing gradually to 5.5 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, 1997, by $80 million and the aggregate of the service and interest cost components of the net retiree cost by $7 million. Components of the plans' net costs are shown below: Pension --------------------------- 1997 1996 1995 --------------------------- (in millions) Benefits earned during the year $ 94 $ 99 $ 79 Interest cost on projected benefit obligation 271 267 193 Actual return on plan assets (856) (564) (730) Net amortization and deferral 417 152 412 - ------------------------------------------------------------------- Net pension cost (income) $ (74) $ (46) $ (46) =================================================================== Of the above net pension income, $52 million in 1997, $37 million in 1996, and $30 million in 1995 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits --------------------------- 1997 1996 1995 --------------------------- (in millions) Benefits earned during the year $ 18 $ 20 $ 28 Interest cost on accumulated benefit obligation 67 60 67 Amortization of transition obligation 15 15 27 Actual return on plan assets (28) (17) (23) Net amortization and deferral 12 6 12 - ------------------------------------------------------------------ Net postretirement costs $ 84 $ 84 $111 ================================================================== Of the above net postretirement costs, $70 million in 1997, $64 million in 1996, and $78 million in 1995 were charged to operating expenses, and $3 million in 1996 and $11 million in 1995 were deferred. The remainder for each year 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 $50 million, $85 million, and $42 million for the years 1997, 1996, and 1995, respectively. In addition, certain costs of these programs were deferred and are being amortized in II-29
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report accordance with regulatory treatment. The unamortized balance of these costs was $37 million at December 31, 1997. 3. LITIGATION AND REGULATORY MATTERS 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, 1997, 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. The plant went into commercial operation in 1995. In June 1996, the GPSC initiated a review of this plant. On January 14, 1998, the GPSC ordered that Georgia Power be allowed to include approximately $108 million of its $143 million investment in rate base as of December 31, 1998. Georgia Power has appealed the GPSC's order to the Superior Court of Fulton County, Georgia. If the order is upheld, Georgia Power will be required to record a write-off currently estimated to be approximately $29 million, after taxes. The final outcome of this matter cannot now be determined. Accordingly, no provision related to the GPSC's disallowance has been recorded. 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 II-30
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report of refunds could range up to approximately $194 million at December 31, 1997. Although management believes that rates are not excessive and that refunds are not justified, the final outcome of this matter cannot now be determined. Southern Company Tax Litigation In August 1997, Southern Company and the Internal Revenue Service (IRS) entered into a settlement agreement related to tax issues for the years 1984 through 1987. The agreement is subject to the review and approval by the Joint Congressional Committee on Taxation. If approved by the Joint Committee, the agreement would resolve all issues in the case for the years before the U.S. Tax Court, resulting in a refund to Southern Company of approximately $162 million. This amount includes interest of $76 million. The tax litigation was related to a timing issue as to when taxes should have been paid; therefore, only the interest portion will affect future income. There can be no assurance that such Joint Committee approval will be received. 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. In April 1997, the APSC issued an additional order authorizing Alabama Power to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by Alabama Power. 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 a three-year accounting order, effective 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 superior court ruled that statutory requirements applicable to rate cases were not followed and remanded the matter to the GPSC. In October 1997, the Georgia Court of Appeals upheld the accounting order and reversed the superior court's decision. This matter is now concluded. 4. CONSTRUCTION PROGRAM The system companies are engaged in continuous construction programs, currently estimated to total some $2.0 billion in 1998, $2.0 billion in 1999, and $1.6 billion in 2000. 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, 1997, significant purchase commitments were outstanding in connection with the construction program. The operating companies have approximately 1,600 megawatts of combined cycle generation scheduled to be placed in service by 2001. Southern Energy has under construction some 1,400 II-31
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report megawatts of owned capacity. In addition, 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 The amount and timing of additional equity capital to be raised in 1998 -- 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 long-term debt and preferred securities primarily for debt maturities and for redeeming higher-cost securities if market conditions permit. Bank Credit Arrangements At the beginning of 1998, unused credit arrangements with banks totaled $4.9 billion, of which $3.0 billion expires during 1998, $800 million during 1999 to 2001, and $1.0 billion during 2002. The following table outlines the credit arrangements by company: Amount of Credit ----------------------------------------- Expires -------------------- 1999 & Company Total Unused 1998 beyond - ------------- ----------------------------------------- (in millions) Alabama Power $ 814 $ 814 $ 679 $ 135 Georgia Power 1,144 1,144 919 225 Gulf Power 103 94 94 - Mississippi Power 96 76 56 20 Savannah Electric 41 41 21 20 Southern Company 2,000 2,000 1,000 1,000 Southern Energy 1,038 635 193 442 Other 70 66 66 - ------------------------------------------ Total $5,306 $4,870 $3,028 $1,842 ========================================== Approximately $2.1 billion of the credit facilities allows for term loans ranging from one to three years. Most of the agreements include stated borrowing rates but also allow for competitive bid loans. All of the credit arrangements require payment of commitment fees based on the unused portion of the commitments or the maintenance of compensating balances with the banks. These balances are not legally restricted from withdrawal. Of Southern Company's credit facilities, $1.7 billion is a syndicated credit arrangement which also requires the payment of agent fees. A portion of the $4.9 billion unused credit with banks is allocated to provide liquidity support to the companies' variable rate pollution control bonds. At December 31, 1997, the amount of the credit lines allocated for this purpose was $1.2 billion. 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, Georgia Power, and Southern Energy, 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-32
NOTES (continued) Southern Company and Subsidiary Companies 1997 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, 1997, were as follows: Purchased Year Fuel Power - ----------- ------------------------------ (in millions) 1998 $ 2,081 $ 338 1999 1,596 164 2000 1,235 175 2001 1,122 178 2002 1,005 182 2003 and thereafter 4,580 1,720 - ------------------------------------------------------------- Total commitments $11,619 $2,757 ============================================================= Operating Leases Southern Company has operating lease agreements with various terms and expiration dates. These expenses totaled $33 million, $23 million, and $17 million for 1997, 1996, and 1995, respectively. At December 31, 1997, estimated minimum rental commitments for noncancelable operating leases were as follows: Year Amounts - -------- ----------------- (in millions) 1998 $ 39 1999 37 2000 32 2001 28 2002 28 2003 and thereafter 291 - ------------------------------------------------------------- Total minimum payments $455 ============================================================= 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, 1997, 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 $1,100 Plant Hatch (nuclear) 50.1 840 477 Plant Miller (coal) Units 1 and 2 91.8 717 311 Plant Scherer (coal) Units 1 and 2 8.4 112 44 Plant Wansley (coal) 53.5 298 136 Rocky Mountain (pumped storage) 25.4 202 44 Intercession City (combustion turbine) 33.3 13 * - ------------------------------------------------------------------ *Less than $1 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. 7. LONG-TERM POWER SALES AGREEMENTS 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 amounted to $203 million in 1997, $217 million in 1996, and $237 million in 1995. 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 II-33
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report 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, 1997, the tax-related regulatory assets and liabilities were $1.1 billion and $746 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 income tax provisions are as follows: 1997 1996 1995 ----------------------------- (in millions) Total provision for income taxes: Federal -- Currently payable $ 547 $569 $ 567 Deferred -- current year 188 116 185 -- reversal of prior years (160) (74) (111) - -------------------------------------------------------------------- 575 611 641 - -------------------------------------------------------------------- State -- Currently payable 104 82 90 Deferred -- current year 15 23 26 -- reversal of prior years (19) (9) (12) - -------------------------------------------------------------------- 100 96 104 - -------------------------------------------------------------------- International - Windfall profits tax assessed in United Kingdom 148 - - Other 16 50 24 - -------------------------------------------------------------------- Total 839 757 769 Less income taxes charged (credited) to other income 114 10 (36) - -------------------------------------------------------------------- Total income taxes charged to operations $ 725 $747 $ 805 ==================================================================== The first half of the windfall profits tax assessed in the United Kingdom was paid in December 1997, and the remainder is due December 1998. 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: 1997 1996 --------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $3,345 $2,981 Property basis differences 1,756 2,154 Other 269 362 - ----------------------------------------------------------------- Total 5,370 5,497 - ----------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 108 110 Other property basis differences 245 253 Deferred costs 116 139 Pension and other benefits 72 68 Other 197 214 - ----------------------------------------------------------------- Total 738 784 - ----------------------------------------------------------------- Net deferred tax liabilities 4,632 4,713 Portion included in current assets, net 18 25 - ----------------------------------------------------------------- Accumulated deferred income taxes in the Consolidated Balance Sheets $4,650 $4,738 ================================================================= 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 $30 million in 1997, $33 million in 1996, and $38 million in 1995. At December 31, 1997, 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: 1997 1996 1995 ------------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 3.4 3.2 3.4 Non-deductible book depreciation 2.3 1.8 1.6 Windfall profits tax 8.0 - - Difference in prior years' deferred and current tax rate (1.5) (1.0) (1.1) Other (1.9) (0.5) 0.3 - ---------------------------------------------------------------------- Effective income tax rate 45.3% 38.5% 39.2% ====================================================================== 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. II-34
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report 9. COMMON STOCK Shares Reserved At December 31, 1997, a total of 49 million shares was reserved for issuance pursuant to the Southern Investment Plan, the Employee Savings Plan, the Outside Directors Stock Plan, and the Performance Stock Plan. Performance Stock Plan Southern Company's Executive Stock Option Plan was replaced by the Performance Stock Plan effective February 17, 1997. As of December 31, 1997, 283 current and former employees participated in the plan. The maximum number of shares of common stock that may be issued under the new plan may not exceed 40 million. The prices of options granted to date have been at the fair market value of the shares on the dates of grant. The first grant under the new plan was in July 1997. 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 Southern Company Board of Directors in accordance with the plan. Stock option activity in 1996 and 1997 for both plans are summarized below: Shares Average Subject Option Price To Option Per Share ---------------------------------- Balance at December 31, 1995 2,476,299 $19.87 Options granted 1,460,731 23.00 Options canceled (13,878) 22.35 Options exercised (97,988) 17.94 - -------------------------------------------------------------------- Balance at December 31, 1996 3,825,164 21.11 Options granted 1,776,094 21.25 Options canceled (51,913) 21.83 Options exercised (137,426) 19.72 - -------------------------------------------------------------------- Balance at December 31, 1997 5,411,919 $21.18 ==================================================================== Shares reserved for future grants: At December 31, 1995 2,114,915 At December 31, 1996 668,062 At December 31, 1997 38,234,044 - -------------------------------------------------------------------- Options exercisable: At December 31, 1996 1,279,830 At December 31, 1997 1,996,724 - -------------------------------------------------------------------- Southern Company accounts for its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been recognized. The pro forma impact on earnings of fair-value accounting for options granted -- as required by FASB Statement No. 123, Accounting for Stock-Based Compensation -- is less than 1 cent per share and is not significant to the consolidated financial statements. Earnings Per Share In 1997, Southern Company adopted FASB Statement No. 128, Earnings per Share. This statement simplifies the methodology for computing both basic and diluted earnings per share. The only difference in the two methods for computing Southern Company's per share amounts is attributable to outstanding options, under the Performance Stock Plan. The effect of the stock options was determined using the treasury stock method. Consolidated net income as reported was not affected. Shares used to compute diluted earnings per share are as follows: Average Common Stock Shares -------------------------------------- 1997 1996 1995 -------------------------------------- (in thousands) As reported shares 685,033 672,590 665,064 Effect of options 191 200 170 -------------------------------------- Diluted shares 685,224 672,790 665,234 ====================================== Common Stock Dividend Restrictions The income of Southern Company is derived primarily from equity in earnings of its subsidiaries. At December 31, 1997, consolidated retained earnings included $3.8 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. 10. CAPITAL AND PREFERRED SECURITIES Company or subsidiary obligated mandatorily redeemable capital and preferred securities have been issued by special purpose financing entities of Southern Company and its subsidiaries. Substantially all the assets of these special financing entities are junior subordinated notes issued by the related company seeking financing. Each of these companies considers that the mechanisms and obligations relating to the capital or preferred securities issued for its II-35
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report benefit, taken together, constitute a full and unconditional guarantee by it of the respective special financing entities' payment obligations with respect to the capital or preferred securities. At December 31, 1997, preferred securities of $1.1 billion and capital securities of $600 million were outstanding. Southern Company guarantees the notes related to $600 million of capital securities issued on its behalf. 11. OTHER LONG-TERM DEBT Details of other long-term debt at December 31 are as follows: 1997 1996 -------------------- (in millions) Obligations incurred in connection with the sale by public authorities of pollution control revenue bonds: Collateralized -- 4.375% to 9.375% due 2000-2026 $1,154 $1,403 Variable rates (3.85% to 5.20% at 1/1/98) due 2011-2025 639 639 Non-collateralized -- 7.25% due 2003 1 1 6.75% to 8.375% due 2015-2020 109 200 5.8% due 2022 10 10 Variable rates (4.50% to 5.90% at 1/1/98) due 2021-2037 670 265 - ---------------------------------------------------------------- 2,583 2,518 - ---------------------------------------------------------------- Capitalized lease obligations 142 151 - ---------------------------------------------------------------- Long-term notes payable: 4% to 11% due 1997-2000 295 301 5.502% to 10.56% due 2001-2037 1,741 793 7.125% due 2047 194 - Adjustable rates (5.70% to 13% at 1/1/98) due 1997-2000 703 240 Adjustable rates (3.77% to 8.0781% at 1/1/98) due 2001-2007 1,533 81 - ---------------------------------------------------------------- 4,466 1,415 - ---------------------------------------------------------------- Total $7,191 $4,084 ================================================================ 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 2002 applicable to other long-term debt are as follows: $400 million in 1998; $610 million in 1999; $364 million in 2000; $323 million in 2001; and $939 million in 2002. 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: 1997 1996 ---------------- (in millions) Bond improvement fund requirements $ 38 $ 40 Less: Portion to be satisfied by certifying property additions 3 4 - ----------------------------------------------------------------- Cash sinking fund requirements 35 36 First mortgage bond maturities and redemptions 349 76 Other long-term debt maturities (Note 11) 400 79 - ----------------------------------------------------------------- Total $784 $191 ================================================================= 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 II-36
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report 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 interests -- is $159 million and $160 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 Electric Insurance Limited (NEIL), 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 $8 million and $10 million, respectively, under current primary 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 primary coverage. This excess insurance is also provided by NEIL. 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 17 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 $10 million and $11 million, respectively. The maximum replacement power assessments are $8 million for Alabama Power and $11 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. All retrospective assessments -- whether generated for liability, property, or replacement power -- may be subject to applicable state premium taxes. 14. ACQUISITIONS In 1997, Southern Energy acquired a 26 percent interest in an integrated utility in Berlin, Germany for approximately $820 million. Southern Energy also completed in 1997 the acquisition of a 100 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. The acquisition has been accounted for under the purchase method of accounting. The acquisition cost exceeded the fair market value of net assets by approximately $1.6 billion. This amount is considered goodwill and is being amortized on a straight-line basis over 40 years. CEPA has been included in the consolidated financial statements since January 29, 1997. The following unaudited pro forma results of operations for the years 1997 and 1996 have been prepared assuming the acquisition of CEPA, effective January 1, 1996. The pro forma results assume acquisition financing of $716 million of short-term borrowings, $792 million of long-term notes, and $600 million of capital securities. Southern Company's assumed effective composite interest rate on these obligations for each period was 6.82 percent. In 1995, Southern Energy acquired SWEB for approximately $1.8 billion. The British utility distributes electricity to some 1.3 million customers. The acquisition has been accounted for under the purchase method of accounting. Goodwill of $287 million is being amortized over 40 years. SWEB has been included in the consolidated financial statements since September 1995. The following pro forma results of operations for the year 1995 has been prepared assuming the acquisition of SWEB, effective January 1, 1994, and assuming 100 percent short-term debt financing. These unaudited pro forma results are not necessarily indicative of the actual results that would have been realized had the acquisitions occurred on the assumed dates, nor are they necessarily indicative of future results. Pro forma operating results are for information purposes only and are as follows: II-37
<TABLE> <CAPTION> <S> <C> <C> <C> 1997 1996 1995 ----------------------------------------------------------------------------------- As Pro As Pro As Pro Reported Forma Reported Forma Reported Forma ----------------------------------------------------------------------------------- Operating revenues (in millions) $12,611 $12,632 $10,358 $10,506 $9,180 $10,013 Consolidated net income (in millions) $972 $977 $1,127 $1,109 $1,103 $1,144 Earnings per share $1.42 $1.43 $1.68 $1.65 $1.66 $1.72 15. SEGMENT AND RELATED INFORMATION Effective December 31, 1997, Southern Company adopted FASB Statement No. 131, Disclosure About Segments of an Enterprise and Related Information. Southern Company's principal business segment -- or its traditional core business -- is the five regulated electric utility operating companies that provide electric service in four southeastern states. The other reportable business segment is non-traditional energy services provided by Southern Energy, which develops and manages electricity and other energy-related projects both in the United States and abroad including domestic energy trading and marketing. Intersegment revenues are not material. Financial data for business segments, products and services, and geographic areas are as follows: </TABLE> Business Segments <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> Regulated Domestic Non-Traditional Services All Electric ------------------------------------ Other Reconciling Year Utilities International Domestic Total (Note) Eliminations Consolidated - -------------------------------- ---------------------------------------------------------------------------------------------- 1997 - ---- (in millions) Operating revenues $ 8,688 $1,748 $2,089 $ 3,837 $ 98 $ (12) $12,611 Depreciation and amortization 1,038 179 15 194 14 - 1,246 Interest income 51 96 42 138 21 (58) 152 Net interest charges 588 289 73 362 84 (41) 993 Income taxes from operations 735 24 (11) 13 (17) (6) 725 Windfall profits tax - 148 - 148 - - 148 Net income from equity method subsidiaries - 41 7 48 - - 48 Segment net income (loss) 1,105 (4) 5 1 (123) (11) 972 Total assets 24,555 9,225 1,832 11,057 1,224 (1,565) 35,271 Investments in equity method subsidiaries - 1,023 135 1,158 - 10 1,168 Gross property additions 1,080 720 1 721 58 - 1,859 Increase in goodwill - 1,649 - 1,649 - - 1,649 - -------------------------------------------------------------------------------------------------- ------------- -------------- 1996 - ----- Operating revenues $ 8,639 $1,506 $177 $1,683 $ 50 $(14) $10,358 Depreciation and amortization 879 95 13 108 9 - 996 Interest income 36 15 2 17 20 (19) 54 Net interest charges 546 126 31 157 18 (2) 719 Income taxes from operations 755 16 (4) 12 (14) (6) 747 Net income from equity method subsidiaries - 11 - 11 - - 11 Segment net income (loss) 1,086 88 4 92 (40) (11) 1,127 Total assets 24,899 4,320 604 4,924 450 (43) 30,230 Investments in equity method subsidiaries - 227 - 227 - - 227 Gross property additions 1,033 157 8 165 31 - 1,229 Increase in goodwill - - - - - - - - -------------------------------------------------------------------------------------------------- ------------- --------------- </TABLE> II-38
NOTES (continued) Southern Company and Subsidiary Companies 1997 Annual Report <TABLE> <CAPTION> Business Segments <S> <C> <C> <C> <C> <C> Regulated Domestic Non-Traditional Services All Electric -------------------------------------- Other Reconciling Year Utilities International Domestic Total (Note) Eliminations Consolidated - -------------------------------- -------------------------------------------------------------------------------------------- 1995 (in millions) Operating revenues $ 8,537 $ 561 $ 82 $ 643 $ - $ - $ 9,180 Depreciation and amortization 847 46 11 57 - - 904 Interest income 23 12 2 14 9 (8) 38 Net interest charges 611 54 19 73 20 (8) 696 Income taxes from operations 771 25 9 34 - - 805 Net income from equity method subsidiaries - 11 - 11 - - 11 Segment net income (loss) 1,103 31 7 38 (38) - 1,103 Total assets 25,414 4,495 495 4,990 638 (520) 30,522 Investments in equity method subsidiaries - 122 - 122 - 6 128 Gross property additions 1,213 123 13 136 52 - 1,401 Increase in goodwill - 287 - 287 - - 287 - -------------------------------------------------------------------------------------------------------------------------------- (Note) The all other category includes parent Southern Company, which does not allocate operating expenses to business segments. Also, this category includes segments below the quantitative threshold for separate disclosure. These segments include a wireless communication company and a developmental company for energy products and services. Non-traditional services exclude interest expense to parent Southern Company. </TABLE> Products and Services <TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> Revenues ------------------------------------------------------------------------------------------ Non-Traditional Energy Services Regulated ------------------------------------------------------------------------ Domestic Energy Electric Trading Year Utilities Generation Distribution Marketing Other Total - --------------- ------------------------------------------------------------------------------------------ (in millions) 1997 $8,688 $513 $1,282 $1,982 $60 $3,837 1996 8,639 242 1,309 77 55 1,683 1995 8,537 234 372 - 37 643 Geographic Areas Revenues - -------------------------------------------------------------------------------------------------------------------------------- International --------------------------------------------------------------- United Southeast All Year Domestic Kingdom Asia Other Total Consolidated - --------- ---------------------------------------------------------------------------------------------------------- (in millions) 1997 $10,863 $1,282 $247 $219 $1,748 $12,611 1996 8,852 1,309 - 197 1,506 10,358 1995 8,619 372 - 189 561 9,180 </TABLE> II-39
<TABLE> <CAPTION> <S> <C> <C> <C> <C> <C> <C> <C> Long-Lived Assets ---------------------------------------------------------------------------------------------------------- International --------------------------------------------------------------- United Southeast All Year Domestic Kingdom Asia Other Total Consolidated - --------- ---------------------------------------------------------------------------------------------------------- (in millions) 1997 $21,282 $2,428 $3,628 $1,888 $7,944 $29,226 1996 21,190 2,473 108 999 3,580 24,770 1995 21,114 2,232 - 973 3,205 24,319 16. QUARTERLY FINANCIAL INFORMATION (Unaudited) Summarized quarterly financial data for 1997 and 1996 are as follows: Per Common Share ---------------------------------------------------- Price Range ----------------- Operating Operating Consolidated Quarter Ended Revenues Income Net Income Earnings Dividends High Low - ---------------------- --------------------------------------------- ---------------------------------------------------- (in millions) March 1997 $2,585 $397 $187 $0.28 $0.325 233/8 203/4 June 1997 2,717 429 215 0.31 0.325 221/4 197/8 September 1997 4,071 720 375 0.55 0.325 23 2013/16 December 1997 3,238 394 195 0.28 0.325 261/4 22 March 1996 $2,429 $408 $233 $0.35 $0.315 257/8 223/8 June 1996 2,564 450 287 0.43 0.315 245/8 211/4 September 1996 2,932 665 468 0.69 0.315 245/8 213/4 December 1996 2,433 331 139 0.21 0.315 231/8 211/8 - ---------------------------------------------------------------------------------------------------------------------------------- Southern Company's business is influenced by seasonal weather conditions. Earnings for the third quarter 1997 declined by $111 million or 16 cents per share as a result of a windfall profits tax being assessed in the United Kingdom. </TABLE> II-40
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $12,611 $10,358 $9,180 Consolidated Net Income (in millions) $972 $1,127 $1,103 Basic and Diluted Earnings Per Share of Common Stock $1.42 $1.68 $1.66 Cash Dividends Paid Per Share of Common Stock $1.30 $1.26 $1.22 Return on Average Common Equity (percent) 10.30 12.53 13.01 Total Assets (in millions) $35,271 $30,230 $30,522 Gross Property Additions (in millions) $1,859 $1,229 $1,401 - ---------------------------------------------------------------------------------------------------------------------------------- Capitalization (in millions): Common stock equity $9,647 $9,216 $8,772 Preferred stock and securities 2,237 1,402 1,432 Long-term debt 10,274 7,938 8,274 - ---------------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $22,158 $18,556 $18,478 ================================================================================================================================== Capitalization Ratios (percent): Common stock equity 43.5 49.7 47.5 Preferred stock and securities 10.1 7.6 7.7 Long-term debt 46.4 42.7 44.8 - ---------------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 100.0 ================================================================================================================================== Other Common Stock Data: Book value per share (year-end) $13.91 $13.61 $13.10 Market price per share: High 26 1/4 25 7/8 25 Low 19 7/8 21 1/8 19 3/8 Close 25 7/8 22 5/8 24 5/8 Market-to-book ratio (year-end) (percent) 186.0 166.2 188.0 Price-earnings ratio (year-end) (times) 18.2 13.5 14.8 Dividends paid (in millions) $889 $846 $811 Dividend yield (year-end) (percent) 5.0 5.6 5.0 Dividend payout ratio (percent) 91.5 75.1 73.5 Cash coverage of dividends (year-end) (times) 2.8 2.9 2.9 Proceeds from sales of stock (in millions) $360 $171 $277 Shares outstanding (in thousands): Average 685,033 672,590 665,064 Year-end 693,423 677,036 669,543 Stockholders of record (year-end) 200,508 215,246 225,739 - ---------------------------------------------------------------------------------------------------------------------------------- First Mortgage Bonds (in millions): Issued $- $85 $375 Retired 168 426 538 Preferred Stock and Capital and Preferred Securities (in millions): Issued $1,321 $322 $-- Retired 660 179 1 - ---------------------------------------------------------------------------------------------------------------------------------- Traditional Core Business Customers (year-end) (in thousands): Residential 3,220 3,157 3,100 Commercial 479 464 450 Industrial 16 17 17 Other 5 5 5 - ---------------------------------------------------------------------------------------------------------------------------------- Total 3,720 3,643 3,572 ================================================================================================================================== Employees (year-end): Traditional core business 24,667 25,034 26,452 Southern Energy 6,089 4,212 5,430 - ---------------------------------------------------------------------------------------------------------------------------------- Total 30,756 29,246 31,882 ================================================================================================================================== II-41 </TABLE>
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> ========================================================================================================================== 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $8,297 $8,489 $8,073 Consolidated Net Income (in millions) $989 $1,002 $953 Basic and Diluted Earnings Per Share of Common Stock $1.52 $1.57 $1.51 Cash Dividends Paid Per Share of Common Stock $1.18 $1.14 $1.10 Return on Average Common Equity (percent) 12.47 13.43 13.42 Total Assets (in millions) $27,042 $25,911 $20,038 Gross Property Additions (in millions) $1,536 $1,441 $1,105 - ------------------------------------------------------------------------------------------------------------------------- Capitalization (in millions): Common stock equity $8,186 $7,684 $7,234 Preferred stock and securities 1,432 1,333 1,359 Long-term debt 7,593 7,412 7,241 - ------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $17,211 $16,429 $15,834 ========================================================================================================================= Capitalization Ratios (percent): Common stock equity 47.6 46.8 45.7 Preferred stock and securities 8.3 8.1 8.6 Long-term debt 44.1 45.1 45.7 - ------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 100.0 ========================================================================================================================= Other Common Stock Data: Book value per share (year-end) $12.47 $11.96 $11.43 Market price per share: High 22 23 5/8 19 1/2 Low 17 18 3/8 15 1/8 Close 20 22 19 1/4 Market-to-book ratio (year-end) (percent) 160.4 183.9 168.4 Price-earnings ratio (year-end) (times) 13.2 14.0 12.7 Dividends paid (in millions) $766 $726 $695 Dividend yield (year-end) (percent) 5.9 5.2 5.7 Dividend payout ratio (percent) 77.5 72.4 72.9 Cash coverage of dividends (year-end) (times) 2.7 2.9 2.8 Proceeds from sales of stock (in millions) $279 $204 $30 Shares outstanding (in thousands): Average 649,927 637,319 631,844 Year-end 656,528 642,662 632,917 Stockholders of record (year-end) 234,927 237,105 247,378 - ------------------------------------------------------------------------------------------------------------------------- First Mortgage Bonds (in millions): Issued $185 $2,185 $1,815 Retired 241 2,178 2,575 Preferred Stock and Capital and Preferred Securities (in millions): Issued $100 $426 $410 Retired 1 516 326 - ------------------------------------------------------------------------------------------------------------------------- Traditional Core Business Customers (year-end) (in thousands): Residential 3,046 2,996 2,950 Commercial 439 427 414 Industrial 17 18 18 Other 5 4 4 - ------------------------------------------------------------------------------------------------------------------------- Total 3,507 3,445 3,386 ========================================================================================================================= Employees (year-end): Traditional core business 27,480 28,516 28,872 Southern Energy 1,400 745 213 - ------------------------------------------------------------------------------------------------------------------------- Total 28,880 29,261 29,085 ========================================================================================================================= II-42A </TABLE>
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $8,050 $8,053 $7,620 Consolidated Net Income (in millions) $876 $604 $846 Basic and Diluted Earnings Per Share of Common Stock $1.39 $0.96 $1.34 Cash Dividends Paid Per Share of Common Stock $1.07 $1.07 $1.07 Return on Average Common Equity (percent) 12.74 8.85 12.49 Total Assets (in millions) $19,863 $19,955 $20,092 Gross Property Additions (in millions) $1,123 $1,185 $1,346 - ----------------------------------------------------------------------------------------------------------------------------------- Capitalization (in millions): Common stock equity $6,976 $6,783 $6,861 Preferred stock and securities 1,333 1,358 1,400 Long-term debt 7,992 8,458 8,575 - ----------------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $16,301 $16,599 $16,836 =================================================================================================================================== Capitalization Ratios (percent): Common stock equity 42.8 40.9 40.8 Preferred stock and securities 8.2 8.2 8.3 Long-term debt 49.0 50.9 50.9 - ----------------------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 100.0 =================================================================================================================================== Other Common Stock Data: Book value per share (year-end) $11.05 $10.74 $10.87 Market price per share: High 17 3/8 14 5/8 14 7/8 Low 12 7/8 11 1/2 11 Close 17 1/8 13 7/8 14 1/2 Market-to-book ratio (year-end) (percent) 155.5 129.7 134.0 Price-earnings ratio (year-end) (times) 12.4 14.6 10.9 Dividends paid (in millions) $676 $676 $675 Dividend yield (year-end) (percent) 6.2 7.7 7.3 Dividend payout ratio (percent) 77.1 111.8 79.8 Cash coverage of dividends (year-end)(times) 2.5 2.8 2.6 Proceeds from sales of stock (in millions) $-- $-- $4 Shares outstanding (in thousands): Average 631,307 631,307 631,303 Year-end 631,307 631,307 631,307 Stockholders of record (year-end) 254,568 263,046 273,751 - ----------------------------------------------------------------------------------------------------------------------------------- First Mortgage Bonds (in millions): Issued $380 $300 $280 Retired 881 146 201 Preferred Stock and Capital and Preferred Securities (in millions): Issued $100 $-- $-- Retired 125 96 21 - ----------------------------------------------------------------------------------------------------------------------------------- Traditional Core Business Customers (year-end) (in thousands): Residential 2,903 2,865 2,824 Commercial 403 396 392 Industrial 18 18 18 Other 4 4 4 - ----------------------------------------------------------------------------------------------------------------------------------- Total 3,328 3,283 3,238 =================================================================================================================================== Employees (year-end): Traditional core business 30,144 30,087 30,368 Southern Energy 258 176 162 - ----------------------------------------------------------------------------------------------------------------------------------- Total 30,402 30,263 30,530 =================================================================================================================================== </TABLE> II-42B
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> =================================================================================================================== 1988 1987 - ------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions) $7,287 $7,204 Consolidated Net Income (in millions) $846 $577 Basic and Diluted Earnings Per Share of Common Stock $1.36 $0.96 Cash Dividends Paid Per Share of Common Stock $1.07 $1.07 Return on Average Common Equity (percent) 13.03 9.27 Total Assets (in millions) $19,731 $19,518 Gross Property Additions (in millions) $1,754 $1,853 - ------------------------------------------------------------------------------------------------------------------- Capitalization (in millions): Common stock equity $6,686 $6,307 Preferred stock and securities 1,465 1,363 Long-term debt 8,433 8,333 - ------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year $16,584 $16,003 =================================================================================================================== Capitalization Ratios (percent): Common stock equity 40.3 39.4 Preferred stock and securities 8.8 8.5 Long-term debt 50.9 52.1 - ------------------------------------------------------------------------------------------------------------------- Total excluding amounts due within one year 100.0 100.0 =================================================================================================================== Other Common Stock Data: Book value per share (year-end) $10.60 $10.28 Market price per share: High 12 1/8 14 1/2 Low 10 1/8 8 7/8 Close 11 1/8 11 1/8 Market-to-book ratio (year-end) (percent) 105.5 108.8 Price-earnings ratio (year-end) (times) 8.2 11.7 Dividends paid (in millions) $661 $628 Dividend yield (year-end) (percent) 9.6 9.6 Dividend payout ratio (percent) 78.1 108.9 Cash coverage of dividends (year-end) (times) 2.3 2.0 Proceeds from sales of stock (in millions) $194 $247 Shares outstanding (in thousands): Average 622,292 601,390 Year-end 630,898 613,565 Stockholders of record (year-end) 290,725 296,079 - ------------------------------------------------------------------------------------------------------------------- First Mortgage Bonds (in millions): Issued $335 $700 Retired 273 369 Preferred Stock and Capital and Preferred Securities (in millions): Issued $120 $125 Retired 10 160 - ------------------------------------------------------------------------------------------------------------------- Traditional Core Business Customers (year-end) (in thousands): Residential 2,781 2,733 Commercial 384 374 Industrial 18 18 Other 4 4 - ------------------------------------------------------------------------------------------------------------------- Total 3,187 3,129 =================================================================================================================== Employees (year-end): Traditional core business 32,366 32,557 Southern Energy 157 55 - ------------------------------------------------------------------------------------------------------------------- Total 32,523 32,612 =================================================================================================================== </TABLE> II-42C
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 (continued) Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in millions): Residential $2,837 $2,894 $2,840 Commercial 2,595 2,559 2,485 Industrial 2,139 2,136 2,206 Other 76 76 72 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 7,647 7,665 7,603 Sales for resale within service area 381 409 399 Sales for resale outside service area 505 429 415 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 8,533 8,503 8,417 Southern Energy 3,837 1,683 643 Other revenues 241 172 120 - ------------------------------------------------------------------------------------------------------------------------------ Total $12,611 $10,358 $9,180 ============================================================================================================================== Kilowatt-Hour Sales (in millions): Residential 39,217 40,117 39,147 Commercial 38,926 37,993 35,938 Industrial 54,196 52,798 51,644 Other 903 911 863 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 133,242 131,819 127,592 Sales for resale within service area 9,884 10,935 9,472 Sales for resale outside service area 13,325 10,777 9,143 - ------------------------------------------------------------------------------------------------------------------------------ Total 156,451 153,531 146,207 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.23 7.21 7.25 Commercial 6.67 6.74 6.91 Industrial 3.95 4.04 4.27 Total retail 5.74 5.81 5.96 Sales for resale 3.82 3.86 4.38 Total sales 5.45 5.54 5.76 Average Annual Kilowatt-Hour Use Per Residential Customer 12,296 12,824 12,722 Average Annual Revenue Per Residential Customer $889.50 $925.12 $922.83 Plant Nameplate Capacity Owned (year-end) (megawatts 31,146 31,076 30,733 Maximum Peak-Hour Demand (megawatts): Winter 22,969 22,631 21,422 Summer 27,334 27,190 27,420 System Reserve Margin (at peak)(percent) 15.0 14.0 9.4 Annual Load Factor (percent) 59.4 62.3 59.5 Plant Availability (percent): Fossil-steam 88.2 86.4 86.7 Nuclear 88.8 89.7 88.3 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 74.8 73.3 72.5 Nuclear 16.6 16.7 16.4 Hydro 4.4 4.1 4.1 Oil and gas 1.7 1.5 1.7 Purchased power 2.5 4.4 5.3 - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ============================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,035 10,257 10,099 Cost of fuel per million BTU (cents) 145.81 144.02 151.70 Average cost of fuel per net kilowatt-hour generated (cents) 1.46 1.48 1.53 - ------------------------------------------------------------------------------------------------------------------------------ </TABLE> II-43
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 (continued) Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> =============================================================================================================================== 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions): Residential $2,560 $2,696 $2,402 Commercial 2,357 2,313 2,181 Industrial 2,162 2,200 2,126 Other 70 68 64 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 7,149 7,277 6,773 Sales for resale within service area 360 447 409 Sales for resale outside service area 505 613 797 - -------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 8,014 8,337 7,979 Southern Energy 185 54 - Other revenues 98 98 94 - -------------------------------------------------------------------------------------------------------------------------------- Total $8,297 $8,489 $8,073 ================================================================================================================================ Kilowatt-Hour Sales (in millions): Residential 35,836 36,807 33,627 Commercial 34,080 32,847 31,025 Industrial 50,311 48,738 47,816 Other 844 814 777 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 121,071 119,206 113,245 Sales for resale within service area 8,151 13,258 12,107 Sales for resale outside service area 10,769 12,445 16,632 - -------------------------------------------------------------------------------------------------------------------------------- Total 139,991 144,909 141,984 ================================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.14 7.32 7.14 Commercial 6.92 7.04 7.03 Industrial 4.30 4.51 4.45 Total retail 5.90 6.10 5.98 Sales for resale 4.57 4.12 4.20 Total sales 5.72 5.75 5.62 Average Annual Kilowatt-Hour Use Per Residential Customer 11,851 12,378 11,490 Average Annual Revenue Per Residential Customer $846.48 $906.60 $820.67 Plant Nameplate Capacity Owned (year-end) (megawatts) 29,932 29,513 29,830 Maximum Peak-Hour Demand (megawatts): Winter 22,254 19,432 19,121 Summer 24,546 25,937 24,146 System Reserve Margin (at peak)(percent) 19.3 13.2 14.3 Annual Load Factor (percent) 63.5 59.4 60.3 Plant Availability (percent): Fossil-steam 85.2 87.9 88.6 Nuclear 89.8 85.9 85.2 - -------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 70.8 73.0 71.7 Nuclear 17.9 16.3 16.2 Hydro 4.7 3.9 4.6 Oil and gas 0.9 0.9 0.5 Purchased power 5.7 5.9 7.0 - -------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,010 9,994 9,976 Cost of fuel per million BTU (cents) 155.81 166.85 162.58 Average cost of fuel per net kilowatt-hour generated (cents) 1.56 1.67 1.62 - -------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-44A
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 (continued) Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================= 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions): Residential $2,391 $2,342 $2,194 Commercial 2,122 2,062 1,965 Industrial 2,088 2,085 2,011 Other 65 64 60 - ----------------------------------------------------------------------------------------------------------------------------- Total retail 6,666 6,553 6,230 Sales for resale within service area 417 412 401 Sales for resale outside service area 884 977 928 - ----------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 7,967 7,942 7,559 Southern Energy - - - Other revenues 83 111 61 - ----------------------------------------------------------------------------------------------------------------------------- Total $8,050 $8,053 $7,620 ============================================================================================================================= Kilowatt-Hour Sales (in millions): Residential 33,622 33,118 31,627 Commercial 30,379 29,658 28,454 Industrial 46,050 45,974 45,022 Other 817 806 787 - ----------------------------------------------------------------------------------------------------------------------------- Total retail 110,868 109,556 105,890 Sales for resale within service area 12,320 11,134 11,419 Sales for resale outside service area 19,839 24,402 24,228 - ----------------------------------------------------------------------------------------------------------------------------- Total 143,027 145,092 141,537 ============================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 7.11 7.07 6.94 Commercial 6.99 6.96 6.91 Industrial 4.53 4.53 4.47 Total retail 6.01 5.98 5.88 Sales for resale 4.05 3.91 3.73 Total sales 5.57 5.47 5.34 Average Annual Kilowatt-Hour Use Per Residential Customer 11,659 11,637 11,287 Average Annual Revenue Per Residential Customer $829.18 $822.93 $782.90 Plant Nameplate Capacity Owned (year-end)(megawatts) 29,915 29,532 29,532 Maximum Peak-Hour Demand (megawatts): Winter 19,166 17,629 20,772 Summer 25,261 25,981 24,399 System Reserve Margin (at peak) (percent) 16.5 14.0 21.0 Annual Load Factor (percent) 58.3 56.6 58.6 Plant Availability (percent): Fossil-steam 91.3 91.9 92.2 Nuclear 83.4 83.0 87.0 - ----------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 72.6 72.1 71.5 Nuclear 16.2 15.6 15.7 Hydro 4.4 4.4 5.2 Oil and gas 0.6 1.3 1.1 Purchased power 6.2 6.6 6.5 - ----------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================================= Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,022 10,065 10,086 Cost of fuel per million BTU (cents) 168.28 172.81 171.00 Average cost of fuel per net kilowatt-hour generated (cents) 1.69 1.74 1.72 - ----------------------------------------------------------------------------------------------------------------------------- </TABLE> II-44B
<TABLE> <CAPTION> SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA 1987 - 1997 (continued) Southern Company and Subsidiary Companies 1997 Annual Report <S> <C> <C> ====================================================================================================================== 1988 1987 - ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (in millions): Residential $2,103 $2,042 Commercial 1,835 1,692 Industrial 1,945 1,870 Other 56 54 - ----------------------------------------------------------------------------------------------------------------------- Total retail 5,939 5,658 Sales for resale within service area 480 461 Sales for resale outside service area 777 1,028 - ----------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 7,196 7,147 Southern Energy - - Other revenues 91 57 - ----------------------------------------------------------------------------------------------------------------------- Total $7,287 $7,204 ======================================================================================================================= Kilowatt-Hour Sales (in millions): Residential 31,041 30,583 Commercial 27,005 25,593 Industrial 43,675 42,113 Other 763 737 - ----------------------------------------------------------------------------------------------------------------------- Total retail 102,484 99,026 Sales for resale within service area 14,806 13,282 Sales for resale outside service area 15,860 22,905 - ----------------------------------------------------------------------------------------------------------------------- Total 133,150 135,213 ======================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 6.77 6.68 Commercial 6.79 6.61 Industrial 4.45 4.44 Total retail 5.80 5.71 Sales for resale 4.10 4.11 Total sales 5.40 5.29 Average Annual Kilowatt-Hour Use Per Residential Customer 11,255 11,307 Average Annual Revenue Per Residential Customer $762.42 $754.96 Plant Nameplate Capacity Owned (year-end)(megawatts) 27,552 27,610 Maximum Peak-Hour Demand (megawatts): Winter 18,685 18,185 Summer 23,641 23,194 System Reserve Margin (at peak) (percent) 15.0 16.2 Annual Load Factor (percent) 59.8 58.7 Plant Availability (percent): Fossil-steam 91.3 91.2 Nuclear 78.4 84.5 - ----------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 77.7 77.8 Nuclear 14.5 13.1 Hydro 2.3 3.3 Oil and gas 0.7 0.6 Purchased power 4.8 5.2 - ------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 ======================================================================================================================= Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,094 10,122 Cost of fuel per million BTU (cents) 170.36 176.64 Average cost of fuel per net kilowatt-hour generated (cents) 1.72 1.78 - ----------------------------------------------------------------------------------------------------------------------- </TABLE> II-44C
<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 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Operating Area Capability (Megawatts) Plants: Fossil - Coal 22,504 22,512 22,514 - Gas & Oil 4,220 4,074 3,744 - ------------------------------------------------------------------------------------------------------------------------- Total 26,724 26,586 26,258 Nuclear 4,414 4,404 4,328 Hydro 2,652 2,744 2,780 - ------------------------------------------------------------------------------------------------------------------------- Plant Capability 33,790 33,734 33,366 Firm Capacity Purchases 1,201 791 196 - ------------------------------------------------------------------------------------------------------------------------- Total Operating Area Capability 34,991 34,525 33,562 ========================================================================================================================= ========================================================================================================================= Years Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Power Supply Data (Millions of Kilowatt-hour) Generated: Fossil - Coal 123,030 119,382 112,157 - Gas 2,593 1,991 2,315 - Oil 180 364 385 - ------------------------------------------------------------------------------------------------------------------------- Total 125,803 121,737 114,857 Nuclear 27,225 27,119 25,351 Hydro 7,156 6,665 6,377 - ------------------------------------------------------------------------------------------------------------------------- Total Energy Generated 160,184 155,521 146,585 Purchased Power 4,183 7,227 8,259 - ------------------------------------------------------------------------------------------------------------------------- Total Energy Generated and Received 164,367 162,748 154,844 ========================================================================================================================= ========================================================================================================================= Years Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Fossil Fuel Economy Data: BTU per Net Kilowatt-hour Generated 9,881 10,139 9,915 Cost of Fuel per Million BTU (Cents) 168.73 166.84 176.46 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.67 1.69 1.75 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Nuclear Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,738 10,782 10,924 Cost of Fuel per Million BTU (Cents) 49.23 48.51 50.82 Fuel Cost per Net Kilowatt-hour Generated (Cents) 0.53 0.52 0.56 - ------------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- Total Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,035 10,257 10,099 Cost of Fuel per Million BTU (Cents) 145.81 144.02 151.70 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.46 1.48 1.53 - ------------------------------------------------------------------------------------------------------------------------- </TABLE> II-45
<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 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Operating Area Capability (Megawatts) Plants: Fossil - Coal 22,668 22,770 22,708 - Gas & Oil 3,004 2,519 2,483 - ------------------------------------------------------------------------------------------------------------------ Total 25,672 25,289 25,191 Nuclear 4,338 4,317 4,260 Hydro 2,567 2,567 2,592 - ------------------------------------------------------------------------------------------------------------------ Plant Capability 32,577 32,173 32,043 Firm Capacity Purchases 391 (1) (1,366) - ------------------------------------------------------------------------------------------------------------------ Total Operating Area Capability 32,968 32,172 30,677 ================================================================================================================== ================================================================================================================== Years Ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Power Supply Data (Millions of Kilowatt-hour) Generated: Fossil - Coal 106,263 111,912 107,537 - Gas 1,224 1,106 727 - Oil 106 204 74 - ------------------------------------------------------------------------------------------------------------------ Total 107,593 113,222 108,338 Nuclear 26,902 24,993 24,328 Hydro 7,043 5,971 6,919 - ------------------------------------------------------------------------------------------------------------------ Total Energy Generated 141,538 144,186 139,585 Purchased Power 8,612 9,076 10,453 - ------------------------------------------------------------------------------------------------------------------ Total Energy Generated and Received 150,150 153,262 150,038 ================================================================================================================== ================================================================================================================== Years Ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Fossil Fuel Economy Data: BTU per Net Kilowatt-hour Generated 9,807 9,790 9,755 Cost of Fuel per Million BTU (Cents) 184.60 195.75 191.22 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.81 1.92 1.87 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Nuclear Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,814 10,912 10,958 Cost of Fuel per Million BTU (Cents) 52.22 49.94 49.66 Fuel Cost per Net Kilowatt-hour Generated (Cents) 0.56 0.54 0.54 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Total Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,010 9,994 9,976 Cost of Fuel per Million BTU (Cents) 155.81 166.85 162.58 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.56 1.67 1.62 - ------------------------------------------------------------------------------------------------------------------ </TABLE> II-46A
<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 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Operating Area Capability (Megawatts) Plants: Fossil - Coal 24,191 23,807 23,824 - Gas & Oil 2,338 2,327 2,324 - ------------------------------------------------------------------------------------------------------------------ Total 26,529 26,134 26,148 Nuclear 5,356 5,385 5,361 Hydro 2,592 2,592 2,592 - ------------------------------------------------------------------------------------------------------------------ Plant Capability 34,477 34,111 34,101 Firm Capacity Purchases (1,041) (949) (947) - ------------------------------------------------------------------------------------------------------------------ Total Operating Area Capability 33,436 33,162 33,154 ================================================================================================================== ================================================================================================================== Years Ended December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Power Supply Data (Millions of Kilowatt-hour) Generated: Fossil - Coal 109,674 110,442 106,878 - Gas 962 1,776 1,501 - Oil 30 96 91 - ------------------------------------------------------------------------------------------------------------------ Total 110,666 112,314 108,470 Nuclear 24,464 23,958 23,471 Hydro 6,666 6,773 7,851 - ------------------------------------------------------------------------------------------------------------------ Total Energy Generated 141,796 143,045 139,792 Purchased Power 9,347 10,168 9,670 - ------------------------------------------------------------------------------------------------------------------ Total Energy Generated and Received 151,143 153,213 149,462 ================================================================================================================== ================================================================================================================== Years Ended December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Fossil Fuel Economy Data: BTU per Net Kilowatt-hour Generated 9,811 9,869 9,898 Cost of Fuel per Million BTU (Cents) 195.09 197.53 193.16 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.91 1.95 1.91 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Nuclear Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,972 10,980 10,951 Cost of Fuel per Million BTU (Cents) 60.37 69.10 78.61 Fuel Cost per Net Kilowatt-hour Generated (Cents) 0.66 0.76 0.86 - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ Total Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,022 10,065 10,086 Cost of Fuel per Million BTU (Cents) 168.28 172.81 171.00 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.69 1.74 1.72 - ------------------------------------------------------------------------------------------------------------------ </TABLE> II-46B
<TABLE> <CAPTION> CONSOLIDATED OPERATING AREA CAPABILITY, POWER SUPPLY AND FUEL ECONOMY DATA Southern Company and Subsidiary Companies <S> <C> <C> ================================================================================================ At Time of Peak 1988 1987 - ------------------------------------------------------------------------------------------------ Operating Area Capability (Megawatts) Plants: Fossil - Coal 22,255 22,274 - Gas & Oil 2,295 2,338 - ------------------------------------------------------------------------------------------------ Total 24,550 24,612 Nuclear 4,258 4,277 Hydro 2,592 2,591 - ------------------------------------------------------------------------------------------------ Plant Capability 31,400 31,480 Firm Capacity Purchases (923) (1,626) - ------------------------------------------------------------------------------------------------ Total Operating Area Capability 30,477 29,854 ================================================================================================ ================================================================================================ Years Ended December 31, 1988 1987 - ------------------------------------------------------------------------------------------------ Power Supply Data (Millions of Kilowatt-hour) Generated: Fossil - Coal 108,936 110,591 - Gas 644 673 - Oil 200 134 - ------------------------------------------------------------------------------------------------ Total 109,780 111,398 Nuclear 20,368 18,572 Hydro 3,285 4,697 - ------------------------------------------------------------------------------------------------ Total Energy Generated 133,433 134,667 Purchased Power 6,694 7,436 - ------------------------------------------------------------------------------------------------ Total Energy Generated and Received 140,127 142,103 ================================================================================================ ================================================================================================ Years Ended December 31, 1988 1987 - ------------------------------------------------------------------------------------------------ Fossil Fuel Economy Data: BTU per Net Kilowatt-hour Generated 9,921 9,961 Cost of Fuel per Million BTU (Cents) 189.88 195.27 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.88 1.95 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Nuclear Fuel Economy Data: BTU per Net Kilowatt-hour Generated 11,027 11,086 Cost of Fuel per Million BTU (Cents) 75.67 76.28 Fuel Cost per Net Kilowatt-hour Generated (Cents) 0.83 0.85 - ------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------ Total Fuel Economy Data: BTU per Net Kilowatt-hour Generated 10,094 10,122 Cost of Fuel per Million BTU (Cents) 170.36 176.64 Fuel Cost per Net Kilowatt-hour Generated (Cents) 1.72 1.78 - ------------------------------------------------------------------------------------------------ </TABLE> II-46C
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME Southern Company and Subsidiary Companies <S> <C> <C> <C> ============================================================================================================================== For the Years Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (Millions of Dollars) - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues $ 12,611 $ 10,358 $ 9,180 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 2,281 2,245 2,126 Purchased power 3,033 1,103 491 Proceeds from settlement of disputed contracts - - - Other 1,930 1,860 1,626 Maintenance 763 782 683 Depreciation and amortization 1,246 996 904 Amortization of deferred Plant Vogtle costs, net 121 137 124 Taxes other than income taxes 572 634 535 Income taxes 725 747 805 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 10,671 8,504 7,294 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 1,940 1,854 1,886 Other Income: Allowance for equity funds used during construction 6 4 5 Deferred return on Plant Vogtle - - - Write-off of Plant Vogtle costs - - - Income tax reduction for write-off of Plant Vogtle costs - - - Interest income 152 54 38 Other, net 53 42 (65) Income taxes applicable to other income (114) (10) 36 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 2,037 1,944 1,900 - ------------------------------------------------------------------------------------------------------------------------------ Interest Charges and Other: Interest on long-term debt 678 530 557 Allowance for debt funds used during construction (14) (19) (20) Interest on notes payable 112 107 63 Amortization of debt discount, premium, and expense, net 34 33 44 Other interest charges 63 46 43 Minority interest in subsidiaries 29 13 13 Distributions on preferred securities of subsidiary companies 120 22 9 Preferred dividends of subsidiary companies 43 85 88 - ------------------------------------------------------------------------------------------------------------------------------ Interest charges and other, net 1,065 817 797 - ------------------------------------------------------------------------------------------------------------------------------ Consolidated Net Income $ 972 $ 1,127 $ 1,103 ============================================================================================================================== Earnings Per Share of Common Stock $1.42 $1.68 $1.66 Average Number of Shares of Common Stock Outstanding (Thousands) 685,033 672,590 665,064 ============================================================================================================================== </TABLE> II-47
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME Southern Company and Subsidiary Companies <S> <C> <C> <C> ================================================================================================================================== For the Years Ended December 31, 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues $ 8,297 $ 8,489 $ 8,073 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,058 2,265 2,114 Purchased power 277 336 454 Proceeds from settlement of disputed contracts - (3) (7) Other 1,505 1,448 1,317 Maintenance 660 653 613 Depreciation and amortization 821 793 768 Amortization of deferred Plant Vogtle costs, net 75 36 (31) Taxes other than income taxes 475 462 436 Income taxes 711 734 647 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 6,582 6,724 6,311 - --------------------------------------------------------------------------------------------------------------------------------- Operating Income 1,715 1,765 1,762 Other Income: Allowance for equity funds used during construction 11 9 10 Deferred return on Plant Vogtle - - - Write-off of Plant Vogtle costs - - - Income tax reduction for write-off of Plant Vogtle costs - - - Interest income 32 30 32 Other, net (28) (34) (50) Income taxes applicable to other income 26 57 39 - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,756 1,827 1,793 - ---------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 568 595 684 Allowance for debt funds used during construction (18) (13) (12) Interest on notes payable 33 30 16 Amortization of debt discount, premium, and expense, net 30 26 14 Other interest charges 47 87 34 Minority interest in subsidiaries 20 7 - Distributions on preferred securities of subsidiary companies - - - Preferred dividends of subsidiary companies 87 93 104 - --------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 767 825 840 - ---------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 989 $ 1,002 $ 953 ================================================================================================================================== Earnings Per Share of Common Stock $1.52 $1.57 $1.51 Average Number of Shares of Common Stock Outstanding (Thousands) 649,927 637,319 631,844 ================================================================================================================================== </TABLE> II-48A
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME Southern Company and Subsidiary Companies <S> <C> <C> <C> ================================================================================================================================== For the Years Ended December 31, 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues $ 8,050 $ 8,053 $ 7,620 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,237 2,327 2,241 Purchased power 468 642 575 Proceeds from settlement of disputed contracts (181) - - Other 1,321 1,161 1,103 Maintenance 637 602 542 Depreciation and amortization 763 749 698 Amortization of deferred Plant Vogtle costs, net 16 31 (39) Taxes other than income taxes 432 397 356 Income taxes 618 520 525 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 6,311 6,429 6,001 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Income 1,739 1,624 1,619 Other Income: Allowance for equity funds used during construction 13 33 71 Deferred return on Plant Vogtle 35 83 48 Write-off of Plant Vogtle costs - (281) - Income tax reduction for write-off of Plant Vogtle costs - 63 - Interest income 30 28 28 Other, net (57) (55) (50) Income taxes applicable to other income 21 36 30 - ---------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,781 1,531 1,746 - ---------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 757 788 791 Allowance for debt funds used during construction (18) (34) (63) Interest on notes payable 20 22 12 Amortization of debt discount, premium, and expense, net 9 10 11 Other interest charges 29 26 26 Minority interest in subsidiaries - - - Distributions on preferred securities of subsidiary companies - - - Preferred dividends of subsidiary companies 108 115 123 - ---------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 905 927 900 - ---------------------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 876 $ 604 $ 846 ================================================================================================================================== Earnings Per Share of Common Stock $1.39 $0.96 $1.34 Average Number of Shares of Common Stock Outstanding (Thousands) 631,307 631,307 631,303 ================================================================================================================================== </TABLE> II-48B
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF INCOME Southern Company and Subsidiary Companies <S> <C> <C> ==================================================================================================================== For the Years Ended December 31, 1988 1987 - -------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) - -------------------------------------------------------------------------------------------------------------------- Operating Revenues $ 7,287 $ 7,204 - -------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 2,213 2,303 Purchased power 562 552 Proceeds from settlement of disputed contracts - - Other 1,167 1,219 Maintenance 547 574 Depreciation and amortization 632 563 Amortization of deferred Plant Vogtle costs, net (8) (142) Taxes other than income taxes 362 349 Income taxes 412 517 - -------------------------------------------------------------------------------------------------------------------- Total operating expenses 5,887 5,935 - -------------------------------------------------------------------------------------------------------------------- Operating Income 1,400 1,269 Other Income: Allowance for equity funds used during construction 138 190 Deferred return on Plant Vogtle 107 115 Write-off of Plant Vogtle costs - (358) Income tax reduction for write-off of Plant Vogtle costs - 129 Interest income 46 77 Other, net (30) (59) Income taxes applicable to other income 23 19 - -------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,684 1,382 - -------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 784 776 Allowance for debt funds used during construction (130) (157) Interest on notes payable 22 24 Amortization of debt discount, premium, and expense, net 10 8 Other interest charges 32 29 Minority interest in subsidiaries - - Distributions on preferred securities of subsidiary companies - - Preferred dividends of subsidiary companies 120 125 - -------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 838 805 - -------------------------------------------------------------------------------------------------------------------- Consolidated Net Income $ 846 $ 577 ==================================================================================================================== Earnings Per Share of Common Stock $1.36 $0.96 Average Number of Shares of Common Stock Outstanding (Thousands) 622,292 601,390 ==================================================================================================================== </TABLE> II-48C
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS Southern Company and Subsidiary Companies <S> <C> <C> <C> =================================================================================================================================== For the Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) Operating Activities: Consolidated net income $ 972 $ 1,127 $ 1,103 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 1,471 1,201 1,134 Deferred income taxes (5) 57 116 Deferred investment tax credits - - 1 Allowance for equity funds used during construction (6) (4) (5) Amortization of deferred Plant Vogtle costs, net 121 137 124 Write-off of Plant Vogtle costs - - - Non-cash proceeds from settlement of disputed contracts - - - Other, net (86) (5) (154) Changes in certain current assets and liabilities -- Receivables (238) (92) (109) Inventories 77 104 39 Payables 138 19 (138) Taxes accrued 125 (69) - Other 56 (74) 204 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 2,625 2,401 2,315 - ----------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,859) (1,229) (1,401) Southern Energy business acquisitions (2,925) - (1,416) Sales of property 32 211 287 Other (13) (275) 153 - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (4,765) (1,293) (2,377) - ----------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Common stock 360 171 277 Preferred securities 1,321 322 - Preferred stock - - - First mortgage bonds - 85 375 Pollution control bonds 405 167 731 Other long-term debt 2,094 1,403 1,074 Prepaid capacity revenues - - - Retirements: Preferred stock (660) (179) (1) First mortgage bonds (168) (426) (538) Pollution control bonds (340) (174) (721) Other long-term debt (462) (1,580) (181) Increase (decrease) in notes payable, net 509 (268) 727 Payment of common stock dividends (889) (846) (811) Miscellaneous 126 (110) (237) - ----------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 2,296 (1,435) 695 - ----------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 156 (327) 633 Cash and Cash Equivalents at Beginning of Year 445 772 139 - ----------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 601 $ 445 $ 772 =================================================================================================================================== ( ) Denotes use of cash. </TABLE> II-49
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS Southern Company and Subsidiary Companies <S> <C> <C> <C> ============================================================================================================================ For the Years Ended December 31, 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) Operating Activities: Consolidated net income $ 989 $ 1,002 $ 953 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 1,050 1,011 969 Deferred income taxes (3) 209 221 Deferred investment tax credits (1) (20) (6) Allowance for equity funds used during construction (11) (9) (10) Amortization of deferred Plant Vogtle costs, net 75 36 (31) Write-off of Plant Vogtle costs - - - Non-cash proceeds from settlement of disputed contracts - - (7) Other, net (7) (45) (25) Changes in certain current assets and liabilities -- Receivables 114 (55) (10) Inventories (128) 136 (23) Payables 81 43 35 Taxes accrued - 3 (62) Other (48) (64) (9) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 2,111 2,247 1,995 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,536) (1,441) (1,105) Southern Energy business acquisitions (405) (465) - Sales of property 171 262 44 Other (87) (37) 61 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,857) (1,681) (1,000) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Common stock 279 205 30 Preferred securities 100 - - Preferred stock - 426 410 First mortgage bonds 185 2,185 1,815 Pollution control bonds 749 386 208 Other long-term debt 439 206 48 Prepaid capacity revenues - - - Retirements: Preferred stock (1) (516) (326) First mortgage bonds (241) (2,178) (2,575) Pollution control bonds (732) (351) (208) Other long-term debt (307) (99) (88) Increase (decrease) in notes payable, net 37 114 525 Payment of common stock dividends (766) (726) (695) Miscellaneous (35) (137) (148) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (293) (485) (1,004) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (39) 81 (9) Cash and Cash Equivalents at Beginning of Year 178 97 106 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 139 $ 178 $ 97 ============================================================================================================================ ( ) Denotes use of cash. </TABLE> II-50A
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS Southern Company and Subsidiary Companies <S> <C> <C> <C> ========================================================================================================================= For the Years Ended December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) Operating Activities: Consolidated net income $ 876 $ 604 $ 846 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 968 982 951 Deferred income taxes 26 158 225 Deferred investment tax credits (11) - (1) Allowance for equity funds used during construction (13) (33) (71) Amortization of deferred Plant Vogtle costs, net (19) (52) (87) Write-off of Plant Vogtle costs - 281 - Non-cash proceeds from settlement of disputed contracts (141) - - Other, net 45 (10) (28) Changes in certain current assets and liabilities -- Receivables 68 8 (123) Inventories 20 (82) 6 Payables (13) (41) (23) Taxes accrued 107 (5) (15) Other (46) (34) 156 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,867 1,776 1,836 - ------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,123) (1,185) (1,346) Southern Energy business acquisitions - - - Sales of property 291 35 - Other (45) 14 54 - ------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (877) (1,136) (1,292) - ------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Common stock - - 4 Preferred securities - - - Preferred stock 100 - - First mortgage bonds 380 300 280 Pollution control bonds 126 - 104 Other long-term debt 14 74 74 Prepaid capacity revenues 53 - - Retirements: Preferred stock (125) (96) (21) First mortgage bonds (881) (146) (201) Pollution control bonds (130) (3) (55) Other long-term debt (70) (207) (83) Increase (decrease) in notes payable, net 180 78 27 Payment of common stock dividends (676) (676) (675) Miscellaneous (41) (8) (10) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (1,070) (684) (556) - ------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (80) (44) (12) Cash and Cash Equivalents at Beginning of Year 186 230 242 - ------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 106 $ 186 $ 230 ========================================================================================================================= ( ) Denotes use of cash. </TABLE> II-50B
<TABLE> <CAPTION> CONSOLIDATED STATEMENTS OF CASH FLOWS Southern Company and Subsidiary Companies <S> <C> <C> =========================================================================================================== For the Years Ended December 31, 1988 1987 - ----------------------------------------------------------------------------------------------------------- (Millions of Dollars) Operating Activities: Consolidated net income $ 846 $ 577 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 837 742 Deferred income taxes 206 198 Deferred investment tax credits 27 20 Allowance for equity funds used during construction (138) (190) Amortization of deferred Plant Vogtle costs, net (115) (257) Write-off of Plant Vogtle costs - 358 Non-cash proceeds from settlement of disputed contracts - - Other, net 46 87 Changes in certain current assets and liabilities -- Receivables (21) (113) Inventories (47) (62) Payables (6) 125 Taxes accrued 29 (34) Other (40) 42 - ----------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,624 1,493 - ----------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (1,754) (1,853) Southern Energy business acquisitions - - Sales of property - 12 Other (2) 64 - ----------------------------------------------------------------------------------------------------------- Net cash used for investing activities (1,756) (1,777) - ----------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Common stock 194 247 Preferred securities - - Preferred stock 120 125 First mortgage bonds 335 700 Pollution control bonds 73 228 Other long-term debt 68 81 Prepaid capacity revenues - - Retirements: Preferred stock (10) (160) First mortgage bonds (273) (369) Pollution control bonds (1) (122) Other long-term debt (108) (56) Increase (decrease) in notes payable, net (300) 313 Payment of common stock dividends (661) (628) Miscellaneous (20) (58) - ----------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (583) 301 - ----------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (715) 17 Cash and Cash Equivalents at Beginning of Year 957 940 - ----------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 242 $ 957 =========================================================================================================== ( ) Denotes use of cash. </TABLE> II-50C
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> <C> ============================================================================================================================ At December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) ASSETS Electric Plant: Production- Fossil $ 8,780 $ 8,706 $ 8,533 Nuclear 5,924 5,982 5,956 Hydro 1,512 1,489 1,477 - ---------------------------------------------------------------------------------------------------------------------------- Total production 16,216 16,177 15,966 Transmission 3,705 3,596 3,452 Distribution 8,278 7,910 7,583 General 2,720 2,548 2,436 SEI utility plant 3,104 3,008 2,420 Construction work in progress 1,312 684 990 Nuclear fuel, at amortized cost 230 246 225 - ---------------------------------------------------------------------------------------------------------------------------- Total electric plant 35,565 34,169 33,072 - ---------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant 21 21 21 - ---------------------------------------------------------------------------------------------------------------------------- Total utility plant 35,586 34,190 33,093 - ---------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 11,922 10,909 10,056 Steam heat 12 12 11 - ---------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 11,934 10,921 10,067 - ---------------------------------------------------------------------------------------------------------------------------- Total 23,652 23,269 23,026 - ---------------------------------------------------------------------------------------------------------------------------- Less property-related accumulated deferred income taxes - - - - ---------------------------------------------------------------------------------------------------------------------------- Total 23,652 23,269 23,026 - ---------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Equity investments in subsidiaries 1,168 227 128 Leasehold interest, being amortized 1,389 416 431 Goodwill, being amortized 1,888 318 344 Nuclear decommissioning trusts 387 279 201 Miscellaneous 742 261 189 - ---------------------------------------------------------------------------------------------------------------------------- Total 5,574 1,501 1,293 - ---------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 601 445 772 Investment securities - - - Receivables, net 1,792 1,157 1,175 Accrued utility revenues 325 345 347 Fossil fuel stock, at average cost 214 270 327 Materials and supplies, at average cost 493 510 552 Prepayments 99 87 126 Vacation pay deferred 79 77 74 - ---------------------------------------------------------------------------------------------------------------------------- Total 3,603 2,891 3,373 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 1,142 1,238 1,386 Deferred Plant Vogtle costs 50 171 308 Deferred fuel charges 3 13 34 Debt expense, being amortized 101 81 68 Premium on reacquired debt, being amortized 285 289 295 Miscellaneous 861 777 739 - ---------------------------------------------------------------------------------------------------------------------------- Total 2,442 2,569 2,830 - ---------------------------------------------------------------------------------------------------------------------------- Total Assets $ 35,271 $ 30,230 $ 30,522 ============================================================================================================================ </TABLE> II-51
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> <C> =========================================================================================================================== At December 31, 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) ASSETS Electric Plant: Production- Fossil $ 8,778 $ 8,006 $ 8,033 Nuclear 5,942 5,930 5,912 Hydro 1,341 1,263 1,253 - --------------------------------------------------------------------------------------------------------------------------- Total production 16,061 15,199 15,198 Transmission 3,504 3,224 3,093 Distribution 7,243 6,848 6,430 General 2,380 2,395 2,291 SEI utility plant - - - Construction work in progress 1,247 1,031 665 Nuclear fuel, at amortized cost 238 229 257 - --------------------------------------------------------------------------------------------------------------------------- Total electric plant 30,673 28,926 27,934 - --------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant 21 21 21 - --------------------------------------------------------------------------------------------------------------------------- Total utility plant 30,694 28,947 27,955 - --------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 9,567 8,924 8,271 Steam heat 10 10 9 - --------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 9,577 8,934 8,280 - --------------------------------------------------------------------------------------------------------------------------- Total 21,117 20,013 19,675 - --------------------------------------------------------------------------------------------------------------------------- Less property-related accumulated deferred income taxes - - 3,186 - --------------------------------------------------------------------------------------------------------------------------- Total 21,117 20,013 16,489 - --------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Equity investments in subsidiaries 93 - - Leasehold interest, being amortized 446 469 - Goodwill, being amortized 12 7 - Nuclear decommissioning trusts 125 88 52 Miscellaneous 131 172 75 - --------------------------------------------------------------------------------------------------------------------------- Total 807 736 127 - --------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 139 178 97 Investment securities - - 199 Receivables, net 840 962 742 Accrued utility revenues 218 185 177 Fossil fuel stock, at average cost 354 254 392 Materials and supplies, at average cost 553 535 533 Prepayments 122 148 220 Vacation pay deferred 70 73 70 - --------------------------------------------------------------------------------------------------------------------------- Total 2,296 2,335 2,430 - --------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 1,454 1,546 - Deferred Plant Vogtle costs 432 507 383 Deferred fuel charges 47 70 89 Debt expense, being amortized 48 33 28 Premium on reacquired debt, being amortized 298 288 222 Miscellaneous 543 383 270 - --------------------------------------------------------------------------------------------------------------------------- Total 2,822 2,827 992 - --------------------------------------------------------------------------------------------------------------------------- Total Assets $ 27,042 $ 25,911 $ 20,038 =========================================================================================================================== </TABLE> II-52A
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> <C> ================================================================================================================== At December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ (Millions of Dollars) ASSETS Electric Plant: Production- Fossil $ 7,997 $ 7,661 $ 7,565 Nuclear 5,902 5,820 5,976 Hydro 1,247 1,222 1,215 - ------------------------------------------------------------------------------------------------------------------ Total production 15,146 14,703 14,756 Transmission 2,955 2,824 2,683 Distribution 6,092 5,738 5,365 General 2,196 2,078 2,026 SEI utility plant - - - Construction work in progress 603 1,092 1,006 Nuclear fuel, at amortized cost 301 354 402 - ------------------------------------------------------------------------------------------------------------------ Total electric plant 27,293 26,789 26,238 - ------------------------------------------------------------------------------------------------------------------ Steam Heat Plant 20 20 20 - ------------------------------------------------------------------------------------------------------------------ Total utility plant 27,313 26,809 26,258 - ------------------------------------------------------------------------------------------------------------------ Accumulated Provision for Depreciation: Electric 7,676 7,079 6,492 Steam heat 8 8 7 - ------------------------------------------------------------------------------------------------------------------ Total accumulated provision for depreciation 7,684 7,087 6,499 - ------------------------------------------------------------------------------------------------------------------ Total 19,629 19,722 19,759 - ------------------------------------------------------------------------------------------------------------------ Less property-related accumulated deferred income taxes 3,020 2,911 2,759 - ------------------------------------------------------------------------------------------------------------------ Total 16,609 16,811 17,000 - ------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts 202 - - Equity investments in subsidiaries - - - Leasehold interest, being amortized - - - Goodwill, being amortized - - - Nuclear decommissioning trusts 26 2 - Miscellaneous 83 83 85 - ------------------------------------------------------------------------------------------------------------------ Total 311 85 85 - ------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 106 186 230 Investment securities - - - Receivables, net 723 793 765 Accrued utility revenues 160 151 189 Fossil fuel stock, at average cost 445 467 427 Materials and supplies, at average cost 457 456 413 Prepayments 222 193 192 Vacation pay deferred 70 64 65 - ------------------------------------------------------------------------------------------------------------------ Total 2,183 2,310 2,281 - ------------------------------------------------------------------------------------------------------------------ Deferred Charges: Deferred charges related to income taxes - - - Deferred Plant Vogtle costs 375 364 322 Deferred fuel charges 106 126 143 Debt expense, being amortized 23 23 24 Premium on reacquired debt, being amortized 126 99 103 Miscellaneous 130 137 134 - ------------------------------------------------------------------------------------------------------------------ Total 760 749 726 - ------------------------------------------------------------------------------------------------------------------ Total Assets $ 19,863 $ 19,955 $ 20,092 ================================================================================================================== </TABLE> II-52B
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> ========================================================================================================= At December 31, 1988 1987 - --------------------------------------------------------------------------------------------------------- (Millions of Dollars) ASSETS Electric Plant: Production- Fossil $ 6,226 $ 6,157 Nuclear 4,995 4,987 Hydro 1,197 1,192 - --------------------------------------------------------------------------------------------------------- Total production 12,418 12,336 Transmission 2,500 2,388 Distribution 4,944 4,510 General 1,865 1,674 SEI utility plant - - Construction work in progress 3,071 2,519 Nuclear fuel, at amortized cost 481 479 - --------------------------------------------------------------------------------------------------------- Total electric plant 25,279 23,906 - --------------------------------------------------------------------------------------------------------- Steam Heat Plant 20 20 - --------------------------------------------------------------------------------------------------------- Total utility plant 25,299 23,926 - --------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 5,885 5,355 Steam heat 6 6 - --------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 5,891 5,361 - --------------------------------------------------------------------------------------------------------- Total 19,408 18,565 - --------------------------------------------------------------------------------------------------------- Less property-related accumulated deferred income taxes 2,559 2,371 - --------------------------------------------------------------------------------------------------------- Total 16,849 16,194 - --------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - Equity investments in subsidiaries - - Leasehold interest, being amortized - - Goodwill, being amortized - - Nuclear decommissioning trusts - - Miscellaneous 88 70 - --------------------------------------------------------------------------------------------------------- Total 88 70 - --------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 242 957 Investment securities - - Receivables, net 687 687 Accrued utility revenues 148 139 Fossil fuel stock, at average cost 490 513 Materials and supplies, at average cost 348 278 Prepayments 174 136 Vacation pay deferred 63 59 - --------------------------------------------------------------------------------------------------------- Total 2,152 2,769 - --------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - Deferred Plant Vogtle costs 270 173 Deferred fuel charges 157 112 Debt expense, being amortized 24 25 Premium on reacquired debt, being amortized 102 95 Miscellaneous 89 80 - --------------------------------------------------------------------------------------------------------- Total 642 485 - --------------------------------------------------------------------------------------------------------- Total Assets $19,731 $19,518 ========================================================================================================= </TABLE> II-52C
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> <C> ============================================================================================================================ At December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 3,467 $ 3,385 $ 3,348 Paid-in capital 2,338 2,067 1,941 Retained Earnings 3,842 3,764 3,483 - ---------------------------------------------------------------------------------------------------------------------------- Total common stock equity 9,647 9,216 8,772 Preferred stock 493 980 1,332 Preferred stock subject to mandatory redemption - - - Subsidiary obligated mandatorily redeemable preferred securities 1,744 422 100 Long-term debt 10,274 7,938 8,274 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 22,158 18,556 18,478 - ---------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable 690 828 445 Commercial paper 1,374 655 1,225 Preferred stock due within one year - 173 - Long-term debt due within one year 784 191 509 Accounts payable 1,049 788 785 Customer deposits 133 132 216 Taxes accrued 379 205 272 Interest accrued 262 187 199 Vacation pay accrued 108 104 100 Miscellaneous 608 535 530 - ---------------------------------------------------------------------------------------------------------------------------- Total 5,387 3,798 4,281 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,650 4,738 4,611 Deferred credits related to income taxes 746 814 936 Accumulated deferred investment tax credits 754 788 820 Minority interest 435 375 231 Prepaid capacity revenues 110 122 131 Disallowed Plant Vogtle capacity buyback costs 56 57 59 Miscellaneous 975 982 975 - ---------------------------------------------------------------------------------------------------------------------------- Total 7,726 7,876 7,763 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 35,271 $ 30,230 $ 30,522 ============================================================================================================================ </TABLE> II-53
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> <C> =========================================================================================================================== At December 31, 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- (Millions of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 3,283 $ 3,213 $ 1,582 Paid-in capital 1,712 1,503 2,931 Retained Earnings 3,191 2,968 2,721 - --------------------------------------------------------------------------------------------------------------------------- Total common stock equity 8,186 7,684 7,234 Preferred stock 1,332 1,332 1,351 Preferred stock subject to mandatory redemption - 1 8 Subsidiary obligated mandatorily redeemable preferred securities 100 - - Long-term debt 7,593 7,412 7,241 - --------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 17,211 16,429 15,834 - --------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable 575 865 567 Commercial paper 403 76 260 Preferred stock due within one year 1 1 65 Long-term debt due within one year 228 156 188 Accounts payable 806 698 646 Customer deposits 102 103 99 Taxes accrued 153 206 172 Interest accrued 190 186 191 Vacation pay accrued 87 90 86 Miscellaneous 233 190 242 - --------------------------------------------------------------------------------------------------------------------------- Total 2,778 2,571 2,516 - --------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,007 3,979 - Deferred credits related to income taxes 987 1,051 - Accumulated deferred investment tax credits 858 900 957 Minority interest 267 - - Prepaid capacity revenues 138 144 148 Disallowed Plant Vogtle capacity buyback costs 60 63 72 Miscellaneous 736 774 511 - --------------------------------------------------------------------------------------------------------------------------- Total 7,053 6,911 1,688 - --------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 27,042 $ 25,911 $ 20,038 =========================================================================================================================== </TABLE> II-54A
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> <C> ================================================================================================================== At December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ (Millions of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 1,578 $ 1,578 $ 1,578 Paid-in capital 2,908 2,909 2,909 Retained Earnings 2,490 2,296 2,374 - ------------------------------------------------------------------------------------------------------------------ Total common stock equity 6,976 6,783 6,861 Preferred stock 1,207 1,207 1,209 Preferred stock subject to mandatory redemption 126 151 191 Subsidiary obligated mandatorily redeemable preferred securities - - - Long-term debt 7,992 8,458 8,575 - ------------------------------------------------------------------------------------------------------------------ Total (excluding amount due within one year) 16,301 16,599 16,836 - ------------------------------------------------------------------------------------------------------------------ Current Liabilities: Notes payable 302 122 44 Commercial paper - - - Preferred stock due within one year 7 7 61 Long-term debt due within one year 217 308 169 Accounts payable 585 616 676 Customer deposits 95 91 89 Taxes accrued 215 144 181 Interest accrued 221 246 233 Vacation pay accrued 84 75 75 Miscellaneous 229 233 252 - ------------------------------------------------------------------------------------------------------------------ Total 1,955 1,842 1,780 - ------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - Deferred credits related to income taxes - - - Accumulated deferred investment tax credits 1,004 1,063 1,111 Minority interest - - - Prepaid capacity revenues 149 100 102 Disallowed Plant Vogtle capacity buyback costs 110 136 73 Miscellaneous 344 215 190 - ------------------------------------------------------------------------------------------------------------------ Total 1,607 1,514 1,476 - ------------------------------------------------------------------------------------------------------------------ Total Capitalization and Liabilities $ 19,863 $ 19,955 $ 20,092 ================================================================================================================== </TABLE> II-54B
<TABLE> <CAPTION> CONSOLIDATED BALANCE SHEETS Southern Company and Subsidiary Companies <S> <C> <C> ========================================================================================================= At December 31, 1988 1987 - --------------------------------------------------------------------------------------------------------- (Millions of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 1,577 $ 1,534 Paid-in capital 2,906 2,755 Retained Earnings 2,203 2,018 - --------------------------------------------------------------------------------------------------------- Total common stock equity 6,686 6,307 Preferred stock 1,259 1,139 Preferred stock subject to mandatory redemption 206 224 Subsidiary obligated mandatorily redeemable preferred securities - - Long-term debt 8,433 8,333 - --------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 16,584 16,003 - --------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable 17 317 Commercial paper - - Preferred stock due within one year 17 9 Long-term debt due within one year 190 192 Accounts payable 728 747 Customer deposits 83 86 Taxes accrued 203 221 Interest accrued 240 233 Vacation pay accrued 74 68 Miscellaneous 104 110 - --------------------------------------------------------------------------------------------------------- Total 1,656 1,983 - --------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - Deferred credits related to income taxes - - Accumulated deferred investment tax credits 1,161 1,180 Minority interest - - Prepaid capacity revenues 81 104 Disallowed Plant Vogtle capacity buyback costs 104 79 Miscellaneous 145 169 - --------------------------------------------------------------------------------------------------------- Total 1,491 1,532 - --------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 19,731 $ 19,518 ========================================================================================================= II-54C </TABLE> ALABAMA POWER COMPANY FINANCIAL SECTION II-55
MANAGEMENT'S REPORT Alabama Power Company 1997 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, Chief Financial Officer, and Treasurer February 11, 1998 II-56
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, 1997 and 1996, and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1997. 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 11-65 through II-82) referred to above present fairly, in all material respects, the financial position of Alabama Power Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP Birmingham, Alabama February 11, 1998 II-57
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Alabama Power Company 1997 Annual Report RESULTS OF OPERATIONS Earnings Alabama Power Company's 1997 net income after dividends on preferred stock was $376 million, representing a $4.4 million (1.2 percent) increase from the prior year. This improvement can be attributed primarily to lower non-fuel related operating expenses. Despite the mild weather experienced during 1997, retail sales increased approximately 2 percent. However, the expected net income effect was offset by reductions in certain industrial and commercial prices. In 1996, earnings were $371 million, representing a 2.9 percent increase from the prior year. This increase was due 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. The return on average common equity for 1997 was 13.76 percent compared to 13.75 percent in 1996, and 13.61 percent in 1995. Revenues Operating revenues for 1997 were $3.1 billion, reflecting a 0.9 percent increase from 1996. The following table summarizes the principal factors that affected operating revenues for the past three years: Increase (Decrease) From Prior Year -------------------------------------- 1997 1996 1995 -------------------------------------- (in thousands) Retail -- Growth and price change $ 33,813 $ 42,385 $ 19,164 Weather (22,973) (29,660) 54,888 Fuel cost recovery and other 31,353 (30,846) 35,235 ------------------------------------------------------------- Total retail 42,193 (18,121) 109,287 ------------------------------------------------------------- Sales for resale -- Non-affiliates 39,354 21,529 15,380 Affiliates (54,825) 88,890 (37,032) ------------------------------------------------------------- Total sales for resale (15,471) 110,419 (21,652) Other operating revenues 1,614 3,703 1,997 ------------------------------------------------------------- Total operating revenues $ 28,336 $ 96,001 $ 89,632 ------------------------------------------------------------- Percent change 0.9% 3.2% 3.1% ============================================================= Retail revenues of $2.5 billion in 1997 increased $42 million (1.7 percent) from the prior year, compared with a decrease of $18 million (0.7 percent) in 1996. Fuel revenues increased in 1997 due to slightly higher generation and higher fuel costs. This was the primary reason for the increase in 1997 retail revenues over 1996. Lower fuel cost recovery was the primary reason for the decrease in 1996 retail revenues as compared to 1995. 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 II-58
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1997 Annual Report and energy components were: 1997 1996 1995 ------------------------------------------- (in thousands) Capacity $136,248 $150,797 $157,119 Energy 134,498 107,996 83,352 ---------------------------------------------------------- Total $270,746 $258,793 $240,471 ========================================================== Capacity revenues from non-affiliates in 1997 decreased 9.6% compared to 1996 primarily due to a one-time unit power sales adjustment in 1997. Capacity revenues from non-affiliates were relatively constant in 1996 and 1995. Kilowatt-hour (KWH) sales for 1997 and the percent change by year were as follows: KWH Percent Change ----------- ------------------------------- 1997 1997 1996 1995 -------------------------------- ---------- (millions) Residential 14,336 (1.8)% 1.5% 9.1% Commercial* 11,330 3.9 8.6 4.1 Industrial* 20,728 3.6 0.7 2.0 Other 181 (6.3) 3.1 0.5 ---------- Total retail 46,575 1.9 2.7 4.7 Sales for resale - Non-affiliates 11,894 25.3 18.0 18.8 Affiliates 8,993 (12.6) 53.5 (20.5) ---------- Total 67,462 3.0% 10.5% 2.6% - ----------------------------------------------------------------- *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 increases in 1997 and 1996 retail energy sales were primarily due to the strength of business and economic conditions in the company's service area. Residential energy sales experienced a decline as a result of milder than normal weather in 1997, compared to relatively normal weather in 1996. Assuming normal weather, sales to retail customers are projected to grow approximately 2.3 percent annually on average during 1998 through 2003. Expenses Total operating expenses of $2.5 billion for 1997 were up $18 million or 0.7 percent compared with the prior year. This increase was primarily due to a $19 million increase in fuel costs and a $10 million increase in depreciation and amortization expense. These increases were somewhat offset by a $16 million decrease in maintenance 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. 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: -------------------------- 1997 1996 1995 -------------------------- Total generation (billions of KWHs) 65 65 58 Sources of generation (percent) -- Coal 72 72 73 Nuclear 20 20 19 Hydro 8 8 8 Average cost of fuel per net KWH generated (cents) -- Coal 1.73 1.71 1.71 Nuclear 0.54 0.50 0.50 Total 1.49 1.46 1.48 - -------------------------------------------------------------- Note: Oil & Gas comprise less than 1% of generation. Fuel expense increased in 1997 by $19 million or 2.2 percent. This increase can be attributed to slightly higher generation and fuel costs. Fuel expense increased in 1996 by $85 million or 10.8 percent. This increase can be attributed to higher generation. Purchased power consists primarily of purchases from the affiliates of the Southern electric system. Purchased power transactions among the company and its II-59
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1997 Annual Report affiliates will vary from period to period depending on demand, the availability, and the variable production cost of generating resources at each company. Total KWH purchases increased 12.4 percent from the prior year. The 6.1 percent decrease in maintenance expenses in 1997 is attributable primarily to a decrease in distribution expenses. The increase in maintenance expenses for 1996 is due to increased nuclear expenses, primarily outage related accruals. Depreciation and amortization expense increased 3.2 percent in 1997 and 5.6 percent in 1996. These increases reflect additions to utility plant. Total net interest and other charges increased $25.4 million (11.2 percent) in 1997 primarily due to an increase in company obligated mandatorily redeemable preferred securities outstanding. This increase was offset by a $12 million (45.2 percent) decrease in dividends on preferred stock. The decline in net interest and other 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. 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. The company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the state of Alabama. Prices for electricity provided by the company to retail customers are set by the APSC under cost-based regulatory principles. 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. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically II-60
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1997 Annual Report change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Alabama, Florida, Georgia, and Mississippi, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of the company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on the financial condition of the company. The company is attempting to minimize or reduce stranded cost exposure. Continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with 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. 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. In April 1997, the APSC issued an additional order authorizing the company to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by the company. 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. The company is heavily dependent upon complex computer systems for all phases of its operations. The year 2000 issue -- common to most corporations - --concerns the inability of certain software and databases to properly recognize date sensitive information related to the year 2000 and thereafter. This problem could result in a material disruption to the company's operations, if not corrected. The company has assessed and developed a detailed strategy to prevent or at least minimize problems related to the year 2000 issue. In 1997 resources were committed and implementation began to modify the affected information systems. Total costs related to the project are estimated to be approximately $26 million, of which $2.1 million was spent in 1997. The remaining costs will be expensed primarily in 1998. Implementation is currently on schedule. Although, the degree of success of this project cannot be determined at this time, management believes there will be no significant effect on the company's operations. The 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 current and future environmental laws and regulations 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-61
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1997 Annual Report 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 that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Exposure to Market Risk Due to cost-based rate regulation, the company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1997, exposure from these activities was not material to the company's financial position, results of operations, or cash flows. New Accounting Standards The FASB has issued Statement No. 130, Reporting Comprehensive Income, which will be effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners (comprehensive income). Comprehensive income is the total of net income and all other nonowner changes in equity. The company will adopt this statement in 1998. The FASB has issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. The company adopted the new rules in 1997, and they did not have a significant impact on the company's financial reporting. However, this conclusion may change as industry restructuring and competitive factors influence the company's operations. FINANCIAL CONDITION Overview The company's financial condition remained stable in 1997. 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 $451 million in 1997. 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 44.7 percent in 1997, compared with 45.3 percent in 1996, and 45.0 percent in 1995. 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. During 1997, the company redeemed $162.0 million of preferred stock and reacquired an additional $22.9 million through tender offer. II-62
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1997 Annual Report 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 $615 million for 1998, $723 million for 1999, and $524 million for 2000. The total is $1.9 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 will replace all six steam generators at Plant Farley at a total cost of approximately $234 million. Additionally, the company plans to construct and install 800 megawatts of new generating capacity and associated substation facilities at Plant Barry. The projected capital expenditures for this project amount to approximately $289 million. Other Capital Requirements In addition to the funds needed for the capital budget, approximately $320 million will be required by the end of 2000 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 - significantly impacted the operating companies of Southern Company, including Alabama 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 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. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. 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 equipment at selected plants. Also equipment to control nitrogen oxide emissions will be installed on additional system fossil-fired units as necessary to meet Phase II limits. Current compliance strategy for Phase II could require total estimated construction expenditures of approximately $33 million, of which $27 million remains to be spent. 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. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. Also, in October 1997, the EPA issued a proposed regional ozone rule that --if implemented--could require substantial further reductions in NOx emissions from fossil-fueled generating facilities. Implementation of the standards and the proposed rule could result in significant additional compliance costs and capital expenditures that cannot be determined at this time. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: 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. II-63
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Alabama Power Company 1997 Annual Report 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 The company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. To issue additional debt and equity securities, 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." Cautionary Statement Regarding Forward-Looking Information The company's 1997 Annual Report contains forward-looking statements in addition to historical information. The company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the company's markets; potential business strategies - -- including acquisitions or dispositions of assets or internal restructuring - --that may be pursued by Southern Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the company with the Securities and Exchange Commission. II-64
<TABLE> <CAPTION> STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996, and 1995 Alabama Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues: Revenues (Notes 1, 3, and 7): $ 2,987,316 $ 2,904,155 $ 2,897,044 Revenues from affiliates 161,795 216,620 127,730 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 3,149,111 3,120,775 3,024,774 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 896,014 877,076 791,819 Purchased power from non-affiliates 41,795 36,813 30,065 Purchased power from affiliates 95,538 91,500 112,826 Other 510,203 505,884 501,876 Maintenance 242,691 258,482 243,218 Depreciation and amortization 330,377 320,102 303,050 Taxes other than income taxes 185,062 186,172 185,620 Federal and state income taxes (Note 8) 220,228 228,108 230,982 -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,521,908 2,504,137 2,399,456 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 627,203 616,638 625,318 Other Income (Expense): Allowance for equity funds used during construction (Note 1) - - 1,649 Income from subsidiary (Note 6) 4,266 3,851 4,051 Charitable foundation - (6,800) (11,542) Interest income 37,844 28,318 13,768 Other, net (38,522) (39,053) (21,536) Income taxes applicable to other income 12,351 22,400 14,142 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges and Other 643,142 625,354 625,850 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 167,172 169,390 180,714 Allowance for debt funds used during construction (Note 1) (4,787) (6,480) (7,067) Interest on interim obligations 22,787 20,617 16,917 Amortization of debt discount, premium, and expense, net 9,645 9,508 20,259 Other interest charges 36,037 27,510 27,064 Distributions on preferred securities of Alabama Power Capital Trust I & II (Note 9) 21,763 6,717 - - -------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 252,617 227,262 237,887 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 390,525 398,092 387,963 Dividends on Preferred Stock 14,586 26,602 27,069 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 375,939 $ 371,490 $ 360,894 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-65
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996, and 1995 Alabama Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Activities: Net income $ 390,525 $ 398,092 $ 387,963 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 394,572 383,438 371,382 Deferred income taxes and investment tax credits, net (12,429) 16,585 32,627 Allowance for equity funds used during construction - - (1,649) Other, net (11,353) 6,247 459 Changes in certain current assets and liabilities -- Receivables, net (30,268) 3,958 (54,209) Inventories 13,709 36,234 18,425 Payables (9,745) 1,006 (63,656) Taxes accrued 6,191 (5,756) 551 Energy cost recovery, retail 7,108 25,771 1,177 Other 7,127 8,205 16,890 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 755,437 873,780 709,960 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (451,167) (425,024) (551,781) Other (51,791) (61,119) (53,321) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (502,958) (486,143) (605,102) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities: Proceeds: Company obligated mandatorily redeemable preferred securities 200,000 97,000 - Other long-term debt 258,800 21,000 131,500 Retirements: Preferred stock (184,888) - - First mortgage bonds (74,951) (83,797) - Other long-term debt (951) (21,907) (132,291) Interim obligations, net (57,971) (25,163) 210,134 Payment of preferred stock dividends (22,524) (26,665) (27,118) Payment of common stock dividends (339,600) (347,500) (285,000) Miscellaneous (16,024) (3,634) (4,143) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for financing activities (238,109) (390,666) (106,918) - ------------------------------------------------------------------------------------------------------------------------------ Net Change in Cash and Cash Equivalents 14,370 (3,029) (2,060) Cash and Cash Equivalents at Beginning of Year 9,587 12,616 14,676 - ------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year 23,957 $ 9,587 $ 12,616 ============================================================================================================================== Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $ 209,919 $ 193,871 $ 189,268 Income taxes 207,653 195,214 172,777 - ------------------------------------------------------------------------------------------------------------------------------ ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-66
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Alabama Power Company 1997 Annual Report <S> <C> <C> ================================================================================================================ ASSETS 1997 1996 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Utility Plant: Plant in service, at original cost (Note 1) $11,070,323 $10,806,921 Less accumulated provision for depreciation 4,384,180 4,113,622 - ------------------------------------------------------------------------------------------------------------------ 6,686,143 6,693,299 Nuclear fuel, at amortized cost 103,272 123,862 Construction work in progress 311,223 256,802 ------------------------------------------------------------------------------------------------------------------ Total 7,100,638 7,073,963 - ------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Southern Electric Generating Company, at equity (Note 6) 24,972 26,032 Nuclear decommissioning trusts (Note 1) 193,008 148,760 Miscellaneous 22,233 20,243 - ------------------------------------------------------------------------------------------------------------------ Total 240,213 195,035 - ------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 23,957 9,587 Receivables- Customer accounts receivable 368,255 334,150 Other accounts and notes receivable 28,921 28,524 Affiliated companies 50,353 47,630 Accumulated provision for uncollectible accounts (2,272) (1,171) Refundable income taxes - 5,856 Fossil fuel stock, at average cost 74,186 81,704 Materials and supplies, at average cost 161,601 167,792 Prepayments 20,453 17,841 Vacation pay deferred 28,783 28,369 - ------------------------------------------------------------------------------------------------------------------ Total 754,237 720,282 - ------------------------------------------------------------------------------------------------------------------ Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 384,549 410,010 Debt expense, being amortized 7,276 7,398 Premium on reacquired debt, being amortized 81,417 84,149 Prepaid pension costs 130,733 114,029 Department of Energy assessments (Note 1) 34,416 37,490 Miscellaneous 79,388 91,490 - ------------------------------------------------------------------------------------------------------------------ Total 717,779 744,566 - ------------------------------------------------------------------------------------------------------------------ Total Assets $8,812,867 $8,733,846 ================================================================================================================== The accompanying notes are an integral part of these balance sheets. </TABLE> II-67
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Alabama Power Company 1997 Annual Report <S> <C> <C> ================================================================================================================== CAPITALIZATION AND LIABILITIES 1997 1996 - ------------------------------------------------------------------------------------------------------------------ (in thousands) Capitalization (See accompanying statements): Common stock equity $2,750,569 $2,714,277 Preferred stock 255,512 340,400 Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding Company Junior Subordinated Notes (Note 9) 297,000 97,000 Long-term debt 2,473,202 2,354,006 - ------------------------------------------------------------------------------------------------------------------ Total 5,776,283 5,505,683 - ------------------------------------------------------------------------------------------------------------------ Current Liabilities: Preferred stock due within one year (Note 11) - 100,000 Long-term debt due within one year (Note 11) 75,336 20,753 Commercial paper 306,882 364,853 Accounts payable- Affiliated companies 79,822 64,307 Other 159,146 182,563 Customer deposits 34,968 32,003 Taxes accrued- Federal and state income 21,177 35,638 Other 15,309 15,271 Interest accrued 50,722 51,941 Vacation pay accrued 28,783 28,369 Miscellaneous 103,602 96,485 - ------------------------------------------------------------------------------------------------------------------ Total 875,747 992,183 - ------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 1,192,265 1,177,687 Accumulated deferred investment tax credits 282,873 294,071 Prepaid capacity revenues, net (Note 7) 109,982 122,496 Department of Energy assessments (Note 1) 30,592 33,741 Deferred credits related to income taxes (Note 8) 327,328 364,792 Natural disaster reserve (Note 1) 22,416 20,757 Miscellaneous 195,381 222,436 - ------------------------------------------------------------------------------------------------------------------ Total 2,160,837 2,235,980 - ------------------------------------------------------------------------------------------------------------------ Commitments and Contingent Matters (Notes 1, 3, 4, 5, 6, 7, and 12) Total Capitalization and Liabilities $8,812,867 $8,733,846 ================================================================================================================== The accompanying notes are an integral part of these balance sheets. </TABLE> II-68
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION At December 31, 1997 and 1996 Alabama Power Company 1997 Annual Report <S> <C> <C> <C> <C> =================================================================================================================================== 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------------------- (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 1997 $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,304,645 Premium on preferred stock 99 146 Retained earnings (Note 13) 1,221,467 1,185,128 - ----------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 2,750,569 2,714,277 47.6% 49.3% - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $1 par value -- Authorized -- 27,500,000 shares Outstanding -- 6,020,200 shares $25 stated capital -- 6.40% 50,000 50,000 6.80% 38,000 38,000 7.60% - 150,000 Adjustable rate 4.82% - at January 1, 1998 50,000 50,000 $100 stated capital -- Auction rate - 4.235% at January 1, 1998 50,000 50,000 $100,000 stated capital -- Auction rate - 4.20% at January 1, 1998 20,000 20,000 $100 par value -- Authorized -- 3,850,000 shares Outstanding -- 475,117 shares 4.20% to 4.52% 18,512 41,400 4.60% to 4.92% 29,000 29,000 5.96% to 6.88% - 12,000 - ----------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $13,313,000) 255,512 440,400 Less amount due within one year (Note 11) - 100,000 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock excluding amount due within one year 255,512 340,400 4.4 6.2 - ----------------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 7.375% 97,000 97,000 $25 liquidation value -- 7.60% 200,000 - - ----------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $22,354,000) 297,000 97,000 5.2 1.7 - ------------------------------------------------------------------------------------------------------------------------------------ Long-Term Debt: First mortgage bonds -- Maturity Interest Rates 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 August 1, 2002 6.85% 100,000 100,000 2003 through 2007 6 3/4% to 7 1/4% 475,000 475,000 2021 through 2024 7.30% to 9% 946,108 1,021,059 - ----------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,841,108 1,916,059 Pollution control obligations 541,140 476,140 Long-term senior notes 193,800 - Other long-term debt 7,105 8,056 Unamortized debt premium (discount), net (34,615) (25,496) - ----------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $181,726,000) 2,548,538 2,374,759 Less amount due within one year (Note 11) 75,336 20,753 - ----------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 2,473,202 2,354,006 42.8 42.8 - ----------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 5,776,283 $ 5,505,683 100.0% 100.0% =================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-69
<TABLE> <CAPTION> STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1997, 1996, and 1995 Alabama Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $1,185,128 $1,161,225 $1,085,256 Net income after dividends on preferred stock 375,939 371,490 360,894 Cash dividends on common stock (339,600) (347,500) (285,000) Preferred stock transactions, net (45) (7) - Other adjustments to retained earnings 45 (80) 75 - -------------------------------------------------------------------------------------------------------------------------------- Balance at End of Year (Note 13) $1,221,467 $1,185,128 $1,161,225 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-70
NOTES TO FINANCIAL STATEMENTS Alabama Power Company 1997 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), Southern Company Energy Solutions, 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 Company Energy Solutions 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 expected 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: 1997 1996 ----------------------- (in thousands) Deferred income taxes $ 384,549 $ 410,010 Deferred income tax credits (327,328) (364,792) Premium on reacquired debt 81,417 84,149 Department of Energy assessments 34,416 37,490 Vacation pay 28,783 28,369 Natural disaster reserve (22,416) (20,757) Work force reduction costs 19,316 45,969 Other, net 59,726 45,521 - ---------------------------------------------------------------- Total $ 258,463 $265,959 ================================================================ 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 net regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the company would be required to determine if any impairment to other assets exists, 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 1997, uncollectible II-71
NOTES (continued) Alabama Power Company 1997 Annual Report 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 $68 million in 1997, $64 million in 1996, and $54 million in 1995. 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 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, 1997, under this law to be approximately $34 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 1997 and 1996, and 3.2 percent in 1995. 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, 1997, 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 1997 $ 18 ----------------------------------------------------------- Accumulated provisions: Balance in external trust funds $ 193 Balance in internal reserves 44 ----------------------------------------------------------- Total $ 237 =========================================================== 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. II-72
NOTES (continued) Alabama Power Company 1997 Annual Report 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 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 1997 and 1996, and 7.1 percent in 1995. AFUDC, net of income tax, as a percent of net income after dividends on preferred stock was 0.8 percent in 1997, 1.1 percent in 1996 and 1.7 percent in 1995. 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, 1997 $2,541 $2,638 At December 31, 1996 $2,367 $2,420 Preferred Securities: At December 31, 1997 297 300 At December 31, 1996 97 94 ------------------------------------------------------------ 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. 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 II-73
NOTES (continued) Alabama Power Company 1997 Annual Report "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 these 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 funded status of the plans and reconciliation to amounts reflected in the Balance Sheets at December 31 are as follows: Pension ------------------- 1997 1996 ------------------- (in millions) Actuarial present value of benefit obligations: Vested benefits $ 626 $ 603 Non-vested benefits 22 30 --------------------------------------------------------- Accumulated benefit obligation 648 633 Additional amounts related to projected salary increases 165 180 - ---------------------------------------------------------- Projected benefit obligation 813 813 Less: Fair value of plan assets 1,521 1,334 Unrecognized net gain (585) (413) Unrecognized prior service cost 43 46 Unrecognized transition asset (35) (40) - ---------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 131 $ 114 ========================================================== Postretirement Benefits ---------------------- 1997 1996 ---------------------- (in millions) Actuarial present value of benefit obligation: Retirees and dependents $135 $116 Employees eligible to retire 24 28 Other employees 93 98 ----------------------------------------------------------- Accumulated benefit obligation 252 242 Less: Fair value of plan assets 135 108 Unrecognized net loss 3 15 Unrecognized transition obligation 61 65 ----------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ 53 $ 54 =========================================================== The weighted average rates assumed in the actuarial calculations were: 1997 1996 1995 ------------------------------- Discount 7.5% 7.8% 7.3% Annual salary increase 5.0 5.3 4.8 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 8.8 percent for 1997, decreasing gradually to 5.5 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, 1997, by $21 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 ------------------------------------------------------------------- 1997 1996 1995 ----------------------------- (in millions) Benefits earned during the year $ 20.3 $ 21.5 $ 21.2 Interest cost on projected benefit obligation 58.4 59.5 54.3 Actual (return) loss on plan assets (227.8) (148.9) (236.3) Net amortization and deferral 116.8 43.8 136.9 ------------------------------------------------------------------- Net pension cost (income) $ (32.3) $ (24.1) $ (23.9) ===================================================================== II-74
NOTES (continued) Alabama Power Company 1997 Annual Report Of the above net pension income, $24.8 million in 1997, $20.3 million in 1996, and $17.1 million in 1995 were recorded as credits to operating expenses, and the remainder was recorded as credits to construction and other accounts. Postretirement Benefits -------------------- 1997 1996 1995 ------------- ------ (in millions) Benefits earned during the year $ 4 $ 5 $ 7 Interest cost on accumulated benefit obligation 18 17 18 Amortization of transition obligation 4 4 7 Actual (return) loss on plan assets (14) (7) (10) Net amortization and deferral 7 2 5 - ------------------------------------------------------------- Net postretirement costs $ 19 $ 21 $ 27 ============================================================= Of the above net postretirement costs recorded, $16.3 million in 1997, $17.8 million in 1996, and $22.7 million in 1995 were charged to operating expenses and the remainder was charged to construction and other accounts. Work Force Reduction Programs The company has incurred additional costs for work force reduction programs. The costs related to these programs were $33 million, $26.7 million and $14.3 million for the years 1997, 1996 and 1995, 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 $19.3 million at December 31, 1997. 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 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. In April 1997, the APSC issued an additional order authorizing the company to reduce balance sheet asset items. This order authorizes the reduction of such items up to an amount equal to five times the total estimated annual revenue reduction resulting from future rate reductions initiated by the company. 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 II-75
NOTES (continued) Alabama Power Company 1997 Annual Report 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 $194 million at December 31, 1997 for Southern Company, of which the company's portion would be approximately $95 million. Although management believes that rates are not excessive and that refunds are not justified, the final outcome of this matter cannot now be determined. Tax Litigation In August 1997, Southern Company and the Internal Revenue Service entered into a settlement agreement related to tax issues for the years 1984 through 1987. The agreement is subject to the review and approval by the Joint Congressional Committee on Taxation. If approved by the Joint Committee, the agreement would resolve all issues in the case for the years before the U. S. Tax Court, resulting in a refund to the company of approximately $22 million. This amount includes interest of $14 million. The tax litigation was related to a timing issue as to when taxes should have been paid; therefore, only the interest portion will affect future income. 4. CAPITAL BUDGET The company's capital expenditures are currently estimated to total $615 million in 1998, $723 million in 1999, and $524 million in 2000. 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. The company will replace all six steam generators at Plant Farley at a total cost of approximately $234 million. Additionally, the company plans to construct and install 800 megawatts of new generating capacity and associated substation facilities at Plant Barry. The projected capital expenditures for this project amount to approximately $289 million. In addition, significant construction will continue related to transmission and distribution facilities and the upgrading of generating plants. 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 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 historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. In order to issue additional debt and equity securities, the company must comply with II-76
NOTES (continued) Alabama Power Company 1997 Annual Report certain earnings coverage requirements designated 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 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 Georgia Power Company, has entered into agreements with several banks outside the service area to provide $300 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 $679 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 1998 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, 1997, 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, 1997, were as follows: Year Amounts - ---- ----------------- (in millions) 1998 $869 1999 632 2000 388 2001 377 2002 317 2003-2013 2,538 - ------------------------------------------------------------- Total commitments $5,121 ============================================================= Operating Leases The company has entered into coal rail car rental agreements with various terms and expiration dates. At December 31, 1997, estimated minimum rental commitments for noncancellable operating leases were as follows: Year Amounts - ---- ----------------- (in millions) 1998 $5.6 1999 5.6 2000 5.6 2001 5.6 2002 5.6 2003-2017 55.5 - ------------------------------------------------------------------ Total minimum payments $83.5 ================================================================== 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 II-77
NOTES (continued) Alabama Power Company 1997 Annual Report 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 $73 million in 1997, $75 million in 1996 and $71 million in 1995, 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, 1997, the capitalization of SEGCO consisted of $50 million of equity and $72 million of long-term debt on which the annual interest requirement is $4.5 million. SEGCO paid dividends totaling $10.6 million in 1997, $10.1 million in 1996, and $7.6 million in 1995, of which one-half of each was paid to the company. SEGCO's net income was $8.5 million, $7.7 million, and $8.1 million for 1997, 1996 and 1995, respectively. The company's percentage ownership and investment in jointly-owned generating plants at December 31, 1997, 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 $ 93 $ 40 Plant Miller Units 1 and 2 717 311 - ------------------------------------------------------------ 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. 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 company's capacity revenues amounted to $136 million in 1997, $151 million in 1996, and $157 million in 1995. 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 II-78
NOTES (continued) Alabama Power Company 1997 Annual Report 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, 1997, $113.8 million of such bonds was held by the escrow agent under the contracts. 8. INCOME TAXES At December 31, 1997, the tax-related regulatory assets and liabilities were $385 million and $327 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: 1997 1996 1995 ------------------------------------ (in thousands) Total provision for income taxes: Federal-- Currently payable $197,159 $172,911 $166,105 Deferred-- current year 32,884 (6,309) 43,493 reversal of prior years (44,300) 18,948 (15,817) Deferred investment tax credits - - (75) - ------------------------------------------------------------------------ 185,743 185,550 193,706 - ----------------------------------------------------------------------- State-- Currently payable 23,147 16,212 18,108 Deferred-- current year 1,409 697 5,117 reversal of prior years (2,422) 3,249 (91) - ------------------------------------------------------------------------ 22,134 20,158 23,134 Total 207,877 205,708 216,840 Less income taxes credited to other income (12,351) (22,400) (14,142) - ------------------------------------------------------------------------- Total income taxes charged operations $220,228 $228,108 $230,982 ========================================================================= 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: 1997 1996 ------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $ 847 $ 816 Property basis differences 463 466 Premium on reacquired debt 30 31 Other 31 51 - ------------------------------------------------------------------ Total 1,371 1,364 - ------------------------------------------------------------------ Deferred tax assets: Capacity prepayments 31 34 Other deferred costs 33 27 Postretirement benefits 18 21 Unbilled revenue 16 15 Other 66 54 - ------------------------------------------------------------------ Total 164 151 - ------------------------------------------------------------------ Net deferred tax liabilities 1,207 1,213 Portion included in current assets (liabilities), net (15) (35) - ------------------------------------------------------------------ Accumulated deferred income taxes in the Balance Sheets $1,192 $1,178 =================================================================== II-79
NOTES (continued) Alabama Power Company 1997 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 Statements of Income. Credits amortized in this manner amounted to $11 million in 1997 and 1996, and $12 million in 1995. At December 31, 1997, 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: 1997 1996 1995 -------------------------- Federal statutory rate 35.0% 35.0% 35.0% State income tax, net of federal deduction 2.4 2.2 2.5 Non-deductible book depreciation 1.5 1.5 1.6 Differences in prior years' deferred and current tax rates (2.3) (1.6) (1.8) Other (1.9) (3.0) (1.4) -------------------------------------------------------------- Effective income tax rate 34.7% 34.1% 35.9% ============================================================== 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. 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. 10. OTHER LONG-TERM DEBT Details of other long-term debt at December 31 are as follows: 1997 1996 -------------------------- (in thousands) Obligations incurred in connection with the sale of pollution control revenue bonds by public authorities- Collateralized - 5.5% to 6.5 % due 2023-2024 $223,040 $223,040 Variable rates (4.1% to 4.8% at 1/1/98) due 2015-2017 89,800 89,800 Non-collateralized - 7.25% due 2003 1,000 1,000 5.8% due 2022 9,800 9,800 Variable rates (4.50% to 5.9% at 1/1/98) due 2021 - 2022 217,500 152,500 - ------------------------------------------------------------- 541,140 476,140 Capitalized lease obligations 7,105 8,056 Long-term senior notes - 7.125% due 2047 193,800 - - ------------------------------------------------------------- Total $742,045 $484,196 ============================================================= 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 1998, $1.2 million in 1999, $1.1 million in 2000, $1.0 million in 2001 and $1.1 million in 2002. II-80
NOTES (continued) Alabama Power Company 1997 Annual Report 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: 1997 1996 ------------------------ (in thousands) Bond improvement fund requirements $18,450 $ 19,410 First mortgage bond maturities and redemptions 55,895 391 Other long-term debt maturities (Note 10) 991 952 ------------------------------------------------------------ Total long-term debt due within one year 75,336 20,753 ------------------------------------------------------------ Preferred stock to be reacquired - 100,000 ------------------------------------------------------------ Total $75,336 $120,753 ============================================================ 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 1998 requirement of $18.5 million was satisfied by the deposit of cash in 1998, all of which was used for the redemption of outstanding first mortgage bonds. Also in early 1998, the company redeemed $5.9 million first mortgage bonds and retired $50 million first mortgage bonds. Scheduled maturities amount to $991 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 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 Electric Insurance Limited (NEIL), 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 $8 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 primary coverage. This excess insurance is also provided by NEIL. 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 17 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 $10 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. II-81
NOTES (continued) Alabama Power Company 1997 Annual Report 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, 1997, retained earnings of $796 million were restricted against the payment of cash dividends on common stock under terms of the mortgage indenture. 14. QUARTERLY FINANCIAL INFORMATION (Unaudited) Summarized quarterly financial data for 1997 and 1996 are as follows: Net Income After Dividends Quarter Operating Operating on Preferred Ended Revenues Income Stock ------------------- ----------------------------------------- (in thousands) March 1997 $704,768 $123,455 $ 57,807 June 1997 728,089 125,750 63,137 September 1997 962,446 249,487 191,800 December 1997 753,808 128,511 63,195 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 ---------------------------------------------------------------- The company's business is influenced by seasonal weather conditions. II-82
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $3,149,111 $3,120,775 $3,024,774 Net Income after Dividends on Preferred Stock (in thousands) $375,939 $371,490 $360,894 Cash Dividends on Common Stock (in thousands) $339,600 $347,500 $285,000 Return on Average Common Equity (percent) 13.76 13.75 13.61 Total Assets (in thousands) $8,812,867 $8,733,846 $8,744,360 Gross Property Additions (in thousands) $451,167 $425,024 $551,781 - ----------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,750,569 $2,714,277 $2,690,374 Preferred stock 255,512 340,400 440,400 Preferred stock subject to mandatory redemption - - - Subsidiary obligated mandatorily redeemable preferred securities 297,000 97,000 - Long-term debt 2,473,202 2,354,006 2,374,948 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $5,776,283 $5,505,683 $5,505,722 =================================================================================================================================== Capitalization Ratios (percent): Common stock equity 47.6 49.3 48.9 Preferred stock 4.4 6.2 8.0 Company obligated mandatorily redeemable preferred securities 5.2 1.7 - Long-term debt 42.8 42.8 43.1 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 =================================================================================================================================== First Mortgage Bonds (in thousands): Issued - - - Retired 74,951 83,797 - Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 200,000 97,000 - Preferred Stock (in thousands): Issued - - - Retired 184,888 - - - ----------------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A+ A+ A+ Duff & Phelps AA- AA- A+ Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A A Duff & Phelps A+ A+ A - ----------------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,092,161 1,073,559 1,058,197 Commercial 177,362 171,827 166,480 Industrial 5,076 5,100 5,338 Other 728 732 725 - ----------------------------------------------------------------------------------------------------------------------------------- Total 1,275,327 1,251,218 1,230,740 =================================================================================================================================== Employees (year-end) 6,531 6,865 7,261 </TABLE> II-83
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $2,935,142 $3,007,609 $2,846,840 Net Income after Dividends on Preferred Stock (in thousands) $356,338 $346,494 $338,555 Cash Dividends on Common Stock (in thousands) $268,000 $252,900 $273,300 Return on Average Common Equity (percent) 13.86 13.94 14.02 Total Assets (in thousands) $8,459,217 $8,248,683 $6,593,618 Gross Property Additions (in thousands) $536,785 $435,843 $367,463 - ----------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,614,405 $2,526,348 $2,443,493 Preferred stock 440,400 440,400 489,400 Preferred stock subject to mandatory redemption - - - Subsidiary obligated mandatorily redeemable preferred securities - - - Long-term debt 2,455,013 2,362,852 2,202,473 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $5,509,818 $5,329,600 $5,135,366 =================================================================================================================================== Capitalization Ratios (percent): Common stock equity 47.4 47.4 47.6 Preferred stock 8.0 8.3 9.5 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 44.6 44.3 42.9 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 =================================================================================================================================== First Mortgage Bonds (in thousands): Issued 150,000 860,000 745,000 Retired 20,387 699,788 931,797 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - Preferred Stock (in thousands): Issued - 158,000 150,000 Retired - 207,000 145,000 - ----------------------------------------------------------------------------------------------------------------------------------- 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 1,042,974 1,027,130 1,012,294 Commercial 162,239 157,337 152,530 Industrial 5,341 5,391 5,434 Other 716 713 704 - ----------------------------------------------------------------------------------------------------------------------------------- Total 1,211,270 1,190,571 1,170,962 =================================================================================================================================== Employees (year-end) 7,996 8,009 8,116 </TABLE> II-84A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $2,846,794 $2,722,424 $2,629,354 Net Income after Dividends on Preferred Stock (in thousands) $339,666 $312,803 $311,146 Cash Dividends on Common Stock (in thousands) $232,900 $220,800 $217,300 Return on Average Common Equity (percent) 14.55 14.00 14.53 Total Assets (in thousands) $6,549,462 $6,362,293 $6,279,431 Gross Property Additions (in thousands) $397,011 $444,680 $459,199 - ----------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,387,198 $2,280,590 $2,188,811 Preferred stock 484,400 484,400 484,400 Preferred stock subject to mandatory redemption - 12,500 17,500 Subsidiary obligated mandatorily redeemable preferred securities - - - Long-term debt 2,382,635 2,397,931 2,435,129 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $5,254,233 $5,175,421 $5,125,840 =================================================================================================================================== Capitalization Ratios (percent): Common stock equity 45.4 44.1 42.7 Preferred stock 9.2 9.6 9.8 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 45.4 46.3 47.5 - ----------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 =================================================================================================================================== First Mortgage Bonds (in thousands): Issued 250,000 - - Retired 227,695 33,122 75,650 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - Preferred Stock (in thousands): Issued - - - Retired 17,500 5,000 5,000 - ----------------------------------------------------------------------------------------------------------------------------------- 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 997,585 985,566 974,622 Commercial 148,228 144,340 141,265 Industrial 5,496 5,322 5,200 Other 697 690 684 - ----------------------------------------------------------------------------------------------------------------------------------- Total 1,152,006 1,135,918 1,121,771 =================================================================================================================================== Employees (year-end) 8,513 9,473 9,698 </TABLE> II-84B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Alabama Power Company 1997 Annual Report <S> <C> <C> ===================================================================================================================== 1988 1987 - --------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $2,476,626 $2,574,634 Net Income after Dividends on Preferred Stock (in thousands) $283,475 $257,239 Cash Dividends on Common Stock (in thousands) $212,700 $201,100 Return on Average Common Equity (percent) 14.03 13.56 Total Assets (in thousands) $6,180,945 $5,912,000 Gross Property Additions (in thousands) $643,892 $600,589 - --------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $2,094,815 $1,946,747 Preferred stock 484,400 384,400 Preferred stock subject to mandatory redemption 22,500 27,500 Subsidiary obligated mandatorily redeemable preferred securities - - Long-term debt 2,496,492 2,386,258 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $5,098,207 $4,744,905 ===================================================================================================================== Capitalization Ratios (percent): Common stock equity 41.1 41.0 Preferred stock 9.9 8.7 Company obligated mandatorily redeemable preferred securities - - Long-term debt 49.0 50.3 - --------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 ===================================================================================================================== First Mortgage Bonds (in thousands): Issued 150,000 200,000 Retired 42,445 108,082 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - Preferred Stock (in thousands): Issued 100,000 - Retired 2,500 5,000 - --------------------------------------------------------------------------------------------------------------------- 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 964,581 950,101 Commercial 137,955 134,533 Industrial 5,120 4,955 Other 678 713 - --------------------------------------------------------------------------------------------------------------------- Total 1,108,334 1,090,302 ===================================================================================================================== Employees (year-end) 10,302 10,457 </TABLE> II-84C
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $997,507 $998,806 $997,069 Commercial 724,148 696,453 670,453 Industrial 775,591 759,628 805,596 Other 13,563 13,729 13,619 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 2,510,809 2,468,616 2,486,737 Sales for resale - non-affiliates 431,023 391,669 370,140 Sales for resale - affiliates 161,795 216,620 127,730 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 3,103,627 3,076,905 2,984,607 Other revenues 45,484 43,870 40,167 - ----------------------------------------------------------------------------------------------------------------------------------- Total $3,149,111 $3,120,775 $3,024,774 =================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 14,336,408 14,593,761 14,383,231 Commercial 11,330,312 10,904,476 10,043,220 Industrial 20,727,912 19,999,258 19,862,577 Other 180,389 192,573 186,848 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 46,575,021 45,690,068 44,475,876 Sales for resale - non-affiliates 11,893,905 9,491,237 8,046,189 Sales for resale - affiliates 8,993,326 10,292,066 6,705,174 - ----------------------------------------------------------------------------------------------------------------------------------- Total 67,462,252 65,473,371 59,227,239 =================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.96 6.84 6.93 Commercial 6.39 6.39 6.68 Industrial 3.74 3.80 4.06 Total retail 5.39 5.40 5.59 Sales for resale 2.84 3.07 3.38 Total sales 4.60 4.70 5.04 Residential Average Annual Kilowatt-Hour Use Per Customer 13,254 13,705 13,686 Residential Average Annual Revenue Per Customer $922.21 $937.95 $948.71 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 11,151 11,151 10,831 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 8,478 8,413 7,958 Summer 9,778 9,912 10,090 Annual Load Factor (percent) (Note 2) 62.7 61.3 59.2 Plant Availability (percent): Fossil-steam 86.3 86.6 88.3 Nuclear 88.8 90.5 81.1 - ----------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 66.0 67.0 67.1 Nuclear 18.0 18.5 17.1 Hydro 7.6 7.1 7.0 Oil and gas 0.7 0.4 0.4 Purchased power - From non-affiliates 2.3 2.4 2.7 From affiliates 5.4 4.6 5.7 - ----------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 =================================================================================================================================== Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 9,984 10,035 10,025 Cost of fuel per million BTU (cents) 148.61 147.09 148.68 Average cost of fuel per net kilowatt-hour generated (cents) 1.48 1.48 1.49 =================================================================================================================================== 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-85
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $913,146 $947,277 $845,660 Commercial 647,202 634,895 589,816 Industrial 803,587 832,938 800,311 Other 13,515 13,344 12,734 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 2,377,450 2,428,454 2,248,521 Sales for resale - non-affiliates 354,760 364,105 407,791 Sales for resale - affiliates 164,762 181,975 158,088 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 2,896,972 2,974,534 2,814,400 Other revenues 38,170 33,075 32,440 - ----------------------------------------------------------------------------------------------------------------------------------- Total $2,935,142 $3,007,609 $2,846,840 =================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 13,183,147 13,185,062 12,069,268 Commercial 9,645,798 9,185,462 8,629,869 Industrial 19,479,364 18,595,237 18,260,274 Other 185,876 181,673 176,798 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 42,494,185 41,147,434 39,136,209 Sales for resale - non-affiliates 6,775,176 7,143,672 8,382,571 Sales for resale - affiliates 8,432,533 8,081,324 7,210,697 - ----------------------------------------------------------------------------------------------------------------------------------- Total 57,701,894 56,372,430 54,729,477 =================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.93 7.18 7.01 Commercial 6.71 6.91 6.83 Industrial 4.13 4.48 4.38 Total retail 5.59 5.90 5.75 Sales for resale 3.42 3.59 3.63 Total sales 5.02 5.28 5.14 Residential Average Annual Kilowatt-Hour Use Per Customer 12,746 12,936 12,017 Residential Average Annual Revenue Per Customer $882.88 $929.36 $842.00 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 10,431 10,431 10,431 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 8,217 7,152 7,077 Summer 9,028 9,457 8,801 Annual Load Factor (percent) (Note 2) 62.2 58.6 59.6 Plant Availability (percent): Fossil-steam 86.9 89.7 88.9 Nuclear 92.5 86.6 80.2 - ----------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 62.9 63.9 64.3 Nuclear 21.7 20.1 19.0 Hydro 8.4 6.9 8.5 Oil and gas * * * Purchased power - From non-affiliates 1.3 1.1 1.2 From affiliates 5.7 8.0 7.0 - ----------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 =================================================================================================================================== Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 9,961 10,003 10,000 Cost of fuel per million BTU (cents) 157.62 173.66 164.57 Average cost of fuel per net kilowatt-hour generated (cents) 1.57 1.74 1.65 =================================================================================================================================== 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-86A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1997 Annual Report <S> <C> <C> <C> =================================================================================================================================== 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $864,347 $825,645 $781,982 Commercial 582,730 551,634 533,487 Industrial 790,224 777,580 762,274 Other 12,662 12,103 11,743 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 2,249,963 2,166,962 2,089,486 Sales for resale - non-affiliates 407,912 434,996 409,202 Sales for resale - affiliates 159,375 93,473 104,488 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 2,817,250 2,695,431 2,603,176 Other revenues 29,544 26,993 26,178 - ----------------------------------------------------------------------------------------------------------------------------------- Total $2,846,794 $2,722,424 $2,629,354 =================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 12,324,898 11,996,794 11,346,736 Commercial 8,526,131 8,201,534 7,915,685 Industrial 17,511,579 17,713,153 17,360,791 Other 174,760 170,420 166,485 - ----------------------------------------------------------------------------------------------------------------------------------- Total retail 38,537,368 38,081,901 36,789,697 Sales for resale - non-affiliates 8,810,442 10,277,060 10,292,329 Sales for resale - affiliates 7,784,285 4,519,275 5,048,743 - ----------------------------------------------------------------------------------------------------------------------------------- Total 55,132,095 52,878,236 52,130,769 =================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.01 6.88 6.89 Commercial 6.83 6.73 6.74 Industrial 4.51 4.39 4.39 Total retail 5.84 5.69 5.68 Sales for resale 3.42 3.57 3.35 Total sales 5.11 5.10 4.99 Residential Average Annual Kilowatt-Hour Use Per Customer 12,435 12,256 11,717 Residential Average Annual Revenue Per Customer $872.04 $843.50 $807.50 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 10,539 9,879 9,879 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 6,586 6,293 7,264 Summer 8,627 8,878 8,256 Annual Load Factor (percent) (Note 2) 59.9 57.4 59.5 Plant Availability (percent): Fossil-steam 93.1 92.2 90.7 Nuclear 87.0 86.5 83.1 - ----------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 61.5 57.0 54.1 Nuclear 20.8 21.6 21.0 Hydro 8.2 8.7 11.0 Oil and gas * 0.1 0.1 Purchased power - From non-affiliates 1.6 0.9 1.8 From affiliates 7.9 11.7 12.0 - ----------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 =================================================================================================================================== Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 9,985 10,072 10,061 Cost of fuel per million BTU (cents) 170.49 171.55 172.20 Average cost of fuel per net kilowatt-hour generated (cents) 1.70 1.73 1.73 =================================================================================================================================== 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-86B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Alabama Power Company 1997 Annual Report <S> <C> <C> ==================================================================================================================== 1988 1987 - -------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $761,805 $759,957 Commercial 510,910 501,088 Industrial 738,755 721,298 Other 11,255 10,968 - -------------------------------------------------------------------------------------------------------------------- Total retail 2,022,725 1,993,311 Sales for resale - non-affiliates 355,362 443,880 Sales for resale - affiliates 76,691 118,746 - -------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 2,454,778 2,555,937 Other revenues 21,848 18,697 - -------------------------------------------------------------------------------------------------------------------- Total $2,476,626 $2,574,634 ==================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 11,332,285 11,149,225 Commercial 7,711,092 7,476,924 Industrial 16,881,342 15,969,075 Other 165,122 159,422 - -------------------------------------------------------------------------------------------------------------------- Total retail 36,089,841 34,754,646 Sales for resale - non-affiliates 7,905,750 10,523,554 Sales for resale - affiliates 3,551,142 4,963,997 - -------------------------------------------------------------------------------------------------------------------- Total 47,546,733 50,242,197 ==================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.72 6.82 Commercial 6.63 6.70 Industrial 4.38 4.52 Total retail 5.60 5.74 Sales for resale 3.77 3.63 Total sales 5.16 5.09 Residential Average Annual Kilowatt-Hour Use Per Customer 11,839 11,848 Residential Average Annual Revenue Per Customer $795.84 $807.61 Plant Nameplate Capacity Ratings (Note 1) (year-end) (megawatts) 9,279 9,337 Territorial Peak-Hour Demand (megawatts) (Note 2): Winter 6,377 6,138 Summer 7,991 7,886 Annual Load Factor (percent) (Note 2) 59.6 58.3 Plant Availability (percent): Fossil-steam 91.3 90.2 Nuclear 91.9 83.3 - -------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 53.9 52.5 Nuclear 26.1 21.7 Hydro 4.8 6.3 Oil and gas 0.1 0.2 Purchased power - From non-affiliates 0.5 0.2 From affiliates 14.6 19.1 - -------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 ==================================================================================================================== Total Fuel Economy Data (Note 1): BTU per net kilowatt-hour generated 10,137 10,214 Cost of fuel per million BTU (cents) 168.21 176.72 Average cost of fuel per net kilowatt-hour generated (cents) 1.71 1.80 ==================================================================================================================== 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-86C
<TABLE> <CAPTION> STATEMENTS OF INCOME Alabama Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $2,987,316 $2,904,155 $2,897,044 Revenues from affiliates 161,795 216,620 127,730 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 3,149,111 3,120,775 3,024,774 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 896,014 877,076 791,819 Purchased power from non-affiliates 41,795 36,813 30,065 Purchased power from affiliates 95,538 91,500 112,826 Proceeds from settlement of disputed contracts - - - Other 510,203 505,884 501,876 Maintenance 242,691 258,482 243,218 Depreciation and amortization 330,377 320,102 303,050 Taxes other than income taxes 185,062 186,172 185,620 Federal and state income taxes 220,228 228,108 230,982 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,521,908 2,504,137 2,399,456 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 627,203 616,638 625,318 Other Income (Expense): Allowance for equity funds used during construction - - 1,649 Income from subsidiary 4,266 3,851 4,051 Charitable foundation - (6,800) (11,542) Interest income 37,844 28,318 13,768 Other, net (38,522) (39,053) (21,536) Income taxes applicable to other income 12,351 22,400 14,142 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 643,142 625,354 625,850 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 167,172 169,390 180,714 Allowance for debt funds used during construction (4,787) (6,480) (7,067) Interest on interim obligations 22,787 20,617 16,917 Amortization of debt discount, premium, and expense, net 9,645 9,508 20,259 Other interest charges 36,037 27,510 27,064 Distributions on preferred securities of Alabama Power Capital Trust I 21,763 6,717 - - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 252,617 227,262 237,887 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 390,525 398,092 387,963 Dividends on Preferred Stock 14,586 26,602 27,069 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 375,939 $ 371,490 $ 360,894 ================================================================================================================================ </TABLE> II-87
<TABLE> <CAPTION> STATEMENTS OF INCOME Alabama Power Company <S> <C> <C> <C> ============================================================================================================================ For the Years Ended December 31, 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $2,770,380 $2,825,634 $2,688,752 Revenues from affiliates 164,762 181,975 158,088 - ---------------------------------------------------------------------------------------------------------------------------- Total operating revenues 2,935,142 3,007,609 2,846,840 - ---------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 801,948 877,099 794,438 Purchased power from non-affiliates 15,158 15,230 14,242 Purchased power from affiliates 100,888 120,330 107,230 Proceeds from settlement of disputed contracts - (2,568) (641) Other 458,917 473,383 446,477 Maintenance 262,102 252,506 237,071 Depreciation and amortization 292,420 290,310 280,881 Taxes other than income taxes 183,425 178,997 172,095 Federal and state income taxes 224,280 207,210 201,925 --------------------------------------------------------------------------------------------------------------------------- Total operating expenses 2,339,138 2,412,497 2,253,718 - ---------------------------------------------------------------------------------------------------------------------------- Operating Income 596,004 595,112 593,122 Other Income (Expense): Allowance for equity funds used during construction 3,239 3,260 2,071 Income from subsidiary 3,588 4,127 4,635 Charitable foundation (13,500) (3,000) (6,887) Interest income 16,944 20,775 14,804 Other, net (30,569) (24,420) (11,019) Income taxes applicable to other income 16,834 10,239 8,947 - ---------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 592,540 606,093 605,673 - ---------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 178,045 184,861 206,871 Allowance for debt funds used during construction (3,548) (2,992) (2,416) Interest on interim obligations 5,939 3,760 3,704 Amortization of debt discount, premium, and expense, net 9,623 8,937 4,392 Other interest charges 19,908 35,474 19,381 Distributions on preferred securities of Alabama Power Capital Trust I - - - - ---------------------------------------------------------------------------------------------------------------------------- Net interest charges 209,967 230,040 231,932 - ---------------------------------------------------------------------------------------------------------------------------- Net Income 382,573 376,053 373,741 Dividends on Preferred Stock 26,235 29,559 35,186 - ---------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 356,338 $ 346,494 $ 338,555 ============================================================================================================================ </TABLE> II-88A
<TABLE> <CAPTION> STATEMENTS OF INCOME Alabama Power Company <S> <C> <C> <C> ============================================================================================================================ For the Years Ended December 31, 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $2,687,419 $2,628,951 $2,524,866 Revenues from affiliates 159,375 93,473 104,488 - ---------------------------------------------------------------------------------------------------------------------------- Total operating revenues 2,846,794 2,722,424 2,629,354 - ---------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 812,667 756,501 712,453 Purchased power from non-affiliates 21,080 11,185 28,272 Purchased power from affiliates 119,602 165,982 163,267 Proceeds from settlement of disputed contracts (14,819) - - Other 435,908 411,559 380,536 Maintenance 229,114 215,304 202,633 Depreciation and amortization 271,433 262,817 247,973 Taxes other than income taxes 169,639 163,567 154,398 Federal and state income taxes 200,612 185,954 188,507 - --------------------------------------------------------------------------------------------- -------------- -------------- Total operating expenses 2,245,236 2,172,869 2,078,039 - ---------------------------------------------------------------------------------------------------------------------------- Operating Income 601,558 549,555 551,315 Other Income (Expense): Allowance for equity funds used during construction 2,368 25,487 29,515 Income from subsidiary 4,576 4,182 3,750 Charitable foundation (6,500) (17,500) (25,000) Interest income 14,356 12,006 10,871 Other, net (9,926) (8,235) (4,313) Income taxes applicable to other income 7,523 11,081 13,629 - ---------------------------------------------------------------------------------------------- -------------- -------------- Income Before Interest Charges 613,955 576,576 579,767 - ---------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 214,107 221,527 230,046 Allowance for debt funds used during construction (6,903) (23,339) (27,627) Interest on interim obligations 13,385 10,252 9,098 Amortization of debt discount, premium, and expense, net 2,634 3,706 4,469 Other interest charges 14,927 13,115 13,112 Distributions on preferred securities of Alabama Power Capital Trust I - - - - ----------------------------------------------------------------------------------------------------------------------------- Net interest charges 238,150 225,261 229,098 - ----------------------------------------------------------------------------------------------------------------------------- Net Income 375,805 351,315 350,669 Dividends on Preferred Stock 36,139 38,512 39,523 - ----------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 339,666 $ 312,803 $ 311,146 ============================================================================================================================= </TABLE> II-88B
<TABLE> <CAPTION> STATEMENTS OF INCOME Alabama Power Company <S> <C> <C> ============================================================================================================= For the Years Ended December 31, 1988 1987 - ------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $2,399,935 $2,455,888 Revenues from affiliates 76,691 118,746 ------------------------------------------------------------------------------------------------------------ Total operating revenues 2,476,626 2,574,634 - ------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 676,423 696,763 Purchased power from non-affiliates 8,407 6,703 Purchased power from affiliates 185,390 257,052 Proceeds from settlement of disputed contracts - - Other 400,879 410,575 Maintenance 197,225 199,617 Depreciation and amortization 225,123 212,072 Taxes other than income taxes 148,681 141,422 Federal and state income taxes 143,614 190,575 - ------------------------------------------------------------------------------------------------------------- Total operating expenses 1,985,742 2,114,779 - ------------------------------------------------------------------------------------------------------------- Operating Income 490,884 459,855 Other Income (Expense): Allowance for equity funds used during construction 39,047 27,663 Income from subsidiary 3,302 3,440 Charitable foundation - - Interest income 9,914 7,044 Other, net (13,694) (816) Income taxes applicable to other income 8,034 849 ------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 537,487 498,035 - ------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 225,522 205,824 Allowance for debt funds used during construction (31,830) (24,235) Interest on interim obligations 5,714 7,221 Amortization of debt discount, premium, and expense, net 4,411 4,405 Other interest charges 13,715 14,662 Distributions on preferred securities of Alabama Power Capital Trust I - - - ------------------------------------------------------------------------------------------------------------- Net interest charges 217,532 207,877 - ------------------------------------------------------------------------------------------------------------- Net Income 319,955 290,158 Dividends on Preferred Stock 36,480 32,919 - ------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 283,475 $ 257,239 ============================================================================================================= II-88C </TABLE>
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Alabama Power Company <S> <C> <C> <C> - ------------------------------------------------------------------------------------------------------------------------------ For the Years Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Activities: Net income $ 390,525 $ 398,092 $ 387,963 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 394,572 383,438 371,382 Deferred income taxes, net (12,429) 16,585 32,702 Deferred investment tax credits, net - - (75) Allowance for equity funds used during construction - - (1,649) Non-cash proceeds from settlement of disputed contracts - - - Other, net (11,353) 6,247 459 Changes in certain current assets and liabilities -- Receivables, net (30,268) 3,958 (54,209) Inventories 13,709 36,234 18,425 Payables (9,745) 1,006 (63,656) Taxes accrued 6,191 (5,756) 551 Energy cost recovery, retail 7,108 25,771 1,177 Other 7,127 8,205 16,890 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 755,437 873,780 709,960 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (451,167) (425,024) (551,781) Sales of property - - - Other (51,791) (61,119) (53,321) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (502,958) (486,143) (605,102) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities and Capital Contributions: Proceeds: Company obligated mandatorily redeemable preferred securities 200,000 97,000 - Preferred stock - - - First mortgage bonds - - - Pollution control bonds 258,800 21,000 131,500 Other long-term debt - - - Capital contributions from parent company - - - Prepaid capacity revenues - - - Retirements: Preferred stock (184,888) - - First mortgage bonds (74,951) (83,797) - Pollution control bonds - (21,000) (131,500) Other long-term debt (951) (907) (791) Interim obligations, net (57,971) (25,163) 210,134 Payment of preferred stock dividends (22,524) (26,665) (27,118) Payment of common stock dividends (339,600) (347,500) (285,000) Miscellaneous (16,024) (3,634) (4,143) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (238,109) (390,666) (106,918) - ------------------------------------------------------------------------------------------------------------------------------ Net Change in Cash 14,370 (3,029) (2,060) Cash at Beginning of Year 9,587 12,616 14,676 - ------------------------------------------------------------------------------------------------------------------------------ Cash at End of Year $ 23,957 $ 9,587 $ 12,616 ============================================================================================================================== ( ) Denotes use of cash. </TABLE> II-89
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Alabama Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 382,573 $ 376,053 $ 373,741 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 359,791 356,499 338,421 Deferred income taxes, net (32,612) 35,100 23,514 Deferred investment tax credits, net (1) (2,106) - Allowance for equity funds used during construction (3,239) (3,260) (2,071) Non-cash proceeds from settlement of disputed contracts - - (641) Other, net 28,656 36,493 (2,657) Changes in certain current assets and liabilities -- Receivables, net 19,390 19,215 (11,010) Inventories (38,946) 51,630 12,704 Payables (21,240) 31,544 2,158 Taxes accrued 6,856 (9,959) (21,120) Energy cost recovery, retail 16,907 (56,128) 45,509 Other (14,235) (21,110) 10,629 -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 703,900 813,971 769,177 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (536,785) (435,843) (367,463) Sales of property - - 43,556 Other (26,632) (741) (13,379) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (563,417) (436,584) (337,286) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Company obligated mandatorily redeemable preferred securities - - - Preferred stock - 158,000 150,000 First mortgage bonds 150,000 860,000 745,000 Pollution control bonds 179,750 144,436 - Other long-term debt 28,970 35,878 48,382 Capital contributions from parent company - - - Prepaid capacity revenues - - - Retirements: Preferred stock - (207,000) (145,000) First mortgage bonds (20,387) (699,788) (931,797) Pollution control bonds (179,750) (135,315) (335) Other long-term debt (125,630) (46,014) (53,888) Interim obligations, net 139,882 (156,917) 120,917 Payment of preferred stock dividends (25,431) (32,099) (35,704) Payment of common stock dividends (268,000) (252,900) (273,300) Miscellaneous (8,444) (56,064) (53,697) -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (129,040) (387,783) (429,422) - -------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash 11,443 (10,396) 2,469 Cash at Beginning of Year 3,233 13,629 11,160 - -------------------------------------------------------------------------------------------------------------------------------- Cash at End of Year $ 14,676 $ 3,233 $ 13,629 ================================================================================================================================ ( ) Denotes use of cash. </TABLE> II-90A
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Alabama Power Company <S> <C> <C> <C> ============================================================================================================================== For the Years Ended December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Activities: Net income $ 375,805 $ 351,315 $ 350,669 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 337,978 331,858 322,042 Deferred income taxes, net (5,779) 64,480 31,715 Deferred investment tax credits, net (1,089) 132 6,917 Allowance for equity funds used during construction (2,368) (25,487) (29,515) Non-cash proceeds from settlement of disputed contracts (13,750) - - Other, net 26,614 19,899 (5,297) Changes in certain current assets and liabilities -- Receivables, net 9,178 12,005 (10,436) Inventories (17,374) (40,901) 20,408 Payables 28,889 6,597 16,259 Taxes accrued 24,828 (6,167) 1,547 Energy cost recovery, retail (12,304) (42,535) 39,164 Other (37,906) 14,144 28,701 - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 712,722 685,340 772,174 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (397,011) (444,680) (459,199) Sales of property - - - Other (36,083) 6,935 3,768 - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (433,094) (437,745) (455,431) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities and Capital Contributions: Proceeds: Company obligated mandatorily redeemable preferred securities - - - Preferred stock - - - First mortgage bonds 250,000 - - Pollution control bonds - - 53,700 Other long-term debt 12,906 54,831 55,176 Capital contributions from parent company - - - Prepaid capacity revenues 52,900 - - Retirements: Preferred stock (17,500) (5,000) (5,000) First mortgage bonds (227,695) (33,122) (75,650) Pollution control bonds (250) (250) (53,950) Other long-term debt (48,428) (56,895) (57,316) Interim obligations, net (13,500) 59,500 30,000 Payment of preferred stock dividends (36,829) (38,245) (40,105) Payment of common stock dividends (232,900) (220,800) (217,300) Miscellaneous (17,732) (293) (4,576) - ------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (279,028) (240,274) (315,021) - ------------------------------------------------------------------------------------------------------------------------------ Net Change in Cash 600 7,321 1,722 Cash at Beginning of Year 10,560 3,239 1,517 - ------------------------------------------------------------------------------------------------------------------------------ Cash at End of Year $ 11,160 $ 10,560 $ 3,239 ============================================================================================================================== ( ) Denotes use of cash. II-90B </TABLE>
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Alabama Power Company <S> <C> <C> ================================================================================================================= For the Years Ended December 31, 1988 1987 - -------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 319,955 $ 290,158 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 296,234 270,492 Deferred income taxes, net 37,952 107,824 Deferred investment tax credits, net 15,019 23,477 Allowance for equity funds used during construction (39,047) (27,663) Non-cash proceeds from settlement of disputed contracts - - Other, net 16,106 67,445 Changes in certain current assets and liabilities -- Receivables, net 8,822 (133,468) Inventories (23,182) (26,255) Payables (12,957) 39,645 Taxes accrued (7,754) 516 Energy cost recovery, retail - - Other (18,658) 4,464 - --------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 592,490 616,635 - -------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (643,892) (600,589) Sales of property - - Other 23,161 17,010 - -------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (620,731) (583,579) - -------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Company obligated mandatorily redeemable preferred securities - - Preferred stock 100,000 - First mortgage bonds 150,000 200,000 Pollution control bonds - 432 Other long-term debt 62,515 69,786 Capital contributions from parent company 79,500 43,000 Prepaid capacity revenues - - Retirements: Preferred stock (2,500) (5,000) First mortgage bonds (42,445) (108,082) Pollution control bonds - - Other long-term debt (56,748) (32,500) Interim obligations, net (15,000) 15,000 Payment of preferred stock dividends (35,362) (32,837) Payment of common stock dividends (212,700) (201,100) Miscellaneous (5,581) (2,581) - --------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 21,679 (53,882) - -------------------------------------------------------------------------------------------------------------- Net Change in Cash (6,562) (20,826) Cash at Beginning of Year 8,079 28,905 - -------------------------------------------------------------------------------------------------------------- Cash at End of Year $ 1,517 $ 8,079 ============================================================================================================== ( ) Denotes use of cash. </TABLE> II-90C
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> - ----------------------------------------------------------------------------------------------------------------------------------- At December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,330,389 $ 3,326,628 $ 3,221,250 Nuclear 1,893,359 1,884,567 1,874,111 Hydro 863,511 844,609 834,790 - ----------------------------------------------------------------------------------------------------------------------------------- Total production 6,087,259 6,055,804 5,930,151 Transmission 1,275,091 1,208,636 1,132,336 Distribution 2,803,423 2,657,327 2,522,051 General 883,568 864,321 825,417 Construction work in progress 311,179 256,758 362,722 Nuclear fuel, at amortized cost 103,272 123,862 100,537 - ----------------------------------------------------------------------------------------------------------------------------------- Total electric plant 11,463,792 11,166,708 10,873,214 - ----------------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant: Plant in service 20,982 20,833 20,837 Construction work in progress 44 44 46 - ----------------------------------------------------------------------------------------------------------------------------------- Total steam heat plant 21,026 20,877 20,883 - ----------------------------------------------------------------------------------------------------------------------------------- Total utility plant 11,484,818 11,187,585 10,894,097 - ----------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 4,371,895 4,102,070 3,827,123 Steam heat 12,285 11,552 10,970 - ----------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 4,384,180 4,113,622 3,838,093 - ----------------------------------------------------------------------------------------------------------------------------------- Total 7,100,638 7,073,963 7,056,004 Less property-related accumulated deferred income taxes - - - - ----------------------------------------------------------------------------------------------------------------------------------- Total 7,100,638 7,073,963 7,056,004 - ----------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Nuclear decommissioning trusts 193,008 148,760 108,368 Miscellaneous 47,205 46,275 46,388 - ----------------------------------------------------------------------------------------------------------------------------------- Total 240,213 195,035 154,756 - ----------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 23,957 9,587 12,616 Investment securities - - - Receivables, net 445,257 414,989 427,157 Fossil fuel stock, at average cost 74,186 81,704 106,627 Materials and supplies, at average cost 161,601 167,792 179,103 Prepayments 20,453 17,841 17,618 Vacation pay deferred 28,783 28,369 29,458 - ----------------------------------------------------------------------------------------------------------------------------------- Total 754,237 720,282 772,579 - ----------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 384,549 410,010 436,837 Debt expense, being amortized 7,276 7,398 7,648 Premium on reacquired debt, being amortized 81,417 84,149 89,967 Uranium enrichment decontamination and decommissioning fund 34,416 37,490 40,282 Miscellaneous 210,121 205,519 186,287 - ----------------------------------------------------------------------------------------------------------------------------------- Total 717,779 744,566 761,021 - ----------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 8,812,867 $ 8,733,846 $ 8,744,360 =================================================================================================================================== </TABLE> II-91
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> ============================================================================================================================== At December 31, 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,027,956 $ 2,987,010 $ 2,953,683 Nuclear 1,866,750 1,860,842 1,860,832 Hydro 836,256 819,848 818,363 - ------------------------------------------------------------------------------------------------------------------------------ Total production 5,730,962 5,667,700 5,632,878 Transmission 1,087,452 1,051,130 1,013,464 Distribution 2,366,477 2,206,834 2,072,165 General 847,111 810,551 751,652 Construction work in progress 317,745 225,743 164,555 Nuclear fuel, at amortized cost 101,630 93,551 101,128 - ------------------------------------------------------------------------------------------------------------------------------ Total electric plant 10,451,377 10,055,509 9,735,842 - ------------------------------------------------------------------------------------------------------------------------------ Steam Heat Plant: Plant in service 20,770 20,926 20,924 Construction work in progress 34 43 33 - ------------------------------------------------------------------------------------------------------------------------------ Total steam heat plant 20,804 20,969 20,957 - ------------------------------------------------------------------------------------------------------------------------------ Total utility plant 10,472,181 10,076,478 9,756,799 - ------------------------------------------------------------------------------------------------------------------------------ Accumulated Provision for Depreciation: Electric 3,588,363 3,374,310 3,122,332 Steam heat 10,241 9,846 9,211 - ------------------------------------------------------------------------------------------------------------------------------ Total accumulated provision for depreciation 3,598,604 3,384,156 3,131,543 - ------------------------------------------------------------------------------------------------------------------------------ Total 6,873,577 6,692,322 6,625,256 Less property-related accumulated deferred income taxes - - 1,170,982 - ------------------------------------------------------------------------------------------------------------------------------ Total 6,873,577 6,692,322 5,454,274 - ------------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts - - - Nuclear decommissioning trusts 71,014 49,550 32,390 Miscellaneous 43,955 49,635 49,892 - ------------------------------------------------------------------------------------------------------------------------------ Total 114,969 99,185 82,282 - ------------------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 14,676 3,233 13,629 Investment securities - - 64,832 Receivables, net 374,125 410,422 344,934 Fossil fuel stock, at average cost 119,555 88,481 134,328 Materials and supplies, at average cost 184,600 176,728 182,511 Prepayments 103,550 79,207 108,254 Vacation pay deferred 20,442 22,680 21,879 - ------------------------------------------------------------------------------------------------------------------------------ Total 816,948 780,751 870,367 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Charges: Deferred charges related to income taxes 451,886 469,010 - Debt expense, being amortized 7,370 7,064 6,118 Premium on reacquired debt, being amortized 101,851 102,634 74,835 Uranium enrichment decontamination and decommissioning fund 42,996 45,554 47,730 Miscellaneous 49,620 52,163 58,012 - ------------------------------------------------------------------------------------------------------------------------------ Total 653,723 676,425 186,695 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $ 8,459,217 $ 8,248,683 $ 6,593,618 ============================================================================================================================== </TABLE> II-92A
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 2,991,876 $ 2,462,100 $ 2,428,146 Nuclear 1,851,317 1,794,540 1,786,877 Hydro 814,301 809,578 803,901 - ---------------------------------------------------------------------------------------------------------------------------- Total production 5,657,494 5,066,218 5,018,924 Transmission 977,239 925,368 882,933 Distribution 1,947,972 1,815,265 1,692,426 General 713,948 660,217 646,523 Construction work in progress 148,564 654,055 557,150 Nuclear fuel, at amortized cost 109,259 143,711 147,997 - ---------------------------------------------------------------------------------------------------------------------------- Total electric plant 9,554,476 9,264,834 8,945,953 - ---------------------------------------------------------------------------------------------------------------------------- Steam Heat Plant: Plant in service 20,214 20,091 20,083 Construction work in progress 181 74 71 - ---------------------------------------------------------------------------------------------------------------------------- Total steam heat plant 20,395 20,165 20,154 - ---------------------------------------------------------------------------------------------------------------------------- Total utility plant 9,574,871 9,284,999 8,966,107 - ---------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 2,913,385 2,676,957 2,458,747 Steam heat 8,492 7,861 7,154 - ---------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 2,921,877 2,684,818 2,465,901 - ---------------------------------------------------------------------------------------------------------------------------- Total 6,652,994 6,600,181 6,500,206 Less property-related accumulated deferred income taxes 1,140,303 1,106,664 1,051,877 - ---------------------------------------------------------------------------------------------------------------------------- Total 5,512,691 5,493,517 5,448,329 - ---------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts 69,550 - - Nuclear decommissioning trusts 15,864 - - Miscellaneous 48,254 40,604 34,710 - ---------------------------------------------------------------------------------------------------------------------------- Total 133,668 40,604 34,710 - ---------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 11,160 10,560 3,239 Investment securities - - - Receivables, net 349,599 346,473 355,107 Fossil fuel stock, at average cost 154,798 144,960 131,942 Materials and supplies, at average cost 174,745 167,209 139,326 Prepayments 95,832 50,364 54,613 Vacation pay deferred 21,691 22,845 22,021 - ---------------------------------------------------------------------------------------------------------------------------- Total 807,825 742,411 706,248 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - Debt expense, being amortized 5,957 6,083 6,491 Premium on reacquired debt, being amortized 40,174 26,504 28,778 Uranium enrichment decontamination and decommissioning fund - - - Miscellaneous 49,147 53,174 54,875 - ---------------------------------------------------------------------------------------------------------------------------- Total 95,278 85,761 90,144 - ---------------------------------------------------------------------------------------------------------------------------- Total Assets $ 6,549,462 $ 6,362,293 $ 6,279,431 ============================================================================================================================ </TABLE> II-92B
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> ============================================================================================================= At December 31, 1988 1987 - ------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 1,820,966 $ 1,787,979 Nuclear 1,769,093 1,765,854 Hydro 789,617 788,046 - ------------------------------------------------------------------------------------------------------------- Total production 4,379,676 4,341,879 Transmission 844,003 817,065 Distribution 1,587,690 1,481,845 General 613,498 535,148 Construction work in progress 1,023,019 750,907 Nuclear fuel, at amortized cost 174,130 191,493 - ------------------------------------------------------------------------------------------------------------- Total electric plant 8,622,016 8,118,337 - ------------------------------------------------------------------------------------------------------------- Steam Heat Plant: Plant in service 20,076 20,217 Construction work in progress 58 89 - ------------------------------------------------------------------------------------------------------------- Total steam heat plant 20,134 20,306 - ------------------------------------------------------------------------------------------------------------- Total utility plant 8,642,150 8,138,643 - ------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 2,257,696 2,068,176 Steam heat 6,456 5,938 - ------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 2,264,152 2,074,114 - ------------------------------------------------------------------------------------------------------------- Total 6,377,998 6,064,529 Less property-related accumulated deferred income taxes 1,001,173 933,932 - ------------------------------------------------------------------------------------------------------------- Total 5,376,825 5,130,597 - ------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - Nuclear decommissioning trusts - - Miscellaneous 29,677 31,402 - ------------------------------------------------------------------------------------------------------------- Total 29,677 31,402 - ------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 1,517 8,079 Investment securities - - Receivables, net 344,671 353,493 Fossil fuel stock, at average cost 173,858 164,671 Materials and supplies, at average cost 117,818 103,823 Prepayments 28,412 10,595 Vacation pay deferred 21,871 21,317 - ------------------------------------------------------------------------------------------------------------- Total 688,147 661,978 - ------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - Debt expense, being amortized 6,831 6,695 Premium on reacquired debt, being amortized 27,329 30,767 Uranium enrichment decontamination and decommissioning fund - - Miscellaneous 52,136 50,561 - ------------------------------------------------------------------------------------------------------------- Total 86,296 88,023 - ------------------------------------------------------------------------------------------------------------- Total Assets $ 6,180,945 $ 5,912,000 ============================================================================================================= </TABLE> II-92C
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> ============================================================================================================================== At December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (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 99 146 146 Earnings retained in the business 1,221,467 1,185,128 1,161,225 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 2,750,569 2,714,277 2,690,374 Preferred stock 255,512 340,400 440,400 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes 297,000 97,000 - Long-term debt 2,473,202 2,354,006 2,374,948 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 5,776,283 5,505,683 5,505,722 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - - - Commercial paper 306,882 364,853 390,016 Preferred stock due within one year - 100,000 - Long-term debt due within one year 75,336 20,753 84,682 Accounts payable 238,968 246,870 258,727 Customer deposits 34,968 32,003 30,353 Taxes accrued 36,486 50,909 31,757 Interest accrued 50,722 51,941 53,527 Vacation pay accrued 28,783 28,369 29,458 Miscellaneous 103,602 96,485 70,543 - -------------------------------------------------------------------------------------------------------------------------------- Total 875,747 992,183 949,063 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,192,265 1,177,687 1,191,591 Accumulated deferred investment tax credits 282,873 294,071 305,372 Prepaid capacity revenues, net 109,982 122,496 131,186 Deferred revenues from settlement of disputed contracts - - - Uranium enrichment decontamination and decommissioning fund 30,592 33,741 36,620 Deferred credits related to income taxes 327,328 364,792 386,038 Natural disaster reserve 22,416 20,757 17,959 Miscellaneous 195,381 222,436 220,809 - -------------------------------------------------------------------------------------------------------------------------------- Total 2,160,837 2,235,980 2,289,575 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 8,812,867 $ 8,733,846 $ 8,744,360 ================================================================================================================================ </TABLE> II-93
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- (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 146 146 342 Earnings retained in the business 1,085,256 997,199 914,148 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 2,614,405 2,526,348 2,443,493 Preferred stock 440,400 440,400 489,400 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes - - - Long-term debt 2,455,013 2,362,852 2,202,473 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 5,509,818 5,329,600 5,135,366 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - 40,000 71,000 Commercial paper 179,882 - 125,917 Preferred stock due within one year - - - Long-term debt due within one year 796 58,998 67,379 Accounts payable 318,991 334,998 296,731 Customer deposits 30,245 31,198 31,286 Taxes accrued 22,437 40,144 24,373 Interest accrued 52,516 52,809 41,675 Vacation pay accrued 20,442 22,680 21,879 Miscellaneous 57,047 50,426 93,836 - -------------------------------------------------------------------------------------------------------------------------------- Total 682,356 631,253 774,076 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,181,342 1,165,127 - Accumulated deferred investment tax credits 317,018 329,909 344,707 Prepaid capacity revenues, net 138,421 143,762 147,658 Deferred revenues from settlement of disputed contracts - 19,871 46,721 Uranium enrichment decontamination and decommissioning fund 39,413 39,644 44,548 Deferred credits related to income taxes 405,256 440,945 - Natural disaster reserve 28,750 - - Miscellaneous 156,843 148,572 100,542 - -------------------------------------------------------------------------------------------------------------------------------- Total 2,267,043 2,287,830 684,176 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 8,459,217 $ 8,248,683 $ 6,593,618 ================================================================================================================================ </TABLE> II-94A
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------- (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 461 461 461 Earnings retained in the business 857,734 751,126 659,347 - ---------------------------------------------------------------------------------------------------------------------------- Total common equity 2,387,198 2,280,590 2,188,811 Preferred stock 484,400 484,400 484,400 Preferred stock subject to mandatory redemption - 12,500 17,500 Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes - - - Long-term debt 2,382,635 2,397,931 2,435,129 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 5,254,233 5,175,421 5,125,840 - ---------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 76,000 89,500 30,000 Commercial paper - - - Preferred stock due within one year - 5,000 5,000 Long-term debt due within one year 85,077 83,989 81,031 Accounts payable 295,333 271,776 267,645 Customer deposits 30,165 29,571 28,450 Taxes accrued 45,493 20,665 26,832 Interest accrued 49,288 49,820 49,926 Vacation pay accrued 21,691 22,845 22,021 Miscellaneous 37,699 64,547 91,022 - ---------------------------------------------------------------------------------------------------------------------------- Total 640,746 637,713 601,927 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - Accumulated deferred investment tax credits 362,672 379,990 399,097 Prepaid capacity revenues, net 149,534 99,835 102,346 Deferred revenues from settlement of disputed contracts 59,937 - - Uranium enrichment decontamination and decommissioning fund - - - Deferred credits related to income taxes - - - Natural disaster reserve - - - Miscellaneous 82,340 69,334 50,221 - ---------------------------------------------------------------------------------------------------------------------------- Total 654,483 549,159 551,664 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 6,549,462 $ 6,362,293 $ 6,279,431 ============================================================================================================================ </TABLE> II-94B
<TABLE> <CAPTION> BALANCE SHEETS Alabama Power Company <S> <C> <C> ============================================================================================================= At December 31, 1988 1987 - ------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 224,358 $ 224,358 Paid-in capital 1,304,645 1,225,145 Premium on preferred stock 461 461 Earnings retained in the business 565,351 496,783 - ------------------------------------------------------------------------------------------------------------- Total common equity 2,094,815 1,946,747 Preferred stock 484,400 384,400 Preferred stock subject to mandatory redemption 22,500 27,500 Company obligated mandatorily redeemable preferred securities of Alabama Power Capital Trust I holding Company Junior Subordinated Notes - - Long-term debt 2,496,492 2,386,258 - ------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 5,098,207 4,744,905 - ------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - 15,000 Commercial paper - - Preferred stock due within one year 5,000 2,500 Long-term debt due within one year 96,242 95,140 Accounts payable 259,443 273,613 Customer deposits 25,964 32,220 Taxes accrued 25,285 72,118 Interest accrued 50,174 49,489 Vacation pay accrued 21,871 21,317 Miscellaneous 28,944 24,660 - ------------------------------------------------------------------------------------------------------------- Total 512,923 586,057 - ------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - Accumulated deferred investment tax credits 412,771 418,370 Prepaid capacity revenues, net 104,211 103,947 Deferred revenues from settlement of disputed contracts - - Uranium enrichment decontamination and decommissioning fund - - Deferred credits related to income taxes - - Natural disaster reserve - - Miscellaneous 52,833 58,721 - ------------------------------------------------------------------------------------------------------------- Total 569,815 581,038 - ------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 6,180,945 $ 5,912,000 ============================================================================================================= </TABLE> II-94C
<TABLE> <CAPTION> ALABAMA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1997 <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 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 ---------- ---------- $1,845,000 $1,841,108 ========== ========== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ---------------------------------------------------------------------------------------------- (Thousands) (Thousands) 1978 $ 5,600 7-1/4% $ 1,000 5/1/03 1994 53,700 Variable 53,700 6/1/15 1993 12,000 Variable 12,000 8/1/17 1993 12,000 Variable 12,000 8/1/17 1993 12,100 Variable 12,100 8/1/17 1996 21,000 Variable 21,000 11/1/21 1997 65,000 Variable 65,000 11/1/21 1995 50,000 Variable 50,000 5/1/22 1993 9,800 5.80% 9,800 6/1/22 1995 81,500 Variable 81,500 10/1/22 1993 96,990 6.05% 96,990 5/1/23 1994 101,650 6-1/2% 101,650 9/1/23 1994 24,400 5-1/2% 24,400 1/1/24 ---------- ---------- $ 545,740 $ 541,140 ========== ========== Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Company Junior Subordinated Notes Preferred Securities Interest Amount Series Outstanding Rate Outstanding - ---------------------------------------------------------------------------------------------- (Thousands) 1996 3,880,000(1) 7.375% $ 97,000(1) 1997 8,000,000(2) 7.60% 200,000(2) ---------- ---------- 11,880,000 $ 297,000 ========== ========== (1) Issued by Alabama Power Capital Trust I and guaranteed to the extent Alabama Power Capital Trust I has funds by ALABAMA. (2) Issued by Alabama Power Capital Trust II and guaranteed to the extent Alabama Power Capital Trust II has funds by ALABAMA. </TABLE> II-95
<TABLE> <CAPTION> ALABAMA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1997 (Continued) <S> <C> <C> <C> Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding ---------------------------------------------------------------------------------- (Thousands) 1946-1952 135,117 4.20% $ 13,512 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 1988 500,000 Auction 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 --------- -------- 6,495,317 $255,512 ========= ======== ========================================================================================= SECURITIES RETIRED DURING 1997 First Mortgage Bonds Principal Interest Series Amount Rate ---------------------------------------------------------------------------------- (Thousands) 1991 $ 74,951 9-1/4% Preferred Stock Principal Dividend Series Amount Rate ---------------------------------------------------------------------------------- (Thousands) 1946-1952 $ 22,888 4.20% 1966 7,000 5.96% 1968 5,000 6.88% 1992 100,000 7.60% 1992 50,000 7.60% ---------- $ 184,888 ========== </TABLE> II-96 GEORGIA POWER COMPANY FINANCIAL SECTION II-97
MANAGEMENT'S REPORT Georgia Power Company 1997 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 four 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/H. 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 11, 1998 II-98
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, 1997 and 1996, 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, 1997. 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 11-108 through II-128) referred to above present fairly, in all material respects, the financial position of Georgia Power Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP Atlanta, Georgia February 11, 1998 II-99
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Georgia Power Company 1997 Annual Report RESULTS OF OPERATIONS Earnings Georgia Power Company's 1997 earnings totaled $594 million, representing a $14 million (2.4 percent) increase over 1996. This earnings increase resulted primarily from lower operating expenses, lower financing costs, and increased non-operating income, partially offset by lower retail revenues and additional depreciation charges pursuant to a Georgia Public Service Commission (GPSC) retail accounting order discussed below. Earnings for 1996 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. Revenues The following table summarizes the factors impacting operating revenues for the 1995-1997 period: Increase (Decrease) From Prior Year ----------------------------------- 1997 1996 1995 ----------------------------------- Retail - (in millions) Sales growth $ 62 $ 58 $110 Weather (74) (25) 69 Fuel cost recovery (30) 28 66 Demand-side programs (3) (10) 36 - ------------------------------------------------------------------ Total retail (45) 51 281 - ------------------------------------------------------------------ Sales for resale - Non-affiliates 1 (9) (61) Affiliates 3 (41) 16 - ------------------------------------------------------------------ Total sales for resale 4 (50) (45) - ------------------------------------------------------------------ Other operating revenues 10 10 7 - ------------------------------------------------------------------ Total operating revenues $ (31) $ 11 $243 ================================================================== Percent change (0.7)% 0.3% 5.8% - ------------------------------------------------------------------ Retail revenues of $4 billion in 1997 decreased $45 million (1.1 percent) from 1996 primarily due to milder-than-normal weather, as well as commercial and industrial customers taking advantage of load management rates. Retail revenues 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. 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. Wholesale revenues from sales to non-affiliated utilities increased slightly in 1997 and were as follows: 1997 1996 1995 ------------------------------- (in millions) Outside service area - Long-term contracts $ 71 $ 84 $ 98 Other sales 80 37 25 Inside service area 132 161 168 - -------------------------------------------------------------- Total $283 $282 $291 ============================================================== Contractual long-term sales to Florida utilities for 1997 and 1996 are down primarily due to scheduled reductions in the amount of capacity under those contracts. See Note 7 to the financial statements for further information regarding these sales. Revenues from other sales outside the service area increased in 1997 and 1996 primarily due to power marketing activities. Wholesale revenues from customers within the service area decreased in 1997 and 1996 primarily due to a decrease in revenues under a power supply agreement with Oglethorpe Power Corporation (OPC) and, in 1996, recognition of a refund to these customers. OPC decreased its purchases of capacity by 250 megawatts each in September 1996 and 1997 and has notified the Company of its intent to decrease purchases of capacity by an additional 250 megawatts in September 1998 and 1999. Revenues from sales to affiliated companies within the Southern electric system, as well as purchases of energy, will vary from year to year depending on demand and the availability and cost of generating resources at each company. These transactions do not have a significant impact on earnings. II-100
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report Kilowatt-hour (KWH) sales for 1997 and the percent change by year were as follows: Percent Change --------------------------- 1997 KWH 1997 1996 1995 ------- ----------------------------- (in billions) Residential 17.3 (3.0)% 3.0% 10.4% Commercial 21.1 1.5 4.9 5.9 Industrial 26.7 1.9 3.6 3.9 Other 0.6 0.4 8.6 2.0 ------- Total retail 65.7 0.4 3.9 6.2 ------- Sales for resale - Non-affiliates 6.8 (13.6) 19.4 (17.3) Affiliates 1.7 44.6 (56.9) (10.4) ------- Total sales for resale 8.5 (6.0) (3.0) (15.4) ------- Total sales 74.2 (0.3) 3.0 2.8 ======= - ---------------------------------------------------------------- Residential sales declined 3.0 percent while sales to commercial and industrial customers increased slightly by 1.5 percent and 1.9 percent, respectively. Milder-than-normal temperatures experienced in 1997 contributed to the moderate sales. Residential, commercial and industrial energy sales growth in 1996 reflected strong economic growth and an increase in sales to existing customers. 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: 1997 1996 1995 -------------------------- Total generation (billions of kilowatt-hours) 66.5 63.7 64.3 Sources of generation (percent) -- Coal 74.8 74.3 73.7 Nuclear 21.8 22.4 22.6 Hydro 2.7 2.7 3.0 Oil and gas 0.7 0.6 0.7 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.53 1.55 1.67 Nuclear 0.52 0.55 0.60 Oil and gas * * * Total 1.32 1.35 1.44 - -------------------------------------------------------------- * Not meaningful because of minimal generation from fuel source. Fuel expense increased 2.6 percent in 1997 primarily due to an increase in generation, partially offset by a lower average cost of fuel. 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. Purchased power expense decreased $66 million (17.1 percent) in 1997 primarily due to decreased purchases from affiliated companies and declines in contractual capacity buyback purchases from the co-owners of Plant Vogtle. 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 area and declines in the Plant Vogtle contractual capacity buyback purchases. Under the terms of the 1991 GPSC retail rate order, the II-101
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report declines in the Plant Vogtle contractual capacity buyback purchases were levelized over a six-year period ending September 1997. 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. Other operation and maintenance (O&M) expenses, excluding the provision for separation benefits, decreased 4.1 percent in 1997 primarily due to initiatives in 1996 to reduce fossil generation materials inventory levels and an adjustment in 1996 to deferred postretirement benefits to reflect changes in the retiree benefits plan. Other O&M expenses increased 2.9 percent in 1996 primarily as a result of the inventory initiatives and the adjustment to deferred postretirement benefits discussed above, 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. Depreciation and amortization increased $140 million in 1997 and $11 million in 1996 primarily due to accelerated depreciation of generating plant pursuant to the retail accounting order and an increase in plant-in-service. The Company has deferred certain expenses and recorded a deferred return related to Plant Vogtle under phase-in plans. The amortization of deferred Plant Vogtle costs reflects the completion in September 1997 of the amortization of the levelized buybacks and the Plant Vogtle Unit 1 cost deferrals under a 1987 GPSC order. 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. Other income increased in 1997 and decreased in 1996. The increase in 1997 is primarily due to increased tax benefits from losses of the parent company allocated to the Company under the joint consolidated income tax agreement between Southern Company and its subsidiaries. See Note 8 to the financial statements for additional information. The decrease in 1996 is primarily due to expenses in connection with the 1996 Summer Olympic games and the completion of the sale in 1995 of Plant Scherer Unit 4, which resulted in an after-tax gain of approximately $12 million. Total financing costs decreased in 1997 and 1996. These changes were primarily due to the refinancing or retirement of securities. The Company refinanced or retired $701 million and $510 million of securities in 1997 and 1996, respectively. Interest and other charges increased $17 million (6.8 percent) and decreased $52 million (17.4 percent) in 1997 and 1996, respectively. While the issuance of additional mandatorily redeemable preferred securities in August 1996, January 1997 and June 1997 increased interest and other charges by $32 million and $6 million in 1997 and 1996, respectively, dividends on preferred stock decreased $26 million and $3 million in 1997 and 1996, respectively. 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. The Company currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in the state of Georgia. Prices for electricity provided by the Company to retail customers are set by the GPSC under cost-based regulatory principles. On January 1, 1996, the Company began operating under a three-year retail accounting order. Under the order, the Company's earnings are evaluated against a retail return on common equity range of 10 percent to 12.5 percent. Earnings II-102
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report 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 provisions of the accounting order or adopt different ones. See Note 3 to the financial statements under "Retail Accounting Order" for additional information. 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 1998 through 2000. Beginning in September 1997, 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 each in September 1998 and 1999. As a result, the Company's capacity revenues from OPC will decline by approximately $26 million in 1998, an additional $25 million in 1999, and an additional $18 million in 2000. Under the amended 1995 Integrated Resource Plan approved by the GPSC in March 1997, the resources associated with the decreased purchases in 1997 and 1998 will be used to meet the needs of the Company's retail customers through 2004. The Company has entered into a 30-year purchase power agreement whereby the Company will buy electricity from a 300 megawatt cogeneration facility, starting in June 1998. Capacity and fixed O&M payments are projected to be $13 million in 1998, $14 million in 1999 and $14 million in 2000. The Company has also entered into a five-year purchase power agreement scheduled to begin in June 2000 for approximately 215 megawatts. Capacity and fixed O&M payments are estimated to be approximately $7 million in 2000. The amortization of Plant Vogtle costs deferred under phase-in plans will decline by $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. 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. As discussed in Note 3 to the financial statements, regulatory uncertainties exist related to the Rocky Mountain pumped storage hydroelectric plant. On January 14, 1998, the GPSC ordered that the Company be allowed approximately $108 million of its $143 million investment in the plant in rate base as of December 31, 1998. The Company has appealed the GPSC's order. If such order is ultimately upheld, the Company will be required to record a charge to earnings currently estimated at approximately $29 million, after taxes. Southern Company and the Internal Revenue Service (IRS) have entered into a settlement agreement that is subject to review and approval by the Joint Congressional Committee on Taxation. If approved, the agreement would result in a refund, including interest, to the Company. See Note 3 to the financial statements under "Tax Litigation" for additional information. Compliance costs related to current and future environmental laws and regulations could affect earnings if such costs are not fully recovered. The Clean Air Act and other important environmental items are discussed later under "Environmental Issues." The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. II-103
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). 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 electric energy 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. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. 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. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition across the nation. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While the GPSC has held workshops to discuss retail competition and industry restructuring, there has been no proposed or enacted legislation to date in Georgia. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of costs. The ability of the Company to recover all its costs, including the regulatory assets described in Note 1 to the financial statements, could have a material effect on the financial condition of the Company. The Company is attempting to reduce regulatory assets and other costs through a three-year retail accounting order. See Note 3 to the financial statements under "Retail Accounting Order" for additional information. Unless the Company remains a low-cost producer and provides quality service, the Company's retail energy sales growth could be limited as competition increases. Conversely, continuing to be a low-cost producer could provide opportunities to increase market share and profitability in markets that evolve with changing regulation. 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 that are not specifically recoverable, 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. The Company is heavily dependent upon complex computer systems for all phases of its operations. The year 2000 issue -- common to most corporations -- concerns the inability of certain software and databases to properly recognize date sensitive information related to the year 2000 and thereafter. This problem could result in a material disruption to the Company's operations, if not corrected. The Company has assessed and developed a detailed strategy to prevent or at least minimize problems related to the year 2000 issue. In 1997 resources were committed and implementation began to modify the affected information systems. Total costs related to the project are estimated to be approximately $33 million, of which $3 million was spent in 1997. The remaining costs will be II-104
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report expensed primarily in 1998. Implementation is currently on schedule. Although the degree of success of this project cannot be determined at this time, management believes there will be no significant effect on the Company's operations. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1997, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. New Accounting Standards The FASB has issued Statement No. 130, Reporting Comprehensive Income, which will be effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners (comprehensive income). Comprehensive income is the total of net income and all other nonowner changes in equity. The Company will adopt this statement in 1998. The FASB has issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company adopted the new rules in 1997, and they did not have a significant impact on the Company's financial reporting. However, this conclusion may change as industry restructuring and competitive factors influence the company's operations. FINANCIAL CONDITION Plant Additions In 1997 gross utility plant additions were $476 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 1997, the Company continued to lower its financing costs by refinancing higher-cost issues. New issues during 1995 through 1997 totaled $1.6 billion and retirement or repayment of securities totaled $2.2 billion. The retirements included the redemption of $131 million in 1995 of first mortgage bonds with the proceeds from the Plant Scherer Unit 4 sales. Composite financing rates for long-term debt and preferred stock for the years 1995 through 1997, as of year-end, were as follows: 1997 1996 1995 --------------------------------- Composite interest rate on long-term debt 6.11% 6.39% 6.57% Composite preferred stock dividend rate 5.18 6.34 6.73 - ---------------------------------------------------------------- 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 - ----------------------------------------------------------------- Subsidiaries of the Company have issued mandatorily redeemable preferred securities. See Note 9 to the financial statements under "Preferred Securities" for additional information. In January 1998, the Company issued $145 million of 6 7/8% unsecured senior notes due December 31, 2047. The senior notes are subordinated to all secured II-105
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report debt of the Company, including its first mortgage bonds. Liquidity and Capital Requirements Cash provided from operations decreased by $15 million in 1997, primarily due to lower retail revenues. The Company estimates that construction expenditures for the years 1998 through 2000 will total $506 million, $561 million and $549 million, respectively. Investments in transmission and distribution facilities, enhancements to existing generating plants, 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 $693 million during 1998 through 2000. 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 1998 through 2000, 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 $1.3 billion of unused credit arrangements with banks at the beginning of 1998. See Note 9 to the financial statements under "Bank Credit Arrangements" for additional information. The Company historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the Company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. If the Company chooses to issue first mortgage bonds or preferred stock, it is required to meet certain coverage requirements specified in its mortgage indenture and corporate charter. 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 -- significantly impacted 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. Southern Company achieved Phase I sulfur dioxide compliance at the affected units by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Georgia Power's Phase I compliance totaled approximately $167 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 and ozone nonattainment requirements for metropolitan Atlanta through 2000. Current compliance strategy for Phase II and ozone nonattainment could require total estimated construction expenditures of approximately $39 million, of which $28 million remains to be spent as of December 31, 1997. A significant portion of costs related to the acid rain provision of the Clean Air Act is expected to be recovered through existing ratemaking II-106
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Georgia Power Company 1997 Annual Report provisions. However, there can be no assurance that all Clean Air Act costs will be recovered. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. Also, in October 1997, the EPA issued a proposed regional ozone rule that --if implemented--could require substantial further reductions in NOx emissions from fossil-fueled generating facilities. Implementation of the standards and the proposed rule could result in significant additional compliance costs and capital expenditures that cannot be determined at this time. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: 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 $4 million, $2 million and $8 million, in 1997, 1996, and 1995, 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. Cautionary Statement Regarding Forward-Looking Information The Company's 1997 Annual Report contains forward-looking statements in addition to historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies - -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by Southern Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the Company with the Securities and Exchange Commission. II-107
<TABLE> <CAPTION> STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Revenues: Revenues $4,347,009 $4,380,893 $4,328,432 Revenues from affiliates 38,708 35,886 76,906 - ------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 4,385,717 4,416,779 4,405,338 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation-- Fuel 857,269 835,194 900,973 Purchased power from non-affiliates 143,409 157,308 183,009 Purchased power from affiliates 177,240 229,324 131,740 Provision for separation benefits 5,459 39,099 10,607 Other 696,700 741,383 735,918 Maintenance 317,199 315,934 292,029 Depreciation and amortization 572,640 432,940 421,850 Amortization of deferred Plant Vogtle costs (Note 1) 120,577 136,650 124,454 Taxes other than income taxes 207,192 207,098 204,675 Federal and state income taxes 426,918 435,904 449,204 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 3,524,603 3,530,834 3,454,459 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 861,114 885,945 950,879 Other Income (Expense): Allowance for equity funds used during construction 6,012 3,144 2,734 Equity in earnings of unconsolidated subsidiary (Note 4) 4,266 3,851 4,051 Interest income 10,581 5,333 5,524 Other, net (35,834) (43,502) (8,973) Income taxes applicable to other income 31,763 18,581 3,022 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 877,902 873,352 957,237 - ------------------------------------------------------------------------------------------------------------------------------ Interest and Other Charges: Interest on long-term debt 194,344 207,851 254,607 Allowance for debt funds used during construction (8,962) (11,416) (12,081) Interest on interim obligations 7,795 15,478 21,463 Amortization of debt discount, premium and expense, net 14,179 14,790 15,835 Other interest charges 10,254 6,338 11,399 Distributions on preferred securities of subsidiary companies 47,369 14,958 9,000 - ------------------------------------------------------------------------------------------------------------------------------ Interest and other charges, net 264,979 247,999 300,223 - ------------------------------------------------------------------------------------------------------------------------------ Net Income 612,923 625,353 657,014 Dividends on Preferred Stock 18,927 45,026 48,152 - ------------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 593,996 $ 580,327 $ 608,862 ============================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-108
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 612,923 $ 625,353 $ 657,014 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 674,286 521,086 527,310 Deferred income taxes and investment tax credits, net (21,425) 35,700 37,150 Allowance for equity funds used during construction (6,012) (3,144) (2,734) Amortization of deferred Plant Vogtle costs, net 120,577 136,650 124,454 Loss (gain) on asset sales (974) 3,766 (23,588) Other, net 3,050 41,489 (7,980) Changes in certain current assets and liabilities -- Receivables, net 13,387 9,421 (59,370) Inventories 39,748 55,753 30,761 Payables (10,007) (35,651) 45,882 Taxes accrued (3,596) 11,766 11,373 Energy cost recovery, retail (20,103) 679 42,576 Other (30,026) (15,880) 35,175 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,371,828 1,386,988 1,418,023 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (475,921) (428,220) (480,449) Sales of property - 3,319 131,099 Other 16,223 (16,468) (42,579) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (459,698) (441,369) (391,929) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds -- Preferred securities 364,250 225,000 - First mortgage bonds - 10,000 75,000 Pollution control bonds 284,700 112,825 504,700 Retirements -- Preferred stock (356,392) (179,148) - First mortgage bonds (60,258) (210,860) (505,789) Pollution control bonds (284,700) (119,665) (504,810) Other long-term debt - - (37,000) Interim obligations, net (64,266) 30,166 (24,472) Special deposits -- redemption funds 44,454 (44,454) - Capital distribution to parent company (205,000) (250,000) - Payment of preferred stock dividends (26,917) (46,911) (48,419) Payment of common stock dividends (520,000) (475,500) (451,500) Miscellaneous (20,024) (10,646) (17,413) - --------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (844,153) (959,193) (1,009,703) - --------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 67,977 (13,574) 16,391 Cash and Cash Equivalents at Beginning of Year 15,356 28,930 12,539 - --------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 83,333 $ 15,356 $ 28,930 ================================================================================================================================ Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $ 258,298 $ 249,434 $ 298,482 Income taxes (net of refunds) 427,596 373,886 404,129 - -------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements. </TABLE> II-109
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Georgia Power Company 1997 Annual Report <S> <C> <C> =================================================================================================================== ASSETS 1997 1996 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: Plant in service $ 15,082,570 $ 14,769,573 Less accumulated provision for depreciation 5,319,680 4,793,638 - --------------------------------------------------------------------------------------------------------------------- 9,762,890 9,975,935 Nuclear fuel, at amortized cost 126,882 121,840 Construction work in progress (Note 4) 214,128 256,141 - --------------------------------------------------------------------------------------------------------------------- Total 10,103,900 10,353,916 - --------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Southern Electric Generating Company, at equity (Note 4) 24,973 26,032 Nuclear decommissioning trusts, at market 194,417 130,178 Miscellaneous 87,907 103,787 - --------------------------------------------------------------------------------------------------------------------- Total 307,297 259,997 - --------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 83,333 15,356 Receivables-- Customer accounts receivable 385,844 392,328 Other accounts and notes receivable 110,278 159,499 Affiliated companies 20,333 20,095 Accumulated provision for uncollectible accounts (3,000) (4,000) Fossil fuel stock, at average cost 96,067 117,382 Materials and supplies, at average cost 240,387 258,820 Prepayments 27,503 67,118 Vacation pay deferred 40,996 39,965 - --------------------------------------------------------------------------------------------------------------------- Total 1,001,741 1,066,563 - --------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 688,472 754,002 Deferred Plant Vogtle costs (Note 1) 50,412 170,988 Premium on reacquired debt, being amortized 166,609 166,670 Prepaid pension costs 67,777 42,653 Debt expense, being amortized 40,927 32,693 Miscellaneous 146,593 159,153 - --------------------------------------------------------------------------------------------------------------------- Total 1,160,790 1,326,159 - --------------------------------------------------------------------------------------------------------------------- Total Assets $ 12,573,728 $ 13,006,635 ===================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-110
<TABLE> <CAPTION> BALANCE SHEETS (continued) At December 31, 1997 and 1996 Georgia Power Company 1997 Annual Report <S> <C> <C> =============================================================================================================================== CAPITALIZATION AND LIABILITIES 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity $ 4,019,728 $ 4,154,281 Preferred stock 157,247 464,611 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes (Note 9) 689,250 325,000 Long-term debt 2,982,835 3,200,419 - -------------------------------------------------------------------------------------------------------------------------------- Total 7,849,060 8,144,311 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year (Note 9) - 49,028 Long-term debt due within one year (Note 9) 220,855 60,622 Notes payable to banks (Note 9) 142,300 207,300 Commercial paper (Note 9) 223,930 223,196 Accounts payable-- Affiliated companies 71,373 66,821 Other 261,293 263,093 Customer deposits 68,618 64,901 Taxes accrued-- Federal and state income 4,480 15,497 Other 111,541 100,661 Interest accrued 72,437 79,936 Miscellaneous 105,683 153,127 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,282,510 1,284,182 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 2,417,547 2,522,945 Accumulated deferred investment tax credits 397,202 415,477 Deferred credits related to income taxes (Note 8) 297,560 317,965 Employee benefits provisions 169,887 186,319 Miscellaneous 159,962 135,436 - -------------------------------------------------------------------------------------------------------------------------------- Total 3,442,158 3,578,142 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1 through 7) Total Capitalization and Liabilities $ 12,573,728 $ 13,006,635 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-111
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION At December 31, 1997 and 1996 Georgia Power Company 1997 Annual Report <S> <C> <C> <C> <C> ================================================================================================================================== 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, without par value -- Authorized -- 15,000,000 shares Outstanding -- 7,761,500 shares $ 344,250 $ 344,250 Paid-in capital 1,929,971 2,134,886 Premium on preferred stock 160 371 Retained earnings (Note 9) 1,745,347 1,674,774 - ---------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 4,019,728 4,154,281 51.2% 51.0% - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock, without par value: Authorized -- 55,000,000 shares Outstanding -- 4,719,226 shares at December 31, 1997 Outstanding -- 16,111,964 shares at December 31, 1996 $100 stated value -- 4.60% to 6.60% 52,355 117,787 7.72% to 7.80% - 30,000 $25 stated value -- $1.90 to $2.125 - 190,852 Adjustable rate -- at January 1, 1998: 4.85% 64,213 100,000 5.27% 40,679 75,000 - ---------------------------------------------------------------------------------------------------------------------------------- Total cumulative preferred stock (annual dividend requirement -- $8,141,000) 157,247 513,639 Less amount due within one year (Note 9) - 49,028 - ---------------------------------------------------------------------------------------------------------------------------------- Cumulative preferred stock excluding amount due within one year 157,247 464,611 2.0 5.7 - ---------------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 9% 100,000 100,000 $25 liquidation value -- 7.75% 225,000 225,000 $25 liquidation value -- 7.60% 175,000 - $25 liquidation value -- 7.75% 189,250 - - ---------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement -- $54,404,000) 689,250 325,000 8.8 4.0 - ---------------------------------------------------------------------------------------------------------------------------------- Long-Term Debt: First mortgage bonds -- Maturity Interest Rates 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 September 1, 2002 6 7/8% 150,000 150,000 2003 through 2005 6.07% to 6 5/8% 285,000 285,000 2008 6 7/8% 50,000 50,000 2023 through 2025 7.55% to 7.95% 474,250 534,508 - ---------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 1,454,250 1,514,508 Pollution control obligations (Note 9) 1,671,190 1,671,190 Other long-term debt (Note 9) 86,675 87,114 Unamortized debt discount, net (8,425) (11,771) - ---------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $196,378,000) 3,203,690 3,261,041 Less amount due within one year (Note 9) 220,855 60,622 - ---------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 2,982,835 3,200,419 38.0 39.3 - ---------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 7,849,060 $ 8,144,311 100.0% 100.0% ================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-112
<TABLE> <CAPTION> STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================== 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Period $1,674,774 $1,569,905 $1,412,543 Net income after dividends on preferred stock 593,996 580,327 608,862 Cash dividends on common stock (520,000) (475,500) (451,500) Preferred stock transactions, net (3,423) 42 - - ---------------------------------------------------------------------------------------------------------------------------------- Balance at End of Period (Note 9) $1,745,347 $1,674,774 $1,569,905 ================================================================================================================================== STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1997, 1996, and 1995 Georgia Power Company 1997 Annual Report ================================================================================================================================== 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Period $2,134,886 $2,384,444 $2,384,348 Capital distribution to parent company (205,000) (250,000) - Contributions to capital by parent company 85 442 96 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at End of Period $1,929,971 $2,134,886 $2,384,444 ================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-113
NOTES TO FINANCIAL STATEMENTS Georgia Power Company 1997 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), Southern Company Energy Solutions, 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 Company Energy Solutions 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 expected 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: 1997 1996 ---------- --------- (in millions) -------------------- Deferred income taxes $ 688 $ 754 Deferred income tax credits (298) (318) Premium on reacquired debt 167 167 Corporate building lease 52 51 Deferred Plant Vogtle costs 50 171 Vacation pay 41 40 Postretirement benefits 38 38 Department of Energy assessments 29 32 Deferred nuclear outage costs 28 18 Demand-side program costs 11 44 Other, net 10 (9) - -------------------------------------------------------------- Total $ 816 $ 988 ============================================================== 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 net regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, including plant, and write down the assets, if impaired, to their fair value. II-114
NOTES (continued) Georgia Power Company 1997 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, and certain other 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 1997, 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 $76 million in 1997, $78 million in 1996, and $86 million in 1995. 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 cask 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, 1997, to be approximately $27 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 1997 and 1996 and 3.2 percent in 1995. In addition, the Company recorded accelerated depreciation of electric plant of $159 million in 1997, $24 million in 1996, and $6 million in 1995. The amount of such charges in the accumulated provision for depreciation is $189 million at December 31, 1997. See Note 3 under "Retail Accounting Order" for additional information. 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 II-115
NOTES (continued) Georgia Power Company 1997 Annual Report the retirement date. The estimated costs of decommissioning -- both site study costs and ultimate costs at December 31, 1997 -- based on the Company's ownership interests -- were as follows: Plant Plant Hatch Vogtle -------------------- Site study basis (year) 1997 1997 Decommissioning periods: Beginning year 2014 2027 Completion year 2027 2038 - ------------------------------------------------------------ (in millions) Site study costs: Radiated structures $372 $317 Non-radiated structures 33 44 - ------------------------------------------------------------ Total $405 $361 ============================================================ (in millions) Ultimate costs: Radiated structures $722 $922 Non-radiated structures 65 129 - ------------------------------------------------------------ Total $787 $1,051 ============================================================ (in millions) Amount expensed in 1997 $ 11 $ 9 Accumulated provisions: Balance in external trust funds $118 $ 76 Balance in internal reserves 23 13 - ------------------------------------------------------------ Total $141 $ 89 ============================================================ Significant assumptions: Inflation rate 3.6% 3.6% Trust earnings rate 6.5 6.5 - ------------------------------------------------------------ Annual provisions for nuclear decommissioning are based on an annuity method as approved by the GPSC. The decommissioning costs currently included in cost of service are $320 million and $267 million for plants Hatch and Vogtle, respectively. These amounts are based on the higher of the costs to decommission the radioactive portions of the plants based on 1994 site studies or the 1993 NRC minimum funding requirements. The estimated ultimate costs associated with the amounts currently included in cost of service are $781 million and $1.1 billion for plants Hatch and Vogtle, respectively. 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. Costs deferred under the 1987 order and the levelized buybacks were fully recovered as of September 1997. 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 1997, 1996 and 1995, the average AFUDC rates were 7.60 percent, 6.59 percent and 6.53 percent, respectively. AFUDC, net of taxes, as a percentage of net income after dividends on preferred stock, was less than 2.0 percent for 1997, 1996, and 1995. II-116
NOTES (continued) Georgia Power Company 1997 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, 1997 $3,125 $3,170 At December 31, 1996 3,174 3,206 Preferred securities: At December 31, 1997 689 720 At December 31, 1996 325 333 - -------------------------------------------------------------- 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 1997 and 1996, the Company funded $24 million and $25 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 were expensed each succeeding year until the costs were 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-117
NOTES (continued) Georgia Power Company 1997 Annual Report Funded Status and Cost of Benefits The funded status of the plans and reconciliation to amounts reflected in the Balance Sheets at December 31 are as follows: Pension --------------------- 1997 1996 --------------------- (in millions) --------------------- Actuarial present value of benefit obligations: Vested benefits $ 841 $ 806 Non-vested benefits 29 52 - ---------------------------------------------------------------- Accumulated benefit obligation 870 858 Additional amounts related to projected salary increases 249 314 - --------------------------------------------------------------- Projected benefit obligation 1,119 1,172 Less: Fair value of plan assets 1,931 1,797 Unrecognized net gain (753) (591) Unrecognized prior service cost 48 56 Unrecognized transition asset (39) (47) - --------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 68 $ 43 =============================================================== Postretirement Benefits --------------------- 1997 1996 --------------------- (in millions) Actuarial present value of benefit obligation: Retirees and dependents $246 $217 Employees eligible to retire 33 29 Other employees 156 184 - --------------------------------------------------------------- Accumulated benefit obligation 435 430 Less: Fair value of plan assets 151 112 Unrecognized net loss 47 50 Unrecognized transition obligation 139 157 - --------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ 98 $111 =============================================================== The weighted average rates used in actuarial calculations were: 1997 1996 1995 ---------------------------- Discount 7.5% 7.8% 7.3% Annual salary increase 5.0 5.3 4.8 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 8.8 percent for 1997, decreasing gradually to 5.5 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, 1997, by $43 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 ---------------------------- 1997 1996 1995 ---------------------------- (in millions) Benefits earned during the year $ 30 $ 35 $ 33 Interest cost on projected benefit obligation 82 86 78 Actual return on plan assets (301) (202) (317) Net amortization 161 62 185 - ----------------------------------------------------------------- Net pension benefit $ (28) $ (19) $ (21) ================================================================= Of net pension amounts recorded, $20 million in 1997, $14 million in 1996, and $15 million in 1995 were recorded as a reduction to operating expense, and the remainder was recorded as a reduction to construction and other accounts. II-118
NOTES (continued) Georgia Power Company 1997 Annual Report Postretirement Benefits ------------------------- 1997 1996 1995 ------------------------- (in millions) Benefits earned during the year $ 7 $ 9 $13 Interest cost on accumulated benefit obligation 32 30 34 Amortization of transition obligation 9 9 16 Actual return on plan assets (8) (6) (8) Net amortization 2 3 4 - --------------------------------------------------------------- Net postretirement cost $42 $45 $59 =============================================================== Of the above net postretirement benefit costs recorded, $32 million in 1997, $29 million in 1996, and $33 million in 1995 were charged to operating expenses. In addition, $3 million in 1996 and $11 million in 1995 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 $5 million in 1997, $39 million in 1996 and $11 million in 1995. Additionally, the Company recognized $4 million in 1997, $9 million in 1996, and $3 million in 1995 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. During 1997, for earnings in excess of the 12.5% retail return, the Company recorded charges of $135 million that are presented in the financial statements as depreciation expense of electric plant and as an addition to the reserve for depreciation. 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 and the Company subsequently appealed the Superior Court's decision. In October 1997, the Court of Appeals upheld the accounting order. No appeal of that decision was filed within the allowable time frame. The order stands as written, and this matter is now concluded. 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 II-119
NOTES (continued) Georgia Power Company 1997 Annual Report 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 $71 million at December 31, 1997. Although management believes that rates are not excessive and that refunds are not justified, the final outcome of this matter cannot now be determined. 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. In 1988, the Company and Oglethorpe Power Corporation (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. In June 1996, the GPSC initiated a review of the plant. On January 14, 1998, the GPSC ordered that the Company be allowed approximately $108 million of its $143 million investment in the plant in rate base as of December 31, 1998. The Company has appealed the GPSC's order to the Superior Court of Fulton County, Georgia. If such order is ultimately upheld, the Company will be required to record a charge to earnings currently estimated at approximately $29 million, after taxes. The final outcome of this matter cannot now be determined. Accordingly, no provision related to the GPSC's disallowance has been recorded. Tax Litigation In August 1997, Southern Company and the Internal Revenue Service (IRS) entered into a settlement agreement related to tax issues for the years 1984 through 1987. The agreement is subject to the review and approval by the Joint Congressional Committee on Taxation. If approved by the Joint Committee, the agreement would resolve all issues in the case for the years before the U. S. Tax Court, resulting in a refund to the Company of approximately $140 million. This amount includes interest of $61 million. The tax litigation was related to a timing issue as to when taxes should have been paid; therefore, only the interest portion will affect future income. There can be no assurance that such Joint Committee approval will be received. Demand-Side Conservation Programs In August 1995, the GPSC ordered the Company to discontinue its current demand-side conservation programs by the end of 1995. Rate riders previously approved by the GPSC for recovery of the Company's costs incurred in connection with these programs remained in effect until January 1998 when costs deferred were fully collected. 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. 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, 1997, 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 II-120
NOTES (continued) Georgia Power Company 1997 Annual Report 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 nine electrical substations on the list at a cost of approximately $3 million. In addition, the Company has recognized approximately $17 million in expenses through December 31, 1997 for the assessment of the remaining sites on the list and the anticipated clean-up cost for 11 sites that the Company plans to remediate. Any cost of remediating 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. The accrued costs for environmental remediation obligations are not discounted to their present value. New Wholesale Agreement On January 10, 1997, the Company and the Municipal Electric Authority of Georgia (MEAG) reached an agreement to enter into a new power supply relationship which would replace the partial requirements tariff pursuant to which the Company sells wholesale energy to MEAG and the scheduling services agreement between the Company and MEAG. The new power supply contract was approved by FERC and was implemented in August 1997. 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 is being collected through the retail fuel cost recovery provision and recognized in income over a 36-month period that began in 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 $506 million in 1998, $561 million in 1999, and $549 million in 2000. The estimates for property additions for the three-year period include $28 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. 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. II-121
NOTES (continued) Georgia Power Company 1997 Annual Report Total estimated long-term fossil and nuclear fuel commitments at December 31, 1997 were as follows: Minimum Year Obligations ---------------------- (in millions) 1998 $ 985 1999 799 2000 777 2001 673 2002 614 2003 and beyond 1,635 - --------------------------------------------------------------- Total minimum obligations $5,483 =============================================================== 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 portions of OPC's and MEAG's capacity and energy from this plant. Declining commitments were in effect during periods of up to seven years following commercial operation and ended in 1996. As discussed in Note 1, the Plant Vogtle declining capacity buyback expense was levelized over a six-year period which ended in September 1997. In addition, the Company has commitments regarding a portion of a 5 percent interest in Plant Vogtle owned by MEAG that 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 $54 million, $68 million, and $76 million in 1997, 1996, and 1995, respectively. The current projected Plant Vogtle capacity payments are: Year Amounts ---------------------- (in millions) 1998 $ 57 1999 59 2000 62 2001 61 2002 60 2003 and beyond 771 - ---------------------------------------------------------------- Total $ 1,070 ================================================================ 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. 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: 1997 1996 1995 --------------------------------- (in millions) Energy $45 $47 $44 Capacity 30 30 29 - -------------------------------------------------------------- Total $75 $77 $73 ============================================================== Kilowatt-hours 3,038 2,780 2,391 - -------------------------------------------------------------- At December 31, 1997, the capitalization of SEGCO consisted of $50 million of equity and $72 million of long-term debt on which the annual interest requirement is $4 million. II-122
NOTES (continued) Georgia Power Company 1997 Annual Report The Company has entered into other various long-term commitments for the purchase of electricity. Total long-term obligations at December 31, 1997 were as follows: Year Amounts ---------------------- (in millions) 1998 $ 16 1999 17 2000 21 2001 22 2002 23 2003 and beyond 360 - --------------------------------------------------------------- Total $ 459 =============================================================== Operating Leases The Company has entered into coal rail car rental agreements with various terms and expiration dates. These expenses totaled $11 million for 1997 and 1996 and $12 million for 1995. At December 31, 1997, estimated minimum rental commitments for these noncancelable operating leases were as follows: Year Amounts ---------------------- (in millions) 1998 $ 11 1999 11 2000 11 2001 12 2002 12 2003 and beyond 132 - --------------------------------------------------------------- Total $ 189 =============================================================== 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 $160 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 Electric Insurance Limited (NEIL), 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 $10 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 primary coverage. This excess insurance is also provided by NEIL. Additionally, NEIL covers the 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 17 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 $11 million for excess property damage and $11 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 II-123
NOTES (continued) Georgia Power Company 1997 Annual Report 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. 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 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, the Company has sold 76.4 percent of Plant Scherer Unit 4 to Florida Power & Light Company (FP&L) and the remaining 23.6 percent to Jacksonville Electric Authority (JEA). The Company has also sold transmission facilities to Georgia Transmission Corporation (formerly OPC's transmission division), MEAG, and the City of Dalton. 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 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. At December 31, 1997, the Company's percentage ownership and investment (exclusive of nuclear fuel) in 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) 1,722 50.1 Plant Wansley (coal) 1,730 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) Intercession City 142 33.3 (combustion-turbine) - ------------------------------------------------------------------ Accumulated Facility (Type) Investment Depreciation - ---------------------------------------------------------------- (in millions) Plant Vogtle (nuclear) $3,299* $1,100 Plant Hatch (nuclear) 840 477 Plant Wansley (coal) 298 136 Plant Scherer (coal) Units 1 and 2 112 44 Unit 3 542 164 Plant McIntosh Common Facilities (combustion-turbine) 19 1 Rocky Mountain (pumped storage) 202 44 Intercession City (combustion-turbine) 13 ** - ---------------------------------------------------------------- * Investment net of write-offs. ** Less than $1 million. II-124
NOTES (continued) Georgia Power Company 1997 Annual Report 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. 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 ------------------------------------- (in millions) (megawatts) 1997 $ 42 159 1996 41 173 1995 53 248 ------------------------------------- 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 159 megawatts of capacity in 1997 and is scheduled to sell approximately 162 megawatts of capacity in 1998 and 1999. In 2000, 129 megawatts will be sold. After 2000, capacity sales will decline to approximately 105 megawatts -- unless reduced by FP&L, FPC, and JEA -- until the expiration of the contracts in 2010. 8. INCOME TAXES At December 31, 1997, tax-related regulatory assets were $688 million and tax-related regulatory liabilities were $298 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. Details of the federal and state income tax provisions are as follows: 1997 1996 1995 ------------------------------- Total provision for income taxes: (in millions) Federal: Currently payable $ 352 $325 $349 Deferred - Current year 49 70 84 Reversal of prior years (68) (41) (55) Deferred investment tax credits - - 1 - ----------------------------------------------------------------- 333 354 379 - ----------------------------------------------------------------- State: Currently payable 65 56 60 Deferred - Current year 8 12 15 Reversal of prior years (11) (5) (8) - ----------------------------------------------------------------- 62 63 67 - ----------------------------------------------------------------- Total 395 417 446 - ----------------------------------------------------------------- Less: Income taxes credited to other income (32) (19) (3) - ----------------------------------------------------------------- Total income taxes charged to operations $ 427 $436 $449 ================================================================= 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: 1997 1996 ------------------- (in millions) Deferred tax liabilities: Accelerated depreciation $1,732 $1,736 Property basis differences 968 1,038 Other 142 174 - ----------------------------------------------------------------- Total 2,842 2,948 - ----------------------------------------------------------------- Deferred tax assets: Other property basis differences 216 225 Federal effect of state deferred taxes 99 100 Other deferred costs 83 93 Disallowed Plant Vogtle buybacks 23 24 Other 14 36 - ----------------------------------------------------------------- Total 435 478 - ----------------------------------------------------------------- Net deferred tax liabilities 2,407 2,470 Portion included in current assets 11 53 - ----------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $2,418 $2,523 ================================================================= Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce II-125
NOTES (continued) Georgia Power Company 1997 Annual Report depreciation in the Statements of Income. Credits amortized in this manner amounted to $15 million in 1997, $17 million in 1996, and $22 million in 1995. At December 31, 1997, 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: 1997 1996 1995 -------- -------- -------- Federal statutory rate 35% 35% 35% State income tax, net of federal deduction 4 4 4 Non-deductible book depreciation 4 3 2 Other (4) (2) (1) - --------------------------------------------------------------- Effective income tax rate 39% 40% 40% =============================================================== 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 historically has relied on issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for its benefit by public authorities, to meet its long-term external financing requirements. Recently, the Company's financings have consisted of unsecured debt and trust preferred securities. In this regard, the Company sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness it may incur. The Company's first mortgage bond indenture contains various restrictions that remain in effect as long as the bonds are outstanding. At December 31, 1997, $852 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. If additional first mortgage bonds are issued, supplemental indentures in connection with those issues may contain more stringent restrictions than those currently in effect. The Company's charter previously limited 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, was below 25 percent, and to 50 percent of such net income if such ratio was less than 20 percent. These restrictions were removed by a vote of preferred shareholders on December 10, 1997. 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. Statutory business trusts formed by the Company, of which the Company owns all the common securities, have issued mandatorily redeemable preferred securities as follows: Date of Maturity Issue Amount Rate Notes Date ------------------------------------------------------- (millions) (millions) Trust I 8/1996 $225.00 7.75% $232 6/2036 Trust II 1/1997 175.00 7.60% 180 12/2036 Trust III 6/1997 189.25 7.75% 195 3/2037 Substantially all of the assets of each trust are junior subordinated notes issued by the Company in the respective approximate principal amounts set forth above. 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 the Trusts' payment obligations with respect to the preferred securities. II-126
NOTES (continued) Georgia Power Company 1997 Annual Report Georgia Power Capital, L.P., and the Trusts 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 $1.3 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. Details of pollution control bonds are as follows: Maturity Interest Rates 1997 1996 - -------------------------------------------------------------- (in millions) 2000 4.375% $ 50 $ 50 2004-2005 5% to 5.70% 104 143 2011 Variable 10 10 2017 8.375% to 9.375% - 140 2018-2022 6% to 6.35% & Variable 112 218 2023-2026 5.40% to 6.75% & Variable 1,110 1,110 2029-2032 Variable 235 - 2034 Variable 50 - - -------------------------------------------------------------- Total pollution control bonds $1,671 $1,671 ============================================================== Senior Notes In January 1998, the Company issued $145 million of 6 7/8% unsecured senior notes due December 31, 2047. The senior notes are subordinated to all secured debt of the Company, including its first mortgage bonds. Bank Credit Arrangements At the beginning of 1998, the Company had unused credit arrangements with banks totaling $1.3 billion, of which $919 million expires at various times during 1998, $300 million expires at June 30, 1999, and $60.3 million expires at May 1, 2000. The $300 million expiring June 30, 1999, is under revolving credit arrangements with several banks providing the Company and Alabama Power Company up to a total credit amount of $300 million. To provide liquidity support for commercial paper programs, $165 million and $135 million are currently dedicated to the Company and Alabama Power Company, respectively. However, the allocations can be changed among the borrowers by notifying the respective banks. Approximately $1.1 billion of the credit facilities allow for term loans of between one and three years. Most of the agreements include stated borrowing rates but also allow for negotiated rates. 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 $1.3 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, 1997, totaled $879 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 1997. 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, 1997 and 1996, 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. 11-127
NOTES (continued) Georgia Power Company 1997 Annual Report At December 31, 1997, and 1996, the interest and lease amortization deferred on the Balance Sheets are $52 million and $51 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: 1997 1996 ------------------- (in millions) First mortgage bonds $ 220 $ 61 Preferred stock - 49 - ---------------------------------------------------------------- Total $ 220 $ 110 ================================================================ 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 1998 requirement was met in the first quarter of the year by depositing cash with the trustee. These funds were used to redeem first mortgage bonds. 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 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 of first mortgage bonds 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 1997 and 1996 is as follows: Net Income After Dividends on Operating Operating Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------- (in millions) -------------------------------------------- March 1997 $ 959 $180 $106 June 1997 1,015 205 131 September 1997 1,407 317 257 December 1997 1,005 159 100 March 1996 $1,029 $192 $114 June 1996 1,134 233 154 September 1996 1,311 339 256 December 1996 943 122 56 - ------------------------------------------------------------------- Earnings in the fourth quarter of 1997, compared to the fourth quarter of 1996, increased primarily as a result of higher retail sales and the recognition in 1996 of an agreement to refund $14 million to municipalities and cooperatives in Georgia. The Company's business is influenced by seasonal weather conditions. II-128
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ========================================================================================================================== 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,385,717 $4,416,779 $4,405,338 Net Income after Dividends on Preferred Stock (in thousands) $593,996 $580,327 $608,862 Cash Dividends on Common Stock (in thousands) $520,000 $475,500 $451,500 Return on Average Common Equity (percent) 14.53 13.73 14.43 Total Assets (in thousands) $12,573,728 $13,006,635 $13,470,275 Gross Property Additions (in thousands) $475,921 $428,220 $480,449 - -------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $4,019,728 $4,154,281 $4,299,012 Preferred stock 157,247 464,611 692,787 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities 689,250 325,000 100,000 Long-term debt 2,982,835 3,200,419 3,315,460 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $7,849,060 $8,144,311 $8,407,259 ========================================================================================================================== Capitalization Ratios (percent): Common stock equity 51.2 51.0 51.1 Preferred stock 2.0 5.7 8.2 Company obligated mandatorily redeemable preferred securities 8.8 4.0 1.2 Long-term debt 38.0 39.3 39.5 - -------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ========================================================================================================================== First Mortgage Bonds (in thousands): Issued - 10,000 75,000 Retired 60,258 210,860 505,789 Preferred Stock (in thousands): Issued - - - Retired 356,392 179,148 - Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 364,250 225,000 - - -------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A+ A+ A+ Duff & Phelps AA- AA- AA- Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A A Duff & Phelps A+ A+ A - -------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,561,675 1,531,453 1,500,024 Commercial 211,672 205,087 198,624 Industrial 9,988 10,424 10,796 Other 2,748 2,645 2,568 - -------------------------------------------------------------------------------------------------------------------------- Total 1,786,083 1,749,609 1,712,012 ========================================================================================================================== Employees (year-end) 8,354 * 10,346 11,061 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company. </TABLE> II-129
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================= 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,162,403 $4,451,181 $4,297,436 Net Income after Dividends on Preferred Stock (in thousands) $525,544 $569,853 $520,538 Cash Dividends on Common Stock (in thousands) $429,300 $402,400 $384,000 Return on Average Common Equity (percent) 12.84 14.37 13.60 Total Assets (in thousands) $13,712,658 $13,736,110 $10,964,442 Gross Property Additions (in thousands) $638,426 $674,432 $508,444 - ----------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $4,141,554 $4,045,458 $3,888,237 Preferred stock 692,787 692,787 692,792 Preferred stock subject to mandatory redemption - - 6,250 Company obligated mandatorily redeemable preferred securities 100,000 - - Long-term debt 3,757,823 4,031,387 4,131,016 - ----------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $8,692,164 $8,769,632 $8,718,295 ============================================================================================================================= Capitalization Ratios (percent): Common stock equity 47.6 46.1 44.6 Preferred stock 8.0 7.9 8.0 Company obligated mandatorily redeemable preferred securities 1.2 - - Long-term debt 43.2 46.0 47.4 - ----------------------------------------------------------------------------------------------------------------------------- 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 133,559 1,337,822 1,381,300 Preferred Stock (in thousands): Issued - 175,000 195,000 Retired - 245,005 165,004 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 100,000 - - - ----------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A2 A3 A3 Standard and Poor's A A- A- Duff & Phelps A+ A+ A- Preferred Stock - Moody's a3 baa1 baa1 Standard and Poor's A- BBB+ BBB+ Duff & Phelps A- A- BBB - ----------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,466,382 1,441,972 1,421,175 Commercial 193,648 188,820 183,784 Industrial 10,976 11,217 11,479 Other 2,426 2,322 2,269 - ----------------------------------------------------------------------------------------------------------------------------- Total 1,673,432 1,644,331 1,618,707 ============================================================================================================================= Employees (year-end) 11,765 12,528 12,600 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company. </TABLE> II-130A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ======================================================================================================================= 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $4,301,428 $4,445,809 $4,145,240 Net Income after Dividends on Preferred Stock (in thousands) $474,855 $208,066 $449,099 Cash Dividends on Common Stock (in thousands) $375,200 $389,600 $394,500 Return on Average Common Equity (percent) 12.76 5.52 11.72 Total Assets (in thousands) $10,842,538 $11,176,619 $11,372,346 Gross Property Additions (in thousands) $548,051 $558,727 $727,631 - ----------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $3,766,551 $3,673,913 $3,860,657 Preferred stock 607,796 607,796 607,844 Preferred stock subject to mandatory redemption 118,750 125,000 155,000 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 4,553,189 5,000,225 5,054,001 - ----------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $9,046,286 $9,406,934 $9,677,502 ======================================================================================================================= Capitalization Ratios (percent): Common stock equity 41.7 39.1 39.9 Preferred stock 8.0 7.8 7.9 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 50.3 53.1 52.2 - ----------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ======================================================================================================================= First Mortgage Bonds (in thousands): Issued - 300,000 250,000 Retired 598,384 91,117 91,516 Preferred Stock (in thousands): Issued 100,000 - - Retired 100,000 83,750 7,500 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - - ----------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's Baa1 Baa1 Baa2 Standard and Poor's BBB+ BBB+ BBB+ Duff & Phelps BBB+ BBB BBB Preferred Stock - Moody's baa1 baa1 baa2 Standard and Poor's BBB BBB BBB Duff & Phelps BBB- BBB- BBB- - ----------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 1,397,682 1,378,888 1,355,211 Commercial 179,933 178,391 177,814 Industrial 11,946 12,115 12,311 Other 2,190 2,114 2,050 - ----------------------------------------------------------------------------------------------------------------------- Total 1,591,751 1,571,508 1,547,386 ======================================================================================================================= Employees (year-end) 13,700 13,746 13,900 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company. </TABLE> 130B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Georgia Power Company 1997 Annual Report <S> <C> <C> ============================================================================================================ 1988 1987 - ------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) $3,897,479 $3,786,485 Net Income after Dividends on Preferred Stock (in thousands) $479,532 $240,057 Cash Dividends on Common Stock (in thousands) $386,600 $377,800 Return on Average Common Equity (percent) 13.06 6.85 Total Assets (in thousands) $11,130,539 $11,197,494 Gross Property Additions (in thousands) $929,019 $1,034,059 - ------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $3,806,070 $3,538,182 Preferred stock 657,844 657,844 Preferred stock subject to mandatory redemption 162,500 166,250 Company obligated mandatorily redeemable preferred securities - - Long-term debt 4,861,378 4,825,760 - ------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $9,487,792 $9,188,036 ============================================================================================================ Capitalization Ratios (percent): Common stock equity 40.1 38.5 Preferred stock 8.6 9.0 Company obligated mandatorily redeemable preferred securities - - Long-term debt 51.3 52.5 - ------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) 100.0 100.0 ============================================================================================================ First Mortgage Bonds (in thousands): Issued 150,000 500,000 Retired 206,677 217,949 Preferred Stock (in thousands): Issued - 125,000 Retired 3,750 150,000 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - ------------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's Baa2 Baa2 Standard and Poor's BBB BBB Duff & Phelps 9 9 Preferred Stock - Moody's baa2 baa2 Standard and Poor's BBB- BBB- Duff & Phelps 10 10 - ------------------------------------------------------------------------------------------------------------ Customers (year-end): Residential 1,329,173 1,303,721 Commercial 174,147 169,014 Industrial 12,353 12,307 Other 1,993 1,858 - ------------------------------------------------------------------------------------------------------------ Total 1,517,666 1,486,900 ============================================================================================================ Employees (year-end) 15,110 14,924 *In 1997 Georgia Power Company transferred 1,855 employees to Southern Nuclear Operating Company. </TABLE> 130C
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $1,326,787 $1,371,033 $1,337,060 Commercial 1,493,353 1,486,586 1,449,108 Industrial 1,110,311 1,118,633 1,141,766 Other 47,848 47,060 44,255 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 3,978,299 4,023,312 3,972,189 Sales for resale - non-affiliates 282,365 281,580 290,302 Sales for resale - affiliates 38,708 35,886 76,906 - -------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,299,372 4,340,778 4,339,397 Other revenues 86,345 76,001 65,941 - -------------------------------------------------------------------------------------------------------------------------------- Total $4,385,717 $4,416,779 $4,405,338 ================================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 17,295,022 17,826,451 17,307,399 Commercial 21,134,346 20,823,073 19,844,999 Industrial 26,701,685 26,191,831 25,286,340 Other 538,163 536,057 493,720 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 65,669,216 65,377,412 62,932,458 Sales for resale - non-affiliates 6,795,300 7,868,342 6,591,841 Sales for resale - affiliates 1,706,699 1,180,207 2,738,947 - -------------------------------------------------------------------------------------------------------------------------------- Total 74,171,215 74,425,961 72,263,246 ================================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.67 7.69 7.73 Commercial 7.07 7.14 7.30 Industrial 4.16 4.27 4.52 Total retail 6.06 6.15 6.31 Sales for resale 3.78 3.51 3.94 Total sales 5.80 5.83 6.00 Residential Average Annual Kilowatt-Hour Use Per Customer 11,171 11,763 11,654 Residential Average Annual Revenue Per Customer $857.01 $904.70 $900.28 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,437 14,367 14,344 Maximum Peak-Hour Demand (megawatts): Winter 10,407 10,410 9,819 Summer 13,153 12,914 12,828 Annual Load Factor (percent) 57.4 62.2 59.6 Plant Availability (percent): Fossil-steam 85.8 85.2 85.8 Nuclear 88.8 89.3 91.8 - -------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 64.3 60.4 63.0 Nuclear 18.8 18.2 19.3 Hydro 2.2 2.2 2.5 Oil and gas 0.6 0.5 0.6 Purchased power - From non-affiliates 2.7 5.6 7.7 From affiliates 11.4 13.1 6.9 - -------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,990 10,468 10,039 Cost of fuel per million BTU (cents) 132.61 128.72 143.85 Average cost of fuel per net kilowatt-hour generated (cents) 1.32 1.35 1.44 ================================================================================================================================ * Less than one-tenth of one percent. </TABLE> II-131
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================ 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $1,180,358 $1,291,035 $1,128,396 Commercial 1,367,315 1,354,130 1,285,681 Industrial 1,100,995 1,113,067 1,083,856 Other 42,983 41,399 39,504 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 3,691,651 3,799,631 3,537,437 Sales for resale - non-affiliates 351,591 534,370 640,308 Sales for resale - affiliates 60,899 61,668 67,835 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,104,141 4,395,669 4,245,580 Other revenues 58,262 55,512 51,856 - ---------------------------------------------------------------------------------------------------------------------------- Total $4,162,403 $4,451,181 $4,297,436 ============================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 15,680,709 16,649,859 14,939,172 Commercial 18,738,461 18,278,508 17,260,614 Industrial 24,337,632 23,635,363 22,978,312 Other 484,009 460,801 436,144 - ---------------------------------------------------------------------------------------------------------------------------- Total retail 59,240,811 59,024,531 55,614,242 Sales for resale - non-affiliates 7,968,475 14,307,030 15,870,222 Sales for resale - affiliates 3,056,050 3,027,733 3,320,060 - ---------------------------------------------------------------------------------------------------------------------------- Total 70,265,336 76,359,294 74,804,524 ============================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.53 7.75 7.55 Commercial 7.30 7.41 7.45 Industrial 4.52 4.71 4.72 Total retail 6.23 6.44 6.36 Sales for resale 3.74 3.44 3.69 Total sales 5.84 5.76 5.68 Residential Average Annual Kilowatt-Hour Use Per Customer 10,766 11,630 10,603 Residential Average Annual Revenue Per Customer $810.39 $901.79 $800.88 Plant Nameplate Capacity Ratings (year-end) (megawatts) 13,943 13,759 14,076 Maximum Peak-Hour Demand (megawatts): Winter 10,509 9,067 8,938 Summer 11,758 12,573 11,448 Annual Load Factor (percent) 63.0 58.5 60.5 Plant Availability (percent): Fossil-steam 83.1 85.9 86.6 Nuclear 88.4 85.5 87.7 - ---------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 61.3 62.1 61.4 Nuclear 18.0 16.2 17.0 Hydro 2.6 2.3 2.5 Oil and gas 0.1 0.2 * Purchased power - From non-affiliates 9.7 10.2 12.2 From affiliates 8.3 9.0 6.9 - ---------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,915 9,912 9,900 Cost of fuel per million BTU (cents) 145.33 153.62 153.08 Average cost of fuel per net kilowatt-hour generated (cents) 1.44 1.52 1.52 ============================================================================================================================ * Less than one-tenth of one percent. </TABLE> II-132A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================ 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $1,111,358 $1,109,165 $1,022,781 Commercial 1,243,067 1,218,441 1,143,727 Industrial 1,057,702 1,061,830 1,006,416 Other 37,861 36,773 34,775 - ---------------------------------------------------------------------------------------------------------------- Total retail 3,449,988 3,426,209 3,207,699 Sales for resale - non-affiliates 736,643 784,086 760,809 Sales for resale - affiliates 65,586 168,251 150,394 - ---------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 4,252,217 4,378,546 4,118,902 Other revenues 49,211 67,263 26,338 - ---------------------------------------------------------------------------------------------------------------- Total $4,301,428 $4,445,809 $4,145,240 ================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 14,815,089 14,771,648 14,134,195 Commercial 16,885,833 16,627,128 15,843,181 Industrial 22,298,062 22,126,604 21,801,404 Other 429,016 428,459 414,107 - ---------------------------------------------------------------------------------------------------------------- Total retail 54,428,000 53,953,839 52,192,887 Sales for resale - non-affiliates 18,719,924 20,158,681 20,479,412 Sales for resale - affiliates 3,885,892 8,272,528 7,489,948 - ---------------------------------------------------------------------------------------------------------------- Total 77,033,816 82,385,048 80,162,247 ================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 7.50 7.51 7.24 Commercial 7.36 7.33 7.22 Industrial 4.74 4.80 4.62 Total retail 6.34 6.35 6.15 Sales for resale 3.55 3.35 3.26 Total sales 5.52 5.31 5.14 Residential Average Annual Kilowatt-Hour Use Per Customer 10,675 10,795 10,530 Residential Average Annual Revenue Per Customer $800.78 $810.56 $761.96 Plant Nameplate Capacity Ratings (year-end) (megawatts) 14,076 14,366 14,366 Maximum Peak-Hour Demand (megawatts): Winter 10,001 8,977 10,101 Summer 13,090 13,196 12,735 Annual Load Factor (percent) 55.2 55.5 56.3 Plant Availability (percent): Fossil-steam 93.3 92.5 93.0 Nuclear 81.6 81.3 89.2 - ---------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 63.6 65.1 64.0 Nuclear 15.3 13.7 14.1 Hydro 2.3 2.2 2.1 Oil and gas * 0.1 0.1 Purchased power - From non-affiliates 10.3 11.0 10.2 From affiliates 8.5 7.9 9.5 - ---------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,960 9,939 10,020 Cost of fuel per million BTU (cents) 157.97 166.22 164.27 Average cost of fuel per net kilowatt-hour generated (cents) 1.57 1.65 1.65 ================================================================================================================ * Less than one-tenth of one percent. </TABLE> II-132B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Georgia Power Company 1997 Annual Report <S> <C> <C> =========================================================================================================== 1988 1987 - ----------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $979,047 $904,218 Commercial 1,054,995 915,540 Industrial 983,822 911,933 Other 31,743 29,350 - ----------------------------------------------------------------------------------------------------------- Total retail 3,049,607 2,761,041 Sales for resale - non-affiliates 707,076 822,696 Sales for resale - affiliates 86,751 159,998 - ----------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 3,843,434 3,743,735 Other revenues 54,045 42,750 - ----------------------------------------------------------------------------------------------------------- Total $3,897,479 $3,786,485 =========================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 13,800,038 13,675,730 Commercial 14,790,561 13,799,379 Industrial 21,412,845 20,884,454 Other 397,669 385,514 - ----------------------------------------------------------------------------------------------------------- Total retail 50,401,113 48,745,077 Sales for resale - non-affiliates 18,544,705 20,910,185 Sales for resale - affiliates 3,327,814 6,032,889 - ----------------------------------------------------------------------------------------------------------- Total 72,273,632 75,688,151 =========================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.09 6.61 Commercial 7.13 6.63 Industrial 4.59 4.37 Total retail 6.05 5.66 Sales for resale 3.63 3.65 Total sales 5.32 4.95 Residential Average Annual Kilowatt-Hour Use Per Customer 10,484 10,623 Residential Average Annual Revenue Per Customer $743.82 $702.36 Plant Nameplate Capacity Ratings (year-end) (megawatts) 13,018 13,018 Maximum Peak-Hour Demand (megawatts): Winter 9,866 9,446 Summer 12,295 12,390 Annual Load Factor (percent) 59.1 56.1 Plant Availability (percent): Fossil-steam 94.5 92.7 Nuclear 69.4 85.4 - ----------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 72.0 70.9 Nuclear 9.6 9.1 Hydro 1.2 1.7 Oil and gas 0.1 0.1 Purchased power - From non-affiliates 8.2 8.5 From affiliates 8.9 9.7 - ----------------------------------------------------------------------------------------------------------- Total 100.0 100.0 =========================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 9,969 9,932 Cost of fuel per million BTU (cents) 166.28 168.81 Average cost of fuel per net kilowatt-hour generated (cents) 1.66 1.68 =========================================================================================================== * Less than one-tenth of one percent. </TABLE> II-132C
<TABLE> <CAPTION> STATEMENTS OF INCOME Georgia Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $4,347,009 $4,380,893 $4,328,432 Revenues from affiliates 38,708 35,886 76,906 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,385,717 4,416,779 4,405,338 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 857,269 835,194 900,973 Purchased power from non-affiliates 143,409 157,308 183,009 Purchased power from affiliates 177,240 229,324 131,740 Provision for separation benefits 5,459 39,099 10,607 Proceeds from settlement of disputed contracts - - - Other 696,700 741,383 735,918 Maintenance 317,199 315,934 292,029 Depreciation and amortization 572,640 432,940 421,850 Deferred Plant Vogtle expenses, net 120,577 136,650 124,454 Taxes other than income taxes 207,192 207,098 204,675 Federal and state income taxes 426,918 435,904 449,204 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 3,524,603 3,530,834 3,454,459 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 861,114 885,945 950,879 Other Income (Expense): Allowance for equity funds used during construction 6,012 3,144 2,734 Equity in earnings of unconsolidated subsidiary 4,266 3,851 4,051 Deferred return on Plant Vogtle - - - Write-off of Plant Vogtle costs - - - Income tax reduction for write-off of Plant Vogtle costs - - - Interest income 10,581 5,333 5,524 Other, net (See note) (35,834) (43,502) (8,973) Income taxes applicable to other income 31,763 18,581 3,022 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 877,902 873,352 957,237 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 194,344 207,851 254,607 Allowance for debt funds used during construction (8,962) (11,416) (12,081) Interest on interim obligations 7,795 15,478 21,463 Amortization of debt discount, premium, and expense, net 14,179 14,790 15,835 Other interest charges 10,254 6,338 11,399 Distributions on preferred securities of subsidiary companies 47,369 14,958 9,000 - -------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 264,979 247,999 300,223 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 612,923 625,353 657,014 Dividends on Preferred Stock 18,927 45,026 48,152 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 593,996 $ 580,327 $ 608,862 ================================================================================================================================ 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-133
<TABLE> <CAPTION> STATEMENTS OF INCOME Georgia Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $4,101,504 $4,389,513 $4,229,601 Revenues from affiliates 60,899 61,668 67,835 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,162,403 4,451,181 4,297,436 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 870,653 951,507 929,780 Purchased power from non-affiliates 193,130 313,170 436,761 Purchased power from affiliates 158,063 194,024 158,306 Provision for separation benefits 82,238 - 9,778 Proceeds from settlement of disputed contracts - - (4,982) Other 643,375 675,284 616,116 Maintenance 272,818 284,521 264,757 Depreciation and amortization 379,158 379,425 375,460 Deferred Plant Vogtle expenses, net 74,888 36,284 (30,804) Taxes other than income taxes 194,566 192,671 179,460 Federal and state income taxes 399,413 452,122 377,542 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 3,268,302 3,479,008 3,312,174 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 894,101 972,173 985,262 Other Income (Expense): Allowance for equity funds used during construction 5,663 3,168 5,855 Equity in earnings of unconsolidated subsidiary 3,588 4,127 4,635 Deferred return on Plant Vogtle - - - Write-off of Plant Vogtle costs - - - Income tax reduction for write-off of Plant Vogtle costs - - - Interest income 3,254 3,806 12,475 Other, net (See note) 10,626 11,902 (30,527) Income taxes applicable to other income 7,975 37,661 25,163 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 925,207 1,032,837 1,002,863 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 306,473 343,634 402,541 Allowance for debt funds used during construction (11,571) (8,271) (8,310) Interest on interim obligations 17,529 15,530 9,694 Amortization of debt discount, premium, and expense, net 15,743 14,024 8,033 Other interest charges 23,183 47,393 12,425 Distributions on preferred securities of subsidiary companies 300 - - - -------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 351,657 412,310 424,383 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 573,550 620,527 578,480 Dividends on Preferred Stock 48,006 50,674 57,942 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 525,544 $ 569,853 $ 520,538 ================================================================================================================================ 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-134A
<TABLE> <CAPTION> STATEMENTS OF INCOME Georgia Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $4,235,842 $4,277,558 $3,994,846 Revenues from affiliates 65,586 168,251 150,394 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 4,301,428 4,445,809 4,145,240 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 998,701 1,120,933 1,078,586 Purchased power from non-affiliates 444,920 626,989 543,448 Purchased power from affiliates 193,114 173,716 195,355 Provision for separation benefits 52,952 - - Proceeds from settlement of disputed contracts (142,183) - - Other 596,565 524,665 504,743 Maintenance 295,012 280,304 233,680 Depreciation and amortization 382,549 380,394 346,091 Deferred Plant Vogtle expenses, net 16,008 31,146 (39,211) Taxes other than income taxes 172,893 151,124 128,518 Federal and state income taxes 349,284 270,561 273,287 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 3,359,815 3,559,832 3,264,497 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 941,613 885,977 880,743 Other Income (Expense): Allowance for equity funds used during construction 9,083 6,985 40,525 Equity in earnings of unconsolidated subsidiary 4,576 4,182 3,750 Deferred return on Plant Vogtle 34,549 82,721 48,096 Write-off of Plant Vogtle costs - (281,254) - Income tax reduction for write-off of Plant Vogtle costs - 63,231 - Interest income 10,563 7,552 10,333 Other, net (See note) 13,551 (21,199) (20,603) Income taxes applicable to other income (7,522) 20,859 15,573 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 1,006,413 769,054 978,417 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 459,184 480,174 475,991 Allowance for debt funds used during construction (10,385) (9,325) (34,244) Interest on interim obligations 4,906 8,512 1,059 Amortization of debt discount, premium, and expense, net 6,214 6,100 5,865 Other interest charges 9,938 9,404 8,868 Distributions on preferred securities of subsidiary companies - - - - -------------------------------------------------------------------------------------------------------------------------------- Interest charges and other, net 469,857 494,865 457,539 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 536,556 274,189 520,878 Dividends on Preferred Stock 61,701 66,123 71,779 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 474,855 $ 208,066 $ 449,099 ================================================================================================================================ 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. II-134B </TABLE>
<TABLE> <CAPTION> STATEMENTS OF INCOME Georgia Power Company <S> <C> <C> ================================================================================================================ For the Years Ended December 31, 1988 1987 - ---------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $3,810,728 $3,626,487 Revenues from affiliates 86,751 159,998 - ---------------------------------------------------------------------------------------------------------------- Total operating revenues 3,897,479 3,786,485 - ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 1,023,173 1,064,552 Purchased power from non-affiliates 546,511 530,051 Purchased power from affiliates 164,873 199,831 Provision for separation benefits - - Proceeds from settlement of disputed contracts - - Other 541,975 575,182 Maintenance 246,877 274,672 Depreciation and amortization 306,492 254,929 Deferred Plant Vogtle expenses, net (8,333) (141,977) Taxes other than income taxes 146,759 143,289 Federal and state income taxes 204,222 250,093 - ---------------------------------------------------------------------------------------------------------------- Total operating expenses 3,172,549 3,150,622 - ---------------------------------------------------------------------------------------------------------------- Operating Income 724,930 635,863 Other Income (Expense): Allowance for equity funds used during construction 96,530 159,414 Equity in earnings of unconsolidated subsidiary 3,302 3,440 Deferred return on Plant Vogtle 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 28,445 55,388 Other, net (See note) (3,746) (55,081) Income taxes applicable to other income 6,583 17,344 - ---------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 963,354 702,498 - ---------------------------------------------------------------------------------------------------------------- Interest Charges and Other: Interest on long-term debt 471,897 480,519 Allowance for debt funds used during construction (95,818) (130,756) Interest on interim obligations 15,084 16,362 Amortization of debt discount, premium, and expense, net 5,466 3,573 Other interest charges 14,556 12,239 Distributions on preferred securities of subsidiary companies - - - ---------------------------------------------------------------------------------------------------------------- Interest charges and other, net 411,185 381,937 - ---------------------------------------------------------------------------------------------------------------- Net Income 552,169 320,561 Dividends on Preferred Stock 72,637 80,504 - ---------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 479,532 $ 240,057 ================================================================================================================ 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-134C
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Georgia Power Company <S> <C> <C> <C> ============================================================================================================================== For the Years Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Activities: Net income $ 612,923 $ 625,353 $ 657,014 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 674,286 521,086 527,310 Deferred income taxes, net (21,425) 35,700 36,023 Deferred investment tax credits, net - - 1,127 Allowance for equity funds used during construction (6,012) (3,144) (2,734) Amortization of deferred Plant Vogtle costs, net 120,577 136,650 124,454 Write-off of Plant Vogtle costs - - - Non-cash portion of separation benefits - - - Non-cash proceeds from settlement of disputed contracts - - - Other, net 2,076 45,255 (31,568) Changes in certain current assets and liabilities: Receivables, net 13,387 9,421 (59,370) Inventories 39,748 55,753 30,761 Payables (10,007) (35,651) 45,882 Other (53,725) (3,435) 89,124 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from operating activities 1,371,828 1,386,988 1,418,023 - ------------------------------------------------------------------------------------------------------------------------------ Investing Activities: Gross property additions (475,921) (428,220) (480,449) Sales of property - 3,319 131,099 Other 16,223 (16,468) (42,579) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used for investing activities (459,698) (441,369) (391,929) - ------------------------------------------------------------------------------------------------------------------------------ Financing Activities and Capital Contributions: Proceeds: Preferred securities 364,250 225,000 - Preferred stock - - - First mortgage bonds - 10,000 75,000 Pollution control bonds 284,700 112,825 504,700 Other long-term debt - - - Capital contributions from parent company - - - Retirements: Preferred stock (356,392) (179,148) - First mortgage bonds (60,258) (210,860) (505,789) Pollution control bonds (284,700) (119,665) (504,810) Other long-term debt - - (37,000) Interim obligations, net (64,266) 30,166 (24,472) Special deposits -- redemption funds 44,454 (44,454) - Capital distribution to parent company (205,000) (250,000) - Payment of preferred stock dividends (26,917) (46,911) (48,419) Payment of common stock dividends (520,000) (475,500) (451,500) Miscellaneous (20,024) (10,646) (17,413) - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided from (used for) financing activities (844,153) (959,193) (1,009,703) - ------------------------------------------------------------------------------------------------------------------------------ Net Change in Cash and Cash Equivalents 67,977 (13,574) 16,391 Cash and Cash Equivalents at Beginning of Year 15,356 28,930 12,539 - ------------------------------------------------------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Year $ 83,333 $ 15,356 $ 28,930 ============================================================================================================================== ( ) Denotes use of cash. </TABLE> II-135
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Georgia Power Company <S> <C> <C> <C> =========================================================================================================================== For the Years Ended December 31, 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 573,550 $ 620,527 $ 578,480 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 484,032 475,152 471,014 Deferred income taxes, net 34,053 169,009 194,955 Deferred investment tax credits, net (486) (18,274) (5,704) Allowance for equity funds used during construction (5,663) (3,168) (5,855) Amortization of deferred Plant Vogtle costs, net 74,888 36,284 (30,804) Write-off of Plant Vogtle costs - - - Non-cash portion of separation benefits 68,599 - - Non-cash proceeds from settlement of disputed contracts - - (4,982) Other, net (95,314) (46,227) (9,768) Changes in certain current assets and liabilities: Receivables, net 67,218 27,088 (31,348) Inventories (63,545) 82,433 (65,621) Payables 5,409 17,364 25,303 Other (5,675) (94,574) (85,961) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 1,137,066 1,265,614 1,029,709 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (638,426) (674,432) (508,444) Sales of property 132,644 261,687 46 Other (41,273) (43,154) 42,892 - --------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (547,055) (455,899) (465,506) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities 100,000 - - Preferred stock - 175,000 195,000 First mortgage bonds - 1,135,000 975,000 Pollution control bonds 527,210 145,425 161,955 Other long-term debt - 37,000 - Capital contributions from parent company - - - Retirements: Preferred stock - (245,005) (165,004) First mortgage bonds (133,559) (1,337,822) (1,381,300) Pollution control bonds (510,320) (145,465) (160,205) Other long-term debt (10,187) (19,451) (567) Interim obligations, net (57,425) (51,444) 334,671 Special deposits -- redemption funds - - - Capital distribution to parent company - - - Payment of preferred stock dividends (47,147) (53,123) (60,475) Payment of common stock dividends (429,300) (402,400) (384,000) Miscellaneous (22,640) (63,648) (70,986) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (583,368) (825,933) (555,911) - --------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 6,643 (16,218) 8,292 Cash and Cash Equivalents at Beginning of Year 5,896 22,114 13,822 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 12,539 $ 5,896 $ 22,114 =========================================================================================================================== ( ) Denotes use of cash. </TABLE> II-136A
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Georgia Power Company <S> <C> <C> <C> ======================================================================================================================= For the Years Ended December 31, 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 536,556 $ 274,189 $ 520,878 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 480,318 502,098 484,870 Deferred income taxes, net 53,219 88,667 184,490 Deferred investment tax credits, net (9,524) (52) (8,017) Allowance for equity funds used during construction (9,083) (6,985) (40,525) Amortization of deferred Plant Vogtle costs, net (18,541) (51,575) (87,307) Write-off of Plant Vogtle costs - 281,254 - Non-cash portion of separation benefits - - - Non-cash proceeds from settlement of disputed contracts (103,846) - - Other, net (26,024) (50,804) (38,046) Changes in certain current assets and liabilities: Receivables, net 23,920 1,444 (59,035) Inventories 24,130 (23,498) (33,123) Payables (23,075) (43,470) (38,976) Other 54,777 (9,991) 36,015 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 982,827 961,277 921,224 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (548,051) (558,727) (727,631) Sales of property 291,075 34,573 - Other 931 1,937 47,260 - ----------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (256,045) (522,217) (680,371) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities - - - Preferred stock 100,000 - - First mortgage bonds - 300,000 250,000 Pollution control bonds 80,420 - 50,000 Other long-term debt - - - Capital contributions from parent company - - - Retirements: Preferred stock (100,000) (83,750) (7,500) First mortgage bonds (598,384) (91,117) (91,516) Pollution control bonds (83,265) (535) (505) Other long-term debt (1,130) (114,452) (3,806) Interim obligations, net 199,000 - - Special deposits -- redemption funds - - - Capital distribution to parent company - - - Payment of preferred stock dividends (60,766) (67,757) (72,259) Payment of common stock dividends (375,200) (389,600) (394,500) Miscellaneous (17,613) (7,663) (4,742) - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (856,938) (454,874) (274,828) - ----------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (130,156) (15,814) (33,975) Cash and Cash Equivalents at Beginning of Year 143,978 159,792 193,767 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 13,822 $ 143,978 $ 159,792 ======================================================================================================================= ( ) Denotes use of cash. </TABLE> II-136B
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Georgia Power Company <S> <C> <C> ========================================================================================================= For the Years Ended December 31, 1988 1987 - --------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 552,169 $ 320,561 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 400,665 336,647 Deferred income taxes, net 160,774 76,445 Deferred investment tax credits, net 11,605 (5,075) Allowance for equity funds used during construction (96,530) (159,414) Amortization of deferred Plant Vogtle costs, net (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 6,983 (759) Changes in certain current assets and liabilities: Receivables, net 11,225 (6,880) Inventories (10,044) (72,540) Payables (2,065) 74,341 Other 1,161 2,751 - --------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 920,300 666,893 - --------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (929,019) (1,034,059) Sales of property - 12,276 Other 35,328 45,801 - --------------------------------------------------------------------------------------------------------- Net cash used for investing activities (893,691) (975,982) - --------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities - - Preferred stock - 125,000 First mortgage bonds 150,000 500,000 Pollution control bonds 69,526 191,736 Other long-term debt - - Capital contributions from parent company 175,000 228,000 Retirements: Preferred stock (3,750) (150,000) First mortgage bonds (206,677) (217,949) Pollution control bonds (475) (90,000) Other long-term debt (2,878) (2,824) Interim obligations, net (302,261) 302,261 Special deposits -- redemption funds - - Capital distribution to parent company - - Payment of preferred stock dividends (72,931) (80,420) Payment of common stock dividends (386,600) (377,800) Miscellaneous (13,440) (51,745) - --------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (594,486) 376,259 - --------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (567,877) 67,170 Cash and Cash Equivalents at Beginning of Year 761,644 694,474 - --------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 193,767 $ 761,644 ========================================================================================================= ( ) Denotes use of cash. </TABLE> II-136C
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> <C> =============================================================================================================================== At December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,191,446 $ 3,140,069 $ 3,105,165 Nuclear 4,030,532 4,097,192 4,082,098 Hydro 648,785 644,826 642,237 - ------------------------------------------------------------------------------------------------------------------------------- Total production 7,870,763 7,882,087 7,829,500 Transmission 1,897,697 1,862,384 1,822,778 Distribution 4,268,909 4,090,262 3,949,238 General 1,045,201 934,840 937,079 Construction work in progress 214,128 256,141 236,715 Nuclear fuel, at amortized cost 126,882 121,840 124,849 - ------------------------------------------------------------------------------------------------------------------------------- Total electric plant 15,423,580 15,147,554 14,900,159 Steam Heat Plant - - - - ------------------------------------------------------------------------------------------------------------------------------- Total utility plant 15,423,580 15,147,554 14,900,159 - ------------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 5,319,680 4,793,638 4,417,120 Steam heat - - - - ------------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 5,319,680 4,793,638 4,417,120 - ------------------------------------------------------------------------------------------------------------------------------- Total 10,103,900 10,353,916 10,483,039 Less property-related accumulated deferred income taxes - - - - ------------------------------------------------------------------------------------------------------------------------------- Total 10,103,900 10,353,916 10,483,039 - ------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Nuclear decommissioning trusts 194,417 130,178 92,273 Miscellaneous 112,880 129,819 147,615 - ------------------------------------------------------------------------------------------------------------------------------- Total 307,297 259,997 239,888 - ------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 83,333 15,356 28,930 Investment securities - - - Receivables, net 395,122 463,502 411,038 Accrued utility revenues 118,333 104,420 121,146 Fossil fuel stock, at average cost 96,067 117,382 145,151 Materials and supplies, at average cost 240,387 258,820 286,804 Prepayments 27,503 67,118 73,271 Vacation pay deferred 40,996 39,965 35,543 - ------------------------------------------------------------------------------------------------------------------------------- Total 1,001,741 1,066,563 1,101,883 - ------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 688,472 754,002 871,783 Deferred Plant Vogtle costs 50,412 170,988 307,638 Debt expense, being amortized 40,927 32,693 27,227 Premium on reacquired debt, being amortized 166,609 166,670 174,018 Miscellaneous 214,370 201,806 264,799 - ------------------------------------------------------------------------------------------------------------------------------- Total 1,160,790 1,326,159 1,645,465 - ------------------------------------------------------------------------------------------------------------------------------- Total Assets $12,573,728 $13,006,635 $13,470,275 =============================================================================================================================== </TABLE> II-137
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> <C> ======================================================================================================================= At December 31, 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,077,470 $ 2,976,806 $ 3,144,405 Nuclear 4,075,339 4,069,299 4,051,020 Hydro 443,466 442,888 434,341 - ----------------------------------------------------------------------------------------------------------------------- Total production 7,596,275 7,488,993 7,629,766 Transmission 1,754,945 1,713,122 1,646,904 Distribution 3,777,279 3,600,115 3,413,681 General 926,418 941,291 923,010 Construction work in progress 541,889 584,013 405,606 Nuclear fuel, at amortized cost 136,425 135,742 155,194 - ----------------------------------------------------------------------------------------------------------------------- Total electric plant 14,733,231 14,463,276 14,174,161 Steam Heat Plant - - - - ----------------------------------------------------------------------------------------------------------------------- Total utility plant 14,733,231 14,463,276 14,174,161 - ----------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 4,054,986 3,822,344 3,569,717 Steam heat - - - - ----------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 4,054,986 3,822,344 3,569,717 - ----------------------------------------------------------------------------------------------------------------------- Total 10,678,245 10,640,932 10,604,444 Less property-related accumulated deferred income taxes - - 1,589,743 - ----------------------------------------------------------------------------------------------------------------------- Total 10,678,245 10,640,932 9,014,701 - ----------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Nuclear decommissioning trusts 54,297 37,937 20,311 Miscellaneous 116,527 61,142 55,463 - ----------------------------------------------------------------------------------------------------------------------- Total 170,824 99,079 75,774 - ----------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 12,539 5,896 22,114 Investment securities - - 108,206 Receivables, net 389,279 515,178 385,227 Accrued utility revenues 103,223 99,550 88,164 Fossil fuel stock, at average cost 169,252 111,620 197,332 Materials and supplies, at average cost 293,464 287,551 284,272 Prepayments 55,383 65,269 91,447 Vacation pay deferred 40,823 41,575 40,169 - ----------------------------------------------------------------------------------------------------------------------- Total 1,063,963 1,126,639 1,216,931 - ----------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 919,750 992,510 - Deferred Plant Vogtle costs 432,092 506,980 383,025 Debt expense, being amortized 26,223 20,730 17,719 Premium on reacquired debt, being amortized 164,676 153,146 116,940 Miscellaneous 256,885 196,094 139,352 - ----------------------------------------------------------------------------------------------------------------------- Total 1,799,626 1,869,460 657,036 - ----------------------------------------------------------------------------------------------------------------------- Total Assets $13,712,658 $13,736,110 $10,964,442 ======================================================================================================================= </TABLE> II-138A
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> <C> =========================================================================================================================== At December 31, 1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 3,128,594 $ 3,350,018 $ 3,319,876 Nuclear 4,051,043 4,025,862 4,189,723 Hydro 432,674 412,157 411,235 - --------------------------------------------------------------------------------------------------------------------------- Total production 7,612,311 7,788,037 7,920,834 Transmission 1,566,173 1,522,157 1,431,485 Distribution 3,252,111 3,056,825 2,863,011 General 896,477 876,989 859,013 Construction work in progress 390,437 370,243 403,365 Nuclear fuel, at amortized cost 191,726 210,320 254,101 - --------------------------------------------------------------------------------------------------------------------------- Total electric plant 13,909,235 13,824,571 13,731,809 Steam Heat Plant - - - - --------------------------------------------------------------------------------------------------------------------------- Total utility plant 13,909,235 13,824,571 13,731,809 - --------------------------------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 3,315,247 3,040,298 2,762,937 Steam heat - - - - --------------------------------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 3,315,247 3,040,298 2,762,937 - --------------------------------------------------------------------------------------------------------------------------- Total 10,593,988 10,784,273 10,968,872 Less property-related accumulated deferred income taxes 1,465,408 1,397,647 1,313,626 - --------------------------------------------------------------------------------------------------------------------------- Total 9,128,580 9,386,626 9,655,246 - --------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts 107,993 - - Nuclear decommissioning trusts 10,007 - - Miscellaneous 71,880 78,895 69,839 - --------------------------------------------------------------------------------------------------------------------------- Total 189,880 78,895 69,839 - --------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 13,822 143,978 159,792 Investment securities - - - Receivables, net 330,411 356,236 347,899 Accrued utility revenues 79,099 78,067 93,786 Fossil fuel stock, at average cost 200,248 225,966 214,487 Materials and supplies, at average cost 215,735 220,103 208,084 Prepayments 96,750 121,646 116,342 Vacation pay deferred 39,769 33,677 35,238 - --------------------------------------------------------------------------------------------------------------------------- Total 975,834 1,179,673 1,175,628 - --------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - Deferred Plant Vogtle costs 375,028 364,446 322,116 Debt expense, being amortized 12,368 12,708 13,032 Premium on reacquired debt, being amortized 70,855 60,653 61,889 Miscellaneous 89,993 93,618 74,596 - --------------------------------------------------------------------------------------------------------------------------- Total 548,244 531,425 471,633 - --------------------------------------------------------------------------------------------------------------------------- Total Assets $10,842,538 $11,176,619 $11,372,346 =========================================================================================================================== </TABLE> II-138B
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> ===================================================================================================== At December 31, 1988 1987 - ---------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Electric Plant: Production- Fossil $ 2,638,725 $ 2,616,741 Nuclear 3,225,945 3,220,632 Hydro 407,771 404,291 - ---------------------------------------------------------------------------------------------------- Total production 6,272,441 6,241,664 Transmission 1,322,034 1,248,976 Distribution 2,598,714 2,318,185 General 737,621 657,258 Construction work in progress 1,963,283 1,710,769 Nuclear fuel, at amortized cost 307,109 287,492 - ---------------------------------------------------------------------------------------------------- Total electric plant 13,201,202 12,464,344 Steam Heat Plant - 7 - ---------------------------------------------------------------------------------------------------- Total utility plant 13,201,202 12,464,351 - ---------------------------------------------------------------------------------------------------- Accumulated Provision for Depreciation: Electric 2,445,404 2,193,395 Steam heat - (5) - ---------------------------------------------------------------------------------------------------- Total accumulated provision for depreciation 2,445,404 2,193,390 - ---------------------------------------------------------------------------------------------------- Total 10,755,798 10,270,961 Less property-related accumulated deferred income taxes 1,178,291 1,077,747 - ---------------------------------------------------------------------------------------------------- Total 9,577,507 9,193,214 - ---------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - Nuclear decommissioning trusts - - Miscellaneous 66,677 54,148 - ---------------------------------------------------------------------------------------------------- Total 66,677 54,148 - ---------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 193,767 761,644 Investment securities - - Receivables, net 320,018 342,315 Accrued utility revenues 66,265 68,370 Fossil fuel stock, at average cost 225,274 262,752 Materials and supplies, at average cost 164,174 116,652 Prepayments 121,840 113,381 Vacation pay deferred 34,418 30,100 - ---------------------------------------------------------------------------------------------------- Total 1,125,756 1,695,214 - ---------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - Deferred Plant Vogtle costs 269,958 172,990 Debt expense, being amortized 12,476 12,985 Premium on reacquired debt, being amortized 62,352 51,509 Miscellaneous 15,813 17,434 - ---------------------------------------------------------------------------------------------------- Total 360,599 254,918 - ---------------------------------------------------------------------------------------------------- Total Assets $11,130,539 $11,197,494 ==================================================================================================== </TABLE> II-138C
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 344,250 $ 344,250 $ 344,250 Paid-in capital 1,929,971 2,134,886 2,384,444 Premium on preferred stock 160 371 413 Earnings retained in the business 1,745,347 1,674,774 1,569,905 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 4,019,728 4,154,281 4,299,012 Preferred stock 157,247 464,611 692,787 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 689,250 325,000 100,000 Long-term debt 2,982,835 3,200,419 3,315,460 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 7,849,060 8,144,311 8,407,259 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 142,300 207,300 178,000 Commercial paper 223,930 223,196 222,330 Preferred stock due within one year - 49,028 - Long-term debt due within one year 220,855 60,622 150,446 Accounts payable 332,666 329,914 389,156 Customer deposits 68,618 64,901 53,145 Taxes accrued 116,021 116,158 104,392 Interest accrued 72,437 79,936 96,162 Vacation pay accrued 32,285 38,597 34,233 Miscellaneous 73,398 114,530 137,184 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,282,510 1,284,182 1,365,048 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 2,417,547 2,522,945 2,510,458 Accumulated deferred investment tax credits 397,202 415,477 432,184 Disallowed Plant Vogtle capacity buyback costs 55,856 57,250 58,514 Deferred credits related to income taxes 297,560 317,965 410,016 Miscellaneous 273,993 264,505 286,796 - -------------------------------------------------------------------------------------------------------------------------------- Total 3,442,158 3,578,142 3,697,968 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $12,573,728 $13,006,635 $13,470,275 ================================================================================================================================ </TABLE> II-139
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> <C> =========================================================================================================================== At December 31, 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 344,250 $ 344,250 $ 344,250 Paid-in capital 2,384,348 2,384,348 2,384,140 Premium on preferred stock 413 413 467 Earnings retained in the business 1,412,543 1,316,447 1,159,380 - --------------------------------------------------------------------------------------------------------------------------- Total common equity 4,141,554 4,045,458 3,888,237 Preferred stock 692,787 692,787 692,792 Preferred stock subject to mandatory redemption - - 6,250 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes 100,000 - - Long-term debt 3,757,823 4,031,387 4,131,016 - --------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 8,692,164 8,769,632 8,718,295 - --------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 202,200 406,700 400,200 Commercial paper 222,602 75,527 133,471 Preferred stock due within one year - - 63,750 Long-term debt due within one year 167,420 10,543 95,823 Accounts payable 355,067 324,044 317,351 Customer deposits 47,017 45,922 45,145 Taxes accrued 93,019 153,493 138,289 Interest accrued 110,256 110,497 132,319 Vacation pay accrued 39,720 40,060 38,694 Miscellaneous 70,006 64,527 89,355 - --------------------------------------------------------------------------------------------------------------------------- Total 1,307,307 1,231,313 1,454,397 - --------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 2,477,661 2,479,720 - Accumulated deferred investment tax credits 453,121 478,334 515,539 Disallowed Plant Vogtle capacity buyback costs 60,490 63,067 72,201 Deferred credits related to income taxes 433,334 452,819 - Miscellaneous 288,581 261,225 204,010 - --------------------------------------------------------------------------------------------------------------------------- Total 3,713,187 3,735,165 791,750 - --------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $13,712,658 $13,736,110 $10,964,442 =========================================================================================================================== </TABLE> II-140A
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> <C> =========================================================================================================================== At December 31, 1991 1990 1989 - --------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 344,250 $ 344,250 $ 344,250 Paid-in capital 2,383,800 2,383,800 2,383,800 Premium on preferred stock 489 1,089 1,089 Earnings retained in the business 1,038,012 944,774 1,131,518 - --------------------------------------------------------------------------------------------------------------------------- Total common equity 3,766,551 3,673,913 3,860,657 Preferred stock 607,796 607,796 607,844 Preferred stock subject to mandatory redemption 118,750 125,000 155,000 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes - - - Long-term debt 4,553,189 5,000,225 5,054,001 - --------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 9,046,286 9,406,934 9,677,502 - --------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 199,000 - - Commercial paper - - - Preferred stock due within one year 6,250 - 53,750 Long-term debt due within one year 54,976 204,906 54,712 Accounts payable 275,932 310,676 372,968 Customer deposits 41,623 38,144 36,255 Taxes accrued 161,117 84,185 91,424 Interest accrued 151,171 175,959 162,513 Vacation pay accrued 38,531 33,677 35,238 Miscellaneous 106,810 135,392 130,546 - --------------------------------------------------------------------------------------------------------------------------- Total 1,035,410 982,939 937,406 - --------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - Accumulated deferred investment tax credits 540,134 576,837 601,248 Disallowed Plant Vogtle capacity buyback costs 109,537 135,926 73,111 Deferred credits related to income taxes - - - Miscellaneous 111,171 73,983 83,079 - --------------------------------------------------------------------------------------------------------------------------- Total 760,842 786,746 757,438 - --------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $10,842,538 $11,176,619 $11,372,346 =========================================================================================================================== </TABLE> II-140B
<TABLE> <CAPTION> BALANCE SHEETS Georgia Power Company <S> <C> <C> =========================================================================================================== At December 31, 1988 1987 - ----------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 344,250 $ 344,250 Paid-in capital 2,383,800 2,208,800 Premium on preferred stock 1,089 1,089 Earnings retained in the business 1,076,931 984,043 - ----------------------------------------------------------------------------------------------------------- Total common equity 3,806,070 3,538,182 Preferred stock 657,844 657,844 Preferred stock subject to mandatory redemption 162,500 166,250 Company obligated mandatorily redeemable preferred securities of subsidiaries substantially all of whose assets are junior subordinated debentures or notes - - Long-term debt 4,861,378 4,825,760 - ----------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 9,487,792 9,188,036 - ----------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - 302,261 Commercial paper - - Preferred stock due within one year 3,750 3,750 Long-term debt due within one year 42,001 65,774 Accounts payable 429,807 446,004 Customer deposits 34,221 31,106 Taxes accrued 130,686 114,947 Interest accrued 170,090 162,439 Vacation pay accrued 34,418 30,100 Miscellaneous 51,289 62,364 - ----------------------------------------------------------------------------------------------------------- Total 896,262 1,218,745 - ----------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - Accumulated deferred investment tax credits 632,111 640,694 Disallowed Plant Vogtle capacity buyback costs 80,585 79,376 Deferred credits related to income taxes - - Miscellaneous 33,789 70,643 - ----------------------------------------------------------------------------------------------------------- Total 746,485 790,713 - ----------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $11,130,539 $11,197,494 =========================================================================================================== </TABLE> II-140C
<TABLE> <CAPTION> <S> <C> <C> <C> <C> GEORGIA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1997 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 1996 10,000 6.07% 10,000 12/1/05 1993 50,000 6-7/8% 50,000 4/1/08 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 ---------- ---------- $1,515,000 $1,454,250 =========== ========== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - ---------------------------------------------------------------------------------------------------------- (Thousands) (Thousands) 1995 $ 50,000 4-3/8% $ 50,000 11/1/00 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 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 35,000 6.20% 4,100 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 1997 37,000 Variable 37,000 9/1/29 1997 69,700 Variable 69,700 9/1/29 1997 38,000 Variable 38,000 9/1/29 1997 49,600 Variable 49,600 4/1/32 1997 19,600 Variable 19,600 4/1/32 1997 20,800 Variable 20,800 4/1/32 1997 50,000 Variable 50,000 9/1/34 ---------- ---------- $1,702,090 $1,671,190 ========== ========== </TABLE> II-141
<TABLE> <CAPTION> GEORGIA POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1997 (Continued) Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiaries Substantially All of Whose Assets Are Junior Subordinated Debentures or Notes <S> <C> <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 1997 7,000,000 3 7.60% 175,000 3 1997 7,570,000 4 7.75% 189,250 4 ------------ ----------- 27,570,000 $689,250 ============ =========== Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding ---------------------------------------------------------------------------------- (Thousands) (5) 4,454 $5.00 $ 445 1953 23,277 $4.92 2,328 1954 159,476 $4.60 15,948 1961 11,896 $4.96 1,190 1962 18,080 $4.60 1,808 1963 25,512 $4.60 2,551 1964 11,005 $4.60 1,100 1965 17,531 $4.72 1,753 1966 32,318 $5.64 3,232 1967 120,000 $6.48 12,000 1968 100,000 $6.60 10,000 1993 1,627,160 Adjustable 40,679 1993 2,568,517 Adjustable 64,213 --------- -------- 4,719,226 $157,247 ========= ======== II-142 (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 by Georgia Power Capital Trust II and guaranteed to the extent Georgia Power Capital Trust II has funds by GEORGIA. (4) Issued by Georgia Power Capital Trust III and guaranteed to the extent Georgia Power Capital Trust III has funds by GEORGIA. (5) Issued in exchange for $5.00 preferred outstanding at the time of company formation. </TABLE> II-142
<TABLE> <CAPTION> GEORGIA POWER COMPANY SECURITIES RETIRED DURING 1997 <S> <C> <C> First Mortgage Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------------------- (Thousands) 1992 $ 60,258 8-5/8% Pollution Control Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------------------- (Thousands) 1987 $ 90,000 8-3/8% 1987 50,000 9-3/8% 1992 75,000 6.20% 1992 30,900 6.20% 1992 38,800 5.70% -------- $284,700 ======== Preferred Stock Principal Dividend Series Amount Rate - ------------------------------------------------------------------------------------------- (Thousands) (1) $ 964 $5.00 1953 7,672 $4.92 1954 27,430 $4.60 1961 5,810 $4.96 1962 5,192 $4.60 1963 4,449 $4.60 1964 3,900 $4.60 1965 4,247 $4.72 1966 5,768 $5.64 1971 30,000 $7.72 1992 49,028 $1.90 1992 54,155 $1.9875 1992 58,757 $1.9375 1992 28,912 $1.925 1993 34,321 Adjustable 1993 35,787 Adjustable -------- $356,392 ======== (1) Issued in exchange for $5.00 preferred outstanding at the time of company formation. </TABLE> II-143 GULF POWER COMPANY FINANCIAL SECTION II-144
MANAGEMENT'S REPORT Gulf Power Company 1997 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 11, 1998 II-145
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, 1997 and 1996, 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, 1997. 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-155 through II-171) referred to above present fairly, in all material respects, the financial position of Gulf Power Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP Atlanta, Georgia February 11, 1998 II-146
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Gulf Power Company 1997 Annual Report RESULTS OF OPERATIONS Earnings Gulf Power Company's 1997 net income after dividends on preferred stock was $57.6 million, a decrease of $0.2 million over the prior year. This change is primarily attributable to lower residential revenues as a result of milder than normal weather. In 1996, earnings were $57.8 million, representing an increase of $0.6 million compared to the prior year. Earnings in 1996 were affected primarily by higher retail revenues. The return on average common equity was 13.33 percent for 1997 and 13.27 percent for 1996. Revenues Operating revenues decreased in 1997 and increased in 1996 as a result of the following factors: Increase (Decrease) From Prior Year ------------------------------------- 1997 1996 1995 ------------------------------------- (in thousands) Retail -- Sales growth $ 4,004 $ 7,123 $ 3,647 Weather (5,277) (1,057) 9,749 Regulatory cost recovery and other (7,837) 5,649 22,502 - ---------------------------------------------------------------- Total retail (9,110) 11,715 35,898 - ---------------------------------------------------------------- Sales for resale-- Non-affiliates 496 2,788 (5,698) Affiliates (1,002) (857) 1,266 - ---------------------------------------------------------------- Total sales for resale (506) 1,931 (4,432) Other operating revenues 1,107 1,642 8,798 - ---------------------------------------------------------------- Total operating revenues $(8,509) $15,288 $40,264 ================================================================ Percent change (1.3)% 2.5% 7.0% - ---------------------------------------------------------------- Retail revenues of $521 million in 1997 decreased $9.1 million or 1.7 percent from last year, compared with an increase of 2.3 percent in 1996 and 7.4 percent in 1995. The 1997 reduction was due primarily to a decrease in residential revenues as a result of mild weather and recovery of lower purchased power capacity costs. The decrease in regulatory cost recovery and other retail revenues is primarily attributable to the recovery of decreased 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 $80.5 million in 1997, decreasing $0.5 million or 0.6 percent from 1996. 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: 1997 1996 1995 ---------------------------------------- (in thousands) Capacity $24,899 $25,400 $25,870 Energy 18,160 19,804 18,598 - ------------------------------------------------------------ Total $43,059 $45,204 $44,468 ============================================================ Capacity revenues decreased slightly in 1997 and 1996, primarily reflecting the decline in net plant investment related to these sales. 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. The increase in other operating revenues in 1997 is primarily attributable to adjustments to reflect differences between recoverable costs and the amounts actually reflected in current rates. The increase in other operating revenues for 1996 was primarily due to increased amounts collected to recover newly-imposed county franchise fees. These fees are included in taxes other than income taxes and have no impact on earnings. See Notes 1 and 3 to the financial statements under "Revenues and Regulatory Cost Recovery Clauses" and II-147
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1997 Annual Report "Environmental Cost Recovery," respectively, for further discussion. Kilowatt-hour sales for 1997 and percent changes in sales since 1995 are reported below. KWH Percent Change ------------ --------------------------- 1997 1997 1996 1995 ------------ --------------------------- (millions) Residential 4,119 (1.0)% 3.6% 7.0% Commercial 2,898 3.2 3.7 6.3 Industrial 1,903 5.3 0.7 (2.8) Other 18 1.6 2.7 (0.1) ------------ Total retail 8,939 1.6 3.0 4.5 Sales for resale Non-affiliates 1,531 (0.2) 9.9 (1.6) Affiliates 848 19.5 (6.5) (13.1) ------------ Total 11,318 2.5 3.3 2.2 ================================================================== Retail sales growth was lower in 1997 than in the past two years. Although the total number of residential customers served increased by more than 9,000 or 3.1% during the year, residential energy sales declined as a result of milder weather in 1997, compared with more normal weather in 1996. The increase in energy sales to the industrial class is primarily the result of the Real-Time-Pricing program. The price structure of this program has 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 1997, energy sales for resale to non-affiliates were essentially unchanged, decreasing 0.2 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 In 1997, total operating expenses decreased $3.9 million or 0.7 percent from 1996 primarily due to lower fuel and purchased power expenses and maintenance expenses, offset by higher other operation expenses and depreciation and amortization 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 1997, fuel and purchased power expenses decreased $10.1 million or 4.4 percent from 1996 reflecting the decrease in fuel and purchased power costs due to slightly lower fuel costs and increased generation. Fuel and purchased power expenses for 1996 increased $4 million or 1.8 percent from 1995. The change reflected 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. The amount and sources of generation and the average cost of fuel per net kilowatt-hour generated were as follows: 1997 1996 1995 ---------------------------- Total generation (millions of kilowatt-hours) 10,435 10,214 9,828 Sources of generation (percent) Coal 99.6 99.4 99.5 Oil and gas 0.4 0.6 0.5 Average cost of fuel per net kilowatt-hour generated (cents) Coal 1.97 1.99 2.08 Oil and gas 5.59 6.41 3.56 Total 1.99 2.02 2.09 - ----------------------------------------------------------------- Other operation expenses increased $11.1 million or 9.6% in 1997. The increase was primarily attributable to higher costs related to the amortization of prior year buyout and renegotiation of coal supply contracts. Other contributing factors were implementation costs related to a new customer accounting system and increased production and distribution costs related to 1997 work force reduction programs. In 1996, other operation expenses increased $1.8 million or 1.5 percent from the 1995 level. The increase was primarily attributable to an increase in administrative and general expenses including costs associated with the approved increase in the Company's annual accrual to II-148
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1997 Annual Report the accumulated provision for property damage to amortize deferred storm charges and restore the account balance to a reasonable level. See Note 2 to the financial statements under "Workforce Reduction Programs" for further discussion. Maintenance expenses decreased $3.1 million or 6.0 percent in 1997 and decreased $0.9 million or 1.7 percent in 1996. The decreases were primarily due to a decrease in scheduled maintenance of production facilities. Depreciation and amortization expenses increased $1.2 million or 2.2 percent in 1997 and increased $1.5 million or 2.8 percent in 1996. Both years increases were primarily due to an increase in depreciation expenses as a result of an increase in the average investment in distribution property required to serve the additional customers in the Company's service area. Federal and state income taxes decreased $2.8 million or 7.4 percent in 1997 primarily due to a decrease in taxable income. Interest expense in 1997 decreased $0.9 million or 3.0 percent from the prior year. The decrease is attributable to retirements and refinancings of long-term debt and reduced interest on notes payable, partially offset by the increase related to distributions on preferred securities of a subsidiary trust. In 1996, interest expense increased $0.9 million or 3.2 percent over the prior year. The increase was 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. 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. Gulf Power currently operates as a vertically integrated utility providing electricity to customers within its traditional service area located in northwest Florida. Prices for electricity provided by the Company to retail customers are set by the FPSC. 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. The electric utility industry in the United States is currently undergoing a period of change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). 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 other utilities. The Company has and will continue to evaluate opportunities to partner and participate in profitable cogeneration projects. In 1997, partnering with one of the Company's largest industrial customers, 15 megawatts of Company-owned cogeneration is being constructed on the customer's plant site. 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. II-149
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1997 Annual Report Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives to promote wholesale and retail competition are at varying stages. Among other things, these initiatives allow customers to choose their electricity provider. As the initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Florida, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of the Company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on the financial condition of the Company. The Company is attempting to minimize or reduce its cost exposure. Continuing to be a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with 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 FPSC set conservation goals and approved programs to accomplish the goals beginning in 1995. The goals require conservation programs which reduce 154 megawatts of summer peak demand and 65 million KWH of sales by the year 2004. 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. During 1997, the publicity of the CISR ruling, increased competitive pressures, and general awareness of customer choice pilots and proposals across the country has stimulated interest on the part of customers in custom tailored offerings. The Company has participated in one-on-one discussions with many of these customers, and has negotiated and executed two Contract Service Agreements within the CISR pilot program in 1997. The Company is heavily dependent upon complex computer systems for all phases of its operations. The year 2000 issue--common to most corporations--concerns the inability of certain software and databases to properly recognize date sensitive information beginning related to the year 2000 and thereafter. This problem could result in a material disruption to the Company's operation, if not corrected. The Company has assessed and developed a detailed strategy to prevent or at least minimize problems related to the year 2000 issue. In 1997, resources were committed and implementation began to modify the affected information systems. Total costs related to the project for Southern Company are estimated to be approximately $85 million, of which $8 million was spent in 1997. The Company's total costs related to the project are estimated to be approximately $5 million, of which $0.5 million was spent in 1997. Most all remaining costs will be expensed in 1998. Implementation is currently on schedule and all costs are being expensed as incurred. The degree of success of this project cannot be determined at this time. However, management believes that the final outcome will not have a material adverse effect on the operations of the Company. II-150
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1997 Annual Report Compliance costs related to current and future environmental laws and regulations 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, 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 (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 that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statements as incurred. At December 31, 1997, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. New Accounting Standards The FASB has issued Statement No. 130, Reporting Comprehensive Income, which will be effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners (comprehensive income). Comprehensive income is the total of net income and all other non-owner changes in equity. These rules will be adopted by the Company in 1998. The FASB has issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company adopted the new rules in 1997, which do not have a significant impact on the Company's financial reporting. However, this conclusion may change as industry restructuring and competitive factors influence the Company's operations. FINANCIAL CONDITION Overview The Company's financial condition continues to be very solid. During 1997, gross property additions were $54.3 million. Funds for the property additions 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 long term-notes and trust preferred securities and retiring higher-cost issues in 1997. The Company sold $40 million of trust preferred securities, $40.9 million of pollution control bonds, and $20 million of junior subordinated notes. Retirements, including maturities during 1997, totaled $25 million of first mortgage bonds, $40.9 million of pollution control bonds, $75.9 million of preferred stock, and $16 million of long-term bank notes. The refinancing of $40.9 million in pollution control bonds and $39.5 million in preferred stock will result in savings of over $2.6 million annually. See the Statements of Cash Flows for further details. Composite financing rates for the years 1995 through 1997 as of year end were as follows: 1997 1996 1995 ------------------------------ Composite interest rate on long-term debt 5.9% 6.1% 6.5% Composite preferred stock dividend rate 6.1% 6.4% 6.4% - ---------------------------------------------------------------- II-151
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1997 Annual Report The decrease in the composite interest rate on long-term debt from 1995 to 1997 reflects the Company's efforts to refinance higher-cost debt. The decrease in the composite preferred stock dividend rate in 1997 was primarily due to a decrease in dividends on the Company's adjustable rate preferred stock, reflecting lower interest rates, and the retirement of higher coupon rate preferred stock. Capital Requirements for Construction The Company's gross property additions, including those amounts related to environmental compliance, are budgeted at $192 million for the three years beginning in 1998 ($68 million in 1998, $62 million in 1999, and $62 million in 2000). 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 major generating plants under construction, 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 $80 million will be required by the end of 2000 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 -- significantly affected 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. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I compliance totaled approximately $300 million for Southern Company, including approximately $42 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. Current compliance strategy for Phase II and ozone non-attainment could require total estimated construction expenditures for Southern Company of approximately $70 million, of which $55 million remains to be spent. Phase II compliance is not expected to have a material impact on Gulf Power. 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. 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. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. Also, in October 1997, the EPA issued a proposed regional ozone rule--if implemented--that could require substantial further reductions in NOx emissions from fossil-fueled generating facilities. Implementation of the standards and the proposed rule could result in significant additional compliance costs and capital expenditures that cannot be determined at this time. II-152
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1997 Annual Report The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: 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. Gulf Power 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. 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 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, 1997, the Company had $4.7 million of cash and cash equivalents and $32.5 million of unused committed lines of credit with banks to meet its short-term cash needs. Refer to Statements of Cash Flows for details related to the Company's financing activities. See Note 5 to the financial statements under "Bank Credit Arrangements" for additional information. In January 1998, Gulf Power Capital Trust II (Trust II), of which the Company owns all the common securities, issued $45 million of 7.0 percent mandatorily redeemable preferred securities. See Note 9 to the financial statements under "Company Obligated Mandatorily Redeemable Preferred Securities" for additional information. 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, long-term unsecured debt, pollution control bonds, and preferred securities; 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. In December 1997, the Company obtained stockholder approval to amend the corporate charter including the elimination of the restrictions on the amount of unsecured indebtedness allowed. 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. Cautionary Statement Regarding Forward-Looking Information Gulf Power Company's 1997 Annual Report contains forward-looking statements in addition to historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies--including acquisitions or dispositions of assets or internal restructuring--that may be pursued by the company; state and federal rate II-153
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Gulf Power Company 1997 Annual Report regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the Company with the Securities and Exchange Commission. II-154
STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996, and 1995 Gulf Power Company 1997 Annual Report <TABLE> <CAPTION> <S> <C> <C> <C> ======================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ (in thousands) Operating Revenues: Revenues $ 609,096 $ 616,603 $ 600,458 Revenues from affiliates 16,760 17,762 18,619 - ------------------------------------------------------------------------------------------------------------------------ Total operating revenues 625,856 634,365 619,077 - ------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation- Fuel 180,843 184,500 185,274 Purchased power from non-affiliates 11,938 8,300 8,594 Purchased power from affiliates 24,955 35,076 29,966 Other 126,266 115,154 113,397 Maintenance 47,988 51,050 51,917 Depreciation and amortization 57,874 56,645 55,104 Taxes other than income taxes 51,775 52,027 49,598 Federal and state income taxes (Note 8) 35,034 37,821 34,065 - ------------------------------------------------------------------------------------------------------------------------ Total operating expenses 536,673 540,573 527,915 - ------------------------------------------------------------------------------------------------------------------------ Operating Income 89,183 93,792 91,162 Other Income (Expense): Interest income 1,203 1,921 2,877 Other, net (992) (1,678) (1,225) Income taxes applicable to other income 1,584 248 (121) - ------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 90,978 94,283 92,693 - ------------------------------------------------------------------------------------------------------------------------ Interest Charges: Interest on long-term debt 21,699 24,691 23,294 Other interest charges 2,076 1,824 1,487 Interest on notes payable 891 2,071 2,931 Amortization of debt discount, premium, and expense, net 2,281 2,087 2,014 Distributions on preferred securities of subsidiary trust 2,804 - - - ------------------------------------------------------------------------------------------------------------------------ Net interest charges 29,751 30,673 29,726 - ------------------------------------------------------------------------------------------------------------------------ Net Income 61,227 63,610 62,967 Dividends on Preferred Stock 3,617 5,765 5,813 - ------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 57,610 $ 57,845 $ 57,154 ======================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-155
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996, and 1995 Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================= 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 61,227 $ 63,610 $ 62,967 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 72,860 71,825 75,293 Deferred income taxes (7,047) 2,157 390 Accumulated provision for property damage 2,572 4,227 (19,024) Deferred costs of 1995 coal contract renegotiation 1,246 10,931 (12,177) Other, net (1,413) 1,123 1,191 Changes in certain current assets and liabilities -- Receivables, net (1,111) 736 (12,210) Inventories 10,674 12,957 (618) Payables 1,398 (7,078) 18,258 Taxes accrued 6,123 (441) (2,803) Current costs of 1995 coal contract renegotiation 14,778 (5,099) (9,859) Other 4,240 5,937 (1,457) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 165,547 160,885 99,951 - --------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (54,289) (61,386) (63,113) Other 509 (2,786) 4,401 - --------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (53,780) (64,172) (58,712) - --------------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities 40,000 - - First mortgage bonds - 55,000 - Pollution control bonds 40,930 33,275 - Other long-term debt 20,000 49,148 - Retirements: Preferred stock (75,911) - (1,000) First mortgage bonds (25,000) (50,930) (1,750) Pollution control bonds (40,930) (33,275) (125) Other long-term debt (15,972) (34,923) (13,314) Notes payable, net 22,000 (55,500) 27,000 Payment of preferred stock dividends (5,370) (5,749) (5,813) Payment of common stock dividends (64,600) (48,300) (46,400) Miscellaneous (3,014) (5,332) (59) - --------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (107,867) (96,586) (41,461) - --------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 3,900 127 (222) Cash and Cash Equivalents at Beginning of Year 807 680 902 - --------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 4,707 $ 807 $ 680 ================================================================================================================================= Supplemental Cash Flow Information: Cash paid during the year for -- Interest (net of amount capitalized) $26,558 $26,050 $26,161 Income taxes $36,010 $25,858 $38,537 - --------------------------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-156
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Gulf Power Company Annual Report <S> <C> <C> ===================================================================================================================== ASSETS 1997 1996 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: Plant in service (Notes 1 and 6) $1,762,244 $1,734,510 Less accumulated provision for depreciation 737,767 694,245 - --------------------------------------------------------------------------------------------------------------------- 1,024,477 1,040,265 Construction work in progress 31,030 23,465 - --------------------------------------------------------------------------------------------------------------------- Total 1,055,507 1,063,730 - --------------------------------------------------------------------------------------------------------------------- Other Property and Investments 622 652 - --------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 4,707 807 Receivables- Customer accounts receivable 63,691 67,727 Other accounts and notes receivable 2,744 3,098 Affiliated companies 7,329 1,821 Accumulated provision for uncollectible accounts (796) (789) Fossil fuel stock, at average cost 19,296 28,352 Materials and supplies, at average cost (Note 1) 28,634 30,252 Current portion of deferred coal contract costs (Note 5) 4,456 16,389 Regulatory clauses under recovery (Note 1) 1,675 4,144 Prepayments 2,171 1,268 Vacation pay deferred 4,057 4,055 - --------------------------------------------------------------------------------------------------------------------- Total 137,964 157,124 - --------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 8) 26,586 28,313 Debt expense and loss, being amortized 22,941 23,308 Deferred coal contract costs (Note 5) - 13,126 Prepaid pension costs (Note 2) 10,385 7,918 Deferred storm charges (Note 1) 703 3,275 Miscellaneous 10,904 10,920 - --------------------------------------------------------------------------------------------------------------------- Total 71,519 86,860 - --------------------------------------------------------------------------------------------------------------------- Total Assets $1,265,612 $1,308,366 ===================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-157
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Gulf Power Company 1997 Annual Report <S> <C> <C> ======================================================================================================================= CAPITALIZATION AND LIABILITIES 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity (Note 12) $ 428,718 $ 435,758 Preferred stock 13,691 65,102 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding Company Junior Subordinated Notes (Note 9) 40,000 - Long-term debt 296,993 331,880 - ----------------------------------------------------------------------------------------------------------------------- Total 779,402 832,740 - ----------------------------------------------------------------------------------------------------------------------- Current Liabilities: Preferred stock due within one year (Note 11) - 24,500 Long-term debt due within one year (Note 11) 53,327 40,972 Notes payable 47,000 25,000 Accounts payable- Affiliated companies 14,334 10,274 Other 20,205 22,496 Customer deposits 13,778 13,464 Taxes accrued 8,258 8,342 Interest accrued 7,227 7,629 Regulatory clauses over recovery (Note 1) 5,062 5,884 Vacation pay accrued 4,057 4,055 Dividends declared 10,210 11,453 Miscellaneous 8,739 5,668 - ----------------------------------------------------------------------------------------------------------------------- Total 192,197 179,737 - ----------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 166,302 163,857 Deferred credits related to income taxes (Note 8) 56,935 64,354 Accumulated deferred investment tax credits 31,552 33,760 Accumulated provision for postretirement benefits (Note 2) 20,491 18,339 Miscellaneous 18,733 15,579 - ----------------------------------------------------------------------------------------------------------------------- Total 294,013 295,889 - ----------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 3, 4, 5, and 7) Total Capitalization and Liabilities $1,265,612 $1,308,366 ======================================================================================================================= The accompanying notes are an integral part of these statements. </TABLE> II-158
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION At December 31, 1997 and 1996 Gulf Power Company 1997 Annual Report <S> <C> <C> <C> <C> ================================================================================================================================= 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: Common stock, without par value -- Authorized and outstanding -- 992,717 shares in 1997 and 1996 $ 38,060 $ 38,060 Paid-in capital 218,438 218,438 Premium on preferred stock 12 81 Retained earnings (Note 12) 172,208 179,179 - --------------------------------------------------------------------------------------------------------------------------------- Total common stock equity 428,718 435,758 55.0% 52.3% - --------------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $10 par value -- Authorized -- 10,000,000 shares, Outstanding -- 377,989 shares at December 31, 1997 $25 stated capital -- 6.72% 8,661 20,000 7.00% - 14,500 7.30% - 15,000 Adjustable Rate -- at January 1, 1998: 4.67% 789 15,000 $100 par value -- Authorized -- 801,626 shares Outstanding -- 42,411 shares at December 31, 1997 4.64% 1,255 5,102 5.16% 1,357 5,000 5.44% 1,629 5,000 7.52% - 5,000 7.88% - 5,000 - --------------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $836,000) 13,691 89,602 - --------------------------------------------------------------------------------------------------------------------------------- Less amount due within one year (Note 11) - 24,500 - --------------------------------------------------------------------------------------------------------------------------------- Total excluding amount due within one year 13,691 65,102 1.8 7.8 - --------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-159
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION (continued) At December 31, 1997 and 1996 Gulf Power Company 1997 Annual Report <S> <C> <C> <C> <C> ================================================================================================================================ 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 Liquidation Value--7.625% 40,000 - - -------------------------------------------------------------------------------------------------------------------------------- Total (annual distribution requirement--$3,050,000) 40,000 - 5.1 - - -------------------------------------------------------------------------------------------------------------------------------- Long-term Debt: First mortgage bonds -- Maturity Interest Rates August 1, 1997 5.875% - 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 25,000 January 1, 2026 6.875% 30,000 30,000 - -------------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 130,000 155,000 Pollution control obligations (Note 10) 169,630 169,630 Other long-term debt (Note 10) 55,327 51,299 Unamortized debt premium (discount), net (4,637) (3,077) - -------------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $20,771,000) 350,320 372,852 Less amount due within one year (Note 11) 53,327 40,972 - -------------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 296,993 331,880 38.1 39.9 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 779,402 $ 832,740 100.0% 100.0% ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-160
<TABLE> <CAPTION> STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1997, 1996, and 1995 Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================== 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $ 179,179 $ 179,663 $ 168,951 Net income after dividends on preferred stock 57,610 57,845 57,154 Dividends on common stock (64,600) (58,300) (46,400) Preferred stock transactions, net 19 (29) (42) - ---------------------------------------------------------------------------------------------------------------------------------- Balance at End of Year (Note 11) $ 172,208 $ 179,179 $ 179,663 ================================================================================================================================== STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1997, 1996, and 1995 Gulf Power Company 1997 Annual Report ================================================================================================================================== 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Year $ 218,438 $ 218,438 $ 218,380 Contributions to capital by parent company - - 58 - ---------------------------------------------------------------------------------------------------------------------------------- Balance at End of Year $ 218,438 $ 218,438 $ 218,438 ================================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-161
NOTES TO FINANCIAL STATEMENTS Gulf Power Company 1997 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), Southern Company Energy Solutions, 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. Worldwide, Southern Energy develops and manages electricity and other energy related projects, including domestic energy trading and marketing. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Company Energy Solutions 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 expected 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: 1997 1996 ------------------------- (in thousands) Deferred income tax debits $ 26,586 $ 28,313 Deferred loss on reacquired debt 20,494 20,386 Environmental remediation 7,338 7,577 Current & deferred coal contract costs 4,456 29,515 Vacation pay 4,057 4,055 Deferred storm charges 703 3,275 Regulatory clauses over recovery, net (3,387) (1,740) Deferred income tax credits (56,935) (64,354) Other, net (629) (1,202) - ----------------------------------------------------------------- Total $ 2,683 $ 25,825 ================================================================= 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 net regulatory assets and liabilities that are not specifically recoverable through regulated rates. 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-162
NOTES (continued) Gulf Power Company 1997 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 1997, 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, the energy component of purchased power costs, and certain other 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 1997, 1996, and 1995. 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. AFUDC amounts for 1997, 1996, and 1995 were immaterial and are included in other, net and other interest charges in the Statements of Income. 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. Financial Instruments The Company's financial instruments for which the carrying amount did not equal fair value at December 31 were as follows: Carrying Fair Amount Value ---------------------------- (in thousands) Long-term debt At December 31, 1997 $350,320 $356,766 At December 31, 1996 $372,852 $373,394 Capital trust preferred securities: At December 31, 1997 $40,000 $40,800 At December 31, 1996 - - - ------------------------------------------------------------- II-163
NOTES (continued) Gulf Power Company 1997 Annual Report The fair values for long-term debt and preferred 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. 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 $1.4 million and $1.8 million at December 31, 1997 and 1996, 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, 1997, the accumulated provision for property damage had a negative balance of $0.7 million. 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 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. The Company accrued $3.9 million in 1997 and $4.5 million in 1996 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 Pension, requires use of the "projected unit credit" actuarial method for financial reporting purposes. 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." II-164
NOTES (continued) Gulf Power Company 1997 Annual Report Funded Status and Cost of Benefits The funded status of the plans and reconciliation to amounts reflected in the Balance Sheets at December 31 are as follows: Pension ------------------------- 1997 1996 ------------------------- (in thousands) Actuarial present value of benefit obligation: Vested benefits $ 97,180 $ 87,245 Non-vested benefits 3,886 5,101 - ------------------------------------------------------------- Accumulated benefit obligation 101,066 92,346 Additional amounts related to projected salary increases 29,728 31,121 - ------------------------------------------------------------- Projected benefit obligation 130,794 123,467 Less: Fair value of plan assets 222,196 191,152 Unrecognized net gain (80,497) (58,900) Unrecognized prior service cost 5,244 5,618 Unrecognized transition asset (5,764) (6,485) - ------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 10,385 $ 7,918 ============================================================= Postretirement Benefits --------------------------- 1997 1996 --------------------------- (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $17,363 $10,478 Employees eligible to retire 4,537 5,484 Other employees 17,769 17,694 - ---------------------------------------------------------------- Accumulated benefit obligation 39,669 33,656 Less: Fair value of plan assets 9,813 7,996 Unrecognized net loss 3,930 1,531 Unrecognized transition obligation 5,435 5,790 - ---------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $20,491 $18,339 ================================================================ The weighted average rates assumed in the actuarial calculations were: 1997 1996 1995 ------------------------------ Discount 7.5% 7.8% 7.3% Annual salary increase 5.0% 5.3% 4.8% 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 8.8 percent for 1997, decreasing gradually to 5.5 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, 1997, by $3.2 million and the aggregate of the service and interest cost components of the net retiree cost by $278 thousand. Components of the plans' net costs are shown below: Pension ------------------------------------ 1997 1996 1995 ------------------------------------ (in thousands) Benefits earned during the year $ 3,897 $ 3,880 $ 3,867 Interest cost on projected benefit obligation 9,301 9,129 8,042 Actual (return) loss on plan assets (32,924) (21,021) (33,853) Net amortization and deferral 17,246 5,920 19,619 - ------------------------------------------------------------------ Net pension income $ (2,480) $ (2,092) $(2,325) ================================================================== Of the above net pension amounts, pension income of $1.8 million in 1997, $1.5 million in 1996, and $1.8 million in 1995 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. II-165
NOTES (continued) Gulf Power Company 1997 Annual Report Postretirement Benefits -------------------------------- 1997 1996 1995 -------------------------------- (in thousands) Benefits earned during the year $ 896 $ 939 $1,259 Interest cost on accumulated benefit obligation 2,845 2,330 2,520 Amortization of transition obligation 356 356 853 Actual (return) loss on plan assets (1,166) (797) (1,268) Net amortization and deferral 709 318 742 - ------------------------------------------------------------------- Net postretirement cost $3,640 $3,146 $4,106 =================================================================== Of the above net postretirement costs recorded, $2.7 million in 1997, $2.3 million in 1996, and $3.1 million in 1995 were charged to operating expenses, and the remainder was recorded in construction and other accounts. Work Force Reduction Programs The Company recorded costs related to work force reductions programs of $1.4 million in 1997, $1.2 million in 1996, and $7 million in 1995. The Company has also incurred its pro rata share for the costs of affiliated companies' programs. The costs related to these programs were $1.3 million for 1997, $2.1 million for 1996, and $1 million for 1995. The costs related to work force reductions have been expensed to operation expenses. 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 $194 million for Southern Company, including approximately $13 million for the Company at December 31, 1997. Although management believes that rates are not excessive and that refunds are not justified, the final outcome of this matter cannot now be determined. 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 1997 and 1996, the Company recorded ECRC revenues of $10.2 million and $11.0 million, respectively. At December 31, 1997, the Company's liability for the estimated costs of environmental remediation projects for known sites was $7.3 million. These estimated costs are expected to be expended during the period 1998 to 2002. II-166
NOTES (continued) Gulf Power Company 1997 Annual Report These projects have been approved by the FPSC for recovery through the ECRC discussed above. Therefore, the Company recorded $1.7 million in current assets and current liabilities, and $5.6 million in deferred assets and liabilities 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 $68 million in 1998, $62 million in 1999, and $62 million in 2000. 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, 1997, significant purchase commitments were outstanding in connection with the construction program. The Company does not have any major 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, long-term unsecured debt, pollution control bonds, and preferred securities; bank notes; and capital contributions from Southern Company. In addition, the Company may issue additional long-term debt and preferred securities primarily for debt maturities and redemptions of higher-cost securities. Bank Credit Arrangements At December 31, 1997, the Company had $41.5 million of lines of credit with banks subject to renewal June 1 of each year, of which $32.5 million remained unused. In addition, the Company has two unused committed lines of credit totaling $61.9 million that were 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 ten major money center banks that total $180 million, of which $38 million was committed at December 31, 1997. 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, 1997, were as follows: Year Fuel ------- ---------------- (in millions) 1998 $82 1999 77 2000 70 2001 72 2002 74 2003 - 2007 408 -------------------------------------------------------- Total commitments $783 ========================================================= 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 II-167
NOTES (continued) Gulf Power Company 1997 Annual Report basis over a ten-year period. The remaining unamortized amount was $2.7 million at December 31, 1997. 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 $1.8 million at December 31, 1997. 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 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. In 1997, three additional lease agreements for 120 cars each were entered into for three years, with a monthly renewal option for up to an additional nine months. 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 inventories was $2.3 million in 1997 and $1.7 million in 1996. The annual amounts for 1998 through 2002 will be $2.8 million, $2.8 million, $2.1 million, $1.7 million, and $1.7 million respectively, and after 2002 will total $17.8 million. 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. At December 31, 1997, 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 $185,723(1) $222,230 Accumulated Depreciation $58,219 $108,176 Construction Work in Progress $282 $231 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 unit power sales agreements 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 capacity II-168
NOTES (continued) Gulf Power Company 1997 Annual Report revenues from these sales were $24.9 million in 1997, $25.4 million in 1996, and $25.9 million in 1995. 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 1997, and sales will remain at that level until the expiration of the contracts in 2010, unless reduced by FPC, FP&L and JEA after 2000. Capacity and energy sales to FP&L, the Company's largest single customer, provided revenues of $25.4 million in 1997, $27.2 million in 1996, and $25.4 million in 1995, or 4.1 percent, 4.3 percent, and 4.1 percent of operating revenues, respectively. 8. INCOME TAXES At December 31, 1997, the tax-related regulatory assets to be recovered from customers were $26.6 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, 1997, the tax-related regulatory liabilities to be credited to customers were $56.9 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: 1997 1996 1995 ---------------------------------- (in thousands) Total provision for income taxes: Federal-- Currently payable $34,522 $31,022 $29,018 Deferred --current year 19,297 26,072 23,172 --reversal of prior years (25,778) (24,780) (23,116) - ------------------------------------------------------------------ 28,041 32,314 29,074 - ------------------------------------------------------------------ State-- Currently payable 5,975 4,394 4,778 Deferred --current year 2,868 3,904 3,313 --reversal of prior years (3,434) (3,039) (2,979) - ------------------------------------------------------------------ 5,409 5,259 5,112 - ------------------------------------------------------------------ Total 33,450 37,573 34,186 Less income taxes charged (credited) to other income (1,584) (248) 121 - ------------------------------------------------------------------ Total income taxes charged to operations $35,034 $37,821 $34,065 ================================================================== 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: 1997 1996 ----------- ----------- (in thousands) Deferred tax liabilities: Accelerated depreciation $156,328 $151,664 Property basis differences 19,220 21,028 Other 14,242 17,622 - ------------------------------------------------------------------- Total 189,790 190,314 - ------------------------------------------------------------------- Deferred tax assets: Federal effect of state deferred taxes 9,268 9,773 Postretirement benefits 6,976 5,767 Other 10,861 7,814 - ------------------------------------------------------------------- Total 27,105 23,354 - ------------------------------------------------------------------- Net deferred tax liabilities 162,685 166,960 Less current portion, net (3,617) 3,103 - ------------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $166,302 $163,857 =================================================================== Deferred investment tax credits are amortized over the life of the related property with such amortization normally applied as a credit to reduce depreciation and amortization in the Statements of Income. Credits amortized in II-169
NOTES (continued) Gulf Power Company 1997 Annual Report this manner amounted to $2.2 million in 1997 and $2.3 million in 1996 and 1995. At December 31, 1997, 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: 1997 1996 1995 --------- --------- --------- 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) (1) (3) Other, net (4) (2) (2) - --------------------------------------------------------------- Effective income tax rate 35% 37% 35% =============================================================== 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. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES In January 1997, Gulf Power Capital Trust I (Trust I), of which the Company owns all of the common securities, issued $40 million of 7.625 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust I are $41 million aggregate principal amount of the Company's 7.625 percent junior subordinated notes due December 31, 2036. In January 1998, Gulf Power Capital Trust II (Trust II), of which the Company also owns all of the common securities, issued $45 million of 7.0 percent mandatorily redeemable preferred securities. Substantially all of the assets of Trust II are $46 million aggregate principal amount of the Company's 7.0 percent junior subordinated notes due December 31, 2037. 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 payment obligations with respect to the preferred securities of Gulf Power Capital Trust I and Trust II. Gulf Power Capital Trust I and Trust II are subsidiaries of the Company, and accordingly are consolidated in the Company's financial statements. 10. POLLUTION CONTROL OBLIGATIONS AND OTHER LONG-TERM DEBT Details of pollution control obligations and other long-term debt at December 31 are as follows: 1997 1996 -------------------------- (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 $12,075 8.25% due 2017 - 32,000 6.75% due 2022 - 8,930 Variable Rate due 2022 Remarketable daily 40,930 - 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 21,200 - --------------------------------------------------------------- $169,630 $169,630 - --------------------------------------------------------------- Other long-term debt: 5.2125% due 1996-1998 5,754 16,823 6.44% due 1994-1998 2,573 7,476 Variable Rate due 1999 13,500 13,500 Variable Rate due 1999 13,500 13,500 7.5% Junior Subordinated Note due 2037 20,000 - - --------------------------------------------------------------- 55,327 51,299 - --------------------------------------------------------------- Total $224,957 $220,929 =============================================================== 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 II-170
NOTES (continued) Gulf Power Company 1997 Annual Report bonds, the Company has executed and delivered to trustees a like principal amount of first mortgage bonds, or in the case of the $40.9 million issue a deed of trust, 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. The estimated annual maturities of other long-term debt are as follows: $8.3 million in 1998 and $27 million in 1999. 11. SECURITIES 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: 1997 1996 ---------------------- (in thousands) Bond improvement fund requirement $ 1,300 $ 1,550 Less: Portion to be satisfied by certifying property additions 1,300 1,550 - --------------------------------------------------------------- Cash sinking fund requirement - - Maturities of first mortgage bonds 45,000 25,000 Current portion of other long-term debt (Note 10) 8,327 15,972 Redemption of preferred stock - 24,500 - --------------------------------------------------------------- Total $53,327 $65,472 =============================================================== 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. 12. 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, 1997, 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 previously limited 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, 1997, the ratio was 50.4 percent. These restrictions were removed by a vote of preferred shareholders on December 10, 1997. 13. QUARTERLY FINANCIAL DATA (Unaudited) Summarized quarterly financial data for 1997 and 1996 are as follows: Net Income After Dividends Operating Operating on Preferred Quarter Ended Revenues Income Stock - ------------------------------------------------------------------ (in thousands) March 31, 1997 $141,374 $20,212 $10,740 June 30, 1997 145,292 19,153 10,386 Sept. 30, 1997 193,710 34,750 27,484 Dec. 31, 1997 145,480 15,068 9,000 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 - ------------------------------------------------------------------ The Company's business is influenced by seasonal weather conditions and the timing of rate changes, among other factors. II-171
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================ 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $625,856 $634,365 $619,077 Net Income after Dividends on Preferred Stock (in thousands) $57,610 $57,845 $57,154 Dividends on Common Stock (in thousands) $64,600 $58,300 $46,400 Return on Average Common Equity (percent) 13.33 13.27 13.27 Total Assets (in thousands) 1,265,612 $1,308,366 $1,341,859 Gross Property Additions (in thousands) $54,289 $61,386 $63,113 - ---------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $428,718 $435,758 $436,242 Preferred stock 13,691 65,102 89,602 Preferred stock subject to mandatory redemption - - - Trust preferred securities 40,000 - - Long-term debt 296,993 331,880 323,376 - ---------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $779,402 $832,740 $849,220 - ---------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 55.0 52.3 51.4 Preferred stock 1.8 7.8 10.5 Trust preferred securities 5.1 Long-term debt 38.1 39.9 38.1 - ---------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ================================================================================================================ First Mortgage Bonds (in thousands): Issued - 55,000 - Retired 25,000 50,930 1,750 Preferred Stock (in thousands): Issued - - - Retired 75,911 - 1,000 - ---------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's A+ A+ A+ Duff & Phelps AA- AA- A+ Preferred Stock - Moody's a2 a2 a2 Standard and Poor's A A A Duff & Phelps A+ A+ A - ---------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 300,257 291,196 283,421 Commercial 44,589 43,196 41,281 Industrial 267 278 278 Other 264 162 134 - ---------------------------------------------------------------------------------------------------------------- Total 345,377 334,832 325,114 ================================================================================================================ Employees (year-end) 1,328 1,384 1,501 </TABLE> II-172
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================== 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) $578,813 $583,142 $570,902 Net Income after Dividends on Preferred Stock (in thousands) $55,229 $54,311 $54,090 Dividends on Common Stock (in thousands) $44,000 $41,800 $39,900 Return on Average Common Equity (percent) 13.15 13.29 13.62 Total Assets (in thousands) $1,315,542 $1,307,809 $1,062,699 Gross Property Additions (in thousands) $78,869 $78,562 $64,671 - ------------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $425,472 $414,196 $403,190 Preferred stock 89,602 89,602 74,662 Preferred stock subject to mandatory redemption - 1,000 2,000 Trust preferred securities - - - Long-term debt 356,393 369,259 382,047 - ------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $871,467 $874,057 $861,899 - ------------------------------------------------------------------------------------------------------------------ Capitalization Ratios (percent): Common stock equity 48.8 47.4 46.8 Preferred stock 10.3 10.4 8.9 Trust preferred securities Long-term debt 40.9 42.2 44.3 - ------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) 100.0 100.0 100.0 ================================================================================================================== First Mortgage Bonds (in thousands): Issued - 75,000 25,000 Retired 48,856 88,809 117,693 Preferred Stock (in thousands): Issued - 35,000 29,500 Retired 1,000 21,060 15,500 - ------------------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's A2 A2 A2 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 280,859 274,194 267,591 Commercial 40,398 39,253 37,105 Industrial 283 274 270 Other 106 86 74 - ------------------------------------------------------------------------------------------------------------------ Total 321,646 313,807 305,040 ================================================================================================================== Employees (year-end) 1,540 1,565 1,613 </TABLE> II-173A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) $565,207 $567,825 $527,821 Net Income after Dividends on Preferred Stock (in thousands) $57,796 $38,714 $37,361 Dividends on Common Stock (in thousands) $38,000 $37,000 $37,200 Return on Average Common Equity (percent) 15.17 10.51 10.32 Total Assets (in thousands) $1,095,736 $1,084,579 $1,093,430 Gross Property Additions (in thousands) $64,323 $62,462 $70,726 - ------------------------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $390,981 $371,185 $365,471 Preferred stock 55,162 55,162 55,162 Preferred stock subject to mandatory redemption 7,500 9,250 11,000 Trust preferred securities - - - Long-term debt 434,648 475,284 484,608 - ------------------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $888,291 $910,881 $916,241 - ------------------------------------------------------------------------------------------------------------------------------ Capitalization Ratios (percent): Common stock equity 44.0 40.8 39.9 Preferred stock 7.1 7.1 7.2 Trust preferred securities Long-term debt 48.9 52.1 52.9 - ------------------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) 100.0 100.0 100.0 ============================================================================================================================== First Mortgage Bonds (in thousands): Issued 50,000 - - Retired 32,807 6,455 9,344 Preferred Stock (in thousands): Issued - - - Retired 2,500 1,750 1,250 - ------------------------------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's A2 A2 A1 Standard and Poor's A A A Duff & Phelps A A AA- Preferred Stock - Moody's a2 a2 a1 Standard and Poor's A- A- A- Duff & Phelps A- A- A+ - ------------------------------------------------------------------------------------------------------------------------------ Customers (year-end): Residential 261,210 256,111 251,341 Commercial 34,685 34,019 33,678 Industrial 264 252 240 Other 72 67 67 - ------------------------------------------------------------------------------------------------------------------------------ Total 296,231 290,449 285,326 ============================================================================================================================== Employees (year-end) 1,598 1,615 1,614 </TABLE> II-173B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Gulf Power Company 1997 Annual Report <S> <C> <C> ============================================================================================================== 1988 1987 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $550,827 $587,860 Net Income after Dividends on Preferred Stock (in thousands) $45,698 $42,217 Dividends on Common Stock (in thousands) $35,400 $34,200 Return on Average Common Equity (percent) 13.41 13.23 Total Assets (in thousands) $1,097,225 $1,051,182 Gross Property Additions (in thousands) $67,042 $97,511 - -------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $358,310 $323,012 Preferred stock 55,162 55,162 Preferred stock subject to mandatory redemption 12,750 14,000 Trust preferred securities - - Long-term debt 497,069 474,640 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $923,291 $866,814 - -------------------------------------------------------------------------------------------------------------- Capitalization Ratios (percent): Common stock equity 38.8 37.2 Preferred stock 7.4 8.0 Trust preferred securities Long-term debt 53.8 54.8 - -------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 ============================================================================================================== First Mortgage Bonds (in thousands): Issued 35,000 - Retired 9,369 - Preferred Stock (in thousands): Issued - - Retired 1,750 2,500 - -------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 Standard and Poor's A A Duff & Phelps 4 4 Preferred Stock - Moody's a1 a1 Standard and Poor's A- A- Duff & Phelps 5 5 - -------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 246,450 241,138 Commercial 33,030 32,139 Industrial 206 206 Other 61 61 - -------------------------------------------------------------------------------------------------------------- Total 279,747 273,544 ============================================================================================================== Employees (year-end) 1,601 1,603 </TABLE> II-173C
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATE (continued) Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $277,609 $285,498 $276,155 Commercial 164,435 164,181 159,260 Industrial 77,492 78,994 81,606 Other 2,084 2,056 1,993 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 521,620 530,729 519,014 Sales for resale - non-affiliates 63,697 63,201 60,413 Sales for resale - affiliates 16,760 17,762 18,619 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 602,077 611,692 598,046 Other revenues 23,779 22,673 21,031 - ------------------------------------------------------------------------------------------------------------------------------ Total $625,856 $634,365 $619,077 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 4,119,492 4,159,924 4,014,142 Commercial 2,897,887 2,808,634 2,708,243 Industrial 1,903,050 1,808,086 1,794,754 Other 18,101 17,815 17,345 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 8,938,530 8,794,459 8,534,484 Sales for resale - non-affiliates 1,531,179 1,534,097 1,396,474 Sales for resale - affiliates 848,135 709,647 759,341 - ------------------------------------------------------------------------------------------------------------------------------ Total 11,317,844 11,038,203 10,690,299 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.74 6.86 6.88 Commercial 5.67 5.85 5.88 Industrial 4.07 4.37 4.55 Total retail 5.84 6.03 6.08 Sales for resale 3.38 3.61 3.67 Total sales 5.32 5.54 5.59 Average Annual Kilowatt-Hour Use Per Residential Customer 13,894 14,457 14,148 Average Annual Revenue Per Residential Customer $936.30 $992.17 $973.35 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,844 2,136 1,732 Summer 2,032 1,961 2,040 Annual Load Factor (percent) 55.5 51.4 53.0 Plant Availability - Fossil-Steam (percent) 91.0 91.8 84.0 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 87.1 87.8 86.8 Oil and gas 0.4 0.5 0.4 Purchased power - From non-affiliates 3.5 2.7 4.0 From affiliates 9.0 9.0 8.8 - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ============================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,436 10,484 10,609 Cost of fuel per million BTU (cents) 190.75 192.22 196.62 Average cost of fuel per net kilowatt-hour generated (cents) 1.99 2.02 2.09 ============================================================================================================================== II-174 </TABLE>
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ======================================================================================================================== 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $252,598 $244,967 $235,296 Commercial 146,394 137,308 133,071 Industrial 82,169 87,526 91,320 Other 1,955 1,882 1,784 - ------------------------------------------------------------------------------------------------------------------------ Total retail 483,116 471,683 461,471 Sales for resale - non-affiliates 66,111 72,209 70,078 Sales for resale - affiliates 17,353 23,166 24,075 - ------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 566,580 567,058 555,624 Other revenues 12,233 16,084 15,278 - ------------------------------------------------------------------------------------------------------------------------ Total $578,813 $583,142 $570,902 ======================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 3,751,932 3,712,980 3,596,515 Commercial 2,548,846 2,433,382 2,369,236 Industrial 1,847,114 2,029,936 2,179,435 Other 17,354 16,944 16,649 - ------------------------------------------------------------------------------------------------------------------------ Total retail 8,165,246 8,193,242 8,161,835 Sales for resale - non-affiliates 1,418,977 1,460,105 1,430,908 Sales for resale - affiliates 874,050 1,029,787 1,208,771 - ------------------------------------------------------------------------------------------------------------------------ Total 10,458,273 10,683,134 10,801,514 ======================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.73 6.60 6.54 Commercial 5.74 5.64 5.62 Industrial 4.45 4.31 4.19 Total retail 5.92 5.76 5.65 Sales for resale 3.64 3.83 3.57 Total sales 5.42 5.31 5.14 Average Annual Kilowatt-Hour Use Per Residential Customer 13,486 13,671 13,553 Average Annual Revenue Per Residential Customer $907.92 $901.96 $886.66 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,801 1,571 1,533 Summer 1,795 1,898 1,828 Annual Load Factor (percent) 56.7 54.5 55.0 Plant Availability - Fossil-Steam (percent) 92.2 88.9 91.2 - ------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 87.2 84.5 87.7 Oil and gas 0.2 0.5 0.1 Purchased power - From non-affiliates 2.8 1.5 0.8 From affiliates 9.8 13.5 11.4 - ------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ======================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,614 10,390 10,347 Cost of fuel per million BTU (cents) 189.55 197.37 200.30 Average cost of fuel per net kilowatt-hour generated (cents) 2.01 2.05 2.07 ======================================================================================================================== </TABLE> II-175A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $231,220 $217,843 $203,781 Commercial 130,691 124,066 118,897 Industrial 92,300 91,041 84,671 Other 1,860 1,805 1,586 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 456,071 434,755 408,935 Sales for resale - non-affiliates 69,636 73,855 67,554 Sales for resale - affiliates 29,343 38,563 39,244 - -------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 555,050 547,173 515,733 Other revenues 10,157 20,652 12,088 - -------------------------------------------------------------------------------------------------------------------------------- Total $565,207 $567,825 $527,821 ================================================================================================================================ Kilowatt-Hour Sales (in thousands): Residential 3,455,100 3,360,838 3,293,750 Commercial 2,272,690 2,217,568 2,169,497 Industrial 2,117,408 2,177,872 2,094,670 Other 17,118 18,866 17,209 - -------------------------------------------------------------------------------------------------------------------------------- Total retail 7,862,316 7,775,144 7,575,126 Sales for resale - non-affiliates 1,550,018 1,775,703 1,640,355 Sales for resale - affiliates 1,236,223 1,435,558 1,461,036 - -------------------------------------------------------------------------------------------------------------------------------- Total 10,648,557 10,986,405 10,676,517 ================================================================================================================================ Average Revenue Per Kilowatt-Hour (cents): Residential 6.69 6.48 6.19 Commercial 5.75 5.59 5.48 Industrial 4.36 4.18 4.04 Total retail 5.80 5.59 5.40 Sales for resale 3.55 3.50 3.44 Total sales 5.21 4.98 4.83 Average Annual Kilowatt-Hour Use Per Residential Customer 13,320 13,173 13,173 Average Annual Revenue Per Residential Customer $891.38 $853.86 $815.00 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,418 1,310 1,814 Summer 1,740 1,778 1,691 Annual Load Factor (percent) 57.0 55.2 52.6 Plant Availability - Fossil-Steam (percent) 92.2 89.2 89.1 - -------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 82.0 69.8 78.3 Oil and gas 0.1 0.5 0.2 Purchased power - From non-affiliates 0.5 0.6 0.4 From affiliates 17.4 29.1 21.1 - -------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ================================================================================================================================ Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,636 10,765 10,621 Cost of fuel per million BTU (cents) 203.60 206.06 193.70 Average cost of fuel per net kilowatt-hour generated (cents) 2.17 2.22 2.06 ================================================================================================================================ </TABLE> II-175B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Gulf Power Company 1997 Annual Report <S> <C> <C> =============================================================================================================== 1988 1987 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $184,036 $199,701 Commercial 107,615 116,057 Industrial 72,634 80,295 Other 1,402 1,357 - -------------------------------------------------------------------------------------------------------------- Total retail 365,687 397,410 Sales for resale - non-affiliates 117,466 134,456 Sales for resale - affiliates 48,277 55,955 - -------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 531,430 587,821 Other revenues 19,397 39 - -------------------------------------------------------------------------------------------------------------- Total $550,827 $587,860 ============================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 3,154,541 3,055,041 Commercial 2,088,598 1,986,332 Industrial 1,968,091 1,839,931 Other 16,257 15,241 - -------------------------------------------------------------------------------------------------------------- Total retail 7,227,487 6,896,545 Sales for resale - non-affiliates 1,911,759 2,138,390 Sales for resale - affiliates 2,326,238 2,689,487 - -------------------------------------------------------------------------------------------------------------- Total 11,465,484 11,724,422 ============================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 5.83 6.54 Commercial 5.15 5.84 Industrial 3.69 4.36 Total retail 5.06 5.76 Sales for resale 3.91 3.94 Total sales 4.64 5.01 Average Annual Kilowatt-Hour Use Per Residential Customer 12,883 12,763 Average Annual Revenue Per Residential Customer $751.60 $834.31 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,174 2,174 Maximum Peak-Hour Demand - Net of SEPA (megawatts): Winter 1,395 1,354 Summer 1,613 1,617 Annual Load Factor (percent) 56.5 54.4 Plant Availability - Fossil-Steam (percent) 88.2 92.8 - -------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 93.2 93.5 Oil and gas 0.4 0.4 Purchased power - From non-affiliates 0.4 0.4 From affiliates 6.0 5.7 - -------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 ============================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,461 10,512 Cost of fuel per million BTU (cents) 178.00 197.53 Average cost of fuel per net kilowatt-hour generated (cents) 1.86 2.08 ============================================================================================================== </TABLE> II-175C
<TABLE> <CAPTION> STATEMENTS OF INCOME Gulf Power Company <S> <C> <C> <C> ============================================================================================================================== For the Years Ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Revenues: Revenues $609,096 $616,603 $600,458 Revenues from affiliates 16,760 17,762 18,619 - ------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 625,856 634,365 619,077 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 180,843 184,500 185,274 Purchased power from non-affiliates 11,938 8,300 8,594 Purchased power from affiliates 24,955 35,076 29,966 Proceeds from settlement of disputed contracts - - - Other 126,266 115,154 113,397 Maintenance 47,988 51,050 51,917 Depreciation and amortization 57,874 56,645 55,104 Taxes other than income taxes 51,775 52,027 49,598 Federal and state income taxes 35,034 37,821 34,065 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 536,673 540,573 527,915 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 89,183 93,792 91,162 Other Income (Expense): Allowance for equity funds used during construction 3 17 36 Interest income 1,203 1,921 2,877 Other, net (995) (1,695) (1,261) Gain on sale of investment securities - - - Income taxes applicable to other income 1,584 248 (121) - ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 90,978 94,283 92,693 - ------------------------------------------------------------------------------------------------------------------------------ Interest Charges: Interest on long-term debt 21,699 24,691 23,294 Allowance for debt funds used during construction (5) (58) (187) Interest on notes payable 891 2,071 2,931 Amortization of debt discount, premium, and expense, net 2,281 2,087 2,014 Other interest charges 2,081 1,882 1,674 Distributions on preferred securities of subsidiary trust 2,804 - - - ------------------------------------------------------------------------------------------------------------------------------ Net interest charges 29,751 30,673 29,726 - ------------------------------------------------------------------------------------------------------------------------------ Net Income 61,227 63,610 62,967 Dividends on Preferred Stock 3,617 5,765 5,813 - ------------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 57,610 $ 57,845 $ 57,154 ============================================================================================================================== II-176 </TABLE>
<TABLE> <CAPTION> STATEMENTS OF INCOME Gulf Power Company <S> <C> <C> <C> ============================================================================================================================== For the Years Ended December 31, 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Revenues: Revenues $561,460 $559,976 $546,827 Revenues from affiliates 17,353 23,166 24,075 - ------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 578,813 583,142 570,902 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 161,168 170,485 182,754 Purchased power from non-affiliates 6,761 4,386 1,394 Purchased power from affiliates 25,819 32,273 26,788 Proceeds from settlement of disputed contracts - - (920) Other 113,879 109,164 98,230 Maintenance 46,700 46,004 41,947 Depreciation and amortization 56,615 55,309 53,758 Taxes other than income taxes 41,701 40,204 37,898 Federal and state income taxes 33,957 32,730 32,078 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 486,600 490,555 473,927 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 92,213 92,587 96,975 Other Income (Expense): Allowance for equity funds used during construction 450 512 14 Interest income 1,429 1,328 2,733 Other, net (780) (1,238) (1,487) Gain on sale of investment securities - 3,820 - Income taxes applicable to other income 95 (921) 187 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 93,407 96,088 98,422 - ------------------------------------------------------------------------------------------------------------------------------ Interest Charges: Interest on long-term debt 27,124 31,344 35,792 Allowance for debt funds used during construction (656) (454) (46) Interest on notes payable 1,509 870 1,041 Amortization of debt discount, premium, and expense, net 1,834 1,412 1,032 Other interest charges 2,442 2,877 1,410 Distributions on preferred securities of subsidiary trust - - - - ------------------------------------------------------------------------------------------------------------------------------ Net interest charges 32,253 36,049 39,229 - ------------------------------------------------------------------------------------------------------------------------------ Net Income 61,154 60,039 59,193 Dividends on Preferred Stock 5,925 5,728 5,103 - ------------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 55,229 $ 54,311 $ 54,090 ============================================================================================================================== </TABLE> II-177A
<TABLE> <CAPTION> STATEMENTS OF INCOME Gulf Power Company <S> <C> <C> <C> ============================================================================================================================== For the Years Ended December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Revenues: Revenues $535,864 $529,262 $488,577 Revenues from affiliates 29,343 38,563 39,244 - ------------------------------------------------------------------------------------------------------------------------------ Total operating revenues 565,207 567,825 527,821 - ------------------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 176,038 156,712 158,858 Purchased power from non-affiliates 896 1,427 1,251 Purchased power from affiliates 32,579 67,729 48,972 Proceeds from settlement of disputed contracts (20,385) - - Other 94,411 90,045 82,231 Maintenance 45,468 45,491 44,295 Depreciation and amortization 52,195 50,899 48,760 Taxes other than income taxes 42,359 39,110 30,718 Federal and state income taxes 33,893 24,780 23,621 - ------------------------------------------------------------------------------------------------------------------------------ Total operating expenses 457,454 476,193 438,706 - ------------------------------------------------------------------------------------------------------------------------------ Operating Income 107,753 91,632 89,115 Other Income (Expense): Allowance for equity funds used during construction 54 - (446) Interest income 2,427 4,508 3,271 Other, net (3,484) (6,360) (3,800) Gain on sale of investment securities - - - Income taxes applicable to other income 1,104 1,303 779 - ------------------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 107,854 91,083 88,919 - ------------------------------------------------------------------------------------------------------------------------------ Interest Charges: Interest on long-term debt 41,665 43,215 43,265 Allowance for debt funds used during construction (95) 1 242 Interest on notes payable 280 693 180 Amortization of debt discount, premium, and expense, net 699 603 613 Other interest charges 2,272 2,422 1,636 Distributions on preferred securities of subsidiary trust - - - - ------------------------------------------------------------------------------------------------------------------------------ Net interest charges 44,821 46,934 45,936 - ------------------------------------------------------------------------------------------------------------------------------ Net Income 63,033 44,149 42,983 Dividends on Preferred Stock 5,237 5,435 5,622 - ------------------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 57,796 $ 38,714 $ 37,361 ============================================================================================================================== </TABLE> II-177B
<TABLE> <CAPTION> STATEMENTS OF INCOME Gulf Power Company <S> <C> <C> ============================================================================================================= For the Years Ended December 31, 1988 1987 - ------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $502,550 $531,905 Revenues from affiliates 48,277 55,955 - ------------------------------------------------------------------------------------------------------------- Total operating revenues 550,827 587,860 - ------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 191,687 227,233 Purchased power from non-affiliates 1,468 1,792 Purchased power from affiliates 27,267 28,326 Proceeds from settlement of disputed contracts - - Other 93,028 100,032 Maintenance 41,919 38,748 Depreciation and amortization 47,530 44,619 Taxes other than income taxes 27,087 26,246 Federal and state income taxes 26,239 31,703 - ------------------------------------------------------------------------------------------------------------- Total operating expenses 456,225 498,699 - ------------------------------------------------------------------------------------------------------------- Operating Income 94,602 89,161 Other Income (Expense): Allowance for equity funds used during construction 457 1,013 Interest income 2,858 4,507 Other, net (3,491) (1,207) Gain on sale of investment securities - - Income taxes applicable to other income 1,001 (642) - ------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 95,427 92,832 - ------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 42,538 43,689 Allowance for debt funds used during construction (808) (1,004) Interest on notes payable 182 - Amortization of debt discount, premium, and expense, net 600 555 Other interest charges 1,456 1,350 Distributions on preferred securities of subsidiary trust - - - ------------------------------------------------------------------------------------------------------------- Net interest charges 43,968 44,590 - ------------------------------------------------------------------------------------------------------------- Net Income 51,459 48,242 Dividends on Preferred Stock 5,761 6,025 - ------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 45,698 $ 42,217 ============================================================================================================= </TABLE> II-177C
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ For the Years Ended December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 61,227 $ 63,610 $ 62,967 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 72,860 71,825 75,293 Deferred income taxes, net (7,047) 2,157 390 Deferred investment tax credits, net - - - Allowance for equity funds used during construction 3 (17) (36) Non-cash proceeds from settlement of disputed contracts - - - Other, net 2,402 16,298 (29,974) Changes in certain current assets and liabilities -- Receivables, net (1,111) 736 (12,210) Inventories 10,674 12,957 (618) Payables 1,398 (7,078) 18,258 Other 25,141 397 (14,119) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 165,547 160,885 99,951 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (54,289) (61,386) (63,113) Other 509 (2,786) 4,401 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (53,780) (64,172) (58,712) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities 40,000 - - Preferred stock - - - First mortgage bonds - 55,000 - Pollution control bonds 40,930 33,275 - Capital contributions from parent company - - 58 Other long-term debt 20,000 49,148 - Retirements: Preferred stock (75,911) - (1,000) First mortgage bonds (25,000) (50,930) (1,750) Pollution control bonds (40,930) (33,275) (125) Other long-term debt (15,972) (34,923) (13,314) Notes payable, net 22,000 (55,500) 27,000 Payment of preferred stock dividends (5,370) (5,749) (5,813) Payment of common stock dividends (64,600) (48,300) (46,400) Miscellaneous (3,014) (5,332) (117) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (107,867) (96,586) (41,461) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 3,900 127 (222) Cash and Cash Equivalents at Beginning of Year 807 680 902 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 4,707 $ 807 $ 680 ============================================================================================================================ ( ) Denotes use of cash. </TABLE> II-178
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ For the Years Ended December 31, 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 61,154 $ 60,039 $ 59,193 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 86,098 72,111 68,021 Deferred income taxes, net (6,986) 5,347 3,322 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (450) (512) (14) Non-cash proceeds from settlement of disputed contracts - - (920) Other, net 4,898 (864) 185 Changes in certain current assets and liabilities -- Receivables, net 3,540 12,867 (11,041) Inventories (13,901) 5,574 23,560 Payables (10,159) 5,386 1,580 Other 610 (9,504) (13,637) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 124,804 150,444 130,249 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (78,869) (78,562) (64,671) Other (3,493) (5,328) 3,970 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (82,362) (83,890) (60,701) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities - - - Preferred stock - 35,000 29,500 First mortgage bonds - 75,000 25,000 Pollution control bonds 42,000 53,425 8,930 Capital contributions from parent company 98 11 121 Other long-term debt 32,108 25,000 - Retirements: Preferred stock (1,000) (21,060) (15,500) First mortgage bonds (48,856) (88,809) (117,693) Pollution control bonds (42,100) (40,650) (9,205) Other long-term debt (24,240) (7,736) (5,783) Notes payable, net 47,447 (37,947) 44,000 Payment of preferred stock dividends (5,925) (5,728) (5,103) Payment of common stock dividends (44,000) (41,800) (39,900) Miscellaneous (2,648) (6,888) (8,760) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (47,116) (62,182) (94,393) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (4,674) 4,372 (24,845) Cash and Cash Equivalents at Beginning of Year 5,576 1,204 26,049 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 902 $ 5,576 $ 1,204 ============================================================================================================================ ( ) Denotes use of cash. </TABLE> II-179A
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ For the Years Ended December 31, 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 63,033 $ 44,149 $ 42,983 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 65,584 63,650 59,955 Deferred income taxes, net (3,392) 1,837 5,319 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (54) - 446 Non-cash proceeds from settlement of disputed contracts (19,734) - - Other, net 3,079 1,544 3,827 Changes in certain current assets and liabilities -- Receivables, net 12,421 (2,468) 492 Inventories (2,397) (11,807) 16,306 Payables (2,003) (3,440) 6,142 Other 8,012 5,781 4,466 - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 124,549 99,246 139,936 - ---------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (64,323) (62,462) (70,726) Other (8,097) (1,597) 419 - ---------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (72,420) (64,059) (70,307) - ---------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities - - - Preferred stock - - - First mortgage bonds 50,000 - - Pollution control bonds 21,200 - - Capital contributions from parent company - 4,000 7,000 Other long-term debt - - - Retirements: Preferred stock (2,500) (1,750) (1,250) First mortgage bonds (32,807) (6,455) (9,344) Pollution control bonds (21,250) (50) (50) Other long-term debt (7,981) (6,083) (5,611) Notes payable, net - - - Payment of preferred stock dividends (5,237) (5,435) (5,622) Payment of common stock dividends (38,000) (37,000) (37,200) Miscellaneous (3,715) 5 (3) - ---------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (40,290) (52,768) (52,080) - ---------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 11,839 (17,581) 17,549 Cash and Cash Equivalents at Beginning of Year 14,210 31,791 14,242 - ---------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 26,049 $ 14,210 $ 31,791 ============================================================================================================================ ( ) Denotes use of cash. </TABLE> II-179B
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Gulf Power Company <S> <C> <C> ========================================================================================================= For the Years Ended December 31, 1988 1987 - --------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 51,459 $ 48,242 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 56,260 51,672 Deferred income taxes, net 10,138 2,377 Deferred investment tax credits, net - 868 Allowance for equity funds used during construction (457) (1,013) Non-cash proceeds from settlement of disputed contracts - - Other, net 11,449 12,913 Changes in certain current assets and liabilities -- Receivables, net 8,984 (8,849) Inventories (16,160) 23,691 Payables (5,340) 10,173 Other (18,432) 6,208 - --------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 97,901 146,282 - --------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (67,042) (97,511) Other (62,782) (692) - --------------------------------------------------------------------------------------------------------- Net cash used for investing activities (129,824) (98,203) - --------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred securities - - Preferred stock - - First mortgage bonds 35,000 - Pollution control bonds 3,677 35,996 Capital contributions from parent company 25,000 - Other long-term debt - - Retirements: Preferred stock (1,750) (2,500) First mortgage bonds (9,369) - Pollution control bonds (50) (32,050) Other long-term debt (5,175) (4,774) Notes payable, net - - Payment of preferred stock dividends (5,761) (6,025) Payment of common stock dividends (35,400) (34,200) Miscellaneous (233) (1,632) - --------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 5,939 (45,185) - --------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (25,984) 2,894 Cash and Cash Equivalents at Beginning of Year 40,226 37,332 - --------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 14,242 $ 40,226 ========================================================================================================= ( ) Denotes use of cash. </TABLE> II-179C
<TABLE> <CAPTION> BALANCE SHEET Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 921,761 $ 921,295 $ 905,784 Transmission 163,018 161,634 156,786 Distribution 547,403 530,467 512,184 General 130,062 121,114 121,060 Construction work in progress 31,030 23,465 26,301 - ---------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,793,274 1,757,975 1,722,115 Accumulated provision for depreciation 737,767 694,245 658,806 - ---------------------------------------------------------------------------------------------------------------------------- Total 1,055,507 1,063,730 1,063,309 Less property-related accumulated deferred income taxes - - - - ---------------------------------------------------------------------------------------------------------------------------- Total 1,055,507 1,063,730 1,063,309 - ---------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Miscellaneous 622 652 740 - ---------------------------------------------------------------------------------------------------------------------------- Total 622 652 740 - ---------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 4,707 807 680 Investment securities - - - Receivables, net 72,968 71,857 72,593 Fossil fuel stock, at average cost 19,296 28,352 37,875 Materials and supplies, at average cost 28,634 30,252 33,686 Current portion of deferred coal contract costs 4,456 16,389 12,767 Regulatory clauses under recovery 1,675 4,144 3,432 Prepayments 2,171 1,268 12,232 Vacation pay deferred 4,057 4,055 4,419 - ---------------------------------------------------------------------------------------------------------------------------- Total 137,964 157,124 177,684 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 26,586 28,313 29,093 Debt expense, being amortized 2,447 2,922 3,444 Premium on reacquired debt, being amortized 20,494 20,386 17,015 Deferred coal contract costs - 13,126 33,768 Miscellaneous 21,992 22,113 16,806 - ---------------------------------------------------------------------------------------------------------------------------- Total 71,519 86,860 100,126 - ---------------------------------------------------------------------------------------------------------------------------- Total Assets $1,265,612 $1,308,366 $1,341,859 ============================================================================================================================ </TABLE> II-180
<TABLE> <CAPTION> BALANCE SHEETS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 896,236 $ 863,223 $ 841,489 Transmission 155,967 154,304 148,824 Distribution 487,986 464,182 443,352 General 116,178 129,995 127,826 Construction work in progress 24,288 34,591 29,564 - ---------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,680,655 1,646,295 1,591,055 Accumulated provision for depreciation 622,911 610,542 578,851 - ---------------------------------------------------------------------------------------------------------------------------- Total 1,057,744 1,035,753 1,012,204 Less property-related accumulated deferred income taxes - - 200,904 - ---------------------------------------------------------------------------------------------------------------------------- Total 1,057,744 1,035,753 811,300 - ---------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - - Miscellaneous 7,997 13,242 7,074 - ---------------------------------------------------------------------------------------------------------------------------- Total 7,997 13,242 7,074 - ---------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 902 5,576 1,204 Investment securities - - 22,322 Receivables, net 60,384 63,924 60,047 Fossil fuel stock, at average cost 35,686 20,652 29,492 Materials and supplies, at average cost 35,257 36,390 33,124 Current portion of deferred coal contract costs 2,521 12,535 3,071 Regulatory clauses under recovery 5,002 3,244 1,680 Prepayments 4,354 2,160 1,395 Vacation pay deferred 4,172 4,022 3,779 - ---------------------------------------------------------------------------------------------------------------------------- Total 148,278 148,503 156,114 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 30,433 31,334 - Debt expense, being amortized 3,625 3,693 3,253 Premium on reacquired debt, being amortized 18,494 17,554 15,319 Deferred coal contract costs 38,169 52,884 63,723 Miscellaneous 10,802 4,846 5,916 - ---------------------------------------------------------------------------------------------------------------------------- Total 101,523 110,311 88,211 - ---------------------------------------------------------------------------------------------------------------------------- Total Assets $1,315,542 $1,307,809 $1,062,699 ============================================================================================================================ </TABLE> II-181A
<TABLE> <CAPTION> BALANCE SHEETS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 837,712 $ 817,490 $ 807,546 Transmission 143,275 136,813 133,926 Distribution 419,228 400,016 375,521 General 125,330 123,059 119,779 Construction work in progress 13,684 16,868 10,166 - ---------------------------------------------------------------------------------------------------------------------------- Total utility plant 1,539,229 1,494,246 1,446,938 Accumulated provision for depreciation 535,408 501,739 464,944 - ---------------------------------------------------------------------------------------------------------------------------- Total 1,003,821 992,507 981,994 Less property-related accumulated deferred income taxes 197,138 192,749 186,084 - ---------------------------------------------------------------------------------------------------------------------------- Total 806,683 799,758 795,910 - ---------------------------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts 19,938 - - Miscellaneous 6,410 5,439 6,933 - ---------------------------------------------------------------------------------------------------------------------------- Total 26,348 5,439 6,933 - ---------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 26,049 14,210 31,791 Investment securities - - - Receivables, net 49,006 61,427 58,959 Fossil fuel stock, at average cost 52,106 50,469 37,526 Materials and supplies, at average cost 34,070 33,310 34,446 Current portion of deferred coal contract costs 4,626 6,212 5,534 Regulatory clauses under recovery - 7,008 4,503 Prepayments 1,410 2,168 2,490 Vacation pay deferred 3,776 3,631 3,425 - ---------------------------------------------------------------------------------------------------------------------------- Total 171,043 178,435 178,674 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - Debt expense, being amortized 3,232 2,954 3,117 Premium on reacquired debt, being amortized 8,855 6,256 6,574 Deferred coal contract costs 74,502 87,102 97,833 Miscellaneous 5,073 4,635 4,389 - ---------------------------------------------------------------------------------------------------------------------------- Total 91,662 100,947 111,913 - ---------------------------------------------------------------------------------------------------------------------------- Total Assets $1,095,736 $1,084,579 $1,093,430 ============================================================================================================================ </TABLE> II-181B
<TABLE> <CAPTION> BALANCE SHEETS Gulf Power Company <S> <C> <C> ========================================================================================================= At December 31, 1988 1987 - --------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 796,052 $ 801,600 Transmission 113,177 106,352 Distribution 343,421 325,037 General 115,273 102,664 Construction work in progress 29,572 10,113 - --------------------------------------------------------------------------------------------------------- Total utility plant 1,397,495 1,345,766 Accumulated provision for depreciation 425,520 388,248 - --------------------------------------------------------------------------------------------------------- Total 971,975 957,518 Less property-related accumulated deferred income taxes 178,657 166,707 - --------------------------------------------------------------------------------------------------------- Total 793,318 790,811 - --------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - Miscellaneous 6,756 2,932 - --------------------------------------------------------------------------------------------------------- Total 6,756 2,932 - --------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 14,242 40,226 Investment securities - - Receivables, net 59,451 68,435 Fossil fuel stock, at average cost 55,286 43,290 Materials and supplies, at average cost 32,992 28,828 Current portion of deferred coal contract costs 6,194 2,642 Regulatory clauses under recovery 1,218 - Prepayments 3,577 677 Vacation pay deferred 3,340 3,200 - --------------------------------------------------------------------------------------------------------- Total 176,300 187,298 - --------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - Debt expense, being amortized 3,281 3,203 Premium on reacquired debt, being amortized 6,892 7,210 Deferred coal contract costs 106,263 55,889 Miscellaneous 4,415 3,839 - --------------------------------------------------------------------------------------------------------- Total 120,851 70,141 - --------------------------------------------------------------------------------------------------------- Total Assets $1,097,225 $1,051,182 ========================================================================================================= </TABLE> II-181C
<TABLE> <CAPTION> BALANCE SHEETS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 38,060 $ 38,060 $ 38,060 Paid-in capital 218,438 218,438 218,438 Premium on preferred stock 12 81 81 Earnings retained in the business 172,208 179,179 179,663 - ---------------------------------------------------------------------------------------------------------------------------- Total common equity 428,718 435,758 436,242 Preferred stock 13,691 65,102 89,602 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities 40,000 - - Long-term debt 296,993 331,880 323,376 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 779,402 832,740 849,220 - ---------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 47,000 25,000 80,500 Preferred stock due within one year - 24,500 - Long-term debt due within one year 53,327 40,972 31,548 Accounts payable 34,539 32,770 41,643 Customer deposits 13,778 13,464 13,195 Taxes accrued 8,258 8,342 9,547 Interest accrued 7,227 7,629 5,719 Regulatory clauses over recovery 5,062 5,884 2,800 Vacation pay accrued 4,057 4,055 4,419 Miscellaneous 18,949 17,121 7,356 - ---------------------------------------------------------------------------------------------------------------------------- Total 192,197 179,737 196,727 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 166,302 163,857 162,345 Deferred credits related to income taxes 56,935 64,354 67,481 Accumulated deferred investment tax credits 31,552 33,760 36,052 Miscellaneous 39,224 33,918 30,034 - ---------------------------------------------------------------------------------------------------------------------------- Total 294,013 295,889 295,912 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $1,265,612 $1,308,366 $1,341,859 ============================================================================================================================ </TABLE> II-182
<TABLE> <CAPTION> BALANCE SHEETS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 38,060 $ 38,060 $ 38,060 Paid-in capital 218,380 218,282 218,271 Premium on preferred stock 81 81 88 Earnings retained in the business 168,951 157,773 146,771 - ---------------------------------------------------------------------------------------------------------------------------- Total common equity 425,472 414,196 403,190 Preferred stock 89,602 89,602 74,662 Preferred stock subject to mandatory redemption - 1,000 2,000 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 356,393 369,259 382,047 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 871,467 874,057 861,899 - ---------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 53,500 6,053 44,000 Preferred stock due within one year 1,000 1,000 1,000 Long-term debt due within one year 13,439 41,552 13,820 Accounts payable 23,656 38,699 33,461 Customer deposits 13,609 15,082 15,532 Taxes accrued 13,465 13,015 11,419 Interest accrued 6,106 5,420 6,370 Regulatory clauses over recovery 3,960 840 - Vacation pay accrued 4,172 4,022 3,779 Miscellaneous 7,828 8,527 3,950 - ---------------------------------------------------------------------------------------------------------------------------- Total 140,735 134,210 133,331 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 151,681 151,743 - Deferred credits related to income taxes 71,964 76,876 - Accumulated deferred investment tax credits 38,391 40,770 43,117 Miscellaneous 41,304 30,153 24,352 - ---------------------------------------------------------------------------------------------------------------------------- Total 303,340 299,542 67,469 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $1,315,542 $1,307,809 $1,062,699 ============================================================================================================================ </TABLE> II-183A
<TABLE> <CAPTION> BALANCE SHEETS Gulf Power Company <S> <C> <C> <C> ============================================================================================================================ At December 31, 1991 1990 1989 - ---------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 38,060 $ 38,060 $ 38,060 Paid-in capital 218,150 218,150 214,150 Premium on preferred stock 399 399 399 Earnings retained in the business 134,372 114,576 112,862 - ---------------------------------------------------------------------------------------------------------------------------- Total common equity 390,981 371,185 365,471 Preferred stock 55,162 55,162 55,162 Preferred stock subject to mandatory redemption 7,500 9,250 11,000 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 434,648 475,284 484,608 - ---------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 888,291 910,881 916,241 - ---------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - - - Preferred stock due within one year 1,000 1,750 1,750 Long-term debt due within one year 59,111 9,452 12,588 Accounts payable 25,315 27,447 34,764 Customer deposits 15,513 15,551 15,752 Taxes accrued 19,274 19,610 12,388 Interest accrued 9,720 10,820 10,105 Regulatory clauses over recovery 1,114 - - Vacation pay accrued 3,776 3,631 3,425 Miscellaneous 3,545 12,177 7,759 - ---------------------------------------------------------------------------------------------------------------------------- Total 138,368 100,438 98,531 - ---------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 1,775 6,736 13,381 Deferred credits related to income taxes - - - Accumulated deferred investment tax credits 45,446 47,776 50,109 Miscellaneous 21,856 18,748 15,168 - ---------------------------------------------------------------------------------------------------------------------------- Total 69,077 73,260 78,658 - ---------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $1,095,736 $1,084,579 $1,093,430 ============================================================================================================================ </TABLE> II-183B
<TABLE> <CAPTION> BALANCE SHEETS Gulf Power Company <S> <C> <C> ========================================================================================================= At December 31, 1988 1987 - --------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 38,060 $ 38,060 Paid-in capital 207,150 182,150 Premium on preferred stock 399 399 Earnings retained in the business 112,701 102,403 - --------------------------------------------------------------------------------------------------------- Total common equity 358,310 323,012 Preferred stock 55,162 55,162 Preferred stock subject to mandatory redemption 12,750 14,000 Company obligated mandatorily redeemable preferred securities - - Long-term debt 497,069 474,640 - --------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 923,291 866,814 - --------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - - Preferred stock due within one year 1,250 1,750 Long-term debt due within one year 15,005 13,225 Accounts payable 29,595 34,500 Customer deposits 15,316 15,565 Taxes accrued 10,683 7,850 Interest accrued 10,247 9,584 Regulatory clauses over recovery - 9,330 Vacation pay accrued 3,340 3,200 Miscellaneous 2,748 2,144 - --------------------------------------------------------------------------------------------------------- Total 88,184 97,148 - --------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 17,678 22,992 Deferred credits related to income taxes - - Accumulated deferred investment tax credits 52,451 54,597 Miscellaneous 15,621 9,631 - --------------------------------------------------------------------------------------------------------- Total 85,750 87,220 - --------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $1,097,225 $1,051,182 ========================================================================================================= </TABLE> II-183C
<TABLE> <CAPTION> GULF POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1997 <S> <C> <C> <C> <C> First Mortgage Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - -------------------------------------------------------------------------------------------------- (Thousands) (Thousands) 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 -------- -------- $130,000 $130,000 ======== ======== Pollution Control Bonds Amount Interest Amount Series Issued Rate Outstanding Maturity - -------------------------------------------------------------------------------------------------- (Thousands) (Thousands) 1996 $ 12,075 5.25% $ 12,075 4/1/06 1997 40,930 Variable 40,930 7/1/22 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 -------- -------- $169,630 $169,630 ======== ======== Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Company Junior Subordinated Notes Preferred Securities Interest Amount Series Outstanding Rate Outstanding - -------------------------------------------------------------------------------------------------- (Thousands) 1997 1,600,000 7.625% 40,000 Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding - -------------------------------------------------------------------------------------------------- (Thousands) 1950 12,553 4.64% $ 1,255 1960 13,574 5.16% 1,357 1966 16,284 5.44% 1,629 1993 346,429 6.72% 8,661 1993 31,560 Adjustable 789 ------- -------- 420,400 $ 13,691 ======= ======== </TABLE> II-184
<TABLE> <CAPTION> GULF POWER COMPANY SECURITIES RETIRED DURING 1997 <S> <C> <C> First Mortgage Bonds Principal Interest Series Amount Rate - --------------------------------------------------------------------------------------- (Thousands) 1992 $25,000 5-7/8% Pollution Control Bonds Principal Interest Series Amount Rate - --------------------------------------------------------------------------------------- (Thousands) 1987 $32,000 8-1/4% 1992 8,930 6-3/4% ------- $40,930 ======= Preferred Stock Principal Dividend Series Amount Rate - --------------------------------------------------------------------------------------- (Thousands) 1950 $ 3,847 4.64% 1960 3,643 5.16% 1966 3,371 5.44% 1969 5,000 7.52% 1972 5,000 7.88% 1992 14,500 7% 1992 15,000 7.30% 1993 11,339 6.72% 1993 14,211 Adjustable ------- $75,911 ======= </TABLE> II-185 MISSISSIPPI POWER COMPANY FINANCIAL SECTION II-186
MANAGEMENT'S REPORT Mississippi Power Company 1997 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. /s/ Dwight H. Evans Dwight H. Evans President and Chief Executive Officer /s/ Michael W. Southern Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer February 11, 1998 II-187
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, 1997 and 1996, 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, 1997. 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-196 through II-211) referred to above present fairly, in all material respects, the financial position of Mississippi Power Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP Atlanta, Georgia February 11, 1998 II-188
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Mississippi Power Company 1997 Annual Report RESULTS OF OPERATIONS Earnings Mississippi Power Company's net income after dividends on preferred stock for 1997 was $54.0 million, reflecting a 2.4 percent or $1.3 million increase above 1996. The increased earnings is due to lower operating expenses. In 1996, earnings were $52.7 million, up $0.2 million from the prior year. Earnings reflected a modest increase in energy sales, an annual retail rate decrease of $3.0 million under the Environmental Compliance Overview Plan (ECO Plan) and an annual retail increase of $4.5 million under the Performance Evaluation Plan (PEP) which became effective in October 1996. Revenues The following table summarizes the factors impacting operating revenues for the past three years: Increase (Decrease) from Prior Year ------------------------------------- 1997 1996 1995 ------------------------------------- (in thousands) Retail -- Change in base rates (PEP and ECO Plan) $ 3,177 $ (402) $ 2,694 Sales growth 109 11,187 4,045 Weather (1,118) (5,585) 4,513 Fuel cost recovery and other 948 (1,255) 3,806 --------------------------------------------------------------- Total retail 3,116 3,945 15,058 --------------------------------------------------------------- Sales for resale -- Non-affiliates 5,464 7,776 3,698 Affiliates (11,606) 14,139 (1,847) --------------------------------------------------------------- Total sales for resale (6,142) 21,915 1,851 Other operating revenues 2,585 1,616 482 --------------------------------------------------------------- Total operating revenues $ (441) $27,476 $17,391 =============================================================== Percent change (0.1)% 5.3% 3.5% --------------------------------------------------------------- Retail revenues in 1997 were $417 million, up 0.8 percent from the corresponding amount in 1996. The increase in retail revenues was primarily caused by the October 1996 PEP retail rate increase, as mentioned above, and the January 1997 ECO Plan retail rate increase of $0.9 million. Retail revenues for 1996 when compared to 1995 reflected a 1.0 percent increase due to modest growth in energy sales to industrial, commercial and residential customers, as well as changes in retail revenues due to the ECO Plan and PEP. Changes in base rates reflect any 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. 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 3.6 percent in 1997 and 6.4 percent in 1996, with the related revenues rising 1.6 percent and 7.1 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: 1997 1996 1995 ------------------------------------- (in thousands) Capacity $ 8 $ - $ 268 Energy 1,896 3,761 3,627 ---------------------------------------------------------- Total $1,904 $3,761 $3,895 ========================================================== 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. II-189
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1997 Annual Report 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 1997 and the percent change for the last three years: Amount Percent Change (millions of ----------- ------------------------------ kilowatt-hours) 1997 1997 1996 1995 ---------- ------------------------------ Residential 2,039 (2.0)% 1.9% 6.2% Commercial 2,408 4.0 3.3 6.7 Industrial 3,982 0.6 3.8 (0.9) Other 40 2.6 1.9 1.1 ---------- Total retail 8,469 0.9 3.2 2.9 Sales for resale -- Non-affiliates 2,895 6.2 9.4 (2.4) Affiliates 479 (31.0) 184.7 39.7 ---------- Total 11,843 0.2 8.7 2.2 ================================================================ Total retail energy sales for 1997 compared to 1996 and for 1996 compared to 1995 increased primarily due to growth in the number of customers served by the Company. 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 1997 were $466 million, reflecting a decrease of $1.3 million or 0.3 percent when compared to the corresponding amount in 1996. The decrease was due primarily to lower administrative and general expenses. In 1996, total operating expenses increased by 6.6 percent when compared to the prior year due to higher fuel expenses, higher maintenance and higher depreciation and amortization. Fuel costs are the single largest expense for the Company. Fuel expenses for 1997 when compared to 1996 increased by 0.4 percent due to a 1.1 percent increase in generation. The increase in generation was due to the higher demand for energy in the retail sector. In 1997, expenses related to purchased power from non-affiliates decreased 19.1 percent and expenses related to purchased power from affiliates increased 13.7 percent due to the increased availability of energy within the Southern electric system. A comparison of 1996 to 1995 fuel costs reflects an increase that was due to a 21.7 percent increase in generation. This increased generation was due to higher demand for energy across the Southern electric system. Further, the higher demand for energy resulted in higher purchased power costs from non-affiliates and lower purchased power from affiliates of the Southern electric system. Purchased power consists mainly of energy purchases from affiliates in 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. II-190
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1997 Annual Report 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: 1997 1996 1995 ------------------------------ Total generation (millions of kilowatt-hours) 10,289 10,180 8,368 Sources of energy supply (percent) -- Coal 70 70 58 Gas 13 12 15 Oil * * * Purchased Power 17 18 27 Average cost of fuel per net kilowatt-hour generated (cents) -- Coal 1.44 1.43 1.58 Gas 3.54 4.24 2.32 Oil - 5.71 6.21 Total average cost of energy supply 1.57 1.56 1.53 - -------------------------------------------------------------- * Not meaningful because of minimal generation from the fuel source. Other operation expense in 1997 decreased 3.5 percent from the amount recorded in 1996. The decrease was due to lower administrative and general expenses. Maintenance expenses in 1996 when compared to 1995 increased due to the timing of maintenance performed at Plants Daniel and Watson, as well as other projects. In 1996, as compared to 1995, depreciation and amortization increased primarily due to additional plant investment, higher depreciation rates beginning in 1996, and increased amortization of regulatory assets. Comparisons of taxes other than income taxes for 1997 to 1996 and for 1996 to 1995 show increases of 1.1 percent and 2.6 percent, respectively, due to higher municipal franchise taxes resulting from higher retail revenues. 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. See Note 2 to the financial statements under "Workforce Reduction Programs" for information regarding the Company's workforce reduction plan of 1997. The Company currently operates as a vertically integrated company providing electricity to customers within its traditional service area located in southeastern Mississippi. Prices for electricity provided by the Company to retail customers are set by the MPSC under cost-based regulatory principles. 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 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." II-191
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1997 Annual Report The Federal Energy Regulatory Commission (FERC) regulates the Company's wholesale rate schedules, power sales contracts and transmission facilities. 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 found in Note 3 to the financial statements herein. Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include 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. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). 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. Although the Energy Act does not permit retail transmission access, it has been a catalyst for some emerging restructuring and consolidation within the utility industry. There are federal and various state initiatives in various stages which would promote wholesale and retail competition. Certain of these initiatives would result in some form of separation of generation, transmission and distribution facilities. As these changes take place the structure of the utility industry could change. Restructuring initiatives are being discussed in Mississippi; none have been enacted to date. Enactment would have to encompass the resolution of numerous complex legislative, jurisdictional, financial and operational issues. 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 that are not specifically recoverable, 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 inability of Mississippi Power to recover its investment, including regulatory assets, could have a material adverse effect on the financial condition of the Company. The Company is attempting to minimize or reduce its cost exposure. Continuing to be a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with changing regulation. Conversely, unless Mississippi Power 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 heavily dependent upon complex computer systems for all phases of its operations. The year 2000 issue--common to most corporations--concerns the inability of certain software and databases to properly recognize date sensitive information related to the year 2000 and thereafter. This problem could result in a material disruption to the company's operations, if not corrected. Mississippi Power has assessed and developed a detailed strategy to prevent or at least minimize problems related to the year 2000 issue. In 1997, resources were committed and implementation began to modify the affected information systems. Total costs related to the project are estimated to be approximately $4.8 million, of which $0.5 million was spent in 1997. Most all remaining costs will be expensed in 1998. Implementation is currently on schedule. Although, the degree of success of this project cannot be determined at this time, management believes that there will be no significant effect on the Company's operations. II-192
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1997 Annual Report Exposure to Market Risk Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1997, exposure from these activities was not material to the Company's financial position, results of operations, or cash flows. New Accounting Standards The FASB has issued Statement No. 130, Reporting Comprehensive Income, which will be effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners (comprehensive income). Comprehensive income is the total of net income and all other non-owner changes in equity. The Company will adopt the new rules in 1998. The FASB has issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. Southern Company adopted the new rules effective December 31, 1997. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. Mississippi Power adopted the new rules in 1997, and they did not have any significant impact on the Company's financial reporting. However, this conclusion may change as industry restructuring and competitive factors influence the Company's operations. FINANCIAL CONDITION Overview The principal change in Mississippi Power's financial condition during 1997 was gross property additions to utility plant of $55 million. Funding for gross property additions and other capital requirements has been provided from operating activities, principally earnings and the non-cash charges to income of depreciation and amortization, and the issuance of preferred securities. The Statements of Cash Flows provide additional details. Financing Activity Retirements, including maturities during 1997, primarily related to preferred stock, totaled some $42 million. 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. (See the Statements of Cash Flows for further details.) Composite financing rates for the years 1995 through 1997 as of year-end were as follows: 1997 1996 1995 ----------------------------- Composite interest rate on long-term debt 6.16% 6.03% 6.63% Composite preferred stock dividend rate 6.33% 6.58% 6.58% Composite interest rate on preferred securities 7.75% - - ----------------------------------------------------------- The decrease in the composite dividend rate on preferred stock in 1997 is primarily the result of retirements. Capital Structure At year-end 1997, the Company's ratio of common equity to total capitalization, excluding long-term debt due within one year, was 52.0 percent, compared to 48.9 percent in 1996. The increase in equity ratio in 1997 is attributed to the reclassification of $35 million of long-term debt to a current liability. Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $450 million ($67 million in 1998, $92 million in 1999, and $291 million in 2000). The major emphasis within the construction program will be on the upgrade of existing facilities and the addition of combined cycle generation. In 1998, Mississippi Power received approval from the MPSC to build up to 1,000 megawatts of natural gas-fired combined cycle generation at Plant Daniel. Construction is expected to begin in 1999. 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, and alternatives such as leasing. II-193
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1997 Annual Report Other Capital Requirements In addition to the funds required for the Company's construction program, approximately $155.1 million will be required by the end of 2000 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 -- significantly affected 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. Southern Company achieved Phase I sulfur dioxide compliance at the affected plants by switching to low-sulfur coal, which required some equipment upgrades. Construction expenditures for Phase I compliance totaled approximately $65 million for Mississippi 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. 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. 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. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. Also, in October 1997, the EPA issued a proposed regional ozone rule which-- if implemented-- could require substantial further reductions in NOx emissions from fossil-fueled generating facilities. Implementation of the standards and the proposed rule could result in significant additional compliance costs and capital expenditures that cannot be determined at this time. The EPA and state environmental regulatory agencies are reviewing and evaluating various matters including: 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. 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 II-194
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Mississippi Power Company 1997 Annual Report 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 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 lawsuits alleging damages caused by electromagnetic fields. The likelihood or outcome of such potential lawsuits cannot be determined at this time. Sources of Capital At December 31, 1997, the Company had $76.3 million of unused committed credit agreements. The Company had no short-term notes payable outstanding at year end 1997. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulations, will be derived from sources similar to those used in the past. These sources were primarily the issuances of first mortgage bonds and preferred stock, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities. Recently, the Company issued trust preferred securities and plans to issue unsecured debt in 1998. In this regard, Mississippi Power sought and obtained stockholder approval in 1997 to amend its corporate charter eliminating restrictions on the amounts of unsecured indebtedness the Company may incur. 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. Cautionary Statement Regarding Forward-Looking Information This annual report, including the foregoing Management's Discussion and Analysis, contains forward-looking statements in addition to historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies -- including acquisitions or dispositions of assets or internal restructuring -- that may be pursued by the Company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports (including Form 10-K) filed from time to time by the Company with the SEC. II-195
<TABLE> <CAPTION> STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996, and 1995 Mississippi Power Company 1997 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues (Notes 1 and 3): <S> <C> <C> <C> Revenues $ 533,445 $ 522,199 $ 508,862 Revenues from affiliates 10,143 21,830 7,691 - --------------------------------------------------------------------------------------------------------------------------- Total operating revenues 543,588 544,029 516,553 - --------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation-- Fuel 142,059 141,532 111,071 Purchased power from non-affiliates 14,536 17,960 6,019 Purchased power from affiliates 37,794 33,245 57,777 Other 102,365 106,061 107,296 Maintenance 47,302 47,091 39,627 Depreciation and amortization 45,574 44,906 39,224 Taxes other than income taxes 44,034 43,545 42,443 Federal and state income taxes (Note 8) 31,968 32,618 34,486 - --------------------------------------------------------------------------------------------------------------------------- Total operating expenses 465,632 466,958 437,943 - --------------------------------------------------------------------------------------------------------------------------- Operating Income 77,956 77,071 78,610 Other Income (Expense): Interest income 857 239 199 Other, net 2,368 4,145 4,962 Income taxes applicable to other income 588 (932) (1,006) - --------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 81,769 80,523 82,765 - --------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 19,856 19,898 21,898 Interest on notes payable 96 1,416 1,141 Amortization of debt discount, premium, and expense, net 1,577 1,547 1,510 Other interest charges 574 40 786 Distributions on preferred securities of subsidiary trust 2,369 - - - --------------------------------------------------------------------------------------------------------------------------- Net interest charges 24,472 22,901 25,335 - --------------------------------------------------------------------------------------------------------------------------- Net Income 57,297 57,622 57,430 Dividends on Preferred Stock 3,287 4,899 4,899 =========================================================================================================================== Net Income After Dividends on Preferred Stock $ 54,010 $ 52,723 $ 52,531 =========================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-196
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996, and 1995 Mississippi Power Company 1997 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: <S> <C> <C> <C> Net income $ 57,297 $ 57,622 $ 57,430 Adjustments to reconcile net income to net cash provided by operating activities-- Depreciation and amortization 49,661 50,551 51,588 Deferred income taxes (1,809) 74 (480) Other, net 3,206 9,443 5,338 Changes in certain current assets and liabilities-- Receivables, net (8,583) 5,118 (8,758) Inventories 3,148 4,973 3,962 Payables 8,357 2,077 17,421 Taxes accrued 2,515 532 - Other 1,465 (240) 681 - ---------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 115,257 130,150 127,182 - ---------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (55,375) (61,314) (67,570) Other (489) (2,258) (1,697) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (55,864) (63,572) (69,267) - ---------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds-- Capital contribution - 27 - First mortgage bonds - - 30,000 Pollution control bonds - - 10,600 Preferred securities 35,000 - - Other long-term debt - 80,000 - Retirements-- Preferred stock (42,518) - - First mortgage bonds - (45,447) (1,625) Pollution control bonds (10) (10) (10) Other long-term debt - (55,000) (40,689) Payment of preferred stock dividends (3,287) (4,899) (4,899) Payment of common stock dividends (49,400) (43,900) (39,400) Miscellaneous (1,804) (2,932) (568) - ---------------------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (62,019) (72,161) (46,591) - ---------------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (2,626) (5,583) 11,324 Cash and Cash Equivalents at Beginning of Year 7,058 12,641 1,317 - ---------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 4,432 $ 7,058 $ 12,641 ================================================================================================================================== Supplemental Cash Flow Information: Cash paid during the period for-- Interest (net of amount capitalized) $ 22,297 $ 21,467 $ 23,308 Income taxes 33,450 34,072 36,908 - ---------------------------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-197
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Mississippi Power Company 1997 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- ASSETS 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: <S> <C> <C> Plant in service, at original cost (Notes 1 and 6) $ 1,518,402 $ 1,483,875 Less accumulated provision for depreciation 559,098 526,776 - -------------------------------------------------------------------------------------------------------------------------------- 959,304 957,099 Construction work in progress 41,083 35,100 - -------------------------------------------------------------------------------------------------------------------------------- Total 1,000,387 992,199 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 650 3,054 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 4,432 7,058 Receivables-- Customer accounts receivable 32,220 26,364 Regulatory clauses under recovery 7,619 7,300 Other accounts and notes receivable 8,666 7,468 Affiliated companies 7,398 6,329 Accumulated provision for uncollectible accounts (698) (839) Fossil fuel stock, at average cost 10,651 12,168 Materials and supplies, at average cost 19,452 21,083 Current portion of accumulated deferred income taxes 8,379 7,227 Prepayments 1,791 4,744 Vacation pay deferred 5,030 4,806 - -------------------------------------------------------------------------------------------------------------------------------- Total 104,940 103,708 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Debt expense and loss, being amortized 12,234 12,220 Deferred charges related to income taxes (Note 8) 21,906 22,274 Long-term notes receivable 2,837 3,737 Workforce Reduction Plan 18,236 - Miscellaneous 5,639 5,135 - -------------------------------------------------------------------------------------------------------------------------------- Total 60,852 43,366 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 1,166,829 $ 1,142,327 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-198
<TABLE> <CAPTION> BALANCE SHEETS (continued) At December 31, 1997 and 1996 Mississippi Power Company 1997 Annual Report - -------------------------------------------------------------------------------------------------------------------------------- CAPITALIZATION AND LIABILITIES 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): <S> <C> <C> Common stock equity $ 387,824 $ 383,734 Preferred stock 31,896 74,414 Company obligated mandatorily redeemable preferred securities of subsidiary trust holding Company Junior Subordinated Notes (Note 9) 35,000 - Long-term debt 291,665 326,379 - -------------------------------------------------------------------------------------------------------------------------------- Total 746,385 784,527 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Long-term debt due within one year (Note 11) 35,020 10 Accounts payable-- Affiliated companies 8,548 4,136 Regulatory clauses over recovery 15,476 8,788 Other 34,065 38,720 Customer deposits 3,225 3,154 Taxes accrued-- Federal and state income 1,101 - Other 33,859 32,445 Interest accrued 4,098 4,384 Miscellaneous 12,797 13,942 - -------------------------------------------------------------------------------------------------------------------------------- Total 148,189 105,579 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 8) 134,645 133,437 Accumulated deferred investment tax credits 27,121 28,333 Deferred credits related to income taxes (Note 8) 38,203 40,568 Postretirement benefits other than pension 25,145 21,850 Accumulated provision for property damage (Note 1) 13,991 12,955 Workforce Reduction Plan 15,700 - Miscellaneous 17,450 15,078 - -------------------------------------------------------------------------------------------------------------------------------- Total 272,255 252,221 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 2, 3, 4, and 5) Total Capitalization and Liabilities $ 1,166,829 $ 1,142,327 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-199
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION At December 31, 1997 and 1996 Mississippi Power Company 1997 Annual Report - --------------------------------------------------------------------------------------------------------------------------- 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity: <S> <C> <C> <C> <C> Common stock, without par value -- Authorized -- 1,130,000 shares Outstanding -- 1,121,000 shares in 1997 and 1996 $ 37,691 $ 37,691 Paid-in capital 179,389 179,389 Premium on preferred stock 327 372 Retained earnings (Note 12) 170,417 166,282 - --------------------------------------------------------------------------------------------------------------------------- Total common stock equity 387,824 383,734 52.0% 48.9% - --------------------------------------------------------------------------------------------------------------------------- Cumulative Preferred Stock: $100 par value -- Authorized -- 1,244,139 shares Outstanding --318,955 shares in 1997 and 744,139 shares in 1996 4.40% 948 4,000 4.60% 874 2,010 4.72% 1,670 5,000 6.32% 15,000 15,000 6.65% 8,404 8,404 7.00% 5,000 5,000 7.25% - 35,000 - --------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $2,018,000) 31,896 74,414 4.3 9.5 - --------------------------------------------------------------------------------------------------------------------------- Company Obligated Mandatorily Redeemable Preferred Securities (Note 9): $25 liquidation value -- 7.75% 35,000 - - --------------------------------------------------------------------------------------------------------------------------- Total (annual dividend requirement -- $2,713,000) 35,000 - 4.7 - - --------------------------------------------------------------------------------------------------------------------------- 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 June 1, 2023 7.45% 35,000 35,000 December 1, 2025 6 7/8% 30,000 30,000 - --------------------------------------------------------------------------------------------------------------------------- Total first mortgage bonds 175,000 175,000 Pollution control obligations (Note 10) 73,725 73,735 Other long-term debt (Note 10) 80,000 80,000 Unamortized debt premium (discount), net (2,040) (2,346) - --------------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement--$20,246,000) 326,685 326,389 Less amount due within one year (Note 11) 35,020 10 - --------------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 291,665 326,379 39.0 41.6 - --------------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 746,385 $ 784,527 100.0% 100.0% =========================================================================================================================== The accompanying notes are an integral part of these statements. </TABLE> II-200
<TABLE> <CAPTION> STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1997, 1996, and 1995 Mississippi Power Company 1997 Annual Report - --------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- (in thousands) <S> <C> <C> <C> Balance at Beginning of Period $ 166,282 $ 157,459 $ 144,328 Net income after dividends on preferred stock 54,010 52,723 52,531 Cash dividends on common stock (49,400) (43,900) (39,400) Preferred stock transactions and other, net (475) - - ===================================================================================================================== Balance at End of Period (Note 12) $ 170,417 $ 166,282 $ 157,459 ===================================================================================================================== STATEMENTS OF PAID-IN CAPITAL For the Years Ended December 31, 1997, 1996, and 1995 - --------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Period $ 179,389 $ 179,362 $ 179,362 Contributions to capital by parent company - 27 - ===================================================================================================================== Balance at End of Period $ 179,389 $ 179,389 $ 179,362 ===================================================================================================================== The accompanying notes are an integral part of these statements. II-201 </TABLE>
NOTES TO FINANCIAL STATEMENTS Mississippi Power Company 1997 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 Southern Energy Solutions, 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) and/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. Worldwide, Southern Energy develops and manages electricity and other energy related projects, including domestic energy trading and marketing. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Energy Solutions 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 expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets as of December 31 relate to: 1997 1996 ------------------------- (in thousands) Deferred income taxes $21,906 $22,274 Vacation pay 5,030 4,806 Workforce reduction costs - 1,991 Workforce reduction plan of 1997 18,236 - Premium on reacquired debt 9,508 10,672 Deferred environmental costs 1,583 1,679 Property damage reserve (13,991) (12,955) Deferred income tax credits (38,203) (40,568) Other, net (2,982) (2,882) - ---------------------------------------------------------------- Total $ 1,087 $(14,983) ================================================================ In the event that a portion of the Company's operations is no longer subject to the provisions of FASB Statement No. 71, the Company would be required to write off the net regulatory assets and liabilities related to that portion of operations that are not specifically recoverable through regulated rates. 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 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, the energy component of purchased power costs and certain other costs. Retail rates also include II-202
NOTES (continued) Mississippi Power Company 1997 Annual Report provisions to adjust billings for fluctuations in costs for ad valorem taxes and certain qualifying environmental costs. 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 1997, 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 1997 and 1996, and 3.2 percent in 1995. 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. 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. If applicable, the cost of maintenance, repairs, and replacement of minor items of property are 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, at December 31 are as follows: Carrying Fair Amount Value -------------------- (in millions) Long-term debt: At December 31, 1997 $327 $330 At December 31, 1996 326 324 Preferred securities: At December 31, 1997 35 36 At December 31, 1996 - - - -------------------------------------------------------- The fair value for long-term debt and preferred securities 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. 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 each of the years 1997, 1996 and 1995. 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, 1997, the accumulated provision amounted to $14.0 million. II-203
NOTES (continued) Mississippi Power Company 1997 Annual Report 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. The Company funds trusts 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 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 funded status of the plans and reconciliation to amounts reflected in the Balance Sheets at December 31 are as follows: Pension ------------------------ 1997 1996 ------------------------ (in thousands) Actuarial present value of benefit obligation: Vested benefits $102,764 $92,091 Non-vested benefits 3,120 5,191 -------------------------------------------------------------- Accumulated benefit obligation 105,884 97,282 Additional amounts related to projected salary increases 26,247 30,552 -------------------------------------------------------------- Projected benefit obligation 132,131 127,834 Less: Fair value of plan assets 207,457 179,658 Unrecognized net gain (78,936) (56,674) Unrecognized prior service cost 5,819 6,422 Unrecognized transition asset (4,904) (5,449) -------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ 2,695 $3,877 ============================================================== Postretirement Benefits ------------------------ 1997 1996 ------------------------ (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $19,816 $20,841 Employees eligible to retire 3,691 2,703 Other employees 19,910 17,564 ------------------------------------------------------------ Accumulated benefit obligation 43,417 41,108 Less: Fair value of plan assets 12,916 10,210 Unrecognized net (gain)/ loss (1,980) 1,136 Unrecognized transition obligation 5,314 5,911 ------------------------------------------------------------ Accrued liability recognized in the Balance Sheets $27,167 $23,851 ============================================================ II-204
NOTES (continued) Mississippi Power Company 1997 Annual Report The weighted average rates assumed in the above actuarial calculations were: 1997 1996 1995 --------------------------------- Discount 7.5% 7.8% 7.3% Annual salary increase 5.0 5.3 4.8 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 8.8 percent for 1997, decreasing gradually to 5.5 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, 1997, by $3.3 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 -------------------------------- 1997 1996 1995 -------------------------------- (in thousands) Benefits earned during the year $4,015 $ 3,842 $ 3,636 Interest cost on projected benefit obligation 9,408 9,310 8,434 Actual (return) loss on plan assets (30,680) (20,438) (32,232) Net amortization and deferral 16,026 6,442 18,650 -------------------------------------------------------------- Net pension income $(1,231) $ (844) $ (1,512) ============================================================== Of the above net pension income, $(0.9) million in 1997, $(0.6) million in 1996, and $(1.1) million in 1995 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits ------------------------------ 1997 1996 1995 ------------------------------ (in thousands) Benefits earned during the year $ 867 $ 958 $1,525 Interest cost on accumulated benefit obligation 2,922 2,830 3,442 Amortization of transition obligation over 20 years 362 362 1,027 Actual (return) loss on plan assets (1,388) (990) (1,436) Net amortization and deferral 566 312 851 ================================================================ Net postretirement costs $3,329 $3,472 $5,409 ================================================================ Of the above net postretirement costs recorded, $2.6 million in 1997, $2.8 million in 1996, and $3.9 million in 1995 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Workforce Reduction Programs During 1994, Mississippi Power and SCS instituted workforce reduction programs. The costs of the SCS workforce 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 $2.0 million, $5.3 million, and $4.0 million of the cost of these programs in 1997, 1996 and 1995, respectively. In 1997, Mississippi Power expensed its pro-rata share of the costs for affiliated companies' programs of $0.5 million. In 1997, approximately one hundred employees of Mississippi Power, in certain areas, including finance, environmental quality and external affairs, accepted the terms under a workforce reduction plan. The total cost to be incurred in connection with this voluntary plan is expected to be $18.2 million. The MPSC approved the deferral and amortization of these program costs over a period not to exceed 60 months beginning no later than July 1998. The unamortized balance of this program was $18.2 million at December 31, 1997. II-205
NOTES (continued) Mississippi Power Company 1997 Annual Report 3. LITIGATION AND REGULATORY MATTERS Retail Rate Adjustment Plans Mississippi Power's retail base rates are set under a Performance Evaluation Plan (PEP) approved by the MPSC in 1994. PEP was designed with the objective 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 includes a mechanism for sharing rate adjustments based on the Company's ability to maintain low rates for customers and on the Company's performance as measured by three indicators that emphasize price and service to the customer. PEP 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 will remain in effect until the MPSC modifies or terminates the plan. In September 1996, the MPSC under PEP approved a retail revenue increase of $4.5 million (1.06 percent of annual retail revenue) which became effective in October 1996. There were no PEP retail revenue changes for 1997. 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 $4.1 million for Mississippi Power at December 31, 1997. Although management believes that rates are not excessive and that refunds are not justified, the final outcome of this matter cannot now be determined. 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. 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. In 1997, the Company's filing with the MPSC under the ECO Plan resulted in an annual retail rate increase of $0.9 million. The 1998 ECO filing, if approved by the MPSC, will result in a small decrease in customer prices. Mississippi Power conducts studies, when possible, to determine the extent of any required environmental remediation. 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 II-206
NOTES (continued) Mississippi Power Company 1997 Annual Report ECO Plan as provided in the Company's 1995 ECO order. As of December 31, 1997, the balance in the liability and regulatory asset accounts was $1.6 million. 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. 4. CONSTRUCTION PROGRAM Mississippi Power is engaged in continuous construction programs, the costs of which are currently estimated to total $67 million in 1998, $92 million in 1999, and $291 million in 2000. 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. Significant construction will continue related to transmission and distribution facilities, the upgrading of generating plants, and the addition of combined cycle generation. 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, 1997, Mississippi Power had total committed credit agreements with banks for $96.3 million. At year-end 1997, the unused portion of these committed credit agreements was $76.3 million. These credit agreements expire at various dates in 1998 and in 2000. 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, 1997, 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 1997 use fees collected under this agreement, net of related expenses, amounted to $3.5 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. The Company has the option to purchase the 745 railcars at the greater of lease termination value or fair market value, or to renew the leases at the end of the lease term. In 1997, a third lease agreement for the use of 360 railcars was also entered into for three years, with a monthly renewal option for up to an additional nine months. All of these leases, totaling 1,105 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, charged to fuel inventory, was $2.0 million in 1997, and $1.7 million in both 1996 and 1995. The Company's annual lease payments for 1998 through 2002 will average approximately $2.2 million and after 2002, lease payments total in aggregate approximately $18 million. II-207
NOTES (continued) Mississippi Power Company 1997 Annual Report 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. Total estimated obligations at December 31, 1997 were as follows: Year Fuel (in millions) 1998 $137 1999 88 - --------------------------------------------------- Total commitments $225 =================================================== Additional commitments for fuel will be required in the future to supply the Company's fuel needs. In 1996, Mississippi Power entered into agreements to purchase options for summer peaking power for the years 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 1997, Mississippi Power exercised its option to purchase 250 megawatts of peaking capacity. In June 1997, the MPSC approved Mississippi Power's request that it be allowed to earn a return on the capacity portion of this agreement. Mississippi Power expects to exercise its options to purchase 300 megawatts of summer peaking capacity in 1998. 6. JOINT OWNERSHIP AGREEMENTS Mississippi Power and Alabama Power own as tenants in common Units 1 and 2 at 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, 1997, 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 Units 1 and 2 500 40% $ 63,206 $30,168 Daniel 1,000 50% 220,984 92,484 ---------------------------------------------------------------- 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 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. 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 $8,000 in 1997; $0 in 1996; and $268,000 in 1995. 8. INCOME TAXES At December 31, 1997, the tax-related regulatory assets and liabilities were $22 million and $38 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-208
NOTES (continued) Mississippi Power Company 1997 Annual Report Details of the federal and state income tax provisions are shown below: 1997 1996 1995 --------------------------------- (in thousands) Total provision for income taxes Federal -- Currently payable $27,651 $29,888 $32,546 Deferred --current year 8,171 13,816 5,122 --reversal of prior years (9,236) (14,913) (7,039) --------------------------------------------------------------- 26,586 28,791 30,629 --------------------------------------------------------------- State -- Currently payable 5,537 3,588 3,426 Deferred --current year 1,756 4,727 2,270 --reversal of prior years (2,499) (3,556) (833) --------------------------------------------------------------- 4,794 4,759 4,863 --------------------------------------------------------------- Total 31,380 33,550 35,492 Less income taxes charged to other income (588) 932 1,006 --------------------------------------------------------------- Federal and state income taxes charged to operations $31,968 $32,618 $34,486 =============================================================== 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: 1997 1996 ----------------------------- (in thousands) Deferred tax liabilities: Accelerated depreciation $149,941 $148,667 Basis differences 10,037 10,507 Other 25,097 19,285 ------------------------------------------------------------- Total 185,075 178,459 ------------------------------------------------------------- Deferred tax assets: Other property basis differences 23,139 24,434 Pension and other benefits 9,803 8,750 Property insurance 5,351 4,955 Unbilled fuel 802 2,808 Other 19,714 11,302 ------------------------------------------------------------- Total 58,809 52,249 ------------------------------------------------------------- Net deferred tax liabilities 126,266 126,210 Portion included in current assets, net 8,379 7,227 ------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $134,645 $133,437 ============================================================= 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 $1.2 million in 1997, $1.4 million in 1996, and $1.5 million in 1995. At December 31, 1997, 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: 1997 1996 1995 ----------------------------- Total effective tax rate 37% 37% 38% State income tax, net of federal income tax benefit (3) (3) (3) Tax rate differential 1 1 - ------------------------------------------------------------- Statutory federal tax rate 35% 35% 35% ============================================================= II-209
NOTES (continued) Mississippi Power Company 1997 Annual Report Mississippi Power and the subsidiaries of Southern Company 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. COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES 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 $36 million aggregate principal amount of the Company's 7.75 percent junior subordinated notes due February 15, 2037. 10. OTHER LONG-TERM DEBT Details of pollution control obligations and other long-term debt are as follows: December 31, 1997 1996 --------------------- (in thousands) Obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds: 5.8$% due 2007 $ 950 $ 960 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 ------------------------------------------------------------ 73,725 73,735 ------------------------------------------------------------ Other long-term debt: Variable rates (6.10875% to 6.18984% at 1/1/98) due 1999 50,000 50,000 Variable rate due 2000 30,000 30,000 ------------------------------------------------------------ 80,000 80,000 ------------------------------------------------------------ Total $153,725 $153,735 ============================================================ 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 $20 thousand annually in 1998, 1999, 2000 and 2001. 11. 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: 1997 1996 ------------------- (in thousands) Bond improvement fund requirements $ 1,750 $1,750 Less: Portion to be satisfied by certifying property additions 1,750 1,750 ------------------------------------------------------------- Redemptions of first mortgage bonds 35,000 - Pollution control bond cash sinking fund requirements (Note 10) 20 10 ------------------------------------------------------------- Total $35,020 $ 10 ============================================================= 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. 12. COMMON STOCK DIVIDEND RESTRICTIONS Mississippi Power's first mortgage bond indenture and the corporate charter contain various common stock dividend restrictions. At December 31, 1997, 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-210
NOTES (continued) Mississippi Power Company 1997 Annual Report 13. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data for 1997 and 1996 are as follows: Net Income After Dividends Quarter Operating Operating On Ended Revenues Income Preferred Stock ------------------------------------------------------------------- March 1997 $116,903 $17,132 $ 10,645 June 1997 128,915 19,340 12,618 September 1997 171,874 30,441 25,163 December 1997 125,896 11,043 5,584 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 Mississippi Power's business is influenced by seasonal weather conditions and the timing of rate changes. II-211
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Mississippi Power Company 1997 Annual Report - ------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Operating Revenues (in thousands) $543,588 $544,029 $516,553 Net Income after Dividends on Preferred Stock (in thousands) $54,010 $52,723 $52,531 Cash Dividends on Common Stock (in thousands) $49,400 $43,900 $39,400 Return on Average Common Equity (percent) 14.0 13.9 14.26 Total Assets (in thousands) $1,166,829 $1,142,327 $1,148,953 Gross Property Additions (in thousands) $55,375 $61,314 $67,570 - ------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $387,824 $383,734 $374,884 Preferred stock 31,896 74,414 74,414 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities 35,000 - - Long-term debt 291,665 326,379 288,820 - ------------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $746,385 $784,527 $738,118 ========================================================================================================================= Capitalization Ratios (percent): Common stock equity 52.0 48.9 50.8 Preferred stock 4.3 9.5 10.1 Company obligated mandatorily redeemable preferred securities 4.7 - - Long-term debt 39.0 41.6 39.1 - ------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ========================================================================================================================= First Mortgage Bonds (in thousands): Issued - - 30,000 Retired - 45,447 1,625 Preferred Stock (in thousands): Issued - - - Retired 42,518 - - Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued 35,000 - - - ------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's Aa3 Aa3 Aa3 Standard and Poor's AA- A+ A+ Duff & Phelps AA- AA- AA- Preferred Stock - Moody's a1 a1 a1 Standard and Poor's A A A Duff & Phelps A+ A+ A+ - ------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 156,650 154,630 154,014 Commercial 31,667 30,366 29,903 Industrial 642 639 642 Other 200 200 194 - ------------------------------------------------------------------------------------------------------------------------- Total 189,159 185,835 184,753 ========================================================================================================================= Employees (year-end) 1,245 1,363 1,421 - ------------------------------------------------------------------------------------------------------------------------- </TABLE> II-212
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Mississippi Power Company 1997 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Revenues (in thousands) $499,162 $474,883 $434,447 $432,386 Net Income after Dividends on Preferred Stock (in thousands) $49,157 $42,436 $36,790 $22,627 Cash Dividends on Common Stock (in thousands) $34,100 $29,000 $28,000 $28,500 Return on Average Common Equity (percent) 14.38 14.09 13.27 8.17 Total Assets (in thousands) $1,123,711 $1,050,334 $791,283 $790,641 Gross Property Additions (in thousands) $104,014 $139,976 $68,189 $53,675 - ---------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $361,753 $321,768 $280,640 $273,855 Preferred stock 74,414 74,414 74,414 39,414 Preferred stock subject to mandatory redemption - - - - Company obligated mandatorily redeemable preferred securities - - - - Long-term debt 306,522 250,391 238,650 304,150 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $742,689 $646,573 $593,704 $617,419 ================================================================================================================================== Capitalization Ratios (percent): Common stock equity 48.7 49.8 47.3 44.4 Preferred stock 10.0 11.5 12.5 6.4 Company obligated mandatorily redeemable preferred securities - - - - Long-term debt 41.3 38.7 40.2 49.2 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ================================================================================================================================== First Mortgage Bonds (in thousands): Issued 35,000 70,000 40,000 50,000 Retired 32,628 51,300 104,703 - Preferred Stock (in thousands): Issued - 23,404 35,000 - Retired - 23,404 - 4,118 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - - - ---------------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's Aa3 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 152,891 151,692 150,248 148,978 Commercial 29,276 28,648 28,056 27,441 Industrial 650 570 573 562 Other 189 190 189 400 - ---------------------------------------------------------------------------------------------------------------------------------- Total 183,006 181,100 179,066 177,381 ================================================================================================================================== Employees (year-end) 1,535 1,586 1,619 1,630 - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-213A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Mississippi Power Company 1997 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1990 1989 1988 1987 - ---------------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> Operating Revenues (in thousands) $446,871 $442,650 $437,939 $455,843 Net Income after Dividends on Preferred Stock (in thousands) $34,176 $38,576 $36,081 $35,200 Cash Dividends on Common Stock (in thousands) $27,500 $27,000 $27,600 $24,700 Return on Average Common Equity (percent) 12.36 14.43 14.03 14.68 Total Assets (in thousands) $800,026 $786,570 $779,319 $764,068 Gross Property Additions (in thousands) $49,009 $43,916 $54,550 $53,288 - ---------------------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $279,833 $273,157 $261,473 $252,992 Preferred stock 39,414 39,414 39,414 39,414 Preferred stock subject to mandatory redemption 3,750 4,500 5,250 6,750 Company obligated mandatorily redeemable preferred securities - - - - Long-term debt 270,724 277,693 287,525 294,811 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $593,721 $594,764 $593,662 $593,967 ================================================================================================================================== Capitalization Ratios (percent): Common stock equity 47.1 45.9 44.1 42.6 Preferred stock 7.3 7.4 7.5 7.8 Company obligated mandatorily redeemable preferred securities - - - - Long-term debt 45.6 46.7 48.4 49.6 - ---------------------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 ================================================================================================================================== First Mortgage Bonds (in thousands): Issued - - - - Retired 4,000 3,823 - 29,701 Preferred Stock (in thousands): Issued - - - - Retired 750 750 1,500 1,500 Company Obligated Mandatorily Redeemable Preferred Securities (in thousands): Issued - - - - - ---------------------------------------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 A1 Standard and Poor's A+ A+ A+ A+ Duff & Phelps A+ A+ 5 5 Preferred Stock - Moody's a1 a1 a1 a1 Standard and Poor's A A A A Duff & Phelps A A 6 6 - ---------------------------------------------------------------------------------------------------------------------------------- Customers (year-end): Residential 147,738 147,308 146,750 146,273 Commercial 27,134 26,867 26,751 26,342 Industrial 574 525 478 438 Other 411 404 399 389 - ---------------------------------------------------------------------------------------------------------------------------------- Total 175,857 175,104 174,378 173,442 ================================================================================================================================== Employees (year-end) 1,842 1,750 1,831 1,898 - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-213B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Mississippi Power Company 1997 Annual Report - ------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): <S> <C> <C> <C> Residential $138,608 $137,055 $134,286 Commercial 134,208 131,734 131,034 Industrial 140,233 141,324 140,947 Other 4,193 4,013 3,914 - ------------------------------------------------------------------------------------------------------------------------- Total retail 417,242 414,126 410,181 Sales for resale - non-affiliates 105,141 99,596 91,820 Sales for resale - affiliates 10,143 21,830 7,691 - ------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 532,526 535,552 509,692 Other revenues 11,062 8,477 6,861 - ------------------------------------------------------------------------------------------------------------------------- Total $543,588 $544,029 $516,553 ========================================================================================================================= Kilowatt-Hour Sales (in thousands): Residential 2,039,042 2,079,611 2,040,608 Commercial 2,407,520 2,315,860 2,242,163 Industrial 3,981,875 3,960,243 3,813,456 Other 40,508 39,297 38,559 - ------------------------------------------------------------------------------------------------------------------------- Total retail 8,468,945 8,395,011 8,134,786 Sales for resale - non-affiliates 2,895,182 2,726,993 2,493,519 Sales for resale - affiliates 478,884 693,510 243,554 - --------------------------------------------------------------------------------------------------------------------------- Total 11,843,011 11,815,514 10,871,859 ========================================================================================================================= Average Revenue Per Kilowatt-Hour (cents): Residential 6.80 6.59 6.58 Commercial 5.57 5.69 5.84 Industrial 3.52 3.57 3.70 Total retail 4.93 4.93 5.04 Total sales 4.50 4.53 4.69 Residential Average Annual Kilowatt-Hour Use Per Customer 13,132 13,469 13,307 Residential Average Annual Revenue Per Customer $892.68 $887.66 $875.69 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,086 2,086 Maximum Peak-Hour Demand (megawatts): Winter 1,922 2,030 1,637 Summer 2,209 2,117 2,095 Annual Load Factor (percent) 59.1 60.7 60.0 Plant Availability - Fossil-Steam (percent) 92.4 91.8 92.1 - ------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 70.0 70.4 58.0 Oil and gas 13.0 12.0 15.2 Purchased power - From non-affiliates 3.0 6.5 2.4 From affiliates 14.0 11.1 24.4 - ------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ========================================================================================================================= Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,078 10,038 10,249 Cost of fuel per million BTU (cents) 153.32 156.08 160.48 Average cost of fuel per net kilowatt-hour generated (cents) 1.54 1.57 1.64 - ------------------------------------------------------------------------------------------------------------------------- </TABLE> II-214
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Mississippi Power Company 1997 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): <S> <C> <C> <C> <C> Residential $124,257 $118,793 $109,781 $103,820 Commercial 124,716 115,152 107,131 103,666 Industrial 142,268 130,198 117,010 116,972 Other 3,882 3,760 3,533 5,869 - ---------------------------------------------------------------------------------------------------------------------------------- Total retail 395,123 367,903 337,455 330,327 Sales for resale - non-affiliates 88,122 83,511 80,213 78,826 Sales for resale - affiliates 9,538 15,519 10,055 18,044 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 492,783 466,933 427,723 427,197 Other revenues 6,379 7,950 6,724 5,189 - ---------------------------------------------------------------------------------------------------------------------------------- Total $499,162 $474,883 $434,447 $432,386 ================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,922,217 1,929,835 1,804,858 1,832,266 Commercial 2,100,625 1,933,685 1,811,042 1,768,441 Industrial 3,847,011 3,623,543 3,536,634 3,297,247 Other 38,147 38,357 38,261 89,375 - ---------------------------------------------------------------------------------------------------------------------------------- Total retail 7,908,000 7,525,420 7,190,795 6,987,329 Sales for resale - non-affiliates 2,555,914 2,544,982 2,687,917 2,706,320 Sales for resale - affiliates 174,342 426,919 280,443 617,696 - ---------------------------------------------------------------------------------------------------------------------------------- Total 10,638,256 10,497,321 10,159,155 10,311,345 ================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.46 6.16 6.08 5.67 Commercial 5.94 5.96 5.92 5.86 Industrial 3.70 3.59 3.31 3.55 Total retail 5.00 4.89 4.69 4.73 Total sales 4.63 4.45 4.21 4.14 Residential Average Annual Kilowatt-Hour Use Per Customer 12,611 12,780 12,066 12,338 Residential Average Annual Revenue Per Customer $815.21 $786.71 $733.90 $699.11 Plant Nameplate Capacity Ratings (year-end) (megawatts) 2,086 2,011 2,011 2,011 Maximum Peak-Hour Demand (megawatts): Winter 1,636 1,401 1,386 1,267 Summer 1,874 1,872 1,755 1,682 Annual Load Factor (percent) 63.4 60.0 60.8 61.5 Plant Availability - Fossil-Steam (percent) 85.4 88.0 92.0 89.8 - ---------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 56.0 63.5 60.4 64.1 Oil and gas 10.2 7.6 5.8 8.1 Purchased power - From non-affiliates 1.2 1.3 1.2 0.7 From affiliates 32.6 27.6 32.6 27.1 - ---------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ================================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,295 10,075 9,888 10,142 Cost of fuel per million BTU (cents) 165.96 170.13 162.27 177.52 Average cost of fuel per net kilowatt-hour generated (cents) 1.71 1.71 1.60 1.80 - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-215A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Mississippi Power Company 1997 Annual Report - ---------------------------------------------------------------------------------------------------------------------------------- 1990 1989 1988 1987 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): <S> <C> <C> <C> <C> Residential $102,243 $100,068 $96,711 $98,338 Commercial 103,352 103,403 98,772 98,669 Industrial 123,754 128,983 123,038 129,004 Other 6,078 5,992 5,874 5,723 - ---------------------------------------------------------------------------------------------------------------------------------- Total retail 335,427 338,446 324,395 331,734 Sales for resale - non-affiliates 86,194 82,111 75,525 88,060 Sales for resale - affiliates 20,157 16,938 33,747 31,278 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 441,778 437,495 433,667 451,072 Other revenues 5,093 5,155 4,272 4,771 - ---------------------------------------------------------------------------------------------------------------------------------- Total $446,871 $442,650 $437,939 $455,843 ================================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,804,838 1,741,855 1,686,722 1,658,327 Commercial 1,718,074 1,686,302 1,607,988 1,555,044 Industrial 3,311,460 3,204,208 2,879,457 2,862,632 Other 85,938 87,611 86,049 81,153 - ---------------------------------------------------------------------------------------------------------------------------------- Total retail 6,920,310 6,719,976 6,260,216 6,157,156 Sales for resale - non-affiliates 2,883,581 2,798,086 2,280,341 2,615,058 Sales for resale - affiliates 714,365 527,970 1,100,808 955,303 - ---------------------------------------------------------------------------------------------------------------------------------- Total 10,518,256 10,046,032 9,641,365 9,727,517 ================================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 5.66 5.74 5.73 5.93 Commercial 6.02 6.13 6.14 6.35 Industrial 3.74 4.03 4.27 4.51 Total retail 4.85 5.04 5.18 5.39 Total sales 4.20 4.35 4.50 4.64 Residential Average Annual Kilowatt-Hour Use Per Customer 12,228 11,842 11,499 11,356 Residential Average Annual Revenue Per Customer $692.70 $680.32 $659.30 $673.41 Plant Nameplate Capacity Ratings (year-end) (megawatts) 1,998 1,998 1,966 1,966 Maximum Peak-Hour Demand (megawatts): Winter 1,201 1,556 1,284 1,224 Summer 1,724 1,682 1,621 1,548 Annual Load Factor (percent) 59.0 58.8 57.6 59.0 Plant Availability - Fossil-Steam (percent) 93.3 94.0 93.0 93.5 - ---------------------------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 62.6 63.4 86.3 79.4 Oil and gas 14.0 13.5 4.8 5.3 Purchased power - From non-affiliates 0.8 0.5 0.4 0.3 From affiliates 22.6 22.6 8.5 15.0 - ---------------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 100.0 ================================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,319 10,159 10,220 10,525 Cost of fuel per million BTU (cents) 183.27 178.38 185.13 194.46 Average cost of fuel per net kilowatt-hour generated (cents) 1.89 1.81 1.89 2.05 - ---------------------------------------------------------------------------------------------------------------------------------- </TABLE> II-215B
STATEMENTS OF INCOME Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> =================================================================================================================================== For the Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $533,445 $522,199 $508,862 Revenues from affiliates 10,143 21,830 7,691 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 543,588 544,029 516,553 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 142,059 141,532 111,071 Purchased power from non-affiliates 14,536 17,960 6,019 Purchased power from affiliates 37,794 33,245 57,777 Proceeds from settlement of disputed contracts - - - Other 102,365 106,061 107,296 Maintenance 47,302 47,091 39,627 Depreciation and amortization 45,574 44,906 39,224 Taxes other than income taxes 44,034 43,545 42,443 Federal and state income taxes 31,968 32,618 34,486 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 465,632 466,958 437,943 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income 77,956 77,071 78,610 Other Income (Expense): Allowance for equity funds used during construction - 344 366 Interest income 857 239 199 Other, net 2,368 3,801 4,596 Income taxes applicable to other income 588 (932) (1,006) - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 81,769 80,523 82,765 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 19,856 19,898 21,898 Allowance for debt funds used during construction - (713) (399) Interest on notes payable 96 1,416 1,141 Amortization of debt discount, premium, and expense, net 1,577 1,547 1,510 Other interest charges 574 753 1,185 Distributions on preferred securities of subsidiary trust 2,369 - - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest charges 24,472 22,901 25,335 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income From Continuing Operations 57,297 57,622 57,430 - ----------------------------------------------------------------------------------------------------------------------------------- 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 57,297 57,622 57,430 Dividends on Preferred Stock 3,287 4,899 4,899 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 54,010 $ 52,723 $ 52,531 =================================================================================================================================== II-216 </TABLE>
<TABLE> <CAPTION> STATEMENTS OF INCOME Mississippi Power Company <S> <C> <C> <C> =================================================================================================================================== For the Years Ended December 31, 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $489,624 $459,364 $424,392 Revenues from affiliates 9,538 15,519 10,055 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 499,162 474,883 434,447 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 102,216 113,986 96,743 Purchased power from non-affiliates 2,711 2,198 1,337 Purchased power from affiliates 68,543 58,019 60,689 Proceeds from settlement of disputed contracts - - (189) Other 97,988 100,381 90,581 Maintenance 45,785 44,001 43,165 Depreciation and amortization 35,716 33,099 32,789 Taxes other than income taxes 41,742 37,145 34,664 Federal and state income taxes 31,386 22,668 16,378 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 426,087 411,497 376,157 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income 73,075 63,386 58,290 Other Income (Expense): Allowance for equity funds used during construction 1,099 1,010 642 Interest income 87 517 766 Other, net 2,033 3,971 5,501 Income taxes applicable to other income (227) (1,158) (1,427) - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 76,067 67,726 63,772 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 19,725 17,688 22,357 Allowance for debt funds used during construction (1,039) (788) (563) Interest on notes payable 1,442 1,000 362 Amortization of debt discount, premium, and expense, net 1,479 1,262 630 Other interest charges 404 728 339 Distributions on preferred securities of subsidiary trust - - - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest charges 22,011 19,890 23,125 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income From Continuing Operations 54,056 47,836 40,647 - ----------------------------------------------------------------------------------------------------------------------------------- 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 54,056 47,836 40,647 Dividends on Preferred Stock 4,899 5,400 3,857 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 49,157 $ 42,436 $ 36,790 =================================================================================================================================== </TABLE> II-217A
STATEMENTS OF INCOME Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> =================================================================================================================================== For the Years Ended December 31, 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $414,342 $426,714 $425,712 Revenues from affiliates 18,044 20,157 16,938 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 432,386 446,871 442,650 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 120,485 138,303 133,671 Purchased power from non-affiliates 851 1,406 1,266 Purchased power from affiliates 45,506 49,547 47,066 Proceeds from settlement of disputed contracts (4,205) - - Other 86,932 83,730 84,820 Maintenance 44,166 33,368 35,658 Depreciation and amortization 32,147 30,770 28,001 Taxes other than income taxes 35,414 32,709 32,435 Federal and state income taxes 13,976 17,144 18,387 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 375,272 386,977 381,304 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income 57,114 59,894 61,346 Other Income (Expense): Allowance for equity funds used during construction 728 307 903 Interest income 1,093 829 1,096 Other, net 3,845 6,297 6,013 Income taxes applicable to other income (863) (1,666) (1,392) - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 61,917 65,661 67,966 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 23,656 22,221 21,685 Allowance for debt funds used during construction (584) (600) (821) Interest on notes payable 603 1,142 689 Amortization of debt discount, premium, and expense, net 377 359 362 Other interest charges 285 333 566 Distributions on preferred securities of subsidiary trust - - - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest charges 24,337 23,455 22,481 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income From Continuing Operations 37,580 42,206 45,485 - ----------------------------------------------------------------------------------------------------------------------------------- Discontinued Operations: Loss from operations of discontinued subsidiary, net of taxes (6,404) (4,669) (3,459) Loss on disposal of discontinued subsidiary, net of taxes (5,455) - - - ----------------------------------------------------------------------------------------------------------------------------------- Net Loss From Discontinued Operations (11,859) (4,669) (3,459) - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 25,721 37,537 42,026 Dividends on Preferred Stock 3,094 3,361 3,450 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 22,627 $ 34,176 $ 38,576 =================================================================================================================================== </TABLE> II-217B
<TABLE> <CAPTION> STATEMENTS OF INCOME Mississippi Power Company <S> <C> <C> ================================================================================================================= For the Years Ended December 31, 1988 1987 - ------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) Operating Revenues: Revenues $404,192 $424,565 Revenues from affiliates 33,747 31,278 - ------------------------------------------------------------------------------------------------------------------ Total operating revenues 437,939 455,843 - ------------------------------------------------------------------------------------------------------------------ Operating Expenses: Operation -- Fuel 165,912 167,165 Purchased power from non-affiliates 1,257 1,108 Purchased power from affiliates 19,270 36,114 Proceeds from settlement of disputed contracts - - Other 83,542 81,331 Maintenance 33,412 33,974 Depreciation and amortization 26,610 26,210 Taxes other than income taxes 29,638 27,882 Federal and state income taxes 20,313 23,888 - ------------------------------------------------------------------------------------------------------------------ Total operating expenses 379,954 397,672 - ------------------------------------------------------------------------------------------------------------------ Operating Income 57,985 58,171 Other Income (Expense): Allowance for equity funds used during construction 850 608 Interest income 1,030 1,121 Other, net 6,399 7,065 Income taxes applicable to other income (1,148) (2,507) - ------------------------------------------------------------------------------------------------------------------ Income Before Interest Charges 65,116 64,458 - ------------------------------------------------------------------------------------------------------------------ Interest Charges: Interest on long-term debt 22,271 24,139 Allowance for debt funds used during construction (595) (652) Interest on notes payable 341 558 Amortization of debt discount, premium, and expense, net 363 388 Other interest charges 522 601 Distributions on preferred securities of subsidiary trust - - - ------------------------------------------------------------------------------------------------------------------ Net interest charges 22,902 25,034 - ------------------------------------------------------------------------------------------------------------------ Net Income From Continuing Operations 42,214 39,424 - ------------------------------------------------------------------------------------------------------------------ Discontinued Operations: Loss from operations of discontinued subsidiary, net of taxes (2,549) (487) Loss on disposal of discontinued subsidiary, net of taxes - - - ------------------------------------------------------------------------------------------------------------------ Net Loss From Discontinued Operations (2,549) (487) - ------------------------------------------------------------------------------------------------------------------ Net Income 39,665 38,937 Dividends on Preferred Stock 3,584 3,737 - ------------------------------------------------------------------------------------------------------------------ Net Income After Dividends on Preferred Stock $ 36,081 $ 35,200 ================================================================================================================== </TABLE> II-217C
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Mississippi Power Company <S> <C> <C> ======================================================================================================================= For the Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 57,297 $ 57,622 $ 57,430 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 49,661 50,551 51,588 Deferred income taxes, net (1,809) 74 (480) Deferred investment tax credits, net - - - Allowance for equity funds used during construction - (344) (366) Non-cash proceeds from settlement of disputed contracts - - - Other, net 3,206 9,787 5,704 Changes in certain current assets and liabilities -- Receivables, net (8,583) 5,118 (8,758) Inventories 3,148 4,973 3,962 Payables 8,357 2,077 17,421 Other 3,980 292 681 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 115,257 130,150 127,182 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (55,375) (61,314) (67,570) Other (489) (2,258) (1,697) - ----------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (55,864) (63,572) (69,267) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - - First mortgage bonds - - 30,000 Pollution control bonds - - 10,600 Preferred securities 35,000 - - Other long-term debt - 80,000 - Capital contributions - 27 - Redemptions: Preferred stock (42,518) - - First mortgage bonds - (45,447) (1,625) Pollution control bonds (10) (10) (10) Other long-term debt - (55,000) (40,689) Notes payable, net - - - Payment of preferred stock dividends (3,287) (4,899) (4,899) Payment of common stock dividends (49,400) (43,900) (39,400) Miscellaneous (1,804) (2,932) (568) - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (62,019) (72,161) (46,591) - ----------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (2,626) (5,583) 11,324 Cash and Cash Equivalents at Beginning of Year 7,058 12,641 1,317 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 4,432 $ 7,058 $ 12,641 ======================================================================================================================= ( ) Denotes use of cash. </TABLE> II-218
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Mississippi Power Company <S> <C> <C> <C> =========================================================================================================================== For the Years Ended December 31, 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 54,056 $ 47,836 $ 40,647 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 47,827 45,660 41,472 Deferred income taxes, net 1,563 5,039 (5,473) Deferred investment tax credits, net - - - Allowance for equity funds used during construction (1,099) (1,010) (642) Non-cash proceeds from settlement of disputed contracts - - (189) Other, net 5,230 3,005 8,093 Changes in certain current assets and liabilities -- Receivables, net 3,066 (4,347) 1,002 Inventories (9,856) 11,119 975 Payables (8,754) 4,133 460 Other 3,334 (8,033) 6,095 - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 95,367 103,402 92,440 - --------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (104,014) (139,976) (68,189) Other (14,087) 7,562 4,235 - --------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (118,101) (132,414) (63,954) - --------------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - 23,404 35,000 First mortgage bonds 35,000 70,000 40,000 Pollution control bonds - 38,875 23,300 Preferred securities - - - Other long-term debt 85,310 - - Capital contributions 25,000 30,036 26 Redemptions: Preferred stock - (23,404) - First mortgage bonds (32,628) (51,300) (104,703) Pollution control bonds (10) (25,885) (23,650) Other long-term debt (9,299) (8,170) (6,212) Notes payable, net (40,000) 9,000 26,500 Payment of preferred stock dividends (4,899) (5,400) (3,857) Payment of common stock dividends (34,100) (29,000) (28,000) Miscellaneous (1,201) (5,683) (7,821) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities 23,173 22,473 (49,417) - --------------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 439 (6,539) (20,931) Cash and Cash Equivalents at Beginning of Year 878 7,417 28,348 - --------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 1,317 $ 878 $ 7,417 =========================================================================================================================== </TABLE> ( ) Denotes use of cash. II-219A
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Mississippi Power Company <S> <C> <C> <C> ======================================================================================================================= For the Years Ended December 31, 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 25,721 $ 37,537 $ 42,026 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 41,773 41,079 35,878 Deferred income taxes, net (11,869) 2,756 (294) Deferred investment tax credits, net (2) (26) (38) Allowance for equity funds used during construction (728) (307) (903) Non-cash proceeds from settlement of disputed contracts (4,071) - - Other, net (4,982) 7,257 4,306 Changes in certain current assets and liabilities -- Receivables, net 35,343 (6,252) (18,506) Inventories 10,518 (8,922) 3,687 Payables (4,949) (5,552) 1,307 Other 11,433 (1,461) 2,172 - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 98,187 66,109 69,635 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (53,675) (49,009) (43,916) Other 2,148 4,481 1,860 - ----------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (51,527) (44,528) (42,056) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - - First mortgage bonds 50,000 - - Pollution control bonds - - - Preferred securities - - - Other long-term debt 844 - 844 Capital contributions - - - Redemptions: Preferred stock (4,118) (750) (750) First mortgage bonds - (4,000) (3,823) Pollution control bonds (300) (288) (62) Other long-term debt (8,958) (6,416) (5,919) Notes payable, net (25,603) 17,146 6,457 Payment of preferred stock dividends (3,094) (3,361) (3,450) Payment of common stock dividends (28,500) (27,500) (27,000) Miscellaneous (839) 2 - - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (20,568) (25,167) (33,703) - ----------------------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents 26,092 (3,586) (6,124) Cash and Cash Equivalents at Beginning of Year 2,256 5,842 11,966 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 28,348 $ 2,256 $ 5,842 ======================================================================================================================= ( ) Denotes use of cash. </TABLE> II-219B
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Mississippi Power Company <S> <C> <C> ======================================================================================================= For the Years Ended December 31, 1988 1987 - ------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 39,665 $ 38,937 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 34,440 33,971 Deferred income taxes, net (3,053) 10,035 Deferred investment tax credits, net 571 896 Allowance for equity funds used during construction (850) (608) Non-cash proceeds from settlement of disputed contracts - - Other, net 3,503 1,965 Changes in certain current assets and liabilities -- Receivables, net 816 12,000 Inventories 283 13,708 Payables (5,241) 7,487 Other (2,294) (9,342) - ------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 67,840 109,049 - ------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (54,550) (53,288) Other 8,368 (1,461) - ------------------------------------------------------------------------------------------------------- Net cash used for investing activities (46,182) (54,749) - ------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: Preferred stock - - First mortgage bonds - - Pollution control bonds - - Preferred securities - - Other long-term debt - 130 Capital contributions - 16,000 Redemptions: Preferred stock (1,500) (1,500) First mortgage bonds - (29,701) Pollution control bonds (50) (50) Other long-term debt (5,401) (4,974) Notes payable, net 6,500 - Payment of preferred stock dividends (3,584) (3,737) Payment of common stock dividends (27,600) (24,700) Miscellaneous - (2,696) - ------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (31,635) (51,228) - ------------------------------------------------------------------------------------------------------- Net Change in Cash and Cash Equivalents (9,977) 3,072 Cash and Cash Equivalents at Beginning of Year 21,943 18,871 - ------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 11,966 $ 21,943 ======================================================================================================= ( ) Denotes use of cash. </TABLE> II-219C
<TABLE> <CAPTION> BALANCE SHEETS Mississippi Power Company <S> <C> <C> <C> ============================================================================================================================== At December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 732,102 $ 722,183 $ 717,055 Transmission 246,773 241,509 220,038 Distribution 374,453 356,305 335,163 General 165,074 163,878 162,071 Construction work in progress 41,083 35,100 41,210 - ------------------------------------------------------------------------------------------------------------------------------ Total utility plant 1,559,485 1,518,975 1,475,537 Accumulated provision for depreciation 559,098 526,776 499,308 - ------------------------------------------------------------------------------------------------------------------------------ Total 1,000,387 992,199 976,229 Less property-related accumulated deferred income taxes - - - - ------------------------------------------------------------------------------------------------------------------------------ Total 1,000,387 992,199 976,229 - ------------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts - - - Miscellaneous 650 3,054 4,160 - ------------------------------------------------------------------------------------------------------------------------------ Total 650 3,054 4,160 - ------------------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 4,432 7,058 12,641 Investment securities - - - Receivables, net 51,369 34,288 39,358 Accrued utility revenues 3,836 12,334 12,382 Fossil fuel stock, at average cost 10,651 12,168 15,666 Materials and supplies, at average cost 19,452 21,083 22,558 Current portion of deferred fuel commitments - - 1,546 Prepayments 10,170 11,971 7,584 Vacation pay deferred 5,030 4,806 4,715 - ------------------------------------------------------------------------------------------------------------------------------ Total 104,940 103,708 116,450 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Charges: Debt expense, being amortized 2,726 1,548 1,530 Premium on reacquired debt, being amortized 9,508 10,672 8,509 Deferred fuel commitments - - - Deferred charges related to income taxes 21,906 22,274 23,384 Miscellaneous 26,712 8,872 18,691 - ------------------------------------------------------------------------------------------------------------------------------ Total 60,852 43,366 52,114 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $1,166,829 $1,142,327 $1,148,953 ============================================================================================================================== </TABLE> II-220
<TABLE> <CAPTION> BALANCE SHEETS Mississippi Power Company <S> <C> <C> <C> ============================================================================================================================== At December 31, 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 705,043 $ 597,425 $ 576,848 Transmission 202,503 188,375 173,278 Distribution 313,345 295,799 279,335 General 164,141 157,248 151,044 Construction work in progress 44,838 108,063 41,692 - ------------------------------------------------------------------------------------------------------------------------------ Total utility plant 1,429,870 1,346,910 1,222,197 Accumulated provision for depreciation 477,098 462,725 440,777 - ------------------------------------------------------------------------------------------------------------------------------ Total 952,772 884,185 781,420 Less property-related accumulated deferred income taxes - - 142,338 - ------------------------------------------------------------------------------------------------------------------------------ Total 952,772 884,185 639,082 - ------------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts - - - Miscellaneous 3,353 11,289 4,539 - ------------------------------------------------------------------------------------------------------------------------------ Total 3,353 11,289 4,539 - ------------------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 1,317 878 7,417 Investment securities - - 3,622 Receivables, net 25,424 28,021 20,219 Accrued utility revenues 14,428 14,897 14,898 Fossil fuel stock, at average cost 16,885 11,185 21,341 Materials and supplies, at average cost 25,301 21,145 22,108 Current portion of deferred fuel commitments 1,068 440 1,861 Prepayments 11,189 8,971 5,869 Vacation pay deferred 4,588 4,797 4,651 - ------------------------------------------------------------------------------------------------------------------------------ Total 100,200 90,334 101,986 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Charges: Debt expense, being amortized 1,358 1,103 804 Premium on reacquired debt, being amortized 9,571 10,563 10,102 Deferred fuel commitments 9,000 17,520 25,255 Deferred charges related to income taxes 25,036 25,267 - Miscellaneous 22,421 10,073 9,515 - ------------------------------------------------------------------------------------------------------------------------------ Total 67,386 64,526 45,676 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $1,123,711 $1,050,334 $ 791,283 ============================================================================================================================== </TABLE> II-221A
<TABLE> <CAPTION> BALANCE SHEETS Mississippi Power Company <S> <C> <C> <C> ============================================================================================================================== At December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 567,588 $ 560,537 $ 547,946 Transmission 162,379 151,949 147,288 Distribution 259,929 247,705 229,238 General 141,564 136,815 133,361 Construction work in progress 33,078 26,816 27,057 - ------------------------------------------------------------------------------------------------------------------------------ Total utility plant 1,164,538 1,123,822 1,084,890 Accumulated provision for depreciation 415,135 392,440 366,193 - ------------------------------------------------------------------------------------------------------------------------------ Total 749,403 731,382 718,697 Less property-related accumulated deferred income taxes 138,616 139,970 138,071 - ------------------------------------------------------------------------------------------------------------------------------ Total 610,787 591,412 580,626 - ------------------------------------------------------------------------------------------------------------------------------ Other Property and Investments: Securities received from settlement of disputed contracts 4,113 - - Miscellaneous 3,954 8,631 7,792 - ------------------------------------------------------------------------------------------------------------------------------ Total 8,067 8,631 7,792 - ------------------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 28,348 2,256 5,842 Investment securities - - - Receivables, net 27,152 67,734 58,425 Accrued utility revenues 12,420 10,797 13,854 Fossil fuel stock, at average cost 22,373 29,812 24,788 Materials and supplies, at average cost 22,051 25,130 21,232 Current portion of deferred fuel commitments 933 1,430 3,017 Prepayments 6,137 11,392 12,512 Vacation pay deferred 4,406 3,955 3,910 - ------------------------------------------------------------------------------------------------------------------------------ Total 123,820 152,506 143,580 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Charges: Debt expense, being amortized 981 824 886 Premium on reacquired debt, being amortized 4,676 4,919 5,161 Deferred fuel commitments 31,039 39,020 45,103 Deferred charges related to income taxes - - - Miscellaneous 11,271 2,714 3,422 - ------------------------------------------------------------------------------------------------------------------------------ Total 47,967 47,477 54,572 - ------------------------------------------------------------------------------------------------------------------------------ Total Assets $ 790,641 $ 800,026 $ 786,570 ============================================================================================================================== </TABLE> II-221B
<TABLE> <CAPTION> BALANCE SHEETS Mississippi Power Company <S> <C> <C> =========================================================================================================== At December 31, 1988 1987 - ----------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $ 529,742 $ 524,198 Transmission 134,674 130,963 Distribution 221,327 207,810 General 137,333 127,690 Construction work in progress 35,204 27,755 - ----------------------------------------------------------------------------------------------------------- Total utility plant 1,058,280 1,018,416 Accumulated provision for depreciation 348,085 328,761 - ----------------------------------------------------------------------------------------------------------- Total 710,195 689,655 Less property-related accumulated deferred income taxes 134,220 127,912 - ----------------------------------------------------------------------------------------------------------- Total 575,975 561,743 - ----------------------------------------------------------------------------------------------------------- Other Property and Investments: Securities received from settlement of disputed contracts - - Miscellaneous 8,153 4,122 - ----------------------------------------------------------------------------------------------------------- Total 8,153 4,122 - ----------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 11,966 21,943 Investment securities - - Receivables, net 43,246 42,218 Accrued utility revenues 10,527 12,371 Fossil fuel stock, at average cost 26,587 29,989 Materials and supplies, at average cost 23,120 20,001 Current portion of deferred fuel commitments - - Prepayments 12,341 830 Vacation pay deferred 3,815 3,956 - ----------------------------------------------------------------------------------------------------------- Total 131,602 131,308 - ----------------------------------------------------------------------------------------------------------- Deferred Charges: Debt expense, being amortized 949 1,012 Premium on reacquired debt, being amortized 5,404 5,647 Deferred fuel commitments 50,714 55,889 Deferred charges related to income taxes - - Miscellaneous 6,522 4,347 - ----------------------------------------------------------------------------------------------------------- Total 63,589 66,895 - ----------------------------------------------------------------------------------------------------------- Total Assets $ 779,319 $ 764,068 =========================================================================================================== </TABLE> II-221C
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> ============================================================================================================================== At December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 37,691 $ 37,691 $ 37,691 Paid-in capital 179,389 179,389 179,362 Premium on preferred stock 327 372 372 Earnings retained in the business 170,417 166,282 157,459 - ------------------------------------------------------------------------------------------------------------------------------ Total common equity 387,824 383,734 374,884 Preferred stock 31,896 74,414 74,414 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities 35,000 - - Long-term debt 291,665 326,379 288,820 - ------------------------------------------------------------------------------------------------------------------------------ Total (excluding amount due within one year) 746,385 784,527 738,118 - ------------------------------------------------------------------------------------------------------------------------------ Current Liabilities: Notes payable to banks - - - Preferred stock due within one year - - - Long-term debt due within one year 35,020 10 57,229 Accounts payable 58,089 51,644 50,775 Customer deposits 3,225 3,154 2,716 Taxes accrued 34,960 32,445 31,913 Interest accrued 4,098 4,384 4,701 Vacation pay accrued 5,017 4,793 4,563 Miscellaneous 7,780 9,149 8,890 - ------------------------------------------------------------------------------------------------------------------------------ Total 148,189 105,579 160,787 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 134,645 133,437 129,711 Accumulated deferred investment tax credits 27,121 28,333 29,773 Deferred credits related to income taxes 38,203 40,568 43,266 Miscellaneous 72,286 49,883 47,298 - ------------------------------------------------------------------------------------------------------------------------------ Total 272,255 252,221 250,048 - ------------------------------------------------------------------------------------------------------------------------------ Total Capitalization and Liabilities $1,166,829 $1,142,327 $1,148,953 ============================================================================================================================== </TABLE> II-222
<TABLE> <CAPTION> BALANCE SHEETS Mississippi Power Company <S> <C> <C> <C> ============================================================================================================================== At December 31, 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 37,691 $ 37,691 $ 37,691 Paid-in capital 179,362 154,362 124,326 Premium on preferred stock 372 372 194 Earnings retained in the business 144,328 129,343 118,429 - ------------------------------------------------------------------------------------------------------------------------------ Total common equity 361,753 321,768 280,640 Preferred stock 74,414 74,414 74,414 Preferred stock subject to mandatory redemption - - - Company obligated mandatorily redeemable preferred securities - - - Long-term debt 306,522 250,391 238,650 - ------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 742,689 646,573 593,704 - ------------------------------------------------------------------------------------------------------------------------------ Current Liabilities: Notes payable to banks - 40,000 31,000 Preferred stock due within one year - - - Long-term debt due within one year 41,199 19,345 8,878 Accounts payable 34,481 60,928 43,550 Customer deposits 2,712 2,786 2,976 Taxes accrued 31,657 27,138 32,035 Interest accrued 4,427 4,237 3,961 Vacation pay accrued 4,588 4,797 4,651 Miscellaneous 10,025 9,323 10,963 - ------------------------------------------------------------------------------------------------------------------------------ Total 129,089 168,554 138,014 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 129,505 124,334 169 Accumulated deferred investment tax credits 31,228 32,710 34,242 Deferred credits related to income taxes 45,832 48,228 - Miscellaneous 45,368 29,935 25,154 - ------------------------------------------------------------------------------------------------------------------------------ Total 251,933 235,207 59,565 - ------------------------------------------------------------------------------------------------------------------------------ Total Capitalization and Liabilities $1,123,711 $1,050,334 $791,283 ============================================================================================================================== </TABLE> II-223A
BALANCE SHEETS Mississippi Power Company <TABLE> <CAPTION> <S> <C> <C> <C> =============================================================================================================================== At December 31, 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------------------ (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 37,691 $ 37,691 $ 37,691 Paid-in capital 124,300 124,300 124,300 Premium on preferred stock 194 299 299 Earnings retained in the business 111,670 117,543 110,867 - ------------------------------------------------------------------------------------------------------------------------------ Total common equity 273,855 279,833 273,157 Preferred stock 39,414 39,414 39,414 Preferred stock subject to mandatory redemption - 3,750 4,500 Company obligated mandatorily redeemable preferred securities - - - Long-term debt 304,150 270,724 277,693 - ------------------------------------------------------------------------------------------------------------------------------ Total (excluding amount due within one year) 617,419 593,721 594,764 - ------------------------------------------------------------------------------------------------------------------------------ Current Liabilities: Notes payable to banks 4,500 30,103 12,957 Preferred stock due within one year - 368 368 Long-term debt due within one year 14,650 7,039 10,717 Accounts payable 38,213 45,763 47,019 Customer deposits 3,109 3,430 3,906 Taxes accrued 29,609 24,935 23,843 Interest accrued 4,602 4,315 4,280 Vacation pay accrued 4,406 3,955 3,910 Miscellaneous 10,236 6,833 7,746 - ------------------------------------------------------------------------------------------------------------------------------ Total 109,325 126,741 114,746 - ------------------------------------------------------------------------------------------------------------------------------ Deferred Credits and Other Liabilities: Accumulated deferred income taxes 4,117 18,992 22,085 Accumulated deferred investment tax credits 35,657 37,187 38,752 Deferred credits related to income taxes - - - Miscellaneous 24,123 23,385 16,223 - ------------------------------------------------------------------------------------------------------------------------------ Total 63,897 79,564 77,060 - ------------------------------------------------------------------------------------------------------------------------------ Total Capitalization and Liabilities $790,641 $800,026 $786,570 ============================================================================================================================== </TABLE> II-223B
<TABLE> <CAPTION> BALANCE SHEETS Mississippi Power Company <S> <C> <C> =========================================================================================================== At December 31, 1988 1987 - ----------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 37,691 $ 37,691 Paid-in capital 124,300 124,300 Premium on preferred stock 299 299 Earnings retained in the business 99,183 90,702 - ----------------------------------------------------------------------------------------------------------- Total common equity 261,473 252,992 Preferred stock 39,414 39,414 Preferred stock subject to mandatory redemption 5,250 6,750 Company obligated mandatorily redeemable preferred securities - - Long-term debt 287,525 294,811 - ----------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 593,662 593,967 - ----------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 6,500 - Preferred stock due within one year 368 368 Long-term debt due within one year 9,789 5,451 Accounts payable 46,937 45,659 Customer deposits 3,904 3,857 Taxes accrued 21,130 21,351 Interest accrued 4,016 4,474 Vacation pay accrued 3,815 3,956 Miscellaneous 9,347 6,005 - ----------------------------------------------------------------------------------------------------------- Total 105,806 91,121 - ----------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 24,556 27,411 Accumulated deferred investment tax credits 40,435 41,427 Deferred credits related to income taxes - - Miscellaneous 14,860 10,142 - ----------------------------------------------------------------------------------------------------------- Total 79,851 78,980 - ----------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 779,319 $ 764,068 =========================================================================================================== </TABLE> II-223C
<TABLE> <CAPTION> <S> <C> <C> <C> <C> MISSISSIPPI POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1997 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% $ 950 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 $ 73,725 ======== ======== Company Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trust Holding Company Junior Subordinated Notes Preferred Securities Interest Amount Series Outstanding Rate Outstanding - ---------------------------------------------------------------------------------------------------- (Thousands) 1997 1,400,000 7.75% $ 35,000 Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding - ---------------------------------------------------------------------------------------------------- (Thousands) 1947 8,739 4.60% $ 874 1956 9,476 4.40% 948 1965 16,700 4.72% 1,670 1968 50,000 7.00% 5,000 1993 150,000 6.32% 15,000 1993 84,040 6.65% 8,404 ------- --------- 318,955 $ 31,896 ======= ========= </TABLE> II-224
MISSISSIPPI POWER COMPANY SECURITIES RETIRED DURING 1997 Pollution Control Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------- (Thousands) 1977 $ 10 5.80% Preferred Stock Principal Dividend Series Amount Rate - ------------------------------------------------------------------------------- (Thousands) 1947 $ 1,136 4.60% 1956 3,052 4.40% 1965 3,330 4.72% 1992 35,000 7.25% ------- $42,518 ======= II-225 SAVANNAH ELECTRIC AND POWER COMPANY FINANCIAL SECTION II-226
MANAGEMENT'S REPORT Savannah Electric and Power Company 1997 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 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 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/G. Edison Holland, Jr. G. Edison Holland, Jr. President and Chief Executive Officer /s/K. R. Willis K. R. Willis Vice-President Treasurer, Secretary and Chief Financial Officer February 11, 1998 II-227
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, 1997 and 1996, and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 1997. 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-235 through 11-246) referred to above present fairly, in all material respects, the financial position of Savannah Electric and Power Company as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/Arthur Andersen LLP Atlanta, Georgia February 11, 1998 II-228
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Savannah Electric and Power Company 1997 Annual Report RESULTS OF OPERATIONS Earnings Savannah Electric and Power Company's net income after dividends on preferred stock for 1997 totaled $23.8 million, representing a $0.1 million decrease from the prior year. This (0.4) percent change in earnings from 1996 is principally the result of an increase in other operation expense, partially offset by an increase in other income, net. In 1996, earnings were $23.9 million, representing a $0.5 million (2.3 percent) increase from the prior year. This was principally the result of increased retail energy sales primarily attributable to an increase in the number of customers served. Revenues Total revenues for 1997 were $226.3 million, reflecting a (3.3) percent decrease compared to 1996. The following table summarizes revenue increases and decreases compared to prior years: Increase (Decrease) From Prior Year -------------------------------------- 1997 1996 1995 -------------------------------------- Retail -- (in thousands) Sales growth $ 7,664 $ 3,679 $ 1,068 Weather (6,186) (2,813) 6,232 Fuel cost recovery and other (10,002) 12,365 6,177 ------------------------------------------------------------------- Total retail (8,524) 13,231 13,477 ------------------------------------------------------------------- Sales for resale-- Non-affiliates 1,469 147 (2,935) Affiliates (1,078) (4,070) 754 ------------------------------------------------------------------- Total sales for resale 391 (3,923) (2,181) ------------------------------------------------------------------- Other operating revenues 336 (963) 2,648 ------------------------------------------------------------------- Total operating revenues $(7,797) $ 8,345 $13,944 =================================================================== Percent change (3.3)% 3.7% 6.6% ------------------------------------------------------------------- Retail revenues declined 3.7 percent in 1997, compared to an increase of 6.2 percent in 1996. The decline in 1997 retail revenues is attributable to the mild summer weather and a decrease in fuel cost recovery revenues, somewhat offset by customer growth and higher demand from a large industrial 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 increase in 1996 retail revenues was 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. 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 remained unchanged in 1997. The capacity and energy components were as follows: 1997 1996 1995 ---------------------------------------- (in thousands) Capacity $ 2 $ 2 $ 3 Energy 746 1,329 1,250 - --------------------------------------------------------- Total $748 $1,331 $1,253 ========================================================= 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. Changes in revenues are influenced heavily by the amount of energy sold each year. Kilowatt-hour sales for 1997 and the percent change by year were as follows: KWH Percent Change ------------ --------------------------- 1997 1997 1996 1995 ------------ --------------------------- (millions) Residential 1,428 (1.9)% 3.9% 8.0% Commercial 1,156 1.3 3.8 5.1 Industrial 881 5.1 (5.5) 11.0 Other 125 (1.4) 0.1 5.4 ------------ Total retail 3,590 0.8 1.4 7.7 Sales for resale Non-affiliates 94 2.9 4.4 (56.5) Affiliates 55 30.4 (34.4) (31.5) ------------ Total 3,739 1.2 % 0.8% 3.1% =================================================================== II-229
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1997 Annual Report Expenses Total operating expenses for 1997 were $189.1 million, reflecting a $6.1 million decrease from 1996. Major components of this decrease include a $16.5 million reduction in purchased power from affiliates, partially offset by increases of $6.4 million in fuel and $3.7 million in other operation expenses. The decline in purchased power from affiliates was due primarily to an increase in internal generation and to an adjustment in affiliated billings. The increase in fuel expense was primarily attributable to higher generation and to fuel mix. The increase in other operation expense primarily resulted from a one-time charge for work force reductions of $1.9 million, and expenses associated with the implementation of a new computer software system. In 1996, total operating expenses were $195.2 million, reflecting an $7.7 million increase over 1995. This increase includes $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. 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: 1997 1996 1995 -------------------------- Total energy supply (millions of kilowatt-hours) 3,964 3,917 3,908 Sources of energy supply (percent) -- Coal 34 28 24 Oil - - - Gas 5 3 6 Purchased Power 61 69 70 Average cost of fuel per net Kilowatt-hour generated (cents) -- Coal 1.91 1.76 1.77 Oil 4.73 5.79 5.14 Gas 4.62 8.89 3.76 Average cost of purchased power per net kilowatt- hour (cents) 1.86 2.25 2.02 Total average cost of energy supply (cents) 2.02 2.30 2.07 --------------------------------------------------------------- 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-230
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1997 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. Savannah Electric currently operates as a vertically integrated utility providing electricity to customers within the traditional service area of southeastern Georgia. Prices for electricity provided by the Company to retail customers are set by the Georgia Public Service Commission(GPSC). Future earnings in the near term will depend upon growth in energy sales, which is subject to a number of factors. These factors include 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. The electric utility industry in the United States is currently undergoing a period of dramatic change as a result of regulatory and competitive factors. Among the primary agents of change has been the Energy Policy Act of 1992 (Energy Act). 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 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. Although the Energy Act does not permit retail customer access, it was a major catalyst for the current restructuring and consolidation taking place within the utility industry. Numerous federal and state initiatives are in varying stages to promote wholesale and retail competition. Among other things, these initiatives allow customers to choose their electricity provider. As these initiatives materialize, the structure of the utility industry could radically change. Some states have approved initiatives that result in a separation of the ownership and/or operation of generating facilities from the ownership and/or operation of transmission and distribution facilities. While various restructuring and competition initiatives have been or are being discussed in Georgia, none have been enacted to date. Enactment would require numerous issues to be resolved, including significant ones relating to transmission pricing and recovery of any stranded investments. The inability of the Company to recover its investments, including the regulatory assets described in Note 1 to the financial statements, could have a material adverse effect on the financial condition of the Company. The Company is attempting to minimize or reduce its cost exposure. Continuing to be a low-cost producer could provide significant opportunities to increase market share and profitability in markets that evolve with 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 Company is heavily dependent upon complex computer systems for all phases of its operations. The year 2000 issue--common to most corporations--concerns the inability of certain software and databases to properly recognize date sensitive information related to the year 2000 and thereafter. This problem could result in a material disruption to the Company's operation, if not corrected. The Company has assessed and developed a detailed strategy to prevent or at least minimize problems related to the year 2000 issue. In 1997, resources were committed and implementation began to modify the affected information systems. Total costs related to the project for Southern Company are estimated to be approximately $85 million, of which $8 million was spent in 1997. The Company's total costs related to the project are estimated to be approximately $1 million, of which $0.2 million was spent in 1997. Most all remaining costs will be expensed in 1998. Implementation is currently on schedule. The degree of success of this project cannot be determined at this time. However, management believes that the final outcome will not have a material adverse affect on the operations of the Company. Compliance costs related to current and future environmental laws and regulations 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-231
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1997 Annual Report 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. 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 regulatory assets and liabilities that are not specifically recoverable, and determine if any other assets have been impaired. See Note 1 to the financial statements under "Regulatory Assets and Liabilities" for additional information. Exposure to Market Risks Due to cost-based rate regulation, the Company has limited exposure to market volatility in interest rates and prices of electricity. To mitigate residual risks relative to movements in electricity prices, the Company enters into fixed price contracts for the purchase and sale of electricity through the wholesale electricity market. Realized gains and losses are recognized in the income statement as incurred. At December 31, 1997, exposure from these activities was not material to the Company's financial statements. New Accounting Standards The FASB has issued Statement No. 130, Reporting Comprehensive Income, which will be effective in 1998. This statement establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners (comprehensive income). Comprehensive income is the total of net income and all other non-owner changes in equity. The Company will adopt this statement in 1998. The FASB has issued Statement No. 131, Disclosure about Segments of an Enterprise and Related Information. This statement requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Generally, financial information is required to be reported on the basis that it is used by the chief operating decision maker in deciding how to allocate resources and in assessing performance. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company adopted the new rules in 1997, which do not have a significant impact on the Company's financial reporting. However, this conclusion may change as industry restructuring and competitive factors influence the Company's operations. FINANCIAL CONDITION Overview The principal change in the Company's financial condition in 1997 was the addition of $19 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. Capital Structure As of December 31, 1997, the Company's capital structure consisted of 49.7 percent common equity, 9.9 percent preferred stock and 40.4 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 April 1997, the Company issued $14 million of variable interest rate pollution control obligations maturing in 2037. Maturities and retirements of long-term debt were $14 million in 1997, $29 million in 1996 and $29 million in 1995. 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-232
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1997 Annual Report The composite interest rates and dividend rate for the years 1995 through 1997 as of year-end were as follows: 1997 1996 1995 ------------------------------- Composite interest rates on long-term debt 6.9% 7.0% 7.5% 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 AA- Preferred Stock "a2" A - ----------------------------------------------------------------- Capital Requirements for Construction The Company's projected construction expenditures for the next three years total $66 million ($22 million in 1998, $23 million in 1999, and $21 million in 2000). 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 $23 million will be needed by the end of 2000 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--significantly affected 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. 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. 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 necessary to meet Phase II limits. Current compliance strategy for Phase II and ozone non-attainment could require total estimated construction expenditures for Southern Company of approximately $70 million, of which $55 million remains to be spent. Phase II compliance is not expected to have a material impact on Savannah Electric. 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. In July 1997, the Environmental Protection Agency (EPA) revised the national ambient air quality standards for ozone and particulate matter. This revision makes the standards significantly more stringent. Also, in October 1997, the EPA issued a proposed regional ozone rule that could require substantial further reductions in NOx emissions from fossil-fueled generating facilities. Implementation of the standards and the proposed rule could result in significant additional compliance costs and capital expenditures that cannot be determined at this time. The EPA and state environmental regulatory agencies are reviewing and evaluating various other matters including: emission control strategies for ozone non-attainment areas; additional controls for hazardous air pollutant II-233
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) Savannah Electric and Power Company 1997 Annual Report 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, 1997, the Company had $6.1 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, 2000, 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, $20 million remained unused at December 31, 1997. It is anticipated that the funds required for construction and other purposes, including compliance with environmental regulation, will be derived from sources similar to those used in the past. These sources were primarily from the issuances of first mortgage bonds, other long-term debt and preferred stock, in addition to pollution control revenue bonds issued for the Company's benefit by public authorities, to meet long-term external financing requirements. The Company plans to issue unsecured debt in 1998. 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. Cautionary Statement Regarding Forward-Looking Information Savannah Electric and Power Company's 1997 Annual Report contains forward-looking statements in addition to historical information. The Company cautions that there are various important factors that could cause actual results to differ materially from those indicated in the forward-looking statements; accordingly, there can be no assurance that such indicated results will be realized. These factors include legislative and regulatory initiatives regarding deregulation and restructuring of the electric utility industry; the extent and timing of the entry of additional competition in the Company's markets; potential business strategies--including acquisitions or dispositions of assets or internal restructuring--that may be pursued by the company; state and federal rate regulation; changes in or application of environmental and other laws and regulations to which the Company is subject; political, legal and economic conditions and developments; financial market conditions and the results of financing efforts; changes in commodity prices and interest rates; weather and other natural phenomena; and other factors discussed in the reports--including Form 10-K--filed from time to time by the Company with the Securities and Exchange Commission. II-234
<TABLE> <CAPTION> STATEMENTS OF INCOME For the Years Ended December 31, 1997, 1996, and 1995 Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================================ 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Revenues (Note 1): Revenues $ 224,225 $ 230,944 $ 218,529 Revenues from affiliates 2,052 3,130 7,200 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 226,277 234,074 225,729 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 35,563 29,139 25,386 Purchased power from non-affiliates 2,347 2,350 2,139 Purchased power from affiliates 42,107 58,591 53,252 Other 47,735 44,007 45,214 Maintenance 13,236 14,140 13,668 Depreciation and amortization (Note 1) 20,152 19,113 18,949 Taxes other than income taxes 11,494 11,675 11,465 Federal and state income taxes (Notes 1 and 6) 16,419 16,175 17,378 - ------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 189,053 195,190 187,451 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 37,224 38,884 38,278 Other Income (Expense): Allowance for equity funds used during construction (Note 1) 239 317 163 Interest income 279 201 164 Other, net (781) (1,756) (618) Income taxes applicable to other income (Notes 1 and 6) 1,233 1,034 651 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 38,194 38,680 38,638 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 10,907 11,563 12,380 Allowance for debt funds used during construction (Note 1) (164) (333) (450) Interest on notes payable 172 229 135 Amortization of debt discount, premium, and expense, net 739 579 448 Other interest charges 369 378 406 - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 12,023 12,416 12,919 - -------------------------------------------------------------------------------------------------------------------------------- Net Income 26,171 26,264 25,719 Dividends on Preferred Stock 2,324 2,324 2,324 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred Stock $ 23,847 $ 23,940 $ 23,395 ================================================================================================================================ STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1997, 1996, and 1995 - -------------------------------------------------------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at Beginning of Period $ 109,373 $ 105,033 $ 99,216 Net income after dividends on preferred stock 23,847 23,940 23,395 Cash dividends on common stock (20,500) (19,600) (17,600) Preferred stock transactions, net - - 22 - -------------------------------------------------------------------------------------------------------------------------------- Balance at End of Period (Note 10) $ 112,720 $ 109,373 $ 105,033 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-235
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996, and 1995 Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ======================================================================================================================= 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------- (in thousands) Operating Activities: Net income $ 26,171 $ 26,264 $ 25,719 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 21,083 20,246 20,535 Deferred income taxes and investment tax credits 3,841 7,482 4,359 Allowance for equity funds used during construction (239) (317) (163) Other, net (2,577) (641) 35 Changes in certain current assets and liabilities -- Receivables, net (3,239) (641) (6,241) Inventories 1,720 410 2,318 Payables (1,608) 4,242 2,213 Taxes accrued 2,310 (569) 451 Other 2,357 (4,038) (2,299) - ----------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 49,819 52,438 46,927 - ----------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (18,846) (28,950) (26,503) Other (1,418) (3,173) 3,198 - ----------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (20,264) (32,123) (23,305) - ----------------------------------------------------------------------------------------------------------------------- Financing Activities and Capital Contributions: Proceeds: First mortgage bonds - 20,000 15,000 Pollution control obligations 13,870 - - Other long-term debt - 17,000 33,500 Retirements: First mortgage bonds - (29,400) (29,250) Pollution control bonds (13,870) - - Other long-term debt (433) (397) (23,003) Notes payable, net (5,000) 1,000 1,500 Payment of preferred stock dividends (2,324) (2,324) (2,324) Payment of common stock dividends (20,500) (19,600) (17,600) Miscellaneous (368) (2,257) (2,131) - ----------------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (28,625) (15,978) (24,308) - ----------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 930 4,337 (686) Cash and Cash Equivalents at Beginning of Year 5,214 877 1,563 - ----------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 6,144 $ 5,214 $ 877 ======================================================================================================================= Supplemental Cash Flow Information: Cash paid during the year for- Interest (net of amount capitalized) $11,619 $12,960 $12,775 Income taxes 11,150 10,926 11,316 - ----------------------------------------------------------------------------------------------------------------------- ( ) Denotes use of cash. The accompanying notes are an integral part of these statements. </TABLE> II-236 <TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> ================================================================================================================================ Assets 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Utility Plant: Plant in service, at original cost (Notes 1, 4, 5, and 8) $ 760,694 $ 739,461 Less accumulated provision for depreciation 321,509 304,760 - -------------------------------------------------------------------------------------------------------------------------------- 439,185 434,701 Construction work in progress 7,709 13,463 - -------------------------------------------------------------------------------------------------------------------------------- Total 446,894 448,164 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,783 1,785 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 6,144 5,214 Special deposits 94 1,395 Receivables- Customer accounts receivable 21,148 18,827 Other accounts and notes receivable 720 769 Affiliated companies 1,128 844 Accumulated provision for uncollectible accounts (354) (632) Fuel cost under recovery 7,694 7,289 Fossil fuel stock, at average cost 5,205 5,892 Materials and supplies, at average cost (Note 1) 6,980 8,013 Prepayments 5,922 4,789 - -------------------------------------------------------------------------------------------------------------------------------- Total 54,681 52,400 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges and Other Assets: Deferred charges related to income taxes (Note 6) 17,267 19,167 Debt issue expense, being amortized 2,255 2,605 Premium on reacquired debt, being amortized 7,121 7,142 Prepaid pension costs (Note 2) 3,424 1,347 Cash surrender value of life insurance for deferred compensation plans 12,130 10,288 Miscellaneous 1,797 2,002 - -------------------------------------------------------------------------------------------------------------------------------- Total 43,994 42,551 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $ 547,352 $ 544,900 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-237
<TABLE> <CAPTION> BALANCE SHEETS At December 31, 1997 and 1996 Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> ================================================================================================================================ CAPITALIZATION AND LIABILITIES 1997 1996 - -------------------------------------------------------------------------------------------------------------------------------- (in thousands) Capitalization (See accompanying statements): Common stock equity $ 175,631 $ 172,284 Preferred stock 35,000 35,000 Long-term debt 142,846 164,406 - -------------------------------------------------------------------------------------------------------------------------------- Total 353,477 371,690 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Amount of securities due within one year (Note 9) 21,764 637 Notes payable - 5,000 Accounts payable- Affiliated companies 6,025 6,374 Other 7,862 10,201 Customer deposits 5,541 5,232 Taxes accrued- Federal and state income 534 - Other 2,791 1,015 Interest accrued 4,963 5,275 Vacation pay accrued 1,893 2,038 Miscellaneous 9,031 7,470 - -------------------------------------------------------------------------------------------------------------------------------- Total 60,404 43,242 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 6) 80,697 76,654 Accumulated deferred investment tax credits (Note 6) 12,607 13,271 Deferred credits related to income taxes (Note 6) 21,469 22,792 Deferred compensation plans 9,272 8,602 Postretirement benefits (Note 2) 6,011 5,472 Miscellaneous 3,415 3,177 - -------------------------------------------------------------------------------------------------------------------------------- Total 133,471 129,968 - -------------------------------------------------------------------------------------------------------------------------------- Commitments and Contingent Matters (Notes 1, 2, 4, 5, and 8) Total Capitalization and Liabilities $ 547,352 $ 544,900 ================================================================================================================================ The accompanying notes are an integral part of these statements. </TABLE> II-238
<TABLE> <CAPTION> STATEMENTS OF CAPITALIZATION At December 31, 1997 and 1996 Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> <C> ====================================================================================================================== 1997 1996 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- (in thousands) (percent of total) Common Stock Equity (Note 10): Common stock, par value $5 per share -- Authorized -- 16,000,000 shares Outstanding -- 10,844,635 shares in 1997 and 1996 $ 54,223 $ 54,223 Paid-in capital 8,688 8,688 Retained earnings 112,720 109,373 - ---------------------------------------------------------------------------------------------------------------------- Total common stock equity 175,631 172,284 49.7% 46.4% - ---------------------------------------------------------------------------------------------------------------------- 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 9.9 9.4 - ---------------------------------------------------------------------------------------------------------------------- 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 20,000 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 110,000 110,000 Pollution control obligations (Note 8) 17,955 17,955 Other long-term debt (Note 8) 36,655 37,088 - ---------------------------------------------------------------------------------------------------------------------- Total long-term debt (annual interest requirement -- $11,380,000) 164,610 165,043 Less amount due within one year (Note 9) 21,764 637 - ---------------------------------------------------------------------------------------------------------------------- Long-term debt excluding amount due within one year 142,846 164,406 40.4 44.2 - ---------------------------------------------------------------------------------------------------------------------- Total Capitalization $ 353,477 $ 371,690 100.0% 100.0% ====================================================================================================================== The accompanying notes are an integral part of these statements </TABLE> II-239
PAGE> NOTES TO FINANCIAL STATEMENTS Savannah Electric and Power Company 1997 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), Southern Company Energy Solutions, 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) and/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. Worldwide, Southern Energy develops and manages electricity and other energy related projects, including domestic energy trading and marketing. Southern Nuclear provides services to Southern Company's nuclear power plants. Southern Company Energy Solutions 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 the 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 expected to be credited to customers through the ratemaking process. Regulatory assets and (liabilities) reflected in the Balance Sheets at December 31 relate to: 1997 1996 --------------------------- (in thousands) Deferred income taxes $ 17,267 $ 19,167 Premium on reacquired debt 7,121 7,142 Deferred income tax credits (21,469) (22,792) Storm damage reserves (1,500) (900) - --------------------------------------------------------------- Total $ 1,419 $ 2,617 =============================================================== 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 net regulatory assets and liabilities that are not specifically recoverable through regulated rates. In addition, the Company would be required to determine if any impairment to other assets exists, 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, the energy component of purchased power costs, and certain other 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 1997, uncollectible accounts continued to average less than 1 percent of revenues. II-240
NOTES (continued) Savannah Electric and Power Company 1997 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 2.9 percent in 1997, 2.8 percent in 1996 and 2.9 percent in 1995. 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 9.24 percent in 1997, 8.69 percent in 1996 and 7.42 percent in 1995. 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) 1997 $158 $161 1996 155 161 - -------------------------------------------------------------- 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 costs 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. Work Force Reduction Program In 1997, the Company incurred a $1.9 million one-time charge to other operation expense for costs related to the implementation of a work force reduction program. 2. RETIREMENT BENEFITS Pension Plan The Company has a defined benefit, trusteed, non-contributory pension plan that covers substantially all regular employees. Effective January 1, 1998, Savannah Electric and Power Company's pension plan was merged with the Southern Company plan. 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 II-241
NOTES (continued) Savannah Electric and Power Company 1997 Annual Report 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. The Company funds trusts 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 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." The cost of postretirement benefits is reflected in rates on a current basis. Funded Status and Cost of Benefits The funded status of the plans and reconciliation to amounts reflected in the Balance Sheets at December 31 are as follows: Pension --------------------------- 1997 1996 --------------------------- (in thousands) Actuarial present value of benefit obligation: Vested benefits $40,240 $39,270 Non-vested benefits 3,350 2,939 - ---------------------------------------------------------------- Accumulated benefit obligation 43,590 42,209 Additional amounts related to projected salary increases 8,130 7,705 - ---------------------------------------------------------------- Projected benefit obligation 51,720 49,914 Less: Fair value of plan assets 51,630 42,430 Unrecognized net loss 1,275 7,147 Unrecognized prior service cost 1,884 1,240 Unrecognized net transition obligation 355 444 - ---------------------------------------------------------------- Prepaid asset recognized in the Balance Sheets $ 3,424 $ 1,347 ================================================================ Postretirement Benefits ------------------------- 1997 1996 -------------------------- (in thousands) Actuarial present value of benefit obligation: Retirees and dependents $12,509 $12,442 Employees eligible to retire 1,923 1,614 Other employees 6,467 6,464 - ------------------------------------------------------------- Accumulated benefit obligation 20,899 20,520 Less: Fair value of plan assets 3,859 2,473 Unrecognized net loss 3,737 4,835 Unrecognized transition Obligation 7,407 7,900 - ------------------------------------------------------------- Accrued liability recognized in the Balance Sheets $ 5,896 $ 5,312 ============================================================= The weighted average rates assumed in the actuarial calculations for the pension plan were: 1997 1996 1995 -------------------------- Discount 7.50% 7.25% 7.25% Annual salary increase 5.00 4.75 4.75 Long-term return on plan assets 8.50 8.75 8.75 --------------------------------------------------------------- An additional assumption used in measuring the accumulated postretirement benefit obligation was a weighted average medical care cost trend rate of 8.8 percent for 1997, decreasing gradually to 5.5 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, 1997, by $1.4 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 ----------------------------- 1997 1996 1995 ----------------------------- (in thousands) Benefits earned during the year $1,393 $1,352 $1,188 Interest cost on projected benefit obligation 3,556 3,389 3,395 Actual (return) loss on plan assets (7,762) (4,852) (5,791) Net amortization and deferral 4,735 2,439 4,125 - ------------------------------------------------------------------ Net pension cost $1,922 $2,328 $2,917 ================================================================== II-242
NOTES (continued) Savannah Electric and Power Company 1997 Annual Report Of the above net pension costs, $1.7 million in 1997, $2.0 million in 1996 and $2.4 million in 1995 were recorded in operating expenses, and the remainder was recorded in construction and other accounts. Postretirement Benefits ----------------------------- 1997 1996 1995 ----------------------------- (in thousands) Benefits earned during the year $ 319 $ 360 $ 504 Interest cost on accumulated benefit obligation 1,499 1,422 1,638 Amortization of transition Obligation 494 494 723 Actual (return) loss on plan assets (346) (145) (34) Net amortization and deferral 260 187 93 - ------------------------------------------------------------------ Net postretirement costs $2,226 $2,318 $2,924 ================================================================== Of the above net postretirement costs, $1.9 million in 1997, $2.0 million in 1996 and $2.4 million in 1995 were recorded in operating expenses. The remainder for each year was charged to construction and other accounts. 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 1997, 1996 and 1995. 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. 4. CONSTRUCTION PROGRAM The Company is engaged in a continuous construction program, currently estimated to total $22 million in 1998, $23 million in 1999 and $21 million in 2000. 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 1997, unused credit arrangements with five banks totaled $20.5 million and expire at various times during 1998. The Company's revolving credit arrangements of $20 million, of which $20 million remained unused as of December 31, 1997, expire December 31, 2000. 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 II-243
NOTES (continued) Savannah Electric and Power Company 1997 Annual Report property and a second lien for a $14 million bank note is secured by a portion of the Plant McIntosh property. Operating Leases The Company has rental agreements with various terms and expiration dates. Rental expenses totaled $1.2 million for 1997, $1.6 million for 1996, and $1.3 million for 1995. 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, 1997, estimated future minimum lease payments for non-cancelable operating leases were as follows: Amounts -------------------- (in thousands) 1998 $1,077 1999 483 2000 483 2001 483 2002 and thereafter 7,935 - ------------------------------------------------------------- 6. INCOME TAXES At December 31, 1997, tax-related regulatory assets and liabilities were $17 million and $21 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 income tax provisions are as follows: 1997 1996 1995 -------------------------------- (in thousands) Total provision for income taxes Federal -- Currently payable $9,743 $ 7,084 $10,427 Deferred -- current year 4,522 8,216 5,290 -- reversal of prior years (1,381) (1,989) (1,661) - ----------------------------------------------------------------- 12,884 13,311 14,056 - ----------------------------------------------------------------- State -- Currently payable 1,603 575 1,941 Deferred -- current year 569 1,216 695 -- reversal of prior years 130 39 35 - ----------------------------------------------------------------- 2,302 1,830 2,671 - ----------------------------------------------------------------- Total 15,186 15,141 16,727 Less income taxes credited to other income (1,233) (1,034) (651) - ----------------------------------------------------------------- Total income taxes charged to operations $16,419 $16,175 $17,378 ================================================================= 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: 1997 1996 -------------------- Deferred tax liabilities: (in thousands) Accelerated depreciation $72,663 $67,104 Property basis differences 8,034 9,550 Other 5,850 5,703 - ---------------------------------------------------------------- Total 86,547 82,357 - ---------------------------------------------------------------- Deferred tax assets: Pension and other benefits 5,338 5,183 Other 2,957 2,186 - ---------------------------------------------------------------- Total 8,295 7,369 - ---------------------------------------------------------------- Net deferred tax liabilities 78,252 74,988 Portions included in current assets, net 2,445 1,666 - ---------------------------------------------------------------- Accumulated deferred income taxes in the Balance Sheets $80,697 $76,654 ================================================================ 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 1997, 1996 and 1995. At December 31, 1997, all investment tax credits available to reduce federal income taxes payable had been utilized. II-244
NOTES (continued) Savannah Electric and Power Company 1997 Annual Report A reconciliation of the federal statutory income tax rate to the effective income tax rate is as follows: 1997 1996 1995 ----------------------------- Federal statutory tax rate 35% 35% 35% State income tax, net of federal income tax benefit 4 3 4 Other (2) (1) - -------------------------------------------------------------- Effective income tax rate 37% 37% 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 April 1997, the Company issued $14 million in variable rate pollution control obligations (bank note) maturing in 2037. The Company redeemed all of its remaining outstanding 6 3/4% Pollution Control Bonds due 2022. The sinking fund requirements of first mortgage bonds were satisfied by certifying property additions in 1997 and by cash redemption in 1996. The 1998 requirement will be satisfied by cash redemption. Sinking fund requirements and/or maturities through 2002 applicable to long-term debt are as follows: $21.8 million in 1998; $0.6 million in 1999; $0.6 million in 2000; $10.5 million in 2001; and $0.4 million in 2002. Details of pollution control obligations and other long-term debt at December 31 are as follows: 1997 1996 ------------------------ (in thousands) Collateralized obligations incurred in connection with the sale by public authorities of tax-exempt pollution control revenue bonds -- Variable rate (4.20% at 1/1/98) due 2016 $ 4,085 $ 4,085 6 3/4% due 2022 - 13,870 Variable rate bank note (5.05% at 1/1/98) due 2037 13,870 - Capital lease obligations -- Coal unloading facility Variable rate (6.25% at 1/1/98) 5,867 6,667 Transportation fleet 788 421 Notes Payable -- 6.88% due 2001 10,000 10,000 Variable rate (6.06% at 1/1/98) due 1998 15,000 15,000 Variable rate (6.06% at 1/1/98) due 1998 5,000 5,000 - ---------------------------------------------------------------- Total $54,610 $55,043 ================================================================ 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-245
NOTES (continued) Savannah Electric and Power Company 1997 Annual Report 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: 1997 1996 ------------------------- (in thousands) Bond sinking fund requirement $ 1,100 $1,100 Less: Portion to be satisfied by certifying property additions - 1,100 - -------------------------------------------------------------------- Cash sinking fund requirement 1,100 - Other long-term debt maturities (Note 8) 20,664 637 - -------------------------------------------------------------------- Total $21,764 $ 637 ==================================================================== 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, 1997, 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 INFORMATIO (Unaudited) Summarized quarterly financial data for 1997 and 1996 are as follows (in thousands): Net Income After Operating Operating Dividends on Quarter Ended Revenues Income Preferred Stock - ----------------------------------------------------------------- March 1997 $42,945 $ 6,117 $ 2,545 June 1997 52,516 8,626 5,136 September 1997 79,900 17,531 14,276 December 1997 50,916 4,950 1,890 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 - ----------------------------------------------------------------- The Company's business is influenced by seasonal weather conditions and a seasonal rate structure, among other factors. II-246
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) $226,277 $234,074 $225,729 Net Income after Dividends on Preferred and Preference Stocks (in thousands) $23,847 $23,940 $23,395 Cash Dividends on Common Stock (in thousands) $20,500 $19,600 $17,600 Return on Average Common Equity (percent) 13.71 14.08 14.20 Total Assets (in thousands) $547,352 $544,900 $524,662 Gross Property Additions (in thousands) $18,846 $28,950 $26,503 - ------------------------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $175,631 $172,284 $167,812 Preferred stock 35,000 35,000 35,000 Preferred and preference stock subject to mandatory redemption - - - Long-term debt 142,846 164,406 153,679 - ------------------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $353,477 $371,690 $356,491 ============================================================================================================================== Capitalization Ratios (percent): Common stock equity 49.7 46.4 47.1 Preferred and preference stock 9.9 9.4 9.8 Long-term debt 40.4 44.2 43.1 - ------------------------------------------------------------------------------------------------------------------------------ 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 Preferred and Preference Stock (in thousands): Issued - - - Retired - - - - ------------------------------------------------------------------------------------------------------------------------------ Security Ratings: First Mortgage Bonds - Moody's A1 A1 A1 Standard and Poor's AA- A+ A+ Preferred Stock - Moody's ""a2" ""a2" ""a2" Standard and Poor's A A A - ------------------------------------------------------------------------------------------------------------------------------ Customers (year-end): Residential 109,092 106,657 104,624 Commercial 14,233 13,877 13,339 Industrial 64 65 65 Other 1,129 1,097 1,048 - ------------------------------------------------------------------------------------------------------------------------------ Total 124,518 121,696 119,076 ============================================================================================================================== Employees (year-end) 535 571 584 Note: NR = Not Rated </TABLE> II-247
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================== 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands) $211,785 $218,442 $197,761 Net Income after Dividends on Preferred and Preference Stocks (in thousands) $22,110 $21,459 $20,512 Cash Dividends on Common Stock (in thousands) $16,300 $21,000 $22,000 Return on Average Common Equity (percent) 14.00 13.73 12.89 Total Assets (in thousands) $518,305 $527,187 $352,175 Gross Property Additions (in thousands) $30,078 $72,858 $30,132 - ------------------------------------------------------------------------------------------------------------------ Capitalization (in thousands): Common stock equity $161,581 $154,269 $158,376 Preferred stock 35,000 35,000 20,000 Preferred and preference stock subject to mandatory redemption - - - Long-term debt 155,922 151,338 110,767 - ------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) $352,503 $340,607 $289,143 ================================================================================================================== Capitalization Ratios (percent): Common stock equity 45.8 45.3 54.8 Preferred and preference stock 9.9 10.3 6.9 Long-term debt 44.3 44.4 38.3 - ------------------------------------------------------------------------------------------------------------------ Total (excluding amounts due within one year) 100.0 100.0 100.0 ================================================================================================================== First Mortgage Bonds (in thousands): Issued - 45,000 30,000 Retired 5,065 - 38,750 Preferred and Preference Stock (in thousands): Issued - 35,000 - Retired - 20,000 - - ------------------------------------------------------------------------------------------------------------------ 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 103,199 101,032 99,164 Commercial 13,015 12,702 12,416 Industrial 65 69 73 Other 1,007 957 940 - ------------------------------------------------------------------------------------------------------------------ Total 117,286 114,760 112,593 ================================================================================================================== Employees (year-end) 616 665 688 Note: NR = Not Rated </TABLE> II-248A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ======================================================================================================================= 1991 1990 1989 - ----------------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $189,646 $205,635 $201,799 Net Income after Dividends on Preferred and Preference Stocks (in thousands) $24,030 $26,254 $25,535 Cash Dividends on Common Stock (in thousands) $22,000 $22,000 $20,000 Return on Average Common Equity (percent) 15.13 16.85 16.88 Total Assets (in thousands) $352,505 $340,050 $349,887 Gross Property Additions (in thousands) $19,478 $20,086 $18,831 - ----------------------------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $159,841 $157,811 $153,737 Preferred stock 20,000 20,000 22,300 Preferred and preference stock subject to mandatory redemption - - 2,884 Long-term debt 119,280 112,377 117,522 - ----------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $299,121 $290,188 $296,443 ======================================================================================================================= Capitalization Ratios (percent): Common stock equity 53.4 54.4 51.9 Preferred and preference stock 6.7 6.9 8.5 Long-term debt 39.9 38.7 39.6 - ----------------------------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 100.0 ======================================================================================================================= First Mortgage Bonds (in thousands): Issued 30,000 - 30,000 Retired 22,500 9,135 18,275 Preferred and Preference Stock (in thousands): Issued - - - Retired - 5,374 6,591 - ----------------------------------------------------------------------------------------------------------------------- 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 97,446 96,452 94,766 Commercial 12,153 12,045 12,298 Industrial 73 76 69 Other 897 867 856 - ----------------------------------------------------------------------------------------------------------------------- Total 110,569 109,440 107,989 ======================================================================================================================= Employees (year-end) 672 648 643 Note: NR = Not Rated </TABLE> II-248B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> ==================================================================================================== 1988 1987 - ---------------------------------------------------------------------------------------------------- Operating Revenues (in thousands) $182,440 $174,707 Net Income after Dividends on Preferred and Preference Stocks (in thousands) $24,272 $22,086 Cash Dividends on Common Stock (in thousands) $11,700 $10,741 Return on Average Common Equity (percent) 17.03 17.03 Total Assets (in thousands) $347,051 $340,109 Gross Property Additions (in thousands) $23,254 $32,276 - ---------------------------------------------------------------------------------------------------- Capitalization (in thousands): Common stock equity $148,883 $136,207 Preferred stock 22,300 2,300 Preferred and preference stock subject to mandatory redemption 3,075 9,665 Long-term debt 98,285 129,329 - ---------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) $272,543 $277,501 ==================================================================================================== Capitalization Ratios (percent): Common stock equity 54.6 49.1 Preferred and preference stock 9.3 4.3 Long-term debt 36.1 46.6 - ---------------------------------------------------------------------------------------------------- Total (excluding amounts due within one year) 100.0 100.0 ==================================================================================================== First Mortgage Bonds (in thousands): Issued - - Retired 12,231 10,239 Preferred and Preference Stock (in thousands): Issued 20,000 - Retired 553 588 - ---------------------------------------------------------------------------------------------------- Security Ratings: First Mortgage Bonds - Moody's A1 A3 Standard and Poor's A- A- Preferred Stock - Moody's ""a2" NR Standard and Poor's BBB+ BBB+ - ---------------------------------------------------------------------------------------------------- Customers (year-end): Residential 93,486 92,094 Commercial 12,135 11,812 Industrial 69 67 Other 828 762 - ---------------------------------------------------------------------------------------------------- Total 106,518 104,735 ==================================================================================================== Employees (year-end) 655 655 Note: NR = Not Rated </TABLE> II-248C
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $96,587 $101,607 $95,208 Commercial 78,949 80,494 75,117 Industrial 35,301 37,077 36,040 Other 8,621 8,804 8,386 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 219,458 227,982 214,751 Sales for resale - non-affiliates 3,467 1,998 1,851 Sales for resale - affiliates 2,052 3,130 7,200 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 224,977 233,110 223,802 Other revenues 1,300 964 1,927 - ------------------------------------------------------------------------------------------------------------------------------ Total $226,277 $234,074 $225,729 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,428,337 1,456,651 1,402,148 Commercial 1,156,078 1,141,218 1,099,570 Industrial 881,261 838,753 887,141 Other 124,490 126,215 126,057 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 3,590,166 3,562,837 3,514,916 Sales for resale - non-affiliates 94,280 91,610 87,747 Sales for resale - affiliates 54,509 41,808 63,731 - ------------------------------------------------------------------------------------------------------------------------------ Total 3,738,955 3,696,255 3,666,394 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.76 6.98 6.79 Commercial 6.83 7.05 6.83 Industrial 4.01 4.42 4.06 Total retail 6.11 6.40 6.11 Sale for resale 3.71 3.84 5.98 Total sales 6.02 6.31 6.10 Residential Average Annual Kilowatt-Hour Use Per Customer 13,231 13,771 13,478 Residential Average Annual Revenue Per Customer $894.73 $960.58 $915.15 Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 788 788 Maximum Peak-Hour Demand (megawatts): Winter 625 666 630 Summer 802 811 811 Annual Load Factor (percent) 54.3 53.1 52.9 Plant Availability - Fossil-Steam (percent) 93.7 77.6 83.3 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 34.4 27.7 23.9 Oil and gas 5.2 3.1 5.9 Purchased power - From non-affiliates 1.4 2.1 2.3 From affiliates 59.0 67.1 67.9 - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ============================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 11,495 11,888 12,146 Cost of fuel per million BTU (cents) 197.19 203.36 179.25 Average cost of fuel per net kilowatt-hour generated (cents) 2.27 2.42 2.18 ============================================================================================================================== </TABLE> II-249
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ============================================================================================================================== 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $89,195 $93,883 $82,670 Commercial 71,227 71,320 64,756 Industrial 32,906 36,180 33,171 Other 7,946 7,810 7,095 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 201,274 209,193 187,692 Sales for resale - non-affiliates 4,786 6,021 7,821 Sales for resale - affiliates 6,446 2,433 1,505 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 212,506 217,647 197,018 Other revenues (721) 795 743 - ------------------------------------------------------------------------------------------------------------------------------ Total $211,785 $218,442 $197,761 ============================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,298,122 1,329,362 1,216,993 Commercial 1,045,831 1,015,935 953,840 Industrial 799,543 854,324 861,121 Other 119,593 115,969 110,270 - ------------------------------------------------------------------------------------------------------------------------------ Total retail 3,263,089 3,315,590 3,142,224 Sales for resale - non-affiliates 201,716 247,203 367,066 Sales for resale - affiliates 93,001 75,384 37,632 - ------------------------------------------------------------------------------------------------------------------------------ Total 3,557,806 3,638,177 3,546,922 ============================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.87 7.06 6.79 Commercial 6.81 7.02 6.79 Industrial 4.12 4.23 3.85 Total retail 6.17 6.31 5.97 Sale for resale 3.81 2.62 2.30 Total sales 5.97 5.98 5.55 Residential Average Annual Kilowatt-Hour Use Per Customer 12,686 13,269 12,369 Residential Average Annual Revenue Per Customer $871.68 $937.07 $840.23 Plant Nameplate Capacity Ratings (year-end) (megawatts) 788 628 628 Maximum Peak-Hour Demand (megawatts): Winter 617 524 533 Summer 729 747 695 Annual Load Factor (percent) 54.3 54.1 55.0 Plant Availability - Fossil-Steam (percent) 81.0 90.2 89.1 - ------------------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 18.6 21.5 12.0 Oil and gas 1.8 4.5 2.9 Purchased power - From non-affiliates 1.5 0.9 1.0 From affiliates 78.1 73.1 84.1 - ----------------------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 100.0 ============================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 11,786 11,515 12,547 Cost of fuel per million BTU (cents) 205.03 215.97 201.50 Average cost of fuel per net kilowatt-hour generated (cents) 2.42 2.49 2.53 ============================================================================================================================== </TABLE> II-250A
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> <C> ================================================================================================================== 1991 1990 1989 - ------------------------------------------------------------------------------------------------------------------ Operating Revenues (in thousands): Residential $80,541 $87,063 $85,113 Commercial 61,827 65,462 65,474 Industrial 30,492 30,237 28,304 Other 6,561 6,782 6,892 - ------------------------------------------------------------------------------------------------------------------ Total retail 179,421 189,544 185,783 Sales for resale - non-affiliates 7,813 9,482 8,814 Sales for resale - affiliates 1,430 5,566 6,025 - ------------------------------------------------------------------------------------------------------------------ Total revenues from sales of electricity 188,664 204,592 200,622 Other revenues 982 1,043 1,177 - ------------------------------------------------------------------------------------------------------------------ Total $189,646 $205,635 $201,799 ================================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,195,005 1,183,486 1,109,976 Commercial 925,757 892,931 839,756 Industrial 825,862 644,704 561,063 Other 106,683 103,539 101,164 - ------------------------------------------------------------------------------------------------------------------ Total retail 3,053,307 2,824,660 2,611,959 Sales for resale - non-affiliates 372,085 441,090 437,943 Sales for resale - affiliates 32,581 294,042 303,142 - ------------------------------------------------------------------------------------------------------------------ Total 3,457,973 3,559,792 3,353,044 ================================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 6.74 7.36 7.67 Commercial 6.68 7.33 7.80 Industrial 3.69 4.69 5.04 Total retail 5.88 6.71 7.11 Sale for resale 2.28 2.05 2.00 Total sales 5.46 5.75 5.98 Residential Average Annual Kilowatt-Hour Use Per Customer 12,323 12,339 11,781 Residential Average Annual Revenue Per Customer $830.54 $907.68 $903.37 Plant Nameplate Capacity Ratings (year-end) (megawatts) 605 605 605 Maximum Peak-Hour Demand (megawatts): Winter 526 428 548 Summer 691 648 613 Annual Load Factor (percent) 54.1 53.2 52.4 Plant Availability - Fossil-Steam (percent) 76.9 89.6 94.7 - ------------------------------------------------------------------------------------------------------------------ Source of Energy Supply (percent): Coal 16.3 52.8 63.5 Oil and gas 1.7 3.4 1.4 Purchased power - From non-affiliates 0.4 0.8 1.5 From affiliates 81.6 43.0 33.6 - ------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 ================================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,917 10,741 10,611 Cost of fuel per million BTU (cents) 199.42 188.18 180.48 Average cost of fuel per net kilowatt-hour generated (cents) 2.18 2.02 1.92 ================================================================================================================== </TABLE> II-250B
<TABLE> <CAPTION> SELECTED FINANCIAL AND OPERATING DATA (continued) Savannah Electric and Power Company 1997 Annual Report <S> <C> <C> ============================================================================================================== 1988 1987 - -------------------------------------------------------------------------------------------------------------- Operating Revenues (in thousands): Residential $81,098 $79,785 Commercial 62,640 60,285 Industrial 26,865 27,422 Other 6,557 6,315 - -------------------------------------------------------------------------------------------------------------- Total retail 177,160 173,807 Sales for resale - non-affiliates 808 - Sales for resale - affiliates 3,567 - - -------------------------------------------------------------------------------------------------------------- Total revenues from sales of electricity 181,535 173,807 Other revenues 905 900 - -------------------------------------------------------------------------------------------------------------- Total $182,440 $174,707 ============================================================================================================== Kilowatt-Hour Sales (in thousands): Residential 1,067,411 1,044,554 Commercial 806,687 775,643 Industrial 533,604 557,281 Other 97,072 94,949 - -------------------------------------------------------------------------------------------------------------- Total retail 2,504,774 2,472,427 Sales for resale - non-affiliates 24,168 - Sales for resale - affiliates 156,106 - - -------------------------------------------------------------------------------------------------------------- Total 2,685,048 2,472,427 ============================================================================================================== Average Revenue Per Kilowatt-Hour (cents): Residential 7.60 7.64 Commercial 7.77 7.77 Industrial 5.03 4.92 Total retail 7.07 7.03 Sale for resale 2.43 - Total sales 6.76 7.03 Residential Average Annual Kilowatt-Hour Use Per Customer 11,489 11,481 Residential Average Annual Revenue Per Customer $872.87 $876.95 Plant Nameplate Capacity Ratings (year-end) (megawatts) 605 605 Maximum Peak-Hour Demand (megawatts): Winter 471 414 Summer 574 562 Annual Load Factor (percent) 53.4 53.6 Plant Availability - Fossil-Steam (percent) 77.1 81.2 - -------------------------------------------------------------------------------------------------------------- Source of Energy Supply (percent): Coal 79.8 74.3 Oil and gas 5.4 4.4 Purchased power - From non-affiliates 5.9 19.9 From affiliates 8.9 1.4 - -------------------------------------------------------------------------------------------------------------- Total 100.0 100.0 ============================================================================================================== Total Fuel Economy Data: BTU per net kilowatt-hour generated 10,683 10,551 Cost of fuel per million BTU (cents) 178.31 176.10 Average cost of fuel per net kilowatt-hour generated (cents) 1.90 1.86 ============================================================================================================== </TABLE> II-250C
<TABLE> <CAPTION> STATEMENTS OF INCOME Savannah Electric and Power Company <S> <C> <C> <C> =================================================================================================================================== For the Years Ended December 31, 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $224,225 $230,944 $218,529 Revenues from affiliates 2,052 3,130 7,200 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 226,277 234,074 225,729 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 35,563 29,139 25,386 Purchased power from non-affiliates 2,347 2,350 2,139 Purchased power from affiliates 42,107 58,591 53,252 Other 47,735 44,007 45,214 Maintenance 13,236 14,140 13,668 Depreciation and amortization 20,152 19,113 18,949 Taxes other than income taxes 11,494 11,675 11,465 Federal and state income taxes 16,419 16,175 17,378 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 189,053 195,190 187,451 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income 37,224 38,884 38,278 Other Income (Expense): Allowance for equity funds used during construction 239 317 163 Interest income 279 201 164 Other, net (781) (1,756) (618) Income taxes applicable to other income 1,233 1,034 651 - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 38,194 38,680 38,638 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 10,907 11,563 12,380 Allowance for debt funds used during construction (164) (333) (450) Interest on notes payable 172 229 135 Amortization of debt discount, premium, and expense, net 739 579 448 Other interest charges 369 378 406 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest charges 12,023 12,416 12,919 - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of a Change in Method of Recording Revenues 26,171 26,264 25,719 Cumulative effect as of January 1, 1988, of accruing unbilled revenues--less income taxes of $1,164(000) - - - - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 26,171 26,264 25,719 Dividends on Preferred and Preference Stock 2,324 2,324 2,324 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred and Preference Stock $ 23,847 $ 23,940 $ 23,395 =================================================================================================================================== Pro Forma Net Income After Dividends on Preferred Stock Assuming Change in Method of Recording Revenues Was Applied Retroactively $ 23,847 $ 23,940 $ 23,395 </TABLE> II-251
<TABLE> <CAPTION> STATEMENTS OF INCOME Savannah Electric and Power Company <S> <C> <C> <C> =================================================================================================================================== For the Years Ended December 31, 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $205,339 $216,009 $196,256 Revenues from affiliates 6,446 2,433 1,505 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 211,785 218,442 197,761 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 18,555 24,976 14,162 Purchased power from non-affiliates 1,839 793 494 Purchased power from affiliates 55,822 56,274 56,492 Other 41,623 45,610 36,884 Maintenance 12,560 13,516 14,232 Depreciation and amortization 17,854 16,467 16,829 Taxes other than income taxes 11,074 11,136 10,231 Federal and state income taxes 16,289 15,436 14,566 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 175,616 184,208 163,890 - ----------------------------------------------------------------------------------------------------------------------------------- Operating Income 36,169 34,234 33,871 Other Income (Expense): Allowance for equity funds used during construction 831 958 446 Interest income 54 209 276 Other, net (1,032) (1,841) (1,450) Income taxes applicable to other income 864 1,117 758 - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 36,886 34,677 33,901 - ----------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 12,585 10,696 10,870 Allowance for debt funds used during construction (1,225) (699) (289) Interest on notes payable 205 240 15 Amortization of debt discount, premium, and expense, net 550 535 427 Other interest charges 337 340 466 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest charges 12,452 11,112 11,489 - ----------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of a Change in Method of Recording Revenues 24,434 23,565 22,412 Cumulative effect as of January 1, 1988, of accruing unbilled revenues--less income taxes of $1,164(000) - - - - ----------------------------------------------------------------------------------------------------------------------------------- Net Income 24,434 23,565 22,412 Dividends on Preferred and Preference Stock 2,324 2,106 1,900 - ----------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred and Preference Stock $ 22,110 $ 21,459 $ 20,512 =================================================================================================================================== Pro Forma Net Income After Dividends on Preferred Stock Assuming Change in Method of Recording Revenues Was Applied Retroactively $ 22,110 $ 21,459 $ 20,512 </TABLE> II-252A
<TABLE> <CAPTION> STATEMENTS OF INCOME Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $188,216 $200,069 $195,774 Revenues from affiliates 1,430 5,566 6,025 - -------------------------------------------------------------------------------------------------------------------------------- Total operating revenues 189,646 205,635 201,799 - -------------------------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 14,415 42,630 44,224 Purchased power from non-affiliates 297 611 616 Purchased power from affiliates 49,007 34,648 26,361 Other 32,945 30,630 29,371 Maintenance 12,475 12,754 12,281 Depreciation and amortization 16,549 16,118 20,343 Taxes other than income taxes 10,122 9,798 9,152 Federal and state income taxes 16,195 17,611 17,571 - -------------------------------------------------------------------------------------------------------------------------------- Total operating expenses 152,005 164,800 159,919 - -------------------------------------------------------------------------------------------------------------------------------- Operating Income 37,641 40,835 41,880 Other Income (Expense): Allowance for equity funds used during construction 170 193 - Interest income 589 741 719 Other, net (879) (803) (672) Income taxes applicable to other income 722 187 192 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 38,243 41,153 42,119 - -------------------------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 11,486 12,052 12,287 Allowance for debt funds used during construction (103) (194) (112) Interest on notes payable 25 116 402 Amortization of debt discount, premium, and expense, net 380 241 274 Other interest charges 525 665 1,313 - -------------------------------------------------------------------------------------------------------------------------------- Net interest charges 12,313 12,880 14,164 - -------------------------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of a Change in Method of Recording Revenues 25,930 28,273 27,955 Cumulative effect as of January 1, 1988, of accruing unbilled revenues--less income taxes of $1,164(000) - - - - -------------------------------------------------------------------------------------------------------------------------------- Net Income 25,930 28,273 27,955 Dividends on Preferred and Preference Stock 1,900 2,019 2,420 - -------------------------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred and Preference Stock $ 24,030 $ 26,254 $ 25,535 ================================================================================================================================ Pro Forma Net Income After Dividends on Preferred Stock Assuming Change in Method of Recording Revenues Was Applied Retroactively $ 24,030 $ 26,254 $ 25,535 </TABLE> II-252B
<TABLE> <CAPTION> STATEMENTS OF INCOME Savannah Electric and Power Company <S> <C> <C> ================================================================================================================ For the Years Ended December 31, 1988 1987 - ---------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Revenues: Revenues $178,873 $174,707 Revenues from affiliates 3,567 - - ---------------------------------------------------------------------------------------------------------------- Total operating revenues 182,440 174,707 - ---------------------------------------------------------------------------------------------------------------- Operating Expenses: Operation -- Fuel 46,578 38,597 Purchased power from non-affiliates 3,593 11,453 Purchased power from affiliates 6,586 1,186 Other 28,271 25,642 Maintenance 14,261 13,629 Depreciation and amortization 19,771 18,152 Taxes other than income taxes 9,209 9,088 Federal and state income taxes 14,017 16,969 - ---------------------------------------------------------------------------------------------------------------- Total operating expenses 142,286 134,716 - ---------------------------------------------------------------------------------------------------------------- Operating Income 40,154 39,991 Other Income (Expense): Allowance for equity funds used during construction 273 512 Interest income 355 925 Other, net (1,423) (464) Income taxes applicable to other income 459 (317) - ---------------------------------------------------------------------------------------------------------------- Income Before Interest Charges 39,818 40,647 - ---------------------------------------------------------------------------------------------------------------- Interest Charges: Interest on long-term debt 15,603 17,127 Allowance for debt funds used during construction (330) (459) Interest on notes payable 230 70 Amortization of debt discount, premium, and expense, net 196 237 Other interest charges 336 251 - ---------------------------------------------------------------------------------------------------------------- Net interest charges 16,035 17,226 - ---------------------------------------------------------------------------------------------------------------- Income Before Cumulative Effect of a Change in Method of Recording Revenues 23,783 23,421 Cumulative effect as of January 1, 1988, of accruing unbilled revenues--less income taxes of $1,164(000) 1,920 - - ---------------------------------------------------------------------------------------------------------------- Net Income 25,703 23,421 Dividends on Preferred and Preference Stock 1,431 1,335 - ---------------------------------------------------------------------------------------------------------------- Net Income After Dividends on Preferred and Preference Stock $ 24,272 $ 22,086 ================================================================================================================ Pro Forma Net Income After Dividends on Preferred Stock Assuming Change in Method of Recording Revenues Was Applied Retroactively $ 22,352 $ 21,865 </TABLE> II-252C
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 26,171 $ 26,264 $ 25,719 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 21,083 20,246 20,535 Deferred income taxes, net 3,841 7,482 4,359 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (239) (317) (163) Other, net (2,577) (641) 35 Changes in certain current assets and liabilities -- Receivables, net (3,239) (641) (6,241) Inventories 1,720 410 2,318 Payables (1,608) 4,242 2,213 Other 4,667 (4,607) (1,848) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 49,819 52,438 46,927 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (18,846) (28,950) (26,503) Sales of property - - - Other (1,418) (3,173) 3,198 - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (20,264) (32,123) (23,305) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Preferred stock - - - First mortgage bonds - 20,000 15,000 Pollution control bonds 13,870 - - Other long-term debt - 17,000 33,500 Common stock - - - Retirements: Preferred and preference stock - - - First mortgage bonds - (29,400) (29,250) Pollution control bonds (13,870) - - Other long-term debt (433) (397) (23,003) Notes payable, net (5,000) 1,000 1,500 Payment of preferred and preference stock dividends (2,324) (2,324) (2,324) Payment of common and class A stock dividends (20,500) (19,600) (17,600) Miscellaneous (368) (2,257) (2,131) - --------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (28,625) (15,978) (24,308) - -------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 930 4,337 (686) Cash and Cash Equivalents at Beginning of Year 5,214 877 1,563 - -------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 6,144 $ 5,214 $ 877 ================================================================================================================================ ( ) Denotes use of cash. </TABLE> II-253
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Savannah Electric and Power Company <S> <C> <C> <C> =================================================================================================================================== For the Years Ended December 31, 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 24,434 $ 23,565 $ 22,412 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 19,353 17,482 17,757 Deferred income taxes, net 1,625 607 5,947 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (831) (958) (446) Other, net 826 2,853 (1,312) Changes in certain current assets and liabilities -- Receivables, net 18,481 (16,839) (3,757) Inventories 1,144 (3,947) 4,435 Payables (19,957) 18,742 351 Other (117) 3,282 2,083 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 44,958 44,787 47,470 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (30,078) (72,858) (30,132) Sales of property - - - Other (841) 1,676 (1,073) - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (30,919) (71,182) (31,205) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Preferred stock - 35,000 - First mortgage bonds - 45,000 30,000 Pollution control bonds - 4,085 13,870 Other long-term debt 8,500 10,000 - Common stock - - - Retirements: Preferred and preference stock - (20,000) - First mortgage bonds (5,065) - (38,750) Pollution control bonds - (4,085) (14,550) Other long-term debt (823) (10,356) (217) Notes payable, net (500) (4,500) 7,500 Payment of preferred and preference stock dividends (2,129) (2,222) (1,900) Payment of common and class A stock dividends (16,300) (21,000) (22,000) Miscellaneous (74) (3,400) (3,985) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (16,391) 28,522 (30,032) - -------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents (2,352) 2,127 (13,767) Cash and Cash Equivalents at Beginning of Year 3,915 1,788 15,555 - -------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 1,563 $ 3,915 $ 1,788 ================================================================================================================================ ( ) Denotes use of cash. </TABLE> II-254A
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ For the Years Ended December 31, 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 25,930 $ 28,273 $ 27,955 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 17,501 16,995 21,310 Deferred income taxes, net 1,601 2,782 3,476 Deferred investment tax credits, net - - - Allowance for equity funds used during construction (170) (193) - Other, net (1,876) 511 (775) Changes in certain current assets and liabilities -- Receivables, net 6,639 1,726 (4,241) Inventories (1,082) 1,246 (1,503) Payables 568 (228) 1,086 Other 3,710 (319) 1,544 - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 52,821 50,793 48,852 - -------------------------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (19,478) (20,086) (18,831) Sales of property - - - Other 407 (120) 381 - -------------------------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (19,071) (20,206) (18,450) - -------------------------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Preferred stock - - - First mortgage bonds 30,000 - 30,000 Pollution control bonds - - - Other long-term debt - - - Common stock - - - Retirements: Preferred and preference stock - (5,374) (6,591) First mortgage bonds (22,500) (9,135) (18,275) Pollution control bonds (515) (485) (455) Other long-term debt (275) (364) (7,656) Notes payable, net (1,500) 1,500 - Payment of preferred and preference stock dividends (1,900) (2,113) (2,318) Payment of common and class A stock dividends (22,000) (22,000) (20,000) Miscellaneous (477) 47 (1,071) - -------------------------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (19,167) (37,924) (26,366) - -------------------------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 14,583 (7,337) 4,036 Cash and Cash Equivalents at Beginning of Year 972 8,309 4,273 - -------------------------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 15,555 $ 972 $ 8,309 ================================================================================================================================ ( ) Denotes use of cash. </TABLE> II-254B
<TABLE> <CAPTION> STATEMENTS OF CASH FLOWS Savannah Electric and Power Company <S> <C> <C> ================================================================================================================ For the Years Ended December 31, 1988 1987 - ---------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) Operating Activities: Net income $ 25,703 $ 23,421 Adjustments to reconcile net income to net cash provided by operating activities -- Depreciation and amortization 20,592 19,126 Deferred income taxes, net 3,568 925 Deferred investment tax credits, net - (5) Allowance for equity funds used during construction (273) (512) Other, net 718 (1,016) Changes in certain current assets and liabilities -- Receivables, net (7,620) 773 Inventories 3,063 (503) Payables (1,151) (78) Other (1,684) (757) - ---------------------------------------------------------------------------------------------------------------- Net cash provided from operating activities 42,916 41,374 - ---------------------------------------------------------------------------------------------------------------- Investing Activities: Gross property additions (23,254) (32,276) Sales of property - - Other (4,042) 1,296 - ----------------------------------------------------------------------------------------------------------------- Net cash used for investing activities (27,296) (30,980) - ---------------------------------------------------------------------------------------------------------------- Financing Activities: Proceeds: Preferred stock 20,000 - First mortgage bonds - - Pollution control bonds - - Other long-term debt - - Common stock 403 1,693 Retirements: Preferred and preference stock (553) (588) First mortgage bonds (12,231) (10,239) Pollution control bonds (430) (405) Other long-term debt (4,401) (3,954) Notes payable, net - - Payment of preferred and preference stock dividends (1,284) (1,351) Payment of common and class A stock dividends (14,407) (10,383) Miscellaneous (269) - - ---------------------------------------------------------------------------------------------------------------- Net cash provided from (used for) financing activities (13,172) (25,227) - ---------------------------------------------------------------------------------------------------------------- Net Increase (Decrease) in Cash and Cash Equivalents 2,448 (14,833) Cash and Cash Equivalents at Beginning of Year 1,825 16,658 - ---------------------------------------------------------------------------------------------------------------- Cash and Cash Equivalents at End of Year $ 4,273 $ 1,825 ================================================================================================================ ( ) Denotes use of cash. </TABLE> II-254C
<TABLE> <CAPTION> BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $335,002 $327,549 $317,026 Transmission 103,776 103,160 102,129 Distribution 283,700 275,877 264,115 General 38,216 32,875 31,876 Construction work in progress 7,709 13,463 6,707 - -------------------------------------------------------------------------------------------------------------------------------- Total utility plant 768,403 752,924 721,853 Accumulated provision for depreciation 321,509 304,760 287,004 - -------------------------------------------------------------------------------------------------------------------------------- Total 446,894 448,164 434,849 Less property-related accumulated deferred income taxes - - - - -------------------------------------------------------------------------------------------------------------------------------- Total 446,894 448,164 434,849 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,783 1,785 1,788 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 6,144 5,214 877 Receivables, net 17,498 16,606 21,346 Accrued unbilled revenues 5,238 4,597 5,110 Fuel cost under recovery 7,694 7,289 - Fossil fuel stock, at average cost 5,205 5,892 6,076 Materials and supplies, at average cost 6,980 8,013 8,239 Prepayments 5,922 4,789 6,467 - -------------------------------------------------------------------------------------------------------------------------------- Total 54,681 52,400 48,115 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 17,267 19,167 21,557 Miscellaneous 26,727 23,384 18,353 - -------------------------------------------------------------------------------------------------------------------------------- Total 43,994 42,551 39,910 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $547,352 $544,900 $524,662 ================================================================================================================================ </TABLE> II-255 <TABLE> <CAPTION>
BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $312,215 $257,708 $258,539 Transmission 100,956 99,791 93,182 Distribution 251,323 237,012 222,024 General 28,938 28,010 25,851 Construction work in progress 5,930 49,797 5,966 - -------------------------------------------------------------------------------------------------------------------------------- Total utility plant 699,362 672,318 605,562 Accumulated provision for depreciation 267,590 251,565 240,094 - -------------------------------------------------------------------------------------------------------------------------------- Total 431,772 420,753 365,468 Less property-related accumulated deferred income taxes - - 65,725 - -------------------------------------------------------------------------------------------------------------------------------- Total 431,772 420,753 299,743 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 1,790 1,793 1,795 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 1,563 3,915 1,788 Receivables, net 12,328 27,714 14,480 Accrued unbilled revenues 4,780 3,789 3,401 Fuel cost under recovery 3,113 7,112 3,895 Fossil fuel stock, at average cost 7,557 8,419 4,895 Materials and supplies, at average cost 9,076 9,358 8,935 Prepayments 7,446 4,849 1,599 - -------------------------------------------------------------------------------------------------------------------------------- Total 45,863 65,156 38,993 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes 23,521 24,890 - Miscellaneous 15,359 14,595 11,644 - --------------------------------------------------------------------------------------------------------------------------------- Total 38,880 39,485 11,644 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $518,305 $527,187 $352,175 ================================================================================================================================ </TABLE> II-256A
<TABLE> <CAPTION> BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $247,017 $246,278 $242,988 Transmission 90,198 73,358 72,299 Distribution 212,576 217,913 204,611 General 24,283 22,990 22,482 Construction work in progress 4,211 1,354 2,880 - -------------------------------------------------------------------------------------------------------------------------------- Total utility plant 578,285 561,893 545,260 Accumulated provision for depreciation 225,605 211,725 198,228 - -------------------------------------------------------------------------------------------------------------------------------- Total 352,680 350,168 347,032 Less property-related accumulated deferred income taxes 62,737 58,106 54,418 - -------------------------------------------------------------------------------------------------------------------------------- Total 289,943 292,062 292,614 - -------------------------------------------------------------------------------------------------------------------------------- Other Property and Investments 39 39 49 - -------------------------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 15,555 972 8,309 Receivables, net 14,549 14,450 14,300 Accrued unbilled revenues 3,252 3,831 4,501 Fuel cost under recovery - 5,662 6,881 Fossil fuel stock, at average cost 9,196 8,071 9,706 Materials and supplies, at average cost 9,069 9,112 8,723 Prepayments 4,544 1,492 585 - -------------------------------------------------------------------------------------------------------------------------------- Total 56,165 43,590 53,005 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - - Miscellaneous 6,358 4,359 4,219 - -------------------------------------------------------------------------------------------------------------------------------- Total 6,358 4,359 4,219 - -------------------------------------------------------------------------------------------------------------------------------- Total Assets $352,505 $340,050 $349,887 ================================================================================================================================ </TABLE> II-256B
<TABLE> <CAPTION> BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> ================================================================================================================ At December 31, 1988 1987 - ---------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) ASSETS Utility Plant: Production-fossil $241,833 $236,587 Transmission 71,601 69,822 Distribution 192,335 177,163 General 21,686 17,513 Construction work in progress 1,684 7,214 - ---------------------------------------------------------------------------------------------------------------- Total utility plant 529,139 508,299 Accumulated provision for depreciation 178,888 161,531 - ---------------------------------------------------------------------------------------------------------------- Total 350,251 346,768 Less property-related accumulated deferred income taxes 51,487 49,255 - ---------------------------------------------------------------------------------------------------------------- Total 298,764 297,513 - ---------------------------------------------------------------------------------------------------------------- Other Property and Investments 49 49 - ---------------------------------------------------------------------------------------------------------------- Current Assets: Cash and cash equivalents 4,273 1,825 Receivables, net 15,714 14,419 Accrued unbilled revenues 3,889 - Fuel cost under recovery 1,838 - Fossil fuel stock, at average cost 8,455 12,359 Materials and supplies, at average cost 8,471 7,630 Prepayments 1,240 2,786 - ---------------------------------------------------------------------------------------------------------------- Total 43,880 39,019 - ---------------------------------------------------------------------------------------------------------------- Deferred Charges: Deferred charges related to income taxes - - Miscellaneous 4,358 4,127 - ---------------------------------------------------------------------------------------------------------------- Total 4,358 4,127 - ---------------------------------------------------------------------------------------------------------------- Total Assets $347,051 $340,708 ================================================================================================================ </TABLE> II-256C
<TABLE> <CAPTION> BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1997 1996 1995 - -------------------------------------------------------------------------------------------------------------------------------- (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) Retained Earnings 112,720 109,373 105,033 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 175,631 172,284 167,812 Preferred stock 35,000 35,000 35,000 Preferred and preference stock subject to mandatory redemption - - - Long-term debt 142,846 164,406 153,679 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 353,477 371,690 356,491 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - 5,000 4,000 Preferred and preference stock due within one year - - - Long-term debt due within one year 21,764 637 1,407 Accounts payable 13,887 16,575 11,362 Customer deposits 5,541 5,232 5,054 Fuel cost over recovery - - 865 Taxes accrued 3,325 1,015 1,584 Interest accrued 4,963 5,275 6,331 Vacation pay accrued 1,893 2,038 1,916 Miscellaneous 9,031 7,470 5,870 - -------------------------------------------------------------------------------------------------------------------------------- Total 60,404 43,242 38,389 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 80,697 76,654 74,152 Accumulated deferred investment tax credits 12,607 13,271 13,934 Deferred credits related to income taxes 21,469 22,792 24,419 Deferred under-funded accrued benefit obligation - - 2,123 Miscellaneous 18,698 17,251 15,154 - -------------------------------------------------------------------------------------------------------------------------------- Total 133,471 129,968 129,782 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 547,352 $ 544,900 $ 524,662 ================================================================================================================================ </TABLE> II-257
<TABLE> <CAPTION> BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- (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 (546) (2,121) - Retained Earnings 99,216 93,479 95,465 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 161,581 154,269 158,376 Preferred stock 35,000 35,000 20,000 Preferred and preference stock subject to mandatory redemption - - - Long-term debt 155,922 151,338 110,767 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 352,503 340,607 289,143 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks 2,500 3,000 7,500 Preferred and preference stock due within one year - - - Long-term debt due within one year 2,579 4,499 1,319 Accounts payable 8,991 30,442 11,179 Customer deposits 4,698 4,714 4,541 Fuel cost over recovery - - - Taxes accrued 1,133 1,529 3,016 Interest accrued 6,830 6,730 5,733 Vacation pay accrued 1,823 1,638 1,790 Miscellaneous 8,282 8,703 5,025 - -------------------------------------------------------------------------------------------------------------------------------- Total 36,836 61,255 40,103 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes 70,786 66,947 - Accumulated deferred investment tax credits 14,637 15,301 15,964 Deferred credits related to income taxes 25,487 26,173 - Deferred under-funded accrued benefit obligation 3,022 5,855 - Miscellaneous 15,034 11,049 6,965 - -------------------------------------------------------------------------------------------------------------------------------- Total 128,966 125,325 22,929 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 518,305 $ 527,187 $ 352,175 ================================================================================================================================ </TABLE> II-258A
<TABLE> <CAPTION> BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> <C> ================================================================================================================================ At December 31, 1991 1990 1989 - -------------------------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 54,223 $ 54,223 $ 54,223 Paid-in capital 8,665 8,665 8,665 Additional minimum liability for under-funded pension obligations - - - Retained Earnings 96,953 94,923 90,849 - -------------------------------------------------------------------------------------------------------------------------------- Total common equity 159,841 157,811 153,737 Preferred stock 20,000 20,000 22,300 Preferred and preference stock subject to mandatory redemption - - 2,884 Long-term debt 119,280 112,377 117,522 - -------------------------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 299,121 290,188 296,443 - -------------------------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - 1,500 - Preferred and preference stock due within one year - - 190 Long-term debt due within one year 2,442 2,358 7,091 Accounts payable 10,176 8,786 9,078 Customer deposits 4,528 4,472 4,296 Fuel cost over recovery 1,603 - - Taxes accrued 724 1,387 1,749 Interest accrued 4,657 3,415 4,287 Vacation pay accrued 1,672 1,604 1,477 Miscellaneous 4,823 3,398 2,880 - -------------------------------------------------------------------------------------------------------------------------------- Total 30,625 26,920 31,048 - -------------------------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - - Accumulated deferred investment tax credits 16,628 17,292 17,971 Deferred credits related to income taxes - - - Deferred under-funded accrued benefit obligation - - - Miscellaneous 6,131 5,650 4,425 - -------------------------------------------------------------------------------------------------------------------------------- Total 22,759 22,942 22,396 - -------------------------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 352,505 $ 340,050 $ 349,887 ================================================================================================================================ </TABLE> II-258B
<TABLE> <CAPTION> BALANCE SHEETS Savannah Electric and Power Company <S> <C> <C> ================================================================================================================ At December 31, 1988 1987 - ---------------------------------------------------------------------------------------------------------------- (Thousands of Dollars) CAPITALIZATION AND LIABILITIES Capitalization: Common stock $ 54,223 $ 54,131 Paid-in capital 8,665 8,353 Additional minimum liability for under-funded pension obligations - - Retained Earnings 85,995 73,723 - ---------------------------------------------------------------------------------------------------------------- Total common equity 148,883 136,207 Preferred stock 22,300 2,300 Preferred and preference stock subject to mandatory redemption 3,075 9,665 Long-term debt 98,285 129,329 - ---------------------------------------------------------------------------------------------------------------- Total (excluding amount due within one year) 272,543 277,501 - ---------------------------------------------------------------------------------------------------------------- Current Liabilities: Notes payable to banks - - Preferred and preference stock due within one year 6,590 553 Long-term debt due within one year 23,217 8,956 Accounts payable 7,950 9,427 Customer deposits 3,983 3,729 Fuel cost over recovery - 599 Taxes accrued 1,899 3,713 Interest accrued 4,154 4,599 Vacation pay accrued 1,412 1,306 Miscellaneous 1,705 6,257 - ---------------------------------------------------------------------------------------------------------------- Total 50,910 39,139 - ---------------------------------------------------------------------------------------------------------------- Deferred Credits and Other Liabilities: Accumulated deferred income taxes - - Accumulated deferred investment tax credits 19,106 20,264 Deferred credits related to income taxes - - Deferred under-funded accrued benefit obligation - - Miscellaneous 4,492 3,804 - ---------------------------------------------------------------------------------------------------------------- Total 23,598 24,068 - ---------------------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities $ 347,051 $ 340,708 ================================================================================================================ </TABLE> II-258C
<TABLE> <CAPTION> SAVANNAH ELECTRIC AND POWER COMPANY OUTSTANDING SECURITIES AT DECEMBER 31, 1997 <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 1996 20,000 6.90% 20,000 5/1/06 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 -------- -------- $110,000 $110,000 ======== ======== Pollution Control Obligations Amount Interest Amount Series Issued Rate Outstanding Maturity - ------------------------------------------------------------------------------------------------ (Thousands) (Thousands) 1993 $ 4,085 Variable $ 4,085 1/1/16 1997 13,870 Variable 13,870 4/1/37 -------- -------- $ 17,955 $ 17,955 ======== ======== Preferred Stock Shares Dividend Amount Series Outstanding Rate Outstanding - ------------------------------------------------------------------------------------------------ (Thousands) 1993 1,400,000 6.64% $ 35,000 ================================================================================================ SECURITIES RETIRED DURING 1997 Pollution Control Bonds Principal Interest Series Amount Rate - ------------------------------------------------------------------------------------------------ (Thousands) 1992 $13,870 6-3/4% </TABLE> II-259
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 1998 annual meeting of stockholders. The ages of directors and executive officers in Item 10 set forth below are as of December 31, 1997. 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 58 Served as Director since 3-1-89 Bill M. Guthrie Executive Vice President Age 64 Served as Director since 12-16-88 Whit Armstrong (2) Age 50 Served as Director since 9-24-82 A. W. Dahlberg (2) Age 57 Served as Director since 4-22-94 Peter V. Gregerson, Sr. (2) Age 69 Served as Director since 10-22-93 Carl E. Jones, Jr. (2) Age 57 Served as Director since 4-22-88 Patricia M. King (2) Age 52 Served as Director since 7-25-97 James K. Lowder (2) Age 48 Served as Director since 7-25-97 Wallace D. Malone, Jr. (2) Age 61 Served as Director since 6-22-90 William V. Muse (2) Age 58 Served as Director since 2-26-93 John T. Porter (2) Age 66 Served as Director since 10-22-93 Robert D. Powers (2) Age 47 Served as Director since 1-24-92 Andreas Renschler (2) Age 39 Served as Director since 1-23-98 C. Dowd Ritter (2) Age 50 Served as Director since 7-25-97 John W. Rouse (2) Age 60 Served as Director since 4-22-88 William J. Rushton, III (2) Age 68 Served as Director since 9-18-70 James H. Sanford (2) Age 53 Served as Director since 8-1-83 John C. Webb, IV (2) Age 55 Served as Director since 4-22-77 (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 25, 1997) for one year until the next annual meeting or until a successor is elected and qualified, except for Ms. King, Mr. Lowder, Mr. Renschler and Mr. Ritter whose elections were effective on the date indicated. III-1
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. Identification of executive officers of ALABAMA. Elmer B. Harris (1) President, Chief Executive Officer and Director Age 58 Served as Executive Officer since 3-1-89 Banks H. Farris Executive Vice President Age 62 Served as Executive Officer since 12-3-91 Michael D. Garrett Executive Vice President - External Affairs Age 48 Served as Executive Officer since 3-1-98 William B. Hutchins, III Executive Vice President, Chief Financial Officer and Treasurer Age 54 Served as Executive Officer since 12-3-91 Charles D. McCrary (2) Executive Vice President Age 46 Served as Executive Officer since 1-1-91 (1) Previously served as executive officer of ALABAMA from 1979 to 1985. (2) Resigned effective March 1, 1998, upon being elected Executive Vice President of SOUTHERN's Fossil/Hydro Group. Each of the above is currently an executive officer of ALABAMA, serving a term running from the last annual meeting of the directors (April 25, 1997) for one year until the next annual meeting or until his successor is elected and qualified, except for Mr. Garrett 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 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 Executive Officer of Regions Financial Corporation, Birmingham, Alabama. He previously served as President and Chief Operating Officer of Regions Financial Corporation. III-2
Patricia M. King - President and Chief Executive Officer of King Motor Co., Inc., King's Highway, Inc. and King Imports, Inc., Anniston, Alabama. James K. Lowder - President and Chief Executive Officer of The Colonial Company (real estate development and sales), Montgomery, 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. William V. Muse - President of Auburn University. Director of SouthTrust Bank and American Cast Iron Pipe Company. John T. Porter - Pastor of Sixth Avenue Baptist Church, Birmingham, Alabama. Director of Citizens Federal Savings Bank. Robert D. Powers - President and Director, The Eufaula Agency, Inc. (real estate and insurance), Eufaula, Alabama. Andreas Renschler - President and Chief Executive Officer of Mercedes-Benz U.S. International, Inc., Tuscaloosa County, Alabama. C. Dowd Ritter - Chairman, President, Chief Executive Officer and Director, AmSouth Bancorporation and AmSouth Bank, Birmingham, Alabama. John W. Rouse - President of The Rouse Group, LLC, (technology consulting), Birmingham, Alabama and President Emeritus of Southern Research Institute. 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. 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. Michael D. Garrett - Elected in 1998; responsible for external relations department, public relations and corporate services. He previously served as Senior Vice President - External Affairs from February 1994 to March 1998. William B. Hutchins, III - Elected in 1991; responsible for financial and accounting operations, corporate planning and treasury operations. He previously served as Senior Vice President and Chief Financial Officer from 1991 to 1994 and as Executive Vice President and Chief Financial Officer from 1994 to 1998. 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 53 Served as Director since 1-1-94 Warren Y. Jobe Executive Vice President and Chief Financial Officer Age 57 Served as Director since 8-1-82 Daniel P. Amos (1) Age 46 Served as Director since 5-21-97 Juanita P. Baranco (1) Age 48 Served as Director since 5-21-97 A. W. Dahlberg (1) Age 57 Served as Director since 6-1-88 William A. Fickling, Jr. (1) Age 65 Served as Director since 4-18-73 L. G. Hardman III (1) Age 58 Served as Director since 6-25-79 James R. Lientz, Jr. (1) Age 54 Served as Director since 7-21-93 G. Joseph Prendergast (1) Age 52 Served as Director since 1-20-93 Herman J. Russell (1) Age 67 Served as Director since 5-18-88 Gloria M. Shatto (1) Age 66 Served as Director since 2-20-80 William Jerry Vereen (1) Age 57 Served as Director since 5-18-88 Carl Ware (1) (2) Age 54 Served as Director since 2-15-95 Thomas R. Williams (1) Age 69 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 21, 1997) 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 53 Served as Executive Officer since 1-1-94 Warren Y. Jobe (1) Executive Vice President, Chief Financial Officer and Director Age 57 Served as Executive Officer since 5-19-82 III-4
William C. Archer, III Executive Vice President - External Affairs Age 49 Served as Executive Officer since 4-6-95 Gene R. Hodges Executive Vice President - Customer Operations Age 59 Served as Executive Officer since 11-19-86 David M. Ratcliffe Executive Vice President and Treasurer Age 49 Served as Executive Officer since 3-1-98 William P. Bowers Senior Vice President - Marketing Age 41 Served as Executive Officer since 9-22-95 Wayne T. Dahlke Senior Vice President - Power Delivery Age 56 Served as Executive Officer since 4-19-89 James K. Davis Senior Vice President - Corporate Relations Age 57 Served as Executive Officer since 10-1-93 Robert H. Haubein Senior Vice President - Fossil/Hydro Power Age 57 Served as Executive Officer since 2-19-92 Fred D. Williams Senior Vice President - Resource Policy & Planning Age 53 Served as Executive Officer since 11-18-92 (1) Elected Senior Vice President of SOUTHERN in February 1998; however, Mr. Jobe will maintain his present position as Executive Vice President, Chief Financial Officer and Director of GEORGIA. Each of the above is currently an executive officer of GEORGIA, serving a term running from the last annual meeting of the directors (May 21, 1997) for one year until the next annual meeting or until his successor is elected and qualified, except for Mr. Ratcliffe 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 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 from 1992 to 1998. Responsible for financial and accounting operations and planning, internal auditing, procurement, corporate secretary and treasury operations. Daniel P. Amos - President and Chief Executive Officer, American Family Life Assurance Company (AFLAC), Columbus, Georgia. Director, AFLAC Incorporated (and subsidiaries), CIT Group and Greystone Capital Partners, I.L.P. Juanita P. Baranco - Business owner of Baranco Automotive Group. Director of Federal Reserve Bank of Atlanta and John H. Harland Company, Decatur, Georgia. 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 of Beech Street Corporation (provider of managed care services) and President from 1995 to 1996. He previously served as Chairman of the Board and Chief Executive Officer of Charter Medical Corporation (provider of psychiatric care). III-5
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. Director of Cerulean Companies, Inc. and Blue Cross/Blue Shield of Georgia. G. Joseph Prendergast - Senior Executive Vice President, Wachovia Corporation. Heads the banking division comprising the companies consumer and corporate banking activities and Wachovia Bank, N.A. Chairman, Wachovia Bank of Georgia, Wachovia Bank of South Carolina and Wachovia Bank of North Carolina since 1994. Director, Willamette Industries, Portland, Oregon. Herman J. Russell - Chairman of the Board, H. J. Russell & Company (construction), Atlanta, Georgia. Chairman of the Board, Citizens Trust Bank, Atlanta, Georgia. Director of Wachovia Corporation and First Union Real Estate 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 Corporation, Cerulean Companies, Inc. and Blue Cross/Blue Shield of Georgia. Carl Ware - President, Africa Group, The Coca-Cola Company since 1991. Thomas R. Williams - President of The Wales Group, Inc. (investments), Atlanta, Georgia. Director of ConAgra, Inc., 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. Gene R. Hodges - Executive Vice President - Customer Operations, Power Delivery and Safety. David M. Ratcliffe - Executive Vice President - Finance and Treasurer since 3-1-98. Responsible for accounting, corporate secretary, finance and procurement. He previously served as Senior Vice President - External Affairs of SOUTHERN from 1995 to 1998. President and Chief Executive Officer of MISSISSIPPI from 1991 to 1995. William P. Bowers - Senior Vice President - Marketing since 1995. Vice President - - Retail Sales and Service from 1992 to 1995. Director of Georgia MedCorp, Inc., Southern Regional Medical Center and Georgia MedCorp Development Corporation. 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 - Resource Policy and Planning since 1997. Senior Vice President - Wholesale Power Marketing from 1995 to 1997. Senior Vice President - Bulk Power Markets from 1992 to August 1995. 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 59 Served as Director since 2-1-94 Paul J. DeNicola (1) Age 49 Served as Director since 4-19-91 Fred C. Donovan (1) Age 57 Served as Director since 1-18-91 W. Deck Hull, Jr. (1) Age 65 Served as Director since 10-14-83 Joseph K. Tannehill (1) Age 64 Served as Director since 7-19-85 Barbara H. Thames (1) Age 57 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 24, 1997) 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 GULF acting solely in their capacities as such. Identification of executive officers of GULF. Travis J. Bowden President, Chief Executive Officer and Director Age 59 Served as Executive Officer since 2-1-94 Francis M. Fisher, Jr. Vice President - Power Delivery and Customer Operations Age 49 Served as Executive Officer since 5-19-89 John E. Hodges, Jr. Vice President - Marketing and Employee/External Affairs Age 54 Served as Executive Officer since 5-19-89 Robert G. Moore Vice President - Power Generation and Transmission Age 48 Served as Executive Officer since 7-25-97 Arlan E. Scarbrough Vice President - Finance Age 61 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 25, 1997) 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. III-7
Identification of certain significant employees. None. Family relationships. None. 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. W. Deck Hull, Jr. - President and Director of Hull Oil Company - Panama City, Florida. He previously served as Vice Chairman of the SunTrust Bank, West Florida, Panama City, Florida. Joseph K. Tannehill - President and Chief Executive Officer of Merrick International Industries, Lynn Haven, Florida. Director of Regions Bank of North Florida, Panama City, Florida. Barbara H. Thames - Chief Executive Officer of Santa Rosa Medical Center, Milton, Florida. 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. Robert G. Moore - Elected Vice President - Power Generation and Transmission of GULF and Vice President of Fossil Generation of SCS in 1997. He previously served as Plant Manager - Bowen at GEORGIA. 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 49 Served as Director since 3-27-95 Paul J. DeNicola (1) Age 49 Served as Director since 5-1-89 Edwin E. Downer (1) Age 66 Served as Director since 4-24-84 Robert S. Gaddis (1) Age 66 Served as Director since 1-21-86 Walter H. Hurt, III (1) Age 62 Served as Director since 4-6-82 Aubrey K. Lucas (1) Age 63 Served as Director since 4-24-84 George A. Schloegel (1) Age 57 Served as Director since 7-26-95 Philip J. Terrell (1) Age 44 Served as Director since 2-22-95 N. Eugene Warr (1) Age 62 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 1, 1997) 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 49 Served as Executive Officer since 3-27-95 H. E. Blakeslee Vice President - Customer Services and Marketing Age 57 Served as Executive Officer since 1-25-84 Andrew J. Dearman, III Vice President - Power Generation and Delivery Age 44 Served as Executive Officer since 4-23-97 Don E. Mason Vice President - External Affairs and Corporate Services Age 56 Served as Executive Officer since 7-27-83 Michael W. Southern Vice President, Secretary, Treasurer and Chief Financial Officer Age 45 Served as Executive Officer since 1-1-95 Each of the above is currently an executive officer of MISSISSIPPI, serving a term running from the last annual meeting of the directors (April 23, 1997) 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 of All Saints' Episcopal Church, Inverness, Mississippi, and St. Thomas Church, Belzoni, Mississippi. 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 rate design, revenue forecasting, marketing, district operations, corporate compliance, distribution engineering, customer account and customer call center. Andrew J. Dearman, III - Elected Vice President in 1997. 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 served as Vice President - Southern Division of ALABAMA from 1995 to May 1997, and Division Manager - Customer Service of ALABAMA from 1989 to 1995. 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. G. Edison Holland, Jr. President and Chief Executive Officer Age 45 Served as Director since 5-20-97 Archie H. Davis (1) Age 56 Served as Director since 2-18-97 Paul J. DeNicola (1) Age 49 Served as Director since 3-14-91 Walter D. Gnann (1) Age 62 Served as Director since 5-17-83 Robert B. Miller, III (1) Age 52 Served as Director since 5-17-83 Arnold M. Tenenbaum (1) Age 61 Served as Director since 5-17-77 (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 20, 1997) 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 SAVANNAH acting solely in their capacities as such. Identification of executive officers of SAVANNAH. G. Edison Holland, Jr. President, Chief Executive Officer and Director Age 45 Served as Executive Officer since 10-1-97 W. Miles Greer Vice President - Marketing and Customer Services Age 54 Served as Executive Officer since 11-20-85 Larry M. Porter Vice President - Operations Age 52 Served as Executive Officer since 7-1-91 Kirby R. Willis Vice President, Treasurer, Chief Financial Officer and Assistant Corporate Secretary Age 46 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 15, 1997) for one year until the next annual meeting or until his successor is elected and qualified, except for Mr. Holland 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 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. G. Edison Holland, Jr. - Elected President and Chief Executive Officer in 1997. Vice President - Power Generation/Transmission and Corporate Counsel of Gulf Power Company from 1995 to 1997. Served as a partner in the law firm of Beggs & Lane from 1979 to 1997. Archie H. Davis - President and Chief Executive Officer of The Savannah Bancorp and The Savannah Bank, N.A., Savannah, Georgia. Member of the Board of Directors of Thomaston Mills, Thomaston, Georgia. III-11
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 Bank of Georgia, First Union Bank of Savannah, Cerulean Corporation and Blue Cross/Blue Shield of Georgia. 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 and Assistant Corporate Secretary effective 1998. 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. Section 16(a) Beneficial Ownership Reporting Compliance. GEORGIA's Messrs. Jobe and Vereen each failed to file on a timely basis a single report disclosing one transaction on Form 5 as required by Section 16 of the Securities Act of 1934. GULF's Ms. Thames and Mr. Moore each failed to file on a timely basis a single report disclosing one transaction on Form 3 as required by Section 16 of the Securities Act of 1934. Ms. Thames executed a Form 3 on the day of the reporting event for mailing by GULF; however, GULF inadvertently submitted the report two days late. 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 $100,000 during 1997 for each of the operating affiliates (ALABAMA, GEORGIA, GULF, MISSISSIPPI and SAVANNAH). <TABLE> <CAPTION> Key terms used in this Item will have the following meanings:- <S> <C> AME.........................................Above-market earnings on deferred compensation ESP.........................................Employee Savings Plan ESOP........................................Employee Stock Ownership Plan SBP.........................................Supplemental Benefit Plan ERISA.......................................Employee Retirement Income Security Act </TABLE> <TABLE> <CAPTION> ALABAMA SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ----------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Elmer B. Harris President, Chief Executive 1997 500,700 101,002 20,453 35,648 247,224 30,172 Officer, 1996 480,310 72,697 7,112 31,608 439,508 25,068 Director 1995 458,940 74,204 5,956 32,170 494,447 26,058 Banks H. Farris 1997 247,170 37,500 7,218 13,513 155,313 14,379 Executive Vice 1996 235,255 32,390 7,829 9,730 155,313 12,161 President 1995 221,405 76,182 4,239 9,856 174,727 11,889 Charles D. McCrary 1997 224,359 34,000 8,639 10,112 126,075 12,864 Executive Vice 1996 215,762 29,906 3,198 8,984 126,075 11,530 President 1995 206,400 69,380 2,549 9,188 141,834 11,071 </TABLE> See next page for footnotes.
<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, 1997 217,756 31,400 1,383 9,834 115,170 12,441 Chief Financial 1996 209,213 28,806 3,029 8,654 115,169 10,853 Officer 1995 199,164 69,841 1,180 8,850 129,565 11,088 1 Tax reimbursement by ALABAMA and certain personal benefits. 2 Payouts made in 1996, 1997 and 1998 for the four-year performance periods ending December 31, 1995, 1996 and 1997, 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 $7,125 $1,072 $21,975 Banks H. Farris 7,181 1,072 6,126 Charles D. McCrary 7,125 1,072 4,667 William B. Hutchins, III 7,125 1,072 4,244 </TABLE> III-14
<TABLE> <CAPTION> GEORGIA SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> H. Allen Franklin President, 1997 511,505 129,426 14,219 36,544 280,513 31,350 Chief Executive 1996 482,658 73,260 10,992 31,853 498,688 27,334 Officer, Director 1995 456,366 82,935 3,936 31,960 561,024 25,493 Warren Y. Jobe Executive Vice President, Treasurer, 1997 238,948 39,862 98,870 10,483 126,075 13,408 Chief Financial 1996 227,496 26,749 4,308 9,404 126,075 12,476 Officer, Director 1995 220,152 31,000 1,994 9,710 141,834 12,248 Gene R. Hodges 1997 228,336 39,058 5,544 10,271 126,075 13,111 Executive 1996 221,708 26,209 1,783 9,214 126,075 12,193 Vice President 1995 214,502 32,000 1,978 9,514 141,834 11,160 Robert H. Haubein, Jr. 1997 220,358 35,683 657 9,952 115,170 11,981 Senior Vice 1996 211,010 29,681 2,081 8,757 115,169 11,740 President 1995 199,759 34,000 1,623 8,871 129,565 10,825 William C. Archer 1997 197,870 40,054 3,410 8,953 84,048 11,280 Executive 1996 189,178 26,450 4,205 7,804 84,047 9,812 Vice President 1995 113,771 36,000 63,024 6,252 6,252 8,347 1 Tax reimbursement by GEORGIA on certain personal benefits including membership fees of $94,429 in 1997 for Mr. Jobe and $61,877 in 1995 for Mr. Archer. 2 Payouts made in 1996, 1997 and 1998 for the four-year performance periods ending December 31, 1995, 1996 and 1997, 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 $7,181 $1,072 $23,097 Warren Y. Jobe 7,181 1,072 5,155 Gene R. Hodges 7,125 1,072 4,914 Robert H. Haubein, Jr. 7,181 1,072 3,728 William C. Archer 7,200 1,072 3,008 </TABLE> III-15
<TABLE> <CAPTION> GULF SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Travis J. Bowden President, 1997 306,584 33,933 2,842 16,694 207,322 17,888 Chief Executive 1996 297,685 29,950 1,560 14,975 207,322 14,950 Officer, Director 1995 289,749 29,077 4,663 15,464 233,237 16,679 Arlan E. Scarbrough 1997 180,642 18,212 1,440 8,142 84,048 10,235 Vice President 1996 173,719 17,512 1,514 7,234 84,047 9,420 1995 167,568 16,718 722 7,398 94,553 8,556 John E. Hodges, Jr. 1997 178,428 17,989 2,418 8,042 91,977 10,185 Vice President 1996 171,688 17,297 1,415 7,145 91,977 9,405 1995 164,738 16,718 2,272 7,307 103,474 9,040 Francis M. 1997 160,783 16,274 479 7,275 84,048 9,182 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 Robert G. Moore4 1997 149,926 23,474 - 4,741 46,551 7,550 Vice President 1996 - - - - - - 1995 - - - - - - 1 Tax reimbursement by GULF on certain personal benefits. 2 Payouts made in 1996, 1997 and 1998 for the four-year performance periods ending December 31, 1995, 1996 and 1997, 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 $7,181 $1,072 $9,635 Arlan E. Scarbrough 7,200 1,072 1,963 John E. Hodges, Jr. 6,438 1,072 2,675 Francis M. Fisher, Jr. 7,125 1,072 985 Robert G. Moore 6,159 1,072 319 4 Mr. Moore was named an executive officer effective July 25, 1997. </TABLE> III-16
<TABLE> <CAPTION> MISSISSIPPI SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - ------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Dwight H. Evans President, Chief 1997 262,678 39,643 3,830 14,303 126,075 15,025 Executive 1996 253,006 35,923 3,519 12,830 126,075 13,824 Officer, Director 1995 233,069 42,965 2,746 10,486 141,834 34,139 H. E. Blakeslee 1997 192,029 38,863 697 8,687 91,977 10,991 Vice President 1996 190,429 25,664 224 7,572 91,977 9,885 1995 168,651 29,358 952 7,598 103,474 9,161 Don E. Mason 1997 188,126 41,889 839 8,512 84,048 10,675 Vice President 1996 186,670 25,148 125 7,420 84,047 9,587 1995 163,901 29,358 794 7,445 94,553 8,830 Michael W. Southern Vice President Chief Financial 1997 155,151 31,406 1,590 6,281 65,768 8,757 Officer, Secretary, 1996 155,027 20,740 2,841 5,475 65,768 7,865 Treasurer 1995 133,505 24,467 344 4,847 73,989 19,806 Andrew J. Dearman, III4 1997 141,393 21,008 2,083 5,871 42,903 21,354 Vice President 1996 - - - - - - 1995 - - - - - - 1 Tax reimbursement by MISSISSIPPI on certain personal benefits. 2 Payouts made in 1996, 1997 and 1998 for the four-year performance periods ending December 31, 1995, 1996 and 1997, 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 $7,181 $1,072 $6,772 H. E. Blakeslee 7,181 1,072 2,738 Don E. Mason 7,125 1,072 2,478 Michael W. Southern 7,007 1,072 678 Andrew J. Dearman, III 6,387 1,072 304 In 1997, Mr. Dearman received a one-time lump-sum payment of $13,591, given in connection with his appointment to his current position. 4 Mr. Dearman was named an executive officer effective April 23, 1997. </TABLE> III-17
<TABLE> <CAPTION> SAVANNAH SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION LONG-TERM COMPENSATION Number of Securities Long- Name Underlying Term and Other Annual Stock Incentive All Other Principal Compensation Options Payouts Compensation Position Year Salary($) Bonus($) ($)1 (Shares) ($)2 ($)3 - -------------------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> <C> Arthur M. Gignilliat, Jr.4 President, 1997 203,888 20,866 3,555 10,365 151,383 28,095 Chief Executive 1996 218,208 26,371 1,104 9,077 151,382 25,705 Officer, Director 1995 211,385 31,847 492 9,327 170,305 21,323 G. Edison Holland, Jr.5 President, 1997 202,413 26,231 3,046 8,640 91,977 49,892 Chief Executive 1996 184,359 18,584 2,969 7,677 91,977 9,940 Officer, Director 1995 177,682 16,718 2,463 7,851 103,474 9,491 Larry M. Porter 1997 143,135 18,472 177 5,761 65,768 11,624 Vice President 1996 138,931 16,740 421 4,560 65,768 9,814 1995 134,687 18,100 256 4,701 73,989 8,718 W. Miles Greer 1997 138,643 16,294 805 4,924 60,636 10,740 Vice President 1996 131,203 16,225 322 4,261 60,636 9,631 1995 125,891 18,225 355 4,393 68,215 8,376 Kirby R. Willis Vice President, 1997 134,794 15,915 182 4,809 60,636 9,322 Chief Financial 1996 122,110 15,505 674 3,924 60,636 8,765 Officer, Treasurer 1995 115,632 18,225 256 4,038 68,215 7,444 1 Tax reimbursement by SAVANNAH on certain personal benefits. 2 Payouts made in 1996, 1997 and 1998 for the four-year performance periods ending December 31, 1995, 1996 and 1997, 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 $5,700 $1,072 $21,323 G. Edison Holland, Jr. 7,181 1,072 2,985 Larry M. Porter 6,139 1,072 4,413 W. Miles Greer 4,992 1,072 4,676 Kirby R. Willis 5,630 1,072 2,620 In 1997, Mr. Holland received a one-time lump-sum payment of $38,654, given in connection with his appointment to his current position. 4 Mr. Gignilliat retired effective October 1, 1997. 5 Mr. Holland became president on July 1, 1997. He was previously an executive officer at GULF. </TABLE> III-18
<TABLE> <CAPTION> STOCK OPTION GRANTS IN 1997 Stock Option Grants. The following table sets forth all stock option grants to the named executive officers of each operating subsidiary during the year ending December 31, 1997. Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted1 Fiscal Year2 ($/Sh)1 Date1 Present Value($)3 --------------------------------------------------------------------------------------------------------------------- ALABAMA <S> <C> <C> <C> <C> <C> Elmer B. Harris 35,648 2.0 21.25 07/21/2007 203,907 Banks H. Farris 13,513 0.8 21.25 06/01/2003 63,106 Charles D. McCrary 10,112 0.6 21.25 07/21/2007 57,841 William B. Hutchins, III 9,834 0.6 21.25 07/21/2007 56,250 GEORGIA H. Allen Franklin 36,544 2.1 21.25 07/21/2007 209,032 Warren Y. Jobe 10,483 0.6 21.25 07/21/2007 59,963 Gene R. Hodges 10,271 0.6 21.25 07/21/2007 58,750 Robert H. Haubein, Jr. 9,952 0.6 21.25 07/21/2007 56,925 William C. Archer 8,953 0.5 21.25 07/21/2007 51,211 GULF Travis J. Bowden 16,694 0.9 21.25 07/21/2007 95,375 Arlan E. Scarbrough 8,142 0.5 21.25 11/01/2004 40,629 John E. Hodges, Jr. 8,042 0.5 21.25 07/21/2007 46,000 Francis M. Fisher, Jr. 7,275 0.4 21.25 07/21/2007 41,613 Robert G. Moore 4,741 0.3 21.25 07/21/2007 27,119 See next page for footnotes. </TABLE>
<TABLE> <CAPTION> STOCK OPTION GRANTS IN 1997 Individual Grants Grant Date Value # of % of Total Securities Options Exercise Underlying Granted to or Options Employees in Base Price Expiration Grant Date Name Granted1 Fiscal Year2 ($/Sh)1 Date1 Present Value($)3 ------------------------------------------------------------------------------------------------------------------ MISSISSIPPI <S> <C> <C> <C> <C> <C> Dwight H. Evans 14,303 0.8 21.25 07/21/2007 81,813 H. E. Blakeslee 8,687 0.5 21.25 07/21/2007 49,690 Don E. Mason 8,512 0.5 21.25 07/21/2007 48,689 Michael W. Southern 6,281 0.4 21.25 07/21/2007 35,927 Andrew J. Dearman, III 5,871 0.3 21.25 07/21/2007 33,582 SAVANNAH Arthur M. Gignilliat, Jr. 10,365 0.6 21.25 09/03/2000 34,101 G. Edison Holland, Jr. 8,640 0.5 21.25 07/21/2007 49,421 Larry M. Porter 5,761 0.3 21.25 07/21/2007 32,953 W. Miles Greer 4,924 0.3 21.25 07/21/2007 28,165 Kirby R. Willis 4,809 0.3 21.25 07/21/2007 27,507 1 Performance Stock Plan grants were made on July 21, 1997, 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 Performance 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 retirement date which was October 1, 1997. 2 A total of 1,776,094 stock options were granted in 1997 to key executives participating in SOUTHERN's Performance 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 - 17.471%; risk-free rate of return - 6.49%; dividend yield - 3.06%; and time to exercise - 10 years. These assumptions reflect the effects of cash dividend equivalents paid to participants at the target rates under the Performance Dividend Plan. </TABLE> III-20
<TABLE> <CAPTION> AGGREGATED STOCK OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES Aggregated Stock Option Exercises. The following table sets forth information concerning options exercised during the year ending December 31, 1997, by the named executive officers and the value of unexercised options held by them as of December 31, 1997. 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($)2 Unexercisable Unexercisable - -------------------------------------------------------------------------------------------------------------- ALABAMA <S> <C> <C> Elmer B. Harris - - 150,793/83,300 1,191,285/356,415 Banks H. Farris - - 13,662/27,822 57,279/119,004 Charles D. McCrary - - 24,067/23,386 137,122/99,258 William B. Hutchins, III - - 23,799/22,638 136,098/96,166 GEORGIA H. Allen Franklin - - 120,384/84,261 892,379/360,544 Warren Y. Jobe - - 30,094/24,544 188,226/104,466 Gene R. Hodges - - 25,873/23,988 156,204/101,933 Robert H. Haubein, Jr. - - 24,693/22,748 142,756/96,308 Willam C. Archer - - 5,077/17,932 18,895/71,521 GULF Travis J. Bowden - - 65,767/39,442 500,077/168,851 Arlan E. Scarbrough - - 5,507/17,267 20,919/68,977 John E. Hodges, Jr. - - 19,172/18,419 110,017/77,679 Francis M. Fisher, Jr. - - 4,219/14,333 15,981/57,791 Robert G. Moore - - 3,116/9,893 11,846/39,628 See next page for footnotes. </TABLE> III-21
<TABLE> <CAPTION> AGGREGATED STOCK OPTION EXERCISES IN 1997 AND YEAR-END OPTION VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Fiscal Fiscal Year-End (#) Year-End($)1 Shares Acquired Value Exercisable/ Exercisable/ Name on Exercise (#) Realized($)2 Unexercisable Unexercisable - -------------------------------------------------------------------------------------------------------------------- MISSISSIPPI <S> <C> <C> Dwight H. Evans - - 31,172/31,322 190,266/131,171 H. E. Blakeslee - - 19,875/19,543 113,822/82,296 Don E. Mason - - 5,577/17,800 21,152/71,190 Michael W. Southern - - 3,791/12,812 14,231/51,159 Andrew J. Dearman, III - - 3,164/11,128 12,010/45,182 SAVANNAH Arthur M. Gignilliat, Jr. - - 75,138/0 550,074/0 G. Edison Holland, Jr. - - 22,443/20,048 129,070/85,268 Larry M. Porter - - 3,490/11,532 13,265/46,469 W. Miles Greer - - 3,261/10,317 12,395/41,299 Kirby R. Willis - - 3,000/9,771 11,401/39,284 1 This represents the excess of the fair market value of SOUTHERN's common stock of $25.875 per share, as of December 31, 1997, above the exercise price of the options. One column reports the "value" of options that are vested and therefore could be exercised; the other the "value" of options that are not vested and therefore could not be exercised as of December 31, 1997. 2 The "Value Realized" is ordinary income, before taxes, and represents the amount equal to the excess of the fair market value of the shares at the time of exercise over the exercise price. </TABLE> III-22
<TABLE> <CAPTION> LONG-TERM INCENTIVE PLANS - AWARDS IN 1997 Long-Term Incentive Plans. The following table sets forth the long-term incentive plan awards made to the named executive officers for the performance period January 1, 1997 through December 31, 2000. Estimated Future Payouts under Non-Stock Price-Based Plans Performance or Other Period Number of Until Maturation Threshold Target Maximum Name Units (#)1 or Payout ($)2 ($)2 ($)2 - ------------------------------------------------------------------------------------------------------------------ ALABAMA <S> <C> <C> <C> <C> <C> Elmer B. Harris 285,784 4 years 142,892 285,784 571,568 Banks H. Farris 110,500 4 years 55,250 110,500 221,000 Charles D. McCrary 81,854 4 years 40,927 81,854 163,708 William B. Hutchins, III 81,854 4 years 40,927 81,854 163,708 GEORGIA H. Allen Franklin 324,269 4 years 162,135 324,269 648,538 Warren Y. Jobe 81,854 4 years 40,927 81,854 163,708 Gene R. Hodges 81,854 4 years 40,927 81,854 163,708 Robert H. Haubein, Jr. 74,889 4 years 37,445 74,889 149,778 William C. Archer 81,854 4 years 40,927 81,854 163,708 GULF Travis J. Bowden 134,814 4 years 67,407 134,814 269,628 Arlan E. Scarbrough 59,686 4 years 29,843 59,686 119,372 John E. Hodges, Jr. 59,686 4 years 29,843 59,686 119,372 Francis M. Fisher, Jr. 59,686 4 years 29,843 59,686 119,372 Robert G. Moore 29,610 4 years 14,805 29,610 59,220 See next page for footnotes. </TABLE> III-23
<TABLE> <CAPTION> LONG-TERM INCENTIVE PLANS - AWARDS IN 1997 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 134,814 4 years 67,407 134,814 269,628 H. E. Blakeslee 59,686 4 years 29,843 59,686 119,372 Don E. Mason 59,686 4 years 29,843 59,686 119,372 Michael W. Southern 42,635 4 years 21,318 42,635 85,270 Andrew J. Dearman, III 42,635 4 years 21,318 42,635 85,270 SAVANNAH Arthur M. Gignilliat, Jr.3 N/A N/A N/A N/A N/A G. Edison Holland, Jr. 59,686 4 years 29,843 59,686 119,372 Larry M. Porter 42,635 4 years 21,318 42,635 85,270 W. Miles Greer 42,635 4 years 21,318 42,635 85,270 Kirby R. Willis 42,635 4 years 21,318 42,635 85,270 1 A performance unit is a method of assigning a dollar value to a performance award opportunity. Under the Productivity Improvement Plan (the "Plan") of SOUTHERN, the number of units granted to named executive officers is 50 to 65 percent of their base salary range mid-point at the beginning of the performance period, with each unit valued at $1.00. No awards are paid unless the participant remains employed by the company through the end 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 and total shareholder return relative to selected groups of electric and gas utilities. If certain minimum performance relative to the selected groups 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. The Plan provides that in the discretion of the committee extraordinary income may be excluded for purposes of calculating the amount available for the payment of awards. All awards are payable in cash at the end of the performance period. 3 Not applicable due to Mr. Gignilliat's retirement on October 1, 1997. </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, Supplemental Defined Benefit, and Supplemental Executive Retirement Plans in effect during 1997 for the named executives at ALABAMA, GEORGIA, GULF and MISSISSIPPI and Messrs. Gignilliat and Holland at SAVANNAH. Employee compensation covered by the Pension, Supplemental Benefit, and Supplemental Executive Retirement Plans for pension purposes is limited to the average of the highest three of the final 10 years' compensation - -- base salary plus the excess of annual and long-term incentive compensation over 25 percent of base salary (reported under column titled "Salary", "Bonus", and "Long-Term Incentive Payouts" 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 $3,900 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 - ------------ ----------------------------------------------------------------- <S> <C> <C> <C> <C> <C> <C> $ 100,000 25,500 34,000 42,500 51,000 59,500 68,000 300,000 76,500 102,000 127,500 153,000 178,500 204,000 500,000 127,500 170,000 212,500 255,000 297,500 340,000 700,000 178,500 238,000 297,500 357,000 416,500 476,000 900,000 229,500 306,000 382,500 459,000 535,500 612,000 1,100,000 380,500 374,000 467,500 561,000 654,500 748,000 </TABLE> As of December 31, 1997, the applicable compensation levels and years of accredited service are presented in the following tables: ALABAMA Compensation Accredited Name Level Years of Service Elmer B. Harris $839,724 39 Banks H. Farris 372,912 38 Charles D. McCrary 324,528 23 William B. Hutchins, III 306,456 31 III-25
GEORGIA Compensation Accredited Name Level Years of Service H. Allen Franklin $908,664 26 Warren Y. Jobe1 334,656 26 Gene R. Hodges 331,092 33 Robert H. Haubein, Jr. 312,216 30 William C. Archer 258,780 26 GULF Compensation Accredited Name Level Years of Service Travis J. Bowden2 $471,636 31 Arlan E. Scarbrough 236,436 34 John E. Hodges, Jr. 242,940 31 Francis M. Fisher, Jr. 218,364 26 Robert G. Moore 166,296 24 MISSISSIPPI Compensation Accredited Name Level Years of Service Dwight H. Evans $360,732 26 H. E. Blakeslee 264,744 32 Don E. Mason 254,556 31 Michael W. Southern 205,272 22 Andrew J. Dearman, III 162,552 22 SAVANNAH Compensation Accredited Name Level Years of Service Arthur M. Gignilliat $354,456 37 G. Edison Holland, Jr.3 255,768 15 Larry M. Porter 139,788 20 W. Miles Greer 133,860 13 Kirby R. Willis 126,180 23 1 The number of accredited years of service includes 8 years credited to Mr. Jobe pursuant to a supplemental pension agreement. 2 The number of accredited years of service includes 10 years credited to Mr. Bowden pursuant to a supplemental pension agreement. 3 The number of accredited years of service includes 10 years credited to Mr. Holland pursuant to a supplemental pension agreement. III-26
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 (excluding incentive compensation) 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. SAVANNAH also has in effect a supplemental executive retirement plan for certain of its executive employees. The plan is designed to provide participants 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 earnings (excluding incentive compensation). The following table sets forth the estimated combined annual pension benefits under SAVANNAH's pension and supplemental executive retirement plans in effect during 1997 which are payable to SAVANNAH's named executives, except Messrs. Gignilliat and Holland who participate in the plans described on page III-25, 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 84,000 150,000 105,000 105,000 105,000 180,000 126,000 126,000 126,000 210,000 147,000 147,000 147,000 260,000 182,000 182,000 182,000 280,000 196,000 196,000 196,000 300,000 210,000 210,000 210,000 </TABLE> III-27
Compensation of Directors. Standard Arrangements. The following table presents compensation paid to the directors, during 1997 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 payable in cash may be deferred under the Deferred Compensation Plan until membership on the board is terminated or may be payable in SOUTHERN common stock at the election of the director. <TABLE> <CAPTION> ALABAMA GEORGIA GULF MISSISSIPPI SAVANNAH <S> <C> <C> <C> <C> <C> Cash Retainer Fee $17,000 $20,000 $10,000 $10,000 $10,000 Stock Retainer Fee $3,000 $3,000 $2,000 $2,000 $2,000 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, were given 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 elected to receive the benefit buy-out were required to defer receipt of that amount under the Deferred Compensation Plan until termination from board membership. Directors who elected 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 will 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, 1997 in addition to or in lieu of that specified by the standard arrangements specified above. III-28
Employment Contracts and Termination of Employment and Change in Control Arrangements. None. Report on Repricing of Options. None. Compensation Committee Interlocks and Insider Participation. None. 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> 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, 1997. 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, 1997. <TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned1,2 ALABAMA <S> <C> <C> Whit Armstrong SOUTHERN Common 16,028 A. William Dahlberg SOUTHERN Common 255,790 Peter V. Gregerson, Sr. SOUTHERN Common 439 Bill M. Guthrie SOUTHERN Common 139,031 Elmer B. Harris SOUTHERN Common 204,339 Carl E. Jones, Jr. SOUTHERN Common 10,641 Patricia M. King SOUTHERN Common 34 James K. Lowder SOUTHERN Common 4,721 III-30 </TABLE>
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned1,2 <S> <C> <C> Wallace D. Malone, Jr. SOUTHERN Common 400 William V. Muse SOUTHERN Common 439 John T. Porter SOUTHERN Common 850 Robert D. Powers SOUTHERN Common 439 C. Dowd Ritter SOUTHERN Common 34 John W. Rouse, Jr. SOUTHERN Common 4,694 William J. Rushton, III SOUTHERN Common 7,607 ALABAMA Preferred 20 James H. Sanford SOUTHERN Common 400 John C. Webb, IV SOUTHERN Common 19,237 Banks H. Farris SOUTHERN Common 16,802 William B. Hutchins, III SOUTHERN Common 46,463 Charles D. McCrary SOUTHERN Common 30,576 The directors, nominees, and executive officers as a group SOUTHERN Common 758,964 ALABAMA Preferred 20 GEORGIA Daniel P. Amos SOUTHERN Common 2,601 Juanita P. Baranco SOUTHERN Common 51 A. William Dahlberg SOUTHERN Common 255,790 W. A. Fickling, Jr. SOUTHERN Common 908 </TABLE> III-31
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned1,2 <S> <C> <C> H. Allen Franklin SOUTHERN Common 146,255 L. G. Hardman III SOUTHERN Common 14,816 Warren Y. Jobe SOUTHERN Common 60,369 GEORGIA Preferred 200 James R. Lientz, Jr. SOUTHERN Common 617 G. Joseph Prendergast SOUTHERN Common 659 Herman J. Russell SOUTHERN Common 8,414 Gloria M. Shatto SOUTHERN Common 17,459 GEORGIA Preferred 1,200 W. J. Vereen SOUTHERN Common 5,376 Carl Ware SOUTHERN Common 108 Thomas R. Williams SOUTHERN Common 398 GEORGIA Preferred 1,000 William C. Archer, III SOUTHERN Common 18,918 GEORGIA Preferred 666 Robert H. Haubein, Jr. SOUTHERN Common 27,243 Gene R. Hodges SOUTHERN Common 40,856 The directors, nominees and executive officers as a group SOUTHERN Common 690,473 GEORGIA Preferred 3,066 III-32 </TABLE>
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned1,2 GULF <S> <C> <C> Travis J. Bowden SOUTHERN Common 98,742 Paul J. DeNicola SOUTHERN Common 109,746 Fred C. Donovan SOUTHERN Common 1,059 W. Deck Hull, Jr. SOUTHERN Common 2,753 Joseph K. Tannehill SOUTHERN Common 4,344 Barbara H. Thames SOUTHERN Common 78 Francis M Fisher, Jr. SOUTHERN Common 10,212 John E. Hodges, Jr. SOUTHERN Common 43,001 Robert G. Moore SOUTHERN Common 17,857 Arlan E. Scarbrough SOUTHERN Common 28,457 The directors, nominees and executive officers as a group SOUTHERN Common 316,248 MISSISSIPPI Paul J. DeNicola SOUTHERN Common 109,746 Edwin E. Downer SOUTHERN Common 2,671 Dwight H. Evans SOUTHERN Common 51,740 GEORGIA Preferred 400 MISSISSIPPI Preferred 200 SOUTHERN Preferred 200 Robert S. Gaddis SOUTHERN Common 3,019 </TABLE> III-33
<TABLE> <CAPTION> Name of Directors, Nominees and Number of Shares Executive Officers Title of Class Beneficially Owned1,2 <S> <C> <C> Walter H. Hurt, III SOUTHERN Common 1,291 MISSISSIPPI Preferred 33 Aubrey K. Lucas SOUTHERN Common 3,581 George A. Schloegel SOUTHERN Common 389 Philip J. Terrell SOUTHERN Common 632 N. Eugene Warr SOUTHERN Common 688 H. E. Blakeslee SOUTHERN Common 26,953 Andrew J. Dearman, III SOUTHERN Common 11,674 Don E. Mason SOUTHERN Common 27,313 Michael W. Southern SOUTHERN Common 7,430 The directors, nominees and executive officers as a group SOUTHERN Common 247,127 GEORGIA Preferred 400 MISSISSIPPI Preferred 233 SOUTHERN Preferred 200 SAVANNAH Archie H. Davis SOUTHERN Common 108 Paul J. DeNicola SOUTHERN Common 109,746 Walter D. Gnann SOUTHERN Common 1,334 G. Edison Holland SOUTHERN Common 24,416 Robert B. Miller, III SOUTHERN Common 2,318 Arnold M. Tenenbaum SOUTHERN Common 699 III-34 </TABLE>
<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 5,817 Larry M. Porter SOUTHERN Common 19,297 Kirby R. Willis SOUTHERN Common 8,054 The directors, nominees and executive officers as a group SOUTHERN Common 171,788 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, 19,875 shares; Mr. Bowden, 65,767 shares; Mr. Dahlberg, 193,347 shares; Mr. DeNicola, 75,791 shares; Mr. Evans, 31,172 shares; Mr. Farris, 13,662 shares; Mr. Franklin, 120,384 shares; Mr. Greer, 3,261 shares; Mr. Guthrie, 91,055 shares; Mr. Harris, 150,793 shares; Mr. Haubein, 24,693 shares; Mr. G. R. Hodges, 25,873 shares; Mr. J. E. Hodges, 19,172 shares; Mr. Holland, 22,443 shares; Mr. Hutchins, 23,799 shares; Mr. Jobe, 30,094 shares; Mr. Mason, 5,577 shares; Mr. McCrary, 24,067 shares; Mr. Porter, 3,490 shares; Mr. Scarbrough, 5,507 shares; Mr. Southern, 3,791 shares; and Mr. Willis, 3,000 shares. Also included are shares of SOUTHERN common stock held by the spouses of the following directors: Mr. Bowden, 500 shares; Mr. Gaddis, 1,200 shares; Mr. Hardman, 100 shares; Mr. Harris, 310 shares; and Dr. Shatto, 13,438 shares. Also included are shares of common stock held in the Southern Company Deferred Stock Trust of which certain directors have the power to direct the voting, as follows: Mr. Hardman, 6,019 shares; Mr. Rushton, 400 shares and Dr. Shatto, 400 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 Executive Officer of Regions Financial Corporation, Birmingham, Alabama; Mr. Wallace D. Malone is Chairman and Chief Executive Officer of SouthTrust Corporation, Birmingham, Alabama. Mr. Ritter is Chairman, President, Chief Executive Officer and Director of AmSouth Bancorporation and AmSouth Bank, Birmingham, Alabama. During 1997, 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 1997, 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 1997, GEORGIA leased a building from Riverside Manufacturing Co. for approximately $80,511. Also, Riverside Manufacturing sold to GEORGIA fire retardant uniforms for $104,687. 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. was Vice Chairman of SunTrust Bank, West Florida, Panama City, Florida from 1993 to 1997. During 1997, 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. In 1997, GULF paid to Merrick Industries, Inc. $303,782 for replacement parts for existing equipment and for the purchase and installation of coal feeders for Plant Smith. Mr. Tannehill is President and Chief Executive Officer of Merrick Industries, Inc. 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. During 1997, 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. III-36
Certain business relationships. None. Indebtedness of management. None. Transactions with promoters. None. 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 1997 were as follows: ALABAMA filed a Current Report on Form 8-K: Date of event: December 4, 1997 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 30, 1998 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 J. Rushton, III Paul J. DeNicola Gloria M. Shatto Jack Edwards Gerald J. St. Pe' H. Allen Franklin Herbert Stockham Bruce S. Gordon L. G. Hardman III By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 30, 1998 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 30, 1998 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, Chief Financial Officer and Treasurer (Principal Financial Officer) Art P. Beattie Vice President, Secretary and Comptroller (Principal Accounting Officer) Directors: Whit Armstrong John T. Porter Peter V. Gregerson, Sr. Robert D. Powers Bill M. Guthrie Andreas Renschler Carl E. Jones, Jr. C. Dowd Ritter Patricia M. King John W. Rouse James K. Lowder James H. Sanford Wallace D. Malone, Jr. John Cox Webb, IV By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 30, 1998 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 30, 1998 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, Chief Financial Officer and Director (Principal Financial Officer) Cliff S. Thrasher Vice President, Comptroller and Chief Accounting Officer (Principal Accounting Officer) Directors: Daniel P. Amos G. Joseph Prendergast Juanita P. Baranco Herman J. Russell A. W. Dahlberg Gloria M. Shatto William A. Fickling, Jr. William Jerry Vereen L. G. Hardman III Carl Ware James R. Lientz, Jr. Thomas R. Williams By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 30, 1998 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 30, 1998 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 30, 1998 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 30, 1998 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 30, 1998 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: G. Edison Holland, Jr., President and Chief Executive Officer By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 30, 1998 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. G. Edison Holland, 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: Archie H. Davis Robert B. Miller, III Paul J. DeNicola Arnold M. Tenenbaum Walter D. Gnann By: Wayne Boston (Wayne Boston, Attorney-in-fact) Date: March 30, 1998 IV-4
<TABLE> <CAPTION> Exhibit 21. Subsidiaries of the Registrants.* Jurisdiction of Name of Company Organization ----------------------------------------------------------------------------------------------------------------------- <S> <C> The Southern Company Delaware Southern Company Capital Trust I Delaware Southern Company Capital Trust II Delaware Southern Company Capital Trust III Delaware 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 Power Capital Trust V 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 Capital Trust IV Delaware Georgia Power Capital Trust V Delaware Georgia Power Capital Trust VI 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 Gulf Power Capital Trust III Delaware Mississippi Power Company Mississippi Mississippi Power Capital Trust I Delaware Mississippi Power Capital Trust II Delaware Mississippi Power Capital Trust III Delaware Savannah Electric and Power Company Georgia Southern Energy, Inc. Delaware --------------------------------------------------------------------------------------------- --- --------------------- *This information is as of December 31, 1997. In addition, the list omits certain subsidiaries pursuant to paragraph (b)(21)(ii) of Regulation S-K Item 601. </TABLE> IV-5
Exhibit 23(a) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 11, 1998 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, 333-09077, 333-44127 and 333-44261. /s/ Arthur Andersen LLP Atlanta, Georgia March 27, 1998 IV-6
Exhibit 23(b) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 11, 1998 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 333-40629. /s/ Arthur Andersen LLP Birmingham, Alabama March 27, 1998 IV-7
Exhibit 23(c) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 11, 1998 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. 33-60345 and 333-43895. /s/ Arthur Andersen LLP Atlanta, Georgia March 27, 1998 IV-8
Exhibit 23(d) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 11, 1998 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 333-42033. /s/ Arthur Andersen LLP Atlanta, Georgia March 27, 1998 IV-9
Exhibit 23(e) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 11, 1998 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. 33-49649, 333-20469 and 333-45069. /s/ Arthur Andersen LLP Atlanta, Georgia March 27, 1998 IV-10
Exhibit 23(f) ARTHUR ANDERSEN LLP CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated February 11, 1998 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 Nos. 33-52509 and 333-46171. /s/ Arthur Andersen LLP Atlanta, Georgia March 27, 1998 IV-11
ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE 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 11, 1998. 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 11, 1998 IV-12
ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE 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 11, 1998. 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 11, 1998 IV-13
ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE 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 11, 1998. 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 11, 1998 IV-14
ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE 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 11, 1998. 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 11, 1998 IV-15
ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE 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 11, 1998. 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 11, 1998 IV-16
ARTHUR ANDERSEN LLP REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE 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 11, 1998. 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 11, 1998 IV-17
<TABLE> <CAPTION> INDEX TO FINANCIAL STATEMENT SCHEDULES Schedule Page II Valuation and Qualifying Accounts and Reserves 1997, 1996 and 1995 <S> <C> 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, 1997, 1996 AND 1995 (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> 1997.......................... $31,587 $35,930 $36,290 (2) $26,751 $77,056 1996.......................... 37,119 24,768 48 30,348 (1) 31,587 1995.......................... 9,129 30,445 23,053 (3) 25,508 (1) 37,119 - ------------------- Notes: (1) Represents write-off of accounts considered to be uncollectible, less recoveries of amounts previously written off. (2) Includes the addition of a Purchased Reserve in the amount of $37,000 related to the acquisition of CEPA. (3) Includes the addition of a Purchased Reserve in the amount of $23,027 related to the acquisition of SWEB. </TABLE> S-2
<TABLE> <CAPTION> ALABAMA POWER COMPANY SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (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> 1997.......................... $1,171 $8,580 $- $7,479 (Note) $2,272 1996.......................... 1,212 8,214 - 8,255 (Note) 1,171 1995.......................... 2,297 5,823 - 6,908 (Note) 1,212 - ------------------- 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, 1997, 1996 AND 1995 (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> 1997.......................... $4,000 $ 7,888 $- $ 8,888 (Note) $3,000 1996.......................... 5,000 11,815 - 12,815 (Note) 4,000 1995.......................... 4,500 15,875 - 15,375 (Note) 5,000 - ------------------- 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, 1997, 1996 AND 1995 (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> 1997.......................... $789 $1,350 $- $1,343 (Note) $796 1996.......................... 768 1,850 7 1,836 (Note) 789 1995.......................... 600 1,612 3 1,447 (Note) 768 - ------------------- 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, 1997, 1996 AND 1995 (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> 1997.......................... $839 $1,128 $56 $1,325 (Note) $698 1996.......................... 802 1,726 41 1,730 (Note) 839 1995.......................... 670 1,602 23 1,493 (Note) 802 - ------------------- 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, 1997, 1996 AND 1995 (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> 1997.......................... $632 $192 $- $470 (Note) $354 1996.......................... 983 126 - 477 (Note) 632 1995.......................... 866 439 - 322 (Note) 983 - ------------------- 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 - Amendment to the Charter of ALABAMA dated December 15, 1997. (b) 3 - 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 - Amendment to the Charter of GEORGIA dated January 26, 1998. (c) 3 - 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 - Amendment to the Restated Articles of Incorporation of GULF dated January 28, 1998. (d) 3 - 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
* (e) 2 - Article of Amendment to the Articles of Incorporation of MISSISSIPPI dated December 31, 1997. (e) 3 - 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).) (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 SOUTHERN (a) 1 - Subordinated Note Indenture dated as of February 1, 1997, between SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indentures supplemental thereto dated as of February 4, 1997. (Designated in Registration Nos. 333-28349 as Exhibits 4.1 and 4.2 and 333-28355 as Exhibit 4.2.) * (a) 2 - Subordinated Note Indenture dated as of June 1, 1997, between SOUTHERN, Southern Company Capital Funding, Inc. and Bankers Trust Company, as Trustee, and indenture supplemental thereto dated as of June 6, 1997. (a) 3 - Amended and Restated Trust Agreement of Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.6) (a) 4 - Amended and Restated Trust Agreement of Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.6) * (a) 5 - Amended and Restated Trust Agreement of Southern Company Capital Trust III dated as of June 1, 1997. (a) 6 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust I dated as of February 1, 1997. (Designated in Registration No. 333-28349 as Exhibit 4.10) E-3
(a) 7 - Capital Securities Guarantee Agreement relating to Southern Company Capital Trust II dated as of February 1, 1997. (Designated in Registration No. 333-28355 as Exhibit 4.10) * (a) 8 - Preferred Securities Guarantee Agreement relating to Southern Company Capital Trust III dated as of June 1, 1997. 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. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated February 17, 1993, File No. 1-3164, as Exhibit 4(a)-3, in Form 8-K dated March 10, 1993, File No. 1-3164, 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. 1-3164, as Exhibit 4, in Certificate of Notification, File No. 70-8069, as Exhibit A, in Form 8-K dated November 16, 1993, File No. 1-3164, 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. 1-3164, 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. 1-3164, as Exhibits 4.1 and 4.2.) (b) 4 - Senior Note Indenture dated as of December 1, 1997, between ALABAMA and The Chase Manhattan Bank, as Trustee, and indentures supplemental thereto through that dated February 26, 1998. (Designated in Form 8-K dated December 4, 1997, File No. 1-3164, as Exhibits 4.1 and 4.2 and in Form 8-K dated February 20, 1998, File No. 1-3164, as Exhibit 4.2.) (b) 5 - 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.) E-4
(b) 6 - 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. 1-3164, as Exhibit 4.5.) (b) 7 - 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.) (b) 8 - 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. 1-3164, 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.) E-5
(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.) (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 - Subordinated Note Indenture dated as of June 1, 1997, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indenture supplemental thereto dated as of June 11, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibits D and E.) (c) 5 - Senior Note Indenture dated as of January 1, 1998, between GEORGIA and The Chase Manhattan Bank, as Trustee, and indenture supplemental thereto dated as of January 27, 1998. (Designated in Form 8-K dated January 21, 1998, File No. 1-6468, as Exhibits 4.1 and 4.2.) (c) 6 - 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) 7 - 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) 8 - Amended and Restated Trust Agreement of Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit C.) (c) 9 - 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) 10 - 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.) (c) 11 - Guarantee Agreement relating to Georgia Power Capital Trust III dated as of June 1, 1997. (Designated in Certificate of Notification, File No. 70-8461, as Exhibit F.) E-6
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 indentures supplemental thereto through that dated as of January 1, 1998. (Designated in Form 8-K dated January 27, 1997, File No. 0-2429, as Exhibits 4.1 and 4.2, in Form 8-K dated July 28, 1997, File No. 0-2429, as Exhibit 4.2 and in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 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.) (d) 4 - Amended and Restated Trust Agreement of Gulf Power Capital Trust II dated as of January 1, 1998. (Designated in Form 8-K dated January 13, 1998, File No. 0-2429, as Exhibit 4.5.) (d) 5 - 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.) (d) 6 - Guarantee Agreement relating to Gulf Power Capital Trust II dated as of January 1, 1998. (Designated in Form 8-K dated January 13, 1998, 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 E-7
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.) (e) 2 - Subordinated Note Indenture dated as of February 1, 1997, between MISSISSIPPI and Bankers Trust Company, as Trustee, and indenture supplemental thereto dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibits 4.1 and 4.2.) (e) 3 - Amended and Restated Trust Agreement of Mississippi Power Capital Trust I dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.5.) (e) 4 - Guarantee Agreement relating to Mississippi Power Capital Trust I dated as of February 1, 1997. (Designated in Form 8-K dated February 20, 1997, File No. 0-6849, as Exhibit 4.8.) SAVANNAH (f) 1 - Indenture dated as of March 1, 1945, between SAVANNAH and The 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.) (f) 2 - Senior Note Indenture dated as of March 1, 1998 between SAVANNAH and The Bank of New York, as Trustee and indenture supplemental thereto dated as of March 1, 1998. (Designated in Form 8-K dated March 9, 1998, File No. 1-5072, as Exhibits 4.1 and 4.2.) (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).) E-8
(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).) (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.) E-9
(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.) (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 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. * (a) 22 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. (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-10
(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-11
(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).) E-12
(a) 40 - Transition Energy Agreement dated December 31, 1990, between FP&L 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(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 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. (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-13
(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 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1997. * (a) 60 - The Southern Company Executive Productivity Improvement Plan, effective January 1, 1997. E-14
(a) 61 - The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and all amendments thereto through Amendment Number Six. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)63, in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)64 and in Registration No. 333-44261 as Exhibit 4(e).) (a) 62 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and all amendments thereto through Amendment Number Two. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)64 and in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)66.) * (a) 63 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. (a) 64 - Pension Plan For Employees of ALABAMA, Amended and Restated effective as of January 1, 1989 and all amendments thereto through Amendment Number Three. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)69 and in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)68.) (a) 65 - Pension Plan For Employees of GEORGIA, Amended and Restated effective as of January 1, 1989 and all amendments thereto through Amendment Number Three. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)70 and in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)70.) (a) 66 - Pension Plan For Employees of SCS, Amended and Restated effective as of January 1, 1989 and all amendments thereto through Amendment Number Four. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1994, File No. 1-3526, as Exhibit 10(a)71, in SOUTHERN's Form 10-K for the year ended December 31, 1995, File No. 1-3526, as Exhibit 10(a)68 and in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)72.) (a) 67 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)73.) * (a) 68 - Amendment Number One and Amendment Number Two to The Southern Company Performance Pay Plan. (a) 69 - 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) 70 - 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.) E-15
(a) 71 - Supplemental Benefit Plan for SCS and SEI, Amended and Restated effective as of January 1, 1996. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)76.) (a) 72 - 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) 73 - 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) 74 - 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) 75 - 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) 76 - 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) 77 - The Southern Company Performance Dividend Plan. (a) 78 - The Southern Company Pension Plan, effective as of January 1, 1997. (Designated in SOUTHERN's Form 10-K for the year ended December 31, 1996, File No. 1-3526, as Exhibit 10(a)83.) * (a) 79 - Amendment Number One to The Southern Company Pension Plan. * (a) 80 - The Southern Company Performance Stock Plan. * (a) 81 - The Southern Company Supplemental Executive Retirement Plan. * (a) 82 - The Southern Company Performance Sharing Plan. 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. E-16
(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. (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-17
(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, 1997. See Exhibit 10(a)59 herein. * (b) 20 - The Southern Company Executive Productivity Improvement Plan, effective January 1, 1997. See Exhibit 10(a)60 herein. (b) 21 - The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)61 herein. (b) 22 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (b) 23 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. (b) 24 - Pension Plan For Employees of ALABAMA, Amended and Restated effective as of January 1, 1989 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)64 herein. (b) 25 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)67 herein. * (b) 26 - Amendment Number One and Amendment Number Two to The Southern Company Performance Pay Plan. See Exhibit 10(a)68 herein. (b) 27 - Supplemental Benefit Plan for ALABAMA. See Exhibit 10(a)69 herein. (b) 28 - The Southern Company Deferred Compensation Plan. See Exhibit 10(a)74 herein. (b) 29 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)73 herein. E-18
(b) 30 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)76 herein. (b) 31 - The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)78 herein. * (b) 32 - Amendment Number One to The Southern Company Pension Plan. See Exhibit 10(a)79 herein. * (b) 33 - The Southern Company Performance Stock Plan. See Exhibit 10(a)80 herein. * (b) 34 - The Southern Company Supplemental Executive Retirement Plan. See Exhibit 10(a)81 herein. * (b) 35 - The Southern Company Performance Dividend Plan. See Exhibit 10(a)77 herein. * (b) 36 - The Southern Company Performance Sharing Plan. See Exhibit 10(a)82 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. E-19
(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. (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 - Nuclear Operating Agreement between Southern Nuclear and GEORGIA dated as of July 1, 1993. See Exhibit 10(a)21 herein. * (c) 18 - Pseudo Scheduling and Services Agreement between GEORGIA and MEAG dated as of April 8, 1997. 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 E-20
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. (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. E-21
(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. (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 - Revised and Restated Coordination Services Agreement between and among GEORGIA, OPC and Georgia Systems Operations Corporation dated as of September 10, 1997. 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. E-22
(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.) (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 - The Southern Company Productivity Improvement Plan, Amended and Restated effective January 1, 1997. See Exhibit 10(a)59 herein. * (c) 55 - The Southern Company Executive Productivity Improvement Plan, effective January 1, 1997. See Exhibit 10(a)60 herein. (c) 56 - The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)61 herein. (c) 57 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (c) 58 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. (c) 59 - Pension Plan For Employees of GEORGIA, Amended and Restated effective as of January 1, 1989 and all amendments thereto through Amendment Number Three. See Exhibit 10(a)65 herein. (c) 60 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)67 herein. * (c) 61 - Amendment Number One and Amendment Number Two to The Southern Company Performance Pay Plan. See Exhibit 10(a)68 herein. (c) 62 - Supplemental Benefit Plan for GEORGIA. See Exhibit 10(a)70 herein. E-23
(c) 63 - The Southern Company Deferred Compensation Plan. See Exhibit 10(a)74 herein. (c) 64 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)73 herein. (c) 65 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)76 herein. (c) 66 - The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)78 herein. * (c) 67 - Amendment Number One to The Southern Company Pension Plan. See Exhibit 10(a)79 herein. * (c) 68 - The Southern Company Performance Stock Plan. See Exhibit 10(a)80 herein. * (c) 69 - The Southern Company Supplemental Executive Retirement Plan. See Exhibit 10(a)81 herein. * (c) 70 - The Southern Company Performance Dividend Plan. See Exhibit 10(a)77 herein. * (c) 71 - The Southern Company Performance Sharing Plan. See Exhibit 10(a)82 herein. 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. E-24
(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).) (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, 1997. See Exhibit 10(a)59 herein. * (d) 16 - The Southern Company Executive Productivity Improvement Plan, effective January 1, 1997. See Exhibit 10(a)60 herein. (d) 17 - The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)61 herein. (d) 18 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (d) 19 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. E-25
(d) 20 - Pension Plan For Employees of GULF, Amended and Restated effective as of January 1, 1989 and all amendments thereto through Amendment Number Three. (Designated in GULF's Form 10-K for the year ended December 31, 1994, File No. 0-2429, as Exhibit 10(d)18 and in GULF's Form 10-K for the year ended December 31, 1996, File No. 0-2429, as Exhibit 10(d)22.) (d) 21 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)67 herein. * (d) 22 - Amendment Number One and Amendment Number Two to The Southern Company Performance Pay Plan. See Exhibit 10(a)68 herein. (d) 23 - 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) 24 - The Southern Company Deferred Compensation Plan. See Exhibit 10(a)74 herein. (d) 25 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)73 herein. (d) 26 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)76 herein. (d) 27 - The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)78 herein. * (d) 28 - Amendment Number One to The Southern Company Pension Plan. See Exhibit 10(a)79 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-26
(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) 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, 1997. See Exhibit 10(a)59 herein. * (e) 15 - The Southern Company Executive Productivity Improvement Plan, effective January 1, 1997. See Exhibit 10(a)60 herein. (e) 16 - The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)61 herein. (e) 17 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. E-27
* (e) 18 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. (e) 19 - Pension Plan For Employees of MISSISSIPPI, Amended and Restated effective as of January 1, 1989 and all amendments thereto through Amendment Number Three. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1994, File No. 0-6849, as Exhibit 10(e)18 and in MISSISSIPPI's Form 10-K for the year ended December 31, 1996, File No. 0-6849, as Exhibit 10(e)21.) (e) 20 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)67 herein. * (e) 21 - Amendment Number One and Amendment Number Two to The Southern Company Performance Pay Plan. See Exhibit 10(a)68 herein. (e) 22 - Supplemental Benefit Plan for MISSISSIPPI, Amended and Restated effective as of January 1, 1996. (Designated in MISSISSIPPI's Form 10-K for the year ended December 31, 1996, File No. 0-6849, as Exhibit 10(e)23.) (e) 23 - The Southern Company Deferred Compensation Plan. See Exhibit 10(a)74 herein. (e) 24 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)73 herein. (e) 25 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)76 herein. (e) 25 - The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)78 herein. * (e) 26 - Amendment Number One to The Southern Company Pension Plan. See Exhibit 10(a)79 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. E-28
(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, 1997. See Exhibit 10(a)59 herein. * (f) 12 - The Southern Company Executive Productivity Improvement Plan, effective January 1, 1997. See Exhibit 10(a)60 herein. (f) 13 - The Southern Company Employee Savings Plan, Amended and Restated effective July 3, 1995 and all amendments thereto through Amendment Number Six. See Exhibit 10(a)61 herein. (f) 14 - The Southern Company Employee Stock Ownership Plan, Amended and Restated effective April 1, 1995 and all amendments thereto through Amendment Number Two. See Exhibit 10(a)62 herein. * (f) 15 - Amendment Number Three to The Southern Company Employee Stock Ownership Plan. See Exhibit 10(a)63 herein. * (f) 16 - Employees' Retirement Plan of SAVANNAH, Amended and Restated effective January 1, 1997. (f) 17 - Supplemental Executive Retirement Plan of SAVANNAH, Amended and Restated effective January 1, 1996 and Amendment Number One thereto. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1995, File No. 1-5072, as Exhibit 10(f)17 and in SAVANNAH's Form 10-K for the year ended December 31, 1996, File No. 1-5072, as Exhibit 10(f)20.) E-29
* (f) 18 - Amendment Number Two to The Supplemental Executive Retirement Plan of SAVANNAH. (f) 19 - Deferred Compensation Plan for Key Employees of SAVANNAH and all amendments thereto through Amendment Number Two. (Designated in SAVANNAH's Form 10-K for the year ended December 31, 1994, File No. 1-5072, as Exhibit 10(f)17, in SAVANNAH's Form 10-K for the year ended December 31, 1995, File No. 1-5072, as Exhibit 10(f)19 and in SAVANNAH's Form 10-K for the year ended December 31, 1996, File No. 1-5072, as Exhibit 10(f)22.) (f) 20 - The Southern Company Performance Pay Plan, Amended and Restated effective January 1, 1996. See Exhibit 10(a)67 herein. * (f) 21 - Amendment Number One and Amendment Number Two to The Southern Company Performance Pay Plan. See Exhibit 10(a)68 herein. (f) 22 - The Southern Company Outside Directors Pension Plan. See Exhibit 10(a)73 herein. * (f) 23 - Deferred Compensation Plan for Directors of SAVANNAH. (f) 24 - Outside Directors Stock Plan for Subsidiaries of The Southern Company and First Amendment thereto. See Exhibit 10(a)75 herein. (f) 25 - The Southern Company Pension Plan, effective as of January 1, 1997. See Exhibit 10(a)78 herein. * (f) 26 - Amendment Number One to The Southern Company Pension Plan. See Exhibit 10(a)79 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. E-30
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. 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 11, 1998, File No. 1-3526, as Exhibit 27.) ALABAMA (b) - Financial Data Schedule. (Designated in Form 8-K dated February 11, 1998, File No. 1-3164, as Exhibit 27.) E-31
GEORGIA (c) - Financial Data Schedule. (Designated in Form 8-K dated February 11, 1998, File No. 1-6468, as Exhibit 27.) GULF (d) - Financial Data Schedule. (Designated in Form 8-K dated February 11, 1998, File No. 0-2429, as Exhibit 27.) MISSISSIPPI (e) - Financial Data Schedule. (Designated in Form 8-K dated February 11, 1998, File No. 0-6849, as Exhibit 27.) SAVANNAH (f) - Financial Data Schedule. (Designated in Form 8-K dated February 11, 1998, File No. 1-5072, as Exhibit 27.) E-32