EXHIBIT 99
MANAGEMENT'S REPORT
Savannah Electric and Power Company 2001 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 accounting
principles generally accepted in the United States 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 accounting 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 independent
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 accounting principles
generally accepted in the United States.
/s/Anthony R. James
Anthony R. James
President
and Chief Executive Officer
/s/K.R. Willis
K. R. Willis
Vice President,
Treasurer, Chief Financial Officer
and Assistant Secretary
February 13, 2002
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 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, 2001 and 2000, and the
related statements of income, common stockholder's equity, and cash flows for
each of the three years in the period ended December 31, 2001. 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 auditing standards generally
accepted in the United States. 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 12-26) referred to above
present fairly, in all material respects, the financial position of Savannah
Electric and Power Company as of December 31, 2001 and 2000, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.
As explained in Note 1 to the financial statements, effective January 1,
2001, Savannah Electric and Power Company changed its method of accounting for
derivative instruments and hedging activities.
/s/Arthur Andersen LLP
Atlanta, Georgia
February 13, 2002
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Savannah Electric and Power Company 2001 Annual Report
RESULTS OF OPERATIONS
- ---------------------
Earnings
Savannah Electric and Power Company's net income for 2001 totaled $22.1 million,
representing a decrease of $0.9 million or 3.9 percent from the prior year.
Earnings were down primarily due to lower retail revenues.
In 2000, earnings were $23.0 million, representing no significant change
from the prior year.
Revenues
Total operating revenues for 2001 were $283.9 million, reflecting a 4.0 percent
decrease when compared to 2000. The following table summarizes the factors
affecting operating revenues for the past two years:
Increase (Decrease)
Amount From Prior Year
--------------------------------------
2001 2001 2000
--------------------------------------
(in thousands)
Retail --
Base Revenues $159,839 $ (1,968) $9,272
Fuel cost recovery
and other 109,333 (11,482) 31,085
-----------------------------------------------------------------
Total retail 269,172 (13,450) 40,357
-----------------------------------------------------------------
Sales for resale --
Non-affiliates 8,884 4,136 1,353
Affiliates 3,205 (1,769) 823
-----------------------------------------------------------------
Total sales for resale 12,089 2,367 2,176
-----------------------------------------------------------------
Other operating revenues 2,591 (783) 1,591
-----------------------------------------------------------------
Total operating revenues $283,852 $(11,866) $44,124
=================================================================
Percent change (4.0)% 17.5%
-----------------------------------------------------------------
Retail revenues decreased 4.8 percent or $13.5 million in 2001 as compared
to 2000. The primary contributors to the decrease were the negative impact of
mild weather on energy sales and a decrease in fuel revenues, partially due to a
lower average cost of fuel consumed.
Electric rates include provisions to adjust billings for fluctuations in
fuel costs, the energy component of purchased power costs, and certain other
costs. Under these fuel recovery provisions, fuel revenues generally equal fuel
expenses--including the fuel component of purchased energy--and do not affect
net income. However, cash flow is affected by the economic loss from
untimely recovery of these receivables. In May 2001, the Company implemented a
Fuel Cost Recovery (FCR) rate increase under a Georgia Public Service Commission
(GPSC) rate order. The order established a new fuel rate to better reflect
current fuel costs and to collect the under-recovered balance. The GPSC-approved
FCR anticipated a three year recovery of the under-recovered fuel balance. Due
to the current year decreases in fuel costs, the Company recovered approximately
70 percent of this balance by year-end 2001.
Revenues from sales to utilities outside the service area under long-term
contracts consist of capacity and energy components. These transactions do not
have a significant impact on earnings.
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 energy sales do not have a significant impact
on earnings.
Energy Sales
Changes in revenues are influenced heavily by the amount of energy sold each
year. Kilowatt-hour (KWH) sales for 2001 and the percent change by year were as
follows:
KWH Percent Change
------------- -------------------
2001 2001 2000
------------- -------------------
(in millions)
Residential 1,659 (0.7)% 5.8%
Commercial 1,388 1.4 6.3
Industrial 788 (1.6) 12.2
Other 134 (1.4) 2.5
-------------
Total retail 3,969 (0.2) 7.1
Sales for resale --
Non-affiliates 111 43.4 50.3
Affiliates 88 (1.0) 15.1
-------------
Total 4,168 0.6% 7.8%
===========================================================
Total retail energy sales in 2001 decreased slightly from the prior year.
Residential sales decreased reflecting mild weather, somewhat offset by
continued growth in customers. Industrial sales decreased reflecting a slowing
of the economy. Commercial energy sales increased 1.4 percent reflecting
continued customer growth.
3
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
In 2000, total retail energy sales were up by 7.1 percent from the prior
year, reflecting increased energy sales of 12.2 percent to industrial customers
due to the re-opening of an industrial facility under new ownership. Residential
and commercial energy sales also increased reflecting weather related demand and
customer growth.
Expenses
Total operating expenses for 2001 were $234.3 million, a decrease of $9.0
million from the prior year due primarily to decreases in fuel expense and
purchased power from both affiliates and non-affiliates. The decrease in fuel
expense is attributable to a decrease in generation and lower fuel costs.
Purchased power decreased due principally to lower energy costs. Other operation
expense was lower reflecting decreased costs associated with discontinuation of
a marketing program and lower administrative and general expenses. Maintenance
expense increased from 2000 reflecting higher power delivery costs to support
improved customer reliability.
In 2000, total operating expenses were $243.3 million, an increase of $41.8
million from the prior year. This increase was due primarily to increases in
purchased power from both affiliates and non-affiliates and fuel expense.
Purchased power increased due principally to higher energy costs. Other
operation expense was higher reflecting increased benefit expenses. Maintenance
expense increased from 1999 reflecting higher power delivery and power
generation maintenance costs to support improved customer reliability and unit
availability, respectively. Depreciation and amortization increased reflecting
additional depreciation charges related to the GPSC accounting order. See Note 3
to the financial statements for additional information on the GPSC's 1998
accounting order.
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 and the total average cost of
energy supply were as follows:
2001 2000 1999
--------------------------
Total energy supply
(millions of KWHs) 4,310 4,286 4,039
Sources of energy supply
(percent) --
Coal 50 52 45
Oil 1 2 2
Gas 3 5 10
Purchased Power 46 41 43
Total average cost of
energy supply (cents) 2.87 3.09 2.44
- -----------------------------------------------------------------
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 utility plant with long economic lives. 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 trust preferred securities.
Any recognition of inflation by regulatory authorities is reflected in the rate
of return allowed.
Future Earnings Potential
General
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of future earnings depends on
numerous factors ranging from energy sales growth to a less regulated, more
competitive environment.
Future earnings in the near term will depend upon growth in energy sales,
which is subject to a number of factors. These factors include weather,
competition, new short and long-term 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.
4
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
The Company 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 GPSC. Prices for electricity relating to jointly owned generating
facilities, interconnecting transmission lines, and the exchange of electric
power are set by the Federal Energy Regulatory Commission (FERC).
As part of the Company's retail rate settlement in 1992, it was informally
agreed that the Company's earned rate of return on common equity should be 12.95
percent. In 1998, the GPSC issued a four-year accounting order settling its
review of the Company's earnings. See Note 3 to the financial statements for
additional information.
Southern Power Company, a new Southern Company affiliate formed in 2001 to
construct, own, and manage wholesale generating assets in the Southeast, is
currently constructing two 566 megawatt combined cycle units at Plant Wansley to
begin operation in 2002. The GPSC has certified the Company's purchase of 200
megawatts of capacity from these units to serve its retail customers for
approximately seven years.
The Company filed a base rate case on November 30, 2001 for the first time
since 1985. The primary reason for this base rate case is to recover significant
new costs related to the Plant Wansley power purchase agreement beginning June
2002, as well as other operation and maintenance expense changes. The requested
increase is 7.6 percent of total rates (base plus fuel). In the filing, the
Company announced it would file for a fuel decrease in early 2002 to offset
most, if not all, of the base rate increase.
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 under
"Environmental Matters."
Industry Restructuring
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
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 affected 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. 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 recovery
of any stranded investments, full cost recovery of energy produced, and other
issues related to the energy crisis that occurred in California. As a result of
that crisis, many states have either discontinued or delayed implementation of
initiatives involving retail deregulation. The Company does 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.
In December 1999, the FERC issued its final rule on Regional Transmission
Organizations (RTOs). The order encouraged utilities owning transmission systems
to form RTOs on a voluntary basis. Southern Company and its operating companies,
including the Company, have submitted a series of status reports informing the
5
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
FERC of progress toward the development of a Southeastern RTO. In these status
reports, Southern Company explained that it is developing a for-profit RTO known
as SeTrans with a number of non-jurisdictional cooperative and public power
entities. Recently, Entergy Corporation and Cleco Power joined the SeTrans
development process. In January 2002, the sponsors of SeTrans held a public
meeting to form a Stakeholder Advisory Committee, which will participate in the
development of the RTO. Southern Company continues to work with the other
sponsors to develop the SeTrans RTO. The creation of SeTrans is not expected to
have a material impact on Southern Company's financial statements. The outcome
of this matter cannot now be determined.
Accounting Policies
Critical Policy
The Company's significant accounting policies are described in Note 1 to the
financial statements. The Company's most critical accounting policy involves
rate 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.
New Accounting Standards
Effective January 2001, the Company adopted FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended. Statement No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. This statement requires that certain derivative
instruments be recorded in the balance sheet as either an asset or liability
measured at fair value, and that changes in the fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. See
Note 1 to the financial statements under "Financial Instruments" for additional
information. The impact on net income in 2001 was not material. An additional
interpretation of Statement No. 133 will result in a change -- effective April
1, 2002 -- in accounting for certain contracts related to fuel supplies that
contain quantity options. These contracts will be accounted for as derivatives
and marked to market. However, due to the existence of the Company's cost-based
fuel recovery clause, this change is not expected to have a material impact on
net income.
On June 1, 2001, the Company implemented a natural gas/oil hedging program
which was ordered by the GPSC as part of the fuel cost recovery increase filing.
The maximum annual dollar amount of the hedges recoverable through the fuel cost
recovery clause is 10 percent of the annual gas/oil budget or $1.5 million for
2001 and $2.4 million for 2002.
In June 2001, the FASB issued Statement No. 142, Goodwill and Other
Intangible Assets, which establishes new accounting and reporting standards for
acquired goodwill and other intangible assets and supersedes Accounting
Principles Board Opinion No. 17. Statement No. 142 addresses how intangible
assets that are acquired individually or with a group of other assets -- but not
those acquired in a business combination -- should be accounted for upon
acquisition and on an ongoing basis. Goodwill and intangible assets that have
indefinite useful lives will not be amortized but rather will be tested at least
annually for impairment. Intangible assets that have finite useful lives will
continue to be amortized over their useful lives, which are no longer limited to
40 years. The Company adopted Statement No. 142 in January 2002 with no material
impact on the financial statements.
Also in June 2001, the FASB issued Statement No. 143, Asset Retirement
Obligations, which establishes new accounting and reporting standards for legal
obligations associated with retiring assets, including decommissioning of
nuclear plants. The liability for an asset's future retirement must be recorded
in the period in which the liability is incurred. The cost must be capitalized
as part of the related long-lived asset and depreciated over the asset's useful
life. Changes in the liability resulting from the passage of time will be
recognized as operating expenses. Statement No. 143 must be adopted by January
1, 2003. The Company has not yet quantified the impact of adopting Statement No.
143 on its financial statements.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
FINANCIAL CONDITION
- -------------------
Overview
The principal change in the Company's financial condition in 2001 was the
addition of $31.3 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.
Credit Rating Risk
The Company does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade.
Exposure to Market Risks
Due to cost-based regulation, the Company has limited exposure to market
volatility in interest rates, commodity fuel prices, 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. At December 31, 2001,
exposure from these activities was not material to the Company's financial
statements. Also, if the Company sustained a 100 basis point change in interest
rates for all variable rate long-term debt, the change would affect annualized
interest expense by approximately $0.2 million at December 31, 2001. Fair values
of changes in energy trading contracts and year-end valuations are as follows:
Changes
During the Year
-------------------
Fair Value
- --------------------------------------------------------------
(in thousands)
Contracts beginning of year $ 36
Contracts realized or settled (32)
New contracts at inception -
Changes in valuation techniques -
Current period changes (1,057)
- --------------------------------------------------------------
Contracts end of year $(1,053)
==============================================================
Source of Year-End
Valuation Prices
---------------------------------
Maturity
Total --------------------
Fair Value Year 1 1-3 Years
- ---------------------------------------------------------------
(in thousands)
- ---------------------------------------------------------------
Actively quoted $(1,053) $(1,051) $(2)
External sources - - -
Models and other
methods - - -
- ---------------------------------------------------------------
Contracts end of Year $(1,053) $(1,051) $(2)
===============================================================
For additional information, see Note 1 to the financial statements under
"Financial Instruments."
Capital Structure
As of December 31, 2001, the Company's capital structure consisted of 46.8
percent common stockholder's equity, 10.6 percent trust preferred securities,
and 42.6 percent long-term debt, excluding amounts due within one year.
Maturities and retirements of long-term debt were $50.7 million in 2001,
$0.4 million in 2000, and $16.2 million in 1999.
In May 2001, the Company issued $20 million of series B 5.12% senior notes
maturing in 2003 and $45 million of series C 6.55% senior notes maturing in
2008. The Company used these proceeds to redeem its $20 million 6 3/8 Series
First Mortgage Bonds due in 2003, to repay long-term bank loans in the amount of
$30 million, and to repay a portion of its short-term indebtedness.
The composite interest rates and dividend rates for the years 1999 through
2001 as of year-end were as follows:
2001 2000 1999
-------------------------------
Composite interest rates
on long-term debt 5.9% 6.6% 6.4%
Trust preferred securities
dividend rate 6.9% 6.9% 6.9%
- -----------------------------------------------------------------
Capital Requirements for Construction
The Company's projected construction expenditures for the next three years total
$115.7 million ($34.8 million in 2002, $37.6 million in 2003, and $43.3 million
in 2004). Actual construction costs may vary from this estimate because of
7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
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. Construction and
upgrading of new and existing 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
$22.5 million will be needed by the end of 2004 for maturities of long-term debt
and present sinking fund requirements.
Capital requirements, lease obligations, and purchase commitments -
discussed in Notes 4 and 6 to the financial statements -- are as follows:
2002 2003 2004
----------------------------------------------------------------
(in thousands)
Notes $ - $20,000 $ -
Bonds -
First mortgage 436 - -
Pollution control - - -
Leases -
Capital 742 688 627
Operating 429 429 429
Purchase commitments
Fuel 34,000 300 300
Purchased power 9,944 13,640 13,656
- ----------------------------------------------------------------
Credit arrangements at the beginning of 2002, are as follows:
Expires
---------------------------------
Total 2002 2003
---------------------------------------------------------
(in thousands)
$65,500 $45,500 $20,000
- ----------------------------------------------------------
For additional information, see Note 6 to the financial statements under
"Bank Credit Arrangements".
Environmental Matters
On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil
action in the U.S. District Court against Alabama Power, Georgia Power, and the
system service company. The complaint alleges violations of the prevention of
significant deterioration and new source review provisions of the Clean Air Act
with respect to five coal-fired generating facilities in Alabama and Georgia.
The civil action requests penalties and injunctive relief, including an order
requiring the installation of the best available control technology at the
affected units. The EPA concurrently issued to Southern Company's operating
companies a notice of violation related to 10 generating facilities, which
includes the five facilities mentioned previously and the Company's Plant Kraft.
In early 2000, the EPA filed a motion to amend its complaint to add the
violations alleged in its notice of violation, and to add Gulf Power,
Mississippi Power, and the Company as defendants. The complaint and notice of
violation are similar to those brought against and issued to several other
electric utilities. These complaints and notices of violation allege that the
utilities had failed to secure necessary permits or install additional pollution
control equipment when performing maintenance and construction at coal burning
plants constructed or under construction prior to 1978. The U.S. District Court
in Georgia granted Alabama Power's motion to dismiss for lack of jurisdiction in
Georgia and granted the system service company's motion to dismiss on the
grounds that it neither owned nor operated the generating units involved in the
proceedings. The court granted the EPA's motion to add the Company as a
defendant, but it denied the motion to add Gulf Power and Mississippi Power
based on lack of jurisdiction over those companies. The court directed the EPA
to re-file its amended complaint limiting claims to those brought against
Georgia Power and the Company. The EPA re-filed those claims as directed by the
court. Also, the EPA re-filed its claims against Alabama Power in U.S. District
Court in Alabama. It has not re-filed against Gulf Power, Mississippi Power, or
the system service company. The Alabama Power, Georgia Power, and the Company's
cases have been stayed since the spring of 2001, pending a ruling by the U.S.
Court of Appeals for the Eleventh Circuit in the appeal of a very similar New
Source Review enforcement action against the Tennessee Valley Authority (TVA).
The TVA case involves many of the same legal issues raised by the actions
against Alabama Power, Georgia Power, and the Company. Because the outcome of
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
the TVA case could have a significant adverse impact on Alabama Power and
Georgia Power, both companies are parties to that case as well. The U.S.
District Court in Alabama has indicated that it will revisit the issue of a
continued stay in April 2002. The U.S. District Court in Georgia is currently
considering a motion by the EPA to reopen the Georgia case. Georgia Power and
the Company have opposed that motion.
The Company believes that it complied with applicable laws and the EPA's
regulations and interpretations in effect at the time the work in question took
place. The Clean Air Act authorizes civil penalties of up to $27,500 per day per
violation at each generating unit. Prior to January 30, 1997, the penalty was
$25,000 per day. An adverse outcome of this matter could require substantial
capital expenditures that cannot be determined at this time and possibly require
payment of substantial penalties. This could affect future results of
operations, cash flows, and possibly financial condition if such costs are not
recovered through regulated rates.
In November 1990, the Clean Air Act Amendments of 1990 (Clean Air Act) were
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 were required in two phases. Phase
I compliance began in 1995. Southern Company's subsidiaries, including the
Company, achieved Phase I compliance at the affected plants by primarily
switching to low-sulfur coal and with some equipment upgrades. The construction
expenditures for Phase I compliance totaled approximately $2 million for the
Company.
Phase II sulfur dioxide compliance was required in 2000. Southern Company
used emission allowances and fuel switching to comply with Phase II
requirements. Phase II compliance had no significant impact on the Company.
A significant portion of costs related to the acid rain and ozone
non-attainment provisions 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 EPA revised the national ambient air quality standards
for ozone and particulate matter. This revision made the standards significantly
more stringent. In the subsequent litigation of these standards, the U.S.
Supreme Court found the EPA's implementation program for the new ozone standard
unlawful and remanded it to the EPA. In addition, the Federal District of
Columbia Circuit Court of Appeals is considering other legal challenges to these
standards. If the standards are eventually upheld, implementation could be
required by 2007 to 2010.
In September 1998, the EPA issued regional nitrogen oxide reduction rules
to the states for implementation. The final rule affects 21 states, including
Georgia. Compliance is required by May 31, 2004 for most states. For Georgia,
further rulemaking was required, and proposed compliance was delayed until May
1, 2005.
In December 2000, having completed its utility studies for mercury and
other hazardous air pollutants (HAPS), the EPA issued a determination that an
emission control program for mercury and, perhaps, other HAPS is warranted. The
program is being developed under the Maximum Achievable Control Technology
provisions of the Clean Air Act, and the regulations are scheduled to be
finalized by the end of 2004 with implementation to take place around 2007. In
January 2001, the EPA proposed guidance for the determination of Best Available
Retrofit Technology (BART) emission controls under the Regional Haze
Regulations. Installation of BART controls is expected to take place around
2010. Litigation of the Regional Haze Regulations, including the BART
provisions, is ongoing in the Federal District of Columbia Circuit Court of
Appeals. A court decision is expected in mid-2002.
Implementation of the final state rules for these initiatives could require
substantial further reductions in nitrogen oxide and sulfur dioxide and
reductions in mercury and other HAPS emissions from fossil-fired generating
facilities and other industries in these states. Additional compliance costs and
capital expenditures resulting from the implementation of these rules and
standards cannot be determined until the results of legal challenges are known,
and the states have adopted their final rules.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
In October 1997, the EPA issued regulations setting forth requirements for
Compliance Assurance Monitoring (CAM) in its state and federal operating permit
programs. These regulations were amended by the EPA in March 2001 in response to
a court order resolving challenges to the rules brought by environmental groups
and industry. Generally, this rule affects the operation and maintenance of
electrostatic precipitators and could involve significant additional ongoing
expense.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various other matters including: control strategies to reduce
regional haze; limits on pollutant discharges to impaired waters; cooling water
intake restrictions; and hazardous waste disposal requirements. The impact of
any 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.
The Company conducts studies to determine the extent of any required cleanup and
will recognize 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 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.
Sources of Capital
At December 31, 2001, the Company had $65.5 million of short-term and
revolving credit arrangements with banks to meet its short-term cash needs and
to provide additional interim funding for the Company's construction program.
Revolving credit arrangements total $20 million, of which $10 million expires
April 30, 2003 and $10 million expires December 31, 2003.
The Company may also meet short-term cash needs through a Southern Company
subsidiary organized to issue and sell commercial paper at the request and for
the benefit of the Company and the other Southern Company operating companies.
At December 31, 2001, the Company had outstanding $32.2 million of commercial
paper.
The Company's committed credit arrangements provide liquidity support to
the Company's variable rate obligations and to its commercial paper program. The
amount of variable rate obligations outstanding at December 31, 2001 was $22.6
million.
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
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. Recently, the Company's financings have consisted of unsecured
debt and trust preferred securities. 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. There are no 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.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Savannah Electric and Power Company 2001 Annual Report
Cautionary Statement Regarding Forward-Looking
Information
This Annual Report includes forward-looking statements in addition to historical
information. In some cases, forward-looking statements can be identified by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "projects," "potential" or
"continue" or the negative of these terms or other comparable terminology. 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 the impact of recent and future federal
and state regulatory change, including legislative and regulatory initiatives
regarding deregulation and restructuring of the electric utility industry and
also changes in environmental and other laws and regulations to which the
Company is subject, as well as changes in application of existing laws and
regulations; current and future litigation, including the pending EPA civil
action against the Company; the effects, extent, and timing of the entry of
additional competition in the markets of the Company; the impact of fluctuations
in commodity prices, interest rates, and customer demand; state and federal rate
regulations; political, legal, and economic conditions and developments in the
United States; internal restructuring or other restructuring options that may be
pursued; potential business strategies, including acquisitions or dispositions
of assets or businesses, which cannot be assured to be completed or beneficial;
the effects of, and changes in, economic conditions in the United States; the
direct or indirect effects on the Company's business resulting from the
terrorist incidents on September 11, 2001, or any similar such incidents or
responses to such incidents; financial market conditions and the results of
financing efforts; the ability of the Company to obtain additional generating
capacity at competitive prices; weather and other natural phenomena; and other
factors discussed elsewhere herein and in other reports (including the Form
10-K) filed from time to time by the Company with the Securities and Exchange
Commission.
11
STATEMENTS OF INCOME
For the Years Ended December 31, 2001, 2000, and 1999
Savannah Electric and Power Company 2001 Annual Report
- ---------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $269,172 $282,622 $242,265
Sales for resale --
Non-affiliates 8,884 4,748 3,395
Affiliates 3,205 4,974 4,151
Other revenues 2,591 3,374 1,783
- ---------------------------------------------------------------------------------------------------------------------
Total operating revenues 283,852 295,718 251,594
- ---------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 50,796 57,177 50,530
Purchased power --
Non-affiliates 23,147 25,229 14,398
Affiliates 49,939 50,111 33,398
Other 50,607 53,086 50,341
Maintenance 19,886 19,334 16,333
Depreciation and amortization (Note 3) 25,951 25,240 23,841
Taxes other than income taxes 13,984 13,116 12,690
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses 234,310 243,293 201,531
- ---------------------------------------------------------------------------------------------------------------------
Operating Income 49,542 52,425 50,063
Other Income (Expense):
Interest income 173 252 169
Other, net (686) (657) (663)
- ---------------------------------------------------------------------------------------------------------------------
Earnings Before Interest and Income Taxes 49,029 52,020 49,569
- ---------------------------------------------------------------------------------------------------------------------
Interest and Other:
Interest expense, net 12,517 12,737 11,938
Distributions on preferred securities of subsidiary 2,740 2,740 2,740
- ---------------------------------------------------------------------------------------------------------------------
Total interest and other, net 15,257 15,477 14,678
- ---------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 33,772 36,543 34,891
Income taxes (Note 5) 11,731 13,574 11,808
- ---------------------------------------------------------------------------------------------------------------------
Earnings Before Cumulative Effect of 22,041 22,969 23,083
Accounting Change
Cumulative effect of accounting change--
less income taxes of $14 thousand 22 - -
- ---------------------------------------------------------------------------------------------------------------------
Net Income $ 22,063 $ 22,969 $ 23,083
=====================================================================================================================
The accompanying notes are an integral part of these statements.
12
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000, and 1999
Savannah Electric and Power Company 2001 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $22,063 $22,969 $23,083
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 27,895 26,639 25,454
Deferred income taxes and investment tax credits, net (20,528) 728 (3,353)
Other, net 4,084 3,835 (47)
Changes in certain current assets and liabilities --
Receivables, net 24,079 (23,260) (5,999)
Fossil fuel stock (2,711) (31) (2,125)
Materials and supplies (4,025) (542) (1,906)
Accounts payable (8,439) 8,881 1,133
Other 12,631 (4,674) 1,731
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 55,049 34,545 37,971
- ---------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (31,296) (27,290) (29,833)
Other (1,875) (1,835) (1,715)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (33,171) (29,125) (31,548)
- ---------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase (decrease) in notes payable, net (13,241) 11,100 34,300
Proceeds --
Other long-term debt 65,000 - -
Capital contributions from parent company 1,561 1,478 1,099
Retirements --
First mortgage bonds (20,642) - (15,800)
Other long-term debt (30,071) (251) (481)
Payment of common stock dividends (21,700) (24,300) (25,200)
Other (394) - 250
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (19,487) (11,973) (5,832)
- ---------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 2,391 (6,553) 591
Cash and Cash Equivalents at Beginning of Period - 6,553 5,962
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 2,391 $ - $ 6,553
===========================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $15,340 $13,329 $14,212
Income taxes (net of refunds) $21,034 $19,939 $12,647
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
13
BALANCE SHEETS
At December 31, 2001 and 2000
Savannah Electric and Power Company 2001 Annual Report
- -----------------------------------------------------------------------------------------------------------------------
Assets 2001 2000
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 2,391 $ -
Receivables --
Customer accounts receivable 29,959 28,189
Under-recovered retail fuel clause revenue 11,974 39,632
Other accounts and notes receivable 2,882 1,412
Affiliated companies 1,170 738
Accumulated provision for uncollectible accounts (500) (407)
Fossil fuel stock, at average cost 9,851 7,140
Materials and supplies, at average cost 12,969 8,944
Prepaid taxes 12,511 8,651
Other 586 377
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 83,793 94,676
- -----------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service (Note 6) 855,290 829,270
Less accumulated provision for depreciation 402,492 382,030
- -----------------------------------------------------------------------------------------------------------------------
452,798 447,240
Construction work in progress 8,540 6,782
- -----------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 461,338 454,022
- -----------------------------------------------------------------------------------------------------------------------
Other Property and Investments 2,742 2,066
- -----------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes (Note 5) 12,283 12,404
Cash surrender value of life insurance for deferred compensation plans 20,002 17,954
Debt expense, being amortized 3,197 3,003
Premium on reacquired debt, being amortized 6,890 7,575
Other 4,498 2,527
- -----------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 46,870 43,463
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $594,743 $594,227
=======================================================================================================================
The accompanying notes are an integral part of these balance sheets.
14
BALANCE SHEETS
At December 31, 2001 and 2000
Savannah Electric and Power Company 2001 Annual Report
- --------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity 2001 2000
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year (Note 6) $ 1,178 $ 30,698
Notes payable 32,159 45,400
Accounts payable --
Affiliated 5,087 16,153
Other 10,160 7,738
Customer deposits 6,237 5,696
Taxes accrued --
Income taxes 2,587 3,450
Other 1,668 1,435
Interest accrued 4,014 4,541
Vacation pay accrued 2,361 2,276
Other 9,097 7,973
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 74,548 125,360
- --------------------------------------------------------------------------------------------------------------------
Long-term debt (See accompanying statements) 160,709 116,902
- --------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes (Note 5) 77,331 79,756
Deferred credits related to income taxes (Note 5) 13,776 16,038
Accumulated deferred investment tax credits (Note 5) 9,952 10,616
Deferred compensation plans 8,550 7,695
Employee benefits provisions (Note 2) 18,936 13,509
Other 14,023 9,357
- --------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 142,568 136,971
- --------------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes (See accompanying statements) (Note 6) 40,000 40,000
- --------------------------------------------------------------------------------------------------------------------
Common stockholder's equity (See accompanying statements) 176,918 174,994
- --------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $594,743 $594,227
====================================================================================================================
The accompanying notes are an integral part of these balance sheets.
15
STATEMENTS OF CAPITALIZATION
At December 31, 2001 and 2000
Savannah Electric and Power Company 2001 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Long-Term Debt (Note 6):
First mortgage bonds --
Maturity Interest Rates
-------- --------------
July 1, 2003 6.375% $ - $ 20,000
May 1, 2006 6.90% 20,000 20,000
July 1, 2023 7.40% 23,558 24,200
- ---------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 43,558 64,200
- ---------------------------------------------------------------------------------------------------------------------------
Long-term notes payable --
6.88% due June 1, 2001 - 10,000
5.12% due May 15, 2003 20,000 -
6.55% due May 15, 2008 45,000 -
6.625% due March 17, 2015 30,000 30,000
Adjustable rates (6.71% to 6.86% at 1/1/01)
due 2001 - 20,000
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term notes payable 95,000 60,000
- ---------------------------------------------------------------------------------------------------------------------------
Other long-term debt --
Pollution control revenue bonds --
Non-collateralized:
Variable rates (1.90% at 1/1/02)
due 2016-2037 17,955 17,955
- ---------------------------------------------------------------------------------------------------------------------------
Total other long-term debt 17,955 17,955
- ---------------------------------------------------------------------------------------------------------------------------
Capitalized lease obligations 5,374 5,445
- ---------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $9.6 million) 161,887 147,600
Less amount due within one year (Note 6) 1,178 30,698
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year 160,709 116,902 42.6% 35.2%
- ---------------------------------------------------------------------------------------------------------------------------
Company Obligated Mandatorily
Redeemable Preferred Securities (Note 6):
$25 liquidation value --
6.85% 40,000 40,000
- ---------------------------------------------------------------------------------------------------------------------------
Total (annual distribution requirement -- $2.7 million) 40,000 40,000 10.6 12.1
- ---------------------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity (Note 6):
Common stock, par value $5 per share --
Authorized - 16,000,000 shares
Outstanding - 10,844,635 shares in 2001 and 2000
Par value 54,223 54,223
Paid-in capital 12,826 11,265
Retained earnings 109,869 109,506
- ---------------------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 176,918 174,994 46.8 52.7
- ---------------------------------------------------------------------------------------------------------------------------
Total Capitalization $377,627 $331,896 100.0% 100.0%
===========================================================================================================================
The accompanying notes are an integral part of these statements.
16
STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
For the Years Ended December 31, 2001, 2000, and 1999
Savannah Electric and Power Company 2001 Annual Report
- ----------------------------------------------------------------------------------------------------------------------
Common Paid-In Retained
Stock Capital Earnings Total
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at January 1, 1999 $54,223 $ 8,688 $112,954 $175,865
Net income - - 23,083 23,083
Capital contributions from parent company - 1,099 - 1,099
Cash dividends on common stock - - (25,200) (25,200)
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 54,223 9,787 110,837 174,847
Net income - - 22,969 22,969
Capital contributions from parent company - 1,478 - 1,478
Cash dividends on common stock - - (24,300) (24,300)
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 54,223 11,265 109,506 174,994
Net income - - 22,063 22,063
Capital contributions from parent company - 1,561 - 1,561
Cash dividends on common stock - - (21,700) (21,700)
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 (Note 6) $54,223 $12,826 $109,869 $176,918
======================================================================================================================
The accompanying notes are an integral part of these statements.
17
NOTES TO FINANCIAL STATEMENTS
Savannah Electric and Power Company 2001 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 LINC),
Southern Nuclear Operating Company (Southern Nuclear), Southern Power Company
(Southern Power), and other direct and indirect subsidiaries. The operating
companies provide electric service in four states. Contracts among the operating
companies--related to 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 LINC provides digital
wireless communications services to the operating companies and also markets
these services to the public within the Southeast. Southern Nuclear provides
services to Southern Company's nuclear power plants. Southern Power was
established in 2001 to construct, own, and manage Southern Company's competitive
generation assets and sell electricity at market-based rates in the wholesale
market.
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 accounting principles generally accepted
in the United States and complies with the accounting policies and practices
prescribed by the GPSC. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires the
use of estimates, and the actual results may differ from those estimates.
Certain prior years' data presented in the financial statements has been
reclassified to conform with the current year presentation.
Affiliate Transactions
The Company has an agreement with the system service company under which the
following services are rendered to the Company at cost: general and design
engineering, purchasing, accounting and statistical, finance and treasury, tax,
information resources, marketing, auditing, insurance and employee benefits,
human resources, systems and procedures, and other administrative services with
respect to business and operations and power pool operations. Costs for these
services amounted to $15.0 million, $15.1 million, and $16.0 million during
2001, 2000, and 1999, respectively.
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:
2001 2000
--------------------------
(in thousands)
Deferred income tax charges $ 12,283 $ 12,404
Premium on reacquired debt 6,890 7,575
Gas by-pass facility 209 299
Deferred income tax credits (13,776) (16,038)
Storm damage reserves (4,228) (2,733)
Accelerated depreciation (8,000) (5,500)
- ---------------------------------------------------------------
Total $ (6,622) $ (3,993)
===============================================================
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 related 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 currently operates as a vertically integrated utility providing
electricity to retail customers within its traditional service area of
southeastern Georgia and to wholesale customers in the Southeast.
18
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
Revenues are recognized as services are rendered. Unbilled revenues are
accrued at the end of each fiscal period. Fuel costs are expensed as the fuel is
used. Electric rates for the Company include provisions to adjust billings for
fluctuations in fuel costs, 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 regulated rates.
The Company has a diversified base of customers. No single customer or
industry comprises 10 percent or more of revenues. For all periods presented,
uncollectible accounts averaged less than 1 percent of revenues.
In 2001, the GPSC approved an increase in the Company's fuel cost recovery
rate amounting to a total average annual rate increase of 18 percent for all
customer classes. An increase of slightly over one-third of a cent per
kilowatt-hour was approved in 2000.
Depreciation and Amortization
Depreciation of the original cost of plant in service is provided primarily by
using composite straight-line rates, which approximated 3.0 percent in 2001,
2000, and 1999. 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. In
2001, 2000, and 1999, the Company recorded accelerated depreciation of $2.5
million, $2.5 million, and $2.0 million, respectively, in accordance with the
GPSC's 1998 rate order. See Note 3 to the financial statements for more
information.
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 rates used by the Company to calculate AFUDC
were 5.13 percent in 2001, 6.87 percent in 2000, and 6.26 percent in 1999.
Property, Plant, and Equipment
Property, plant, and equipment is stated at original cost less regulatory
disallowances and impairments. 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 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 capitalized.
Cash and Cash Equivalents
For purposes of the financial statements, temporary cash investments are
considered cash equivalents. Temporary cash investments are securities with
original maturities of 90 days or less.
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.
Financial Instruments
Effective January 2001, the Company adopted FASB Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities, as amended. The impact on net
income was immaterial. The Company uses derivative financial instruments to
hedge exposure to fluctuations in certain commodity prices. Gains and losses on
qualifying hedges are deferred and recognized either as income or as an
adjustment to the carrying amount of the hedged item when the transaction
occurs.
19
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
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 five operating companies and Southern Power enter into commodity related
forward and option contracts to limit exposure to changing prices on certain
fuel purchases and electricity purchases and sales. Substantially all of
Southern Company's bulk energy purchases and sales contracts meet the definition
of a derivative under FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. In many cases, these fuel and electricity
contracts qualify for normal purchase and sale exceptions under Statement No.
133 and are accounted for under the accrual method. Other contracts qualify as
cash flow hedges of anticipated transactions, resulting in the deferral of
related gains and losses, and are recorded in other comprehensive income until
the hedged transactions occur. Any ineffectiveness is recognized currently in
net income. Contracts that do not qualify for the normal purchase and sale
exception and that do not meet the hedge requirements are marked to market
through current period income.
On June 1, 2001, the Company implemented a natural gas/oil hedging program
which was ordered by the GPSC as part of the fuel cost recovery increase filing.
The maximum annual dollar amount of the hedges recoverable through the fuel cost
recovery clause is 10 percent of the annual gas/oil budget or $1.5 million for
2001 and $2.4 million for 2002.
The Company's other financial instruments for which the carrying amounts
did not equal fair value at December 31 were as follows:
Carrying Fair
Amount Value
--------------------------
(in millions)
Long-term debt:
At December 31, 2001 $157 $157
At December 31, 2000 $142 $140
Trust preferred securities:
At December 31, 2001 $40 $38
At December 31, 2000 $40 $36
The fair values for long-term debt and trust preferred securities were
based on either closing market prices or closing prices of comparable
instruments.
2. RETIREMENT BENEFITS
The Company has defined benefit, trusteed, non-contributory pension plans that
cover substantially all employees. The Company provides certain medical care and
life insurance benefits for retired employees. The Company funds trusts to the
extent required by the GPSC and the FERC. The measurement date for plan assets
and obligations is September 30 of each year. In late 2000, the Company adopted
several pension and postretirement benefit plan changes that had the effect of
increasing benefits to both current and future retirees.
Pension Plans
Changes during the year in the projected benefit obligations and in the fair
value of plan assets were as follows:
Projected
Benefit Obligations
---------------------------
2001 2000
- ---------------------------------------------------------------
(in thousands)
Balance at beginning of year $71,521 $66,509
Service cost 2,074 1,844
Interest cost 5,426 4,854
Benefits paid (3,986) (3,469)
Actuarial loss and
employee transfers 894 1,564
Amendments 3,621 219
- ---------------------------------------------------------------
Balance at end of year $79,550 $71,521
===============================================================
Plan Assets
---------------------------
2001 2000
- --------------------------------========================-------
(in thousands)
Balance at beginning of year $61,880 $54,480
Actual return on plan assets (8,911) 10,493
Benefits paid (3,570) (3,210)
Employee transfers 1,459 117
- ---------------------------------====================----------
Balance at end of year $50,858 $61,880
===============================================================
20
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
The accrued pension costs recognized in the Balance Sheets
were as follows:
2001 2000
- ---------------------------------------------------------------
(in thousands)
Funded status $(28,692) $(9,641)
Unrecognized transition
obligation - 89
Unrecognized prior service
cost 7,401 4,391
Unrecognized net loss (gain) 12,336 (235)
- ---------------------------------------------------------------
Accrued liability recognized
in the Balance Sheets $ (8,955) $(5,396)
===============================================================
Components of the pension plan's net periodic cost were as follows:
2001 2000 1999
- -----------------------------------------------------------------
(in thousands)
Service cost $ 2,074 $ 1,844 $ 1,838
Interest cost 5,426 4,854 4,327
Expected return on plan
assets (4,215) (4,174) (4,063)
Recognized net loss 16 - 171
Net amortization 700 503 478
- -----------------------------------------------------------------
Net pension cost $ 4,001 $ 3,027 $ 2,751
=================================================================
Postretirement Benefits
Changes during the year in the accumulated benefit obligations and in the fair
value of plan assets were as follows:
Accumulated
Benefit Obligations
---------------------------
2001 2000
- ---------------------------------------------------------------
(in thousands)
Balance at beginning of year $26,124 $22,904
Service cost 433 376
Interest cost 2,022 1,865
Benefits paid (987) (963)
Actuarial gain and
employee transfers (1,214) (1,367)
Amendments 1,743 3,309
- ---------------------------------------------------------------
Balance at end of year $28,121 $26,124
===============================================================
Plan Assets
---------------------------
2001 2000
- ---------------------------------------------------------------
(in thousands)
Balance at beginning of year $6,910 $5,254
Actual return on plan assets (789) 606
Employer contributions 2,267 2,013
Benefits paid (987) (963)
- ---------------------------------------------------------------
Balance at end of year $7,401 $6,910
===============================================================
The accrued postretirement costs recognized in the Balance Sheets
were as follows:
2001 2000
- ---------------------------------------------------------------
(in thousands)
Funded status $(20,720) $(19,214)
Unrecognized transition
obligation 5,431 5,925
Unamortized prior service cost 4,691 3,185
Unrecognized net loss 1,831 1,701
Fourth quarter contributions 1,577 1,493
- ---------------------------------------------------------------
Accrued liability recognized in
the Balance Sheets $ (7,190) $ (6,910)
===============================================================
Components of the postretirement plan's net periodic cost were as follows:
2001 2000 1999
- ----------------------------------------------------------------
(in thousands)
Service cost $ 433 $ 376 $ 404
Interest cost 2,022 1,865 1,549
Expected return on plan assets (555) (429) (345)
Recognized net loss - 66 152
Net amortization 731 618 494
- ----------------------------------------------------------------
Net postretirement cost $2,631 $2,496 $2,254
================================================================
The weighted average rates assumed in the actuarial calculations for both
the pension plan and postretirement benefits plan were:
2001 2000
- -------------------------------------------------------------
Discount 7.50% 7.50%
Annual salary increase 5.00 5.00
Long-term return on plan assets 8.50 8.50
- -------------------------------------------------------------
An additional assumption used in measuring the accumulated postretirement
benefit obligations was a weighted average medical care cost trend rate of 9.25
percent for 2001, decreasing gradually to 5.25 percent through the year 2010,
and remaining at that level thereafter. An annual increase or decrease in the
21
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
assumed medical care cost trend rate of 1 percent would affect the accumulated
benefit obligation and the service and interest cost components at December 31,
2001 as follows:
1 Percent 1 Percent
Increase Decrease
- ---------------------------------------------------------------
(in thousands)
Benefit obligation $2,070 $2,051
Service and interest costs 181 179
===============================================================
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.
Employee Savings Plan
The Company also sponsors a 401(k) defined contribution plan covering
substantially all employees. The Company provides a 75 percent matching
contribution up to 6 percent of an employee's base salary. Total matching
contributions made to the plan for the years 2001, 2000, and 1999 were $1.0
million, $0.9 million, and $0.9 million, respectively.
3. CONTINGENCIES AND REGULATORY
MATTERS
General
The Company is subject to certain claims and legal actions arising in the
ordinary course of business. In the opinion of management, after consultation
with legal counsel, the ultimate disposition of these matters is not expected to
have a material adverse effect on the Company's financial condition.
Environmental Litigation
On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil
action in the U.S. District Court against Alabama Power, Georgia Power, and the
system service company. The complaint alleges violations of the prevention of
significant deterioration and new source review provisions of the Clean Air Act
with respect to five coal-fired generating facilities in Alabama and Georgia.
The civil action requests penalties and injunctive relief, including an order
requiring the installation of the best available control technology at the
affected units. The Clean Air Act authorizes civil penalties of up to $27,500
per day, per violation at each generating unit. Prior to January 30, 1997, the
penalty was $25,000 per day.
The EPA concurrently issued to the operating companies a notice of violation
related to 10 generating facilities, which includes the five facilities
mentioned previously and the Company's Plant Kraft. In early 2000, the EPA filed
a motion to amend its complaint to add the violations alleged in its notice of
violation, and to add Gulf Power, Mississippi Power, and the Company as
defendants. The complaint and notice of violation are similar to those brought
against and issued to several other electric utilities. These complaints and
notices of violation allege that the utilities had failed to secure necessary
permits or install additional pollution control equipment when performing
maintenance and construction at coal burning plants constructed or under
construction prior to 1978. The U.S. District Court in Georgia granted Alabama
Power's motion to dismiss for lack of jurisdiction in Georgia and granted the
system service company's motion to dismiss on the grounds that it neither owned
nor operated the generating units involved in the proceedings. The court granted
the EPA's motion to add the Company as a defendant, but it denied the motion to
add Gulf Power and Mississippi Power based on lack of jurisdiction over those
companies. The court directed the EPA to re-file its amended complaint limiting
claims to those brought against Georgia Power and the Company. The EPA re-filed
those claims as directed by the court. Also, the EPA re-filed its claims against
Alabama Power in U.S. District Court in Alabama. It has not re-filed against
Gulf Power, Mississippi Power, or the system service company.
The Alabama Power, Georgia Power, and the Company's cases have been stayed
since the spring of 2001, pending a ruling by the U.S. Court of Appeals for the
Eleventh Circuit in the appeal of a very similar New Source Review enforcement
action against the Tennessee Valley Authority (TVA). The TVA case involves many
of the same legal issues raised by the actions against Alabama Power, Georgia
Power, and the Company. Because the outcome of the TVA case could have a
22
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
significant adverse impact on Alabama Power and Georgia Power, both companies
are parties to that case as well. The U.S. District Court in Alabama has
indicated that it will revisit the issue of a continued stay in April 2002. The
U.S. District Court in Georgia is currently considering a motion by the EPA to
reopen the Georgia case. Georgia Power and the Company have opposed that motion.
The Company believes that it complied with applicable laws and the EPA's
regulations and interpretations in effect at the time the work in question took
place. An adverse outcome of this matter could require substantial capital
expenditures that cannot be determined at this time and possibly require payment
of substantial penalties. This could affect future results of operations, cash
flows, and possibly financial condition if such costs are not recovered through
regulated rates.
Retail Regulatory Matters
Rates to retail customers served by the Company are regulated by the GPSC. As
part of the Company's rate settlement in 1992, it was informally agreed that the
Company's earned rate of return on common equity should be 12.95 percent.
In 1998, the GPSC approved a four-year accounting order for the Company.
Under this order, the Company will reduce the electric rates of its small
business customers by approximately $11 million over four years. The Company
will also expense an additional $1.95 million in storm damage accruals and
accrue an additional $8 million in depreciation on generating assets over the
term of the order. The additional depreciation will be accumulated in a
regulatory liability account to be available to mitigate any potential stranded
costs. In addition, the Company has discretionary authority to provide up to an
additional $0.3 million per year in storm damage accruals and up to an
additional $4.0 million in depreciation expense over the four years. Total storm
damages accrued under the order were $1.5 million per year in 2001, 2000, and
1999 which included discretionary expense of $0.3 million in each year. No
discretionary depreciation was recorded in the last three years. Over the term
of the order, the Company is precluded from asking for a rate increase except
upon significant changes in economic conditions, new laws, or regulations. There
is a quarterly monitoring of the Company's earnings performance.
The Company filed a base rate case November 30, 2001 for the first time
since 1985. The primary reason for this base rate case is to recover significant
new costs related to the 200 megawatt Plant Wansley power purchase agreement
beginning June 2002, as well as other operation and maintenance expense changes.
The requested increase is 7.6 percent of total rates (base plus fuel). In the
filing, the Company announced it would file in early 2002 for a fuel decrease
which would offset most, if not all, of the base rate increase.
4. COMMITMENTS
Construction Program
The Company is engaged in a continuous construction program, currently estimated
to total $34.8 million in 2002, $37.6 million in 2003, and $43.3 million in
2004. 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 changes in cost of capital. The Company
does not have any traditional baseload generating plants under construction.
However, construction related to new and upgrading of existing transmission and
distribution facilities and the upgrading of generating plants will continue.
Fuel and Purchased Power 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. The Company has fuel
commitments of $34 million for 2002, $0.3 million for each of the four years
2003 through 2006, and $6 million for 2007 and beyond.
In addition, the system service company acts as agent for the Company and
the other operating companies and Southern Power with regard to natural gas
purchases. Natural gas purchases (in dollars) are based on various indices at
the actual time of delivery; therefore, only the volume commitments are firm.
The Company's committed volumes allocated based on usage projections as of
23
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
December 31, 2001 are as follows:
Year Natural Gas
- ---- -------------
(MMBtu)
2002 4,765,152
2003 4,356,394
2004 3,049,457
2005 2,115,548
2006 1,804,674
2007 and beyond 612,901
- ---------------------------------------------------------------
Total commitments 16,704,126
===============================================================
The Company has entered into various long-term commitments for the purchase
of electricity, substantially all from affiliated companies, including the Plant
Wansley purchased power agreement. Estimated total long-term obligations at
December 31, 2001 were as follows:
Year Commitments
- ---- --------------
(in thousands)
2002 $ 9,944
2003 13,640
2004 13,656
2005 13,670
2006 13,686
2007 and beyond 41,152
- ---------------------------------------------------------------
Total commitments $105,748
===============================================================
Operating Leases
The Company has rental agreements with various terms and expiration dates.
Rental expenses totaled $0.4 million for 2001, $0.4 million for 2000, and $0.5
million for 1999.
At December 31, 2001, estimated future minimum lease payments for
noncancelable operating leases were as follows:
Rental
Commitments
---------------
(in thousands)
2002 $429
2003 429
2004 429
2005 429
2006 429
2007 and thereafter 4,894
- --------------------------------------------------------------
Total commitments $7,039
==============================================================
5. INCOME TAXES
At December 31, 2001, tax-related regulatory assets and liabilities were $12.3
million and $13.8 million, respectively. The assets are attributable to tax
benefits flowed through to customers in prior years and to taxes applicable to
capitalized interest. 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:
2001 2000 1999
---------------------------
(in thousands)
Total provision for income taxes
Federal --
Currently payable $ 27,991 $11,102 $12,968
Deferred (17,951) 75 (3,329)
- ------------------------------------------------------------------
10,040 11,177 9,639
- ------------------------------------------------------------------
State --
Currently payable 4,282 1,744 2,193
Deferred (2,577) 653 (24)
- ------------------------------------------------------------------
1,705 2,397 2,169
- ------------------------------------------------------------------
Total $ 11,745 $13,574 $11,808
==================================================================
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:
2001 2000
---------------------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $81,654 $76,901
Property basis differences (1,437) 5,904
Other 6,566 17,807
- ------------------------------------------------------------------
Total 86,783 100,612
- ------------------------------------------------------------------
Deferred tax assets:
Pension and other benefits 11,403 9,744
Other 10,560 7,662
- ------------------------------------------------------------------
Total 21,963 17,406
- ------------------------------------------------------------------
Total deferred tax liabilities, net 64,820 83,206
Portion included in current assets
(liabilities), net 12,511 (3,450)
- ------------------------------------------------------------------
Accumulated deferred income taxes
in the Balance Sheets $77,331 $79,756
==================================================================
In accordance with regulatory requirements, deferred investment tax credits
are amortized over the lives of the related property with such amortization
normally applied as a credit to reduce depreciation in the Statements of Income.
24
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
Credits amortized in this manner amounted to $0.7 million per year in 2001,
2000, and 1999. At December 31, 2001, 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:
2001 2000 1999
-----------------------------
Federal statutory tax rate 35% 35% 35%
State income tax, net of
Federal income tax benefit 3 4 4
Other (3) (2) (5)
----------------------------------------------------------------
Effective income tax rate 35% 37% 34%
================================================================
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. In accordance with Internal
Revenue Service regulations, each company is jointly and severally liable for
the tax liability.
6. CAPITALIZATION
Trust Preferred Securities
In December 1998, Savannah Electric Capital Trust I, of which the Company owns
all of the common securities, issued $40 million of 6.85% mandatorily redeemable
preferred securities. Substantially all of the assets of the Trust are $40
million aggregate principal amount of the Company's 6.85% junior subordinated
notes due December 31, 2028.
The Company considers that the mechanisms and obligations relating to the
trust preferred securities, taken together, constitute a full and unconditional
guarantee by the Company of payment obligations with respect to the preferred
securities of Savannah Electric Capital Trust I.
Savannah Electric Capital Trust I is a subsidiary of the Company, and
accordingly is consolidated in the Company's financial statements.
Long-Term Debt and Capital Leases
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.
Maturities and retirements of long-term debt were $50.7 million in 2001,
$0.4 million in 2000, and $16.2 million in 1999.
In May 2001, the Company issued $20 million of series B 5.12% senior notes
maturing May 15, 2003 and $45 million of series C 6.55% senior notes maturing
May 15, 2008. The Company used these proceeds to redeem its $20 million 6 3/8
Series First Mortgage Bonds due July 1, 2003, to repay long-term bank loans in
the amount of $30 million, and to repay a portion of its short-term
indebtedness.
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.
Securities 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:
2001 2000
---------------------
(in thousands)
Bond sinking fund requirement $436 $ 642
Less:
Portion to be satisfied by
certifying property additions - 642
- -------------------------------------------------------- ----------
Cash sinking fund requirement 436 -
Other long-term debt maturities 742 30,698
- -------------------------------------------------------------------
Total $1,178 $30,698
===================================================================
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.
The sinking fund requirements of first mortgage bonds were satisfied by
cash redemption in 2001 and by certifying property additions in 2000. It is
anticipated that the 2002 requirement will be satisfied by cash redemption.
25
NOTES (continued)
Savannah Electric and Power Company 2001 Annual Report
Sinking fund requirements and/or maturities through 2006 applicable to long-term
debt are as follows: $1.2 million in 2002; $20.7 million in 2003; $0.6 million
in 2004; $0.6 million in 2005; and $20.6 million in 2006.
Bank Credit Arrangements
At the end of 2001, unused credit arrangements with five banks totaled $65.5
million and expire at various times during 2002 and 2003.
The Company has revolving credit arrangements of $20 million, of which $10
million expires April 30, 2003 and $10 million expires December 31, 2003. One of
these agreements allows 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.
The Company may also meet short-term cash needs through a Southern Company
subsidiary organized to issue and sell commercial paper at the request and for
the benefit of the Company and the other Southern Company operating companies.
At December 31, 2001, the Company had outstanding $32.2 million of commercial
paper.
The Company's committed credit arrangements provide liquidity support to
the Company's variable rate obligations and to its commercial paper program. The
amount of variable rate obligations outstanding at December 31, 2001 was $22.6
million.
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 $14 million in pollution control obligations is secured by a portion of
the Plant McIntosh property.
Common Stock Dividend Restrictions
The Company's Indenture contains certain limitations on the payment of cash
dividends on common stock. At December 31, 2001, approximately $68 million of
retained earnings was restricted against the payment of cash dividends on common
stock under the terms of the Indenture.
7. QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
Summarized quarterly financial data for 2001 and 2000 are as follows (in
thousands):
Net Income After
Operating Operating Dividends on
Quarter Ended Revenues Income Preferred Stock
- ------------------------------------------------------------------
March 2001 $61,691 $ 6,799 $ 1,476
June 2001 73,970 14,620 6,246
September 2001 93,583 22,332 11,309
December 2001 54,608 5,791 3,032
March 2000 $52,390 $ 6,583 $ 1,643
June 2000 72,780 14,904 6,287
September 2000 98,849 24,461 12,351
December 2000 71,699 6,477 2,688
- ---------------------------------------------------------------
The Company's business is influenced by seasonal weather conditions and a
seasonal rate structure, among other factors.
26
SELECTED FINANCIAL AND OPERATING DATA 1997-2001
Savannah Electric and Power Company 2001 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands) $283,852 $295,718 $251,594 $254,455 $226,277
Net Income after Dividends
on Preferred Stock (in thousands) $22,063 $22,969 $23,083 $23,644 $23,847
Cash Dividends
on Common Stock (in thousands) $21,700 $24,300 $25,200 $23,500 $20,500
Return on Average Common Equity (percent) 12.54 13.13 13.16 13.44 13.71
Total Assets (in thousands) $594,743 $594,227 $570,218 $555,799 $547,352
Gross Property Additions (in thousands) $31,296 $27,290 $29,833 $18,071 $18,846
- ----------------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $176,918 $174,994 $174,847 $175,865 $175,631
Preferred stock - - - - 35,000
Company obligated mandatorily
redeemable preferred securities 40,000 40,000 40,000 40,000 -
Long-term debt 160,709 116,902 147,147 163,443 142,846
- ----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $377,627 $331,896 $361,994 $379,308 $353,477
==================================================================================================================================
Capitalization Ratios (percent):
Common stock equity 46.8 52.7 48.3 46.4 49.7
Preferred stock - - - - 9.9
Company obligated mandatorily
redeemable preferred securities 10.6 12.1 11.0 10.5 -
Long-term debt 42.6 35.2 40.7 43.1 40.4
- ----------------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0
==================================================================================================================================
Security Ratings:
First Mortgage Bonds -
Moody's A1 A1 A1 A1 A1
Standard and Poor's A+ A+ AA- AA- AA-
Preferred Stock -
Moody's Baa1 a2 a2 a2 a2
Standard and Poor's BBB+ BBB+ A- A A
Unsecured Long-Term Debt -
Moody's A2 - - - -
Standard and Poor's A - - - -
==================================================================================================================================
Customers (year-end):
Residential 117,199 115,646 112,891 110,437 109,092
Commercial 16,121 15,727 15,433 15,328 14,233
Industrial 76 75 67 63 64
Other 474 444 417 377 1,129
- ----------------------------------------------------------------------------------------------------------------------------------
Total 133,870 131,892 128,808 126,205 124,518
==================================================================================================================================
Employees (year-end): 550 554 533 542 535
- ----------------------------------------------------------------------------------------------------------------------------------
27
SELECTED FINANCIAL AND OPERATING DATA 1997-2001 (continued)
Savannah Electric and Power Company 2001 Annual Report
- -----------------------------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands):
Residential $123,819 $129,520 $112,371 $109,393 $96,587
Commercial 100,835 102,116 88,449 86,231 78,949
Industrial 34,971 40,839 32,233 37,865 35,301
Other 9,547 10,147 9,212 8,838 8,621
- -----------------------------------------------------------------------------------------------------------------------------
Total retail 269,172 282,622 242,265 242,327 219,458
Sales for resale - non-affiliates 8,884 4,748 3,395 4,548 3,467
Sales for resale - affiliates 3,205 4,974 4,151 3,016 2,052
- -----------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 281,261 292,344 249,811 249,891 224,977
Other revenues 2,591 3,374 1,783 4,564 1,300
- -----------------------------------------------------------------------------------------------------------------------------
Total $283,852 $295,718 $251,594 $254,455 $226,277
=============================================================================================================================
Kilowatt-Hour Sales (in thousands):
Residential 1,658,735 1,671,089 1,579,068 1,539,792 1,428,337
Commercial 1,388,357 1,369,448 1,287,832 1,236,337 1,156,078
Industrial 787,674 800,150 713,448 900,012 881,261
Other 133,967 135,824 132,555 131,142 124,490
- -----------------------------------------------------------------------------------------------------------------------------
Total retail 3,968,733 3,976,511 3,712,903 3,807,283 3,590,166
Sales for resale - non-affiliates 111,145 77,481 51,548 53,294 94,280
Sales for resale - affiliates 87,799 88,646 76,988 58,415 54,509
- -----------------------------------------------------------------------------------------------------------------------------
Total 4,167,677 4,142,638 3,841,439 3,918,992 3,738,955
=============================================================================================================================
Average Revenue Per Kilowatt-Hour (cents):
Residential 7.46 7.75 7.12 7.10 6.76
Commercial 7.26 7.46 6.87 6.97 6.83
Industrial 4.44 5.10 4.52 4.21 4.01
Total retail 6.78 7.11 6.52 6.36 6.11
Sales for resale 6.08 5.85 5.87 6.77 3.71
Total sales 6.75 7.06 6.50 6.38 6.02
Residential Average Annual
Kilowatt-Hour Use Per Customer 14,241 14,593 14,100 14,061 13,231
Residential Average Annual
Revenue Per Customer $1,063.07 $1,131.08 $1,003.39 $998.94 $894.73
Plant Nameplate Capacity
Ratings (year-end) (megawatts) 788 788 788 788 788
Maximum Peak-Hour Demand (megawatts):
Winter 758 724 719 582 625
Summer 846 878 875 846 802
Annual Load Factor (percent) 55.9 53.4 51.2 54.9 54.3
Plant Availability Fossil-Steam (percent): 81.2 78.5 72.8 72.9 93.7
- -----------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 50.5 51.6 44.6 41.6 34.4
Oil and gas 4.0 6.9 12.3 12.9 5.2
Purchased power -
From non-affiliates 5.3 7.7 5.3 3.4 1.4
From affiliates 40.2 33.8 37.8 42.1 59.0
- -----------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0 100.0
=============================================================================================================================
28