MANAGEMENT'S REPORT
Mississippi Power Company 2000 Annual Report
The management of Mississippi Power Company has prepared -- and is responsible
for -- the financial statements and related information included in this report.
These statements were prepared in accordance with accounting principles
generally accepted in the United States and necessarily include amounts that are
based on best estimates and judgments of management. Financial information
throughout this annual report is consistent with the financial statements.
The Company maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that the accounting records
reflect only authorized transactions of the Company. Limitations exist in any
system of internal controls, however, based upon recognition that the cost of
the system should not exceed its benefits. The Company believes its system of
internal accounting controls maintains an appropriate cost/benefit relationship.
The Company's system of internal accounting controls is evaluated on an
ongoing basis by the Company's internal audit staff. The Company's independent
public accountants also consider certain elements of the internal control system
in order to determine their auditing procedures for the purpose of expressing an
opinion on the financial statements.
The audit committee of the board of directors, composed of four independent
directors, provides a broad overview of management's financial reporting and
control functions. Periodically, this committee meets with management, the
internal auditors, and the independent public accountants to ensure that these
groups are fulfilling their obligations and to discuss auditing, internal
controls, and financial reporting matters. The internal auditors and independent
public accountants have access to the members of the audit committee at any
time.
Management believes that its policies and procedures provide reasonable
assurance that the Company's operations are conducted according to a high
standard of business ethics.
In management's opinion, the financial statements present fairly, in all
material respects, the financial position, results of operations, and cash flows
of Mississippi Power Company in conformity with accounting principles generally
accepted in the United States.
/s/Dwight H. Evans
Dwight H. Evans
President and Chief Executive Officer
/s/Michael W. Southern
Michael W. Southern
Vice President, Secretary, Treasurer and
Chief Financial Officer
1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mississippi Power Company:
We have audited the accompanying balance sheets and statements of capitalization
of Mississippi Power Company (a Mississippi corporation and a wholly owned
subsidiary of Southern Company) as of December 31, 2000 and 1999, 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, 2000. 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 11-26) referred to above
present fairly, in all material respects, the financial position of Mississippi
Power Company as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
/s/Arthur Andersen LLP
Atlanta, Georgia
February 28, 2001
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Mississippi Power Company 2000 Annual Report
RESULTS OF OPERATIONS
Earnings
Mississippi Power Company's 2000 net income after dividends on preferred stock
of $55 million increased $0.2 million over 1999 earnings of $54.8 million, which
were $0.3 million less than 1998 earnings of $55.1 million.
Revenues
Operating revenues for the Company in 2000 and the changes from the prior year
are as follows:
Increase (Decrease)
Amount From Prior Year
------ ----------------------
2000 2000 1999
---------------------------------------
(in millions)
Retail --
Base Revenues $287,253 $ (5,854) $ 17,462
Fuel cost recovery
and other 211,298 34,971 9,405
----------------------------------------------------------------
Total retail 498,551 29,117 26,867
----------------------------------------------------------------
Sales for resale --
Non-affiliates 145,931 14,927 9,779
Affiliates 27,915 8,469 1,161
----------------------------------------------------------------
Total sales for resale 173,846 23,396 10,940
Other operating
revenues 15,205 2,085 66
----------------------------------------------------------------
Operating revenues $687,602 $54,598 $ 37,873
==================================================================
Percent change 8.6% 6.4%
------------------------------------------------------------------
Total retail revenues for 2000 increased approximately 6.2 percent when
compared to 1999. The increase resulted primarily from continued growth in the
service area, a positive impact of weather and additional fuel revenues. Retail
revenues for 1999 reflected a 6.1 percent increase over the prior year due to
the continued growth in the service area, increased fuel revenues, and a true-up
of the unbilled revenue estimate.
Fuel revenues generally represent the direct recovery of fuel expense
including purchased power. Therefore, changes in recoverable fuel expenses are
offset with corresponding changes in fuel revenues and have no effect on net
income.
Energy sales to non-affiliates include economy sales and amounts sold under
short-term contracts. Sales for resale to non-affiliates are influenced by those
utilities' own customer demand, plant availability, and the cost of their
predominant fuels.
Included in sales for resale to non-affiliates are revenues from rural
electric cooperative associations and municipalities located in southeastern
Mississippi. Energy sales to these customers increased 10.9 percent in 2000 and
10.2 percent in 1999, with the related revenues rising 10.8 percent and 12.1
percent, respectively. The customer demand experienced by these utilities is
determined by factors very similar to those of the Company. Revenues from other
sales outside the service area increased in 2000 and 1999 primarily due to power
marketing activities. These increases were offset by increases in purchased
power from non-affiliates and, as a result, had no significant effect on net
income.
Sales to affiliated companies within the Southern Company electric system
will vary from year to year depending on demand and the availability and cost of
generating resources at each company. These sales have no material impact on
earnings.
Below is a breakdown of kilowatt-hour sales for 2000 and the percent change
for the last two years:
2000 Percent Change
------------- ---------------------------
KWH 2000 1999
---------------------------
(in millions)
Residential 2,286 1.7% -
Commercial 2,883 1.3 8.5%
Industrial 4,376 (0.7) 18.2
Other 41 2.5 0.8
-------
Total retail 9,586 0.5 10.4
Sales for
Resale --
Non-affiliates 3,675 12.9 3.1
Affiliates 453 (16.2) (2.2)
-------
Total 13,714 2.8 8.0
==================================================================
Total retail kilowatt-hour sales increased slightly in 2000 when compared to
1999 sales, which included an unbilled revenue true-up of approximately 3.5
percent. The increase primarily resulted from the continued growth in the
service area and the positive impact of weather. Excluding the impact of the
unbilled revenue true-up, all retail customer classes experienced growth in 2000
3
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 2000 Annual Report
due to the positive impact of weather, increased tourism, and continued growth
in the service area. In 1999, increased tourism and strong growth impacted
commercial sales, while industrial sales were impacted by increased production
by several larger industrial customers, including one which was shut down in
1998 by Hurricane Georges.
Expenses
Total operating expenses were $565 million in 2000 reflecting an increase of $52
million or 10.1 percent over the prior year. The increase was due primarily to
higher fuel and purchased power expenses. In 1999, total operating expenses
increased by 6.9 percent over the prior year due primarily to higher fuel
expenses.
Fuel costs are the single largest expense for the Company. Fuel expenses for
2000 and 1999 increased 10.7 percent and 10.3 percent, respectively. The
increase for each year was due to increased generation and a higher average cost
of fuel. The increased generation was due to higher demand for energy across the
Southern Company electric system.
In 2000, expenses related to purchased power from non-affiliates increased
40.0 percent, while expenses related to purchased power from affiliates
increased 64.7 percent which, in total, resulted in a 51 percent increase when
compared to 1999. This increase consisted mostly of energy purchased for power
marketing activities which was resold to non-affiliated third parties and had no
significant effect on net income. Sales and purchases among the Company and its
affiliates will vary from period to period depending on demand and the
availability and variable production cost of each generating unit in the
Southern Company electric system.
The amount and sources of generation and the average cost of fuel per net
kilowatt-hour generated were as follows:
2000 1999 1998
-----------------------------
Total generation
(millions of kilowatt
hours) 11,688 11,599 10,610
Sources of generation
(percent) --
Coal 83 81 80
Gas 17 19 20
Average cost of fuel per net
kilowatt-hour generated
(cents) -- 1.80 1.65 1.62
- -----------------------------------------------------------------
Other operation expenses decreased 8.2 percent in 2000 primarily due to a
decrease in administrative and general expenses. In 1999, other operation
expense increased 13.9 percent primarily due to the amortization of costs
associated with the workforce reduction plan and higher distribution expenses.
Maintenance expense in 2000 increased due to additional scheduled maintenance,
while maintenance expense in 1999 decreased due to reduced scheduled
maintenance. In 2000, depreciation expenses increased slightly due to growth in
plant investment and a new composite depreciation rate, which became effective
January 2000. Comparisons of taxes other than income taxes for 2000 and 1999
show increases of 1.7 percent and 4.2 percent, respectively, due to higher
municipal franchise taxes resulting from higher retail revenues. Interest on
long-term debt increased in 2000 due to higher interest rates and increased debt
outstanding.
Effects of Inflation
The Company is subject to rate regulation and income tax laws that are based on
the recovery of historical costs. Therefore, inflation creates an economic loss
because the Company is recovering its 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 costs does not recognize this economic loss or the
partially offsetting gain that arises through financing facilities with
4
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 2000 Annual Report
fixed-money obligations, such as long-term debt and preferred securities. Any
recognition of inflation by regulatory authorities is reflected in the rate of
return allowed.
Future Earnings Potential
The results of operations for the past three years are not necessarily
indicative of future earnings potential. The level of the Company's future
earnings depends on numerous factors ranging from weather to energy sales growth
to a less regulated and more competitive environment. Expenses are subject to
constant review and cost control programs. The Company is also maximizing the
utility of invested capital and minimizing the need for additional capital by
refinancing, managing the size of its fuel stockpile, raising generating plant
availability and efficiency, and aggressively controlling its construction
budget.
The Company currently operates as a vertically integrated utility providing
electricity to customers within its traditional service area located in
southeastern Mississippi. Prices for electricity provided by the Company to
retail customers are set by the Mississippi Public Service Commission (MPSC)
under cost-based regulatory principles. The Federal Energy Regulatory Commission
(FERC) regulates the Company's wholesale rate schedules, power sales contracts
and transmission facilities.
Operating revenues will be affected by any changes in rates under the
Performance Evaluation Plan (PEP) -- the Company's performance based ratemaking
plan -- and the Environmental Compliance Overview Plan (ECO Plan). PEP has
proven to be a stabilizing force on electric rates, with only moderate changes
in rates taking place. The ECO Plan provides for recovery of costs (including
costs of capital) associated with environmental projects approved by the MPSC,
most of which are required to comply with Clean Air Act Amendments of 1990
(Clean Air Act) regulations. The ECO Plan is operated independently of PEP.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. The Company's 2000 ECO Plan filed in January 2000 was
approved as filed, and resulted in a slight decrease in customer prices. The
Company filed its 2001 ECO Plan in January 2001 and, if approved as filed, it
will result in a slight increase in customer prices. Refer to Note 3 to the
financial statements under "Litigation and Regulatory Matters" for additional
information. The Clean Air Act and other important environmental items are
discussed later under "Environmental Matters."
Future earnings in the near term will depend upon growth in energy sales,
which is subject to a number of factors. These factors include weather,
competition, changes in contracts with neighboring utilities, energy
conservation practiced by customers, the elasticity of demand, and the rate of
economic growth in the Company's service area. The Company anticipates somewhat
slower growth in energy sales as the tourism industry stabilizes within its
service area. In addition to tourism, the healthcare and retail trade sectors
will provide most of the anticipated energy growth for the commercial class of
customers, while shipbuilding, chemicals and the U.S. government will provide
much of the basis for anticipated growth in the industrial sector.
The electric utility industry in the United States is currently undergoing a
period of dramatic change as a result of regulatory and competitive factors.
Among the primary agents of change has been the Energy Policy Act of 1992
(Energy Act). The Energy Act allows independent power producers (IPPs) to access
a utility's transmission network in order to sell electricity to other
utilities. This enhances the incentive for IPPs to build cogeneration plants for
a utility's large industrial and commercial customers and sell energy generation
to other utilities. Also, electricity sales for resale rates are affected by
wholesale transmission access and numerous potential new energy suppliers,
including power marketers and brokers.
Although the Energy Act does not permit retail transmission 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
various stages to promote wholesale and retail competition. Among other things,
these initiatives allow customers to choose their electricity provider. As these
initiatives materialize, the structure of the utility industry could radically
change. In May 2000, the MPSC ordered that its docket reviewing restructuring of
the electric industry in the State of Mississippi be suspended. The MPSC found
that retail competition may not be in the public interest at this time, and
ordered that no further formal hearings would be held on this subject. It found
that the current regulatory structure produced reliable low cost power and
"should not be changed without clear and convincing demonstration that change
5
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 2000 Annual Report
would be in the public interest." The MPSC will continue to monitor retail and
wholesale restructuring activities throughout the United States and reserves its
right to order further formal hearings on the matter should new evidence
demonstrate that retail competition would be in the public interest and all
customers could receive a reduction in the total cost of their electric service.
If the MPSC decides to hold future restructuring hearings on this matter,
enactment would require numerous issues to be resolved, including significant
ones relating to transmission, prices, and recovery of any stranded costs. The
inability of the Company to recover its investment, including regulatory assets,
could have a material adverse effect on the financial condition of the Company.
The Company is attempting to minimize or reduce its cost exposure. 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 operation 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.
Continuing to be a low-cost producer could provide significant opportunities
to increase market share and profitability in markets that evolve with changing
regulation. Conversely, unless the Company remains a low-cost producer and
provides quality service, the Company's energy sales growth could be limited,
and this could significantly erode earnings.
On December 20, 1999, the Federal Energy Regulatory Commission (FERC) issued
its final ruling on Regional Transmission Organizations (RTOs). The order
encourages utilities owning transmission systems to form RTOs on a voluntary
basis. After participating in regional conferences with customers and other
members of the public to discuss the formation of RTOs, utilities were required
to make a filing with the FERC. On October 16, 2000, Southern Company and its
integrated utilities including the Company filed a proposal for the creation of
an RTO. The proposal is for the formation of a for-profit company that would
have control of the bulk power transmission system of the Company and any other
participating utilities. Participants would have the option to either maintain
their ownership or divest, sell, or lease their assets to the proposed RTO. If
the FERC accepts the proposal as filed, the creation of an RTO is not expected
to have a material impact on the Company's financial statements. The outcome of
this matter cannot now be determined.
The Energy Act amended the Public Utility Holding Company Act of 1935
(PUHCA) to allow holding companies to form exempt wholesale generators to sell
power largely free of regulation under PUHCA. These entities are able to own and
operate power generating facilities and sell power to affiliates - under certain
restrictions.
Southern Company is aggressively working to maintain and expand its share of
wholesale sales in the southeastern power markets. In January 2001, Southern
Company announced the formation of a new subsidiary - Southern Power Company.
The new subsidiary will own, manage, and finance wholesale generating assets in
the Southeast. Southern Power will be the primary growth engine for Southern
Company's market-based energy business. Energy from its assets will be marketed
to wholesale customers under the Southern Company name.
In accordance with FASB Statement No. 87, Employers' Accounting for
Pensions, the Company recorded non-cash pension income of approximately $4.2
million in 2000. Pension income in 2001 is expected to be less as a result of
plan amendments. Future pension income is dependent on several factors including
trust earnings and changes to the plan. For more information, see Note 2.
The Company is involved in various matters being litigated. See Note 3 to
the financial statements for information regarding material issues that could
possibly affect future earnings.
Compliance costs related to current and future environmental laws and
regulations could affect earnings if such costs are not fully recovered. The
Clean Air Act and other important environmental items are discussed later under
"Environmental Matters."
Exposure to Market Risks
Due to cost-based rate regulations, the Company has limited exposure to market
volatility in interest rates, commodity fuel prices, and prices of electricity.
6
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 2000 Annual Report
To mitigate residual risks relative to movements in electricity prices, the
Company enters into fixed price contracts for the purchase and sale of
electricity through the wholesale electricity market. Realized gains and losses
are recognized in the income statements as incurred. At December 31, 2000,
exposure from these activities was not material to the Company's financial
statements. Also, based on the Company's overall interest rate exposure at
December 31, 2000, a near-term 100 basis point change in interest rates would
not materially affect the financial statements.
New Accounting Standard
In June 2000, FASB issued Statement No. 138, an amendment of Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities.
Statement No. 133, as amended, establishes accounting and reporting
standards for derivative instruments and for hedging activities. Statement
No. 133 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.
Substantially all of the Company's bulk energy purchases and sales meet the
definition of a derivative under Statement No. 133. In many cases, these
transactions meet the normal purchase and sale exception and the related
contracts will continue to be accounted for under the accrual method. Certain of
these instruments qualify as cash flow hedges resulting in the deferral of
related gains and losses in other comprehensive income until the hedged
transactions occur. Any ineffectiveness will be recognized currently in net
income. However, others will be required to be marked to market through current
period income.
The Company adopted Statement No. 133 effective January 1, 2001. The impact
on net income was immaterial. The application of the new rules is still evolving
and further guidance from FASB is expected, which could additionally impact the
Company's financial statements. Also, as wholesale energy markets mature, future
transactions could result in more volatility in net income and comprehensive
income.
FINANCIAL CONDITION
Overview
The principal change in the Company's financial condition during 2000 was the
addition of approximately $81 million to utility plant. Funding for these
additions and other capital requirements were derived primarily from operations.
The Statements of Cash Flows provide additional details.
Financing Activity
In March 2000, the Company issued $100 million of floating rate senior notes due
March 28, 2002. The proceeds were used to prepay bank loans of $45 million
maturing in November 2001 and $5 million maturing in October 2002. The balance
of the $100 million was used to repay a portion of the Company's outstanding
short-term debt. The Company plans to continue, to the extent possible, a
program to retire higher-cost debt and replace these securities with lower-cost
capital. See the Statements of Cash Flows for further details.
Composite financing rates increased for the year 2000 when compared to 1998
and 1999. As of year-end , the composite rates were as follows:
2000 1999 1998
----------------------------
Composite interest rate on
long-term debt 6.41% 6.19% 6.14%
Composite preferred stock
dividend rate 6.33% 6.33% 6.33%
Composite interest rate on
preferred securities 7.75% 7.75% 7.75%
------------------------------------------------------------
In 1999, the Company signed an Agreement for Lease and a Lease Agreement
with Escatawpa Funding, Limited Partnership ("Escatawpa"), that calls for the
Company to design and construct, as agent for Escatawpa, a 1,064 megawatt
natural gas combined cycle facility. It is anticipated that the total project
will cost approximately $400 million, and upon project completion in mid 2001,
the Company intends to lease the facility for an initial term of approximately
10 years. It is anticipated that the annual lease payments will approximate $32
million during the initial term.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 2000 Annual Report
Capital Structure
At year-end 2000, the Company's ratio of common equity to total capitalization,
excluding long-term debt due within one year, decreased from 50.2 percent in
1999, to 48.1 percent.
Capital Requirements for Construction
The Company's projected construction expenditures for the next three years total
$191 million ($62 million in 2001, $60 million in 2002, and $69 million in
2003). The major emphasis within the construction program will be on the upgrade
of existing facilities.
Revisions to projected construction expenditures may be necessary because of
factors such as changes in business conditions, revised load projections, the
availability and cost of capital, changes in environmental regulations, and
alternatives such as leasing.
Other Capital Requirements
In addition to the funds required for the Company's construction program,
approximately $135 million will be required by the end of 2003 for present
sinking fund requirements and maturities of long-term debt. The Company plans to
continue, when economically feasible, to retire higher cost debt and preferred
stock and replace these obligations with lower-cost capital if market conditions
permit.
Environmental Matters
On November 3, 1999, the Environmental Protection Agency (EPA), brought a civil
action in the U.S. District Court against Alabama Power Company, Georgia Power
Company 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 the integrated
Southeast utilities a notice of violation related to 10 generating facilities,
which includes the five facilities mentioned previously, and the Company's
plants Watson and Greene County. 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, Savannah Electric, 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 equipment when performing maintenance and construction at
coal burning plants constructed or under construction prior to 1978. On August
1, 2000, the U.S. District Court 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. On January 12, 2001, the EPA re-filed its
claims against Alabama Power in federal district court in Birmingham, Alabama.
The EPA did not include SCS in the new complaint. 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 unless such costs can be 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 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.
As a result of a systemwide compliance strategy, some 50 generating units of
Southern Company were brought into compliance with Phase I requirements.
Southern Company achieved Phase I sulfur dioxide compliance at the affected
plants by switching to low-sulfur coal, which required some equipment upgrades.
Construction expenditures for Phase I nitrogen oxide and sulfur dioxide
emissions compliance totaled approximately $300 million for Southern Company,
including approximately $65 million for the Company.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 2000 Annual Report
Phase II sulfur dioxide compliance was required in 2000. Southern Company
used emission allowances and fuel switching to comply with Phase II
requirements. Also, equipment to control nitrogen oxide emissions was installed
on additional system fossil-fired units as necessary to meet Phase II limits and
ozone non-attainment requirements for metropolitan Atlanta through 2000.
Compliance for Phase II and initial ozone non-attainment requirements increased
the Company's total construction expenditures through 2000 by approximately $100
million. Phase II compliance did not have a material impact on the Company.
The Company's ECO Plan is designed to allow recovery of costs of compliance
with the Clean Air Act, as well as other environmental statutes and regulations.
The MPSC reviews environmental projects and the Company's environmental policy
through the ECO Plan. Under the ECO Plan, any increase in the annual revenue
requirement is limited to 2 percent of retail revenues. The Company's management
believes that the ECO Plan provides for recovery of the Clean Air Act costs. See
Note 3 to the financial statements under "Environmental Compliance Overview
Plan" for additional information.
A significant portion of costs related to the acid rain 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 fine particulate matter. This revision made the standards
significantly more stringent. In the subsequent litigation of these standards,
the U.S. Supreme Court recently dismissed certain challenges but 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
will address other legal challenges to these standards in mid-2001. A decision
is expected in the spring of 2001. If the standards are eventually upheld,
implementation could be required by 2007 to 2010.
In September 1998, the EPA issued the final regional nitrogen oxide
reduction rules to the states for implementation. Compliance is required by May
31, 2004. The final rules affect 21 states that at present do not include
Mississippi. The EPA is presently evaluating whether or not to bring an
additional 15 states including Mississippi, under this regional nitrogen oxide
rule.
In December 2000, the EPA completed its utility study for mercury and other
hazardous air pollutants (HAPS) and issued a determination that an emission
control program for mercury and, perhaps, other HAPS is warranted. The program
is to be developed over the next four years under the Maximum Achievable Control
Technology (MACT) provisions of the Clean Air Act. This determination is being
challenged in the courts. 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 would likely
be required around 2010. Litigation of the BART rules is probable in the near
future.
Implementation of the final state rules for these initiatives could require
substantial further reductions in nitrogen oxide, sulfur dioxide, 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. Reviews by the new administration in Washington, D.C.
add to the uncertainties associated with BART guidance and the MACT
determination for mercury and other HAPS.
The EPA and state environmental regulatory agencies are reviewing and
evaluating various matters including: emission control strategies for ozone
non-attainment areas; additional controls for hazardous air pollutant emissions;
and hazardous waste disposal requirements. The impact of 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 costs to clean up properties currently or
previously owned. Upon identifying potential sites, the Company conducts
studies, when possible, to determine the extent of any required cleanup costs.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Mississippi Power Company 2000 Annual Report
Should remediation be determined to be probable, reasonable estimates of costs
to clean up such sites are developed and recognized in the financial statements.
Several major pieces of environmental legislation are being considered for
reauthorization or amendment by Congress. These include: the Clean Air Act; the
Clean Water Act; the Comprehensive Environmental Response, Compensation, and
Liability Act; the Resource Conservation and Recovery Act; and the Endangered
Species Act. Changes to these laws could affect many areas of the Company's
operations. The full impact of any such changes cannot be determined at this
time.
Compliance with possible additional legislation related to global climate
change, electromagnetic fields, and other environmental and health concerns
could significantly affect the Company. The impact of new legislation -- if any
- -- will depend on the subsequent development and implementation of applicable
regulations. In addition, the potential exists for lawsuits alleging damages
caused by electromagnetic fields or other environmental concerns. The likelihood
or outcome of such potential lawsuits cannot be determined at this time.
Sources of Capital
To meet short-term cash needs and contingencies, the Company had at December 31,
2000 approximately $7.5 million of cash and cash equivalents and approximately
$117 million of unused committed credit agreements. The Company had $56 million
of short-term notes payable outstanding at year-end 2000.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
from sources similar to those used in the past. These sources were primarily the
issuance of first mortgage bonds and preferred securities, in addition to
pollution control revenue bonds issued for the Company's benefit by public
authorities. The Company also issued unsecured debt in 1998.
The Company has no restrictions on the amounts of unsecured indebtedness it
may incur. However, the Company is required to meet certain coverage
requirements specified in its mortgage indenture and corporate charter to issue
new first mortgage bonds and preferred stock. The Company's coverage ratios are
high enough to permit, at present interest rate levels, any foreseeable security
sales. The amount of securities which the Company will be permitted to issue in
the future will depend upon market conditions and other factors prevailing at
that time.
Cautionary Statement Regarding Forward-Looking
Information
This Annual Report includes forward-looking statements in addition to historical
information. Forward-looking information includes, among other things,
statements concerning projected sales growth and scheduled completion of new
generation. In some cases, forward-looking statements can be identified by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "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 extent and timing of the entry of additional competition in the markets of
the Company; potential business strategies, including acquisitions or
dispositions of assets or businesses, which cannot be assured to be completed or
beneficial; internal restructuring or other restructuring options, that may be
pursued by the Company; state and federal rate regulation in the United States;
political, legal and economic conditions and developments in the United States;
financial market conditions and the results of financing efforts; the impact of
fluctuations in commodity prices, interest rates and customer demand; weather
and other natural phenomena; the ability of the Company to obtain additional
generating capacity at competitive prices; and other factors discussed elsewhere
herein and in other reports (including Form 10-K) filed from time to time by the
Company with the SEC.
10
STATEMENTS OF INCOME
For the Years Ended December 31, 2000, 1999, and 1998
Mississippi Power Company 2000 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $498,551 $469,434 $442,567
Sales for resale --
Non-affiliates 145,931 131,004 121,225
Affiliates 27,915 19,446 18,285
Other revenues 15,205 13,120 13,054
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating revenues 687,602 633,004 595,131
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 191,127 172,686 156,539
Purchased power --
Non-affiliates 56,082 40,080 33,872
Affiliates 51,057 31,007 36,037
Other 115,055 125,291 109,993
Maintenance 52,750 47,085 50,404
Depreciation and amortization 50,275 49,206 47,450
Taxes other than income taxes 48,686 47,893 45,965
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 565,032 513,248 480,260
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Income 122,570 119,756 114,871
Other Income (Expense):
Interest income 347 189 863
Other, net (647) 1,675 2,498
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings Before Interest and Income Taxes 122,270 121,620 118,232
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Expense and Other:
Interest expense, net 28,101 27,969 23,746
Distributions on preferred securities of subsidiary 2,712 2,712 2,712
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest charges and other, net 30,813 30,681 26,458
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 91,457 90,939 91,774
Income taxes 34,356 34,117 34,664
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income 57,101 56,822 57,110
Dividends on Preferred Stock 2,129 2,013 2,005
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 54,972 $ 54,809 $ 55,105
=================================================================================================================================
The accompanying notes are an integral part of these statements.
11
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999, and 1998
Mississippi Power Company 2000 Annual Report
- -----------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 57,101 $ 56,822 $ 57,110
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 54,638 53,427 51,517
Deferred income taxes and investment tax credits, net 752 (4,143) 11,620
Other, net (1,747) 5,531 (12,175)
Changes in certain current assets and liabilities --
Receivables, net (3,231) (39,304) (5,486)
Fossil fuel stock 14,577 (9,379) (5,767)
Materials and supplies (1,056) (1,903) 717
Accounts payable 1,309 1,391 (389)
Other 2,952 14,206 (4,061)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 125,295 76,648 93,086
- -----------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (81,211) (75,888) (68,231)
Other (9,153) 1,009 (324)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (90,364) (74,879) (68,555)
- -----------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase (decrease) in notes payable, net (1,500) 44,500 13,000
Proceeds --
Other long-term debt 100,000 59,400 103,520
Capital contributions from parent company 12,659 2,028 85
Retirements --
First mortgage bonds - - (75,000)
Other long-term debt (81,405) (50,456) (13,020)
Preferred stock - - (87)
Payment of preferred stock dividends (2,129) (2,013) (2,005)
Payment of common stock dividends (54,700) (56,100) (51,700)
Other (498) (282) (2,429)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (27,573) (2,923) (27,636)
- -----------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 7,358 (1,154) (3,105)
Cash and Cash Equivalents at Beginning of Period 173 1,327 4,432
- -----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 7,531 $ 173 $ 1,327
=============================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of amount capitalized) $30,570 $25,486 $26,133
Income taxes (net of refunds) 28,418 39,729 26,847
- -----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
12
BALANCE SHEETS
At December 31, 2000 and 1999
Mississippi Power Company 2000 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------
Assets 2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 7,531 $ 173
Receivables --
Customer accounts receivable 72,064 61,274
Other accounts and notes receivable 21,843 23,490
Affiliated companies 10,071 16,097
Accumulated provision for uncollectible accounts (571) (697)
Fossil fuel stock, at average cost 11,220 25,797
Materials and supplies, at average cost 21,694 20,638
Other 8,320 10,013
- ----------------------------------------------------------------------------------------------------------------------------
Total current assets 152,172 156,785
- ----------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 1,665,879 1,601,399
Less accumulated provision for depreciation 652,891 626,841
- ----------------------------------------------------------------------------------------------------------------------------
1,012,988 974,558
Construction work in progress 60,951 68,721
- ----------------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 1,073,939 1,043,279
- ----------------------------------------------------------------------------------------------------------------------------
Other Property and Investments 2,268 1,389
- ----------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 13,860 21,557
Prepaid pension costs 6,724 2,488
Debt expense, being amortized 4,628 4,355
Premium on reacquired debt, being amortized 7,168 8,154
Other 14,312 13,129
- ----------------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 46,692 49,683
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $1,275,071 $1,251,136
============================================================================================================================
The accompanying notes are an integral part of these balance sheets.
13
BALANCE SHEETS
At December 31, 2000 and 1999
Mississippi Power Company 2000 Annual Report
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholder's Equity 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 20 $ 30,020
Notes payable 56,000 57,500
Accounts payable --
Affiliated 10,715 17,002
Other 48,146 43,105
Customer deposits 5,274 3,749
Taxes accrued --
Income taxes 8,769 6,865
Other 36,799 35,534
Interest accrued 4,482 6,733
Vacation pay accrued 5,701 5,218
Other 7,003 7,497
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 182,909 213,223
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt (See accompanying statements) 370,511 321,802
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 139,909 139,564
Deferred credits related to income taxes 25,603 34,765
Accumulated deferred investment tax credits 23,481 24,695
Employee benefits provisions 34,671 34,268
Workforce reduction plan 9,734 11,272
Other 16,546 12,770
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 249,944 257,334
- ---------------------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding company junior
subordinated notes (See accompanying statements) 35,000 35,000
- ---------------------------------------------------------------------------------------------------------------------------
Preferred stock (See accompanying statements) 31,809 31,809
- ---------------------------------------------------------------------------------------------------------------------------
Common stockholder's equity (See accompanying statements) 404,898 391,968
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $1,275,071 $1,251,136
===========================================================================================================================
The accompanying notes are an integral part of these balance sheets.
14
STATEMENTS OF CAPITALIZATION
At December 31, 2000 and 1999
Mississippi Power Company 2000 Annual Report
- ------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Long-Term Debt:
First mortgage bonds --
Maturity Interest Rates
-------- --------------
June 1, 2023 7.45% $ 35,000 $ 35,000
March 1, 2004 6.60% 35,000 35,000
December 1, 2025 6.875% 30,000 30,000
- ------------------------------------------------------------------------------------------------------------------------------
Total first mortgage bonds 100,000 100,000
- ------------------------------------------------------------------------------------------------------------------------------
Long-term notes payable --
6.05% due May 1, 2003 35,000 35,000
6.75% due June 30, 2038 53,179 54,564
Adjustable rates (6.61% to 6.78% at 1/1/01)
due 2000-2002 100,000 80,000
- ------------------------------------------------------------------------------------------------------------------------------
Total long-term notes payable 188,179 169,564
- ------------------------------------------------------------------------------------------------------------------------------
Other long-term debt --
Pollution control revenue bonds --
Collateralized:
5.65% to 5.80% due 2007-2023 - 26,785
Variable rates (3.90% at 1/1/01)
due 2020-2025 - 10,600
Non-collateralized:
5.65% to 5.80% due 2007-2023 26,765
Variable rates (3.90% to 5.20% at 1/1/01)
due 2020-2028 56,820 46,220
- ------------------------------------------------------------------------------------------------------------------------------
Total other long-term debt 83,585 83,605
- ------------------------------------------------------------------------------------------------------------------------------
Unamortized debt premium (discount), net (1,233) (1,347)
- ------------------------------------------------------------------------------------------------------------------------------
Total long-term debt (annual interest
requirement -- $23.8 million) 370,531 351,822
Less amount due within one year 20 30,020
- ------------------------------------------------------------------------------------------------------------------------------
Long-term debt excluding amount due within one year $370,511 $321,802 43.9% 41.2%
- ------------------------------------------------------------------------------------------------------------------------------
15
STATEMENTS OF CAPITALIZATION (continued)
At December 31, 2000 and 1999
Mississippi Power Company 2000 Annual Report
- -------------------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
(in thousands) (percent of total)
Company Obligated Mandatorily
Redeemable Preferred Securities:(Note 8)
$25 liquidation value --
7.75% $ 35,000 $ 35,000
- -------------------------------------------------------------------------------------------------------------------------------
Total (annual distribution requirement -- $2.7 million) 35,000 35,000 4.2 4.5
- -------------------------------------------------------------------------------------------------------------------------------
Cumulative Preferred Stock:
$100 par value
4.40% to 7.00% 31,809 31,809
- -------------------------------------------------------------------------------------------------------------------------------
Total (annual dividend requirement -- $2.0 million) 31,809 31,809 3.8 4.1
- -------------------------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity:
Common stock, without par value --
Authorized - 1,130,000 shares
Outstanding - 1,121,000 shares in 2000 and 1999 37,691 37,691
Paid-in capital 194,161 181,502
Premium on preferred stock 326 326
Retained earnings 172,720 172,449
- -------------------------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 404,898 391,968 48.1 50.2
- -------------------------------------------------------------------------------------------------------------------------------
Total Capitalization $842,218 $780,579 100.0% 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, 2000, 1999, and 1998
Mississippi Power Company 2000 Annual Report
- -----------------------------------------------------------------------------------------------------------------------------
Premium on
Common Paid-In Preferred Retained
Stock Capital Stock Earnings Total
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at January 1, 1998 $37,691 $179,389 $327 $170,417 $387,824
Net income after dividends on preferred stock - - - 55,105 55,105
Capital contributions from parent company - 85 - - 85
Cash dividends on common stock - - - (51,700) (51,700)
Other - - (1) (82) (83)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 37,691 179,474 326 173,740 391,231
Net income after dividends on preferred stock - - - 54,809 54,809
Capital contributions from parent company - 2,028 - - 2,028
Cash dividends on common stock - - - (56,100) (56,100)
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 37,691 181,502 326 172,449 391,968
Net income after dividends on preferred stock - - - 54,972 54,972
Capital contributions from parent company - 12,659 - - 12,659
Cash dividends on common stock - - - (54,700) (54,700)
Other - - - (1) (1)
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 $37,691 $194,161 $326 $172,720 $404,898
=============================================================================================================================
The accompanying notes are an integral part of these statements.
17
NOTES TO FINANCIAL STATEMENTS
Mississippi Power Company 2000 Annual Report
1. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
Mississippi Power Company is a wholly owned subsidiary of Southern Company,
which is the parent company of five integrated Southeast utilities, a system
service company (SCS), Southern Communications Services (Southern LINC),
Southern Company Energy Solutions, Southern Nuclear Operating Company (Southern
Nuclear), Mirant Corporation -- formerly Southern Energy, Inc. -- and other
direct and indirect subsidiaries. The integrated Southeast utilities -- Alabama
Power Company, Georgia Power Company, Gulf Power Company, Mississippi Power
Company, and Savannah Electric and Power Company -- provide electric service in
four states. Contracts among the integrated Southeast utilities -- 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 (SEC). SCS
provides, at cost, specialized services to Southern Company and subsidiary
companies. Southern LINC provides digital wireless communications services to
the integrated Southeast utilities and also markets these services to the public
within the Southeast. Southern Company Energy Solutions develops new business
opportunities related to energy products and services. Southern Nuclear provides
services to Southern Company's nuclear power plants. Mirant acquires, develops,
builds, owns, and operates power production and delivery facilities and provides
a broad range of energy-related services to utilities and industrial companies
in selected countries around the world. Mirant businesses include independent
power projects, integrated utilities, a distribution company, and energy trading
and marketing businesses outside the southeastern United States.
Southern Company is registered as a holding company under the Public Utility
Holding Company Act of 1935 (PUHCA). Both the Company and its subsidiaries are
subject to the regulatory provisions of the PUHCA. The Company is also subject
to regulation by the FERC and the Mississippi Public Service Commission (MPSC).
The Company follows accounting principles generally accepted in the United
States and complies with the accounting policies and practices prescribed by the
respective commissions. 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.
Prior years' data presented in the financial statements have been
reclassified to conform with the current year presentation.
Related-Party Transactions
The Company has an agreement with SCS 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 pension administration, human resources,
systems and procedures, and other services with respect to business and
operations and power pool operations. Costs for these services amounted to $46.2
million, $45.5 million, and $43.9 million during 2000, 1999, and 1998,
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 the following:
2000 1999
-------------------------
(in thousands)
Deferred income tax charges $ 13,860 $ 21,557
Vacation pay 5,701 5,218
Premium on reacquired debt 7,168 8,154
Property damage reserve (3,519) (3,082)
Deferred income tax credits (25,603) (34,765)
Other, net (505) (349)
- ----------------------------------------------------------------
Total $ (2,898) $ (3,267)
================================================================
18
NOTES (continued)
Mississippi Power Company 2000 Annual Report
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 located
within the state of Mississippi, and to wholesale customers in the Southeast.
Revenues are recognized as services are rendered. Unbilled revenues are
accrued at the end of each fiscal period. The Company's retail and wholesale
rates include provisions to adjust billings for fluctuations in fuel costs, the
energy component of purchased power costs, and certain other costs. Retail rates
also include provisions to adjust billings for fluctuations in costs for ad
valorem taxes and certain qualifying environmental costs. Revenues are adjusted
for differences between actual allowable amounts and the amounts included in
rates.
The Company has a diversified base of customers. No single customer or
industry comprises 10 percent or more of revenues. For all periods presented,
uncollectible accounts continued to average less than 1 percent of revenues.
Depreciation
Depreciation of the original cost of plant in service is provided primarily by
using composite straight-line rates, which approximated 3.5 percent in 2000 and
3.3 percent in 1999 and 1998. When property subject to depreciation is retired
or otherwise disposed of in the normal course of business, its original cost --
together with the cost of removal, less salvage -- is charged to accumulated
depreciation. Minor items of property included in the original cost of the plant
are retired when the related property unit is retired. Depreciation expense
includes an amount for the expected cost of removal of facilities.
Income Taxes
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.
Property, Plant and Equipment
Property, plant, and equipment is stated at original cost. Original cost
includes: materials; labor; minor items of property; appropriate administrative
and general costs; payroll-related costs such as taxes, pensions, and other
benefits; and the estimated cost of funds used during construction, if
applicable. The cost of maintenance, repairs, and replacement of minor items of
property is charged to maintenance expense except for the maintenance of coal
cars and a portion of the railway track maintenance, which are charged to fuel
stock. The cost of replacements of property -- exclusive of minor items of
property -- is capitalized.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, temporary cash investments are
considered cash equivalents. Temporary cash investments are securities with
original maturities of 90 days or less.
Financial Instruments
The Company's financial instruments for which the carrying amount did not equal
fair value at December 31 were as follows:
Carrying Fair
Amount Value
---------------------------
(in millions)
Long-term debt:
At December 31, 2000 $371 $362
At December 31, 1999 $353 $334
Capital trust preferred
securities:
At December 31, 2000 $35 $34
At December 31, 1999 $35 $30
- --------------------------------------------------------------
The fair values for long-term debt and preferred securities were based on
either closing market price or closing price of comparable instruments.
19
NOTES (continued)
Mississippi Power Company 2000 Annual Report
Materials and Supplies
Generally, materials and supplies include the cost of transmission,
distribution, and generating plant materials. Materials are charged to inventory
when purchased and then expensed or capitalized to plant, as appropriate, when
used or installed.
Provision for Property Damage
The Company is self-insured for the cost of storm, fire, and other uninsured
casualty damage to its property, including transmission and distribution
facilities. As permitted by regulatory authorities, the Company accrues for the
cost of such damage by charging expense and crediting an accumulated provision.
The cost of repairing damage resulting from such events that individually exceed
$50 thousand is charged to the accumulated provision. In 1999, an order from the
MPSC increased the maximum Property Damage Reserve from $18 million to $23
million and allows an annual accrual of up to $4.6 million. In 2000, the Company
provided for such costs by charges to income of $3.5 million. In 1999 and 1998,
the Company provided for such costs by charges to income of $4.4 million and
$1.5 million, respectively. As of December 31, 2000, the accumulated provision
amounted to $3.5 million.
2. RETIREMENT BENEFITS
The Company has defined benefit, trusteed, pension plans that cover
substantially all employees. The Company provides certain medical care and life
insurance benefits for retired employees. Substantially all these employees may
become eligible for such benefits when they retire. The Company funds trusts to
the extent deductible under federal income tax regulations or the extent
required by regulatory authorities. In late 2000, the Company adopted several
pension and postretirement benefits plan changes that had the effect of
increasing benefits to both current and future retirees. The effects of these
changes will be to increase annual pension and postretirement benefits costs by
approximately $1.3 and $0.4 million, respectively. The measurement date for plan
assets and obligations is September 30 for each year.
Pension Plan
Changes during the year in the projected benefit obligations and in the fair
value of plan assets were as follows:
Projected
Benefit Obligations
--------------------------
2000 1999
- ---------------------------------------------------------------------
(in thousands)
Balance at beginning of year $139,930 $142,807
Service cost 4,272 4,415
Interest cost 10,196 9,377
Benefits paid (7,593) (8,050)
Actuarial gain and employee
transfers (1,419) (8,619)
- ---------------------------------------------------------------------
Balance at end of year $145,386 $139,930
=====================================================================
Plan Assets
--------------------------
2000 1999
- ---------------------------------------------------------------------
(in thousands)
Balance at beginning of year $221,487 $198,100
Actual return on plan assets 39,737 33,216
Benefits paid (7,593) (8,050)
Employee transfers 3,017 (1,779)
- ---------------------------------------------------------------------
Balance at end of year $256,648 $221,487
=====================================================================
The accrued pension costs recognized in the Balance Sheets were as follows:
2000 1999
- ---------------------------------------------------------------------
(in thousands)
Funded status $111,263 $ 81,557
Unrecognized transition obligation (3,269) (3,814)
Unrecognized prior service cost 4,577 4,991
Unrecognized net gain (105,847) (80,246)
- ---------------------------------------------------------------------
Prepaid asset recognized in the
Balance Sheets $ 6,724 $ 2,488
=====================================================================
20
NOTES (continued)
Mississippi Power Company 2000 Annual Report
Components of the plans' net periodic cost were as follows:
2000 1999 1998
- ------------------------------------------------------------------
(in thousands)
Service cost $ 4,272 $ 4,415 $ 3,848
Interest cost 10,196 9,377 9,613
Expected return on
plan assets (15,910) (14,681) (13,817)
Recognized net gain (2,663) (1,721) (1,956)
Net amortization (131) (131) (131)
- ------------------------------------------------------------------
Net pension income $ (4,236) $ (2,741) $(2,443)
==================================================================
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
----------------------------
2000 1999
- -----------------------------------------------------------------
(in thousands)
Balance at beginning of year $45,390 $47,260
Service cost 830 982
Interest cost 3,309 3,105
Benefits paid (2,628) (2,256)
Actuarial gain and
employee transfers (1,949) (3,701)
- -----------------------------------------------------------------
Balance at end of year $44,952 $45,390
=================================================================
Plan Assets
----------------------------
2000 1999
- ------------------------------------------------------------------
(in thousands)
Balance at beginning of year $14,998 $12,779
Actual return on plan assets 2,511 1,818
Employer contributions 2,961 2,657
Benefits paid (2,627) (2,256)
- -----------------------------------------------------------------
Balance at end of year $17,843 $14,998
=================================================================
The accrued postretirement costs recognized in the Balance Sheets were as
follows:
2000 1999
- ----------------------------------------------------------------------
(in thousands)
Funded status $(27,109) $(30,392)
Unrecognized transition obligation 4,275 4,621
Unrecognized net gain (6,632) (3,406)
Fourth quarter contributions 1,065 931
- ----------------------------------------------------------------------
Accrued liability recognized in the
Balance Sheets $(28,401) $(28,246)
======================================================================
Components of the plans' net periodic cost were as follows:
2000 1999 1998
- --------------------------------------------------------------------
(in thousands)
Service cost $ 830 $ 981 $ 806
Interest cost 3,309 3,105 3,162
Expected return on
plan assets (1,235) (1,100) (989)
Net amortization 346 346 346
- --------------------------------------------------------------------
Net postretirement cost $ 3,250 $ 3,332 $3,325
====================================================================
The weighted average rates assumed in the actuarial calculations for both
the pension plans and postretirement benefits were:
2000 1999
---------------------------------------------------------------
Discount 7.50% 7.50%
Annual salary increase 5.00 5.00
Long-term return on plan assets 8.50 8.50
---------------------------------------------------------------
21
NOTES (continued)
Mississippi Power Company 2000 Annual Report
An additional assumption used in measuring the accumulated postretirement
benefit obligation was a weighted average medical care cost trend rate of 7.29
percent for 2000, decreasing gradually to 5.50 percent through the year 2005 and
remaining at that level thereafter. An annual increase or decrease in the
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,
2000 as follows:
1 Percent 1 Percent
Increase Decrease
- -----------------------------------------------------------------
(in thousands)
Benefit obligation $2,669 $2,396
Service and interest costs 242 215
- -----------------------------------------------------------------
Workforce Reduction Program
In 1997, approximately one hundred employees of the Company accepted the terms
of a workforce reduction plan. The cost incurred in connection with this
voluntary plan was approximately $18 million. The MPSC approved the deferral and
amortization of these program costs over a period not to exceed 60 months
beginning no later than July 1998. As of December 31, 1999, the cost was fully
amortized.
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 2000, 1999, and 1998 were $2.3
million, $2.2 million, and $2.1 million, respectively.
3. LITIGATION AND REGULATORY MATTERS
Environmental Litigation
On November 3, 1999, the Environmental Protection Agency (EPA) brought a civil
action in the U.S. District Court against Alabama Power Company, Georgia Power
Company and SCS. 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 integrated Southeast utilities a notice
of violation related to 10 generating facilities, which includes the five
facilities mentioned previously, and the Company's plants Watson and Greene
County. 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, Savannah
Electric 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 equipment
when performing maintenance and construction at coal burning plants constructed
or under construction prior to 1978. On August, 1, 2000, the U.S. District Court
granted Alabama Power's motion to dismiss for lack of jurisdiction in Georgia
and granted SCS's motion to dismiss on the grounds that it neither owned nor
operated the generating units involved in the proceedings. On January 12, 2001,
the EPA re-filed its claims against Alabama Power in federal district court in
Birmingham, Alabama. The EPA did not include SCS in the new complaint. 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 unless such costs can be recovered
through regulated rates.
Retail Rate Adjustment Plans
The Company's retail base rates are set under a Performance Evaluation Plan
(PEP) approved by the MPSC in 1994. PEP was designed with the objective that the
plan would reduce the impact of rate changes on the customer and provide
incentives for the Company to keep customer prices low. PEP includes a mechanism
for sharing rate adjustments based on the Company's ability to maintain low
rates for customers and on the Company's performance as measured by three
22
NOTES (continued)
Mississippi Power Company 2000 Annual Report
indicators that emphasize price and service to the customer. PEP provides for
semiannual evaluations of the Company's performance-based return on investment.
Any change in rates is limited to 2 percent of retail revenues per evaluation
period. PEP will remain in effect until the MPSC modifies or terminates the
plan. There were no PEP retail revenue changes for 2000, 1999, or 1998.
Environmental Compliance Overview Plan
The MPSC approved the Company's Environmental Compliance Overview Plan (ECO
Plan) in 1992. The ECO Plan establishes procedures to facilitate the MPSC's
overview of the Company's environmental strategy and provides for recovery of
costs (including costs of capital) associated with environmental projects
approved by the MPSC. Under the ECO Plan, any increase in the annual revenue
requirement is limited to 2 percent of retail revenues. However, the ECO Plan
also provides for carryover of any amount over the 2 percent limit into the next
year's revenue requirement. The Company conducts studies, when possible, to
determine the extent of any required environmental remediation. Should such
remediation be determined to be probable, reasonable estimates of costs to clean
up such sites are developed and recognized in the financial statements. The
Company recovers such costs under the ECO Plan as they are incurred, as provided
for in the Company's 1995 ECO Plan Order. The Company filed its 2001 ECO Plan in
January and, if approved as filed, it will result in a slight increase in
customer prices.
Approval for New Capacity
In January 1998, the Company was granted a Certificate of Public Convenience and
Necessity by the MPSC to build approximately 1,064 megawatts of combined cycle
generation at the Company's Plant Daniel site, to be placed in service by June
2001. In December 1998, the Company requested approval to transfer the ownership
rights under the certificate to Escatawpa Funding, Limited Partnership
("Escatawpa"), which will lease the facility to the Company (see Note 4,
Financing and Commitments). In September 2000, the Company and the Mississippi
Public Utilities Staff entered, and the MPSC in October 2000 approved, a new
stipulation that modifies a January 1999 stipulation and order covering cost
allocation. The 1999 stipulation and MPSC order would have excluded the new
capacity from retail ratebase and would have assigned the Company's existing
generating facilities entirely to the retail jurisdiction. The new stipulation
and MPSC order allocates a pro-rata share of the new capacity along with the
Company's existing generating capacity to the retail jurisdiction.
4. FINANCING AND COMMITMENTS
Construction Program
The Company is engaged in continuous construction programs, the costs of which
are currently estimated to total $62 million in 2001, $60 million in 2002, and
$69 million in 2003. The construction program is subject to periodic review and
revision, and actual construction costs may vary from the above estimates
because of numerous factors. These factors include changes in business
conditions; revised load growth estimates; changes in environmental regulations;
increasing costs of labor, equipment and materials; and cost of capital.
Significant construction will continue related to transmission and distribution
facilities, and the upgrading of generating plants.
Financing
In 1999, the Company signed an Agreement for Lease and a Lease Agreement with
Escatawpa, that calls for the Company to design and construct, as agent for
Escatawpa, a 1,064 megawatt natural gas combined cycle facility. It is
anticipated that the total project will cost approximately $400 million, and
upon project completion in mid 2001, the Company intends to lease the facility
for an initial term of approximately 10 years. It is anticipated that the annual
lease payments will approximate $32 million during the initial term.
Bank Credit Arrangements
At December 31, 2000, the Company had total committed credit agreements with
banks for approximately $117 million. At year-end 2000, the unused portion of
these committed credit agreements was approximately $117 million. These credit
agreements expire at various dates in 2001. Some of these agreements allow
short-term borrowings to be converted into term loans, payable in 12 equal
quarterly installments, with the first installment due at the end of the first
calendar quarter after the applicable termination date or at an earlier date at
the Company's option. In connection with these credit arrangements, the Company
23
NOTES (continued)
Mississippi Power Company 2000 Annual Report
agrees to pay commitment fees based on the unused portions of the commitments or
to maintain compensating balances with the banks. At December 31, 2000, the
Company had $56 million of short-term borrowings outstanding.
Assets Subject to Lien
The Company's mortgage indenture dated as of September 1, 1941, as amended and
supplemented, which secures the first mortgage bonds issued by the Company,
constitutes a direct first lien on substantially all of the Company's fixed
property and franchises.
Lease Agreements
In 1984, the Company and Entergy Corp. (formerly Gulf States Utilities) entered
into a forty-year transmission facilities agreement whereby Entergy began paying
a use fee to the Company covering all expenses relative to ownership and
operation and maintenance of a 500 kV line, including amortization of its
original $57 million cost. For the three years ended 2000, use fees collected
under this agreement, net of related expenses, amounted to approximately $3
million each year, and are included within Other Income in the Statements of
Income.
In 1989, the Company entered into a twenty-two year operating lease
agreement for the use of 495 aluminum railcars. In 1994, a second lease
agreement for the use of 250 additional aluminum railcars was also entered into
for twenty-two years. The Company has the option to purchase the 745 railcars at
the greater of lease termination value or fair market value, or to renew the
leases at the end of the lease term. In 1997, a third lease agreement for the
use of 360 railcars was also entered into for three years, with a monthly
renewal option for up to an additional nine months. All of these leases,
totaling 1,105 railcars, were for the transport of coal to Plant Daniel.
Gulf Power, as joint owner of Plant Daniel, is responsible for one half of
the lease cost. The Company's share (50%) of the leases, charged to fuel stock,
was $2.1 million in 2000, $2.8 million in 1999, and $2.8 million in 1998. The
Company's annual lease payments for 2001 through 2005 will average approximately
$2.0 million and after 2005, lease payments total in aggregate approximately $14
million.
Fuel
To supply a portion of the fuel requirements of its generating plants, the
Company has entered into various long-term commitments for the procurement of
fuel. In most cases, these contracts contain provisions for price escalations,
minimum production levels, and other financial commitments.
Total estimated obligations at December 31, 2000 were as follows:
Year Fuel
- ---- ----
(in millions)
2001 $ 294
2002 332
2003 313
2004 137
2005 95
2006 - 2024 131
Total commitments $1,302
Additional commitments for fuel will be required in the future to supply the
Company's fuel needs.
5. JOINT OWNERSHIP AGREEMENTS
The Company and Alabama Power own as tenants in common Units 1 and 2 at Plant
Greene County located in Alabama. Additionally, the Company and Gulf Power own
as tenants in common Units 1 and 2 at Plant Daniel located in Mississippi.
At December 31, 2000, the Company's percentage ownership and investment in
these jointly owned facilities were as follows:
Company's
Generating Total Percent Gross Accumulated
Plant Capacity Ownership Investment Depreciation
--------- ---------- --------- ------------- ------------
(Megawatts) (in thousands)
Greene
County
Units 1 and 2 500 40% $63,346 $32,762
Daniel
Units 1 and 2 1,000 50% $230,853 $115,472
-----------------------------------------------------------------------
The Company's share of plant operating expenses is included in the
corresponding operating expenses in the Statements of Income.
24
NOTES (continued)
Mississippi Power Company 2000 Annual Report
6. LONG-TERM CAPACITY SALES AND LEASE
AGREEMENTS
The Company and the other utility affiliates of Southern Company have long-term
contractual agreements for the sale of capacity and energy to certain
non-affiliated utilities located outside the system's service area. Because the
energy is generally sold at cost under these agreements, profitability is
primarily affected by revenues from capacity sales. The Company's capacity
revenues under these agreements were not material during the periods reported.
During 2000, the Company entered into a 10 year capacity lease that begins
in mid 2001. The minimum capacity lease revenue that the Company will receive
will average approximately $21 million per year over the 10 year period.
7. INCOME TAXES
At December 31, 2000, the tax-related regulatory assets and liabilities were $14
million and $26 million, respectively. These assets are attributable to tax
benefits flowed through to customers in prior years and to taxes applicable to
capitalized interest. These liabilities are attributable to deferred taxes
previously recognized at rates higher than current enacted tax law and to
unamortized investment tax credits.
Details of the federal and state income tax provisions are shown below:
2000 1999 1998
----------------------------------
(in thousands)
Total provision for
income taxes
Federal --
Current $28,934 $33,379 $20,500
Deferred 622 (3,973) 9,442
-----------------------------------------------------------------
29,556 29,406 29,942
-----------------------------------------------------------------
State --
Current 4,670 4,881 2,544
Deferred 130 (170) 2,178
-----------------------------------------------------------------
4,800 4,711 4,722
-----------------------------------------------------------------
Total $34,356 $34,117 $34,664
=================================================================
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:
2000 1999
-----------------------------
(in thousands)
Deferred tax liabilities:
Accelerated depreciation $151,278 $154,698
Basis differences 8,559 8,967
Other 24,136 23,108
---------------------------------------------------------------
Total 183,973 186,773
---------------------------------------------------------------
Deferred tax assets:
Other property
basis differences 17,147 21,003
Pension and
other benefits 9,528 9,608
Property insurance 3,558 3,419
Unbilled fuel 5,727 4,846
Other 9,669 11,071
---------------------------------------------------------------
Total 45,629 49,947
---------------------------------------------------------------
Net deferred tax
liabilities 138,344 136,826
Portion included in
current assets, net 1,565 2,738
---------------------------------------------------------------
Accumulated deferred
income taxes in the
Balance Sheets $139,909 $139,564
===============================================================
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. Credits amortized in this manner
amounted to $1.2 million in 2000, 1999, and 1998. At December 31, 2000, 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:
2000 1999 1998
----------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income tax, net of
federal deduction 3.4 3.4 3.3
Non-deductible book
depreciation .6 .7 .5
Other (1.5) (1.6) (1.0)
------------------------------------------------------------------
Effective income tax rate 37.5% 37.5% 37.8%
==================================================================
25
NOTES (continued)
Mississippi Power Company 2000 Annual Report
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.
8. COMPANY OBLIGATED MANDATORILY
REDEEMABLE PREFERRED SECURITIES
In February 1997, Mississippi Power Capital Trust I (Trust I), of which the
Company owns all the common securities, issued $35 million of 7.75 percent
mandatorily redeemable preferred securities. Substantially all of the assets of
Trust I are $36 million aggregate principal amount of the Company's 7.75 percent
junior subordinated notes due February 15, 2037.
The Company considers that the mechanisms and obligations relating to the
preferred securities, taken together, constitute a full and unconditional
guarantee by the Company of the Trusts' payment obligations with respect to the
preferred securities.
Trust I is a subsidiary of the Company, and accordingly is consolidated in
the Company's financial statements.
9. LONG-TERM DEBT DUE WITHIN ONE YEAR
A summary of the improvement fund requirements and scheduled maturities and
redemptions of long-term debt due within one year is as follows:
2000 1999
---------------------
(in thousands)
Bond improvement fund requirement $1,000 $1,000
Less: Portion to be satisfied by
certifying property additions 1,000 1,000
---------------------------------------------------------------
Cash sinking fund requirement - -
Current portion of other long-term debt - 30,000
Pollution control bond cash
sinking fund requirements 20 20
---------------------------------------------------------------
Total $20 $30,020
===============================================================
The first mortgage bond improvement fund requirement is one percent of each
outstanding series authenticated under the indenture of the Company prior to
January 1 of each year, other than first mortgage bonds issued as collateral
security for certain pollution control obligations. The requirement must be
satisfied by June 1 of each year by depositing cash or reacquiring bonds, or by
pledging additional property equal to 166-2/3 percent of such requirement.
10. COMMON STOCK DIVIDEND RESTRICTIONS
The Company's first mortgage bond indenture and the corporate charter contain
various common stock dividend restrictions. At December 31, 2000, approximately
$118 million of retained earnings was restricted against the payment of cash
dividends on common stock under the most restrictive terms of the mortgage
indenture or corporate charter.
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for 2000 and 1999 are as follows:
Net Income
After Dividends
Operating Operating On Preferred
Quarter Ended Revenues Income Stock
- --------------------------------------------------------------------
(in thousands)
March 2000 $134,705 $18,593 $6,722
June 2000 176,028 28,130 12,232
September 2000 220,119 53,943 28,762
December 2000 156,750 21,904 7,256
March 1999 $122,435 $18,122 $7,193
June 1999 158,590 31,289 14,953
September 1999 201,594 51,609 27,313
December 1999 150,385 18,736 5,350
- --------------------------------------------------------------------
The Company's business is influenced by seasonal weather conditions and the
timing of rate changes.
26
SELECTED FINANCIAL AND OPERATING DATA 1996-2000
Mississippi Power Company 2000 Annual Report
- -----------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands)* $687,602 $633,004 $595,131 $543,588 $544,029
Net Income after Dividends
on Preferred Stock (in thousands) $54,972 $54,809 $55,105 $54,010 $52,723
Cash Dividends
on Common Stock (in thousands) $54,700 $56,100 $51,700 $49,400 $43,900
Return on Average Common Equity (percent) 13.80 14.00 14.15 14.00 13.90
Total Assets (in thousands) $1,275,071 $1,251,136 $1,189,605 $1,166,829 $1,142,327
Gross Property Additions (in thousands) $81,211 $75,888 $68,231 $55,375 $61,314
- -----------------------------------------------------------------------------------------------------------------------------
Capitalization (in thousands):
Common stock equity $404,898 $391,968 $391,231 $387,824 $383,734
Preferred stock 31,809 31,809 31,809 31,896 74,414
Company obligated mandatorily
redeemable preferred securities 35,000 35,000 35,000 35,000 -
Long-term debt 370,511 321,802 292,744 291,665 326,379
- -----------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) $842,218 $780,579 $750,784 $746,385 $784,527
=============================================================================================================================
Capitalization Ratios (percent):
Common stock equity 48.1 50.2 52.1 52.0 48.9
Preferred stock 3.8 4.1 4.2 4.3 9.5
Company obligated mandatorily
redeemable preferred securities 4.2 4.5 4.7 4.7 -
Long-term debt 43.9 41.2 39.0 39.0 41.6
- -----------------------------------------------------------------------------------------------------------------------------
Total (excluding amounts due within one year) 100.0 100.0 100.0 100.0 100.0
=============================================================================================================================
Security Ratings:
First Mortgage Bonds -
Moody's Aa3 Aa3 Aa3 Aa3 Aa3
Standard and Poor's A+ AA- AA- AA- A+
Fitch AA- AA- AA- AA- AA-
Preferred Stock -
Moody's a1 a1 a1 a1 a1
Standard and Poor's BBB+ A- A A A
Fitch A A A+ A+ A+
=============================================================================================================================
Customers (year-end):
Residential 158,253 157,592 156,530 156,650 154,630
Commercial 32,372 31,837 31,319 31,667 30,366
Industrial 517 546 587 642 639
Other 206 202 200 200 200
- -----------------------------------------------------------------------------------------------------------------------------
Total 191,348 190,177 188,636 189,159 185,835
=============================================================================================================================
Employees (year-end): 1,319 1,328 1,230 1,245 1,363
- -----------------------------------------------------------------------------------------------------------------------------
* 1999 data includes the true-up of the unbilled revenue estimates.
27
SELECTED FINANCIAL AND OPERATING DATA 1996-2000 (continued)
Mississippi Power Company 2000 Annual Report
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues (in thousands)*:
Residential $ 170,729 $159,945 $157,642 $138,608 $137,055
Commercial 163,552 153,936 145,677 134,208 131,734
Industrial 159,705 151,244 135,039 140,233 141,324
Other 4,565 4,309 4,209 4,193 4,013
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail 498,551 469,434 442,567 417,242 414,126
Sales for resale - non-affiliates 145,931 131,004 121,225 105,141 99,596
Sales for resale - affiliates 27,915 19,446 18,285 10,143 21,830
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues from sales of electricity 672,397 619,884 582,077 532,526 535,552
Other revenues 15,205 13,120 13,054 11,062 8,477
- ----------------------------------------------------------------------------------------------------------------------------------
Total $687,602 $633,004 $595,131 $543,588 $544,029
==================================================================================================================================
Kilowatt-Hour Sales (in thousands)*:
Residential 2,286,143 2,248,255 2,248,915 2,039,042 2,079,611
Commercial 2,883,197 2,847,342 2,623,276 2,407,520 2,315,860
Industrial 4,376,171 4,407,445 3,729,166 3,981,875 3,960,243
Other 41,153 40,091 39,772 40,508 39,297
- ----------------------------------------------------------------------------------------------------------------------------------
Total retail 9,586,664 9,543,133 8,641,129 8,468,945 8,395,011
Sales for resale - non-affiliates 3,674,621 3,256,175 3,157,837 2,895,182 2,726,993
Sales for resale - affiliates 452,611 539,939 552,142 478,884 693,510
- ----------------------------------------------------------------------------------------------------------------------------------
Total 13,713,896 13,339,247 12,351,108 11,843,011 11,815,514
==================================================================================================================================
Average Revenue Per Kilowatt-Hour (cents)*:
Residential 7.47 7.11 7.01 6.80 6.59
Commercial 5.67 5.41 5.55 5.57 5.69
Industrial 3.65 3.43 3.62 3.52 3.57
Total retail 5.20 4.92 5.12 4.93 4.93
Sales for resale 4.21 3.96 3.76 3.42 3.55
Total sales 4.90 4.65 4.71 4.50 4.53
Residential Average Annual
Kilowatt-Hour Use Per Customer * 14,445 14,301 14,376 13,132 13,469
Residential Average Annual
Revenue Per Customer * $1,078.76 $1,017.42 $1,007.68 $892.68 $887.66
Plant Nameplate Capacity
Ratings (year-end) (megawatts) 2,086 2,086 2,086 2,086 2,086
Maximum Peak-Hour Demand (megawatts):
Winter 2,305 2,125 1,740 1,922 2,030
Summer 2,593 2,439 2,339 2,209 2,117
Annual Load Factor (percent) 59.3 59.6 58.0 59.1 60.7
Plant Availability Fossil-Steam (percent): 92.6 91.0 90.0 92.4 91.8
- ----------------------------------------------------------------------------------------------------------------------------------
Source of Energy Supply (percent):
Coal 67.8 69.4 66.5 70.5 70.4
Oil and gas 13.5 15.9 14.5 12.5 12.0
Purchased power -
From non-affiliates 7.7 6.2 8.0 3.0 6.5
From affiliates 11.0 8.5 11.0 14.0 11.1
- ----------------------------------------------------------------------------------------------------------------------------------
Total 100.0 100.0 100.0 100.0 100.0
==================================================================================================================================
* 1999 data includes the true-up of the unbilled revenue estimates.
28