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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2003
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _____to_____
Commission Registrant, State of Incorporation, I.R.S. Employer
File Number Address and Telephone Number Identification No.
- ----------- ----------------------------------- ------------------
1-3526 The Southern Company 58-0690070
(A Delaware Corporation)
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(404) 506-5000
1-3164 Alabama Power Company 63-0004250
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 257-1000
1-6468 Georgia Power Company 58-0257110
(A Georgia Corporation)
241 Ralph McGill Boulevard, N.E.
Atlanta, Georgia 30308
(404) 506-6526
0-2429 Gulf Power Company 59-0276810
(A Maine Corporation)
One Energy Place
Pensacola, Florida 32520
(850) 444-6111
001-11229 Mississippi Power Company 64-0205820
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(228) 864-1211
1-5072 Savannah Electric and Power Company 58-0418070
(A Georgia Corporation)
600 East Bay Street
Savannah, Georgia 31401
(912) 644-7171
333-98553 Southern Power Company 58-2598670
(A Delaware Corporation)
270 Peachtree Street, N.W.
Atlanta, Georgia 30303
(404) 506-5000
==================== ========================================= ================
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No____
Indicate by check mark whether the registrants are accelerated filers as
defined by Rule 12b-2 of the Securities Exchange Act of 1934.
Yes X (except for Southern Power Company) No ___
Description of Shares Outstanding
Registrant Common Stock at April 30, 2003
The Southern Company Par Value $5 Per Share 721,737,312
Alabama Power Company Par Value $40 Per Share 6,312,500
Georgia Power Company No Par Value 7,761,500
Gulf Power Company No Par Value 992,717
Mississippi Power Company Without Par Value 1,121,000
Savannah Electric and Power Company Par Value $5 Per Share 10,844,635
Southern Power Company Par Value $0.01 Per Share 1,000
This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company, Savannah Electric and Power Company and Southern Power Company.
Information contained herein relating to any individual company is filed by such
company on its own behalf. Each company makes no representation as to
information relating to the other companies.
2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2003
Page
Number
DEFINITIONS............................................................................................................... 5
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition
The Southern Company and Subsidiary Companies
Condensed Consolidated Statements of Income........................................................ 8
Condensed Consolidated Statements of Cash Flows.................................................... 9
Condensed Consolidated Balance Sheets.............................................................. 10
Condensed Consolidated Statements of Comprehensive Income and
Accumulated Other Comprehensive Income......................................................... 12
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 13
Alabama Power Company
Condensed Statements of Income..................................................................... 22
Condensed Statements of Cash Flows................................................................. 23
Condensed Balance Sheets........................................................................... 24
Condensed Statements of Comprehensive Income and
Accumulated Other Comprehensive Income......................................................... 26
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 27
Georgia Power Company
Condensed Statements of Income..................................................................... 35
Condensed Statements of Cash Flows................................................................. 36
Condensed Balance Sheets........................................................................... 37
Condensed Statements of Comprehensive Income and
Accumulated Other Comprehensive Income......................................................... 39
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 40
Gulf Power Company
Condensed Statements of Income..................................................................... 48
Condensed Statements of Cash Flows................................................................. 49
Condensed Balance Sheets........................................................................... 50
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 52
Mississippi Power Company
Condensed Statements of Income..................................................................... 59
Condensed Statements of Cash Flows................................................................. 60
Condensed Balance Sheets........................................................................... 61
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 63
Savannah Electric and Power Company
Condensed Statements of Income..................................................................... 71
Condensed Statements of Cash Flows................................................................. 72
Condensed Balance Sheets........................................................................... 73
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 75
Southern Power Company
Condensed Statements of Income..................................................................... 82
Condensed Statements of Cash Flows................................................................. 83
Condensed Balance Sheets........................................................................... 84
Condensed Statements of Comprehensive Income and
Accumulated Other Comprehensive Income......................................................... 86
Management's Discussion and Analysis of Results of Operations and Financial Condition.............. 87
Notes to the Condensed Financial Statements........................................................... 94
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................................ 20
Item 4. Controls and Procedures............................................................................... 20
3
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 31, 2003
Number
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................................... 102
Item 2. Changes in Securities and Use of Proceeds................................................................. Inapplicable
Item 3. Defaults Upon Senior Securities........................................................................... Inapplicable
Item 4. Submission of Matters to a Vote of Security Holders....................................................... Inapplicable
Item 5. Other Information......................................................................................... Inapplicable
Item 6. Exhibits and Reports on Form 8-K.......................................................................... 102
Signatures and Certifications............................................................................. 106
4
DEFINITIONS
TERM MEANING
Alabama Power............................... Alabama Power Company
Clean Air Act .............................. Clean Air Act Amendments of 1990
Dynegy...................................... Dynegy, Inc.
ECO Plan.................................... Environmental Compliance Overview Plan
Energy Act.................................. Energy Policy Act of 1992
EPA......................................... U. S. Environmental Protection Agency
FASB........................................ Financial Accounting Standards Board
FERC........................................ Federal Energy Regulatory Commission
Form 10-K................................... Combined Annual Report on Form 10-K of Southern Company,
Alabama Power, Georgia Power, Gulf Power, Mississippi Power,
Savannah Electric and Southern Power for the year ended
December 31, 2002
Georgia Power............................... Georgia Power Company
Gulf Power.................................. Gulf Power Company
IRS......................................... Internal Revenue Service
Mirant...................................... Mirant Corporation
Mississippi Power........................... Mississippi Power Company
Mobile Energy............................... Mobile Energy Services Company, L.L.C. and
Mobile Energy Services Holdings, Inc.
Moody's..................................... Moody's Investors Service, Inc.
operating companies......................... Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah Electric
PEP......................................... Performance Evaluation Plan
PPA......................................... Purchase Power Agreement
PSC......................................... Public Service Commission
RTO......................................... Regional Transmission Organization
S&P......................................... Standard and Poor's, a division of The McGraw-Hill Companies
Savannah Electric........................... Savannah Electric and Power Company
SCS......................................... Southern Company Services, Inc.
SEC......................................... Securities and Exchange Commission
SeTrans..................................... A proposed regional transmission organization consisting
of public and private companies, including Southern Company, located
in eight southeastern states
Southern Company............................ The Southern Company
Southern Company GAS........................ Southern Company Gas LLC
Southern Power.............................. Southern Power Company
Southern Company system..................... Southern Company, the operating companies, Southern Power and other subsidiaries
Super Southeast............................. Southern Company's traditional service territory, Alabama, Florida, Georgia and
Mississippi plus the surrounding states of Kentucky, Louisiana, North Carolina,
South Carolina, Tennessee and Virginia
TVA......................................... Tennessee Valley Authority
5
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q contains forward-looking and historical
information. Forward-looking information includes, among other things,
statements concerning the strategic goals for Southern Company's wholesale
business, estimated construction expenditures and Southern Company's projections
for energy sales and its goals for future generating capacity, dividend payout
ratio, equity ratio, earnings per share and earnings growth. In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "could," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "projects," "predicts," "potential" or "continue" or the negative
of these terms or other comparable terminology. The registrants caution that
there are various important factors that could cause actual results to differ
materially from those indicated in the forward-looking statements; accordingly,
there can be no assurance that such indicated results will be realized. These
factors include 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 Southern Company and its
subsidiaries are subject, as well as changes in application of existing laws and
regulations; current and future litigation, including the pending EPA civil
actions against certain Southern Company subsidiaries; the effects, extent and
timing of the entry of additional competition in the markets in which Southern
Company's subsidiaries operate; the impact of fluctuations in commodity prices,
interest rates and customer demand; state and federal rate regulations;
political, legal and economic conditions and developments in the United States;
the performance of projects undertaken by the non-traditional business and the
success of efforts to invest in and develop new opportunities; internal
restructuring or other restructuring options that may be pursued; potential
business strategies, including acquisitions or dispositions of assets or
businesses, which cannot be assured to be completed or beneficial to Southern
Company or its subsidiaries; the ability of counterparties of Southern Company
and its subsidiaries to make payments as and when due; the effects of, and
changes in, economic conditions in the areas in which Southern Company's
subsidiaries operate, including the current soft economy; the direct or indirect
effects on Southern Company's business resulting from the terrorist incidents on
September 11, 2001, or any similar such incidents or responses to such
incidents; financial market conditions and the results of financing efforts; the
timing and acceptance of Southern Company's new product and service offerings;
the ability of Southern Company and its subsidiaries to obtain additional
generating capacity at competitive prices; weather and other natural phenomena;
and other factors discussed elsewhere herein and in other reports (including the
Form 10-K) filed from time to time with the SEC.
6
THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $1,973,844 $1,843,719
Sales for resale 339,161 232,679
Other electric revenues 91,877 63,417
Other revenues 148,020 73,773
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 2,552,902 2,213,588
- -------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Fuel 710,327 574,193
Purchased power 137,102 67,617
Other operations 493,866 445,252
Maintenance 229,710 228,790
Depreciation and amortization 244,988 245,635
Taxes other than income taxes 148,826 139,847
- -------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,964,819 1,701,334
- -------------------------------------------------------------------------------------------------------------------
Operating Income 588,083 512,254
Other Income and (Expense):
Allowance for equity funds used during construction 7,851 7,087
Interest income 4,498 4,803
Equity in losses of unconsolidated subsidiaries (27,167) (15,904)
Leveraged lease income 17,715 14,701
Interest expense, net of amounts capitalized (123,761) (120,553)
Distributions on capital and preferred securities of subsidiaries (39,586) (42,527)
Preferred dividends of subsidiaries (4,750) (4,381)
Other income (expense), net (4,283) (20,056)
- -------------------------------------------------------------------------------------------------------------------
Total other income and (expense) (169,483) (176,830)
- -------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 418,600 335,424
- -------------------------------------------------------------------------------------------------------------------
Income taxes 121,168 111,138
- -------------------------------------------------------------------------------------------------------------------
Earnings Before Cumulative Effect of Accounting Change 297,432 224,286
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of accounting change --
less income taxes of $231 367 -
- -------------------------------------------------------------------------------------------------------------------
Consolidated Net Income $297,799 $224,286
- -------------------------------------------------------------------------==================-=====================--
Common Stock Data:
Consolidated basic earnings per share $0.41 $0.32
Consolidated diluted earnings per share $0.41 $0.32
Average number of basic shares of common
stock outstanding (in thousands) 718,943 701,012
Average number of diluted shares of common
stock outstanding (in thousands) 724,891 706,298
Cash dividends paid per share of common stock $0.343 $0.335
The accompanying notes as they relate to Southern Company are an
integral part of these condensed financial statements.
8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Consolidated net income $297,799 $224,286
Adjustments to reconcile consolidated net income
to net cash provided from operating activities --
Depreciation and amortization 289,200 274,523
Deferred income taxes and investment tax credits 80,005 (15,910)
Equity in losses of unconsolidated subsidiaries 27,167 15,904
Leveraged lease income (17,715) (14,701)
Pension, postretirement, and other employee benefits 3,646 (6,345)
Other, net 19,177 30,119
Changes in certain current assets and liabilities --
Receivables, net 181,153 197,256
Fossil fuel stock 6,831 (235)
Materials and supplies (8,709) 6,779
Other current assets (127,995) (103,221)
Accounts payable (203,267) (144,435)
Taxes accrued (8,628) 32,884
Other current liabilities (178,548) (52,516)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 360,116 444,388
- ----------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (535,379) (677,550)
Cost of removal net of salvage 2,253 (28,147)
Other (67,531) (74,894)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (600,657) (780,591)
- ----------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase (decrease) in notes payable, net 533,363 (85,020)
Proceeds --
Senior notes 1,085,000 125,000
Other long-term debt 19,870 718,119
Capital and preferred securities - 35,000
Preferred stock 125,000 -
Common stock 121,661 125,882
Redemptions --
First mortgage bonds (33,350) (6,794)
Long-term senior notes (875,905) (380,615)
Other long-term debt (390,513) (16,607)
Capital and preferred securities (40,000) -
Payment of common stock dividends (245,745) (234,272)
Other (22,455) (2,419)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided from financing activities 276,926 278,274
- ----------------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 36,385 (57,929)
- ----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 273,010 354,015
- ----------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 309,395 $ 296,086
- ------------------------------------------------------------------------------================-=================------------
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of $18,066 and $12,269 capitalized for 2003 and 2002, respectively) $117,458 $82,315
Income taxes (net of refunds) ($117) $58,204
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2003 2002
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 309,395 $ 273,032
Receivables
Customer accounts receivable 657,622 709,878
Unbilled revenues 215,754 277,105
Under recovered regulatory clause revenues 154,757 174,362
Other accounts and notes receivable 356,392 370,021
Accumulated provision for uncollectible accounts (30,798) (25,546)
Fossil fuel stock, at average cost 292,124 298,955
Materials and supplies, at average cost 548,168 539,459
Other 418,202 349,936
- ------------------------------------------------------------------------------------------------------------------
Total current assets 2,921,616 2,967,202
- ------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 38,308,286 37,485,853
Less accumulated depreciation 15,044,427 15,448,850
23,263,859 22,037,003
Nuclear fuel, at amortized cost 202,240 222,676
Construction work in progress 2,225,239 2,382,287
- ------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 25,691,338 24,641,966
- ------------------------------------------------------------------------------------------------------------------
Other Property and Investments:
Nuclear decommissioning trusts, at fair value 654,980 639,167
Leveraged leases 791,190 790,767
Other 223,683 243,353
- ------------------------------------------------------------------------------------------------------------------
Total other property and investments 1,669,853 1,673,287
- ------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 894,336 897,777
Prepaid pension costs 813,752 786,115
Unamortized debt issuance expense 129,359 121,008
Unamortized premium on reacquired debt 325,426 313,057
Other 404,744 398,581
- ------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 2,567,617 2,516,538
- ------------------------------------------------------------------------------------------------------------------
Total Assets $32,850,424 $31,798,993
- ----------------------------------------------------------------------====================----===================-
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholders' Equity 2003 2002
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 1,440,623 $ 1,679,489
Notes payable 1,541,527 972,459
Accounts payable 717,949 985,660
Customer deposits 173,552 168,952
Taxes accrued --
Income taxes 117,405 112,765
Other 127,686 218,967
Interest accrued 163,209 158,196
Vacation pay accrued 127,648 130,015
Other 412,477 592,530
- ----------------------------------------------------------------------------------------------------------------
Total current liabilities 4,822,076 5,019,033
- ----------------------------------------------------------------------------------------------------------------
Long-term debt 8,703,516 8,692,962
- ----------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 4,305,410 4,214,471
Deferred credits related to income taxes 442,976 449,816
Accumulated deferred investment tax credits 599,926 606,779
Employee benefits provisions 634,955 614,239
Asset retirement obligations 791,154 -
Other 876,458 813,464
- ----------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 7,650,879 6,698,769
- ----------------------------------------------------------------------------------------------------------------
Company or subsidiary obligated mandatorily redeemable
capital and preferred securities 2,380,000 2,380,000
- ----------------------------------------------------------------------------------------------------------------
Cumulative preferred stock of subsidiaries 423,126 298,126
- ----------------------------------------------------------------------------------------------------------------
Common Stockholders' Equity:
Common stock, par value $5 per share --
Authorized -- 1 billion shares
Issued -- March 31, 2003: 721,108,761 shares;
-- December 31, 2002: 716,548,526 shares 3,605,544 3,582,743
Paid-in capital 436,610 337,670
Treasury, at cost -- March 31, 2003: 151,582 shares;
-- December 31, 2002: 147,021 shares (3,121) (2,815)
Retained earnings 4,921,636 4,874,375
Accumulated other comprehensive loss (89,842) (81,870)
- ----------------------------------------------------------------------------------------------------------------
Total common stockholders' equity 8,870,827 8,710,103
- ----------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $32,850,424 $31,798,993
- -------------------------------------------------------------------====================----===================--
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months
Ended March 31,
- ------------------------------------------------------------------------------------------------------------------------
2003 2002
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Consolidated Net Income $ 297,799 $ 224,286
Other comprehensive income (loss):
Changes in fair value of marketable securities 112 (140)
Changes in fair value of qualifying hedges, net of tax of (8,341) 6,249
$(5,504) and $4,045, respectively
Less: Reclassification adjustment for amounts included in net 257 -
income, net of tax of $166
- -------------------------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) $ (7,972) $ 6,109
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED COMPREHENSIVE INCOME $ 289,827 $ 230,395
=========================================================================================================================
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS
(UNAUDITED)
At March 31, At December 31,
2003 2002
- --------------------------------------------------------------------------
(in thousands)
Balance at beginning of period $ (81,870) $ 7,148
Change in current period (7,972) (89,018)
- -------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ (89,842) $ (81,870)
- -------------------------------------------------------------------------
The accompanying notes as they relate to Southern Company are an integral part of these condensed financial statements.
12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
RESULTS OF OPERATIONS
Southern Company is focusing on three main businesses in
the Southeast: its traditional business, represented by its five operating
companies providing regulated retail electric service in four states; a growing
competitive generation business in the Super Southeast; and energy-related
products and services for its retail customers. For additional information on
these businesses, see Item 1 - BUSINESS - "Operating Companies," "Southern
Power" and "Other Business" in the Form 10-K.
Earnings
Southern Company's first quarter 2003 earnings were $298 million ($0.41
per share) compared with $224 million ($0.32 per share) in the first quarter
2002. The increase in earnings for the first quarter 2003 is due to a number of
positive factors, including increased demand for electricity, continued customer
growth, solid performance by the competitive generation business and the overall
impact of regulatory rate proceedings in Alabama and Florida, partially offset
by the impact of higher operating expenses related to generating units that were
placed in service in 2002. Lower than normal temperatures in the first quarter
2003 resulted in increased demand for energy when compared to the corresponding
period in 2002.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------------
First Quarter
-------------------------------------
(in thousands) %
Retail sales.......................... $130,125 7.1
Sales for resale...................... 106,482 45.8
Other electric revenues............... 28,460 44.9
Other revenues........................ 74,247 100.6
Fuel expense.......................... 136,134 23.7
Purchased power expense............... 69,485 102.8
Other operation expense............... 48,614 10.9
Equity in losses of unconsolidated
subsidiaries....................... 11,263 70.8
Leveraged lease income................ 3,014 20.5
Other income (expense), net........... 15,773 78.6
Retail sales. Excluding fuel revenues, which generally do not affect
net income, retail sales revenue was up by $57.5 million, or 4.4%, in the first
quarter 2003 when compared to the corresponding period in the prior year. Energy
sales to residential, commercial and industrial customers for the first quarter
2003 increased by 4.3%, 1.1% and 4.0%, respectively, as compared to the same
reporting period in 2002. Colder weather and customer growth significantly
impacted energy sales to these customers in the first quarter 2003 when compared
to the same period in the prior year.
13
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Sales for resale. During the first quarter 2003, sales for resale increased
due to increases in both the demand and price of energy sold when compared to
the same period in 2002.
Other electric revenues. During the first quarter 2003, other electric
revenues increased primarily due to higher revenue from cogeneration steam
facilities resulting from higher gas prices and demand, increased revenues from
transmission to others and higher fees charged for connection, reconnection and
collection. Since cogeneration steam revenues are generally offset by fuel
expenses, these revenues do not have a significant impact on earnings.
Other revenues. For the first quarter 2003, other revenues increased
primarily due to revenues from Southern Company GAS, which began operations in
August 2002.
Fuel expense. The increase in fuel expense for the first quarter 2003 can
be primarily attributed to fuel expenses at Southern Company GAS, increased
generation to meet higher demand, the commercial operation of Southern Power's
Plant Franklin Unit 1 and Plant Wansley Units 6 and 7 in June 2002, and an
increase of over 100% in the unit cost for natural gas.
Purchased power expense. The increase in purchased power expense during the
first quarter 2003 was mainly the result of higher demand for energy and
increased prices for these energy purchases when compared to the corresponding
period in 2002.
Other operations expense. During the first quarter 2003, the increase in
other operations expense is attributed to a number of factors. Primary factors
include higher administrative and general expenses, higher transmission and
distribution expenses and expenses at Southern Company GAS, which began
operations in August 2002.
Equity in losses of subsidiaries. The increase in losses from
unconsolidated subsidiaries in the first quarter 2003 as compared to the same
period in 2002 related to higher operating losses from Southern Company's
investments in alternative fuel partnerships. These losses are offset by income
tax credits generated by such partnerships.
Leveraged lease income. In the first quarter 2003, leveraged lease income
increased mainly due to the effect of a new lease transaction involving a
coal-fired electric generation facility in Mississippi that Southern Company
completed in late December 2002.
Other income (expense), net. The increase in this item during the first
quarter 2003 when compared to the same period in 2002 is primarily due to mark
to market adjustments for derivative electric contracts, a decrease in
non-utility expenses at Alabama Power and higher income associated with a new
electricity pricing program at Georgia Power.
14
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors. The two major factors are the ability of the operating companies to
maintain a stable regulatory environment and achieve energy sales growth while
containing costs and the profitability of the competitive market-based wholesale
generating business. For additional information relating to these issues, see
Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS - "Future Earnings Potential" of Southern Company in the Form 10-K.
Reference is made to Note 11 to the financial statements of Southern Company
in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS-"Future Earnings Potential"
in Item 7 of the Form 10-K and to Note (B) to the Condensed Financial Statements
herein for information relating to the spin-off of Mirant from Southern Company.
Mirant recently filed its Annual Report on Form 10-K for the year ended December
31, 2002, which included its restated financial statements for the years ended
December 31, 2001 and 2000. The effect of these restatements on Southern
Company's financial statements, if any, cannot be determined until Mirant's 2001
revised quarterly financial statements are filed. However, Southern Company's
management does not currently anticipate that a reaudit of Southern Company's
2000 or 2001 financial statements will be necessary.
Southern Company's business activities are subject to extensive
governmental regulation related to public health and the environment. Litigation
over environmental issues and claims of various types, including property
damage, personal injury and citizen enforcement of environmental requirements,
has increased generally throughout the United States. In particular, personal
injury claims for damages caused by alleged exposure to hazardous materials have
become more frequent. The ultimate outcome of such litigation currently filed
against Southern Company and its subsidiaries cannot be predicted at this time;
however, after consultation with legal counsel, management does not anticipate
that the liabilities, if any, arising from such proceedings would have a
material adverse effect on Southern Company's financial position, results of
operations or cash flows.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. For additional information about the Clean Air Act
and other environmental issues, including the EPA litigation, see Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the
financial statements of Southern Company in Item 8 of the Form 10-K. On May 7,
2003, the U.S. District Court in Alabama extended the stay of the EPA litigation
proceeding in Alabama until the earlier of August 5, 2003 or a ruling by the
U.S. Court of Appeals for the Eleventh Circuit in the related litigation
involving TVA.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - FERC Matters" of Southern Company in the Form 10-K
for information on the formation of an RTO as ordered by the FERC and the notice
of proposed rulemaking regarding open access transmission service and standard
electricity market design. In April 2003, the FERC issued a White Paper related
to its proposed rulemaking regarding open access transmission service and
standard electricity market design in an effort to respond to certain of the
public comments received on the standard market design proposal. Evident in the
White Paper are continuing differences in opinion between the FERC and various
state regulatory commissions over questions of jurisdiction and protection of
retail customers. Pending energy legislation may also impact these issues. Any
impact of this proposal on Southern Company and its subsidiaries will depend on
the form in which final rules may be ultimately adopted; however, Southern
Company's revenues, expenses, assets and liabilities could be adversely affected
by changes in the transmission regulatory structure in its regional power
market.
15
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to Note (J) to the Condensed Financial Statements herein
for information regarding the proposed terminations of three PPAs between
subsidiaries of Dynegy and Mississippi Power and Southern Power. Reference is
also made to Notes (C) through (G) to the Condensed Financial Statements herein
for discussion of various contingencies and other matters which may affect
future earnings potential.
Accounting Policies
Critical Policy
Southern Company's significant accounting policies are described in Note 1 to
the financial statements of Southern Company in Item 8 of the Form 10-K.
Southern Company's only critical accounting policy involves rate regulation. The
operating companies are subject to the provisions of FASB Statement No. 71,
"Accounting for the Effects of Certain Types of Regulation." In the event that a
portion of a company's operations is no longer subject to these provisions, the
company would be required to write off related regulatory assets and liabilities
that are not specifically recoverable and determine if any other assets,
including plant, have been impaired.
New Accounting Standards
Reference is made to Note (H) to the Condensed Financial Statements herein for
information regarding the adoption of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" effective January 1, 2003. Statement No. 143
establishes new accounting and reporting standards for legal obligations
associated with the ultimate cost of retiring long-lived assets. The present
value of the ultimate costs for an asset's future retirement must be recorded in
the period in which the liability is incurred. The cost must be capitalized as
part of the related long-lived asset and depreciated over the asset's useful
life. Additionally, Statement No. 143 does not permit non-regulated companies to
continue accruing future retirement costs for long-lived assets that they do not
have a legal obligation to retire. Prior to January 2003, Southern Company
accrued for the ultimate cost of retiring most long-lived assets over the life
of the related asset through depreciation expense.
FINANCIAL CONDITION
Overview
Major changes in Southern Company's financial condition during the first three
months of 2003 included $535 million used for gross property additions to
utility plant. The funds for these additions and other capital requirements were
primarily obtained from issuances of senior notes and other long-term debt. See
Southern Company's Condensed Consolidated Statements of Cash Flows herein for
further details.
Off-Balance Sheet Financing Arrangements
Reference is made to Note 9 to the financial statements of Southern Company in
Item 8 of the Form 10-K and Note 8 to the financial statements of Mississippi
Power in Item 8 of the Form 10-K for information regarding Mississippi Power's
lease agreement with Escatawpa Funding, Limited Partnership ("Escatawpa"). Under
this agreement, Escatawpa, a special purpose entity, is the owner-lessor of the
combined-cycle generating units at Mississippi Power's Plant Daniel.
16
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Mississippi Power is currently working to restructure this agreement so
that it will continue to be accounted for as an operating lease. The
restructured agreement should be completed in June 2003, prior to the required
implementation date of FASB Interpretation No. 46, "Consolidation of Certain
Special-Purpose Entities." If the agreement is not restructured, Interpretation
No. 46 will require that Mississippi Power consolidate the assets and
liabilities of Escatawpa effective July 1, 2003.
Credit Rating Risk
Southern Company and its subsidiaries do not have any credit agreements that
would require material changes in payment schedules or terminations as a result
of a credit rating downgrade. There are certain contracts that could require
collateral -- but not accelerated payment -- in the event of a credit rating
change to below investment grade. These contracts are primarily for physical
electricity sales, fixed-price physical gas purchases and agreements covering
interest rate swaps. At March 31, 2003, the maximum potential collateral
requirements under the electricity sale contracts and financial instrument
agreements were approximately $425 million. Generally, collateral may be
provided for by a Southern Company guaranty, letter of credit or cash. At March
31, 2003, there were no material collateral requirements for the gas purchase
contracts.
Exposure to Market Risks
Southern Company's market risk exposures relative to interest rate changes have
not changed materially compared with the December 31, 2002 reporting period. In
addition, Southern Company is not aware of any facts or circumstances that would
significantly affect such exposures in the near term.
Due to cost-based rate regulations, the operating companies have limited
exposure to market volatility in interest rates, commodity fuel prices and
prices of electricity. To mitigate residual risks relative to movements in
electricity prices, the operating companies and Southern Power enter into fixed
price contracts for the purchase and sale of electricity through the wholesale
electricity market and, to a lesser extent, similar contracts for gas purchases.
Also, the operating companies have each implemented fuel-hedging programs at the
instruction of their respective PSCs. The fair value of derivative energy
contracts at March 31, 2003 was as follows:
First Quarter
2003
Changes
--------------------------------------- -------------------------
Fair Value
--------------------------------------- -------------------------
(in thousands)
Contracts beginning of period $47,335
Contracts realized or settled (14,721)
New contracts at inception -
Changes in valuation techniques -
Current period changes 14,614
--------------------------------------- -------------------------
Contracts at March 31, 2003 $47,228
======================================= =========================
17
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Source of March 31, 2003
Valuation Prices
-------------------------------- ------------ ----------------------------
Total Maturity
----------------------------
Fair Value Year 1 1-3 Years
-------------------------------- -----------------------------------------
(in millions)
Actively quoted $47.2 $53.2 $(6.0)
External sources - - -
Models and other methods - - -
-------------------------------- ------------ ----------------------------
Contracts at March 31, 2003 $47.2 $53.2 $(6.0)
================================ ============ ============================
Unrealized gains and losses from mark to market adjustments on contracts
related to the PSC-approved fuel hedging programs are recorded as regulatory
assets and liabilities. Realized gains and losses from these programs are
included in fuel expense and are recovered through the operating companies' fuel
cost recovery clauses. In addition, unrealized gains and losses on electric and
gas contracts used to hedge anticipated purchases and sales are deferred in
Other Comprehensive Income. Gains and losses on contracts that do not represent
hedges are recognized in the Statements of Income as incurred. At March 31,
2003, the fair value of derivative energy contracts reflected in the financial
statements was as follows:
Amounts
--------------------------------------- -------------------------
(in thousands)
Regulatory liabilities, net $42,265
Other comprehensive income 4,011
Net income 952
--------------------------------------- -------------------------
Total fair value $47,228
======================================= =========================
For the quarters ended March 31, 2003 and 2002, approximately $0.5 million
and $9.8 million, respectively, of losses were recognized in income.
Southern Company is exposed to market price risk in the event of
nonperformance by the parties to the derivative energy contracts. Southern
Company's policy is to enter into agreements with counterparties that have
investment grade credit ratings by Moody's and S&P; therefore Southern Company
does not anticipate nonperformance by the counterparties. For additional
information, reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS
- - "Market Price Risk" of Southern Company in the Form 10-K, Note 1 to the
financial statements of Southern Company in Item 8 of the Form 10-K and Note (G)
to the Condensed Financial Statements herein.
Financing Activities
During the first quarter 2003, Southern Company subsidiaries issued $1,085
million of senior notes and $14 million of pollution control revenue bonds. The
issuances were used to refund $909 million of first mortgage bonds and long-term
senior notes. The remainder was used to reduce short-term debt and fund ongoing
construction programs. Reference is made to Southern Company's Condensed
Consolidated Statements of Cash Flows herein for further details on financing
activities during the first quarter 2003.
The market price of Southern Company's common stock at March 31, 2003 was
$28.44 per share and the book value was $12.30 per share, representing a
market-to-book ratio of 231%, compared to $28.39, $12.16 and 233%, respectively,
at the end of 2002. The dividend for the first quarter 2003 was $0.3425 per
share compared to $0.335 per share in the first quarter of 2002.
18
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital
Requirements for Construction," "Other Capital Requirements" and "Environmental
Matters" of Southern Company in the Form 10-K for a description of the Southern
Company system's capital requirements for its construction program, sinking fund
requirements, maturing debt and environmental compliance efforts. Approximately
$1.4 billion will be required by March 31, 2004 for redemptions and maturities
of long-term debt. Also, Southern Company and its subsidiaries plan to continue,
to the extent possible, a program to retire higher-cost debt and replace these
securities with lower-cost capital.
Sources of Capital
In addition to the financing activities previously described, Southern Company
may require additional equity capital over the next several years. The amounts
and timing of additional equity capital to be raised will be contingent on
Southern Company's investment opportunities. The operating companies and
Southern Power plan to obtain the funds required for construction and other
purposes from sources similar to those used in the past, which were primarily
internal sources and the issuances of new debt and preferred equity securities,
term loans and short-term borrowings. However, the amount, type and timing of
any financings -- if needed -- will depend upon market conditions and regulatory
approval. See Item 1 - BUSINESS - "Financing Programs" of Southern Company in
the Form 10-K for additional information.
Southern Company's current liabilities exceed current assets because of the
continued use of short-term debt as a funding source to meet cash needs as well
as scheduled maturities of long-term debt.
To meet short-term cash needs and contingencies, the Southern Company
system had at March 31, 2003 approximately $309 million of cash and cash
equivalents and approximately $4.2 billion of unused credit arrangements with
banks, of which $2.9 billion expire in 2003 and $1.25 billion expire in 2004 and
beyond. Of the facilities maturing in 2003, $2.7 billion contain provisions
allowing two-year term loans executable at the expiration date. These unused
credit arrangements also provide liquidity support to variable rate pollution
control bonds and commercial paper programs. Due to a reduction of commercial
paper and variable rate pollution bonds requiring liquidity support, the
Southern Company system plans to reduce its credit arrangements to $3.5 billion
by the end of June 2003. The operating companies may also meet short-term cash
needs through a Southern Company subsidiary organized to issue and sell
commercial paper and extendible commercial notes at the request and for the
benefit of each of the operating companies. At March 31, 2003, the Southern
Company system had extendible commercial notes outstanding of $19.9 million,
short-term notes payable outstanding of $20 million and commercial paper
outstanding of $1.46 billion. Management believes that the need for working
capital can be adequately met by utilizing lines of credit without maintaining
large cash balances.
19
PART I
Item 3. Quantitative And Qualitative Disclosures About Market Risk.
Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Market Price Risk"
herein for each registrant and Note 1 to the financial statements of each
registrant in Item 8 of the Form 10-K. Reference is also made to Note (I) to the
Condensed Financial Statements herein for information relating to derivative
instruments.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
Within 90 days of the filing date of this quarterly report, Southern Company,
the operating companies and Southern Power conducted separate evaluations under
the supervision and with the participation of each company's management,
including the Chief Executive Officer and the Chief Financial Officer, of the
effectiveness of the design and operation of the disclosure controls and
procedures (as defined in Sections 13a-14(c) and 15d-14(c) of the Securities
Exchange Act of 1934). Based upon those evaluations, the Chief Executive Officer
and the Chief Financial Officer, in each case, concluded that the disclosure
controls and procedures are effective in alerting them in a timely manner to
material information relating to each company (including its consolidated
subsidiaries) required to be included in periodic filings with the SEC.
(b) Changes in internal controls.
There have been no significant changes in Southern Company's, the operating
companies' or Southern Power's internal controls or in other factors that could
significantly affect these internal controls subsequent to the date each company
carried out its evaluation.
20
ALABAMA POWER COMPANY
21
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $670,829 $631,897
Sales for resale --
Non-affiliates 123,722 94,623
Affiliates 61,987 54,677
Other revenues 38,023 21,052
- ----------------------------------------------------------------------------------------------------------------
Total operating revenues 894,561 802,249
- ----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 239,744 210,297
Purchased power --
Non-affiliates 33,270 15,771
Affiliates 41,496 32,730
Other 134,543 120,062
Maintenance 74,575 76,814
Depreciation and amortization 100,211 98,275
Taxes other than income taxes 60,085 57,500
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 683,924 611,449
- ----------------------------------------------------------------------------------------------------------------
Operating Income 210,637 190,800
Other Income and (Expense):
Allowance for equity funds used during construction 4,737 3,007
Interest income 3,276 3,162
Interest expense, net of amounts capitalized (54,573) (55,649)
Distributions on preferred securities of subsidiary (3,441) (6,019)
Other income (expense), net (5,719) (11,565)
- ----------------------------------------------------------------------------------------------------------------
Total other income and (expense) (55,720) (67,064)
- ----------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 154,917 123,736
Income taxes 59,073 47,540
- ----------------------------------------------------------------------------------------------------------------
Net Income 95,844 76,196
Dividends on Preferred Stock 4,025 3,656
- ----------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 91,819 $ 72,540
- -------------------------------------------------------------------------------=================-===============
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
22
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
--------------- -------------
(in thousands)
Operating Activities:
Net income $ 95,844 $76,196
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 117,031 116,006
Deferred income taxes and investment tax credits, net 14,105 (16,543)
Pension, postretirement, and other employee benefits (4,201) (5,848)
Other, net 9,111 24,605
Changes in certain current assets and liabilities --
Receivables, net 62,811 20,098
Fossil fuel stock (3,949) 4,351
Materials and supplies (2,087) 1,403
Other current assets (61,415) (63,522)
Accounts payable (106,583) (67,620)
Taxes accrued 60,108 60,256
Other current liabilities (13,860) 48,988
--------------- -------------
Net cash provided from operating activities 166,915 198,370
--------------- -------------
Investing Activities:
Gross property additions (189,839) (173,817)
Cost of removal net of salvage 10,865 (10,865)
Other (12,928) 11,098
--------------- -------------
Net cash used for investing activities (191,902) (173,584)
--------------- -------------
Financing Activities:
Increase (decrease) in notes payable, net (36,991) 86,837
Proceeds --
Senior notes 620,000 -
Preferred stock 125,000 -
Capital contributions from parent company 4,195 1,468
Redemptions --
First mortgage bonds - (4,498)
Senior notes (560,800) (364)
Other long-term debt (236) (216)
Payment of preferred stock dividends (3,200) (3,632)
Payment of common stock dividends (107,550) (107,750)
Other (9,513) (194)
--------------- -------------
Net cash provided from (used for) financing activities 30,905 (28,349)
--------------- -------------
Net Change in Cash and Cash Equivalents 5,918 (3,563)
Cash and Cash Equivalents at Beginning of Period 22,685 35,756
--------------- -------------
Cash and Cash Equivalents at End of Period $ 28,603 $32,193
=============== =============
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of $2,507 and $1,939 capitalized for 2003 and 2002, respectively) $31,313 $28,030
Income taxes (net of refunds) $ - $23,097
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
23
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2003 2002
--------------------- --------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 28,603 $ 22,685
Receivables --
Customer accounts receivable 227,139 240,052
Unbilled revenues 69,906 89,336
Other accounts and notes receivable 38,598 47,535
Affiliated companies 52,569 74,099
Accumulated provision for uncollectible accounts (5,229) (4,827)
Fossil fuel stock, at average cost 77,692 73,742
Materials and supplies, at average cost 189,683 187,596
Other 168,830 110,035
--------------------- --------------------
Total current assets 847,791 840,253
--------------------- --------------------
Property, Plant, and Equipment:
In service 13,662,507 13,506,170
Less accumulated provision for depreciation 5,327,380 5,543,416
--------------------- --------------------
8,335,127 7,962,754
Nuclear fuel, at amortized cost 92,993 103,088
Construction work in progress 564,672 478,652
--------------------- --------------------
Total property, plant, and equipment 8,992,792 8,544,494
--------------------- --------------------
Other Property and Investments:
Equity investments in subsidiaries 45,916 45,553
Nuclear decommissioning trusts 300,072 292,297
Other 16,406 16,477
--------------------- --------------------
Total other property and investments 362,394 354,327
--------------------- --------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 327,651 327,276
Prepaid pension costs 402,781 389,793
Unamortized debt issuance expense 9,703 4,361
Unamortized premium on reacquired debt 112,466 103,819
Department of Energy assessments 17,144 17,144
Other 99,365 104,539
--------------------- --------------------
Total deferred charges and other assets 969,110 946,932
--------------------- --------------------
Total Assets $ 11,172,087 $ 10,686,006
===================== ====================
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
24
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2003 2002
--------------------- --------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 947,158 $ 1,117,945
Notes payable - 36,991
Accounts payable --
Affiliated 83,637 109,790
Other 70,670 150,195
Customer deposits 45,322 44,410
Taxes accrued --
Income taxes 105,683 80,438
Other 39,896 20,561
Interest accrued 58,630 36,344
Vacation pay accrued 33,901 33,901
Other 81,274 114,870
--------------------- --------------------
Total current liabilities 1,466,171 1,745,445
--------------------- --------------------
Long-term debt 3,089,659 2,851,562
--------------------- --------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 1,471,902 1,436,559
Deferred credits related to income taxes 171,825 177,205
Accumulated deferred investment tax credits 224,530 227,270
Employee benefits provisions 145,384 141,149
Deferred capacity revenues 31,578 33,924
Asset retirement obligations 306,144 -
Asset retirement obligation regulatory liability 68,979 -
Other 158,915 147,640
--------------------- --------------------
Total deferred credits and other liabilities 2,579,257 2,163,747
--------------------- --------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 300,000 300,000
--------------------- --------------------
Cumulative preferred stock 372,512 247,512
--------------------- --------------------
Common stockholder's equity:
Common stock, par value $40 per share --
Authorized - 6,000,000 shares
Outstanding - 6,000,000 shares
Par value 240,000 240,000
Paid-in capital 1,904,660 1,900,464
Premium on preferred stock 99 99
Retained earnings 1,233,218 1,250,594
Accumulated other comprehensive loss (13,489) (13,417)
--------------------- --------------------
Total common stockholder's equity 3,364,488 3,377,740
--------------------- --------------------
Total Liabilities and Stockholder's Equity $ 11,172,087 $ 10,686,006
===================== ====================
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
25
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months
Ended March 31,
- -----------------------------------------------------------------------------------------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------
(in thousands)
Net Income After Dividends on Preferred Stock $ 91,819 $ 72,540
- -----------------------------------------------------------------------------------------------------------
Other comprehensive loss:
Changes in fair value of qualifying hedges, net of tax
of $(44) (72) -
- -----------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 91,747 $ 72,540
- ---------------------------------------------------------------------================-----==============---
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED)
At March 31, At December 31,
2003 2002
- -------------------------------------------------------------------------------
(in thousands)
Balance at beginning of period $ (13,417) $ -
- -------------------------------------------------------------------------------
Change in current period (72) (13,417)
- --------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ (13,489) $ (13,417)
==============================================================================--
The accompanying notes as they relate to Alabama Power are an integral part of these condensed financial statements.
26
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
RESULTS OF OPERATIONS
Earnings
Alabama Power's net income after dividends on preferred stock for the first
quarter 2003 was $91.8 million compared to $72.5 million for the corresponding
period of 2002. Earnings in the first quarter 2003 increased by $19.3 million or
26.6% primarily due to increases in territorial sales, retail rates and other
operating revenues. These increases in revenues were partially offset by
increased non-fuel operating expenses in the first quarter 2003 when compared to
the first quarter 2002.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------
First Quarter
-------------------------------
(in thousands) %
Retail sales................................ $38,932 6.2
Sales for resale - non-affiliates........... 29,099 30.8
Sales for resale - affiliates............... 7,310 13.4
Other revenues.............................. 16,971 80.6
Fuel expense................................ 29,447 14.0
Purchased power - non-affiliates............ 17,499 111.0
Purchased power - affiliates................ 8,766 26.8
Other operation expense..................... 14,481 12.1
Allowance for equity funds used during
construction............................... 1,730 57.5
Distributions on preferred securities of
subsidiary................................. (2,578) (42.8)
Other income (expense), net................. (5,846) (50.5)
Retail sales. Excluding energy cost recovery revenues, which generally
do not affect net income, retail sales revenues were higher by $20.5 million, or
4.3%, for the first quarter 2003 when compared to the same period in 2002.
Energy sales to residential, commercial and industrial customers increased by
2.3%, 4.8% and 3.5%, respectively, for the first quarter 2003 when compared to
the corresponding period of 2002 primarily due to favorable weather conditions
and slight sales growth. A 2 percent increase in retail base rates, effective
April 2002, also increased retail sales revenues in the first quarter 2003.
Sales for resale - non-affiliates. During the first quarter 2003, the
revenues associated with sales for resale - non-affiliates increased due to a
20.3% increase in energy sold and an 8.7% increase in price when compared to the
same period in 2002. Sales of energy will vary depending on demand, market based
prices and the availability of system generation.
27
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies within the Southern Company
system, as well as purchases of energy, will vary depending on demand and the
availability and cost of generating resources at each company. These
transactions did not have a significant impact on earnings.
Other revenues. In the first quarter 2003, the increase in other revenues
is primarily attributed to an $8.5 million increase in revenues from
cogeneration steam facilities due to higher gas prices and demand, a $4.1
million increase in revenues from transmission to others and a $3.5 million
increase in revenues from higher fees charged to customers for connection,
reconnection and collection. Since cogeneration steam revenues are generally
offset by fuel expenses, these revenues do not have a significant impact on
earnings.
Fuel expense. The increase in fuel expense during the first quarter 2003
when compared to the same period in 2002 was primarily attributed to a 6.7%
increase in generation to meet higher demand for energy and a 131.7% increase in
natural gas prices. Since energy expenses are generally offset by energy
revenues, these expenses did not have a significant impact on earnings.
Purchased power - non-affiliates. In the first quarter 2003, purchased
power expense from non-affiliates increased due to a 139% increase in price even
though overall purchases of energy decreased 11.7% when compared to the
corresponding period in 2002. The purchase of energy decreased due to the
increased utilization of electricity within the Southern Company system with the
addition of 2,279 megawatts of generation placed into commercial operation
during 2002. These expenses do not have a significant impact on earnings since
energy expenses are generally offset by energy revenues through Alabama Power's
energy cost recovery clause.
Other operation expense. The increase in other operation expense is mainly
a result of a $6.9 million increase in administrative and general expenses, a
$1.0 million increase in distribution expense, a $1.0 million increase in
customer accounts expense and a $1.0 million increase in sales expense during
the first quarter 2003 when compared to the corresponding period in 2002. The
increase in administrative and general expenses primarily relates to a $2.2
million increase in expense for property insurance and a $3.7 million increase
in employee benefits.
Allowance for equity funds used during construction. During the first
quarter 2003, the allowance for equity funds used during construction increased
primarily due to the construction of selective catalytic reduction facilities at
Plant Miller.
Distributions on preferred securities of subsidiary. During the first
quarter 2003, the decrease in distributions on preferred securities of
subsidiary is primarily attributed to the refinancing of higher distribution
rate trust preferred securities in the fourth quarter of 2002.
Other income (expense), net. The decrease in other expense for the first
quarter 2003, when compared to the same period in 2002, is primarily due to a
$3.2 million increase in an unrealized gain relating to mark to market
adjustments for derivative electric contracts as required by FASB Statement No.
133 and a $1.8 million decrease in non-utility expenses when compared to the
corresponding period in the prior year. See "Exposure to Market Risks" herein
for additional information related to derivative energy contracts.
28
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including Alabama Power's ability to achieve energy sales growth while
containing costs and maintaining a stable regulatory environment. Growth in
energy sales is subject to a number of factors. These factors include weather,
competition, new short- and long-term contracts with neighboring utilities,
energy conservation practiced by customers, the elasticity of demand and the
rate of economic growth in Alabama Power's service area. For additional
information relating to these issues, see Item 1 - BUSINESS - "Risk Factors" and
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
Alabama Power in the Form 10-K.
Alabama Power's business activities are subject to extensive governmental
regulation related to public health and the environment. Litigation over
environmental issues and claims of various types, including property damage,
personal injury and citizen enforcement of environmental requirements, has
increased generally throughout the United States. In particular, personal injury
claims for damages caused by alleged exposure to hazardous materials have become
more frequent. Even though the potential for such litigation exists, the
possible outcome cannot be predicted at this time.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot be recovered. For additional information about the Clean Air Act
and other environmental issues, including the EPA litigation, see Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the
financial statements of Alabama Power in Item 8 of the Form 10-K. On May 7,
2003, the U.S. District Court in Alabama extended the stay of the EPA litigation
proceeding in Alabama until the earlier of August 5, 2003 or a ruling by the
U.S. Court of Appeals for the Eleventh Circuit in the related litigation
involving TVA.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "FERC
Matters" of Alabama Power in the Form 10-K for information on the formation of
an RTO as ordered by the FERC and the notice of proposed rulemaking regarding
open access transmission service and standard electricity market design. In
April 2003, the FERC issued a White Paper related to its proposed rulemaking
regarding open access transmission service and standard electricity market
design in an effort to respond to certain of the public comments received on the
standard market design proposal. Evident in the White Paper are continuing
differences in opinion between the FERC and various state regulatory commissions
over questions of jurisdiction and protection of retail customers. Pending
energy legislation may also impact these issues. Any impact of this proposal on
Southern Company and its subsidiaries will depend on the form in which final
rules may be ultimately adopted; however, Alabama Power's revenues, expenses,
assets and liabilities could be adversely affected by changes in the
transmission regulatory structure in its regional power market.
Reference is also made to Notes (A), (E), (F) and (I) to the Condensed
Financial Statements herein for discussion of various contingencies and other
matters which may affect future earnings potential.
29
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Accounting Policies
Critical Policy
Alabama Power's significant accounting policies are described in Note 1 to the
financial statements of Alabama Power in Item 8 of the Form 10-K. Alabama
Power's only critical accounting policy involves rate regulation. Alabama Power
is subject to the provisions of FASB Statement No. 71, "Accounting for the
Effects of Certain Types of Regulation." In the event that a portion of Alabama
Power's operations is no longer subject to these provisions, Alabama Power would
be required to write off related regulatory assets and liabilities that are not
specifically recoverable and determine if any other assets, including plant,
have been impaired.
New Accounting Standards
Reference is made to Note (H) to the Condensed Financial Statements herein for
information regarding the adoption of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" effective January 1, 2003. Statement No. 143
establishes new accounting and reporting standards for legal obligations
associated with the ultimate cost of retiring long-lived assets. The present
value of the ultimate costs for an asset's future retirement must be recorded in
the period in which the liability is incurred. The cost must be capitalized as
part of the related long-lived asset and depreciated over the asset's useful
life. Additionally, Statement No. 143 does not permit non-regulated companies to
continue accruing future retirement costs for long-lived assets that they do not
have a legal obligation to retire. Prior to January 2003, Alabama Power accrued
for the ultimate cost of retiring most long-lived assets over the life of the
related asset through depreciation expense.
There was no cumulative effect to net income resulting from the adoption of
Statement No. 143. Alabama Power received an accounting order from the Alabama
PSC to defer the transition adjustment; therefore, Alabama Power recorded a
related regulatory liability of $71 million to reflect Alabama Power's
regulatory treatment of these costs under Statement No. 71. The initial
Statement No. 143 liability Alabama Power recognized was $301 million, of which
$310 million was reclassified from the accumulated depreciation reserve. The
amount capitalized to property, plant, and equipment was $63 million. Reference
is made to Note 1 to the financial statements of Alabama Power under "Regulatory
Assets and Liabilities" and "Depreciation and Nuclear Decommissioning" in Item 8
of the Form 10-K.
FINANCIAL CONDITION
Overview
Major changes in Alabama Power's financial condition during the first three
months of 2003 included the addition of approximately $190 million to utility
plant. The funds for these additions and other capital requirements were derived
primarily from operating activities. See Alabama Power's Condensed Statements of
Cash Flows herein for further details.
Credit Rating Risk
Alabama Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade.
30
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Exposure to Market Risks
Alabama Power's market risk exposures relative to interest rate changes have not
changed materially compared with the December 31, 2002 reporting period. In
addition, Alabama Power is not aware of any facts or circumstances that would
significantly affect such exposures in the near term.
Due to cost-based rate regulations, Alabama Power has limited exposure to
market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Alabama Power enters into fixed price contracts for the purchase and
sale of electricity through the wholesale electricity market and, to a lesser
extent, similar contracts for gas purchases. Alabama Power has also implemented
a retail fuel hedging program at the instruction of the Alabama PSC. The fair
value of derivative energy contracts at March 31, 2003 was as follows:
First Quarter
2003
Changes
--------------------------------------- -------------------------
Fair Value
--------------------------------------- -------------------------
(in thousands)
Contracts beginning of period $21,402
Contracts realized or settled (7,156)
New contracts at inception -
Changes in valuation techniques -
Current period changes 10,030
--------------------------------------- -------------------------
Contracts at March 31, 2003 $24,276
======================================= =========================
Source of March 31, 2003
Valuation Prices
- --------------------------------------- -------------------------------------
Total Maturity
------------------------
Fair Value Year 1 1-3 Years
- --------------------------------------- -------------------------------------
(in thousands)
Actively quoted $24,276 $29,076 $(4,800)
External sources - - -
Models and other methods - - -
- --------------------------------------- ------------ ------------------------
Contracts at March 31, 2003 $24,276 $29,076 $(4,800)
======================================= ============ ========================
Unrealized gains and losses from mark to market adjustments on contracts
related to the retail fuel hedging programs are recorded as regulatory assets
and liabilities. Realized gains and losses from these programs are included in
fuel expense and are recovered through Alabama Power's fuel cost recovery
clause. Gains and losses on contracts that do not represent hedges are
recognized in the Statements of Income as incurred. At
31
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
March 31, 2003, the fair value of derivative energy contracts reflected in the
financial statements was as follows:
Amounts
--------------------------------------- -------------------------
(in thousands)
Regulatory liabilities, net $24,386
Other comprehensive income -
Net loss (110)
--------------------------------------- -------------------------
Total fair value $24,276
======================================= =========================
For the quarters ended March 31, 2003 and 2002, approximately $0.2 million
and $3.4 million, respectively, of losses were recognized in income.
For additional information, reference is made to Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Exposure to Market Risk" of Alabama Power in the Form
10-K and Note 1 to the financial statements of Alabama Power in Item 8 of the
Form 10-K and to Note (I) to the Condensed Financial Statements herein.
Financing Activities
In January 2003, Alabama Power redeemed $194 million of Series A 7 1/8% Senior
Notes due December 1, 2047 from proceeds obtained from Alabama Power's December
2002 issuance of $200 million Series S 5 7/8% Senior Notes due December 1, 2022.
In February 2003, Alabama Power issued 1,250 shares ($125 million aggregate
stated capital) of Flexible Money Market Class A Preferred Stock (Series 2003A),
cumulative, par value $1 per share (stated capital $100,000 per share). The
proceeds from the sale were used to repay a portion of Alabama Power's
outstanding short-term indebtedness and for other general corporate purposes,
including Alabama Power's continuous construction program.
Also in February 2003, Alabama Power issued $250 million in Series T 5.70%
Senior Notes due February 15, 2033. The proceeds from the sale were used to
redeem $200 million in aggregate principal amount of Series B 7% Senior
Quarterly Interest Notes due December 31, 2047 and for other general corporate
purposes, including Alabama Power's continuous construction program.
Additionally, in February 2003, Alabama Power issued $170 million of Series
U 2.65% Senior Notes due February 15, 2006. The proceeds from the sale were used
to repay at maturity $167 million in aggregate principal amount of Series O
Floating Rate Senior Notes due March 3, 2003 and for other general corporate
purposes, including Alabama Power's continuous construction program.
In March 2003, Alabama Power issued $200 million of Series V 5.60% Senior
Notes due March 15, 2033. The proceeds from the sale were used to redeem in
April 2003, $190 million in aggregate principal amount of Series C 7% Senior
Notes due March 31, 2048 and for other general corporate purposes, including
Alabama Power's continuous construction program.
32
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In April 2003, Alabama Power issued $195 million of Series W Floating Rate
Extendible Senior Notes due April 23, 2006, the initial maturity date, unless
the maturity of all or a portion of the principal amount is extended by
investors to April 23, 2007. The proceeds from the sale were used by Alabama
Power for general corporate purposes, including Alabama Power's continuous
construction program.
After approval of an increase in authorized shares of common stock by
stockholders in April 2003, Alabama Power issued 312,500 shares of common stock
to Southern Company at $40.00 a share ($12,500,000 aggregate purchase price).
The proceeds from the sale will be used by Alabama Power for general corporate
purposes.
In May 2003, Alabama Power issued $250 million of Series X 3.125% Senior
Notes due May 1, 2008. The proceeds from this sale will be used to repay at
maturity, in May 2003, $250 million in aggregate principal amount of the Series
M 7.85% Senior Notes due May 15, 2003.
Alabama Power plans to continue, when economically feasible, a program to
retire higher-cost debt and replace these obligations with lower-cost capital if
market conditions permit. Capital RequirementsReference is made to Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS of Alabama Power under "Capital
Requirements," "Other Capital Requirements" and "Environmental Matters" in the
Form 10-K for a description of Alabama Power's capital requirements for its
construction program, maturing debt and environmental compliance efforts.Sources
of CapitalIn addition to the financing activities previously described herein,
Alabama Power plans to obtain the funds required for construction and other
purposes from sources similar to those used in the past. The amount, type and
timing of any financings -- if needed -- will depend upon maintenance of
adequate earnings, regulatory approval, prevailing market conditions and other
factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for
additional information.
Alabama Power's current liabilities exceed current assets because of
scheduled maturities of long-term debt.
To meet short-term cash needs and contingencies, Alabama Power had at March
31, 2003 approximately $28.6 million of cash and cash equivalents, unused
committed lines of credit of approximately $923 million (including $454 million
of such lines which are dedicated to funding purchase obligations relating to
variable rate pollution control bonds) and an extendible commercial note
program. Due to a reduction of commercial paper, Alabama Power plans to reduce
committed lines of credit to approximately $800 million in June 2003. Of these
lines of credit, unless extended, $533 million expire at various times in 2003
and $390 million expire in 2004. Alabama Power may also meet short-term cash
needs through a Southern Company subsidiary organized to issue and sell
commercial paper and extendible commercial notes at the request and for the
benefit of Alabama Power and other Southern Company subsidiaries. Alabama Power
has regulatory authority for up to $1.0 billion of short-term borrowings. At
March 31, 2003, Alabama Power had no outstanding commercial paper or notes
payable to banks. Management believes that the need for working capital can be
adequately met by utilizing lines of credit without maintaining large cash
balances.
33
GEORGIA POWER COMPANY
34
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- --------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $ 965,707 $ 904,914
Sales for resale --
Non-affiliates 73,986 50,050
Affiliates 47,486 16,507
Other revenues 39,259 35,292
- ------------------------------------------------------------------------------
Total operating revenues 1,126,438 1,006,763
- ------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 242,503 227,377
Purchased power --
Non-affiliates 72,036 37,790
Affiliates 113,843 58,780
Other 185,990 173,820
Maintenance 110,944 103,854
Depreciation and amortization 85,742 95,797
Taxes other than income taxes 53,175 49,575
- ------------------------------------------------------------------------------
Total operating expenses 864,233 746,993
- ------------------------------------------------------------------------------
Operating Income 262,205 259,770
Other Income and (Expense):
Interest expense, net of amounts capitalized (44,363) (40,595)
Distributions on preferred securities of subsidiaries (14,919) (14,776)
Other income (expense), net 5,983 (2,361)
- ------------------------------------------------------------------------------
Total other income and (expense) (53,299) (57,732)
- ------------------------------------------------------------------------------
Earnings Before Income Taxes 208,906 202,038
Income taxes 75,468 75,125
- ------------------------------------------------------------------------------
Net Income 133,438 126,913
Dividends on Preferred Stock 168 168
- ------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 133,270 $ 126,745
- ------------------------------------------------------===========-============
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
35
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
- -----------------------------------------------------------------------------------------------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $133,438 $ 126,913
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 102,770 98,809
Deferred income taxes and investment tax credits, net 29,956 (1,817)
Pension, postretirement, and other employee benefits (7,633) (12,620)
Other, net (8,924) (213)
Changes in certain current assets and liabilities --
Receivables, net 114,048 56,234
Fossil fuel stock (11,235) 1,609
Materials and supplies (2,166) 2,925
Other current assets 24,309 7,506
Accounts payable (189,719) (74,888)
Taxes accrued (56,058) (16,490)
Other current liabilities 413 69,396
- -----------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 129,199 257,364
- -----------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (190,895) (215,043)
Cost of removal net of salvage (4,950) (10,793)
Sales of property - 387,212
- -----------------------------------------------------------------------------------------------------------------
Other (46,597) (43,959)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) investing activities (242,442) 117,417
- -----------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase in notes payable, net 171,742 290,949
Proceeds --
Senior notes 400,000 -
Capital contributions from parent company 2,750 2,984
Redemptions --
First mortgage bonds - (1,860)
Pollution control bonds - (7,800)
Senior notes (315,000) (300,000)
Capital distributions to parent company - (200,000)
Payment of preferred stock dividends (175) (182)
Payment of common stock dividends (141,450) (135,725)
Other (8,196) (1,318)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) financing activities 109,671 (352,952)
- -----------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (3,572) 21,829
Cash and Cash Equivalents at Beginning of Period 16,873 23,260
- -----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 13,301 $ 45,089
================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of $1,846 and $3,102 capitalized for 2003 and 2002, respectively) $54,160 $30,324
Income taxes (net of refunds) ($3,896) $24,021
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
36
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 13,301 $ 16,873
Receivables --
Customer accounts receivable 255,681 302,995
Unbilled revenues 96,071 104,454
Under recovered regulatory clause revenues 107,690 117,580
Other accounts and notes receivable 81,446 122,585
Affiliated companies 24,838 40,501
Accumulated provision for uncollectible accounts (5,825) (5,825)
Fossil fuel stock, at average cost 131,282 120,048
Materials and supplies, at average cost 265,530 263,364
Other 69,728 96,922
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 1,039,742 1,179,497
- ------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 17,774,199 17,222,661
Less accumulated provision for depreciation 7,092,227 7,333,529
- ------------------------------------------------------------------------------------------------------------------------
10,681,972 9,889,132
Nuclear fuel, at amortized cost 109,247 119,588
Construction work in progress 392,581 667,581
- ------------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 11,183,800 10,676,301
- ------------------------------------------------------------------------------------------------------------------------
Other Property and Investments:
Equity investments in unconsolidated subsidiaries 35,881 36,167
Nuclear decommissioning trusts 354,907 346,870
Other 28,646 28,612
- ------------------------------------------------------------------------------------------------------------------------
Total other property and investments 419,434 411,649
- ------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 521,230 524,510
Prepaid pension costs 356,204 341,944
Unamortized debt issuance expense 70,017 67,362
Unamortized premium on reacquired debt 180,117 178,590
Asset retirement obligation regulatory asset 26,475 -
Other 156,099 162,686
- ------------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 1,310,142 1,275,092
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $ 13,953,118 $ 13,542,539
- --------------------------------------------------------------------------=====================----=====================
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
37
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 152,170 $ 322,125
Notes payable 529,419 357,677
Accounts payable --
Affiliated 70,153 135,260
Other 258,807 445,220
Customer deposits 97,345 94,859
Taxes accrued --
Income taxes 46,156 20,245
Other 52,300 134,269
Interest accrued 60,719 59,608
Vacation pay accrued 40,844 42,442
Other 111,046 112,131
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,418,959 1,723,836
- ----------------------------------------------------------------------------------------------------------------------
Long-term debt 3,364,047 3,109,619
- ----------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 2,194,992 2,176,438
Deferred credits related to income taxes 204,616 208,410
Accumulated deferred investment tax credits 321,872 324,994
Employee benefits provisions 243,113 236,486
Asset retirement obligations 476,648 -
Other 346,825 373,740
- ----------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 3,788,066 3,320,068
- ----------------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 940,000 940,000
- ----------------------------------------------------------------------------------------------------------------------
Preferred stock 14,569 14,569
- ----------------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity:
Common stock, without par value--
Authorized - 15,000,000 shares
Outstanding - 7,761,500 shares 344,250 344,250
- ----------------------------------------------------------------------------------------------------------------------
Paid-in capital 2,158,789 2,156,040
Premium on preferred stock 40 40
Retained earnings 1,937,340 1,945,520
Accumulated other comprehensive loss (12,942) (11,403)
- ----------------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 4,427,477 4,434,447
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $ 13,953,118 $ 13,542,539
- -----------------------------------------------------------------------======================----=====================
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
38
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months
Ended March 31,
- ---------------------------------------------------------------------------------------------------------------------------------
2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Net Income After Dividends on Preferred Stock $ 133,270 $ 126,745
Other comprehensive income (loss):
Changes in fair value of qualifying hedges, net of tax
of $(966) and $157, respectively (1,532) 248
Less: Reclassification adjustment for amounts included in net income, net of tax (7) -
- ---------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 131,731 $ 126,993
- --------------------------------------------------------------------------------------=====================-----=================
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED)
At March 31, At December 31,
2003 2002
- ------------------------------------------------------------------------------------------------------
(in thousands)
Balance at beginning of period $ (11,403) $ (153)
Change in current period (1,539) (11,250)
- ------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ (12,942) $ (11,403)
- -------------------------------------------------------=====================-----===================--
The accompanying notes as they relate to Georgia Power are an integral part of these condensed financial statements.
39
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
RESULTS OF OPERATIONS
EarningsGeorgia Power's net income after dividends on preferred stock for the
first quarter 2003 was $133.3 million compared to $126.7 million for the
corresponding period in 2002. Earnings in the first quarter 2003 increased by
$6.6 million, or 5.2%, primarily due to increased operating revenues which were
partially offset by increased non-fuel operating expenses.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
---------------------------------
First Quarter
---------------------------------
(in thousands) %
Retail sales........................... $60,793 6.7
Sales for resale - non-affiliates...... 23,936 47.8
Sales for resale - affiliates.......... 30,979 187.7
Fuel expense........................... 15,126 6.7
Purchased power - non-affiliates....... 34,246 90.6
Purchased power - affiliates........... 55,063 93.7
Other operation expense................ 12,170 7.0
Maintenance expense.................... 7,090 6.8
Depreciation and amortization.......... (10,055) (10.5)
Other income (expense), net............ 8,344 353.4
Retail sales. Excluding fuel revenues, which generally do not affect net
income, retail sales revenue increased in the first quarter 2003 by $22.7
million, or 3.5%, when compared to the corresponding period in 2002. Colder
weather is the primary reason for the increase in retail sales revenues. Energy
sales to residential customers increased 7.6% in the first quarter 2003 when
compared to the same period in 2002. Energy sales to commercial customers
declined by 0.8%, while energy sales to the industrial sector rose by 5.1%,
compared to the first quarter 2002.
Sales for resale - non-affiliates. Energy sales for resale to
non-affiliates increased 43.5% during the first quarter 2003 as a direct result
of increased demand for energy by these non-affiliates. These transactions did
not have a significant impact on earnings since the energy is usually sold at
variable cost.
Sales for resale - affiliates. Revenues from sales for resale to affiliated
companies within the Southern Company system will vary depending on demand and
the availability and cost of generating resources at each company. Energy sales
increased 160.3% when compared to the first quarter 2002. These transactions did
not have a significant impact on earnings.
40
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. The first quarter 2003 increase is mainly due to increased
generation related to the higher demand for energy when compared to the same
period in the prior year and an increase of approximately 129% in the average
cost of natural gas. These expenses do not have a significant impact on earnings
since energy expenses are generally offset by energy revenues through Georgia
Power's fuel cost recovery clause.
Purchased power - non-affiliates. In the first quarter 2003, purchased
power from non-affiliates increased primarily due to higher gas prices and an
18.2% increase in the demand for energy. These expenses do not have a
significant impact on earnings since energy expenses are generally offset by
energy revenues through Georgia Power's fuel cost recovery clause.
Purchased power - affiliates. The increase in the first quarter 2003 is
principally attributed to the PPAs between Georgia Power and Southern Power
that began in June 2002. The capacity component of these transactions totaled
$23.6 million in the first quarter 2003. The energy component of power purchased
from affiliated companies within the Southern Company system will vary
depending on demand and the availability and cost of generating resources at
each company and will have no significant impact on earnings since energy
expenses are generally offset by energy revenues through Georgia Power's fuel
cost recovery clause.
Other operation expense. During the first quarter 2003, other operation
expense increased from the same period in 2002 mainly due to increases of $3.2
million in transmission and distribution, $2.6 million in fossil power
generation, $1.7 million in customer accounting expenses and $2.1 million in
property insurance.
Maintenance expense. In the first quarter 2003, maintenance expense was
higher than the amount recorded in the first quarter of 2002, principally due to
increased scheduled work on steam generating facilities and distribution
facilities.
Depreciation and amortization. The decrease in this item for the first
quarter 2003 is primarily due to lower regulatory charges necessary to levelize
purchased power costs under the terms of the retail rate order effective January
1, 2002. The decrease is offset by an increase in purchased power costs
discussed above. All purchased power costs will be reflected in rates evenly
over the next three years under the retail rate order effective January 1, 2002.
Other income (expense), net. The first quarter 2003 increase in this item
when compared to the same period in 2002 is partially the result of both higher
income associated with a new electricity pricing program and mark to market
adjustments for derivative energy contracts. See "Exposure to Market Risks"
herein for additional information related to derivative energy contracts.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and the effect of weather and the economy
on energy sales. For additional information relating to these issues, see Item 1
- - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of Georgia Power in the Form 10-K.
41
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In January 2002, Georgia Power began operating under a three-year retail
rate order. Under the terms of the order, earnings will be evaluated annually
against a retail return on common equity range of 10 percent to 12.95 percent.
Two-thirds of any earnings above the 12.95 percent return will be applied to
rate refunds, with the remaining one-third retained by Georgia Power. Retail
rates were decreased by $118 million effective January 1, 2002. Reference is
made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings
Potential" and Note 3 to the financial statements of Georgia Power in Item 8 of
the Form 10-K for additional information.
Beginning in June 2002, Georgia Power began purchases under PPAs with
Southern Power which will result in higher capacity and operating and
maintenance payments. Purchases under PPAs will be reflected in rates evenly
over the next three years under the retail rate order effective January 1, 2002.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - FERC Matters" of Georgia Power in the Form 10-K for
information on the formation of an RTO as ordered by the FERC and the notice of
proposed rulemaking regarding open access transmission service and standard
electricity market design. In April 2003, the FERC issued a White Paper related
to its proposed rulemaking regarding open access transmission service and
standard electricity market design in an effort to respond to certain of the
public comments received on the standard market design proposal. Evident in the
White Paper are continuing differences in opinion between the FERC and various
state regulatory commissions over questions of jurisdiction and protection of
retail customers. Pending energy legislation may also impact these issues. Any
impact of this proposal on Southern Company and its subsidiaries will depend on
the form in which final rules may be ultimately adopted; however, Georgia
Power's revenues, expenses, assets and liabilities could be adversely affected
by changes in the transmission regulatory structure in its regional power
market.
In June 2002, Georgia Power entered into a fifteen-year PPA beginning in
June 2005 with Southern Power to purchase 1,040 megawatts of capacity from the
planned combined-cycle plant at Plant McIntosh to be built and owned by Southern
Power. The annual capacity cost is expected to be approximately $72 million.
Reference is made to Note (L) to the Condensed Financial Statements for
information regarding the FERC approval process for this PPA.
Additionally, Georgia Power has entered into a seven-year PPA beginning in
June 2005 with Duke Energy Trading & Marketing to purchase 620 megawatts with an
average annual capacity cost of approximately $48 million. Reference is made to
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" and
Note 4 under "Purchased Power Commitments" to the financial statements of
Georgia Power in Item 8 of the Form 10-K.
Compliance costs related to the Clean Air Act and other environmental
issues could affect earnings if such costs cannot be recovered. For additional
information, including information on the EPA litigation, see Item 7 -
MANAGEMENT'S DISCUSSION AND Analysis - "Environmental Matters" of Georgia Power
and Note 3 to the financial statements of Georgia Power in Item 8 of the Form
10-K.
42
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Georgia Power's business activities are subject to extensive governmental
regulation related to public health and the environment. Litigation over
environmental issues and claims of various types, including property damage,
personal injury and citizen enforcement of environmental requirements, has
increased generally throughout the United States. In particular, personal injury
claims for damages caused by alleged exposure to hazardous materials have become
more frequent. The ultimate outcome of such litigation currently filed against
Georgia Power cannot be predicted at this time; however, after consultation with
legal counsel, management does not anticipate that the liabilities, if any,
arising from such proceedings would have a material adverse effect on Georgia
Power's financial statements.
Reference is made to Notes (A), (E) through (G), (I), (K) and (L) to the
Condensed Financial Statements herein for discussion of various contingencies
and other matters which may affect future earnings potential.
Accounting Policies
Critical Policy
Georgia Power's significant accounting policies are described in Note 1 to the
financial statements of Georgia Power in Item 8 of the Form 10-K. Georgia
Power's only critical accounting policy involves rate regulation. Georgia Power
is subject to the provisions of FASB Statement No. 71, "Accounting for the
Effects of Certain Types of Regulation." In the event that a portion of Georgia
Power's operations is no longer subject to these provisions,
Georgia Power would be required to write off related regulatory assets and
liabilities that are not specifically recoverable and determine if any other
assets, including plant, have been impaired.
New Accounting Standards
Reference is made to Note (H) to the Condensed Financial
Statements herein for information regarding the adoption of FASB Statement No.
143, "Accounting for Asset Retirement Obligations" effective January 1, 2003.
Statement No. 143 establishes new accounting and reporting standards for legal
obligations associated with the ultimate cost of retiring long-lived assets. The
present value of the ultimate costs for an asset's future retirement must be
recorded in the period in which the liability is incurred. The cost must be
capitalized as part of the related long-lived asset and depreciated over the
asset's useful life. Additionally, Statement No. 143 does not permit
non-regulated companies to continue accruing future retirement costs for
long-lived assets that they do not have a legal obligation to retire. Prior to
January 2003, Georgia Power accrued for the ultimate cost of retiring most
long-lived assets over the life of the related asset through depreciation
expense.
There was no cumulative effect adjustment to net income resulting from the
adoption of Statement No. 143. Georgia Power received permission from the
Georgia PSC to defer the transition adjustment; therefore, Georgia Power
recorded a related regulatory asset of $21 million to reflect the regulatory
treatment of these costs under Statement No. 71 as of January 2003. The initial
Statement No. 143 liability Georgia Power recognized was $469 million, of which
$332 million was removed from the accumulated depreciation reserve. The amount
capitalized to property, plant, and equipment was $116 million.
43
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
The major change in Georgia Power's financial condition during the first three
months of 2003 was the addition of approximately $191 million to utility
plant. The funds for these additions and other capital requirements were
derived primarily from operations. See Georgia Power's Condensed Statements of
Cash Flows herein for further details.
Credit Rating Risk
Georgia Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade. There are certain physical electricity sales contracts that could
require collateral -- but not termination -- in the event of a credit rating
change to below investment grade. Generally, collateral may be provided for by a
Southern Company guaranty, letter of credit or cash. At March 31, 2003, the
maximum potential collateral requirements were approximately $228 million.
Exposure to Market Risks
Georgia Power's market risk exposures relative to interest rate changes have not
changed materially compared with the December 31, 2002 reporting period. In
addition, Georgia Power is not aware of any facts or circumstances that would
significantly affect such exposures in the near term. Due to cost-based rate
regulations, Georgia Power has limited exposure to market volatility in interest
rates, commodity fuel prices and prices of electricity. To mitigate residual
risks relative to movements in electricity prices, Georgia Power enters into
fixed price contracts for the purchase and sale of electricity through the
wholesale electricity market and, to a lesser extent, similar contracts for gas
purchases. Georgia Power has also implemented a retail fuel hedging program at
the instruction of the Georgia PSC. The fair value of derivative energy
contracts at March 31, 2003 was as follows:
First Quarter
2003
Changes
--------------------------------------- -------------------------
Fair Value
--------------------------------------- -------------------------
(in thousands)
Contracts beginning of period $ 89
Contracts realized or settled -
New contracts at inception -
Changes in valuation techniques -
Current period changes (928)
--------------------------------------- -------------------------
Contracts at March 31, 2003 $(839)
======================================= =========================
All of these contracts are actively quoted and mature within one year.
44
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
At March 31, 2003, the fair value of derivative energy contracts reflected
in the financial statements was as follows:
Amounts
--------------------------------------- -------------------------
(in thousands)
Regulatory assets, net $(705)
Other comprehensive income -
Net loss (134)
--------------------------------------- -------------------------
Total fair value $(839)
======================================= =========================
Realized gains and losses are recognized in the Statements of Income as
incurred. For the quarters ended March 31, 2003 and 2002, approximately $0.2
million and $2.5 million, respectively, of losses were recognized in income.
For additional information, reference is made to Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Georgia Power in the
Form 10-K and Note 1 to the financial statements of Georgia Power in Item 8 of
the Form 10-K.
Financing Activities
In February 2003, Georgia Power issued $250 million of Series L Floating
Rate Senior Notes due February 18, 2005. The proceeds from this issuance were
used to repay a portion of Georgia Power's outstanding short-term indebtedness.
Also in February 2003, Georgia Power issued $150 million of Series M 5.40%
Senior Insured Quarterly Notes due March 1, 2033. A portion of the proceeds were
used to redeem in March 2003 the $145 million outstanding principal amount of
Georgia Power's Series A 6 7/8% Senior Public Income Notes due December 31, 2047
and the balance of the proceeds was used to repay a portion of Georgia Power's
outstanding short-term indebtedness.
During March 2003, Georgia Power elected to change the interest rate mode
on $316 million of variable rate pollution control bonds. Georgia Power changed
$255 million of the bonds from the "daily rate mode", which required backup bank
credit facilities, to the "auction rate mode." In addition, Georgia Power
changed $61 million of the bonds from the "daily rate mode" to the "long-term
interest rate mode."
In April 2003, Georgia Power issued $100 million of Series N 5.750% Senior
Notes due April 15, 2023. The proceeds from this sale were used to repay a
portion of Georgia Power's outstanding short-term indebtedness. In addition, in
April 2003, Georgia Power issued $150 million of Series O 5.90% Senior Notes due
April 15, 2033. The proceeds from this sale were used to repay at maturity all
of Georgia Power's Series I 5.25% Senior Notes due May 8, 2003. Further, in
April 2003, Georgia Power issued $50 million of Series P Floating Rate Senior
Notes due April 15, 2005. The proceeds from this sale were used to repay a
portion of Georgia Power's outstanding short-term indebtedness.
Georgia Power plans to continue, when economically feasible, a program to
retire higher-cost debt and replace these obligations with lower-cost capital if
market conditions permit.
45
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Georgia
Power under "Financing Activities", "Liquidity and Capital Requirements" and
"Environmental Matters" in the Form 10-K for a description of Georgia Power's
capital requirements for its construction program, maturing debt and
environmental compliance efforts.
Sources of Capital
Georgia Power plans to obtain the funds required for construction and other
purposes from sources similar to those used in the past. The amount, type and
timing of any financings -- if needed -- will depend upon maintenance of
adequate earnings, regulatory approval, prevailing market conditions and other
factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for
additional information.
Georgia Power's current liabilities exceed current assets because of the
continued use of short-term debt as a funding source to meet cash needs.
To meet short-term cash needs and contingencies, Georgia Power had at March
31, 2003 approximately $13.3 million of cash and cash equivalents and
approximately $1.175 billion of unused credit arrangements with banks. These
credit arrangements expire in 2003 and contain provisions allowing two-year term
loans executable at the expiration date. The credit arrangements provide
liquidity support to Georgia Power's obligations with respect to variable rate
pollution control bonds and commercial paper. Due to a reduction of commercial
paper and variable rate pollution control bonds requiring liquidity support as
outlined in "Financing Activities" above, Georgia Power plans to reduce its
credit arrangements to $700 million in June 2003. Georgia Power may also meet
short-term cash needs through a Southern Company subsidiary organized to issue
and sell commercial paper and extendible commercial notes at the request and for
the benefit of Georgia Power and other Southern Company subsidiaries. At March
31, 2003, Georgia Power had outstanding $521 million of commercial paper and
$7.9 million of extendible commercial notes. Management believes that the need
for working capital can be adequately met by utilizing lines of credit without
maintaining large cash balances.
46
GULF POWER COMPANY
47
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- --------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $159,793 $133,494
Sales for resale --
Non-affiliates 18,725 17,434
Affiliates 10,217 2,581
Other revenues 9,103 7,424
- --------------------------------------------------------------------------------------------------------------
Total operating revenues 197,838 160,933
- --------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 63,267 36,755
Purchased power --
Non-affiliates 5,956 5,804
Affiliates 12,587 17,061
Other 30,011 26,925
Maintenance 16,580 18,189
Depreciation and amortization 20,252 17,291
Taxes other than income taxes 16,388 14,415
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 165,041 136,440
- --------------------------------------------------------------------------------------------------------------
Operating Income 32,797 24,493
Other Income and (Expense):
Allowance for equity funds used during construction 43 2,374
Interest expense, net of amounts capitalized (8,055) (6,986)
Distributions on preferred securities of subsidiary (2,028) (2,103)
Other income (expense), net (466) (598)
- --------------------------------------------------------------------------------------------------------------
Total other income and (expense) (10,506) (7,313)
- --------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 22,291 17,180
Income taxes 8,265 5,409
- --------------------------------------------------------------------------------------------------------------
Net Income 14,026 11,771
Dividends on Preferred Stock 54 54
- --------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 13,972 $11,717
- ---------------------------------------------------------------------------------==============--=============
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
48
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- ---------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 14,026 $ 11,771
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 21,589 18,474
Deferred income taxes 1,621 (4,442)
Other, net 5,934 (7,448)
Changes in certain current assets and liabilities --
Receivables, net 15,315 4,137
Fossil fuel stock (3,127) (8,048)
Materials and supplies (1,451) 58
Other current assets 1,938 6,478
Accounts payable (15,065) 799
Taxes accrued (684) 4,501
Other current liabilities 6,726 5,045
- ---------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 46,822 31,325
- ---------------------------------------------------------------------------------------------------------------
Investing Activities:
- ---------------------------------------------------------------------------------------------------------------
Gross property additions (22,070) (39,801)
- ---------------------------------------------------------------------------------------------------------------
Cost of removal net of salvage (2,366) (2,326)
- ---------------------------------------------------------------------------------------------------------------
Other (5,563) (12,573)
- ---------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (29,999) (54,700)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities:
Decrease in notes payable, net (489) (41,652)
Proceeds --
Senior Notes 65,000 45,000
Capital contributions from parent company 10,943 37,259
Redemptions --
Senior notes (32) (147)
Preferred securities (40,000) -
Payment of preferred stock dividends (54) (54)
Payment of common stock dividends (17,550) (16,375)
Other (3,729) (575)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided from financing activities 14,089 23,456
- ---------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 30,912 81
Cash and Cash Equivalents at Beginning of Period 13,278 2,244
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 44,190 $ 2,325
===============================================================================================================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of $20 and $1,109 capitalized for 2003 and 2002, respectively) $9,957 $11,808
Income taxes (net of refunds) ($21) ($1,467)
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
49
GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 44,190 $ 13,278
Receivables --
Customer accounts receivable 40,948 48,609
Unbilled revenues 23,363 28,077
Under recovered regulatory clause revenues 31,236 29,549
Other accounts and notes receivable 5,263 6,618
Affiliated companies 4,512 8,678
Accumulated provision for uncollectible accounts (901) (889)
Fossil fuel stock, at average cost 40,318 37,191
Materials and supplies, at average cost 36,291 34,840
Prepaid taxes 6,844 12,704
Other 18,058 14,134
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 250,122 232,789
- ---------------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 2,263,848 2,248,156
Less accumulated provision for depreciation 957,067 946,408
- ---------------------------------------------------------------------------------------------------------------------------------
1,306,781 1,301,748
Construction work in progress 33,261 35,708
- ---------------------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 1,340,042 1,337,456
- ---------------------------------------------------------------------------------------------------------------------------------
Other Property and Investments 11,292 10,157
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 18,490 18,798
Prepaid pension costs 37,543 36,298
Unamortized debt issuance expense 5,190 3,900
Unamortized premium on reacquired debt 14,898 14,052
Other 20,099 20,379
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 96,220 93,427
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,697,676 $ 1,673,829
- ------------------------------------------------------------------------------------=====================---=====================
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
50
GULF POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 80,000 $ 100,000
Notes payable 27,991 28,479
Accounts payable --
Affiliated 22,524 26,395
Other 24,038 39,685
Customer deposits 16,755 16,047
Taxes accrued --
Income taxes 11,453 10,718
Other 8,487 9,170
Interest accrued 7,273 7,875
Vacation pay accrued 5,044 5,044
Other 6,421 3,933
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 209,986 247,346
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt 496,115 452,040
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 169,208 167,689
Deferred credits related to income taxes 28,750 29,692
Accumulated deferred investment tax credits 21,798 22,289
Employee benefits provisions 40,920 39,656
Other 54,793 46,376
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 315,469 305,702
- ---------------------------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 115,000 115,000
- ---------------------------------------------------------------------------------------------------------------------------------
Preferred stock 4,236 4,236
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity:
Common stock, without par value--
Authorized - 992,717 shares
Outstanding - 992,717 shares 38,060 38,060
Paid-in capital 360,712 349,769
Premium on preferred stock 12 12
Retained earnings 158,820 162,398
Accumulated other comprehensive loss (734) (734)
- ---------------------------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 556,870 549,505
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $ 1,697,676 $ 1,673,829
=================================================================================================================================
The accompanying notes as they relate to Gulf Power are an integral part of these condensed financial statements.
51
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
RESULTS OF OPERATIONS
Earnings
Gulf Power's net income after dividends on preferred stock for the first quarter
2003 was $14 million compared to $11.7 million for the corresponding period in
2002. First quarter 2003 earnings increased by $2.3 million, or 19.2%, primarily
due to higher operating revenues when compared to the same period in 2002.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
----------------------------------
First Quarter
----------------------------------
(in thousands) %
Retail sales............................... $26,299 19.7
Sales for resale - non-affiliates.......... 1,291 7.4
Sales for resale - affiliates.............. 7,636 295.9
Other revenues............................. 1,679 22.6
Fuel expense............................... 26,512 72.1
Purchased power - affiliates............... (4,474) (26.2)
Other operations expense................... 3,086 11.5
Maintenance expense........................ (1,609) (8.8)
Depreciation and amortization.............. 2,961 17.1
Taxes other than income taxes.............. 1,973 13.7
Allowances for equity funds used during
construction............................. (2,331) (98.2)
Retail sales. Excluding the recovery of fuel expense and certain other
expenses that do not affect net income, retail sales increased by $13 million,
or 16.4%, for the first quarter 2003 when compared to the same period in 2002.
Energy sales to commercial and industrial customers were higher by 2.5% and
8.3%, respectively, in the first quarter 2003 as compared to the same period in
2002. However, residential energy sales were slightly down by 0.9% in the first
quarter 2003 from the first quarter of the prior year. Associated revenues for
residential, commercial and industrial customers increased by 18.4%, 18% and
29.2%, due mainly to the retail rate increase that became effective in June 2002
and growth in the number of customers served in Gulf Power's service area.
Sales for resale - non-affiliates. Sales for resale to non-affiliates
increased for the first quarter 2003 when compared to the corresponding period
in 2002 mainly due to a 10% increase in energy sales to these customers. These
transactions do not have a significant impact on earnings since the energy is
usually sold at variable cost.
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies and purchases of energy within the
Southern Company system will vary depending on demand and the availability and
cost of generating resources at each company. Gulf Power increased its
generating resources with commercial operation of Plant Smith in April 2002 and
thus had greater generation resources to sell to affiliates. These transactions
do not have a significant impact on earnings.
52
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Other revenues. During the first quarter 2003, other revenues were higher
than the same period in 2002 primarily due to an increase of $622 thousand in
miscellaneous service revenues and an increase of $752 thousand in franchise
fees resulting from the retail rate increase that became effective in June 2002.
Fuel expense. In the first quarter 2003, fuel expense was higher than the
same period in 2002 due primarily to the commercial operation of Plant Smith
Unit 3 in April 2002 coupled with a 53.4% increase in natural gas prices as well
as increased generation to meet additional demand for energy. Since energy
expenses are generally offset by energy revenues through Gulf Power's fuel cost
recovery mechanism, these expenses do not have a significant impact on net
income.
Other operation expense. The increase in other operation expense during the
first quarter 2003 is primarily attributed to a $712 thousand increase in
customer accounts expenses and a $1,652 thousand increase in administrative and
general expenses.
Maintenance expense. The first quarter 2003 decrease in maintenance expense
from the same period in the prior year reflects more scheduled production
maintenance performed in 2002 than in the first quarter 2003.
Depreciation and amortization. The increase in utility plant in service
since the first quarter 2002 is the main cause of the increase in depreciation
and amortization in the first quarter 2003 as compared to the first quarter
2002.
Taxes other than income taxes. Taxes other than income taxes increased in
the first quarter 2003 due primarily to property taxes on Plant Smith Unit 3 and
revenue taxes related to the 2002 base rate increase.
Allowance for equity funds used construction. The decrease in this item in
the first quarter 2003 as compared to the same period in 2002 reflects the
completion of construction of Plant Smith Unit 3 in 2002.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors. The major factors include regulatory matters and the ability to achieve
energy sales growth. For additional information relating to these issues, see
Item 1 - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND
ANALYSIS - "Future Earnings Potential" of Gulf Power in the Form 10-K.
Gulf Power is subject to certain claims and legal actions arising in the
ordinary course of business. Gulf Power's business activities are subject to
extensive governmental regulation related to public health and the environment.
Litigation over environmental issues and claims of various types, including
property damage, personal injury and citizen enforcement of environmental
requirements, has increased generally throughout the United States. In
particular, personal injury claims for damages caused by alleged exposure to
hazardous materials have become more frequent. The ultimate outcome of such
litigation currently filed against Gulf Power cannot be predicted at this time;
however after consultation with legal counsel, management does not anticipate
that the liabilities, if any, arising from such proceedings would have a
material adverse effect on Gulf Power's financial statements.
53
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Compliance costs related to the Clean Air Act could affect earnings if such
costs are not fully recovered through Gulf Power's Environmental Cost Recovery
Clause. For additional information about the Clean Air Act and other
environmental issues, including the EPA litigation, see Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Environmental Matters" and Note 3 to the financial
statements of Gulf Power in the Form 10-K.
In 2002 the Florida PSC approved an annual base rate increase for Gulf
Power of $53.2 million which became effective in June 2002. Reference is made to
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
Gulf Power in the Form 10-K for additional information.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - FERC Matters" of Gulf Power in the Form 10-K for
information on the formation of an RTO as ordered by the FERC and the notice of
proposed rulemaking regarding open access transmission service and standard
electricity market design. In April 2003, the FERC issued a White Paper related
to its proposed rulemaking regarding open access transmission service and
standard electricity market design in an effort to respond to certain of the
public comments received on the standard market design proposal. Evident in the
White Paper are continuing differences in opinion between the FERC and various
state regulatory commissions over questions of jurisdiction and protection of
retail customers. Pending energy legislation may also impact these issues. Any
impact of this proposal on Southern Company and its subsidiaries will depend on
the form in which final rules may be ultimately adopted; however, Gulf Power's
revenues, expenses, assets and liabilities could be adversely affected by
changes in the transmission regulatory structure in its regional power market.
Reference is made to Notes (A) and (E) through (G) to the Condensed
Financial Statements herein for discussion of various contingencies and other
matters which may affect future earnings potential. Reference is also made to
Part II - Item 1 - "Legal Proceedings" herein.
Accounting Policies
Critical Policy
Gulf Power's significant accounting policies are described in Note 1 to the
financial statements of Gulf Power in Item 8 of the Form 10-K. Gulf Power's only
critical accounting policy involves rate regulation. Gulf Power is subject to
the provisions of FASB Statement No. 71, "Accounting for the Effects of Certain
Types of Regulation." In the event that a portion of Gulf Power's operations is
no longer subject to these provisions, Gulf Power would be required to write off
related regulatory assets and liabilities that are not specifically recoverable
and determine if any other assets, including plant, have been impaired.
New Accounting Standards
Reference is made to Note (H) to the Condensed Financial Statements herein for
information regarding the adoption of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" effective January 1, 2003. Statement No. 143
establishes new accounting and reporting standards for legal obligations
associated with the ultimate cost of retiring long-lived assets. The present
value of the ultimate costs for an asset's future retirement must be recorded in
the period in which the liability is incurred. The cost must be capitalized as
part of the related long-lived asset and depreciated over the asset's useful
life. Additionally, Statement No. 143 does not permit non-regulated companies to
continue accruing future retirement costs for long-lived assets that they do not
have a legal obligation to retire. Prior to January 2003, Gulf Power
54
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
accrued for the ultimate cost of retiring most long-lived assets over the life
of the related asset through depreciation expense.
FINANCIAL CONDITION
Overview
Major changes in Gulf Power's financial condition during the first three months
of 2003 included the addition of approximately $22.1 million to utility plant.
The funds for these additions and other capital requirements were derived
primarily from operations. See Gulf Power's Condensed Statements of Cash Flows
herein for further details.
Credit Rating Risk
Gulf Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade.
Exposure to Market Risks
Gulf Power's market risk exposures relative to interest rate changes have not
changed materially compared with the December 31, 2002 reporting period. In
addition, Gulf Power is not aware of any facts or circumstances that would
significantly affect such exposures in the near term.
Due to cost-based rate regulations, Gulf Power has limited exposure to
market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Gulf Power enters into fixed price contracts for the purchase and sale
of electricity through the wholesale electricity market and, to a lesser extent,
similar contracts for gas purchases. Gulf Power has received approval from the
Florida PSC to recover prudently incurred costs related to its fuel hedging
program through the fuel cost recovery mechanism. The fair value of derivative
energy contracts at March 31, 2003 was as follows:
First Quarter
2003
Changes
--------------------------------------- ----------------------
Fair Value
--------------------------------------- ----------------------
(in thousands)
Contracts beginning of period $2,336
Contracts realized or settled (491)
New contracts at inception -
Changes in valuation techniques -
Current period changes 2,110
--------------------------------------- ----------------------
Contracts at March 31, 2003 $3,955
======================================= ======================
55
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Source of March 31, 2003
Valuation Prices
------------------------------- --------------- -----------------------
Total Maturity
-----------------------
Fair Value Year 1 1-3 Years
------------------------------- ---------------------------------------
(in thousands)
Actively quoted $3,955 $4,795 $(840)
External sources - - -
Models and other methods - - -
------------------------------- --------------- -----------------------
Contracts at March 31, 2003 $3,955 $4,795 $(840)
=============================== =============== =======================
Unrealized gains and losses from mark to market adjustments on contracts
related to fuel hedging programs are recorded as regulatory assets and
liabilities. Realized gains and losses from these programs are included in fuel
expense and are recovered through Gulf Power's fuel cost recovery clause. Gains
and losses on contracts that do not represent hedges are recognized in the
income statement as incurred. At March 31, 2003, the fair value of derivative
energy contracts was reflected in the financial statements as follows:
Amounts
- -----------------------------------------------------------------------------
(in thousands)
Regulatory liabilities, net $3,977
Other comprehensive income -
Net income (22)
- -----------------------------------------------------------------------------
Total fair value $3,955
=============================================================================
There were no material realized gains or losses recognized in income for
the quarters ended March 31, 2003 and 2002.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Exposure to Market Risks" of Gulf Power in the Form 10-K and Note 1 to the
financial statements of Gulf Power in Item 8 of the Form 10-K for additional
information.
Financing Activities
In January 2003, Gulf Power redeemed $40 million of 7.625% trust preferred
securities using the proceeds of $40 million in trust preferred securities
issued in December 2002 at a five-year initial fixed rate of 5.60%.
In March 2003, Gulf Power issued $65 million of Series F Senior Insured
Quarterly Notes due April 1, 2033. The proceeds from this issue were used to
redeem in April 2003, the $20 million Series B 7.50% Junior Subordinated Notes
due June 30, 2037. In May 2003, the $45 million of Series E Senior Notes due
January 30, 2012 will also be redeemed.
56
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In April 2003, Gulf Power sold through public authorities $29.075 million
of variable rate pollution control revenue refunding bonds due February 1, 2026.
The proceeds were used to redeem (1) $7.875 million aggregate principal amount
of water pollution control revenue refunding bonds, Series 1993 and (2) $21.2
million of pollution control revenue refunding bonds, Series 1996.
Also in April 2003, Gulf Power sold through public authorities $32.55
million of variable rate pollution control revenue bonds due June 1, 2023. The
proceeds were used to redeem the outstanding amount of pollution control revenue
refunding bonds, Series 1993. Both pollution control bonds issued in April 2003
will bear interest at a rate to be determined by the auction rate process and
will not require backup bank credit facilities.
Gulf Power plans to continue, to the extent possible, a program to retire
higher-cost securities and replace these obligations with lower-cost capital if
market conditions permit.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Gulf Power
under "Capital Requirements for Construction," "Other Capital Requirements" and
"Environmental Matters" in the Form 10-K for a description of Gulf Power's
capital requirements for its construction program, maturing debt and
environmental compliance efforts.
Sources of Capital
In addition to the financing activities previously described herein, Gulf Power
plans to obtain the funds required for construction and other purposes from
sources similar to those used in the past. The amount, type and timing of any
financings -- if needed -- will depend upon maintenance of adequate earnings,
regulatory approval, prevailing market conditions and other factors. See Item 1
- - BUSINESS - "Financing Programs" in the Form 10-K for additional information.
To meet short-term cash needs and contingencies, Gulf Power had at March
31, 2003 approximately $44.2 million of cash and cash equivalents and $66.3
million of unused committed lines of credit with banks that expire in 2003. The
credit arrangements provide liquidity support to Gulf Power's obligations with
respect to variable rate pollution control bonds and commercial paper. Gulf
Power may also meet short-term cash needs through a Southern Company subsidiary
organized to issue and sell commercial paper and extendible commercial notes at
the request and for the benefit of Gulf Power and other Southern Company
subsidiaries. At March 31, 2003, Gulf Power had outstanding $20 million of notes
payable and $7.9 million of commercial paper. Management believes that the need
for working capital can be adequately met by utilizing lines of credit without
maintaining large cash balances.
57
MISSISSIPPI POWER COMPANY
58
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- -------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $113,970 $118,467
Sales for resale --
Non-affiliates 70,425 52,152
Affiliates 6,223 9,613
Other revenues 3,268 2,826
- -------------------------------------------------------------------------------------------------------------
Total operating revenues 193,886 183,058
- -------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 51,124 60,202
Purchased power --
Non-affiliates 6,817 2,841
Affiliates 20,332 7,406
Other 35,163 35,361
Maintenance 14,260 20,671
Depreciation and amortization 13,073 14,512
Taxes other than income taxes 13,367 13,192
- -------------------------------------------------------------------------------------------------------------
Total operating expenses 154,136 154,185
- -------------------------------------------------------------------------------------------------------------
Operating Income 39,750 28,873
Other Income and (Expense):
Interest expense (3,770) (5,046)
Distributions on preferred securities of subsidiary (630) (748)
Other income (expense), net 12 193
- -------------------------------------------------------------------------------------------------------------
Total other income and (expense) (4,388) (5,601)
- -------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 35,362 23,272
Income taxes 13,463 8,787
- -------------------------------------------------------------------------------------------------------------
Net Income 21,899 14,485
Dividends on Preferred Stock 503 503
- -------------------------------------------------------------------------------------------------------------
Net Income After Dividends on Preferred Stock $ 21,396 $13,982
=============================================================================================================
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
59
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 21,899 $ 14,485
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 15,910 15,531
Deferred income taxes and investment tax credits, net (1,267) (5,429)
Other, net (1,102) 3,063
Changes in certain current assets and liabilities --
Receivables, net 26,326 15,279
Fossil fuel stock 2,204 (310)
Materials and supplies (529) (989)
Other current assets (4,940) (6,039)
Accounts payable (38,725) (8,184)
Taxes accrued (18,080) (15,079)
Other current liabilities (7,883) 515
- -----------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) operating activities (6,187) 12,843
- -----------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (11,806) (18,687)
Other 296 (6,807)
- -----------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (11,510) (25,494)
- -----------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase in notes payable, net 19,975 19,958
Proceeds --
Senior notes - 80,000
Preferred securities - 35,000
Capital contributions from parent company 606 220
Redemptions --
First mortgage bonds (33,350) -
Pollution control bonds (850) -
Senior notes (73) (80,104)
Payment of preferred stock dividends (503) (503)
Payment of common stock dividends (16,500) (15,875)
Other (1,178) -
- -----------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) financing activities (31,873) 38,696
- -----------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (49,570) 26,045
- -----------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 62,695 18,950
Cash and Cash Equivalents at End of Period $ 13,125 $ 44,995
=================================================================================================================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest $2,612 $2,233
Income taxes (net of refunds) ($226) $6,502
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
60
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 13,125 $ 62,695
Receivables --
Customer accounts receivable 28,427 31,136
Unbilled revenues 15,616 18,434
Under recovered regulatory clause revenues 15,830 27,233
Other accounts and notes receivable 6,784 8,056
Affiliated companies 11,225 20,674
Accumulated provision for uncollectible accounts (695) (718)
Fossil fuel stock, at average cost 25,099 27,303
Materials and supplies, at average cost 22,592 22,063
Assets from risk management activities 13,728 13,061
Deferred income tax assets 19,652 18,675
Other 11,843 7,469
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 183,226 256,081
- -----------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 1,797,523 1,786,378
Less accumulated provision for depreciation 732,809 722,231
- -----------------------------------------------------------------------------------------------------------------------
1,064,714 1,064,147
Construction work in progress 31,860 34,065
- -----------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 1,096,574 1,098,212
- -----------------------------------------------------------------------------------------------------------------------
Other Property and Investments 1,797 1,768
- -----------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 12,514 12,617
Prepaid pension costs 15,618 14,993
Unamortized debt issuance expense 4,149 4,304
Unamortized premium on reacquired debt 9,226 7,776
Other 18,885 16,415
- -----------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 60,392 56,105
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,341,989 $ 1,412,166
=======================================================================================================================
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
61
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2003 2002
- --------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 166,555 $ 69,200
Notes payable 19,975 -
Accounts payable --
Affiliated 14,582 22,396
Other 61,529 91,710
Customer deposits 7,339 6,855
Taxes accrued --
Income taxes 22,298 12,042
Other 13,128 41,464
Interest accrued 7,645 6,562
Vacation pay accrued 5,782 5,782
Regulatory clauses over recovery 26,911 35,680
Other 8,647 8,504
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 354,391 300,195
- --------------------------------------------------------------------------------------------------------------
Long-term debt 112,481 243,715
- --------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 146,184 146,631
Deferred credits related to income taxes 24,865 20,798
Accumulated deferred investment tax credits 20,751 21,054
Employee benefits provisions 50,715 49,869
Other 42,338 45,142
- --------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 284,853 283,494
- --------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding company junior
subordinated notes 35,000 35,000
- --------------------------------------------------------------------------------------------------------------
Preferred stock 31,809 31,809
- --------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity:
Common stock equity --
Authorized - 1,130,000 shares
Outstanding - 1,121,000 shares
Par value 37,691 37,691
Paid-in capital 285,886 285,280
Premium on preferred stock 326 326
Retained earnings 200,816 195,920
Accumulated other comprehensive loss (1,264) (1,264)
- --------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 523,455 517,953
- --------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $ 1,341,989 $ 1,412,166
- -------------------------------------------------------------------===================----====================
The accompanying notes as they relate to Mississippi Power are an integral part of these condensed financial statements.
62
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
RESULTS OF OPERATIONS
Earnings
Mississippi Power's net income after dividends on preferred stock for the first
quarter 2003 was $21.4 million, compared to $14.0 million for the corresponding
period of 2002. Earnings increased by $7.4 million, or 52.9%, in the first
quarter 2003 due primarily to higher operating revenues as compared to the same
period in 2002.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------------
First Quarter
-------------------------------------
(in thousands) %
Retail sales.......................... (4,497) (3.8)
Sales for resale - non-affiliates..... 18,273 35.0
Sales for resale - affiliates......... (3,390) (35.3)
Fuel expense.......................... (9,078) (15.1)
Purchased power - non-affiliates...... 3,976 140.0
Purchased power - affiliates.......... 12,926 174.5
Maintenance expense................... (6,411) (31.0)
Depreciation and amortization......... (1,439) (9.9)
Retail sales. Excluding fuel revenues, which generally do not affect net
income, retail sales revenue decreased by $1.4 million, or 1.9%, in the first
quarter 2003 when compared to the same period in 2002. Retail sales revenues
were lower in the first quarter 2003 primarily due to a decrease in energy sales
to residential, commercial and industrial customers of 3%, 0.3% and 5.1%,
respectively, when compared to the same period in 2002. Energy sales were lower
as a direct result of milder weather in Mississippi Power's service area and the
continued economic slowdown in Mississippi Power's service area.
Sales for resale - non-affiliates. During the first quarter 2003, sales for
resale to non-affiliates were higher when compared to the same period in 2002.
This increase is primarily attributed to a 23.7% increase in wholesale prices
and, to a lesser extent, a 12.9% increase in energy sales as compared to the
same period in 2002.
Sales for resale - affiliates and Purchased power - affiliates. Revenues
from sales for resale to affiliated companies, as well as purchases of energy,
within the Southern Company system will vary depending on demand and the
availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings.
Fuel expense. The decrease in fuel expense in the first quarter 2003
compared to the same period in 2002 is principally due to opportunities to
purchase some power more economically than to self-generate. Since energy
expenses are generally offset by energy revenues through Mississippi Power's
retail and wholesale fuel cost recovery clauses, these expenses do not have a
significant impact on earnings.
63
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power - non-affiliates. In the first quarter 2003, purchased
power from non-affiliates was higher when compared to the first quarter 2002
primarily because Mississippi Power had opportunities to purchase some power at
a lower cost than the cost of self-generation. Generally, these purchased power
transactions do not have a significant impact on net income since energy
expenses are generally offset by energy revenues through Mississippi Power's
retail and wholesale fuel cost recovery clauses.
Maintenance expense. This expense was lower in the first quarter 2003 as
compared to the same period in the prior year, due to scheduled maintenance
performed at Plant Watson and Plant Daniel in the first quarter 2002.
Depreciation and amortization. The first quarter 2003 decrease is a result
of a credit to amortization of environmental expenses recorded in early 2003
based on Mississippi Power's latest ECO Plan filing with the Mississippi PSC
when compared to the same period in 2002.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors including regulatory matters and the effect of weather and the economy
on energy sales. For additional information relating to these issues, see Item 1
- - BUSINESS - "Risk Factors" and Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of Mississippi Power in the Form 10-K.
Mississippi Power's business activities are subject to extensive
governmental regulation related to public health and the environment. Litigation
over environmental issues and claims of various types, including property
damage, personal injury and citizen enforcement of environmental requirements,
has increased generally throughout the United States. In particular, personal
injury claims for damages caused by alleged exposure to hazardous materials have
become more frequent. The ultimate outcome of such litigation currently filed
against Mississippi Power cannot be predicted at this time; however, after
consultation with legal counsel, management does not anticipate that the
liabilities, if any, arising from such proceedings would have a material adverse
effect on Mississippi Power's financial statements.
Mississippi Power's 2003 ECO Plan filing was approved, as filed, by the
Mississippi PSC on March 18, 2003 and resulted in a slight increase in rates.
Compliance costs related to the Clean Air Act could affect earnings if such
costs cannot continue to be recovered. For additional information about the
Clean Air Act and other environmental issues, including the EPA litigation, see
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Environmental Matters" and Note
3 to the financial statements of Mississippi Power in the Form 10-K.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - FERC Matters" of Mississippi Power in the Form 10-K
for information on the formation of an RTO as ordered by the FERC and the notice
of proposed rulemaking regarding open access transmission service and standard
electricity market design. In April 2003, the FERC issued a White Paper related
to its proposed rulemaking regarding open access transmission service and
standard electricity market design in an effort to respond to certain of the
public comments received on the standard market design proposal. Evident in the
64
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
White Paper are continuing differences in opinion between the FERC and various
state regulatory commissions over questions of jurisdiction and protection of
retail customers. Pending energy legislation may also impact these issues. Any
impact of this proposal on Southern Company and its subsidiaries will depend on
the form in which final rules may be ultimately adopted; however, Mississippi
Power's revenues, expenses, assets and liabilities could be adversely affected
by changes in the transmission regulatory structure in its regional power
market.
Reference is made to Note (J) in the "Notes to the Condensed Financial
Statements" herein for information regarding the proposed termination of a PPA
between a subsidiary of Dynegy and Mississippi Power. Reference is also made to
Note (M) to the Condensed Financial Statements herein for information on a
proposed settlement in the FERC investigation of Mississippi Power's
transmission facilities agreement with Entergy Corporation.
Reference is made to Notes (A), (F) and (J) to the Condensed Financial
Statements herein for discussion of various contingencies and other matters
which may affect future earnings potential.
Accounting Policies
Critical Policies
Mississippi Power's significant accounting policies are described in Note 1 to
the financial statements of Mississippi Power in Item 8 of the Form 10-K.
Mississippi Power's critical accounting policies involve rate regulation and
lease accounting. Mississippi Power is subject to the provisions of FASB
Statement No. 71, "Accounting for the Effects of Certain Types of Regulation."
In the event that a portion of Mississippi Power's operations is no longer
subject to these provisions, Mississippi Power would be required to write off
related regulatory assets and liabilities that are not specifically recoverable
and determine if any other assets, including plant, have been impaired.
Additionally, Mississippi Power accounts for its lease agreement with
Escatawpa Funding, Limited Partnership ("Escatawpa"), as an operating lease.
Under this agreement, Escatawpa, a special purpose entity, is owner-lessor of
the combined-cycle generating units at Mississippi Power's Plant Daniel.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Accounting
Policies - Critical Policies" of Mississippi Power in the Form 10-K for
additional information regarding this lease agreement. Mississippi Power is
currently working to restructure this agreement so that it will continue to be
accounted for as an operating lease. The restructured agreement should be
completed in June 2003, prior to the required implementation date of FASB
Interpretation No. 46, "Consolidation of Certain Special-Purpose Entities." If
the agreement is not restructured, FASB Interpretation No. 46 will require that
Mississippi Power consolidate the assets and liabilities of Escatawpa effective
July 1, 2003. Consolidation of these assets and liabilities could require
Mississippi Power to seek additional regulatory review.
65
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
New Accounting Standards
Reference is made to Note (H) to the Condensed Financial Statements herein for
information regarding the adoption of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" effective January 1, 2003. Statement No. 143
establishes new accounting and reporting standards for legal obligations
associated with the ultimate cost of retiring long-lived assets. The present
value of the ultimate costs for an asset's future retirement must be recorded in
the period in which the liability is incurred. The cost must be capitalized as
part of the related long-lived asset and depreciated over the asset's useful
life. Additionally, Statement No. 143 does not permit non-regulated companies to
continue accruing future retirement costs for long-lived assets that they do not
have a legal obligation to retire. Prior to January 2003, Mississippi Power
accrued for the ultimate cost of retiring most long-lived assets over the life
of the related asset through depreciation expense.
FINANCIAL CONDITION
Overview
Major changes in Mississippi Power's financial condition during the first three
months of 2003 included the addition of approximately $11.8 million to utility
plant. The funds for these additions and other capital requirements were derived
primarily from cash and cash equivalents. See Mississippi Power's Condensed
Statements of Cash Flows herein for further details.
Off-Balance Sheet Financing Arrangements
In May 2001, Mississippi Power began the initial 10-year term of an operating
lease agreement with Escatawpa, a special purpose entity, to use a
combined-cycle generating facility located at Mississippi Power's Plant Daniel.
The facility cost approximately $370 million. The lease provides for a residual
value guarantee -- approximately 71 percent of the completion cost -- by
Mississippi Power that is due upon termination of the lease in certain
circumstances. Reference is made to Note 8 to the financial statements of
Mississippi Power in Item 8 of the Form 10-K under "Lease Agreements" and to
"Critical Policies" above for additional information.
Credit Rating Risk
Mississippi Power does not have any credit agreements that would require
material changes in payment schedules or terminations as a result of a credit
rating downgrade. There are certain fixed-price physical gas purchase contracts
that could require collateral -- but not accelerated payment -- in the event of
a credit rating change to below investment grade; however, at March 31, 2003,
this exposure was immaterial.
66
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Exposure to Market Risks
Mississippi Power's market risk exposures relative to interest rate changes have
not changed materially compared with the December 31, 2002 reporting period. In
addition, Mississippi Power is not aware of any facts or circumstances that
would significantly affect such exposures in the near term.
Due to cost-based rate regulations, Mississippi Power has limited exposure
to market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Mississippi Power enters into fixed price contracts for the purchase and
sale of electricity through the wholesale electricity market and, to a lesser
extent, similar contracts for gas purchases. Mississippi Power has also
implemented retail fuel hedging programs at the instruction of its PSC and
wholesale fuel hedging programs under agreements with wholesale customers. The
fair value of derivative, fuel and energy contracts was as follows:
First Quarter
2003
Changes
--------------------------------------- -------------------------
Fair Value
--------------------------------------- ------------------------
(in thousands)
Contracts beginning of period $12,864
Contracts realized or settled (4,151)
New contracts at inception -
Changes in valuation techniques -
Current period changes 4,593
--------------------------------------- -------------------------
Contracts at March 31, 2003 $13,306
======================================= =========================
All of these contracts are actively quoted and mature within one year.
Source of March 31, 2003
Valuation Prices
------------------------------ --------------- ---------------------------
Total Maturity
---------------------------
Fair Value Year 1 1-3 Years
------------------------------ -------------------------------------------
(in thousands)
Actively quoted $13,306 $13,306 $-
External sources - - -
Models and other methods - - -
------------------------------ --------------- ---------------------------
Contracts at March 31, 2003 $13,306 $13,306 $-
============================== =============== ===========================
Unrealized gains and losses from mark to market adjustments on contracts
related to the retail and wholesale fuel hedging programs are recorded as
regulatory assets and liabilities. Realized gains and losses from these programs
are included in fuel expense and are recovered through Mississippi Power's
energy cost management clauses. Reference is made to Note 1 to the financial
statements of Mississippi Power in Item 8 of the Form 10-K regarding the
respective approvals of the retail and wholesale energy cost management clauses.
67
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Gains and losses on contracts that do not represent hedges are recognized in the
Statements of Income as incurred. At March 31, 2003, the fair value of
derivative energy contracts reflected in the financial statements was as
follows:
Amounts
--------------------------------------- -------------------------
--------------------------------------- -------------------------
(in thousands)
Regulatory liabilities, net $13,329
Other comprehensive income -
Net loss (23)
--------------------------------------- -------------------------
Total fair value $13,306
======================================= =========================
For the quarters ended March 31, 2003 and 2002, amounts recognized in
income were immaterial.
For additional information, reference is made to Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Market Price Risk" of Mississippi Power in the Form
10-K and Note 1 to the financial statements of Mississippi Power in Item 8 of
the Form 10-K.
Financing Activities
In April 2003, Mississippi Power issued $90 million of Series E 5-5/8% Senior
Notes due May 1, 2033. The proceeds from this sale will be used to repay at
maturity $35 million of Mississippi Power's Series B 6.05% Senior Notes due May
1, 2003, to redeem the $51.55 million outstanding principal amount of
Mississippi Power's Series A 6.75% Senior Insured Quarterly Notes due June 30,
2038 and to repay a portion of Mississippi Power's outstanding short-term
indebtedness.
Mississippi Power plans to continue, to the extent possible, a program to
retire higher-cost debt and replace these securities with lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of
Mississippi Power under "Capital Requirements for Construction," "Environmental
Matters" and "Other Capital Requirements" and Note 3 to the financial statements
in the Form 10-K for a description of Mississippi Power's capital requirements
for its construction program, environmental compliance efforts and maturities of
long-term debt.
Sources of Capital
In addition to the financing activities previously described herein, Mississippi
Power plans to obtain the funds required for construction and other purposes
from sources similar to those used in the past. The amount, type and timing of
any financings -- if needed -- will depend upon maintenance of adequate
earnings, regulatory approval, prevailing market conditions and other factors.
See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for additional
information.
Mississippi Power's current liabilities exceed current assets because of
the continued use of short-term debt as a funding source to meet cash needs as
well as scheduled maturities of long-term debt.
68
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
To meet short-term cash needs and contingencies, Mississippi Power had at
March 31, 2003 approximately $13.1 million of cash and cash equivalents and
$79.5 million of unused committed credit arrangements with banks that expire in
2003. Some of these credit arrangements, approximately $35 million, contain
provisions allowing two-year term loans executable at expiration date. The
credit arrangements provide liquidity support to Mississippi Power's obligations
with respect to variable rate pollution control bonds and commercial paper.
Mississippi Power may also meet short-term cash needs through a Southern Company
subsidiary organized to issue and sell commercial paper and extendible
commercial notes at the request and for the benefit of Mississippi Power and
other Southern Company subsidiaries. At March 31, 2003, Mississippi Power had
approximately $20 million of outstanding commercial paper. Management believes
that the need for working capital can be adequately met by utilizing lines of
credit without maintaining large cash balances.
69
SAVANNAH ELECTRIC
AND
POWER COMPANY
70
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Retail sales $63,546 $54,947
Sales for resale --
Non-affiliates 2,034 933
Affiliates 2,324 898
Other revenues 1,078 600
- ------------------------------------------------------------------------------------------------------------------
Total operating revenues 68,982 57,378
- ------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 11,425 8,928
Purchased power --
Non-affiliates 2,012 1,067
Affiliates 19,013 12,127
Other 13,099 13,072
Maintenance 5,910 5,325
Depreciation and amortization 5,061 6,509
Taxes other than income taxes 3,447 3,485
- ------------------------------------------------------------------------------------------------------------------
Total operating expenses 59,967 50,513
- ------------------------------------------------------------------------------------------------------------------
Operating Income 9,015 6,865
Other Income and (Expense):
Interest expense, net of amounts capitalized (2,621) (2,769)
Distributions on preferred securities of subsidiary (685) (685)
Other income (expense), net (209) (626)
- ------------------------------------------------------------------------------------------------------------------
Total other income and (expense) (3,515) (4,080)
- ------------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 5,500 2,785
Income taxes 1,991 983
- ------------------------------------------------------------------------------------------------------------------
Net Income $ 3,509 $ 1,802
==================================================================================================================
The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
71
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 3,509 $ 1,802
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 5,582 6,419
Deferred income taxes and investment tax credits, net (439) (4,453)
Pension, postretirement, and other employee benefits 1,670 1,723
Other, net 2,143 (1,979)
Changes in certain current assets and liabilities --
Receivables, net 5,284 8,986
Fossil fuel stock (1,620) 1,869
Materials and supplies 16 3,294
Other current assets (65) (1,581)
Accounts payable (5,347) (156)
Taxes accrued (46) (300)
Other current liabilities (1,559) (1,589)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 9,128 14,035
- ----------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (10,798) (9,565)
Other 3,342 (15)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (7,456) (9,580)
- ----------------------------------------------------------------------------------------------------------------------
Financing Activities:
Decrease in notes payable, net (2,897) (91)
Proceeds --
Pollution control bonds 13,870 -
Other long-term debt - 356
Capital contributions from parent company 5,101 822
Redemptions --
First mortgage bonds - (436)
Pollution control bonds (13,870) -
Other long-term debt (225) -
Payment of common stock dividends (5,750) (5,675)
Other (71) -
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (3,842) (5,024)
- ----------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (2,170) (569)
Cash and Cash Equivalents at Beginning of Period 3,978 2,391
- ----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 1,808 $ 1,822
- -----------------------------------------------------------------------------------------==============-==============
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of $27 and $32 capitalized for 2003 and 2002, respectively) $1,724 $1,556
Income taxes (net of refunds) $ - $6,806
The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
72
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 1,808 $ 3,978
Receivables --
Customer accounts receivable 18,584 22,631
Unbilled revenues 10,798 11,531
Other accounts and notes receivable 2,455 2,937
Affiliated companies 1,097 1,102
Accumulated provision for uncollectible accounts (698) (682)
Fossil fuel stock, at average cost 9,949 8,328
Materials and supplies, at average cost 9,570 9,586
Prepaid taxes 21,782 20,422
Other 6,121 6,058
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 81,466 85,891
- ---------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 886,076 880,604
Less accumulated provision for depreciation 422,334 416,232
- ---------------------------------------------------------------------------------------------------------------------
463,742 464,372
Construction work in progress 12,111 6,082
- ---------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 475,853 470,454
- ---------------------------------------------------------------------------------------------------------------------
Other Property and Investments 2,084 3,648
- ---------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Deferred charges related to income taxes 11,289 11,692
Cash surrender value of life insurance for deferred compensation plans 22,045 21,943
Unamortized debt issuance expense 3,755 3,757
Unamortized premium on reacquired debt 8,018 8,103
Other 14,129 11,717
- ---------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 59,236 57,212
- ---------------------------------------------------------------------------------------------------------------------
Total Assets $ 618,639 $ 617,205
- -----------------------------------------------------------------------------==================----==================
The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
73
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2003 2002
- ------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 20,879 $ 20,892
Notes payable - 2,897
Accounts payable --
Affiliated 9,758 7,889
Other 10,196 15,769
Customer deposits 6,791 6,781
Taxes accrued --
Income taxes 777 311
Other 2,805 3,317
Interest accrued 4,531 3,268
Vacation pay accrued 2,454 2,427
Other 12,375 15,233
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 70,566 78,784
- -------------------------------------------------------------------------------------------------------------
Long-term debt 167,841 168,052
- -------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Accumulated deferred income taxes 80,163 78,970
Deferred credits related to income taxes 11,769 12,445
Accumulated deferred investment tax credits 9,123 9,289
Employee benefits provisions 35,289 33,619
Other 21,224 16,242
- -------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 157,568 150,565
- -------------------------------------------------------------------------------------------------------------
Company obligated mandatorily redeemable preferred
securities of subsidiary trusts holding company junior
subordinated notes 40,000 40,000
- -------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity:
Common stock, par value $5 per share --
Authorized - 16,000,000 shares
Outstanding - 10,844,635 shares
Par value 54,223 54,223
Paid-in capital 21,878 16,776
Retained earnings 107,807 110,049
Accumulated other comprehensive loss (1,244) (1,244)
- -------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 182,664 179,804
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $ 618,639 $ 617,205
- ------------------------------------------------------------------------===============----==================
The accompanying notes as they relate to Savannah Electric are an integral part of these condensed financial statements.
74
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
RESULTS OF OPERATIONS
Earnings
Savannah Electric's net income for the first quarter 2003 was $3.5 million as
compared to $1.8 million for the corresponding period of 2002. Earnings for the
first quarter 2003 increased by $1.7 million or 94.7% due primarily to higher
operating revenues.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
--------------------------------
First Quarter
--------------------------------
(in thousands) %
Retail sales.............................. $8,599 15.6
Sales for resale - non-affiliates......... 1,101 118.0
Sales for resale - affiliates............. 1,426 158.8
Fuel expense.............................. 2,497 28.0
Purchased power - non-affiliates.......... 945 88.6
Purchased power - affiliates.............. 6,886 56.8
Maintenance expense....................... 585 11.0
Depreciation and amortization............. (1,448) (22.2)
Retail sales. Excluding fuel revenues, which do not affect net income,
retail sales revenue increased by $2.7 million, or 7.7%, for the first quarter
2003 when compared to the corresponding period in 2002. Energy sales to
residential and commercial customers were higher by 10.4% and 2.1%,
respectively, due mainly to colder weather and growth in the number of customers
when compared to the same period in 2002. Energy sales to industrial customers
were higher by 16.8% in the first quarter 2003 compared to the first quarter
2002 primarily due to increased usage by one industrial customer. Retail sales
revenues also reflect the base rate increase that took effect in June 2002.
Sales for resale - non-affiliates. Sales for resale to non-affiliates
during the first quarter 2003 increased when compared to the same period in 2002
primarily due to increased demand for energy by non-affiliates. These
transactions do not have a significant impact on earnings since the energy is
usually sold at cost.
Sales for resale - affiliates. Revenues from sales for resale to affiliated
companies within the Southern Company system will vary depending on demand and
the availability and cost of generating resources at each company. These
transactions do not have a significant impact on earnings since the energy is
sold at cost.
Fuel expense. Fuel expense increased in the first quarter 2003 due
primarily to increased generation related to the higher demand for energy.
75
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Purchased power - non-affiliates. The increase in purchased power from
non-affiliates is primarily due to the opportunity to purchase this energy at a
cost lower than self-generation in the first quarter 2003 as compared to the
same period in 2002. Non-affiliated transactions are primarily energy and do not
have a significant impact on earnings, as energy costs are generally recovered
through Savannah Electric's fuel cost recovery clause.
Purchased power - affiliates. The increase in purchased power from
affiliates in the first quarter 2003 was directly related to the new PPA with
Southern Power which became effective June 2002. The annual capacity costs of
this PPA are approximately $14.0 million. Capacity costs of purchased power are
generally recovered through base rates and the energy component is recovered
through the fuel cost recovery clause. Purchased power from affiliates also
includes energy purchases which will vary depending on demand and cost of
generation resources at each company. These energy costs are recovered through
the fuel cost recovery clause and have no significant impact on earnings.
Maintenance expense. Maintenance expense in the first quarter 2003
increased when compared to the same period in the prior year due primarily to
scheduled maintenance on steam generating facilities.
Depreciation and amortization. The decrease in this item during the first
quarter 2003 is primarily due to discontinued accelerated depreciation and the
amortization of the related regulatory liability that began in June 2002, in
accordance with the 2002 base rate order.
Future Earnings Potential
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings depends on numerous
factors which include maintaining a stable regulatory environment and achieving
energy sales growth while containing costs. For additional information relating
to these issues, reference is made to Item 1 - BUSINESS - "Risks Factors" and
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of
Savannah Electric in the Form 10-K.
Savannah Electric's business activities are subject to extensive
governmental regulation related to public health and the environment. Litigation
over environmental issues and claims of various types, including property
damage, personal injury and citizen enforcement of environmental requirements,
has increased generally throughout the United States. In particular, personal
injury claims for damages caused by alleged exposure to hazardous materials have
become more frequent. The ultimate outcome of such litigation currently filed
against Savannah Electric cannot be predicted at this time; after consultation
with legal counsel, management does not anticipate that the liabilities, if any,
arising from such proceedings would have a material adverse effect on Savannah
Electric's financial position, results of operations or cash flows.
Compliance costs related to the Clean Air Act and other environmental
issues could affect earnings if such costs cannot be recovered. For additional
information about the Clean Air Act and other environmental issues, including
the EPA litigation, see Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" and Note 3 to the financial statements of Savannah
Electric in the Form 10-K.
76
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - FERC Matters" of Savannah Electric in the Form 10-K
for information on the formation of an RTO as ordered by the FERC and the notice
of proposed rulemaking regarding open access transmission service and standard
electricity market design. In April 2003, the FERC issued a White Paper related
to its proposed rulemaking regarding open access transmission service and
standard electricity market design in an effort to respond to certain of the
public comments received on the standard market design proposal. Evident in the
White Paper are continuing differences in opinion between the FERC and various
state regulatory commissions over questions of jurisdiction and protection of
retail customers. Pending energy legislation may also impact these issues. Any
impact of this proposal on Southern Company and its subsidiaries will depend on
the form in which final rules may be ultimately adopted; however, Savannah
Electric's revenues, expenses, assets, and liabilities could be adversely
affected by changes in the transmission regulatory structure in its regional
power market.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential" of Savannah Electric in the Form 10-K for
information on plans to retire a 102 megawatt peaking facility in May 2005 and a
fifteen-year PPA with Southern Power to purchase 200 megawatts of capacity
beginning in June 2005 from the planned combined-cycle plant at Plant McIntosh
to be built and owned by Southern Power. The annual capacity cost is expected to
be approximately $14.5 million. Reference is made to Note (L) to the Condensed
Financial Statements herein for information regarding the FERC approval process
for this PPA.
Reference is made to Notes (A), (E), (F) and (L) to the Condensed Financial
Statements herein for discussion of various contingencies and other matters
which may affect future earnings potential.
Accounting Policies
Critical Policy
Savannah Electric's significant accounting policies are described in Note 1 to
the financial statements of Savannah Electric in Item 8 of the Form 10-K.
Savannah Electric's only critical accounting policy involves rate regulation.
Savannah Electric is subject to the provisions of FASB Statement No. 71,
"Accounting for the Effects of Certain Types of Regulation." In the event that a
portion of Savannah Electric's operations is no longer subject to these
provisions, Savannah Electric 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.
New Accounting Standards
Reference is made to Note (H) to the Condensed Financial Statements herein for
information regarding the adoption of FASB Statement No. 143, "Accounting for
Asset Retirement Obligations" effective January 1, 2003. Statement No. 143
establishes new accounting and reporting standards for legal obligations
associated with the ultimate cost of retiring long-lived assets. The present
value of the ultimate costs for an asset's future retirement must be recorded in
the period in which the liability is incurred. The cost must be capitalized as
part of the related long-lived asset and depreciated over the asset's useful
life. Additionally, Statement No. 143 does not permit non-regulated companies to
77
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
continue accruing future retirement costs for long-lived assets that they do not
have a legal obligation to retire. Prior to January 2003, Savannah Electric
accrued for the ultimate cost of retiring most long-lived assets over the life
of the related asset through depreciation expense.
FINANCIAL CONDITION
Overview
Major changes in Savannah Electric's financial condition during the first three
months of 2003 included the addition of approximately $10.8 million to utility
plant. The funds for these additions and other capital requirements were derived
primarily from operations and the issuance of securities. See Savannah
Electric's Condensed Statements of Cash Flows herein for further details.
Credit Rating Risk
Savannah Electric does not have any credit agreements that would require
material changes in payment schedules or terminations as a result of a credit
rating downgrade.
Exposure to Market Risks
Savannah Electric's market risk exposures relative to interest rate changes have
not changed materially compared with the December 31, 2002 reporting period. In
addition, Savannah Electric is not aware of any facts or circumstances that
would significantly affect such exposures in the near term.
Due to cost-based rate regulations, Savannah Electric has limited exposure
to market volatility in interest rates, commodity fuel prices and prices of
electricity. To mitigate residual risks relative to movements in electricity
prices, Savannah Electric enters into fixed price contracts for the purchase and
sale of electricity through the wholesale electricity market and, to a lesser
extent, similar contracts for gas purchases. Savannah Electric has also
implemented a retail fuel hedging program at the instruction of its PSC. The
fair value of derivative energy contracts at March 31, 2003 was as follows:
First Quarter
2003
Changes
--------------------------------------- -------------------------
Fair Value
--------------------------------------- -------------------------
(in thousands)
Contracts beginning of period $626
Contracts realized or settled -
New contracts at inception -
Changes in valuation techniques -
Current period changes 644
--------------------------------------- -------------------------
Contracts at March 31, 2003 $1,270
======================================= =========================
78
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Source of March 31, 2003
Valuation Prices
------------------------------ -------------------------------------------
Total Maturity
-----------------------------
Fair Value Year 1 1-3 Years
------------------------------ -------------------------------------------
(in thousands)
Actively quoted $1,270 $1,630 $(360)
External sources - - -
Models and other methods - - -
------------------------------ ------------- -----------------------------
Contracts at March 31, 2003 $1,270 $1,630 $(360)
============================== ============= =============================
Unrealized gains and losses from mark to market adjustments on contracts
related to the retail fuel hedging programs are recorded as regulatory assets
and liabilities. At March 31, 2003, Savannah Electric had approximately $1.3
million in regulatory liabilities related to unrealized gains on mark to market
derivative contracts associated with its fuel hedging programs. Realized gains
and losses from these programs are included in fuel expense and are recovered
through Savannah Electric's fuel cost recovery clause. Gains and losses on
contracts that do not represent hedges are recognized in the Statements of
Income as incurred. For the quarters ended March 31, 2003 and 2002, these
amounts were not material.
For additional information, reference is made to Item 7 - MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Exposure to Market Risks" of Savannah Electric in the
Form 10-K and Note 1 to the financial statements of Savannah Electric in Item 8
of the Form 10-K.
Financing Activities
In February 2003, Savannah Electric sold through public authorities an aggregate
principal amount of $13.87 million of variable rate Pollution Control Revenue
Bonds, Series 2003 due February 1, 2038. The proceeds from this sale, together
with any investment proceeds and other moneys of Savannah Electric, were used to
redeem $13.87 million aggregate principal amount of Development Authority of
Effingham County Pollution Control Revenue Bonds, Series 1997. The 2003 bonds
will bear interest at a rate to be determined by the auction rate process.
Unlike the redeemed bonds, the 2003 bonds will not require backup bank credit
facilities.
Savannah Electric plans to continue, to the extent possible, a program to
retire higher-cost debt and replace these securities with lower-cost capital.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS of Savannah
Electric under "Capital Requirements for Construction," "Other Capital
Requirements" and "Environmental Matters" in the Form 10-K for a description of
Savannah Electric's capital requirements for its construction program, maturing
debt and environmental compliance efforts.
79
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Sources of Capital
Savannah Electric plans to obtain the funds required for construction and other
purposes from sources similar to those used in the past. The amount, type and
timing of any financings -- if needed -- will depend upon maintenance of
adequate earnings, regulatory approval, prevailing market conditions and other
factors. See Item 1 - BUSINESS - "Financing Programs" in the Form 10-K for
additional information.
To meet short-term cash needs and contingencies, Savannah Electric had at
March 31, 2003 approximately $1.8 million of cash and cash equivalents and $55
million of unused committed credit arrangements with banks, of which $40 million
expires in 2003 and $15 million expires in 2004 and beyond. The credit
arrangements provide liquidity support to some of Savannah Electric's
obligations with respect to its variable rate debt and its commercial paper.
Savannah Electric may also meet short-term cash needs through a Southern Company
subsidiary organized to issue and sell commercial paper and extendible
commercial notes at the request and for the benefit of Savannah Electric and
other Southern Company subsidiaries. At March 31, 2003, Savannah Electric had no
outstanding notes payable or commercial paper. Since Savannah Electric has no
major generating plants under construction, management believes that the need
for working capital can be adequately met by utilizing lines of credit.
80
SOUTHERN POWER COMPANY
81
SOUTHERN POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Revenues:
Sales for resale --
Non-affiliates $ 50,269 $ 17,487
Affiliates 55,290 1,810
Other revenues 1,880 2
- ----------------------------------------------------------------------------------------------------------------
Total Operating Revenues 107,439 19,299
- ----------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operation --
Fuel 20,038 1,992
Purchased power --
Non-affiliates 15,323 3,114
Affiliates 17,932 1,370
Other 5,908 2,189
Maintenance 2,177 70
Depreciation and amortization 6,544 2,001
Taxes other than income taxes 1,300 701
- ----------------------------------------------------------------------------------------------------------------
Total operating expenses 69,222 11,437
- ----------------------------------------------------------------------------------------------------------------
Operating Income 38,217 7,862
Other Income and (Expense):
Interest expense, net of amounts capitalized (1,399) -
Other income (expense), net 303 (596)
- ----------------------------------------------------------------------------------------------------------------
Total other income and (expense) (1,096) (596)
- ----------------------------------------------------------------------------------------------------------------
Earnings Before Income Taxes 37,121 7,266
Income taxes 14,363 2,811
- ----------------------------------------------------------------------------------------------------------------
Earnings Before Cumulative Effect of
Accounting Change 22,758 4,455
Cumulative effect of accounting change --
less income taxes of $231 thousand 367 -
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 23,125 $4,455
- -----------------------------------------------------------------------------================--=================
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
82
SOUTHERN POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
Operating Activities:
Net income $ 23,125 $ 4,455
Adjustments to reconcile net income
to net cash provided from operating activities --
Depreciation and amortization 6,544 2,001
Deferred income taxes and investment tax credits, net 9,062 (1,294)
Deferred capacity revenues (12,389) (1,707)
Other, net 841 875
Changes in certain current assets and liabilities --
Receivables, net (1,857) (3,435)
Fossil fuel stock 7,917 294
Materials and supplies (79) -
Other current assets (1,544) 50
Accounts payable (10,629) 1,715
Taxes accrued 1,764 5,357
Interest accrued (12,618) -
- -------------------------------------------------------------------------------------------------------------------
Net cash provided from operating activities 10,137 8,311
- -------------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross property additions (103,974) (585,947)
Increase in construction related payables (8,042) (5,899)
Other 239 (1,498)
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (111,777) (593,344)
- -------------------------------------------------------------------------------------------------------------------
Financing Activities:
Increase in notes payable, net 458,435 88,892
Proceeds --
Other long-term debt - 287,000
Capital contributions from parent company 154 244,410
Redemptions --
Other long-term debt (373,979) -
Other 234 405
- -------------------------------------------------------------------------------------------------------------------
Net cash provided from financing activities 84,844 620,707
- -------------------------------------------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents (16,796) 35,674
Cash and Cash Equivalents at Beginning of Period 19,474 3,711
- -------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 2,678 $ 39,385
- ---------------------------------------------------------------------------------=================-================
Supplemental Cash Flow Information:
Cash paid during the period for --
Interest (net of $13,526 and $4,973 capitalized for 2003 and 2002, respectively) $12,767 $ -
Income taxes (net of refunds) $4,018 ($389)
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
83
SOUTHERN POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Assets 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Assets:
Cash and cash equivalents $ 2,678 $ 19,474
Receivables --
Customer accounts receivable 5,324 6,609
Affiliated companies 14,697 11,555
Accumulated provision for uncollectible accounts (350) (350)
Fossil fuel stock, at average cost 3,113 11,031
Materials and supplies, at average cost 6,633 6,553
Prepayments 11,623 8,796
Other 10,033 9,954
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 53,751 73,622
- ------------------------------------------------------------------------------------------------------------------------
Property, Plant, and Equipment:
In service 923,940 896,163
Less accumulated provision for depreciation 27,461 21,590
- ------------------------------------------------------------------------------------------------------------------------
896,479 874,573
- ------------------------------------------------------------------------------------------------------------------------
Construction work in progress 1,159,850 1,082,987
- ------------------------------------------------------------------------------------------------------------------------
Total property, plant, and equipment 2,056,329 1,957,560
- ------------------------------------------------------------------------------------------------------------------------
Deferred Charges and Other Assets:
Accumulated deferred income taxes 32,594 38,591
Unamortized debt issuance expense 11,708 12,177
Other 3,914 4,026
- ------------------------------------------------------------------------------------------------------------------------
Total deferred charges and other assets 48,216 54,794
- ------------------------------------------------------------------------------------------------------------------------
Total Assets $ 2,158,296 $ 2,085,976
- ------------------------------------------------------------------------------====================---===================
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
84
SOUTHERN POWER COMPANY
CONDENSED BALANCE SHEETS (UNAUDITED)
At March 31, At December 31,
Liabilities and Stockholder's Equity 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands)
Current Liabilities:
Securities due within one year $ 200 $ 200
Notes payable 446,485 -
Notes payable to parent 32,438 210,488
Accounts payable --
Affiliated 18,787 37,748
Other 4,813 4,522
Taxes accrued --
Income taxes 5,383 3,915
Other 4,609 4,313
Interest accrued 8,095 20,713
Other 7,816 3,484
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 528,626 285,383
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term Debt:
Senior notes 575,000 575,000
Other long-term debt 8,090 382,089
Unamortized debt (discount) premium, net (1,190) (1,210)
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt 581,900 955,879
- ---------------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Obligations under risk management activities 69,295 63,191
Deferred capacity revenues--
Affiliated 2,939 13,075
Other 1,248 3,147
Other--
Affiliated 15,407 15,644
Other 2,568 3,053
- ---------------------------------------------------------------------------------------------------------------------------
Total deferred credits and other liabilities 91,457 98,110
- ---------------------------------------------------------------------------------------------------------------------------
Common Stockholder's Equity:
Common stock, par value $.01 per share --
Authorized - 1,000,000 shares
Outstanding - 1,000 shares - -
Paid-in capital 921,383 731,230
Retained earnings 85,602 62,477
Accumulated other comprehensive loss (50,672) (47,103)
- ---------------------------------------------------------------------------------------------------------------------------
Total common stockholder's equity 956,313 746,604
- ---------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholder's Equity $ 2,158,296 $ 2,085,976
- ---------------------------------------------------------------------------------====================---===================
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
85
SOUTHERN POWER COMPANY
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months
Ended March 31,
2003 2002
- ----------------------------------------------------------------------------------------------------------
(in thousands)
Net Income $ 23,125 $ 4,455
Other comprehensive income (loss):
Changes in fair value of qualifying hedges, net of tax
of $(2,400) and $3,888, respectively (3,833) 6,002
Less: Reclassification adjustment for amounts included in net
income, net of tax of $166 264 -
- -----------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 19,556 $ 10,457
===========================================================================================================
SOUTHERN POWER COMPANY
CONDENSED STATEMENTS OF ACCUMULATED OTHER COMPREHENSIVE LOSS (UNAUDITED)
At March 31, At December 31,
2003 2002
- -----------------------------------------------------------------------------------------------------------------
(in thousands)
Balance at beginning of period $ (47,103) $ 6,689
Change in current period (3,569) (53,792)
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT END OF PERIOD $ (50,672) $ (47,103)
- -------------------------------------------------------------=====================-------====================----
The accompanying notes as they relate to Southern Power are an integral part of these condensed financial statements.
86
SOUTHERN POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST QUARTER 2003 vs. FIRST QUARTER 2002
RESULTS OF OPERATIONS
Earnings
Southern Power's net income for first quarter 2003 was $23.1 million compared to
$4.4 million for the corresponding period of 2002. The increase in earnings of
$18.7 million is primarily due to the sale of wholesale capacity and energy to
affiliated and non-affiliated companies. The majority of this income is
attributed to the commercial operation of Plant Wansley Units 6 and 7 and Plant
Franklin Unit 1 beginning in June 2002 along with the initiation of PPAs for
those units with Georgia Power and Savannah Electric. During the first quarter
2002, Southern Power had only one plant (Plant Dahlberg) in commercial
operation.
Significant income statement items appropriate for discussion include the
following:
Increase (Decrease)
-------------------------------
First Quarter
-------------------------------
(in thousands) %
Sales for resale - non-affiliates............... $32,782 187.5
Sales for resale - affiliates................... 53,480 N/M
Fuel expense.................................... 18,046 N/M
Purchased power - non-affiliates................ 12,209 N/M
Purchased power - affiliates.................... 16,562 N/M
Other operation expense......................... 3,719 169.9
Maintenance expense............................. 2,107 N/M
Depreciation and amortization................... 4,543 227.0
Interest expense, net of amounts capitalized.... 1,399 -
Other income (expense), net..................... 899 150.8
N/M Not meaningful.
Sales for resale to non-affiliates. During the first quarter 2003, these
sales were higher as a result of wholesale capacity and energy sales to
non-affiliates that increased with commercial operation of Plant Franklin Unit 1
and Plant Wansley Units 6 and 7, as well as additional available capacity
arising from new units not yet in commercial operation. The additional
generation provided by the new units that was not required by Georgia Power and
Savannah Electric under long-term PPAs was available for sales to
non-affiliates. The colder than normal weather experienced early in the first
quarter of 2003 contributed to increased demand throughout the Super Southeast.
Sales for resale to affiliates. Energy and capacity sales through the new
PPAs with Georgia Power and Savannah Electric accounted for most of this
increase from first quarter 2002. Revenues from sales to affiliated companies
through the Southern Company system power pool ("Southern Pool") that are not
covered by PPAs and energy sales under PPAs will vary depending on demand and
the availability and cost of generating resources at each company within the
Southern Pool. These transactions do not have a significant impact on earnings,
since the energy is generally sold at variable cost.
87
SOUTHERN POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Fuel expense. This increase during the first quarter 2003 is mainly
associated with commercial operation of units at Plant Wansley and Plant
Franklin in June 2002 as compared to the first quarter of 2002, when Southern
Power had only Plant Dahlberg in commercial operation. Plant Dahlberg is
primarily utilized for peak-load conditions, which primarily occur during the
summer months.
Purchased power from non-affiliates. Purchased power from non-affiliates
increased in the first quarter 2003 to serve the increased requirements under
new PPAs with power purchased at prices lower than Southern Power's
self-generation.
Purchased power from affiliates. During the first quarter 2003, Southern
Power purchased more power from affiliates mainly due to the availability of
power at prices lower than Southern Power's self-generation. Expenses from
purchased power transactions will vary depending on demand, availability and the
cost of generating resources accessible throughout the Southern Company system.
Other operation expense. The first quarter 2003 increase in other operation
expense is related to production expenses and administrative and general
expenses resulting from the commercial operation in June 2002 of Plant Wansley
Units 6 and 7 and Plant Franklin Unit 1 when compared to the same period in the
prior year.
Maintenance expense. The increase in the first quarter 2003 is attributed
to commercial operation of Plant Wansley Units 6 and 7 and Plant Franklin Unit 1
in June 2002.
Depreciation and amortization. The additional generating units placed into
service in June 2002 are the cause of the increase in depreciation and
amortization during the first quarter 2003 when compared to the corresponding
period in 2002.
Interest expense, net of amounts capitalized. The increase in interest
expense, net of amounts capitalized during the first quarter 2003 from the same
period in 2002 is primarily related to a decline in the percentage of total
interest expense being capitalized as Southern Power has shifted from
construction mode into construction and operation mode.
Other income (expense), net. This increase in other income (expense), net
for the first quarter 2003 is attributed to gains on derivative energy
contracts. See "Exposure to Market Risks" below for more information related to
these contracts.
Effects of Inflation
Southern Power is subject to long-term contracts and income tax laws that are
based on the recovery of historical costs. While the inflation rate has been
relatively low in recent years, it continues to have an adverse effect on
Southern Power because of the large investment in generating facilities with
long economic lives. Conventional accounting for historical cost does not
recognize this economic loss nor the partially offsetting gain that arises
through financing facilities with fixed-money obligations such as long-term
debt.
88
SOUTHERN POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Future Earnings Potential
The results of operations are not necessarily indicative of future earnings. The
level of future earnings depends on numerous factors including completion of
construction on new generating facilities, regulatory matters, energy sales,
creditworthiness of customers, total generating capacity available in the Super
Southeast and the remarketing of capacity. For additional information relating
to these issues, see Item 1 - BUSINESS - "Risk Factors" and Item 7 -
MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future Earnings Potential" of Southern
Power in the Form 10-K.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - General" and to Note 5 to the financial statements
of Southern Power in Item 8 of the Form 10-K for additional information on
long-term power sales agreements and PPAs. Southern Power's PPAs with
non-affiliated counterparties have provisions that require the posting of
collateral or an acceptable substitute guarantee in the event that S&P or
Moody's downgrades the credit ratings of such counterparty to below-investment
grade, or, if the counterparty is not rated, fails to maintain a minimum
coverage ratio. The PPAs are expected to provide Southern Power with a stable
source of revenue during their respective terms.
In 2003, Southern Power expects Plant Franklin Unit 2, Plant Harris Units 1
and 2 and Plant Stanton A to be completed and placed into commercial operation.
In 2004, Southern Power's PPA with Georgia Power will begin for Plant Harris
Unit 2. PPAs for the other units become effective upon commercial operation.
Southern Power also has Plant Franklin Unit 3 and Plant McIntosh Units 10 and 11
under construction. Reference is made to Note (J) to the Condensed Financial
Statements herein for information regarding the proposed termination of Southern
Power's PPAs with Dynegy. Because of the proposed termination of these PPAs,
Southern Power is exploring several options for its existing capacity and is
also evaluating its construction schedule for Plant Franklin Unit 3 and may
determine to defer or cancel further construction based on forecasted capacity
needs. Reference is also made to Note (L) to the Condensed Financial Statements
herein for information regarding the FERC approval process for Southern Power's
PPAs with Georgia Power and Savannah Electric for Plant McIntosh Units 10 and
11. The final outcome of these matters cannot now be determined.
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Environmental Matters" of Southern Power in the Form 10-K for information on
the development by federal and state environmental regulatory agencies of
additional control strategies for emission of air pollution from all major
sources of air pollution, particularly electric generating facilities.
Compliance costs related to current and future environmental laws and
regulations could affect earnings if such costs are not fully recovered.
Southern Power's business activities are subject to extensive governmental
regulation related to public health and the environment. Litigation over
environmental issues and claims of various types, including property damage,
personal injury and citizen enforcement of environmental requirements, has
increased generally throughout the United States; in particular, personal injury
claims for damages caused by alleged exposure to hazardous materials have become
more frequent.
89
SOUTHERN POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - FERC Matters" of Southern Power in the Form 10-K
for information on the formation of an RTO as ordered by the FERC and the notice
of proposed rulemaking regarding open access transmission service and standard
electricity market design. In April 2003, the FERC issued a White Paper related
to its proposed rulemaking regarding open access transmission service and
standard electricity market design in an effort to respond to certain of the
public comments received on the standard market design proposal. Evident in the
White Paper are continuing differences in opinion between the FERC and various
state regulatory commissions over questions of jurisdiction and protection of
retail customers. Pending energy legislation may also impact these issues. Any
impact of this proposal on Southern Company and its subsidiaries will depend on
the form in which final rules may be ultimately adopted.
Reference is also made to Notes (A), (E) and (I) through (L) to the
Condensed Financial Statements herein for discussion of various contingencies
and other matters which may affect future earnings potential.
Accounting Policies
Critical Policies
Southern Power's significant accounting policies are described in Note 1 to the
financial statements of Southern Power in Item 8 of the Form 10-K. Southern
Power has three critical accounting policies that require a significant amount
of judgment and are considered to be the most important to the presentation of
Southern Power's financial position and results of operations. The first
critical policy is the recognition of capacity revenues from long-term contracts
at the lesser of the levelized basis or the cash collected over the contract
periods. Second, Southern Power designates qualifying derivative instruments as
cash flow or fair value hedges and marks such derivative instruments to market
based primarily on quoted market prices. The unrealized changes in fair value of
qualifying cash flow hedges are deferred in other comprehensive income. Any
ineffectiveness in those hedges and changes in non-qualifying positions are
reported as a component of current period income. Finally, Southern Power uses
flow-through accounting for state manufacturer's tax credits. This means that
Southern Power recognizes the credit as a reduction of tax expense when it is
more likely than not to be allowed by the Georgia Department of Revenue.
New Accounting Standards
Reference is made to Note (H) to the Condensed Financial Statements herein
for information regarding the adoption of FASB Statement No. 143, "Accounting
for Asset Retirement Obligations" effective January 1, 2003. Southern Power has
no liability for asset retirement obligations. Upon adoption, Southern Power
recorded a cumulative effect of change in accounting principle of $0.6 million,
representing previously accrued removal costs.
90
SOUTHERN POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
Overview
The major change in Southern Power's financial condition during the first three
months of 2003 was the addition of approximately $104 million to utility plant
related to on-going construction of Southern Power's combined-cycle units. The
funds for these additions were provided by Southern Power's credit facility,
commercial paper program and subordinated loans from Southern Company. See
Southern Power's Condensed Statements of Cash Flows herein for further details.
Credit Rating Risk
Southern Power does not have any credit agreements that would require material
changes in payment schedules or terminations as a result of a credit rating
downgrade. There are certain physical electricity sale contracts, fixed-price
physical gas purchases and agreements covering interest rate swaps and currency
swaps that could require collateral -- but not accelerated payment -- in the
event of a credit rating change to below investment grade. Generally, collateral
may be provided for by a Southern Company guaranty, letter of credit or cash. At
March 31, 2003, the maximum potential collateral requirements under the
electricity sale contracts and financial instrument agreements were
approximately $197 million. At March 31, 2003, there were no material collateral
requirements for the gas purchase contracts.
Exposure to Market Risks
Southern Power is exposed to market risks, including changes in interest rates,
currency exchange rates and certain commodity prices. To manage the volatility
attributable to these exposures, Southern Power nets the exposure to take
advantage of natural offsets and enters into various derivative transactions for
the remaining exposure pursuant to approved risk management policies in areas
such as counterparty exposure and hedging practices. Southern Power's policy is
that derivatives are to be used primarily for hedging purposes. Derivative
positions are monitored using techniques that include market valuation and
sensitivity analysis.
Southern Power has no outstanding variable rate long-term debt. To mitigate
Southern Power's exposure to interest rates, it has entered into interest rate
swaps that were designated as cash flow hedges of 2003 planned debt issuances.
Changes in the fair values of these swaps are deferred in Other Comprehensive
Income. The swaps will settle upon the issuance of the debt and will be
amortized to expense over the appropriate periods. (See Note (I) to the
Condensed Financial Statements herein for additional information.) Based on
Southern Power's overall interest rate exposure at March 31, 2003, including
derivative and other interest-rate sensitive instruments, a near-term 100
basis-point change in interest rates would not materially affect Southern
Power's financial statements. In addition, Southern Power is not aware of any
facts or circumstances that would significantly affect such exposures in the
near term.
91
SOUTHERN POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Because energy from Southern Power's facilities is primarily sold under
long-term contracts with tolling agreements and provisions shifting
substantially all of the responsibility for fuel cost to the PPA counterparties,
Southern Power's exposure to market volatility in commodity fuel prices and
prices of electricity is limited. To mitigate residual risks in those areas,
Southern Power enters into fixed-price contracts for the purchase or sale of
fuel and electricity. In connection with the transfers of Plant Franklin in 2001
and Plant Wansley in 2002 to Southern Power, Georgia Power transferred
approximately $5.6 million and $1.6 million, respectively, in derivative assets
relating to electric and gas forward contracts in effect at the date of the
transfers. These contracts were recorded at fair value on the date of the
transfer, which was equal to Georgia Power's carrying amount. Following the
transfer, these contracts are marked to market through income until realized and
settled.
Southern Power has firm purchase commitments that require payment in Euros.
As a hedge against fluctuations in the exchange rate for Euros, Southern Power
entered into forward contracts to purchase Euros and has designated these
contracts as fair value hedges of an unrecognized firm commitment. Since the
terms of these Euro contracts mirror the purchase commitment terms, there is no
ineffectiveness recognized in income. At March 31, 2003, Southern Power had
outstanding contracts covering a notional amount of $1.6 million in commitments
through May 2003.
Unrealized gains and losses on electric and gas contracts used to hedge
anticipated purchases and sales are deferred in Other Comprehensive Income.
Gains and losses on contracts that do not represent hedges are recognized in the
Statements of Income as incurred. The fair values of derivative energy contracts
at March 31, 2003 were as follows:
First Quarter
2003
Changes
--------------------------------------- -------------------------
Fair Value
--------------------------------------- -------------------------
(in thousands)
Contracts beginning of period $3,864
Contracts realized or settled (665)
New contracts at inception -
Changes in valuation techniques -
Current period changes (1,324)
--------------------------------------- -------------------------
Contracts at March 31, 2003 $1,875
======================================= =========================
At March 31, 2003, all of these contracts are based on actively quoted
market prices. Realized gains and losses on hedged transactions are recognized
in revenues and/or fuel expense in the Statements of Income as incurred. For the
three month periods ended March 31, 2003 and 2002, approximately $0.3 million of
gains and $1.3 million of losses, respectively, were recognized in Other Income
in the Statements of Income.
92
SOUTHERN POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Financing Activities
During the first three months of 2003, Southern Company made subordinated loans
to Southern Power of approximately $12 million. In March 2003, $190 million of
notes payable to Southern Company were converted to a capital contribution from
Southern Company. Equity contributions and subordinated loans from Southern
Company are projected to total approximately $813 million to Southern Power by
the end of 2003. No dividends are projected to be paid in 2003. These
projections are contingent upon FERC approval of the Plant McIntosh PPAs.
Reference is also made to Note (L) to the Condensed Financial Statements herein
for information regarding the FERC approval process for Southern Power's PPAs
with Georgia Power and Savannah Electric for Plant McIntosh Units 10 and 11.
Capital Requirements
Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS - "Capital
Requirements for Construction" and "Other Capital Requirements" of Southern
Power in the Form 10-K for a description of Southern Power's capital
requirements for its construction program, maturing debt, purchase commitments
and long-term service agreements.
Sources of Capital
To meet short-term cash needs and contingencies, Southern Power had at March 31,
2003 approximately $2.7 million of cash and cash equivalents. To meet liquidity
and capital resource requirements, Southern Power had at March 31, 2003
approximately $850 million of unused committed credit arrangements with banks
expiring in 2004. Effective April 2003, the credit facility for Southern Power
was reduced to $650 million to reflect lower short-term borrowing needs. The
facility was extended to April 2006. This line also provides liquidity support
for Southern Power's commercial paper program (as discussed below). Amounts
drawn under the arrangements are used to finance acquisition and construction
costs related to gas-fired electric generating facilities and for general
corporate purposes, subject to borrowing limitations for each generating
facility. The arrangements permit Southern Power to fund construction of future
generating facilities upon meeting certain requirements.
Southern Power's current liabilities exceed current assets because of the
continued use of short-term debt as a funding source to meet cash needs.
In February 2003, Southern Power initiated a commercial paper program to
fund a portion of the construction costs of new generating facilities. Southern
Power's strategy is to refinance most of such short-term borrowings with
long-term securities following commercial operation. The amount of commercial
paper will initially represent about 45% of total debt, but is forecasted to
decline to about 7% at year-end 2005 as more construction projects are completed
and refinanced with long-term securities. At March 31, 2003, Southern Power had
outstanding $446.5 million in commercial paper. Reference is made to Note 7 to
the financial statements of Southern Power in Item 8 of the Form 10-K for
additional information relating to the commercial paper program.
93
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
FOR
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
SOUTHERN POWER COMPANY
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
Registrant Applicable Notes
Southern Company A, B, C, D, E, F, G, H, I, J, N
Alabama Power A, E, F, H, I
Georgia Power A, E, F, G, H, I, K, L
Gulf Power A, E, F, G, H
Mississippi Power A, E, F, G, H, J, M
Savannah Electric A, E, F, H, L
Southern Power A, E, H, I, J, K, L
94
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
SOUTHERN POWER COMPANY
NOTES TO THE CONDENSED FINANCIAL STATEMENTS:
(A) The condensed financial statements of the registrants included herein have
been prepared by each registrant, without audit, pursuant to the rules and
regulations of the SEC. In the opinion of each registrant's management, the
information regarding such registrant furnished herein reflects all
adjustments necessary to present fairly the results of operations for the
periods ended March 31, 2003 and 2002. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to such rules and
regulations, although each registrant believes that the disclosures
regarding such registrant are adequate to make the information presented
not misleading. Disclosure which would substantially duplicate the
disclosure in the Form 10-K and details which have not changed
significantly in amount or composition since the filing of the Form 10-K
are omitted from this Form 10-Q. Therefore, it is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Form 10-K. Certain prior
period amounts have been reclassified to conform to current period
presentation. Due to seasonal variations in the demand for energy,
operating results for the periods presented do not necessarily indicate
operating results for the entire year.
(B) Reference is made to Note 11 to the financial statements of Southern
Company in Item 8 and MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential - General" of Southern Company in Item 7 of the Form
10-K for information on the spin off of Mirant from Southern Company.
On April 30, 2003, Mirant filed its Annual Report on Form 10-K for the
year ended December 31, 2002. This filing included Mirant's restated
financial statements for the years ended December 31, 2001 and 2000.
Mirant's restated net income for 2001 and 2000 decreased by $159
million and $29 million, respectively. Mirant also announced that it is
preparing revised quarterly financial statements for 2001 and expects
to provide the quarterly results as soon as possible. Southern Company
owned 100% of Mirant through September 2000 and 80% between October
2000 and April 2, 2001. Due to Southern Company's spin-off of Mirant on
April 2, 2001, Southern Company's financial statements reflect its
share of Mirant's net income as discontinued operations. The effect of
these restatements on Southern Company's financial statements, if any,
cannot be determined until Mirant's 2001 revised quarterly financial
statements are filed.
(C) Reference is made to Note 1 "Leveraged Leases" and Note 6 to the
financial statements of Southern Company in Item 8 and MANAGEMENT'S
DISCUSSION AND ANALYSIS - "Future Earnings Potential - General" in Item
7 of the Form 10-K.
As a large corporate taxpayer, Southern Company undergoes audits by the
IRS for each of its tax years. The IRS has completed its audits of
Southern Company's consolidated federal income tax returns for all
years through 1999. As part of the audit for the 1996-1999 tax years,
the IRS reviewed Southern Company's four international leveraged lease
transactions. Based on its review, the IRS proposed to
95
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
disallow the tax losses associated with one of these transactions,
resulting in an additional tax payment of approximately $30 million,
including interest, to the IRS. To finalize the audit and eliminate any
additional interest charges, Southern Company made this payment to the
IRS in May 2003 and intends to pursue a refund claim for this amount.
Notwithstanding the position taken by the IRS, Southern Company
continues to believe that the transaction remains a valid lease for
U.S. tax purposes and, accordingly, will vigorously contest the
proposed disallowance. Southern Company has accounted for the payment
as a deposit.
If Southern Company is not successful in its defense of the tax
treatment for this transaction, it would also affect the timing of the
related revenue recognition for book purposes. A cumulative effect
adjustment would be required to reduce net income based on the revised
cash flows as a result of the changes in the allowed tax deductions.
The IRS did not disallow any tax losses or make any other adjustments
for the 1996-1999 period with respect to any of Southern Company's
other lease transactions. However, there can be no assurance that
subsequent IRS audits would not raise similar disallowance issues.
The ultimate outcome of these matters cannot now be determined.
(D) Reference is made to Note 9 under "Guarantees" to the financial
statements of Southern Company in Item 8 of the Form 10-K for
information regarding Southern Company's guarantees of contractual
commitments made by Mirant's trading and marketing subsidiaries. At
March 31, 2003, the total notional amount of guarantees was $29
million, all of which will expire by 2007. The estimated fair value of
net contractual commitments outstanding was approximately $16.4 million
at March 31, 2003. Southern Company's potential exposure under these
contractual commitments is not expected to materially differ from the
estimated fair value.
(E) Reference is made to Note 3 to the financial statements of Southern
Company, the operating companies and Southern Power in Item 8 and to
"Legal Proceedings" in Item 3 of the Form 10-K for information relating
to various lawsuits.
On April 17, 2003, a retired employee of Mirant filed a complaint in
the United States District Court for the Northern District of Georgia
alleging violations of the Employee Retirement Income Security Act and
naming as defendants Mirant, Southern Company, several current and
former directors and officers of Mirant and/or Southern Company, and
"Unknown Fiduciary Defendants 1-100." The plaintiff seeks to represent
a purported class consisting of individuals who were participants in or
beneficiaries of two Mirant employee plans and their predecessor plans
(the "Plans") at any time between January 1, 2000 and the filing of the
complaint whose plan accounts included investments in Mirant common
stock or the "Mirant Corporation Stock Fund." The complaint alleges
that the defendants misled participants in the Plans by concealing
Mirant's alleged "participation in the illegal manipulation of energy
prices in California during 2000 and 2001 as well as other irregular
and unlawful accounting manipulations tied to energy trading." The
complaint does not contain any specific allegations of wrongdoing with
respect to Southern Company. Southern Company denies any wrongdoing and
intends vigorously to defend this action. The final outcome of this
matter cannot now be determined.
96
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
Reference is made to Note 3 under "Race Discrimination Litigation" of
Southern Company and Georgia Power in Item 8 of the Form 10-K. On March
31, 2003, the United States District Court for the Northern District of
Georgia granted summary judgment in favor of the defendants on all
claims raised by all seven of the named plaintiffs. On April 28, 2003,
plaintiffs filed an appeal to the United States Court of Appeals for
the Eleventh Circuit challenging these adverse summary judgment
rulings, as well as the court's October 2001 ruling denying class
certification. In addition, plaintiffs appealed some adverse rulings on
discovery issues. The court has not yet set a briefing schedule on the
appeal. The final outcome of the case cannot now be determined.
(F) Reference is made to Note 1 under "Regulatory Assets and Liabilities"
to the financial statements of Southern Company and each of the
operating companies in Item 8 of the Form 10-K. The operating companies
are subject to the provisions of FASB Statement No. 71, "Accounting for
the Effects of Certain Types of Regulation." In the event that a
portion of a company's operations is no longer subject to these
provisions, the company would be required to write off related
regulatory assets and liabilities that are not specifically recoverable
and determine if any other assets have been impaired.
(G) Reference is made to Note 9, Note 4 and Note 4 under "Guarantees" to
the financial statements of Southern Company, Georgia Power and Gulf
Power, respectively, in Item 8 of the Form 10-K for information
regarding guarantees of loans to residential customers for heat pump
purchases. As of March 31, 2003, the total outstanding loans guaranteed
by all of the operating companies were $16.1 million, of which Georgia
Power is responsible for $13.0 million and Gulf Power is responsible
for $1.0 million. Total loan loss reserves of $3.6 million ($2.8
million for Georgia Power and $0.2 million for Gulf Power) have been
recorded.
(H) Effective January 1, 2003, Southern Company adopted FASB Statement No. 143,
"Accounting for Asset Retirement Obligations". Statement No. 143
establishes new accounting and reporting standards for legal obligations
associated with the ultimate cost of retiring long-lived assets. The
ultimate costs for an asset's future retirement must be recorded in the
period in which the liability is incurred. The cost must be capitalized as
part of the related long-lived asset and depreciated over the asset's
useful life. Additionally, Statement No. 143 does not permit the continued
accrual of future retirement costs for long-lived assets in which the
company does not have a legal obligation to retire. However, the operating
companies have discussed the financial statement impacts of Statement No.
143 with their respective PSCs and will continue to recognize the
accumulated removal costs for other obligations as part of the accumulated
depreciation and amortization reserve. As of March 31, 2003, amounts
recorded in Accumulated Depreciation that represent regulatory liabilities
related to such removal costs totaled $1.2 billion consisting of $554
million, $417 million, $144 million, $73 million and $33 million for
Alabama Power, Georgia Power, Gulf Power, Mississippi Power and Savannah
Electric, respectively.
The operating companies had no cumulative effect to net income
resulting from the adoption of Statement No. 143. As a result, Alabama
Power, Georgia Power, Gulf Power, Mississippi Power and Savannah
Electric recorded regulatory assets (liabilities) of $(71) million, $21
million, $0.9 million, $0.6 million and $2.4 million, respectively, as
of January 1, 2003. At March 31, 2003, the regulatory liability for
Alabama Power is reflected in the balance sheets under "Asset
retirement obligation regulatory liability." The regulatory assets of
the other operating companies are reflected in the balance sheets under
either "Asset retirement obligation regulatory asset" or in "Other"
under "Deferred Charges and Other Assets." Southern Power recorded a
cumulative effect adjustment to income upon adoption of $0.6 million,
representing removal costs previously accrued.
97
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
The liability recognized to retire long-lived assets primarily relates
to Southern Company's nuclear facilities, which include Alabama Power's
Plant Farley and Georgia Power's ownership interests in Plants Hatch
and Vogtle. The fair value of assets legally restricted for settling
retirement obligations related to these assets is $300 million, $355
million and $655 million for Alabama Power, Georgia Power and Southern
Company, respectively. In addition, the operating companies have
retirement obligations related to various landfill sites, ash ponds and
underground storage tanks. The operating companies have also identified
retirement obligations related to certain transmission and distribution
facilities. However, liabilities for the removal of these transmission
and distribution assets will not be recorded because no reasonable
estimate can be made regarding the timing of the obligations. The
operating companies will continue to recognize in the income statement
their ultimate removal costs in accordance with each company's
respective regulatory treatment. Any difference between costs
recognized under Statement No. 143 and those reflected in rates will be
recognized as either a regulatory asset or liability.
The following table reflects the details of the Asset Retirement
Obligations included in the balance sheets.
Balance at Liabilities Liabilities Cash Flow Balance at
12/31/02 Incurred Settled Accretion Revisions 3/31/03
-------- -------- ------- --------- --------- -------
(in millions)
Alabama Power $ - $301.0 $ - $ 5.2 $ - $306.2
Georgia Power - 469.1 - 7.6 - 476.7
Gulf Power - 4.0 - .1 - 4.1
Mississippi Power - 1.0 - - - 1.0
Savannah Electric - 3.2 - .1 - 3.3
Southern Company $ - $778.3 $ - $13.0 $ - $791.3
The following table represents pro-forma asset retirement obligations
as if Statement No. 143 had been adopted on January 1, 2002.
At December 31,
-----------------------------------
2002 2001
---- ----
(in millions)
Alabama Power $301.0 $281.3
Georgia Power 469.1 440.1
Gulf Power 4.0 3.7
Mississippi Power 1.0 .9
Savannah Electric 3.2 2.7
Southern Company $778.3 $728.7
The adoption of FASB Statement No. 143 has been treated as a non-cash
transaction for purposes of the Statements of Cash Flows.
98
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(I) In addition to the fixed price electric and gas contracts used to
mitigate exposure to volatile energy prices (see "Exposure to Market
Risks" in MANAGEMENT'S DISCUSSION AND ANALYSIS herein), Southern
Company and certain of its subsidiaries enter into interest rate swaps
to hedge exposure to interest rate changes. Swaps related to fixed rate
securities are accounted for as fair value hedges; swaps related to
variable rate securities or forecasted transactions are accounted for
as cash flow hedges. The swaps are generally structured to mirror the
terms of the hedged debt instruments; therefore, no material
ineffectiveness has been recorded in earnings. As of March 31, 2003,
the following swaps were outstanding:
Fair Value Hedges
--------------- -------------- ------------------ ---------------- --------------------------
Notional Fixed Rate Variable Rate Maturity Fair Value
Amount Received Paid Date March 31, 2003
------------------------ --------------- -------------- ------------------ ---------------- --------------------------
Southern Company $400 million 5.3% 6-month LIBOR February 2007 $35.3 million
less 0.103%
Cash Flow Hedges
---------------- -------------- ------------------ ----------------- --------------------
Weighted
Variable Average
Notional Rate Fixed Rate Maturity Fair Value
Amount Received Paid Date March 31, 2003
----------------------- ---------------- -------------- ------------------ ----------------- --------------------
Southern Company $400 million; 1-month LIBOR June 2003; $ (5.4 million)
$200 million 3.1975% June 2004
Alabama Power $350 million 3-month 3.015% December 2003 $ (4.5 million)
LIBOR plus
0.12%
Alabama Power $486 million BMA Index 1.6254% January 2004 $ (2.0 million)
Alabama Power $250 million 3-month LIBOR 3.967% May 2008 $ (8.5 million)
Georgia Power $250 million 3-month LIBOR 4.762% May 2013 $ (8.3 million)
Georgia Power $250 million 3-month 1.96% February 2005 $ (0.9 million)
LIBOR plus
0.125%
Southern Power $350 million 1-month LIBOR 6.2348% June 2013 $(54.4 million)
Southern Power $150 million 1-month LIBOR 5.4792% June 2008 $(14.9 million)
(J) Reference is made to Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS -
"Future Earnings Potential - General" and to Note 5 to the financial
statements in Item 8 of the Form 10-K for Southern Company, Mississippi
Power and Southern Power for information regarding PPAs between
subsidiaries of Dynegy and Mississippi Power and Southern Power and
related letters of credit. The Dynegy letter of credit in favor of
Mississippi Power related to Plant Daniel was extended to June 20,
2003. The Dynegy letter of credit in favor of Southern Power related to
Plant Dahlberg was extended to June 20, 2003 and those related to Plant
Franklin were extended to April 28, 2004.
99
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
On April 21, 2003, Mississippi Power and Southern Power entered into a
letter agreement with Dynegy (the "Letter Agreement") to resolve all
outstanding matters related to Dynegy and the PPAs. Under the terms of
the Letter Agreement, (1) Dynegy would make a one-time cash payment of
$75 million to Mississippi Power and $80 million to Southern Power upon
the execution of a definitive agreement and related documentation (the
"Closing"); (2) the PPAs between Southern Power and Dynegy relating to
Plant Dahlberg and Plant Franklin would be terminated upon the Closing,
with no party to have any remaining obligations under such PPAs after
the Closing; (3) at the Closing, Dynegy and Mississippi Power would
amend the PPA relating to Plant Daniel so that the capacity payments
due from Dynegy to Mississippi Power would be reduced to zero for each
month from June 2003 through October 2003 (but other obligations and
payments by Dynegy under such PPA would not be affected during such
time) and such PPA would terminate effective October 31, 2003, with
neither party having any remaining obligations under such PPA after
October 31, 2003; and (4) at the Closing, upon receipt of the cash
payment from Dynegy, Southern Power would return the existing letters
of credit in favor of Southern Power in support of Dynegy's obligations
under the PPAs relating to Plant Dahlberg and Plant Franklin. The
parties have also agreed that a letter of credit in support of Dynegy's
continuing obligations under the PPA related to Plant Daniel would be
maintained for any amounts owed by Dynegy to Mississippi Power under
the PPA related to Plant Daniel. Mississippi Power, Southern Power and
Dynegy agreed to use their best efforts to complete and execute
definitive documentation reflecting the terms of the Letter Agreement
by May 30, 2003.
The termination payments from Dynegy would result in a one-time gain
upon the Closing to Southern Company of approximately $88 million after
tax ($38 million for Mississippi Power and $50 million for Southern
Power). Additionally, Mississippi Power would recognize capacity
revenues totaling approximately $8.8 million for the period from June
through October. Under the original terms of the PPAs, Mississippi
Power and Southern Power would have recognized revenue of approximately
$1.8 million and $5.9 million, respectively, for the remaining period
of 2003 following the proposed terminations.
Because of the proposed termination of these PPAs, Mississippi Power
and Southern Power are exploring several options for their existing
capacity and Southern Power is evaluating its construction schedule for
Plant Franklin Unit 3 and may determine to defer or cancel further
construction based on forecasted capacity needs.
The final outcome of these matters cannot now be determined.
(K) Reference is made to Note 3 to the financial statements under
"Construction Program" of Southern Power and to Note 4 to the financial
statements under "Construction Program" of Georgia Power in Item 8 of
the Form 10-K for information regarding Southern Company keep-wells
covering the transfer of specific vendor contracts from Georgia Power
to Southern Power for the operation of Plant Dahlberg and construction
at the Plant Franklin and Plant Stanton sites. As of March 31, 2003,
Southern Power has no remaining purchase obligations to equipment
vendors under these contracts.
100
NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(L) Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential - General" in Item 7 and Note 4 under "Purchased Power
Commitments" and "Fuel and Purchased Power Commitments" to the financial
statements of Georgia Power and Savannah Electric, respectively, and Note 5
to the financial statements of Southern Power in Item 8 of the Form 10-K
for information regarding PPAs between Southern Power and Georgia Power and
Savannah Electric for Plant McIntosh capacity. Such PPAs were certified by
the Georgia PSC in December 2002. In April 2003, Southern Power applied for
FERC approval of these PPAs. The Electric Power Supply Association and
Calpine Corporation have made filings in this proceeding in opposition to
the FERC's acceptance of the PPAs, alleging that the PPAs do not meet the
applicable standards for PPAs between affiliates. Management believes the
allegations are without merit and that the PPAs should be approved by the
FERC;however, the ultimate outcome of this matter cannot now be determined.
(M) Reference is made to MANAGEMENT'S DISCUSSION AND ANALYSIS - "Future
Earnings Potential - FERC Matters" in Item 7 and Note 3 under
"Transmission Facilities Agreement" to the financial statements of
Mississippi Power in Item 8 of the Form 10-K for information regarding
the FERC's investigation related to a transmission facilities agreement
with Entergy Corp. On April 30, 2003, Mississippi Power filed an offer
of settlement with the FERC. The proposed settlement, which is pending
approval by the FERC, would have no material impact on Mississippi
Power's financial statements; however, the ultimate outcome of this
matter cannot now be determined.
(N) Southern Company's reportable business segment is the sale of
electricity in the Southeast by the operating companies and
Southern Power. The All Other category includes parent Southern
Company, which does not allocate operating expenses to business
segments, and segments below the quantitative threshold for separate
disclosure. These segments include telecommunications, energy products
and services, and leasing and financing services. Intersegment revenues
are not material. Financial data for business segments for the periods
covered in the Form 10-Q are as follows:
Electric All Reconciling
Utilities Other Eliminations Consolidated
--------------------------------------------------- --------------------------------------------------------------
(in millions)
Three Months Ended March 31, 2003:
Operating revenues $ 2,405 $ 153 $ (5) $ 2,553
Segment net income (loss) 287 11 - 298
Total assets at March 31, 2003 $31,401 $ 1,809 $ (360) $32,850
--------------------------------------------------- ------------- ------------- ---------------- -----------------
Three Months Ended March 31, 2002:
Operating revenues $ 2,140 $ 77 $ (3) $ 2,214
Segment net income (loss) 232 (8) - 224
Total assets at December 31, 2002 $30,409 $1,881 $ (491) $31,799
--------------------------------------------------- ------------- ------------- ---------------- -----------------
101
PART II -OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to the "Notes to the Condensed Financial
Statements" herein for information regarding certain legal and
administrative proceedings in which Southern Company and its
reporting subsidiaries are involved.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
--------
(3) Articles of Incorporation and By-Laws
Alabama Power
(b) 1 - Amendment to Charter of Alabama Power dated April 25, 2003.
(b) 2 - By-Laws of Alabama Power as amended effective April 25, 2003, and as presently in effect.
(10) Material Contracts
Southern Company
(a) 1 - Amended and Restated Credit Agreement among Southern Power, Citibank N.A., as the administrative agent,
and the lenders listed therein dated as of April 17, 2003.
(a) 2 - Letter Amendment No. 1 to Completion Guarantee among Southern Company, Southern Power and Citibank, N.A.
in its capacity as agent for the Lenders under the Credit Facility dated as of April 17, 2003.
(a) 3 - Letter Amendment No. 1 to Equity Contribution Agreement among Southern Company, Southern Power and
Citibank, N.A. in its capacity as agent for the Lenders under the Credit Facility dated as of April 17,
2003.
Alabama Power
(b) 1 - Deferred Compensation Agreement between Alabama Power and William B. Hutchins III dated April 11, 2003.
Southern Power
(a) 1 - Amended and Restated Credit Agreement among Southern Power, Citibank N.A., as the administrative agent,
and the lenders listed therein dated as of April 17, 2003. (See Exhibit 10(a)1 herein)
102
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. (Continued)
--------
(a) 2 - Letter Amendment No. 1 to Completion Guarantee among Southern Company, Southern Power and Citibank, N.A.
in its capacity as agent for the Lenders under the Credit Facility dated as of April 17, 2003. (See
Exhibit 10(a)2 herein)
(a) 3 - Letter Amendment No. 1 to Equity Contribution Agreement among Southern Company, Southern Power and
Citibank, N.A. in its capacity as agent for the Lenders under the Credit Facility dated as of April 17,
2003. (See Exhibit 10(a)3 herein)
(24) Power of Attorney and Resolutions
Southern Company
(a) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002,
File No. 1-3526 as Exhibit 24(a) and incorporated herein by reference.)
(a) 2 - Power of Attorney for Thomas A. Fanning.
Alabama Power
(b) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002,
File No. 1-3164 as Exhibit 24(b) and incorporated herein by reference.)
Georgia Power
(c) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002,
File No. 1-6468 as Exhibit 24(c) and incorporated herein by reference.)
Gulf Power
(d) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002,
File No. 0-2429 as Exhibit 24(d) and incorporated herein by reference.)
(d) 2 - Power of Attorney for Susan N. Story.
Mississippi Power
(e) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002,
File No. 001-11229 as Exhibit 24(e) and incorporated herein by reference.)
103
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. (Continued)
--------
Savannah Electric
(f) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002,
File No. 1-5072 as Exhibit 24(f) and incorporated herein by reference.)
Southern Power
(g) 1 - Power of Attorney and resolution. (Designated in the Form 10-K for the year ended December 31, 2002,
File No. 333-98553 as Exhibit 24(g) and incorporated herein by reference.)
(99) Section 906 Certifications
Southern Company
(a) 1 - Certificate of Southern Company's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley
Act of 2002.
(a) 2 - Certificate of Southern Company's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley
Act of 2002.
Alabama Power
(b) 1 - Certificate of Alabama Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) 2 - Certificate of Alabama Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act
of 2002.
Georgia Power
(c) 1 - Certificate of Georgia Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act
of 2002.
(c) 2 - Certificate of Georgia Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act
of 2002.
Gulf Power
(d) 1 - Certificate of Gulf Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of
2002.
104
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. (Continued)
--------
(d) 2 - Certificate of Gulf Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of
2002.
Mississippi Power
(e) 1 - Certificate of Mississippi Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley
Act of 2002.
(e) 2 - Certificate of Mississippi Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley
Act of 2002.
Savannah Electric
(f) 1 - Certificate of Savannah Electric's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley
Act of 2002.
(f) 2 - Certificate of Savannah Electric's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley
Act of 2002.
Southern Power
(g) 1 - Certificate of Southern Power's Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act
of 2002.
(g) 2 - Certificate of Southern Power's Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K.
-------------------
Alabama Power filed Current Reports on Form 8-K dated
February 5, 2003, February 11, 2003 and March 12, 2003:
Item reported: Items 5 and 7
Financial statements filed: None
Georgia Power filed Current Reports on Form 8-K dated
February 13, 2003 and February 21, 2003:
Item reported: Items 5 and 7
Financial statements filed: None
Gulf Power filed a Current Report on Form 8-K dated
March 21, 2003:
Item reported: Items 5 and 7
Financial statements filed: None
105
THE SOUTHERN COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
THE SOUTHERN COMPANY
By Allen Franklin
Chairman and Chief Executive Officer
(Principal Executive Officer)
By Thomas A. Fanning
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 2003
106
THE SOUTHERN COMPANY
Certification Of Chief Executive Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Allen Franklin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Southern Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ H. Allen Franklin
Allen Franklin
Chairman and Chief Executive Officer
107
THE SOUTHERN COMPANY
Certification Of Chief Financial Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Thomas A. Fanning, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Southern Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Thomas A. Fanning
Thomas A. Fanning
Executive Vice President, Chief Financial Officer and Treasurer
108
ALABAMA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
ALABAMA POWER COMPANY
By Charles D. McCrary
President and Chief Executive Officer
(Principal Executive Officer)
By William B. Hutchins, III
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 2003
109
ALABAMA POWER COMPANY
Certification Of Chief Executive Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Charles D. McCrary, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alabama Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Charles D. McCrary
-------------------------------------
Charles D. McCrary
President and Chief Executive Officer
110
ALABAMA POWER COMPANY
Certification Of Chief Financial Officer Per Section 302
Of The Sarbanes-Oxley Act
I, William B. Hutchins, III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Alabama Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ William B. Hutchins, III
---------------------------------------------
William B. Hutchins, III
Executive Vice President, Chief Financial Officer and Treasurer
111
GEORGIA POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GEORGIA POWER COMPANY
By David M. Ratcliffe
President and Chief Executive Officer
(Principal Executive Officer)
By Allen L. Leverett
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 2003
112
GEORGIA POWER COMPANY
Certification Of Chief Executive Officer Per Section 302
Of The Sarbanes-Oxley Act
I, David M. Ratcliffe, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Georgia Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ David M. Ratcliffe
David M. Ratcliffe
President and Chief Executive Officer
113
GEORGIA POWER COMPANY
Certification Of Chief Financial Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Allen L. Leverett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Georgia Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Allen L. Leverett
Allen L. Leverett
Executive Vice President, Chief Financial Officer and Treasurer
114
GULF POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
GULF POWER COMPANY
By Susan N. Story
President and Chief Executive Officer
(Principal Executive Officer)
By Ronnie R. Labrato
Vice President, Chief Financial Officer and Comptroller
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 2003
115
GULF POWER COMPANY
Certification Of Chief Executive Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Susan N. Story, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gulf Power Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Susan N. Story
-----------------------------
Susan N. Story
President and Chief Executive Officer
116
GULF POWER COMPANY
Certification Of Chief Financial Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Ronnie R. Labrato, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Gulf Power Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Ronnie R. Labrato
Ronnie R. Labrato
Vice President, Chief Financial Officer and Comptroller
117
MISSISSIPPI POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
MISSISSIPPI POWER COMPANY
By Michael D. Garrett
President and Chief Executive Officer
(Principal Executive Officer)
By Michael W. Southern
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 2003
118
MISSISSIPPI POWER COMPANY
Certification Of Chief Executive Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Michael D. Garrett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mississippi Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Michael D. Garrett
Michael D. Garrett
President and Chief Executive Officer
119
MISSISSIPPI POWER COMPANY
Certification Of Chief Financial Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Michael W. Southern, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mississippi Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Michael W. Southern
Michael W. Southern
Vice President, Chief Financial Officer and Treasurer
120
SAVANNAH ELECTRIC AND POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
SAVANNAH ELECTRIC AND POWER COMPANY
By A. R. James
President and Chief Executive Officer
(Principal Executive Officer)
By Kirby R. Willis
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
(Wayne Boston, Attorney-in-fact)
Date: May 13, 2003
121
SAVANNAH ELECTRIC AND POWER COMPANY
Certification Of Chief Executive Officer Per Section 302
Of The Sarbanes-Oxley Act
I, A. R. James, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Savannah Electric
and Power Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ A. R. James
A. R. James
President and Chief Executive Officer
122
SAVANNAH ELECTRIC AND POWER COMPANY
Certification Of Chief Financial Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Kirby R. Willis, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Savannah Electric
and Power Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Kirby R. Willis
Kirby R. Willis
Vice President, Chief Financial Officer and Treasurer
123
SOUTHERN POWER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature of the undersigned company
shall be deemed to relate only to matters having reference to such company and
any subsidiaries thereof.
SOUTHERN POWER COMPANY
By William P. Bowers
President and Chief Executive Officer
(Principal Executive Officer)
By Cliff S. Thrasher
Senior Vice President, Comptroller and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 13, 2003
124
SOUTHERN POWER COMPANY
Certification Of Chief Executive Officer Per Section 302
Of The Sarbanes-Oxley Act
I, William P. Bowers, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ William Paul Bowers
William P. Bowers
President and Chief Executive Officer
125
SOUTHERN POWER COMPANY
Certification Of Chief Financial Officer Per Section 302
Of The Sarbanes-Oxley Act
I, Cliff S. Thrasher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southern Power
Company;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's auditors
any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 13, 2003
/s/ Cliff S. Thrasher
Cliff S. Thrasher
Senior Vice President, Comptroller and Chief Financial Officer
126