1
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, 1994
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)
64 Perimeter Center East
Atlanta, Georgia 30346
(404) 393-0650
1-3164 ALABAMA POWER COMPANY 63-0004250
(An Alabama Corporation)
600 North 18th Street
Birmingham, Alabama 35291
(205) 250-1000
1-6468 GEORGIA POWER COMPANY 58-0257110
(A Georgia Corporation)
333 Piedmont Avenue, N.E.
Atlanta, Georgia 30308
(404) 526-6526
0-2429 GULF POWER COMPANY 59-0276810
(A Maine Corporation)
500 Bayfront Parkway
Pensacola, Florida 32501
(904) 444-6111
0-6849 MISSISSIPPI POWER COMPANy 64-0205820
(A Mississippi Corporation)
2992 West Beach
Gulfport, Mississippi 39501
(601) 864-1211
1-5072 SAVANNAH ELECTRIC AND POWER COMPANY 58-0418070
(A Georgia Corporation)
600 Bay Street, East
Savannah, Georgia 31401
(912) 232-7171
2
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____
DESCRIPTION OF SHARES OUTSTANDING
REGISTRANT COMMON STOCK AT APRIL 30, 1994
- ---------- ------------- -----------------
THE SOUTHERN COMPANY PAR VALUE $5 PER SHARE 648,346,540
ALABAMA POWER COMPANY PAR VALUE $40 PER SHARE 5,608,955
GEORGIA POWER COMPANY NO PAR VALUE 7,761,500
GULF POWER COMPANY NO PAR VALUE 992,717
MISSISSIPPI POWER COMPANY WITHOUT PAR VALUE 1,121,000
SAVANNAH ELECTRIC AND POWER COMPANY PAR VALUE $5 PER SHARE 10,844,635
This combined Form 10-Q is separately filed by The Southern Company,
Alabama Power Company, Georgia Power Company, Gulf Power Company, Mississippi
Power Company and Savannah Electric and Power Company. Information contained
herein relating to any individual company is filed by such company on its own
behalf. Each company makes no representation as to information relating to the
other companies.
3
Table of Contents
PART I
PAGE
DEFINITIONS
4
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
Management's Opinion as to Fair Statement of Results 6
Condensed Statements of Income 7
Condensed Statements of Cash Flows 8
Condensed Balance Sheets 9
Management's Discussion and Analysis of Results of Operations and Financial Condition 11
ALABAMA POWER COMPANY
Management's Opinion as to Fair Statement of Results 17
Review by Independent Public Accountants 17
Condensed Statements of Income 18
Condensed Statements of Cash Flows 19
Condensed Balance Sheets 20
Management's Discussion and Analysis of Results of Operations and Financial Condition 22
Exhibit 1 - Report of Independent Public Accountants 25
GEORGIA POWER COMPANY
Management's Opinion as to Fair Statement of Results 27
Review by Independent Public Accountants 27
Condensed Statements of Income 28
Condensed Statements of Cash Flows 29
Condensed Balance Sheets 30
Management's Discussion and Analysis of Results of Operations and Financial Condition 32
Exhibit 1 - Report of Independent Public Accountants 36
GULF POWER COMPANY
Management's Opinion as to Fair Statement of Results 38
Condensed Statements of Income 39
Condensed Statements of Cash Flows 40
Condensed Balance Sheets 41
Management's Discussion and Analysis of Results of Operations and Financial Condition 43
MISSISSIPPI POWER COMPANY
Management's Opinion as to Fair Statement of Results 47
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
SAVANNAH ELECTRIC AND POWER COMPANY
Management's Opinion as to Fair Statement of Results 56
Condensed Statements of Income 57
Condensed Statements of Cash Flows 58
Condensed Balance Sheets 59
Management's Discussion and Analysis of Results of Operations and Financial Condition 61
3
4
Table of Contents
(Continued)
PAGE
NOTES TO THE CONDENSED FINANCIAL STATEMENTS 64
PART II
Item 1. Legal Proceedings 69
Item 6. Exhibits and Reports on Form 8-K 69
SIGNATURES 70
DEFINITIONS
TERM MEANING
---- -------
AFUDC . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for Funds Used During Construction
ALABAMA . . . . . . . . . . . . . . . . . . . . . . . . . Alabama Power Company
Clean Air Act . . . . . . . . . . . . . . . . . . . . . . Clean Air Act Amendments of 1990
ECO Plan . . . . . . . . . . . . . . . . . . . . . . . . . Environmental Compliance Overview Plan
Energy Act . . . . . . . . . . . . . . . . . . . . . . . . Energy Policy Act of 1992
FERC . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Energy Regulatory Commission
GEORGIA . . . . . . . . . . . . . . . . . . . . . . . . . Georgia Power Company
GULF . . . . . . . . . . . . . . . . . . . . . . . . . . . Gulf Power Company
Gulf States . . . . . . . . . . . . . . . . . . . . . . . Gulf States Utilities Company
MISSISSIPPI . . . . . . . . . . . . . . . . . . . . . . . Mississippi Power Company
NML . . . . . . . . . . . . . . . . . . . . . . . . . . . Nuclear Mutual Limited
NRC . . . . . . . . . . . . . . . . . . . . . . . . . . . Nuclear Regulatory Commission
PEP . . . . . . . . . . . . . . . . . . . . . . . . . . . Performance Evaluation Plan (PEP-1A)
PSC . . . . . . . . . . . . . . . . . . . . . . . . . . . Public Service Commission
SAVANNAH . . . . . . . . . . . . . . . . . . . . . . . . Savannah Electric and Power Company
SCS . . . . . . . . . . . . . . . . . . . . . . . . . . . Southern Company Services, Inc.
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . Securities and Exchange Commission
SEGCO . . . . . . . . . . . . . . . . . . . . . . . . . . Southern Electric Generating Company
SOUTHERN . . . . . . . . . . . . . . . . . . . . . . . . The Southern Company
4
5
THE SOUTHERN COMPANY
AND SUBSIDIARY COMPANIES
5
6
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS
The condensed financial statements of SOUTHERN included herein have been
prepared by SOUTHERN, without audit, pursuant to the rules and regulations of
the SEC. In the opinion of SOUTHERN's management, subject to the effect of
such adjustments, if any, as might have been required had the outcome of the
uncertainty with respect to the actions of the regulators regarding the
recoverability of GEORGIA's investment in the Rocky Mountain pumped storage
hydroelectric project as more fully discussed in Note (G) to the Condensed
Financial Statements herein, been known, the information furnished herein
reflects all adjustments (which, except for the provision for separation
benefits recorded in the first quarter of 1994, included only normal recurring
adjustments) necessary to present fairly the results for the periods ended
March 31, 1994 and 1993. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although SOUTHERN believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in SOUTHERN's latest annual report on
Form 10-K.
6
7
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Twelve Months
Ended March 31, Ended March 31,
--------------- ---------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING REVENUES $1,932,430 $1,839,562 $8,582,012 $8,104,281
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 479,991 457,387 2,287,610 2,125,084
Purchased power 80,660 94,215 322,129 438,203
Provision for separation benefits 93,150 - 97,605 -
Other 330,173 310,795 1,460,627 1,312,175
Maintenance 173,787 157,465 668,886 633,027
Depreciation and amortization 200,210 194,394 799,298 771,928
Amortization of deferred Plant Vogtle expenses, net (Note F) 12,618 3,027 45,875 (15,215)
Taxes other than income taxes 118,936 115,042 465,323 440,682
Federal and state income taxes 112,593 129,875 716,700 646,855
---------- ---------- ---------- ----------
Total operating expenses 1,602,118 1,462,200 6,864,053 6,352,739
---------- ---------- ---------- ----------
OPERATING INCOME 330,312 377,362 1,717,959 1,751,542
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 3,283 747 11,521 8,307
Interest income 6,098 6,528 29,721 31,322
Other, net (15,876) (8,145) (49,066) (55,499)
Income taxes applicable to other income 6,061 3,405 59,868 37,586
---------- ---------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 329,878 379,897 1,770,003 1,773,258
---------- ---------- ---------- ----------
INTEREST CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt 142,571 155,662 581,655 662,125
Allowance for debt funds used during construction (4,384) (2,654) (14,984) (11,366)
Interest on interim obligations 9,249 5,763 33,319 17,729
Amortization of debt discount, premium and expense, net 7,361 5,504 28,153 17,070
Other interest charges 12,144 14,314 84,918 40,844
Preferred dividends of subsidiary companies 21,334 24,305 90,495 101,328
---------- ---------- ---------- ----------
Net interest charges and preferred dividends 188,275 202,894 803,556 827,730
---------- ---------- ---------- ----------
CONSOLIDATED NET INCOME $ 141,603 $ 177,003 $ 966,447 $ 945,528
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING *(THOUSANDS) 646,452 633,565 640,540 632,408
EARNINGS PER SHARE OF COMMON STOCK* $0.22 $0.28 $1.51 $1.50
CASH DIVIDENDS PAID PER SHARE
OF COMMON STOCK* $0.295 $0.285 $1.15 $1.11
*The data for 1993 are adjusted to reflect a two-for-one common stock split in
the form of a stock distribution for each share issued and outstanding as of
February 7, 1994.
( ) Denotes red figure.
The accompanying notes as they relate to SOUTHERN are an integral part of these
condensed statements.
7
8
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
--------------------
1994 1993
---- ----
OPERATING ACTIVITIES:
Consolidated net income $141,603 $177,003
Adjustments to reconcile consolidated net income to net cash provided by
operating activities--
Depreciation and amortization 259,093 247,636
Deferred income taxes, net (2,844) 33,590
Allowance for equity funds used during construction (3,283) (747)
Deferred Plant Vogtle costs 12,618 3,027
Provision for separation benefits 91,466 -
Other, net (30,373) (26,120)
Changes in certain current assets and liabilities--
Receivables, net 177,397 172,464
Fossil fuel stock (30,907) (73,013)
Materials and supplies 2,892 2,335
Accounts payable (94,587) (64,196)
Other (62,362) 22,113
--------- --------
Net cash provided from operating activities 460,713 494,092
--------- --------
INVESTING ACTIVITIES:
Gross property additions (319,410) (262,792)
Other (40,133) (41,251)
--------- --------
Net cash used in investing activities (359,543) (304,043)
--------- --------
FINANCING ACTIVITIES:
Proceeds--
Common stock 121,767 40,000
First mortgage bonds 35,000 1,155,000
Pollution control bonds 52,465 4,085
Other long-term debt 264,653 704
Retirements--
Preferred stock (1,000) (107,500)
First mortgage bonds (72,128) (601,354)
Pollution control bonds (52,465) (5,245)
Other long-term debt (37,652) (18,367)
Special deposits-redemption funds - (49,125)
Interim obligations, net (181,833) (280,944)
Payment of common stock dividends (191,262) (180,381)
Miscellaneous (3,702) (48,186)
--------- --------
Net cash provided from (used in) financing activities (66,157) (91,313)
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 35,013 98,736
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 178,346 97,313
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $213,359 $196,049
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $166,489 $154,128
Income taxes 49,356 1,201
The accompanying notes as they relate to SOUTHERN are an integral part of these
condensed statements.
8
9
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1994 At December 31,
(Unaudited) 1993
------------ ---------------
UTILITY PLANT:
Plant in service (Note C) $27,812,068 $27,686,539
Less accumulated provision for depreciation 9,100,658 8,933,717
----------- -----------
18,711,410 18,752,822
Nuclear fuel, at amortized cost 221,151 229,293
Construction work in progress 1,142,370 1,031,240
----------- -----------
Total 20,074,931 20,013,355
----------- -----------
OTHER PROPERTY AND INVESTMENTS:
Foreign utility operations, being amortized 552,713 558,960
Nuclear decommissioning trusts (Note C) 88,384 87,487
Miscellaneous 92,564 89,425
----------- -----------
Total 733,661 735,872
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents 213,359 178,346
Receivables, less accumulated provisions for uncollectible accounts
of $8,654 at March 31, 1994 and $9,067 at December 31, 1993 967,337 1,146,774
Fossil fuel stock, at average cost 271,940 241,051
Materials and supplies, at average cost 531,848 547,697
Prepayments 152,181 147,915
Miscellaneous 84,264 73,074
----------- -----------
Total 2,220,929 2,334,857
----------- -----------
DEFERRED CHARGES:
Deferred charges related to income taxes 1,531,015 1,546,338
Deferred Plant Vogtle costs (Note F) 494,362 506,980
Debt expense and loss, being amortized 321,063 320,515
Deferred fuel charges 64,338 70,404
Miscellaneous 432,459 382,336
----------- -----------
Total 2,843,237 2,826,5723
----------- -----------
TOTAL ASSETS $25,872,758 $25,910,657
=========== ===========
The accompanying notes as they relate to SOUTHERN are an integral part of these
condensed statements.
9
10
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1994 At December 31,
(Unaudited) 1993
-------------- ---------------
CAPITALIZATION:
Common stock, par value $5 per share -
Authorized - 1 billion shares;
Outstanding - March 31, 1994: 648,346,540 shares
December 31, 1993: 642,661,658 shares* $ 3,241,734 $ 3,213,308
Paid-in capital 1,595,391 1,502,193
Premium on preferred stock 1,012 1,012
Retained earnings 2,917,663 2,967,706
----------- -----------
7,755,800 7,684,219
Preferred stock 1,332,203 1,332,203
Preferred stock subject to mandatory redemption 500 1,000
Long-term debt 7,656,946 7,411,455
----------- -----------
Total 16,745,449 16,428,877
----------- -----------
CURRENT LIABILITIES:
Preferred stock due within one year 500 1,000
Long-term debt due within one year 101,252 155,638
Notes payable 665,926 865,381
Commercial paper 93,149 75,527
Accounts payable 563,653 697,749
Customer deposits 103,603 102,822
Taxes accrued--
Federal and state income 75,950 34,023
Other 105,781 171,673
Interest accrued 176,212 186,057
Vacation pay accrued 91,940 90,206
Miscellaneous 185,947 190,638
----------- -----------
Total 2,163,913 2,570,714
----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 3,980,782 3,978,889
Deferred credits related to income taxes 1,036,584 1,050,512
Accumulated deferred investment tax credits 891,702 900,203
Disallowed Plant Vogtle capacity buyback costs 59,921 63,067
Prepaid capacity revenues, net 142,474 143,762
Miscellaneous 851,933 774,633
----------- -----------
Total 6,963,396 6,911,066
----------- -----------
TOTAL CAPITALIZATION AND LIABILITIES $25,872,758 $25,910,657
=========== ===========
*Adjusted to reflect a two-for-one common stock split in the form of a stock
distribution for each share issued and outstanding as of February 7, 1994.
The accompanying notes as they relate to SOUTHERN are an integral part of these
condensed statements.
10
11
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
EARNINGS
SOUTHERN's earnings for the first three months of 1994 were lower than earnings
recorded in the same period of 1993 primarily because of costs associated with
workforce reduction programs for GEORGIA and the system service company, SCS.
Consolidated net income was $142 million for the first quarter of 1994,
compared to $177 million for the first quarter of 1993. Earnings per share
were $0.22 in the first quarter of 1994, compared to $0.28 in the corresponding
period of 1993. However, disregarding the after-tax effect of the workforce
reduction programs of $57 million ($0.09 per share), earnings would have risen
approximately $22 million. The improvement in operating results was primarily
the result of higher retail revenues and lower capital costs.
REVENUES
Retail energy sales increased 4.9% primarily because of weather, abetted by
improvement in the economy. Energy sales to residential, commercial and
industrial customers increased 6.8%, 6.7% and 2.5%, respectively. Wholesale
energy sales decreased due to reduced demand and scheduled reductions in
off-system contracts. Capacity revenues for the first quarter of 1994 were $21
million less than in the first quarter of 1993 primarily because GEORGIA
completed the second sale of a portion of Plant Scherer Unit 4 in June 1993.
The third sale in a series of four transactions for the sale of this generating
unit is scheduled for June 1994. The generation from this unit has been
dedicated to unit power sales.
EXPENSES
Fuel expense for the first three months of 1994, compared to the corresponding
period of 1993, increased due primarily to a 3.8% increase in fossil fuel
generation. The increase in fossil generation was necessitated by increased
demand and reduced hydro generation. Purchased power expense decreased because
of the reduction in capacity buyback payments by GEORGIA to the co-owners of
plants Vogtle and Scherer. See Note (F) to the Condensed Financial Statements
herein for information regarding the Georgia PSC's retail rate order that
required the levelization of capacity buyback expense for Plant Vogtle.
The workforce reduction programs initiated by GEORGIA and SCS and an
earlier one for SAVANNAH are projected to yield pre-tax savings, disregarding
the one-time cost of these programs, of approximately $16 million in 1994 and
approximately $30 million in each of the succeeding four years. Maintenance
expenses increased due to the timing of scheduled maintenance on generating
units. The increase in depreciation and amortization is attributable to
increased investment in plant.
The decrease in income tax expense was not proportionate to the change in
net income because of the federal income tax rate increase enacted in August
1993.
11
12
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK
The decrease in interest on long-term debt and dividends on preferred stock
reflects the SOUTHERN system's efforts to decrease its capital costs. In
response to the low interest rate levels prevailing during 1992 and 1993, the
SOUTHERN system refinanced a significant portion of its long-term debt and
preferred stock. To the extent it is economically feasible, efforts to reduce
capital costs will continue.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
AFUDC represents the cost of capital charged to utility plant under
construction and not included in rate base. The equity portion represents
non-cash income. However, when facilities are completed and included in rate
base, previously capitalized amounts significantly increase cash flow because
revenues are higher as a result of the increased rate base and additional
depreciation expense.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings is contingent upon
numerous factors ranging from regulatory matters to growth in energy sales.
Reference is made to the Notes to the Condensed Financial Statements herein
for further discussion of various uncertainties and legal proceedings related
to: the actions of regulators regarding the recovery of GEORGIA's investment
in the Rocky Mountain pumped storage hydroelectric project; a civil suit filed
against ALABAMA related to financing agreements; a suit filed against GULF
related to fuel transportation; and the outcome of a proceeding initiated by
the FERC to determine the appropriate return on equity on wholesale power and
transmission contracts.
Pursuant to an Integrated Resource Plan approved by the Georgia PSC,
GEORGIA has implemented various demand-side option programs and had been
authorized by the Georgia PSC to recover associated program costs through rate
riders. In October 1993, a superior court judge ruled that recovery of these
costs through rate riders was unlawful. GEORGIA has appealed this ruling and
ceased collection of the rate riders. The Georgia PSC has allowed the deferral
of program costs pending the final outcome of this matter. For additional
information on this matter, see Note (H) to the Condensed Financial Statements
herein.
Compliance costs related to the Clean Air Act will reduce earnings if such
increased costs cannot be offset. The Clean Air Act is discussed under
"Environmental Matters" in Item 7 - Management's Discussion and Analysis in
SOUTHERN's 1993 Annual Report on Form 10-K.
12
13
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
Future earnings in the near term will also depend upon growth in electric
sales which are subject to a number of factors. Traditionally, these factors
have included changes in contracts with neighboring utilities, energy
conservation practiced by customers, the elasticity of demand, weather,
competition, and the rate of economic growth in SOUTHERN's service area. The
enactment of the Energy Act will have a profound effect on the electric utility
industry. A discussion of the potential impact of the Energy Act and
particularly its effect on competition is found under "Future Earnings
Potential" in Item 7 - Management's Discussion and Analysis in SOUTHERN's 1993
Annual Report on Form 10-K.
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations in financial statements. In response to these questions the electric
utility industry has requested the Financial Accounting Standards Board to
review the accounting for removal costs, including decommissioning. If current
electric utility industry accounting practices for such decommissioning costs
are changed: (1) annual provisions for decommissioning could increase and (2)
the total estimated cost for decommissioning may be required to be recorded as
a liability on the balance sheet. ALABAMA and GEORGIA do not believe that such
changes, if required, would have a significant adverse effect on results of
operations due to their current and expected future ability to recover
decommissioning costs through rates. Further discussion of nuclear
decommissioning costs is made in Note (C) to the Condensed Financial Statements
herein.
FINANCIAL CONDITION
OVERVIEW
The major changes in SOUTHERN's financial condition during the first three
months of 1994 were the addition of approximately $319 million to utility plant
and the sale of SOUTHERN's common stock for $122 million. The funds for gross
property additions and other capital requirements were derived primarily from
operations, an increase in short-term indebtedness and security sales. See
SOUTHERN's Condensed Statements of Cash Flows for further details.
Additionally, SOUTHERN's board of directors declared a two-for-one common
stock split in the form of a stock distribution for each share issued and
outstanding as of February 7, 1994.
CAPITAL STRUCTURE
One of SOUTHERN's goals is to maintain common equity as a percent of total
capitalization, including short-term debt and the current portion of
capitalization, within a range of 40 to 45%. This ratio was 44.1% at March 31,
1994, compared to 43.8% at December 31, 1993. The market price of SOUTHERN's
common stock at March 31, 1994, was $19 per share, compared to a book value of
$11.96. This represents a market-to-book value ratio of 159%. The quarterly
dividend for the first quarter of 1994 was 29.5 cents per share.
13
14
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION (Continued)
CAPITAL REQUIREMENTS FOR CONSTRUCTION
The construction program of the Southern electric system is budgeted at $4.3
billion for the three years 1994 through 1996 ($1.5 billion in 1994, $1.3
billion in 1995 and $1.5 billion in 1996). Actual construction costs may vary
from this estimate because of such factors as changes in business conditions;
changes in nuclear plants to meet new regulations; changes in environmental
regulations; revised load growth projections; increasing costs of labor,
equipment and materials; and the cost of capital.
Current energy demand forecasts do not require any additional baseload
generating facilities until well into the future. However, the construction of
combustion turbine peaking units of approximately 1,700 megawatts is planned by
1996 to meet the increased peak-hour demands. In addition, significant
construction will continue related to transmission and distribution facilities
and the upgrading and extension of the useful lives of generating plants.
GEORGIA and Oglethorpe Power Corporation have entered into a joint ownership
agreement for the latter to assume responsibility for the construction and
completion of the Rocky Mountain project. This agreement is described further
in Note 4 to the financial statements in Item 8 of SOUTHERN's 1993 Annual
Report on Form 10-K.
Changes in environmental regulations could substantially increase the
Southern electric system's capital requirements and operating costs. The acid
rain compliance provision of the Clean Air Act will have a significant impact
on the Southern electric system. This legislation, as well as other
legislation and regulations, are described under "Environmental Matters" in
Item 7 - Management's Discussion and Analysis in SOUTHERN's 1993 Annual Report
on Form 10-K. The full impact of these requirements cannot be determined at
this time, pending the development and implementation of applicable
regulations.
OTHER CAPITAL REQUIREMENTS
In addition to the funds needed for the construction program, approximately $97
million will be required by March 31, 1995, for present sinking fund
requirements and maturities of long-term debt and preferred stock. Also, the
operating subsidiaries plan to continue, to the extent possible, a program to
retire high-cost debt and preferred stock and replace these obligations with
lower-cost capital.
SOURCES OF FUNDS
In addition to the sale of common stock in the first quarter of 1994, SOUTHERN
may require additional equity capital during the remainder of the year. The
amounts and timing of additional equity capital to be raised in 1994, as well
as in subsequent years, will be contingent on SOUTHERN's investment
opportunities. The operating subsidiaries plan to obtain the funds required
for construction and other purposes from sources similar to those used in the
past. However, the type and timing of financings will depend on market
conditions, maintenance of adequate earnings, and
14
15
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION (Continued)
regulatory approval. Additionally, GEORGIA expects to receive approximately
$260 million during 1994 and 1995 from the sale of its remaining ownership
interest in Plant Scherer Unit 4. These property sales are discussed further
in Note 7 to the financial statements in Item 8 in SOUTHERN's 1993 Annual
Report on Form 10-K.
To meet short-term cash needs and contingencies, the SOUTHERN system had at
March 31, 1994, approximately $213 million of cash and cash equivalents and
approximately $1.1 billion of unused credit arrangements with banks.
At March 31, 1994, the system companies had outstanding $666 million of
notes payable and $93 million of commercial paper. The short-term lines of
credit may not be utilized in their entirety without additional regulatory
approval. Since the construction program with respect to major generating
projects has been completed, management believes that the need for working
capital can be adequately met by utilizing lines of credit without maintaining
large cash balances.
In order to issue additional long-term debt and preferred stock, the
operating subsidiaries must comply with certain earnings coverage requirements
outlined in their respective mortgage indentures and corporate charters. The
coverage ratios of SOUTHERN's operating subsidiaries are sufficiently high to
permit, at present interest rate levels, any foreseeable security sales. The
amount of securities which they will be permitted to issue in the future will
depend upon market conditions and other factors prevailing at that time.
15
16
ALABAMA POWER COMPANY
16
17
ALABAMA POWER COMPANY
MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS
The condensed financial statements of ALABAMA included herein have been
prepared by ALABAMA, without audit, pursuant to the rules and regulations of
the SEC. In the opinion of ALABAMA's management, the information regarding
ALABAMA furnished herein reflects all adjustments (which included only normal
recurring adjustments) necessary to present fairly the results for the periods
ended March 31, 1994 and 1993. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although ALABAMA believes that the disclosures regarding
ALABAMA are adequate to make the information presented not misleading. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and the notes thereto included in ALABAMA's latest
annual report on Form 10-K.
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
The condensed financial statements of ALABAMA included herein have been
reviewed by ALABAMA's independent public accountants as set forth in their
report included herein as Exhibit 1.
17
18
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Twelve Months
Ended March 31, Ended March 31,
--------------- ---------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING REVENUES:
Revenues $654,313 $596,226 $2,883,720 $2,676,751
Revenues from affiliates 32,534 39,333 175,176 156,094
-------- -------- ---------- ----------
Total operating revenues 686,847 635,559 3,058,896 2,832,845
-------- -------- ---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 185,000 160,430 901,670 777,631
Purchased power from non-affiliates 5,258 3,720 16,767 16,463
Purchased power from affiliates 26,582 27,395 119,516 117,751
Other 110,634 104,493 476,956 447,776
Maintenance 67,659 59,891 260,274 248,104
Depreciation and amortization 72,602 73,074 289,837 282,825
Taxes other than income taxes 46,423 46,926 178,494 174,959
Federal and state income taxes 44,066 35,274 216,003 190,432
-------- -------- ---------- ----------
Total operating expenses 558,224 511,203 2,459,517 2,255,941
-------- -------- ---------- ----------
OPERATING INCOME 128,623 124,356 599,379 576,904
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 667 428 3,499 2,180
Interest income 4,230 4,114 20,891 15,748
Other, net (3,748) (2,803) (24,237) (13,652)
Income taxes applicable to other income 667 771 10,134 8,447
-------- -------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 130,439 126,866 609,666 589,627
-------- -------- ---------- ----------
INTEREST CHARGES:
Interest on long-term debt 44,489 49,207 180,143 203,235
Allowance for debt funds used during construction (683) (594) (3,082) (2,112)
Interest on interim obligations 810 794 3,776 3,675
Amortization of debt discount, premium, and expense, net 2,472 1,860 9,549 5,491
Other interest charges 4,961 9,939 30,497 24,569
-------- -------- ---------- ----------
Net interest charges 52,049 61,206 220,883 234,858
-------- -------- ---------- ----------
NET INCOME 78,390 65,660 388,783 354,769
DIVIDENDS ON PREFERRED STOCK 6,359 7,804 28,114 33,402
-------- -------- ---------- ----------
NET INCOME AFTER DIVIDENDS ON
PREFERRED STOCK $ 72,031 $ 57,856 $ 360,669 $ 321,367
======== ======== ========== ==========
The accompanying notes as they relate to ALABAMA are an integral part of these
condensed statements.
18
19
ALABAMA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
--------------------
1994 1993
--------- ---------
OPERATING ACTIVITIES:
Net income $ 78,390 $ 65,660
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 88,655 89,571
Deferred income taxes, net (18,561) (14,400)
Allowance for equity funds used during construction (667) (428)
Other, net 9,289 25,387
Change in certain current assets and liabilities:
Receivables, net 68,069 53,590
Inventories (6,787) (54,916)
Payables (52,536) (28,162)
Taxes accrued 50,245 54,098
Energy cost recovery, retail 1,719 25,863
Other (51,743) (37,392)
--------- ---------
Net cash provided from operating activities 166,073 178,871
--------- ---------
INVESTING ACTIVITIES:
Gross property additions (99,622) (98,939)
Other (10,076) 2,127
--------- ---------
Net cash used for investing activities (109,698) (96,812)
--------- ---------
FINANCING ACTIVITIES:
Proceeds:
First mortgage bonds - 610,000
Other long-term debt 27,987 625
Retirements:
Preferred stock - (49,000)
First mortgage bonds (20,387) (243,525)
Other long-term debt (32,388) (9,513)
Interim obligations, net 50,398 (194,916)
Special deposits - redemption fund - (49,125)
Payment of preferred stock dividends (5,759) (8,926)
Payment of common stock dividends (66,500) (62,900)
Miscellaneous (636) (21,682)
--------- ---------
Net cash provided from (used for) financing activities (47,285) (28,962)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 9,090 53,097
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,233 13,629
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,323 $ 66,726
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 48,347 $ 35,981
Income taxes 14,896 448
The accompanying notes as they relate to ALABAMA are an integral part of these
condensed statements.
19
20
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1994 At December 31,
(Unaudited) 1993
-------------- --------------
UTILITY PLANT:
Plant in service, at original cost (Note C) $9,807,079 $9,757,141
Less accumulated provision for depreciation 3,454,093 3,384,156
---------- ----------
6,352,986 6,372,985
Nuclear fuel, at amortized cost 88,761 93,551
Construction work in progress 261,806 225,786
---------- ----------
Total 6,703,553 6,692,322
---------- ----------
OTHER PROPERTY AND INVESTMENTS 99,845 99,185
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 12,323 3,233
Receivables --
Customer accounts receivable 267,732 312,090
Other accounts and notes receivable 41,765 48,808
Affiliated companies 28,038 40,216
Accumulated provision for uncollectible accounts (2,453) (2,632)
Refundable income taxes 5,552 11,940
Fossil fuel stock, at average cost 102,343 88,481
Materials and supplies, at average cost 169,653 176,728
Prepayments--
Income taxes 8,941 18,980
Other 102,338 60,227
Vacation pay deferred 22,680 22,680
---------- ----------
Total 785,912 780,751
---------- ----------
DEFERRED CHARGES:
Deferred charges related to income taxes 465,942 469,010
Debt expense and loss, being amortized 108,557 109,698
Uranium enrichment decontamination and decommissioning fund 44,726 45,554
Miscellaneous 54,639 52,163
---------- ----------
Total 673,864 676,425
---------- ----------
TOTAL ASSETS $8,236,174 $8,248,683
========== ==========
The accompanying notes as they relate to ALABAMA are an integral part of these
condensed statements.
20
21
ALABAMA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1994 At December 31,
(Unaudited) 1993
---------------- --------------
CAPITALIZATION:
Common stock equity --
Common stock, par value $40 per share--authorized 6,000,000
shares, outstanding 5,608,955 shares $ 224,358 $ 224,358
Paid-in capital 1,304,645 1,304,645
Premium on preferred stock 146 146
Retained earnings 1,002,627 997,199
---------- ----------
2,531,776 2,526,348
Preferred stock 440,400 440,400
Long-term debt 2,350,507 2,362,852
---------- ----------
Total 5,322,683 5,329,600
---------- ----------
CURRENT LIABILITIES:
Long-term debt due within one year 47,376 58,998
Notes payable 47,000 40,000
Commercial paper 43,398 -
Accounts payable--
Affiliated companies 52,941 62,507
Other 223,108 272,491
Customer deposits 31,719 31,198
Taxes accrued --
Federal and state income 58,418 25,730
Other 30,810 14,414
Interest accrued 49,604 52,809
Miscellaneous 59,978 73,106
---------- ----------
Total 644,352 631,253
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 1,147,956 1,165,127
Accumulated deferred investment tax credits 326,620 329,909
Prepaid capacity revenues, net 142,474 143,762
Uranium enrichment decontamination and decommissioning fund 39,644 39,644
Deferred credits related to income taxes 434,815 441,240
Miscellaneous 177,630 168,148
---------- ----------
Total 2,269,139 2,287,830
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $8,236,174 $8,248,683
========== ==========
The accompanying notes as they relate to ALABAMA are an integral part of these
condensed statements.
21
22
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
ALABAMA's financial performance during the first quarter of 1994 improved,
compared to the same period of 1993, due primarily to higher retail revenues
and lower financing costs. Net income after dividends on preferred stock was
$72.0 million during the first three months of 1994, compared to $57.9 million
in the corresponding period of 1993.
REVENUES
Operating revenues in the first three months of 1994 increased over the
corresponding period of 1993 due to higher energy sales to retail customers.
The rise in retail energy sales of 5.0% is attributable primarily to an
increase in customers served, weather and the improving economy in Alabama.
Revenues from non-affiliated wholesale customers also increased, including an
$11.5 million increase in capacity revenues. Total energy sales increased
3.2%.
Revenues from sales to affiliated companies within the Southern electric
system, as well as purchases of energy, will vary from period to period
depending on demand and the availability and cost of generating resources at
each company. These transactions do not have a significant impact on earnings.
EXPENSES
Fuel expense increased because of a 17.5% increase in coal-fired generation.
Coal-fired generation increased because of greater demand and lower hydro
generation. Other operation expenses increased primarily due to a workforce
reduction program initiated by the system service company, SCS, for which
ALABAMA recorded $7.3 million as its share of such costs (includes allocation
of $1.9 million from Southern Nuclear Operating Company). Maintenance expenses
for the first quarter of 1994 were higher than the same period of 1993 due
primarily to increased maintenance on fossil generating units and transmission
plant. The decrease in depreciation and amortization reflects lower average
depreciation rates effective January 1994 primarily as a result of new
estimates of the expected lives of certain fossil generating units.
The increase in income tax expense reflected the improvement in earnings
and an increase in the federal income tax rate enacted in August 1993.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
AFUDC represents the estimated debt and equity costs of capital funds that are
necessary to finance the construction of new facilities. While cash is not
realized currently from such allowance, it is realized over the service life of
the plant through increased revenues resulting from a higher rate base and
higher depreciation expense. The amount of AFUDC recorded will rise as
ALABAMA's investment in the construction of combustion turbine peaking units
approach commercial operation.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK
The decrease in interest on long-term debt and dividends on preferred stock
reflects ALABAMA's
22
23
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
efforts to decrease its capital costs. ALABAMA, in response to the low
interest rate levels prevailing during 1992 and 1993, refinanced a significant
portion of its long-term debt and preferred stock.
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 ranging from regulatory matters to growth in energy sales.
Discussed in the Notes to the Condensed Financial Statements herein are
certain regulatory and legal proceedings that may impact ALABAMA's future
earnings. The issues include a civil suit related to financing agreements and
proceedings concerning the reasonableness of the Southern electric system's
wholesale rate schedules and contracts.
Compliance costs related to the Clean Air Act will reduce earnings if such
cost increases cannot be offset. The Clean Air Act and other environmental
issues are discussed under "Environmental Issues" in Item 7 - Management's
Discussion and Analysis in ALABAMA's 1993 Annual Report on Form 10-K.
Future earnings will also depend upon growth in electric sales which are
subject to a number of factors. Traditionally, these factors have included
changes in contracts with neighboring utilities, energy conservation practiced
by customers, the elasticity of demand, weather, competition, and the rate of
economic growth in ALABAMA's service area. The enactment of the Energy Act
will have a profound effect on the future of the electric utility industry. A
discussion of the potential impact of the Energy Act and particularly its
effect on competition is found under "Future Earnings Potential" in Item
7 - Management's Discussion and Analysis in ALABAMA's 1993 Annual Report on Form
10-K.
The staff of the SEC has questioned certain of the current accounting practices
of the electric utility industry regarding the recognition, measurement and
classification of decommissioning costs for nuclear generating stations in
financial statements. In response to these questions the electric utility
industry has requested the Financial Accounting Standards Board to review the
accounting for removal costs, including decommissioning. If current electric
utility industry accounting practices for such decommissioning costs are
changed: (1) annual provisions for decommissioning could increase and (2) the
total estimated cost for decommissioning may be required to be recorded as a
liability on the balance sheet. ALABAMA does not believe that such changes, if
required, would have a significant adverse effect on results of operations due
to its current and expected future ability to recover decommissioning costs
through rates. Further discussion of nuclear decommissioning costs is made in
Note (C) to the Condensed Financial Statements herein.
23
24
ALABAMA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
OVERVIEW
The principal change in ALABAMA's financial condition in the first three months
of 1994 was gross property additions of $100 million to utility plant. The
funds for gross property additions were derived from operating activities and
an increase in short-term debt. See ALABAMA's Condensed Statements of Cash
Flows herein for further details.
During the first three months of 1994, ALABAMA refinanced $24.4 million of
pollution control bonds. ALABAMA's common equity as a percent of total
capitalization was 47.6% at March 31, 1994, compared to 47.4% at year-end 1993.
LIQUIDITY AND CAPITAL RESOURCES
ALABAMA has regulatory approval for short-term borrowings of up to $450
million. At March 1994, ALABAMA had outstanding $43 million of commercial
paper and $47 million of notes payable and had $469 million of committed lines
of credit available.
Capital expenditures are estimated to total $1.7 billion for the three years
1994 through 1996 ($588 million in 1994, $572 million in 1995 and $531 million
in 1996). Current energy demand forecasts do not require any additional
baseload generating facilities until well into the future. However, the
construction of combustion turbine peaking units of approximately 720 megawatts
of capacity is planned by 1996 to meet increased peak-hour demands. In
addition, significant construction of transmission and distribution facilities
and upgrading of generating plants will continue.
The capital budget is subject to periodic review and revision and capital
costs incurred may vary from estimates because of several factors, including
changes in business conditions; revised load growth projections; changes in
environmental regulations; changes in existing nuclear plant to meet new
regulatory requirements; increasing costs of labor, equipment and materials;
and the cost of capital.
In addition to the funds needed for the capital budget, approximately $47.4
million will be required by March 31, 1995, for debt maturities. Also, ALABAMA
plans to continue a program to retire higher-cost debt and preferred stock and
replace these obligations with lower-cost capital.
It is anticipated that the funds required will be derived from sources
similar to those used in the past. In order to issue additional first mortgage
bonds and preferred stock, ALABAMA must comply with certain earnings coverage
requirements contained in its mortgage indenture and corporate charter.
ALABAMA's coverages are at a level that would permit any necessary amount of
security sales at current interest and dividend rates.
24
25
ARTHUR ANDERSEN & CO.
Exhibit 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ALABAMA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of ALABAMA POWER
COMPANY as of March 31, 1994, and the related condensed statements of income
for the three-month and twelve-month periods ended March 31, 1994 and 1993, and
condensed statements of cash flows for the three-month periods ended March 31,
1994 and 1993. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of ALABAMA POWER COMPANY as of December 31, 1993
(not presented herein) and, in our report dated February 16, 1994, we expressed
an unqualified opinion on that statement. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1993 is
fairly stated, in all material respects, in relation to the balance sheet from
which it has been derived.
/s/ ARTHUR ANDERSEN & CO.
Birmingham, Alabama
May 6, 1994
25
26
GEORGIA POWER COMPANY
26
27
GEORGIA POWER COMPANY
MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS
The condensed financial statements of GEORGIA included herein have been
prepared by GEORGIA, without audit, pursuant to the rules and regulations of
the SEC. As more fully discussed in Note (G) to the Condensed Financial
Statements herein, an uncertainty exists with respect to the actions of the
regulators regarding the recoverability of GEORGIA's investment in the Rocky
Mountain pumped storage hydroelectric project. In the opinion of GEORGIA's
management, subject to the effect of such adjustments, if any, as might have
been required had the outcome of the uncertainty been known, the information
regarding GEORGIA furnished herein reflects all adjustments (which, except for
the provision for separation benefits recorded in the first quarter of 1994,
included only normal recurring adjustments) necessary to present fairly the
results for the periods ended March 31, 1994 and 1993. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to SEC rules and regulations, although GEORGIA believes that
the disclosures regarding GEORGIA are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in GEORGIA's latest annual report on Form 10-K.
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
The condensed financial statements of GEORGIA included herein have been
reviewed by GEORGIA's independent public accountants as set forth in their
report included herein as Exhibit 1.
27
28
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Twelve Months
Ended March 31, Ended March 31,
-------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING REVENUES:
Revenues $968,059 $ 983,561 $4,374,011 $4,264,366
Revenues from affiliates 24,273 20,254 65,687 79,656
-------- --------- ---------- ----------
Total operating revenues 992,332 1,003,815 4,439,698 4,344,022
-------- --------- ---------- ----------
OPERATING EXPENSES:
Operation--
Fuel 211,995 212,512 950,990 951,542
Purchased power from non-affiliates 71,757 89,902 295,025 421,681
Purchased power from affiliates 28,450 41,605 180,869 160,283
Provision for separation benefits 84,689 - 84,689 7,301
Other 152,626 148,062 679,849 613,480
Maintenance 75,089 64,567 295,042 264,911
Depreciation and amortization 94,049 92,369 381,105 375,171
Amortization of deferred Plant Vogtle expenses, net (Note F) 12,618 3,027 45,875 (15,215)
Taxes other than income taxes 49,536 47,059 195,148 180,620
Federal and state income taxes 54,383 83,782 422,723 389,076
-------- --------- ---------- ----------
Total operating expenses 835,192 782,885 3,531,315 3,348,850
-------- --------- ---------- ----------
OPERATING INCOME 157,140 220,930 908,383 995,172
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 1,637 129 4,676 4,656
Interest income 361 1,474 2,692 11,453
Other, net (1,100) (2,456) 17,387 (25,397)
Income taxes applicable to other income 2,611 2,259 38,012 24,775
-------- --------- ---------- ----------
INCOME BEFORE INTEREST CHARGES 160,649 222,336 971,150 1,010,659
-------- --------- ---------- ----------
INTEREST CHARGES:
Interest on long-term debt 80,099 91,529 332,204 390,046
Allowance for debt funds used during construction (2,676) (1,880) (9,068) (8,140)
Interest on interim obligations 3,527 4,373 14,684 11,695
Amortization of debt discount, premium and expense, net 3,874 2,915 14,984 9,270
Other interest charges 6,503 3,759 50,137 13,832
-------- --------- ---------- ----------
Net interest charges 91,327 100,696 402,941 416,703
-------- --------- ---------- ----------
NET INCOME 69,322 121,640 568,209 593,956
DIVIDENDS ON PREFERRED STOCK 11,713 13,275 49,112 56,338
-------- --------- ---------- ----------
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 57,609 $ 108,365 $ 519,097 $ 537,618
======== ========= ========== ==========
( ) Denotes red figure.
The accompanying notes as they relate to GEORGIA are an integral part of these
condensed statements.
28
29
GEORGIA POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
--------------------
1994 1993
---- ----
OPERATING ACTIVITIES
Net income $ 69,322 $121,640
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 121,351 118,731
Deferred income taxes, net 18,748 47,533
Allowance for equity funds used during construction (1,637) (129)
Deferred Plant Vogtle costs 12,618 3,027
Provision for separation benefits 84,275 -
Other, net (18,706) (9,360)
Changes in current assets and liabilities--
Receivables, net 110,120 90,910
Inventories (14,541) (8,371)
Payables (25,863) (36,877)
Taxes accrued (68,762) (10,814)
Other (1,346) (15,114)
--------- --------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 285,579 301,176
--------- --------
INVESTING ACTIVITIES
Property additions (143,034) (122,088)
Other (12,052) (27,009)
--------- --------
NET CASH USED FOR INVESTING ACTIVITIES (155,086) (149,097)
--------- --------
FINANCING ACTIVITIES
Proceeds--
First mortgage bonds - 510,000
Pollution control bonds 28,065 -
Retirements--
Preferred stock - (57,500)
First mortgage bonds - (355,379)
Pollution control bonds (28,065) -
Other long-term debt (128) (149)
Interim obligations, net (3,226) (65,528)
Payment of preferred stock dividends (11,435) (14,052)
Payment of common stock dividends (106,600) (100,100)
Miscellaneous (1,569) (25,777)
--------- --------
NET CASH USED FOR FINANCING ACTIVITIES (122,958) (108,485)
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 7,535 43,594
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 5,896 22,114
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,431 $ 65,708
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION--
Interest (net of amount capitalized) $ 93,342 $105,161
Income taxes 33,967 128
The accompanying notes as they relate to GEORGIA are an integral part of these
condensed statements.
29
30
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1994 At December 31,
(Unaudited) 1993
-------------- ---------------
UTILITY PLANT:
Plant in service (Note C) $13,823,602 $13,743,521
Less accumulated provision for depreciation 3,908,860 3,822,344
----------- -----------
9,914,742 9,921,177
Nuclear fuel, at amortized cost 132,390 135,742
Construction work in progress 609,021 584,013
----------- -----------
Total 10,656,153 10,640,932
----------- -----------
OTHER PROPERTY AND INVESTMENTS:
SEGCO, at equity 28,793 29,201
Nuclear decommissioning trusts (Note C) 38,345 37,937
Miscellaneous 36,536 31,941
----------- -----------
Total 103,674 99,079
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents 13,431 5,896
Receivables--
Customer accounts receivable 398,360 486,947
Other accounts and notes receivable 87,463 117,249
Affiliated companies 20,967 14,832
Accumulated provision for uncollectible accounts (4,300) (4,300)
Fossil fuel stock, at average cost 124,189 111,620
Materials and supplies, at average cost 289,523 287,551
Prepayments 50,529 65,269
Vacation pay deferred 41,075 41,575
----------- -----------
Total 1,021,237 1,126,639
----------- -----------
DEFERRED CHARGES:
Deferred charges related to income taxes 980,879 992,510
Deferred Plant Vogtle costs (Note F) 494,362 506,980
Debt expense and loss, being amortized 172,381 173,876
Miscellaneous 218,135 196,094
----------- -----------
Total 1,865,757 1,869,460
----------- -----------
TOTAL ASSETS $13,646,821 $13,736,110
=========== ===========
The accompanying notes as they relate to GEORGIA are an integral part of these
condensed statements.
30
31
GEORGIA POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1994 At December 31,
(Unaudited) 1993
-------------- ---------------
CAPITALIZATION:
Common stock equity--
Common stock (without par value) -- authorized 15,000,000 shares,
outstanding 7,761,500 shares $ 344,250 $ 344,250
Paid-in capital 2,384,348 2,384,348
Premium on preferred stock 413 413
Retained earnings 1,267,357 1,316,447
------------- ------------
3,996,368 4,045,458
Preferred stock 692,787 692,787
Long-term debt 4,032,349 4,031,387
------------- ------------
Total 8,721,504 8,769,632
------------- ------------
CURRENT LIABILITIES:
Long-term debt due within one year 10,412 10,543
Notes payable to banks 429,250 406,700
Commercial paper 49,751 75,527
Accounts payable--
Affiliated companies 41,142 38,115
Other 242,900 285,929
Customer deposits 46,077 45,922
Taxes accrued--
Federal and state income 30,697 31,639
Other 54,035 121,854
Interest accrued 104,607 110,497
Miscellaneous 124,980 104,587
------------- ------------
Total 1,133,851 1,231,313
------------- ------------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 2,501,370 2,479,720
Accumulated deferred investment tax credits 474,296 478,334
Disallowed Plant Vogtle capacity buyback costs 59,921 63,067
Deferred credits related to income taxes 447,336 452,819
Miscellaneous 308,543 261,225
------------- ------------
Total 3,791,466 3,735,165
------------- ------------
TOTAL CAPITALIZATION AND LIABILITIES $ 13,646,821 $ 13,736,110
============= =============
The accompanying notes as they relate to GEORGIA are an integral part of these
condensed statements.
31
32
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
EARNINGS
GEORGIA's earnings for the first quarter of 1994 declined compared to the
corresponding quarter of 1993, primarily as a result of charges related to
workforce reduction programs at GEORGIA and the system service company, SCS.
Net income after dividends on preferred stock was $57.6 million in the first
quarter of 1994 and $108.4 million in the first quarter of 1993. However,
disregarding the provision for separation benefits, GEORGIA's earnings would
have been slightly above earnings in the first quarter of 1993.
REVENUES
Total operating revenues decreased compared to the first quarter of 1993
because of the decrease in energy sales to non-affiliated wholesale customers.
Excluding fuel clause revenues, which represent the pass-through of fuel
expenses and do not affect income, operating revenues for the first quarter of
1994 decreased $5.8 million, compared to the corresponding period of 1993.
Retail - Retail energy sales increased 4.8% primarily because of an
increase in customers served and continued improvement in Georgia's economy.
Residential, commercial and industrial energy sales increased 4.1%, 6.5% and
3.9%, respectively. Total non-fuel retail revenues increased $14.9 million.
Wholesale - Energy sales to non-affiliated wholesale customers for the
first quarter of 1994 decreased 33.4%, compared to the corresponding period of
1993. The energy component of contract sales is priced at approximately the
variable production cost and does not materially affect earnings. Capacity
revenues from non-affiliated utilities outside the service area, which do
affect earnings, were down $30.3 million. These capacity revenues decreased as
scheduled, due primarily to GEORGIA completing the second in a series of four
transactions for the sale of Plant Scherer Unit 4 in June 1993. The third sale
of this unit is scheduled for June 1994. The decline in capacity revenues
cited above was partially offset by increases in revenues from wholesale
customers within the service territory.
Revenues from sales to affiliated companies within the Southern electric
system, as well as purchases of energy, will vary from period to period
depending on demand and the availability and cost of generating resources at
each company. These transactions do not have a significant impact on earnings.
OPERATING EXPENSES
Fuel and Purchased Power - Purchased power expense for the first quarter of
1994 decreased primarily due to scheduled reductions in capacity buyback
payments to the co-owners of plants Vogtle and Scherer. See Note (F) to the
Condensed Financial Statements herein for information regarding the
levelization of capacity buyback expense for Plant Vogtle. In addition,
GEORGIA purchased less energy from affiliated companies because of lower
wholesale energy demands.
32
33
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
Other - As part of the SOUTHERN system's effort to curtail growth in
operating expenses, both GEORGIA and SCS initiated workforce reduction programs
in the first quarter of 1994. GEORGIA's portion of SCS's costs for such
programs amounted to approximately $12.1 million, while GEORGIA's programs
amounted to approximately $72.6 million. Other operation expense increased
primarily due to the recognition of higher retiree medical and life insurance
costs as mandated by Financial Accounting Standard No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The Georgia PSC
ordered that such costs be phased in over a five-year period as further
discussed in Note 2 to the financial statements for GEORGIA in Item 8 of the
SOUTHERN system's combined 1993 Annual Report on Form 10-K.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
AFUDC represents the cost of capital charged to utility plant under
construction and is included in rate base. The equity portion of AFUDC
represents non-cash income. The amount of AFUDC recorded will rise as
GEORGIA's investment in the construction of combustion turbine peaking units
increases as the units approach their commercial operation in 1994 and 1995.
Based upon GEORGIA's construction budget, AFUDC is estimated to total $19
million in 1994 and $27 million in 1995.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK
Interest charges and preferred stock dividends have declined due to refinancing
efforts over the past twelve months. Also, GEORGIA used the proceeds from the
Plant Scherer sale to redeem high cost securities.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of
future earnings. The level of future earnings is contingent upon numerous
factors ranging from regulatory matters to growth in energy sales.
Pursuant to an Integrated Resource Plan approved by the Georgia PSC,
GEORGIA has implemented various demand-side option programs and had been
authorized by the Georgia PSC to recover associated program costs through rate
riders. In October 1993, a superior court judge ruled that recovery of these
costs through rate riders is unlawful. GEORGIA has appealed this ruling and
ceased collection of the rate riders. The Georgia PSC has allowed the deferral
of program costs pending the final outcome of this matter. For additional
information on this matter, see Note (H) to the Condensed Financial Statements
herein.
The addition of new peaking capacity in 1994 and 1995 will result in
increased related operation, maintenance and depreciation expense. In
addition, the Rocky Mountain pumped storage hydroelectric project is scheduled
to commence commercial operation in 1995. During 1994 and 1995 GEORGIA is
scheduled to sell its remaining ownership interest (33.1%) in Plant
33
34
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
Scherer Unit 4 to Florida Power & Light and the Jacksonville Electric
Authority. These transactions will generate approximately $260 million in
cash, including an estimated after-tax gain of approximately $20 million.
These transactions coincide with scheduled reductions in capacity sales to
these utilities under unit power sales contracts.
Future earnings in the near term will also depend upon growth in electric
sales which are subject to a number of factors. Traditionally, these factors
have included changes in contracts with neighboring utilities, energy
conservation practiced by customers, the elasticity of demand, weather,
competition, and the rate of economic growth in GEORGIA's service area. The
enactment of the Energy Act will have a profound effect on the future of the
electric utility industry. A discussion of the potential impact of the Energy
Act and particularly its effect on competition is found under "Future Earnings
Potential" in Item 7 - Management's Discussion and Analysis in GEORGIA's 1993
Annual Report on Form 10-K.
The staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations in financial statements. In response to these questions the electric
utility industry has requested the Financial Accounting Standards Board to
review the accounting for removal costs, including decommissioning. If current
electric utility industry accounting practices for such decommissioning costs
are changed: (1) annual provisions for decommissioning could increase and (2)
the total estimated cost for decommissioning may be required to be recorded as
a liability on the balance sheet. GEORGIA does not believe that such changes,
if required, would have a significant adverse effect on results of operations
due to its current and expected future ability to recover decommissioning costs
through rates. Further discussion of nuclear decommissioning costs is made in
Note (C) to the Condensed Financial Statements herein.
FINANCIAL CONDITION
OVERVIEW
The principal changes in GEORGIA's financial condition during the first three
months of 1994 were additions of $143 million to utility plant and recognition
of the liability associated with the implementation of workforce reduction
programs. The funds needed for gross property additions are currently provided
from operations. See GEORGIA's Condensed Statements of Cash Flows for further
details. Moody's Investors Service, Inc. recently upgraded GEORGIA's credit
ratings.
CONSTRUCTION AND OTHER CAPITAL REQUIREMENTS
Estimated construction expenditures for the years 1994 through 1996 are $688
million, $555 million and $629 million, respectively. These estimated
expenditures reflect planned but unidentified reductions of $63 million in 1995
and $85 million in 1996 under GEORGIA's business stategy to curtail growth in
costs.
34
35
GEORGIA POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION (Continued)
The Clean Air Act will have a significant impact on the capital
requirements of the Southern electric system. This legislation, as well as
other legislation and regulations are described under "Environmental Issues" in
Item 7 - Management's Discussion and Analysis in GEORGIA's 1993 Annual Report
on Form 10-K.
As a result of requirements by the Nuclear Regulatory Commission, GEORGIA
has established external sinking funds for the purpose of funding nuclear
decommissioning costs. For 1994 through 1996, the amount to be funded for
GEORGIA totals $16 million annually. For additional information concerning
nuclear decommissioning costs, see Note (C) to the Condensed Financial
Statements herein.
Cash requirements for long-term debt maturities and redemptions total
approximately $10.4 million for the twelve months ending March 31, 1995.
SOURCES OF FUNDS
GEORGIA expects to meet future capital requirements primarily using funds from
operations and, if needed, by the issuance of new debt and equity securities,
term loans and short-term borrowings. Cash from operations for the first three
months of 1994 decreased, as compared to the corresponding period in 1993,
primarily because of the receipt in 1993 of cash payments from Gulf States as
partial settlement of litigation and higher estimated income tax payments in
1994.
GEORGIA must comply with coverage requirements of its mortgage indenture
and corporate charter to issue new first mortgage bonds and preferred stock.
GEORGIA's ability to satisfy all coverage requirements is such that it could
issue new first mortgage bonds and preferred stock to provide sufficient funds
for all anticipated requirements.
To meet short-term cash needs and contingencies, GEORGIA had approximately
$295 million of unused credit arrangements with banks at March 31, 1994.
Additionally, the completion of the remaining transactions for the sale of
Plant Scherer Unit 4 will generate approximately $130 million in both 1994 and
1995.
35
36
ARTHUR ANDERSEN & CO.
Exhibit 1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO GEORGIA POWER COMPANY:
We have reviewed the accompanying condensed balance sheet of GEORGIA POWER
COMPANY (a Georgia corporation) as of March 31, 1994, and the related condensed
statements of income for the three-month and twelve-month periods ended March
31, 1994 and 1993, and the condensed statements of cash flows for the
three-month periods ended March 31, 1994 and 1993. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
As more fully discussed in Note (G) to the Condensed Financial Statements,
an uncertainty exists with respect to the actions of the regulators regarding
the recoverability of the Company's investment in the Rocky Mountain pumped
storage hydroelectric project. The outcome of this uncertainty cannot
presently be determined. Accordingly, no provision for any writedown of the
costs associated with the Rocky Mountain facility resulting from the potential
actions of the Georgia Public Service Commission has been made in the
accompanying Condensed Financial Statements.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of GEORGIA POWER COMPANY as of December 31, 1993
(not presented herein), and, in our report dated February 16, 1994, we included
an explanatory paragraph which describes an uncertainty with respect to the
actions of the regulators regarding the recoverability of the Company's
investment in the Rocky Mountain pumped storage hydroelectric project. In our
opinion, the information set forth in the accompanying condensed balance sheet
as of December 31, 1993, is fairly stated, in all material respects, in
relation to the balance sheet from which it has been derived.
Atlanta, Georgia
May 6, 1994 /s/ ARTHUR ANDERSEN & CO.
36
37
GULF POWER COMPANY
37
38
GULF POWER COMPANY
MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS
The condensed financial statements of GULF included herein have been
prepared by GULF, without audit, pursuant to the rules and regulations of the
SEC. In the opinion of GULF's management, the information regarding GULF
furnished herein reflects all adjustments (which included only normal recurring
adjustments) necessary to present fairly the results for the periods ended
March 31, 1994 and 1993. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although GULF believes that the disclosures regarding GULF are
adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in GULF's latest annual
report on Form 10-K.
38
39
GULF POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Twelve Months
Ended March 31, Ended March 31,
-------------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING REVENUES:
Revenues $134,229 $122,833 $571,372 $548,819
Revenues from affiliates 3,859 4,203 22,822 22,583
-------- -------- -------- --------
Total operating revenues 138,088 127,036 594,194 571,402
-------- -------- -------- --------
OPERATING EXPENSES:
Operation--
Fuel 35,941 36,668 169,758 177,990
Purchased power from non-affiliates 2,068 269 6,185 1,432
Purchased power from affiliates 8,791 8,442 32,623 29,835
Other 30,454 22,747 116,871 97,814
Maintenance 10,982 13,122 43,864 46,867
Depreciation and amortization 14,037 13,671 55,676 54,028
Taxes other than income taxes 10,279 9,517 40,965 38,212
Federal and state income taxes 6,382 4,954 34,158 31,287
-------- -------- -------- --------
Total operating expenses 118,934 109,390 500,100 477,465
-------- -------- -------- --------
OPERATING INCOME 19,154 17,646 94,094 93,937
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 160 23 649 35
Interest income 259 397 1,189 2,375
Other, net (152) (244) (1,143) (1,737)
Gain on sale of investment securities - 3,820 - 3,820
Income taxes applicable to other income (64) (1,476) 490 (1,005)
-------- -------- -------- --------
INCOME BEFORE INTEREST CHARGES 19,357 20,166 95,279 97,425
-------- -------- -------- --------
INTEREST CHARGES:
Interest on long-term debt 6,871 7,460 30,756 33,797
Allowance for debt funds used during construction (142) (60) (537) (101)
Interest on notes payable 242 258 854 1,077
Amortization of debt discount, premium and expense, net 458 310 1,561 1,076
Other interest charges 355 376 2,856 1,439
-------- -------- -------- --------
Net interest charges 7,784 8,344 35,490 37,288
-------- -------- -------- --------
NET INCOME 11,573 11,822 59,789 60,137
DIVIDENDS ON PREFERRED STOCK 1,456 1,396 5,787 5,197
-------- -------- -------- --------
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 10,117 $ 10,426 $ 54,002 $ 54,940
======== ======== ======== ========
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
39
40
GULF POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
1994 1993
-------- --------
OPERATING ACTIVITIES:
Net income $ 11,573 $ 11,822
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 21,571 16,311
Deferred income taxes, net 899 (578)
Allowance for equity funds used during construction (160) (23)
Other, net (341) 866
Changes in certain current assets and liabilities--
Receivables, net 9,204 13,842
Inventories (933) (5,426)
Payables (4,919) (251)
Other 3,315 14,577
-------- --------
Net Cash Provided From Operating Activities 40,209 51,140
-------- --------
INVESTING ACTIVITIES:
Gross property additions (20,723) (13,407)
Other (4,522) (4,292)
-------- --------
Net Cash Used For Investing Activities (25,245) (17,699)
-------- --------
FINANCING ACTIVITIES:
Retirements:
Preferred stock subject to mandatory redemption (1,000) (1,000)
First mortgage bonds (29,370) (2,450)
Other long-term debt (2,224) (1,834)
Notes payable, net 27,447 (17,000)
Payment of preferred stock dividends (1,456) (1,425)
Payment of common stock dividends (10,900) (10,400)
Miscellaneous (317) (9)
-------- --------
Net Cash Used For Financing Activities (17,820) (34,118)
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,856) (677)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,576 1,204
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,720 $ 527
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amounts capitalized) $ 3,223 $ 3,254
Income taxes (refunded) 2,036 (12)
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
40
41
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1994 At December 31,
(Unaudited) 1993
---------------- ---------------
UTILITY PLANT:
Plant in service, at original cost $1,613,872 $1,611,704
Less accumulated provision for depreciation 618,674 610,542
---------- ----------
995,198 1,001,162
Construction work in progress 47,087 34,591
---------- ----------
Total 1,042,285 1,035,753
---------- ----------
OTHER PROPERTY AND INVESTMENTS 10,550 13,242
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 2,720 5,576
Receivables--
Customer accounts receivable 49,602 57,226
Other accounts and notes receivable 5,567 5,904
Affiliated companies - 1,241
Accumulated provision for uncollectible accounts (450) (447)
Fuel stock, at average cost 23,352 20,652
Materials and supplies, at average cost 34,623 36,390
Current portion of deferred coal contract costs 10,235 12,535
Regulatory clauses under recovery 9,061 3,244
Prepayments 1,996 2,160
Vacation pay deferred 4,022 4,022
---------- ----------
Total 140,728 148,503
---------- ----------
DEFERRED CHARGES:
Deferred charges related to income taxes 31,115 31,334
Debt expense and loss, being amortized 21,123 21,247
Deferred coal contract costs 49,042 52,884
Miscellaneous 6,524 4,846
---------- ----------
Total 107,804 110,311
---------- ----------
TOTAL ASSETS $1,301,367 $1,307,809
========== ==========
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
41
42
GULF POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1994 At December 31,
(Unaudited) 1993
-------------- ---------------
CAPITALIZATION:
Common stock equity--
Common stock (without par value)--authorized
and outstanding 992,717 shares $ 38,060 $ 38,060
Paid-in capital 218,282 218,282
Premium on preferred stock 81 81
Retained earnings 156,944 157,773
---------- ----------
413,367 414,196
Preferred stock 89,602 89,602
Preferred stock subject to mandatory redemption 500 1,000
Long-term debt 366,778 369,259
---------- ----------
Total 870,247 874,057
---------- ----------
CURRENT LIABILITIES:
Preferred stock due within one year 500 1,000
Long-term debt due within one year 12,502 41,552
Notes payable 33,500 6,053
Accounts payable--
Affiliated companies 8,224 18,560
Other 19,174 20,139
Customer deposits 15,064 15,082
Taxes accrued--
Federal and state income 13,573 10,330
Other 6,220 2,685
Interest accrued 8,968 5,420
Regulatory clauses over recovery 8 840
Vacation pay accrued 4,022 4,022
Miscellaneous 5,451 8,527
---------- ----------
Total 127,206 134,210
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 153,843 151,743
Deferred credits related to income taxes 75,723 76,876
Accumulated deferred investment tax credits 40,174 40,770
Accumulated provision for property damage 10,809 10,509
Accumulated provision for postretirement benefits 11,663 10,749
Miscellaneous 11,702 8,895
---------- ----------
Total 303,914 299,542
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $1,301,367 $1,307,809
========== ==========
The accompanying notes as they relate to GULF are an integral part of these
condensed statements.
42
43
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
EARNINGS
GULF's net income after dividends on preferred stock for the first three months
of 1994 was $10.1 million, compared to $10.4 million for the same period of
1993. The dip in earnings was primarily due to increased other operation
expenses as discussed below.
REVENUES
Retail energy sales for the first quarter of 1994 increased 2.3% over the
corresponding period of 1993 due primarily to the mild temperatures experienced
in the winter of 1993 and an increase in the number of customers served.
However, this increase in retail energy sales was partially offset because
GULF's formerly largest industrial customer began operating its co-generation
facility in August 1993. Wholesale energy sales to non-affiliates increased
slightly, however, capacity revenues were $1 million lower, compared to the
first quarter of 1993. Also, included in operating revenues for the first
quarter of 1994 is $1.9 million recognized under the Environmental Cost
Recovery clause. This clause is discussed in Note 3 to the financial
statements in Item 8 to GULF's 1993 Annual Report on Form 10-K.
EXPENSES
Fuel expenses for the first quarter of 1994 decreased from the same period of
1993 despite a 2.8% increase in generation. This reflects the impact of GULF
renegotiating, buying out or otherwise terminating various coal supply
contracts. Purchased power transactions (both sales and purchases) among the
affiliated companies within the Southern electric system will vary from period
to period depending on demand and the availability and cost of generating
resources at each company. Other operation expenses increased because of the
recognition of higher costs associated with the buyouts and renegotiation of
coal supply contracts. The expenses recognized are based, in part, on the
amount of fuel consumed at the generating plants. These costs are recoverable
through the fuel clause and, thus, have no impact on earnings. Other factors
that increased other operation expenses were higher employee benefit costs and
the recognition by GULF of its portion of the costs associated with a workforce
reduction program at the system service company. Maintenance expenses
decreased because of the scheduling of maintenance on production facilities.
The increase in income tax expense is attributable to the federal tax rate
increase enacted in August 1993.
INTEREST CHARGES AND DIVIDENDS ON PREFERRED STOCK
The decrease in interest on long-term debt reflects GULF's efforts to decrease
its capital costs. GULF, in response to the low interest rate levels
prevailing during 1992 and 1993, refinanced a significant portion of its
long-term debt and preferred stock. To the extent it is economically feasible,
GULF will continue its efforts to lower its capital costs.
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of
future earnings potential.
43
44
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
The level of future earnings depends on numerous factors ranging from
regulatory matters to growth in energy sales.
Future earnings in the near term will also depend upon growth in electric
sales which are subject to a number of factors. Traditionally, these factors
have included changes in contracts with neighboring utilities, energy
conservation practiced by customers, the elasticity of demand, weather,
competition, customer growth, and the rate of economic growth in GULF's service
area. The enactment of the Energy Act will have a profound effect on the
future of the electric utility industry. A discussion of the potential impact
of the Energy Act and particularly its effect on competition is found under
"Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in
GULF's 1993 Annual Report on Form 10-K.
See Note 3 to the financial statements in Item 8 in GULF's 1993 Annual
Report on Form 10-K for a discussion of the hearings ordered by the FERC
regarding the reasonableness of the return on common equity on certain of the
Southern electric system's wholesale rate schedules and contracts. Also
discussed therein is the FERC reconsideration concerning GULF's recovery of
certain coal contract buyout costs. On April 13, 1994, the FERC approved GULF's
Offer of Settlement regarding the return of certain wholesale fuel buyout costs
previously refunded to wholesale customers. Also, see Note (I) to the
Condensed Financial Statements herein for a discussion of a suit filed against
GULF concerning the transportation of coal by barge.
Compliance costs related to the Clean Air Act could reduce earnings if such
increased costs are not fully recovered. The Clean Air Act is discussed
further under "Environmental Matters" in Item 7 - Management's Discussion and
Analysis in GULF's 1993 Annual Report on Form 10-K. See Note 3 to the
financial statements in Item 8 in GULF's 1993 Annual Report on Form 10-K for a
discussion of the Environmental Cost Recovery clause which provides for the
expected recovery of such costs.
FINANCIAL CONDITION
OVERVIEW
The major change in GULF's financial condition during the first three months of
1994 was gross property additions of $20.7 million. The principal sources of
funds for these additions and other capital requirements were provided from
operations and an increase in notes payable. See the Condensed Statements of
Cash Flows for further details.
CAPITAL REQUIREMENTS FOR CONSTRUCTION
GULF's gross property additions, including those amounts related to
environmental compliance, are estimated to total approximately $200 million for
the three years 1994 through 1996 ($77 million in 1994, $55 million in 1995 and
$68 million in 1996). The estimates of property additions for the three-year
period include $25 million committed to meeting the requirements of the Clean
Air Act, the cost
44
45
GULF POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION (Continued)
of which is expected to be recovered through the Environmental Cost Recovery
clause. Actual construction costs may vary from these estimates because of
factors such as the granting of timely and adequate rate increases, changes in
environmental regulations, revised load projections, the cost and efficiency of
construction labor, equipment, and materials, and the cost of capital.
Various environmental legislation and other related regulations are
described in "Environmental Matters" in Item 7 - Management's Discussion and
Analysis in GULF's 1993 Annual Report on Form 10-K. The full impact of these
requirements cannot be determined at this time, pending the development and
implementation of applicable regulations.
In addition to the funds required for the construction program, $13.0
million will be required by March 31, 1995, in connection with maturities and
redemptions of long-term debt and preferred stock subject to mandatory
redemption. This amount includes approximately $8.7 million of long-term notes
payable issued to finance the termination of a coal supply contract.
At March 31, 1994, GULF had $2.7 million of cash and $31.5 million of
unused credit arrangements with banks to meet its short-term cash needs. GULF
had $33.5 million of short-term bank borrowings outstanding at March 31, 1994.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
from operations, the sale of additional first mortgage bonds and preferred
stock, and capital contributions from SOUTHERN. GULF is required to meet
certain coverage requirements specified in its mortgage indenture and corporate
charter to issue new first mortgage bonds and preferred stock. GULF's coverage
ratios are sufficient to permit, at present interest rate levels, any
foreseeable security sales. The amount of securities which GULF will be
permitted to issue in the future will depend upon market conditions and other
factors prevailing at that time.
45
46
MISSISSIPPI POWER COMPANY
46
47
MISSISSIPPI POWER COMPANY
MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS
The condensed financial statements of MISSISSIPPI included herein have been
prepared by MISSISSIPPI, without audit, pursuant to the rules and regulations
of the SEC. In the opinion of MISSISSIPPI's management, the information
regarding MISSISSIPPI furnished herein reflects all adjustments (which included
only normal recurring adjustments) necessary to present fairly the results for
the periods ended March 31, 1994 and 1993. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although MISSISSIPPI believes that the
disclosures regarding MISSISSIPPI are adequate to make the information
presented not misleading. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in MISSISSIPPI's latest annual report on Form 10-K.
47
48
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For the Twelve Months
Ended March 31, Ended March 31,
-------------------- ---------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING REVENUES:
Revenues $111,700 $ 97,469 $473,596 $431,033
Revenues from affiliates 2,434 4,083 13,869 10,035
-------- -------- -------- --------
Total operating revenues 114,134 101,552 487,465 441,068
-------- -------- -------- --------
OPERATING EXPENSES:
Operation--
Fuel 17,601 20,685 110,902 95,937
Purchased power from non-affiliates 966 233 2,931 1,366
Purchased power from affiliates 24,156 16,138 66,037 63,044
Other 21,381 21,834 99,929 91,938
Maintenance 13,146 13,594 43,554 46,499
Depreciation and amortization 9,299 8,843 33,555 34,083
Taxes other than income taxes 9,805 8,701 38,249 35,242
Federal and state income taxes 4,870 1,995 25,542 16,539
-------- -------- -------- --------
Total operating expenses 101,224 92,023 420,699 384,648
-------- -------- -------- --------
OPERATING INCOME 12,910 9,529 66,766 56,420
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 405 127 1,289 581
Interest income 28 132 414 696
Other, net 1,500 738 4,733 4,647
Income taxes applicable to other income (445) (250) (1,353) (1,090)
-------- -------- -------- --------
INCOME BEFORE INTEREST CHARGES 14,398 10,276 71,849 61,254
-------- -------- -------- --------
INTEREST CHARGES:
Interest on long-term debt 4,512 4,130 18,071 20,502
Allowance for debt funds used during construction (370) (94) (1,064) (533)
Interest on notes payable 326 113 1,213 470
Amortization of debt discount, premium and expense, net 357 259 1,359 794
Other interest charges 82 89 722 317
-------- -------- -------- --------
Net interest charges 4,907 4,497 20,301 21,550
-------- -------- -------- --------
NET INCOME 9,491 5,779 51,548 39,704
DIVIDENDS ON PREFERRED STOCK 1,225 1,355 5,270 4,491
-------- -------- -------- --------
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 8,266 $ 4,424 $ 46,278 $ 35,213
======== ======== ======== ========
( ) Denotes negative figure.
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
48
49
MISSISSIPPI POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
---------------
1994 1993
---- ----
OPERATING ACTIVITIES:
Net income $ 9,491 $ 5,779
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 11,609 10,855
Deferred income taxes, net (3,260) 1,139
Allowance for equity funds used during construction (405) (127)
Other, net (3,868) (325)
Change in certain current assets and liabilities--
Receivables, net 7,762 2,781
Inventories (5,661) 952
Payables (5,146) 3,120
Taxes accrued (11,140) (16,937)
Other 3,115 (562)
--------- --------
Net cash provided from operating activities 2,497 6,675
--------- --------
INVESTING ACTIVITIES:
Gross property additions (27,022) (17,729)
Other (13,925) (9,932)
-------- --------
Net cash used for investing activities (40,947) (27,661)
--------- --------
FINANCING ACTIVITIES:
Proceeds--
Capital contributions from parent company - 30,000
First mortgage bonds 35,000 35,000
Other long-term debt 50,309 -
Retirements--
First mortgage bonds (22,371) -
Other long-term debt (2,647) (1,938)
Notes payable, net (11,000) (31,000)
Payment of preferred stock dividends (1,225) (1,355)
Payment of common stock dividends (8,500) (7,200)
Miscellaneous (989) (531)
--------- --------
Net cash provided (used) from financings 38,577 22,976
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 127 1,990
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 878 7,417
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,005 $ 9,407
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for--
Interest (net of amount capitalized) $ 3,224 $ 2,104
Income taxes (refunded) (1,743) 415
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
49
50
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1994 At December 31,
(Unaudited) 1993
-------------- --------------
UTILITY PLANT:
Plant in service, at original cost $1,245,999 $1,238,847
Less accumulated provision for depreciation 465,395 462,725
---------- ----------
Total 780,604 776,122
Construction work in progress 124,149 108,063
---------- ----------
Total 904,753 884,185
---------- ----------
OTHER PROPERTY AND INVESTMENTS 8,577 11,289
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents 1,005 878
Receivables--
Customer accounts receivable 26,175 31,376
Other accounts and notes receivable 5,240 5,581
Affiliated companies 4,259 6,698
Accumulated provision for uncollectible accounts (518) (737)
Fuel stock, at average cost 13,270 11,185
Materials and supplies, at average cost 24,721 21,145
Current portion of deferred fuel charges 1,455 440
Prepayments 6,696 7,843
Vacation pay deferred 4,797 4,797
---------- ----------
Total 87,100 89,206
---------- ----------
DEFERRED CHARGES:
Deferred charges related to income taxes 25,243 25,267
Deferred fuel charges 15,296 17,520
Debt expense and loss, being amortized 11,670 11,666
Miscellaneous 18,193 10,073
---------- ----------
Total 70,402 64,526
---------- ----------
TOTAL ASSETS $1,070,832 $1,049,206
========== ==========
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
50
51
MISSISSIPPI POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1994 At December 31,
(Unaudited) 1993
-------------- --------------
CAPITALIZATION:
Common stock equity--
Common stock (without par value), authorized 1,130,000 shares,
outstanding 1,121,000 shares $ 37,691 $ 37,691
Paid-in capital 154,362 154,362
Premium on preferred stock 372 372
Retained earnings 129,109 129,343
---------- ----------
321,534 321,768
Cumulative preferred stock 74,414 74,414
Long-term debt 308,618 250,391
---------- ----------
Total 704,566 646,573
---------- ----------
CURRENT LIABILITIES:
Long-term debt due within one year 20,780 19,345
Notes payable 29,000 40,000
Accounts payable--
Affiliated companies 8,243 10,197
Other 34,282 50,731
Customer deposits 2,808 2,786
Taxes accrued--
Federal and state income 6,598 186
Other 9,400 26,952
Interest accrued 5,382 4,237
Miscellaneous 14,341 14,120
---------- ----------
Total 130,834 168,554
---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Accumulated deferred income taxes 122,145 123,206
Accumulated deferred investment tax credits 32,345 32,710
Deferred credits related to income taxes 47,687 48,228
Accumulated provision for property damage 10,873 10,538
Miscellaneous 22,382 19,397
---------- ----------
Total 235,432 234,079
---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $1,070,832 $1,049,206
========== ==========
The accompanying notes as they relate to MISSISSIPPI are an integral part of
these condensed statements.
51
52
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET INCOME
MISSISSIPPI's net income after dividends on preferred stock for the first
quarter of 1994 was $8.3 million, compared to $4.4 million for the
corresponding period of 1993. Net income rose primarily because of higher
retail energy sales and retail rate increases under PEP and the ECO Plan.
REVENUES
Revenues for the first three months of 1994 increased compared to the same
period of 1993, because of an increase of 7.6% in retail energy sales, a 22.3%
increase in territorial wholesale energy sales and the retail rate increases
granted under PEP effective July 1993 and the ECO Plan effective in April 1993.
The increase in retail energy sales was due to weather influences, an improving
economy in Southeast Mississippi and an increase in the number of customers
served. Energy sales to residential customers increased by 10.3% and to
commercial customers by 10.7%, with the latter reflecting sales to an
increasing number of casinos within MISSISSIPPI's service area. Wholesale
capacity revenues decreased approximately $0.5 million.
EXPENSES
Fuel and purchased power expenses combined increased in the first quarter of
1994, compared to the corresponding period of 1993, due to higher energy sales.
Purchased power transactions (both sales and purchases) among the affiliated
companies within the Southern electric system will vary from period to period
depending on demand and the availability and cost of generating resources at
each company. Taxes other than income taxes increased because of higher
property taxes and higher revenues.
The increase in income tax expense reflects the increase in earnings and
the federal tax increase enacted in August 1993.
The increase in interest was because of the sale or issuance of additional
debt instruments.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
AFUDC represents the cost of capital charged to utility plant under
construction. The equity portion of AFUDC represents non-cash income.
However, when facilities are completed and included in rate base, previously
capitalized amounts increase cash flow because revenues are higher as a result
of the increased rate base and additional depreciation expense.
52
53
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
FUTURE EARNINGS POTENTIAL
The results of operations discussed above are not necessarily indicative of
future earnings potential. The level of future earnings is contingent upon
numerous factors ranging from regulatory matters to growth in energy sales.
Operating revenues will be affected by changes in rates under the PEP and ECO
plans. The PEP has proven to be a stabilizing force on electric rates, with
only moderate changes in rates taking place. Also see Note (B) to the
Condensed Financial Statements herein for information regarding FERC's review
of equity returns.
MISSISSIPPI's 1994 annual filing under the Environmental Compliance
Overview Plan with the Mississippi PSC resulted in an approved annual revenue
requirement of $7.6 million, effective in April 1994. The FERC approved
MISSISSIPPI's wholesale rate increase petition for $3.6 million effective April
1994.
Future earnings in the near term will also depend upon growth in electric
sales which are subject to a number of factors. Traditionally, these factors
have included the rate of economic growth in MISSISSIPPI's service area,
customer growth, competition, weather, changes in contracts with neighboring
utilities, energy conservation practiced by customers, and the elasticity of
demand. The enactment of the Energy Act will have a profound effect on the
future of the electric utility industry. A discussion of the potential impact
of the Energy Act and particularly its effect on competition is found under
"Future Earnings Potential" in Item 7 - Management's Discussion and Analysis in
MISSISSIPPI's 1993 Annual Report on Form 10-K.
FINANCIAL CONDITION
OVERVIEW
During the first three months of 1994, gross property additions were $27.0
million. The funds for these additions and other capital requirements were
derived primarily from internal sources, the sale of $35 million of first
mortgage bonds and the issuance of $50 million of long-term notes payable. See
the Condensed Statements of Cash Flows for further details.
At March 31, 1994, cash totaled approximately $1.0 million and MISSISSIPPI
had $96 million of unused credit arrangements with banks to meet short-term
cash needs. MISSISSIPPI had $29 million of notes payable outstanding at
quarter-end.
53
54
MISSISSIPPI POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION (Continued)
CAPITAL REQUIREMENTS
MISSISSIPPI's gross property additions for the next three years are estimated
to be $256 million ($96 million in 1994, $62 million in 1995 and $98 million in
1996). The major emphasis within the construction program will be on complying
with Clean Air Act regulations and upgrading existing facilities. Revisions
may be necessary because of factors such as revised load projections, the
availability and cost of capital and changes in environmental regulations.
Changes in environmental regulations could substantially increase the
Southern electric system's capital requirements and operating costs. The acid
rain compliance provision of the Clean Air Act will have a significant impact
on the Southern electric system. This legislation, as well as other
legislation and regulations, are described under "Environmental Matters" in
Item 7 - Management's Discussion and Analysis in MISSISSIPPI's 1993 Annual
Report on Form 10-K. The full impact of these requirements cannot
be determined at this time pending the development and implementation of
applicable regulations. MISSISSIPPI's management believes that the ECO Plan
will provide for retail recovery of the Clean Air Act costs.
In addition to the funds required for the construction program,
approximately $20.8 million will be required by March 31, 1995, for maturities
of long-term debt. It is anticipated that the funds required for construction
and other purposes, including compliance with environmental regulations, will
be derived from operations, the sale of additional first mortgage bonds,
pollution control bonds and preferred stock and the receipt of additional
capital contributions from SOUTHERN. MISSISSIPPI is required to meet certain
coverage requirements specified in its mortgage indenture and corporate charter
to issue new first mortgage bonds and preferred stock. MISSISSIPPI's coverage
ratios are sufficiently high to permit, at present interest rate levels, any
foreseeable security sales. The amount of securities which MISSISSIPPI will be
able to issue in the future will depend upon market conditions and other
factors prevailing at that time.
54
55
SAVANNAH ELECTRIC
AND
POWER COMPANY
55
56
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S OPINION AS TO FAIR STATEMENT OF RESULTS
The condensed financial statements of SAVANNAH included herein have been
prepared by SAVANNAH, without audit, pursuant to the rules and regulations of
the SEC. In the opinion of SAVANNAH's management, the information regarding
SAVANNAH furnished herein reflects all adjustments (which, except for the
provision for separation benefits recorded in the third and fourth quarters of
1993 and the first quarter of 1994, included only normal recurring adjustments)
necessary to present fairly the results for the periods ended March 31, 1994
and 1993. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although SAVANNAH believes that the disclosures regarding SAVANNAH
are adequate to make the information presented not misleading. It is suggested
that these condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in SAVANNAH's latest annual
report on Form 10-K.
56
57
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months For The Twelve Months
Ended March 31, Ended March 31,
-------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
OPERATING REVENUES:
Revenues $46,400 $42,748 $219,661 $197,101
Revenues from affiliates 317 125 2,625 1,569
------- ------- -------- --------
Total operating revenues 46,717 42,873 222,286 198,670
------- ------- -------- --------
OPERATING EXPENSES:
Operation--
Fuel 2,139 1,016 26,100 14,365
Purchased power from non-affiliates 359 91 1,060 495
Purchased power from affiliates 15,229 13,839 57,664 56,754
Provision for separation benefits 551 - 5,006 -
Other 8,877 9,556 40,477 37,620
Maintenance 2,647 3,279 12,884 14,548
Depreciation and amortization 4,250 4,078 16,638 16,698
Taxes other than income taxes 2,562 2,480 11,219 10,391
Federal and state income taxes 2,973 2,411 15,998 14,542
------- ------- -------- --------
Total operating expenses 39,587 36,750 187,046 165,413
------- ------- -------- --------
OPERATING INCOME 7,130 6,123 35,240 33,257
OTHER INCOME (EXPENSE):
Allowance for equity funds used during construction 387 113 1,231 458
Other, net (231) (240) (1,622) (1,333)
Income taxes applicable to other income 88 91 1,114 817
------- ------- -------- --------
INCOME BEFORE INTEREST CHARGES 7,374 6,087 35,963 33,199
------- ------- -------- --------
INTEREST CHARGES:
Interest on long-term debt 3,152 2,346 11,501 10,198
Allowance for debt funds used during construction (500) (60) (1,139) (287)
Amortization of debt discount, premium and expense, net 137 129 543 477
Other interest charges 106 178 508 580
------- ------- -------- --------
Net interest charges 2,895 2,593 11,413 10,968
------- ------- -------- --------
NET INCOME 4,479 3,494 24,550 22,231
DIVIDENDS ON PREFERRED STOCK 581 475 2,212 1,900
------- ------- -------- --------
NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK $ 3,898 $ 3,019 $ 22,338 $ 20,331
======= ======= ======== ========
( ) Denotes red figure.
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
57
58
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Stated in Thousands of Dollars)
For the Three Months
Ended March 31,
--------------------
1994 1993
---- ----
OPERATING ACTIVITIES:
Net income $ 4,479 $ 3,494
Adjustments to reconcile net income to net cash provided by operating activities--
Depreciation and amortization 4,617 4,440
Deferred taxes, net 704 (152)
Allowance for equity funds used during construction (387) (113)
Other, net (85) (375)
Changes in certain current assets and liabilities--
Receivables, net 15,175 2,570
Inventories 69 (2,614)
Payables (16,994) 430
Taxes accrued 3,454 1,785
Other (2,376) (1,604)
--------- --------
Net Cash Provided From Operating Activities 8,656 7,861
--------- --------
INVESTING ACTIVITIES:
Gross property additions (7,766) (6,246)
Other (916) (1,248)
--------- --------
Net Cash Used For Investing Activities (8,682) (7,494)
--------- --------
FINANCING ACTIVITIES:
Proceeds:
Pollution control bonds - 4,085
Other long-term debt 6,000 -
Retirements:
Pollution control bonds - (4,085)
Other long-term debt (198) (201)
Notes payable, net (1,000) 5,500
Payment of preferred stock dividends (387) (475)
Payment of common stock dividends (4,100) (4,500)
Miscellaneous (48) (18)
--------- --------
Cash Provided From (Used For) Financing Activities 267 306
--------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 241 673
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,915 1,788
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 4,156 $ 2,461
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (received) during the period for--
Interest (net of amount capitalized) $ 4,236 $ 3,258
Income taxes (refund) (155) 146
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
58
59
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
ASSETS
At March 31,
1994 At December 31,
(Unaudited) 1993
------------- ---------------
UTILITY PLANT:
Plant in service, at original cost $623,998 $622,521
Less accumulated provision for depreciation 255,299 251,565
-------- --------
368,699 370,956
Construction work in progress 55,354 49,797
-------- --------
Total 424,053 420,753
-------- --------
OTHER PROPERTY AND INVESTMENTS 1,792 1,793
-------- --------
CURRENT ASSETS:
Cash and cash equivalents 4,156 3,915
Receivables--
Customer accounts receivable 15,945 18,551
Other accounts and notes receivable 431 790
Affiliated companies 1,092 12,924
Accumulated provision for uncollectible accounts (732) (762)
Fuel cost under recovery 6,783 7,112
Fuel stock, at average cost 7,994 8,419
Materials and supplies, at average cost 9,714 9,358
Prepayments 5,752 4,849
-------- --------
Total 51,135 65,156
-------- --------
DEFERRED CHARGES:
Premium on reacquired debt, being amortized 3,668 3,792
Deferred charges related to income taxes 24,503 24,890
Miscellaneous 11,753 10,803
-------- --------
Total 39,924 39,485
-------- --------
TOTAL ASSETS $516,904 $527,187
======== ========
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
59
60
SAVANNAH ELECTRIC AND POWER COMPANY
CONDENSED BALANCE SHEETS
(Stated in Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
At March 31,
1994 At December 31,
(Unaudited) 1993
---------------- ----
CAPITALIZATION:
Common stock equity--
Common stock ($5 par value)-- authorized 16,000,000 shares;
outstanding 10,844,635 shares $ 54,223 $ 54,223
Paid-in capital 8,688 8,688
Additional minimum liability for under-funded pension obligations (2,121) (2,121)
Retained earnings 93,219 93,479
-------- --------
154,009 154,269
Preferred stock 35,000 35,000
Long-term debt 157,149 151,338
-------- --------
Total 346,158 340,607
-------- --------
CURRENT LIABILITIES:
Long-term debt due within one year 4,503 4,499
Notes payable 2,000 3,000
Accounts payable--
Affiliated companies 6,114 6,041
Other 6,152 24,401
Customer deposits 4,723 4,714
Taxes accrued--
Federal and state income 2,678 342
Other 2,305 1,187
Interest accrued 5,198 6,730
Vacation pay accrued 1,655 1,638
Pensions accrued 1,972 1,792
Work force reduction costs accrued 3,923 3,926
Miscellaneous 2,124 2,985
-------- --------
Total 43,347 61,255
-------- --------
DEFERRED CREDITS:
Accumulated deferred income taxes 67,952 66,947
Accumulated deferred investment tax credits 15,135 15,301
Deferred credits related to income taxes 25,922 26,173
Deferred compensation plans 6,328 6,117
Deferred under-funded accrued benefit obligation 5,870 5,855
Miscellaneous 6,192 4,932
-------- --------
Total 127,399 125,325
-------- --------
TOTAL CAPITALIZATION AND LIABILITIES $516,904 $527,187
======== ========
The accompanying notes as they relate to SAVANNAH are an integral part of these
condensed statements.
60
61
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
EARNINGS
SAVANNAH's net income after dividends on preferred stock for the first three
months of 1994 was $3.9 million, compared to $3.0 million in the corresponding
period of 1993. The increase in net income was primarily due to higher retail
revenues.
REVENUES
Revenues for the first quarter of 1994 increased, compared to the corresponding
period in 1993, due to higher retail energy sales. Energy sales to retail
customers increased 6.3% due to weather influences, an improving economy in
SAVANNAH's service territory and an increase in the number of customers served.
Wholesale energy sales to non-affiliated companies decreased, however, only the
capacity revenues of such sales have any measurable effect on earnings.
Capacity revenues fell $123,000.
EXPENSES
Fuel expenses during the first quarter of 1994 increased, compared to those
recorded in the first quarter of 1993, because generation almost tripled. The
change in generation was due to demand in SAVANNAH's service area and elsewhere
in the Southeast. Purchased power transactions among the affiliated companies
within the Southern electric system will vary from period to period depending
on demand and the availability and cost of generating resources at each
company. These transactions do not have a significant impact on earnings.
Despite recording approximately $0.6 million for SAVANNAH's portion of the
costs related to a workforce reduction program at the system service company,
other operation expenses decreased. This decrease reflects the savings
associated with SAVANNAH's workforce reduction program, which was implemented
in late 1993. Income taxes were higher because of the change in net income and
higher federal income tax rates.
The increases in interest on long-term debt and dividends on preferred
stock reflect the sale by SAVANNAH in 1993 of $45 million of first mortgage
bonds and $35 million of preferred stock.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
AFUDC represents the cost of capital charged to utility plant under
construction and is included in rate base. The equity portion of AFUDC
represents non-cash income. In addition, when facilities are completed and
included in rate base, previously capitalized amounts increase cash flow
because revenues are higher as a result of the increased rate base and
additional depreciation expense. The amount of AFUDC recorded has risen
because of SAVANNAH's investment in the construction of two 80 megawatt
combustion turbine peaking units. These units were placed in service in April
and May 1994.
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 ranging from regulatory matters to growth in energy sales.
61
62
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS (Continued)
Compliance costs related to the Clean Air Act will reduce earnings if such
increased costs cannot be offset. The Clean Air Act is discussed under
"Capital Requirements for Construction" in Item 7 - Management's Discussion and
Analysis in SAVANNAH's 1993 Annual Report on Form 10-K.
Future earnings in the near term will also depend upon growth in electric
sales which are subject to a number of factors. Traditionally, these factors
have included changes in contracts with neighboring utilities, energy
conservation practiced by customers, the elasticity of demand, weather,
competition, and the rate of economic growth in SAVANNAH's service area. The
enactment of the Energy Act will have a profound effect on the future of the
electric utility industry. A discussion of the potential impact of the Energy
Act and particularly its effect on competition is found under "Future Earnings
Potential" in Item 7 - Management's Discussion and Analysis in SAVANNAH's 1993
Annual Report on Form 10-K.
FINANCIAL CONDITION
OVERVIEW
During the first three months of 1994, SAVANNAH made gross property additions
to utility plant of $7.8 million. The funds for these additions and other
capital requirements came from an increase in long-term debt and from operating
activities, principally from earnings and noncash charges to income such as
depreciation. See the Condensed Statements of Cash Flows for further details.
CAPITAL REQUIREMENTS FOR CONSTRUCTION
SAVANNAH's construction program is budgeted at $98 million for the three years
1994 through 1996 ($33 million in 1994, $32 million in 1995 and $33 million in
1996). Actual construction costs may vary from this estimate because of such
factors as changes in environmental regulations; the cost and efficiency of
construction labor, equipment and materials; revised load projections and the
cost of capital. The largest project during this period is the addition of two
80 megawatt combustion turbine units, which were placed in service in April and
May 1994.
Changes in environmental regulations could substantially increase the
Southern electric system's capital requirements and operating costs. The acid
rain compliance provision of the Clean Air Act will have a significant impact
on the Southern electric system. This legislation, as well as other
legislation and regulations, are described under "Environmental Matters" in
Item 7 - Management's Discussion and Analysis in SAVANNAH's 1993 Annual Report
on Form 10-K. The full impact of these requirements cannot be determined at
this time, pending the development and implementation of applicable
regulations. There can be no assurance that compliance costs will be recovered
through corresponding increases in rates.
62
63
SAVANNAH ELECTRIC AND POWER COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION (Continued)
SOURCES OF CAPITAL
At March 31, 1994, SAVANNAH has $4.2 million in cash and cash equivalents and
$32.5 million of unused credit arrangements with banks to meet its short-term
cash needs. SAVANNAH had $2.0 million of short-term debt outstanding at
quarter-end. Additionally, SAVANNAH has $4.5 million of leases and first
mortgage bonds maturing by March 31, 1995. SAVANNAH has received the authority
from the SEC to have outstanding at any one time an amount of up to $70 million
in short-term borrowings.
It is anticipated that the funds required for construction and other
purposes, including compliance with environmental regulations, will be derived
from operations and the sale of additional first mortgage bonds and preferred
stock and capital contributions from SOUTHERN. SAVANNAH is required to meet
certain coverage requirements specified in its mortgage indenture and corporate
charter to issue new first mortgage bonds and preferred stock. SAVANNAH's
coverage ratios are sufficiently high to permit, at present interest rate
levels, any foreseeable security sales. The amount of securities which
SAVANNAH will be permitted to issue in the future will depend upon market
conditions and other factors prevailing at that time.
63
64
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
INDEX TO APPLICABLE NOTES TO
FINANCIAL STATEMENTS BY REGISTRANT
REGISTRANT APPLICABLE NOTES
SOUTHERN A, B, C, D, E, F, G, H, I, J, K
ALABAMA B, C, D, E, K
GEORGIA B, C, D, F, G, H, K
GULF B, I, K
MISSISSIPPI B, J
SAVANNAH K
64
65
THE SOUTHERN COMPANY AND SUBSIDIARY COMPANIES
ALABAMA POWER COMPANY
GEORGIA POWER COMPANY
GULF POWER COMPANY
MISSISSIPPI POWER COMPANY
SAVANNAH ELECTRIC AND POWER COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS:
(A) Reference is made to Item 3 - LEGAL PROCEEDINGS in the SOUTHERN system's
combined Annual Report on Form 10-K for the year ended December 31, 1993
for a description of the proceedings related to a derivative action filed
against certain current and former directors and officers of SOUTHERN. In
April 1994, the Court of Appeals reversed the dismissal and remanded the
case to the trial court, finding that allegations by the plaintiffs
created a reasonable doubt that the board validly exercised its business
judgment in refusing the earlier demand.
(B) Reference is made to Note 3 to each of the registrant's, except SAVANNAH,
notes to the financial statements in Item 8 in the SOUTHERN system's
combined 1993 Annual Report on Form 10-K for a discussion of the hearings
ordered by the FERC regarding the reasonableness of the return on common
equity on certain of the Southern electric system's wholesale rate
schedules and contracts and, in the case of GULF, FERC proceedings
regarding recovery of certain coal contract buyout costs. On April 13,
1994, the FERC approved GULF's Offer of Settlement regarding the return of
certain of its fuel contract buyout costs previously refunded to wholesale
customers. GULF recorded in 1993 the reversal of the $2.7 million refund
arising from this issue. The interest due GULF will not be material to
GULF's financial statements.
(C) Depreciation expense includes a provision for the expected costs of
decommissioning nuclear facilities. As approved by the respective public
service commissions, annual provisions for nuclear decommissioning are
based on an annuity (sinking fund) method, with deposits made each year to
external trust funds. Additionally, the amounts previously recorded in
internal reserves are being transferred into the external trust funds over
a set period of time. It is expected that --over time-- the deposits and
earnings of the trust funds will provide sufficient amounts to
decontaminate nuclear facilities. The estimated costs of decommissioning
and the amounts being
65
66
NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued)
recovered through rates at December 31, 1993, for ALABAMA's Plant Farley
and GEORGIA's plants Hatch and Vogtle -- based on its ownership interest
-- were as follows:
PLANT FARLEY PLANT HATCH PLANT VOGTLE
Site study basis (year) 1993 1990 1990
Decommissioning Periods (years) 2017-2029 2014-2027 2027-2037
(in millions)
Site Study Costs:
Radiated structures $ 409 $ 184 $ 155
Non-radiated structures 75 35 62
Other 94 55 54
--------------------------------------------------------------------------------------------------------
Total $ 578 $ 274 $ 271
========================================================================================================
Costs approved for ratemaking $ 578 $ 184 $ 155
Annual expense (1994) 18 6 6
Balance in external trust funds $ 50 $ 22 $ 16
Balance in internal reserve 53 33 11
--------------------------------------------------------------------------------------------------------
Total Accumulated Provision $ 103 $ 55 $ 27
========================================================================================================
Estimated ultimate costs:
Assumed inflation rate 4.50% 4.40% 4.40%
Assumed trust earnings rate (net of tax) 7.00% 6.00% 6.00%
(in millions)
Radiated structures $ 1,258 $ 585 $ 803
Non-radiated structures 231 111 321
Other 289 176 281
--------------------------------------------------------------------------------------------------------
Total $ 1,778 $ 872 $ 1,405
========================================================================================================
The actual decommissioning cost may vary from the above estimates
because of regulatory requirements, changes in technology, and increased
costs of labor, materials, and equipment. The decommissioning cost
estimates are based on prompt dismantlement and removal of the plant from
service. The estimates approved by the Georgia PSC for ratemaking exclude
costs of non-radiated structures of $35 million for Plant Hatch and $62
million for Plant Vogtle and site contingency costs of $55 million for
Plant Hatch and $54 million for Plant Vogtle. GEORGIA expects the Georgia
PSC to periodically review and adjust, if necessary, the amounts collected
in rates for the anticipated cost of decommissioning.
(D) For information regarding nuclear insurance reference is made to Notes 13,
11 and 4 to the financial statements of SOUTHERN, ALABAMA and GEORGIA,
respectively, in Item 8 in the SOUTHERN system's combined 1993 Annual
Report on Form 10-K. Had ALABAMA and GEORGIA terminated their insurance
coverages with NML as of December 31, 1993, they would have had a
contingent right to receive amounts with present values of approximately
$16 million
66
67
NOTES TO FINANCIAL STATEMENTS: (Continued)
and $11 million, respectively, payable over a twenty-year period
commencing in 1996. Any unpaid amounts, however, are subject to
forfeiture in the event that NML's aggregate losses in any subsequent
two-year period exceed $300 million or fifty percent of its surplus. The
accounting for any such amounts actually received would be subject to
regulatory treatment.
(E) Reference is made to Note 3 to the financial statements of SOUTHERN and
ALABAMA in Item 8 of the SOUTHERN system's combined 1993 Annual Report on
Form 10-K for information with respect to a civil complaint filed
regarding ALABAMA's financing of heat pumps and other merchandise.
(F) Pursuant to orders from the Georgia PSC, GEORGIA deferred financing and
depreciation costs under phase-in plans for Plant Vogtle units 1 and 2
until the allowed investment was fully reflected in rates as of October
1991. In addition, the Georgia PSC issued two separate accounting orders
that required GEORGIA to defer substantially all operating and financing
costs related to bGeorgiatPSCnorderstprovidesfordrecoveryhofedeferred
costs within 10 years. The Georgia PSC also ordered GEORGIA to levelize
declining capacity buyback expense from the co-owners of the plant over a
six-year period beginning October 1991. The unamortized balance of these
deferred costs at March 31, 1994, was $494 million.
(G) Reference is made to Note 4 to the financial statements of SOUTHERN and
GEORGIA, in Item 8 of the SOUTHERN system's combined 1993 Annual Report on
Form 10-K for information concerning the uncertainty related to the
actions of regulatory authorities with respect to the recovery of costs of
the Rocky Mountain pumped storage hydroelectric project and preliminary
discussions between GEORGIA and other parties regarding the potential sale
of GEORGIA's remaining interest in the Rocky Mountain project. The
ultimate outcome of this matter cannot be determined at this time.
(H) In October 1993, a Superior Court of Fulton County, Georgia, judge ruled
that rate riders previously approved by the Georgia PSC for recovery of
GEORGIA's costs incurred in connection with demand-side conservation
programs were unlawful. The judge held that the Georgia PSC lacked
statutory authority to approve such rate riders except through general
rate case proceedings and that those procedures had not been followed.
GEORGIA has suspended collection of the demand-side conservation costs and
appealed the court's decision to the Georgia Court of Appeals. In
December 1993, the Georgia PSC approved GEORGIA's request for an
accounting order allowing GEORGIA to defer all current unrecovered and
future costs related to those programs until the court's decision is
reversed or until the next general rate case proceeding. An association
of industrial customers has filed a petition for review of such accounting
order in the Superior Court of Fulton County, Georgia. GEORGIA's costs
related to these conservation programs through March 1994 were $79 million
of which $15 million has been collected and the remainder deferred. The
estimated costs, assuming no change in the programs certified by the
Georgia PSC, are $38 million in 1994 and $40 million in 1995.
67
68
NOTES TO CONDENSED FINANCIAL STATEMENTS: (Continued)
The final outcome of this matter cannot now be determined; however, in
management's opinion, the final outcome will not have a material adverse
effect on SOUTHERN's or GEORGIA's Condensed Financial Statements.
(I) In August 1993, a complaint against GULF and SCS was filed in federal
district court in Ohio by two companies with which GULF has contracted for
the transportation by barge of certain of GULF's coal supplies. The
complaint alleges breach of the contract by GULF and seeks damages
estimated by the plaintiffs to be in excess of $85 million.
While the final outcome of this matter cannot now be determined, in the
opinion of management it will not have a material adverse effect on
SOUTHERN's or GULF's Condensed Financial Statements.
(J) In September 1993, MISSISSIPPI filed a $3.6-million wholesale rate
increase request with the FERC. Prior to this filing, MISSISSIPPI
conferred and negotiated a settlement with all its wholesale requirements
customers, who have executed and filed a Settlement Agreement and
Certificates of Concurrence with the FERC. In March 1994, the FERC
notified MISSISSIPPI that it has accepted the wholesale rate increase as
filed effective April 1994.
(K) During the first quarter of 1994, GEORGIA and SCS, the system service
company, instituted workforce reduction programs. The costs related to
these programs amounted to approximately $72.6 million for GEORGIA and
$22.3 million for SCS. The costs of the SCS workforce reduction program
were apportioned among the various entities that together form the
Southern electric system. Additionally, SAVANNAH instituted a workforce
reduction program in late 1993 and incurred related charges of
approximately $4.5 million.
68
69
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
(1) Reference is made to the Notes to Condensed Financial
Statements herein for information regarding certain legal
and administrative proceedings in which SOUTHERN and its
reporting subsidiaries are involved.
(2) In May 1994, GEORGIA received a notice of violation from the
NRC proposing a civil penalty in the amount of $200,000
based upon allegedly inaccurate and incomplete information
relating to Plant Vogtle reported to the NRC in 1990. The
NRC also issued demands for information regarding alleged
performance failures by six individual employees to enable
the NRC to determine whether additional enforcement actions
are necessary. GEORGIA has not yet determined its response
to the NRC.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit 24 - Powers of Attorney and resolutions.
(Designated in the SOUTHERN system's combined Form 10-K for
the year ended December 31, 1993, File Nos. 1-3526, 1-3164,
1-6468, 0-2429, 0-6849 and 1-5072 as Exhibits 24(a), 24(b),
24(c), 24(d), 24(e) and 24(f), respectively, and
incorporated herein by reference.)
(b) Reports on Form 8-K.
During the first quarter of 1994, each of the registrants
filed a Form 8-K dated February 16, 1994, whereby their
respective audited financial statements as of December 31,
1993, were made a part of the public record. Additionally,
during the first quarter of 1994, the following registrants
filed Form 8-K's that in each case facilitated a security
sale:
Registrant Date of Report
---------- --------------
SOUTHERN January 26, 1994
MISSISSIPPI March 8, 1994
69
70
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 Edward L. Addison
Chairman
(Principal Executive Officer)
By W. L. Westbrook
Financial Vice President
(Principal Financial and
Accounting Officer)
By /s/ Wayne Boston
--------------------------------
(Wayne Boston, Attorney-in-fact)
Date: May 12, 1994
- --------------------------------------------------------------------------------
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 Elmer B. Harris, President and Chief
Executive Officer
By William B. Hutchins, III, Executive Vice President
(Principal Financial Officer)
By /s/ Wayne Boston
--------------------------------
(Wayne Boston, Attorney-in-fact)
Date: May 12, 1994
70
71
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 H. Allen Franklin
President and Chief Executive Officer
(Principal Executive Officer)
By Warren Y. Jobe
Executive Vice President, Treasurer and Chief Financial Officer
(Principal Financial Officer)
By /s/ Wayne Boston
--------------------------------
(Wayne Boston, Attorney-in-fact)
Date: May 12, 1994
- --------------------------------------------------------------------------------
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 Travis J. Bowden, President and Chief Executive Officer
By A. E. Scarbrough, Vice President - Finance
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
--------------------------------
(Wayne Boston, Attorney-in-fact)
Date: May 12, 1994
71
72
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 David M. Ratcliffe, President and Chief Executive Officer
By Thomas A. Fanning, Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
-------------------------------
(Wayne Boston, Attorney-in-fact)
Date: May 12, 1994
- --------------------------------------------------------------------------------
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 Arthur M. Gignilliat, Jr., President
By Kirby R. Willis, Vice President, Treasurer and Chief Financial
Officer
(Principal Financial and Accounting Officer)
By /s/ Wayne Boston
--------------------------------
(Wayne Boston, Attorney-in-fact)
Date: May 12, 1994
72