0CAN048904, Arkansas Power & Light Co Annual Rept,1988
| ML20244B291 | |
| Person / Time | |
|---|---|
| Site: | Arkansas Nuclear  |
| Issue date: | 12/31/1988 |
| From: | James D, Maulden J ARKANSAS POWER & LIGHT CO. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| References | |
| 0CAN048904, CAN48904, NUDOCS 8904190107 | |
| Download: ML20244B291 (53) | |
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->i PERFORMANCE HIGHLIGHTS (Note 1)
, Arkam.o Puur & light Corrywry i
.h -
- % Increase /
1988 1987 -(decrease) Total operating revenues (millions) $1,357 $1,405 (3.4) Operation and maintenance expenses (millions) - $1,114 ' $1,14^ (2.5) Allowance for funds used during construction (millions) $ 11 $ 10 10.0
.> L Net income (millions) . $ 131 $ 141 , (7.1)
Capitalization - end ofyear (millions) ' $2,499 -- $2,454 1.8
~ Ccmstruction expenditures (millions) $ 136 $ 137 (0.7);
Total utility plant -- at year-end (millions) $4,134 $4,077 1.4 - Electric customers-at ycar-end - 589,921 577,175 2.2 Gas customers-at year-end - - 62,673 *
' Energy sales to retail customers:-
, Electric (million kwh) - 14,345 13,892 3.3 Natural gas (milliori cubic feet) - 8,523 *
' Employees - at year-end 4,673 4,848 (3.6)
Peak demand (megawatts) . 3,893 3,860 0.9 I
-+ Average residential use per customer (kwh) _
10,229 10,284 (0.5) , Average commercial use per customer (kwh) 57,478 57,564 (0.1) { Average residential use per customer (mcf) - - 83 Average commercial use per customer (mcf) - 309
- See Note 1 to the financialStatements " Summary ofSignificant Accounting Policies *forinformation on the disposition ofANG 1
_ _m. _ . _ _ . _ _
t, .,- CONTENTS
. insidefront Performance Arkansas The red Ili 8hlish" Power & Light Company's Systemark willidentify all f ^c3Na,,, s 7,,,,,
new logo, shown emerging the companies of the Middle 4 19ss in summary on the cover of this report, South Electnc System. 6 afecting the chat- symbolizes a fresh start and a Reminiscent of sunlight lenge of Change new performance-driven reflected in the water, the 13 Report of Afanage- outlook for our Company. Systemark stands for mr lts red "Systemark" identi- energy- the business we are Chairman's Letter fies us as a member of the in; the Mississippi River--an is afanagement>, Middle South Electric historic, cultural and eco-Anancial System, one of the nation's nomiclink for the Middle Discussion largest investor-owned South region; and team-
'" electric utilities. Its clean work- historically and is n .",Ic^iat starements 22 Notes to anancial lines suggest the lean, economically linked, our statemenu modern, customer-oriented companies work together to 40 Abbreviations and organization we are today. provide electricity to the re"n' AP&L's Middle South.
3[ g ,,,,,,
#"#'g'"#'"' parent company,Middie We hope that, stockholde, South Utilities,is proposing over time,our new logo will Information to change its name to symbolize for you,too, a 42 Eleven Years of "Entergy Corporation"-a well-run organization Progre55 name derived from the committed to providing
# efficient, economical electric j #
gf"f ,lD',"f'"" g words
- energy," " enter p,,fjf, pnse and synergy. ,'l,hese service.
Inside back Compa sy are qualities that describe our Description response to the competitive marketplace the electric utility industry is entering. The name change is contin-gent upon stockholder approval at the annual meeting May 19. l l W 1 ~_~ l f
CHAIRMAN'S LETTER Adam /Wr 6 Lght Commy The new applied to construction and covering costs associated competitive marketplace operation and maintenance with Grand Gulf 1, and a developing for our industry costs throughout the change in financial account. I is providing an exciting Company. At the same time, ing standards that threatened impetus forpursuit of our revenues received from our phase-in plan for Grand corporate mission:"To residential, contmercial and Gulf 1. I am pleased to be become and be widely industrialcustomers able to report that these , recognized as a customer- increased $%A millionin issues were handled success- l oriented, socially respon- 1988, a four percent increase fully in 1988.The high court sible, financially strong, over 1987. affirmed MississippiPower 1 successful competitorin the But at the & Light Company's right, ! evolving electric energy same time, other pressures and thereby the System's, to business." resulted in net income for recover, through retail rates, The basic 1988 of $131.1 million, a the federally allocated costs direction of your Company decrease of 7.1 percent from associated with our alloca-to accomphsh these objec- 1987. (See Management's tion of Grand Gulf 1. Later, f tives continues to be Financial Discussion and we were able to update with Q grounded in the strategy of Analysis for key factors.) the Arkansas Public Service striving for improved The Team- Commission (APSC) our operating efficiencies, work Arkansas / Missouri phase-in plan to meet the , i innovative marketing and program- pursued aggres- Financial Accounting customer " bridge-buikimg." sively at the state, national Standards Board's (FASB) Our strategy and internationallevels-has requirements. is working. quickly established itself as We're a one of the most comprehen- WORKING AS ATEAM leaner, more customer- sive economic development Working as a focused Company than we programs of any utility in the team with our parent were just three years ago. United States.The results Company, Middle South Our aggressive cost control within our service territory Utilities,Inc., the System j programs and expanded back this up: since the achieved a sale / leaseback of a marketing efforts have been program began,71 new portion of Grand Gulf 1 in key factors in our ability to plants have been announced, 1988 that improves financial continue to avoid a general along with 140 expansions, performance and reduces rate increase and to maintain helping to create 8,508 new costs to our customers. i a stable financial perform- manufacturing jobs. We're working with MSU ; ance in 1988. Stringent budg The bottom and our sister companies to etary restraints are being line *o our stockholders, achieve a consolidation of employees and customers is the operation of our nuclear that our industrial sales of units. We estimate savings electricity have increased 8 will result from this consoli-percent in 1988. dation. In last year's As you review report we identified two the pages of this report,I major uncertainties: an an- think you'll recognize that ticipated United States Su- your Company is keenly preme Court decision on re- aware of our changing com-petitive marketplace.Our focus is where it must be:
- Cost control
- Marketing
- Energizing our employees
- Improving relations with customers and regulators.
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yq vm "IT NEW LOGO SYMBOL OF NEW ERA. the initiative in antifving Louisiana Power & Light , f i[z
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ANDE Elsewhere in thousands of needed projects and bringing them to reality. Company and New Orleans Public Service Inc. He will this report we' reintroduced That's the help provide the kind of di-4*J -[f)l you to our new logo.We want the new logo to say that type of totally committed company we are and will rection and leadership needed to lead us into this - f~"_ we recognize that the electric continue to be.Far an exciting r.ew world of E. utility industry of the 1990s electric utility of today, expanding electric energy J- will be much different than it being a good business and a opportunities. is today, and we want to be good neighbor are insepa- Our vision is N ff recognized as a company rable. clear, our team is in place and ( j [p , that is customer-oriented, uses the most advanced To help us achieve our goals I'm we are well on the way to meeting the goals we have set t technology that is avai!able honored to be able to for AP&L and the people we i p and justified, and is prepared introduce our new president. serve. fg for the challenges presented He is R. Drake Keith, who
"@ by the unprecedented assumed his new duties as l_ 'j changes occurring in our AP&L president and chief [ '
[q industry, operating officer onJanuary Jeny L Maulden id - ~ l might add 1.(See President Profile, Chairman and Chief Executive Officer that our focus on being page 48.)I'll remain as chief Jerry L Maulden " customer-oriented" goes executive officer and far beyond just keeping the chairman of the board and lights on.When a heavy willbe taking on additional snowstorm paralyzed our duries as the Middle South senice area inJanuary 1988, Electric System's senior vice our Customer Services president and system Department employees executive for the newly i To accom- assisted more than 1,000 created Arkansas / Missis-plish the above objectives we elderly and handicapped sippi/ Missouri Division. have developed a business customers by shoveling Keith has had plan that clearly defines areas snow from doorways, a distinguished career at of responsibility, focus and delivering goods and Oklahoma Gas & Electric expectations for achieving medicine, transporting Company, as well as MSU what we call our Sustaining people to doctors and and our sister companies of Priorities. It is a more hospitals, and aiding formalized version of a stranded motorists. bedrock effort we know very We also well, havinglived with it for conducted " Care Clinics" the last three years. for elderly ci ans, provid-We are well ing medical su .ening to on the way to making our needy people who might not vision a reality. otherwise have sought medical attention. Employ-ces throughout the System formed " Kilowatt Klubs"in their communities to take 3
e
,1 1988 IN
SUMMARY
A4nnw Mer & [qhs Company June 1 Performance at The sale of Arkansas Nuclear One AP&L subsidiary Assoct continues to improve. ated Natural Gas Company, as required by the Securities and Exchange Commission January 12 (SEC),to Southwestern - 3 ' The first Energy Company is com- 4 issue of Teamwork,a quarterly AP&L magazine pleted. June 2 i ~ ND the Union's proposal to about jobs and economic de. otend the current collective AP&L br rgaining contracts until velopmentin Arkansas,is mailed to 7,000 of the state's ann unces the resuhs of the June 1,1989, ending several first year ofits Teamwork months of negotiations leaders. Arkansas / Missouri eco- July 1 between the IBEW and February 1 nomic development pro- An0.8 AP&L. The Genera- gram: industrial sales of percent rate increase goes tion, Engineering & Trans- electricity are up 8 percent into effect to collect revenues August 16 mission Department is and announcements of new deferred under an excess Demand on reorganized to establish plants and expansions in capacity adjustment that the AP&L system reaches Nuclear Operations and AP&L's service area will went into effect in Septem_ 3,893 megawatts, the highest Fossil Plant / Transmission mean 4,330 new jobs. ber 1985. point in seven years and Operations as separate major surpassing the 1987 peak of Junes July 6 departments. 3,860 megawatts. Major The Arkansas March 1 transmission line goes into NAACP Fair Share Office August 18 Michael B. service across the Mississippi honors AP&L for $17 The Institute Bemis is promoted to River to connect AP&L and million in purchases from of Nuclear Power Opera-executive vice president of Tennessee Valley Authority minority businesses over the tions (INPO) evaluates operation: and Lee W. systems near Osceola, preceding three years. Arkansas Nuclear One and Randall becomes senior vice providing new opportunities places its overall perform-July 27 president for finance and for exchange of power and ance at a category "2"("1"is AP&LBoard highest possible on a scale of administration and chief improving service reliability. f Directors authorizes financial officer. 1-5). Performance continues June 13 Company to proceed' to improve at ANO. March 12 AP&L subject to regulatory AP&L anc ,unces the awarding of authorization, with plans to August 1g sponsors the first in a series nine $1,500 college scholar- redeem, purchase or other- Parties to the of health clinics for older ships to students who agree wise acquire up to $200 1985 Grand Gulf 1 Settle-Arkansans at Hot Springs- to teach math and science in million in first mortgage ment Agreement file an Arkansas public schools for bonds, up to $165 million in amendment to the agree-March 18 three years after graduation. Pollution Control Revenue ment with the APSC in Thirty-five B nd8 and uP to $91 million order to comply with the AP&L crews work in heavy, June 24 in preferred stock ahead of provismn of an accounting deep snow to restore power U. S. Supreme in North Arkansas, follow- schedule to saveinterest and standard requmng a 10-year Court upholds MP&L's phase-m plan providmg for ing a 22-inch snowfall- dividend costs. right to recover in fullits collection of alldeferred May 9 federally allocated Grand August 5 costs by 1999. Plans are Gulf 1-related costs, remov- The member-ing a major financialcloud ship of the four locals of the september s announced for System that could have affected International Brotherhood Remmel Dam Energy to assume operating other operating companies in of Electrical Workers ratifies hydroelectric station and its responsibility for all of the the Middle South Electric employees are honored for Middle South Electric System. completmg 35 years without System's nuclear generating a 1 st-time mjury, the plants, including AP&L's I ngest safety rec rd of all Arkansas Nuclear One. generating units in the System. 4
w. [e g. y :b 5 6E / i' g September 15 .- APRL completes a successful three- . month test burn of Arkansas lignite at the White Bluff Steam Electric StaJon to de-termine ifit can be blended with low-sulphur Wyoming coal as fuel for the plant.The next step is a long-term contract,if the price is right. September 20 The Nuclear Regulatory Commission (NRC)gives Arkansas Nuclear One good ratings in its latest evaluation of plant pedormance covering an 18-month period. Of the seven areas that were evaluated, ANO ratings are three "1"s and four "2"s, our best as-sessment ever by NRC. (A October 12 November 11 Journeyman Lineman "1" is the highest rating.) AP&L begins AP&L Richie Gray of Cabot makes an emergency Septemt sr20 using Radio Help decals on celebrates its 75th birthday radio call to assist a MSU pro _ radio-equipped Company with cake-cuttmg cerem - motorist. use of poses s tic / leaseback of part vehicles to alert individuals nies and a variety of commu- gao,o ne/p decals on of Grai.d Gulf 1 that could in need of assistance that the nity service projects, all ob- radio-equipped vehicle operator will radio serving the Company's Company vehicles provide savW " for custom-began m October. ers in the first year. for emergency help. founding on November 11, 1913. September 30 October 25 The MSU AP&L Oecember1 Board of Directors declares a completes the implementa- AP&L quarterly stock dividend of tion of a new computerized awards 100 challenge grants 20 cents per share, payable customer information of $500 each to public on December 1,the first system that will allow the schools in its service area Oecember 28 Company to further during December to finance MSU an-MSU dividend in more than improve service to its ap- academic improvements. nounces that System Energy three years. proximately 600,000 cus_ has completed a sale and October 6 December 14 leaseback arrangement of an tomers. APSC Jerry L. approximate 11.5 percent approves amendment to the October 2s Maulden is elected to the ownership interest in the 1985 Grand Gulf 1 Settle. Ten mathe- new position of chairman of Grand Gulf I nuclear unit. ment Agreement that will matics and science teachers the Board of AP&Lin phase in AP&L's share of are named 1988 Outstanding addition to chief executive I Grand Gulf 1-related costs Teachers of the Year by officer, and R. Drake Keith is l in compliance with FASB re_ AP&L at a dinner at Little elected AP&L president, quirements. Rock. Each receives $500 chief operating officer and a and a plaque. member of the Board of October 7
. Directors.The changes are Filings are effectiveJanuary 1,1989.
made with the APSC and the SEC seeking approval for System Energy to operate all nuclear power plants in the System. 5
a j MEETING THE CHALLENGE OF CHANGE Arkanuu 1%w & Lsght Compens
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CHANGE ~4 The winds of p g i competitive change are b,aN[.: w- -g- i ;: }. da. blowing toward the electric utility industry, posing some p i h%
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'I' ties. No utility knows just how extensive these changes ,
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destined to become our daily n j ., , compamon and coping with y - 4 . ig ; g!F 1 it successfully our highest ( , priority.However, AP&L is ,ei - T ii ,- positioning itself, within the
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Question: ~~ ~~
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AP&L taking to better " explain its position and strengthen ties with local, iP f state and federal government ' officials) . l p Paul Means (from left). manager of legislative research, Jim Pickens. director of external relations: Cecil L Alexai' der, vice president for public affairs. and Kay K lley Arnoid, director of federal governmental relations. form the AP&L team working to position and strengthen ties with regulatory officials. 6
g . , . Ans:ter: Answer: Answer: The APSC In 1988, During 1988, One good and the Public Service AP&L created two new AP&L operated with a work example is the down-to- Commission of Missouri public affairspositions and forcereduced by 553 earth mannerin which all recognize that we face some staffed them with career positions, at an annual parties to the original 1985 problems that were not of professionals: a director of savings in salary of approxi- Grand Gulf Settlement ourcreation and they have federal governmental mately $19 million. Agreement cooperatively been receptive to various relations and a manager of adapted the phase-in plan for proposals to solve them Quesen-state and federallegislative Grand Gulf to meet the 10- while protecting theinterests How would research.They will work year phase-m requirements ofcustomers, you describe today's star. with both the Arkansas imposed by the FASB's regulatory environment? . Question-- General Assembly and Statement of Fm.ancial Ac- . Answer. counting Standards No. 92. How is elected officials at the A much The originalplan had AP&L handling the poten-Washington level. calmer atmosphere now extended beyond the 10-year tialI ss f certain mdustrial Question:
. prevails,providing an period for recovering cust mcrs t c generation?
What is orderly work place for deferred costs and had to be Answer: AP&L doing to improveits interveners, utilities and
, amended in order to comply Some position in the regulatory APSC staff members and with the accounting stan- industries have legitimate arena-commissioners. Allinterests dard. Anotherexampleis the cogeneration potential,but Antwer, are better served now that cooperative way certain most don't really want to be Firstof all, utility issues can be discussed wholesale customers and the in the business oigenerating AP&L Chairman and CEO and resolved in an atmos- Company reached an electricityif thereisanother Jerry L.Maulden has phere of professional agreement in the wholesale way to obtainlower cost challenged every employee cooperation based on mutual formula rate dispute which electric service.There are to " work smarter" and find trust and respect. had been filed with the risks in cogeneration. AP&L ways to avoid the necessity Federal Energy Regulatory can offerincentive rates that Question. '
of filing forany retailrate How has this Commission (FERC)for bring theindustry the increases, apart from the improved regulatory approval, thereby avoiding economies of cogener tion, Grand Gulf Settlement atmospherehelped AP&L? the expense and delay of a without the risks. In addition Agreement, until at least the rate case. to special contract negotia-early 1990s.The APSC is tions, including precision wellaware of AP&L's recent work force reductions and cost curtailm:nt programs l .. 9 * ,. that have made it possible to ', 2 g "y: '
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What has been the result of AP&L's
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,. 9 MEETING THE CHALLENGE OF CHANGE Arkam Pow & bght Compay COMPANY ENTERS A MORE STABLE emphasizes increased in August of 1987 and MSU, FINANCIAL PERIOD ef[ iency and productivity in turn, resumed common The U.S. by " wor' king smarter," and dividend payments to its Supreme Court ruling of the resuhs are evident in a stockholders on December June 24,1988, relatmg to the much improved financial 1,1988.
Grand Gulf 1 issue under- situation. pricing,the Company can se red the wisdomof the Question: offer the option afinstalling 1985 Grand Gulf Settlement Question: There is a lot cogeneration facilities at the Agreement among the , Have Com- of talk about _ cost curtail-customer's site in the future, Arkansas parties to the case pany mvestment ratmgs ment. 4 hat are some of the when it is mutually advanta- and ushered in an era of 'mproved ? thmgs AP&L is doing to cut geous.The Company also financialstability for AP&L Answer-
' ***?
has a standby rate to recover and its parent company. Yes. In 1988 Answer: the costs of back-up, Cost-conscious work there was a reversal of the Guidelines maintenance and supple. practices throughout the low investment firm ratings callfor holding 1989 and mental power to cogenera. Company have enabled its of the last several years, with 1990 budgets at 1988 levels. tors. AP&L now has streamhned work force to Moody's and Duff & Phelps* In addition, several major interconnection guidelines fulfillits promise to hold the ratings improving to cost-saving actions occurred for non-utility generators line on rate increases. At the Investment Grade. during 1988: a total of $13.8 which allow the proper inte- same time aggressive market-Question: million in high-cost pre-gration of cogenerators, ing efforts and a revitalized ferred stock was retired; the
%' hat is small-power producers, etc., ec n micdesclopment ,
System Energy sale and i d into the utility grid. Program are boostmg leaseback of a portion of kilowatt hour sales to retail to paying dividends? Quesuon: Grand Gulf I willbenefit customers while creating Anwer. Grand Gulf customers, E,nviron-new jobs and improving the AP&L was including AP&L,through mental protection is very Company's public image. able to resur e common reduced rates, about $40 important to Arkansas. All employees are involved dividend pay nents to MSU million the first year and V hat is AP&L doing about n the new " culture" that this aspect of the regulatory $150 million over thelife of the unit;long-term savings P '*" ,, ., . , on nuclear fuel costs were Answer: , assured by establishment of a AP&L's , . new nuclear fuellease; use of operations are carefully monitored to ensure ' ' . ' {g ' compliance with require-ments of the NRC, the Envi- ' ronmental Protection ' IL Agency, the Arkansas ui * [lp N'-
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Department of Pollution . f David M. Eldridge Control & Ecology and (les director of eco-other state agencies with en- - d la r$' p[r$e'. s vironmental protection re- . r,
- president of white sponsibilities. Arkansas .
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' [' consolidated i Nuclear One on Dardanelle , ^g Industries of conway !
Reservoir has been moni- "i i tored for yeais and remains a 4
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" good neighbor." Our coal discuss AP&L's units at White Bluff and in- -- Teamwork Arkansas /
dependence were specifically , Missouri. an , designed to use low sulfur - - aggressive, worldwide ; [jg[gg['7 coal from Wyoming as the , pnmary fuel,chmmatmg the pressive results in ; need for expensive scrub- rew jobs and in-bers. '. creased megawatt 4 hour sales. 8 I
record and is estimated to ultimately result in savings to the System and AP&L. Question: What is I g AP&L doing to lower the M f, cost of one of its major
, C expenses, fuel?
Answer: Changing
%3 requirements for power AP& e plant fuels have focused
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attenuon on wavs to lower fuel costs. One approach is to help develop the coalin-dustry in Arkansas to offset the higher transportation This team from zation to sellup to $270 mately 400 Wal-Mart stores costs of Wyoming coal. McClellart High School million in first mortgage of average size. Community Successful test burnings of bonds, subject to approval of development sets the stage Arkansas lignite have been rfrYot stu ents for mdustrial recruitment made at the White Bluff coal participatedin 1988 in the specific terms of each the AP&L-sponsored series.When issued, the pro- and AP&L conducted 31 plant and are being evalu-Executive Business ceeds will be used to reduce community assessments to ated. Also, liquid hydrocar-Game, part of the high-cost securities, finance identify strong and weak bor.s will be extracted from Grand Gulf I deferrals and points,44 industrial team the present hicKamic gas h#m r bn to , trammg semmars and 11 education. for other corporate pur- supply for the Couch Station poses. All regulatory leadership training seminars, in south Arkansas and sold at authorization has not lveen sod presented 55 project- profitable market prices.The received for the issuar.cc of specific community develop- extraction plant will pur-up to $150 million d ment grants totaling $85,640- chase additional area gas, preferred stock. AP&L industrial recruit- extract the hydrocarbons, ment efforts alone resulted in and the additioi.at low Btu ansuon: advanced computer technol- 111 decidons for new or gas will be available to burn The Com- , ogy reduced AP&L's com- expan ; mdustnal activity, at the Couch Station at a pany's Teamwork Arkansas / puterized information and the success has generated relatively low cost.The hiissouricommunity and services costs by more than widespread mterest. Company is also negotiating economic development $1.4 million; and better m' f r and purchasingits own program has received a lot of Question: ventory recovery efforts favorable media attention, What is the coal and gas supplies, which totaled savmgs of $.8 milh. on. financialsignificanceof the were previously purchased but how successful has it proposed consolidation of through System Fuels,Inc. Question been? What is the hiSU nuclear operations? Answer ORGANIZING TO SHARPEN OUR prospect for addm. .onal gpgg,s Answer: COMPETITIVE EDGE fmancing for various hiarketingDepartment This focused With long-corporate purposes? initiated the program in 1987 management approach for term nuclear and coal fuel and the results during 1988 AP&L's Arkansas Nuclear sources assured and major Answer; In 1988 the alone areimpressive.The One, LP&L's Waterford 3, power plant construction Company received authority program helped create 4,330 and System Energy's Grand completed, the Company new jobs, bringing the Gulf I generating stations has been shifting from a from the AP&L Board of Directors for issuance of program total to 8,508, and will aid cost-effective " construction mode" to an additioni first mortgage increased megawatt hour operations, improve an " operating mode" to bonds and preferred stock sales to 396,029, or approxi- already excellent safety through February 28,1991. mately 75 megawatts of new The Company has received load.This represents enough general regulatory authori- electricity to serve approxi-9
i a f MEETING THE CHALLlNGE OF CHANGE w, sw i+ cu nu,,, Ans m Ans a tractor bids. It also will offer As an MSU The new CIS employees more opportuni- , senior vice president and capitalizes on improvements ties for mobility and career l system executive, Maulden ,si m computer technology t advancement within the I responsible for not only allow instantaneous access t System. AP&L,but the Arkansas / information about service capitalize on opportunities Mississippi / Missouri orders, billing activity, Question: presented by the new Division of MSU. Maulden's accounts receivable, credit What are competitive era that is successor as president, R. and collection activities, and some other organizational reshaping todav's utility Drake Keith,53, was execu- other services with only a changes that have been made environment.E more ~ tive vice president of few computer key strokes. A to improve efficiency and cut streamlined, responsive, Louisiana Power & Light customer's bili can now be costs? customer-sensitive organiza- Company and New Orleans updated on the spot at any Answer tion is being forged to meet Public Service Inc. He is a AP&L business office. CIS is The Genera-the challenge of competition, multi-talented executive designed to be easily tion, Transmission & while maintaining the high who was elected president upgraded in the future to Engineering Department quality of customer service and chief operating officer of avoid obsolescence. was divided into two for which the company is AP&L on December 14, perating departments-Question.' noted. 1988. (See President Profile, Nuclear Operations and What is the Question: PY organizational significance Fossil Production & What is the Question: of the proposed consolida- Transmission-and all significance of former How does the tion of MSU nuclear diagnostic and testing presidentJerry L. Maulden's new Customer Information operations? functions were combined, elevation to AP&L chairman System (CIS) implemented with cross-training of
^"*" technicians in all testing
..nd CEO and his new in 1988 improve customer ^, wd. l responsibilities as an MSU service over the old com- . methodologies; worF force share m. the benefits of the system executive? puter system? streamlining in the transmis-focused operations approach sion area alone has reduced because it wdl streamhne the evels of management System s total nuclear or-between the president and
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ganization of more than foreman to h.ve, down from 3,000 people, elu.ninate g; , g+ !q , redundancies, allow for as many as eight in the past. y, . more efficient use of person- HELPING SHAPE A BRIGHTER ws M ' nel, reduce reliance on FUTURE
)j ' ;((% outside contractors and AP&Lis fully hp* ,3, , , ,, ) result in more attractive con- committed to the MSU
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J u.' vision statement that D challenges Company bl directors, officers and employees to " , become
- and be widely recognized as Lee W. Randall, senior vice president responde, fmanc.ta'dy and chief financial strong, succest ful competi-
,, officer, moved to tor in the evolving electric h i::"@id - AP&L from sister energy business." AP&L de-Kn p votes particular attention to
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Debbie Dutch Kelley (left), sensor human tomenoriented, socially responsible" portion
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resources speclahtt, of the corporate vision and Henry Warre t because it is the glue that vice president of holds everything else planning and contiJ together and fosters the work with Randall on the Company's annual Business Plan H I
L,1 . . a m .# atmosphere of mutual respect and cooperation our region must have to grow , and prosper. Quesuon:
~ bQy,.y5 g programs does AP&L have to help people with short- kf. .
term financial problems or ; O special medical needs? , g'N Answer }. ;- Consumer panels have been formed in [ ~d'% each of AP&L's 21 districts S F" ' to join withindividual .. consumers, on a rotating j, basis,and public agencies to f work out solutions for E" people who have problems paying their electric bills. relative or friend can help an Answer: Curt Moody. safety Seven separate elderly person remember to One of equipment tester at Payment options are central Services, PaYhis or her bill; Gate. Arkansas' most critical available, such as delayed sends 2m vous keeper, where our employ. educational problems is a payment, medical emer_ er de ees are taught to recognize shortage of math and science ,,,,,7, c,y3;yg yfoy,3 gency, draw draft, Visa / ,eachers. Al &L has an and be alert for signs of to tairitdefective. Mastercard (with service investment scholarship rnis inventory problems among elderly charge),I)roject Deserve- program that awards up to recovery program customers; a policy of no (meets short-term fmancial 10 $1,500 scholarships each nmets te m j r shut-off of electric service if goals. safety and cost needs to pay electric bills the temperature is 32 degrees year to coyege juniors and contamment. using funds derived from r below; and a program to semors who commit voluntary customer contri- themselves to teachmg math advise customers on what butions and administered by types of government or sdence in the Arkansas the American Red Cross), a assistance are available to pubhc schools for at least sales tax exemption for help them. three years after graduation. annual household incomes Other ofless than $12,000 and a auesuon: education programs include training for school adminis-protected customer plan for There is a trators; and a drug and 10 $500 competitive grants those age 65 or older or new decal on some of your alcohol abuse prevention to math and science teachers handicapped. Company vehicles that says to devise innovative class- program. Man); AP&L " Radio Help." What does room science projects; 105 customers use electncally that mean? ausuon:
$500 hometown
- challenge ,
operated life support Al>&L is a
^"8*": E'""'S,, I T I"Str"Cti""^I '.*- large company with a lot of equipment and they are ad Help s pSmmen s n schoolsin purchasing clout. How identified for priority service Al &L s 21 districts; an program where we use our much of your business goes in emergencies. Other radio-equipped vehicles to expanded Summer Science programs include third- to firms in your service
. put people m touch with the Institute for students just party notif.ication, where a compkting the fifth grade; a
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appropriate authorities when in need of any type of program to honor 10 math Answer: emergency assistance. and science teachers with an We believein "OutstandingTeacherof the setting a leadership example unsuon: by " Buying Local," and our y ,; Year" award; management purchasmg programs have _ about aid to education. What been structured to purchase is AP&L doing to improve
, as many goods and services educanon in our region? as possible from (1) within 11
. l MEETING THE CHALLENGE OF CHANGE Arkaun Pouer & [aght Company
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region.Our Buy Arkansas / S$4 f$ l g, g Missouri program increased ,n, $gm , .g local manufacturer and Jg distributor purchases from 29 percent ($26.2 million)in I ', Nw J 4- ,,
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successful program has , } 9,fs -j serve.1 as a model for MSU's ^C Buy Local program, which M, j cmbodies the concept of m- 7 q(
- 9 creasinglocal, System and M.y '
minority purchases. - Question: Do minority suppliers get any of AP&L's , business? We have a
" Fair Share" agreement with the NAACP, and since the program began in 1984 our annual purchases from minority vendors have increased from approxi- J.+
mately $250,000 to an average of $4 million. In " ggggg 1988 purchases totaled $4.9 mm ~< million. j John R Marshall became vice president
~
of customer services in October coinciden-tal to implementation of the new computer-ited customer information system Al Thomas (seated) is execuhve assistant to MJrshall. Brenda D. Jones (Jt the Window) is a generalclerk at West Markham Service Center. 12
REPORT OF MANAGEMENT, AUDIT COMMITTEE ':HAIRMAN'S LETTER A4mw Pow & Igla Compny ance, on a cost effective basis, directors. The audit com- other procedures as they as to the integrity, objectivity mittee meets periodically deem necessary to reach and and reliability of the financial with management, the express an opinion on the records and as to the protec- internal auditor and the fairness of the financial tion of assets. This systsm independent certified public statements. includes communication accountant (Deloitte We believe REPORT OF MANAGEMENT through written policies and Haskins & Sells)todiscuss that these policies and The manage- procedures, an organiza- auditing, internal control and procedures provide reason- , ment of Arkansas Power & tional structure that provides financial reporting matters - able assurance that our Light Company has pre- for an appropriate division of and reports thereon to the operations are carried out pared and is responsible for responsibility, the selection Board of Directors. The in- with a high standard of the financial statements and and training of qualified per- dependent certified public business conduct. related financialinformation sonnel, a performance ac- accountant has fulland free includedin this annual countability program and a access to meet with the audit report. The financial state- comprehensive internal audit committee at any time [ ments are based on generally program.To further enhance without members of accepted accounting prin- the internal accounting Company management JerryL Maulden l Chairman orthe Board ciples, consistently applied. control environment, the being present.
& Chietnecutive onier Financialinformation Company has a Code of The inde.
included elsewhere in this re- Conduct that addresses our pendent certified public l l port is consistent with the financial statements. commitment to the highest standards ofintegrity and accountant provides an objectiveassessmentof the c/ M[ To meet its re- fairness. degree to which manage- gg7$j'y$d"de sponsibilities with respect to The Board of ment meets its responsibility a Chietrinancialotticer financialinformation, Directors pursues its for fairness of financial management maintains and responsibility for reported reporting. They regularly enforces a system ofinternal financialinformation evaluate the system of accounting controls which through its audit committee, internal accounting control provides reasonable assur- composed entirely of outside and perform such tests and Michael E. Wilson.The certified public accountant their evaluation of the committee held four (Deloitte Haskins & Sells) Company's internal con-meetings during 1988. the overall scope and specific trols, and the overall quality The Audit plans for their respective of the Company's financial Committee oversees the udits.The committee also reporting.The meetings also Company's financial tiscussed the Company's were designed to facilitate AUDIT COMMITTEE CHAIRMAN'S reporting process on behalf financial statements and the and encourage private LETTER of the Board of Directors adequacyof theCompany's communication between the The Arkansas and provides msonable internal controls.The committeeand theinternal l Power & Light Company assurance to Board that committee met, together and auditor and/or independent AuditCommitteeof the sufficient operatmg, ac- separately, with the Com- certified public accountant. Board of Directors is counting,andfinancial pany's internal auditor and comprised of seven Direc- controls are in existence and independent certified public 7~ tors who are not officers of the Company: Hal E. are adequately reviewed by programs ofinternal and accountant, without man-agement present, to discuss [ A Hunter,Jr., Chairman; external audits. the results of their audits, Tommy Hillman; Dr. The Audit Hale nunter. sr.. Chairman, Audit Committee Ravmond P. Miller, Sr.; John Committee discussed with J. Flake; Kaneaster Hodges, the Company's internal Jr.; Woodson D. Walker; and auditor and the independent i 13 t
,e a MANAGEMENTS FINANCIAL DISCUSSION AND ANALYSIS Arkmu.u 1%r & bght Campwry Court rendered a decision liabilities including approxi- the following discussion.
which affirmed MPkL's mately $3.8 million of Net cash from operating right to recover through its outstanding long-term debt activities was $73.7 million in retail rates the 33 percent al- of ANG.The financial state- 1988, $238.6 million in 1987
- location by the FERC of ments for prior periods have and $157.3 million in 1986.
Grand Gulf 1-related costs, not been restated for the Deferred taxes and invest-FINANCIAL CONDm0N thereby upholding the disposition since the effect of ment tax credits decreased Netincome principle of federal preemp- consolidations immaterial. $25.6 million in 1988 as com- l during 1988 of $131.1 tion, which is necessary to In December pared to 1987 due to deferred million declined $10.1 secure implementation of 1988, the FASB issued SFAS taxes related to deferrals of million or 7.1 percent System Energy's federally No.100," Accounting for Grand Guli1-related costs compared to 1987.The mandated wholesale rates Income Taxes - Deferral of and alleged excess capacity reduction in net income in through the retail rate the Effective Date of FASB and to changes in nuclear and 1988 reflected several factors structures of the System SFAS No. 96," which ex- refueling maintenance including a $14.8 million Operating Companies, tended the effective date of reserves as discussed below after-tax increase in reserves including the Company. SFAS No. 96," Accounting in Results of Operations. for nuclear maintenance On October for Income Taxes," to fiscal Deferred purchased power / expense, injuries and 6,1988, the APSC entered an years beginning after excess capacity reductions of damages, hospitalization and order approving a proposed December 15,1989. Based $57.5 million from 1987 to environmental contingen- amendment (Revised on a preliminary study,it is 1988 and $45.7 million from cies.These factors were Settlement Agreement)to expected that the adoption of 1986 to 1987 were primarily partially offset by a $5.4 the rate phase-in plan SFAS No.96 will result in a due to increased recovery of million after-tax gain on the contained in the Settlement net increase in accumulated Grand Gulf 1-related costs sale of ANG onJune 1,1988. Agreement changing the deferred income taxes with a under the Company's phase-In addition, the Company's schedule for the deferral and corresponding increase in in plan. (See Notes 1 and 2 to authorization by the APSC subsequent recovery of assets.The Company's the Financial Statements - to record a return on invest- Grand Gulf 1-related costs. results of operations are not " Summary of Significant Ac-ment in alleged excess The Company believes,and expected to be significantly counting Policies" and " Rate capacity to be subsequently has been so advised by its in- impacted by the adoption of Matters," respectively.) recovered expiredJuly 1, dependent auditors, that the SFAS No. 96. (See Note 3 to Reduced deferrals and 1988, which reduced net new phase-in plan for the the Financial Statements - increased current recoveries income approximately $7.9 deferral and recovery ofits " Income Taxes.") have a positive impact on net million during 1988. Grand Gulf I-related costs, On May 9, cash from operating activi-Decreases in as embodied in the Revised 1988, plans were announced ties. However, such deferrals totalinterest charges in 1987 Settlement Agreement, for System Energy to assume continue to reduce net cash as compared to 1986 signifi- meets all the requirements of operating responsibility, from operating activities cantly contributed to the SFAS No.92, thereby subject to AP&L and LP&L since actual collection of
$16.4 million or 13.1 percent achieving compliance with oversight, for the Com- revenues to recover these increase in net income in SFAS No. 92 and avoiding pany's ANO Station and costs will not occur until the 1 1987 as compared to 1986. significant write-offs. (See I.P&L's Waterford Steam future. Even though deferral The Com- Note 2 to the Financial Electric Generating Station - of Grand Gulf I purchased pany continued to experi- Statements " Rate Mat- Unit No. 3. Under the power costs (which are not J ence financial stability ters.") proposed arrangement, the currently recovered through l primarily due to the United On June 1, Company and LP&L will rates to the extent of the f States Supreme Court 1988, the Company, as retain ownership of their deferrals) significantly !
decision in the MP&L case required by the SEC, respective nuclear units as increases cash requirements, l and to the APSC approval of disposed of its interest in its well as the associated such deferralof Grand Gulf I an amendment to the wholly-owned subsidiary, capacity and energy entitle- 1-related costs removes the Settlement Agreement ANG, by means of a cash ments. Applications for impact of the phase-in plan j relating to retail recovery of merger of ANG with and appiovalof the proposed from the Income Statement, Grand Gulf 1-related costs into Arkansas Western Gas arrangements have been filed excluding the portion as discussed in the folleving Company (Arkansas with appropriate regulatory retained by the Company two paragraphs. Western), a subsidiary of authorities. (Retained Share). Prior to re-A major Southwestern Energy duction for deferred pur-ND CAPITAL uncertainty facing the Company.The cash merger @SNS chased power cost / excess l Company was favorably consideration was $27.1 Reference is capacity of $138.1 million, l resobed June 24,1988, when million with Arkansas made to the Statements of $195.6 million and $241.3 I the United States Supreme Western assuming all Cash Flows for purposes of million in 1988,1987 and i 14 - 1
- l. a
g 1986,respectively, net cash $146.5 million and $114.0 The Com- 1987 due to cash require-
- from operating activities was . million were 141.0 percent, pany requested and has ments discussed herein.
$211.8 million, $434.2 61.4 percent and 72.5 percent received necessary regula- Short-term borrowings of million and $398.6 million of net cash from operating tory approval to proceed $125 million have been for those respective periods. activities in 1988,1987 and with arrangements for the authorized through 1990 by Other working capital 1986, respectively. Nuclear possible redemption, the SEC, subject to the accounts decreased $39.2 fuel expenditures decreased purchase or other acquisition availability of credit re-million in 1988 as compared $37.4 million in 1988 as com- of allor a portion of certain sources.Such authorization to 1987 primarily due to a pared to 1987 due to financ- outsta...lingseries of the is subject to increase to a reduction in nuclear reserve ing under the new nuclear Company's high interest rate maximum of 10 percent of liability of $26.5 million and fuellease of nuclear fuel pre- FMB, pollution control capitalization with further an $8.5 million reduction in viously purchased by the revenue bonds and high SEC approval.The Com-interest accruals associated Company.(See Note 4 to the dividend rate preferred stock pany's available territorial with an IRS tax settlement. Financial Statements - up to aggregate principal / par bank lines of credit aggre-Taxes accrued decreased " Commitments and Contin- value amounts of $200 gated approximately $42.8
$44.8 million as compared to gencies" regarding the million, $165 million and $91 million allof which were 1987 primarily due to the Company's new nuclear fuel million, respectively. unutilized and remained receipt in 1987 of an over- lease.) Proceeds received in Reference is made to Notes available at December 31, payment of 1986 payments 1988 from the sale of ANG, 10 and 9 to the Financial 1988. Additionally,the under the System income tax $27.1 million,and repay- Statements "Long-Term Company participates with allocation agreement. ments to the Company of Debt" and" Preferred and certain other companies of Pursuant to an APSC order notes receivable from SFI, Common Stock," respec- the MSU System in a money in 1988, the Company estab- $27.7 million, increased tively, regarding securities pool arrangement.(See Note lished external nuclear de- 1988's net cash from invest- being considered for possible 7 to the Financial Statements commissioning trust funds, ing activities, retirement pursuant to this - Lines of Credit and Short-Net cash flow authorization. In addition, Term Borrowings.")
(See Note 4 to the Financial Statements " Commitments used by financing activities the Company may enterinto The Com-f was $83.4 million, $142.5 arrangements forthesale and Contingencies.") pany has received general Payments in 1988 of $25.4 million and $71.6 million in and leaseback of property in regulatory authorization to million to such funds 1988,1987 and 1986, which the proceeds from sellup to $270 million of consisted primarily of respectively, decreasing such transactions could be FMB through February 28, previous years decommis- $59.1 million between 1987 used to retire certain debt 1991, subject to approval of sioning collections. Future and 1988 and increasing issues at par. the specific terms of each collections will be remitted $70.9 million between 1986 The Com- series. In addition, the Com-to the external trusts on a and 1987.These variances pany will require moderate pany has requested, but has current basis. Of the $48.0 were primarily due to 1987's amounts of external financ- not received, all regulatory million 1988 decreasein cash requirement of $83.6 ing for the period 1989-199 L authorization for the other operating activities, million to retire FMB offset Capital and external financ- issuance of up to $150 l $41.4 million is associated in part by the increase in ing requirements for the million of preferred stock with variances in the nuclear payment of common stock Company for the period through February 28,1991. l ! maintenance reserves dividendsin 1988 and 1987 1989-1991 are shown in (See Notes 10 and 9 to the l primarily associated with as compared to 1987 and Table 1.These estimates are Financial Statements - maintenanceduring refuel- 1986, respectively. When based on certain assumptions "Long-Term Debt" and ing outages. Also contribut- payment of common stock with respect to, among other " Preferred and Common ing to the 1988 decreasein dividends resumedinJuly things, earnings, dividends, Stock," respectively.) Pro-other operating activities was 1987, the Company's the outcome of regulatory ceeds of any sales of securi-the receipt of $18.2 million in liquidity position was and judicial proceedings, ties during this time period 1987 relating to an advance reduced.The Company paid financing plans and access to are expected to be applied to payment by a wholesale $48.2 million and $22.6 capital markets. Depending construction expenditures, I customer and a freight million common stock upon the outcome of these to finance Grand Gulf I settlement to be refunded to dividends in 1988 and 1987, matters, material changes in purchased power deferrals customers.This was partially respectively. Common and capital and external financing under the Revised Settlement offset by an $11.4 million preferred stock dividend requirements could result. Agreement, to the possible increase in reserves between payments for 1988,1987 and The Com- retirement of high cost debt 1988 and 1987. 1986, amounted to 98.3 pany's temporary cash in- and preferred stock and for The Com- percent,20.1 percent and vestments of $23.0 million at other corporate purposes. pany's investment in utility 14.5 percent, respectively, of year-end 1988 decreased The mini-plant of $103.9 million, net cash available from $55.7 million as compared to mum earnings coverage j operatmg activines. l 15 l 1
# B MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS A 1mn Pwer & lagbt Company TABLE 1 Years Ended Daember 31 1989 1990 1991 Total t (in Mdlwns) l Capital Requirements:
l Construction expenditures $ 144.8 $148.4 $143.8 $437.0 Phase-in requirements 86.5 47.1 (5.3) 128.3 Total capital requirements $231.3 $195.5 $138.5 $565.3 Financing Requirements: Total capital requirements $231.3 $195.5 $138.5 $565.3 Less internally generated funds and changes in cash a_nd short-term debt __ _ _18.8.0_ __153.0 _ _159.0__ _ 500.0 Net financing requirements 43.3 42.5 (20.5) 65.3 Plus refinancing requirements: Long-term debt maturities and sinking funds 0.9 1.6 13.1 15.6 Preferred stock sinking funds 7.5 7.5 10.0 25.0 Total external financing requirements $ 51.7 $ 51.6 $ 2.6 $105.9 requirements forissuance of detailed in Table 3. How- million from 1986 to 1987. percent in 1987 as compared additional FMB and pre- ever, reference is made to Increases in 1987 operating to 1986. Fuel expenses - ferred stuck are 2.0 times the both Table 3 and the revenues as compared to electric decreased $35.9 annual mortgage interest Statements of Income for 1986 from retail customers, million or 10.8 percent in requirements and 1.5 times purposes of the following excluding Reynolds Metals 1988 from 1987, while corre-the annualinterest charges discussion. Company (Reynolds), of sponding generation and preferred stock dividend The decrease $38.6 million and from sa!cs decreased 13.5 percent.This requirements, respectively, of $48.1 million in 1988 for resale of $3.5 million reduction in fuel expense was The amount of additional operating revenues com. were offset by a $20.8 due primarily to reduced FMB the Company may pared to 1987 resulted million reduction in revenue nuclear and gas generation of issue is limited by the lesser primarily from the decline in from Reynolds. A demand 21S percent and 34.1 of amounts based on gas revenue of $39.8 million charge power contract with percent, respectively, mortgage coverage ratios or due to the sale of ANG. Reynolds terminated resulting from scheduled unfunded bondable prop- Electric revenues decreased December 31,1986, after refuenng outages at both erty. In addition, the $8.3 million or 0.6 percent in which Reynolds was ANO units in 1988 and to an Company has the ability, 1988 as compared to 1987. classified as a regular outage at the Company's subject to meeting certain Revenues from retail industrial customer. Ritchie plant caused by low conditions, to issue bonds customers increased $38.1 Operation water levels in the Missis-against the retirement of million or 4.1 percent in 1988 expense relating to gas sippi River during the bonds without meeting an compared to 1987, due pri- purchased for resale de- summer of 1988. Fuel related earnings test. For the marily to increased sales to creased $26.0 million in 1988 expenses (nuclear reserve and Company's FMB and industrial customers.The as a result of the disposition deferred fuel) decreased preferred stock, the carnings Company's sales for resale of ANG. Operation expense $32.1 million or 184.9 coverages and issuable declinedin 1988 primarily for cost of electric energy percent in 1988 compared to amounts at December 31, due to a $28.8 million decreased $24.8 million or 1987 after increasing $24.4 1988, based upon the most decrease in sales to the 4.0 percent in 1988 as million or 345.6 percent in restrictive test and on an Middle South System Power compared to 1987 and 1987 compared to 1986. assumed interest / dividend Pool as a result of the increased $44.6 million or 7.8 Fluctuations in fuel related rate of 11 percent, are as scheduled nuclear refueling shown in Table 2. outages for both ANO 1 and TABLE 2 RESULT 5 0F 0PERATl0NS ng M8 and Changes decreased system sales to g ,y ,, , , , Igh1lfA "7,"g between 1988 and 1987 and Tennessee Valley Authon,ty . - -- 1 between 1987 and 1986 in of $16.0 million. selected factors affecting Operating First Mortgage Bonds 2.76 3.40 $308 million results of operations are revenues increased $15.4 Preferred Stock 1.74 1.89 $213 million 16 l __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
e . .
. TABLE 3 198R to 1987 In7 to 1986 increa>el Percent increase / Percent
,Tw
. elve. M. onths
.. . .EndeJ* . ... . ..... .
1988 1987 1986 (Deacase) C hnge (Dev. ease) C. kn.ge. t$ In Mdlwns) Net income $131.1 $141.2 $124.8 $(10.1) (7.1) $16.4 13.1 Operating revenue $1,356.8 $1,404.9 $ 1,389.5 $(481) (3.4) $15.4 1.1 Fuel and fuel related expense - electric $282.1 $350.1 $324.9 $(68.0) (19.4) $25.2 7.8 Purchased power expense 435.8 431.7 454.6 4.1 0.9 (22.9) (5.0) l Deferredyurchased power (128.9) (168.0) (210.3) 39.1 23.3 _ 42.3 20.1 Net cost of energy-electric $589.0 $613.8 $569.2 $(24.8) (4.0) $44.6 7.8 Other operations & maintenance $395.9 $335.1 $333.6 $ 60.8 18.1 $1.5 0.4 Energy sales - electric (M KWH) 27,489 29,401 27,606 (1,912) (6.5) 1,795 6.5
*Thefinancialstatementsforpriorperiods have not been restatedfor the disposition ofANG since the effect ofconsolidation is immaterial.
See Note I to the FinancialStatements "$ummary ofSignificant Accounting Policies.
- expenses are due to the pursuant to the Settlement and hospitalization increased OVEMIEW nuclear reserve, which is Agreement, as revised. other operation expenses The favorable impacted by the scheduled Other $6.2 million.The increase in United States Supreme refueling outages at both operation and maintenance 1988 building rent expense Court rulingobtained by ANO units in 1988, and to expenses increased $60.8 was approximately $5.2 MP&L and the approval by
, - deferred fuel.(See Note 1 to million or 18.1 percent in million over 1987. A portion the APSC of the Revised L the Financial Statements - 1988 as compared to 1987 of the increast in other Settlement Agreement to
" Summary of Significant and $1.5 million or 0.4 operation expenses in 1988 comply with the require-Accounting Policies *) percent in 1987 as compared was due to a reduction of ments of SFAS No.92 While the amount of to 1986. Increased mainte- approximately $5.9 million should continue to stabilize purchased power (KWH) nance expenses of $7,0 in 1987 relating to a credit for the Company's financial I increased 22.3 percent in million in 1988 over 1987 dues to Electric Power condition.These events im-1988 as compared to 1987, and $20.5 million in 1987 Research Institute. Other proved liquidity and access purchased power cost over 1986 were due primar- materials and supplies to the capital markets at increased only $4.1 million ily to increased nuclear relating to nuclear opera- lower cost as evidenced by, orless than one percent.The maintenance of $10.2 million tions increased $2.9 million among other things,the amount (KWH) of pur- in 1988 and $28.7 million in in 1988 over 1987.These Company's new nuclear fuel chased power was approxi- 1987. increases were offset in part lease executed in December
- mately the same in 1987 as in Other due to the disposition of 1988 and receipt of SEC 1986.These proportionately operation expenses increased ANG which decreased other general regulatory approval lowerincreases in purchased $53.8 million in 1988 as operation expenses $7.5 of the Company's plan for powercosts occurred compared to 1987. In 1987 as million, issuance of additional FMB because oflower capacity compared to 1986 there was Interest subject toapprovalof the j' costs for Grand Gulf I and a $23.8 million decrease in charges decreased $12.3 specific terms of each series.
increased amounts of charges to operating ex- million in 1988 as compared Howes er, the Company's purchased power provided penses due primarily to 1986 to 1987 primarily due to a future financial condition by Grand Gulf 1.The provisions for estimated favorable federalincome tax may be affected by the reductions in purchased liabilities associated with settlement with the IRS in ultimateresolutionof the power deferrals in 1988 as certain planned future fossil 1988 which allowed the status of Grand Gulf 2 and comparedto1987of $39.1 generating facilities. reversal of $8.5 million of the possible allocation to the million or 23.3 percent and The 1987 accrued interest for the years Company of costs associated in 1987 as compared to 1986 under-recovery of Grand 1977 - 1982.The decrease in with that unit. For additional of $42.3 million or 20.1 Gulf 1-related costs, which interest charges of $18.5 information relating to percent, respectively, were was recovered in 1988, millionin 1987over 1986 Grand Gulf 2 as well as other due primarily to increased increased other operation was due primarily to the commitments and contin-current collection of pur- expenses $22.9 million. retirement of $225 million of gencies see Note 4 to the Fi-chased power cost associated Increased reserves for FMB during 1986 and early nancialStatements "Com-with the Company's allo- injuries and damages, 1987. mitments and Contingen- l cated share of Grand Gulf 1 environmental contingencies cies." l 17
BALANCE SHEETS (Note 1) Arkanw hunt & Lyght Osmpny At December 31 1988 1987 (In 7bonsands) Assets Utility Plant (Note 4): Electric $3,797,479 $3,663,417 Property under capital leases (Note 5) 98,038 96,614 Gas plant - 43,423 Construction work in progress 75:387 103,416 Nuclear fuel 198 26,380 Nuclear fuel under capital leases (Notes 4 and 5) 162,744 143,594 Total 4,133,846 4,076,844 Less - accumulated depreciation and amortization 1,115,595 1,068,407 Utilityylant - net __ 3,018,251 3,008,437 Other Property and Investments: Investments in associated companies, at equity (Note 4) 11,303 38,842 Other, at cost (less accumulated depreciation) 150 176 11,453 39,018 ___ Total . _ _ _ _ . _ Current Assets: Cash and cash equivalents (Note 12): Cash 6,279 7,615 Temporary investments, at cost which approximates market: Associated companies (Note 7) 20,000 70,500 Other 3,000 8,235 Total 29,279 86,350 Notes receivable - net 2,706 730 Accounts receivable: Associated companies 23,103 20,337 Customer (less allowance for doubtful accounts -
$4,290,000 in 1988 and $4,324,000 in 1987) 48,287 65,346 Other 5,109 2,427 Deferred fuel cost (9,297) (8,727)
Fuel inventory, at average cost 22,305 29,125 Materials and supplies, at average cost 49,887 46,982 Prepayments and other 13,461 13,187 Total 184,840 255,757 Deferred Debits: Deferred purchased power costs (Notes 2 and 4) 584,527 454,910 Deferred excess capacity (Note 2) 80,462 72,002 Opgr______. __ . _ _ _ . _ _ . _ _ _ ,_ 48 _ ____449 _ _59,329 _ Total 713,538 586,241 Total $3,928,082 $3,889,453 , See Notes to FinancialStatements. 18
At December 31 1988 1987 Capitalization and Liabilities Capitalization: Common stock, $0.01 par value: authorized 325,000,000 shares; issued and outstanding - 54,980,196 shares in 1988 and 1987 (Note 9) $ 550 $ 550 Paid-in capital 695,254 694,558 Retained earnings (Note 8) 303,105 244,025 Total common shareh'oTle~r's equity 998,909 939,133 Preferred stock, net of premium and expense: Without sinking fund (Note 9) 126,890 126,890 With sinking fund (Note 9) 137,379 151,255 Long-term debt (Note 10) 1,235,440 1,236,223 Total 2,498,618 2,451501_ Other Noncurrent Liabilities: Obligations under capital leases (Note 5) 193,051 138,423 Other (Note 1) 28,229 20,876 Total 221,280 - 159,299 Current Liabilities: Currently maturing long-term debt (Note 10) 2,580 3,223 Notes payable (Note 7) 667 667 Accounts payable: Associated companies 30,163 35,342 Other 91,644 97,631 Customer deposits 7,598 7,667 Taxes accrued 67,357 66,532 Accumulated deferred income ta es (Note 3) (3,526) (3,498) Interest accrued 41,795 47,555 Dividends declared (Note 8) 5,863 6,261 Nuclear refueling reserve 3,834 16,432 Co-owner advances (Note 1) 16,815 26,306 Obligations under capital leases (Note 5) 67,731 101,785 Other 9,665 15,687 Total 342,186 421,590 Deferred Credits and Other Liabilities: Accumulated deferred income taxes (Note 3) 575,013 535,072 Accumulated deferred investment tax credits (Note 3) 183,609 186,699 Other 107,376 133,292 Total 865,998 855,063 1 Commitments and Contingencies (Notes 2,4 and 5) Total $3,928,082 $3,889,453 See Notes to FinancialStatements. I 19 1
STATEMENTS OF INCOME AND RETAINED EARNINGS INote 1)
. Arkanw Pouer & Iight Compny for the Years Ended Dicernber 31 1988 1987 1986
. Statements ofIncome l
Operating Revenues (Notes 1,2 and 11): Electric $1,356,789 $1,365,080 $1,345,415 Natural gas - 39,776 44,079
~~~
Operating Expenses: Operation (Note 11): Fuel and fuel related 282,051 350,059 324,920 Purchased power 435,811 431,716 454,558 Gas purchased for resale - 26,000 31,592 Other 296,835 243,048 262,043 Maintenance 99,096 92,048 71,509 Depreciation 120,030 119,104 114,742 Taxes other than income taxes 36,400 19,466 39,080 : Income taxes (Note 3) (23,390) (10,3 4) (20,0%) i Rate Deferrah L)cferred purchased power ; (Notes 2 and 4) (128,897) (167,956) (210,334) Income taxes (Note 3) 48,891 73,170 103,527 Total operating expenses 1,166,827 1,195,971 1,171,616 l Operating Income 189,962 208,885 217,878 Other income and Deductions: {' Allowance for equity funds used during construction 6,303 5,605 5,785 Miscellaneous - net (Notes 1 and 2) 72,626 69,264 63,059 Income taxes (Note 3) (21,514) (14,062) (14,845) Total 57,415 60,807 53,999 Interest Charges: 1 Interest on long-term debt 117,873 119,287 140,566 Other interest - net of debt premium 3,114 13,410 10,853 Allowance for borrowed funds used during construction (4,759) (4,165) (4,363) Total 116,228 128,532 147,056 Net Income (Note 13) $ 131,149 $ 141,160 $ 124,821 Statements ofRetained Earnings Retained Earnings -January l $ 244,025 $ 151,063 $ 49,417 l Add;. Net . income _(Note 13).._ _ ____ __ _ _ _ _ ___ 131,1_49 _ 141,160_ 124,82l_ Total 375,174 _ 292,223 174,238_ Deduct - Cash Dividends: Preferred stock 23,858 25,554 23,175 __ Common stock (No'c 8)__ _ _ . . _ _ _ _ 4 8,211_ _ . 22,644 ._ _ _ _ _ j Total _ ___ _ 72,069_ . _ 4 8,198__.. _23,175_ l Retained Earnings - December 31 (Note 8) $ 303,105 $ 244,025 $ l51,063 See Notes to financialStaternents. 20
, + STATEMENTS OF CASH FLOWS (Note 1) Adanw l%er & laght Compery For the Years Ended December 31 1988 1987 l986 (In Wnsands) , Operating Activities: ) Net income $131,149 $141,160 $124,821 ) Noncash items included in net income: , Depreciation 120,030 119,104 114,742 l Deferred taxes & investment tax credits 37,481 63,050 180,604 Allowance for equity funds med during construction (Note 1) (6,303) (5,605) (5,785) i Provisions for estimated losses (6,628) (4,551) 13,978 Deferred purchased power cost / excess capacity (138,077) (195,612) (241,306) Net gain on sale of ANG (Note 1) (5,350) - Changes in working capital: Receivables 11,645 14,921 21,015 Accounts payable (10,731) 11,652 (4,369) Fuel inventory 6,820 (970) 29,788 Deferred fuel costs 570 4,968 (292) Other working capital accounts (39,131) 44 (12,212) Taxes accrued 826 45,618 (58,151) Decommissioning trust contributions (25,385) - - Other operating activities (3,216)__ _ 44,776 0 5,537) Net cash - operating activities 73,700 238,555 157,296 Investing Activities: Utility plant: Construction expenditures (net of accruals) (136,395) (140,865) (140,312) Nuclear fuel expenditures - net 26,182 (11,253) 20,556 Allowance for equity funds used during construction (Note 1) 6,303 5,605 5,785 Other property - net 1,724 3,468 3,309 Proceeds received from sale of ANG (Note 1) 27,095 -- - Reduction of investment in associated companies _ . 27,674 _ _ _ _ _ 2,480 Net cash - investing activities ____ _ __ ___ _ _47,41/) _( _ __( 14 3_,04 5)_ (108,182) . Financing Activities: Proceeds from sale of: Preferred stock - - 48,543 First mortgage bonds - _ 48,437 installment purchase contracts - _ 1,904 Repayment of instalhnent purchase contracts (865) (837) (608) Long term obligations - DOE 4,628 4,377 4,047 Retirement of first mortgage bonds (1,603) (84,959) (146,066) Dividends paid: Common stock (48,211) (22,644) - Preferred stock (24,255) (25,321) (22,864) Redemption of preferred stock (13,147) (13,459) (4,152) Changes in short-term borrowing - 667 - Other financing activities 99 (285) (808) Net cash - financing activities (83,354) .__3,461)_ (l4 (71,567) Net decrease in cash and cash equivalents __ _ _____ _ _ _ _ _$(57,071) $(46,951) $(22,453) Cash and cash equivalents at beginning ofyear 86,350 l33,301 155,754 Cash and cash equivalents at end ofyear (Notes 7 and 12) $ 29,279 $ 86,350 $133,301 See Notes to FinancialStatements. 21
i 1 NOTES TO FINANCIAL STATEMENTS Adoum hw & Lght Compny Utility Plant and Depreciation The cost of additions to utility , i plant includes contracted work, direct labor and materials, ! allocable overheads and an allowance for the composite cost of j funds used during construction. The costs of units of property l retired are removed from utility plant and such costs, plus
- 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POUCIES removal costs, less salvage, are charged to accumulated Principles of Consolidation depreciation. Maintenance and repair of property and replace-rnent fitems determined to be less than units of property are Prior to 1988 the financial statements included the accounts of the Company and its charged pnmanly to operating expenses. , , 1 wholly owned subsidiary, ANG. OnJune 1,1988, the Com- Depreciatmn is computed on the straig .t.t-line basis at rates based on the estimated service pany, as required by the SEC, disposed of its interest in ANG by means of a cash merger of ANG with and into Arkansas Hves of the vanous classes of property. Depreciation on Western Gas Company (Arkansas Western), a subsidiary of average depreciable property m 1988,1987 and 1986 amounted , Southwestern Energy Company. The cash merger considera- '""PP"*mately 3.3 percent each year. Substantially all the tion was approximately $27.1 million with Arkansas Western Company,s utthty plant is subject to the hen of its first mort-gage bond indenture. assuming a!! liabilities including approximately $3.8 million of outstanding long-term debt of ANG. (See Note 6 to the .loinuy Owned Generaung Stations i FinancialStatements "Postretirement Benefits.") The The Company j. .omtly owns Companv recorded an $8.2 million gain on the merger,with a tw mal-fuc,ed i generating stations, both of which have two tax effeet of $2.8 million, resulting in a net after-tax gain of $5.4 units. The Company is the agent for the respective co-owners million. The net gain on the sale of ANG,inchading the results and operates the stations. It remrds its investment and of 1988 operations prior to the sale, are included in miscellane- , , ous other income and deductions. Financial data shown for **P'". ass ciated with these stations to the extent ofits wnership interests in the generating stations. 1987 and 1986 has not been restated for the disposition of ANG since the effect of consolidation is immaterial. Company's percent of ownersh p, es e ta c c u- l Systemof Accounts lated depreciation, respectively,in these stations are: White ! Bluff Steam Electric Station - 57.0%, $395,193,000, The accounts of the Company - j
$96,463,000 and Independence Steam Electnc Station - 31.5%,
are maintained in accordance with the uniform system of l
$293,274,000, $47,524,000.
accounts prescribed by the FERC. Revenues and Fuel Costs menwn neuts j The Company records The Cmnpany has postretire- ) revenues as billed to its customers on a cvele billing basis. ment benefit plans covering substantially all of as employees. Revenue is not accrued for " energy delivered but not billed" at The poh,cy of the Company is to fund pension costs m accor-the end of the fiscal period. d nce wn, h mntributmn guideh,nes established by the Em- l ployee Retirement Income Secunty Act of 1974, as amended, Substantiallyallof therate , schedules of the Company include adjustment clauses under and to fund other postretirement plan costs as meurred. which fuel and purchased power costs above or below the income Taxes levels allowed in the various rate schedules are permitted to be . .. . billed or required to be credited to customers. The Company in filing a consolidated Federali r t t ta t has adopted a deferral method of accountmg for those fuel and , an intra-System income tax allocation agreement, income taxes - purchased power costs recoverab!r under fuel adjustment clauses. Under this method, such costs are deferred to the are allocated to the Company in proportion to its contribution to the mnsolidated taxable income. In accordance with SEC month m which the related revenues are billed. regulations no Systera companv is required to pay more The fuel adjustment factor contains an amount for a nuclear reserve, estimated to cover income taxes than would have been paid had a separate income tax return ticen filed. Deferred income taxes are provided for the cost of replacement energy when the nuclear plant is down differences between book and taxable income to the extent for scheduled maintenance and refuchng. The reserve bears permitted by the regulatory bodies for ratemaking purposes. interest and is used to reduce fuel expense for fuel adjustment investment tax credits allocated to the Company are deferred purposes during the maintenance and refuelmg penod. and amoitized over the average useful life of the related property, beginning witn the year allowed in the s consolidated tax return. l 22
7 ., 1
. AHowance ler Funds Used During Construction will not occur until the future, the Company incurs cash To the extent that the Com. requirements in the amount of these deferrals and at the same pany is not permitted by its regulatory bodies to recover in time s ecords a deferred asset representing the amount of the .
current rates the carcying cost of funds used for construction, . deferral. The carrying charges associated with the financing of E ' the Company capitalizes, as an appropriate cost of utility plant, the deferrals are recovered currently fror, customers. AFDC which is calculated and recorded as provided by the 2. RAM MAUERS , regulatory uniform system of accounts. Under this utility ,,,,,,,,,,,,,,,,,,,,,,, j mdustry practice, construction work m progress on the balance sheet is charged and the income statement is credited The Company is a party to for the approximate composite interest cost of borrowed funds certain agreements and proceedings concerning System and for a reasonable return on the equity funds used for Energy, and the Grand Gulf Station, of which 90 percent is construction. This procedure is intended to remove from the owned orleased by System Energy. (See Note 4 to the income statement the effect of the cost of financing the Financial Statements " Commitments and Contingencies" construction program and results in treating the AFDC - with respect to these matters.) charges in the same manner as construction, labor and material Arkansas - Retali, settlement Agreement
- costs. As noncash items, credits to theincome statement for the return on equity funds have no effect on cash flows from On September 9,1985, the .
operating activities. After the property is placed in service, the APSC approved the terms of a Settlement Agreement which, AFDC charged to construc+ ion costs is recoverable from among other things, resolved all issues (except allocation and customers through deprecianen provisions included in rates rate design, which were dealt with in a subsequent order)
- charged for utility service. The effective composite AFDC rate relating to recovery by the Compar.y of the portion, attribut-for the Company was 9.2 percent,9.2 percent, and 9.0 percent able to Arkansas retail customers, of its costs associated with ;
for 1988,1987 and 1986, respectively, its allocated share of capacity and energy from Grand Gulf 1 (Arkansas Cost). Other Non-Current Liehilities The Company's obligation for itis the policy of the Company the non-fuel portion of payments to System Energy for Grand to provide provisions for uninsured property risks, certain Gulf 1-related costs is currently approximately $24 million per
. employee benefits,and claims forinjuries and damages month. Under the terms of the Settlement. Agreement, the through charges to operating expense on an accrual basis. Company would retain, defer and recover varying portions of Accruals for these provisions have been allowed for ratemak- the costs associated with its 36 percent allocated share of the ing purposes. capacity and energy from Grand Gulf 1 over the life of the unit. As to a more definitive summary of the terms of the Reclassifications Settlement Agreement, reference is made to the Company's Certain reclassifications of 1987 Annual Report, Note 2 to th'e Consolidated Financial previously reported amounts have been made to conform with Statements . " Rate Matters". The Settlement Agreement current classifications. These reclassifications had no effect on provided mechanisms which the Company has used to address net income. a potential adverse effect on recovery of the Arkansas Costs associateo -ith a change in circumstances, including a change in xcounting standards. (See " Arkansas - Retail, Revised Under the terms of the Revised Settlement Agreement" discussed below.)
Settlement Agreement (see Note 2 to the Financial Statements in addition, the Setriement
- Rate Matters"), the Company will variously retain, defer Agreement denied the Company a current return on 969 and recover differing portions of the purchased power costs megawatts of generating capacity (an excess capacity adjust-associated with its 36 percent allocated share of the capacity ment), but allowed the Company to earn a full deferred return and energy from Grand Gulf 1. By deferring Grand Gulf 1 on the investment in such capacity. The ten year recovery
- purchased power costs which are not currently recovered period for these coscs began July 1,1988. (See discussion through rates, the impact of Grand Gulf 1-related costs which below," Arkansas - Rate Riders.")
are not being recovered currently has been removed from the - The APSC orderapproving income statement, excluding the portion retained by the the Settlement Agreement is being contested by pleadings filed Company (Retained Share). Only those costs permanently
- retained and not recovered through rates or through sales to third parties result in a reduction of net income Because the
- actual collection of revenues to recover the deferred amounts 23
NOTES TO FINANCIAL STATEMENTS m m w usyc,wg in separate dockets with the APSC in November 1985. The deferred in 1989 and 1990, respectively, for future collection Company and the APSC staff have answered and moved to (Deferral Share). The Deferral Share, plus the $578 million of dismiss these complaints, but no hearings have been scheduled. previously deferred costs (collectively, Deferred Balance) will These matters are pending, be recovered by the Company in increasing percentages from 1991 through 1998, at which time the Deferred Balance will Arkansas Retail, Revised Settlement A0reement have been fully collected. The Company is permitted to Because the deferral provisions recover on a current basis the incremental cost of financing the of the Settlement Agreement, discussed above, did not comply unrecovered portion of the Deferred Balance. with the requirements of SFAS No. 92, an accounting standard The Company's agreement to issued in August 1987 by the FASB relating to recording of defer the recovery of Arkansas Cost is contingent upon and deferred amounts as arvts for accounting purposes, the conditioned by (a) its ability to finance such deferral on parties, pursuant to the terms of tbc Settlement Agreement, reasonable terms and (b) its ability to record on its books, on a negotiated an amendment thereof which brought such current basis, deferral of any Arkansas Costs under applicable provisions into compliance (Revised Settlement Agreement). accounting standards. In the event the Company is not able to The Revised Settlement Agreement was approved by the finance all or avv portion ofits deferred Grand Gulf 1-related APSC on October 6,1988, to be effectiveJanuary 1,1989. The costs on reasonable terms, then, provided the Company gives Company believes, and has been advised by its independent proper notice and subject to possible proceedings before the auditors, that the Revised Settlement Agreement satisfies the APSC contesting the Company's assertion of inability to requirements of SFAS No. 92. finance, the Deferral Share will be reduced during the period of Like the Settlement Agree- such inability to finance, and the Current Recovery Share will ment, the Revised Settlement Agreement provides that the be increased to the extent necessary to recover, on a current Company permanently retain and not recover (except through basis, the costs which would otherwise have been allocated to other sales as described below) a portion of its Arkansas Costs the Deferral Share. In the event the Company is not able to (Retained Share). The Retained Share (stated as a percentage of record on its books, on a current basis, the deferral of any System Energy's share of Grand Gulf 1) ranges from 5.67 Arkansas Costs, the parties to the Revised Settlement Agree-percent in 1989 to 7.92 percent in 1994 and all succeeding years ment have agreed to attempt to negotiate a mutually acceptable of commercialoperation of the unit. amendment, failing which the Revised Settlement Agreement Under the terms of the Revised will thereafter be terminated.The Revised Settlement Agree-Settlement Agreement, the Company is permitted to recover ment also specifies that in the event accounting standards are on a current basis a portion of its Arkansas Costs (Current changed such that the Company would be permitted to defer Recovery Share). (See " Art.ansas - Rate Riders" discussed Grand Gulf I-related costs without having to satisfy the below.) The Settlement Agreement had provided that prior to criteria established in SFAS No. 92, then any party to the January 1,1989, a portion of the Current Recovery Share Revised Settlement Agreement may propose a revision to the would be phased in, with the Company deferring for future Company's phase-in plan, and all parties agree to negotiate in recovery certain costs in the first three years. Under the good faith with respect to such proposal. Revised Settlement Agreement, these previously deferred The Company has the right amounts are now included in the Deferred Balance described under the Revised Settlement Agreement to sell capacity and below, and there is no further deferral of any part of the energy available from its Retained Share to third parties, which Current Recovery Share. The Current Recovery Share (stated shall not include the Company's wholesale customers. In the as a percentage of System Energy's share of Grand Gulf 1) event the Company is not able to sell such capacity anc' energy ranges froin 17.86 percent in 1989 to 28.08 percent in 1994 and to such third parties,it has the right to sell the energy available thereafter. from such capacity to its retail customers at a price equal to its Under the provisions of the avoided energy cost. Proceeds from sales of capacity and/or Settlement Agreement, through December 31,1988, the energy from the Company's Retained Share to third parties, or Company had deferred approximately S578 million ofits to the Company's retail customers, shall accrue to the sole Arkansas Costs for future recovery, through both the phasing. benefit of the Company's stockholders and shall not be used to in of part of the Current Recovery Share (as described above) reduce the determination of the appropriate revenues to be and the inventorying of an additional portion of Arkansas recovered from the Company's customers. However, any Costs. Under the Revised S ttlement Agreement,an addi- such sales of capacity and energy from the Arkansas Cos: to tional 12 A7 percent and 6.95 percent of such costs (stated as a third parties during the period between January 1,1985. and percentage of System Energy's share of Grand Gulf 1) will be December 31,1995, will be allocated in the following manner: (1) Fifty percent of the capacity and/or energy sold (not to exceed the amount of capacity allocated to the Retained Share) will be considered to be a sale of capacity and/or energy from 24
the Retained Share. (2)The remainder of the capacity and/or On March 9,1988,the APSC energy sold will, unless the APSC determines otherwise, be approved a Company-proposed revision to the existing considered to be a sale proportionately from the Deferral Share Nuclear Decommissioning Cost Rider M26 and a new and the Current Recovery share and the proceeds of such sale Depreciation Rate Reduction Rider M41. The riders were shall be applied to reduce the Deferred Balance. simultaneously implemented March 23, . 988, and will reduce The Revised Settlement the Company's rates by approximately $1.7 million annually, Agreement provides that, should any other System Operating composed of a $7.6 million increase in decommissioning cost Company enterinto an agreement to absorb a greater portion and a $9.3 million decrease in depreciation cost. This order of Grand Gulf I-related costs than the Company, or should also approved the funding of decommissioning costs with System Energy enter into a settlement agreement to reduce its external trusts due to tax incentives provided by the Tax charges to the Company under theJune 13 Decision, the Reform Act of 1984. (See Note 4 to the Financial Statements - Retained Share will be correspondingly increased or decreased, " Commitments and Contingencies. ") respectively. (See Note 4 to the Financial Statements "Com-A'k"" * " "'"* "' AD'"'"'"' mitments and Contingencies" for a discussion of theJune 13 Decision.) OnJune 26,1987, the FERC issued an order which set for hearing the justness and reasona-Arkansas- Rate Riders bleness of the Company's formub rates with certain of its The Company filed with the wholesale customers. The issues to be reviewed included, APSC onJuly 19,1988, the third annual update to the Grand among others,(1) the justness and reasonableness of the Gulf rate rider (Rider M33) for the increase provided in the Company's return on equity and (2) whether the Company's Settlement Agreement. This increase was scheduled to go into formula rates were reasonable v ithout an equity reopener effect September 1,1988, and would have increased rates clause which would allow an a.mual review of the Company's approximately 6.18 percent. However, implementation of the return on equity. On Novemb r 10,1987, the Company filed APSC's October 6,1988, order to bring the Settlement with the FERC for authorization to implement new formula Agreement in compliance with the provisions of SFAS No. 92 rates representing an annualincrease in the Company's superseded this scheduled increase. Instead, the Company was wholesale rates of $5.7 million. The wholesale customers permitted,effectiveJanuary 1,1989,toincreaseits Arkansas affected by the Company's request filed motions to intervene retail rates by approximately 2.7 percent. The 2.7 percent with the FERC. The Company reached an agreement which increase reflects a 4.1 percsnt scheduled phase-in plan increase was approved by the FERC onJune 7,1988, thus settling all offset by a 1.4 percent decrease in rates relating to a prior year rate issues for the period in question in both proceedings. Per overcollection. the agreement, the Company has withdrawn its November 10, Effective in September 1986 1987, request for an increase in wholesale rates of $5.7 million. the APSC approved a Company proposed tax adjustment hmO N Rate Reput rider (Rider M38). Rider M38,'as modified,is designed to reduce Arkansas retail rates by approximately $33 million to On J une 7,1985, the Company reflect the reduction in the corporate income tax rate included filed an application with the PSCM for an annual increase in in the Tax Reform Act of 1986 and includes a corresponding Missouri retail rates of approximately $5.0 million and an refund over a three-year period of approximately $75 million additional rate rider to provide approximately $12.2 million to reflect reductions in certain accumulated deferred income for Grand Gulf 1-related costs associated with Missouri retail tax accounts. in August 1988, the Company filed its second customers (MissouriCost). 01 April 24,1986,the PSCM annual revision to Rider M38 which revised the amount of the entered an order allowing the Company to recover the accumulated deferred income tax refund to $88.6 million os er Missouri Cost of $9.0 million, offset by a reduction of approxi-the three year period. mately $3 million in other costs, phased in over five years. On As discussed in " Arkansas - March 11,1988, the PSCM issued an order Approving Stipula-Retail, Settlement Agreement" above,the APSC approved the tion and Agreement and Tariff Sheets disposing of allissues in deferral and recovery of a return on investment in alleged this rate case, thus making this rate increase final. excess capacity (Rider M39). Rider M39 is designed to recos er such deferred amounts over a 10-year period beginningJuly 1, 1988. OnJuly 27,l987,the APSC issued an order effectiveJuly 1,1987, approving an agreement between the Company,the APSC staff and the Arkansas Attorney General whereby the Company's rates would be reduced by approximately $26 million, $22.8 million of which reflected a reduction in the Company's return on equity from 14.9 percent to 13 percent. 25
NOTES TO FINANCIAL STATEMENTS -
- Arkansas Pouw F Ligist Company 3.191COME TAXE8 The components of incoms tax expense (credit) are shown in Table 3-A.
For the Years [nded Daember31 1988 1987 1986 (in Thousands) Current:
- Federal $ 2,222 ' $13,331 $(75,022)
State- 4,505 - 167 (7,231) Total ~ 6,72J 13,498 (82,253) Deferred - net: J Liberalized depreciation 30,960 28,419 39,397 Alternative minimum tax 5,850 (19,704) - Coal freight settlement _ (6,406) - - Net operating loss carryforward . (31,053) - - .- Interest on tax deficiency 3,237 (812) (2,668) . Amortization of excess deferred tax .(21,385) (16,008) (3,954) Nuclear maintenance expenses 8,459 (10,813) 2,178 Deferred revenue and related interest (1,817) (8,810) 12,744
- Nuclear reserve and related interest 5,683 _ (5,980) 1,729 Provision for estimated losses 5,542 3,017 7,422
' Deferred purchase power cost 45,492 78,659 102,093 -
Deferred excess capacity cost 1,548 11,842 .15,185-1 Other (3,850) (950) (3,580) , Total 42,260 58,860 170,546- j Investment tax credit adjustments - net (1,972) 4,190 10,058 Recorded income tax expense . $47,015 $76,548 $ 98,351
' Charged to operations $25,501 $62,486 $ 83,506 Charged to other income 21,514 14,062 14,845
. Recorded income tax expense 47,015 76,548 98,351
' Income taxes applied against the debt component of AFDC 72 182 1,347 ;
Totalincome taxes $47,087 $76,730 $ 99,698 l 1 l i i l l
~l i
26 '
Total income taxes differ from the amounts computed by applying the .tatutory federal income tax rate to income before taxes. The reasons for the differences are shown in Table 3-B. Table 3-8 1988 ' To.r the. Years Ende.d De.cembe.r 31..... ........
. .. . . . .. . 1987 . .. . . . 1986.. ..
A mount Pre-Tex Amount be-Tax An.ount l're-Tax (000) , , , Income , _ t000), income, (
, _000) Income, Computed at statutory rate $60,576 34.0 $87,083 40.0 $102,659 46.0 Increases (reductions)in tax resulting from:
Amortization of excess deferred tax (21,385) (12.0) (16,008) (7.4) (3,954) (1.7) State income taxes net of federalincome tax effect 6,831 3.8 8,294 3.8 6,273 2.8 Other-net 993 0.6 _ _[2_,821) (1.2) (6,627) (3.0) Recorded income tax experse 47,015 26.4 76,548 35.2 98,351 44.1 Income taxes applied against debt component of AFDC 72 - 182 - 1,347 0.6 Total income taxes $47,087 26.4 $76,730 35.2 $ 99,698 44.7 Unused investment tax credits provided are $272.2 million, $251.9 million and $261.6 million at December 31,1988, amounted to $27.3 million after the 35% at December 31,1988,1987 and 1986, respectively, reduction required by theTax Reform Act of 1986.These In December 1988, the FASB credits may be applied against federalincome tax liabilities in issued SFAS No.100 " Accounting for Income Taxes - Deferrai future years. If not used, they will expire in 1992 through 2003. of the Effective Date of FASB SFAS No.96", which extended The alternative minimum tax the effective date of SFAS No. 96," Accounting for Income (AMT) credit at December 31,1988,is $13.9 million. This Taxes", to fiscal years beginning after December 15,1989. AMT credit can be carried forward indefinitely and used SFAS No. 96 expands the requirement to record deferred against regularincome tax. A net operatingloss carryforward income taxes for temporary differences that are reported in one at December 31,1988, amounted to approximately $75.0 year for financial reporting purposes and a different year for million and is available to offset taxable income in future years. tax purposes.This will require the recognition of deferred tax If not used,it will expire in 2003. balances for certain items not previously reflected in the Pursuanttoanorderof the financial statements, such as a deferred tax liability relating to APSC dated March 1,1982, the Company ceased providing AFDC. Under the liability method adopted by SFAS No. 96, deferred taxes on certain timing differences which were deferred tax balances will be based on enacted tax laws at tax previously normalized. However, the order requires the rates that are expected to be in effect when the temporary Company to continue providing deferred taxes on applicable dif ferences reverse. Based on a preliminary study, it is expected decommissioning costs of nuclear plant and provides for con- that the adoption of SFAS No. 96 will result in a net increase in tinued normalization of timing differences which are required accumulated deferred income taxes with a corresponding by the Internal Revenue Code or state law. In addition, the increase in assets.The Company's results of operations are not APSC approved normalization for deferred purchased power expected to be significantly impacted by the adoption of SFAS cost per the Revised Settlement Agreement. No. 96. Cumulative income tax timing differences for which deferred income tax expense has not been 27
NOTES TO FINANCIAL STATEMENTS A.kanw Paw & bght Company 1987, a three-judge panel of the D.C. Circuit affirmed theJune 13 Decision and held, among other things, that the FERC had i authority te establish an allocation of power from Grand Gulf I which the FERC found to be just and reasonable under the Federal Power Act. Various parties filed requests for rehearing I with the D.C. Circuit and petitions for certiorari to the United
- 4. COMMITMENTS AND CONTINGENCIES States Supreme Court. The United States Supreme Court has Construction denied the petitions for certiorari.
After subsequently granting The Company's construction rehearing on two issues raised in theJanuary 6,1987, decision, progi;m contemplates expenditures (excluding AFDC and the D.C. Circuit, on J une 24,1987, reversed and remanded, in nuclear fuel) of approximately $144.8 million in 1989, $148.4 part, theJune 13 Decision for reconsideration of the manner in million in 1990 and $143.8 million in 1991. which the FERC allocated the cost of Grand Gulf 1. In the Unit Power Sales Agreement and Grand Gulf 1 Prudence November 30 Order the FERC,in response to theJune 24, 1987, D.C. Circuit decision, reaffirmed and reinstated its June
,OnJune 10,1982, System 13 Decision. Various parties filed petitions for rehearing which Energy and the System Operatmg Compam,es entered mto a the FERC denied, and have filed petitions with the D.C.
Unit Power Sales Agreement pursuant to which System
. Circuit requesting review of the November 30 Order. By ,
Energy agreed to sell all of the capacity and energy from its 90 order dated January 29,19c8, the FERC denied such requests. percent share of the Grand Gulf Statmn in accordance with Petitions for review of the November 30 Order and the certain percentage allocations of capacity and energy to LP&L, January 29,1988, order were filed with the D.C. Circuit by MP& L and NOPSL The Unit Power Sales Agreement, as various parties. The APSC and other Arkansas and Missouri approved by the FERC onJune 13,1985 (June 13 Decision), parties are attempting to raise again the issue of FERC jurisdic-and reaffirmed and reinstated m its order dated November 30, tion to allocate capacity and energy and related costs to the 1987 (November 30 Order), discussed below, obligates the Company. A motion for summary affirmance as to its System Operatmg Compames to purchase from System jurisdiction was filed by the FERC. The D.C. Circuit ordered Energy, at System Energy's full cost of service, all of System that the jurisdictional issue be referred to the panel of judges Energy's 90 percent share of the capacity and energy from which will decide this appeal on the merits, and that the parties Grand Guli1 m accordance with the followmg percentage
, are not to further brief the jurisdictionalissue. Oral argument allocations: AP&L ,36 percent; LP&L, i 4 percent; MP&L,33 is scheduled for May 8,1989. The matter is pending.
~
percent; and NOPSI,17 percent.The Company's obhgaton It is not possible at this time to l for the non-fuel portion of payments tc System Energy for 1 predict the ultimate outcome of this matter, including possible Grand Gulf 1-related charges is currem ly approximately $24 reallocation,if any, or the effect thereof upon the Company, mdhon per month. In its June 13 Dect son, the FERC did not the other System Operating Companies, or System Energy, rule on Grand Gulf 2's allocation anc' ordered System Energy includingpossiblerefunds,if any. Any materialmodification to remove the proposed Grand Gul' 2 allocation from the Um,t of the allocation established by theJune 13 Decision could give PowerSales Agreement. rise to additional litigation, disputes and challenges in the ! Various parties to these affected jurisdictions. proceedings requested rehearings and some parties, meludm.g OnJune 24,1988, the United the Company, requested a stay ofimplementation of theJune States Supreme Court rendered a decision which affirmed 13 Decision. In a senes of decismns the FERC demed all
, MP&L's right to recover through its retail ratt s the 33 percent requests for reheanng and took the pos,tmn i it does not have allocation of Grand Gulf 1-related costs allocated to it by the authority to require a refund if theJune 13 Decismn is over-FERC, thereby upholding the principle of federal preemption, turned by the courts on appeal, unless the court orders a
, which i essary to secure implementation of System refund. Various parties, including the Company and MP&L, Enerp , Ucrally mandated wholesale rates through the retail appealed these orders and some parties filed motions for a stay rate structures of the System Operating Companies, including of these orders w,ith the Umted States Court of Appeals for the
, , the Company. In so doing, the United States Supreme Court Distnct of Columbia Circuit (D.C. Circuit). On January 6' affirmed the principle that various matters regarding the prudence of Grand Gulf 1 are within the FERC's exchisive I jurisdiction. In this connection, representatives of certain governmentalbodies,includingthe Arkansas Attorney General, the Louisiana Public Service Commission, the Mississippi Public Service Commission, the Mississippi Attorney General and the Council of the City of New Orleans (Council), have publicly stated that they are considering 28
whether to retain a consulting firm that would develop are necessary for demobilization and suspension of the unit. A information regarding the construction and operation of special group of Middle South Electric System officials and Grand Gulf 1 that may lv used to approach the FERC with a outside consultants completed in late November 1986 its request to open a prudence proceeding. The Middle South evaluation and review of Grand Gulf 2. Among the possibili-Electric System cannot predict whether any consulting firm ties evaluated were (1) immediate resumption of construction will be retained for this purpose, whether any proceeding of the unit,(2) cancellation of the unit,(3) continued suspen-l before the FERC regarding Grand Gulf 1 prudence issues will sion of construction on the unit through 1989 or beyond, and i be initiated or in what context any prudence issues might arise. (4) conversion of the unit to an alternative fuel source. In However, the System would vigorously defend against any December 1986, System Energy's Board of Directors (with the possible allegations ofimprudence with respect to Grand Gulf MSU Board of Directors concurring) adopted the group's l 1 that might be made before the FERC and believes that its recommendation that suspension of construction be continued investment in Grand Gulf I was prudently incurred. and that a further decision be made by 1990 on the future status of Grand Gulf 2 in light of alternatives available at that time. Availability Agreement and Reallocation A0reement g 4 ;gg gg The Company, together with sion, System Energy's expenditures on Grand Gulf 2 have the other System Operating Companies, are severally obli- continued to be limited, and System Energy during this time gated to System Energy under the Availability Agreement, as has not accrued AFDC on its investment in the unit. Conse-amended, in accordance with stated percentages (AP&L,17.1 quently, during the suspension period, System Energy has percent; LP& L,26.9 percent; MP& L,31.3 percent; and foregone any return on this investment. Further, System NOPSI,24.7 percent) to make payments or subordinate.f Energy has previously indicated that it has no intention, prior advances adequate to cover all of the operating expenser, to a further decision on the status of Grand Gulf 2,of seeking including depreciation, of System Energy. The Svem FERC approval for the recovery through charges to the Operating Companies, including the Company,in November System Operating Companies ofits investment in the unit. 1981 entered into a Reallocation Agreement which would have Sy> tem Energyis continuing allocated the capacity and energy available to System Energy to evaluate various alternatives for the future of Grand Gulf 2 from the Grand Gulf Station to LP&L, MP&L, and NOPSI. and to assess whether the equipment or facilities constructed These companies thus agreed to severally assume shares of 100 and acquired to date should continue to be carried on its percent of the responsibilities and obligations of the Company balance sheet at their full cost. In this connection,in 1989 with respect to the Grand Gulf Station under the Availability System Energy will analyze the future status of Grand Gulf 2 Agreement, with the Company relinquishing its rights to the including an evaluation of various possibilities similar to those capacity and energy from the Grand Gulf Station. However, studied in 1986. Any determination that the value of System theJune 13 Decision effectively superseded the Reallocation Energy's investment should be reduced and the amount of any Agreement insofar as it relates to Grand Gulf 1. such reduction written off could adversely affect various companies in the Middle South Electric System . Certain issues relating to the value of System Energy's investment in As recorded on its balance Grand Gulf 2 also exirt in connection with an audit by the sheet as of December 31,1988, System Energy's totalinvest- FERC of System Energy and the Grand Gulf Station. ment in Grand Gulf 2 was approximately $905 million While System Energy believes (includingapproximately $401 million of AFDC). From late that all ofits investment to date in Grand Gulf 2 has been 1979 until September 1985, only a limited amount of construc- prudent,in connection with any further decision as to the tion was performed on Grand Gulf 2. Effective September 18, value of Grand Gulf 2 or the ultimate decision with respect to
~ 1985, System Energy suspended construction activities on the future of Grand Gulf 2, System Energy will, at an appro-Grand Gulf 2 following an order of the Mississippi Public priate time, make a determination as to the appropriate Service Commission. As of that date, Grand Gulf 2 was recovery of all or a portion ofits investment, including,in the approximately 34 percent complete based on the man-hours event of cancellation of the unit, the possibilities of seeking estimated at that time to be needed to complete the unit. recoveries. In making such determination, System Energy will Since September 1985, System consider, among other things, the regulatory environment Energy has limited expenditures to only those activities which generally, and legal standards then applicable and the antici-pated financial, regulatory and political effects upon System i
29 l
et e NOTES TO FINANCIAL STATEMENTS Arkana Puurr & Lubt Company Energy and the other Middle South Electric System compa- In December 1986, the FASB nies of various alternatives. issued SFAS No. 90," Regulated Enterprises - Accounting fcr In the event that System Abandonments and Disallowances of Plant Costs," an Energy were ultimately to seek recovery of Grand Gulf 2 amendment of ScAS No. 71. SFAS No. 90 requires, among costs, System Energy would likely be required to make a filing other things, that when abandonment of a plant becomes with the FERC requesting such recovery over a period of years probable, the cost of such plant in excess of the present value of through charges to the System Operating Companies. The estimated recoveries through rates with respect thereto, net of System Operating Companics would in turn be required to fi!e related tax benefits, shall be reported by recording a charge applications with state or local regulatory authorities to against current income. The provisions of SFAS No. 90 would recognize the FERC-allocated Grand Gulf 2 charges in retail apply should System Energy decide to cancel Grand Gulf 2 or rates. In view of the controversies over the Grand Gulf should cancellation of Grand Gulf 2 become probable. Station, including the adverse reaction of various rate regula- ",' tory bodies to allocation of costs, regulatory uncertainties, including ratemaking, attendant to a delay in the decision as to The Company has a 35 pcreent the future of Grand Gulf 2 and imprudence issues, there can be interest in SFI, a jointly owned subsidiary of the System no assurance that the cost of Grand Gulf 2 willbe recovered or Operating Companies. SFI operates on a non-profit basis for as to the timing of any recovery. As was the case with Grand the purpose ofimplementing programs for the procurement, Gulf 1, proceeding before the FERC and, with respect to delivery and storage of fuel supplies for the System Operating recognition in retail rates of FERC-approved rates, before Companies. Its costs are primarily recovered through charges state or local regulatory authorities, could be protracted and for fuel delivered. In connection with certain of SFI's external strongly contested on various grounds, including imprudence. borrowing arrangements, SFI's parent companies, including If costs associated with Grand Gulf 2 were allocated to the the Company, have covenanted and agreed, severally in System Operating Companies and they were unable to recover accordance with their respective shares of ownership of SFI's these costs from their customers, the System Operating common stock, that they will take any and all action necessary Companies' financial condition could be materially and to keep SFI in a sound financial condition and to place SFI in a adversely affected. Any nonrecovery of System Energy's position to discharge, and to cause SFI to discharge,its investment in Grand Gulf 2 would result in a charge against obligations under these arrangements. At December 31,1988, current income for any unrecoverable investment when the the total loan commitment available to SFI under these j event becomes probable. In the event such a charge were arrangements amounted to $105 million, of which $43.5 ! substantial, the financial condition of System Energy could be million was outstanding. Also, SFI's parent companies have materially and adversely affected and System Energy's ability made similar covenants and agreements in connection with to pay dividends on its common stock could be impaired. long-term leases by SFI of oil storage and handling facilities Failure to obtain rate relief for and coal hopper cars. At December 31,1988, the aggregate all or a substantial portion of the cost of Grand Gulf 2 could discounted value of these lease arrangements was $70.6 million. have a material and adverse effect upon the financial condition The parent companies of SFI of System Energy, MSU and possibly the System Operating had agreed to make loans to SFI to finance, in part,its fuel Companies, depending upon, among other things, the timing supply business under a loan agreement dated January 4,1978, of therealizationof anysuchloss. as amended through December 31,1983 (Loan Agreement). InJanuary 1988, the FERC At this time, no future loans may be made to SFI by the parent issued an order which modified its policy regarding recovery companies. During 1988, SFI repaid loans from the Company of cancelled or abandoned plant costs by utilities subject to its in the amount of $27.7 million, resulting in remaining loans to j jurisdiction. The revised policy provides for a "50/50 sharing" SFl at December 31,1988, of $11 million under the Loan l of prudently incurred costs of a cancelled plant between the Agreement.The loan matures in 2008 under provisions of the i owner and the ratepayers,whereby 50 percent of the prudently Loan Agreement. incurred costs of the cancelled plant would be amortized and recovered from ratepayers over the expected life of the plant as ifit had been completed. The currently unamortized portion of such amount would also be included in the rate base, thereby allowing for a return thereon. The remaining 50 1 percent of prudently incurred costs would be written off. In l May 1988, the FERC denied requests for rehearing pertaining to that portion of its January 1988 order which adopted the "0/50 sharing" methodology and the FERC's orderis now final. 30
coal for Class Action Determination. On April 18,1986,MSU and SFI contracted with a joint certain other Middle South Electric System companies, venture for a supply of coal from a mine in Wyoming which, including the Company and individual defendants (MSU based on estimated reserves,is presently expected to provide System defendants), filed a Motion to Dismiss or,in the the projected requirements of ISES for at least 30 years, which alternative,a Motion forSummaryJudgment. OnJanuary 12, began in 1984. This contract was assigned to the Company 1987, the District Court entered a judgment granting defen-with SFl having no further obli;;ations or involvement under dants' Motions for Summary Judgment and dismissed the suit. the contract effective December 31,1987. Under the contract On February 6,1987, the plaintiff: in the consolidated action with the joint venture, investment in the mine for leases, plant filed a Notice of Appealin the U.S. Court of Appeals for the and equipment is the responsibility of the joint venture. In Fifth Circuit (Fifth Circuit). On J une 7,1988, the Fifth Circuit order to limit the joint venture's investment and, hence, the rendered a decision vacating the judgment of the District amount to be paid to it as a component of the price of coal, the Court, based,in part, on the conclusion that the District Court contract provided that SFI invest all funds for plant and had not adequately explained the bases forits decision. In equipment in excess of a specified amount. The Company, remanding the case to the District Court for further proceed-MP&L, Arkansas Electric Cooperative Corporation (AECC) ings, the Fifth Circuit suggested that the District Court could and the City ofJonesboro, as co-owners in part of ISES again consider the merits of the defendants' motion for (owning 96.5% collectively), previously agreed to make, or summary judgment and determine, with the benefit of certain cause to be made, the investments rather than SFl and, accord. guidelines as to the interpretation of governing law articulated ingly, reimburse SFI for SFI's previous investments. At by the Fifth Circuit, whether the defendants are entitled to December 31,1988, the Company had a net investment of summary judgment as a matter of law. The District Court was
$15.6 million in mine facilities and related capitalized assets. directed, if it makes such a determination, to provide a detailed The Company has nade the required investments on behalf of analysis supporting its conclusions that would facilitate the other co-owners of ISES (owning 3.5% collectively) and is judicial review. Alternatively, the Fifth Circuit noted, the billing them monthly for the depreciation and carrying cost of District Court could decline to rule on the defendants' motion these investments. for summary judgment until further development of the er e The Company has agreed to has taken place and the issues have been narrowed through the purchase, over an approximate 20-year period, which began in available pre-trial techniques. On September 6,1988, MSU 1980,100 million tons of coal for use at the White Bluff Steam and ccrtain other Middle South Electric System companies, Electric Station. including the Company, and individual defendants filed a petition for a writ of certiorari with the United States Supreme Shareholder Utigation Court. On October 31,1988, the United States Supreme MSU and certain other Middle Court denied this petition. Based upon the Fifth Circuit's South Electric System companies and individuals are defen. decision, the District Court allowed the parties to rebrief the dants in a purported consolidated class action suit. The initial Motion for Summary Judgment and, on January 17,1989, the complaint was filed on August 19,1985, by an MSU share- MSU System defendants filed a Renewed Motion for Sum-holder (purporting to represen: a class which purchased MSU mary Judgment and a verified answer to the consolidated, common stock). Four similar complaints were filed on August amended and supplemental complaint. The District Court has 20,1985, August 23,1985, September 6,1985 and September scheduled the trial to commence on March 12,1990. The 19,1985, respectively, by shareholders of MSU (purporting to outcome of this matter and its impact on the Company's represent classes which purchased MSU common stock). The financial condition cannot be predicted at this time. The five actions were consolidated in the United States District matter is pending.
Court for the Eastern District of Louisiana (District Court). ""*"'#""*""***'" The consolidated, amended and supplemental complaint alleges violations of the disclosure requirements of the Securi- NOPSI's retail rate orders ties Exchange Act of 1934 and the Securities Act of 1933, with respect to its allocated costs for Grand Gulf I capacity common law fraud and common law negligent misrepresent. and energy is still being challenged and reconsidered. On tion in connection with the financial condition of MSU and February 4,1988, the Council adopted a resolution (February prays for compensatory and punitive damages, legal costs and 4 Resolution) requiring a disallowance and write-off by fees and other proper relief against MSU, System Energy, NOPSI of a sum equal to $135 million of NOPSI's deferred LP&L,MP&L, AP&L and NOPSl;certain current members and former members of MSU's Board of Directors;certain officers and formei officers of MSU, System Energy, LP&L, MP&L, AP&L, and NOPS!; the independent auditor of MSU and certain underwriters of MSU common stock. On March 14, l986, the plaintiffs in the consolidated action filed a Motion 31
e e NOTES TO FINANCIAL STATEMENTS Arkanw Pvwer & lsght Company Grand Gulf I expenses, based on alleged imprudence. The Spent Nuclear Fuel and Decommissioning Cost consequences of the February 4 Resolution, so long as it Under the Nuclear Waste remains in effect, are that NOPSI's ability to effect long term Policy Act of 1982, the DOE is required to construct storage or short-term external borrowings or to satisfy potential facilities for and dispose of all spent nuclear fuel and other high obligations to purchase all or a portion ofits outstanding level radioactive waste generated by domestic nuclear power General and Refunding Mortgage Bonds will continue to be reactors, for a specified fee. The NRC, pursuant to this Act, significantly and adversely affected, and NOPSI could also requires operators of nuclear pewer reactors to enter into ultimately be rendered insolvent. spent fuel disposal contracts with the DOE. Under the terms Insolvency of NOPSI, should of the Company's nuclear fuellease, the Company is respon-it occur, could, under certain of SFI's financing agreements and sible for the disposal of spent nuclear fuel. SFI, on behalf of the leases, require payments by the Company and the other Company, has executed contracts with the Department of System Operating Companies or MSU in the event that SFI's Energy (DOE) whereby the DOE will furnish disposal service obligations under such agreements are accelerated as a result of for the Company's spent nuclear fuel at a cost of one mill per the insolvency of NOPSI, and in the event that SFI is unable to kilowatt-hour of net generation on or after April 7,1983,plus meet these obligations or to otherwise satisfy these obligations one-time fees for previously discharged fuel and in-core through the sale of the collateral securing such obligations. In burned fuel prior to that date. The Company has selected an addition, insolvency of NOPSI could affect the terms of option mde available by the DOE to pay the one-time fee, financing, including an increase in the cost of financing, or plus interest accrued until date of payment, no earlie than could preclude financing for other Middle South Electric 1998. The fees payable to the DOE may be adjusted m the System companies. future to assure full cost recovery. The Company has recorded Unit Power Purchase Agreement #EE* *##I * " "# "E# # " # December 31,1988, necessary for payment to the DOE for the The Company and MP&L are disposal of all spent nuclear fuel on hand at April 6,1983. The parties to a Unit Power Purchase Agreement, terminating in Company considers all costs incurred or to be incurred in the December 1989, for the sale to MP& L of the Company's 31.5 use and disposal of nuclear fuel to be proper components of percent share of capacity and energy from Unit 2 ofISES. The nuclear fuel expense and provisions to recover such costs have Company's before-tax income associated with the sale of such been or will be made in applications to regulatory commis-capacity to MP&L, approximately $29 million in 1988, will be sions. reduced upon termination of the agreement. Under the Nuclear Waste i Nuclear Fuel P licy Act of 1982, the DOE was to begin accepting spent fuel The Company has agreements in 1998 and continue until the disposal of all fuel from reactor ) sites is accomplished. However, the DOE's repository j for the purchase and fabrication of fuel assemblies for the ANO Station.The Company has agreed to purchase from program has been delayed, with estimated initial operation of a ) permanent repository scheduled for 2003. In the meantime, i Quivira Mining Company 0.315 million kg of uranium the Company will be responsible for storage of spent fuel. The j through September 30,1989. The Company also has agree-Company estimates that on-site spent fuel storage capacity at j ments with the Babcock & Wilcox Company and the Com-ANO 1 and ANO 2 will be sufficient to store fuel from normal I bustion Engineering Company for the fabrication of fuel operation until the mid 1990's. It is expected that any addi-assemblies used at the plant. tional storage capacity required due to, among other things, I
.I.he Company was a party t delay of the DOE repository program will be provided by the !
two nuclear fuelleases which permitted it to lease, m the l Companv. ' aggregate, up to a maximum of $140 million of nuclear fuel. In addition to the recovery of On December 22,1988, the Company replaced both of the costs associated with the disposal of spent nuclear fuel, the nuclear fuelleases, which were scheduled to terminate March Company is also recovering decommissioning costs for its two ' i 1,1989, with a new nuclear fuel lease. The new lease permits nuclear units. The Company requested in an application to the the Company to lease up to $195 million of nuclear fuel APSC recovery of estimated increased costs and authorization through December 31,1993, or longer, as long as the Secured to fund previous and future collections in external trusts. On Notes of theTrustee remain outstanding, with automatic March 9,1988, the APSC approved an increase in the Com- l utensions to December 31,2038, in the absence of contrary
- pany , total recovery of such costs from approximately $160 notice from the Company or the lessor. At December 31, milron to approximately $686 million for these two units with 1988, the unrecovered cost base of the lease was $162.7 milh.on.
in, reased recovery implemented March 23,1988. Pursuant to t l .e APSC order collections of $25.4 million were placed in
,eparate funds in outside trust accounts in 1988.
32
o . Nuclear Insurance mately $260.8 million. Included in this amount is approxi-The Price-Anderson Act was mately $162.7 millien associated with nuclear fuelleases. amended in 1988 to extend its coverage to August 1,2002, and Rental expense for capital and to limit the public liability for a single nuclear incident to operating leases (excluding nuclear fuel leases) amounted to approximately $7 billion. The Company is protected against approximately $23.6 million, $18.3 million and $22.9 million in this liability by a combination of private insurance (presently 1988,1987 and 1986, respectively, Nuclear fuel expense,
$160 million; expected to increase to $200 million by the end of exclusive of negative salvage, of $61.1 million in 1988, $74.1 1989) and an industry assessment program. Under the million in 1987 and $57.3 million in 1986 was charged to assessment program, for each nuclear incident at a licensed operauons.
nuclear facility, each licensee will be responsible for up to $66 At December 31,1988, there million per reactor (such amount to beindexed every five years were noncancellable leases with minimum rental commitments for inflation), payable at a rate of $10 million ner year, includ. as shown in Table 5-A. Table 5- A excludes nuclear fuel ing a 5 percent surcharge in the event the tot ,mblic liability obligations relating to the unrecovered cost base of the approaches $7 billion. At December 31,1988, the Company Company's lease, which at December 31,1988, was $162.7 had two licensed reactors. million. Reduction of this obligation for nuclear fuelis based The Company is a member of upon nuclear fuel usage. certain insurance pr ograms that provide coverage for property damage to members' nuclear generating plants. The Company Table 5-A: Minimum Rental Commitments is insured against property damage losses of up to $1.525 canal ofmanng billion. In addition, the Company is a member of an insurance 7,"!. ... . . .. . . h""'. I
?d"' .
program that provides insurance coverage for certain costs of riu r6-uns,; replacement power incurred due to certain prolonged outages of nuclear units. Under these property and replacement power 1989 $ 18,919 $ 7,237 insurance programs, the Company could be subject to assess- 1990 19,166 7,052 ments iflosses exceed the accumulated funds available to the 1991 18,800 6,880 insurer. At December 31,1988,the maximum amount of such 1992 16,286 6,089 assessments for the Company was $14.07 million. 1993 13,434 6,059 In October 1987, the NRC For years thereafter 111,504 18,266 amended its regulations to require nuclear power plant Total $198,109 $51,583 licensees to obtain property damage insurance coverage of not Less: Amount Representing Interest (100,071) less than $1.06 billion. As discussed above, the aggregate Present Value of Net Minimum amount of property insurance carried by the Company Lease Payments S 98,038 exceeds this requirement by $465 million. The NRC regula-tions further provide that any proceeds of this insurance must be segregated in a trust and be used, first, to place and maintain the reactor in a safe and stable condition a~l, second, to complete required decontamination operations. The NRC hasissued on behalf of all nuclear licensees, including the Company, temporary exemptions from the stabilization and decontamination priority and trusteeship provisions until completion of the pending rulemaking extending the implementation date of the regulations, but not later than April 1,1989. It is anticipated that the temporary exemptions will be extended beyond that date.
- 5. LEASES In 1987,in accordance with SFAS No. 71 the Company recorded on the balance sheet the capitalleases entered into prior to 1983. Recording of such leases does not affect amounts reported as either expense or net ircome.
At December 31,1988, the Company had obligations under capitalized leases of approxi-33
- o N0'TES TO FINANCIAL STATEMENTS Arknus Mer & bght Cons,mny for these benefits if they reach retirement age while still working for the Company.These benefits and similar benefits for active employees are provided through various means including payments of premiums to an insurance company and/or accruals for self insurance policies managed by an insurance company.The cost of providing these benefits for
- 6. POSTRETIREMENT BENEF M retired employees is not separable from the cost of providing In conjunction with the sale of. benefits for the active employees. The total cost of providing
. these benefits and the average number of active and retired ANG (see Note 1 to the Financial Statements " Summary of employees for the last three years are shown m Table 6-C.
Significant Accounting Policies"),in 1988 the assets and benefit obligations of the Company's pension plans were ;
' merged, effectiveJanuary 1,1987, through an amendment and Table 6-A: Pension Cost Components .
restatement of the Company's primary pension plan.The pro- PueMet 3 / . . . . . . . . . . . . . . . ... .{988 1987 visions of the plans were substantially the same but covered un muunds) f employees in different divisions of the Company and ANG. Service cost - benefits earned during ; S 5,649 $ 6,875 On June 1,1988, under the terms of the sale agreement the period between the Company, ANG and Arkansas Western, Arkan- Interest cost on projected benefit sas Western assumed the assets and benefit obligations, obligation. 14,212 14,004 . effectiveJanuary 1,1987, which were related to active ANG Actual return on plan assets (23,737) ,(6,332)- / participants at June 1,1988.The Coiapany's plan, as amended, Net amortization and deferral 4,286 '(11,887) retained the net assets and benefit obligations associated with $ 410 $ 2,660 Net pension cost all ANG retirees as ofJune 1,1988. The Company's pension plan, as amended, covers substantially all employees of the Com- Table 6-B: Funded Status of Plan pany. Benefits are based on years of service and the employee's NM".31. . - - . . . M87 . . M' . Un muuado - compensation during the last ten years of employment.The Company's funding poJicy is to fund pension costs in accor-
^ """". "P I '*S*"'""I"' f"CC" *"I""d dance with contribution guidelines established by the Em_ PenSi n Pl an benefits:
Vested $ 126,299 $ 125,29_7 ployee Retirement Income Security Act of 1974, as amended. Nonvested 10,665 9,844 The planis administered by a Accumulated benefit obligation $ 136,964 $ 135,141 trustee who is responsible for pension payments to retired employees. Various investment managers have responsibility Projected benefit obligation $(173,179) $(170,35h for management of the plan's assets In addition,an independ- Plan asscri, at fair value 198,335 191,945 ent actuary performs the necessary actuarial valuations for the Plan assets in excess of projected Company's plan.The components of the Company's 1988 benefit obligation 25,156' 21,593 and 1987 pension cost, as determ'aed by the actuary, are Unrecognized transition a sets (30,365) (31,614) shown,mTable 6-A. (10,979) Unrecognized net (gain) loss (15,771) Totalpensionexpenseof the Company for 1983,1987 and 1986 was approximately $0.4 Accrued pension asset (liability) $ (20,980) $ (21,000) million, $6.3 million and $6.3 million, respectively.The Company adopted SFAS No. 87 " Employers' Accounting for isble s.c Pensions", effectiveJanuary 1,1987. The assets of the plan comist %"!"T 3/ . . ...... . . N8 . M7 . P.86 I primarily of common a i preferred stocks, fixed income Total cost of health care and secunnes and msurance contracts. . life insurance on muuna) .$.9,540 $.7,716 .$.7,042 The funded status of the plan at . . . December 31,1988 and 1987 is presented in Table 6-B.The
. .. Average number weighted average discount rate and rate of .mcrease m future 4,658 4,922 5,151 of active employees compen ation used in determining the actuarial present values Average number of the projected benefit obh,gation wem 9.0 percent and E6 1,213 1,214 1,163 of retired employees percent, respectively, m 1988 and 1987.The expected long- : :.. ,. , ,::.:
term rate of return on plan assets was 8.5 percent in 1988 and 1987. Transition assets are being amortized over 15 years. The Company also provides certain health care and life insurance benefits for retired employees. Substantially all employees may become eligible 34 l w-_______-___-_ _ _ _ _ _ - _ _ _ _ _ _ _ _ _ _ _ - _
+
- l
- 7. LINES OF CREDIT AND SHORT. TERM BORROWINGS proximately $667,000 in other short-term borrowings at December 31,1988 and 1987, respectively.
The Company has rece.ived Add. .:.onally, the Company from the SEC under the Public Utility Holding Company Act participates with certain other companies of the Middle South I of 1935 authorization to have outstanding through 1990 short-i Electnc System in a money pool (Money Pool) arrangement term borrowings aggregating $125.0 million at any one time, whereby those companies with available funds make short-Add,tional i short-term borrowings up to a maximum of 10 term loans to other companies in the System (other than MSU) percent of the Company s capitalization are subject to further Hving short-term borrowing requirements. The Companv . - SEC approval. See Table 7-A for short-term borrowings and . may bomw fmm these sources subj.ect only to its maximum the applicable interest rates (determined by dividing applicable authonzed level of short-term borrowings. At December 31, interest expense by the average amount borrowed) for the 1988 and 1987, respectively, the Company had $20 million and
$70.5 million of temporary investments in the Money Pool.
The Company had $42.8 million and $50.5 million in lines of credit with Arkansas banks at December 31,1988 and 1987, respectively. The Company had no outstanding borrowings under these lines of credit at year-end 1988 or 1987. In addition, the Company had ap-Table 7 A
% gnaes tkwnber st , , ,,, ,,, ,, ,,,, . .. . . . """. '9.
. . 'M .
(in Thouunas) Maximum month-end borrowing $51,172 $667 $1,000 Year-end borrowing $667 $M7 - Average borrowing: Bank loans $21,001 $361 $9,025 Associated compame> Other .$667 ,$667 , Average interest rate: During the period-Bank loans 9.15 % 8.28 % 8.63 % Associated compames Other 9.35 % 8.30 % - At end of period-
~ ~ ~
Bank loans Associated compames Other Y, , " . 8 75,% , , , - Compensating and working balances at end of period ,
} . . ,] ,
,~
B. RETAINFO EARNINGS The indenture relating to the until, July 1987. Since 1987, the Company has paid quarterly Company's long-term debt and provisions of the articles of common stock dividends to MSU aggregating $48.2 million incorporation relating to the Company's preferred stock and $22 6 rrdilic,n in 1988 and 1987, respectis cly, provide for restrictions on the payment of cash dividends on common stock. As of December 31,1988, all retained earnings were free from such restrictions. The Company did not declare any common stock dividends from the second quarter of 1985 35
- e NOTES TO FINANCIAL STATEMENTS A>kam.u Pouer & lsght Cumpany sponding decrease in par value of common stock.
The Company has requested, l but has not received, all necessary regulatory approval for the issuaace of up to $150 millior: additional preferred stock. llowever, the Company has obtained necessary regulatory
- 9. PREFERRED AND COMMON STOCK approval to proceed with arrangements for the possible A special meeting of the redemption, purchase or other acquisition of up to an aggre-Company's common and preferred stockholders was held on gate par value anuunt of $91 million of all or a portion of October 19,1988, and adjourned to November 9,1988. The certain outst.inding senes of the Company's high dividend rate stockholders adopted a proposal to create a new class of preferst stock.The series of the Company's preferred stock 15,000,000 shares of preferred stock with a par value of $0.01. 1.gg 7 considered for acquisition melude, but may not be As of December 31,1988, none of this stock had been issued. hmited to, the 9.92% and 13.28% series of the Company's In December 1987, the class f $25 par value preferred stock and the 10.60% and 11.04% series of the company's class of $100 par value Company reduced the par value of all common stock from ,
preferred stock.
$12.50 per share to $0.01 per share. This resulted in an increase in paid-in capital of approximately $686,702,000 and a corre-Table 9-A: Changes in Shares Outstanding Durmg the year 1988 1987 1986 Common stock shares sold - - -
Preferred stock shares sold (retired):
$100 par value (53,337) (38,555) 462,428
$25 par value ,(337,218) ,(391,325) (18,000) ,
Table B: Preferred Stock Outstanding At December 31 1988
. . . . .. .. . . .. . . .'987 (In Thousanh)
Without sinking fund: Stated at $100 a share $101,350 $101,350 Stated at $25 a share 25,000 25,000 Premium and expense, net 540 540 Total preferred stock without sinking fund $126,890 $126,890 With sinking fund: Stated at $100 a share $ 77,800 $ 83,134 Stated at $25 a share 60,665 69,095 Premium and e_xpense, net (1,086) Total preferred stock with sinking fund $137,379 $151,255 36
Table 9-C: Preferred Shares Outstanding Current Shares Shares Ontaandmg Call Pnce Authonzed 191ts 1987 Per Share At December 31 .. . Cumulative, $100 Par Value: Without sinking fund: 4.32% series 70,000 70,000 70,000 $103.647 4.72% series 93,500 93,500 93,500 107.00 4.56% series 75,000 75,000 75,000 102.83 4.56% 1965 series 75,000 75,000 75,000 102.50 6.08% series 100,000 100,000 100,000 102.83 7.32% series 100,000 100,000 100,000 103.17 7.80% series 150,000 150,000 150,000 103.25 7.40% series 200,000 200,000 200,000 102.80 7.88% series 150,000 150,000 150,000 103.00 Tsal~ 1,011,500 1,013,500 1,013,500 With sinking fund *: 10.60% series 98,000 98,000 116,012 106.74 11.04% series 180,000 180,000 215,325 107.02 8.52% series 500,000 500,000 500,000 108.52 Total 778,000 778,000 831,337 Unissued _ 1,938,500 Total, $100 Par Value 3,730,000 Cumulative, $25 Par Value: Without sinking fund: 8.84% series 400,000 400,000 400,000 27.11 10.40% series 600,000 600,000 600,000 27.30 Total -.-1,000,000 1,000,000 - _ 1,000,000
= =.
With sinking fund *- 9.92% series 1,109,478 1,109,478 1,246,521 27.56 13.28% series 1,317,126 1,317,126 1,517,301 29.05 Total 2,426,604 2,426,604 2,763,822 Unissued 5,573,396 Total, $25 Par Value 9,000,000 Cumulative, $0.01 Par Value: Unissued 15,000,000 Total, $0.01 Par Value 15,000,000
*These series are to be retired infullthrongh the operation ofsinkingfunds. The 9.92% series,10.60% series,11.or% series and 13.28% series are being redeemed each year at the rate of 80,000.10,000, 20,000 and 100,000 shares, respectively. Heginning November I,1991, the R. S2% series is to be redeemed at the rate of 25,000 shares each year. In addition, the Company has the non-cumulative opnon to redeem an additionallike anmunt ofsaid shares cachyear.
37
y NOTES TO FINANCIAL STATEMENTS - Arbam Pour & l.sght Compuy l
- 10. LONG-TERM DEBT -
Table 10-A: Long Term Debt At D;cember]I 1988 .,47 (In kuunds) . First Mortgage Bonds: . 5 1/2% series due 1988 $ -$ '283. 5 5/8% series'due 1990 600 700
/ 4 '7/8% series'due 1991 12,000 12,000 4 3/8% series due 1993 15,000 15,000 9 3/8% series due 1993* -' 4,200-f 4 5/8% series due 1995 '25,000 25,000 ,;
5 ' 3/4% series due 1996 25,000 25,000 j 6 1/4% series due 1996 1,960 2,160 , i 5 7/8% series due 1997 30,000 30,000- 1 8 3/4% series due 1998 -6,600 7,000 j
. 7 3/8% series due 1998 15,000 15,000 1 9 1/4% series due 1999 25,000 - 25,000 -I 9 5/8% series due 2000 25,000 25,000 9 3/4% series due 2000 3,000 3,200 7 5/8% series due 2001 30,000 L . 30,000- j 8 .. % series due 2001' 30,000 ' 30,000
' 7- 3/4% series due 2002 35,000 35,000 .
7 1/2% series due 2002 15,000 15,000 l 8 % series due 2003 40,000 40,000.' I 8 1/8% series due 2003 40,000 40,000 10 1/2% series due 2004 40,000 40,000 j
.10 1/8% series due 2005 40,000 40,000 9 1/8% series due 2007 75,000 .75,0001 9 7/8% series due 2008 75,000- 75,000 10 1/4% series due 2009 60,000 60,000 ,
13 3/8% series due 2012 75,000 75,000 ; 13 1/4% series iae 2013 25,000 25,000
' 14 1/8% series due 2014 100,000 100,000-10 1/4% series due 2016 50,000 50,000 Total First Mortgage Bonds 914,160 919,543 Installment Purchase Contracts:
Pope County, Arkansas; due 1987 to 2015 at rates ranging from 7-1/4% to 11%** 140,580. 140,645 ; Jefferson County, Arkansas; due 1987 to 2008 at rates ranging from 6-1/8% to 10% 68,375 69,175 Independence County, Arkansas; due 2013 at rate of 11-1/8% 45,000 45,000 Total Installment Purchase Contracts _ 253,955' 254,820 s Long-Term Obligation - Department of Energy (Note 4) 75,733 ~ 71,106 ; Unamortized Premium and Discount on Debt - Net (5,828) ~ (6,023) Total Long-Term Debt 1,238,020 1,239,446 Less: Currently Maturing Portion 2,580' 3,223 Long-Term Debt Excluding Amount Due Within One Year $1,235,440 $1,236,223 See Note 1 to the FinancialStatements " Summary of Significant Accounting Policies *forinformation on the disposition ofANG.
** '$120 million,11% Pope County, Arkansas Pollution Control Revenue Bonds due December 2015, issued December 1985, are secured by
$128.8 million,0.0% First Mortgage Bonds.
~ 38.
' At December 31,1988, the ' percent share of capacity and energy from Unit 2 of ISES. The o sinking fund requirements and maturities for long-term Company's before-tax income associated with the sale of such i debt for the years 1989 through 1993 are illustrated in Table capacity to M P& L, approximately $29 million in 1988, will be 10-B. reduced upon termination of the agreement.
Operating revenues include
- Table 1g-B: Sinking Fund Requirements and Long Term Debt Maturities revenues from sales to associated companies amounting to
$223.2 million ~in 1988, $252.0 million in 1987 and $220.0 y milli n in 1986. Operating expenses include charges from
.. e ,r. .... . sin.e.ng r.un.d s.in.ki.ng r.uns +
. . . u..u.nr.ul.e,++
affiliates for fuel cost, purchased power and technical and Un Tho="d4 advisory services totaling $387.8 million in 1988, $383.7
$ 925
'1989 $900 $6,888 1990 900 6,888 ~ 1,425 12. CASH AND CASH EQUIVALENTS 1991' 800 6,768 13,135 Forpurposesof theStatements 1992 800 6,768 1,225 of Cash Flows, the Company considers all highly liquid debt
'1993 800 7,398 16,350 instruments purchased with a maturity of three months orless
- .. : .:. :.:::: to be cash equivalents. The : supplemental disclomres required by SFAS No. 95 " Statement of Cash Flows" are shown in K These annualsinkingfund requirements may be met certification ofproperty additions at a rate of167% uch Tabk n*A*
requirements. .
** These maturities do not reflect $755,000 pollution controirevenue Table 12-A: Supplemental Disclosures bonds which are subject to redemption at the option ofthe holders ofsuch bonds at a redemption price of100%. For the Ye.srs EndeJ riecernber 31 1988 1987 1986 The Company has received
' general regulatory approval allowing the sale of up to $270
' y'j 'g '**
Cash Paid (Received) During the Year: million additional FAIB, subject to approval of the specific Interest $115,835 $120,444 $142,131 terms of each series.The Company has also received regula- Interest on capital leases $23,206 $ 24,014 $ 21,104 tory approval to proceed with arrangements for the possible Income taxes $4,030 $(30,243) $(23,331) . redemption, purchase or other acquisition of all or a portion of ,,,, , ,, ,,,,, outstanding series of the Company's high interest rate FMB Noncash investing and Financing: and pollution control revenue bonds of up to aggregate Capital lease obligations principal amounts of $200 million and $165 million,respec- $70,778 $61,479 $65,418 recorded (Note 5) tively.The series of the Company's FMB being considered for First mortgage bonds acquisition include, but may not be limited to, the 13-3/8% assumed by purchaser series due December 1,2012,the 13-1/4% series due February in the sale of ANG $(3,780) - - t 1,2013, and the 14-1/8% series due December 1,2014.The l series of pollution control revenue bonds being considered for I- acquisition include, but may not be limited to, the 11% series due Decembei 1,7015, and the 11-1/8% series dueJune 1, 2013.
- 11. TRANSACTIONS WITH ASSOCIATED COMPANIES The Company buys from and sells electricity tci the operating companies of the Middle South i Electric System, under rate schedules filed with the FERC. The L Company also purchases capacity and energy from System Energy's Grand Gulf 1. In addition, the Company purchases fuel from SFI and receives technical and advisory services from SSL The Company and MP&L are parties to a Unit Power Purchase Agreement terminating in December 1989 for the sale to MP&L of the Company's 31.5 l
l l' 39 l 1 l
* +
NOTES TO FINANCIAL STATEMENTS, ABBREVIATIONS AND TERMS Arkanm Pown le bghs Company
- 13. QUARTERLY RESULTS (UNAUDITED)
Operating results for the four quarters of 1988 and 1987 are shown in Table 13-A. Table 13-A: Quarterly Operating Results
- 9&r EnN , , , ,,,,,,,,,,,,,, ,,,,,,,,, , , Alayf , , , hu, , ,pyyny , y,agn{n, (in Wusands) 1988:
Operating Revenue. $300,832 $311,351 $424,867 $319,739 Operating Income 40,419 37,985 88,012 23,546
* "# * * : : f!6q .
p8,p;5 , fg2 q -76! ;3{
'1987:
Operating Revenue $326,619 $335,380 $441,276 $301,581 Operating Income 47,612 44,221 86,499 30,553-Net Income 27,,6,78 , , 29,,1,77 ,68,7,65 ,
,15,540
- Quarterly data forperiods prior toJanuary 1,1988, has not been restatedfor the disposition ofANG. Quarterly resultsfor March 1988 differfrom thatpreviously reported due to restatementfor the disposition ofANG. See Note I to the FinancialStatements " Summary of Sigmficant Accounting Policies"forinformation on the disposition of ANG.
The business of the Company is subject to seasonal fluctuations with the peak period occur-ring during the summer months. Accordingly, earnings infor-mation for any three-month period should not be considered j as a basis for estimating the results for a full year. A88REVIAT10NS AND TERMS Abbrenations and terms used in this report include the following: NOPS1 New Orleans Public Sewice Inc. AFDC Allowance for Funds Used During Construction NRC Nuclear Regulatory Commission l
'ANG Associated NaturalGas Company PSCM Public Service Commission of Missouri ANO Station AP&L's Arkansas Nuclear One Generating Station Revised Settlement ;
AND 1 Unit No. I of the AND Station Agreement AP&L's September 1985 Settlement Agreement, as ANO 2 Unit No. 2 of the ANO Station modified by the APSC orderissued October 6,1988, to AP&L or Company Arkansas Power & Light Company bring the Grand Gulf 1-related phase-in plan into
.APSC Arkansas Public Service Commission compliance with the requirements of SFAS No. 92 l FAS8 Financial Accounting Standards Board SEC Securities and & change Commission FERC Federal Energy Regulatory Commission Settlement FM8 First Mortgage Bonds Agreement Agreement effective Septemt er 9,1985, adopted by the Grand Gulf Station Grand Gulf Steam Electric Generating Station (nuclear) APSC, settling AP&L's Grand Gutt 1-related and other rate Grand Gulf 1 Unit No.1 of the Grand Gulf Station issues for the state of Arkansas Grand Gult 2 Unit No. 2 of the Grand Gulf Station SFAS Statement of Financial Accounting Standards 1R$ IntsmalRevenue Service SFl System Fuels, Inc.
ISES AP&L's and MP&L's Independence Steam Electric SSI MSU System Services, Inc. Generating Station (coal) System Energy System Energy Resources, Inc. LP&L Louisiana Power & Light Company System Operating Middle South Electric Companies AP&L, LP&L. MP&L and NOPSI, collectively
. System or System MSU and its various direct and indirect subsidiaries i
MPSL MississippiPower & Light Company
. MSU Middle South Utilities, Inc.
40 l l: ;A
?.
l . INDEPENDENT AUDITORS' REPORT, STOCKHOLDER INFORMATION .
' Arken ns Me & l.ighs Company l
l l
. INDEPENDENT AUDITORS' REPORT STOCKHOLDER INFORMATION JArkansas Power & Light Company: Transfer Agents for Preferred Stock
. We have audited the accompa. Union National Bank of Little Rock i ; nying balance sheets of Arkansas Power & Light Company as 1 Union National Plaza Lof December 31,1988 and 1987 and the related statements of Little Rock, Arkansas i' income, retained earnings, and cash flows for each of the three 72201 years in the period ended December 31,1988. These financial statements are the responsibility of the Company's manage. First Commercial Bank ment..Our responsibilityis to express an opinion on these Post Office Box 1471 financial statements based on our audits. Little Rock, Arkansas We conducted our audits in ac_ 72203
= cordance with generally accepted auditing standards. Those
, , ,,,,,p,,,,,,
standards require that we plan and perform the audit to obtain reasonable assurance about whether the f,nanctal statements First Commercial Bank i Post Office Box 1471 are free of material misstatement An audit includes examin. Little Rock, Arkansas ing, on a test basis, evidence supporting the amounts and 72203 disclosures in the financial statements. An audit also includes assessing the accounting principles used and sigr.ificant esti- Certified Public Accountants mates made by management,as well as evaluating the overall Deloitte Haskins & Sells financial statement presentation. We believe that our audits 111 Center Street provide a reasonable basis for our opinion. .l.ittle Rock, Arkansas In our opinion, the above- 72201
' mentioned financial statements present fairly,in all material respects, the financial position of the Company at December Executive Offices
' 31,1988 and 1987 and the results of its operations and its cash Arkansas Power & Light Company flows for each of the three years in the period ended December 425 W. Capitol 31,1988, in conformity with generally accepted accounting Little Rock, Arkansas principles. 72201 (501)377-4000
$ Annual Meeting Meoirnc /lerde [cw Third Wednesday of May Little Rock, Arkansas Form 10-K February 24,1989 The Middle South Utilities System's 1988 Annual Report to the SEC on Form 10-K, which includes the report of the Company,is available to any stockholder upon request, without charge. Stockholders can obtain a copy by writing to:
Shirley A. Hunter Assistant Secretary Arkansas Power & Light Company Post Office Box 551 Little Rock, Arkansas 72203 l l l j 41 ) l
e o l I
- ELEVEN YEARS OF PROGRESS-FINANCIAL' Arkanus Poewr & Light Company 1988 1987 Select'ed Financial Data: l Operating revenues $1,356,789 ' $1,404,856. J Net income 131,149 141,160 Total assets 2 3,928,082 3,889,453 a Long-term debt .
1,235,440 1,236,223 1
> Preferred stock, with sinking fund 137,379 151,255 (
Capitalization (end ofperiod): } Preferred stock and premium / expense, net $ 264,269 $ 278,145 - ;j
' Common stock and paid-in capital 695,804 695,108 - '
Retained earnings 303,105 244,025- i Total 1,263,178 1,217,278 Long-term debt: First mortgage bonds' 912,079 - 916,778 Installment purchase contracts' 247,628 248,339.- Long-term obligations - DOE' 75,733 71,106 ) Total 1,235,440 1,236,223 NOTES Total capitalization $2,498,618 $2,453,501 L On Annual Payment Requirements: January 1,1981, AP&L Interest on:
'""". $ 88,667 $ ' 88,756 P r orn li rg First mortgage bonds
~ its wholly-owned subsidiary Installment purchase contracts 24,486 24,565 ANG. OnJune 1,1988 Dividends on preferred stock 23,454 25,039 -
AP&L, as require _d by the Utility Plant (end ofperiod): f,E ,, de ; Plant completed 2 $3,g95,517 $3,803,454 f'"/" ne ""# Construction work m, progress 75,387 103,416 subsidia ANG 7'he
'nancial at4in this report Nuclear fueP 162,9.42 169.974 g r theyears 1981 thru 1987 Total utility plant 4,133,846 4,076,844 )
da have Less - accumulated depreciation 1,115,595 1,068,407 ) dr'j ns I, , neither the effect ofacquisi-Net utihty plant $3,018,251 $3,008,437 tion nor disposidon is Income Statement:
"d $1,356,739 $1,404,856 Operating revenues
- 2. In January 1987, AP&L capitalizedits Operating expenses:
leases and restated 1986; Fuel and fuel related 282,051 350,059 4 therefore, years after 1985 Purchased power 435,811 431,716 include utilityplant unda Deferred purchased power (128,897) (167,956) 1 Taxes - deferred purchased power 48,891 73,170
- 3. Excludes currently rnaturing portion. Gas purchased for resale - 26,000
- 4. DOE - Payroll- operation and maintenance 119,241 115,765 Department ofEnergy. Other operation and maintenance 276,690 219,331
"" 120,030 119,104 Depreciation 1987, AP&L capita zed Taxes 13,010 28,782 l nuclearfuelleases. How.
ever, only 1986 has been Total _ 1,166,827 1,195,971 restatedfor such leases. Operating income 189,962_ 208,885 Other income and deductions - net ortedon he lan sheet 51,112 55,202 was ont the amount (excludmg AFDC) nuclear clin excess fuel Interest and other charges: leases. Interest on long-term debt 117,873 119,287 Other interest - net of debt premium 3,114 13,410 the FinancialSta e nents j Total (excludmg AFDC) 120,987 132,697 "Summaryof Significant Accounting Policies" Income from revenues 120,087 131,390 ' discusses the components of Income from AFDC' 11,062 9,770 AFDCandits impact on the $ 131,149 $ 141,160 Net income FinancialStatements. 42 I _ _ _ _ _ _ _ _ _ _ - ._ _ . _ . __ _- a
l l 1986 1985 1984 1983 1982 1981 1980 1979 1978 (In Thousands)
$1,389,494 $1,364,786 $1,307,683 $1,206,145 $1,046,143 $1,015,561 $ '750,497 $ 582,610 $ 553,605 124,821 110,068 143,367 126,896 107,372 96,140 65,230 82,404 86,014 3,737,693 3,307,882 3,060,817 2,859,517 2,669,417 2,474,249 2,147,983 1,940,643 1,693,906 1,313,604 1,334,994 1,286,507 1,195,738 1,127,540 993,163 848,667 819,716 749,262 165,009 120,812 124,170 133,931 141,138 144,120 147,065 100,518 60,063
. $ 291,899 $ 247,702 $ 251,060 $ 260,821 $ 268,028 $ 271,010 $ 273,955 $ 227,408 $ 171,772 694,848 694,764 694,305 693,297 627,709 547,185 458,569 427,960 397,960 151,063 49,417 26,101 28,158 33,365 43,134 54,700 86,333 78,462 1,137,810 991,883 971,466 982,276 929,102 861,329 787,224 741,701 648,194 997,887 1,019,342 1,093,065 1,014,797 1,000,255 849,585 765,430 763,549 709,549 248,988 252,971 135,534 131,541 127,285 143,578 83,237 56,167 39,713 66,729 62,681 57,908 49,400 - - - - -
1,313,604 1,334,994 1,286,507 1,195,738 1,127,540 993,163 848,667 819,716 749,262
$2,451,414 $2,326,877 $2,257,973 $2,178,014 $2,056,642 $1,854,492 $1,635,891 $1,561,417 $1,397,456
$ 102,031 $ 121,772 $ 122,494 $ 108,727 $ 105,568 $ 82,986 $ 73,551 $ 62,436 $ 56,536 24,640 24,704 11,595 11,688 10,386 14,016 6,5 93 4,980 4,980 26,665 22,864 23,222 24,366 25,131 25,456 25,778 19,548 14,020
$3,659,128 $3,478,274 $3,307,908 $2,910,470 $2,623,319 $2,546,046 $2,133,704 $1,231,832 $1,178,601 127,337 92,563 105,762 306,398 364,252 255,468 282,376 980,054 785,684 162,404 35,683 27,321 24,979 _ . _ 16,869 10,2_14 7,151 - -
3,948,869 3,606,520 3,440,991 3,241,847 3,004,440 2,811,728 2,423,231 2,211,886 1,964,285 961,615 860,226 766,537 679,232 605,404 532,261 417,435 364,447 331,231
$2,987,254 $2,746,294 $2,674,454 $2,562,615 $2,399,036 $2,279,467 $2,005,796 $ 1,847,439 $1,633,054
$1,389,494 $1,364,786 $1,307,683 $1,206,145 $1,046,143 $ 1,015,561 $ 750,497 $ 582,610 $ 553,605 324,920 314,096 361,109 339,371 244,595 310,673 253,418 159,907 167,511 454,558 317,821 133,964 166,126 178,841 141,316 154,126 171,425 120,804 (210,334) (76,016) - - - - - - -
103,527 37,415 - - - - - - - 31,592 35,816 44,894 44,150 40,986 30,637 - - - 110,955 102,832 97,659 87,210 77,566 67,897 49,774 40,607 35,400 222,597 210,204 169,145 133,746 127,509 129,402 84,628 65,754 55,648 114,742 109,686 97,451 92,621 84,194 77,923 59,574 39,708 38,365 19,059 96,143 161,275 131,644 101,146 90,530 54,033 34,948 55,693 1J71,616_ _1,147,997 _ l_,065,497 _ 994,868 __ ___854.,837_ _ 848,378 655,553 512,349 _ _ 473,421 __217f7_8 . _ _216,789_ _ 242,186 _ 211,277 191,306 167,I83 _ 94,944 _ _ 70_,261_ 80,184 48,214 28,871 11,204 14,457 12,687 17,497 17,468 23,627 16,986 140,566 138,752 126,974 119,466 108,557 90,755 67,036 67,091 56,949 l_0,853 7,310 7,376 7,152 11,272 2 h038 _ 17,649 ___ 10,296 4,469 151,419 146,062 134,350 126,618 119,829 111,793 84,685 77,387 61,418 114,673 99,598 119,040 99,116 84,164 72,887 27,727 16,501 35,752 10,148 10,470 24,327 27,780 23,208 23,253 37,503 65,903 50,262
$ 124,821 $ 110,068 5 143,367 $ 126,896 $ 107,372 $ 96,140 $ 65,230 $ 82,404 $ 86,014 m
1
t- - ELEVEN YEAHS OF PROGRE'SS-0P'ERATING' Arka.as Pow & l.khs Compay
'1988 '1987 Electric Operating Revenues (thousands of dollars):
Residential $ 416,646 $ 406,130 Commercial 239,740 235,249 Industrial- aluminum processing2 _ Industrial 287,558 266,168 - Government and municipal '19,563 17,904 Total from retail customers 963,507- 925,451 Public utilities) - ~ 365,560 - 409,347 Miscellaneous revenues 27,722 30,282 Total electric operating revenues $1J56,789 - $1,365,080
' Electric Sales (millions ofkilowatt-hours): . .,
Residential 5,149 5,091 1 Commercial 3,566 -3,596 - Industrial- aluminum processing2 . _- _s Iridustrial 5,325 4,921
. Government and municipal - 305 284 Total to retail customers - 14,345 13,892 '
NOTES . Public utilities $ 13,144 15,509
. 1. Eleven Total energy sold 27,489 29,401
- Years ofProgress-Operating the ampar s
','[t ,, 9 9,,
Number of Customers (end ofyear): not include data related to Residential . 508,151 497,878 ANGfor theperiod 1981 Commercial 62,918 61,126
'through 1988. See Note I to Industrial - aluminum processing2 _ _.
the financialStatements - Industrial 17,550 _16,944
'"d.'7 "#
ff.",', . Government and municipal ~1 ,287 1,212 information on the disposi. Total retail customers 589,906 577,160 tion ofANG. Public utilities 2 15 15
- 2. Reynolds Total customers 589,921 577,175
^ Aletals Compan began e i ng ' "ope
' t1o$sn"" Electric Energy (millions ofkilowatt hours):
Arkansas in 1985. Once Source and disposition their contract expired Generated - net station output: (December 31,1986), their Coal 10,298 10,299 account reverted to a Gas 2,064 3,132 standardindustnalrate and 9;; gn, _ was reclassifiedas an industrialcustomer. Nuclear 8,895 11,369-
- 3. Includes Hydto 178 116 sales to associated compa- Total generated 21,542 24,916 Purchased 7,322 5,986
,, .Theyear 1981 includes $38 mega. ' Net interchange 73 (47) watts to supply Arkansas Total 28,937 30,855 Electric Cooperative Less: Company uses, losses
" } and unaccounted for
. w[h ow ' d 1,448 1 454 by their own capafil,t Total energy sold 27,489 29,401 Years prior to 1981 also include varying amounts of Peak demand (megawatts)* 3,893 3,860 load supplied to AECC l 1
44
.. o .
1986 1985 1984 1983 1982 1981 1980 1979 1978
$ 391,044 $ 356,492 $ 334,693 $ 315,960 $282,204 $257,801 $2.12,833 $160,992 $164,224 223,597 202,856 187,595- 169,367 153,393 148,938 128,477 100,741 98,293 25,226 56,930 94,067 56,629 50,175 69,527 69,171 65,861 43,972 250,401 242,247 224,392 200,296 183,975 179,331 140,422 112,515 104,930 17,403 19,213 23,288 20,989 19,081 14,787 12,824 11,447 11,234 907,671 877,738 864,035 763,241 688,828 670,384 563,727 451,556 422,653 405,882 405,767 364,581 379,598 299,724 298,781 181,650 125,980 124,653 31,862 33,292 _1_8,981 6,052 5,572 5,569 5,120 5,074 6,299
$1,345,415 $1,316,797 $1,247,597 $1,148,891 $994,124 $974,734 $750,497 $582,610 $553,605 4,903 4,742 4,664 4,612 4,514 4,418 4,480 3,884 4,062 3,363 3,269 3,079 2,927 2,870 2,819 2,682 2,444 2,472 101 1,676 3,060 2,571 2,081 3,064 3,411 3,349 2,686 4,560 4,548 4,511 4,251 4,246 4,311 3,675 3,681 3,545 281 328 405 394 410 312 292 326 334 13,208 14,563 15,719 14,755 14,121 14,924 14,540 13,684 13,099 14,398 11,999 8,918 8,965 7,388 8,358 5,445 4,204 4,475 27,606 26,562 24,637 23,720 21,509 23,282 19,985 17,888 17,574 493,569 487,275 480,133 471,508 462,753 458,941 405,717 400,290 394,766 60,224 59,546 58,080 57,141 56,709 57,133 49,444 49,009 48,424 1 1 1 1 1 1 1 1 1 16,623 16,465 14,811 14,161 13,528 13,529 12,2 M 12,151 11,724 I
1,142 1,137 2,652 2,481 2,372 2,332 1,548 1,617 1,573
~
571,559 564,424 555,677 545,292 535,363 531,936 468,994 463,068 456,488 17 17 17 17 18 23 19 19 19 571,576 564,441 555,694 545,309 535,381 531,959 469,013 463,087 456,507 l l l 11,515 10,853 7,191 7,237 5,224 4,293 601 - - 2,752 927 2,111 2,978 2,660 4,727 4,741 2,468 470 10 6 3 35 72 389 1,653 4,050 6,741 8,879 9,889 10,770 7,583 7,463 9,173 7,831 4,101 5,220 150 207 235 201 176 140 103 251 131 23,306 21,882 20,310 18,034 15,595 18,722 14,929 10,870 12,562 5,974 6,247 5,440 7,402 7,241 5,980 6,459 7,740 6,162 (4) 94 165 100 82 12 1209)_ 2_96 8_ 29,276 28,223 25,915 25,536 22,918 24,714 21,179 18,906 18,732 11 670 11661 1,278 11 816 11409 Idl2 1,194 1A18 1,158 27,606 26,562 24,637 23,720 21,509 23,282 19,985 17,888 17,574 3,804 3,681 3,650 3,748 3,541 4,369 4,179 3,521 3,654 I 45 I
t BOARD OF DIRECTORS Ark.mw Pwer & bght Company facturer of organic chemicals Leader in state's wildlife Edwin Lupberger conservation movement, New Orleans, Louisiana for photographic and specialty chemical applica- member and former chair. Chairman, president and man of the University of chief executive officer, tions. Community and eco- Arkansas Board of Trustees. Middle South Utilities,Inc.; nomic development leader. AP&L director 1981; 25 years' experience in the Cathy Cunningham AP&L director 1985. MSU director 1984. eiectnc utih,ty mdustry with Helena, Arkansas emphasis on finance. Real estate and industrial Richard P. Herget, Jr. Hal E. Hunti.r, Jr. Nationalleadership in developer, planner and Little Rock, Arkansas New Madrid, Missouri economicde clopment; historic preservationist. Managing director, Marsh Attorney, senior partner, board of directors of World Chairman of Main Street & McLennan,Inc., world's Hunter & Hunter; New Trade Center, New Orleans, Arkansas, a downtown largest insurance brokerage Madrid city attorney; prose- and the National Alliance of redevelopment program; firm. cuting attorney for New Business, Washington, D.C. political and civic leader. Active in politics and Madrid County. AP&L Director 1986; AP&L director 1983. higher education, former Civic and politicalleader. MSU director 1985. chairman of the Arkansas AP&L director 1981; John J. Flake State University Board of ARKMO director 1971 Donald C. Lutken, Sr. Little Rock, Arkansas Trustees. Jackson, Mississippi (consolidated with AP&L Chairmanof theboard, AP&L director 1981. Chairmanof theboard 1981). Flake & Co., a commercial and chief executive officer, real estate development firm. Tommy H. Hillman R. Drake Keith Mississippi Power & Light Imm:diate past president Carlisle, Arkar.sas LittleRock, Arkansas Co. of the Greater Little Rock President, Winrock President and chief oper- Past president, Southeast-Chamber of Commerce; Farms,Inc.; vice chairman, ating officer, AP&L;25 ern Electric Exchange; president of the Downtown Riceland Foods, producers years' experience in electric founder of Council for Partnership; board service to of purebred and commercial utility industry at Oklahoma Support of Higher Educa-a variety of heaJth care cattle, rice, soybeans and Gas & Electric, Middle tion in Mississippi; board institutions. wheat. South Utilities, Inc., LP&L/ service to several colleges; AP&L director 1985. Commt r.ity, banking and NOPSI. culturalleader. agribusiner. leader. Activein service to youth AP&L director 1988; M. L Gernert AP&L director 1985. and cultural affairs. MP&L director 1970. Batesville, Arkansas AP&L director 1989. President, Arkansas Kaneastr.r Hodges, Jr. Eastman, a member of Newp 3rt, Arkansas Eastman Chemicals Division Atterney, former U.S. of Eastman Kodak, manu- Senator (1977-79), Method-ist lay minister, pm y mm , - 3
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Jerry L Maulden ing in engineering services and higher education. ADVISORY DIRECTORS Little Rock, Arkansas forindustry. AP&L director 1985. Chairman of the board IA#f d"'hixtonoftly Leader in economic and chief executive officer, aus B. Watton, Jr. Comrd"J) development, higher AP&L; senior vice president Little Rock, Arkansas education and vouth and Partner, Poe Travel, a and system executive, social services.' leading business and leisure {' hard C Bunsas
, le Arkansas / Mississippi / AP&L director 1977. p ;_ g Missoun Division, Middle travel firm; attorney. board, C,ommercial National South Utilities,Inc. William C. Nolan, Jr. Leader in state and Bank and Peoples Savmgs &
Nationalleadership El Dorado, Arkansas national tourism industry. Loan. positions on NAACP and Attorney, partner, Nolan AP&L director 1981; AP&L director 1967; Boys Clubs of America & Alderson;radiocommu- ARKMO director 1967 Adv sory 1980. boards of directors,1988 nications, timber and oil (consolidatedwith AP&L March of Dimes Arkansas industry executive. 1981). L. C. Carter Man of the Year. Political and civic leader. Stuttgart, Arkansas AP&L director 1971. Michael E. Wilson AP&L director 1979; Past president, Riceland Wilson, Arkansas MP&L director 1988. Foods, retired. Robert D. Pugh Chairman and chief AP&L director 1960; Portland, Arkansas executive officer, Lee Wilson Raymond P. Miller, Sr., M.D. Chairman, Portland Gin & Co., a diversified agribusi- Ad"IS 'T I980' Little Rock, Arkansas Partner, Little Rock Co.,a diversified farming ness operation. Geor9e K. Reeves Internal Medicine Clinic; operation specializingin Trustecofnationaljoint Caruthersville, Missouri assistant clinical professor, cotton, soybean and rice Council on Economic Partner, Ward & Reeves. University of Arkansas production; banker and Education; agribusiness and AP&L director 1981; School of Medicine. agribusiness leader. education leader. Advisory 1985. Memberof theUniversity Former chairman, AP&L director 1980. of Arkansas Foundation, University of Arkansas Reeves E. Ritchie Board of Trustees. Little Rock, Arkansas formermemberof the AP&L director 1971; #*#" '"*"" University of Arkansas Board members (from Board of Trustees. MSU director 1977. left) Cunningham, chairmanof theboard of the Flake. Herget. Hodges, Company, retired. AP&L director 1982. Woodson D. Walker Hunter, Keith, AP&L director 1962; Roy L. Murphy Little Rock, Arkansas Lupberger, LutAen. Advisory 1985. Attorney, partner, Maulden. Miller. Hot Springs, Arkansas Murphy, Man. Pugh, Chairman and president, Walker, Roaf, Campbell, Mid-South Engineering Co., Ivory and Dunklin, P.A. $'[, [g## f",,#j,d p, y d a consuamg engmeermg and Leader in tnal practice are Gemert and constructor group specializ- Hillman.
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m o 0FFICERS, PRESIDENT PROFILE Arkanw Power & bght Company Charles L Steel CecilL. Alexander Marshall L. Pendergrass Executive Vice President and Vice President-Public Vice President-Fossil Chief Public Affairs Officer Affairs Production & Transmission (retired effective 1/31/88) Louis Burgess M. W. (Pete) Rice Kenneth R. Breeden Vice President-Customer Vice President-System Senior Vice President- Services 0FFICERS Planning Customer Services & (retired effective 2/1/89) Jerry L Maulden Marketing Willie Ray southern President and Chief (effective 3/1/89) T. Gene Campbeli Vice President and Assistant Executive Officer (until Vice President-Marketing Vice President- Nuclear to the President 12/31/88) (resigned effective 8/1/88) (retired effective 5/1/88) Chairman of the Board and John J. Harton Chief Executive Officer John M. Griffin Vice President-Fm, ancial Henry Warren Senior Vice President- Services, Treasurer & Vice President- Planning & (effective 1/1/89) Generation, Transmission & Assistant Secretary Control R. Drake Keith Engineering President and Chief (resigned effective 4/4/88) Chr. ries L Kelly Cary J. Dudenhefer Operating Officer (effective Vice President- Corporate Assistant Secretary Lee W. Randall Commumcations 1/1/89) Senior Vice President- Shirley A. Hunter Michael B. Bemis Finance & Administration, John R. Marshall Assistant Secretary Executive Vice President- Chief Financial Officer, Vice President- Customer
, l Operations, and Secretary Secretary and Assistant Services (effective 11/1/88) l (resigned effective 12/31/88 Treasurer l to become President and Chief Operating Officer of ,
MP&L effective 1/1/89) l l Keith was ment of the bank's $1.6 MSU senior vice president, associated with Oklahoma billion trust division. He was system executive- finance, Gas & Electric Company at also chairman of the bank's chief financialofficer and Oklahoma City from 1967- senior trust and public affairs treasurer. In 1987 he joined 1980, serving customers in committees. Louisiana Power & Light Arkansas and Oklahoma. He Keith Company and New Orleans Athlete, began his careerin the returned to the electric Public Service Inc., as coach, educator, financier economic development area, utility industry in 1983, executive vice president, and executive, R. Drake then served four years as a joining Middle South with major responsibilities Keith has been a success in district manager before Utilities,Inc., as vice for accounting, finance, many areas on a career path becoming OG&E's assistant president-finance and treasury, external affairs, that led him to become the treasurerin 1971 and treasurer at New Orleans. In marketing, rates and legal eighthpresidentof the75- treasurer in 1973. He was 1985 he was promoted to affairs. year-old AP&L, elected vice president and He brought A native of treasurerin 1975 and served m '
,y a this wealth of managerial Breckenridge, Tex., Keith as senior vice president and ii % ., experience to AP&L on followed a successful three- chief financialofficerin the /f '
December 14,1988,when he year varsity football career at 191-1980 period. was elected president, chief 1 Texas A&M University with His financial , . operating officer and coaching, serving as an and managerialskills ! director. Q assistant for the famous Paul brought him election as ~ (Bear) Bryant at A&M and at executive vice president of Alabama. He also coached The First National Bank and three years at the University Trust Company of Okla-of Oklahoma before homa City in 1980, where he switching to the business was responsible for the field, reorganization and manage- R. Drake Keith 48
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COMPANY DESCRIPTION Arkanw Pow & light Company Arkansas and two Missouri More than Public Service Inc., and a municipalities and in 1.6 million retail customers nuclear generating company, Arkansas to two rural in Arkansas, Louisiana, System Energy Resources, electric cooperatives and one Mississippi and Missouri are Inc., which is responsible for association of rural electric provided electric services management and operation cooperatives. through the System's vast of the Grand Gulf Nuclear Arkansas AP&Lis a network ofinterconnected Station. System Energy is Power & Light Company memberof theMiddleSouth transmission and distribu- currently seeking regulatory (AP&L) owns electric Electric System which for tion lines and balanced grid approval to assume operat-
' facilities in 65 of Arkansas' the past 40 years has been the of fossilfueland nuclear ing responsibility, subject to 75 counties and in 13 of leading electric energy generating plants that are AP&L a .d LP&L oversight, Missouri's 114 counties. At supplier to the Middle controlled and operated as a of the System's other three December 31,1988, the South, a 91,000-square-mile unit. nuclear units.
Company furnished retail regional area along thelower Headquar- In addition,a electric service in 328 reaches of the Mississippi tered in New Orleans, the subsidiary company, MSU
' Arkansas and Missouri River. Middle South Electric System Services, Inc.,
incorporated municipalities. System includes four retail provides various technical. The Company also provides operating companies: administrative and corporate power at wholesale to seven AP&L, Louisiana Power & services to allof the Middle Light, Mississippi Power & South Electric System Lig,ht and New Orleans companies, e KDDLE SOUTH ELECTRIC SYSTEM D RetailService Area , 1 Arkansas Power & Light Companyprovides electric service witbin theportions of Arkansas and Missouri shounin red I
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c aO E$_ #5 10CFR50.71(b)
, 10CFR140.15(b)1 ARKANSAS POWER & LIGHT COMPANY POST Of FICE BOX 551 LITTLE ROCK ARKANSAS 72203 [501)377-4000 April 7, 1989 OCAN048904 U. S. Nuclear Regulatory Commission Document Control Desk Mail Station P1-137 Washington, DC 20555
SUBJECT:
Arkansas Nuclear One - Units 1 & 2 Docket Nos. 50-313 and 50-368 . i License Nos. DPR-51 and NPF-6 /' 1988 Annual Financial Report Gentlemen: In accordance with 10CFR50.71(b) and 10CFR140.15(b)1, enclosed is the 1988 Annual Financial Report for Arkansas Power & Light Company. This report contains certified financial statements for the fiscal years 1986, 1987, and 1988. The financial statements include balance sheets, operating statements, plus supporting schedules which may be needed for interpretation of the balance sheets and operating statements. Very truly urs, t ale E. ames Supeg or, Licensing DEJ:SAB:lw Enclosures l 00
'i l
MEMBER MOOLE SOUTH UTLITIES SYSTEM
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