AECM-85-0210, Bldg on Strengths,Mississippi Power & Light Co 1984 Annual Rept. Financial Statements Encl
| ML20133C877 | |
| Person / Time | |
|---|---|
| Site: | Grand Gulf  |
| Issue date: | 12/31/1984 |
| From: | Dale L, Lutken D MISSISSIPPI POWER & LIGHT CO. |
| To: | Harold Denton Office of Nuclear Reactor Regulation |
| References | |
| AECM-85-0210, AECM-85-210, NUDOCS 8508070166 | |
| Download: ML20133C877 (78) | |
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liuh n:ntpany is conipo\cd < tl people, residenn ol' western 31luisaippi. wlu> read tiiv nieterh oli _jt *tl i, ( ltCl! MTV.\ tlillk' Wi[ll < Wer ".Cil{t ill \ M alt 'll (la'S cllh! lin%'Yv Wilhl1\l pt 'ill1!C Wlle l tlri Y C l'illl!I) Cl - Ninlit' (l l { Cl:.\ , Sc linefili1CS il! lllt ' llli n! <!t lH,',,'t fi lln , I t icy o rntlitions; peopic wno l cat i" tedio:n <nni-
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l Ihr the next few years, Grand Gulf percent decrease. The order will re-ITI C BI'IICILUI U Unit I will pnwide the nuclear capaci- main in effect until the PSC reaches a ty, and both units of the Independence final decision in the full rate case. ON CFW JEnL CT I_I C URHO Steam Electric Station in Newark. Arkansas, will provide the coal The Commission, due to the hiississippi Legislature amending the
///E 1il S/(>(1//()/ Dif /g; capacity. Public Utility Act to alk)w for a 51P&L celebrated along with sister 90-day ex:ension, has until mid-lune The year 1984 has been a year of comp ny AP&L, the passm, g of a to reach a final decision in the rate maximizing financial performance by milestone--commercial operation of in- case.
building on strengths to plan for the dependence Steam Electric Station jjg jj g.y g 7;, (gg future. While very real challenges lie Unit 2. This unit was completed ahead ahead for hiississippi Power & Light fy ;jj j . 7. ,, j g ; j , 3 7 7
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of schedule and under the authorned Company in 1985, we feel we can ap-budget. 51P&L customers received an in my opinion, 51P&L's corporate proach the future with confidence, that e rly Christmas present in the form of performance over the past few years we are up to the job of pnwiding enables us to approach the future with fuel adjustment credits passed along reliable energy service at a reasonable after the plant began churning out confidence. price fi>r our customers, while deliver-economical power December 6. There are a lot of ways to measure ing a profit for you, our investors. Electricity from coal and nuclear a company's perfi>rmance, but the one
/!/ //.!)/ h M l'!'!1/!'(diu will help stabilize electric energy sup- way h1P&L customers k>ok at first in April, the h1P&L Board of plies for many years, and will result and last is price-plain and simple, Directors elected Donald C. Lutken as in long-range savings to customers price.
Chairman of the Board and Chief when compared to the projected cost Some general statistics about the Executive Officer and William of oil- and gas-pmered generation in price of N1P&L clectricity are as Cavanaugh 111 as President and Chief the years ahead. fi>llows: Operating Officer. Bill has brought a -h1P&L's total commercial, in-j:s // /fj \ g f j y successful track record to the Com- r jf ;f f / ;c,j 3 dustnal and residential sales have been pany in the management of nuclear growing faster than the mdustry, and and fossil plant design, construction llistorically the Company has been faster than the national economy in and operation. built by men and women who took on general. The Company's total sales in Ilis respected expertise with nuclear awesome challenges; people who built these three categories for the past power, dating back to his Navy days a utility system when others thought it decade are up by 34.9 percent. Total in command positions relating to could not be done. U.S. sales fi>r all commercial, in-nuclear-powered submarines, and nur- In order to recover costs associated dustrial and residential electricity is tured 15 years at sister company with new power plants built to meet up 33.6 percent. The real Gross Na-Arkansas Power & Light, further N1P&L's fuel diversification mission, a tional Pnx!uct is up 31.4 percent in enhanced the Company's operations rate case was filed with the hiississip- the same decade, so 51P&L is grow-and achievement of goals. pi Public Service Commission in ing faster than the electric utility in-lie has, in nine months, proved November to recover the Company's dustry in general, and it is growing himself to be a savvy and competent cost of power from Grand Gulf Unit faster than the country as a whole. manager, adding depth and effec. 1, and from the Company's portion of -The average residential price of tiveness to the total S1P&L manage. Independence Unit 2. h1P&L electricity has grown only ment team. This rate case was filed for about 122 percent since 1960. The y, ,. . , , ,, customers, for h1P&L emphoces and U.S. Consumer Price Index, the
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for you, our stockholders. Without average of everything we buy, is up 1 ^4 ' ' ' ' ' ' ' coal and nuclear, there would be no 251 percent. 51P&L rates have gone in August, the Nuclear Regulatory stable rates. Without the ability to up less than half of the overall rate of Commission (NRC) authorized the full recruit and retain a competent work intlation during this time period. power license to operate Grand Gulf force, there would be no dependable -Residential prices fiir our elec-Nuclear Station Unit I, and a power supply of energy for 51P&L tricity fiir the past decade are up 105 ascension program was under way, customers. And without you, there percent, slightly less than the average working toward that ever approaching would be no one willing to take the increase in the price of gasoline. In goal of commercial operation, risk, and put up the capital, required the same time, natural gas prices have The license has brought us through to pnwide the service. For these increased 328 percent and home one phase of challenge and uncertainty reasons, the rate case is in our state's heating oil prices are up about 200 and into another, as we now face best interest. percent. bringing Grand Gulf Unit 1 into com. Evidence of this fact came in So it is clear that we have been mercial operation and placing our por- January,1985. The $1issinippi Public good stewards of our responsibility of tion of the plant into the Company's Service Comminion unanimously ap- pmviding reliable energy at reasonable base rates after all testing phases are proved interim rate relief to N1P&L fiir prices. While h1P&L sales have out-complete, costs associated with the coal-fired in- paced the nation, our prices of elec-For more than fourteen years, dependence Unit 2. The PSC order incity have increased less than the StP&L has been working toward its said the increase in base rates is ex- Consumer Price Index, and substan-goal of fuel diversification, or shifting pected to be more than offset by fuel tially lew than other energy costs. from natural gas and oil to coal and savings to retail customers, resulting I nuclear power. in a net cf feet on bills of a 2.5 to 3.5
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EU/I./)/XG (>X EITEC1/I'E -Our forced outage rate fbr power As we move into 1985 and beyond, .1/. i N IGE.1/EN T plants has been below the industry h1P&L, as I see it, is facing four aver ge for the past several years. crucial tests in the immediate future. Besides corporate performance, They are:
-And our number of customers per there are other ways to measure the 1. Getting Grand Gulf into commer-employee has been mer 200 to one, comp red to an industry average of cial operation and a portion of its out-i ti asur h e, a ele ric just over 150 to one. put mto our rates. This will melude a utility, are doing compared to other final settlement in the Aliddle South These are just some of the basic utilities, particularly m neighboring g g7 Utilities system agreement and Grand
.s overall states and m Texas. Gulf allocation cases now before the performance.
These comparisons tell us much a i Enugy Regulatory about ourselves. For instance: BU//./)/XG ()X STRENGT//S C"*
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-For three of the last five years, f()R TO3/ORRoll' . . . .
100 percent of our cash requirements fi>r operations and construction have Times are changing fi>r the Com- Publi er ic n ss rdered pany and for the entire electric in- management and construction audits been generated internally, much better dustry. They are changing rapidly, by the end of spring,1985. P' "UT 8 "a'C' C 3HC"80 '" 3. N1aintaining a positive public Or i operating and w o it that we are able to adapt to maintenance expenses per kihiwatt perception of the Company, and ew ang mes, so that we can building greater confidence in the hour sold hase been at or beliw average in most categories, including ga an on nue to take a leada- Company during the current rate case. ship role in pnmding reliable energy 4. Obtaining a decision on Grand power production, transmission, #"i " the people of westan distribution and customer sersices; Gulf Unit 2 from the Public Service and this has happened despite the fact b'"."'.". ' PP This task wun.t be easy, because Commission. that we have lost major wholesale No one knows exactly how these
"""C u' af C C 3" U four challenges will be resolved.
customers such as the rural where all of these challenges g facm? The one thing I can say fi>r certain, cooperatives and wholesale the Company will lead us. however, is that those who do not municipalities. prepare for the future, do not have much of a future.
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/ NN @.[ ' 'J.t%D.N:4 hN;Ii mg months will have a lot to do m
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- creating the kind of environment in M^ ,s th i unlutt npt to n'spond to the tunes.
. IIF inuAt [' the in omton,Uhc initiaton, in%p[y[
-t . y .s;,y which we must work fi>r the years to come, 51P&Us success will require more th'" "" ""C"'P' '" "'P""d '" 'hc ordeY to help %hapVund'en'. ate . .- , M rc tornornne ky.times. &.y,n yhy$
We must be the innovators, the
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en rinsninent. ., , p;,.y,( . , u . initiators in order to help shape and s "ih, .QQQ
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i.mftheihnh.nulff,gh,@ t create tomorrow's environment. For mcr six decades the Company O' - 'y MDdk. &4 .. '"Y"." 77 F QT : C ! ( has remained strong because we have been building on strengths to create a
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In order to protect the opportunity
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>. ; A - Innovation is a characteristic that
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wcf .*4 Um' q.y 1(.'.Qygg[b # . N g,'%.. .. 5 - Donald C. Lutten p?$ Chairman of the Board and
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s ' '. R.11E3LllTERS ' On November 16 N1P&L filed its ; ;fQT g.,~.. f, -
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largest and most complex rate case e-- :u. , 7 ever with the Niississippi Public Ser- ' 'rg '. ,1.
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vice Commission (N1PSC). The timing - - p .* 1 ' . . . .
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of this filing was vital in order for the ' E J g t. Company to begin collecting revenues g '.h .V to pay purchased power costs of T Yp - Grand Gulf Unit I at the time the plant is expected to go into commer-
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g C-a cial operation. bum Sarnan innald Hodel restified on the importance of nucicar p<m er in Mininippi The rate filing also included a re- I'd'IIC S#"i" C'""'"I"I""N I"'""#' "" 6'""d 6"Il U"N 2-quest for revenues in connection with Under this " phase-in" plan, the nual basis. The order will remain in N1P&L's 25 percent share of in- retail rate increase will be phased in effect until the N1PSC reaches a final dependence Steam Electric Station over a ten-year period. decision in the full rate case. Unit 2, and the live-year purchase And for the first time, the Company The increase in customer rates, from Arkansas Power & Light Com- offered a senior citizens
- discount, which will result from the interim pany (AP&L) of 31.5 percent capacity gising a discount of I-cent per order, is projected to be offset by of that plant. kilowatt hour up to 500 hours to $60.9 million in fuel savings oser the The amount of the rate increase will customers over 65. period, resulting in a net savings to depend upon the amount of power An alternate residential rate for low- N1P&L customers of approximately from Grand Gulf Unit I that the use customers also was submitted, $16.2 million on an annual basis.
Federal Energy Regulatory Commis- giving maximum benefit to customers sion decides N1P&L is entitled to who use less than 250 kikiwatt hours receive. Ilasically, the retail rate in- per month. crease could range between $82.1 In this rate filing, the Company also million with a 19% allocation and asked for interim rate relief totaling
$126.8 million with a 33% percent $56.9 million for the owned and _
allocation. No costs for Grand Gulf leased portions of the coal-fired % *' Unit 2 were included in this filing. Independence Unit 2. j The Company is proposing a rate Q [*
. In .lanuary,1985, the N1PSC ap- - '
moderation plan to reduce the mittal I" #d d " '" # '#"
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" *'"E M l #"" " """*"""'"'i""' ""'" " hi' h impact of Grand Gulf Unit I on approximately $44.7 million on an an- f, med during cmen:cmy conditions.
customer bills. (H'ER. lH W REl'ENE 'ES Total operating revenues were $$31,927/100 in 1984, compared with $520,103.000 in 1983. This was mainly due to an increase in sales to the sister companies in the Niiddle South System. A distribution of the Company's 1984 revenue dollars was as folk)ws: Amount in "c of Thousmds Resenue Fuel. . . . $194.636 36.59 Purchased Power. .. .. . . , 86.032 16.17 Total Fuel and Purchased Power. . . 280.668 $2.76 Tases. . . . 54,867 10.31 Pay roll. . . . . . 36.508 6.86 Depreciation .. .. . . . 30.939 5.82 Other income, Evenses and Deductions. ... 43.848 8.24 Cost of Capital: Cost of Debt. . . . .. 36,7M 6.91 Net income . . . . 48.333 9.10' Total Resenue. . ... . . . . $531,927 100.00
*l.7u persent pani as preferred dmdends. 6 97 percent paid 45 inenmon disiderkin arid
.43 percent remsested m Imhties to scrse customers 4
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< apaal m.u kch upon reasonahic le r m' \1 PA l n also < lamune p.nt i n e r Jlnl s i llhllfliiN s \1n ' all .ithilt w.ls hC C li fl hs \l!N! 'harees acainst t nited nitaling iinire lhere wt re' t wii t illa nt ines in I9%4 7;gg jyg] g g. ( , yi; ns h.n than N6) rfilllo n w ith interest 4
In iAnihcl \1 pal sold % M I M H i.i M M I r e d appo m unA h. %I* milhon m I ust \fortgaec It unts 14 ' pe r t e m rcMi is hom l n acd ( ,a - Pi pc h ne 1 I 4 st i lc s illic ( h h 'het I .b ll l ( qj, gg g, q ggs 7 y ,,( . ,gg, ' 7 j In Nosembci lhe ( ~ompa ns 41 , g ,o l h n n n o s, h.n Ncn Ictund 1 '
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BUILDING yWSWdtseWiip -q ON STRENGTHS ,.v %.F.M. %, Wg.1, E1CILITIES Y.n Y "]; r ta g~.m q,,,, ~_ R CONSIRl 'CilON ;- . w.A .
.. . .. m. m g ; 4 Expenditures fbr construction during the year were $50,776JXX) with b'"Z" 'd . < TW ' s' ,C $23.855fXX) of this amount having @ M *I
- been spent Ibr construction on the In- f f'~ p g, .. ,
I dependence Steam Electric Station and PrimWA - related facilities. N1ajor substation projects during the 69h% bEC *C' f. ' year included the completion of the (iNd %f} . .. ,,,,,,,,,,, Northside Drive 230/13.8 KV substa- 1W M W ,J, tion, the Livingston Road 115/13.8 KV - 1 substation, and the Elliott 115/13.8 KV daa substation. ,,, Transformer capacity additions were if-%m . made at the Forest liill, Durant, Ridgeland, Senatobia, South Grenada, Q%i ' 'a
, f 3 9; and N1oorhead substations, and " I capacitor additions were made at the Delta SES substation. Independence Unit 2 um placed into commercial operation in December.
Work on the llrookhaven to South Ilrookhaven line was continued with right-of-way for this 500 KV line, has /3 D/ TEND D ( '/ ' completion scheduled in Febmary delayed its construction. An alternate The second unit of the In-1985. Construction was started on the right-of-way route is being secured. dependence Steam Electric Station ihmkin 230/Il5 KV substation which is The line is now scheduled fbr comple- near Newark, Arkansas, was placed scheduled to be in sersice by N1ay tion by December 1985. nto commercial operation December 1986. During 1984, $809fXX) of expen- 6,1984. N1P&L owns 25 percent of On the Franklin to llogalusa 500 ditures were made on 500 KV cach of the two units at Independence KV line,96 percent of the right-of- facilities as a result of storm damages. for a total of 420 N1W of coal way had been purchased by the end of This damage was sustained during two generating capacity. 1984. clearing was 89 percent com- separate cases of tornadic-like winds In addition to the capacity owned by plete, foundations fbr the towers were which resulted in damage to eight 500 N1P&L at independence, N1P&L has 84 percent complete, and tower erce- KV towers in one case and three entered into an agreement with AP&L tion was 22 percent complete. An , , towers in the other. to purchase the energy produced by adscrse ruling by the Niiniwipp' AP&L's 31.5 percent of Unit 2 fbr a Supreme Court, which stated that period of five years. Thus, Ihr the N1P&L did not hase the right of emi' next five years, N1P&L is assured of nent domain fbr the acqunition of 685 N1W of power from the In-dependence Plant, one of the most ef-fic ent coal fueled power plants in the nation and world. During 1984 these two units I ** ' # pnsluced 16.4 percent of the energy j
, needed for the N1P&L system, and in
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4 ,j December when both units were pro-ducing commercial power,52 percent lPililillil llil 111 < 1' of N1P&L energy requirements were Ij furnished by the Independence Plant.
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dwendence generated fbr N1P&L s
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1.2W.953 N1WH at an aserage fuel cost of 2.17 cents /KWil. This amounted to a $11JtXIJXX) sasings to N1P&L customers in fuel costs com-pared to the aserage oil and gas fuel [ .- q cost for the same period.
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..,..,e Serune Madnon Countt Mitti. opencJ us neurst ollh e in Os tober.
GR IT D (il U - . . . , , . _ linancial resources can be concen-trated on Grand Gulf Unit 1. In August 19M, Grand Gulf Unit I received its full peer operating l4l Grand Gulf Unit I and Unit 2 are owned 909 by Middle South Energy, license and began generating electricity. 'I Inc., and 109 by South Mississippi Ibwer ascension testing of Grand Electric Power Association. The Com-I pany operates the station on their Gulf Unit I has progressed satisfac- p torily since approval for a full-power [l. I "k*; y behalf. operating license was obtained for the
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gram, test energy from the unit is be- 4 f' ing sold to the operating companies in -s the Middle South System. k , The first generation of electricity ,l 6 occurred at the plant on October 20. '* 1 u. 19M, and the unit has operated at - 13 Y. - reactor power levels over 55 percent g. 5 in 19M as the plant is readying for commercial operation. - , , (. Grand Gulf Unit 2 is approximately one-third complete but construction " activity has been limited in order that lemeers r/osely momtor all sprems at ., _ ./ Gramt Gulf Nuclear Station. ( a
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,n 1 i'is pi indicate the MP&L service area CUSTOMERS 'i9EE'ist*rT*c""*s"duc o $"im;d;,8m"lygr;9sy,;is i
o a"' primarily to an incre se in sales t the PE1K DE3LiND INI) other Operating Compames m the cent years. EXER (;y S,If ES There was a significant increase in Niiddle. South System. An increase in the number of new manufacturing The 1984 peak demand of 1,758,000 sales to retail customers was also an f rms locating in western hiississippi, kikmutts was reached on July 11. It mdicator of continued cconomif in the number of new jobs being was down from last year's peak of recovery in western hlississippi. created by these locations, and in the 1,894,000 kihmutts, due to the milder While sales were up, MP&L in total investment required. In summary, summer temperatures and loss of the many instances could purchase power
, 45 new industrial locations were an-five wholesale municipahties and one from other utilities at a cost less than nounced for the area in 1984, and 39 large industrial customer. The, peak it could produce its own power, s existing industries reported plans for represents the maumum requirement MP&L took advantage of this oppor-expansions. These announcements for electricity by customers for any tunity, and the resulting savings were represent a total investment of $142 one-hour perni in a given year. passed on to customers.
million, and will provide 5,311 new System peak demand occurs m In 1984 sales to retail customers manufacturing jobs with an annual MP&L's service area during the sum- amounted to 7.63 bilhon kihmutt paymn of approximately $76 million. mer months when electricity demand hours, a slight increase above the year Additionally, the region-particularly is pushed higher by heavy a,r i condi- before. Also, the average residential the Jackson hietropolitan Statistical tioning usage. customer used 11,127 kikmatt hours .in Area (N1SA) and the DeSoto County There were 5,413 more customers 1984, an increase of 2.5 percent over portion of the Memphis MSA-saw served in 1984 than there were m the previous year. Other positive signs ' major new investments in commercial 1983. In December 1934, the number of economic recovery were evidenced and ofHce space and related service of customers rose to 322,713, with by the rise in both commercial and m ,- . most of the growth in the residential dustrial usage for the year. Commer-The im act of these new area. cial energy sales were up by 7.2 per-developments on Mississippi's Customers by classincation were: cent and industrial energy sales were economy is notable. Unemphiyment residential, 276,586, commercial, up 2.05 percent compared to 1983. for the year averaged about 10.6 per-40,290; industrial, 3,387; government cent, down from 12 percent a year
,,c , , _, earlier.
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, m < mitment to the economic development Mdh LMA % ! ,_
J of western Mississippi by expanding its area development staff and budget i to increase and improve its industrial
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kdin f ~-- recruitment effort. Personnel also were kEER. e i G. added to establish full-time, in state UU '
, [', L. , programs which will encourage the
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7 growth of existing industry and the 43 preparation of hxal communities for f g 1 l
, 7' 'M' future economic growth as well, g;- J These investments further bolster a MP&L's economic development pro-E gram, which was first initiated in 1928, making it the oldest full-time economic development program in the Y ., state of Miniwippi.
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Imm left, Robin and (Ane ihnis ofJack wn receive the 1000th 13 (thergy, fJJirient, ikctric) emblem fmm Allut. Afarketing Representative Charlie Shelton. 8 M..- .
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Ihe Comp.inyi strategic marketing managing growth m energy sales at ob i ectne is to "estabinh a customer- times of high use. MPAlls markeimp and mlormation oriented plulosophy of busmess which The year 19w4 was a year when progrann emphasi/ed the etticient use hicuses corporate resources on the significant progress was made toward til Vflef g> w hile ptliding electrlC nieCtIng the inarketing obiettise. corti-
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prp{1 table produCllon of CusIoWer grtiwth rates .Hid growth patterns into sat ntac tion." pared with 1981 a preferable range- Ihe strategy to athiese thn is based Results in tour Les market segments A pleterahle IJnge n achiesed b) on Incre.ning tiital energy sales produced the following percent in-mfluenting the long term demand pat- through m.uketmg and econonne creases: outdoor security hghtmg terns of the ('oillpally's etntainters to degejgpgneng; selling energy sergiges KW_$} percent; industrial procCss nl. itch MPAl?s supply c.ip.ibilit)- that are profitable for the ('ompany heating KW--SI percent, tons of When m.uketing ettorts positnely in and MPAl. customers. promoting elli- residential heat pumps-75 percent; lluente lo.id stiape, both the Conipan) cient end use of electricity; and and commercial industrial heat pump atid Its clntoiners benellt. tons-]70 percent.
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31P& CS CONCERN - m -~,-~~>> - -- PROGR. I31 There are many individuals in the MP&L service area whose energy needs are critical, and MP&L has estahlished CONCERN-a 13-point program-to meet these special needs. In two years of operation, CONCERN has raised almost $375JXX) for s . distribution to needy citizens. The two "' ,
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ciderly and handicapped customers e f; ,/;f, pay electric energy bills, and lleipmg llands, which provides weatherization g ', 4 and conservation assistance for homes t~
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of needy customers. - ar : Q-In 1984, some 8,8(X) customers and ' I,100 MP&L emphiyees donated more a g than $117JXX) for Energy CONCERN. . . , f ,,,,, , j Over 1,500 grants totaling $65jXX) ja,,,c, c,n j,,g,,,,,, ,,,a,, age, ,,f c,,,,,u,,,,, ,,qa,j,,,,,, c,,onhnate.i the CONCERN program. were distributed to needy families. To date, $?75fMX) has been contributed g - and $178JXX) has been distributed to b si < I 1 4.584 families and individuals. {qGN * ' " " r Another $16fXX) was spent in 1984 l . on weatherization projects for 145 - " i H qualified homes through fielping , b. ~~ Ilands. In two years of operation,210 ; homes have been weatherited at a j total cost of almost $30,fMM) in i /, materiah. All labor is contributed f j $g - through other service organizations. Y Energy CONCERN is administered 'T "2 . by The Salvation Army, which - t" ' ! - operates through about 180 social ser- 'A vice agencies in western Miwiwippi to - certify applicants. Other CONCERN operations last h'"- Y " A frien Ih smile f >r contomers n the fint year served some MJMX) MP&L customers with programs such as (b e phase of emt rustomer irn-ire. Timely Due Date, Time l'ay, Protected Custoir.er, Medical Emergenq, and Emergeng Pay Plan.
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Hormie llommt, a setenm sen tre appbra. tiort <lerk in Ja< kson has estabinhr<l a reputatwn for whung s ustomer pnoblems. 10
l- e , , , , , , , .- . . district manager in Grenada, was pro-
. $ I!kM!M3 moted to director of engineering in Jackson.
Three new people were elected to the hip &L Board of Directors during ON Si,RI<,NG,,I.H$, John E. sherroa. central divjsion the year. manager, was advanced to the position These were: David C. Bramlette, at-
. <t- r<' of director of division operations.
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! *3 torney in Natchez; E. B. Robinson,
.f. : 4 : 1 !. 1 Larry F. Dale was promoted to Jr., bank executive in Jackson; and
;//' >< ',<, t director of nuclear licensing and safe.
1; ' ;<,f ' William Cavanaugh Ill, SIP &L ty. Prior to this promotion, he served Donald C. Lutken was elected by as manager of nuclear services. president; the board of directors to the position G. Lawrence Adams, attorney in Thomas E. Reaves, Jr. became Natchez; and John P. Ntaloney, bank of chairman of the board and chief ex- director, nuclear support, in the ecutive ofheer. This promotion executive in Jackson, retired from the nuclear production department in hip &L board. became effective April 2. Formerly, Jackson. Formerly, he served as direc. he served as president and chief ex- tor, quality assurance. ecutive of ficer. Stephen 51. Feith has been pro- !l '. William Cavanaugh 111, was elected to the position of president and chief moted to director, quality assurance. Prior to this advancement, he served I
/! /
operatmg officer at the same time. lie as manager, nuclear site quality M'd )g was senior vice president of Arkansas assurance. lbwer & Light Company prior to this P'",*"II""- l rank S. York, Jr., vice president Ted 11. Cloninger was promoted to director of nuclear engineering and construction. Ilis former title was pro-r k.x ,' [ C '. and secretary was advanced to senior ject manager of Grand Gulf Unit 2. 3 l
' " s# k vice president and secretary and con- Bob L. Starsh, who was the Rankin -
tinues to be the Company's chief district manager, became the central 9 . t Imancial of ficer, "* l j i division manager in Jackson. & Donald E. hiciners, vice president, Joseph L.Blount, attorney, was ,. % + customer services, was promoted to employed by the Company as the ,$ ^" - I' senior vice president, customer and director of the legal and claims *? A Wa e.*, - mformational services. department. 7'ce ? If.. ' [ #
' o44 IM C. Iliram Walters, director of divi-William G. Kuh was named the 4~ i$ V, Q[/ .6V sion operations, was promoted to vice director of personnel. Formerly, he '
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- auistant vice president, informational director of public affairs in five southern states for a national in-
*FkI ranF. Gallaher, formerly the surance company, was employed as director of engineering, became auis- assistant to the vice president for tant vice president, engineering and n irs.
fouil pnxtuction. Frank hl. Iluchanan, who was
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The management of the Company has prepared and is responsible for the financial statements and related financial informa-tion included in this annual report. The financial statements are based on generally accepted accounting principles, con-sistently applied. Financial information included elsewhere in this report is consistent with the financial statements. To meet its responsibilities with respect to financial information, management maintains and enforces a system of internal accounting controls which is designed to provide reasonable assurance, on a cost effective basis, as to the integrity, objec-tivity and reliability of the financial records and as to the protection of assets. This system includes communicatict' through written policies and procedures, and an organizational structure that provides for appropriate division of responsibility and the training of personnel. This system is also tested by a comprehensive internal audit program. The board of directors pursues its responsibility for reported financial information through its audit committee, composed of outside directors. The audit committee meets periodically with management, the intern.1 auditors, and the independent public accountants to discuss auditing, internal control, and financial reporting matters. The independent public accountants and the internal auditors have free access to the audit committee at any time. The independent public accountants provide an objective assessment of the degree to which management meets its respon-sibility for fairness of financial reporting. They regularly evaluate the system of internal accounting contros and perform such tests and other procedures they deem necessary to reach and express an opinion on the fairness of the financial statements. Management believes that these policies and procedures provide reasonable assurance that our operations are carried out with a high standard of business conduct. Mississippi Power & Light Company: We have examined the balance sheets of Mississippi power & Light Company as of December 31,1984 and 1983 and the related statements of income, retained earnings, and changes in financial position for each of the three years in the period ended December 31, 1984. Our cuminations were made in accordance with generally accepted auditing standards and, ac-cordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the above mentioned financial statements present fairly the financial position of the Company at December 31,1984 and 1983 and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1984, in conformity with generally accepted accounting principles applied on a consistent basis. 44 6ht- d 1.- February 18, 1985 New Orleans, louisiana 13 1 j
i Company made use of short-term borrowing in 1984 with
$46 million being the maximum amount utilized. The amount of short-term bormwings authorized by the Securities and Exchange Commission effective December 30, 1983 is the lesser of $73 million or 10% of capitaliza-tion. There were no short-term borrowings outstanding as I. FINANCIAI, CONDITION of December 31, 1984.
The Gnancial condition of MP&L impnwed during 1984 Construction expenditures for the years 1985,1986 and and net income increased to $48.3 million or 11% above 1987 are projected to be $42 million, $51 million and $69 the prior year. Investment in plant increased to $1.1 billion million, respectively. In addition, the Company will con-or 4% ahne the prior year. Net income for the years tinue to make monthly payments to MSE during 1985 1983 and 1982 was $43.5 million and $35 million, respec- under the above-mentioned Power Purchase Advance Pay-tisely. The Company's pre-tas carnings coverage ratio of ment Agreement until commercial operation of Grand Gulf bond interest requirements was 3.81 for 1984, after in- Unit I, expected to occur during the second quarter of cluding a new $35 million inue of 14%% First Mortgage 1985. During the period 1985-1987, the Company will re-Ihmds, compared to 4.12 for 1983 and 3.46 for 1982. The quire substantial additional capital if certain costs cmerage ratio of interest charges and preferred stock divi- associated with the purchase of power from Grand Gulf dend requirements was 1.60 for 1984, after including a Unit I are deferred in accordance with the Company's new $15 million issue of 16.16% preferred stock, compared proposed rate moderation plan filed with the MPSC. Bas-to 1.77 for 1983 and 1.65 for 1982. Since the Company ed on a 19% allocation of the capacity and energy of would be legally precluded from issuing additional Nmds Grand Gulf Unit I, the deferred amounts for 1985, 1986 (other than for refunding purpmes) should the related and 1987 are presently expected to be $65 million, $117 cmerage ratio be less than 2.0 and from issuing additional million and $95 million, respectively. To meet the capital preferred stock should the related coverage ratio be less requirements discussed above based on this 19% alloca-than 1.5, maintenance of satisfactory earnings and coverage tion, and assuming timely and adequate rate relief, the ratim is cuential to enable the Company to sell additional Company presently expects to secure new permanent amounts of securities on satisfactory terms to meet future financing of approximately $20 million in 1985, $25 capital requirements. In Nmember, MP&L filed a rate in- million in 1986 and $21 million in 1987. Tl e Company crease request with the Miwiwippi Public Service Com- also expects to use short-term bornming on an interim miwion (MPSC), including a request for interim rate relief basis. Based on 1984 carnings coverages and an awumed which was granted in part in January,1985, for the interest rate and preferred dividend rate of 15%, the Com. amount of fised cmts awociated with Independence Steam pany could have issued as of December 31, 1984, approv Electric Station - Unit 2 (Independence Unit 2), and a re- imately $193 million of additional first mortgage bonds quest to include in rates the Company's portion of the (plus any Grst mortgage bonds for refunding purposes), capacity of Grand Gulf Nuclear Station Unit 1 (Grand subject to the availability of bondable property, or approx-Gulf Unit 1). The filing includes a rate moderation plan imately $24 million of additional preferred stock, propmed by the Company that will phase in the retail rate ihmever, the Company had suf6cient unfunded N ndable increase mer a ten-year period, and which will, depending property available at December 31. 1984 to iwue only ap-on the allocated percentage of Grand Gulf I at 19% or pnnimately $132 million of additional first mortgage 33% , (see Note 5 to the Financial Statements), produce a bonds. deferred amount of approsimately $355 million or $615 million respectisely (see Note 6 to the Financial Statements for a further discuwion of rate ma,ters). This rate relief is critical and necewary to maintain the finan-cial integrity of the Company. II, l.IQUIDITY AND CAPITAL, RESOURCFS The Company's con truction propam for 1984 resulted in expenditures of appnnimately $51 million, including ap-pnnimately $23 million for the Company's 25% interest in the Independence Steam Electric Station and the related coal handhng equipment. In addition, under the Power Purchase Advance Payment Agreement with Middle South Energy, Inc. (MSIO, MP&L made paymena to MSE of appnnimately $4 nullion per month or a total of $47.4 million during 1984 (see Note 5 to the Financial Statements). Total funds supplied from esternal sources in 1984 were appnnimately $54 million and included: $15 million from the sale of preferred stock; $35 million from the sale of first mortgage bonds; and $4 million from the draw-down of pollution control equipment financing. The 14
M III. RESUtlIS OF OPERATIONS Results for the year 1984 produced a $4.8 million or 11% increase in net income when compared to the prior year. A major factor contributing to the increase in net income was increased usage by retail customers. Increased sales to associated companies was also a contributing factor to the increase in net income. Fuel and purchased power costs continuc to be the Company's major expense, equalling approximately 53% of its total revenue. Unit cost of fuel for generation in 1984, however, was 114% less than in 1983, primarily as a result of the utilization of coal generation and the decreased costs of gas. Sales to retail customers in 1984 increased approximately 3.8% above the prior year. This increase in sales was due in part to improved economic conditions in MP&I's ser-vice area and colder than normal temperatures in the early part of the year. Operation and maintenance expenses, other than fuel and purchased power, increased $7.6 million or 9.2%. The major factor contributing to the in-crease was recognition of expenses of a preliminary study developing the design of and construction plans for stan-dard coal plants. Expenses relating to Independence Unit 2, which began commercial operation in December,1984, also contributed to the increase, as did the cost of the MPSC ordered management audit. Allowance for funds used during construction (AFDC) increased in 1984 by ap-proximately $1.2 million over the prior year, primarily because of Independence Unit 2. AFDC as a percent of net income in 1984,1983 and 1982 was 16%,15% and 41%, respectively. It is expected that AFDC will decrease in 1985 both in amount and as a percent of net income because of the completion and placing into commercial operation of Independence Unit 2. Expected increases in the cost of generation, the effects of inflation on operating expenses, the additional investment in facilities and the an-ticipated costs in connection with the purchase of energy from Grand Gulf Unit I have caused the Company to seek
=
rate relief from the MPSC. IV. EFFECT OF INFI,ATION Despite the reduced level of inflation during 1984, its im-pact on the Company's operation in recent years has been significant (see Note 12 to the Financial Statements). V.
SUMMARY
The ability of the Compa'y to secure adequate and timely rate relief to cover its po tion of the capacity of Grand Gulf Unit 1, Independenu Unit 2 and other cost increases _ (see Notes 5 and 6 to the .'nancial Statements) will have a material effect on the abilit; of the Company to remain financially sound in the future, .'nd 6s be able to pnwide the generating capacity and other resource's necessary to serve the present and future energy requirements of its customers. A l r 15
DECEMBER 31,1984 and 1983 ASSETS 1984 1983 In Thousands UTILITY PLANT (Note 5): Electric Plant. .... ... .. . . . .. .. . . . . . . .. . ..... $1,091,639 $ 980,716 Construction work in progress . . . .. .. 16,643 83,590 Electric plant acquisition adjustments . . . . . . . . . . . . . . . . . .... . .. 1,498 _ 1,680 Total .. .. .. .. . . . . . . . . .. . .. .. . .. . 1,109,780 1,065,986 Less accumulated depreciation... . . .. . . . . . . . . . . . . . ... . 318,818 293,134 Utility plant-net.. . . . . . . . . . . .. . . . . . .. 790, % 2 772,852 OTilER PROPERTY AND INVESTMENTS: Investment in subsidiary company, at equity (Note 5)...... . . . . . . . .. . 19,909 18,274 Other . . . . . . . . . .. ........ .. . . . . . .. . .. . . . . ... 767 792 To tal . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . .. . .... . . . .. . . . . 20,676 19.066 CURRENT ASSETS: Cash and special deposits (Note 7) ...... ............ . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,055 643 Temporary investments - associated companies (at cost which approximates market) (Note 7) . . . ... . . . . . . ... . 12,000 23,500 Accounts receivable: Customer and other - less allowance for doubtful accounts-$679,000.. . .. .. . .... . .... . . . . ... . ... 21,761 25,313 A s soc iated compa n ie s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,190 369 Materials and supplies-at average cost: Fuel . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . 2,582 2,935 Other............................................................... . . . . . . 8,473 8,444 Power pu rchase advance pay ments (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,231 _. Other . ... .. ... . ...... .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,541 6.77i To tal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .. .. . . 72,833 67,975 DEFERRED DElllTS: Power purchase advance payments (Note 5). ... . . ... . . . . .. ..... 40,922 __ Unamortized debt expense . .. .. . . .. .. .. . .... . .. .... . ... ...... . ...... ....... 1,789 1,964 Other....................................................................... 219 392 Total............................................................................. 42,930 2,356 TOTA L . . . . . . . . . . . . . . . .. .. ........... . . . . . . . . . . . . . . . . . . . . . $ 927,40I $ 862,249
= = = = === =. =
See Notes to Financial Statements. ( l 16
l LIABILITIES 1984 1983 In Thousands CAPITALIZATION: Common stock, no par value (stated value $23 per share) authorized 15,000,000 shares; issued and outstanding 5,840,000 shares (Note 3) . . .. .. . . .. . . $ 134,320 $ 134,320 Retained earnings (Note 8) . . .. . . . . . . . . . . . .. . . 85,788 83,604 Total common shareholder's equity . .. .. . . . . . . . 220,108 217,924 Preferred stock without sinking fund (Note 3). . . . . . . . . . . 38,077 38,077 Preferred stock with sinking fund (Note 3). . . . . . . . .... ... .. 55,000 40,000 Long-term debt (Note 4).. . . . . . . . . . . . . . . . . . . .. 379,200 340,5 % Total .. .. ... . . . . . . . . . . . . . . .. . 692,385 636,507 OTIIER NON-CURRENT LIABILITIES: Accumulated provision for property insurance .. . . . . . . . 7,998 7,928 Accumulated provision for injuries and damages . . .... . .. 2,122 2,346 Total . . .. .. . . . . . . . ... .. . . . . .. . 10,120 10,274 CURRENT LIAlllLITIES: Currently maturing long-term debt.. . . . . . . . .. 513 482 Accounts payable: Associated companies . . ... . . . . . .... . . . . 7,909 12,501 Other . . . .. .. .... . . . . . . ... . . . . 16,405 24.036 Customer deposits. ... .. . . . . . . . . . . . . . . . . . . . . . . 13,747 12,814 Taxes accrued.. . . . . . . . . . . . . . . . . . . . . . . .. 18,910 18,478 Interest accrued . . . . ... . . . .. . . . . . . . . 14,513 9,551 Dividends declared.. . . . . . . . .. .. ... ... . . . 12,097 8,554 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,%9 1,904 Total . . . . . . . . . . . . . . . . . . . . . . . .. . .. 87,163 88,320 DEFERRED CREDITS: Accumulated deferred income taxes (Note 2). . . . . . . . . . . . 85,439 77,084 Accumulated deferred investment tax credits (Note 2).. . . . . . . . . . 45,9 % 43,443 Other. ... . . . . . . .. . . . . . . . . . . . . . . . 6,298 6,621 Total .. . . . . . . . . . . . . .. . . . . . 137,733 127,148 C051311TMENTS AND CONTINGENCIES (Notes 5 and 6)
$ 927,401 $ 862,249 TOL .L . . . . . . . . . . . .. ... . . . . . . . . . . . . . . . . . . . . __
See Notes to Financial Statements. 17
1984 1983 1982 in Thousands OPERATING REVENUES (Note 6). .. ... . .. $531,927 $520,103 $526.483 OPERATING EXPENSES: Operation: Fuel. . .. ... ... ... ..... . .... 194,636 177,938 247,116 Purchased power.. .. ... . .. . 86,032 103,605 93,621 Other., . .. . . . .. ... .. .... . ... . . 66,963 57,011 52,855 Maintenance.. . . . . . . . . . . . . . . . . . . . . . 23,920 26,236 20,951 Depreciation. .. . . . . ... .. .. . . . . . 30,939 30,013 24,255 Taxes other than income taxes . . .......... . .. ... . . . . . . 21,208 22,088 20,768 Income taxes (Note 2)..... . . . . . . . . . . . . . . . . . . . .. . . 33,659 36.766 21.037 Total . . . . . . . . . . . . . . . . . . .. .. . . . . . . 457,357 453.657 480.603 OPERATING INCOME . .. . . . . . . . . . . . . . . . . . . .. 74,570 66.446 45,880 OTIIER INCOME AND DEDUCTIONS: Allowance for equity funds used during construction ..... .. .. .. . . . . . . . ... . . . . 5,303 4,664 8,609 Miscellaneous-net. . .... . . . . . . . . . . . . . ... ... 6,099 1,319 2,842 Income taxes (Note 2).. .... . . . . . . . . . . . . . . ..... . . . . (8_75) 401 23 Total . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . 10,527 6.384 14,013 INTEREST CilARGES: Interest on long-term debt.. ... . . ..... ... ...... . . . . . 31,626 28,003 24,959 Other interest-net . . . .... ... ...... .. .... ... .. .. . . 7,512 3,169 5,573 Allowance for borrowed funds used during construction.... . . . . . . . . . . . . . . . . . . . . .. . ..... _ 12,374) _ 1,837) ( __(5,759) Total . . . . . . . . . . . . . . . .. . . .... ... . . .. ..... .. 36,764 29,335 24,773 NET INCOME (Note 6)... . . . . . . ... . . ..... . . . .......... .... $ 48,333 $ 43,495 $ 35,120 STATEMENTS OF RETAINED EARNINGS FOR Tile YEARS ENDED DECEMBER 31,1984,1983 and 1982 RETAINED EARNINGS, JANUARY l ... . . . . . . . . . . . . . $ 83,604 $ 80,783 $ 81,596 ADD-Net income. .. .. . .... . . . . . .. ...... 48,333 43,495 35,120 Total . . . . . . . . . .. .. . . . . . . . . . . . . . 131,937 124,278 116,716 DEDUCT: Dividends-cash: ; Preferred stock. . . . . . . ... . .... . . ... . 9,065 8,359 7,099 Common stock . . .. .. . . . . . .. ..... . . . . 37,084 32,315 28,834 Total .. . . . . . . . . . .. 46,149 40.674 35.933 RETAINED EARNINGS, DECEMilER 31 (Note 8).. .. $ 85,788 $ 83,604 $ 80,7E3
=._--:-.== = - - - - - =-==
See Notes to Financial Statements. 18
1984 1983 1982 In Thousands FUNDS PROVIDED BY: Operations:
$ 48,333 $ 43,495 $35,120 Net income . . . . . . . . .. .. .. . ...
30,939 30,013 24,255 Depreciation. . .. . . . . . . . . . . . . .. Deferred income taxes and investment tax credit adjustments-net.. . ... . . . . 10,908 41,844 8,127 Allowance for equity funds used during construction. . . .. (5,303) (4,66%) (8.609) Total funds provided by operations .. .. . . .. ... 84,877 110.688 58,893 Other: Allowance for equity funds used during construction. .... .. . . 5,303 4,664 8,609 Decrease in working capital * . . . . . . .. .. . . ..
- 2,850 31,936 Investment in subsidiary company . . . . . . . . ..
- 2,259 -
Miscellaneous-net . . . . . . . .. . . .. . .. . . . . . 1,440 2,215 - Total funds provided excluding financing transactions . .. .... . . . . . . . .. . 91,620 122,676 99,438 Financing transactions: Common stock .... . . . . . . . . . . . . . . .. .. . .. ..
- 29,900 -
Preferred stock. .. . .. . . . .. .... . . . . . . . . . . .. 15,000 10,000 10,000 First mortgage bonds . . . . . ......... . . ... . 35,000 45,000 30,000 Other loug-term debt . ..... . . .. . . . . . . . . . . . . . . . . 4,390 7,275 17,212 Book value of utility plant sold.... . . . . .. .... . ..
- - 14,705 Short-term securities-net..... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I1,500 _
Total funds provided by financing transactions . .. . . ...... . . . . . . . . . . . . . ... 65,890 92,175 71,917 Total fund s provided . . . . . . . . . . . . . . . . . . . . . . . . .. .. $157,510 $214,851 $171,355 ITNDS APPLIED TO: Utility plant additions: Construction expenditures (includes allowance for funds used during construction). . ... . .. ... . .. $ 50,776 $ 63,623 $100,847 Other: Dividends declared on preferred stock... .. . ... .... ... .. 9,065 8,359 7,099 37,084 32,315 28,834 Dividends declared on common stock..... .. . . . . . ..... ..... Power purchase advance payments (Note 5). . . .. ...... .. . . . . 51,153 - - Inerease in working capital * ... ... . .... . . . . . .... . . . . . . . 7,315 - - Investment in subsidiary company ... . . . . .. . .. . 1,635 - 1,649 Refund to retail customers... ... .......... .. . . . . . . . . . . . . . . . - 74,600 - Miscellaneous-net . .. ..... . . . . . . . .. ..... ..... . ......... 446 Total other funds applied..... ... . . . . . . . . . .... . .. 106,252 115,274 38.028 Financing transactions: Retirement of first mortj, age bonds. .. . .. . .. ....
- 12,000 -
Retirement of other long-term debt... . . . . . . . . . . . . . 482 454 29,480 Short-term securities-net - 23,500 3.000 Total funds applied to financing transactions . .... . . . . . . . . .. .. . .. 482 35.954 32,480 Total funds applied .. ..... . . . . . . . $15_7,5_10 $214,851 $17_1,355
'ICTAll. oF INCREASE (DECREASE) IN M t.FCIED MoR Al%G CAPITAL. IIDis:
CcMi and special depiuts , S 3,412 1 ( 3.2 12 ) $ 2.7?2 (2,731) 3ff7 (6 41) Accounts receivable.. ...~ . hfaierials and supphes and ither current swets.. $444 (M2l 356 Acctenta pnable and cuemer deposits .. 11,290 (12A59: (16.432) (3,394, 9.955 19.964) tses and meerest accrued . (3.543p (851) (1,116 ) thvidi ridi declared . 0.16!) 4.432 (7.161) other current hahibiws .. Net . S 7.3 13 % __ (2A9h %dl 936)
*%rlLing capital estudes short term securities. current outurities i4 long term dehe, and the current pirtion i4 piwer purthase advarse payments 19 see Notes h, hnanual sutements
ggg , s - . . , < ...-.;y s . . . .. . , , .. . .. . - - . G. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION _
- l. Summary of Significant Accounting Pulicies In accordance with the regulatory system of accounts, A. SYSTEAl OF ACCOUN15 the Company capitalizes, as an appropriate cost of utility The accounts of the Company are maintained in accor- Pl ant, an allowance for funds used during construction dance with the system of accounts prescribed by the (AFDC). Under this utility industry practice, construction Federal Energy Regulatory Commission. work in progress on the balance sheet is charged and the income statement is credited for the appropriate net com-IL REVENUES posite interest cost of borrowed funds and for a reasonable The Company records revenues as billed to its return on the equity funds used for construction. This pro-customers on a cycle billing basis. Revenue is not accrued cedure is intended to remove from the income statement for energy delivered but not billed at the end of the fiscal the effect of the cost of financing the construction pro-period. The rates of the Company include fuel adjustment grams and results in treating the AFDC charges in the clauses under which fuel costs above or below the base same manner as construction labor and material costs. As levels allowed in the various rate schedules are permitted non-cash items, these credits to the income statement have to be billed or required to be credited to customers. no effect on current cash earnings. After the property is C. UTILITY PLANT AND DEPRECIATION placed in service the AFDC charged to construction costs Utility plant is stated at original cost. The costs of ad- is recoverable from customers through depreciation provi-ditions to utility plant include contracted work, direct sions included in rates charged for utility service. The ef-labor and materials, allocable overheads and an allowance for fective composite AFDC rates were 8.7%,9.2%, and 8.7%
the composite cost of funds used during construction. for 1984,1983, and 1982, respectively. The costs of units of property retired are removed from The Company continues to capitalize allowance for utility plant, and such costs plus removal costs, less funds used during construction on projects during periods salvage, are charged to accumulated depreciation. of interrupted construction when such interruption is tem-hiaintenance and repairs of property and replacement and porary and the continuation can be justified as being renewal of items determined to be less than units of pro- reasonable under the circumstances. perty are charged to operating expenses. Substantially all II. OTIIER NON-CURRENT LIABILITIES of the utility plant is subject to the lien of the Company's It is the policy of the Company to make provisions for first mortgage bond indenture. uninsured property risks and for cla,ms i for injuries and Depreciation is computed on the straight-line basis at damages through charges to operating expense on an ac-rates based on the estimated service lives of the various cru 1 b s,s. i Accruals for these risks have been allowed for rate-classes of property. Depreciation provided in 1984, 1983, m king purposes. and 1982 amounted to approximately 3.3% on avera;;c depreciable property. D. JOINTIX OWNED GENERATING STATION The Company jointly owns 25% of the Independence Steam Electric Station, a two-unit coal-fired generating station. Arkansas Ibwer & Light Company, a sister com-pany, owns 31.5% of the station and operates the facility. The Company records its investment and expenses associated with this station to the extent to which the Company owns and participates in the generating station. The Company's investment in the generating station at December 31,1984 was $237.9 million. E. POSTRETIRESIENT IlENEFilS The Company has postretirement plans covering substan-tially all of its employees. The policy of the Company is to fund pension costs as accrued and other postretirement costs as incurred. F. INCONIE TAXFS The Company joins its parent in liling a consolidated V, Federal income tax return. Income taxes are allocated to the Company in proportion to its contribution to the con-W 37p solidated taxable income. Ok ! Deferred income taxes are provided for differences be- M tween book and taxable income to the extent permitted by %3, the regulatory bodies for rate-making purposes. Investment y.) ' tax credits allocated to the Company are deferred and amortized based upon the average useful life of the related
%y 5
property beginning with the year allowed in the con- .% solidated tax return. Af
',1 J
20 Mk M
- 2. Income Taxes income tax expense (credit) consists of the following:
1984 1983 1982 In Thousands Current Federal . . . . . $20,659 $(5,303) $ 8,429 State. . . ... . . . 2,966 (175) 1,919 Total . . . . . . .... . . . 23,625 (5,478) 10,348 Deferred-Net Revenue subject to refund.. .. . .
'5,997 (10,978)
Liberalized depreciation . . . .. . . 7,001 12,973 7,575 Other . . . . .. . . . . 1,355 (462) 338 Total . . . . .. . . . 8,356 38,508 (3,065) Investment tax credit adjustments-Net . . . 2,553 3,335 11,192 Recorded income tax expense. . .. . . $34,534 $36,365 $18,475 Charged to operations . . . .. .. . . . $33,659 $36,766 $21,037 Charged (credited) to other income. ... . .. .. 875 (401) (2,562) Recorded income tax expense . .. .. 34,534 36,365 18,475 income taxes applied against the debt component of AFDC.. . 2,184 1,690 2,931 Total incomes taxes. . . . . . . . . . . . . .. $36,"il8 $38.05_5 $2_l ,406 Total income taxes differ from the amounts computed by applying the statutory Federal income tax rate to income before taxes. The reasons for the differences are as follows: 1984 1983 1982 In Thousands
% of % of % of Pre-Tax Pre-Tax Pre-Tax A_ mount . Income. Amount income _ Amount income _
Comr.uted at statutory rate. .... $38,119 46.0 $36,736 46.0 $24,654 46.0 Increases (reductions) in tax resulting from: Allowance for funds used during construction . (3,531) (4.3) (2,990) (3.7) (5,426) (10.1) Tax savings due to filing consolidated return. (292) (.4) - - (1,300) (2.4) State income taxes-Net . . 2,076 2.5 1,786 2.2 901 1.7 Other-Net. . (1,838) (2.2) 833 1.0 (354) (.7) Recorded income tax expense. . 34,534 41.6 36,365 45.5 18,475 34.5 Income taxes applied against the debt component of AFDC. 2,184 1.6 1,690 1.2 2,931 3.4 Total income taxes . . . .
$36,718 03.2 $38,055 46.7 $21,406 37.9 Unused investment. tax credits at December 31,1984, amounted to $4.7 million. These credits may be 3pplied against Federal income tax liabilities in future years. If not used, they will expire in 1992 and 1993.
Cumulative income tax timing differences for which deferred income tax expenses have not been provided are $47.0 million,
$47.4 million, and $36.5 million in 1984,1983, and 1982. respectively.
21
- 3. Preferred and Common Stock 4. Long-Term Debt Preferred stock at December 31,1984, and 1983 consisted Long-term debt at December 31,1984, and 1983 consisted of the folknving: of the following:
Current 1984 1983 Shares Shares _ Outstanding Call Price In Thousand First hfortgage Bonds: Aut_ hor _ized 19_8_4 _1983 _Pe_r_S_ha.re _ ~~ 4 !!8% Series due 1988. . $ 15,000 $ 15,000 4 5/8% Series due 1995. . 20,000 20,000 Without sinking fund: 59,920 $103.86 51/8% Series due 1996. 25,000 25,000 4.36% Series . . 60,000 59,920 6 3/8% Series due 1996.. 10,000 10,000 4.56% Series . 44,476 43,888 43,888 107.00 20,000 20,000 100,000 100,000 100,000 102.88 9 5/8% Series due 1999. . 4.92% Series . . 91/4% Series due 2000.. .. . . . 17,500 17,500 9.16% Series . 75,000 75,000 75,000 106.35 7 3/4% Series due 2002.. 15,000 15,000 7.44% Series . .. 100.000 100,000 100,000 104.67 7 3/4% Series due 2003. .. 30,000 30,000 Total . . . 379,476 378,808 378,808 81/4% Series due 2003.. . . . 20,000 20,000 9 7/8% Series due 2004.. 25,000 25,000 With sinking fund:' 10 7/8% Series due 2005.. . 25,000 25,000 17.00% Series . . 200,000 200,000 200,000 117.00 151/8% Series due 1990... 30,000 30,000 14.75% Series . 100,000 100,000 100,000 111.47 11 1/4% Series due 1988.. . 45,000 45,000 12.00% Series . 100,000 100,000 100,000 112.00 141/2% Series due 2014.. . 35,000 - 16.16% Series . . . _ 150,000 150,000 - 116.16 Total First htortgage Boads . . 332,500 297,500 Total . . 550,000_ Sg000_400,000 Pollution Control Bonds: 71/2% due 2004. 9,400 9,400 81/2% due 2004. .. 8,575 8,575 Unissued . 1,075.000 6 3/4% to 81/2% due 1984 to 1995. 1,700 1,800 Total .
- 2*001.476 9 3/4% to 11 1/2% due 2012 to 2014 30,000 30,000 in Thousands Less-Amount held by Trustee . (7,123) (11,513)
Without sinking fund: Total Pollution Control Bonds . 42,552 38,262 Stated at $100 a share . . $37,881 $37,881 Principal Amount of Capitalized Lease-Premium . 1% 1% 8%, due serially through 1993. 5,154 5,536 Total . _$38p7 $38,077 Unamortized Premium on Debt. . 847 909 Unamortized Discount on Debt . (1,340) (1,219) Whh sinking fund. Stated at $100 a share . $55,000 $40,000 Total Long-Term Debt.. . 379,713 340,988
-~ - ~ ~ ~
Less-Amot.nt due within one year 513 482
*These series are to be retired in full through the opera- Long-term debt exclud.ng amount due within one year. . $379,200 5340,506 tian of sinking funds. Beginning September 1,1986, and .
on each September 1 thereaf ter, the 17% series is to be redeemed at the rate of 10,000 shares each year. The At December 31, 1984, the sinking fund requirements and 14.75% series is to be redeemed at the rate of 33,333 maturities for long-term debt for years 1985 through 1989 shares per year on h1 arch 1,1990,1991 and 1992.
"'# *I"""**
Beginning N1 arch 1,1988 and on each h1 arch I thereafter, . .. the 12% series is to be redeemed at the rate of 5,000 Sinking Fund *htaturities shares each year. Beginning November 1,1989 and on Year in Thousands each November 1 thereafter, the 16.16% series is to be redeemed at the rate of 7,500 shares each year. In addi- 1985. $2398 $ 513 tion, the Company has the non-cumulative option for the 1986. 3,248 546 17%, the 12% and the 16.16% series to redeem an addi- 3,248 582 1987. tional like amount of said shares each year commeneing 2,637 60,670 1988. in the first year of redemption in each respective series. 1989. 2,637 712 Number of Shares
- Sinking fund requirements may be satisfied by certifi-1984 1983 1982 cation of property additions at the rate of 167% of such requirements.
Common stock shares sold . - 1.300,000 - 5100 Preferred stock shares sold 150,000 100,000 100,000 22
- 5. Commitments and Contingencies its share of the payments or advances only if the other System operating compam,es were unable to meet their Capital _RetIulrements contractual obligations. The percentage allocations to the -
The Company's construction program contemplates ex- System operating companies of capacity and energy penditures of approximately $42 million in 1985, $51 available to h1SE from Grand Gulf I and 2, as set forth in million in 1986, and $69 million in 1987. the agreements referred to above, are subject to the ap-Substantial additional capital requirements would result proval of the Federal Energy Regulatory Commission in the period 1985 1987 if the Company defers certain (FERC), which has jurisdiction in the matter. costs associated with the purchase of power and energy from Grand Gulf 1 in accordance with the Company's Unit Power Sales Agreement and proposed rate " phase-in" plan filed with the hiississippi New Sntem Agreem_ent Public Service Commission (MPSC) (See Note 6). The System operating companies, including the Com-pany, have requested from their respective state public Availability Agreement and 1%er utility commissions rate adjustments adequate to permit Purchase Advance Payment Agreement them to meet their obligations to h1SE to purchase power under the Unit Power Sales Agreement (See Note 6).
'Ihe Company, together with the other hiiddle South Under the Unit thcr Sales Agreement, as filed with the System operating companies, is obligated under the FERC, the capacity and energy avadable to h1SE from the Availability Agreement to hiiddle South Energy, Inc.
Grand Gulf Station would be sold to the Company, LP&L, (h1SE) in accordance with stated percentages (the and NOPSI in accordance with the percentages set forth in Company 31.3%, Arkansas Power & Light Company (AP&L) 17.1%, Louisiana Power & Light Company the Reallocation Agreement discussed above. An Ad-(LP&L) 26.9%, and New Orleans Public Service, Inc. ministrative Law Judge (AU) of the FERC has rendered (NOPSI) 24.7%) to make payments or subordinated ad. his initial decision regarding such Agreement. The AU g has deferred any decision on Grand Gulf 2 and has secom-vances adequate to cover all of the operating expenses and certain of the capital costs of h1SE. In addition, under the mended that capacity and energy from Grand Gulf I be allocated to AP&L as well as the other System operating Ibwer Purchase Advance Payment Agreement the Com. companies. The AU's decision allocates htSE's share of pany, together with the other hiiddle South System operating companies, agreed, if Grand Gulf I were not the capacity and energy from Grand Gulf I, as fo!!ows: 33% to the Company,36% to AP&L,14% to LP&L, and placed in commercial operation by December 31,1983, to 17% to NOPSI, compared to h1SE's request that such make advance payments to htSE for power purchases which in the aggregate total $12.5 million per month. Such costs be allocated 31.6% to the Company,38.6% to LP&L and 29.8% to NOPSI. This decision, which AP&L is op-payments, adjusted to exclude AP&L as contemplated by the Reallocation Agreement discussed in the next posing, is subject to review of the FERC. In addition to AP&L, the Company, LP&L and NOPSI also have in-paragraph, commenced January 2,1984 and will continue tervened m the proceeding. until commercial operation of Grand Gulf I or December 1,1985, whichever occurs earlier. The Company's share of On April 30,1982, N1iddle South Services, Inc. (h1SS) these monthly payments is approximately $4.0 million. on behalf of the Company and the other hiiddle South System operating companies, filed for approval a New Through 1984 $3.89 billion had been expended by h1SE on the Grand Gulf Plant's two units, the first unit of System Agreement with the FERC that provides for the which is scheduled for commercial operation in the second coordinated planning, construction and operation of its generation and transmission facilities. Rates under the new quarter of 1985. agreement became effective on January 1,1983, subject to Realh> cation _ Agreement refund. Various parties have intervened in these pro-Effective November,1981, the System operating com- ceedings. Some parties are contesting the method by panies entered into a Reallocation Agreement alk)cating which the agreement equalizes capacity and energy among the capacity and energy available to h1SE from Unit Nos. the System operating companies and certain proposals, if I and 2 of Grand Gulf as folhiws: the Company, 31.63% adopted, could cause significant changes in the allocation and 43.974. LP&L, 38.57% and 26.23%, and NOPSI, of costs among the companies. Hearings concluded in 29.80% and 29.80% respectively. This alkication was con- December 1983. On February 4,1985, the AU hearing sistent with a prior alh> cation of capacity and energy for the New System Agreement proceeding issued his initial the Units made among the Company, List and NOPSI decision recommending that the New System Agreement pursuant to a memorandum of understanding executed by be adopted, as filed with the FERC, with certain the System operating comp:mies on July 21,1980. Under modifications. Principally, the decision recommended that the Reathication Agreement, the Company, LP&L and a 15.75% return on common equity be granted; that no NOPSI in proportion to such alkications, have assumed all periodic review conditions be attached to approval of the of the responsibilities and obligations of AP&L with New System Agreement; that production cost equalization respect to these units under the Availability Agreement of all System generating units, as pr9 posed by various in-and the Power Purchase Ahance Payment Agreement and, tervening parties, not be granted; and that the reserve in consideration thereof, AP&L has relinquished its rights equalization provisions in the New System Agreement, as in the Grand Gulf Station. However, each of the System filed, be adopted. However, the AU went on to recom-operating companies, including AP&L, remains primarily mend that the Grand Gulf Station be integrated into the liable to htSE and its tssignees for payments or advances New System Agreement by having each of the System under the Availability Agreement and the Ibwer Purchase operating companies pay for the capacity and energy costs Advance Payment Agreement in accordance with the of Gnnd Gulf based on the ratio that each System respective original percentages set forth in the immediately opersting company's annual demand bears to the annual preceding paragraph. AP&L would be obligated to make demand of the entire System and that each System 23
l I operating company's share of Grand Gulf be included in Company under the Gas Sales Agreement certain specified calculating such Company's capability and, consequently, costs of gas and associated transportation charges to which its reserve equalization payments. This decision is subject the Company and the MPSC had objected. The decision to review of the FERC. of the District Court granting the preliminary injunction in an effort to resolve the difficult and complex issues has been appealed by United to the United States Courts involved in the Unit Power Sales Agreement and the New of Appeals for the Fifth Circuit. Of the damages sought System Agreement proceedings, the System operating by the Company, United has refunded to the Company ap-companies, MSE, and MSS, as agent for the System proximately $15 million. The matter is pending. operating companies, submitted an Offer of Settlement to gy, the FERC on January 4,1985. Under the terms of the Set-tiement Offer, the New System Agreement, as currently in The Company has a 19% interest in System Fuels, Inc. effect would remain in effect unchanged. The Unit Ibwer (SFI), a jomtly owned subsidiary of the four principal Sales Agreement, as proposed to be amended, allocates operating subsidiaries of Middle South Utilities, Inc. SFl MSE's share of the capacity and energy from Grand Gulf operates on a non-profit basis for the purpose of planning Unit I, from the date of commercial operation through and implementing programs for the procurement of fuel December 31, 1990, as follows: 19% to the Company, supplies fbr all of the operating companies; its costs are 17.1% to AP&L,14% to LP&L,17% to NOPSI and primarily recovered through charges for fuel delivered. 9 32.9% as inventoried capacity. Effective January 1,1991, The parent companies of SFI have made loans to SFI to the alh> cation changes as folkwvs: 2A42% to the Company, finance its fuel supply business under a loan agreement 27.87% to AP&L, 27.48% to LP&L. and 20.23% to NOP. dated January 1,1984, as amended January 1,1985, which St. Accordingly, beginning January 1,1991, the Company Provides for SFl to borrow up to $120.000,000 from its wuuld commence paying its respective share of the full parent companies through December 31,1985. As of cost of service of Unit 1, including amortization of the December 31, 1984, the Company had loaned $2,115,000 to y deferred carrying charges on inventoried capacity over the SFI pursuant to this loan agreement and the Company's share of the unused loan commitment was $15.885,000. remaining life of Unit 1, plus a return on the deferred car, rying charges. This proposed Offer of Settlement is sub. Notes under this agreement mature December 31, 2010. In ject to review of the FERC. addition, the Company had loaned SFI $17,790,000 under On February 22, 1985, the FERC issued an order con. previous loan agreements. Notes mature in 2002 and 2008 vening a settlement conference for the purpose of address. under the provisions of the previous loan agreements. ing the proposed Settlement Offer and of resolving the in connection with certain of SFI's borrowing ar-issues in the Un t I\nver Sales Agreement and New rangements, SFI's parent companies, including the Com-System Agreement proceedings. The initial settlement con- Pany, have covenanted and agreed severally in accordance ference is scheduled io convene on March 12, 1985. with their respective shares of ownership of SFI's common it is not possible to predict what decision or decisions stock, that they will take any and all action necessary to the FERC will ultimately render in the New System keep SFI in a sound financial condition and to place SFI Agreement and Unit Ihver Sales Agreement proceedings in a position to discharge, and to cause SFI to discharge or with respect to the Offer of Settlement. If timely its obligations under these arrangements. At December 31, recovery of any cost allocated to the Company as a result 1984, the total loan commitnient under these arrangements amounted to $225,000,000 of which $203,625,000 was of any FERC decision in these cases is not permitted by the MPSC, the Company's financial positon could be outstanding at that date. Also, SFI's parent companies, in-adversely impacted. cluding the Company, have made similar covenants and agreements in connection with long-term leases by SFI of U_nited Imv_ Suit oil storage and handling facilities and coal hopper cars. At On April 22, 1983, the Company filed suit against December 31, 1984, the aggregate discounted value of United Gas Pipeline Company (United) in the United these lease arrangements were $80,769,000. States District Cout, Southern District of Mississippi. In SFI has contracted with a joint venture for a supply of the suit, the Company alleges that United breached the coal from a mine in Wyoming, which based on estimated terms of a Gas Sales Agreement by billing and collecting reserves is presently expected to provide for at least thirty 1 7, from the Company, during the period September 1976 years of the projected requirements of the Independence , >, - through January 1983, rates for gas deliveries greatly in Station. SFI's parent companies, including the Company, i_e 6 excess of the contract rates and by billing and collecting each acting in accordance with their share of the owner- sy U,i from the Company, during the same period, for larger ship of SFI's common stock, joined in, ratified, confirmed c,y 3 , mlumes of gas than United actually delivered to the Com-pany In the complaint, the Company seeks (1) a judgment and adopted the contract and the obligations of SFI thereunder. Under the contract, investment in the mine fcr % Q against United for $31,000,000, including interest; (2) a leases, plant and equipment is the responsibility of the ,a (g , joint venture. In order to limit the jomt venture's invest- '- preliminary injunction against United from continuing its present practices of overcharging the Company for gas ment rights and, hence, the amount to be paid to it as a l.E ? delivered to it; and (3) an order declaring the proper component of the pi cc of coal, the contract provided that Qz method of calculating the prke for gas sold to the Com- SFI invest any funds for plant and equipment in excess of p'.0d
~
pany under the Gas Sales Agreement and permanently en- a specified amount. The Company, AP&L and Arkansas joining United from improper practices and overcharges in Electric Cooperative Corporation, as co-owners in part of ,[ tne future. In September,1983, the MPSC intervened in the suit against United :n behalf of the Company's the Independence Station. have agreed to make the invest-ments rather than SFl and, accordingly, have reimbursed p)p gg" customers. On March 21, 1984, the District Court granted SFI for imestments previously made by it. Through &d the Company and the MPSC a preliminary injunction en- December 31,19S4. the Company had invested $15.5 24 joining United from including in the rates billable to the million in mine facilities and related capitalized assets. jl
+
ll l 'l l l l u u is m
During 1985, it is presently estimated that an additional 6. Rate Matters
$1.5 million will be invested under this agreement. The The Company is a party to certain agreements and pro-Company s share of the additional mvestment would be ceedings concerning 51SE and the Grand Gulf Nuclear $375.000. Station owned by h1SE. See Note 5 with respect to these Purchase 1%wer Agreements matters.
On November 16, 1984, the Company filed a Notice of The electric power supply facilities of the Company are interconnected with the facilities of hiississippi Ibwer Intent with the Mississippi Public Service Commission to increase its retail rates to meet its purchased power ex-Company, a neighboring utility which is part of the penses associated with capacity and energy from Grand Southern Company System. In May,1980, the Company entered into a long-term agreement which provided for the Gulf I and from Independence 2 and to support the fixed c sts related to its ownership share of Independence 2. Company to purchase 200 megawatts of capacity from Southern Company Services, Inc. (SCSI) when available The rate filing is based on a projected test year ending February 28, 1986. The Notice of Ina - ovides for an during the period July 1,1980 through December 31, annual increase m mvenues to the Corupany in the pro-1986. The energy cost, which includes a capacity charge, jected test year, net of fuel and deferred amounts, of ap-is based upon a formula which ad is for hourly in. cremental cost of SCSI coal-fuu. Aeam generation. If Proximately $126.8 million, if the Company is allocated a 33% share of htSE's share of capacity and energy for the energy is to be supplied from higher cost sources, the Grand Gulf 1, as determined in the ALJ's initial decision Company may, at its option, refuse the purchase and a credit adjustment to the capacity charge will be made. m the proceedings before the FERC, or approximately
$82.1 million if the Company is alh>cated a 19% share, as The Company has entered into an agreement with AP&L whereby the Company will purchase that quantity proposed by the Company and AP&L on August 7,1984, of generating capacity and associated energy from in. m a motion for a settlement conference before the FERC.
The Notice of Intent further provides for deferral of the dependence Unit 2 equivalent to AP&l's 31.5 percent ownership of such unit. This agreement became effective billing of certain revenues over a ten-year period. If the on December 6,1984, with the commencement of com. Company is allocated either a 33% share of MSE's share mercial operation of Independence Unit 2 and will con. of capacity and energy from Grand Gulf I or a 19% share, such deferred amounts would be in the aggregate tinue for an initial term of five years. In the event that a Joint Settlement Proposal with AP&L is approved h the approximately $615 million or $355 million, respectively, FERC, the Company shall have an option to extend the during the first five years of commercial operation of the unit, and such deferred amounts would be recovered dur-terms of the agr'ecment for an additional twenty years folhiwing the initial term. ing the folk) wing five years. On January 4,1985, various parties, including the At-NIPSC Standated Audits torney General of the State of Mississippi, intervened in in September 1984, the MPSC appointed special con- the proceeding. On January 15, 1985, the MPSC held a sultants to conduct a management audit of the Company hearing to consider the request of the Company that it and a construction audit of the Grand Gulf Station. These should be allowed to implement interim rates in connec-audits are in progress and the final report on the manage- tion with Independence Unit 2 until a final decisim in the ment audit of the Company is expected to be submitted to case was made by the MPSC. The basis for the regs the MPSC on or before March 15, 1985, and the final for interim rates was that Independence Unit 2, of which report on the construction audit of the Grand Gulf Station 25% is owned by the Company and an additional 31.5% is e pected to be submitted to the MPSC on or before of the power from which the Company has agreed to buy for a period, from AP&L, went into commercial operation in December 1984 and the Company's existing base rates Federal Income Tat issues .lRS and charges did not provide for recovery of the Company's The Federal income tax returns for the years 1971 costs or a return on ,he investment in connection with through Itn8 have been examined by the IRS. For the both its ownership interest and its purchase power portion years 1971 through 1976, all issues, other than an issue in, of the unit. although the Company's existing fuel adjust-suiving the taxability of customer deposits, have been ment clause was currently reflecting the substantial fuel settled and a tas assessment of $1.5 million, plus interest s vings to the Company's retail customers (estimated at of $1.8 million, has been paid. Payment of the tax assess,
$6a9 million annually) from the unit. The Company pro-ment and interest did not have a material effect on net in_
Posed to implement interim rates projected to produce an-come. l'or the years 1977 and 1978, the IRS has proposed nual gross revenues of $56,890,000. On January 17, 1985, certain adjustments that, except for the customer deposits issue, are not material. A written protest has been filed with the IRS. Any additional tax liability that may result from resolution of the customer deposits issue would not have a material effect on net income because income taxes on customer deposits would be normalized. 25 l - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . i
the MPSC issued an Interim Order allowing the Company 8. Retained Earnings interim rates, effective January 17, 1985, designed to pro- The indenture provisions relating to the Company's long-duce additional operating revenues on an annual basis of term debt provide for restrictions on the payment of cash approximately $44,671,554, based on the test year ending dividends on common stock. As of December 31,1984, February 28, 1986. The interim rates will be in effect pen- $44,190,000 of retained earnings were free from such ding a final determination in this case. On January 14, restrictions. 1985, the Governor of the State of Mississippi signed into law an amendment to the Public Utility Act of 1983, 9. Transactions with Affiliates which allows the MPSC to extend the one hundred twenty The Company buys from and sells electricity to the other (120) day period for the consideration of the Company's subsidiaries of Middle South Utilities, Inc., its parent, rate case in this docket for an additional ninety (90) days. under rate schedules filed with the Federal Energy The amendment to the Public Utility Act of 1983 apphes
, Regulatory Commission. In addition, the Company pur-only to the Company's rate case m this docket and will . chases fuel from SFI and receives technical and advisory alk)w the MPSC until mid-June 1985 to enter an order in services from Middle South Services, Inc.
the case. This rate case is pendm.g. Operating revenues include revenues from sales to affiliates amounting to $72,179,000 in 1984, $50,157,000
- 7. Lines of Credit and Short-Term Borrowings in 1983, and $93,521,000 in 1982. Operating expenses in-At December 31, 1984, the Company had $22 million in clude charges from affiliates for fuel cost, purchased lines of credit with Mississippi banks and participated p wer, and technical and advisory services totaling with the other Middle South System operating companies $f>4,994,000 in 1984, $57,718,000 in 1983, and in $180 million of consolidated lines of credit with banks $103,651,000 in 1982.
outside the Middle South System service area. In February When MSE acquired the Grand Gulf Station from the 1985, these non-territorial bank lines of credit were Company, the Company agreed under r Service Agree-reduced to $140 million. Compensating balances (approx. ment to continue to design, construct, maintain, and imately 5% of the commitment at) or equivalent fees operate the Grand Gulf Station on behalf of MSE. In are required by certain of the lending banks. Additionally, return, MSE agreed to pay to the Company the actual cost the Company participates with certain other companies of to the Company of rendering these services and granted the Middle South System in a money pool arrangement the Company the power and authority to act on MSE's whereby those companies with available funds make short. behalf as agent. Total payroll costs provided to MSE by term loans to other companies in the System having short. the Company for 1984,1983, and 1982 were term borrowing requirements. The Company also has ar. $25,158,000, $21,452,000, and $18,367,000, < rangements with a commercial paper dealer for the sale of respectively. its commercial paper. The Company may borrow from these sources subject only to its maximum authorized level of short-term borrowings. The Company has received authorization from the Securities and Exchange Commis-sion under the Public Utility Holding Company Act of 1935 to have outstanding at any one time short-term bor-rowings aggregating not more than the lesser of $73 million or 10% of the Company's capitalization. At the end of 1984 and 1983, the aggregate amounts of unused lines of credit with 51ississippi banks were $22 million. The operating companies had available at the end of 1984 and 1983, $180 million and $122.1 million, respectively, under the consolidated lines of credit. The short term borrowings and applicable interest rates (determined by dividing applicable interest expense by the average amount borrowed) for the Company were as follows: 1984 1983 19_8_2 (In Thousands) Maximum borrowing.. $46,000 $31,000 $36,500 Average borrowings: Bank loans.. $ 4,003 - - Commercial paper . - - $ 9,045 Associated companies . $ 7,918 $ 2,853 $ 100 Average interest rate during the period: Bank loans.. 12.26 % - - , Commercial paper . - - 14.99 % Associated companies . 10.89 % 8.98% 10.86 % 26
g . ,, , y m. ,
- - .- . _ .- - .. . - - m , . ,
I
- 10. Pustretirement Benefits 11. Quarterly Results (Unaudited)
The companies of the Middle South System have wrious Unaudited operating results by quarters follow (in postretirement benefit plans covering substantially all of thousands): their employees. Quarter Ended Pension plans are administered by a trustee who is . March June September December responsible for pension payments to retirees. Various m- - vestment managers have responsibility for management of the plans' assets. In addition, an independent actuary per- 1984 forms the necessary actuarial valuations for the individual Operating company plans. revenues $120,101 $126,2M $165,335 $120,287 Effective January 1,1982, the Company modified the Operating method of amortizing prior service costs by changing from income 18,090 18,208 27,682 10,590* fixed amortization periods of from ten to thirty years t 12,831 8,423 22,299 4,780* Net income varying amortization periods not to exceed thirty years. The effect of this change on 1982 pension expense was not significant. Total pension expense of the Company for 1983 1984,1983, and 1982 was $455,000, $4,M7,000, and Operating
$4,269,000, respectively. revenues $110,442 $120,989 $169,231 $119,441 The comparison of the actuarial present values of ac- Operating curaulated pension plan benefits and plan net assets for the income 13,287 15,933 25,631 11,595 defined benefit plan is presented below. This comparison Net income 8,034 9,379 19,891 6,191 was determined m accordance w,ith the provisions of State-ment of Financial Accounting Standards No. 36 which re- .
The business of the Company is subject to seasonal fluc-quires the use of certain assumptions which are different from those used by the Company's actuary in determining tuations with peak periods occurring during the summer an appmpriate level of funding for the Company. months. Accordingly, earnings information for any three-month period should not be considered as a basis for uary 1' e m mu o peranns k a M yean g l983 (in Thousands)
- Operating income and net income decreased approx-Actuanal present value of imately $3.2 million in this quarter due to the recogni-accumulated pension plan benefits: tion of expenses of a preliminary study developing the Vested . . . . . . . . $33,929 $30,702 design of and construction plans for standard coal Nonvested., . . 2,642 2,066 plants.
Total . . . . . $36,571_$32,768 Net assests available for pension benefits $63,579 $53,499 _
.m -
The assumed rate of return used in determining the ac-tuarial present value of accumulated pension plan benefits 9g 7 was 9%. 14 '*. The Company also provides certain health care and life % .f.a . insurance benefits for retired employees. Substantially all iii' employees may become eligible for these benefits if they y. reach retirement age while still working for the Company. .C.J" These benefits and similar benefits for active employees jM are provided through payments of premiums to insurance % i: companies. The Company recognizes the cost of prosiding y1,- these benefits by expensing the payments as they are in- {fy O tc < curred. The cost of providing these benefits for retirees is not separable from the cost of providing benefits for active [h emphyees. The total cost of pmviding these benefits and ; c. the number of active emphiyees a'9 retirees for the last 78 F1 three fiscal years were as follows: 2C l Total co3t of health care and life insurance 1984 ~ 1983 1982 p.; d
}[(
(in thousands) . $1,635 $1,702 $1.733 gg gi Number of active ., j emphyces . Number of retirees . . 2,153 2% 255 275 1,952 256 p- { (6, 1.h 27 j
- 12. Effect Of Inflation On Operations (Unaudited)
The following supplementary information about the effect of changing prices on the Company is provided in accordance with the requirements of Statement of Financial Accounting Standards No. 33. " Financial Reporting and Changing Prices", as amend-ed by Statement of Financial Accounting Standards No. 82. It should be viewed as an estimate of the effect of changing prices rather than as a precise measure. Statement of Income from Operations and Other Financial Data Adjusted for Effects of Changing Prices for the Year Ended December 31,1984 (In Thousands) Adjusted for As Reported in Changes in the Financial Specific Prices _ Statements (Current Costs) Revenues * . .. .. $531,927 $531,927 Operating expenses (excluding depreciation)* 426,418 426,418 Depreciation . . . 30,939 68,797 Total operating expenses. . .. . . 457,357 495,215 Operating income . .. . 74,570 36,712 Other income *. . . . . 10,527 10,527 Interest and other charges * . . . . . 36,7M 36,7M Income from operations (excluding adjustment to net recoverable cost) .. .. . $ 48,333 $ 10,475 Increase in specific prices (current costs) of property, plant, and equipment held during the year". $ 54,503 Adjustment to net recoverable cost.. 18,140 Effect of increase in general price level . . (65,169) Excess (deficiency) of increase in speciGc prices, after adjustment to net recoverable cost, over increase in general price level .. 7,474 Gain from decline in purchasing power of net amounts owed.. 21,857 Net . . .. . .
$ 29,331
- Assumed to be in " average for the year" dollars and thus are not restated.
"At December 31,1984, current cost of property, plant, and equipment, net of accumulated depreciation, was $1,693,872,000 while historical cost or net cost recoverable through depreciation was $790,962,000.
Five-Year Comparison of Selec:ed Supplementary Financial Data Adjusted for Effects of Changing _Pri_c_es (In Thousands of Average 1984 Dollars) 1984 1983 1982 1981 1980 OPERATING REVENUES. $531,927 $542,239 $566,547 $607,402 $671,850 CURRENT COST INFORMATION: Income from operations (excluding adjustment to net recoverable cost). $ 10,475 $ 2,139 $ (977) $ 5,132 $ 9,924 Excess (deficiency) of increase in speciGe prices, after adjustment to net recoverable cost, over increase in general price level . $ 7,474 $ 34,214 $ 14,414 $(18,894) $(45,020) Net assets at year-end at net recoverable cost. $217,038 $223,381 $197,(48 $205,576 $215,993 GENERAL INFORMATION: Gain from decline in purchasing power of net amounts owed. $ 21,857 $ 21,224 $ 20,321 $ 39,830 $ 54,011 Average consumer price index . 311.1 298.4 289.1 272.4 246.8 28
Current cost amounts reflect the changes in specific gives no recognition to the current cost of replacing pro-prices of property, plant, and equipment from the year of perty, plant, and equipment, the Company believes, based acquisition to the present. The current costs of property, on past experience, that it will be allowed to earn on the plant, and equipment, which represent the estimated costs increased cost of its net investment when replacement of of replacing existing plant assets, are determined by apply- facilities actually occurs. ing the Handy-Whitman Index of Public Utility Construc- To pronctly reflect the economics of rate regulation in tion Costs (HWI) to the cost of the surviving plant by the Statement of Income from Operations presented above, year of acquisition. Land and certain other plant assets the adjustment of net property, plant, and equipment to that are not included in the HW1 were converted using the net recoverable cost is adjusted by the gain from the Consumer Price Index for all Urban Consumers (CPI-U). decline in purchasing power of net amounts owed. During The current year's depreciation expense on the current a period of inflation, holders of monetary assets suffer a cost amounts of property, plant, and equipment was deter- loss of general purchasing power while holders of mined by applying the Company's depreciation rates to the monetary liabilities experience a gain. The gain from the indexed amounts. decline in purchasing power of net amounts owed is Fuel inventories and the cost of fuel used in generation, primarily attributable to the substantial amount of debt have not been restated from their historical cost in which has been used to finance property, plant, and equip-nominal dollars. Regulation limits the recovery of fuel ment. Since the depreciation on this plant is limited to the costs to actual costs incurred through the operation of ad- recovery of historical costs, the Company does not have justment clauses or adjustments in basic rate schedules. the opportunity to realize a holding gain on debt and is For this reason, fuel inventories are effectively monetary limited to recovery only of the embedded cost of debt assets. capital. As prescribed in Statement of Financial Accounting Standards No. 33, income taxes were not adjusted. The regulatory commissions to which the Company is subject allow only the historical cost of plant to be recovered in revenues as depreciation. Therefore, the ex-cess cost of plant stated in terms of current cost over the historical cost of plant is not presently recoverable in rates. This excess (deficiency) is reflected as an adjustment to net recoverable cost. While the ratemaking process 29
SELECTED FINANCIAL DATA (000's OMI'ITED) 1984
- 1983~ ~ ~ ~ 1982 ELECTRIC OPERATING REVENUES:
Residential. . .... . $ 186,2% $ 185,917 $ 173,349 Commercial . . .. . 134,276 129,863 121,'64 Industrial. . . . . . . 106,924 108,365 105,16% Government & municipal. . ... 17,694 19,593 19,261 Cooperatives & muaicipalities. . . 4,189 7,996 9,559 Total from energy sales (htiss. area). . . 449,379 451,734 428,497 Sales to other public utilities.. . . . . 73,218 51,171 94,563 Total from energy sales. . . . .. 522,597 502,905 523,060 hiiscellaneous revenues. .. . .... 10,422 9,788 10,560 Deferred fuel adjustment revenuesl . (1,092) 7,410 (7,137) Total electric operating revenue. . .. $ 531,927 $ 520,103 $ 526,483 NET INCOME ... . . . . .. . . .. $ 48,333 $ 43,495 $ 35,120 TOTAL ELECTRIC UTILITY PLANT: Production . .. . .. . .. . $ 572,938 $ 482,177 $ 356,298 Transmission . . .. . .. .. 218,383 215,575 210,926 Distribution. . .. 256,146 242,433 235,114 General & other. .. . . . . 40,233 36,592 22,293 Total utility plant completed . 1,087,700 976,777 824,631 Plant held for future use. . . 3,939 3,939 3,939 Construction work in progress . . .. 16,643 83,590 174,744 Electric plant acquisition adjustments. 1,498 1,680 1,861 Total utility plant. . .. . $1,109,780 $1,065,986 $1,005,175 TOTAL ASSETS .. . . . . . $ 927,401 $ 862,249 $ 794,288 LONG-TER31 DEllT. .. . .
$ 379,200 $ 340,5% $ 288,835 PREFERRED STOCK, WITII SINKING FUND $ 55,000 $ 40,000 $ 30,000 OTIIER DATA ELECTRIC ENERGY SALES (MKWII):
Residential . . 3,051,947 2,935,883 2,953,836 Commercial . .. . . . . . . 2,172,115 2,026,136 1,988,978 Industrial . . . 2,085,639 2,(M3,737 2,011,579 Government & municipal. . . 315,885 343,789 362,072 Cooperatives & municipalities. . . 94,295 178,081 210,368 Total energy sales (htiss. area). 7,719,881 7,527,626 7,526,833 Sales to other public utilities.. . 1,605,347 980,031 2,314,418 Total electric energy sales. 9,325,228 8,507,657 9,841,251 ELECTRIC CUSTOMERS (END OF PERIOD): Residential . . . 276,586 272.281 268,556 Commerical . . . . 40,290 39,403 38,651 Industrial . . . 3,387 3,246 3,194 Government & municipal. . 2,448 2,363 2,309 Cooperatives & municipalities. . . 5 5 Total customers (htiss. area). 322,711 317,298 312,715 Other public utilities. _2 2 2 Total electric customers. 322,713 317.300 312,717 ENERGY SOURCE AND DISPOSITION: 1 Total generation . 6,724,724 5,445,661 7,071,398 Purchased and net interchange . . 3,294,151 3,914.796 3,497,887 i I Total . . 10,018,875 9,360,457 10.569,285 Less: Company use, losses and unaccounted for . _ 693,647 _ ___ 85_2.800 _ 7_28,034 Total energy sold. . 9,325,228 8,507,657 9,841,251 NET INPUT (MISS. AREA)-MKWil . 8,413,528 8.380.426 8.254,866 PEAK 1.0AD (MISS. AREA)-KW. 1,758,000 I,8 %.000 I,765,000 LOAD FACTOR (MISS. AREA)-PERCENT.. 54 50 53 NET Pl. ANT CAPAllli.lTY-KW. 3,183,000 2,972,000 2,763.000 CIRCUIT Mll.ES OF El.ECTRIC I.INES 19.578 19,387 19.262 30 I See item Il to Note 1-Summary of significant accounting policies.
1980 1979 1978 1977 1976 1975 1974 1981 168,387 $ 147,525 $ 120,246 $ 110,705 $ 106,520 $ 91,849 $ 74,296 $ 67,690 115,147 96,724 83,562 73,542 69,114 60,855 47,484 43,559 110,138 91,814 83,491 70,306 67,948 58,M5 42,863 41,743 19,838 15,919 13,433 11,8(M i1,158 9,899 7,022 6,163 16,975 34,377 39,423 36,591 34,073 25,622 21,399 13,362 430,485 386,359 340,155 302,948 288,813 246,870 193,0M 172,517 93,237 139,076 93,347 93,701 77,732 57,298 43,084 10,484 523,722 525,435 433,502 396,M9 366,545 304,168 236,148 183,001 7,826 6,444 4,568 3,187 1,441 1,113 838 574 295 1,109 (1,546) 440 (2,M0) 3,495 3,071 (5,134) $ 531,843 $ 532,988 $ 436,524 $ 400,276 $ 365,346 $ 308,776 $ 240,057 $ 178,441 36,031 $ 33,954 $ 22,581 $ 28,845 $ 25,027 $ 25,745 $ 20,803 $ 20,454 $ 355,771 $ 355,084 $ 352,658 $ 351,646 5 349,195 $ 338,118 $ 299,583 $ 292,491 179,778 171,810 149,887 146,227 132,966 118,137 118,450 109,960 225,152 212,035 201,361 190,820 180,035 171,955 166,590 158,256 20,M6 18,641 17,128 16,254 16,154 15,727 15,366 14,763 781,347 757,570 721,034 7(M,947 678,350 643,937 599,989 575,470 3,316 3,316 3,270 3,270 3,270 3,270 4,070 1,219 135,605 17,702 25,913 10,820 15,660 28,061 35,772 16,688 2,224 2,406 2,588 2,769 2,951 3,113 3.293 2,(M3,
$ 922,311 $ 780,812 $ 752,623 $ 721,625 $ 700,(M9 $ 678,219 $ M2,944 $ 596,670 $ 728,477 $ M9,101 $ 607,M3 $ 603,812 $ 594,985 5 584,022 $ 559,009 $ 516,437 $ 284,349 $ 262,860 $ 263,380 $ 271,374 5 279,073 $ 278,029 $ 286,060 $ 258,082 $ 20,000 - - - - -
2,943,959 3,069,4(M 2,787,432 2,856,736 2,727,718 2,491,067 2,440,460 2,268,954 1,938,341 1,918,334 1,832,462 1,781,881 1,647,919 1,537,169 1,457,505 1,356,173 2,196,968 2,~217,846 2,285,120 2,187,020 2,071,093 1,935,573 1,751,(M2 1,793.055 385,133 369,441 371,811 344,634 326,275 302,319 271,233 387.503 418,447 986,063 1,270,584 1,280,949 1,217,(M2 1,064,636 990.309 938,205 7,885,218 8,576,780 8,545,039 8,478,397 8,008,406 7,354,720 6,941,635 6,627,620 2,419,177 4,343,224 3,681,898 4,354,425 3,580,571 2,624,001 1,638,144 487,097 10,3N,395 12,920,0N 12,226,937 12,832,822 11,588,977 9,978,721 8,579,779 7,114,717 266,975 263,850 260,421 255,174 249,889 245,384 241,739 237,085 38,427 38,115 37,919 37,405 35,922 34,718 33,801 33,474 3,351 3,276 3,230 3,245 3,301 3.247 3.247 3.267 2,221 2,132 2,087 2,049 1,965 1,920 1,879 1,789 12 39 M 66 67 67 66 63 310,986 307,412 303,721 297,939 291,144 285,336 280,73' '75,678 2 2 2 2 2 2 1 1 310,988 307,414 303,723 297,941 291,146 285,338 280,733 275,679 7,483,624 10,327,561 9.909,942 11,881,340 10,297,826 8.020,408 5,923,584 4,822,711 3,513.268 3,423,M8 3,081,406 1,772,740 2,022,658 2,598,778 3,298,528 2,914,281 10,996,892 13,751,209 12,991,348 13,654,080 12,320,484 10,619,186 9,222.112 7,736,992 _ 821,258 __640,465 642,333 _ 622,27_5_
, 692,497 _ _831,205 _ 764,41_1_ .
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) BOARD OF DIRECIORS: OFFICERS: Dasid C Bramlette, III, Partner, Adams, Forman, Truly, Donald C Lutken, Chairman of the Board and Chief Ward, Smith and Bramlette, Natchez Executive Officer William Cavanaugh, IH, President A Chief Operating William Canmaugh, III, President and Chief Operating Officer, Mississippi Power & Light Company, Jackson Officer Frank R. Day, Chrirman of the Board and Chief Executive Donald E. Steiners, Senior Vice President, Customer Officer, First National Bank, Jackson and Informational Services Norman IL Gillis, Jr., Attorney-at-Law, McComb Jackson B. Richard, Senior Vice President, Nuclear Dr. J. Ilarvey Johnston, Jr., Physician, Jackson Frank S. York, Jr., Senior Vice President, Finance and Robert E. Kennington, II, Chairman of the Board and Secretary Chief Executive Officer, Grenada Bank, Grenada Thomas A. Dallas, Vice President and Chief Engineer Floyd W. Lewis, Chairman of the Board and President, J. Stewart Frame, Vice President, Personnel and Middle South Utilities, Inc., New Orleans Administration D<mald C Lutken, Chairman of the Board and Chief John D. Ilolland, Vice President, Governmental Affairs Executive Officer, Mississippi Power & Light Company, C lliram Walters, Vice President, Customer Services Jackson Frank F. Gallaher, Assistant Vice President, Engineering Richard D. SicRae, Sr., Chairman of the Board and Chief and Fossil Production Executive Officer, McRae's, Inc., Jackson James L. Moore, Assistant Vice President, Informational leRoy P. Percy, Planter, Greenville Services E. B. Robinson, Jr., Chairman of the Board & Chief James R. Startin, Treasurer and Assistant Secretary Executive Officer, Deposit Guaranty National Bank, Allan 11. Mapp, Assistant Treasurer and Assistant Jackson Secretary Dr. Walter Washir.gton, President, Alcorn State University, Lorman Robert M. Williams, Jr., Partner, Reeves-Williams DIVISION MANAGERS: Builders, Southaven David I. Bridgers, Western, Vicksburg John R. Craft, North Central, Greenville Bob L. Marsh, Central, Jackson Graham II. Tempel, Southern, Brookhaven T. Ray Tomlinsam, Northern, Senatobia PLANT MANAGERS: Malcolm Allred, Baxter Wilson, Vicksburg James E. Cross, Grand Gulf Nuclear Station, Port Gibson Richard Denman, Natchez, Natchez A. T. Johnson, Rex Brown, Jackson Alan Schren, Gerald Andrus, Greenville Rex Shannon, Delta, Cleveland 32 j l _ _ - - - - - _ _ a
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j k MISSISSIPPI POWER & LIGHT COMPANY is a regulated electric utility operating in 45 counties of Western Mississippi. MP&L serves about 322,713 customers in an area com-prising 25,900 square miles with an estimated population of 1.3 million. As of December 31,1984, the Company provid-ed electric service in 140 municipalities. MP&L also pro-vided transmission service to South Mississippi Electric Ibwer Association (SMEPA), an association of rural electric cooperatives; and Mor.icipal Energy Age:.q of Mississippi (MEAM), eight municipally owned utilities. The Company is one of the principal operating sub-sidiaries of Middle South Utilities, Inc. and its system is in-terconnected with and operated as a part of the Middle South Utilities System, which supplies the electric energy requirements of more than 1.6 million customers in a 92000-square mile area of Arkansas, Louisiana, Mississippi and Missouri. TIIE COMPANY'S 1984 ANNUAL REPORT 'IO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K (INCLUDING FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES) IS AVAILABLE TO ANY STOCKHOLDER UPON RE-QUEST WITHOUT CHARGE. Persons interested in ob-taining a copy should write to Frank S. York, Jr., Senior Vice President and Secretary, at the address below: MISSISSIPPI POWER & LIGilT COMPANY P. O. Box 1640 Jackson, Mississippi 39215-lM0 (601)969-2311 REGISTRAR (for preferred stock): Deposit Guaranty National Bank Jackson, Mississippi TRANSFER AGENT (for preferred stock) First National Bank of Jackson Jackson, Mississippi 1 i i 36
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3 p :8 2' MIDDLE SOUTH ENERGY, INC. 1984 ANNUAL REPORT TABLE OF CONTENTS 1 Auditors' 0 pinion..................................................... 2 Report of Management.................................................. 3 Management's Fi nanci al Di scussi on and Analysis. . . . . . . . . . . . . . . . . . . . . . . . 7 Selected Financial Data - Five Year Comparison........................ 8 Balance Sheets........................................................ 9 Statements of Income.................................................. 9 Statements of Retained Earnings....................................... 10 Statements of Changes in Fi nancial Position. . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Notes to Fi nanci al Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Directors and Executive 0fficers...................................... 26 Corporate Information................................................. C )o
a' Deloitte Haskins+ Sells 39th Floor One Shell Square New Orleans. Louisiana 70139 (504) 581 2727 Cable DEHANDS AUDITORS' OPINION Middle South Energy, Inc.: We have examined the balance sheets of Middle South Energy, Inc. as of December 31, 1984 and 1983 and the related state - ments of income, retained earnings, and changes in financial position for each of the three years in the period ended December 31, 1984. Our examinations were made in accordance with generally accepted' auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. C In our opinion, the above-mentioned financial statements ) present fairly the financial position of the Company at December 31, 1984 and 1983 and the results of its operations and the changes in its financial position for each of the three years in the period ended December 31, 1984, in conformity with generally accepted accounting principles applied on a consistent basis. 1 February 25, 1985 (
- l
- i g REPORT OF MANAGEMENT The management of Middle South Energy, Inc. has prepared and is responsible for the financial statements and related financial information included in this annual report. The financial statements are based on generally accepted accounting principles, consistently applied. Financial information included elsewhere in this report is consistent with the financial statements.
To meet its responsibilities with respect to financial information, management maintains and enforces a system of internal accounting controls which is designed to provide reasonable assurance, on a cost effective basis, as to the integrity, objectivity and reliability of the financial records and as to the protection of assets. This system includes communication through written policies and procedures and testing by a comp.rehensive internal audit program. The independent certified public accountants provide an objective assessment of the degree to which management meets its responsibility for fairness of financial reporting. They regularly evaluate the system of internal accounting controls and perform such tests and other procedures as they deem necessary to reach and express an opinion on the fairness of the financial statements. Management believes that these policies and procedures provide reasonable assurance that its operations are carried out with a high standard of business h conduct. G
. s 4
MIDDLE SOUTH ENERGY, INC. MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS Financial Condition The future financial condition of Middle South Energy, Inc. (the Company) remains dependent upon placing into coisnercial operation Unit 1 of the Grand Gulf Nuclear Station (Grand Gulf Unit 1),,the resolution of.a number of complex issues
- pending before the Federal Energy Regulatory Conulission (FERC), and the
- concurrent receipt of adequate rate relief by both the Company and the Middle South System operating companies sufficient to recover the Company's investment in Grand Gulf Unit 1 and to earn a return on that investment. The Company will
. continue to have no operating revenues until Grand Gulf Unit 1 achieves j commercial operation, presently scheduled for the second quarter of 1985. Once i the unit is placed in commercial operation, allowance for funds used during construction (AFDC), the only component of the Company's earnings thus far, will cease accruing on Grand Gulf Unit 1 and earnings will be adversely affected by the costs of operation and the recording of depreciation expense unless adequate and timely rate relief is obtained. It is critical, therefore, that the Company ! receive through rates, recovery of the costs of operating Grand Gulf Unit 1 and a reasonable return on that investment. 4 On August 31, 1984, the Nuclear Regulatory Commission (NRC) issued a full i {, power operating license for Grand Gulf Unit 1 after completion of low-power testing in November'1983 and successful resolution of certain issues raised by the NRC. The unit, which had been operated above 70 percent power during its power ascension testing program, was shut down in February 1985 and is now undergoing certain repairs of non-nuclear components, expected to be completed by
- the end of March 1985. Upon completion of this work the unit will continue with '
- its comprehensive power ascension program expected to take several months 3
thereafter to complete. Commercial operation is now projected to occur by the
- end of the second quarter of 1985 at a total cost of $3.2 billion for the Company's 90 percent share of the unit (excluding nuclear fuel). If commercial operation is delayed beyond the second quarter, the estimated total cost for the unit will. increase. In this connection, ongoing financing charges alone will add an estimated $29 million per month to the estimated total cost.
Under traditional utility regulatory principles, wholesale rates approved by i the FERC for the_ sale of capacity and energy from Grand Gulf Unit 1 by the Company to the System operating companies would be charged to retail ratepayers. All of such capacity and energy had been intended to be allocated to certain of 1 the System operating companies commencing with commercial operation of the unit.
< However, in connection with controversies surrounding the cost of power from
! Grand Gulf Unit 1 and in an attempt to resolve the difficult and complex issues i in proceedings before the FERC involving, among other things, the allocation . among the System operating companies and their retail customers of the costs of ! System generating facilities, the System operating companies, the Company, and i Middle South Services, Inc., as agent for the System operating companies, have 1 A
~ s submitted an Offer of Settlement to the FERC that, if accepted, would allocate a W, total of 67.1 percent of the capacity and energy from the Company's share of Grand Gulf Unit 1 to the System operating companies from the date of commercial operation of Grand Gulf Unit 1 through December 31, 1990. The remaining 32.9 percent of Grand Gulf Unit 1 would represent inventoried capacity that the Company would attempt to sell to non-affiliated parties. To the extent the Company does not make such sales, the System operating companies would buy the energy at a cost equal to the System's displaced energy cost. (See Note 7 to the Financial Statements " Commitments and Contingencies - Unit Power Sales Agreement and New System Agreement.")
At December 31, 1984, construction on Grand Gulf Unit 2 was approximately 34 percent complete based on the estimated man-hours needed to complete the unit. Since late 1983 construction activities at Grand Gulf Unit 2 have been reduced by the Company in order to further concentrate its financial resources on Grand Gulf Unit 1. The Company presently intends to complete Grand Gulf Unit 2 which would piovide the capacity needed by the Middle South System to meet projected System loads in the early 1990's. The Company will continue with limited construction leading toward resumption of full construction unless various subsequent factors cause reconsideration of the present intention to complete Grand Gulf Unit 2. (See Note 7 to the Financial Statements - The Company presently
' " Commitments and Contingencies - Grand Gulf Unit 2.") ; accrues and capitalizes AFDC on its investment in Grand Gulf Unit 2 at the rate of approximately $8 million per month. If progress toward completion of Grand Gulf Unit 2 is not proceeding to a sufficient degree, under applicable regulatory principles, this accrual may be required to cease. The cessation of g AFDC would result in a like decrease in the Company's earnings.
Liquidity and Capital Resources During the period 1982-1984 the Company had construction expenditures totaling $1,705 million, including AFDC of $924 million. Funding for this construction activity was primarily from sales of the Company's common stock to MSU, intennediate-tern borrowings under the Company's domestic and foreign bank loan agreements, sales of first mortgage bonds and pollution control revenue bonds, payments received from certain of the System operating companies for advance power purchases, and tax benefits received in connection with the Middle l South System's consolidated income tax return. The approaching commercial operation of Grand Gulf Unit 1, expected to occur in the second quarter of 1985, l will lessen the heavy financial burden experienced by the Company in recent years l resulting from construction of the unit. The Company's total construction expenditures for 1985,1986, and 1987 are expected to be approximately $338 million, $192 million, and $207 million, respectively (including AFDC of approximately $231 million, $111 million, and $126 million, respectively), for l < its 90 percent ownership in the two-unit Grand Gulf Nuclear Station. These estimated expenditures assume that Grand Gulf Unit 1 will be placed in commercial operation in the second quarter of 1985 and that only a limited amount of construction on Grand Gulf Unit 2 will be performed during the 1985-1987 period. G
s 4 s In connection with Grand Gulf, MSU has undertaken to provide or cause to be g provided to the Company sufficient capital (1) to maintain the Company's equity capital at an amount at least equal to 35 percent of total capitalization, (11) to construct and place in operation the two units of the Grand Gulf Station, (iii) to provide for pre-operating expenses and interest charges of the Company, (iv) to permit the continuation of comercial operation after commencement thereof, and (v) to pay in full all indebtedness for borrowed money of the Company when due. The Company currently estimates that it will require approximately $158.1 million to meet its capital requirements (including debt service) for the period from March 1,1985 until comercial operation of Grand Gulf Unit 1, assuming that Grand Gulf Unit 1 achieves commercial operation in the second quarter of 1985. The Company plans to meet these requirements through various sources, including the planned sale of $100 million of first mortgage bonds during the second quarter of 1985. (See Note 7 to the Financial Statements "Comitments and Contingencies - Capital Requirements and Financing.") For the period following comencement of commercial operation of Grand Gulf Unit 1 through the end of 1987 the Company will require approximately $2,314 million to refinance maturing indebtedness, including the December 31, 1986 maturity of its $1,711 million domestic bank loan agreement, to meet sinking fund obligations, to finance continuation of construction of Grand Gulf Unit 2 on a limited basis, and to finance additional capital requirements which could result if the Offer of Settlement is accepted (see below). (See Note 7 to the Financial Statements " Commitments and Contingencies - Capital Requirements and Financing.") Prior to December 31, 1986, the Company expects to retire a significant portion of the indebtedness under its domestic bank loan agreement with funds generated from the comercial operation of Grand Gulf Unit 1 and from additional external financings. In addition, the Company expects, after necessary consents, to be able to apply the proceeds from a December 1984 sale of pollution control revenue bonds to a reduction in amounts outstanding under its domestic bank loan agreement within 90 days after the comercial operation of Grand Gulf Unit 1. The Company will be required to seek an extension past 1986 of the balance of the borrowings under its domestic bank loan agreement which are then outstanding and not retired through the foregoing measures. If the 00fer of Settlement submitted to the FERC is ultimately cpproved as filed, the Company could be required to finance the costs associated with the inventoried capacity through December 31, 1990. For the years 1985, 1986, and 1987 these amounts are estimated to be $45.5 million, $90.8 million, and $90.8 million, respectively, assuming commercial operation of Grand Gulf Unit 1 in the second quarter of 1985. These estimates are based on the anticipated revenues available to the Company under the Settlement Offer if the Company is unable to l market Grand Gulf Unit 1 inventoried capacity to non-affiliated parties. If the FERC were to adopt a position different from that proposed in the Settlement !. Offer resulting in either higher or lower revenues to the Company, the Company would, in the first instance, decrease the level of its outstanding borrowings and/or increase expenditures for Grand Gulf Unit 2 or, in the opposite case, require additional funds from external sources. I !G i l 1 s The Company's liquidity is affected by the large amount of floating rate C7 debt which it has outstanding. At December 31, 1984, the Company had approximately $1,895 million in such floating rate debt. An increase of one percentage point in the rate at which interest was computed at such date would result in additional annual interest requirements of approximately $20 million. The Company is currently authorized by the SEC to make short-tem borrowings in an aggregate amount outstanding at any one time of up to the lesser of $225 million or 5 percent cf capitalization. At December 31, 1984, the Company had no short-term borrowings outstanding under its bank lines of credit but had other unsecured short-tem borrowings with other banks totaling
$10 million. In comparison, at December 31, 1983 and 1982 outstanding borrowings under bank lines of credit amounted to $4.2 million and $54.8 million, respectively, while unsecured short-tem borrowings amounted to $32.5 million and
$60 million, respectively. Unused short-tem bank lines of credit amounted to
$14.7 million, $65.6 million, and $19.3 million at December 31, 1984, 1983, and 1982, respectively.
Results of Transactions The Company will begin to report results of operations when Grand Gulf Unit 1 goes into commercial operation. Until that time, the Company's income statement will continue to reflect only non-operating items. As a generating company presently involved in the construction phase, all of the Company's net income has been the equity component of AFDC, which consists h~, of non-cash credits to the income statement that represent a reasonable return on equity funds used for construction. Total AFDC for 1984 was $376.5 million, an increase of $83.3 million, or 28.4 percent, over 1983. In 1983 total AFDC was
$293.2 million, an increase of $32.3 million, or 12.4 percent, over 1982. The increasing amounts of AFDC reflect the increasing amount of construction work in progress, all attributable to the Grand Gulf Nuclear Station, on the Companys balance sheet.
The increasing amounts of income taxes and credits in lieu of income taxes on the Company's income statement during the years 1982-1984 represent the tax benefit that has been realized or is expected to be realized during the l carryforward periods resulting from the Company's Federal tax losses included in l the MSU consolidated income tax return. Interest on long-tem debt increased by $82.7 million, or 33.0 percent, in 1984 compared to 1983. This increase was due to a greater 2 mount of long-tem debt outstanding and to higher prevailing interest rates. By comparison, l interest on long-tem debt for 1983 increased only 1.6 percent due to an ! increase in long-tem debt outstanding being offset by a decrease in the prevail-ing interest rates on borrowings. Interest on the power purchase advance I payments, which certain of the System operating companies began making to the Company in January 1984, amounted to $11.7 million in 1984. Other interest-net decreased by 51.7 percent in 1984 and 2.9 percent in 1983. The 1984 decrease was due to a substantial reduction in short-tenn borrowings while the 1983 decrease was due to lower interest rates on borrowings. (. - l l i l i
.,s Effects of Inflation Despite the reduced level of inflation in the period 1982-1984, its impact on the construction costs for the Grand Gulf Nuclear Station has been
{" significant. (See Note 11 to the Financial Statements "Effect of Inflation (Unaudited)".) Summary The Company's ability to meet its extensive debt service requirements and to attain and maintain a financial condition strong enough to provide a reasonable return to MSU is dependent, among other things, upon (1) the placing into, commercial operation of Grand Gulf Unit 1, (2) the resolution of a number of complex regulatory issues currently before the FERC so as to provide the Company adequate rate relief, (3) the concurrent receipt of adequate rate relief by the System operating companies to allow them to meet their obligations to purchase power from Grand Gulf Unit 1 under the Unit Power Sales Agreement, and (4) the successful financing or refinancing, on reasonable terms, of the Company's capital requirements. If, as a result of any FERC decision, the Company and the System operating companies do not receive adequate and timely rate relief to cover the costs associated with Grand Gulf Unit 1, the Company's financial condition, as well as that of the Middle South System, could be materially and adversely affected. Q SELECTED FINANCIAL DATA - FIVE YEAR COMPARIS0N l (In Thousands) I Years Ended December 31, 1984 1983 1982 1981 1980 Net Operating Revenues...... - - - -
$ 188,425 $ 151,581 $ 121,857 $ 95,799 $ 66,991 r Net Income..................
Total Assets................ $4,780,456 $3,747,945 $3,045,266 $2,387,096 $1,957,082 Long-Term Debt (excluding I current maturi ties) . . . . . . . $2,623,301 $2,306,171 $1,845,500 $1,439,500 $1,169,500 l l P l l l l {
s
- MIDDLE SOUTH ENERGY, INC.
- 8ALANCE SHEETS December 31, 1984 and 1983 1984 1983 ASSETS (In Thousands) f Utility Plant (Notes 7 and 8): $3,308,578 progress....................... $3,889,762 Construction work in 48,492 21,984 Nuclear fuel........................................
Total................................... 3,938,254 3,330,562 Current Assets: 456 1,715 Cash (Note 3)....................................... Working funds....................................... 1,546 516 Temporary investments - at cost, which approximates market............................................ 293,048 - Accounts receivable................................. 1,452 438 P repai d i nterest (Note 7 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,877 - 2,054 1,177 Other prepayments................................... 16,169 - Recoverable income taxes (Notes 1 and 2)............ 27 574 0ther............................................... 3,873 Total................................... 333,176 Deferred Debits: 413,463 Future benefits related to AFDC (Notes 1 and 2)..... 508,773 253 47 0ther............................................... 413,510 Total................................... 509,026 T0TAL.............................. $4,780,456 $3,747,945 CAPITALIZATION AND LIABILITIES Capitalization: Comon stock, no par value; authorized 1,000,000 shares; issued and outstanding 789,350 shares in
' - 1984 and 689,900 shares in 1983 (Note 4 ). ... . . . . . . $ 789,350 $ 689,900 753,902 565,477 Retained earnings (Note 6)..........................
Total comon sha rehol der's equi ty . . . . . . . . . . . . . . . . 1,543,25Z 1,255,377 2,623,301 2,306,171 Long-ters debt ( Notes 3, 5, and 7 ) . . . . . . . . . . . . . . . . . . 4,166,553 3,561,548 Tota 1................................... Current Liabilities: 10,000 36,673 Notes payable (Note 3).............................. Currently maturing long-tem debt (Notes 5 and 7)... 196,235 - Accounts payable: 2,015 30 Associated companies.............................. 6,962 16,164 0ther............................................. 10,633 12,841 Taxes accrued....................................... l 103,489 7,1,449 1 Interest accrued.................................... 32,345 - Power purchase advance payments (Note 7)............ 370,8dl 127,955 l Total................................... Deferred Credits: 87,038 31,836 Accumulated deferred income taxes (Notes 1 and 2)... ( Accumulated deferred investment tax credits (Notes 12,469 12,469 I and 2).......................................... 129,378 - Power purchase advance payments (Note 7) . . . . . . . . . . . . l 14,137 14,137 Other (Note 2)...................................... 243,022 58,442 Total................................... Comitments and Contingencies (Note 7) T0TAL.............................. $4,780,456 $3,747,945 l l See Notes to Financial Statements. f ! -8 l l l L__
o MIDDLE SOUTH ENERGY, INC. STATEMENTS OF INCOME For the Years Ended December 31, 1984, 1983, and 1982
. 1984 1983 1982 (In Thousands)
Operating Revenues........................... - Operati ng Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Income (Note 1).................... Other Income: Allowance for equity funds used during construction (Note 1).................... $188,425 $ 151,581 $ 121,857 Interest income............................ 91 9 216 Income taxes and credits in lieu of income 120,345 taxes (Notes 1 and 2).................... 163,067 121,568 Tota 1.......................... 351,583 273,158 242,418 Interest Charges: Long-term debt............................. 333,531 250,835 246,821 Power purchase advances (Note 7)........... 11,724 - - 5,955 12,340 12,715 (]j Other - net................................ Allowance for borrowed funds used during construction (Note 1).................... (188,052) (141,598) (138,975) Total.......................... 163,158 121,577 120,561 Net Income................................... $188,425 $ 151,581 5 121,857 STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31, 1984, 1983, and 1982 1984 1983 1982 (In Thousands) Retai ned Earni ngs , J anuary 1. . . . . . . . . . . . . . . . . $565,477 $413,896 $292,639 188,425 151,581 121,857 Add - Net Income............................. Retained Earnings, December 31 (Note 6)...... $753,902 $565,477 $413,896 See Notes to Financial Statements. G
,. MIDDLE SOUTH ENERGY, INC. ,
STATDENTS OF CHANGES IN FINANCIAL POSITION For the Years Ended Decenter 31, 1984, 1983, and 1982 1984 1983 1982 (In Thousands) Funds Provided 8y: Allowance for equity funds used during
$121,857 construction (net income) (Note 1)........ $ 188,425 $151,581 7,615 6,620 Deferred income taxes....................... 55,202 Power purchase advance payments (Note 7).... 129,378 - -
Decrease in working capita 1*................ 37,109 49,342 9,822
- 13,290 9 Miscellaneous - net.........................
Total funds provided excluding financing transactions.............. 410,114 221,828 138,308 Financing transactions: 99,000 99,450 99,000 Common stock.............................. First mortgage bonds...................... 300,000 - - Long-term notes payabl e - ba nks . . . . . . . . . . . 404,000 452,000 438,000 27,100 49,500 - Pollution control revenue bonds...... .. . .. - - 22,440 Short-tern securi tie s - ne t. . . . . . . . . . . . . . . Total funds provided by financing 830,550 600,500 559,440 transactions........................ Total Funds P rov i ded. . . . . . . . . . . . . . . . . . . . . . . . . . $1,240,664 5822,328 $697,748 Funds Applied To: Utility plant additions: Construction expenditures for utility pl a nt ( No te 7 ) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 581,184 $572,448 $551,786 26.508 21,984 - Nuclear fue1.............................. Total gross additions (includes allowance for funds used during con-struction of $376,477, $293.179, and
$260,832 in 1984,1983, and 19o2,
( Other: respecti vel y ) . . . . . . . . . . . . . . . . . . . . . . . 607,692 594,432 551,786 95,310 109,754 113,962 Future benefi ts rel ated to AF0C. . . . . . . . . . . Miscellaneous - net....................... 8,941 - - Total other funds applied............. 104,251 109,754 113,962 Financing transactions: 32,000 Retirement of first mortgage bonds........ 48,000 40,000 Retirement of long-term notes payable - banks................... 161,000 - - 319,721 78,142 - Short-tern securities - net............... Total funds applied to financing 528,721 118,142 32,000 transactions........................ To tal Funds App 11 e d. . . . . . . . . . . . . . . . . . . . . . . . . . 51,240,664 5822,328 5697,748 increase (Decrease) in Working Capital:* Cash and working funds...................... $ (229) $ 65 $ (1,939) Accounts receivable......................... 1,014 (81) (LL) 16,169 (2,681) (5,311) Recoverable income taxes.................... Prepayments and other current assets........ 19,301 1,172 32 (11,187) (954) 825 Accounts payable............................ (3,077) Interest and taxes accrued.................. (29,832) (46,863) Power purchase advance payments (Note 7).... (32,345) - - Tota 1................................ 5 (37,109) 5(49,342) 5 (9,822)
- Working Capital excludes short-term securities-net and currently maturing long-ters debt.
See Notes to Financial Statements. C
4 MIDDLE SOUTH ENERGY, INC. g- NOTES TO FINANCIAL STATEMENTS
%D For the Years Ended December 31, 1984, 1983, and 1982 NOTE 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES A. Organization Middle South Energy, Inc. (the Company) is authorized to conduct business as a wholly-owned subsidiary of Middle South Utilities, Inc. (MSU) to provide financing and ownership of certain future base-load electric generating units within the Middle South Utilities System (System). The Company and South Mississippi Electric Power Association (SMEPA) own undivided ownership interests of 90% and 10%, respectively, in the Grand Gulf Station. The Company records its investasnt associated with the Grand Gulf Station to the extent to which the Company owns and participates in the generating station. The Company's only significant activity to date has been the construction of, and the financing of its 90% ownership interest in, the Grand Gulf Station. The Grand Gulf Station consists of two 1250 MW nuclear generating units, the Company's share of which is to be 1125 MW in each unit. There were no operating revenues or expenses for the three years ended l(( December 31, 1984. The Nuclear Regulatory Commission (NRC) issued a full power operating license for Grand Gulf Unit 1 on August 31, 1984. This unit is undergoing a testing program pending commercial operation anticipated for the second quarter of 1985. B. System of Accounts The accounts of the Company are maintained in accordance with the system of accounts prescribed by the Federal Energy Regulatory Commission (FERC). C. Postretirement Benefits The Company does not have a postretirement plan at the present time because it does not directly employ any personnel. The Company utilizes, at cost, the services of personnel from other tiiddle South System companies, primarily those of Mississippi Power & Light Company. Such persons are covered by their respective employers' postretirement plans. D. Income Taxes The Company joins its parent in the filing of a consolidated Federal income tax return. Income taxes are allocated to the Company in proportion to its contribution to the consolidated taxable income. In addition, the Company files 4 a consolidated Mississippi state income tax return with certain other System companies. (
l
\
Allowance for Funds.Used During Construction g E. In accordance with the regulatory system of accounts, the Company capital-izes, as an appropriate cost of utility plant, an allowance for funds used during construction (AFDC). Under this utility industry practice, construction work in progress on the balance sheet is charged and the income statement is credited for the approximate net composite interest cost of borrowed funds and for a reasonable return on the equity funds used for construction. This procedure is intended to remove from the income statement the effect of the cost of financing the construction program and results in treating the AFDC charges in the same manner as construction labor and material costs. As non-cash items, these credits to the income statement have no effect on current cash earnings. After the property is placed in service, the AFDC charged to construction costs is recoverable from customers through depreciation provisions included in rates charged for utility service. The Company uses an accrual rate for AFDC based on average common equity of 14% plus actual interest cost net of related income taxes. The Company would continue to capitalize ACDC on projects during periods of interrupted construction if such interruption was temporary and the continuation could be justified as being reasonable under the circumstances. NOTE 2. INCOME TAXES AND CREDITS IN LIEU OF INCOME TAXES Income tax expense (credit) consists of the following: 1984 1983 1982 (In Thousands) Current: $(215,394) $(128,585) $(124,657) Federa1................................... ( 2,~308 ) State..................................... (2,875) (598) (218,269) (129,183) (126,965) Total................................ Deferred -- net: Taxes capitalized in the financial 7,615 6,620 statements.............................. 8,994 Li berali zed depreci ati on. . . . . . . . . . . . . . . . . . 45,490 - - 718 - Test energy............................... 55,202 7,615 6,620 Total................................ Recorded income taxes and credits in lieu of income taxes (all credited to (121,568) (120,345) oth e r i n c ome ) . . . . . . . . . . . . . . . . . . . . . . . . (163,067) Income taxes applied against the debt component 120,633 160,192 120,622 of AFDC...................................... (. Total income taxes and credits in lieu of income taxes (all credited to (946) $ 288 o th e r i n c ome ) . . . . . . . . . . . . . . . . . . . . . . . . $ (2,875) $ 9 Total income taxes and credits in lieu of income taxes differ from the ([h amounts computed by applying the statutory Federal income tax rate to income before taxes. The reasons for the differences are as follows: 1984 1983 1982 (In Thousands) 696 Computed at statuto ry rate. . . . . . . . . . . . . . . . . . . . . $ 11,665 $ 13,806 $ Reductions in tax resulting from: Allowance for funds used during (173,179) (135,051) (119,795) construction............................ State income taxes net of Federal income (1,553) (323) (1,246) tax expense............................. Recorded income taxes and credits in lieu of i ncome taxes . . . . . . . . . . . . . . . (163,067) $(121,568) $(120,345) Income taxes applied against the debt 120,633 160,192 120,622 component of AFDC....................... Total income taxes and credits in , 288 l ieu of i ncome taxes . . . . . . . . . . . . . . . $ (2,875) $ (946) $ i Grand Gulf Unit I was placed into service for tax purposes in 1984. The ! Company's interest expense and capitalized taxes are deducted currently for tax return purposes. The income tax effects of taxes capitalized for book purposes, and of timing differences between tax and book accounting for depreciation and ({j~ nuclear fuel expense, are normalized. The allowance for funds used during construction is excluded for purposes of determining taxable income. l Future benefits related to AFDC represent the tax benefit of the Company's l portion of the consolidated Federal tax losses that is expected to be realized during the loss carryforward period. Such benefits are paid to the Company when Income tax benefits for the years realized in the consolidated return of MSU. 1982,1983 and 1984 that were realized amounted to $20.6 million, $8.0 million i and $101.5 million, respectively. If not utilized to offset consolidated Federal taxable income, future benefits related to AFOC will expire in 1993 through 1999. In 1983, SMEPA's portion of future benefits related to AFDC of $14.1 million was recorded as an other deferred credit. Investment tax credits allocated to the Company are deferred and will be amortized based upon the average useful life of the related property. Unused investment tax credits at December 31, 1984 amounted to $196.2 million. These credits may be applied against Federal income tax liabilities in future years. If not used, they will expire in 1991 through 1999. I NOTE 3. LINES OF CREDIT AND RELATED BORROWINGS The Company has two revolving credit agreements with various banks providing for borrowings totaling $2,089 million. One agreement, for $1,711 million, is g7 with a group of domestic banks; the other agreement, with a group of foreign E,< banks, is for $378 million. Under both agreements, the Company pays a fee on the unused commitment. All borrowings under these agreements are scheduled, subject to the Company's fulfilling certain conditions and obtaining waivers of certain
- s other conditions, to convert to term loans on the earlier of commercial operation C of Grand Gulf Unit 1 or June 30, 1985. There can be no assurance that such waivers can be obtained. If waivers cannot be obtained and the remaining conditions cannot be fulfilled, the bank loans will then be due and payable. The term loans with domestic banks have a maturity date of December 31, 1986, subject to a mandatory prepayment requirement of $100 million at the end of 1985. The maturity date for the term loans with foreign banks is February 5,1989, subject to mandatory semi-annual prepayments commencing August 5,1985, equal to one ninth of the amount outstanding on the date these borrowings convert to a term loan.
The Company has entered into an " interest rate swap" agreement with a bank through February 1989 for $189 million of the $378 million outstanding under its revolving credit agreement with foreign banks. The Company has agreed to make semiannual interest payments based upon an 11.5% fixed rate in exchange for semiannual interest payments by the bank based upon the London Interbank Offered Rate (LIBOR). This agreement serves to offset fluctuations in variable rates to be paid under the Company's revolving credit agreement with foreign banks. It does not change the Company's obligations to the foreign banks for interest payments of LIBOR plus 1%. The Company also has lines of credit with various banks in the System service area for short-tenn borrowings of $14.7 million expiring on or about June 30, 1985 that require compensating balances, totaling approximately 2% of the commitment, which are not restricted as to withdrawal. At December 31, 1984, the Company had no borrowings outstanding under these agreements but had other unsecured short-tenn borrowings totaling $10 million with additional banks (. outside the System service area. Interest rates under the lines of credit are based on the prime rate of a New York bank and, on the unsecured notes, are based primarily on the Federal funds rate. The Company may borrow from these sources subject only to its maximum authorized level of short-tem borrowings. The Company has received authorization from the Securities and Exchange Comission under the Public Utility Holding Company Act of 1935 to have outstanding at any one time short-term borrowings aggregating not more than the lesser of 5% of the r.ompany's total capitalization or $225 million. e s The short-term borrowings and the interest rates (determined by dividing h applicable interest expense by the average amount borrowed) for the Company were as follows: Year Ended December 31, 1984 1983 1982 (In Thousands)
$14,680 $69,765 $74,150 Lines of credit...........................
Average borrowing: $51,653 $48,924
$32,076 Li nes of credi t. . . . . . . . . . . . . . . . . . . . . . . . . $18,228 $65,823 $43,229 Unsecured short-tenn notes. . . . . . . . . . . . . .
Maximum borrowing: $67,305
$70,361 $66,404 Lines of credit.........................
$29,000 $70,000 $60,000 Unsecured short-term notes. . . . . . . . . . . . . .
Year-end borrowing: $54,815
- $ 4,173 Lines of credit.........................
$10,000 $32,500 $60,000 Unsecured short-tenn notes. . . . . . . . . . . . . .
Average interest rate: During period - 10.8% 14.9% 11.8% Li n e s o f c'r e d i t . . . . . . . . . . . . . . . . . . . . . . . 12.2% 10.9% 10.0% Unsecured short-term notes............ G At end of period - - 11.0% 11.5% Li ne s of credi t. . . . . . . . . . . . . . . . . . . . . . . 10.7% 11.2% 9.6% Unsecured short-tern notes. . . . . . . . . . . . NOTE 4. COMMON STOCK The changes in the number of shares of the Company's common stock were as follows (all sold to MSU at $1,000 per share): Year Ended December 31, 1984 1983 1982 99,450 99,000 99,000 l Number of shares.......................... l l l i l L
4 NOTE 5. LONG-TERM DEBT
.G~ The long-tem debt of the Company as of December 31,1984 and 1983 was as follows: December 31, 1984 1983 j'
(In Thousands) First Mortgage Bonds: Due 1989, 9.25% S e ri e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 280,000 $ 328,000 Due 2000,12.50% Series........................... 98,500 98,500 '- Due 2000,16% . Series.............................. 300,000 - Tota 1..................................... 678,500 426,500 Bank Notes: Domestic bank line - Due 1986, at 110% of the sum of prime and 1.3%.. 1,696,000 1,453,000 Foreign bank line-nJe 1989, at LIBOR pl u s 1% . . . . . . . . . . . . . . . . . . . . . . 189,000 189,000 , Due 1989,. at 11.5% pl u s 1% ( Note 3) . . . . . . . . . . . . . 189,000 189,000 Tota 1..................................... 2,074,000 1,831,000 Pollution Control Revenue Bonds: Claiborne County, Mississippi - Due 2013, at 8% adjustabl e/ fixed rate. . . . . . . . . . . 49,500 49,500 Due 2014, a t 8.75% adj u stabl e/ fi xed rate . . . . . . . . 27,100 - Due 2014, at 8.5% a dj u stabl e/ fixed rate. . . . . . . . . 206,000 - Less-Funds on deposit with trustees............. (201,447) - 81,153 49,500
@ Tota 1.....................................
Unamortized discount on debt........................ (14,117) (829) i Total Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . 2,819,536 2,306,171 Less-Amount due within one year........... 196,235 - Long-Term Debt Excluding Amount Due Within One Year......................... $2,623,301 $2,306,171 The $201.4 million of proceeds from the 1^1e of Pollution Control Revenue Bonds can be drawn down upon the Company's satisfaction of certain' conditions relating to, among other things, the comercial operation of Grand Gulf Unit 1. ! Sinking fund requirements and maturities for the ensuing five years for the
- Company's long-term debt at December 31, 1984 were as follows
Cash Sinking Fund Maturities (In Thousan3s of Dollars) 54,235 142,000 1985................................................ 54,235 1,680,000 1986................................................ 62,235 84,000 1987................................................ 62,235 84,000 1988................................................ 51,235 156,000 g 1989................................................ Substantially all of the Company's utility plant is subject to the lien of its first mortgage bond indenture. t
NOTE 6. RETAINED EARNINGS The provisions of the Company's bank loan agreements and first mortgage bond indentures restrict the amount of retained earnings available for cash dividends on common stock. As of December 31, 1984 and December 31, 1983, none of the retained earnings were available for cash dividends. NOTE 7. COMMITMENTS AND CONTINGENCIES Capital Requirements and Financing The Company's construction program contemplates expenditures for the Grand Gulf Station of approximately $337.9 million in 1985, $191.9 million in 1986, and
$207.1 million in 1987 (including AFDC of $231.4 million in 1985, $111.2 million in 1986, and $126.1 million in 1987). The Company currently estimates, and the above construction expenditures and AFDC estimates assume, that the comercial operation date of Grand Gulf Unit I will be in the second quarter of 1985 at a total cost (excluding nuclear fuel) of approximately $3.2 billion for the Company's 90% ownership interest and that only limited amounts will be expended on Grand Gulf Unit 2 through 1987. A limited amount of construction on Grand Gulf Unit 2 was performed during 1984. Through December 31, 1984, the Company had invested $3,890 million (excluding nuclear fuel) in the Grand Gulf Station.
The Company estimates, pending a final review of the cost allocation between the two units upon the completion of Grand Gulf Unit 1, that of this total, $3,061 million was invested in Grand Gulf Unit 1 and $829 million in Grand Gulf Unit 2. ' C In connection with the Grand Gulf Station, MSU has undertaken, to the extent not obtained by the Company from other sources, to furnish or cause to be furnished to the Company sufficient capital for construction and operation of the station and related purposes. Through December 31, 1984, MSU had invested $789.4 million in the common stock of the Company. The Company has covenanted with its first mortgage bondholders that it will complete Grand Gulf Unit i no later than December 31, 1985 and that Grand Gulf Unit 2 will be completed no later than December 31, 1988. Either unit would be considered complete under the covenant if, among other things, it were licensed and ready for commercial operation. In the event either of these covenants is not fulfilled or the Ccmpany defaults in respect of either its bonds or its bank borrowings, the bonds and the bank borrowings will become due and payable unless extensions of time can be arranged. In this event, MSU would be required to provide the Company with sufficient funds, to the extent not obtained by the Company from other sources, to meet the payment obligations of the Company with respect to any of its bonds and bank borrowings then outstanding. (See Notes 3 and 5). The Company estimates that it will require approximately $158.1 million to ! meet its capital (including debt service) requirements for the period from March 1,1985 until commercial operation of Grand Gulf Unit 1, assuming that Grand Gulf Unit 1 achieves commercial operation in the second quarter of 1985. The Company plans to meet these requirements through the sale of additional first mortgage (^ bonds, payments from the System operating companies with respect to power b purchase advance payments and net test energy charges and from borrowings under its bank loan agreements. Funds not obtained from these sources will be raised through the sale of common stock to MSU. 1
- s Following commencement of commercial operation of Grand Gulf Unit 1, presently scheduled for the second quarter of 1985, the Company will require substantial funds to refinance or retire current indebtedness, to meet sinking fund C' obligations, and to finance continuation of constructicn of Grand Gulf Unit 2.
The Company expects to obtain a significant portion of such funds through its receipt of payments from the sale of power to the System operating companies under a Unit Power Sales Agreement, approval of the terms of which is currently pending in a proceeding before the FERC. The balance of amounts required by the Company will be obtained from external sources. The Company will be required to seek extensions of the maturity of borrowings not refinanced or tetired. The Company's ability, generally, to obtain new funds externally will depend on a number of factors, including the results of retail rate proceedings filed by the System operating companies for recovery of Grand Gulf Unit 1 costs, contractual restrictions contained in the Company's first mortgage bond indenture and credit agreements, market conditions, and the credit ratings of the Company's securities. Availability, Power Purchase Advance Payment, and Reallocation Agreements The System operating companies are obligated under an Availability Agreement to make payments or subordinated advances, in accordance with stated percentages, adequate to cover all of the operating expenses and certain of the capital costs of the Company. In addition, under a Power Purchase Advance Payment Agreement the System operating companies, excluding Arkansas Power & Light Company (AP&L) as contemplated by the Reallocation agreement discussed below, began making advance payments to the Company in January 1984 for power purchases which in the aggregate total $12.5 million per month. Louisiana Power & Light Company (LP&L), Mississippi Power & Light Company (MP&L) and New Orleans Public Service, Inc. (N0 PSI) will receive a credit for such power purchased at an initial 4% per month on the aggregate amount of such payments plus interest after commercial operation of Grand Gulf Unit 1 begins. The System operating companies in November 1981 entered into a Reallocation Agreement allocating the capacity and energy available to the Company from the Grand Gulf Station to LP&L, MP&L and N0 PSI. These companies thus assumed all the responsibilities and obligations of AP&L with respect to the Grand Gulf Station under the Availability Agreement and Power Purchase Advance Payment Agreement with AP&L relinquishing its rights to the Grand Gulf Station. Each of the System operating companies including AP&L individually remains primarily liable to the Company and its assignees for payments or advances under these agreements. AP&L would be obligated to make its share of the payments or advances only if the other System operating companies were unable to meet their contractual obligations. Unit Power Sales Agreennt and New System Agreement The System operating companies have requested from their respective state public utility commissions rate adjustments adequate to permit them to meet their obligations to the Company to purchase power under a Unit Power Sales Agreement. Under the Unit Power Sales Agreement, as filed with the FERC, the capacity and energy available to the Company from the Grand Gulf Station would be sold to LP&L, MP&L and N0 PSI. An Administrative Law Judge (ALJ) of the FERC rendered his initial decision regarding such Agreement. The ALJ deferred any decision on Grand Gulf Unit 2 and recommended that capacity and energy from Grand Gulf Unit 1 be allocated to AP&L as well as the other System operating companies. The ALJ's decision allocates the Company's share of the capacity and energy from (_ l s O Grand Gulf Unit 1 as follows: 36% to AT AL,14% to LP&L, 33% to W&L, and 17% to N0 PSI, compared to the Company's reque st that such costs be allocated 38.6% to LP&L, 31.6% to MP&L, and 29.8% to NOP11. This decision is subject to review of C. the FERC. j On April 30, 1982, Middle South Services, Inc. (MSS), on behalf of the Middle South System operating companies, filed for approval with the FERC a New System Agreement providing for the coordinated planning, construction, and operation of its generation and transmission facilities. Rates under the new agreement became effective on January 1,1983, subject to refund. Various parties have intervened in these proceedings. Some parties are contesting the method by which the agreement equalizes capacity and energy among the System operating companies and certain proposals, if adopted, could cause material changes in the allocation of costs among the companies. Hearings concluded in December 1983. On February 4, 1985, the ALJ hearing the New System Agreement proceeding issued his initial decision recommending that the New System Agreement be adopted, as filed with the FERC, with certain modifications. Principally, the decision recommended that a 15.75% return on common equity be granted; that no periodic review conditions be attached to approval of the New System Agreement; that production cost equalization of all System generating units, as proposed by various intervening ) parties, not be granted; and that the reserve equalization provisions in the New System Agreement, as filed, be adopted. However, the ALJ went on to recomend that the Grand Gulf Station be integrated into the New System Agreement by having each of the System operating companies pay for the capacity and energy costs of Grand Gulf based on the ratio that each System operating company's annual demand bears to the annual demand of the entire System and that each System operating company's share of Grand Gulf be included in calculating such Company's capability and, consequently, its reserve equalization payments. This decision is subject to b review of the FERC. In an effort to resolve the difficult and complex issues involved in the l Unit Power Sales Agreement and the New System Agreement proceedings, the System operating companies, the Company, and MSS, as agent for the System operating companies, submitted an Offer of Settlement to the FERC on January 4,1985. Various parties have submitted comments in opposition to the Settlement Offer. Under the terms of the Settlement Offer, the New System Agreement, as currently in effect would remain in effect unchanged. The Unit Power Sales Agreement, as proposed to be amended, allocates the Company's share of the capacity and energy from Grand Gulf Unit 1, from the date of commercial operation through December 31, 1990, as follows: 17.1% to AP&L,14% to LP&L,19% to MP&L,17% to N0 PSI, and 32.9% as inventoried capacity. Effective January 1,1991, the allocation would change as follows: 27.87% to AP&L, 27.48% to LP&L, 24.42% to MP&L, and 20.23% to N0 PSI. Accordingly, beginning January 1,1991, the System operating companies would commence paying their respective share of the full cost of service of Unit 1, including amortization of the deferred carrying charges on inventoried capacity over the remaining life of Unit 1, plus a return on the deferred carrying charges. This proposed Offer of Settlement is subject to review of the FERC. The effect of inventorying a portion of Grand Gulf Unit 1 through 1990 could be to reduce the total payments by the System oper ting companies to the Company thereby requiring the Company to finance costs associated with the inventoried capacity. If the Settlement Offer is accepted as filed, it is estimated that additional financing by the Company of $227 million for the period 1985-1987 will be required. This estimate of the Company's additional financing requirements is based on the anticipated revenues available to the Company under the Settlement Offer if the { Company is unable to market the inventoried capacity to non-affiliated parties.
)
On February 22, 1985, the FERC issued an order convening a settlement conference for the purpose of addressing the proposed Settlement Offer and of resolving the issues in the Unit Power Sales Agreement and New System Agreement h proceeoings. The initial settlement conference is scheduled to convene on March 12, 1985. It is not possible to predict what decision or decisions the FERC will ultimately render in the New System Agreement and Unit Power Sales Agreement proceedings or with respect to the Offer of Settlement. Grand Gulf Unit 2 The Company presently intends to complete Grand Gulf Unit 2 which would provide the capacity needed by the Middle South System to meet the projected Middle South System loads in the early 1990's. At December 31, 1984, construction on Grand Gulf 2 was approximately 34% complete based on the estimated man-hours needed to complete the unit. To conserve financial resources, only a limited amount of construction is currently being performed on Grand Gulf Unit 2. The Company will continue with limited construction leading toward resumption of full construction unless various subsequent factors cause reconsideration of the present intention to complete Grand Gulf Unit 2. At the present time these factors include the outcome of a hearing ordered by the MPSC on the Certificate of Public Convenience and Necessity for Grand Gulf Unit 2 in which the Company and MP&L were ordered to show cause as to the need for continued construction of Grand Gulf Unit 2, the outcome of pending FERC proceedings and the Settlement Offer therein with respect to rates for Grand Gulf Unit 1, the availability of necessary financing on reasonable terms and any substantial change, from prior assessments, in the projected cost of power from Grand Gulf Unit 2 relative to other power sources. If the Settlement Offer under which the Company does not recover { currently the full cost of Grand Gulf Unit 1 is adopted, it would require the continued delay in resumption of full construction of Grand Gulf Unit 2. The Company has covenanted with certain of its first mortgage bondholders that it will complete Grand Gulf Unit 2 no later than December 31, 1988. The Company will seek from its bondholders whatever waivers or amendments are necessary -to change the stipulated completion date of Grand Gulf Unit 2, but no assurance can be given that such waivers or amendments can be obtained. If it is ultimately decided that Grand Gulf Unit 2 should be cancelled, the Company believes that its investment in the unit will be determined to have been prudent and the Company will take all actions necessary before the FERC Such actions andlikely would the courts to recover its investment through rate relief. involve a filing with the FERC requesting recovery of its full investment, over a period of years, through charges to the System operating companies. As in the case of rate relief necessary to recover Grand Gulf Unit 1 costs, such proceedings could be protracted and strongly contested. If adequate and timely rate relief is not obtained to recover the investment in Grand Gulf Unit 2, the financial condition of the Company could be adversely affected. Nuclear Liability Insurance As of December 31, 1984, the Price-Anderson Act limited the public liability of a licensee of a nuclear power plant to $620 million for a single nuclear incident. This limit will increase by $5 million for each additional b-- operating license issued by the NRC. Insurance for this exposure is provided by private insurance and an indemnity agreement with the NRC. Every licensee of a nuclear power plant is obligated, in the event of a nuclear incident involving any commercial nuclear facility in the United States that results in damages in excess h of the private insurance, to pay retrospective assessments of up to $5 million per incident for each licensed reactor it operates or up to a maximum per reactor owned of $10 million in _any calendar year. At December 31, 1984, the Company had one Itcensed reactor. The Company is a member-insured of Nuclear Electric Insurance Limited, a mutual insurer that provides its members with insurance coverage of $500 million at December 31, 1984 for property damage sustained by the insured in excess of
$500 million caused by radioactive contamination or other specified damage. The Company is also a member-insured under a primary property damage insurance program provided by Nuclear Mutual Limited, another mutual insurer. As a member-insured
- with these mutuals, the Company is subject to assessments if losses exceed the accumulated funds available to the insurer. The Company's present maximum assessment for incidents occurring during a policy year is approximately $40 million at December 31, 1984.
Spent Nuclear Fuel Under the terms of its nuclear fuel lease, the Company is responsible for the disposal of spent nuclear fuel. The Company considers all costs incurred or to be incurred in the use and disposal of nuclear fuel to be proper components of nuclear fuel expense and provisions to recover such costs have been or will be made in applications to regulatory comissions. The Company has executed a contract with the Department of Energy (00E) whereby the DOE will furnish disposal service for the Company's spent nuclear fuel at a cost of one mill per kilowatt-
-{' hour of gross generation.
Mississippi Public Service Commission Mandated Audit In September 1984, the Mississippi Public Service Comission (MPSC) appointed special consultants to conduct a construction audit of the Grand Gulf Station. This audit is in progress and the final report is expected to be submitted to the
. MPSC on or before May 1, 1985.
Regulation and Litigation f The Arkansas Public Service Comission (APSC) has asserted that the i. obligations imposed upon AP&L by the agreements entered into in connection with the financing and construction of the Grand Gulf Station constitute prima facie violations of Arkansas statutes requiring APSC authorization for_ acquisition or
- lease of certain assets and issuances of certain securities and evidences of
- j. indebtedness. On August 31, 1984, the Company filed suit against the APSC in the United States District Court for the Eastern District of Arkansas seeking
! preliminary and pemanent injunctions against further actions by the APSC in this matter and a declaratory judgment that the APSC has no jurisdiction over the l i validity and enforceability of the subject agreements. On September 10, 1984, the Court issued a Temporary Restraining Order enjoining the APSC from taking any l further action in this matter. The Court subsequently pemanently enjoined the APSC from further proceedings in this matter. On September 24, 1984, the APSC i i filed certain motions reasserting certain of its defenses and producing additional lb I 4 evidence in the matter. The Court denied these motions and the Arkansas Attorney i
General, the APSC and others have appealed that decision. AP&L believes that it has complied with all applicable federal and state laws and that such agreements are valid. G Similarly, on March 23, 1984 the City of New Orleans filed suit against N0 PSI, MSU and the Company in the Civil District Court of the Parish of Orleans, State of Louisiana, alleging that the various agreements entered into by N0 PSI in connection with the Grand Gulf Station are in violation of certain Louisiana statutes. N0 PSI, MSU and the Company intend to take all necessary and appropriate defensive actions. NOTE 8. NUCLEAR FUEL LEASE At December 31, 1984, the Company had a nuclear fuel lease permitting a maximum of $175 million in nuclear fuel. Lease payments, based upon nuclear fuel use, will be treated as a cost of fuel. The lease, unless sooner terminated by one of the parties, will continue through 2029. The unrecovered cost base of the lease at December 31,1984,1983, and 1982 was $168 million, $172 million, and
~$107 million, respectively.
NOTE 9. TRANSACTIONS WITH AFFILIATES When the Company acquired the Grand Gulf Station from MP&L, MP&L agreed under a Service Agreement to continue to design, construct, maintain and operate the Grand Gulf Station on behalf of the Company. In return, the Company agreed to pay MP&L the actual cost to MP&L of rendering these services and granted to MP&L the power and authority to act on the Company's behalf as agent. Total payroll costs provided to the Company by MP&L for 1984,1983, and 1982 were $25.2 million, $21.5 million, and $18.4 million, respectively. {; The Company also receives technical and advisory services from Middle South Services, Inc. (MSS). Charges from MSS for these technical and advisory services for 1984,1983 and 1982 were $9.8 million, $4.4 million and $3.3 million, respectively. . NOTE 10. QUARTERLY RESULTS (UNAUDITED) Results for the four quarters of 1984 and 1983 were as follows: Quarter Net Ended Income (In Thousands) 1984: March........................... $43,861 June............................ 43,935 September....................... 49,986 December........................ 50,643 1983: March........................... $35,177 June............................ 36,534 September....................... 39,630 December........................ 40,240 The Company's net income consists of the equity component of AFDC. There b: were no operating revenues or expenses for the two years ended December 31, 1984.
.( -,
NOTE 11. EFFECT OF INFLATION (UNAUDITED) The following supplementary information about the effect of changing prices on the Company is provided in accordance with the requirements of Statement of ' (f Financial Accounting Standards No. 33, " Financial Reporting and Changing Prices", as amended by Statement of Financial Accounting Standards No. 82. It should be viewed as an estimate of the effect of changing prices rather than as a precise measure. Statement of Income and Other Financial Data Adjusted For Effects of Changing Prices For the Year Ended December 31, 1984 Adjusted For As Reported In Changes In The Financial Specific Prices Statements (Current Costs) (In Thousands) Ope rati ng revenues . . . . . . . . . . . . . . . . . . . . . . . . . . - - Operating expenses (excluding depreciation) - - Dep re c i a ti on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - Total operati ng expenses . . . . . . . . . . . . . . . . . . . . Operating income............................ S 351,583 5 351,583 O the r i nc ome* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163,158 163,158 Interest charges *........................... {' Income (excluding adjustment to net
$ 188,425 3 188,425 recoverable cost).........................
Increase in specific prices (current costs) of property, plant and equipment held $ 62,786 d u ri n g th e y e a r* * . . . . . . . . . . . . . . . . . . . . . . . . . Adjustment to net recoverable cost.......... (27,949) Effect of increase in general price level... (173,161) Excess (deficiency) of increase in specific prices, af ter adjustment to net recover-able cost, over increase in general price (138,324) level..................................... Gain from decline in purchasing power of net 85,366 amounts owed..............................
$ (52,958)
Net.........................................
- Assumed to be in " average for the year" dollars and thus are not restated.
**At December 31, 1984, current cost of property, plant and equipment was
$4,872,099,000 while historical cost or net cost recoverable through depreciation was $3,938,254,000.
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Five-Year Comparison of Selected Supplementary Financial Data Adjusted For Effects of Changing Prices (In Thousands of Average 1984 Dollars) Years Ended December 31, 1984 1983 1982 1981 1980 OPERATING REVENUES................... CURRENT COST INFORMATION: Income (excluding adjustment to net recoverable cost)........... $ 188,425 $ 158,032 $ 131,130 $ 109,409 $ 84,444 Excess (deficiency) of increase in specific prices, after adjustment to net recoverable cost, over increase in general price level. $ (138,324) $ (116,884) $ (96,691) $(191,055) $(232,499) Net assets at year-end at net recoverable cost............... $1,521,730 $1,286,813 $1,069,056 $ 866,371 $ 770,334 GENERAL INFORMATION: Gain from decline in purchasing 85,366 5 73,395 5 61,712 $ 50,361 $ 148,577 power of net amounts owed...... S 272.4 246.8 g Average consumer price index...... 31i.1 298.4 289.1 Current cost amounts reflect the changes in specific prices of property, plant, and equipment from the year of acquisition to the present. The current costs of property, plant, and equipment, which represent the estimated costs of replacing existing plant assets, are determined by applying the Handy-Whitman Index of Public Utility Construction Costs (HWI) to the cost of the surviving plant by year of acquisition. Land and certain other plant assets that are not included in the HWI were converted using the Consumer Price Index for all Urban Consumers (CPI-U). Nuclear fuel has not been restated from its historical cost in nominal dollars because regulation limits the recovery of fuel costs to actual costs incurred through the operation of adjustment clauses or adjustments in basic rate schedules. For this reason, nuclear fuel is effectively a monetary asset. As prescribed in Statement of Financial Accounting Standards No. 33, income taxes were not adjusted. The regulatory commissions to which the Company and the System operating companies are subject allow only the historical cost of plant to be recovered in revenues as depreciation. Therefore, the excess cost of plant stated in terms of current cost over the historical cost of plant is not presently recoverable in rates. This excess (deficiency) is reflected as an adjustrent to net recoverable cost. While the ratemaking process gives no recognition to b
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the current cost of replacing property, plant, and equipment, the Company believes that it will be allowed to earn on the increased cost of its net investment when replacement of facilities actually occurs. .Q To properly reflect the economics of rate regulation in the Statement of Income presented above, the adjustment of net property, plant, and equipment to net recoverable cost is adjusted by the gain from the decline in purchasing power of net amounts owed. During a period of inflation, holders of monetary assets suffer a loss of general purchasing power while holders of monetary liabilities experience a gain. The gain from the decline in purchasing power of nct amounts owed is primarily attributable to the substantial amount of debt which has been used to finance property, plant, and equipment. Since the depreciation on this plant is limited to the recovery of historical costs, the Company does not have the opportunity to realize a holding gain on debt and is limited to recovery only of the embedded cost of debt capital. C t
*yo DIRECTORS AND EXECUTIVE OFFICERS
( MSE Directors MSE Officers FLOYD W. LEWIS FLOYD W. LEWIS President of the Company, President Chairman of the Board and President of Middle DONALD C. LUTKEN South Utilities, Inc. Vice President JAMES M. CAIN EDWIN A. LUPBERGER President and Chief Executive Senior Vice President Officer of Louisiana Power & Chief Financial Officer Light Company, President and Chief Executive Officer of DAN E. STAPP New Orleans Public Service Inc. Secretary DONALD C. LUTKEN R. DRAKE KEITH Vice President of the Company, Treasurer Chairman of the Board and Chief Executive Officer of Mississippi Power & Light Company JERRY L. MAULDEN President and Chief Executive Officer of Arkansas Power & { Light Company FTANK G. SMITH, JR. President and Chief Executive Officer of Middle South Services, Inc. The Company's 1984 Annual Report to the Securities and Exchange Commission on Form 10-K (incl Jding financial statement schedules) is available to any interested parties without charge. Interested parties can obtain a copy by writing to: . Dan E. Stapp Secretary Middle South Energy, Inc. 225 Baronne Street New Orleans, Louisiana 70112 Telephone: (504) 529-5262 h
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~ s 3
fl LAudited Financial Statements c
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South Mississippi p
- Electric Power Association '
[ December 31,:1984 . 4 et 3 L y , 0 6 ( 1
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1 Y a T Ernst&Whinney
- -_ -- _f
h 9 Audited Financial Statements , SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION December 31, 1984 ( Audited Financial Statements Auditors' Report. . . . . . . . . . . . . . . . . . . . . . . . . 1 Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . 2 - Statements of Operations and Patronage Capital. . . . . . . . . . 4 a St~tements of Changes in Financial Position . . . . . . . . . . . 5 Notes to Financial Statements . . . . . . . . . . . . . . . . . . 6 p 9 9 D e 9 m , , . . . . . . .
l Ernst&Minney i30i o,pesit ame,.oty eia,s Jackson, Mississippi 39201 60I/948-6374 { i Board of Directors South Mississippi Electric Power Association { Hattiesburg, Mississippi - We have examined the balance sheets of South Mississippi Electric Power Association as of December 31, 1984 and 1983 and the related statements of operations and patronage capital and changes in financial position f for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. As discussed in Note H to the financial stateents, the Association has deferred margins of $8,853,996 in 1984. In our opinion, generally accepted accounting principles require that such margins be included in the statement of operations. In our opinion, except for the effects of the deferred margins on the 1984 financial statements, as discussed in the preceding paragraph, the financial statements referred to above present fairly the financial position of South Mississippi Electric Power Association at December 31, 1984 and 1983 and the results of its operations and the changes in its financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. 4 kl
/r" Jackson, Mississippi February 7, 1985
BALANCE SHEETS SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION December 31 1984 1983 ) ASSETS--Note F ELECTRIC UTILITY PLANT--Note B In service $298,111,754 $293,934,598 Construction work in process-Note C 478,529,918 409,497,161 776,641,672 703,431,759 Less -allowances for depreciation 64.969,345 55,872,208 711,672,327 647,559,551 OTHER ASSETS AND INVESTMENTS Investments in associated organizations-- Note D 8,458,853 7,495,855 Other noncurrent assets 12,600 12,600 8,471,453 7,508,455 CURRENT ASSETS General fund cash and temporary cash equivalent investments 41,052 8,604 Construction fund cash 1,657 53,327 Short-term investments 17,188,000 Accounts receivable from members 15,396,668 15,961,999 Inventories: Coal 7,474,749 12,037,800 Other fuel (principally fuel oil) 1,628,539 1,418,834 Materials and supplies 4,826,357 4,326,107 13,929,645 17,782,741 Other 269,494 353,226 29,638,516 51,347,897 . DEFERRED CHARGES 3,509,410 3,904.535
$753.291.706 $710.320.438 l
l n ..........i
December 31 1984 1983 EQUITIES AND LIABILITIES EQUITIES Memberships $ 55 $ 55 Donated capital 535,436 535,436 Patronage. capital 11,202,031 7,609,372 11,737,522 8,144,863 LONG-TERM DEBT, excluding current maturities--Note F 660,216,830 660,557,094 CURRENT LIABILITIES Notes payable--Note E 21,953,680 Accounts payable 12,872,686 8.148,846 Accrued interest 960,180 16,240,414 Other accrued expenses 519,352 451,434 Current maturities of long-term debt 5,716,425 5,009,253 42,022,323 29,849,947 DEFERRED REVENUE--Note G 30,461,035 11,768,534 DEFERRED MARGINS--Note H 8,853,996 COMMITMENTS--Note C
$753.291.706 $710.320.438 See notes to financial statements.
^
m STATEMENTS OF OPERATIONS AND PATRONAGE CAPITAL SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION Year Ended December 31 1984 1983 Opcenting revenue and patronage
.apital:
Electric energy revenues--Note H $156,606,556 $156,462,892 Other income 1,636,127 960,113 158,242,683 157,423,005 Operating expenses: Operation expenses: Fuel 53,932,527 49,745,001 Production 2,211,866 2,379,564 Purchased power 59,082,453 56,760,906 Transmission 5,~540,686 5,013,509 Administrative and general 2,456,560 2,165,334 123,224,092 116,064,314 Maintenance expenses: Production 1,672,461 1,762,051 Transmission 1,128,478 1,025,266 General 294,279 232,330 3,095,218 3,019,647 Depreciation 7,921,214 7,734,269 Taxes 380,939 324,269 134,621,463 127,142,499 OPERATING MARGIN BEFORE INTEREST AND OTHER DEDUCTIONS 23,621,220 30,280,506 Interest and other deductions: Interest, net of interest income on unexpended bond funds 67,646,937 68,054,668 Allowance for borrowed funds used during construction (47,128,493) (42,753,356) Other deductions--net 53,984 56,995 20,572,428 25,358,307 OPERATING MARGIN 3,048,792 4,922,199 Non-operating margin--principally interest income 543,867 1,446,654 NET MARGIN--Note H 3,592,659 6,368,853 Patronage capital at beginning of year 7,609,372 1,240,519 PATRONAGE CAPITAL AT END OF YEAR $ 11.202.021 J 7.609.372 See notes to financial statements. l
L STATEMENTS OF CHANGES IN FINANCIAL POSITION SOUTH MISSISSIPPI ELECTRIC POWER ASSOCIATION f { Year Ended December 31 1984 1983 SOURCE OF FUNDS Net margin $ 3,592,659 $ 6,368,853 Add items not affacting working capital: Provision for depreciation and depletion 9,010,979 8,809,081 TOTAL PROVIDED BY OPERATIONS 12,603,638 15,177,934 Additional long-term borrowings 5,693,776 63,224,116 Increase in deferred revenue 18,692,501 11,768,534 Increase in deferred margins 8,853,996 Other--net 395,124 46,239,035 90,170,584 APPLICATION OF FUNDS Additions to electric utility plant less carrying amount of retirements 73,123,754 74,285,425 Reduction of long-term debt 6,034,040 5,133,893 Increase in investment in associated organizations 962,998 956,406 Other--net 268,816 80,120,792 80,644,540 INCREASE (DECREASE) IN WORKING CAPITAL $(33.881.757) ,$ 9.526.044 CHANGES IN COMPONENTS OF WORKING CAPITAL Increase (decrease) in current assets: General fund cash and temporary cash equivalent investments $ 32,448 $ (46,307) Construction fund cash (51,670) (68,353) Short-term investments (17,188,000) 7,523,587 Accounts receivable from members (562,263) 3,439,848 Inventories (3,853,096) 3,189,191 Other (86,800) (109,213) Decrease (increase) in current liabilities: Notes payable (21,953,680) Accounts payable (4,723,840) 2,946,354 Accrued expenses 15,212,316 (6,042,828) Current maturities of long-term debt (707,172) (1,306,235) INCREASE (DECREASE) IN WORKING CAPITAL $(33.881.757) $ 9.526.044 See notes to financial statements.
NOTES TO FINANCIAL STATEMENTS SOUIH MISSISSIPPI ELECTRIC POWER ASSOCIATION December 31, 1984 NOTE A--THE ASSOCIATION AND ITS ACCOUNTING POLICIES South Mississippi Electric Power Association (SMEPA) is a rural electric cooperative utility established under the laws of the State of Mississippi. Financing assistance is provided by the U. S. Department of Agriculture, Rural Electrification Administration (REA) and, therefore, SMEPA is subject to certain rules and regulations promulgated for rural electric borrowers by REA. SMEPA is a generation and transmission cooperative, providing power supply to eleven owner / members who are rural electric distribution cooperative utilities which provide electric power to customers in certain areas of Mississippi. SMEPA maintains its accounting records in accordance with the Federal Energy Regulatory Commission's chart of accounts as modified and adopted by REA. The more significant accounting policies are described below. Electric Utility Plant and Depreciation: Electric utility plant is stated at cost, which includes contract work, materials and direct labor, allow-ance for funds used during construction and allocable overhead costs. The cost of electric generating stations and related facilities also includes costs of training and production incurred, less revenues earned, prior to the date of commercial operation. The provision for depreciation of electric utility plant begins when addi-tions are placed in service or, in the case of electric generating stations, at the date of commercial operation. The provisions are computed on the straight-line method at the following annual composite rates: Production plant 3.00% to 3.10% Transmission plant 2.75% General plant and transportation equipment 2.00% to 25.00% At the time units of electric utility plant are retired, their original ~ cost and cost of removal, less net salvage value, is charged to the allow-ance for depreciation. Replacements of electric utility plant involving less than a designated unit of property are charged to maintenance expense. Coal reservec are steted at c.ost. Depletion is provided by the units mined method. The coal mine is operated under an operating agreement with a third party. Substantially all of the coal used in SMEPA's generation of electricity is supplied from coal mines located on SMEPA's property.
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NOTES TO FINANCIAL STATEMENTS--Continued NOTE A--Tile ASSOCIATION AND ITS ACCOUNTING POLICIES--Continued Allowance for Funds Used During Construction: Allowance for funds used during construction represents the cost of directly related borrowed funds used for construction of the electric plant, where applicable, and an allowance based on the average cost of appropriate borrowings when general funds are used to fund construction. ;The allowance is capitalized as a component of the cost of the electric plant while it is under construction. Capitalization ceases when the electric plant is placed in service, or in the case of electric generating stations and related facilities, at the date of commercial operation. The average rates used in determining the allowance were 11.0% and 11.6% in 1984 and 1983, respectively. Inventories: Inventories are stated at average cost. Deferred Charges: Costs of preliminary surveys for development of possible methods to obtain and deliver energy to fulfill members' future require-ments, including feasibility studies leading to financing necessary plant expenditures, are recorded as deferred charges. If construction of a pro-ject results from such surveys, the deferred charges are transferred to the cost of the facilities. If a preliminary survey is abandoned, the costs incurred are written off. Bond issue costs are being amortized by the straight-line method over the term of the related debt. The amortization during the period of construc-tion is capitalized. Patronage Capital: The bylaws of SMEPA provide that any excess of revenues over expenses and accumulated prior year deficits shall be treated as ad-vances of capital by the member patrons and credited to them on the basis of their patronage. Interchange Power: SMEPA records the electrical power received or provided on an interchange basis at its cost as determined under various contractual arrangcments. Income Tax Status: SMEPA is exempt from United States income taxes pursuant
,to Section 501(c)(12) of the Internal Revenue Code, which requires that at least 85% of the Association's gross income come from its members.
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NOTES TO FINANCIAL STATEMENTS--Continued NOTE B--ELECTRIC UTILITY PLANT ~ Electric utility plant consists of the following: December 31 1984 1983 Intangible plant $ 459,285 $ 459,285 Land and land rights 10,031,712 9,570,463 Production plant 207,430,730 206,794,541 Transmission plant 50,557,019 47,592,618 Coal properties 24,698,610 24,684,384 General plant and transportation equipment 4,934,398 4,833,307 ELECTRIC PLANT IN SERVICE 298,111,754 293,934,598 Construction work in process 478,529,918 409,497,161
$776.641.67_2 $703.431.759 NOTE C--CONSTRUCTION WORK IN PROCESS AND COMMITMENTS SMEPA is a 10% participant in the construction and operation of a 2,500 megawatt nuclear generating station known as " Grand Gulf Nuclear Station" (GGNS), consisting of two 1,250 megawatt generating units. Fuel loading for the first unit has occurred and commercial operation is anticipated for the second quarter of 1985. The second unit is 34% complete and com-mercial operation is anticipated for 1992. SMEPA's accumulated costs of construction at December 31, 1984 are $473,000,000, including allowance for funds used during construction of $160,000,000.
The Mississippi Public Service Commission held hearings to consider re-scinding the Certificate of Necessity authorizing construction of GGNS Unit 2. No order has been issued. If the Unit 2 Certificate of Necessity is rescinded or Unit 2 is otherwise cancelled, SMEPA would have to recover the costs of Unit 2 through future rate increases even though no power would be generated by Unit 2. At December 31, 1984, construction work in process includes approximately $101,400,000 applicable to Unit 2. SMEPA's share of the basic costs of construction (excluding allowance for funds used during construction) to complete are estimated to be approxi-mately'$9,400,000 for Unit 1 and $161,600,000 for Unit 2. Prior to SHEPA's entry as a participant in CGNS, the construction of GGNS generated tax not operating losses for the other participant. If these losses are utilized to offset income taxes in future years by the other participant, SMEPA could receive a refund of up to $14,500,000 which will be credited to utility plant when it is received.
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NOTES TO FINANCIAL STATEMENTS--Continued NOTE D--INVESTMENTS IN ASSOCIATED ORGANIZATIONS Investmehts in associated organizations at cost consist of: December 31 1984 1983 National Rural Utilities Cooperative Finance Corporation (CFC) Capital Term certificates $8,414,533 $7,438,366 Other 44,320 57,489 M $7.495.851 Capital Term certificates bear interest at 3% and begin maturing in 2007. NOTE E--NOTES PAYABLE SMEPA has a $35,000,000 short-term line of credit available with National Rural Utilities Cooperative Finance Corporation (CFC), of which $21,953,680 was outstanding at December 31, 1984. There were no borrowings against this line at December 31, 1983. Interest rates on short-term borrowings with CFC averaged approximately 11.8% and 10.4% for the years ended December 31, 1984 and 1983, respectively. Capital Term Certificates in CFC, which are includ-ed in other assets and investments, cannot be redeemed so long as the line of credit is in place. _9_ h' i ' . . . . . . . . . . . . . a
NOTES TO FINANCIAL STATEMENTS--Continued 4 NOTE F--LONG-TERM DEBT Substantially all the assets, rents, revenues, and profits of the Associa-tion are pledged as collateral. Long-term debt consists of the following: December 31 1984 1983 2% REA mortgage notes payable, due in quarterly installments through 2009 $ 37,964,033 $ 39,481,756 5% REA mortgage notes payable, due in quarterly installments through 2015 23,093,186 23,046,523 Mortgage notes payable to Federal Financ-ing Bank (FFB) at interest rates varying from 9.326% to 14.801% due in quarterly installments between 1985 and 2017 563,894,669 560,746,720 Lamar County, Mississippi, Pollution Control Bonds: 1977 Series, 4.6% to 6.125% due 1985 through 2007 36,445,000 37,225,000 1978 A Series, 4.7% to 6.125% due 1985 through 2008 2,590,000,
- 2,640,000 1978 A-1 Series, 6.25% due 1985
- through 2008 930,000 950,000 Other 1.016.367 1.476.348 665,933,255 665,566,347 Less current maturities 5.716.425 5.009.253 i
$660.216.830 $660.557.094 SMEPA has the option on FFB promissory note advances to elect jaubject to REA approval) interim maturity dates of not less than two years nor more than seven years after the date of the advance. At the d4te of the advance or on the maturity of an interim advance, SMEPA may also designate that it desires a long-term maturity of 34 years after the end of the calendar year in which the advance was made. At December 31, 1984, SMEPA had $186,940,000 of FFB advances maturing in 1985 through 1989 which it intends to refinance for 34 years.
Approximate annual maturities of long-term debt for the next five years are as follows: 1985 $5,716,425 1986 6,053,705 1987 6,605,899 1988 6,887,988 1989 8,556,690 s< i g
NOTES TO FINANCIAL STATEMENTS--Continued h NOTE F--LONG-TERM DEBT--Continued The above maturity schedule reficcts management's prerogative of convert-ing all FFB advances maturing in 1985 through 1989 to long-term debt. SMEPA has used a rate it estimates to be an appropriate long-term rate, based on the December 31, 1984 interest rate, to compute the annual principal requirement. At December 31, 1984, SMEPA had unadvanced loan commitments from FFB and REA of $156,896,000 and $8,335,000, respectively. REA has placed a hold on FFB loan funds totaling $98,500,000, pending the outcome of the hear-ings regarding GCNS Unit 2 (Note C) and other matters. SMEPA has a commitment from the Jackson Bank for Cooperatives for
$60,000,000' in loan funds. Draws against these loan funds will origi-nally be short-term with the agreement that any amounts outstanding at January 1, 1987 must be converted to a 10-year amortization with prin-cipal amortization to begin in the third quarter of 1988.
SMEPA is required by mortgage covenants to maintain certain levels of interest coverage and annual debt service coverage. The Association was in compliance with such requirements at December 31, 1984. NOTE C--DEFERRED REVENUE SMEPA established its wholesale power rates on March 1, 1983 and 1984, in anticipation of Grand Gulf Nucicar Station Unit 1 beginning commer-cial operation in October 1983 and September 1,1984, respectively. Unit 1 has not yet begun commercial operation. A portion of these rates established were designed to recover increased cost of power after Unit 1 began commercial operation. This portion has been deferred and will be amortized beginning with commercial operations in such a manner as to reficct the revenue in the period the cost being recovered is incurred. The deferral was approved by the Board of Directors of SMEPA and by REA. NOTE H--DEFERRED HARCINS 1 During 1984, the Association's operations produced margins in excess of those budgeted necessary to meet icvels of interest coverage and annual debt service coverage required by mortgage covenants. The Board of Directors of SMEPA has directed the Association to defer margins in ex-cess of those needed to meet these requirements. This deferral has not been approved by REA. k
NOTES TO FINANCIAL STATEMENTS--Continued f NOTE I--PENSION PLAN Substantially all of SMEPA's employees participate in the National Rural Electric Cooperative Association (NRECA) Retirement and Security Program.
-SMEPA makes annual contributions to the plan equal to the amounts accrued for pension expense. In this master multiple-employer plan, which is available to all member cooperatives of NRECA, the accumulated benefits and plan assets are not available by individual employer. SMEPA's pen-sion expense for this plan for the years ended December 31, 1984 and 1983 was $420,000 and $525,000, respectively. )
MISSISSIPPI POWER & LIGHT COMPANY
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ESA6MiddE Helping Build Mississippi P. O. B O X 164 0, J A C K S O N. MIS SIS SIP PI 39215-1640 July 31, 1985 NUCLE AR LICENSING & 5AFETY DEPARTMENT U. S. Nuclear Regulatory Commission Office of Nuclear Reactor Regulation Washington, D. C. 20555 Attention: Mr. Harold R. Denton, Director
Dear Mr. Denton:
SUBJECT:
Grand Gulf Nuclear Station Units 1 and 2 Docket Nos. 50-416 and 50-417 License No. NPF-29 File: 0260/16551 Financial Reports AECM-85/0210 The annual financial reports for 1984 of Middle South Energy, Inc. and South Mississippi Electric Power Association, owners of and Mississippi Power and Light Company, operator of Grand Gulf Nuclear Station, are herein submitted in response to the requirement of 10CFR50.71(b). Yours truly, L. F. Dale Director PJR/JGC:dmm Attachments cc: Mr. J. B. Richard (w/a) Mr. O. D. Kingsley, Jr. (w/a) Mr. R. B. McGehee (w/a) Mr. N. S. Reynolds (w/a) Mr. G. B. Taylor (w/o) Mr. R. C. Butcher (w/a) Mr. James M. Taylor, Director (w/a) Office of Inspection & Enforcement U. S. Nuclear Regulatory Commission Washington, D. C. 20555 Dr. J. Nelson Grace, Regional Administrator (w/a) U. S. Nuclear Regulatory Commission Region II a a r a 03 3
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