Text

Forwards Annual Financial Repts 1974-1980.Also Forwards South Ms Electric Power Association Annual Financial Rept 1980.Addl Financial Info Encl
	ML20009B612
Person / Time
Site:	Grand Gulf
Issue date:	07/09/1981
From:	Dale L; MISSISSIPPI POWER & LIGHT CO.
To:	Harold Denton; Office of Nuclear Reactor Regulation
Shared Package
ML20009B613	List: ML20009B612; ML20009B614; ML20009B615; ML20009B616; ML20009B617; ML20009B618; ML20009B620; ML20009B621; ML20009B623;
References
	AECM-81-239, NUDOCS 8107160422
	Download: ML20009B612 (61)
	v • d • e

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MISSISSIPPI POWER & LIGHT COMPANY Helping Build Mississippi EdhldlellddB P. O. B O X 16 4 0. J A C K S O N, MI S SIS SIP PI 3 9 2 0 5 (D

July 9, 1981 "

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NUCLEAR PRoOUCTioN DEPARTMENT d h s IQ U.S. Nuclear Regulatory Commission U L Office of Nuclear Reactor Regulation b JU[ ] - -

Washington, D.C. 20555 C '8 y u.s, *0%% tss , W % f Attention: Mr. Harold R. Denton, Director fg

Dear Mr. Denton:

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SUBJECT:

Grand Gulf Nuclear Station Units 1 and 2 Docket Nos. 50-416 and 50-417 File 0260/16551 Financial Reports AECM-81/239 Annual financial reports of Middle South Energy, Inc. and Mississippi Power & Light Company for the years 1974 through 1980 are herein submitted in response to the requirement of 10 CFR 50.71(b).

South Mississippi Electric Power Association, SMEPA, has recently become a ten percent owner of Grand Gulf Nuclear Station. SMEPA's latest financial report is hereby also submitted.

Yours truly,

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/ L. F. Dale l

Manager of Nuclear Services PJR/JDR:Im i Attachments l

I cc: Mr. N. L. Stampley

( Mr. G. B. Taylor Mr. R. B. McGehee l Mr. T. B. Conner Mr. Victor Stello, Jr. , Director l

Office of Inspection & Enforcement U.S. Nuclear Regulatory Commission Washington, D.C. 20555 l

0 8107160422 810709

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PDR ADOCK 05000416 PDR l

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Member Middle South Utilities System

MIDDLE SOUTH ENERGY, INC.

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1 FINANCIAL STATEMENTS FOR THE PERIOD ENDED DECEMBER 31,197t+

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ACCOUNTANTS' OPINION YYYhYY$hhY I

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H AS KIN S & S ELLS ELEVENTH FLOOR SOUTH Cc ArtrtEO Pustic ACCOUNTA NTS N EW ORLEANS, LOUISIAN A 7013C, i

ACCOUNTANTS' OPINION L

l Middle South Energy, Inc.:

We have examined the balance sheet of Middle South Energy, Inc. as of December 31, 1974 and the related state-ments of income, stockholder's equity, and source of funds for utility plant additions for the period then ended.

Our examination was 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.

In our opinion, such financial statements present fairly the financial position of Middle South Energy, Inc.

at December 31, 1974, and the results of its operations and source of funds for utility plant additions for the period then ended, in conformity with generally accepted accounting principles consistently applied.

February 14, 1975 ,

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MIDDLE SOUTH ENERGY INC.

BAIANCE SHEET, DECEMBER 31, 1974 ASSETS i

UTILITY PIANT - At cost:

Construction werk in progress........................... $74,788,173 Nuclear fuel............................................ 3,044,5$

j Tota 1.............................. 77,832,714 4

CURRENT ASSETS:

Cash (Note 2)........................................... 3,572,090 Working funds advanced for construction. . . . . . . . . . . . . . . . . 784,915 Recoverable Federal income taxes (Note 1)............... 898,997 Accounts receivable - associated company. . . . . . . . . . . . . . . . 2,074 Tota 1.............................. 5,258,076 TOTAL.................... $83.090,790 LIABILITIES CAPITALIZATION:

Common stock - no par value; authorized, 1,000,000 shares; issued and outstanding, 40,000 shares........ $40,000,000 Retained earnings (Note 3).............................. 2,389,219 Tota 1.............................. 42,389,219

Long-term notes payable - banks (Note 2)................ 39,500,000

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, Tota 1.............................. 81,889,219

', CURRENT LIABIIZTIES - Contractor's retentions............. 1,201,571 i

TOTAL.................... $83,090,790 i See Notes to Financial Statements.

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MIDDE SOUTH ENERGY, INC.

2 STATEbENT OF INCOME 2 FOR THE PERIOD ENDED ECEMBER 31,197t+

l OPERATING REVENUE.......................................... None RECOVERABLE INCOME TAXES (Note 1).......................... $ 898,997 INTEREST EXPENSE........................................... 1,872,909 Loss before allowance for funds used during construction........................................ 973,912 ALIDWANCE FOR FUNm USED DURING CONSTRUCTION (Note 1) . . . . . . 3,363,131 NET INCOME............................................ 82,389,219 4

See Notes to Financial Statements.

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MIDDLE SOUTH ENERGY. INC.

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F l STATEMENT OF STOCKHOLDER'S EQUITY i FOR THE PERIOD ENDED DECEMBER 31, 1974 COMMON STOCK:

Balance - beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . Sale of 40,000 shares of common stock at $1,000 a share on June 25, 1974............................... 840,000,000 Balance - end of period................. .............. 40,000,000 RETAINED EARNINGS:

Balance - beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . Add - net income....................................... 2,389,219 Balance - end of period................................ 2,389,219 TOTAL STOCKHOLDER'S EQUITY........... 842.389,219 l

, 4 See Notes to Financial Statements.

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MIDDLE SOUTH ENERGY. INC. .

STATEMENT OF SOURCE OF FUNIE FOR UTILITY PLANT ADDITIONS FOR THE PERIOD ENDED DECDEER 31, 1974 SOURCE:

From operations:

Net income............................................ $ 2,389,219 Less transactions not providing working funds:

Allowance for funds used during construction 3,363,131 (Note 1)............................................

Tota 1................................. (973,912)

From issuance of securities:

,l Common stock.......................................... 40,000,000 Long-term notes payable............................... 39,500,000 From changes in working capital (a) . . . . . . . . . . . . . . . . . . . . . (4,056,505)

T0TAL....................... 874,469,583 UTILITY PLANT ADDITIONS (Excludes allowance for funds used during construction): -

Construction expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $71,569,264 ,

Nuclear fuel expenditures............................... 2,900,319 TOTAL....................... 874,469,583 -

4 (a) Decres.se (increase) in working capital:

j Cash..................................... $(3,572,090) ,

J Working funds advanced for construction.. (784,915) -

j Recoverable Federal income taxes......... (898,997) -

Accounts receivable - associated companies.............................. (2,074) f 1,201,571 Contractor 8s retentions..................

Tota 1.................. 8(4,056,505) t

! See Notes to Financial Statements.

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MIDDLE SOUTH ENERGY. INC.

NOTES TO FINANCIAL STATEMENTS

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES s.

A. Organization By order of the Securities and Exchange Commission dated June 4, 1974, the Company was authorized to conduct business as a i wholly-owned subsidiary company of Middle South Utilities, Inc. to provide financing and ownership of certain future baseload electric generating units within the Middle South Utilities System.

It is anticipated that power produced by the Company's electric generating units will be sold to the operating companies of the Middle South Utilities System at rates sufficient to cover '

operating and debt expenses and provide a fair rate of return on the Company's investment.

B. System of Accounts The accounts of the Company are maintained in accordance L_

with the system of accounts prescribed by the Federal Power Commission. . -

O. Income Taxes The Company joins its parent in the filing of a consoli-dated Federal income tax return. ,

i For purposes of determining consolidated taxable income, the Company's interest expense is deducted currently and its 1 allowance for funds used during construction is excluded. The estimated reduction of consolidated income tax liability attribut-q] able to the Company's interest expense has been reflected in the .

i accompanying financial statements as an amount to be recovered from j other companies included in the Federal income tax return to be g filed by Middle South Utilities, Inc. and Subsidiaries consolidated.

D. Allowance for Funds Used During Construction l

In accordance with the regulatory system of accounts, -

j the Company capita 11zes an allowance for funds used during the i period of construction, representing the net cost of funds I (interest on borrowed funds and a reasonable rate on other funds) i used to finance construction with a corresponding credit to non-i operating income. This practice recognizes these amounts as an appropriate cost of utility plant which, in accordence with established regulatory practices, are recovered through future B

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billings to customers. Tha Company determines its accrual rate for allowance for funds used during construction based on an 11.6% return on average common equity, excluding the accumulated amount of such allowance, plus actual interest costs, net of related income taxes.

2. COMMITMENTS AND FINANCING The Company's construction program contemplates construction expenditures of approximately $178,000,000 in 1975.

In June 1974, the Company entered into an agreement with soveral banks to borrow up to $308,500,000 through December 31, 1973 Notes issued under this agreement mature December 31, 1982 and bear interest: (1) through March 31, 1977 at a rate per

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annum equal to 110% of the sum of 1/2 of March 1% plus the prime rate

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sf a specified New York bank, (ii) from 31, 1977 through March 31, 1980 at a rate per annum equal to 110% of the thereafter, sum of 3/4 of 1% plus the prime rate of said bank, and (iii) at a rate per annum equal to 110% of the sum of 1% plus said bank's ~

At December 31, 1974 the Company had issued prime rate. of its promissory notes under this agreement.

$39,500,000 The Company pays a commitment fee for the period from June 21, 1974 through December 31, 1979 computed at a rate of L

1/2 of 1% per annum on the average daily unused portion of the The Company has demand deposit accounts with the commitments. %

banks participating in this agreement. In support of the agree- ~

j ment, the Company maintains compensating balances of 5% of the

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average amount outstanding ($1,975,000 at December 31, 1974) which are not restricted as to withdrawal.

k,3. RETAINED EARNINGS The provisions of the Company's bank loan agreement 1 (see Note 2) restrict the amount of retained earnings available As of December 31, 1974

{ for cash dividends on common stock.

none of the retained earnings were available for cash dividends.

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MIDDLE SOUTH ENERGY, INC.

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FINANCIAL STATEMEh"fS FOR THE TWO YEARS ENDED DECEMBER 31, 1975 AND 197t+

AND ACCOUNTANTS' OPINION

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CERTIFIED PUB LIC ACCOUNTANTS INTER N ATION AL TRAD E M ART NEW ORLEANS. LOUISIANA 70130 l

ACCOUNI' ANTS' OPINION Middle South Energy, Inc.:

We have examined the balance sheet of Middle South ~

Energy, Inc. as of December 31, 1975 and 1974 and the related statements of income, stockholder's equity, and i

source of funds for utility plant additions for the years then ended. .Our examination was 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.

In our opinion, such financial statements present fairly the financial position of Middle South Energy, Inc.

at December 31, 1975 and 1974, and the results of its operations and source of funds for utility plant additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

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MIDDIE SMI._MulNh BAIANCE SIZE"P DECFMIER 31.1975 AND 1974

-- A S S E T 3 -- 1975 1974 -- L I A B I L I T I E S -- 1975 1974

'JTII [1'l PIAfrP - At cost: CAPITALIZATION:

Oc astructicn vork in pregress. . . . . . . . . . . . . . . . . $213,092,421 $14,188,173 Ccurora stock - no par value; euthorized,

!h , :le ar 1bo l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.312.465 3.044.541 1,000,000 sharva; issued end outstanding 75,500 shares in 1975 end 40,000 shares Tota 1............................ 219,404.886 77.832.714 in 1974...................................... $ 75,500,000 $40,000,000 CUT &iNf ASSE'IS: Rotained earnires ( Note 3) . . . . . . . . . . . . . . . . . . . . 8,422.809 2. 3a's ,219 Ce. a h ( No te 2 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,446,212 3,572,090 Tota 1.................................. e3,922,809 i.2,389.21')

E rking ihnds advanced for construction. . . . . . . 234,594 784,915 Iorg-tona notes payable - banks (flote 2) . . . . . . . 145.500.0C0 39.500,000 -

T. spo rriry cas h 1 nves tan ts . . . . . . . . . . . . . . . . . . . . 5,000,000 -

1,864,914 898,997 Tota 1............................. 229.422.809 61, rM,2 h Ik :overable Federal incone taxes (Noto 1) . . . . .

a counts receivablo - associated cotapany. . . . . . -

2.0 74 CUIGtENT LIABILITI .3 Accounts payablo:

Total............................ 16,545,720 5,258,076 Contractors.................................. 2,223,463 -

Contractor's retent1ons...................... 1,629,929 1,201,571:

Associated coc1pany. . . . . . . . . . . . . . .......... 6 , 79f, -

Taxes accrued.................................. 146.594 -

Tota 1............................. 4.006.7e7 1,20!.571 DEFDtHED CREDl'IS:

Accunulated deferred investment tax credits (Noto 1)..................................... 2,40?,000 -

Accuaulated doforred inceme taxes (Note 1).. ... 121,015 -

Tota 1............................. 2.521.015 i

TorAL. . . . . . . . . . . . . . . . . . J235.9so p 6 _JaA090,790 T0TA L. . . . . . . . . . . . . . . . . . . 3235 y 0,606 .ee3,0 g 73 See Notes to Financial Statements.

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MIrOLE SOUTH ENERGY, INC.

STATEIENT OF INCOME FOR THE YEARS ENDED DECEtEER 31, 1975 AND 1974 1975 1974 INCOME:

Operating revenues......................... None None Recoverable income taxes (Note 1).......... $ 7,013,263 $ 898,997 Interest income............................ 69,C58- -

Tota 1.................... ,

7,082,321 898,997 EXPElfdES:

Taxes:

Deferred income taxes (Note 1)........... 121,015 -

Investment tax credit adjustments (Note 1)............................... 2,400,000 -

Interest expense........................... 9,427,906 1,872,909 Total.................... 11,948,921 1,872,909 IDSS BEFORE ALTRfANCE FOR FUNDS USED DURING CONSTRUCTION........................ 4,866,600 973,912 ALTBJANCE FOR FUNDS USED DURING CONSTRUCTION (Note 1)...................... 10,900,190 ~3,363,131 NET INCOME................................... $ 6,033,590 82,389,219 See Notes to Financial Statements.

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STATEIENT OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEIGER 31, 1975 AND 1974 1975 1974 COMMON STOCK:

Balance - beginning of period............ $40,000,000 $ Sale of 35,500 shares in 1975 and -

40,000 shares in 1974 of commen i s tock at $1,000 a share . . . . . . . . . . . . . . . . 35,500,000 40,000.000 i r

Balence - end of period . . . . . . . . . . . . . . . . . . 75,500,000 40,000,000 j RETAINED EARNINGS: 7 r'

Balance - beginning cf period............ 2,389,219 Add - net income......................... 6,033,590 2,389,219 ,

l Balance - end of period . . . . . . . . . . . . . . . . . . 8,422,809 2,389,219 TOTAL STOCKHOIDER'S EQUITY. . . . . . . $83,922,809 $4,. ,389, 219 4

I See Notes to Financial Statements.

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STATEMENT OF SOURCE OF FUNDS FOR UTILITY PLANT ADDITIONS FOR THE YEARS ENDED DECEMBER 31, 1975 AND 1974 1975 1974 SOURCE:

From operations:

Net income............................. $ 6,033,590 $ 2,389,219 Add (deduct) non-cash items (Note 1):

Deferred income taxes................ 121,015 Investment tax credit adjustments . . . . 2,400,000 Allowance for funds used during construction....................... (10,900,190 (3,363,131)

Tota 1....................... (2,345,585 (973,912)

From changes in working capital (a)..... (8,482,433 (4,056,505)

From issuance of securitiec:

Common stock........................... 35,500,000 40,000,000 Long-term notes payable................ 106,000,000 39,500,000 T0TAL.................. 8130,671,982 $74,469,583 UTILITY PIANT ADDITIONS (Excludes allowance for funds used during I construction):

Construction expenditures................ $127,778,690 $71,569,264 Nuclear fuel expenditures................ 2,893,292 2,900,319 T0TAL.................. $130,671,982 $74,469,583 l

(a) Decrease (increase) in working

! capital:

! Cash................................ $(5,874,122) $(3,572,090)

Temporary cash investments.......... (5,000,000) -

Working funds advanced for construction...................... 550,321 (784,915)

Recoverable Federal income taxes.... (965,917) (898,997)

Contractor's retentions.............. 428,358 1,201,571 Accounts payable - contractors . . . . . . 2,223,463 Other - net......................... 155,464 (2,074)

Tota 1.................. $(8,482,433) $(4,056,505) 4 j See Notes to Financial Statements.

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NOTES TO FINANCIAL STATEMENTS

1. SUte!ARY OF SIGNIFICANT ACCOUNTING POLICIES A. Organization j By order of the Securities and Exchange Commission l

dated June 4, 1974, the Company was authorized to conduct business as a wholly-owned subsidiary company of Middle South Utilities, Inc. to provide financing and ownership of certain future baseload electric generating units within the Middle South Utilities System.

It is anticipated that power produced by the Company's electric generating units will be sold to the oporatM;; companies of the Middle South Utilities System at rates sus 11cient to cover operating and debt expenses and provide a fair rate of return on the Company's investment. [

B. System of Accounts {

The accounts of the Company are maintained in accordance {

with the system of accounts prescribed by the Federal' Power l ,

Commission.

C. Income Taxes The Company joins its parent in the filing of a ,

consolidated Federal income tax return.

The Company's interest expense and capitalized taxes -

are deducted currently; allowance for funds used during construc-tion is excluded. In addition, the Company utilizes Federal '

' investment tax credits applicable to qualified progress expenditures

during the period of construction. The reductions attributable j to the Company are recorded as amounts to be recovered from r the other companies included in the consolidated tax return.

i Deferred income taxes are provided for the income tax :

4 effect of taxes capitalized for book purposes, which for income ~

tax purposes are deductbd currently.

Investment tax credits utilized are deferred and will be amortized over the average useful life of the related property i once it has been placed in service.

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D. Allowance for Funds Used During Construction In accordance with the regulatory system of accounts, the Company capitalizes an allowance for funds used during the period of construction, repreeenting the net cost of funds (interest on borrowed funds and a reasonable rate on other funds) used to finance construction with a corresponding credit to non-operating income. This practice recognizes these amounts as an appropriate cost of utility plant which, in accordance with este.slished regulatory practices, are recovered through future billings to customers. The Company determines its accrual rate for allowance for funds used during construction based on an 11.6% return on average common equity, excluding the accumulated amount of such allowance, plus actual interest costs less interest income, net of related income taxes.

2. COMMITMENTS AND FINANCING f r 1 t The Company's construction program contemplates h construction expenditures of approximately $212,000,000 in 1976.

At December 31, 1975, the Company had issued $1L+5,500,000 (

i of promissory notes under an agreement with several banks to '

borrow up to $353,500,000 through December 31, 1979. Such notes will mature December 31, 1982 and bear interest at vai'ying rates j based on the prime rate of a specified New York bank. During ! .;

1975 the average interest rate, excluding compensating balances, {'

was 9.0%. In addition, the Company pays a fee on the unused !,

1 portion of the commitment and maintains a 5% compensating balance l

($7,275,000 at December 31,1975) on the amount outstanding, which

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/ is not restricted as to withdrawal.

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3. RETAINED EARNINGS

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[ The provisions of the Company's bank loan agreement

< restrict the amount of retained earnings available for cash l

.h dividends on common stock. As of December 31, 1975 none of the

[ retained er."nings were available for cash dividends. l

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4 FINANCIAL STATEMENTS FOR THE '

YEARS ENDED DECEMBER 31, 1976 AND 1975 I AND ACCOUNTANTS' OPINION t'

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H AS KINS & S ELLS ctRTirito pustic AC,:CuNTANTS ELEVENTH FLOOR SOUTH INTERNATIONAL TRADE MART N EW ORLEAN S, LOUISIAN A 70130 i

, ACCOUNTANPS' OPINION i

Middle South Energy, Inc.:

We have examined the Mlance sheet of Middle South Energy, Inc. as of December 31, 1976 and 1975 and the related statements of income, stcckholder's equity, and source of funds for utility plant additions for the years then ended. Our examination was 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.

In our opinion, such financial statements present fairly the financial position of Middle South Energy, Inc.

at December 31,1976 and 1975, and the rer 11ts of its operations and source of funds for utility plant additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

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. _ . . _ . _ , r g[0012 SOUni ENERN. INC t BAIANCE SHEET IFCIMF.R 31.1976 AND 1975

-- A 3 3 E T S -- 1976 1975 -- L I A B I L I T I E S -- 1976 1975 UTILITi PIANT - At cost CAPITALIZATIC N:

Cons t ruct icn work in progress . . . . . . . . . . . . . . . . . $tet*8,249,764 $213,092,t21 4 Cr==m stocX - no par value; authorized, Nuck ar 1 bel.................................. 9.851.885 6.312.465 1,000,000 ndares; issued and outstanding Total............................. Le58.101.649 219.40te 886 lle9,500 shares in 1976 and 75,500 shares in 1975...................................... $149,500,000 $ 75,500,000 CURREhe ASSET 3: Retained earnings (Note 3)..................... 21,661.7t64 8.422.809 Cash (Note 2)................................. 16,8'41,493 9,4t*6,212 Tota 1..................................

Working ihnds adve ced for ccristruction....... 171,161,7te6 83,922,809 615,586 23t*,599 Iong-terin notes payable - banks (Note Temp,rary cash investments.................... 6,99t*,031 5,000,000 2)...... . 309.500.000 Ites.500.000 Recoverable 1bderal income taxes.............. 17.271.186 1. 86te .91t* Tota 1............................. _480.661.746 229,422.809 Total............................. 41,728,2 % 16,Ste5,720 CURRENT LII.BILITIE3*

Accounts payable:

Contractors.................................. 317,181 2,223,te63 Contractor's retentions...................... 3,173,733 1,629,929 Associated company........................... 11,715 6,7%

Taxes accrued.................................. 1.106.292 1t6.594 4

I Total............................. te.608.921 4.006.782 IEPERRED CREDITS:

Accumulated deferred investment tax credits.... 13,398,128 2,400,000 Accumulated de ferred incom taxes . . . . . . . . . . . . . .

1.161.150 121,015 a Tota 1............................. 14.559.278 2.521.015 mfAL................... St4 99,829.9tes $235,950.606

'It?fAI . . . . . . . . . . . . . . . . . . lt1e82h9te_5 $231 g dC6

See Notes to Financial Statements.

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MIDDLE SOUTH ENERGY. INC.

STATEMENT OF INCOME FOR THE YEARS ENDED DECEMEER 31, 1976 AND 1975 1976 1975 f

i fINCOME:

Operating revenues........................ None None Interest income........................... $ 415,630 $ 69,058 Tota 1................... 415,630 69,058 EXPENSES:

Interest expense.......................... 18,610,786 9,427,906 Taxes:

Federal income taxes.................... (20,771,937) (7,013,263)

Investment tax credit adjustments....... 10,998,127 2,400,000 Deferred income taxes . . . . . . . . . . . . . . . . . . . 1,040,135 121,015 Total................... 9,877,111 4,935,658

LOSS BEFORE AIIDWANCE FOR FUNDS USED IURING CONSTRUCTION....................... 9,461,481 4,866,600 AIlfMANCE FOR FUNES USED EURING CONSTRUCTION.............................. 22,700,418 10,900,190 l a NET INC0ME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813,238,937 $ 6,033,590 i

j See Notes to -inancial Statements.

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' STATEMENT OF STOCKHOLDER'S EQUITY FOR THE YFJGS ENDED DECEMBER 31, 1976 AND 1975 ,

t 1976 1975 COMMON STOCK:

Balance - beginning of year.............. $ 75,500,000 $40,000,000 Sale of 74,000 shares in 1976 and 35,500 shares in 1975 of cornon stock at $1,000 a share...................... 74,000,000 35,500,000 Balance - end of year.................... 149,500,000 75,500,000 RETAINED EARNINGS:

Balance - beginning of year.............. 8,422,809 2,389,219 Add - net income......................... 13,238,937 6,033,590 Balance - end of year.................... 21,661,746 8,422,809 TOTAL STOCKHOLDER'S EQUITY....... $171,161,746 $83,922,809

) See Notes to Financial Statements.

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MIDDLE SOUTH ENERGY. INC.

STATEMENT OF SOURCE OF FUNES FOR UTILITY PIANT ADDITIONS FOR THE YFJGS ENDED DECEMBER 31, 1976 AND 1975 1976 1975 SOURCE:

From operations:

Net 1ncoce........................... $ 13,238,937 $ 6,033,590

, Add (deduct) non-cash items:

Investment tax credit adjustments.. 13,998,127 2,400,000 Deferred incom3 taxes . . . . . . . . . . . . . . 1,040,135 121,015 Allowance for funds used during constrt: tion......... ........... (22,700,418) (10,900,190)

Tota 1.......................... 2,576,781 (2,345,585)

From issuance of securities: -

Common stock......................... 74,000,000 35,500,000 Long-term notes payable.............. 164,000,000 106.000.000 _-

Total funds provided...... 240,576,781 139,154,415 _

Less increase in working capital (a)...

24,580,437 8,482,433 TOTAL................ $215,996,344 $130,671,982 UTILITY PIANT ADDITIONS (Excludes allowance for funds used during

+

construction):

Construction expenditures............... $213,019,901 $127,778,690 Nuclear fuel expenditures.............. 2,976,443 2,893,292 1 TOTAL................ $215,996,344 $130,671,982 l(a) Increase (decrease) in working capital:

Cash.............................. $ 7,395,281 $ 5,874,122 -

Temporary cash investments........ 1,994,031 5,000,000

.l Working funds advances for l construction.................... 380,992 (550,321)

Recoverable Federal income taxes.. 15,412,272 965,917 i Accounts payable.................. 357,559 (2,660,691}

Taxes accrued..................... (959,698) (146,594)

Total................ $_24,580,437 $ 8,482,433 See Notes to Financial Statements.

MIDDLE SOUTH ENERG'I, INC.

NOTES TO FINANCIAL STATEMENTS

2.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES 4 A. Organization l The Company is authorized to conduct business as a wholly-owned subsidiary company of Middle South Utilities, Inc.

to provide financing and ownership of certain future baseload electric generating units within the Middle South Utilities System.

It is anticipated that power produced by the Company's electric generating units will be sold to the operating companies of the Middle South Utilities System at rates sufficient to cover operating and debt expenses and provide a fair rate of return on the Company's investment.

3. System of Accounts The accounts of the Company are maintained in accor-dance with the system of accounts prescribed by the Federal Power Com:sission.

C. Income Taxes i The Company joins its parent in the filing of a I

consolidated Federal income tax return.

i

(* The Company's interest expense and capitalized taxes are deducted currently; allowance for funds used during

]; construction is excluded. In addition, the Company utilizes Federal inveatment tax credits applicable to qualified progress l

expenditures during the period of construction. The Company q records as currently recoverable the amounts attribt'sble to its current deductions and investment credits utilize.c a the consolidated tax return.

Deferred income taxes are provided for the income tax l effect of taxes cs.pitalized for book purposes, which for income j tax purposes are deducted currently.

I Investment tax credits utilized are deferred and will be amortized over the average useful life of the related property once it has been placed in service.

l f

(Ocntinued) - 1.

I D. Allowance for Funds Used During Construction In accordance with the regulatory system of accounts, the Company capitalizes as an appropriate cost of utility plant an allowance for funds used during the period of construction.

This allowance represents ti.* net cost of funds (interest on borrowed funds and a reasonable rate on other funds) used to finance construction with a corresponding credit to non-operating l income. The Company determines its accrual rate for allowance for funds used during construction based on actual net interest

- costs plus an 11.6% roturn on average common equity, excluding the accumulated amount of such allowence.

2. COMMITMENTS AND FI E NCING The Company's construction program contemplates construction expenditures of approximately $383,900,000 in 1977.

1 At December 31, 1976, the Company had issued $309,500,000

! of promissory notes under an agreement with a group of banks to

< borrow up to $465,000,000 through recember 31, 1979. Such notes will mature recember 31, 1982 and bear interest at varying rates -

based on the prime rate of a specified New York bank. During 1976 the average interest rate, excluding compensating balances, -

I was 8%. In addition, the Company pays a fee on the unused portion of the commitment and maintains a 5% compensating balance p ($15,475,000 at December 31,1976) on the amount outstanding, which is not restricted as to withdrawal.

The Company is planning to place up to $400,000,000 of

[

debt securities with a limited number of institutional investors in 1977.

Q q3. RETAINED EARNINGS j The provisions of the Company's bank loan agreement restrict the amount of retained earnings available for cash ii Il dividends on common stock. As of December 31, 1976 none of the

!! retained earnings were available for cash dividends.

!1 i

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- (Concluded) - 2.

! l

] MIDDLE SOUTH ENERGY, INC.

1 i r 1

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1

< FINANCIAL STATEMENTS FOR THE l YEARS ENDED DECEMBER 31, 1977 AND 1976 AND

ACCOUNTANTS' OPINION 1

i ***********

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H AS KINS & S ELLS 1

f

H AS KINS & S ELLS 323 rLoon o u v r e n a t i o n a t ty ONE SHELL SQU ARE D ELOITTE. HASKINS & S ELLS N EW ORLEANS, LOUISlANA 70139

, ACCOUNTANTS' OPINION Middle South Energy, Inc.:

We have examined the balance sheets of Middle South Energy, Inc. as of December 31, 1977 and 1976 and the related statements of income, stockholder's equity, and source of funds for utility plant additions for the years gi then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, j included such tests of the accounting records and such other suditing procedures as we considered necessary in i' the cil mustances.

l In our opinion, such financial statemencs present fairly the financial position cf liiddle South Energy, Inc.

at December 31, 1977 and 1976, and the results of its operations and source of funds for utility plant additions for the years then ended, in conformity with generally

, accepted accounting principles applied on a consistent basis.

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, February 17, 1978 I

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MI_ erg SOUTFJfERGY. INC.

STATEMENT OF INCOME FOR THE T M ENDED DECEMBER 31, 1977 AND 1976 1977 1976 (In Thousands)

INCOME:

Operating revenues................................ None None Interest income................................... $ 1,105 $ 41_6 Total..................... 1,105 416 EXPENSES:

Interest expense.................................. 34,020 18,611 1 Taxes:

Federal income taxes............................ (39,551) (20,772)

Investment tax credit adjustments............... 19,647 10,998-De ferred income t axes . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,105 1,040 Total..................... 18,221 9,877 i IDSS BEFORE AIIDWANCE FOR FUES USED DURING CONSTRUCTION............................... (17,116) (9,461)

AIIDWANCE FOR FUNDS USED DURING CONSTRUCTION:

Other funds........................................ 24,459 13,239 Borrowed funds.................................... 17,116 9_,461 Total..................... 41,575 22,700 NET INC0ME.......................................... 824,459 $13,239 j See Notes to Financial Statements.

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MIDDLE SOUTH ENERGY. INC_,

STATE N T OF STOCKE0LDERS6 EQUITY FOR THE YEARS ENDED DECEMBER 31, 1977 AND 1976 1977 1976 (In Thousands)

COMMON STOCK: $149,500 $ 75,500 Balance - begimiing of year . . . . . . . . . . . . . . . . . . . . .

Sale of 69,500 shares in 1977 and 74,000 shares 69,500 74,000 in 1976 of common stock at $1,000 a share.....

219,000 149,500 Balance - end of year...........................

s.

RETAINED EARNINGS: 21,662 8,423 Balance - beginning of year..................... 24,459 13,239 Add - net income................................ 46,121 21,662 Balance - end of year...........................

$265,121 $171,162 TOTAL STOCKEOLDER'S EQUITY.............

i See Notes to Financial Statements.

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MIDDLE S0tRH ENERGY, INC.

STATFJENT OF SOURCE OF FUNIS FOR UTTT. TTY PIANT ADDITIONS FOR THE YEARS ENmn DECEMBER.31, 1977 AND 1976 1977 1976 (In Thousands) l SOURCE OF FIRE;S:

From operations: $ 13,239 Net income...................................

$ 24,459 Investment tax credit adjustments . . . . . . . . . . . . 19,647 10,998 4,105 1,040 Deferred income taxes........................ (41,575) (22,700)

Allowance for funds used during construction. 2,577 6,636 Funds retained in business........

From financing transactions: 74,000 Common stock.................................

69,500 First mort gage bonds . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 r j

Long-ters notes payable - banks: 164,000 Issues.....................................

147,000 f (393,500) ;

Retirements................................ 238,000 223,000 l Total.............................

Less increase in working capital (a)........... 4,283 24,581 l

8225,353 $215,996 ,

T0TAL...................

? UTIII.TY PIANT ADDITIONS (excludes allowance for funds used during construction):

Construction expenditures . . . . . . . . . . . . . . . . . . . . . . $225,235 $213,020 118 2,976 i Fabrication costs of nuclear core..............

T0TAL................... 8225,353 $215,996 3

f.

(a) Increase (decrease) in Working Capital: 7,395 Cash......................................

$(13,176) $

Working funds advanced for construction... 3,922 381 Temporary cash investments................ 16,906 1,994 L

taxes.......... 16,933 15,412 i Recoverable Federal income ' 359 Accounts payable.......................... (369)

Taxes accrued............................. (1,307) (960)

Interest accrued..........................

(18,626) i

~

Total................... $ 4,283 $_24.581 See Notes to Financial Statements.

g DDLE SOUTH ENERGY. INC.

NOTES TO FINANCIAL STATEMENTS

1. SUIMARY OF SIGNIFICANT ACCOUNTING POLICIES

, A. Organization l The Company is authorized to conduct business as a 4

' wholly-owned subsidiary company of Middle South Utilities, Inc.

to provide financing end ownership of certain future base-load electric generating units within the Middle South Utilities System.

It is anticipated that power produced by the Ccmpany's electric generating units will be sold to the operating companies of the Middle South Utilities System at rates sufficient to cover operating and debt expenses and provide a fair rate of return on the Company's investment.

B. System of Accounts

, The accounts of the Company are maintained in accordance with the syctem of accounts prescribed by the Federal Energy Regulatory Commission, foIcerly the Federal Power Commissig (FPC) .

C. Income Taxes The Company joins its parent in the filing of a consoli-dated Federal income tax return.

The Company's interest expense and capitalized taxes

. are deducted currently; allowance for funds used during construc-S cicn is excluded. In addition, the Company utilizes Federal j

q investment tax credits applicable to qualified progress expendi-tures during the period of construction. The Company records as currently recoverable the amounts attributable to its current deductions and investment credits generated. (Investment tax i

credits generated in 1977, including approximately $13.9 million in . excess of the amount utilized, have been deferred.)

Deferred income taxes are provided for the income tax effect of taxes capitalized for book purposes, which for inccme tax purposes are deducted currently.

AmJ Investment tax creditsaare deferred and will be amortized over the average usefbl life of the related property once it has been placed in service.

i I

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(Ccr inued) - 1.

_ . - ,M.,,g.a

D. Allowance for Funds Used During Construction In accordance with the regulatory system of accounts, the Company capitalizes, as an appropriate cost of utility plant, an allowance for funds used during construction. This allowance

'(a non-cash -item) represents the net cost of funds used to finance

, construction. -(Effective January 1,1977, the Company began i complying with reporting requirements of FPC Order No. 561 which t

I provides for separation of the common equity component and borrowed funds component of funds used during construction.) The Company determines its accrual rate for allowance for funds used during construction based on actual interest cost, net of related income taxes, plus an 11.6% return on average common equity.

The Company has reclassified the allowance for funds

into its debt and equity components for the calendar year 1976 y for purposes of comparison.

2. COtGIITMENTS AND FINANCING i The Company's construction program contemplates construc-( tion expenditures of approximately $360,500,000 in 1978.

At December 31, 1977, the Company had issued $63,000,000 l of promissory notes under an agreement with a number of banks to j borrow up to $565,000,000 through December 31, 1982. Such notes W will mature on December 31, 1982 and bear interest at varying f rates based on the prime rate of a specified New York bank.

[ During 1977, the average interest rate, excluding compensating y balances, was 7.79%. In addition, the Company pays a fee on il the unused portion of the commitment and maintains a 5% compen-

[ sating balance ($3,150,000 at December 31, 1977) on the amount

[ outstanding, which is not restricted as to withdrawal.

I The Company placed $400,000,000 of First Mortgage Bonds

! with a limited number of institutional investors in 1977. The J .[ bonds mature July 1, 1989 and are redeemable through mandatory j j sinking fund payments, te';aling $328,000,000, beginning in 1982 d

d of from $32 million to $t6 million annually, from 1982 through

! 1988.

1 :, k u:.%

1 0 Principally all of the Company's utility plant is subject

[ to the lien of its first mortgage bond indenture.

3. RETAINED EARNING 6 The provisions of the Company's bank loan agreement and

g first mortgage bond indenture restrict the amount of retained l~

l earnings available for cash dividends on common stock. As of I

l D.ecember 31, 1977, none of the retained earnings were available j j for cash dividends.

i (Concluded) - 2.

.. .- Deloitte Haskins+ Sells MIEDLE SOUTH ENEP.3Y, INC.

Financial Statements for the Years Ended Decenber 31, 1978 and 1977 and Accountants' Opinion l

Deloitte Haskins+ Sells 39th Floor One Shell Square New Orleans, Louisiana 70139 (504)581-2727 Cable DEHANDS ACCCUUTAUTS' OPIHICH February 16, 1979 Middle South Energy, Inc.:

We have exemined the balance sheets of Middle South Energy, Inc. as of recember 31,1978 and 1977 and the related statements of incore, stockholder's equity, and source of funds for utility plsnt additions for the years then ended.

Cur examinations were cade 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 circunstances.

In our opinion, such financial statements present fairly the financial position of Middle South Energy, .Inc. at Eecember 31, 1978 and 1977, and the results . of its operations and source of funds for utility plant additicas for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

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MIDDLE SOUTH EIE?GY, INC.

STATEIENT OF INCCIE FOR THE YEARS ENDED EECEL3ER 31,1978 AND 1977 1978 1977 (In Thousands)

INCOIE:

Operating revenues............................... None None Interest 1ncoce.................................. 8 612 8 1,105 Total..................... 612 1.105 EXPEESES:

In t e re s t ex pe ns e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,264 34,020 Taxes:

Federal income taxes........................... (30,371) (22,913)

Investment tax credit adjustments.............. 5,080 Deferred income taxes.......................... 2.698 2_.034 Tota 1..................... 30.591 18.221 LCSS BEFORE ALLOWANCE FOR FUNES USED DURING C 0IG TRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29.979) (17,116)

ALLOWANCE FOR FUITIS USED DURIIG CONSTRUCTION:

Equity funds..................................... 35,611 24,459 Bo rro' sed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.979 17.116 Tota 1..................... 65.590 41.575 IET I NC 0IE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 835,611 $24.459 See Notes to Financial Statements.

n . .

MIDDIE SOUTH ENERGY. IUC.

STATEIENT OF STOCKHOIDER'S EQUI'IY FOR THE YEAPS ENDED DECE?GER 31. 1978 AND 1977 1978 1977 (In Thousends}

COD 10N STOCK:

Balance - beginning of year.................... $219,000 $149,100 Sale of 53,000 shares in 1978 and 69,500 shares in 1977 of co==on stock at $1,000 a share. . . . 53.000 __

_ 69.500 Balance - end of year.......................... 272.000 219.000 RETAIIED EARNINGS (Note 3):

Balance - beginning of year.................... 46,121 21,662 Add - net 1ncome............................... 35.G11 24.459 Balance - end of year.......................... 81.732 46.121 TOTAL STOCKHOLDER'S EQUI'iY. . . $353,732

$265.12J See Notes to Financial Statements.

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MIDDLE SOUTH EIERGY, IUC.

STATDIENT OF SOURCE OF FUICS FOR UTILITI PLANT ADDITIOIS FOR THE YEARS ENDED DECE EER 31. 1978 AND 1977 1978 1977 (In Thousands)

SOURCE OF FUIES:

From operations:

Ne t i nc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,611 $ 24,459 Investment tax credit adjustments............ 5,080 Eefe rred inc ome taxe s . . . . . . . . . . . . . . . . . . . . . . . . 2,698 2,034 Allowance for funds used during construction. (65,590) (41,575) 0ther........................................ 807 Funds used in business............ (26.474) (10.002)

From decrease in working capital (excluding s hort- te rm s ecuritie s ) ( a) . . . . . . . . . . . . . . . . . . . 7.504 29.261 From financing transactions:

C o::r.on s t o ck . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,000 69,500 First mortgage bonds......................... 400,000 Long-term notes payable - banks:

Issues..................................... 174,000 147,000 Retirements................................ (393,500)

St.le of nuclear fuel......................... 16,309 Short-term securities - net.................. 31.000 (16.906)

Total............................. 274.309 206.094 T 0TAL . . . . . . . . . . . . . . . . . . . $255,339 8225,353 UTILITY PIANT ADDITIONS (excludes allowance for funds used during construction):

Cons truc tion expenditures . . . . . . . . . . . . . . . . . . . . . . $250,269 $225,235 Fabrication cos ts of nuclear core . . . . . . . . . . . . . . 5.070 118 i

T 0TAL . . . . . . . . . . . . . . . . . . . 8255,339 $225,353 i

i t

i (a) Eecrease- (increase) in working capital

(excluding short-term securities):

Cash...................................... $( 10,697) $ 13,176 l Working funds advanced for construction... ( 1, 714) (3,922)

Recove rable Federal income taxes . . . . . . . . . . 16,900 (295)

Accounts payable.......................... 1,851 369 Taxes accrued............................. 1,189 1,307

. Interest accrued.......................... (25) 18.626-T0TAL................... 3 7.504 3 29.261 S?? 'b t a .1 tc Finr.0121 S tat? ment: .

E -. - _

MIDDLE SOUTM ENERGY. INC.

NOTES TO FINANCIAL STATEMENTS

1. SUD%EI CF SIGNIFICANT ACCCUNTIIU POLICIES A. Organization The Company is authorized to conduct business as a wholly-owned subsidiary company of Middle South Utilities, Inc.

to provide financing and ownership of certain future base-load electric generating units within the Middle South Utilities System.

It is anticipated that powcr produced by the Company's ,

electric generating units will be sold to the operating companies of the Middle South Utilities System at rates sufficient to cover operating and debt expenses and provide a fair rate of return on the Company's investment.

B. System of Accounts '

The accounts of the Company are maintained in accordance with the system of accounts prescribed by ,the Federal Energy Regulatory Ccemission.

C. Income Taxes The Ccmpany joins its parent in the filing of a consoli-dated Federal income tax return.

The Company's interest expense and capitalized taxes are deducted currently for tax return purposes. Allowance for funds used during construction is excluded for purposes of In addition, the determining consolidated taxable income.

Ccmpany utilizes Federal investment tax credits applicable to qualified progress expenditures during the period of construction.

The Company records as c.urrently recoverable the amounts attrib-utable to its current deluctions and investment credits utilized.

Eeferred income taxes are provided for the income tax

effect of taxes capitalized for book purposes, which for income tax purposes are deducted currently.

Investment tax credits utilized are deferred and will be amortized over the average useful life of the related property once it has been placed in service. Unused investment tax credits at recember 31, 1978 amounted to S48.001,804 of which

$17,455,027 may be carried forward through 1984 and $30,546,777 through 1985. Certain reclasaifications of previously reported emeunts have been made to conform with current classifications.

(Continued) - 1.

L

D. A11ovence for Funds Used During Construction In accordance with the regulatory system of accounts.,

the Company capitalizes, as an appropriate cost of utility plant, an allowance for funds used during construction. This allowance (a non-cash item) represents the net cost of funds used to finance construction. The Company determines its accrual rate for allowance for funds used during construction based on actual interest cost, net of related income taxes, plus an 11.6% return on average common equity.

2. CCMMITEFiS AND FINANCING The Company's construction program contemplates construction expenditures of approximately $354,600,000 in 1979.

At December 31, 1978, the Company had issued $237,000,000 of promissory notes under en agreement with a number of banks to borrow up to $565,000,000 through recember 31, 1982. Such notes will mature on December 31, 1982 and bear interest at varying rates based on the prime rate of a specified New York bank.

During 1978, the average interest rate, excluding ccmpensating _

balances, was 11.10%. In addition, the Company pays a fee on the unused portion of the commitment and maintains a 5% compen-sating-balance ($11,850,CC: c.t Eecember 31, 1978) on the amount outstanding, which is not restricted as to withdrawal.

In 1978 the Company established a line of credit for short-term borrowings with a bank whereby the Company may borrow up to $45,000,000. A 3% compensating balance ($1,350,000 at recember 31, 1978), which is not restricted as to withdrawal, is maintained on the amount of the loan commitment. The amount of unused short-term borrowings as of December 31, 1978 was

$37,900,000. The promissory notes have 90-day maturity dates and bear interest based on the prime rate of the lending bank.

The interest rate, excluding the compensating balance, on the borrowing in 1978 was 12.57%.

The Company placed $400,000,000 of 9.25% First Mortgage Bonds with a limited number of institutional investors in 1977.

The~ bcnds mature July 1,1989 and are redeemable through mandator /'

sinking fund payments totaling $328,000,000. Annual sinking fund requirements range from $32 million to $56 million beginning in 1982 through 1988.

Substantially all of the Ccmpany's utility plant is subject to the lien of its first "m3 age bond indenture.

Wontinueaj - 2.

3. RETAEED EARNEOS The provisions of the Company's bank loan agreement ord edrst mortgage bond indenture restrict the ancunt of retained earnings available for cash dividends on common stock. As of December 31, 1978, none of the retained earnings were available for cast dividends.

}

4 i

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(Ccncluded) 3.

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=w---.-_--___z___:_______r_1________ _ _ _ _ _ _ ,

Deloitte Haskins= Sells 39th Floor one Shell Square New Orleans, Louisiana 70139 (504) 581-2727 Cable DEHANDS ACCOE RAFfS' OPINION February 15, 1930 Middle South Energy, Inc.:

'de have examined the balance sheets of Middle South Energ/,

Inc. as of December 31, 1979 and 1973 and the related statements of incote, stockholder's equity, and source of funds for utility plant additions for the years then ended. Our exacinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the acccunt-ing records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, such financial statements present fairly the financial position of Middle South Energy, Inc. at December 31, 1979 and 1973, and the results of its operations and source of funds for utility plant additions for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.

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1 MIDDLE SOUTH ENERGY, INC.

STATEMENTS OF INCOME FOR TEE YEARS ENEED DECEGER 31, 1979 AND 1978 1979 1978 (In Thousands)

INCCME:

Operating revenues............................. None None Interest income................................ _8 242 $ 612 Tota 1................... 242 612 F_'LDENSES:

Interest expense............................... 97,879 58,264 Taxes:

Federal income taxes......................... (48,753) (30,371)

Deferred income taxes and investment tax

, credit adjustments - net................... 3,840 2,698 Total................... 52,966 30,591 LOSS EEFORE ALLOWANCE FOR FUNES USED DURING CONSTRUCTION............................ (52,724) (29,979)

ALLOWANCE FOR FUNES USED DURING C0hSTRUCTION:

Equity funds................................... 47,517 35,611 Borrowed funds................................. 52,724 29,979 Total................... 100,241 65,590 NET INCCbE....................................... 8 47,517 $35,611 l See Notes to Financial Statements.

I e

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1 t

MIDDLE SOTJE4 ENERGY, INC.

STATEMENTS OF STOCKEOIIER'S EQUITY FOR THE YEARS ENDED DECE M 31, 1979 AND 1973 1979 1978 (In Thousands)

COIGION STOCK:

Balance . be ginning of ye ar . . . . . . . . . . . . . . . . . . $272,000 $219,000 Sale of 113,700 shares in 1979 and 53,000 shares in 1978 of common stock at

$1, 0 0 0 a s hare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113,700 53,000 Balance - end of year........................ 385,700 272,000 RETAINED EARNINGS (Note 3):

Balance - beginning of yesr.................. 81,732 46,121 Add - net income............................. 47,517 35,611 Balance - end of year........................ 129,249 81,732 TOTAL STOCKHOLDER'S EQUITY...... $51' , ,9ti9 8353,732 See Notes to Financial Statements.

t i

MIDDLE SOUTH ENERGY, INC.

STATEMENTS OF SOURCE OF FUtIES FOR UTILITY FIANT ADDITIONS FOR THE YEARS ENEED DECDEER 31, 1979 AND 1978 1979 1978 (In Thousands)

SOURCE OF RThiES:

From operations:

Net income................................... $ 47,517. $ 35,611 Deferred income taxes and investment tax credit adjustments - net................... 3,840 2,698 Allowance for funds used during construction. (100,241) (65.590)

Funds used in business............ (48,884) (27,281)

From decrease (increase) in working capital (excludi.hg short-term securities) (a)........ (3,949) 7,504 Eeferral of recoverable Federal income taxes................................. (69,414) 0ther.......................................... (714) 807 Total............................. (122,961) (18,970)

From financing transactions:

Common stock................................. 113,700 53,000 Long-term notes payable - banks.............. 310,000 174,000 Sale and leaseback of nuclear fuel............. 44,943 16,309 Short-term securities - net.................... (11,200) 31,000 Total............................. 457,443 274,309 TOTAL................... 8334,482 $255,339 UTILITY PLANT ADDITIONS (excludes allowance for funds used during construction):

Construction expenditures...................... $291,041 $250,269 Fabrication and acquisition costs of nuclear core......................................... 43.441 5.070 TOTAL................... 8334,482 8255,339 (a) Decrease (increase) in working capital (excluding short-term securities):

Cash and special deposits . . . . . . . . . . . . . . . . . $(17,458) $(10,697)

Working funds advanced for construction... 245 (1,714)

Recoverable Federal income taxes.......... 16,900 Accounts payable.......................... 2,442 1,851 Taxes accrued............................. 10,165 1,189 Other - net............................... 657 (25)

T0TAL................... 3 (3,949) 3 7,504 See Notes to Financial Statements.

?

MIDDLE SOUTH ENERC-Y, INC.

NOTES TO FINANCIAL STATEIENTS

1. SUIGIARY OF SIGNIFICANT ACCOUNTING FOLICIES A. Organization The Company is au:horized to conduct business as a wholly-owned subsidiary company of Middle South Utilita.es, Inc.

to provide financing and ownership of certain future base-load electric generating units within the Middle South Utilities System.

It is anticipated that power produced by the Company's electric generating units will be sold to the operating ccmpanies of the Middle South Utilities System at rates sufficient to cover operating and debt exp'enses and provide a fair rate of

. return on the Company's investment.

3. System of Accounts The accounts of the Company are maintained in accordance with the system of accounts prescribed by the Federal Energy

~

Regulatory Conmission.

C. Income Taxes The Company joins its parent in the filing of a consoli-dated Federal income tax return.

The Company's interest expense and capitalized taxes are deducted currently for tax return purposes. Allowance for funds used during construction is excluded for purposes of determining taxable income.

Deferred income taxes are provided for the income tax effect of taxes capitalized for book purposes, which for income tax purposes are deducted currently.

Recoverable Federal income taxes of $69,414,000 represents the tax benefit of the Company's portion of the consolidated tax losses.

Investment tax credits utilized are deferred and will be amortized over the average useful life of the related property once it has been placed in service. Unused investment tax credits at December 31, 1979 amounted to $89,303,000, of which

$14,533,000 may be carried forward through 1934, $30,556,000 through 1985 and $44,214,000 through 1986.

(Ocntinued) - 1.

Prior to 1979 the investment tax credit utilized in the consolidated tax return was allocated to each System ccmpany on the basis of such credit contributed. Effective in 1979 the method of allocating investment tax credit was changed so that it is allocated on tha basis of each company's portion of the consolidated tax liability; any additional credit utilized is allocated on the basis of tha "a""=ining tax credits.

D. Allowance for Funds Used During Construction In accordance with the regulatory system of accounts, the Company capitalizes, as an appropriate cost of utility plant, an allowance for funds used during construction. This allowance (a non-cash item) represents the net cost of funds used to finance construction. The Company determines its . accrual rate for. allowance for funds used during construction based on actual interest cost, net of related income taxes, plus an 11.6% return on average common equity.

2. CCIGITETS AND FIRANCING The Company's construction program contemplates construction expenditures of approximately $273,000,000 in 1980.

Negotiations are currently being conducted for the acquisition, by a third party, of a 10% undivided interest in the generating units being constructed. The effect of this trancaccion has been reflected in the Company's construction estimates.

At December 31, 1979, the Company had issued $547,000,000

. of promissory notes under a revolving credit agreement of

$565,000,000 with a number of banks expiring December 31, 1982, at which time all notes issued thereunder were to be due and payable. Subsequent to year-end, this agreement was increased to $308,000,000 and the term of borrowings thereunder were extended to December 31, 1985. During 1979 the average interest rate, based on the prime rate of a specified New York bank, was 15.3;T. In addition, the Company pays a fee on the unused portion of the cc==itment and maintains a 5% compensating balance on the amount outstanding, which is not restricted as to withdrawal.

The Company placed $400,000,000 of 9.25% First Mortgage Bonds with a limited number of institutionul investors in 1977.

The bonds matu"e July 1, 1989 and are redeemable through

> mandatory sinking fund payments totaling $328,000,000. Annual sinking fund requirements range from $32 million to $56 million beginning in 1932 through 1988. Subsequent to year-end, the Company entered into an agreement under which it has issued and sold $15,000,000 and will issue and sell on or prior to July 1, 1980, an additional $33,500,000 of its First Mortgage Bonds ,

12.55 Series due 2000. Substantially all of the Company's utility plant is subject to the lien of its first mortgage bcnd indenture.

(Continued) - 2.

w y-g w m

e. - p -

p- , - e , , *%

.t,','

The Company has covenanted with the bondholders and the banks that it will . complete the first unit of the generating plant no later than December 31, 1982. The Company has also

covenanted with the bondholders that the second unit will be completed no later than December 31, 1936. In the event either of these covenants is not fulfilled in respect of either the bonds or the bank borrowings, the bonds and bank borrowings will become due and payable unless extensions of time can be arranged.

In these cases, Middle South Utilities, Inc. would be required-to provide the Company with sufficient funds, to the extent not obtained fbom other sources, to meet these obligations. As a

. result of anticipated delays in licensing and other factors, in December 1979, the scheduled commercial operation dates for the two units were changed from 1981 and 1984 to 1982 and 1985,

? respectively. Middle South System Operating Companies are obligated under agreements with the Company to make payments adequate to cover all the operating expenses and capital costs of the Company in return for receiving the power available from the plant. Under certain circumstances, payments may be

required to be made commencing December 31, 1982, if the first unit of the plant has not been completed by that date.

In 1979, the Company established a line of credit for short-term borrowings with a bank whereby the Company may borrow up to $60,000,000. A 3% compensating balance, which J is not restricted as to withdrawal, is maintained on the amount of the loan commitment. The promissory notes issued under this credit line have 90-day maturity dates and bear interest based upon the prime rate of the lending bank. During 1979, the average interest rate was 13.9%.

C In October 1979, the Company sold and leased back

$44,943,000 of' nuclear fuel under an $80,000,000 nuclear fuel lease. Lease payments, based upon nuclear fuel use, will be treated as cost of fuel. The lease, unless sooner terminated

! by one of the parties,- will continue through October 15, 2029.

- The unrecovered cost base of the lease at December 31, 1979 was $46,524,000.

I

3. RETAINED EARNINGS The provisions of the Company's bank loan agreement

and first mortgage bond indenture restrict.the amount of retained earnings available for cash dividends on common stock.

As of December 31, 1979, none of the retained earnings were l available for cash dividends.

I k.,

. (Concluded) - 3.

.- ., Deloitte Haskins+ Sells MIDDLE SOUTH ENERGY, INC.

Financial Statements for the Years Ended December 31, 1980 and 1979 and Auditors' Opinion a

1

Haskins+ Sells 4

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, 1980 and 1979 and the related state-ments of income, stockholder's equity, and changes in financial ~

position 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 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, 1980 and 1979 and the results of its operations and changes in its financial position for the years then ended, ir. conformity with generally accepted accounting principles applied on a con- I sistent basis.

Da bL~ + SA February 13, 1981

MIDDLE SOUTH ENERGY. INC.

BALANCE SHEETS. DECEMBER 31 1980 AND 1"'*

1980 1979 1980 1979

.- A S S E T S -- (in thousands) -- L I A L I T I E S -- (in thousands)

UTILITY PLANT - Construction vork CAPITALIZATION:

in progress. at cost (Notes 1-D and 4)....... $1.784.351 $1.419.429 Commor stock - no par value; authortred 1,000.000 shares; issued and outstanding CCIKENT ASSETS: 443.600 shares in 1980 and 385.700 Cash and special deposits (Note 2)....... ... 35.400 31.820 shares in 1979............................. $ 443.600 $ 385.700 Work ing f unds advanced f or const r uc t ion. . . . . . 6.007 Retained earnings (Note 3)................... 196.240 129.249 Temporary cash investments - at cost. Total stockholder's equity........... 619.5CD 514.9El uh ic h approx i ma t e s ma r k e t . . . . . . . . . . . . . . . . . . 4.100 Long-term debt (Note 2):

Recoverable income taxes......... ........... S.437 Promissory notes - banks............. ..... 671.000 547.000 Othar....... ................................ 8 178 First mortgage bonds....................... 498 400.000 Total long-term debt................. TTTE D500 O 947.000 Tota 1...................... .... 43.845 42.105 Total........................... 1.809.340 1.461.949 DEFERRED DEBITS:

Recoverable Federal income taxes (Note 1-C).. 125.220 69.414 CURRENT LIABILITIES:

0<har........................... ............ 3.666 Notes payable (Note 2)....................... 78.151 Accounts payable:

Total........................... 128,886 69.414 contractors' retentions.................,.. 2,877 5.236 As soc ia t ed companie s. . . . . . . . . ............. 147 1.290 0ther................................... .. 441 1.639 Taxes accrued........ ....................... 7.021 13.767 Interest accrued............................. 26.424 18.764 Total... ....................... 115.061 40.696 DEFERRED CREDITS:

Accumulated deferred investment tax credits (Note 1-C)......................... 18.797 18.797 Accumulated deferred income taxes (Note 1-C). 13,884 9.413 other.... ................................... 93 Total........................... 32.681 28.303 COMMITMENTS AND CONTINCENCIES (Note 2)

TOTAL., .. ....... ........ $1.957.082 $1.530.94R TOTAL.. ............. . ... $1.957.082 $1.530.948 See Notes to Financial Statements.

1 I

i MIDDLE SOUTH ENERGY. INC.

STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979 1980 1979 (in thousands)

INCOME:

Operating revenues............................. None None Interest income................................ $ 17 $ 242 Total......................... 17 242 l EXPENSES:

l Int. rest expense............................... 161,928 97,879 T.xes (Note 1-C):

, Federal income taxes......................... (79,138) (48,753) i State income taxes........................... (2,993)

Deferred income taxes and investment l tax cred it adj us tments . 9 t. . . . . . . . . . . . . . . 4,471 3,840

! Total......................... 84,268 52,966

{'

LOSS BEFORE ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION............................ (84,251) (52,724) l

' ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (Note 1-D):

l Equity funds................................... 66,991 47,517 i

Borrowed funds................................. .

84,251 52,724 Total......................... 151,242 100,241

. NET INC0ME....................................... S 66.991 $ 47.517 See Notes to Financial Statements.

t w ~n , - _ - . . . _ _ _ _ _ _ _ . _ . - _ _

n MIDDLE SOUTH ENERGY. INC.

STATZMENTS OF STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979 1980 1979 (in thousands)

COMMON STOCK:

Balance - beginning of year.................... $385,700 $272,000 S a i .e of 57,900 shares in 1980 and

, if3,700 shares in 1979 of common sr.ock at $1,000 a share...................... 57,900 113,700 Balance - end of year.......................... 443,600 385,700

! RETAINED EARNINGS (Note 3):

j Balance - beginning of year.................... 129,249 81,732 Add - net income............................... 66,991 47,517 Salance - end of year.......................... 196,240 129,249

TOTAL STOCKHOLDER'S EQUITY....................... S639.840 SS14.949 See Notes to Financial Statements.

w' -

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j 1 MIDDt J SOUTH ENFRGY. INC.

STATEMENTS OF CHANGES IN FINANCIAL POSITION FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979 l 1980 1979 !

(in thousands)

FUNDS PROVIDED BY:

Operations:

Net income................................... S 66,991 $ 47,517 Deferred income taxes and investment tax credit adjustments - net............... 4,471 3,840 Allowance for funds used during construction. (151,242) (100,241)

Total funds provided from operations... (79,780) (48,884)

Other:

Allowance fc: funds used during construc. tion. 151,242 100,241 Miscellaneous - net.......................... 788 l Total funds provided from operations and other............................ 71,462 52,145 Financing transactions:

Common stock................................. 57,900 113,700 i Mortgage bonds............................... 98,500 Long-term notes payable - banks.............. 124,000 310,000 Short-term securities - net.................. 82,251 4 Total funds provided from financing.... 362,651 423,700 TOTAL FUNDS PR0VIDED............................. $434.113 $475.845 FUNDS APPLIED TO:

[ Utility plant additions:

Construction expenditures (includes allowance for funds used during j ,

construction of $151,242 in 1980 a nd $ 10 0 , 2 41 in 19 7 9) . . . . . . . . . . . . . . . . . . . . . . $364,922 $391,282

- . Deferral of recoverable Federal income taxes... 55,806 69,414 Increase in working capital (excluding s ho r t- t e rm s ecu r i t ie s) * . . . . . . . . . . . . . . . . . . . . . . 9,626 3,949 Short-term securities - net.................... 11,200 Miscellaneous - net............................ 3,759 TOTAL FUNDS APPLIED.............................. S434.113 $475.845 f

Decrease (increase) in working capital (excluding short-term securities):

Cash and special deposits...................... $ (3,580) $(17,458) l Working funds advanced for construction........ 6,007 -

245 Recoverable income taxes...................... (8,437)

Accounts payable............................... (4,700) 2,442 Taxes accrued.................................. (6,746) 10,165 Other - net.................................... 7,830 657 T0TAL............................................ S (9.626) $ (3.949)

See Nores to Financial Statements.

MIDDLE SOUTH ENERGY. INC.

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1980 AND 1979

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING POLICIES A. Organization The Company is authorized to conduct business as a wholly-owned subsidiary of Middle South Utilities, Inc. to provide financing and ownership of certain future base-load electric generating units within the Middle South Utilities System.

It is anticipated that power produced by the Company's electric generating units will be sold to certain of the operating companies of the Middle South Utilities System at rates sufficient to cover operating and debt expenses and provide a fair rate of return on the Company's investment.

B. System of Accounts The accounts of the Company are maintained in accordance j with the system of accounts prescribed by the Federal Energy Regulatory Commission.

C. Income Taxes The Company joins its parent in the filing of a consoli-

!' dated Federal income tax return. In addition, the Company files a consolidated Mississippi scate income tax return with certain cther Middle South Utilities System companies.

The Company's interest expense and capitalized taxes are deducted curre.ntly for tax return purposes. Deferred Federal income taxes are provided for the income tax effect of such taxes capitalized for book purposes. Allowance for funds used during construction is excluded for purposes of determining taxable income.

Non-cucrent recoverable Federal income taxes represent the tax benefit of the Company's portion of the consolidated Federal tax losses which is expected to be realized during the loss carryforward period.

Investment tax credits allocated to the Company are deferred and will be amortized, based upon the average useful life of the related property, beginning with the year allowed in the consolidated tax return. Unused investment tax credits at December 31, 1980 amour.ced to $110,663,000 of which

$14,530,000 may be carried forward through 1984, $30,555,000 through 1985, S44,210,000 through 1986, and 521,368,000 through 1987.

(Continued) -

1.

-, 4

Prior to 1979 the investment tax credit utilized in the consolidated tax return was allocated to each Middle South System company on the basis of such credit contributed by each company. Effective with 1979 the method of allocating invest-ment tax credit was changed whereby each company is allocated the credit allowable based on its portion of the consolidated tax liability. Any additional consolidated credit utilized is allocated on the basis of the remaining tax credits.

D. Allowance for Funds Used During Construction In accordance with the regulatory system of accounts, the Company capitalizes, 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 state-ment is credited for the approximate net composite interest cost of borrowed funds and for a reasonable return on the equity funds used foe 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 determines its accrual rate for AFDC based on actual interest cost, net of related income taxes, plus a stated rate of return on average common equity as allowed by regulatory authorities. The Company accrued the equity component of AFDC at a 11.6% rate through October 31, 1980. Beginning November 1, 1980, the rate of return used was ~

increased to 13.75%, subject to final regulatory approval.

The resultant increase in the AFDC accrued in 1980 was approximately $2,200,000. The Company will continue to use an 11.6% rate of return in calculating the required equity ratio in issuing long-term debt until final regulatory approval is granted.

2. COMMITMENTS AND FINANCING The Company's construction program contemplates construction expenditures (including AFDC) for the Grand Gulf Generating Station (nuclear) of approximately $207,000,000,

$234,000,000, and $228,000,000 in 1981, 1982, and 1983, respectively. The Company's current estimate of its portion of the total cost of the Grand Gulf Plant, excluding nuclear fuel, is approximately $2,846,000,000. The effect of the transactions discussed in Note 4 have been reflected in the Company's construction estimates. In order for the Company to satisfy the financing requirements of its construction program through 1983, it will be necessary to negotiate additional borrowing arrangements.

(Continued) - 2.

m

', .. _ . _ . ~ _ _' _

,~ . . . . . . . _ - - . . - ! _-_J-_._._._

At December 31, 1980, the Company had issued )

$671,000,000 of promissory notes under a revolving credit ,

agreement of $808,000,000 with a number of banks. The l maximum commitment under this agreement will be reduced to

$658,000,000 as of December 31, 1983 and to $508,000,000 as of December 31, 1984. At each reduction date, notes issued in excess of the maximum commitment will be due and payable.

This agreement expires December 31, 1985, at which time all notes then issued are to be due and payable. During 1980 the average interest rate, based on the prime rate of a specified New York bank, was 17.8%. The Company pays a fee on the unused portion of the commitment and maintains a 5% compensating balance on the amount outstanding, which is not restricted as to with-

drawal.

The Company placed $400,000,000 of 9.25% First Mortgage Bonds due July 1, 1989 and $98,500,000 of 12.50% First Mortgage Bonds due January 1, 2000 with a limited number of institutional investors in 1977 and 1980, respectively. Bonds of the 9.25%

Series are redeemable through mandatory sinking fund payments totaling $328,000,000, with annual requirements ranging from .

$32 million to $56 million beginning in 1982 through 1988.

Bonds of the 12.50% Series are redeemable through mandatory sinking fund payments totaling $93,525,750, with an annual ~

requirement of $6,235,050 beginning in 1985 through 1999.

Substantially all of the Company's utility plant is subject to the lien of its first mortgage bond indentures.

The Company has covenanted with the bondholders and the banks that it will complete the first unit of the generating plant no later than December 31, 1982. The Company has also covenanted with the bondholders that the second unit will be completed no later than December 31, 1986. In the event either of these i covenants is not fulfilled or the Company defaults with respect 3

to either the bonds or the bank borrowings, the bonds and bank borrowings will become due and payable unless extentions of time can be arranged. In these cases, Middle South Utilities, Inc.

would be required to provide the Company with sufficient funds, to the extent not obtained from other sources, to meet these obligations.

In order to obtain additional funds required by the Company to complete Unit No. 1 of the Grand Gulf Plant, the l

Company is negotiating for an increase in the amount of borrowings

! available under the revolving loan agreement to $1.3 billion. In addition, the Company is negotiating for changes in the covenants to extend the dates by which Unit Nos. 1 and 2 of the Grand Gulf Plant must be completed by not later than December 31, 1984 and not later than December 31, 1988, respectively. Necessary regulatory approvals will need to be obtained prior to effecting any changes.

I (Continued) - 3.

^

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" '"~:T_- . _ . - _ _ _ .

~

-- O - - _ .. -._ _ -.- _ - . - - . . _ ..

The Company and the Middle South System operating companies have entered into a series of agreements whereby the operating companies are obligated to make payments or subordi-nated advances adequate to cover all of the operating expenses and capital costs of the Company'and, in return, are entitled to receive the power available to the Company from the plant.

Under certain circumstances, payments may be required to be made commencing December 31, 1982 if the first unit of the plant has not been completed by the date.

During 1980 the operating comoanies agreed in principal to a permanent allocation of the capability of the portion of Grand Gulf Plant owned by the Company. Under this arrangement Louisiana Power & Light Company, New Orleans Public Service Inc., and Mississippi Power & Light Company will be allocated a fixed percentage of the capability, subject to change by mutual agreement of such companies, and have agreed to assume, in proportion to such allocations, all responsibilities and obliga-Arkansas Power & Light Company tions related to the plant.

and Arkansas-Missouri Power Company, the remaining operating companies of the Middle South System, will relinquish their -

rights in the plant. This proposed agreement is subject to ,

the receipt of the approval of regulatory agencies having jurisdiction over the matter and of all other necessary _

approvals.

~

In 1979, the Company established a line of credit for short-term borrowings with a bank whereby the Company may borrow up to $60,000,000. A 3% compensating balance, which is not restricted as to withdrawal, is maintained on the amount of the loan commitment. The promissory notes issued under this credit line have 90-day maturity dates and bear interest based upon the prime rate of the lending bank. During 1980, the average interest rate was 16.075%. Outstanding borrowings under the line of credit totaled $38,151,000 at December 31, 1980. At December 31, 1980 the Company also had outstanding unsecured short-term borrowings totaling $40,000,000 with several additional banks ,

bearing in:erest based on the Federal funds rate with a New York bank prime rate as a ceiling.

In October 1979, the Company sold and leased back

$44,943,000 of nuclear fuel under an $80,000,000 nuclear fuel lease. Lease payments, based upon nuclear fuel use, will be treated as cost of fuel. The lease, unless sooner terminated by one of the parties, will continse through October 15, 2029.

The unrecovered cost base of the lease at December 31, 1980 was

$55,211,000.

3. RETAINED EARNINGS The provisions of the Company's bank loan agreement and first mortgage bond indenture restrict the amount of retained earnings available for cash dividends on common stock.

As of December 31, 1980, none of the retained earnings were available for cash dividends.

(Continued) _

,_-.DP,'

.-=# - * * -

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v. .;

4. ACQUISITION OF UNDIVIDED INTEREST During 1980, the Company entered into a " Joint Construction, Acquisition and Ownership Agreement" with South Mississippi Electric Power Association (SMEPA'/ which provides for the acquisition by SMEPA of a 10% undivided interest in the generating units being constructed.

Under this Agreement, SMEPA is to advance 100% of the cost of construction until such time as their advances aggregate 10% of the total cost of construction after giving consideration to the allowances for funds used during construction accrued by SMEPA ant' by the Company. Thereafter, the Company and SMEPA will fund the cost of construction in their respective ownership percentages.

Negotiations are also currently being conducted for the

, acquisition, by a third party, of an additional 2.48% undivided I

interest in the generating units being constructed.

l

l (Concluded) - 5.

<

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