ML20045H704
| ML20045H704 | |
| Person / Time | |
|---|---|
| Site: | Grand Gulf  |
| Issue date: | 07/13/1993 |
| From: | Hutchinson C ENTERGY OPERATIONS, INC. |
| To: | NRC OFFICE OF INFORMATION RESOURCES MANAGEMENT (IRM) |
| Shared Package | |
| ML20045H705 | List: |
| References | |
| GNRO-93-00085, GNRO-93-85, NUDOCS 9307210152 | |
| Download: ML20045H704 (35) | |
Text
,
- g Entstgy Operations,Inc.
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_ ENTERGY.
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eo sox 756 Port GbuxL MS 39150
- Te! 601437 2600.
~I July 13, 1993.
C. R. Hutchinson
- Nvm neon Carmc Of Nx.kfar Datus.
U.S. Nuclear Regulatory Commission
-Mail Station P1-37 Washington, D.C.
20555
.j Attention:
Document Control Desk 9
Subject:
Grand Gulf Nuclear Station Docket No. 50-416 License No. NPF-29 l
1992 Financial Reports l
1 GNRO-93/00085 Gentlemen:
The 1992 annual financial reports for System Energy Resources,.
1 Inc., South Mississippi Electric Power Association, Mississippi Power-and Light Co., and Entergy Operations,.Inc.,
licensees of Grand Gulf Nuclear Station, are herein' submitted in response to the requirement of 10CFR50'.71(b).
I Yours tyly, W
r CRH/MTC/.'
attachment:
1992 Financial Report cc:
Mr. R. H. Bernhard (w/a)
Mr. H. W. Keiser (w/o) f Mr. R. B. McGehee (w/o)
Mr. N. S. Reynolds (w/o)
Mr. H. L. Thomas (w/o) 1' i
Mr. Stewart D. Ebneter (w/a)
Regional Administrator U.S. Nuclear Regulatory Commission Region II 101 Marietta St.,
N.W.,
Suite 2900 Atlanta, Georgia 30323 Mr. P. W. O'Connor, Project Manager (w/2) i Office of Nuclear Reactor Regulation r,-
U.S. Nuclear Regulatory Commission 1[(.sO Mail Stop 13H3-
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Washington, D.C.
20555 1
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p0 L-G9307021 - 1 9307210152 930713 W
PDR-ADOCK 05000416-2
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- 5 July 13,~ 1993 GNRO-93/00085 i
Page 2 of 2 bec:
Mr. R. W. Byrd (w/o)
Ms. M. T.
Crayton (w/o)
Mr. L.
F. Daughtery (w/o)
Mr. M. A. Dietrich (w/o)
Mr. J. O. Fowler (w/o)
Mr. C. C. Hayes, Jr. (w/o)
K. M ngan (w/o)
Ms.
F.
a Mr. J. R. McGaha (w/o)
Mr. M. J. Meisner (w/o) i Mr. D.
L. Pace (w/o) i Mr. G. A. Zinke (w/o)
File (LCTS) (w/o)
[
File (Hard Copy) (w/a)
File (RPTS) (w/o)
File (NS&RA) (w/o)
File (Central) (w/a) (
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G9307021 - 2 J
Mississippi Power & Light Company /1992 Financial Statements i
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i MISSISSIPPI POWEll & LIGilT COMPANY DEFINITIONS - (Concluded)
Ahlnesiation or At sony an
'l cr ni Hesised Plan.
MP&L's Grand Gi.lf I-related rate phase-in plan, originall3 approsed by the MPSC in the Final Order on Rehearing. as modified by the MPSC order issued Septernber 29.19SS. to bring such plan into compliance with the requirements of SFAS No. 92 j
SEC Securities and Exchange Commission 1
SFAS.
Statement of Financial Accounting Standards
,j 1
promulgated by the FASB System Energy Sy stem Energy Resources, Inc.
Sy stem Fuels.
System Fuels, Inc.
System or Enterey S> stem.
Entergy and its various direct and indirect subsidiaries System operating companies.
MP&L. AP&L LP&L and NOPSI, collectisely Unit Pow er Sales Agreement.
Agreement. dated as of June 10,1952, as amended, among the System operatir,g companies and
]
S stem Energy, relating to the sale of capacity and 3
energy froin Sy stern Energy's share of Grand Gulf 1 1
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l 511SSISSIPPI POWER & LICIIT COhiPANY REPORT OF hiANAGEhiENT The management of hiississippi Power oc Light Company has prepared and is responsible for the Gnancial statements and related financial informatio. included herein. The Gnancial statements are based on generally accepted accounting principles. Financial information included elsewhere in this report is consistent with the financial statements.
To meet its responsibilities with respect to Snancial information, management maintains and enforces a system ofinternal accounting controls that 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 i
protection of assets. This system includes communication through written policies and procedures, an employee Code of Conduct, and an organizational structure that provides for appropriate division of 3
responsibility and the training of personnel. This system is also tested by a comprehensive internal audit program.
The independent public accountants provide an objectise assessment of the degree to which management meets its responsibility for fairness of Snancial 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 Gnancial statements.
hinnagement believes that these policies and procedures provide reasonable assurance that its operations are carried out with a high standard of business conduct.
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JERRY L. h1AULDEN GenALn D. AlcINVALE Chairman and ChiefExecutive Officer Senior Vice President and Chief Financial Oficer k
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l AIISSISSIPPI POWER & LIGilT CON 1PANY hiississippi Pow er & Light Company (h1P&L) is a regulated public utility company engaged in the i
generation, distribution, and sale of electric energy.
r 51P&L ser es approximately 355.000 customers in 45 counties of western hiississippi with an i
estimated population of approximately 1.3 million. As of December 31,1992,51P&L provided electric service to 140 municipalities and provided transmission service to the South hiississippi Electric Power l
Association and to the 51unicipal Energy Agency of hiississippi.
SIP &L is a wholly-owned subsidiary of Entergy Corporation, a public utility holding company.
The Entergy System's vast network ofinterconnected transmission and distribution lines and diversi-fled grid of fossil fuel and nuclear generating plants prosides electricity to more than 1.7 million retail i
eustomers in Arkansas, Louisiana, and 51ississippi.
Headquartered in New Orleans, Louisiana, Entergy Corporation includes four retail operating companies: Arkansas Power & Light Company, Louisiana Power & Light Company, hiississippi Power
& Light Company, and New Orleans Public Service Inc. Entergy Corporation also owns all of the outstanding common stock of Entergy Services, Inc., Entergy Operations, Inc., Entergy Power, Inc.,
Entergy Enterpises. Inc. and System Energy Resources, Inc. Entergy Services provides various technical, administrative, and corporate services to Entergy Corporation and the System companies, i
Entergy Operations, a nuclear management service company, operates the System's nuclear generating units. Entergy Power, an independent power producer, owns and markets capacity and energy to I
wholesale markets not otherwise served presently by the Entergy System. Systei. Energy, a nuclear j
generating company. sells the capacity and energy from its 90'7c interest in Unit No. I of the Grand Gulf i
Station.
The Entergy System began a functional realignment of its activities during 1990 in order to be prepared to successfully meet challenges in the changing utility industry and to have the flexibility to compete effectively in the years ahead. The realignment has resulted in the formation of three consolidated line functions. The Energy Supply organization is responsible for flie management and operation of the Entergy System's nuclear and fossil-fueled generation. The Transmission, Distribu-tion, and Customer Ser ice organization consists of transmission, customer services, retail marketing, state regulatory. and governmental affairs. The Entergy Business Support organization was established to direct the administratise business functions of the System.
i TABLE OF CONTENTS Page Defmitions 2
Report of N1anagement 4
Audit Conunittee Chairman's Letter 5
Independent Auditor's Report.
6 Balance Sheets and Statements of Cash Flow S
51anagement's Financial Discussion and Analysis 11 Statements of Income and Retained Earnings 12 hianagement's Financial Discussion and Analysis (continued) 14 Notes to Financial Statements.
18 Selected Financial Data.
31 Directors, Officers, and Other Information.
32 1
I MISSISSIPPI POWER & LIGIIT COMPANY f
DEFINITIONS J
Certain abbreviations or acronyms used in MP&L's Financial Statements, Notes, and Manage-ment's Financial Discussion and Analysis are defmed below:
1 Abbredation or Acronym Term AFUDC.
Allowance for Funds Used During Construction AP&L.
Arkansas Power & Light Company Agreement, dated as of June 21, 1974, as amended,'
Availability Agreement..
among System Energy and the System operating companies and the assignments thereof Entergy Corporation Entergy Entergy Services, Inc.
Entergy Services Entergy System or System.
Entergy and its various direct - and indirect subsidiaries Financial Accounting Standards Board FASB FERC.
Federal Energy Regulatory Commission FERC Complaint Case settlement.
.. Settlement effective May 21,1991, whereby System Energy credited approximately~ $47.6 million in the aggregate. (including interest) against its June 1991 bills to the System operating companies for capacity and energy from Grand Gulf 1.
Final Order on Rehearing.
An order issued by the. MPSC on September 16, 1955, with respect to A1P&L's Grand ' Gulf 1-related rate issues General and Refunding Mortgage Bonds issued and G&R Bonds.
issuable under MP&L's G&R Mortgage dated as of -
February 1,19SS, as amended G&R Mortgage General and Refunding Mortgage established by MP&L effective February 1,19S8. to provide for issuances of C&R Bonds Grand Gulf Station Grand Gulf Steam Electric Generating Station -
Grand Gulf 1.
Unit No.1 of the Grand Gulf Station Grand Gulf 2.
Unit No. 2 of the Grand Gulf Station Independence Station.
Independence Steam Electric Generating Station KWil Kilowatt-llours Louisiana Power & Light Company LP&L.
MWH Megawatt-flours Money Pool.
Entergy System Money Pool, which allows certain System companies to borrow from, or lend to, certain other System companies MP&L.
Mississippi Power & Light Company Mississippi Public Service Commission MPSC..
NOPSI..
New Orleans Public Service Inc.
Reallocation Agreement.
1981 Agreement, superseded in part by a June 13, 19S5 decision of. FERC, among the System operating companies and System Energy relating to the sale of capacity and energy from the Grand Gulf Station-2
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AllSSISSIPPI POWER & LIGIIT CONIPANY DEFINITIONS - (Concluded)
Abbresiation or Aeron3m Term Revised Plan.
AIP&lis Grand Gulf I-related rate phase-in plan, originally approved by the h!PSC in the Final Order on' Rehearing, as modified by the A1PSC order issued September 29, 1958, to. bring such plan into compliance with the requirements of SFAS No. 92 l
- Securities and Exchange Commission SEC.
SFAS...
Staternent of Financial Accounting Standards promulgated by the FASB System Energy.
System Energy Resources. Inc.
System Fuels.
System Fuels, Inc.
'l System or Entergy System.
- Entergy and its varions direct and ' indirect subsidiaries System operating cornpanies.
51P&L, AP&L, LP&L and NOPSI, collectively l
Unit Power Sales Agreement.
Agreement, dated as of June 10,1982, as amended, among the System operating companies ' and i
System Energy, relating to the sale of capacity and energy from System Energy's share of Grand.
GulfI
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J StISSISSIPPI POWER & LIGIIT COhlPANY REPORT OF hiANAGEhiENT The management of hiississippi Power & Light Company has prepared and is responsible for the fmancial statements and related financial information included herein. The financial statements are based on generally accepted accounting principles. Financial information included elsewhere in this I
report is consistent with the financial statements.
To meet its responsibilities with respect to fmancial information, management maintains and enforces a system ofinternal accounting controls that 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, an employee Code of Conduct, 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 independent 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.
hianagement believes that these policies and procedures provide reasonable assurance that its operations are carried out with a high standard of business conduct.
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& & Mr JERRY L. hTAULDEN GERALD D. hfCINVALE Chainnan and Chief Executive Oficer Senior Vice President and Chief Financial Oficer L
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AflSSISSIPPI POWER & LIGIIT CONIPANY AUDIT CONINIITTEE CIIAlluf AN'S LETTER The hiississippi Power & Light Company Audit Committee of the Board of Directors is comprised of four directors, who are not officers of hip &L: E. B. Robinson, Jr. (Chairman), John O. Emmerich, Jr.,
l Dr. Clyda S. Rent, and Dr. Walter Washington. The committee held three meetings during 1992.
The Audit Committee oversees h1P&L's financial reporting process on behalf of the Board of Directors and provides reasonable assurance to the Board that sufficient operating, accounting, and l
financial controls are in existence and are adequately reviewed by programs ofinternal and external audits.
The Audit Committee discussed with Entergy's internal auditors and the independent public accountants (Deloitte & Touche) the overall scope and specific plans for their respective audits, as well as hfP&L's fmancial statements and the adequacy of hip &L's internal controls. The committee met, together and separately, with Entergy's internal auditors and independent public accountants, i
without management present, to discuss the results of their audits, their evaluation of hip &L's internal controls, and the overall quality of h!P&L's financial reporting. The meetings also were designed to 4
facilitate and encourage any private communication between the committee and the internal auditors i
or independent public accountants.
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F E. B. Robinson, Jr.
Chairman, Audit Committee i
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INDEPENDENT AUDITORS' REPORT To the Shareholders and the Board of Directors of Mississippi Power & Light Company i
We have audited the accompanying balance sheets of Mississippi Power & Light Company (MP&L) as of December 31,1992 and 1991, and the related statements ofincome, retained earnings, and cash flows for each of the three years in the period ended December 31,1992, These financial statements are the responsibility of MP&L's management. Our responsibility is to express an opinion on these financial statements based on our audits.
i We conducted our audits in accordance with generally necepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether i
the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as l
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
r In our opinion, such financial statements present fairly, in all material respects, the financial position of MP&L at December 31,1992 and 1991, and the results ofits operations and its cash flows for each of the three years in the period ended December 31,1992 in conformity with generally accepted accounting principles.
1 M;an
- I DELO11TE & 'IOUCilE New Orleans, Louisiana l
February 12,1993 I
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hilSSISSIPPI POWER 6t LIGIIT COh!PANY BALANCE SilEEFS ASSETS December 31, 1992 1991 (In Thousands)
Utility Plant (Note 1):
$1,364,419
$1,327,039 Electric Construction work in progress..
25,879 21,219 Electric plant acquisition adjustments..
45 227 Total.
1,390,343 1,348,485 Less - Accumulated depreciation and amortization.
549,150 524,626 Utility plant - net.
841,193 823.859 Other Property and Investments:
Investment in subsidiary company - at equity (Note 8)....
J,3'11 5,531 Other.
4.3S2 1,035 Total.
9.913 6,566 Current Assets:
1 Cash and cash equivalents (Note 1):
Cash.
3,438 152 Temporary cash investments-at cost, which approximates market:
2,356 4.560 i
Associated companies (Note 4)
Other.
25.214 42.530
. Total cash and cash equivalents.
34,00S 47,242 Notes receivable (Note 1) 7.405 5.838 Accounts receivable:
Customer (less allowance for doubtful accounts of $1.3 million in
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1992 and $1.4 million in 1991).
29,284 30,251 Associated companies (Note 10).
3,605 1,000 Other.
4,718 5,318 Fuel inventory - at aserage cost 7,325 9,366 hiaterials and supplies - at average cost.
21,472 20.107 Rate deferrals (Note 2).
72,816 38.372 Prepayments and other.
1,354 3,791 Total.
181.9S7 161.305 Deferred Debits:
Rate deferrals (Note 2).
600,102 652,076 Notes receivable (Note 1) 15,739 14,746 Other.
I1,792 13,723 j
Total.
627,633 6S0.545
$1,6f4,726
$1,672,275 TOTAL I
See Notes to Financial Statements.
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MISSISSIPPI POWER & LICIIT CO. f PANY
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BALANCE SIIEETS CAPITALIZATION AND LIABILITIES.
December 31, 1992 1991 (In Thousands)
Capitalization:
Common stock. no par value, authorized 15,000.000 shares; issued and outstanding 8.666,357 shares in 1992 and 7,579.400 shares in 1991 (Note 5)...
$ 199.326
$ 174,326 Retained earnings (Note 7) 230.201 243.819 429,527 418.145 Total commo.. shareholder's equity Preferred stock-net of premium and expense (Note 5):
57,654 38.077 Without sinking fund.
With sinking fund......
60,551 69,339 512,675 502.848 Long-term debt (Note 6)...
I.000.637 1,028.409 Total.
Other Noncurrent Liabilities:
842 981 Obligations under capital leases.
Accumulated provision for losses..
2.946 4.413 Total.
_ 3.766 5,3N Current Liabilities:
Currently maturing long. term debt (Note 6).
55,230 100.210 Accounts payable:
Associated companies (Note 10).
27,634 30.165 Other.
S.649 20,483 Customer deposits.
20,460 19,622 Taxes accrued.
28.452 26,278 Accumulated deferred income taxes (Note 3) 31.842 16,995 Interest accrued.
22,391 22,25' Dividends declared.
2,472 2,402 Obligations under capital leases.
151 143 Other.
7.745 5,112 Total.
205,026 245.695 Deferred Credits:
Accumulated deferred income taxes (Note 3) 346,107 349.664 i
I Accumulated deferred investment tax credits (Note 3).
36.999 38,879 8.169 4,031 Other.
391,275 392,774 Total,
Commitments and Contingencies (Note 8)
TOTAL
$1.660.726
$1.672.275 See Notes to Financial Statements.
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AllSSISSIPPI POWER 6t LIGIIT COhlPANY STATDIENTS OF CASil FLOWS l'or the Yean Ended December 31, 1992 1991 1990 (In Thousands)
Operating Activities:
Net income.
65,036
$ 63,058
$ 60,830 Noncash items included in net income:
Change in rate deferrals (Note 2) 17,530 14,626 '
(25,067)
Depreciation and amortization.
31,493 30.069 38,023 Deferred income taxes and investment tax credits 18,655 30.857 33,688 Allowance for equity funds used during construction.
(668)
(1,302)
(261)
Provisions for estimated losses..
(1,467) 1.226 1,327 Changes in working capitah r
Receivables.
(924)
(3.743)
(4,401).
Accounts payable (14.365)
(3.255)
(4,212)
' Taxes and interest accrued,
2,279 (2.072) 1,551 Custoner deposits...
838 773 359 hlaterials and supplies 696 (3,939)
(6.829)
Other working capital accounts.
2,445 819 (2,651)
Other..
(2.505) 1.338 -
11.256 Net cash flow provided by operating activities 118.773 128.505 103.813 Investing Activities:
Construction expenditures (53,481)
(58,368)
(51,648)
Allowance for equity funds used during construction 66S 1,302 261 Net cash flow used by investing activities.
(52,813)
(57,066)
(51.357)
Financing Activities:
Proceeds from issuance of:
General and refunding bonds.
65,000 30,000 Comnion stock.
25,000 Preferred stock 19,777 Retirement of:
First mortgage bonds.
(101,416)
(30,000)
Preferred stock (9,500)
(9,500)
(2,500)
Other long-term debt.
(210)
(200)
(335)
Dividends paid:
-l Preferred stock (9,445)
(10,322)
(10,892)
Common stock.
(6S,400)
(7.847)
(33,901)'
Changes in short-term borrowings (3,000)
(1,700)
Net cash flow used by fmancing activities.
(79,194)
(30.869)
(49,328)
Net increase (decrease) in cash and cash equivalents..
(13,234) 40,570 3,098 Cash and cash equivalents at beginning of period...
47,242 6,672 3,574 i
Cash and cash equivalents at end of period.
$ 34,008 -
$ 47,242
$ 6,672 SUPPLEhlENTAL DISCLOSURE OF CASil FLOW INFORhlATION:
Cash paid during the period for:
Interest (net of amount capitalized)
$ 62,727
$ 69.548
$ 64,796 income taxes
$ 14,866
$ 2,105
$ 1,685 See Notes to Financial Statements.
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MISSISSIPPI POWER & LIGilT COMPANY MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS e
LIQUIDITY AND FINANCIAL CONDITION Overview As detailed in the Statements of Cash Flows, MP&L*s cash requirements in 1992, including dividend payments to Entergy, were satisSed primarily with internally generated funds and cash on hand supplemented by issuances of debt and common and preferred stock.
Operating Activities Net cash flow from operations totaled $117.4 million in 1992. While there were no significant nonrecurring items, various factors contributed to our cash position at year end. As previously deferred costs are recovered, collections under our Grand Gulf I rate phase-in plan exceed the current cash requirements for the Grand Gulf 1-related costs. In the income statement, these revenue collections are offset by the amortization of previously deferred costs, therefore, there is no effect on net income. See Note 2, incorporated herein by reference, for additional information on MP&L's rate phase-in plan.
Insesting Activities In 1992, cash was used primarily for construction expenditures related to existing plants.
Financing Activities In 1992, MP&L's primary fmancing activities included the refinancing of high-cost debt and r
preferred stock, and dividend payments on common and preferred stock.
Capital and Refinancing Requirements and Capital Resources See Note 8, incorporated herein by reference, for information on MP&L's capital and refmancing.
1 requirements for 1993 through 1995.
Earnings coverage tests, bondable property additions, and accumulated deferred Grand Culf 1-related costs recorded as assets, limit the G&R Bonds and preferred stock that MP&L can issue.
Based on the most restrictive applicable tests as of December 31,1992 and assuming an annual interest or dividend rate of 9%, MP&L could have issued $277 million of additional G&R Bonds or $200 million of additional preferred stock; however, based on the remaining amount of preferred stock authorized, but unissued, by MP&L's charter, MP&L only could issue $17.5 million in additional preferred stock.
MP&L's charter, however, could be amended to increase the amount of authorized preferred stock.
MP&L has the conditional ability to issue G&R Bonds against the retirement of bonds without satisfying an earnings coverage test.
See Notes 5 and 6, incorporated herein by reference, for information on MP&L's financing activities and Note 4, incorporated herein by reference, for information on MP&L's short-term borrowings and lines of credit.
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AllSSISSIPPI POWER & LIGitT C05fPANY STATEMENTS OF INCOME for the Years Ended December 31.
1992 1991 1990 (In Thousands)
Operating Revenues (Notes 1,2, and 10)......
$817,650
$754,632
$761,188 Operating Expenses:
Operation (Note 10):
Fuel for electric generation and fuel-related expenses.....
112,032 104,553 119,166 Purchased power.....................
301,912 284,66S-306,296 Other.........
104,287 98,884 93,294 M aintenanec........................
42,153 37,660 31,132 Depreciation and amortization (Note 1)................
31,493 -
30,089 38,023 Taxes other than income taxes..........
40,738 37.534 36,788-Income taxes (Note 3).
40,751 36,537 31,510 Rate deferrals:
Rate deferrals...............
(22.876)
(53,333)
(89,273)
Amortization of rate deferrals.,............
61,456 58,480 58,480 Income taxes - (credit) (Note 3).
(19.070)
(6,601) 6,803 Total.....
692,876 628,671 632.219 Operating income.....
124,774 125,961 128,969 Other Income:
Allowance for equity funds used during construction.
668
'l.302 261 Miscellaneous - net 4,562 1,525 (1,066)
Income taxes - (debit) (Note 3),....
(1.467) -
81' 39.8 j
Total.........
3,763 2,908
'(407) i Interest Charges:
Interest on long-term debt...
60.709 63,62S 63,975 Other interest - net....
3,357 4,013 4,743 Allowance for borrowed funds used during construction....
(565)
(1,860)
(986) 1 To t al...........
_63.501 65.781 67,732 7
Net Income.......
65,036 63,088 60.830 Preferred Stock Dividend Requirements....
9.513 10,074 10.602:
.s Earnings Applicable to Common Stock..
$ 55,523
$ 53,014
$ 50,028 See Notes to Financial Statements.
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r 5tlSSISSIPPI POWER & LIGIIT COAf PANY STATEN!ENTS OF RETAINED EARNINGS For the Years Ended December 31, 1992 1991 1990 (In Thousands)
Retained Earnings, January 1.
$243,819
$199,393
$183,286 Add:
65,036 63,088
' 60,830 Net income I
Total 308.855 262,481 244,116 Deduct:
Dividends declared:
Preferred stock......
9,513 10,074 10,802 Common stock........
68,400 7,847 33,901 Preferred stock expense.
741 741 20 Total....
78,654 18,662 44,723 Retained Earnings, December 31 (Note 7)
$230.201
$243,819
$199,393 See Notes to Financial Statements.
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E SilSSISSIPPI POWER & LICllT COAf PANY 51ANAGENIENT'S FINANCIAL DISCUSSION AND ANALYSIS RESUlil'S OF OPEllATIONS Net income 51P&L's net income increased in 1992 due primarily to increased operating revenues and decreased interest expense and income tax expense, partially olTset by increased maintenance expense.
Net income increased in 1991 due primarily to a reduction in depreciation expense and a decrease in income taxes caused by lower federal income tax rates on the utilization of net operating losses. These increases in net income w ere partially offset by the reduction in revenues from sales for resale from a one-time intra-system equalization billing adjustment recorded in September 1991 and the impact in 1990 resulting from the recording of materials and supplies insentory. Significant factors affecting the results of operations and causing variances between the years 1992 and 1991, and 1991 and 1990 are discussed under "Ilevenues and Salesf " Expenses," and "Other" below, liesenues and Sales See " Selected Financial Data - Five-Year Comparison," incorporated herein by reference, fol-lowing the Notes, for information on operating revenues by source and KWil sales.
Electric operating revenues were higher in 1992 resulting from an increase in other revenue of approximately $36.5 million related to SIP &L's rate deferral over/under recovery and an increase of approximately $14.0 million in retail operating revenues due to lower fuel adjustment credits. Neither of these revenue fluctuations affected net income. Fevenues from sales for resale were higher in 1992 resulting from the September 1991 one-time equalization billing adjustment referred to below. While total energy sales were relatisely flat in 1992, increased sales for resale to nonassociated companies, resulting from changes in generation availability and requirements among the System operating companies, were offset by lower retail sales resulting from milder temperatures.
Electric operating revenues wcre lower in 1991 resulting from a decrease in revenues from sales for resale as a result of a one-time intra-system equalization billing adjustment. (Certain 19S5-1991 intra-system equalization billings under the System Agreement were adjusted in 1991, ieducing operating resenues by approximately $10.6 million.) hiiscellaneous revenue decreased by approxi-mately $6.1 million in 1991 resulting primarily from a reduction in h!P&L's collections through its fuel adjustment clause. These decreases were partially offset by a $9.7 million increase in retail operating revenues. Energy sales were 2% higher in 1991 resulting from sales for resale to associated and non-associated companies due to changes in generation capability and requirements among the System operating companies.
Espenses Fuel for electric generation and fuel-related expenses decreased in 1991 as a result of an approximately $15 million decrease in oil-fired and gas-fired generation cost due to lower oil-fired generation requirements and lower aserage unit gas prices, respectisely. 51aintenance expense was higher in 1992 due primarily to an increase in scheduled maintenance at N1P&L's power plants. This increased lesel of regular scheduled maintenance is anticipated to continue over the next few years.
Alaintenance expense was higher in 1991 due primarily to the 1990 recording of approximately
$7.2 million of materials and supplies inventory, which correspondingly reduced 1990 maintenance expense.
Depreciation expense decreased in 1991 primarily as a result of the implementation of revised depreciation rates in the second quarter of 1991, approsed by the 51PSC, resulting from a new depreciation study. Implementation of the new rates resulted in a reduction of approximately 14 i
SilSSISSIPPI POWER & LIGilT CONIPANY hf ANAGENIEN'I'S FINANCIAL DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS- (Concluded)
$9.0 million in depreciation expense in 1991 compared to the amount that would have been recorded using the previous depreciation rates. h1P&L's deferrals of Grand Gulf 1 related costs decreased in 7
both 1992 and 1991 resulting from the collection of a larger portion of these costs under the step-up provisions of our phase-in plan. Total income taxes were lower in 1992 due primarily to an increase of approximately $4.8 million in estimated income tax benefits related to tax depreciation resulting from certain elections made in 199L Total income taxes were lower in 1991 due primarily to the $5.2 million -
decrease related to the impact of reductions in federal income tax rates on the utilization of h1P&L's 1956 and 19S7 federal net operating losses in 1991 and 1990, Other hiiscellaneous other income - net increased in 1992 due primarily to interest income in connee-tion with the settlement of deferred coal charges from System Fuels and increased in 1991 due primarily to a 1990 reduction in previously recorded finance charges related to sales of heat pumps,
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MISSISSIPPI POWER & LIGilT COMPANY MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS The Energy Policy Act of 1992 The Energy Policy Act of 1992 (Energy Act), signed into law in October 1992, will base a significant impact on our industry. This act will increase competition and afford the Entergy System the opportunity, and the risks, associated with an open and more competitise market ensirontnent.
The Energy Act reforms the Public Utility llolding Company Act of 1935 and encourages competition in the wholesale energy market. The Energy Act ercates a new class of energy prosiders known as exempt wholesale generators (EWGs). EWCs will be able to compete in the wholesale market without the constraints of certain regulation. The Energy Act also gives FERC the authority to order investor-owned utilities to provide transmission access to or for other utihties, including EWCs.
Least-Cmt Planning In Decen.ber 1992, MP&L hied a Least Cost Integrated Resomee Plan (Plan) with its retail regulator. The Plan includes demand-side measures such as customer energy conservation and shifting electrical usage to off-peak periods. Supply-side measures generally include greater elliciency of power plants through the reconfiguration or addition of equipment.These measures are designed to delay the building of any new power plants by the Entergy System for the next 20 years. Without implementing such measures, new electric generating capacity would be needed as early as 1999. Under the Plan, which is subject to regulatory approval, customers would see a slight increase in rates while the initial measures are implemented. Once the programs go into effect, it is anticipated that a reduction in customer bills will result. It is MP&L's intention to seek recos cry for all demand-side Plan related costs in an appropriate proceeding filed with the MPSC at the conclusion of the Plan docket. Following implementation, savings will be generated from lower costs than would have otherwise been necessary. Least-cost planning enables MP&L, along with its customers and regulators, to prepare to meet our future energy needs.
Retail and Wholesale Rate hsues To enhance our competitive position. MP&L is not currently planning to file for general changes in retail rates in 1993 (with the exception of minor increases under the Plan). MP&L is aggressively following a cost reduction program to asoid potential earnings crosions that might result from this policy. See " Corporate Reorganization" below. To asoid rate increases in the longer term, MP&L plans l
to take advantage of opportunities available through least-cost planning, as discussed abme.
In 1992. FERC approved, with certain modifications, the proposal of the System operating companies and Entergy Power to sell w holesale power at market-based rates and to proside to electric utilities "open access" to the System's transmission system (subject to certain requirements). Various l
intervenors in the proceeding filed petitions for review with the United States Court of Appeals for the District of Columbia Circuit. FERC's order, once it takes effect, will increase marketing opportunities l
for MP&L. but will also expose MP&L to the risk of loss of load or reduced revenues due to competition with alternative suppliers,
-1 Clean Air Act Amendments The Clean Air Act Amendments of 1990, among other things, place limits on emissions of sulfur dioxide and nitrogen oxide from fossil-fueled generating plants. Utilities must comply with the first phase by 1995 and with the second phase by 2000. Based on current evaluations of our existing facilities, w e beliese that no additional equipment will be required to control sulfur dioxide emissions -
to comply with the Act. We may be required to install emission controls at our two coal units and to 16 m
AflSSISSIPPI POWER & LIGilT C051PANY 51ANAGE5fENT S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS-(Concluded) install continuous emission monitoring systems at some or all of our fossil-fueled units to control nitrogen oxide emissions. We currently estimate that total capital costs of approximately $7.1 million could be required to comply with this and other provisions of the Act, Corporate lleorganization We, as a part of the Entergy System, are continuing to reorganize our corporate structure and streamline our operations in order to bring 51P&L's administratise and general costs in line with top performing electric utilities. In addition, we are also implementing more stringent budgeting practices to contain costs.
Accounting Issues See Note 9, incorporated herein by reference, for information on postretirement benefits other than pensions (SFAS No.106) and postemployment benefits (SFAS No. !!?.). See Note 3, incorporated herein by reference, for information on accounting for income taxes (SFAS No.109).
Summary h1P&L's future fmancial condition will be affected by many opportunities and challenges. Our positioning related to the provisions of the Energy Policy Act of1992 will enable the Entergy System to aggressisely and effectively compete in the evolving electric energy industry. Our Least Cost Integrated Resources Plan will also help us to plan and work with our customers and regulators to meet future energy needs. In addition,51P&L will continue to streamline operations and contain costs in an effort to bring 51P&L in line with top performing electric utilities.
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17
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MISSISSIPPI POWER & LICIIT COMPANY NOTES TO FINANCIAL STATEMENTS NOTE 1.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES '
MP&L maintains accounts in accordance with FERC and other regulatory guidelines. Certain previously reported amounts have been reclassified to conform to current classifications.
l Revenues and Fuel Costs
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MP&L records revenues when billed to its customers with no accrual for energy delivered but not
.i yet billed.
MP&L's rate schedules include fuel adjustment clauses that allow current recovery of estimated fuel costs, with subsequent adjustments of estimates to actual.
j Utility Plant Utility plant is stated at original cost, with additions to utility plant recorded at cost. The original cost of utility plant retired or removed. plus the applicable removal costs, less salvage,is charged to accumulated depreciation. Maintenance, repairs, and minor replacement costs are charged to operat-ing expenses.
i AFUDC represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction. Although AFUDC increases utility plant and represents current earnings,it is only realized in cash through depreciation provisions included in rates. MP&L's effective composite rates for AFUDC were 12.0%,10.4%, and 9.4% for 1992,1991, and 1990, respectively.
Depreciation is computed on the straight-line basis at rates based on the estimated service lives of the various classes of property. Depreciation provisions on average depreciable property approximated.
2.5% in 1992,2.4% in 1991, and 3.1% in 1990.
MP&L filed, and the MPSC approved, a new depreciation study in June 1991. Implementation of the new depreciation rates effective January 1,1991, which are lower than presious depreciation rates.
resulted in a reduction of approximately $9.0 million in depreciation expense in 1991 as compared to the amount that would have been recorded using the previous depreciation rates. This change in depreciation expense during 1991 resulted in an increase in net income of approximately $7.0 million.
There is no impact on the rates charged to customers under current rate schedules.
Substantially all of MP&L's utility plant is subject to the lien of its first mortgage bond indenture and the second lien of its G&R Mortgage bond indenture.
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Jointly-Ou ned Generating Station MP&L owns 25% of the Independence Station, a two-unit, coal-fired generating station located near Newark, Arkansas. MP&L records its insestment in and expenses associated with this station to the extent of its ownership and participation. MP&L's investment in the Independence Station was j
approximately $222.4 million and $221.5 million, less accumulated depreciation of. approximately i
$61.9 million and $57.4 million as of December 31,1992, and December 31,1991, respectis ely.
Notes Receivable k
MP&L currently has a program, wherein it finances heat pumps for its customers through notes receivable. Such notes are repayable in equal monthly installments of principal and interest over a 5 year period and bear interest at a market-based rate at the tune of sale. The amounts financed are classified on the Balance Sheet as current and noncurrent notes receivable.
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hilSSISSIPPI POWER & LIGilT COh!PANY NOTES TO FINANCIAL STATE.51ENTS - (Continued)
Income Taxes h1P&L. its parent, and affiliates file a consolidated federal income tax return. Income taxes are allocated to h1P&L in proportion to its contribution to consolidated taxable income. SEC regulations' require that no System company pay more taxes than it would have had a separate income tax return been filed. Deferred income taxes include differences between book and taxable income to the extent -
permitted for ratemaking purposes. Investment tax credits are deferred and amortized based upon the average useful life of the related property, in accordance with rate treatment.
In addition, A1P6tL files a consolidated hiississippi state income tax return with certain other 3
System companies.
Other Noncurrent Liabilities 51P&L records provisions for uninsured property risks and claims for injuries and damages through charges to operation expenses on an accrual basis. Provisions for these accruals,' classified as other noncurrent liabilities, have been allowed for ratemaking purposes.
Cash and Cash Equivalents For purposes of the Statements of Cash Flows,51P&L considers all unrestricted highly liquid debt -
instruments purchased with an original maturity of three months or less to be cash equivalents.
i' Fair Value Disclosure SFAS No.107, which is effective for fiscal years ending after December 15, 1992, requires disclosure of the fair value of all significant financial instruments. The estimated fair value amounts
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base been determined by h1P&L, using available market information and appropriate valuation methodologies. However, considerable judgment is required in developing the estimates of fair value.
Therefore, our estimates are not necessarily indicatise of the amounts that h1P&L could realize in a '
current market exchange. In addition, gains or losses realized on financial instruments would generally I
be reflected in future rates and not accrue to the benefit of stockholders.
51P&L considers the carrying amounts of financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short. maturity of these instruments. In addition, h1P6tL does not presently expect that performance ofits obligations will be required in connection with certain off-balance sheet commitments and guarantees considered financial instruments. Due to this factor, and because of the related party nature of these commitments and guarantees, determination of fair value is not considered practicable. See Notes 5,6, and 8 for y
additional fair value disclosure.
l NOTE 2. IIATE AND REGULATORY NIATTERS Grand Gulf 1 l
K1P&L's currently effective Grand Gulf 1-related rate deferral plan (Revised Plan) provides,
.f among other things, for the recovery by h1P&L, in equal anmial installments over ten years beginning I
October 1,1968, of all Grand Gulf I-related costs deferred through September 30,195S pursuant to the Final Order on Rehearing. The balance as of September 30,19SS of deferred Grand GulfI-related costs l
was approximately $64SA million. Approximately $312.1 million has been recovered by h1P&L from -
I October 1,1958 through December 31,1992, leaving a balance of approximately $336.3 million as of 7
December 31, 1992. Additionally, the Revised Plan provided that h1P6tL deferred, in decreasing amounts, a portion of its Grand Gulf I-related costs over four years beginning October 1,1968. In 19 i
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311SSISSIPPI POWER & LIGIIT CO%fPANY I
NOTES TO FINANCIAL STATE %1ENTS- (Continued)
October 1992, these deferrals began being recovered by MP&L over the next six years ending September 30,1998. The Revised Plan also allows for the current recovery of carrying charges on all deferred amounts.
Least. Cost Planning In December 1992, MP&L fded a Least Cost integrated Resource Plan (Plan) with its retail regolator. The Plan includes demand-side measures such as customer energy conservation and shifting electrical usage to off. peak periods. Supply-side measures generally include greater efficiency of power
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plants through the reconfiguration or addition of equipment. These measures are designed to delay the j
building of any new power plants by the Entergy System for the next 20 years. Without implementing such measures, new electric generating capacity would be needed as early as 1999. Under the Plan, which is subject to regulatory approval, customers would see a slight increase in rates while the initial measures are implemented. Once the programs go into effect, it is anticipated that a reduction in customer bills will result. It is MP&L's intention to seek recovery for all demand-side Plan related costs in an appropriate proceeding filed with the MPSC at the conclusion of the Plan docket. Following implementation, savings will be generated from lower costs than would have otherwise been necessary. Least cost planning enables MP&L, along with its customers and regulators, to prepare to meet our future energy needs.
NOTE 3. INCOME TAXES Income tax expense consists of the following:
For the Years Ended Decernher 31, 1992 1991 1990 (In Thousands)
Current:
Federal
$ 4,532
$ (1,000)
$ 4,027 State.
(69)
Total.
4,463 (1 000) 4,027 Deferred - net:
Federal reclassification due to net operating loss 28,561 29,756 21,30S State reclassification due to net operating loss..
4,553 4,5S7 2,997 9,448 8,565 5.245 e
Liberalized depreciation Rate Deferral - net.
(11,220)
(10,137) 4,665 (5,722) 1,207 1,466 Unbilled revenue.
Pension liability.
(1,233)
(157) 122 Adjustments of prior year taxes.
(3.471)
(84)
(3,812)
Other.
(615)
(1.248) 3,728 j
20,431 32.459 35.722 Total.
Investment tax credit adjustments - net (1.746)
(1,634)
(1,834)
Recorded incorne tax expense
$ 23,145
$ 29,S55
$37,915 3
Charged to operations.
$ 21,681
$ 29,936
$38,313 1.467 (81)
(398)
Charged (credited) to other income Total income taxes
$ 23.14S
$ 29,555
$37,915 1
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hilSSISSIPPI POWER & LIGIIT COh!PANY NOTES TO FINANCIAL STATE 5f ENTS - (Continued).
i Total income taxes differ from the amounts cornputed by applying the statutog Federal income t
tax rate to income before taxes. The reasons for the differences are (dollars in thousands):
l For the Years Ended December 31, 1992 1991 1990
% of
% of
% of f
Pre Tax Pre. Tax Pre. Tax Amount ' Income A mount In :orne Amount Income (Dollars in The,usands)
Computed at statutory rate....
$29,983 34.0 $31,601 '- 34.0 833.573 34.0 Increases (reductions) in tax resulting from:
Impact of change in tax rate..
2,226 2.5
- 1,425 1.5
- 6.603 6.7 State income taxes net of federal income tax i
effect....
2.703 3.1 3,175 3.4 3,472 3.5 Depreciation...
(2.571) (2.9) 944 19 981 1.0 Amortization of excess deferred income taxes (4,682) (5.3)
(4,682) (5.0)
(4,6S2) (4.7) f Amortization of investment tax credits...
(1,746) (2.0)
(1,634) (1.8)
(1,620) (1.6)
Adjustments of prior year taxes (2,760) (3.2)
(1,149) ~ (1.2)
(243) (0.3)
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Other - net (5) -
175 0.2 (169) (0.2)
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, 2 Total income taxes..
.. $23,14S 26.2 $29.655 32.1 $37,915. 38.4 The tax effects of federal net operating tax losses that are carried forwaid have been recorded as l
reductions of deferred income taxes. These tax losses totaling $22.2 million as of December 31,1992
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are available to offset taxable income in future years and, if not used, will expire in the years 2006 through 2007.
l The alternative minimum tax (AhiT) credit as of December 31.1992 was $5.1 million. This' AhfT credit can be carried forward indefinitely and will reduce hip &L federal income tax liability in the future.
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In February 1992. the FASB issued SFAS No.109. " Accounting for income Taxes," which is I
generally effective for fiscal years beginning after December 15.1992. The new standard requires that i
deferred income taxes be recorded for all temporary differences and carryforwards, and that deferred tax balances be based on enacted tax laws at tax rates that are expected to be in effect when the temporary differences reverse. The new standard was adopted by 51P&L effective January 1,1993. As a l
result of the adoption of SFAS No.109, MP&L's 1993 net income will be reduced by $3.6 million, assets i
will be increased by $6.7 million, and liabilities will be increased by $10.3 million. This adjustment e
includes deferred income tax liabilities and related regulatory assets recorded for cumulative income i
tax timing differences which will be recovered through rates when the timing differences reverse.
i NOTE 4. LINES OF CREDIT AND RELATED BORROWINGS The SEC has authorized AIP&L 'o effect short-term borrowings up to $100 million, subject to increase to as much as $113 million after further SEC approval. These authorizations are effective i
through November 30.1994. As of December 31,1992, h1P&L had unused lines of credit for short-term -
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borrowing of $30 million from banks within its service territory. In addition, h1P&L can borrow from the Kloney Pool, subject to its maximum authorized level of short-term borrowings and the availability of funds. MP&L's short-term borrowings are limited by the terms ofits G&R hfortgage to amounts not exceeding the greater of 10% of capitalization or 50% of Grand Gulf I rate deferrals available to support the issuance of C&R Bonds. MP&L had no outstanding borrowings under these arrangements as of December 31,1992.
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SIISSISSIPPI POWER & LIGIIT COh!PANY NOTES TO FINANCIAL STATEN1ENTS- (Continued)
-j NOTE 5. PREFERRED AND COh1NION STOCK The number of shares and dollar value of h!P&L's eumulative. $100 par value preferred stock was:
As of December 31, Call Price Authorfr and g""
Outstanding ~
Total Dollar Value Dece er 31, 1992 1991 1992 1991 1992'-
(Dollars in Thousands)
Without sinking fund:
4.36% Series...
59,920 59,920
$ 5,992
$ 5,992
$103.S6 4.56% Series...
$107.00 4.92% Series..
100,000 100,000 10,000 10,000
$102.58 100,000 100,000 10,000 10,000
$102.S1 7.44% Series.
200,000 20,000 S.36% Series.
9.16% Series....
75,000 75,000 7,500 7.500 -
$104.06.
Issuance expense (223)
Premium......
196 196 Total without sinking fund.
$ 57.554 -
$ 3S,077 I
With sinking fund:
9.00% Series.
210,000 260,000
$ 21,000
$ 28,000
$106.75 350,000 350,000 35,000 -
35,000
$104.34 -
9.76% Series.
12.00% Series....
57,700 67,700 5,770 6,770
$109.00 16.16% Series.
15,000 30.000 1.500 3,000
$112.10
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Discount.
(2.659)
- (3.431 )
Total with sinking fund
$ 60,581
$ 69.339 The total carrying amount of h1P&L's preferred stock was $118.4 million as of December 31,1992.
The fair value, determined using bid prices reported by dealer markets and by a nationally recognized imestment banking firm, was estimated to be $116.1 million as of December 31,1992. See Note I for.
additional information on disclosure of fair value of financial instruments.
As of December 31,1992, hip &L had 175,000 shares of cumulative, $100 par value preferred stock that were authorized but unissued.
Changes in the common stock and preferred stock, with and without sinking fund, during the last 3
three years were:
Number of Shares 6
1992 1991 1990 Common stock issuances ($23 issuance price)..
1,066,957 Preferred stock issuances:
$100 par value:
200,000 8.36% Series......
Preferred stock retirements:
$100 par value:
(70,000) (70,000) 9.00% Series...
(10,000) (10,000) (10,000) 12.00% Series...
(15,000) (15,000) (15,000) 16.16% Series b
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hilSSISSIPPI POWER & LIGIIT COh1PANY NOTES TO FINANCIAL STATEN1ENTS - (Continued)
Cash sinking fund requirements for the next five years for preferred stock outstanding as of December 31,1992, are (in millions): 1993, $15.3; 1994, $15.3; 1995, $14.5; 1996, $7.5; and 1997, $7.5.
h1P&L has the annual non-cumulatise option to redeem at par, additional amounts ofits 12.00% series and 16.16% series preferred stock outstanding.
h1P&L has SEC authorization for the issuance and sale through December 31, 1993, of up to
$37.5 million of preferred stock (of which $17.5 million remained available as of December 31,1992),
and for the possible acquisition,in whole or in part, of not more than $50 million aggregate par value of 51P&L's outstanding preferred stock, including but not limited to the 16.16% Series, the 12.00% Series, and the 9.76% Series. In the first quarter of 1993. 51P&L redeemed 10,000 shares ofits 12.00% series and 70,000 shares of its 9.76% series of preferred stock.
51P&L also has SEC authorization for the issuance and sale through December 31,1993, of up to
$50 million of common stock to Entergy (of which $25 million remained available as of December 31, 1992) for the possible acquisition, in whole or in part, of certain of 51P6tL's outstanding securities and for other corporate purposes, 1
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L SilSSISSIPPI POWEll & LIGIIT CONIPANY NOTES TO FINANCIAL STATE 51ENTS - (Continued)
NOTE 6.
LONG. TERN! DEBT
. The long-term debt of h1P&L as of December 31,1992 and 1991 was as follows:
1992 1991 (In Thousands)
First hfortgage Bonds:
14.40% Series due 1992..
$ 75,000 4%% Series due 1995.
$ 20,000
.20,000 25,000 25,000 5%% Series due' 1996.
t 10,000 10,000 6%% Series due 1996...
4 20,000 20,000 9%% Series due 1999.
9%% Series due 2000...
17,500 17.500 7'/S Series due 2002.
15,000 15,000 7%% Series due 2003..
30,000 ~
30,000 8%% Series due 2003.
20.000 20,000 9%% Series due 2004.
'25,000 25,000 25,000.
10%% Series due 2005.
70.000 70.000 9%% Series due 2016....
Total First hfortgage Bonds...
252.500 352.500 General and Refunding Bonds:
14.65% Series due 1993..
55,000 55,000 9.90% Series due 1994..
30,000 30.000,
11.11% Series due 1994.
18,000 18,000 5.95% Series due 1995..
15,000 11.14% Series due 1995.
10,000 10,000 14.95% Series due 1995..
20,000 20.000 11.18% Series due 1996.
26,000
-26.000 6.95% Series due 1997 50,000 11.20% Series due 1997 46,000 46,000 Total General and Refunding Bonds..
270.000 205.000 ~
Pollution Control Revenue Bonds:
9.000 9.110 7%% Series due 1992 to 2004.
8%% Series due 1992 to 2004.
8,205 8.305 8%% Series due 1995.
950 950 9%% Series due 2012" 10,000 10,000 10,000 10,000 9% Series due 2013' 9%% Series due 2014' 10,000 10,000 Total Pollution C(mtrol Revenue Bonds..
48,155 48,365.
(2.750)
(2,607)
Unamortized Premium and Discount-Net Total Long-Term Debt 567,905 603,058 Less-Amount Due Within One Year..
55,230 100.210 Long-term Debt Excluding Amount Due Within One Year.
$512,675
$502,848
- The pollution control resenue bonds due 2012 at 9%%. 2013 at 9% and 2014 at 9%% are secured by
$10.9 million, $10.8 million and $10.8 million, respectively, of non-interest bearing first mortgage bonds.
i 24
hilSSISSIPPI POWER & LIGHT CONIPANY NOTES TO FINANCIAL STATEh1ENTS - (Continued)
The fair value of AfP&L's long-term debt as of December 31, 1992 was estimated to be (in millions) $258.0 for first mortgage bondsr $256.9 for general and refunding bonds and $49.0 for pollution control revenue bonds. Fair _ values were determined using bid prices reported by dealer markets and by nationally recognized investment banking firms. See Note 1 for additional information on disclosure of fair value of financial instruments.
For the years 1993,1994,1995,1996 and 1997, AIP&L has long-term debt maturities and cash sinking fund requirements of (in millions) $55.2, $48.3, $66.2, $61,3, and $96.3, respectively. In addition, I
other sinking fund requirements of approximately $1.5 million annually may be satisfied by cash or by.
certification of property additions at the rate of 167% of such requirements.
The C&R hiortgage prohibits the issuance of additional first mortgage bonds (including for refunding purposes) under AfP&L's first mortgage indenture, except such first mortgage bonds as may hereafter be issued from time to time at h!P&L*s option to the corporate trustee under the G&R '
Afortgage to provide additional security for hlP&L's G&R Bonds.
I Under AIP&L's G&R 51ortgage indenture and subject to the earnings coverage test discussed below, G&R Bonds are issuable based upon 70% of property additions since December 31,19S7, plus up to 50% of cumulative deferred Grand Gulf 1 related costs recorded as an asset on the books of 51P&L, provided that the maximum amount of G&R Bonds issuable against cumulatise deferred Grand Culf 1-related costs may not exceed $400 million. The G&R hlortgage contains an earnings coverage test requiring a minimum earnings coverage (except for certain refunding issues) of twice the pro.
forma annual mortgage interest requirements for the issuance of additional C&R Bonds. At Decem.
her 31,1992, the total amount of G&R Bonds outstanding aggregated $270 million, hip &L has requested SEC authorization allowing the issuance and sale through December 31, 1993 of up to $300 million of G&R Bonds and up to $25 million of tax-exempt bonds. Of these amounts, AIP&L receised authorization in 1992 for the issuance of $65 million of G&R Bonds (leaving
$235 million unauthorized and unissued as of December 31, 1992). htP&L has also received SEC authorization through December 31,1993, for the possible acquisition,in whole or in part, of not more than $200 million aggregate principal amount of outstanding bonds, including, but not limited to, 51P&L's First 51ortgage Bonds,9%% Series due 1999, and 9%% Series due 2004, and KIP &L's G&R Bonds,14.95% Series due 1995; and not more than $25 million aggregate principal amount of 4
outstanding pollution control revenue bonds, including but not limited to Independence County Pollution Control Revenue Bonds 9% 1952 Series B due 2013,9.50% 1952 Series C due 2014,9% 1982-A-Series A due 2013 and 9.50% 1952-A Series B due 2014. On January 21,1993, pursuant to further SEC
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authorization,51P&L issued and sold $125 million principal amount of G&R Bonds,8.65% Series due January 15, 2023. On February 1,1993, h1P&L retired at maturity its 14.65% Series G&R Bonds.
NOTE 7. DIVIDEND RESTRICTIONS j
51P&L's bond indentures relating to long-term debt contain provisions restricting the payment of cash dividends or other distributions on common stock. As of December 31,1992, $142.5 million of 51P&L's retained earnings were restricted against the payment of cash dividends or other distributions '
on common stock.
NOTE S. CO%f A11TNIENTS AND CONTINGENCIES Capital Requirements and Financing Construction expenditures for the years 1993,1994, and 1995 are estimated to total $58.8 million,
$55.3 million and $64.6 million, respectively. h1P&L will also require $214.8 million during the period 1993-1995 to meet long-term debt maturities and cash sinking fund requirements. h1P&L plans to meet i
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A
hilSSISSIPPI POWER & LIGIIT CO31PANY NOTES TO FINANCIAL STATE 3f ENTS - (Continued) the above requirements with internally generated funds, including collections under its rate phase-in plan, and cash on hand, supplemented by the issuance of preferred stock and long-term debt. See Note 5 and Note 6 regarding the possible issuance, refunding, redemption, purchase or.other acquisition of outstanding securities.
Unit Power Sales Agreement System Energy has agreed to sell all ofits 90% owned and leased share of capacity and energy from Grand Gulf 1 to the System operating companies in accordance with specified percentages
( AP&L 36%, LP&L 14%, AIP&L 33%, NOPSI 17%) as ordered by FERC. Charges under this agreement are paid in consideration for hip &L's respective entitlement to receive capacity and energy, and are payable irrespective of the quantity of energy delivered so long as the unit remains in commercial operation. The agreement will remain in effect until terminated by the parties and approved by FERC, most likely upon Grand Gulf l's retirement from service, h1P&L's monthly obligation for payreents to System Energy for Grand Gulf I capacity and energy is approximately $20 million.
Availability Agreement The System < nerating companies are individually obligated to make payments or subordinated advances R 'iystem Energy in accordance with stated percentages (AP&L 17.1%, LP&L 26.9%, MP&L 31.3%, and NOPSI 24.7%) in amounts that when added to amounts received under the Unit Power Sales Agreement or otherwise, are adequate to cover all of System Energy's operating expenses. System Energy has assigned its rights to payments and advances to certain creditors as security for certain obligations. Payments or advances under the Availability Agreement are only required if funds available to System Energy from all sources are less than the amount required under the Availability Agreement. Since commercial operation of Grand Gulf 1, payments under the Unit Power Sales Agreement have exceeded the amounts payable under the Availability Agreement. Accordingly, no payments have ever been required. In 1989, the Availability Agreement was amended to provide that the write-off of $900 million of Grand Gulf 2 costs would be amortized for Availability Agreement purposes over a period of 27 years in order to avoid the need for payments by the System operating companies.
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Reallocation Agreement System Energy and the System operating companies entered into the Reallocation Agreement relating to the sale of capacity and energy from the Grand Gulf Station and the related costs,in which LP&L, h1P&L, and NOPSI agreed to assume all of AP&L's responsibilities and obligations with respect to the Grand Gulf Station under the Availability Agreement. FERC's decision allocating a portion of-Grand Gulf I capacity and energy to AP&L supersedes the Reallocation Agreement as it relates to Grand Gulf 1. Responsibility for any Grand Gulf 2 amortization amounts has been individually allocated (LP&L 26.23%, h1P&L 43.97%, and NOPSI 29.60%) under the terms of the Reallocation Agreement. However, the Reallocation Agreement does not affect AP&L's ' obligation to System Energy's lenders under the assignments referred to in the preceding paragraph. AP&L would be liable for its share of such amounts if the other System operating companies were unable to meet their contractual obligations. No payments of any amortization amounts will be required as long as amounts paid to System Energy under the Unit Power Sales Agreement, including other fimds available to System Energy, exceed amounts required under the Availability Agreement wh:ch is expected to be l
I the case for the foreseeable future.
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MISSISSIPPI POWER & LIGIIT COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued)-
System fuels MP&L has a 19% interest in System Fuels, a jointly-owned subsidiary of the System operating companies. The parent companies of System Fuels, including MP&L, agreed to make loans to Sy -tem Fuels to finance its fuel procurement, delivery, and storage activities. As of December 31,1992, MP&L had approximately 56 million ofloans outstanding to System Fuels which mature in 2008.
AP&L has SEC authorization to assume Syste 1 Fuels' rights and obligations in connection with System Fuels' coal car leases. It is anticipated that the transaction will be consummated in March D93.
Once the obligation foi the leases is transferred to AP&L, MP&L and the other parent companies of System Fuels will be released from their obligations with respect to the lease transaction. MP&L, as a co-owner of the Independence Station which uses coal transported by the leased coal cars will continue to reimburse AP&L for its share of costs associated wl h the leases.
Fuel Purchase Commitments During 1990 three lawsuits, filed during the period 19S6-1990 by MP&L against United Gas Pipe Line Company (United) arising out of a December 8,1967 " Gas Sales Agreement" between MP&L and United were settled. A settlement agreement between the parties was approved by the MPSC on October 29, 1990, and the three suits were dismissed by the United States District Court for the -
Southern District of Mississippi on November 1,1990. Pursuant to the settlement agreement, MP&L received approximately $8.2 million that was applied, pursuant to a December 1990 MPSC order, to reduce the phase-in/ recovery adjustment portion of MP&L's rate deferral balance. In addition, MP&L and United entered into a new four-year gas purchase agreement under which, beginning January 1, 1991, MP&L is purchasing from United approximately 34.1 billion cubic feet of gas.
MP&L owns certain coal mining equipment and facilities at 'a mine in Wyoming. The mine's estimated r eserves are presently expected to provide the projected requirements of the Independence Station through at least 2014.
NOTE 9. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS Pe,sion Plan MPhL has a defined benefit pension plan covering substantially all ofits employees. The pension plan is noncontributory and provides pension benefits based on employees' credited service and average compensation, generally during the last five years before retirement. MP&L funds pension costs in accordance with contribution guidelines established by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. The assets of the plan consist primarily of common and preferred stocks, fixed income securities, interest in a money market fund, and insurance contracts.
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i MISSISSIPPI POWER & LIGIIT CONfPANY
.i NOTES TO FINANCIAL STATEMENTS - (Continued)
MP&L's 1992,1991,'and 1990 pension cost, including amounts capitalized, included the following components:
I'or the Years Ended December 31, 1992 1991 1990 (In Thousands)
Service cost - benefits earned during the period
$ 2,059
$ 2,061
' $ 2.392 Interest cost on projected benefit obligation.
8,269 7,472 6.743 Actual return on plan assets (8,474)
(22,422) 445 Net amortization and deferral.
(1,009) 13,323 (9,511) -
Other...
403' Net pension cost.
8 845 8'
837 69 The funded status of MP&L's pension plan at December 31,1992 and 1991 was as follows:
1992 1991 (in Thousands)
Actuarial present value of accumulated pension plan benefits:
]
Vested
$ 94.534
$ 65.560 304 7.258 ~
Nonvested.
Accumulated benefit obligation.....
S 94.838
$ 92.818
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Plan assets at fair value....
8119,167
$117,977 108,758.
103.718 Projected benefit obligation...
Plan assets in excess of projected benefit obligation.............
10.409 14.259 Unrecognized prior service cost 3,467 3.730 (11,253)
(12,503)
Unrecognized transition asset....
(4.651)
(6,669)
Unrecognized net gain.
Accrued pension liability.
$ (2.028)
$ (1,183)
The significant actuarial assumptions used in computing the information above were as follows:
1992 1991 Ig Weighted average discount rate.
8.25% 8.25% 8.75%
Weighted average rate ofincrease in future compensation levels..
5.6 %
5.6 % 56 %
i Expected long-term rate of return on plan assets..
8.5 %
8.5 % 8.5 %
Transition assets are being amortized over 15 years.
Other Postretirement Benefits health care and life insurance benefits for retired employees.
MP&L also provides ces Substantially all employees m oecome eligible for these bene 6ts if they reach retirement. age while still working for MP&L. The cost of providing these benefits, recorded on a cash basis, to retirees in 1992 was approximately $1.6 million. Prior to 1992, the cost of providing these benefits for retirees was not ' separable from the cost of providing benefits for active employees. The total cost of providing t
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i AflSSISSIPPI POWER & LICIIT COMPANY NOTES TO FINANCIAL STATEMENTS - (Continued)
I these benefits, recorded on a cash basis, and the number of active employees and retirees for 1991 and 1990 is presented in the following table:
1991 1990 (In Thousands)
$5,439
$4,202 i
Total cost of health care and life insurance (in thousands)..
Number of active employees.
1,572 1,621 Number of retirees.......
421 416 Effective January 1,1993, hfP&L~ must implement SFAS No.106 " Employers' Accounting for Postretirement Benefits Other Than Pensions" The ne standard requires a change from a cash method to an accrual method in accounting for these benefits. At January 1,1993, the actuarially determined accumulated postretirement benefit obligation earned by retirees and active employees was estimated to be approximately $30 million. This obligation will be amortized over a 20-year period -
beginning in 1993. Adoption of this new standard is expected to increase annual expense associated '
with these benefits by approximately $2.8 million for MP&L, including the effects of the amortization of the transition obligation. On February 23, 1993, the MPSC issued a general policy statement articulating the MPSC's intention regarding SFAS No.106. In its order, the MPSC adopted accrual accounting as required by SFAS No.106 as an appropriate regulatory accounting treatment for all public utilities subject to SFAS No.106. The MPSC also ordered that affected companies may establish a regulatory asset for the increased annual expense associated with these benefits.
Postemployment Benefts In November 1992, the FASB issued SFAS No.112," Employers' Accounting for Postemployment Benefits," which is effective for fiscal years beginning after December 15, 1993. The new standard requires a change from a cash method to an accrual method in accounting for benefits paid to employees after employment, but before retirement, when certain conditions exist. The impact of this new standard has not been fully determined.
NOTE 10. TRANSACTIONS WITil AFFILIATES MP&L buys electricity from and/or sells electricity to the other System operating companies and System Energy under rate schedules filed with FERC. In addition, MP&L purchases fuel from System Fuels and receives technical and advisory services from Entergy Services.
Operating revenues include revenues from sales to affiliates amounting to $18.0 million in 1992,
$9.8 million in 1991 and $19.0 million in 1990. As a result of an internal review designed to ensure consistency among the System operating companies, certain 1985-1991 intra-system equalization billings pursuant to the System Agreement were adjusted in 1991 and reduced operating revenue in the amount of approximately $10.6 million. Operating expenses include charges from affiliates far fuel costs, purchased power and related charges, and technical and advisory services totaling $364.0 million in 1992, $310.8 million in 1991 and $297.6 million in 1989.
See Note I for information on MP&L's jointly-owned generating station.
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MISSISSIPPI POWER & LIGIIT COMPANY NOTES TO FINANCIAL STATEMENTS - (Concluded)
NOTE 11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating results for the four quarters of 1992 and 1991 were:
Operating -
Operating Net -
Itevenues Income income. -
(In Thousands) 1992:
$186,791
$26,666
$11,083 First Quarter.
$202,?97
$25,830
$10,306 Second Quarter..
$229,209
$40,673
$25,002.
Third Quarter.
. $199,353
$31,405(1)
$18,645(1)
Fourth Quarter.
1991:
.. $173.118
$28,468
$12.122 '
First Quarter.
Second Quarter.
$181,181
$29,787
$13,b62 4.
$206,259
$38.941
$22,752 Third Quarter (2)
Fourth Quarter
$194,074
$25.765
$14,352 (1) The fourth quarter of 1992 reflects a decrease in income tax expense of $4.8 million due to estimates of income tax benefits related to tax depreciation having been adjusted as a result of certain elections made in conjunction with the filing of the 1991 tax return.
(2) The third quarter of 1991 reflects a one-time decrease in operating revenues of approximately i
$10.6 million as a result of an intra-system equalization billing adjustment recorded in Septem-ber 1991. The impact of this adjustment on third quarter 1991 operating income and net income was $6.3 million.
MP&lls business is subject to seasonal fluctuations with the peak period occurring during the third quarter, l
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hilSSISSIPPI POWER & LIGHT COhiPANY SELECTED FINANCIAL DATA-FIVE-YEAR COAIPARISON 1992 1991 1990 1989 19ss (In Thousands)
Operating revenues..,.
$ 817,650
$ 754,632
$ 761,168
$ 709,74',,
_$ 683,547 Net income.
$ 65,036
$ 63,0SS
$ ' 60,830
$ 12,419
$ 52,866 Total assets...,,
$1,660,726
$1.672,275
$1,616,522
$1,565,707
$1,555,149 Long-term obligations (l)
$ 574,098
$ 573,16S
$ 675,256
$ 659,141
$ ' 664,326 (1) includes long-term debt (excluding currently maturing debt), preferred stock with sinking fund and noncurrent capital lease obligations.
1992 1991 1990 1989 1988 Operating Revenues:
(Dollars in Thousands)
Residential..
$ 30S,346
$ 307,283
$ 302,622
$ 274.841
$ 258,378 Commercial 235.137 229,597 227,140 212,107 195,451 Industrial.,
168,853 162,072 160,007 147,146 134,378 Governmental.
26,250 25,630 25,117 23.624 21,143 Total retail.
738,5S6 724,5S2 714,656 657,718 609,350 l
Sales for resale.
37,9S3 25,467 35,675 45,SS6 60,772 Other.
41,0S1 4,563 -
10,624 6.142 13,425 l
Total.
$ 817,650
$ 754.632
$ 761,168
$ 709,746
$ 683.547 1
Energy Sales (hfillions of KWli):
Residential 3,644 3,739 3,701 3,452 3,430
-l Commercial 2.604 2,607 2.802 2.679 2,603 Industrial.
2,631 2,582 2.564 2,36S 2,228 Governmental.
318 321 318 30S 291 Total retail 9,397 9,449 9.3S5
' S,807 8,552 Sales for resale.
1,190 1.032 902 1.038 1,351 Total.
10.587 10.481 10.287 9,845 9.903 31
MISSISSIPPI POWER & LIGIIT CO%1PANY DIRECTORS, OFFICERS, AND OTilER INFORMATION DIRECTORS OFFICERS OTHER INFORMATION Mic hael B. Bemis Jerry L. Maulden Transfer Agent for Preferred 5tod:
Executne %ce President - Customer Chairman of the Board and Trustmark National Bank Seruce of MP&L. AP&L. LP&L. and Chief Executise Officer Post OEcc Box 291 N OPSI Jackson. Mississippi 39215-0291 Donald IL Mem.er5
.(601) 354-5061
- l. rank R. Day President Chairman of the Board and Chief Reghtrar for Preferred stock:
Esecutive Omeer of Trustmark Michael B. Bemi5 Deposit Guaranty National Bank National Bank. and Trustmark Esecuthe Vice President -
Post Ofke Box 1200 Corporation. Chairman of the daard Customer Seruce Jackson. Mississippi 39215 1200 and President of Smith County Bank.
g,01) 354-6114 Chairman of the Board of the Bank of Jerry D. Jac kson Executhe Vice President - Finance Trustee for Iirst Mortgage Bonds:
Edw ards and External Affairs and Secretar)
The Bank of New York John O.1.mmerich, Jr. ( A)
Corporate Trust Department Editor and Pubbsher of I. rank F. Callaher 101 Barclay Street Greenwood Commonwealth Senior ) ice President - Fossd 21st Floor Norman B. Gillis, Jr.
Operations New York, New York 10256 Attorney-at-l.aw.
Gerald D. McInsale 1 4 00-524 145S Gdhs & Gilhs Attorneys Senior Vice President and 1rustee for General and Donald C. Ilints Chief Financial Officer Refunding Bondu sensur Vice President - Nuclear of Bank of Montreal Trust Company Senior b.yI A1;gg)ec President - Marketing y ch,,l p R
AP&L and 1.P&L; President and Chief
- Water Street Esecuthe Officer of System Energy Jerry D. Jackson Bill I. Cossar (212) 701-7673 Executne h e President - Finance Vice President -
~
and External AHairs and Secretarv of Gosernmental Affairs Corporate Addresu Mississippi Power & Light Company Entergb MP&L AP&L LP&L. and Johnnt D. Enin 305 East Pearl Street NOPM Oce President -
Jackson, Mississippi 39201 Hohert E. Kennington,11 Customer Service Chairman of the Board of Grenada To request a copy of the Corporation's sunburst System Corporation and Glenn I; liarder(B) 1992 Annual Report to the Securities Sunburst P>ank Viec President - Financial and Enchange Commission on Strategies and Treasurer Forni 10 K (including MP&L's 1992 Edwin Lupherger Annual Report), call or write:
Chairman of the Board and Chief Richard J. landy Executhe O$e.er of Entergy; Chairman Vice President -lluman Resources Entergy Corporation of ihr Board ni Sy stem Energy and Adnunistration Imestor Belations Department Mail Smte PP/230s Jern L. Maulden Irc M. Bandall P. O. Box 61W5 Group President. System Executhe -
\\ ec President. Chief AccountinK New Orleans. LA 70161 i
Transmission. Distribution and OGeet and Anistant Secretary Telephone: (504) 569-43&5 Customer Scruce of Enferm 1 4 00 292-9960 Chairman of the Board and Chief Esecutne OEccr of MP&L. AP&L.
LP&l., and NOPM Donald 11 Meinen President of MP&L Jnhn S. Palmer, sr.
Chairman of the Board and Chief Esecutne Offh er of Mohde Telceanununicatmn Te< hnolomes Corporation Dr. Cl3da 5. Rent ( A )
President of Mississippi Unhersits i
for Women l
I L B. Robinson, Jr. ( A)
Chairman of the Board and Chki Esecutne OMeer of Deposit Guarantv National Bank and Depout Guaranty Corporation Dr. Walter Washington ( A)
President of Alcorn State Unhersits Hohert M. M illiams Jr.
Partner - Heeser Williams
( A) Member of Audit Committee (B) Effeethe in 19T) 32 l
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System Energy Resources, Inc./1992 Financial Statements 1
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SYSTEAf ENERGY RESOURCES,INC.
System Energy Resources,Inc. (System Energy), a nuclear generating company, has a 90 percent interest in Unit No. I of the Grand Gulf Station located near Port Gibson, Alississippi.
System Energy is a wholly-owned subsidiary of Entergy Corporation, a public utility holding company. The Entergy System's vast network ofinterconnected transmission and distribution lines and disersified grid of fossil fuel and nuclear generating plants provides electricity to more than L7 million retail customers in Arkansas, Louisiana, and Afississippi.
Headquartered in New Orleans, Louisiana, Entergy Corporation includes four retail operating companies: Arkansas Power & Light Company, Louisiana Power & Light Company, hiississippi Power
& Light Company, and New Orleans Public Service Inc. Entergy Corporation also owns all of the outstanding common stock of Entergy Services, Inc., Entergy Operations, Inc., Entergy Power, Inc.,
Entergy Enterprises. Inc., and System Energy Resources, Inc. Entergy Services provides various technical, administratis e, and corporate services to Entergy Corporation and the System companies.
Entergy Operations, a nuclear management service company, operates the System's nuclear generating u nit s.
Entergy Power, an independent power producer, owns and markets capacity and energy in wholesale markets not otherwise served presently by the Entergy System.
The Entergy System began a functional realignment of its activities during 1990 in order to be prepared to successfully meet challenges in the changing utility industry and to have the flexibility to compete effectisely in the years ahead. The realignment has resulted in the formation of three consohdated line functions. The Energy Supply organization is responsible for the management and operation of the Entergy System's nuclear and fossil-fueled generation. The Transmission, Distribu-tion, and Customer Service organization consists of transmission, customer services, retail marketing, state regulatory and governmental affairs. The Entergy Business Support organization was established to direct the administratise business functions of the System.
TABLE OF CONTENTS E*E Definitions 2
Report of 31anagement 4
Audit Committee Chairman's Letter 5
Independent Auditor's Report.
6 Balance Sheets and Statements of Cash Flow S
hianagement's Financial Discussion and Analysis 11 Statements ofIncome and Retained Earnings 13 i
Nianagement's Financial Discussion and Analysis (continued) 15 Notes to Financial Statements,
IS Selected Financial Data.
31 Directors. Officers, and Other Information.
32 t
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i SYSTEM ENERGY RESOURCES,INC.
DEFINITIONS Certain abbreviations or acronyms used in System Energy's Financial Statements, Notes, and Management's Financial Discussion and Analysis are defined below:
Abbreviation or Arronym Term AFUDC Allowance for Funds Used During Construction ALJ.
Administrative Law Judge -
AP&L's Arkansas Nuclear One Steam Electric ANO..
Generating Station i
AP&L Arkansas Power & Light Company Arkansas Public Service Commission APSC.
Agreement, dated as of June 21,1974, as ' amended.
I Availability Agreement.
among System Energy and the System operating companies, and the assignments thereof -
Capital Funds Agreement Agreement, dated as of June 21.1974, as amended, between System Energy and Entergy Corporation, and the assignments thereof City of New Orleans or City.
New Orleans, Louisiana Council Council of the City of New Orleans. Louisiana
~
D.C. Circuit.
United States Court of Appeals for the District of 1
Columbia Circuit DOE.
Department of Energy Entergy Operations.
Entergy Operations, Inc., a subsidiary of Entergy i
that has operating responsibility for Grand Gulf 1, Waterford 3, and ANO Entergy and its various direct and indirect Entergy System or System..
subsidiaries Financial Accounting Standards Board FASB..
February 4 Resolution The Resolution (including the Determinations and Order referred to therein) adopted by the 1
Council on February 4,1958 disallowing the recosery by NOPSI of $135 million of previously deferred Grand Gulf 1-related costs FERC.
Federal Energy Regulatory Commission FERC Complaint Case settlement..
Settlement, effective May 21,1991, whereby System i
Energy credited approximately $47.6 million in the aggregate (including interest) against its June 1991 bills to the System operating companies for capacity and energy from Grand Gulf L Grand Gulf Station Grand Gulf Steam Electric Generating Station Grand Gulf 1.
Unit No.1 of the Grand Gulf Station Grand Gulf 2.
Unit No. 2 of the Grand Gulf Station June 13 Decision An order issued by the FERC on June 13,1955 (Opinion No. 234) relating to the Unit Power Sales Agreement KWil Kilowatt.Ilours LP&L..
Louisiana Power & Light Company LPSC Louisiana Public Service Commission i
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SYSTE.\\1 ENERGY RESOURCES, INC.
DEFINITIONS - (Concluded)
Abbreviation or Acronym Term Aloney Pool.....
Entergy System hioney Pool which allows certain System companies to borrow from, or lend to.
certain other System companies I
hip &L,.
Alississippi Power & Light Company hf PSC.
hiississippi Public Service Commission NOPSI New Orleans Public Service Inc.
Nosember 30 Order.
An order issued by the FERC on November 30, 1987 (Opinion No. 292) which reaffirmed and reinstated the June 13 Decision
- f
- NRC, Nuclear Regulatory Commission PCRBs Pollution Control Revenue Bonds Reallocation Agreement.
1981 Agreement, superseded in part by a June 13, 1955 decision of FERC, among the System operating companies and System Energy relating to the sale of capacity and energy from the Grand Gulf Station SEC.
Securities and Exchange Commission i
SFAS.
Statement of Financial Accounting Standards promulgated by the FASB SSIEPA.
South hiississippi Electric Power Association System or Entergy System..
... Entergy and its various direct and indirect subsidiaries System Energy System Energy Resources. Inc.
System Fuels...
System Fuels. Inc.
System operating companies..
AP&L. LP&L, h1PotL and NOPSI, collectively Waterford 3.
Unit No. 3 of LP&L's Waterford Steam Electric Generating Station Unit Power Sales Agreement.
Agreement, dated as of June 10,.1982 as amended, among the System operating companies and
.- i System Energy, relating to the sale of capacity and energy from System Energy's share of Grand Gulf 1.
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1 SYSTENI ENERGY RESOURCES, INC.
REPORT OF hlANAGENIENT i
The management of System Energy Resources, Inc. has prepared and is responsible for the financial statements and related fmancial information included herein. The fmancial statements are based on generally accepted accounting principles. 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 ofinternal accounting controls that 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, an employee Code of Conduct, 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 independent 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 fmancial statements.
hianagement believes that these policies and procedures provide reasonable assurance that its operations are carried out with a high standard of business conduct.
&.. /) & M e-Dossto C. IhNTz GERALD D. htCINVALE President and Chie.f Executive Oficer Senior Vice President and Chief Financial Oficer i
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SYSTEM ENERGY RESOURCES,INC.
AUDIT COMMITTEE CIIAIRMAN'S LL' ITER.
1 The Entergy Operations Board of Directors' Audit Committee functions as the Audit Committee
. l for System Energy, The Audit Committee is comprised of three directors, who are not ofBeers of System Energy or Entergy Operations: Brooke II. Duncan (Chairman), Robert D. Pugh, and William Clifford Smith. The committee held three meetings during 1992.
The Audit Committee oversees System Energy's financial reporting process on behalf of the Board J
of Directors and provides reasonable assurance to the Board that sufBeient operating, accounting, and financial controls are in existence and are adequately reviewed by programs ofinternal and external audits.
' The Audit Committee discussed with Entergy's internal auditors and the independent public accountants (Deloitte & Touche) the overall scope and specific plans for their respective audits, as -
well as System Energy's financial statements and the adequacy of System Energy's internal controls.
The committee met, together and separately, with Entergy's internal auditors and independent public accountants, without management present, to discuss the results of their audits, their evaluation of System Energy's internal controls, and the overall quality of System Energy's financial reporting. The meetings also were designed to facilitate and encourage any private communication between the committee and the internal auditors or independent public accountants.
N?
WW
. I BnooKE H. DUNCAN Chainnan, Audit Committee 4
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..m.,.sv
m.
b INDEPENDENT AUDITORS' REPORT To the Shareholder and the Board of Directors of System Energy Resources, Inc.
We have audited the accompanying balance sheets of System Energy Resources, Inc. (System Energy) as of December 31,1992 and 1991, and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31,1992. These financial statements are the responsibility of System Energy's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasona-ble basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of System Energy at December 31,1992 and 1991, and the results ofits operations and its cash flows for each of the three years in the period ended December 31,1992 in conformity with generally accepted accounting principles.
As discussed in Note 2, " Rate and Regulatory Matters - FERC Audit" of Notes to Financial Statements, a regulatory proceeding is pending which, if ultimately resolved in an ' adverse manner, would require that System Energy (1) write off and not recover in rates approximately $95 million of costs charged to utility plant resulting from System Energy's accounting for certain allocated income tax charges and (2) make refunds for overcollections from the Entergy System operating companies related thereto. The ulti nate outcome of this uncertainty cannot presently be determined. Accord-ingly, no provision has been made in the accompanying financial statements for the possible effects of a decision adverse to System Energy.
Y DELOllTE & TOUCllE New Orleans, Louisiana February 12.1993 l
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SYSTEM ENERGY RESOURCES,INC.
BALANCE SiiEETS ASSETS December 31, 1992 1991 (In Thomands)
Utility Plant (Note 1):
$3,002,812
$3,011,223 l
Electrie..
Electrie plant under lease (Note 8)...
437,317 438,410 Construction work in progress..
30,658 34,091 Plant held for future use..
16.429 12,119-Nuclear fuel under capital lease (Notes 7 and 8).........
67,991 05,206 Nuclear fuel 14.369 Total 3,555.207 3,595.418 Less - Accumulated depreciation,.
572.302 505,928 Utility plant - net.
2,982,905 3,089.490 Other Investments:
Decommissioning trust funds (Note 7).
19,127 13,456 Current Assets:
Cash and cash equivalents (Note 1):
Cash.
175 Temporary cash investments-at cost, which approximates market:
13,993 9.114 Associated companies (Note 4)
Other 167,602 85,221 Total cash and cash equivalents.
181,795 94,510 Accounts receivable:
60,601 61,962 l
Associated companies (Note 10)
Other 4,S71 3,735 Materials and supplies - at average cost.
71,660 66,169 Recoverable income taxes (Note 3) 47,900 54,600 Prepayments and other.
3.497 4.165 Total
-370,324 285.161 l
Deferred Debits:
Recoverable income taxes (Note 3) 174,941 164,766 Unamortized loss on reacquired debt 14,723 11,751 l
110,421 77,549 l
Other (Notes 7 and S) l Total 300,085 254,066 l
$3.672,441
$3.642c203 l
TOTAL.
See Notes to Financial Statements.
i i
8
1 SYSTEM ENERGY RESOURCES,INC.
BAIANCE SIIEETS I
CAPITALIZATION AND LIABILITIES Decernber 31 1992 1991 (In Thousands)
Capitalization:
Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 789,350 shares in 1992 and 1991
$ 789,350
$ 789,350 367.747 375.306 Retained earnings (Note 6).....
Total common shareholder's equity.
1,157.097 1.164.656 Long-term debt (Note 5).
1,755,308 1,682.265 Total.
2,912,405 2,846.921-Other Noncurrent Liabilities:
Obligations under capital lease (Note 8)...
12.991 25.206 Current Liabilities:
Currently maturing long-term debt (Note 5) 30,000 115,750 Accounts payable:
Associated companies (Note 10) 2,164 16.345 33.110 49,446 Other 23.224 20,552 Taxes accrued........
Interest accrued.
50,560 49.308 55,000 60.000
' Obligations under capital lease (Note 8) 530 139 Other 194.588 311.540 Total......
Deferred Credits:
Accumulated deferred income taxes (Note 3) 349.0S1 315.148 Accumulated deferred investment tax credits (Note 3) 144.284 111,981 59.092 31,407 Other (Note 7).
552.457 45S,536 Total.
Commitments and Contingencies (Notes 2 and 7)
TOTAL.
$3.672.441
$3,642.203 See Notes to Financial Statements.
9
SYSTEAi ENERGY RESOURCES,INC.
STATEMENTS OF CASil FLOWS For the Years Ended December 31 1992 1991 1990 (In Thousands)
Operating Activities:
Net income.
$ 130.141
$ 104,622
$ 168,677 Noncash items included in net income:
Depreciation.
85,932
_ 65,956 69,653 Deferred income taxes and investment tax credits 70,356 79,660 109,282 l
Allowance for equity funds used during construction.
(681)
(763)
(442)
Amortization of debt discount.
6,417 7,495 10,532 Changes in working capital:
Receivables.
225 (5,530) 13,175 Payables (30,517) 37,511 '
(23,632)
Materials and supplies....
(5.471) 10,479 (6,577)
Taxes and interest accrued.
3.924
. (10,423)
-(481)_
Other working capital accounts.......
1,059 5,237 (264)
Income tax impact of future benefit related to AFUDC 9,661 Recoverable income taxes (Note 3).
(3,475)
(14,277) 32,246 Change in decommissioning trust funds.
(5,641)
(2,201)
(5,847)
Gain on disposition of property.
(
_ 7,189)
Other.
56 (15,175) 900 Net cash flow provided by operating activities 252,355 282,621 369,894 Investing Activities:
Construction expenditures (21,671)
(21,663)
(24,633)-
Allowance for equity funds used during construction 681
'763-442 Nuclear fuel expenditures.....
(13,724)
(28,922)
(48,607)
Proceeds from sale of assets.
13,046 Change in other temporary investments.
125.225 (125,225).
Net cash flow provided (used) by investing activities (34,714) 75.403 (184,977)
Financing Activities:
Proceeds from sale and leaseback of nuclear fuel.......
28.094 14,552
.48,607 Retirement of first mortgage bonds (240,750)
(294,000)
(72,234)-
Issuance of first mortgage bonds.
" O,000 Common stock dividend payments.
(137,700)
(115,785)
(279,230)
Other.
(279) 279 Net cash flow used by financing activities.
(130.356)
(395.512)
(302,578)
Net increase (decrease) in cash and cash equivalents....
87,2S5 (37.4SS)
(117,661).
Cash and cash equivalents at beginning of period.
94.510 131,998 249.659 Cash and cash equivalents at end of period.
$ 181,795
$ 94,510
$ 131,998 SUPPLEMENTAL DISCLOSURES OF CASil FLOW INFORMATION:
Cash paid (received) during the period for:
~j Interest (net of amount capitalized)
$ 201,257
$ 238,199
$ 246,280 Income taxes (refunds)....
$ 21,431
$ (12,667)
$ (37,383) i See Notes to Financial Statements.
10
SYSTEM ENERGY RESOURCES,INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITi' AND FINANCIAL CONDITION Overview The financial condition of System Energy significantly depends on the continued commercial operation of Grand Gulf I and on the receipt of payments from the System operating companies.
Payments under the Unit Power Sales Agreement are System Energy's only source of operating revenues. As detailed in the Statements of Cash Flows, System Energy's cash requirements in 1992, including dividend payments to Entergy, were satisfied with internally generated funds and cash on -
hand, supplemented by issuances of debt.
In addition, System Energy's financial condition could be affected by'the outcome of a pending -
FERC audit matter. In December 1990 FERC Division of Audits issued a report for System Energy that.
recommended that System Energy write off and not recover in its rates approximately $95 million of Crand Gulf I costs included in utility plant, and compute refunds for over collections from the System operating companies. In August 1992, FERC issued an opinion and order ( August 4 Order) affirming an initial decision by a FERC ALJ. System Energy filed a Request for Rehearing, and in October 1992, FERC issued an order allowing additional time for its consideration of the request, and it deferred System Energy's refund obligation until 30 days after FERC issues an order on rehearing. If the decision is implemented, System Energy estimates that as of December 31,1992, net income would be reduced by $141.1 million. This amount includes refund obligations of approximately $90.2 million (including interest). See Note 2, incorporated herein by reference, for additional information. System Energy's financial condition could also be affected by uncertainties regarding its FERC Return on Equity case. See Note 2, incorporated herein by reference, for additional information.
Operating Activities Net cash flow from operations totaled $252.4 million in 1992. While there were no significant nonrecurring items, various factors contributed to our cash position at year end.
Investing Activities P
in 1992, cash was used primarily for construction expenditures related to existing plant and nuclear fuel expenditures.
-E Financing Activities In 1992, System Energy's primary financing activities included the refinancing of high-cost debt, receipt of proceeds from the sale and leaseback of nuclear fuel, and dividend payments on common stock.
j Capital and Refinancing Requirements and Capital Resources See Note 7, incorporated herein by reference, for information on System Energy's capital and refinancing requirements for 1993 through 1995.
7 Earnings coverage tests, bondable property additions, and equity ratio requirements contained in its mortgage, and in its letters of credit and reimbursement agreement in connection with its sale and leaseback transactions, limit the amount of first mortgage bonds that System Energy can issue. Based on the most restrictive applicable tests as of December 31,1992.md assuming an annual interest rate of 9%, System Energy could have issued $250 million of additional first mortgage bonds. System Energy has the conditional ability to issue first mortgage bonds against the retirement of first mortgage bonds without satisfying an earnings coverage test, 11
m SYSTEM ENERGY RESOUllCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS LIQUIDITY AND FINANCIAL CONDITION- (Concluded) in connection with the financing of Grand Gulf 1. Entergy has undertaken, in the Capital Funds Agreement, to provide to System Energy sufficient capital to (1) maintain System Energy's equity capital at an amount equal to at b o 35% of System Energy's total capitalization (excluding short-term debt), (2) permit the continuation of commercial operation of Grand Gulf I and (3) enable System Energy to pay in full all borrowings, whether at maturity, on prepayment, on acceleration or otherwise.
In addition, Entergy has agreed in the Capital Funds' Agreement to make certain cash capital contributions, if required, to enable System Energy to make payments when due on specific issues of its long-term debt.
See Note 4, incorporated herein by reference, for information regarding System Energy's short-term borrowings authorizations.
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SYSTEM ENERGY RESOURCES,INC.
- STATEMENTS OF INCOME For the Years Ended December 31, ID92 1991 1990 (In Thousands)
Operating Revenues.................
$723,410
$686.664
$801.618 Operating Expenses:
Operation:
Fuel for electric generation and fuel-related expenses.
55.110 78,060 78,968 Other...
102,971 79,494 97,133 Maintenance 29,370 14.358 31.594 Depreciation and decommissioning (Notes 7 and 8).....
90,628 87.296 75,789 Taxes other than income taxes 28,717 27,342 25,879 93,438 81,302 110.227 Income taxes (Note 3).
Total 400,234 367.852 419,590 323.176 318.812 382.028 Operating income....
Other Income:
Allowance for equity funds used during construction..
. 681 763 442 Miscellaneous - net..
5,816 6.378
25,093 Income taxes (Notes I and 3)...
4,584 7.726 (3,675) -
Gain on disposition of property...
7.169 Total...
11.081 14,867 29,049 Interest Charges:
Interest on long-term debt.
196,618 218,538 -
230,643 Other interest - net.....
7,923 11.111 11,992 Allowance for borrowed funds used during construction.
(425)
(592)
(235)
P Total..
204.116 229.057 242,400 Net income.....
$130.141
$104,622
$168.677 i
See Notes to Financial Statements.
13
t --
SYSTEM ENERGY RESOURCES,INC.
t STATEMENTS OF RETAINED EARNINGS For the Years Ended December 31.
1992 1991
-1990 (In Thousands)
Retained Earnings, January 1.
5375,306
$3S6,469
$497,022 Add:
Net income 130,141 104,622 168,677
- Total 505,447 491,091 665,699 Deduct:
Cash dividends.
137,700 115,785 279,230 Retained Earnings, December 31 (Note 6)
$367,747
$375.306
$3S6,469 See Notes to Financial Statements.
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a SYSTEh! ENERGY RESOURCES, INC.
[
t hiANAGEhfENT*S FINANCIAL DISCUSSION AND ANALYSIS
~
RESULTS OF OPERATIONS Net Income s
Net income increased in 1992 primarily due to the impact of the FERC Complaint Case settlement -
recorded in June 1991, which reduced net income by approximately 536 million in 1991. See Note 2, incorporated herein by reference, for further information on this settlement. In addition,1992 net income was impacted by a reduction in interest expense (as a result of the repayment of and refunding.
of higher cost debt) not recovered through rates, a decrease in interest income ' attributable to lower average insestment balances and lower yields on those investments, and the lower return System Energy earned on its net investment in Grand Gulf I during 1992.
Net income decreased in 1991 due, in part, to the effect of the FERC Complaint Case settlement discussed above. In addition, net income decreased due to the impact of the lower return System Energy earned on its investment in Grand Gulf 1, and a number of other factors, including changes in interest income, and depreciation expense.
Significant factors affecting the results of operations and causing variances betweu the years 1992 and 1991, and 1991 and 1990 are discussed under "Resenues" and " Expenses" below.
Revenues System Energy': operating revenues recover operating expenses depreciation and capital costs attributable to Grand Gulf 1. The capital costs are computed by allowing a return, currently set at a rate of 13%, (see Note 2, incorporated herein by reference, for further information on the. FERC Return on Equity case) on System Energy's common equity funds allocable to its investment in Grand i
Gulf I plus System Energy's effective interest cost for its debt allocable to this investment.
Operating revenues were higher in 1992 and lower in 1991 due primarily to the effect of the FERC i
Complaint Case settlement. The higher operating revenues in 1992 also reflect the increase in 1992 operating expenses primarily associated with the scheduled fifth refueling outage. System Energy's --
1991 operating revenues were reduced by approximately $70 million as a result of the FERC Complaint l
Case settlement. Operating revenues also declined in 1992 and 1991 due to the lower return System l
Energy earned on its investment in Grand Gulf I resulting from a decrease in net unit investment.
Future revenues attributable to the return on insestment are expected to decrease by approximately
$11 million in 1993 and by declining amounts each year thereafter as a result of the depreciation of System Energy's investment in Grand Gulf 1.
Expenses Grand GulfI was on-line for 29S of 366 days in 1992 as compared with 335 of 365 days in 1991. The unit capability factor, which is a measure of the unit's performance (based on a ratio of available energy generation to the maximum power capability multiplied by the period hours), was 79.9% for 1992 as compared with 68.7% for 1991. These sariances are primarily due to the unit's fifth refueling outage that lasted from April 17,1992 to June 9,1992 (52 days) and due, to a lesser extent, to a ten day unplanned outage in January,1992. The 1992 outages contributed significantly to the decrease in 1992 fuel for electric generation and fuel-related expenses and to the increases in 1992 other operation i
expense and maintenance expense. The decrease in fuel expense during 1992 is also due to the replacement of approximately one-third of the reactor core with less expensive nuclear fuel during the
.i fifth refueling outage. hiaintenance expense was lower in 1991 than in 1990 primarily because there I
was no refueling outage in 1991.
The FERC Complaint Case settlement, recorded by System Energy in June 1991, contributed to fluctuations in 1992 and 1991 operating results. Other operation expense increased in 1992 and 15 l
l i
I SYSTEM ENERGY RESOURCES, INC.
MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS i
RESULTS OF OPERATIONS - (Concluded) decreased in 1991 due, in part, to the provision of that settlement that called for 1991 credits from System Energy to the System operating companies totaling approximately $10 million relating to E
System Energy's rate treatment of the portions of Grand Gulf I sold and leased back. Miscellaneous other income-net decreased in 1991 due primarily to one-time charges associated with the settlement.
}
The tax effects of the settlement resulted in higher income taxes in 1992 and lower income taxes in f
1991.
Other than the operating results fluctuations related to refueling outages and the FERC Complaint Case settlement. other significant operating results flocteations for 1992 and 1991 included a decrease in miscellaneous other income-net, in 1992, due primarily to decreased interest income resulting from lower imestment balances and lower yields on these imestments. The decrease in this line item in 1991 was also due in part to a decrease in interest income resulting from the lower investment t
I balances. Depreciation expense increased during 1991 primarily due to the deferral in 1990 of approximately $30 million of depreciation expense representing current and prior year depreciation l
expense related to the sale and leaseback property. The amount of depreciation expense deferred in 1991 was approximately $15 million. See Note 8, incorporated herein by reference, for further information. System Energy's gain on disposition of property in 1990 was due to the sale of certain Grand Gulf 2 property that was written offin 1959.
4 i
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SYSTEN1 ENERGY RESOURCES,INC.
SIANAGENIENT'S FINANCIAL DISCUSSION AND ANALYSIS SIGNIFICANT FACTORS AND KNOWN TRENDS.
FERC Audit See Note 2, incorporated herein by reference, for information with respect to a decision issued by the FERC that, if irnplemented, would require System Energy to write off and not recover in rates approximately 595 million of Grand Gulf I costs.
Accounting issues See Note 3, incorporated herein by reference, for information on accounting for income taxes (SFAS No.109).
l l
17
=. -...
SYSTEh! ENERGY RESOURCES, INC.'
f NOTES TO FINANCIAL STATEAIENTS l
1 NOTE 1. SU5thiARY OF SIGNIFICANT ACCOUNTING POLICIES System Energy maintains accounts in accordance-with FERC guidelines. Certain previously reported amounts have been reclassified to conform to current classifications.
t Organization System Energy is a generating company providing electricity to the System opeiating companies and has a 90% interest in Grand Gulf 1, a nuclear generating station that began commercial operation F
in 1955. The Grand Gulf Station was originally designed as two 1.250 megawatt nuclear generating units. In September 1989, System Energy canceled and wrote off its investment in Grand Gulf 2. In June 1990, Entergy Operations assumed responsibility for the operation and maintenance of Grand Gulf 1.
- System Energy has a combined ownership and leasehold interest of 90% and ShiEPA has an undivided ownership interest of 10% in Grand Gulf L System Energy records its insestment associated with Grand Gulf 1 to the extent to which it owns and maintains a leasehold interest in the generating
)
station. Likewise, System Energy's operating expenses reflected in the accompanying financial l
statements represent 90% of such Grand Gulf 1 expenses.
l l
Utility Plant j
Utility plant is stated at original cost, with additions to utility plant recorded at cost. The original cost of utility plant retired or removed, plus the applicable removal costs, less salvage is charged to accumulated depreciation. hiaintenance, repairs, and minor replacement costs are charged to operat-I l
ing expenses.
AFUDC represents the approximate net composite interest cost of borrowed funds and a reasonable return on the equity funds used for construction. Although AFUDC increases utility plant and represents current earnings, it is only realized in cash through depreciation provisions included in rates. System Energy's effective composite rates for AFUDC were 10.0%, 9.9%, and 10.2% for 1992, 1991, and 1990, respectively.
Utility plant includes the portions of Grand Gulf 1 that were sold and are currently under lease.
System Energy retired this property from its continuing property records as formerly owned property
[
i released from and no longer subject to System Energy's mortgage and deed of trust. System Energy is l
reflecting such leased property for financial reporting purposes as property under lease from others and is depreciating this property over the life of the basic lease term. Such depreciation is being l
i deferred until recoserable from customers in future periods. See Note S.
Depreciation is computed on a straight-line basis at rates based on the estimated service lives of the various classes of property. Depreciation provisions on average depreciable property approximated 2.55% in 1992,1991, and 1990.
[
Substantially all of the utility plant owned by System Energy is subject to the lien of its first
[
mortgage bond indenture.
4 income Taxes System Energy,its parent, and afEliates file a consolidated federal income tax return. Income taxes r
are allocated to System Energy in proportion to its contribution to consolidated taxable income. SEC l
regulations require that no System company pay more taxes than it would hase had a separate income tax return been filed. Deferred income taxes are recorded based on differences between book and i
taxable income to the extent permitted for ratemaking purposes. Juvestment tax credits are deferred 16 t:
I
SYSTEN1 ENERGY RESOURCES,INC.
NOTES TO FINANCIAL STATEN1ENTS - (Continued) and amortized based upon the average useful life of the related property in accordance with rate treatment.
In addition. System Energy files a consolidated hiiasissippi state income tax return with certain other system companies.
Cash and Cash Equivalents For purposes of the Statements of Cash Flows, System Energy considers all unrestricted highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Fair Value Disclosure SFAS No.107, which is effective for fiscal years ending after December 15, 1992, requires disclosure of the fair value of all significant financial instruments. The estimated fair value amounts hase been determined by System Energy, using available market information and appropriate valuation methodologies. Ilowever, considerable judgment is required in developing the estimates of fair value. Therefore, our estimates are not necessarily indicative of the amounts that System Energy could realize in a current market exchange. In addition, gains or losses realized on fmancial instruments would generally be reflected in future rates and not accrue to the benefit of stockholders.
System Energy considers the carrying amounts of financial instruments classified as current assets and liabilities to be a reasonable estimate of their fair value because of the short maturity of these instruments. In addition, System Energy does not presently expect that performance ofits obligations will be required in connection with certain off-balance sheet commitments and guarantees considered fmancial instruments. Due to this factor, and because of the related party nature of these commitments and guarantees, determination of fair value is not considered practicable. See Notes 5 and 7 for additional fair value disclosure.
NOTE 2. RATE AND REGULATORY NIATTERS FEliC Audit In December 1990. FERC Division of Audits issued a report for System Energy for the years 1956 through 1968. The repod recommended that Sy stem Energy (1) write off and not recover in rates approximately $95 million of Grand Gulf I costs included in utility plant related to certain System income tax allocation procedures (and System Energy's accounting resulting from certain allocated income tax charges) alleged to be inconsistent with FERC's accounting requirements and (2) compute refunds for the years 19S7 to date to correct for overcollections from the System operating companies.
In August 1992, FERC issued an opinion and order (August 4 Order) affirming an initial decision by a FERC ALJ which found that System Energy oserstated its Grand Gulf I utility plant account by approximately $95 million as indicated in FERC's report. The order required System Energy to make adjusting accounting entries and refunds, with interest, to the System operating companies within 90 day s from the date of the order, System Energy filed a Request for Rehearing, and in October 1992.
FERC issued an order allowing additional time for its consideration of the request. In addition, it -
deferred System Energy's refund obligation until 30 days after FERC issues an order on rehearing.
Should such refunds and adjusting entries be necessary, System Energy estimates that as of Decem-ber 31,1992, its net income would be reduced by approximately $141.1 million. This amount includes System Energy's potential refund obligation which is estimated to be 590.2 million (including interest) as of December 31,1992. The ongoing effect of this order,ifimplemented, would be to reduce System Energy's revenues by approximately $22.0 million during the first twelve months following the write-19 s
SYSTEh! ENERGY RESOURCES, INC.
i NOTES TO FINANCIAL STATEN11ATS - (Continued) off and by a comparable amount (but decreasing by approximately $0.5 million per year) in each subsequent year.
If the August 4 Order is implemented, System Energy would need the consent of certain banks to temporarily waive the fixed charge coverage covenants in the letters of credit and reimbursement agreement related to the Grand Gulf I sale and leaseback transaction (see Note 7) in order to avoid violation of the cosenant. Absent a waiver, System Energy's failure to perform this covenant could cause a draw under the letters of credit and/or early termination of the letters of credit. If the letters of credit were not replaced in a timely manner, a default or early termination of System Energy's leases l
could result.
System Energy believes that its consolidated income tax accounting procedures and related rate treatment are in compliance with SEC and FERC requirements and is vigorously contesting this issue.
The ultimate resolution of this matter cannot be predicted.
FERC Return on Equity Case 1
In August 1992, FERC instituted an insestigation of the justness an.d reasonableness of all formula wholesale rates that include a return on equity component greater than 11.6% for System Energy as well as the System operating companies l
Payments receised by System Energy under the Unit Power Sales Agreement are its only source of operating revenues. Rates under the Unit Power Sales Agreement are based on System Energy's cost of service including a return on common equity, which is currently set at 13%. If FERC were to reduce System Energy's rate of return on common equity, its annual net income would be reduced by I
approximately $10 million for each 1% of reduction. A prehearing conference was held in Octo-I ber 1992, and hearings are scheduled to begin in April 1993 with an initial decision expe:*~l on or about October 15,1993. Any refunds payable would be due prospectively from November 2,1992.
System Energy cannot predict to what extent,if any, FERC will reduce its rate of return on common equity.
FERC Complaint Case Settlement in February 1990, the APSC, the LPSC, the blPSC, the hiississippi Attorney General, and the City of New Orleans filed a complaint with FERC against System Energy and Entergy Services, Inc. (as agent for Entergy Corporation and the System operating companies) alleging that the rates being charged to the System operating companies by System Energy for capacity and energy from Grand Gulf I were not just and reasonable. This filing was consolidated with proceedings related to System Energy's decommissioning collections.
In 51ay 1991, a settlement was reached which, among other things (1) reduced System Energy's rate of return on common equity from 14% to 13% effective retroactively to April,1990, (2) imposed no ceiling for ratemaking purposes on System Energy's common equity ratio; (3) established a zero cash working capital alloivance, effective retroactively to April 1990, (4) resolved the cost of service treatment of certain Grand Gulf 2 assets transferred to Grand Gulf 1; (5) set the amount to be collected in rates for the cost of decommissioning System Energy's 90% interest in Grand Gulf I at approximately $19S million in 1969 dollars (with a new study of these costs to be prepared and submitted to FERC on or before June 1, 1995); (6) increased Sy stem Energy's decommissioning expense collections from approximately $1.1 million to approximately $4.3 million per year, effective retroactively to June 1990, subject to a 5% annual inflation adjustment; and (7) provided for 1991 credits from System Energy to the System operating companies totaling approximately $17 million relating to System Energy's rate treatment of the portions of Grand Gulf I sold and leased back. The 20
i SYSTEM ENERGY RESOURCES,INC.
NOTES TO FINANCIAL STATEMENTS - (Continued) settlement did not resolve income tax accounting issues raised in the complaint (see "FERC Audit" i
above). The settlement was approved by FERC in September 1991.-
]
Based on the settlement, System Energy credited in 1991 approximately $47.6 million in the aggregate (including interest) against its bills to the System operating companies for capacity and energy from Grand Gulf 1. As a result of the FERC Complaint Case settlement,1991 net income was reduced by approximately $36.0 million, of which approximately $15.8 million relates to billings in 1990.
l NOTE 3. INCOME TAXES Income tax expense consists of the following:
For the Yean Ended December 31, 1992 1991 1990 (in Thousands)
Current:
Federal.......
$13,890
$(31,900)
$ (4,176)
State.
6,786 5,052 8,796 Total..
20,676 (26.848) 4,620 Deferred - net:
Liberalized depreciation......
43.873' 45.551 46,825 Nuclear fuel......
(3,299)
(2.927) 1,424 Capitalized interest (1.402)
(1,441)
(721)
Taxes capitalized..
(935)
(572)
(1,154)
Other.....
(182)
(3.443) 6,588 Total.
38,055 37.168 52,962 Investment tax credit adjustments - net...
- 30.123 63,256 56,320 Recorded income tax expense.....
$88.854 8 73,576
$113,902 Charged to operations.......
$93,438
$ 81.302
$110,227 Charged (credited) to other income (4,584)
(7.726) 3,675 Recorded income tax expense 88,854 73.576 113,902 -
Income taxes applied against the debt component of AFUDC.
253 352 140 Total income taxes...........
689.107
$ 73,928
$114,042 21
i SYSTENi ENERGY RESOURCES,INC.
NOTES TO FINANCIAL STATEMENTS - (Continued) i Total income taxes differ from the amounts computed by applying the statutory Federal income tu rate to income or loss before taxes. The reasons for the differences are:
For the Years Ended December 31, 1992 1991 1990 i
% of
% of
% of Pre.tas Pre.tas Pre-tas Amount Income Amount Income Amount Income (Dollars in Thousands)
Computed at statutory rate
$74,455 34.0
$60,557 34.0
$ 96.077 34.0 Increases (reductions) in tax resulting from:
Depreciation.
I1,520 5.3 S.343 4.7 8.326 2.9 State income taxes net of federal income tax effect S.350 3.S 6,084 3.4 10,115 3.6 Amortization of investment tax credits.
(b,565) (1.5)
(1,92S) (1.1)
(749). (0.3)
Other - (net).
(1.639) g) 490 0.3 133 Recorded income tax expense.
6S,554 40.6 73,576 41.3 113,902 40.2 Income taxes applied against the debt component of AFUDC 253 0.1 352 0.2 140 Total income taxes.
$59.107 40.7
$73,928 41.5
$114.042 40.2 Recoverable income taxes include the tax effects of the substantial tax loss generated in September 1959 by the Grand Gulf 2 write-off. The loss was recognized in 19S9 and increased System Energy's net operating loss carryforward, to a total of approximately $639.9 million as of December 31, 1992 which may be utilized in the future to offset taxable income. If not utilized to offset Federal taxable income, income tax bene 0ts related to the net operating loss carryforwards will expire in the L
years 2004 through 2007. In connection with an Internal Revenue Service (IRS) audit of Entergy's i
1988,1989, and 1990 consolidated federal income tax returns, the IRS is propesing that adjustments be made to the Grand Gulf 2 abandonment loss deduction claimed on Entergy's 19S9 consolidated federal income tax return. If any such adjustments are necessary the effect on System Energy's net income should be immaterial. Entergy intends to contest the proposed adjustments if finalized by the IRS. The outcome of such proceedings cannot be predicted at this time.
The alternative minimum tax (AhiT) credit at December 31,1992 was $18.9 million. This AMT credit can be carried forward indefinitely and will reduce System Energy's federal income tax liability in the future.
In February 1992, the FASB issued SFAS No.109, " Accounting for Income Taxes." which is generally effective for fiscal years beginning after December 15,1992.The new standard requires that deferred income taxes be recorded for all temporary differences and carryforwards, and that deferred
- tax balances be based on enacted tax laws at tax rates that are expected to be in effect when the temporary differences reverse. The new standard was adopted by System Energy effective January 1, 1993. As a result of the adoption of SFAS No.109, System Energy's 1993 net income will be increased by $0.4 million, assets will be increased by $504.6 million and liabilities will be increased by
$504.2 million.
(
l NOTE 4. LINES OF CREDIT AND RELATED RORROWINGS The SEC has authorized System Energy to effect short. term borrowings up to $125 million, subject to ir. crease to as much as $23S million after further SEC approval. These authorizations are effective through November 30.1994. In addition, System Energy can borrow from the Money Pool, subject to 22 r
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SYSTEM ENERGY RESOURCES,INC.
NOTES TO FINANCIAL STATEMENTS - (Continued) its maximum authorized level of short-term borrowings and the availability of funds. System Energy had no short. term borrowings or bank lines of credit as of December 31,1992.
NOTE 5. LONG. TERM DEBT The long. term debt 'of System Energy as of December 31,1992 and 1991 was as follows:
1992 1991 (In Thousands)
First Mortgage Bonds:
14.34% Series, Due 1992....
$ 100,000 -
14% Series, Due 1994.
...... $ 200,000 200,000 6.12% Series. Due 1995..
105,000 10%% Series. Due 1996......
250,000 250,000 11% Series, Due 2000...
120,000.
255,750 -
8.25% Series, Due 2002.
70,000 8.4% Series. Due 2002.
45,000 11%% Series, Due 2016..
90,319-90,319 Total.
650.319 896,069.
Pollution Control Revenue Bonds:
Claiborne County, Mississippi-9%% Series, Due 2013....
49,500 49,500 8.25% Series. Due 2014.
27,100 27,100 9%% Series, Due 2014..
206.000 206,000 12.5% Series. Due 2015...
44,000 44,000 9.5% Series. Due 2016.
90,000 90.000 Total.
416,600 416.600 Grand Gulf I Lease Obligations (Note 8).
500,000 500,000 Unamortized Discount.
(11,611)
(14.654)'
Total Long-Term Debt.
1,755,308 1,798,015, Less - Amount Due Within One Year.....
30.000 115.750 Lcmg. Term Debt Excluding Amount Due Within One Year.... $1,755.308
$1,682.265 The fair value of certain of System Energy's long. term debt as of December 31,1992 was estimated.-
to be (in millions) $968.4 for Brst mortF1e bonds and $474.3 for pollution control revenue bonds. Fair values were determined using bid prices reported by dear markets and by nationally recognized investment banking firms. See Note 1 for additional information on disclosure of fair value of Snancial instruments.
For the years 1993.1994.1995,1996 and 1997 System Energy has long-term debt maturities and sinking fund requirements (in millions) of $30,5230, $135, $250, and $0, respectively.
System Energy has SEC authorization for the issuance and sale of up to $500 million of Brst -
mortgage bonds through December 30,1994 (of which $280 million remains available as of Decem-ber 31,1992). In addition. System Energy has SEC authorization for the acquisition of not more than
$500 million ofits outstanding Erst mortgage bonds through December 31,-1994_all of which remains available as of December 31,1992.
The pollution control revenue bonds due 2015 at 12.50% and those due 2016 at 9.50% are secured by $47.2 million and $95.6 million, respectively, of non. interest bearing Brst mortgage bonds.
23
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SYSTE51 ENERGY RESOURCI7.S,INC.
NOTES TO FINANCIAL STATEN1ENTS - (Continued)
NOTE 6. DIVIDEND RESTRICTIONS Various agreements relating to the long-term debt of System Energy restrict the payment of cash dividends or other distributions on its common stock. As of December 31,1992, $172.0 million of System Energy's retained earnings were restricted against the payment of cash dividends or other distributions on common stock.
NOTE 7. CONI 5 TIT 5 TENTS AND CONTINGENCIES Capital Requirement. and Financing l
Construction e.xpeeditures (excluding nuclear fuel) for the years 1993,1991, and 1995 are estimated to total $23.2 million, $25.8 million, and $22.6 million, respectisely. System Energy will also require $395.0 millim 'uring the period 1993-1995 to meet long-term debt maturities and sinking fund requirements. System Energy plans to meet the above requirements with internally generated funds and cash on hand supplemented by the issuance oflong-term debt. See Note 5 for the possible issuance of new first mortgage bonds and the potential refunding, redemption, purchase, or other acquisition of.
outstanding first mortgage bonds.
Capital Funds Agreement Entergy has agreed to arrange for or supply to System Energy sufficient amounts of capital to (1) maintain System Energy's equity capital at not less than 35% of System Energy's total capitalization (excluding short-term debt), and (2) continue commercial operation of Grand Gulf I and enable L
System Energy to pay its borrowings under any circumstances. In addition, under supplements to the Capital Funds Agreement assigning System Energy's rights as security for specific debt of System Energy, Entergy has agreed to make cash capital contributions to enable System Energy to make payments on such debt when due.
l System Energy has entered into various agreements with the System operating companies, whereby the System operating companies are obligated to purchase their respective entitlements of l
capacity and energy from System Energy's 90% ownership and leasehold interest in Grand Gulf 1 and I
to make payments that, together with other available funds, are adequate to cover Sptem Energy's operating expenses. System Energy would have to secure funds from other sourecs, including Entergy's obligations under the Capital Funds Agreement, to cover any shortfalls from payments received from the System operating companies under these agreements.
j Unit Power Sales Agreement System Energy has agreed to sell all ofits 90% owned and leased share of capacity and energy from I
Grand Gulf I to the System operating companies in accordance with specified percentages (AP&L 36%, LP&L 14%, hf P&L 33%, NOPSI 17%) as ordered by FERC. Charges under this agreement are paid f
in consideration for the respective entitlements of the System operating companies to receive capacity and energy, and are payable irrespective of the quantity of energy delivered so long as the unit remains l
in commercial operation. The agreement will remain in effect until terminated by the parties and i
approved by FERC, which most likely would occur after Grand Gulf l's retirement from service. The monthly obligation for payments from the System operating companies to System Energy is approxi-mately $60 million.
Availability Agreement The System operating companies are individually obligated in accordance with stated percentages f
(AP&L 17.1%, LP&L 26.9% hip &L 31.3%, and NOPSI 24.7%) to make payments or subordinated 24
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SYSTEN! ENERGY RESOURCES, INC-NOTES TO FINANCIAL STATEMENTS - (Cantinued) l advances to System Energy in amounts that, when added to amounts received under the Unit Power 4
Sales Agreement or otherwise, are adequate to cover all of System Energy's operating expenses as defined, including an amount sufficient to amortire Grand Gulf 2 oser 27 years, as discussed below, System Energy has assigned its rights to payments and advances to certain creditors as security for certain obligations. Payments or advances under the Availability Agreement are only required if funds available to Sy stem Energy from all sources are less than the amount required under the Availability Agreement. Since commercial operation of Grand Gulf 1, payments under the Unit Power Sales Agreement %ve exceeded the amounts payable under the Availability Agreement. Accordingly, no payments have eser been required. In 1959, the Availability Agreement was amended to provide that the write-off of approximately $900 million of Grand Gulf 2 costs would be amortized for Availability Agreement purposes over a period of 27 years, in order to avoid the need for payments under the Availability Agreement by the System operating companies.
Reallocation Agreement System Energy and the System operating companies ent,- i into the Reallocation Agreement i
relating to the sale of capacity and energy from the Grand Gulf Station and the related costs,in which LP&L, h1P&L, and NOPSI agreed to assume all of AP&L's responsibilities and obligations with respect to the Grand Gulf Station under the Availability Agreement. FERC's decision allocating a portion of i
Grand Gulf I capacity and energy to AP&L supersedes the Reallocation Agreement as it relates to l
Grand Gulf 1. Responsibility for any Grand Gulf 2 amortization amounts has been individually allocated (LP&L 26/23%, MP&L 43.97% and NOPSI 29.50%) under the terms of the Reallocation Agreement. However, the Reallocation Agreement does not affect AP&L's obligation to System l
Energy's lenders under the assignments referred to in the preceding paragraph. AP&L would be liable for its share of such amounts if the other System operating companies were unable to meet their contractual obligations. No payments of any amortization amounts will be required as long as amounts l
paid to System Energy under the Unit Power Sales Agreement, including other funds available to System Energy, exceed amounts required under the Availability Agreement, which is expected to be the case for the foreseeable future.
1 Heimbursement Agreement i
In December 1955. System Energy entered into two entirely separate, but identical, arrangements for the sales and leasebacks of an approximate aggregate 11.5% ownership interest in Grand Gulf 1 (see Note S). In connection with the equity funding of the sale and leaseback arrangements, letters of credit are required to be maintained to secure certain amounts payable for the benefit of the equity investors by Syst(m Energy under the leases. The current letters of credit are effective until January 15.1994. It is expected that the letters of credit will either be renewed, extended, or replaced prior to espiration.
Under the prosisions of the Reimbursement Agreement, as amended. related to the letters of credit System Energy has agreed to a number of covenants relating to the maintenance of certain capitalization and fixed charge coverage ratios. System Energy agreed, during the term of the reimbursement agreement, to maintain its equity at not less than 33% ofits adjusted capitalization (as defmed in the reimbursement agreement) and to maintain its common equity at not less than 29% of such amount. In addition, System Energy must maintain, with respect to each fiscal quarter during the term of the reimbursement agreement, a ratio of adjusted net income to interest expense (calculated, in each case, as specified in the reimbursement agreement) of at least 1.60. At December 31, 1992, System Energy's equity and common equity in each case approximated 37,39% of its adjusted i
capitalization. and its fit.ed charge coverage ratio was 2.04.
25
SYSTEM ENERGY RESOURCES,INC.
t NOTES TO FINANCIAL STATEMENTS - (Continued)
Failure by System Energy to perform its covenants under the reimbursement agreement could gise rise to a draw under the letters of credit and/or an early termination of the letters of credit. If such letters of credit were not replaced in a timely manner, a default under System Energy's related i
leases could result. Draws under the letters of credit must be repaid by System Energy within 5 days (or in some cases,90 days) following the date of drawing.
See We 2 for information with respect to a FERC order that, if ultimately sustained and implemented, couM cause System Energy to seek waivers from the banks to avoid violation of the fixed charge coserage covenant, t
Nuclear Insurance The Price-Anderson Act limits public liability for a single nuclear incident to approximately -
$7.81 billion, as of December 31, 1992. System Energy has protection for this liability through a combination of private insurance (currently $200 million) and an industry assessment program. Under the assessment program, the maximum amount that would be required for each nuclear incident would be $66.15 million per reactor, payable at a rate of $10 million per licensed reactor per incident per year.
As a colicensee of Grand GulfI with System Energy, SMEPA would share in this obligation. System Energy has one licensed reactor. In addition, System Energy participates in a private insurance program which provides coverage for worker tort claims filed for bodily injury caused by radiation exposure. System Energy's maximum assessment under the program is an aggregate of approximately
$3.1 million in the event losses exceed accumulated reserve funds.
y System Energy on behalf ofitself and other insured interests (including other co-owners of Grand Gulf 1) is a member of certain insurance programs that provide coverage for property damage, including decontamination expense, to members' nuclear generating plants. As of December 31,1992, System Energy was insured against such losses up to $2.59 billion with a $350 million sublimit for premature decommissioning coverage. Under the property damage insurance programs, System Energy could be subject to assessments if losses exceed the accumulated funds available to the insurers. As of December 31, 1992, the maximum amount of such possible assessments to System Energy was $21.7 million. Under its agreement with System Energy, SMEPA would share in System Energy's obligation.
t The amount of property insurance presently carried by System Energy exceeds the NRC's minimum requirement for nuclear power plant licensees of $1.06 billion per site. NRC regulations provide that the proceeds of this insurance must be used, first, to place and maintain the reactor in a --
safe and stable condition and, second, to complete decontamination operations. Only after proceeds are dedicated for such use and regulatory approvalis secured, would any remaining proceeds be made i
available for the benefit of plant owners or their creditors.
Spent Nuclear Fuel and Decommissioning Costs System Energy provides for estimated future disposal costs for spent nuclear fuel in accordance with the Nuclear Waste Policy Act of 1982. System Energy entered into a contract with the DOE, whereby the DOE will furnish disposal service at a cost of one mill per net KWH generated and sold after April 7,1983. The fees payable to the DOE may be adjusted in the future to assure full recovery.
System Energy considers all costs incurred or to be incurred for the disposal of spent nuclear fuel to be proper components of nuclear fuel expense and recovers such costs in rates.
Due to delays of the DOE's repository program for the acceptance of spent nuclear fuel, it is uncertain when shipments of spent fuel from System Energy will commence. In the meantime, System Energy is responsible for spent fuel storage. Current on-site spent fuel storage capacity at Grand Gulf 1 i
26 i
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SYSTDI ENERGY RESOURCES, INC, NOTES TO FINANCIAL STATDIENTS - (Continued) is estimated to be sufficient until 2004. Thereafter, System Energy will provide additional storage.
capacity at an estimated cost of $5.0 million to $10.0 million (in 1992 dollars), In addition, approxi-mately $3.0 million to $5.0 million (in 1992 dollars) will be required every four to Sve years subsequent to 2004 until DOE's repository begins accepting Grand Gulf I spent fuel.
As a result of the FERC Complaint Case settlement, the amount to be collected in rates for the =
total cost of decommissioning System Energy's 90% interest in Grand Gulf I was set at approximately
$195 million (in 1989 dollars). These collections, through rates, are deposited in external trust funds, with a market value of $20.1 million as of December 31, 1992 that can only be used for future decommissioning costs. These decommissioning costs were estimated to approximate $248.7 million in 1959 dollars based on a 1959 decommissioning cost study. System Energy regularly reviews and updates estimated decommissioning costs to reflect inflation and changes in regulatory requirements and technology ' Applications will be made to FERC to reflect in rates any changes in estimated decommissioning costs.
The Energy Policy Act of 1992 has a provision that assesses domestic nuclear utilities with fees for the decontamination and decommissioning of DOE's past uranium enrichment operations. The decontamination and decommissioning provisions will be used to set up a fund into which contribu-tions from utilities and the federal government will be placed. System Energy's assessment is $1.1 million (in 1992 dollars) annually for approximately fifteen years. The cumulative liability of $16.5 mil-lion was recorded at December 31,1992, as a deferred credit. The legislation requires that regulators I
treat these assessments as costs of fuel when paid. The cumulative liability is offset in the fmancial
.{
statements by an equal regulatory asset, recorded as a deferred debit.
l l
System Fuels System Fuels entered into a revolving credit agreement with banks that provides $45 million in borrowings to linance System Fuels' nuclear materials and services inventory. Should System Fuels default on its obligations under its credit agreement, AP&L, LP&L, and System Energy have agreed to i
purchase the nuclear materials and services financed under the agreement.
NOTE S. LEASES i
1 Nuclear Fuel Leases System Energy has an arrangement to lease nuclear fuel, in' an aggregate amount up to
$130 million. The lessor finances its acquisition of nuclear fuel through a credit agreement and the l
issuance of notes. The credit agreement, which was entered into in 1959 has been extended to February 1996 and the notes have varying remaining maturities of up to 5 years. It is expected that the credit arrangements will be extended or alternative fiaancing will be secured by the lessor upon the i
maturity of the current arrangements. If the lessor cannot arrange for alternative fmancing upon maturity ofits borrowings, System Energy must purchase nuclear fuel ia an amount sufficient to enable i
the lessor to retire such borrowings.
J Lease payments are based on nuclear fuel use. Nuclear fuel lease expense, including interest, of
,1 I
$48.4 million, $66.9 million, and $72.4 million was charged to operations in 1992,1991, and 1990 respectively.
Sale and Leaseback Transactions On December 28, 1988, System Energy entered into two entirely separate, but identical, arrangements for the sales and leasebacks of an approximate aggregate 11.5% undivided ownership interest in Grand Gulf I for an aggregate cash consideration of $500 million. System Energy is leasing 27
SYSTEM ENERGY RESOURCES,INC.
NOTES TO FINANCIAL STATEMENTS - (Continued) back the undivided interest on a net lease basis over a 26%-year basic lease term. System Energy has options to terminate the !?ases and to repurchase the undivided interest in Grand Gulf I at certain intervals during the basic base term. Further, at the end of the basic lease term. System Energy has an option to renew the lease 5 or to repurchase the undivided interest in Crand Gulf 1. See Note 7 with respect to certain other 'erms of the transaction.
In accordance witn SFAS No. 95. " Accounting for Leases." due to " continuing involsement" by System Energy, the sales and leasebacks of the undivided portions of Grand Gulf 1, as described above, are required to be reflected for fmancial reporting purposes as financing transactions in System Energy's financial statements. The amounts charged to expense for financial reporting purposes include the interest portion of the lease obligations and depreciation of the plant. However, operating resenues include the recovery of the lease payments because the transactions are accounted for as sales and leasebacks for rate-making purposes. The total ofinterest and depreciation expense exceeds the corresponding revenues realized during the early part of the lease term. In December 1990, consistent with a recommendation contained in a FERC audit report, System Energy recorded as a deferred asset the current and prior year difference between the recovery of the lease payments and the amounts expensed for interest and depreciation and began recording such difference as a deferred asset on an ongoing basis. Recognition of the deferred asset has resulted in an increase in net income of approximately $24 million in 1990. Depreciation expense increased approximately $15 million in 1991 and 1992 as compared with 1990 due to the 1990 adjustment.
See Note 1 for further information regarding the accounting for the sale and leaseback transactions.
As of December 31,1992, System Energy had future minimum lease payments (reflecting implicit rate of 9.66%) as follows:
Minimum lease Payments (In Thousands) 1993.
$ 49.333 1994.
51,295 1995.
52,'247 1996.
52,247 1997.
52.247 Years thereafter..
1,091.379 Total
$1.348.748 NOTE 9. POSTRETIREMENT BENEFITS Pension Plan System Energy participates in a defined benefit pension plan sponsored by Entergy. Effective June 1990, all of System Energy's employees became employees of Entergy Operations. Ilowever, the employees still remain under System Energy's plan and no transfers of related pension liabilities and assets have been made. The pension plan, which covers substantially all of its employees. is noncontributory and provides pension benefits based on employees' credited service and average comt ensation, generally during the last five years before retirement. System Energy funds pension costs in accordance with contribution guidelines established by the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1956, as amended. The assets of 28
SYSTEM ENERGY RESOURCES,INC.
NOTES TO FINANCIAL STATEMENTS - (Continued)
I the plan consist primarily of common and preferred stocks, fixed income securities, interest in a money market fund, and insurance contracts.
System Energy's 1992,1991, and 1990 pension cost (credit), including amounts capitalized, included the following components:
1992 1991 1990 j
(in Thousands)
Service cost-beneSts earned during the period..
$ 1,737
$ 1,327
$ 1,398 Interest cost on projected benent obligation 1,439 1,035 762 Actual return on plan assets...
(2.070)
(5,432) 48 (5S7) 2,991 (2,402)
Net amortization and deferral.......
17 l
Other.
$ 519 (62)
$ (194)
Net pension cost (income).
i The funded status of System Energy's pension plan at December 31,1992 and 1991 was:
1992 1991 (la Thousands)
Actuarial present value of accumulated pension plan benefits:
$12,377
$ 8,580 ;
Vested..
Nonvested 625 2,088
$13.002
$10,668 Accumulated benefit obligation
$30,167
$28,194 Plan assets at fair value.
Projected beneGt obligation 21.096 16.067 Plan assets in excess of projected beneSt obligation...
9,071 12,127 925 971 Unrecognized prior service cost.
Unrecognized transition asset.
(7,677)
(8,274)
(839)
(2.825)
Unrecognized net gain
$ 1.450
$ 1.999 Accrued pension asset.
The signiBeant actuarial assumptions used in computing the information above were as follows:
1992 1991 1990 Weighted average discount rate 8.25 % 8.25 % 8.75 %
Weighted average rate of increase in future compensation levels.... 5.6 % 5.6 % 5.6 %
Expected long-term rate of return on plan assets 8.5 %
8.5 % 8.5 %
Transition assets are being amortized over the. average remaining senice period of active participants.
NOTE 10. TRANSACTIONS WITII AFFILIATES System Energy sells all of the capacity and energy from its share of Grand Gulf 1 to the System operating companies under rate schedules approved by FERC. Accordingly, all of System Energy's operating revenues consist of billings to the System operating companies.
MP&L provides a minimal amount of technical and advisory services and other miscellaneous services to System Energy. In addition, pursuant to a service agreement, System Energy receives technical and advisory services from Entergy Services, Inc. Charges from MP&L and Entergy Services, 29
,9 y.w.%
SYSTEM ENERGY RESOURCES,INC.
NOTES TO FINANCIAL STATEMENTS - (Concluded)
- Inc. for technical, advisory and miscellaneous services amounted to approximately $13.8 million in 1992, $10.9 million in 1991, and $10.6 million in 1990. System Energy pays directly or reimburses Entergy Operations for the costs associated with operating Grand Gulf 1, which were approximately
$179 million in 1992, $136 million in 1991, and $138 million in 1990.
In addition, certain materials and services required for fabrication of nuclear fuel are acquired and fmanced by System Fuels and then sold to System Energy, as needed. Charges for these materials and services, which represent additions to nuclear fuel, amounted to approximately $13.7 million in 1992,
$28.9 million in 1991, $34.3 million in 1990.
NOTE 11. QUARTERLY FINANCIAL DATA (Unaudited)
Operating results for the four quarters of 1992 and 1991 were:
Operating Operating Net Revenue income Income (In Thousands) 1992:
First Quarter
$177,466
$82.294
$33,19S Second Quarter.
$194.140
$81.688
$32.321 Third Quarter..
$177,464
$50,754
$32,554 Fourth Quarter.
$174,340
$78,410
$32,038 '
1991:
First Quarter.
.$1S5.018
$57,703
$35,184 Second Quarter (l).
$143,73S
$65.216
$ 6,910 Third Quarter.
$174,516
$82,443
$30.559 -
Fourth Quarter
$183,362
$83.450
$31,939 (1) Operating revenues, operating income, and net income in the second quarter of 1991 were affected by the FERC Complaint Case settlement. See Note 2.
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' SYSTEM ENERGY RESOURCES,INC.
SELECTED FINANCIAL DATA -FIVE YEAR COMPARISON 1992 1991 1990 1999 1989 (Dollars in Thousands)
Operating resenues..
$ 723,410
$ 656,664
$ S01,618
$ 637,307 - $ 933.828 Net income (loss)(1).....
$ 130,141
$ 104.622
$ 168,677
$ (655,524) $ 160,314 Total assets (l)
$3.672,441
$3,642,203
$3,883,241
$3,9S7,055
$5,160,249 Long. term obligations (2)..
$1,768,299
$1,707,470
$1,849,000
$2,229,022
$2,553,002 Electric energy sales (in millions of KWII) 7,354 S,220-6,666
' 7,0fA 8,632 (1) The year 1989 includes the effects of the write-off by System Energy of its investment in Grand Gulf 2.
l (2) Includes long-term debt (excluding current maturities) and noncurrent capital lease obligations, i
I 31
SYSTEM ENERGY RESOURCES,INC.
DIRECTORS, OFFICERS, AND OTIIER INFORNIATION DIRECTORS OFFICERS OTHER INFORMATION James \\f. Cain Edwin Lupberger Trustee for First Mortgage Bondu Viec Chairman of Entergy Chairman of the Board United States Trust Company of New York II4
.est Uth Street Donald C. Ilintz Donald C. Ilintz Officer of and Chief Executise President President and Chief Executive Oflicer j2 52[
System Energy. Senior Vice President - Nuclear of Gerald D. McInvale AP&L and LP&L Senior Vice President and Corporate Addrese Chief Fmancial Officer System Energy Resources. Inc.
lain Lupherger 134C Echelon Parkway Chairman of the Board of System Energy: Chairman of the Board and Glenn F. liarder(4)
Jacks n. MS 39213 '
Vim Praident - Fmancid Chief Executise Officer of Entergy Strategies and Treasurer To request a copy of Entergy Cor oration's 1992 Annual Report to tke Securities and Exchange I e W. Randall f
't p Pres er t System Executise -
\\ ice President and Chief Commission on, Form 10'K (including T ransmission. Distnbution and Customer Service of Entergn Ace unting OEcer System Energy s 1992 Annual Report).
Chairman of the Board and Chief
- II Executive Officer of AP&L. LP&L.
Joseph L Blount MP&l and NOPSI Secretary Entergy Corporation Insestor Relations Department Mad Suite PP/2306 P. O. Box 61005 i
New Orleans. LA 70161 Telephone: (504) 569-4365 1-M10-292-9960 l
i i
i
( A) Effectis e in 1993 i
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