Text

AL Power Co Annual Rept for 1995
	ML20117F487
Person / Time
Site:	Farley
Issue date:	12/31/1995
From:	Harris E; ALABAMA POWER CO.
To:	;
Shared Package
ML20117F424	List: ML20117F420; ML20117F450; ML20117F487;
References
	NUDOCS 9605170436
	Download: ML20117F487 (46)
	v • d • e

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-i J CORPORATE PROFILE labama Power serves electricity to 1.2 million s homes, businesses and industries in the; southern two-thirds of the state of Alabama. It is one ~ offire utilities of The Southern Company, one of Ihe L nation' largest investorkwned electric utility groups.' s - The other utilities are Georgia Power, Gulf Power, - Mississippi Power andSavannah Electric. 0ther Southern Company subsidiaries include Southern Communications Services, Southern Company Serr[ces, Southern Electric International, Southern : Development and Investment Group and Southern ' Nuclear. 20. & Ou s,., Eas

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J COItPOIt ATE PItOFILE g Alabama Power serves elect homes, businesses and industries in the southern two-thirds of the state of Alabama. It is one offire utilities of The Southern Company, one of the nation's largest investor-owned electric utility groups. The other utilities are Georgia Power, Gulf Power, AIississippi Power andSarannah Electric. 0ther Southern Company subsidiaries include Southern Communications Serrices, Southern Company Services, Southern Electric International, Southern Development and In vestment Group and Southern Nuclear. 3 8 . 6.ij.i ha' etempse M fn-.J _ } ' ?. -. 7,.,., q,,, - % <- 1,. ' k,.t g,gsv.- 4_ ans..; ; .,..p,,,,, zt -... - .{ ' gggg ' ' :.I, p e -i 8.

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1 l l I)IG la'l N I N(i A N IG W IG 121G( "l'It I( '-I 'T I 1,IT Y I N I ) l ' H 'I'It Y i Alabama Power and oth threshold of an exciting, fast-moving and more-complex industry. Competitive and regulatory forces are creating a more wide-open business climate. During 1995, Alabama Power employees uorked hard to - g J, ~ )

define the issues associated with a changing industry and made

~ y decisions to secure its position as the electricity supplier of f. choice Ihr customers in Alabama. What is the reason for the shift toward a market-based l utility industry? l The answer is that many large customers also are being l l squeezed by increased competitise pressures. As those customers do battle against companies from around the world, they are ) examining their businesses to find ways to cut costs so they can offer more competitise prices. As a result, they are demanding { lower energy prices. s Customers in other areas of the United States pay much more for electricity than do Alabama Power's customers. Knowing that i less expensise electricity is out there. large commercial and industrial customers in those areas hase put pressure on legislators and regulators to knock dow n traditional territorial boundaries. A push is on to create a new utility structure that gises them access to more economical electricit). l During the past five years, those customers have seen trends fasorable to their goals.The j Federal Energy Policy Act of 1992 gase independent power producers (IPPs) the ability to j l access a utility's transmission system to sell electricity in the wholesale market. It also set the I l stage fbr additional regulation to open up electricity markets. n The Federal Energy Regulatory Commission (FERC)in 1995 issued a notice of proposed 0 i i rulemaking that continued the trend.The proposal sparked serious and extensise discussions l l about how all customers could hase a choice of electricity suppliers. FERC's action also leases the door open ihr electricity to be treated as a commodit). I Utilities around the country are setting up power brokering operations and installing trading i i lloors to buy and sell options on electricity just as corn, cattle and pork bellies are traded. 1 These regulatory actions hase brought new players into the market and are creating new and innovatise ways to market electricity. j in 1995 Alabama Power continued to make great strides in meeting the competitise challenges that are cropping up nationwide. I Read on to find out how Alabama Power kept its prices among the lowest in the United States and continued to proside the quality and lesel of sersice that will make Alabama Power successful in the future. I J

Y lI N A N C I A l e IlIGIII21(; LITS 1995 1994 Operating Revenues (millions) 3,025 2.935 Operating Expenses (millions) 2,399 2.339 Net Income after Dividends on Preferred Stock (millions) 361 356 Return on Average Common Equity (percent) 13.61 13.86 Allowance for funds Used During Construction, Net, as a Percent of Net income after Dividends on Preferred Stock 1.7 1.5 EnergySales(thousandsof kilowatt-hours): ) Retail 44,475,876 42,494,185 Salesfor Resale 14,751,363 15,207,709 TotalEnergy Sales 59,227,239 57,701,894 Peak 4lourDemand(thousandsof kilowatts) Includes Southeastern PowerAdministration allotment 10,090 9,028 TotalCustomers(year-end) 1,230,740 1,211.270 Gross Property Additions During Year (millions) 552 537 SSSSS 4 Earninp Asailable for Comnon [hvidends and 90 Retained Earnine 80 Interest Charges and Preferred Simk thsidends ] ~ ~ ~ ~ ~ Federal. State and I ocal'ines 50 Ikprec atam and Anwrtuation ] ] ~ ] Other Operatum and Lntenaiwe 20 ~ I neland Purchawd Pimer 90 91 92 93 94 95 Distribution of 1995 Distribution of Revenue Revenue Dollar Dollar (1990-1995) 2

o A 55 15 700 a 14 600 b " E t 500 G 50 <' 13 d i Y Y d 400 " .i i 12 g

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~ E $[ E i0 40 9 0 1990 1991 1992 1993 1994 1995 90 91 92 93 94 95 90 91 92 93 94 95 Total Territorial Average Annual Residential Gross Property Energy Supplied Usage per Customer Additions The total amount ofelectricity supplied Money spent for the purchase or construction of each year toretailand wholesale new utility plants, facilities or equipment 1 customers in the company's service terrritory. (includes Southeastern Power Administration allotment) 5-par compoundannualgrowth rate = 2.9% '$ E E_E_m E_E_ 10 , 80 g 97 a 37 EE met g,', EEa 3 EEEEEE = $8 5 3 LEE EEE Y 8 &j mE E EE E j " E 20 9'4 l E E E E E E-2 l EE E EE E o 1990 1991 1992 1993 1994 1995 1990 1991 1992 1993 1994 1995 1990 1991 1992 1993 1994 1995 Territorial Peak Source of Electric Fossil Heat Rate Demand Generation i The highest amount ofelectricity all roal liydro Measures coal-fueled generating plant i customers used during any hourin the Nudear (Gas and Oilleu than 0.5%) efliciency. A lower heat rate means less coal year. is needed to generate each kilowatt-hour. (InchadesSoutheasternl'ower Administration allotment) 5-yar compoundannualgrowth rate = 3.2% 7 ^ Q r E C 5 )

A Lilowatt-hour (NWII) is she basic unit l

vf measurement of electric energ. One 1 Lilowan-hour equals one kilowatt (l,tHW 4 wattsl of power consumedfor one hour. Ten 90 91 92 93 94 95 1 1IXkwatt light bulbs burningfor one hour useone Lilowan-hourof electricity Average Retail Price The average retail price per Lilowatt-hour i for all residential, commercial and y industrial customers. 4

i 1 1 ) TIIE Y EAlt IN It EV I EW 1 1 3 i l ( l j A In January, the company's management council approved corporate goals for 1995.The j gyrv main goal was for the company to earn a return on average common equity of at least j 13.5 percent.Three subgoals were to finish 1995 under budget in operation and w maintenance, finish the year $25 million below the capital budget and have more than p' 65 percent of customers say they're very satisfied.The company exceeded the main goal and the three subgoals. j ~ A The Greene County Electric Generating Plant won the 1994 Superlative Award as the company's top coal-fueled electric generating plant. An Alabama A The company's Gadsden Electric Generating Plant began providing steam to Goodyear i Power employee Tire and Rubber's Gadsden plant April 15 for its tire-making process. surveys the path of the steam line A In April, the company's Strategic Leadership Council announced plans to cut $50 million being mstalled from the O&ht budget by 2000 and $250 million from the capital budget by 2000.The from Alabama O&ht budget later in the year was revised to reflect a $69-million reduction. Company Power's Gadsden oflicers were charged with assessing their organizations and prioritizing functions to meet Steam Plant to' budget targets. Goodyear Tire. - A On April 19, the company sold 8,580 acres in north Alabama's Little River Canyon to the 1 National Park Service.The company donated proceeds from the sale to the Alabama Power Foundation. 4 l A The company continued its Educational Grant Program by awarding 97 grants totaling j S202,110 to Alabama educators in hlay. l 5 Alabama Power President and CEO Elmer Harris (left) . :.a 4. transferred the deed to 4 land in Little River A Canyon to the National Park Service in April. M/ Destry Jarvis (center) 3 l represented the l National Park Service. ~ l Congressman Tom Bevill 2 (right) also played a key role in the land sale.- i i i j A The company opened the Water Course h1ay 9 in Clanton.The educational center promotes j water safety, environmental issues surrounding Alabama's waterways and the j understanding of water as an energy source. l A Five new Greene County combustion turbines went into commercial operation h1ay 29just in time to help the company meet record-setting electricity demand during a hot summer. 4 i

_=. [ l \\ l l l ,Q 3 4 ] l \\\\ [ restoratjon 7 efforts following j 'J yf% Hurricane Erin, s c. ,..g employees ., p.f,V,w gq -3 restored power AC ,yms w i g to some 39,000 k ph. _ t A v. l A % N y'- gly @4"" # ~ ~ customers within y, 48 hours. Erin j ft [ 4 j#OtO ' was one of tv00 l A ~ D. major storms to k. p3 ' hit the 1 < }4 %g companyt , TV..

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Service territory 8 73 jl ~ - in 1995. .., l$ 2. ,f 4 L A A fire destroyed the company's Fayette omce June 26.The blaze, which engulfed one-eighth of l Fayette's dow ntown area, caused about $500,000 in damage to the omce and a building used as an j appliance warehouse. j A Elmer liarris signed documents July 18 accepting the new 40-year operating license issued for the I, Yates andThurlow hydroelectric facilities by the Federal Energy Regulatory Commission. j A Customers set seven records for electricity use in July and August. A On Aug. 3, ilurricane Erin struck south Alabama, knocking out power to 39,000 customers. Crews worked around the clock to restore power to most customers within 48 hours of the storm. i A The company and the International Brotherhood of Electrical Workers signed a new three-year ( labor agreement Aug.14. 4 A On Oct. 5, flurricane Opal slammed into Alabama and caused the company's largest outage ever. Some 475,000 customers lost power during the storm. More than .f ~ } k.y 3,000 Alabama Power employees and 2,500 employees from neighboring utilities j j restored senice to customers within six days of the storm. More than 75 percent of l ] . [ restoration elTorts. C' customers sune)ed said they were very satisfied with the way the company handled i .~ ] Fayette Office A By Nosember, most company organizations had implemented extensive plans to help j Manager David Logan the company meet its budget targets. Organizations with significant changes included { inspects the damaged all six operating divisions and all corporate functions. office after the June 4 26 fhe. A temporary A In December, the company received the results of its annual survey of large. dustnal in office was set up and and commercial customers. More than 80 percent of customers surveyed said they're ] open for business ver3 satisfied with Alabama Power, a 17-percentage-point increase from the 1994 i within two days. rating.The survey was targeted toward customers uho require one or more megawatts of electricity and are"at risk"of switching suppliers because of competition. 3 i I

4 1 i l L E'1"I' E R TO S II A R E II O lid E R S 1 j Utility forecast calls for competition i .[ ? ] ., ~ - t used to be that " change" in the utility industry meant a change in the weather. Cool summers or mild winters have challenged i j ~ j even the best revenue forecasts. Well, the weather still can alTect i Alabama Power's bottom line in 1995, it was a positive effect. j Record summer heat helped fiscal year revenues increase to slightly j L more than $3 billion, up from $2.9 billion in 1994. Net income was j S361 million, up from $356 million the previous year. Total return 3 on equity was 13.61 percent. j As we enter 1996, we're talking about a lot more changes. We're i l ' witnessing a transformation in the way electric utilitie, do business i from a highly regulated industry to a more competitive emironment. 1 j And, the results may be even more dramatic than changes in l the weather. Increased competition in the electric-utility industry is no longer a question. It's a certainty.The only unknown is how it will be implemented. In fact, nobody really knows just what this business will look like in a few years. But rather than waiting around to see what transpires, we're working to help define an orderly, cooperative transition from regulation to competition. The electric-utility industry is not the first industry to be deregulated, but it is the largest. We've spent a lot of time studying our predecessors: airlines, telecommunications, natural gas and trucking. Our research indicates that those companies that survived deregulation did so by reducing their costs focusing on key markets and emphasizing improved customer service. It's exciting, therefore, to point out that Alabama Power is a low-cost provider, is growing its markets and f enjoys outstanding customer-service ratings. I But there is one notable ditTerence between electric utilities and the other deregulated 1 j industries. About one-fourth of all electricity produced in the United States is generated or distributed directly by the federal government or is supported by government subsidies.These i j subsidies need to be eliminated before there can be true competition. Already, there are measures being considered in Congress to address this dilemma. I'm sure there will be plenty of debate about the issue, and Alabama Power intends to participate. i The key decisions about retail competition should be made at the state level to ensure that the benefits of competition are spread among all customers. Each state needs to consider its j unique circumstances as it frames a competitive structure in that state. l liere in Alabama, we enjoy low and stable electricity prices. As a result, we have the opportunity to work methodically and cooperatively to ensure that all customers - targe and small-enjoy the benefits of competition. liigh prices in many states, particularly on the West Coast and in the Northeast, are hastily driving the process to provide retail access there. 6 i

k i N l j So, how is Alabama Power gearing up for open l competition? Actuall), we'se been hard at it for seseral) ears. And the results are evident. In the past decade, our aserage retail price has decreased almost 5 percent, w hile the national aserage has gone up b about 20 percent.This evidently is making our customers happy. In 1995, Alabama Power t -.,~ experienced the biggest single increase in customer a ' satisfaction lesels in the company's history. As the market becomes more competitise, we risk . g~ 1, losing revenues associated with insestments such as s I power plants and transmission lines dedicated to 4' at i serve customers if they elect to take sersice from a i j .; competitor. 4 ..g 7.s . 7.+ X.1 This issue, know n as stranded insestment, has .t 3

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N,.. k M- ~ U. ?. 2 become a tremendous barrier to true competition in g4 } }: states around the country because of the debate over 7. f nMf[.;j who will be responsible for these costs - the gpd 1 - customer electing to take service from a { v. i'Jj 1 w.3 . l.; ? ggg.jjg 9 j 3;@./ } I gW competitor or all the remaining customers sersed by pp + g,'.. ', y .,.1-the company. .+ . Me 3 ' r:NM In an attempt to deal with this issue Alabama Power supported a bill in the 1996 regular session of l the Alabama Legislature that would require a f j regulatory review of the services being olTered by new electricity suppliers.The review would ensure that the new suppliers' services do not result in stranded insestments and higher prices Ihr other customers. Once these issues are resobed, how well we compete will depend on our ability to keep prices low and to grow markets, as well as our commitment to serve our customers, communities and state. As you'll read in the Ibilowing pages, Alabama Power confidently accepts the challenge to compete Ihr our customers' business. Thank you lbr )our continued support. Elmer B. Ilarris President and Chief Executive 00icer March I.1996 7

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N e O fe CUSTO3I EH CIIOICE he guiding force of the new electric-utility industry will be customer choice. When Tfaced uith a sariety of choices, customer which product to buy. That's why Alabama Powcr's main objective is to keep its prices among the lowest in the nation. In a national survey, Alabama Power's electric prices consistently rank in the lowest 15 percent in the United States. In some other states, customers pay about two and a half times as much for the same amount of electricity. More importantly. Alabama Power's overall average retail price during the past 10 ears 3 has dropped by about 5 percent u hile nationally, electricity prices have risen by some 20 percent. During the same time period, prices for other consumer goods and services have risen about 40 percent. To continue this trend and in anticipation of more competitive markets, the company in 1995 pledged to cut $250 million from its capital expenditures through 2000 and cut operation and maintenance expenses by more than 6 percent by that time. Through awareness of how competitive pressures are increasing the need to contain costs, company employees continue to find more effective ways of doing their jobs.The company's generating plants implemented employees' cost-cutting ideas that will save more than $6 million during the next five years. Cost consciousness is playing a big part in the installation of nine combustion turbines at the Greene County Electric Generating Plant.The cost to install all nine turbines is expected to be about $260 per kilowatt.This compares to original cost estimates of $354 per kilowatt and translates into about a $70-million reduction in installation costs. These types of cost-saving measures become even more important as regulations change to allow electric utilities to provide service to customers outside their traditional service territories. In some states, large industrial and commercial customers already have some degree of choice. And it's not a far-fetched notion that one day Alabama Power will provide electricity to customers in other states. Legislators in a number of states - from California to Rhode Island - this 3 ear will debate bills that allow just this type of retail access.The stated agenda of one industrial group is to introduce retail-access legislation in every state legislature during 1996. It's apparent that customers will have more choices about their electricity supplier in the future. And in 1995 Alabama Power continued to position itself as the supplier of choice among customers looking for a valuable combination of low prices, high quality and superior service. 9

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e N A R K ETH aintaining low prices is just one way Alabama Power intends to meet the demands of a more competitive industry. As customer choice becomcs more prevalent, Alabama Power's marketing efforts are more important than ever. In 1995, the company took actions that ensure growth in its core business of supplying electricity.Those actions focused on increasing sales in key markets, developing new marketing strategies that enhance partnerships with customers and finding ways to help customers efliciently use electricity. Realizing the need to bring in new customers and help existing customers grow and expand, the company's marketing organization pledged to pursue new markets and partnerships with existing customers. The company formed one such partnership in 1995 with Good earTire and Rubber in 3 Gadsden. In April, Alabama Power began providing steam produced at the Gadsden Electric Generating Plant to the adjacent Goodyear plant. Goodyear uses the steam for its tire-making process. Goodyear was considering building a cogeneration facility on its property that would have provided it with both steam and most of its electricity needs. However, this partnership with Alabama Power benefits both parties because cach can concentrate on their areas of expertise - Good) car on making tires and Alabama Power on providing energy.The new 10-year contract with Goodyear provides Alabama Power with additional resenue from the steam sale, and it keeps the company from losing a valuable customer. Another way to increase sales is to attract new customers to Alabama. During 1995, the company's economic development team helped 16 businesses either locate in Alabama or expand their operations here.Those projects will bring in an estimated Sii million in annual resenue for Alabama Power. The company's commitment to helping customers use energy efficiently complements its marketing plans by encouraging customers to take advantage of several cost-saving price options. These price options and other demand-side management programs help the company operate more efficiently by encouraging customers to shift energy use to times of the day when it is less expensive to operate.This helps the company avoid the unnecessary expense of building generating facilities that are needed to supply electricity only during high demand times. Alabama Power also is finding ways for its customers to be more competitive themselves. In 1995, more than 450 industrial and commercial customers signed new contracts that allow them to better manage their long-term energy costs.These contracts, which ofter specialized prices for specific types of customers and niche markets, give the company flexibility to respond to competitive pressures. By increasing sales, defining new markcts and ofTering new products and services, Alabama j Power is in a strong position to meet any competitive challenges. I l Il l __~

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O Av C O 3131 I T 31 E N T T() HEHVE Alabama Power's long-running commitm company's ability to operate in a more competitive environment. Not everyone realizes that Alabama Power has a statutory obligation to serve every customer in its service territory. That legal requirement, to some extent, may change some day, but Alabama Power's commitment to providing the best service won't. And according to the company's customers, Alabama Power's service is better than ever. Survey results in 1995 demonstrate that the company again was among the industry leaders for providing customers with the level of service they demand. In 1995, electricity was available to customers an average of 99.61 percent of the time.That's a remarkable number when you consider that Mother Nature wasn't particularly kind during 1995. The summer of 1995 brought record-breaking heat that pushed the company's electrical system to its limits. Customers set records for electricity demand seven times. In August and October, damage caused by hurricanes knocked out power to thousands of customers. Ilurricane Opal in October caused senice interruptions to more than one-third of Alabama Power's customers, making it the most disruptive storm in the company's history Company employees completed restoration efforts within six days of the storm. Alabama Power's commitment to serve extends beyond its electric service.To be successful, the company must continue to serve the state of Alabama. Bringing morejobs to Alabama is the direct responsibility of the company's economic developinent tanization, which has been in operation for more than 70 years.Through its efforts in 1995, nearly 3,000 new jobs uere created. The company also has a commitment to improve education because the children of today will be the intelligent, talented and productive employees Alabama needs to succeed in the future. The company's Educational Grant Program provides funding for teachers with creative and innovative projxts. In 1995, the program awarded more than $200,000 in grants to teachers. The 1,300 employees, retirees and their spouses who are members of the Alabama Power Service Organization fund an Educational Endowment Grant for 12 first-year teachers in public schools to provide start-up funds for these talented new educators. Local chapters of the service organization tutor students, organize work days to improve the physical appearance of schools and support programs such as Reading is Fundamental. And at almost every company location, employees support education-related projects. Many plants and ollices participate in Adopt-A-School programs that provide funding, labor and guidance for community schools. The company also is committed to providing energy assistance for its customers who are in need.Through Project SII ARE and the Alabama Business CharitableTrust Fund, the company, its employees and its customers hase provided millions of dollars in energy assistance to more than 100,000 families. These elTorts to maintain a high level of customer satisfaction and service reliability, as well as the company's long-running commitment to the communities it serves, build customer loyalty. That loyalty and commitment, combined with me company's low prices, are important advantages U for Alabama Power as competitive and regulatory forces usher in a more competitive marketplace.

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M ANAG EM ENT'S HEPOHT The management of Alabama Power Company has prepared - and is responsible for - the financial statements and related information included in this report. These statements were prepared in accordance with generally accepted accounting principles appropriate in the circumstances and necessarily include amounts that are based on the best estimates and judgments of management. Financial information throughout this annual report is consistent with the financial statements.

The company maintains a system ofinternal accounting controls to provide reasonable assurance that assets are safeguarded and that the books and records reflect only authorized transactions of the company. Limitations exist in any system ofinternal controls, however, based on a recognition that the cost of the system should not exceed its benefits. The company believes its system ofinternal accounting controls main-tains an appropriate cost / benefit relationship. The company's system ofinternal accounting controls is evaluated on an ongoing basis by the company's internal audit staff. The com-pany's independent public accountants also consider certain elements of the internal control system in order to determine their auditing procedures for the purpose ofexpressing an opinion on the financial statements. The audit committee of the board ofdirectors, composed ofdirectors u ho are not employees, pro ides a broad overview of management's financial reporting and control functions. Periodically, this committee meets with management, the internal auditors and the independent public accountants to ensure that these groups are fulfilling their obligations and to discuss auditing, internal controls, and financial report-ing matters. The internal auditors and independent public accountants have access to the members of the audit committee at any time. Management believes that its policies and procedures provide reasonable assurance that the company's operations are conducted according to a high standard of business ethics. In management's opinion, the financial statements present fairly, in all material respects, the financial position, results ofoperations and cash flows of Alabama Power Company in conformity with generally accepted accounting principles. Elmer B. Ilarris William B. Ilutchins,111 President Executive Vice President and Chief Executive 0flicer and Chief Financia10fiicer H EPO RT O F IN D EPEN D ENT PUB LIC A CCO UNTANTS To the Board of Directors ofAlabama Power Company: We have audited the accompanying balance sheets and statements of capitalization of Alabama Power Company (an Alabama corporation and wholly owned subsidiary ofThe Southern Company) as of December 31,1995 and 1994, and the related statements ofincome, retained earnings, and cash flows for each of the three years in the period ended December 31,1995. These financial statements are the responsibility of the company'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 reasonable basis for our opinion. In our opinion, the financial statements (pages 23-37) referred to abo e present fairly, in all material respects, the financial position of I Alabama Power Company as of December 31,1995 and 1994, and the results ofits operations and its cash flows for the periods stated, in conformity with generally accepted accounting principles. A RTII U H AN D E R S EN LLP Birmingham, Alabama February 21,1996 15

SELECTED FIN ANCI A L DATA (Dollars in Thousands) 1995* 1994* 1993* 1992* Condensed Statements ofIncome: Operating Revenues Revenues"............... $2,897,044 $2,770,380 $2,825,634 $2,688,752 Revenues from Affiliates" 127,730 164,762 181,975 158,088 Total operating revenues................. 3,024,774 2.935,142 3,007,609 2,846.840 Operating Expenses: Operation and maintenance". 1,679,804 1,639,013 1,735,980 1,598,817 Depreciation and amortization.. 303,050 292,420 290,310 280,881 Taxes other thanincome taxes....... 185,620 183,425 178,997 172,095 Federal and state income taxes....... 230.982 224,280 207,210 201,925 Totaloperating expenses. 2,399,456 2,339,138 2,412,497 2,253,718 Operating Income..... 625,318 596,004 595,i12 593,122 Other income, Net................ 532 (3,464) 10,981 12,551 income Before Interest Charges..... 625,850 592,540 606,093 605,673 . Net Interest Charges.......................... 237,887 209,967 230,040 231,932 Dividends on Preferred Stock... 27,069 26.235 29,559 35.186 Net income after Dividends on Preferred Stock..., $ 360,894 5 356,338 $ 346.494 5 338,555 Cash Dividends on Common Stock.......... $ 285,000 $ 268,000 $ 252,900 $ 273,300 Return on Average Common Equity (Percent). 13.61 13.86 13.94 14.02 Total Assets. $8,744,360 $8,459,217 $8,248,683 $6,593,618 Gross Property Additions......., $ 551,781 5 536,785 $ 435,843 $ 367,463 Capitalization: Common stock equity. $2,690,374 $2,614,405 $2,526,348 $2,443,493 Preferred stock..... 440,400 440,400 440,400 489,400 Preferred stock subject to mandatory redemption. Long-term debt.. 2,374,948 2,455,013 2,362,852 2,202,473 TotalCapitalization. $5,505,722 $5.509.818 $5,329.600 $5,135,366 Kilowatt-hour Sales (in Thousands): Residential........ 14,383,231 13,183,147 13,185,062 12,069,268 Commercial.............. 10,043,220 9,645,798 9,185,462 8,629,869 Industrial...... 19,862,577 19,479,364 18,595,237 18,260,274 Sales for resale........ 3,153,478 3.097,700 3,052,740 2,870,669 Other... 186,848 185,876 181,673 176.798 Total territorial sales..... 47,629,354 45,591,885 44,200,174 42,006,878 Sales for Resale-Non-Alliliates".......... 4,892,711 3,677,476 4,090,932 5,511,902 Sales for Resale - Alliliates".. 6,705,174 8,432.533 8,081,324 7,210,697 l Total Kilowatt-hour Sales....... 59,227,239 57,701,894 56,372,430 54,729,477 Operating Revenues: Residential.................. $ 997,069 $ 913,146 $ 947,277 $ 845,660 Commercial....... 670,453 647,202 634,895 589,816 Industrial.......... 805,596 803,587 832,938 800,311 Sales for resale. 120,247 114,501 115,214 106,720 Other..................................... 13,619 13,515 13,344 12,734 Total territorial revenues. 2,606,984 2,491,951 2,543,668 2,355,241 Sales for Resale-- Non-Alliliates" 249,893 240,259 248,891 301,071 Sales for Resale - Affiliates"... 127,730 164,762 181,975 158,088 Total revenues from sales ofelectricity........ 2,984,607 2,896,972 2,974,534 2,814,400 Other revenues... 40,167 38,170 33,075 32,440 Total 0perating Revenues.. $3,024,774 $2,935,142 $3.007,609 $2.846,840 Customers (End ofYear). 1,230,740 1,211,270 1,190,571 1,170,962 Employees (End of Year)............... 7,261 7,996 8,009 8,116 Average Revenue Per Kilowatt-hour Total Sales (Cents)"....... ~... 5.04 5.02 5.28 5.14 Average Cost of Fuel Per Net Kilowatt-hour Generated (Including SEGCO) (Cents)........ 1.49 1.57 1.74 1.65

Includes the effect of recognizing, beginning in February 1987, retail senice rendered but not yet billed to customers

" Includes the reclassification ofcertain bulk power sales 16

1 1991* 1990* 1989* 1988* 1987* 1986 1985 $2,687,419 $2,628,951 $2,524,866 $2,399,935 $2,455,888 $2,428,663 $2,422,966 159,375 93,473 104,488 76,691 118,746 120,911 95,733 2,846,794 2,722,424 2,629,354 2,476,626 2,574,634 2,549,574 2,518,699 1,603,552 1,560,531 1,487,161 1,468,324 1,570,710 1,472,990 1,475,074 271,433 262,817 247,973 225,123 212,072 201,803 183,779 169,639 l163,567 154,398 148,681 141,422 135,248 128,648 200,612 185,954 188,507 143,614 190.575 255,400 248,774 2,245,236 2,172,869 ^ 2,078,039 1,985,742 2,114,779 2,065,441 2,036,275 601,558 549,555 551 115 490,884 459,855 484,133 482,424 12,397 27,021 28,452 46,603 38,!80 38,291 47,888 613,955 576,576 579,767 537,487 498,035 522,424 530,312 238,150 225,261 229,098 217,532 207,877 214,943 224,404 36,139 38,512 39,523 36.480 32.919 34,025 41,346 339,666 $ 312.803 $ 311,146 $ 283.475 ,$ 257,239 $ 273,456 $ 264,562 ~ $ 232,900 $ 220,800 $ 217,300 $ 212,700 $ 201,100 $ 191,300 $ 185,700 14.55 14.00 14.53 14.03 13.56 15.I2 15.41 $6,549,462 $6,362,293 - 56,279,431 $6,180,945 $5,912,000 $5,570,653 $5,722,263 $ 397,011 $ 444,680 $ 459,199 $ 643,892 $ 600,589 $ 553,767 $ 568,073 $2,387,198 $2,280,590 $2,188,811 $2,094,815 $1,946,747 $1,847,608 $1,770,156 484,400 484,400 484,400 484,400 384,400 384,400 384,400 12,500 17,500 22,500 27,500 30,000 35,000 2,382,635 2,397,931 2,435,129 2,496,492 2,386,258 2,210,108 2,349,373 $5,254,233 $5,175,421 $5,125,840 $5,098,207 $4,744.905 $4,472,116 $4,538,929 12,324,898 11,996,794 11,346,736 11,332,285 11,!49,225 .10,606,698 9,814,814 8,526,131 8,201,534 7,915,685 7,711,092 7,476,924 7,015,589 6,593,645 17,511,579 17,713,153 17,360,791 16,881,342 15,969,075 15,025,806 15,215,276 2,827,895 2,689,230 2,629,805 2,854,703 3,007,267 3,007,753 2,726,083 174,760 170,420 166,485 165,122 159,422 153,282 146,119 41,365,263 40,771,131 39,419,502 38,944,544 37,761,913 35,809,128 34,495,937 5,982,547 7,587,830 7,662,524 5,051,047 7,516,287 6,056,296 9,432,381 7,784,285 - 4,519.275 5,048,743 3,551,142 4.963,997 4,456,360 3,588,338 55,132,095 J2,878,236 52,130,769 47,546,733 50,242,197 46,321,784 47,516,656 $ 864,347 $ 825,645 5 781,982 $ 761,805 $ 759,957 $ 738,864 5 684,970 582,730 551,634 533,487 510,910 501,088 481,676 453,651 7 %,224 777,580 762,274 738,755 721,298 705,395 717,078 107,361 106,864 98,552 108,119 118,907 124,412 119,025 -12,662 12,103 11,743 11,255 10.968 10,811 10,129 2,357,324 2,273,826 2,I88,038 2,130,844 2,112,218 2,061,I58 1,984,853 300,551 328,132 310,650 .247,243 324,973 348,526 420,318 159,375 93,473 104,488 76,691 118,746 120,911 95,733 2,817,250 2,695,431 2,603,176 2,454,778 2,555,937 2,530,595 2,500,904 29,544. 26,993 ' 26,178 21,848 18,697 18,979 17,795 52,846,794 $2,722,424 $2,629,354 $2,476,626 $2,574,634 $2,549,574 $2,518,699 1,152,006 1,135,918 1,121,771 1,108,334 1,090,302 1,070,760 1,050,795 8,513 9,473 9,698 10,302 10.457 10,367 10,212 5.1 i 5.10 4.99 5.16 5.09 5.46 5.26 1,70 1.73 1.73 1.71 1.80 1,83 1.90 I 17

M ANAG E M.ENTSS DIS C US SION AN D [ A N A IJ S I S O F ILE S li LT S O F OPER ATIONS AND FINANCI AL CON DITION RESULTS OF OPERATIONS Retail revenues of$2.5 billion in 1995 increased $109 million Earnings (4.6 percent) from the prior year, compared with a decrease of Alabama Power Company's 1995 net income after dividends $51 million (2.1 percent) in 1994. The hot weather during the on preferred stock uas $361 million, representing a $4.6 million summu f1995 and higher fuel cost recovery were the primary reasons for the increase in retail revenues over 1994. The mild (1.3 percent) increase from the prior year. This improvement can be attributed to an increase in retail energy sales of4.7 percent weather during 1994 and lower fuel cost recovery contributed to from 1994 levels. This was primarily due to the extreme summer the decrease in retail revenues from 1993. Fuel revenues, w hich weather during 1995, especially when compared to the mild incre sed in 1995, generally represent the direct recovery of fuel weather of 1994. This improvement was partially ofTset by'a 2.6 eIPense, including the fuel component ofpurchased energy, and therefore have no effect on net income. percent increase in operating costs. Revenues from sales to utilities outside the service area under In 1994, earnings were $356 million, representing a 2.8 per-cent increase from the prior 3 ear. This increase was due to lower 1 ng-term contracts consist ofcapacity and energy components. operating expenses w hich decreased 3.0 percent from the previous Capacity revenues reflect the recovery of fixed costs and a return year. This improvement was partially ofTset by reduced capacity n investment under the contracts. Energy is generally sold at sales to nonterritorial utilities. Net income was also impacted by variable cost. These capacity and energy components, as well as the mild weatherin 1994. the components of the sales to affiliated companies, were: The rettirn on average common equity for 1995 was 13.61 per-1995 1994 1993 cent compared to 13.86 percent in 1994, and 13.94 pereent in 1993. (in thousands) Reienues Capacity $158,825 $165,063 $187,062 Total revenues for 1995 were $3.0 billion, reflecting a 3.1 percent increase from 1994. The following table summarizes the principal 5 - factors that alTected operating revenues for the past three years: Increase (Decrease) From Prior Year Capacity revenues from non-alliliates remained relatively e nstant in 1995 and 1994. Capacity revenues from sales to amli-1995 1994-1993 ates decreased $22 million in 1994. Sales to afliliated companies (in thousands) within the Southern electric system will vary from year to year R4 Change in depending on demand, the availability, and the variable production base rates S 990 e st ofgeneratmg resources at each company. Unbilled adjustment 28,000 Kil watt-hour (KWil) sales for 1995 and the percent change Sales growth 18,174 45,304 24,960 by year were as fcilows: Weather 54,888 (39,964) 58,536 Fuelcost KWil Percent Change recovery and other 35,235 (84,344) 96,437 1995 _1995 1994 -1993 Total retail 109,287 (51,004) 179,933 (millions) Sales for resale-Non-alliliates. 15,380 (9,345) (43,686) Residential 14,383 9.1% (1.7)% 9.2% Alliliates (37,032) (17,213) 23,887 Commercial 10,043 4.1 3.4 6.4 Totalsales for resale (21,652) (26,558) (19,799) Industrial 19,863 2.0 3.2 1.8 Other operating Other 187 0.5 1.1 2.8 revenues 1,997 5,095 635 Totalretail 44,476 4.7 3.3 5.1 Totaloperating Sales for resale-revenues S 89,632 $(72.467) $160,769 Non-alliliates 8,046 18.8 (5.2) (14.8) . Percent change 3.1 % (2.4)% 5.6% Affiliates o,705 (20.5) 4.3 12.1 Total 59,227 2.6% 2.4% 3.0% 18

" The rate ofincrease in 1995 retail energy sales was fostered by The increase in purchased power is primarily attributable to ' the impa:t ofweather. Residential energy sales surged upward as the exceptionally hot summer weather. Purchased power consists a result of hotter-than-normal summer weather in 1995, com-primarily of purchases from the afTiliates of the Southern electric pared with the mild summer of 1994. The gains in commercial system. Purchased power transactions among the company and its and industrial sales reflect the strength of business and economic afliliates will vary from period to period depending on demand, conditions in the company's service area. the availability, and the variable production cost ofgenerating resources at each company. KWil purchases from afliliates Expenses increased 18 percent from the prior year. Total operating expenses of $2.4 billion for 1995 were up 560 Other operation expenses increased 9.4 percent in 1995 fol-million or 2.6 percent compared with 1994. The major compo. lowing a 2.5 percent decrease in 1994. This increase over 1994 nents of this increase include $27 million in purchased power, $43 is primarily attributable to the 1995 expenses not reflecting the million in other operation expenses, $1 I million in depreciation positive impact of the amortization of the GulfStates Utilities and amortization, and $7 million in income taxes offset by settlement which expired in 1994. decreases in fuel costs and maintenance expenses ofS10 million The decrease in maintenance expenses for 1995 reflects the and $19 million, respectively. establishment in September 1994 ofa Natural Disaster Reserve. Total operating expenses of $2.3 billion for 1994 were down This also caused the increase in 1994 maintenance expenses over 3.0 percent compared with the prior year. The decrease was main. 1993. See Note 1 to the financial statements under " Natural ly due to less coal-fired generation and a lower average cost of Disaster Reserve" for additional information. fuel consumed. Coal-fired generation decreased because it was Depreciation and amortization expense increased 3.6 percent displaced with lower cost nuclear and hydro generation. in 1995. This increase reflects additions to utility plant. The Fcel costs constitute the single largest expense for the compa. amount for 1994 was virtually unchanged from the previous year ny. The mix of fuel sources for generation ofelectricity is deter. because oflower average depreciation rates elTective January 1994 mined primarily by system load, the unit cost offuel consumed, and olTsetting growth in depreciable plant in service. and the availability ofhydro and nuclear generating units. The Income tax expense increased 3.0 percent and 8.2 percent in amount and sources ofgeneration and the average cost of fuel per 1995 and 1994, respectively. These increases are primarily attrib-net KWil generated were as follows: utable to higher taxableincome. The company contributed $11.5 million to the Alabama 1995 1994 1993 Power Foundation, Inc. in 1995, w hich represents a decrease of $2.0 million from the previous year. The Foundation makes dis-Total generstion tributions to qualified entities which are orgsaized exclusively for (billions of KWHs) 58 57 55 charitable, educational, literary, and scientific purposes. Sources ofgeneration Total net interest charges and preferred stock dividends rose in (percent)- 1995 to $265 million, an increase of 12.2 percent. This increase Coal 73 68 70 results from (i) interest on interim obligations which rose due Nuclear 19 23 22 t higher average interest rates on an increased average amount II)dro 8 9 8 fshort-term debt outstanding and (ii) amortization ofdebt Aserage cost offuelper net discount, premium, and expense, net pursuant to an Alabama KWHgenerated Public Service Commission ( A PSC) order. See Note 3 to the (cents) _ financial statements under " Retail Rate Adjustment Procedures" Coal 1.71 1.92 2.11 f r additional details. The decline in net interest charges in Nuclear 0.50 0.49 0.51 1994 by $23 million (9.0 percent) reflects the benefits from Total 1.48 1.56 1.73 f'II" " CIDE-Note: Oil & Gas comprise less than 0.5% of generation. Effects ofinflat. ion Fuel expense decreased in 1995 by $ 10 million or 1.3 percent. The company is subject to rate regulation and income tax laws This decrease resulted from lower average cost of fuel consumed. that are based on the recovery ofhistorical costs. Therefore, infla-Fuel expense decreased in 1994 by $75 million (8.6 percent) from tion creates an economic loss because the company is recovering the previous year. This decrease is attributable to the increase in its costs ofinvestments in dollars that have less purchasing power. availability ofnuclear and hydro generation and a decrease in the While the inflation rate has been relatively low in recent years, it cost offuel. c ntinues to have an adverse efTect on the company because of the large investment in long-lived utility plant. Conventional 19

accounting for historical cost does not recognire this economic and depreciation expenses. These additions are to ensure reliable' loss nor the partially offsetting gain that arises through financing service to its customers during critical peak times. i facilities with fixed-money obligations, such as long-term debt Rates to retail customers served by the company are regulated i and preferred stock. Any recognition ofinflation by regulatory by the APSC. Rates for the company can be adjusted periodically authorities is reflected in the rate ofreturn allowed. within certain limitations based on earned retail rate ofreturn compared with an allowed return. In June 1995, the A PSC issued ] Future Earnings Potential an order granting the company's request for gradual aujustments The results ofoperations for the past three y ears are not neces. to move toward parity among customer classes. This order also sarily indicative of future earnings potential. The level of future calls for a moratorium on any periodic retail rate increases (but earnings depends on numerous factors ranging from energy sales not decreases)until2001. growth to a less regulated more competitive environment. In December 1995, the APSC issued an order authorizing the ) Future carnings in the near term will depend upon growth in company to reduce balance sheet items - such as plant and deferred electric sales, which are subject to a number of factors. Tradition. charges - at any time the company's actual base rate revenues ally, these factors have included weather, competition, changes in exceed the budgeted revenues. See Note 3 to the financial state-contracts with neighboring utilities, energy conservation prac. ments for information about this and other regulatory matters. ticed by customers, the elasticity ofdemand, and the rate ofeco. The staffof the Securities and Exchange Commission has ques-nomic growth in the company's service area. Ilowever, the Energy tioned certain of the current accounting practices of the electric Policy Act of 1992 (Energy Act) is beginning to have a dramatic utility industry - including the company - regarding the recog-efTect on the future of the electric utility industry. The Energy nition, measurement, and classification of decommissioning costs Act promotes energy etTiciericy, alternative fuel use, and increased for nuclear generating facilities in the financial statements. In competition for electric utilities. The company is positioning the response to these questions, the Financial Accounting Standards business to meet the challenge of this major change in the tradi. Board (FASB) has decided to review the accounting for liabilities tional practice ofselling electricity. The Energy Act allows inde. related to closure and removal oflong-lived assets, including pendent power producers (IPPs) to access a utility's transmission nuclear decommissioning. If the FASB issues new accounting network in order to sell electricity to other utilities. This rules, the estimated costs ofclosing and removing the company's enhances the incentive for IPPs to build cogeneration plants for a nuclear and other facilities may be required to be recorded as lia-utility's large industrial and commercial customers and sell excess bilities in the Balance Sheets. Also, the annual provisions for such energy generation to other utilities. Also, electricity sales for costs could increase. Because of the company's current ability to resale rates are being driven down by wholesale transmission recover closure and removal costs through rates, these changes access and numerous potential new energy suppliers, including should not have a significant adverse efTect on results ofopera-power marketers and brokers. The company is aggressively work. tions. See Note I to the financial statements under " Depreciation ing to maintain and expand its share of wholesale sales in the and Nuclear Decommissioning" for additional information. Southeastern power markets. Compliance costs related to the Clean Air Act Amendments of Although the Energy Act does not require transmission access 1990 (Clean Air Act) could afTect earnings ifsuch costs are not to retail customers, retail u heeling initiatives are rapidly evolving fully recovered.The Clean Air Act and other important environ-and becoming very prominent issues in several states. New federal mental items are discussed later under " Environmental Matters." legislation is being discussed, and legislation allowing customer The company is subject to the provisions of FASB Statement choice has already been introduced in Florida and Georgia. In No. 71, Accounting for the EITects of Certain Types of Regula-order to address these initiatives, numerous questions must be tion. In the event that a portion of the company's operations is resolved, with the most complex ones relating to transmission no longer subject to these provisions, the company would be pricing and recovery ofstranded investments. As the initiatives required to write off related regulatory assets and liabilities, and become a reality, the structure of the utility industry could radi. determine if any other assets have been impaired. See Note I to cally change. Therefore, unless the company remains a low-cost the financial statements under " Regulatory Assets and Liabili-producer and provides quality service, the company's retail energy ties" for additionalinformation. sales growth could be limited, and this could significantly erode earnings. Conversely, being the low-cost producer could provide New AccountingStandards significant opportunities to increase market share and profitability The FASB has issued Statement No.121, Accounting for the by seeking new markets that evolve with the changing regulation. Impairment of Long-Lived Assets and Long-Lived Assets to be The addition of four combustion turbine generating units in Disposed of. This statement requires that long-lived assets be 1996 will increase related operation and maintenance expenses reviewed for impairment whenever events or changes in circum-20

~ stances indicate that the carrying amount for an asset may not total is $1.4 billion for the three years. Actual capital costs may V be recoverable. This statement also imposes stricter criteria for vary from this estimate because of factors such as changes in regulatory assets by requiring that such assets be probable of business conditions; revised load growth projections; changes in future recovery at each balance sheet date. The company adopted environmental regulations; changes in the existing nuclear plant the new rules January 1,1996, with no material effect on the to meet new regulatory requirements; increasing cost oflabor, fmancial statements. liowever, this conclusion may change in equipment, and materials; and cost ofcapital. In addition, there the future as competitive factors influence wholesale and retail can be no assurance that costs related to capital expenditures will pricingin the utilityindustry. . be fully recovered. The company does not have any baseload generating plants FINANCIAL CONDITION under construction, and current energy demand forecasts do not Overview require any additional baseload generating units until well into The company's fmancial condition remained stable in 1995. the future. Ilowever, the addition ofcombustion turbine peaking This stability is the continuation over recent years ofgrowth in units ofapproximately 320 megawatts ofcapacity is planned in energy sales and cost control measu es' combined with a signifi. 1996 to meet increased peak-hour demands. In addition, signifi-cant lowering of the cost ofcapital, achieved through the refi. cant construction of transmission and distribution facilities and nancing and/or redemption of higher-cost long-term debt and upgrading ofgenerating plants will continue. preferred stock. The company had gross property additions of $552 million in . Other Capital Requirements 1995. The majority offunds needed for gross property additions in addition to the funds needed for the capital budget, for the last several years have been provided from operating activ-approximately $110 million will be required by the end of1998 ities, principally from earnings and non-cash charges to income for maturities of first mortgage bonds. Also, the company will such as depreciation and deferred income taxes. The Statements continue to retire higher-cost debt and preferred stock and ofCash Flows provide additional details. replace these obligations with lower-cost capital ifmarket conditions permit. CapitalStructure The company's ratio ofcommon equity to total capitalization EnvironmentalMatters -including short-term debti was 45.0 percent in 1995, com-In November 1990, the Clean Air Act was signed into law. pared with 45.9 percent in 1994, and 46.5 percent in 1993. Title IV of the Clean Air Act - the acid rain compliance provision In 1995, the company issued through public authorities, of the law - has significantly impacted the Southern electric sys- $131.5 million ofpollution control revenue refunding bonds, tem. Specific reductions in sulfur dioxide and nitrogen oxide Composite financing rates as ofyear-end for 1993 through 1995 emissions from fossil-fired generating plants are required in cere as follows: two phases. Phase I compliance began in 1995 and afTected 28 generating units in the Southern electric system. As a result of 1995 1994 1993 The Southern Company's compliance strategy, an additional 22 Compositeinterest rate generating units were brought into compliance with Phase I on long-term debt... 7.02% 7.39% 7.35 % requirements. Phase II compliance is required in 2000, and all Composite dividend rate fossil-fired generating plants will be affected. on preferred stock........ 6.04% 6.23 % 5.80% In 1995, the Environmental Protection Agency (EPA) began issuing annual sulfur dioxide emission allowances through the allowance trading program. An emission allowance is the author-The companyl current securities ratings are as follows: ity to emit one ton ofsulfur dioxide during a calendar year. The method for issuing allowances is based on the fossil fuel consumed DufT& Standard from 1985 through 1987 for each affected generating unit. Emis-Phelps Moody's & Poor's sion allowances are transferable and can be bought, sold, or First Mortgage Bonds A+ Al A+ banked and usedin the future. Preferred Stock A~ a2 A The sulfur dioxide emission allowance program is expected to minimize the cost ofcompliance. The Southern Company's sulfur Capital Requirements dioxide compliance strategy is designed to use allowances as a Capital expenditures are estimated to be $491 million for compliance option. ( l996, S446 million for 1997, and $479 million for 1998. The The Southern Company achieved Phase I sulfur dioxide com-21

pliance at the afTected plants by switching to low-sulfur coal, this time, pending their deselopment and implementation. ' w hich required some equipment upgrades. This compliance strat-In 1993, the EPA issued a ruling confirming the non-haz-egy resulted in unused emission allowances being banked for later ardous status ofcoal ash. Ilowever, the EPA has until 1998 to um Compliance with nitrogen oxide emission limits was achieved classify co-managed utility wastes - coal ash and other utility by the installation of new control equipment at 22 of the original wastes - as either non-hazardous or hazardous. If the EPA classifies 28 afTected generating units. Construction expenditures for Phase the co-managed wastes as hazardous, then substantial additional I compliance totaled approximately $320 million through 1995 costs for the management ofsuch wastes may be required. The full for The Southern Company, of which the company's portion was impact of any change in the regulatory status will depend on the approximately $32 million. subsequent development ofco-managed waste requirements. For Phase 11 sulfur dioxide compliance, The Southern Compa-The company must comply with other environmental laws and ny could use emission allowances banked during Phase 1, increase regulations that cover the handling and disposal ofhazardous fuel switching, install flue gas desulfurization equipment at waste. Under these various laws and regulations, the company selected plants, and/or purchase more allowances, depending on could incur costs to clean up properties. The company conducts the price and availability ofallowances. Also,in Phase 11, equip-studies to determine the extent ofany required cleanup costs and has ment to control nitrogen oxide emissions will be installed on recognized in the financial statements costs to clean up known sites. additional system fossil-fired plants as required to meet Phase 11 Several major pieces ofenvironmental legislation are being limits. Therefore, during the period 1996 to 2000, current com-considered for reauthorization or amendment by Congress. These pliance strategy could require total estimated construction include: the Clean Air Act; the Clean Water Act; the Comprehen-expenditures of approximately $150 million for The Southern sive Environmental Response, Compensation, and Liability Act; Company, ofw hich the company's portion is approximately $96 the Resource Conservation and Recovery Act; the Toxic Substances million.110weser, the full impact of Phase 11 compliance cannot Control Act; and the Endangered Species Act. Changes to these now be determined with certainty, pending the continuing devel-laws could afTect many areas ofThe Southern Company's opera-opment ofa market for emission allowances, the completion of tions. The full impact of these requirements cannot be determined EPA regulations, and the possibility of new emission reduction at this time, pending the development and implementation of technologies. applicable regulations. An average increase ofup to 1 percent in annual revenue Compliance with possible additional legislation related to requirements from customers could be necessary to fully recover global climate change, electromagnetic fields, and other environ-the company's cost ofcompliance for both Phase I and Phase II of mental and health concerns could significantly alTect the South-Title IV of the Clean Air Act. Compliance costs include construc-ern electric system. The impact of new legislation - ifany - will tion expenditures, increased costs for switching to low-sulfur depend on the subsequent development and implementation coal, and costs related to emission allowances. ofapplicable regulations. In addition, the potential exists for A significant portion ofcosts related to the acid rain provision liability as the result oflawsuits alleging damages caused by of the Clean Air Act is expected to be recovered through existing electromagnetic fields. ratemaking provisions. Ilowever, there can be no assurance that allClean Air Actcostswillberecovered. Sources of Capital Title 111 of the Clean Air Act requires a multi-year EPA study It is anticipated that the funds required will be derised from of power plant emissions of hazardous air pollutants. The EPA sources in form and quantity similar to those used in the past. To is scheduled to submit a report to Congress on the results of this issue additional first mortgage bonds and preferred stock, the com-study during 1996. The report will include a decision on w hether pany must comply with certain earnings coserage requirements additional regulatory control of these substances is warranted. designated in its mortgage indenture and corporate charter. The Compliance with any new control standards could result in company's coserages are at a level that would pern it any necessary significant additional costs. The impact of new standards - if amount ofsecurity sales at current interest and dividend rates. any - will depend on the development and implementation of As required by the Nuclear Regulatory Commission and as applicable regulations. ordered by the APSC, the company has established external trust The EPA is evaluating the need to resise the ambient air quali-funds for nuclear decommissioning costs. In 1994, the company ty standards for particulate matter and ozone. The impact ofany also established an external trust fund for postretirement benefits new standard will depend on the level chosen for the standard and as ordered by the APSC. The cumulatise effect of funding these cannot be determined at this time. items over a long period will diminish internally funded capital in 1996, the EPA may issue revised rules on air quality control and may require capital from other sources. For additional infor-regulations related to stack height requirements of the Clean Air mation concerning nuclear decommissioning costs, see Note i Act. The full impact of the final rules cannot be determined at to the financial statements under " Depreciation and Nuclear g Decommissioning"

MTATE 3I ENTS O F I N C O SI E for the Years Ended December 31,1995,1994 and 1993 1995 1994 1993 (in thousands)

OPERATING REVENUES (Notes I,3 and 7): Revenues...................... $2,897,044 . $2,770,380 $2,825,634 - Revenues from alliliates...................... 127,730 164,762 181,975 Total operating revenues................ 3,024,774 2,935,142 3,007.609 OPERATING EXPENSES: Operation-Fuel................................ 791,819 801,948 877,099 Purchased power from non-alliliates... 30,065 15,158 15,230 Purchased power from afliliates.. I12,826 100,888 120,330 Other...... 501,876 458,917 470,815 Maintenance.............. 243,218 262,102 252,506 Depreciation and amortization........ 303,050 292,420 290,310 Taxes other than income taxes.... 185,620 183,425 178,997 Federal and state income taxes (Note 8)... 230,982 224.280 207,210 Totaloperatingexpenses.. 2,399,456 2.339,138 2,412,4971 OPERATING INCOME........ 625,318 596,004 595,112 OTilER INCOME (EXPENSE): Allowance for equity funds used during construction (Note 1)... 1,649 3,239 3,260 Income from subsidiary (Note 6).. 4,051 3,588 4,127 Charitable foundation........ (11,542) (13.500) (3,000) Interest income. 13,768 16,944 20,775 Other, net.................... (21,536) (30,569) (24,420) Income taxes applicable to other income.. 14,142 16.834 10,239 INCOME BEFORE INTEREST CilARGES..... 625,850 592,540 606.093 INTERESTCIIARGES: Interest on iong-term debt...... 180,714 178,045 184,861 Allowance for debt funds used during construction (Note 1)...... (7,067) (3,548) . (2,992) Interest on interim obligations... 16,917 5,939 3,760 Amortization ofdebt discount, premium, and expense, net.. 20,259 9,623 8,937 . Otherinterest charges.... 27,064 19,908 35,474 Net interest charges. 237,887 209,967 - 230.040 NET INCOME...............,......... 387,963 382,573 376,053 DIVil) ENDS ON PREFERRED STOCK. 27,069 26.235 29.559 NET INCOME AFTER DIVIDENDS ON PREFERRED STOCK..... $ 360,894 $ 356.338 $ 346,494 STATE 31 ENTS O F If ETA I N ED E AIt NING S for the Years Ended December 31,1995,1994 and 1993 1995 1994 1993 (in thousands) Balance at Beginning of Year........... $1,085,256 $ 997,199 5 914,148 Net income after dividends on preferred stock.... 360,894 356,338 346,494 Cash dividends on common stock.......... (285,000) (268,000) (252,900) Preferred stock transactions, net..... (lI8) (10,587) Other adjustments to retained earnings. 75 (163) 44 Balance at End of Year (Note 12)... $1,161,225 $1,085,256 $ 997,199 The accompanying notes are an integral part of these statements. 23

HTATEM ENTS O F C A HII F I;() W S for the Years Ended December 31,1995,1994 and 1993 1995 1994 1993 (in thousands) OPERATING ACTIVITIES: Net income..... $ 387,963 $ 382,573 $376,053 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.. 371,382 359,791 356,499 Deferred income taxes and investment tax credits.. 32,627 (32,613) 32,994 Allowance for equity funds used during construction... (1,649) (3,239) (3,260) Other, net.... 33,244 28,656 36,493 Changes in certain current assets and liabilities: Receivables, net............ (54,209) 19,390 19,215 Inventories..... 18,425 (38,946) 51,630 Payables............ (63,656) (21,240) 31,544 Taxes accrued... 551 6,856 (9,959) Energy cost recovery, retail. 1,177 16,907 (56,128) O t her................... (15,895) (14.235) (21,110) Net cash provided from operating activities... 709,960 703,900 813,971 INVESTING ACTIVITIES: G ross property additions................ (551,781) (536,785) (435,843) Other..... (53,321) (26,632) (741) Net cash used for investing activities....... (605,102) (563,417) FINANCING ACTIVITIES: __(436,584) Proceeds: Preferred stock........ 158,000 First mortgage bonds... 150,000 860,000 Other long-term debt..... 131,500 208,720 180,314 Retirements: Preferred stock............ (207,000) First mortgage bonds........ (20,387) (699,788) Otherlong-term debt.... (132,291) (305,380) (181,329) Interim obligations, net............... 210,134 139,882 (156,917) Payment ofpreferred stock dividends..... (27,118) (25,431) (32,099) Payment of common stock dividends... (285,000) (268,000) (252,900) Miscellaneous..... (4,143) (8,444) (56,064) Net cash used for financing activities......... (196,918) (129,040) (387,783) N ET CII ANGE IN CASil.................,.......... (2,060) 11,443 (10,396) CASil AT BEGINNING 0F YEAR.... 14,676 3,233 13,629 CASH AT END OF YEAR......... $ 12,616 $ 14,676 5 3,233 SUPPLEMENTAL CASil FLOW INFORMATION: Cash paid during the year for-Interest (net ofamount capitalized).......... $ 189,268 $ 183,445 $ 176,805 Income taxes... 172,777 231,831 175,591 ( ) Denotes use ofcash. The accompanying notes are an integral part of these statements. 24

N A L A N C E S H E E T S at December 31,1995and 1994 1995 1994 Assets (in thousands) Plant in service, at original cost (Note 1) ion.... $10,430,792 $10,052,772 Less accumulated provision for depreciat 3.838.093 3.598.604 6,592,699 6,454,168 Nuclear fuel, at amortized cost..... 100,537 101,630 Construction workin 362.768 317.779 Total................ progress..... 7.056.004 6.873.577 OTilER PROPERTY ANDINVESTMENTS: Southern Electric Generating Company at equity (Note 6). 27,232 26,985 Nuclear decommissioning trusts (Note 1). 108,368 71,014 Miscellaneous... 19,156 16.970 Total......~........ 154,756 114.969 CURRENTASSETS: Cash..... 12,616 14,676 Receivables-Customer accounts receivable...... 355,833 308,561 Other accounts and notes receivable. 28,082 22,547 Affiliated companies.... 41,819 29,303 Accumulated provision for uncollectible accounts.. (2,6351,212) 2,297) Refundableincome taxes. 6,011 Fossil fuel stock, at average cost.......... 106,627 119,555 Materials and supplies, at average cost...... 179,103 184,600 Prepayments-Income taxes.. 19,196 Other............. 116,331 81,354 Vacation pay deferred.... 29.458 20.442 Total... 871.292 816.948 DEFERRED CIIARGES: Deferred charges related to income taxes (Note 8).... 436,837 451,886 Debt expense,beingamortized.. 7,648 7,370 Premium on reacquired debt, being amortized.. . 89,967 101,851 Uranium enrichment decontamination and decommissioning fund (Note 1). 40,282 42,996 Miscellaneous. 87.574 49.620 Total........ 662.308 653.723 Total Assets........ $8,744,360 $8.459.217 Capitalization and Liabilities CAPITALIZATION (See accompanying statements): Common stock equity.... $2,690,374 $2,614,405 Preferred stock... 440 440 Long-term debt. 2,374'400 2.455:400 948 013 Total................ 5,505.722 5.509.818 CURRENT LIABILITIES: Long-term debt due within one year (Note 10). 84,682 796 Commercial paper.. 390,016 179,882 Accounts payable-Afliliated com 76,326 60,334 Other.......panies... 182,401 258 657 Customerdeposits... 30,353 30 245 Taxes accrued-Federaland stateincome.. 13,599 6.848 Other.. 18 158 15,589 Interest accrued...... 53,527 52.516 Vacation pay accrued. 29,458 '442 20:047 Miscellaneous....... 70.543 57 Total......... 949.063 682.356 DEFERRED CREDITS AND 0 tiler LIABILITIES: Accumulated deferred income taxes (Note 8). Accumulated deferred investment tax credits. 1,305,372 1,181,342 191,591 317,018 Prepaid capacity revenues, net (, Note 7)........ 131l620 186 138,421 Uran em enrichment decontammation and decommissioning fund (Note 1). 36 39,413 Deferred credits related to income taxes (Note 8).. 386,038 405,256 Natural disaster reser e (Note 1)... 17,959 28,750 Miscellaneous. 220,809 156.843 Total.................. 2,289,575 2.267.043 COMMITMENTS AND CONTINGENT MATTERS (Notes 1. 3,4,5,6,7 and 11) Total Capitalization and Liabilities. $8,744.360 $8.459.217 The accompanying notes are an integral part of these balance sheets. 25

S TA T E M E N T S O F C A P I TA L I Z AT I O N at December 31,1995 and 1994 Amount Percent ofTotal 1995 1994 1995 1994 (in thousands) COMMONSTOCK EQUITY:. Common stock, par value $40 per share-Authorized-6,000,000 shares Outstanding-5,608,955 shares in 1995 and 1994.... $ 224,358 $ 224,358 Paid-in capi tal......................... 1,304,645 1,304,645 Premium on preferred stock......... 146 146 Retained earnings (Note 12).......................... 1,161,225 1,085,256 - Total common stock equity..............,. 2,690,374 2,614,405 48.9 % 47.4% CUMULATIVE PREFERRED STOCK: Si par value-. Authorized-27,500.000 shares - Outstanding-12,020,200 shares $25 stated capital-6.40%......... 50,000 50,000

6. 80%...............

38,000 38,000 ' 7.60%..... 150,000 150,000 Adjustable rate 4.82%-at January 1,1996.. 50,000 50,000 $100 stated capital-Auction rate-at January 1,1996:4.43%... 50,000 50,000 $100,000 stated capital-Auction rate-at January 1,1996: 4.53%. 20,000 20,000 $100 par value-Authorized-3.850,000 shares Outstanding-824,000 shares 4.20% to 4.52%..... 41,400 41,400 4.60% to 4.92%...... 29,000 29,000 5.96% to 6.88%........................ 12,000 12,000 Total (annual dividend requirement-526,599,000)... 440,400 440,400 8.0 8.0 LONG-TERM DEBT: First mortgage bonds-Maturity Interest Rates - March I,1996 4 1/2%.......... 60,000 60,000 February 1,1998' .5-1/2%... 50,000 50,000 August I,1999 6-3/8%.. 170,000 170,000 March 1,2000 6%.............. 100,000 100,000 2003 through 2007 6-3/4% to 7-l/4%, 575,000 575,000 2021 through 2024 7.30% to 9-1/4%...... 1,044,856 1,044.856 Total first mortgage bonds., 1,999,856 1,999,856 Pollution controlobligations............. 476,140 476,140 Other long-term debt.......... 8,963 9,754 Unamortized debt premium (discount), net.. (25,329) (29.94I) Total long-term debt (annual interest requirement-$174,568,000)........ 2,459,630 2,455,809 Less amount due within one year (Note 10)...... 84,682 796 Lonpterm debt, excluding amount due - within one year........ 2,374,948 2,455,013 43.1 44.6 TOTA L CAPITALIZATION...................... 55,505,722 - $5,509.818 100.0% 100.0 % The accompanying notes are an integral part of these statements. 26

NOTES TO FINANCI A L s STATEM ENTS

1. SU5DIAIWOFSIGNIFICANT Accounting ibr the EfTects ofCertain Types of Regulation.

ACCOUNTING POLICIES Regulatory assets represent probable future revenues to the com-pany associated with certain costs that are expected to be recovered General from customers through the ratemaking process. Regulatory lia-Alabama Power Company (the company) is a w holly owned bi?ities represent probable future reductions in revenues associat-subsidiary ofThe Southern Company, w hich is the parent ed with amounts that are to be credited to customers through the company offive operating companies, a system service company, ratemaking process. Regulatory assets and (liabilities) reflected in Southern Communications Services (Southern Communications), the Balance Sheets at December 31 relate to: Southern Electric International (Southern Electric), Southern Nuclear Operating Company (Southern Nuclear), The Southern 1995 1994 Development and Investment Group (Southern Development), (in thousands) and other direct and indirect subsidiaries. The operating compa-Deferredincome taxes $436,837 $451,886 nics (Alabama Power Company, Georgia Power Company, Gulf Premium on reacquired debt 89,967 101,620 Power Company, Mississippi Power Company, and Savannah Department of Energy assessments 40,282 42,996 Electric and Power Company) provide electric service in four Vacation pay 29,458 20,442 Southeastern states. Contracts among the companies - dealing Work force reduction costs 48,402 3,664 with jointly-owned generating facilities, interconnecting trans-Deferredincome tax credits (386,038) (405,256) mission lines, and the exchange ofelectric power - are regulated Naturaldisaster reserve (17,959) (28,750) by the Federal Energy Regulatory Commission (FERC) or the Other, net 39,172 45,956 Securities and Exchange Commission (SEC). The system service Total $280,121 $232,558 company provides, at cost, specialized services to The Southern Company and subsidiary companies. Southern Communications provides digital wireless communications services to the operat-In the event that a portion of the company's operations is no ing companies and also markets these services to the public within 1 nger subject to the provisions ofStatement No. 71, the compa-the Southeast. Southern Electric designs, builds, owns end oper-ny w uld be required to write offrelated regulatory assets and ates power production and delivery facilities and provides a broad li bilities. In addition, the company would be required to deter-range of technical services to industrial companies and utilities in mine any impairment to other assets, meluding plant, and write the United States and a number ofinternational markets. South-d wn the assets,ifimpaired, to their fair value. ern Nuclear provides services to The Southern Company's nuclear power plants. Southern Development develops new business Revenues and FuelCosts opportunities related to energy products and services. The company accrues revenues for senices rendered but The Southern Company is registered as a holding company unbilled at the end ofeach fiscal period. Fuel costs are expensed under the Public Utility llolding Company Act of1935 as the fuel is used. The company's electric rates include prosisions (PUllCA). Both The Southern Company and its subsidiaries are to adjust billings for fluctuations in fuel and the energy component subject to the regulatory provisions of the PUllCA. The company of purchased power costs. Revenues are adjusted for difTerences is also subject to regulation by the FERC and the Alabama Public between recoverable fuel costs and amounts actually recovered Service Commission ( APSC). The company follows generally in current rates. accepted accounting principles and complies with the accounting The company has a diversified base ofcustomers. No single policies and practices prescribed by the respective regulatory com. customer or industry comprises 10 percent or more ofrevenues. missions. The preparation of financial statements in conformity In 1995, uncollectible accounts continued to average less than with generally accepted accounting principles requires the use of I percent ofrevenues. estimates, and the actual results may difTer from those estimates. Fuel expense includes the amortization of the cost of nuclear fuel and a charge, based on nuclear generation, for the permanent Regulatory Assets and Liabilities disposal ofspent nuclear fuel. Total charges for nuclear fuel The company is subject to the provisions ofFinancial included in fuel expense amounted to $54 million in 1995,565 Accounting Standards Board (FASB) Statement No. 71, milli n in 1994, and $62 million in 1993. The company has a contract with the U.S. Department of Energy (DOE) that pro-l 27

vides for the permanent disposal of spent nuclear fuel. Although Plant

disposal was scheduled to begin in 1998, the actual year this ser-Farley vice will begin is uncertain. Sumcient storage capacity currently Site study basis (year) 1993 is available to permit operation into 2012 and 2014 at Plant Farley units I and 2, respectively.

Decommissioning periods: Also, the Energy Policy Act of 1992 required the establish-Beginning 3 ear 2017 ment in 1993 of a Uranium Enrichment Decontamination and Completion year 2029 Decommissioning Fund, w hich is to be funded in part by a special assessment on utilities with nuclear plants. This assessment will (.'n m lh,ons) be paid over a 15 - year period, which began in 1993. This fund Site study costs: will be used by the DOE for the decontamination and decommis. Radiated structures $489 sioning ofits nuclear fuel enrichment facilities. The law provides Non-radiated structures 89 that utilities will recover these payments in the same manner as Total $578 any other fuel expense. The company estimates its remaining lia-bility at December 31,1995, under this law to be approximately (*, ""III "S) $40 million. This obligation is recognized in the accompanying Ultimate costs: Balance Sheets. Radiated structures $1,504 Non-radiated structures 274 Depreciation and Nuclear Decommissioning Total $1,778 Depreciation of the original cost ofdepreciable utility plant in service is provided primarily by using composite straight-line b." " ".. "'I rates, which approximated 3.2 percent in 1995 and 1994, and 3.3 Amount expensed in 1995 $18 percent in 1993. When property subject to depreciation is retired or otherw ise disposed ofin the normal course of business, its cost Accumulated provisions: - together with the cost of removal, less salvage - is charged to Balancein external trust funds $108 the accumulated provision for depreciation. Minor items ofprop-Balance in internal reserves 49 erty included in the origim I cost of the plant are retired w hen the Total $157 related property unit is rehred. Depreciation expense includes an Assumed in ultimate costs: amount for the expected ost ofdecommissioning nuclear facili-Inflation rate 4.5% ties and removal of other Sicilities. Trust earning rate 7.0 In 1988, the Nuclear Regulatory Commission (NRC) adopted regulations requiring ali !icensees operating commercial power Annual provisions for nuclear decommissioning are based on reactors to establish a plan for providing, with reasonable assur-an annuity - sinking fimd - method as approved by the APSC. ance, funds for decommissioning. The company has established The decommissioning costs approved for ratemaking are $578 external trust funds to comply with the NRC's regulations. million for Plant Farley. Amounts previously recorded in internal reserves are being trans-The decommissioning cost estimates are based on prompt ferred into the external trust funds over set periods of time as 6:smantlement and removal of the plant from service. The actual approved by the APSC. The NRC's minimum external funding decommissioning costs may vary from the above estimates because requirements are based on a generic estimate of the cost t of changes in the assumed date ofdecommissioning, changes in decommission the radioactive portions ofa nuclear unit based on NRC requirements, or changes in the assumptions used in making the size and type ofreactor. The company has filed plans with the estimates. NRC to ensure that - over time - the deposits and earnings of the external trust funds will provide the minimum funding amounts Income Taxes prescribed by the NRC. The company uses the liability method of accounting for Site study cost is the estimate to decomm..ission the fa:ility as of the site study year, and ultimate cost is the estimate to decom-deferred income taxes and provides deferred income taxes for mission the facility as of retirement date. The estimated costs of all significant income tax temporary difTerences. Investment tax credits utilized are deferred and amortized to income over the decommissiomng - both site study costs and ultimate costs - at December 31,1995, for Plant Farley were as follows. average lives of the related property. 1 28

Allpance for Funds Used During Constructi:n (AFUDC) Natural Disaster Reserve AFUDC represents the estimated debt and equity costs of In September 1994,in response to a request by the company, capital funds that are necessary to finance the construction of the APSC issued an order allowing the company to establish a new facilities. While cash is not realized currently from such Natural Disaster Reserve. As of December 31,1995, the accumu-allowance, it increases the revenue requirement over the service lated provision amounted to $18.0 million. This balance is down life of the plant through a higher rate base and higher deprecia-from the December 31,1994 balance of $28.8 million, due to tion expense. The composite rate used to determine the amount of charges related primarily to Hurricane Opal, somewhat ofTset by allowance was 7.1 percent in 1995,7.9 percent in 1994, and 7.8 a $10 million accrual to partially replenish the reserve. Regulato-percent in 1993. AFUDC, net ofincome tax, as a percent ofnet ry treatment allows the company to accrue $250 thousand per income after dividends oc preferred stock was 1.7 percent in 1995 month, until the maximum accumulated provision of $32 million and 1.5 percent in both 1994 and 1993, is attained. Ilowever, in December 1995, the APSC approved higher accruals to restore the reserve to its authorized level when. Utility Plant ever the balance in the reserve declines below $22.4 million. Utility plant is stated at original cost. Original cost includes: n aterials; labor; minor items ofproperty; appropriate adminis-

2. RETIREMENTBENEFITS trative and general costs; payroll-related costs such as taxes, pensions, and other benefits; and the estimated cost offunds Pension Plan used during construction. The cost ofmaintenance, repairs and The company has a defined benefit, trusteed, non-contributory replacement ofminor items ofproperty is charged to maintenance pension plan that covers substantially all regular employees. Ben-expense. The cost of replacements of property (exclusive of minor efits are based on one of the following formulas: years ofservice items ofproperty) is charged to utility plant, and fmal average pay or years ofservice and a flat-dollar benefit.

Primarily, the company uses the " entry age normal method with FinancialInstruments a frozen initial liability" actuarial method for funding purposes, in accordance with FASB Statement No.107, Disclosure subject to limitations under federal income tax regulations. About Fair Value of Financial Instruments, the company's only Amounts funded to the pension trusts are primarily invested in financial instrument for which the carrying amount did not equity and fixed-income securities. FASB Statement No. 87, approximate fair value at December 31 was as follows: Employers' Accoun ting for Pensions, requires use of the " projected unit credit" actuarial method for financial reporting purposes. Long-Term Debt Carrying Fair Postretirement Benefits Amount Value The company also provW certain medical care and life insur-Year (in millions) ance benefits for retired employees. Substantially all employees may become eligible for these benefits when they retire. Amounts 1995 $ 2,451 $ 2,577 funded are primarily invested in debt and equity securities. In 1994 2,446 2,323 December 1993, the APSC issued an accounting policy statement w hich requires the company to externally fund net annual postre-The fair value for long-term debt was based on either closing tirement benefits. market price or closing price ofcomparable instruments. FASB Statemec t No.106, Employers' Accounting for Postre-tirement Benefits Other Than Pensions, requires that medical ~ Miterials and Supplies care and life insurance benefits for retired employees be accounted Generally, materials and supplies include the cost of trans-f r n an accrual basis using a specified actuarial method, mission, distribution, and generating plant materials. Materials benefit / years-of-service. are charged to invectory when purchased and then expensed or capitalized to plant, as appropriate, when installed. l 29

Funded Status and Cost of Benefits In 1995, the system companies announced a cost sharing The following tables show actuarial results and assumptions program for postretirement benefits. The program establishes for pension and postretirement insurance benefits as computed limits on amounts the company will pay to provide future retiree ' under the requirements ofStatement Nos. 87 and 106 respective. postretirement benefits. This change reduced the 1995 accumulated ly. The fur.ded status of the plans at December 31 was as follows: postretirement benefit obligation by approximately $41 million. The weighted average rates assumed in the actuarial calcula-Pension tions were: 1995 1994 1995 1994 1993 (m.milh.ons) Discount 7.3% 8.0% = 7.5% Actuarial present value ofbenefit obligations: Annu Is I ryincrease 4.8 5.5 5.0 Vested benefits $ 604 ' $ 522 L ngierm return on l P an assets 8.5 8.5 8.5_ Non-vested benefits 25 18 Accumulated benefit obligation 629 540 ' Additionalamounts related to An additional assumption used in measuring the accumulatt.1 projected salaryincreases 173 174 p stretirement benefit obligation was a weighted average medical care cost trend rate of 9.8 percent for 1995, decreasing gradually Projected benefit obligation 802 714 to 5.3 percent through the year 2005 and remaining at that level thereafter. An annual increase in the assumed medical care cost Fair value ofplan assets 1,256 1,059 trend rate of I percent would increase the accumulated benefit Unrecogmzed net gain (331) (251) obligation as of December 31,1995, by $20 million and the Unrecognized prior service cost 21 23 aggregate of the service anr1 interest cost components of the net Unrecogmzed transition asset (45) (51) retiree cost by $4 million. Prepaid asset recognized in the Balance Sheets $ 99 $ 66 Components of the plans' net income are shown below: Pension Postretirement 1995 1994 '1993 ' Benefits (in millions) 1995 1994 Benefits earned during (in millions) the year $ 21.2 $ 20.8 $ 20 6 Interest cost on projected Actuarial present value ofbenefit benefit obligation 54.3 51.2 30.4 obligation: . Actual (return)lossonplan Retirees and dependents $ 103 $ 96 assets (236.3) 23.5-(146.3) Employees eligible to retire 31 22 Net amortization and deferral 136.9 (116.2) 63.3 Other employees 104 119 . Net pension income $(23.9) $(20.7) $(12.0) Accumulated benefit obligation 238 237 _ Lus: Of the above net pension income, $(17.1) million in 1995, Fair value ofplan assets 89 61 $(15.7) million in 1994, and $(8.9) million in 1993 were record-Unrecognized net loss 23 ed in operating expenses, and the remainder was recorded in Unrecognized transition ' construction and other accounts'. obligation 72 120 Accrued liability recognized in the Balance Sheets S 54 $ 56 l 30

Postretirement Benefits order. the company reduced the unamortized balance ofPremium 1995 1994 1993 on reacquired debt by $10 million in 1995. (in millions) The ratemaking procedures will remain in effect until the Benefits earned during the year S7 $8 $. 7 APSC votes to modify or discontinue them. Interest cost on accumulated benefit obligation 18 18 16 FERC Reviews Equity Returns Amortization of transition In May 1991, the FERC ordered that hearings be conducted obligation 7 6 6 concerning the reasonableness of the operating companies' Actual (return) loss on wholesale rate schedules and contracts that have a return on com-plan assets (10) 1 (5) mon equity of 13.75 percent or greater. The contracts that could Net amortization and deferral 5 (4) 2 be afTected by the hearings include substantially all of the trans-Net postretirement costs $ 27 $ 29 $ 26 missi n, unit power,long-term power and other similar con-tracts. Any change in the rate of return on common equity that may require refunds as a result of this proceeding would be sub-Of tie above net postretirement costs recorded, $22.7 million stantially for the period beginning in July 1991 and ending in in 1995, $23 million in 1994, and $22 million in 1993 were October 1992. charged to operating expenses and the remainder was charged In August 1992, a FERC administrative law judge issued an to construction and other accounts. opinion that changes in rate schedules and contracts were not Work Force Reduction Programs necessary and that the FERC stafTrailed to show how any changes were in the public interest. The FERC stalThas filed exceptions to The company has incurred additional costs for work force the administrative lawjudge's opinion, and the matter remains reduction programs. The costs related to these programs were pending before the FERC. $14.3 million, $8.2 million and $16.1 million for the years 1995, In August 1994, the FERC instituted another proceeding 1994 and 1993, respectively. In addition, certain costs of these based on substantially the same issues as in the 1991 proceeding. programs wei e deferred and are being amortized in accordance The second period under review for possible refunds was substan-with regulatory treatment. The unamortized balance of these tially from October 1994 through December 1995. In November costs was $48.4 million at December 31,1995. 1995, a FERC administrative lawjudge issued an opinion that the FERC stafTfailed to meet its burden ofproof, and therefore,

3. LITIGATION AND REGULATORY MATTERS no change in the equity return was necessary. The FERC stafThas filed exceptions to the administrative lawjudge's opinion, and the Retail Rate Adjustment Procedures matteris pending before the FERC.-

In November 1982, the APSC adopted rates that provide for If the rates ofreturn on common equity recommended by the periodic adjustments based upon the company's earned return FERC stafTwere applied to all of the schedules and contracts on end-of-period retail common equity. The rates also provide for involved in both proceedings, and refunds were ordered, the adjustments to recognize the placing ofnew generating facilities amount ofrefunds could range up to approximately $ 120 million in retail service. Both increases and decreases have been placed at December 31,1995 for the Southern Company, of which the into elTect since the adoption of these rates. The rate adjustment company's portion would be approximately $53 million. Howev-procedures allow a return on common equity range of 13.0 per-er, management believes that rates are not excessive, and that cent to 14.5 percent and limit increases or decreases in rates to refunds are notjustified. ' 4 percentin any calendaryear. In June 1995, the APSC issued a rate order granting the com-

4. CAPITALBUDGET pany's request for gradual adjustments Io move toward parity among customer classes. This order also calls for a moratorium The company's capital expenditures are currently estimated on any periodic retail rate increases (but not decreases) until to total $491 million in 1996, $446 million in 1997, and $479 July 2001, million in 1998. The estimates include AFUDC of$7 million in in December 1995, the APSC issued an order authorizing 1996, $6 million in 1997, and $9 million in 1998. The capital the company to reduce balance sheet items - such as plant and budget is subject to periodic review and revision, and actual deferred charges - at any time the company's actual base rate capital cost incurred may vary from the above estimates because revenues exceed the budgeted revenues. In accordance with this l

a I 31

of numerous factors. These factors include: changes in business to the companies through June 30,1998. To provide liquidity,,. conditions; revised load growth projections; changes in environ-support for commercial paper programs, the company and mental regulations; changes in the existing nuclear plant to meet Georgia Power Company have exclusive right to $135 million new regulatory requirements; increasing costs oflabor, equip-and $165 million, respectively, of the available credit. The com-ment, and materials; and cost ofcapital. At December 31,1995, panies have the option ofconverting the short-term borrowings significant purchase commitments were outstanding in connec-into term loans, payable in 12 equal quarterly installments, with tion with the construction program. The company does not have the first installment due at the end of the first calendar quarter any new baseload generating plsats under construction. Ilowev-after the applicable termination date or at an earlier date at the er, the construction ofconbustion turbine peaking units of companies' option. In addition, these agreements require payment approximately 320 megawatts is planned to be completed in - ofcommitment fees based on the unused portions of the commit-1996. In addition, significant construction will continue related ments or the maintenance ofcompensating balances with the banks. to transmission and distribution facilities and the upgrading and Additionally, the company maintains committed lines ofcredit extension of the useful lives ofgenerating plants. in the amount of$353.5 million which expire at various times during 1996 and, in certain cases, provide for average annual

5. FINANCING, INVESTMENT, ANDCOMMITMENTS compensating balances. Because the arrangements are based on an average balance, the company does not consider any ofits cash General balances to be restricted as ofany specific date. Moreover, the To the extent possible, the company's construction program company borrows from time to time pursuant to arrangements is expected to be financed primarily from internal sources. Short-with banks for uncommitted lines ofcredit.

term debt will be utilized at appropriate levels. The amounts At December 31,1995, the company had regulatory approval available are discussul below. The company may issue additional to have outstanding up to $530 million ofshort-term borrow-long-term debt and preferred stock for the purposes ofdebt matu-ings. In February 1996, such regulatory approval was increased rities, redeeming higher-cost securities, and meeting additional to $750 million. capital requirements. AssetsSubject to Lien Financing The company's mortgage, as amended and supplemented, The ability of the company to finance its capital budget securing the first mortgage bonds issued by the company, depends on the amount of funds generated internally and the constitutes a direct lien on substantially all of the company's ' funds it can raise by external financing. The company's primary fixed property and franchises. sources ofexternal financing are sales of first mortgage bonds and preferred stock to the public and receipt of additional paid-in FuelCommitments capital from The Southern Company. In order to issue additional To supply a portion of the fuel requirements ofits generating first mortgage bonds and preferred stock, the company must plants, the company has entered into various long-term commit-comply with certain earnings coverage requirements contained in ments for the procurement of fossil and nuclear fuel. In most its mortgage indenture and corporate charter. The most restric-cases, these contracts contain provisions for price escalations, tive of these provisions requires, for the issuance ofadditional minimum purchase levels and other financial commitments. first mortgage bonds, that before-income-tax earnings, as defined, Total estimated long-term obligations at December 31,1995, cowr pro forma annual interest charges on outstanding first were as follows: mortgage bonds at least twice; and for the issuance of additional preferred stock, that gross income available for interest cover pro Year Amounts forma annual interest charges and preferred stock dividends at (iu millions) least one and one half times. The company's coverages are at a 1996 $ 866 level that would permit any necessary amount ofsecurity sales 1997 852 at current interest and dividend rates. 1998 853 1999 672 Bank Credit Arrangements 2000 402 The company, along with The Southern Company and Georgia 2001-2013 3,790 Power Company, has entered into agreements with several banks Totalcommitments $7,435 outside the senice area to provide $400 million of revolving credit 32

Operating Leases 1994, and $11.3 million in 1993, of which one-halfofeach was The company has entered into coal rail car rental agreements paid to the company. SEGCO's net income was $8.1 million, $7.2 with various terms and expiration dates. At December 31,1995, million, and $8.3 million for 1995,1994 and 1993, respectively. estimated minimum rental commitments for noncancellable oper. The company's percen tage ownership and investment in join tly-atingleases were as follows: owned generating plants at December 31,1995, follows: Year Amounts Total (in millions) Megawatt Company 1996 $ 2,8 Facility (Type) Capacity Ownership 1997 2.8 Greene County 500 60.00 % (1) 1998 2.9 (coal) 1999 2.9 Plant Miller 2000 2.9 Units 1 and 2 1,320 91.84 % (2) 2001 and thereafter 56.5 (coal) Totalminimum payments $70.8 (1) Jointly owned with an amliate, Mississippi Power Company.

6. JOINTOWNERSHIP AGREEMENTS Company Accumulated The company and Georgia Power Company own equally all Facility Investment Depreciation of the outstanding capital stock ofSouthern Electric Generating Company (SEGCO). which owns electric generating units with a (in millions) total uted capacity of1,019,680 kilowatts, together with associ-Greene County

$ 90 $ 41 Plant Miller ated transmission facilities. The capacity of these units is sold Units 1 and 2 712 281 equally to the company and Georgia Power Company under a contract which, in substance, requires payments sumcient to pro-

7. LONG-TERM POWER SALES AGREEMENTS vide for the operating expenses, taxes, mterest expense and a return on equity, whether or not SEGC0 has any capacity and General energy available. The ccmpany's share ofexpenses totaled $71 million in 1995, $74 million in 1994 and $86 million in 1993, The company and the operating amliates ofThe Southern and is included in " Purchased power from amliates" in the State-Company have en tered into long-term con tractual agreements for ments ofincome.

the sale ofcapacity and energy to certain non-amliated utilities In addition, the company has guaranteed unconditionally the 1 cated outside the system's service area. The agreements for non-obligation ofSEGC0 under an installment sale agreement for the firm capacity expired in 1994. 0ther agreements - expiring at purchase ofcertain pollution control facilities at SEGCO's gener-vari us dates discussed below-are firm and pertain to capacity ating units, pursuant to w hich $24.5 million principal amount of related to specific generating units. Because the energy is generally pollution control revenue bonds are outstanding. Georgia Power s ld at cost under these agreements, revenues from capacity sales Company ha3 agreed to reimburse the company for the pro rata Primarily alTect profitability. The company's capacity revenues portion ofsuch obligation corresponding to its then proportion-haden as foHows ate ownership ofstock ofSEGC0 if the company is called upon to make such payment under its guaranty. Unit Other Year Power Long-Term Total At December 31,1995, the capitalization ofSEGC0 consisted ( ' of $54 million ofequity and $78 million oflong-term debt on (in millions) { which the annual hterest requirement is $5.0 million. SEGC0 1995 $157 $157 paid dividends totalng $7.6 million in 1995, $11.6 million in 1994 152 7 159 1993 144 15 159 1 33

Unit power from Plant Miller is being sold to Florida Power

8. INCOME TAXES Corporation (FPC), Florida Power & Light Company (FP&L),

Jacksonville Electric Authority (JEA) and the City ofTallahassee. EITective January 1,1993, the company adopted FASB Florida. Under these agreements, approximately 1,200 megawatts Statement No.109, Accounting for income Taxes. The adoption ofcapacity is scheduled to be sold through 1999. Thereafter, resulted in the recording of additional deferred income taxes and these sales will remain at that approximate level-unless reduced related regulatory assets and liabiihin. At December 31,1995, by FP&L, FPC, and JEA for the periods after 1999 - until the the tax-related regulaury assets and liabiidies were $437 million expiration of the contractsin 2010. and $386 million, re,pectively. These assets are attributable to tax benefits flowed through to customers in prior years and to taxes Alabama Municipal Electric Authority (AMEA) applicable to capitalized AFUDC. These liabilities are attributable Capacity Contracts to deferred taxes previously recognized at rates higher than current in August 1986, the company entered into a firm power enacted tax law and to unamortized investment tax credits. purchase contract with AMEA entitling AMEA to scheduled Details of the federal and state income tax provisions are as amounts ofcapacity (to a maximum 100 megawatts) for a period follows: of 15 years commencing September 1,1986 (1986 Contract). In October 1991, the company entered into a second firm power 1995 1994 1993 purchasecontract with AMEA entitling AMEA toscheduled (in thousands) amounts of additional capacity (to a maximum 80 megawatts) Totalprovisions forincome taxes: for a period of 15 years commencing October 1,1991 (1991 Con-Federal-tract). In both contracts the power will be sold to AMEA for its Currently payable $166,105 $219,494 $149,680 member municipalities that previously were served directly by the Deferred-company as wholesale customers. Under the terms of the con-Current year 43,493 (48,153) 9,636 tracts, the company received payments from AMEA representing Reversalofprior years (15,817) 15,932 19,653 the net present value of the revenues associated with the respective Deferredinvestment capacity entitlements, discounted at efTective annual rates of 9.96 tax credits (75) (1) (2,106) percent and i 1.19 percent for the 1986 and 1991 contracts, g93,706 187.272 '176.863 respectively. These pay ments are being recognized as operating State-revenues and the discounts are being amortized to other interest Currently payable 18,108 20,565 14,297 expense as scheduled capacity is made available over the terms of Deferred-- the contracts. Current year 5,117 (4,067) 1,898 in order to secure AMEA's advance payments and the compa-Reversalofprior years (91) 3,676 3,913 ny's performance obligation under the contracts, the company issued and delivered to an escrow agent first mortgage bonds representing the maximum amount ofliquidated damages payable Total 216,840 207,446 196,97I by the company in the event of a default under the contracts. No Lessincome taxes principal or interest is payable on such bonds unless and until a credited to default by the company occurs. As the liquidated damages decline otherincome (14,142) (16,834) (10,239) under the contracts, a portion of the bonds equal to the decreases Federaland state are returned to the company. At December 31,1995, $137.5 mil-income taxes charged lion ofsuch bonds was held by the escrow agent under the contracts. to operations $230,982 $224,280 $207,210 The tax efTects of temporary differences between the carrying 1 34 l

amo6nts ofassets and liabilities in the financial statements and The Southern Company files a consolidated federal income . their respective tax bases, which give rise to deferred tax assets tax return. Under a joint consolidated income tax agreement, and liabilities,are as follows: each subsidiary's current and deferred tax expense is computed on a stand-alone basis. Tax benefits from losses of the parent com-1995 1994 pany are allocated to each subsidiary based on the ratio of taxable (in millions) inc me to totalconsolidated taxableincome. Deferred tax liabilities: Accelerated depreciation $ 780 $ 734

9. OTilER LONG-TERM DEBT Property basis differences 491 513 Premium on reacquired debt 31 38 Details ofother long-term debt at December 31 are as follows:

Fuelclause underrecovered 5 4 Other 37 26 1995 1994 Total 1,344 1,315 (in thousands) Deferred tax assets: Obligationsincurred in Capacity prepayments 35 36 c nnection with the Other d(ferred costs 26 27 s le f t x4xempt Postretirement benefits 25 24 p ilution control Accrued nuclear outage costs 7 revenue bonds by Unbilled revenue 13 13 public authorities-Other 43 44 C llateralized-5.5% to 6.5% due Total 142 151 2023-2024 $ 223,040 $ 223,040 Net deferred tax liabilities 1,202 1,164 Variable rates (5.0% to Portion included in current assets 6.0% at I/1/96)due (liabilities), net (10) 17 2015-2017 89,800 89,800 Accumulated deferred income taxes Non-collateralized - in the Balance Sheets $1,192 $1,I81 7.25% due 2003 1,000 1,000 7.4% to 9.375% due Deferred investment tax credits are amortized over the life 2014-2016 21,000 152,500 of the related property with such amortization normally applied 5.8% due 2022 9,800 9,800 as a credit to reduce depreciation in the Statements of fncome. Variable rates (5.3% to Credits amortized in this manner amounted to $12 million in 6.0% at 1/1/96)due 1995 and $13 million in 1994 and 1993. At December 31,1995, 2022 131,500 all investment tax credits available to reduce federal income taxes 476,140 476,140 payable had been utilized. Capitalized lease obligations 8,963 9,754 A reconciliation of the federal statutory income tax rate to the Total $ 485,103 5 485,894 effective income tax rate is as follows:

1. "I E"'#

1995 1994 1993 ofpollution control facilities financed by funds derived from sales by public authorities of revenue bonds. The company is required Federalstatutory rate 35.0 % 35.0 % 35.0 % State income tax, net of to make payments sullicient for the authorities to meet principal and interest requirements ofsuch bonds. With respect to $312.8 federaldeduction 2.5 2.2 2.3 million ofsuch pollution control obligations, the company has Non-deductible book authenticated and delivered to the trustees a like principal depreciation 1.6 1.6 1.6 DifTerencesin prior years' amount of first mortgage bonds as security for its obligations under the installment purchase agreements. No principal or deferred and current interest on these first mortgage bonds is payable unless and until tax rate (1.8) (2.9) (1.6) a default occurs on the installment purchase agreements. Cther (1.4 ) (0.7) (2.9) Efrectiseincome tat rate 35.9 % 35.2 % 34.4 % 35

The company has capitalized certain office building leases and

11. NUCLEAR INSURANCE a street light lease. In December 1994, the company discontinued capital leases pertaining to nuclear fuel.

Under the Price-Anderson Amendments Act of1988 (Act), The net book value ofcapitalized leases included in utility the company maintains agreements ofindemnity with the NRC plant in service was $5.6 million and $6.2 million at December that, together with private insurance, coser third-party liability 31,1995 and 1994, respectively. The estimated aggregate annual arising from any nudear incident occurring at Plant Farley. The maturities ofother long-term debt through 2000 are as lbliows: Act provides funds up to $8.9 billion for public liability claims $0.9 million in 1996, $1.0 million in 1997, $1.0 million in 1998, that could arise from a single nuclear incident. Plant Farley is $1.2 million in 1999 and $1.1 million in 2000. insured against this liability to a maximum of $200 million by private insurance, with the remaining coverage prosided by a

10. LONG-TERM DEBT DUE WITillN ONE YEAR mandatory program ofdeferred premiums which could be assessed, after a nuclear incident, against all owners of nuclear A summary of the improvement fund requirements and sched-reactors. A company could be assessed up to $79 million per inci-uled maturities and redemptions oflong-term debt due within dent for each licensed reactor it operates but not more than an one year at December 31 is as follows:

aggregate of $10 million per incident to be paid in a calendar year for each reactor. Such maximum assessment, excluding any 1995 1994 applicable state premium taxes, for the company is $159 million (ia thousands) per incident but not more than an aggregate of $20 million to be Bond improvement fund paid for each incident in any one year. requirements $20,047 $20,047 The company is a member ofNuclear Mutual Limited (NML), Less: a mutualinsurer established to provide property damage insur-Portion to be satisfied ance in an amount up to $500 million for members' nuclear by certifying 8enerating facilities. The members are subject to a retrospective property additions 20,047 Premium assessment in the event that losses exceed accumulated Cash sinking fund reserve funds. The company's maximum annual assessment per requirements $20,047 incident is limited to $10 million under the current policy. First mortgage bond Additionally, the company has policies that currently provide maturities and redemptions 63,750 decontamination, excess property insurance, and premature Otherlong term debt decommissioning coverage up to $2.25 billion for losses in excess maturities f the $500 million NML coverage. This excess insurance is pro-(Note 9) 885 796 vided by Nuclear Electric Insurance Limited (NEIL), a mutual '"*""'# #

E*"I' Total

$84,682 796 NEIL also covers the additional cost that would be incurred in obtaining replacement power during a prolonged accidental The annual first mortgage bond improvement fund require-outage at a member's nuclear plant. Members can be insured ment is I percent of the aggregate principal amount of bonds of against increased cost of replacement power in an amount up to each series authenticated, so long as a portion of that series is $3.5 million per week (starting 21 weeks after the outage) for one outstanding, and may be satisfied by the deposit ofcash and/or year and up to $2.8 million per week for the second and third years. reacquired bonds, the certification of unfunded property addi-Under each of the NEIL policies, members are subject to tions or a combination thereof. The 1996 requirement of $20.0 assessments iflosses each year exceed the accumulated funds million was satisfied by the deposit ofcash in 1996. Also in 1996 available to the insurer under that policy. The maximum annua! are first mortgage bond maturities and redemptions of S64 assessments per incident under current policies for the company million and maturities of $885 thousand consisting primarily would be $21 million for excess property damage and $8 million ofcapitalized ollice building leases and a street light lease. for replacement power. i 36

.,, I or all on-site property damage insurance policies for com-

13. QUARTERLY FINANCIAL INFORMATION

, mercial nuclear power plants, the NRC requires that the proceeds (Unaudited) ofsuch policies issued or renewed on or after April 2,1991, shall be dedicated first for the sole purpose ofplacing the reactor in a Summarized quarterly financial data for 1995 and 1994 are safe and stable condition alter an accident. Any remaining pro-as follows: ceeds are to be applied next toward the costs ofdecontamination Net income and debris removal operations ordered by the NRC, and any fur-After ther remaining proceeds are to be paid either to the company or Dividends to its bond trustees as may be appropriate under the policies and Quarter Operating Operating on Preferred applicable trust indentures. Ended Revenues income Stock The company participates in an insurance program for nuclear workers that provides coverage for worker tort claims filed for (in thousands) bodily injury caused at commercial nuclear power plants. In March 1995 $646,771 $122,949 s 65,328 the event that claims for this insurance exceed the accumulated June 1995 753,053 157,685 88,926 reserve funds, the company could be subject to a maximum total assessment of$6 million. September 1995 938,284 233,322 167,938 December 1595 686,666 111,362 38,702 All retrospective assessments, whether generated for liability, property or replacement power may be subject to applicable state March 1994 $686,847 $128,623 $ 72,031 premium taxes. June 1994 759,399 162,696 98,668

12. COMMONSTOCK DIVIDEND September 1994 838,927 199,736 141,214 December 1994 649,969 104,949 44,425 RESTRICTIONS The company's first mortgage bond indenture contains T ne company's business is influenced by seasonal weather conditions.

various common stock dividend restrictions that remain in elTect as lonps the bonds are outstanding. At December 31,1995, retained earnings of$807 million was restricted against the payment ofcash dividends on common stock under terms of the mortgage indenture. Supplemental indentures in connection with future first mortgage bond issues may contain more stringent common stock dividend restrictions than those currently in effect. 37

1)I It ICCTO IZ H as of March 1,1996

v. n

.n 7

7 M '- j Elmer B. Ilarris William J. Rushton,Ill John W. Woods Birmingham +

Birmingham + Birmingham +

President and Chief Executive Omcer Chairman Emeritus Chairman Alabama Power Company Protective Life Corporation AmSouth Bancorporation Age 56; elected in 1989 (Life and health insurance)

(Multibank holding company) Age 66; elected 1970 Age 64; elected 1973 g m ;y g g ;> T'7 9 3 gg. a ~ h: 4 -1 w yg g_ (; v, t e-y 7 aj q e 3 .)

n

[ _ %J/ .y s g3 John C. Webb, IV Whit Armstrong James 11. Sanford Demopolis Enterprise

Prattville President President, Chairman Chairman Webb Lumber Company and Chief Executive Omcer HOME Place Farms, Inc.

(Wholesale lumber) The Citizens Bank (Diversified farmers and ginners) Age 53; elected 1977 Age 48; elected 1982 Age 51; elected 1983 + Executive Committee member 38

Audit Committee member

7____________________________________..___ 7 meer ;, i f ~. a. l 3- ' \\ Q,.. h l' ~ ~ ~ y' g. f .q .r 5,L l \\ c:l 1 Gerald 11. Ponell Dr. John W. Rouse Carl E. Jones, Jr. Jacksonville Birmingham +

Mobile 4

President President Chairman Dixie Clay Company ar.dChief Executive Omcer andChief ExecutiseOflicer of Alabama,Inc. Southern Research Institute First Alabama Bank of Mobile (Mining and processing (Science and engineering research) Age 55; elected 1988 refractory clay) Age 58;electe(i 1988 Age 69; elected 1986 fbf($f f f .g ~ $QY ' ' .; lg, jw' k f5' c 4 N-x,% ge. 4 af 43 3 .Uh q' j:1 - 7; -+ n. 4 !J 9 1

5..

hV m yy,_, i Bill M. Guthrie Wallace D. Malone, Jr. Dr. Philip E. Austin Birmingham + Birmingham + Tuscaloosa ExecutiveVice President Chairman Chancellor Alabama Power Company andChief ExecutiveOmcer The University of Alabama System Age 62; elected 1988 SouthTrust Corporation Age 53; elected 1991 (Multibank holding company Age 59; elected 1990 1 + Executisc Committee men >ber

Audit Committee member 39 w-w

.r ,r -,,.-r-r--,--,,- v.-,.,-,,,,---,r-er,,-,,r--,-

.i L- 8 i G t,y}; a - ypJpp - d AQ) . g y p. i ~ (. h 7_ mj' Robert D. Powers Margaret A. Carpenter Dr. William V. Muse Eu'a,. Montgomery Auburn

Pe.la:

President President The Eufliula Agency,Inc. Compos-it, Inc. Auburn University 4 (Realestate and insurance) (Printing and graphics) Age 56; elected 1993 Age 46; elected 1992 Age 71; elected 1993 i i sS+e& W, N y s [M. . 9I E F '1 N74 0t g ,3 ns [7 D 1 Peter V. Gregerson, Sr. Dr. John T. Porter A.W. Dahlberg Gadsden Birmingham + Atlanta Chairman Pastor

Chairman, Gregerson's Fcods,Inc.

Sixth Asenue Baptist Church Proident and Chid Executive Oqicer (Grocery retailer) Age 64; elected 1993 The Southern Company j Age 67; elected 1993 (Electric utility holding comp,) Age 55; elected 1994 + Executisc Committee member

Audit Committee member 40

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,=- s. ~O F FICEll S as of March 1,1996 Elmer B. Harris Christopher C. Womack Robin A. Hurst Terry H. Waters - President Senior Vice President, Vice President, Vice President, andChief ExecutiveOfficer Corporate Services / Power Delivery - Tuscaloosa Age 56; 37 years of service Public Relations Age 49;25 years of service Age 46;'23 years of service Age 38; 8 years of service Banks H. Farris J. Bruce Jones David L Whitson' ExecutiveVice President Art P. Beattie Vice President, Vice President and Age 60; 37 years of service Vice President, Secretary & Mobile Comptroller Treasurer Age 49;29 years of service Age 43; 21 years of service Bill M. Guthrie Age 41; 20 years of service i ExecutiveVice President C. Alan Martin Phillip R.Wiedme3er i Age 62;44 years of service A.J. Connor Vice President, Vice President, Vice President, Human Resources Economic Development William B. Hutchins,111 Operating Services Age 47;23 years of service Age 44; 21 years of service ExecutiveVice President Age 53; 31 years of service anaChief FinancialOflicer Donald W. Reese Charles M. Deason Age 53; 30 years of service James M. Corbitt Vice President, Assistant Comptroller Vice President, State Relations . Age 57; 34 years of senice Charles D. McCrary. . Information Resources Age 50: 26 years of service ExecutiveVice President Age 51; 22 years of service Jerry L Harris L Age 44; 22 years of service Michael L Scott Assistant Comptroller W. Roy Crow - Vice President, Age 49; 25 years of service Robert A. Buettner Vice President, Marketing SeniorVice President Eufaula Age 43;20 years of service E. Wayne Boston and Counsel Age 57; 30 years of service ~ Assistant Secretary Age 54; 7 years of service Julian H. Smith, Jr. andAssistantTreasurer Andrew J. Dearman Vice President, Age 5I; 25 years of service Michael D. Garrett Vice President, Governmental Relations i SeniorVice President, Montgomery Age 47;22) ears of service J. Randy DeRieux External Relations Age 42; 20 years of service AssistantTreasurer l Age 46; 27 years of service W. Ronald Smith Age 41; 18 years 01 service John E. Dorsett Vice President, Earl B. Parsons, Jr. Vice President, Anniston Shirley A. Thomas SeniorVice President, Power Generation Services Age 46;22 earsof service Assistant Secretary 3 Fossiland Hydro Age 58;36 years of service Age 58; 24 years of service Generation Susan N. Story ' Age 57; 35 years of service Thomas A. Fanning Vice President, William E. Zales, Jr. Vice President and Chief Corporate Real Estate Assistant Secretary - Fred D. Williams Information Ofker, Age 36; 14 years of service andAssistantTreasmer SeniorVice President, ~ Information Resources Age 47; 15 years of service Wholesale Marketing Age 38; 15 years of service Anthony J. Topazi ) Age 51; 26 years of service Vice President, Robert Holmes, Jr. Birmingham Vice President, Age 45; 26 years of ser ice Ethics aind Business Practices Age 4'/;25 years of service 41

i. l 4 .e 4 Alabama Power Company .i Corporate Headquarters i 600 North I8th Street i Birmingham, Alabama 35291 (205) 250-1000 1 Stockholder inquiries Questions regarding ownership of Alabama Power preferred stock may be referred to 1 Stockholder Services at 1-800-554-7626. l 1 i Registrars and Transfer Agents Southern Company Services,Inc. Stockholder Services 64 Perimeter Center East Atlanta, Georgia 30346 (All series except the Auction Class A 1988 1 and 1993 Series) BankersTrust Company Four Albany Street NewYork,NewYork 10015 (For the Auction Clas: A 1988 and 1993 Series) I Legal Counsel Balch & Bingham P.O. Box 306 Birmingham, AL 35201 A copy of Form 10-Kasfiled withIhe Securities and Exchange Commission will be available to stockholders upon written request to j Art R Beattie, l' ice President, Secretory & Treasurer. Produced by Alabama Power's Public Relations Department. i t 4) & Printedon recycledpaper

s. f ALAII AM A POWER COM PANY... Y Serves 1.2 million customers. Some 69,787 miles of power lines carry electricity to customers throughout 44,500 square miles. Y lias retail prices that are down about 5 percent from what they were 10 years ago. Inflation during that same period rose more than 40 percent. Y llad electricity available to customers an average of 99.61 percent of the time in 1995. Y Owns 73 electric generating units with total nameplate capacity of 10.8 million kilowatts. These aie located at 22 pwer plants. Y Generated 73 percent of its electricity at its six coal-fueled power plants in 1995. Its one nuclear power plant generated 19 percent of the electricity. Its 14 hydroelectric plants generated 8 percent of the electricity. Y Will complete in spring 1996 four generating units in Greene County to provide electricity during high-demand periods. Y Employs 7,261 people with a total payrollin 1995 of more than $393 million. Y Created Project SIIARE in 1982 with $50,000 in seed money. Project SilARE, administered by the American Red Cross, has provided $10 million in energy assistance to more than 100,000 Alabama families. Funds are donated by customers and employees of Alabama Power and other utilities. Y Created the Alabama Business ChnitableTrust Fund in 1992 to provide energy assistance to those not eligible through other programs. Since 1992, theTrust has provided about $2 million in energy assistan:e to about 14,065 families. Y Actively supports education in Alanama through its educational grants, Energy Bowl, the Alabama Science Center and the Alabama Education Initiative. Y llelps bring new businesses to Alabama and helps existing businesses expand through its economic development efTen The Alabama Resource Centers in Birmingham, Montgomery, Mobile and Decatur provide information about the entire state at the touch of a button for industrial prospects. Y Works vigorously to protect and enhance the quality of the environment in Alabama. l t t i

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c iTheenergyto make Alabamabettent i..

L it t 600 North l8th Street; a j-, i Birmingham, Alabama 35291' 'l s. jr L(205) 250-1000.' 4 4. 50.' l j r o i l t e 8 b i ~ a. !~ .t i-u ... ~... ,,.L .-.s,--.- ..:.-}}

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