Text

Annual Financial Rept 1979
	ML20126D236
Person / Time
Site:	Grand Gulf, Arkansas Nuclear, Waterford
Issue date:	12/31/1979
From:	; MIDDLE SOUTH UTILITIES, INC.
To:	;
References
	NUDOCS 8004220535
	Download: ML20126D236 (40)
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.= Middle South Utilities, Inc. Performance Highlights Percent 1979 1978 Increase Total Operating Revenues $1,823.1 million $1,622.2 million 12.4 Tor Operating Expenses $1,604.9 million $1,393.9 million 15.1 1 _ Costs $ 697.6 million $ 623A million 11.9 Net !ncome $ 182.1 million $ 185.4 million ( 1.8) Earnings Per Share 2.13 2A6 (13{ Dividends Paid per Share 1.52 1.44 5.6 Customers (Electric - Year end) 1,520,142 1,489,188 2.1 Electric Energy Sales (Total) 53.0 billion kwh 52.0 billion kwh 1.9 System Peak Load 10,687,000 kw 10,648,000 kw 0.4 Gross Utility Plant (Year-end) 7.0 billion 6.1 billion 14.8 Construction Expenditures $1,024.7 million $ 901.0 million 13.7 S1SU Common Stock $16 3/8 High $17 3/8 High Alarket price per share $121/4 Low $141/4 Low Contents 2 Letter to stockholders 4 Ikiard of Directors & Officets 5 Customer & wickho' der Information 8 Load Management Research & Development 10 Construction 14 Fuel 3 for Electric Generanon )6 Financial Review 20 Con 3olidated Financial Statement.s JJ Management s Diwuwion and Anahsis l of the Summarv of Operations 3410n9 19~9 Financial Record 36 system Electric stan3to 1 Cot'er: l AP&l's.\\rkansas.Yuclear One, l unot one, the Wstern'sforst nuclear generating facility. has been in cornnsercialsers'sce since 19~L

.+ GeneralInformation s.g I

N.i k.bhk Middle South Utilities, Inc., an imestor.owneJ pubhc 6

unhts holding company. uwns 100 percent of the common stock .2 .. '.hg n.. n - of fac operaung companies - Arkansas Power & Light gg Compant Arkansas.Mosouri Power Company Louisiana Power t" W [gggggf {pg & Light Companv. %ssasippi Power & Light Company, and New M Orleans Pubhc 5ervice Inc The two other principal subsidiaries '~ of the Cornpant are Shddle South Sernces. Inc.. a service c,, # compant and Shddle south Energy. Inc. which is undertaking the construction. fmancing. and ownership or Grand Gulf , 17 .,,. 'r / N I - Nuc! car sunon. a 23-nulhon-kilowatt facihty h>cated in ,3/ , c. - .\\h ssissip pi f.. 'nstem Fuels. Inc. is a fuels procurement subsidiarv ul 5 "UMW 'N ' / ' h - - Wi' e Arkansa3 Power & Light Company. I.ouisuna Power & Likht t *. ~ Compam..\\insissippi Power & Light Company. and New Orleans J' [,, V ~ Pubhc Service Inc. -J .'.M' .., { ' e MU d-

[i Assocuted Natural Gas Compant is a gas distnbunon "k,,t$ - %.[. 2 subsidurt of Arkansas.%ssoun Power Compant 3;g/. ; *,g.

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Dear Fellow Stockholders:

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%n a %"Le k, .,;] .n s mt 4 kN .,-4 p' \\,_. 4 The year 19'9 was one of mixed results This was the first year in the g for the.\\ liddle South Utilities system. history of the Svstem in which / Although consohdated net inco'me was capitai expenditures exceeded * @' ' down slighdy, the year closed with $1 billion. For 1980, we expect indications of long-awaited progress in that capital expenditures for our T the area of rate relief. In addition, the construction program will be ? System looked forward to 1980 as the approximately $928 million. i year in which our second nuclear-fueled Our principal commitment l generaung unit and our first modern continues to be to maintain the coal fueled umt, both located in System's ability to serve its cus-i Arkansas, will go into commercial tomers' needs for electrical i operauon. The addition of these units energy nhde providing a fair will be a significant step in the direction return to our stockholders. To j i of further fuel diversihcation, a course accomplish the service portion K j upon which our System embarked more of that commitment, timely con-4 than a decade ago -long before OPEC, struction of additional facilities {- natural gas shortages, and growing is essential. To achieve the fair dependence on imported energy return, the System companies , resources became the dominant facets seek from regulatory authonnes rates for outstandmg record of safe operanon ' of the energy picture of America. electric service that adequately will be even further improsed. One our financial results for 19'9, a3 compensate investors on the capital of the special arucles in this report reflected m the statistical highlights on investments they have made. The key to presents specifics on our response to the inside front cover, were adversely appropriate rate levels which will be Three N!ile Island. l affected bv higher operating expenses most beneficial to ultimate customers' If Amenca hopes to keep the lights which were not offset by rate relief interests as well as those of shareholders burning and the factories running. l and by a small decrease in residenual is the inclusion in the rate base on which nuclear power must play a larger and I kilow att hour usage. Despite this decline allowable earnings are computed of the larger role in the overall energy mix for l and substanually level energy current cost of capital invested in the balance of this centurv and into the requirements in the commercial sector, projects under construction. Such capital next. In the Niiddle South Cuhties l l the 5vstem's ulumate customers must, of course, be serviced, and those i System, we feel an obligation to present I required six percent more electric costs are an appropnate part of the the facts supporting this conclusion to l i eneruvin 19~9 than m the previous year, current costs at meeung customers you, ou r shareholders, to ou r c'istomers, l l as there was a 1.Upercent increase in electnc service needs. We will continue appropriate governmental authonties, I i industnal requirements. Total electne our efforts to persuade governmental and the general public. Our industry t eneruv sale' increa. sed a modest two agencies who set our rates of the vahdity < must take the offensive in informme the i percent, however, because of a dechne l Jf this approach to rate-makmg. See;uge American public of the essennal p' art i i 19 for a detailed discussion of the rate I nuclear energy must plav in our energy I i m sales to other unlines As you may recall.19~M sales to other unlities ' situanon as it now stand 3 for System future. I hope that you w111 read the %r-were unusual!y large because of the companies. " mini. articles" m this report which i nanonnade coal stnke,and 19~9 sales to The Alarch 28,19 9, accident at the relate to this subject. unhues reflected a return to a more Three Niile Island nuclear plant in Ultimately it is the Amencan people normal level Pennsthania wa.s certamlv the most who will decide the fate of nuclear Our stu dies indicate that the energy pubhdzed utihtv subiect m 19~9. power and, of cou rse, ou r energy su pply. requirements of our customers wall Although this was the most senous l.awmakers and regulatory authonnes expenence growth in the years ahead at incident in the historv of Amencai ! who wnte the rules, may be expected in, a rate siumf cantly above the nanonal nuclear power industrv. there were no ! the final analysis to reticct the will of the i . figure. To ensure the ability to meet the miunes or deaths to either emplovees at, people.Today,the maiontvof Ameneans ! needs of our customers. the svstem the plant or to the pubhc. The electnc j support nuclear energyand recognizeits pent tust oser $1 billion m 19 0 tor unhty industrv, alonu with other j importance. It is essennal that this , new energy facthties. , industne3 imolved m nuclear power.. maionty be maintained and increased. I

has moved swetly to analvze the accident The Niiddle South System l

md arriv he Jewn.' earned from it companies have played an acuve role,in Immeducely aner the acc: dent the l cooperanon with others in our industrv, i l electnc unhty indu trv established an l m seekmg to protect the legiamate j execuuve. level comminee to coordinate ; interests of our customers and our , effectne and appropnate responses to i shareholders in the rea!m of energy j the accident. As chairman et that , !eutslation and regulations. Numerous l

committee, I can attest to the diligent i

! efforts which have been. and are hetnu, I i expenJeJ to ensure hat nuclear power s j 2

j i \\ The Need. for Nuclear Power J i i maior proposals have been carried over I into the second session of the 96th

i Congress and will require continued

%l attention. .\\lanagements of Arkansas..\\lissouri Power Company and Arkansas Power & ,y., l Light Company are currently seeking ~ ,. J r .a J regulatory approval of the planned i consolidation of operanons of the two ' + i companies, which was first announced ~. in last year'3 annual report. inJanuary 1980,you wereinformed that a portion of your 1979 common stock dnidends represented a C. M. : I nontaxable return of apital. The major reason for this is that che substanual porunn of book income which results ....wj.. .p, .. 4 4 1 trom the. capitalizauon of the costs of the r Ar.. 3.. .e. 2.-, o. ..a; ,...~...+p-r capita; funds invested m proiects under c. % L gw4 -, ~, y e..g 7 s - o I s construccon does not consutute taxable , s.; ... %,n u,,,s,g income under the Internal Revenue . ggg.m we6g,,.g fn A. o jpgy., g.g - vr.ineqvnyspeheren ,.w:g' M N M. + v ;wy W Y d;h. Code. fience, dmdends paid tram such

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...., @p y; ;g.g., e ~ earnings are, for tax purposes, treated as Q. a ;. ; ~ 1 ' @b+ y,,@M l,",7 l a return of a pornon of the stockholder's m ? . Q,,t y.. -. r" y .- w - .s. k.>N. M.T "(7,;. N No# *"kf. J%g 'g. e K.4.m P.,F.~' c,. 7 [ 0 C '. #...-a. s '.'..' % 't..B.N N..h'M~~dW Invested capital. i f g,%' mth the dividend,as able on 2 ,L fWg ^ ~.M...A ' N + i . a. u .lanuary 2,1980. your ooard at directors g9 mcreased the quarterh rate to.W per sp? E J G.';.m. . M,,,. d." 7. De. %f." ^a,9fiQ" a g 4 a *lQ e~ c $e$ p'. ) share, equal to an armual rate of $1 M i M g' R .. :.. g" 4 i" - ~ ' ME* 1 With one excepuon. the Qmpant b - .J" N. N $ $$ $ ~ M d Y M N h N;" d N N $5J N /-N D '~ l has been able to incre.Ie ne dividend 4W"P w c.C,n:Zn' P wwWewWhh*Nw nceIsuon. E, : _,a. 9f rate eserv sear smse s rm .\\lant stoddWers have elec:ed to r: w d - ~r#M n -?"W~,%**""*PmF e% #.' 4 y E, E.s r,M,,w@ *' '' %WGME MSNe Y(% ,.,.pr.i nave their dnidends autiimancallt "" 3 6 p yj# '.% 2JW i.% 6 @ m.w..'.. .~.m u.., L r ~ ~. i apphed towarJ me pure.cc of ' Me,. hnn~ We p.y.f.,W% ~ " ' " - "v i M "y

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3 I you may obtam mformauon concerning g j this plan hv wnune to Dan E. Stapp. secretan at the unoam ,,g.,,,,.m,,,,,m w, ,g.

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._...cw - On behalt i>t nn 1.'.000 tellow south ss stem emplovees. I want " '%' Ndih,g' " ' WedbrMMU ^ . A - !294WeWMW/ *. g !.\\liJdle l to thank you f r - ur jonunued interest g%g -

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Oficers & Directors l OfHcers Directors ~ a FLDYD W. LEWIS GEORGE F. BENNETT ' JERRY L. MAULDEN DR.bALTER WASIGNGTON Ouadraman 4 anscf Execimere Premdent of state Mrect investnscsw Pressdent of Arkansas PWswer Premdent of Alcorn Mate Onsverway Garporatum and Eceletal Street .& I.sWit Company Imranan. Minaiansppe F. E. AUTREY Fund. Inc lattic Rock. Arkannan Audit and Nosninating Cmaannuces Premadest monton Mannachuncats Casapensasson and Nomsnating LeROY P. PERCY R. E. L WILSON DONALD J. WINFIELD* C' ="'""ca Cottom dermer; Osastman of the Boards Cinaarman of the Boards of tre Wilaue honier Vice Preddent - Finance of Minnannappe unenascal Omapany & G.( Aggricultural and Agers-JAMES M. CAIN and I-srst Minassnapps Garporasson uuneness)anstilie sank of W6 anon Press' ent of Drita Pros 8ucts EDWIN A. LUPRERGER Premalent of New Orleans Putdu Greenysuc. Menneenappa d v6ce President - Fmasme serv 6cc inc. Executsve. Audst. and Nominaung G supany ((mtsonsced Ost Miu) New Orleans tossimana ( Otastnean) Comsattices Wilnosi. Arkastaan DAN E. STAPP EXcCut8ve. GMnPennathm ( Onaerman ). secretary ' RICHARD W. PREEMAN ROBERT D. PUGH and Nouninanng Comumstaccs Ossermaass of the imesstaana Coca-(maa Presidesy of Portland Gin Cosupany BODNEYJ. ESTRADA 8 " '838 " 5 C"'nPany, lad.. ( Aggraultural and Agn-Eum6nene) JACK M. WYATT i .Tre murer Chaareman of the Finance and Osastman of the Board of Pressaicas of Louissassa Power Osninettacc of Deka Air D6 rectors of Portland Bank & JJahr (msupany R. EUGENE RROWN Il"'" 3" P"'d'"d A'""" N'*"d'*""L"""" W==is Trc- . Asesha and Nonunating Comemittees Executive Comsnsatec New Oricans. Emesenaana EEccutive. Atedet (Chairnaasi), anst ~ Nonennamag Osammestaccs GEORGE K. REEVFM / 7 DOROTHY M. ANTOINE Partner of Ward and stecys. p ,w FLOYD W. LEWIS Caruthersvinc. Mas.str Chaaranam of the uomrd and Onsef Casapensasson and Nonsanatsng[ Executive C==matccs .g,,g New Orleans, h=pe== h M Ny s gggy.7gg,ms7 Execuelve(mennan)and Nomas=ig FRANK G. SMITH,JR. I ro an-p,,,ia,,, og 3,g,,,,,. g3,,,,,,, Power (nsap=ny W DONALD C. LITIXEN BlyttarvtEc. Arhammas ./ Pr-=ed--a of Missiemppe Power .m ,4 & EJWut ra-p=.y 's Jach-= Misadasspyd t s ,.,.; f .-...1 g ~....... m a ~ g' f O, 4,,,,,a '41 --s y 8, '4 h ~ I~

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Customer Information Customers' Energy Requirements [ ~. ~..., m ...e ~x . l? 50 ..,.. _ ~. a" L.... = L'. ' ' g... s 40

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t, o J.- 7 ]o q [) ] .i n 8 y 20 - - W 4 A. H w a j J a 10 - -ar- -=- f. .h 1 / 1 .i } j h o 'f'$ ' 9 '$ 1W77 19'8 1979 f. 3.*h,' M iosai mm usumm customers pc.,l Customers The Svstem's five operating companies ~ ' N.y 2 l' serve some 1.5 million customers in 'T parts of Arkansas, Louisiana,5tississippi, .g and southeast Stissoun. Approximately

g. y 8' percent are residential customers.

' *4.w The rate of ultimate customer growth 4 a' C;%ms %Me&W,, n 1.;. a t nathin the Middle South Svstem -,:.t.. M . i amounted to 2.1 percent in 19~9 .mi.i hQm.hp. n O.. e. c.hIiN 4 N. d - o,t ~+ w e.h ^yd e m-im: vert.r *m ~ ~ w. m t Electric EnerU -e i au v. q< g p.. i Requirements 1y wL 2.1- %W MM*$!M}Q 4 l The systemi re4dential, commercial. y' '+ p'..,x .: er.9 w Pfemu. M% W. T, 4' " ' 'NVM 2N O D%.s; D'f , industnal and ',; wrnmental customers ' V '. > M.n 7 M~ Y . used 4 M billion kilowatt-hours of 7 .E, I a ?.J., ' t . electric energy in 19~9. nearly six ' '- - -....# k

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p . g, Q w' V@.. % a..A ' %. 4 es e { perlecung customers energycent more than in. the previous v. ear. L.. 4. 34+sJW y, r: A , Ref x-y :n. f s A p.W . '" 4 M. WNW O A @ & ;Q A M,1 conserv uion and summer temperatures ' that were somewhat more moderate 'f,,. ' ~ .[T.$7 iwrh,$gd%tg;6sg. HM!LDS y M!M *.QQs,WQM mmwmm,,ZQ.. tnan normal residential usage in 19 9 6 ( .'%..t * "' f ] [.,f}34ttj p g ;w w i6 g,. g Jg;g s;g M. was la obilhonkilowatt-hours.down L2 ~.pgggtyygg,ygg,g,,,,~n pyp+

percer! trom that of the previous year.

.E.. ..J M4.y % i Ommevul usage rose 1.4 percent. to '1 g h M' Q G E; M E. 3 3 @'; M; M - ' watt-hours. industrul j 7 " + ~- 7., N '.. - . ' ',. ' ~.. e.m ..e ened 13 3 percent. to 22 3 l N@.4.Mt #...,. n.~:.M~m.W~ w" ". 6..,- d4. - m a au .=+r- - ~.*. w y ~ ~ e +~-. ~.. watt. hours; and { Z J @S U.c 16' /T"MITD.L. E. ^"" -) M.x. ' 6 7P : A wr. mental usage was up 2 o percent, i WW 94SMb1 MNMcWMMW*"W"hb o - . to 13 bilhon kilowatt hours. kf .,.8F 3M lh %g, y7%. MS_l, J ~ MP.34 'g l The nse in industrial usage was to a n x i large extent attnbutable to plant ~ ~.,. F. 7,. f ',. AW ,, O '. 4 expansions. the locanon of new .e .s.!. L.. 7# " _"'* " " ** * ~* T: thin the system service NM Dt#[::;QQg;gg g4gg g nm . meau

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-m- .~ z.n-v. $rea. a 4,Improved business Conddions, gg ,,,,g,g,g.g.,,m p ues a mumcipahne3 y-w w % 4.,w.sy,sq,m,g l i " Te: nts and other utility c. stems if 9 Mr* ce: e MMWM

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U '*" ab^ h W l'*N 1miiunted to 4 4 billion %*d. vrmgwc. e,.w. _= A..-4., i >urs. 33 percent.ower than "h: nia,....kkmW*P P "'"W * **~~'t* ****

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Customer & Stockhokler Information tconnnueds The 19 9 System peak occurred on August 6, when usage of 10,68',000 kilowatts was recorded. This was only shghtly above the 19~8 peak of 10,648,000 kilowatts. In 19~9 there were no extended penods of hmh summer temperatures throughout the System service area, such as generally \\ accentuate peak power requirements. A \\ Industrial Growth N All of the companies of the Sliddle / South 5vstem are active in promoting" 7' - / 1 A econom'ic development within their p- /'f respective, sernce areas. The System \\ also coordinates with the state counsm \\ . / / i departtnents a cooperative travel / x f; / development program for Arkansas, 'N Loutstana, and Alississippi. / Dunng 19~9, industries announced i / plans to locate or expand 2-65 facilities l ' ~in the system *eruce area, creating -/ f t .g + .%~ new iohs and adding an estimated \\ ' innual patroll of $~6 9 million. When in tull operation, these additions and expansions should produce y i ' ipproumatch !;0 4 million in J / adJitum.t! annual :evenues for the j h M stem a impanies. L4 l 4 ,"7 [ .s. em tag 'W'} .,2%.glsg 1^ '~ %, @ f FE ' Gene ' Autrey onys m a,e vstem /. -y 30 y ears of electric .\\ [,, yn , 3.( utinty nutustry -o f b. expert ence. if W9 .g w - %g) s f y 5 9 Tf >L / 8 Mg New j M P. //e 4 C+w P: esidents E b f ,r [4 +M F-\\, ~ ',4a m* r. w m 4 a c ,for MSU, AP&L 9 v

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Frank Eugene ( Gene) Autrev became e'

l presiJent of.\\l5L' and.\\lM on June 1. ,ff 7j aq t@/ .Na < Uro. Flovd W. Lewis, president of Nist: 'mee lo~n hecame chairman of the E, %[g g"k.j Ef \\ m a ~.nnueu m:c. L* j ~ cmm e mer ne naa, um.mie a uh u s % ldl \\l3% l'rb >r T.o li st!'alla !})e . Vert es o[s tre/ an4/ Cons tant \\wre <va. esecutn e We attention to satery are ~ c 'r

::t t' !L Txda V wer & Licht reansrett n] system linerrien s

,anu. li,nda u I"> v!ren teorA' at hew'ts N. b 'm! \\taulJen w.1. elected '" CNCCSS "f IO".fert, / N* r Y 7/ presiat at s.t Al%L < in Apnl 30.\\lr p g// dJ \\lataut u ni, heg.tn his \\huJie south t/*g

.n ema siwt. retu rned to that compant afnd -

/y. .iner sers um a3 president of \\lw _ - Yb @ g ?f \\,N, f \\, e p l'y ~~~ L~p _ :y / ) l

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t ,bg Hoyv Nuclear Power Plants Work I Annual Meeting of Stockholders p e The 30th Annual Meeting of Stockholders was held in 1.ittle Rock on May 18,1979. Holders of 67.388.787 shares were raoresented in person or by 'm l >roxv. Thi: '9.-i ercent of the e \\ d[es oOU ' "ek. Ib / Stockh. u.h r Growth At the close o. >, MSU had 144.068 j.4 ia ' s stockholders or 31.500 more than a d tear earher. The nurnber of shares of common stock outstanding increased D . gwn.3 9., s from ~6.098.231. i the end of 19~8 to " r 4ytg.'. 00..eN.998 as of December 31,19 4 J A.- l.. D pgf ca,,.,..,,.. s. .o r a T g. d,. cr., m w.s.p .. w.s a .Q p *.- . / . -. 9,, Q pygs % 4 g q^, m.. M W ., y s. s Dividend a . m, w.x.. v ~.ew N ~ y 3 -

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-., a Reinvestment and e M 9g 3 r^ c. . p - f@ , Stock Purchase Plan m f,. #Muk.h., t ,giltig.,.. ..v ,:.m. 26 '%.Wp e. J., W X"d', g..Tyb M r....we i &m*;+ y. T3 i -J As or Lmuary 19w.. there were 20..o 2

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y. 3. s ....,.,, ~.,.,,. r i t nd I ti st n nt and [ ' i '.. 5tock Purchase Phn. under which W * ~ " -U pfgh'.f]$$,,,.i k }-. . m. w. m[N g.Y E W.O share nere m!J m 10 0 Un the rn amdena -mems,e m. der [

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but new share of M4 a >mmon -tock. fM1 k ***.W','l / xv ^ 4.. "N %. .,4.,h ' Csh purchases at adational sh..res c -, ' i.'w J 4 WJv.llsU he m.lde y plan parMC!pJnts u,g,g gg.g;g 'I ' g'.+. W 'fgg M. is ' @ y.{ g 'I ere re mi Iet's +I ' r.m-JC 't s M "" NUN *D.n=Enh+* **S..b'7' H 4"*t % F 4*. a. M. 7 N, o D. ime+$+ ,,$. D,7*NNN ' ~ '.#N M ' s.r. r_ {., smQ q m... j..,, p e 4,n. i mm u ~.a. a a s a.. nm J. y b >..s y ( 's f y ( w %e beW. '. .E? 1 EELY _ Y':

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I Load Management / Research & Development I i ? At the Systern Operations l Center in Pine Bluff, y Arkansas..tfiddle South U clispatchers rnonitor anct controlIbe tilstribution of ,9 mo q Q. ~ ' " Q q ** $ potwrgenmtlion using the ~~ # latest cornputer technologv. g ~ p 9 ,f W h e-e 4 k ( 8..e. d , - en a e3 Load Management

4. _d e-and Conservation

.e W" ;- o With escalating construction costs, linuted access to the financial markets. higher customer bills and uncertainties l l' ^ * ' ' as to the continued sadability of tradinonal fuels for electne generation, en j unline, mu.st look to load management for some of the solutions to energy problems. This necessarily involves a dynamic and continuous progr.,; of N research and development. The Middle g' ~ ~ J south Unlities system is recognized as a progressive leader m this field l All of the system companies are .aga m u ;, g., dedicated to helping their customers a . I, y p. I

conserve energy, especially dunng g'.

, y.. g% lpenods of high usage. Both customer w,. 4p.yx yg ! ,f. x t and snickholder benent from this g.fggy y. l atutude-the customer through lower a ,y ..g 4 ,.,*{ g , f )( electne hills nd the stockholder w yy ew. 7 ~j g .2 throuah reduced requirements for .C.,,..% W W ut r ams as the energy . ~/ W .4 (4 'g pf ettiaent home. computenzed energv p $4.gy i, - s audits under Zip-Up Your Home. and - (p a y [. the Consumer Energy Team, voluntanly i J.a..e <(c f N adopted by 5ystem companies long

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.c ^ -gC hetore federal mandates entered the i (,99 e N '")p. ' /[ pNture base anen the 9 stem a head actually u ing lew e!ectricitv. but it also c. l tart in implementme rendenual audits improses the efficiencv of the air e) g e w l required under the Nanonal Energy condinoner in the Systemi continuing effort t Con eruu. >n Poliev Act to reduce the rate of growth in wtem wide te tmuis under wav on u.aer ne.ur an.1 < i ' a en more ! reak demand seseral innovauve rate , p -n u -m.: : ..t reo.er water heaters. L.hedules have been adopted or Research and { l hicn appear to (>ue excellent proposed. Alreadv in ettect at AP&L and possd>dmes for conservauon withm the MP&L and underitudy at NOPSI are Development, Fuel I I $ stem service area This appliance reduced rates for customers who allow l ExP oration recovers warm air normally di charged the unhty to mstall a remote. controlled by the air condinoning compressor, swuch on their air conditiomng SFI in 19'9 conunued work on lea.se i uung :t to heat water in a conventional compressors. This allows the companies acquistoon ofland in southern Louiwana j water heater Not only can this svstem to hnetly off-escie the airsondinoners on which to implement as expenmental r provide all 4 the summer hot water dannu penods of high demand.thereby project to extract natural gas from j nee 6 4 a typical tamilv of four while redua ng e;ccincal load w:thout matenal hydro pressured salt water formanons discomfort to the customer. underiving the Lou siana Texas coast. In as pendma rate case. AP&L has Federal esumates indicate that the gas proposed to oder opnunal ume of day di sobed in this water may exceed all of rates to reudenual customers in order the natural gas heretofore discovered to encouraue them to shitt some of m the Umted states. A detailed arucle the:r use af mectric energy to periods on this subiect appeared m the August ! j of lower Jemand n 19 9. issue of Bam>nk The job of findmg. purcha3mg. and denvenng fuel for system generauna plants l belong 3 to 5FI. Because 5FI operates on an at cost. not-for profit baus benefits denved from this experimental project wou!d accrue to tne customer. S

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.a + /, i r . A $ 2l..+ 2 % $ $b $ l kNi. l g eomn. 6 m e m ic E M E g ya g g 4 n c "Iy,c'j "ff"*= tai?"', o Major Gener,ating Ursta - i . an~ w,.mawwm.um r.;, .. - - ~. - ...m e, .h s, Ql-.$$.if, ' '. w;> % y' nL M **R 1 &.e 4 1 'M i:vewt n y ?? *, W avg Compacy ' Aie+ -- Camwtv ' Oeweer j _, _ j,j.,. Twe %nst c. Arv cu.u a: W 'I j j j + 9Aete Pmit e.$r* *r ,A,P?,W6**

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a A n L . s A !D; g M Tots! f t $1901tfC E T0181 ^5Id DoctrfC 10

I i ,e l Nuclear Waste:. - I Problem or Resource? I ? R ', To serve the projected electric energy needs of our customers, the.Wddle south L'ulities System plans to install ~ T some 8 million' kilowatts of generating I capacity within the decade of the 1980s. i l Reflecting management's clear recogninon of the political economic. and supply realities with respect to N energy alternauves. all of these planned 1 generanon addnions will be either nuclear or coal /hgnite-fueled. The system's construction 3 ( expenditures in 19'9 approximated $102 billion, almost all of which were s s for addnions to electric facilities. For 'r l luxo. planned construction is expected y ! to cost some $928 nulhon. T i i Nuclear Units g

; 4

. g- .g The wstem s second nuclear unn, A a- ~. h -6g" \\PAlf s Arkansas Nudear One. umt two.

[

l . i,' , began generaung power in December 'd ICk and by year-end 19 9 had carried i ,, 4#,- '. +', '..,.. _. .,,y m 3. capacur The 912.000-kilowatt nuclear F: 4~~i ? M4 7 ' W- "k power !cs els as high a 40 percent of O ., Tf,.' T ~ ' ' - [f ,I ! una is expected to go into full 1,. [.,) i commercial operation m the first quarter i ~ ~;s . " +.~Y .>r 1980 Its total construction cost will g, approxanate 561 million. e 1,;;.gy,,g(. pP ~7 3 g.. y _. g,, The system has three additional ++- oc% b.' W.3. 3,,M %y# MrM Qws %n ~ "M ggg j l nutlear umts under construcuon and .A - J dW

scheduled for commercia! operanon i

3 -m 't 71 n i hetween 1982 and 19% 7 ~ b N MW M. y. /0 l LP&Li 1.166-milhon. kilowatt M.['[.$ g.,. b ylTj^j %,kw . E, x k,,, % -p,{

+snmyy#r4idd3dkit'iNpyg,usM4g,w$

, % rem)d 3 umt. ~4 percent complete at jppr ypigg g m.@

43.

N.. Adbr, A g. j- , A "., @, m 9 ear cn. is located at Tatt. Louisiana. 2; + nu!cs up the.Wsstwippi I@.er from New d dOND 3M y'o6nM M M M " J ' MNDb* Orleans The total cost ut that racihtv, N 'W " tJ l scheduled for commercial operauon in ]-J 1952. is esumated at 51.23 bilhon. l hemu huilt for M5E near Vicksburg. i Grgg;Qipif units one and two are p Wwisstppi l na one was 50 percent L y } ~ g -,; n ct}mplete at the close of 19~0 while the (z u s. 4

e Mp, p

. R.c l .nd umoted at n percem. j<egulatorv uncertainnes and delavs in i YQ pty Jhe% j:P14$c;g,7*y',f9 Q g ..4 n Mp l utensina < if nuclear plants have caused a p yt I 'Eih@il [JO N. N M. 02ky i neu ear postp< inement. if the d**T Md @!IsENdd@ Nhb. f fyg M. .mmercial i >peration Jate < >t Grand i,7h @M E l-s l (,uit

1. ntoch had been scheduled for 7'

bp %g %gl r. ~ The second Grand Guu una has e s w g .fff h,y 4 ' { qty .A > neen deiated by approumately one Wme a mQ, s . r y 1e.;r. wah the new operanon d.ne set g m. m or m scuonanons are under w M r y > p g, gy, W,2 w

u the possible acquisition ut up to a Ap f.,

- x ' Ayy'gy nm Cf. M.A 'en pertent interest in the Grand Gulf .wd 4 iM6 1 'M N ' W M %(dN @ umts hv eu icianons i >f electric power T M itMDiGi W'f"kd 'W D' s 'peram es in Wssissippt.\\lS E1 W K L, h3665 4/'V Adi8 ~ i 2 % s $g,?M.e @v g'g M h h l wesent share ot tne esam.ned ernect c,nna vemu uwa n -+w I mt s MwH id&, M'. ff.%%b .@4,,L J7$J ' 2 'o billion. .'Msf 19 $ M%MiAWUT@$ &M& ER,3 Y:W$WNr \\ I JJ v! h :iW 6?d M, M j,Q T( l @MM(Ma$ @iiniE5

l Construction <connnued) Coal Units AP&L% White Bluff #1, the System's first 7E@] coal-fired unit, was 84 percent complete M MW at yeari end, with commercial operation W M d scheduled for the summer of 1980. . h.H - ] The second White Bluff umt. 30 percent QtAM complete at December 31,19"9,

W ul is expected to go into commercial unu.4

'.J.'~ M '"*** W re approumatelv v percent ownership of ""r J '"UM@- service in 1981. The System will have

' MC these two ~40.000-kilowatt units, which Nu.

N "- are estimated to cost AP&L a total of $391 d w,., million~ N ~ ~ $*_hMWJ g UN -M Construction on the two ,g" g.; y Wg._.,@-j-7~~. Jg =gigi ~ 0.000-kilowatt coal units at AP&Li 4 ... -M Independence Steam Electric .ss;-- _ ;a.. ~..~. M$... .m 4 Generaung ' station was begun in 19 9 f.f x;- .Ng.s ,, w *.: L,; p*^.,,4 4,3,3,g I,,, g C, c1. ~..,.y .. m +. The Independence units. which are ' ~ ' ~" *.~,'. ", uhstannal duplicates of those at White

., k
W - "m t-+

- la Olutf. Will a WI AP&L an estimated $482 4 .gyg g 4. % -dw%, teg I milhon, with unnplenon scheduled y N .%g* jay,y j. ,O,,,,,.p p d $(..2.s YHg for 199 and 19M As wnh Whne Blutf. ...T the sstem wdl own, percent ut e %q, e +,,..,.y...v.r. w ', r ~ n.a- ..u. a. o s y these unn, c~.f , m.. ~ The White Blun and independence JO' ' C # ' Z., '* r. 'y~e-'W$ WW 7 %.NP plants. usina low-uitur coal as fuel will Rm j m g'.,* 3,F[' M,; *~~'+*a* IE':'b'"*b,Er h - 5I h'g -. $7' g - he able to meet all appbcable air t ualitv .. ~ standards without having to m3ta 1 ^" .. 2 ,2 suck-gas wruhhers. Customers and M ". 1 N/ N . or not havmu m rav the addmanal . b; - l' ' I L.. b. U stockholders will be benefited hv virtue + y.p wc.g:34 % x %,g..m.43,. p.. .x .~ - ~ .yd o n a a ty 3

e ' w m e w % C :>* m w

.,f. w I sso mohon of auded t.mnal and 8s VA. ' ""*$ M MG

IN%gg

! milhon annual operanng'and %, 3 ~ i[ Q[ w a w s[. a A f e - [e/""""/ C @dhT*ii, I G khI - b p M.f S y l m.untenance expense. which

wruhners wooid h.ne em.nied s

., f,% ' k $$ h l ? &.L A'. ,m, 1 . u - ma.y-t A.r Y g='. ,, Gg 4 Standardized Coal ..f H M cuoiang uneas are unen Plants associated,cun nuclear "W ~. A number of addioonal coal-tired unas pou er pianis. but inany 'on d # ' ^ ' ~ '** g[ coauucted xene anne q 1 are planned for commercial operanon . wwm 3 CA i in the !aner halt of the 1950s and early ' sf,a,ony use ri,c,,, .,y y en. C.%%ggg~ggMX *{ une n/ug :rdt nat e ta,2 gm='~~Mw. mo, in order to eneet savings m cooune rows onc ~f ,gh. _hN.,f i, _ gawj.f..[aa, design. o 'nstrucuan. and m.untenance. u bich u ae still under d' 1; diese w ooo kdow.at units wiii he l co"f trucn~n at toe <<me i. it a undardized eewn ' l d

-mee -

l The nr.t. >t t hese standard coal unas i M $sjeAWe 4 . W T@MhnOm. 5GJ. WC l wi!! he busit hv LPAL at a sue in south %*h M.. ! 5'" is ui una on the \\bui-ippi Ibver for 4.,,, s U )mmercial s ferani >n in } V... 7ggfygf gyg gyg ....%g g,,r.'M3#~"4' E"M-. l 'S = l l Al%I. ha3 anns iunced its intentitin g bgfp Bluff' gencruttne 3e b ( IN M, 1 l to budd two t 4 the standard units in stanon is expected to w **niht 3 l Calhoun Countv Arkansas. The first is I into cornineront o or. iran aOW 11 KpW@PP h ~m i l en the vummer ~r rm 7*M $@A d@ha.dctt. t , uneduled for completion in the Later. T,W t I* *g,;= #M'g$9.igfeg, gg,;, j,4Wbr-r, f .e f a j h.ad 6 4 the 10% I.ne tinits are eNPeC'UJ, W Oh"~.', M ne tue:ed M \\rN nsa3 hgnite.wmch i- . w-s *p y. m t w v., a h Kal h M.-heJt-Mntent grade i f Oial l l i ,..A v"e' r wt ? r. c 12

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I I Fttelsfor Electric Generation The corttairsmerst buildirsg of Arkartsas Turbine gernmotor at Arkansas Nuclear One. Nuclear One, unit orse. D@@ wNs ~ 9 m ( h1 d . 2 y:r I! pee,,c-- <b M v t . W. _ ? I } e awm. \\ ~ R s tl s, 'g ,y~ ~--~ _ w: a ; f..~ %. 1 / f.% 1 ;. u i ',,,y. W ^* ,MI ,',sD k +[- s 4 s Y m men ~j %s W 9 y; e .1: l llistoncahy, the Middle South l'tilines Natural gas of thi3 requirement was under firm t wstem was fueled almost enurelv hv con:rnct at the begmning of the year. Anv F. deral programs aimed at discouraging addmonal requirements will be met ' e ~ natural gas. In the 1900s. management l

decided it would be wise to diversify the utihties from burning natural gas as a duoud hrtem comtn or l

< wstem's tuel base, and plans were made fuel for electric generation were at lea.st purchases on the spot market. If natural ' for the addioon of nuclear powered temporarily moderated in 19 9 due gas becomes available on an eeneraung facihues !..ater, this to an unforeseen abundance of gas. imtqmW be m sky mle l dnersihcanon was expanded to include l This phenomenon. known as the than anocipated the System's oil oil and coal These decisons took on, " gas hubble, enaljled the System to new meanme w hen. beginmng m 19'O. I d splace almost 8 m milhon barrels of. requirements could be turther reduced l-under federal regulatorv rules on natural l increasingly expensive fuel oil dunng i aas pnonnes. certain of our supphers ; 19~9 ny burning natural gas which Nuclear Fuel I det kned to perform under our contracts f became nailahic some under new. uclear fuel accounted for 10 percent e tor hing term gas supphe3 for system l relatively short. term, interrupable N. in mer plants Mant exisung generaung contracts but the m.uontt hv reduced the Sywmi generauon in 19 9. a tacihues had to be converted to oil ' I curtailment under existuig contracts compared wnh 11 percent in the prior with mersate pipeline supphers. year. It is expected to account for 20 the only pracucable ahernante fuel' I Eo inonuc. legal. and suppir l Natural gas in 10"4 accounted for percent of generanon m 1980 %e ' system has under contract consideranons now require that for the ': approximately Fpercent of the wstemi !m eseeable future new base load generanon mit up from 42 percent sudi em urammn to meet protected needs through the rear 1954 A portion aeneraung unas he enher nuclear or ' i veir earhe- ! of Me wvA's nuclear fuel needs

c. ul fueled j p e}

} { through(1994 is also under tirm contract. SH s uranium exploration program. Dunnelo') 4'<' . " percent !aunched m 19 N progre-ed in loN a- > f the Wem. . < un,n uus ! cases and c!.ums were acquired on fueled ht al. ucrev y ~ nc 24 ' pro,pectn e nune sites m 11 4.ces mdhon barreh B:. umpanson, in 197 Tesung to determme the extent and oil s share was 4-.2 percent, amounung quahtv of ore deposus is alreadv under to 391 milhon harrels Way at a number of the sites. at leaq i l Approximately 214 milhon barrek three of which hase exhihned fasorable t 6 HI.tre expected Io h used in 1080.,\\ll results u > d.ne. Actual and Estirnated Percent of Net Generation by Fuel Source ' 00 ~ 1 I f i i f l.l l l l ) l l i i I j l 3 .-o_. t m i l r P '.* di b_b L._ _1, hD f . N b $ [.b, i ~ m. ~n ' M.dyyg.3 l .JJ:* b t i w9 'm9 ra .rg .wa .m gg .pg ,9,9 ,4 g gg ,pg M 'r4 r9 . ' M4 .m 14

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e Middle South System -

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Financial Review Operating Revenues Consolidated Net Eunings and DMdende Paid to0H.'5 p.f S'idrip) The System's total operating revenues InCOnle a so in 1979 were $1.8 billion,12 percent g g higher than those of the previous vear. Net income of $182 million in 19 9 Electric revenues were also up in l'979, reflected a two-percent decrease from II climbing 12 percent, to $1.' billion. 1978 income. The decline in earnings -l--- Tith oniv moderate increases in resulted primarily from a small decrease energy sales, the principal reason for in residential kilowatt. hour sales and y l the nse in revenues can be traced to flat sales to commercial customers, in 1 o I recovery of higher fuel costs. combination with higher operating 1 ~

~

7, Revenues from sales of natural gas expenses not offset by rate relief. Delay e ^ j j j increased 22 percent in 1979, totaling in bringing unit two of Arkansas Nuclear i a approximately $117 million. Most of the One (ANO) on-line also had an impact so _ T 1 'l increase is attributable to recoverv of on earnings. j 5 1 higher costs for purchased gas. ' Earnings per share declined from d I l-A ' Transit revenues for NOPSI rose $2 46 in 19 8 to $2.13 in 19 9. when o T5 1976 19?7 19*8 1979 g-. ghere ggs 3 ]3. percent gre3(ep 3yer3ge jf uma o,n.no. as oi..o.no* The increase resulted primanly from number of shares out. standing. increased ridership in the wake of I Revenues. Expenses and substantially higher gasoline prices. In Energy Costs an Mohona of ocuarsi Qcgh.7](j9dw3evm em av Diwdends Council adopted a resolution stating 'a 2 policy objective of achieving ownership Dividends of $1.52 per share were paid of the transit system at an unspecified on Middle South common stock in This was up from the 19 9 rate of $1.44 y 1 time in the future. The council also granted a 10e fare increase and certam per share. Due substantiallv to the large ! other changes to help offset the transit ! ponion of book earnings a'ttnbutable to ! capitalizing the costs of capital invested deficit in 1980. In January 1980 SOPSI j in projects soll under construction. ")* and the city once again entered into a which is not considered taxable income. transit subsidv and indemnitv agreeme' ' to guarantee that company its authorved the Company's tax position in 19 9 wa3 } + return on transit rate base. such that 49.04 percent of the Tulv 2 l A_ dividend payment and 61. 5 pe' rcent of f m_ 7 ) i , the October I dividend avment are i a l } I esumated to be non taxa le as dividend i Operating Expenses

"So"!e to the stockholder The pornon

,., m ,..,m um o,,,.un, n...no.. or a dividend pavment wnich doey . 2 o..,.un no.n... Ih;her fuel prices and maintenance not represent income is treated for en.,oy co.i.. costs incurred dunng schedule <J and

ederal mcome tax purposes, as a unscheduled generaung unit outages I return of the shareholder's capital and,

~..~.m,,4 1 helped push the System's totaloperaung I necessitates a reduction in the tax basis ' .~ i expenses to $10 billion in 1979. These of the shares on which these dividends

lommon stock Data -,-

expenses were 5211 million. or 14 were paid. m.- 1 percent. ahose those recorded in M i The quarterly dividend paid on l .T. t: - s The cost of fuel and purchased i lanuary 2,1980,was increased by l'8 to l u,..;..,, ;. e,.T Quarte'"'E l power mereased a dramanc 29 percent 39 8 per share. This is equivalent to an l Ofjn,tj 4erand ' 1 Third ; Foirrth dunnu 10 0, totaling $956 milhon 'or I annual rate of $1.58 per share. Tith only, 19 3 the rear. I one exception. the Compant has been l b g"*m c,% ug.we s ~ g' h %3 Expenditures for natural ea-j able to increase the dividen' rate e n. d o,- m +e i n > ' - m. purchased for resale were 589 million r paiJ each year since its organir.auon. o...a.ua Na n, u. so u, so w " 7] dunne the year up 20 percent. 'T9 't 4 The costs of fuel purchased power. In. and gas for resale accounted for 51.04 "UN hilhon. or 65 percent of 19 0 tota! a,( x <m-iv - u m.' , w. -. m, se - operatmg expenses. UtvianJ Paid so.W E8036 .8036 . 40. % i +,- ' 1, 16

I 1979 Financing n November 1979 the Company SISE's financing was accomplished had a second offering. this time selling through its term bank loan agreement. The Company had two common stock to underwriters at competitive bidding increasing the balance owed by 5310 offerings during 1979. The first, in five million shares at $12,62 per share, million, and through the sale of 5113.7 January, raised 5127 million as 8.5 netting 563 million. Shares were million of AISE common stock to SISU at million shares were sold to underwriters resold to the public at 513.00 per various times during the year, through competitive bidding at a price of share. Proceeds from this sale were LP&L in February sold 535 million 514,94 per share, for resale to the public used to reduce outstanding bank loans. of $100 par value 1148% preferred at 515 30 per share. Proceeds from Of the alSU subsidiarv companies, stock. In April, that company sold 545 the sale, along with other available AISE raised the greatest amount of capital million of 10 ~/8%,10-year first funds, were used to retire all of the in 19 9, followed closely by LP&L and mortgage bonds. LP&L returned to the Company's then outstanding bank loans. AP&L. preferred market in July, selling 560 million of $25 par value 10.'2% preferred stock. In October that company sold an additional 540 million of $25 par value 13.12% preferred stock. Finally, in November, LP&L sold 555 million of 13'2%,30 year first mortgage bonds The cost of money was a maior area of concern to LP&L during the year. Due in part to the unresponsive j regulatory climate in Louisiana, the overall cost of money for these tive sales i ot securities by LP&L was 12.3 percent. l M.,g However, in its December opinion on i ,w. n ..w,. ~ 4 ;: LP&Us H 14. million retail rate case ( see t -e c .i E _ "Mf.k hDY7p Rules.page 19).theLouisiana PSCforthe ' i" g ~ first time recogmzed LP&L's "ditticult I ,g .jgjg financial position" and made a concerted i %a- _ r., effort to address the problem ot r . I. m 2.y,,, .u-w earnings attnuon facing that company. j d Mk y q., y+twA*h 4%g[g$gy AP&L made three trips to the 1 % RTilfR_ y financial markets in 19 9, resultin .m $Myyp g g g/$ average cost of money of 10.1 pe'g in an ! d rcent. i' N#1 In Januarv 19 9 AP&L sold 515 fg.gy/.44,a; isirr 7 . &

N@@-

j ~ .fPr i milh.on or 52; par value 10.40% g' g TJ., tf M t n 1 A - i1 p& ..,bm preferred stock. Concurrentiv,, that Em. E ,s w ~.. wmsg y.g,, .sm company sold $60 million ut 10%. pow;g. a M$I ~, M] to the market in June. AP&L sold $4030 year first ElMQr- / 'l' M .r'r.wsd,y million of $25 par value 9,92% t p' -d x [$' W 8?$M %fg; preferred stock. W J l c* J f}M.g AIP&L inJanuarv retired a matunng 7 a zu .. 'm>wc )_,&million. 31. % first mortgage t y ,.e bond issue. In 51 arch Arkalo reured ] %.a e 4 p'g M %j QAd1 53 3 milhon of matunng 3% tirst n 4, if. 2i h$ Md ~ mortaaue bonds. m h'tn Sc, f Equitv invest ments bv the Company t h *47 E m the common stocks ut hisE. LP&L..md se. %m~%Wp%4,gg. p.., sp g;,7 gvi g ' Ji } g egg AP&L totaled 521C million in 19N p w o Pun + rmnese inetmemmere r.ma i ~ % g^ w h [da, 7y, j y through sho"t-term bank loans, which l m ) y-i fr l U have been or will be repa:d from 1 1 c h f . Wmmon $d M b) a y, the nue _u w a

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Financial Review <continueils 1980 Financing Capitalization The balance of projected capital System construction expenditures for requirements, an estimated $197 The System's consolidated capitalization 1980 are estimated to be 5928 million. million, will be met by the system n,th ratios at year-end 19 9 were: long-term excluding nuclear fuel costs. SFI expects internally generated funds. debt. 58 percent; preferred stock 10 j to increase its invest ment in fuels-related Total investments by SlSU in the percent; and common equity,32 programs other than nuclear by 562 common stocks of System companies in percent. These rauos are significantly million. Nuclear fuel costs other than 1980 are estimated ' t approximately impacted by the relatively high debt rauo a those already provided for under 5218 million. Funds for such investments of MSE. After the first AISE generating existing lease agreements will amou nt to are expected to be raised through unit goes into commercial operation in 1 5-e nullion. The System expects to raise short-term borrowings which will be 1982, the 3tSE capital structure is l approximately $622 million of the repaid through the sale of additional expected to be brought more in line with required funds from external sources, shares of SISU common stock. that of the other System companies, I l including the sale of first mortgage l honds and preferred stock, long and short-term bank borrowings, sales and I leasebacks of property, pollution contral and mdustrial revenue bonds. l The Company expects to raist I approximately $1'5 million in 1980 through the issuance of new common stock. A portion of these funds will be raised through a public common stock offering at competitive bidding. tentatively scheduled for late April 1980 r l ~ o M i / DC M eD

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.V c f. ~. 7x y The System's efforts to achieve needed D.[ - rate increasea continued in 1979. On

~

v"' December 18, the Louisiana Public X '4-Eo - +, a d Service Commission (LPSC) granted LP&L the second general retail rate { increase in that company's history. Ark-Mo ^s previously mentioned. LP&L in Approval wa3 given to implement new December received a decision from the 1 rates to produce an additional $59.6 Ark-Mo and its subsidiarv, Associated, LPSC on its $114.7 million retail electric million annually based on the 19'8 test each had one retail application pending case. which had been the System's year. at the end of 1979. In July 1979 Ark-Mo largest pending application. Although With this case resolved, at year-end filed with the Public Service Commission the Company was disappointed that the ) 19"9 System companies had pending or of Missouri (PSCM) an application for entire $114.7 million requested by on appeal approximately $53 million $5.9 million in additional annual LP&L was not allowed, the net effect in electric and gas rate increase revenues. Of this amount. Ark Mo of the $59 6 million increase granted applicanons During 19 9, rate cases requested approximately $2.7 million on should allow LP&L to raise the capital were under way at all System operating an emergency basis effective August required for its construction program companies except MP&L and NOPSL 19~9. in order to offset the effect of a during 1980. t l Missouri Supreme Court decision that of particular note in that case disallowed the collection of fuel was the LPSC's willingness to addre3s MM adjustment revenue. Consideration bv the problem of earnings attrition the P5CM of both the original and ' facing LP&L. In response to the At year s end AP&L had two pending emergency requests ha.s been recommendation of LPSC consultants. rate cases AP&L requested a $2 million suspended unal lune 1980. some $15 million of the $59.6 million retail rate merease in October 19 8. On Pending bef' ore the APSC at year's granted was in the form of an attrition February 29.1960, the AP5C granted end was a $15-million retail gas allowance. This amount wa_s added AP&L an mcrea.se of $14. million. to be apphcation filed in September 19~9 by to give LP&L an opportunity to earn the placed m effect when that company's Associated. Completed during 19 9 10.5 percent rate of return on rate base i were two Ark-Mo rate cases and one held appropriate bv the commission. second nuclear unit. ANO #2. is placed applicanon by Associated. In Mav the Pending before the Council of the m commercul operanon. This is. expected to occur toward the end of the PSCM allowed Ark Mo $3 85 mill' ion in City of New Orleans at year end 19~9 was additional annual revenue, of a a $3.2 million LP&L retail case tiled in hrst quarter of 1980. Also pendmg at AP&L was a 36. requested $4 3 million. in a retail electric March 19 9. LP&L amended the filing in million w holesale rate case tiled in Apnl ease dating from August 19~8. In June January 1980 to reduce the proposed

9 A tentaine settlement aereement g9 9 the PSCM settled a 19~8 Associated increase to $1.3 million annuallv.

m the amount of H. milhon wu' retail case. approving approximatelv in line with the rates approved bv the re.iched utth the affected customers ! m$ 1.2 milhon annuallv of a requested $1.4 Louisiana Public Service Commidion ilhon in higher ga3 rates. Finallv. in in December 19 9. In late Februarv l August the FERC issued an order' and the f ederal Energy Regulatory 1980 the Council granted LP&L the Lommnsion iFERC) staff. The case is l grlmtmg Ark-Moapproximately $354.000 full $1.3 million requested under the I still awamna the decision of an annualfy in higher wholesale electric amended filing. adminstrative law judge. I rates. Ark Mo flad requested $568.000in Awaiting a decision bv the FERC AP&L m January 19~9 recened ! that 19 8 filing. approsalyt a 3ettlement agreement was an $8.5-million whole' sale rate l on a 19 ~ wholesale request for mcrea3e application filed in July 19~- { approumatelv $ l.a milhon. The FERC t order authonzed approximately $12 LP&L ' milhon m addmonal annual revenues. Management recogmm thatfair and j Earlv in 19 9 the LPSC allowed LP&L to time /r rate reliefis rita/ to thefinancial i adopt deferred fuel accounting. thus hea/tb of the System and u d/ aa/re/r permitting deferral on that company's /ninue rate increases m ther are nceded. book 3 of the uncollected portion of its fuel expense until these costs are reflected m bilhngs to customers through the tuel adjustment clause. 1 19

Middle South Utilities, Inc. c. L s v, w k ' pyre &; f,W. ;. ,,e.. l ll .... : [ (p'; .l( d l m + y 4,,, %j .... i v. s, .w. y g ) 6 u. men G ;k:.-. .- --95 = _~W, n &s

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%? O g.g: %m ; q h.=cnfy@g"gy pm -gz; - , ::g,g w. " Fe Income TaxcGMMM RC 's 1 $M,9% 4MR ~ M;&.4 /Ihe Cornpany a nd its subsidiarks tile a'crmsolidated Federal hwome tax return, locome taxes are allocated 20 all su bsidiaries c 2 bued nn their contrfbutforstn the;ctbolicitted tartrability.4 Deferred income enevare.ptvvidedcfdridifferene between 1 hk and taph!e income tuihe extent permitted by the regtibtory br.xlies 'for intemaking.p,urposesl Investment t.n credits l uulaed are aefened and amor s d M Jc6

u. Allowance For Fu. y.t! zed overJdte average sefullde of the, relate propertyM

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s. - e ay M erdance wh the rwulatorpywm of acmur.Nthecompanyk submdiaries capiuhze,:raciappropriatecbst-ofM lao an Jonnce i a foiA uwd s.N ccostructionl This allowance 61 nonoh.ltpm).ftprevmt the nctiost bf un+ Pret " 9n nc cctnnmic ; The crec*n f mmpmfre mte ter the Campamw opemtmg subskliadeWiM.% and '

Ve Mr FP and WR respec&efv - c. ~ ruai : ue for ahnce for funds seiNidring coidtructiuti bMd o'n'an Midd'c s 'uth Enern. Inc 1 W d den - t 11 ns recum em.nerue commm em m. pius.an nrete.c rosts ou of reured inume taxese - 4 The COnipanV'$ dubidiari.S Ceprirtyh th;pt t! fe 3]tt 4,5,.gtg for fund thed du r1rN conStrUGIOn Ofi pr'OiedS dunOQ peridd4 ' -

mte ruped construction whea such mtermpoon is temporary.md the contmuanoa can be Juuttled as hemg reasonable

.de tM circumstanceif ~~ .w,, .Ar< y H. Reserves a e d propern ruk.s and for d:nms e p Ucy..t the O)mpouc s. r erug ebudn e - : pr< u d .o s i .d ;'tr'..t N ; % e '.U< o) " mc -p ? e. 9 i ~ua!4 f y ( M s s f v. have been . n n raten wra a.y * ..u i 20 a n- - - -

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i m~ 7@Withbd i-Mk ' 'g)hQf$M "lXinEE/6$ D y$3,695!"N a 2".695,106^ L M2.691WISTd2.50'tiv 511$44 h aQ@j.L1' @ um?hr? - Q::7%M$?@r%3so.ono -.-350.000% - - aN.m - SI13 08 ~ ,MhDW$YNMf [Ih%sYEF,7 3.0: ) J~~~ 3.045,106: 2 JW. ,20d1 smimig dmd,o W-

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lUnidbedK:

2WD%f{ 2.} y u wo . <;0n n^9J ' $112:04 to $112 4 1 A u a. s j Total Cumulashe. 525 Par uf ue WnHOd(.stakia;.; fund'.. Nk,i U '- 6- ,k,;,!2;?/.':Ed OIN."400 000 m 9, m.,- v W AUgo - 1 600 000M b i Wb. opy ($. 2&2D V ' N. iGyfi'/% 1 Tith sink 102 fu'n....m" M+:n.w/WQ' 3""" 7 - irgMf g g0j J! ' rm'.1S00'000)M 1,000;000NGs400:000gq~. .M- ~+ d% s-7"J o ,?ce-p r q y,,,. :.a; 4,600.000 '...

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140

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1 Pre m!um' ' ' '~ ' 7" 518 O Iouance nper.se (7,910) L, i Totil wh7mkmg hmd - - - -.508 5us7 $193.-. . _ =..,., h ..i 1 P d I""C d !#.: $ 0 I ~ M' ,e dh1N ,e-8,829o.

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m c m ,y. ier'.Q:- Q%p '.. Tot 8' m Gygad d.A> 2 n bju um r e,. a N % M U M N i k i M E [p e F g.+.P,w 3. .g, g g,rN gidYfk h8%yo,017,816; -52,62 ' Unam. ~ortize:d Pr:,emiu.m.nd D,y.co ( .g v. ,,200 ., _,NS-l et..m, c,w.ch...;.,. s.~ m a.a.x, is ea w s i ... ~. ,m: vw -Total Long-Term Debe &MFr w$Me@ $3 ~ n ~. H i 298,2MdsWgaE9Md wDurw$tw'moone4#ww - ds-W msmy2 %.sanero.. w%wmk.m4w4.90xwws.6 epw exsxdoaingsna 4midw i oy w. a; w 9.w;m.menm eN wn.s. n e.y %m,y]y,t.;T<,mesmfmdDRdund.,kq+ulfemenu;.- m. %..,m +mn.q,W@J@d@w qk kn,wl Q um.w w HT" M gM,b g

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~y4S/QFpg.pydd$ijAurf,g 7?4. mmc'embeF.310979MDecerhber' 414978o 1 . hy. m# Qa~.?,psr%mGashme.+;Other W .+.-...,W.M d N,s.Nn,. n.MAM,.MN..w . ~ r.m . n 1 M7QNanrf ' E .,m, R .,n. ~ 1 a, um,.v... Q. ;. '. '" n&.L } C W g. y ..~ p D P e, i e lC 4 n. ^ ,en-..- . s '.,9.-w,.g.,e.af~as.nya.g, g *m n.,a$p*$_ pes.svgplff.o[liqj&g(fygg ls.[.m&k q il1 w. s; e ^ y 9 ~L h.. ,,,zy >_ .a-w,~...-.s a w. r - q_, .h i(., i w 15 v.,;,,,r. wi.e,p ,mNy m,qdc861W16,992J. ' ' 131 16/J21., % . ggpm.AWh.@ww W.S[n,e$, h. hi ?198Q;S dM. M 449.83GL. w&:v.;; W'g*3pi AcW.ayhkw/.:.WM;z.eJ%112,14 w w: ee -. a y. w.m,q g, a w e.120 W.".. 9 P... ". 64-a 1982)w.O,w.69.dMICAWdMyG/a.w de.t 51548 e,80hc16,6'62d,32573 Ve.s."892 : i u ,p. o y r..,. r J5, y 40 83Fn16,446%40.683p%g5,626g y mnfbA yw+ut., t: n; g e. w 4. =.:y;p.e % t:. % V % % : = %q 3,'3 g % g,yn g- % g ? p 3W 4g f2 .F: m Am,7.$3J yn.Q:% a.~g w &:p$$m & c. Q '. st%w..

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l l Middle South Utilities, Inc. a.~ s 4.,y, ~ 5 ~*- / <hh M,w .4e. .or w 4 ...3.... s. .' %f. $4 M,tt %83 T,' w[ M W %. d 5k M: Y& mn,efem ~ - a y.sv-4. g,s 4 qu,,Af.m A ate,t M9 .+ .e.:n... tig .mm 4.. ww w.a

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Middle South Utilities, Inc. W

-s og rn W

N$. l 1 it n.< l ek fex ' - + mr .m. 4.j e .g -w., u...u , -,,4. ,u.. m. m. neun h ay,, ~ .2.? 2 t ' s! 'y., s m ng s f.W. 56cth Eneri;p,ln61GCa#. 're6thent~ Ems Is illl' frd1982/YadditionWME

ndb ~ nA.! agaceeentus'91ts C

~ edeWt:fot pC f,mayTxarrow 6p to $60,( l$dpn YO_d dI4*4 e# - m Mas:td%ithdritwalind C - 7 Wies 1rr4 paldbartikf Minisd+hinR)JmmlW qqu3,tsnie}.pr$ididgy,g N et ~ ' ~ ' MW t Mffheo@(atingwb.gniWa~ve midefgreehicigbogprqu , for,short term burrafngs (Tirougfi banic loanund.withlcommerct2T paperdehleo:' orcommercial paperag 3l.e MA4the Systeni 0% rating dobsidfsles{g%ppensatin(g/%l[OWdijf w% g L / F5' O 9& i ' iT dainta MancekwidKcc sfbeiQdyidi ~ 1minRwive m

io!w[thdtpul@M feggg, en-ta f ifare 600 te,qtrteted)Inislxmk.weementalkmt d0@al btM, i.d4ystetn Fuels,

/ff og$up.tg -. ; bir market wbe o(br!'s fyelhilinvehrwy;tMddittyisi imay.heri Q N.,., nan crci N. -,J.p "lesil paper. Bommin:.y undephe!c agreements ag das ale .nuc A inventories ancI accinua;iecsidblearlsrpfr iale Q " ~ h olfo w / M[. _ M F S f I! ' ' ~ b.y,.,ccV 2 $ c.6.,g.,inids',y The hnes'dcrbdit. 56,rfo,g p.%g'p.u. wingrand bompet alp t tep y p g.,q,, e v g re .m..s,e.m poism6@er.R -,m. N..y w.., m e.. .q.f. m,ys,qN 4,.L g, g.. w.n h yq~31,.gp,g %g p y i r ff hN ,b. lf&.'kg ' QC egntyn,y ~ni.L dm n urhl* Q .>.up*C ,;ff y A uarp ned.y~t,. tevn.. mw g,> 4M.- m&M,waswW 's.yrdietilorrowmgFfSalanee%gr. ~ w-~ Whf J TW W M t M Cre CreditWilbrrowingV 'Halanceme. I - ;:- - 3 b: i ,a,,w,.~w4 n L s a-n m annocn.d.:. ;mm. e c l %,; Q "g W; ~ &m m m w s,:.,4 ; w +. n,,. . cw mmue

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f. lyn,4n@ 60.0(44 3 Q. ' t - :',,,'[','!,900 M iS F W ' " Q,100P

!.350~ 4 " tem Fuch, ine ,.. t.u. ". 'l 10P00- ...17300 ~, M D19.. W 10;0 s L'peratmg wtwidiarich..;..,msR ;c PJ;'Of 432.000$ 12T.505..s.,.; 20,7JS a.?.12300.i',.12*,290.. ..38,763 s n..,.,: ~ - ~. ,b < s4 y.7)J ' .' y,,, # M+ [t,, g.t,*fm. C 2 e 7." -cC34,n(C ' ' 5s?,(007 P ? wMe snwh rge7y Inc '.. Q.~.A.shNil5.00nwul0M9tC:'O,350 ; jd5.000;. ".23'.000lg 11,850; Mk 65090 A 61090

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- Middle South senices. IrW.. 'm ? ', A.} 10,000 ; s % 4000) y.,.,) .) yi L~ .n ; ;. y..g... _3%e 4 t*QfW W 'Ihe sh, ort-term horrowirms and the intere,t rates fartheMiddle South Swtem wereas folkmv ~ m 4 :'.q ll ,, o ~ Wm Fr.&d

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e .u g.,4 4. Je gyr3 I' e 's 4'd6 9,. j e h*g l A 4 to.o b e. $ e 98.t'.e: 4& 4, &4 [b% g 4p g #g. g 4 \\ e 8 a"..i L. J r. - w ui m 5 53nwo =] u m mu n S -,,y % e ';tye* h;ttyp D ' n m' M t's <e l q ~ ?4 - N#% -l Harv. J Jiu a s.., s o..-,

i.

not 1 Al cftd J ' p?m C - -f N.ilums lb 4 o 1.: 1-5 ' Cummt'rtl *' Ter ^l, u' .1 Wo 10.5 E e ~ 3 Stahsequem i. > tardnd e.t3 cr.J char.c have be ;n'propred in the credit lines discuwed ab ' e. 3!SF k a;'pl ing ra ihesli toincrea. mda h.,e for L e n. a '.. nwm;s :o $80%000 rea Ms4 is ceeking,.:sahan: cica fr.n thesLC m erm bom mimes and m h.w requete J the sFC 3.pront' for a 31N 000 600 l M na W m00I cneef ae d + m ".u

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Mictcile South Utilities, Inc. 1 -. ~... o, -d h I 'h MtW 15 i gi Q -, - - - --mn - m y. .M l M u s y p$h ^7* - ~ " ~

__ 4 4

Namei_ Neh thh N h5etvise. ~ ed/11:e t rW:i issMivfiethericustomer positsare'indudible in eM i dWtax2 bit:; friWas66dinsitsitlQhe JR$WSG!d hMtili,E a^nciteni$phalOOmcet Wd ~ ' %ed nitd cddfekid.insbeiTheldiilh'at(At $$theIR$ MhonnaliiedMimt uGhemtherhach'QVM ' if cctonnetEdoniiC $f,Tr ' " ' 'L Tosii_ =---- - t' Widn2M ft u,:ok Qai& tC @ %__@ih W A J 1 M' ',%@l5 R6hthctllidytt!I lI fntyIeW50ppTO 'dba f!omfm $. fbe Vef ' ii%6Eliit6vhkhisexpecte(D ' .d 4* to provide 150 to 210 million tons ov'er a period of 2tf t6 42 years:An operating substdiary of die Companv h:ts agreed to ? 4 $urcliaiein) additidnsi 100 in!!!Ibn toris of'cdd overSe tivedtyl car per!6d. S$f h tMeEuted it letter ofibtent.Nubject to y , p' regabtory approvat to pnrd136eSve hundred coal cars for deliverv in bte 1960 stan estimate'd' cost of $21,000.000 for use, in transportmg t'Te Thal. " PQ* ~~'%' 'n~~f ~ ~ ~~ ^ i \\ sutr4dur), a n der t he ternis of W nucle uel ieve % w min r,.t . < a n! rm, r, n'tu ter fuei & chmdirt b re Muatha its policy resaiding any sahuge va!S". 4 [ ~ m'. /ie ..<.,e,, d!.p ;rd c#: for wt mck ar fue!. The subsidiarv expects t!ut a!! cues. Jetermined t u he : ia51.m. connectian mth the u>e inudea: furt i . a:e priir'tr'compendats of'n'ud6r finl~exi3ebs.and presisions to recoverjucn co3ts have been made in appheauons ' i to regulatory com,missionghequ';isidiary is presently recoverin*: 3pp-oxirinte'y B5 million of nuclear piant ] decomnussionina coM3 through mcreas,ed deprerbtion charte- ' cr he i'f;. ds nu iear pbm. ILred upon :' s:ndt i performeel by the Wirtiorv. decommi"iomng cmt* yre vc crofectedu be in excess shi amoant:The uhsinieT ts j requestme rm 'i m f 9 s !n rewed ::= > w - r- ';! w. v omm.! in ;n ! '-' W 8 % l rerjuests for future incre. des;)ubsequent t~, year end the subsidiary recchedi an order from its regulatory commbsion' I reprdingits then pending retail rate ca.sc Indu:leJ 10 'h.a ca #T was gpraval of the conection of the addinonal costs - j a"..w..fre lh esc * -iated with the <torage of dispon! cf spent nac!Uar ;bc! :.nd decomm:sf aning the ndde::r umu a: the end ' l' I The Wmpam % myueded th. W. r provt ~v nr - . : c mm " s'ock m M.tv puo p+ pn.cre+,v.a h.., ned n - r n t <> Ne~ - ' ~ - ~ d -n

t-A in unturv 1m W emered& ;r yree nerei F

q .,e. Nu N The procesds from the scheduled saler v m be med t; reuuce barnm,no out _ r. ':- 'e r '. xr ~me:v and for con truction i .m. s.s c. .r t .. y,,,, ' r-d Wf + ,.i. o Note 5. Retained Earnimts

.,- ~

,. long-teriu, debt and. transfers by such'subsidiarie:, ' ~~.m. ~ 1 ~s The indenttue proyisions reladng to the.op..erating subsidiaries' from retained canui$ (6 the3tated *.alue of common stock and the provisions bf the MSE hank loan agreement and. ~ ' mdenturche3trict the amourit ofconsolidated retained earningnvallable for cash dividends on common stock. As of ' 'Wember"31, !N9, $3 3.023.001 cf conwaJ..w J rc. I t. nk,, were free fiom such re>tne;ias. u.: Note 6. Rate Matter h.;ney Generd <..iam ided a compbm: v.a.. tm s:a.as runne '. ,,, t 3 u w m, y, ,s ~ vhich he *

n.:: trk:msa< emer. = cc

,q, m..u owat elJu3c lit ietail CDMomers from Apnl 19*~' throuvn %rch JM9 an.1 mete-

v., %,, o. s

~ N N1he cc:npar al!cged that uch osercharges would continue as hq.; 3 w, d-

p': ,,; re m.q

.. or ct:e~ln '6:im e nianner APEdnes not be!!e, c that there stanv er rc ~ u +

he APC cJ.m ::u rh arda direc'me Al ed. t.; wuda;, as.p$ca,,

m _,, r>," . :cr stated a w.w or Jecut ogthe pmpriety and Ic v of c,rderine c o '. a, ,,r.

!..t.<luent chase ttga ',tJy 2h IWo tu the d;uc o: ;,

- W S orde: ym., y z i I +non for rehearme ! me mues in the,lidy.3,1r0. v ,..d w o e t. tar m I mrt et Pularki 0 ~ i i Note . Accoun da Policies l l sunur. c:.rt a r.e. c woi u + 2 ') t ...... ~... - = ~

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Middle South Utilities, Inc. 4 Opinion of Independent y<<m th[ [ f Certified Public Accountants i . '. ;,, w :..

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$q , E9) t.. # 3.96 re A s, .y.. MLC W. .,.,.,,y a, y. ., f DELOITTE HASKINS & SELLS $~!b ' i O" ' E Certified Public Accountants ' w.. 6 - ' Qt E S 'I g % i~'"7~;. I* *d One Shell Square New Orleans. Louisiana 70139 Y h.".' Q' a1 ) .' g, i i p f..kr 77&.fgM*'E%f G.._; L %.C Aliddle South I'tilities. Inc.. Its Directors and Stockholders: 1 r / % h% Q ;,f.;';p:, M O,p 1 ( We have examined the consolidated balance sheets of S r u 1. W'i ? 4 L ?. m ' g', - rYN"M/IMN:*6 Sliddle South l'tilities. Inc. and its subsidiaries as of De-O .m> cember 31.1979 and 1978 and the related statements of '4 f. %.3 hh,[! h/E AW 6 w~.- funds for unlity plant additions for the years then ended. , 4_.., s. - - income, retained earnings. paid in surplus, and source of M J W n ~ q g p' Our examinations were made in accordance with gener. y g,..,s.,.

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GyA@w 7~pgp.%p%m.;gg gh gg[y 4 hg% pM ally accepted auditing standards and, accordingly. In. ciuded such tests of the accounting records and such other p,%g.h.d@y&wg@4 : p,; o audiong procedures a.s we considered necessary in the g#g.scei, pti 1 $p

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yg circumstances. ia2.Ch %;W M.W Q '*'l$MOU W p J l 66,6 3 msbe EG# V@N@"# g As more fully discussed in Note 6. in Apnl 19~9, the b Tk MFw.M$y; 4 nW hhumt r%y asich I Attornev General of Arkansas alleged that \\rkansas Power 9'n clauws and newba.esucs AvpW ;Qg**g? w WW M t & Light' Company ( AP&lJ had erroneously apph. d its fuel + i e gg e cw + ggg,gggg adiustment clause to retail customers and therebv over. w w w e w g.w w u w p charged the e customers !l~.29'.000 On fuly 3.19'~9, the S;7 QJ[gQ~ g73hp9pr-k1htik Arkansas Pubhc Service Commis4on issued an interim ~ g 3 order moddvmg the appheanon of AP&L's fuel adjustment ( {h".- 5 d fu 13Dgar# g clause. The order stated it 'cas not decidmg the propriety tesIW M operat6g:rewnues itwre$ptibyk o and legabtv of ordenng rerunds and stated that decision P45163 miilion oril2Y/pfin.gg'dneidmbrsisedialeg cipally would be made later. In our report dated February 16. < g'; yn

g ggg gggg;, y 19'9 our opimon on the 19'M anancul statements was unquahhed. aouever, in view of suca rme matter. our gjgggg,gg.gggggggg,

present opinn in as exprev ed herem e u.nerent from that the inci ehse wak tht'recowtv of hig hct iuelets thfouf tuei adtsiment riau' es suidbashrateb;MN8MNE s expressed m our preuous report q g,,vences for thdyed 19Uand:- In our opinion. subiect ro the erfecit d ant. of the outcome 1978 ($21 niiUI,onf 22T and.$12biliigihl4%,4 %,s E dv&M dW W % rnii6W af he matter di cuoce in the precedmg parar.ph. the rea3ed cesu throul.W ;N Miased p adiunment 'clau.5e:,. ab.ne mennoned fmancial statements present f. ant ge Tm ma-m mm J M 19Q'P MM cember 41.10,nantui ppinon cr the o mpanies at De-f IM primanly due to a ciure:in the repprting of cons didated h ' 9 and 19 8 and the results ig their opera. reven'ues tmong lhe t> ree types 0;r ~ , vi undddes;iamdunt5receivedtrdenheheraticas of A* a ~ on uons and source or funds for unlity olant additions for the itrof New Qrle uty tears then ended. in conformity ivsh generally accepted C < hs p^ art Lflthedransit' subsidy adr6ementC ' i a accounung pnnciples apphed on a consistent basis. pta j a;fe,4.,.g m$.Glf2)'!p%p%p% m.%% .p.u e,,. ' 4.LV.y A g [ yf .N m a... A w l D' i, ( ~%-

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l l l t l l i i i a fired gesi "m gwqty;8/$34 miD ~' fC [ 4 miluen,u IbissFdemands aiid. taadditiisnal3huteddv o sos h*. i. .M C " 't.l1 It h the pelicy of the Middle sout sysmm to buy; /g 4 g.. m.w.@e,;.A;;;.w s-g,,,g. lgr. generating,,unitscan the s. ~ dg.... n,s w a e q. g 4 s c,. m,%_s ~. u. 1 y 4 ma econ rarter u.1978g ... 4 Mav:iilable pcme from rielghborinjiutilitiedwh&n die cost. Wig V&%@##r7 Take Taxes.. J3 M- )? lifiereof R less tha6 the incrementa! coi of generittl@^ ~'E T 'e increasem tamdtheqr; due*primnrify td increa un tr s.& n:htcome

3j;

" -, 4s.. N.. "_".t Outh N. x er.. +t....+...r ...i" ~ S 19 9($8 milhon or u% Lie T 97 ad valorem tnes local franchise taxes 5ndTederalG'#'E iM ET < ", Insurance Contribution Act taxe,s',;4 6.9%M$M N@U? n~m+ . Gas Purchased for Res.de - . A3.. p%. U e. ~ c ' %.! O %www >]/ pu - " i, 4 y .--, w m.eu,u 6mA Th.eincrease i,ngaspurchasedIh.r resnieIn IM9and.1978m,. interest and. TWct.G s ~... . ? *-lJ "dm d m D vidends +- m 7 520 ndic n'and H 0 millieri. re@ecdve!Q arc attributab!hf%g~incb 4y " " ~ ~ L ' M?*fea;p:M11 rid ndfp4dirementsi..%,.m : ^ eggge and-pre to the rang crat or pure.avia gam N O$ y reased dunng each year as a resultof., additional 4he, rq;q?;.#,. g on 1:. penses and... _.,..gyistiuaree.sofdgbtaadpreferred3t MF Q,Mthe. construction prograrsof theMiddleSohSys Other Operau. .x G , Maintenance

f. d.iftising interestand dividen4 rates.S:6M,%

A M. e, orher opstation expen<es increased 50.9 milh. 9%x.e+..+%m.ede,w,e~v$W:.,sehm,e<&q~Ai n;: 3 on in 1 v te m ~ + WWe,ww,..* ' e" maa $N naMien u 1978 Excludine the effecta,f thd;rigfNet income and, Earnings ~ Per Stiare ' 4W #

1 mn ar in, i resme and deterred fuel cost accountin}4D3dt incomddecreaAed $fmiNidd dr2%

o mr:3, a.xpenses increased $31 million or 15% tor theDndIncreased'540 million oi-24% for'the year 1978..ii-M1 e mJ $29 milbon or 17% for the p ar 1976 These&' Min each. year the percentige change in earnhjus per" "YC N t ar e .n e crim wh> amihutah!e to the Middle douth -. share did not change proportionatelvto the chance in net res , [....._[ i,..,, ._'... J M.m,2Z mcome due prima'rily to common stocx sa!es in Jac ary m -a s.' and November t t 197918.5 and 5 mdlion 3 hares. a e m m.unte:unce egense for the year-F9 ; $ i 1 an.p!calis due pa mat ;!y to a maiar m crhaulof a respecuvely) and January.1976 (8.5 million.luren

e a

. Nenerating unf t, the'contintiounise'of oil as a.bollbr fueW. :..q~ jg W.. w. .p.. o 0;MF. 3c the@' Qv/yh.,,Jl%. ~,p gg 7... ,w r"x 7-< 2qr ? ? ;.,..A W y #pNiq%f.' '.. PM W9frMff$ M.9 'f .nnd inflationary pressuresz W D h#pd? 4M 37#T 4.;Mi,he, increases'.fn maintenancecex . yesi MAY W. ur 10 L., m!ydon3 4 due to more khb Oled maintenan'se..P' q.Q.9.5 :/ "HN@y., 4 ~% m e r .gy,,. a %.w n%t., m- ,..,..j, .g44 y ' m. .u. ma waa.s t equut a,. wuan*w. a..aa acc ~ >a m... ., we.e m. OAe < st ' HI a% a genef ator [Uel, Unwhedulf*d m:UnterDinCe M6 W. M 5 A)+ "I idhkfS ' M N f4f D. ?O4 i o T (H '..Of UU. *narV pit'sSure% 5 " 'NibSO '*4 A YM E - 'Y ^ &, y>s, s-n s &l l .A .1 ..y t 4 m 4 y s 9 +4'"., } F r'Nq.,' I' i

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Dear Fellow Stockholders:

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